As filed with the Securities and Exchange Commission on April 7, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MONTGOMERY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Indiana 6711 Applied For
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
119 East Main Street, Crawfordsville, Indiana 47933 (317) 362-4710
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Earl F. Elliott
President and Chief Executive Officer
Montgomery Financial Corporation
119 East Main Street
Crawfordsville, Indiana 47933
(317) 362-4710
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Please send copies of all communications to:
Martin L. Meyrowitz, P.C.
Gary A. Lax, P.C.
SILVER, FREEDMAN & TAFF, L.L.P.
(A limited liability
partnership including
professional corporations)
1100 New York Avenue, N.W.,
Washington, DC 20005-3934
(202) 414-6100
Approximate date of commencement of proposed
sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class of Securities Amount to be Proposed Maximum ..Proposed Aggregate Maximum Amount of
to be Registered Registered Offering Price Per Share(1) Offering Price(1) Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 1,225,257 Shares(2) $10.00 $12,252,570 $3,713
Common Stock, $.01 par value 250,000 Shares(3) 2.22(3) 555,000 169(3)
------------------ ------- -------- ---
Total 1,475,257 Shares $ ---- $12,807,570 $3,882
====================================================================================================================================
</TABLE>
- ---------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Represents a maximum of 1,225,257 shares that may be issued in the
offering. The registration fee for these shares is calculated in accordance
with Rule 457(a).
(3) Represents a maximum of 250,000 shares that may be issued in exchange for
shares of common stock of Montgomery Savings, A Federal Association. The
registration fee for these shares is calculated in accordance with Rule
457(f) based upon an assumed exchange ratio of 25.88% and the book value of
a share of Montgomery Savings, A Federal Association common stock of $8.55
on December 31, 1996.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
MONTGOMERY FINANCIAL CORPORATION
(Proposed Holding Company for Montgomery Savings, A Federal Association)
Up to 1,065,441 Shares of Common Stock
(Anticipated Maximum)
$10.00 Per Share Purchase Price
Montgomery Financial Corporation (the "Company"), an Indiana
corporation, is offering up to 1,065,441 shares (which may be increased to
1,225,257 shares under certain circumstances described below) of its common
stock, par value $.01 per share (the "Common Stock"), in connection with (i) the
Exchange described herein to be effected in connection with the reorganization
of Montgomery Savings, A Federal Association ("Montgomery" or the "Association")
as a subsidiary of the Company and (ii) the Offerings described herein.
(continued on next page)
For a discussion of certain factors that should be considered by each
prospective investor, see "Risk Factors" beginning on page __ hereof.
For information on how to subscribe for shares of Conversion Stock,
please call the Stock Information Center at (765) ____-______.
-----------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY OTHER
FEDERAL AGENCY OR STATE SECURITIES COMMISSION, NOR HAS SUCH
COMMISSION, OFFICE OR OTHER AGENCY PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Estimated
Underwriting
Fees,
Commissions,
Conversion and Estimated
Subscription Reorganization Net
Price(1) Expenses(2) Proceeds(3)
-------- ----------- -----------
<S> <C> <C> <C>
Minimum Per Share $ 10.00 $ 0.60 $ 9.40
Midpoint Per Share $ 10.00 $ 0.52 $ 9.48
Maximum Per Share $ 10.00 $ 0.48 $ 9.52
Maximum Per Share, as adjusted $ 10.00 $ 0.44 $ 9.56
Total Minimum(1) $ 7,875,000 $ 469,000 $ 7,406,000
Total Midpoint(1) $ 9,264,700 $ 490,000 $ 8,774,700
Total Maximum(1) $10,654,410 $ 512,000 $ 10,142,410
Total Maximum, as adjusted(1) $12,252,570 $ 537,000 $ 11,715,570
</TABLE>
- -------------
(1) Based upon the minimum, midpoint, maximum and 15% above the maximum of the
Offering Price Range, respectively.
(2) Consists of the estimated costs to the Primary Parties to be incurred in
connection with the Conversion and Reorganization (which include an
estimate of the marketing fees and expenses to be paid to Charles Webb &
Company, a division of Keefe, Bruyette & Woods, Inc. ("Webb") in connection
with the Offerings). See "The Conversion and Reorganization - Marketing
Arrangements." The actual fees and expenses may vary from the estimates.
Such fees paid to Webb may be deemed to be underwriting fees. See "Pro
Forma Data."
(3) Actual net proceeds may vary substantially from estimated amounts depending
on the number of shares sold in the Offerings and other factors. Does not
give effect to purchases of Conversion Stock by the Employee Stock
Ownership Plan ("ESOP"), which initially will be deducted from the
Company's stockholders' equity. For the effect of such purchases, see
"Capitalization" and "Pro Forma Data."
1
<PAGE>
(continued from prior page)
The Exchange. Pursuant to a Plan of Conversion and Agreement and Plan
of Reorganization (the "Plan" or "Plan of Conversion") adopted by the
Association and Montgomery Mutual Holding Company (the "Mutual Holding
Company"), the Association will become a subsidiary of the Company upon
consummation of the transactions described herein (collectively, with the
Offerings, the "Conversion and Reorganization"). As a result of the Conversion
and Reorganization, each share of common stock, par value $.01 per share, of the
Association ("Association Common Stock") held by the Mutual Holding Company,
which currently holds 600,000 shares or 70.59% of the outstanding Association
Common Stock, will be cancelled and each share of Association Common Stock held
by the Association's Public stockholders (the "Public Association Shares"),
which amounted to 250,000 shares or 29.41% of the outstanding Association Common
Stock at December 31, 1996, will be converted into shares of Common Stock (the
"Exchange Shares") pursuant to a ratio (the "Exchange Ratio") that will result
in the holders of such shares (the "Public Stockholders") owning in the
aggregate approximately 25.88% of the Company before giving effect to (a) the
payment of cash in lieu of fractional Exchange Shares, (b) any shares of Common
Stock purchased by such stockholders in the Offerings described herein or the
Company's ESOP thereafter or (c) any exercise of dissenters' rights (the
"Exchange"). The dilution of Public Stockholder ownership interest from a 29.41%
actual ownership interest in the Association to a 25.88% ownership interest in
the Company reflects the downward adjustment pursuant to Office of Thrift
Supervision ("OTS") policy which requires the Exchange Ratio to reflect the
amount of the dividends declared by the Association and waived by the Mutual
Holding Company. As discussed under "- Independent Valuation" below and herein,
the final Exchange Ratio will be determined based on the Public Stockholders'
ownership interest and not on the market value of the Public Association Shares.
The Offerings. In addition to the Exchange, nontransferable
subscription rights to subscribe for up to 1,065,441 shares (which may be
increased to 1,225,257 shares under certain circumstances described below) of
Common Stock (the "Conversion Stock") have been granted to certain depositors of
the Association as of specified record dates, the ESOP, directors, officers and
employees of the Mutual Holding Company and the Association, and the Public
Stockholders, subject to the limitations described herein (the "Subscription
Offering"). Commencing concurrently with the Subscription Offering, and subject
to the prior rights of holders of subscription rights, the right of the Company,
the Mutual Holding Company and the Association (the "Primary Parties") to reject
such orders in whole or in part and the other limitations described herein, the
Company is offering the shares of Conversion Stock not subscribed for in the
Subscription Offering, if any, for sale in a community offering (the "Community
Offering") to certain members of the general Public to whom a copy of this
Prospectus is delivered by or on behalf of the Company, with preference given to
natural persons residing in Montgomery, Fountain and Warren Counties, Indiana.
It is anticipated that shares of Conversion Stock not subscribed for in
the Subscription and Community Offerings, if any, will be offered by the Company
to members of the general public to whom a copy of this Prospectus is delivered
by or on behalf of the Company in a syndicated community offering (the
"Syndicated Community Offering"). The Subscription Offering, Community Offering
and any Syndicated Community Offering are referred to collectively as the
"Offerings." The Primary Parties have engaged Webb to consult with and advise
them in the Conversion and Reorganization, and Webb has agreed to use its best
efforts to solicit subscriptions and purchase orders for shares of Conversion
Stock in the Subscription and Community Offerings. See "The Conversion and
Reorganization - Marketing Arrangements."
The Subscription Offering will terminate at Noon, Crawfordsville,
Indiana Time, on _____________ __, 1997 (the "Expiration Date), unless extended
by the Primary Parties, with approval of the OTS, if necessary. The Community
Offering is expected to terminate at the same time as the Subscription Offering.
The Community Offering and/or any Syndicated Community Offering must be
completed within 45 days after the close of the Subscription Offering, or
_________ __, 1997, unless extended by the Primary Parties with the approval of
the OTS, if necessary. Orders submitted are irrevocable until the completion of
the Conversion and Reorganization; provided that, if the ersion and
Reorganization is not completed within the 45-day period, referred to above,
unless such period has been extended with the consent of the OTS, if necessary,
all subscribers will have their funds returned promptly with interest, and all
withdrawal authorizations will be cancelled. See "The Conversion and
Reorganization - The Offerings - Subscription Offering."
2
<PAGE>
(continued from prior page)
Independent Valuation. Pursuant to regulations of the OTS, the offering
of Conversion Stock in the Offerings is required to be based on an independent
valuation of the pro forma market value of the Association and the Mutual
Holding Company. Keller & Company ("Keller") has prepared an independent
appraisal, which states at the Midpoint of the valuation range that the
estimated pro forma market value of the Association and the Mutual Holding
Company on a combined basis was $12,500,000 as of March 4, 1997 (the
"Appraisal"). The Appraisal was multiplied by 74.12% (which represents the
Mutual Holding Company's percentage interest in the Association, adjusted upward
from 70.59% so as to reflect the $300,000 of dividends declared by the
Association and waived by the Mutual Holding Company) to determine a midpoint of
the offering range ($9,264,700), and the minimum and maximum range were set at
15% below and above the midpoint, respectively, resulting in a range of
$7,875,000 to $10,654,410 (the "Offering Price Range").
The Boards of Directors of the Primary Parties determined that the
Conversion Stock would be sold at $10.00 per share (the "Purchase Price"),
resulting in a range of 787,500 to 1,065,441 shares of Conversion Stock being
offered. Upon consummation of the Conversion and Reorganization, the Conversion
Stock and the Exchange Shares will represent approximately 74.12% and 25.88%,
respectively, of the Company's total outstanding shares. Based upon the Offering
Price Range, the Exchange Ratio is expected to range from 1.10 to 1.49,
resulting in a range of 275,000 Exchange Shares to 372,059 Exchange Shares to be
issued in the Conversion and Reorganization. The 1,437,500 shares of Common
Stock offered hereby include up to 1,065,441 shares of Conversion Stock (subject
to adjustment up to 1,225,257 shares as described herein) and up to 372,059
shares of Exchange Shares (subject to adjustment up to 427,868 shares as
described herein). The Offering Price Range may be increased or decreased to
reflect changes in market and economic conditions prior to completion of the
Conversion and Reorganization, and under certain circumstances specified herein
subscribers will be resolicited and given the right to modify or cancel their
orders. See "The Conversion and Reorganization - Stock Pricing, Exchange Ratio
and Number of Shares to be Issued."
Restrictions on Transfer of Subscription Rights and Shares. No person
may transfer or enter into any agreement or understanding to transfer the legal
or beneficial ownership of the subscription rights issued under the Plan of
Conversion or the shares of Common Stock to be issued upon their exercise. Each
person exercising subscription rights will be required to certify that a
purchase of Common Stock is solely for the purchaser's own account and that
there is no agreement or understanding regarding the sale or transfer of such
shares. See "The Conversion-Restrictions on Transfer of Subscription Rights and
Shares." The Company and the Association will pursue any and all legal and
equitable remedies in the event they become aware of the transfer of
subscription rights and will not honor orders known by them to involve the
transfer of such rights.
Purchase Limitations. The Plan sets forth various purchase limitations
which are applicable in the Offerings. The minimum purchase is 25 shares. No
Eligible Account Holder, Supplemental Eligible Account Holder, Other Member,
director, officer or employee or Public Stockholder may purchase in their
capacity as such in the Subscription Offering more than the number of shares of
Conversion Stock that, when combined with Exchange Shares received, aggregate
$200,000 of Common Stock; no person may purchase in the Offerings more than the
number of shares of Conversion Stock that when combined with Exchange Shares
received aggregate $200,000 of Common Stock; and no person together with
associates of or persons acting in concert with such person, may purchase in the
Offerings more than the number of shares of Conversion Stock that when combined
with Exchange Shares received by such person, together with associates of and
persons acting in concert with such person, aggregate more than $200,000 of
Common Stock. See "The Conversion and Reorganization - The Offerings -
Subscription Offering," "-Community Offering," "-Syndicated Community Offering
and "-Limitations on Conversion Stock Purchases."
Required Approvals. The consummation of the Conversion and
Reorganization is subject to the receipt of various regulatory approvals and the
approval of the members of the Mutual Holding Company and the stockholders of
the Association in the manner set forth herein.
The Company has applied to the National Association of Securities
Dealers to have its Common Stock quoted on the Nasdaq SmallCap Market under the
symbol "____." Prior to the Conversion and Reorganization, there has not been an
active and liquid market for the Public Association Shares, and there can be no
assurance that an active and liquid trading market for the Common Stock will
develop. See "Market for Common Stock."
3
<PAGE>
--------------------
CHARLES WEBB & COMPANY,
a Division of Keefe, Bruyette & Woods, Inc.
--------------------
The date of this Subscription and Community Offering Prospectus is
___________, __ 1997.
4
<PAGE>
[MAP ]
5
<PAGE>
SUMMARY
This summary is qualified in its entirety by the more detailed
information regarding the Association and the Mutual Holding Company and the
Consolidated Financial Statements of the Association and the Notes thereto
appearing elsewhere in this Prospectus.
Montgomery Financial Corporation
Montgomery Financial Corporation is an Indiana corporation organized in
April 1997 by the Association for the purpose of holding all of the capital
stock of the Association and in order to facilitate the Conversion and
Reorganization. Upon completion of the Conversion and Reorganization, the only
significant assets of the Company will be all of the outstanding Association
Common Stock, the note evidencing the Company's loan to the ESOP and the portion
of the net proceeds from the Offerings retained by the Company. The business of
the Company will initially consist of the business of the Association. See
"Business of Montgomery" and "Regulation - The Company Regulation."
Montgomery Savings, A Federal Association
Montgomery Savings, A Federal Association, is a federally chartered
stock savings association that was organized on August 11, 1995 as a subsidiary
of the Mutual Holding Company. Prior to that date, Montgomery Savings
Association, A Federal Association, in its mutual form (the "Mutual
Association") had operated in the market area now served by the Association. In
connection with the organization of the Mutual Holding Company (the "MHC
Reorganization"), the Mutual Association transferred substantially all of its
assets and liabilities to the Association in exchange for 600,000 shares of
Association Common Stock and converted its charter to that of a federal mutual
holding company known as Montgomery Mutual Holding Company. As part of the MHC
Reorganization, the Association also sold an additional 250,000 shares of
Association Common Stock to certain members of the general public. As of
December 31, 1996, there were 850,000 shares of Association Common Stock issued
and outstanding, 250,000 shares of which consisted of Public Association Shares.
At December 31, 1996, the Association had $94.6 million of total assets, $85.5
million of total liabilities, including $72.3 million of deposits, and $9.1
million of stockholders' equity. The Association Common Stock is registered with
the OTS under Section 12(g) of the Securities Exchange Act of 1934, as amended
("Exchange Act").
Montgomery Mutual Holding Company
Montgomery Mutual Holding Company is a federally chartered mutual
holding company chartered on August 11, 1995 in connection with the MHC
Reorganization. The Mutual Holding Company's primary asset is 600,000 shares of
Association Common Stock, which represents 70.59% of the shares of Association
Common Stock outstanding as of the date of this Prospectus. The Mutual Holding
Company's only other assets consist of deposit accounts in the amount of
$103,000 as of December 31, 1996 (which will become assets of the Association
upon consummation of the Conversion and Reorganization). As part of the
Conversion and
6
<PAGE>
Reorganization, the Mutual Holding Company will convert from mutual form to a
federal interim stock savings institution and simultaneously merge with and into
the Association, with the Association being the surviving entity.
The Conversion and Reorganization
Purposes of the Conversion and Reorganization. In their decision to
pursue the Conversion and Reorganization, the Mutual Holding Company and the
Association considered various regulatory uncertainties associated with the
mutual holding company structure including the ability to waive dividends in the
future as well as the general uncertainty regarding a possible elimination of
the federal savings association charter. See "Risk Factors - Proposed Federal
Legislation." In addition, the Mutual Holding Company and the Association
considered the various advantages of a stock holding company form of
organization including: (1) a stock holding company's ability to diversify the
Company's and the Association's business activities which is expected to enhance
the long-term value of the Company on a consolidated basis; (2) the larger
capital base of a stock holding company; (3) the enhancement of the Company's
future access to the capital markets; (4) the increase in the number of
outstanding shares of publicly traded stock (which may increase the liquidity of
the Common Stock); (5) a stock holding company's enhanced ability to repurchase
shares of its common stock; and (6) the greater ability to acquire other
financial institutions. For additional information see "The Conversion and
Reorganization Purposes of the Conversion and Reorganization."
Description of the Conversion and Reorganization. On December 26, 1996,
the Boards of Directors of the Association and the Mutual Holding Company
adopted the Plan, which was amended on _________, 1997, and in April 1997 the
Association incorporated the Company under Indiana law as a first-tier wholly
owned subsidiary of the Association. Pursuant to the Plan, (i) the Mutual
Holding Company will convert to an interim federal stock savings institution and
simultaneously merge with and into the Association, pursuant to which the Mutual
Holding Company will cease to exist and the 600,000 shares or 70.59% of the
outstanding Association Common Stock held by the Mutual Holding Company will be
cancelled, and (ii) an interim savings association ("Interim") to be formed as a
wholly owned subsidiary of the Company solely for such purpose will then merge
with and into the Association. As a result of the merger of the Interim with and
into the Association, the Association will become a wholly owned subsidiary of
the Company and the outstanding Public Association Shares, which amounted to
250,000 shares or 29.41% of the outstanding Association Common Stock at December
31, 1996, will be converted into the Exchange Shares pursuant to the Exchange
Ratio, which will result in the holders of such shares owning in the aggregate
approximately the same percentage of the Common Stock to be outstanding upon the
completion of the Conversion and Reorganization (i.e., the Conversion Stock and
the Exchange Shares) as the percentage of Association Common Stock owned by them
in the aggregate immediately prior to consummation of the Conversion and
Reorganization, adjusted downward pursuant to OTS policy in order to reflect the
$300,000 of dividends declared by the Association and waived by the Mutual
Holding Company, before giving effect to (a) the payment of cash in lieu of
issuing fractional Exchange Shares, (b) any shares of Conversion Stock purchased
by the Association's stockholders in the Offerings or the ESOP thereafter, and
(c) any exercise of dissenters' rights.
7
<PAGE>
The following diagram outlines the current organizational structure of
the Primary Parties' and their ownership interests:
- --------------------------------- -------------------------------------
Montgomery Mutual Holders of Public
Holding Company Association Shares
- --------------------------------- -------------------------------------
70.59% 29.41%
---------------------------------------
Montgomery Savings,
A Federal Association
---------------------------------------
100%
---------------------------------------
Montgomery Financial
Corporation
---------------------------------------
100%
---------------------------------------
Interim
(to be formed)
---------------------------------------
The following diagram reflects the Conversion and Reorganization,
including (i) the merger of the Mutual Holding Company (following its conversion
into an interim federal stock savings institution) with and into the
Association, (ii) the merger of Interim with and into the Association, pursuant
to which the Public Association Shares will be converted into Exchange Shares,
and (iii) the offering of Conversion Stock. The diagram assumes that there are
no dissenters' rights exercised and no fractional shares and does not give
effect to purchases of Conversion Stock by holders of Public Association Shares
or the exercise of outstanding stock options. In addition to shares of Common
Stock to be issued pursuant to the Exchange, the Company is offering shares of
Conversion Stock in the Offerings as part of the Conversion and Reorganization.
See "- The Offerings" below and "The Conversion and Reorganization - The
Offerings."
8
<PAGE>
- --------------------------------- -------------------------------------
Purchasers of Holders of Public
Conversion Stock Association Shares
- --------------------------------- -------------------------------------
74.12% 25.88%
---------------------------------------
Montgomery Financial
Corporation
---------------------------------------
100%
---------------------------------------
Montgomery Savings,
A Federal Association
---------------------------------------
Pursuant to OTS regulations, consummation of the Conversion and
Reorganization is conditioned upon the approval of the Plan by the OTS, as well
as (1) the approval of the holders of at least a majority of the total number of
votes eligible to be cast by the members of the Mutual Holding Company (which
consist of depositors of the Association) ("Members") as of the close of
business on _________ __, 1997 (the "Voting Record Date") at a special meeting
of Members called for the purpose of submitting the Plan for approval (the
"Members' Meeting"), and (2) the approval of the holders of at least two-thirds
of the shares of the outstanding Association Common Stock held by the Mutual
Holding Company and the Public Stockholders (collectively, the "Stockholders"),
as of the Voting Record Date at a special meeting of Stockholders called for the
purpose of considering the Plan (the "Stockholders' Meeting"). In addition, the
Primary Parties have conditioned the consummation of the Conversion and
Reorganization on the approval of the Plan by at least a majority of the votes
cast, in person or by proxy, by the Public Stockholders at the Stockholders'
Meeting. The Mutual Holding Company intends to vote its shares of Association
Common Stock, which amount to 70.59% of the outstanding shares, in favor of the
Plan at the Stockholders' Meeting. In addition, as of March 31, 1997, directors
and executive officers of the Association as a group (8 persons) beneficially
owned 28,700 shares (not including stock options) or 3.38% of the outstanding
Association Common Stock, which shares can also be expected to be voted in favor
of the Plan at the Stockholders' Meeting.
The Offerings
Pursuant to the Plan and in connection with the Conversion and
Reorganization, the Company is offering up to 1,065,441 shares of Conversion
Stock in the Offerings. Conversion Stock is first being offered in the
Subscription Offering with nontransferable subscription rights being granted, in
the following order of priority, to (i) depositors of the Association with
account balances of $50.00 or more as of the close of business on September 30,
1995 ("Eligible Account Holders"); (ii) the ESOP; (iii) depositors of the
Association with account balances of $50.00 or more as of the close of business
on March 31, 1997 ("Supplemental Eligible Account Holders"); (iv) members of the
Mutual Holding Company as of the Voting Record Date (other than Eligible Account
Holders and Supplemental Eligible Account Holders) ("Other Members"); (v)
directors, officers and employees of the Mutual Holding Company and the
Association; and (vi) Public
9
<PAGE>
Stockholders. Subscription rights will expire if not exercised by Noon,
Crawfordsville, Indiana time, on _________ __, 1997, unless extended.
Subject to the prior rights of holders of subscription rights,
Conversion Stock not subscribed for in the Subscription Offering is being
offered in the Community Offering to certain members of the general public to
whom a copy of this Prospectus is delivered, with preference given to natural
persons residing in Montgomery, Fountain and Warren Counties, Indiana. It is
anticipated that shares not subscribed for in the Subscription and Community
Offerings may be offered to certain members of the general Public in a
Syndicated Community Offering. The Primary Parties reserve the absolute right to
reject or accept any orders in the Community Offering or the Syndicated
Community Offering, in whole or in part, either at the time of receipt of an
order or as soon as practicable following the Expiration Date. The closing of
all shares sold in the Offerings will occur simultaneously, and all shares of
Conversion Stock will be sold at a uniform price of $10.00 per share.
The Primary Parties have retained Webb as consultant and advisor in
connection with the Offerings and to assist in soliciting subscriptions in the
Offerings on a best efforts basis. See "The Conversion and Reorganization - The
Offerings - Subscription Offering," "- Community Offering," "- Syndicated
Community Offering" and "- Marketing Arrangements."
Purchase Limitations
With the exception of the ESOP, which intends to purchase up to an
aggregate of 8.0% of the number of shares of Common Stock to be outstanding upon
completion of the Conversion and Reorganization, no Eligible Account Holder,
Supplemental Eligible Account Holder, Other Member, director, officer or
employee or Public Stockholder may purchase in their capacity as such in the
Subscription Offering more than the number of shares of Conversion Stock that,
when combined with Exchange Shares received, aggregate $200,000 of Common Stock;
no person may purchase in each of the Community Offering and any Syndicated
Community Offering more than the number of shares of Conversion Stock that when
combined with Exchange Shares received aggregate $200,000 of Common Stock; and
no person together with associates of or persons acting in concert with such
person, may purchase in the Offerings more than the number of shares of
Conversion Stock that when combined with Exchange Shares received by such
person, together with associates of and persons acting in concert with such
person, aggregate more than $200,000 of Common Stock. For purposes of the
purchase limitations set forth in the Plan of Conversion, Exchange Shares will
be valued at $10.00 per share which is the same price at which shares of
Conversion Stock will be issued in the Offerings. At any time during the
Offerings, and without further approval by the Members or the Stockholders, the
Primary Parties may in their sole discretion decrease or increase any of the
purchase limitations up to 5% of the Common Stock issued in the Conversion and
Reorganization. Under certain circumstances, subscribers may be resolicited in
the event of such an increase and given the opportunity to increase, decrease or
rescind their orders. The minimum purchase is 25 shares. See "The Conversion and
Reorganization - Limitations on Conversion Stock Purchases." In the event of an
oversubscription, shares will be allocated in accordance with the Plan, as
described under "The Conversion and Reorganization - The Offerings -
Subscription Offering" and "- Community
10
<PAGE>
Offering." Because the purchase limitations contained in the Plan of Conversion
include Exchange Shares to be issued to Public Stockholders for their Public
Association Shares, certain holders of Public Association Shares may be limited
in their ability to purchase Conversion Stock in the Offerings.
Stock Pricing, Exchange Ratio and Number of Shares to be Issued in the
Conversion and Reorganization
OTS regulations require the aggregate purchase price of the Conversion
Stock to be consistent with the Appraisal of the Association and the Mutual
Holding Company, which was $12,500,000 at the midpoint of the valuation range as
of March 4, 1997. Because the holders of the Public Association Shares will
continue to hold the same aggregate percentage ownership interest in the Company
as they held in the Association adjusted downward pursuant to OTS policy in
order to reflect the dividends declared by the Association and waived by the
Mutual Holding Company (before giving effect to any shares of Common Stock
purchased by the Association's stockholders in the Offerings or the ESOP
thereafter, the payment of cash in lieu of issuing fractional Exchange Shares
and any exercise of dissenters' rights), the Appraisal was multiplied by 74.12%
(which represents the Mutual Holding Company's percentage interest in the
Association adjusted upward from 70.59% so as to reflect the $300,000 of
dividends declared by the Association and waived by the Mutual Holding Company)
to determine the midpoint of the Offering Price Range, which is $9,264,700. In
accordance with OTS regulations, the minimum and maximum of the Offering Price
Range were set at 15% below and above the midpoint, respectively, resulting in
an offering range of $7,875,000 to $10,654,410. The full text of the Appraisal
describes the procedures followed, the assumptions made, limitations on the
review undertaken and matters considered, which included the trading market for
the Association Common Stock (see "Market for Common Stock") but was not
dependent thereon. The Appraisal has been filed as an exhibit to the
Registration Statement and Application for Conversion of which this Prospectus
is a part, and is available in the manner set forth under "Additional
Information." The Appraisal is not intended and should not be construed as a
recommendation of any kind as to the advisability of purchasing such stock.
All shares of Conversion Stock will be sold at the Purchase Price of
$10.00 per share, which was established by the Boards of Directors of the
Primary Parties. The actual number of shares to be issued in the Offerings will
be determined by the Primary Parties based upon the final updated valuation of
the estimated pro forma market value of the Conversion Stock at the completion
of the Offerings. The number of shares of Conversion Stock to be issued is
expected to range from a minimum of 787,500 shares to a maximum of 1,065,441
shares. Subject to approval of the OTS, the Offering Price Range may be
increased or decreased to reflect market and economic conditions prior to the
completion of the Offerings, and under such circumstances the Primary Parties
may increase or decrease the number of shares of Conversion Stock. No
resolicitation of subscribers will be made and subscribers will not be permitted
to modify or cancel their subscriptions unless (i) the gross proceeds from the
sale of the Conversion Stock are less than the minimum or more than 15% above
the maximum of the current Offering Price Range (exclusive of a number of shares
equal to up to an additional 8.0% of the Common Stock outstanding immediately
upon completion of the Conversion and Reorganization which may be
11
<PAGE>
issued to the ESOP out of authorized but unissued shares of Common Stock to the
extent such shares are not purchased in the Offerings due to an oversubscription
by Eligible Account Holders) or (ii) the Offerings are extended beyond _____ __,
1997. Any increase or decrease in the number of shares of Conversion Stock will
result in a corresponding change in the number of Exchange Shares, so that upon
consummation of the Conversion and Reorganization, the Conversion Stock and the
Exchange Shares will represent approximately 74.12% and 25.88%, respectively, of
the Company's total outstanding shares. Nevertheless, Exchange Shares may
represent less than 25.88% of the Company's total outstanding shares if there
are insufficient shares for the ESOP to purchase 8.0% of the Common Stock
outstanding immediately upon completion of the Conversion and Reorganization
and, consequently, the Company has to issue authorized but unissued shares to
the ESOP in order to satisfy its order to purchase such amount of Conversion
Stock in the Offerings. See "Pro Forma Data," "Risk Factors - Possible Dilutive
Effect of Issuance of Additional Shares" and "The Conversion and Reorganization
- - Stock Pricing, Exchange Ratio and Number of Shares to be Issued."
Based on the 250,000 Public Association Shares outstanding at December
31, 1996, and assuming a minimum of 787,500 and a maximum of 1,065,441 shares of
Conversion Stock are issued in the Offerings, the Exchange Ratio is expected to
range from approximately 1.10 Exchange Shares to 1.49 Exchange Shares for each
Public Association Share outstanding immediately prior to the consummation of
the Conversion and Reorganization. The Exchange Ratio will be affected if any
stock options to purchase shares of Association Common Stock are exercised after
December 31, 1996 and prior to consummation of the Conversion and
Reorganization. If any of such stock options are outstanding immediately prior
to consummation of the Conversion and Reorganization, they will be converted
into options to purchase shares of Common Stock, with the number of shares
subject to the option and the exercise price per share to be adjusted based upon
the Exchange Ratio so that the aggregate exercise price remains unchanged, and
with the duration of the option remaining unchanged. As of the date of this
Prospectus, there were options to purchase 18,750 shares of Association Common
Stock outstanding, all of which had an exercise price of $13 per share, and the
Association has no plans to grant additional stock options prior to the
consummation of the Conversion and Reorganization.
The following table sets forth, based upon the minimum, midpoint,
maximum and 15% above the maximum of the Offering Price Range, the following:
(i) the total number of shares of Conversion Stock and Exchange Shares to be
issued in the Conversion and Reorganization, (ii) the percentage of the total
Common Stock represented by the Conversion Stock and the Exchange Shares, and
(iii) the Exchange Ratio. The table assumes that no holder of Public Association
Shares exercises dissenters' rights and that there is no cash paid in lieu of
issuing fractional Exchange Shares.
12
<PAGE>
Total
Conversion Stock to Exchange Shares to Shares
Be Issued Be Issued of Common
------------------- ------------------ Stock to be Exchange
Amount Percent Amount Percent Outstanding Ratio
------ ------- ------ ------- ----------- -----
Minimum ...... 787,500 74.12% 275,000 25.88% 1,062,500 1.10
Midpoint ..... 926,475 74.12 323,525 25.88 1,250,000 1.29
Maximum ...... 1,065,441 74.12 372,059 25.88 1,437,500 1.49
15% above
maximum .... 1,225,257 74.12 427,868 25.88 1,653,125 1.71
Differences in Stockholder Rights
The Company is an Indiana corporation subject to the provisions of the
Indiana Business Corporation Law, and the Association is a federally chartered
savings association subject to federal laws and regulations. Upon consummation
of the Conversion and Reorganization, the Public Stockholders of the Association
will become stockholders of the Company and their rights will be governed by the
Company's Articles of Incorporation and Bylaws and Indiana law. The rights of
stockholders of the Association are materially different in certain respects
from the rights of stockholders of the Company. See "Comparison of Stockholders'
Rights" and "Description of Capital Stock of the Company."
Benefits of Conversion and Reorganization to Directors and Officers
The Company intends to adopt certain stock benefit plans for the
benefit of directors, officers and employees of the Company and the Association.
The proposed benefit plans are as follows: (i) a 1997 Stock Option Plan,
pursuant to which a number of authorized but unissued shares of Common Stock
equal to 10% of the Conversion Stock to be sold in the Offerings (106,544 shares
at the maximum of the Offering Price Range) may be reserved for issuance
pursuant to stock options and stock appreciation rights to directors, officers
and employees; and (ii) a 1997 Management Recognition Plan (the "1997
Recognition Plan"), which may purchase a number of shares of Common Stock, with
funds contributed by the Company, either from the Company or in the open market
equal to an amount which, when added to the number of shares of Common Stock
held in the existing Management Recognition Plan, will equal 4.0% of the Common
Stock outstanding immediately following the Conversion and Reorganization
(57,500 shares at the maximum of the Offering Price Range) for distribution to
directors, officers and employees. The Company has not determined when it will
implement the 1997 Stock Option Plan and the 1997 Recognition Plan. If, however,
it is implemented prior to one year following the consummation of the Conversion
and Reorganization, the Company will submit such plans to stockholders for
approval at an annual or special meeting at least six months following the
consummation of the Conversion and the Reorganization. In such event, OTS
regulations permit individual members of management to receive up to 25% of the
shares reserved pursuant to any stock option or non-tax qualified stock benefit
plan, and directors who are not employees to receive up to 5% of such stock (or
stock options) reserved individually and up to 30% in the aggregate under any
such plan. See "Management of the Association - Benefit Plans."
13
<PAGE>
In the event that the 1997 Recognition Plan purchases shares of Common
Stock in the open market with funds contributed by the Company, the cost of such
shares initially will be deducted from the stockholders' equity of the Company,
but the number of outstanding shares of Common Stock will not increase and
stockholders accordingly will not experience dilution of their ownership
interest. In the event that the 1997 Recognition Plan purchases shares of Common
Stock from the Company with funds contributed by the Company, total
stockholders' equity would neither increase or decrease, but under such
circumstances stockholders would experience dilution of their ownership
interests (by ____% at the maximum of the Offering Price Range) and per share
stockholders' equity and per share net earnings would decrease as a result of an
increase in the number of outstanding shares of Common Stock. In either case,
the Company will incur operating expense and increases in stockholders' equity
as the shares held by the 1997 Recognition Plan are granted and issued in
accordance with the terms thereof. For a presentation of the effects of
anticipated purchases of Common Stock by the 1997 Recognition Plan, see "Pro
Forma Data."
In addition, the Company has adopted an ESOP in connection with the
Conversion and Reorganization, which intends to purchase 8.0% of the Common
Stock to be outstanding upon completion of the Conversion and Reorganization
(115,000 shares or $1,150,000 of Conversion Stock at the maximum of the Offering
Price Range) with a loan funded by the Company. See "Use of Proceeds." In the
event that there are insufficient shares available to fill the ESOP's order due
to an oversubscription by Eligible Account Holders, the Company may issue
authorized but unissued shares of Common Stock to the ESOP in an amount
sufficient to fill the ESOP's order, subject to approval of the OTS, and/or the
ESOP may purchase such shares in the open market, if permitted. In the event
that additional shares of Common Stock are issued to the ESOP to fill its order,
stockholders would experience dilution of their ownership interests (by up to
___% at the maximum of the Offering Price Range, assuming the ESOP purchased no
shares in the Offerings) and per share stockholders' equity and per share net
earnings would decrease as a result of an increase in the number of outstanding
shares of Common Stock. See "Management of the Bank - Stock Benefit Plans -
Employee Stock Ownership Plan" and "Risk Factors - Possible Dilutive Effective
of Issuance of Additional Shares."
The foregoing plans are in addition to a Stock Option Plan, a
Directors' Stock Option Plan and a Management Recognition Plan which were
adopted by the Association in connection with the MHC Reorganization and
subsequently approved by the stockholders of the Association. These plans will
continue in existence after the Conversion and Reorganization as plans of the
Company. In addition, pursuant to the terms of the 1995 Stock Incentive Plan and
1995 Directors' Stock Option Plan all outstanding stock options may be exercised
in whole or in part immediately prior to consummation of the Conversion and
Reorganization. See "Management of the Association Benefit Plans" and "The
Conversion and Reorganization - Effects of the Conversion and Reorganization -
Effect on Existing Compensation Plans."
In addition to the foregoing plans, in connection with the Conversion
and Reorganization, the Company and the Association may seek to enter into
employment agreements with Earl F. Elliott, the current President and Chief
Executive Officer of the Company and Chairman and Chief Executive Officer of the
Association, and J. Lee Walden, the current Executive Vice President and Chief
Financial Officer of the Company and President and Chief Financial Officer of
the
14
<PAGE>
Association. If such employment agreements had been in effect as of December 31,
1996 and Messrs. Elliott and Walden were terminated as of such date in
connection with a "change in control" of the Company, as defined in the
agreements, Messrs. Elliott and Walden could be entitled to receive
approximately $240,000 and $163,000 in severance pay, respectively. See
"Management of the Association - Employment Agreements."
Use of Proceeds
Net proceeds from the sale of the Conversion Stock are estimated to be
between $7.4 million and $10.1 million, depending on the number of shares sold
and the expenses of the Conversion and Reorganization. See "Pro Forma Data." The
Company plans to contribute to the Association 50% of the net proceeds from the
Offerings and retain the remainder of the net proceeds. The Company intends to
use a portion of the net proceeds retained by it to make a loan directly to the
ESOP to enable the ESOP to purchase 8.0% of the Common Stock to be outstanding
upon completion of the Conversion and Reorganization. The amount of the loan is
expected to be between $.9 and $1.2 million at the minimum and maximum of the
Offering Price Range, respectively. It is anticipated that the loan to the ESOP
will have a term of not less than ten years and a fixed rate of interest at the
prime rate as of the date of the loan. See "Management of the Association -
Benefit Plans - Employee Stock Ownership Plan." The remaining net proceeds will
be initially used to invest primarily in short-term interest-bearing deposits
and marketable securities. Funds retained by the Company may be used to support
the future expansion of operations or diversification into other banking-related
businesses and for other business or investment purposes, including the
acquisition of other financial institutions and/or branch offices, although
there are no current plans, arrangements, understandings or agreements regarding
such expansion, diversification or acquisitions. In addition, subject to
applicable limitations, such funds also may be used in the future to repurchase
shares of Common Stock although the Company currently has no intention of
effecting any such transactions following consummation of the Conversion and
Reorganization. See "The Conversion and Reorganization - Certain Restrictions on
Purchases or Transfers of Shares after the Conversion and Reorganization." Funds
contributed to the Association from the Company will be used for general
business purposes. The proceeds will be used to support the Association's
lending and investment activities and thereby enhance the Association's
capabilities to serve the borrowing and other financial needs of the communities
it serves. The Association plans to initially use the proceeds to invest
primarily in short-term interest-bearing deposits and marketable securities. See
"Use of Proceeds."
Dividend Policy
Following consummation of the Conversion and Reorganization the Board
of Directors of the Company intends to declare cash dividends on the Common
Stock at an initial quarterly rate equal to $0.10 per share divided by the final
Exchange Ratio, commencing with the first full quarter following consummation of
the Conversion and Reorganization. Based upon the Valuation Price Range, the
Exchange Ratio is expected to be 1.1000, 1.2941, 1.4882 and 1.7115 at the
minimum, midpoint, maximum and 15% above the maximum of the Valuation Price
Range, respectively, resulting in an initial quarterly dividend rate of $.091,
$.077, $.067 and $.058 per share, respectively, following consummation of the
Conversion and Reorganization. Declarations
15
<PAGE>
of dividends by the Company's Board of Directors will depend upon a number of
factors, including the amount of the net proceeds from the Offerings retained by
the Company, investment opportunities available to the Company or the
Association, capital requirements, regulatory limitations, the Company's and the
Association's financial condition and results of operations, tax considerations
and general economic conditions. Consequently, there can be no assurance that
dividends will in fact be paid on the Common Stock or that, if paid, such
dividends will not be reduced or eliminated in future periods. The Association
intends to continue to pay regular quarterly dividends through either the date
of consummation of the Conversion and Reorganization (on a pro rata basis) or
the end of the fiscal quarter during which the consummation of the Conversion
and Reorganization occurs. See "Dividend Policy."
Dissenters' Rights of Appraisal
Holders of Association Common Stock are entitled to appraisal rights
under Section 552.14 of the OTS' regulations as a result of the merger of the
Mutual Holding Company (following its conversion to a federal interim stock
savings institution) with and into the Association and the merger of the
Association with and into Interim, with the Association to be the surviving
entity in both mergers. Any such stockholder who wishes to exercise such
appraisal rights should review carefully the discussion of such rights in the
Association's proxy statement, including Appendix A thereto, because failure to
timely and properly comply with the procedures specified will result in the loss
of appraisal rights under Section 552.14. Pursuant to the Plan of Conversion,
consummation of the Conversion and the Reorganization is conditioned upon
holders of less than 10% of the outstanding Association Common Stock exercising
appraisal rights, which condition may, in the sole discretion of the Primary
Parties, be waived. See "The Conversion and Reorganization - Dissenters' Rights
of Appraisal."
Prospectus Delivery and Procedure for Purchasing Shares
To ensure that each purchaser receives a prospectus at least 48 hours
prior to Expiration Date in accordance with Rule 15c2-8 under the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will receipt or delivery in accordance with Rule 15c2-8. Order forms will
be distributed only with a prospectus. The Primary Parties will only accept for
processing orders submitted on original order forms with an executed
certification. Photocopies or facsimile copies of order forms or the form of
certification will not be accepted. Payment by cash, check, money order, bank
draft or debit authorization to an existing account at the Association must
accompany the order form. No wire transfers will be accepted. See "The
Conversion and Reorganization."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial data as of and for the
periods ended June 30, 1996, 1995, 1994, 1993 and 1992 have been derived from
the audited consolidated financial statements of Montgomery. The selected
consolidated financial data as of December 31, 1996 and for the six months ended
December 31, 1996 and 1995 have been derived from the unaudited consolidated
financial statements of Montgomery which, in the opinion of management, reflect
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the financial position and results of operations for
these periods. The operating results for the six months ended December 31, 1996
are not necessarily indicative of the results that may be expected for the year
ending June 30, 1997. The financial data presented below is qualified in its
entirety by the more detailed financial data appearing elsewhere herein,
including Montgomery's audited consolidated financial statements and notes
thereto.
<TABLE>
<CAPTION>
June 30,
December 31, --------------------------------------------------------
1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------
(In Thousands)
Summary of Financial Condition:
<S> <C> <C> <C> <C> <C> <C>
Total assets....................... $94,623 $88,211 $87,324 $79,633 $73,862 $66,722
Interest-bearing deposits
in other financial institutions.. 5,766 3,607 3,871 1,735 4,735 2,123
Investment securities
available for sale(1) ........... 52 312 803 1,781 1,762 3,509
Loans, receivable, net............. 83,770 80,074 77,929 72,215 63,566 57,417
Deposits........................... 72,343 69,709 68,286 62,346 64,681 60,631
Borrowings.......................... 11,928 8,000 10,868 10,338 2,730 250
Stockholders' equity............ 9,082 9,127 6,678 6,290 5,686 5,354
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Nine
Six Months Ended Months
December 31, Year Ended June 30, Ended
---------------- --------------------------------------- June 30,
1996 1995 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
Summary of Operating Results:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income(2)........................ $3,532 $3,373 $6,777 $6,178 $5,594 $5,796 $4,479
Interest expense.......................... 2,201 2,281 4,434 3,907 3,107 3,338 2,855
------ ------ ------ ------ ------ ------ ------
Net interest income.................... 1,331 1,092 2,343 2,271 2,487 2,458 1,624
Provision (adjustment) for losses on loans.. --- (26) 20 (15) 25 38 36
------ ------ ------ ------ ------ ------ -----
Net interest income after provision
for losses on loans................... 1,331 1,118 2,323 2,286 2,462 2,420 1,588
Other income................................ 18 35 23 79 147 162 112
Other expenses:
Salaries and employee benefits............ 449 471 879 902 833 825 533
Other..................................... 864 455 871 847 823 764 525
------ ------ ------ ------ ------ ------ ------
Total non-interest expense.............. 1,313 926 1,750 1,749 1,656 1,589 1,058
------ ------ ------ ------ ------ ------ ------
Income before income tax and cumulative
effect of change in accounting method...... 36 227 596 616 953 993 642
Income tax expense.......................... 19 79 165 231 349 433 247
------ ------ ------ ------ ------ ------ ------
Income before cumulative effect of change
in accounting method..................... 17 148 431 385 604 560 395
Cumulative effect of change in accounting
method.................................. --- --- --- --- --- 228 ---
------- -------- ------- ------- ------- ------- ------
Net income............................ $ 17 $ 148 $ 431 $ 385 $ 604 $ 332 $ 395
======= ======== ======= ======= ======= ======= ======
Net income per share........................ $0.02
Net income per share without the special SAIF
assessment................................. 0.32
Dividends declared per share................ 0.20 $0.10 $0.30 --- --- --- ---
Dividend pay out ratio...................... 100.00%
Performance Ratios:
Return on average assets(3)(4))(5).......... 0.32% 0.34% 0.49% 0.46% 0.79% 0.46% 0.80%
Return on average equity(3)(4)(6)........... 3.19 3.48 4.89 5.78 9.90 5.67 10.25
Average equity to average assets............ 10.10 9.64 9.99 7.91 7.96 8.19 7.76
Equity to assets at end of period........... 9.60 10.20 10.35 7.65 7.90 7.70 8.02
Interest rate spread(3)(4)(7)............... 2.59 2.12 2.27 2.54 3.19 3.38 3.12
Asset Qaulity Ratio:
Non-performing assets to total assets .40 1.00 .92 1.08 .66 1.19 1.00
Allowance for loan losses to net loans
receivable at end of period .19 .14 .20 .18 .22 .21 .17
Allowance for loan losses to non-performing loans
at end of period 50.32 5.38 24.96 16.89 29.98 20.24 26.46
Net interest margin(3)(4)(8)................ 3.05 2.59 2.77 2.82 3.41 3.61 3.43
Non-performing loans to total loans......... 0.37 0.93 .83 1.05 .73 1.03 0.62
Average interest-earning assets to average
interest-bearing liabilities............... 109.26 108.78 109.47 105.78 104.96 104.61 104.96
Non-interest expenses to average assets(3)(4) 2.41 2.10 1.98 2.08 2.16 2.22 2.13
Net interest income after provision for loan
losses to non-interest expenses(3)(4)...... 1.21x 1.21x 1.33x 1.31x 1.49x 1.52x 1.50x
<FN>
- ------------------
(1) Investment securities are all available for sale beginning July 1, 1994,
due to the adoption of Statement of Financial Accounting, Standards No. 115
("SFAS 115" ). These securities are recorded at fair value and at December
31, 1996 this resulted in no change in total equity, at June 30, 1996 this
resulted in a decrease of $57,000 in total equity capital and at June 30,
1995 this resulted in an increase in total equity capital of $3,000.
(2) Loan origination fees are included in interest income, on a deferral basis.
(3) Information for the six months ended December 31, 1996, has been annualized
with the exception of the effect of the one time Savings Association
Insurance Fund ("SAIF") special assessment of $428,000 included in other
expenses, net of an income tax adjustment of $169,000 affecting net income
in the amount of $259,000 for the six month period. Information for the six
months ended December 31, 1995, has been annualized with no exceptions.
(4) Information for the nine months ended June 30, 1992 has been annualized.
(5) Net income divided by average total assets.
(6) Net income divided by average total equity.
(7) Interest rate spread is calculated by subtracting combined weighted average
interest rate cost from combined weighted average interest rate earned for
the period indicated.
(8) Net interest income divided by average interest-earning assets.
</FN>
</TABLE>
18
<PAGE>
RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Prospectus, should be considered by investors before deciding whether to
purchase the Common Stock offered hereby.
Vulnerability to Changes in Interest Rates
The Association's profitability, like that of many financial
institutions, is dependent to a large extent upon its net interest income, which
is the difference between its interest income on interest-earning assets, such
as loans and investments, and its interest expense on interest-bearing
liabilities, such as deposits. When interest-bearing liabilities mature or
reprice more quickly than interest-earning assets in a given period, a
significant increase in market rates of interest could adversely affect net
interest income. Similarly, when interest-earning assets mature or reprice more
quickly than interest-bearing liabilities, falling interest rates could result
in a decrease in net interest income. At December 31, 1996, fixed-rate loans
totalled $42.7 million or 50.5% of the Association's loan portfolio while
adjustable-rate loans totalled $41.9 million or 49.5% of the Association's loan
portfolio. The increased level of interest rate risk experienced by Montgomery
in recent periods was primarily due to the interest rate on interest-bearing
liabilities increasing more than the interest rate on interest-earning assets
because of the per adjustment rate limitation on adjustable rate loans due to a
lag in rate adjustments for such loans as compared to interest-bearing
liabilities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Asset and Liability Management."
Competition
The Association experiences strong competition in its local market area
in both originating loans and attracting deposits. This competition arises from
a highly competitive market area with numerous savings institutions and
commercial banks, as well as credit unions, mortgage bankers and national and
local securities firms. The Association recognizes its need to monitor
competition and modify its products and services as necessary and possible,
taking into consideration the cost impact. As a result, such competition may
limit Montgomery's growth and profitability in the future. See "Business of
Montgomery - Market Area and Competition."
Geographical Concentration of Loans
At December 31, 1996, substantially all of the Association's real
estate mortgage loans were secured by properties located in the Association's
primary market area of Montgomery, Fountain and Warren Counties in Indiana.
While the Association currently believes that its loans are adequately secured
or reserved for, in the event that real estate prices in the Association's
market area substantially weaken or economic conditions in its market area
deteriorate, reducing the value of properties securing the Association's loans,
some borrowers may default and the value of the real estate collateral may be
insufficient to fully secure the loan. In either event, the
19
<PAGE>
Association may experience increased levels of delinquencies and related losses
having an adverse impact on net income.
Certain Anti-Takeover Provisions
Certain provisions of the Company's articles of incorporation and
bylaws, including a provision limiting voting rights of beneficial owners of
more than 10% of the Common Stock, and Montgomery's stock charter and bylaws as
well as certain Indiana laws and regulations, will assist the Company in
maintaining its status as an independent publicly owned corporation and may have
certain anti-takeover effects.
Articles of Incorporation and Bylaws of the Company. The Company's
articles of incorporation and bylaws provide for, among other things, a limit on
voting more than 10% of the Common Stock described above, staggered terms for
members of its Board of Directors, noncumulative voting for directors, limits on
the calling of special meetings of stockholders and director nominations, a fair
price or supermajority stockholder approval requirement for certain business
combinations and certain shareholder proposal notice requirements.
Federal Stock Charter of the Association. Provisions in Montgomery's
federal stock charter that have an anti-takeover effect could also be applicable
to changes in control of the Company as the sole shareholder of the Association.
Montgomery's federal stock charter will include a provision applicable for five
years which prohibits the acquisition or offer to acquire directly or indirectly
the beneficial ownership of more than 10% of Montgomery's securities by any
person or entity other than the Company. Any person violating this restriction
may not vote Montgomery's securities in excess of 10%.
These provisions in the Company's and Montgomery's governing
instruments may discourage potential proxy contests and other takeover attempts
by making the Company less attractive to a potential acquiror, particularly
those takeover attempts which have not been negotiated with the Board of
Directors of the Company and/or Montgomery, as the case may be. These provisions
may also have the effect of discouraging a future takeover attempt which would
not be approved by the Company's Board, but pursuant to which stockholders may
receive a substantial premium for their shares over then current market prices.
As a result, stockholders who might desire to participate in such a transaction
may not have any opportunity to do so. In addition, certain of these provisions
that limit the ability of persons (including management or others) owning more
than 10% of the shares to vote their shares will be enforced by the Board of
Directors of the Company or Montgomery, as the case may be, to limit the voting
rights of 10% or greater stockholders and thus could have the effect in a proxy
contest or other solicitation to defeat a proposal that is desired by the
holders of a majority of the shares of Common Stock.
Federal Law and Regulations. Federal law also requires OTS approval
prior to the acquisition of "control" (as defined in OTS regulations) of an
insured institution, including a holding company thereof. In the event any
person or group of persons acquires shares in violation of these limitations,
such person or group may be restricted from voting his shares in excess of 10%
of the outstanding Common Stock. Such laws and regulations may also limit a
person's
20
<PAGE>
ability without regulatory approval to solicit proxies enabling him to elect one
third or more of the Company's Board of Directors or exert a controlling
influence on the operations of Montgomery or the Company.
In addition, certain of these provisions may limit the ability of
persons (including management or others) owning more than 10% of the shares to
vote their shares (by proxy or otherwise) for proposals that they believe to be
in the best interests of shareholders. See "Management of the Association -
Benefit Plans," "Description of Capital Stock."
Voting Power of Directors and Executive Officers
Directors and executive officers of the Company expect to beneficially
own approximately 48,167 shares or 3.85% of the shares of Common Stock
outstanding (excluding stock options) upon consummation of the Conversion and
Reorganization based upon the midpoint of the Offering Price Range. See
"Beneficial Ownership of Capital Stock."
In addition, the Company may acquire Common Stock on behalf of the 1997
Recognition Plan (which will be subject to stockholder approval if implemented
prior to one year following the Conversion and Reorganization), a non-tax
qualified restricted stock plan, in an amount which, when added to the number of
shares available in the existing Management Recognition Plan, will equal 4.0% of
the Common Stock outstanding upon consummation of the Conversion and
Reorganization (57,500 shares based on the maximum of the Offering Price Range).
Under the terms of the 1997 Recognition Plan, the trustees of such plan, who
will also be directors of the Company, will have discretionary authority to vote
all shares held by such plan. The Company also may reserve for future issuance
pursuant to the 1997 Stock Option Plan (which will be subject to stockholder
approval if implemented prior to one year following the Conversion and
Reorganization) a number of authorized shares of Common Stock equal to an
aggregate of 10.0% of the Conversion Stock issued in the Offerings (106,544
shares, based on the maximum of the Offering Price Range). These options are in
addition to the options for 18,750 shares of Association Common Stock which were
previously granted and remain unexercised under the option plans adopted by the
Association in connection with the MHC Reorganization. In addition, the ESOP
intends to purchase up to 8% of the shares of Common Stock to be issued by the
Company in the Conversion and Reorganization. See "Management of the Company -
Benefits" and "Management of the Association - Stock Benefit Plans."
Management's potential voting power could, together with additional
stockholder support, preclude or make more difficult takeover attempts which do
not have the support of the Company's Board of Directors and may tend to
perpetuate existing management.
Employment Arrangements. The Company and the Association may enter into
employment agreements with Earl F. Elliot, the current President and Chief
Executive Officer of the Company and Chairman and Chief Executive Officer of the
Association and J. Lee Walden, the current Executive Vice President and Chief
Financial Officer of the Company and President and Chief Financial Officer of
the Association. The agreements may provide for severance payments equal to
three times such employee's average annual compensation for the last five years
21
<PAGE>
if his respective employment is terminated in connection with a change in
control of the Company, as defined in the agreements. These provisions may have
the effect of increasing the cost of acquiring the Company. See "Restrictions on
Acquisition of the Company" and "Management of the Association - Employment
Agreements."
Low Return on Equity
As a result of the Association's high capital levels and the additional
capital that will be raised by the Company in the Conversion, the Company's
ability to leverage quickly the net proceeds from the Conversion may be limited.
Accordingly, for the near term, return on equity is expected to be low.
ESOP Compensation Expense
In November, 1993, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position 93-6 "Employers' Accounting
for Employee Stock Ownership Plans" ("SOP 93-6"). SOP 93-6 requires an employer
to record compensation expense in an amount equal to the fair value of shares
committed to be released to employees from an employee stock ownership plan.
Assuming shares of Common Stock appreciate in value over time, the adoption of
SOP 93-6 will increase compensation expense relating to the ESOP to be
established in connection with the Conversion. It is impossible to determine at
this time the extent of such impact on future net income. See "Pro Forma Data."
Absence of Market for Common Stock
The Company has never issued capital stock (other than 100 shares
issued to the Association, which will be cancelled upon consummation of the
Conversion and Reorganization), and to date an active and liquid trading market
has not developed for the 250,000 Public Association Shares outstanding prior to
the Offerings. The Company has applied to have its Common Stock quoted on the
Nasdaq SmallCap Market under the symbol "____" upon completion of the Conversion
and Reorganization and will seek to encourage and assist at least two market
makers to make a market in its Common Stock.
Although under no obligation to do so, Keefe, Bruyette & Woods, Inc.
has informed the Company that it intends, upon the completion of the Conversion
and Reorganization, to make a market in the Common Stock by maintaining bid and
ask quotations and trading in the Common Stock so long as the volume of trading
activity and certain other market making considerations justify it doing so.
While the Company has attempted to obtain commitments from other broker-dealers
to act as market makers, and anticipates that prior to the completion of the
Conversion and Reorganization, it will be able to obtain the commitment from at
least one other broker-dealer to act as a market maker for the Common Stock,
there can be no assurance there will be two or more market makers for the Common
Stock.
A public trading market having the desirable characteristics of depth,
liquidity and orderliness depends upon the presence in the marketplace of both
willing buyers and sellers of the
22
<PAGE>
Common Stock at any given time. Accordingly, there can be no assurance that an
active and liquid market for the Common Stock will develop or be maintained or
that resales of the Common Stock can be made at or above the Purchase Price. See
"Market for Common Stock" and "The Conversion and Reorganization - Stock
Pricing, Exchange Ratio and Number of Shares to be Issued."
Proposed Federal Legislation
The United States Congress is considering legislation that would
require all federal thrift institutions, such as Montgomery, to either convert
to a national bank or a state chartered financial institution by a specified
date to be determined. In addition, under the proposed legislation the Company
would not be regulated as a thrift holding company, but rather as a bank holding
company or a financial services holding company (a new type of holding company
created by the proposed legislation). The OTS would also be abolished and its
functions transferred among the other federal banking regulators. Certain
aspects of the legislation remain to be resolved and therefore no assurance can
be given as to whether or in what form the legislation will be enacted or its
effect on the Company and the Association.
Possible Dilutive Effect of Issuance of Additional Shares
Various possible and planned issuances of Common Stock could dilute the
interests of prospective stockholders of the Company or existing stockholders of
the Association following consummation of the Conversion and Reorganization, as
noted below.
The number of shares to be sold in the Conversion and Reorganization
may be increased as a result of an increase in the Offering Price Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Offerings. In the event that the Offering Price Range is so
increased, it is expected that the Company will issue up to 1,225,257 shares of
Conversion Stock at the Purchase Price for an aggregate price of up to
$12,252,570. An increase in the number of shares will decrease net earnings per
share and stockholders' equity per share on a pro forma basis and will increase
the Company's consolidated stockholders' equity and net earnings. See
"Capitalization" and "Pro Forma Data."
The ESOP intends to purchase an amount of Common Stock equal to 8.0% of
the Common Stock to be outstanding upon consummation of the Conversion and
Reorganization. In the event that there are insufficient shares available to
fill the ESOP's order due to an oversubscription by Eligible Account Holders and
the total number of shares of Conversion Stock issued in the Conversion and
Reorganization is increased by up to 15%, the additional shares will first be
allocated to fill the ESOP's subscription and thereafter in accordance with the
terms of the Plan of Conversion. Alternatively, the Company may issue authorized
but unissued shares of Common Stock to the ESOP in an amount sufficient to fill
the ESOP's order and/or the ESOP may purchase such shares in the open market. In
the event that additional shares of Common Stock are issued to the ESOP to fill
its order, stockholders would experience dilution of their ownership interests
(by up to ____% at the maximum of the Offering Price Range, assuming the ESOP
purchased no shares in the Offerings) and per share stockholders' equity and per
share net earnings would
23
<PAGE>
decrease as a result of an increase in the number of outstanding shares of
Common Stock. See "Management of the Association - Benefit Plans - Employee
Stock Ownership Plan" and "The Conversion and Reorganization - The Offerings -
Subscription Offering - Priority 2: ESOP."
If the 1997 Recognition Plan is implemented, the 1997 Recognition Plan
may acquire an amount of Common Stock which, when added to the number of shares
held in the Management Recognition Plan, will equal 4.0% of the shares of Common
Stock outstanding following consummation of the Conversion and Reorganization
(57,500 shares, based on the maximum of the Offering Price Range). Such shares
of Common Stock may be acquired in the open market with funds provided by the
Company, if permissible, or from authorized but unissued shares of Common Stock.
In the event that additional shares of Common Stock are issued to the 1997
Recognition Plan, stockholders would experience dilution of their ownership
interests and per share stockholders' equity and per share net earnings would
decrease as a result of an increase in the number of outstanding shares of
Common Stock. See "Pro Forma Data" and "Management of the Association - Benefit
Plans - 1997 Management Recognition Plan and Trust."
If the Company's 1997 Stock Option Plan is implemented, the Company may
reserve for future issuance pursuant to such plan a number of authorized shares
of Common Stock equal to an aggregate of 10% of the Conversion Stock issued in
the Offerings (106,544 shares, based on the maximum of the Offering Price
Range). See "Pro Forma Data" and "Management of the Association - Benefit Plans
- - 1997 Stock Option Plan."
The Association also has adopted and maintains the Stock Incentive Plan
and the Directors' Stock Option Plan which reserve for issuance 13,125 shares
and 5,625 shares of Association Common Stock. As of December 31, 1996, no shares
had been issued as a result of the exercise of options granted under such option
plans. Upon consummation of the Conversion and Reorganization, these plans will
become plans of the Company and Common Stock will be issued in lieu of
Association Common Stock pursuant to the terms of such plans. See "Management of
the Association - Stock Benefit Plans."
The OTS has required that the purchase limitations contained in the
Plan of Conversion include Exchange Shares to be issued to Public Stockholders
for their Public Association Shares. As a result, certain holders of Public
Association Shares may be limited in their ability to purchase Conversion Stock
in the Offerings. For example, a Public Stockholder which acquires Exchange
Shares in an amount equal to $200,000 of Conversion Stock will not be able to
purchase any shares of Conversion Stock in the Offerings, although such a
stockholder will be able to purchase shares of Common Stock in the market during
the Offerings and thereafter. As a result, the purchase limitations may prevent
such stockholders from maintaining their current ownership percentage of the
Association after the Conversion and Reorganization through purchases of
Conversion Stock in the Offerings. See "The Conversion and Reorganization -
Limitations on Conversion Stock Purchases."
24
<PAGE>
Risk of Delay
The Subscription and Community Offering will expire at Noon,
Crawfordsville, Indiana time, on ______ ___, 1997 unless extended by the Primary
Parties. However, unless waived by the Primary Parties, all orders will be
irrevocable unless the Conversion and Reorganization is not completed by ______
__, 1997. In the event the Conversion and Reorganization is not completed by
______ __, 1997, subscribers will have the right to modify or rescind their
subscriptions and to have their subscription funds returned with interest.
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
The Primary Parties have received an opinion of Keller that
subscription rights granted to Eligible Account Holders, Supplemental Eligible
Account Holders, Other Members, directors, officers and employees and Public
Stockholders have no value. However, this opinion is not binding on the Internal
Revenue Service ("IRS"). If the subscription rights granted to Eligible Account
Holders, Supplemental Eligible Account Holders, Other Members, directors,
officers and employees and Public Stockholders are deemed to have an
ascertainable value, receipt of such rights likely would be taxable only to
those Eligible Account Holders, Supplemental Eligible Account Holders, Other
Members, directors, officers and employees and Public Stockholders who exercise
the subscription rights (either as capital gain or ordinary income) in an amount
equal to such value. Whether subscription rights are considered to have
ascertainable value is an inherently factual determination. See "The Conversion
and Reorganization - Effects of the Conversion and Reorganization" and "- Tax
Aspects."
25
<PAGE>
MONTGOMERY FINANCIAL CORPORATION
The Company was organized in March 1997 at the direction of the Board
of Directors of the Association for the purpose of holding all of the capital
stock of the Association and in order to facilitate the Conversion and
Reorganization. The Company has applied for approval from the OTS to become a
thrift holding company, and as such will be subject to regulation by the OTS.
After completion of the Conversion and Reorganization, the Company will conduct
business initially as a unitary thrift Company. See "Regulation - Company
Regulation." Upon consummation of the Conversion and Reorganization, the Company
will have no significant assets other than all of the outstanding shares of
Association Common Stock, a note evidencing the Company's loan to the ESOP and
the remaining portion of the net proceeds from the Offerings retained by the
Company, and the Company will have no significant liabilities. See "Use of
Proceeds."
Management believes that the Company structure will provide the Company
with additional flexibility to diversify, should it decide to do so, its
business activities through existing or newly formed subsidiaries, or through
acquisitions of or mergers with other financial institutions and financial
services related companies. Although there are no current arrangements,
understandings or agreements regarding any such opportunities or transactions,
the Company will be in a position after the Conversion and Reorganization,
subject to regulatory limitations and the Company's financial position, to take
advantage of any such acquisition and expansion opportunities that may arise.
The initial activities of the Company are anticipated to be funded by the
proceeds to be retained by the Company and earnings thereon, as well as
dividends from the Association. See "Dividend Policy."
The Company's executive office is located at the home office of the
Association at 119 East Main Street, Crawfordsville, Indiana 47933, and its
telephone number is (765) 362-4710.
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION
General
Montgomery was established in 1888 as an Indiana state-chartered mutual
savings and loan association known as The Montgomery Savings Association. It was
converted in 1985 to a federally chartered, mutual savings and loan association.
In August 1995, the Mutual Association reorganized into the mutual holding
company form of organization whereby the Mutual Association (i) formed a new
stock savings association; (ii) transferred substantially all of its assets and
liabilities to the newly formed stock savings association in exchange for all of
the common stock of such institution; and (iii) reorganized from a federally
chartered, mutual savings association to a federally chartered, mutual Company
known as "Montgomery Mutual Holding Company." As part of the MHC Reorganization,
the newly formed stock savings association issued 250,000 shares of Association
Common Stock to certain members of the general Public and 600,000 shares of
Association Common Stock to the Mutual Holding Company. Montgomery conducts
business from four offices, two in Crawfordsville (Montgomery County), one in
Covington (Fountain County), and one in Williamsport (Warren County), Indiana.
At December
26
<PAGE>
31, 1996, the Association had $94.6 million of total assets, $85.5 million of
total liabilities, including $72.3 million of deposits, and $9.1 million of
stockholders' equity.
Montgomery is primarily engaged in attracting deposits from the general
public through its offices and using those and other available sources of funds
to originate loans secured by one- to four-family residences. Approximately
99.5% of Montgomery's depositors reside in the State of Indiana. One- to
four-family residential loans amounted to $72.2 million, or 85.3%, of
Montgomery's total loan portfolio at December 31, 1996. To a lesser extent,
Montgomery originates loans secured by existing multi-family residential and
nonresidential real estate, which amounted to $7.8 million, or 9.2%, of the
total loan portfolio at December 31, 1996, as well as construction loans and
consumer loans, which amounted to $1.4 million, or 1.7%, of the total loan
portfolio and $3.2 million, or 3.8%, of the total loan portfolio at such date,
respectively. Montgomery also invests in U.S. Government and federal agency
obligations and mortgage-backed securities which are insured by federal
agencies. Montgomery has one wholly owned subsidiary corporation, MSA SERVICE
CORP ("MSA"). MSA engages in real estate management and real estate appraisals.
The Association is a community-oriented savings association which
emphasizes customer service and convenience. As part of this strategy, the
Association has sought to develop a variety of products and services which meet
the needs of its retail customers. The Association generally has sought to
achieve long-term financial strength and stability by (i) increasing the amount
and stability of its net interest income, (ii) maintaining a high level of asset
quality, (iii) maintaining a high level of regulatory capital, and (iv)
maintaining low general, administrative and other expenses. In pursuit of these
goals, the Association has adopted a number of complementary business strategies
which emphasize retail lending and deposit products and services traditionally
offered by savings institutions. Highlights of the Association's business
strategy include the following:
Emphasis on Traditional Lending and Investment Activities. Management
believes that the Association is more likely to achieve its goals of long-term
financial strength and profitability by emphasizing retail products and
services, as opposed to wholesale or commercial activities. The Association's
primary lending emphasis is the origination of loans secured by first liens on
single-family (one- to four-unit) residences. In addition, the Association
originates consumer loans, such as home equity loans, and multi-family and
nonresidential real estate loans. Such loans generally provide for higher
interest rates and shorter terms than single-family residential real estate
loans. At December 31, 1996, the Association's net loans amounted to $83.8
million or 88.5% of the Association's total assets.
Maintain Asset Quality. Management believes that high asset quality is
key to long-term financial success and, as a result, the investments which are
emphasized by the Association and its related policies and practices are
intended to maintain a high level of asset quality and reduce credit risk. At
December 31, 1996, the Association's non-performing assets, which consist of
non-accrual loans, accruing loans that are contractually past due 90 days or
more and real estate owned, amounted to $380,000 or 0.4% of the Association's
total assets. At December 31, 1996, the Association's allowance for loan losses
amounted to $158,000 or 0.2% of the Association's
27
<PAGE>
total loans outstanding. As new loan products are offered, and the Association
increases its amount of non-residential and consumer loans, management will
re-evaluate the level of the allowance for loan losses.
Emphasis on Retail Deposits. The Association's liability strategy
emphasizes retail deposits obtained through its branch offices. This strategy is
facilitated by the Association's emphasis on lower-costing NOW, money market and
passbook deposits, which in the aggregate amounted to $15.6 million, or 21.51%,
of the Association's total deposits at December 31, 1996. At December 31, 1996,
the weighted average rate paid on the Association's NOW, money market and
passbook savings accounts amounted to 3.60%, as compared to a weighted average
rate paid of 5.85% on the Association's certificates of deposit at such date.
Maintain High Levels of Regulatory Capital. The Association seeks to
maintain high levels of regulatory capital to give it maximum flexibility in the
changing regulatory environment and to respond to changes in market and economic
conditions. At December 31, 1996, the Association's tangible, core and
risk-based capital ratios amounted to 9.2%, 9.2% and 13.5%, respectively, which
exceeded the minimum requirements of 1.5%, 3.0% and 8.0% by $7.2 million, $5.8
million and $3.1 million, respectively.
Maintain Low Expenses. The Association's general, administrative and
other expenses have amounted to 2.41%, 1.98% and 2.08% of average assets for six
months ended December 31, 1996 (annualized with the exception of the SAIF
Special Assessment) and the years ended June 30, 1996 and 1995, respectively.
However, these expenses may increase in the future should the Company implement
certain benefit plans. See "Risk Factors -- ESOP Compensation Expense" and
"Management of the Association - Benefit Plans."
Regulation
The Association is subject to examination and comprehensive regulation
by the OTS, which is the Association's chartering authority and primary
regulator, and by the Federal Deposit Insurance Corporation ("FDIC"), which as
administrator of the SAIF insures the Association's deposits up to applicable
limits. The Association also is subject to certain reserve requirements
established by the Board of Governors of the Federal Reserve System ("Federal
Reserve Board") and is a member of the Federal Home Loan Bank ("FHLB") of
Indianapolis, which is one of the 12 regional banks comprising the FHLB System.
See "Regulation - The Association."
Office
The Association's principal executive office is located at 119 East
Main Street, Crawfordsville, Indiana 47933, and its telephone number is (765)
362-4710.
28
<PAGE>
MONTGOMERY MUTUAL HOLDING COMPANY
The Mutual Holding Company is a federally chartered mutual holding
company which was chartered on August 11, 1995 in connection with the MHC
Reorganization. The Mutual Holding Company's primary asset is 600,000 shares of
Association Common Stock, which represent 70.6% of the shares of Association
Common Stock outstanding as of December 31, 1996. The Mutual Holding Company's
only other assets consist of deposit accounts in the amount of $103,000 as of
December 31, 1996 (which will become assets of the Association upon consummation
of the Conversion and Reorganization). Prior to the Conversion and
Reorganization, each depositor in the Association has both a deposit account in
the institution and a pro rata ownership interest in the net worth of the Mutual
Holding Company based upon the value in his account, which interest may only be
realized in the event of a liquidation of the Mutual Holding Company. As part of
the Conversion and Reorganization, the Mutual Holding Company will convert from
mutual form to a federal interim stock savings institution and simultaneously
merge with and into the Association, with the Association being the surviving
entity.
USE OF PROCEEDS
Net proceeds from the sale of the Conversion Stock are estimated to be
between $7.4 million and $10.1 million ($11.7 million assuming an increase in
the Offering Price Range by 15%). See "Pro Forma Data" as to the assumptions
used to arrive at such amounts.
The Company plans to contribute to the Association 50% of the net
proceeds from the Offerings and retain the remainder of the net proceeds. The
net proceeds will be initially used to invest primarily in short-term
interest-bearing deposits and marketable securities. The Company intends to use
a portion of the net proceeds to make a loan directly to the ESOP to enable the
ESOP to purchase Conversion Stock equal to 8.0% of the Common Stock to be
outstanding upon consummation of the Conversion and Reorganization. Based upon
the issuance of 85,000 shares and 115,000 shares at the minimum and maximum of
the Offering Price Range, respectively, the loan to the ESOP would be $.9 and
$1.2 million, respectively. It is anticipated that the loan to the ESOP will
have a term of not less than ten years and a fixed rate of interest at the prime
rate as of the date of the loan. See "Management of the Association -- Benefit
Plans -- Employee Stock Ownership Plan." The net proceeds retained by the
Company also may be used to support the future expansion of operations or
diversification into other banking-related businesses and for other business or
investment purposes, including the acquisition of other financial institutions
and/or branch offices, although there are no current plans, arrangements,
understandings or agreements regarding such expansion, diversification or
acquisitions. In addition, subject to applicable regulatory limitations, the net
proceeds also may be used to repurchase shares of Common Stock, although the
Company currently has no intention of effecting any such transactions following
consummation of the Conversion and Reorganization. See "The Conversion and
Reorganization - Certain Restrictions on Purchase or Transfer of Shares after
the Conversion and Reorganization." The portion of the net proceeds contributed
to the Association will be used for general corporate purposes, primarily
investment in residential real estate loans (and will be initially used to
invest primarily in short-term interest-bearing deposits and marketable
securities) since loan growth in excess of deposit growth has caused Montgomery
to use proceeds from the
29
<PAGE>
maturity of investment securities to fund loan growth due to the potential
income on investment securities being below the actual cost of other sources of
loan funding.
DIVIDEND POLICY
Upon completion of the Conversion and Reorganization, the Board of
Directors of the Company will have the authority to declare dividends on the
Common Stock, subject to statutory and regulatory requirements. Following
consummation of the Conversion and Reorganization, the Board of Directors of the
Company intends to pay cash dividends on the Common Stock at an initial
quarterly rate equal to $0.10 per share divided by the Exchange Ratio. Based
upon the Valuation Price Range, the Exchange Ratio is expected to be 1.1000,
1.2941, 1.4882 and 1.7115 at the minimum, midpoint, maximum and 15% above the
maximum of the Valuation Price Range, respectively, resulting in an initial
quarterly dividend rate of $.091, $.077, $.067 and $.058 per share,
respectively, commencing with the first full quarter following consummation of
the Conversion and Reorganization. Declarations of dividends by the Board of
Directors will depend upon a number of factors, including the amount of the net
proceeds from the Offerings retained by the Company, investment opportunities
available to the Company or the Association, capital requirements, regulatory
limitations, the Company's and the Association's financial condition and results
of operations, tax considerations and general economic conditions. Consequently,
there can be no assurance that dividends will in fact be paid on the Common
Stock or that, if paid, such dividends will not be reduced or eliminated in
future periods. The Association intends to continue to pay regular quarterly
dividends through either the date of consummation of the Conversion and
Reorganization (on a pro rata basis) or the end of the fiscal quarter during
which the consummation of the Conversion and Reorganization occurs. Declarations
of dividends by the Company's Board of Directors will depend upon a number of
factors, including the amount of the net proceeds from the Offerings retained by
the Company, investment opportunities available to the Company or the
Association, capital requirements, regulatory limitations, the Company's and the
Association's financial condition and results of operations, tax considerations
and general economic conditions. Consequently, there can be no assurance that
dividends will in fact be paid on the Common Stock or that, if paid, such
dividends will not be reduced or eliminated in future periods. The Association
intends to continue to pay regular quarterly dividends through either the date
of consummation of the Conversion and Reorganization (on a pro rata basis) or
the end of the fiscal quarter during which the consummation of the Conversion
and Reorganization occurs.
Dividends from the Company will depend, in part, upon receipt of
dividends from the Association, because the Company initially will have no
source of income other than dividends from the Association and earnings from the
investment of proceeds from the sale of Conversion Stock retained by the
Company. A regulation of the OTS imposes limitations on "capital distributions"
by savings institutions, including cash dividends, payments by a savings
institution to repurchase or otherwise acquire its stock, payments to
stockholders of another savings institution in a cash-out merger and other
distributions charged against capital. The regulation establishes a three-tiered
system, with the greatest flexibility being afforded to well-capitalized or Tier
1 savings institutions and the least flexibility being afforded to
under-capitalized or Tier 3 savings institutions. As of December 31, 1996, the
Association was a Tier 1 savings institution
30
<PAGE>
and is expected to continue to so qualify immediately following the consummation
of the Conversion and Reorganization.
Any payment of dividends by the Association to the Company which would
be deemed to be a distribution from the Association's pre-1988 bad debt reserves
for federal income tax purposes would require a payment of taxes at the
then-current tax rate by the Association on the amount of earnings deemed to be
removed from the reserves for such distribution (at December 31, 1996, the
Association's retained earnings and bad debt reserves for federal income tax
purposes amounted to $6.9 million and $1.6 million, respectively, and as a
result for tax purposes (but not regulatory purposes) the Association could
declare approximately $5.3 million of dividends without having to pay taxes on
its bad debt reserves for federal income tax purposes). The Association has no
current intention of making any distribution that would create such a federal
tax liability either before or after the Conversion and Reorganization. See
"Regulation -- Federal and State Taxation."
Unlike the Association, the Company is not subject to the
aforementioned regulatory restrictions on the payment of dividends to its
stockholders, although the source of such dividends will be, in part, dependent
upon dividends from the Association in addition to the net proceeds retained by
the Company and earnings thereon. The Company is subject, however, to the
requirements of Indiana law. See "Comparison of Stockholders' Rights - Payment
of Dividends."
MARKET FOR COMMON STOCK
The Company has never issued capital stock (other than 100 shares
issued to the Association, which will be cancelled upon consummation of the
Conversion and Reorganization), and to date an active and liquid trading market
has not developed for the 250,000 Public Association Shares outstanding prior to
the Offerings. Consequently, there is no established market for the Common Stock
at this time. The Company has applied to have its Common Stock quoted on the
Nasdaq SmallCap Market under the symbol "____." The development of a liquid
public market depends on the existence of willing buyers and sellers, the
presence of which is not within the control of the Company, the Association or
any market maker. Accordingly, there can be no assurance that an active and
liquid trading market for the Common Stock will develop or that, if developed,
it will continue. Therefore, investors in the Common Stock could have difficulty
disposing of their shares and should not view the Common Stock as a short-term
investment. The absence of an active and liquid trading market for the Common
Stock could affect the price and liquidity of the Common Stock.
Quotation on the Nasdaq SmallCap Market is dependent upon, among other
things, the Company having at least two market makers for the Common Stock and a
minimum number of stockholders of record. Based upon the minimum of 787,500
shares of Conversion Stock being offered, the minimum of 275,000 Exchange Shares
to be issued, and the anticipated pro forma ownership of officers and directors,
the Company expects to satisfy the required minimum number of stockholders of
record. Although under no obligation to do so, Keefe, Bruyette & Woods, Inc. has
informed the Company that it intends, upon the completion of the Conversion and
Reorganization, to make a market in the Common Stock by maintaining bid and ask
quotations and
31
<PAGE>
trading in the Common Stock so long as the volume of trading activity and
certain other market making considerations justify it doing so. While the
Company has attempted to obtain commitments from other broker-dealers to act as
market makers, and anticipates that prior to the completion of the Conversion
and Reorganization, it will be able to obtain the commitment from at least one
other broker-dealer to act as a market maker for the Common Stock, there can be
no assurance there will be two or more market makers for the Common Stock.
Making a market 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.
Accordingly, there can be no assurance that an active and liquid trading market
for the Common Stock will develop or that, if developed, it will continue.
PRO FORMA DATA
The actual net proceeds from the sale of the Conversion Stock cannot be
determined until the Conversion and Reorganization is completed. However, net
proceeds are currently estimated to be between $7.4 million and $10.1 million
(or $11.7 million in the event the Offering Price Range is increased by 15%)
based upon the following assumptions: (i) all shares of Conversion Stock will be
sold in the Subscription and Community Offerings; (ii) no fees will be paid to
Webb on shares purchased by (x) the ESOP or by (y) officers, directors and
associates thereof; (iii) Webb will receive a fee equal to 1.75% of the
aggregate Purchase Price for sales in the Subscription and Community Offering
(excluding the sale of shares by the ESOP and to officers, directors or
employees or members of their immediate families); and (iv) total expenses,
excluding the marketing fees to be paid to Webb, will be approximately $350,000.
Actual expenses may vary from those estimated.
Pro forma net earnings and stockholders' equity have been calculated
for the year ended June 30, 1996 as if the Conversion Stock to be issued in the
Offerings had been sold (and the Exchange Shares issued) at the beginning of the
respective periods and the net proceeds had been invested at 5.43% and 5.91%,
respectively, which represent the yield on one-year U.S. Government securities
at December 31, 1996 and June 30, 1996, respectively, (which, in light of
changes in interest rates in recent periods, are deemed to more accurately
reflect pro forma reinvestment rates than the arithmetic average method). The
effect of withdrawals from deposit accounts for the purchase of Conversion Stock
has not been reflected. An effective combined federal and state tax rate of
39.6% has been assumed for the periods, resulting in after-tax yields of 3.28%
and 3.57% for the six months ended December 31, 1996 and the year ended June 30,
1996, respectively. Historical and pro forma per share amounts have been
calculated by dividing historical and pro forma amounts by the indicated number
of shares of Common Stock, as adjusted to give effect to the shares purchased by
the ESOP. See Note 2 to the tables below. No effect has been given in the pro
forma stockholders' equity calculations for the assumed earnings on the net
proceeds. As discussed under "Use of Proceeds," the Company intends to retain
50% of the net proceeds from the Offerings, from which the Company intends to
make a loan to fund the purchase an amount of Conversion Stock equal to 8% of
the Common Stock outstanding upon consummation of the Conversion and
Reorganization.
32
<PAGE>
No effect has been given in the tables to the issuance of additional
shares of Common Stock pursuant to existing and proposed stock benefit plans.
See "Management of the Association Benefits" and "Management of the Association
- - Benefit Plans." The tables below give effect to the 1997 Recognition Plan,
which is expected to be adopted by the Company following the Conversion and
Reorganization and presented (together with the 1997 Stock Option Plan) to
stockholders for approval at an annual or special meeting of stockholders to be
held at least six months following the consummation of the Conversion and
Reorganization. If the 1997 Recognition Plan is approved by stockholders, the
1997 Recognition Plan intends to acquire an amount of Common Stock equal to 4.0%
of the shares of Conversion Stock issued in the Offerings, either through open
market purchases or from authorized but unissued shares of Common Stock. No
effect has been given to (i) the Company's results of operations after the
Conversion and Reorganization, or (ii) the market price of the Common Stock
after the Conversion and Reorganization.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma stockholders' equity represents the difference
between the stated amount of assets and liabilities of the Company computed in
accordance with generally accepted accounting principles ("GAAP"). The pro forma
stockholders' equity is not intended to represent the fair market value of the
Common Stock and may be different than amounts that would be available for
distribution to stockholders in the event of liquidation.
33
<PAGE>
<TABLE>
<CAPTION>
At or For the Six Months Ended December 31, 1996
-------------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
787,500 926,470 1,065,410 1,225,257
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
---------- ---------- ---------- ----------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds................................ $ 7,875 $ 9,265 $ 10,654 $ 12,253
Less offering expenses and commissions........ 489 (490) (512) (537)
--------- --------- --------- ---------
Estimated net proceeds(1).................... 7,406 8,775 10,142 11,716
Less: ESOP................................... (850) (1,000) (1,150) (1,323)
Recognition Plan funding............... (425) (500) (575) (661)
--------- --------- --------- ---------
Add: Other adjustments(6)..................... 115 115 115 115
Estimated proceeds available
for investment............................ $ 6,246 $ 7,390 $ 8,532 $ 9,847
========= ========= ========= =========
Net Income:
Historical.................................. $ 17 $ 17 $ 17 $ 17
Pro Forma Adjustments:
Net earnings from proceeds(2).............. 102 121 140 161
ESOP(3).................................... (26) (30) (35) (40)
Recognition Plan........................... (26) (30) (35) (40)
Pro forma net income..................... $ 67 $ 78 $ 87 $ 98
========= ========= ========= =========
Net Income Per Share:
Historical(4)............................. 0.02 0.01 0.01 0.01
Pro forma Adjustments:
Net income from proceeds................. 0.10 0.10 0.11 0.11
ESOP(3).................................. (0.03) (0.03) (0.03) (0.03)
Recognition Plan......................... (0.03) (0.03) (0.03) (0.03)
--------- --------- --------- ---------
Pro forma net income per share....... $ 0.06 $ 0.06 $ 0.06) $ 0.06
========= ========= ========= =========
Pro forma price to annualized earnings
per share (P/E ratio)...................... 83.33x 83.33x 83.33x 83.33x
Number of shares.............................. 951,750 1,155,000 1,326,250 1,527,488
Stockholders' Equity (Book Value)(5):
Historical(7)............................... $ 9,094 $ 9,094 $ 9,094 $ 9,094
Pro Forma Per Share Adjustments:
Estimated net proceeds...................... 7,406 8,775 10,142 11,176
Less common stock acquired by:
ESOP(3).................................... (850) (1,000) (1,150) (1,322)
Recognition Plan........................... (425) (500) (575) (661)
--------- --------- --------- ---------
Pro forma stockholder's equity......... $ 15,225 $ 16,369 $ 17,511 $ !8,827
========= ========= ========= =========
Stockholders' Equity (Book Value)(5):
Per Share(4):
Historical(7)............................. $ 8.56 $ 7.28 $ 6.33 $ 5.50
Pro Forma Per Share Adjustments:
Estimated net proceeds.................... 6.97 7.02 7.06 7.09
Less common stock acquired by:
ESOP(3)................................... (0.80) (0.80) (0.80) (0.80)
Recognition Plan.......................... (0.40) (0.40) (.40) (0.40)
--------- --------- --------- ---------
Pro forma book value per share......... $ 14.33 $ 13.10 $ 12.19 $ 11.39
========= ========= ========= =========
Pro forma price to book value................. 69.73% 76.34% 82.03% 87.80%
Number of shares ............................. 1,062,500 1,250,000 1,437,500 1,653,125
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
At or For the Six Months Ended December 31, 1996
-------------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
787,500 926,470 1,065,410 1,225,257
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
---------- ---------- ---------- ----------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds................................ $ 7,875 $ 9,265 $ 10,654 $ 12,253
Less offering expenses and commissions........ (489) (490) (512) (537)
--------- --------- --------- ---------
Estimated net proceeds(1).................... 7,406 8,775 10,142 11,716
Less: ESOP................................... (850) (1,000) (1,150) (1,323)
Recognition Plan....................... (425) (500) (575) (661)
--------- --------- --------- ---------
Add: Other adjustments(6)..................... 115 115 115 115
--------- --------- --------- ---------
Estimated proceeds available
for investment............................ $ 6,246 $ 7,390 $ 8,532 $ 9,847
========= ========= ========= =========
Net Income:
Historical.................................. $ 431 $ 431 $ 431 $ 431
Pro Forma Adjustments:
Net earnings from proceeds(2).............. 223 264 305 351
ESOP(3).................................... (51) (60) (69) (80)
Recognition Plan........................... (51) (60) (69) (80)
--------- --------- --------- ---------
Pro forma net income..................... $ 552 $ 575 $ 598 $ 622
========= ========= ========= =========
Net Income Per Share:
Historical(4)............................. $ 0.44 $ 0.37 $ 0.32 $ 0.28
Pro forma Adjustments:
Net earnings from proceeds............... 0.23 0.23 0.23 0.23
ESOP(3).................................. (0.05) (0.05) (0.05) (0.05)
Recognition Plan......................... (0.05) (0.05) (0.05) (0.05)
--------- --------- --------- ---------
Pro forma net income per share....... $ 0.57 $ 0.50 $ 0.45 $ 0.41
========= ========= ========= =========
Pro forma price to annualized earnings
per share (P/E ratio)...................... 17.54x 20.00x 22.22x 24.39x
Number of shares.............................. 986,000 1,160,000 1,334,000 1,534,100
Stockholders' Equity (Book Value)(5):
Historical(7)............................... $ 9,139 $9,139 $ 9,139 $ 9,139
Pro Forma Per Share Adjustments:
Estimated net proceeds...................... 7,406 8,775 10,142 11,716
Less common stock acquired by:
ESOP(3).................................... (850) (1,000) (1,150) (1,322)
Recognition Plan........................... (425) (500) (575) (661)
--------- ---------- -------------- -----------
Pro forma stockholder's equity......... $ 15,270 $ 16,414 $ 17.556 $ 18,872
========= ======== ========== ==========
Stockholders' Equity (Book Value)(5):
Per Share(4):
Historical(7)............................. $ 8.60 $ 7.31 $ 6.36 $ 5.53
Pro Forma Per Share Adjustments:
Estimated net proceeds.................... 6.97 7.02 7.06 7.09
Less common stock acquired by:
ESOP(3)................................... (0.80) (0.80) (0.80) (0.80)
Recognition Plan.......................... (0.40) (0.40) (0.40) (0.40)
--------- -------- ------------- ------------
Pro forma book value per share......... $ 14.37 $ 13.13 $ 12.22 $ 11.42
========= ======= =========== ===========
Pro forma price to book value................. 69.59% 76.16% 81.83% 87.57%
Number of shares ............................. 1,062,500 1,250,000 1,437,500 1,653,125
<FN>
- ----------
(1) It is assumed that the cost of the ESOP will be funded from the net
proceeds retained by the Company.
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion. For purposes of
calculating pro forma net income, proceeds attributable to purchases by the
ESOP, which purchases are to be funded by the Holding Company and the
Association, have been deducted from net proceeds.
</FN>
</TABLE>
35
<PAGE>
(3) It is assumed that 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. The funds used to acquire such
shares are expected to be borrowed by the ESOP from the net proceeds from
the Conversion retained by the Company. The Association intends to make
contributions to the ESOP in amounts at least equal to the principal and
interest requirement of the debt. The Association's payment of the ESOP
debt is based upon equal installments of principal and interest over a
10-year period. However, assuming the Company makes the ESOP loan, interest
income earned by the Company on the ESOP debt will offset the interest paid
by the Association. Accordingly, only the principal payments on the ESOP
debt are recorded as an expense (tax-effected) to the Company on a
consolidated basis. The amount of ESOP debt is reflected as a reduction of
stockholders' equity. In the event that the ESOP were to receive a loan
from an independent third party, both ESOP expense and earnings on the
proceeds retained by the Company would be expected to increase.
For purposes of this table, the purchase price of $10.00 per share was
utilized to calculate ESOP expense. The Company intends to record
compensation expense related to the ESOP in accordance with Statement of
Accounting Principles 93-6 ("SOP 93-6"). As a result, to the extent the
value of the Common Stock appreciates over time, compensation expense
related to the ESOP will increase. SOP 93-6 also requires that, for the
earnings per share computations for leveraged ESOPs, outstanding shares
include only such shares as have been committed to be released to
participants. See "Management of the Association - Benefit Plans - Employee
Stock Ownership Plan."
(4) Historical pro forma per share amounts have been computed as if the shares
of Common Stock indicated had been outstanding at the beginning of the
periods or on the dates shown, but without any adjustment of historical net
income or historical equity to reflect the investment of the estimated net
proceeds of the sale of shares in the Conversion as described above. All
ESOP shares have been considered outstanding for purposes of computing book
value per share. Pro forma share amounts have been computed by dividing the
pro forma net income or stockholders' equity (book value) by the number of
shares indicated.
(5) "Book value" represents the difference between the stated amounts of the
Association's assets (based on historical cost) and liabilities computed in
accordance with generally accepted accounting principles. The amounts shown
do not reflect the effect of the Liquidation Account which will be
established for the benefit of Eligible and Supplemental Eligible Account
Holders in the Conversion, or the federal income tax consequences of the
restoration to income of the Association's special bad debt reserves for
income tax purposes which would be required in the unlikely event of
liquidation. See "The Conversion and Reorganization - Effects of Conversion
and Reorganization" and "Regulation - Federal and State Taxation." The
amounts shown for book value do not represent fair market values or
amounts, if any, distributable to stockholders in the unlikely event of
liquidation.
(6) Includes assets consolidated from the mutual holding company of $103,000
plus $12,000 of previous funding of the Recognition Plan.
(7) Prior to reduction of $12,000 reflecting the previous funding of the
Recognition Plan.
36
<PAGE>
PRO FORMA REGULATORY CAPITAL ANALYSIS
At December 31, 1996, the Association exceeded each of the three OTS
capital requirements. Set forth below is a summary of the Association's
compliance with the OTS capital standards as of December 31, 1996 on a
historical basis, in accordance with GAAP, and on a pro forma basis using the
assumptions contained under the caption "Pro Forma Data" and assuming that the
indicated number of shares were sold, and the Exchange Shares were issued, as of
such date.
<TABLE>
<CAPTION>
Pro Forma at December 31, 1996
------------------------------
787,500 Shares 926,470 Shares 1,225,257 Shares 15% above
Historical Minimum Midpoint Maximum Maximum
---------------------------------------------------------------------------------------------------
Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1)
------ ----------------- ---------- ------ ---------- ------ ---------- ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital(2)...... $ 9,082 9.6% $11,935 12.2% $12,470 12.7% $13,003 13.2% $ 13,168 13.7%
======= ==== ======== ===== ======= ==== ======= ==== ======== ====
Tangible Capital:
Capital level...... $ 8,659 9.2% $ 11,512 11.8% $12,047 12.3% $12,580 12.8% $ 13,195 13.3%
Requirement........ 1,412 1.5 1,455 1.5 1,463 1.5 1,471 1.5 1,480 1.5
-------- ---- --------- ----- -------- ----- -------- ----- --------- -----
Excess............. $ 7,247 7.7% $ 10,057 10.3% $10,584 10.8% $11,109 11.3% $ 11,715 11.8%
======= ==== ======== ===== ======= ===== ======= ==== ======== ====
Core Capital:
Capital level...... $ 8,659 9.2% $ 11,512 11.8% $12,047 12.3% $12,580 12.8% $ 13,195 13.3%
Requirement........ 2,835 3.0 2,910 3.0 2,926 3.0 2,942 3.0 2,961 3.0
-------- ---- --------- ----- -------- ----- -------- ----- --------- -----
Excess............. $ 5,834 6.2% $ 8,602 8.8% $ 9,121 9.3% $ 9,638 9.8% $ 10,234 10.3%
======= ==== ========= ===== ======= ===== ======= ===== ======== ====
Risk-Based Capital:
Capital level(3)... $ 7,630 13.5% $ 10,483 18.3% $11,018 19.2% $11,551 20.1% $ 12,1656 21.1%
Requirement(4)..... 4,530 8.0 4,576 8.0 4,584 8.0 4,593 6.0 4,603 8.0
-------- ---- --------- ----- -------- ----- -------- ----- --------- -----
Excess............. $ 3,100 5.5% $ 5,907 10.3% $ 6,434 11.2% $ 6,958 12.1% $ 7,563 13.1%
======= ==== ========= ===== ======= ===== ======= ==== ========= ====
<FN>
(1) Tangible and core capital levels are shown as a percentage of adjusted
total assets; risk-based capital levels are shown as a percentage of
risk-weighted assets.
(2) Total stockholder's equity as calculated under GAAP. Assumes that the
Association receives 50% of the net proceeds, offset in part by the
aggregate purchase price of Common Stock acquired at $10.00 per share by
the ESOP in the Conversion. The amount expected to be borrowed by the ESOP
is deducted from pro forma capital to illustrate the possible impact on the
Association.
(3) Includes $158,000 of general valuation allowances, all of which qualify as
supplementary capital. See "Regulation - Regulatory Capital Requirements."
(4) Assumes reinvestment of net proceeds in 20% risk-weighted assets.
</FN>
</TABLE>
37
<PAGE>
CAPITALIZATION
The following table presents the historical consolidated
capitalization of the Association at December 31, 1996, and the pro forma
consolidated capitalization of the Company after giving effect to the Conversion
and Reorganization, based upon the sale of the number of shares shown below, the
issuance of Exchange Shares and the other assumptions set forth under "Pro Forma
Data."
<TABLE>
<CAPTION>
The Company - Pro Forma
Based Upon Sale at $10.00 per share
------------------------------------------------------
1,225,257
The 787,500 926,470 1,065,441 Shares(1)
Association Shares Shares Shares (15% above
Historical (Minimum of (Midpoint of (Maximum of Maximum of
Capitalization Range) Range) Range) Range)
-------------- ------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2)................................. $72,343 $72,343 $72,343 $72,343 $72,343
Borrowings(3)............................... 11,928 11,928 11,928 11,928 11,928
Debt in connection with acquisition of
Common Stock by ESOP....................... --- --- --- --- ---
---------- --------- ---------- ---------- -----------
Total deposits and borrowings............... $84,271 $84,271 $84,271 $84,271 $84,271
======= ======= ======= ======= =======
Stockholders' Equity:
Preferred Stock ($0.01 par value)
2,000,000 shares authorized; none to be
issued.................................... $ --- $ --- $ --- $ --- $ ---
Common Stock ($0.01 par value)
8,000,000 shares authorized; 850,000
issued or to be issued as reflected(4).... 9 11 13 14 17
Additional paid-in capital(5)............. 2,194 9,598 10,965 12,331 13,902
Retained earnings(5)(6)................... 6,891 6,891 6,891 6,891 6,891
Less:
Net unrealized loss on securities
available for sale(5).................... ---
Unearned Common Stock held by the
Management Recognition Plan.............. (12)
Common Stock to be acquired by the
1997 Recognition Plan.................... --- 850 1,000 1,150 1,323
Common Stock to be acquired by the
ESOP..................................... --- 425 500 575
---------- --------- --------- --------- --------
Total Stockholders' Equity.................. $ 9,082 $15,225 $16,369 $17,511 $18,826
======= ======= ======= ======= =======
<FN>
(1) As adjusted to give effect to an increase in the number of shares
which could occur due to an increase in the Offering Price Range of up
to 15% to reflect changes in market and financial conditions following
the commencement of the Offerings or pursuant to an overallotment
option which the Company intends to grant Webb in the Public Offering,
if any.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Conversion Stock in the Offerings. Such withdrawals would reduce pro
forma deposits by the amount of such withdrawals.
(3) Consists of FHLB advances.
(4) Assumes (i) that the 250,000 Public Association Shares outstanding at
December 31, 1996 are converted into _______, _______, _______ and
_______ Exchange Shares at the minimum, midpoint, maximum and 15%
above the maximum of the Offering Price Range, respectively, and (ii)
that no fractional shares of Exchange Shares will be issued by the
Company. No effect has been given to the issuance of additional shares
of Common Stock pursuant to existing and proposed stock benefit plans.
See "Pro Forma Data," "Management of the Association - Benefit Plans."
</FN>
</TABLE>
38
<PAGE>
(5) The pro forma additional paid-in capital and retained earnings reflect
a restriction of the original retained earnings of the Association
prior to the MHC Reorganization. The pro forma additional paid-in
capital reflects the $103,000 to be acquired by the Association upon
the merger of the Mutual Holding Company (following its conversion to
a federal interim stock savings institution) with and into the
Association.
(6) The retained earnings of the Association will be substantially
restricted after the Conversion and Reorganization by virtue of the
liquidation account to be established in connection with the
Conversion and Reorganization. See "The Conversion and Reorganization
- Liquidation Rights." In addition, certain distributions from the
Association's retained earnings may be treated as being from its
pre-1988 accumulated bad debt reserve for tax purposes, which would
cause the Association to have additional taxable income. See
"Regulation - Federal and State Taxation."
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The principal business of savings associations, including Montgomery,
has historically consisted of attracting deposits from the general public and
making loans secured by residential and commercial real estate. Montgomery and
all other savings associations are significantly affected by prevailing economic
conditions as well as government policies and regulations concerning, among
other things, monetary and fiscal affairs, housing and financial institutions.
Deposit flows are influenced by a number of factors, including interest rates
paid on competing investments, account maturities and level of personal income
and savings. In addition, deposit growth is also affected by how customers
perceive the stability of the financial services industry amid various current
events such as regulatory changes, failures of other financial institutions and
financing of the deposit insurance fund. Lending activities are influenced by
the demand for and supply of housing lenders, the availability of cost of funds
and various other items. Sources of funds for lending activities include
deposits, payments on loans, borrowings, and funds provided from operations.
Montgomery's earnings are primarily dependent upon its net interest income, the
difference between interest income and interest expense. Interest income is a
function of the balances of loans and investments outstanding during a given
period and the yield earned on such loans and investments. Interest expense is a
function of the amounts of deposits and borrowings outstanding during the same
period and rates paid on such deposits and borrowings. Montgomery's earnings are
also affected by provisions for loan and real estate losses, service charges,
income from subsidiary activities, operating expenses and income taxes.
40
<PAGE>
Average Balances and Interest Rates and Yields
The following table presents for the periods indicated the month-end
average balances of each category of Montgomery's interest-earning assets and
interest-bearing liabilities, and the average yields earned and interest rates
paid on such balances. Such yields and costs are determined by dividing income
or expense by the average balance of assets or liabilities, respectively, for
the periods presented.
<TABLE>
<CAPTION>
Six Months Ended December 31, Year Ended June 30,
------------------------------------------------------------ ------------------
1996 1995 1996
------------------------------------------------------------ ------------------
Average Average
Average Yield/ Average Yield/ Average
Balance Interest Cost(3) Balance Interest Cost(3) Balance
------------------------------------------------------------ ------------------
(Dollars in Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning deposits.................... $ 3,593 $ 98 5.46% $ 5,240 $ 160 6.11% $ 5,146
Investment securities........................ 244 9 7.38 503 17 6.76 411
Loans(2)..................................... 82,553 3,395 8.23 77,706 3,164 8.14 78,380
Stock in FHLB of Indianapolis................ 750 30 8.00 750 32 8.53 750
-------- -------- -------- -------- --------
Total interest-earning assets.................. 87,140 3,532 8.11 84,199 3,373 8.01 84,687
Non-interest earning assets.................... 3,879 --- 4,038 --- 3,643
-------- --------- -------- --------- --------
Total Assets................................... $91,019 3,532 $88,237 3,373 $88,330
======= ------- ======= ------- =======
Interest-bearing liabilities:
Savings accounts............................. $ 4,319 82 3.80 $ 5,444 118 4.34 $ 5,242
NOW and money market accounts................ 10,133 182 3.59 9,335 166 3.56 9,314
Certificates of deposit...................... 55,070 1,634 5.93 53,395 1,672 6.26 54,208
-------- ------- -------- ------- --------
Total deposits............................... 69,522 1,898 5.46 68,174 1,956 5.74 68,764
Borrowings................................... 10,235 303 5.92 9,227 325 7.04 8,594
-------- -------- -------- -------- --------
Total interest-bearing liabilities......... 79,757 2,201 5.52 77,401 2,281 5.89 77,358
Other liabilities.............................. 2,067 --- 2,326 --- 2,152
-------- ---------- -------- ---------- --------
Total liabilities.............................. 81,824 2,201 79,727 2,281 79,510
-------- --------
Total stockholders' equity................... 9,195 8,510 8,820
-------- -------- --------
Total liabilities and stockholders' equity... $91,019 $88,237 $88,330
======= ======= =======
Net interest-earning assets.................... $ 7,383 $ 6,798 $ 7,329
======= ======== ========
Net interest income/interest rate spread....... $1,331 2.59 $1,092 2.12
====== ======
Average interest-earning assets to average
interest-bearing liabilities.................. 109.26% 108.78 % 109.47%
Net interest margin(1)......................... 3.05 2.59
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------------------------------------
1996 1995 1994
-----------------------------------------------------------------------------------
Average Average Average
Yield/ Average Yield/ Average Yield/
Interest Cost Balance Interest Cost Balance Interest Cost
-----------------------------------------------------------------------------------
(Dollars in Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning deposits.................... $ 282 5.48% $ 2,687 $ 156 5.81% $ 2,547 $ 99 3.89%
Investment securities........................ 29 7.06 1,174 78 6.64 1,931 146 7.56
Loans(2)..................................... 6,410 8.18 75,961 5,894 7.76 67,975 5,316 7.82
Stock in FHLB of Indianapolis................ 56 7.47 697 50 7.17 571 33 5.78
-------- -------- ------- -------- --------
Total interest-earning assets.................. 6,777 8.00 80,519 6,178 7.67 73,024 5,594 7.66
Non-interest earning assets.................... 3,686 3,627
--------- -------- --------- --------
Total Assets................................... 6,777 $84,205 6,178 $76,651 5,594
------- ======= ------- ====== -------
Interest-bearing liabilities:
Savings accounts............................. 219 4.18 $ 4,579 178 3.8$ 5,671 188 3.32
NOW and money market accounts................ 345 3.70 11,013 394 3.58 11,494 364 3.17
Certificates of deposit...................... 3,303 6.09 48,558 2,617 5.39 46,834 2,320 4.95
------- -------- ------- -------- -------
Total deposits............................... 3,867 5.62 64,150 3,189 4.97 63,999 2,872 4.49
Borrowings................................... 567 6.60 11,968 718 6.00 5,573 235 4.22
------- -------- ------- -------- --------
Total interest-bearing liabilities......... 4,434 5.73 76,118 3,907 5.13 69,572 3,107 4.47
--------
Other liabilities.............................. 1,423 977
--------- -------- --------- --------
Total liabilities.............................. 4,434 77,541 3,907 70,549 3,107
-------- -------- -------
Total stockholders' equity................... 6,664 6,102
-------- --------
Total liabilities and stockholders' equity... $84,205 $76,651
======= ======
Net interest-earning assets.................... $ 4,401 $ 3,452
======= =======
Net interest income/interest rate spread....... $2,343 2.27 $2,271 2.54 $2,487 3.19
===== ===== =====
Average interest-earning assets to average
interest-bearing liabilities.................. 105.78% 104.96%
Net interest margin(1)......................... 2.77 2.82 3.41
<FN>
- ----------------------
(1) Net interest margin is net interest income divided by average
interest-earning assets.
(2) The average balance includes nonaccrual loans.
(3) Six months ended December 31, 1996 and 1995 have been annualized.
</FN>
</TABLE>
41
<PAGE>
The following table sets forth the weighted average effective interest
rates earned by Montgomery on its loan and investment portfolios, the weighted
average effective cost of Montgomery's deposits, the interest rate spread of
Montgomery, and the net yield on weighted average interest-earning assets for
the periods and as of the dates shown. The table sets forth for the periods and
at the dates indicated the weighted average yields earned on Montgomery's
assets, the weighted average interest rates paid on Montgomery's liabilities,
together with the net yield on interest-earning assets.
<TABLE>
<CAPTION>
Six Months Ended
As of December 31, Year Ended June 30,
December 31, ---------------------- ------------------------------
1996 1996 1995 1996 1995 1994
---- ---- ---- ---- ---- ----
Weighted average yield on:
<S> <C> <C> <C> <C> <C> <C>
Loans............................. 8.26% 8.23% 8.14% 8.18% 7.76% 7.82%
Investment securities............. 7.00 7.38 6.76 7.06 6.64 7.56
Total interest-earning assets..... 8.11 8.11 8.01 8.00 7.67 7.66
Weighted average rate on:
Deposits.......................... 5.34 5.46 5.74 5.62 4.97 4.49
Borrowings........................ 6.04 5.92 7.04 6.60 6.00 4.22
Total interest-bearing liabilities 5.44 5.52 5.89 5.73 5.13 4.47
Interest rate spread (spread between
weighted average yield on total
interest-earning assets and total
interest-bearing liabilities)...... 2.67 2.59 2.12 2.27 2.54 3.19
Net interest margin (net interest 3.03 3.05 2.59 2.77 2.82 3.41
income as a percentage of average
interest-earnings assets)..........
</TABLE>
42
<PAGE>
Rate/Volume Analysis
The following table discloses the extent to which changes in interest
rates and changes in volume of interest-related assets and liabilities have
affected Montgomery's interest income and expense during the periods indicated.
For each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to (1) changes in rate (changes
in rate multiplied by prior period volume) and (2) changes in volume (change in
volume multiplied by prior period rate). Changes attributable to both rate and
volume that cannot be segregated have been allocated proportionally to the
change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Increase (Decrease) in Net Interest Income
------------------------------------------------------------------------------------
Six months ended December 31, 1996
vs. Year ended June 30, 1996 vs.
Six months ended December 31, 1995 Year ended June 30, 1995
------------------------------------------------------------------------------------
Due to Due to Due to Due to
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(Dollars in Thousands)
Interest-Earning Assets:
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits.............. $ (46) $ (16) $ (62) $ 139 $ (13) $ 126
Investment securities.................. (12) 4 (8) (53) 4 (49)
Loans.................................. 199 32 231 192 324 516
Stock in FHLB of Indianapolis.......... --- (2) (2) 4 2 6
------- -------- -------- ------- ------ -------
Total............................ 141 18 119 282 317 599
------ ------ ------ ------ ----- ------
Interest-Bearing Liabilities:
Savings accounts....................... (22) (14) (36) 27 14 41
NOW and money market accounts.......... 14 2 16 (62) 13 (49)
Certificates of deposit................ 117 (155) (38) 326 360 686
Borrowings............................. 75 (97) ( 22) (213) 62 (151)
------ -------- ------ ------ ------ ------
Total............................ 184 (264) (80) 78 449 527
------- ----- ------- ------- ----- ------
Change in net interest income............ $ (43) $ 282 $ 199 $ 204 $ (132) $ 72
======== ===== ===== ====== ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Increase (Decrease) in Net Interest Income
------------------------------------------
Year ended June 30, 1995 vs.
Year ended June 30, 1994
------------------------------------------
(Dollars in Thousands)
Due to Due to
Volume Rate Total
------ ---- -----
Interest-Earning Assets:
<S> <C> <C> <C>
Interest-earning deposits.............. $ 7 $ 50 $ 57
Investment securities.................. (64) (4) (68)
Loans.................................. 622 (44) 578
Stock in FHLB of Indianapolis.......... 8 9 17
------- ------ ------
Total............................ 573 11 584
------ ----- ------
Interest-Bearing Liabilities:
Savings accounts....................... (38) 28 (10)
NOW and money market accounts.......... (15) 45 30
Certificates of deposit................ 88 209 297
Borrowings............................. 353 130 483
------ ------ ------
Total............................ 388 412 800
------ ------ ------
Change in net interest income............ $ 185 $(401) $(216)
===== ===== =====
</TABLE>
43
<PAGE>
Changes in Financial Condition
Financial Condition. Montgomery's total assets were $94.6 million at
December 31, 1996, an increase of $6.4 million, or 7.3 percent from June 30,
1996. During this six-month period interest-earning assets increased $5.6
million, or 6.6 percent. Short-term interest-bearing deposits increased $2.2
million, or 62.9 percent primarily due to an increase in public funds deposits
received on December 31, 1996. Loans increased $3.7 million, or 4.6 percent due
to the normal high loan demand during the months of July, August and September.
Consistent with its seasonal nature, loan growth was minimal during the three
months ended December 31, 1996. Investment securities declined $259,000, or 83.0
percent due to the maturity of one security during the six months ended December
31, 1996. Loan growth in excess of deposit growth has caused Montgomery to use
proceeds from the maturity of investment securities to fund loan growth due to
the potential income on investment securities being below the actual cost of
other sources of loan funding. Real estate owned and held for development
increased $343,000 to $1.3 million or 1.3% of total assets, primarily due to the
foreclosure of an eight unit apartment complex which had been reported as a
nonperforming asset in the over 90 day delinquent category at June 30, 1996 (and
was first reflected as non-accrual during the year ended June 30, 1995).. It has
been determined by Montgomery that the best use for this apartment complex is to
convert the complex to condominiums for resale. Based on this decision, as of
September 30, 1996, the complex has been classified as investment real estate
and removed from nonperforming assets. Interest-bearing deposits increased $2.8
million, or 4.1 percent and borrowings increased $3.9 million, or 48.8 percent
causing an increase in interest-bearing liabilities of 8.7 percent. The increase
in borrowings was used to fund loan growth during the six month period. A
decrease in borrowings since period end has occurred due to reduced loan demand.
On October 15, 1996, the shareholders of Montgomery approved a Stock Option
Plan, a Directors' Stock Option Plan and a Management Recognition Plan. In
connection with these plans, a reduction in stockholders' equity was made in the
amount of $11,563 for the purchase of 1,000 shares of common stock to partially
fund the Management Recognition Plan.
Montgomery's total assets at June 30, 1996, were $88.2 million compared
to $87.3 million at June 30, 1995, an increase of $0.9 million, or 1.0 percent.
Asset growth was minimal due to a very competitive local market for mortgage and
savings products. It was management's decision to concentrate on increasing
interest rate spread when pricing Montgomery's products and put less emphasis on
growth. Interest-earning assets increased $1.4 million, or 1.7 percent, during
the twelve month period. Loans increased $2.1 million, or 2.7 percent, while
interest-bearing deposits decreased $264,000, or 6.8 percent, and investment
securities decreased $491,000, or 61.1 percent. Interest-bearing liabilities
decreased $1.6 million, or 2.0 percent. Interest-bearing deposits increased $1.3
million, or 1.9 percent, and FHLB advances decreased $2.9 million, or 26.6
percent. The decrease in other assets and other liabilities was primarily caused
by the completion of the stock offering in connection with the MHC
Reorganization. Net proceeds of $2.2 million from the sale of common stock, an
increase to equity, was received in August, 1995, and was primarily used to
decrease FHLB advances.
44
<PAGE>
Comparison of Operations for the Six Months Ended December 31, 1996 and
December 31, 1995
General. For the six months ended December 31, 1996, the most
significant factor effecting Montgomery's operations was the one time special
assessment required by the Deposit Insurance Funds Act of 1996. The after tax
effect of this one time assessment was approximately $258,700. Net income was
$17,000 for the six months ended December 31, 1996, compared to net income of
$148,000 for the six months ended December 31, 1995, a decrease of $131,000, or
88.5 %. Net income for the six months ended December 31, 1996 was $275,000
before the net effect of the SAIF special assessment. The increase from the
$148,000 for the six months ended December 31, 1995 was also primarily due to an
increase in interest rate spread from 2.04 % to 2.59 % due to deposit pricing
and the use of FHLB advances. Total other expenses for the six months ended
December 31, 1996 was $885,000 before the SAIF special assessment of $428,000
compared to $926,000 for the six months ended December 31, 1995. The decrease
was primarily due to a net income on real estate operations of $41,000 during
the 1996 period compared to a net loss of $16,000 for the 1995 period. This
increase was caused by an increase in gross rental income and a gain on the sale
of two properties in 1996 compared to a loss on the sale of real estate during
the 1995 period.
Interest Income. Interest income for the six months ended December 31,
1996 was $3.5 million, an increase of $159,000, or 4.7 %, from interest income
for the same period in 1995. The average balance of interest earning assets for
the 1996 period was $87.1 million compared to $84.2 million for the 1995 period,
an increase of $2.9 million, or 3.4 %. The average yield was 8.11 % for the six
months ended December 31, 1996, compared to 8.01 % for the same period in 1995.
The average yield on loans increased from 8.14 % for the six months ended
December 31, 1995 to 8.23 % for the comparable 1996 period.
Interest Expense. Interest expense for the six months ended December
31, 1996 was $2.2 million compared to $2.3 million for the same six month period
in 1995, a decrease of $80,000, or 3.5 %. Average interest bearing liabilities
increased $2.4 million, or 3.1 %, from $77.4 million for the six months ended
December 31, 1995, to $79.8 million for the same period in 1996. The average
cost of these funds decreased from 5.89% for the 1995 six month period to 5.52%
for the 1996 six month period.
Provision (Adjustment) for Losses on Loans. There was no provision or
adjustment made to the allowance for losses on loans during the six month period
ending December 31, 1996, as compared to an adjustment of $26,000 during the
comparable six month period in 1995. As a result of the quarterly Internal Loan
and Asset Review performed as of December 31, 1996, management determined that
the allowance for loan losses was adequate. Ninety day delinquent loans had
decreased from $661,000 at June 30, 1996 to $314,000 at December 31, 1996.
Nonperforming loans to total loans at December 31, 1996 was 0.37 % compared to
0.83 % at June 30, 1996, and 0.93 % at December 31, 1995. Non-performing assets
were $379,000, or 0.4% of assets, compared to $809,000, or 0.9% at June 30, 1996
and $941,000, or 1.1% at June 30, 1995. At December 31, 1996, non-performing
assets consisted of non-performing loans in the amount of $314,000 and other
real estate in the amount of $65,000. As of the December 31, 1996 review, the
appraised value of real estate acquired in settlement of loans, net,
45
<PAGE>
owned was in excess of the current book value. The allowance for loan losses to
non-performing loans was 50.3% at December 31, 1996 compared to 25.0% at June
30, 1996.
Non-Interest Income. Other income for the six months ended December 31,
1996, was $18,000, a decrease of $17,000, or 48.6 % from the $35,000 recorded in
the 1995 comparable period. During the six months ended December 31, 1996,
service charges on deposit accounts increased $1,000 and appraisal income
decreased $17,000 from the 1995 six month period.
Non-Interest Expense. Non-interest expense for the six months ended
December 31, 1996, was $1.3 million compared to $926,000, an increase $387,000,
or 41.8 %, from the six months ended December 31, 1995. Salary and employee
benefits decreased $22,000 primarily due to an increase in the amount of
compensation expense deferred for mortgage loan originations during the three
months ended September 30, 1996. Deposit insurance expense increased $423,000
for the six months ended December 31, 1996 compared to the same period in 1995
due to the one time SAIF special assessment of approximately $428,000 and a
reduction in the quarter ending December 31, 1996 assessment of $5,000. Net real
estate operations generated income for the six months ended December 31, 1996 of
$41,000 compared to a loss of $16,000 for the 1995 comparable period. This
increase was caused by an increase in gross rental income and a gain on the sale
of real estate in the 1996 period compared to a loss on the sale of real estate
during the 1995 period.
Income Tax Expense. Income tax for the six months ended December 31,
1996 was $19,000 compared to $80,000 for the six months ended December 31, 1995.
This was caused by the SAIF special assessment partially offset by an increase
in pre-tax income had the special assessment not been assessed.
Comparison of Operations for the Years Ended June 30, 1996 and June 30, 1995
General. Montgomery's net income for the year ended June 30, 1996 was
$431,000, compared to $385,000 for the year ended June 30, 1995, an increase of
$46,000, or 11.9 %. Net interest income increased $72,000 due to an increase in
average interest-earning assets of $4.2 million compared to an increase in
average interest-bearing liabilities of only $1.2 million which was partially
offset by a decrease in interest rate spread from 2.54 % for the year ended June
30, 1995, to 2.27 % for the year ended June 30, 1996. The decrease in interest
rate spread was caused primarily by the increase in deposit rates on new and
renewal accounts exceeding the increase in adjustable rate mortgages due to a
one % maximum allowable annual adjustment on most adjustable rate loans.
Interest rate spread was as low as 2.09 % for the month ended July 31, 1995, and
has been increasing since that period to a spread of 2.56 % at June 30, 1996.
Interest rate spread is expected to continue to improve due to scheduled
increases in rates on adjustable rate loans and a decrease in deposit interest
rates. Provision for losses on loans (expense) for the year ended June 30, 1996,
was $20,000 compared to an adjustment (income) for the year ended June 30, 1995,
of $15,000, resulting in a decrease in income of $35,000 for the 1996 period
compared to the 1995 period. For the year ended June 30, 1996, total other
income decreased $56,000 and income tax expense decreased $65,000 compared to
the year ended June 30, 1995.
Interest Income. Montgomery's total interest income for the year ended
June 30, 1996 was $6.8 million, an increase of $599,000 or 9.7 %, from interest
income for the year ended June 30, 1995.
46
<PAGE>
Average interest-earning assets for the 1996 period was $84.7 million compared
to $80.5 million for the 1995 period, an increase of $4.2 million, or 5.2 %. The
average yield was 8.00 % for the year ended June 30, 1996, compared to 7.67 %
for the year ended June 30,1995.
Interest Expense. Total interest expense for the year ended June 30,
1996 was $4.4 million compared to $3.9 million for the year ended June 30, 1995,
an increase of $527,000, or 13.5 %. Average interest-bearing liabilities
increased $1.2 million, or 1.6 %, for the comparable periods. The average cost
of these funds increased from 5.13 % for the 1995 twelve month period to 5.73 %
for the 1996 twelve month period. The increase was caused by an increase in
costs on borrowed money and certificates of deposit. The cost of funds on
interest-bearing liabilities at June 30, 1996, was 5.48 %.
Provision (Adjustment) for Losses on Loans. The provisions for loan
losses for the year ended June 30, 1996 was $20,000. This compares to an
adjustment for the year ended June 30, 1995 of $15,000. The provision or
adjustment is made based on a review performed each quarter by the Internal Loan
and Asset Review Committee.
Non-Interest Income. Montgomery's other income for the year ended June
30, 1996, totalled $23,000 compared to $79,000 for the year ended June 30, 1995,
a decrease of $56,000, or 70.9 %. During the year ended June 30, 1995,
Montgomery recorded income of $9,000 from the sale of mortgage-backed securities
and $12,000 from the sale of its insurance subsidiary. During the year ended
June 30, 1996, service charges on deposit accounts increased $14,000 compared to
the year ended June 30, 1995. Appraisal income decreased $45,000 due to the
change from an in-house appraiser to an independent appraiser. The decrease in
appraisal income was substantially offset by a decrease in salary and employee
benefit expense.
Non-Interest Expense. Non-interest expense for the year ended June 30,
1996, was $1.8 million compared to $1,749,000 for the year ended June 30, 1995,
an increase of $1,000, or 0.01 %. Salary and employee benefits decreased $23,000
due to a combination of normal increases associated with growth and a decrease
in cost of the in-house appraiser. For the year ended June 30, 1996, compared to
the year ended June 30, 1995, occupancy expense increased $9,000, equipment
expense increased $8,000, deposit insurance expense increased $11,000 and
advertising expense increased $2,000. These increases are all related to
Montgomery's growth and the opening of the Mill Street Office, Montgomery's only
drive-up facility. Net real estate operations increased $11,000 primarily due to
a loss on sale of real estate of $26,000 and an increase in net rental income of
$15,000.
Income Tax Expense. Montgomery's income tax expense for the year ended
June 30, 1996, was $165,000 compared to $230,000 for the year ended June
30,1995. The decrease of $65,000, or 28.3 % was due to an adjustment to the
deferred income tax liability of $74,000 and a decrease in taxable income.
Comparison of Operations for the Years Ended June 30, 1995 and June 30, 1994
General. Montgomery's net income for the year ended June 30, 1995, was
$385,000, compared to $604,000 for the year ended June 30, 1994, a decrease of
$219,000 or 36.3 %, due primarily to a decrease in the interest rate spread from
3.19 % for the year ended June 30, 1994, to 2.54 % for the year
47
<PAGE>
ended June 30, 1995. Interest rate spread has increased during May and June
1995. The decrease in interest rate spread was caused primarily by the increase
in deposit rates on new and renewal accounts exceeding the increase in
adjustable rate mortgages due to the one % maximum allowable annual adjustment
on most adjustable rate loans.
Interest Income. Montgomery's total interest income for the year ended
June 30, 1995, was $6.2 million, an increase of $584,000, or 10.4 %, from
interest income for the year ended June 30, 1994. This increase resulted from an
increase in the average balance of interest-earning assets to $80.5 million for
the year ended June 30, 1995, from $73.0 million for the year ended June 30,
1994, an increase of $7.5 million, or 10.3 %. The average yield on
interest-earning assets was 7.67 % for the year ended June 30, 1995, compared to
7.66 % for the year ended June 30, 1994.
Interest Expense. Total interest expense for the year ended June 30,
1995, was $3.9 million, which was an $800,000 or 25.8 % increase from the year
ended June 30, 1994. The average cost of the funds increased from 4.47 % to 5.13
% and the average balance increased from $69.6 million to $76.1 million for the
comparable periods.
Provision (Adjustment) for Losses on Loans. The provision was $25,000
for the year ended June 30, 1994. During the year ended June 30, 1995, a
decrease to the allowance for loan losses in the amount of $15,000 was made and
recorded in this account. At the time the allowance for loan losses was reduced
the allowance for loss on non-interest earning assets was increased by $15,000
and was expensed on the statement of income as a portion of other expenses. This
adjustment was made based on the internal loan and asset review performed as of
March 31, 1995, and June 30, 1995, which indicated the allowance for loan losses
was more than sufficient to allow the $15,000 reduction. During the June 30,
1995 review, it was determined that 90-day delinquent loans had increased from
$527,000 on June 30, 1994, to $817,000 on June 30, 1995, or $290,000. Included
in the June 30, 1995, 90-day delinquencies were two loans totalling $355,000.
Non-Interest Income. Montgomery's other income for the year ended June
30, 1995, totaled $79,000 compared to $147,000 for the year ended June 30, 1994,
a decrease of $68,000, or 46.3 %. This difference was primarily due to a
decrease in appraisal fee income of approximately $23,000 and a decrease in
commission income from Montgomery's insurance subsidiary of approximately
$68,000. The insurance subsidiary was sold on July 1, 1994, with the book profit
on the sale being approximately $15,000. Mortgage-backed securities were sold to
fund mortgage loan growth on which the profit on the sale was approximately
$9,000.
Non-Interest Expense. Montgomery's other expenses for the year ended
June 30, 1995, totaled $1.7 million, a $93,000 or 5.6 % increase compared to the
same period ended June 30, 1994. This increase was primarily due to a $69,000
increase in salaries and employee benefits, an $11,000 increase in data
processing expense and an $11,000 increase in advertising expense. These
increases are generally reflective of Montgomery's growth and also include
additional expenses caused by the opening of the Mill Street Office during the
first quarter of 1995.
Income Tax Expense. Income tax expense decreased $119,000 for the year
ended June 30, 1995, compared to the same period ended in 1994. This was caused
by a decrease in pre-tax income.
48
<PAGE>
Liquidity and Capital Resources
Montgomery's primary source of funds is its deposits. To a lesser
extent, Montgomery has also relied upon loan payments and payoffs and FHLB
advances as sources of funds. Scheduled loan payments are a relatively stable
source of funds, but loan payoffs and deposit flows can fluctuate significantly,
being influenced by interest rates, general economic conditions and competition.
Montgomery attempts to price its deposits to meet its asset/liability management
objectives consistent with local market conditions.
Federal regulations have historically required Montgomery to maintain
minimum levels of liquid assets. The required percentage has varied from time to
time based upon economic conditions and savings flows. At December 31, 1996, the
requirement was 5%, subject to reduction for aggregate net withdrawals provided
such ratio is not reduced below 4%. Liquid assets for purposes of this ratio
include cash, cash equivalents consisting of short-term interest-earning
deposits, certain other time deposits, and other obligations generally having
remaining maturities of less than five years. Montgomery has historically
maintained its liquidity ratio at a level in excess of that required.
Montgomery's average liquidity ratio for the three months ended December 31,
1996 was 5.2%. Liquidity management is both a daily and long-term responsibility
of management. Montgomery adjusts liquid assets based upon management's
assessment of (i) expected loan demand, (ii) expected deposit flows, (iii)
yields available on interest- bearing deposits, and (iv) the objectives of its
asset/liability management program. Excess liquidity is invested generally in
federal funds and short-term interest-bearing deposit accounts. If Montgomery
requires funds beyond its ability to generate them internally, it has additional
borrowing capacity with the FHLB and collateral eligible for repurchase
agreements.
Cash flows for Montgomery are of three major types. Cash flows from
operating activities consist primarily of income provided by cash. Investing
activities generate cash flows through the origination, sale and principal
collections on loans as well as the purchases and sales of investments.
Montgomery's cash flows from investments resulted primarily from purchases and
maturities of investment securities. Cash flows from financing activities
include savings deposits, withdrawals and maturities and changes in borrowings.
Montgomery considers its liquidity and capital resources to be adequate
to meet its foreseeable short and long-term needs. Montgomery anticipates that
it will have sufficient funds available to meet current loan commitments and to
fund or refinance, on a timely basis, its other material commitments and
long-term liabilities. At December 31, 1996, Montgomery had outstanding
commitments to originate loans of $1.6 million and no commitments to sell loans.
Certificates of deposit scheduled to mature in one year or less at December 31,
1996 totalled $31.2 million. Management believes that a significant portion of
such deposits will remain with Montgomery. At December 31, 1996, Montgomery had
$5.5 million of FHLB advances which reprice in one year or less.
The Association is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate actions by the regulatory agencies that, if
undertaken, could have a material effect on the Association's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the
49
<PAGE>
Association must meet specific capital guidelines that involve quantitative
measures of the Association's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Association's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
At December 31, 1996, the Association believes that it meets all
capital adequacy requirements to which it is subject and the most recent
notification from the regulatory agency categorized the Association as well
capitalized under the regulatory framework for prompt corrective action.
The Association's actual and required capital amounts and ratios are as
follows:
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------------------------
Required for Adequate To Be Well
Actual Capital(1) Capitalized(1)
-------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital(1) (to risk
weighted assets) $7,630 13.5% $4,530 8.0% $5,663 10.0%
Core (to adjusted tangible assets)
8,659 9.2% 2,825 3.0% 5,649 6.0%
Core capital(1) (to adjusted total assets) 8,659 9.2% 2,825 3.0% 4,708 5.0%
(1) As defined by the regulatory agencies
</TABLE>
The Association's tangible capital at December 31, 1996 was $8,659,000
which amount was 9.2% of tangible assets and exceeded the required ratio of
1.5%.
Asset/Liability Management
Montgomery, like other financial institutions, is subject to interest
rate risk to the extent that its interest-bearing liabilities reprice on a
different basis than its interest-earning assets. OTS regulations provide a Net
Portfolio Value ("NPV") approach to the quantification of interest rate risk. In
essence, this approach calculates the difference between the present value of
liabilities, expected cash flows from assets and cash flows from off balance
sheet contracts. Under OTS regulations, an institution's "normal" level of
interest rate risk in the event of an immediate and sustained 200 basis point
change in interest rates is a decrease in the institution's NPV in an amount not
exceeding 2% of the present value of its assets. Beginning September 30, 1995,
thrift institutions with greater than "normal" interest rate exposure must take
a deduction from their total capital available to meet their risk-based capital
requirement. The amount of that deduction is one-half of the difference between
(a) the institution's actual calculated exposure to the 200 basis point interest
rate increase or decrease (whichever results in the greater pro forma decrease
in NPV) and (b) its "normal" level of exposure which is 2% of the present value
of its assets. Regulations do exempt all institutions under $300 million in
assets and risk based capital exceeding 12% from reporting information to
calculate exposure and making any deduction from risk-based capital. At December
31, 1996, Montgomery's total assets were $94.6 million and risk-based capital
was 13.5 % and Montgomery would have been exempt from calculating or making any
risk-based capital reduction. Montgomery's management believes interest-rate
risk is an important factor and makes all reports necessary to OTS to calculate
interest-rate risk on a voluntary basis. At December 31, 1996, the most recent
information available from the OTS, 2.0% of the present value of Montgomery's
assets was approximately $1.93 million, which was less than $3.28 million, the
greatest decrease in NPV
50
<PAGE>
resulting from a 200 basis point change in interest rates. As a result,
Montgomery, for OTS reporting purposes, would have been required to make a
deduction from total capital in calculating its risk-based capital requirement
had this rule been in effect and had Montgomery not been exempt from reporting
on such date. Based on December 31, 1996 NPV information, the amount of
Montgomery's deduction from capital, had it been subject to reporting, would
have been approximately $677,000.
It has been and continues to be a priority of Montgomery's Board of
Directors and management to manage interest rate risk and thereby limit any
negative effect of changes in interest rates on Montgomery's NPV. Montgomery's
Interest Rate Risk Policy, established by the Board of Directors, promulgates
acceptable limits on the amount of change in NPV given certain changes in
interest rates. Specific strategies have included shortening the amortized
maturity of fixed-rate loans and increasing the volume of adjustable rate loans
to reduce the average maturity of Montgomery's interest-earning assets. FHLB
advances are used in an effort to match the effective maturity of Montgomery's
interest-bearing liabilities to its interest-earning assets.
Presented below, as of December 31, 1996, and June 30, 1996, is an
analysis of Montgomery's estimated interest rate risk as measured by changes in
NPV for instantaneous and sustained parallel shifts in interest rates, up and
down 300 basis points in 100 point increments, compared to the limits set by the
Board. Assumptions used in calculating the amounts in this table are those
assumptions utilized by the OTS in assessing the interest risk of the thrifts it
regulates. Based upon assumptions at December 31, 1996 and June 30, 1996, the
NPV of Montgomery was $11.1 million and $10.7 million, respectively. NPV is
calculated by the OTS for the purposes of interest rate risk assessment and
should not be considered as an indicator of value of Montgomery.
51
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1996 At June 30, 1996
- ----------------------------------------------------------------------------------------------------------------
Assumed Board
Change in Limit
Interest Rates % Change $ Change % Change $ Change % Change
(Basis Points) in NPV in NPV in NPV in NPV in NPV
-------------- ------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
+300 -60 -5,247 -47 -4,823 -45
+200 -50 -3,283 -30 -3,042 -29
+100 -30 -1,452 -13 -1,351 -13
0 0 0 0 0 0
-100 -30 +876 +8 +838 +8
-200 -50 +1,092 +10 +1,097 +10
-300 -60 +1,102 +10 +1,112 +10
</TABLE>
In the event of a 300 basis point change in interest rate based upon
estimates as of December 31, 1996, Montgomery would experience a 10% increase in
NPV in a declining rate environment and a 47% decrease in NPV in a rising
environment. During periods of rising rates, the value of monetary assets and
liabilities decline. Conversely, during periods of falling rates, the value of
monetary assets and liabilities increase. However, the amount of change in value
of specific assets and liabilities due to changes in rates is not the same in a
rising rate environment as in a falling rate environment (i.e., the amount of
value increase under a specific rate decline may not equal the amount of value
decrease under an identical upward rate movement). Based upon the NPV
methodology, the increased level of interest rate risk experienced by Montgomery
in recent periods was primarily due to the interest rate on interest- bearing
liabilities increasing more than the interest rate on interest-earning assets
because of the per adjustment rate limitation on adjustable rate loans due to
lag in rate adjustments for such loans as compared to interest-bearing
liabilities.
Current Accounting Issues [ACCOUNTANTS TO UPDATE AS APPROPRIATE]
The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
This Statement establishes guidance for recognizing and measuring impairment
losses and requires that the carrying amount of impaired assets be reduced to
fair value.
The Statement requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable.
In performing the review for recoverability, the entity must estimate
the future cash flows expected to result from the use of the asset and its
eventual disposition. If the sum of the expected future net cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss must be recognized and the reduced carrying value
of the asset becomes its new cost. For depreciable assets, this new cost is
depreciated over the asset's remaining useful life. Restoration of previously
recognized impairment losses is prohibited.
52
<PAGE>
An impairment loss for assets to be held and used would be reported as
a component of income from continuing operations before income taxes and would
require additional disclosures.
Long-lived assets and identifiable intangibles that will be disposed of
must be reported at the lower of carrying amount or fair value less cost to
sell, except for assets covered by Accounting Principles Board ("APB") Opinion
No. 30, which will continue to be reported at the lower of cost or net
realizable value.
Gains and losses resulting from impairment of assets that will be
disposed of are reported as components of income from continuing operations and
would also require additional disclosures.
The Statement is effective for Montgomery for its fiscal year ending
June 30, 1997. Initial application of SFAS No. 121 is to be accounted for as a
cumulative effect of a change in accounting principle. Restatement of previously
issued financial statement is not permitted.
During 1995, the FASB issued SFAS No. 122, entitled Accounting for
Mortgage Servicing Rights. SFAS No. 122 pertains to mortgage banking enterprises
and financial institutions that conduct operations that are substantially
similar to the primary operations of a mortgage banking enterprise. The
Statement eliminates the accounting distinction between mortgage servicing
rights that are acquired through loan origination activities and those acquired
through purchase transactions. Under this Statement, if a mortgage banking
enterprise sells or securitizes loans and retains the mortgage servicing rights,
the enterprise must allocate the total cost of the mortgage loans to the
mortgage servicing rights and the loans (without the rights) based on their
relative fair values if it is practicable to estimate those fair values. If it
is not practicable, the entire cost should be allocated to the mortgage loans
and no cost should be allocated to the mortgage servicing rights. An entity
would measure impairment of mortgage servicing rights and loans based on the
excess of the carrying amount of the mortgage servicing rights portfolio over
the fair value of that portfolio.
The adoption of this Statement by the Association during the year ended
June 30, 1996 did not have a material impact on financial condition or results
of operations.
The FASB has issued SFAS No. 123, Accounting for Stock-based
Compensation. This Statement establishes a fair value based method of accounting
for stock-based compensation plans. The FASB encourages all entities to adopt
this method for accounting for all arrangements under which employees receive
shares of stock or other equity instruments of the employer, or the employer
incurs liabilities to employees in amounts based on the price of its stock.
Due to the extremely controversial nature of this project, the
Statement permits a company to continue the accounting for stock-based
compensation prescribed in APB Opinion No. 25, Accounting for Stock Issued to
Employees. If a company elects that option, proforma disclosures of net income
(and EPS, if presented) are required in the footnotes as if the provisions of
this Statement had been used to measure stock-based compensation.
The disclosure requirements of APB Opinion No. 25 have been superseded
by the disclosure requirements of this Statement.
53
<PAGE>
Once an entity adopts the fair value based method for accounting for
these transactions, that election cannot be reversed.
Equity instruments granted or otherwise transferred directly to an
employee by a principal stockholder are stock-based employee compensation to be
accounted for in accordance with either Opinion 25 or this Statement, unless the
transfer clearly is for a purpose other than compensation.
The accounting requirements of this Statement and related disclosure
requirements are effective for transactions entered into by Montgomery for the
fiscal year ending June 30, 1997. Proforma disclosures required for entities
that elect to continue to measure compensation cost using Opinion 25 must
include the effects of all awards granted in fiscal years that begin after
December 15, 1994.
In general, during the initial phase-in period, the effects of applying
this Statement are not likely to be representative of the effects on reported
net income for future years because options vest over several years and
additional awards generally are made each year. If that situation exists,
Montgomery must include a statement to that effect.
SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, breaks new ground in resolving
long-standing questions about whether transactions should be accounted for as
secured borrowings or as sales. The Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are considered secured borrowings.
A transfer of financial assets in which the transferor surrenders
control over those assets is accounted for as a sale to the extent that
consideration other than beneficial interests in the transferred assets is
received in exchange. The transferor has surrendered control over transferred
assets only if all of the following conditions are met:
o The transferred assets have been isolated from the transferor
-- put presumptively beyond the reach of the transferor and
its creditors, even in bankruptcy or other receivership.
o Each transferee obtains the right -- free of conditions that
constrain it from taking advantage of that right -- to pledge
or exchange the transferred assets, or the transferee is a
qualifying special-purpose entity and the holders of
beneficial interests in that entity have the right free of
conditions that constrain them from taking advantage of that
right -- to pledge or exchange those interests.
o The transferor does not maintain effective control over the
transferred assets through an agreement that both entitles and
obligates the transferor to repurchase or redeem them before
their maturity, or all agreement that entitles the transferor
to repurchase or redeem transferred assets that are not
readily obtainable.
This Statement provides detailed measurement standards for assets and
liabilities included in these transactions. It also includes implementation
guidance for assessing isolation of transferred assets and for accounting for
transfers of partial interests, servicing of financial assets, securitizations,
transfers
54
<PAGE>
of sales-type and direct financing lease receivables, securities lending
transactions, repurchase agreements, "wash sales," loan syndications and
participations, risk participations in banker's acceptances, factoring
arrangements, transfers of receivables with recourse, and extinguishments of
liabilities.
The Statement supersedes FASB SFAS No. 76, Extinguishment of Debt, and
No. 77, Reporting by Transferors for Transfers of Receivables with Recourse, and
No. 122, Accounting for Mortgage Servicing Rights and amends FASB SFAS No. 115,
Accounting or Certain Investments in Debt and Equity Securities, in addition to
clarifying or amending a number of other statements and technical bulletins.
This Statement is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996 and
is to be applied prospectively. Earlier or retroactive application is not
permitted.
Impact of Inflation
The consolidated financial statements and related financial information
presented elsewhere herein have been prepared in accordance with GAAP, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation.
The effect of inflation on savings associations and other financial
institutions differs from the impact on nonfinancial institutions. Savings
associations, as financial intermediaries, have assets and liabilities which may
move in concert with inflation. This is especially true for savings institutions
with a high percentage of rate-sensitive interest-earning assets and
interest-bearing liabilities. A financial institution can reduce the impact of
inflation by managing its rate sensitivity gap.
55
<PAGE>
BUSINESS OF MONTGOMERY
General
Montgomery is principally engaged in the business of making first
mortgage loans to finance the purchase, construction or improvement of
residential homes or other real property. To a lesser extent, Montgomery also
offers various types of loans to individuals and businesses. Loan funds are
obtained primarily from savings deposits (which are insured up to applicable
limits by the FDIC), loan principal repayments, and borrowings (primarily in the
form of advances from the FHLB of Indianapolis). Montgomery invests in
interest-bearing deposits in other financial institutions and other investments
permitted by applicable law.
Interest on loans and investments is Montgomery's primary source of
income. Montgomery's principal expense is interest paid on deposit accounts and
borrowings. Operating results are dependent to a significant degree on the "net
interest income" of Montgomery, which is the difference between interest income
from loans and investments and interest expense on deposits and borrowings. Like
most thrift institutions, Montgomery's interest income and interest expense are
significantly affected by general economic conditions and by the policies of
various regulatory authorities.
Lending Activities
General. Montgomery's revenue consists primarily of interest income
generated by lending activities, including the origination of conventional
fixed-rate and variable-rate mortgage loans on one-to four-family homes located
in Montgomery's primary market area and consumer loans secured by savings
deposits, residential real estate, and various other items of collateral. To a
lesser extent mortgage loans on multi-unit and nonresidential properties are
also offered by Montgomery. Montgomery does not make loans insured by the
Federal Housing Authority ("FHA loans") or loans guaranteed by the Veterans
Administration ("VA loans").
56
<PAGE>
Loan Portfolio Composition. The following table presents certain
information about the composition of Montgomery's loan portfolio at the dates
indicated:
<TABLE>
<CAPTION>
June 30,
December 31, -----------------------------------------------------------------
1996 1996 1995 1994
----------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Type of Loan:
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential........................... $72,891 87.01% $68,961 86.12% $65,890 84.55% $62,672 86.79%
Land.................................. 1,852 2.21 1,656 2.07 1,866 2.39 422 0.58
Nonresidential........................ 5,263 6.28 5,866 7.33 6,076 7.80 5,694 7.88
Construction:
Residential....................... 1,448 1.73 1,261 1.57 1,345 1.73 1,602 2.22
-------- ------- ------- ------- -------- ------- -------- -------
Total mortgage loans............ 81,454 97.23 77,744 97.09 75,177 96.47 70,390 97.47
------- ------ ------- ------- -------- ------ -------- ------
Consumer loans:
Home equity........................... 2,536 3.03 2,444 3.05 2,653 3.40 2,673 3.70
Savings account and unsecured
consumer loans.................... 638 0.76 574 0.72 576 0.74 201 0.28
--------- ------ -------- ------- -------- ------ -------- ------
Total other loans............... 3,174 3.79 3,018 3.77 3,229 4.14 2,874 3.98
-------- ------ ------- ------- -------- ------ ------- ------
Less:
Loans in process...................... 861 1.02 683 0.85 456 .58 955 1.32
Deferred loan fees (costs)............ (161) (0.19) (153) (0.19) (117) (0.15) (64) (0.09)
Allowance for loan losses............. 158 0.19 158 0.20 138 0.18 158 0.22
-------- ------- -------- ------- --------- ------ -------- -------
Total adjustments............... 858 1.02 688 0.86 477 0.61 1,049 1.45
-------- ------- -------- ------- --------- ------ -------- -------
Total loans, net........................ $83,770 100.00% $80,074 100.00% $77,929 100.00% $72,215 100.00%
====== ====== ======= ====== ======= ====== ======= ======
Type of Security:
Residential:
1-4 family............................ $73,651 87.92% $69,353 86.61% $66,048 84.76% $63,126 87.42%
5 or more units....................... 688 0.82 869 1.08 1,187 1.52 1,148 1.59
Nonresidential.......................... 5,263 6.28 5,866 7.33 6,076 7.80 5,694 7.88
Land.................................... 1,852 2.21 1,656 2.07 1,866 2.39 422 0.58
Residential--second mortgage............ 2,536 3.03 2,444 3.05 2,653 3.40 2,673 3.70
Savings accounts and unsecured
consumer loans...................... 638 0.76 574 0.72 576 0.74 201 0.28
-------- ------- --------- ------- -------- ------- -------- -------
Total loans..................... 84,628 101.02 80,762 100.86 78,406 100.61 73,264 101.45
------- ------ -------- ------ ------- ------ ------- ------
Less:
Loans in process...................... 861 1.02 683 0.85 456 .58 955 1.32
Deferred loan fees (cost)............. (161) (0.19) (153) (0.19) (117) (0.15) (64) (0.09)
Allowance for loan losses............. 158 0.19 158 0.20 138 0.18 158 0.22
-------- ------- --------- ------- -------- ------- -------- -------
Total loans, net........................ $83,770 100.00% $80,074 100.00% $77,929 100.00% $72,215 100.00%
====== ====== ======= ====== ======= ====== ======= ======
</TABLE>
57
<PAGE>
Loan Maturity Schedule. The following table illustrates the maturities
of Montgomery's loan portfolio at December 31, 1996. Mortgages which have
adjustable or renegotiable interest rates are shown as maturing in the period
during which the contract is subject to repricing. The schedule does not reflect
the effects of possible prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Due During Years Ended December 31,
-----------------------------------
2000 2002 2007 2012 Balance
And Through Through And December 31,
1997 1998 1999 2001 2006 2011 Following 1996
----------- ----------- ----------- ---------- ----------- ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential mortgage....... $28,239 $ 737 $343 $10,657 $5,468 $16,315 $11,132 $72,891
Nonresidential mortgage.... 1,832 --- 14 635 361 2,163 258 5,263
Residential construction... 673 --- --- 118 --- 80 577 1,448
Land loans................. 982 81 --- 732 57 --- --- 1,852
Home equity loans.......... 422 71 242 732 797 272 --- 2,536
Savings account loans...... 386 145 21 70 16 --- --- 638
--------- -------- ------ --------- -------- ---------- -------- --------
Total............. $32,534 $1,034 $ 620 $12,944 $6,699 $18,830 $11,967 $84,628
======= ====== ===== ======= ====== ======= ======= =======
</TABLE>
The following table sets forth as of December 31, 1996 the dollar
amount of all loans due after one year which have fixed and floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Fixed Variable
Rates Rates Total
----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C>
Residential mortgage............................................ $34,072 $10,580 $44,652
Nonresidential mortgage ........................................ 2,984 447 3,431
Residential construction........................................ 657 118 775
Land loans ..................................................... 552 318 870
Home equity loans............................................... 2,114 --- 2,114
Savings account and unsecured consumer
loans.......................................................... 252 --- 252
--------- --------- --------
Total.................................................... $40,631 $11,463 $52,094
======= ======= =======
</TABLE>
Residential Loans. The primary lending activity of Montgomery has been
the origination of conventional loans for the acquisition or construction of
single-family residences. Montgomery also originates loans on two-to four-family
dwellings and multi-family housing (over four units). Each of these types of
loans is secured by a mortgage on the underlying real estate and improvements
thereon, if any.
OTS regulations limit the amount which Montgomery may lend in
relationship to the appraised value of the underlying real estate at the time of
loan origination. In accordance with such regulations and law, Montgomery makes
loans on single family residences up to 90% of the value of the real estate and
improvements (the "Loan-to-Value Ratio" or "LTV"). Montgomery makes loans from
time to time of between 90% and 95% of the value of the real estate and obtains
private mortgage insurance on those loans to reduce its exposure to 80% of the
real estate's value
58
<PAGE>
or makes such loans on an uninsured basis as a part of Montgomery's Community
Reinvestment Program for first-time buyers with low to moderate incomes.
Adjustable-rate mortgage loans ("ARMs") are offered by Montgomery for
terms of normally 15 to 20 years, although Montgomery will offer such loans up
to terms of 25 years. The interest rate adjustment periods on the ARMs are
usually one year. The maximum adjustment at each adjustment date is usually 1%
with a maximum average adjustment of 4% over the term of the loan. The interest
rate adjustments on ARMs presently originated by Montgomery are tied to changes
in the monthly average yield of U.S. Treasury securities adjusted to a constant
maturity of one or five years.
Montgomery offers fixed-rate mortgage loans for terms of up to 20
years. Due to the nature of an investment in fixed-rate mortgage loans, such
loans could have a negative effect upon Montgomery's interest rate spread
because such loans do not reprice as quickly as Montgomery's cost of funds.
Actual experience reveals, however, that, as a result of prepayments in
connection with refinancings and sales of the underlying properties, residential
loans generally remain outstanding for periods which are shorter than the
maturity of such loans, although not as short as the periods in which the cost
of funds is typically repricing.
Of the total real estate loans originated by Montgomery during the six
months ended December 31, 1996, 22.7% were ARMs and 77.3% were fixed-rate loans.
Montgomery's residential loan portfolio, including residential
construction loans, totalled approximately $74.3 million at December 31, 1996,
and represented 78.5% of total assets and 88.8% of total outstanding loans.
Adjustable-rate residential loans comprised 45.8% and fixed rate loans totalled
42.8% of Montgomery's total loans at December 31, 1996.
Construction Loans. Montgomery offers residential construction loans to
owner-occupants and occasionally to builders. At December 31, 1996, Montgomery
had $1.4 million in outstanding construction loans.
Construction loans generally involve greater underwriting and default
risks than do loans secured by mortgages on existing properties. Loan funds are
advanced upon the security of the project under construction, which is more
difficult to value before the completion of construction. Moreover, because of
the uncertainties inherent in estimating construction costs, it is relatively
difficult to evaluate accurately the total loan funds required to complete a
project and the related Loan-to-Value Ratios. In the event a default on a
construction loan occurs and foreclosure follows, Montgomery would have to take
control of the project and attempt either to arrange for completion of
construction or dispose of the unfinished project.
Nonresidential Real Estate and Land Loans. Montgomery makes loans
secured by nonresidential real estate consisting of farms and various retail and
other income-producing properties. At December 31, 1996, these loans totalled
$7.1 million or approximately 8.4% of Montgomery's total loans.
59
<PAGE>
Nonresidential real estate lending is generally considered to involve a
higher degree of risk than residential lending due to the relatively larger loan
amounts and the effects of general economic conditions on the successful
operation of income-producing properties. Montgomery has endeavored to reduce
this risk by carefully evaluating the credit history and past performance of the
borrower, the location of the real estate, the quality of the management, the
debt service ratio, the quality and characteristics of the income stream
generated by the property and appraisals supporting the property's valuation.
Federal regulations limit the amount of nonresidential mortgage loans which an
association can make.
Consumer Loans. Montgomery makes two types of consumer loans -- loans
made to depositors on the security of their savings deposits and loans secured
by second real estate mortgages. Second mortgage loans may have terms as long as
15 years depending upon the nature of the request. Such loans are limited in
amount by determining 100% of the value of the real estate and subtracting any
prior liens.
Although regulations permit Montgomery to loan up to 100% of the value
of savings deposits pledged as collateral for loans, Montgomery's normal policy
is to loan no more than 95% of the current principal balance of pledged
accounts. The current interest rate charged on such pledged accounts is usually
2% above the rate paid on the underlying deposit.
At December 31, 1996, consumer loans totalled $3.2 million or 3.8% of
Montgomery's total loans. The Association may seek to emphasize the origination
of equity lines of credit in the future.
Loan Originations, Solicitation, and Processing. Loan originations are
developed from a number of sources, including solicitations by Montgomery's
staff, continuing business with depositors and other borrowers, real estate
agents, newspaper and radio advertising, and walk-in customers.
Mortgage loan applications are taken by one of Montgomery's loan
officers. Montgomery obtains a credit report, verification of employment and
other documentation concerning the credit-worthiness of the borrower and an
appraisal of the fair market value of the real estate which will be given as
security for the loan. Appraisals are performed by a designated licensed fee
appraiser approved by the Board of Directors. Such loans are subject to approval
upon the completion of the appraisal and the receipt of all necessary
information on the credit history and credit-worthiness of the borrower. At
least two Board members must approve all loans over $175,000. All approved loans
are reported to the full Board at their regular monthly meeting.
If a mortgage loan application is approved, satisfactory evidence of
merchantable title is obtained on the real estate and improvements which will
secure the mortgage loan. Borrowers are required to carry satisfactory fire and
casualty insurance and flood insurance, if applicable, and to name Montgomery as
an insured mortgagee.
The procedure for approval of construction/permanent loans is the same
as for residential mortgage loans, except that the appraiser evaluates the
building plans, construction specifications
60
<PAGE>
and estimates of construction costs. Montgomery also evaluates the feasibility
of the proposed construction project and the experience and record of the
builder.
Consumer loans are underwritten on the basis of the borrower's credit
history, the value of the collateral, and an analysis of the borrower's income
and expenses and ability to repay the loan.
The following table shows total loans originated and repaid during the
periods indicated.
<TABLE>
<CAPTION>
Six Months Ended
December 31, Years Ended June 30,
--------------------------- ------------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
Total gross loans at beginning
<S> <C> <C> <C> <C> <C>
of period.................................. $80,762 78,406 $78,286 $73,144 $64,029
Loans originated:
Residential mortgage...................... 11,984 9,345 23,285 15,008 25,232
Nonresidential mortgage................... 1,450 558 1,270 1,027 2,158
Residential construction.................. 1,653 1,124 1,764 2,742 1,959
Nonresidential construction............... --- --- --- --- 120
Land loans................................ 364 270 618 1,158 323
Other loans............................... 427 280 523 1,550 2,020
---------- --------- --------- ------- --------
Total loans originated................ 15,878 11,577 27,460 21,485 31,692
Participation loans purchased:
Nonresidential mortgage................... --- --- 553 768
Participation loans sold:
Nonresidential mortgage................... --- --- (559) (156)
Loan principal payments..................... (6,195) (5,695) (12,668) (10,793) (13,424)
Other changes, net(1)....................... (5,817) (5,556) (12,436) (5,544) (9,765)
--------- ------- -------- -------- --------
Total gross loans at end of
period..................................... $84,628 $78,732 $80,642 $78,286 $73,144
======= ======= ======= ======= =======
</TABLE>
(1) Represents all changes except cash repayments of principal.
Under OTS regulations, the aggregate amount of loans that Montgomery
may make to any one borrower (including related entities), with certain
exceptions, is limited in general to 15% of its unimpaired capital and surplus,
or approximately $1.4 million. The largest amount which Montgomery had
outstanding to one borrower at December 31, 1996 was for $1.0 million,
consisting of eight loans, all of which were performing in accordance with their
terms.
61
<PAGE>
Loan Origination and Other Fees. Montgomery realizes interest income
from its lending activities and also realizes income from late payment charges,
credit life and disability insurance premium commissions, and fees for other
miscellaneous services.
Loan origination fees and other fees are a volatile source of income,
varying with the volume of lending and economic conditions. Compliance with SFAS
No. 91 has resulted in a change from Montgomery's past accounting practice and
has reduced the amount of revenue recognized by Montgomery at the time such
loans are originated or acquired, but will increase the yield reported on such
loans as such deferred fees are amortized, thereby spreading the income over a
greater number of years.
Delinquent Loans and Classified Assets. Montgomery attempts to minimize
loan delinquencies through careful underwriting procedures. When mortgage loans
become delinquent, Montgomery attempts to bring the loans current through the
assessment of late charges and adherence to its established collection
procedures. Generally, after a loan payment is 15 days delinquent, a late charge
of 5% of the amount of the payment is assessed and Montgomery will contact the
borrower to request payment. Montgomery generally will initiate foreclosure
proceedings only after attempts to obtain a deed in lieu of foreclosure are
unsuccessful or inappropriate and when it becomes apparent that the loan will
not be collectable or when the collateral is becoming inadequate to support
payments of the total debt. The above procedure similarly applies to consumer
loans.
Real estate acquired by Montgomery as a result of foreclosure or by
deed in lieu of foreclosure and real estate securing loans deemed to be
foreclosed in substance are classified as "real estate owned" until sold. When
property is so acquired, or deemed to have been acquired, it is recorded at the
lower of the unpaid principal balance of the loan or the fair value of the real
estate at the date of acquisition, not to exceed net fair value minus estimated
costs to sell. Periodically, real estate owned is reviewed to ensure that the
fair value minus estimated costs to sell is no less than carrying value, and if
it is, the difference is charged to earnings as a loss. Costs relating to
development and improvement of property are capitalized, whereas costs relating
to the holding of property are expensed.
62
<PAGE>
The following table reflects the amount of loans in a delinquent status
as of the dates indicated:
<TABLE>
<CAPTION>
June 30,
December 31, -------------------------------------------
1996 1996 1995 1994
---- ---- ---- ----
(In Thousands)
Loans delinquent for:
<S> <C> <C> <C> <C>
30 to 59 days............................. $1,068 $ 988 $ 795 $ 688
60 to 89 days............................. 707 542 255 379
90 or more days........................... 314 661 817 527
------ ------- ------- -------
Total delinquent loans................ $2,089 $2,191 $1,867 $1,594
===== ====== ====== ======
Ratio of total delinquent loans 2.49% 2.73% 2.39% 2.20%
to total loans.............................
</TABLE>
All loans are reviewed on a regular basis and are placed on non-accrual
status when, in the opinion of management, the collection of principal or
interest is doubtful. Interest accrued and unpaid at the time a loan is placed
on non-accrual status is charged against interest income. Subsequent payments
are either applied to the outstanding principal balance or recorded as interest
income, depending on management's assessment of the ultimate collectability of
the loan.
The following table sets forth information with respect to Montgomery's
non-performing assets at the dates indicated:
<TABLE>
<CAPTION>
June 30,
December 31, -------------------------------------------
1996 1996 1995 1994
---- ---- ---- ----
(Dollars in Thousands)
Nonaccrual loans:
<S> <C> <C> <C> <C>
Residential mortgage loans................ $ 242 $ 614 $ 503 $ 494
Nonresidential mortgage loans............. 18 19 19 18
Consumer loans............................ --- --- --- ---
-------- -------- --------- --------
Total nonaccrual loans.................. 260 633 522 512
Loans contracturally past due 90 days or more:
Residential mortgage --- --- 277
Nonresidential mortgage --- --- --- ---
Consumer loans 54 28 18 15
------- -------- -------- -------
Total loans contracturally past due 90
days or more 54 28 295 15
------- -------- ------- -------
Total non-performing loans 314 661 817 527
Real estate acquired in
settlement of loans (net).................. 65 148 124 ---
------- ------- ------- --------
Total non-performing
assets................................ $ 379 $ 809 $ 941 $ 527
====== ===== ===== ======
</TABLE>
During the periods shown, Montgomery had no restructured loans within the
meaning of SFAS No. 15. There were no loans which are not currently classified
as non-accrual, 90 days past
63
<PAGE>
due or restructured but which may be so classified in the near future because
management has concerns as to the ability of the borrowers to comply with
repayment terms.
On July 1, 1995, Montgomery adopted SFAS Nos. 114 and 118 Accounting by
Creditors for Impairment of a Loan and Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosures. Included in residential mortgage
loans at June 30, 1996, in the above table of non-performing loans is an
impaired loan of $308,000 for which an allowance for losses was not deemed
necessary. There were no loans considered impaired as of December 31, 1996. The
average balance of impaired loans for the six months ended December 31, 1996 was
$51,000 and for the year ended June 30, 1996, was $272,000. Interest income and
cash receipts of interest totaled $33,000 and $6,000 during the period in the
year ended June 30, 1996, that the loan was impaired. There was no interest
income or cash receipts on impaired loans during the six months ended December
31, 1996.
For the six months ended December 31, 1996 and the year ended June 30,
1996, the income that would have been recorded had the non-accrual loans other
than the impaired loan mentioned above not been in a non-performing status
totaled $23,000 and $36,000, respectively, compared to actual income recorded of
$3,000 and $18,000, respectively.
Current OTS regulations require each savings institution to classify
its assets on a regular basis. Under such regulations, problem assets are to be
classified as either (i) "substandard," (ii) "doubtful" or (iii) "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the same weaknesses as
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full highly questionable and improbable on the
basis of existing facts, conditions and value. Assets classified as "Loss" are
considered uncollectible and of such little value that their treatment as assets
without the establishment of a specific reserve is unwarranted. The regulations
also have a "special mention" category for assets which do not currently expose
an association to a sufficient degree of risk to warrant classification, but
which possess credit deficiencies or potential weaknesses deserving management's
close attention.
64
<PAGE>
At December 31, 1996 and June 30, 1996, 1995 and 1994, the aggregate
amounts of Montgomery's special mention and classified assets were as follows:
<TABLE>
<CAPTION>
June 30,
December 31, -------------------------------------------
1996 1996 1995 1994
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Special mention............................ $ --- $ 671 $ 795 $ 688
Classified assets:
Substandard............................... 380 661 255 379
Doubtful.................................. --- --- --- ---
Loss...................................... --- --- --- ---
------- --------- -------- --------
Total classified and special mention
assets.............................. $ 380 $1,332 $1,290 $ 939
====== ====== ====== ======
Allowance for loan losses................... $ 158 $ 158 $ 138 $ 158
====== ====== ====== ======
</TABLE>
Montgomery is required to establish general allowances for loan losses
for assets classified as substandard or doubtful. If an asset, or portion
thereof, is classified as loss, Montgomery must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss, or charge off such amount. Federal examiners are authorized to
classify an association's assets. If an association does not agree with an
examiner's classification of an asset, it may appeal this determination to the
District Director of the OTS.
65
<PAGE>
The following tables set forth an analysis of Montgomery's allowances
for loan losses for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended
December 31, Years Ended June 30,
----------------- -------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance of allowance at beginning of
period............................... $ 158 $ 138 $138 $158 $133
Add: Recoveries on loans previously
charged off.......................... --- --- --- --- ---
Less: Charge-offs--residential real
estate loans......................... --- --- --- 5 ---
----- ----- ----- ----- -----
Net charge-offs........................ --- --- --- 5 ---
----- ----- ----- ----- -----
Provision (adjustment) for losses on
loans................................ --- (26) 20 (15) 25
----- ----- ----- ----- ----
Balance of allowance at end of period.. $ 158 $ 112 $158 $138 $158
===== ===== ==== ==== ====
Net charge-offs to total average loans
outstanding for period............... --- --- --- 0.01% ---
Allowance at end of period to net loans
receivable at end of period.......... 0.19% 0.14% 0.20% 0.18% 0.22%
Non-performing assets to total assets.. 0.40 1.00 0.92 1.08 0.66
Non-performing loans to total loans.... 0.37 0.92 0.83 1.05 0.73
Allowance to non-performing loans...... 50.32 15.38 24.96 16.89 29.98
</TABLE>
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------------------------
December 31, 1996 1996 1995 1994
------------------- -------------------- ------------------- --------------------
Percent of Percent of Percent of Percent of
loans in loans in loans in loans in
each each each each
category to category to category to category to
Amount total loans Amount total loans Amount total loans Amount total loans
------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to:
Residential................. $ 48 86.13% $ 37 85.39% $ 40 84.04% $ 85.54%
Nonresidential and land...... 3 8.41 --- 9.31 --- 10.13 --- 8.35
Construction loans.......... --- 1.71 --- 1.56 --- 1.71 --- 2.19
Consumer loans............... 21 3.75 17 3.74 17 4.12 11 3.92
Unallocated................. 86 --- 104 --- 81 --- 112 ---
----- ------ ----- ------ ----- ------ ----- ------
Total................... $ 158 100.00% $ 158 100.00% $ 138 100.00% $ 158 100.00%
===== ====== ===== ====== ===== ====== ===== ======
</TABLE>
66
<PAGE>
Investment Activities
OTS regulations require that Montgomery maintain a minimum amount of
liquid assets, which may be invested in United States Treasury obligations,
securities of various federal agencies, certificates of deposit at insured
banks, deposits with the FHLB of Indianapolis, bankers' acceptances, and federal
funds. Montgomery is also permitted to make investments in certain commercial
paper, corporate debt securities and certain mutual funds, as well as other
investments permitted by federal regulations. On July 1, 1994, Montgomery
adopted SFAS No. 115. Montgomery considers all its investment and
mortgage-backed securities to be available for sale and pursuant to the
requirements of SFAS No. 115 these securities are reported at fair value. Prior
to the adoption of SFAS No. 115 these securities were reported at amortized
cost.
The following tables set forth information regarding Montgomery's
investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
June 30,
December 31, -----------------------------------------------------------------
1996 1996 1995 1994
--------------------- -------------------- --------------------- --------------------
Book % Book % Book % Book %
Value of Total Value of Total Value of Total Value of Total
----- -------- ----- -------- ----- -------- ----- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with
banks......................... $ 100 100.00% $ 100 100.00% $ 100 100.00% $ 200 100.00%
======= ====== ======= ====== ====== ====== ======= ======
Investment securities:
U.S. Treasury................ $ --- ---% $ --- ---% $ 250 16.10% $ 250 10.46%
Federal agencies............. --- --- 250 23.54 257 16.55 251 10.50
Municipals................... 52 6.48 62 5.84 71 4.57 88 3.68
Corporate obligations........ --- --- --- --- 225 14.49 485 20.28
Mortgage-backed securities... --- --- --- --- --- --- 707 29.57
-------- -------- -------- -------- -------- ------- -------- ------
Total investment securities 52 6.48 312 29.38 803 51.71 1,781 74.49
FHLB stock..................... 750 93.52 750 70.62 750 48.29 610 25.51
------- ------ ------- ------ ------ ------- -------- ------
Total investment securities, $ 802 100.00% $1,062 100.00% $1,553 100.00% $2,391 100.00%
====== ====== ====== ====== ====== ====== ====== ======
mortgage-backed securities,
and FHLB stock..........
The composition and maturities of the available for sale securities
portfolio at December 31, 1996, excluding FHLB of Indianapolis stock, are
indicated in the following table.
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Over 10
1 Year Years Years Years Total Investment Securities
------ ----- ----- ----- ---------------------------
Book Value Book Value Book Value Book Value Book Value Fair Value
---------- ---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Municipals.......................... --- $ 52 --- --- $ 52 $ 52
------ ---- ----- ----- ----- -----
Total investment securities...... --- $ 52 --- --- $ 52 $ 52
====== ==== ===== ===== ===== =====
Weighted average yield.............. 7.00% 7.00%
</TABLE>
Deposits and Borrowings
General. Deposits have traditionally been the primary source of
Montgomery's funds for use in lending and other investment activities. In
addition to deposits, Montgomery derives funds from interest payments and
principal repayments on loans and income on earning assets.
67
<PAGE>
Loan payments are a relatively stable source of funds, while deposit inflows and
outflows fluctuate more in response to general interest rates and money market
conditions. Borrowings from the FHLB of Indianapolis are used on a short-term
basis to compensate for reductions in the availability of funds from other
sources or on a longer term basis for general business purposes.
Deposits. Deposits are attracted principally from within Montgomery's
primary market area through the offering of a selection of deposit instruments,
including NOW accounts, regular passbook savings accounts, term certificate
accounts and retirement savings plans. Interest rates paid, maturity terms,
service fees and withdrawal penalties for the various types of accounts are
established on a periodic basis by Montgomery's chief executive officer, subject
to review by the Board of Directors, based on Montgomery's liquidity
requirements, growth goals and interest rates paid by competitors. Montgomery
does not use brokers to attract deposits.
Montgomery's deposits as of December 31, 1996 were represented by the
various types of savings programs described below:
<TABLE>
<CAPTION>
Weighted
Average Balance Percent
Interest Term Minimum December 31, of Total
Rate (Months) Category Amount 1996 Deposits
- ------------- ------------- ----------------------------------- ------------ ---------------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
2.91% NOW accounts N/A $ 3,091 4.27%
3.74 Regular savings N/A 4,289 5.93
3.80 Money market demand accounts N/A 7,719 10.67
--- Demand accounts N/A 465 0.64
-------- -------
15,564 21.51
-------- -------
5.71 18 IRA fixed rate and term 500 2,068 2.86
5.36 30 IRA fixed rate and term 500 88 0.12
4.11 3 Fixed rate and term N/A 144 0.20
5.01 6 Fixed rate and term N/A 4,018 5.56
5.54 12 Fixed rate and term N/A 11,107 15.35
5.98 18 Fixed rate and term N/A 8,447 11.68
6.10 24 Fixed rate and term N/A 4,111 5.68
6.12 30 Fixed rate and term N/A 3,699 5.11
6.15 36 Fixed rate and term N/A 3,331 4.61
6.34 48 Fixed rate and term N/A 2,032 2.81
6.24 60 Fixed rate and term N/A 10,916 15.09
6.26 3 Fixed rate and term N/A 364 0.50
5.49 Various Public funds N/A 6,454 8.92
-------- -------
56,779 78.49
-------- -------
$72,343 100.00%
======= =======
</TABLE>
The following table presents the certificates of deposit in Montgomery
classified by rates at the dates indicated:
<TABLE>
<CAPTION>
June 30,
December 31, -------------------------------------------------
1996 1996 1995 1994
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
4.00% and below.............. $ 65 $ 136 $ 469 $28,488
4.01 to 6.00%................ 34,763 31,059 21,451 14,022
6.01 to 8.00%................ 21,944 23,323 31,333 2,821
8.01 to 10.00%............... 7 17 219 10
--------- --------- --------- ---------
$56,779 $54,535 $53,472 $45,341
======= ======= ======= =======
</TABLE>
68
<PAGE>
The following table presents the amount and maturities of the
certificates of deposit at December 31, 1996:
<TABLE>
<CAPTION>
Two To Percent of
Less Than One To Three Three To Total
One Year Two Years Years Four Years Thereafter Total Certificates
-------- --------- ----- ---------- ---------- ----- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate maturities
at December 31, 1996:
4.00% and below.......... $ 65 $ --- $ --- $ --- $ --- $ 65 0.11%
4.01 to 6.00%............ 24,830 6,653 2,337 221 722 34,763 61.23
6.01 to 8.00%............ 6,286 11,601 1,733 1,827 497 21,944 38.65
8.01 to 10.00%........... --- --- 7 --- --- 7 0.01
---------- ---------- -------- -------- --------- --------- -------
$31,181 $18,254 $4,077 $2,048 $1,219 $56,779 100.00%
======= ======= ====== ====== ====== ======= ======
</TABLE>
The following table presents the amount of Montgomery's certificates of
deposit of $100,000 or more by the time remaining until maturity as of December
31, 1996 (in thousands):
Three months or less $ 9,229
Four through six months 2,194
Seven through twelve months 1,243
Over twelve months 2,929
-------
TOTAL $15,595
69
<PAGE>
The following table presents the change in dollar amount of deposit
accounts by savings type for the six months ended December 31, 1996 and the
years ended June 30, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
June 30,
December 31, ----------------------------------------------------------------------
1996 1996 1995
----------------------------------- ------------------------------------ ---------------------------------
Increase Increase Increase
Percent of or Percent of or Percent of or
Amount Total Decrease Amount Total Decrease Amount Total Decrease
------ ----- -------- ------ ----- -------- ------ ----- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand accounts.......... $ 465 0.64% $ (148) $ 613 0.88% $ 130 $ 483 0.71% $ 268
NOW accounts............. 3,091 4.27 513 2,578 3.70 569 2,009 2.94 387
Regular savings.......... 4,289 5.93 (659) 4,948 7.10 (87) 5,035 7.37 (48)
Money market demand
accounts................ 7,719 10.67 684 7,035 10.09 (252) 7,287 10.67 (2,798)
Certificate of deposit... 56,779 78.49 2,244 54,535 78.23 1,063 53,472 78.31 8,131
------- ------ ------ ------- ------ ------ ------- ------ --------
Total............... $72,343 100.00% $2,634 $69,709 100.00% 1,423 $68,286 100.00% $5,940
======= ====== ====== ======= ====== ===== ======= ====== ======
</TABLE>
June 30,
1994
-------------------------
Percent of
Amount Total
------ -----
(Dollars in Thousands)
Demand accounts.......... $ 215 0.34%
NOW accounts............. 1,622 2.60
Regular savings.......... 5,083 8.15
Money market demand
accounts................ 10,085 16.18
Certificate of deposit... 45,341 72.73
-------- ------
Total............... $62,346 100.00%
======= ======
70
<PAGE>
The following table sets forth the savings activities of Montgomery for
the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended
December 31, Years Ended June 30,
----------------------- ----------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period................ $69,709 $68,286 $68,286 $62,346 $64,681
------- ------- ------- ------- -------
Net (decrease) increase before
interest credited.......................... 825 (2,291) (2,429) 2,896 (5,206)
Interest credited........................... 1,809 1,797 3,852 3,044 2,871
-------- -------- -------- -------- --------
Net increase in deposits................ 2,634 (494) 1,423 5,940 (2,335)
-------- ---------- -------- -------- --------
Balance, end of period...................... $72,343 $67,792 $69,709 $68,286 $62,346
======= ======= ======= ======= =======
</TABLE>
Deposit flows historically have been related to general economic
conditions. To resist these historical trends, Montgomery, as well as the thrift
industry as a whole, has increasingly relied on short-term certificate accounts
and other deposit alternatives that are more responsive to market conditions
than passbook accounts and long-term certificates. This greater variety of
deposit accounts has allowed Montgomery to be more competitive in obtaining
funds. At the same time, however, these sources of funds can be more costly than
traditional sources. In addition, Montgomery at times has become increasingly
subject to short-term fluctuations in deposit flows as customers have become
more interest-rate conscious. The ability of Montgomery to attract and maintain
savings deposits and Montgomery's cost of funds have been, and will continue to
be, significantly affected by money market conditions. Montgomery continues to
rely upon its core deposits to support its operations.
Borrowings. The FHLB System functions as a central reserve bank
providing credit for its member institutions and certain other financial
institutions.
As a member in good standing of the FHLB of Indianapolis, Montgomery is
authorized to apply for advances from the FHLB of Indianapolis, provided certain
standards of creditworthiness have been met. Advances are made pursuant to
several different programs, each having its own interest rate and range of
maturities. Depending on the program, limitations on the amount of advances are
based either on a fixed percentage of an institution's regulatory capital or on
the FHLB's assessment of the institution's creditworthiness. Under current
regulations, an association must meet certain qualifications to be eligible for
FHLB advances. The extent to which an association is eligible for such advances
will depend upon whether it meets the Qualified Thrift Lender Test (the "QTL
Test"). If a savings institution meets the QTL Test, it will be eligible for
100% of the advances it would otherwise be eligible to receive. If a savings
institution does not meet the QTL Test, it will be eligible for such advances
only to the extent it holds specified QTL Test assets. At December 31, 1996,
Montgomery was in compliance with the QTL Test.
71
<PAGE>
The following table sets forth the maximum amount of Montgomery's FHLB
advances during the six months ended December 31, 1996 and the years ended June
30, 1996, 1995, and 1994, along with the ending balances of FHLB advances and
other borrowings outstanding at the end of each such period:
<TABLE>
<CAPTION>
Six Months Ended
December 31, Years Ended June 30,
------------------------ ----------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Maximum balance outstanding
at any month end.......................... $12,000 $13,000 $10,500 $13,000 $9,000
Period end balance......................... 11,928 9,000 8,000 10,500 9,000
Weighted average interest rate
of FHLB advances at period
end....................................... 6.04% 5.93% 5.76% 6.82% 4.63%
</TABLE>
Market Area and Competition
The Association's market area consists of Montgomery, Fountain, and
Warren Counties, Indiana. The home office of the Association is located in
Crawfordsville, Montgomery County, Indiana. The Association has branch offices
in Fountain and Warren Counties. The Association's market area is characterized
by a lower growth rate in population, moderately lower than average levels of
household income, much lower housing values and a moderately lower unemployment
level. The market area's strongest employment categories are manufacturing,
services and wholesale/retail trade with a lower level of residents employed in
the agriculture and mining industry category. The major employers in the
Association's market area are: R. R. Donnelley & Sons (3,100 employees),
Raybesto Products (802 employees), Hi-Tek Lithonia Light (550 employees), NUCOR
Steel (466 employees), H-C Industries (417 employees), ATAPCO (Crawfordsville)
(332 employees), Mid- States (283 employees), Heritage Products (265 employees)
and Pace Dairy Foods (250 employees).
Montgomery competes for deposits with other savings institutions,
commercial banks and credit unions in its market area. The primary factors in
competing for deposits are interest rates and convenience of office location. In
making loans, Montgomery competes with other savings institutions, commercial
banks, consumer finance companies, credit unions, leasing companies and other
lenders. Montgomery competes for loan originations primarily through the
interest rates and loan fees it charges and through the efficiency and quality
of services it provides to borrowers. Competition is affected by, among other
things, the general availability of lendable funds, general and local economic
conditions, current interest rate levels and other factors which are not readily
predictable.
On June 30, 1996 (the latest date for which data is available), there
were approximately 13 different commercial banks and savings institutions which
had a total of 36 offices in
72
<PAGE>
Montgomery, Fountain, and Warren counties. According to information provided by
the FDIC, these institutions held approximately $756.9 million in deposits in
those 36 banking offices. Montgomery held approximately 9.2% of those deposits.
Similar information is not readily available for loans.
The number and size of financial institutions competing with Montgomery
may increase as a result of changes in federal statutes and regulations. Such
increased competition may have an adverse effect upon Montgomery.
MSA SERVICE CORPORATION
MSA, a real estate management company, is wholly owned by Montgomery.
MSA owns a residential complex, comprised of an 8-unit apartment and an adjacent
single-family resident, which is currently being converted to condominiums.
At December 31, 1996, MSA had total assets of $465,000, liabilities of
$42,000, and net worth of $423,000. MSA had net income of $27,000 and$4,000 for
the six months ended December 31, 1996 and the year ended June 30, 1996,
respectively.
Personnel
At December 31, 1996, Montgomery had only 27 full-time equivalent
employees. Montgomery believes that relations with its employees are good.
Montgomery offers life, health, and disability insurance benefits and a 401 (k)
retirement plan. None of the employees of Montgomery is represented by a
collective bargaining unit.
Properties
Montgomery conducts its business from four offices, consisting of its
main office at 119 East Main Street in Crawfordsville, its Mill Street office at
816 South Mill Street in Crawfordsville, its Covington office at 417 Liberty
Street in Covington and its Williamsport office at 118 North Monroe Street in
Williamsport. The main office, which is owned by Montgomery, has approximately
16,000 square feet, including the basement, all of which is used for business
and operations. The Mill Street office also owned by Montgomery, was opened in
March 1995, to offer Montgomery's first office with drive-up facilities. The
building, containing approximately 3,200 square feet, is located in a low to
intermediate income area.
Montgomery occupies approximately 1,700 square feet of this building
with the remainder being leased to an unaffiliated business. The Williamsport
office, owned by Montgomery, has 2,300 square feet of office space and an
additional 1,800 square feet of storage space on the second floor. The Covington
office is leased from an independent lessor and contains approximately 1,600
square feet of office space, all but one office of which is used by Montgomery.
Montgomery also owns two buildings adjacent to its main office for future
expansion, both of which are leased to unaffiliated businesses. The net book
value of the buildings, furniture, fixtures and various bookkeeping, accounting
and data processing
73
<PAGE>
equipment was $1.6 million at December 31, 1996. See the Notes to Consolidated
Financial for additional information.
Legal Proceedings
From time to time, Montgomery is a party to legal proceedings
incidental to its business to enforce its security interest in collateral
pledged to secure loans. Montgomery is not aware of any potential litigation.
REGULATION
General
Montgomery is a federally chartered savings association, the deposits
of which are federally insured and backed by the full faith and credit of the
United States Government. Accordingly, Montgomery is subject to broad federal
regulation and oversight extending to all its operations. Montgomery is a member
of the FHLB of Indianapolis and is subject to certain limited regulation by the
Board of Governors of the Federal Reserve System ("Federal Reserve Board"). As
the savings and loan holding company of Montgomery, the Company also is subject
to federal regulation and oversight. The purpose of the regulation of the
Company and other holding companies is to protect subsidiary savings
associations. Montgomery is a member of the SAIF, which together with the BIF
are the two deposit insurance funds administered by the FDIC, and the deposits
of Montgomery are insured by the FDIC. As a result, the FDIC has certain
regulatory and examination authority over Montgomery.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. As part of this authority, Montgomery is required to file periodic
reports with the OTS and is subject to periodic examinations by the OTS and the
FDIC. The last regular OTS examination of Montgomery was as of September 30,
1996. Under agency scheduling guidelines, it is likely that another examination
will be initiated in the near future. When these examinations are conducted by
the OTS and the FDIC, the examiners may require the Association to provide for
higher general or specific loan loss reserves. All savings associations are
subject to a semi-annual assessment, based upon the savings association's total
assets, to fund the operations of the OTS. The Association's OTS assessment for
the fiscal year ended June 30, 1996, was $28,610.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including Montgomery and the Company.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may
74
<PAGE>
be initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of the
Association is prescribed by federal laws and it is prohibited from engaging in
any activities not permitted by such laws. For instance, no savings institution
may invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS. Federal savings associations are also generally authorized
to branch nationwide. Montgomery is in compliance with the noted restrictions.
Montgomery's general permissible lending limit for
loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired
capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At December 31, 1996, the Association's lending
limit under this restriction was $1.4 million. Assuming the sale of the minimum
number of shares in the Conversion at December 31, 1996, that limit would be
increased to $2.5 million. Montgomery is in compliance with the
loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan.
Insurance of Accounts and Regulation by the FDIC
Montgomery is a member of the SAIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the United States Government. As insurer,
the FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the SAIF or the BIF.
The FDIC also has the authority to initiate enforcement actions against savings
associations, after giving the OTS an opportunity to take such action, and may
terminate the deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
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. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and
75
<PAGE>
a risk-based capital ratio of at least 10%) and considered healthy pay the
lowest premium while institutions that are less than adequately capitalized
(i.e., core or Tier 1 risk-based capital ratios of less than 4% or a risk-based
capital ratio of less than 8%) and considered of substantial supervisory concern
pay the highest premium. Risk classification of all insured institutions is made
by the FDIC for each semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
In order to equalize the deposit insurance premium schedules for BIF
and SAIF insured institutions, the FDIC imposed a one-time special assessment on
all SAIF-assessable deposits pursuant to federal legislation passed on September
30, 1996. The Association's special assessment, which was $428,000, was paid in
November 1996, but accrued as of September 30, 1996. Effective January 1, 1997,
the premium schedule for BIF and SAIF insured institutions ranged from 0 to 27
basis points. However, SAIF-insured institutions are required to pay a Financing
Corporation (FICO) assessment, in order to fund the interest on bonds issued to
resolve thrift failures in the 1980s, equal to 6.48 basis points for each $100
in domestic deposits, while BIF-insured institutions pay an assessment equal to
1.52 basis points for each $100 in domestic deposits. The assessment is expected
to be reduced to 2.43 no later than January 1, 2000, when BIF insured
institutions fully participate in the assessment. These assessments, which may
be revised based upon the level of BIF and SAIF deposits will continue until the
bonds mature in the year 2017.
Regulatory Capital Requirements
Federally insured savings associations, such as Montgomery, are
required to maintain a minimum level of regulatory capital. The OTS has
established capital standards, including a tangible capital requirement, a
leverage ratio (or core capital) requirement and a risk-based capital
requirement applicable to such savings associations. These capital requirements
must be generally as stringent as the comparable capital requirements for
national banks. The OTS is also authorized to impose capital requirements in
excess of these standards on individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement. At December 31, 1996, the Association did not have any
intangible assets.
76
<PAGE>
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital. Montgomery does not have any subsidiaries.
At December 31, 1996, Montgomery had tangible capital of $8.7 million,
or 9.2% of total assets, which is approximately $7.3 million above the minimum
requirement of 1.5% of adjusted total assets in effect on that date. On a pro
forma basis, after giving effect to the sale of the minimum, midpoint and
maximum number of shares of Common Stock offered in the Conversion and
investment of 50% of the net proceeds in assets not excluded for tangible
capital purposes, Montgomery would have had tangible capital equal to 11.8%,
12.3% and 12.8%, respectively, of adjusted total assets at December 31, 1996,
which is $10.1 million, $10.6 million and $11.1 million, respectively, above the
requirement.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio. At December 31, 1996,
Montgomery had no intangibles which were subject to these tests.
At December 31, 1996, Montgomery had core capital equal to $8.7
million, or 9.2% of adjusted total assets, which is $5.9 million above the
minimum leverage ratio requirement of 3% as in effect on that date. On a pro
forma basis, after giving effect to the sale of the minimum, midpoint and
maximum number of shares of Common Stock offered in the Conversion and
investment of 50% of the net proceeds in assets not excluded from core capital,
Montgomery would have had core capital equal to 11.8%, 12.3% and 12.8%,
respectively, of adjusted total assets at December 31, 1996, which is $8.6
million, $9.1 million and $9.6 million, respectively, above the requirement.
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At December 31, 1996, Montgomery had
$158,000 of general loss reserves, which was less than 1.25% of risk-weighted
assets.
77
<PAGE>
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the Federal National
Mortgage Association ("FNMA") or Federal Home Loan Mortgage Corporation
("FHLMC").
The OTS has adopted a final rule that requires every savings
association with more than normal interest rate risk exposure to deduct from its
total capital, for purposes of determining compliance with such requirement, an
amount equal to 50% of its interest-rate risk exposure multiplied by the present
value of its assets. This exposure is a measure of the potential decline in the
net portfolio value of a savings association, greater than 2% of the present
value of its assets, based upon a hypothetical 200 basis point increase or
decrease in interest rates (whichever results in a greater decline). Net
portfolio value is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The rule provides for a two quarter
lag between calculating interest rate risk and recognizing any deduction from
capital. The rule will not become effective until the OTS evaluates the process
by which savings associations may appeal an interest rate risk deduction
determination. It is uncertain as to when this evaluation may be completed. Any
savings association with less than $300 million in assets and a total capital
ratio in excess of 12%, such as the Association, is exempt from this requirement
unless the OTS determines otherwise.
On December 31, 1996, Montgomery had total capital of $7.6 million
(including $7.4 million in core capital and $158,000 in qualifying supplementary
capital) and risk-weighted assets of $56.6 million; or total capital of 13.5% of
risk-weighted assets. This amount was $3.1 million above the 8% requirement in
effect on that date. On a pro forma basis, after giving effect to the sale of
the minimum, midpoint and maximum number of shares of Common Stock offered in
the Conversion, the infusion to the Association of 50% of the net Conversion
proceeds and the investment of those proceeds in 20% risk-weighted government
securities, Montgomery would have had total capital of 18.3%, 19.2% and 20.1%,
respectively, of risk-weighted assets, which is above the current 8% requirement
by $5.9 million, $6.4 million and $7.0 million, respectively.
Prompt Corrective Action. The OTS and the FDIC are authorized and,
under certain circumstances required, to take certain actions against savings
associations that fail to meet their capital requirements. The OTS is generally
required to take action to restrict the activities of an "undercapitalized
association" (generally defined to be one with less than either a 4% core
capital ratio, a 4% Tier 1 risked-based capital ratio or an 8% risk-based
capital ratio). Any such association must submit a capital restoration plan and
until such plan is approved by the OTS may not increase its assets, acquire
another institution, establish a branch or engage in any new activities, and
generally may not make capital distributions. The OTS is authorized to impose
the additional restrictions that are applicable to significantly
undercapitalized associations.
78
<PAGE>
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or
is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into
a lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on the
Association may have a substantial adverse effect on its operations and
profitability.
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations
with respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the regulatory capital of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion. See "The
Conversion and Reorganization -- Effects of the Conversion and Reorganization"
and "-- Certain Restrictions on Purchase or Transfer of Shares After the
Conversion and Reorganization".
The OTS utilizes a three-tiered approach to permit associations, based
on their capital level and supervisory condition, to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account. See "--Regulatory Capital
Requirements."
Generally, Tier 1 associations, which are associations that before and
after the proposed distribution meet their current capital requirements, may
make capital distributions during any calendar year equal to the greater of 100%
of net income for the year-to-date plus 50% of the amount by which the lesser of
the association's tangible, core or risk-based capital exceeds its
79
<PAGE>
fully phased-in capital requirement for such capital component, as measured at
the beginning of the calendar year, or the amount authorized for a Tier 2
association. However, a Tier 1 association deemed to be in need of more than
normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association as a result of such a determination. The Association meets the
requirements for a Tier 1 association and has not been notified of a need for
more than normal supervision. Tier 2 associations, which are associations that
before and after the proposed distribution meet their current minimum capital
requirements, may make capital distributions of up to 75% of net income over the
most recent four quarter period.
Tier 3 associations (which are associations that do not meet current
minimum capital requirements) that propose to make any capital distribution and
Tier 2 associations that propose to make a capital distribution in excess of the
noted safe harbor level must obtain OTS approval prior to making such
distribution. Tier 2 associations proposing to make a capital distribution
within the safe harbor provisions and Tier 1 associations proposing to make any
capital distribution need only submit written notice to the OTS 30 days prior to
such distribution. The OTS may object to the distribution during that 30-day
period based on safety and soundness concerns. A savings association may not
make a capital distribution without prior approval of the OTS and the FDIC if it
is undercapitalized before, or as a result of, such a distribution. See "-
Regulatory Capital Requirements."
Liquidity
All savings associations, including Montgomery, are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. For a discussion of what Montgomery
includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." This liquid asset ratio requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's average
daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement. At December 31, 1996, the Association was in compliance with
both requirements, with an overall liquid asset ratio of 7.73% and a short-term
liquid assets ratio of 7.73%.
Accounting
An OTS policy statement applicable to all savings associations
clarifies and re-emphasizes that the investment activities of a savings
association must be in compliance with approved and documented investment
policies and strategies, and must be accounted for in accordance with GAAP.
Under the policy statement, management must support its classification of and
80
<PAGE>
accounting for loans and securities (i.e., whether held for investment, sale or
trading) with appropriate documentation. The Association is in compliance with
these amended rules.
The OTS has adopted an amendment to its accounting regulations, which
may be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting
regulations or orders prescribed by the OTS.
Qualified Thrift Lender Test
All savings associations, including Montgomery, are required to meet a
QTL test to avoid certain restrictions on their operations. This test requires a
savings association to have at least 65% of its portfolio assets (as defined by
regulation) in qualified thrift investments on a monthly average for nine out of
every 12 months on a rolling basis. As an alternative, the savings association
may maintain 60% of its assets in those assets specified in Section 7701(a)(19)
of the Internal Revenue Code of 1986, as amended ("Code"). Under either test,
such assets primarily consist of residential housing related loans and
investments. At December 31, 1996, the Association met the test and has always
met the test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Company Regulation."
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of
Montgomery, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a
81
<PAGE>
branch, by Montgomery. An unsatisfactory rating may be used as the basis for the
denial of an application by the OTS.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, the Association may be required to devote additional
funds for investment and lending in its local community. The Association was
examined for CRA compliance in 1995 and received a rating of satisfactory.
Transactions with Affiliates
Generally, transactions between a savings association or its
subsidiaries and its affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates. In addition, certain of these
transactions, such as loans to an affiliate, are restricted to a percentage of
the association's capital. Affiliates of Montgomery include the Company and any
company which is under common control with the Association. In addition, a
savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of most
affiliates. The OTS has the discretion to treat subsidiaries of savings
associations as affiliates on a case by case basis.
Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
Company Regulation
The Company will be a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings association subsidiaries which also permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings association.
As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of the Company and any of its
subsidiaries (other than Montgomery or any other SAIF-insured savings
association) would become subject to such restrictions unless such other
associations each qualify as a QTL and were acquired in a supervisory
acquisition.
If Montgomery fails the QTL test, the Company must obtain the approval
of the OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their
82
<PAGE>
subsidiaries. In addition, within one year of such failure the Company must
register as, and will become subject to, the restrictions applicable to bank
holding companies. The activities authorized for a bank holding company are more
limited than are the activities authorized for a unitary or multiple savings and
loan holding company. See "--Qualified Thrift Lender Test."
The Company must obtain approval from the OTS before acquiring control
of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law
The stock of the Company will be registered with the Securities and
Exchange Commission ("SEC") under the Exchange Act. The Company will be subject
to the information, proxy solicitation, insider trading restrictions and other
requirements of the SEC under the Exchange Act.
Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale restrictions. If
the Company meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain noninterest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts).
At December 31, 1996, Montgomery was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See "--Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System
Montgomery is a member of the FHLB of Indianapolis, which is one of 12
regional FHLBs, that administers the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures,
83
<PAGE>
established by the board of directors of the FHLB, which are subject to the
oversight of the Federal Housing Finance Board. All advances from the FHLB are
required to be fully secured by sufficient collateral as determined by the FHLB.
In addition, all long-term advances are required to provide funds for
residential home financing.
As a member, Montgomery is required to purchase and maintain stock in
the FHLB of Indianapolis. At December 31, 1996, Montgomery had $750,000 in FHLB
stock, which was in compliance with this requirement. In past years, Montgomery
has received substantial dividends on its FHLB stock. Over the past five fiscal
years such dividends have averaged 8.35% and were 7.47% for calendar year 1996.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of Montgomery's FHLB stock may result in a corresponding
reduction in Montgomery's capital.
For the year ended June 30, 1996, dividends paid by the FHLB of
Indianapolis to Montgomery totaled $56,000, which constitutes a $6,000 increase
over the amount of dividends received in fiscal year 1995. The $30,000 dividend
for the six months ended December 31, 1996 reflects an annualized rate of 8.00%,
or 0.53% above the rate for fiscal 1996.
Federal and State Taxation
Federal Taxation. Savings associations such as the Association that
meet certain definitional tests relating to the composition of assets and other
conditions prescribed by the Code, are permitted to establish reserves for bad
debts and to make annual additions thereto which may, within specified formula
limits, be taken as a deduction in computing taxable income for federal income
tax purposes. The amount of the bad debt reserve deduction for "non-qualifying
loans" is computed under the experience method. The amount of the bad debt
reserve deduction for "qualifying real property loans" (generally loans secured
by improved real estate) may be computed under either the experience method or
the percentage of taxable income method (based on an annual election).
Under the experience method, the bad debt reserve deduction is an
amount determined under a formula based generally upon the bad debts actually
sustained by the savings association over a period of years.
Since 1987, the percentage of specially-computed taxable income that
was used to compute a savings association's bad debt reserve deduction under the
percentage of taxable income method (the "percentage bad debt deduction") was
8%. The percentage bad debt deduction thus computed was reduced by the amount
permitted as a deduction for non-qualifying loans under the experience method.
The availability of the percentage of taxable income method permitted
84
<PAGE>
qualifying savings associations to be taxed at a lower effective federal income
tax rate than that applicable to corporations generally (approximately 31.3%
assuming the maximum percentage bad debt deduction). Under changes in federal
tax law enacted in August 1996, the percentage bad debt deduction has been
eliminated for tax years beginning after December 31, 1995. Accordingly, this
method will not be available to the Association for its tax years ending June
30, 1997 and thereafter.
Under the percentage of taxable income method, the percentage bad debt
deduction could not exceed the amount necessary to increase the balance in the
reserve for qualifying real property loans to an amount equal to 6% of such
loans outstanding at the end of the taxable year or the greater of (i) the
amount deductible under the experience method or (ii) the amount which when
added to the bad debt deduction for non-qualifying loans equals the amount by
which 12% of the amount comprising savings accounts at year-end exceeds the sum
of surplus, undivided profits and reserves at the beginning of the year. Through
June 30, 1996, the 6% and 12% limitations did not restrict the percentage bad
debt deduction available to the Association.
The federal tax legislation enacted in August 1996 also imposes a
requirement to recapture into taxable income the portion of the qualifying and
non-qualifying loan reserves in excess of the "base-year" balances of such
reserves. For the Association, the base-year reserves are the balances as of
June 30, 1988. Recapture of the excess reserves will occur over a six-year
period which could begin for the Association as early as the tax year ending
June 30, 1997 (commencement of the recapture period may be delayed, however, for
up to two years provided the Association meets certain residential lending
requirements). This delay of the recapture is not available to the Association
if it converts to a national bank. The Association previously established, and
will continue to maintain, a deferred tax liability with respect to its federal
tax bad debt reserves in excess of the base-year balances; accordingly, the
legislative changes will have no effect on total income tax expense for
financial reporting purposes.
Also, under the August 1996 legislation, the Association's base-year
federal tax bad debt reserves are "frozen" and subject to current recapture only
in very limited circumstances. Generally, recapture of all or a portion of the
base-year reserves will be required if the Association pays a dividend in excess
of the greater of its current or accumulated earnings and profits, redeems any
of its stock, or is liquidated. The Association has not established a deferred
federal tax liability under SFAS No. 109 for its base-year federal tax bad debt
reserves, as it does not anticipate engaging in any of the transactions that
would cause such reserves to be recaptured.
In addition to the regular income tax, corporations, including savings
associations such as the Association, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income. For taxable years beginning
after 1986 and before 1996, corporations, including savings associations such as
the Association, are also subject to an environmental tax equal to 0.12% of the
excess of alternative minimum taxable income for the
85
<PAGE>
taxable year (determined without regard to net operating losses and the
deduction for the environmental tax) over $2 million.
The Association files federal income tax returns on a fiscal year basis
using the accrual method of accounting.
The Association has not been audited by the IRS recently with respect
to federal income tax returns. In the opinion of management, any examination of
still open returns would not result in a deficiency which could have a material
adverse effect on the financial condition of the Association.
Indiana Taxation. For its taxable period beginning January 1, 1990, the
Association became subject to Indiana's new Financial Institutions Tax ("FIT"),
which is imposed at a flat rate of 8.5% on "adjusted gross income." "Adjusted
gross income," for purposes of FIT, begins with taxable income as defined by
Section 63 of the Code and, thus, incorporates federal tax law to the extent
that it affects the computation of taxable income. Federal taxable income is
then adjusted by several Indiana modifications, the most notable of which is the
required addback of interest that is tax-free for federal income tax purposes.
Other applicable state taxes include generally applicable sales and use taxes
plus real and personal property taxes. The Association's state income tax
returns have not been audited in recent years.
MANAGEMENT OF THE COMPANY
Directors and Executive Officers
The Board of Directors of the Company consists of Earl F. Elliott, J.
Lee Walden, John E. Woodward, Mark E. Foster, Joseph M. Malott, C. Rex Henthorn
and Robert C. Wright, all of whom are current members of the Board of Directors
of the Association. See "Management of the Association - Directors." Each
Director of the Company has served as such since the Company's incorporation in
1997. Directors of the Company will serve three-year staggered terms so that
approximately one-third of the directors will be elected at each annual meeting
of stockholders. The terms of the current directors of the Company are the same
as their terms as directors of the Association. The Company does not intend to
pay directors a fee for participation on the Board of Directors of the Company.
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The executive
officers of the Company are also executive officers of the Association. It is
not anticipated that the executive officers of the Company will receive any
remuneration in their capacity as Company executive officers. For information
regarding compensation of directors and executive officers of the Association,
see "Management of the Association - Meetings and Committees of the Board of
Directors" and "- Executive Compensation."
86
<PAGE>
Indemnification
The Articles of Incorporation of the Company provides that a director
or officer of the Company shall be indemnified by the Company to the fullest
extent authorized by the corporate law of the State of Indiana against all
expenses, liability and loss reasonably incurred or suffered by such person in
connection with his activities as a director or officer or as a director or
officer of another company, if the director or officer held such position at the
request of the Company. Indiana law requires that such director, officer,
employee or agent, in order to be indemnified, must have acted in good faith and
in a manner reasonably believed to be not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, did not have
reasonable cause to believe his conduct was unlawful.
The Articles of Incorporation and Indiana law also provide that the
indemnification provisions of such Certificate and the statute are not exclusive
of any other right which a person seeking indemnification may have or later
acquire under any statute, provision of the Articles of Incorporation, Bylaws of
the Company, agreement, vote of stockholders or disinterested directors or
otherwise.
These provisions may have the effect of deterring shareholder
derivative actions, since the Company may ultimately be responsible for expenses
for both parties to the action. A similar effect would not be expected for third
party claims.
In addition, the Articles of Incorporation and Indiana law also provide
that the Company may maintain insurance, at its expense, to protect itself and
any director, officer, employee or agent of the Company or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Company has the power to indemnify such
person against such expense, liability or loss under the Indiana corporate law.
The Company intends to obtain such insurance.
MANAGEMENT OF THE ASSOCIATION
Directors
The Board of Directors of the Association currently consists of seven
directors. The directors are divided into three classes. Approximately one-third
of the directors are elected at each annual meeting of members. Because the
Company will own all of the issued and outstanding shares of capital stock of
the Association after the Conversion, the Company, through its directors, will
elect the directors of the Association.
87
<PAGE>
The following table sets forth certain information regarding the
directors of the Association.
<TABLE>
<CAPTION>
Position(s) Held Director Term
With the Association Age(1) Since Expires
-------------------- ------ ----- -------
<S> <C> <C> <C> <C>
Earl F. Elliott Chairman of the Board and 63 1973 1997
Chief Executive Officer
Mark E. Foster Director 44 1990 1997
Robert C. Wright Director 52 1996 1997
Joseph M. Malott Director 59 1978 1998
J. Lee Walden Director, President and Chief 48 1995 1998
Financial Officer
John E. Woodward Director 68 1975 1999
C. Rex Henthorn Director 59 1981 1999
- -------------------
(1) At December 31, 1996.
</TABLE>
The business experience of each director is set forth below. All
directors have held their present positions for at least the past five years,
except as otherwise indicated.
Earl F. Elliott. Mr. Elliott is the Chairman of the Board of Directors and Chief
Executive Officer of the Association. Mr. Elliott first joined the Association
in 1973.
Mark E. Foster. Mr. Foster is the General Manager of a retail farm equipment and
automobile dealership located in Montgomery County, Indiana, a position he has
held since 1983.
Robert C. Wright. Mr. Wright is the owner and manager of a restaurant located in
Montgomery County, Indiana, a position he has held since 1975.
Joseph M. Malott. For the past five years, Mr. Malott has been self-employed as
a consultant to financial institutions.
J. Lee Walden. Mr. Walden is currently the Association's President and Chief
Financial Officer. Mr Walden first joined the Association in 1984.
John E. Woodward. Mr. Woodward is the President of a collection agency and
credit reporting bureau located in Montgomery County, Indiana, a position he has
held since 1959.
C. Rex Henthorn. Since 1963, Mr. Henthorn has practiced law in the State of
Indiana. [COMPLETE]
Executive Officers
The following table sets forth certain information relating to the
executive officers of Montgomery as of December 31, 1996.
88
<PAGE>
Name Age- Offices Held
---- ---- ------------
Earl F. Elliott 63 Chairman of the Board and Chief
Executive Officer
J. Lee Walden 48 President & Chief Financial Officer
Nancy L. McCormick 41 Senior Vice President and Secretary
Executive Officer Who Is Not A Director
Nancy L. McCormick, age 41, is the Association's Senior Vice President and
Secretary. Ms. McCormick first joined the Association in 1983 and was appointed
Secretary in 1984. Ms. McCormick is the custodian of the Association's records
and assists the Chief Executive Officer in various management duties.
Officers are elected annually by the Board of Directors and serve for a
one-year period and until their successors are elected. No officers have
employment contracts. There are no family relationships between or among the
persons named. Each of the officers has held the same or similar position with
Montgomery for the past five years.
Meetings and Committees of the Board of Directors
The Company. The Company's Board of Directors intends to meet on a
monthly basis. Since the Company was not established in 1996, no meetings were
held. The Company does not intend to pay directors a fee.
The Association. The Association's Board of Directors meets monthly.
Additional special meetings may be called by the Chief Executive Officer or the
Board of Directors. The Board of Directors met 13 times during the year ended
June 30, 1996. During fiscal year 1996, no director of the Association attended
fewer than 75% of the aggregate of the total number of Board meetings and the
total number of meetings held by the committees of the Board of Directors on
which he served. Directors receive an annual stipend of $4,800 plus $200 for
each meeting of the Board of Directors attended. In addition, Directors receive
$100 for attendance at committee meetings lasting one hour or less and $200 per
committee meeting lasting over one hour (except that Messrs. Elliott and Walden
receive no fees for attending committee meetings held during their normal
working hours). The Association has standing Audit, Nominating and Compensation
Committees.
The members of the Audit Committee are Messrs. Woodward, Malott,
Henthorn, and Foster. This Committee is responsible for developing and
monitoring Montgomery's audit program. The Committee selects Montgomery's
outside auditor and meets with him to discuss the results of the annual audit
and any related matters. The members of the Committee also receive and review
all the reports and findings and other information presented to them by
Montgomery's officers regarding financial reporting policies and practices. Two
members of the
89
<PAGE>
Committee meet to audit all cash items and teller cash and reconcile such items
to the general ledger. The Audit Committee met three times during fiscal 1996.
The entire Board of Directors acts as the Nominating Committee. The
Board as Nominating Committee makes nominations for director candidates for
election to the Board of Directors but has no procedures or plans for
considering nominees recommended by shareholders. The Board as Nominating
Committee did not meet during fiscal 1996; however, it did meet in July of 1996
to nominate the two persons standing for election identified above.
The members of the Compensation Committee are Messrs. Malott, Foster,
Elliott and Walden. The Compensation Committee reviews and approves all salaries
for officers and employees of Montgomery. The Compensation Committee met three
times during fiscal 1996.
Executive Compensation
The following table sets forth information concerning the compensation
paid or granted to the Association's and Company's Chief Executive Officer. No
other executive officer of the Company had aggregate cash compensation exceeding
$100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual
Compensation All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($)
--------------------------- ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Earl F. Elliott, Chairman and 1996 $86,250 $ 500 $34,039(1)
Chief Executive Officer 1995 82,500 5,000 33,800(2)
1994 77,500 7,000 32,475(3)
<FN>
(1) Represents $8,000 in Directors and committee fees, a contribution by
Montgomery of $6,039 pursuant to its 401(k) plan, and $20,000 of
deferred compensation payable to Mr. Elliott upon his retirement.
(2) Represents $7,675 in Directors and committee fees, a contribution by
Montgomery of $6,125 pursuant to its 401(k) plan, and $20,000 of
deferred compensation payable to Mr. Elliott upon his retirement.
(3) Represents $7,050 in Directors and committee fees, a contribution by
Montgomery of $5,425 pursuant to its 401(k) plan, and $20,000 of
deferred compensation payable to Mr. Elliott upon his retirement.
</FN>
</TABLE>
Supplemental Retirement Benefit
The Association provides for a Supplemental Retirement Benefit to Mr.
Elliott. The Benefit consists of life insurance on Mr. Elliott's life equal in
amount to twice his annual salary in the event of his death prior to retirement.
In addition, the Association has agreed to pay Mr.
90
<PAGE>
Elliott a cash retirement payment, payable either in a lump sum within 30 days
after his date of retirement or, at his election, in equal annual installments
of not less than $20,000 over such period of time as he shall elect, in an
amount determined pursuant to the following table:
Retirement Date
Occurs After Amount of Cash
December 31 of: Retirement Payment
- --------------------------- ----------------------
1994 $ 40,000
1995 60,000
1996 80,000
1997 100,000
As a condition to his receiving the above-indicated cash retirement payments,
Mr. Elliott will be required to enter into a written consulting agreement with
the Association obligating him, during the remainder of his lifetime but subject
to such limitation as his physical condition might impose, to render such
reasonable business consulting and advisory services to the Association as the
Board might request, and further obligating him not to enter into or engage in
any activity or enterprise that would directly or indirectly involve substantial
competition with the Association.
Benefit Plans
General. Montgomery currently provides health care benefits to its
employees, including hospitalization, disability and major medical insurance,
subject to certain deductibles and copayments by employees.
Incentive Bonus Plan. The Association has an incentive bonus plan which
provides for annual cash bonuses to certain officers as a means of recognizing
achievement on the part of such employees. The bonuses are determined based on a
combination of Montgomery's and the individual employee's performance during the
year. The Association's bonus expense was $13,000 for the fiscal year ended June
30, 1996.
401(k) Plan. The Association established a qualified, tax-exempt
retirement plan with a "cash-or-deferred arrangement" qualifying under Section
401(k) of the Code (the "401(k) Plan"). With certain exceptions, all employees
who have attained age 21 and who have completed one year of employment, during
which they worked at least 1,000 hours, are eligible to participate in the
401(k) Plan as of the earlier of the first day of the plan year or the next July
1 or January 1. Eligible employees are permitted to contribute up to 15% of
their compensation to the 401(k) Plan on a pre-tax basis, up to a maximum of
$9,500. The Association matches 100% of the first 7% of each participant's
salary reduction contribution to the 401(k) Plan.
Participant contributions to the 401(k) Plan are fully and immediately
vested. Withdrawals are not permitted before age 59 1/2 except in the event of
death, disability, termination of employment or reasons of proven financial
hardship. With certain limitations, participants may
91
<PAGE>
make withdrawals from their accounts while actively employed. Upon termination
of employment, the participant's accounts will be distributed, unless he or she
elects to defer the payment.
The 401(k) Plan may be amended by the Board of Directors, except that no
amendment may be made which would reduce the interest of any participant in the
401(k) Plan trust fund or divert any of the assets of the 401(k) Plan trust fund
to purposes other than the benefit of participants or their beneficiaries. The
Association's accrued expense for the Plan was $23,000 for the six months ended
December 31, 1996 and $45,000 for year ended June 30, 1996.
Employee Stock Ownership Plan. The Boards of Directors of Montgomery and
the Company have approved the adoption of an ESOP for the benefit of employees
of the Company and its subsidiaries, including Montgomery. The ESOP is designed
to meet the requirements of an employee stock ownership plan as described at
Section 4975(e)(7) of the Code and Section 407(d)(6) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). The ESOP may borrow in order
to finance purchases of the Company's Common Stock.
It is anticipated that the ESOP will be funded with a loan from the
Company (not to exceed an amount equal to 8% of the total number of shares of
Common Stock to be outstanding upon completion of the Conversion and
Reorganization). The interest rate of the ESOP loan will be equal to the prime
rate of interest on the date the loan is made.
GAAP generally requires that any borrowing by the ESOP from an
unaffiliated lender be reflected as a liability in the Company's consolidated
financial statements, whether or not such borrowing is guaranteed by, or
constitutes a legally binding contribution commitment of, the Company or the
Association. The funds used to acquire the ESOP shares are expected to be
borrowed from the Company. If the Company finances the ESOP debt, the ESOP debt
will be eliminated through consolidation and no liability will be reflected on
the Company's consolidated financial statements. In addition, shares purchased
with borrowed funds will, to the extent of the borrowings, be excluded from
stockholders' equity, representing unearned compensation to employees for future
services not yet performed. Consequently, if the ESOP purchases already- issued
shares in the open market, the Company's consolidated liabilities will increase
to the extent of the ESOP's borrowings, and total and per share stockholders'
equity will be reduced to reflect such borrowings. If the ESOP purchases newly
issued shares from the Company, total stockholders' equity would neither
increase nor decrease, but per share stockholders' equity and per share net
income would decrease because of the increase in the number of outstanding
shares. In either case, as the borrowings used to fund ESOP purchases are
repaid, total stockholders' equity will correspondingly increase.
All employees of the Association are eligible to participate in the ESOP
after they attain age 21 and complete one year of service. Employees will be
credited for years of service to the Association prior to the adoption of the
ESOP for participation and vesting purposes. The Association's contribution to
the ESOP is allocated among participants on the basis of compen sation. Each
participant's account will be credited with cash and shares of Company Common
Stock based upon compensation earned during the year with respect to which the
contribution is
92
<PAGE>
made. Contributions credited to a participant's account are vested on a
graduated basis and become fully vested when such participant completes ten
years of service. ESOP participants are entitled to receive distributions from
their ESOP accounts only upon termination of service. Distributions will be made
in cash and in whole shares of the Company's Common Stock. Fractional shares
will be paid in cash. Participants will not incur a tax liability until a
distribution is made.
Each participating employee is entitled to instruct the trustee of the
ESOP as to how to vote the shares allocated to his or her account. The trustee
will not be affiliated with the Company or Montgomery.
The ESOP may be amended by the Board of Directors, except that no
amendment may be made which would reduce the interest of any participant in the
ESOP trust fund or divert any of the assets of the ESOP trust fund to purposes
other than the benefit of participants or their beneficiaries.
Other Stock Benefit Plans. The Company intends to adopt certain stock
benefit plans following consummation of the Conversion and Reorganization.
Moreover, existing stock benefit plans of the Association, consisting of the
1995 Stock Incentive Plan, 1995 Directors' Stock Option Plan and the Management
Recognition Plan, will be assumed by the Company in connection with the
Conversion and Reorganization, with the effect that shares of Common Stock will
be issuable pursuant thereto and not shares of Association Common Stock.
1997 Stock Option Plan. The Board of Directors of the Company intends to
adopt the 1997 Stock Option Plan (the "1997 Plan") and may submit the 1997 Plan
to stockholders at an annual or special meeting of stockholders to be held at
least six months following the consummation of the Conversion and
Reorganization.
The 1997 Plan is designed to attract and retain qualified personnel key
positions, provide directors, officers and key employees with a proprietary
interest in the Company as an incentive to contribute to the success of the
Company and reward key employees for outstanding performance and the attainment
of targeted goals. Options granted under the 1997 Plan may be either options
that qualify under the Code as "incentive stock options" (options that afford
preferable tax treatment to recipients upon compliance with certain restrictions
and that do not normally result in tax deductions to the employer) or options
that do not so qualify. The exercise price of stock options granted under the
1997 Plan is required to be at least equal to the fair market value per share of
the stock on the date of grant. All grants will be made in consideration of past
and future services rendered to the Association, and in an amount deemed
appropriate to encourage the continued retention of the officers and directors
who are considered necessary for the continued success of the Association.
The 1997 Plan provides for the grant of stock appreciation rights
("SARs") at any time, whether or not the participant then holds stock options,
granting the right to receive the excess of the market value of the shares
represented by the SARs on the date exercised over the exercise
93
<PAGE>
price. SARs generally will be subject to the same terms and conditions and
exercisable to the same extent as stock options.
Limited SARs may be granted at the time of, and must be related to, the
grant of a stock option or SAR. The exercise of one will reduce to that extent
the number of shares represented by the other. Limited SARs will be exercisable
only for the 45 days following the expiration of the tender or exchange offer,
during which period the related stock option or SAR will be exercisable.
However, no SAR or Limited SAR will be exercisable by a 10% beneficial owner,
director or senior officer within six months of the date of its grant. The
Company has no present intention to grant any SARs or Limited SARs.
The 1997 Plan will be administered by the Company's Stock Plan Committee
which will consist of at least two non-employee directors. The Stock Plan
Committee will select the recipients and terms of awards made pursuant to the
Stock Option Plan. Assuming the 1997 Plan is submitted to stockholders prior to
one year following the consummation of the Conversion and Reorganization, OTS
regulations limit the amount of shares that may be awarded pursuant to such
stock-based plans to each individual officer, each non-employee director and all
non-employee directors as a group to 25%, 5% and 30%, respectively, of the total
shares reserved for issuance under each such stock-based plan. In addition, all
options would be required to vest in five equal annual installments, commencing
one year from the date of grant, subject to the continued service of the holder
of such option.
The 1997 Plan is intended to be funded either with shares purchased in
the open market or with authorized but unissued shares of Common Stock. The use
of authorized but unissued shares to fund the 1997 Plan could dilute the
holdings of stockholders who purchase Conversion Stock in the Offerings. See
"Pro Forma Data."
1997 Recognition Plan. The Company intends to establish the 1997
Recognition Plan in order to provide employees with a proprietary interest in
the Company in a manner designed to encourage such persons to remain with the
Company and the Association. The 1997 Recognition Plan may be subject to
ratification by stockholders at a meeting to be held not earlier than six months
after the completion of the Conversion and Reorganization. The Company will
contribute funds to the 1997 Recognition Plan to enable it to acquire in the
open market or from authorized but unissued shares (with the decision between
open market or authorized but unissued shares based on the Company's future
stock price, alternative investment opportunities and capital needs), following
stockholder ratification of such plan, an amount of stock equal to 4.0% of the
shares of Common Stock to be outstanding upon consummation of the Conversion and
Reorganization, less the number of shares in the Management Recognition Plan.
The Stock Plan Committee of the Board of Directors of the Company will
administer the proposed 1997 Recognition Plan. Under the terms of the proposed
1997 Recognition Plan, awards ("Awards") can be granted to key employees in the
form of shares of Common Stock held by the 1997 Recognition Plan. Awards are
non-transferable and non-assignable. In the event the 1997 Recognition Plan is
submitted to a vote of stockholders prior to one year following consummation of
the Conversion and Reorganization, OTS regulations limit the amount of shares
94
<PAGE>
that may be awarded pursuant to such stock-based plans to each individual
officer, each non-employee director and all non-employee directors as a group to
25%, 5% and 30%, respectively, of the total shares reserved for issuance under
each such stock-based plan.
Recipients will earn (i.e., become vested in), over a period of time,
the shares of Common Stock covered by the Award. Awards made pursuant to the
1997 Recognition Plan will vest in five equal annual installments commencing one
year from the date of grant. Awards will be 100% vested upon termination of
employment due to death or disability. In addition, no awards under the 1997
Recognition Plan to directors and executive officers shall vest in any year in
which the Association is not meeting all of its fully phased-in capital
requirements. When shares become vested and are actually distributed in
accordance with the 1997 Recognition Plan, but in no event prior to such time,
the participants will also receive amounts equal to any accrued dividends with
respect thereto. Earned shares are distributed to recipients as soon as
practicable following the date on which they are earned. No determination has
been made regarding any possible grants under the 1997 Recognition Plan.
Employment Agreements. The Association intends to enter into employment
agreements with Chief Executive Officer Elliott and President Walden providing
for an initial term of three years. The agreements have been filed with the OTS
as part of the application of the Company for approval to become a savings and
loan holding company. The employment agreements become effective upon completion
of the Conversion and Reorganization and provide for an annual base salary in an
amount not less than each individual's respective current salary and provide for
an annual extension subject to the performance of an annual formal evaluation by
disinterested members of the Board of Directors of the Association. The
agreements also provide for termination upon the employee's death, for cause or
in certain events specified by OTS regulations. The employment agreements are
also terminable by the employee upon 90 days's notice of the Association.
The employment agreements each provide for payment in an amount equal to
299% of the five-year annual average base compensation, in the event a "change
in control" of the Association where employment involuntarily terminates in
connection with such change in control or within twelve months thereafter. For
the purposes of the employment agreements, a "change in control" is defined as
any event which would require the filing of an application for acquisition of
control or notice of change in control pursuant to 12 C.F.R. ss. 574.3 or 4.
Such events are generally triggered prior to the acquisition or control of 10%
of the Company's Common Stock. If the employment of Chief Executive Officer
Elliott or President Walden had been terminated as of December 31, 1996 under
circumstances entitling them to severance pay as described above, they would
have been entitled to receive a lump such cash payment of approximately
$________ and $______, respectively. The agreements also provide for the
continued payment to each employee of health benefits for the remainder of the
term of their contract in the event such individual is involuntarily terminated
in the event of change in control.
95
<PAGE>
Certain Transactions
The Association has followed a policy of granting loans to eligible
directors, officers, employees and members of their immediate families for the
financing of their personal residences and for consumer purposes. Under the
Association's current policy, all such loans to directors and senior officers
are required to be made in the ordinary course of business and on the same
terms, including collateral and interest rates, as those prevailing at the time
for comparable transactions and do not involve more than the normal risk of
collectibility. However, prior to August 1989, the Association waived loan
origination fees on loans to directors and employees. Montgomery has had, and
expects to have in the future, banking transactions in the ordinary course of
its business with Directors, officers, and their associates. These transactions
have been on substantially the same terms, including interest rates, collateral,
and repayment terms on extensions of credit, as those prevailing at the same
time for comparable transactions with others and did not involve more than the
normal risk of collectibility or present other unfavorable features.
From time to time Montgomery has paid fees to Henthorn, Harris & Taylor,
P.C., a law firm in which Director Henthorn is a principal, for legal services
performed for Montgomery. During the year ended June 30, 1996, Montgomery paid
fees totallying $6,441 to such law firm for services provided to Montgomery. In
addition, Henthron, Harris & Taylor, P.C. provides legal services from time to
time in connection with loans made by Montgomery, for which services such law
firm is compensated by the borrowers.
At December 31, 1996, the Association's loans to directors, officers and
employees totalled approximately $1,189,000 or 7.8%, 7.3%, 7.0% and 6.3% of pro
forma stockholders' equity based on the sale of the dollar amount of shares
aggregating the minimum, midpoint, maximum and 15% above the Offering Price
Range, respectively.
BENEFICIAL OWNERSHIP OF CAPITAL STOCK
Beneficial Ownership of Association Common Stock
The following table includes, as of December 31, 1996, certain
information as to the Association's Common Stock beneficially owned by (1) the
only persons or entities, including any "group" as that term is used in Section
13(d)(3) of the Exchange Act, who or which was known to the Association to be
the beneficial owner of more than 5% of the issued and outstanding Association
Common Stock, (ii) the directors of the Association, (iii) certain executive
officers of the Association, and (iv) all directors and executive officers of
the Association as a group. For information concerning proposed subscriptions by
directors and executive officers and the anticipated ownership of Common Stock
by such persons upon consummation of the Conversion and Reorganization, see "The
Conversion and Reorganization Proposed Subscriptions by Directors and Executive
Officers."
96
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
Name of Beneficial of Beneficial Percent of
Owner or Number of Ownership as of Association
Persons in Group December 31, 1996(1)(2) Common Stock
---------------- ----------------------- ------------
<S> <C> <C>
Montgomery Mutual Holding 600,000 70.58%(3)
Company
119 East Main Street
Crawfordsville, Indiana
Directors:
Earl F. Elliott 5,000 *
Mark E. Foster 1,100 *
C. Rex Henthorn 5,000 *
Joseph M. Malott 5,000 *
J. Lee Walden 2,500 *
John E. Woodward 5,000 *
Robert Wright 100 *
Executive Officers:
Nancy L. McCormick 5,000 *
All directors and executive 28,700 3.4
officers as a group (8 persons)
<FN>
- ------------
* Represent less than 1% of the outstanding Association's Common Stock.
(1) Based upon filing made pursuant to the Exchange Act and information
furnished by the respective individuals. Under regulations promulgated
pursuant to the Exchange Act, shares of the Association's Common Stock
are deemed to be beneficially owned by a person if he or she directly or
indirectly has or shares (i) voting power, which includes the power to
vote or to direct the voting of the shares, or (ii) investment power,
which includes the power to dispose or to direct the disposition of the
shares. Unless otherwise indicated, the named beneficial owner has sole
voting and dispositive power with respect to the shares.
(2) Under applicable regulations, a person is deemed to have beneficial
ownership of any shares of the Association's Common Stock which may be
acquired within 60 days of December 31, 1996 pursuant to the exercise of
outstanding stock options. Shares of the Association's Common Stock
which are subject to stock options are deemed to be outstanding for the
purpose of computing the percentage of outstanding Association's Common
Stock owned by such person or group but not deemed outstanding for the
purpose of computing the percentage of the Association's Common Stock
owned by any other person or group.
(3) The members of the Board of Directors of the Association also constitute
the members of the Board of Directors of the Mutual Holding Company and
in such capacity direct the voting of Mutual Holding Company
</FN>
</TABLE>
97
<PAGE>
owned shares. The shares of the Association's Common Stock owned by the
Mutual Holding Company are to be cancelled in connection with the
Conversion and Reorganization.
Proposed Subscriptions by Directors and Executive Officers
The following table sets forth, for each of the Company's directors and
for all of the directors and executive officers as a group, (1) the number of
Exchange Shares to be held upon consummation of the Conversion and
Reorganization, based upon their beneficial ownership of Association Common
Stock as of December 31, 1996, (2) the proposed purchases of Conversion Stock,
assuming sufficient shares are available to satisfy their subscriptions, and (3)
the total amount of Common Stock to be held upon consummation of the Conversion
and Reorganization, in each case assuming that 926,470 shares of Conversion
Stock are sold, which is the midpoint of the Offering Price Range.
<TABLE>
<CAPTION>
Proposed Purchase of Total Common Stock
Conversion Stock to be Held
--------------------------------- ---------------------------------
Number of
Exchange
Shares to
be Held Number Number Percentage
Name (1)(2)(3) Amount of Shares of Shares of Total
- ------------------------------------ ---------------- ---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Earl F. Elliott 8,896 8,896 0.71%
Mark E. Foster 1,423 1,423 0.11
C. Rex Henthorn 6,470 $60,300 6,030 12,500 1.00
Joseph M. Malott 6,470 6,470 0.52
J. Lee Walden 5,176 5,176 0.41
John E. Woodward 6,470 6,470 0.52
Robert Wright 129 50,000 5,000 5,129 0.41
Nancy L. McCormick 7,925 7,925 0.32
All directors and executive
officers as a group (8 persons) 42,959 53,989 4.32
- ------------
<FN>
(1) Excludes shares which may be received upon the exercise of outstanding
stock option. Based upon the Exchange Ratio of 1.2941 Exchange Shares
for each Public Association Shares at the midpoint of the Offering
Price Range, the persons named in the table would have options to
purchase Common Stock as follows: Mr. Elliott, 1,963 shares; Mr.
Foster, 1,455 shares; Mr. Henthorn, 1,455 shares; Mr. Malott, 1,455
shares; Mr. Walden, 1,021 shares; Mr. Woodward, 1,455 shares; Mr.
Wright, 1,455 shares; and all directors and executive officers as a
group, 11,358 shares.
</FN>
</TABLE>
98
<PAGE>
(2) Includes shares awarded under the 1995 Recognition Plan, based upon the
above Exchange Ratio, in the following amounts: Mr. Elliott, 2,246
shares; Mr. Walden 1,941 shares; and all directors and executive
officers as a group 5,822 shares.
(3) Excludes stock options and awards to be granted under the Company's
1997 Stock Option Plan and 1997 Recognition Plan if such plans are
approved by stockholders at an annual or special meeting of
shareholders at least six months following the Conversion and
Reorganization. See "Management of the Company - Benefits."
(*) Less than 1%.
THE CONVERSION AND REORGANIZATION
The Boards of Directors of the Mutual Holding Company, the Association
and the Company have approved the Plan of Conversion and Reorganization, as has
the OTS, subject to approval by the Members of the Mutual Holding Company and
the Stockholders of the Association entitled to vote on the matter and the
satisfaction of certain other conditions. Such OTS approval, however, does not
constitute a recommendation or endorsement of the Plan by such agency.
General
The Boards of Directors of the Mutual Holding Company and the
Association unanimously adopted the Plan as of December 26, 1996, which was
amended on _______, 1997. The Plan has been approved by the OTS, subject to,
among other things, approval of the Plan by the Members of the Mutual Holding
Company and the Stockholders of the Association. The Members' Meeting and the
Stockholders' Meeting have been called for this purpose on_________ __, 1997.
The following is a brief summary of pertinent aspects of the Plan and
the Conversion and Reorganization. The summary is qualified in its entirety by
reference to the provisions of the Plan, which is available for inspection at
each branch office of the Association and at the offices of the OTS. The Plan
also is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, copies of which may be obtained from the SEC. See
"Additional Information."
Purposes of the Conversion and Reorganization
The Mutual Holding Company, as a federally chartered mutual holding
company, does not have stockholders and has no authority to issue capital stock.
As a result of the Conversion and Reorganization, the Company will be structured
in the form used by holding companies of commercial banks, most business
entities and a growing number of savings institutions. The
99
<PAGE>
holding company form of organization will provide the Company with the ability
to diversify the Company's and the Association's business activities through
acquisition of or mergers with both stock savings institutions and commercial
banks, as well as other companies. Although there are no current arrangements,
understandings or agreements regarding any such opportunities, the Company will
be in a position after the Conversion and Reorganization, subject to regulatory
limitations and the Company's financial position, to take advantage of any such
opportunities that may arise.
In their decision to pursue the Conversion and Reorganization, the Board
of Directors of the Mutual Holding Company and the Association considered
various regulatory uncertainties associated with the mutual holding company
structure including the ability to waive dividends in the future as well as the
general uncertainty regarding a possible elimination of the federal savings
association charter. See "Risk Factors - Proposed Federal Legislation."
The Conversion and Reorganization will be important to the future growth
and performance of the holding company organization by providing a larger
capital base to support the operations of the Association and Company and by
enhancing their future access to capital markets, their ability to diversify
into other financial services related activities, and their ability to provide
services to the public. Although the Association currently has the ability to
raise additional capital through the sale of additional shares of Association
Common Stock, that ability is limited by the mutual holding company structure
which, among other things, requires that the Mutual Holding Company hold a
majority of the outstanding shares of Association Common Stock.
The Conversion and Reorganization also will result in an increase in the
number of shares of Common Stock to be outstanding as compared to the number of
outstanding shares of Public Association Shares which will increase the
likelihood of the development of an active and liquid trading market for the
Common Stock. See "Market for Common Stock." In addition, the Conversion and
Reorganization will enhance the Association's ability to engage in stock
repurchases.
An additional benefit of the Conversion and Reorganization will be an
increase in the accumulated earnings and profits of the Association for federal
income tax purposes. When the Mutual Association transferred substantially all
of its assets and liabilities to the Association in connection with the MHC
Reorganization, its accumulated earnings and profits tax attribute was not able
to be transferred to the Association because no tax-free reorganization was
involved. Accordingly, this tax attribute was retained by the Mutual Association
when it converted its charter to that of the Mutual Holding Company, even though
the underlying retained earnings were transferred to the Association. The
Conversion and Reorganization has been structured to re-unite the accumulated
earnings and profits tax attribute retained by the Mutual Holding Company in the
MHC Reorganization with the retained earnings of the Association by merging the
Mutual Holding Company with and into the Association in a tax-free
reorganization. This transaction will increase the Association's ability to pay
dividends to the Company in the future.
See "Dividend Policy."
100
<PAGE>
If the Mutual Association had undertaken a standard conversion involving
the formation of a stock holding company in 1995, applicable OTS regulations
would have required a greater amount of common stock to be sold than the amount
of net proceeds raised in the MHC Reorganization. Management of Montgomery
believed that it was advisable to profitably invest the $2.1 million of net
proceeds raised in the MHC Reorganization prior to raising the larger amount of
capital that would have been raised in a standard conversion. A standard
conversion in 1995 also would have immediately eliminated all aspects of the
mutual form of organization.
In light of the foregoing, the Boards of Directors of the Association
and the Mutual Holding Company believe that the Conversion and Reorganization is
in the best interests of such companies and their respective Stockholders and
Members.
Description of the Conversion and Reorganization
On December 26, 1996, the Boards of Directors of the Association and the
Mutual Holding Company adopted the Plan, which was amended on _______, 1997 and
in March 1997 the Association incorporated the Company under Indiana law as a
first-tier wholly owned subsidiary of the Association. Pursuant to the Plan, (i)
the Mutual Holding Company will convert from mutual form to a federal interim
stock savings institution and simultaneously merge with and into the
Association, pursuant to which the Mutual Holding Company will cease to exist
and the shares of Association Common Stock held by the Mutual Holding Company
will be cancelled, and (ii) Interim will then merge with and into the
Association. As a result of the merger of Interim with and into the Association,
the Association will become a wholly owned subsidiary of the Company and the
Public Association Shares will be converted into the Exchange Shares pursuant to
the Exchange Ratio, which will result in the holders of such shares owning in
the aggregate approximately the same percentage of the Common Stock to be
outstanding upon the completion of the Conversion and Reorganization (i.e., the
Conversion Stock and the Exchange Shares) as the percentage of Association
Common Stock owned by them in the aggregate immediately prior to consummation of
the Conversion and Reorganization, adjusted downward pursuant to OTS policy
which requires that the Exchange Ratio reflect the $300,000 of special dividends
declared by the Association and waived by the Mutual Holding Company, but before
giving effect to (a) the payment of cash in lieu of issuing fractional Exchange
Shares, (b) any shares of Conversion Stock purchased by the Association's
stockholders in the Offerings or the ESOP thereafter, and (c) any exercise of
dissenters' rights.
Pursuant to OTS regulations, consummation of the Conversion and
Reorganization (including the offering of Conversion Stock in the Offerings, as
described below) is conditioned upon the approval of the Plan by (1) the OTS,
(2) at least a majority of the total number of votes eligible to be cast by
Members of the Mutual Holding Company at the Members' Meeting, and (3) holders
of at least two-thirds of the shares of the outstanding Association Common Stock
at the Stockholders' Meeting. In addition, the Primary Parties have conditioned
the consummation of the Conversion and Reorganization on the approval of the
Plan by at least a majority of the votes cast, in person or by proxy, by the
Public Stockholders at the Stockholders' Meeting.
101
<PAGE>
Effects of the Conversion and Reorganization
General. Prior to the Conversion and Reorganization, each depositor in
the Association has both a deposit account in the institution and a pro rata
ownership interest in the net worth of the Mutual Holding Company based upon the
balance in his account, which interest may only be realized in the event of a
liquidation of the Mutual Holding Company. However, this ownership interest is
tied to the depositor's account and has no tangible market value separate from
such deposit account. A depositor who reduces or closes his account receives a
portion or all of the balance in the account but nothing for his ownership
interest in the net worth of the Mutual Holding Company, which is lost to the
extent that the balance in the account is reduced.
Consequently, the depositors of the Association normally have no way to
realize the value of their ownership interest in the Mutual Holding Company,
which has realizable value only in the unlikely event that the Mutual Holding
Company is liquidated. In such event, the depositors of record at that time, as
owners, would share pro rata in any residual surplus and reserves of the Mutual
Holding Company after other claims are paid.
Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock will be created to represent the ownership of the
net worth of the Company. The Common Stock of the Company is separate and apart
from deposit accounts and cannot be and is not insured by the FDIC or any other
governmental agency. Certificates are issued to evidence ownership of the
permanent stock. The stock certificates are transferable, and therefore the
stock may be sold or traded if a purchaser is available with no effect on any
account the seller may hold in the Association.
Continuity. While the Conversion and Reorganization is being
accomplished, the normal business of the Association of accepting deposits and
making loans will continue without interruption. The Association will continue
to be subject to regulation by the OTS and the FDIC. After the Conversion and
Reorganization, the Association will continue to provide services for depositors
and borrowers under current policies by its present management and staff.
The directors and officers of the Association at the time of the
Conversion and Reorganization will continue to serve as directors and officers
of the Association after the Conversion and Reorganization. The directors and
officers of the Company consist of individuals currently serving as directors
and officers of the Mutual Holding Company and the Association, and they
generally will retain their positions in the Company after the Conversion and
Reorganization.
Effect on Public Association Shares. Under the Plan, upon consummation
of the Conversion and Reorganization, the Public Association Shares shall be
converted into Common Stock based upon the Exchange Ratio without any further
action on the part of the holder thereof. Upon surrender of the Public
Association Shares, Common Stock will be issued in exchange for such shares. See
"- Delivery and Exchange of Certificates."
102
<PAGE>
Upon consummation of the Conversion and Reorganization, the Public
Stockholders of the Association, a federally chartered savings association will
become stockholders of the Company, an Indiana corporation. For a description of
certain changes in the rights of stockholders as a result of the Conversion and
Reorganization, see "Comparison of Stockholders' Rights" below.
Effect on Deposit Accounts. Under the Plan, each depositor in the
Association at the time of the Conversion and Reorganization will automatically
continue as a depositor after the Conversion and Reorganization, and each such
deposit account will remain the same with respect to deposit balance, interest
rate and other terms, except to the extent that funds in the account are
withdrawn to purchase Conversion Stock to be issued in the Offerings. Each such
account will be insured by the FDIC to the same extent as before the Conversion
and Reorganization. Depositors will continue to hold their existing
certificates, passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Association will be
affected by the Conversion and Reorganization, and the amount, interest rate,
maturity and security for each loan will remain as they were contractually filed
prior to the Conversion and Reorganization.
Effect on Voting Rights of Members. At present, all depositors of the
Association are members of, and have voting rights in, the Mutual Holding
Company as to all matters requiring membership action. Upon completion of the
Conversion and Reorganization, depositors will cease to be members and will no
longer be entitled to vote at meetings of the Mutual Holding Company (which will
cease to exist). Upon completion of the Conversion and Reorganization, all
voting rights in the Association will be vested in the Company as the sole
stockholder of the Association. Exclusive voting rights with respect to the
Company will be vested in the holders of Common Stock. Depositors of the
Association will not have voting rights in the Company after the Conversion and
Reorganization, except to the extent that they become stockholders of the
Company.
Tax Effects. Consummation of the Conversion and Reorganization is
conditioned on prior receipt by the Primary Parties of rulings or opinions with
regard to federal and Indiana income taxation which indicate that the adoption
and implementation of the Plan of Conversion set forth herein will not be
taxable for federal or Indiana income tax purposes to the Primary Parties or the
Association's Eligible Account Holders, Supplemental Eligible Account Holders or
Other Members, except as discussed below. See "- Tax Aspects" below.
Effect on Liquidation Rights. Were the Mutual Holding Company to
liquidate, all claims of the Mutual Holding Company's creditors would be paid
first. Thereafter, if there were any assets remaining, Members of the Mutual
Holding Company would receive such remaining assets, pro rata, based upon the
deposit balances in their deposit accounts at the Association immediately prior
to liquidation. In the unlikely event that the Association were to liquidate
after the Conversion and Reorganization, all claims of creditors (including
those of depositors, to the extent of their deposit balances) also would be paid
first, followed by distribution of the "liquidation account" to certain
depositors (see "- Liquidation Rights" below), with any assets remaining
thereafter distributed to the Company as the holder of the Association's capital
stock.
103
<PAGE>
Pursuant to the rules and regulations of the OTS, a merger, consolidation, sale
of bulk assets or similar combination or transaction with another insured
institution would not be considered a liquidation for this purpose and, in such
a transaction, the liquidation account would be required to be assumed by the
surviving institution.
Effect on Existing Compensation Plans. Under the Plan, the
Association's existing Stock Incentive Plan, Directors' Stock Option Plan and
the Management Recognition Plan will become stock benefit plans of the Company
and shares of Common Stock will be issued (or reserved for issuance) pursuant to
such benefit plans rather than shares of Association Common Stock. See
"Management of the Association - Benefit Plans."
The Offerings
Subscription Offering. In accordance with the Plan of Conversion, rights
to subscribe for the purchase of Conversion Stock have been granted under the
Plan of Conversion to the following persons in the following order of descending
priority: ( 1) Eligible Account Holders, (2) the ESOP, (3) Supplemental Eligible
Account Holders, (4) Other Members, (5) directors, officers and employees of the
Mutual Holding Company and the Association and (6) Public Stockholders. All
subscriptions received will be subject to the availability of Conversion Stock
after satisfaction of all subscriptions of all persons having prior rights in
the Subscription Offering and to the maximum and minimum purchase limitations
set forth in the Plan of Conversion and as described below under "- Limitations
on Conversion Stock Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of (i)
the number of shares of Conversion Stock that when combined with Exchange Shares
received aggregate $200,000 of Common Stock, (ii) one-tenth of one percent
(.10%) of the total offering of shares of Conversion Stock in the Subscription
Offering and (iii) 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Conversion Stock offered
in the Subscription Offering by a fraction, of which the numerator is the amount
of the Eligible Account Holder's qualifying deposit and the denominator of which
is the total amount of qualifying deposits of all Eligible Account Holders, in
each case as of the close of business on September 30, 1995 (the "Eligibility
Record Date"), subject to the overall purchase limitations. See "- Limitations
on Conversion Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions, shares first will be allocated so as to permit each subscribing
Eligible Account Holder to purchase a number of shares sufficient to make his
total allocation equal to the lesser of the number of shares subscribed for or
100 shares. Thereafter, unallocated shares will be allocated to subscribing
Eligible Account Holders whose subscriptions remain unfilled in the proportion
that the amounts of their respective eligible deposits bear to the total amount
of eligible deposits of all subscribing Eligible Account Holders whose
subscriptions remain unfilled, provided that no fractional shares shall be
issued. The subscription rights of Eligible Account Holders who are also
directors or officers of the Mutual Holding Company or the Association and their
associates will be subordinated to the
104
<PAGE>
subscription rights of other Eligible Account Holders to the extent attributable
to increased deposits in the year preceding September 30, 1995.
Priority 2: ESOP. The ESOP will receive, without payment therefore,
second priority nontransferable subscription rights to purchase a number of
shares of Conversion Stock which will, in the aggregate, equal up to 8% of the
Common Stock to be outstanding upon completion of the Conversion and
Reorganization, including any increase in the number of shares of Conversion
Stock after the date hereof as a result of an increase of up to 15% in the
maximum of the Offering Price Range. The ESOP intends to purchase 115,000 shares
based on the maximum of the Offering Price Range. Subscriptions by the ESOP will
not be aggregated with shares of Conversion Stock purchased directly by or which
are otherwise attributable to any other participants in the Subscription and
Community Offerings, including subscriptions of any of the Association's
directors, officers, employees or associates thereof. See "Management of the
Association - Benefit Plans - Employee Stock Ownership Plan."
In the event that there are insufficient shares for the ESOP to fulfill
its subscription order, the Company may issue additional shares of Common Stock
directly to the ESOP at the Purchase Price to satisfy the ESOP's order to
purchase such amount of Conversion Stock in the Offerings and/or the ESOP, may
purchase shares of Common Stock in the open market. Purchases of additional
shares of Common Stock from the Company would dilute the interests of other
stockholders. See "- Limitations on Conversion Stock Purchases" and "Risk
Factors - Possible Dilutive Effect of Issuance of Additional Shares."
Priority 3: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of (i) the number of shares of Conversion Stock that
when combined with Exchange Shares received aggregate $200,000 of Common Stock,
(ii) one-tenth of one percent (.10%) of the total offering of shares of
Conversion Stock in the Subscription Offering and (iii) 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Conversion Stock offered in the Subscription Offering by a
fraction, of which the numerator is the amount of the Supplemental Eligible
Account Holder's qualifying deposit and the denominator of which is the total
amount of qualifying deposits of all Supplemental Eligible Account Holders, in
each case as of the close of business on March 31, 1997 (the "Supplemental
Eligibility Record Date"), subject to the overall purchase limitations. See "-
Limitations on Conversion Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions, shares first will be allocated so as to permit each subscribing
Supplemental Eligible Account Holder to purchase a number of shares sufficient
to make his total allocation equal to the lesser of the number of shares
subscribed for or 100 shares. Thereafter, unallocated shares will be allocated
to subscribing Supplemental Eligible Account Holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective eligible
deposits bear to the total amount of eligible deposits of all such subscribing
Supplemental Eligible Account Holders whose subscriptions remain unfilled,
provided that no fractional shares shall be issued.
105
<PAGE>
Priority 4: Other Members. To the extent that there are sufficient
shares remaining after satisfaction of subscriptions by Eligible Account Holders
and Supplemental Eligible Account Holders, each Other Member will receive,
without payment therefor, fourth priority, nontransferable subscription rights
to subscribe for Conversion Stock in the Subscription Offering up to the greater
of (i) the number of shares of Conversion Stock that when combined with Exchange
Shares received aggregate $200,000 of Common Stock and (ii) one-tenth of one
percent (.10%) of the total offering of shares of Conversion Stock in the
Subscription Offering, subject to the overall purchase limitations. See "-
Limitations on Conversion Stock Purchases."
In the event the Other Members subscribe for a number of shares which,
when added to the shares subscribed for by Eligible Account Holders, the ESOP
and Supplemental Eligible Account Holders is in excess of the total number of
shares of Conversion Stock offered in the Subscription Offering, shares first
will be allocated so as to permit each subscribing Other Member to purchase a
number of shares sufficient to make his total allocation equal to the lesser of
the number of shares subscribed for or 100 shares. Thereafter, any remaining
shares will be allocated among subscribing Other Members on a pro rata basis in
the same proportion as each Other Member's subscription bears to the total
subscriptions of all subscribing Other Members, provided that no fractional
shares shall be issued.
Priority 5: Directors, Officers and Employees. To the extent that there
are sufficient shares remaining after satisfaction of all subscriptions by
Eligible Account Holders, the ESOP, Supplemental Eligible Account Holders and
Other Members, then directors, officers and employees of the Mutual Holding
Company and the Association will receive, without payment therefor, fifth
priority, nontransferable subscription rights to subscribe for, in this
category, up to an aggregate of 19.0% of the shares of Conversion Stock offered
in the Subscription Offering. The ability of directors, officers and employees
to purchase Conversion Stock under this category is in addition to rights which
are otherwise available to them under the Plan, which generally allows such
persons to purchase in the aggregate up to 29.0% of the total number of shares
of Conversion Stock sold in the Offerings. See "- Limitations on Conversion
Stock Purchases."
In the event of an oversubscription in this category, subscription
rights will be allocated on a pro rata basis in the same proportion that orders
of each person bear to the total orders of all subscribers in this category.
Priority 6: Public Stockholders. To the extent that there are
sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders, the ESOP, Supplemental Eligible Account Holders, Other Members
and directors, officers and employees, each Public Stockholder as of the Voting
Record Date will receive, without payment therefor, fifth priority,
nontransferable subscription rights to subscribe for Conversion Stock in the
Subscription Offering up to the greater of (i) the number of shares of
Conversion Stock that when combined with Exchange Shares received aggregate
$200,000 of Common Stock and (ii) one-tenth of one percent (.10%) of the total
offering of shares of Conversion Stock in the Subscription Offering, subject to
the overall purchase limitations. See "- Limitations on Conversion Stock
Purchases."
106
<PAGE>
In the event the Public Stockholders as of the Voting Record Date
subscribe for a number of shares which, when added to the shares subscribed for
by Eligible Account Holders, the ESOP, Supplemental Eligible Account Holders,
Other Members and directors, officers and employees, is in excess of the total
number of shares of Conversion Stock offered in the Subscription Offering,
available shares will be allocated among subscribing Public Stockholders as of
the Voting Record Date on a pro rata basis in the same proportion as each Public
Stockholder's subscription bears to the total subscriptions of all subscribing
Public Stockholders, provided that no fractional shares shall be issued.
Expiration date for Subscription Offering. The Subscription Offering
will expire at Noon, Crawfordsville, Indiana time, on ________ __, 1997, unless
extended for up to 45 days or such additional periods by the Primary Parties
with the approval of the OTS. Such extensions may not be extended beyond
_____________ __, 1999. Subscription rights which have not been exercised prior
to the Expiration Date will become void.
The Primary Parties will not execute orders until at least the minimum
number of shares of Conversion Stock (787,500 shares) have been subscribed for
or otherwise sold. If all shares have not been subscribed for or sold within 45
days after the Expiration Date, unless such period is extended with the consent
of the OTS, all funds delivered to the Association pursuant to the Subscription
Offering will be returned promptly to the subscribers with interest and all
withdrawal authorizations will be cancelled. If an extension beyond the 45-day
period following the Expiration Date is granted, the Primary Parties will notify
subscribers of the extension of time and subscribers will be resolicited and
permitted to modify or cancel their subscriptions.
Community Offering. To the extent that shares remain available for
purchase after satisfaction of all subscriptions of Eligible Account Holders,
the ESOP, Supplemental Eligible Account Holders, Other Members, directors,
officers and employees of the Mutual Holding Company and the Association and
Public Stockholders, the Primary Parties have determined to offer shares
pursuant to the Plan to certain members of the general public, with preference
given to natural persons residing in Montgomery, Fountain and Warren Counties,
Indiana (such natural persons referred to as "Preferred Subscribers"). Such
persons, together with associates of and persons acting in concert with such
persons, may purchase up to the greater of (i) the number of shares of
Conversion Stock that when combined with Exchange Shares received aggregate
$200,000 of Common Stock, and (ii) one-tenth of one percent (.10%) of the total
offering of shares of Conversion Stock in the Subscription Offering, subject to
the maximum purchase limitations. See "- Limitations on Conversion Stock
Purchases." This amount may be increased at the sole discretion of the Primary
Parties. The opportunity to subscribe for shares of Conversion Stock in the
Community Offering category is subject to the right of the Primary Parties, in
their sole discretion, to accept or reject any such orders in whole or in part
either at the time of receipt of an order or as soon as practicable following
the Expiration Date.
If there are not sufficient shares available to fill the orders of
Preferred Subscribers after completion of the Subscription and Community
Offerings, such stock will be allocated first to each Preferred Subscriber whose
order is accepted by the Primary Parties, in an amount equal to the lesser of
100 shares or the number of shares subscribed for by each such Preferred
107
<PAGE>
Subscriber, if possible. Thereafter, unallocated shares will be allocated among
the Preferred Subscribers whose orders remain unsatisfied in the same proportion
that the unfilled subscription of each bears to the total unfilled subscriptions
of all Preferred Subscribers whose subscription remains unsatisfied. If there
are any shares remaining, shares will be allocated to other members of the
general public who subscribe in the Community Offering applying the same
allocation described above for Preferred Subscribers.
Syndicated Community Offering. The Plan provides that, if feasible, all
shares of Conversion Stock not purchased in the Subscription and Community
Offerings may be offered for sale to the general public in a Syndicated
Community Offering through a syndicate of registered broker-dealers to be
formed. No person will be permitted to subscribe in the Syndicated Community
Offering for more than the number of shares of Conversion Stock that when
combined with Exchange Shares received aggregate $200,000 of Common Stock,
subject to the maximum purchase limitations. The Primary Parties have the right
to reject orders in whole or part in their sole discretion in the Syndicated
Community Offering. Neither Webb nor any registered broker-dealer shall have any
obligation to take or purchase any shares of Conversion Stock in the Syndicated
Community Offering; however, Webb has agreed to use its best efforts in the sale
of shares in the Syndicated Community Offering.
In addition to the foregoing, if a syndicate of broker-dealers
("selected dealers") is formed to assist in a Syndicated Community Offering, a
purchaser may pay for his shares with funds held by or deposited with a selected
dealer. If an order form is executed and forwarded to the selected dealer or if
the selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Association for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. The selected dealer will
acknowledge receipt of the order to its customer in writing on the following
business day and will debit such customer's account on the third business day
after the customer has confirmed his intent to purchase (the "debit date") and
on or before noon of the next business day following the debit date will send
funds to the Association for deposit in a segregated account. If such
alternative procedure is employed, purchasers' funds are not required to be in
their accounts with selected dealers until the debit date.
Any Syndicated Community Offering will terminate no more than 45 days
following the Expiration Date, unless extended by the Primary Parties with the
approval of the OTS. See "Stock Pricing, Exchange Ratio and Number of Shares to
be Issued" below for a discussion of rights of subscribers, if any, in the event
an extension is granted.
Stock Pricing, Exchange Ratio and Number of Shares to be Issued
The Plan of Conversion requires that the purchase price of the
Conversion Stock must be based on the appraised pro forma market value of the
Conversion Stock, as determined on the basis of an independent valuation. The
Primary Parties have retained Keller to make such
108
<PAGE>
valuation. For its services in making such appraisal and any expenses incurred
in connection therewith, Keller will receive a maximum fee of $15,000 plus out
of pocket expenses, together with a fee of no greater than $5,000 plus out of
pocket expenses for the preparation of a business plan and other services
performed in connection with the Company's holding company application to the
OTS. The Primary Parties have agreed to indemnify Keller's and its employees and
affiliates against certain losses (including any losses in connection with
claims under the federal securities laws) arising out of its services as
appraiser, except where Keller's liability results from its negligence or bad
faith.
The Appraisal has been prepared by Keller in reliance upon the
information contained in this Prospectus, including the Financial Statements.
Keller also considered the following factors, among others: the present and
projected operating results and financial condition of the Primary Parties and
the economic and demographic conditions in the Association's existing market
area; certain historical, financial and other information relating to the
Association; a comparative evaluation of the operating and financial statistics
of the Association with those of other similarly situated publicly traded
companies located in Indiana and other regions of the United States; the
aggregate size of the offering of the Conversion Stock; the impact of the
Conversion and Reorganization on the Association's capital and earnings
potential; the proposed dividend policy of the Company and the Association; and
the trading market for the Association Common Stock and securities of comparable
companies and general conditions in the market for such securities.
On the basis of the foregoing, Keller has advised the Primary Parties in
its opinion that the estimated pro forma market value of the Association and the
Mutual Holding Company on a combined basis was $12,500,000 at the Midpoint of
the Valuation Range as of March 4, 1997. Because the holders of the Public
Association Shares will continue to hold the same aggregate percentage ownership
interest in the Company as they currently hold in the Association, adjusted
downward pursuant to OTS policy which requires the Exchange Ratio to reflect
dividends waived by the Mutual Holding Company (before giving effect to the
payment of cash in lieu of issuing fractional Exchange Shares, any exercise of
dissenters' rights and any shares of Conversion Stock purchased by the
Association's stockholder in the Offerings or by the ESOP thereafter), the
Appraisal was multiplied by 74.12% (which represents the Mutual Holding
Company's percentage interest in the Association adjusted upward in order to
reflect the $300,000 of dividends declared by the Association and waived by the
Mutual Holding Company). The resulting amount represents the midpoint of the
valuation ($9,264,700), and the minimum and maximum of the valuation were set at
15% below and above the midpoint, respectively, resulting in a range of
$7,875,000 to $10,654,410. The Boards of Directors of the Primary Parties
determined that the Conversion Stock would be sold at $10.00 per share,
resulting in a range of 787,500 to 1,065,441 shares of Conversion Stock being
offered. Upon consummation of the Conversion and Reorganization, the Conversion
Stock and the Exchange Shares will represent approximately 74.12% and 25.88%,
respectively, of the Company's total outstanding shares. The Boards of Directors
of the Primary Parties reviewed Keller's appraisal report, including the
methodology and the assumptions used by Keller, and determined that the Offering
Price Range was reasonable and adequate. The Boards of Directors of the Primary
Parties also established the formula for determining the Exchange Ratio. Based
upon such formula and the Offering Price Range, the Exchange Ratio ranged from a
minimum of 1.10 to a maximum of 1.49 Exchange
109
<PAGE>
Shares for each Public Association Share, with a midpoint of 1.29. Based upon
these Exchange Ratios, the Company expects to issue between 275,000 and 372,059
shares of Exchange Shares to the holders of Public Association Shares
outstanding immediately prior to the consummation of the Conversion and
Reorganization. The Offering Price Range and the Exchange Ratio may be amended
with the approval of the OTS, if required, or if necessitated by subsequent
developments in the financial condition of any of the Primary Parties or market
conditions generally. In the event the Appraisal is updated to below $7,875,000
or above $12,252,570 (the maximum of the Offering Price Range, as adjusted by
15%), such Appraisal will be filed with the SEC by post-effective amendment.
Based upon current market and financial conditions and recent practices
and policies of the OTS, in the event the Company receives orders for Conversion
Stock in excess of $10,654,410 (the maximum of the Offering Price Range) and up
to $12,252,570 (the maximum of the Offering Price Range, as adjusted by 15%),
the Company may be required by the OTS to accept all such orders. No assurances,
however, can be made that the Company will receive orders for Conversion Stock
in excess of the maximum of the Offering Price Range or that, if such orders are
received, that all such orders will be accepted because the Company's final
valuation and number of shares to be issued are subject to the receipt of an
updated appraisal from Keller which reflects such an increase in the valuation
and the approval of such increase by the OTS. There is no obligation or
understanding on the part of management to take and/or pay for any shares of
Conversion Stock in order to complete the Offerings.
The Appraisal is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing such shares. The
Appraiser did not independently verify the Financial Statements and other
information provided by the Association and the Mutual Holding Company, nor did
Keller value independently the assets or liabilities of the Association. The
Appraisal considers the Association and the Mutual Holding Company as going
concerns and should not be considered as an indication of the liquidation value
of the Association and the Mutual Holding Company. Moreover, because the
Appraisal is necessarily based upon estimates and projections of a number of
matters, all of which are subject to change from time to time, no assurance can
be given that persons purchasing Conversion Stock or receiving Exchange Shares
in the Conversion and Reorganization will thereafter be able to sell such shares
at prices at or above the Purchase Price or in the range of the foregoing
valuation of the pro forma market value thereof.
No sale of shares of Conversion Stock or issuance of Exchange Shares may
be consummated unless prior to such consummation Keller confirms that nothing of
a material nature has occurred which, taking into account all relevant factors,
would cause it to conclude that the Purchase Price is materially incompatible
with the estimate of the pro forma market value of a share of Common Stock upon
consummation of the Conversion and Reorganization. If such is not the case, a
new Offering Price Range may be set, a new Exchange Ratio may be determined
based upon the new Offering Price Range, a new Subscription and Community
Offering and/or Syndicated Community Offering may be held or such other action
may be taken as the Primary Parties shall determine and the OTS may permit or
require.
110
<PAGE>
Depending upon market or financial conditions following the commencement
of the Subscription Offering, the total number of shares of Conversion Stock to
be issued in the Offerings may be increased or decreased without a
resolicitation of subscribers, provided that the product of the total number of
shares times the Purchase Price is not below the minimum or more than 15% above
the maximum of the Offering Price Range (exclusive of a number of shares equal
to up to an additional 8.0% of the Common Stock which may be issued to the ESOP
out of authorized but unissued shares of Common Stock to the extent such shares
are not purchased in the Offerings due to an oversubscription). In the event
market or financial conditions change so as to cause the aggregate Purchase
Price of the shares to be below the minimum of the Offering Price Range or more
than 15% above the maximum of such range (exclusive of additional shares that
may be issued to the ESOP), purchasers will be resolicited (i.e., permitted to
continue their orders, in which case they will need to affirmatively reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be promptly refunded with interest at the
Association's passbook rate of interest, or be permitted to modify or rescind
their subscriptions). Any increase or decrease in the number of shares of
Conversion Stock will result in a corresponding change in the number of Exchange
Shares, so that upon consummation of the Conversion and Reorganization the
Conversion Stock and the Exchange Shares will represent approximately 74.12% and
25.88%, respectively, of the Company's total outstanding shares of Common Stock
(exclusive of the effects of the exercise of outstanding stock options).
An increase in the number of shares of Conversion Stock, either as a
result of an increase in the appraisal of the estimated pro forma market value
or due to the purchase by the ESOP of authorized but unissued shares (see "The
Offerings - Subscription Offering - Priority 2: ESOP"), would decrease both a
subscriber's ownership interest and the Company's pro forma net earnings and
stockholders' equity on a per share basis while increasing pro forma net
earnings and stockholders' equity on an aggregate basis. A decrease in the
number of shares of Conversion Stock would increase both a subscriber's
ownership interest and the Company's pro forma net earnings and stockholders'
equity on a per share basis while decreasing pro forma net earnings and
stockholders' equity on an aggregate basis. See "Risk Factors - Possible
Dilutive Effect of Issuance of Additional Shares" and "Pro Forma Data."
The Appraisal report has been filed as an exhibit to this Registration
Statement and Application for Conversion of which this Prospectus is a part and
is available for inspection in the manner set forth under "Additional
Information."
Persons in Nonqualified States or Foreign Countries
The Primary Parties will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled to
subscribe for stock pursuant to the Plan reside. However, the Primary Parties
are not required to offer stock in the Subscription Offering to any person who
resides in a foreign country or resides in a state of the United States with
respect to which all of the following apply: (a) the number of persons otherwise
eligible to subscribe for shares under the Plan who reside in such jurisdiction
is small; (b) the granting of subscription rights or the offer or sale of shares
of Conversion Stock to such persons would require any of the Primary Parties or
their officers, directors or employees, under the laws of
111
<PAGE>
such jurisdiction, to register as a broker, dealer, salesman or selling agent or
to register or otherwise qualify its securities for sale in such jurisdiction or
to qualify as a foreign corporation or file a consent to service of process in
such jurisdiction; and (c) such registration, qualification or filing in the
judgment of the Primary Parties would be impracticable or unduly burdensome for
reasons of costs or otherwise. Where the number of persons eligible to subscribe
for shares in one state is small, the Primary Parties will base their decision
as to whether or not to offer the Conversion Stock in such state on a number of
factors, including but not limited to the size of accounts held by account
holders in the state, the cost of registering or qualifying the shares or the
need to register the Company, its officers, directors or employees as brokers,
dealers or salesmen.
Limitations on Conversion Stock Purchases
In addition to the purchase limitations for each priority category
described above under "The Offerings - Subscription Offering" and for purchases
in the Community Offering and the Syndicated Community Offering, the Plan also
provides for certain additional limitations to be placed upon the aggregate
purchase of shares in the Conversion. Specifically, no person (other than a
Tax-Qualified Employee Stock Benefit Plan or certain large depositors) by
himself or herself or with an associate, and no group of persons acting in
concert, may subscribe for or purchase more than $200,000 of Common Stock,
without regard to an increase in the number of shares to be issued. For purposes
of this limitation, an associate of a person does not include a Tax-Qualified
Employee Stock Benefit Plan or Non-Tax Qualified Employee Stock Benefit Plan in
which the person has a substantial beneficial interest or serves as a trustee or
in a similar fiduciary capacity. Moreover, for purposes of this paragraph,
shares held by one or more Tax Qualified or Non-Tax Qualified Employee Stock
Benefit Plans attributed to a person shall not be aggregated with shares
purchased directly by or otherwise attributable to that person except for that
portion of a plan which is self-directed by a person. Officers and directors of
the Mutual Holding Company or the Association and their associates may not
purchase, in the aggregate, more than 29% of the shares to be sold in the
Offering. For purposes of the Plan, the members of the Board of Directors are
not deemed to be acting in concert solely by reason of their Board membership.
For purposes of this limitation, an associate of an officer or director does not
include a Tax-Qualified Employee Stock Benefit Plan. Moreover, any shares
attributable to the officers and directors and their associates, but held by a
Tax-Qualified Employee Stock Benefit Plan (other than that portion of a plan
which is self-directed) shall not be included in calculating the number of
shares which may be purchased under the limitations in this paragraph. Shares
purchased by employees who are not officers or directors of the Mutual Holding
Company or the Association, or their associates, are not subject to this
limitation.
For purposes of the purchase limitations set forth in the Plan of
Conversion, Exchange Shares will be valued at the same price that shares of
Conversion Stock are issued in the Offerings.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Members of
the Mutual Holding Company or the Stockholders of the Association both the
individual amount permitted to be subscribed for and
112
<PAGE>
the overall purchase limitation may be decreased or increased up to a maximum of
5% of the total shares of Common Stock to be issued in the Conversion and
Reorganization at the sole discretion of the Primary Parties. If such amount is
increased, subscribers for the maximum amount will be, and certain other large
subscribers in the sole discretion of the Primary Parties may be, given the
opportunity to increase their subscriptions up to the then applicable limit.
In the event that the overall purchase limitation is increased (but the
individual amount is not changed), an individual Eligible Account Holder,
Supplemental Eligible Account Holder, Other Member or Public Stockholder may not
purchase individually in the Subscription Offering the new, higher overall
maximum purchase limit, but may make such purchase, together with associates of
and persons acting in concert with such person, by also purchasing in other
available categories, subject to availability of shares and the maximum overall
purchase limit for purchases in the Offerings, including Exchange Shares
received by Public Stockholders for Public Association Shares. However, Public
Stockholders will not have to sell any Public Association Shares or be limited
in receiving Exchange Shares even if their current ownership of Public
Association Shares when converted into Exchange Shares exceeds an applicable
purchase limitation, including the maximum purchase limitation of $200,000 of
the Common Stock.
In the event of an increase in the total number of shares of Conversion
Stock offered in the Conversion due to an increase in the Offering Price Range
of up to 15% (the "Adjusted Maximum"), the additional shares will be allocated
in the following order of priority in accordance with the Plan: (i) in the event
that there is an oversubscription by Eligible Account Holders, to fill the
ESOP's subscription of 8.0% of the Common Stock to be outstanding upon
consummation of the Conversion and Reorganization; (ii) in the event that there
is an oversubscription by Eligible Account Holders, to fill unfulfilled
subscriptions of Eligible Account Holders, inclusive of the Adjusted Maximum;
(iii) in the event that there is an oversubscription by Supplemental Eligible
Account Holders, to fill unfulfilled subscriptions of Supplemental Eligible
Account Holders, inclusive of the Adjusted Maximum; (iv) in the event that there
is an oversubscription by Other Members, to fill unfulfilled subscriptions of
Other Members, inclusive of the Adjusted Maximum; (v) in the event there is an
oversubscription by directors, officers and employees of the Mutual Holding
Company and the Association, to fill unfilled subscriptions of directors,
officers and employees, inclusive of the Adjusted Maximum; (vi) in the event
that there is an oversubscription by Public Stockholders, to fill unfulfilled
subscriptions of Public Stockholders, inclusive of the Adjusted Maximum; and
(vii) to fill unfulfilled subscriptions in the Community Offering to the extent
possible, inclusive of the Adjusted Maximum.
The term "associate" of a person is defined to mean (i) any corporation
or other organization (other than the Primary Parties or a majority-owned
subsidiary of the Association) of which such person is a director, officer or
partner or is directly or indirectly the beneficial owner of 10% or more of any
class of equity securities; (ii) any trust or other estate in which such person
has a substantial beneficial interest or as to which such person serves as
trustee or in a similar fiduciary capacity, provided, however, that such term
shall not include any tax-qualified employee stock benefit plan of the Primary
Parties in which such person has a substantial beneficial interest or serves as
a trustee or in a similar fiduciary capacity; and (iii) any
113
<PAGE>
relative or spouse of such person, or any relative of such spouse, who either
has the same home as such person or who is a director or officer of the Primary
Parties or any of their subsidiaries.
The Boards of Directors of the Primary Parties, in their sole
discretion, may increase the maximum purchase limitations referred to above up
to 9.99% of the total shares sold in the Offerings, provided that the percentage
by which each such order exceeds 5% of the shares being offered in the Offerings
shall not exceed, in the aggregate, 10% of the shares being offered in the
Subscription and Community Offering. Requests to purchase additional shares of
Conversion Stock under this provision will be allocated by the Boards of
Directors on a pro rata basis giving priority in accordance with the priority
rights set forth above. Depending on market and financial conditions, the Boards
of Directors of the Primary Parties, with the approval of the OTS and without
further approval of the members, may increase any of the above purchase
limitations or decrease the maximum purchase limitation to as low as 1% of the
Conversion Stock.
To the extent that shares are available, each subscriber must subscribe
for a minimum of 25 shares. In computing the number of shares to be allocated,
all numbers will be rounded down to the next whole number.
Common Stock purchased in the Offerings will be freely transferable
except for shares purchased by executive officers and directors of the Primary
Parties. See "- Restrictions on Transfer of Subscription Rights and Shares."
Marketing Arrangements
The Primary Parties have engaged Webb as a financial advisor and
marketing agent in connection with the offering of the Conversion Stock, and
Webb has agreed to use its best efforts to solicit subscriptions and purchase
orders for shares of Conversion Stock in the Offerings. Webb will provide
various services including, but not limited to, (1) training and educating the
Association's employees who will be performing certain ministerial functions in
the Offerings regarding the mechanics and regulatory requirements of the stock
sales process; (2) providing its employees to staff the Stock Information Center
to assist the Association's customers and internal stock purchasers and to keep
records of orders for shares of Conversion Stock; (3) targeting the Company's
sales efforts, including preparation of marketing materials; and (4) assisting
in the solicitation of proxies of Members and Stockholders for use at the
Members' Meeting and the Stockholders' Meeting, respectively. Based upon
negotiations between the Primary Parties and Webb, Webb will receive a fee of
1.75% of the total amount of common stock sold, excluding the exchange shares
issued for the Public Association shares, subscriptions by diretors, officers,
and employees of the Association and the Company and their immediate family
members, and the ESOP. In the event that a selected dealers agreement is entered
into in connection with a Syndicated Community Offering, the Association will
pay a fee of up to 5.5% of the aggregate Purchase Price of the Conversion Stock
to selected broker-dealers, for shares sold by such NASD member firm pursuant to
a selected dealers agreement. Webb has received fees totalling $25,000 for
consulting and advisory services relating to the conversion, which fees will be
in addition to the marketing fees payable to Webb. Fees paid to Webb and to any
other broker-dealers may be deemed to be underwriting fees, and Webb and such
broker-dealers may be deemed to be
114
<PAGE>
underwriters. Webb also will be reimbursed for its reasonable out-of-pocket
expenses and reasonable legal fees not to exceed $30,000. The Primary Parties
have agreed to indemnify Webb for reasonable costs and expenses in connection
with certain claims or liabilities, including certain liabilities under the
Securities Act.
Directors and executive officers of the Primary Parties may participate
in the solicitation of offers to purchase Conversion Stock. Other employees of
the Association may participate in the Offerings in ministerial capacities or
providing clerical work in effecting a sales transaction. Such other employees
have been instructed not to solicit offers to purchase Conversion Stock or
provide advice regarding the purchase of Conversion Stock. Questions of
prospective purchasers will be directed to executive officers or registered
representatives. The Company will rely on Rule 3a4-1 under the Exchange Act, and
sales of Conversion Stock will be conducted within the requirements of Rule
3a4-1, so as to permit officers, directors and employees to participate in the
sale of Conversion Stock. No officer, director or employee of the Primary
Parties will be compensated in connection with his solicitations or other
participation in the Offerings or the Exchange by the payment of commissions or
other remuneration based either directly or indirectly on transactions in the
Conversion Stock and Exchange Shares, respectively.
Procedure for Purchasing Shares in the Offerings
To ensure that each purchaser receives a Prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no Prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will confirm receipt or delivery of the Prospectus in accordance with Rule
15c2-8. Order forms will only be distributed with a Prospectus.
To purchase shares in the Subscription and Community Offerings, an
executed order form with the required payment for each share subscribed for, or
with appropriate authorization for withdrawal from a deposit account at the
Association (which may be given by completing the appropriate blanks in the
order form), must be received by the Association at any of its offices by 5:00
p.m., Eastern Time, on the Expiration Date. In addition, the Primary Parties
will require a prospective purchaser to execute a certification in the form
required by applicable OTS regulations in connection with any sale of Conversion
Stock. Order forms which are not received by such time or are executed
defectively or are received without full payment (or appropriate withdrawal
instructions) are not required to be accepted. In addition the Association will
not accept orders submitted on photocopied or facsimiled order forms nor other
forms unaccompanied by an executed certification form. The Primary Parties have
the right to waive or permit the correction of incomplete or improperly executed
forms, but do not represent that they will do so. Once received, an executed
order form may not be modified, amended or rescinded without the consent of the
Primary Parties, unless the Offerings have not been completed within 45 days
after the end of the Subscription and Community Offerings, unless such period
has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priority, depositors as of the close of business on the Eligibility
Record Date (September 30, 1995) or the Supplemental
115
<PAGE>
Eligibility Record Date (March 31, 1997) and depositors as of the close of
business on the Voting Record Date (_____________ __, 1996) must list on the
order form all accounts in which they have an ownership interest, giving all
names in each account and the account numbers.
Payment for subscriptions may be made (i) in cash if delivered in person
at any office of the Association, (ii) by check or money order or (iii) by
authorization of withdrawal from deposit accounts maintained with the
Association. Interest will be paid on payments made by cash, check or money
order at the Association's passbook rate of interest from the date payment is
received until completion or termination of the Conversion and Reorganization.
If payment is made by authorization of withdrawal from deposit accounts, the
funds authorized to be withdrawn from a deposit account will continue to accrue
interest at the contractual rates until completion or termination of the
Conversion and Reorganization, but a hold will be placed on such funds, thereby
making them unavailable to the depositor until completion or termination of the
Conversion and Reorganization.
If a subscriber authorizes the Association to withdraw the aggregate
amount of the purchase price from a deposit account, the Association will do so
as of the effective date of the Conversion and Reorganization. The Association
will waive any applicable penalties for early withdrawal from certificate
accounts. If the remaining balance in a certificate account is reduced below the
applicable minimum balance requirement at the time that the funds actually are
transferred under the authorization, the certificate will be cancelled at the
time of the withdrawal, without penalty, and the remaining balance will earn
interest at the passbook rate.
Owners of self-directed Individual Retirement Accounts ("IRAs") may use
the assets of such IRAs to purchase shares of Conversion Stock in the Offerings,
provided that such IRAs are not maintained at the Association. Persons with
self-directed IRAs maintained at the Association must have their accounts
transferred to an unaffiliated institution or broker to purchase shares of
Conversion Stock in the Subscription and Community Offerings. In addition, ERISA
provisions and IRS regulations require that officers, directors and 10%
stockholders who use self-directed IRA funds to purchase shares of Conversion
Stock in the Subscription and Community Offerings make such purchases for the
exclusive benefit of the IRAs. Any interested parties wishing to use IRA funds
for stock purchases are advised to contact the Stock Information Center for
additional information and allow sufficient time for the account to be
transferred as required.
Restrictions on Transfer of Subscription Rights and Shares
Pursuant to the rules and regulations of the OTS, no person with
subscription rights may transfer or enter into any agreement or understanding to
transfer the legal or beneficial ownership of the subscription rights issued
under the Plan or the shares of Conversion Stock to be issued upon their
exercise. Such rights may be exercised only by the person to whom they are
granted and only for his account. Each person exercising such subscription
rights will be required to certify that he is purchasing shares solely for his
own account and that he has no agreement or understanding regarding the sale or
transfer of such shares. Federal regulations also prohibit any person from
offering or making an announcement of an offer or intent to make an offer to
116
<PAGE>
purchase such subscription rights or shares of Conversion Stock prior to the
completion of the Conversion and Reorganization.
The Primary Parties will pursue any and all legal and equitable remedies
in the event they become aware of the transfer of subscription rights and will
not honor orders known by them to involve the transfer of such rights.
Liquidation Rights
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor of the Association would
receive his pro rata share of any assets of the Mutual Holding Company remaining
after payment of claims of all creditors. Each depositor's pro rata share of
such remaining assets would be in the same proportion as the value of his
deposit account was to the total value of all deposit accounts in the
Association at the time of liquidation. After the Conversion and Reorganization,
each depositor, in the event of a complete liquidation of the Association, would
have a claim as a creditor of the same general priority as the claims of all
other general creditors of the Association. However, except as described below,
his claim would be solely in the amount of the balance in his deposit account
plus accrued interest. He would not have an interest in the value or assets of
the Association or the Company above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion and Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders in
an amount equal to the amount of any dividends waived by the Mutual Holding
Company plus the greater of (1) the Association's retained earnings of
$6,642,000 at March 31, 1995, the date of the latest statement of financial
condition contained in the final offering circular utilized in the MHC
Reorganization, or (2) 70.29% of the Association's total stockholders' equity as
reflected in its latest statement of financial condition contained in the final
Prospectus utilized in the Offerings. As of the date of this Prospectus, the
initial balance of the liquidation account would be $6.7 million. Each Eligible
Account Holder and Supplemental Eligible Account Holder, if he were to continue
to maintain his deposit account at the Association, would be entitled, upon a
complete liquidation of the Association after the Conversion and Reorganization
to an interest in the liquidation account prior to any payment to the Company as
the sole stockholder of the Association. Each Eligible Account Holder and
Supplemental Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, including passbook accounts,
transaction accounts such as checking accounts, money market deposit accounts
and certificates of deposit, held in the Association at the close of business on
September 30, 1995 or March 31, 1997, as the case may be. Each Eligible Account
Holder and Supplemental Eligible Account Holder will have a pro rata interest in
the total liquidation account for each of his deposit accounts based on the
proportion that the balance of each such deposit account on the September 30,
1995 Eligibility Record Date (or the March 31, 1997 Supplemental Eligibility
Record Date, as the case may be) bore to the balance of all deposit accounts in
the Association on such date.
117
<PAGE>
If, however, on any June 30 annual closing date of the Association,
commencing June 30, 1997, the amount in any deposit account is less than the
amount in such deposit account on September 30, 1995 or March 31, 1997, as the
case may be, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Association.
Tax Aspects
Consummation of the Conversion and Reorganization is expressly
conditioned upon prior receipt of either a ruling or an opinion of counsel with
respect to federal tax laws, and either a ruling or an opinion with respect to
Indiana tax laws, to the effect that consummation of the transactions
contemplated hereby will not result in a taxable reorganization under the
provisions of the applicable codes or otherwise result in any adverse tax
consequences to the Mutual Holding Company, the Association, the Company or to
account holders receiving subscription rights, except to the extent, if any,
that subscription rights are deemed to have fair market value on the date such
rights are issued. This condition may not be waived by the Primary Parties.
Silver, Freedman & Taff, L.L.P., Washington, D.C., has issued an opinion
to the Company and the Association to the effect that, for federal income tax
purposes: (1) the conversion of the Mutual Holding Company from mutual form to a
federal interim stock savings institution and its simultaneous merger with and
into the Association, with the Association being the surviving institution will
qualify as a reorganization within the meaning of Section 368(a)(1)(A) of the
Code, (2) no gain or loss will be recognized by the Association upon the receipt
of the assets of the Mutual Holding Company in such merger, (3) the merger of
Interim with and into the Association, with the Association being the surviving
institution, will qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Code, (4) no gain or loss will be recognized by Interim upon
the transfer of its assets to the Association, (5) no gain or loss will be
recognized by the Association upon the receipt of the assets of Interim, (6) no
gain or loss will be recognized by the Company upon the receipt of Association
Common Stock solely in exchange for Common Stock, (7) no gain or loss will be
recognized by the Public Stockholders upon the receipt of Common Stock solely in
exchange for their Public Association Shares, (8) the basis of the Common Stock
to be received by the Public Stockholders will be the same as the basis of the
Public Association Shares surrendered in exchange therefor, before giving effect
to any payment of cash in lieu of fractional shares, (9) the holding period of
the Common Stock to be received by the Public Stockholders will include the
holding period of the Public Association Shares, provided that the Public
Association Shares were held as a capital asset on the date of the exchange,
(10) no gain or loss will be recognized by the Company upon the sale of shares
of Conversion Stock in the Offerings, (11) the Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members will recognize gain, if
any, upon the issuance to them of withdrawable savings accounts in the
Association following the Conversion and Reorganization, interests in the
liquidation account and nontransferable subscription rights to purchase
Conversion
118
<PAGE>
Stock, but only to the extent of the value, if any, of the subscription rights,
and (12) the tax basis to the holders of Conversion Stock purchased in the
Offerings will be the amount paid therefor, and the holding period for the
shares of Conversion Stock will begin on the date of consummation of the
Offerings if purchased through the exercise of subscription rights and on the
day after the date of purchase if purchased in the Community Offering or the
Syndicated Community Offering.
Geo. S. Olive & Co. LLC, has issued and opinion of the Company and the
Association to the effect that the income tax consequences of the Conversion and
Reorganization are substantially the same under Indiana law as they are under
the Code.
In the opinion of Keller, which opinion is not binding on the IRS, the
subscription rights do not have any value, based on the fact that such rights
are acquired by the recipients without cost, are nontransferable and of short
duration, and afford the recipients the right only to purchase the Conversion
Stock at a price equal to its estimated fair market value, which will be the
same price as the Purchase Price for the unsubscribed shares of Conversion
Stock. If the subscription rights granted to eligible subscribers are deemed to
have an ascertainable value, receipt of such rights likely would be taxable only
to those eligible subscribers who exercise the subscription rights (either as a
capital gain or ordinary income) in an amount equal to such value, and the
Primary Parties could recognize gain on such distribution. Eligible subscribers
are encouraged to consult with their own tax advisor as to the tax consequences
in the event that such subscription rights are deemed to have an ascertainable
value.
Unlike private rulings, an opinion is not binding on the IRS and the IRS
could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
Delivery and Exchange of Certificates
Conversion Stock. Certificates representing Conversion Stock issued in
connection with the Offerings will be mailed by the Company's transfer agent for
the Common Stock to the persons entitled thereto at the addresses of such
persons appearing on the stock order form for Conversion Stock as soon as
practicable following consummation of the Conversion and Reorganization. Any
certificates returned as undeliverable will be held by the Company until claimed
by persons legally entitled thereto or otherwise disposed of in accordance with
applicable law. Until certificates for Conversion Stock are available and
delivered to subscribers, subscribers may not be able to sell such shares.
Exchange Shares. After consummation of the Conversion and
Reorganization, each holder of a certificate or certificates theretofore
evidencing issued and outstanding shares of Association Common Stock (other than
the Mutual Holding Company), upon surrender of the same to an agent, duly
appointed by the Company, which is anticipated to be the transfer agent for the
Common Stock (the "Exchange Agent"), shall be entitled to receive in exchange
therefor a certificate or certificates representing the number of full shares of
Common Stock for which the shares of Association Common Stock theretofore
represented by the certificate or certificates so surrendered shall have been
converted based on the Exchange Ratio. The Exchange Agent shall
119
<PAGE>
promptly mail to each such holder of record of an outstanding certificate which
immediately prior to the consummation of the Conversion and Reorganization
evidenced shares of Association Common Stock, and which is to be exchanged for
Common Stock based on the Exchange Ratio as provided in the Plan, a form of
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to such certificate shall pass, only upon delivery of
such certificate to the Exchange Agent) advising such holder of the terms of the
exchange effected by the Conversion and Reorganization and of the procedure for
surrendering to the Exchange Agent such certificate in exchange for a
certificate or certificates evidencing Common Stock. The Association
Stockholders should not forward Association Common Stock certificates to the
Association or the Exchange Agent until they have received the transmittal
letter.
No holder of a certificate theretofore representing shares of
Association Common Stock shall be entitled to receive any dividends in respect
of the Common Stock into which such shares shall have been converted by virtue
of the Conversion and Reorganization until the certificate representing such
shares of Association Common Stock is surrendered in exchange for certificates
representing shares of Common Stock. In the event that dividends are declared
and paid by the Company in respect of Common Stock after the consummation of the
Conversion and Reorganization but prior to surrender of certificates
representing shares of Association Common Stock, dividends payable in respect of
shares of Common Stock not then issued shall accrue (without interest). Any such
dividends shall be paid (without interest) upon surrender of the certificates
representing such shares of Association Common Stock. The Company shall be
entitled, after the consummation of the Conversion and Reorganization, to treat
certificates representing shares of Association Common Stock as evidencing
ownership of the number of full shares of Common Stock into which the shares of
Association Common Stock represented by such certificates shall have been
converted, notwithstanding the failure on the part of the holder thereof to
surrender such certificates.
The Company shall not be obligated to deliver a certificate or
certificates representing shares of Common Stock to which a holder of
Association Common Stock would otherwise be entitled as a result of the
Conversion and Reorganization until such holder surrenders the certificate or
certificates representing the shares of Association Common Stock for exchange as
provided above, or, in default thereof, an appropriate affidavit of loss and
indemnity agreement and/or a bond as may be required in each case by the
Company. If any certificate evidencing shares of Common Stock is to be issued in
a name other than that in which the certificate evidencing Association Common
Stock surrendered in exchange therefor is registered, it shall be a condition of
the issuance thereof that the certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange pay to the Exchange Agent any transfer or other tax
required by reason of the issuance of a certificate for shares of Common Stock
in any name other than that of the registered holder of the certificate
surrendered or otherwise establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not payable.
Various approvals of the OTS are required in order to consummate the
Conversion and Reorganization. The OTS has approved the Plan of Conversion
subject to approval by the Mutual Holding Company's Members and the
Association's Stockholders. In addition, consummation of
120
<PAGE>
the Conversion and Reorganization is subject to OTS approval of the Company's
application to acquire all of the to-be-outstanding Association Common Stock and
the applications with respect to the merger of the Mutual Holding Company
(following its conversion to a federal interim stock savings institution) into
the Association and the merger of Interim into the Association, with the
Association being the surviving entity in both mergers. Applications for these
approvals have been filed and are currently pending. There can be no assurances
that the requisite OTS approvals will be received in a timely manner, in which
event the consummation of the Conversion and Reorganization may be delayed
beyond the expiration of the Offerings.
Pursuant to OTS regulations, the Plan of Conversion also must be
approved by (1) at least a majority of the total number of votes eligible to be
cast by Members of the Mutual Holding Company at the Members' Meeting, and (2)
holders of at least two-thirds of the outstanding Association Common Stock at
the Stockholders' Meeting. In addition, the Primary Parties have conditioned the
consummation of the Conversion and Reorganization on the approval of the Plan by
at least a majority of the votes cast, in person or by proxy, by the Public
Stockholders at the Stockholders' Meeting.
Dissenters' Rights of Appraisal
Holders of Association Common Stock are entitled to appraisal rights
under Section 552.14 of the OTS regulations as a result of the merger of the
Mutual Holding Company (following its conversion to a federal interim stock
savings institution) with and into the Association and the merger of the
Association with and into Interim, with the Association to be the surviving
entity in both mergers. A holder of shares of Association Common Stock wishing
to exercise his appraisal rights must deliver to the Secretary of the
Association before the vote on the Plan of Conversion at the Stockholders'
Meeting, a writing which identifies such stockholder and which states his
intention to demand appraisal of and payment for his shares of Association
Common Stock. Such demand must be in addition to and separate from any proxy or
vote against the Plan of Conversion. Any such stockholder who wishes to exercise
such appraisal rights should review carefully the discussion of such rights in
the Association's proxy statement, including Appendix A thereto, because failure
to timely and properly comply with the procedures specified will result in the
loss of appraisal rights under Section 552.14. All written demands for appraisal
should be sent or delivered to the attention of the Secretary of the
Association, 119 East Main Street, Crawfordsville, Indiana 47933 so as to be
received prior to the vote at the Stockholders' Meeting with respect to the Plan
of Conversion. Pursuant to the Plan of Conversion, consummation of the
Conversion and the Reorganization is conditioned upon holders of less than 10%
of the outstanding Association Common Stock exercising appraisal rights, which
condition may, in the sole discretion of the Primary Parties, be waived.
In determining whether or not to exercise appraisal rights, current
Stockholders should review the comparison of their rights as Stockholders with
their rights as stockholders of the Company following consummation of the
Conversion. Such comparison is contained in the Association's proxy statement to
its stockholders under "The Conversion and Reorganization Comparison of
Stockholder Rights." Because the Company is governed by the Indiana Business
Corporation Law and the Association is governed by federal law, including OTS
regulations,
121
<PAGE>
there are material differences between the rights of stockholders of the
Association and stockholders of the Company.
Certain Restrictions on Purchase or Transfer of Shares after the Conversion and
Reorganization
All shares of Conversion Stock purchased in connection with the
Conversion and Reorganization by a director or an executive officer of the
Primary Parties will be subject to a restriction that the shares not be sold for
a period of one year following the Conversion and Reorganization, except in the
event of the death of such director or executive officer or pursuant to a merger
or similar transaction approved by the OTS. Each certificate for restricted
shares will bear a legend giving notice of this restriction on transfer, and
appropriate stop-transfer instructions will be issued to the Company's transfer
agent. Any shares of Common Stock issued within this one-year period as a stock
dividend, stock split or otherwise with respect to such restricted stock will be
subject to the same restrictions. The directors and executive officers of the
Company will also be subject to the insider trading rules promulgated pursuant
to the Exchange Act.
Purchases of Common Stock of the Company by directors, executive
officers and their associates during the three-year period following completion
of the Conversion and Reorganization may be made only through a broker or dealer
registered with the SEC, except with the prior written approval of the OTS. This
restriction does not apply, however, to negotiated transactions involving more
than 1.0% of the Company's outstanding Common Stock or to the purchase of stock
pursuant to any tax-qualified employee stock benefit plan, such as the ESOP, or
by any non-tax-qualified employee stock benefit plan, such as the Management
Recognition Plan or the 1997 Recognition Plan.
Pursuant to OTS regulations, the Company will generally be prohibited
from repurchasing any shares of Common Stock within one year following
consummation of the Conversion and Reorganization. During the second and third
years following consummation of the Conversion and Reorganization, the Company
may not repurchase any shares of its Common Stock other than pursuant to (i) an
offer to all stockholders on a pro rata basis which is approved by the OTS; (ii)
the repurchase of qualifying shares of a director, if any; (iii) purchases in
the open market by a tax-qualified or non-tax-qualified employee stock benefit
plan in an amount reasonable and appropriate to fund the plan; or (iv) purchases
that are part of an open-market program not involving more than 5% of its
outstanding capital stock during a 12-month period, if the repurchases do not
cause the Association to become undercapitalized and the Association provides to
the Regional Director of the OTS no later than 10 days prior to the commencement
of a repurchase program written notice containing a full description of the
program to be undertaken and such program is not disapproved by the Regional
Director. However, the Regional Director has authority to permit repurchases
during the first year following consummation of the Conversion and
Reorganization and to permit repurchases in excess of 5% during the second and
third years upon the establishment of exceptional circumstances (i.e., where
such repurchases would be in the best interests of the institution and its
stockholders).
122
<PAGE>
COMPARISON OF STOCKHOLDERS' RIGHTS
General. As a result of the Conversion and Reorganization, holders of
the Association Common Stock will become stockholders of the Company, an Indiana
corporation. There are certain differences in stockholder rights arising from
distinctions between the Association's Charter and Bylaws and the Company's
Articles of Incorporation and Bylaws and from distinctions between laws with
respect to federally chartered savings institutions and Indiana law.
The discussion herein is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather summarizes the more
significant differences and certain important similarities. The discussion
herein is qualified in its entirety by reference to the Articles of
Incorporation and Bylaws of the Company and the Indiana Business Corporation
Law.
Authorized Capital Stock. The Company's authorized capital stock
consists of 8,000,000 shares of Common Stock, par value $.01 per share and
2,000,000 shares of Preferred Stock, par value $.01 per share. The Association's
authorized capital stock consists of 2,000,000 shares of Association common
stock, par value $.01 per share. The shares of Common Stock and Preferred Stock
were authorized in an amount greater than that to be issued in the Conversion
and Reorganization to provide the Company's Board of Directors with as much
flexibility as possible to effect, among other transactions, financings,
acquisitions, stock dividends, stock splits and employee stock options. However,
these additional authorized shares may also be used by the Board of Directors
consistent with its fiduciary duty to deter future attempts to gain control of
the Company. The Board of Directors also has sole authority to determine the
terms of any one or more series of Preferred Stock, including voting rights,
conversion rates, and liquidation preferences. As a result of the ability to fix
voting rights for a series of Preferred Stock, the Board has the power, to the
extent consistent with its fiduciary duty, to issue a series of Preferred Stock
to persons friendly to management in order to attempt to block, a post tender
offer merger or other transaction by which a third party seeks control, and
thereby assist management to retain its position. The Company's Board currently
has no plan for the issuance of additional shares, other than the issuance of
additional shares pursuant to stock benefit plans.
Issuance of Capital Stock. Pursuant to applicable laws and regulations,
the Mutual Holding Company is required to own not less than a majority of the
outstanding Association Common Stock. There will be no such restriction
applicable to the Company following consummation of the Conversion and
Reorganization.
The Articles of Incorporation of the Company do not contain restrictions
on the issuance of shares of capital stock to directors, officers or controlling
persons of the Company, whereas the Charter of the Association restricts such
issuance to general public offerings, or if qualifying shares, to directors,
unless the share issuance or the plan under which they would be issued has been
approved by a majority of the total votes eligible to be cast at a legal
meeting. Thus, stock-related compensation plans such as stock option plans could
be adopted by the Company without stockholder approval and shares of Company
capital stock could be issued directly to directors or officers without
stockholder approval. The Bylaws of the National Association of
123
<PAGE>
Securities Dealers, Inc. ("NASD"), however, generally require corporations with
securities which are quoted on the Nasdaq National Market System to obtain
stockholder approval of most stock compensation plans for directors, officers
and key employees of the corporation. Moreover, although generally not required,
stockholder approval of stock related compensation plans may be sought in
certain instances in order to qualify such plans for favorable federal income
tax and securities law treatment under current laws and regulations. The Company
plans to submit the stock compensation plans discussed herein to its
stockholders for approval.
Voting Rights. Neither the Association's Charter or Bylaws nor the
Company's Articles of Incorporation or Bylaws currently provide for cumulative
voting in elections of directors.
For additional information relating to voting rights, see "- Limitations
on Acquisitions of Voting Stock and Voting Rights" below.
Payment of Dividends. The ability of the Association to pay dividends on
its capital stock is restricted by OTS regulations and by tax considerations
related to savings institutions such as the Association. See "Regulation -
Federal Regulation of Savings Association - Capital Requirements" and
"Regulation - Federal and State Taxation." Although the Company is not subject
to these restrictions as an Indiana corporation, such restrictions will
indirectly affect the Company because dividends from the Association will be a
primary source of funds of the Company for the payment of dividends to
stockholders of the Company.
The Indiana Business Corporation Law generally provides that, subject to
any restrictions in the corporation's articles of incorporation, a corporation
may make distributions to its stockholders, provided (i) the corporation would
be able to pay its debts as they become due in the usual course of business and
(ii) the corporation's total assets would not be less than the sum of its total
liabilities plus the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution to satisfy the preferential rights
which are superior to those receiving the distribution.
Board of Directors. The Association's Charter and Bylaws and the
Articles of Incorporation and Bylaws of the Company respectively require the
Board of Directors of the Association and the Company to be divided into three
classes as nearly equal in number as possible and that the members of each class
shall be elected for a term of three years and until their successors are
elected and qualified, with one class being elected annually.
Under the Association's Bylaws, any vacancies in the Board of Directors
of the Association may be filled by the affirmative vote of a majority of the
remaining directors although less than a quorum of the Board of Directors.
Persons elected by the directors of the Association to fill vacancies may only
serve until the next annual meeting of stockholders. However, under the
Company's Articles of Incorporation, any vacancy occurring in the Board of
Directors of the Company, including any vacancy created by reason of an increase
in the number of directors, may be filled by the remaining directors, and any
director so chosen shall hold office for the remainder of the term to which the
director has been elected and until his or her successor is elected and
qualified.
124
<PAGE>
Under the Association's Bylaws, any director may be removed for cause by
the holders of a majority of the outstanding voting shares. The Company's
Articles of Incorporation provide that any director may be removed for cause by
the holders of two-thirds of the outstanding voting shares of the Company.
Limitations on Liability. The Company's Articles of Incorporation
provide that no director shall be personally liable to the Company or its
stockholders for monetary damages or injunctive relief for any act or omission
by such director as a director unless the director has breached or failed to
perform the duties of the director's office in compliance with Section 23-1-35-1
of the Indiana Business Corporation Law, or any successor provision thereto.
Section 23-1-35-1 of the Indiana Business Corporation Law currently provides
that directors will not be liable for any action taken as a director, or any
failure to take any action, unless (i) the director has breached or failed to
perform the duties of the director's office in compliance with said section
(i.e., in good faith, with the care an ordinarily prudent person in a like
position would exercise under similar circumstances and in a manner the director
reasonably believes to be in the best interests of the corporation) and (ii) the
breach or failure to perform constitutes willful misconduct or recklessness.
Currently, the scope of the provision in the Company's Articles of
Incorporation limiting the personal liability of directors is uncertain because
of the absence of judicial precedent interpreting similar provisions. In
addition, the SEC takes the position that similar provisions limiting the
liability of directors under state laws would not protect those corporations'
directors from liability for violations of the federal securities laws. Federal
banking regulators also may take the same position with respect to violations of
federal banking laws and regulations.
The provision limiting the personal liability of the Company's directors
does not eliminate or alter the duty of the Company's directors; it merely
limits personal liability for monetary damages to the extent permitted by the
Indiana Business Corporation Law. Moreover, it applies only to claims against a
director arising out of his role as a director; it currently does not apply to
claims arising out of his role as an officer (if he is also an officer) or
arising out of any other capacity in which he serves because the Indiana
Business Corporation Law does not authorize such a !imitation of liability.
The provision in the Company's Articles of Incorporation which limits
the personal liability of directors is designed to ensure that the ability of
the Company's directors to exercise their best business judgment in managing the
Company's affairs is not unreasonably impeded by exposure to the potentially
high personal costs or other uncertainties of litigation. The nature of the
tasks and responsibilities undertaken by directors of publicly held corporations
often require such persons to make difficult judgments of great importance which
can expose such persons to personal liability, but from which they will acquire
no personal benefit. In recent years, litigation against publicly held
corporations and their directors and officers challenging good faith business
judgments and involving no allegations of personal wrongdoing has become common.
Such litigation regularly involves damage claims in huge amounts which bear no
relationship to the amount of compensation received by the directors or
officers, particularly in the case of directors who are not employees of the
corporation. The expense of such litigation, whether it is
125
<PAGE>
well-founded or not, can be enormous. The provision of the Articles of
Incorporation relating to director liability is intended to reduce, in
appropriate cases, the risk incident to serving as a director and to enable the
Company to elect and retain the persons most qualified to serve as directors.
Currently, federal law does not permit federally chartered savings
institutions such as the Association to limit the personal liability of
directors in the manner provided by the Indiana Business Corporation Law and the
laws of many other states.
Indemnification of Directors, Officers, Employees and Agents. The
Association's Charter and Bylaws do not contain any provision relating to
indemnification of directors and officers of the Association. Under present OTS
regulations, however, the Association shall indemnify its directors, officers
and employees for any costs incurred in connection with any litigation involving
any such person's activities as a director, officer or employee if such person
obtains a final judgment on the merits in his or her favor. In addition,
indemnification is permitted in the case of a settlement, a final judgment
against such person or final judgment other than on the merits, if a majority of
disinterested directors determine that such person was acting in good faith
within the scope of his or her employment as he or she could reasonably have
perceived it under the circumstances and for a purpose he or she could
reasonably have believed under the circumstances was in the best interest of the
Association or its stockholders. The Association also is permitted to pay
ongoing expenses incurred by a director, officer or employee if a majority of
disinterested directors concludes that such person may ultimately be entitled to
indemnification. Before making any indemnification payment, the Association is
required to notify the OTS of its intention and such payment cannot be made if
the OTS objects thereto.
The Company's Articles of Incorporation provide that the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed formal or informal action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is or was a director, officer, employee or agent of
the Company or any predecessor of the Company, or is or was serving at the
request of the Company or any predecessor of the Company as a director, officer,
partner, member, manager, employee or agent of another corporation, partnership,
limited liability company, joint venture, trust, employee benefit plan or other
enterprise, against liability and expenses (including court costs and attorneys'
fees), judgments, fines, excise taxes and amounts paid in satisfaction,
settlement or compromise actually and reasonably incurred by such person in
connection with such action, suit or proceeding to the fullest extent authorized
by law. Such indemnity shall be made only if (i) such person's conduct was in
good faith; (ii) such person reasonably believed (a) in the case of conduct in
the person's official capacity with the Company, that the person's conduct was
in its best interests and (b) in all other cases, the person's conduct was at
least not opposed to the Company's best interests; and (iii) in the case of any
criminal proceeding, the person either (a) had reasonable cause to believe the
person's conduct was lawful, or (b) had no reasonable cause to believe that such
person's conduct was unlawful.
The Company's Articles of Incorporation also provide that reasonable
expenses incurred by a director, officer, employee or agent of the Company in
defending an action, suit or
126
<PAGE>
proceeding described above shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding as authorized by the Board of
Directors upon receipt of a written affirmation by or on behalf of such person
of his good faith belief that he has met the standard of conduct necessary for
indemnification under relevant law and a written undertaking, executed
personally or on the person's behalf, to repay such amount if it shall
ultimately be determined that the person is not entitled to be indemnified by
the Company.
Special Meetings of Stockholders. The Association's Bylaws provide that
special meetings of the stockholders of the Association may be called by the
Chairman, President, a majority of the Board of Directors or the holders of not
less than one-tenth of the outstanding capital stock of the Association entitled
to vote at the meeting. The Company's Articles of Incorporation and Bylaws
contain a provision pursuant to which special meetings of stockholders of the
Company only may be called by a majority of directors then in office or the
Chairman of the Board or Chief Executive Officer.
Stockholder Nominations and Proposals. The Association's Bylaws
generally provide that stockholders may submit nominations for election as
director at an annual meeting of stockholders and any new business to be taken
up at such a meeting by filing such in writing with the Association at least
thirty days before the date of any such meeting.
The Company's Articles of Incorporation provide that, subject to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation, all nominations for
election to the Board of Directors, other than those made by the Board or a
committee thereof, shall be made by a stockholder who has complied with the
notice provisions in the Bylaws. Written notice of a stockholder nomination must
be communicated to the attention of the secretary and either delivered to, or
mailed and received at, the principal executive offices of the Company not later
than (i) with respect to an annual meeting of the stockholders of the Company,
60 days prior to the anniversary date of the mailing of proxy materials by the
Company in connection with the immediately preceding annual meeting of
stockholders of the Company, or in the case of the first annual meeting
following the Conversion and Reorganization, the close of business on the tenth
day following the day on which notice of the date of the scheduled annual
meeting was mailed, and (ii) with respect to a special meeting of stockholders
for the election of directors, the close of business on the tenth day following
the date on which notice of such meeting is first given to the stockholders.
Each such notice shall set forth: (a) as to each person whom the stockholder
proposes to nominate as a director, and as to the stockholder giving the notice,
(i) the name, age, business address and residence address of such person; (ii)
the principal occupation or employment of such person; (iii) the class and
number of shares of the Company's stock beneficially owned by such person on the
date of the stockholder notice; and (iv) such other information regarding such
person as would be required to be included in a proxy statement filed pursuant
to the proxy rules of the SEC; and (b) to the extent known by the stockholder
giving the notice, (i) the name and address of any other stockholders supporting
such nominees; and (ii) the class and number of shares of the Company's stock
beneficially owned by any other stockholders supporting such nominees, on the
date of such stockholder notice. The presiding officer of the meeting may refuse
to acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
127
<PAGE>
The Company's Bylaws also provide that only such business as shall have
been properly brought before an annual meeting of stockholders shall be
conducted at the annual meeting. To be properly brought before an annual
meeting, business must be brought before the meeting by or at the direction of
the Board of Directors or otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Company. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 60 days prior to the anniversary date of the mailing of
proxy materials by the Company in connection with the immediately preceding
annual meeting of stockholders of the Company; provided, however, that with
respect to the first scheduled annual meeting following completion of the
Conversion and Reorganization, such written notice must be delivered or received
by the Company no later than the close of business on the tenth day following
the day on which notice of the meeting was first mailed to stockholders. A
stockholder's notice shall set forth as to each matter the stockholder proposes
to bring before the annual meeting (a) a brief description of the business
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (b) the name and address, as they appear on
the Company's books, of the stockholder proposing such business, and, to the
extent known, any other stockholders known by such stockholder to be supporting
such proposal, (c) the class and number of shares of the Company which are
beneficially owned by the stockholder and, to the extent known, by any other
stockholders known by such stockholder to be supporting such proposal on the
date of such stockholder notice, and (d) any financial interest of the
stockholder in such business. The presiding officer of an annual meeting shall
determine and declare to the meeting whether the business was properly brought
before the meeting in accordance with the provisions of the Articles of
Incorporation and any such business not properly brought before the meeting
shall not be transacted.
The procedures regarding stockholder proposals and nominations are
intended to provide the Board of Directors of the Company with the information
deemed necessary to evaluate a stockholder proposal or nomination and other
relevant information, such as existing stockholder support, as well as the time
necessary to consider and evaluate such information in advance of the applicable
meeting. The proposed procedures, however, will give incumbent directors advance
notice of a business proposal or nomination. This may make it easier for the
incumbent directors to defeat a stockholder proposal or nomination, even when
certain stockholders view such proposal or nomination as in the best interests
of the Company or its stockholders.
Inspectors of Election. The Association's Bylaws provide that the Board
of Directors may appoint any persons, other than nominees for office, as
inspectors of election at a meeting of stockholders and that if inspectors of
election are not so appointed, the Chairman of the Board or the President may,
and on the request of not less than 10% of the votes represented at the meeting
shall, make such appointment at the meeting. In accordance with Indiana law, the
Company's Bylaws provide that the Board of Directors of the Company may appoint
one or more persons as inspectors of election, and that the chairman of any
meeting of stockholders shall make such an appointment in the event that the
inspector(s) appointed by the Board of Directors shall be unable to act or the
Board shall fail to appoint any inspector. The Bylaws of the Association and the
Company also specify the duties of inspectors of election.
128
<PAGE>
Stockholder Action Without a Meeting. The Bylaws of the Association
provide that any action to be taken or which may be taken at any annual or
special meeting of stockholders may be taken if a consent in writing, setting
forth the actions so taken, is given by the holders of all outstanding shares
entitled to vote. The Articles of Incorporation and Bylaws of the Company
similarly provide that any action permitted to be taken by the stockholders at a
meeting, may be taken without a meeting if a consent in writing setting forth
the action so taken shall be signed by all of the stockholders entitled to vote
and filed with the Secretary of the Company.
Stockholder's Right to Examine Books and Records. A federal regulation
which is applicable to the Association provides that stockholders may inspect
and copy specified books and records of a federally chartered savings
institution after proper written notice for a proper purpose. The Indiana
Business Corporation Law similarly provides that a stockholder may inspect books
and records upon written demand stating the purpose of the inspection, if such
purpose is reasonably related to such person's interest as a stockholder.
Limitations on Acquisitions of Voting Stock and Voting Rights. The
Company's Articles of Incorporation provide that no person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of (i) more than
10% of the issued and outstanding shares of any class of an equity security of
the Company, or (ii) any securities convertible into, or exercisable for, any
equity securities of the Company if, assuming conversion or exercise by such
person of all securities of which such person is the beneficial owner which are
convertible into, or exercisable for, such equity securities (but of no
securities convertible into, or exercisable for, such equity securities of which
such person is not the beneficial owner), such person would be the beneficial
owner of more than 10% of any class of an equity security of the Company. The
term "person" is broadly defined in the Articles of Incorporation to prevent
circumvention of this restriction.
The foregoing restrictions do not apply to (i) any offer with a view
toward public resale made exclusively to the Company by underwriters or a
selling group acting on its behalf, (ii) any employee benefit plan established
by the Company or the Association, and (iii) any other offer or acquisition
approved in advance by the affirmative vote of two-thirds of the Company's Board
of Directors. In the event that shares are acquired in violation of this
restriction, all shares beneficially owned by any person in excess of 10% shall
not be counted as shares entitled to vote and shall not be voted by any person
or counted as voting shares in connection with any matters submitted to
stockholders for a vote.
Neither the Charter nor the Bylaws of the Association contains a
provision which restricts voting rights of certain stockholders of the
Association in the manner set forth above.
Mergers, Consolidations and Sales of Assets. A federal regulation
requires the approval of the Board of Directors of the Association and the
holders of two-thirds of the outstanding stock of the Association entitled to
vote thereon for mergers, consolidations and sales of all or substantially all
of the Association's assets. Such regulation permits the Association to merge
with another corporation without obtaining the approval of its stockholders if:
(i) it does not involve an interim savings institution; (ii) the Association's
Charter is not changed; (iii) each share of the Association's stock outstanding
immediately prior to the effective date of the transaction is to be
129
<PAGE>
an identical outstanding share or a treasury share of the Association after such
effective date; and (iv) either: (A) no shares of voting stock of the
Association and no securities convertible into such stock are to be issued or
delivered under the plan of combination or (B) the authorized unissued shares or
the treasury shares of voting stock of the Association to be issued or delivered
under the plan of combination, plus those initially issuable upon conversion of
any securities to be issued or delivered under such plan, do not exceed 15% of
the total shares of voting stock of the Association outstanding immediately
prior to the effective date of the transaction.
The Indiana Business Corporation Law requires the approval of the Board
of Directors and, unless the Articles of Incorporation provide for a higher
vote, the holders of a majority of the outstanding stock of the Company entitled
to vote thereon for mergers or consolidations, and for sales, leases or
exchanges of all or substantially all of the Company's assets. The Indiana
Business Corporation Law permits the Company to merge with another corporation
without obtaining the approval of the Company's stockholders if: (i) the
Company's Articles of Incorporation will not differ (subject to certain limited
exceptions) from its Articles of Incorporation before the merger; (ii) each
stockholder of the Company whose shares were outstanding immediately before the
effective date of the merger will hold the same proportionate number of shares
after the merger; and (iii) the number of voting shares outstanding immediately
after the merger, plus the number of voting shares issuable as a result of the
merger, will not exceed 20% of the shares of Common Stock outstanding
immediately prior to the merger.
As holder of all of the outstanding Association Common Stock after
consummation of the Conversion and Reorganization, the Company generally will be
able to authorize a merger, consolidation or other business combination
involving the Association without the approval of the stockholders of the
Company.
Business Combinations. Article IX of the Company's Articles of
Incorporation govern any proposed "Business Combination" (defined generally to
include certain sales, purchases, exchanges, leases, transfers, dispositions or
acquisitions of assets or businesses, mergers or consolidations, or certain
reclassifications of securities of the Company) between the Company or any
subsidiaries, on the one hand, and a Related Person, on the other hand. A
"Related Person" is defined generally to include any person, partnership,
corporation, group or other entity (other than the Company and its subsidiaries)
which is the Beneficial Owners (as defined) of 10.0% or more of the shares of
the Company entitled to vote generally in an election of directors (the "Voting
Shares").
Under Section 1 of Article IX, if certain specified conditions
(discussed briefly in the following four paragraphs) are not met, neither the
Company nor any of its subsidiaries may become a party to any Business
Combination, without the prior affirmative vote at a meeting of the Company's
stockholders by the holders of at least 80.0% of the Voting Shares, voting
separately as a class, and by an Independent Majority of Stockholders, which is
defined to mean the holders of a majority of the outstanding Voting Shares that
are not Beneficially Owned (as defined), directly or indirectly, by a Related
Person. If such approval were obtained, the special conditions would not have to
be met. Such conditions also would not have to be met if the Board
130
<PAGE>
of Directors approved the Business Combination at times and by votes specified
in the Articles of Incorporation.
The conditions necessary to avoid the vote of 80.0% of the Company's
outstanding Voting Shares and of an Independent Majority of Stockholders include
conditions providing that, upon consummation of the Business Combination, all of
the Company's stockholders would receive at least a certain minimum price per
share for their shares. The ratio of the price to be received by the
stockholders (other than the Related Person) in the Business Combination to the
market price of the Company's shares immediately before the announcement of the
Business Combination would have to be at least as great as the ratio of (i) the
highest per share price paid by the Related Person in acquiring any of the
Company's Common Stock prior to the Business Combination to (ii) the market
price per share of the Company's Common Stock immediately before the initial
acquisition of any shares by the Related Person. A similar condition would apply
in the case of the price to be paid for any outstanding shares of the Company's
Preferred Stock. These requirements generally are designed to ensure that the
stockholders receive the benefit of any premium paid by the Related Person in
acquiring any of its holdings. The price to be received by stockholders in the
Business Combination also would have to be not less than the highest per share
price paid by the Related Person in acquiring any of its holdings.
Another condition necessary to avoid the increased vote requirements is
that the consideration to be received in the Business Combination by holders of
stock (whether common stock or preferred stock) must be in the same form and of
the same kind as the consideration paid by the Related Person in acquiring stock
already owned by it (except to the extent that each individual stockholder might
agree to accept consideration of a different form or kind in exchange for all or
part of the shares which he owns). Thus, for example, if the Related Person had
acquired his initial share interest for cash, the remaining stockholders would
have to be offered cash in the Business Combination and would not have to accept
stock or debt of another corporation or institution.
In order to avoid the supermajority voting requirements of Section 1 of
Article IX, the Related Person also would have to comply with certain other
conditions after he acquired his 10.0% interest in the Company. These conditions
include the following: (i) the Related Person must ensure that the Company's
Board of Directors included representation by "Continuing Directors" (generally,
those directors at the time of effectiveness of the Articles of Incorporation,
whether or not a Related Person or Associate or Affiliate (as defined) of a
Related Person, and those directors who are not affiliated with the Related
Person and who are elected as directors prior to the time the Related Person
became such or with the recommendation of a majority of other Continuing
Directors) in proportion to the holdings of the other stockholders; (ii) the
Related Person must have refrained from acquiring additional capital stock of
the Company with certain limited exceptions, and must have refrained from
acquiring additional Voting Shares, or securities convertible into or
exchangeable for Voting Shares, after he became a Related Person; (iii) the
Related Person must not have received certain specified benefits from the
Company, such as loans or guarantees, and, except with the approval of a
majority of the directors and a majority of the Continuing Directors, must not
have made any change in the Company's business or equity capital structure or
entered into any contract, arrangement or understanding with the Company;
131
<PAGE>
and (iv) except as approved by a majority of the directors and a majority of the
Continuing Directors (who must total at least 3), there must have been no
failure to pay full quarterly dividends on any outstanding Company Preferred
Stock, no reduction in annual dividends paid on the Company's Common Stock, and
there must have been increases in annual dividends as necessary to reflect any
reclassification, recapitalization, reorganization or similar transaction which
has the effect of reducing the number of outstanding shares of stock. Finally, a
proxy statement must have been sent to stockholders in connection with the
Business Combination. Such proxy statement must contain the recommendations, if
any, of the Continuing Directors, and of any investment banking firm selected by
a majority of the Continuing Directors, as to the fairness of the Business
Combination from the point of view of the stockholders.
If all of the foregoing conditions are met, the increased voting
requirements described above are dispensed with and the Business Combination
would require only such approval, if any, as would otherwise be required by
Indiana law.
Sections 1 and 2 of Article IX. are intended to provide minimum
safeguards for stockholders who do not accept a takeover attempt and continue to
hold their shares after the attempt succeeds and the control of the Company is
acquired by a Related Person. The requirement of an 80.0% stockholder vote
probably means that a Business Combination which fails to meet the minimum price
and other conditions might not be accomplished against the opposition of the
incumbent Board of Directors.
The provisions would not restrict another company which merely desired
to exercise control over the Company and did not intend to effect a subsequent
Business Combination. Moreover, these provisions may not apply to an attempted
combination with a person not a Related Person. On the other hand, if another
company obtaining control over the Company were not willing to meet the price
and other conditions of Section 2 of Article IX, the holders of just over
one-fifth of the outstanding Voting Shares could block a Business Combination
supported by the remaining stockholders. The result is that Business
Combinations favored by a majority of stockholders might not be approved.
Section 2 of Article IX might also discourage a tender offer for the Company's
stock because of the resulting need either to observe the minimum price
requirements or to obtain an 80.0% stockholder vote as a precondition to any
subsequent Business Combination. This might have the effect of preventing
temporary fluctuations in the market price of the stock of the Company which
could result from actual or rumored takeover attempts.
Neither the Association's Charter and Bylaws nor federal laws and
regulations contain a provision which restricts business combinations between
the Association and any Related Persons in the manner set forth above.
Control Share Acquisitions. The Indiana Business Corporation Law
contains a provision which, unless explicitly provided for otherwise in a
corporation's articles of incorporation or bylaws, restricts the voting rights
of shares acquired by a person in excess of 20% of the outstanding shares,
unless voting rights are granted by resolution approved by a majority of the
disinterested stockholders of the corporation. Furthermore, Article VIII of the
Company's Articles of Incorporation provides that any shares in excess of 10% of
the outstanding shares
132
<PAGE>
owned directly or indirectly by any one person shall not be counted as shares
entitled to vote in connection with any matter submitted to shareholders for a
vote.
Neither the Association's Charter and Bylaws nor federal laws and
regulations contain a provision which restricts voting rights of certain
stockholders of the Association in the manner set forth above.
Dissenters' Rights of Appraisal. A federal regulation which is
applicable to the Association generally provides that a stockholder of a
federally chartered savings institution which engages in a merger, consolidation
or sale of all or substantially all of its assets shall have the right to demand
from such institution payment of the fair or appraised value of his or her stock
in the institution, subject to specified procedural requirements. This
regulation also provides, however, that the stockholders of a federally
chartered savings institution with stock which is listed on a national
securities exchange or quoted on the Nasdaq System are not entitled to
dissenters' rights in connection with a merger involving such savings
institution if the stockholder is required to accept only "qualified
consideration" for his or her stock, which is defined to include cash, shares of
stock of any institution or corporation which at the effective date of the
merger will be listed on a national securities exchange or quoted on the Nasdaq
System or any combination of such shares of stock and cash.
After the Conversion and Reorganization, the rights of appraisal of
dissenting stockholders of the Company will be governed by the Indiana Business
Corporation Law. Pursuant thereto, a stockholder of an Indiana corporation
generally has the right to dissent from any merger or consolidation involving
the corporation or sale of all or substantially all of the corporation's assets,
subject to specified procedural requirements. However, no such appraisal rights
are available for the shares of any class or series of a corporation's capital
stock if as of the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, such shares were either listed on a United
States securities exchange registered under the Exchange Act or traded on the
Nasdaq National Market System or a similar market.
Amendment of Governing Instruments. No amendment of the Association's
Charter may be made unless it is first proposed by the Board of Directors of the
Association, then preliminarily approved by the OTS, and thereafter approved by
the holders of a majority of the total votes eligible to be cast at a legal
meeting. Article VII of the Company's Articles of Incorporation generally
provides that the Articles of Incorporation may be amended as set forth by
Indiana law (i.e., generally upon the recommendation of the board of directors
and the affirmative vote of a majority of all of the stockholder votes entitled
to be cast on the matter), except that any amendment to Articles V (Share
Terms), Article VI (Directors) Article VIII (Ownership and Voting Restrictions),
Article IX (2 Provisions for Certain Business Combinations) and Article X
(Indemnification) must be approved by the affirmative vote of the holders of at
least 80% of the then outstanding shares of the class or classes entitled to
vote thereon at that meeting, voting together as a single class.
133
<PAGE>
The Bylaws of the Association may be amended by a majority vote of the
full Board of Directors of the Association or by a majority vote of the votes
cast by the stockholders of the Association at any legal meeting. The Bylaws of
the Company may only be amended by a majority vote of the Board of Directors of
the Company.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
Restrictions in the Company's Articles of Incorporation and Bylaws and Indiana
Law
Certain provisions of the Company's Articles of Incorporation and Bylaws
which deal with matters of corporate governance and rights of stockholders might
be deemed to have a potential anti-takeover effect. These provisions, which are
described under "Comparison of Stockholders' Rights" above, provide, among other
things, (i) that the Board of Directors of the Company shall be divided into
three classes as nearly equal in number as possible and that the members of each
class shall be elected for a term of three years, with one class being elected
annually; (ii) that special meetings of stockholders may only be called by the
Board of Directors of the Company; (iii) that stockholders generally must
provide the Company notice of stockholder nominations for director and proposals
and related information at least 60 days prior to the anniversary date of the
mailing of proxy materials by the Company in connection with the immediately
preceding annual meeting of stockholders of the Company; (iv) that no person may
acquire more than 10% of the issued and outstanding shares of any class of an
equity security of the Company and the loss of voting rights on any shares
acquired in violation of this provision; (v) the authority to issue shares of
authorized but unissued Common Stock and Preferred Stock and to establish the
terms of any one or more series of Preferred Stock, including voting rights; and
(vi) restrictions on the Company's ability to engage in certain business
combinations with "related persons." In addition to the foregoing, and also as
described under "Comparison of Stockholders' Rights" above, the Indiana Business
Corporation Law generally restricts the voting rights of shares acquired by a
person in excess of 20% of the outstanding shares.
The foregoing provisions of the Articles of Incorporation and Bylaws of
the Company and Indiana law could have the effect of discouraging an acquisition
of the Company or stock purchases in furtherance of an acquisition, and could
accordingly, under certain circumstances, discourage transactions which might
otherwise have a favorable effect on the price of the Common Stock.
The Board of Directors believes that the provisions described above are
prudent and will reduce vulnerability to takeover attempts and certain other
transactions that are not negotiated with and approved by the Board of Directors
of the Company. The Board of Directors believes that these provisions are in the
best interests of the Company and its future stockholders. In the Board of
Directors' judgment, the Board of Directors is in the best position to determine
the true value of the Company and to negotiate more effectively for what may be
in the best interests of its stockholders. Accordingly, the Board of Directors
believes that it is in the best interests of the Company and its future
stockholders to encourage potential acquirors to negotiate directly with
134
<PAGE>
the Board of Directors and that these provisions will encourage such
negotiations and discourage hostile takeover attempts. It is also the Board of
Directors' view that these provisions should not discourage persons from
proposing a merger or other transaction at prices reflective of the true value
of the Company and where the transaction is in the best interests of all
stockholders.
Regulatory Restrictions
The Change in Bank Control Act provides that no person, acting directly
or indirectly or through or in concert with one or more other persons, may
acquire control of a savings institution unless the OTS has been given 60 days'
prior written notice. The Home Owners Loan Act, as amended ("HOLA") provides
that no company may acquire "control" of a savings institution without the prior
approval of the OTS. Any company that acquires such control becomes a thrift
holding company subject to registration, examination and regulation by the OTS.
Pursuant to federal regulations, control of a savings institution is
conclusively deemed to have been acquired by, among other things, the
acquisition of more than 25% of any class of voting stock of the institution or
the ability to control the election of a majority of the directors of an
institution. Moreover, control is presumed to have been acquired, subject to
rebuttal, upon the acquisition of more than 10% of any class of voting stock, or
of more than 25% of any class of stock, of a savings institution where certain
enumerated "control factors" are also present in the acquisition. The OTS may
prohibit an acquisition if (i) it would result in a monopoly or substantially
lessen competition, (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the institution, or (iii) the competence,
experience or integrity of the acquiring person indicates that it would not be
in the interest of the depositors or of the public to permit the acquisition of
control by such person. The foregoing restrictions do not apply to the
acquisition of a savings institution's capital stock by one or more
tax-qualified employee stock benefit plans, provided that the plan or plans do
not have beneficial ownership in the aggregate of more than 25% of any class of
equity security of the savings institution.
For three years following the Conversion and Reorganization, OTS
regulations prohibit any person from acquiring, either directly or indirectly,
or making an offer to acquire more than 10% of the stock of any converted
savings institution, without the prior written approval of the OTS, except for
(i) any offer with a view toward public resale made exclusively to the
institution or to underwriters or a selling group acting on its behalf, (ii)
offers that if consummated would not result in the acquisition by such person
during the preceding 12-month period of more than 1% of such stock, (iii) offers
in the aggregate for up to 24.9% by the ESOP or other tax-qualified plans of the
Company or the Association, and (iv) an offer to acquire or acquisition of
beneficial ownership of more than 10% of the common stock of the savings
institution by a corporation whose ownership is or will be substantially the
same as the ownership of the savings institution, provided that the offer or
acquisition is made more than one year following the date of completion of the
Conversion and Reorganization. Such prohibition also is applicable to the
acquisition of the Common Stock. In the event that any person, directly or
indirectly, violates this regulation, the securities beneficially owned by such
person in excess of 10% shall not be counted as shares entitled to vote and
shall not be voted by any person or counted as voting shares in connection with
any matters submitted to a vote of stockholders. The definition of beneficial
ownership for this regulation extends to persons holding revocable or
irrevocable proxies for an institution's
135
<PAGE>
stock under circumstances that give rise to a conclusive or rebuttable
determination of control under OTS regulations.
In addition to the foregoing, the Plan prohibits any person, prior to
the completion of the Conversion and Reorganization, from offering, or making an
announcement of an intent to make an offer, to purchase subscription rights or
Common Stock. See "The Conversion and Reorganization - Restrictions on Transfer
of Subscription Rights and Shares."
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
General
The Company is authorized to issue 8,000,000 shares of Common Stock and
2,000,000 shares of Preferred Stock. The Company currently expects to issue up
to a maximum of _______ shares of Common Stock, including _______ shares of
Conversion Stock and _______ shares of Exchange Shares, and no shares of
Preferred Stock in the Conversion and Reorganization. Each share of Common Stock
will have the same relative rights as, and will be identical in all respects
with, each other share of Common Stock. Upon payment of the Purchase Price for
the Conversion Stock and the issuance of the Exchange Shares in accordance with
the Plan of Conversion, all such stock will be duly authorized, fully paid and
nonassessable.
The Common Stock will represent nonwithdrawable capital, will not be an
account of an insurable type and will not be insured by the FDIC or any other
governmental authority.
Common Stock
Dividends. The Company can pay dividends if, as and when declared by.
its Board of Directors, subject to compliance with limitations which are imposed
by law. See "Dividend Policy." The holders of Common Stock will be entitled to
receive and share equally in such dividends as may be declared by the Board of
Directors of the Company out of funds legally available therefor. If the Company
issues Preferred Stock, the holders thereof may have a priority over the holders
of the Common Stock with respect to dividends.
Voting Rights. Upon completion of the Conversion and Reorganization, the
holders of Common Stock of the Company will possess exclusive voting rights in
the Company. They will elect the Company's Board of Directors and act on such
other matters as are required to be presented to them under Indiana law or the
Company's Articles of Incorporation or as are otherwise presented to them by the
Board of Directors. Except as discussed in "Comparison of Stockholders' Rights -
Limitations on Acquisitions of Voting Stock and Voting Rights," each holder of
Common Stock will be entitled to one vote per share and will not have any right
to cumulate votes in the election of directors. If the Company issues Preferred
Stock, holders of the Preferred Stock may have the right to vote with the
holders of Common Stock as a single class or have voting rights as a separate
class.
136
<PAGE>
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, the holders of the then-outstanding Common Stock would be
entitled to receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of the Company available for distribution. If
Preferred Stock is issued, the holders thereof may have a priority over the
holders of the Common Stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of the Common Stock will not be entitled to
preemptive rights with respect to any shares which may be issued in the future.
The Common Stock is not subject to redemption.
Preferred Stock
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion and Reorganization. Such stock may be issued with such
preferences and designations as the Board of Directors may from time to time
determine. The Board of Directors can, without stockholder approval, issue
Preferred Stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the Common Stock and may
assist management in impeding an unfriendly takeover or attempted change in
control.
EXPERTS
The consolidated financial statements of the Association as of June 30,
1996 and 1995, and for each of the years in the three-year period ended June 30,
1996, have been included herein in reliance upon the report of Geo. S. Olive &
Co. LLC, Indianapolis, Indiana, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
Keller has consented to the publication herein of the summary of its
report to the Company and the Association setting forth its opinion as to the
estimated pro forma market value of the Conunon Stock to be outstanding upon
completion of the Conversion and Reorganization and its opinion with respect to
subscription rights.
LEGAL AND TAX MATTERS
The legality of the Common Stock and the federal income tax consequences
of the Conversion and Reorganization will be passed upon for the Company and the
Association by Silver, Freedman & Taff, L.L.P. (a limited liability partnership
including professional corporations), Washington, D.C., special counsel to the
Company and the Association. The Indiana income tax consequences of the
Conversion and Reorganization will be passed upon for the Company and the
Association by Geo. S. Olive & Co. LLC.has consented to references herein to its
opinion. Certain legal matters will be passed upon for Webb by Breyer & Aguggia,
Washington, D.C.
ADDITIONAL INFORMATION
137
<PAGE>
The Company has filed with the SEC a Registration Statement under the
Securities Act of 1933, as amended, with respect to the Conversion Stock and the
Exchange Shares offered hereby. As permitted by the rules and regulations of the
SEC, this Prospectus does not contain all the information set forth in the
Registration Statement. Such information can be examined without charge at the
public reference facilities of the SEC located at 450 Fifth Street, N.W.,
Washington, D.C 20549, and copies of such material can be obtained from the SEC
at prescribed rates. The SEC maintains a World Wide Web site on the Internet
that contains reports, proxy and information statements and other information
regarding registrants such as the Company that file electronically with the SEC.
The address of such site is: http://www.sec.gov. The statements contained in
this Prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement describe all material provisions of such
contracts or other documents. Nevertheless, such statements are, of necessity,
brief descriptions thereof and are not necessarily complete; each such statement
is qualified by reference to such contract or document.
The Mutual Holding Company has filed an Application for Conversion with
the OTS with respect to the Conversion and Reorganization. This Prospectus omits
certain information contained in that application. The application may be
examined at the principal office of the OTS, 1700 G Street, N.W., Washington,
D.C. 20552, and at the Central Regional Office of the OTS located at 200 West
Madison Street, Suite 1300, Chicago, Illinois 60606.
In connection with the Conversion and Reorganization, the Company will
register its Conunon Stock with the SEC under Section 12(g) of the Exchange Act,
and, upon such registration, the Company and the holders of its stock will
become subject to the proxy solicitation rules, reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, the annual and periodic reporting requirements and
certain other requirements of the Exchange Act. Under the Plan, the Company has
undertaken that it will not terminate such registration for a period of at least
three years following the Conversion and Reorganization.
138
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditor's Report...................................................................................F-2
Consolidated Statements of Financial Condition - December 31, 1996
(unaudited) and June 30, 1996 and 1995.......................................................................F-3
Consolidated Statements of Income for the six months ended
December 31, 1996 (unaudited) and the years ended
June 30, 1996, 1995 and 1994..................................................................................F-3
Consolidated Statements of Stockholders' Equity for the six months ended
December 31, 1996 (unaudited) and the years ended June 30,
1996, 1995 and 1994..........................................................................................F-4
Consolidated Statements of Cash Flows for the six months ended December 31, 1996
and 1995 (unaudited) and the years ended
June 30, 1996, 1995 and 1994..................................................................................F-5
Notes to Consolidated Financial Statements.....................................................................F-7
</TABLE>
All financial statement schedules are omitted because the required
information either is not applicable or is shown in the financial statements or
in the notes thereto.
Montgomery Mutual Holding Company has limited assets other than its
shares of Association Common Stock (which will be cancelled in connection with
the Conversion and Reorganization) and has engaged in only minimal activities to
date; accordingly, the financial statements of the Mutual Holding Company have
been omitted because of their immateriality.
Montgomery Financial Corporation was incorporated April 1997 with an
initial capitalization of $1,000 and has engaged in only organizational
activities to date; accordingly, the financial statements of the Company have
been omitted because of their immateriality.
F1
<PAGE>
Independent Auditor's Report
Board of Directors
Montgomery Savings, A Federal Association
Crawfordsville, Indiana
We have audited the consolidated statement of financial condition of
Montgomery Savings, A Federal Association and subsidiary as of June 30,
1996 and 1995 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the
period ended June 30, 1996. These consolidated financial statements are the
responsibility of the Association's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above
present fairly, in all material respects, the consolidated financial
position of Montgomery Savings, A Federal Association and subsidiary as of
June 30, 1996 and 1995 and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1996, in
conformity with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, the
Association changed its method of accounting for investment securities on
July 1, 1994.
GEO. S. OLIVE & CO. LLC
Indianapolis, Indiana
August 14, 1996
F-2
<PAGE>
Montgomery Savings, A Federal Association And Subsidiary
Crawfordsville, Indiana
Consolidated Statement of Financial Condition
<TABLE>
<CAPTION>
June 30
December 31, -------------------------------
1996 1996 1995
---- ---- ----
(Unaudited)
Assets
<S> <C> <C> <C>
Cash ................................................................... $ 252,320 $ 129,519 $ 263,796
Short-term interest-bearing deposits ................................... 5,665,534 3,506,685 3,771,018
--------- --------- ---------
Total cash and cash equivalents .................................. 5,917,854 3,636,204 4,034,814
Interest-bearing deposits .............................................. 100,000 100,000 100,000
Investment securities available for sale ............................... 52,239 311,656 802,631
Loans .................................................................. 83,928,087 80,232,496 78,067,573
Allowance for loan loses ............................................... (158,000) (158,000) (138,250)
-------- -------- --------
Net loans ........................................................ 83,770,087 80,074,496 77,929,323
Real estate owned and held for development, net ........................ 1,251,940 908,913 858,349
Premises and equipment ................................................. 1,638,070 1,595,966 1,704,163
Federal Home Loan Bank stock ........................................... 750,000 750,000 750,000
Interest receivable
Loans ................................................................ 637,045 586,174 550,993
Investment and interest-bearing deposits ............................. 6,804 8,984 16,246
Other assets ........................................................... 498,491 238,351 577,637
------- ------- -------
Total assets ..................................................... $ 94,622,530 $ 88,210,744 $ 87,324,156
============ ============ ============
Liabilities
Deposits
Noninterest-bearing .................................................. $ 465,336 $ 613,242 $ 483,225
Interest-bearing ..................................................... 71,877,173 69,095,279 67,802,382
---------- ---------- ----------
Total deposits ................................................... 72,342,509 69,708,521 68,285,607
Borrowings ............................................................. 11,928,373 8,000,000 10,868,250
Interest payable ....................................................... 542,432 428,178 418,858
Deferred tax liability ................................................. 376,360 364,395 389,933
Other liabilities ...................................................... 350,525 582,322 683,125
------- ------- -------
Total liabilities ................................................ 85,540,199 79,083,416 80,645,773
---------- ---------- ----------
Commitments and Contingent Liabilities
Stockholders' Equity
Common stock, $.01 par value
Authorized--2,000,000 shares
Issued and outstanding--850,000 shares ............................... 8,500 8,500
Paid-in capital ........................................................ 2,194,128 2,194,128
Retained earnings--substantially restricted ............................ 6,891,266 6,924,757 6,675,130
Unearned compensation .................................................. (11,563)
Net unrealized gain (loss) on securities available for sale ............ (57) 3,253
--- -----
Total stockholders' equity ....................................... 9,082,331 9,127,328 6,678,383
--------- --------- ---------
Total liabilities and stockholders' equity ....................... $ 94,622,530 $ 88,210,744 $ 87,324,156
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
Montgomery Savings, A Federal Association And Subsidiary
Crawfordsville, Indiana
Consolidated Statement of Income
<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30
-------------------------- --------------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
Interest and Dividend Income
<S> <C> <C> <C> <C> <C>
Loans .............................................. $ 3,395,258 $3,164,009 $ 6,409,666 $ 5,894,188 $ 5,315,461
Investment securities .............................. 9,469 16,333 28,678 77,962 146,518
Deposits with financial institutions ............... 97,479 160,188 281,805 156,417 99,174
Dividend income .................................... 29,598 31,981 56,472 49,645 33,227
------ ------ ------ ------ ------
Total interest and dividend income ............. 3,531,804 3,372,511 6,776,621 6,178,212 5,594,380
--------- --------- --------- --------- ---------
Interest Expense
Deposits ........................................... 1,897,595 1,956,185 3,866,674 3,188,701 2,872,410
Short-term borrowings .............................. 8,000 8,000 34,525 28,962
Federal Home Loan Bank advances .................... 303,399 316,589 559,393 684,032 205,678
------- ------- ------- ------- -------
Total interest expense ......................... 2,200,994 2,280,774 4,434,067 3,907,258 3,107,050
--------- --------- --------- --------- ---------
Net Interest Income .................................. 1,330,810 1,091,737 2,342,554 2,270,954 2,487,330
Provision (adjustment) for losses on loans ......... (26,250) 19,750 (15,000) 25,213
------- ------ ------- ------
Net Interest Income After Provision
(Adjustment) for Losses on Loans .................... 1,330,810 1,117,987 2,322,804 2,285,954 2,462,117
--------- --------- --------- --------- ---------
Other Income
Service charges on deposit accounts ................ 12,309 10,969 22,184 8,285 8,069
Commissions ........................................ 67,714
Net realized gains on sale of available for
sale securities ................................... 9,033
Net appraisal income (expense) ..................... 3,450 20,181 (5,007) 39,540 62,124
Other income ....................................... 1,989 3,743 6,043 22,276 9,415
----- ----- ----- ------ -----
Total other income ............................. 17,748 34,893 23,220 79,134 147,322
------ ------ ------ ------ -------
Other Expenses
Salaries and employee benefits ..................... 448,990 471,033 878,536 901,945 833,306
Net occupancy expenses ............................. 51,332 49,886 100,999 91,774 92,965
Equipment expenses ................................. 70,435 69,475 140,000 132,022 138,732
Data processing expense ............................ 44,995 43,090 86,684 87,069 75,989
Deposit insurance expense .......................... 500,156 77,033 156,199 145,529 146,682
Real estate operations, net ........................ (40,681) 15,943 (7,364) (18,378) (26,329)
Advertising expense ................................ 17,788 15,820 33,408 31,250 20,177
Other expenses ..................................... 219,916 183,414 361,942 378,158 374,643
------- ------- ------- ------- -------
Total other expenses ........................... 1,312,931 925,694 1,750,404 1,749,369 1,656,165
--------- ------- --------- --------- ---------
Income Before Income Tax ............................. 35,627 227,186 595,620 615,719 953,274
Income tax expense ................................. 19,118 79,672 164,993 230,462 349,237
------ ------ ------- ------- -------
Net Income ........................................... $ 16,509 $ 147,514 $ 430,627 $ 385,257 $ 604,037
=========== ========== =========== =========== ===========
Net Income Per Share ................................. $ .02
Weighted Average Shares Outstanding .................. 850,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Montgomery Savings, A Federal Association and Subsidiary
Crawfordsville, Indiana
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Net
Unrealized
Gain (Loss)
Common Stock On
-------------------- Securities
Shares Paid-in Retained Unearned Available
Outstanding Amount Capital Earnings Compensation For Sale Total
----------- ------ ------- -------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, July 1, 1993 .................. $ 5,685,836 $5,685,836
Net income for 1994 ..................... 604,037 604,037
------- -------- ---------- --------- -------- --------- ----------
Balances, June 30, 1994 ................. 6,289,873 6,289,873
Net income for 1995 ..................... 385,257 385,257
Cumulative effect of change in
method of accounting for securities .... $ 17,092 17,092
Net change in unrealized gain (loss)
on securities available for sale ....... (13,839) (13,839)
------- -------- ---------- ---------- -------- ------ ----------
Balances, June 30, 1995 ................. 6,675,130 3,253 6,678,383
Net income for 1996 ..................... 430,627 430,627
Common stock issued in reorganization,
net of assets retained by Montgomery
Mutual Holding Company ................. 600,000 $ 6,000 (106,000) (100,000)
Common stock sold, net of costs ......... 250,000 2,500 $2,194,128 2,196,628
Cash dividends ($.30 per share) ......... (75,000) (75,000)
Net change in unrealized gain (loss)
on securities available for sale ....... (3,310) (3,310)
------- -------- ---------- ----------- -------- ------ -------
Balances, June 30, 1996 ................. 850,000 8,500 2,194,128 6,924,757 (57) 9,127,328
Net income for the six months ended
December 31, 1996 (unaudited) .......... 16,509 16,509
Cash dividends ($.20 per share)
(unaudited) ............................ (50,000) (50,000)
Purchase of stock for Management
Recognition Trust (unearned
compensation) (unaudited) .............. (11,563) (11,563)
Net change in unrealized gain
(loss) on securities available for
sale (unaudited) ....................... 57 57
------- -------- --------- ----------- -------- -- ----------
Balances, December 31, 1996
(unaudited) ............................ 850,000 $ 8,500 $2,194,12 $ 6,891,266 $(11,563) $ 0 $9,082,33
======= ======== ========= =========== ======== === =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
Montgomery Savings, A Federal Association And Subsidiary
Crawfordsville, Indiana
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
December 31 Year Ended June 30
-------------------------- ----------------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income ..................................... $ 16,509 $ 147,514 $ 430,627 $ 385,257 $ 604,037
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Provision (adjustment) for loan losses ....... (26,250) 19,750 (15,000) 25,213
Provision for loss on real estate owned ...... 15,000
Depreciation ................................. 105,607 89,331 195,837 160,073 150,605
Amortization of intangibles .................. 14,405
Investment securities gains .................. (9,033)
Gain on sale of subsidiary ................... (15,525)
(Gain) loss on sale of real estate owned ..... (17,915) 25,572 (1,148) (5,375)
Deferred income tax .......................... 11,965 (57,511) (23,421) 30,532 52,665
Change in
Interest receivable ........................ (48,691) (10,117) (27,919) (127,839) (47,245)
Interest payable ........................... 114,253 164,210 9,320 171,263 (1,384)
Other assets ............................... (260,140) 101,984 121,095 (180,945) (86,811)
Other liabilities .......................... (233,146) 90,320 199,197 628,522 (156,783)
Other adjustments ............................ 1,370 (1,930) 15,523 (5,355) (49,077)
----- ------ ------ ------ -------
Net cash provided (used) by
operating activities .................. (310,188) 497,551 965,581 1,035,802 500,250
-------- ------- ------- --------- -------
Investing Activities
Net change in interest-bearing deposits ........ 100,000
Proceeds from sale of subsidiary ............... 1,400
Purchases of securities held to maturity ....... (475,000)
Proceeds from maturities and paydowns of
securities available for sale ................ 259,454 475,000 484,098 343,058
Proceeds from maturities and paydowns of
securities held to maturity .................. 464,588
Proceeds from sales of securities
available for sale ........................... 640,464
Net change in loans ............................ (4,003,485) (664,550) (2,248,278) (5,808,863) (8,676,846)
Additions to real estate owned ................. (173,586) (97,158) (93,633) (56,496) (85,206)
Proceeds from real estate owned sales .......... 107,315 25,865 59,549 248,363 202,612
Purchase of premises and equipment ............. (98,658) (28,997) (60,410) (428,139) (154,608)
Purchase of FHLB of Indianapolis stock ......... (139,800) (51,900)
Other investing activities ..................... 5,306
---------- -------- ---------- ---------- ----------
Net cash used by investing
activities ............................ (3,908,960) (289,840) (1,858,674) (5,100,013) (8,771,054)
---------- -------- ---------- ---------- ----------
</TABLE>
F-5
<PAGE>
Montgomery Savings, A Federal Association And Subsidiary
Crawfordsville, Indiana
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
December 31 Year Ended June 30
---------------------------- ---------------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
(Continued)
<S> <C> <C> <C> <C> <C>
Financing Activities
Net change in
Noninterest-bearing, interest-bearing
demand and savings deposits ............. $ 390,689 $ 23,856 $ 359,419 $(2,191,209) $ 1,193,826
Certificates of deposit ................... 2,243,299 (517,095) 1,063,495 8,130,834 (3,529,043)
Short-term borrowings ..................... (168,250) (368,250) (969,851) 1,108,102
Proceeds from FHLB advances ................. 4,000,000 5,500,000 8,000,000 4,000,000 6,500,000
Repayment of FHLB advances .................. (71,627) (7,000,000) (10,500,000) (2,500,000)
Proceeds from sale of stock, net of
costs ..................................... 2,089,951 2,089,819
Stock issued in reorganization, net
of assets retained by Montgomery
Mutual Holding Company .................... (100,000) (100,000)
Purchase of stock for Management
Recognition and Retention Plan ............ (11,563)
Dividends paid .............................. (50,000) (50,000)
--------- --------- ---------- --------- ----------
Net cash provided (used) by
financing activities .............. 6,500,798 (171,538) 494,483 6,469,774 5,272,885
--------- -------- ------- --------- ---------
Net Change in Cash and Cash
Equivalents ................................ 2,281,650 36,173 (398,610) 2,405,563 (2,997,919)
Cash and Cash Equivalents,
Beginning of Period ........................ 3,636,204 4,034,814 4,034,814 1,629,251 4,627,170
--------- --------- --------- --------- ---------
Cash and Cash Equivalents, End of
Period ..................................... $ 5,917,854 $ 4,070,987 $ 3,636,204 $ 4,034,814 $ 1,629,251
=========== =========== ============ =========== ===========
Additional Cash Flow and
Supplementary Information
Interest paid .............................. $ 2,087,000 $ 2,117,000 $ 4,425,000 $ 3,736,000 $ 3,107,000
Income tax paid ............................ 63,000 65,000 143,000 211,000 422,000
Loan balances transferred to real
estate owned ............................. 308,000 69,000 124,000 43,000
Conversion costs transferred from
other assets to stockholders'
equity ................................... 218,000 218,000
Dividends payable .......................... 25,000 25,000
Transfer stock purchases deposits
from liabilities to proceeds from
sale of stock ............................ 325,000 325,000
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Nature of Operations and Summary of Significant Accounting Policies
The accounting and reporting policies of Montgomery Savings, A Federal
Association ("Association"), and its wholly owned subsidiary, MSA Service
Corporation ("MSA"), conform to generally accepted accounting principles and
reporting practices followed by the thrift industry. The Association is a 70.6
percent owned subsidiary of Montgomery Mutual Holding Company. The more
significant of the policies are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Association operates under a federal thrift charter and provides full
banking services. As a federally-chartered thrift, the Association is subject to
regulation by the Office of Thrift Supervision.
The Association generates mortgage and consumer loans and receives deposits from
customers located primarily in central Indiana. The Association's loans are
generally secured by specific items of collateral including real property and
consumer assets.
MSA is a real estate management and development company. For years ending prior
to June 30, 1996, MSA owned Clements-Roscher Corporation ("CRC"). CRC was a
casualty insurance agency that sold a broad range of casualty insurance,
including building, homeowners, and auto insurance. MSA sold its wholly owned
subsidiary, CRC, in a stock sale effective July 1, 1994. The purchase price
totaled $75,000, consisting of cash and a note, and MSA recorded a gain of
$15,525 on the sale. CRC's net income for the years ended June 30, 1994 and 1993
included in the Association's consolidated net income totaled $14,000 and
$29,500.
Consolidation--The consolidated financial statements include the accounts of the
Association and subsidiaries after elimination of all material intercompany
transactions and accounts.
Investment Securities--The Association adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities, on July 1, 1994.
Debt securities are classified as held to maturity when the Association has the
positive intent and ability to hold the securities to maturity. Securities held
to maturity are carried at amortized cost.
Debt securities not classified as held to maturity are classified as available
for sale. Securities available for sale are carried at fair value with
unrealized gains and losses reported separately, net of tax, in stockholders'
equity.
F-7
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Amortization of premiums and accretion of discounts are recorded using the
interest method as interest income from securities. Realized gains and losses
are recorded as net security gains (losses). Gains and losses on sales of
securities are determined on the specific-identification method.
At July 1, 1994, investment securities and mortgage-backed securities with
approximate carrying values of $1,074,000 and $707,000 were reclassified as
available for sale. This reclassification resulted in an increase in
stockholders' equity, net of taxes, of approximately $17,000.
Prior to the adoption of SFAS No. 115, investment securities were carried at
cost, adjusted for amortization of premiums and discounts, and securities held
for sale and marketable equity securities were carried at the lower of aggregate
cost or market. Realized gains and losses on sales were included in other
income. Unrealized gains and losses on securities held for sale were included in
other income. Unrealized losses on marketable equity securities were charged to
equity capital. Gains and losses on the sale of securities were determined on
the specific-identification method.
Loans are carried at the principal amount outstanding. A loan is impaired when,
based on current information or events, it is probable that the Association will
be unable to collect all amounts due (principal and interest) according to the
contractual terms of the loan agreement. Payments with insignificant delays not
exceeding 90 days outstanding are not considered impaired. Certain nonaccrual
and substantially delinquent loans may be considered to be impaired. The
Association considers its investment in one-to-four family residential loans and
consumer loans to be homogeneous and therefore excluded from separate
identification for evaluation of impairment. Interest income is accrued on the
principal balances of loans. The accrual of interest on impaired and nonaccrual
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed when considered uncollectible. Interest
income is subsequently recognized only to the extent cash payments are received.
Certain loan fees and direct costs are being deferred and amortized as an
adjustment of yield on the loans. When a loan is paid off or sold, any
unamortized loan origination fee balance is credited to income.
Real estate owned arises from loan foreclosure or deed in lieu of foreclosure
and acquisition of real estate for development and is carried at the lower of
cost or fair value less estimated selling costs. Costs relating to development
and improvement of property are capitalized, whereas costs relating to the
holding of property, net of rental and other income are expensed.
Allowance for loan and real estate losses are maintained to absorb potential
loan and real estate losses based on management's continuing review and
evaluation of the loan and real estate portfolios and its judgment as to the
impact of economic conditions on the portfolios. The evaluation by management
includes consideration of past loss experience, changes in the composition of
the portfolios, the current condition and amount of loans and real estate owned
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
F-8
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The determination of the adequacy of the allowance for loan losses and the
valuation of real estate is based on estimates that are particularly susceptible
to significant changes in the economic environment and market conditions.
Management believes that as of December 31, 1996 (unaudited) and June 30, 1996,
the allowance for loan losses and carrying value of real estate owned are
adequate based on information currently available. A worsening or protracted
economic decline in the area within which the Association operates would
increase the likelihood of additional losses due to credit and market risks and
could create the need for additional loss reserves.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based principally on the
estimated useful lives of the assets. Maintenance and repairs are expensed as
incurred while major additions and improvements are capitalized. Gains and
losses on dispositions are included in current operations.
Federal Home Loan Bank stock is a required investment for institutions that are
members of the Federal Home Loan Bank ("FHLB") system. The required investment
in the common stock is based on a predetermined formula.
Income tax in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The
Association files consolidated income tax returns with its subsidiary.
Earnings per share for the six-month period ended December 31, 1996 (unaudited)
is computed based upon the weighted average common shares outstanding during the
period. Net income per share for the periods before the conversion to a stock
savings association on August 11, 1995 is not meaningful.
Conversions
On November 17, 1992, the Board of Directors of the Association unanimously
adopted a Plan of Reorganization whereby Montgomery Savings Association, A
Federal Association ("Montgomery"), was reorganized into a federal mutual
holding company on August 11, 1995 and became known as "Montgomery Mutual
Holding Company" and whereby substantially all of the assets and liabilities of
Montgomery were transferred to a newly-chartered federal savings and loan
association known as Montgomery Savings, A Federal Association ("Association"),
in exchange for 600,000 shares of the Association's common stock, par value of
$.01 per share. The amount of $100,000 was retained by Montgomery to capitalize
Montgomery Mutual Holding Company. The transaction was accounted for as a
pooling of interests.
As part of the reorganization, the Association sold 250,000 shares of common
stock at $10.00 per share in an offering completed August 11, 1995.
Reorganization costs of $303,372 were charged to stockholders' equity upon
completion of the offering.
As a result of the transaction, Montgomery Mutual Holding Company owns 70.6
percent of Montgomery and minority stockholders own 29.4 percent.
F-9
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
On December 26, 1996, the Boards of Directors of Montgomery Mutual Holding
Company and the Association adopted a Plan of Conversion of Montgomery Mutual
Holding Company and an Agreement and Plan of Reorganization between Montgomery
Holding Company and the Association.
In connection with the conversion and reorganization, the Association will form
a new first-tier, wholly owned subsidiary, (the "Holding Company"), which will
become the Holding Company upon consummation of the conversion and
reorganization. The Holding Company will in turn form Interim as a wholly owned
subsidiary. Montgomery Mutual Holding Company will convert from the mutual form
to a federal interim stock savings association and simultaneously merge with and
into the Association pursuant to the Plan of Merger. As a result, Montgomery
Mutual Holding Company will cease to exist and a liquidation account will be
established by the Association for the benefit of depositor members as of
specified dates. Interim will then merge with and into the Association pursuant
to the Plan of Merger and the Association will become a wholly owned subsidiary
of the Holding Company. In connection therewith, each share of Association
common stock outstanding immediately prior to the effective time thereof shall
be automatically converted, without further action by the holder thereof, into
and become the right to receive shares of the Holding Company common stock based
on the exchange ratio, plus cash in lieu of any fractional share interest.
In connection with the conversion and reorganization, the Holding Company will
offer shares of conversion stock in a subscription offering in descending order
of priority to eligible account holders, tax-qualified employee stock benefit
plans, supplemental account holders, other members, directors, officers and
employees and public stockholders. Any shares of conversion stock remaining
unsold after the subscription offering will be offered for sale to the public
through a community offering and/or syndicated community offering, as determined
by the Boards of Directors of the Holding Company and the Association in their
sole discretion.
The reorganization is subject to the approval of stockholders and the OTS. The
expected completion date of the reorganization is not currently known.
No reorganization costs had been incurred at December 31, 1996 (unaudited). Such
costs will be charged to stockholders' equity on the completion of the
reorganization or, if the reorganization is not completed, these costs will be
charged to earnings by the Association.
F-10
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Investment Securities
1996
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- ----------- ---- ----- ------ -----
(Unaudited)
Available for sale
Municipal ..................... $52 $52
--- --- --- ---
Total available for sale ... $52 $ 0 $ 0 $52
=== === === ===
1996
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
June 30 Cost Gains Losses Value
- ------- ---- ----- ------ -----
Available for sale
Federal agencies ............. $250 $250
Municipal .................... 62 62
---- --- --- ----
Total available for sale .. $312 $ 0 $ 0 $312
==== === === ====
1995
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
June 30 Cost Gains Losses Value
- ------- ---- ----- ------ -----
Available for sale
U. S. Treasury ............... $250 $250
Federal agencies ............. 250 $ 7 257
Municipal .................... 71 71
Corporate obligations ......... 226 $ 1 225
---- --- --- ----
Total available for sale .. $797 $ 7 $ 1 $803
==== === === ====
F-11
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The amortized cost and fair value of securities available for sale at December
31, 1996 and June 30, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
December 31, 1996 June 30, 1996
----------------- -----------------
Amortized Fair Amortized Fair
Maturity distribution at June 30 Cost Value Cost Value
- -------------------------------- ---- ----- ---- -----
(Unaudited)
Due in one year or less ................ $250 $250
Due in one through five years .......... $ 52 $ 52 62 62
---- ---- ---- ----
Totals ............................. $ 52 $ 52 $312 $312
==== ==== ==== ====
Proceeds from sales of mortgage-backed securities available for sale during 1995
were $640,464. Gross gains of $10,029 and gross losses of $996 were realized on
those sales. There were no sales of securities during the six months ended
December 31, 1996 (unaudited) and the years ended June 30, 1996 and 1994.
Loans and Allowance
June 30,
December 31, --------------------
1996 1996 1995
---- ---- ----
(Unaudited)
Loans
Real estate mortgage loans
One-to-four family ................... $ 72,203 $ 68,092 $ 64,703
Multi-family and nonresidential ...... 7,803 8,391 9,129
Residential construction loans ......... 1,448 1,261 1,345
Home equity loans ...................... 2,536 2,444 2,653
Consumer loans ......................... 304 251 97
Share loans ............................ 334 323 479
--- --- ---
84,628 80,762 78,406
------ ------ ------
Undisbursed portion of loans ........... (861) (683) (455)
Deferred loan costs .................... 161 153 117
--- --- ---
$ 83,928 $ 80,232 $ 78,068
======== ======== ========
F-12
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Six Months Ended
December 31 Year Ended June 30
-------------- -------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
Allowance for loan losses
Balances, Beginning of Period ........ $ 158 $138 $ 138 $158 $133
Provision (adjustment) for loan losses (26) 20 (15) 25
Loans charged off .................... (5)
----- ----- ----- ----- ----
Balances, End of Period .............. $ 158 $112 $ 158 $138 $158
===== ==== ===== ==== ====
On July 1, 1995, the Association adopted SFAS Nos. 114 and 118, Accounting by
Creditors for Impairment of a Loan and Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosures. At December 31, 1996, (unaudited)
the Association had no impaired loans. At June 30, 1996, the Association had an
impaired loan of $308,000 for which an allowance for losses was not deemed
necessary. The average balance of impaired loans for the six months ended
December 31, 1996 (unaudited) and the year ended June 30, 1996 was $51,000 and
$272,000. The Association had no interest income or cash receipts during the six
months ended December 31, 1996 (unaudited). Interest income and cash receipts of
interest totaled $33,000 and $6,000 during the year ended June 30, 1996 that the
loans were impaired.
In addition, at December 31, 1996 (unaudited) and June 30, 1996, the Association
had nonaccrual loans of approximately $260,000 and $325,000, for which
impairment had not been recognized. If interest on these loans had been
recognized at the original interest rates, interest income would have increased
approximately $20,000 and $18,000 for six months ended December 31, 1996
(unaudited) and for the year ended June 30, 1996.
The Association has no commitments to loan additional funds to the borrowers of
impaired or nonaccrual loans.
Nonaccruing loans totaled $522,000 and $527,000 at June 30, 1995 and 1994.
Additional interest income of approximately $26,000 for 1995 and $16,000 for
1994 would have been recorded had income on those loans been considered
collectible and accounted for on the accrual basis under the original terms of
the loans.
F-13
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Real Estate Owned
June 30
December 31, ---------------
1996 1996 1995
---- ---- ----
(Unaudited)
Real estate acquired in settlement of loans ..... $ 65 $ 148 $ 124
Real estate held for development ................ 1,348 906 867
Allowance for losses ............................ (15)
------- ------- ------
1,413 1,054 976
Accumulated depreciation ........................ (161) (145) (118)
---- ---- ----
Net ........................................ $ 1,252 $ 909 $ 858
======= ======= =====
Six Months Ended
December 31 Year Ended June 30
---------------- ------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
Allowance for losses on real estate
owned
Balance, Beginning of Period ............. $ 0 $ 15 $15 $ 0 $0
Provision for losses ..................... (15) (15) 15
---- ----- ---- --- ---
Balance, End of Period .............. $ 0 $ 0 $ 0 $15 $0
==== ==== === === ==
Premises and Equipment
June 30
December 31, ----------------------
1996 1996 1995
---- ---- ----
(Unaudited)
Land ................................. $ 134 $ 91 $ 91
Building and parking lot ............. 1,442 1,441 1,437
Equipment ............................ 1,075 1,020 964
----- ----- ---
Total cost ...................... 2,651 2,552 2,492
Accumulated depreciation ............. (1,013) (956) (788)
------ ---- ----
Net ............................. $ 1,638 $ 1,596 $ 1,704
======= ======= =======
F-14
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Deposits
June 30
December 31, -------------------
1996 1996 1995
---- ---- ----
(Unaudited)
Noninterest-bearing ........................ $ 465 $ 613 $ 483
Interest-bearing demand .................... 10,810 9,613 9,296
Savings deposits ........................... 4,289 4,948 5,035
Certificates and other time
deposits of $100,000 or more .............. 15,595 12,948 12,519
Other certificates and time deposits ....... 41,184 41,587 40,953
------ ------ ------
Total deposits ......................... $72,343 $69,709 $68,286
======= ======= =======
Certificates maturing in years ending December 31 June 30
- ------------------------------------- ----------- -------
(Unaudited)
1997 .................................. $31,181 $33,841
1998 .................................. 18,254 9,631
1999 .................................. 4,077 7,806
2000 .................................. 2,048 1,811
2001 .................................. 1,183 1,419
Thereafter ............................ 36 27
------- -------
$56,779 $54,535
======= =======
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $15,595,000 (unaudited), $12,948,000, and $12,519,000
at December 31, 1996, June 30, 1996 and 1995. Deposits in excess of $100,000 are
not federally insured.
Six Months Ended
December 31 Year Ended June 30
--------------- ------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
Interest expense on deposits
Interest-bearing demand ......... $ 182 $ 166 $ 345 $ 394 $ 364
Savings deposits ................ 82 118 219 178 188
Certificates .................... 1,634 1,672 3,303 2,617 2,320
----- ----- ----- ----- -----
$1,898 $1,956 $3,867 $3,189 $2,872
====== ====== ====== ====== ======
F-15
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Borrowings
June 30
December 31, ----------------------
1996 1996 1995
---- ---- ----
(Unaudited)
Line of credit ..................... $ 168
Notes payable ...................... 200
FHLB advances ...................... $11,928 $8,000 10,500
------- ------ ------
Total borrowings ............... $11,928 $8,000 $10,868
======= ====== =======
December 31, 1996 June 30, 1996
----------------- -----------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ ---- ------ ----
(Unaudited)
Advances from FHLB
Maturities in years ending
1997 $ 5,500 5.97% $3,500 5.64%
1998 2,000 5.99 2,000 5.50
1999 2,000 6.15
2000 2,428 6.14 2,500 6.14
------- ------
$11,928 6.04% $8,000 5.76%
======= ======
The Association has an available line of credit with the FHLB totaling
$2,000,000. The line of credit expires September 30, 1997 as of December 31,
1996 (unaudited) and September 30, 1996 as of June 30, 1996 and bears interest
at a rate equal to the current variable advance rate. There were no drawings on
this line of credit at December 31, 1996 (unaudited) and June 30, 1996.
Notes payable bearing on interest rate of 7%, collateralized by real estate,
matured on January 3, 1996.
The FHLB advances are secured by first mortgage loans totaling $68,200,000
(unaudited) and $64,600,000 at December 31, 1996 and June 30, 1996. Advances are
subject to restrictions or penalties in the event of prepayment.
F-16
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Income Tax
Six Months Ended
December 31 Year Ended June 30
---------------- ------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
Income tax expense
Currently payable
Federal .......................... $ 3 $ 120 $ 163 $ 155 $ 190
State ............................ 4 18 26 44 106
Deferred
Federal .......................... 9 (62) (33) 27 74
State ............................ 3 4 9 4 (21)
--- ----- ----- ----- -----
Total income tax expense ....... $19 $ 80 $ 165 $ 230 $ 349
=== ===== ===== ===== =====
Reconciliation of federal
statutory to actual tax expense
Federal statutory income tax at 34% $12 $ 77 $ 202 $ 209 $ 324
Effect of state income taxes ...... 5 15 23 32 56
Other ............................. 2 (12) (60) (11) (31)
--- ----- ----- ----- -----
Actual tax expense ............. $19 $ 80 $ 165 $ 230 $ 349
=== ===== ===== ===== =====
Effective tax rate ................. 53.7% 35.1% 27.7% 37.4% 36.6%
The tax expense related to securities gains was $3,600 for the year ended June
30, 1995.
F-17
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The components of the deferred tax liability are as follows at:
December 31, June 30
------------ ----------------
1996 1996 1995
---- ---- ----
(Unaudited)
Differences in depreciation methods ........... $(246) $(244) $(235)
Differences in accounting for loan losses ..... (28) (28) (104)
Differences in accounting for loan costs ...... (124) (110) (63)
Differences in accounting for retirement
plans and other employee benefits ............ 34 32 22
FHLB of Indianapolis stock dividend ........... (30) (30) (30)
Deferred state income taxes ................... 20 20 16
Unrealized gain or loss on securities
available for sale ........................... (2)
Other ......................................... (2) (4) 6
----- ----- -----
$(376) $(364) $(390)
===== ===== =====
Assets ....................................... $ 54 $ 52 $ 44
Liabilities ................................... (430) (416) (434)
---- ---- ----
$(376) $(364) $(390)
===== ===== =====
Retained earnings at December 31, 1996 (unaudited) and June 30, 1996 and 1995,
include approximately $1,500,000 for which no deferred federal income tax
liability has been recognized. This amounts represents an allocation of income
to bad debt deductions as of December 31, 1987 for tax purposes only. Reduction
of amounts so allocated for purposes other than tax bad debt losses or
adjustments arising from carryback of net operating losses or loss of "bank"
status, would create income for tax purposes only, which income would be subject
to the then-current corporate income tax rate. The unrecorded deferred income
tax liability on the above amounts was approximately $590,000 at December 31,
1996 (unaudited) and June 30, 1996 and 1995.
Regulatory Capital
The Association is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate actions by the regulatory agencies that, if
undertaken, could have a material effect on the Association's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Association must meet specific capital guidelines
that involve quantitative measures of the Association's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Association's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors.
F-18
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
At December 31, 1996 (unaudited) and June 30, 1996, the Association believes
that it meets all capital adequacy requirements to which it is subject and the
most recent notification from the regulatory agency categorized the Association
as well capitalized under the regulatory framework for prompt corrective action.
The Association's actual and required capital amounts and ratios are as follows:
1996
------------------------------------------------
Required
for Adequate To Be Well
Actual Capital(1) Capitalized(1)
--------------- -------------- --------------
December 31 Amount Ratio Amount Ratio Amount Ratio
- ----------- ------ ----- ------ ----- ------ -----
(Unaudited)
Total risk-based capital(1)
(to risk weighted assets) ... $7,630 13.5% $4,530 8.0% $5,663 10.0%
Core capital(1) (to adjusted
tangible assets) ............ 8,659 9.2% 2,825 3.0% 5,649 6.0%
Core capital(1)
(to adjusted total assets) .. 8,659 9.2% 2,825 3.0% 4,708 5.0%
1996
-----------------------------------------------
Required
for Adequate To Be Well
Actual Capital(1) Capitalized(1)
-------------- ------------- --------------
June 30 Amount Ratio Amount Ratio Amount Ratio
- ------- ------ ----- ------ ----- ------ -----
Total risk-based capital(1)
(to risk weighted assets) ... $8,129 15.1% $4,314 8.0% $5,393 10.0%
Core capital(1) (to adjusted
tangible assets) ............ 8,731 9.9% 2,633 3.0% 5,266 6.0%
Core capital(1)
(to total assets) ........... 8,731 9.9% 2,633 3.0% 4,388 5.0%
- ----------
(1) As defined by the regulatory agencies
The Association's tangible capital at December 31, 1996 (unaudited) and June 30,
1996 was $8,659,000 and $8,731,000 which amount was 9.2 percent and 9.9 percent
of tangible assets and exceeded the required ratio of 1.5 percent.
F-19
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Reconciliation of stockholders' equity to regulatory capital was as follows:
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1996
-------------------------------- ------------------------------
Core Tangible Risk-Based Core Tangible Risk-Based
Capital Capital Capital Capital Capital Capital
------- ------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity ................ $ 9,082 $ 9,082 $ 9,082 $ 9,127 $ 9,127 $ 9,127
Less
Investments in and advances to
nonincludable subsidiaries ........ (423) (423) (423) (396) (396) (396)
Goodwill and other intangible assets
Assets required to be deducted ..... (1,187) (760)
Add
General loan and lease valuation
allowance ......................... 158 158
------- ------- ------- ------- ------- --------
Regulatory capital .................. $ 8,659 $ 8,659 $ 7,630 $ 8,731 $ 8,731 $ 8,129
======= ======= ======= ======= ======= ========
</TABLE>
Restriction on Dividends
The Office of Thrift Supervision ("OTS") regulations provide that a savings
association which meets fully phased-in capital requirements and is subject only
to "normal supervision" may pay out, as a dividend, 100 percent of net income to
date over the calendar year and 50 percent of surplus capital existing at the
beginning of the calendar year without supervisory approval, but with 30 days
prior notice to the OTS. Any additional amount of capital distributions would
require prior regulatory approval. A savings association failing to meet current
capital standards may only pay dividends with supervisory approval.
The Association and the Holding Company applied to and received from the Office
of Thrift Supervision a waiver of payment of dividends from the Association to
the Holding Company. The total dividends waived by the Holding Company for the
six months ended December 31, 1996 (unaudited) and for the year ended June 30,
1996 were $300,000 and $180,000 and such amounts will not be available for
payment of future dividends.
At the time of conversion, a liquidation account was established in an amount
equal to the Association's net worth as reflected in the latest statement of
condition used in its final conversion offering circular. The liquidation
account is maintained for the benefit of eligible deposit account holders who
maintain their deposit account in the Association after conversion. In the event
of a complete liquidation (and only in such event), each eligible deposit
account holder will be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then current adjusted subaccount
balance for deposit accounts then held, before any liquidation distribution may
be made to stockholders. Except for the repurchase of stock and payment of
dividends, the existence of the liquidation account will not restrict the use or
application of net worth. The initial balance of the liquidation account was
$6,642,000.
At December 31, 1996 (unaudited) and June 30, 1996, the stockholder's equity of
the Association was $9,082,000 and $9,127,000, of which approximately $2,185,000
and $2,305,000 was available for the payments of dividends.
F-20
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Commitments and Contingent Liabilities
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit, which are not
included in the accompanying consolidated financial statements. The
Association's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit is
represented by the contractual or notional amount of those instruments. The
Association uses the same credit policies in making such commitments as it does
for instruments that are included in the consolidated statement of financial
condition.
Financial instruments whose contract amount represents credit risk were as
follows:
June 30
December 31, ----------------
1996 1996 1995
---- ---- ----
(Unaudited)
Mortgage loan commitments
At variable rates ........................... $ 175 $ 318 $680
At fixed rates ranging from 8.50 to
9.50% for December 31, 1996, 7.50
to 9.50% for 1996 and 8.00 to 10.00%
for 1995 ................................... 1,423 2,472 402
Consumer loan commitments .................... 27
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Association evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Association upon extension of credit, is based on
management's credit evaluation. Collateral held varies, but may include
residential real estate or other assets of the borrower.
The Association and subsidiaries are also subject to claims and lawsuits which
arise primarily in the ordinary course of business. It is the opinion of
management that the disposition or ultimate determination of such possible
claims or lawsuits will not have a material adverse effect on the consolidated
financial position of the Association.
Employee Benefit Plans
The Association has a retirement savings Section 401(k) plan in which
substantially all employees may participate. The Association matches employees'
contributions at the rate of 100 percent of the first 7 percent of base salary
contributed by participants. The Association's expense for the plan was $23,000
and $23,000 for the six months ended December 31, 1996 and 1995 (unaudited) and
$45,000 for 1996, $46,000 for 1995 and $46,000 for 1994.
F-21
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
On October 15, 1996, the stockholders of the Association approved a Stock Option
Plan, a Director Stock Option Plan and a Management Recognition Plan ("MRP").
These plans allow for the purchase in the open market or through the issuance of
authorized and unissued shares of up to 7,500 shares of common stock for the MRP
and 18,750 shares of common stock for the Stock Option Plan and the Director
Stock Option Plan. On November 25, 1996 (unaudited), Montgomery purchased 1,000
shares for the MRP at a cost of $11,563 which was recorded as unearned
compensation in stockholders' equity. Under the stock option plans, stock option
rights covering 13,125 shares of common stock may be granted to officers and
other key employees and 5,625 shares of common stock may be granted to directors
of Montgomery. Restricted stock awards covering 7,500 shares of common stock may
be awarded to Montgomery's officers and key employees under the MRP. There have
not been any grants or options allotted at this time.
Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Cash Equivalents--The fair value of cash and cash equivalents
approximates carrying value.
Interest-Bearing Deposits--The fair value of interest-bearing deposits
approximate carrying value.
Investment Securities--Fair values are based on quoted market prices.
Loans--The fair value for loans is estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Interest Receivable/Payable--The fair value of accrued interest
receivable/payable approximates carrying values.
FHLB Stock--Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
Deposits--Fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on such time deposits.
Federal Home Loan Bank Advances--The fair value of these borrowings are
estimated using a discounted cash flow calculation, based on current rates for
similar debt.
Advance Payments by Borrowers for Taxes and Insurance--The fair value
approximates carrying value.
F-22
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION AND SUBSIDIARY
Crawfordsville, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The estimated fair values of the Association's financial instruments are as
follows:
December 31, 1996 June 30, 1996
------------------ -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(Unaudited)
Assets
Cash and cash equivalents ...... $ 5,918 $ 5,918 $ 3,636 $ 3,636
Interest-bearing deposits ...... 100 100 100 100
Investment securities
available for sale ........... 52 52 312 312
Loans, net ..................... 83,770 84,848 80,074 81,432
Stock in FHLB .................. 750 750 750 750
Interest receivable ............ 644 644 595 595
Liabilities
Deposits ....................... 72,343 72,694 69,709 70,212
FHLB advances .................. 11,928 11,873 8,000 7,954
Interest payable ............... 542 542 428 428
Advances by borrowers for
taxes and insurance .......... 183 183 382 382
Unaudited Financial Statements
The accompanying consolidated statement of financial condition as of December
31, 1996, and the consolidated statements of income, stockholders' equity and
cash flows for the six months ended December 31, 1996 and 1995 are unaudited,
but management is of the opinion that all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the results of the
periods reported, have been included in the accompanying financial statements.
The results of operations for the six months ended December 31, 1996 are not
necessarily indicative of those expected for the remainder of the year.
F-23
<PAGE>
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the Holding
Company. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Holding Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the registered securities to which it
relates. This Prospectus does not constitute an offer to sell or a solicitation
of a offer to buy such securities in any circumstances or jurisdictions in which
such offer or solicitation is unlawful.
TABLE OF CONTENTS
Page
Summary.............................................. 6
Selected Consolidated Financial Information.......... 17
Risk Factors......................................... 19
Montgomery Financial Corporation..................... 26
Montgomery Savings, A Federal Association............ 26
Montgomery Mutual Holding Company.................... 29
Use of Proceeds...................................... 29
Dividend Policy...................................... 30
Market for Common Stock.............................. 31
Pro Forma Data....................................... 32
Pro Forma Regulatory Capital Analysis................ 37
Capitalization....................................... 38
Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 40
Business of Montgomery............................... 56
Regulation........................................... 74
Management of the Company............................ 86
Management of the Association........................ 87
Beneficial Ownership of Capital Stock................ 96
The Conversion and Reorganization.................... 99
Comparison of Stockholders' Rights................... 123
Restrictions on Acquisition of the Company........... 134
Description of Capital Stock of the Company.......... 136
Experts.............................................. 137
Legal Matters........................................ 137
Additional Information............................... 138
Index to Financial Statements........................ F-1
Until the later of ____________, 1997 or 25 days after commencement of the
Offering all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
_________ Shares
[LOGO]
MONTGOMERY FINANCIAL
CORPORATION
(Proposed Holding Company for
Montgomery Savings,
A Federal Association)
Common Stock
Prospectus
Charles Webb & Company
A Division of
Keefe, Bruyette & Woods, Inc.
___________, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below is an estimate of the amount of fees and expenses
(other than underwriting discounts and commissions) to be incurred in connection
with the issuance of the shares.
Counsel fees and expenses................................... $ 120,000
Accounting fees and expenses................................ 30,000
Appraisal and business plan
preparation fees and expenses............................. 30,000
Conversion Agent fees and expenses.......................... 5,000
Underwriting fees(1) (including financial
advisory fee and expenses)............................... 162,000
Underwriter's counsel fees and expenses..................... 30,500
Printing, postage and mailing............................... 50,000
Registration and Filing Fees................................ 18,000
Blue Sky fees and expenses.................................. 6,000
Other expenses(1)........................................... 39,000
---------
TOTAL.................................................. $490,000
========
- ------------------
(1) Based on maximum of Estimated Valuation Range.
Item 14. Indemnification of Directors and Officers
Article Eleventh of the Holding Company's Certificate of Incorporation provides
for indemnification of directors and officers of the Holding Company against any
and all liabilities, judgments, fines and reasonable settlements, costs,
expenses and attorneys' fees incurred in any actual, threatened or potential
proceeding, except to the extent that such indemnification is limited by
Delaware law and such law cannot be varied by contract or bylaw. Article
Eleventh also provides for the authority to purchase insurance with respect
thereto.
Section 23 of the Business Corporation Law of the State of Indiana authorizes a
corporation's Board of Directors to grant indemnity under certain circumstances
to directors and officers, when made, or threatened to be made, parties to
certain proceedings by reason of such status with the corporation, against
judgments, fines, settlements and expenses, including attorneys' fees. In
addition, under certain circumstances such persons may be indemnified against
expenses actually and reasonably incurred in defense of a proceeding by or on
behalf of the corporation. Similarly, the corporation, under certain
circumstances, is authorized to indemnify directors and officers of other
corporations or enterprises who are serving as such at the request of the
corporation, when such persons are made, or threatened to be made, parties to
certain proceedings by reason of such
II-1
<PAGE>
status, against judgments, fines, settlements and expenses, including attorneys'
fees; and under certain circumstances, such persons may be indemnified against
expenses actually and reasonably incurred in connection with the defense or
settlement of a proceeding by or in the right of such other corporation or
enterprise. Indemnification is permitted where such person (i) was acting in
good faith; (ii) was acting in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation or other corporation or
enterprise, as appropriate; (iii) with respect to a criminal proceeding, has no
reasonable cause to believe his conduct was unlawful; and (iv) was not adjudged
to be liable to the corporation or other corporation or enterprise (unless the
court where the proceeding was brought determines that such person is fairly and
reasonably entitled to indemnity).
Unless ordered by a court, indemnification may be made only following a
determination that such indemnification is permissible because the person being
indemnified has met the requisite standard of conduct. Such determination may be
made (i) by the Board of Directors of the Holding Company by a majority vote of
a quorum consisting of directors not at the time parties to such proceeding; or
(ii) if such a quorum cannot be obtained or the quorum so directs, then by
independent legal counsel in a written opinion; or (iii) by the stockholders.
Section 23 also permits expenses incurred by directors and officers in defending
a proceeding to be paid by the corporation in advance of the final disposition
of such proceedings upon the receipt of an undertaking by the director or
officer to repay such amount if it is ultimately determined that he is not
entitled to be indemnified by the corporation against such expenses.
Item 15. Recent Sales of Unregistered Securities
The Registrant is newly incorporated, solely for the purpose of acting as the
holding company of Montgomery Savings, A Federal Association pursuant to the
Plan of Conversion and Agreement and Plan of Reorganization (filed as Exhibit 2
herein), and no sales of its securities have occurred to date.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
(a) Exhibits:
<S> <C>
1.1 Letter Agreement regarding marketing and consulting services
1.2 Form of Agency Agreement*
2 Plan of Conversion and Agreement and Plan of Reorganization
3.1 Certificate of Incorporation of the Montgomery Financial
Corporation
3.2 Bylaws of the Montgomery Financial Corporation
3.3 Charter of Montgomery Savings in stock form
3.4 Bylaws of Montgomery Savings in stock form
4 Form of Stock Certificate of the Montgomery Financial Corporation
5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to legality
of stock
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal
income tax consequences of the Conversion*
8.2 Opinion of Geo. S. Olive & Co. LLC with respect to Indiana income tax
consequences of the Conversion*
8.3 Opinion of Keller & Company, Inc. with respect to Subscription Rights
10.1 Form of Proposed Stock Option and Incentive Plan
10.2 Form of Employment Agreement with Earl F. Elliott
10.3 Form of Employment Agreement with J. Lee Walden
10.4 Employee Stock Ownership Plan
10.5 Form of Proposed Management's Recognition and Retention Plan
22 Subsidiaries
24.1 Consent of Silver, Freedman & Taff, L.L.P.
24.2 Consent of Geo. S. Olive & Co. LLC
24.3 Consent of Keller & Company, Inc.
25 Power of Attorney (set forth on signature page)
99.1 Appraisal
99.2 Proxy Statement and form of proxy to be furnished to Montgomery Savings'
account holders
99.3 Proxy Statement and form of proxy to be furnished to Mutual Holding Company
members
99.4 Stock Order Form and Order Form Instructions*
99.5 Certification
99.6 Question and Answer Brochure
99.7 Advertising, Training and Community Informational Meeting Materials
* To be filed by amendment.
</TABLE>
II-3
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and it will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant
II-4
<PAGE>
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
As filed with the Securities and Exchange Commission on April 7, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------
EXHIBITS TO THE
FORM S-1
UNDER
THE SECURITIES ACT OF 1933
---------------------------
MONTGOMERY FINANCIAL CORPORATION
119 East Main Street
Crawfordsville, Indiana 47933
================================================================================
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits:
<S> <C>
1.1 Letter Agreement regarding marketing and consulting services
1.2 Form of Agency Agreement*
2 Plan of Conversion and Agreement and Plan of Reorganization
3.1 Certificate of Incorporation of the Montgomery Financial Corporation
3.2 Bylaws of the Montgomery Financial Corporation
3.3 Charter of Montgomery Savings in stock form
3.4 Bylaws of Montgomery Savings in stock form
4 Form of Stock Certificate of Montgomery Financial Corporation
5 Opinion of Silver, Freedman & Taff, L.L.P. with Respect to Legality of Stock
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal income tax
consequences of the Conversion*
8.2 Opinion of Geo. S. Olive & Co. LLC with respect to Indiana income tax
consequences of the Conversion*
8.3 Opinion of Keller & Company, Inc. with respect to Subscription Rights
10.1 Form of Proposed Stock Option and Incentive Plan
10.2 Form of Employment Agreement with Earl F. Elliott
10.3 Form of Employment Agreement with J. Lee Walden
10.7 Employee Stock Ownership Plan
10.8 Form of Proposed Management's Recognition and Retention Plan
22 Subsidiaries
24.1 Consent of Silver, Freedman & Taff, L.L.P.
24.2 Consent of Geo. S. Olive & Co. LLC
24.3 Consent of Keller & Company, Inc.
25 Power of Attorney (set forth on signature page)
99.1 Appraisal
99.2 Proxy Statement and form of proxy to be furnished to Montgomery Savings' account
holders
99.3 Proxy Statement and form of proxy to be furnished to Mutual Holding Company
members
99.4 Stock Order Form and Order Form Instructions*
99.5 Certification
99.6 Question and Answer Brochure
99.7 Advertising, Training and Community Informational Meeting Materials
- ------------
* To be filed by amendment
</TABLE>
EXHIBIT 1.1
[LETTERHEAD]
December 23, 1996
Mr. Earl F. Elliott
President and Chief Executive Officer
Montgomery Savings Association, F.A.
119 E. Main Street
Crawfordsville, Indiana 47933
Dear Mr. Elliott:
This proposal is in connection with Montgomery Savings Bank, F.A. ("the Bank")
intention to convert from a mutual to a capital stock form of organization (the
"Conversion"). In order to effect the Conversion, it is contemplated that all of
the Bank's common stock to be outstanding pursuant to the Conversion will be
issued to a holding company (the "Company") to be formed by the Bank, and that
the Company will offer and sell shares of its common stock first to eligible
persons (pursuant to the Bank's Plan of Conversion) in a Subscription Offering
and then in a Community Offering.
Charles Webb & Company, a Division of Keefe Bruyette & Woods ("Webb") will act
as the Bank's and the Company's financial advisor and marketing agent in
connection with the Conversion. This letter sets forth selected terms and
conditions of our engagement.
1. Advisory/Conversion Services. As the Bank's and Company's financial advisor
and marketing agent, Webb will provide the Bank and the Company with a
comprehensive program of conversion services designed to promote an orderly,
efficient, cost-effective and long-term stock distribution. Webb will provide
financial and logistical advice to the Bank and the Company concerning the
offering and related issues. Webb will assist in providing conversion
enhancement services intended to maximize stock sales in the Subscription
Offering and to residents of the Bank's market area, if necessary, in the
Community Offering.
Webb shall provide financial advisory services to the Bank which are typical in
connection with an equity offering and include, but are not limited to, overall
financial analysis of the client with a focus on identifying factors which
impact the valuation of an equity security and provide the appropriate
recommendations for the betterment of the equity valuation.
<PAGE>
Mr. Earl F. Elliott
April 3, 1997
Page 2 of 5
Additionally, post conversion financial advisory services will be provided for a
one-year period, at no additional fee, including advice on shareholder
relations, NASDAQ listing, dividend policy, stock repurchase strategy and
communication with market makers. Prior to the closing of the offering, Webb
shall furnish to client a Post-conversion reference manual which will include
specifics relative to these items. (The nature of the services to be provided by
Webb as the Bank's and the Company's financial advisor and marketing agent are
further described in Exhibit A attached hereto.)
2. Preparation of Offering Documents. The Bank, the Company and their counsel
will draft the Registration Statement, Application for Conversion, Prospectus
and other documents to be used in connection with the Conversion. Webb will
attend meetings to review these documents and advise you on their form and
content. Webb and their counsel will draft appropriate agency agreement and
related documents as well as marketing materials other than the Prospectus.
3. Due Diligence Review. Prior to filing the Registration Statement, Application
for Conversion or any offering or other documents naming Webb as the Bank's and
the Company's financial advisor and marketing agent, Webb and their
representatives will undertake substantial investigations to learn about the
Bank's business and operations ("due diligence review") in order to confirm
information provided to us and to evaluate information to be contained in the
Bank's and/or the Company's offering documents. The Bank agrees that it will
make available to Webb all relevant information, whether or not publicly
available, which Webb reasonably request, and will permit Webb to discuss
personnel and the operations and prospects of the Bank with management. Webb
will treat all material non-public information as confidential. The Bank
acknowledges that Webb will rely upon the accuracy and completeness of all
information received from the Bank, its officers, directors, employees, agents
and representatives, accountants and counsel including this letter of intent to
serve as the Bank's and the Company's financial advisor and marketing agent.
4. Regulatory Filings. The Bank and/or the Company will cause appropriate
offering documents to be filed with all regulatory agencies including, the
Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers ("NASD"), and such state securities commissioners as may be
determined by the Bank.
5. Agency Agreement. The specific terms of the conversion services, conversion
offering enhancement and syndicated offering services contemplated in this
letter shall be set forth in an Agency Agreement between Webb and the Bank and
the Company to be executed prior to commencement of the offering, and dated the
date that the Company's Prospectus is declared effective and/or authorized to be
disseminated by the appropriate regulatory agencies, the SEC, the NASD and such
state securities commissioners and other regulatory agencies as required by
applicable law.
<PAGE>
Mr. Earl F. Elliott
April 3, 1997
Page 3 of 5
6. Representations, Warranties and Covenants. The Agency Agreement will provide
for customary representations, warranties and covenants by the Bank and Webb,
and for the Company to indemnify Webb and their controlling persons (and, if
applicable, the members of the selling group and their controlling persons), and
for Webb to indemnify the Bank and the Company against certain liabilities,
including, without limitation, liabilities under the Securities Act of 1933.
7. Fees. For the services hereunder, the Bank and/or Company shall pay the
following fees to Webb at closing unless stated otherwise:
(a) A Management Fee of $25,000 payable in four
consecutive monthly installments of $6,250 commencing with the
signing of this letter. Such fees shall be deemed to have been
earned when due. Should the Conversion be terminated for any
reason not attributable to the action or inaction of Webb,
Webb shall have earned and be entitled to be paid fees
accruing through the stage at which point the termination
occurred.
(b) A Success Fee of 1.75% of the aggregate Purchase
Price of Common Stock sold in the Subscription Offering and
Community Offering excluding shares purchased by the Bank's
officers, directors, or employees (or members of their
immediate families) plus any ESOP, tax-qualified or stock
based compensation plans (except IRA's) or similar plan
created by the Bank for some or all of its directors or
employees.
(c) If any shares of the Company's stock remain
available after the subscription offering, at the request of
the Bank, Webb will seek to form a syndicate of registered
broker-dealers to assist in the sale of such common stock on a
best efforts basis, subject to the terms and conditions set
forth in the selected dealers agreement. Webb will endeavor to
distribute the common stock among dealers in a fashion which
best meets the distribution objectives of the Bank and the
Plan of Conversion. Webb will be paid a fee not to exceed 5.5%
of the aggregate Purchase Price of the shares of common stock
sold by them. Webb will pass onto selected broker-dealers, who
assist in the syndicated community, an amount competitive with
gross underwriting discounts charged at such time for
comparable amounts of stock sold at a comparable price per
share in a similar market environment. Fees with respect to
purchases affected with the assistance of a broker/dealer
other than Webb shall be transmitted by Webb to such
broker/dealer. The decision to utilize selected broker-dealers
will be made by the Bank upon consultation with Webb. In the
event, with respect to any stock purchases, fees are paid
pursuant to this subparagraph 7(c), such fees shall be in lieu
of, and not in addition to, payment pursuant to
subparagraph7(a)and7(b).
<PAGE>
Mr. Earl F. Elliott
April 3, 1997
Page 4 of 5
8. Expenses. The Bank will bear those expenses of the proposed offering
customarily borne by issuers, including, without limitation, regulatory filing
fees, SEC, "Blue Sky," and NASD filing and registration fees; the fees of the
Bank's accountants, attorneys, appraiser, conversion agent, transfer agent and
registrar, printing, mailing and marketing and syndicate expenses associated
with the Conversion; the fees set forth in Section 7; and fees for "Blue Sky"
legal work.
Webb shall be reimbursed for the reasonable fees and expenses of their Counsel.
The selection of such counsel will be done by Webb, with the approval of the
Bank. Such fees and legal expenses shall be agreed upon by both Webb and Client;
however, they shall not exceed $30,000.
Webb shall be reimbursed for actual out of pocket expenses, including
communication, lodging, and travel expenses. This amount will not exceed $5,000,
without client approval.
9. Conditions. Webb's willingness and obligation to proceed hereunder shall be
subject to, among other things, satisfaction of the following conditions in
Webb's opinion, which opinion shall have been formed in good faith by Webb after
reasonable determination and consideration of all relevant factors: (a) full and
satisfactory disclosure of all relevant material, financial and other
information in the disclosure documents and a determination by Webb, in their
sole discretion, that the sale of stock on the terms proposed is reasonable
given such disclosures; (b) no material adverse change in the condition or
operations of the Bank subsequent to the execution of the agreement; and (c) no
market conditions at the time of offering which in Webb's opinion make the sale
of the shares by the Company inadvisable.
10. Benefit. This Agreement shall inure to the benefit of the parties hereto and
their respective successors and to the parties indemnified hereunder and their
successors, and the obligations and liabilities assumed hereunder by the parties
hereto shall be binding upon their respective successors provided, however, that
this Agreement shall not be assignable by Webb.
11. Definitive Agreement. This letter reflects Webb's present intention of
proceeding to work with the Bank on its proposed conversion. It does not create
a binding obligation on the part of the Bank, the Company or Webb except as to
the agreement to maintain the confidentiality of non-public information set
forth in Section 3, the payment of certain fees as set forth in Section 7(a) and
the assumption of expenses as set forth in Section 8, all of which shall
constitute the binding obligations of the parties hereto and which shall survive
the termination of this Agreement or the completion of the services furnished
hereunder and shall remain operative and in full force and effect. You further
acknowledge that any report or analysis rendered by Webb pursuant to this
engagement is rendered for use solely by the management of the Bank and its
agents in connection with the Conversion. Accordingly, you agree that you will
not provide any such information to any other person without our prior written
consent.
<PAGE>
Mr. Earl F. Elliott
April 3, 1997
Page 5 of 5
Webb acknowledges that in offering the Company's stock no person will be
authorized to give any information or to make any representation not contained
in the offering prospectus and related offering materials filed as part of a
registration statement to be declared effective in connection with the offering.
Accordingly, Webb agrees that in connection with the offering it will not give
any unauthorized information or make any unauthorized representation. We will be
pleased to elaborate on any of the matters discussed in this letter at your
convenience.
If the foregoing correctly sets forth our mutual understanding, please so
indicate by signing and returning the original copy of this letter to the
undersigned.
Sincerely,
/S/ Harold T. Hanley III
- ---------------------------------------
Harold T. Hanley III
Senior Vice President
MONTGOMERY SAVINGS ASSOCIATION, F.A.
By: Earl F. Elliott December 26, 1996
------------------------------------ ----------------------
Earl F. Elliott Date
Chairman and Chief Executive Office
<PAGE>
EXHIBIT A
CONVERSION SERVICES PROPOSAL
TO MONTGOMERY SAVINGS ASSOCIATION, F.A.
Charles Webb & Company provides thrift institutions converting from mutual to
stock form of ownership with a comprehensive program of conversion services
designed to promote an orderly, efficient, cost-effective and long-term stock
distribution. The following list is representative of the conversion services,
if appropriate, we propose to perform on behalf of the Bank.
General Services
- ----------------
Assist management and legal counsel with the design of the transaction
structure.
Analyze and make recommendations on bids from printing, transfer agent, and
appraisal firms.
Assist officers and directors in obtaining bank loans to purchase stock, if
requested.
Assist in drafting and distribution of press releases as required or
appropriate.
Conversion Offering Enhancement Services
- ----------------------------------------
Establish and manage Conversion Center at the Bank. Conversion Center personnel
will track prospective investors; record stock orders; mail order confirmations;
provide the Bank's senior management with daily reports; answer customer
inquiries; and handle special situations as they arise.
Assign Webb's personnel to be at the Bank through completion of the Subscription
and Community Offerings to manage the Conversion Center, meet with prospective
shareholders at individual and community information meetings, solicit local
investor interest through a tele-marketing campaign, answer inquiries, and
otherwise assist in the sale of stock in the Subscription and Community
Offerings. This effort will be lead by a Principal of Webb.
Create target investor list based upon review of the Bank's depositor base.
Provide intensive financial and marketing input for drafting of the prospectus.
<PAGE>
Conversion Offering Enhancement Services- Continued
- ---------------------------------------------------
Prepare other marketing materials, including prospecting letters and brochures,
and media advertisements.
Arrange logistics of community information meeting(s) as required.
Prepare audio-visual presentation by senior management for community information
meeting(s).
Prepare management for question-and-answer period at community information
meeting(s).
Attend and address community information meeting(s) and be available to answer
questions.
Broker-Assisted Sales Services.
- -------------------------------
Arrange for broker information meeting(s) as required.
Prepare audio-visual presentation for broker information meeting(s).
Prepare script for presentation by senior management at broker information
meeting(s).
Prepare management for question-and-answer period at broker information
meeting(s).
Attend and address broker information meeting(s) and be available to answer
questions.
Produce confidential broker memorandum to assist participating brokers in
selling the Bank's common stock.
Aftermarket Support Services.
- -----------------------------
Keefe, Bruyette & Woods will make a market and provide on-going research to the
Company. In addition, Webb will use its best efforts to secure another market
maker.
EXHIBIT 2
PLAN OF CONVERSION
of
MONTGOMERY MUTUAL HOLDING COMPANY
and
AGREEMENT AND PLAN OF REORGANIZATION
between
MONTGOMERY FINANCIAL CORPORATION
and
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION
<PAGE>
TABLE OF CONTENTS
Section
Number Page
- ----- ----
1. Introduction..............................................................1
2. Definitions...............................................................3
3. General Procedure for Conversion and Reorganization.......................7
4. Total Number of Shares and Purchase Price of Conversion Stock............10
5. Subscription Rights of Eligible Account Holders..........................11
6. Subscription Rights of Tax-Qualified Employee Stock Benefit Plans........12
7. Subscription Rights of Supplemental Eligible Account Holders.............12
8. Subscription Rights of Other Members.....................................13
9. Subscription Rights of Directors, Officers and Employees.................13
10. Subscription Rights of Public Stockholders...............................14
11. Community Offering, Syndicated Community Offering and Other Offerings....14
12. Limitations on Subscriptions and Purchases of Conversion Stock...........16
13. Timing of Subscription Offering; Manner of Exercising Subscription Rights
and Order Forms........................................................17
14. Payment for Conversion Stock.............................................19
15. Account Holders in Nonqualified States or in Foreign Countries...........20
16. Voting Rights of Stockholders............................................20
17. Liquidation Account......................................................20
18. Transfer of Deposit Accounts.............................................22
19. Requirements Following Conversion and Reorganization for Registration,
Market Making and Stock Exchange Listing...............................22
20. Directors and Officers of the Association................................23
21. Requirements for Stock Purchases by Directors and Officers Following the
Conversion and Reorganization..........................................23
22. Restrictions on Transfer of Stock........................................23
23. Restrictions on Acquisition of Stock of the Holding Company..............24
24. Tax Rulings or Opinions..................................................24
25. Stock Compensation Plans.................................................25
26. Dividend and Repurchase Restrictions on Stock............................25
27. Payment of Fees to Brokers...............................................25
28. Dissenting Stockholders..................................................26
29. Effective Date...........................................................26
30. Amendment or Termination of the Plan.....................................26
31. Interpretation of the Plan...............................................27
Annex A - Plan of Merger between the Mutual Holding Company and the Association
Annex B - Plan of Merger between the Association and Interim
<PAGE>
1. INTRODUCTION
All capitalized terms (unless otherwise indicated) have the meanings
ascribed to them in Section 2.
On August 11, 1995, Montgomery Savings Association, A Federal
Association, a federally-chartered mutual savings association (the
"Association"), reorganized into the mutual holding company form of
organization. To accomplish this transaction, the Association organized a
federally-chartered, stock savings association as a wholly-owned subsidiary. The
mutual Association then transferred substantially all of its assets and
liabilities to the stock Association in exchange for 600,000 shares of
Association Common Stock, and reorganized itself into a federally-chartered
mutual holding company known as Montgomery Mutual Holding Company. The
Association simultaneously sold 250,000 shares of Association Common Stock to
depositors of the Association, employee stock benefit plans of the Association,
directors, officers and employees of the Association and members of the general
public. As of the date hereof, the Mutual Holding Company and the other
stockholders own an aggregate of 70.6% and 29.4% of the outstanding Association
Common Stock, respectively.
The Boards of Directors of the Mutual Holding Company and the
Association believe that a conversion of the Mutual Holding Company to stock
form and reorganization of the Association pursuant to this Plan of Conversion
is in the best interests of the Mutual Holding Company and the Association, as
well as the best interests of their respective Members and Stockholders. The
Boards of Directors determined that this Plan of Conversion equitably provides
for the interests of Members through the granting of subscription rights and the
establishment of a liquidation account. The Conversion and Reorganization will
result in the Association being wholly owned by a stock holding company, which
is a more common structure and form of ownership than a mutual holding company.
In addition, the Conversion and Reorganization will result in the raising of
additional capital for the Association and the Holding Company and should result
in a more active and liquid market for the Holding Company Common Stock than
currently exists for the Association Common Stock, although there can be no
assurances that this will be the case. Finally, the Conversion and
Reorganization has been structured to reunite the accumulated earnings and
profits tax attribute retained by the Mutual Holding Company with the retained
earnings of the Association through a tax-free reorganization.
If the Association had undertaken a standard conversion involving the
formation of a stock holding company in 1995, applicable OTS regulations would
have required a greater amount of Association Common Stock to be sold than
resulted in the amount of net proceeds raised in connection with the formation
of the Mutual Holding Company. In addition, if a standard conversion had been
conducted in 1995, management of the Association believed that it would have
been difficult to profitably invest the larger amount of capital that would have
been raised, when compared to the net proceeds raised in connection with the
formation of the Mutual Holding Company. A standard conversion in 1995 also
would have immediately eliminated all aspects of the mutual form of
organization.
Subsequent to the formation of the Mutual Holding Company, market
conditions for the stocks of savings institutions and their holding companies
have improved. The Association has
1
<PAGE>
also increased in size since the formation of the Mutual Holding Company and the
formation of a standard holding company structure will enhance the Association's
ability for future continued growth, including the funding of acquisitions with
securities of the Holding Company. In light of the foregoing, the Boards of
Directors of the Mutual Holding Company and the Association believe that it is
in the best interests of such companies and their respective Members and
Stockholders to raise additional capital at this time, and that the most
feasible way to do so is through the Conversion and Reorganization.
In connection with the Conversion and Reorganization, the Association
will form a new first-tier, wholly-owned subsidiary known as Montgomery
Financial Corporation, which will become the Holding Company upon consummation
of the Conversion and Reorganization. The Holding Company will in turn form
Interim as a wholly-owned subsidiary. As described in more detail in Section 3,
the Mutual Holding Company will convert from the mutual form to a federal
interim stock savings association and simultaneously merge with and into the
Association pursuant to the Plan of Merger included as Annex A hereto, pursuant
to which the Mutual Holding Company will cease to exist and a liquidation
account will be established by the Association for the benefit of depositor
Members as of specified dates, and Interim will then merge with and into the
Association pursuant to the Plan of Merger included as Exhibit B hereto,
pursuant to which the Association will become a wholly-owned subsidiary of the
Holding Company and, in connection therewith, each share of Association Common
Stock outstanding immediately prior to the effective time thereof shall be
automatically converted, without further action by the holder thereof, into and
become the right to receive shares of Holding Company Common Stock based on the
Exchange Ratio, plus cash in lieu of any fractional share interest.
In connection with the Conversion and Reorganization, the Holding
Company will offer shares of Conversion Stock in the Offerings as provided
herein. Shares of Conversion Stock will be offered in a Subscription Offering in
descending order of priority to Eligible Account Holders, Tax-Qualified Employee
Stock Benefit Plans, Supplemental Eligible Account Holders, Other Members,
Directors, Officers and Employees and Public Stockholders. Any shares of
Conversion Stock remaining unsold after the Subscription Offering will be
offered for sale to the public through a Community Offering and/or Syndicated
Community Offering, as determined by the Boards of Directors of the Holding
Company and the Association in their sole discretion.
The Conversion and Reorganization is intended to provide a larger
capital base to support the Association's lending and investment activities and
thereby enhance the Association's capabilities to serve the borrowing and other
financial needs of the communities it serves. The use of the Holding Company
will provide greater organizational flexibility and possible diversification.
This Plan was adopted by the Boards of Directors of the Mutual Holding
Company and the Association on December 26, 1996 as subsequently amended to read
in the form set forth below.
This Plan is subject to the approval of the OTS and must be adopted by
(1) at least a majority of the total number of votes eligible to be cast by
Voting Members of the Mutual Holding Company at the Special Meeting and (2)
holders of at least two-thirds of the outstanding Association Common Stock at
the Stockholders' Meeting. In addition, the Primary Parties have
2
<PAGE>
conditioned the consummation of the Conversion and Reorganization on the
approval of the Plan by at least a majority of the votes cast, in person or by
proxy, by the Public Stockholders at the Stockholders' Meeting.
After the Conversion and Reorganization, the Association (assuming it
converts to a federally-chartered savings association prior to the Conversion
and Reorganization) will continue to be regulated by the OTS, as its chartering
authority, and by the FDIC, which insures the Association's deposits. In
addition, the Association will continue to be a member of the Federal Home Loan
Bank System and all insured savings deposits will continue to be insured by the
FDIC up to the maximum provided by law.
2. DEFINITIONS.
As used in this Plan, the terms set forth below have the following
meaning:
Actual Purchase Price means the price per share at which the Conversion
Stock is ultimately sold by the Holding Company in the Offerings in accordance
with the terms hereof.
Affiliate means a Person who, directly or indirectly, through one or
more intermediaries, controls or is controlled by or is under common control
with, the Person specified.
Associate. when used to indicate a relationship with any Person, means
(i) a corporation or organization (other than the Mutual Holding Company, the
Association, a majority-owned subsidiary of the Association or the Holding
Company) of which such Person is a director, officer or partner or is, directly
or indirectly, the beneficial owner of 10% or more of any class of equity
securities, (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity, provided, however, that such term shall not
include any Tax-Qualified Employee Stock Benefit Plans of the Holding Company or
the Association in which such Person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity, and (iii) any relative
or spouse of such Person or any relative of such spouse, who has the same home
as such Person or who is a director or officer of the Holding Company or the
Association or any of the subsidiaries of the foregoing; provided, however, that
any Tax-Qualified or Non-Tax-Qualified Employee Stock Benefit Plans shall not be
deemed to be an associate of any director or officer of the Mutual Holding
Company, the Holding Company or the Association.
Association means Montgomery Savings Association, A Federal
Association, in its mutual form and Montgomery Savings, A Federal Association in
its stock form.
Association Common Stock means the common stock of the Association, par
value $.01 per share, which stock is not and will not be insured by the FDIC or
any other governmental authority.
Association Merger means the merger of Interim with and into the
Association pursuant to the Plan of Merger included as Annex B hereto.
Code means the Internal Revenue Code of 1986, as amended.
3
<PAGE>
Community Offering means the offering for sale by the Holding Company
of any shares of Conversion Stock not subscribed for in the Subscription
Offering to such Persons within or without the State of Indiana as may be
selected by the Holding Company and the Association in their sole discretion and
to whom a copy of the Prospectus is delivered by or on behalf of the Holding
Company.
Control (including the terms "controlling," "controlled by," and "under
common control with") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Conversion and Reorganization means (i) the conversion of the Mutual
Holding Company from mutual form to a federal interim stock savings association
and the subsequent Mutual Holding Company Merger, pursuant to which the Mutual
Holding Company will cease to exist, (ii) the Association Merger, pursuant to
which the Association will become a wholly-owned subsidiary of the Holding
Company and, in connection therewith, each share of Association Common Stock
outstanding immediately prior to the effective time thereof shall automatically
be converted, without further action by the holder thereof, into and become the
right to receive shares of Holding Company Common Stock based on the Exchange
Ratio, plus cash in lieu of any fractional share interest, and (iii) the
issuance of Conversion Stock by the Holding Company in the Offerings as provided
herein, which will increase the number of shares of Holding Company Common Stock
outstanding and the capitalization of the Holding Company and the Association.
Conversion Stock means the Holding Company Common Stock to be issued
and sold in the Offerings pursuant to the Plan of Conversion.
Deposit Account means any deposit, investment certificate, NOW account
or other deposit account which is held by an account holder or depositor.
Director, Officer and Employee means the terms as applied respectively
to any person who is a director, officer or employee of the Mutual Holding
Company, the Association or any subsidiary thereof.
Eligible Account Holder means any Person holding a Qualifying Deposit
on the Eligibility Record Date for purposes of determining Subscription Rights
and establishing subaccount balances in the liquidation account to be
established pursuant to Section 17 hereof.
Eligibility Record Date means the date for determining Qualifying
Deposits of Eligible Account Holders and is the close of business on September
30, 1995.
Estimated Price Range means the range of the estimated aggregate pro
forma market value of the total number of shares of Conversion Stock to be
issued in the Offerings, as determined by the Independent Appraiser in
accordance with Section 4 hereof.
Exchange Ratio means the rate at which shares of Holding Company Common
Stock will be exchanged for shares of Association Common Stock held by the
Public Stockholders in
4
<PAGE>
connection with the Association Merger. The exact rate shall be determined by
the Mutual Holding Company and the Association in order to ensure that upon
consummation of the Conversion and Reorganization the Public Stockholders will
own in the aggregate approximately the same percentage of the Holding Company
Common Stock to be outstanding upon completion of the Conversion and
Reorganization as the percentage of Association Common Stock owned by them in
the aggregate immediately prior to consummation of the Conversion and
Reorganization, before giving effect to (a) cash paid in lieu of any fractional
interests of Holding Company Common Stock and (b) any shares of Conversion Stock
purchased by the Public Stockholders in the Offerings or tax-qualified employee
stock benefit plans thereafter.
Exchange Shares means the shares of Holding Company Common Stock to be
issued to the Public Stockholders in connection with the Association Merger.
FDIC means the Federal Deposit Insurance Corporation or any successor
thereto.
Holding Company means Montgomery Financial Corporation, a corporation
to be organized under the laws of the State of Indiana. Such corporation will be
initially formed as a first-tier, wholly-owned subsidiary of the Association.
Upon completion of the Conversion and Reorganization, the Holding Company shall
hold all of the outstanding capital stock of the Association.
Holding Company Common Stock means the common stock of the Holding
Company, par value $0.01 per share, which stock cannot and will not be insured
by the FDIC or any other governmental authority.
Independent Appraiser means the independent investment banking or
financial consulting firm retained by the Holding Company and the Association to
prepare an appraisal of the estimated pro forma market value of the Conversion
Stock.
Initial Purchase Price means the price per share to be paid initially
by Participants for shares of Conversion Stock subscribed for in the
Subscription Offering and by Persons for shares of Conversion Stock ordered in
the Community Offering and/or Syndicated Community Offering.
Interim means Montgomery Interim Savings Association, A Federal
Association, which will be formed as a first-tier, wholly-owned subsidiary of
the Holding Company to facilitate the Association Merger.
Member means any Person qualifying as a member of the Mutual Holding
Company in accordance with its mutual charter and bylaws and the laws of the
United States.
Mutual Holding Company means Montgomery Mutual Holding Company.
Mutual Holding Company Merger means the merger of the Mutual Holding
Company (following its conversion into a federal interim stock savings
association) with and into the Association pursuant to the Plan of Merger
included as Annex A hereto.
5
<PAGE>
Offerings means the Subscription Offering, the Community Offering and
the Syndicated Community Offering, if any.
Officer means an executive officer of the Mutual Holding Company, the
Association or the Holding Company, including the chairman of the board of
directors, president, executive vice-presidents, senior vice presidents in
charge of principal business functions, secretary and treasurer or principal
financial officer.
Order Form means the form or forms provided by the Holding Company,
containing all such terms and provisions as set forth in Section 13 hereof, to a
Participant or other Person by which Conversion Stock may be ordered in the
Offerings.
Other Member means a Voting Member who is not an Eligible Account
Holder, a Supplemental Eligible Account Holder or Tax-Qualified Employee Stock
Benefit Plans.
OTS means the Office of Thrift Supervision or any successor thereto.
Participant means any Eligible Account Holder, Tax-Qualified Employee
Stock Benefit Plan, Supplemental Eligible Account Holder, Other Member,
Director, Officer or Employee or Public Stockholder.
Person means an individual, a corporation, a partnership, an
association, a joint stock company, a trust, an unincorporated organization or a
government or any political subdivision thereof.
Plan and Plan of Conversion mean this Plan of Conversion and Agreement
and Plan of Reorganization as adopted by the Boards of Directors of the Mutual
Holding Company and the Association and any amendment hereto approved as
provided herein. The Board of Directors of the Holding Company shall adopt this
Plan as soon as practicable following its organization, and the Board of
Directors of Interim shall adopt the Plan of Merger included as Annex B hereto
as soon as practicable following its organization.
Primary Parties mean the Mutual Holding Company, the Association and
the Holding Company.
Prospectus means the one or more documents to be used in offering the
Conversion Stock in the Offerings.
Public Stockholders mean those Persons who own shares of Association
Common Stock, excluding the Mutual Holding Company, as of the Voting Record
Date.
Qualifying Deposit means the aggregate balance of all Deposit Accounts
in the Association of (i) an Eligible Account Holder at the close of business on
the Eligibility Record Date, provided such aggregate balance is not less than
$50, and (ii) a Supplemental Eligible Account Holder at the close of business on
the Supplemental Eligibility Record Date, provided such aggregate balance is not
less than $50.
6
<PAGE>
SEC means the Securities and Exchange Commission.
Special Meeting means the Special Meeting of Members of the Mutual
Holding Company called for the purpose of submitting this Plan to the Members
for their approval, including any adjournments of such meeting.
Stockholders' Meeting means the annual or special meeting of
Stockholders of the Association called for the purpose of submitting this Plan
to the Stockholders for their approval, including any adjournments of such
meeting.
Subscription Offering means the offering of the Conversion Stock to
Participants.
Subscription Rights means non-transferable, non-negotiable, personal
rights of the Participants to subscribe for Conversion Stock pursuant to the
terms of this Plan.
Supplemental Eligibility Record Date, means the last day of the
calendar quarter preceding OTS approval of the Application for Conversion
submitted by the Mutual Holding Company pursuant to this Plan of Conversion.
Supplemental Eligible Account Holder means any Person, except Directors
and Officers of the Association and their Associates, holding a Qualifying
Deposit at the close of business on the Supplemental Eligibility Record Date.
Syndicated Community Offering means the offering for sale by a
syndicate of broker-dealers to the general public of shares of Conversion Stock
not purchased in the Subscription Offering and the Community Offering.
Tax-Qualified Employee Stock Benefit Plan means any defined benefit
plan or defined contribution plan, stock bonus plan, profit-sharing plan or
other plan, which is established for the benefit of the employees of the Holding
Company and the Association and which, with its related trust, meets the
requirements to be "qualified" under Section 401 of the Code as from time to
time in effect. A "Non-Tax-Qualified Employee Stock Benefit Plan" is any defined
benefit plan or defined contribution stock benefit plan which is not so
qualified.
Voting Member means a Person who at the close of business on the Voting
Record Date is entitled to vote as a Member of the Mutual Holding Company in
accordance with its mutual charter and bylaws.
Voting Record Date means the date or dates for determining the
eligibility of Members to vote at the Special Meeting and Stockholders to vote
at the Stockholders' Meeting, as applicable.
3. GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION.
After the Association's organization of the Holding Company and the
receipt of all requisite regulatory approvals, the Holding Company will form
Interim as a first-tier, wholly owned subsidiary of the Holding Company, and the
Board of Directors of Interim shall adopt
7
<PAGE>
the Plan of Merger included as Annex B hereto by at least a two-thirds vote. In
addition, the Holding Company shall approve such Plan of Merger in its capacity
as the sole stockholder of Interim.
An application for the Conversion and Reorganization, including the
Plan and all other requisite material (the "Application for Conversion"), shall
be submitted to the OTS for approval. The Mutual Holding Company and the
Association also will cause notice of the adoption of the Plan by the Boards of
Directors of the Mutual Holding Company and the Association to be given by
publication in a newspaper having general circulation in each community in which
an office of the Association is located; and will cause copies of the Plan to be
made available at each office of the Mutual Holding Company and the Association
for Inspection by Members and Stockholders. Promptly after the filing with the
OTS, the Mutual Holding Company and the Association will post the notice of the
filing of the Application for Conversion in each of their offices and will again
cause to be published, in accordance with the requirements of applicable
regulations of the OTS, a notice of the filing with the OTS of an application to
convert the Mutual Holding Company from mutual to stock form.
Promptly following receipt of requisite approval of the OTS, this Plan
will be submitted to the members for their consideration and approval at the
Special Meeting. The Mutual Holding Company may, at its option, mail to all
Members as of the Voting Record Date, at their last known address appearing on
the records of the Mutual Holding Company and the Association, a proxy statement
in either long or summary form describing the Plan which will be submitted to a
vote of the Members at the Special Meeting. The Holding Company also shall mail
to all such Members (as well as other Participants) either a Prospectus and
Order Form for the purchase of Conversion Stock or a letter informing them of
their right to receive a Prospectus and Order Form and a postage prepaid card to
request such materials, subject to the provisions of Section 15 hereof. In
addition, all such Members will receive, or be given the opportunity to request
by returning a postage-prepaid card which will be distributed with the proxy
statement, letter or other written communication, a copy of the certificate of
incorporation and bylaws of the Holding Company. The Plan must be approved by
the affirmative vote of at least a majority of the total number of votes
eligible to be cast by Voting Members at the Special Meeting.
Subscription Rights to purchase shares of Conversion Stock will be
issued without payment therefor to Eligible Account Holders, Tax-Qualified
Employee Stock Benefit Plans, Supplemental Eligible Account Holders, Other
Members, Directors, Officers and Employees and Public Stockholders, as set forth
herein.
The Association shall file preliminary proxy materials with the OTS in
order to seek the approval of the Plan by its Stockholders. Promptly following
clearance of such proxy materials and the receipt of any other requisite
approval of the OTS, the Association will mail definitive proxy materials to all
Stockholders as of the Voting Record Date, at their last known address appearing
on the records of the Association, for their consideration and approval of this
Plan at the Stockholders' Meeting. The Plan must be approved by the holders of
at least two-thirds of the outstanding Association Common Stock as of the Voting
Record Date. In addition, the Primary Parties have conditioned the consummation
of the Conversion and Reorganization on
8
<PAGE>
the approval of the Plan by at least a majority of the votes cast, in person or
by proxy, by the Public Stockholders at the Stockholders' Meeting.
The Holding Company shall submit or cause to be submitted an
Application H-(e)l or H-(e)l-S to the OTS for approval of the acquisition of the
Association. Such application also shall include an application to form Interim.
In addition, an application to merge the Mutual Holding Company (following its
conversion into a federal interim stock savings association) and the Association
and an application to merge Interim and the Association shall be filed with the
OTS, either as exhibits to the Application H-(e)l or H-(e)l-S or separately. All
notices required to be published in connection with such applications shall be
published at the times required.
The Holding Company shall file a registration statement with the SEC to
register the Holding Company Common Stock to be issued in the Conversion and
Reorganization under the Securities Act of 1933, as amended, and shall register
such Holding Company Common Stock under any applicable state securities laws.
Upon registration and after the receipt of all required regulatory approvals,
the Conversion Stock shall be first offered for sale in a Subscription Offering
to Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders, Other Members, Directors, Officers and
Employees and Public Stockholders. It is anticipated that any shares of
Conversion Stock remaining unsold after the Subscription Offering will be sold
through a Community Offering and/or a Syndicated Community Offering. The
purchase price per share for the Conversion Stock shall be a uniform price
determined in accordance with Section 4 hereof. The Holding Company shall
contribute to the Association an amount of the net proceeds received by the
Holding Company from the sale of Conversion Stock as shall be determined by the
Boards of Directors of the Holding Company and the Association and as shall be
approved by the OTS.
The effective date of the Conversion and Reorganization shall be the
date set forth in Section 29 hereof. Upon the effective date, the following
transactions shall occur:
(i) The Mutual Holding Company shall convert from a mutual
holding company to a federal interim stock savings association and
simultaneously merge with and into the Association in the Mutual
Holding Company Merger, with the Association being the surviving
institution. As a result of the Mutual Holding Company Merger, (x) the
shares of Association Common Stock held by the Mutual Holding Company
(following its conversion to a federal interim stock savings
association) shall be extinguished and (y) Members of the Mutual
Holding Company will be granted interests in the liquidation account to
be established by the Association pursuant to Section 17 hereof.
(ii) Interim shall merge with and into the Association
pursuant to the Association Merger, with the Association being the
surviving institution. As a result of the Association Merger, (x) the
shares of Holding Company Common Stock held by the Association shall be
extinguished; (y) the shares of Association Common Stock held by the
Public Stockholders shall be converted into the right to receive shares
of Holding Company Common Stock based upon the Exchange Ratio, plus
cash in lieu of any fractional share interest based upon the Actual
Purchase Price; and (z) the shares of common stock of Interim held by
the
9
<PAGE>
Holding Company shall be converted into shares of Association Common
Stock on a one-for-one basis, with the result that the Association
shall become a wholly-owned subsidiary of the Holding Company. In
addition, as a result of the Association Merger, options to purchase
shares of Association Common Stock which are outstanding immediately
prior to consummation of the Conversion and Reorganization shall be
converted into options to purchase shares of Holding Company Common
Stock, with the number of shares subject to the option and the exercise
price per share to be adjusted based upon the Exchange Ratio so that
the aggregate exercise price remains unchanged, and with the duration
of the option remaining unchanged.
(iii) The Holding Company shall sell the Conversion Stock in
the Offerings, as provided herein.
The Primary Parties may retain and pay for the services of financial
and other advisors and investment bankers to assist in connection with any or
all aspects of the Conversion and Reorganization, including in connection with
the Offerings the payment of fees to brokers and investment bankers for
assisting Persons in completing and/or submitting Order Forms. All fees,
expenses, retainers and similar items shall be reasonable.
4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The aggregate price at which shares of Conversion Stock shall be sold
in the Offerings shall be based on a pro forma valuation of the aggregate market
value of the Conversion Stock prepared by the Independent Appraiser. The
valuation shall be based on financial information relating to the Primary
Parties, market, financial and economic conditions, a comparison of the Primary
Parties with selected publicly-held financial institutions and holding companies
and with comparable financial institutions and holding companies and such other
factors as the Independent Appraiser may deem to be important. The valuation
shall be stated in terms of an Estimated Price Range, the maximum of which shall
generally be no more than 15% above the average of the minimum and maximum of
such price range and the minimum of which shall generally be no more than 15%
below such average. The valuation shall be updated during the Conversion and
Reorganization as market and financial conditions warrant and as may be required
by the OTS.
Based upon the independent valuation, the Boards of Directors of the
Primary Parties shall fix the Initial Purchase Price and the number (or range)
of shares of Conversion Stock to be offered in the Subscription Offering,
Community Offering and/or Syndicated Community Offering. The Actual Purchase
Price and the total number of shares of Conversion Stock to be issued in the
Offerings shall be determined by the Boards of Directors of the Primary Parties
upon conclusion of the Offerings in consultation with the Independent Appraiser
and any financial advisor or investment banker retained by the Primary Parties
in connection therewith.
Subject to the approval of the OTS, the Estimated Price Range may be
increased or decreased to reflect market, financial and economic conditions
prior to completion of the Conversion and Reorganization, and under such
circumstances the Primary Parties may increase
10
<PAGE>
or decrease the total number of shares of Conversion Stock to be issued in the
Conversion and Reorganization to reflect any such change. Notwithstanding
anything to the contrary contained in this Plan, no resolicitation of
subscribers shall be required and subscribers shall not be permitted to modify
or cancel their subscriptions unless the gross proceeds from the sale of the
Conversion Stock issued in the Conversion and Reorganization are less than the
minimum or (excluding purchases, if any, by the Holding Company's and the
Association's Tax-Qualified Employee Stock Benefit Plans under this Section 4)
more than 15% above the maximum of the Estimated Price Range set forth in the
Prospectus. In the event of an increase in the total number of shares offered in
the Conversion and Reorganization due to an increase in the Estimated Price
Range, the priority of share allocation shall be as set forth in this Plan,
provided, however, that such priorities will have no effect whatsoever on the
ability of Tax-Qualified Employee Stock Benefit Plans to purchase additional
shares pursuant to this Section 4.
In the event that Tax-Qualified Employee Stock Benefit Plans are unable
to purchase the number of shares subscribed for by such Tax-Qualified Employee
Stock Benefit Plans due to an oversubscription for shares of Conversion Stock
pursuant to Section 5 hereof, Tax-Qualified Employee Stock Benefit Plans may
purchase from the Holding Company, and the Holding Company may sell to
Tax-Qualified Employee Stock Benefit Plans, such additional shares ("Additional
Shares") of Holding Company Common Stock necessary to fill the subscriptions of
Tax-Qualified Employee Stock Benefit Plans, provided that such Additional Shares
may not exceed 10% of the total number of shares of Conversion Stock sold in the
Conversion and Reorganization. The sale of Additional Shares, if necessary, will
occur contemporaneously with the sale of the Conversion Stock. The sale of
Additional Shares to Tax-Qualified Employee Stock Benefit Plans by the Holding
Company is conditioned upon receipt by the Holding Company of a letter from the
Independent Appraiser to the effect that such sale would not have a material
effect on the Conversion and Reorganization or the Actual Purchase Price and the
approval of the OTS. The ability of Tax-Qualified Employee Stock Benefit Plans
to purchase up to an additional 10% of the total number of shares of Conversion
Stock sold in the Conversion and Reorganization shall not be affected or limited
in any manner by the priorities or purchase limitations otherwise set forth in
this Plan of Conversion.
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS.
(a) Each Eligible Account Holder shall receive, without payment,
Subscription Rights to purchase up to the greater of (i) the number of shares of
Conversion Stock that when combined with Exchange Shares received aggregate
$200,000 of Holding Company Common Stock (or such maximum purchase limitation as
may be established for the Community Offering and/or Syndicated Community
Offering), (ii) one-tenth of 1% of the total offering of shares of Conversion
Stock in the Subscription Offering, or (iii) 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Conversion Stock offered in the Subscription Offering by a fraction, of which
the numerator is the amount of the Qualifying Deposits of the Eligible Account
Holder and the denominator is the total amount of all Qualifying Deposits of all
Eligible Account Holders, subject to Section 15 hereof.
(b) In the event of an oversubscription for shares of Conversion Stock
pursuant to Section 5(a), available shares shall be allocated among subscribing
Eligible Account Holders so as to permit each such Eligible Account Holder, to
the extent possible, to purchase a number
11
<PAGE>
of shares which will make his or her total allocation equal to the lesser of the
number of shares subscribed for or 100 shares. Any available shares remaining
after each subscribing Eligible Account Holder has been allocated the lesser of
the number of shares subscribed for or 100 shares shall be allocated among the
subscribing Eligible Account Holders in the proportion which the Qualifying
Deposit of each such subscribing Eligible Account Holder bears to the total
Qualifying Deposits of all such subscribing Eligible Account Holders whose
orders are unfilled, provided that no fractional shares shall be issued.
Subscription Rights of Eligible Account Holders who are also Directors or
Officers and their Associates shall be subordinated to those of other Eligible
Account Holders to the extent that they are attributable to increased deposits
during the one-year period preceding the Eligibility Record Date.
6. SUBSCRIPTION RIGHTS OF TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS.
Notwithstanding the purchase limitations discussed below, Tax-Qualified
Employee Stock Benefit Plans shall receive, without payment, Subscription Rights
to purchase in the aggregate up to 8% of the Holding Company Common Stock to be
outstanding upon consummation of the Conversion and Reorganization, including
any shares of Conversion Stock to be issued in the Conversion and Reorganization
as a result of an increase in the Estimated Price Range after commencement of
the Subscription Offering and prior to completion of the Conversion and
Reorganization. Consistent with applicable laws and regulations and policies and
practices of the OTS, Tax-Qualified Employee Stock Benefit Plans may use funds
contributed by the Holding Company or the Association and/or borrowed from an
independent financial institution to exercise such Subscription Rights, and the
Holding Company and the Association may make scheduled discretionary
contributions thereto, provided that such contributions do not cause the Holding
Company or the Association to fail to meet any applicable regulatory capital
requirement.
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS.
(a) Each Supplemental Eligible Account Holder shall receive, without
payment, Subscription Rights to purchase up to the greater of (i) the number of
shares of Conversion Stock that when combined with Exchange Shares received
aggregate $200,000 of Holding Company Common Stock (or such maximum purchase
limitation as may be established for the Community Offering and/or Syndicated
Community Offering), (ii) one-tenth of 1% of the total offering of shares of
Conversion Stock in the Subscription Offering, or (iii) 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Conversion Stock offered in the Subscription Offering by a
fraction, of which the numerator is the amount of the Qualifying Deposits of the
Supplemental Eligible Account Holder and the denominator is the total amount of
all Qualifying Deposits of all Supplemental Eligible Account Holders, subject to
Section 15 hereof and the availability of shares of Conversion Stock for
purchase after taking into account the shares of Conversion Stock purchased by
Eligible Account Holders and Tax-Qualified Employee Stock Benefit Plans through
the exercise of Subscription Rights under Sections 5 and 6 hereof.
12
<PAGE>
(b) In the event of an oversubscription for shares of Conversion Stock
pursuant to Section 7(a), available shares shall be allocated among subscribing
Supplemental Eligible Account Holders so as to permit each such Supplemental
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation (including the number of shares,
if any, allocated, in accordance with Section 5(a)) equal to the lesser of the
number of shares subscribed for or 100 shares. Any remaining available shares
shall be allocated among subscribing Supplemental Eligible Account Holders in
the proportion that the amount of their respective Qualifying Deposits bear to
the total amount of the Qualifying Deposits of all such subscribing Supplemental
Eligible Account Holders whose orders are unfilled, provided that no fractional
shares shall be issued.
8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS.
(a) Each Other Member shall receive, without payment, Subscription
Rights to purchase up to the greater of (i) the number of shares of Conversion
Stock that when combined with Exchange Shares received aggregate $200,000 of
Holding Company Common Stock (or such maximum purchase limitation as may be
established for the Community Offering and/or Syndicated Community Offering) or
(ii) one-tenth of 1% of the total offering of shares of Conversion Stock in the
Subscription Offering, in each case subject to Section 15 hereof and the
availability of shares of Conversion Stock for purchase after taking into
account the shares of Conversion Stock purchased by Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, and Supplemental Eligible Account
Holders, if any, through the exercise of Subscription Rights under Sections 5, 6
and 7 hereof.
(b) If, pursuant to this Section 8, Other Members subscribe for a
number of shares of Conversion Stock in excess of the total number of shares of
Conversion Stock remaining, available shares shall be allocated among
subscribing Other Members so as to permit each such Other Member, to the extent
possible, to purchase a number of shares which will make his or her total
allocation equal to the lesser of the number of shares subscribed for or 100
shares. Any remaining shares shall be allocated among subscribing Other Members
on a pro rata basis in the same proportion as each such Other Member's
subscription bears to the total subscriptions of all such subscribing Other
Members, provided that no fractional shares shall be issued.
9. SUBSCRIPTION RIGHTS OF DIRECTORS, OFFICERS AND EMPLOYEES.
(a) To the extent that there are sufficient shares remaining after
satisfaction of all subscriptions under the above categories, Directors,
Officers and Employees of the Association shall receive, without payment,
Subscription Rights to purchase in this category up to an aggregate of 19% of
the shares of Conversion Stock offered in the Subscription Offering.
(b) The maximum amount of shares which may be purchased under this
category by any Person is $200,000 of Holding Company Common Stock (or such
maximum purchase limitation as may be established for the Community Offering
and/or Syndicated Community Offering). In the event of an oversubscription for
shares of Conversion Stock pursuant to Section 9(a), Subscription Rights for the
purchase of such shares shall be allocated pro rata among the individual
Directors, Officers and Employees who subscribe in this category.
13
<PAGE>
10. SUBSCRIPTION RIGHTS OF PUBLIC STOCKHOLDERS
(a) Each Public Stockholder shall receive, without payment,
Subscription Rights to purchase up to the greater of (i) the number of shares of
Conversion Stock that when combined with Exchange Shares received aggregate
$200,000 of Holding Company Common Stock (or such maximum purchase limitation as
may be established for the Community Offering and/or Syndicated Community
Offering) or (ii) one tenth of 1% of the total offering of shares of Conversion
Stock in the Subscription Offering, in each case subject to Section 15 hereof
and the availability of shares of Conversion Stock for purchase after taking
into account the shares of Conversion Stock purchased by Eligible Account
Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible
Account Holders, Other Members, and Directors, Officers and Employees.
(b) If, pursuant to this Section 10, Public Stockholders subscribe for
a number of shares of Conversion Stock in excess of the total number of shares
of Conversion Stock remaining, available shares shall be allocated among
subscribing Public Stockholders as of the Voting Record Date on a pro rata basis
in the same proportion as each such Public Stockholder's subscription bears to
the total subscriptions of all such subscribing Public Stockholders, provided
that no fractional shares shall be issued.
11. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING AND OTHER OFFERINGS
(a) If less than the total number of shares of Conversion Stock are
sold in the Subscription Offering, it is anticipated that all remaining shares
of Conversion Stock shall, if practicable, be sold in a Community Offering.
Subject to the requirements set forth herein, the manner in which the Conversion
Stock is sold in the Community Offering shall have as the objective the
achievement of the widest possible distribution of such stock.
(b) In the event of a Community Offering, all shares of Conversion
Stock which are not subscribed for in the Subscription Offering shall be offered
for sale by means of a direct community marketing program, which may provide for
the use of brokers, dealers or investment banking firms experienced in the sale
of financial institution securities. Any available shares in excess of those not
subscribed for in the Subscription Offering will be available for purchase by
members of the general public to whom a Prospectus is delivered by the Holding
Company or on its behalf, with preference given to natural persons residing in
counties in Indiana in which the Association has a branch office ("Preferred
Subscribers").
(c) A Prospectus and Order Form shall be furnished to such Persons as
the Primary Parties may select in connection with the Community Offering, and
each order for Conversion Stock in the Community Offering shall be subject to
the absolute right of the Primary Parties to accept or reject any such order in
whole or in part either at the time of receipt of an order or as soon as
practicable following completion of the Community Offering. Available shares
will be allocated first to each Preferred Subscriber whose order is accepted in
an amount equal to the lesser of 100 shares or the number of shares subscribed
for by each such Preferred Subscriber, if possible. Thereafter, unallocated
shares shall be allocated among the Preferred Subscribers
14
<PAGE>
whose accepted orders remain unsatisfied in the same proportion that the
unfilled order of each bears to the total unfilled orders of all Preferred
Subscribers whose accepted orders remain unsatisfied, provided that no
fractional shares shall be issued. If there are any shares remaining after all
accepted orders by Preferred Subscribers have been satisfied, any remaining
shares shall be allocated to other members of the general public who purchase in
the Community Offering, applying the same allocation described above for
Preferred Subscribers.
(d) The amount of Conversion Stock that any Person may purchase in the
Community Offering shall not exceed the greater of (i) the number of shares of
Conversion Stock that when combined with Exchange Shares received aggregate
$200,000 of Holding Company Common Stock and (ii) one-tenth of 1% of the total
offering of shares of Conversion Stock in the Subscription Offering, provided,
however, that this amount may be increased to up to 5% of the total offering of
shares in the Conversion and Reorganization, subject to any required regulatory
approval but without the further approval of members of the Mutual Holding
Company or the Stockholders of the Association; and provided further that, to
the extent applicable, and subject to the preferences set forth in Section 11(b)
and (c) of this Plan and the limitations on purchases of Conversion Stock set
forth in this Section 11(d) and Section 12 of this Plan, orders for Conversion
Stock in the Community Offering shall first be filled to a maximum of 1,000
shares of Conversion Stock and thereafter any remaining shares shall be
allocated on an equal number of shares basis per order until all orders have
been filled. The Primary Parties may commence the Community Offering
concurrently with, at any time during, or as soon as practicable after the end
of, the Subscription Offering, and the Community Offering must be completed
within 45 days after the completion of the Subscription Offering, unless
extended by the Primary Parties with any required regulatory approval.
(e) Subject to such terms, conditions and procedures as may be
determined by the Primary Parties, all shares of Conversion Stock not subscribed
for in the Subscription Offering or ordered in the Community Offering may be
sold by a syndicate of broker-dealers to the general public in a Syndicated
Community Offering. Each order for Conversion Stock in the Syndicated Community
Offering shall be subject to the absolute right of the Primary Parties to accept
or reject any such order in whole or in part either at the time of receipt of an
order or as soon as practicable after completion of the Syndicated Community
Offering. The amount of Conversion Stock that any Person may purchase in the
Syndicated Community Offering shall not exceed the number of shares of
Conversion Stock that when combined with Exchange Shares received aggregate
$200,000 of Holding Company Common Stock; provided, however, that this amount
may be increased to up to 5% of the total offering of shares in the Conversion
and Reorganization, subject to any required regulatory approval but without the
further approval of Members of the Mutual Holding Company or the Stockholders of
the Association; and provided further that, to the extent applicable, and
subject to the limitations on purchases of Conversion Stock set forth in this
Section 11(e) and Section 12 of this Plan, orders for Conversion Stock in the
Syndicated Community Offering shall first be filled to a maximum of 1,000 shares
of Conversion Stock and thereafter any remaining shares shall be allocated on an
equal number of shares basis per order until all orders have been filled. The
Primary Parties may commence the Syndicated Community Offering concurrently
with, at any time during, or as soon as practicable after the end of, the
Subscription Offering and/or Community Offering, and the Syndicated Community
Offering must be completed within 45 days after the completion of the
Subscription Offering, unless extended by the Primary Parties with any required
regulatory approval.
15
<PAGE>
(f) If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Community
Offering cannot be effected, or in the event that any insignificant residue of
shares of Conversion Stock is not sold in the Subscription Offering, Community
Offering or Syndicated Community Offering, the Primary Parties shall use their
best efforts to obtain other purchasers for such shares in such manner and upon
such conditions as may be satisfactory to the OTS.
12. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION STOCK
The maximum number of shares of Conversion Stock which may be purchased
in the Conversion by Tax-Qualified Employee Stock Benefit Plans shall not exceed
10% of the total number of shares of Conversion Stock sold in the Offerings,
including any shares which may be issued in the event of an increase in the
maximum of the Estimated Price Range to reflect changes in market, financial and
economic conditions after commencement of the Subscription Offering and prior to
completion of the Offerings.
Except in the case of Tax-Qualified Employee Stock Benefit Plans in the
aggregate, as set forth in this Section 12 hereof, and certain Eligible Account
Holders, Supplemental Eligible Account Holders and Other Members, as set forth
in Sections 5(a), 7(a) and 8(a) hereof, and in addition to the other
restrictions and limitations set forth herein, the maximum amount of Holding
Company Common Stock which any Person together with any Associate or group of
Persons acting in concert may, directly or indirectly, subscribe for or purchase
in the Conversion and Reorganization shall not exceed the number of shares of
Conversion Stock that when combined with Exchange Shares received aggregate the
greater of (i) $200,000 of Holding Company Common Stock, or (ii) 1% of the total
number of shares of Holding Company Stock issued in the Conversion
Reorganization.
The number of shares of Conversion Stock which Directors and Officers
and their Associates may purchase in the aggregate in the Offerings shall not
exceed 29% of the total number of shares of Conversion Stock sold in the
Offerings, including any shares which may be issued in the event of an increase
in the maximum of the Estimated Price Range to reflect changes in market,
financial and economic conditions after commencement of the Subscription
Offering and prior to completion of the Offerings.
No Person may purchase fewer than 25 shares of Conversion Stock in the
Offerings, to the extent such shares are available; provided, however, that if
the Actual Purchase Price is greater than $20.00 per share, such minimum number
of shares shall be adjusted so that the aggregate Actual Purchase Price for such
minimum shares will not exceed $500.00.
For purposes of the foregoing limitations and the determination of
Subscription Rights, (i) Directors, Officers and Employees shall not be deemed
to be Associates or a group acting in concert solely as a result of their
capacities as such, (ii) shares purchased by Tax-Qualified Employee Stock
Benefit Plans shall not be attributable to the individual trustees or
beneficiaries of any such plan for purposes of determining compliance with the
limitations set forth in Section 12 hereof, (iii) Exchange Shares shall be
valued at the Actual Purchase Price, and (iv) shares purchased by a
Tax-Qualified Employee Stock Benefit Plans pursuant to instructions of an
16
<PAGE>
individual in an account in such plan in which the individual has the right to
direct the investment, including any plan of the Association qualified under
Section 401(k) of the Code, shall be aggregated and included in that
individual's purchases and not attributed to the Tax-Qualified Employee Stock
Benefit Plans.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Members of
the Mutual Holding Company or the Stockholders of the Association, the Primary
Parties may increase or decrease any of the individual or aggregate purchase
limitations set forth herein to a percentage which does not exceed 5% of the
total offering of shares of Holding Company Common Stock in the Conversion and
Reorganization whether prior to, during or after the Subscription Offering,
Community Offering and/or Syndicated Community Offering. In the event that an
individual purchase limitation is increased after commencement of the
Subscription Offering or any other offering, the Primary Parties shall permit
any Person who subscribed for the maximum number of shares of Conversion Stock
to purchase an additional number of shares, so that such Person shall be
permitted to subscribe for the then maximum number of shares permitted to be
subscribed for by such Person, subject to the rights and preferences of any
Person who has priority Subscription Rights. In the event that an individual
purchase limitation is decreased after commencement of the Subscription Offering
or any other offering, the orders of any Person who subscribed for more than the
new purchase limitation shall be decreased by the minimum amount necessary so
that such Person shall be in compliance with the then maximum number of shares
permitted to be subscribed for by such Person.
The Primary Parties shall have the right to take all such action as
they may, in their sole discretion, deem necessary, appropriate or advisable in
order to monitor and enforce the terms, conditions, limitations and restrictions
contained in this Section 12 and elsewhere in this Plan and the terms,
conditions and representations contained in the Order Form, including, but not
limited to, the absolute right (subject only to any necessary regulatory
approvals or concurrences) to reject, limit or revoke acceptance of any
subscription or order and to delay, terminate or refuse to consummate any sale
of Conversion Stock which they believe might violate, or is designed to, or is
any part of a plan to, evade or circumvent such terms, conditions, limitations,
restrictions and representations. Any such action shall be final, conclusive and
binding on all persons, and the Primary Parties and their respective Boards
shall be free from any liability to any Person on account of any such action.
Notwithstanding anything to the contrary contained in this Plan, the
Public Stockholders will not have to sell any Association Common Stock or be
limited in receiving Exchange Shares even if their ownership of Association
Common Stock when converted into Exchange Shares pursuant to the Association
Merger would exceed an applicable purchase limitation.
13. TIMING OF SUBSCRIPTION OFFERING; MANNER OF EXERCISING
SUBSCRIPTION RIGHTS AND ORDER FORMS.
The Subscription Offering may be commenced concurrently with or at any
time after the mailing to Voting Members of the Mutual Holding Company and
Stockholders of the Association of the proxy statement(s) to be used in
connection with the Special Meeting and the Stockholders' Meeting. The
Subscription Offering may be closed before the Special Meeting and
17
<PAGE>
the Stockholders' Meeting, provided that the offer and sale of the Conversion
Stock shall be conditioned upon the approval of the Plan by the Voting Members
of the Mutual Holding Company and the Stockholders of the Association at the
Special Meeting and the Stockholders' Meeting, respectively.
The exact timing of the commencement of the Subscription Offering shall
be determined by the Primary Parties in consultation with the Independent
Appraiser and any financial or advisory or investment banking firm retained by
them in connection with the Conversion. The Primary Parties may consider a
number of factors, including, but not limited to, their current and projected
future earnings, local and national economic conditions, and the prevailing
market for stocks in general and stocks of financial institutions in particular.
The Primary Parties shall have the right to withdraw, terminate, suspend, delay,
revoke or modify any such Subscription Offering, at any time and from time to
time, as they in their sole discretion may determine, without liability to any
Person, subject to compliance with applicable securities laws and any necessary
regulatory approval or concurrence.
The Primary Parties shall, promptly after the SEC has declared the
Registration Statement (which includes the Prospectus) effective and all
required regulatory approvals have been obtained, distribute or make available
the Prospectus, together with Order Forms for the purchase of Conversion Stock,
to all Participants for the purpose of enabling them to exercise their
respective Subscription Rights, subject to Section 15 hereof. The Primary
Parties may elect to mail a Prospectus and Order Form only to those Participants
who request such materials by returning a postage-paid card to the Primary
Parties by a date specified in the letter informing them of their Subscription
Rights. Under such circumstances, the Subscription Offering shall not be closed
until the expiration of 30 days after the mailing by the Primary Parties of the
postage-paid card to Participants.
A single Order Form for all Deposit Accounts maintained with the
Association by an Eligible Account Holder and any Supplemental Eligible Account
Holder may be furnished, irrespective of the number of Deposit Accounts
maintained with the Association on the Eligibility Record Date and Supplemental
Eligibility Record Date, respectively.
The recipient of an Order Form shall have no less than 20 days and no
more than 45 days from the date of mailing of the Order Form (with the exact
termination date to be set forth on the Order Form) to properly complete and
execute the Order Form and deliver it to the Primary Parties. The Primary
Parties may extend such period by such amount of time as they determine is
appropriate. Failure of any Participant to deliver a properly executed Order
Form to the Primary Parties, along with payment (or authorization for payment by
withdrawal) for the shares of Conversion Stock subscribed for, within the time
limits prescribed, shall be deemed a waiver and release by such person of any
rights to subscribe for shares of Conversion Stock. Each Participant shall be
required to confirm to the Primary Parties by executing an Order Form that such
Person has fully complied with all of the terms, conditions, limitations and
restrictions in the Plan.
The Primary Parties shall have the absolute right, in their sole
discretion and without liability to any Participant or other Person, to reject
any Order Form, including, but not limited to, any Order Form that is (i)
improperly completed or executed; (ii) not timely received; (iii)
18
<PAGE>
not accompanied by the proper payment (or authorization of withdrawal for
payment) or, in the case of institutional investors in the Community Offering,
not accompanied by an irrevocable order together with a legally binding
commitment to pay the full amount of the purchase price prior to 48 hours before
the completion of the Offerings; or (iv) submitted by a Person whose
representations the Primary Parties believe to be false or who they otherwise
believe, either alone, or acting in concert with others, is violating, evading
or circumventing, or intends to violate, evade or circumvent, the terms and
conditions of the Plan. The Primary Parties may, but will not be required to,
waive any irregularity on any Order Form or may require the submission of
corrected Order Forms or the remittance of full payment for shares of Conversion
Stock by such date as they may specify. The interpretation of the Primary
Parties of the terms and conditions of the Order Forms shall be final and
conclusive.
14. PAYMENT FOR CONVERSION STOCK
Payment for shares of Conversion Stock subscribed for by Participants
in the Subscription Offering and payment for shares of Conversion Stock ordered
by Persons in the Community Offering shall be equal to the Initial Purchase
Price multiplied by the number of shares which are being subscribed for or
ordered, respectively. Such payment may be made in cash, if delivered in person,
or by check or money order at the time the Order Form is delivered to the
Primary Parties. The Primary Parties may also elect to receive payment for
shares of Conversion Stock by wire transfer. In addition, the Primary Parties
may elect to provide Participants and/or other Persons who have a Deposit
Account with the Association the opportunity to pay for shares of Conversion
Stock by authorizing the Association to withdraw from such Deposit Account an
amount equal to the aggregate Initial Purchase Price of such shares. If the
Actual Purchase Price is less than the Initial Purchase Price, the Primary
Parties shall refund the difference to all Participants and other Persons,
unless the Primary Parties choose to provide Participants and other Persons the
opportunity on the Order Form to elect to have such difference applied to the
purchase of additional whole shares of Conversion Stock. If the Actual Purchase
Price is more than the Initial Purchase Price, the Primary Parties shall reduce
the number of shares of Conversion Stock ordered by Participants and other
Persons and refund any remaining amount which is attributable to a fractional
share interest, unless the Primary Parties choose to provide Participants and
other Persons the opportunity to increase the Actual Purchase Price submitted to
them.
Consistent with applicable laws and regulations and policies and
practices of the OTS, payment for shares of Conversion Stock subscribed for by
Tax-Qualified Employee Stock Benefit Plans may be made with funds contributed by
the Holding Company and/or the Association and/or funds obtained pursuant to a
loan from an unrelated financial institution pursuant to a loan commitment which
is in force from the time that any such plan submits an Order Form until the
closing of the transactions contemplated hereby.
If a Participant or other Person authorizes the Association to withdraw
the amount of the Initial Purchase Price from his or her Deposit Account, the
Association shall have the right to make such withdrawal or to freeze funds
equal to the aggregate Initial Purchase Price upon receipt of the Order Form.
Notwithstanding any regulatory provisions regarding penalties for early
withdrawals from certificate accounts, the Association may allow payment by
means of withdrawal from certificate accounts without the assessment of such
penalties. In the case of an
19
<PAGE>
early withdrawal of only a portion of such account, the certificate evidencing
such account shall be cancelled if any applicable minimum balance requirement
ceases to be met. In such case, the remaining balance will earn interest at the
regular passbook rate. However, where any applicable minimum balance is
maintained in such certificate account, the rate of return on the balance of the
certificate account shall remain the same as prior to such early withdrawal.
This waiver of the early withdrawal penalty applies only to withdrawals made in
connection with the purchase of Conversion Stock and is entirely within the
discretion of the Primary Parties.
The Association shall pay interest, at not less than the passbook rate,
for all amounts paid in cash, by check or money order to purchase shares of
Conversion Stock in the Subscription Offering and the Community Offering from
the date payment is received until the date the Conversion and Reorganization is
completed or terminated.
The Association shall not knowingly loan funds or otherwise extend
credit to any Participant or other Person to purchase Conversion Stock.
Each share of Conversion Stock shall be non-assessable upon payment in
full of the Actual Purchase Price.
15. ACCOUNT HOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES.
The Primary Parties shall make reasonable efforts to comply with the
securities laws of all jurisdictions in the United States in which Participants
reside. However, no Participant will be offered or receive any Conversion Stock
under the Plan if such Participant resides in a foreign country or resides in a
jurisdiction of the United States with respect to which all of the following
apply: (a) there are few Participants otherwise eligible to subscribe for shares
under this Plan who reside in such jurisdiction; (b) the granting of
Subscription Rights or the offer or sale of shares of Conversion Stock to such
Participants would require any of the Primary Parties or their respective
Directors and Officers, under the laws of such jurisdiction, to register as a
broker-dealer, salesman or selling agent or to register or otherwise qualify the
Conversion Stock for sale in such jurisdiction, or any of the Primary Parties
would be required to qualify as a foreign corporation or file a consent to
service of process in such jurisdiction; and (c) such registration,
qualification or filing in the judgment of the Primary Parties would be
impracticable or unduly burdensome for reasons of cost or otherwise.
16. VOTING RIGHTS OF STOCKHOLDERS.
Following consummation of the Conversion and Reorganization, voting
rights with respect to the Association shall be held and exercised exclusively
by the Holding Company as holder of all of the Association's outstanding voting
capital stock, and voting rights with respect to the Holding Company shall be
held and exercised exclusively by the holders of the Holding Company's voting
capital stock.
17. LIQUIDATION ACCOUNT.
At the time of the Mutual Holding Company Merger, the Association shall
establish a liquidation account in an amount equal to the amount of dividends
with respect to the Association
20
<PAGE>
Common Stock waived by the Mutual Holding Company plus the greater of (i)
$6,641,994, which is equal to 100% of the retained earnings of the Association
as of March 31, 1995, the date of the latest statement of financial condition
contained in the final offering circular utilized in the formation of the Mutual
Holding Company, or (ii) 70.6% of the Association's total stockholders' equity
as reflected in its latest statement of financial condition contained in the
final Prospectus utilized in the Conversion and Reorganization. The function of
the liquidation account will be to preserve the rights of certain holders of
Deposit Accounts in the Association who maintain such accounts in the
Association following the Conversion and Reorganization to a priority to
distributions in the unlikely event of a liquidation of the Association
subsequent to the Conversion and Reorganization.
The liquidation account shall be maintained for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders, who maintain their
Deposit Accounts in the Association after the Conversion and Reorganization.
Each such account holder will, with respect to each Deposit Account held, have a
related inchoate interest in a portion of the liquidation account balance, which
interest will be referred to in this Section 17 as the "subaccount balance." All
Deposit Accounts having the same social security number will be aggregated for
purposes of determining the initial subaccount balance with respect to such
Deposit Accounts, except for Deposit Accounts in existence at both the
Eligibility Record Date and the Supplemental Eligibility Record Date as provided
below in this Section 17.
In the event of a complete liquidation of the Association subsequent to
the Conversion and Reorganization (and only in such event), each Eligible
Account Holder and Supplemental Eligible Account Holder, shall be entitled to
receive a liquidation distribution from the liquidation account in the amount of
the then current subaccount balances for Deposit Accounts then held (adjusted as
described below) before any liquidation distribution may be made with respect to
the capital stock of the Association. No merger, consolidation, sale of bulk
assets or similar combination transaction with another FDIC-insured institution
in which the Association is not the surviving entity shall be considered a
complete liquidation for this purpose. In any merger or consolidation
transaction, the liquidation account shall be assumed by the surviving entity.
The initial subaccount balance for a Deposit Account held by an
Eligible Account Holder and Supplemental Eligible Account Holder, shall be
determined by multiplying the opening balance in the liquidation account by a
fraction, of which the numerator is the amount of the Qualifying Deposits of
such account holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders. For Deposit Accounts in existence at both the Eligibility Record Date
and the Supplemental Eligibility Record Date, separate initial subaccount
balances shall be determined on the basis of the Qualifying Deposits in such
Deposit Accounts on each such record date. Initial subaccount balances shall not
be increased, and shall be subject to downward adjustment as provided below.
If the aggregate deposit balance in the Deposit Account(s) of any
Eligible Account Holder or Supplemental Eligible Account Holder, at the close of
business on any June 30 annual closing date, commencing June 30, 1997, is less
than the lesser of (a) the aggregate deposit balance in such Deposit Account(s)
at the close of business on any other annual closing date subsequent to such
record dates or (b) the aggregate deposit balance in such Deposit Account(s)
21
<PAGE>
as of the Eligibility Record Date or the Supplemental Eligibility Record Date,
the subaccount balance for such Deposit Account(s) shall be adjusted by reducing
such subaccount balance in an amount proportionate to the reduction in such
deposit balance. In the event of such a downward adjustment, the subaccount
balance shall not be subsequently increased, notwithstanding any subsequent
increase in the deposit balance of the related Deposit Account(s). The
subaccount balance of an Eligible Account Holder or Supplemental Eligible
Account Holder will be reduced to zero if the Account Holder ceases to maintain
a Deposit Account at the Association that has the same social security number as
appeared on his Deposit Account(s) at the Eligibility Record Date or the
Supplemental Eligibility Record Date.
Subsequent to the Conversion and Reorganization, the Association may
not pay cash dividends generally on deposit accounts and/or capital stock of the
Association, or repurchase any of the capital stock of the Association, if such
dividend or repurchase would reduce the Association's regulatory capital below
the aggregate amount of the then current subaccount balances for Deposit
Accounts then held; otherwise, the existence of the liquidation account shall
not operate to restrict the use or application of any of the net worth accounts
of the Association.
For purposes of this Section 17, a Deposit Account includes a
predecessor or successor account which is held by an Account Holder with the
same social security number.
18. TRANSFER OF DEPOSIT ACCOUNTS.
Each Deposit Account in the Association at the time of the consummation
of the Conversion and Reorganization shall become, without further action by the
holder, a Deposit Account in the Association equivalent in withdrawable amount
to the withdrawal value (as adjusted to give effect to any withdrawal made for
the purchase of Conversion Stock) and subject to the same terms and conditions
(except as to voting and liquidation rights) as such Deposit Account in the
Association immediately preceding consummation of the Conversion and
Reorganization. Holders of Deposit Accounts in the Association shall not, as
such holders, have any voting rights.
19. REQUIREMENTS FOLLOWING CONVERSION FOR REGISTRATION,
MARKET MAKING AND STOCK EXCHANGE LISTING.
In connection with the Conversion and Reorganization, the Holding
Company shall register the Holding Company Common Stock pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended, and shall undertake
not to deregister such stock for a period of three years thereafter. The Holding
Company also shall use its best efforts to (i) encourage and assist a market
maker to establish and maintain a market for the Holding Company Common Stock
and (ii) list the Holding Company Common Stock on a national or regional
securities exchange or to have quotations for such stock disseminated on the
National Association of Securities Dealers Automated Quotations System.
22
<PAGE>
20. DIRECTORS AND OFFICERS OF THE ASSOCIATION
Each person serving as a Director or Officer of the Association at the
time of the Conversion and Reorganization shall continue to serve as a Director
or Officer of the Association for the balance of the term for which the person
was elected prior to the Conversion and Reorganization and until a successor is
elected and qualified. The number, names, business addresses and terms of the
Directors of the Association are set forth in the Plans of Merger included as
Annexes A and B hereto.
21. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS
FOLLOWING THE CONVERSION AND REORGANIZATION.
For a period of three years following the Conversion and
Reorganization, the Directors and Officers of the Holding Company and the
Association and their Associates may not purchase, without the prior written
approval of the OTS, Holding Company Common Stock except from a broker-dealer
registered with the SEC. This prohibition shall not apply, however, to (i) a
negotiated transaction arrived at by direct negotiation between buyer and seller
and involving more than 1% of the outstanding Holding Company Common Stock and
(ii) purchases of stock made by and held by any Tax-Qualified Employee Stock
Benefit Plan (and purchases of stock made by and held by any Non-Tax-Qualified
Employee Stock Benefit Plan following the receipt of stockholder approval of
such plan) which may be attributable to individual officers or directors.
The foregoing restriction on purchases of Holding Company Common Stock
shall be in addition to any restrictions that may be imposed by federal and
state securities laws.
22. RESTRICTIONS ON TRANSFER OF STOCK.
All shares of the Conversion Stock which are purchased by Persons other
than Directors and Officers shall be transferable without restriction, except in
connection with a transaction prescribed by Section 23 of this Plan. Shares of
Conversion Stock purchased by Directors and Officers of the Holding Company and
the Association on original issue from the Holding Company (by subscription or
otherwise) shall be subject to the restriction that such shares shall not be
sold or otherwise disposed of for value for a period of one year following the
date of purchase, except for any disposition of such shares following the death
of the original purchaser or pursuant to any merger or similar transaction
approved by the OTS. The shares of Conversion Stock issued by the Holding
Company to Directors and Officers shall bear the following legend giving
appropriate notice of such one-year restriction:
"The shares of stock evidenced by this Certificate are
restricted as to transfer for a period of one year from the date of
this Certificate pursuant to Part 563b of the Rules and Regulations of
the Office of Thrift Supervision. These shares may not be transferred
during such one-year period without a legal opinion of counsel for the
Company that said transfer is permissible under the provisions of
applicable law and regulation. This restrictive legend shall be deemed
null and void after one year from the date of this Certificate."
23
<PAGE>
In addition, the Holding Company shall give appropriate instructions to
the transfer agent for the Holding Company Common Stock with respect to the
applicable restrictions relating to the transfer of restricted stock. Any shares
issued at a later date as a stock dividend, stock split or otherwise with
respect to any such restricted stock shall be subject to the same holding period
restrictions as may then be applicable to such restricted stock.
The foregoing restriction on transfer shall be in addition to any
restrictions on transfer that may be imposed by federal and state securities
laws.
23. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING COMPANY.
The certificate of incorporation of the Holding Company shall prohibit
any Person together with Associates or a group of Persons acting in concert from
offering to acquire or acquiring, directly or indirectly, beneficial ownership
of more than 10% of any class of equity securities of the Holding Company, or of
securities convertible into more than 10% of any such class, for five years
following completion of the Conversion and Reorganization. The certificate of
incorporation of the Holding Company also shall provide that all equity
securities beneficially owned by any Person in excess of 10% of any class of
equity securities during such five-year period shall be considered "excess
shares," and that excess shares shall not be counted as shares entitled to vote
and shall not be voted by any Person or counted as voting shares in connection
with any matters submitted to the stockholders for a vote. The foregoing
restrictions shall not apply to (i) any offer with a view toward public resale
made exclusively to the Holding Company by underwriters or a selling group
acting on its behalf, (ii) the purchase of shares by a Tax-Qualified Employee
Stock Benefit Plan established for the benefit of the employees of the Holding
Company and its subsidiaries which is exempt from approval requirements under 12
C.F.R. 574.3(c)(l)(vi) or any successor thereto, and (iii) any offer or
acquisition approved in advance by the affirmative vote of two-thirds of the
entire Board of Directors of the Holding Company. Directors, Officers or
Employees of the Holding Company or the Association or any subsidiary thereof
shall not be deemed to be Associates or a group acting in concert with respect
to their individual acquisitions of any class of equity securities of the
Holding Company solely as a result of their capacities as such.
24. TAX RULINGS OR OPINIONS.
Consummation of the Conversion and Reorganization is conditioned upon
prior receipt by the Primary Parties of either a ruling, or an opinion of
counsel with respect to federal tax laws, and either a ruling or an opinion of
counsel with respect to Indiana tax laws, to the effect that consummation of the
transactions contemplated hereby will not result in a taxable reorganization
under the provisions of the applicable codes or otherwise result in any adverse
tax consequences to the Primary Parties or to account holders receiving
Subscription Rights before or after the Conversion and Reorganization, except in
each case to the extent, if any, that Subscription Rights are deemed to have
fair market value on the date such rights are issued.
24
<PAGE>
25. STOCK COMPENSATION PLANS
The Holding Company and the Association are authorized to adopt
Tax-Qualified Employee Stock Benefit Plans in connection with the Conversion and
Reorganization, including without limitation an employee stock ownership plan.
The Holding Company and the Association also are authorized to adopt
stock option plans, restricted stock grant plans and other Non-Tax-Qualified
Employee Stock Benefit Plans, provided that no stock options shall be granted,
and no shares of Conversion Stock shall be purchased, pursuant to any of such
plans prior to the earlier of (i) the one-year anniversary of the consummation
of the Conversion and Reorganization or (ii) the receipt of stockholder approval
of such plans at either an annual or special meeting of stockholders of the
Holding Company held no earlier than six months following the Conversion and
Reorganization.
Existing as well as any newly-created Tax-Qualified Employee Stock
Benefit Plans may purchase shares of Conversion Stock in the Offerings, to the
extent permitted by the terms of such benefit plans and this Plan.
26. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK.
The Holding Company may not repurchase any shares of its capital stock
during the first year following consummation of the Conversion and
Reorganization. During the second and third years following consummation of the
Conversion and Reorganization, the Holding Company may not repurchase any of its
capital stock from any person, other than pursuant to (i) an offer to repurchase
made by the Holding Company on a pro rata basis to all of its stockholders and
which is approved by the OTS, (ii) the repurchase of qualifying shares of a
director, if any, (iii) purchases in the open market by a Tax-Qualified or
Non-Tax-Qualified Employee Stock Benefit Plan in an amount reasonable and
appropriate to fund the plan, or (iv) a repurchase program approved by the OTS.
The Association may not declare or pay a cash dividend on, or
repurchase any of, its capital stock if the effect thereof would cause the
regulatory capital of the Association to be reduced below the amount required
for the liquidation account. Any dividend declared or paid on, or repurchase of,
the Association's capital stock also shall be in compliance with Section 563.134
of the Regulations Applicable to All Savings Associations, or any successor
thereto.
Notwithstanding anything to the contrary set forth herein, the Holding
Company may repurchase its capital stock to the extent and subject to the
requirements set forth in Section 563b.3(g)(3) of the Regulations Applicable to
All Savings Associations, or any successor thereto, or as otherwise may be
approved by the OTS.
27. PAYMENT OF FEES TO BROKERS.
The Primary Parties may elect to offer to pay fees on a per share basis
to securities brokers who assist purchasers of Conversion Stock in the
Offerings.
25
<PAGE>
28. DISSENTING STOCKHOLDERS.
If any Stockholders of the Association dissent from the Conversion and
Reorganization and exercise and perfect the right to obtain valuation of and
payment for their shares of Association Common Stock ("Dissenting Shares")
pursuant to 12 C.F.R. ss. 552.14, then (a) the Dissenting Shares, if any, will
be deemed to have been retired and cancelled immediately prior to consummation
of the Conversion and Reorganization, with the effect that such shares will not
be exchanged for Holding Company Common Stock pursuant to Section 3(h)(ii)
hereof, and (b) all payments to be made to the holders of such Dissenting Shares
will be made directly by the Association. Consummation of the Conversion and
Reorganization is conditioned upon the number of Dissenting Shares being less
than 10.0% of the shares of Association Common Stock issued and outstanding
immediately prior to consummation of the Conversion and Reorganization.
29. EFFECTIVE DATE.
The effective date of the Conversion and Reorganization shall be the
date upon which the last of the following actions occurs: (i) the filing of
Articles of Combination with the OTS with respect to the Mutual Holding Company
Merger, (ii) the filing of Articles of Combination with the OTS with respect to
the Association Merger and (iii) the closing of the issuance of the shares of
Conversion Stock in the Offerings. The filing of Articles of Combination
relating to the Mutual Holding Company Merger and the Association Merger and the
closing of the issuance of shares of Conversion Stock in the Offerings shall not
occur until all requisite regulatory, Member and Stockholder approvals have been
obtained, all applicable waiting periods have expired and sufficient
subscriptions and orders for the Conversion Stock have been received. It is
intended that the closing of the Mutual Holding Company Merger, the Association
Merger and the sale of shares of Conversion Stock in the Offerings shall occur
consecutively and substantially simultaneously.
30. AMENDMENT OR TERMINATION OF THE PLAN.
If deemed necessary or desirable by the Boards of Directors of the
Primary Parties, this Plan may be substantively amended, as a result of comments
from regulatory authorities or otherwise, at any time prior to the solicitation
of proxies from Members and Stockholders to vote on the Plan and at any time
thereafter with the concurrence of the OTS. Any amendment to this Plan made
after approval by the Members and Stockholders with the concurrence of the OTS
shall not necessitate further approval by the Members or Stockholders unless
otherwise required by the OTS. This Plan shall terminate if the sale of all
shares of Conversion Stock is not completed within 24 months from the date of
the Special Meeting. Prior to the earlier of the Special Meeting and the
Stockholders' Meeting, this Plan may be terminated by the Boards of Directors of
the Primary Parties without approval of the OTS; after the Special Meeting or
the Stockholders' Meeting, the Boards of Directors may terminate this Plan only
with the approval of the OTS.
26
<PAGE>
31. INTERPRETATION OF THE PLAN.
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of each of the Boards of Directors of the
Primary Parties shall be final, subject to the authority of the OTS.
27
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Plan to be executed by
their duly authorized officers as of this ___ day of ____________, 1996.
MONTGOMERY MUTUAL HOLDING
COMPANY
Attest:_________________________ By:_____________________________________
Nancy L. McCormick Earl F. Elliott
Secretary Chairman and Chief Executive Officer
MONTGOMERY SAVINGS, A FEDERAL
ASSOCIATION
Attest:_________________________ By:_____________________________________
Nancy L. McCormick Earl F. Elliott
Secretary President and Chief Executive Officer
MONTGOMERY FINANCIAL CORPORATION
Attest:_________________________ By:_____________________________________
Nancy L. McCormick Earl F. Elliott
Secretary President and Chief Executive Officer
28
<PAGE>
ANNEX A
PLAN OF MERGER
Plan of Merger, dated as of ___________, 1996 between Montgomery Mutual
Holding Company (the "Mutual Holding Company"), a federally-chartered mutual
holding company, and Montgomery Savings, A Federal Association (the
"Association" or the "Surviving Corporation"), a federally-chartered savings
association.
WITNESSETH:
WHEREAS, the Mutual Holding Company and the Association have adopted a
Plan of Conversion of the Mutual Holding Company and Agreement and Plan of
Reorganization between Montgomery Financial Corporation (the "Holding Company")
and the Association (the "Plan of Conversion"), pursuant to which (i) the Mutual
Holding Company will convert to a federally-chartered interim stock savings
association and simultaneously merge with and into the Association, (ii) the
Association and a newly-formed interim savings association will merge, pursuant
to which the Association will become a wholly-owned subsidiary of the Holding
Company (the "Association Merger"), and (iii) the Holding Company will offer
shares of its common stock in the manner set forth in the Plan of Conversion;
and
WHEREAS, the Mutual Holding Company, which owns 70.6% of the
outstanding common stock of the Association, par value $.01 per share
("Association Common Stock"), will convert to a federally-chartered interim
stock savings association pursuant to the Plan of Conversion and merge with and
into the Association pursuant to this Plan of Merger (the "Mutual Holding
Company Merger"), pursuant to which, among other things, all interests of
members in the Mutual Holding Company and all shares of Association Common Stock
held by the Mutual Holding Company will be cancelled; and
WHEREAS, the Mutual Holding Company and the Association (the
"Constituent Corporations") desire to provide for the terms and conditions of
the Mutual Holding Company Merger;
NOW, THEREFORE, the Mutual Holding Company and the Association hereby
agree as follows:
1. Effective Date. The Mutual Holding Company Merger shall become
effective on the date specified in the endorsement of the Articles of
Combination relating to the Mutual Holding Company Merger by the Secretary of
the Office of Thrift Supervision ("OTS") pursuant to 12 C.F.R. 552.13(k), or any
successor thereto (the "Effective Date").
2. The Mutual Holding Company Merger and Effect Thereof. Subject to the
terms and conditions set forth herein and the prior approval of the OTS of the
Conversion and Reorganization, as defined in the Plan of Conversion, and the
expiration of all applicable waiting periods, the Mutual Holding Company shall
convert from the mutual form to a federal interim stock savings association and
simultaneously merge with and into the Association, which shall be the Surviving
Corporation. Upon consummation of the Mutual Holding Company Merger,
A1
<PAGE>
the Surviving Corporation shall be considered the same business and corporate
entity as each of the Constituent Corporations and thereupon and thereafter all
the property, rights, powers and franchises of each of the Constituent
Corporations shall vest in the Surviving Corporation and the Surviving
Corporation shall be subject to and be deemed to have assumed all of the debts,
liabilities, obligations and duties of each of the Constituent Corporations and
shall have succeeded to all of each of their relationships, fiduciary or
otherwise, as fully and to the same extent as if such property, rights,
privileges, powers, franchises, debts, obligations, duties and relationships had
been originally acquired, incurred or entered into by the Surviving Corporation.
In addition, any reference to either of the Constituent Corporations in any
contract, will or document, whether executed or taking effect before or after
the Effective Date, shall be considered a reference to the Surviving Corporation
if not inconsistent with the other provisions of the contract, will or document;
and any pending action or other judicial proceeding to which either of the
Constituent Corporations is a party shall not be deemed to have abated or to
have been discontinued by reason of the Mutual Holding Company Merger, but may
be prosecuted to final judgment, order or decree in the same manner as if the
Mutual Holding Company Merger had not occurred or the Surviving Corporation may
be substituted as a party to such action or proceeding, and any judgment, order
or decree may be rendered for or against it that might have been rendered for or
against either of the Constituent Corporations if the Mutual Holding Company
Merger had not occurred.
3. Cancellation of Association Common Stock held by the Mutual Holding
Company and Member Interests; Liquidation Account
(a) On the Effective Date, (i) each share of Association Common Stock
issued and outstanding immediately prior to the Effective Date and held by the
Mutual Holding Company shall, by virtue of the Mutual Holding Company Merger and
without any action on the part of the holder thereof, be cancelled, (ii) the
interests in the Mutual Holding Company of any person, firm or entity who or
which qualified as a member of the Mutual Holding Company in accordance with its
mutual charter and bylaws and the laws of the United States prior to the Mutual
Holding Company's conversion from mutual to stock form (the "Members") shall, by
virtue of the Mutual Holding Company Merger and without any action on the part
of the holder thereof, be cancelled, and (iii) the Association shall establish a
liquidation account on behalf of each depositor member of the Mutual Holding
Company, as defined in the Plan of Conversion, in accordance with Section 17 of
the Plan of Conversion.
(b) At or after the Effective Date and prior to the Association Merger,
each certificate or certificates theretofore evidencing issued and outstanding
shares of Association Common Stock, other than any such certificate or
certificates held by the Mutual Holding Company, which shall be cancelled, shall
continue to represent issued and outstanding shares of Association Common Stock.
4. Dissenting Shares. No Member of the Mutual Holding Company shall
have any dissenter or appraisal rights in connection with the Mutual Holding
Company Merger. However, stockholders of the Association shall have dissenter or
appraisal rights in accordance with Section 28 of the Plan of Conversion and 12
C.F.R. ss. 552.14.
A2
<PAGE>
5. Name of Surviving Corporation. The name of the Surviving Corporation
shall be "Montgomery Savings, A Federal Association."
6. Directors of the Surviving Corporation. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the number of directors of the Surviving
Corporation shall be six. The names of those persons who, upon and after the
Effective Date, shall be directors of the Surviving Corporation are set forth
below. Each such director shall serve for the term which expires at the annual
meeting of stockholders of the Surviving Corporation in the year set forth after
his respective name, and until a successor is elected and qualified.
Name Term Expires
---- ------------
Earl F. Elliott 1997
Mark E. Foster 1997
C. Rex Henthorn 1999
Joseph M. Malott 1998
J. Lee Walden 1998
John E. Woodward 1999
Robert C. Wright 1997
The address of each such director is c/o Montgomery Savings, A Federal
Association, 119 East Main Street, Crawfordsville, Indiana 47933.
7. Officers of the Surviving Corporation. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the officers of the Association immediately
prior to the Effective Date shall be the officers of the Surviving Corporation.
8. Offices. Upon the Effective Date, all offices of the Association
shall be offices of the Surviving Corporation. As of the Effective Date, the
home office of the Surviving Corporation shall remain at 119 East Main Street,
Crawfordsville, Indiana 47933 and the location of the other deposit-taking
offices of the Surviving Corporation shall be as set forth in Exhibit 1 hereto.
9. Charter and Bylaws. On and after the Effective Date, the Charter of
the Association as in effect immediately prior to the Effective Date shall be
the Charter of the Surviving Corporation until amended in accordance with the
terms thereof and applicable law, except that the Charter be amended to provide
for the establishment of a liquidation account in accordance with applicable law
and regulation.
On and after the Effective Date, the Bylaws of the Association as in
effect immediately prior to the Effective Date shall be the Bylaws of the
Surviving Corporation until amended in accordance with the terms thereof and
applicable law.
A3
<PAGE>
10. Stockholder and Member Approvals. The affirmative votes of the
holders of the Association Common Stock set forth in Section 3 of the Plan of
Conversion and the Members set forth in Section 3 of the Plan of Conversion
shall be required to approve the Plan of Conversion, of which this Plan of
Merger is a part, on behalf of the Association and the Mutual Holding Company,
respectively.
11. Abandonment of Agreement. This Plan of Merger may be abandoned by
either the Mutual Holding Company or the Association at any time before the
Effective Date in the manner set forth in Section 30 of the Plan of Conversion.
12. Amendments. This Plan of Merger may be amended in the manner set
forth in Section 30 of the Plan of Conversion by a subsequent writing signed by
the parties hereto upon the approval of the Board of Directors of each of the
parties hereto.
13. Successors. This Agreement shall be binding on the successors of
the Mutual Holding Company and the Association.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America.
A4
<PAGE>
IN WITNESS WHEREOF, the Mutual Holding Company and the Association have
caused this Plan of Merger to be executed by their duly authorized officers as
of the day and year first above written.
MONTGOMERY MUTUAL HOLDING
COMPANY
Attest:________________________ By:______________________________________
Nancy L. McCormick C. Rex Henthorn, Chairman
Secretary
MONTGOMERY SAVINGS, A FEDERAL
ASSOCIATION
Attest:________________________ By:______________________________________
Nancy L. McCormick Earl F. Elliott, Chairman
Secretary
A5
<PAGE>
ANNEX B
PLAN OF MERGER
Plan of Merger, dated as of _________, 1996 among Montgomery Savings, A
Federal Association (the "Association" or the "Surviving Association"), a
federally-chartered savings association, Montgomery Financial Corporation (the
"Holding Company"), an Indiana corporation, and Montgomery Interim Savings
Association ("Interim"), a federally-chartered
interim savings association.
WITNESSETH:
WHEREAS, the Association has organized the Holding Company as a
first-tier, wholly-owned subsidiary for the purpose of becoming the stock
holding company of the Association upon completion of the Conversion and
Reorganization, as defined in the Plan of Conversion of Montgomery Mutual
Holding Company (the "Mutual Holding Company") and Agreement and Plan of
Reorganization between the Holding Company and the Association (the "Plan of
Conversion"); and
WHEREAS, the Mutual Holding Company, a federally-chartered mutual
holding company which owns 70.6% of the common stock of the Association, par
value $.01 per share ("Association Common Stock"), will convert to a
federally-chartered interim stock savings association and simultaneously merge
with and into the Association pursuant to the Plan of Conversion and the Plan of
Merger included as Annex A thereto (the "Mutual Holding Company Merger"),
pursuant to which all shares of Association Common Stock held by the Mutual
Holding Company will be cancelled; and
WHEREAS, the formation of a stock holding company by the Association
will be facilitated by causing the Holding Company to become the sole
stockholder of a newly-formed interim federally-chartered stock savings
association and then merging the interim savings association with and into the
Association (the "Association Merger") pursuant to which the Association will
become a wholly-owned subsidiary of the Holding Company and, in connection
therewith, all outstanding shares of Association Common Stock will be converted
automatically into and become shares of common stock of the Holding Company, par
value $.01 per share ("Holding Company Common Stock"); and
WHEREAS, Interim is being organized by the officers of the Association
as an interim federally-chartered stock savings association with the Holding
Company as its sole stockholder in order to effect the Association Merger; and
WHEREAS, the Association and Interim (the "Constituent Associations")
desire to provide for the terms and conditions of the Association Merger;
NOW, THEREFORE, the Association and Interim hereby agree as follows:
1. Effective Date. The Association Merger shall become effective on the
date specified in the endorsement of the Articles of Combination relating to the
Association Merger
B1
<PAGE>
by the Secretary of the Office of Thrift Supervision ("OTS") pursuant to
12 C.F.R. ss. 552.13(k), or any successor thereto (the "Effective Date").
2. The Association Merger and Effect Thereof. Subject to the terms and
conditions set forth herein and the prior approval of the OTS of the Conversion
and the Reorganization, as defined in the Plan of Conversion, and the expiration
of all applicable waiting periods, Interim shall merge with and into the
Association, which shall be the Surviving Association. Upon consummation of the
Association Merger, the Surviving Association shall be considered the same
business and corporate entity as each of the Constituent Associations and
thereupon and thereafter all the property, rights, powers and franchises of each
of the Constituent Associations shall vest In the Surviving Association and the
Surviving Association shall be subject to and be deemed to have assumed all of
the debts, liabilities, obligations and duties of each of the Constituent
Associations and shall have succeeded to all of each of their relationships,
fiduciary or otherwise, as fully and to the same extent as if such property,
rights, privileges, powers, franchises, debts, obligations, duties and
relationships had been originally acquired, incurred or entered into by the
Surviving Association. In addition, any reference to either of the Constituent
Associations in any contract, will or document, whether executed or taking
effect before or after the Effective Date, shall be considered a reference to
the Surviving Association if not inconsistent with the other provisions of the
contract, will or document; and any pending action or other judicial proceeding
to which either of the Constituent Associations is a party shall not be deemed
to have abated or to have been discontinued by reason of the Association Merger,
but may be prosecuted to final judgment, order or decree in the same manner as
if the Association Merger had not occurred or the Surviving Association may be
substituted as a party to such action or proceeding, and any judgment, order or
decree may be rendered for or against it that might have been rendered for or
against either of the Constituent Associations if the Association Merger had not
occurred.
3. Conversion of Stock
(a) On the Effective Date, (i) each share of Association Common Stock
issued and outstanding immediately prior to the Effective Date shall, by virtue
of the Association Merger and without any action on the part of the holder
thereof, be converted into the right to receive Holding Company Common Stock
based on the Exchange Ratio, as defined in the Plan of Conversion, plus the
right to receive cash in lieu of any fractional share interest, as determined in
accordance with Section 3(c) hereof, (ii) each share of common stock, par value
$.01 per share, of Interim ("Interim Common Stock") issued and outstanding
immediately prior to the Effective Date shall, by virtue of the Association
Merger and without any action on the part of the holder thereof, be converted
into one share of Association Common Stock, and (iii) each share of Holding
Company Common Stock issued and outstanding immediately prior to the Effective
Date shall, by virtue of the Association Merger and without any action on the
part of the holder thereof, be cancelled. By voting in favor of this Plan of
Merger, the Holding Company, as the sole stockholder of Interim, shall have
agreed (i) to issue shares of Holding Company Common Stock in accordance with
the terms hereof and (ii) to cancel all previously issued and outstanding shares
of Holding Company Common Stock upon the effectiveness of the Association
Merger.
B2
<PAGE>
(b) On and after the Effective Date, there shall be no registrations of
transfers on the stock transfer books of Interim or the Association of shares of
Interim Common Stock or Association Common Stock which were outstanding
immediately prior to the Effective Date.
(c) Notwithstanding any other provision hereof, no fractional shares of
Holding Company Common Stock shall be issued to holders of Association Common
Stock. In lieu thereof, each holder of shares of Association Common Stock
entitled to a fraction of a share of Holding Company Common Stock shall, at the
time of surrender of the certificate or certificates representing such holder's
shares, receive an amount of cash equal to the product arrived at by multiplying
such fraction of a share of Holding Company Common Stock by the Actual Purchase
Price, as defined in the Plan of Conversion. No such holder shall be entitled to
dividends, voting rights or any other rights in respect of any fractional share.
4. Exchange of Shares.
(a) At or after the Effective Date, each holder of a certificate or
certificates theretofore evidencing issued and outstanding shares of Association
Common Stock, upon surrender of the same to an agent, duly appointed by the
Holding Company ("Exchange Agent"), shall be entitled to receive in exchange
therefor a certificate or certificates representing the number of full shares of
Holding Company Common Stock for which the shares of Association Common Stock
theretofore represented by the certificate or certificates so surrendered shall
have been converted as provided in Section 3(a) hereof. The Exchange Agent shall
mail to each holder of record of an outstanding certificate which immediately
prior to the Effective Date evidenced shares of Association Common Stock, and
which is to be exchanged for Holding Company Common Stock as provided in Section
3(a) hereof, a form of letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to such certificate shall pass,
only upon delivery of such certificate to the Exchange Agent) advising such
holder of the terms of the exchange effected by the Association Merger and of
the procedure for surrendering to the Exchange Agent such certificate in
exchange for a certificate or certificates evidencing Holding Company Common
Stock.
(b) No holder of a certificate theretofore representing shares of
Association Common Stock shall be entitled to receive any dividends in respect
of the Holding Company Common Stock into which such shares shall have been
converted by virtue of the Association Merger until the certificate representing
such shares of Association Common Stock is surrendered in exchange for
certificates representing shares of Holding Company Common Stock. In the event
that dividends are declared and paid by the Holding Company in respect of
Holding Company Common Stock after the Effective Date but prior to surrender of
certificates representing shares of Association Common Stock, dividends payable
in respect of shares of Holding Company Common Stock not then issued shall
accrue (without interest). Any such dividends shall be paid (without interest)
upon surrender of the certificates representing such shares of Association
Common Stock. The Holding Company shall be entitled, after the Effective Date,
to treat certificates representing shares of Association Common Stock as
evidencing ownership of the number of full shares of Holding Company Common
Stock into which the shares of Association Common Stock represented by such
certificates shall have been converted, notwithstanding the failure on the part
of the holder thereof to surrender such certificates.
B3
<PAGE>
(c) The Holding Company shall not be obligated to deliver a certificate
or certificates representing shares of Holding Company Common Stock to which a
holder of Association Common Stock would otherwise be entitled as a result of
the Association Merger until such holder surrenders the certificate or
certificates representing the shares of Association Common Stock for exchange as
provided in this Section 4, or, in default thereof, an appropriate Affidavit of
Loss and Indemnity Agreement and/or a bond as may be required in each case by
the Holding Company. If any certificate evidencing shares of Holding Company
Common Stock is to be issued in a name other than that in which the certificate
evidencing Association Common Stock surrendered in exchange therefor is
registered, it shall be a condition of the issuance thereof that the certificate
so surrendered shall be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange pay to the Exchange Agent
any transfer or other tax required by reason of the issuance of a certificate
for shares of Holding Company Common Stock in any name other than that of the
registered holder of the certificate surrendered or otherwise establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) If, between the date hereof and the Effective Date, the shares of
Association Common Stock shall be changed into a different number or class of
shares by reason of any reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment, or a stock dividend thereon
shall be declared with a record date within said period, the Exchange Ratio
specified in Section 3(a) hereof shall be adjusted accordingly.
5. Dissenting Shares. Holders of shares of Association Common Stock
shall have dissenter or appraisal rights in connection with the Association
Merger in accordance with Section 28 of the Plan of Conversion and 12 C.F.R. ss.
552.14(b).
6. Name of Surviving Association. The name of the Surviving Association
shall be "Montgomery Savings, A Federal Association."
7. Directors of the Surviving Association. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Association and applicable law, the number of directors of the Surviving
Association shall be six. The names of those persons who, upon and after the
Effective Date, shall be directors of the Surviving Association are set forth
below. Each such director shall serve for the term which expires at the annual
meeting of stockholders of the Surviving Association in the year set forth after
his respective name, and until a successor is elected and qualified.
Name Term Expires
---- ------------
Earl F. Elliott 1997
Mark E. Foster 1997
C. Rex Henthorn 1999
Joseph M. Malott 1998
J. Lee Walden 1998
John E. Woodward 1999
Robert C. Wright 1997
B4
<PAGE>
The address of each such director is c/o Montgomery Savings, A Federal
Association, 119 East Main Street, Crawfordsville, Indiana 47933.
8. Officers of the Surviving Association. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Association and applicable law, the officers of the Association immediately
prior to the Effective Date shall be the officers of the Surviving Association.
9. Offices. Upon the Effective Date, all offices of the Association
shall be offices of the Surviving Association. As of the Effective Date, the
home office of the Surviving Association shall remain at 119 East Main Street,
Crawfordsville, Indiana 47933 and the location of the other deposit-taking
offices of the Surviving Association shall be as set forth in Exhibit 1 hereto,
except for the addition of deposit-taking offices authorized or the deletion of
deposit-taking offices closed subsequent to the date hereof and the Effective
Date.
10. Charter and Bylaws. On and after the Effective Date, the Charter
and Bylaws of the Association as in effect immediately prior to the Effective
Date shall be the Charter and Bylaws of the Surviving Association until amended
in accordance with the terms thereof and applicable law.
11. Savings Accounts. Upon the Effective Date, any savings accounts of
Interim, without reissue, shall be and become savings accounts of the Surviving
Association without change in their respective terms, including, without
limitation, maturity, minimum required balances or withdrawal value.
12. Stock Compensation Plans. By voting in favor of this Agreement, the
Holding Company shall have approved adoption of the Association's existing Stock
Option Plan, Directors' Stock Option Plan, Management Recognition Plan and Trust
Agreement (collectively the "Plans") as plans of the Holding Company and shall
have agreed to issue Holding Company Common Stock in lieu of Association Common
Stock pursuant to the terms of such Plans. As of the Effective Date, rights
outstanding under the Plans shall be assumed by the Holding Company and
thereafter shall be rights only for shares of Holding Company Common Stock, with
each such right being for a number of shares of Holding Company Common Stock
equal to the number of shares of Association Common Stock that were available
thereunder immediately prior to the Effective Date times the Exchange Ratio, as
defined in the Plan of Conversion, and the price of each such right shall be
adjusted to reflect the Exchange Ratio and so that the aggregate purchase price
of the right is unaffected, but with no change in any other term or condition of
such right. The Holding Company shall make appropriate amendments to the Plans
to reflect the adoption of the Plans by the Holding Company without adverse
effect upon the rights outstanding thereunder.
13. Stockholder Approval. The affirmative votes of the holders of
Association Common Stock set forth in Section 3 of the Plan of Conversion shall
be required to approve the Plan of Conversion, of which this Plan of Merger is a
part, on behalf of the Association. The approval of the Holding Company, as the
sole holder of the Interim Common Stock, shall be required to approve the Plan
of Conversion, of which this Plan of Merger is a part, on behalf of Interim.
B5
<PAGE>
14. Registration; Other Approvals. In addition to the approvals set
forth in Sections 1 and 13 hereof and the Plan of Conversion, the parties'
obligations to consummate the Association Merger shall be subject to the Holding
Company Common Stock to be issued hereunder in exchange for Association Common
Stock being registered under the Securities Act of 1993, as amended, and
registered or qualified under applicable state securities Laws, as well as the
receipt of all other approvals, consents or waivers as the parties may deem
necessary or advisable.
15. Abandonment of Agreement. This Plan of Merger may be abandoned by
either the Association or Interim at any time before the Effective Date in the
manner set forth in Section 30 of the Plan of Conversion.
16. Amendments. This Plan of Merger may be amended in the manner set
forth in Section 30 of the Plan of Conversion by a subsequent writing signed by
the parties hereto upon the approval of the Board of Directors of each of the
parties hereto.
17. Successors. This Agreement shall be binding on the successors of
the Association and Interim.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America.
B6
<PAGE>
IN WITNESS WHEREOF, the Association and Interim have caused this Plan
of Merger to be executed by their duly authorized officers as of the day and
year first above written.
MONTGOMERY SAVINGS, A FEDERAL
ASSOCIATION
Attest:________________________ By:______________________________________
Nancy L. McCormick Earl F. Elliott, Chairman
Secretary
MONTGOMERY INTERIM SAVINGS
ASSOCIATION, A FEDERAL ASSOCIATION
(In Organization)
Attest:________________________ By:______________________________________
Nancy L. McCormick Earl F. Elliott, Chairman
Secretary
B7
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
MONTGOMERY FINANCIAL CORPORATION
The undersigned incorporator intending to organize a corporation (the
"Corporation") pursuant to the Indiana Business Corporation Law, I.C. ss.
23-1-17 et seq., as amended from time to time (the "Act") executes the following
Articles of Incorporation:
ARTICLE I
Name
The name of the Corporation is Montgomery Financial Corporation.
ARTICLE II
Purposes
The purposes for which the Corporation is formed are to transact any
and all business which may be lawfully transacted by corporations organized and
existing under the Act.
The Corporation shall have the power to transact its business in
Indiana and in any other state or nation, provided, that the provisions of this
Article II shall not be deemed to empower the Corporation to transact, in any
other state or nation, any business which cannot be transacted by corporations
under the laws of that state or nation.
ARTICLE III
Registered Agent and Registered Office
The address of the Corporation's initial Registered Office is 119 East
Main Street, Crawfordsville, Indiana 47933.
1
<PAGE>
The name of the Corporation's initial Registered Agent at that office
is Montgomery Savings, a Federal Association.
ARTICLE IV
Authorized Shares
The total number of shares which the Corporation has authority to issue
is ten million (10,000,000) shares.
ARTICLE V
Share Terms
Section 1. Designation of Classes, Number, and Par Value of Shares. The
authorized shares of the Corporation shall be divided into two million
(2,000,000) shares of preferred stock, with par value of one cent ($.01) per
share (the "Preferred Stock"), and eight million (8,000,000) shares of common
stock, with par value of one cent ($.01) per share (the "Common Stock").
Section 2. Rights, Privileges, Limitations and Restrictions of
Preferred Stock. The Board of Directors of the Corporation is hereby expressly
authorized to provide for the issuance of the shares of Preferred Stock and to
determine and state the designations and relative preferences, limitations,
voting rights, if any, and other rights of the Preferred Stock and of each
series of Preferred Stock by the adoption and filing in accordance with the Act,
before the issuance of any shares of such Preferred Stock or series of Preferred
Stock, of an amendment or amendments to these Articles of Incorporation
determining the terms of such Preferred Stock or series of Preferred Stock (the
"Preferred Stock Designation"). All shares of Preferred Stock of the same series
shall be identical with each other in all respects. The number of authorized
2
<PAGE>
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the voting power of all of the then outstanding shares
of the capital stock of the Corporation entitled to vote generally in the
election of Directors after giving effect to the provisions in Article VIII
hereof (the "Voting Stock"), voting as a single class, without a separate vote
of the holders of the Preferred Stock or any series thereof, unless a vote of
any such holders is required pursuant to the terms of any Preferred Stock
Designation.
Section 3. Rights, Privileges, Limitations and Restrictions of Common
Stock. The shares of Common Stock shall constitute a separate and single class
and shall not be issued in series. All shares of Common Stock shall be identical
with each other in all respects. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, the holders of the
shares of Common Stock shall be entitled, after payment or provision for payment
of the debts and other liabilities of the Corporation and of all shares of stock
having priority over the Common Stock, in the event of voluntary or involuntary
liquidation, dissolution or winding up, to share rateably in the remaining net
assets of the Corporation. Subject to the limitations set forth in Article VIII
hereof, and except as otherwise provided in the Act, every holder of shares of
Common Stock shall have the right, at every Shareholder's meeting, to one vote
for each share of Common Stock standing in his name on the books of the
Corporation.
Section 4. Issuance of Shares. The Board of Directors has authority to
authorize and direct the issuance by the Corporation of shares of Preferred
Stock and Common Stock at such times, in such amounts, to such persons, for such
consideration, and upon such terms and conditions as it may from time to time
determine, subject only to the restrictions, limitations,
3
<PAGE>
conditions, and requirements imposed by the Act, other applicable laws, and
these Articles of Incorporation, as the same may, from time to time, be amended.
Section 5. Dividends and Distributions. The Board of Directors has
authority to authorize and direct the payment of dividends and the making of
other distributions by the Corporation in respect of the issued and outstanding
shares of Preferred Stock and Common Stock (a) at such times, in such amount and
forms, from such sources, and upon such terms and conditions as it may from time
to time determine, subject only to the restrictions, limitations, conditions,
and requirements imposed by the Act, other applicable laws, and these Articles
of Incorporation, as the same may, from time to time, be amended, and (b) in
shares of the same class or series or in shares of any other class or series
without obtaining the affirmative vote or the written consent of the holders of
the shares of the class or series in which the payment or distribution is to be
made.
Section 6. Acquisition of Shares by Corporation. The Board of Directors
has authority to authorize and direct the acquisition by the Corporation of the
issued and outstanding shares of Preferred Stock and Common Stock at such times,
in such amounts, from such persons, for such consideration, from such sources,
and upon such terms and conditions as it may, from time to time, determine,
subject only to the restrictions, limitations, conditions and requirements
imposed by the Act, other applicable laws, and these Articles of Incorporation,
as the same may, from time to time, be amended.
Section 7. Recognition and Disclosure of Beneficial Ownership. The
Board of Directors may establish in the By-Laws of the Corporation a recognition
procedure by which the beneficial owner of any share or right of the Corporation
that is registered on the books of the Corporation
4
<PAGE>
in the name of a nominee is recognized by the Corporation, to the extent
provided in any such recognition procedure, as the owner thereof. The Board of
Directors may establish in the Corporation's By-Laws a disclosure procedure by
which the name of the beneficial owner of any share or right of the Corporation
that is registered on the books of the Corporation in the name of a nominee
shall, to the extent not prohibited by the Act or other applicable laws, be
disclosed to the Corporation. Any disclosure procedure established by the Board
of Directors may include reasonable sanctions to ensure compliance therewith,
including without limitation (a) prohibiting the voting of, (b) providing for
mandatory or optional reacquisition by the Corporation of, and (c) the
withholding or payment into escrow of any dividend or other distribution in
respect of any share or right of the Corporation as to which the name of the
beneficial owner is not disclosed to the Corporation as required by such
disclosure procedure.
Section 8. No Preemptive Rights. The holders of the Common Stock and
the holders of the Preferred Stock or any series of the Preferred Stock shall
have no preemptive rights to subscribe to or purchase any shares of Common
Stock, Preferred Stock or other securities of the Corporation.
Section 9. Record Ownership. To the extent permitted by law, the
Corporation shall be entitled to treat the person in whose name any share or
right of the corporation is registered on the books of the Corporation as the
owner thereof for all purposes and shall not be bound to recognize any equitable
or other claim to, or interest in, such share or right on the part of any other
person, whether or not the Corporation shall have notice thereof.
Section 10. Amendment or Repeal of this Article. Notwithstanding
anything contained in the Articles of Incorporation or the By-laws of the
Corporation to the contrary, and
5
<PAGE>
notwithstanding that a lesser percentage or no vote may be specified by law, but
in addition to any affirmative vote of the holders of any particular class or
series of capital stock of the Corporation required by law or any Preferred
Stock designation, the affirmative vote of the holders of at least two-thirds of
the voting power of all of the then outstanding shares of Voting Stock, voting
together as a single class, shall be required to alter, amend, change or repeal
Sections 2, 4, and 8 of this Article.
ARTICLE VI
Directors
Section 1. Number and Terms. The number of Directors of the Corporation
shall be fixed from time to time exclusively by the Board of Directors by
resolution adopted by a majority of the total number of the Corporation's
Directors. The Board of Directors shall consist of seven persons as of the
effective date of these Articles of Incorporation. The Directors shall be
divided into three classes, as nearly equal in number as reasonably possible,
with one class to be elected annually. At the first shareholder's meeting at
which directors are elected following the effective date of the Articles of
Incorporation, directors of the first class shall be elected to hold office for
a term expiring at the next succeeding annual meeting, directors of the second
class shall be elected to hold office for a term expiring at the second
succeeding annual meeting, and directors of the third class shall be elected to
hold office for a term expiring at the third succeeding annual meeting, with
each director to hold office until his or her successor shall have been duly
elected and qualified. At each annual meeting of Shareholders following the
initial classification and election, Directors elected to succeed those
Directors whose terms expire shall be elected for a term of office to expire at
the third
6
<PAGE>
succeeding annual meeting of Shareholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified. Directors need not be Shareholders of the Corporation. There
shall be no cumulative voting by Shareholders of any class or series in the
election of Directors of the Corporation.
Section 2. Initial Directors. The names of the initial Board of
Directors of the Corporation are as follows:
John M. Malott Earl F. Elliott
Mark E. Foster J. Lee Walden
Robert C. Wright C. Rex Henthorn
John E. Woodward
The address of each of the initial directors shall be the address of
the Corporation, which is 119 East Main Street, Crawfordsville, Indiana 47933.
Section 3. Vacancies. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, newly created directorships
resulting from any increase in the authorized number of directors or any
vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office, or other cause shall be
filled by a majority vote of the Continuing Directors, as defined in Section 2
of Article VIII hereof, although less than a quorum of the Board of Directors.
Directors so chosen shall hold office for a term expiring at the annual meeting
of Shareholders at which the term of the class to which they have been elected
expires, and until such Director's successors shall have been duly elected
7
<PAGE>
and qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent Director.
Section 4. Removal of Directors. Subject to the rights of the holders
of any series of Preferred Stock then outstanding, any Director, or the entire
Board of Directors may be removed from office at any time, but only for cause
and only by the affirmative vote of the holders of at least two-thirds of the
voting power of all of the then-outstanding shares of the Corporation entitled
to vote generally in the election of Directors voting together as a single
class. For purposes of this section, cause for removal shall exist only if the
director whose removal is proposed has been either declared of unsound mind by
an order of a court of competent jurisdiction, convicted of a felony or of an
offense punishable by imprisonment for a term of more than one year by a court
of competent jurisdiction, or deemed liable by a court of competent jurisdiction
for gross negligence or misconduct in the performance of such director's duties
to the Corporation. At least thirty (30) days prior to such meeting of
stockholders, written notice shall be sent to the director whose removal will be
considered at the meeting.
Section 5. Shareholder Nominations and Business Agenda. Advance notice
of Shareholder nominations for the election of Directors and of business to be
brought by Shareholders before any meeting of the Shareholders of the
Corporation shall be given in the manner provided in the Corporation's By-Laws.
Section 6. Special Shareholder Meetings. Special meetings of the
Shareholders of the Corporation may only be called by the Board of Directors
pursuant to a resolution adopted
8
<PAGE>
by a majority of the total number of Directors then in office or the Chairman of
the Board or Chief Executive Officer.
Section 7. Bylaws. The Board of Directors of the Corporation shall have
the power, without the assent or vote of the Shareholders, to make, adopt,
alter, amend, or repeal the ByLaws of the Corporation by the affirmative vote of
the number of directors equal to a majority of the number constituting a full
Board of Directors at the time of such action. The By-Laws may include, in
addition to any other provisions allowable under these Articles or applicable
law, a provision setting forth age limitations for Officers and Directors of the
Corporation. Shareholders shall not have any power to make, alter, amend, or
repeal the Corporation's By-Laws.
Section 8. Director Considerations. In addition to any other
considerations which the Board of Directors may lawfully take into account in
determining whether to take or to refrain from taking any corporate action on
any matter, including making or declining to make any recommendation to the
Shareholders of the Corporation, the Board of Directors may in its discretion
consider both the short-term and long-term best interests of the Corporation
(including the possibility that these interests may be best served by the
continued independence of the Corporation), taking into account, and weighing as
the Directors deem appropriate, the social and economic effects of such action
on present and future employees, suppliers, customers of the Corporation and its
subsidiaries (including account holders and borrowers of any of the
Corporation's subsidiaries), the effect upon communities in which offices or
other facilities of the Corporation are located, the effect on the Corporation's
ability to fulfill its corporate obligations as a savings institution holding
company and on the ability of any of its subsidiary
9
<PAGE>
savings institutions to fulfill the objectives of a stock form saving
institution under applicable statutes and regulations, and any other factors the
Directors consider pertinent.
Section 9. Other Authorized Board Actions. In furtherance and
not in limitation of the powers conferred by law or in these Articles of
Incorporation as the same may, from time to time, be amended, the Board of
Directors (and any committee of the Board of Directors duly authorized by the
Board of Directors to so act) is expressly authorized, to the extent permitted
by law, to take such actions as the Board or such committee may determine to be
reasonably necessary or desirable to (a) encourage any person (as defined in
Article IX Section 3 hereof) to enter into negotiations with the Board of
Directors and management of the Corporation with respect to any transaction
which may result in a change in control of the Corporation which is proposed or
initiated by such person or (b) contest or oppose any such transaction which the
Board of Directors or any committee determines to be unfair, abusive, or
otherwise undesirable with respect to the Corporation and its business, assets
or properties, or the Shareholders of the Corporation including, without
limitation, the adoption of such plans or the issuance of such rights, options,
capital stock, notes, debentures, or other evidences of indebtedness or other
securities of the Corporation which issuance may be with or without
consideration, and may (but need not) be issued pro rata, which rights, options,
capital stock, notes, evidences of indebtedness and other securities (i) may be
exchangeable for or convertible into cash or other securities on such terms and
conditions as may be determined by the Board of Directors or such committee and
(ii) may provide for the treatment of any holder or class of holders thereof
designated by the Board of Directors or any such committee in respect of the
terms, conditions,
10
<PAGE>
provisions, and rights of such securities which is different from, and unequal
to, the terms, conditions, provisions, and rights applicable to all other
holders thereof.
Section 10. Amendment or Repeal of this Article. Notwithstanding
anything contained in the Articles of Incorporation or the By-Laws of the
Corporation to the contrary, and notwithstanding that a lesser percentage or no
vote may be specified by law, but in addition to any affirmative vote of the
holders of any particular class or series of capital stock of the Corporation
required by law or any Preferred Stock designation, the affirmative vote of the
holders of at least 80% of the voting power of all of the then-outstanding
shares of Voting Stock, voting together as a single class, shall be required to
alter, amend, change or repeal this Article.
ARTICLE VII
Provisions for Regulation of Business and
Conduct of Affairs of Corporation
Section 1. Amendment of Articles of Incorporation. Except as
otherwise provided in Articles V, VI, VIII, IX and X hereof, the Corporation
reserves the right to increase or decrease the number of its authorized shares,
or any class or series thereof, and to reclassify the same, and to amend, alter,
change or repeal any provision contained in these Articles of Incorporation, or
any amendment hereto, or to add any provision to these Articles of Incorporation
or to any amendment hereto, in any manner now or hereafter prescribed or
permitted by the Act or any other applicable laws, and all rights and powers
conferred upon Shareholders, Directors and/or officers in these Articles of
Incorporation, or any amendment hereto, are granted subject to this reserve
power. No Shareholder has a vested property right resulting from any provision
in these Articles of Incorporation, or any amendment hereto, or authorized to be
in the By-Laws of the Corporation or these Articles of Incorporation by the Act,
11
<PAGE>
including, without limitation, provisions relating to management, control,
capital structure, dividend entitlement, or purpose or duration of the
Corporation.
Section 2. Shareholder Action. Meetings of the Shareholders of the
Corporation shall be held at such a place, within or without the State of
Indiana, as may be specified in the By-Laws of the Corporation or in the
respective notices, or waivers of notice, thereof. Any action required or
permitted to be taken at any meeting of the Shareholders may be taken without a
meeting if a consent in writing setting forth the action so taken is signed by
all Shareholders entitled to vote with respect thereto and such written consent
is filed with the minutes of the proceedings of the Shareholders.
Section 3. Director Action. Meetings of the Board of Directors of the
Corporation or any committee thereof shall be held at such place, within or
without the State of Indiana as may be specified in the By-Laws of the
Corporation or in the respective notices, or waivers of notice thereof. Any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if a
consent in writing setting forth the actions so taken is signed by all members
of the Board of Directors or of such committee, as the case may be, and such
written consent is filed with the minutes of the proceedings of such Board of
Directors or committee.
Section 4. Corporate Records. The Corporation shall keep at its
principal office a copy of (a) its Articles of Incorporation, and all amendments
thereto currently in effect; (b) its By-Laws or restated By-laws, and all
amendments thereto currently in effect; (c) resolutions adopted by the Board of
Directors with respect to one (1) or more classes or series of shares and fixing
their relative rights, preferences, and limitations, if shares issued pursuant
to those
12
<PAGE>
resolutions are outstanding; (d) minutes of all meetings of the Shareholders and
records of all actions taken by the Shareholders without a meeting (hereinafter
referred to collectively as the "Shareholders Minutes") for the prior three
years; (e) all written communications by the Corporation to the Shareholders,
including the financial statements furnished by the Corporation to the
Shareholders ("Shareholder Communications") for the prior three years; (f) a
list of the names and business addresses of the current Directors and Officers
of the Corporation; and (g) the most recent annual report of the Corporation as
filed with the Secretary of the State of Indiana. The Corporation shall also
keep and maintain at its principal office, or at such other place or places
within or without the State of Indiana as may be provided, from time to time, in
the By-Laws (i) minutes of all meetings of the Board of Directors and of each
committee of such Board, and records of all actions taken by the Board of
Directors and by each committee without a meeting and (ii) appropriate
accounting records of the Corporation. All of the records of the Corporation
described in this Section 4 (hereinafter referred to collectively as the
"Corporation Records") shall be maintained in written form or in another form
capable of conversion into written form within a reasonable time period.
Section 5. Limitation of Liability. No Director, member of any
committee of the Board of Directors or of another committee appointed by the
Board, Officer, employee, or agent of the Corporation ("Corporate Person") shall
be liable for any loss or damage if, in taking or omitting to take any action
causing such loss or damage, either (a) such Corporate Person acted (1) in good
faith, (2) with the care an ordinarily prudent person in a like position would
have exercised under similar circumstances, and (3) in a manner such Corporate
Person reasonably believed was in the best interests of the Corporation, or (b)
such Corporate Person's breach of
13
<PAGE>
or failure to act in accordance with the standards of conduct set forth
immediately above in clause (a) (the "Standards of Conduct") did not constitute
willful misconduct or recklessness.
Any "Corporate Person" shall be fully protected, and shall be deemed to
have complied with the Standards of Conduct, in relying in good faith, with
respect to any information contained therein, upon (a) the Corporate Records,
(b) information, opinions, reports, or statements (including financial
statements and other financial data) prepared or presented by (1) one or more
other Corporate Persons whom such Corporate Person reasonably believes to be
competent in the matters presented, (2) legal counsel, public accountants, or
other persons as matters that such Corporate Person reasonably believes are
within such person's professional or expert competence, (3) a committee of the
Board of Directors or other committee appointed by the Board of Directors of
which such Corporate Person is not a member, if such Corporate Person reasonably
believes such committee of the Board of Directors or such appointed committee
merits confidence, or (4) the Board of Directors, if such Corporate Person is
not a Director and reasonably believes that the Board merits confidence.
Section 6. Conflict Transactions. Any contract or any transaction
between the Corporation and any Director or any corporation, unincorporated
association, business trust, estate, partnership, trust, joint venture,
individual or other legal entity ("Legal Entity") in which any director has a
material financial interest or is a general partner, or of which any Director is
a director, officer, or trustee (hereinafter referred to collectively as a
"Conflict Transaction"), shall be valid for all purposes, if the material facts
of the Conflict Transaction and the Director's interest were disclosed or known
to the Board of Directors, a committee of the Board of Directors with authority
to act thereon, or the Shareholders entitled to vote thereon, and the
14
<PAGE>
Board of Directors, such committee, or such Shareholders authorized, approved,
or ratified the Conflict Transaction. A Conflict Transaction is authorized,
approved, or ratified:
a. By the Board of Directors or such committee, if it receives the
affirmative vote of a majority of the Directors who have no
interest in the Conflict Transaction, notwithstanding the fact
that such majority may not constitute a quorum or a majority of
the Board of Directors or such committee or a majority of the
Directors present at the meeting, and notwithstanding the
presence or vote of any Director who does have such an interest;
provided, however, that no Conflict Transaction may be
authorized, approved or ratified by a single Director; and
b. By such Shareholders, if it receives the vote of a majority of
the shares entitled to be counted, in which vote shares owned or
voted under the control of any Director who, or of any Legal
Entity that, has an interest in the Conflict Transaction may not
be counted; provided, however, that a majority of such shares,
whether or not present, shall constitute a quorum for the purpose
of authorizing, approving, or ratifying a Conflict Transaction.
This Section 6 shall not be construed to require authorization,
ratification, or approval by the Shareholders of any Conflict Transaction, or to
invalidate any Conflict Transaction that would otherwise be valid under the
common and statutory law applicable thereto.
Section 7. Director Compensation. The Board of Directors is hereby
specifically authorized, in and by the By-Laws of the Corporation, or by
resolution duly adopted by such Board, to make provision for reasonable
compensation to its members for their services as Directors and to fix the basis
and conditions upon which such compensation shall be paid. Any Director of the
Corporation may also serve the Corporation in any other capacity and receive
compensation therefor in any form.
Section 8. Director Authority. The Board of Directors, subject to any
specific limitations or restrictions imposed by the Act or these Articles of
Incorporation, as the same may from time to time be amended, shall direct the
carrying out of the purposes and exercise the
15
<PAGE>
powers of the Corporation without previous authorization or subsequent approval
by the Shareholders of the Corporation.
ARTICLE VIII
Ownership and Voting Restrictions
Section 1. Ten Percent Limitations. Notwithstanding anything contained
in these Articles of Incorporation or the Corporation's By-Laws to the contrary
no person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than ten percent (10%) of any class of equity
security of the Corporation. This limitation shall not apply to (i) the purchase
of shares by underwriters in connection with the public offering, (ii) to the
purchase of shares by a defined benefit or defined contribution employee benefit
plan such as an employees' stock ownership plan, stock bonus plan,
profit-sharing plan or other plan, which, with its related trust, meets the
requirements to be "qualified" under Section 401 of the Internal Revenue Code of
1986, as amended or (iii) any other offer or acquisition approved in advance by
the affirmative vote of two-thirds of the Company's Board of Directors.
In the event shares are acquired in violation of this Section 1, all
shares beneficially owned in excess of 10% shall be considered "excess shares"
and shall not be counted as shares entitled to vote and shall not be voted by
any person or counted as voting shares in connection with any matter submitted
to the shareholders for a vote.
For purposes of this Section 1, the term "person" shall have the
meaning set forth in Article IX, Section 3 hereof. The term "offer" includes
every offer to buy or otherwise acquire, solicitation of an offer to sell,
tender offer for, or request or invitation for tenders of, a security or
interest in a security for value. The term "acquire" includes every type of
acquisition,
16
<PAGE>
whether effected by purchase, exchange, operation of law, or otherwise. The term
"acting in concert" means (a) knowing participation in a joint activity or
conscious parallel action toward a common goal whether or not pursuant to an
express agreement, or (b) a combination or pooling of voting or other interests
in the securities of an issue or for a common purpose pursuant to any contract,
understanding, relationship, agreement, or other arrangement, whether written or
otherwise.
For purposes of determining the beneficial ownership limitation imposed
by this Section 1, warrants, options, obligations, or securities convertible
into such equity securities of the Corporation and other similar interests shall
be treated as having been exercised or converted into such equity securities.
Section 2. Amendment of this Article. Notwithstanding anything
elsewhere in these Articles of Incorporation or in the Corporation's By-Laws to
the contrary, and notwithstanding that a lesser percentage or no vote may be
specified by law, but in addition to any affirmative vote of the holders of any
particular class or series of capital stock of the Corporation required by law
or any Preferred Stock designation, the affirmative vote of the holders of at
least 80% of the total voting power of all of the then-outstanding shares of
Voting Stock, voting as a single class, shall be required to alter, amend, or
repeal this Article VIII, unless at least two-thirds of the Continuing Directors
(as defined below in this Section 2) shall have approved of the proposed changes
prior to their submission to Shareholders for their vote (in which case a
favorable vote of the percentage of the total votes eligible to be cast required
under the Act or other applicable law shall be required). For purposes of this
Section 2, a "Continuing Director" shall mean any Director then serving as such
who is a member of the Corporation's Board of
17
<PAGE>
Directors on the Corporation's date of incorporation, or was recommended for
appointment or election (before such person's initial assumption of office as a
Director) by a majority of the Continuing Directors then on the Board.
ARTICLE IX
Provisions for Certain Business Combinations
Section 1. Supermajority Provisions for Certain Business Combinations.
In addition to any affirmative vote required by law or these Articles of
Incorporation and except as otherwise expressly provided in Section 2 of this
Article IX;
a. Any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with (1) any Interested Shareholder (as
hereinafter defined), or (2) any other corporation (whether or
not itself an Interested Shareholder) which is, or after such
merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Shareholder; or
b. Any sale, lease, exchange, mortgage, pledge, transfer, or other
disposition (in one transaction or a series of transactions) to
or with any Interested Shareholder or any Affiliate of any
Interested Shareholder, of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value equaling or
exceeding 25% or more of the combined assets of the Corporation
and its Subsidiaries; or
c. The issuance or transfer by the Corporation or any Subsidiary (in
one transaction or series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Shareholder
or any Affiliate of any Interested Shareholder in exchange for
cash, securities, or other property (or a combination thereof)
having an aggregate Fair Market Value equalling or exceeding 25%
of the combined assets of the Corporation and its Subsidiaries
except pursuant to an employee benefit plan of the Corporation or
any Subsidiary thereof; or
d. The adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any
Interested Shareholder or any Affiliate of any Interested
Shareholder; or
e. Any reclassification of securities (including any reverse stock
split) or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or
any other transaction (whether or not with or into or otherwise
involving any Interested Shareholder) which has the
18
<PAGE>
effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class or
series of equity or convertible securities of the Corporation
or any Subsidiary which is Beneficially Owned (as hereinafter
defined), directly or indirectly, by any Interested
Shareholder or any Affiliate of any Interested Shareholder;
shall require the affirmative vote of the holders of at least 80% of the voting
power of all of the then-outstanding shares of Voting Stock, voting together as
a single class and a majority vote of the shares of Voting Stock that are not
beneficially owned, directly or indirectly, by an Interested Person. Such
affirmative vote shall be required notwithstanding that any other provision of
these Articles of Incorporation, or any provision of law, or any Preferred Stock
designation, or any agreement with any national securities exchange or otherwise
might permit a lesser vote or no vote.
The term "Business Combination" as used in this Article IX shall mean
any transaction which is referred to in any one or more of paragraphs a. through
e. of this Section 1.
Section 2. When Supermajority Not Required. The provisions of Section 1
of this Article IX shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote as is required by law, and any other provision of these Articles of
Incorporation, and any Preferred Stock Designation if, in the case of a Business
Combination that does not involve any cash or other consideration being received
by the Shareholders of the Corporation, solely in their capacity as Shareholders
of the Corporation, the condition specified in the following paragraph a. is met
or in the case of any other Business Combination, the conditions specified in
either of the following paragraphs a or b. are met:
a. The Business Combination shall have been approved by a majority
of the Continuing Directors (as hereinafter defined); provided,
however, that this
19
<PAGE>
condition shall not be capable of satisfaction unless there are
at least three Continuing Directors.
b. All of the following conditions shall have been met:
1. The consideration to be received by the holders of shares of
a particular class (or series) of outstanding capital stock
(including Common Stock) shall be in cash or in the same
form as the Interested Shareholder or any of its affiliates
has previously paid for shares of such class (or series) of
capital stock. If the Interested Shareholder or any of its
Affiliates have paid for shares of any class (or series) of
capital stock with varying forms of considerations, the form
of consideration to be received per share by holders of
shares of such class (or series) of capital stock shall be
either cash or the form used to acquire the largest number
of shares of such class (or series) of capital stock
previously acquired by the Interested Shareholder.
2. The aggregate amount of (x) the cash and (y) the Fair Market
Value as of the date of the consummation of the Business
Combination (the "Consummation Date"), of the consideration
other than cash to be received per share by holders of
Common Stock in such Business Combination shall be at least
equal to the higher of the following (in each case
appropriately adjusted in the event of any stock dividend,
stock split, combination of shares or similar event):
i. (If applicable) the highest per share price (including
any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested
Shareholder or any of its Affiliates for any shares of
Common Stock acquired by them within the two-year
period immediately prior to the date of the first
public announcement of the proposal of the Business
Combination (the "Announcement Date") or in any
transaction in which the Interested Shareholder became
an Interested Shareholder, whichever is higher; and
ii. The Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the
Interested Shareholder became an Interested Shareholder
(the "Determination Date"), whichever is higher.
3. The aggregate amount of (x) the cash and (y) the Fair Market
Value, as of the Consummation Date, of the consideration
other than cash to be received per share by holders of
shares of any class (or series), other than Common Stock, of
outstanding Capital Stock of the Corporation shall be at
least equal to the highest of the following (in each case
appropriately adjusted in the event of any stock dividend,
stock split, combination of shares or similar event), it
being intended that the requirements of this Subparagraph 3.
shall be required to be met with respect to every such class
(or series) of outstanding Capital Stock whether or not the
Interested Shareholder or any of its
20
<PAGE>
Affiliates have previously acquired any shares of a
particular class (or series) of Capital Stock;
i. (If applicable) the highest per share price (including
any brokerage, commissions, transfer taxes and
soliciting dealer's fees) paid by the Interested
Shareholder or any of its Affiliates for any shares of
such class (or series) of Capital Stock acquired by
them within the two-year period immediately prior to
the Announcement Date or in any transaction in which it
became an Interested Shareholder, whichever is higher;
ii. The Fair Market Value per share of such class (or
series) of Capital Stock on the Announcement Date or on
the Determination Date, whichever is higher; and
iii. (If applicable) the highest preferential amount per
share, if any, to which the holders of shares of such
class (or series) of Capital Stock would be entitled in
the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation.
4. After such Interested Shareholder has become an Interested
Shareholder and prior to the Consummation Date of such
Business Combination:
(a) such Related Person shall vote his shares in such a
manner as to cause, to the extent necessary and within
his power as a stockholder, the Board of Directors of
the Corporation to include at all times representation
by Continuing Directors proportionate to the ratio that
the number of Voting Shares of the Corporation from
time to time owned by stockholders who are not Related
Persons bears to all Voting Shares of the Corporation
outstanding at the time in question (with a Continuing
Director to occupy any resulting fractional position
among the directors);
(b) (i) except as approved by a majority of the Continuing
Directors, there shall have been no failure to declare
and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any
outstanding Preferred Stock; (ii) there shall have been
(A) no reduction in the annual rate of dividends paid
on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock), except as approved by
a majority of the Continuing Directors, and (B) an
increase in such annual rate of dividends as necessary
to reflect any reclassification (including any reverse
stock split), recapitalization, reorganization, or any
similar transaction which has the effect of reducing
the number of outstanding shares of the Common Stock,
unless the failure to increase such annual rate is
approved by a majority of the Continuing Directors; and
(iii) neither such Interested Shareholder nor any of
its Affiliates shall have become the beneficial owner
of any additional shares of Voting Stock except as part
of the
21
<PAGE>
transaction which results in such Interested Share-
holder becoming an Interested Shareholder; provided,
however, that no approval by Continuing Directors
shall satisfy the requirements of this Subparagraph
4(b) unless at the time of such approval there are at
least three Continuing Directors.
(c) After such Interested Shareholder has become an
Interested Shareholder, such Interested Shareholder and
any of its Affiliates shall not have received the
benefit, directly or indirectly (except proportionately
solely in such Interested Shareholder's or Affiliates's
capacity as a Shareholder of the Corporation) of any
loans, advances, guarantees, pledges, or other
financial assistance or any tax credits or other tax
advantages provided by the Corporation, whether in
anticipation of or in connection with such Business
Combination or otherwise.
(d) A proxy or information statement describing the
proposed Business Combination and complying with the
Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules, or regulations)
shall be mailed to all Shareholders of the Corporation
at least thirty (30) days prior to the consummation of
such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant
to such Act or subsequent provisions). Such proxy
statement must contain the recommendations, if any, of
the Continuing Directors, and of any investment banking
firm selected by a majority of the Continuing
Directors, as to the fairness of the Business
Combination from the point of view of the Stockholders.
(e) Such Interested Shareholders shall have provided the
Corporation with such information as shall have been
requested as pursuant to Section 5 of this Article IX
within the time period set forth therein.
Section 3. Definitions. For the purposes of this Article IX:
a. A "person" shall include an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or
any other group formed for the purpose of acquiring, holding or
disposing of securities.
b. "Interested Shareholder" means any, person (other than the
Corporation or any Subsidiary) who or which:
1. Is the beneficial owner (as hereinafter defined),directly or
indirectly, of ten percent or more of the voting power of
the outstanding Voting Stock; or
22
<PAGE>
2. Is an Affiliate or an Associate of the Corporation and at
any time within the two-year period immediately prior to the
date in question was the beneficial owner, directly or
indirectly, of ten percent or more of the voting power of
the then-outstanding Voting Stock; or
3. Is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two year
period immediately prior to the date in question
beneficially owned by any Interested Shareholder, if such
assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a
public offering within the meaning of the Securities Act of
1933, as amended.
c. A person shall be a "Beneficial Owner" of, or shall "Beneficially
Own," any Voting Stock:
1. Which such person or any of its affiliates or Associates (as
hereinafter defined) beneficially owns, directly or
indirectly within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as in effect on the
Corporation's date of incorporation; or
2. Which such person or any of its Affiliates or Associates has
(i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (ii) the right to vote pursuant to
any agreement, arrangement or understanding (but neither
such person nor any such Affiliate or Associate shall be
deemed to be the beneficial owner of any shares of Voting
Stock solely by reason of revocable proxy granted for a
particular meeting of Shareholders, pursuant to a public
solicitation of proxies for such meeting, and with respect
to which shares neither such person nor any such Affiliate
or Associate is otherwise deemed the beneficial owner); or
3. Which are beneficially owned, directly or indirectly, within
the meaning of Rule 13d-3 under the Securities Exchange Act
of 1934, as in effect on the Corporation's date of
incorporation, by any other person with which such person or
any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting (other than solely by reason of a revocable
proxy as described in subparagraph 2. of this paragraph c.
or disposing of any shares of Voting Stock; provided,
however, that in the case of any employee stock ownership or
similar plan of the Corporation or of any Subsidiary in
which the beneficiaries thereof possess the right to vote
any shares of Voting Stock held by such plan, no such plan
or any trustee with respect
23
<PAGE>
thereto (nor any Affiliate of such trustee), solely by
reason of such capacity of such trustee, shall be deemed,
for any purpose hereof, to beneficially own any shares of
voting stock held under any such plan.
d. For the purposes of determining whether a person is an Interested
Stockholder pursuant to subparagraph b. of this Section 3, the
number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned through application of subparagraph
c. of this Section 3 but shall not include any other unissued
shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
e. "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in
effect on the Corporation's date of incorporation.
f. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the
definition of Interested Shareholder set forth in Subparagraph b
of this Section 3, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security
is owned, directly or indirectly, by the Corporation.
g. "Continuing Director" for purposes of this Article IX means any
member of the Board of Directors of the Corporation who is
unaffiliated with the Interested Shareholder and was a member of
the Board prior to the time that the Interested Shareholder
became an Interested Shareholder, and any director who is
thereafter chosen to fill any vacancy on the Board of Directors
or who is elected and who, in either event, is unaffiliated with
the Interested Shareholder and in connection with his or her
initial assumption of office is recommended for appointment or
election by a majority of Continuing Directors then on the Board.
h. "Fair Market Value" means: (i) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding
the date in question of a share of such stock on the Composite
Tape for New York Stock Exchange-Listed Stocks, or, if such stock
is not quoted on the Composite Tape, on the New York Stock
Exchange, or if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the
Securities Exchange Act of 1934, as amended, on which such stock
is listed, or, if such stock is not listed on any such exchange,
the highest closing bid quotation with respect to a share of such
stock during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such
quotations are available, the fair market value on the date in
question of a share of such stock as determined by the Board
24
<PAGE>
in accordance with Section 4 of this Article IX, in each case
with respect to any class of stock, appropriately adjusted for
any dividend or distribution in shares of such stock or any
combination or reclassification of outstanding shares of such
stock into a smaller number of shares of such stock; and (ii) in
case of property other than cash or stock, the fair market value
of such property on the date in question as determined by the
Board in accordance with Section 4 of this Article IX.
i. Reference to the "highest per share price" shall in each case
with respect to any class of stock reflect on appropriate
adjustment for any dividend or distribution in shares of such
stock or any stock split or reclassification of outstanding
shares of such stock into a greater number of shares of such
stock or any combination or reclassification of outstanding
shares of such stock into a smaller number of shares of such
stock.
j. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be
received" as used in subparagraphs b.2. and b.3. of Section 2 of
this Article IX shall include the shares of Common stock and/or
the shares of any other class (or series) of outstanding capital
stock retained by the holders of such shares.
Section 4. Power of Board of Directors. A majority of the total number
of Directors of the Corporation, but only if a majority of such Directors shall
then consist of Continuing Directors or, if a majority of the total number of
Directors shall not then consist of Continuing Directors, a majority of the then
Continuing Directors, shall have the power and duty to determine, on the basis
of information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article IX, including, without limitation, (a)
whether a person is an Interested Shareholder, (b) the number of shares of
Voting Stock beneficially owned by any person, (c) whether a person is an
Affiliate or Associate of another, (d) whether the applicable conditions set
forth in subparagraph b. of Section 2 have been met with respect to any Business
Combination, (e) the Fair Market Value of stock or other property in accordance
with subparagraph h. of Section 3 of this Article IX, and (f) whether the assets
which are the subject of any Business Combination referred to in subparagraph b.
of Section 1
25
<PAGE>
have, or the consideration to be received for the issuance or transfer of
securities by the Corporation or any Subsidiary in any Business Combination
referred to in subparagraph c. of Section 1 has, an aggregate Fair Market Value
equaling or exceeding 25% of the combined assets of the Corporation and its
Subsidiaries.
Section 5. Requests for Information. A majority of the total number of
Directors of the Corporation, but only if a majority of such Directors shall
then consist of Continuing Directors or, if a majority of the total number of
Directors shall not then consist of Continuing Directors, a majority of the then
Continuing Directors, shall have the right to demand that any person who it is
reasonably believed is an Interested Shareholder (or holds of record shares of
Voting Stock Beneficially Owned by any Interested Shareholder) supply the
Corporation with complete information as to (a) the record owner(s) of all
shares Beneficially Owned by such person who it is reasonably believed is an
Interested Shareholder, (b) the number of, and class or series of, shares
Beneficially Owned by such person who it is reasonably believed is an Interested
Shareholder and held of record by each such record owner and the number(s) of
the stock certificate(s) evidencing such shares, and (c) any other factual
matter relating to the applicability or effect of this Article IX, as may be
reasonably requested of such person, and such person shall furnish such
information within 10 days after receipt of such demand.
Section 6. No Effect of Fiduciary Obligations. Nothing contained in
this Article IX shall be construed to relieve any Interested Shareholder from
any fiduciary obligation imposed by law.
Section 7. Amendment of this Article. Notwithstanding any other
provisions of these Articles of Incorporation or the By-Laws of the Corporation
to the contrary and notwithstanding that a lesser vote or no vote may be
specified by law, but in addition to any affirmative vote of
26
<PAGE>
the holders of any particular class (or series) of the Corporation's capital
stock required by law or any Preferred Stock Designation, the affirmative vote
of the holders of at least 80% of the voting power of all of the
then-outstanding shares of Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal this Article IX.
ARTICLE X
Indemnification
Section 1. General Provisions. The Corporation shall, to the fullest
extent to which it is empowered to do so by the Act, or any other applicable
laws, as from time to time in effect, indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, by reason of the fact that he is
or was a Director, Officer, employee or agent of the Corporation, or who, while
serving as such Director, Officer, employee or agent of the Corporation, is or
was serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, whether for profit or not,
against expenses (including attorneys' fees), judgments, settlements, penalties
and fines (including excise taxes assessed with respect to employee benefit
plans) actually or reasonably incurred by him in accordance with such action,
suit or proceeding, if he acted in good faith and in a manner he reasonably
believed, in the case of conduct in his official capacity, was in the best
interest of the Corporation, and in all other cases, was not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding, he either had reasonable
27
<PAGE>
cause to believe his conduct was lawful or no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement or conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not meet the prescribed standard of conduct.
Section 2. Indemnification Authorized. To the extent that a Director,
Officer, employee or agent of the Corporation has been successful, on the merits
or otherwise, in the defense of any action, suit or proceeding referred to in
Section 1 of this Article, or in the defense of any claim, issue or matter
therein, the Corporation shall indemnify such person against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith. Any other indemnification under Section 1 of this Article (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case, upon a determination that indemnification of the Director,
Officer, employee or agent is permissible in the circumstances because he has
met the applicable standard of conduct. Such determination shall be made (a) by
the Board of Directors by a majority vote of a quorum consisting of Directors
who were not at the time parties to such action, suit or proceeding; or (b) if a
quorum cannot be obtained under subdivision (a), by a majority vote of a
committee duly designated by the Board of Directors (in which designation
Directors who are parties may participate), consisting solely of two or more
Directors not at the time parties to such action, suit or proceeding; or (c) by
special legal counsel: (i) selected by the Board of Directors or its committee
in the manner prescribed in subdivision (a) or (b), or (ii) if a quorum of the
Board of Directors cannot be obtained under subdivision (a) and a committee
cannot be designated under subdivision (b), selected by a majority vote of the
full Board of Directors (in which selection Directors who are
28
<PAGE>
parties may participate); or (d) by Shareholders, but shares owned by or voted
under the control of Directors who are at the time parties to such action, suit
or proceeding may not be voted on the determination.
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection c.
to select counsel.
Section 3. Definition of Good Faith. For purposes of any determination
under Section 1 of this Article X, a person shall be deemed to have acted in
good faith and to have otherwise met the applicable standard of conduct set
forth in Section 1 of this Article X if his action is based on information,
opinions, reports, or statements, including financial statements and other
financial data, if prepared or presented by (a) one or more Officers or
employees of the Corporation or other enterprise whom he reasonably believes to
be reliable and competent in the matters presented; (b) legal counsel, public
accountants, appraisers or other persons as to matters he reasonably believes
are within the person's professional or expert competence; or (c) a committee of
the Board of Directors of the Corporation or another enterprise of which the
person is not a member if he reasonably believes the committee merits
confidence. The term "another enterprise" as used in this Section 3 shall mean
any other corporation or any partnership, joint venture, trust, employee benefit
plan or other enterprise of which such person is or was serving at the request
of the Corporation as a director, officer, partner, trustee, employee or agent.
The provisions of this Section 3 shall not be deemed to be exclusive or to
29
<PAGE>
limit in any way the circumstances in which a person may be deemed to have met
the applicable standards of conduct set forth in Section 1 of this Article X.
Section 4. Advancement of Expenses. Expenses incurred in connection
with any civil or criminal action, suit or proceeding may be paid for or
reimbursed by the Corporation in advance of the final disposition of such
action, suit or proceeding, as authorized in the specific case in the same
manner described in Section 2 of this Article X, upon receipt of a written
affirmation of the Director, Officer, employee or agent's good faith belief that
he has met the standard of conduct described in Section 1 of this Article X and
upon receipt of a written undertaking on behalf of the Director, Officer,
employee or agent to repay such amount if it shall ultimately be determined that
he did not meet the standard of conduct set forth in this Article X, and a
determination is made that the facts then known to those making the
determination would not preclude indemnification under this Article X.
Section 5. Non-Exclusivity. The indemnification provided by this
Article X shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under these Articles of Incorporation,
the Corporation's By-Laws, any resolution of the Board of Directors or
Shareholders, any other authorization, whenever adopted, after notice, by a
majority vote of all Voting Stock then outstanding, or any contract, both as to
action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
Director, Officer, employee or agent, and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 6. Vestment of Rights. The right of any individual to
indemnification under this Article X shall vest at the time of occurrence or
performance of any event, act or omission
30
<PAGE>
giving rise to any action, suit or proceeding of the nature referred to in
Section 1 of this Article X and, once vested, shall not later be impaired as a
result of any amendment, repeal, alteration or other modification of any or all
of these provisions. Notwithstanding the foregoing, the indemnification afforded
under this Article X shall be applicable to all alleged prior acts or omissions
of any individual seeking indemnification hereunder, regardless of the fact that
such alleged acts or omissions may have occurred prior to the adoption of this
Article X. To the extent such prior acts or omissions cannot be deemed to be
covered by this Article X, the right of any individual to indemnification shall
be governed by the indemnification provisions in effect at the time of such
prior acts or omissions.
Section 7. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, Officer, employee or
agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against any liability asserted against or incurred by the
individual in that capacity or arising from the individual's status as a
Director, Officer, employee or agent, whether or not the Corporation would have
power to indemnify the individual against the same liability under this Article
X.
Section 8. Other Definitions. For purposes of this Article X,
references to the "Corporation" shall include any domestic or foreign
predecessor entity of the Corporation in a merger or other transaction in which
the predecessor's existence ceased upon consummation of the transaction.
31
<PAGE>
For purposes of this Article X, serving an employee benefit plan at the
request of the Corporation shall include any service as a Director, Officer,
employee or agent of the Corporation which imposes duties on, or involves
services by such Director, Officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries. A person who acted in
good faith and in a manner he reasonably believed to be in the best interests of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interest of the Corporation"
referred to in this Article X.
For purposes of this Article X, "party" includes any individual who is
or was a plaintiff, defendant or respondent in any action, suit or proceeding.
For purposes of this Article X, "official capacity," when used with
respect to a Director, shall mean the office of director of the Corporation; and
when used with respect to an individual other than a Director, shall mean the
office in the Corporation held by the Officer or the employment or agency
relationship undertaken by the employee or agent on behalf of the Corporation.
"Official capacity" does not include service for any other foreign or domestic
corporation or any partnership, joint venture, trust, employee benefit plan, or
other enterprise, whether for profit or not, except as set forth in Section 1 of
this Article.
Section 9. Business Expense. Any payments made to any indemnified party
under this Article X under any other right of indemnification shall be deemed to
be an ordinary and necessary business expense of the Corporation, and payment
thereof shall not subject any person responsible for the payment, or the Board
of Directors, to any action for corporate waste or to any similar action.
32
<PAGE>
Section 10. Amendment or Repeal of this Article. Notwithstanding
anything contained in the Articles of Incorporation or the By-Laws of the
Corporation to the contrary, and notwithstanding that a lesser percentage or no
vote may be specified by law, but in addition to any affirmative vote of the
holders of any particular class or series of capital stock of the Corporation
required by law or any Preferred Stock designation, the affirmative vote of the
holders of at least 80% of the voting power of all of the then outstanding
shares of Voting Stock, voting together as a single class, shall be required to
alter, amend, change or repeal this Article.
ARTICLE XI
Incorporator
The name and address of the incorporator of the corporation is as
follows:
Montgomery Savings, a Federal Association
119 East Main Street
Crawfordsville, Indiana 47933
33
<PAGE>
I, THE UNDERSIGNED, being the duly authorized Chairman of the Board of
Directors and Chief Executive Officer of Montgomery Savings, A Federal
Association, the sole incorporator, for the purpose of forming a corporation
pursuant to the Act do make these Articles of Incorporation, hereby affirming
under the penalties of perjury that this is my act and deed on behalf of
Montgomery Savings, A Federal Association and that the facts herein stated are
true and accordingly have hereunto set my hand this _______ day of
_______________ 1997.
MONTGOMERY SAVINGS, A FEDERAL
ASSOCIATION
By: _____________________________________
Name: Earl F. Elliott
Title: Chairman of the Board of Directors
and Chief Executive Officer
34
EXHIBIT 3.2
MONTGOMERY FINANCIAL CORPORATION
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors then in office
or the Chairman of the Board or Chief Executive Officer.
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time,
by the Indiana Business Corporation Law or the Articles of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity herewith. At
any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
1
<PAGE>
Section 4. Quorum.
At any meeting of the stockholders, the holders of at least one-third
of all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum for all purposes, unless or except
to the extent that the presence of a larger number may be required by law.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him
or her in order. The polls for each matter upon which the stockholders will vote
at the meeting will be opened and closed in accordance with law.
(b) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting (i) by
or at the direction of the Board of Directors, or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed to
and received at the principal executive offices of the Corporation not less than
sixty (60) days prior to the anniversary date of the mailing of proxy materials
by the Corporation in connection with the immediately proceeding annual meeting
of stockholders of the Corporation; provided, however, that with respect to the
first scheduled annual meeting, such notice by the stockholder must be received
not later than the close of business on the 10th day
2
<PAGE>
following the day on which such notice of the date of the annual meeting was
mailed to stockholders. A stockholder's notice to the Secretary shall set forth
as to each matter such stockholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the Corporation's books, of the
stockholder who proposed such business, (iii) the class and number of shares of
the Corporation's capital stock that are beneficially owned by such stockholder,
and (iv) any material interest of such stockholder in such business.
Notwithstanding anything in these By-laws to the contrary, no business shall be
brought before or conducted at an annual meeting except in accordance with the
provisions of this Section 6(b). The officer of the Corporation or other person
presiding over the annual meeting shall, if the facts so warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 6(b) and, if he should so
determine, he shall so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors or by or at the direction of the holders of not less
than one-tenth of all the outstanding capital stock of the Corporation entitled
to vote at whose instance the special meeting is called.
(c) Only persons who are nominated in accordance with the
procedures set forth in these By-laws shall be eligible for election as
directors. Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which directors are to be elected
only (i) by or at the direction of the Board of Directors or (ii) by any
stockholder of the Corporation entitled to vote for the election of directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the Corporation not
less than sixty (60) days prior to the anniversary date of the mailing of proxy
materials by the Corporation in connection with the immediately proceeding
annual meeting of stockholders of the Corporation; provided, however, that with
respect to the first scheduled annual meeting, to be timely, notice by the
stockholder must be so received not later than the close of business on the 10th
day following the day on which such notice of the date of the meeting was mailed
to stockholders. Each such notice shall set forth: (a) as to each person whom
the stockholder proposes to nominate as a director, and as to the stockholder
giving the notice, (i) the name, age, business address and residence address of
such person; (ii) the principal occupation or employment of such person; (iii)
the class and number of shares of the Corporation's stock beneficially owned by
such person on the date of the stockholder notice; and (iv) such other
information regarding such person as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the SEC; and (b) to the extent
known by the stockholder giving the notice, (i) the name and address
3
<PAGE>
of any other stockholders supporting such nominees; and (ii) the class and
number of shares of the Corporation's stock beneficially owned by any other
stockholders supporting such nominees, on the date of such stockholder notice.
At the request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the provisions of this Section 6(c). The officer of the Corporation or other
person presiding at the meeting shall, if the facts so warrant, determine that a
nomination was not made in accordance with such provisions and, if he or she
should so determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 7. Proxies and Voting.
At all meetings of stockholders, every stockholder entitled to vote may
vote in person or by proxy executed in writing (or as otherwise permitted under
applicable law) by the stockholder or his duly authorized attorney-in-fact in
accordance with the procedures established for the meeting. Proxies solicited on
behalf of the management shall be voted as directed by the stockholder or, in
the absence of such direction, as determined by a majority of the Board of
Directors. No proxy shall be valid after eleven months from the date of its
execution except for a proxy coupled with an interest.
Each stockholder shall have one (1) vote for every share of stock
entitled to vote which is registered in his or her name on the record date for
the meeting, except as otherwise provided herein or in the Articles of
Incorporation of the Corporation or as required by law.
All voting, including the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that the
Board of Directors, in its discretion, or the officer of the Corporation
presiding at the meeting of stockholders, in his discretion, may require that
any votes cast at such meeting shall be cast pursuant to a roll call. Every vote
taken by ballot shall be counted by an inspector or inspectors appointed by the
Board of Directors in advance of the meeting of stockholders and such inspector
or inspectors shall act at the meeting or any adjournment thereof and make a
written report thereof, in accordance with law.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or as provided in the Articles of
Incorporation, all other matters shall be determined by a majority of the votes
cast.
Section 8. Stock List.
The officer who has charge of the stock transfer books of the
Corporation shall prepare and make, in the time and manner required by
applicable law, a list of stockholders entitled to vote and shall make such list
available for such purposes, at such places, at such times and to such persons
as required by law. The stock transfer books shall be the only evidence as to
the
4
<PAGE>
identity of the stockholders entitled to examine the stock transfer books or to
vote in person or by proxy at any meeting of stockholders.
Section 9. Consent of Stockholders in Lieu of Meeting.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, any action required or permitted to be taken
by the stockholders of the Corporation may be taken without a meeting if a
consent in writing setting forth the action so taken shall be signed by all of
the Stockholders entitled to vote and filed with the Secretary of the
Corporation.
Section 10. Inspectors of Election.
The Board of Directors shall, in advance of any meeting of
stockholders, appoint one or more persons as inspectors of election to act at
the meeting or any adjournment thereof and make a written report thereof in
accordance with law. If for any meeting the inspector(s) appointed by the Board
of Directors shall be unable to act or the Board of Directors shall fail to
appoint any inspector, one or more inspectors may be appointed at the meeting by
the chairman therof. Such inspectors shall tabulate the voting in each election
of directors and, as described by the Board of Directors or chairman of the
meeting, the voting on the matters voted on at such meeting, and after the
voting shall make a certificate of the vote taken. Inspectors need not be
shareholders.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. The number of directors shall be
set as provided for in the Articles of Incorporation. The number of directors
who shall constitute the Whole Board shall be such number as the Board of
Directors shall from time to time have designated except that in the absence of
any such designation, such number shall be seven. The Board of Directors shall
annually elect a Chairman of the Board and a President from among its members
and shall designate, when present, either the Chairman of the Board or the
President to preside at its meetings.
The directors, other than those who may be elected by the holders of
any class or series of preferred stock, shall be divided into three classes, as
nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the conclusion
of the annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the conclusion of the annual meeting of
stockholders two years thereafter, with each
5
<PAGE>
director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, commencing with the first
annual meeting, directors elected to succeed those directors whose terms expire
shall be elected for a term of office to expire at the conclusion of the third
succeeding annual meeting of stockholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified.
No person 70 years of age shall be eligible for election, reelection,
appointment, or reappointment to the Board of the Corporation. No Director shall
serve as such beyond the annual meeting of the Corporation in the year which the
Director becomes 72. This age limitation does not apply to Emeritus Directors or
Advisory Directors.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of
preferred stock then outstanding, and unless the Board of Directors otherwise
determines, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office, though less than a quorum, and each director so chosen shall
hold office for a term expiring at the annual meeting of stockholders at which
the term of office of the class to which he or she has been elected expires, and
until such director's successor shall have been duly elected and qualified. No
decrease in the number of authorized directors constituting the Board shall
shorten the term of any incumbent director.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by one-third
(1/3) of the directors then in office (rounded up to the nearest whole number)or
by the Chairman of the Board and shall be held at such place, on such date, and
at such time as they or he or she shall fix. Notice of the place, date, and time
of each such special meeting shall be given to each director by whom it is not
waived by mailing written notice not less than five (5) days before the meeting
or by telegraphing or telexing or by facsimile transmission of the same not less
than twenty-four (24) hours before the meeting. Unless otherwise indicated in
the notice thereof, any and all business may be transacted at a special meeting.
6
<PAGE>
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the authorized
number of directors then constituting the Board shall constitute a quorum for
all purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof. Notwithstanding the above, at any adjourned meeting of
the Board of Directors, at least one-third of the authorized number of directors
then constituting the Board shall constitute a quorum for all purposes.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with
law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form
as it may determine, of written obligations of every kind,
negotiable or non-negotiable, secured or unsecured, and to
do all things necessary in connection therewith;
(4) To remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and
duties of any officer upon any other person for the time
being;
7
<PAGE>
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees
and agents;
(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for directors,
officers, employees and agents of the Corporation and its
subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers, employees and
agents of the Corporation and its subsidiaries as it may
determine; and,
(8) To adopt from time to time regulations, not inconsistent
with these Bylaws, for the management of the Corporation's
business and affairs.
8
<PAGE>
Section 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III
COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Whole Board of
Directors, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for those committees and any others provided
for herein, elect a director or directors to serve as the member or members,
designating, if it desires, other directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any committee
so designated may exercise the power and authority of the Board of Directors,
within limits prescribed by the Board of Directors, to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to Section 40-4 of the Indiana Business Corporation Law if the
resolution which designated the committee or a supplemental resolution of the
Board of Directors shall so provide. In the absence or disqualification of any
member of any committee and any alternate member in his or her place, the member
or members of the committee present at the meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may by unanimous
vote appoint another member of the Board of Directors to act at the meeting in
the place of the absent or disqualified member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing and the writing or writings are filed with the minutes of the
proceedings of such committee.
Section 3. Nominating Committee.
The Board of Directors shall appoint a Nominating Committee of the
Board, consisting of not less than three (3) members, one of which shall be the
Chairman of the Board. The
9
<PAGE>
Nominating Committee shall have authority (a) to review any nominations for
election to the Board of Directors made by a stockholder of the Corporation
pursuant to Section 6(c)(ii) of Article I of these By-laws in order to determine
compliance with such By-law, and (b) to recommend to the Whole Board nominees
for election to the Board of Directors to replace those directors whose terms
expire at the annual meeting of stockholders next ensuing.
ARTICLE IV
OFFICERS
Section 1. Generally.
(a) As soon as may be practicable after the annual meeting of
stockholders, the Board of Directors shall choose a Chairman of the Board, a
President, one or more Vice Presidents, a Secretary and a Chief Financial
Officer and from time to time may choose such other officers as it may deem
proper. The Chairman of the Board and the President shall be chosen from among
the directors. Any number of offices may be held by the same person.
(b) The term of office of all officers shall be until the next
annual election of officers and until their respective successors are chosen,
but any officer may be removed from office at any time by the affirmative vote
of a majority of the authorized number of directors then constituting the Board
of Directors.
(c) All officers chosen by the Board of Directors shall each
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article IV. Such officers shall also
have such powers and duties as from time to time may be conferred by the Board
of Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors.
The Chairman of the Board of Directors of the Corporation shall have
general responsibility for the conduct of meetings of the Board of Directors,
subject to the direction of the Board of Directors, Section 3 herein and to
Article I, Section 6.
10
<PAGE>
Section 3. President.
The President shall be the chief executive officer and, subject to the
control of the Board of Directors, shall have general power over the management
and oversight of the administration and operation of the Corporation's business
and general supervisory power and authority over its policies and affairs. He
shall see that all orders and resolutions of the Board of Directors and of any
committee thereof are carried into effect.
Each meeting of the stockholders and of the Board of Directors shall be
presided over by the Chairman of the Board, or, in his absence, the President,
or, in his absence, by such officer as has been designated by the Board of
Directors or, in his absence, by such officer or other person as is chosen at
the meeting. The Secretary or, in his absence, the General Counsel of the
Corporation or such officer as has been designated by the Board of Directors or,
in his absence, such officer or other person as is chosen by the person
presiding, shall act as secretary of each such meeting.
Section 4. Vice President.
The Vice President or Vice Presidents, if any, shall perform the duties
of the President in his absence or during his disability to act. In addition,
the Vice Presidents shall perform the duties and exercise the powers usually
incident to their respective offices and/or such other duties and powers as may
be properly assigned to them from time to time by the Board of Directors, the
Chairman of the Board or the President.
Section 5. Secretary.
The Secretary or an Assistant Secretary shall issue notices of
meetings, shall keep their minutes, shall have charge of the seal and the
corporate books, shall perform such other duties and exercise such other powers
as are usually incident to such offices and/or such other duties and powers as
are properly assigned thereto by the Board of Directors, the Chairman of the
Board or the President.
Section 6. Chief Financial Officer.
The Chief Financial Officer shall have charge of all monies and
securities of the Corporation, other than monies and securities of any division
of the Corporation which has a treasurer or financial officer appointed by the
Board of Directors, and shall keep regular books of account. The funds of the
Corporation shall be deposited in the name of the Corporation by the Chief
Financial Officer with such banks or trust companies as the Board of Directors
from time to time shall designate. He or she shall sign or countersign such
instruments as require his or her signature, shall perform all such duties and
have all such powers as are usually incident to such office and/or such other
duties and powers as are properly assigned to him or her by the Board of
Directors, the Chairman of the Board or the President, and may be required to
give
11
<PAGE>
bond for the faithful performance of his or her duties in such sum and with such
surety as may be required by the Board of Directors.
Section 7. Assistant Secretaries and Other Officers.
The Board of Directors may appoint one or more assistant secretaries
and one or more assistants to the Chief Financial Officer, or one appointee to
both such positions, which officers shall have such powers and shall perform
such duties as are provided in these By-laws or as may be assigned to them by
the Board of Directors, the Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or
any officer of the Corporation authorized by the President shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other corporation.
ARTICLE V
STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Chief Financial Officer or an
assistant to the Chief Financial Officer, certifying the number of shares owned
by him or her. Any or all of the signatures on the certificate may be by
facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these
By-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution
12
<PAGE>
or allotment of any rights or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date on which the resolution fixing the record date is adopted and
which record date shall not be more than seventy (70) nor less than ten (10)
days before the date of any meeting of stockholders, nor more than seventy (70)
days prior to the time for such other action as hereinbefore described;
provided, however, that if no record date is fixed by the Board of Directors,
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held, and,
for determining stockholders entitled to receive payment of any dividend or
other distribution or allotment of rights or to exercise any rights of change,
conversion or exchange of stock or for any other purpose, the record date shall
be at the close of business on the day on which the Board of Directors adopts a
resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI
NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, director, officer, employee
or agent shall be in writing and may in every instance be given effectively by
hand delivery to the recipient thereof, by depositing such notice in the mail,
postage paid, by sending such notice by prepaid telegram or mailgram or by
sending such notice by facsimile machine or other electronic transmission. Any
such notice shall be addressed to such stockholder, director, officer, employee
or agent at his or her
13
<PAGE>
last known address as the same appears on the books of the Corporation. The time
when such notice is received, if hand delivered, or dispatched, if delivered
through the mail, by telegram or mailgram or by facsimile machine or other
electronic transmission, shall be the time of the giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, director, officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these By-laws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name
of the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Chief Financial Officer or by an Assistant
Secretary or an assistant to the Chief Financial Officer.
Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
14
<PAGE>
Section 4. Fiscal Year.
The fiscal year of the Corporation shall begin on October 1 of each
year.
Section 5. Time Periods.
In applying any provision of these By-laws which requires that an act
be done or not be done a specified number of days prior to an event or that an
act be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded
and the day of the event shall be included.
ARTICLE VIII
AMENDMENTS
The By-laws of the Corporation may be adopted, amended or repealed as
provided in Article VI, Section 7 of the Articles of Incorporation of the
Corporation.
15
EXHIBIT 3.3
Federal Stock Charter
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION
SECTION 1. Corporate title. The full corporate title of the association
is "Montgomery Savings, A Federal Association"
SECTION 2. Office. The home office shall be located in the City of
Crawfordsville, County of Montgomery, in the State of Indiana.
SECTION 3. Duration. The duration of the association is perpetual.
SECTION 4. Purpose and powers. The purpose of the association is to
pursue any or all of the lawful objectives of a federal savings association
chartered under SECTION 5 of the Home Owners' Loan Act and to exercise all of
the express, implied, and incidental powers conferred thereby and by all acts
amendatory thereof and supplemental thereto, subject to the Constitution and
laws of the United States as they are now in effect, or as they may hereafter be
amended, and subject to all lawful and applicable rules, regulations, and orders
of the Office of Thrift Supervision ("Office").
SECTION 5. Capital stock. The total number of shares of all classes of
the capital stock that the association has the authority to issue is ten million
(10,000,000), of which eight million (8,000,000) shall be common stock of par
value of $.01 per share, and of which two million (2,000,000) shall be serial
preferred stock of par value $.01 per share. The shares may be issued from time
to time as authorized by the board of directors without further approval of
stockholders, except as otherwise provided in this SECTION 5 or to the extent
that such approval is required by governing law, rule or regulation. The
consideration for the issuance of the shares shall be paid in full before their
issuance and shall not be less than the par value. Neither promissory notes nor
future services shall constitute payment or part payment for the issuance of
shares of the association. The consideration for the shares shall be cash,
tangible or intangible property (to the extent direct investment in such
property would be permitted to the association), labor, or services actually
performed for the association, or any combination of the foregoing. In the
absence of actual fraud in the transaction, the value of such property, labor,
or services, as determined by the board of directors of the association, shall
be conclusive. Upon payment of such consideration, such shares shall be deemed
to be fully paid and nonassessable. In the case of a stock dividend, that part
of the retained earnings of the association that is transferred to common stock
or paid-in capital accounts upon the issuance of shares as a stock dividend
shall be deemed to be the consideration for their issuance.
Except for shares issued in the initial organization of the association
or in connection with the conversion of the association from the mutual to the
stock form of capitalization, no shares of capital stock (including shares
issuable upon conversion, exchange, or exercise of other securities) shall be
issued, directly or indirectly, to officers, directors, or controlling persons
of the association other than as part of a general public offering or as
qualifying shares to a director, unless their issuance or the plan under which
they would be issued has been approved by a majority of the total votes eligible
to be cast at a legal meeting.
1
<PAGE>
Nothing contained in this SECTION 5 (or in any supplementary sections
hereto) shall entitle the holders of any class of a series of capital stock to
vote as a separate class or series, or to more than one vote per share:
Provided, That this restriction on voting separately by class or series shall
not apply:
(i) To any provision that would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the
board of directors, less than a majority thereof, in the event of
default in the payment of dividends on any class or series of
preferred stock;
(ii) To any provision which would require the holders of preferred
stock, voting as a class or series, to approve the merger or
consolidation of the association with another corporation or the
sale, lease, or conveyance (other than by mortgage or pledge) of
properties or business in exchange for securities of a
corporation other than the association if the preferred stock is
exchanged for securities of such other corporation: Provided,
That no provision may require such approval for transactions
undertaken with the assistance or pursuant to the direction of
the Office or the Federal Deposit Insurance Corporation;
(iii) To any amendment which would adversely change the specific terms
of any class or series of capital stock as set forth in this
SECTION 5 (or in any supplementary sections hereto), including
any amendment which would create or enlarge any class or series
ranking prior thereto in rights and preferences. An amendment
which increases the number of authorized shares of any class or
series of capital stock, or substitutes the surviving association
in a merger or consolidation for the association, shall not be
considered to be such an adverse change.
A description of the different classes and series (if any) of the
association's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class and
series (if any) of capital stock are as follows:
A. Common stock. Except as provided in this SECTION 5 (or in any
supplementary sections thereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common stock
shall be entitled to one vote for each share held by such holder.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full amount
of dividends and of sinking fund, retirement fund, or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out of any
assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
association, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind,
2
<PAGE>
the assets of the association available for distribution remaining after: (i)
Payment or provision for payment of the association's debts and liabilities;
(ii) distributions or provision for distributions in settlement of its
liquidation account; and (iii) distributions or provisions for distributions to
holders of any class or series of stock having preference over the common stock
in the liquidation, dissolution, or winding up of the association. Each share of
common stock shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
B. Preferred Stock. The association may provide in supplementary
sections to its charter for one or more classes of preferred stock, which shall
be separately identified. The shares of any class may be divided into and issued
in series, with each series separately designated so as to distinguish the
shares thereof from the shares of all other series and classes. The terms of
each series shall be set forth in a supplementary section to the charter. All
shares of the same class shall be identical except as to the following relative
rights and preferences, as to which there may be variations between different
series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and,
if so, from which date(s), the payment date(s) for dividends, and
the participating or other special rights, if any, with respect
to dividends;
(c) The voting powers, full or limited, if any, of shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which such
shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding
up of the association;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application, including
the price(s) at which such shares may be redeemed or purchased
through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock
of the association and, if so, the conversion price(s), or the
rate(s) of exchange, and the adjustments thereof, if any, at
which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
3
<PAGE>
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares
of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established
by a supplementary charter section adopted by the board of directors, the
association shall file with the Secretary to the Office a dated copy of that
supplementary section of this charter established and designating the series and
fixing and determining the relative rights and preferences thereof.
SECTION 6. Preemptive rights. Holders of the capital stock of the
association shall not be entitled to preemptive rights with respect to any
shares of the association which may be issued.
SECTION 7. Directors. The association shall be under the direction of a
board of directors. The authorized number of directors, as stated in the
association's bylaws, shall not be fewer than five nor more than fifteen except
when a greater or lesser number is approved by the Director of the Office or his
or her delegate.
SECTION 8. Beneficial ownership limitation. Notwithstanding anything
contained in the association's charter or bylaws to the contrary, for a period
of five years from the effective date of this charter, no person other than
First Robinson Financial Corporation, the parent holding company of the
association shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of an equity security of the
association. This limitation shall not apply to a transaction in which the
association forms a holding company without change in the respective beneficial
ownership interests of its stockholders other than pursuant to the exercise of
any dissenter and appraisal rights, the purchase of shares by underwriters in
connection with a public offering, or the purchase of shares by a tax-qualified
employee stock benefit plan which is exempt from the approval requirements under
Section 574.3(c)(1)(vi) of the Office's regulations.
In the event shares are acquired in violation of this SECTION 8, all
shares beneficially owned by any person in excess of 10% shall be considered
"excess shares" and shall not be counted as shares entitled to vote and shall
not be voted by any person or counted as voting shares in connection with any
matters submitted to the stockholders for a vote.
For purposes of this SECTION 8, the following definitions apply:
4
<PAGE>
(1) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of the
equity securities of the association.
(2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value.
(3) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangements,
whether written or otherwise.
SECTION 9. Cumulative voting limitation. Stockholders shall be
permitted to cumulate their votes for election of directors.
SECTION 10. Call for special meetings. Special meetings of stockholders
relating to changes in control of the association or amendments to its charter
shall be called only upon direction of the board of directors.
SECTION 11. Priority of accounts. In any situation which the priority
of the accounts of the association is in controversy, all such accounts shall,
to the extent of their withdrawable value, be debts of the association having at
least as high a priority as the claims of general creditors of the association
not having priority (other than any priority arising or resulting from
consensual subordination) over other general creditors of the association.
SECTION 12. Amendment of charter. Except as provided in SECTION 5, no
amendment, addition, alteration, change or repeal of this charter shall be made,
unless such is first proposed by the board of directors of the association,
approved by the shareholders by a majority of the votes eligible to be cast at a
legal meeting, unless a higher vote is otherwise required, and approved or
preapproved by the Office.
5
<PAGE>
FIRST ROBINSON SAVINGS AND LOAN, F.A.
ATTEST: _____________________________ By: _________________________________
Nancy L. McCormick, Secretary Earl F. Elliott,
President and Chief
Executive Officer
DIRECTOR OF THE OFFICE OF
THRIFT SUPERVISION
ATTEST: _____________________________ By: ______________________________
Secretary of the Office of Director of the
Thrift Supervision Office of Supervision
Declared effective this ____ day of ___________, 1997.
6
EXHIBIT 3.4
STOCK BYLAWS
OF
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION
Article I - Home Office
The home office of the association shall be at 119 East Main Street, in
the County of Montgomery, in the State of Indiana.
Article II - Shareholders
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the association or at such
other convenient place as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the
association for the election of directors and for the transaction of any other
business of the association shall be held annually within 150 days after the end
of the association's fiscal year on the fourth Tuesday of each November if not a
legal holiday, and if a legal holiday, then on the next day following which is
not a legal holiday, at 8:00 a.m., or at such other date and time within such
150-day period as the board of directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the association entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the association addressed to the
chairman of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws or the
board of directors adopts another written procedure for the conduct of meetings.
The board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day,
and hour of the meeting and the purpose(s) for which the meeting is called shall
be delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder
1
<PAGE>
at the address as it appears on the stock transfer books or records of the
association as of the record date prescribed in section 6 of this article II
with postage prepaid. When any shareholders' meeting, either annual or special,
is adjourned for 30 days or more, notice of the adjourned meeting shall be given
as in the case of an original meeting. It shall not be necessary to give any
notice of the time and place of any meeting adjourned for less than 30 days or
of the business to be transacted at the meeting, other than an announcement at
the meeting at which such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the association shall make a complete list of the shareholders of
record entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each. This
list of shareholders shall be kept on file at the home office of the association
and shall be subject to inspection by any shareholder of record or the
shareholder's agent at any time during usual business hours for a period of 20
days prior to such meeting. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to inspection by any
shareholder of record or any shareholder's agent during the entire time of the
meeting. The original stock transfer book shall constitute prima facie evidence
of the shareholders entitled to examine such list or transfer books or to vote
at any meeting of shareholders. In lieu of making the shareholder list available
for inspection by shareholders as provided in the preceding paragraph, the board
of directors may elect to follow the procedures prescribed in ss. 552.6(d) of
the Office's regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the
association entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of the
outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to constitute less than a quorum. If a quorum is present,
the affirmative vote of the majority of the shares represented at the meeting
and entitled to vote on the subject matter shall be the act of the shareholders,
unless the vote of a greater number of shareholders voting together or voting by
classes is
2
<PAGE>
required by law or the charter. Directors, however, are elected by a plurality
of the votes cast at an election of directors.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies may be given telephonically or
electronically as long as the holder uses a procedure for verifying the identity
of the shareholder. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the association to the contrary, at any meeting of the
shareholders of the association any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares held in trust in an IRA or Keogh Account, however, may be voted by the
association if no other instructions are received. Shares standing in the name
of a receiver may be voted by such receiver, and shares held by or under the
control of a receiver may be voted by such receiver without the transfer into
his or her name if authority to do so is contained in an appropriate order of
the court or other public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the association nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
association, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
3
<PAGE>
Section 12. Cumulative Voting. Every shareholder entitled to vote at an
election for directors shall have the right to vote, in person or by proxy, the
number of shares owned by the shareholder for as many persons as there are
directors to be elected and for whose election the shareholder has a right to
vote, or to cumulate the votes by giving one candidate as many votes as the
number of such directors to be elected multiplied by the number of shares shall
equal or by distributing such votes on the same principle among any number of
candidates.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of nominee substituted as a result of the death or
other incapacity of a management nominee, the nominating committee shall deliver
written nominations to the secretary at least 20 days prior to the date of the
annual meeting. Upon delivery, such nominations shall be posted in a conspicuous
place in each office of the association. No nominations for directors except
those made by the nominating committee shall be voted upon at the annual meeting
unless other nominations by shareholders are made in writing and delivered to
the secretary of the association at least five days prior to the date of the
annual meeting. Upon delivery, such nominations shall be posted in a conspicuous
place in each office of the association. Ballots bearing the names of all
persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
Section 15. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the
association at least five days before
4
<PAGE>
the date of the annual meeting, and all business so stated, proposed, and filed
shall be considered at the annual meeting; but no other proposal shall be acted
upon at the annual meeting. Any shareholder may make any other proposal at the
annual meeting and the same may be discussed and considered, but unless stated
in writing and filed with the secretary at least five days before the meeting,
such proposal shall be laid over for action at an adjourned, special, or annual
meeting of the shareholders taking place 30 days or more thereafter. This
provision shall not prevent the consideration and approval or disapproval at the
annual meeting of reports of officers, directors, and committees; but in
connection with such reports, no new business shall be acted upon at such annual
meeting unless stated and filed as herein provided.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
Article III - Board of Directors
Section 1. General Powers. The business and affairs of the association
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of
sixmembers, and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be elected
by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this bylaw following the
annual meeting of shareholders. The board of directors may provide, by
resolution, the time and place, for the holding of additional regular meetings
without other notice than such resolution. Directors may participate in a
meeting by means of a conference telephone or similar communications device
through which all persons participating can hear each other at the same time.
Participation by such means shall constitute presence in person for all
purposes.
Section 4. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the association
unless the association is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the association's normal
lending territory, as the place for holding any special meeting of the board of
directors called by such persons.
5
<PAGE>
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such participation
shall constitute presence in person for all purposes.
Section 6. Notice. Written notice of any special meeting shall be given
to each director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, when delivered to the telegraph company if sent by telegram,
or when the association receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing filed
with the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by
section 2 of this article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by section 5 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
Section 10. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the association
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president. More than three consecutive absences from regular
meetings of the board of directors, unless excused by resolution of the board of
directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the board of directors.
Section 11. Vacancies. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve only until the next election of
directors by the shareholders. Any directorship to be filled by reason of an
6
<PAGE>
increase in the number of directors may be filled by election by the board of
directors for a term of office continuing only until the next election of
directors by the shareholders.
Section 12. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
attendance at committee meetings as the board of directors may determine.
Section 13. Presumption of Assent. A director of the association who is
present at a meeting of the board of directors at which action on any
association matter is taken shall be presumed to have assented to the action
taken unless his or her dissent or abstention shall be entered in the minutes of
the meeting or unless he or she shall file a written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the secretary of the
association within five days after the date a copy of the minutes of the meeting
is received. Such right to dissent shall not apply to a director who voted in
favor of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director may be removed only for cause by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. If cumulative voting has
been deleted, the preceding sentence should be deleted. Whenever the holders of
the shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
Article IV - Executive and Other Committees
Section 1. Appointment. The board of directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
charter or
7
<PAGE>
bylaws of the association, or recommending to the shareholders a plan of merger,
consolidation, or conversion; the sale, lease, or other disposition of all or
substantially all of the property and assets of the association otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
association; a revocation of any of the foregoing; or the approval of a
transaction in which any member of the executive committee, directly or
indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of section 8 of this
article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the association. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these
8
<PAGE>
bylaws. It shall keep regular minutes of its proceeding and report the same to
the board of directors for its information at the meeting held next after the
proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
association and may prescribe the duties, constitution, and procedures thereof.
Article V - Officers
Section 1. Positions. The officers of the association shall be a
president, one or more vice presidents, a secretary, and a treasurer or
comptroller, each of whom shall be elected by the board of directors. The board
of directors may also designate the chairman of the board as an officer. The
offices of the secretary and treasurer or comptroller may be held by the same
person and a vice president may also be either the secretary or the treasurer or
comptroller. The board of directors may designate one or more vice presidents as
executive vice president or senior vice president. The board of directors may
also elect or authorize the appointment of such other officers as the business
of the association may require. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
Section 2. Election and Term of Office. The officers of the association
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the shareholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly elected
and qualified or until the officer's death, resignation, or removal in the
manner hereinafter provided. Election or appointment of an officer, employee, or
agent shall not of itself create contractual rights. The board of directors may
authorize the association to enter into an employment contract with any officer
in accordance with regulations of the Office; but no such contract shall impair
the right of the board of directors to remove any officer at any time in
accordance with section 3 of this article V.
Section 3. Removal. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the association will be
served thereby, but such removal, other than for cause, shall be without
prejudice to the contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors.
9
<PAGE>
Article VI - Contracts, Loans, Checks, and Deposits
Section 1. Contracts. To the extent permitted by regulations of the
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee, or agent of the association to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the association.
Such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
association and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the association shall be signed by one or more officers, employees or
agents of the association in such manner as shall from time to time be
determined by the board of directors.
Section 4. Deposits. All funds of the association not otherwise
employed shall be deposited from time to time to the credit of the association
in any duly authorized depositories as the board of directors may select.
Article VII - Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the association shall be in such form as shall be determined by
the board of directors and approved by the Office. Such certificates shall be
signed by the chief executive officer or by any other officer of the association
authorized by the board of directors, attested by the secretary or an assistant
secretary, and sealed with the corporate seal or a facsimile thereof. The
signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the association itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the association. All certificates surrendered to the association for transfer
shall be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares has been surrendered and cancelled,
except that in the case of a lost or destroyed certificate, a new certificate
may be issued upon such terms and indemnity to the association as the board of
directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
the association shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the association. Such transfer shall be made only on surrender for cancellation
of the
10
<PAGE>
certificate for such shares. The person in whose name shares of capital stock
stand on the books of the association shall be deemed by the association to be
the owner for all purposes.
Article VIII - Fiscal Year
The fiscal year of the association shall end on the 31st day of October
of each year. The appointment of accountants shall be subject to annual
ratification by the shareholders.
Article IX - Dividends
Subject to the terms of the association's charter and the regulations
and orders of the Office, the board of directors may, from time to time,
declare, and the association may pay, dividends on its outstanding shares of
capital stock.
Article X - Corporate Seal
The board of directors shall provide an association seal which shall be
two concentric circles between which shall be the name of the association. The
year of incorporation or an emblem may appear in the center.
Article XI - Amendments
These bylaws may be amended in a manner consistent with regulations of
the Office and shall be effective after: (i) approval of the amendment by a
majority vote of the authorized board of directors, or by a majority vote of the
votes cast by the shareholders of the association at any legal meeting, and (ii)
receipt of any applicable regulatory approval. When an association fails to meet
its quorum requirements, solely due to vacancies on the board, then the
affirmative vote of a majority of the sitting board will be required to amend
the bylaws.
11
EXHIBIT 4
NUMBER _____
COMMON STOCK
CUSIP No. ____________
MONTGOMERY FINANCIAL CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF INDIANA
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER
SHARE OF
MONTGOMERY FINANCIAL CORPORATION (the "Corporation"), an Indiana corporation.
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate is not valid until countersigned
and registered by the Corporation's transfer agent and registrar. This security
is not a deposit or account and is not federally insured or guaranteed.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
DATED _________________
_______________________________________ ________________________________
Nancy L. McCormick, Corporate Secretary Earl F. Elliott, President and
Chief Executive Officer
[Seal]
Countersigned and Registered
____________________________
Transfer Agent and Registrar
<PAGE>
MONTGOMERY FINANCIAL CORPORATION
The shares represented by this certificate are issued subject to all
the provisions of the certificate of incorporation and bylaws of the Corporation
as from time to time amended (copies of which are on file at the principal
executive offices of the Corporation).
The Corporation's certificate of incorporation provides that no
"person" (as defined in the certificate of incorporation) who "beneficially
owns" (as defined in the certificate of incorporation) in excess of 10% of the
outstanding shares of the Corporation shall be entitled to vote any shares held
in excess of such limit. This provision of the certificate of incorporation
shall not apply to an acquisition of securities of the Corporation by an
employee stock purchase plan or other employee benefit plan of the Corporation
or any of its subsidiaries.
The Corporation's certificate of incorporation also includes a
provision the general effect of which is to require the affirmative vote of the
holders of 80% of the outstanding voting shares of the Corporation to approve
certain "business combinations" (as defined in the certificate of incorporation)
between the Corporation and a stockholder owning in excess of 10% of the
outstanding shares of the Corporation. However, only the affirmative vote of a
majority of the outstanding shares or such vote as is otherwise required by law
(rather than the 80% voting requirement) is applicable to the particular
transaction if it is approved by a majority of the "disinterested directors" (as
defined in the certificate of incorporation) or, alternatively, the transaction
satisfies certain minimum price and procedural requirements. The Corporation's
certificate of incorporation also contains a provision which requires the
affirmative vote of holders of at least 80% of the outstanding voting shares of
the Corporation which are not beneficially owned by the "interested person" (as
defined in the certificate of incorporation) to approve the direct or indirect
purchase or other acquisition by the Corporation of any "equity security" (as
defined in the certificate of incorporation) from such interested person.
The Corporation will furnish to any stockholder upon request and
without charge a full statement of the powers, designations, preferences and
relative participating, optional or other special rights of each authorized
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights, to the extent that the same have
been fixed, and of the authority of the board of directors to designate the same
with respect to other series. Such request may be made to the Corporation or to
its transfer agent and registrar.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
UNIF GIFT MIN ACT ______ Custodian ___________
(Cust) (Minor)
TEN ENT - as tenants by the entirety
Under Uniform Gift to Minors Act --___________
(State)
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common.
UNIF TRANS MIN ACT ______ Custodian __________
(Cust) (Minor)
Under Uniform Transfers to Minors Act--_______
(State)
<PAGE>
Additional abbreviations may also be used though not in the above list.
For Value Received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------
- ------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________ Shares of Common Stock represented by the within
certificate, and do hereby irrevocably constitute and appoint___________________
Attorney to transfer the said shares on the books of the within named
Association with full power of substitution in the premises.
Dated ____________________ ___________________________
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN
UPON THE FACE OF THE
CERTIFICATE IN EVERY
PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
EXHIBIT 5
April 7, 1997
The Board of Directors
Montgomery Financial Corporation
119 East Main Street
Crawfordsville, Indiana 47933
Re: Registration Statement
Under the Securities Act of 1933
Gentlemen:
This opinion is rendered in connection with the Registration Statement
to be filed on Form S-1 with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the 1,475,257 shares of Common Stock of
Montgomery Financial Corporation (the "Company"), par value $.01 per share, to
be issued. As counsel, we have reviewed the Certificate of Incorporation of the
Company and such other documents as we have deemed appropriate for the purpose
of this opinion. We are rendering this opinion as of the time the Registration
Statement referred to above becomes effective.
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the aforesaid Registration Statement will, when
sold, be validly issued, fully paid and non-assessable shares of Common Stock of
the Company.
Very truly yours,
/s/ SILVER FREEDMAN & TAFF, L.L.P.
SILVER FREEDMAN & TAFF, L.L.P.
EXHIBIT 8.3
[KELLER & COMPANY LETTERHEAD]
April 2, 1997
Board of Directors
Montgomery Savings, A Federal Association
119 E. Main Street
P.O. Box 776
Crawfordsville, Indiana 47933-0776
Re: Subscription Rights -- Montgomery Financial Corporation
Crawfordsville, Indiana
Gentlemen:
The purpose of this letter is to provide an opinion of the value of the
subscription rights of the "to be issued" common stock of Montgomery Financial
Corporation ("Montgomery" or the "Corporation"), Crawfordsville, Indiana, in
regard to the conversion of Montgomery Mutual Holding from a federally-chartered
mutual holding company to a federally-chartered stock savings and loan holding
company.
Because the Subscription Rights to purchase shares of Common Stock in
Montgomery, which are to be issued to the depositors of Montgomery Savings and
the other members of Montgomery Savings and will be acquired by such recipients
without cost, will be nontransferable and of short duration and will afford the
recipients the right only to purchase shares of Common Stock at the same price
as will be paid by members of the general public in a Direct Community Offering,
we are of the opinion that:
(1) The Subscription Rights will have no ascertainable fair market value,
and;
(2) The price at which the Subscription Rights are exercisable will not be
more or less than the fair market value of the shares on the date of
the exercise.
Further, it is our opinion that the Subscription Rights will have no economic
value on the date of distribution or at the time of exercise, whether or not a
community offering takes place.
Sincerely,
KELLER & COMPANY, INC.
/s/ Michael R. Keller
Michael R. Keller
President
EXHIBIT 10.1
MONTGOMERY FINANCIAL CORPORATION
1997 STOCK OPTION AND INCENTIVE PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, advisory directors, directors emeriti, offi
cers and employees of the Corporation and its Affiliates. It is intended that
designated Options granted pursuant to the provisions of this Plan to persons
employed by the Corporation or its Affiliates will qualify as Incentive Stock
Options. Options granted to persons who are not employees will be Non-Qualified
Stock Options.
2. Definitions. The following definitions are applicable to the Plan:
"Affiliate" - means any "parent corporation" or "subsidiary corporation"
of the Corporation, as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Association" - means Montgomery Savings, A Federal Association and any
successor entity.
"Award" - means the grant of an Incentive Stock Option, a Non-Qualified
Stock Option, a Stock Appreciation Right, a Limited Stock Appreciation Right or
any combination thereof, as provided in the Plan.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee referred to in Section 3 hereof.
"Continuous Service" - means the absence of any interruption or
termination of service as a director, advisory director, director emeritus,
officer or employee of the Corporation or an Affiliate, except that when used
with re spect to any Options or Rights which at the time of exercise are
intended to be Incentive Stock Options, continuous service means the absence of
any interruption or termination of service as an employee of the Corporation or
an Affiliate. Service shall not be considered interrupted in the case of sick
leave, military leave or any other leave of absence approved by the Corporation
or in the case of transfers between payroll locations of the Corporation or
between the Corporation, its parent, its subsidiaries or its successor. With
respect to any advisory director or director emeritus, continuous service shall
mean availability to perform such functions as may be required of such persons.
"Conversion and Reorganization" - means (i) the conversion of Montgomery
Mutual Holding Company from mutual form to a federal interim stock savings
association and its merger into the Association and (ii) the merger transaction
pursuant to which the Association will become a wholly owned subsidiary of the
Corporation.
"Corporation" -- means Montgomery Financial Corporation, an Indiana
corporation.
"Employee" - means any person, including an officer or director, who is
employed by the Corporation or any Affiliate.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
"Exercise Price" - means (i) in the case of an Option, the price per Share
at which the Shares subject to such Option may be purchased upon exercise of
such Option and (ii) in the case of a Right, the price per Share (other than the
Market Value per Share on the date of exercise and the Offer Price per Share as
defined in Section 10 hereof) which, upon grant, the Committee determines shall
be utilized in calculating the aggregate value which a Participant shall be
entitled to receive pursuant to Sections 9, 10 or 12 hereof upon exercise of
such Right.
1
<PAGE>
"Incentive Stock Option" - means an option to purchase Shares granted by
the Committee pursuant to Section 6 hereof which is subject to the limitations
and restrictions of Section 8 hereof and is intended to qualify under Section
422(b) of the Code.
"Limited Stock Appreciation Right" - means a stock appreciation right with
respect to Shares granted by the Committee pursuant to Sections 6 and 10 hereof.
"Market Value" - means the average of the high and low quoted sales price
on the date in question (or, if there is no reported sale on such date, on the
last preceding date on which any reported sale occurred) of a Share on the
Composite Tape for the New York Stock Exchange-Listed Stocks, or, if on such
date the Shares are not quoted on the Composite Tape, on the New York Stock
Exchange, or, if the Shares are not listed or admitted to trading on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which the Shares are listed or admitted
to trading, or, if the Shares are not listed or admitted to trading on any such
exchange, the mean between the closing high bid and low asked quotations with
respect to a Share on such date on the NASDAQ System, or any similar system then
in use, or, if no such quotations are available, the fair market value on such
date of a Share as the Committee shall determine.
"Non-Employee Director" - means a director who a) is not currently an
officer or employee of the Corporation; b) is not a former employee of the
Corporation who receives compensation for prior services (other than from a
tax-qualified retirement plan); c) has not been an officer of the Corporation;
d) does not receive remuneration from the Corporation in any capacity other than
as a director; and e) does not possess an interest in any other transactions or
is not engaged in a business relationship for which disclosure would be required
under Item 404(a) or (b) of Regulation S-K.
"Non-Qualified Stock Option" - means an option to purchase Shares granted
by the Committee pursuant to Section 6 hereof which is not intended to qualify
under Section 422(b) of the Code.
"Option" - means an Incentive Stock Option or a Non-Qualified Stock
Option.
"Participant" - means any director, advisory director, director emeritus,
officer or employee of the Corporation or any Affiliate who is selected by the
Committee to receive an Award.
"Plan" - means the 1997 Stock Option and Incentive Plan of the
Corporation.
"Related" - means (i) in the case of a Right, a Right which is granted in
connection with, and to the extent exercisable, in whole or in part, in lieu of,
an Option or another Right and (ii) in the case of an Option, an Option with
respect to which and to the extent a Right is exercisable, in whole or in part,
in lieu thereof has been granted.
"Right" - means a Limited Stock Appreciation Right or a Stock Appreciation
Right.
"Shares" - means the shares of common stock of the Corporation.
"Stock Appreciation Right" - means a stock appreciation right with respect
to Shares granted by the Committee pursuant to Sections 6 and 9 hereof.
"Ten Percent Beneficial Owner" - means the beneficial owner of more than
ten percent of any class of the Corporation's equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
3. Administration. The Plan shall be administered by a Committee
consisting of two or more members, each of whom shall be a Non-Employee
Director. The members of the Committee shall be appointed by the Board of
Directors of the Corporation. Except as limited by the express provisions of the
Plan, the Committee shall have sole and complete authority and discretion,
subject to Office of Thrift Supervision Regulations, to the extent applicable,
to (i) select Participants and grant Awards; (ii) determine the number of Shares
to be subject to types of Awards generally, as well as to individual Awards
granted under the Plan; (iii) determine the terms and
2
<PAGE>
conditions upon which Awards shall be granted under the Plan; (iv) prescribe the
form and terms of instruments evidencing such grants; and (v) establish from
time to time regulations for the administration of the Plan, interpret the Plan,
and make all determinations deemed necessary or advisable for the administration
of the Plan.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be acts of the Committee.
4. Participation in Committee Awards. The Committee may select from time
to time Participants in the Plan from those directors (including advisory
directors and directors emeriti), officers and employees of the Corporation or
its Affiliates who, in the opinion of the Committee, have the capacity for
contributing to the successful per formance of the Corporation or its
Affiliates.
5. Shares Subject to Plan. Subject to adjustment by the operation of
Section 11 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 10% of the Shares issued in the Conversion and
Reorganization (excluding Shares issued in exchange for shares of the
Association). The Shares with respect to which Awards may be made under the Plan
may be either authorized and unissued shares or issued shares heretofore or
hereafter reacquired and held as treasury shares. Shares which are subject to
Related Rights and Related Options shall be counted only once in determining
whether the maximum number of Shares with respect to which Awards may be granted
under the Plan has been exceeded. An Award shall not be considered to have been
made under the Plan with respect to any Option or Right which terminates and new
Awards may be granted under the Plan with respect to the number of Shares as to
which such termination has occurred.
6. General Terms and Conditions of Options and Rights. The Committee shall
have full and complete authority and discretion, subject to Office of Thrift
Supervision Regulations and except as expressly limited by the Plan, to grant
Options and/or Rights and to provide the terms and conditions (which need not be
identical among Participants) thereof. In particular, the Committee shall
prescribe the following terms and conditions: (i) the Exercise Price of any
Option or Right, which shall not be less than the Market Value per Share at the
date of grant of such Option or Right, (ii) the number of Shares subject to, and
the expiration date of, any Option or Right, which expiration date shall not
exceed ten years from the date of grant, (iii) the manner, time and rate
(cumulative or otherwise) of exercise of such Option or Right, and (iv) the
restrictions, if any, to be placed upon such Option or Right or upon Shares
which may be issued upon exercise of such Option or Right. To the extent Office
of Thrift Supervision Regulations are applicable to this Plan, each non-employee
director of the Corporation may not be granted Awards with respect to more than
5% of the total shares subject to the Plan and all non-employee directors of the
Corporation, in the aggregate, may not be granted Awards with respect to more
than 30% of the total shares subject to the Plan. Notwithstanding the foregoing
and subject to compliance with applicable Office of Thrift Supervision
Regulations, if applicable, no individual shall be granted Awards in any
calendar year with respect to more than 25% of the total shares subject to the
Plan in any calendar year or during the entire term of the Plan.
Any Award made pursuant to this Plan, which Award is subject to the
requirements of Office of Thrift Supervision Regulations, shall vest in five
equal annual installments with the first installment vesting on the one-year
anniversary of the date of grant, except in the event of death or disability. In
the event Office of Thrift Supervision Regulations are amended (the "Amended
Regulations") to permit shorter vesting periods, any Award made pursuant to this
Plan, which Award is subject to the requirements of such Amended Regulations,
may vest, at the sole discretion of the Committee, in accordance with such
Amended Regulations.
Furthermore, at the time of any Award, the Participant shall enter into an
agreement with the Corporation in a form specified by the Committee, agreeing to
the terms and conditions of the Award and such other matters as the Committee,
in its sole discretion, shall determine (the "Option Agreement").
7. Exercise of Options or Rights.
(a) Except as provided herein, an Option or Right granted under the Plan shall
be exercisable during the lifetime of the Participant to whom such Option
or Right was granted only by such Participant and, except as provided
3
<PAGE>
in paragraphs (c) and (d) of this Section 7, no such Option or Right may
be exercised unless at the time such Participant exercises such Option or
Right, such Participant has maintained Continuous Service since the date
of grant of such Option or Right.
(b) To exercise an Option or Right under the Plan, the Participant to whom
such Option or Right was granted shall give written notice to the
Corporation in form satisfactory to the Committee (and, if partial
exercises have been permitted by the Committee, by specifying the number
of Shares with respect to which such Participant elects to exercise such
Option or Right) together with full payment of the Exercise Price, if any
and to the extent required. The date of exercise shall be the date on
which such notice is received by the Corporation. Payment, if any is
required, shall be made either (i) in cash (including check, bank draft or
money order) or (ii) by delivering (A) Shares already owned by the
Participant and having a fair market value equal to the applicable
exercise price, such fair market value to be determined in such
appropriate manner as may be provided by the Committee or as may be
required in order to comply with or to conform to requirements of any
applicable laws or regulations, or (B) a combination of cash and such
Shares.
(c) If a Participant to whom an Option or Right was granted shall cease to
maintain Continuous Service for any reason (excluding death, disability
and termination of employment by the Corporation or any Affiliate for
cause), such Participant may, but only within the period of three months
immediately succeeding such cessation of Continuous Service and in no
event after the expiration date of such Option or Right, exercise such
Option or Right to the extent that such Participant was entitled to
exercise such Option or Right at the date of such cessation, provided,
however, that such right of exercise after cessation of Continuous Service
shall not be available to a Participant if the Committee otherwise
determines and so provides in the applicable instrument or instruments
evidencing the grant of such Option or Right. If a Participant to whom an
Option or Right was granted shall cease to maintain Continuous Service by
reason of death or disability then, unless the Committee shall have
otherwise provided in the instrument evidencing the grant of an Option or
Right, all Options and Rights granted and not fully exercisable shall
become exercisable in full upon the happening of such event and shall
remain so exercisable (i) in the event of death for the period described
in paragraph (d) of this Section 7 and (ii) in the event of disability for
a period of three months following such date. If the Continuous Service of
a Participant to whom an Option or Right was granted by the Corporation is
terminated for cause, all rights under any Option or Right of such
Participant shall expire immediately upon the effective date of such
termination.
(d) In the event of the death of a Participant while in the Continuous Service
of the Corporation or an Affiliate or within the three-month period
referred to in paragraph (c) of this Section 7, the person to whom any
Option or Right held by the Participant at the time of his death is
transferred by will or the laws of descent and distribution, or in the
case of an Award other than an Incentive Stock Option, pursuant to a
qualified domestic relations order, as defined in the Code or Title 1 of
ERISA or the rules thereunder may, but only to the extent such Participant
was entitled to exercise such Option or Right upon his death as provided
in paragraph (c) above, exercise such Option or Right at any time within a
period of one year succeeding the date of death of such Participant, but
in no event later than ten years from the date of grant of such Option or
Right. Following the death of any Participant to whom an Option was
granted under the Plan, irrespective of whether any Related Right shall
have theretofore been granted to the Participant or whether the person
entitled to exercise such Related Right desires to do so, the Committee
may, as an alternative means of settlement of such Option, elect to pay to
the person to whom such Option is transferred by will or by the laws of
descent and distribution, or in the case of an Option other than an
Incentive Stock Option, pursuant to a qualified domestic relations order,
as defined in the Code or Title I of ERISA or the rules thereunder, the
amount by which the Market Value per Share on the date of exercise of such
Option shall exceed the Exercise Price of such Option, multiplied by the
number of Shares with respect to which such Option is properly exercised.
Any such settlement of an Option shall be considered an exercise of such
Option for all purposes of the Plan.
8. Incentive Stock Options. Incentive Stock Options may be granted only to
Participants who are Employees. Any provision of the Plan to the contrary
notwithstanding, (i) no Incentive Stock Option shall be granted more than ten
years from the date the Plan is adopted by the Board of Directors of the
Corporation and no Incentive Stock Option shall be exercisable more than ten
years from the date such Incentive Stock Option is granted, (ii) the
4
<PAGE>
Exercise Price of any Incentive Stock Option shall not be less than the Market
Value per Share on the date such Incentive Stock Option is granted, (iii) any
Incentive Stock Option shall not be transferable by the Participant to whom such
Incentive Stock Option is granted other than by will or the laws of descent and
distribution, and shall be exercisable during such Participant's lifetime only
by such Participant, (iv) no Incentive Stock Option shall be granted to any
individual who, at the time such Incentive Stock Option is granted, owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Corporation or any Affiliate unless the Exercise Price
of such Incentive Stock Option is at least 110 percent of the Market Value per
Share at the date of grant and such Incentive Stock Option is not exercisable
after the expiration of five years from the date such Incentive Stock Option is
granted, and (v) the aggregate Market Value (determined as of the time any
Incentive Stock Option is granted) of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by a Participant in any
calendar year shall not exceed $100,000.
9. Stock Appreciation Rights. A Stock Appreciation Right shall, upon its
exercise, entitle the Participant to whom such Stock Appreciation Right was
granted to receive a number of Shares or cash or combination thereof, as the
Committee in its discretion shall determine, the aggregate value of which (i.e.,
the sum of the amount of cash and/or Market Value of such Shares on date of
exercise) shall equal (as nearly as possible, it being understood that the
Corporation shall not issue any fractional shares) the amount by which the
Market Value per Share on the date of such exercise shall exceed the Exercise
Price of such Stock Appreciation Right, multiplied by the number of Shares with
respect of which such Stock Appreciation Right shall have been exercised. A
Stock Appreciation Right may be Related to an Option or may be granted
independently of any Option as the Committee shall from time to time in each
case determine. At the time of grant of an Option the Committee shall determine
whether and to what extent a Related Stock Appreciation Right shall be granted
with respect thereto, provided, however, and notwithstanding any other provision
of the Plan, that if the Related Option is an Incentive Stock Option, the
Related Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Stock Appreciation Right were
an Incentive Stock Option and as if other rights which are Related to Incentive
Stock Options were Incentive Stock Options. In the case of a Related Option,
such Related Option shall cease to be exer cisable to the extent of the Shares
with respect to which the Related Stock Appreciation Right was exercised. Upon
the exercise or termination of a Related Option, any Related Stock Appreciation
Right shall terminate to the extent of the Shares with respect to which the
Related Option was exercised or terminated.
10. Limited Stock Appreciation Rights. At the time of grant of an Option
or Stock Appreciation Right to any Participant, the Committee shall have full
and complete authority and discretion to also grant to such Participant a
Limited Stock Appreciation Right which is Related to such Option or Stock
Appreciation Right, provided, however and notwithstanding any other provision of
the Plan, that if the Related Option is an Incentive Stock Option, the Related
Limited Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Limited Stock Appreciation
Right were an Incentive Stock Option and as if all other Rights which are
Related to Incentive Stock Options were Incentive Stock Options. Subject, if
applicable, to vesting requirements contained in 12 C.F.R. ss. 563b.3(g)(4) or
any successor regulation, a Limited Stock Appreciation Right shall be
exercisable only during the period beginning on the first day following the date
of expiration of any "offer" (as such term is hereinafter defined) and ending on
the forty-fifth day following such date.
A Limited Stock Appreciation Right shall, upon its exercise, entitle the
Participant to whom such Limited Stock Appreciation Right was granted to receive
an amount of cash equal to the amount by which the "Offer Price per Share" (as
such term is hereinafter defined) or the Market Value on the date of such
exercise, as shall have been provided by the Committee in its discretion at the
time of grant, shall exceed the Exercise Price of such Limited Stock
Appreciation Right, multiplied by the number of Shares with respect to which
such Limited Stock Appreciation Right shall have been exercised. Upon the
exercise of a Limited Stock Appreciation Right, any Related Option and/or
Related Stock Appreciation Right shall cease to be exercisable to the extent of
the Shares with respect to which such Limited Stock Appreciation Right was
exercised. Upon the exercise or termination of a Re lated Option or Related
Stock Appreciation Right, any Related Limited Stock Appreciation Right shall
terminate to the extent of the Shares with respect to which such Related Option
or Related Stock Appreciation Right was exercised or terminated.
5
<PAGE>
For the purposes of this Section 10, the term "Offer" shall mean any
tender offer or exchange offer for Shares other than one made by the
Corporation, provided that the corporation, person or other entity making the
offer acquires pursuant to such offer either (i) 25% of the Shares outstanding
immediately prior to the commencement of such offer or (ii) a number of Shares
which, together with all other Shares acquired in any tender offer or exchange
offer (other than one made by the Corporation) which expired within sixty days
of the expiration date of the offer in question, equals 25% of the Shares
outstanding immediately prior to the commencement of the offer in question. The
term "Offer Price per Share" as used in this Section 10 shall mean the highest
price per Share paid in any Offer which Offer is in effect any time during the
period beginning on the sixtieth day prior to the date on which a Limited Stock
Appreciation Right is exercised and ending on the date on which such Limited
Stock Appreciation Right is exercised. Any securities or property which are part
or all of the consideration paid for Shares in the Offer shall be valued in
determining the Offer Price per Share at the higher of (A) the valuation placed
on such securities or property by the corporation, person or other entity making
such Offer or (B) the valuation placed on such securities or property by the
Committee.
11. Adjustments Upon Changes in Capitalization. In the event of any change
in the outstanding Shares subsequent to the effective date of the Plan by reason
of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number, class and exercise price of shares with respect to which Awards
theretofore have been granted under the Plan shall be appropriately adjusted by
the Committee, whose determination shall be conclusive.
12. Effect of Merger. In the event of any merger, consolidation or
combination of the Corporation (other than a merger, consolidation or
combination in which the Corporation is the continuing entity and which does not
result in the outstanding Shares being converted into or exchanged for different
securities, cash or other property, or any combination thereof) pursuant to a
plan or agreement the terms of which are binding upon all stockholders of the
Corporation (except to the extent that dissenting stockholders may be entitled,
under statutory provisions or provisions contained in the certificate or
articles of incorporation, to receive the appraised or fair value of their
holdings), any Participant to whom an Option or Right has been granted at least
six months prior to such event shall have the right (subject to the provisions
of the Plan and any limitation or vesting period applicable to such Option or
Right), thereafter and during the term of each such Option or Right, to receive
upon exercise of any such Option or Right an amount equal to the excess of the
fair market value on the date of such exercise of the securities, cash or other
property, or combination thereof, receivable upon such merger, consolidation or
combination in respect of a Share over the Exercise Price of such Right or
Option, multiplied by the number of Shares with respect to which such Option or
Right shall have been exercised. Such amount may be payable fully in cash, fully
in one or more of the kind or kinds of property payable in such merger,
consolidation or combination, or partly in cash and partly in one or more of
such kind or kinds of property, all in the discretion of the Committee.
13. Assignments and Transfers. No Award nor any right or interest of a
Participant under the Plan in any instrument evidencing any Award under the Plan
may be assigned, encumbered or transferred except, in the event of the death of
a Participant, by will or the laws of descent and distribution or in the case of
Awards other than Incentive Stock Options pursuant to a qualified domestic
relations order, as defined in the Code or Title I of ERISA or the rules
thereunder.
14. Employee Rights Under the Plan. No director, advisory director,
director emeritus, officer or employee shall have a right to be selected as a
Participant nor, having been so selected, to be selected again as a Participant
and no director, advisory directory, director emeritus, officer, employee or
other person shall have any claim or right to be granted an Award under the Plan
or under any other incentive or similar plan of the Corporation or any
Affiliate. Neither the Plan nor any action taken thereunder shall be construed
as giving any employee any right to be retained in the employ of the Corporation
or any Affiliate.
15. Delivery and Registration of Stock. The Corporation's obligation to
deliver Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Committee shall determine
6
<PAGE>
to be necessary or advisable to comply with the provisions of the Securities Act
of 1933 or any other Federal, state or local securities legislation or
regulation. It may be provided that any representation requirement shall become
inoperative upon a registration of the Shares or other action eliminating the
necessity of such representation under such Securities Act or other securities
legislation. The Corporation shall not be required to deliver any Shares under
the Plan prior to (i) the admission of such shares to listing on any stock
exchange or other system on which Shares may then be listed, and (ii) the
completion of such registration or other qualification of such Shares under any
state or Federal law, rule or regulation, as the Committee shall determine to be
necessary or advisable.
16. Withholding Tax. The Corporation shall have the right to deduct from
all amounts paid in cash with respect to the exercise of a Right under the Plan
any taxes required by law to be withheld with respect to such cash payments.
Where a Participant or other person is entitled to receive Shares pursuant to
the exercise of an Option or Right pursuant to the Plan, the Corporation shall
have the right to require the Participant or such other person to pay the
Corporation the amount of any taxes which the Corporation is required to
withhold with respect to such Shares, and may, in its sole discretion, withhold
sufficient Shares to cover the amount of taxes which the Corporation is required
to withhold.
17. Amendment or Termination. The Board of Directors of the Corporation
may amend, suspend or terminate the Plan or any portion thereof at any time,
subject to Office of Thrift Supervision Regulations, if applicable, but (except
as provided in Section 11 hereof) no amendment shall be made without approval of
the stockholders of the Corporation which shall (i) increase the aggregate
number of Shares with respect to which Awards may be made under the Plan, (ii)
materially increase the benefits accruing to Participants, (iii) materially
change the requirements as to eligibility for participation in the Plan or (iv)
change the class of persons eligible to participate in the Plan; provided,
however, that no such amendment, suspension or termination shall impair the
rights of any Participant, without his consent, in any Award theretofore made
pursuant to the Plan.
18. Effective Date and Term of Plan. The Plan shall become effective upon
its ratification by stockholders of the Corporation. It shall continue in effect
for a term of ten years unless sooner terminated under Section 17 hereof.
7
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this ___ day of __________, 1997, by and between Montgomery Savings, A Federal
Association (hereinafter referred to as the "Association" whether in mutual or
stock form), and Earl F.
Elliott (the "Employee").
WHEREAS, the Employee is currently serving as Chairman and Chief
Executive Officer of the Association and the President and Chief Executive
Officer of Montgomery Mutual Holding Company (the "Mutual Holding Company"); and
WHEREAS, the Association and the Mutual Holding Company have adopted a
plan of conversion and reorganization whereby the Mutual Holding Company will
convert to capital stock form and be merged into the Association, and the
Association will become the subsidiary of Montgomery Financial Corporation (the
"Holding Company"), subject to the approval of the Mutual Holding Company's
members, the Association's stockholders and the Office of Thrift Supervision
(the "Conversion and Reorganization"); and
WHEREAS, the board of directors of the Association ("Board of
Directors") recognizes that, as is the case with publicly held corporations
generally, the possibility of a change in control of the Holding Company and/or
the Association may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of key management personnel to the detriment of the Association, the
Holding Company and their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Association to enter into this Agreement with the Employee in order to
assure continuity of management of the Association and to reinforce and
encourage the continued attention and dedication of the Employee to the
Employee's assigned duties without distraction in the face of potentially
disruptive circumstances arising from the possibility of a change in control of
the Holding Company or the Association, although no such change is now
contemplated; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means the occurrence of any
of the following events: (1) an event that (i) is a change in control of the
Association or the Holding Company within the meaning of the Home Owners' Loan
Act of 1933 and 12 C.F.R. Part 574 as in effect on the date hereof; or (ii)
would be required to be reported in response to Item 1 of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the
1
<PAGE>
Securities Exchange Act of 1934 (the "Exchange Act"); (2) any person (as the
term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly of securities of the Association or the Holding Company representing
20% or more of the Association's or the Holding Company's outstanding
securities; (3) individuals who are members of the board of directors of the
Association or the Holding Company on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the nominating committee serving under an Incumbent
Board, shall be considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Association or the Holding Company or a similar transaction in
which the Association or the Holding Company is not the resulting entity. The
term "Change in Control" shall not include an acquisition of securities by an
employee benefit plan of the Association or the Holding Company or the
acquisition of securities of the Association by the Holding Company in
connection with the Conversion and Reorganization.
(b) The term "Commencement Date" means the date of completion
of the Conversion and Reorganization.
(c) The term "Date of Termination" means the earlier of (1)
the date upon which the Association gives notice to the Employee of the
termination of the Employee's employment with the Association or (2) the date
upon which the Employee ceases to serve as an employee of the Association.
(d) The term "Involuntarily Termination" means termination of
the employment of Employee without the Employee's express written consent, and
shall include a material diminution of or interference with the Employee's
duties, responsibilities and benefits as Chairman and Chief Executive Officer of
the Association, including (without limitation) any of the following actions
unless consented to in writing by the Employee: (1) a change in the principal
workplace of the Employee to a location outside of a 30 mile radius from the
Association's headquarters office as of the date hereof; (2) a material demotion
of the Employee; (3) a material reduction in the number or seniority of other
Association personnel reporting to the Employee or a material reduction in the
frequency with which, or in the nature of the matters with respect to which,
such personnel are to report to the Employee, other than as part of a
Association- or Holding Company-wide reduction in staff; (4) a material adverse
change in the Employee's salary, perquisites, benefits, contingent benefits or
vacation, other than as part of an overall program applied uniformly and with
equitable effect to all members of the senior management of the Association or
the Holding Company; and (5) a material permanent increase in the required hours
of work or the workload of the Employee. The term "Involuntary Termination" does
not include Termination for Cause or termination of employment due to
retirement, death, disability or suspension or temporary or permanent
prohibition from participation in the conduct of the Association's affairs under
Section 8 of the Federal Deposit Insurance Act ("FDIA").
2
<PAGE>
(e) The terms "Termination for Cause" and "Terminated for
Cause" mean termination of the employment of the Employee because of the
Employee's personal dishonesty, incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. The Employee shall not be deemed to
have been Terminated for Cause unless and until there shall have been delivered
to the Employee a copy of a resolution, duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors at a
meeting of the Board called and held for such purpose (after reasonable notice
to the Employee and an opportunity for the Employee, together with the
Employee's counsel, to be heard before the Board), stating that in the good
faith opinion of the Board the Employee has engaged in conduct described in the
preceding sentence and specifying the particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of three years
commencing on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first anniversary of the Commencement Date, and on each
anniversary thereafter, the term of this Agreement shall be extended for a
period of one year in addition to the then-remaining term, provided that (1) the
Association has not given notice to the Employee in writing at least 90 days
prior to such anniversary that the term of this Agreement shall not be extended
further; and (2) prior to such anniversary, the Board of Directors of the
Association explicitly reviews and approves the extension. Reference herein to
the term of this Agreement shall refer to both such initial term and such
extended terms.
3. Employment. The Employee is employed as Chairman and Chief Executive
Officer of the Association. As such, the Employee shall render administrative
and management services as are customarily performed by persons situated in
similar executive capacities, and shall have such other powers and duties of an
officer of the Association as the Board of Directors may prescribe from time to
time.
4. Compensation.
(a) Salary. The Association agrees to pay the Employee during
the term of this Agreement an annual salary of $______. The amount of the
Employee's salary shall be reviewed by the Board of Directors, beginning not
later than the first anniversary of the Commencement Date. Adjustments in salary
or other compensation shall not limit or reduce any other obligation of the
Association under this Agreement. The Employee's salary in effect from time to
time during the term of this Agreement shall not thereafter be reduced.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the
Association in discretionary bonuses as authorized and declared by the Board of
Directors to its executive employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employee's right to participate
in such bonuses when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this
3
<PAGE>
Agreement in accordance with the policies and procedures applicable to the
executive officers of the Association, provided that the Employee accounts for
such expenses as required under such policies and procedures.
5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans.
The Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Association's executive officers participate.
(b) Fringe Benefits. The Employee shall be eligible to
participate in, and receive benefits under, any fringe benefit plans which are
or may become applicable to the Association's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid
vacation in accordance with the policies established by the Association's Board
of Directors for executive officers and for voluntary leave of absence, with or
without pay, from time to time at such times and upon such conditions as the
Board of Directors may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. The Board of Directors may
terminate the Employee's employment at any time, but, except in the case of
Termination for Cause, termination of employment shall not prejudice the
Employee's right to compensation or other benefits under this Agreement. In the
event of Involuntary Termination other than in connection with or within 12
months after a Change in Control, (1) the Association shall pay to the Employee,
during the remaining term of this Agreement following the Date of Termination,
the Employee's salary at the rate in effect immediately prior to the Date of
Termination, payable in such manner and at such times as such salary would have
been payable to the Employee under Section 4(a) if the Employee had continued to
be employed by the Association, and (2) the Association shall provide to the
Employee, during the remaining term of this Agreement following the Date of
Termination, health benefits as maintained by the Association for the benefit of
its executive officers from time to time during the remaining term of the
Agreement or substantially the same health benefits as the Association
maintained for its executive officers immediately prior to the Date of
Termination.
(b) Termination for Cause. In the event of Termination for
Cause, the Association shall pay the Employee the Employee's salary through the
Date of Termination, and the Association shall have no further obligation to the
Employee under this Agreement.
(c) Voluntary Termination. The Employee's employment may be
voluntarily terminated by the Employee at any time upon 90 days' written notice
to the Association or such shorter period as may be agreed upon between the
Employee and the Board of Directors of the Association. In the event of such
voluntary termination, the Association shall be obligated to continue to pay to
the Employee the Employee's salary and benefits only through the Date of
4
<PAGE>
Termination, at the time such payments are due, and the Association shall have
no further obligation to the Employee under this Agreement.
(d) Change in Control. In the event of an Involuntary
Termination in connection with or within 12 months after a Change in Control
which occurs at any time while the Employee is employed under this Agreement,
the Association shall, subject to Section 8 of this Agreement, (1) pay to the
Employee in a lump sum in cash within 25 business days after the Date of
Termination an amount equal to 299% of the Employee's "base amount" as defined
in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code");
and (2) provide to the Employee, during the remaining term of this Agreement
following the Date of Termination, such health benefits as are maintained for
executive officers of the Association from time to time during the remaining
term of this Agreement or substantially the same health benefits as the
Association maintained for its executive officers immediately prior to the Date
of Termination.
(e) Death; Disability. In the event of the death of the
Employee while employed under this Agreement and prior to any termination of
employment, the Employee's estate, or such person as the Employee may have
previously designated in writing, shall be entitled to receive from the
Association the salary of the Employee through the last day of the calendar
month in which the Employee died. If the Employee becomes disabled as defined in
the Association's then current disability plan, if any, or if the Employee is
otherwise unable to serve as Chairman and Chief Executive Officer, the Employee
shall be entitled to receive group and other disability income benefits of the
type, if any, then provided by the Association for executive officers.
(f) Temporary Suspension or Prohibition. If the Employee is
suspended and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Association's obligations under
this Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (i) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations which were
suspended.
(g) Permanent Suspension or Prohibition. If the Employee is
removed and/or permanently prohibited from participating in the conduct of the
Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Association
under this Agreement shall terminate as of the effective date of the order, but
vested rights of the contracting parties shall not be affected.
(h) Default of the Association. If the Association is in
default (as defined in Section 3(x)(1) of the FDIA), all obligations under this
Agreement shall terminate as of the date of default, but this provision shall
not affect any vested rights of the contracting parties.
(i) Termination by Regulators. All obligations under this
Agreement shall be terminated, except to the extent determined that continuation
of this Agreement is necessary for the continued operation of the Association:
(1) by the Director of the Office of Thrift
5
<PAGE>
Supervision (the "Director") or his or her designee, at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the Association under the authority contained in Section 13(c)
of the FDIA; or (2) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger to resolve
problems related to operation of the Association or when the Association is
determined by the Director to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by any
such action.
8. Certain Reduction of Payments by the Association.
(a) Notwithstanding any other provision of this Agreement, if
the value and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the Employee in
connection with a Change in Control would cause any amount to be nondeductible
by the Association or the Holding Company for federal income tax purposes
pursuant to Section 280G of the Code, then amounts and benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize amounts and the value of benefits to the Employee without causing any
amount to become nondeductible by the Association or the Holding Company
pursuant to or by reason of such Section 280G. The Employee shall determine the
allocation of such reduction among payments and benefits to the Employee.
(b) Any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. 1828(k) and any regulations promulgated thereunder.
9. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
the Employee as the result of employment by another employer, by retirement
benefits after the Date of Termination or otherwise.
10. Attorneys Fees. In the event the Association exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 17 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Association has failed to make timely payment of any amounts owed to
the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees, incurred in
challenging such termination or collecting such amounts. Such reimbursement
shall be in addition to all rights to which the Employee is otherwise entitled
under this Agreement.
11. No Assignments.
(a) This Agreement is personal to each of the parties hereto,
and neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that the Association shall require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Association, by an
assumption
6
<PAGE>
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Association would be required to perform it if no such
succession or assignment had taken place. Failure of the Association to obtain
such an assumption agreement prior to the effectiveness of any such succession
or assignment shall be a breach of this Agreement and shall entitle the Employee
to compensation from the Association in the same amount and on the same terms as
the compensation pursuant to Section 7(d) hereof. For purposes of implementing
the provisions of this Section 11(a), the date on which any such succession
becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while any
amounts would still be payable to the Employee hereunder if the Employee had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Employee's devisee,
legatee or other designee or if there is no such designee, to the Employee's
estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Association at its home
office, to the attention of the Board of Directors with a copy to the Secretary
of the Association, or, if to the Employee, to such home or other address as the
Employee has most recently provided in writing to the Association.
13. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Indiana.
17. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: MONTGOMERY SAVINGS, A FEDERAL
ASSOCIATION
- --------------------- ---------------------------
Secretary By:
Its:
EMPLOYEE
----------------------------
Earl F. Elliott
8
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this ___ day of __________, 1997, by and between Montgomery Savings, A Federal
Association (hereinafter referred to as the "Association" whether in mutual or
stock form), and J. Lee Walden (the "Employee").
WHEREAS, the Employee is currently serving as President of the
Association and the Executive Vice President of Montgomery Mutual Holding
Company (the "Mutual Holding Company"); and
WHEREAS, the Association and the Mutual Holding Company have adopted a
plan of conversion and reorganization whereby the Mutual Holding Company will
convert to capital stock form and be merged into the Association, and the
Association will become the subsidiary of Montgomery Financial Corporation (the
"Holding Company"), subject to the approval of the Mutual Holding Company's
members, the Association's stockholders and the Office of Thrift Supervision
(the "Conversion and Reorganization"); and
WHEREAS, the board of directors of the Association ("Board of
Directors") recognizes that, as is the case with publicly held corporations
generally, the possibility of a change in control of the Holding Company and/or
the Association may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of key management personnel to the detriment of the Association, the
Holding Company and their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Association to enter into this Agreement with the Employee in order to
assure continuity of management of the Association and to reinforce and
encourage the continued attention and dedication of the Employee to the
Employee's assigned duties without distraction in the face of potentially
disruptive circumstances arising from the possibility of a change in control of
the Holding Company or the Association, although no such change is now
contemplated; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means the occurrence of any
of the following events: (1) an event that (i) is a change in control of the
Association or the Holding Company within the meaning of the Home Owners' Loan
Act of 1933 and 12 C.F.R. Part 574 as in effect on the date hereof; or (ii)
would be required to be reported in response to Item 1 of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the
1
<PAGE>
Securities Exchange Act of 1934 (the "Exchange Act"); (2) any person (as the
term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly of securities of the Association or the Holding Company representing
20% or more of the Association's or the Holding Company's outstanding
securities; (3) individuals who are members of the board of directors of the
Association or the Holding Company on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the nominating committee serving under an Incumbent
Board, shall be considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Association or the Holding Company or a similar transaction in
which the Association or the Holding Company is not the resulting entity. The
term "Change in Control" shall not include an acquisition of securities by an
employee benefit plan of the Association or the Holding Company or the
acquisition of securities of the Association by the Holding Company in
connection with the Conversion and Reorganization.
(b) The term "Commencement Date" means the date of completion
of the Conversion and Reorganization.
(c) The term "Date of Termination" means the earlier of (1)
the date upon which the Association gives notice to the Employee of the
termination of the Employee's employment with the Association or (2) the date
upon which the Employee ceases to serve as an employee of the Association.
(d) The term "Involuntarily Termination" means termination of
the employment of Employee without the Employee's express written consent, and
shall include a material diminution of or interference with the Employee's
duties, responsibilities and benefits as President of the Association, including
(without limitation) any of the following actions unless consented to in writing
by the Employee: (1) a change in the principal workplace of the Employee to a
location outside of a 30 mile radius from the Association's headquarters office
as of the date hereof; (2) a material demotion of the Employee; (3) a material
reduction in the number or seniority of other Association personnel reporting to
the Employee or a material reduction in the frequency with which, or in the
nature of the matters with respect to which, such personnel are to report to the
Employee, other than as part of a Association- or Holding Company-wide reduction
in staff; (4) a material adverse change in the Employee's salary, perquisites,
benefits, contingent benefits or vacation, other than as part of an overall
program applied uniformly and with equitable effect to all members of the senior
management of the Association or the Holding Company; and (5) a material
permanent increase in the required hours of work or the workload of the
Employee. The term "Involuntary Termination" does not include Termination for
Cause or termination of employment due to retirement, death, disability or
suspension or temporary or permanent prohibition from participation in the
conduct of the Association's affairs under Section 8 of the Federal Deposit
Insurance Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated for
Cause" mean termination of the employment of the Employee because of the
Employee's personal dishonesty,
2
<PAGE>
incompetence, willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of this
Agreement. The Employee shall not be deemed to have been Terminated for Cause
unless and until there shall have been delivered to the Employee a copy of a
resolution, duly adopted by the affirmative vote of not less than a majority of
the entire membership of the Board of Directors at a meeting of the Board called
and held for such purpose (after reasonable notice to the Employee and an
opportunity for the Employee, together with the Employee's counsel, to be heard
before the Board), stating that in the good faith opinion of the Board the
Employee has engaged in conduct described in the preceding sentence and
specifying the particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of three years
commencing on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first anniversary of the Commencement Date, and on each
anniversary thereafter, the term of this Agreement shall be extended for a
period of one year in addition to the then-remaining term, provided that (1) the
Association has not given notice to the Employee in writing at least 90 days
prior to such anniversary that the term of this Agreement shall not be extended
further; and (2) prior to such anniversary, the Board of Directors of the
Association explicitly reviews and approves the extension. Reference herein to
the term of this Agreement shall refer to both such initial term and such
extended terms.
3. Employment. The Employee is employed as President of the
Association. As such, the Employee shall render administrative and management
services as are customarily performed by persons situated in similar executive
capacities, and shall have such other powers and duties of an officer of the
Association as the Board of Directors may prescribe from time to time.
4. Compensation.
(a) Salary. The Association agrees to pay the Employee during
the term of this Agreement an annual salary of $______. The amount of the
Employee's salary shall be reviewed by the Board of Directors, beginning not
later than the first anniversary of the Commencement Date. Adjustments in salary
or other compensation shall not limit or reduce any other obligation of the
Association under this Agreement. The Employee's salary in effect from time to
time during the term of this Agreement shall not thereafter be reduced.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the
Association in discretionary bonuses as authorized and declared by the Board of
Directors to its executive employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employee's right to participate
in such bonuses when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Association, provided that the
Employee accounts for such expenses as required under such policies and
procedures.
3
<PAGE>
5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans.
The Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Association's executive officers participate.
(b) Fringe Benefits. The Employee shall be eligible to
participate in, and receive benefits under, any fringe benefit plans which are
or may become applicable to the Association's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid
vacation in accordance with the policies established by the Association's Board
of Directors for executive officers and for voluntary leave of absence, with or
without pay, from time to time at such times and upon such conditions as the
Board of Directors may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. The Board of Directors may
terminate the Employee's employment at any time, but, except in the case of
Termination for Cause, termination of employment shall not prejudice the
Employee's right to compensation or other benefits under this Agreement. In the
event of Involuntary Termination other than in connection with or within 12
months after a Change in Control, (1) the Association shall pay to the Employee,
during the remaining term of this Agreement following the Date of Termination,
the Employee's salary at the rate in effect immediately prior to the Date of
Termination, payable in such manner and at such times as such salary would have
been payable to the Employee under Section 4(a) if the Employee had continued to
be employed by the Association, and (2) the Association shall provide to the
Employee, during the remaining term of this Agreement following the Date of
Termination, health benefits as maintained by the Association for the benefit of
its executive officers from time to time during the remaining term of the
Agreement or substantially the same health benefits as the Association
maintained for its executive officers immediately prior to the Date of
Termination.
(b) Termination for Cause. In the event of Termination for
Cause, the Association shall pay the Employee the Employee's salary through the
Date of Termination, and the Association shall have no further obligation to the
Employee under this Agreement.
(c) Voluntary Termination. The Employee's employment may be
voluntarily terminated by the Employee at any time upon 90 days' written notice
to the Association or such shorter period as may be agreed upon between the
Employee and the Board of Directors of the Association. In the event of such
voluntary termination, the Association shall be obligated to continue to pay to
the Employee the Employee's salary and benefits only through the Date of
Termination, at the time such payments are due, and the Association shall have
no further obligation to the Employee under this Agreement.
4
<PAGE>
(d) Change in Control. In the event of an Involuntary
Termination in connection with or within 12 months after a Change in Control
which occurs at any time while the Employee is employed under this Agreement,
the Association shall, subject to Section 8 of this Agreement, (1) pay to the
Employee in a lump sum in cash within 25 business days after the Date of
Termination an amount equal to 299% of the Employee's "base amount" as defined
in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code");
and (2) provide to the Employee, during the remaining term of this Agreement
following the Date of Termination, such health benefits as are maintained for
executive officers of the Association from time to time during the remaining
term of this Agreement or substantially the same health benefits as the
Association maintained for its executive officers immediately prior to the Date
of Termination.
(e) Death; Disability. In the event of the death of the
Employee while employed under this Agreement and prior to any termination of
employment, the Employee's estate, or such person as the Employee may have
previously designated in writing, shall be entitled to receive from the
Association the salary of the Employee through the last day of the calendar
month in which the Employee died. If the Employee becomes disabled as defined in
the Association's then current disability plan, if any, or if the Employee is
otherwise unable to serve as President, the Employee shall be entitled to
receive group and other disability income benefits of the type, if any, then
provided by the Association for executive officers.
(f) Temporary Suspension or Prohibition. If the Employee is
suspended and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Association's obligations under
this Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (i) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations which were
suspended.
(g) Permanent Suspension or Prohibition. If the Employee is
removed and/or permanently prohibited from participating in the conduct of the
Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Association
under this Agreement shall terminate as of the effective date of the order, but
vested rights of the contracting parties shall not be affected.
(h) Default of the Association. If the Association is in
default (as defined in Section 3(x)(1) of the FDIA), all obligations under this
Agreement shall terminate as of the date of default, but this provision shall
not affect any vested rights of the contracting parties.
(i) Termination by Regulators. All obligations under this
Agreement shall be terminated, except to the extent determined that continuation
of this Agreement is necessary for the continued operation of the Association:
(1) by the Director of the Office of Thrift Supervision (the "Director") or his
or her designee, at the time the Federal Deposit Insurance Corporation enters
into an agreement to provide assistance to or on behalf of the Association under
the authority contained in Section 13(c) of the FDIA; or (2) by the Director or
his or her designee, at the time the Director or his or her designee approves a
supervisory merger to
5
<PAGE>
resolve problems related to operation of the Association or when the Association
is determined by the Director to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be affected
by any such action.
8. Certain Reduction of Payments by the Association.
(a) Notwithstanding any other provision of this Agreement, if
the value and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the Employee in
connection with a Change in Control would cause any amount to be nondeductible
by the Association or the Holding Company for federal income tax purposes
pursuant to Section 280G of the Code, then amounts and benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize amounts and the value of benefits to the Employee without causing any
amount to become nondeductible by the Association or the Holding Company
pursuant to or by reason of such Section 280G. The Employee shall determine the
allocation of such reduction among payments and benefits to the Employee.
(b) Any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. 1828(k) and any regulations promulgated thereunder.
9. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
the Employee as the result of employment by another employer, by retirement
benefits after the Date of Termination or otherwise.
10. Attorneys Fees. In the event the Association exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 17 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Association has failed to make timely payment of any amounts owed to
the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees, incurred in
challenging such termination or collecting such amounts. Such reimbursement
shall be in addition to all rights to which the Employee is otherwise entitled
under this Agreement.
11. No Assignments.
(a) This Agreement is personal to each of the parties hereto,
and neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that the Association shall require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Association, by an
assumption agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Association would be required to perform it if no such
succession or assignment had taken place. Failure of the Association to obtain
such an assumption agreement prior to the effectiveness of any such
6
<PAGE>
succession or assignment shall be a breach of this Agreement and shall entitle
the Employee to compensation from the Association in the same amount and on the
same terms as the compensation pursuant to Section 7(d) hereof. For purposes of
implementing the provisions of this Section 11(a), the date on which any such
succession becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while any
amounts would still be payable to the Employee hereunder if the Employee had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Employee's devisee,
legatee or other designee or if there is no such designee, to the Employee's
estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Association at its home
office, to the attention of the Board of Directors with a copy to the Secretary
of the Association, or, if to the Employee, to such home or other address as the
Employee has most recently provided in writing to the Association.
13. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Indiana.
17. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: MONTGOMERY SAVINGS, A FEDERAL
ASSOCIATION
- ------------------------ -----------------------------
Secretary By:
Its:
EMPLOYEE
-----------------------------
J. Lee Walden
8
EXHIBIT 10.7
MONTGOMERY FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
Effective as of July 1, 1996
<PAGE>
MONTGOMERY FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
PREAMBLE 1
ARTICLE I DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions
(a) "Act" 2
(b) "Administrator" 2
(c) "Annual Additions" 2
(d) "Authorized Leave of Absence" 2
(e) "Beneficiary" 2
(f) "Board of Directors" 2
(g) "Break" 3
(h) "Code" 3
(i) "Compensation" 3
(j) "Date of Hire" 3
(k) "Disability" 3
(l) "Disability Retirement Date" 3
(m) "Early Retirement Date" 4
(n) "Effective Date" 4
(o) "Eligibility Period" 4
(p) "Employee" 4
(q) "Employer" 4
(r) "Employer Securities" 4
(s) "Entry Date" 4
(t) "Exempt Loan" 4
(u) "Former Participant" 4
(v) "Fund" 4
(w) "Hour of Service" 5
(x) "Investment Adjustments" 5
(y) "Limitation Year" 5
(z) "Normal Retirement Date" 5
(aa) "Participant" 5
(bb) "Plan" 6
(cc) "Plan Year" 6
<PAGE>
(dd) "Qualified Domestic Relations Order" 6
(ee) "Retirement" 6
(ff) "Service" 6
(gg) "Sponsor" 6
(hh) "Trust Agreement" 6
(ii) "Trustee" 7
(jj) "Valuation Date" 7
(kk) "Year of Service" 7
1.2 Plurals and Gender 7
1.3 Incorporation of Trust Agreement 7
1.4 Headings 8
1.5 Severability 8
1.6 References to Governmental Regulations 8
ARTICLE II PARTICIPATION
2.1 Commencement of Participation 9
2.2 Termination of Participation 9
2.3 Resumption of Participation 9
2.4 Determination of Eligibility 10
ARTICLE III CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes 11
3.2 Service Counted for Vesting Purposes 11
3.3 Credit for Pre-Break Service 11
3.4 Service Credit During Authorized Leaves 11
3.5 Service Credit During Maternity or
Paternity Leave 12
3.6 Ineligible Employees 12
ARTICLE IV CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions 13
4.2 Time and Manner of Employee Stock Ownership
Contributions 13
4.3 Records of Contributions 14
4.4 Erroneous Contributions 14
ARTICLE V ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant
Accounts 16
5.2 Establishment of Suspense Account 16
<PAGE>
5.3 Allocation of Earnings, Losses and Expenses 17
5.4 Allocation of Forfeitures 17
5.5 Allocation of Annual Employee Stock
Ownership Contributions 17
5.6 Limitation on Annual Additions 18
5.7 Erroneous Allocations 21
5.8 Value of Participant's Interest in Fund 21
5.9 Investment of Account Balances 21
ARTICLE VI RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement 22
6.2 Early Retirement 22
6.3 Disability Retirement 22
6.4 Death Benefits 22
6.5 Designation of Death Beneficiary and
Manner of Payment 23
ARTICLE VII VESTING AND FORFEITURES
7.1 Vesting on Death, Disability, Normal Retirement 24
7.2 Vesting on Termination of Participation 24
7.3 Disposition of Forfeitures 24
ARTICLE VIII EMPLOYEE STOCK OWNERSHIP RULES
8.1 Right to Demand Employer Securities 26
8.2 Voting Rights 26
8.3 Nondiscrimination in Employee Stock
Ownership Contributions 26
8.4 Dividends 27
8.5 Exempt Loans 27
8.6 Exempt Loan Payments 29
8.7 Put Option 30
8.8 Diversification Requirements 30
8.9 Independent Appraiser 31
ARTICLE IX PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service
- In General 32
9.2 Commencement of Payments 32
9.3 Mandatory Commencement of Benefits 33
9.4 Required Beginning Dates 35
<PAGE>
9.5 Form of Payment 35
9.6 Payments Upon Termination of Plan 36
9.7 Distribution Pursuant to Qualified
Domestic Relations Orders 36
9.8 Cash-Out Distributions 36
9.9 ESOP Distribution Rules 37
9.10 Withholding 37
9.11 Waiver of 30-day Notice 38
ARTICLE X PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control 39
10.2 Top-Heavy Plan Definitions 39
10.3 Calculation of Accrued Benefits 41
10.4 Determination of Top-Heavy Status 42
10.5 Determination of Super Top-Heavy Status 42
10.6 Minimum Contribution 43
10.7 Vesting 44
10.8 Maximum Benefit Limitation 44
ARTICLE XI ADMINISTRATION
11.1 Appointment of Administrator 45
11.2 Resignation or Removal of Administrator 45
11.3 Appointment of Successors: Terms of
Office, Etc. 45
11.4 Powers and Duties of Administrator 45
11.5 Action by Administrator 47
11.6 Participation by Administrators 47
11.7 Agents 47
11.8 Allocation of Duties 47
11.9 Delegation of Duties 47
11.10 Administrator's Action Conclusive 48
11.11 Compensation and Expenses of
Administrator 48
11.12 Records and Reports 48
11.13 Reports of Fund Open to Participants 48
11.14 Named Fiduciary 48
11.15 Information from Employer 49
11.16 Reservation of Rights by Employer 49
11.17 Liability and Indemnification 49
11.18 Service as Trustee and Administrator 49
<PAGE>
ARTICLE XII CLAIMS PROCEDURE
12.1 Notice of Denial 50
12.2 Right to Reconsideration 50
12.3 Review of Documents 50
12.4 Decision by Administrator 50
12.5 Notice by Administrator 50
ARTICLE XIII AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments 51
13.2 Consolidation, Merger or Other
Transactions of Employer 51
13.3 Consolidation or Merger of Trust 52
13.4 Bankruptcy or Insolvency of Employer 52
13.5 Voluntary Termination 53
13.6 Partial Termination of Plan or Permanent
Discontinuance of Contributions 53
ARTICLE XIV MISCELLANEOUS
14.1 No Diversion of Funds 54
14.2 Liability Limited 54
14.3 Incapacity 54
14.4 Spendthrift Clause 54
14.5 Benefits Limited to Fund 55
14.6 Cooperation of Parties 55
14.7 Payments Due Missing Persons 55
14.8 Governing Law 55
14.9 Nonguarantee of Employment 56
14.10 Counsel 56
<PAGE>
MONTGOMERY FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
PREAMBLE
Effective as of July 1, 1996, Montgomery Financial Corporation, a
Delaware corporation, (the "Sponsor"), has adopted the Montgomery Financial
Corporation Employee Stock Ownership Plan in order to enable Participants to
share in the growth and prosperity of the Sponsor and its wholly owned
subsidiary, Montgomery Savings, A Federal Association, and to provide
Participants with an opportunity to accumulate capital for their future economic
security by accumulating funds to provide retirement, death and disability
benefits. The Plan is a stock bonus plan designed to meet the re quirements of
an employee stock ownership plan as described at Section 4975(e)(7) of the Code
and Section 407(d)(6) of ERISA. The primary purpose of the employee stock
ownership plan is to invest in employer securities. The Sponsor intends that the
Plan will qualify under Sections 401(a) and 501(a) of the Code and will comply
with the provisions of ERISA. The Plan has been drafted to comply with the Tax
Reform Act of 1986, the Omnibus Budget Reconciliation Act of 1986, the Omnibus
Budget Reconciliation Act of 1987, the Technical and Miscellaneous Revenue Act
of 1988, the Revenue Reconciliation Act of 1989, the Omnibus Budget
Reconciliation Act of 1993, and the Small Business Job Protection Act of 1986.
The terms of this Plan shall apply only with respect to Employees of
the Employer on and after July 1, 1996.
<PAGE>
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Plan shall have the following meanings:
(a) "Act" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor statute.
(b) "Administrator" shall mean the administrative committee provided
for in Article XI.
(c) "Annual Additions" shall mean, with respect to each Participant,
the sum of those amounts allocated to the Participant's accounts under this
Plan and under any other qualified defined contribution plan to which the
Employer contributes for any Limitation Year, consisting of the follow ing:
(1) Employer contributions;
(2) Forfeitures; and
(3) Voluntary contributions (if any).
(d) "Authorized Leave of Absence" shall mean an absence from Service
with respect to which the Employee may or may not be entitled to
Compensation and which meets any one of the following requirements:
(1) Service in any of the armed forces of the United States
for up to 36 months, provided that the Employee resumes Service within 90
days after discharge, or such longer period of time during which such
Employee's employment rights are protected by law; or
(2) Any other absence or leave expressly approved and granted
by the Employer which does not exceed 24 months, provided that the Employee
resumes Service at or before the end of such approved leave period. In
approving such leaves of absence, the Employer shall treat all Employees on
a uniform and nondiscriminatory basis.
(e) "Beneficiary" shall mean such persons as may be designated by the
Participant to receive benefits after the death of the Participant, or such
persons designated by the Administrator to receive benefits after the death
of the Participant, all as provided in Section 6.5.
(f) "Board of Directors" shall mean the Board of Directors of the
Sponsor.
-2-
<PAGE>
(g) "Break" shall mean a Plan Year during which an Employee fails to
complete more than 500 Hours of Service.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
(i) "Compensation" shall mean the amount of remuneration paid to an
Employee by the Employer, after the date on which the Employee becomes a
Participant, for services rendered to the Employer during a Plan Year,
including base salary, bonuses, overtime and commissions, and any amount of
compensation contributed pursuant to a salary reduction election under Code
Section 401(k) and any amount of compensation contributed to a cafeteria
plan described at Section 125 of the Code, but excluding amounts paid by
the Employer or accrued with respect to this Plan or any other qualified or
non-qualified unfunded plan of deferred compensation or other employee
welfare plan to which the Employer contributes, payments for group
insurance, medical benefits, reimburse ment for expenses, and other forms
of extraordinary pay, and excluding amounts accrued for a prior year.
Notwithstanding anything herein to the contrary, the annual Compensation of
each Participant taken into account under the Plan for any Plan Year shall
not exceed $150,000, as adjusted from time to time in accordance with
Section 415(d) of the Code. In determining the compensation of a Participant
for purposes of this limitation, the rules of section 414(q)(6) of the Code
shall apply, except in applying such rules, the term "family" shall include
only the spouse of the Participant and any lineal descendants of the
Participant who have not attained age 19 before the close of the year. If,
as a result of such rules, the adjusted $150,000 limitation is exceeded,
then (except for purposes of determining the portion of compensation up to
the integration level), the limitation shall be prorated among the affected
individuals in proportion to each such individual's compensation as
determined under this section prior to the application of this limitation.
(j) "Date of Hire" shall mean the date on which a person shall perform
his first Hour of Service. Notwithstanding the foregoing, in the event a
person incurs one or more consecutive Breaks after his initial Date of Hire
which results in the forfeiture of his pre-Break Service pursuant to
Section 3.3, his "Date of Hire" shall thereafter be the date on which he
completes his first Hour of Service after such Break or Breaks.
(k) "Disability" shall mean a physical or mental impairment which
prohibits a Participant from engaging in any occupation for wages or profit
and which has caused the Social Security Administration to classify the
individual as "disabled" for purposes of Social Security.
(l) "Disability Retirement Date" shall mean the first day of the month
after which a Participant incurs a Disability.
-3-
<PAGE>
(m) "Early Retirement Date" shall mean the first day of the month
coincident with or next following the date on which a Participant attains
age 55 and completes 5 Years of Service.
(n) "Effective Date" shall mean July 1, 1996.
(o) "Eligibility Period" shall mean the period of 12 consecutive
months commencing on an Employee's Date of Hire. Succeeding eligibility
computation periods after the initial eligibility computation period shall
be based on Plan Years which include the first anniversary of an Employee's
Date of Hire.
(p) "Employee" shall mean any person employed by the Employer,
including officers but excluding directors in their capacity as such;
provided, however, that the term "Employee" shall not include leased
employees, employees regularly employed outside the employer's own offices
in connection with the operation and maintenance of buildings or other
properties acquired through foreclosure or deed, and any employee included
in a unit of employees covered by a collective- bargaining agreement with
the Employer that does not expressly provide for participation of such
employees in this Plan, where there has been good-faith bargaining between
the Employer and employees' representatives on the subject of retirement
benefits.
(q) "Employer" shall mean Montgomery Financial Corporation, a Delaware
corporation, and its wholly owned subsidiary, Montgomery Savings, A Federal
Association, or any successors to the aforesaid corporations by merger,
consolidation or otherwise, which may agree to continue this Plan, or any
affiliated or subsidiary corporation or business organization of any
Employer which, with the consent of the Sponsor, shall agree to become a
party to this Plan.
(r) "Employer Securities" shall mean the common stock issued by
Montgomery Financial Corporation, a Delaware corporation.
(s) "Entry Date" shall mean each January 1 and July 1, so long as this
Plan shall remain in effect.
(t) "Exempt Loan" shall mean a loan described at Section 4975(d)(1) of
the Code to the Trustee to purchase Employer Securities for the Plan, made
or guaranteed by a disqualified person, as defined at Section 4975(e)(2) of
the Code, including, but not limited to, a direct loan of cash, a purchase
money transaction, an assumption of an obligation of the Trustee, an
unsecured guarantee or the use of assets of such disqualified person as
collateral for such a loan.
(u) "Former Participant" shall mean any previous Participant whose
participation has terminated but who has a vested interest in the Plan
which has not been distributed in full.
(v) "Fund" shall mean the Fund maintained by the Trustee pursuant to
the Trust Agreement in order to provide for the payment of the benefits
specified in the Plan.
-4-
<PAGE>
(w) "Hour of Service" shall mean each hour for which an Employee is
directly or indirectly paid or entitled to payment by an Employer for the
performance of duties or for reasons other than the performance of duties
(such as vacation time, holidays, sickness, disability, paid lay-offs, jury
duty and similar periods of paid nonworking time). To the extent not
otherwise included, Hours of Service shall also include each hour for which
back pay, irrespective of mitigation of damages, is either award ed or
agreed to by the Employer. Hours of working time shall be credited on the
basis of actual hours worked, even though compensated at a premium rate for
overtime or other reasons. In computing and crediting Hours of Service for
an Employee under this Plan, the rules set forth in Sections 2530.200b-
2(b) and (c) of the Department of Labor Regulations shall apply, said
Sections being herein incor porated by reference. Hours of Service shall be
credited to the Plan Year or other relevant period during which the
services were performed or the nonworking time occurred, regardless of the
time when Compensation therefor may be paid. Any Employee for whom no
hourly employment records are kept by the Employer shall be credited with
45 Hours of Service for each calendar week in which he would have been
credited with a least one Hour or Service under the foregoing provisions,
if hourly records were available. Effective January 1, 1985, for absences
commencing on or after that date, solely for purposes of determining
whether a Break for participation and vesting purposes has occurred in an
Eligibility Period or Plan Year, an individual who is absent from work for
maternity or paternity reasons shall receive credit for the Hours of
Service which would otherwise have been credited to such individual but for
such absence, or in any case in which such hours cannot be determined, 8
Hours of Service per day of such absence. For purposes of this Section
1.1(w), an absence from work for maternity or paternity reasons means an
absence (1) by reason of the pregnancy of the individual, (2) by reason of
a birth of a child of the individual, (3) by reason of the placement of a
child with the individual in connection with the adoption of such child by
such individual, or (4) for purposes of caring for such child for a period
beginning immediately following such birth or placement. The Hours of
Service credited under this provision shall be credited (1) in the
computation period in which the absence begins if the crediting is
necessary to prevent a Break in that period, or (2) in all other cases, in
the following computation period.
(x) "Investment Adjustments" shall mean the increases and/or decreases
in the value of a Participant's accounts attributable to earnings, gains,
losses and expenses of the Fund, as set forth in Section 5.3.
(y) "Limitation Year" shall mean the Plan Year.
(z) "Normal Retirement Date" shall mean the first day of the month
coincident with or during which a Participant attains age 65 and completes
the fifth anniversary of his participation in the Plan.
(aa) "Participant" shall mean an Employee who has met all of the
eligibility requirements of the Plan and who is currently included in the
Plan as provided in Article II hereof.
-5-
<PAGE>
(bb) "Plan" shall mean the Montgomery Financial Corporation Employee
Stock Ownership Plan, as described herein or as hereafter amended from time
to time.
(cc) "Plan Year" shall mean any 12 consecutive month period commencing
on July 1 and ending on June 30.
(dd) "Qualified Domestic Relations Order" shall mean any judgment,
decree or order (including approval of a property settlement agreement)
that relates to the provision of child support, alimony, marital property
rights to a spouse, former spouse, child or other dependent of the
Participant (all such persons hereinafter termed "alternate payee") and is
made pursuant to a State domestic relations law (including community
property law) and, further, that creates or recognizes the existence of an
alternate payee's right to, or assigns to an alternate payee the right to
receive all or a portion of the benefits payable with respect to a
Participant and that clearly specifies the following:
(1) the name and last known mailing address (if available) of
the Participant and the name and mailing address of each alternate
payee to which the order relates;
(2) the amount or percentage of the Participant's benefits to
be paid to an alternate payee or the manner in which the amount is to
be determined; and
(3) the number of payments or period for which payments are
required.
A domestic relations order is not a Qualified Domestic Relations Order
if it:
(1) requires the Plan to provide any type or form of benefit
or any option not otherwise provided under the Plan; or,
(2) requires the Plan to provide increased benefits, or
(3) requires payment of benefits to an alternate payee that is
required to be paid to another alternate payee under a previously
existing Qualified Domestic Relations Order.
(ee) "Retirement" shall mean termination of employment which
qualifies as early, normal or Disability retirement as described in
Article VI.
(ff) "Service" shall mean employment with the Employer.
(gg) "Sponsor" shall mean Montgomery Financial Corporation, a
Delaware corporation.
(hh) "Trust Agreement" shall mean the agreement, dated April ___,
1997 by and between Montgomery Financial Corporation, a Delaware
corporation, and _________________, of _________, ___________.
-6-
<PAGE>
(ii) "Trustee" shall mean the Trustee or Trustees by whom the assets of
the Plan are held, as provided in the Trust Agreement, or his or their
successors.
(jj) "Valuation Date" shall mean the last day of each Plan Year. The
Trustee may make additional valuations, at the instruction of the
Administrator, but in no event may the Administrator request additional
valuations by the Trustee more frequently than quarterly. Whenever such date
falls on a Saturday, Sunday or holiday, the preceding business day shall be
the Valuation Date.
(kk) "Year of Service" shall mean any Plan Year during which an
Employee has completed at least 1,000 Hours of Service, except as otherwise
specified in Article III, in the determination of Years of Service for
eligibility and vesting purposes under this Plan, the term "Year of Service"
shall also mean any Plan Year during which an Employee has completed at
least 1,000 Hours of Service with an entity that is:
(1) a member of a controlled group including the Employer,
while it is a member of such controlled group (within the meaning of
Section 414(b) of the Code);
(2) in a group of trades or businesses under common control
with the Employer, while it is under common control (within the meaning
of Section 414(c) of the Code);
(3) a member of an affiliated service group including the
Employer, while it is a member of such affiliated service group (within
the meaning of Section 414(m) of the Code); or
(4) a leasing organization, under the circumstances described
in Section 414(n) of the Code.
1.2 Plurals and Gender.
Where appearing in the Plan and the Trust Agreement, the masculine
gender shall include the feminine and neuter genders, and the singular shall
include the plural, and vice versa, unless the context clearly indicates a
different meaning.
1.3 Incorporation of Trust Agreement.
The Trust Agreement, as the same may be amended from time to time, is
intended to be and hereby is incorporated by reference into this Plan and
for all purposes shall be deemed a part of the Plan.
-7-
<PAGE>
1.4 Headings.
The headings and sub-headings in this Plan are inserted for the
convenience of reference only and are to be ignored in any construction of
the provisions hereof.
1.5 Severability.
In case any provision of this Plan shall be held illegal or void, such
illegality or invalidity shall not affect the remaining provisions of this
Plan, but shall be fully severable, and the Plan shall be construed and
enforced as if said illegal or invalid provisions had never been inserted
herein.
1.6 References to Governmental Regulations.
References in this Plan to regulations issued by the Internal Revenue
Service, the Department of Labor, or other governmental agencies shall
include all regulations, rulings, procedures, releases and other position
statements issued by any such agency.
-8-
<PAGE>
ARTICLE II
PARTICIPATION
2.1 Commencement of Participation.
(a) Any Employee who completes at least 1,000 Hours of Service during
his Eligibility Period or during any Plan Year beginning after his Date of
Hire shall initially become a Participant on the Entry Date coincident with
or next following the later of the following dates, provided he is employed
by the Employer on that Entry Date:
(1) The date which is 12 months after his Date of Hire; and
(2) The date on which he attains age 21.
(b) Any Employee who had satisfied the requirements set forth in
Section 2.1(a) during the 12-month period prior to the Effective Date shall
become a Participant on the Effective Date, provided he is still employed by
the Employer on the Effective Date.
2.2 Termination of Participation.
After commencement or resumption of his participation, an Employee
shall remain a Participant during each consecutive Plan Year thereafter
until the earliest of the following dates:
(a) His actual Retirement date;
(b) His date of death; or
(c) The last day of a Plan Year during which he incurs a Break.
2.3 Resumption of Participation.
(a) Any Participant whose employment terminates and who resumes Service
before he incurs a Break shall resume participation immediately on the date
he is reemployed.
(b) Except as otherwise provided in Section 2.3(c), any Participant who
incurs one or more Breaks and resumes Service shall resume participation
retroactively as of the first day of the first Plan Year in which he
completes a Year of Service after such Break(s).
(c) Any Participant who incurs one or more Breaks and resumes Service,
but whose pre- Break Service is not reinstated to his credit pursuant to
Section 3.3, shall be treated as a new
-9-
<PAGE>
Employee and shall again be required to satisfy the eligibility requirements
contained in Section 2.1 before resuming participation on the appropriate
Entry Date, as specified in Section 2.1.
2.4 Determination of Eligibility.
The Administrator shall determine the eligibility of Employees in
accordance with the provisions of this Article. For each Plan Year, the
Employer shall furnish the Administrator a list of all Employees, indicating
the original date of their reemployment with the Employer and any Breaks
they may have incurred.
-10-
<PAGE>
ARTICLE III
CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes.
Except as provided in Section 3.3, all Years of Service completed by an
Employee shall be counted in determining his eligibility to become a
Participant on and after the Effective Date, whether such Service was
completed before or after the Effective Date.
3.2 Service Counted for Vesting Purposes.
All Years of Service completed by an Employee (including Years of
Service completed prior to the Effective Date) shall be counted in
determining his vested interest in this Plan, except the following:
(a) Service which is disregarded under the provisions of Section 3.3;
(b) Service prior to the Effective Date of this Plan if such Service
would have been disregarded under the "break in service" rules (within the
meaning of Section 1.411(a)-5(b)(6) of the Treasury Regulations).
3.3 Credit for Pre-Break Service.
Upon his resumption of participation following one or a series of
consecutive Breaks, an Employee's pre-Break Service shall be reinstated to
his credit for all purposes of this Plan only if either:
(a) He was vested in any portion of his accrued benefit at the time the
Break(s) began; or
(b) The number of his consecutive Breaks does not equal or exceed the
greater of 5 or the number of his Years of Service credited to him before
the Breaks began.
Except as provided in the foregoing, none of an Employee's Service
prior to one or a series of consecutive Breaks shall be counted for any
purpose in connection with his participation in this Plan thereafter.
3.4 Service Credit During Authorized Leaves.
An Employee shall receive no Service credit under Section 3.1 or 3.2
during any Authorized Leave of Absence. However, solely for the purpose of
determining whether he has incurred a Break during any Plan Year in which he
is absent from Service for one or more Authorized Leaves of
-11-
<PAGE>
Absence, he shall be credited with 45 Hours of Service for each week during
any such leave period. Notwithstanding the foregoing, if an Employee fails
to return to Service on or before the end of a leave period, he shall be
deemed to have terminated Service as of the first day of such leave period
and his credit for Hours of Service, determined under this Section 3.4,
shall be revoked. Notwithstanding anything contained herein to the contrary,
an Employee who is absent by reason of military service as set forth in
Section 1.1(d)(1) shall be given Service credit under this Plan for such
military leave period to the extent, and for all purposes, required by law.
3.5 Service Credit During Maternity or Paternity Leave.
Effective for absences beginning on or after January 1, 1985, for
purposes of determining whether a Break has occurred for participation and
vesting purposes, an individual who is on maternity or paternity leave as
described in Section 1.1(w), shall be deemed to have completed Hours of
Service during such period of absence, all in accordance with Section
1.1(w). Notwithstanding the foregoing, no credit shall be given for such
Hours of Service unless the individual furnishes to the Administrator such
timely information as the Administrator may reasonably require to determine:
(a) that the absence from Service was attributable to one of the
maternity or paternity reasons enumerated in Section 1.1(w); and
(b) the number of days for which such absence lasted.
In no event, however, shall any credit be given for such leave other than
for determining whether a Break has occurred.
3.6 Ineligible Employees.
Notwithstanding any provisions of this Plan to the contrary, any person
who is employed by the Employer, but who is ineligible to participate in
this Plan, either because of his failure
(a) To meet the eligibility requirements contained in Article II; or
(b) To be an Employee, as defined in Section 1.1(p), shall,
nevertheless, earn Years of Service for eligibility and vesting purposes
pursuant to the rules contained in this Article III. However, such a person
shall not be entitled to receive any contributions hereunder unless and
until he becomes a Participant in this Plan, and then, only during his
period of participation.
-12-
<PAGE>
ARTICLE IV
CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions.
(a) Subject to all of the provisions of this Article IV, for each Plan
Year commencing on or after the Effective Date, the Employer shall make an
Employee Stock Ownership contribution to the Fund, in such amount as may be
determined by the Board of Directors in its discretion. Such contribution
shall be in the form of cash or Employer Securities. In determining the
value of Employer Securities transferred to the Fund as an Employee Stock
Ownership contribution, the Administrator may determine the average of
closing prices of such securities for a period of up to 90 consecutive days
immediately preceding the date on which the securities are contributed to
the Fund. In the event that the Employer Securities are not readily tradable
on an established securities market, the value of the Employer Securities
transferred to the Fund shall be determined by an independent appraiser in
accordance with Section 8.9.
(b) In no event shall such contribution by the Employer exceed for any
Plan Year the maximum amount that may be deducted by the Employer under
Section 404 of the Code, nor shall such contribution cause the Employer to
violate its regulatory capital requirements. Each Employee Stock Ownership
contribution by the Employer shall be deemed to be made on the express
condition that the Plan, as then in effect, shall be qualified under
Sections 401 and 501 of the Code and that the amount of such contribution
shall be deductible from the Employer's income under Section 404 of the
Code.
4.2 Time and Manner of Employee Stock Ownership Contributions.
(a) The Employee Stock Ownership contribution (if any) for each Plan
Year shall be paid to the Trustee in one lump sum or installments at any
time on or before the expiration of the time prescribed by law (including
any extensions) for filing of the Employer's federal income tax return for
its fiscal year ending concurrent with or during such Plan Year. Any portion
of the Employee Stock Ownership contribution for each Plan Year that may be
made prior to the last day of the Plan Year shall be maintained by the
Trustee in the Employee Stock Ownership suspense account described in
Section 5.2 until the last day of such Plan Year.
(b) If an Employee Stock Ownership contribution for a Plan Year is paid
after the close of the Employer's fiscal year which ends concurrent with or
during such Plan Year but on or prior to the due date (including any
extensions) for filing of the Employer's federal income tax return for such
fiscal year, it shall be considered, for allocation purposes, as an Employee
Stock Ownership contribution to the Fund for the Plan Year for which it was
computed and accrued, unless such
-13-
<PAGE>
contribution is accompanied by a statement to the Trustee, signed by a
representative of the Employer, which specifies that the Employee Stock
Ownership contribution is made with respect to the Plan Year in which it is
received by the Trustee. Any Employee Stock Ownership contribution paid by
the Employer during any Plan Year but after the due date (including any
extensions) for filing of its federal income tax return for the fiscal year
of the Employer ending on or before the last day of the preceding Plan Year
shall be treated, for allocation purposes, as an Employee Stock Ownership
contribution to the Fund for the Plan Year in which the contribution is paid
to the Trustee.
(c) Notwithstanding anything contained herein to the contrary, no
Employee Stock Ownership contribution shall be made for any year during
which a "limitations account" created pursuant to Section 5.6(c)(2) is in
existence until the balance of such limitations account has been reallocated
in accordance with Section 5.6(c)(2).
4.3 Records of Contributions.
The Employer shall deliver at least annually to the Trustee, with
respect to the contributions contemplated in Section 4.1, a certificate of
the Administrator, in such form as the Trustee shall approve, setting forth:
(a) The aggregate amount of contributions, if any, to the Fund for such
Plan Year;
(b) The names, Internal Revenue Service identifying numbers and current
residential addresses of all Participants in the Plan;
(c) The amount and category of contributions to be allocated to each
such Participant; and
(d) Any other information reasonably required for the proper operation
of the Plan.
4.4 Erroneous Contributions.
(a) Notwithstanding anything herein to the contrary, upon the
Employer's request, a contribution which was made by a mistake of fact, or
conditioned upon the initial qualification of the Plan, under Code Section
401, or upon the deductibility of the contribution under Section 404 of the
Code, shall be returned to the Employer by the Trustee within one year after
the payment of the contribution, the denial of the qualification or the
disallowance of the deduction (to the extent disallowed), whichever is
applicable; provided, however, that in the case of denial of the initial
qualification of the Plan, a contribution shall not be returned unless an
Application for Determination has been timely filed with the Internal
Revenue Service. Any portion of a contribution returned pursuant to this
Section 4.4 shall be adjusted to reflect its proportionate share of the
losses of the fund, but shall not be adjusted to reflect any earnings or
gains. Notwithstanding any provisions of this Plan to the contrary, the
right or claim of any Participant or Beneficiary to any asset of the Fund or
any benefit under this Plan shall be subject to and limited by this Section
4.4.
-14-
<PAGE>
(b) In no event shall voluntary Employee contributions be accepted. Any
such voluntary Employee contributions (and any earnings attributable
thereto) mistakenly received by the Trustee shall promptly be returned to
the Participant.
-15-
<PAGE>
ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant Accounts.
The Administrator shall establish and maintain separate individual
accounts for Participants in the Plan and for each Former Participant in
accordance with the provisions of this Article V. Such separate accounts
shall be for accounting purposes only and shall not require a segregation of
the Fund, and no Participant, Former Participant or Beneficiary shall
acquire any right to or interest in any specific assets of the Fund as a
result of the allocations provided for under this Plan, except where
segregation is expressly provided for in this Plan.
(a) Employee Stock Ownership Accounts.
The Administrator shall establish a separate Employee Stock
Ownership Account in the Fund for each Participant. The account shall be
credited as of the last day of each Plan Year with the amounts allocated to
the Participant under Sections 5.4 and 5.5. The Administrator may establish
subaccounts hereunder, an Employer Stock Account reflecting a Participant's
interest in Employer Securities held by the Trust and an Other Investments
Account reflecting the Participant's interest in his Employee Stock
Ownership Account other than Employer Securities.
(b) Distribution Accounts.
In any case where distribution of a terminated Participant's
vested interest in the Plan is to be deferred, the Administrator shall
establish a separate, nonforfeitable account in the Fund to which the
balance in his Employee Stock Ownership Account in the Plan shall be
transferred after such Participant incurs a Break. Unless the Former
Participant's distribution accounts are segregated for investment purposes
pursuant to section 9.4, they shall share in Investment Adjustments.
(c) Other Accounts.
The Administrator shall establish such other separate accounts
for each Participant as may be necessary or desirable for the convenient
administration of the Fund.
5.2 Establishment of Suspense Accounts.
The Administrator shall establish separate accounts to be known as
"suspense accounts." There shall be credited to such appropriate suspense
accounts any Employee Stock Ownership contributions that may be made prior
to the last day of the Plan Year, as provided in Section 4.2. The suspense
accounts shall share proportionately as to time and amount in any Investment
Adjustments. As of the last day of each Plan Year, the balance of the
Employee Stock Ownership suspense account
-16-
<PAGE>
shall be added to the Employee Stock Ownership contribution and allocated to
the Employee Stock Ownership Accounts of Participants as provided in Section
5.5, except as provided herein. In the event that the Plan takes an Exempt
Loan, the Employer Securities purchased thereby shall be allocat ed to a
separate Exempt Loan Suspense Account, from which allocations shall be made
in accordance with Section 8.5.
5.3 Allocation of Earnings, Losses and Expenses.
As of each Valuation Date, any increase or decrease in the net worth of
the aggregate Employee Stock Ownership Accounts held in the Fund
attributable to earnings, losses, expenses and unrealized appreciation or
depreciation in each such aggregate Account, as determined by the Trustee
pursuant to the Trust Agreement, shall be credited to or deducted from the
appropriate suspense accounts and all Participants' Employee Stock Ownership
Accounts (except segregated distribution accounts described in Section
5.1(b) and the "limitations account" described in Section 5.6(c)(4)) in the
proportion that the value of each such Account (determined immediately prior
to such allocation and before crediting any Employee Stock Ownership
contributions and forfeitures for the current Plan Year but after adjustment
for any transfer to or from such Accounts and for the time such funds were
in such Accounts) bears to the value of all Employee Stock Ownership
Accounts.
5.4 Allocation of Forfeitures.
As of the last day of each Plan Year, all forfeitures attributable to
the Employee Stock Ownership Accounts which are then available for
reallocation shall be, as appropriate, added to the Employee Stock Ownership
contribution (if any) for such year and allocated among the Participants'
Employee Stock Ownership Accounts, as appropriate, in the manner provided in
Sections 5.5 and 5.6.
5.5 Allocation of Annual Employee Stock Ownership Contributions.
As of the last day of each Plan Year for which the Employer shall make
an Employee Stock Ownership contribution, the Administrator shall allocate
the Employee Stock Ownership contribution (including reallocable
forfeitures) for such Plan Year to the Employee Stock Ownership account of
each Participant who completed at least 1,000 Hours of Service during that
Plan Year, provided that he is still employed by the Employer on the last
day of the Plan Year. Such allocation shall be made in the same proportion
that each such Participant's Compensation for such Plan Year bears to the
total Compensation of all such Participants for such Plan Year, subject to
Section 5.6. Notwithstanding the foregoing, if a Participant attains his
Normal Retirement Date and terminates Service prior to the last day of the
Plan Year but after completing 1,000 Hours of Service, he shall be entitled
to an allocation based on his Compensation earned prior to his termination
and during the Plan Year. Furthermore, if a Participant completes 1,000
Hours of Service and is on a Leave of Absence on the last day of the Plan
Year because of pregnancy or other medical reason, such a Participant shall
be entitled to an allocation based on his Compensation earned during such
Plan Year.
-17-
<PAGE>
5.6 Limitation on Annual Additions.
(a) Notwithstanding any provisions of this Plan to the contrary, the
total Annual Additions credited to a Participant's accounts under this Plan
(and under any other defined contribution plan to which the Employer
contributes) for any Limitation Year shall not exceed the lesser of:
(1) 25% of the Participant's compensation for such Limitation
Year; or
(2) $30,000 (or, if greater, one-fourth of the defined benefit
dollar limitation set forth in Section 415(b)(1)(A) of the Code).
Whenever otherwise allowed by law, the maximum amount of $30,000 shall
be automatically adjusted annually for cost-of-living increases in
accordance with Section 415(d) of the Code and the highest such
increase effective at any time during the Limitation Year shall be
effective for the entire Limitation Year, without any amendment to this
Plan.
(b) Solely for the purpose of this Section 5.6, the term "compensation"
is defined as wages, salaries, and fees for professional services and other
amounts received (without regard to whether or not an amount is paid in
cash) for personal services actually rendered in the course of employment
with the Employer maintaining the Plan to the extent that the amounts are
includable in gross income (including, but not limited to, commissions paid
to salesmen, compensation for services on the basis of a percentage of
profits, commissions on insurance premiums, tips, bonuses, fringe benefits,
and reimbursements or other expense allowances under a nonaccountable plan
(as described in Treas.
Regs. Section 1.62-2(c)), and excluding the following:
(1) Employer contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for the taxable year
in which contributed, or Employer contributions under a simplified employee
pension plan to the extent such contributions are deductible by the
Employee, or any distributions from a plan of deferred compensation;
(2) Amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held by the employee
either becomes freely transferable or is no longer subject to a substantial
risk of forfeiture;
(3) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(4) Other amounts which received special tax benefits, or
contributions made by the employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity contract described in section
403(b) of the Code (whether or not the contributions are actually excludable
from the gross income of the Employee).
-18-
<PAGE>
(c) In the event that the limitations on Annual Additions described in
this Section 5.6(a) above are exceeded with respect to any Participant in
any Limitation Year, then the contributions allocable to the Participant for
such year shall be reduced to the minimum extent required by such
limitations in the following order of priority:
(1) If any further reductions in Annual Additions are
necessary, then the Employee Stock Ownership contributions and
forfeitures allocated during such Limitation Year to the Participant's
Employee Stock Ownership Account shall be reduced. The amount of any
such reductions in the Employee Stock Ownership contributions and
forfeitures shall be reallocated to all other Participants in the same
manner as set forth under Sections 5.4 and 5.5.
(2) Any amounts which cannot be reallocated to other
Participants in a current Limitation Year in accordance with Section
5.6(c)(1) above because of the limitations contained in Sections 5.6(a)
and (d) shall be credited to an account designated as the "limitations
account" and carried forward to the next and subsequent Limitation
Years until it can be reallocated to all Participants as set forth in
Sections 5.4, and 5.5, as appropriate. No Investment Adjustments shall
be allocated to this limitations account. In the next and subsequent
Limitation Years, all amounts in the limitations account must be
allocated in the manner described in Sections 5.4 and 5.5, as
appropriate, before any Employee Stock Ownership contributions may be
made to this Plan for that Limitation Year.
(3) The Administrator shall determine to what extent the
Annual Additions to any Participant's Employee Stock Ownership Account
must be reduced in each Limitation Year. The Administrator shall reduce
the Annual Additions to all other qualified, tax-exempt retirement
plans maintained by the Employer in accordance with the terms contained
therein for required reductions or reallocations mandated by Section
415 of the Code before reducing any Annual Additions in this Plan.
(4) In the event this Plan is voluntarily terminated by the
Employer under Section 13.5, any amounts credited to the limitations
account described in Section 5.6(c)(2) above which have not be
reallocated as set forth herein shall be distributed to the
Participants who are still employed by the Employer on the date of
termination, in the proportion that each Participant's Compensation
bears to the Compensation of all Participants.
(d) The Annual Additions credited to a Participant's accounts for each
Limitation Year are further limited so that in the case of an Employee who
is a Participant in both this Plan and any qualified defined benefit plan
(hereinafter referred to as a "pension plan") of the Employer, the sum of
(1) and (2) below will not exceed 1.0:
(1) (A) The projected annual normal retirement benefit of a
Participant under the pension plan, divided by
-19-
<PAGE>
(B) The lesser of:
(i) The product of 1.25 multiplied by the dollar
limitation in effect under Section 415(b)(1)(A) of the Code
for such Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such
Limitation Year; plus
(2) (A) The sum of Annual Additions credited to the
Participant under this Plan for all Limitation Years, divided by:
(B) The sum of the lesser of the following amounts
determined for such Limitation Year and for each prior year of service
with the Employer:
(i) The product of 1.25 multiplied by the dollar
limitation in effect under Section 415(b)(1)(A) of the Code
for such Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such
Limitation Year.
The Administrator may, in calculating the defined contribution plan
fraction described in Section 5.6(d)(2), elect to use the transitional rule
pursuant to Section 415(e)(6) of the Code, if applicable. If the sum of the
fractions produced above will exceed 1.0, even after the use of the "fresh
start" rule contained in Section 235 of the Tax Equity and Fiscal
Responsibility Act of 1982 ("TEFRA"), if applicable, then the same
provisions as stated in Section 5.6(c) above shall apply. If, even after the
reductions provided for in Section 5.6(c), the sum of the fractions still
exceed 1.0, then the benefits of the Participant provided under the pension
plan shall be reduced to the extent neces sary, in accordance with Treasury
Regulations issued under the Code. Solely for the purposes of this Section
5.6(d), the term "years of service" shall mean all years of service defined
by Treasury Regulations issued under Section 415 of the Code.
(e) In the event that the Employer is a member of (1) a controlled
group of corporations or a group of trades or businesses under common
control (as described in Section 414(b) or (c) of the Code, as modified by
Section 415(h) thereof), or (2) an affiliated service group (as described in
Section 414(m) of the Code), the Annual Additions credited to any
Participant's accounts in any such Limitation Year shall be further limited
by reason of the existence of all other qualified retirement plans
maintained by such affiliated corporations, other entities under common
control or other members of the affiliated service group, to the extent such
reduction is required by Section 415 of the Code and the regulations
promulgated thereunder. The Administrator shall determine if any such
-20-
<PAGE>
reduction in the Annual Additions to a Participant's accounts is required
for this reason, and if so, the same provisions as stated in 5.6(c) and (d)
above shall apply.
(f) Annual Additions shall not include any Employer contributions which
are used by the Trust to pay interest on an Exempt Loan nor any forfeitures
of Employer Securities purchased with the proceeds of an Exempt Loan,
provided that not more than one-third of the Employer contributions are
allocated to Participants who are among the group of employees deemed
"highly compensated employees" within the meaning of Code Section 414(q).
5.7 Erroneous Allocations.
No Participant shall be entitled to any Annual Additions or other
allocations to his accounts in excess of those permitted under Sections 5.3,
5.4, 5.5, and 5.6. If it is determined at anytime that the Administrator
and/or Trustees have erred in accepting and allocating any contributions or
forfeitures under this Plan, or in allocating Investment Adjustments, or in
excluding or including any person as a Participant, then the Administrator,
in a uniform and nondiscriminatory manner, shall determine the manner in
which such error shall be corrected and shall promptly advise the Trustee in
writing of such error and of the method for correcting such error. The
accounts of any or all Participants may be revised, if necessary, in order
to correct such error.
5.8 Value of Participant's Interest in Fund.
At any time, the value of a Participant's interest in the Fund shall
consist of the aggregate value of his Employee Stock Ownership Account and
his distribution account, if any, determined as of the next-preceding
Valuation Date. The Administrator shall maintain adequate records of the
cost basis of Employer Securities allocated to each Participant's Employer
Stock Ownership Account.
5.9 Investment of Account Balances.
The Employee Stock Ownership Accounts shall be invested primarily in
Employer Securities. Employer Securities shall constitute at least 51% of
the assets of all Employee Stock Ownership Accounts. All sales of Employer
Securities by the Trustee attributable to the Employee Stock Ownership
Accounts of all Participants shall be charged pro rata to the Employee Stock
Ownership Accounts of all Participants.
-21-
<PAGE>
ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement.
A Participant who reaches his Normal Retirement Date and who shall
retire at that time shall thereupon be entitled to retirement benefits based
on the value of his interest in the Fund, payable pursuant to the provisions
of Section 9.1. A Participant who remains in Service after his Normal
Retirement Date shall not be entitled to any retirement benefits until his
actual termination of Service thereafter (except as provided in Section
9.3(g)) and he shall meanwhile continue to participate in this Plan.
6.2 Early Retirement.
A Participant who reaches his Early Retirement Date may retire at such
time (or, at his election, as of the first day of any month thereafter prior
to his Normal Retirement Date) and shall thereupon be entitled to retirement
benefits based on the value of his interest in the Fund, payable pursuant to
the provisions of Section 9.1.
6.3 Disability Retirement.
In the event a Participant incurs a Disability, he may retire on his
Disability Retirement Date and shall thereupon be entitled to retirement
benefits based on the value of his interest in the Fund, payable pursuant to
the provisions of Section 9.1.
6.4 Death Benefits.
(a) Upon the death of a Participant before his Retirement or other
termination of Service, the value of his interest in the Fund shall be
payable pursuant to the provisions of Section 9.1. The Administrator shall
direct the Trustee to distribute his interest in the Fund to any surviving
Beneficiary designated by the Participant or, if none, to such persons
designated by the Administrator pursuant to Section 6.5.
(b) Upon the death of a Former Participant, the Administrator shall
direct the Trustee to distribute any undistributed balance of his interest
in the Fund to any surviving Beneficiary designated by him or, if none, to
such persons designated by the Administrator pursuant to Section 6.5.
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive the interest in the Fund of a
deceased Participant or Former Partici pant as the Administrator may deem
desirable. The Administrator's determination of death and of
-22-
<PAGE>
the right of any person to receive payment shall be conclusive.
6.5 Designation of Death Beneficiary and Manner of Payment.
(a) Each Participant shall have the right to designate a Beneficiary or
Beneficiaries to receive the sum or sums to which he may be entitled upon
his death. The Participant may also designate the manner in which any death
benefits under this Plan shall be payable to his Beneficiary, provided that
such designation is in accordance with Section 9.4. Such designation of
Beneficiary and manner of payment shall be in writing and delivered to the
Administrator, and shall be effective when received by the Administrator.
The Participant shall have the right to change such designation by notice in
writing to the Administrator. Such change of Beneficiary or the manner of
payment shall become effective upon its receipt by the Administrator. Any
such change shall be deemed to revoke all prior designations.
(b) If a Participant shall fail to designate validly a Beneficiary or
if no designated Beneficiary survives the Participant, his interest in the
Fund shall be paid to the person or persons in the first of the following
classes of successive preference Beneficiaries surviving at the death of the
Participant: the Participant's (1) widow or widower, (2) children, (3)
parents, and (4) estate. The Administrator shall decide what Beneficiaries,
if any, shall have been validly designated, and its decision shall be
binding and conclusive on all persons.
(c) Notwithstanding the foregoing, if a Participant has been married
throughout the 12 month period preceding the date of his death, the sum or
sums to which he may be entitled under this Plan upon his death shall be
paid to his spouse, unless the Participant's spouse shall have consented to
the election of another Beneficiary. Such a spousal consent shall be in
writing and shall be witnessed either by a representative of the Plan or a
notary public. If it is established to the satisfaction of the Administrator
that such spousal consent cannot be obtained because there is no spouse,
because the spouse cannot be located, or other reasons prescribed by
governmental regulations, the consent of the spouse may be waived, and the
Participant may designate a Beneficiary or Beneficiaries other than his
spouse.
-23-
<PAGE>
ARTICLE VII
VESTING AND FORFEITURES
7.1 Vesting on Death, Disability and Normal Retirement.
Unless his participation in this Plan shall have terminated prior
thereto, upon a Participant's death, Disability or upon his attainment of
Normal Retirement Date (whether or not he actually retires at that time)
while he is still employed by the Employer, the Participant's entire
interest in the Fund shall be fully vested and nonforfeitable.
7.2 Vesting on Termination of Participation.
Upon termination of his participation in this Plan for any reason other
than death, Disability, or Normal Retirement, a Participant shall be vested
in a percentage of his Employee Stock Ownership Account, such vested
percentages to be determined under the following table, based on the Years
of Service (including Years of Service prior to the Effective Date) credited
to him for vesting purposes at the time of his termination of participation:
Years of Service Completed Percentage Vested
-------------------------- -----------------
Less than 5 0%
5 or more 100%
Any portion of the Participant's Employee Stock Ownership Account which
is not vested at the time he incurs a Break shall thereupon be forfeited and
disposed of pursuant to Section 7.3. Distribution of the vested portion of a
terminated Participant's interest in the Plan may be authorized by the
Administrator in any manner permitted under Section 9.1.
7.3 Disposition of Forfeitures.
(a) In the event a Participant incurs a Break and subsequently resumes
both his Service and his participation in the Plan prior to incurring at
least 5 Breaks, the forfeitable portion of his Employee Stock Ownership
Account shall be reinstated to the credit of the Participant as of the date
he resumes participation.
(b) In the event a Participant terminates Service and subsequently
incurs a Break and receives a distribution, or in the event a Participant
does not terminate Service, but incurs at least 5 Breaks, or in the event
that a Participant terminates Service and incurs at least 5 Breaks but has
not received a distribution, then the forfeitable portion of his Employer
Account, including Investment
-24-
<PAGE>
Adjustments, shall be reallocated to other Participants, pursuant to Section
5.4 as of the date the Participant incurs such Break or Breaks, as the case
may be.
(c) In the event a former Participant who had received a distribution
from the Plan is rehired, he shall repay the amount of his distribution
before the earlier of 5 years after the date of his rehire by the Employer,
or the close of the first period of 5 consecutive Breaks commencing after
the withdrawal in order for any forfeited amounts to be restored to him.
-25-
<PAGE>
ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS
8.1 Right to Demand Employer Securities.
A Participant entitled to a distribution from his Employee Stock
Ownership Account shall be entitled to demand that his interest in the
Account be distributed to him in the form of Em ployer Securities, all
subject to Section 9.9. In the event that the Employer Securities are not
readily tradable on an established market, the Participant shall be entitled
to require that the Employer repurchase the Employer Securities under a fair
valuation formula, as provided by governmental regulations. The Participant
or Beneficiary shall be entitled to exercise the put option described in the
preceding sentence for a period of not more than 60 days following the date
of distribution of Employer Securities to him. If the put option is not
exercised within such 60-day period, the Participant or Beneficiary may
exercise the put option during an additional period of not more than 60 days
after the beginning of the first day of the first Plan Year following the
Plan Year in which the first put option period occurred, all as provided in
regulations promulgated by the Secretary of the Treasury.
8.2 Voting Rights.
Each Participant with an Employee Stock Ownership Account shall be
entitled to direct the Trustee as to the manner in which the Employer
Securities in such Account are to be voted. Employer Securities held in the
Employee Stock Ownership Suspense Account or the Exempt Loan Suspense
Account shall be voted by the Trustee on each issue with respect to which
shareholders are entitled to vote in the manner directed by the majority of
the Participants who directed the Trustee as to the manner of voting their
shares in the Employee Stock Ownership Accounts with respect to such issue.
Prior to the initial allocation of shares, the Trustee shall be entitled to
vote the shares in the Suspense Account without prior direction from the
Participants or the Administrator. In the event that a Participant fails to
give timely voting instructions to the Trustee with respect to the voting of
his allocated Employer Securities, the Trustee shall be entitled to vote
such shares in its discretion.
8.3 Nondiscrimination in Employee Stock Ownership Contributions.
In the event that the amount of the Employee Stock Ownership
contributions that would be required in any Plan Year to make the scheduled
payments on an Exempt Loan would exceed the amount that would otherwise be
deductible by the Employer for such Plan Year under Code Section 404, then
no more than one-third of the Employee Stock Ownership contributions for the
Plan Year, which is also the Employer's taxable year, shall be allocated to
the group of Employees who, during the Plan Year or the preceding Plan Year:
-26-
<PAGE>
(a) Was at any time a 5 percent owner of the Employer;
(b) Received compensation from the Employer in excess of $75,000, as
adjusted under Code Section 414(q);
(c) Received compensation from the Employer in excess of $50,000, as
adjusted under Code Section 414(q), and was in the "top-paid group" of
employees (as defined below) for such year; or
(d) Was at any time an officer and received compensation greater than
50 percent of the amount in effect under Code Section 415(b)(1)(A), as
adjusted for cost-of-living increases permitted under Code Section
415(d)(1), but without regard to any adjustment under Code Section
415(c)(6)(A).
An Employee shall be deemed a member of the "top-paid group" of employees
for a given Plan Year if such Employee is in the group of the top 20% of the
employees of the Employer when ranked on the basis of compensation.
8.4 Dividends.
Dividends paid with respect to Employer Securities credited to a
Participant's Employee Stock Ownership account as of the record date for the
dividend payment may be paid in cash to the Participants, pursuant to the
directions of the Board of Directors of the Sponsor. If the Board of
Directors shall direct that the aforesaid dividends shall be paid directly
to Participants, the quarterly dividends paid with respect to such Employer
Securities shall be paid to the Plan, from which dividend distributions in
cash shall be made to the Participants with respect to the Employer
Securities in their Employee Stock Ownership Accounts within 90 days of the
close of the Plan Year in which the dividends were paid. Dividends on
Employer Securities obtained pursuant to an Exempt Loan and still held in
the Suspense Account may be used to make payments on an Exempt Loan, as
described in Section 8.5.
8.5 Exempt Loans.
(a) The Sponsor may direct the Trustee to obtain Exempt Loans. The
Exempt Loan may take the form of (i) a loan from a bank or other commercial
lender to purchase Employer Securities (ii) a loan from the Employer to the
Plan; or (iii) an installment sale of Employer Securities to the Plan. The
proceeds of any such Exempt Loan shall be used, within a reasonable time
after the Ex empt Loan is obtained, only to purchase Employer Securities,
repay the Exempt Loan, or repay any prior Exempt Loan. Any such Exempt Loan
shall provide for no more than a reasonable rate of interest and shall be
without recourse against the Plan. The number of years to maturity under the
Exempt Loan must be definitely ascertainable at all times. The only assets
of the Plan that may be given as collateral for an Exempt Loan are Employer
Securities acquired with the proceeds
-27-
<PAGE>
of the Exempt Loan and Employer Securities that were used as collateral for
a prior Exempt Loan repaid with the proceeds of the current Exempt Loan.
Such Employer Securities so pledged shall be placed in an Exempt Loan
Suspense Account. No person or institution entitled to payment under an
Exempt Loan shall have recourse against Trust assets other than the
aforesaid collateral, Employer Stock Ownership contributions (other than
contributions of Employer Securities) that are available under the Plan to
meet obligations under the Exempt Loan and earnings attributable to such
collateral and the investment of such contributions. All Employee Stock
Ownership contributions paid during the Plan Year in which an Exempt Loan is
made (whether before or after the date the proceeds of the Exempt Loan are
received), all Employee Stock Ownership contribu tions paid thereafter until
the Exempt Loan has been repaid in full, and all earnings from investment of
such Employee Stock Ownership contributions, without regard to whether any
such Employee Stock Ownership contributions and earnings have been allocated
to Participants' Employee Stock Ownership Accounts, shall be available to
meet obligations under the Exempt Loan as such obligations accrue, or prior
to the time such obligations accrue, unless otherwise provided by the
Employer at the time any such contribution is made. Any pledge of Employer
Securities shall provide for the release of shares so pledged upon the
payment of any portion of the Exempt Loan.
(b) For each Plan Year during the duration of the Exempt Loan, the
number of shares of Employer Securities released from such pledge shall
equal the number of encumbered shares held immediately before release for
the current Plan Year multiplied by a fraction. The numerator of the
fraction is the sum of principal and interest paid in such Plan Year. The
denominator of the fraction is the sum of the numerator plus the principal
and interest to be paid for all future years. Such years will be determined
without taking into account any possible extension or renewal periods. If
interest on any Exempt Loan is variable, the interest to be paid in future
years under the Exempt Loan shall be computed by using the interest rate
applicable as of the end of the Plan Year.
(c) Notwithstanding the foregoing, the Trustee may obtain an Exempt
Loan pursuant to the terms of which the number of Employer Securities to be
released from encumbrance shall be determined solely with reference to
principal payments. In the event that such an Exempt Loan is obtained,
annual payments of principal and interest shall be at a cumulative rate that
is not less rapid at any time than level payments of such amounts for not
more than 10 years. The amount of interest in any such annual loan repayment
shall be disregarded only to the extent that it would be determined to be
interest under standard loan amortization tables. The requirement set forth
in the preceding sentence shall not be applicable from the time that, by
reason of a renewal, extension, or refinancing, the sum of the expired
duration of the Exempt Loan, the renewal period, the extension period, and
the duration of a new Exempt Loan exceeds 10 years.
-28-
<PAGE>
8.6 Exempt Loan Payments.
(a) Payments of principal and interest on any Exempt Loan during a Plan
Year shall be made by the Trustee (as directed by the Administrator) only
from (1) Employee Stock Ownership contributions to the Trust made to meet
the Plan's obligation under an Exempt Loan (other than contributions of
Employer Securities) and from any earnings attributable to Employer
Securities held as collateral for an Exempt Loan and investments of such
contributions (both received during or prior to the Plan Year); (2) the
proceeds of a subsequent Exempt Loan made to repay a prior Exempt Loan; and
(3) the proceeds of the sale of any Employer Securities held as collateral
for an Exempt Loan. Such contribution and earnings shall be accounted for
separately by the Plan until the Exempt Loan is repaid.
(b) Employer Securities released by reason of the payment of principal
or interest on an Exempt Loan from amounts allocated to Participants'
Employee Stock Ownership Accounts shall immediately upon payment be
allocated as set forth in Section 5.5.
(c) The Employer shall contribute to the Trust sufficient amounts to
enable the Trust to pay principal and interest on any such Exempt Loans as
they are due, provided however that no such contribution shall exceed the
limitations in Section 5.6. In the event that such contributions by reason
of the limitations in Section 5.6 are insufficient to enable the Trust to
pay principal and interest on such Exempt Loan as it is due, then upon the
Trustee's request the Employer shall:
(1) Make an Exempt Loan to the Trust in sufficient amounts to
meet such principal and interest payments. Such new Exempt Loan shall
be subordinated to the prior Exempt Loan. Securities released from the
pledge of the prior Exempt Loan shall be pledged as collateral to
secure the new Exempt Loan. Such Employer Securities will be released
from this new pledge and allocated to the Employee Stock Ownership
Accounts of the Partici pants in accordance with applicable provisions
of the Plan;
(2) Purchase any Employer Securities pledged as collateral in
an amount necessary to provide the Trustee with sufficient funds to
meet the principal and interest repayments. Any such sale by the Plan
shall meet the requirements of Section 408(e) of ERISA; or
(3) Any combination of the foregoing. However, the Employer
shall not, pursuant to the provisions of this subsection, do, fail to
do or cause to be done any act or thing which would result in a
disqualification of the Plan as an Employee Stock Ownership Plan under
the Code.
(d) Except as provided in Section 8.1 above and notwithstanding any
amendment to or termination of the Plan which causes it to cease to qualify
as an Employee Stock Ownership plan within the meaning of Section 4975(e)(7)
of the Code, or any repayment of an Exempt Loan, no
-29-
<PAGE>
shares of Employer Securities acquired with the proceeds of an Exempt Loan
obtained by the Trust to purchase Employer Securities may be subject to a
put, call or other option, or buy-sell or similar arrangement while such
shares are held by the Plan or when such Shares are distributed from the
Plan.
8.7 Put Option.
If a Participant exercises a put option (as set forth in Section 8.1)
with respect to Employer Securities that were distributed as part of a total
distribution pursuant to which a Participant's Employee Stock Ownership
Account is distributed to him in a single taxable year, the Employer or the
Plan may elect to pay the purchase price of the Employer Securities over a
period not to exceed 5 years. Such payments shall be made in substantially
equal installments not less frequently than annually over a period beginning
not later than 30 days after the exercise of the put option. Reasonable
interest shall be paid to the Participant with respect to the unpaid balance
of the purchase price and adequate security shall be provided with respect
thereto. In the event that a Participant exercises a put option with respect
to Employer Securities that are distributed as part of an installment
distribution, the amount to be paid for such securities shall be paid not
later than 30 days after the exercise of the put option.
8.8 Diversification Requirements
Each Participant who has completed at least 10 years of participation
in the Plan and has attained age 55 may elect within 90 days after the close
of each Plan Year during his "qualified election period" to direct the Plan
as to the investment of at least 25 percent of his Employee Stock Ownership
Account (to the extent such percentage exceeds the amount to which a prior
election under this Section 8.8 had been made). For purposes of this Section
8.8, the term "qualified election period" shall mean the 5-Plan-Year period
beginning with the Plan Year after the Plan Year in which the Participant
attains age 55 (or, if later, beginning with the Plan Year after the first
Plan Year in which the Employee first completes at least 10 years of
participation in the Plan). In the case of the Employee who has attained age
60 and completed 10 years of participation in the prior Plan Year and in the
case of the election year in which any other Participant who has met the
minimum age and service requirements for diversification can make his last
election hereunder, he shall be entitled to direct the Plan as to the
investment of at least 50 percent of his Employee Stock Ownership Account
(to the extent such percentage exceeds the amount to which a prior election
under this Section 8.8 had been made). The Plan shall make available at
least 3 investment options (not inconsistent with regulations prescribed by
the Department of Treasury) to each Participant making an election
hereunder. The Plan shall be deemed to have met the requirements of this
Section if the portion of the Participant's Employee Stock Ownership Account
covered by the election hereunder is distributed to the Participant or his
designated Beneficiary within 90 days after the period during which the
election may be made. In the absence of such a distribution, the Trustee
shall implement the Participant's election within 90 days following the
expiration of the qualified election period.
-30-
<PAGE>
8.9 Independent Appraiser.
An independent appraiser meeting the requirements of Code Section
170(a)(1) shall value the Employer Securities in those Plan Years when such
securities are not readily tradable on an established securities market.
-31-
<PAGE>
ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service - In General.
All benefits provided under this Plan shall be funded by the value of a
Participant's vested interest in the Fund. As soon as practicable after a
Participant's Retirement, death or termination of Service, the Administrator
shall ascertain the value of his vested interest in the Fund, as provided in
Article V, and the Administrator shall hold or dispose of the same in
accordance with the following provisions of this Article IX.
9.2 Commencement of Payments.
(a) Distributions upon Retirement or Death. Upon a Participant's
Retirement or Death, payment of benefits under this Plan shall, unless the
Participant otherwise elects (in accordance with Section 9.3), commence no
later than 6 months after the close of the Plan Year in which occurs the
date of the Participant's Retirement or death.
(b) Distribution following Termination of Service. Unless a Participant
elects otherwise, if a Participant terminates Service prior to Retirement or
death, he shall be accorded an opportunity to commence receipt of
distributions from his Accounts within six (6) months after the Valuation
Date next following the date of his termination of service. A Participant
who terminates Service with a deferred vested benefit shall be entitled to
receive from the Administrator a statement of his benefits. In the event
that a Participant elects not to commence receipt of distributions from his
Accounts in accordance with this Section 9.2(b), after the Participant
incurs a Break, the Administrator shall transfer his deferred vested
interest to a distribution account. If a Participant's vested Employer
Account does not exceed (or at the time of any prior distribution did not
exceed) $3,500, the Plan Administrator may distribute the vested portion of
his Employer Account as soon as administratively feasible without the
consent of the Participant or his spouse.
(c) Distribution of Accounts Greater Than $3,500. If the value of a
Participant's vested Account balance exceeds (or at the time of any prior
distribution exceeded) $3,500, and the Account balance is immediately
distributable, the Participant must consent to any distribution of such
Account balance. The Plan Administrator shall notify the Participant of the
right to defer any distribution until the Participant's Account balance is
no longer immediately distributable. The consent of the Participant shall
not be required to the extent that a distribution is required to satisfy
Code ss.401(a)(9) or Code ss.415.
-32-
<PAGE>
9.3 Mandatory Commencement of Benefits.
(a) Unless a Participant elects otherwise, in writing, distribution of
benefits will begin no later than the 60th day after the latest of the close
of the Plan Year in which (i) the Participant attains age 65, (ii) occurs
the tenth anniversary of the year in which the Participant commenced
participation in the Plan Year, or (iii) the Participant terminates Service
with the Employer.
(b) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, as of the first
distribution calendar year, distributions, if not made in a lump sum, may be
made only over one of the following periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and the designated beneficiary,
(iii) a period certain not extending beyond the life expectancy
of the Participant, or
(iv) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated
beneficiary.
(c) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, if the participant's
interest is to be distributed in other than a lump sum, the following
minimum distribution rules shall apply on or after the required beginning
date:
(i) If a Participant's benefit is to be distributed over (1) a
period not extending beyond the life expectancy of the
Participant or the joint life and last survivor expectancy
of the Participant and the Participant's designated
beneficiary or (2) a period not extending beyond the life
expectancy of the designated beneficiary, the amount
required to be distributed for each calendar year, beginning
with distributions for the first distribution calendar year,
must at least equal the quotient obtained by dividing the
Participant's benefit by the applicable life expectancy.
(ii) For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with
distributions for the first distribution calendar year shall
not be less than the quotient obtained by dividing the
Participant's benefit by the lesser of (1) the applicable
life expectancy or (2) if the Participant's spouse is not
the designated beneficiary, the applicable divisor
determined from the table set forth in Q&A-4 of section
1.401(a)(9)-2 of the Proposed Regulations. Distributions
after the death of the participant shall be distributed
using the applicable life expectancy in sub-section (iii)
above as the relevant divisor without regard to Proposed
Regulations 1.401(a)(9)-2.
-33-
<PAGE>
(iii) The minimum distribution required for the Participant's
first distribution calendar year must be made on or before
the Participant's required beginning date. The minimum
distribution for other calendar years, including the minimum
distribution for the distribution calendar year in which the
employee's required beginning date occurs, must be made on
or before December 31 of the distribution calendar year.
(d) If a Participant dies after a distribution has commenced in
accordance with Section 8.3(b) but before his entire interest has been
distributed to him, the remaining portion of such interest shall be
distributed to his Beneficiary at least as rapidly as under the method of
distribution in effect as of the date of his death.
(e) If a Participant shall die before the distribution of his interest
in the Plan has begun, the entire interest of the Participant shall be
distributed by December 31 of the calendar year containing the fifth
anniversary of the death of the Participant, except in the following events:
(i) If any portion of the Participant's interest is payable to
(or for the benefit of) a designated beneficiary over a
period not extending beyond the life expectancy of such
beneficiary and such distributions begin not later than
December 31 of the calendar year immediately following the
calendar year in which the Participant died.
(ii) If any portion of the Participant's interest is payable to
(or for the benefit of) the Participant's spouse over a
period not extending beyond the life expectancy of such
spouse and such distributions begin no later than December
31 of the calendar year in which the Participant would have
attained age 70-1/2.
If the Participant has not made a distribution election by the time of
his death, the Participant's designated beneficiary shall elect the method
of distribution no later than the earlier of (1) December 31 of the calendar
year in which distributions would be required to begin under this Article or
(2) December 31 of the calendar year which contains the fifth anniversary of
the date of death of the Participant. If the Participant has no designated
beneficiary, or if the designated beneficiary does not elect a method of
distribution, distribution of the Participant's entire interest shall be
completed by December 31 of the calendar year containing the fifth
anniversary of the Participant's death.
(f) For purposes of this Article, the life expectancy of a Participant
and his spouse may be redetermined but not more frequently than annually.
The life expectancy (or joint and last survivor expectancy) shall be
calculated using the attained age of the Participant (or designated
beneficiary) as of the Participant's (or designated beneficiary's) birthday
in the applicable calendar year reduced by one for each calendar year which
has elapsed since the date life expectancy was first calculated. If life
expectancy is being recalculated, the applicable life expectancy shall be
the life expectancy as so recalculated. The applicable calendar year shall
be the first distribution calendar year, and if life expectancy is being
recalculated, such succeeding calendar year. Unless
-34-
<PAGE>
otherwise elected by the Participant (or his spouse, if applicable) by the
time distributions are required to begin, life expectancies shall be
recalculated annually. Any such election not to recalculate shall be
irrevocable and shall apply to all subsequent years. The life expectancy of
a nonspouse beneficiary may not be recalculated.
(g) For purposes of Section 9.3(b) and 9.3(e), any amount paid to a
child shall be treated as if it had been paid to a surviving spouse if such
amount will become payable to the surviving spouse upon such child reaching
majority (or other designated event permitted under regulations).
(h) For distributions beginning before the Participant's death, the
first distribution calendar year is the calendar year immediately preceding
the calendar year which contains the Participant's required beginning date.
For distributions beginning after the Participant's death, the first
distribution calendar year is the calendar year in which distributions are
required to begin pursuant to this Article.
9.4 Required Beginning Dates.
(a) General Rule. The required beginning date of a Participant is the
first day of April of the calendar year following the calendar year in which
the participant attains age 70-1/2, provided that such Participant is a
5-percent owner.
(b) 5-percent owner. A Participant is treated as a 5-percent owner for
purposes of this section if such Participant is a 5-percent owner as defined
in section 416(i) of the Code (determined in accordance with section 416 but
without regard to whether the plan is top-heavy) at any time during the Plan
Year ending with or within the calendar year in which such owner attains age
66-1/2 or any subsequent Plan Year. Once distributions have begun to a
5-percent owner under this section, they must continue to be distributed,
even if the Participant ceases to be a 5- percent owner in a subsequent
year.
9.5 Form of Payment.
Each Participant's vested interest shall be distributed in a lump sum
payment. Notwithstanding the preceding sentence, but subject to Section 9.3,
the Administrator may not distribute a lump sum when the present value of a
Participant's total Account balances is in excess of $3,500 without the
Participant's consent. This form of payment shall be the normal form of
distribution. Furthermore, however, in the event that the Administrator must
commence distributions, pursuant to Section 9.4, with respect to an Employee
who has attained age 70-1/2 and is still employed by the Employer, if the
Employee does not elect a lump sum distribution, payments shall be made in
installments in such amounts as shall satisfy the minimum distribution rules
of Section 9.3.
-35-
<PAGE>
9.6 Payments Upon Termination of Plan.
Upon termination of this Plan pursuant to Sections 13.2, 13.4, 13.5 or
13.6, the Administrator shall continue to perform its duties and the Trustee
shall make all payments upon the following terms, conditions and provisions:
All interests of Participants shall immediately become fully vested; the
value of the interests of all Participants shall be determined within 60
days after such termination, and the Administrator shall have the same
powers to direct the Trustee in making payments as contained in Sections 9.1
and 13.5.
9.7 Distributions Pursuant to Qualified Domestic Relations Orders.
Upon receipt of a domestic relations order, the Administrator shall
notify promptly the Participant and any alternate payee of receipt of the
order and the Plan's procedure for determining whether the order is a
Qualified Domestic Relations Order. While the issue of whether a domestic
relations order is a Qualified Domestic Relations Order is being determined,
if the benefits would otherwise be paid, the Administrator shall segregate
in a separate account in the Plan the amounts that would be payable to the
alternate payee during such period if the order were a Qualified Do mestic
Relations Order. If within 18 months the order is determined to be a
Qualified Domestic Relations Order, the amounts so segregated, along with
the interest or investment earnings attributable thereto shall be paid to
the alternate payee. Alternatively, if within 18 months, it is determined
that the order is not a Qualified Domestic Relations Order or if the issue
is still unresolved, the amounts segregated under this Section 9.6, with the
earnings attributable thereto, shall be paid to the Participant or
Beneficiary who would have been entitled to such amounts if there had been
no order. The determination as to whether the order is qualified shall be
applied prospectively. Thus, if the Administrator determines that the order
is a Qualified Domestic Relations Order after the 18-month period, the Plan
shall not be liable for payments to the alternative payee for the period
before the order is determined to be a Qualified Domestic Relations Order.
9.8 Cash-Out Distributions
If a Participant receives a distribution of the entire present value of
his vested Account balances under this Plan because of the termination of
his participation in the Plan, the Plan shall disregard a Participant's
Service with respect to which such cash-out distribution shall have been
made, in computing his accrued benefit under the Plan in the event that a
Former Participant shall again become an Employee and become eligible to
participate in the Plan. Such a distribution shall be deemed to be made on
termination of participation in the Plan if it is made not later than the
close of the second Plan Year following the Plan Year in which such
termination occurs. The forfeitable portion of a Participant's accrued
benefit shall be restored upon repayment to the Plan by such former
Participant of the full amount of the cash-out distribution, provided that
the former Participant again becomes an Employee. Such repayment must be
made by the Employee not later than the end of the 5-year period beginning
with the date of the distribution. Forfeitures required
-36-
<PAGE>
to be restored by virtue of such repayment shall be restored from the
following sources in the following order of preference: (i) current
forfeitures; (ii) additional employee stock ownership contributions, as
appropriate and as subject to Section 5.6; and (iii) investment earnings of
the Fund. In the event that a Participant's interest in the Plan is totally
forfeitable, a Participant shall be deemed to have received a distribution
of zero upon his termination of Service. In the event of a return to Service
within 5 years of the date of his deemed distribution, the Participant shall
be deemed to have repaid his distribution in accordance with the rules of
this Section 9.8.
9.9 ESOP Distribution Rules.
Notwithstanding any provision of this Article IX to the contrary, the
distribution of a Participant's Employee Stock Ownership Account (unless the
Participant elects otherwise in writing), shall commence as soon as
administratively feasible as of the first Valuation Date coincident with or
next following his death, disability or termination of Service, but not
later than 1 year after the close of the Plan Year in which the Participant
separates from Service by reason of the attainment of his Normal Retirement
Date, disability, death or separation from Service. In addition, all
distributions hereunder shall, to the extent that the Participant's Account
is invested in Employer Securities, be made in the form of Employer
Securities. Fractional shares, however, may be distributed in the form of
cash.
9.10 Withholding.
(a) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Article IX, a
distributee may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an "eligible rollover distribution"
paid directly to an "eligible retirement plan" specified by the distributee
in a "direct rollover."
(b) For purposes of this Section 9.10, an "eligible rollover
distribution" is any distribution of all or any portion of the balance to
the credit of the distributee, except that an "eligible rollover
distribution" does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the distributee or the joint lives
(or joint life expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under section
401(a)(9) of the Code; and the portion of any distribution that is not
includible in gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to Employer Securities).
(c) For purposes of this Section 9.10, an "eligible retirement plan" is
an individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's
eligible
-37-
<PAGE>
rollover distribution. However, in the case of an "eligible rollover
distribution" to the surviving spouse, an "eligible retirement plan" is an
individual retirement account or individual retirement annuity.
(d) For purposes of this Section 9.10, a distributee includes a
Participant or former Participant. In addition, the Participant's or former
Participant's surviving spouse and the Participant's or former Participant's
spouse or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in section 414(p) of the Code, are
"distributees" with regard to the interest of the spouse or former spouse.
(e) For purposes of this Section 9.10, a "direct rollover" is a payment
by the Plan to the "eligible retirement plan" specified by the distributee.
9.11 Waiver of 30-day Notice.
If a distribution is one to which sections 401(a)(11) and 417 of the
Code do not apply, such distribution may commence less than 30 days after
the notice required under section 1.411(a)- 11(c) of the Income Tax
Regulations is given, provided that: (1) the Plan Administrator clearly
informs the Participant that the Participant has a right to a period of at
least 30 days after receiving the notice to consider the decision of whether
or not to elect a distribution (and, if applicable, a particular
distribution option), and (2) the Participant, after receiving the notice,
affirmatively elects a distribution.
-38-
<PAGE>
ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control.
Anything contained in this Plan to the contrary notwithstanding, if for
any Plan Year the Plan is a top-heavy plan, as determined pursuant to
Section 416 of the Code, then the Plan must meet the requirements of this
Article X for such Plan Year.
10.2 Top-Heavy Plan Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Article X shall have the following meanings:
(a) "Accrued Benefit" shall mean the account balances or accrued
benefits of an Employee, calculated pursuant to Section 10.3.
(b) "Determination Date" shall mean, with respect to any particular
Plan Year of this Plan, the last day of the preceding Plan Year (or, in the
case of the first Plan Year of the Plan, the last day of the first Plan
Year). In addition, the term "Determination Date" shall mean, with respect
to any particular plan year of any plan (other than this Plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the last day of the
plan year of such plan which falls within the same calendar year as the
Determination Date for this Plan.
(c) "Employer" shall mean the Employer (as defined in Section 1.1(q))
and any entity which is (1) a member of a controlled group including such
Employer, while it is a member of such controlled group (within the meaning
of Section 414(b) of the Code), (2) in a group of trades or businesses under
common control with such Employer, while it is under common control (within
the meaning of Section 414(c) of the Code), and (3) a member of an
affiliated service group including such Employer, while it is a member of
such affiliated service group (within the meaning of Section 414(m) of the
Code).
(d) "Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who, at
any time during the Plan Year or during the 4 immediately preceding Plan
Years is one of the following:
(1) An officer of the Employer who has compensation greater
than 50% of the amount in effect under Code 415(b)(1)(A) for the Plan
Year; provided, however, that no more than 50 Employees (or, if lesser,
the greater of 3 or 10% of the Employees) shall be deemed officers;
-39-
<PAGE>
(2) One of the 10 Employees having annual compensation (as
defined in Section 415 of the Code) in excess of the limitation in
effect under Section 415(c)(1)(A) of the Code, and owning (or
considered as owning, within the meaning of Section 318 of the Code)
the largest interests in the Employer;
(3) Any Employee owning (or considered as owning, within the
meaning of Section 318 of the Code) more than 5% of the outstanding
stock of the Employer or stock possessing more than 5% of the total
combined voting power of all stock of the Employer; or
(4) Any Employee having annual compensation (as defined in
Section 415 of the Code) of more than $150,000 and who would be
described in Section 10.2(d)(3) if "1%" were substituted for "5%"
wherever the latter percentage appears.
For purposes of applying Section 318 of the Code to the provisions of
this Section 10.2(d), Section 318(a)(2)(C) of the Code shall be applied by
substituting "5%" for "50%" wherever the latter percentage appears. In
addition, for purposes of this Section 10.2(d), the provisions of Section
414(b), (c) and (m) shall not apply in determining ownership interests in
the Employer. However, for purposes of determining whether an individual has
compensation in excess of $150,000, or whether an individual is a Key
Employee under Section 10.2(d)(1) and (2), compensation from each entity
required to be aggregated under Sections 414(b), (c) and (m) of the Code
shall be taken into account. Notwithstanding anything contained herein to
the contrary, all determinations as to whether a person is or is not a Key
Employee shall be resolved by reference to Section 416 of the Code and any
rules and regulations promulgated thereunder.
(e) "Non-Key Employee" shall mean any Employee or former Employee (or
any Beneficiary of such Employee or former Employee, as the case may be) who
is not considered to be a Key Employee with respect to this Plan.
(f) "Permissive Aggregation Group" shall mean all plans in the Required
Aggregation Group and any other plans maintained by the Employer which
satisfy Sections 401(a)(4) and 410 of the Code when considered together with
the Required Aggregation Group.
(g) "Required Aggregation Group" shall mean each plan (including any
terminated plan) of the Employer in which a Key Employee is (or in the case
of a terminated plan, had been) a Participant in the Plan Year containing
the Determination Date or any of the 4 preceding Plan Years, and each other
plan of the Employer which enables any plan of the Employer in which a Key
Employee is a Participant to meet the requirement of Sections 401(a)(4) and
410 of the Code.
-40-
<PAGE>
10.3 Calculation of Accrued Benefits.
(a) An Employee's Accrued Benefit shall be equal to:
(1) With respect to this Plan or any other defined
contribution plan (other than a defined contribution pension plan) in a
Required Aggregation Group or a Permissive Aggregation Group, the
Employee's account balances under the respective plan, determined as of
the most recent plan valuation date within a 12-month period ending on
the Determination Date, including contributions actually made after the
valuation date but before the Determination Date (and, in the first
plan year of a plan, also including any contributions made after the
Determination Date which are allocated as of a date in the first plan
year).
(2) With respect to any defined contribution pension plan in a
Required Aggregation Group or a Permissive Aggregation Group, the
Employee's account balances under the plan, determined as of the most
recent plan valuation date within a 12-month period ending on the
Determination Date, including contributions which have not actually
been made, but which are due to be made as of the Determination Date.
(3) With respect to any defined benefit plan in a Required
Aggregation Group or a Permissive Aggregation Group, the present value
of the Employee's accrued benefits under the plan, determined as of the
most recent plan valuation date within a 12-month period ending on the
Determination Date, pursuant to the actuarial assumptions used by such
plan, and calculated as if the Employee terminated Service under such
plan as of the valuation date (except that, in the first plan year of a
plan, a current Participant's estimated Accrued Benefit Plan as of the
Determination Date shall be taken into account).
(4) If any individual has not performed services for the
Employer maintaining the Plan at any time during the 5-year period
ending on the Determination Date, any Accrued Benefit for such
individual shall not be taken into account.
(b) The Accrued Benefit of any Employee shall be further adjusted as
follows:
(1) The Accrued Benefit shall be calculated to include all
amounts attributable to both Employer and Employee contributions, but
shall exclude amounts attributable to voluntary deductible Employee
contributions, if any.
(2) The Accrued Benefit shall be increased by the aggregate
distributions made with respect to an Employee under the plan or plans,
as the case may be, during the 5-year period ending on the
Determination Date.
-41-
<PAGE>
(3) Rollover and direct plan-to-plan transfers shall be taken
into account as follows:
(A) If the transfer is initiated by the Employee and made
from a plan maintained by one employer to a plan maintained by
another unrelated employer, the transferring plan shall
continue to count the amount transferred; the receiving plan
shall not count the amount transferred.
(B) If the transfer is not initiated by the Employee or
is made between plans maintained by related employers, the
transferring plan shall no longer count the amount
transferred; the receiving plan shall count the amount
transferred.
(c) If any individual has not performed services for the Employer at
any time during the 5- year period ending on the Determination Date, any
accrued benefit for such individual (and the account of such individual)
shall not be taken into account.
10.4 Determination of Top-Heavy Status.
This Plan shall be considered to be a top-heavy plan for any Plan Year
if, as of the Determination Date, the value of the Accrued Benefits of Key
Employees exceeds 60% of the value of the Accrued Benefits of all eligible
Employees under the Plan. Notwithstanding the foregoing, if the Employer
maintains any other qualified plan, the determination of whether this Plan
is top-heavy shall be made after aggregating all other plans of the Employer
in the Required Aggregation Group and, if desired by the Employer as a means
of avoiding top-heavy status, after aggregating any other plan of the
Employer in the Permissive Aggregation Group. If the required Aggregation
Group is top-heavy, then each plan contained in such group shall be deemed
to be top-heavy, notwithstanding that any particular plan in such group
would not otherwise be deemed to be top-heavy. Conversely, if the Permissive
Aggregation Group is not top-heavy, then no plan contained in such group
shall be deemed to be top-heavy, notwithstanding that any particular plan in
such group would otherwise be deemed to be top-heavy. In no event shall a
plan included in a top-heavy Permissive Aggregation Group be deemed a
top-heavy plan unless such plan is also included in a top-heavy Required
Aggregation Group.
10.5 Determination of Super Top-Heavy Status.
The Plan shall be considered to be a super top-heavy plan if, as of the
Determination Date, the Plan would meet the test specified in Section 10.4
above for classification as a top-heavy plan, except that "90%" shall be
substituted for "60%" whenever the latter percentage appears.
-42-
<PAGE>
10.6 Minimum Contribution.
(a) For any year in which the Plan is top-heavy, each Non-Key Employee
who has met the age and service requirements, if any, contained in the Plan,
shall be entitled to a minimum con tribution (which may include forfeitures
otherwise allocable) equal to a percentage of such Non- Key Employee's
compensation (as defined in Section 415 of the Code) as follows:
(1) If the Non-Key Employee is not covered by a defined
benefit plan maintained by the Employer, then the minimum contribution
under this Plan shall be 3% of such Non- Key Employee's compensation.
(2) If the Non-Key Employee is covered by a defined benefit
plan maintained by the Employer, then the minimum contribution under
this Plan shall be 5% of such Non- Key Employee's compensation.
(b) Notwithstanding the foregoing, the minimum contribution otherwise
allocable to a Non-Key Employee under this Plan shall be reduced in the
following circumstances:
(1) The percentage minimum contribution required under this
Plan shall in no event exceed the percentage contribution made for the
Key Employee for whom such percentage is the highest for the Plan Year
after taking into account contributions under other defined
contribution plans in this Plan's Required Aggregation Group; provided,
however, that this Section 10.7(b)(1) shall not apply if this Plan is
included in a Required Aggregation Group and this Plan enables a
defined benefit plan in such Required Ag gregation Group to meet the
requirements of Section 401(a)(4) or 410 of the Code.
(2) No minimum contribution shall be required (or the minimum
contribution shall be reduced, as the case may be) for a Non-Key
Employee under this Plan for any Plan Year if the Employer maintains
another qualified plan under which a minimum benefit or contribution is
being accrued or made on account of such Plan Year, in whole or in
part, on behalf of the Non-Key Employee, in accordance with Section
416(c) of the Code.
(c) For purposes of this Section 10.6, there shall be disregarded (1)
any Employer contributions attributable to a salary reduction or similar
arrangement, or (2) any Employer contri butions to or any benefits under
Chapter 21 of the Code (relating to the Federal Insurance Contributions
Act), Title II of the Social Security Act, or any other federal or state
law.
(d) For purposes of this Section 10.6, minimum contributions shall be
required to be made on behalf of only those Non-Key Employees, as described
in Section 10.7(a), who have not terminated Service as of the last day of
the Plan Year. If a Non-Key Employee is otherwise entitled to receive a
minimum contribution pursuant to this Section 10.6(d), the fact that such
Non- Key Employee failed to complete 1,000 Hours of Service or failed to
make any mandatory or
-43-
<PAGE>
elective contributions under this Plan, if any are so required, shall not
preclude him from receiving such minimum contribution.
10.7 Vesting.
(a) For any Plan Year in which the Plan is a top-heavy plan, a
Participant's Employer account shall continue to vest according to the
following schedule:
Years of Service Completed Percentage Vested
-------------------------- -----------------
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
(b) For purposes of Section 10.7(a), the term "year of service" shall
have the same meaning as set forth in Section 1.1(kk), as modified by
Section 3.2
(c) If for any Plan Year the Plan becomes top-heavy and the vesting
schedule set forth in Section 10.7(a) becomes effective, then, even if the
Plan ceases to be top-heavy in any subse quent Plan Year, the vesting
schedule set forth in Section 10.7(a) shall remain applicable with respect
to any Participant who has completed 3 Years of Service.
10.8 Maximum Benefit Limitation.
For any Plan Year in which the Plan is a top-heavy plan, Section
5.6(d)(1)(B)(i) and Section 5.6(d)(2)(B)(i)shall be read by substituting
"1.0" for "1.25" wherever the latter figure appears; provided, however, that
such substitution shall not have the effect of reducing any benefit accrued
under a defined benefit plan prior to the first day of the plan year in
which this Section 10.8 becomes applicable.
-44-
<PAGE>
ARTICLE XI
ADMINISTRATION
11.1 Appointment of Administrator.
This Plan shall be administered by a committee consisting of up to 5
persons, whether or not Employees or Participants, who shall be appointed
from time to time by the Board of Directors to serve at its pleasure. The
Sponsor may require that each person appointed as an Administrator shall
signify his acceptance by filing an acceptance with the Sponsor. The term
"Administrator" as used in this Plan shall refer to the members of the
committee, either individually or collectively, as appropriate. In the event
that the Sponsor shall elect not to appoint any individuals to constitute a
committee to administer the Plan, the Sponsor shall serve as the
Administrator hereunder.
11.2 Resignation or Removal of Administrator.
An Administrator shall have the right to resign at any time by giving
notice in writing, mailed or delivered to the Employer and to the Trustee.
Any Administrator who was an employee of the Employer at the time of his
appointment shall be deemed to have resigned as an Administrator upon his
termination of Service. The Board of Directors may, in its discretion,
remove any Administrator with or without cause, by giving notice in writing,
mailed or delivered to the Administrator and to the Trustee.
11.3 Appointment of Successors: Terms of Office, Etc.
Upon the death, resignation or removal of an Administrator, the
Employer may appoint, by Board of Directors' resolution, a successor or
successors. Notice of termination of an Adminis trator and notice of
appointment of a successor shall be made by the Employer in writing, with
copies mailed or delivered to the Trustee, and the successor shall have all
the rights and privileges and all of the duties and obligations of the
predecessor.
11.4 Powers and Duties of Administrator.
The Administrator shall have the following duties and responsibilities
in connection with the administration of this Plan:
(a) To promulgate and enforce such rules, regulations and procedures as
shall be proper for the efficient administration of the Plan, such rules,
regulations and procedures to apply uniformly to all Employees, Participants
and Beneficiaries;
-45-
<PAGE>
(b) To determine all questions arising in the administration,
interpretation and application of the Plan, including questions of
eligibility and of the status and rights of Partici pants, Beneficiaries and
any other persons hereunder;
(c) To decide any dispute arising hereunder strictly in accordance with
the terms of the Plan; provided, however, that no Administrator shall
participate in any matter involving any questions relating solely to his own
participation or benefits under this Plan;
(d) To advise the Employer and the Trustee regarding the known future
needs for funds to be available for distribution in order that the Trustee
may establish investments accordingly;
(e) To correct defects, supply omissions and reconcile inconsistencies
to the extent necessary to effectuate the Plan;
(f) To advise the Employer of the maximum deductible contribution to
the Plan for each fiscal year;
(g) To direct the Trustee concerning all payments which shall be made
out of the Fund pursuant to the provisions of this Plan;
(h) To advise the Trustee on all terminations of Service by
Participants, unless the Employer has so notified the Trustee;
(i) To confer with the Trustee on the settling of any claims against
the Fund;
(j) To make recommendations to the Board of Directors with respect to
proposed amendments to the Plan and the Trust Agreement;
(k) To file all reports with government agencies, Employees and other
parties as may be required by law, whether such reports are initially the
obligation of the Employer, the Plan or the Trustee; and
(l) To have all such other powers as may be necessary to discharge its
duties hereunder.
Reasonable discretion is granted to the Administrator to affect the
benefits, rights and privileges of Participants, Beneficiaries or other
persons affected by this Plan. The Administrator shall exercise reasonable
discretion under the terms of this Plan and shall administer the Plan
strictly in accordance with its terms, such administration to be exercised
uniformly so that all persons similarly situated shall be similarly treated.
-46-
<PAGE>
11.5 Action by Administrator.
The Administrator may elect a Chairman and Secretary from among its
members and may adopt rules for the conduct of its business. A majority of
the members then serving shall consti tute a quorum for the transaction of
business. All resolutions or other action taken by the Administrator shall
be by vote of a majority of those present at such meeting and entitled to
vote. Resolutions may be adopted or other action taken without a meeting
upon written consent signed by at least a majority of the members. All
documents, instruments, orders, requests, directions, instructions and other
papers shall be executed on behalf of the Administrator by either the
Chairman or the Secretary of the Administrator, if any, or by any member or
agent of the Ad ministrator duly authorized to act on the Administrator's
behalf.
11.6 Participation by Administrators.
No Administrator shall be precluded from becoming a Participant in the
Plan if he would be otherwise eligible, but he shall not be entitled to vote
or act upon matters or to sign any documents relating specifically to his
own participation under the Plan, except when such matters or documents
relate to benefits generally. If this disqualification results in the lack
of a quorum, then the Board of Directors shall appoint a sufficient number
of temporary Administrators who shall serve for the sole purpose of
determining such a question.
11.7 Agents.
The Administrator may employ agents and provide for such clerical,
legal, actuarial, accounting, medical, advisory or other services as it
deems necessary to perform its duties under this Plan. The cost of such
services and all other expenses incurred by the Administrator in connection
with the administration of the Plan shall be paid from the Fund, unless paid
by the Em ployer.
11.8 Allocation of Duties.
The duties, powers and responsibilities reserved to the Administrator
may be allocated among its members so long as such allocation is pursuant to
written procedures adopted by the Administrator, in which case, except as
may be required by the Act, no Administrator shall have any liability, with
respect to any duties, powers or responsibilities not allocated to him, for
the acts of omissions of any other Administrator.
11.9 Delegation of Duties.
The Administrator may delegate any of its duties to other employees of
the Employer, to the Trustee with its consent, or to any other person or
firm, provided that the Administrator shall prudently choose such agents and
rely in good faith on their actions.
-47-
<PAGE>
11.10 Administrator's Action Conclusive.
Any action on matters within the authority of the Administrator shall
be final and conclusive except as provided in Article XII.
11.11 Compensation and Expenses of Administrator.
No Administrator who is receiving compensation from the Employer as a
full-time employee, as a director or agent, shall be entitled to receive any
compensation or fee for his services hereunder. Any other Administrator
shall be entitled to receive such reasonable compensation for his services
as an Administrator hereunder as may be mutually agreed upon between the
Employer and such Administrator. Any such compensation shall be paid from
the Fund, unless paid by the Employer. Each Administrator shall be entitled
to reimbursement by the Employer for any reasonable and necessary
expenditures incurred in the discharge of his duties.
11.12 Records and Reports.
The Administrator shall maintain adequate records of its actions and
proceedings in administering this Plan and shall file all reports and take
all other actions as it deems appropriate in order to comply with the Act,
the Code and governmental regulations issued thereunder.
11.13 Reports of Fund Open to Participants.
The Administrator shall keep on file, in such form as it shall deem
convenient and proper, all annual reports of the Fund received by the
Administrator from the Trustee, and a statement of each Participant's
interest in the Fund as from time to time determined. The annual reports of
the Fund and the statement of his own interest in the Fund, as well as a
complete copy of the Plan and the Trust Agreement and copies of annual
reports to the Internal Revenue Service, shall be made available by the
Administrator to the Employer for examination by each Participant during
reasonable hours at the office of the Employer, provided, however, that the
statement of a Participant's interest shall not be made available for
examination by any other Participant.
11.14 Named Fiduciary.
The Administrator is the named fiduciary for purposes of the Act and
shall be the designated agent for receipt of service of process on behalf of
the Plan. It shall use ordinary care and diligence in the performance of its
duties under this Plan. Nothing in this Plan shall preclude the Employer
from indemnifying the Administrator for all actions under this Plan, or from
purchasing liability insurance to protect it with respect to its duties
under this Plan.
-48-
<PAGE>
11.15 Information from Employer.
The Employer shall promptly furnish all necessary information to the
Administrator to permit it to perform its duties under this Plan. The
Administrator shall be entitled to rely upon the accuracy and completeness
of all information furnished to it by the Employer, unless it knows or
should have known that such information is erroneous.
11.16 Reservation of Rights by Employer.
Where rights are reserved in this Plan to the Employer, such rights
shall be exercised only by action of the Board of Directors, except where
the Board of Directors, by written resolution, delegates any such rights to
one or more officers of the Employer or to the Administrator. Subject to the
rights reserved to the Board of Directors acting on behalf of the Employer
as set forth in this Plan, no member of the Board of Directors shall have
any duties or responsibilities under this Plan, except to the extent he
shall be acting in the capacity of an Administrator or Trustee.
11.17 Liability and Indemnification.
(a) The Administrator shall perform all duties required of it under
this Plan in a prudent manner. To the extent not prohibited by the Act, the
Administrator shall not be respon sible in any way for any action or
omission of the Employer, the Trustee or any other fiduciaries in the
performance of their duties and obligations set forth in this Plan and in
the Trust Agreement. To the extent not prohibited by the Act, the
Administrator shall also not be responsible for any act or omission of any
of its agents, or with respect to reliance upon advice of its counsel
(whether or not such counsel is also counsel to the Employer or the
Trustee), provided that such agents or counsel were prudently chosen by the
Administrator and that the Administrator relied in good faith upon the
action of such agent or the advice of such counsel.
(b) The Administrator shall not be relieved from responsibility or
liability for any responsibility, obligation or duty imposed upon it under
this Plan or under the Act. Except for its own gross negligence, willful
misconduct or willful breach of the terms of this Plan, the Administrator
shall be indemnified and held harmless by the Employer against liability or
losses occurring by reason of any act or omission of the Administrator to
the extent that such indemnification does not violate the Act or any other
federal or state laws.
11.18 Service as Trustee and Administrator.
Nothing in this Plan shall prevent one or more Trustees from serving as
Administrator under this Plan.
-49-
<PAGE>
ARTICLE XII
CLAIMS PROCEDURE
12.1 Notice of Denial.
If a Participant or his Beneficiary is denied any benefits under this
Plan, either in whole or in part, the Administrator shall advise the
claimant in writing of the amount of his benefit, if any, and the specific
reasons for the denial. The Administrator shall also furnish the claimant at
that time with a written notice containing:
(a) A specific reference to pertinent Plan provisions;
(b) A description of any additional material or information necessary
for the claimant to perfect his claim, if possible, and an explanation of
why such material or information is needed; and
(c) An explanation of the Plan's claim review procedure.
12.2 Right to Reconsideration.
Within 60 days of receipt of the information described in 12.1 above,
the claimant shall, if he desires further review, file a written request for
reconsideration with the Administrator.
12.3 Review of Documents.
So long as the claimant's request for review is pending (including the
60-day period described in Section 12.2 above), the claimant or his duly
authorized representative may review pertinent Plan documents and the Trust
Agreement (and any pertinent related documents) and may submit issues and
comments in writing to the Administrator.
12.4 Decision by Administrator.
A final and binding decision shall be made by the Administrator within
60 days of the filing by the claimant of his request for reconsideration;
provided, however, that if the Admin istrator feels that a hearing with the
claimant or his representative present is necessary or desirable, this
period shall be extended an additional 60 days.
12.5 Notice by Administrator.
The Administrator's decision shall be conveyed to the claimant in
writing and shall include specific reasons for the decision, written in a
manner calculated to be understood by the claimant, with specific references
to the pertinent Plan provisions on which the decision is based.
-50-
<PAGE>
ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments.
The Employer reserves the right at any time and from time to time, and
retroactively if deemed necessary or appropriate by it, to the extent
permissible under law, to conform with governmental regulations or other
policies, to amend in whole or in part any or all of the provisions of this
Plan, provided that:
(a) No amendment shall make it possible for any part of the Fund to be
used for, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries un der the Trust Agreement, except to
the extent provided in Section 4.4;
(b) No amendment may, directly or indirectly, reduce the vested portion
of any Participant's interest as of the effective date of the amendment or
change the vesting schedule with respect to the future accrual of Employer
contributions for any Participants unless each Participant with 3 or more
Years of Service with the Employer is permitted to elect to have the vesting
schedule in effect before the amendment used to determine his vested
benefit; and
(c) No amendment may eliminate an optional form of benefit.
(d) No amendment may increase the duties of the Trustee without its
consent.
Amendments may be made in the form of Board of Directors' resolutions
or separate written document. Copies of all amendments shall be delivered to
the Trustee.
13.2 Consolidation, Merger or Other Transactions of Employer.
Nothing in this Plan shall prevent the consolidation, merger,
reorganization or liquidation of the Employer, or prevent the sale by
Employer of any or all of its property. Any successor corporation or other
entity formed and resulting from any such transaction shall have the right
to become a party to this Plan by adopting the same by resolution and by
appointing a new Trustee as though the Trustee had resigned in accordance
with the Trust Agreement, and by executing a proper supplemental agreement
with the Trustee. If, within 180 days from the effective date of such
transaction, such new entity does not become a party to this Plan as above
provided, this Plan shall automatically be terminated and the Trustee shall
make payments to the persons entitled thereto in accordance with Section
9.5.
-51-
<PAGE>
13.3 Consolidation or Merger of Trust.
In the event of any merger or consolidation of the Fund with, or
transfer in whole or in part of the assets and liabilities of the Fund to,
another trust fund held under any other plan of deferred compensation
maintained or to be established for the benefit of all or some of the
Participants of this Plan, the assets of the Fund applicable to such
Participants shall be transferred to the other trust fund only if:
(a) Each Participant would receive a benefit under such successor trust
fund immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (determined as if
this Plan and such transferee trust fund had then terminated);
(b) Resolutions of the Board of Directors under this Plan, or of any
new or successor employer of the affected Participants, shall authorize such
transfer of assets, and, in the case of the new or successor employer of the
affected Participants, its resolutions shall include an assumption of
liabilities with respect to such Participants' inclusion in the new
employer's plan; and
(c) Such other plan and trust are qualified under Sections 401(a) and
501(a) of the Code.
13.4 Bankruptcy or Insolvency of Employer.
In the event of (a) the Employer's legal dissolution or liquidation by
any procedure other than a consolidation or merger, (b) the Employer's
receivership, insolvency, or cessation of its business as a going concern,
or (c) the commencement of any proceeding by or against the Employer under
the federal bankruptcy laws, and similar federal or state statute, or any
federal or state statute or rule providing for the relief of debtors,
compensation of creditors, arrangement, receivership, liquidation or any
similar event which is not dismissed within 30 days, this Plan shall
terminate automatically on such date (provided, however, that if a
proceeding is brought against the Employer for reorganization under Chapter
11 of the United States Bankruptcy Code or any similar federal or state
statute, then this Plan shall terminate automatically if and when said
proceeding results in a liquidation of the Employer, or the approval of any
Plan providing therefor, or the proceeding is converted to a case under
Chapter 7 of the Bankruptcy Code or any similar conversion to a liquidation
proceeding under federal or state law including, but not limited to, a
receivership proceeding). In the event of any such termination as provided
in the foregoing sentence, the Trustee shall make payments to the persons
entitled thereto in accordance with Section 9.5 hereof.
-52-
<PAGE>
13.5 Voluntary Termination.
The Board of Directors reserves the right to terminate this Plan at any
time by giving to the Trustee and the Administrator notice in writing of
such desire to terminate. The Plan shall terminate upon the date of receipt
of such notice, the interests of all Participants shall become fully vested,
and the Trustee shall make payments to each Participant or Beneficiary in
accordance with Section 9.5. Alternatively, the Employer, in its discretion,
may determine to continue the Trust Agreement and to continue the
maintenance of the Fund, in which event distributions shall be made upon the
contingencies and in all the circumstances which would have been entitled
such distributions on a fully vested basis, had there been no termination of
the Plan.
13.6 Partial Termination of Plan or Permanent
Discontinuance of Contributions.
In the event that a partial termination of the Plan shall be deemed to
have occurred, or if the Employer shall discontinue completely its
contributions hereunder, the right of each affected Participant to his
interest in the Fund shall be fully vested. The Employer, in its discretion,
shall decide whether to direct the Trustee to make immediate distribution of
such portion of the Fund assets to the persons entitled thereto or to make
distribution in the circumstances and contingencies which would have
controlled such distributions if there had been no partial termina tion or
discontinuance of contributions.
-53-
<PAGE>
ARTICLE XIV
MISCELLANEOUS
14.1 No Diversion of Funds.
It is the intention of the Employer that it shall be impossible for any
part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries, except to extent that a return of the Employer's contribution
is permitted under Section 4.4.
14.2 Liability Limited.
Neither the Employer nor the Administrator, nor any agents, employees,
officers, directors or shareholders of any of them, nor the Trustee, nor any
other person shall have any liability or responsibility with respect to this
Plan, except as expressly provided herein.
14.3 Incapacity.
If the Administrator shall receive evidence satisfactory to it that a
Participant or Beneficiary entitled to receive any benefit under the Plan
is, at the time when such benefit becomes payable, a minor, or is physically
or mentally incompetent to receive such benefit and to give a valid release
therefor, and that another person or an institution is then maintaining or
has custody of such Participant or Beneficiary, and that no guardian,
committee or other representative of the estate of such Participant or
Beneficiary shall have been duly appointed, the Administrator may direct the
Trustee to make payment of such benefit otherwise payable to such
Participant or Beneficiary, to such other person or institution, including a
custodian under a Uniform Gifts to Minor Act, or corresponding legislation
(who shall be an adult, a guardian of the minor or a trust company), and the
release of such other person or institution shall be a valid and complete
discharge for the payment of such benefit.
14.4 Spendthrift Clause.
Except as permitted by the Act or the Code, no benefits or other
amounts payable under the Plan shall be subject in any manner to
anticipation, sale, transfer, assignment, pledge, encum brance, charge or
alienation. If the Administrator determines that any person entitled to any
payments under the Plan has become insolvent or bankrupt or has attempted to
anticipate, sell, transfer, assign, pledge, encumber, charge or otherwise in
any manner alienate any benefit or other amount payable to him under the
Plan or that there is any danger of any levy or attachment or other court
process or encumbrance on the part of any creditor of such person entitled
to payments under the Plan against any benefit or other accounts payable to
such person, the Administrator may, at any time, in its discretion, direct
the Trustee to withhold any or all payments to such
-54-
<PAGE>
person under the Plan and apply the same for the benefit of such person, in
such manner and in such proportion as the Administrator may deem proper.
14.5 Benefits Limited to Fund.
All contributions by the Employer to the Fund shall be voluntary, and
the Employer shall be under no legal liability to make any such
contributions. The benefits of this Plan shall be only as can be provided by
the assets of the Fund, and no liability for the payment of benefits under
the Plan or for any loss of assets due to any action or inaction of the
Trustee shall be imposed upon the Employer.
14.6 Cooperation of Parties.
All parties to this Plan and any party claiming interest hereunder
agree to perform any and all acts and execute any and all documents and
papers which are necessary and desirable for carrying out this Plan or any
of its provisions.
14.7 Payments Due Missing Persons.
The Administrator shall direct the Trustee to make a reasonable effort
to locate all persons entitled to benefits under the Plan; however,
notwithstanding any provision in the Plan to the contrary, if, after a
period of 5 years from the date such benefit shall be due, any such persons
entitled to benefits have not been located, their rights under the Plan
shall stand suspended. Before this provision becomes operative, the Trustee
shall send a certified letter to all such persons at their last known
address advising them that their interest in benefits under the Plan shall
be suspended. Any such suspended amounts shall be held by the Trustee for a
period of 3 additional years (or a total of 8 years from the time the
benefits first became payable), and thereafter such amounts shall be
reallocated among current Participants in the same manner that a current
contribution would be allocated. However, if a person subsequently makes a
valid claim with respect to such reallocated amounts and any earnings
thereon, the Plan earnings or the Employer's contribution to be allocated
for the year in which the claim shall be paid shall be reduced by the amount
of such payment. Any such suspended amounts shall be handled in a manner not
inconsistent with regulations issued by the Internal Revenue Service and
Department of Labor.
14.8 Governing Law.
This Plan has been executed in the State of Indiana and all questions
pertaining to its validity, construction and administration shall be
determined in accordance with the laws of that State, except to the extent
superseded by the Act.
-55-
<PAGE>
14.9 Nonguarantee of Employment.
Nothing contained in this Plan shall be construed as a contract of
employment between the Employer and any Employee, or as a right of any
Employee to be continued in the employment of the Employer, or as a
limitation of the right of the Employer to discharge any of its Employees,
with or without cause.
14.10 Counsel.
The Trustee and the Administrator may consult with legal counsel, who
may be counsel for the Employer and for the Administrator or the Trustee (as
the case may be), with respect to the meaning or construction of this Plan
and the Trust Agreement, their respective obligations or duties hereunder or
with respect to any action or proceeding or any question of law, and they
shall be fully protected with respect to any action taken or omitted by them
in good faith pursuant to the advice of legal counsel.
IN WITNESS WHEREOF, the Sponsor has caused these presents to be
executed by its duly authorized officers and its corporate seal to be
affixed on this ____ day of April, 1997.
MONTGOMERY FINANCIAL
CORPORATION
ATTEST:
____________________________ By_____________________________
Nancy L. McCormick, J. Lee Walden,
Secretary President
[Corporate Seal]
-56-
EXHIBIT 10.8
MONTGOMERY FINANCIAL CORPORATION
1997 RECOGNITION AND RETENTION PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, executive officers and employees of the
Corporation and its Affiliates.
2. Definitions. The following definitions are applicable to the Plan:
"Award" - means the grant of Restricted Stock pursuant to the terms of
Section 12 of the Plan or by the Committee, as provided in the Plan.
"Affiliate" - means any "parent corporation" or "subsidiary corporation"
of the Corporation, as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Association" - means Montgomery Savings, A Federal Association, a savings
institution and its successors.
"Beneficiary" - means the person or persons designated by a Participant to
receive any benefits payable under the Plan in the event of such Participant's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if
any, or if none, his estate.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee of the Board of Directors of the
Corporation referred to in Section 6 hereof.
"Continuous Service" - means the absence of any interruption or
termination of service as a director, director emeritus, advisory director,
executive officer or employee of the Corporation or any Affiliate. Service shall
not be considered interrupted in the case of sick leave, military leave or any
other leave of absence approved by the Corporation or any Affiliate or in the
case of transfers between payroll locations of the Corporation or its Affiliates
or between the Corporation, its Affiliates or its successor. With respect to any
director emeritus or advisory director, continuous service shall mean
availability to perform such functions as may be required of such individuals.
"Conversion and Reorganization" - means (i) the conversion of Montgomery
Mutual Holding Company from mutual form to a federal interim stock savings
association and its merger into the Association and (ii) the merger transaction
pursuant to which the Association will become a wholly owned subsidiary of the
Corporation.
"Corporation" - means Montgomery Financial Corporation, an Indiana
corporation.
"Disability" - means any physical or mental impairment which qualifies an
employee, director, director emeritus or advisor director for disability
benefits under any applicable long-term disability plan maintained by the
Association or an Affiliate, or, if no such plan applies to such individual,
which renders such employee or director, in the judgment of the Committee,
unable to perform his customary duties and responsibilities.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
1
<PAGE>
"Non-Employee Director" - means a director who a) is not currently an
officer or employee of the Corporation; b) is not a former employee of the
Corporation who receives compensation for prior services (other than from a
tax-qualified retirement plan); c) has not been an officer of the Corporation;
d) does not receive remuneration from the Corporation in any capacity other than
as a director; and e) does not possess an interest in any other transactions or
is not engaged in a business relationship for which disclosure would be required
under Item 404(a) or (b) of Regulation S-K.
"Participant" - means any director, director emeritus, advisory director,
executive officer or employee of the Corporation or any Affiliate who is
selected by the Committee to receive an Award.
"Plan" - means the 1997 Recognition and Retention Plan of the Corporation.
"Restricted Period" - means the period of time selected by the Committee
for the purpose of determining when restrictions are in effect under Section 3
hereof with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" - means Shares which have been contingently awarded to
a Participant by the Committee subject to the restrictions referred to in
Section 3 hereof, so long as such restrictions are in effect.
"Shares" - means the common stock, par value $0.01 per share, of the
Corporation.
3. Terms and Conditions of Restricted Stock. The Committee shall have full
and complete authority, subject to the limitations of the Plan, to grant Awards
and, in addition to the terms and conditions contained in paragraphs (a) through
(f) of this Section 3, to provide such other terms and conditions (which need
not be identical among Participants) in respect of such Awards, and the vesting
thereof, as the Committee shall determine, subject to Office of Thrift
Supervision Regulations to the extent applicable.
(a) At the time of an award of Restricted Stock, the Committee shall establish
for each Participant a Restricted Period, during which or at the
expiration of which, as the Committee shall determine and provide in the
agreement referred to in paragraph (d) of this Section 3, the Shares
awarded as Restricted Stock shall vest, and subject to any such other
terms and conditions as the Committee shall provide, shares of Restricted
Stock may not be sold, assigned, transferred, pledged, voted or otherwise
encumbered by the Participant, except as hereinafter provided, during the
Restricted Period. Except for such restrictions, and subject to paragraphs
(c) and (e) of this Section 3 and Section 4 hereof, the Participant as
owner of such shares shall have all the rights of a stockholder.
To the extent Office of Thrift Supervision Regulations are applicable to
this Plan, no director who is not an employee of the Corporation shall be
granted Awards with respect to more than 5% of the total shares subject to
the Plan. All non-employee directors of the Corporation, in the aggregate,
may not be granted Awards with respect to more than 30% of the total
shares subject to the Plan and no individual shall be granted Awards with
respect to more than 25% of the total shares subject to the Plan. No
Awards shall begin vesting earlier than one year from the date the Plan is
approved by stockholders of the Corporation and no Award shall vest at a
rate in excess of 20% per year, except in the event of death or
disability. In the event Office of Thrift Supervision Regulations are
amended (the "Amended Regulations") to permit shorter vesting periods, any
Award made pursuant to this Plan, which Award is subject to the
requirements of such Amended Regulations, may vest, at the sole discretion
of the Committee, in accordance with such Amended Regulations.
Subject to compliance with Office of Thrift Supervision Regulations, if
applicable, the Committee shall have the authority, in its discretion, to
accelerate the time at which any or all of the restrictions shall lapse
with respect to an Award, or to remove any or all of such restrictions,
whenever it may determine that such action is appropriate by reason of
changes in applicable tax or other laws or other changes in circumstances
occurring after the commencement of such Restricted Period.
2
<PAGE>
(b) Except as provided in Section 5 hereof, if a Participant ceases to
maintain Continuous Service for any reason (other than death or
disability), unless the Committee shall otherwise determine, all Shares of
Restricted Stock theretofore awarded to such Participant and which at the
time of such termination of Continuous Service are subject to the
restrictions imposed by paragraph (a) of this Section 3 shall upon such
termination of Continuous Service be forfeited and returned to the
Corporation. If a Participant ceases to maintain Continuous Service by
reason of death or disability, Restricted Stock then still subject to
restrictions imposed by paragraph (a) of this Section 3 will be free of
those restrictions.
(c) Each certificate in respect of Shares of Restricted Stock awarded under
the Plan shall be registered in the name of the Participant and deposited
by the Participant, together with a stock power endorsed in blank, with
the Corporation and shall bear the following (or a similar) legend:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in the 1997 Recognition and Retention Plan of
Montgomery Financial Corporation. Copies of such Plan are on file in
the offices of the Secretary of Montgomery Financial Corporation, 119
East Main Street, Crawfordsville, Indiana 47933.
(d) At the time of any Award, the Participant shall enter into an Agreement
with the Corporation in a form specified by the Committee, agreeing to the
terms and conditions of the Award and such other matters as the Committee,
in its sole discretion, shall determine (the "Restricted Stock
Agreement").
(e) The payment to the Participant of dividends or other distributions
declared or paid on such shares by the Corporation shall be deferred until
the lapsing of the restrictions imposed under paragraph (a) of this
Section 3, and such dividends or other distributions shall be held by the
Corporation for the account of the Participant until such time. There
shall be credited at the end of each year (or portion thereof) interest on
the amount of the deferred dividends or other distributions at a rate per
annum as the Committee, in its discretion, may determine. Payment of
deferred dividends or other distributions, together with interest accrued
thereon, shall be made upon the earlier to occur of the lapsing of the
restrictions imposed under paragraph (a) of this Section 3 or upon death
or disability of the Participant.
(f) At the lapsing of the restrictions imposed by paragraph (a) of this
Section 3, the Corporation shall deliver to the Participant (or where the
relevant provision of paragraph (b) of this Section 3 applies in the case
of a deceased Participant, to his legal representative, beneficiary or
heir) the certificate(s) and stock power deposited with it pursuant to
paragraph (c) of this Section 3 and the Shares represented by such
certificate(s) shall be free of the restrictions referred to in paragraph
(a) of this Section 3.
4. Adjustments Upon Changes in Capitalization. In the event of any change
in the outstanding Shares subsequent to the effective date of the Plan by reason
of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number and class of shares with respect to which Awards theretofore have been
granted under the Plan shall be appropriately adjusted by the Committee, whose
determination shall be conclusive. Any shares of stock or other securities
received as a result of any of the foregoing by a Participant with respect to
Restricted Stock shall be subject to the same restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and deposited with the Corporation in the manner
provided in Section 3 hereof.
5. Assignments and Transfers. During the Restricted Period, no Award nor
any right or interest of a Participant under the Plan in any instrument
evidencing any Award under the Plan may be assigned, encumbered or transferred
except (i) in the event of the death of a Participant, by will or the laws of
descent
3
<PAGE>
and distribution, or (ii) pursuant to a qualified domestic relations order as
defined in the Code or Title I of ERISA or the rules thereunder.
6. Administration. The Plan shall be administered by a Committee
consisting of two or more members, each of whom shall be a Non-Employee
Director. The members of the Committee shall be appointed by the Board of
Directors of the Corporation. Except as limited by the express provisions of the
Plan, the Committee shall have sole and complete authority and discretion,
subject to Office of Thrift Supervision Regulations to the extent applicable, to
(i) select Participants and grant Awards; (ii) determine the number of Shares to
be subject to types of Awards generally, as well as individual Awards granted
under the Plan; (iii) determine the terms and conditions upon which Awards shall
be granted under the Plan; (iv) prescribe the form and terms of instruments
evidencing such grants; and (v) establish from time to time regulations for the
administration of the Plan, interpret the Plan, and make all determinations
deemed necessary or advisable for the administration of the Plan. The Committee
may maintain, and update from time to time as appropriate, a list designating
selected directors as Disinterested Persons. The purpose of such list shall be
to evidence the status of such individuals as Disinterested Persons, and the
Board of Directors may appoint to the Committee any individual actually
qualifying as a Disinterested Person, regardless of whether identified as such
on said list.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be acts of the Committee.
7. Shares Subject to Plan. Subject to adjustment by the operation of
Section 4 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan shall be an amount which, when added to the number of
Shares under the 1995 Plan, shall equal 4% of the total Shares outstanding upon
completion of the Conversion and Reorganization. The Shares with respect to
which Awards may be made under the Plan may be either authorized and unissued
Shares or issued Shares heretofore or hereafter reacquired and held as treasury
Shares. An Award shall not be considered to have been made under the Plan with
respect to Restricted Stock which is forfeited and new Awards may be granted
under the Plan with respect to the number of Shares as to which such forfeiture
has occurred.
The Corporation's obligation to deliver Shares with respect to an Award
shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Participant to whom such
Shares are to be delivered, in such form as the Committee shall determine to be
necessary or advisable to comply with the provisions of the Securities Act of
1933 or any other Federal, state or local securities legislation or regulation.
It may be provided that any representation requirement shall become inoperative
upon a registration of the Shares or other action eliminating the necessity of
such representation under such Securities Act or other securities legislation.
The Corporation shall not be required to deliver any Shares under the Plan prior
to (i) the admission of such shares to listing on any stock exchange on which
Shares may then be listed, and (ii) the completion of such registration or other
qualification of such Shares under any state or Federal law, rule or regulation,
as the Committee shall determine to be necessary or advisable.
8. Employee Rights Under the Plan. No director, director emeritus,
advisory director, officer or employee shall have a right to be selected as a
Participant nor, having been so selected, to be selected again as a Participant
and no director, officer, employee or other person shall have any claim or right
to be granted an Award under the Plan or under any other incentive or similar
plan of the Corporation or any Affiliate. Neither the Plan nor any action taken
thereunder shall be construed as giving any officer or employee any right to be
retained in the employ of the Corporation, the Association or any Affiliate.
9. Withholding Tax. Upon the termination of the Restricted Period with
respect to any shares of Restricted Stock (or at such earlier time, if any, that
an election is made by the Participant under Section 83(b)
4
<PAGE>
of the Code, or any successor provision thereto, to include the value of such
shares in taxable income), the Corporation may, in its sole discretion, withhold
from any payment or distribution made under this Plan sufficient Shares or
withhold sufficient cash to cover any applicable withholding and employment
taxes. The Corporation shall have the right to deduct from all dividends paid
with respect to shares of Restricted Stock the amount of any taxes which the
Corporation is required to withhold with respect to such dividend payments. No
discretion or choice shall be conferred upon any Participant with respect to the
form, timing or method of any such tax withholding.
10. Amendment or Termination. The Board of Directors of the Corporation
may amend, suspend or terminate the Plan or any portion thereof at any time,
subject to Office of Thrift Supervision Regulations, if applicable, but (except
as provided in Section 4 hereof) no amendment shall be made without approval of
the stockholders of the Corporation which shall (i) increase the aggregate
number of Shares with respect to which Awards may be made under the Plan, (ii)
materially increase the benefits accruing to Participants, (iii) materially
change the requirements as to eligibility for participation in the Plan or (iv)
change the class of persons eligible to participate in the Plan; provided,
however, that no such amendment, suspension or termination shall impair the
rights of any Participant, without his consent, in any Award theretofore made
pursuant to the Plan.
11. Term of Plan. The Plan shall become effective upon its ratification by
the stockholders of the Corporation. It shall continue in effect for a term of
ten years unless sooner terminated under Section 11 hereof.
5
EXHIBIT 22
SUBSIDIARY OF THE REGISTRANT
(Upon the completion of Transaction)
State of
Percentage of Incorporation
Parent Subsidiary Ownership or Organization
- ------ ---------- ------------- ---------------
Montgomery Financial Montgomery Savings, A 100% Federal
Corporation Federal Association
Montgomery Savings, A MSA SERVICE CORP. 100% Indiana
Federal Association
It is contemplated that the financial statements of the Registrant will
be consolidated with its subsidiary.
EXHIBIT 24.1
CONSENT OF COUNSEL
We consent to the use of our opinions, to the incorporation by
reference of such opinions as an exhibits to the Form S-1 and to the reference
to our firm under the headings "The Conversion - Income Tax Consequences" and
"Legal and Tax Matters" in the Prospectus included in this Form S-1. In giving
this consent, we do not admit that we are within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
/s/ SILVER FREEDMAN & TAFF, L.L.P.
SILVER, FREEDMAN & TAFF, L.L.P.
Washington, D.C.
April __, 1997
EXHIBIT 24.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report dated August 14, 1996 on the financial
statements of Montgomery Savings, A Federal Association (the "Association"), the
use of our opinion regarding the State of Indiana income tax consequences of the
proposed conversion and to "Legal and Tax Matters", and "Experts" in the
Application of Conversion filed by the Association with the Office of Thrift
Supervision and in the Registration Statement of Form S-1 filed by Montgomery
Financial Corporation with United States Securities and Exchange Commission.
/s/ Geo. S. Olive & Co. LLC
Indianapolis, Indiana
April 4, 1997
EXHIBIT 24.3
[KELLER & COMPANY LETTERHEAD]
April 7, 1997
Re: Valuation Appraisal of Montgomery Financial Corporation
Montgomery Savings, A Federal Association
Crawfordsville, Indiana
We hereby consent to the use of our firm's name, Keller & Company,
Inc., and the reference to our firm as experts in the Application for Conversion
on Form AC to be filed by Montgomery Savings, A Federal Association with the
Office of Thrift Supervision and the Registration Statement on Form S-1 to be
filed by Montgomery Financial Corporation with the Securities and Exchange
Commission and any amendments thereto, and to the statements with respect to us
and the references to our Valuation Appraisal Report in the Prospectus, in the
said Form AC and in the said Form S-1 and any amendments thereto.
Very truly yours,
KELLER & COMPANY, INC.
by: /s/ Michael R. Keller
---------------------
Michael R. Keller
President
EXHIBIT 99.1
[MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION LETTERHEAD]
__________, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
of Montgomery Savings, A Federal Association. The meeting will be held at
______________________ located at ____________________, Crawfordsville, Indiana,
on _________________, 1997 at _:00 _.m., Crawfordsville, Indiana time. The
matters to be considered by stockholders at the Special Meeting are described in
the accompanying materials.
It is very important that you be represented at the Special Meeting
regardless of the number of shares you own or whether you are able to attend the
meeting in person. We urge you to mark, sign, and date your proxy card today and
return it in the envelope provided, even if you plan to attend the Special
Meeting. This will not prevent you from voting in person, but will ensure that
your vote is counted if you are unable to attend.
Your continued support of and interest in Montgomery Savings
Association, A Federal Association are sincerely appreciated.
Sincerely,
Earl F. Elliott
Chairman of the Board and President
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION
119 East Main Street
Crawfordsville, Indiana 47933
(765) 362-4710
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _______________, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Montgomery Savings, A Federal Association ("Association") will be held at
__________________ located at ___________________, Crawfordsville, Indiana, on
_________________, 1997 at _:00 _.m., Crawfordsville, Indiana time, for the
following purposes, as more completely set forth in the accompanying Proxy
Statement:
1. To approve and adopt the Plan of Conversion and Agreement and
Plan of Reorganization (the "Plan" or "Plan of Conversion"),
pursuant to which (i) Montgomery Mutual Holding Company (the
"Mutual Holding Company"), which currently owns approximately
70.59% of the outstanding shares of common stock of the
Association, will convert from mutual form to a federal interim
stock savings institution and simultaneously merge with and into
the Association, with the Association being the surviving entity;
(ii) an interim institution ("Interim") to be formed as a wholly
owned subsidiary of Montgomery Financial Corporation, an Indiana
corporation recently formed as a wholly owned subsidiary of the
Association (the "Company"), will merge with and into the
Association, with the Association being the surviving entity and
becoming a wholly owned subsidiary of the Company;" and (iii) the
outstanding shares of Association common stock (other than those
held by the Mutual Holding Company, which will be cancelled) will
be converted into shares of common stock of the Company pursuant
to a ratio that will result in the holders of such shares owning
in the aggregate approximately ____% of the Company, before
giving effect to such shareholders purchasing additional shares
in a concurrent stock offering by the Company (the "Offerings"),
receiving cash in lieu of fractional shares or exercising
dissenters rights ("Exchange Shares"). In addition, the Company
is offering shares of its common stock by means of a Prospectus,
and the sale of such stock and the reorganization are referred to
herein as the "Conversion and Reorganization."
2. To transact such other business as may properly come before the
meeting. Except with respect to procedural matters incident to
the conduct of the meeting, management of the Association is not
aware of any matters other than those set forth above which may
properly come before the meeting.
<PAGE>
Stockholders of the Association have the right, pursuant to 12 C.F.R.
Section 522.14, to dissent from the Conversion and Reorganization and to
exercise appraisal rights for their shares of the Association common stock upon
strict compliance with the terms and conditions of 12 C.F.R. Section 552.14, a
copy of which is attached hereto as Appendix A. Failure to comply strictly with
the requirements of 12 C.F.R. Section 552.14 will result in the loss of
appraisal rights.
The Board of Directors of the Association has fixed ______________,
1997 as the voting record date for the determination of stockholders entitled to
notice of and to vote at the Special Meeting. Only those stockholders of record
as of the close of business on the date will be entitled to vote at the Special
Meeting or at any such adjournment.
BY ORDER OF THE BOARD OF DIRECTORS
Earl F. Elliott
Chairman of the Board and President
____________, 1997
Crawfordsville, Indiana
YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THIS MEETING, YOU MAY VOTE
EITHER IN PERSON OR BY YOUR PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN
WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF. PROXIES MUST BE
RECEIVED PRIOR TO THE COMMENCEMENT OF THE MEETING.
YOUR VOTE IS VERY IMPORTANT. VOTING ON THE PLAN DOES NOT REQUIRE YOU TO
PURCHASE STOCK IN THE OFFERINGS.
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION
---------------
PROXY STATEMENT
---------------
SPECIAL MEETING OF STOCKHOLDERS
This Proxy Statement is being furnished to the holders of the common
stock, par value $0.01 per share ("Association Common Stock"), of Montgomery
Savings, A Federal Association (the "Association"), in connection with the
solicitation of proxies by the Board of Directors for use at its Special Meeting
of Stockholders ("Special Meeting") to be held at __________________ located at
___________________, Crawfordsville, Indiana, on ____________, 1997, at _:00
_.m., Crawfordsville, Indiana time, and at any adjournment thereof, for the
purposes set forth in the Notice of Special Meeting of Stockholders. The Proxy
Statement is first being mailed to stockholders on or about ___________, 1997.
Each proxy solicited hereby, if properly signed and returned to the
Association and not revoked prior to its use, will be voted in accordance with
the instructions indicated on the proxies. If no contrary instructions are
given, each signed proxy received will be voted in favor of the Plan of
Conversion and, in the discretion of the proxy holder, as to any other matter
which may properly come before the Special Meeting. Only proxies that are
returned can be counted and voted at the Special Meeting.
An Association stockholder who has given a proxy may revoke it at any
time prior to its exercise at the Special Meeting by (i) giving written notice
of revocation to the Secretary of the Association, (ii) properly submitting to
the Association a duly-executed proxy bearing a later date, or (iii) attending
the Special Meeting and voting in person. All written notices of revocation and
other communications with respect to revocation of proxies should be addressed
as follows: Montgomery Savings, A Federal Association, 119 East Main Street,
Crawfordsville, Indiana 47933, Attention: Secretary. Proxies solicited hereby
may be exercised only at the Special Meeting and any adjournment thereof and
will not be used for any other meeting.
VOTING SECURITIES AND REQUIRED VOTE
Pursuant to Office of Thrift Supervision ("OTS") regulations,
consummation of the Conversion and Reorganization is conditioned upon the
approval of the Plan by the OTS, as well as (1) the approval of the holders of
at least a majority of the total number of votes eligible to be cast by the
members of the Montgomery Mutual Holding Company (the "Members") as of the close
of business on the voting record date at a special meeting of Members called for
the purpose of considering the Plan (the "Members' Meeting"), and (2) the
approval of the holders of at least two-thirds of the shares of the outstanding
Association Common Stock held by the stockholders as of the voting record date
at the Special Meeting. In addition, the Association, the Mutual Holding
1
<PAGE>
Company and the Company (the "Primary Parties") have conditioned the
consummation of the Conversion and Reorganization on the approval of the Plan by
the holders of at least a majority of the votes cast, in person or by proxy, by
the holders of Association Common Stock excluding the Mutual Holding Company
(the "Public Stockholders") at the Special Meeting. The Mutual Holding Company
intends to vote its shares of Association Common Stock, which amount to
approximately 70.59% of the outstanding shares, in favor of the Plan at the
Special Meeting. In addition, as of ____________, 1997, directors and executive
officers of the Association as a group (eight persons) beneficially owned
_________ shares (not including stock options) or ______% of the outstanding
Association Common Stock, which shares can also be expected to be voted in favor
of the Plan at the Special Meeting.
Only holders of record of Association Common Stock at the close of
business on ___________, 1997 (the "Voting Record Date") will be entitled to
notice of and to vote at the Special Meeting. On the Voting Record Date, there
were _______ shares of Association Common Stock issued and outstanding and the
Association had no other class of equity securities outstanding. Each share of
Association Common Stock is entitled to cast one vote at the Special Meeting on
all matters properly presented at the Special Meeting.
The presence in person or by proxy of at least a majority of the issued
and outstanding shares of Association Common Stock entitled to vote is necessary
to constitute a quorum at the Special Meeting. Shares as to which the "ABSTAIN"
box has been marked on the proxy and any shares held by brokers in street name
for customers which are present at the Special Meeting and are not voted in the
absence of instructions from the customers ("broker non-votes") will be counted
as present for determining if a quorum is present. Because adoption of the Plan
of Conversion must be approved by the holders of at least two-thirds of the
outstanding Association Common Stock, abstentions and broker non-votes will have
the same effect as a vote against such proposal. The Plan also conditions
consummation of the Conversion and Reorganization on the approval of the Plan by
at least a majority of the votes cast, in person or by proxy, at the Special
Meeting by the Public Stockholders. Abstentions and broker non-votes will have
no effect on the required vote of the Public Stockholders.
INCORPORATION OF INFORMATION BY REFERENCE
The accompanying Prospectus of the Company is incorporated herein by
reference. The Prospectus sets forth a description of the Plan of Conversion and
the related offering of common stock by the Company under the caption "The
Conversion and Reorganization." Such caption also describes the effects of the
Conversion and Reorganization on the stockholders of the Association and the
members of the Mutual Holding Company, including the tax consequences of the
Conversion and Reorganization and the establishment of a liquidation account for
the benefit of certain depositors of the Association.
Information regarding the Association, the Company and the Mutual
Holding Company are set forth in the Prospectus under the captions "Montgomery
Savings, A Federal Association," "Montgomery Financial Corporation" and
"Montgomery Mutual Holding Company," respectively,
2
<PAGE>
as well as under the caption "Summary." The Prospectus also describes the
business and financial condition of the Association under the captions
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the historical financial statements of the
Association are included in the Prospectus. Information regarding the use of
proceeds of the Offerings conducted in connection with the Conversion and
Reorganization, the historical capitalization of the Association and the pro
forma capitalization of the Company, and other pro forma data are set forth in
the Prospectus under the captions "Use of Proceeds," "Capitalization" and "Pro
Forma Data," respectively.
The Prospectus sets forth certain information as to the Association
Common Stock beneficially owned by (i) the only persons or entities who or which
were known to the Association to be the beneficial owner of more than 5% of the
issued and outstanding Association Common Stock, (ii) the directors of the
Association, and (iii) all directors and executive officers of the Association
as a group. See "Beneficial Ownership of Capital Stock" in the Prospectus.
The Prospectus also sets forth a comparison of the rights of
stockholders of the Association with the rights of stockholders of the Company.
See "Comparison of Stockholders' Rights" in the Prospectus.
DISSENTERS' RIGHTS OF APPRAISAL
Record holders of Association Common Stock are entitled to appraisal
rights under Section 552.14 of the OTS regulations as a result of the merger of
the Mutual Holding Company (following its conversion to a federal interim stock
savings institution) with and into the Association and the merger of the
Association with and into Interim, with the Association to be the surviving
entity in both mergers (the "Mergers"). Any person having a beneficial interest
in shares of Association Common Stock held of record in the name of another
person, such as a broker or nominee, and who wishes to exercise dissenters'
rights must act promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner to perfect whatever appraisal
rights the beneficial owner may have.
The following discussion is not a complete statement of the law
pertaining to appraisal rights under Section 552.14 and is qualified in its
entirety by the full text of Section 552.14, which is reprinted as Appendix A to
this Proxy Statement.
Under Section 552.14, where a merger is to be submitted for approval at
a meeting of stockholders, as in the case of the Special Meeting, not less than
20 days prior to the meeting, the institution must notify each of the holders of
its stock for which appraisal rights are available that such appraisal rights
are available and include in each such notice a copy of Section 552.14. This
Proxy Statement shall constitute such notice to the record holders of the
Association Common Stock. Any such stockholder who wishes to exercise such
appraisal rights should review carefully the following discussion and Appendix A
to this Proxy Statement because failure to timely and properly comply with the
procedures specified will result in the loss of appraisal rights under Section
552.14.
3
<PAGE>
A holder of shares of Association Common Stock wishing to exercise his
appraisal rights must deliver to the Secretary of the Association, before the
vote on the Plan of Conversion at the Special Meeting, a writing which
identifies such stockholder and which states his intention to demand appraisal
of and payment for his shares of Association Common Stock. Such demand must be
in addition to and separate from any proxy or vote against the Plan of
Conversion. A vote against the Plan of Conversion does not, by itself,
constitute a demand for appraisal rights. Also, voting for the approval and
adoption of the Plan of Conversion will result in the loss of appraisal rights
with respect to such shares. In addition, a holder of shares of Association
Common Stock wishing to exercise his appraisal rights must hold of record such
shares on the date the written demand for appraisal is made and must hold such
shares continuously through the effective date of the Conversion and
Reorganization (the "Effective Date").
Only a holder of record of shares of Association Common Stock is
entitled to assert appraisal rights for the shares of Association Common Stock
registered in that holder's name. A demand for appraisal should be executed by
or on behalf of the holder of record fully and correctly, as his name appears on
his stock certificates. If the shares of Association Common Stock are owned of
record in a fiduciary capacity, such as by a trustee, guardian or custodian,
execution of the demand should be made in that capacity, and if the shares of
Association Common Stock are owned of record by more than one person, as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a demand for appraisal on behalf of a holder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is agent for such
owner or owners. A record holder such as a broker who holds shares of
Association Common Stock as nominee for several beneficial owners may exercise
appraisal rights with respect to the shares of Association Common Stock held for
one or more beneficial owners while not exercising such rights with respect to
the shares of Association Common Stock held for other beneficial owners; in such
case, the written demand should set forth the number of shares of Association
Common Stock as to which appraisal is sought and where no number of shares of
Association Common Stock is expressly mentioned the demand will be presumed to
cover all shares of Association Common Stock held in the name of the record
owner. Stockholders who hold their shares of Association Common Stock in
brokerage accounts or other nominee forms and who wish to exercise appraisal
rights must take all necessary steps in order that a demand for appraisal is
made by the record holder of such shares and are urged to consult with their
brokers to determine the appropriate procedures for the making of a demand for
appraisal by the record holder and for surrendering the certificates for such
shares to the Association for notation of appraisal rights as set forth below.
All written demands for appraisal should be sent or delivered to
Montgomery Savings, A Federal Association, 119 East Main Street, Crawfordsville,
Indiana 47933, Attention: Secretary, so as to be received prior to the vote of
stockholders with respect to the Plan of Conversion.
Within ten days after the Effective Date of the Conversion and
Reorganization, the Association, as the resulting institution in the Mergers,
must: (i) send a written notice as to the Effective Date of the Conversion and
Reorganization to each person who has satisfied the appropriate provisions of
Section 552.14 and who has not voted in favor of the Plan of Conversion, (ii)
make a written offer to each stockholder to pay for dissenting shares at a
specified price deemed
4
<PAGE>
by the Association to be the fair value thereof, and (iii) inform each
stockholder that within 60 days of such date the stockholder must take certain
actions, set forth in such notice (and summarized below). A written offer to
dissenting stockholders, if any, will be based on the circumstances existing on
the Effective Date, and the Association has not determined the price per share
it would offer any dissenting stockholders. If, within 60 days of the Effective
Date, an agreement is reached as to the fair value between the Association and a
dissenting stockholder, payment therefore shall be made within 90 days of the
Effective Date.
If the Association and any holder of the Association Common Stock who
has complied with the foregoing procedures and who is entitled to appraisal
rights under Section 552.14 have not agreed as to the fair value within 60 days
of the Effective Date, the stockholder may file a petition with the OTS, with a
copy to the Association by registered or certified mail demanding a
determination of the fair value of the stock of all dissenting stockholders. A
stockholder who fails to file such petition within 60 days of the Effective Date
shall be deemed to have accepted the Exchange Shares to which he is entitled. In
addition, within 60 days of the Effective Date, each stockholder demanding
appraisal and payment under Section 552.14 must submit to the Association the
certificates for notation thereon that appraisal and payment has been demanded
and that appraisal proceedings are pending. The failure to submit certificates
for notation will result in the loss of appraisal rights. The Association is not
under any obligation to file a petition with respect to the appraisal of the
fair value of the shares of Association Common Stock. Accordingly, it is the
obligation of the stockholders to initiate all necessary action to perfect their
appraisal rights within the time prescribed in Section 552.14.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Director of the OTS will determine the holders of shares of
Association Common Stock entitled to appraisal rights and will order an
appraisal of the "fair value" of the shares of Association Common Stock,
exclusive of any element of value arising from the accomplishment or expectation
of the Conversion and Reorganization. Such appraisal may be conducted by
appropriate staff of the OTS or such independent appraiser as the Director shall
determine. If the appraisal is conducted by an independent appraiser, then the
OTS staff will review and provide an opinion as to the suitability of the
methodology and the adequacy of the analysis and supportive data. If the
Director concurs in the valuation, then payment of the appraised value of the
shares will be directed from the resulting institution (the Association) upon
surrender of the certificates representing the dissenting shares of Association
Common Stock, along with interest from the Effective Date at a rate deemed
equitable by the Director. Holders of shares of Association Common Stock
considering seeking appraisal should be aware that the fair value of their
shares of Association Common stock as determined under Section 552.14 could be
more than, the same as, or less than the value of the consideration they would
receive pursuant to the Plan of Conversion if they did not seek appraisal of
their shares of Association Common Stock.
The costs of any appraisal proceeding may be apportioned and assessed
by the Director as he or she deems equitable against all or some of the parties.
In making the determination, the Director shall consider whether any of the
parties has acted arbitrarily, vexatiously, or not in good faith.
5
<PAGE>
Any holder of shares of Association Common Stock who has duly demanded
an appraisal in compliance with Section 552.14 will not, after the Effective
Date, be entitled to vote the shares of Association Common Stock subject to such
demand for any purpose or be entitled to the payment of dividends or other
distributions on those shares (except dividends or other distributions payable
to, or a vote to be taken by, holders of record of shares of Association Common
Stock as of a date prior to the Effective Date).
If any holder of Association Common Stock who demands appraisal of his
shares under Section 552.14 fails to perfect, or effectively withdraws or loses
his right to appraisal as provided in Section 552.14, the shares of such
stockholder will be converted into Exchange Shares in accordance with the Plan
of Conversion. A holder may withdraw his demand for appraisal by delivering to
the Association a written withdrawal of his demand for appraisal and acceptance
of the Exchange Shares (any such written withdrawal should be directed to
Montgomery Savings, A Federal Association, 119 East Main Street, Crawfordsville,
Indiana 47933, Attention: Secretary).
Failure to follow the steps required by Section 552.14 for perfecting
appraisal rights may result in the loss of such rights.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder wishes to have included in the proxy
solicitation materials to be used in connection with the next annual meeting of
stockholders of the Association which is expected to be held in ____________
1997, if the Conversion and Reorganization is not consummated, must be received
at the main office of the Association no later than _____________, 1997.
6
<PAGE>
OTHER MATTERS
Each proxy solicited hereby also confers discretionary authority on the
Board of Directors of the Association to vote the proxy upon such other matters
as may properly come before the Special Meeting. Management is not aware of any
business that may properly come before the Special Meeting other than those
matters described above in this Proxy Statement. However, if any other matters
should properly come before the Special Meeting, it is intended that the proxies
solicited hereby will be voted with respect to those other matters in accordance
with the judgment of the persons voting the proxies.
The cost of solicitation of proxies will be borne by the Association.
The Association will reimburse brokerage firms and other custodians, nominees
and fiduciaries for reasonable expenses incurred by them in sending proxy
materials to the beneficial owners of the Association Common Stock. In addition
to solicitations by mail, directors, officers and employees of the Association
may solicit proxies personally or by telephone without additional compensation.
You may obtain a copy of the Plan of Conversion, together with the
Articles of Incorporation and Bylaws the Company, from any office of the
Association or in writing from the Association. Any such requests should be
directed to Montgomery Savings, A Federal Association, 119 East Main Street,
Crawfordsville, Indiana 47933, Attention: Secretary. So that you have sufficient
time to receive and review the requested materials, it is recommended that any
such requests be sent so that they are received by the Association by ________,
1997.
YOUR VOTE IS IMPORTANT! THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR THE PLAN OF CONVERSION. WE URGE YOU TO MARK, SIGN AND DATE THE ENCLOSED
PROXY CARD AND RETURN IT TODAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
7
<PAGE>
APPENDIX A
SECTION 552.14 OF THE OTS REGULATIONS RELATING TO
DISSENTERS' RIGHTS OF APPRAISAL
Section 552.14 Dissenter and appraisal rights.
(a) Right to demand payment of fair or appraised value. Except as
provided in paragraph (b) of this section, any stockholder of a
Federal stock association combining in accordance with Section
552.13 of this part shall have the right to demand payment of the
fair or appraised value of his stock: Provided, That such
stockholder has not voted in favor of the combination and
complies with the provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under
this section to demand payment of the stock's fair or appraised
value, if such stock was listed on a national securities exchange
or quoted on the National Association of Securities Dealers'
Automated Quotation System ("NASDAQ") on the date of the meeting
at which the combination was acted upon or stockholder action is
not required for a combination made pursuant to Section
552.13(h)(2) of this part. "Qualified consideration" means cash,
shares of stock of any association or corporation which at the
effective date of the combination will be listed on a national
securities exchange or quoted on NASDAQ or any combination of
such shares of stock and cash.
(c) Procedure.
(1) NOTICE. Each constituent Federal stock association shall notify all
stockholders entitled to rights under this section, not less than twenty days
prior to the meeting at which the combination agreement is to be submitted for
stockholder approval, of the right to demand payment of appraised value of
shares, and shall include in such notice a copy of this section. Such written
notice shall be mailed to stockholders of record and may be part of the
management's proxy solicitation for such meeting.
(2) DEMAND FOR APPRAISAL AND PAYMENT. Each stockholder electing to make
a demand under this section shall deliver to the Federal stock association,
before voting on the combination, a writing identifying himself or herself and
stating his or her intention thereby to demand appraisal of and payment for his
or her shares. Such demand must be in addition to and separate from any proxy or
vote against the combination by the stockholder.
(3) NOTIFICATION OF EFFECTIVE DATE AND WRITTEN OFFER. Within ten days
after the effective date of the combination, the resulting association shall;
(i) Give written notice by mail to stockholders of constituent
Federal
A-1
<PAGE>
Stock associations who have complied with the provisions of
paragraph (c)(2) of this section and have not voted in favor
of the combination, of the effective date of the
combination;
(ii) Make a written offer to each stockholder to pay for
dissenting shares at a specified price deemed by the
resulting association to be the fair value thereof; and
(iii) Inform them that, within sixty days of such date, the
respective requirements of paragraphs (c)(5) and (6) of this
section (set out in the notice) must be satisfied.
The notice and offer shall be accompanied by a balance sheet and
statement of income of the association the shares of which the dissenting
stockholder holds, for a fiscal year ending not more than sixteen months before
the date of notice and offer, together with the latest available interim
financial statements.
(4) ACCEPTANCE OF OFFER. If within sixty days of the effective date of
the combination the fair value is agreed upon between the resulting association
and any stockholder who has complied with the provisions of paragraph (c)(2) of
this section, payment therefor shall be made within ninety days of the effective
date of the combination.
(5) PETITION TO BE FILED IF OFFER NOT ACCEPTED. If within sixty days of
the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file a
petition with the Office, with a copy by registered or certified mail to the
resulting association, demanding a determination of the fair market value of the
stock of all such stockholders. A stockholder entitled to file a petition under
this section who fails to file such petition within sixty days of the effective
date of the combination shall be deemed to have accepted the terms offered under
the combination.
(6) STOCK CERTIFICATES TO BE NOTED. Within sixty days of the effective
date of the combination, each stockholder demanding appraisal and payment under
this section shall submit to the transfer agent his certificates of stock for
notation thereon that an appraisal and payment have been demanded with respect
to such stock and that appraisal proceedings are pending. Any stockholder who
fails to submit his stock certificates for such notation shall no longer be
entitled to appraisal rights under this section and shall be deemed to have
accepted the terms offered under the combination.
(7) WITHDRAWAL OF DEMAND. Notwithstanding the foregoing, at any time
within sixty days after the effective date of the combination, any stockholder
shall have the right to withdraw his or her demand for appraisal and to accept
the terms offered upon the combination.
(8) VALUATION AND PAYMENT. The Director shall, as he or she may elect,
either appoint one or more independent persons or direct appropriate Staff of
the Office to appraise the shares to determine their fair market value, as of
the effective date of the combination, exclusive of
A-2
<PAGE>
any element of value arising from the accomplishment or expectation of the
combination. Appropriate staff of the Office shall review and provide an opinion
on appraisals prepared by independent persons as to the suitability of the
appraisal methodology and the adequacy of the analysis and supportive data. The
Director after consideration of the appraisal report and the advise of the
appropriate staff shall, if he or she concurs in the valuation of the shares
direct payment by the resulting association of the appraised fair market value
of the shares, upon surrender of the certificates representing such stock.
Payment shall be made, together with interest from the effective date of the
combination, at a rate deemed equitable by the Director.
(9) COSTS AND EXPENSES. The costs and expenses of any proceeding under
this section may be apportioned and assessed by the Director as he or she may
deem equitable against all or some of the parties. In making this determination
the Director shall consider whether any party has acted arbitrarily,
vexatiously, or not in good faith in respect to the rights provided by this
section.
(10) VOTING AND DISTRIBUTION. Any stockholder who has demanded
appraisal rights as provided in paragraph (c)(2) of this section shall
thereafter neither be entitled to vote such stock for any purpose nor be
entitled to the payment of dividends or other distributions on the stock (except
dividends or other distribution payable to, or a vote to be taken by
stockholders of record at a date which is on or prior to, the effective date of
the combination): Provided, That if any stockholder becomes unentitled to
appraisal and payment of appraised value with respect to such stock and accepts
or is deemed to have accepted the terms offered upon the combination, such
stockholder shall thereupon be entitled to vote and receive the distribution
described above.
(11) STATUS. Shares of the resulting association into which shares of
the stockholder demanding appraisal rights would have been converted or
exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.
A-3
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION (THE "ASSOCIATION") FOR USE ONLY AT A
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON ______________, 1997 AND ANY
ADJOURNMENT THEREOF.
The undersigned, being a stockholder of the Association as of
__________, 1997, hereby authorizes the Board of Directors of the Association,
or any of their successors, as proxies, with full powers of substitution, to
represent the undersigned at the Special Meeting of Stockholders to be held at
________________________located at ____________________, Crawfordsville,
Indiana, on _____________, 1997, at __:00 __.m., Crawfordsville, Indiana time,
and at any adjournment of said meeting, and thereat to with respect to all votes
that the undersigned would be entitled to cast, if then personally present, as
follows:
(1) To approve and adopt the Plan of Conversion and Agreement and
Plan of Reorganization (the "Plan of Conversion"), pursuant to
which (i) Montgomery Mutual Holding Company (the "Mutual
Holding Company"), which currently owns approximately 70.59%
of the outstanding shares of common stock of the Association,
will convert from mutual form to a federal interim stock
savings institution and simultaneously merge with and into the
Association, with the Association being the surviving entity;
(ii) an interim institution ("Interim") to be formed as a
wholly owned subsidiary of Montgomery Financial Corporation,
an Indiana corporation recently formed as a wholly owned
subsidiary of the Association (the "Company"), will merge with
and into the Association, with the Association being the
surviving entity and became a wholly owned subsidiary of the
Company operating under the name "Montgomery Bank;" (iii) the
outstanding shares of Association common stock (other than
those held by the Mutual Holding Company, which will be
cancelled) will be converted into shares of common stock of
the Company pursuant to an exchange ratio as described in the
Proxy Statement; and (iv) the Company will sell additional
shares of its common stock pursuant to the Plan of Conversion.
--- --- ---
|___| FOR |___| AGAINST |___| ABSTAIN
In their discretion, the proxies are authorized to vote with respect to
approval of the minutes of the last meeting of stockholders, matters incident to
the conduct of the meeting, and upon such other matters as may properly come
before the meeting.
This proxy may be revoked at any time before it is exercised. Shares of
common stock of the Association will be voted as specified. If no specification
is made herein, shares will be voted FOR Proposal 1.
(Continued and to be signed on other side)
<PAGE>
The undersigned hereby acknowledges receipt of a Notice of Special
Meeting of the Stockholders of Montgomery Savings, A Federal Association called
for __________, 1997 and a Proxy Statement for the Special Meeting prior to the
signing of this Proxy.
Date: _______________, 1997
_____________________________________
_____________________________________
Signature
_____________________________________
Signature
Note: Please sign exactly as your
name(s) appear(s) on this Proxy.
Only one signature is required in
the case of a joint account. When
signing in a representative capacity,
please give title.
________________________________________________________________________________
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS
PROXY CARD USING THE ENCLOSED ENVELOPE.
________________________________________________________________________________
EXHIBIT 99.2
NOTICE OF SPECIAL MEETING OF MEMBERS
MONTGOMERY MUTUAL HOLDING COMPANY
119 East Main Street
Crawfordsville, Indiana 47933
(765) 362-4710
NOTICE OF SPECIAL MEETING OF MEMBERS
To Be Held on ___________, 1997
NOTICE IS HEREBY GIVEN that a special meeting ("Special Meeting") of
the members of Montgomery Mutual Holding Company (the "Mutual Holding Company")
will be held at ___________________________ located at ____________________,
Crawfordsville, Indiana on __________, 1997 at _:__ _.m., Crawfordsville,
Indiana time, to consider and vote upon:
1. The approval of the Plan of Conversion of the Mutual Holding
Company and Agreement and Plan of Reorganization between the
Mutual Holding Company and Montgomery Savings, A Federal
Association (the "Association"), pursuant to which the
Association organized Montgomery Financial Corporation (the
"Company") and, upon consummation of the following transactions,
will become a wholly owned subsidiary of the Company: (i) the
Mutual Holding Company, which currently owns approximately 70.59%
of the outstanding shares of common stock of the Association,
will convert from mutual form to a federal interim stock savings
institution and simultaneously merge with and into the
Association, with the Association being the surviving entity;
(ii) the Association will then merge with and into an interim
institution to be formed as a wholly owned subsidiary of the
Company, with the Association being the surviving entity; (iii)
the outstanding shares of Association common stock (other than
those held by the Mutual Holding Company, which will be
cancelled) will be converted into shares of the Company's common
stock ("Exchange Shares") pursuant to a ratio that will result in
the holders of such shares owning in the aggregate approximately
_____% of the Company before giving effect to such stockholders
purchasing additional shares in a concurrent stock offering by
the Company, receiving cash in lieu of fractional shares or
exercising dissenters' rights; and (iv) the offer and sale of
shares of the Company's common stock; and
<PAGE>
2. Such other business as may properly come before the Special
Meeting or any adjournment thereof. Except with respect to
procedural matters incident to the conduct of the meeting,
management is not aware of any other such business.
The Board of Directors has fixed ____________, 1997 as the voting
record date for the determination of members entitled to notice of and to vote
at the Special Meeting and at any adjournment thereof. Only those members of the
Mutual Holding Company of record as of the close of business on that date will
be entitled to vote at the Special Meeting or at any such adjournment.
BY ORDER OF THE BOARD OF DIRECTORS
Earl F. Elliott
Chairman of the Board and President
Crawfordsville, Indiana
_____________, 1997
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU SIGN, DATE AND MARK THE
ENCLOSED PROXY CARD FOR ADOPTION OF THE PLAN AND RETURN IT PROMPTLY IN THE
ENCLOSED SELF-ADDRESSED STAMPED ENVELOPE. PROXY CARDS MUST BE RECEIVED PRIOR TO
THE COMMENCEMENT OF THE SPECIAL MEETING. RETURNING PROXY CARDS WILL NOT PREVENT
YOU FROM VOTING IN PERSON IF YOU ATTEND THE SPECIAL MEETING.
YOUR VOTE IS IMPORTANT. NOT VOTING WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE PLAN. VOTING ON THE PLAN DOES NOT REQUIRE YOU TO PURCHASE STOCK IN
THE OFFERINGS.
<PAGE>
MONTGOMERY MUTUAL HOLDING COMPANY
---------------
PROXY STATEMENT
---------------
SPECIAL MEETING OF MEMBERS
To Be Held On ____________, 1997
INTRODUCTION
This Proxy Statement is being furnished to you in connection with the
solicitation by the Board of Directors of Montgomery Mutual Holding Company (the
"Mutual Holding Company") of proxies to be voted at the Special Meeting of
Members of the Mutual Holding Company (the "Special Meeting") to be held on
___________, 1997 at _____________________________ located at
___________________, Crawfordsville, Indiana at _:__ _.m., Crawfordsville,
Indiana time, and at any adjournments thereof. This Special Meeting is being
held for the purpose of considering and voting upon a Plan of Conversion of the
Mutual Holding Company and Agreement and Plan of Reorganization ("Plan" or the
"Plan of Conversion") between the Mutual Holding Company and Montgomery Savings,
A Federal Association (the "Association") , pursuant to which the Association
organized Montgomery Financial Corporation (the "Company") and, upon
consummation of the following transactions, will become a wholly owned
subsidiary of the Company: (i) the Mutual Holding Company, which currently owns
approximately 70.59% of the outstanding common stock of the Association, will
convert from mutual form to a federal interim stock savings institution and
simultaneously merge with and into the Association, with the Association being
the surviving entity; (ii) the Association will then merge with and into an
interim institution ("Interim") to be formed as a wholly owned subsidiary of the
Company, with the Association being the surviving entity operating; (iii) the
outstanding shares of Association common stock (other than those held by the
Mutual Holding Company, which will be cancelled) (the "Public Association
Shares") will be converted into shares of common stock of the Company (the
"Exchange Shares") pursuant to a ratio (the "Exchange Ratio") that will result
in the holders of such shares owning in the aggregate approximately _____% of
the Company, before giving effect to such stockholders purchasing additional
shares in a concurrent stock offering by the Company (the "Offerings"),
receiving cash in lieu of fractional shares or exercising dissenters' rights;
and (iv) the offer and sale of shares of the Company's common stock (the
"Conversion Stock") pursuant to the Plan. The offer and sale of the Conversion
Stock and the reorganization are referred to herein as the "Conversion and
Reorganization."
1
<PAGE>
Voting in favor of the Plan of Conversion will not obligate any person
to purchase Conversion Stock. Exchange Shares and shares of Conversion Stock are
being offered only by the Prospectus, which is available upon request, if not
included herein. See "How to Obtain Additional Information."
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
Depositors of the Association are members of the Mutual Holding Company
under its current Charter (the "Members"). All of the Members as of the close of
business on _______, 1997 (the "Voting Record Date") who continue to be Members
on the date of the Special Meeting or any adjournment thereof will be entitled
to vote on the Plan of Conversion. If there are not sufficient votes for
approval of the Plan at the time of the Special Meeting, the Special Meeting may
be adjourned to permit further solicitation of proxies.
At the Special Meeting, each depositor Member will be entitled to cast
one vote for every $100, or fraction thereof, of the total withdrawal value of
all of his accounts in the Association as of the Voting Record Date up to a
maximum of 1,000 votes. As of the Voting Record Date, the Association had
approximately ______ deposit accounts, the holders of which are entitled to cast
a total of approximately _________ votes at the Special Meeting.
Pursuant to Office of Thrift Supervision ("OTS") regulations,
consummation of the Conversion and Reorganization is conditioned upon the
approval of the Plan by the OTS, as well as (1) the approval of the holders of
at least a majority of the total number of votes eligible to be cast by the
Members as of the close of business on the Voting Record Date at the Special
Meeting, and (2) the approval of the holders of at least two-thirds of the
shares of the outstanding Association Common Stock held by the Mutual Holding
Company and the holders of the Public Association Shares (the "Public
Stockholders") (collectively, the "Stockholders") as of the Voting Record Date
at a Special Meeting of Stockholders called for the purpose of considering the
Plan (the "Stockholders' Meeting"). In addition, the Mutual Holding Company, the
Association and the Company (the "Primary Parties") have conditioned the
consummation of the Conversion and Reorganization on the approval of the Plan by
the holders of at least a majority of the votes cast, in person or by proxy, by
the Public Stockholders at the Stockholders' Meeting. The Mutual Holding Company
intends to vote its shares of Association Common Stock, which amount to 70.59%
of the outstanding shares, in favor of the Plan at the Stockholder's Meeting.
This Proxy Statement and related materials are first being mailed to
Members on or about ___________, 1997.
2
<PAGE>
PROXIES
The Board of Directors of the Mutual Holding Company is soliciting the
proxy which accompanies this Proxy Statement for use at the Special Meeting.
Each proxy solicited hereby, if properly executed, duly returned before the
Special Meeting and not revoked prior to or at the Special Meeting, will be
voted at the Special Meeting in accordance with the Member's instructions
indicated thereon. If no contrary instructions are given on the proxy, the
proxy, if signed, will be voted in favor of the Plan of Conversion. If you do
not return a proxy or vote at the meeting, it will have the same effect as a
vote against the Plan of the Conversion. If any other matters properly come
before the Special Meeting, the persons named as proxies will vote upon such
matters according to their discretion. Except with respect to procedural matters
incident to the conduct of the meeting, no additional matters are expected to
come before the Special Meeting.
Any Member giving a proxy may revoke it at any time before it is voted
by delivering to the Secretary of the Mutual Holding Company either a written
revocation of the proxy or a duly executed proxy bearing a later date, or by
voting in person at the Special Meeting. Proxies are being solicited only for
use at the Special Meeting and any and all adjournments thereof and will not be
used for any other meeting.
Proxies may be solicited by officers, directors and employees of the
Mutual Holding Company personally, by telephone or further correspondence
without additional compensation.
Deposits held in a trust or other fiduciary capacity may be voted by
the trustee or other fiduciary to whom voting rights are delegated under the
trust instrument or other governing document or applicable law. In the case of
individual retirement accounts and Keogh trusts established at the Association,
the beneficiary may direct the trustee's vote on the Plan of Conversion by
returning a completed proxy card to the Mutual Holding Company. For retirement
accounts and Keogh trusts, if no proxy card is returned, the trustee will vote
in favor of approval of the Plan of Conversion on behalf of such beneficiary.
The Board of Directors urges you to mark, sign, date and return the
enclosed proxy card in the enclosed postage-paid envelope as soon as possible,
even if you do not intend to purchase Conversion Stock. This will ensure that
your vote will be counted.
MONTGOMERY MUTUAL HOLDING COMPANY
The Mutual Holding Company is a federally chartered mutual holding
company which was chartered on August 11, 1995 in connection with the MHC
Reorganization. The Mutual Holding Company's primary asset is 600,000 shares of
Association Common Stock, which represent 70.6% of the shares of Association
Common Stock outstanding as of December 31, 1996. The Mutual
3
<PAGE>
Holding Company's only other assets consist of deposit accounts in the amount of
$103,000 as of December 31, 1996 (which will become assets of the Association
upon consummation of the Conversion and Reorganization). Prior to the Conversion
and Reorganization, each depositor in the Association has both a deposit account
in the institution and a pro rata ownership interest in the net worth of the
Mutual Holding Company based upon the value in his account, which interest may
only be realized in the event of a liquidation of the Mutual Holding Company. As
part of the Conversion and Reorganization, the Mutual Holding Company will
convert from mutual form to a federal interim stock savings institution and
simultaneously merge with and into the Association, with the Association being
the surviving entity.
MONTGOMERY FINANCIAL CORPORATION
The Company was organized in April 1997 at the direction of the Board
of Directors of the Association for the purpose of holding all of the capital
stock of the Association and in order to facilitate the Conversion and
Reorganization. The Company has applied for approval from the OTS to become a
thrift holding company, and as such will be subject to regulation by the OTS.
After completion of the Conversion and Reorganization, the Company will conduct
business initially as a unitary thrift Company. See "Regulation - The Company."
Upon consummation of the Conversion and Reorganization, the Company will have no
significant assets other than all of the outstanding shares of Association
Common Stock, a note evidencing the Company's loan to the ESOP and the remaining
portion of the net proceeds from the Offerings retained by the Company, and the
Company will have no significant liabilities. See "Use of Proceeds."
Management believes that the Company structure will provide the Company
with additional flexibility to diversify, should it decide to do so, its
business activities through existing or newly formed subsidiaries, or through
acquisitions of or mergers with other financial institutions and financial
services related companies. Although there are no current arrangements,
understandings or agreements regarding any such opportunities or transactions,
the Company will be in a position after the Conversion and Reorganization,
subject to regulatory limitations and the Company's financial position, to take
advantage of any such acquisition and expansion opportunities that may arise.
The initial activities of the Company are anticipated to be funded by the
proceeds to be retained by the Company and earnings thereon, as well as
dividends from the Association. See "Dividend Policy."
The Company's executive office is located at the home office of the
Association at 119 East Main Street, Crawfordsville, Indiana 47933, and its
telephone number is (765) 362-4710.
4
<PAGE>
MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION
General
Montgomery was established in 1888 as an Indiana state-chartered mutual
savings and loan association known as The Montgomery Savings Association. It was
converted in 1985 to a federally chartered, mutual savings and loan association.
In August 1995, the Mutual Association reorganized into the mutual holding
company form of organization whereby the Mutual Association (i) formed a new
stock savings association; (ii) transferred substantially all of its assets and
liabilities to the newly formed stock savings association in exchange for all of
the common stock of such institution; and (iii) reorganized from a federally
chartered, mutual savings association to a federally chartered, mutual Company
known as "Montgomery Mutual Holding Company." As part of the MHC Reorganization,
the newly formed stock savings association issued 250,000 shares of Association
Common Stock to certain members of the general Public and 600,000 shares of
Association Common Stock to the Mutual Holding Company. Montgomery conducts
business from four offices, two in Crawfordsville (Montgomery County), one in
Covington (Fountain County), and one in Williamsport (Warren County), Indiana.
At December 31, 1996, the Association had $94.6 million of total assets, $85.5
million of total liabilities, including $72.3 million of deposits, and $9.1
million of stockholders' equity.
Montgomery is primarily engaged in attracting deposits from the general
public through its offices and using those and other available sources of funds
to originate loans secured by one-to four-family residences. Approximately 99.5%
of Montgomery's depositors reside in the State of Indiana. One- to four-family
residential loans amounted to $72.2 million, or 85.3%, of Montgomery's total
loan portfolio at December 31, 1996. To a lesser extent, Montgomery originates
loans secured by existing multi-family residential and nonresidential real
estate, which amounted to $7.8 million, or 9.2%, of the total loan portfolio at
December 31, 1996, as well as construction loans and consumer loans, which
amounted to $1.4 million, or 1.7%, of the total loan portfolio and $3.2 million,
or 3.8%, of the total loan portfolio at such date, respectively. Montgomery also
invests in U.S. Government and federal agency obligations and mortgage-backed
securities which are insured by federal agencies. Montgomery has one wholly
owned subsidiary corporation, MSA SERVICE CORP ("MSA"). MSA engages in real
estate management and real estate appraisals.
The Association is a community-oriented savings association which
emphasizes customer service and convenience. As part of this strategy, the
Association has sought to develop a variety of products and services which meet
the needs of its retail customers. The Association generally has sought to
achieve long-term financial strength and stability by (i) increasing the amount
and stability of its net interest income, (ii) maintaining a high level of asset
quality, (iii) maintaining a high level of regulatory capital, and (iv)
maintaining low general, administrative and other expenses. In pursuit of these
goals, the Association has adopted a number of complementary business strategies
which emphasize retail lending and deposit products and services traditionally
offered by savings institutions. Highlights of the Association's business
strategy include the following:
5
<PAGE>
The Association is subject to examination and comprehensive regulation
by the OTS, which is the Association's chartering authority and primary
regulator, and by the FDIC, which as administrator of the SAIF insures the
Association's deposits up to applicable limits. The Association also is subject
to certain reserve requirements established by the Board of Governors of the
Federal Reserve System ("Federal Reserve Board") and is a member of the Federal
Home Loan Bank ("FHLB") of Indianapolis, which is one of the 12 regional banks
comprising the FHLB System. See "Regulation - The Association."
THE CONVERSION AND REORGANIZATION
The Boards of Directors of the Mutual Holding Company, the Association
and the Company have approved the Plan of Conversion, as has the OTS, subject to
approval by the Members of the Mutual Holding Company and the Stockholders of
the Association entitled to vote on the matter and the satisfaction of certain
other conditions. Such OTS approval, however, does not constitute a
recommendation or endorsement of the Plan by such agency.
General
The Boards of Directors of the Mutual Holding Company and the
Association unanimously adopted the Plan as of December 26, 1996, which was
amended on ________, 1997. The Plan has been approved by the OTS, subject to,
among other things, approval of the Plan by the Members of the Mutual Holding
Company and the Stockholders of the Association. The Members' Meeting and the
Stockholders' Meeting have been called for this purpose on ___________, 1997.
The following is a brief summary of pertinent aspects of the Plan and
the Conversion and Reorganization. The summary is qualified in its entirety by
reference to the provisions of the Plan, which is available for inspection at
each branch office of the Association and at the offices of the OTS. The Plan
also is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, copies of which may be obtained from the SEC.
Purposes of the Conversion and Reorganization
The Mutual Holding Company, as a federally chartered mutual holding
company, does not have stockholders and has no authority to issue capital stock.
As a result of the Conversion and Reorganization, the Company will be structured
in the form used by holding companies of commercial banks, most business
entities and a growing number of savings institutions. The holding company form
of organization will provide the Company with the ability to diversify the
Company's and the Association's business activities through acquisition of or
mergers with both stock savings institutions and commercial banks, as well as
other companies. Although there are no current arrangements, understandings or
agreements regarding any such opportunities, the Company will be
6
<PAGE>
in a position after the Conversion and Reorganization, subject to regulatory
limitations and the Company's financial position, to take advantage of any such
opportunities that may arise.
In their decision to pursue the Conversion and Reorganization, the
Mutual Holding Company and the Association considered various regulatory
uncertainties associated with the mutual holding company structure including the
ability to waive dividends in the future as well as the general uncertainty
regarding a possible elimination of the federal savings association charter.
The Conversion and Reorganization will be important to the future
growth and performance of the holding company organization by providing a larger
capital base to support the operations of the Association and Company and by
enhancing their future access to capital markets, their ability to diversify
into other financial services related activities, and their ability to provide
services to the public. Although the Association currently has the ability to
raise additional capital through the sale of additional shares of Association
Common Stock, that ability is limited by the mutual holding company structure
which, among other things, requires that the Mutual Holding Company hold a
majority of the outstanding shares of Association Common Stock.
The Conversion and Reorganization also will result in an increase in
the number of shares of Common Stock to be outstanding as compared to the number
of outstanding shares of Public Association Shares which will increase the
likelihood of the development of an active and liquid trading market for the
Common Stock. See "Market for Common Stock." In addition, the Conversion and
Reorganization will enhance the Association's ability to engage in stock
repurchases.
An additional benefit of the Conversion and Reorganization will be an
increase in the accumulated earnings and profits of the Association for federal
income tax purposes. When the Mutual Association transferred substantially all
of its assets and liabilities to the Association in connection with the MHC
Reorganization, its accumulated earnings and profits tax attribute was not able
to be transferred to the Association because no tax-free reorganization was
involved. Accordingly, this tax attribute was retained by the Mutual Association
when it converted its charter to that of the Mutual Holding Company, even though
the underlying retained earnings were transferred to the Association. The
Conversion and Reorganization has been structured to re-unite the accumulated
earnings and profits tax attribute retained by the Mutual Holding Company in the
MHC Reorganization with the retained earnings of the Association by merging the
Mutual Holding Company with and into the Association in a tax-free
reorganization. This transaction will increase the Association's ability to pay
dividends to the Company in the future. See "Dividend Policy."
If the Mutual Association had undertaken a standard conversion
involving the formation of a stock holding company in 1995, applicable OTS
regulations would have required a greater amount of common stock to be sold than
the amount of net proceeds raised in the MHC Reorganization. Management of
Montgomery believed that it was advisable to profitably invest the $2.1 million
of net proceeds raised in the MHC Reorganization prior to raising the larger
amount of capital that would have been raised in a standard conversion. A
standard conversion in 1995 also would have immediately eliminated all aspects
of the mutual form of organization.
7
<PAGE>
In light of the foregoing, the Boards of Directors of the Association
and the Mutual Holding Company believe that the Conversion and Reorganization is
in the best interests of such companies and their respective Stockholders and
Members.
Pursuant to OTS regulations, consummation of the Conversion and
Reorganization (including the offering of Conversion Stock in the Offerings, as
described below) is conditioned upon the approval of the Plan by (1) the OTS,
(2) at least a majority of the total number of votes eligible to be cast by
Members of the Mutual Holding Company at the Members' Meeting, and (3) holders
of at least two-thirds of the shares of the outstanding Association Common Stock
at the Stockholders' Meeting. In addition, the Primary Parties have conditioned
the consummation of the Conversion and Reorganization on the approval of the
Plan by at least a majority of the votes cast, in person or by proxy, by the
Public Stockholders at the Stockholders' Meeting.
Effects of the Conversion and Reorganization
General. Prior to the Conversion and Reorganization, each depositor in
the Association has both a deposit account in the institution and a pro rata
ownership interest in the net worth of the Mutual Holding Company based upon the
balance in his account, which interest may only be realized in the event of a
liquidation of the Mutual Holding Company. However, this ownership interest is
tied to the depositor's account and has no tangible market value separate from
such deposit account. A depositor who reduces or closes his account receives a
portion or all of the balance in the account but nothing for his ownership
interest in the net worth of the Mutual Holding Company, which is lost to the
extent that the balance in the account is reduced.
Consequently, the depositors of the Association normally have no way to
realize the value of their ownership interest in the Mutual Holding Company,
which has realizable value only in the unlikely event that the Mutual Holding
Company is liquidated. In such event, the depositors of record at that time, as
owners, would share pro rata in any residual surplus and reserves of the Mutual
Holding Company after other claims are paid.
Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock will be created to represent the ownership of the
net worth of the Company. The Common Stock of the Company is separate and apart
from deposit accounts and cannot be and is not insured by the FDIC or any other
governmental agency. Certificates are issued to evidence ownership of the
permanent stock. The stock certificates are transferable, and therefore the
stock may be sold or traded if a purchaser is available with no effect on any
account the seller may hold in the Association.
Continuity. While the Conversion and Reorganization is being
accomplished, the normal business of the Association of accepting deposits and
making loans will continue without interruption. The Association will continue
to be subject to regulation by the OTS and the FDIC. After the Conversion and
Reorganization, the Association will continue to provide services for depositors
and borrowers under current policies by its present management and staff.
8
<PAGE>
The directors and officers of the Association at the time of the
Conversion and Reorganization will continue to serve as directors and officers
of the Association after the Conversion and Reorganization. The directors and
officers of the Company consist of individuals currently serving as directors
and officers of the Mutual Holding Company and the Association, and they
generally will retain their positions in the Company after the Conversion and
Reorganization.
Effect on Public Association Shares. Under the Plan, upon consummation
of the Conversion and Reorganization, the Public Association Shares shall be
converted into Common Stock based upon the Exchange Ratio without any further
action on the part of the holder thereof. Upon surrender of the Public
Association Shares, Common Stock will be issued in exchange for such shares. See
"- Delivery and Exchange of Certificates."
Upon consummation of the Conversion and Reorganization, the Public
Stockholders of the Association, a federally chartered savings association will
become stockholders of the Company, an Indiana corporation. For a description of
certain changes in the rights of stockholders as a result of the Conversion and
Reorganization, see "Comparison of Stockholders' Rights" below.
Effect on Deposit Accounts. Under the Plan, each depositor in the
Association at the time of the Conversion and Reorganization will automatically
continue as a depositor after the Conversion and Reorganization, and each such
deposit account will remain the same with respect to deposit balance, interest
rate and other terms, except to the extent that funds in the account are
withdrawn to purchase Conversion Stock to be issued in the Offerings. Each such
account will be insured by the FDIC to the same extent as before the Conversion
and Reorganization. Depositors will continue to hold their existing
certificates, passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Association will be
affected by the Conversion and Reorganization, and the amount, interest rate,
maturity and security for each loan will remain as they were contractually filed
prior to the Conversion and Reorganization.
Effect on Voting Rights of Members. At present, all depositors of the
Association are members of, and have voting rights in, the Mutual Holding
Company as to all matters requiring membership action. Upon completion of the
Conversion and Reorganization, depositors will cease to be members and will no
longer be entitled to vote at meetings of the Mutual Holding Company (which will
cease to exist). Upon completion of the Conversion and Reorganization, all
voting rights in the Association will be vested in the Company as the sole
stockholder of the Association. Exclusive voting rights with respect to the
Company will be vested in the holders of Common Stock. Depositors of the
Association will not have voting rights in the Company after the Conversion and
Reorganization, except to the extent that they become stockholders of the
Company.
Tax Effects. Consummation of the Conversion and Reorganization is
conditioned on prior receipt by the Primary Parties of rulings or opinions with
regard to federal and Indiana income taxation which indicate that the adoption
and implementation of the Plan of Conversion set forth herein will not be
taxable for federal or Indiana income tax purposes to the Primary Parties or the
9
<PAGE>
Association's Eligible Account Holders, Supplemental Eligible Account Holders or
Other Members, except as discussed below. See "- Tax Aspects" below.
Effect on Liquidation Rights. Were the Mutual Holding Company to
liquidate, all claims of the Mutual Holding Company's creditors would be paid
first. Thereafter, if there were any assets remaining, Members of the Mutual
Holding Company would receive such remaining assets, pro rata, based upon the
deposit balances in their deposit accounts at the Association immediately prior
to liquidation. In the unlikely event that the Association were to liquidate
after the Conversion and Reorganization, all claims of creditors (including
those of depositors, to the extent of their deposit balances) also would be paid
first, followed by distribution of the "liquidation account" to certain
depositors (see "- Liquidation Rights" below), with any assets remaining
thereafter distributed to the Company as the holder of the Association's capital
stock. Pursuant to the rules and regulations of the OTS, a merger,
consolidation, sale of bulk assets or similar combination or transaction with
another insured institution would not be considered a liquidation for this
purpose and, in such a transaction, the liquidation account would be required to
be assumed by the surviving institution.
Effect on Existing Compensation Plans. Under the Plan, the
Association's existing Stock Incentive Plan, Directors' Stock Option Plan and
the Management Recognition Plan will become stock benefit plans of the Company
and shares of Common Stock will be issued (or reserved for issuance) pursuant to
such benefit plans rather than shares of Association Common Stock. See
"Management of the Association - Stock Benefit Plans."
Liquidation Rights
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor of the Association would
receive his pro rata share of any assets of the Mutual Holding Company remaining
after payment of claims of all creditors. Each depositor's pro rata share of
such remaining assets would be in the same proportion as the value of his
deposit account was to the total value of all deposit accounts in the
Association at the time of liquidation. After the Conversion and Reorganization,
each depositor, in the event of a complete liquidation of the Association, would
have a claim as a creditor of the same general priority as the claims of all
other general creditors of the Association. However, except as described below,
his claim would be solely in the amount of the balance in his deposit account
plus accrued interest. He would not have an interest in the value or assets of
the Association or the Company above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion and Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders in
an amount equal to the amount of any dividends waived by the Mutual Holding
Company plus the greater of (1) the Association's retained earnings of
$6,642,000 at March 31, 1995, the date of the latest statement of financial
condition contained in the final offering circular utilized in the MHC
Reorganization, or (2) 70.29% of the Association's total stockholders' equity as
reflected in its latest statement of financial condition contained in the final
Prospectus utilized in the Offerings. As of the date of this Prospectus, the
initial balance of the
10
<PAGE>
liquidation account would be $6.7 million. Each Eligible Account Holder and
Supplemental Eligible Account Holder, if he were to continue to maintain his
deposit account at the Association, would be entitled, upon a complete
liquidation of the Association after the Conversion and Reorganization to an
interest in the liquidation account prior to any payment to the Company as the
sole stockholder of the Association. Each Eligible Account Holder and
Supplemental Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, including passbook accounts,
transaction accounts such as checking accounts, money market deposit accounts
and certificates of deposit, held in the Association at the close of business on
September 30, 1995 or March 31, 1997, as the case may be. Each Eligible Account
Holder and Supplemental Eligible Account Holder will have a pro rata interest in
the total liquidation account for each of his deposit accounts based on the
proportion that the balance of each such deposit account on the September 30,
1995 Eligibility Record Date (or the March 31, 1997 Supplemental Eligibility
Record Date, as the case may be) bore to the balance of all deposit accounts in
the Association on such date.
If, however, on any June 30 annual closing date of the Association,
commencing June 30, 1997, the amount in any deposit account is less than the
amount in such deposit account on September 30, 1995 or March 31, 1997, as the
case may be, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Association.
Required Approvals
Various approvals of the OTS are required in order to consummate the
Conversion and Reorganization. The OTS has approved the Plan of Conversion,
subject to approval by the Mutual Holding Company's Members and the
Association's Stockholders. In addition, consummation of the Conversion and
Reorganization is subject to OTS approval of the Company's application to
acquire all of the to-be-outstanding Association Common Stock and the
applications with respect to the merger of the Mutual Holding Company (following
its conversion to a federal interim stock savings institution) into the
Association and the merger of Interim into the Association, with the Association
being the surviving entity in both mergers. Applications for these approvals
have been filed and are currently pending. There can be no assurances that the
requisite OTS approvals will be received in a timely manner, in which event the
consummation of the Conversion and Reorganization may be delayed beyond the
expiration of the Offerings.
Pursuant to OTS regulations, the Plan of Conversion also must be
approved by (1) at least a majority of the total number of votes eligible to be
cast by Members of the Mutual Holding Company at the Members' Meeting, and (2)
holders of at least two-thirds of the outstanding Association Common Stock at
the Stockholders' Meeting. In addition, the Primary Parties have conditioned the
consummation of the Conversion and Reorganization on the approval of the Plan
11
<PAGE>
by at least a majority of the votes cast, in person or by proxy, by the Public
Stockholders at the Stockholders' Meeting.
MANAGEMENT OF THE COMPANY
Directors and Executive Officers
The Board of Directors of the Company consists of Earl F. Elliott, J.
Lee Walden, John E. Woodward, Mark E. Foster, Joseph M. Malott, C. Rex Henthorn
and Robert C. Wright, all of whom are current members of the Board of Directors
of the Association. See "Management of the Association - Directors." Each
Director of the Company has served as such since the Company's incorporation in
1997. Directors of the Company will serve three-year staggered terms so that
approximately one-third of the directors will be elected at each annual meeting
of stockholders. The terms of the current directors of the Company are the same
as their terms as directors of the Association. The Company does not intend to
pay directors a fee for participation on the Board of Directors of the Company.
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The executive
officers of the Company are also executive officers of the Association. It is
not anticipated that the executive officers of the Company will receive any
remuneration in their capacity as Company executive officers.
The following individuals are executive officers of the Company and
hold the offices set forth opposite their names.
Name Position(s) Held With the Company
---- ---------------------------------
Earl F. Elliott President and Chief Executive Officer
J. Lee Walden Vice President and Chief Financial Officer
Nancy L. McCormick Secretary and Treasurer
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, retirement, resignation or removal by the Board of Directors.
Information concerning the principal occupations and employment of the
directors and executive officers of the Company during the past five years is
set forth under "Management of the Association - Directors" and "Executive
Officer Who Is Not A Director." Directors and executive
12
<PAGE>
officers of the Company initially will not be compensated by the Company but
will serve and be compensated by the Association.
Benefits
General. Montgomery currently provides health care benefits to its
employees, including hospitalization, disability and major medical insurance,
subject to certain deductibles and copayments by employees.
Incentive Bonus Plan. The Association has an incentive bonus plan which
provides for annual cash bonuses to certain officers as a means of recognizing
achievement on the part of such employees. The bonuses are determined based on a
combination of Montgomery's and the individual employee's performance during the
year. The Association's bonus expense was $13,000 for the fiscal year ended June
30, 1996.
401(k) Plan. In connection with the termination of its defined benefit
pension plan, the Association has a qualified, tax-exempt pension plan with a
"cash-or-deferred arrangement" qualifying under Section 401(k) of the Internal
Revenue Code (the "401(k) Plan"). With certain exceptions, all employees who
have attained age 21 and who have completed one year of employment, during which
they worked at least 1,000 hours, are eligible to participate in the 401(k) Plan
as of the earlier of the first day of the plan year or the next July 1 or
January 1. Eligible employees are permitted to contribute up to 15% of their
compensation to the 401(k) Plan on a pre-tax basis, up to a maximum of $8,728.
The Association matches 100% of the first 7% of each participant's salary
reduction contribution to the 401(k) Plan.
Participant contributions to the 401(k) Plan are fully and immediately
vested. Withdrawals are not permitted before age 59 1/2 except in the event of
death, disability, termination of employment or reasons of proven financial
hardship. With certain limitations, participants may make withdrawals from their
accounts while actively employed. Upon termination of employment, the
participant's accounts will be distributed, unless he or she elects to defer the
payment.
The 401(k) Plan may be amended by the Board of Directors, except that
no amendment may be made which would reduce the interest of any participant in
the 401(k) Plan trust fund or divert any of the assets of the 401(k) Plan trust
fund to purposes other than the benefit of participants or their beneficiaries.
The Association's accrued expense for the Plan was $23,000 for the six months
ended December 31, 1996 and $45,000 for year ended June 30, 1996 ^.
Employee Stock Ownership Plan. The Boards of Directors of Montgomery
and the Company have approved the adoption of an ESOP for the benefit of
employees of the Company and its subsidiaries, including Montgomery. The ESOP is
designed to meet the requirements of an employee stock ownership plan as
described at Section 4975(e)(7) of the Code and Section 407(d)(6) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The ESOP
may borrow in order to finance purchases of the Company's Common Stock.
13
<PAGE>
It is anticipated that the ESOP will be funded with a loan from the
Company (not to exceed an amount equal to 8% of the total number of shares of
Common Stock to be outstanding upon completion of the Conversion and
Reorganization). The interest rate of the ESOP loan will be equal to the prime
rate of interest on the date the loan is made.
GAAP generally requires that any borrowing by the ESOP from an
unaffiliated lender be reflected as a liability in the Company's consolidated
financial statements, whether or not such borrowing is guaranteed by, or
constitutes a legally binding contribution commitment of, the Company or the
Association. The funds used to acquire the ESOP shares are expected to be
borrowed from the Company. If the Company finances the ESOP debt, the ESOP debt
will be eliminated through consolidation and no liability will be reflected on
the Company's consolidated financial statements. In addition, shares purchased
with borrowed funds will, to the extent of the borrowings, be excluded from
stockholders' equity, representing unearned compensation to employees for future
services not yet performed. Consequently, if the ESOP purchases already- issued
shares in the open market, the Company's consolidated liabilities will increase
to the extent of the ESOP's borrowings, and total and per share stockholders'
equity will be reduced to reflect such borrowings. If the ESOP purchases newly
issued shares from the Company, total stockholders' equity would neither
increase nor decrease, but per share stockholders' equity and per share net
income would decrease because of the increase in the number of outstanding
shares. In either case, as the borrowings used to fund ESOP purchases are
repaid, total stockholders' equity will correspondingly increase.
All employees of the Association are eligible to participate in the
ESOP after they attain age 21 and complete one year of service. Employees will
be credited for years of service to the Association prior to the adoption of the
ESOP for participation and vesting purposes. The Association's contribution to
the ESOP is allocated among participants on the basis of compensation. Each
participant's account will be credited with cash and shares of Company Common
Stock based upon compensation earned during the year with respect to which the
contribution is made. Contributions credited to a participant's account are
vested on a graduated basis and become fully vested when such participant
completes ten years of service. ESOP participants are entitled to receive
distributions from their ESOP accounts only upon termination of service.
Distributions will be made in cash and in whole shares of the Company's Common
Stock. Fractional shares will be paid in cash. Participants will not incur a tax
liability until a distribution is made.
Each participating employee is entitled to instruct the trustee of the
ESOP as to how to vote the shares allocated to his or her account. The trustee
will not be affiliated with the Company or Montgomery.
The ESOP may be amended by the Board of Directors, except that no
amendment may be made which would reduce the interest of any participant in the
ESOP trust fund or divert any of the assets of the ESOP trust fund to purposes
other than the benefit of participants or their beneficiaries.
14
<PAGE>
Other Stock Benefit Plans. The Company intends to adopt certain stock
benefit plans following consummation of the Conversion and Reorganization.
Moreover, existing stock benefit plans of the Association, consisting of the
1995 Stock Incentive Plan, 1995 Directors' Stock Option Plan and the Management
Recognition Plan, will be adopted by the Company in connection with the
Conversion and Reorganization, with the effect that shares of Common Stock will
be issuable pursuant thereto and not shares of Association Common Stock.
1997 Stock Option Plan. The Board of Directors of the Company intends
to adopt the 1997 Stock Option Plan (the "1997 Plan") and may submit the 1997
Plan to stockholders at an annual or special meeting of stockholders to be held
at least six months following the consummation of the Conversion and
Reorganization.
The 1997 Plan is designed to attract and retain qualified personnel key
positions, provide directors, officers and key employees with a proprietary
interest in the Company as an incentive to contribute to the success of the
Company and reward key employees for outstanding performance and the attainment
of targeted goals. Options granted under the 1997 Plan may be either options
that qualify under the Code as "incentive stock options" (options that afford
preferable tax treatment to recipients upon compliance with certain restrictions
and that do not normally result in tax deductions to the employer) or options
that do not so qualify. The exercise price of stock options granted under the
1997 Plan is required to be at least equal to the fair market value per share of
the stock on the date of grant. All grants will be made in consideration of past
and future services rendered to the Association, and in an amount deemed
appropriate to encourage the continued retention of the officers and directors
who are considered necessary for the continued success of the Association.
The 1997 Plan provides for the grant of stock appreciation rights
("SARs") at any time, whether or not the participant then holds stock options,
granting the right to receive the excess of the market value of the shares
represented by the SARs on the date exercised over the exercise price. SARs
generally will be subject to the same terms and conditions and exercisable to
the same extent as stock options.
Limited SARs may be granted at the time of, and must be related to, the
grant of a stock option or SAR. The exercise of one will reduce to that extent
the number of shares represented by the other. Limited SARs will be exercisable
only for the 45 days following the expiration of the tender or exchange offer,
during which period the related stock option or SAR will be exercisable.
However, no SAR or Limited SAR will be exercisable by a 10% beneficial owner,
director or senior officer within six months of the date of its grant. The
Company has no present intention to grant any SARs or Limited SARs.
The 1997 Plan will be administered by the Company's Stock Plan
Committee which will consist of at least two non-employee directors. The Stock
Plan Committee will select the recipients and terms of awards made pursuant to
the Stock Option Plan. Assuming the 1997 Plan is submitted to stockholders prior
to one year following the consummation of the Conversion and Reorganization, OTS
regulations limit the amount of shares that may be awarded pursuant to such
stock-based plans
15
<PAGE>
to each individual officer, each non-employee director and all non-employee
directors as a group to 25%, 5% and 30%, respectively, of the total shares
reserved for issuance under each such stock- based plan. In addition, all
options would be required to vest in five equal annual installments, commencing
one year from the date of grant, subject to the continued service of the holder
of such option.
The 1997 Plan is intended to be funded either with shares purchased in
the open market or with authorized but unissued shares of Common Stock. The use
of authorized but unissued shares to fund the 1997 Plan could dilute the
holdings of stockholders who purchase Conversion Stock in the Offerings. See
"Pro Forma Data."
1997 Recognition Plan. The Company intends to establish the 1997
Recognition Plan in order to provide employees with a proprietary interest in
the Company in a manner designed to encourage such persons to remain with the
Company and the Association. The 1997 Recognition Plan may be subject to
ratification by stockholders at a meeting to be held not earlier than six months
after the completion of the Conversion and Reorganization. The Company will
contribute funds to the 1997 Recognition Plan to enable it to acquire in the
open market or from authorized but unissued shares (with the decision between
open market or authorized but unissued shares based on the Company's future
stock price, alternative investment opportunities and capital needs), following
stockholder ratification of such plan, an amount of stock equal to 4.0% of the
shares of Common Stock to be outstanding upon consummation of the Conversion and
Reorganization, less the number of shares in the Management Recognition Plan.
The Stock Plan Committee of the Board of Directors of the Company will
administer the proposed 1997 Recognition Plan. Under the terms of the proposed
1997 Recognition Plan, awards ("Awards") can be granted to key employees in the
form of shares of Common stock held by the 1997 Recognition Plan. Awards are
non-transferable and non-assignable. In the event the 1997 Recognition Plan is
submitted to a vote of stockholders prior to one year following consummation of
the Conversion and Reorganization, OTS regulations limit the amount of shares
that may be awarded pursuant to such stock-based plans to each individual
officer, each non-employee director and all non-employee directors as a group to
25%, 5% and 30%, respectively, of the total shares reserved for issuance under
each such stock-based plan.
Recipients will earn (i.e., become vested in), over a period of time,
the shares of Common Stock covered by the Award. Awards made pursuant to the
1997 Recognition Plan will best in five equal annual installments commencing one
year from the date of grant. Awards will be 100% vested upon termination of
employment due to death or disability. In addition, no awards under the 1997
Recognition Plan to directors and executive officers shall vest in any year in
which the Association is not meeting all of its fully phased-in capital
requirements. When shares become vested and are actually distributed in
accordance with the 1997 recognition Plan, but in no event prior to such time,
the participants will also receive amounts equal to any accrued dividends with
respect thereto. Earned shares are distributed to recipients as soon as
practicable following the date on which they
16
<PAGE>
are earned. No determination has been made regarding any possible grants under
the 1997 Recognition Plan.
Employment Agreements. The Association intends to enter into employment
agreements with Chief Executive Officer Elliott and President Walden providing
for an initial term of three years. The agreements have been filed with the OTS
as part of the application of the Company for approval to become a savings and
loan holding company. The employment agreements become effective upon completion
of the Conversion and Reorganization and provide for an annual base salary in an
amount not less than each individual's respective current salary and provide for
an annual extension subject to the performance of an annual formal evaluation by
disinterested members of the Board of Directors of the Association. The
agreements also provide for termination upon the employee's death, for cause or
in certain events specified by OTS regulations. The employment agreements are
also terminable by the employee upon 90 days's notice of the Association.
The employment agreements each provide for payment in an amount equal
to 299% of the five-year annual average base compensation, in the event there is
a "change in control" of the Association where employment involuntarily
terminates in connection with such change in control or within twelve months
thereafter. for the purposes of the employment agreements, a "change in control"
is defined as any event which would require the filing of an application for
acquisition of control or notice of change in control pursuant to 12 C.F.R. ss.
574.3 or 4. Such events are generally triggered prior to the acquisition or
control of 10% of the Company's Common Stock. See "restrictions on Acquisitions
of Stock and Related Takeover Defensive Provisions." If the employment of Chief
Executive Officer Elliott or President Walden had been terminated as of December
31, 1996 under circumstances entitling them to severance pay as described above,
they would have been entitled to receive a lump such cash payment of
approximately $________ and $______, respectively. The agreements also provide
for the continued payment to each employee of health benefits for the remainder
of the term of their contract in the event such individual is involuntarily
terminated in the event of change in control.
MANAGEMENT OF THE ASSOCIATION
Directors
The Association's Bylaws presently provide that the Board of Directors
consists of seven members and require the Board of Directors to be divided into
three classes as nearly equal in number as possible. The members of each class
are elected for a term of three years or until their successors are elected and
qualified, with one class of directors elected annually. The following table
sets forth certain information regarding the Board of Directors of the
Association.
17
<PAGE>
The following table sets forth certain information regarding the
directors of the Association.
Position(s) Held Director Term
Name With the Association Age(1) Since Expires
- ---- -------------------- ------ -------- -------
Earl F. Elliott ......... Chairman of the Board and 63 1973 1997
Chief Executive Officer
Mark E. Foster .......... Director 44 1990 1997
Robert C. Wright ........ Director 52 1996 1997
Joseph M. Malott ........ Director 59 1978 1998
J. Lee Walden ........... Director, President and 48 1995 1998
Chief Financial Officer
John E. Woodward ........ Director 68 1975 1999
C. Rex Henthorn ......... Director 59 1981 1999
- -------------------
(1) At December 31, 1996.
The business experience of each director is set forth below. All
directors have held their present positions for at least the past five years,
except as otherwise indicated.
Earl F. Elliott. Mr. Elliott is currently the Chairman of the Board of Directors
and Chief Executive Officer of the Association. Mr. Elliott first joined the
Association in 1973.
Mark E. Foster. Mr. Foster is the General Manager of a retail farm equipment and
automobile dealership located in Montgomery County, Indiana, a position he has
held since 1983.
Robert C. Wright. Mr. Wright is the owner and manager of a restaurant located in
Montgomery County, Indiana, a position he has held since 1975.
Joseph M. Malott. For the past five years, Mr. Malott has been self-employed as
a consultant to financial institutions.
J. Lee Walden. Mr. Walden is currently the Association's President and Chief
Financial Officer. Mr Walden first joined the Association in 1984.
John E. Woodward. Mr. Woodward is the President of a collection agency and
credit reporting bureau located in Montgomery County, Indiana, a position he has
held since 1959.
C. Rex Henthorn. Since 1963, Mr. Henthorn has practiced law in the State of
Indiana.
18
<PAGE>
Executive Officers
The following table sets forth certain information relating to the
executive officers of Montgomery as of December 31, 1996.
Name Age Offices Held
---- --- ------------
Earl F. Elliott ......... 63 Chairman of the Board and Chief
Executive Officer
J. Lee Walden ........... 48 President & Chief Financial Officer
Nancy L. McCormick ...... 41 Senior Vice President and Secretary
Executive Officer Who Is Not A Director
Nancy L. McCormick, age 41, is the Association's Senior Vice President and
Secretary. Ms. McCormick first joined the Association in 1984 as its Secretary.
Ms. McCormick is the custodian of the Association's records and assists the
Chief Executive Officer in various management duties.
Officers are elected annually by the Board of Directors and serve for a
one-year period and until their successors are elected. No officers have
employment contracts. There are no family relationships between or among the
persons named. Each of the officers has held the same or similar position with
Montgomery for the past five years.
Supplemental Retirement Plan
The Association provides for a Supplemental Retirement Benefit to Mr.
Elliott. The Benefit consisted of life insurance on Mr. Elliott's life equal in
amount to twice his annual salary in the event of his death prior to retirement.
In addition, the Association has agreed to pay Mr. Elliott a cash retirement
payment, payable either in a lump sum within 30 days after his date of
retirement or, at his election, in equal annual installments of not less than
$20,000 over such period of time as he shall elect, in an amount determined
pursuant to the following table:
Retirement Date
Occurs after Amount of Cash
December 31 of: Retirement Payment
--------------- ------------------
1994 $ 40,000
1995 60,000
1996 80,000
1997 100,000
19
<PAGE>
As a condition to his receiving the above-indicated cash retirement payments,
Mr. Elliott will be required to enter into a written consulting agreement with
the Association obligating him, during the remainder of his lifetime but subject
to such limitation as his physical condition might impose, to render such
reasonable business consulting and advisory services to the Association as the
Board might request, and further obligating him not to enter into or engage in
any activity or enterprise that would directly or indirectly involve substantial
competition with the Association.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial data as of and for the
periods ended June 30, 1996, 1995, 1994, 1993 and 1992 have been derived from
the audited consolidated financial statements of Montgomery. The selected
consolidated financial data as of December 31, 1996 and for the six months ended
December 31, 1996 and 1995 have been derived from the unaudited consolidated
financial statements of Montgomery which, in the opinion of management, reflect
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the financial position and results of operations for
these periods. The operating results for the six months ended December 31, 1996
are not necessarily indicative of the results that may be expected for the year
ending June 30, 1997. The financial data presented below is qualified in its
entirety by the more detailed financial data appearing elsewhere herein,
including Montgomery's audited financial statements.
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Summary of Financial Condition:
Total assets........................ $94,623 $88,211 $87,324 $79,633 $73,862 $66,722
Interest-bearing deposits in
other financial institutions...... 5,766 3,607 3,871 1,735 4,735 2,123
Investment securities
available for sale(1) ............ 52 312 803 1,781 1,762 3,509
Loans, receivable, net.............. 83,770 80,074 77,929 72,215 63,566 57,417
Deposits............................ 72,343 69,709 68,286 62,346 64,681 60,631
Borrowings........................... 11,928 8,000 10,868 10,338 2,730 250
Stockholders' equity................ 9,082 9,127 6,678 6,290 5,686 5,354
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Nine
Six Months Ended Months
December 31, Year Ended June 30, Ended
----------------- -------------------------------------- June 30,
1996 1995 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operating Results:
Interest income(2)........................ $3,532 $3,373 $6,777 $6,178 $5,594 $5,796 $4,479
Interest expense.......................... 2,201 2,281 4,434 3,907 3,107 3,338 2,855
------ ------ ------ ------ ------ ------ ------
Net interest income.................... 1,331 1,092 2,343 2,271 2,487 2,458 1,624
Provision (adjustment) for losses on loans.. --- (26) 20 (15) 25 38 36
------ ------ ------ ------ ------ ------ ------
Net interest income after provision
for losses on loans................... 1,331 1,118 2,323 2,286 2,462 2,420 1,588
Other income................................ 18 35 23 79 147 162 112
Other expenses:
Salaries and employee benefits............ 449 471 879 902 833 825 533
Other..................................... 864 455 871 847 823 764 525
------ ------ ------ ------ ------ ------ ------
Total non-interest expense.............. 1,313 926 1,750 1,749 1,656 1,589 1,058
------ ------ ------ ------ ------ ------ ------
Income before income tax and cumulative
effect of change in accounting method...... 36 227 596 616 953 993 642
Income tax expense.......................... 19 79 165 231 349 433 247
------ ------ ------ ------ ------ ------ ------
Income before cumulative effect of change
in accounting method..................... 17 148 431 385 604 560 395
Cumulative effect of change in accounting
method.................................. --- --- --- --- --- 228 ---
------ ------ ------ ------ ------ ------ ------
Net income............................ $ 17 $ 148 $ 431 $ 385 $ 604 $ 332 $ 395
====== ====== ====== ====== ====== ====== ======
Net income per share........................ $ 0.02 --- --- --- --- --- ---
Net income per share without the special SAIF
assessment................................. 0.32 --- --- --- --- --- ---
Dividends declared per share................ 0.20 $ 0.10 $0.30 --- --- --- ---
Dividend pay out ratio...................... 100.00% --- --- --- --- --- ---
Performance Ratios:
Return on average assets(3)(4))(5).......... 0.32% 0.34% 0.49% 0.46% 0.79% 0.46% 0.80%
Return on average equity(3)(4)(6)........... 3.19 3.48 4.89 5.78 9.90 5.67 10.25
Average equity to average assets............ 10.10 9.64 9.99 7.91 7.96 8.19 7.76
Equity to assets at end of period........... 9.60 10.20 10.35 7.65 7.90 7.70 8.02
Interest rate spread(3)(4)(7)............... 2.59 2.12 2.27 2.54 3.19 3.38 3.12
Asset Qaulity Ratio:
Non-performing assets to total assets ...... .40 1.00 .92 1.08 .66 1.19 1.00
Allowance for loan losses to net loans
receivable at end of period ............... .19 .14 .20 .18 .22 .21 .17
Allowance for loan losses to non-performing
loans at end of period .................... 50.32 5.38 24.96 16.89 29.98 20.24 26.46
Net interest margin(3)(4)(8)................ 3.05 2.59 2.77 2.82 3.41 3.61 3.43
Non-performing loans to total loans......... 0.37 0.93 .83 1.05 .73 1.03 0.62
Average interest-earning assets to average
interest-bearing liabilities............... 109.26 108.78 109.47 105.78 104.96 104.61 104.96
Non-interest expenses to average assets(3)(4) 2.41 2.10 1.98 2.08 2.16 2.22 2.13
Net interest income after provision for loan
losses to non-interest expenses(3)(4)...... 1.21x 1.21x 1.33x 1.31x 1.49x 1.52x 1.50x
<FN>
- ------------------
(1) Investment securities are all available for sale beginning July 1, 1994,
due to the adoption of Statement of Financial Accounting, Standards No. 115
("SFAS 115" ). These securities are recorded at fair value and at December
31, 1996 this resulted in no change in total equity, at June 30, 1996 this
resulted in a decrease of $57,000 in total equity capital and at June 30,
1995 this resulted in an increase in total equity capital of $3,000.
(2) Loan origination fees are included in interest income, on a deferral basis.
(3) Information for the six months ended December 31, 1996, has been annualized
with the exception of the effect of the one time Savings Association
Insurance Fund ("SAIF") special assessment of $428,000 included in other
expenses, net of an income tax adjustment of $169,000 affecting net income
in the amount of $259,000 for the six month period. Information for the six
months ended December 31, 1995, has been annualized with no exceptions.
(4) Information for the nine months ended June 30, 1992 has been annualized.
(5) Net income divided by average total assets.
(6) Net income divided by average total equity.
(7) Interest rate spread is calculated by subtracting combined weighted average
interest rate cost from combined weighted average interest rate earned for
the period indicated.
(8) Net interest income divided by average
interest-earning assets.
</FN>
</TABLE>
21
<PAGE>
USE OF PROCEEDS
Net proceeds from the sale of the Conversion Stock are estimated to be
between $7.4 million and $10.1 million ($11.7 million assuming an increase in
the Offering Price Range by 15%). See "Pro Forma Data" as to the assumptions
used to arrive at such amounts.
The Company plans to contribute to the Association 50% of the net
proceeds from the Offerings and retain the remainder of the net proceeds. The
net proceeds will be initially used to invest primarily in short-term
interest-bearing deposits and marketable securities. The Company intends to use
a portion of the net proceeds to make a loan directly to the ESOP to enable the
ESOP to purchase Conversion Stock equal to 8.0% of the Common Stock to be
outstanding upon consummation of the Conversion and Reorganization. Based upon
the issuance of 85,000 shares and 115,000 shares at the minimum and maximum of
the Offering Price Range, respectively, the loan to the ESOP would be $.9 and
$1.2 million, respectively. It is anticipated that the loan to the ESOP will
have a term of not less than ten years and a fixed rate of interest at the prime
rate as of the date of the loan. See "Management of the Association -- Benefit
Plans -- Employee Stock Ownership Plan." The net proceeds retained by the
Company also may be used to support the future expansion of operations or
diversification into other banking-related businesses and for other business or
investment purposes, including the acquisition of other financial institutions
and/or branch offices, although there are no current plans, arrangements,
understandings or agreements regarding such expansion, diversification or
acquisitions. In addition, subject to applicable regulatory limitations, the net
proceeds also may be used to repurchase shares of Common Stock, although the
Company currently has no intention of effecting any such transactions following
consummation of the Conversion and Reorganization. See "The Conversion and
Reorganization - Certain Restrictions on Purchase or Transfer of Shares after
the Conversion and Reorganization." The portion of the net proceeds contributed
to the Association will be used for general corporate purposes, primarily
investment in residential real estate loans (and will be initially used to
invest primarily in short-term interest-bearing deposits and marketable
securities) since loan growth in excess of deposit growth has caused Montgomery
to use proceeds from the maturity of investment securities to fund loan growth
due to the potential income on investment securities being below the actual cost
of other sources of loan funding.
DIVIDEND POLICY
Upon completion of the Conversion and Reorganization, the Board of
Directors of the Company will have the authority to declare dividends on the
Common Stock, subject to statutory and regulatory requirements. Following
consummation of the Conversion and Reorganization, the Board of Directors of the
Company intends to pay cash dividends on the Common Stock at an initial
quarterly rate equal to $0.10 per share divided by the Exchange Ratio. Based
upon the Valuation Price Range, the Exchange Ratio is expected to be 1.1000,
1.2941, 1.4882 and 1.7115 at the minimum, midpoint, maximum and 15% above the
maximum of the Valuation Price Range, respectively, resulting in an initial
quarterly dividend rate of $.091, $.077, $.067 and $.058 per share,
respectively, commencing with the first full quarter following consummation of
the Conversion and Reorganization. Declarations of dividends by the Board of
Directors will depend upon a number of factors, including the amount of the net
proceeds from the Offerings retained by the Company, investment opportunities
available to the Company or the Association, capital requirements, regulatory
limitations, the Company's and the Association's financial condition and
22
<PAGE>
results of operations, tax considerations and general economic conditions.
Consequently, there can be no assurance that dividends will in fact be paid on
the Common Stock or that, if paid, such dividends will not be reduced or
eliminated in future periods. The Association intends to continue to pay regular
quarterly dividends through either the date of consummation of the Conversion
and Reorganization (on a pro rata basis) or the end of the fiscal quarter during
which the consummation of the Conversion and Reorganization occurs. Declarations
of dividends by the Company's Board of Directors will depend upon a number of
factors, including the amount of the net proceeds from the Offerings retained by
the Company, investment opportunities available to the Company or the
Association, capital requirements, regulatory limitations, the Company's and the
Association's financial condition and results of operations, tax considerations
and general economic conditions. Consequently, there can be no assurance that
dividends will in fact be paid on the Common Stock or that, if paid, such
dividends will not be reduced or eliminated in future periods. The Association
intends to continue to pay regular quarterly dividends through either the date
of consummation of the Conversion and Reorganization (on a pro rata basis) or
the end of the fiscal quarter during which the consummation of the Conversion
and Reorganization occurs.
Dividends from the Company will depend, in part, upon receipt of
dividends from the Association, because the Company initially will have no
source of income other than dividends from the Association and earnings from the
investment of proceeds from the sale of Conversion Stock retained by the
Company. A regulation of the OTS imposes limitations on "capital distributions"
by savings institutions, including cash dividends, payments by a savings
institution to repurchase or otherwise acquire its stock, payments to
stockholders of another savings institution in a cash-out merger and other
distributions charged against capital. The regulation establishes a three-tiered
system, with the greatest flexibility being afforded to well-capitalized or Tier
1 savings institutions and the least flexibility being afforded to
under-capitalized or Tier 3 savings institutions. As of December 31, 1996, the
Association was a Tier 1 savings institution and is expected to continue to so
qualify immediately following the consummation of the Conversion and
Reorganization.
Any payment of dividends by the Association to the Company which would
be deemed to be a distribution from the Association's pre-1988 bad debt reserves
for federal income tax purposes would require a payment of taxes at the
then-current tax rate by the Association on the amount of earnings deemed to be
removed from the reserves for such distribution (at December 31, 1996, the
Association's retained earnings and bad debt reserves for federal income tax
purposes amounted to $6.9 million and $1.6 million, respectively, and as a
result for tax purposes (but not regulatory purposes) the Association could
declare approximately $5.3 million of dividends without having to pay taxes on
its bad debt reserves for federal income tax purposes). The Association has no
current intention of making any distribution that would create such a federal
tax liability either before or after the Conversion and Reorganization.
Unlike the Association, the Company is not subject to the
aforementioned regulatory restrictions on the payment of dividends to its
stockholders, although the source of such dividends will be, in part, dependent
upon dividends from the Association in addition to the net proceeds retained by
the Company and earnings thereon. The Company is subject, however, to the
requirements of Indiana law.
23
<PAGE>
MARKET FOR COMMON STOCK
The Company has never issued capital stock (other than 100 shares
issued to the Association, which will be cancelled upon consummation of the
Conversion and Reorganization), and to date an active and liquid trading market
has not developed for the 250,000 Public Association Shares outstanding prior to
the Offerings. Consequently, there is no established market for the Common Stock
at this time. The Company has applied to have its Common Stock quoted on the
Nasdaq SmallCap Market under the symbol "____." The development of a liquid
public market depends on the existence of willing buyers and sellers, the
presence of which is not within the control of the Company, the Association or
any market maker. Accordingly, there can be no assurance that an active and
liquid trading market for the Common Stock will develop or that, if developed,
it will continue. Therefore, investors in the Common Stock could have difficulty
disposing of their shares and should not view the Common Stock as a short-term
investment. The absence of an active and liquid trading market for the Common
Stock could affect the price and liquidity of the Common Stock.
Quotation on the Nasdaq SmallCap Market is dependent upon, among other
things, the Company having at least two market makers for the Common Stock and a
minimum number of stockholders of record. Based upon the minimum of 787,500
shares of Conversion Stock being offered, the minimum of 250,000 Exchange Shares
to be issued, and the anticipated pro forma ownership of officers and directors,
the Company expects to satisfy the required minimum number of stockholders of
record. Although under no obligation to do so, Keefe, Bruyette & Woods, Inc. has
informed the Company that it intends, upon the completion of the Conversion and
Reorganization, to make a market in the Common Stock by maintaining bid and ask
quotations and trading in the Common Stock so long as the volume of trading
activity and certain other market making considerations justify it doing so.
While the Company has attempted to obtain commitments from other broker-dealers
to act as market makers, and anticipates that prior to the completion of the
Conversion and Reorganization, it will be able to obtain the commitment from at
least one other broker-dealer to act as a market maker for the Common Stock,
there can be no assurance there will be two or more market makers for the Common
Stock. Making a market 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. Accordingly, there can be no assurance that an active and liquid
trading market for the Common Stock will develop or that, if developed, it will
continue.
CAPITALIZATION
The following table presents the historical consolidated capitalization of the
Association at December 31, 1996, and the pro forma consolidated capitalization
of the Company after giving effect to the Conversion and Reorganization, based
upon the sale of the number of shares shown below, the issuance of Exchange
Shares and the other assumptions set forth under "Pro Forma Data."
24
<PAGE>
<TABLE>
<CAPTION>
The Company - Pro Forma
Based Upon Sale at $10.00 per share
----------------------------------------------------
1,225,257
The 787,500 926,470 1,065,441 Shares(1)
Association Shares Shares Shares (15% above
Historical (Minimum of (Midpoint of (Maximum of Maximum of
Capitalization Range) Range) Range) Range)
-------------- ----------- ------------ ----------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2)................................. $72,343 $72,343 $72,343 $72,343 $72,343
Borrowings(3)............................... 11,928 11,928 11,928 11,928 11,928
Debt in connection with acquisition of
Common Stock by ESOP...................... --- --- --- --- ---
------- ------- ------- ------- -------
Total deposits and borrowings........ $84,271 $84,271 $84,271 $84,271 $84,271
======= ======= ======= ======= =======
Stockholders' Equity:
Preferred Stock ($0.01 par value)
2,000,000 shares authorized; none to be
issued.................................. $ --- $ --- $ --- $ --- $ ---
Common Stock ($0.01 par value)
8,000,000 shares authorized; 850,000
issued or to be issued as reflected(4).. 9 11 13 14 17
Additional paid-in capital(5)............. 2,194 9,598 10,965 12,331 13,902
Retained earnings(5)(6)................... 6,891 6,891 6,891 6,891 6,891
Less:
Net unrealized loss on securities
available for sale(5)................... --- --- --- --- ---
Unearned Common Stock held by the
Management Recognition Plan............. (12) --- --- --- ---
Common Stock to be acquired by the
1997 Recognition Plan................... --- 850 1,000 1,150 1,323
Common Stock to be acquired by the
ESOP.................................... --- 425 500 575 ---
------- ------- ------- ------- -------
Total Stockholders' Equity........... $ 9,082 $15,225 $16,369 $17,511 $18,826
======= ======= ======= ======= =======
<FN>
- ---------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Offering Price Range of up to 15% to
reflect changes in market and financial conditions following the
commencement of the Offerings or pursuant to an overallotment option which
the Company intends to grant Webb in the Public Offering, if any.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Conversion Stock in the Offerings. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Consists of FHLB advances.
(4) Assumes (i) that the 250,000 Public Association Shares outstanding at
December 31, 1996 are converted into _______, _______, _______ and _______
Exchange Shares at the minimum, midpoint, maximum and 15% above the maximum
of the Offering Price Range, respectively, and (ii) that no fractional
shares of Exchange Shares will be issued by the Company. No effect has been
given to the issuance of additional shares of Common Stock pursuant to
existing and proposed stock benefit plans. See "Pro Forma Data,"
"Management of the Association - Benefit Plans."
(5) The pro forma additional paid-in capital and retained earnings reflect a
restriction of the original retained earnings of the Association prior to
the MHC Reorganization. The pro forma additional paid-in capital reflects
the $103,000 to be acquired by the Association upon the merger of the
Mutual Holding Company (following its conversion to a federal interim stock
savings institution) with and into the Association.
(6) The retained earnings of the Association will be substantially restricted
after the Conversion and Reorganization by virtue of the liquidation
account to be established in connection with the Conversion and
Reorganization. See "The Conversion and Reorganization - Liquidation
Rights." In addition, certain distributions from the Association's retained
earnings may be treated as being from its pre-1988 accumulated bad debt
reserve for tax purposes, which would cause the Association to have
additional taxable income. See "Regulation - Federal and State Taxation."
</FN>
</TABLE>
25
<PAGE>
PRO FORMA REGULATORY CAPITAL ANALYSIS
At December 31, 1996, the Association exceeded each of the three OTS
capital requirements. Set forth below is a summary of the Association's
compliance with the OTS capital standards as of December 31, 1996 on a
historical basis, in accordance with GAAP, and on a pro forma basis using the
assumptions contained under the caption "Pro Forma Data" and assuming that the
indicated number of shares were sold, and the Exchange Shares were issued, as of
such date.
<TABLE>
<CAPTION>
Pro Forma at December 31, 1996
------------------------------------------------------------------------------------
787,500 Shares 926,470 Shares 1,225,257 Shares 15% above
Historical Minimum Midpoint Maximum Maximum
----------------- ----------------- ----------------- ----------------- ------------------
Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1)
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital(2) ...... $9,082 9.6% $11,935 12.2% $12,470 12.7% $13,003 13.2% $13,168 13.7%
====== ==== ======= ==== ======= ==== ======= ==== ======= ====
Tangible Capital:
Capital level....... $8,659 9.2% $11,512 11.8 $12,047 12.3% $12,580 12.8% $13,195 13.3%
Requirement......... 1,412 1.5 1,455 1.5 1,463 1.5 1,471 1.5 1,480 1.5
------ ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess.............. $7,247 7.7% $10,057 10.3% $10,584 10.8% $11,109 11.3% $11,715 11.8%
====== ==== ======= ==== ======= ==== ======= ==== ======= ====
Core Capital:
Capital level....... $8,659 9.2% $11,512 11.8% $12,047 12.3% $12,580 12.8% $13,195 13.3%
Requirement......... 2,835 3.0 2,910 3.0 2,926 3.0 2,942 3.0 2,961 3.0
------ ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess.............. $5,834 6.2% $ 8,602 8.8% $ 9,121 9.3% $ 9,638 9.8% $10,234 10.3%
====== ==== ======= ==== ======= ==== ======= ==== ======= ====
Risk-Based Capital:
Capital level(3).... $7,630 13.5% $10,483 18.3% $11,018 19.2% $11,551 20.1% $12,1656 21.1%
Requirement(4)...... 4,530 8.0 4,576 8.0 4,584 8.0 4,593 6.0 4,603 8.0
------ ---- ------- ---- ------- ---- ----- ---- ------- ----
Excess.............. $3,100 5.5% $ 5,907 10.3% $ 6,434 11.2% $ 6,958 12.1% $ 7,563 13.1%
====== ==== ======= ==== ======= ==== ======= ==== ======= ====
<FN>
- ----------
(1) Tangible and core capital levels are shown as a percentage of adjusted
total assets; risk-based capital levels are shown as a percentage of
risk-weighted assets.
(2) Total stockholder's equity as calculated under GAAP. Assumes that the
Association receives 50% of the net proceeds, offset in part by the
aggregate purchase price of Common Stock acquired at $10.00 per share by
the ESOP in the Conversion. The amount expected to be borrowed by the ESOP
is deducted from pro forma capital to illustrate the possible impact on the
Association.
(3) Includes $158,000 of general valuation allowances, all of which qualify as
supplementary capital. See "Regulation - Regulatory Capital Requirements."
(4) Assumes reinvestment of net proceeds in 20% risk-weighted assets.
</FN>
</TABLE>
26
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Conversion Stock cannot be
determined until the Conversion and Reorganization is completed. However, net
proceeds are currently estimated to be between $7.4 million and $10.1 million
(or $11.7 million in the event the Offering Price Range is increased by 15%)
based upon the following assumptions: (i) all shares of Conversion Stock will be
sold in the Subscription and Community Offerings; (ii) no fees will be paid to
Webb on shares purchased by (x) the ESOP or by (y) officers, directors and
associates thereof; (iii) Webb will receive a fee equal to 1.75% of the
aggregate Purchase Price for sales in the Subscription and Community Offering
(excluding the sale of shares by the ESOP and to officers, directors or
employees or members of their immediate families); and (iv) total expenses,
excluding the marketing fees to be paid to Webb, will be approximately $350,000.
Actual expenses may vary from those estimated.
Pro forma net earnings and stockholders' equity have been calculated
for the year ended June 30, 1996 as if the Conversion Stock to be issued in the
Offerings had been sold (and the Exchange Shares issued) at the beginning of the
respective periods and the net proceeds had been invested at 5.43% and 5.91%,
respectively, which represent the yield on one-year U.S. Government securities
at December 31, 1996 and June 30, 1996, respectively, (which, in light of
changes in interest rates in recent periods, are deemed to more accurately
reflect pro forma reinvestment rates than the arithmetic average method). The
effect of withdrawals from deposit accounts for the purchase of Conversion Stock
has not been reflected. An effective combined federal and state tax rate of
39.6% has been assumed for the periods, resulting in after-tax yields of 3.28%
and 3.57% for the six months ended December 31, 1996 and the year ended June 30,
1996, respectively. Historical and pro forma per share amounts have been
calculated by dividing historical and pro forma amounts by the indicated number
of shares of Common Stock, as adjusted to give effect to the shares purchased by
the ESOP. See Note 2 to the tables below. No effect has been given in the pro
forma stockholders' equity calculations for the assumed earnings on the net
proceeds. As discussed under "Use of Proceeds," the Company intends to retain
50% of the net proceeds from the Offerings, from which the Company intends to
make a loan to fund the purchase an amount of Conversion Stock equal to 8% of
the Common Stock outstanding upon consummation of the Conversion and
Reorganization.
No effect has been given in the tables to the issuance of additional
shares of Common Stock pursuant to existing and proposed stock benefit plans.
See "Management of the Association Benefits" and "Management of the Association
- - Benefit Plans." The tables below give effect to the 1997 Recognition Plan,
which is expected to be adopted by the Company following the Conversion and
Reorganization and presented (together with the 1997 Stock Option Plan) to
stockholders for approval at an annual or special meeting of stockholders to be
held at least six months following the consummation of the Conversion and
Reorganization. If the 1997 Recognition Plan is approved by stockholders, the
1997 Recognition Plan intends to acquire an amount of Common Stock equal to 4.0%
of the shares of Conversion Stock issued in the Offerings, either through open
market purchases or from authorized but unissued shares of Common Stock. No
effect has been given to (i) the Company's results of operations after the
Conversion and Reorganization, or (ii) the market price of the Common Stock
after the Conversion and Reorganization.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not
27
<PAGE>
be taken as indicative of future results of operations. Pro forma stockholders'
equity represents the difference between the stated amount of assets and
liabilities of the Company computed in accordance with generally accepted
accounting principles ("GAAP"). The pro forma stockholders' equity is not
intended to represent the fair market value of the Common Stock and may be
different than amounts that would be available for distribution to stockholders
in the event of liquidation.
28
<PAGE>
<TABLE>
<CAPTION>
At or For the Six Months Ended December 31, 1996
-------------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
787,500 926,470 1,065,410 1,225,257
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
---------- ---------- --------- -----------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds................................ $ 7,875 $ 9,265 $ 10,654 $ 12,253
Less offering expenses and commissions........ 489 (490) (512) (537)
--------- --------- --------- ---------
Estimated net proceeds(1).................... 7,406 8,775 10,142 11,716
Less: ESOP................................... (850) (1,000) (1,150) (1,323)
Recognition Plan funding............... (425) (500) (575) (661)
--------- --------- --------- ---------
Add: Other adjustments(6)..................... 115 115 115 115
Estimated proceeds available for
investment................................ $ 6,246 $ 7,390 $ 8,532 $ 9,847
========= ========= ========= =========
Net Income:
Historical.................................. $ 17 $ 17 $ 17 $ 17
Pro Forma Adjustments:
Net earnings from proceeds(2).............. 102 121 140 161
ESOP(3).................................... (26) (30) (35) (40)
Recognition Plan........................... (26) (30) (35) (40)
Pro forma net income..................... $ 67 $ 78 $ 87 $ 98
========= ========= ========= =========
Net Income Per Share:
Historical(4)............................. 0.02 0.01 0.01 0.01
Pro forma Adjustments:
Net income from proceeds................. 0.10 0.10 0.11 0.11
ESOP(3).................................. (0.03) (0.03) (0.03) (0.03)
Recognition Plan......................... (0.03) (0.03) (0.03) (0.03)
--------- --------- --------- ---------
Pro forma net income per share....... $ 0.06 $ 0.06 $ 0.06) $ 0.06
========= ========= ========= =========
Pro forma price to annualized earnings
per share (P/E ratio)...................... 83.33x 83.33x 83.33x 83.33x
Number of shares.............................. 951,750 1,155,000 1,326,250 1,527,488
Stockholders' Equity (Book Value)(5):
Historical(7)............................... $ 9,094 $ 9,094 $ 9,094 $ 9,094
Pro Forma Per Share Adjustments:
Estimated net proceeds...................... 7,406 8,775 10,142 11,176
Less common stock acquired by:
ESOP(3).................................... (850) (1,000) (1,150) (1,322)
Recognition Plan........................... (425) (500) (575) (661)
--------- --------- -------- ---------
Pro forma stockholder's equity......... $ 15,225 $ 16,369 $ 17,511 $ !8,827
========= ========= ========= =========
Stockholders' Equity (Book Value)(5):
Per Share(4):
Historical(7)............................. $ 8.56 $ 7.27 $ 6.33 $ 5.50
Pro Forma Per Share Adjustments:
Estimated net proceeds.................... 6.97 7.02 7.06 7.09
Less common stock acquired by:
ESOP(3)................................... (0.80) (0.80) (0.80) (0.80)
Recognition Plan.......................... (0.40) (0.40) (.40) (0.40)
--------- --------- --------- ---------
Pro forma book value per share......... $ 14.33 $ 13.10 $ 12.19 $ 11.39
========= ========= ========= =========
Pro forma price to book value................. 69.73% 76.34% 82.03% 87.80%
Number of shares ............................. 1,062,500 1,250,000 1,437,500 1,653,125
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
At or For the Six Months Ended December 31, 1996
-------------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
787,500 926,470 1,065,410 1,225,257
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
---------- ---------- --------- -----------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds................................ $ 7,875 $ 9,265 $ 10,654 $ 12,253
Less offering expenses and commissions........ (489) (490) (512) (537)
--------- --------- --------- ---------
Estimated net proceeds(1).................... 7,406 8,775 10,142 11,716
Less: ESOP................................... (850) (1,000) (1,150) (1,323)
Recognition Plan..................... (425) (500) (575) (661)
--------- --------- --------- ---------
Add: Other adjustments(6)..................... 115 115 115 115
--------- --------- --------- ---------
Estimated proceeds available for
investment................................ $ 6,246 $ 7,390 $ 8,532 $ 9,847
========= ========= ========= =========
Net Income:
Historical.................................. $ 431 $ 431 $ 431 $ 431
Pro Forma Adjustments:
Net earnings from proceeds(2).............. 223 264 305 351
ESOP(3).................................... (51) (60) (69) (80)
Recognition Plan........................... (51) (60) (69) (80)
--------- --------- --------- ---------
Pro forma net income..................... $ 552 $ 575 $ 598 $ 622
========= ========= ========= =========
Net Income Per Share:
Historical(4)............................. $ 0.44 $ 0.37 $ 0.32 $ 0.28
Pro forma Adjustments:
Net earnings from proceeds............... 0.23 0.23 0.23 0.23
ESOP(3).................................. (0.05) (0.05) (0.05) (0.05)
Recognition Plan......................... (0.05) (0.05) (0.05) (0.05)
--------- --------- --------- ---------
Pro forma net income per share....... $ 0.57 $ 0.50 $ 0.45 $ 0.41
========= ========= ========= =========
Pro forma price to annualized earnings
per share (P/E ratio)...................... 17.54x 20.00x 22.22x 24.39x
Number of shares.............................. 986,000 1,160,000 1,334,000 1,534,100
Stockholders' Equity (Book Value)(5):
Historical(7)............................... $ 9,139 $ 9,139 $ 9,139 $ 9,139
Pro Forma Per Share Adjustments:
Estimated net proceeds...................... 7,406 8,775 10,142 11,716
Less common stock acquired by:
ESOP(3).................................... (850) (1,000) (1,150) (1,322)
Recognition Plan........................... (425) (500) (575) (661)
--------- --------- --------- ---------
Pro forma stockholder's equity......... $ 15,270 $ 16,414 $ 17.556 $ 18,872
========= ========= ========= =========
Stockholders' Equity (Book Value)(5):
Per Share(4):
Historical(7)............................. $ 8.69 $ 7.31 $ 6.36 $ 5.53
Pro Forma Per Share Adjustments:
Estimated net proceeds.................... 6.97 7.02 7.06 7.09
Less common stock acquired by:
ESOP(3)................................... (0.80) (0.80) (0.80) (0.80)
Recognition Plan.......................... (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ---------
Pro forma book value per share......... $ 14.37 $ 13.13 $ 12.22 $ 11.42
========= ========= ========= =========
Pro forma price to book value................. 69.59% 76.16% 81.83% 87.57%
Number of shares ............................. 1,062,500 1,250,000 1,437,500 1,653,125
</TABLE>
- ----------
(1) It is assumed that the cost of the ESOP will be funded from the net
proceeds retained by the Company.
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion. For purposes of
calculating pro forma net income, proceeds attributable to purchases by the
ESOP, which purchases are to be funded by the Holding Company and the
Association, have been deducted from net proceeds.
30
<PAGE>
(3) It is assumed that 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. The funds used to acquire such
shares are expected to be borrowed by the ESOP from the net proceeds from
the Conversion retained by the Company. The Association intends to make
contributions to the ESOP in amounts at least equal to the principal and
interest requirement of the debt. The Association's payment of the ESOP
debt is based upon equal installments of principal and interest over a
10-year period. However, assuming the Company makes the ESOP loan, interest
income earned by the Company on the ESOP debt will offset the interest paid
by the Association. Accordingly, only the principal payments on the ESOP
debt are recorded as an expense (tax-effected) to the Company on a
consolidated basis. The amount of ESOP debt is reflected as a reduction of
stockholders' equity. In the event that the ESOP were to receive a loan
from an independent third party, both ESOP expense and earnings on the
proceeds retained by the Company would be expected to increase.
For purposes of this table, the purchase price of $10.00 per share was
utilized to calculate ESOP expense. The Company intends to record
compensation expense related to the ESOP in accordance with Statement of
Accounting Principles 93-6 ("SOP 93-6"). As a result, to the extent the
value of the Common Stock appreciates over time, compensation expense
related to the ESOP will increase. SOP 93-6 also requires that, for the
earnings per share computations for leveraged ESOPs, outstanding shares
include only such shares as have been committed to be released to
participants. See "Management of the Association - Benefit Plans - Employee
Stock Ownership Plan."
(4) Historical pro forma per share amounts have been computed as if the shares
of Common Stock indicated had been outstanding at the beginning of the
periods or on the dates shown, but without any adjustment of historical net
income or historical equity to reflect the investment of the estimated net
proceeds of the sale of shares in the Conversion as described above. All
ESOP shares have been considered outstanding for purposes of computing book
value per share. Pro forma share amounts have been computed by dividing the
pro forma net income or stockholders' equity (book value) by the number of
shares indicated.
(5) "Book value" represents the difference between the stated amounts of the
Association's assets (based on historical cost) and liabilities computed in
accordance with generally accepted accounting principles. The amounts shown
do not reflect the effect of the Liquidation Account which will be
established for the benefit of Eligible and Supplemental Eligible Account
Holders in the Conversion, or the federal income tax consequences of the
restoration to income of the Association's special bad debt reserves for
income tax purposes which would be required in the unlikely event of
liquidation. See "The Conversion and Reorganization - Effects of Conversion
and Reorganization" and "Regulation - Federal and State Taxation." The
amounts shown for book value do not represent fair market values or
amounts, if any, distributable to stockholders in the unlikely event of
liquidation.
(6) Includes assets consolidated from the mutual holding company of $103,000
plus $12,000 of previous funding of the Recognition Plan.
(7) Prior to reduction of $12,000 reflecting the previous funding of the
Recognition Plan.
31
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
General
The Company is authorized to issue 8,000,000 shares of Common Stock and
2,000,000 shares of Preferred Stock. The Company currently expects to issue up
to a maximum of _______ shares of Common Stock, including _______ shares of
Conversion Stock and _______ shares of Exchange Shares, and no shares of
Preferred Stock in the Conversion and Reorganization. Each share of Common Stock
will have the same relative rights as, and will be identical in all respects
with, each other share of Common Stock. Upon payment of the Purchase Price for
the Conversion Stock and the issuance of the Exchange Shares in accordance with
the Plan of Conversion, all such stock will be duly authorized, fully paid and
nonassessable.
The Common Stock will represent nonwithdrawable capital, will not be an
account of an insurable type and will not be insured by the FDIC or any other
governmental authority.
Common Stock
Dividends. The Company can pay dividends if, as and when declared by.
its Board of Directors, subject to compliance with limitations which are imposed
by law. See "Dividend Policy." The holders of Common Stock will be entitled to
receive and share equally in such dividends as may be declared by the Board of
Directors of the Company out of funds legally available therefor. If the Company
issues Preferred Stock, the holders thereof may have a priority over the holders
of the Common Stock with respect to dividends.
Voting Rights. Upon completion of the Conversion and Reorganization,
the holders of Common Stock of the Company will possess exclusive voting rights
in the Company. They will elect the Company's Board of Directors and act on such
other matters as are required to be presented to them under Indiana law or the
Company's Articles of Incorporation or as are otherwise presented to them by the
Board of Directors. Except as discussed in "Comparison of Stockholders' Rights -
Limitations on Acquisitions of Voting Stock and Voting Rights," each holder of
Common Stock will be entitled to one vote per share and will not have any right
to cumulate votes in the election of directors. If the Company issues Preferred
Stock, holders of the Preferred Stock may have the right to vote with the
holders of Common Stock as a single class or have voting rights as a separate
class.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, the holders of the then-outstanding Common Stock would be
entitled to receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of the Company available for distribution. If
Preferred Stock is issued, the holders thereof may have a priority over the
holders of the Common Stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of the Common Stock will not be entitled to
preemptive rights with respect to any shares which may be issued in the future.
The Common Stock is not subject to redemption.
Preferred Stock
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion and Reorganization. Such stock may be issued with such
preferences and designations as the Board of Directors may from time to time
determine. The Board of Directors can, without stockholder approval, issue
Preferred Stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the Common Stock and may
assist management in impeding an unfriendly takeover or attempted change in
control.
32
<PAGE>
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with
or without conditions, or disapproves a plan of conversion may obtain review of
such action by filing in the court of appeals of the United States for the
circuit in which the principal office or residence of such person is located, or
in the United States Court of Appeals for the District of Columbia, a written
petition praying that the final action of the OTS be modified, terminated or set
aside. Such petition must be filed within 30 days after the publication of
notice of such final action in the Federal Register, or 30 days after the
mailing by the applicant of the notice to members as provided for in 12 C.F.R.
ss.563b.6(c), whichever is later. The further procedure for review is as
follows: A copy of the petition is forthwith transmitted to the OTS by the clerk
of the court and thereupon the OTS files in the court the record in proceeding,
as provided in Section 2112 of Title 28 of the United States Code. Upon the
filing of the petition, the court has jurisdiction, which upon the filing of the
record is exclusive, to affirm, modify, terminate, or set aside in whole or in
part, the final action of the OTS. Review of such proceedings is as provided in
Chapter 7 of Title 5 of the United States Code. The judgment and decree of the
court is final, except that they are subject to review by the Supreme Court upon
certiorari as provided in Section 1254 of Title 28 of the United States Code.
REGISTRATION REQUIREMENTS
The Company will register the Common Stock under the Securities
Exchange Act of 1934, as amended ("Exchange Act"), in connection with the
Conversion and Reorganization and has agreed not to deregister such shares for a
period of three years following the Conversion and Reorganization. Upon such
registration, the proxy rules, tender offer rules, insider reporting
requirements and trading restrictions, annual and periodic reporting and other
requirements of the Exchange Act will be applicable. In addition, upon
registration, the Company will furnish its stockholders with annual reports
containing audited financial statements as promptly as practicable after the end
of each fiscal year.
33
<PAGE>
EXPERTS
The consolidated financial statements of the Association as of June 30,
1996 and 1995, and for each of the years in the three-year period ended June 30,
1996, have been included herein in reliance upon the report of Geo. S. Olive &
Co. LLC, Indianapolis, Indiana, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
Keller has consented to the publication herein of the summary of its
report to the Company and the Association setting forth its opinion as to the
estimated pro forma market value of the Conunon Stock to be outstanding upon
completion of the Conversion and Reorganization and its opinion with respect to
subscription rights.
LEGAL AND TAX MATTERS
The legality of the Common Stock and the federal income tax
consequences of the Conversion and Reorganization will be passed upon for the
Company and the Association by Silver, Freedman & Taff, L.L.P. (a limited
liability partnership including professional corporations), Washington, D.C.,
special counsel to the Company and the Association. The Indiana income tax
consequences of the Conversion and Reorganization will be passed upon for the
Company and the Association by Geo. S. Olive & Co. LLC. has consented to
references herein to its opinion. Certain legal matters will be passed upon for
Webb by Breyer & Aguggia, Washington, D.C.
HOW TO OBTAIN ADDITIONAL INFORMATION
You may obtain a copy of the Plan of Conversion, including the Articles
of Incorporation and Bylaws the Company, from any office of the Association or
in writing from the Mutual Holding Company. Any such requests should be directed
to Montgomery Mutual Holding Company, 119 East Main Street, Crawfordsburg,
Indiana 47933, Attention: Secretary. So that you have sufficient time to receive
and review the requested materials, it is recommended that any such requests be
sent so that they are received by the Mutual Holding Company by _______ __,
1997.
AVAILABLE INFORMATION
The Mutual Holding Company has filed with the OTS an Application for
Conversion pursuant to which it will reorganize in accordance with the terms of
the Plan. This Proxy Statement and the Prospectus omit certain information
contained in such Application. The Application may be inspected at the offices
of the OTS, 1700 G Street, N.W., Washington, D.C. 20552, and at the Central
Regional Office of the OTS located at 200 West Madison Street, Suite 1300,
Chicago, Illinois 60606.
The Company has filed with the Securities and Exchange Commission
("SEC") a Registration Statement on Form S-1 (File No. 333-_____) ("Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
Conversion Stock and Exchange Shares being offered in the Offerings. This Proxy
Statement and the Prospectus do not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. Such information may be inspected at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and copies may be obtained at prescribed
rates from the Public Reference Section of the SEC at the same address. The SEC
maintains a World Wide Web site on the Internet that contains reports, proxy and
information statements and other information regarding
34
<PAGE>
registrants such as the Company that file electronically with the SEC. The
address of such site is: http://www.sec.gov. The statements contained in this
Prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement describe all material provisions of such
contracts or other documents. Nevertheless, such statements are, of necessity,
brief descriptions thereof and are not necessarily complete; each such statement
is qualified by reference to such contract or document.
PLEASE REMEMBER TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO THAT YOUR IMPORTANT VOTE WILL BE
COUNTED AT THE SPECIAL MEETING.
THIS PROXY STATEMENT IS NEITHER AN OFFER TO SELL NOR THE SOLICITATION
OF ANY OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
35
<PAGE>
MONTGOMERY MUTUAL HOLDING COMPANY
REVOCABLY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
MONTGOMERY MUTUAL HOLDING COMPANY (THE "MUTUAL HOLDING COMPANY") FOR USE ONLY AT
A SPECIAL MEETING OF MEMBERS TO BE HELD ON _____________, 1997 AND ANY
ADJOURNMENT THEREOF.
The undersigned, being a member of the Mutual Holding Company as of
_____________, 1997, hereby authorizes the Board of Directors of the Mutual
Holding Company, or any of their successors, as proxies, with full powers of
substitution, to represent the undersgined at the Special Meeting of Members of
the Mutual Holding Company to be held __________________________________, which
is located at _____________________, Crawfordsville, Indiana, on
_________________, 1997, at __:00 _.m., Crawfordsville, Indiana time, and at any
adjournment of said meeting, and thereat to act with respect to all votes that
the undersigned would be entitled to cast, if then personally present, as
follows:
(1)To approve and adopt the Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan of Conversion"), pursuant to which (i) the Mutual
Holding Company, which currently owns approximately 70.59% of the outstanding
shares of common stock of the Montgomery Savings, A Federal Association (the
"Association") will convert from mutual form to a federal interim stock
savings institution and simultaneously merge with and into the Association,
with the Association being the surviving entity; (ii) an interim institution
("Interim") to be formed as a wholly owned subsidiary of Montgomery Financial
Corporation, and Indiana corporation recently formed as a wholly owned
subsidiary of the Association (the "Company"), will merge with and into the
Association, with the Association being the surviving entity and becoming a
wholly owned subsidiary of the Company, (iii) the outstanding shares of
Association common stock (other than those held by the Mutual Holding
Company, which will be cancelled) will be converted into shares of common
stock of the Company pursuant to a ratio that will result in the holders of
such shares owning in the aggregate approximately _____% of the Company,
before giving effect to such shareholders purchasing additional shares in a
concurrent stock offering by the Company, receiving cash in lieu of
fractional shares or exercising dissenters rights; and (iv) the offer and
sale of shares of the Company's common stock.
_______ _________ _________
| | | | | |
| | | | | |
------- --------- ---------
FOR AGAINST ABSTAIN
In their discretion, the proxies are authorized to vote with respect to
approval of the minutes of the last meeting of stockholders, matters incident to
the conduct of the meeting, and upon such other matters as may properly come
before the meeting.
This proxy may be revoked at any time before it is exercised. Shares of
common stock of the Association will be voted as specified. If no specification
is made herein, shares will be voted FOR Proposal 1.
(Continued and to be signed on other side)
1
<PAGE>
The undersigned hereby acknowledges receipt of a Notice of Special
Meeting of the Stockholders of Montgomery Mutual Holding Company called for
__________, 1997 and a Proxy Statement for the Special Meeting prior to the
signing of this Proxy.
Date: __________________, 1997
____________________________________
Signature
____________________________________
Signature
Note: Please sign exactly as your name(s) appear(s) on this Proxy. Only one
signature is required in the case of a joint account. When signing in a
representative capacity, please give title.
________________________________________________________________________________
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS
PROXY CARD USING THE ENCLOSED ENVELOPE.
________________________________________________________________________________
2
EXHIBIT 99.5
CERTIFICATION
I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT
FEDERALLY INSURED, AND IS NOT GUARANTEED BY MONTGOMERY SAVINGS, A FEDERAL
ASSOCIATION, OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that this security is federally insured or
guaranteed, or is as safe as an insured deposit, I should call the Office of
Thrift Supervision, Central Regional Director, Ronald N. Karr, at (312)
917-5000.
I further certify that, before purchasing the common stock par value
$0.01 of Montgomery Financial Corporation, the proposed holding company for
Montgomery Savings, A Federal Association (the "Association"), I received a
prospectus dated ___________, 1997 (the "Prospectus").
The Prospectus that I received contains disclosure concerning the
nature of the security being offered and describes the risks involved in the
investment, including, but not limited to: the Association's vulnerability to
changes in interest rates; competition, geographical concentration of loans;
certain anti-takeover provisions; voting power of directors and executive
officers; low return on equity; ESOP compensation expense; absence of market for
common stock; proposed federal legislation; possible dilutive effect of issuance
of additional shares; risk of delay; and the possible adverse income tax
consequences of the distribution of subscription rights .
For a more detailed description of the risks involved in the offering,
see "Risk Factors" at pages __ through __ of the Prospectus.
In addition, the certificate of incorporation of the Company requires a
vote of 80% of stockholders to remove directors, to approve certain business
combinations or to amend the certificate of incorporation, which may have the
effect of discouraging a future takeover attempt of the Company. For additional
information, see pages ___ through ___ of the Prospectus.
NOTE: If the stock is to be held Signature: ________________________
jointly, both parties must sign.
Signature: ________________________
Date: ________________________
EXHIBIT 99.6
FACTS ABOUT CONVERSION
The Board of Directors of Montgomery Savings ("Montgomery" or the "Association")
unanimously adopted a Plan of Conversion (the "Plan") to convert from a
federally chartered mutual savings bank to a federally chartered stock savings
bank.
This brochure answers some of the most frequently asked questions about the Plan
and about your opportunity to invest in Montgomery Financial Corporation, (the
"Holding Company"), the newly formed corporation that will serve as holding
company for Montgomery Savings following the conversion.
Investment in the stock of Montgomery Financial Corporation involves certain
risks. For a discussion of these risks, other factors, and a complete
description of the offerings investors are urged to read the accompanying
Prospectus, especially the discussion under the heading "Risk Factors".
WHY ARE THE MHC AND MONTGOMERY CONVERTING TO THE STOCK HOLDING COMPANY
STRUCTURE?
The stock holding company structure is a more common form of ownership than the
mutual holding company structure and offers the ability to diversify the
Company's and the Association's business activities. The Conversion will
increase both the capital base of the Association and the number of outstanding
shares, which will increase the likelihood of the development of an active and
liquid market for the Common Stock of the Company.
WILL THE PLAN AFFECT ANY OF MY DEPOSIT ACCOUNTS OR LOANS?
No. The Plan will have no effect on the balance or terms of any savings account
or loan, and your deposits will continue to be federally insured by the Federal
Deposit Insurance Corporation ("FDIC") to the maximum legal limit. Your savings
account is not being converted to stock.
WHO IS ELIGIBLE TO PURCHASE STOCK IN THE SUBSCRIPTION COMMUNITY OFFERINGS?
Depositors of Montgomery as of certain dates, Montgomery's Employee Stock
Ownership Plan, Montgomery's public stockholders and members of the general
public.
HOW MANY SHARES OF STOCK ARE BEING OFFERED AND AT WHAT PRICE?
Montgomery Financial Corporation is offering up to XXXXXXX shares of common
stock, subject to adjustment as described in the Prospectus, at a price of
$10.00 per share through the Prospectus.
I AM AN EXISTING STOCKHOLDER. HOW WILL MY STOCK BE TREATED?
The Plan of Conversion ensures that existing shareholders of the Association
will own the same aggregate percentage of the Company's Common Stock as they own
of the Association, adjusted downward pursuant to OTS policy to reflect
dividends declared by the Association and waived by the MHC. Depending upon
where the offering closes in the Offering Range, and Exchange Ratio ranging from
approximately XXX to XXX Exchange Shares of Company Common Stock will be applied
to each share of Association Common Stock.
HOW MUCH STOCK MAY I BUY?
The minimum order is 25 shares. In each of the Subscription Offering, the
Community Offering or any Syndicated Offering, the maximum purchase for any
person including associates is 20,000 shares, including any Exchange Shares to
which such person may be entitled as a shareholder of the Association.
DO MEMBERS HAVE TO BUY STOCK?
No. However, the Plan will allow Montgomery Saving's depositors and certain
borrowers an opportunity to buy stock and become charter shareholders of the
holding company for the local financial institution with which they do business.
<PAGE>
HOW DO I ORDER STOCK?
You must complete the enclosed Stock Order Form and Certification Form.
Instructions for completing your Stock Order Form and Certification Form are
contained in this packet. Your order must be received by Noon, Crawfordsville,
Indiana, Time, on Xxxxx XX, 1997.
HOW MAY I PAY FOR MY SHARES OF STOCK?
First, you may pay for stock by check, cash or money order. Interest will be
paid by Montgomery Savings on these funds at the current passbook rate from the
day the funds are received until the completion or termination of the Plan.
Second, you may authorize us to withdraw funds from your Montgomery savings
account or certificate of deposit for the amount of funds you specify for
payment. You will not have access to these funds from the day we receive your
order until completion or termination of the Plan. Montgomery will waive any
early withdraw penalties on certificate accounts used to purchase stock.
CAN I PURCHASE SHARES USING FUNDS IN MY BANK IRA ACCOUNT?
Federal regulations do not permit the purchase of conversion stock from your
existing Bank IRA account. Please call our Stock Information Center for
additional information.
WILL THE STOCK BE INSURED?
No. Like any other common stock, the Holding Company's stock will not be
insured.
WILL DIVIDENDS BE PAID ON THE STOCK?
The Board of Directors of the Holding Company intends to pay a cash dividend in
the future, subject to regulatory limits and requirements. No decision has been
made as to the amount or timing of such dividends, if any.
HOW WILL THE STOCK BE TRADED?
The Company's stock will trade on the Nasdaq National Market under the symbol
"XXXX". However, no assurance can be given that an active and liquid market will
develop.
MUST I PAY A COMMISSION?
No. You will not be charged a commission or fee on the purchase of shares in the
Plan
SHOULD I VOTE?
Yes. Your "YES" vote is very important!
PLEASE VOTE, SIGN AND RETURN ALL PROXY CARDS!
WHY DID I GET SEVERAL PROXY CARDS?
If you have more than one account, you could receive more than one proxy card,
depending on the ownership structure of your accounts.
HOW MANY VOTES DO I HAVE?
Your proxy card(s) show(s) the number of votes you have. Every depositor and
certain borrowers entitled to vote may cast one vote for each $100, or fraction
thereof, on deposit as of the voting record date on each of the proposals
presented.
MAY I VOTE IN PERSON AT THE SPECIAL MEETING?
Yes, but we would still like you to sign and mail your proxy today. If you
decide to revoke your proxy you may do so by giving notice at the special
meeting.
<PAGE>
FOR ADDITIONAL INFORMATION YOU MAY CALL OUR STOCK INFORMATION CENTER BETWEEN
9:00 A.M. AND 4:30 P.M. MONDAY THROUGH THURSDAY OR FRIDAY BETWEEN 9:00 A.M. AND
6:00 P.M., CRAWFORDSVILLE, INDIANA TIME.
STOCK INFORMATION CENTER (XXX) XXX-XXXX
Montgomery Financial Corporation
119 E. Main Street
Crawfordsville, Indiana 47933
Phone (XXX) XXX-XXXX Fax (XXX) XXX-XXXX
STOCK OFFERING
QUESTIONS
AND
ANSWERS
Montgomery Financial
Corporation
THE STOCK OFFERED IN THE CONVERSION IS NOT A DEPOSIT OR ACCOUNT AND IS NOT
FEDERALLY INSURED OR GUARANTEED. THIS IS NOT AN OFFER TO SELL OR A SOLICIATION
OF AN OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS
ACCOMPANIED BY A STOCK ORDER FORM AND CERTIFICATION FORM.
EXHIBIT 99.7
(Stockholder Letter REGISTERED HOLDERS-Montgomery Savings letterhead)
Dear Stockholder:
We are pleased to inform you that the Boards of Directors of Montgomery
Savings (the "Association"), Montgomery Mutual Holding Company (the "MHC") and
Montgomery Financial Corporation (the "Company") have adopted a Plan of
Conversion and Agreement and Plan of Reorganization (the "Plan of Conversion")
whereby the MHC and the Association will be reorganized into a stock holding
company structure (the "Conversion"). The Association has organized the Company
to become the holding company for all of the Association's stock. Pursuant to
the Plan of Conversion, the existing shareholders of the Association (other than
the MHC) will be issued shares of the Company's Common Stock in exchange for
their shares of Association Common Stock (the "Exchange"). The Exchange will
result in those shareholders owning in the aggregate the same percent of the
Company as they owned of the Association. In addition to the shares of Company
stock to be issued in the Exchange, the Company is also offering up to XXX,XXX
shares of Common Stock (subject to increase up to XXX, XXX shares in certain
circumstances) to the MHC's members, the Association's stockholders and members
of the public. Consummation of the Plan of Conversion is subject to (i) the
approval of the members of the MHC, (ii) the approval of the stockholders of the
Association and (iii) various regulatory approvals.
We are asking stockholders of the Association as of Xxxx XX, 1997, the
voting record date, to vote FOR the Plan of Conversion. If you and/or members of
your family hold stock in different names, you may receive more than one proxy
mailing. Please vote all proxy cards received and return them today in the
enclosed postage-paid envelope. Should you choose to attend the meeting and wish
to vote in person, you may do so by executing your previously executed proxy.
Your vote FOR the Conversion will not obligate you to buy any additional stock
in the Conversion. A Proxy Statement relating to the Conversion is enclosed.
We have enclosed the following materials which will help you learn more
about investing in Montgomery Financial Corporation common stock. Please read
and review the materials carefully before making an investment decision.
PROSPECTUS: This document provides detailed information about the
Association's operations and the proposed stock offering.
QUESTIONS AND ANSWERS BROCHURE: Key questions and answers about the stock
offering are found in this pamphlet.
STOCK ORDER FORM & CERTIFICATE FORM: These forms are used to purchase stock
by returning it with your payment. The deadline for ordering stock is noon,
Crawfordsville, Indiana Time, on Xxxx XX, 1996.
We are inviting our customers, existing stockholders and the general
public to become stockholders of Montgomery Financial Corporation. Through this
offering you have the opportunity to buy additional stock directly from
Montgomery Financial Corporation without commission or fee.
If you have any questions, please call the Stock Information Center at
(XXX) XXX-XXXX between 9:00 a.m. and 4:30 p.m., Monday through Thursday or
Friday between 9:00 a.m. and 6:00 p.m., Crawfordsville, Indiana Time or stop by
the Stock Information Center at 119 E. Main Street in Crawfordsville during
normal business hours.
Sincerely,
Montgomery Savings
By: Earl F. Elliott
Chief Executive Officer
The shares of Common Stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund, the Savings Association Insurance Fund or any other governmental
agency. This is not an offer to sell or a solicitation of an offer to buy stock.
The offer is made only by the Prospectus.
<PAGE>
[Montgomery Savings letterhead]
Dear Member:
I am pleased to inform you that the Boards of Directors of Montgomery
Savings (the "Association") and Montgomery Mutual Holding Company (the "MHC")
have adopted a Plan of Conversion and Agreement and Plan of Reorganization (the
"Plan of Conversion"), whereby the MHC and the Association will be reorganized
into a stock holding company structure (the "Conversion"). The Association has
organized Montgomery Financial Corporation (the "Company") to be the holding
company for all of the Association's stock. Pursuant to the Plan of Conversion,
the existing shareholders of the Association (other than the MHC) will be issued
shares of the Company's common stock in exchange for their shares of Association
common stock (the "Exchange"). The Exchange will result in those shareholders
owning in the aggregate the same percent of the Company as they owned of the
Association. In addition to the shares of Company stock to be issued in the
Exchange, the Company is also offering up to XXX,XXX shares of common stock
(subject to increase up to XXX,XXX shares in certain circumstances) to the MHC's
members, the Association's stockholders and members of the public. Consummation
of the Plan of Conversion is subject to (i) the approval of the members of the
MHC, (ii) the approval of the stockholders of the Association and (iii) various
regulatory approvals.
Upon completion of the Conversion, your deposits and loans with the
Association will automatically continue to be deposits and loans with the
Association; there will be no change in the balance, interest rate or maturity
of deposits or loans because of the Conversion. Your deposits will continue to
be insured by the Federal Deposit Insurance Corporation to the maximum amount
permitted by law to the same extent as prior to the Conversion.
We are asking depositors of the Association as of Xxxx XX, 1997 the
voting record date, to vote FOR the Plan of Conversion. If you and/or members of
your family have multiple accounts with the Association, you may receive more
than one proxy mailing. Federal regulations do not allow the combining of
accounts unless they represent identical forms of ownership. Please vote all
proxy cards received and return them today in the enclosed postage-paid
envelope, even if you plan to attend the meeting. Your vote FOR the Conversion
will not obligate you to buy any stock. A Proxy Statement relating to the
Conversion is enclosed.
As part of the Conversion, the Company is offering shares of its common
stock in accordance with federal regulations. You may take advantage of your
nontransferable right to purchase shares directly from the Company, without
commission or fee. We have enclosed a package of information, including a
Prospectus, which will help you learn more about investing in Montgomery
Financial Corporation's common stock. Like all stock, stock issued in this
offering will NOT BE INSURED BY THE FDIC. If you are interested in purchasing
the common stock of Montgomery Financial Corporation, you must submit your Stock
Order and Certificate Form, and payment prior to noon, Crawfordsville, Indiana
Time, on Xxxx XX, 1997. Please read and review the materials carefully.
If you have any questions, please call the Stock Information Center at
(XXX) XXX-XXXX between 9:00 a.m. and 4:30 p.m., Monday through Thursday or
Friday between 9:00 a.m. and 6:00 p.m., Crawfordsville, Indiana Time, or stop by
the Stock Information Center at 119 E. Main Street in Crawfordsville during
normal business hours.
Thank you for giving these matters your attention and timely
consideration.
Sincerely,
Montgomery Savings
By: Earl F. Elliott
Chief Executive Officer
This letter is neither an offer to sell nor a solicitation of an offer to buy
any securities. The offer is made only by the Prospectus. The shares of common
stock offered in connection with the Conversion are not savings accounts or
deposits and are not insured by the Federal Deposit Insurance Corporation or any
other governmental agency.
<PAGE>
(Stockholder Letter Street holders - 2nd mailing-Montgomery Savings Letterhead)
Dear Stockholder:
Under separate cover on this date, we forwarded to you information
regarding the Plan of Conversion and Reorganization of Montgomery Savings (the
"Bank") and Montgomery Savings Mutual Holding Company (the "MHC") and the
offering of Common Stock by Montgomery Financial Corporation (the "Company").
As a result of certain requirements, we could not forward a Stock Order
Form and Certification Form with the other packet of materials. They are
enclosed herein, along with a Prospectus.
The deadline for ordering the Company's Common Stock is at noon,
Crawfordsville, Indiana Time, on Xxxx XX, 1997.
If you have any questions, please call the Stock Information Center at
(XXX) XXX-XXXX between 9:00 a.m. and 4:30 p.m., Monday through Thursday or
Friday between 9:00 a.m. and 6:00 p.m., Crawfordsville, Indiana Time or stop by
the Stock Information Center at 119 E. Main Street in Crawfordsville during
normal business hours.
Sincerely,
Montgomery Savings
By: Earl F. Elliott
Chief Executive Officer
The shares of Common Stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund, the Savings Association Insurance Fund or any other governmental
agency. This is not an offer to sell or a solicitation of an offer to buy stock.
The offer is made only by the Prospectus.
<PAGE>
[Dear Member "Dark Blue Sky" & Foreign Accounts - On Montgomery Savings
Letterhead]
Dear Member:
We are pleased to announce that Montgomery Savings ("Association") and
its mutual holding company, Montgomery Mutual Holding Company, are reorganizing
into a stock holding company structure (the "Conversion"). In connection with
the Conversion, Montgomery Financial Corporation, the proposed holding company
for Association, is offering shares of common stock in a Subscription Offering
and Community Offering.
Unfortunately, Montgomery Financial Corporation is unable to either
offer or sell its Common Stock to you because the small number of eligible
subscribers in your jurisdiction makes registration or qualification of the
Common Stock under the securities laws of your jurisdiction impractical, for
reasons of cost or otherwise. Accordingly, this letter should not be considered
an offer to sell or a solicitation of an offer to buy the Common Stock of
Montgomery Financial Corporation.
However, as a member of Association, you have the right to vote on the
Plan of Conversion at the Special Meeting of Members to be held on Xxxx XX,
1997. Therefore, enclosed is a proxy card, a Proxy Statement (which includes the
Notice of the Special Meeting), a Subscription and Community Offering Prospectus
(which contains information incorporated into the Proxy Statement) and a return
envelope for your proxy card.
I invite you to attend the Special Meeting on Xxxx XX, 1997. However,
if you are unable to attend, please complete the enclosed proxy card and return
it in the enclosed envelope.
Sincerely,
Montgomery Savings
By: Earl F. Elliott
Chief Executive Officer
<PAGE>
[Montgomery Savings Letterhead]
Dear Friend:
I am pleased to inform you that the Boards of Directors of Montgomery
Savings (the "Association"), Montgomery Mutual Holding Company (the "MHC") and
Montgomery Financial Corporation. (the "Company") have adopted a Plan of
Conversion and Agreement and Plan of Reorganization (the "Plan of Conversion")
whereby the MHC and the Association will be reorganized into a stock holding
company structure (the "Conversion"). The Association has organized the Company
to become the holding company for all of the Association 's stock. Pursuant to
the Plan of Conversion, the existing shareholders of the Association (other than
the MHC) will be issued shares of the Company's common stock (the "Exchange").
The Exchange will result in those shareholders owning in the aggregate the same
percent of the Company as they owned of the Association. In addition to the
shares of Company stock to be issued in the Exchange, the Company is offering
shares of common stock to the MHC's members, the Association's stockholders and
members of the public. Consummation of the Conversion is subject to (i) the
approval of the members of the MHC, (ii) the approval of the stockholders of the
Association and (iii) various regulatory approvals.
As part of the Conversion, the Company is offering shares of its common
stock in accordance with federal regulations. Because you had a deposit account
with the Association as of either September 31, 1995 or March 31, 1997 but
closed the account prior to Xxx XX, 1997, you are entitled to purchase the
common stock being offered but may not vote on the Plan of Conversion. You may
take advantage of your nontransferable right to purchase shares directly from
the Company, without commission or fee. We have enclosed a package of
information, including a Prospectus, which will help you learn more about
investing in Montgomery Financial Corporation's common stock.
Please read and review the materials carefully.
If you have any questions, please call the Stock Information Center at
(XXX) XXX-XXXX between 9:00 a.m. and 4:30 p.m., Monday through Thursday or
Friday between 9:00 a.m. and 6:00 p.m., Crawfordsville, Indiana Time or stop by
the Stock Information Center at 119 E. Main Street in Crawfordsville during
normal business hours.
Thank you for giving these matters your attention and timely
consideration.
Sincerely,
Montgomery Savings
By: Earl F. Elliott
Chief Executive Officer
This letter is neither an offer to sell nor a solicitation of an offer
to buy any securities. The offer is made only by the Prospectus. The shares of
common stock offered in connection with the Conversion are not savings accounts
or deposits and are not insured by the Federal Deposit Insurance Corporation or
any other government agency.
<PAGE>
PROXY GRAM
We recently forwarded to you a proxy statement and letter advising that
Montgomery Savings and Montogmery Mutual Holding COmpany had received
conditional approval to convert from a mutual holding company to a stock
corporation.
YOUR VOTE ON OUR PLAN OF CONVERSION HAS NOT YET BEEN RECEIVED. FAILURE TO VOTE
HAS THE SAME EFFECT AS VOTING AGAINST THE PLAN OF CONVERSION.
Your vote is important to us. Therefore, we are requesting that you sign the
enclosed proxy card and return it promptly in the enclosed postage-paid
envelope.
Voting for the plan of Conversion and Agreement and Plan of Reorganization does
not obligate you to purchase stock or affect the terms or insurance on your
accounts.
The Boards of Directors of Montgomery Savings and Montgomery Mutual Holding
Company unanimously recommend that you vote "FOR" the Plan of Conversion.
MONTGOMERY SAVINGS
Crawfordsville, Indiana
Earl F. Elliott
Chief Executive Officer
If you mailed the proxy, please accept our thanks and disregard this request.
For Further information call (XXX) XXX-XXXX.
The shares of common stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund or any other government agency. This is not an offer to sell or a
solicitation of an offer to buy stock. The offer is made only by the Prospectus.
