SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
[ X ] Filed by the registrant
[ ] Filed by a party other than the registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
MONTGOMERY FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
<PAGE>
September 14, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of
Stockholders (the "Annual Meeting") of Montgomery Financial Corporation (the
"Company"). The Annual Meeting will be held at the main office of the Company
located at 119 East Main Street, Crawfordsville, Indiana, on Tuesday, October
20, 1998 at 2:00 p.m., Crawfordsville, Indiana time. The matters to be
considered by stockholders at the Annual Meeting are described in the
accompanying materials.
It is very important that you be represented at the Annual 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 Annual
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 Financial
Corporation are sincerely appreciated.
Sincerely,
Earl F. Elliott
Chief Executive Officer and President
<PAGE>
MONTGOMERY FINANCIAL CORPORATION
119 East Main Street
Crawfordsville, Indiana 47933
(765) 362-4710
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on October 20, 1998
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of Montgomery Financial Corporation (the "Company") will be held at
the Company's office located at 119 East Main Street, Crawfordsville, Indiana at
2:00 p.m., Crawfordsville, Indiana time, on Tuesday, October 20, 1998.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of two directors of the Company;
2. The ratification of the appointment of Olive LLP as the auditors of
the Company for the fiscal year ending June 30, 1999;
3. The ratification of the adoption of the Company's 1997 Stock Option
and Incentive Plan;
4. The ratification of the adoption of the Company's 1997 Recognition
and Retention Plan;
and such other matters as may properly come before the Meeting, or any
adjournments thereof. The Board of Directors is not aware of any other business
to come before the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on
the date specified above, or on any date or dates to which the Meeting may be
adjourned. Stockholders of record at the close of business on August 31, 1998
are the stockholders entitled to vote at the Meeting and any adjournments
thereof.
You are requested to complete and sign the enclosed form of proxy,
which is solicited on behalf of the Board of Directors, and to mail it promptly
in the enclosed envelope. The proxy will not be used if you attend and vote at
the Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
Earl F. Elliott
Chief Executive Officer and President
Crawfordsville, Indiana
September 14, 1998
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A SELF-
ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF
MAILED WITHIN THE UNITED STATES.
<PAGE>
PROXY STATEMENT
MONTGOMERY FINANCIAL CORPORATION
119 East Main Street
Crawfordsville, Indiana 47933
(765) 362-4710
ANNUAL MEETING OF STOCKHOLDERS
October 20, 1998
This Proxy Statement is furnished in connection with the solicitation
on behalf of the Board of Directors of Montgomery Financial Corporation (the
"Company"), the parent company of Montgomery Savings, A Federal Association
("Montgomery Savings" or the "Association"), of proxies to be used at the Annual
Meeting of Stockholders of the Company (the "Meeting") which will be held at the
Company's office located at 119 East Main Street, Crawfordsville, Indiana on
Tuesday, October 20, 1998, at 2:00 p.m., Crawfordsville, Indiana time, and all
adjournments of the Meeting. The accompanying Notice of Annual Meeting, a proxy
card and this Proxy Statement are first being mailed to stockholders on or about
September 14, 1998.
At the Meeting, stockholders of the Company are being asked to consider
and vote upon the election of two directors, the ratification of the appointment
of Olive LLP as auditors for the Company, the ratification of the Company's 1997
Stock Option and Incentive Plan (the "1997 Stock Option Plan") and the
ratification of the Company's 1997 Recognition and Retention Plan (the "1997
RRP").
Vote Required and Proxy Information
All shares of the Company's Common Stock, par value $.01 per share (the
"Common Stock"), represented at the Meeting by properly executed proxies
received prior to or at the Meeting, and not revoked, will be voted at the
Meeting in accordance with the instructions thereon. If no instructions are
indicated, properly executed proxies will be voted for the director nominees and
the other proposals set forth in this Proxy Statement. The Company does not know
of any matters, other than as described in the Notice of Annual Meeting, that
are to come before the Meeting. If any other matters are properly presented at
the Meeting for action, the persons named in the enclosed form of proxy and
acting thereunder will have the discretion to vote on such matters in accordance
with their best judgment.
Directors shall be elected by a plurality of the votes cast. In all
matters other than the election of directors, the affirmative vote of a majority
of the votes cast shall be the act of the stockholders. Proxies marked to
abstain and broker non-votes have no effect on any of these proposals. One-third
of the shares of the Common Stock, present in person or represented by proxy,
shall constitute a quorum for purposes of the Meeting. Abstentions and broker
non-votes are counted for purposes of determining a quorum.
A proxy given pursuant to the solicitation may be revoked at any time
before it is voted. Proxies may be revoked by: (i) filing with the Secretary of
the Company at or before the Meeting a written notice of revocation bearing a
later date than the proxy, (ii) duly executing a subsequent proxy relating to
the same shares and delivering it to the Secretary of the Company at or before
the Meeting, or (iii) attending the Meeting and voting in person (although
attendance at the Meeting will not in and of itself constitute revocation of a
proxy). Any written notice revoking a proxy should be delivered to the
Secretary, Montgomery Financial Corporation, 119 East Main Street,
Crawfordsville, Indiana 47933.
<PAGE>
Voting Securities and Certain Holders Thereof
Stockholders of record as of the close of business on August 31, 1998
will be entitled to one vote for each share of Common Stock then held. As of
that date, the Company had 1,653,032 shares of Common Stock issued and
outstanding. The following table sets forth information regarding share
ownership of those persons or entities known by management to beneficially own
more than five percent of the Common Stock and all directors and executive
officers of the Company and the Association as a group.
<TABLE>
<CAPTION>
Shares
Beneficially Percent
Beneficial Owner Owned of Class
---------------- ----- --------
<S> <C> <C>
Montgomery Financial Corporation
Employee Stock Ownership Plan
119 East Main Street
Crawfordsville, Indiana 47933 132,250(1) 8.0%
Directors and executive officers of the Company
and the Association, as a group (8 persons) 83,136(2) 5.0%
</TABLE>
- ----------------------
(1) The amount reported represents shares held by the Employee Stock Ownership
Plan ("ESOP"), 9,170 of which have been allocated to accounts of
participants. Community Trust & Investment Company, the trustee of the
ESOP, may be deemed to beneficially own the shares held by the ESOP which
have not been allocated to accounts of participants. Participants in the
ESOP are entitled to instruct the trustee as to the voting of shares
allocated to their accounts under the ESOP. Unallocated shares held in the
ESOP's suspense account or allocated shares for which no voting
instructions are received are voted by the trustee in the same proportion
as allocated shares voted by participants.
(2) Includes shares held directly, as well as in retirement accounts, held by
certain members of the named individuals' families, or held by trusts of
which the named individual is a trustee or substantial beneficiary, with
respect to which the named individuals may be deemed to have sole voting
and investment power. Also includes shares which may be acquired upon
exercise of stock options currently exercisable or which will become
exercisable within 60 days of August 31, 1998.
2
<PAGE>
PROPOSAL I - ELECTION OF DIRECTORS
The Company's Board of Directors is presently composed of seven
members, each of whom is also a director of the Association. Directors of the
Company are generally elected to serve for a three-year term or until their
respective successors shall have been elected and shall qualify. Approximately
one-third of the directors are elected annually.
The following table sets forth certain information regarding the
Company's Board of Directors, including their terms of office and nominees for
election as directors. It is intended that the proxies solicited on behalf of
the Board of Directors (other than proxies in which the vote is withheld as to
one or more nominees) will be voted at the Meeting for the election of the
nominees identified in the following table. If any nominee is unable to serve,
the shares represented by all such proxies will be voted for the election of
such substitute as the Board of Directors may recommend. At this time, the Board
of Directors knows of no reason why any of the nominees might be unable to
serve, if elected. There are no arrangements or understandings between any
director or nominee and any other person pursuant to which such director or
nominee was selected.
<TABLE>
<CAPTION>
Shares of Common
Term Stock Beneficially Percent
Director to Owned at of
Name Age Position(s) Held Since(1) Expire August 31, 1998(2) Class
---- --- ---------------- -------- ------ ------------------ -----
NOMINEES
<S> <C> <C> <C> <C> <C>
Joseph M. Malott 60 Director 1978 2001 9,746 *
J. Lee Walden 50 Director, Vice President, Chief 1995 2001 8,515 *
Operating Officer and Chief
Financial Officer
DIRECTORS CONTINUING IN OFFICE
John E. Woodward 70 Director 1975 1999 9,746 *
C. Rex Henthorn 60 Chairman of the Board 1981 1999 14,746 *
Earl F. Elliott 64 Director, Chief Executive Officer 1973 2000 14,639 *
and President
Mark E. Foster 45 Director 1990 2000 2,470 *
Robert C. Wright 53 Director 1996 2000 5,605 *
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes service as a director of the Association.
(2) Includes shares held directly, as well as, in retirement accounts, held
by certain members of the named individuals' families, or held by
trusts of which the named individual is a trustee or substantial
beneficiary, with respect to which the named individuals may be deemed
to have sole voting and investment power. Also includes shares which
may be acquired upon exercise of stock options currently exercisable or
which will become exercisable within 60 days of August 31, 1998.
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.
<PAGE>
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 Vice President, Chief Operating
Officer and Chief Financial Officer of the Company and the Association's
President and Chief Financial Officer. Mr. Walden first joined the Association
in 1984.
3
<PAGE>
John E. Woodward. Mr. Woodward is retired. He was formerly the President of a
collection agency and credit reporting bureau located in Montgomery County,
Indiana, a position he had held since 1959.
C. Rex Henthorn. Since 1963, Mr. Henthorn has practiced law in the State of
Indiana.
Earl F. Elliott. Mr. Elliott is Chief Executive Officer, President and Director
of the Company and Chairman of the Board 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 Warren County, Indiana, a position he has held
since 1983.
Robert C. Wright. Mr. Wright is the owner and manager of a restaurant located in
Vermillion County, Indiana, a position he has held since 1975.
Meetings and Committees of the Board of Directors
The Company. The Company's Board of Directors meets on a monthly basis.
The Company does not pay directors a fee. The Board of Directors met 13 times
during the year ended June 30, 1998. During fiscal year 1998, no director of the
Company attended fewer than 75% of the total number of Board meetings.
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, 1998. During fiscal year 1998, 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 $6,000 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, Compensation,
Stock Plan and Year 2K Committees.
The members of the Audit Committee are Messrs. Woodward, Malott,
Henthorn, Wright 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 Committee meet to audit all cash items and teller cash and
reconcile such items to the general ledger. The Audit Committee met 2 times
during fiscal 1998.
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 met as Nominating
Committee 1 time in fiscal 1998 to nominate the two persons standing for
election identified above.
<PAGE>
The members of the Compensation Committee are Messrs, Malott, Foster,
Elliott, Wright and Walden. The Compensation Committee reviews and approves all
salaries for officers and employees of Montgomery. The Compensation Committee
met 3 times during fiscal 1998.
The member of the Stock Plan committee are Messrs, Malott, Foster and
Wright. The Stock Plan Committee met 1 time during fiscal 1998.
The members of the Year 2K Committee are Messrs, Malott, Walden and
Elliott. The Year 2K Committee coordinates and oversees testing of corrective
measures for year 2000 problems. The Year 2K Committee met 5 times during fiscal
1998.
4
<PAGE>
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
$100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
--------------------- ----------------------
Awards
----------------------
Restricted
Stock Options/ All Other
Name and Principal Position Year Salary Bonus Award(s) SARs Compensation
($) ($) ($) (#) ($)
---------------------------- ---- -------- ------ ------ ----- -------------
<S> <C> <C> <C> <C>
Earl F. Elliott, Chief Executive 1998 $100,950 $5,000 --- --- $16,489(1)
Officer and President 1997 97,375 3,000 24,374 2,752 26,221(2)
1996 94,275 500 -- --- 26,039(3)
</TABLE>
- ----------------
(1) Represents a contribution by Montgomery of $6,489 pursuant to its 401(k)
plan and $10,000 of deferred compensation payable to Mr. Elliott upon his
retirement.
(2) Represents a contribution by Montgomery of $6,221 pursuant to its 401(k)
plan and $20,000 of deferred compensation payable to Mr. Elliott upon his
retirement.
(3) Represents a contribution by Montgomery of $6,039 pursuant to its 401(k)
plan and $20,000 of deferred compensation payable to Mr. Elliott upon his
retirement.
The following table sets forth certain information concerning the
number and value of in-the-money (when the fair market value of the common stock
exceeds the exercise price of the option) stock options at June 30, 1998 held by
the named executive officer and stock options exercised during fiscal 1998.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares FY-End (#) FY-End ($)(1)
Acquired Value ------------------------------- ---------------------------
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Earl F. Elliott --- $--- 550 2,202 $6,738 $26,975
</TABLE>
<PAGE>
(1) Represents the aggregate market value (market price of the Common Stock
less the exercise price) of the option granted based on the closing
price of $12.25 per share of the Common Stock as reported on the Nasdaq
National Market on June 30, 1998.
5
<PAGE>
Employment Agreements. The Association has entered into employment
agreements with Chief Executive Officer Elliott and President Walden providing
for an initial term of three years. The agreements were filed with the OTS as
part of the application of the Company for approval to became a savings and loan
holding company. The employment agreements became 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 June 30, 1998 under
circumstances entitling them to severance pay as described above, they would
have been entitled to receive a lump such cash payment of approximately $268,000
and $187,000, 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.
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. Elliott a cash retirement
payment of $100,000, 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. 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. The Company 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 Company has an incentive bonus plan which
provides for annual cash bonuses to certain officers as a means of recognizing
<PAGE>
achievement on the part of such employees. The bonuses are determined based on a
combination of the Company's and the individual employee's performance during
the year. The Company's bonus expense was $31,600 for the fiscal year ended June
30, 1998, of which $5,000 was paid to Earl F. Elliott.
401(k) Plan. The Company 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 18 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 Company matches 100% of the first 7% of each participant's salary reduction
contribution to the 401(k) Plan.
6
<PAGE>
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 Company's accrued expense for the Plan was $52,000 and $48,000 for the years
ended June 30, 1998 and 1997, respectively, of which $6,489 and $6,221 were
accrued for Earl F. Elliott.
Employee Stock Ownership Plan. Concurrent with the Company's
organization and public offering an Employee Stock Ownership Plan ("ESOP") was
established for the benefit of employees of the Company and its subsidiaries.
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.
The ESOP was funded with a loan in the amount of $1,322,500 from the
Company which was used to purchase 132,250 shares of Common Stock pursuant to
the Conversion and Reorganization. The interest rate of the ESOP loan is equal
to the prime rate of interest on the date the loan was 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. Since the Company financed the ESOP debt, the ESOP debt is
eliminated through consolidation and no liability is reflected on the Company's
consolidated financial statements. In addition, the shares purchased are
excluded from stockholders' equity, representing unearned compensation to
employees for future services not yet performed. As services are rendered and
shares earned, total stockholders equity will correspondingly increase.
All employees of the Company are eligible to participate in the ESOP
after they attain age 21 and complete one year of service. Employees are
credited for years of service to the Company prior to the adoption of the ESOP
for participation and vesting purposes. The Company'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,
Community Trust & Investment Company, is not affiliated with the Company or
Montgomery Savings.
<PAGE>
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.
Stock Incentive Plan. The Company has adopted the 1995 Stock Incentive
Plan (the "1995 Incentive Plan") which provides for the grant of compensatory
stock options to employees. Pursuant to the 1995 Incentive Plan, options
covering 24,483 shares have been granted, including 2,752 to Earl F. Elliott,
1,431 to J. Lee Walden, and 1,541 to Nancy L. McCormick. Options granted
pursuant to the 1995 Incentive Plan have an exercise price equal to the fair
market
7
<PAGE>
value of a share of Common Stock on the date of grant. The share amounts have
been adjusted for the exchange in the Association's 1997 conversion and
reorganization (the "Conversion").
Directors' Stock Option Plan. The Company has adopted the 1995 Directors' Stock
Option Plan (the "1995 Directors' Plan") which provides for the grant of
compensatory stock options to non-employee directors. Pursuant to the 1995
Directors' Plan, each of the five directors of the Bank who were not employees
of the Bank or any subsidiary was granted a compensatory stock option to
purchase 2,098 shares of Common Stock on February 18, 1997. Options granted
pursuant to the Directors' Plan have an exercise price equal to the fair market
value of a share of Common Stock on the date of grant. The share amounts have
been adjusted for the exchange in the Conversion.
Management Recognition Plan. The Company has adopted the 1995
Management Recognition Plan (the "1995 MRP") which provides for the grant of
restricted Common Stock. Pursuant to the 1995 MRP, 13,988 shares have been
granted, including 3,497 to Earl F. Elliott, 2,798 to J. Lee Walden and 2,098 to
Nancy L. McCormick. The restricted stock granted pursuant to the 1995 MRP vests
20% per year from the date of grant. The share amounts have been adjusted for
the exchange in the Conversion.
1997 Plans. In addition the Board has approved, subject to stockholder
ratification, the 1997 Stock Option Plan and the 1997 RRP. For more information
on these plans see "Proposal III - Ratification of the 1997 Stock Option and
Incentive Plan" and "Proposal IV - Ratification of the 1997 Recognition and
Retention Plan."
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. The Association 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 the Company has paid fees to Henthorn, Harris,Taylor
& Weliever, P.C., a law firm in which Chairman Henthorn is a principal, for
legal services performed for Montgomery. For the year ended June 30, 1998,
Montgomery paid fees totalling $1,362 to such law firm for services provided to
Montgomery. In addition, Henthorn, Harris, Taylor, & Weliever P.C. provides
legal services from time to time in connection with loans made by Montgomery
Savings, for which services such law firm is compensated by the borrowers.
At June 30, 1998, the Association's loans to directors, officers and
employees totalled approximately $1,259,000 or 6.27% stockholders' equity.
<PAGE>
PROPOSAL II - RATIFICATION OF APPOINTMENT OF AUDITORS
At the Meeting, the stockholders will consider and vote on the
ratification of the appointment of Olive LLP as the Company's independent
auditors for the Company's fiscal year ending June 30, 1999.
The Board of Directors of the Company has heretofore renewed the
Company's arrangement for Olive LLP to be the Company's auditors for the fiscal
year ending June 30, 1999, subject to ratification by the Company's
stockholders. Representatives of Olive LLP are expected to attend the Meeting to
respond to appropriate questions and to make a statement if they so desire.
8
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF OLIVE LLP AS THE COMPANY'S AUDITORS FOR THE
FISCAL YEAR ENDING JUNE 30, 1999.
PROPOSAL III - RATIFICATION OF THE 1997 STOCK OPTION
AND INCENTIVE PLAN
General
The 1997 Stock Option Plan has been adopted by the Board of Directors
of the Company, subject to ratification by stockholders at the Meeting. Pursuant
to the 1997 Stock Option Plan, the Company will reserve for issuance thereunder
either from authorized but unissued shares or from issued shares reacquired and
held as treasury shares, 118,678 shares of the Common Stock (10% of the shares
issued in the Association's 1997 conversion excluding shares issued in exchange
for shares of the Association). Management may, to the extent practicable and
feasible, fund the 1997 Stock Option Plan from issued shares reacquired by the
Company in the open market. To the extent the Company utilizes authorized but
unissued Common Stock to fund the 1997 Stock Option Plan, the exercise of stock
options will have the effect of diluting the holdings of persons who own the
Common Stock. Assuming all options under the 1997 Stock Option Plan are awarded
and exercised through the use of authorized but unissued Common Stock, current
stockholders would be diluted by approximately 6.7%.
The Board of Directors believes that it is appropriate for the Company
to adopt a flexible and comprehensive 1997 Stock Option Plan which permits the
granting of a variety of long-term incentive awards to directors, officers and
employees as a means of enhancing and encouraging the recruitment and retention
of those individuals on whom the continued success of the Company most depends.
However, because the awards are granted only to persons affiliated with the
Company, the adoption of the 1997 Stock Option Plan could make it more difficult
for a third party to acquire control of the Company and therefore could
discourage offers for the Company's stock that may be viewed by the Company's
stockholders to be in their best interest. In addition, certain provisions
included in the Company's Certificate of Incorporation and Bylaws may discourage
potential takeover attempts, particularly those that have not been negotiated
directly with the Board of Directors of the Company. Included among these
provisions are provisions (i) limiting the voting power of shares held by
persons owning 10% or more of the Common Stock, (ii) requiring a supermajority
vote of stockholders for approval of certain business combinations, (iii)
establishing a staggered Board of Directors, (iv) permitting special meetings of
stockholders to be called only by the Board of Directors and (v) authorizing a
class of preferred stock with terms to be established by the Board of Directors.
These provisions could prevent the sale or merger of the Company even where a
majority of the stockholders approve of such transaction.
In addition, federal regulations prohibit the beneficial ownership of
more than 10% of the stock of a converted savings institution or its holding
company without prior approval of the OTS. Federal law and regulations also
require OTS approval prior to the acquisition of "control" (as defined in the
OTS regulations) of an insured institution, including a holding company thereof.
These regulations could have the effect of discouraging takeover attempts of the
Company.
Attached as Exhibit A to this Proxy Statement is the complete text of
the 1997 Stock Option Plan. The principal features of the 1997 Stock Option Plan
are summarized below.
<PAGE>
Principal Features of the 1997 Stock Option Plan
The 1997 Stock Option Plan provides for awards in the form of stock
options, stock appreciation rights ("SARs") and limited stock appreciation
rights ("LSARs"). Each award shall be on such terms and conditions, consistent
with the 1997 Stock Option Plan as the committee administering the 1997 Stock
Option Plan may determine.
Shares awarded pursuant to the 1997 Stock Option Plan may be either
authorized but unissued shares or reacquired shares held by the Company in its
treasury. Any shares subject to an award which expires or is terminated
9
<PAGE>
unexercised will again be available for issuance under the 1997 Stock Option
Plan or any other plan of the Company or its subsidiaries. Generally, no award
or any right or interest therein is assignable or transferable except under
certain limited exceptions set forth in the 1997 Stock Option Plan.
The 1997 Stock Option Plan will be administered by a committee (the "Stock Plan
Committee"), comprised of two or more non-employee directors of the Company.
Pursuant to the terms of the 1997 Stock Option Plan, any director, officer or
employee of the Company or its affiliates, including directors emeritus and
advisory directors, is eligible to participate in the 1997 Stock Option Plan. In
granting awards under the 1997 Stock Option Plan, the Stock Plan Committee will
consider, among other things, position and years of service, value of the
participant's services to the Company and the Association and the added
responsibilities of such individuals as employees, directors and officers of a
public company.
Stock Options
The term of stock options may not exceed ten years from the date of
grant. The Stock Plan Committee may grant either "incentive stock options" as
defined under Section 422 of the Code or stock options not intended to qualify
as such ("non-qualified stock options").
In general, stock options will not be exercisable after the expiration
of their terms. Unless otherwise determined by the Stock Plan Committee, in the
event a participant ceases to maintain continuous service (as defined in the
1997 Stock Option Plan) with the Company or one of its affiliates, for any
reason (excluding death, disability and termination for cause), an exercisable
stock option will continue to be exercisable for three months thereafter but in
no event after the expiration date of the option. Unless otherwise provided by
the Stock Plan Committee, in the event of disability of a participant during
such service, all options not then exercisable shall become exercisable in full
and remain exercisable for a period of three months from the date of such
disability. Unless otherwise provided by the Stock Plan Committee, in the event
of death of a participant, all options not then exercisable shall become
exercisable in full. Unless otherwise provided by the Stock Plan Committee, in
the event of the death of a participant during such service or within the
three-month period described above following termination of service described
above, an exercisable option will continue to be exercisable for one year, to
the extent exercisable by the participant upon his death, but in no event later
than ten years after grant. Following the death of any participant, the Stock
Plan Committee may, as an alternative means of settlement of an option, elect to
pay to the holder thereof an amount of cash equal to the amount by which the
market value of the shares covered by the option on the date of exercise exceeds
the exercise price. A stock option will automatically terminate and will no
longer be exercisable as of the date a participant is notified of termination
for cause.
The exercise price for the purchase of shares subject to a stock option
at the date of grant may not be less than 100% of the market value of the shares
covered by the option on that date. The exercise price must be paid in full in
cash or, if permitted by the Stock Plan Committee, shares of Common Stock, or a
combination of both.
<PAGE>
Stock Appreciation Rights
The Stock Plan Committee may grant 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, as described
above. Upon the exercise of a SAR, the participant will receive the amount due
in cash or shares, or a combination of both, as determined by the Stock Plan
Committee. SARs may be related to stock options ("tandem SARs"), in which case
the exercise of one will reduce to that extent the number of shares represented
by the other.
SARs will require an expense accrual by the Company each year for the
appreciation on the SARs which it is anticipated will be exercised. The amount
of the accrual is dependent upon whether and the extent to which the SARs are
granted and the amount, if any, by which the market value of the SARs exceeds
the exercise price.
10
<PAGE>
Limited Stock Appreciation Rights
Limited SARs will be exercisable only for a limited period in the event
of a tender or exchange offer for shares of the Company's Common Stock, other
than by the Company, where 25% or more of the outstanding shares are acquired in
that offer or any other offer which expires within 60 days of that offer. The
amount paid on exercise of a Limited SAR will be the excess of (a) the market
value of the shares on the date of exercise, or (b) the highest price paid
pursuant to the offer, over the exercise price. Payment upon exercise of a
Limited SAR will be in cash.
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. Subject to vesting requirements
contained in OTS regulations, 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.
Effect of Merger; Change in Control; and Other Adjustments
Shares as to which awards may be granted under the 1997 Stock Option
Plan, and shares then subject to awards, will be adjusted appropriately by the
Stock Plan Committee in the event of any merger, consolidation, reorganization,
recapitalization, combination or exchange of shares, stock dividend, stock split
or other change in the corporate structure or Common Stock of the Company.
In the event of any merger, consolidation or combination of the Company
with or into another company or other entity, whereby either the Company is not
the continuing entity or its outstanding shares of Common Stock are converted
into or exchanged for different securities, cash or property, or any combination
thereof, pursuant to a plan or agreement the terms of which are binding upon all
stockholders, any participant to whom a stock option or SAR has been granted
will have the right upon exercise of the option or SAR (subject to the terms of
the 1997 Stock Option Plan and any other limitation or vesting period applicable
to such option or SAR) to an amount equal to the excess of fair market value on
the date of exercise of the consideration receivable in the merger,
consolidation or combination with respect to the shares covered or represented
by the stock option or SAR over the exercise price of the option or SAR
multiplied by the number of shares with respect to which the option or SAR has
been exercised.
Furthermore, in the event of a tender or exchange offer (other than an
offer made by the Company) or if a "change in control" occurs as defined below,
all outstanding stock options and SARs not fully exercisable will become
exercisable in full and shall continue to be exercisable for their remaining
terms. A change in control will be deemed to occur when (i) a person or group
becomes the beneficial owner of shares of the Company representing 25% or more
of the total number of votes which may be cast for the election of the Board of
Directors of the Company and the Association, (ii) in connection with any tender
or exchange offer (other than an offer by the Company or the Association),
merger or other business combination, sale of assets or contested election, or
combination of the foregoing, the persons who are directors of the Company or
the Association cease to be a majority of the Board of Directors of the Company
or the Association, or (iii) stockholders of the Company approve a transaction
pursuant to which the Company will cease to be an independent publicly-owned
company or pursuant to which substantially all of the assets of the Company or
the Association will be sold.
<PAGE>
Amendment and Termination
The Board of Directors of the Company may at any time amend, suspend or
terminate the 1997 Stock Option Plan or any portion thereof, but may not,
without the prior ratification of the stockholders, make any amendment which
shall (i) materially increase the aggregate number of securities which may be
issued under the 1997 Stock Option Plan (except as specifically set forth under
the 1997 Stock Option Plan), (ii) materially change the requirements as to
eligibility for participation in the 1997 Stock Option Plan or (iii) change the
class of persons eligible to participate in the 1997 Stock Option Plan,
provided, however, that no such amendment, suspension or termination shall
impair the rights of any participant, without his consent, in any award made
pursuant to the 1997 Stock Option Plan. Unless
11
<PAGE>
previously terminated, the 1997 Stock Option Plan shall continue in effect for a
term of ten years, after which no further awards may be granted under the 1997
Stock Option Plan.
Federal Income Tax Consequences
Under present federal income tax laws, awards under the 1997 Stock
Option Plan will have the following consequences:
(1) The grant of an award will neither, by itself, result in the recognition of
taxable income to the participant nor entitle the Company to a deduction at
the time of such grant.
(2) In order to qualify as an "Incentive Stock Option," a stock option awarded
under the 1997 Stock Option Plan must meet the conditions contained in
Section 422 of the Code, including the requirement that the shares acquired
upon the exercise of the stock option be held for one year after the date
of exercise and two years after the grant of the option. The exercise of an
Incentive Stock Option will generally not, by itself, result in the
recognition of taxable income to the participant nor entitle the Company to
a deduction at the time of such exercise. However, the difference between
the exercise price and the fair market value of the option shares on the
date of exercise is an item of tax preference which may, in certain
situations, trigger the alternative minimum tax. The alternative minimum
tax is incurred only when it exceeds the regular income tax. The
alternative minimum tax will be payable at the rate of 26% on the first
$175,000 of "minimum taxable income" above the exemption amount ($33,750
single person or $45,000 married person filing jointly). This tax applies
at a flat rate of 28% of so much of the taxable excess as exceeds $175,000
and 28% on minimum taxable income more than $175,000 above the applicable
exemption amounts. If a taxpayer has alternative minimum taxable income in
excess of $150,000 (married persons filing jointly) or $112,500 (single
person), the $45,000 or $33,750 exemptions are reduced by an amount equal
to 25% of the amount by which the alternative minimum taxable income of the
taxpayer exceeds $150,000 or $112,500, respectively. Provided the
applicable holding periods described above are satisfied, the participant
will recognize long term capital gain or loss upon the resale of the shares
received upon such exercise.
(3) The exercise of a stock option which is not an Incentive Stock Option will
result in the recognition of ordinary income by the participant on the
date of exercise in an amount equal to the difference between the exercise
price and the fair market value on the date of exercise of the shares
acquired pursuant to the stock option.
(4) The exercise of a SAR will result in the recognition of ordinary income by
the participant on the date of exercise in an amount of cash, and/or the
fair market value on that date of the shares, acquired pursuant to the
exercise.
(5) The Company will be allowed a deduction at the time, and in the amount of,
any ordinary income recognized by the participant under the various
circumstances described above, provided that the Company meets its federal
withholding tax obligations.
<PAGE>
Awards Under the Stock Option Plan
Although the Stock Plan committee has not made a determination with
respect to the grant of any awards under the 1997 Stock Option Plan, no
individual will be granted an award with respect to more than 25% of the total
shares subject to the 1997 Stock Option Plan. In addition, no non-employee
director of the company will be granted an award of more than 5% of the total
shares subject to the 1997 Stock Option Plan. All options are required to be
granted with an exercise price equal to the fair market value of the shares on
the date of grant.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE ADOPTION OF THE 1997 STOCK OPTION AND INCENTIVE PLAN.
12
<PAGE>
PROPOSAL IV -
RATIFICATION OF THE 1997 RECOGNITION AND RETENTION PLAN
General
The 1997 RRP has been adopted by the Board of Directors of the Company,
subject to stockholder ratification. The 1997 RRP is designed to provide
directors, directors emeriti, advisory directors, officers and employees with a
proprietary interest in the Company in a manner designed to encourage such
individuals to remain with the Company and the Association. Pursuant to the 1997
RRP, the maximum number of shares which may be awarded under the 1997 RRP will
be an amount which, when added to the number of shares of common stock awarded
under the Company's 1995 plan, equals 66,121 shares of Common Stock (or 4.0% of
the total shares outstanding upon completion of the Association's 1997
conversion and reorganization), funded from either authorized but unissued
shares or issued shares subsequently reacquired and held as treasury shares.
Management currently intends, to the extent practicable and feasible, to fund
the 1997 RRP from issued shares reacquired by the Company in the open market. To
the extent the Company utilizes authorized but unissued shares to fund the 1997
RRP the interests of current stockholders will be diluted. Assuming all 1997 RRP
Shares are awarded through the use of authorized but unissued Common Stock,
current stockholders would be diluted by approximately 3.1%.
Attached as Exhibit B to this Proxy Statement is the complete text of the
form of the 1997 RRP. The principal features of the 1997 RRP are summarized
below.
Principle Features of the 1997 RRP
The 1997 RRP provides for the award of shares of Common Stock ("1997 RRP
Shares") subject to the restrictions described below. Each award under the 1997
RRP will be made on such terms and conditions, consistent with the terms of the
1997 RRP, as the Stock Plan Committee shall determine.
The 1997 RRP will be administered by the Stock Plan Committee. The Stock
Plan Committee will select the recipients and terms of awards pursuant to the
1997 RRP. In determining to whom and in what amount to grant awards, the Stock
Plan Committee considers the position and responsibilities of eligible
individuals, the value of their services to the Company and the Association and
other factors it deems relevant. Pursuant to the terms of the 1997 RRP, any
director, officer or employee of the Company or its affiliates, including
advising directors and directors emeritus, may be selected by the Stock Plan
Committee to participate in the 1997 RRP, although no specific grants have been
determined to date.
The 1997 RRP provides that shares used to fund awards under the 1997 RRP
may be either authorized but unissued shares or reacquired shares held by the
Company in its treasury. Any 1997 RRP Shares which are forfeited will again be
available for issuance under the 1997 RRP.
Recipients earn (i.e., become vested in) awards, over a period of time as
determined by the Stock Plan Committee at the time of grant. In addition, no
director who is not an employee of the Company will be granted an award with
respect to more than 5% of the total shares subject to the 1997 RRP and no
individual will be granted an award with respect to more than 25% of the total
1997 RRP Shares. It is intended that no award granted to an executive officer of
the Company or its affiliates shall vest in any fiscal year (and shall be
carried over to the subsequent fiscal year) in which the Association fails to
meet all of its fully phased-in capital requirements.
<PAGE>
The Stock Plan Committee may, in its discretion, accelerate the time at
which any or all restrictions will lapse, or may remove any or all of the
restrictions. In the event a participant ceases to maintain continuous service
with the Company or the Association by reason of death, disability or retirement
at age 65 or later, 1997 RRP Shares still subject to restrictions will be free
of these restrictions and will not be forfeited. In the event of termination for
any other reason, all shares will be forfeited and returned to the Company
except in connection with a change in control as described below.
13
<PAGE>
Unless the Stock Plan Committee shall otherwise provide, holders of RRP
Shares have the right to vote RRP Shares which have not been earned and the
right to receive dividends, if any, paid on the Common Stock. Holders of RRP
Shares may not, however, sell, assign, transfer, pledge or otherwise encumber
any of the RRP Shares during the restricted period.
Effect of Change in Control and Other Adjustments
The restricted period with respect to a RRP Share will lapse and the
remaining RRP Shares still subject to restrictions will be earned in the event a
recipient is involuntarily terminated at any time within 12 months of a "change
in control," unless the Stock Plan Committee shall have provided otherwise. A
change in control will be deemed to occur when (i) a person or group becomes the
beneficial owner of shares of the Company or the Association representing 25% or
more of the total number of votes which may be cast for the election of the
Board of Directors of the Company or the Association, (ii) in connection with
any tender or exchange offer (other than an offer by the Company or the
Association) merger or other business combination, sale of assets or contested
election, or combination of the foregoing, the persons who are Directors of the
Company or the Association cease to be a majority of the Board of Directors of
the Company or the Association or (iii) stockholders of the Company approve an
agreement providing for a transaction in which the Company will cease to be an
independent publicly owned entity or substantially all of the assets of the
Company or the Association will be sold.
1997 RRP Shares awarded under the 1997 RRP will be adjusted by the Stock
Plan Committee in the event of a reorganization, recapitalization, stock split,
stock dividend, combination or exchange of shares, merger, consolidation or
other change in corporate structure or the Common Stock of the Company.
Federal Income Tax Consequences
Holders of 1997 RRP Shares will recognize ordinary income on the date that
the 1997 RRP Shares are no longer subject to a substantial risk of forfeiture,
in an amount equal to the fair market value of the shares on that date. In
certain circumstances, a holder may elect to recognize ordinary income and
determine such fair market value on the date of the grant of the 1997 RRP
Shares. Holders of 1997 RRP Shares will also recognize ordinary income equal to
their dividend or dividend equivalent payments when such payments are received.
Generally, the amount of income recognized by participants will be a deductible
expense for tax purposes for the Company.
Amendment or Termination
The Board of Directors of the Company may amend, suspend or terminate the
1997 RRP or any portion thereof at any time, 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 1997 RRP.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE ADOPTION OF THE 1997 RECOGNITION AND RETENTION PLAN.
<PAGE>
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials
for the next annual meeting of stockholders, any stockholder proposal to take
action at such meeting must be received at the Company's office located at 119
East Main Street, Crawfordsville, Indiana 47933, no later than May 17, 1999. Any
such proposal shall be subject to the requirements of the proxy rules adopted
under the Exchange Act. If a proposal does not meet the above requirements for
inclusion in the Company's proxy materials, but otherwise meets the Company's
eligibility requirements to be presented at the next Annual Meeting of
Stockholders, the persons named in the enclosed form of proxy and acting thereon
will have the discretion to vote on any such proposal in accordance with their
best judgement if the proposal is received at the company's main office later
than July 16, 1999.
14
<PAGE>
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement.
However, if any other matter should properly come before the Meeting, it is
intended that holders of the proxies will act in accordance with their best
judgment.
The cost of solicitation of proxies will be borne by the Company. The
Company 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 Common Stock. In addition to solicitation by mail,
directors, officers and regular employees of the Company and/or the Association
may solicit proxies personally or by telegraph or telephone without additional
compensation. The Company has retained Corporate Investor Communications, Inc.
to assist in the solicitation of proxies for a fee estimated to be approximately
$3,500 plus reasonable out-of-pocket expenses.
Crawfordsville, Indiana
September 14, 1998
15
<PAGE>
Exhibit A
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,
officers and employees of the Corporation and its Affiliates. It is intended
that designated Options granted pursuant to the provi sions 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. Options granted as Incentive Stock Options but
which, for any reason, fail to qualify as such shall automatically become
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 respect to any Options 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.
<PAGE>
"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.
<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 exercis able, 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.
<PAGE>
"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, 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
2
<PAGE>
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.
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 performance 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, 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. No individual shall
be granted Awards in any calendar year with respect to more than 25% of the
total Shares subject to the Plan.
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").
<PAGE>
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 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
<PAGE>
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.
<PAGE>
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 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
4
<PAGE>
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 exercisable 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. Notwithstanding
any other provision of the Plan, 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
<PAGE>
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 Related 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.
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
5
<PAGE>
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 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. Effect of Change in Control. Each of the events specified in the
following clauses (i) through (iii) of this Section 13 shall be deemed a "change
of control": (i) any third person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, shall become the beneficial
owner of shares of the Corporation or the Association with respect to which 25%
or more of the total number of votes for the election of the Board of Directors
of the Corporation or the Association may be cast, (ii) as a result of, or in
connection with, any cash tender offer, exchange offer, merger or other business
combination, sale of assets or contested election, or combination of the
foregoing, the persons who were directors of the Corporation or the Association
shall cease to constitute a majority of the Board of Directors of the
Corporation or the Association, or (iii) the shareholders of the Corporation
shall approve an agreement providing either for a transaction in which the
Corporation will cease to be an independent publicly owned entity or for a sale
or other disposition of all or substantially all the assets of the Corporation
or the Association. If a tender offer or exchange offer for Shares (other than
such an offer by the Corporation) is commenced, or if any of the events
specified in clauses (i) through (iii) above shall occur, unless the Committee
shall have otherwise provided in the instrument evidencing the grant of an
Option or Stock Appreciation Right, all Options and Stock Appreciation Rights
theretofore granted and not fully exercisable shall become exercisable in full
upon the happening of such event; provided, however, that no Option or Stock
Appreciation Right which has previously been exercised or otherwise terminated
shall become exercisable.
<PAGE>
14. 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.
15. 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.
6
<PAGE>
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.
16. 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 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.
17. 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.
18. Amendment or Termination. The Board of Directors of the Corporation
may amend, suspend or terminate the Plan or any portion thereof at any time, but
(except as provided in Section 11 hereof) no amendment shall be made without
approval of the stockholders of the Corporation which shall (i) materially
increase the aggregate number of Shares with respect to which Awards may be made
under the Plan, (ii) materially change the requirements as to eligibility for
participation in the Plan or (iii) 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.
19. 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
<PAGE>
Exhibit B
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 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 7 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.
<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.
(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 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, including
but not limited to the right to receive all dividends paid on such shares
and the right to vote such shares. 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.
<PAGE>
(b) Except as provided in Section 5 hereof, if a Participant ceases to
maintain Continuous Service for any reason (other than death, total or
partial disability or retirement at age 65 or later), 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, total or partial
disability or retirement at age 65 or later, Restricted Stock then still
subject to restrictions imposed by paragraph (a) of this Section 3 will be
free of those restrictions.
2
<PAGE>
(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) At the time of an award of shares of Restricted Stock, the Committee may,
in its discretion, determine that the payment to the Participant of
dividends declared or paid on such shares, or specified portions thereof,
by the Corporation shall be deferred until the lapsing of the restrictions
imposed under paragraph (a) of this Section 3 and shall be held by the
Corporation for the account of the Participant until such time. In the
event of such deferral, there shall be credited at the end of each year
(or portion thereof) interest on the amount of the account at the
beginning of the year at a rate per annum as the Committee, in its
discretion, may determine. In the event of such deferral, upon the
forfeiture of such shares under paragraph (b) of this Section 3, all
deferred dividends and interest thereon shall be forfeited.
(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.
<PAGE>
5. Effect of Change in Control. Each of the events specified in the
following clauses (i) through (iii) of this Section 5 shall be deemed a "change
of control": (i) any third person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, shall become the beneficial
owner of shares of the Corporation or the Association with respect to which 25%
or more of the total number of votes may be cast for the election of the Board
of Directors of the Corporation or the Association, (ii) as a result of, or in
connection with, any cash tender offer, merger or other business combination,
sale of assets or contested election, or combination of the foregoing, the
persons who were directors of the Corporation or the Association shall cease to
constitute a majority of the Board of Directors of the Corporation or the
Association, or (iii) the shareholders of the Corporation shall approve an
agreement providing either for a transaction in which the Corporation will cease
to be an independent publicly owned entity or for a sale or other disposition of
all or substantially all the assets of the Corporation or the Association. If
the Continuous Service of any Participant is involuntarily
3
<PAGE>
terminated for whatever reason, at any time within twelve months after a change
in control, unless the Committee shall have otherwise provided, any Restricted
Period with respect to Restricted Stock theretofore awarded to such Participant
shall lapse upon such termination and all Shares awarded as Restricted Stock
shall become fully vested in the Participant to whom such Shares were awarded.
6. 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 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.
7. 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, 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.
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.
8. 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.
<PAGE>
9. 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.
4
<PAGE>
10. 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) 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.
11. Amendment or Termination. The Board of Directors of the Corporation
may amend, suspend or terminate the Plan or any portion thereof at any time;
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.
12. 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
<PAGE>
REVOCABLE PROXY
MONTGOMERY FINANCIAL CORPORATION
[ X ] PLEASE MARK VOTES AS IN THIS EXAMPLE
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 20, 1998
The undersigned hereby appoints the Board of Directors of Montgomery Financial
Corporation (the "Company"), and its survivor, with full power of substitution,
to act as attorneys and proxies for the undersigned to vote all shares of common
stock of the Company which the undersigned is entitled to vote at the Annual
Meeting of Stockholders (the "Meeting"), to be held on Tuesday, October 20, 1998
at the Company's main office, located at 119 East Main Street, Crawfordsville,
Indiana, at 2:00 P.M. local time, and at any and all adjournments thereof, as
follows:
I. The election of the following directors for the terms specified:
JOSEPH M. MALLOTT (3-year term) J. LEE WALDEN (3-year term)
[ ] FOR [ ] WITHHOLD [ ] EXCEPT
INSTRUCTION: To withhold authority to vote for any individual nominee, mark
"Except" and write that nominee's name in the space provided below.
- --------------------------------------------------------------------------------
II. The ratification of the appointment of Olive LLP, independent auditors for
the Company for the fiscal year ending June 30, 1999
[ ] FOR [ ] AGAINST [ ] ABSTAIN
III. The ratification of the adoption of the Company's 1997 Stock Option and
Incentive Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IV. The ratification of the adoption of the Company's 1997 Recognition and
Retention Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote on any other business
that may properly come before the Meeting or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE LISTED PROPOSALS.
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSALS STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
Please be sure to sign and date this Proxy in the box below.
_________________________________________
Date
_________________________________________
Stockholder sign above
_________________________________________
Co-holder (if any) sign above
Detach above card, sign, date and mail in postage paid envelope provided.
MONTGOMERY FINANCIAL CORPORATION
This proxy may be revoked at any time before it is voted by: (i) filing with
the Secretary of the Company at or before the Meeting a written notice of
revocation bearing a later date than the proxy; (ii) duly executing a subsequent
proxy relating to the same shares and delivering it to the Secretary of the
Company at or before the Meeting; or (iii) attending the Meeting and voting in
person (although attendance at the Meeting will not in and of itself constitute
revocation of a proxy). If this proxy is properly revoked as described above,
then the power of such attorneys and proxies shall be deemed terminated and of
no further force and effect.
The above signed acknowledges receipt from the Company, prior to the execution
of this Proxy, of a Notice of the Annual Meeting, a Proxy Statement and the
Company's Annual Report to Stockholders for the fiscal year ended June 30, 1998.
Please sign exactly as your name appears hereon. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder should sign.
PLEASE PROMPTLY COMPLETELY, DATE, SIGN ANDMAIL
THIS PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
