Filed with the Securities and Exchange Commission on June 12, 1997
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CITIZENS BANCORP
(Exact name of registrant as specified in its charter)
Indiana 6712 35-2017500
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code No.) Identification No.)
incorporation or
organization)
60 South Main Street Fred W. Carter
P.O. Box 635 Citizens Savings Bank
Frankfort, Indiana 46041 of Frankfort
(765) 654-8533 60 South Main Street
P.O. Box 635
Frankfort, Indiana 46041
(765) 654-8533
Copy to:
Claudia S. Swhier, Esq.
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
-----------------
Approximate date of commencement of proposed sale to the public: As
promptly as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed Maximum Amount of
Title of each Class of Amount to be Maximum Offering Aggregate Offering Registration
Securities to be Registered Registered Price Per Unit Price (1) Fee
<S> <C> <C> <C> <C>
Common Stock, without par value 1,058,000 $10.00 $10,580,000 $3,206.06
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
<TABLE>
<CAPTION>
CROSS-REFERENCE SHEET
Item in Form S-1 Caption in Prospectus
<S> <C> <C>
1. Forepart of Registration Statement and Outside Forepart of Registration Statement and Outside
Front Cover Page of Prospectus Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover Pages of
Prospectus Prospectus
3. Summary Information, Risk Factors, and Ratio of "QUESTIONS AND ANSWERS ABOUT
Earnings to Fixed Charges THE STOCK OFFERING"; "SUMMARY"; "RISK
FACTORS"
4. Use of Proceeds "USE OF PROCEEDS"
5. Determination of Offering Price "THE CONVERSION - Stock Pricing"
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution "SUMMARY"; "THE CONVERSION - Subscription
Offering," "- Community Offering," "-Agent,"
"- Selected Dealers"
9. Description of Securities to be Registered "DESCRIPTION OF CAPITAL STOCK"
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to Registrant
(a) Description of Business "CITIZENS BANCORP"; "CITIZENS SAVINGS
BANK OF FRANFORT", "BUSINESS OF CITIZENS"
(b) Description of Property "BUSINESS OF CITIZENS - Properties"
(c) Legal Proceedings "BUSINESS OF CITIZENS - Legal Proceedings"
(d) Market Price of and Dividends on the "MARKET FOR THE COMMON STOCK;"
Registrant's Common Equity and Related "DIVIDENDS;" "PROPOSED PURCHASES
Stockholder Matters BY DIRECTORS AND EXECUTIVE OFFICERS";
"DESCRIPTION OF CAPITAL STOCK"
(e) Financial Statements "FINANCIAL STATEMENTS"; "PRO FORMA DATA"
(f) Selected Financial Data "SELECTED CONSOLIDATED FINANCIAL
DATA OF CITIZENS SAVINGS BANK
OF FRANKFORT AND SUBSIDIARY"
(g) Supplementary Financial Information Not Applicable
(h) Management's Discussion and Analysis of "MANAGEMENT'S DISCUSSION AND
Financial Condition and Results of Operations ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CITIZENS
SAVINGS BANK OF FRANKFORT"
(i) Changes in and Disagreements with Accountants Not Applicable
on Accounting and Financial Disclosure
(j) Directors and Executive Officers "MANAGEMENT OF CITIZENS BANCORP";
"MANAGEMENT OF CITIZENS SAVINGS BANK
OF FRANKFORT"
(k) Executive Compensation "EXECUTIVE COMPENSATION
AND RELATED TRANSACTIONS OF CITIZENS"
(l) Security Ownership of Certain Beneficial "PROPOSED PURCHASES BY DIRECTORS AND
Owners and Management EXECUTIVE OFICERS"
(m) Certain Relationships and Related Transactions "EXECUTIVE COMPENSATION AND RELATED
TRANSACTIONS OF CITIZENS -
- Transactions with Certain Related Persons"
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
</TABLE>
<PAGE>
PROSPECTUS
Up to 920,000 Shares of Common Stock
Citizens Bancorp
P.O. Box 635
Frankfort, Indiana 46041
(765) 654-8533
Citizens Savings Bank of Frankfort ("Citizens") is converting from the
mutual form to the stock form of organization. As part of the conversion,
Citizens will become a wholly owned subsidiary of Citizens Bancorp (the "Holding
Company") which was formed in June, 1997. Upon consummation of the conversion,
the Holding Company will own all of the shares of Citizens. The Common Stock of
the Holding Company is being offered to the public in accordance with a Plan of
Conversion (the "Plan"). The Plan must be approved by a majority of the votes
eligible to be cast by members of Citizens and by the Office of Thrift
Supervision (the "OTS"). The offering will not go forward if Citizens does not
receive these approvals and the Holding Company does not sell at least the
minimum number of shares.
TERMS OF OFFERING
An independent appraiser has estimated the market value of the
converted Citizens Savings Bank of Frankfort to be between $6,800,000 to
$9,200,000, which establishes the number of shares to be offered, subject to OTS
approval, at between 680,000 and 920,000 shares (the "Estimated Valuation
Range"). An additional 15% above the maximum number of shares may be offered.
Based on these estimates, we are making the following offering of shares of
Common Stock.
o Price Per Share.- $10
o Number of Shares
Minimum/Maximum: 680,000 to 920,000
o Conversion Expenses
Minimum/Maximum: $433,400 to $466,600
o Net Proceeds to Citizens Bancorp
Minimum/Maximum: $6,366,600 to $8,733,400
o Net Proceeds per share to Citizens Bancorp
Minimum/Maximum: $9.36 to $9.49
Please refer to Risk Factors beginning on page 1 of this document.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation (the "FDIC") or any other
government agency.
Neither the Securities and Exchange Commission (the "SEC"), the OTS, nor any
state securities regulator has approved or disapproved these securities or
determined if this prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
Trident Securities, Inc. ("Trident Securities") will use its best efforts to
assist Citizens and the Holding Company with sales of the Common Stock. The
offering will not go forward if the Holding Company does not sell at least the
minimum number of shares in a Subscription Offering that will expire on
September ___, 1997 (subject to extension) and, if necessary, a Community
Offering that will expire no later than November ___, 1997 (also subject to
extension). Citizens will hold funds received from subscribers in a savings
account at Citizens until the completion or termination of the Conversion.
The Holding Company and Citizens have agreed to indemnify Trident Securities
against certain liabilities including liabilities arising under the Securities
Act of 1933, as amended, (the "1933 Act"). For information on how to subscribe,
call the Stock Information Center at (765) 659-5708.
TRIDENT SECURITIES, INC.
Prospectus dated August ___, 1997
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary................................................. iii
Selected Consolidated Financial Data of
Citizens Savings Bank of Frankfort and Subsidiary............. v
Risk Factors....................................................... 1
Proposed Purchases by Directors and Executive Officers............. 3
Citizens Bancorp................................................... 4
Citizens Savings Bank of Frankfort................................. 4
Market Area........................................................ 5
Use of Proceeds.................................................... 5
Dividends.......................................................... 6
Market for the Common Stock........................................ 6
Competition........................................................ 7
Capitalization..................................................... 7
Pro Forma Data..................................................... 9
Management's Discussion and Analyis of Financial Condition
and Results of Operations of
Citizens Savings Bank of Frankfort............................ 13
Business of Citizens............................................... 23
Management of Citizens Bancorp..................................... 39
Management of Citizens............................................. 39
Executive Compensation and Related Transactions of Citizens....... 40
Regulation......................................................... 45
Taxation........................................................... 51
The Conversion..................................................... 52
Restrictions on Acquisition of the Holding Company................. 63
Description of Capital Stock....................................... 68
Transfer Agent..................................................... 69
Registration Requirements.......................................... 69
Legal and Tax Matters.............................................. 70
Experts............................................................ 70
Additional Information............................................. 70
Index to Financial Statements...................................... F-1
Glossary........................................................... G-1
This document contains forward-looking statements which involve risks and
uncertainties. Citizens Bancorp's actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors" beginning on page 1 of this Prospectus.
Please see the Glossary beginning on page G-1 for the meaning of
capitalized terms that are used in this Prospectus.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q: How can I benefit from the Offering?
A: The offering means that you will have the chance to become a
shareholder of our newly formed holding company, Citizens Bancorp,
which will allow you to share in our future as an indirect owner of a
federal stock savings bank. The stock offering will increase our
capital and funds for lending and investment activities, which will
give us greater flexibility to diversify operations and expand into
other geographic markets. As a stock savings association operating
through a holding company structure, we will have the ability to plan
and develop long-term growth and improve our future access to the
capital markets. If our earnings are sufficient in the future, you
might also receive dividends and benefit from the long-term
appreciation of our stock price. See pages 4 through 6.
Q: How do I purchase the stock?
A: You must complete and return the Stock Order Form to us together with
your payment, on or before September ___, 1997. See pages 57 to 58.
Q: How much stock may I purchase?
A: The minimum purchase is 25 shares (or $250). Eligible Subscribers may
subscribe for 10,000 shares per Eligible Account, subject to an overall
maximum of 30,000 shares. The maximum number of shares which may be
purchased in the Community Offering by any person is 10,000 shares
(subject to an overall limit of 30,000 shares counting shares purchased
in the Subscription Offering). For purposes of these limitations on the
purchase of Common Stock, joint account holders may not collectively
exceed the 10,000 and 30,000 share limits. In certain instances, your
purchase may be grouped together with purchases by other persons who
are associated with you. We may decrease or increase the maximum
purchase limitation without notifying you. If the offering is
oversubscribed, shares will be allocated based upon a formula. See
pages 60 to 61.
Q: What happens if there are not enough shares to fill all orders?
A: You might not receive any or all of the shares you want to purchase. If
there is an oversubscription, the stock will be offered on a priority
basis to the following persons:
o Persons who had a deposit account with us on December 31, 1995
(subject to certain prior rights of the Holding Company's
employee stock ownership plan if more than 920,000 shares are
sold). Any remaining shares will be offered to:
o The employee stock ownership plan (the "ESOP") of the Holding
Company. Any remaining shares will be offered to:
o Persons who had a deposit account with us on June 30, 1997.
Any remaining shares will be offered to:
o Other depositors of ours, as of August ___, 1997.
If the above persons do not subscribe for all of the shares, the
remaining shares will be offered to certain members of the general
public with preference given to people who live in Clinton County,
Indiana. See pages 56 to 59.
Q: What particular factors should I consider when deciding whether or not
to buy the stock?
A: Because of the small size of the offering, there likely will not be an
active market for the shares, which may make it difficult to resell any
shares you may own. Also, before you decide to purchase stock, you
should read the Risk Factors section on pages 1-3 of this document.
<PAGE>
Q: As a depositor of Citizens Savings Bank of Frankfort, what will happen
if I do not purchase any stock?
A: You presently have voting rights while we are in the mutual form;
however, once we convert to the stock form you will lose your voting
rights unless you purchase stock. Even if you do purchase stock, your
voting rights will depend on the amount of stock that you own and not
on your deposit account at Citizens. You are not required to purchase
stock. Your deposit account, certificate accounts and any loans you may
have with us will not be affected. See page 54.
Q: Who can help answer any other questions I may have about the stock
offering?
A: In order to make an informed investment decision, you should read this
entire document. This section highlights selected information and may
not contain all of the information that is important to you. In
addition, you should contact:
Stock Information Center
Citizens Savings Bank of Frankfort
P.O. Box 635
Frankfort, Indiana 46041
(765) 659-5708
<PAGE>
SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read carefully this entire document, including
the consolidated financial statements and the notes to the consolidated
financial statements of Citizens Savings Bank of Frankfort. References in this
document to "we", "us", "our" and "Citizens" refer to Citizens Savings Bank of
Frankfort. In certain instances where appropriate, "us" or "our" refers
collectively to Citizens Bancorp and Citizens Savings Bank of Frankfort.
References in this document to "the Holding Company" refer to Citizens Bancorp.
The Companies
Citizens Bancorp
P.O. Box 635
Frankfort, Indiana 46041
(765) 654-8533
The Holding Company is not an operating company and has not engaged in
any significant business to date. It was formed in June, 1997, as an Indiana
corporation to be the holding company for Citizens. The holding company
structure will provide greater flexibility in terms of operations, expansion and
diversification. See page 4.
Citizens Savings Bank of Frankfort
P.O. Box 635
Frankfort, Indiana 46041
(765) 654-8533
We are a community- and customer-oriented federal mutual savings bank.
We provide financial services to individuals, families and small business.
Historically, we have emphasized residential mortgage lending, primarily
originating one- to four-family mortgage loans. We have a subsidiary engaged in
real estate development activities. At March 31, 1997, we had total assets of
$45.2 million, deposits of $37.3 million, and retained income of $5.6 million.
See pages 23 to 39.
The Stock Offering
Between 680,000 and 920,000 shares of Common Stock are being offered at
$10 per share. As a result of changes in market and financial conditions prior
to completion of the Conversion or to fill the order of our ESOP, subject to the
OTS approval, the offering may be increased to 1,058,000 shares without further
notice to you.
Stock Purchases
The shares of Common Stock will be offered on the basis of priorities.
If you are a depositor at certain dates, you will receive subscription rights to
purchase the shares. The shares will be offered first in a Subscription Offering
and any remaining shares will be offered in a Community Offering. See pages 56
to 59.
Subscription Rights
You may not sell or assign your subscription rights. Any transfer of
subscription rights is prohibited by law. All persons exercising their
subscription rights will be required to certify that they are purchasing shares
solely for their own account and that they have no agreement or understanding
regarding the sale or transfer of shares.
The Offering Range and Determination of the Price Per Share
The offering range is based on an independent appraisal of the pro
forma market value of the Common Stock by Keller & Company, Inc. ("Keller"), an
appraisal firm experienced in appraisals of savings associations. Keller has
estimated that, in its opinion, as of May 22, 1997 the aggregate pro forma
market value of the Common Stock ranged between $6.8 million and $9.2 million
(with a mid-point of $8 million). The pro forma market value of the shares is
our market value after giving effect to the sale of shares in this offering. The
appraisal was based in part upon our financial condition and operations and the
effect of the additional capital raised by the sale of Common Stock in this
<PAGE>
offering. The $10.00 price per share was determined by our board of directors
and is the price most commonly used in stock offerings involving conversions of
mutual savings associations. The independent appraisal will be updated prior to
the consummation of the Conversion. If the pro forma market value of the Common
Stock changes to either below $6.8 million or above $10.58 million, we will
notify you and provide you with the opportunity to modify or cancel your order.
See pages 62 to 63.
Termination of the Offering
The Subscription Offering will terminate at 12:00 noon, Frankfort time,
on September ___, 1997. The Community Offering, if any, may terminate at any
time without notice but no later than November ___, 1997, without approval by
the OTS.
Benefits to Management from the Offering
Our full-time employees will participate in our ESOP, which is a form
of retirement plan that will purchase shares of the Holding Company's Common
Stock. We also intend to implement a management recognition and retention plan
("RRP") and a stock option plan ("Stock Option Plan") following completion of
the Conversion, which will benefit our officers and directors. However, the RRP
and Stock Option Plan may not be adopted until at least six months after the
Conversion and are subject to shareholder approval and compliance with OTS
regulations. See pages 40 to 44.
Use of the Proceeds Raised from the Sale of Common Stock
The Holding Company will use 50% of the net proceeds from the stock
offerings after providing for a loan to our ESOP. The balance of the net
proceeds of the stock offering will be used by the Holding Company to fund its
purchase of the capital stock issued by Citizens in the Conversion. See pages 5
to 6.
Dividends
No decision has been made yet regarding the payment of dividends. The
Holding Company will consider a policy of paying cash dividends on the Common
Stock following the Conversion. See page 6.
Market for the Common Stock
The Holding Company has received approval to have its Common Stock
quoted on the National Association of Security Dealers Automated Quotation
("NASDAQ") SmallCap Market under the symbol "_______." Since the size of the
offering is relatively small, it is unlikely that an active and liquid trading
market for the shares will develop and be maintained. Investors should have a
long-term investment intent. Persons purchasing shares may not be able to sell
their shares when they desire to sell them at a price equal to or above the
Purchase Price.
See pages 6 to 7.
Important Risks in Owning the Holding Company's Common Stock
Before you decide to purchase stock in the offering, you should read
the Risk Factors section on pages 1 to 3 of this document.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF
CITIZENS SAVINGS BANK OF FRANKFORT AND SUBSIDIARY
The following selected consolidated financial data of Citizens and its
subsidiary have been derived from, are qualified in their entirety by, and
should be read in conjunction with, the consolidated financial statements,
including notes thereto, included elsewhere in this Prospectus. Information at
March 31, 1997 and for the nine months ended March 31, 1997 and 1996 is
unaudited but, in the opinion of management, includes all adjustments
(comprising only normal recurring accruals) necessary for a fair presentation of
the financial position and results of operations as of and for such dates.
<TABLE>
<CAPTION>
AT JUNE 30,
AT MARCH 31, --------------------------------------------------------
1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------
(In thousands)
Summary of Selected Financial Condition Data:
<S> <C> <C> <C> <C> <C> <C>
Total assets................................ $45,153 $44,235 $39,727 $38,523 $34,460 $36,758
Loans receivable, net (1)................... 37,216 34,391 29,275 26,141 23,436 23,191
Cash on hand and in other institutions (2).. 4,251 3,308 4,310 7,210 7,210 9,632
Investment securities available for sale.... 159 3,003 2,832 2,677 1,652 2,209
Cash surrender value of life
insurance contract..................... 1,066 1,035 991 943 885 ---
FHLB advances............................... 2,000 3,000 1,500 --- --- ---
Deposits.................................... 37,255 35,600 33,175 34,037 30,136 32,811
Retained income............................. 5,564 5,320 4,841 4,435 4,154 3,823
Unrealized loss on investment securities
available for sale....................... --- (51) (49) (50) --- ---
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31, YEAR ENDED JUNE 30,
------------------ ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
(In thousands)
Summary of Selected Operating Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income....................... $2,620 $2,365 $3,186 $2,742 $2,424 $2,563 $2,973
Total interest expense...................... 1,362 1,231 1,653 1,370 1,273 1,423 1,921
------ ------ ------ ------ ------ ------ ------
Net interest income...................... 1,258 1,134 1,533 1,372 1,151 1,140 1,052
Provision for loan losses................... 32 63 80 32 12 19 12
------ ------ ------ ------ ------ ------ ------
Net interest income after
provision for loan losses.............. 1,226 1,071 1,453 1,340 1,139 1,121 1,040
Other income:
Fees and service charges................. 105 114 152 151 120 97 92
Other.................................... (1) 69 94 70 77 139 42
------ ------ ------ ------ ------ ------ ------
Total other income..................... 104 183 246 221 197 236 134
Other expense:
Salaries and employee benefits........... 352 305 415 387 331 319 252
Occupancy expense........................ 84 82 118 109 105 102 108
Data processing expense.................. 80 75 101 105 98 94 85
Federal insurance premiums............... 253 57 77 75 71 66 76
Other.................................... 192 187 256 248 258 237 232
------ ------ ------ ------ ------ ------ ------
Total other expense................. 961 706 967 924 863 818 753
------ ------ ------ ------ ------ ------ ------
Income before income taxes.................. 369 548 732 637 473 539 421
Income taxes................................ 125 192 253 231 166 207 158
------ ------ ------ ------ ------ ------ ------
Income before cumulative effect of
change in accounting principle........... 244 356 479 406 307 332 263
------ ------ ------ ------ ------ ------ ------
Cumulative effect of change in
accounting for income taxes.............. --- --- --- --- (26) --- ---
Net income............................... $ 244 $ 356 $ 479 $ 406 $ 281 $ 332 $ 263
====== ======= ======= ======= ======== ====== =======
Supplemental Data:
Interest rate spread during period.......... 3.71% 3.76% 3.75% 3.69% 3.14% 3.29% 2.62%
Net yield on interest-earning assets(3)(4).. 3.99 3.99 3.99 3.92 3.38 3.56 3.00
Return on assets (4) (5).................... .72 1.15 1.15 1.07 .77 .94 .72
Return on equity (4) (6).................... 6.05 9.56 9.52 8.89 6.58 8.30 7.15
Equity to assets (7)........................ 12.32 12.09 11.91 12.06 11.38 12.05 10.40
Average interest-earning assets to average
interest-bearing liabilities............. 106.22 105.37 105.61 105.84 106.54 106.20 106.84
Non-performing assets to total assets (7)... .45 .53 .50 .35 .61 1.02 1.27
Allowance for loan losses to total loans
outstanding (7).......................... .46 .37 .40 .16 .19 .16 .12
Allowance for loan losses to
non-performing loans (7)................. 84.12 53.41 62.51 33.19 20.89 10.92 5.79
Net (charge-offs) recoveries to average
total loans outstanding ................. .004 .04 .04 (.12) (.004) (.03) (.05)
Other expenses to average assets (4)(8).... 2.82 2.28 2.32 2.44 2.38 2.33 2.06
Number of full service offices (7).......... 1 1 1 1 1 1 1
</TABLE>
- -------------
(1) Net of allowance for loan losses, deferred fees and escrow.
(2) Includes certificates of deposit in other financial institutions.
(3) Net interest income divided by average interest-earning assets.
(4) Information for nine months ended March 31, 1997 and 1996, has been
annualized. Interim results are not necessarily indicative of the results of
operations for an entire year.
(5) Net income divided by average total assets.
(6) Net income divided by average total equity.
(7) At end of period.
(8) Other expenses divided by average total assets.
<PAGE>
RISK FACTORS
In addition to the other information in this document, you should
consider carefully the following risk factors in evaluating an investment in the
Common Stock.
Lack of Active Market for Common Stock
Due to the small size of the offering, it is highly unlikely that an
active trading market will develop and be maintained. If an active market does
not develop, you may not be able to sell your shares promptly or perhaps at all,
or sell your shares at a price equal to or above the price you paid for the
shares. The Common Stock may not be appropriate as a short-term investment. See
"Market for the Common Stock."
Decreased Return on Average Equity and Increased Expenses Immediately After
Conversion
Return on average equity (net income divided by average equity) is a
ratio commonly used to compare the performance of a savings association to its
peers. For the nine-month periods ended March 31, 1997, and 1996, our returns on
average equity (on an annualized basis) were 6.05% and 9.56%, respectively. A
lower return on equity could reduce the trading price of our shares. As a result
of the Conversion, our equity will increase substantially. Our expenses also
will increase because of the costs associated with our employee stock ownership
plan, management recognition and retention plan, and the costs of being a public
company. Because of the increases in our equity and expenses, our return on
equity is likely to decrease as compared to our performance in previous years.
Initially, we intend to use a portion of the proceeds of this offering to repay
some or all of our short-term obligations owed to the Federal Home Loan Bank of
Indianapolis ("FHLB of Indianapolis"). We may also use some of the proceeds to
purchase loan participations and mortgage-backed securities on the secondary
market and, on an interim basis, to invest in U.S. government securities and
federal agency securities which generally have lower yields than residential
mortgage loans. See "Use of Proceeds."
Potential Impact of Changes in Interest Rates and the Current Interest Rate
Environment
Our ability to make a profit, like that of most financial institutions,
substantially depends upon our net interest income, which is the difference
between the interest income we earn on our interest-earning assets (such as
mortgage loans) and the interest expense we pay on our interest-bearing
liabilities (such as deposits). Approximately 70 percent of our mortgage loans
have rates of interest which are fixed for the term of the loan ("fixed rate")
and are originated with terms of 15 or 20 years, while deposit accounts have
significantly shorter terms to maturity. Because our interest-earning assets
generally have fixed rates of interest and have longer effective maturities than
our interest-bearing liabilities, the yield on our interest earning assets
generally will adjust more slowly to changes in interest rates than the cost of
our interest-bearing liabilities. As a result, our net interest income will be
adversely affected by material and prolonged increases in interest rates. In
addition, rising interest rates may adversely affect our earnings because there
might be a lack of customer demand for loans. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Citizens Savings
Bank of Frankfort -- Asset/Liability Management."
Changes in interest rates also can affect the average life of loans and
mortgage-backed securities. Historically lower interest rates in recent periods
have resulted in increased prepayments of loans and mortgage-backed securities,
as borrowers refinanced their mortgages in order to reduce their borrowing cost.
Under these circumstances, we are subject to reinvestment risk to the extent
that we are not able to reinvest such prepayments at rates which are comparable
to the rates on the prepaid loans or securities.
Nonresidential Real Estate and Multi-Family Lending
As of March 31, 1997, we had nonresidential real estate and
multi-family loans of $846,000 and $1.6 million, respectively, or 2.3% and 4.2%,
respectively, of our total loan portfolio as of that date. Although
nonresidential real estate and multi-family loans provide higher interest rates
and shorter terms, these loans have higher credit risks than one- to four-family
residential loans. Nonresidential real estate and multi-family loans often
involve large loan balances to single borrowers or groups of related borrowers.
In addition, payment experience on loans secured by such properties is typically
dependent on the successful operation of the properties and thus may be subject
to a greater extent to adverse conditions in the real estate market or in the
general economy. Accordingly, the nature of the loans makes them more difficult
for management to monitor and evaluate. Although none of our nonresidential real
estate and multi-family loans was non-performing as of March 31, 1997, if
borrowers under these types of loans develop problems, we may be required to
increase by a significant amount our allowance for loan losses because of the
relatively large size of these loans. This, in turn, may result in significant
reductions in our net income. See "Business of Citizens--Lending Activities."
- 1 -
<PAGE>
Dependence on President and Possible New Management
Our successful operations depend to a considerable degree on our
President, Fred W. Carter, who is 65 years of age. We have entered into a
three-year employment agreement with Mr. Carter. The employment agreement
requires certain payments to Mr. Carter if he is terminated by us or by an
entity that acquires us without "just cause," or if Mr. Carter terminates the
employment agreement "for cause." The loss of Mr. Carter's services could
adversely affect us. While the board of directors is seeking to attract and
retain additional management either as a successor or supplement to Mr. Carter,
there is no assurance that such individuals will be attracted or retained. If
such individuals are retained, their participation in our management could
result in changes to our operating strategy which could affect our
profitability. See "Management of Citizens Savings Bank of Frankfort" and
"Executive Compensation and Related Transactions of Citizens-- Employment
Contract."
Potential Impact of Future Changes in or the Discontinuance of the Business of
Citizens' Subsidiary
Our service corporation subsidiary, Citizens Loan and Service
Corporation ("CLSC"), has historically engaged in purchasing and subdividing
large tracts of land and selling the subdivided tracts. We utilize the sale of
CLSC's properties to provide an additional source of income. During the fiscal
years ended June 30, 1996, 1995 and 1994, we realized net income (loss) of
$24,000, $2,000, and $(163), respectively, from the operations of CLSC. During
the nine months ended March 31, 1997, net income from the operations of CLSC was
$6,000. Also at March 31, 1997, we had an investment in CLSC of $465,000 and
loans outstanding to CLSC of $575,000. Although savings associations are
presently permitted under federal law to invest in service corporations that
engage in real estate development, future legislation may require us either to
convert to a state or national commercial bank charter or to divest of our
investments in subsidiaries with real estate holdings. In either case, we may be
required to divest of our investment in CLSC, possibly on terms which could
result in a loss to us, and a future reduction in our earnings. See
"Regulation." In addition, our earnings are affected by the activities of CLSC,
which are in turn affected by underlying economic factors such as interest
rates, levels of unemployment and the general health of the local and national
economy. See "Business of Citizens--Service Corporation Subsidiary."
Intent to Remain Independent
We have operated as an independent community oriented savings
association since 1916. It is our intention to continue to operate as an
independent community oriented savings association following the Conversion.
Accordingly, you are urged not to subscribe for shares of our Common Stock if
you are anticipating a quick sale by us. See "Business of Citizens."
Anti-Takeover Provisions and Statutory Provisions That Could Discourage Hostile
Acquisitions of Control
Provisions in the Holding Company's articles of incorporation, the
corporation law of the state of Indiana, and certain federal regulations may
make it difficult and expensive to pursue a tender offer, change in control or
takeover attempt which we oppose. As a result, shareholders who might desire to
participate in such a transaction may not have an opportunity to do so. Such
provisions will also render the removal of the current board of directors or
management of the Holding Company, or the appointment of new directors to the
Board, more difficult. For example, the Holding Company's Bylaws provide that
directors must be residents of Clinton County, Indiana, must have maintained a
deposit or loan relationship with us for at least 12 months and, with respect to
a non-employee director, must have served as a member of a civic or community
organization in Clinton County for at least 12 months in the 5-year period prior
to being nominated to the Board. Further restrictions include: restrictions on
the acquisition of the Holding Company's equity securities and limitations on
voting rights; the classification of the terms of the members of the board of
directors; certain provisions relating to meetings of shareholders; denial of
cumulative voting by shareholders in the election of directors; the issuance of
preferred stock and additional shares of Common Stock without shareholder
approval; and super majority provisions for the approval of certain business
combinations. These provisions may reduce the trading price of our stock. See
"Restrictions on Acquisition of the Holding Company."
<PAGE>
Possible Voting Control by Directors and Officers
The proposed purchases of the Common Stock by our directors, officers
and employee stock ownership plan, as well as the potential acquisition of the
Common Stock through the Stock Option Plan and management recognition and
retention plan, could make it difficult to obtain majority support for
shareholder proposals which are opposed by management. In addition, the voting
of those shares could enable us to block the approval of transactions or actions
(i.e., business combinations and amendment to our articles of incorporation and
bylaws) requiring the approval of 80% of the shareholders under the Holding
Company's articles of incorporation. See " Proposed Purchases by Directors and
Executive Officers," "Executive Compensation and Related Transactions of
Citizens," "Description of Capital Stock," and `Restrictions on Acquisition of
the Holding Company."
- 2 -
<PAGE>
Possible Dilutive Effect of RRP and Stock Options
If the Conversion is completed and shareholders approve the RRP and
Stock Option Plan, we intend to issue shares to our officers and directors
through these plans. If the shares for the RRP are issued from our authorized
but unissued stock, your ownership percentage could be diluted by up to
approximately 3.9%. If the shares for the Stock Option Plan are issued from our
authorized by unissued stock, your ownership percentage could be diluted by up
to approximately 3.3%. In either case, the trading price of our Common Stock may
be reduced. See "Pro Forma Data" and "Executive Compensation and Related
Transactions of Citizens."
Financial Institution Regulation and Future of the Thrift Industry
We are subject to extensive regulation, supervision, and examination by
the OTS and FDIC. A bill has been introduced in the Congress that would
consolidate the OTS with the Office of the Comptroller of the Currency. If this
statute is approved we could be forced to become a state or national commercial
bank, and become subject to regulation by a different government agency. If we
become a commercial bank, our investment authority and the ability of the
Holding Company to engage in diversified activities, including the real estate
development activities of CLSC, may be limited or prohibited, which could affect
our profitability. It is impossible at this time to predict the impact of any
such legislation on our operations. See "Regulation."
Restrictions on Repurchase of Shares
During the first year following the Conversion, the Holding Company may
not generally repurchase its shares except in unusual circumstances as permitted
by the OTS. During each of the second and third years following the Conversion,
the Holding Company may repurchase up to 5% of its outstanding shares. During
those periods, if we decide that repurchases above those limits would be a good
use of funds, we would not be able to do so, without obtaining OTS approval.
There is no assurance that OTS approval would be given. See "The Conversion --
Restrictions on Repurchase of Stock by the Holding Company."
Competition
We experience strong competition in our local market area in both
originating loans and attracting deposits, primarily from commercial banks,
thrifts and credit unions. Such competition may limit our growth in the future.
See "Competition."
Geographic Concentration of Loans
Nearly all of our real estate mortgage loans are secured by properties
located in Indiana, mostly in Clinton County. A weakening in the local real
estate market or in the local or national economy, or a reduction in the
workforce at the manufacturing facilities in the area could result in an
increase in the number of borrowers who default on their loans and a reduction
in the value of the collateral securing the loans, which could reduce our
earnings.
Risk of Delayed Offering
Although we expect to complete the Conversion within the time periods
indicated in this Prospectus, it is possible that adverse market, economic or
other factors could significantly delay the completion of the Conversion, which
could significantly increase our Conversion costs. In this case, however, you
would have the right to modify or rescind your subscription and to have your
subscription funds returned to you promptly, with interest. See "The
Conversion."
Income Tax Consequences of Subscription Rights
If the Internal Revenue Service were to determine that the subscription
rights offered to you in connection with the Conversion have an ascertainable
value, your exercise of your subscription rights could result in the recognition
of taxable income. In the opinion of Keller, however, the subscription rights do
not have an ascertainable fair market value. See "The Conversion -- Principal
Effects of Conversion - Tax Effects."
PROPOSED PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the approximate purchases of Common
Stock by each director and executive officer and their Associates in the
Conversion. All shares will be purchased for investment purposes and not for
purposes of resale. The table assumes that 800,000 shares (the midpoint of the
Estimated Value Range) of the Common Stock will be sold at $10.00 per share and
that sufficient shares will be available to satisfy subscriptions.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
Aggregate Total
Price of Shares Proposed
Intended to be Subscribed Percent
Name Position Purchases For (1) of Shares
- ----------------- ----------------------- ------------ ---------------- ----------
<S> <C> <C> <C> <C>
Robert F. Ayres Director $ 50,000 5,000 .625%
Fred W. Carter Director, President and 200,000 20,000 2.5
Chief Executive Officer
Perry W. Lewis Director 200,000 20,000 2.5
John J. Miller Director 200,000 20,000 2.5
Billy J. Wray Director 200,000 20,000 2.5
Ralph C. Hinshaw Advisory Director 200,000 20,000 2.5
Rawl V. Ransom Advisory Director 100,000 10,000 1.25
All Other Executive 250,000 25,000 3.12
Officers ---------- ------- ----
All Directors and $1,400,000 140,000 17.5%
========== ======= ====
Executive Officers
as a group (10 persons)
</TABLE>
(1) Does not include shares subject to stock options which may be granted under
the Stock Option Plan, or shares which may be awarded under the RRP.
(2) Assuming that all shares awarded under the RRP are purchased on the open
market and upon (i) the full vesting of the restricted stock awards to
directors and executive officers contemplated under the RRP and (ii) the
exercise in full of all options expected to be granted to directors and
executive officers under the Stock Option Plan, all directors and executive
officers as a group would beneficially own 235,200 shares (34.6%), 252,000
shares (31.5%), 268,800 shares (29.2%), and 288,100 shares (27.2%) upon
sales at the minimum, midpoint, maximum, and 15% above the maximum of the
Estimated Valuation Range, respectively. See "Executive Compensation and
Related Transactions of Citizens -- RRP," "-- Stock Option Plan."
CITIZENS BANCORP
The Holding Company was formed in June, 1997 as an Indiana corporation
to be the holding company for Citizens. The Holding Company has not engaged in
any significant business to date and, for that reason, its financial statements
are not included herein. The Holding Company has received approval from the OTS
to become a savings and loan holding company through the acquisition of all of
the capital stock of Citizens to be issued upon completion of the Conversion.
The Holding Company will initially receive 50% of the net Conversion
proceeds, after providing for the loan to the Holding Company's ESOP to permit
the ESOP to purchase shares in the Conversion. The holding company structure
will provide the Holding Company with greater flexibility than Citizens to
diversify its business activites, either through newly-formed subsidiaries or
through acquisitions. The Holding Company has no present plans regarding
diversification, acquisitions or expansion, however. The Holding Company
initially will not conduct any active business and does not intend to employ any
persons other than its officers, although it may utilize our support staff from
time to time.
The office of the Holding Company is located at 60 South Main Street,
P.O. Box 635, Frankfort, Indiana, 46041. The telephone number is (765) 654-8533.
CITIZENS SAVINGS BANK OF FRANKFORT
We were originally organized as a state-chartered building and loan
association in 1916 and have operated since then as an independent,
community-oriented savings association. In 1997, we converted to a federal
charter, retaining our name "Citizens Savings Bank of Frankfort." We currently
conduct our business from a full-service office located in Frankfort, which is
located in Clinton County, Indiana. We believe that we have developed a solid
reputation among our loyal customer base because of our commitment to personal
service and our strong support of the local community. We offer a variety of
lending, deposit and other financial services to our retail and commercial
customers.
We attract deposits from the general public and originate mortgage
loans, most of which are secured by one- to four-family residential real
property in Clinton County. We also offer multi-family loans, construction
loans, non-residential real estate loans, home equity loans and consumer loans,
including single-pay loans, loans secured by deposits, and installment loans. We
derive most of our funds for lending from deposits of our customers, which
consists primarily of certificates of deposit, demand accounts and savings
accounts.
- 4 -
<PAGE>
We have maintained a relatively strong capital position by focusing on
residential real estate mortgage lending in Clinton County, Indiana. At March
31, 1997, we had total assets of $45.2 million, deposits of $37.3 million and
retained income of $5.6 million, or 12.3% of assets. For the fiscal year ended
June 30, 1996, we had net income of $479,000, a return on assets of 1.2% and a
return on equity of 9.5%. We have historically experienced very few asset
quality problems in our total loan portfolio, and at March 31, 1997, our ratio
of non-performing assets to total assets was .45%. During the fiscal year ended
June 30, 1996, we recovered $12,000 of loans previously charged off and did not
charge off any additional loans.
MARKET AREA
Our primary market area is Clinton County, Indiana. Frankfort, the county
seat of Clinton County, is located in central Indiana, approximately 48 miles
northwest of Indianapolis and 23 miles southeast of Lafayette, Indiana.
According to the U.S. Bureau of Census, the city of Frankfort had a population
of 14,754, and Clinton County had a population of 30,974, at the time of the
1990 census.
According to the Indiana Department of Workforce Development, the total
work force in Clinton County was 15,470 as of January, 1997. As of the same
date, 14,960 persons were employed, resulting in an unemployment rate for
Clinton County of approximately 3.3%. As of the same date, the unemployment for
Indiana was 3.4%, and the nationwide unemployment rate was 5.0%.
Clinton County's largest employers are Mallory Controls and Federal
Mogul, each with approximately700 employees, and Frito-Lay, which employs
approximately 1,300 persons in two plants.
According to the Data Users Center and the CACI Sourcebook, average per
capita income for residents of Clinton County totaled $14,535 for 1996, compared
to $16,738 for the United States and $15,275 for Indiana. The 1996 average per
capita income for Clinton County residents, however, increased nearly 23% from
the average per capita income of $11,849 for 1990. Median household income for
residents of Clinton County totaled $32,305 for 1996, compared to $26,148 for
1990. Median household income for the United States and Indiana totaled $34,530
and $32,816, respectively, for 1996.
According to the United States Department of Commerce and the CACI
Sourcebook, median housing values for Clinton County and Frankfort in 1990 were
$40,700 and $36,100, respectively. This compares to the national and state
medians of $79,100 and $53,500, respectively.
USE OF PROCEEDS
The Holding Company will retain 50% of the net proceeds from the
offering, after taking into account a loan to the ESOP, and will use the balance
of the proceeds to purchase all of the capital stock issued by Citizens in
connection with the Conversion. A portion of the net proceeds to be retained by
the Holding Company will be loaned to our employee stock plan to fund its
purchase of 8% of the shares of the Holding Company sold in the Conversion. On a
short-term basis, the balance of the net proceeds retained by the Holding
Company initially may be invested in short-term investments. The Holding Company
may also use the proceeds as a source of funds for the payment of dividends to
shareholders or for the repurchase of shares of Common Stock.
Citizens intends to use a portion of the net proceeds that it receives
from the Holding Company to make adjustable- and fixed-rate mortgage loans,
nonresidential real estate loans and consumer loans to the extent there is
demand for such loans and subject to market conditions. Citizens may also use a
portion of the net proceeds to fund the purchase of 4% of the shares for the RRP
which we anticipate will be adopted by our Board following the Conversion,
subject to shareholder approval, and to repay some or all of its borrowings from
the FHLB of Indianapolis. We anticipate that the balance of the proceeds will be
used to purchase loan participations and possibly mortgage-backed securities in
the secondary market. On an interim basis, we may use some of the net proceeds
to invest in U.S. government securities and other federal agency securities. See
"Business of Citizens -- Investments and Mortgage-Backed Securities."
- 5 -
<PAGE>
The following table shows estimated gross and net proceeds based upon
shares of Common Stock being sold in the Conversion at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range.
<TABLE>
<CAPTION>
15% Above
Minimum, Midpoint, Maximum, Maximum,
680,000 800,000 920,000 1,058,000
Shares Shares Shares Shares
Sold at Price Sold at Price Sold at Price Sold at Price
of $10.00 of $10.00 of $10.00 of $10.00(2)
---------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Gross Proceeds.......................... $6,800 $8,000 $9,200 $10,580
Less:
Estimated Underwriting Commissions
and Other Expenses(1) (2)............ 433 450 467 486
------ ------ ------ -------
Estimated net Conversion
proceeds(1).......................... $6,367 $7,550 $8,733 $10,094
====== ====== ====== =======
</TABLE>
(1) In calculating estimated net Conversion proceeds, it has been assumed that
no sales will be made through selected dealers, that all shares are sold in
the Subscription Offering, that executive officers and directors of
Citizens and their Associates purchase 140,000 shares of Common Stock in
the Conversion, and that the ESOP acquires 8% of the shares of Common Stock
issued in the Conversion.
(2) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Subscription Offering and the Community Offering, if
any.
The actual net proceeds may differ from the estimated net proceeds
calculated above for various reasons, including variances in the actual amount
of legal and accounting expenses incurred in connection with the Conversion,
commissions paid for sales made through other dealers, and the actual number of
shares of Common Stock sold in the Conversion. Any variance in the actual net
proceeds from the estimates provided in the table above is not expected to be
material.
DIVIDENDS
Although no decision has been made yet regarding the payment of
dividends, the Holding Company may consider a policy of paying cash dividends on
the Common Stock following the Conversion. Dividends, when and if paid, will be
subject to determination and declaration by the Board of Directors in its
discretion, which will take into account the Holding Company's consolidated
financial condition and results of operations, tax considerations, industry
standards, economic conditions, capital levels, regulatory restrictions on
dividend payments by us to the Holding Company, general business practices and
other factors. See "Regulation -- Savings Association Regulatory Capital" and
"-- Dividend Limitations."
The Holding Company is not subject to OTS regulatory restrictions on
the payment of dividends to its shareholders although the source of such
dividends will be dependent in part upon the receipt of dividends from us. The
Holding Company is subject, however, to the requirements of Indiana law, which
generally limit the payment of dividends to amounts that will not affect the
ability of the Holding Company, after the dividend has been distributed, to pay
its debts in the ordinary course of business and will not exceed the difference
between the Holding Company's total assets and total liabilities plus
preferential amounts payable to shareholders with rights superior to those of
the holders of Common Stock.
In addition to the foregoing, the portion of our earnings which has
been appropriated for bad debt reserves and deducted for federal income tax
purposes cannot be used by us to pay cash dividends to the Holding Company
without the payment of federal income taxes by us at the then current income tax
rate on the amount deemed distributed, which would include the amount of any
federal income taxes attributable to the distribution. See "Taxation -- Federal
Taxation" and Note 9 to the Consolidated Financial Statements. The Holding
Company does not contemplate any distribution by us that would result in a
recapture of our bad debt reserve or otherwise create federal tax liabilities.
<PAGE>
MARKET FOR THE COMMON STOCK
The Holding Company has never issued Common Stock to the public.
Consequently, there is no established market for the Common Stock. The Holding
Company has received approval to have its Common Stock quoted on the NASDAQ
Small Cap Market under the symbol "_____" upon successful closing of the
offering. The Holding Company anticipates that there will be at least two market
makers for its shares upon the completion of the Conversion, depending upon the
volume of trading activity in the Common Stock and subject to compliance with
- 6 -
<PAGE>
applicable provisions of federal and state securities laws and other regulatory
requirements. Trident Securities expects to make a market in the Common Stock,
although it is not obligated to do so.
An active and liquid public trading market for the securities of any
issuer, including the Holding Company, depends upon the presence in the
marketplace of both willing buyers and willing sellers of the securities at any
given time. The Holding Company has received approval to have its shares quoted
on the NASDAQ Small Cap Market, subject to certain conditions which the Holding
Company and Citizens believe will be met, including having at least 300 holders
of Common Stock, at least 100,000 publicly held shares of Common Stock, and two
market makers for the Common Stock. However, no assurance can be given that an
active and liquid trading market will develop or that the trading price per
share of the Common Stock will equal or exceed the Purchase Price. Purchasers of
Common Stock should consider the potentially illiquid and long-term nature of
their investment in the shares being offered hereby. The Common Stock may not be
appropriate for a short-term investment.
The aggregate price of the Common Stock is based upon an independent
appraisal of the pro forma market value of the Common Stock. However, there can
be no assurance that an investor will be able to sell the Common Stock purchased
in the Conversion at or above the Purchase Price.
COMPETITION
We originate most of our loans to and accept most of our deposits from
residents of Clinton County, Indiana. We are subject to competition from various
financial institutions, including state and national banks, state and federal
savings associations, credit unions, and certain nonbanking consumer lenders
that provide similar services in Clinton County with significantly larger
resources than are available to us. In total, there are five other financial
institutions located in Clinton County. We also compete with money market funds
with respect to deposit accounts and with insurance companies with respect to
individual retirement accounts.
The primary factors influencing competition for deposits are interest
rates, service and convenience of office locations. We compete for loan
originations primarily through the efficiency and quality of the services that
we provide borrowers and through interest rates and loan fees charged.
Competition is affected by, among other things, the general availability of
lendable funds, general and local economic conditions, current interest rate
levels, and other factors that we cannot readily predict.
CAPITALIZATION
The following table presents our historical capitalization at March 31,
1997, and the pro forma consolidated capitalization of the Holding Company as of
that date, giving effect to the sale of Common Stock offered by this Prospectus
based on the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, and subject to the other assumptions set forth below.
The pro forma data set forth below may change significantly at the time the
Holding Company completes the Conversion due to, among other factors, a change
in the Estimated Valuation Range or a change in the current estimated expenses
of the Conversion. If the Estimated Valuation Range changes so that between
680,000 and 1,058,000 shares are not sold in the Conversion, subscriptions will
be returned to subscribers who do not affirmatively elect to continue their
subscriptions during the offering at the revised Estimated Valuation Range.
- 7 -
<PAGE>
<TABLE>
<CAPTION>
At March 31, 1997
Pro Forma Holding Company
Capitalization Based on Sale of
680,000 800,000 920,000 1,058,000
Shares Shares Shares Shares
Sold at Sold at Sold at Sold at
Citizens Price of Price of Price of Price of
Historical $10.00 $10.00 $10.00 $10.00 (6)
---------- ------ ------ ------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits (1)..................................... $37,255 $37,255 $37,255 $37,255 $37,255
======== ======= ======= ======= =======
Federal Home Loan Bank advances.................. $ 2,000 $ --- $ --- $ --- $ ---
======== ======= ======= ======= =======
Capital and retained earnings:
Preferred stock, without par
value, 2,000,000 shares
authorized, none issued.......................$ --- $ --- $ --- $ --- $ ---
Common Stock, without par
value, 5,000,000 shares
authorized; indicated number
of shares assumed outstanding (2) ............ --- 6,367 7,550 8,733 10,094
Additional paid in capital..................... --- --- --- --- ---
Retained earnings and net unrealized losses
on securities available for sale (3)......... 5,564 5,564 5,564 5,564 5,564
Common Stock acquired by ESOP(4) ................ --- (544) (640) (736) (846)
Common Stock acquired by the RRP (5).......... --- (272) (320) (368) (423)
-------- ------- ------- ------- -------
Total capital and retained earnings.............. $ 5,564 $11,115 $12,154 $13,193 $14,388
======== ======= ======= ======= =======
</TABLE>
(1) Excludes accrued interest. Withdrawals from deposit accounts for the
purchase of Common Stock are not reflected. Such withdrawals will reduce
pro forma deposits by the amount thereof.
(2) The number of shares to be issued in the Conversion may be increased or
decreased based on market and financial conditions prior to the completion
of the Conversion. Assumes estimated expenses of $433,400, $450,000,
$466,600 and $485,600 at the minimum, midpoint, maximum and adjusted
maximum of the Estimated Valuation Range, respectively. See "Use of
Proceeds."
(3) Retained earnings are substantially restricted. See Note 9 to Citizens'
Consolidated Financial Statements. See also "The Conversion -- Principal
Effects of Conversion -- Effect on Liquidation Rights." Retained earnings
do not reflect the federal income tax consequences of the restoration to
income of Citizens' special bad debt reserve for income tax purposes which
would be required in the unlikely event of a liquidation or if a
substantial portion of retained earnings were otherwise used for a purpose
other than absorption of bad debt losses and will be required as to
post-1987 reserves under a recently enacted law. See "Taxation -- Federal
Taxation." Equity capital includes retained earnings decreased by net
unrealized losses on securities available for sale.
(4) Assumes purchases by the ESOP of a number of shares equal to 8% of the
shares issued in the Conversion. The funds used to acquire the ESOP shares
will be borrowed from the Holding Company. See "Use of Proceeds." Citizens
intends to make contributions to the ESOP sufficient to service and
ultimately retire its debt. The Common Stock acquired by the ESOP is
reflected as a reduction of shareholders' equity. See "Executive
Compensation and Related Transactions of Citizens -- Employee Stock
Ownership Plan and Trust."
<PAGE>
(5) Assuming the receipt of shareholder approval at the Holding Company's first
meeting of shareholders, the Holding Company intends to implement the RRP.
Assuming such implementation, the RRP will purchase an amount of shares
equal to 4% of the Common Stock sold in the Conversion for issuance to
directors and officers of the Holding Company and Citizens. Such shares may
be purchased from authorized but unissued shares or on the open market. The
Holding Company currently intends that the RRP will purchase the shares on
the open market. Under the terms of the RRP, assuming it is adopted within
one year of the Conversion, shares will vest at the rate of 20% per year.
The Common Stock to be purchased by the RRP represents unearned
compensation and is, accordingly, reflected as a reduction to pro forma
shareholders' equity. As shares of the Common Stock granted pursuant to the
RRP vest, a corresponding reduction in the charge against capital will
occur. In the event that authorized but unissued shares are acquired, the
interests of existing shareholders will be diluted. Assuming that 800,000
shares of Common Stock, the midpoint of the Estimated Valuation Range, are
issued in the Conversion and that all awards under the RRP are from
authorized but unissued shares, the Holding Company estimates that the per
share book value for the Common Stock would be diluted $.60 per share, or
3.85% on a pro forma basis as of March 31, 1997.
(6) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Subscription Offering and Community Offering, if any.
- 8 -
<PAGE>
PRO FORMA DATA
The following table sets forth the pro forma combined consolidated net
income of the Holding Company for the nine months ended March 31, 1997 and for
the year ended June 30, 1996 as though the Conversion offering had been
consummated at the beginning of those periods, respectively, and the investable
net proceeds had been invested at 5.02% for the nine months ended March 31, 1997
and 5.85% for the year ended June 30, 1996 (the weighted average interest rate
earned on interest bearing deposits for each respective period). The pro forma
after-tax return for the Holding Company on a consolidated basis is assumed to
be 3.01% for the nine months ended March 31, 1997 and 3.51% for the year ended
June 30, 1996, after giving effect to (i) the yield on investable net proceeds
from the Conversion offering and (ii) adjusting for taxes using a federal
statutory tax rate of 34% and a net state statutory income tax rate of 6%.
Historical and per share amounts have been calculated by dividing historical
amounts and pro forma amounts by the indicated number of shares of Common Stock
assuming that such number of shares had been outstanding during each of the
entire periods.
Book value represents the difference between the stated amount of
consolidated assets and consolidated liabilities of the Holding Company computed
in accordance with generally accepted accounting principles. Book value does not
necessarily reflect current market value of assets and liabilities, or the
amounts, if any, that would be available for distribution to shareholders in the
event of liquidation. See "The Conversion -- Principal Effects of Conversion --
Effect on Liquidation Rights." Book value also does not reflect the federal
income tax consequences of the restoration to income of our special bad debt
reserves for income tax purposes, which would be required in the unlikely event
of liquidation or if a substantial portion of retained earnings were otherwise
used for a purpose other than abosorption of bad debt losses. See "Taxation --
Federal Taxation." Pro forma book value includes only net proceeds from the
Conversion offering as though it occurred as of the indicated dates and does not
include earnings on the proceeds for the periods then ended.
The pro forma net income derived from the assumptions set forth above
should not be considered indicative of the actual results of operations of the
Holding Company that would have been attained for any period if the Conversion
had been actually consummated at the beginning of such periods and the
assumptions regarding investment yields should not be considered indicative of
the actual yield expected to be achieved during any future period. The pro forma
book values at the dates indicated should not be considered as reflecting the
potential trading value of the Holding Company's stock. There can be no
assurance that an investor will be able to sell the Common Stock purchased in
the Conversion at prices within the range of the pro forma book values of the
Common Stock or at or above the Purchase Price.
- 9 -
<PAGE>
<TABLE>
<CAPTION>
680,000 Shares 800,000 Shares 920,000 Shares 1,058,000 Shares (1)
Sold at Sold at Sold at Sold at
$10.00 Per Share $10.00 Per Share $10.00 Per Share $10.00 Per Share
Nine Months Year Nine Months Year Nine Months Year Nine Months Year
ended ended ended ended ended ended ended ended
3/31/97 6/30/96 3/31/97 6/30/96 3/31/97 6/30/96 3/31/97 6/30/96
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross proceeds .................. $ 6,800 $ 6,800 $ 8,000 $ 8,000 $ 9,200 $ 9,200 $ 10,580 $ 10,580
Less offering expenses .......... (433) (433) (450) (450) (467) (467) (486) (486)
Estimated net
conversion proceeds (2) .... 6,367 6,367 7,550 7,550 8,733 8,733 10,094 10,094
Less:
Common Stock acquired
by ESOP (3) ................ (544) (544) (640) (640) (736) (736) (846) (846)
Common Stock acquired
by the RRP (4) ............. (272) (272) (320) (320) (368) (368) (423) (423)
------- ------- ------- -------- ------- ------- --------- ---------
Investable net proceeds ......... $ 5,551 $ 5,551 $ 6,590 $ 6,590 $ 7,629 $ 7,629 $ 8,824 $ 8,824
======= ======= ======= ======== ======= ======= ========= =========
Consolidated net income:
Historical .................... $ 244 $ 479 $ 244 $ 479 $ 244 $ 479 $ 244 $ 479
Pro forma income on investable
net proceeds (5) ............. 125 195 149 231 172 268 199 310
Pro forma ESOP adjustment (3).. (24) (33) (29) (38) (33) (44) (38) (51)
Pro forma RRP adjustment (4)..... (24) (33) (29) (38) (33) (44) (38) (51)
------- ------- ------- -------- ------- ------- --------- ---------
Pro forma net income .......... $ 321 $ 608 $ 335 $ 634 $ 350 $ 659 $ 367 $ 687
======= ======= ======= ======== ======= ======= ========= =========
Consolidated earnings
per share (7)(8):
Historical .................... $ 0.39 $ 0.76 $ 0.33 $ 0.65 $ 0.29 $ 0.56 $ 0.25 $ 0.49
Pro forma income on investable
net proceeds ................. 0.20 0.31 0.20 0.31 0.20 0.31 0.20 0.32
Pro forma ESOP adjustment (3).. (0.04) (0.05) (0.04) (0.05) (0.04) (0.05) (0.04) (0.05)
Pro forma RRP adjustment (4) .. (0.04) (0.05) (0.04) (0.05) (0.04) (0.05) (0.04) (0.05)
------- ------- ------- -------- ------- ------- --------- ---------
Pro forma earnings per share .. $ 0.51 $ 0.97 $ 0.45 $ 0.86 $ 0.41 $ 0.77 $ 0.37 $ 0.71
======= ======= ======= ======== ======= ======= ========= =========
Consolidated book value (6) :
Historical .................... $ 5,564 $ 5,320 $ 5,564 $ 5,320 $ 5,564 $ 5,320 $ 5,564 $ 5,320
Estimated net
conversion proceeds(2) ..... 6,367 6,367 7,550 7,550 8,733 8,733 10,094 10,094
Less:
Common Stock acquired
by ESOP (3) ................ (544) (544) (640) (640) (736) (736) (846) (846)
Common Stock acquired
by the RRP (4) ............. (272) (272) (320) (320) (368) (368) (423) (423)
------- ------- ------- -------- ------- ------- --------- ---------
Pro forma book value .......... $ 11,115 $ 10,871 $ 12,154 $ 11,910 $ 13,193 $ 12,949 $ 14,388 $ 14,144
======= ======= ======= ======== ======= ======= ========= =========
Consolidated book value
per share (7)(8):
Historical .................... $ 8.18 $ 7.82 $ 6.96 $ 6.65 $ 6.05 $ 5.78 $ 5.26 $ 5.03
Estimated net conversion
proceeds per share ........... 9.36 9.36 9.44 9.44 9.49 9.49 9.54 9.54
Less:
Common Stock acquired
by the ESOP (3) ............ (0.80) (0.80) (0.80) (0.80) (0.80) (0.80) (0.80) (0.80)
Common Stock acquired
by the RRP (4) ............. (0.40) (0.40) (0.40) (0.40) (0.40) (0.40) (0.40) (0.40)
------- ------- ------- -------- ------- ------- --------- ---------
Pro forma book
value per share ............ $ 16.34 $ 15.98 $ 15.20 $ 14.89 $ 14.34 $ 14.07 $ 13.60 $ 13.37
======= ======= ======= ======== ======= ======= ========= =========
Offering price as a
percentage of pro
forma book value per share .... 61.22% 62.59% 65.78% 67.17% 69.73% 71.10% 73.53% 74.80%
======= ======= ======= ======== ======= ======= ========= =========
Ratio of offering price
to pro forma
earnings per share ............ 19.61x 10.31x 22.22x 11.63x 24.39x 12.98x 27.03x 14.08x
======= ======= ======= ======== ======= ======= ========= =========
Number of shares used in
calculating EPS (7) ........... 631,040 631,040 742,400 742,400 853,760 853,760 981,824 981,824
======= ======= ======= ======== ======= ======= ========= =========
Number of shares used in
calculating book value (7) .... 680,000 680,000 800,000 800,0000 920,000 920,000 1,058,000 1,058,000
======= ======= ======= ======== ======= ======= ========= =========
</TABLE>
(Footnotes on following page.)
- 10 -
<PAGE>
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following
commencement of the Subscription Offering and the Community Offering, if
any.
(2) See "Use of Proceeds" for assumptions utilized to determine the investable
net proceeds of the sale of Common Stock.
(3) It is assumed that 8% of the shares of Common Stock issued in the
Conversion will be purchased by the ESOP. The funds used to acquire the
ESOP shares will be borrowed by the ESOP from the Holding Company (see "Use
of Proceeds"). Citizens intends to make annual contributions to the ESOP in
an amount at least equal to the principal and interest requirements on the
debt. Citizens' total annual expense in payment of the ESOP debt is based
upon 10 equal annual installments of principal with an assumed tax benefit
of 40%. The pro forma net income assumes: (i) Citizens' total contributions
are equivalent to the debt service requirement for the year, and (ii) the
effective tax rate applicable to the debt was 40%. Expense for the ESOP
will be based on the number of shares committed to be released to
participants for the year at the average market value of the shares during
the year. Accordingly, Citizens' total annual expense in payment of the
ESOP for such years may be higher than that discussed above. The loan to
the ESOP is reflected as a reduction of shareholders' equity.
(4) Assuming the receipt of shareholder approval at the Holding Company's first
meeting of shareholders, the Holding Company intends to implement the RRP.
Assuming such implementation, the RRP will purchase an amount of shares
equal to 4% of the Common Stock sold in the Conversion for issuance to
directors and officers of the Holding Company and Citizens. Such shares may
be purchased from authorized but unissued shares or on the open market. The
Holding Company currently intends that the RRP will purchase the shares on
the open market, and the estimated net Conversion proceeds have been
reduced for the purchase of the shares in determining estimated proceeds
available for investment. Under the terms of the RRP, if it is adopted
within one year of the Conversion, shares will vest at the rate of 20% per
year. A tax benefit of 40% has been assumed. The Common Stock to be
purchased by the RRP represents unearned compensation and is, accordingly,
reflected as a reduction to pro forma shareholders' equity. As shares of
the Common Stock granted pursuant to the RRP vest, a corresponding
reduction in the charge against capital will occur. In the event that
authorized but unissued shares are acquired, the interests of existing
shareholders will be diluted. Assuming that 800,000 shares of Common Stock
are issued in the Conversion, the midpoint of the Estimated Valuation
Range, and that all awards under the RRP are from authorized but unissued
shares, the Holding Company estimates that the per share book value for the
Common Stock would be diluted $.72 per share, or 3.9% on a pro forma basis
as of March 31, 1997.
(5) Assuming investable net proceeds had been invested since the beginning of
the period at 5.02% for the nine months ended March 31, 1997 and 5.85% for
the year ended June 30, 1996 (the weighted average interest rate earned on
interest bearing deposits for each respective period) and an assumed
effective tax rate of 40%.
(6) Book value represents the excess of assets over liabilities. The effect of
the liquidation account is not reflected in these computations. (For
additional information regarding the liquidation account, see "The
Conversion -- Principal Effects of Conversion -- Effect on Liquidation
Rights.")
(7) The number of shares used in calculating book value and earnings per share
was calculated using the indicated number of shares sold reduced by the
assumed number of ESOP shares unallocated at the end of the first period.
Allocation of ESOP shares is assumed to occur on the first day of the
fiscal year.
(8) Assuming the receipt of shareholder approval at the Holding Company's first
meeting of shareholders to be held at least six months following the
Conversion, the Holding Company intends to implement the Stock Option Plan.
Assuming such implementation, Common Stock in an aggregate amount equal to
10% of the shares issued in the Conversion will be reserved for issuance by
the Holding Company upon the exercise of the stock options granted under
the Stock Option Plan. No effect has been given to the shares of Common
Stock reserved for issuance under the Stock Option Plan. Upon the exercise
of stock options granted under the Stock Option Plan, the interest of
existing shareholders will be diluted. The Holding Company estimates that
the per share book value for the Common Stock would be diluted $.51 per
share, or 3.27% on a pro forma basis as of March 31, 1997, assuming the
issuance of 800,000 shares in the Conversion, the midpoint, of the
Estimated Valuation Range and the exercise of 80,000 options at an exercise
price of $10.00 per share. This dilution further assumes that the shares
will be issued from authorized, but unissued, shares.
- 11 -
<PAGE>
Regulatory Capital Compliance
The following table compares our historical and pro forma regulatory
capital levels as of March 31, 1997 to our capital requirements after giving
effect to the Conversion.
<TABLE>
<CAPTION>
At March 31, 1997
Pro Forma Capital Based on Sale of
680,000 Shares 800,000 Shares 920,000 Shares 1,058,000 Shares
Citizens Sold at Price of Sold at Price of Sold at Price of Sold at Price of
Historical $10.00 $10.00 $10.00 $10.00
Amount Ratio Amount Ratio Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Equity capital based upon
generally accepted
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
accounting principles........ $5,564 12.6% $8,476 19.2% $9,019 20.4% $9,563 21.6% $10,188 23.0%
====== === ====== ==== ====== ==== ====== ==== ======== ====
Tangible capital :
Historical or
pro forma.................. $4,529 10.2% $7,441 16.8% $7,984 18.0% $8,528 19.3% $ 9,153 20.7%
Required..................... 664 1.5 736 1.5 754 1.5 772 1.5 793 1.5
------ --- ------ ---- ------ ---- ------ ---- -------- ----
Excess..................... $3,865 8.7% $6,704 15.3% $7,230 16.5% $7,755 17.8% $ 8,360 19.2%
====== === ====== ==== ====== ==== ====== ==== ======== ====
Core capital :
Historical or
pro forma ................. $4,529 10.2% $7,441 16.8% $7,984 18.0% $8,528 19.3% $ 9,153 20.7%
Required..................... 1,328 3.0 1,472 3.0 1,508 3.0 1,544 3.0 1,585 3.0
------ --- ------ ---- ------ ---- ------ ---- -------- ----
Excess..................... $3,201 7.2% $5,968 13.8% $6,476 15.0% $6,983 16.3% $ 7,567 17.7%
====== === ====== ==== ====== ==== ====== ==== ======== ====
Risk-based capital:
Historical or
pro forma ................. $4,701 17.9% $7,613 27.7% $8,156 29.4% $8,700 31.1% $ 9,325 33.0%
Required..................... 2,098 8.0 2,200 8.0 2,219 8.0 2,238 8.0 2,260 8.0
------ --- ------ ---- ------ ---- ------ ---- -------- ----
Excess..................... $2,603 9.9% $5,413 19.7% $5,937 21.4% $6,462 23.1% $ 7,065 25.0%
====== === ====== ==== ====== ==== ====== ==== ======== ====
- ----------------------
</TABLE>
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up
to 15% to reflect changes in market and financial conditions following
commencement of the Subscription Offering and the Community Offering,
if any.
(2) Tangible and core capital levels are shown as a percentage of total
assets; risk-based capital levels are shown as a percentage of
risk-weighted assets.
(3) Pro forma risk-based capital amounts and percentages assume net
proceeds have been invested in 20% risk-weighted assets.
- 12 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF CITIZENS SAVINGS BANK OF FRANKFORT
General
Citizens Bancorp was recently formed as an Indiana corporation on June
10, 1997, for the purpose of issuing the Common Stock and owning all of the
capital stock of Citizens issued in the Conversion. As a newly formed
corporation, the Holding Company has no operating history. All information in
this section should be read in conjunction with the consolidated financial
statements and notes thereto included within this document.
Our principal business has historically consisted of attracting
deposits from the general public and making loans secured by residential real
estate. Our earnings are primarily dependent upon our net interest income, which
is the difference between our interest income and interest expense. Interest
income is a function of the balances of loans and investments outstanding during
a given period and the yield earned on such loans and investments. Interest
expense is a function of the amount of deposits and borrowings outstanding
during the same period and interest rates paid on such deposits and borrowings.
Our earnings are also affected by provisions for loan losses, service charges,
operating expenses and income taxes.
Our earnings are also affected by the activities of our service
corporation subsidiary, CLSC, which engages in real estate development
activities. CLSC's activities are significantly affected by underlying economic
factors, such as interest rates, levels of unemployment and the general health
of the local and national economy. See "Business of Citizens -- Service
Corporation Subsidiary."
We also are affected by prevailing economic conditions, as well as
govenment policies and regulations concerning, among other things, monetary and
fiscal affairs, housing and financial institutions. See "Regulation." Deposit
flows are influenced by a number of factors, including interest rates paid on
competing investments, account maturities and level of personal income and
savings within our market. In addition, deposit growth is affected by how
customers perceive the stability of the financial services industry amid various
current events such as regulatory changes, failures of other financial
institutions and financing of the deposit insurance fund. Lending activities are
influenced by the demand for and supply of housing lenders, the availability and
cost of funds and various other items. Sources of funds for our lending
activities include deposits, payments on loans, borrowings and income provided
from operations.
Current Business Strategy
Our business strategy is to operate a well-capitalized, profitable and
independent community savings bank dedicated primarily to residential lending
with an emphasis on personal service. We have sought to implement this strategy
by (i) emphasizing the origination of one- to four-family residential mortgage
loans in our market area, (ii) investing in high-quality investment securities
and loans, and (iii) maintaining acceptable levels of capital.
The highlights of our business strategy are as follows:
o Profitability. Although no assurance can be made regarding
future profitability, we have been profitable in each of the
past five fiscal years. We had net income of $479,000 in
fiscal 1996, $406,000 in fiscal 1995, and $281,000 in fiscal
1994. Our net income for the nine months ended March 31, 1997,
was $244,000. Our average return on average assets for the
five years ended June 30, 1996, was 0.9%. Our returns on
average assets for the year ended June 30, 1996, and the nine
months ended March 31, 1997 (on an annualized basis) were
1.15% and .7%, respectively. Our net income for the nine
months ended March 31, 1997 would have been $371,000, and our
annualized return on average assets would have been 1.1% if
not for our recognition during that period of the one-time,
non-recurring special assessment of approximately $211,000
($127,000 net of tax) to replenish the Savings Association
Insurance Fund ("SAIF") of the FDIC. See "--Comparison of
Operation Results for the Nine Months ended March 31, 1997 and
1996."
<PAGE>
o Asset Quality. Due largely to our conservative loan
underwriting standards, we have been successful in maintaining
a high level of asset quality. At March 31, 1997, only
$205,000, or 0.45% of our total assets were included in
nonperforming assets. At the same date, $253,000, or .7% of
our total assets were delinquent more than 60 days but less
than 90 days. See "Business of Citizens--Non-Performing and
Problem Assets."
o Capital Position. At March 31, 1997, we exceeded all of our
regulatory capital requirements, and our equity capital was
$5.6 million, or 12.3% of total assets. Assuming net proceeds
- 13 -
<PAGE>
at the midpoint of the Estimated Valuation Range, our pro
forma equity to assets ratio (excluding $4.1 million of net
proceeds to be retained by the Holding Company), at such date,
would have been 18.6%.
Asset/Liability Management
We are also subject to interest rate risk to the degree that our
interest-bearing liabilities, primarily deposits with short- and medium-term
maturities, mature or reprice at different rates than our interest-earning
assets. We believe it is critical to manage the relationship between interest
rates and the effect on our net portfolio value ("NPV"). This approach
calculates the difference between the present value of expected cash flows from
assets and the present value of expected cash flows from liabilities, as well as
cash flows from off-balance sheet contracts. We manage assets and liabilities
within the context of the marketplace, regulatory limitations and within limits
established by our Board of Directors on the amount of change in NPV which is
acceptable given certain interest rate changes.
The OTS issued a regulation, which uses a net market value methodology
to measure the interest rate risk exposure of savings associations. Under this
OTS regulation, an institution's "normal" level of interest rate risk in the
event of an assumed change in interest rates is a decrease in the institution's
NPV in an amount not exceeding 2% of the present value of its assets. Savings
associations with over $300 million in assets or less than a 12% risk-based
capital ratio are required to file OTS Schedule CMR. Data from Schedule CMR is
used by the OTS to calculate changes in NPV (and the related "normal" level of
interest rate risk) based upon certain interest rate changes (discussed below).
Associations which do not meet either of the filing requirements are not
required to file OTS Schedule CMR, but may do so voluntarily. As we do not meet
either of these requirements, we are not required to file Schedule CMR, although
we do so voluntarily. Under the regulation, associations which must file are
required to take a deduction (the interest rate risk capital component) from
their total capital available to calculate their risk based capital requirement
if their interest rate exposure is greater than "normal." The amount of that
deduction is one-half of the difference between (a) the institution's actual
calculated exposure to a 200 basis point interest rate increase or decrease
(whichever results in the greater pro forma decrease in NPV) and (b) its
"normal" level of exposure which is 2% of the present value of its assets.
Presented below, as of March 31, 1997, is an analysis performed by the
OTS of our interest rate risk as measured by changes in NPV for instantaneous
and sustained parallel shifts in the yield curve, in 100 basis point increments,
up and down 400 basis points. At March 31, 1997, 2% of the present value of our
assets was approximately $931,000. Because the interest rate risk of a 200 basis
point increase in market rates (which was greater than the interest rate risk of
a 200 basis point decrease) was $1.1 million at March 31, 1997, we would have
been required to deduct $84,000 from our capital if we had been subject to the
OTS' reporting requirements under this methodology.
<TABLE>
<CAPTION>
Change Net Portfolio Value NPV as % of Present Value of Assets
In Rates $ Amount $ Change % Change NPV Ratio Change
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+ 400 bp * $4,592 $(2,337) (34)% 10.62% (427)bp
+ 300 bp 5,215 (1,714) (25)% 11.82% (307)bp
+ 200 bp 5,830 (1,099) (16)% 12.97% (192)bp
+ 100 bp 6,416 (513) (7)% 14.02% (87)bp
0 bp 6,929 --- ---% 14.89% ---bp
- 100 bp 7,274 345 5% 15.44% 55bp
- 200 bp 7,304 375 5% 15.41% 52bp
- 300 bp 7,218 289 4% 15.17% 28bp
- 400 bp 7,255 326 5% 15.15% 26bp
</TABLE>
* Basis points.
As with any method of measuring interest rate risk, the methods of
analysis presented above have certain short comings. For example, although
certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest
- 14 -
<PAGE>
rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other types may lag behind changes in market rates. Additionally, certain
assets, such as adjustable-rate loans, have features which restrict changes in
interest rates on a short-term basis and over the life of the asset. Further, in
the event of a change in interest rates, expected rates of prepayments on loans
and early withdrawals from certificates could likely deviate significantly from
those assumed in calculating the table.
Average Balances and Interest Rates and Yields
The following tables present at March 31, 1997, and for the nine-month
periods ended March 31, 1997, and 1996, and the fiscal years ended June 30,
1996, 1995 and 1994, the average daily balances of each category of our
interest-earning assets and interest-bearing liabilities, and the interest
earned or paid on such amounts.
<TABLE>
<CAPTION>
At March 31, Nine Months Ended March 31,
1997 1997 1996
------------------- ----------------------------- -----------------------------
Average Average Average Average
Balance Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning deposits.......... $ 3,928 5.97% $ 3,435 $ 129 5.02% $ 3,193 $ 144 6.00%
FHLB stock......................... 332 7.85 332 19 7.84 332 20 8.03
Investment securities
available for sale (1)........... 159 6.39 1,936 92 6.31 2,979 132 5.91
Loans receivable (2)............... 37,630 8.61 36,362 2,380 8.73 31,397 2,069 8.79
-------- -------- ------ -------- -----
Total interest-earning assets.... 42,049 8.35 42,065 2,620 8.30 37,901 2,365 8.32%
======== ======== ========
Interest-bearing liabilities:
Deposits........................... 37,255 4.52 36,325 1,227 4.50 34,169 1,149 4.48%
FHLB advances...................... 2,000 5.87 3,275 135 5.49 1,800 82 6.05
-------- -------- ------ -------- -----
Total interest-bearing liabilities 39,255 4.59 39,600 1,362 4.59 35,969 1,231 4.56%
-------- -------- ------ -------- -----
Net interest-earning assets........... $ 2,794 $ 2,465 $ 1,932
======== ======== ========
Net interest income (expenses)........ $1,258 $1,134
====== ======
Interest rate spread (3).............. 3.76% 3.71% 3.76%
==== ==== ====
Net yield on weighted average
interest-earning assets (4)........ ---% 3.99% 3.99%
==== ==== ====
Average interest-earning
assets to average interest-bearing
liabilities........................ 107.12% 106.22% 105.37%
====== ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995 1994
---------------------------- ---------------------------- ----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits............ $ 3,109 $ 182 5.85% $ 3,713 $ 181 4.89% $ 6,640 $ 251 3.79%
FHLB stock........................... 332 26 7.91 332 23 7.06 332 19 5.83
Investment securities
available for sale (1)............. 3,001 174 5.81 2,832 154 5.43 2,470 108 4.35
Loans receivable (2)................. 31,980 2,804 8.77 28,121 2,384 8.48 24,564 2,046 8.33
------- ------ -------- ------ -------- -----
Total interest-earning assets...... 38,422 3,186 8.29 34,998 2,742 7.84% 34,006 2,424 7.13
====== ====== ======== ===== ======== =====
Interest-bearing liabilities:
Deposits............................. 34,456 1,539 4.47 32,605 1,341 4.12 31,917 1,273 3.99
FHLB advances........................ 1,923 114 5.94 462 29 6.24 --- --- ---
------- ------ -------- ------ -------- -----
Total interest-bearing liabilities. 36,379 1,653 4.54 33,067 1,370 4.15 31,917 1,273 3.99
------- ------ -------- ------ -------- -----
Net interest-earning assets............. $ 2,043 $ 1,931 $ 2,089
======= ======== ========
Net interest income..................... $1,533 $1,372 $1,151
====== ====== ======
Interest rate spread (3)................ 3.75% 3.69% 3.14%
==== ==== ====
Net yield on weighted average
interest-earning assets (4).......... 3.99% 3.92% 3.38%
==== ==== ====
Average interest-earning assets
to average interest-bearing
liabilities..................... 105.61% 105.84% 106.54%
====== ====== ======
</TABLE>
(1) Includes securities available for sale at amortized cost prior to SFAS
No. 115 adjustments.
(2) Total loans less loans in process. Average balances include non-accrual
loans.
(3) Interest rate spread is calculated by subtracting weighted average
interest rate cost from weighted average interest rate yield for the
period indicated.
(4) The net yield on weighted average interest-earning assets is calculated
by dividing net interest income by weighted average interest-earning
assets for the period indicated. No net yield amount is presented at
March 31, 1997, because the computation of net yield is applicable only
over a period rather than at a specific date.
- 15 -
<PAGE>
Interest Rate Spread
Our results of operations have been determined primarily by net
interest income and, to a lesser extent, fee income, miscellaneous income and
general and administrative expenses. Our net interest income is determined by
the interest rate spread between the yields we earn on interest-earning assets
and the rates we pay on interest-bearing liabilities, and by the relative
amounts of interest-earning assets and interest-bearing liabilities.
The following table sets forth the weighted average effective interest
rate that we earned on our loan and investment portfolios, the weighted average
effective cost of our deposits and advances, the interest rate spread, and net
yield on weighted average interest-earning assets for the periods and as of the
dates shown. Average balances are based on average monthly balances. Our
management believes that the use of month-end average balances instead of daily
average balances has not caused any material difference in the information
presented.
<TABLE>
<CAPTION>
Nine Months Ended
At March 31, March 31, Year Ended June 30,
1997 1997 1996 1996 1995 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted average interest rate earned on:
Interest-bearing deposits.................... 5.97% 5.02% 6.00% 5.85% 4.89% 3.79%
FHLB stock................................... 7.85 7.84 8.03 7.91 7.06 5.83
Investment securities........................ 6.39 6.31 5.91 5.81 5.43 4.35
Loans receivable............................. 8.61 8.73 8.79 8.77 8.48 8.33
Total interest-earning assets.............. 8.35 8.30 8.32 8.29 7.84 7.13
Weighted average interest rate cost of:
Deposits..................................... 4.52 4.50 4.48 4.47 4.12 3.99
FHLB advances................................ 5.87 5.49 6.05 5.94 6.24 ---
Total interest-bearing liabilities......... 4.59 4.59 4.56 4.54 4.15 3.99
Interest rate spread (1)........................ 3.76% 3.71% 3.76% 3.75% 3.69% 3.14%
==== ==== ==== ==== ==== ====
Net yield on weighted average
interest-earning assets (2).................. ---% 3.99% 3.99% 3.99% 3.92% 3.38%
==== ==== ==== ==== ==== ====
</TABLE>
(1) Interest rate spread is calculated by subtracting combined weighted
average interest rate cost from combined weighted average interest rate
earned for the period indicated. Interest rate spread figures must be
considered in light of the relationship between the amounts of
interest-earning assets and interest-bearing liabilities.
(2) The net yield on weighted average interest-earning assets is calculated
by dividing net interest income by weighted average interest-earning
assets for the period indicated. No net yield figure is presented at
March 31, 1997 because the computation of net yield is applicable only
over a period rather than at a specific date.
- 16 -
<PAGE>
The following table describes the extent to which changes in interest rates
and changes in volume of interest-related assets and liabilities have affected
our interest income and expense during the periods indicated. For each category
of interest-earning asset and interest-bearing liability, information is
provided on changes attributable to (1) changes in rate (changes in rate
multiplied by old volume) and (2) changes in volume (changes in volume
multiplied by old rate). Changes attributable to both rate and volume which
cannot be segregated have been allocated proportionally to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
Increase (Decrease) in Net Interest Income
Total
Due to Due to Net
Rate Volume Change
(In thousands)
<S> <C> <C> <C>
Nine months ended March 31, 1997 compared
to nine months ended March 31, 1996
Interest-earning assets:
Interest-bearing deposits.................................. $ (30) $ 15 $ (15)
FHLB stock................................................. --- --- ---
Investment securities...................................... 13 (54) (41)
Loans receivable........................................... (23) 334 311
------- ---- -----
Total.................................................... (40) 295 255
------- ---- -----
Interest-bearing liabilities:
Deposits................................................... 5 73 78
FHLB advances.............................................. (13) 66 53
------- ---- -----
Total.................................................... (8) 139 131
------- ---- -----
Net change in net interest income............................ $ (32) $156 $ 124
======= ==== =====
Year ended June 30, 1996 compared
to year ended June 30, 1995
Interest-earning assets:
Interest-bearing deposits.................................. $ 32 $ (32) $ ---
FHLB stock................................................. 3 --- 3
Investment securities...................................... 11 10 21
Loans receivable........................................... 84 336 420
------- ---- -----
Total.................................................... 130 314 444
------- ---- -----
Interest-bearing liabilities:
Deposits................................................... 118 79 197
FHLB advances.............................................. (2) 87 85
------- ---- -----
Total.................................................... 116 166 282
------- ---- -----
Net change in net interest income............................ $ 14 $ 148 $ 162
======= ==== =====
Year ended June 30, 1995 compared
to year ended June 30, 1994
Interest-earning assets:
Interest-bearing deposits.................................. $ 60 $ (130) $ (70)
FHLB stock................................................. 4 --- 4
Investment securities...................................... 29 17 46
Loans receivable........................................... 38 300 338
------- ---- -----
Total.................................................... 131 187 318
------- ---- -----
Interest-bearing liabilities:
Deposits................................................... 42 27 69
FHLB advances.............................................. --- 28 28
------- ---- -----
Total.................................................... 42 55 97
------- ---- -----
Net change in net interest income............................ $ 89 $ 132 $ 221
======= ==== =====
</TABLE>
- 17 -
<PAGE>
Financial Condition at March 31, 1997 Compared to Financial Condition at June
30, 1996
Total consolidated assets increased by $918,000, or 2.1% to $45.2
million at March 31, 1997 from $44.2 million at June 30, 1996. Our loan
portfolio increased $2.8 million and our investment securities decreased $2.8
million. The increase in the loan portfolio was funded primarily by an increase
in interest-bearing deposits of $1.7 million and by the sale of investments.
Financial Condition at June 30, 1996 Compared to Financial Condition at June 30,
1995
Total consolidated assets increased by $4.5 million, or 11.4%, to $44.2
million at June 30, 1996 from $39.7 million at June 30, 1995. The increase in
assets for the period was primarily attributable to the growth in our loan
portfolio of $5.1 million. This increase in loan volume was primarily due to
increased loan demand generated by economic growth in our market area, and a
more aggressive loan origination program. Loan growth was funded mainly from an
increase in deposits of approximately $2.4 million and an increase in Federal
Home Loan Bank advances of $1.5 million.
The increase in the loan portfolio was comprised primarily of mortgage
loans which increased approximately $4.0 million.
Comparison of Operating Results for the Nine Months Ended March 31, 1997 and
1996
Net Income. Net income decreased $112,000, or 31.5%, to $244,000 for
the nine-month period ended March 31, 1997 from $356,000 for the same period in
1996. The decrease primarily resulted from the recognition of the one-time,
non-recurring special assessment in the amount of approximately $211,000
($127,000 net of tax) to replenish the SAIF and from the sale of an investment
at a loss of approximately $60,000. This decrease in net income was offset by an
increase of $124,000 in our net interest income from $1.1 million for 1997 to
$1.25 million for 1996. Excluding the SAIF assessment and the loss on the sale
of investments, net income would have increased $52,000, or 14.6%, to
approximately $408,000 for the nine months ended March 31, 1997 from $356,000
for the nine months ended March 31, 1996.
Net Interest Income. Net interest income is the most significant
component of our income from operations. Net interest income is the difference
between interest we receive on our interest-earning assets (primarily loans and
investments) and interest we pay on our interest-bearing liabilities (primarily
deposits and borrowed funds). Net interest income depends on the volume of and
rates earned on assets and the volume of and rates paid on interest-bearing
liabilities. Our net interest income increased $124,000, or 10.9%, to $1.3
million for the nine-months ended March 31, 1997 from $1.1 million for the
comparable period in 1996. This increase was due primarily to the growth of
average interest-earning assets to $42.0 million in 1997 from $37.9 million in
1996.
The increase in our average interest-earning assets of $4.2 million
reflects an increase of approximately $5.0 million in average loans, an increase
in interest-earning deposits of $242,000 and a decrease of approximately $1.0
million in investments.
Our interest rate spread decreased during the nine-month period ended
March 31, 1997 as compared to the comparable period in 1996 to 3.71% from 3.76%,
and our net interest margin remained the same.
<PAGE>
Provisions for Loan Losses. Our provisions for loan losses for the
nine-month period in 1997 and the comparable period in 1996 were $32,000 and
$63,000, respectively. We increased the loss provisions in 1996 to recognize the
increase in consumer loan losses occurring in the nation and the increase in the
size of our consumer loan portfolio.
Historically we have emphasized our loss experience over other factors
in establishing the provision for loan losses. We review the allowance for loan
losses in relation to (i) our past loan loss experience, (ii) known and inherent
risks in our portfolio, (iii) adverse situations that may affect the borrowers'
ability to repay, (iv) the estimated value of any underlying collateral and (v)
current economic conditions. Our allowances for loan losses as of March 31, 1997
and 1996 were $172,000 and $121,000 respectively.
Other Income. Our other income decreased approximately $79,000, or 43%,
during the nine-month period in 1997 as compared to the comparable period in
1996. This decrease resulted from the sale of an investment security at a loss
of $60,000, a decrease in fees and service charges of $9,000 and a decrease in
other income of $10,000.
Other Expense. Our other expense increased $255,000, or 26.5%, to
$961,000 in 1997 from $706,000 in 1996. The increase was primarily attributable
to an increase of $47,000 in salaries and benefits and to the payment of the
one-time SAIF assessment of $211,000.
- 18 -
<PAGE>
Income Tax Expense. Our income tax expense decreased $67,000, or 34.9%,
from $192,000 in 1996 to $125,000 in 1997. The decrease was the result of the
decrease in our net income before taxes.
Comparison of Operating Results For Fiscal Years Ended June 30, 1996 and 1995
Net Income. Net income increased $73,000, or 18.0%, to $479,000 for
1996 from $406,000 for 1995. The increase was primarily due to the increase in
the size of our loan portfolio and the increase in our net interest income.
Net Interest Income. Our net interest income increased $161,000, or
11.7%, to $1.5 million in 1996 from $1.4 million in 1995. This increase was due
primarily to the growth of average interest earning assets to $38.4 million in
1996 from $35.0 million in 1995. In addition, our interest rate spread increased
to 3.75% in 1996 from 3.7% in 1995 and our net interest margin increased to 4.0%
in 1996 from 3.9% in 1995.
The increase in our average interest-earning assets of $3.4 million
reflects an increase of $3.9 million in average loans, an increase in
investments of $169,000 and a decrease in interest-bearing deposits of $604,000.
Our interest rate spread and net interest margin increased in 1996
compared to 1995. This was due to the increase in the yield on average
interest-earning assets to 8.3% in 1996 from 7.8% in 1995, while
interest-bearing liabilities increased to 4.5% in 1996 from 4.2% in 1995.
The yield on our average interest-earning assets increased in 1996 due
to an increase in the yield of both loans and investments. Generally positive
economic conditions resulted in sustained loan demand, which resulted in an
increase in the yield on our average interest-earning assets.
The increase in the cost of our average interest-bearing liabilities
was due primarily to increases in the cost of our interest-bearing deposits, to
4.5% in 1996 from 4.1% in 1995. This was partially offset by the decrease in the
cost of short-term borrowings to 5.9% in 1996 from 6.2% in 1995.
Provisions for Loan Losses. Our provisions for loan losses for 1996 and
1995 were $80,000 and $32,000, respectively. The increase of $48,000 in 1996 was
made to strengthen our allowance for a possible increase in consumer loan
losses. We did not charge off any amounts during 1996 and we experienced a
$12,000 recovery during that period. The $37,000 charge off in 1995 was
partially offset by a $2,000 recovery. Our allowances for loan loss for 1996 and
1995 were $138,000 and $46,000 respectively.
Other Income. Our other income increased approximately $25,000, or
11.3%, in 1996 as compared to 1995. This increase was primarily the result of a
profit of $24,000 in 1996 from CLSC, our wholly-owned service corporation.
Other Expense. Our other expense increased $43,000, or 4.7%, to
$967,000 in 1996 from $924,000 in 1995. The increase was primarily attributable
to an increase of $28,000 in salaries and benefits, primarily due to hiring an
additional loan officer, and a $9,000 increase in occupancy in connection with
the installation of new computers, a "Loan Doc Prep" software package and a
Local Area Network (LAN).
Income Tax Expense. Our income tax expense increased $22,000, or 9.6%,
to $253,000 in 1996 from $231,000 in 1995. The increase was the result of the
increased net income earned in 1996.
Comparison of Operating Results For Fiscal Years Ended June 30, 1995 and 1994
Net Income. Net income increased $125,000, or 44.5%, to $406,000 for
1995 from $281,000 for 1994. The increase was primarily due to the increase in
our loan portfolio, the increase in our net interest income and an increase in
our net interest margin from 3.4% in 1994 to 3.9% in 1995.
Net Interest Income. Our net interest income increased $221,000, or
19.2%, to $1.4 million in 1995 from $1.2 million in 1994. This increase was due
primarily to the growth of average interest earning assets to $35 million in
1995 from $34 million in 1994 and to the increase in our net interest margin to
3.9% in 1995 from 3.4% in 1994.
The increase in our average interest-earning assets of $992,000
reflects an increase of $3.6 million in loans offset by a decrease of $2.9
million in interest-bearing deposits.
Our interest rate spread increased from 3.1% in 1994 to 3.7% in 1995,
and our net interest margin increased from 3.4% in 1994 to 3.9% in 1995. This
increase was due to the increase in the yield on average interest-earning assets
to 7.8% in 1995 from 7.1% in 1994, while the interest-bearing liabilities only
increased to 4.2% in 1995 from 4.0% in 1994.
- 19 -
<PAGE>
The yield on our average interest-earning assets increased in 1995 due
to an increase in the yield of both loans and investments. Strong economic
conditions resulted in continued demand for loans, which resulted in an increase
in the yield on our average interest-earning assets.
The increase in the cost of our average interest-bearing liabilities
was due primarily to increases in the cost of our interest-bearing deposits to
4.1% in 1995 from 4.0% in 1994. During 1995, we also obtained from the Federal
Home Loan Bank an advance in the amount of $1.5 million with an average rate of
6.2%.
Provisions for Loan Losses. Our provisions for loan losses for 1995 and
1994 were $32,000 and $12,000, respectively. The increase of $20,000 was due to
the increase in the size of our loan portfolio. Our allowances for loan losses
for 1995 and 1994 were $46,000 and $49,000 respectively.
Other Income. Our other income increased approximately $24,000, or
12.2%, in 1995 as compared to 1994. This increase was primarily the result of an
increase in fee income.
Other Expense. Our other expense increased $61,000, or 7.1%, to
$924,000 in 1995 from $863,000 in 1994. The increase was primarily attributable
to an increase of $25,000 in salaries and benefits, of which approximately
$10,000 was attributable to increased supplemental retirement expense that was
more than offset by income. Additionally, an increase of approximately $28,000
in expenses associated with deferred loan fees was included in employee salaries
and benefits.
Income Tax Expense. Our income tax expense increased $65,000, or 39.2%,
to $231,000 in 1995 from $166,000 in 1994. The increase was the result of the
increased net income earned in 1995.
Liquidity and Capital Resources
Our primary sources of funds are deposits, borrowings and the proceeds
from principal and interest payments on loans. While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions and competition.
Our primary investing activity is the origination of loans. During the
years ended June 30, 1996, 1995 and 1994 we originated total loans in the
amounts of $15.4 million, $11.4 million and $11.1 million, respectively. We
purchased loans totaling $64,000 and $311,000 in the fiscal years ended June 30,
1996 and 1994, respectively. Loan principal repayments totaled $10.3 million,
$8.3 million and $8.6 million during the respective periods.
During the nine-month periods ended March 31, 1997 and 1996, we
originated loans of $13.0 million and $10.7 million, respectively. Loan
principal repayments totaled $10.0 million and $7.5 million, respectively,
during these periods.
During the years ended June 30, 1996, 1995, and 1994, we purchased
securities in the amounts of $169,000, $154,000 and $1,107,000, respectively. We
did not receive any proceeds for the sale of securities during 1996, 1995 or
1994. During the nine-month period ended March 31, 1997, however, we sold
approximately $2.9 million of securities for a loss of approximately $60,000.
We had outstanding loan commitments of $265,000 and unused lines of
credit of approximately $2.5 million at March 31, 1997. We anticipate that we
will have sufficient funds from loan repayments and from our ability to borrow
additional funds from the FHLB of Indianapolis to meet our current commitments.
Certificates of deposit scheduled to mature in one year or less at March 31,
1997 totaled $14.3 million. We believe that a significant portion of such
deposits will remain with us based upon historical deposit flow data and our
competitive pricing in our market area.
Liquidity management is both a daily and long-term function of our
management strategy. In the event that we should require funds beyond our
ability to generate them internally, additional funds are available through the
use of FHLB advances. We had outstanding FHLB advances in the amount of $2.0
million at March 31, 1997.
- 20 -
<PAGE>
The following is a summary of our cash flows, which are of three major
types. Cash flows from operating activities consist primarily of net income
generated by cash. Investing activities generate cash flows through the
origination and principal collection on loans as well as purchases and sales of
securities. Investing activities will generally result in negative cash flows
when we experience loan growth. Cash flows from financing activities include
savings deposits, withdrawals and maturities and changes in borrowings. The
following table summarizes cash flows for each of the nine-month periods ended
March 31, 1997 and 1996 and each year in the three-year period ended June 30,
1996.
<TABLE>
<CAPTION>
Nine Months Ended
March 31, Year Ended June 30,
1997 1996 1996 1995 1994
------- ------ ------ ------ --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities........................ $ 250 $ 350 $ 518 $ 494 $ 221
Investing activities: 221
Purchases of
investment securities.................. (36) (136) (169) (154) (1,107)
Sales of investment securities........... 2,945 --- --- --- ---
Principal collected on loans............. 9,990 7,475 10,279 8,263 8,643
Loans originated......................... (12,966) (10,724) (15,419) (11,434) (11,061)
Loans sold............................... 91 --- --- --- ---
Loans purchased.......................... --- --- (64) --- (311)
Change in land held
for development........................ 30 (52) (3) (682) ---
Purchases of equipment................... (16) (40) (69) (25) (39)
Financing activities:
Increase/(decrease) in NOW,
MMDA and passbook deposits............. 100 596 460 (1,991) 2,599
Increase in certificates
of deposit............................. 1,555 1,343 1,965 1,129 1,303
Advances from FHLB....................... 11,500 3,500 4,500 6,000 ---
Payments to FHLB......................... (12,500) (3,000) (3,000) (4,500) ---
------- ------ ------ ------ --------
Net increase/(decrease) in cash
and cash equivalents..................... $ 943 $ (688) $(1,002) $(2,900) $ 248
====== ======== ======= ======= ========
</TABLE>
Federal regulations require FHLB-member savings associations to
maintain an average daily balance of liquid assets equal to a monthly average of
not less than a specified percentage of their net withdrawable savings deposits
plus short-term borrowings. Liquid assets include cash, certain time deposits,
certain bankers' acceptances, specified U.S. government, state or federal agency
obligations, certain corporate debt securities, commercial paper, certain mutual
funds, certain mortgage-related securities, and certain first lien residential
mortgage loans. This liquidity requirement may be changed from time-to-time by
the OTS to any amount within the range of 4% to 10%, and is currently 5%,
although the OTS has proposed a reduction of the percentage to 4%. Also, a
savings association currently must maintain short-term liquid assets
constituting at least 1% of its average daily balance of net withdrawable
deposit accounts and current borrowings, although the OTS has proposed
eliminating this requirement. Monetary penalties may be imposed for failure to
meet these liquidity requirements. As of March 31, 1997, we had liquid assets of
$2.9 million, and a regulatory liquidity ratio of 7.6%, all of which constituted
short-term investments.
- 21 -
<PAGE>
Pursuant to OTS capital regulations, savings associations must
currently meet a 1.5% tangible capital requirement, a 3% leverage ratio (or core
capital) requirement, and a total risk-based capital to risk-weighted assets
ratio of 8%. At March 31, 1997, our tangible capital ratio was 10.2%, our core
capital ratio was 10.2%, and our risk-based capital to risk-weighted assets
ratio was 17.9%. Therefore, at March 31, 1997, our capital levels exceeded all
applicable regulatory capital requirements currently in effect. The following
table provides the minimum regulatory capital requirements and our capital
ratios as of March 31, 1997:
<TABLE>
<CAPTION>
At March 31, 1997
OTS Requirement Citizens' Capital Level
% of % of Amount
Capital Standard Assets Amount Assets(1) Amount of Excess
- ---------------- ------ ------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible capital............................ 1.5% $ 664 10.2% $4,529 $3,865
Core capital (2)............................ 3.0 1,328 10.2 4,529 3,201
Risk-based capital.......................... 8.0 2,098 17.9 4,701 2,603
</TABLE>
(1) Tangible and core capital levels are shown as a percentage of total assets;
risk-based capital levels are shown as a percentage of risk-weighted
assets.
(2) The OTS has proposed and is expected to adopt a core capital requirement
for savings associations comparable to that adopted by the OCC for national
banks. The new regulation, as proposed, would require at least 3% of total
adjusted assets for savings associations that received the highest
supervisory rating for safety and soundness, and 4% to 5% for all other
savings associations. The final form of such new OTS core capital
requirement may differ from that which has been proposed. We expect to be
in compliance with such new requirements. See "Regulation -- Savings
Association Regulatory Capital."
For definitions of tangible capital, core capital and risk-based
capital, see "Regulation -- Savings Association Regulatory Capital."
As of March 31, 1997, management is not aware of any current
recommendations by regulatory authorities which, if they were to be implemented,
would have, or are reasonably likely to have, a material adverse effect on our
liquidity, capital resources or results of operations.
Current Accounting Issues
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." In October 1994, the FASB issued SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure," which amends SFAS No. 114 to allow a creditor to use existing
methods for recognizing interest income on impaired loans. SFAS No.114, as
amended by SFAS No. 118 as to certain income recognition provisions and
financial statement disclosure requirements, is applicable to all creditors and
to all loans that are individually and specifically evaluated for impairment,
uncollateralized as well as collateralized, except those loans that are
accounted for at fair value or at the lower of cost or fair value. This
Statement requires that the expected loss of interest income on nonperforming
loans be taken into account when calculating loan loss reserves and that
specified impaired loans be measured based upon the present value of expected
future cash flows discounted at the loan's effective interest rate or, as an
alternative, at the loan's observable market price or fair value of the
collateral if the loan is collateral dependent. Our loans that may be affected
by these accounting standards are our multi-family loans, which are evaluated
based on discounted cash flows, and our collateral dependent loans, where our
current procedures for evaluating impairment result in carrying such loans at
the lower of cost or fair value. We adopted SFAS No. 114 on July 1, 1995,
without a significant detrimental effect on our overall consolidated financial
position or results of operations.
<PAGE>
In November 1993, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 93-6, "Employer's Accounting
for Employee Stock Ownership Plans." The SOP, among other things, changed the
measure of compensation expense recorded by employers from the cost of employee
stock ownership plan shares allocated to employees during the period to the fair
value of employee stock ownership plan shares allocated. Assuming the
acquisition of shares of stock by the ESOP, the application of SOP 93-6 is
likely to result in fluctuations in compensation expense due to changes in the
fair value of the stock.
In May, 1995, the FASB issued SFAS No. 122 "Accounting for Mortgage
Servicing Rights," which requires us to recognize as separate assets rights to
service mortgage loans for others, regardless of how we acquired those servicing
rights. An institution that acquires mortgage servicing rights through either
the purchase or origination of mortgage loans and sells those loans with
servicing rights retained would allocate some of the cost of the loans to the
mortgage servicing rights.
- 22 -
<PAGE>
SFAS No. 122 requires that capitalized mortgage servicing rights and
capitalized excess servicing rights be assessed for impairment. Impairment is
measured based on fair value.
SFAS No. 122 was effective for years beginning after December 15, 1995
(July 1, 1996, as to Citizens), for transactions in which an entity acquires
mortgage servicing rights and to impairment evaluations of all capitalized
mortgage servicing rights and capitalized excess servicing receivables whenever
acquired. Retroactive application was prohibited. The provisions of SFAS No. 122
were adopted without material effect.
In October, 1995, the FASB issued SFAS No. 123 entitled "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes a fair value based method of
accounting and disclosing the amount of stock-based compensation paid to
employees. Historically, Accounting Principles Board ("APB") Opinion No. 25
"Accounting for Stock Issued to Employees" has measured compensation cost using
the method based on the award's intrinsic value. Those electing to remain with
the accounting in APB Opinion No. 25 must make pro forma disclosures of net
income and, when presented, earnings per share, as if the fair value based
method of accounting defined in SFAS 123 had been applied. The disclosure
provisions of SFAS No. 123 will be adopted by management upon completion of the
Conversion. We do not believe that adoption of SFAS No. 123 disclosure
provisions will have a material adverse effect on our consolidated financial
position or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
of Financial Assets, Servicing Rights and Extinguishment of Liabilities," that
provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method provides that
the carrying amount of the financial assets transferred be allocated to
components of the transaction based on their relative fair values. Transactions
subject to the provisions of SFAS No. 125 include, among others, transfers
involving repurchase agreements, securitizations of financial assets, loan
participations and transfers of receivables with recourse. An entity that
undertakes an obligation to service financial assets recognizes either a
servicing asset or liability for the servicing contract. A servicing asset or
liability that is purchased or assumed is initially recognized at its fair
value. Servicing assets and liabilities are amortized in proportion to and over
the period of estimated net servicing income or net servicing loss and are
subject to subsequent assessments for impairment based on fair value. SFAS No.
125 provides that a liability is removed from the balance sheet only if the
debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor. SFAS No. 125 is
effective for applicable transactions occurring after December 31, 1996, and is
to be applied prospectively. Retroactive application is not permitted. We do not
believe that adoption of SFAS No. 125 will have a material adverse effect on our
financial position or results of operations.
Impact of Inflation
The consolidated financial statements presented herein have been prepared
in accordance with generally accepted accounting principles. These principles
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation.
Our primary assets and liabilities are monetary in nature. As a result,
interest rates have a more significant impact on our performance than the
effects of general levels of inflation. Interest rates, however, do not
necessarily move in the same direction or with the same magnitude as the price
of goods and services, since such prices are affected by inflation. In a period
of rapidly rising interest rates, the liquidity and maturities structures of our
assets and liabilities are critical to the maintenance of acceptable performance
levels.
The principal effect of inflation, as distinct from levels of interest
rates, on earnings is in the area of noninterest expense. Such expense items as
employee compensation, employee benefits and occupancy and equipment costs may
be subject to increases as a result of inflation. An additional effect of
inflation is the possible increase in the dollar value of the collateral
securing loans that we have made. We are unable to determine the extent, if any,
to which properties securing our loans have appreciated in dollar value due to
inflation.
BUSINESS OF CITIZENS
General
We were organized as a state-chartered building and loan association in
1916 and currently conduct our business from one full-service office located in
- 23 -
<PAGE>
Frankfort, Indiana. Our principal business consists of attracting deposits from
the general public and originating fixed-rate and adjustable-rate loans secured
primarily by first mortgage liens on one- to four-family real estate. Our
deposit accounts are insured up to applicable limits by the SAIF of the FDIC.
We believe that we have developed a solid reputation among our loyal
customer base because of our commitment to personal service and because of
strong support of the local community. We offer a number of consumer and
commercial financial services. These services include: (i) residential real
estate loans; (ii) multi-family loans; (iii) construction loans; (iv)
nonresidential real estate loans; (v) home equity loans (vi) single-pay loans;
(vii) installment loans; (viii) automobile loans; (ix) NOW accounts; (x) money
market demand accounts ("MMDAs") (xi) passbook savings accounts; (xii)
certificates of deposit and (xiii) individual retirement accounts.
Lending Activities
We have historically concentrated our lending activities on the
origination of loans secured by first mortgage liens for the purchase,
construction or refinancing of one- to four-family residential real property.
One- to four-family residential mortgage loans continue to be the major focus of
our loan origination activities, representing 79% of our total loan portfolio at
March 31, 1997. We also offer multi-family mortgage loans, construction loans,
nonresidential real estate loans, and consumer loans. Mortgage loans secured by
multi-family properties and nonresidential real estate totaled approximately
4.2% and 2.2%, respectively, of our total loan portfolio at March 31, 1997.
Construction loans totaled approximately 2.7% of our total loans as of March 31,
1997. Consumer loans constituted approximately 14.3% of our total loan portfolio
at March 31, 1997.
Loan Portfolio Data. The following table sets forth the composition of our
loan portfolio by loan type and security type as of the dates indicated,
including a reconciliation of gross loans receivable after consideration of the
allowance for loan losses and loans in process.
<PAGE>
<TABLE>
<CAPTION>
At March 31, At June 30,
1997 1996 1995 1994 1993 1992
Percent Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amountof Total Amountof Total
(Dollars in thousands)
TYPE OF LOAN Real estate mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential............... $29,402 79.00% $26,240 76.30% $22,287 76.13% $20,677 79.10% $18,704 79.81% $18,267 78.77%
Non-residential........... 846 2.28 695 2.02 635 2.17 647 2.47 514 2.19 613 2.65
Multi-family.............. 1,563 4.20 1,596 4.64 1,680 5.74 1,665 6.37 1,680 7.17 1,579 6.81
Construction loans:.......... 991 2.66 870 2.53 356 1.22 --- --- --- --- --- ---
Consumer loans:
Single pay................ 1,825 4.90 2,110 6.14 1,795 6.13 558 2.13 361 1.54 303 1.31
Installment .............. 1,493 4.01 1,288 3.74 1,068 3.65 836 3.20 674 2.88 752 3.24
Share .................... 15 .04 63 .18 7 .02 5 .02 47 .20 138 .59
Home equity............... 2,003 5.38 1,949 5.67 1,973 6.74 1,863 7.13 1,549 6.61 1,517 6.54
Home improvement.......... 9 .03 11 .03 14 .04 22 .08 44 .19 97 .42
------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Gross loans
receivable......... $38,147 102.50% $34,822 101.25% $29,815 101.84% $26,273 100.50% $23,573 100.59% $23,266 100.33%
======= ====== ======= ====== ======= ====== ======= ====== ======= ====== ======= ======
TYPE OF SECURITY
Residential real estate ..... $33,997 91.35% $30,860 89.73% $26,043 88.96% $23,248 88.93% $20,594 87.88% $20,191 87.07%
Non-residential.............. 1,108 2.98 1,072 3.12 1,116 3.81 647 2.47 514 2.19 613 2.65
Multi-family real estate..... 1,563 4.20 1,596 4.64 1,681 5.74 1,665 6.37 1,680 7.17 1,579 6.81
Deposits..................... 116 .31 165 .48 82 .28 50 .19 110 .47 207 .89
Auto ...................... 1,025 2.76 832 2.42 691 2.36 513 1.96 374 1.59 390 1.68
Other security............... 220 .59 214 .62 121 .41 66 .25 220 .94 173 .75
Unsecured ................... 118 .31 83 .24 81 .28 84 .33 81 .35 113 .48
------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Gross loans receivable.. 38,147 102.50 34,822 101.25 29,815 101.84 26,273 100.50 23,573 100.59 23,266 100.33
======= ====== ======= ====== ======= ====== ======= ====== ======= ====== ======= ======
Deduct:
Deferred loan fees........... 103 .28 95 .28 86 .29 76 .28 52 .23 48 .21
Allowance for loan losses.... 172 .46 138 .40 46 .16 49 .19 38 .16 27 .12
Loans in process............. 656 1.76 197 .57 407 1.39 7 .03 47 .20 --- ---
------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Net loans receivable...... $37,216 100.00% $34,392 100.00% $29,276 100.00% $26,141 100.00% $23,436 100.00% $23,191 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ====== ======= ======
Mortgage Loans (1):
Adjustable-rate...........$ 9,798 30.67% $ 9,241 32.30%$ 9,319 37.68% $ 7,849 33.96%$ 8,357 39.77%$ 9,295 45.20%
Fixed-rate................ 22,153 69.33 19,368 67.70 15,410 62.32 15,266 66.04 12,657 60.23 11,270 54.80
------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total................... $31,951 100.00% $28,609 100.00% $24,729 100.00% $23,115 100.00% $21,014 100.00% $20,565 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
(1) Balances in this category include escrows and reserves for uncollected
interest.
- 24 -
<PAGE>
The following table sets forth certain information at June 30, 1996,
regarding the dollar amount of loans maturing in our loan portfolio based on the
contractual terms to maturity. Demand loans having no stated schedule of
repayments and no stated maturity and overdrafts are reported as due in one year
or less. This schedule does not reflect the effects of possible prepayments or
enforcement of due-on-sale clauses. We expect prepayments will cause actual
maturities to be shorter.
<TABLE>
<CAPTION>
Balance Due During Years Ended June 30,
Outstanding at 2000 2002 2007 2012
June 30, to to to and
1996 1997 1998 1999 2001 2006 2011 following
---- ---- ---- ---- ---- ---- ---- ---------
(In thousands)
Real estate mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential loans.................. $26,240 $ 33 $ 18 $ 104 $263 $2,890 $14,114 $ 8,818
Multi-family loans.................... 1,596 --- --- --- --- 245 1,351 ---
Non-residential loans.............. 695 --- --- --- 38 83 574 ---
Construction loans.................... 870 870 --- --- --- --- --- ---
Installment loans.................... 1,288 59 266 365 488 110 --- ---
Single pay loans...................... 2,110 1,748 167 96 99 --- --- ---
Loans secured by deposits............. 63 48 15 --- --- --- --- ---
Home equity loans..................... 1,949 --- --- --- --- --- --- 1,949
Home improvement loans................ 11 --- --- 3 8 --- --- ---
------- ------ ---- ----- ---- ------ ------- -------
Total............................ $34,822 $2,758 $466 $ 568 $896 $3,328 $16,039 $10,767
======= ====== ==== ===== ==== ====== ======= =======
</TABLE>
The following table sets forth, as of June 30, 1996, the dollar amount
of all loans due after one year that have fixed interest rates and floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Due After June 30, 1997
Fixed Rates Variable Rates Total
----------- -------------- -----
(In thousands)
Real estate mortgage loans:
<S> <C> <C> <C>
Residential loans.............. $19,221 $ 6,986 $26,207
Multi-family loans............. --- 1,596 1,596
Non-residential loans.......... 41 654 695
Construction loans................ --- --- ---
Installment loans................. 1,229 --- 1,229
Single pay loans.................. 202 160 362
Loans secured by deposits......... 15 --- 15
Home equity loans................. --- 1,949 1,949
Home improvement loans............ 11 --- 11
------- ------- -------
Total.......................... $20,719 $11,345 $32,064
======= ======= =======
</TABLE>
One- to Four-Family Residential Loans. Our primary lending activity
consists of the origination of one- to four-family residential mortgage loans
secured by property located in our primary market area. We generally originate
one- to four-family residential mortgage loans in amounts up to 95% of the
lesser of the appraised value or purchase price, with private mortgage insurance
required on loans with a loan-to-value ratio in excess of 80%. The cost of such
insurance is factored into the Annual Percentage Rate ("APY") on such loans. We
originate and retain fixed rate loans which provide for the payment of principal
and interest over a 15- or 20-year period, or balloon loans having terms of up
to 20 years with principal and interest payments calculated using a 30-year
amortization period.
We also offer adjustable-rate mortgage ("ARM") loans. The interest rate
on ARM loans is indexed to the one-year U.S. Treasury securities yields adjusted
to a constant maturity. We may offer discounted initial interest rates on ARM
loans, but we require that the borrower qualify for the ARM loan at the
fully-indexed rate (the index rate plus the margin). A substantial portion of
the ARM loans in our portfolio at March 31, 1997 provide for maximum rate
adjustments per year and over the life of the loan of 1% and 6%, respectively.
Our residential ARMs are amortized for terms up to 25 years.
<PAGE>
ARM loans decrease the risk associated with changes in interest rates
by periodically repricing, but involve other risks because as interest rates
increase, the underlying payments by the borrower increase, thus increasing the
potential for default by the borrower. At the same time, the marketability of
the underlying collateral may be adversely affected by higher interest rates.
Upward adjustment of the contractual interest rate is also limited by the
maximum periodic and lifetime interest rate adjustment permitted by the loan
documents, and, therefore, is potentially limited in effectiveness during
periods of rapidly rising interest rates. At March 31, 1997, approximately 29%
of our one- to four-family residential loans had adjustable rates of interest.
- 25 -
<PAGE>
All of the one- to four-family residential mortgage loans that we
originate include "due-on-sale" clauses, which give us the right to declare a
loan immediately due and payable in the event that, among other things, the
borrower sells or otherwise disposes of the real property subject to the
mortgage and the loan is not repaid. However, we occasionally permit assumptions
of existing residential mortgage loans on a case-by-case basis.
At March 31, 1997, approximately $29.4 million, or 79% of our portfolio
of loans, consisted of one- to four-family residential loans. Approximately
$95,000, or .32% of total residential loans, were included in non-performing
assets as of that date. See "--Non-Performing and Problem Assets."
Multi-Family Loans. At March 31, 1997, approximately $1.6 million, or
4.2% of our total loan portfolio, consisted of mortgage loans secured by
multi-family dwellings (those consisting of more than four units). Our
multi-family loans are generally written as one-year adjustable rate loans
indexed to the one-year U.S. Treasury rate or to our internal loan rate which we
establish from time-to-time. We write multi-family loans with maximum
Loan-to-Value ratios of 80%. Our largest multi-family loan as of March 31, 1997
was $841,000 and was secured by an apartment complex in Frankfort. On the same
date, there were no multi-family loans included in non-performing assets.
Multi-family loans, like nonresidential real estate loans, involve a
greater risk than do residential loans. See "-- Nonresidential Real Estate
Loans" below.
Construction Loans. We offer construction loans with respect to
residential and nonresidential real estate and, in certain cases, to builders or
developers constructing such properties on a speculative basis (i.e., before the
builder/developer obtains a commitment from a buyer). At March 31, 1997,
approximately $991,000, or 2.7% of our total loan portfolio, consisted of
construction loans. The largest construction loan at March 31, 1997, totaling
$180,000, was secured by a single-family residence near Frankfort. None of our
construction loans were included in non-performing assets on that date.
Construction loans are generally written as six-month, fixed-rate loans
with interest calculated on the amount disbursed under the loan and payable
monthly. We generally require an 80% Loan-to-Value Ratio for our construction
loans. Inspections are made prior to any disbursement under a construction loan,
and we do not normally charge commitment fees for construction loans.
While providing us with a comparable, and in some cases higher, yield
than a conventional mortgage loan, construction loans involve a higher level of
risk. For example, if a project is not completed and the borrower defaults, we
may have to hire another contractor to complete the project at a higher cost.
Also, a project may be completed, but may not be salable, resulting in the
borrower defaulting and our taking title to the project.
Nonresidential Real Estate Loans. Our non-residential real estate loans
are secured by churches, office buildings, and other commercial properties. We
generally originate non-residential real estate loans as one-year adjustable
rate loans indexed to the one-year U.S. Treasury securities yield adjusted to a
constant maturity, and are written for maximum terms of 20 years with maximum
Loan-to-Value ratios of 75%. At March 31, 1997, our largest nonresidential loan
was $161,000 and was secured by a manufacturing facility in Frankfort. At March
31, 1997, approximately $846,000, or 2.3% of our total loan portfolio, consisted
of nonresidential real estate loans. On the same date, there were no
nonresidential real estate loans included in non-performing assets.
Loans secured by nonresidential real estate generally are larger than
one- to four-family residential loans and involve a greater degree of risk.
Nonresidential real estate loans often involve large loan balances to single
borrowers or groups of related borrowers. Payments on these loans depend to a
large degree on results of operations and management of the properties and may
be affected to a greater extent by adverse conditions in the real estate market
or the economy in general. Accordingly, the nature of the loans makes them more
difficult for management to monitor and evaluate.
Consumer Loans. Our consumer loans, consisting primarily of home equity
loans, personal installment loans and "single pay" loans aggregated
approximately $5.3 million at March 31, 1997, or 14.3% of our total loan
portfolio. We consistently originate consumer loans to meet the needs of our
customers and to assist in meeting our asset/liability management goals. All of
our consumer loans, except loans secured by deposits, are fixed-rate loans with
terms that vary from six months (for unsecured installment loans) to 60 months
- 26 -
<PAGE>
(for home improvement loans and loans secured by new automobiles). At March 31,
1997, 97.8% of our consumer loans were secured by collateral. Our loans secured
by deposits are made up to 90% of the original account balance and, at March 31,
1997, accrued at a rate of 8.5%. This rate may change but will always be at
least 1% over the underlying passbook or certificate of deposit rate. Interest
on loans secured by deposits is paid semi-annually.
We also offer home equity lines of credit and home improvement loans
secured by real estate. The interest rate on a home equity line of credit is
ordinarily tied to the prime rate with a margin of positive 2.0% and a maximum
interest rate of 18%. We do not always hold a first mortgage on our home equity
lines of credit, although we do hold a first mortgage with respect to
approximately 90% of such loans in our portfolio. We ordinarily offer fixed-rate
home improvement loans secured by real estate with a term not to exceed five
years. We restrict the amount that a customer may borrow under an equity line of
credit to $100,000, subject to the general restriction applicable to all second
mortgage loans that limits the amount we may loan to a borrower to an amount
that, when added to any existing mortgage loans, does not exceed 80% of the
appraised value of the collateral property.
At March 31, 1997, we had outstanding approximately $2.0 million of
home equity loans, with unused lines of credit totaling approximately $2.5
million. Home equity loans in the amount of $51,000 were included in
non-performing assets on that date.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans which are unsecured or are secured by
rapidly depreciable assets, such as automobiles. Further, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. At March 31, 1997, consumer loans amounting to $70,000 were included
in non-performing assets. See "-- Non-Performing and Problem Assets."
Single-Pay Loans. We offer single-pay loans, which are short-term loans
secured by real estate, automobiles or other types of collateral that are
payable with a single payment rather than by installment. Typically, single-pay
loans secured by real estate are written with terms of one year or less, while
single-pay loans secured by other types of collateral are written for terms of
90 days to six months. Of the approximately $1.8 million of single-pay loans in
our portfolio as of March 31, 1997, approximately $950,000 were secured by
residential mortgages and $137,000 were secured by land. The remaining
approximately $700,000 of loans in this category were consumer loans, typically
secured by automobiles or subordinate liens on real estate. At March 31, 1997,
we had one delinquent single-pay loan in the amount of $1,000 in our portfolio.
Origination, Purchase and Sale of Loans. We historically have
originated our mortgage loans pursuant to our own underwriting standards which
do not conform with the standard criteria of the Federal Home Loan Mortgage
Corporation ("FHLMC") or the Federal National Mortgage Association ("FNMA")
because we do not require current property surveys in most cases. We may begin
originating fixed-rate residential mortgage loans for sale to the FHLMC on a
servicing-retained basis in the future. In the event that we originate loans for
sale to the FHLMC in the secondary market, such loans will be originated in
accordance with the guidelines established by the FHLMC and will be sold
promptly after they are originated.
We confine our loan origination activities primarily to Clinton County.
At March 31, 1997, we had one loan totaling approximately $74,000 secured by
property located outside of Indiana. Our loan originations are generated from
referrals from existing customers, real estate brokers, and newspaper and
periodical advertising. Loan applications are underwritten and processed at our
office.
Our loan approval process is intended to assess the borrower's ability
to repay the loan, the viability of the loan and the adequacy of the value of
the property that will secure the loan. To assess the borrower's ability to
repay, we study the employment and credit history and information on the
historical and projected income and expenses of our mortgagors. All mortgage
loans are approved by our Loan Committee. Consumer loans up to $15,000 may be
approved by a Loan Officer. Consumer loans for more than $15,000 must be
approved by the senior loan officer or the President.
We generally require appraisals on all real property securing our loans
and require an attorney's opinion and a valid lien on the mortgaged real estate.
Appraisals for all real property securing mortgage loans are performed by
independent appraisers who are state-licensed. We require fire and extended
coverage insurance in amounts at least equal to the principal amount of the loan
and also require flood insurance to protect the property securing its interest
- 27 -
<PAGE>
if the property is in a flood plain. We also generally require private mortgage
insurance for all residential mortgage loans with Loan-to-Value Ratios of
greater than 80%. We require escrow accounts for insurance premiums and taxes
for loans that require private mortgage insurance.
Our underwriting standards for consumer loans are intended to protect
against some of the risks inherent in making consumer loans. Borrower character,
paying habits and financial strengths are important considerations.
The following table shows our loan origination and repayment activity
during the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended
March 31, Year Ended June 30,
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
(In thousands)
Loans Originated:
Real estate mortgage loans:
<S> <C> <C> <C> <C> <C>
Residential loans........................... $7,344 $6,055 $ 8,738 $ 5,748 $ 7,216
Nonresidential loans........................ 202 111 175 190 108
Multi-family loans.......................... 102 --- --- 56 48
Construction loans............................ 1,559 1,183 1,603 356 ---
Installment loans............................. 973 746 1,076 961 767
Single pay loans.............................. 1,933 1,940 2,834 3,063 1,582
Loans secured by deposits..................... 5 27 63 6 5
Home equity loans............................. 848 662 930 1,054 1,335
Home improvement loans........................ --- --- --- --- ---
------ ------ ------ ------ ------
Total originations........................ 12,966 10,724 15,419 11,434 11,061
Loans purchased............................... --- --- 64 --- 311
Reductions:
Principal loan repayments..................... (9,990) (7,475) (10,279) (8,263) (8,643)
Loans sold.................................... (91) --- --- --- ---
Transfers from loans to real estate owned..... --- --- --- --- ---
------ ------ ------ ------ ------
Total reductions.......................... (10,081) (7,475) (10,279) (8,263) (8,643)
Decrease in other items (1)................... (60) (23) (88) (37) (24)
------ ------ ------ ------ ------
Net increase (decrease) ...................... $2,825 $3,226 $ 5,116 $ 3,134 $ 2,705
====== ====== ====== ====== ======
</TABLE>
(1) Other items consist of amortization of deferred loan origination costs
and the provision for losses on loans.
Our residential loan originations during the year ended June 30, 1996
totaled $8.7 million, compared to $5.7 million and $7.2 million in the years
ended June 30, 1995 and 1994, respectively.
Origination and Other Fees. We realize income from late charges,
checking account service charges, and fees for other miscellaneous services. We
currently charge origination fees on our mortgage loans of 1% of the loan
amount, up to $100,000, and .5% of the amount of the loan that exceeds $100,000.
We also may charge points on a mortgage loan as consideration for a lower
interest rate, although we do so infrequently. Late charges are generally
assessed if payment is not received within a specified number of days after it
is due. The grace period depends on the individual loan documents.
Non-Performing and Problem Assets
After a mortgage loan becomes 15 days past due, we deliver a
delinquency notice to the borrower. When loans are 30 to 60 days in default, we
send additional delinquency notices and make personal contact by telephone with
the borrower to establish acceptable repayment schedules. When loans become 60
days in default, we again contact the borrower, this time in person, to
establish acceptable repayment schedules. When a mortgage loan is 90 days
delinquent, we will have either entered into a workout plan with the borrower or
referred the matter to our attorney for collection. Management is authorized to
commence foreclosure proceedings for any loan upon making a determination that
it is prudent to do so.
We review mortgage loans on a regular basis and place such loans on a
non-accrual status when they become 90 days delinquent. Generally, when loans
are placed on a non-accrual status, unpaid accrued interest is written off, and
further income is recognized only to the extent received.
- 28 -
<PAGE>
Non-performing Assets. At March 31, 1997, $205,000, or .45% of our
total assets, were non-performing (non-performing loans and non-accruing loans)
compared to $222,000, or .50%, of our total assets at June 30, 1996. At March
31, 1997, residential loans and consumer loans accounted for $95,000 and
$70,000, respectively, of non-performing assets. We had no Real Estate Owned
("REO") properties as of March 31, 1997.
The table below sets forth the amounts and categories of our
non-performing assets (non-performing loans, foreclosed real estate and troubled
debt restructurings) for the last three years. It is our policy that all earned
but uncollected interest on all loans be reviewed monthly to determine if any
portion thereof should be classified as uncollectible for any loan past due in
excess of 90 days. Delinquent loans that are 90 days or more past due are
considered non-performing assets.
<TABLE>
<CAPTION>
At March 31, At June 30,
1997 1996 1995 1994
---- ---- ---- ----
(Dollars in thousands)
Non-performing assets:
<S> <C> <C> <C> <C>
Non-performing loans................................ $165 $181 $ 98 $196
Troubled debt restructurings........................ 40 41 42 40
---- ---- ---- ----
Total non-performing loans........................ 205 222 140 236
Foreclosed real estate.............................. --- --- --- ---
---- ---- ---- ----
Total non-performing assets....................... $205 $222 $140 $236
==== ==== ==== ====
Non-performing loans to total loans.................... 0.55% 0.64% 0.48% 0.90%
==== ==== ==== ====
Non-performing assets to total assets.................. 0.45% 0.50% 0.35% 0.61%
==== ==== ==== ====
</TABLE>
At March 31, 1997, we held loans delinquent from 30 to 59 days totaling
approximately $391,000. Other than these loans and the other delinquent loans
disclosed elsewhere in this section, we were not aware of any other loans, the
borrowers of which were experiencing financial difficulties.
- 29 -
<PAGE>
Delinquent Loans. The following table sets forth certain information at
March 31, 1997, and at June 30, 1996, 1995, and 1994, relating to delinquencies
in Citizens's portfolio. Delinquent loans that are 90 days or more past due are
considered non-performing assets.
<TABLE>
<CAPTION>
At March 31, 1997 At June 30, 1996
------------------------------------------------- ------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- ------------------------- ----------------------- -----------------------
Principal Principal Principal Principal
Number Balance of Number Balance of Number Balance of Number Balance of
of Loans Loans of Loans Loans of Loans Loans of Loans Loans of
-------- ----- -------- ----- -------- ----- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
mortgage loans.......... 4 $125 4 $ 95 7 $158 8 $ 89
Nonresidential
mortgage loans.......... --- --- --- --- --- --- --- ---
Multi-family
mortgage loans.......... --- --- --- --- --- --- --- ---
Installment loans.......... --- --- 5 18 6 16 8 35
Single pay loans........... --- --- 1 1 4 24 2 12
Loans secured
by deposit.............. --- --- --- --- --- --- --- ---
Home equity loans.......... 5 128 5 51 1 6 3 45
Home improvement loans..... --- --- --- --- --- --- --- ---
--- ---- -- ---- -- ---- -- ----
Total................... 9 $253 15 $165 18 $204 21 $181
= ==== == ==== == ==== == ====
Delinquent loans to
total loans............. 1.12% 1.12%
==== ====
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1995 At June 30, 1994
------------------------------------------------- ------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- ------------------------- ----------------------- -----------------------
Principal Principal Principal Principal
Number Balance of Number Balance of Number Balance of Number Balance of
of Loans Loans of Loans Loans of Loans Loans of Loans Loans of
-------- ----- -------- ----- -------- ----- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
mortgage loans.......... 6 $133 3 $41 8 $199 10 $134
Nonresidential
mortgage loans.......... --- --- --- --- --- --- 1 27
Multi-family
mortgage loans.......... --- --- --- --- --- --- --- ---
Installment loans.......... 5 25 3 9 3 7 7 18
Single pay loans........... 1 2 3 27 --- --- --- ---
Loans secured
by deposit.............. --- --- --- --- --- --- --- ---
Home equity loans.......... 1 10 2 21 --- --- 3 15
Home improvement loans..... --- --- --- --- --- --- 1 2
-- ---- -- ----- -- ---- -- ----
Total................... 13 $170 11 $ 98 11 $206 22 $196
== ==== == ===== == ==== == ====
Delinquent loans to
total loans............. .91% 1.54%
=== ====
</TABLE>
- 30 -
<PAGE>
Classified assets. Federal regulations and our Asset Classification
Policy provide for the classification of loans and other assets such as debt and
equity securities considered by the OTS to be of lesser quality as
"substandard," "doubtful" or "loss" assets. An asset is considered "substandard"
if it is inadequately protected by the current net worth and paying capacity of
the obligor or of the collateral pledged, if any. "Substandard" assets include
those characterized by the "distinct possibility" that the institution will
sustain "some loss" if the deficiencies are not corrected. Assets classified as
"doubtful" have all of the weaknesses inherent in those classified
"substandard," with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable." Assets classified
as "loss" are those considered "uncollectible" and of such little value that
their continuance as assets without the establishment of a specific loss reserve
is not warranted.
An insured institution is required to establish general allowances for
loan losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. General allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount. An institution's determination
as to the classification of its assets and the amount of its valuation
allowances is subject to review by the OTS which can order the establishment of
additional general or specific loss allowances.
At March 31, 1997, the aggregate amount of our classified assets, and
of our general and specific loss allowances were as follows:
At March 31, 1997
-----------------
(In thousands)
Substandard assets........................................ $119
Doubtful assets........................................... ---
Loss assets............................................... ---
----
Total classified assets............................... $119
====
General loss allowances................................... $172
Specific loss allowances.................................. ---
----
Total allowances...................................... $172
====
We regularly review our loan portfolio to determine whether any loans
require classification in accordance with applicable regulations.
Allowance for Loan Losses
The allowance for loan losses is maintained through the provision for
loan losses, which is charged to earnings. The provision for loan losses is
determined in conjunction with our review and evaluation of current economic
conditions (including those of our lending area), changes in the character and
size of the loan portfolio, loan delinquencies (current status as well as past
and anticipated trends) and adequacy of collateral securing loan delinquencies,
historical and estimated net charge-offs, and other pertinent information
derived from a review of the loan portfolio. In our opinion, our allowance for
loan losses is adequate to absorb probable losses inherent in the loan portfolio
at March 31, 1997. However, there can be no assurance that regulators, when
reviewing our loan portfolio in the future, will not require increases in our
allowances for loan losses or that changes in economic conditions will not
adversely affect our loan portfolio.
- 31 -
<PAGE>
Summary of Loan Loss Experience. The following table analyzes changes
in the allowance during the past three fiscal years ended June 30, 1996, and the
nine-month periods ended March 31, 1997, and March 31, 1996.
<TABLE>
<CAPTION>
Nine Months Ended
March 31, Year Ended June 30,
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.............. $138 $ 46 $ 46 $ 49 $ 38
Charge-offs:
Residential mortgage loans............. --- --- --- --- ---
Nonresidential mortgage loans.......... --- --- --- --- ---
Multi-family loans..................... --- --- --- --- ---
Construction loans.......................... --- --- --- --- ---
Installment loans...................... --- --- --- (11) (6)
Single pay loans....................... --- --- --- (26) ---
Loans secured by deposits.............. --- --- --- --- ---
Home equity loans...................... --- --- --- --- ---
Home improvement loans................. --- --- --- --- ---
---- ---- ---- ---- ----
Total charge-offs.................... --- --- --- (37) (6)
---- ---- ---- ---- ----
Recoveries.................................. 2 12 12 2 5
Residential mortgage..................... --- 2 2 --- ---
Single pay............................... 2 1 1 --- 1
Installment.............................. --- 9 9 2 4
---- ---- ---- ---- ----
Net (charge-offs) recoveries............. 2 12 12 2 5
---- ---- ---- ---- ----
Provision for losses on loans............... 32 63 80 32 12
Balance end of period.................... $172 $121 $138 $ 46 $ 49
Allowance for loan losses as a percent of
total loans outstanding.................. 0.46% 0.37% 0.40% 0.16% 0.19%
Ratio of net (charge-offs) recoveries
to average loans outstanding............. .004 .04 .04 (.12) (.004)
</TABLE>
Allocation of Allowance for Loan Losses. The following table presents
an analysis of the allocation of Citizens' allowance for loan losses at the
dates indicated. The allocation of the allowance to each category is not
necessarily indicative of future loss in any particular category and does not
restrict our use of the allowance to absorb losses in other categories.
<TABLE>
<CAPTION>
At March 31, At June 30,
--------------------------------------- --------------------------------------------------------
1997 1996 1996 1995 1994
------------------ ----------------- ----------------- ----------------- ---------------
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category category category category
to total to total to total to total to total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Balance at end of
period applicable to:
Real estate mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential............... $64 77.08% $41 75.25% $49 75.35% $15 74.75% $14 78.71%
Nonresidential............ 2 2.22 1 2.07 1 2.00 --- 2.13 --- 2.46
Multi-family.............. 3 4.10 2 4.86 3 4.58 1 5.64 1 6.34
Construction loans.......... 17 2.60 10 2.39 11 2.50 2 1.19 --- ---
Installment loans........... 49 3.91 36 3.57 41 3.70 11 3.58 17 3.18
Loans secured by deposits... --- .04 --- .08 --- .18 --- .02 --- .02
Home equity loans........... 6 5.25 6 5.70 6 5.60 6 6.62 5 7.09
Home improvement loans...... --- .02 --- .04 --- .03 --- .05 --- .08
Single pay loans............ 31 4.78 25 6.04 27 6.06 11 6.02 12 2.12
---- ------ ---- ------ ---- ------ --- ------ --- ------
Total....................... $172 100.00% $121 100.00% $138 100.00% $46 100.00% $49 100.00%
==== ====== ==== ====== ==== ====== === ====== === ======
</TABLE>
- 32 -
<PAGE>
Investments
Investments. Our investment portfolio consists of equity interests in
pooled investment trusts, and FHLB stock. At March 31, 1997, approximately
$491,000, or 1.1%, of our total assets consisted of such investments.
We also had $3.9 million in interest-earning deposits as of that date.
The following table sets forth the amortized cost and the market value
of our investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At June 30,
1997 1996 1995 1994
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- ----- ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale:
Equity interests in pooled
investment trusts................ $159 $159 $3,087 $3,003 $2,913 $2,832 $2,759 $2,677
FHLB stock............................ 332 332 332 332 332 332 332 332
---- ---- ------ ------ ------ ------ ------ ------
Total investments................ $491 $491 $3,419 $3,335 $3,245 $3,164 $3,091 $3,009
==== ==== ====== ====== ====== ====== ====== ======
</TABLE>
The following table sets forth the amount of investment securities
(excluding FHLB stock) which mature during each of the periods indicated and the
weighted average yields for each range of maturities at March 31, 1997.
<TABLE>
<CAPTION>
Amount at March 31, 1997 which matures in
One Year One Year Five Years After
or Less to Five Years to Ten Years Ten Years
Amortized Average Amoritzed Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
--------- ------- --------- ------- --------- ------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity interests in pooled investment trusts.... $159 6.39% $--- ---% $--- ---% $--- ---%
==== ==== ==== ==== ==== === ==== ===
</TABLE>
Sources of Funds
General. Deposits have traditionally been our primary source of funds
for use in lending and investment activities. In addition to deposits, we derive
funds from scheduled loan payments, investment maturities, loan prepayments,
retained earnings, income on earning assets and borrowings. While scheduled loan
payments and income on earning assets are relatively stable sources of funds,
deposit inflows and outflows can vary widely and are influenced by prevailing
interest rates, market conditions and levels of competition. The deposits shown
below include approximately $4.4 million in public funds deposited by various
state, county and local governments which may fluctuate depending upon
prevailing interest rates and the rates offered by our competitors. Borrowings
from the FHLB of Indianapolis may be used in the short-term to compensate for
reductions in deposits or deposit inflows at less than projected levels.
Deposits. We attract deposits principally from within Clinton County
through the offering of a broad selection of deposit instruments, including
fixed-rate passbook accounts, NOW accounts, variable rate money market accounts,
fixed-term certificates of deposit, individual retirement accounts and savings
accounts. We do not actively solicit or advertise for deposits outside of
Clinton County, and substantially all of our depositors are residents of that
county. Deposit account terms vary, with the principal differences being the
minimum balance required, the amount of time the funds remain on deposit and the
interest rate. We do not pay broker fees for any deposits we receive.
We establish the interest rates paid, maturity terms, service fees and
withdrawal penalties on a periodic basis. Determination of rates and terms are
predicated on funds acquisition and liquidity requirements, rates paid by
competitors, growth goals, and applicable regulations. We rely, in part, on
customer service and long-standing relationships with customers to attract and
retain our deposits. We also closely price our deposits to the rates offered by
our competitors.
<PAGE>
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and other prevailing interest rates and
competition. The variety of deposit accounts that we offer has allowed us to be
competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. We have become more susceptible to short-term fluctuations in
deposit flows as customers have become more interest rate conscious. We manage
the pricing of our deposits in keeping with our asset/liability management and
profitability objectives. Based on our experience, we believe that our passbook,
NOW and MMDAs are relatively stable sources of deposits. However, the ability to
attract and maintain certificates of deposit, and the rates we pay on these
deposits, have been and will continue to be significantly affected by market
conditions.
- 33 -
<PAGE>
An analysis of our deposit accounts by type, maturity, and rate at
March 31, 1997, is as follows:
<TABLE>
<CAPTION>
Minimum Balance at Weighted
Opening March 31, % of Average
Type of Account Balance 1997 Deposits Rate
- --------------- ------- ---- -------- ----
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C>
Fixed rate, passbook accounts.............................. $ 50 $6,665 17.90% 3.22%
Variable rate, money market................................ 2,500 3,130 8.40 3.30
NOW accounts............................................... 50 4,133 11.09 2.16
------- ------
Total withdrawable....................................... 13,928 37.39 2.92
Certificates (original terms):
3 months or less........................................... 1,000 1,448 3.89 5.15
6 months................................................... 1,000 5,090 13.66 5.04
12 months.................................................. 1.000 923 2.48 4.77
13 months.................................................. 5,000 2,047 5.49 5.34
18 months.................................................. 1,000 583 1.57 4.93
23 months.................................................. 5,000 4,457 11.96 5.90
30 months ................................................. 1,000 1,162 3.12 5.26
36 months.................................................. 1,000 939 2.52 5.12
Other certificates......................................... 1,000 3,462 9.29 5.99
------- ------
Total certificates............................................ 20,111 53.98 5.43
IRA's:
Variable rate, money market................................ 50 198 0.53 3.30
6 months................................................... 1,000 33 0.09 4.48
12 months.................................................. 1.000 166 0.44 4.73
18 months.................................................. 1,000 33 0.09 4.91
23 months.................................................. 1,000 1,387 3.72 5.81
36 months.................................................. 1,000 1,261 3.39 5.14
Other certificates......................................... 1,000 138 0.37 5.99
------- ------
Total IRA's................................................... 3,216 8.63 5.32
------- ------
Total deposits................................................ $37,255 100.00% 4.52%
======= ====== ====
</TABLE>
The following table sets forth by various interest rate categories the
composition of our time deposits at the dates indicated:
<TABLE>
<CAPTION>
At March 31, At June 30,
1997 1996 1995 1994
---------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
3.00 to 3.99%............................... $ --- $ --- $ 219 $ 5,454
4.00 to 4.99%............................... 4,191 5,173 6,588 6,187
5.00 to 5.99%............................... 15,388 10,629 7,000 3,869
6.00 to 6.99%............................... 3,425 5,283 4,349 1,199
7.00 to 7.99%............................... 120 484 866 790
8.00 to 8.99%............................... 5 5 587 981
------- ------- ------- -------
Total.................................... $23,129 $21,574 $19,609 $18,480
======= ======= ======= =======
</TABLE>
- 34 -
<PAGE>
The following table represents, by various interest rate categories, the
amounts of time deposits maturing during each of the three years following March
31, 1997. Matured certificates, which have not been renewed as of March 31,
1997, have been allocated based upon certain rollover assumptions.
<TABLE>
<CAPTION>
Amounts at March 31, 1997
One Year Two Three Greater Than
or Less Years Years Three Years
------- ----- ----- -----------
(In thousands)
<C> <C> <C> <C> <C>
3.00 to 3.99%............................... $ --- $ --- $ --- $ ---
4.00 to 4.99%............................... 3,833 358 --- ---
5.00 to 5.99%............................... 8,633 5,021 1,400 333
6.00 to 6.99%............................... 1,799 202 179 1,246
7.00 to 7.99%............................... --- 20 --- 100
8.00 to 8.99%............................... --- --- --- 5
------- ------ ------ ------
Total.................................... $14,265 $5,601 $1,579 $1,684
======= ====== ====== ======
</TABLE>
The following table indicates the amount of our other certificates of
deposit of $100,000 or more by time remaining until maturity as of March 31,
1997.
At March 31, 1997
-----------------
Maturity Period (In thousands)
Three months or less.................................... $2,505
Greater than three months through six months............ 2,250
Greater than six months through twelve months........... ---
Over twelve months...................................... 499
------
Total.............................................. $5,254
======
- 35 -
<PAGE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposits that we offer at the dates indicated, and the
amount of increase or decrease in such deposits as compared to the previous
period.
<TABLE>
<CAPTION>
DEPOSIT ACTIVITY
Balance Increase Balance Increase
at (Decrease) at (Decrease)
March 31, % of from June 30, % of from
1997 Deposits 1996 1996 Deposits 1995
------- ------ ------ ------- ------ ------
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C> <C> <C>
Fixed rate, passbook accounts..... $6,665 17.90% $(33) $6,698 18.82% $(195)
Variable rate, money market....... 3,130 8.40 99 3,031 8.51 263
NOW accounts...................... 4,133 11.09 59 4,074 11.44 488
------- ------ ------ ------- ------ ------
Total withdrawable.............. 13,928 37.39 125 13,803 38.77 556
Certificates (original terms):
3 months.......................... 1,448 3.89 (1,414) 2,862 8.04 1,300
6 months.......................... 5,090 13.66 2,547 2,543 7.14 395
12 months......................... 923 2.48 (20) 943 2.65 (29)
13 months......................... 2,047 5.49 37 2,010 5.65 36
18 months......................... 583 1.57 282 301 0.85 63
23 months......................... 4,457 11.96 773 3,684 10.35 1,189
30 months ........................ 1,162 3.12 (168) 1,330 3.74 (466)
36 months......................... 939 2.52 (300) 1,239 3.48 (265)
Other certificates................ 3,462 9.29 (293) 3,755 10.54 (328)
------- ------ ------ ------- ------ ------
Total certificates................... 20,111 53.98 1,444 18,667 52.44 1,895
IRA's
Variable rate, money market....... 198 0.53 (26) 224 0.63 (95)
6 months.......................... 33 0.09 (3) 36 0.10 1
12 months......................... 166 0.44 3 163 0.46 (91)
18 months......................... 33 0.09 33 0 0.00 0
23 months......................... 1,387 3.72 441 946 2.66 523
30 months......................... 0 0.00 0 0 0.00 (6)
36 months ........................ 1,261 3.39 (368) 1,629 4.58 (326)
Other certificates................ 138 0.37 6 132 0.36 (32)
------- ------ ------ ------- ------ ------
Total IRA's....................... 3,216 8.63 86 3,130 8.79 (26)
------- ------ ------ ------- ------ ------
Total deposits....................... $37,255 100.00% $1,655 $35,600 100.00% $2,425
======= ====== ====== ======= ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Balance Increase Balance
at (Decrease) at
June 30, % of from June 30, % of
1995 Deposits 1994 1994 Deposits
------- ------ ----- ------- ------
Withdrawable:
<S> <C> <C> <C> <C> <C>
Fixed rate, passbook accounts..... $6,893 20.78% $(1,278) $8,171 24.01%
Variable rate, money market....... 2,768 8.34 (401) 3,169 9.31
NOW accounts...................... 3,586 10.81 (120) 3,706 10.89
------- ------ ----- ------- ------
Total withdrawable.............. 13,247 39.93 (1,799) 15,046 44.21
Certificates (original terms):
3 months.......................... 1,562 4.71 (686) 2,248 6.61
6 months.......................... 2,148 6.47 (1,116) 3,264 9.59
12 months......................... 972 2.93 (338) 1,310 3.85
13 months......................... 1,974 5.95 1,974 0 0.00
18 months......................... 238 0.72 (162) 400 1.17
23 months......................... 2,495 7.52 2,213 282 0.83
30 months ........................ 1,796 5.41 (500) 2,296 6.75
36 months......................... 1,504 4.53 (253) 1,757 5.16
Other certificates................ 4,083 12.31 (235) 4,318 12.68
------- ------ ----- ------- ------
Total certificates................... 16,772 50.55 897 15,875 46.64
IRA's
Variable rate, money market....... 319 0.97 (192) 511 1.50
6 months.......................... 35 0.11 (4) 39 0.11
12 months......................... 254 0.76 (102) 356 1.05
18 months......................... 0 0.00 0 0 0.00
23 months......................... 423 1.28 423 0 0.00
30 months......................... 6 0.02 0 6 0.02
36 months ........................ 1,955 5.89 (179) 2,134 6.27
Other certificates................ 164 0.49 94 70 0.20
------- ------ ----- ------- ------
Total IRA's....................... 3,156 9.52 40 3,116 9.15
------- ------ ----- ------- ------
Total deposits....................... $33,175 100.00% $(862) $34,037 100.00%
======= ====== ===== ======= ======
</TABLE>
- 36 -
<PAGE>
Total deposits at March 31, 1997 were approximately $37.3 million,
compared to approximately $34.0 million at June 30, 1994. Our deposit base is
somewhat dependent upon the manufacturing sector of Clinton County's economy.
Although Clinton County's manufacturing sector is relatively diversified and not
significantly dependent upon any industry, a loss of a material portion of the
manufacturing workforce could adversely affect our ability to attract deposits
due to the loss of personal income attributable to the lost manufacturing jobs
and the attendant loss in service industry jobs.
In the unlikely event of our liquidation after the Conversion, all
claims of creditors (including those of deposit account holders, to the extent
of their deposit balances) would be paid first followed by distribution of the
liquidation account to certain deposit account holders, with any assets
remaining thereafter distributed to the Holding Company as the sole shareholder
of Citizens. See "The Conversion -- Principal Effects of Conversion -- Effect on
Liquidation Rights."
Borrowings. We focus on generating high quality loans and then seek the
best source of funding from deposits, investments or borrowings. At March 31,
1997, we had borrowings in the amount of $2.0 million from the FHLB of
Indianapolis which bear fixed and variable interest rates and are due at various
dates through October, 1998. We are required to maintain eligible loans in our
portfolio of at least 170% of outstanding advances as collateral for advances
from the FHLB of Indianapolis. We do not anticipate any difficulty in obtaining
advances appropriate to meet our requirements in the future.
The following table presents certain information relating to our
borrowings at or for the nine months ended March 31, 1997 and 1996 and at or for
the years ended June 30, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
At or for the
Nine Months At or for the Year
Ended March 31, Ended June 30,
1997 1996 1996 1995 1994
-----------------------------------------------------------------
(Dollars in thousands)
FHLB Advances:
<S> <C> <C> <C> <C> <C>
Outstanding at end of period.................... $ 2,000 $2,000 $3,000 $1,500 $ ---
Average balance outstanding for period.......... 3,275 1,800 1,923 462 ---
Maximum amount outstanding at any
month-end during the period................... 5,000 2,000 3,000 1,500 ---
Weighted average interest rate
during the period............................. 5.49 % 6.05% 5.94 % 6.24% ---%
Weighted average interest rate
at end of period.............................. 5.87 5.93 5.82 5.87 ---
</TABLE>
Properties
The following table provides certain information with respect to our
office as of March 31, 1997:
Net Book
Value of
Property, Approximate
Description Owned or Year Total Furniture & Square
and Address leased Opened Deposits Fixtures Footage
(Dollars in thousands)
60 South Main Street Owned 1977 $37,255 $589 13,924
Frankfort, IN 46041
We own computer and data processing equipment which we use for
transaction processing, loan origination, and accounting. The net book value of
our electronic data processing equipment was approximately $24,000 at March 31,
1997.
We operate one automated teller machine ("ATM"), which is located in
the vestibule of our office. Our ATM participates in the Cirrus(R) and
MagicLine(R) networks.
We have also contracted for the data processing and reporting services
of BISYS, Inc. in Houston, Texas. The cost of these data processing services is
approximately $8,500 per month.
We also have contracted with the FHLB of Indianapolis for item
processing for a fee of approximately $3,000 per month.
- 37 -
<PAGE>
Service Corporation Subsidiary
OTS regulations permit federal savings associations to invest in the
capital stock, obligations or other specified types of securities of
subsidiaries (referred to as "service corporations") and to make loans to such
subsidiaries and joint ventures in which such subsidiaries are participants in
an aggregate amount not exceeding 2% of the association's assets, plus an
additional 1% of assets if the amount over 2% is used for specified community or
inner-city development purposes. In addition, federal regulations permit
associations to make specified types of loans to such subsidiaries (other than
special purpose finance subsidiaries) in which the association owns more than
10% of the stock, in an aggregate amount not exceeding 50% of the association's
regulatory capital if the association's regulatory capital is in compliance with
applicable regulations. A savings association that acquires a non-savings
association subsidiary, or that elects to conduct a new activity within a
subsidiary, must give the FDIC and the OTS at least 30 days advance written
notice. The FDIC may, after consultation with the OTS, prohibit specified
activities if it determines such activities pose a serious threat to the SAIF.
Moreover, a savings association must deduct from capital, for purposes of
meeting the core capital, tangible capital and risk-based capital requirements,
its entire investment in and loans to a subsidiary engaged in activities not
permissible for a national bank (other than exclusively agency activities for
its customers or mortgage banking subsidiaries).
We currently own one subsidiary, Citizens Loan and Service Corp.
("CLSC"), which primarily engages in the purchase and development of tracts of
undeveloped land. Because CLSC engages in activities that are not permissible
for a national bank, OTS regulations prohibit us from including our investment
in CLSC in our calculation of regulatory capital. CLSC purchases undeveloped
land, constructs improvements and infrastructure on the land, and then sells
lots to builders, who construct homes for sale to homebuyers. CLSC ordinarily
receives payment when title is transferred.
CLSC owns a 104-acre tract of contiguous land on which it is presently
developing 59 acres. CLSC intends to complete the development of the remainder
of the property in approximately ten years. The 59 acres that are presently
being developed will include 64 building lots known as the Southridge Addition,
and 89 building lots known as the Meadow Brook Addition. Both of these Additions
have been annexed into the Town of Frankfort. We purchased this land in 1989
intending to develop these housing additions. However, following enactment of
the Financial Institutions Reform Recovery and Enforcement Act of 1989, the FDIC
directed us to transfer our interest in these developments to CLSC, which we
did, effective June 30, 1994. Phase I of the development includes 33 completed
lots in the Southridge Addition, of which 21 lots have been sold and on which 19
houses have been completed, and 26 lots in the Meadow Brook Addition, of which 3
lots have been sold with houses presently under construction on those lots, one
of which is a "speculative house" that we financed. The Southridge lots have
been priced generally at $19,000 to $22,000 each, with completed homes selling
generally for $90,000 to $120,000, and the Meadow Brook lots have been priced
generally at $23,000 to $26,000 with completed homes expected to sell generally
for $100,000 to $150,000. CLSC intends to develop the remaining 31 lots in the
Southridge Addition beginning in 1998. Phase II and Phase III of the Meadow
Brook development, consisting of approximately 63 lots, are still in the design
stage. CLSC also intends to develop a 25-acre tract located in Frankfort, with
homes generally selling for $175,000 to $300,000. This project is in the early
stages of development.
CLSC intends ultimately to develop the remaining 20-acre parcel of
land, known as the Mann tract, that it presently owns. The development of this
land, which is part of the 104-acre tract discussed above, likely will not be
completed for approximately 10 years. The Mann tract is presently being leased
for farming purposes. CLSC has no present intentions to acquire additional land
for development purposes.
For the year ended June 30, 1996, CLSC earned a profit of $24,000 for
the year ended June 30, 1996, and $2,000 for the year ended June 30, 1995. CLSC
recorded a loss of $163 for the 1994 fiscal year. At March 31, 1997, Citizens
had an investment in CLSC of $465,000 and loans outstanding to CLSC of
approximately $575,000 with an interest rate set at the prime rate plus 1
percent. Our consolidated statements of income included elsewhere herein include
the operations of CLSC. All intercompany balances and transactions have been
eliminated in the consolidation.
Employees
As of March 31, 1997, we employed 11 persons on a full-time basis and 3
persons on a part-time basis. None of our employees is represented by a
collective bargaining group and we consider our employee relations to be good.
Citizens' employee benefits for full-time employees include, among
other things, a Pentegra Group (formerly known as Financial Institutions
Retirement Fund) defined benefit pension plan, a noncontributory,
multiple-employer comprehensive pension plan (the"Pension Plan"), and
hospitalization/major medical, long-term disability insurance and life
insurance.
- 38 -
<PAGE>
We consider our employee benefits to be competitive with those offered
by other financial institutions and major employers in our area. See "Executive
Compensation and Related Transactions of Citizens."
Legal Proceedings
Although we are involved, from time to time, in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which we presently are a party or to which any of our property is
subject.
MANAGEMENT OF CITIZENS BANCORP
Directors and Executive Officers of the Holding Company
The Board of Directors of the Holding Company consists of the same
individuals who serve as directors of Citizens. The Holding Company's Articles
of Incorporation and Bylaws require that directors be divided into three
classes, as nearly equal in number as possible. Each class of directors serves
for a three-year period, with approximately one-third of the directors elected
each year. The Holding Company's officers will be elected annually by its Board
of Directors and will serve at the Board's discretion. The terms of the present
directors expire at the Holding Company's first shareholders' meeting, which is
anticipated to be held in March, 1998. At that meeting, it is anticipated that
the directors will be nominated to serve for the following terms: the terms of
Perry W. Lewis and John J.Miller will expire in 1998, the terms of Robert F.
Ayres and Billy J. Wray will expire in 1999 and the term of Fred W. Carter will
expire in 2000. See "Management of Citizens Savings Bank of Frankfort."
The Holding Company's Bylaws provide that directors must (1) be
residents of Clinton County, Indiana, (2) have had a loan or deposit
relationship with us which they have maintained for twelve months prior to their
nomination to the Board, and (3) with respect to nonemployee directors, must
have served as a member of a civic or community organization based in Clinton
County for at least 12 months during the five years prior to their nomination to
the Board. See "Restrictions on Acquisition of the Holding Company -- Provisions
of the Holding Company's Articles and Bylaws."
The executive officers of the Holding Company are identified below.
Name Position with Holding Company
Fred W. Carter Chairman of the Board, President
and Chief Executive Officer
Stephen D. Davis Treasurer
Cindy S. Chambers Secretary
MANAGEMENT OF CITIZENS SAVINGS BANK OF FRANKFORT
Directors of Citizens
Our Board of Directors currently consists of five persons with an
additional two persons who serve as advisory directors. advisory directors
receive directors' fees for Board meetings they attend, but do not vote on
matters presented to the Board. Each director holds office for a term of three
years, and one-third of the Board is elected at each annual meeting of our
members.
Our Board of Directors met 13 times during the fiscal year ended June
30, 1996. No director attended fewer than 75% of the aggregate number of
meetings of the Board of Directors and the Board's sole committee in the past 12
months.
Listed below are the current directors of Citizens:
Director of Position
Citizens Expiration with
Director Since of Term Citizens
Robert F. Ayres 1979 1999 Director
Fred W. Carter 1960-1966; 1997 Director, President and
1971 to Present Chief Executive Officer
Perry W. Lewis 1975 1998 Director
John J. Miller 1995 1998 Director
Billy J. Wray 1992 1999 Director
- 39 -
<PAGE>
Presented below is certain information concerning the directors of Citizens:
Robert F. Ayres (age 72) served as Superintendent of Community Schools
of Frankfort from 1965 until his retirement in 1989. He previously served as a
high school principal, teacher and coach at Frankfort Senior High School, in
Frankfort.
Fred W. Carter (age 65) has served as President and Chief Executive
Officer of Citizens and CLSC since 1972, and has been an employee of Citizens
since 1966. Mr. Carter is the father of Cindy S. Chambers, Citizens' Secretary
and Customer Service Manager.
Perry W. Lewis (age 75) has served as the Chairman of Lewis Ford Sales,
Inc. in Frankfort since 1984.
John J. Miller (age 57) has served as President of Goodwin Funeral
Home, Inc. in Frankfort since 1979.
Billy J. Wray (age 65) is part owner of Premium Auto Center, Inc. (a
used-car dealership), in Lebanon, Indiana. He also owns interests in various
real estate developments around Frankfort.
We also have an advisory director program pursuant to which our former
directors may continue to serve as advisors to the Board of Directors upon their
retirement or resignation from the Board. Currently, Ralph C. Hinshaw and Rawl
V. Ransom serve as advisory directors. Mr. Hinshaw and Mr. Ransom receive $500
for each meeting that they attend. They receive no fees for meetings they do not
attend. See "Executive Compensation and Related Transaction of Citizens --
Compensation of Directors."
Executive Officers of Citizens Who Are Not Directors
Presented below is certain information regarding our executive officers
who are not directors:
Name Position
Cindy S. Chambers Secretary, Customer Service Manager
Stephen D. Davis Controller
Ralph C. Peterson, II Senior Loan Officer
Cindy S. Chambers (age 42) has served as Citizens' Corporate Secretary
since 1988 and as our Customer Service Manager since 1982. She is the daughter
of Fred W. Carter, Citizens' President and Chief Executive Officer.
Stephen D. Davis (age 40) has served as our Controller since 1989.
Ralph C. Peterson, II (age 49) has served as our Senior Loan Officer
since 1989.
Committees of the Boards of Directors of Citizens and the Holding Company
The Commercial Loan Committee is the only committee of our Board of
Directors and is comprised of Perry W. Lewis, Billy J. Wray and Fred W. Carter.
It meets on an as-needed basis to review and approve all commercial and large
multi-family loans.
<PAGE>
EXECUTIVE COMPENSATION AND RELATED TRANSACTIONS OF CITIZENS
Remuneration of Named Executive Officer
The following table sets forth information as to annual, long-term and
other compensation for services in all capacities to our President and Chief
Executive Officer for the fiscal year ended June 30, 1996. Other than Mr.
Carter, we had no other executive officers who earned over $100,000 in salary
and bonuses during that fiscal year.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Name and Principal Fiscal Other Annual All Other
Position Year Salary Bonus Compensation (4) Compensation
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fred Carter, President and 1996 $86,000 (1) $35,667 (2) -- 120 (3)
Chief Executive Officer
</TABLE>
(1) Mr. Carter's annual salary has been increased to $95,000 effective
January 1, 1997.
(2) Mr. Carter receives a bonus equal to 10% of the profits of Citizens in
excess of $426,000, after deducting certain expenses incurred by
Citizens.
(3) This column includes amounts paid by Citizens for insurance premiums
with respect to a $10,000 term life insurance policy for the benefit of
Mr. Carter.
(4) Mr. Carter received certain perquisites, but the incremental cost of
providing such perquisites did not exceed the lesser of $50,000 or 10%
of his salary and bonus.
- 40 -
<PAGE>
Employment Contract
We have entered into a three-year employment contract with Mr. Carter.
The contract with Mr. Carter, effective as of the effective date of the
Conversion, extends annually for an additional one-year term to maintain its
three-year term if our Board of Directors determines to so extend it, unless
notice not to extend is properly given by either party to the contract. Mr.
Carter receives an initial salary under the contract equal to his current salary
subject to increases approved by the Board of Directors. The contract also
provides, among other things, for participation in other fringe benefits and
benefit plans available to our employees. Mr. Carter may terminate his
employment upon 60 days' written notice to us. We may discharge Mr. Carter for
cause (as defined in the contract) at any time or in certain specified events.
If we terminate Mr. Carter's employment for other than cause or if Mr. Carter
terminates his own employment for cause (as defined in the contract), Mr. Carter
will receive his base compensation under the contract for an additional three
years if the termination follows a change of control in the Holding Company, and
for the balance of the contract if the termination does not follow a change in
control. In addition, during such period, Mr. Carter will continue to
participate in our group insurance plans and retirement plans, or receive
comparable benefits. Moreover, within a period of three months after such
termination following a change of control, Mr. Carter will have the right to
cause us to purchase any stock options he holds for a price equal to the fair
market value (as defined in the contract) of the shares subject to such options
minus their option price. If the payments provided for in the contract, together
with any other payments made to Mr. Carter by us, are deemed to be payments in
violation of the "golden parachute" rules of the Code, such payments will be
reduced to the largest amount which would not cause us to lose a tax deduction
for such payments under those rules. As of the date hereof, the cash
compensation which would be paid under the contract to Mr. Carter if the
contract were terminated either after a change of control of the Holding
Company, without cause by us, or for cause by Mr. Carter, would be $285,000. For
purposes of this employment contract, a change of control of the Holding Company
is generally an acquisition of control, as defined in regulations issued under
the Change in Bank Control Act and the Savings and Loan Holding Company Act.
The employment contract protects our confidential business information
and protects us from competition by Mr. Carter should he voluntarily terminate
his employment without cause or be terminated by us for cause.
Compensation of Directors
We pay our directors a monthly retainer of $300 plus $200 for each
month in which they attend one or more meetings. Rawl V. Ransom and Ralph C.
Hinshaw receive $500 per meeting attended as advisory directors. Total fees paid
to our directors and advisory directors for the year ended June 30, 1996 were
approximately $35,000.
Our directors and advisory directors may, pursuant to a deferred
compensation agreement, defer payment of some or all of their directors fees
into a retirement account. Under this agreement, deferred directors fees are to
be paid to a director beginning upon the first day of the month following the
director's seventieth (70th) birthday, and continuing in equal installments over
a 180-month period. A director may also receive his benefits in a lump sum in
the event of financial hardship. The agreement also provides for death and
disability benefits. At present, Mr. Carter is the only director who has
executed a deferred compensation agreement with Citizens.
Directors of the Holding Company and CLSC are not currently paid
directors' fees. The Holding Company may, if it believes it is necessary to
attract qualified directors or is otherwise beneficial to the Holding Company,
adopt a policy of paying directors' fees.
Benefits
Insurance Plans. Our officers and employees are covered by a
non-contributory disability and hospital insurance plan, and by a
non-contributory life insurance policy which pays benefits in the amount of 50
percent of salary in the event of the officer's or employee's death. This
coverage is provided pursuant to group plans sponsored by the Indiana League of
Savings Institutions Group Insurance Trust. We also provide hospitalization
coverage for Mr. Carter's family in addition to the coverage described above,
and have obtained a Supplemental Term Life Policy for Mr. Carter which provides
$10,000 in additional life insurance coverage.
Pension Plan. Our full-time employees are included in the Pension Plan.
Separate actuarial valuations are not made for individual employer members of
the Pension Plan. Our employees are eligible to participate in the plan once
they have attained the age of 21 and completed one year and at least 1,000 hours
of service for us. An employee's pension benefits are 100% vested after six
years of service.
- 41 -
<PAGE>
The Pension Plan provides for monthly or lump sum retirement benefits
determined as a percentage of the employee's average salary (for the employee's
highest five consecutive years of salary) times his years of service. Salary
includes base annual salary as of each January 1, exclusive of overtime,
bonuses, fees and other special payments. Early retirement, disability, and
death benefits are also payable under the Pension Plan, depending upon the
participant's age and years of service. We expensed approximately $1,300 for the
Pension Plan during the fiscal year ended June 30, 1996.
The estimated base annual retirement benefits presented on a
straight-line basis payable at normal retirement age (65) under the Pension Plan
to persons in specified salary and years of service classifications are as
follows (benefits noted in the table are not subject to any offset).
<TABLE>
<CAPTION>
Years of Service
Highest 5-Year
Average
Compensation 15 20 25 30 35 40 45
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 40,000 $ 9,000 $12,000 $15,000 $18,000 $ 21,000 $ 24,000 $ 27,000
$ 60,000 $13,500 $18,000 $22,500 $27,000 $ 31,500 $ 36,000 $ 40,500
$ 80,000 $18,000 $24,000 $30,000 $36,000 $ 42,000 $ 48,000 $ 54,000
$100,000 $22,500 $30,000 $37,500 $45,000 $ 52,500 $ 60,000 $ 67,500
$120,000 $27,000 $36,000 $45,000 $54,000 $ 63,000 $ 72,000 $ 81,000
</TABLE>
Benefits are currently subject to maximum Code limitations of $120,000
per year. The years of service credited to Mr. Carter under the Pension Plan as
of December 31, 1996 were 30.
Executive Supplemental Retirement Agreement. We have also entered into
non-qualified Executive Supplemental Retirement Agreements with Fred W. Carter,
Stephen D. Davis and Cindy S. Chambers. Under these agreements, we have agreed
to pay benefits to the named executives, in addition to the benefits payable
under the Pension Plan, in an amount based upon 80% of the officer's highest
base compensation earned for any 12-month period prior to the officer's normal
retirement date, less any payments received by the officer from the Pension Plan
during any year. Benefits payable to Mr. Carter under his Supplemental
Retirement Agreement are to be based upon 80% of the highest base salary, plus
bonuses, paid to him by us for any 12-month period prior to his normal
retirement date. We purchased a universal insurance policy on the covered
individuals under which we paid a one-time premium and will receive an income
stream that we will use to fund these Supplemental Retirements Plans. The
Financial Institutions Consulting Corporation administers the plan.
<PAGE>
Transactions With Certain Related Persons
We have followed a policy of offering to our directors, officers, and
employees real estate mortgage loans secured by their principal residence as
well as other loans. All of our loans to our directors, officers and employees
are made on substantially the same terms, including interest rates and
collateral as those prevailing at the time for comparable transactions, and do
not involve more than minimal risk of collectibility. Loans to directors,
executive officers and their associates totaled approximately $2.2 million, or
approximately 40% of consolidated retained earnings at March 31, 1997. This
amount includes two loans to our directors Billy J. Wray and John J. Miller,
neither of whom were directors or employees of Citizens when we originated the
loans. The first loan, in the original principal amount of approximately $1.5
million, was originated in October, 1991 to both Mr. Wray and Mr. Miller and is
secured by the 48-unit Clinton Estates apartment complex located in Frankfort.
We sold a $542,000 nonrecourse participation in this loan to reduce the loan
balance to within our lending limit. At March 31, 1997, this loan was current
with a balance of approximately $1,343,000, of which approximately $841,000 was
owed to us. The second loan, dated February, 1994, was a construction line of
credit in the original amount of $620,000 to Mr. Miller, secured by eight
condominiums and other real estate located in Tipton, Indiana. At March 31,
1997, this loan was also current with a balance of approximately $395,000. We
are not obligated to advance additional funds pursuant to this line of credit.
In our management's opinion, these loans are adequately collateralized.
Current law authorizes us to make loans or extensions of credit to our
executive officers, directors, and principal shareholders on the same terms that
are available with respect to loans made to all of our employees. At present,
our loans to executive officers, directors, principal shareholders and employees
are made on the same terms generally available to the public. We may in the
future, however, adopt a program under which we may waive loan application fees
and closing costs with respect to loans made to such persons. Loans made to a
director or executive officer in excess of the greater of $25,000 or 5% of our
capital and surplus (up to a maximum of $500,000) must be approved in advance by
a majority of the disinterested members of the Board of Directors. Our policy
regarding loans to directors and all employees meets the requirements of current
law.
- 42 -
<PAGE>
Employee Stock Ownership Plan and Trust
The Holding Company has established for our eligible employees an ESOP
effective July 1, 1997, subject to our conversion to stock form. Employees with
at least one year of employment with us and who have attained age 21 are
eligible to participate. As part of the Conversion, the ESOP intends to borrow
funds from the Holding Company and use those funds to purchase a number of
shares equal to 8% of the Common Stock to be issued in the Conversion.
Collateral for the loan will be the Common Stock purchased by the ESOP. The loan
will be repaid principally from our discretionary contributions to the ESOP over
a period of ten years. It is anticipated that the initial interest rate for the
loan will be approximately ____%. Shares purchased by the ESOP will be held in a
suspense account for allocation among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense
accounts in an amount proportional to the repayment of the ESOP loan will be
allocated among ESOP participants on the basis of compensation in the year of
allocation. Participants in the ESOP will receive credit for service prior to
the effective date of the ESOP. Benefits generally become 100% vested after five
years of credited service. Prior to the completion of five years of credited
service, a participant who terminates employment for reasons other than death,
retirement, or disability will not receive any benefits under the ESOP.
Forfeitures will be reallocated among remaining participating employees upon the
earlier of the forfeiting participant's death or after the expiration of at
least three years from the date on which such participant's employment was
terminated. Benefits will be payable in the form of Common Stock or cash for
fractional shares upon death, retirement, early retirement, disability or
separation from service. Our contributions to the ESOP are not fixed, so
benefits payable under the ESOP cannot be estimated. In November 1993, the
American Institute of Certified Public Accountants (the "AICPA") issued
Statement of Position ("SOP") 93-6, which requires us to record compensation
expense in an amount equal to the fair market value of the shares released from
the suspense account.
In connection with the establishment of the ESOP, the Holding Company
will establish a committee of our employees to administer the ESOP.
______________ will serve as corporate trustee of the ESOP. The ESOP committee
may instruct the trustee regarding investment of funds contributed to the ESOP.
The ESOP trustee, subject to its fiduciary duty, must vote all allocated shares
held in the ESOP in accordance with the instructions of participating employees.
Under the ESOP, nondirected shares, and shares held in the suspense account,
will be voted in a manner calculated to most accurately reflect the instructions
it has received from participants regarding the allocated stock so long as such
vote is in accordance with the provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
Stock Option Plan
At a meeting of the Holding Company's shareholders to be held at least
six months after the completion of the Conversion, the Board of Directors
intends to submit for shareholder approval the Stock Option Plan for directors
and officers of Citizens and of the Holding Company. If approved by the
shareholders, Common Stock in an aggregate amount equal to 10.0% of the shares
issued in the Conversion would be reserved for issuance by the Holding Company
upon the exercise of the stock options granted under the Stock Option Plan.
Assuming the issuance of 800,000 shares in the Conversion, an aggregate of
80,000 shares would be reserved for issuance under the Stock Option Plan. No
options would be granted under the Stock Option Plan until the date on which
shareholder approval is received. At that time, it is anticipated that options
for the following number of shares will be granted to the following directors,
executive officers and employees of Citizens and the Holding Company:
Percentage of Shares
Optionee Issued in Conversion
-------- --------------------
Fred W. Carter....................................... 2.50%
Other Executive Officers as a group ................. 2.25
Directors ........................................... 3.00
----
Total............................................ 7.75%
====
It is anticipated that these options would be granted for terms of 10
years (in the case of incentive options) or 10 years and one day (in the case of
non-qualified options), and at an option price per share equal to the fair
market value of the shares on the date of grant of the stock options. If the
Stock Option Plan is adopted within one year following the Conversion, options
will become exercisable at a rate of 20% at the end of each twelve (12) months
of service with us after the date of grant, subject to early vesting in the
event of death or disability. Options granted under the Stock Option Plan are
adjusted for capital changes such as stock splits and stock dividends. Unless
the Holding Company decides to call an earlier special meeting of shareholders,
the date of grant of these options is expected to be the date of the Holding
Company's annual meeting of shareholders to be held at least six months after
the Conversion.
- 43 -
<PAGE>
The Stock Option Plan would be administered by a Committee of
non-employee directors of the Holding Company's Board of Directors. Options
granted under the Stock Option Plan to employees could be "incentive" stock
options designed to result in a beneficial tax treatment to the employee but no
tax deduction to the Holding Company. Non-qualified stock options could also be
granted under the Stock Option Plan, and will be granted to the non-employee
directors listed in the chart above. In the event an option recipient terminated
his or her employment or service as a director, the options would terminate
during certain specified periods.
RRP
At a meeting of the Holding Company's shareholders to be held at least
six months after the completion of the Conversion, the Board of Directors also
intends to submit for shareholder approval the RRP as a means of providing the
directors and officers of Citizens and of the Holding Company with an ownership
interest in the Holding Company in a manner designed to encourage such persons
to continue their service with us and the Holding Company. Citizens will
contribute funds to the RRP from time to time to enable it to acquire an
aggregate amount of Common Stock equal to up to 4% of the shares of Common Stock
issued in the Conversion, either directly from the Holding Company or on the
open market. In the event that additional authorized but unissued shares would
be acquired by the RRP after the Conversion, the interests of existing
shareholders would be diluted.
No awards under the RRP would be made until the date the RRP is
approved by the Holding Company's shareholders. At that time, it is anticipated
that awards of the following number of shares would be made to the following
directors and executive officers of the Holding Company and Citizens:
Percentage of Shares
Recipient of Issued in Conversion to be
Awards Awarded Under RRP
Fred W. Carter.......................................... 1.0%
Other Executive Officers as a group .................... 0.9
Directors............................................... 1.2
---
Total............................................... 3.1%
===
Awards would be nontransferable and nonassignable, and during the
lifetime of the recipient could only be earned by and made to him or her. If the
RRP is adopted within one year following the Conversion, the shares which are
subject to an award would vest and be earned by the recipient at a rate of 20%
of the shares awarded at the end of each full twelve (12) months of service with
us after the date of grant of the award. Awards are adjusted for capital changes
such as stock dividends and stock splits. Notwithstanding the foregoing, awards
would be 100% vested upon termination of employment or service due to death or
disability. If employment or service were to terminate for other reasons, the
grantee's nonvested awards will be forfeited. If employment or service is
terminated for cause (as would be defined in the RRP), or if conduct would have
justified termination or removal for cause, shares not already delivered under
the RRP, whether or not vested, could be forfeited by resolution of the Board of
Directors of the Holding Company.
When shares become vested and could actually be distributed in
accordance with the RRP, the participants would also receive amounts equal to
accrued dividends and other earnings or distributions payable with respect
thereto. When shares become vested under the RRP, the participant will recognize
income equal to the fair market value of the Common Stock earned, determined as
of the date of vesting, unless the recipient makes an election under ss. 83(b)
of the Code to be taxed earlier. The amount of income recognized by the
participant would be a deductible expense for tax purposes for the Holding
Company. Shares not yet vested under the RRP will be voted by the Trustee of the
RRP, taking into account the best interests of the recipients of the RRP awards.
- 44 -
<PAGE>
REGULATION
General
As a federally chartered, SAIF-insured savings association, we are
subject to extensive regulation by the OTS and the FDIC. For example, we must
obtain OTS approval before we may engage in certain activities and must file
reports with the OTS regarding our activities and financial condition. The OTS
periodically examines our books and records and, in conjunction with the FDIC in
certain situations, has examination and enforcement powers. This supervision and
regulation are intended primarily for the protection of depositors and federal
deposit insurance funds. Our semi- annual assessment owed to the OTS, which is
based upon a specified percentage of assets, is approximately $7,800.
We are also subject to federal and state regulation as to such matters
as loans to officers, directors, or principal shareholders, required reserves,
limitations as to the nature and amount of our loans and investments, regulatory
approval of any merger or consolidation, issuance or retirements of our
securities, and limitations upon other aspects of banking operations. In
addition, our activities and operations are subject to a number of additional
detailed, complex and sometimes overlapping federal and state laws and
regulations. These include state usury and consumer credit laws, state laws
relating to fiduciaries, the Federal Truth-In-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting
Act, the Community Reinvestment Act, anti-redlining legislation and antitrust
laws.
The United States Congress is considering legislation that would
require all federal savings associations, such as Citizens, to either convert to
a national bank or a state-chartered bank by a specified date to be determined.
In addition, under the legislation, the Holding Company likely would not be
regulated as a savings and loan holding company but rather as a bank holding
company. This proposed legislation would abolish the OTS and transfer its
functions among the other federal banking regulators. Certain aspects of the
legislation remain to be resolved and, therefore, no assurance can be given as
to whether or in what form the legislation will be enacted or its effect on the
Holding Company and Citizens.
Savings and Loan Holding Company Regulation
As the holding company for Citizens, the Holding Company will be
regulated as a "non-diversified savings and loan holding company" within the
meaning of the Home Owners' Loan Act of 1933, as amended ("HOLA"), and subject
to regulatory oversight of the Director of the OTS. As such, the Holding Company
is registered with the OTS and thereby subject to OTS regulations, examinations,
supervision and reporting requirements. As a subsidiary of a savings and loan
holding company, we are subject to certain restrictions in our dealings with the
Holding Company and with other companies affiliated with the Holding Company.
In general, the HOLA prohibits a savings and loan holding company,
without prior approval of the Director of the OTS, from acquiring control of
another savings association or savings and loan holding company or retaining
more than 5% of the voting shares of a savings association or of another holding
company which is not a subsidiary. The HOLA also restricts the ability of a
director or officer of the Holding Company, or any person who owns more than 25%
of the Holding Company's stock, from acquiring control of another savings
association or savings and loan holding company without obtaining the prior
approval of the Director of the OTS.
The Holding Company's Board of Directors presently intends to operate
the Holding Company as a unitary savings and loan holding company. There are
generally no restrictions on the permissible business activities of a unitary
savings and loan holding company.
Notwithstanding the above rules as to permissible business activities
of unitary savings and loan holding companies, if the savings association
subsidiary of such a holding company fails to meet the Qualified Thrift Lender
("QTL") test, then such unitary holding company would become subject to the
activities restrictions applicable to multiple holding companies. (Additional
restrictions on securing advances from the FHLB also apply.) See "--Qualified
Thrift Lender." At March 31, 1997, our asset composition was in excess of that
required to qualify us as a Qualified Thrift Lender.
If the Holding Company were to acquire control of another savings
association other than through a merger or other business combination with
Citizens, the Holding Company would thereupon become a multiple savings and loan
holding company. Except where such acquisition is pursuant to the authority to
approve emergency thrift acquisitions and where each subsidiary savings
association meets the QTL test, the activities of the Holding Company and any of
- 45 -
<PAGE>
its subsidiaries (other than Citizens or other subsidiary savings associations)
would thereafter be subject to further restrictions. The HOLA provides that,
among other things, no multiple savings and loan holding company or subsidiary
thereof which is not a savings association shall commence or continue for a
limited period of time after becoming a multiple savings and loan holding
company or subsidiary thereof, any business activity other than (i) furnishing
or performing management services for a subsidiary savings association, (ii)
conducting an insurance agency or escrow business, (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary savings association,
(iv) holding or managing properties used or occupied by a subsidiary savings
associations, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by the FSLIC by regulation as of March 5, 1987,
to be engaged in by multiple holding companies, or (vii) those activities
authorized by the Federal Reserve Board (the "FRB") as permissible for bank
holding companies, unless the Director of the OTS by regulation prohibits or
limits such activities for savings and loan holding companies. Those activities
described in (vii) above must also be approved by the Director of the OTS before
a multiple holding company may engage in such activities.
The Director of the OTS may also approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state, if the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office in the state of the association to be acquired as of March 5, 1987, or if
the laws of the state in which the association to be acquired is located
specifically permit associations to be acquired by state-chartered associations
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings associations). Also, the Director of the OTS may approve an acquisition
resulting in a multiple savings and loan holding company controlling savings
associations in more than one state in the case of certain emergency thrift
acquisitions.
Indiana law permits federal and state savings association holding
companies with their home offices located outside of Indiana to acquire savings
associations whose home offices are located in Indiana and savings association
holding companies with their principal place of business in Indiana ("Indiana
Savings Association Holding Companies") upon receipt of approval by the Indiana
Department of Financial Institutions. Moreover, Indiana Savings Association
Holding Companies may acquire savings associations with their home offices
located outside of Indiana and savings association holding companies with their
principal place of business located outside of Indiana upon receipt of approval
by the Indiana Department of Financial Institutions.
No subsidiary savings association of a savings and loan holding company
may declare or pay a dividend on its permanent or nonwithdrawable stock unless
it first gives the Director of the OTS 30 days advance notice of such
declaration and payment. Any dividend declared during such period or without
giving notice shall be invalid.
Federal Home Loan Bank System
We are a member of the FHLB of Indianapolis, which is one of twelve
regional FHLBs. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from funds deposited by
savings associations and proceeds derived from the sale of consolidated
obligations of the FHLB system. It makes loans to members (i.e., advances) in
accordance with policies and procedures established by the Board of Directors of
the FHLB. All FHLB advances must be fully secured by sufficient collateral as
determined by the FHLB. The Federal Housing Finance Board ("FHFB"), an
independent agency, controls the FHLB System, including the FHLB of
Indianapolis.
As a member, we are required to purchase and maintain stock in the FHLB
of Indianapolis in an amount equal to at least 1% of our aggregate unpaid
residential mortgage loans, home purchase contracts, or similar obligations at
the beginning of each year. At March 31, 1997, our investment in stock of the
FHLB of Indianapolis was $332,000. The FHLB imposes various limitations on
advances such as limiting the amount of certain types of real estate-related
collateral to 30% of a member's capital and limiting total advances to a member.
Interest rates charged for advances vary depending upon maturity, the cost of
funds to the FHLB of Indianapolis and the purpose of the borrowing.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. For the fiscal year ended June 30, 1996, dividends paid by the
FHLB of Indianapolis to us totaled approximately $26,000, for an annual rate of
7.9%.
<PAGE>
Insurance of Deposits
Deposit Insurance. The FDIC is an independent federal agency that
insures the deposits, up to prescribed statutory limits, of banks and thrifts
and safeguards the safety and soundness of the banking and thrift industries.
The FDIC administers two separate insurance funds, the BIF for commercial banks
and state savings banks and the SAIF for savings associations such as Citizens
and banks that have acquired deposits from savings associations. The FDIC is
required to maintain designated levels of reserves in each fund. As of September
30, 1996, the reserves of the SAIF were below the level required by law,
primarily because a significant portion of the assessments paid into the SAIF
have been used to pay the cost of prior thrift failures, while the reserves of
the BIF met the level required by law in May, 1995. However, on September 30,
1996, provisions designed to recapitalize the SAIF and eliminate the premium
disparity between the BIF and SAIF were signed into law. See "-- Assessments"
below.
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Assessments. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance for members of the BIF and members of the
SAIF. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to the target level
within a reasonable time and may decrease these rates if the target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments vary depending on the risk the
institution poses to its deposit insurance fund. An institution's risk level is
determined based on its capital level and the FDIC's level of supervisory
concern about the institution.
On September 30, 1996, President Clinton signed into law legislation
which included provisions designed to recapitalize the SAIF and eliminate the
significant premium disparity between the BIF and the SAIF. Under the new law,
we were charged a one-time special assessment equal to $.657 per $100 in
assessable deposits at March 31, 1995. We recognized this one-time assessment as
a non-recurring operating expense of $211,000 ($127,000 after tax) during the
three-month period ending September 30, 1996, and we paid this assessment on
November 27, 1996. The assessment was fully deductible for both federal and
state income tax purposes. Beginning January 1, 1997, our annual deposit
insurance premium was reduced from .23% to .0644% of total assessable deposits.
BIF institutions pay lower assessments than comparable SAIF institutions because
BIF institutions pay only 20% of the rate being paid by SAIF institutions on
their deposits with respect to obligations issued by the federally-chartered
corporation which provided some of the financing to resolve the thrift crisis in
the 1980's ("FICO"). The 1996 law also provides for the merger of the SAIF and
the BIF by 1999, but not until such time as bank and thrift charters are
combined. Until the charters are combined, savings associations with SAIF
deposits may not transfer deposits into the BIF system without paying various
exit and entrance fees, and SAIF institutions will continue to pay higher FICO
assessments. Such exit and entrance fees need not be paid if a SAIF institution
converts to a bank charter or merges with a bank, as long as the resulting bank
continues to pay applicable insurance assessments to the SAIF, and as long as
certain other conditions are met.
Savings Association Regulatory Capital
Currently, savings associations are subject to three separate minimum
capital-to-assets requirements: (i) a leverage limit, (ii) a tangible capital
requirement, and (iii) a risk-based capital requirement. The leverage limit
requires that savings associations maintain "core capital" of at least 3% of
total assets. Core capital is generally defined as common shareholders' equity
(including retained income), noncumulative perpetual preferred stock and related
surplus, certain minority equity interests in subsidiaries, qualifying
supervisory goodwill, purchased mortgage servicing rights and purchased credit
card relationships (subject to certain limits) less nonqualifying intangibles.
Under the tangible capital requirement, a savings association must maintain
tangible capital (core capital less all intangible assets except purchased
mortgage servicing rights which may be included after making the above-noted
adjustment in an amount up to 100% of tangible capital) of at least 1.5% of
total assets. Under the risk-based capital requirements, a minimum amount of
capital must be maintained by a savings association to account for the relative
risks inherent in the type and amount of assets held by the savings association.
The risk-based capital requirement requires a savings association to maintain
capital (defined generally for these purposes as core capital plus general
valuation allowances and permanent or maturing capital instruments such as
preferred stock and subordinated debt less assets required to be deducted) equal
to 8.0% of risk-weighted assets. Assets are ranked as to risk in one of four
categories (0-100%). A credit risk-free asset, such as cash, requires no
risk-based capital, while an asset with a significant credit risk, such as a
non-accrual loan, requires a risk factor of 100%. At March 31, 1997, we were in
compliance with all capital requirements imposed by law.
The OTS has promulgated a rule which sets forth the methodology for
calculating an interest rate risk component to be used by savings associations
in calculating regulatory capital. The OTS has delayed the implementation of
this rule, however. The rule requires savings associations with "above normal"
interest rate risk (institutions whose portfolio equity would decline in value
by more than 2% of assets in the event of a hypothetical 200-basis-point move in
interest rates) to maintain additional capital for interest rate risk under the
risk-based capital framework. If the OTS were to implement this regulation, we
would be exempt from its provisions because we have less than $300 million in
assets and our risk-based capital ratio exceeds 12%. We nevertheless measure our
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interest rate risk in conformity with the OTS regulation and, as of March 31,
1997, our interest rate risk was slightly outside the parameters set forth in
the regulation. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Citizens Savings Bank of Frankfort --
Asset/Liability Management."
If an association is not in compliance with the capital requirements,
the OTS is required to prohibit asset growth and to impose a capital directive
that may restrict, among other things, the payment of dividends and officers'
compensation. In addition, the OTS and the FDIC generally are authorized to take
enforcement actions against a savings association that fails to meet its capital
requirements. These actions may include restricting the operations activities of
the association, imposing a capital directive, cease and desist order, or civil
money penalties, or imposing harsher measures such as appointing a receiver or
conservator or forcing the association to merge into another institution.
Prompt Corrective Regulatory Action
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FedICIA") requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to institutions that do
not meet minimum capital requirements. For these purposes, FedICIA establishes
five capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. At March 31,
1997, we were categorized as "well capitalized," meaning that our total
risk-based capital ratio exceeded 10%, our Tier I risk-based capital ratio
exceeded 6%, our leverage ratio exceeded 5%, and we were not subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure.
The FDIC may order savings associations which have insufficient capital
to take corrective actions. For example, a savings association which is
categorized as "undercapitalized" would be subject to growth limitations and
would be required to submit a capital restoration plan, and a holding company
that controls such a savings association would be required to guarantee that the
savings association complies with the restoration plan. "Significantly
undercapitalized" savings associations would be subject to additional
restrictions. Savings associations deemed by the FDIC to be "critically
undercapitalized" would be subject to the appointment of a receiver or
conservator.
<PAGE>
Dividend Limitations
An OTS regulation imposes limitations upon all "capital distributions"
by savings associations, including cash dividends, payments by an association to
repurchase or otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital. The regulation establishes a three-tiered system of regulation, with
the greatest flexibility being afforded to well-capitalized associations. A
savings association which has total capital (immediately prior to and after
giving effect to the capital distribution) that is at least equal to its fully
phased-in capital requirements would be a Tier 1 institution ("Tier 1
Institution"). An association that has total capital at least equal to its
minimum capital requirements, but less than its capital requirements, would be a
Tier 2 institution ("Tier 2 Institution"). An institution having total capital
that is less than its minimum capital requirements would be a Tier 3 institution
("Tier 3 Institution"). However, an institution which otherwise qualifies as a
Tier 1 Institution may be designated by the OTS as a Tier 2 or Tier 3
Institution if the OTS determines that the institution is "in need of more than
normal supervision." We are currently a Tier 1 Institution.
A Tier 1 Institution may, after prior notice but without the approval
of the OTS, make capital distributions during a calendar year up to the greater
of (a) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" at the beginning of
the calendar year (the smallest excess over its capital requirements), or (b)
75% of its net income over the most recent four-quarter period. Any additional
amount of capital distributions would require prior regulatory approval.
Accordingly, at March 31, 1997, we had available approximately $1,362,000 for
distribution, without consideration of any capital infusion from the Conversion.
The OTS has proposed revisions to these regulations which would permit
savings associations to declare dividends in amounts which would assure that
they remain adequately capitalized following the dividend declaration. Savings
associations in a holding company system which are rated Camel 1 or 2 and which
are not in troubled condition would need to file a prior notice with the OTS
concerning such dividend declaration.
Pursuant to the Plan of Conversion, we will establish a liquidation
account for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders. See "The Conversion -- Principal Effects of Conversion." We
will not be permitted to pay dividends to the Holding Company if our net worth
would be reduced below the amount required for the liquidation account. We must
also must file a notice with the OTS 30 days before declaring a dividend to the
Holding Company.
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Limitations on Repurchase of Common Stock of Holding Company
OTS regulations currently prohibit the Holding Company from
repurchasing any of its shares within one year of the Conversion. So long as we
continue to meet certain capitalization requirements, the Holding Company may
repurchase shares in an open-market repurchase program (which cannot exceed 5%
of its outstanding shares in a twelve-month period) during the second and third
years following the Conversion by giving appropriate prior notice to the OTS.
The OTS has the authority to waive these restrictions under certain
circumstances. Unless repurchases are permitted under the foregoing regulations,
the Holding Company may not, for a period of three years from the date of the
Conversion, repurchase any of its capital stock from any person, except in the
event of an offer to purchase by the Holding Company on a pro rata basis from
all of its shareholders which is approved in advance by the OTS or except in
exceptional circumstances established to the satisfaction of the OTS.
Under Indiana law, the Holding Company will be precluded from
repurchasing its equity securities if, after giving effect to such repurchase,
the Holding Company would be unable to pay its debts as they become due or the
Holding Company's assets would be less than its liabilities and obligations to
preferred shareholders.
Limitations on Rates Paid for Deposits
Regulations promulgated by the FDIC pursuant to FedICIA place
limitations on the ability of insured depository institutions to accept, renew
or roll over deposits by offering rates of interest which are significantly
higher than the prevailing rates of interest on deposits offered by other
insured depository institutions having the same type of charter in the
institution's normal market area. Under these regulations, "well-capitalized"
depository institutions may accept, renew or roll such deposits over without
restriction, "adequately capitalized" depository institutions may accept, renew
or roll such deposits over with a waiver from the FDIC (subject to certain
restrictions on payments of rates) and "undercapitalized" depository
institutions may not accept, renew or roll such deposits over. The regulations
contemplate that the definitions of "well capitalized," "adequately capitalized"
and "undercapitalized" will be the same as the definition adopted by the
agencies to implement the corrective action provisions of FedICIA. We do not
believe that these regulations will have a materially adverse effect on our
current operations.
Safety and Soundness Standards
On February 2, 1995, the federal banking agencies adopted final safety
and soundness standards for all insured depository institutions. The standards,
which were issued in the form of guidelines rather than regulations, relate to
internal controls, information systems, internal audit systems, loan
underwriting and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking agencies in
identifying and addressing problems at insured depository institutions before
capital becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings. The federal banking agencies have also published for comment
proposed asset quality and earning standards which, if adopted, would be added
to the safety and soundness guidelines.
Real Estate Lending Standards
OTS regulations require savings associations to establish and maintain
written internal real estate lending policies. Each association's lending
policies must be consistent with safe and sound banking practices and
appropriate to the size of the association and the nature and scope of its
operations. The policies must establish loan portfolio diversification
standards; establish prudent underwriting standards, including loan-to-value
limits, that are clear and measurable; establish loan administration procedures
for the association's real estate portfolio; and establish documentation,
approval, and reporting requirements to monitor compliance with the
association's real estate lending policies. The association's written real
estate lending policies must be reviewed and approved by the association's Board
of Directors at least annually. Further, each association is expected to monitor
conditions in its real estate market to ensure that its lending policies
continue to be appropriate for current market conditions.
<PAGE>
Loans to One Borrower
Under OTS regulations, we may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of our unimpaired capital
and surplus. Additional amounts may be lent, not in excess of 10% of unimpaired
capital and surplus, if such loans or extensions of credit are fully secured by
readily marketable collateral, including certain debt and equity securities but
not including real estate. In some cases, a savings association may lend up to
30 percent of unimpaired capital and surplus to one borrower for purposes of
developing domestic residential housing, provided that the association meets its
regulatory capital requirements and the OTS authorizes the association to use
this expanded lending authority. At March 31, 1997, we did not have any loans or
extensions of credit to a single or related group of borrowers in excess of our
lending limits. We do not believe that the loans-to-one-borrower limits will
have a significant impact on our business operations or earnings following the
Conversion.
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Qualified Thrift Lender
Savings associations must meet a QTL test. If we maintain an
appropriate level of qualified thrift investments ("QTIs") (primarily
residential mortgages and related investments, including certain
mortgage-related securities) and otherwise qualify as a QTL, we will continue to
enjoy full borrowing privileges from the FHLB of Indianapolis. The required
percentage of QTIs is 65% of portfolio assets (defined as all assets minus
intangible assets, property used by the association in conducting its business
and liquid assets equal to 10% of total assets). Certain assets are subject to a
percentage limitation of 20% of portfolio assets. In addition, savings
associations may include shares of stock of the FHLBs, FNMA, and FHLMC as QTIs.
Compliance with the QTL test is determined on a monthly basis in nine out of
every twelve months. As of March 31, 1997, we were in compliance with our QTL
requirement, with approximately 88% of our assets invested in QTIs.
A savings association which fails to meet the QTL test must either
convert to a bank (but its deposit insurance assessments and payments will be
those of and paid to the SAIF) or be subject to the following penalties: (i) it
may not enter into any new activity except for those permissible for a national
bank and for a savings association; (ii) its branching activities shall be
limited to those of a national bank; (iii) it shall not be eligible for any new
FHLB advances; and (iv) it shall be bound by regulations applicable to national
banks respecting payment of dividends. Three years after failing the QTL test
the association must (i) dispose of any investment or activity not permissible
for a national bank and a savings association and (ii) repay all outstanding
FHLB advances. If such a savings association is controlled by a savings and loan
holding company, then such holding company must, within a prescribed time
period, become registered as a bank holding company and become subject to all
rules and regulations applicable to bank holding companies (including
restrictions as to the scope of permissible business activities).
Acquisitions or Dispositions and Branching
The Bank Holding Company Act (the "BCHA") specifically authorizes a
bank holding company, upon receipt of appropriate regulatory approvals, to
acquire control of any savings association or holding company thereof wherever
located. Similarly, a savings and loan holding company may acquire control of a
bank. Moreover, subject to the moratorium provisions concerning conversions of
SAIF to BIF members and vice versa, federal savings associations may acquire or
be acquired by any insured depository institution. Regulations promulgated by
the FRB restrict the branching authority of savings associations acquired by
bank holding companies. Savings associations acquired by bank holding companies
may be converted to banks if they continue to pay SAIF premiums, but as such
they become subject to branching and activity restrictions applicable to banks.
Subject to certain exceptions, commonly-controlled banks and savings
associations must reimburse the FDIC for any losses suffered in connection with
a failed bank or savings association affiliate. Institutions are commonly
controlled if one is owned by another or if both are owned by the same holding
company. Such claims by the FDIC under this provision are subordinate to claims
of depositors, secured creditors, and holders of subordinated debt, other than
affiliates.
The OTS has adopted regulations which permit nationwide branching to
the extent permitted by federal statute. Federal statutes permit federal savings
associations to branch outside of their home state if the association meets the
domestic building and loan test in ss.7701(a)(19) of the Internal Revenue Code,
as amended, (the "Code") or the asset composition test of ss.7701(c) of the
Code. Branching that would result in the formation of a multiple savings and
loan holding company controlling savings associations in more than one state is
permitted if the law of the state in which the savings association to be
acquired is located specifically authorizes acquisitions of its state-chartered
associations by state-chartered associations or their holding companies in the
state where the acquiring association or holding company is located. Moreover,
Indiana banks and savings associations are permitted to acquire other Indiana
banks and savings associations and to establish branches throughout Indiana.
Finally, The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act") permits bank holding companies to acquire
banks in other states and, with state consent and subject to certain
limitations, allows banks to acquire out-of-state branches either through merger
or de novo expansion. The State of Indiana enacted legislation establishing
interstate branching provisions for Indiana state-chartered banks consistent
with those established by the Riegle-Neal Act (the "Indiana Branching Law"). The
Indiana Branching Law authorizes Indiana banks to branch interstate by merger or
de novo expansion, provided that such transactions are not permitted to
out-of-state banks unless the laws of their home states permit Indiana banks to
merge or establish de novo banks on a reciprocial basis. The Indiana Branching
Law became effective March 15, 1996.
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Transactions with Affiliates
We are subject to Sections 22(h), 23A and 23B of the Federal Reserve
Act, which restrict financial transactions between banks and affiliated
companies. The statute limits credit transactions between a bank or savings
association and its executive officers and its affiliates, prescribes terms and
conditions for bank affiliate transactions deemed to be consistent with safe and
sound banking practices, and restricts the types of collateral security
permitted in connection with a bank's extension of credit to an affiliate.
Federal Securities Law
The shares of Common Stock of the Holding Company will be registered
with the SEC under the 1934 Act. The Holding Company will be subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act")
and the rules of the SEC thereunder. After three years following our conversion
to stock form, if the Holding Company has fewer than 300 shareholders, it may
deregister its shares under the 1934 Act and cease to be subject to the
foregoing requirements.
Shares of Common Stock held by persons who are affiliates of the
Holding Company may not be resold without registration unless sold in accordance
with the resale restrictions of Rule 144 under the 1933 Act. If the Holding
Company meets the current public information requirements under Rule 144, each
affiliate of the Holding Company who complies with the other conditions of Rule
144 (including those that require the affiliate's sale to be aggregated with
those of certain other persons) would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of (i) 1% of the outstanding shares of the Holding Company
or (ii) the average weekly volume of trading in such shares during the preceding
four calendar weeks.
Community Reinvestment Act Matters
Federal law requires that ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes
both a four-unit descriptive rating -- outstanding, satisfactory, needs to
improve, and substantial noncompliance -- and a written evaluation of an
institution's performance. Each FHLB is required to establish standards of
community investment or service that its members must maintain for continued
access to long-term advances from the FHLBs. The standards take into account a
member's performance under the CRA and its record of lending to first-time home
buyers. The OTS has designated our record of meeting community credit needs as
outstanding, which is the highest available designation.
TAXATION
Federal Taxation
Historically, savings associations, such as Citizens, have been
permitted to compute bad debt deductions using either the bank experience method
or the percentage of taxable income method. However, for years beginning after
December 31, 1995, no savings association may use the percentage of taxable
income method of computing its allowable bad debt deduction for tax purposes.
Instead, all savings associations are required to compute their allowable
deduction using the experience method. As a result of the repeal of the
percentage of taxable income method, reserves taken after 1987 using the
percentage of taxable income method generally must be included in future taxable
income over a six-year period, although a two-year delay may be permitted for
associations meeting a residential mortgage loan origination test. Citizens will
recapture approximately $60,000 over a six-year period beginning with the June
30, 1997 financial statements. In addition, the pre-1988 reserve, for which no
deferred taxes have been recorded, need not be recaptured into income unless (i)
the savings association no longer qualifies as a bank under the Code, or (ii)
the savings association pays out excess dividends or distributions.
Depending on the composition of its items of income and expense, a
savings association may be subject to the alternative minimum tax. A savings
association must pay an alternative minimum tax on the amount (if any) by which
20% of alternative minimum taxable income ("AMTI"), as reduced by an exemption
varying with AMTI, exceeds the regular tax due. AMTI equals regular taxable
income increased or decreased by certain tax preferences and adjustments,
including depreciation deductions in excess of that allowable for alternative
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minimum tax purposes, tax-exempt interest on most private activity bonds issued
after August 7, 1986 (reduced by any related interest expense disallowed for
regular tax purposes), the amount of the bad debt reserve deduction claimed in
excess of the deduction based on the experience method and 75% of the excess of
adjusted current earnings over AMTI (before this adjustment and before any
alternative tax net operating loss). AMTI may be reduced only up to 90% by net
operating loss carryovers, but alternative minimum tax paid can be credited
against regular tax due in later years.
For federal income tax purposes, we have been reporting our income and
expenses on the accrual method of accounting. Our federal income tax returns
have not been audited in recent years.
State Taxation
We are subject to Indiana's Financial Institutions Tax ("FIT"), which
is imposed at a flat rate of 8.5% on "adjusted gross income." "Adjusted gross
income," for purposes of FIT, begins with taxable income as defined by Section
63 of the Code and, thus, incorporates federal tax law to the extent that it
affects the computation of taxable income. Federal taxable income is then
adjusted by several Indiana modifications. Other applicable state taxes include
generally applicable sales and use taxes plus real and personal property taxes.
Our state income tax returns have not been audited in recent years.
For further information relating to the tax consequences of the
Conversion, see "The Conversion -- Principal Effects of Conversion -- Tax
Effects."
THE CONVERSION
THE BOARDS OF DIRECTORS OF CITIZENS AND THE HOLDING COMPANY AND THE OTS
HAVE APPROVED THE PLAN SUBJECT TO THE PLAN'S APPROVAL BY OUR MEMBERS AT A
SPECIAL MEETING OF MEMBERS, AND SUBJECT TO THE SATISFACTION OF CERTAIN OTHER
CONDITIONS IMPOSED BY THE OTS IN ITS APPROVAL. OTS APPROVAL, HOWEVER, DOES NOT
CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY THE OTS.
General
On April 9, 1997, our Board of Directors adopted a Plan of Conversion
(the "Plan") pursuant to which we will convert from a federal mutual savings
bank to a federal stock savings bank, and become a wholly-owned subsidiary of
the Holding Company. The Conversion will include adoption of the proposed
Federal Stock Charter and Bylaws which will authorize the issuance of capital
stock by us. Under the Plan, our capital stock is being sold to the Holding
Company and the Common Stock of the Holding Company is being offered to our
customers and then to the public. The Plan has also been approved by the OTS,
subject to approval of the Plan by our members. A Special Meeting of Members
(the "Special Meeting") has been scheduled for that purpose on September ___,
1997. The approval of the Plan by the OTS does not constitute a recommendation
or endorsement of the Plan by the OTS.
We have mailed to each person eligible to vote at the Special Meeting a
proxy statement (the "Proxy Statement"). The Proxy Statement contains
information concerning the business purposes of the Conversion and the effects
of the Plan and the Conversion on voting rights, liquidation rights, the
continuation of our business and existing savings accounts, FDIC insurance and
loans. The Proxy Statement also describes the manner in which the Plan may be
amended or terminated.
The following is a summary of all of the pertinent aspects of the Plan,
the Subscription Offering, and the Community Offering. The Plan should be
consulted for a more detailed description of its terms.
Reasons for Conversion
As a stock institution, we will be structured in the form used by
commercial banks, most business entities, and a growing number of savings
associations. Converting to the stock form is intended to have a positive effect
on our future growth and performance by: (i) affording our depositors and
employees the opportunity to become shareholders of the Holding Company and
thereby participate more directly in our future and the Holding Company's
future; (ii) providing the Holding Company with the flexibility to grow through
mergers and acquisitions by permitting the offering of equity participations to
the shareholders of acquired companies; (iii) providing substantially increased
net worth and equity capital for investment in our business, thus enabling
management to pursue new and additional lending and investment opportunities and
to expand operations; and (iv) providing future access to capital markets
through the sale of stock of the Holding Company in order to generate additional
capital to accommodate or promote future growth. We believe that the increased
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capital and operating flexibility will enhance our competitiveness with other
types of financial services organizations. Although our current members will,
upon Conversion, lose the voting and liquidation rights they presently have as
members (except to the limited extent of their rights in the liquidation account
established in the Conversion), they are being offered a priority right to
purchase shares in the Conversion and thereby obtain voting and liquidation
rights in the Holding Company.
The net proceeds to us from the sale of Common Stock offered hereby,
after retention by the Holding Company of 50% of the net proceeds after taking
into consideration the loan to the ESOP, will increase our existing net worth
and thus provide an even stronger capital base to support our lending and
investment activities. Although our regulatory capital at March 31, 1997,
exceeded our regulatory capital requirements, our Board of Directors believes
that it is desirable to increase regulatory capital in view of the competitive
and changing financial conditions in which we operate and the higher levels of
capital required by the OTS, and to enable us to take advantage of new
opportunities that may arise. In addition, the Conversion will provide us with
new opportunities to attract and retain talented and experienced personnel by
offering stock incentive programs.
Our Board of Directors believes that the Conversion to a holding
company structure is the best way to enable us to diversify our business
activities should we choose to do so. Currently, there are no plans, written or
oral, for the Holding Company to engage in any material activities apart from
holding our shares of stock that it acquires in connection with the Conversion,
although the Board may determine to further expand the Holding Company's
activities after the Conversion.
The additional Common Stock of the Holding Company being authorized in
the Conversion will be available for future acquisitions (although the Holding
Company has no current discussions, arrangements or agreements with respect to
any acquisition) and for issuance and sale to raise additional equity capital,
subject to market conditions and generally without shareholder approval. The
Holding Company's ability to raise additional funds through the sale of debt
securities to the public or institutional investors should also be enhanced by
the increase in its equity capital base provided by the Conversion. Although the
Holding Company currently has no plans with respect to future issuances of
equity or debt securities, the more flexible operating structure provided by the
Holding Company and the stock form of ownership is expected to assist us in
competing aggressively with other financial institutions in our market area.
The Conversion will also permit our members who subscribe for shares of
Common Stock to become shareholders of the Holding Company, thereby allowing
members to indirectly own stock in the financial institution in which they
maintain deposit accounts. Such ownership may encourage shareholders to promote
us to others, thereby further contributing to our growth.
Principal Effects of Conversion
General. Each savings depositor in a mutual savings bank such as
Citizens has both a savings account and a pro rata ownership in the net worth of
that institution, based upon the balance in his or her savings account. This
ownership interest has no tangible market value separate from the savings
account. Upon conversion to stock form, the ownership of our net worth will be
represented by the outstanding shares of stock to be owned by the Holding
Company. Certificates are issued to evidence ownership of the capital stock.
These stock certificates are transferable and, therefore, the shares may be
transferred with no effect on any account the seller may hold with us.
Continuity. While the Conversion is being accomplished, our normal
business of accepting deposits and making loans will be continued without
interruption. After the Conversion, we will continue to provide services for
account holders and borrowers under current policies carried on by our present
management and staff.
Our directors at the time of Conversion will continue to serve as our
directors after the Conversion until the expiration of their current terms, and
thereafter, if reelected. All of our executive officers at the time of
Conversion will retain their positions after the Conversion.
Effect on Deposit Accounts. Under the Plan, each of our depositors at
the time of the Conversion will automatically continue as a depositor after the
Conversion, and each deposit account will remain the same with respect to
deposit balance, interest rate and other terms. Each account will also continue
to be insured by the FDIC in exactly the same way as before. Depositors will
continue to hold their existing certificates, passbooks and other evidence of
their accounts.
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Effect on Loans of Borrowers. None of our loans will be affected by the
Conversion. The amount, interest rate, maturity and security for each loan will
be unchanged.
Effect on Voting Rights of Members. Currently in our mutual form, our
depositor members have voting rights and may vote for the election of directors.
Following the Conversion, depositors will cease to have voting rights. All
voting rights in Citizens will be vested in the Holding Company as our sole
shareholder. Voting rights in the Holding Company will be vested exclusively in
its shareholders, with one vote for each share of Common Stock. Neither the
Common Stock to be sold in the Conversion nor the capital stock of Citizens will
be insured by the FDIC or by any other government entity.
Effect on Liquidation Rights. Current federal regulations and the Plan
of Conversion provide for the establishment of a "liquidation account" by us for
the benefit of our deposit account holders with balances of no less than $50.00
on December 31, 1995 ("Eligible Account Holders"), and our deposit account
holders with balances of no less than $50.00 on June 30, 1997 ("Supplemental
Eligible Account Holders"), who continue to maintain their accounts with us
after the Conversion. The liquidation account will be credited with our net
worth as reflected in the latest statement of financial condition in the final
prospectus used in the Conversion. Each Eligible Account Holder and Supplemental
Eligible Account Holder will, with respect to each deposit account held, have a
related inchoate interest in a portion of the balance of the liquidation
account. This inchoate interest is referred to in the Plan as a "subaccount
balance." In the event of a complete liquidation of us after the Conversion (and
only in such event), Eligible Account Holders and Supplemental Eligible Account
Holders would be entitled to a distribution from the liquidation account in an
amount equal to the then current adjusted subaccount balance then held, before
any liquidation distribution would be made to the Holding Company as our sole
shareholder. We believe that a liquidation of Citizens is unlikely.
Each Eligible Account Holder will have a subaccount balance in the
liquidation account for each deposit account held as of December 31, 1995 (the
"Eligibility Record Date"). Each Supplemental Eligible Account Holder will have
a subaccount balance in the liquidation account for each deposit account held as
of June 30, 1997 (the "Supplemental Eligibility Record Date"). Each initial
subaccount balance will be the amount determined by multiplying the total
opening balance in the liquidation account by a fraction, the numerator of which
is the amount of the qualifying deposit (a deposit of at least $50 as of
December 31, 1995, or June 30, 1997, respectively) of such deposit account, and
the denominator of which is the total of all qualifying deposits on that date.
If the amount in the deposit account on any subsequent annual closing date of
Citizens is less than the balance in such deposit account on any other annual
closing date, or the balance in such account on the Eligibility Record Date or
the Supplemental Eligibility Record Date, as the case may be, this interest in
the liquidation account will be reduced by an amount proportionate to any such
reduction, and will not thereafter be increased despite any subsequent increase
in the related deposit account. An Eligible Account Holder's, as well as a
Supplemental Eligible Account Holder's, interest in the liquidation account will
cease to exist if the deposit account is closed. The liquidation account will
never increase and will be correspondingly reduced as the interests in the
liquidation account are reduced or cease to exist. In the event of liquidation,
any assets remaining after the above liquidation rights of Eligible Account
Holders and Supplemental Eligible Account Holders are satisfied will be
distributed to the Holding Company as our sole shareholder.
A merger, consolidation, sale of bulk assets, or similar combination or
transaction in which we are not the surviving entity would not be considered to
be a "liquidation" under which distribution of the liquidation account could be
made, provided the surviving institution is an FDIC-insured institution. In such
a transaction, the liquidation account would be assumed by the surviving
institution. The OTS has stated that the consummation of a transaction of the
type described in the preceding sentence in which the surviving entity is not an
FDIC-insured institution would be reviewed on a case-by-case basis to determine
whether the transaction should constitute a "complete liquidation" requiring
distribution of any then-remaining balance in the liquidation account.
The creation and maintenance of the liquidation account will not
restrict the use of or application of any of the net worth accounts, except that
we may not declare or pay a cash dividend on or repurchase our capital stock if
the effect of such dividend or repurchase would be to cause our net worth to be
reduced below the aggregate amount then required for the liquidation account.
Tax Effects. We intend to proceed with the Conversion on the basis of
an opinion from our special counsel, Barnes & Thornburg, Indianapolis, Indiana,
as to certain tax matters. The opinion is based, among other things, on certain
representations made by us, including the representation that the exercise price
of the subscription rights to purchase the Common Stock will be approximately
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equal to the fair market value of the stock at the time of the completion of the
Conversion. With respect to the subscription rights, we have received an opinion
of Keller which, based on certain assumptions, concludes that the subscription
rights to be received by Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members do not have any economic value at the time of
distribution or the time the subscription rights are exercised, whether or not a
Community Offering takes place, and Barnes & Thornburg's opinion is given in
reliance thereon. Barnes & Thornburg's opinion provides substantially as
follows:
1. Our change in form from a mutual savings bank to a stock savings bank
will qualify as a reorganization under Section 368(a)(1)(F) of the Code
and no gain or loss will be recognized to us in either our mutual form
or our stock form by reason of the Conversion.
2. No gain or loss will be recognized by the converted savings association
upon receipt of money from the Holding Company for the converted
savings association's capital stock, and no gain or loss will be
recognized by the Holding Company upon the receipt of money for Common
Stock of the Holding Company.
3. The basis of the assets of the converted savings bank will be the same
as the basis in our hands prior to the Conversion.
4. The holding period of the assets of the converted savings bank will
include the period during which the assets were held by us in our
mutual form prior to Conversion.
5. No gain or loss will be realized by our deposit account holders, upon
the constructive issuance to them of withdrawable deposit accounts of
the converted savings association immediately after the Conversion,
interests in the liquidation account, and/or on the distribution to
them of nontransferable subscription rights to purchase Common Stock.
6. The basis of an account holder's deposit accounts in the converted
savings bank after the Conversion will be the same as the basis of his
or her deposit accounts with us prior to the Conversion.
7. The basis of each account holder's interest in the liquidation account
will be zero. The basis of the non-transferable subscription rights
will be zero.
8. The basis of the Holding Company Common Stock to its shareholders will
be the actual purchase price ($10.00) thereof, and a shareholder's
holding period for Common Stock acquired through the exercise of
subscription rights will begin on the date on which the subscription
rights are exercised.
9. No taxable income will be realized by Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members as a result of
the exercise of the nontransferable subscription rights.
10. The converted savings association in its stock form will succeed to and
take into account our earnings and profits or deficit in earnings and
profits, in our mutual form, as of the date of Conversion.
The opinion also concludes in effect that:
1. No taxable income will be realized by us on the issuance of
subscription rights to eligible subscribers to purchase shares of
Common Stock at fair market value.
2. The converted savings bank will succeed to and take into account the
dollar amounts of those accounts of Citizens in its mutual form which
represent bad debt reserves in respect of which Citizens in its mutual
form has taken a bad debt deduction for taxable years on or before the
date of the transfer.
3. The creation of the liquidation account will have no effect on our
taxable income, deductions, or additions to bad debt reserves or
distributions to shareholders under Section 593 of the Code.
<PAGE>
Barnes & Thornburg has also issued an opinion stating in essence that
the Conversion will not be a taxable transaction to the Holding Company or to us
under any Indiana tax statute imposing a tax on income, and that our depositors
and borrowers will be treated under such laws in a manner similar to the manner
in which they will be treated under federal income tax law.
The opinions of Barnes & Thornburg and Keller, unlike a letter ruling
issued by the Internal Revenue Service, are not binding on the Service and the
conclusions expressed herein may be challenged at a future date. The Service has
issued favorable rulings for transactions substantially similar to the proposed
Conversion, but any such ruling may not be cited as precedent by any taxpayer
other than the taxpayer to whom the ruling is addressed. We do not plan to apply
for a letter ruling concerning the transactions described herein.
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<PAGE>
Offering of Common Stock
Under the Plan of Conversion, up to 920,000 shares of Common Stock are
being offered for sale, initially through the Subscription Offering (subject to
a possible increase to 1,058,000 shares). See "-- Subscription Offering." The
Plan of Conversion requires, with certain exceptions, that a number of shares
equal to at least 680,000 be sold in order for the Conversion to be effective.
Shares may also be offered to the public in a Community Offering which will
commence after the Subscription Offering terminates, but only if fewer than
680,000 shares are subscribed for in the Subscription Offering. The Community
Offering may expire at any time when orders for at least 680,000 shares have
been received in the Subscription Offering and Community Offering, but no later
than November ___, 1997, unless extended by us and the Holding Company. The
offering may be extended, subject to OTS approval, until 24 months following the
members' approval of the Plan of Conversion, or until September ___, 1999. The
actual number of shares to be sold in the Conversion will depend upon market and
financial conditions at the time of the Conversion, provided that no fewer than
680,000 shares or more than 1,058,000 shares will be sold in the Conversion. The
per share price to be paid by purchasers in the Community Offering, if any, for
any remaining shares will be $10.00, the same price paid by subscribers in the
Subscription Offering. See "-- Stock Pricing."
The Subscription Offering expires at 12:00 noon, Frankfort time, on
September ___, 1997. OTS regulations and the Plan of Conversion require that we
complete the sale of Common Stock within 45 days after the close of the
Subscription Offering. This 45-day period expires on November ___, 1997. In the
event we are unable to complete the sale of Common Stock within this 45-day
period, we may request an extension of this time period from the OTS. No single
extension granted by the OTS, however, may exceed 90 days. No assurance can be
given that an extension would be granted if requested. The OTS has, however,
granted extensions due to the inability of mutual financial institutions to
complete a stock offering as a result of the development of adverse conditions
in the stock market. If an extension is granted, we will promptly notify
subscribers of the granting of the extension of time and will promptly return
subscriptions unless subscribers affirmatively elect to continue their
subscriptions during the period of extension. Such extensions may not be made
beyond September ___, 1999.
As permitted by OTS regulations, the Plan of Conversion provides that
if, for any reason, purchasers cannot be found for an insignificant residue of
unsubscribed shares of the Common Stock, our Board of Directors will seek to
make other arrangements for the sale of the remaining shares. Such other
arrangements will be subject to the approval of the OTS. If such other purchase
arrangements cannot be made, the Plan of Conversion will terminate. In the event
that the Conversion is not effected, we will remain a mutual savings bank, all
subscription funds will be promptly returned to subscribers with interest earned
thereon at our passbook rate, which is currently 3.25% per annum, or 3.30% APY
(except for payments to have been made through withdrawal authorizations which
will have continued to earn interest at the contractual account rates), and all
withdrawal authorizations will be canceled.
<PAGE>
Subscription Offering
In accordance with OTS regulations, nontransferable rights to subscribe
for the purchase of the Holding Company's Common Stock have been granted under
the Plan of Conversion to the following persons in the following order of
priority: (1) our depositors with balances no less than $50.00 as of December
31, 1995 ("Eligible Account Holders"); (2) the ESOP; (3) our depositors with
balances no less than $50.00 as of June 30, 1997 ("Supplemental Eligible Account
Holders"); and (4) our depositors other than Eligible Account Holders and
Supplemental Eligible Account Holders, at the close of business on August ___,
1997, the voting record date for the Special Meeting ("Other Members"). All
subscriptions received will be subject to the availability of Common Stock after
satisfaction of all subscriptions of all persons having prior rights in the
Subscription Offering, and to the maximum and minimum purchase limitations set
forth in the Plan of Conversion (and described below). The December 31, 1995,
date for determination of Eligible Account Holders and the June 30, 1997 date
for determination of Supplemental Eligible Account Holders were selected in
accordance with federal regulations applicable to the Conversion.
Category I: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, nontransferable subscription rights to
subscribe for up to10,000 shares of the Common Stock for each deposit account
held on December 31, 1995; provided, however, that no Eligible Account Holder
may purchase alone or with his or her Associates (as defined in the Plan, and
including relatives living in the same household) and persons acting in concert,
more than 30,000 shares of Common Stock.
If sufficient shares are not available in this Category I, shares will
be allocated in a manner that will allow each Eligible Account Holder, to the
extent possible, to purchase a number of shares sufficient to make his or her
allocation consist of the lesser of 100 shares or the amount subscribed for.
Thereafter, unallocated shares will be allocated to subscribing Eligible Account
Holders in the proportion that the amounts of their respective qualifying
deposits bear to the total amount of qualifying deposits of all subscribing
Eligible Account Holders.
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<PAGE>
The "qualifying deposits" of an Eligible Account Holder is the amount
of the deposit balances (provided such aggregate balance is not less than
$50.00) in his or her deposit accounts as of the close of business on December
31, 1995. Subscription rights received by directors and officers in this
category based upon their increased deposits in Citizens during the year
preceding December 31, 1995, are subordinated to the subscription rights of
other Eligible Account Holders. Notwithstanding the foregoing, shares of Common
Stock with a value in excess of $9,200,000, the maximum of the Estimated
Valuation Range, may be sold to the ESOP before satisfying the subscriptions of
Eligible Account Holders.
Category II: The ESOP. The ESOP will receive, without payment therefor,
non-transferable subscription rights to purchase up to 10% of the total number
of shares of Common Stock offered in the Conversion on behalf of participants,
provided that shares remain available after satisfying the subscription rights
of Eligible Account Holders up to the maximum of the Estimated Valuation Range
as described above. The ESOP currently intends to purchase 8% of the shares sold
in the Conversion. If the ESOP is unable to purchase all or part of the shares
of Common Stock for which it subscribes, the ESOP may purchase such shares on
the open market or may purchase authorized but unissued shares of the Holding
Company. Any purchase by the ESOP of authorized but unissued shares could dilute
the interests of the Holding Company's shareholders.
Category III: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, nontransferable
subscription rights to subscribe for up to 10,000 shares of the Common Stock for
each deposit account held on June 30, 1997; provided, however, that no
Supplemental Eligible Account Holder may purchase alone or with his or her
Associates (as defined in the Plan, and including relatives living in the same
household) and persons acting in concert, more than 30,000 shares of Common
Stock. Such subscription rights will be applicable only to such shares as remain
available after the subscriptions of the Eligible Account Holders and the ESOP
have been satisfied. Any subscription rights received by a person as a result of
his or her status as an Eligible Account Holder will reduce to the extent
thereof the subscription rights granted to such person as a result of his or her
status as a Supplemental Eligible Account Holder.
If sufficient shares are not available in this Category III, shares
will be allocated in a manner that will allow each Supplemental Eligible Account
Holder, to the extent possible, to purchase a number of shares sufficient to
make his or her allocation consist of the lesser of 100 shares or the amount
subscribed for. Thereafter, unallocated shares will be allocated to subscribing
Supplemental Eligible Account Holders in the proportion that the amounts of
their respective qualifying deposits bear to the total amount of qualifying
deposits of all subscribing Supplemental Eligible Account Holders.
The "qualifying deposits" of a Supplemental Eligible Account Holder is
the amount of the deposit balances (provided such aggregate balance is not less
than $50) in his or her deposit accounts as of the close of business on June 30,
1997.
<PAGE>
Category IV: Other Members. The Other Members of Citizens will receive,
without payment therefor, nontransferable subscription rights to subscribe for
up to 10,000 shares of the Common Stock for each deposit account held as of
August ___, 1997; provided, however, that no Other Member may purchase alone or
with his or her Associates (as defined in the Plan, and including relatives
living in the same household) and persons acting in concert, more than 30,000
shares of Common Stock. Such subscription rights will be applicable only to such
shares as remain available after the subscriptions of Eligible Account Holders
and Supplemental Eligible Account Holders have been satisfied.
If sufficient shares are not available in this Category IV, shares will
be allocated pro rata among subscribing Other Members in the same proportion
that the number of shares subscribed for by each Other Member bears to the total
number of shares subscribed for by all Other Members.
Timing of Offering and Method of Payment. The Subscription Offering
will expire at 12:00 noon, Frankfort time, on September ___, 1997 (the
"Expiration Date"). The Expiration Date may be extended by Citizens and the
Holding Company for successive 90-day periods, subject to OTS approval, to
September ___, 1999.
Subscribers must, before the Expiration Date, or such date to which the
Expiration Date may be extended, return Order Forms to us, properly completed,
together with checks or money orders in an amount equal to the Purchase Price
($10.00 per share) multiplied by the number of shares for which subscription is
made. Payment for stock purchases can also be accomplished through authorization
on the order form of withdrawals from accounts with us (including a certificate
of deposit but excluding IRA accounts). We have the right to reject any orders
transmitted by facsimile and any payments made by wire transfer. The
beneficiaries of IRA accounts are deemed to have the same subscription rights as
other depositors. However, the IRA accounts maintained with us do not permit
investment in the Common Stock. A depositor interested in using his or her IRA
funds to purchase Common Stock must do so through a self-directed IRA account.
Since we do not offer such accounts, we will allow such a depositor to make a
trustee-to-trustee transfer of the IRA funds on deposit with us that he wishes
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to invest. There will be no early withdrawal or IRS interest penalties for such
transfers. The new trustee would hold the Common Stock in a self-directed
account in the same manner that we now hold the depositor's IRA funds. An annual
administrative fee would be payable to the new trustee.
Depositors interested in using funds in a Citizens IRA to purchase
Common Stock should contact us at (765) 659-5708 as soon as possible so that the
necessary forms may be forwarded for execution and returned prior to the
Expiration Date of the Subscription Offering.
Until completion or termination of the Conversion, subscribers who
elect to make payment through authorization of withdrawal from accounts with us
will not be permitted to reduce the deposit balance in any such accounts below
the amount required to purchase the shares for which they subscribed. In such
cases interest will continue to be credited on deposits authorized for
withdrawal until the completion of the Conversion. Interest at the passbook
rate, which is currently 3.25% per annum, for an APY of 3.30%, will be paid on
amounts submitted by check. Authorized withdrawals from certificate accounts for
the purchase of Common Stock will be permitted without the imposition of early
withdrawal penalties or loss of interest. However, withdrawals from certificate
accounts that reduce the balance of such accounts below the required minimum for
specific interest rate qualification will cause the cancellation of the
certificate accounts at the effective date of the Conversion, and the remaining
balance will earn interest at the passbook savings rate. Stock subscriptions
received and accepted by us are final. Subscriptions may be withdrawn only in
the event that we extend the Expiration Date of the Subscription Offering as
described above.
Members in Non-Qualified States or Foreign Countries. We will make
reasonable efforts to comply with the securities laws of all states in the
United States in which persons entitled to subscribe for stock pursuant to the
Plan reside. However, no person will be offered or sold or receive any stock
pursuant to the Subscription Offering if such person resides in a foreign
country or resides in a state in the United States with respect to which all of
the following apply: (i) a small number of persons otherwise eligible to
subscribe for shares of Common Stock reside in such state; (ii) the granting of
subscription rights or the offer or sale of Common Stock to such persons would
require us or the Holding Company or our respective officers and directors,
under the securities laws of such state, to register as a broker, dealer,
salesman or selling agent, or to register or otherwise qualify the Common Stock
for sale in such state; and (iii) such registration, qualification or filing in
our judgment or in the judgment of the Holding Company would be impracticable or
unduly burdensome for reasons of cost or otherwise.
To assist in the Subscription Offering and the Community Offering, if
any, the Holding Company has established a Stock Information Center that you may
contact at (765) 659-5708. Callers to the Stock Information Center will be able
to request a Prospectus and other information relating to the offering.
Community Offering
To the extent shares remain available for purchase after filling all
orders received in the Subscription Offering, we may offer shares of the Common
Stock in a Community Offering to the general public, with preference given to
residents of Clinton County. The right of any person to purchase shares in the
Community Offering is subject to our right to accept or reject such purchase in
whole or in part. We may terminate the Community Offering as soon as we have
received orders for at least the minimum number of shares available for purchase
in the Conversion.
The Community Offering may expire at any time when orders for at least
680,000 shares have been received in the Subscription Offering and Community
Offering (but no later than November ___, 1997, unless extended by us and the
Holding Company). Persons wishing to purchase stock in the Community Offering,
if conducted, should return the Order Form to us, properly completed, together
with a check or money order in the amount equal to the Purchase Price ($10.00
per share) multiplied by the number of shares which that person desires to
purchase. Order Forms will be accepted until the completion of the Community
Offering. However, as noted above, we may terminate the Community Offering as
soon as we receive orders for at least the minimum number of shares available
for purchase in the Conversion.
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<PAGE>
The maximum number of shares of Common Stock which may be purchased in the
Community Offering by any person (including such person's Associates) or persons
acting in concert is 10,000 in the aggregate. A member who, together with his
Associates and persons acting in concert, has subscribed for shares in the
Subscription Offering may subscribe for a number of additional shares in the
Community Offering that does not exceed the lesser of (i) 10,000 shares or (ii)
the number of shares which, when added to the number of shares subscribed for by
the member (and his Associates and persons acting in concert) in the
Subscription Offering, would not exceed 30,000. We reserve the right to reject
any orders received in the Community Offering in whole or in part.
If all the Holding Company Common Stock offered in the Subscription
Offering is subscribed for, no Holding Company Common Stock will be available
for purchase in the Community Offering. Purchase orders received during the
Community Offering will be filled up to a maximum of 2% of the total number of
shares of Common Stock issued in the Conversion, with any remaining unfilled
purchase orders to be allocated on an equal number of shares basis. If the
Community Offering extends beyond 45 days following the expiration of the
Subscription Offering, subscribers will have the right to increase, decrease or
rescind subscriptions for stock previously submitted. All sales of Holding
Company Common Stock in the Community Offering will be at the same price per
share as the sales of Holding Company Common Stock in the Subscription Offering.
Cash and checks received in the Community Offering will be placed in a
special savings account with us, and will earn interest at the passbook rate,
which is currently 3.25% per annum, for an APY of 3.30%, from the date of
deposit until completion or termination of the Conversion. In the event that the
Conversion is not consummated for any reason, all funds submitted pursuant to
the Community Offering will be promptly refunded with interest as described
above.
Delivery of Certificates
Certificates representing shares issued in the Subscription Offering
and in the Community Offering, if any, pursuant to Order Forms will be mailed to
the persons entitled to them at the last addresses of such persons appearing on
the books of Citizens or to such other addresses as may be specified in properly
completed Order Forms as soon as practicable following consummation of the
Conversion. Any certificates returned as undeliverable will be held by the
Holding Company until claimed by the person legally entitled to them or
otherwise disposed of in accordance with applicable law.
Agent
To assist us and the Holding Company in marketing the Common Stock, we
have retained the services of Trident Securities as our exclusive agent. Trident
Securities is a broker-dealer registered with the SEC and a member of the
National Association of Securities Dealers, Inc. (the "NASD"). Trident
Securities will assist us in the Conversion as follows: (1) in training and
educating our employees regarding the mechanics and regulatory requirements of
the conversion process; (2) in keeping records of all stock subscriptions; (3)
in obtaining proxies from our members with respect to the Special Meeting; and
(4) in assisting with the Community Offering. For providing these services, we
have agreed to pay Trident Securities commissions in an amount equal to 1.5% of
the aggregate dollar amount of shares of Common Stock sold in the Conversion
other than shares sold to executive officers and directors and their Associates
or to the ESOP. Trident Securities will also be reimbursed for out-of-pocket
expenses, which are not to exceed $10,000 without our consent (excluding certain
reimbursable expenses), and for legal fees, which are not to exceed $30,000
(excluding reimbursable expenses), without our consent. Offers and sales in the
Community Offering will be on a best efforts basis and, as a result, Trident
Securities is not obligated to purchase any shares of the Common Stock. Trident
Securities intends to make a market in the Common Stock, although it is under no
obligation to do so.
We have also agreed to indemnify Trident Securities, under certain
circumstances, against liabilities and expenses (including legal fees) arising
out of Trident Securities' engagement by us, including liabilities under the
1933 Act.
Selected Dealers
Trident Securities may enter into an agreement with certain dealers
chosen by Citizens and Trident Securities (together, the "Selected Dealers") to
assist in the sale of shares in the Community Offering. Selected Dealers will
receive commissions at an agreed upon rate for all shares sold by such Selected
Dealers. During the Community Offering, Selected Dealers may only solicit
indications of interest from their customers to place orders with us as of a
certain date (the "Order Date") for the purchase of shares of Common Stock. When
and if the Holding Company, Citizens and Trident Securities believe that enough
indications of interest and orders have been received in the Subscription
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Offering and the Community Offering, if any, to consummate the Conversion,
Trident Securities will request, as of the Order Date, Selected Dealers to
submit orders to purchase shares for which they have previously received
indications of interest from the customers. Selected Dealers will send
confirmations of the orders to such customers on the next business day after the
Order Date. Selected Dealers will debit the accounts of their customers on the
date which will be three business days from the Order Date (the "Settlement
Date"). On the Settlement Date, funds received by Selected Dealers will be
remitted to us. It is anticipated that the Conversion will be consummated on the
Settlement Date. However, if consummation is delayed after payment has been
received by us from Selected Dealers, funds will earn interest at the passbook
rate, which is currently 3.25% per annum, for an APY of 3.30%, until the
completion of the offering. Funds will be returned promptly in the event the
Conversion is not consummated.
Limitations on Common Stock Purchases
The Plan includes a number of limitations on the number of shares of
Common Stock which may be purchased during the Conversion. These are summarized
below:
(1) No fewer than 25 shares may be purchased by any person purchasing shares
of Common Stock in the Conversion (provided that sufficient shares are
available).
(2) No subscribing member may purchase more than 10,000 shares of Common
Stock with respect to each deposit account held as of December 31, 1995, June
30, 1997 or August ___, 1997, as applicable. For this purpose, joint account
holders collectively may not exceed the 10,000 share limit. Notwithstanding
the foregoing sentences, no Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member, by himself or herself, or with an Associate
or group of persons acting in concert, may purchase more than 30,000 shares
of Common Stock in the Conversion (except for the ESOP which may purchase up
to 10% of the total number of shares of Common Stock offered in the
Conversion). The maximum number of shares of Common Stock which may be
purchased in the Community Offering, if any, by any person (including such
person's Associates) or persons acting in concert is 10,000 in the aggregate.
A member who, together with his Associates and persons acting in concert, has
subscribed for shares in the Subscription Offering may subscribe for a number
of additional shares in the Community Offering that does not exceed the
lesser of (i) 10,000 shares or (ii) the number of shares which, when added to
the number of shares subscribed for by the member (and his Associates and
persons acting in concert) in the Subscription Offering, would not exceed
30,000. Citizens' and the Holding Company's Boards of Directors may, however,
in their sole discretion, increase the maximum purchase limitation set forth
above up to 9.99% of the shares of Common Stock sold in the Conversion,
provided that orders for shares exceeding 5% of the shares of Common Stock
sold in the Conversion may not exceed, in the aggregate, 10% of the shares
sold in the Conversion. If the Boards of Directors decide to increase the
purchase limitation, all persons who subscribe for the maximum number of
shares of Common Stock offered in the Conversion will be, and certain other
large subscribers in the sole discretion of the Holding Company and Citizens
may be, given the opportunity to increase their subscriptions accordingly,
subject to the rights and preferences of any person who has priority
subscription rights. The overall purchase limitation may be reduced in the
sole discretion of the Boards of Directors of the Holding Company and
Citizens.
(3) No more than 35% of the shares of Common Stock may be purchased in the
Conversion by directors and officers of Citizens and the Holding Company and
their Associates.
<PAGE>
OTS regulations define "acting in concert" as (i) knowing participation
in a joint activity or interdependent conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (ii) a combination or
pooling of voting or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise.
The term "Associate" of a person is defined to mean (i) any corporation
or organization (other than Citizens or its subsidiaries or the Holding Company)
of which such person is a director, officer, partner or 10% shareholder; (ii)
any trust or other estate in which such person has a substantial beneficial
interest or serves as trustee or in a similar fiduciary capacity; provided,
however that such term shall not include any employee stock benefit plan of the
Holding Company or Citizens in which such a person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity, and (iii)
any relative or spouse of such person, or relative of such spouse, who either
has the same home as such person or who is a director or officer of Citizens or
its subsidiaries or the Holding Company. Directors are not treated as Associates
of one another solely because of their board membership. Compliance with the
foregoing limitations does not necessarily constitute compliance with other
regulatory restrictions on acquisitions of the Common Stock. For a further
discussion of limitations on purchases of the Common Stock during and subsequent
to Conversion, see "-- Restrictions on Sale of Stock by Directors and Officers,"
"-- Restrictions on Purchase of Stock by Directors and Officers Following
Conversion," and "Restrictions on Acquisition of the Holding Company."
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<PAGE>
Restrictions on Repurchase of Stock by the Holding Company
Repurchases of its shares by the Holding Company will be restricted for
a period of three years from the date of the Conversion. OTS regulations
currently provide that the Holding Company is prohibited from repurchasing any
of its shares within one (1) year following the Conversion except in exceptional
circumstances. So long as we continue to meet certain capitalization
requirements, the Holding Company may repurchase shares in an open-market
repurchase program (which cannot exceed 5% of its outstanding shares in a
twelve-month period except in exceptional circumstances) during the second and
third year following the Conversion by giving appropriate prior notice to the
OTS. The OTS has authority to waive these restrictions under certain
circumstances. Unless repurchases are permitted under the foregoing regulations,
the Holding Company may not, for a period of three years from the date of the
Conversion, repurchase any of its capital stock from any person, except in the
event of an offer to purchase by the Holding Company on a pro rata basis from
all of its shareholders which is approved in advance by the OTS, except in
exceptional circumstances established to the satisfaction of the OTS, or except
for purchases of shares required to fund the RRP.
Further, the Holding Company may not repurchase any of its capital
stock if the effect of such purchase would be to cause our net worth to be
reduced below the amount required for the liquidation account. The Holding
Company may use some of the net proceeds received from the sale of the Common
Stock offered by this Prospectus to repurchase such Common Stock, subject to OTS
requirements.
Under Indiana law, the Holding Company will be precluded from
repurchasing its equity securities if, after giving effect to such repurchase,
the Holding Company would be unable to pay its debts as they become due or the
Holding Company's assets would be less than its liabilities and obligations to
preferential shareholders.
Restrictions on Sale of Stock by Directors and Officers
All shares of the Common Stock purchased by directors and officers of
Citizens or the Holding Company in the Conversion will be subject to the
restriction that such shares may not be sold or otherwise disposed of for value
for a period of one year following the date of purchase, except for any
disposition of such shares (i) following the death of the original purchaser or
(ii) by reason of an exchange of securities in connection with a merger or
acquisition approved by the applicable regulatory authorities. Sales of shares
of the Common Stock by the Holding Company's directors and officers will also be
subject to certain insider trading and other transfer restrictions under the
federal securities laws. See "Regulation -- Federal Securities Laws" and
"Description of Capital Stock."
Each certificate for such restricted shares will bear a legend
prominently stamped on its face giving notice of the restrictions on transfer,
and instructions will be issued to the Holding Company's transfer agent to the
effect that any transfer within such time period of any certificate or record
ownership of such shares other than as provided above is a violation of the
restriction. Any shares of Common Stock issued pursuant to a stock dividend,
stock split or otherwise with respect to restricted shares will be subject to
the same restrictions on sale.
Restrictions on Purchase of Stock by Directors and Officers Following Conversion
OTS regulations provide that for a period of three years following the
Conversion, without prior written approval of the OTS, neither directors nor
officers of Citizens or the Holding Company nor their Associates may purchase
shares of the Common Stock of the Holding Company, except from a dealer
registered with the SEC. This restriction does not, however, apply to negotiated
transactions involving more than one percent of the Holding Company's
outstanding Common Stock, to shares purchased pursuant to stock option or other
incentive stock plans approved by the Holding Company's shareholders, or to
shares purchased by employee benefit plans maintained by the Holding Company
which may be attributable to individual officers or directors.
<PAGE>
Restrictions on Transfer of Subscription Rights and Common Stock
Prior to the completion of the Conversion, OTS regulations and the Plan
of Conversion prohibit any person with subscription rights, including our
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members, from transferring or entering into any agreement or understanding to
transfer the legal or beneficial ownership of the subscription rights issued
under the Plan or the shares of Common Stock to be issued upon their exercise.
Such rights may be exercised only by the person to whom they are granted and
only for his or her account. Each person exercising such subscription rights
will be required to certify that he or she is purchasing shares solely for his
or her own account and that he or she has no agreement or understanding
regarding the sale or transfer of such shares. The regulations also prohibit any
person from offering or making an announcement of an offer or intent to make an
offer to purchase such subscription rights or shares of Common Stock prior to
the completion of the Conversion. We will pursue any and all legal and equitable
remedies in the event we become aware of the transfer of subscription rights and
will not honor orders known by us to involve the transfer of such rights. In
addition, persons who violate the purchase limitations may be subject to
sanctions and penalties imposed by the OTS.
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<PAGE>
Stock Pricing
The aggregate purchase price of the Holding Company Common Stock being
sold in the Conversion will be based on the appraised aggregate pro forma market
value of the Common Stock, as determined by an independent valuation. We
retained Keller & Company, Inc. ("Keller"), which is experienced in the
valuation and appraisal of financial institutions, including savings
associations involved in the conversion process, to prepare an appraisal. Keller
will receive a fee of $15,000 for its appraisal, including out-of-pocket
expenses. Keller has also prepared a business plan for us for a fee of $4,000.
We have agreed to indemnify Keller, under certain circumstances, against
liabilities and expenses (including legal fees) arising out of Keller's
engagement by us.
Keller has prepared an appraisal of the estimated pro forma market
value of the Common Stock. Keller's appraisal concluded that as of May 22, 1997,
the appropriate valuation range (the "Estimated Valuation Range") for the
estimated pro forma market value of the Common Stock was from a minimum of
$6,800,000 to a maximum of $9,200,000, with a midpoint of $8,000,000. A copy of
the appraisal is on file and available for inspection at the offices of the OTS,
1700 G Street, N.W., Washington, D.C. 20552 and the Central Regional Office of
the OTS, 200 West Madison, Suite 1300, Chicago, Illinois 60606. The appraisal
has also been filed as an exhibit to the Holding Company's Registration
Statement with the SEC, and may be reviewed at the SEC's public reference
facilities. See "Additional Information." The appraisal involved a comparative
evaluation of our operating and financial statistics with those of other
financial institutions. The appraisal also took into account such other factors
as the market for savings associations generally, prevailing economic
conditions, both nationally and in Indiana, which affect the operations of
savings associations, the competitive environment within which we operate, and
the effect of our becoming a subsidiary of the Holding Company. No detailed
individual analysis of the separate components of Citizens' and the Holding
Company's assets and liabilities was performed in connection with the
evaluation. The Board of Directors reviewed with management Keller's methods and
assumptions and accepted Keller's appraisal as reasonable and adequate. The
Holding Company, in consultation with Trident Securities, has determined to
offer the Common Stock in the Conversion at a price of $10.00 per share. The
Holding Company's decision regarding the Purchase Price was based solely on its
determination that $10.00 per share is a customary purchase price in conversion
transactions. The Estimated Valuation Range may be increased or decreased to
reflect market and financial conditions prior to the completion of the
Conversion.
Promptly after the completion of the Subscription Offering and the
Community Offering, if any, Keller will confirm to us that, to the best of
Keller's knowledge and judgment, nothing of a material nature has occurred which
would cause Keller to conclude that the amount of the aggregate proceeds
received from the sale of the Common Stock in the Conversion was incompatible
with its estimate of our total pro forma market value at the time of the sale.
If, however, the facts do not justify such a statement, a new Estimated
Valuation Range and price per share may be set. Under such circumstances, the
Holding Company will be required to resolicit subscriptions. In that event,
subscribers would have the right to modify or rescind their subscriptions and to
have their subscription funds returned promptly with interest and holds on funds
authorized for withdrawal from deposit accounts would be released or reduced;
provided that if our pro forma market value upon Conversion has increased to an
amount which does not exceed $10,580,000 (15% above the maximum of the Estimated
Valuation Range), the Holding Company and Citizens do not intend to resolicit
subscriptions unless it is determined after consultation with the OTS that a
resolicitation is required.
Depending upon market and financial conditions, the number of shares
issued may be more or less than the range in number of shares shown above. A
change in the number of shares to be issued in the Conversion will not affect
subscription rights, which are based on the 800,000 shares being offered in the
Subscription Offering. In the event of an increase in the maximum number of
shares being offered, persons who exercise their maximum subscription rights
will be notified of such increase and of their right to purchase additional
shares. Conversely, in the event of a decrease in the maximum number of shares
being offered, persons who exercise their maximum subscription rights will be
notified of such decrease and of the concomitant reduction in the number of
shares for which subscriptions may be made. In the event of a resolicitation,
subscribers will be afforded the opportunity to increase, decrease or maintain
their previously submitted order. The Holding Company will be required to
resolicit if the price per share is changed such that the total aggregate
purchase price is not within the minimum and 15% above the maximum of the
Estimated Valuation Range.
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<PAGE>
THE INDEPENDENT VALUATION IS NOT INTENDED AND MUST NOT BE CONSTRUED AS
A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF VOTING TO APPROVE THE
CONVERSION OR OF PURCHASING THE SHARES OF THE COMMON STOCK. MOREOVER, BECAUSE
SUCH VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER
OF MATTERS (INCLUDING CERTAIN ASSUMPTIONS AS TO THE AMOUNT OF NET PROCEEDS AND
THE EARNINGS THEREON), ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO
ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING SHARES IN THE CONVERSION WILL
THEREAFTER BE ABLE TO SELL THE SHARES AT PRICES RELATED TO THE FOREGOING
VALUATION OF THE PRO FORMA MARKET VALUE.
Number of Shares to be Issued
It is anticipated that the total offering of Common Stock (the number
of shares of Common Stock issued in the Conversion multiplied by the Purchase
Price of $10.00 per share) will be within the current minimum and 15% above the
maximum of the Estimated Valuation Range. Unless otherwise required by the OTS,
no resolicitation of subscribers will be made and subscribers will not be
permitted to modify or cancel their subscriptions so long as the change in the
number of shares to be issued in the Conversion, in combination with the
Purchase Price, results in an offering within the minimum and 15% above the
maximum of the Estimated Valuation Range.
An increase in the total number of shares of Common Stock to be issued
in the Conversion would decrease both a subscriber's ownership interest and the
Holding Company's pro forma net worth and net income on a per share basis while
increasing (assuming no change in the per share price) pro forma net income and
net worth on an aggregate basis. A decrease in the number of shares to be issued
in the Conversion would increase both a subscriber's ownership interest and the
Holding Company's pro forma net worth and net income on a per share basis while
decreasing (assuming no change in the per share price) pro forma net income and
net worth on an aggregate basis. For a presentation of the effects of such
changes, see "Pro Forma Data."
Interpretation and Amendment of the Plan
To the extent permitted by law, all interpretations of the Plan by
Citizens and the Holding Company will be final. The Plan provides that, if
deemed necessary or desirable by the Boards of Directors of the Holding Company
and Citizens, the Plan may be substantively amended by the Boards of Directors,
as a result of comments from regulatory authorities or otherwise, with the
concurrence of the OTS. Moreover, if the Plan of Conversion is so amended,
subscriptions which have been received prior to such amendment will not be
refunded unless otherwise required by the OTS.
Conditions and Termination
Completion of the Conversion requires the approval of the Plan by the
affirmative vote of not less than a majority of the total number of votes of
members eligible to be cast at the Special Meeting and the sale of all shares of
the Common Stock within 24 months following approval of the Plan by the members.
If these conditions are not satisfied, the Plan will be terminated and we will
continue business in the mutual form of organization. The Plan may be terminated
by the Boards of Directors of Citizens and the Holding Company at any time prior
to the Special Meeting and, with the approval of the OTS, by such Boards of
Directors at any time thereafter. Furthermore, OTS regulations and the Plan of
Conversion require that the Holding Company complete the sale of Common Stock
within 45 days after the close of the Subscription Offering. The OTS may grant
an extension of this time period if necessary, but no assurance can be given
that an extension would be granted. See "-- Offering of Common Stock."
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
General
Although the Boards of Directors of Citizens and the Holding Company
are not aware of any effort that might be made to obtain control of the Holding
Company after the Conversion, the Boards of Directors believe that it is
appropriate to include certain provisions in the Holding Company's Articles of
Incorporation (the "Articles") to protect the interests of the Holding Company
and its shareholders from unsolicited changes in the control of the Holding
Company in circumstances that the Board of Directors of the Holding Company
concludes will not be in the best interests of Citizens, the Holding Company or
the Holding Company's shareholders.
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<PAGE>
Although the Holding Company's Board of Directors believes that the
restrictions on acquisition described below are beneficial to shareholders, the
provisions may have the effect of rendering the Holding Company less attractive
to potential acquirors, thereby discouraging future takeover attempts which
would not be approved by the Board of Directors but which certain shareholders
might deem to be in their best interest or pursuant to which shareholders might
receive a substantial premium for their shares over then current market prices.
These provisions will also render the removal of the incumbent Board of
Directors and of management more difficult. The Board of Directors has, however,
concluded that the potential benefits of these restrictive provisions outweigh
the possible disadvantages.
The following general discussion contains a summary of the material
provisions of the Articles, the Holding Company's Code of By-Laws (the
"By-Laws"), and certain other regulatory provisions, that may be deemed to have
an effect of delaying, deferring or preventing a change in the control of the
Holding Company. The following description of certain of these provisions is
general and not necessarily complete, and with respect to provisions contained
in the Articles and By-Laws, reference should be made in each case to the
document in question, each of which is part of our application for approval of
the Conversion or the Holding Company's Registration Statement filed with the
SEC. See "Additional Information."
Provisions of the Holding Company's Articles and By-Laws
Directors. Certain provisions in the Articles and By-Laws will impede
changes in majority control of the Board of Directors of the Holding Company.
The Articles provide that the Board of Directors of the Holding Company will be
divided into three classes, with directors in each class elected for three-year
staggered terms. Therefore, it would take two annual elections to replace a
majority of the Holding Company's Board. Moreover, the Holding Company's
articles provide that directors of the Holding Company must be residents of
Clinton County, Indiana, must have had a loan or deposit relationship with us
which they have maintained for twelve (12) months prior to their nomination to
the Board, and, if nonemployee directors, must have served as a member of a
civic or community organization based in Clinton County, Indiana for at least
twelve (12) months during the five years prior to their nomination to the Board.
Therefore, the ability of a shareholder to attract qualified nominees to oppose
persons nominated by the Board of Directors may be limited.
The Articles also provide that the size of the Board of Directors shall
range between five and fifteen directors, with the exact number of directors to
be fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors of the Holding
Company.
The Articles provide that any vacancy occurring in the Board of
Directors, including a vacancy created by an increase in the number of
directors, shall be filled for the remainder of the unexpired term only by a
majority vote of the directors then in office. Finally, the By-Laws impose
certain notice and information requirements in connection with the nomination by
shareholders of candidates for election to the Board of Directors or the
proposal by shareholders of business to be acted upon at an annual meeting of
shareholders.
The Articles provide that a director or the entire Board of Directors
may be removed only for cause and only by the affirmative vote of at least 80%
of the shares eligible to vote generally in the election of directors. Removal
for "cause" is limited to the grounds for termination in the OTS regulation
relating to employment contracts of federally-insured savings associations.
Restrictions on Call of Special Meetings. The Articles provide that a
special meeting of shareholders may be called only by the Chairman of the Board
of the Holding Company or pursuant to a resolution adopted by a majority of the
total number of directors of the Holding Company. Shareholders are not
authorized to call a special meeting.
No Cumulative Voting. The Articles provide that there shall be no
cumulative voting rights in the election of directors.
Authorization of Preferred Stock. The Articles authorize 2,000,000
shares of preferred stock, without par value. The Holding Company is authorized
to issue preferred stock from time to time in one or more series subject to
applicable provisions of law, and the Board of Directors is authorized to fix
the designations, powers, preferences and relative participating, optional and
other special rights of such shares, including voting rights (if any and which
could be as a separate class) and conversion rights. In the event of a proposed
merger, tender offer or other attempt to gain control of the Holding Company not
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<PAGE>
approved by the Board of Directors, it might be possible for the Board of
Directors to authorize the issuance of a series of preferred stock with rights
and preferences that would impede the completion of such a transaction. An
effect of the possible issuance of preferred stock, therefore, may be to deter a
future takeover attempt. The Board of Directors has no present plans or
understandings for the issuance of any preferred stock and does not intend to
issue any preferred stock except on terms which the Board of Directors deems to
be in the best interests of the Holding Company and its shareholders.
Limitations on 10% Shareholders. The Articles provide that: (i) no
person shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of equity security of the Holding
Company (provided that such limitation shall not apply to the acquisition of
equity securities by any one or more tax-qualified employee stock benefit plans
maintained by the Holding Company, if the plan or plans beneficially own no more
than 25% of any class of such equity security of the Holding Company); and that
(ii) shares beneficially owned in violation of the stock ownership restriction
described above shall not be entitled to vote and shall not be voted by any
person or counted as voting stock in connection with any matter submitted to a
vote of shareholders. For these purposes, a person (including management) who
has obtained the right to vote shares of the Common Stock pursuant to revocable
proxies shall not be deemed to be the "beneficial owner" of those shares if that
person is not otherwise deemed to be a beneficial owner of those shares.
Evaluation of Offers. The Articles of the Holding Company provide that
the Board of Directors of the Holding Company, when determining to take or
refrain from taking corporate action on any matter, including making or
declining to make any recommendation to the Holding Company's shareholders, may,
in connection with the exercise of its judgment in determining what is in the
best interest of the Holding Company, Citizens and the shareholders of the
Holding Company, give due consideration to all relevant factors, including,
without limitation, the social and economic effects of acceptance of such offer
on the Holding Company's customers and Citizens' present and future account
holders, borrowers, employees and suppliers; the effect on the communities in
which the Holding Company and Citizens operate or are located; and the effect on
the ability of the Holding Company to fulfill the objectives of a holding
company and of us or future financial institution subsidiaries to fulfill the
objectives of a stock savings association under applicable statutes and
regulations. The Articles of the Holding Company also authorize the Board of
Directors to take certain actions to encourage a person to negotiate for a
change of control of the Holding Company or to oppose such a transaction deemed
undesirable by the Board of Directors including the adoption of so-called
shareholder rights plans. By having these standards and provisions in the
Articles of the Holding Company, the Board of Directors may be in a stronger
position to oppose such a transaction if the Board concludes that the
transaction would not be in the best interest of the Holding Company, even if
the price offered is significantly greater than the then market price of any
equity security of the Holding Company.
Procedures for Certain Business Combinations. The Articles require that
certain business combinations between the Holding Company (or any majority-owned
subsidiary thereof) and a 10% or greater shareholder either be approved (i) by
at least 80% of the total number of outstanding voting shares of the Holding
Company or (ii) by a majority of certain directors unaffiliated with such 10% or
greater shareholder or involve consideration per share generally equal to the
higher of (A) the highest amount paid by such 10% shareholder or its affiliates
in acquiring any shares of the Common Stock or (B) the "Fair Market Value"
(generally, the highest closing bid paid for the Common Stock during the thirty
days preceding the date of the announcement of the proposed business combination
or on the date the 10% or greater shareholder became such, whichever is higher).
Amendments to Articles and Bylaws. Amendments to the Articles must be
approved by a majority vote of the Holding Company's Board of Directors and also
by a majority of the outstanding shares of the Holding Company's voting shares;
provided, however, that approval by at least 80% of the outstanding voting
shares is required for certain provisions (i.e., provisions relating to number,
classification, and removal of directors; provisions relating to the manner of
amending the By-Laws; call of special shareholder meetings; criteria for
evaluating certain offers; certain business combinations; and amendments to
provisions relating to the foregoing). The provisions concerning limitations on
the acquisition of shares may be amended only by an 80% vote of the Holding
Company's outstanding shares unless at least two-thirds of the Holding Company's
Continuing Directors (directors of the Holding Company on June ___, 1997, or
directors recommended for appointment or election by a majority of such
directors) approve such amendments in advance of their submission to a vote of
shareholders (in which case only a majority vote of shareholders is required).
<PAGE>
The By-Laws may be amended only by a majority vote of the total number
of directors of the Holding Company.
Purpose and Effects of the Anti-Takeover Provisions of the Holding
Company Articles and By-Laws. The Holding Company's Board of Directors believes
that the provisions described above are prudent and will reduce the Holding
Company's vulnerability to takeover attempts and certain other transactions
which have not been negotiated with and approved by its Board of Directors.
These provisions will also assist in the orderly deployment of the Conversion
proceeds into productive assets during the initial period after the Conversion.
The Board of Directors believes these provisions are in the best interest of
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Citizens and the Holding Company and its shareholders. In the judgment of the
Board of Directors, the Holding Company's Board of Directors will be in the best
position to determine the true value of the Holding Company and to negotiate
more effectively for what may be in the best interests of the Holding Company
and its shareholders. The Board of Directors believes that these provisions will
encourage potential acquirors to negotiate directly with the Board of Directors
of the Holding Company and discourage hostile takeover attempts. It is also the
view of the Board of Directors that these provisions should not discourage
persons from proposing a merger or other transaction at prices reflecting the
true value of the Holding Company and which is in the best interests of all
shareholders.
Attempts to take over financial institutions and their holding
companies have recently increased. Takeover attempts that have not been
negotiated with and approved by the Board of Directors present to shareholders
the risk of a takeover on terms that may be less favorable than might otherwise
be available. A transaction that is negotiated and approved by the Board of
Directors, on the other hand, can be carefully planned and undertaken at an
opportune time to obtain maximum value for the Holding Company and its
shareholders, with due consideration given to matters such as the management and
business of the acquiring corporation and maximum strategic development of the
Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it to undertake defensive measures at a
great expense. Although a tender offer or other takeover attempt may be made at
a price substantially above then current market prices, such offers are
sometimes made for less than all of the outstanding shares of a target company.
As a result, shareholders may be presented with the alternative of partially
liquidating their investment at a time that may be disadvantageous, or retaining
their investment in an enterprise which is under different management and whose
objective may not be similar to that of the remaining shareholders. The
concentration of control, which could result from a tender offer or other
takeover attempt, could also deprive the Holding Company's remaining
shareholders of the benefits of certain protective provisions of the 1934 Act,
if the number of beneficial owners becomes less than 300 and the Holding Company
terminates its registration under the 1934 Act.
Despite the belief of the Holding Company's Board of Directors in the
benefits to shareholders of the foregoing provisions, the provisions may also
have the effect of discouraging future takeover attempts which would not be
approved by the Board of Directors, but which certain shareholders might deem to
be in their best interest or pursuant to which shareholders might receive a
substantial premium for their shares over then current market prices. As a
result, shareholders who might desire to participate in such a transaction may
not have an opportunity to do so. These provisions will also render the removal
of the incumbent Board of Directors and of management more difficult. The Board
of Directors has, however, concluded that the potential benefits of these
restrictive provisions outweigh the possible disadvantages.
Other Restrictions on Acquisition of the Holding Company and Citizens
State Law. Several provisions of the Indiana Business Corporation Law,
as amended (the "IBCL"), could affect the acquisition of shares of the Common
Stock or otherwise affect the control of the Holding Company. Chapter 43 of the
IBCL prohibits certain business combinations, including mergers, sales of
assets, recapitalizations, and reverse stock splits, between corporations such
as the Holding Company (assuming that it has over 100 shareholders) and an
interested shareholder, defined as the beneficial owner of 10% or more of the
voting power of the outstanding voting shares, for five years following the date
on which the shareholder obtained 10% ownership unless the acquisition was
approved in advance of that date by the board of directors. If prior approval is
not obtained, several price and procedural requirements must be met before the
business combination can be completed. These requirements are similar to those
contained in the Holding Company Articles and described in " -- Provisions of
the Holding Company's Articles and By-Laws -- Procedures for Certain Business
Combinations." In general, the price requirements contained in the IBCL may be
more stringent than those imposed in the Holding Company Articles. However, the
procedural restraints imposed by the Holding Company Articles are somewhat
broader than those imposed by the IBCL. Also, the provisions of the IBCL may
change at some future date, but the relevant provisions of the Holding Company
Articles may only be amended by an 80% vote of the shareholders of the Holding
Company.
In addition, the IBCL contains provisions designed to assure that
minority shareholders have some say in their future relationship with Indiana
corporations in the event that a person made a tender offer for, or otherwise
acquired, shares giving that person more than 20%, 33 1/3%, and 50% of the
outstanding voting securities of corporations having 100 or more shareholders
(the "Control Share Acquisitions Statute"). Under the Control Share Acquisitions
Statute, if an acquiror purchases those shares at a time that the corporation is
subject to the Control Share Acquisitions Statute, then until each class or
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series of shares entitled to vote separately on the proposal, by a majority of
all votes entitled to be cast by that group (excluding shares held by officers
of the corporation, by employees of the corporation who are directors thereof
and by the acquiror), approves in a special or annual meeting the rights of the
acquiror to vote the shares which take the acquiror over each level of ownership
as stated in the statute, the acquiror cannot vote these shares. An Indiana
corporation otherwise subject to the Control Share Acquisitions Statute may
elect not to be covered by the statute by so providing in its Articles of
Incorporation or By-Laws. The Holding Company, however, will be subject to this
statute following the Conversion because of its desire to discourage
non-negotiated hostile takeovers by third parties.
The IBCL specifically authorizes Indiana corporations to issue options,
warrants or rights for the purchase of shares or other securities of the
corporation or any successor in interest of the corporation. These options,
warrants or rights may, but need not be, issued to shareholders on a pro rata
basis.
The IBCL specifically authorizes directors, in considering the best
interest of a corporation, to consider the effects of any action on
shareholders, employees, suppliers, and customers of the corporation, and
communities in which offices or other facilities of the corporation are located,
and any other factors the directors consider pertinent. As described above, the
Holding Company Articles contain a provision having a similar effect. Under the
IBCL, directors are not required to approve a proposed business combination or
other corporate action if the directors determine in good faith that such
approval is not in the best interest of the corporation. In addition, the IBCL
states that directors are not required to redeem any rights under or render
inapplicable a shareholder rights plan or to take or decline to take any other
action solely because of the effect such action might have on a proposed change
of control of the corporation or the amounts to be paid to shareholders upon
such a change of control. The IBCL explicitly provides that the different or
higher degree of scrutiny imposed in Delaware and certain other jurisdictions
upon director actions taken in response to potential changes in control will not
apply. The Delaware Supreme Court has held that defensive measures in response
to a potential takeover must be "reasonable in relation to the threat posed".
In taking or declining to take any action or in making any
recommendation to a corporation's shareholders with respect to any matter,
directors are authorized under the IBCL to consider both the short-term and
long-term interests of the corporation as well as interests of other
constituencies and other relevant factors. Any determination made with respect
to the foregoing by a majority of the disinterested directors shall conclusively
be presumed to be valid unless it can be demonstrated that such determination
was not made in good faith.
Because of the foregoing provisions of the IBCL, the Board will have
flexibility in responding to unsolicited proposals to acquire the Holding
Company, and accordingly it may be more difficult for an acquiror to gain
control of the Holding Company in a transaction not approved by the Board.
Federal Limitations. For three years following the Conversion, OTS
regulations prohibit any person (including entities), without the prior approval
of the OTS, from offering to acquire or acquiring more than 10% of any class of
equity security, directly or indirectly, of a converted savings association or
its holding company. This restriction does not apply to the acquisition by any
one or more tax-qualified employee stock benefit plans maintained by Citizens or
the Holding Company, provided that the plan or plans do not have beneficial
ownership in the aggregate of more than 25% of any class of equity security of
the Holding Company. For these purposes, a person (including management) who has
obtained the right to vote shares of the Common Stock pursuant to revocable
proxies shall not be deemed to be the "beneficial owner" of those shares if that
person is not otherwise deemed to be a beneficial owner of those shares.
The Change in Bank Control Act provides that no "person," acting
directly or indirectly, or through or in concert with one or more persons, other
than a company, may acquire control of a savings association or a savings and
loan holding company unless at least 60 days prior written notice is given to
the OTS and the OTS has not objected to the proposed acquisition.
The Savings and Loan Holding Company Act also prohibits any "company,"
directly or indirectly or acting in concert with one or more other persons, or
through one or more subsidiaries or transactions, from acquiring control of an
insured savings institution without the prior approval of the OTS. In addition,
any company that acquires such control becomes a "savings and loan holding
company" subject to registration, examination and regulation as a savings and
loan holding company by the OTS.
<PAGE>
The term "control" for purposes of the Change in Bank Control Act and
the Savings and Loan Holding Company Act includes the power, directly or
indirectly, to vote more than 25% of any class of voting stock of the savings
association or to control, in any manner, the election of a majority of the
directors of the savings association. It also includes a determination by the
OTS that such company or person has the power, directly or indirectly, to
exercise a controlling influence over or to direct the management or policies of
the savings association.
- 67 -
<PAGE>
OTS regulations also set forth certain "rebuttable control
determinations" which arise (i) upon an acquisition of more than 10% of any
class of voting stock of a savings association; or (ii) upon an acquisition of
more than 25% of any class of voting or nonvoting stock of a savings
association; provided that, in either case, the acquiror is subject to any of
eight enumerated "control factors," which are: (1) the acquiror would be one of
the two largest holders of any class of voting stock of the association; (2) the
acquiror would hold more than 25% of the total shareholders' equity of the
association; (3) the acquiror would hold more than 35% of the combined debt
securities and shareholders' equity of the savings association; (4) the acquiror
is a party to any agreement pursuant to which the acquiror possesses a material
economic stake in the savings association or which enables the acquiror to
influence a material aspect of the management or policies of the association;
(5) the acquiror would have the ability, other than through the holding of
revocable proxies, to direct the votes of more than 25% of a class of the voting
stock or to vote in the future more than 25% of such voting stock upon the
occurrence of a future event; (6) the acquiror would have the power to direct
the disposition of more than 25% of the association's voting stock in a manner
other than a widely dispersed or public offering; (7) the acquiror and/or his
representative would constitute more than one member of the association's board
of directors; or (8) the acquiror would serve as an executive officer or in a
similar policy-making position with the association. For purposes of determining
percentage share ownership, a person is presumed to be acting in concert with
certain specified persons and entities, including members of the person's
immediate family, whether or not those family members share the same household
with the person.
The regulations also specify the criteria which the OTS uses to
evaluate control applications. The OTS is empowered to disapprove an acquisition
of control if it finds, among other things, that (i) the acquisition would
substantially lessen competition, (ii) the financial condition of the acquiring
person might jeopardize the institution or its depositors, or (iii) the
competency, experience, or integrity of the acquiring person indicates that it
would not be in the interest of the depositors, the institution, or the public
to permit the acquisition of control by such person.
DESCRIPTION OF CAPITAL STOCK
The Holding Company is authorized to issue 5,000,000 shares of Common
Stock, without par value, all of which have identical rights and preferences,
and 2,000,000 shares of preferred stock, without par value. The Holding Company
expects to issue up to 1,058,000 shares of Common Stock and no shares of
preferred stock in the Conversion. The Holding Company has received an opinion
of its counsel that the shares of Common Stock issued in the Conversion will be
validly issued, fully paid, and not liable for further call or assessment. This
opinion was filed with the SEC as an exhibit to the Holding Company's
Registration Statement under the 1933 Act.
Shareholders of the Holding Company will have no preemptive rights to
acquire additional shares of Common Stock which may be subsequently issued. The
Common Stock will represent nonwithdrawable capital, will not be of an insurable
type and will not be federally insured by the FDIC or any government entity.
Under Indiana law, the holders of the Common Stock will possess
exclusive voting power in the Holding Company, unless preferred stock is issued
and voting rights are granted to the holders thereof. Each shareholder will be
entitled to one vote for each share held on all matters voted upon by
shareholders, subject to the limitations discussed under the caption
"Restrictions on Acquisition of the Holding Company."
In the unlikely event of the liquidation or dissolution of the Holding
Company, the holders of the Common Stock will be entitled to receive after
payment or provision for payment of all debts and liabilities of the Holding
Company, all assets of the Holding Company available for distribution, in cash
or in kind. See "The Conversion -- Principal Effects of Conversion -- Effect on
Liquidation Rights." If preferred stock is issued subsequent to the Conversion,
the holders thereof may have a priority over the holders of Common Stock in the
event of liquidation or dissolution.
The Board of Directors of the Holding Company will be authorized to
issue preferred stock in series and to fix and state the voting powers,
designations, preferences and relative, participating, optional or other special
rights of the shares of each such series and the qualifications, limitations and
restrictions thereof. Preferred stock may rank prior to the Common Stock as to
dividend rights, liquidation preferences, or both, and may have full or limited
voting rights. The holders of preferred stock will be entitled to vote as a
separate class or series under certain circumstances, regardless of any other
voting rights which such holders may have.
- 68 -
<PAGE>
Except as discussed elsewhere herein, the Holding Company has no
specific plans for the issuance of the additional authorized shares of Common
Stock or for the issuance of any shares of preferred stock. In the future, the
authorized but unissued and unreserved shares of Common Stock will be available
for general corporate purposes including, but not limited to, possible issuance
as stock dividends or stock splits, in future mergers or acquisitions, under a
cash dividend reinvestment and stock purchase plan, or in future underwritten or
other public or private offerings. The authorized but unissued shares of
preferred stock will similarly be available for issuance in future mergers or
acquisitions, in future underwritten public offerings or private placements or
for other general corporate purposes. Except as described above or as otherwise
required to approve the transaction in which the additional authorized shares of
Common Stock or authorized shares of preferred stock would be issued, no
shareholder approval will be required for the issuance of these shares.
Accordingly, the Holding Company's Board of Directors without shareholder
approval can issue preferred stock with voting and conversion rights which could
adversely affect the voting power of the holders of Common Stock.
The offering and sale of Common Stock in the Conversion will be
registered under the 1933 Act. The subsequent sale or transfer of Common Stock
is governed by the 1934 Act, which requires that sales or exchanges of subject
securities be made pursuant to an effective registration statement or qualified
for an exemption from registration requirements of the 1933 Act. Similarly, the
securities laws of the various states also require generally the registration of
shares offered for sale unless there is an applicable exemption from
registration.
The Holding Company, as a newly organized corporation, has never issued
capital stock, and, accordingly, there is no market for the Common Stock. See
"Market for the Common Stock." See "Restrictions on Acquisition of the Holding
Company -- Provisions of the Holding Company's Articles and By-Laws" for a
description of certain provisions of the Holding Company's Articles and By-Laws
which may affect the ability of the Holding Company's shareholders to
participate in certain transactions relating to acquisitions of control of the
Holding Company. Also, see "Dividends" for a description of certain matters
relating to the possible future payment of dividends on the Common Stock.
TRANSFER AGENT
___________________ will act as transfer agent and registrar for the
Common Stock. _________________'s phone number is (_____) ____________ or (800)
____________.
REGISTRATION REQUIREMENTS
Upon the Conversion, the Holding Company's Common Stock will be
registered pursuant to Section 12(g) of the 1934 Act and may not be deregistered
for a period of at least three years following the Conversion. As a result of
the registration under the 1934 Act, certain holders of Common Stock will be
subject to certain reporting and other requirements imposed by the 1934 Act. For
example, beneficial owners of more than 5% of the outstanding Common Stock will
be required to file reports pursuant to Section 13(d) or Section 13(g) of the
1934 Act, and officers, directors and 10% shareholders of the Holding Company
will generally be subject to reporting requirements of Section 16(a) and to the
liability provisions for profits derived from purchases and sales of Holding
Company Common Stock occurring within a six-month period pursuant to Section
16(b) of the 1934 Act. In addition, certain transactions in Common Stock, such
as proxy solicitations and tender offers, will be subject to the disclosure and
filing requirements imposed by Section 14 of the 1934 Act and the regulations
promulgated thereunder.
LEGAL AND TAX MATTERS
Barnes & Thornburg, 1313 Merchants Bank Building, 11 South Meridian
Street, Indianapolis, Indiana 46204, special counsel to Citizens, will pass upon
the legality and validity of the shares of Common Stock being issued in the
Conversion. Barnes & Thornburg has issued an opinion concerning certain federal
and state income tax aspects of the Conversion and that the Conversion, as
proposed, constitutes a tax-free reorganization under federal and Indiana law.
Barnes & Thornburg have consented to the references herein to their opinions.
Certain legal matters related to this offering will be passed upon for Trident
Securities by Baker & Daniels, 300 North Meridian Street, Indianapolis, Indiana
46204.
- 69 -
<PAGE>
EXPERTS
Our consolidated financial statements at June 30, 1996 and 1995, and
for each of the three years in the period ended June 30, 1996 appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young, LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
Keller has consented to the publication of the summary herein of its
appraisal report as to the estimated pro forma market value of the Common Stock
of the Holding Company to be issued in the Conversion, to the reference to its
opinion relating to the value of the subscription rights, and to the filing of
the appraisal report as an exhibit to the registration statement filed by the
Holding Company under the 1933 Act.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a registration statement
under the 1933 Act with respect to the Common Stock offered hereby. As permitted
by the rules and regulations of the SEC, this Prospectus does not contain all
the information set forth in the registration statement. Such information can be
inspected and copied at the SEC's public reference facilities located at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's Regional Offices in
New York (Seven World Trade Center, 13th Floor, New York, New York 00048) and
Chicago (Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511) and copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. This information can also be found on the SEC's
website, located at www.sec.gov.
Citizens has filed with the OTS an Application for Conversion from a
federal mutual savings bank to a federal stock savings bank, and the Holding
Company has filed with the OTS an Application to become a savings and loan
holding company. This Prospectus omits certain information contained in such
Applications. The Applications may be inspected at the offices of the OTS, 1700
G Street, N.W., Washington, D.C. 20552 and at the Central Regional Office of the
OTS, 200 West Madison, Suite 1300, Chicago, Illinois 60606.
- 70 -
<PAGE>
Citizens Savings Bank of Frankfort
Index to Consolidated Financial Statements
Contents
Report of Independent Auditors........................................ F-2
Consolidated Statements of Condition - March 31, 1997 (unaudited) and
June 30, 1996 and 1995....................................... F-3
Consolidated Statements of Income - Nine months ended March 31, 1997 and
1996 (unaudited) and years ended June 30, 1996,
1995 and 1994 ............................................... F-4
Consolidated Statements of Changes in Retained Income - Nine months ended
March 31, 1997 (unaudited) and the years ended
June 30, 1996, 1995 and 1994 ................................ F-5
Consolidated Statements of Cash Flows - Nine months ended March 31, 1997
(unaudited)
and the years ended June 30, 1996, 1995 and 1994 ........... F-6
Notes to Consolidated Financial Statements ........................... F-7
F-1
<PAGE>
Report of Independent Auditors
Board of Directors
Citizens Savings Bank of Frankfort
We have audited the accompanying consolidated statements of condition of
Citizens Savings Bank of Frankfort and subsidiary as of June 30, 1996 and 1995,
and the related consolidated statements of income and retained income and cash
flows for the three years in the period ended June 30, 1996. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Citizens Savings
Bank of Frankfort and subsidiary at June 30, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1996, in conformity with generally accepted accounting
principles.
As described in Note 8 to the consolidated financial statements, the Bank
changed its method of accounting for income taxes effective July 1, 1993.
August 16, 1996
F-2
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Consolidated Statements of Condition
<TABLE>
<CAPTION>
March 31 June 30
1997 1996 1995
-------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Assets
Cash on hand and in other institutions $322,976 $655,488 $777,048
Interest-bearing deposits 3,927,787 2,652,686 3,532,891
Investment securities available for sale 158,853 3,003,242 2,832,047
Stock in Federal Home Loan Bank
of Indianapolis 331,600 331,600 331,600
Loans receivable, net 37,216,332 34,391,405 29,275,181
Land held for development 1,042,676 1,072,800 1,069,458
Cash surrender value of
life insurance contract 1,065,508 1,034,553 991,009
Property and equipment 588,892 603,464 575,193
Other assets 498,364 490,058 342,735
-------------------------------------------------------
Total assets $45,152,988 $44,235,296 $39,727,162
=======================================================
Liabilities and Retained Income
Deposits $37,254,858 $35,600,140 $33,175,007
Federal Home Loan Bank advances 2,000,000 3,000,000 1,500,000
Other liabilities 333,962 366,157 260,195
-------------------------------------------------------
Total liabilities 39,588,820 38,966,297 34,935,202
Commitments and contingencies --- --- ---
Retained income - substantially restricted 5,564,168 5,319,852 4,840,922
Unrealized loss on investment
securities available for sale, net of tax --- (50,853) (48,962)
-------------------------------------------------------
5,564,168 5,268,999 4,791,960
-------------------------------------------------------
Total liabilities and retained income $45,152,988 $44,235,296 $39,727,162
=======================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Consolidated Statements of Income
<TABLE>
<CAPTION>
Nine months ended March 31 Year ended June 30
1997 1996 1996 1995 1994
--------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest on loans $2,379,618 $2,069,266 $2,803,774 $2,383,591 $2,045,736
Other interest income 240,329 295,711 382,453 358,661 378,080
2,619,947 2,364,977 3,186,227 2,742,252 2,423,816
--------------------------------------------------------------------------
Interest expense:
Interest on deposits 1,227,014 1,148,894 1,538,886 1,341,925 1,273,229
Interest on borrowings 134,852 81,731 114,253 28,812 ---
--------------------------------------------------------------------------
1,361,866 1,230,625 1,653,139 1,370,737 1,273,229
--------------------------------------------------------------------------
Net interest income 1,258,081 1,134,352 1,533,088 1,371,515 1,150,587
Provision for loan losses 32,000 63,000 80,000 32,000 12,000
--------------------------------------------------------------------------
Net interest income after
provision for loan losses 1,226,081 1,071,352 1,453,088 1,339,515 1,138,587
Other income:
Fees and service charges 105,152 114,298 152,379 151,726 120,440
Loss on sale of investments (60,244) --- --- --- ---
Other 59,391 68,734 94,097 69,731 76,850
--------------------------------------------------------------------------
104,299 183,032 246,476 221,457 197,290
Other expense:
Salaries and employee benefits 351,710 304,683 414,730 387,245 330,924
Occupancy expense 83,750 82,311 117,967 109,842 105,049
Data processing expense 80,387 75,002 101,675 104,619 97,932
Federal insurance premium 252,960 56,946 76,868 75,078 71,468
Other 192,195 186,835 256,137 247,470 257,935
--------------------------------------------------------------------------
961,002 705,777 967,377 924,254 863,308
--------------------------------------------------------------------------
Income before income taxes 369,378 548,607 732,187 636,718 472,569
Income taxes 125,062 192,027 253,257 230,549 165,976
--------------------------------------------------------------------------
Income before cumulative
effect of change
in accounting principle 244,316 356,580 478,930 406,169 306,593
Cumulative effect of change in
accounting for income taxes --- --- --- --- 25,972
--------------------------------------------------------------------------
Net income $244,316 $356,580 $478,930 $406,169 $280,621
==========================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Consolidated Statements of Changes in Retained Income
<TABLE>
<CAPTION>
Retained Unrealized loss on
income investment securities
substantially available for sale, Total retained
restricted net of tax income
-------------------------------------------------------------
<S> <C> <C> <C>
Balance as of July 1, 1993 $4,154,132 --- $4,154,132
Net income 280,621 --- 280,621
-------------------------------------------------------------
Balance as of June 30, 1994 4,434,753 --- 4,434,753
Net income 406,169 --- 406,169
Net change in unrealized loss on
investment securities available for
sale, net of tax --- (48,962) (48,962)
-------------------------------------------------------------
Balance as of June 30, 1995 4,840,922 (48,962) 4,791,960
Net income 478,930 --- 478,930
Net change in unrealized loss on
investment securities available for
sale, net of tax --- (1,891) (1,891)
-------------------------------------------------------------
Balance as of June 30, 1996 5,319,852 (50,853) 5,268,999
Net income (Unaudited) 244,316 --- 244,316
Net change in unrealized loss on
investment securities available for
sale, net of tax (Unaudited) --- 50,853 50,853
-------------------------------------------------------------
Balance as of March 31, 1997
(Unaudited) $5,564,168 $ --- $5,564,168
=============================================================
</TABLE>
F-5
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine months ended March 31 Year ended June 30
1997 1996 1996 1995 1994
--------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income $244,316 $356,580 $478,930 $406,169 $280,621
Adjustments to reconcile
net income to net cash provided
by operating activities:
Provision for loan losses 32,000 63,000 80,000 32,000 12,000
Depreciation and amortization 33,901 29,783 48,055 39,148 43,841
Deferred federal income
tax credit (35,509) (56,069) (74,473) (21,753) (15,204)
Increase in other assets (8,306) (104,526) (140,525) (78,522) (77,389)
Increase (decrease) in
other liabilities (16,195) 61,423 126,311 116,650 (22,990)
--------------------------------------------------------------------------
Net cash provided by
operating activities 250,207 350,191 518,298 493,692 220,879
Investing activities
Purchases of investment securities (36,451) (136,285) (169,304) (153,930) (1,107,427)
Proceeds from sale of
investment securities 2,945,410 --- --- --- ---
Principal collected on loans 9,989,574 7,474,558 10,279,567 8,262,649 8,642,816
Loans originated (12,966,000) (10,724,000) (15,419,000) (11,433,731) (11,060,024)
Loans purchased --- --- (64,000) --- (310,500)
Proceeds from sale of loans 91,000 --- --- --- ---
(Increase) decrease in land held
for development 30,124 (51,598) (3,342) (681,907) ---
Purchases of equipment (15,993) (39,830) (69,117) (24,516) (39,025)
--------------------------------------------------------------------------
Net cash provided (used)
by investing activities 37,664 (3,477,155) (5,445,196) (4,031,435) (3,874,160)
Financing activities
Increase (decrease) in NOW,
MMDA and passbook deposits 99,562 595,529 460,126 (1,990,873) 2,598,578
Increase in certificates of deposit 1,555,156 1,343,341 1,965,007 1,128,535 1,303,180
Advances from Federal
Home Loan Bank 11,500,000 3,500,000 4,500,000 6,000,000 ---
Payments to Federal
Home Loan Bank (12,500,000) (3,000,000) (3,000,000) (4,500,000) ---
--------------------------------------------------------------------------
Net cash provided by
financing activities 654,718 2,438,870 3,925,133 637,662 3,901,758
--------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents 942,589 (688,094) (1,001,765) (2,900,081) 248,477
Cash and cash equivalents
at beginning of period 3,308,174 4,309,939 4,309,939 7,210,020 6,961,543
--------------------------------------------------------------------------
Cash and cash equivalents
at end of period $4,250,763 $3,621,845 $3,308,174 $4,309,939 $7,210,020
==========================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements
June 30, 1996
1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Citizens Savings
Bank ("Bank") of Frankfort, Indiana, and its wholly owned subsidiary, Citizens
Loan and Service Corporation ("Service Corp."). The Bank operates as a
traditional savings bank in Clinton County. The Service Corp. develops land for
residential housing. All significant intercompany accounts and transactions have
been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and in other institutions and
interest-bearing deposits. Interest-bearing deposits are available on demand.
Investment Securities
At June 30, 1996 and 1995, investment securities, which consist of equity
interests in pooled investment trusts, are classified as available-for-sale and
carried at fair value with the unrealized loss as a separate component of
equity, net of tax. Gains and losses on the sale of these securities are based
on the specific cost of the individual security being sold.
Management determines the appropriate classification of investment securities at
the time of purchase. Securities classified as held to maturity are those which
management has the positive intent and ability to hold until the scheduled
maturity. Securities classified as held to maturity are stated at amortized
cost. Securities classified as available for sale are those which may be sold
for liquidity purposes, or other reasons, prior to reaching scheduled maturity.
Stock in Federal Home Loan Bank of Indianapolis
Stock in the Federal Home Loan Bank of Indianapolis is stated at cost and the
amount of stock held is determined by regulation.
Loans Receivable
The Bank has a first mortgage lien on all property securing loans classified as
residential and commercial real estate mortgage loans. Further, a portion of
certain mortgage loan balances is insured by private or government guaranty
insurance policies. Interest income is computed monthly based upon the principal
amount of the loans outstanding. The Bank discontinues the accrual of interest
on loans when, in management's opinion, the collection of all or a portion of
interest has become doubtful. When a loan is placed on nonaccrual, the Bank
charges all previously accrued and unpaid interest against income. Loan
origination and commitment fees and certain direct loan origination costs are
deferred and amortized as an adjustment of yield over the contractual life of
the related loans for loans originated after July 1, 1988. For loans originated
prior to that date, such fees were generally recognized as income in the year
the loan or commitment was granted.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio including consideration of past loan loss experience, current economic
conditions, volume, growth and composition of the loan portfolio, and other
relevant factors. The allowance is increased by provisions for loan losses
charged against income and reduced by net charge-offs.
F-7
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (Continued)
In 1995, Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS 114") and Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosures" ("SFAS 118"), an amendment to SFAS 114,
were adopted. Any allowance for loan losses related to troubled loans identified
for evaluation in accordance with SFAS 114 is based on estimated discounted cash
flows using the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans. Consumer loans and
one-to-four family residential loans are collectively evaluated for impairment
as homogeneous loan groups which are outside the scope of SFAS 114. Under SFAS
118, no interest income on loans determined to be impaired is accrued. Interest
income on such loans is recognized only upon cash receipt. SFAS 114 and SFAS 118
have not had a significant impact on results of operations in 1996 or 1995.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the related assets.
Use of Estimates
Preparation of financial statements requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain elements of the 1995 and 1994 consolidated financial statements have
been reclassified to conform with the presentation herein.
F-8
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (continued)
2. Loans Receivable
Loans receivable consist of the following:
<TABLE>
<CAPTION>
March 31 June 30
1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C>
Real estate mortgage loans: (Unaudited)
Residential $29,401,637 $26,239,965 $22,287,040
Commercial 2,409,705 2,290,739 2,315,329
Construction loans 991,000 870,000 355,706
Installment loans 5,330,142 5,358,258 4,849,329
Loans secured by deposits 15,000 62,559 7,368
---------------------------------------------------
38,147,484 34,821,521 29,814,772
Less:
Allowance for loan losses 172,198 138,606 46,416
Deferred loan fees 102,771 94,665 86,156
Undisbursed portion of loan proceeds 656,183 196,845 407,019
---------------------------------------------------
931,152 430,116 539,591
---------------------------------------------------
$37,216,332 $34,391,405 $29,275,181
===================================================
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
March 31 June 30
1997 1996 1995 1994
----------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Balance at beginning of year $138,606 $46,416 $ 49,267 $ 38,263
Provision for losses 32,000 80,000 32,000 12,000
Charge-offs - - (36,721) (5,637)
Recoveries 1,592 12,190 1,870 4,641
----------------------------------------------------------------
Balance at end of year $172,198 $138,606 $ 46,416 $ 49,267
================================================================
</TABLE>
At March 31, 1997 and June 30, 1996 the Bank had loan commitments of
approximately $265,000 (unaudited) and $611,000, respectively.
The Bank's loan portfolio consists primarily of loans originated in its
principal market area of Frankfort, Indiana, Clinton County and its contiguous
counties. The economy of the Bank's market area primarily includes some
diversified industries and agriculture. At June 30, 1996, and for the year then
ended, the Bank had no loans considered to be impaired under SFAS 114. Advances
from the Federal Home Loan Bank of Indianapolis are secured by a floating lien
on the Bank's one-to-four family residential mortgage loans (see Note 7).
F-9
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (continued)
3. Loans to Related Parties
The Bank has granted loans to certain of its directors, officers and their
associates. Related party loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated parties and do not involve more than
normal risk of collectibility. The aggregate dollar amounts of these loans were
$2,250,000 (unaudited) at March 31, 1997 and $1,644,000 and $1,525,000 at June
30, 1996 and 1995, respectively. During the nine months ended March 31, 1997,
related party loans were increased $809,000 (unaudited) by loan advances and
reduced $203,000 (unaudited) by loan repayments. During 1996, related party
loans were increased $535,000 by loan advances and reduced $416,000 by loan
repayments.
4. Land Held for Development
The Bank, through its Service Corp., holds approximately 59 acres of land for
the development of a three phase residential housing addition in Frankfort. In
January 1992, the Bank received regulatory approval of a plan to develop this
land. During the nine months ended March 31, 1997 and during fiscal 1996, 1995
and 1994, approximately $56,000 (unaudited) $240,000, $654,000 and $0 was
expended to create the infrastructure for the development and provide further
improvements to the first and second phase of the project. During the nine
months ended March 31, 1997 and during fiscal 1996 approximately $98,000
(unaudited) and $270,000 was received from the sale of lots in the development
resulting in gains from sale of these lots of $12,000 (unaudited) and $33,000.
The Service Corp. owns an additional 45 acres of land for future development.
5. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
March 31 June 30
--------------------------------------------------
1997 1996 1995
(Unaudited)
<S> <C> <C> <C>
Land$137,307 $137,307 $ 137,307
Office building 647,154 647,154 647,154
Furniture, fixtures and equipment 311,151 295,158 241,561
--------------------------------------------------
1,095,612 1,079,619 1,026,022
Less accumulated depreciation 506,720 476,155 450,829
--------------------------------------------------
$588,892 $603,464 $575,193
==================================================
</TABLE>
F-10
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (continued)
6. Deposits
Deposits consist of the following:
<TABLE>
<CAPTION>
March 31 June 30
1997 1996 1995
--------------------------------------------------------------------------
Average Average Average
Interest Interest Interest
Type Amount Rate Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Savings accounts:
Fixed rate, passbook $ 6,665,523 3.22% $ 6,698,172 3.25% $ 6,893,754 3.24%
Variable rate, money market 3,327,585 3.30 3,252,183 3.30 3,086,973 3.30
--------------------------------------------------------------------------
9,993,108 3.24 9,950,355 3.27 9,980,727 3.25
Negotiable order of withdrawal
(NOW) accounts 4,132,925 2.16 4,076,132 2.06 3,585,634 2.37
Certificate accounts (original term):
3 months or less 1,447,548 5.15 456,505 4.90 1,561,726 5.76
6 months 5,123,009 5.04 2,129,690 4.56 2,183,016 4.58
12 months 1,088,151 4.77 1,105,698 4.88 1,225,702 4.67
13 months 2,046,713 5.34 2,009,878 5.59 1,973,966 5.55
18 months 615,945 4.93 301,032 5.08 237,923 4.13
23 months 5,843,717 5.88 4,629,213 6.10 2,918,100 6.13
30 months 1,162,372 5.26 1,330,297 4.97 1,801,943 4.49
36 months 2,200,941 5.13 2,868,783 4.94 3,458,851 4.88
Other certificates 3,600,430 5.99 6,742,557 5.77 4,247,419 6.44
--------------------------------------------------------------------------
23,128,825 5.44 21,573,653 5.47 19,608,646 5.45
--------------------------------------------------------------------------
$37,254,858 4.52% $35,600,140 4.47% $33,175,007 4.46%
==========================================================================
</TABLE>
F-11
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (continued)
6. Deposits (continued)
The average interest rates represent the weighted average interest rates in
effect at March 31, 1997 and June 30, 1996 and 1995. Accrued interest payable,
which relates primarily to certificate accounts, totaled $53,000 (unaudited) at
March 31, 1997 and $39,000 at June 30, 1996 and 1995 and is included in other
liabilities. Deposit accounts with balances in excess of $100,000 totaled
$6,596,000 with a weighted average interest rate of 4.65% as of June 30, 1996.
Deposits over $100,000 are not federally insured.
Contractual maturities of certificates of deposit were:
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1996
--------------------------------------------- --------------------------------------------
Year ended Certificates All other Certificates All other
June 30, over $100,000 Certificates Total over $100,000 Certificates Total
---------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
1997 $2,810,147 $2,933,169 $5,743,316 $3,801,300 $9,972,930 $13,774,230
1998 2,450,000 7,627,615 10,077,615 200,000 3,957,393 4,157,393
1999 200,000 4,281,908 4,481,908 100,000 1,685,798 1,785,798
2000 --- 1,279,876 1,279,876 100,000 690,018 790,018
2001 200,000 653,610 853,610 100,000 499,295 599,295
Thereafter 109,356 583,145 692,500 104,227 362,692 466,919
---------------------------------------------------------------------------------------------
$5,769,503 $17,359,323 $23,128,825 $4,405,527 $17,168,126 $21,573,653
=============================================================================================
</TABLE>
7. Advances from Federal Home Loan Bank of Indianapolis
Advances from the Federal Home Loan Bank of Indianapolis totaling $3,000,000 at
June 30, 1996 bear fixed and variable interest rates and are due at various
dates through October 1998. The Bank is required to maintain eligible loans in
its portfolio of at least 170% of outstanding advances as collateral for
advances from the Federal Home Loan Bank of Indianapolis. Advances outstanding
are scheduled to mature as follows:
March 31, June 30,
1997 1996
Year ended June 30, Amount Amount
--------------------------------------------------------------------
(unaudited)
1997 $1,000,000 $2,000,000
1998 --- ---
1999 1,000,000 1,000,000
---- --------- ---------
2,000,000 $3,000,000
========= ==========
8. Income Taxes
Effective July 1, 1993, the Bank changed its method of accounting for income
taxes from the deferred method to the liability method required by SFAS 109,
"Accounting for Income Taxes." As permitted, prior year's financial statements
were not restated. The cumulative effect of adopting SFAS 109 (computed as of
July 1, 1993) was to decrease net income for the year ended June 30, 1994 by
$25,972.
F-12
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
Nine months ended Year ended June 30
March 31, 1997 1996 1995 1994
<S> <C> <C> <C> <C>
------------------------------------------------------------------------
Federal: (unaudited)
Current $124,870 $255,830 $196,285 $138,145
Deferred (31,558) (58,491) (17,119) (9,448)
------------------------------------------------------------------------
93,312 197,339 179,166 128,697
State:
Current 35,701 71,900 56,017 43,035
Deferred (3,951) (15,982) (4,634) (5,756)
------------------------------------------------------------------------
31,750 55,918 51,383 37,279
------------------------------------------------------------------------
Income tax expense $125,062 $253,257 $230,549 $165,976
========================================================================
</TABLE>
Federal income taxes vary from the amount computed using the corporate statutory
rate due principally to income on the cash surrender value of a life insurance
policy (see Note 10). Deferred federal income taxes relate primarily to
differing financial reporting and income tax recognition principles regarding
the allowance for loan losses, investment security loss provisions and loan
origination fees and costs. The components of the Bank's net deferred tax asset
included in other assets are as follows:
<TABLE>
<CAPTION>
March 31, June 30
------------------------------------------------------
1997 1996 1995
(unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Deferred loan origination fees $124,560 $118,904 $ 111,442
Unrealized loss on investment --- 35,698 34,458
Officer supplemental retirement plan 92,562 67,681 38,347
Allowance for loan losses 73,184 58,908 19,727
Other 11,429 15,621 7,747
------------------------------------------------------
301,735 296,812 211,721
Deferred tax liabilities:
FHLB stock dividend (27,132) (27,132) (27,132)
Deferred loan origination costs (80,883) (78,680) (74,826)
Percentage bad debt deduction (58,915) (58,915) (58,915)
Other (13,840) (13,116) (7,592)
------------------------------------------------------
(180,770) (177,843) (168,465)
------------------------------------------------------
Net deferred tax asset $120,965 $118,969 $ 43,256
======================================================
</TABLE>
The Bank and its wholly owned subsidiary file a consolidated federal income tax
return. The Bank paid $260,209 (unaudited) in the nine months ended March 31,
1997 and $248,646, $168,539 and $181,180 of federal and state income taxes in
1996, 1995 and 1994, respectively.
F-13
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (continued)
9. Retained Income
Pursuant to the Financial Institutions Reform Recovery and Enforcement Act of
1989 (FIRREA), as implemented by a rule promulgated by the Office of Thrift
Supervision ("OTS"), savings institutions must meet three separate minimum
capital-to-assets requirements: (i) a risk-based capital requirement of 8% of
risk-weighted assets, (ii) a leverage ratio of 3% core capital to total assets
and (iii) a tangible capital requirement of 1.5% tangible core capital to total
assets. The following table summarizes, the Bank's capital requirements under
FIRREA and its actual capital and capital ratios.
<TABLE>
<CAPTION>
Capital Actual
Requirements Capital Amount
% $ % $ of Excess
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March 31, 1997 (unaudited):
Risk-based 8.0% $2,098,000 17.9% $4,701,000 $ 2,603,000
Leverage 3.0 1,328,000 10.2 4,529,000 3,201,000
Tangible 1.5 664,000 10.2 4,529,000 3,865,000
June 30, 1996:
Risk-based 8.0% $2,072,000 16.8% $4,343,000 $ 2,271,000
Leverage 3.0 1,298,000 9.6 4,204,000 2,906,000
Tangible 1.5 649,000 9.6 4,204,000 3,555,000
June 30, 1995:
Risk-based 8.0% $1,816,000 16.6% $3,773,000 $ 1,957,000
Leverage 3.0 1,164,000 9.6 3,726,000 2,562,000
Tangible 1.5 582,000 9.6 3,726,000 3,144,000
</TABLE>
At March 31, 1997 and at June 30, 1996 and 1995, the Bank, through its Service
Corp., had approximately $1,043,000 (unaudited), $1,073,000 and $1,069,000,
respectively, invested in land held for development. Since enactment of FIRREA,
regulatory capital rules require a reduction of regulatory capital for such an
investment. The amount of regulatory capital reduction was 100% as of March 31,
1997 and June 30, 1996 and 1995.
Citizens has qualified under provisions of the Internal Revenue Code which
permit it to deduct from taxable income a provision for bad debts which differs
from the provision for such losses charged against income. Accordingly, retained
income includes income of approximately $1,349,000 for which no provision for
federal income taxes has been made. If, in the future, this portion of retained
income is used for any purpose other than to absorb loan losses, federal income
taxes may be imposed at the then applicable rates.
F-14
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (continued)
10. Employee Benefits
Substantially all full-time employees are covered by a defined benefit pension
plan administered by the Financial Institutions Retirement Fund (FIRF), a
multi-employer, industry sponsored plan. Pension expense consisting primarily of
plan administration costs amounted to approximately $13,000 (unaudited) for the
nine months ended March 31, 1997 and $1,300, $16,400 and $27,300 for the years
ended June 30, 1996, 1995 and 1994, respectively.
In addition to the above plan, the Bank adopted a supplemental non-qualified
pension plan during 1993 that provides certain officers with defined pension
benefits in excess of those provided in the qualified plan. To fund the plan,
the Bank purchased single premium life insurance contracts on the participating
employees. The carrying value of this investment, representing the cash
surrender value of the policies, was $1,065,000 (unaudited) at March 31, 1997
and $1,035,000 and $991,000 at June 30, 1996 and 1995, respectively. During the
nine months ended March 31, 1997 and during the years ended June 30, 1996, 1995
and 1994, $58,500 (unaudited), $69,000, $47,400 and $29,600, respectively, were
charged to expense under this plan.
11. Fair Value of Financial Instruments
Statement No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
Cash and interest bearing deposits: The carrying amounts reported in the
balance sheet for cash and short-term investments approximate those assets'
fair values.
Investment securities available for sale: Fair values for investment
securities are based on quoted market prices, where available. If quoted
market prices are not available, fair values are based on quoted market
prices of comparable instruments.
F-15
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (continued)
11. Fair Value of Financial Instruments (continued)
Stock in Federal Home Loan Bank of Indianapolis: The amount of stock held
in the Federal Home Loan Bank is determined by regulation and is stated at cost
which approximates market.
Loans receivable: For variable-rate loans that reprice frequently, fair values
are based on carrying values. The fair values for all other loans are estimated
using discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality.
Deposit liabilities: The fair values disclosed for demand deposits, including
interest-bearing and noninterest-bearing accounts, passbook savings, and certain
types of money market accounts are, by definition, equal to the amount payable
on demand at the reporting date (i.e., their carrying amounts). Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on time deposits.
Federal Home Loan Bank advances: The carrying amounts approximate their fair
values.
The estimated fair values of the Bank's financial instruments at June 30, 1996
are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
----------------------------------
<S> <C> <C>
Assets:
Cash on hand and in other institutions $655,488 $655,488
Interest bearing deposits 2,652,686 2,652,686
Investment securities available for sale 3,003,242 3,003,242
Stock in Federal Home Loan Bank of Indianapolis 331,600 331,600
Loans receivable 34,391,405 33,131,000
Liabilities:
Deposits 35,600,140 35,701,000
Federal Home Loan Bank advances 3,000,000 3,000,000
</TABLE>
F-16
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (continued)
12. Plan of Conversion (Unaudited)
On April 9, 1997, the Board of Directors adopted a Plan of Conversion ("Plan"),
whereby the Bank will convert from a federally-chartered mutual savings bank to
a federally-chartered capital stock savings bank. The Plan is subject to
approval by the regulatory authorities and members at a special meeting.
Pursuant to the Plan, non-transferable subscription rights to purchase shares of
stock of the savings Bank will be offered first to eligible account holders of
the Bank, then to an ESOP to be formed, then to supplemental eligible account
holders of the Bank, and then to the extent that stock is available, to certain
other members as of a specified dates, and then to members of the general public
wit hpreference given to residents of Clinton County. The capital stock will be
offered at $10.00 per share. The exact number of shares to be offered will be
determined by the Board of Directors based upon an appraisal to be made by an
independent appraisal firm. At least the minimum number of shares offered in the
conversion must be sold.
The plan provides that when the conversion is completed, a "liquidation account"
will be established in an amount equal to the regulatory capital of the Bank as
of the latest practicable date prior to consummation of the conversion. The
liquidation account is established to provide a limited priority claim to the
assets of the Bank to qualifying depositors ("eligible account holders") who
continue to maintain deposits in the Bank after conversion. In the unlikely
event of a complete liquidation of the Bank, and only in such an event, eligible
account holders would receive from the liquidation account, a liquidation
distribution based on their proportionate share of the total remaining
qualifying deposits.
The Bank may pay dividends on its stock after the conversion if its regulatory
capital would not thereby be reduced below the amount then required for the
aforementioned liquidation account and if such dividends are otherwise permitted
under applicable regulations. In general, regulations permit dividends within
guidelines based on current levels of net income and capital.
The OTS also has authority to prohibit an institution from paying dividends if,
in its opinion, the payment of dividends would constitute an unsafe or unsound
practice in light of the financial condition of the institution.
Costs of the conversion will be deducted from the proceeds of sale of common
stock and recorded as a reduction of common stock. If the conversion is not
completed, such costs will be charged to expense. No conversion costs had been
incurred as of March 31, 1997.
F-17
<PAGE>
GLOSSARY
1933 Act Securities Act of 1933, as amended
1934 Act Securities Exchange Act of 1934, as amended
APY Annual Percentage Yield
Associate The term "Associate," when used to indicate a
relationship with any person, means: (i) Any
corporation or organization (other than the
applicant or a majority-owned subsidiary of the
applicant) of which such person is an officer or
partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any
class of equity securities, (ii) Any trust or
other estate in which such person has a
substantial beneficial interest or as to which
such person serves as trustee or in a similar
fiduciary capacity, except that, for the purposes
ofss.563b.3(c)(6), (c)(7), (c)(9), and (d)(4), it
does not include any tax-qualified employee stock
benefit plan or non-tax-qualified employee stock
benefit plan in which a person has a substantial
beneficial interest or serves as a trustee or in a
similar fiduciary capacity, and that, for the
purposes ofss.563b.3(c)(8), it does not include
any tax-qualified employee stock benefit plan, and
(iii) Any relative or spouse of such person, or
any relative of such spouse, who has the same home
as such person or who is a director or officer of
the applicant or any of its parents or
subsidiaries.
ATM Automated Teller Machine
BIF Bank Insurance Fund of the FDIC
Citizens Citizens Savings Bank of Frankfort
CLSC Citizens Loan and Service Corporation, a
wholly-owned subsidiary of Citizens Savings Bank
of Frankfort
Code The Internal Revenue Code of 1986, as amended
Community Offering Offering for sale to members of the
general public of any shares of Common Stock not
subscribed for in the Subscription Offering, with
preference given to residents of Clinton County
Common Stock Up to 1,058,000 shares of Common Stock, with
no par value, offered by Citizens Bancorp in
connection with the Conversion
Conversion Simultaneous conversion of Citizens Savings Bank
of Frankfort to stock form, the issuance of
Citizens' outstanding capital stock to Citizens
Bancorp and Citizens Bancorp's offer and sale of
Common Stock
Eligible Account Holders Savings account holders of Citizens with account
balances of at least $50 as of the close of
business on December 31, 1995
ERISA Employee Retirement Income Security Act of 1974,
as amended
ESOP The Citizens Bancorp Employee Stock Ownership Plan
and Trust
Estimated Valuation Range Estimated pro forma market value of the Common
Stock ranging from $6,800,000 to $9,200,000
Expiration Date 12:00 noon, Frankfort Time, on September ___, 1997
FASB Financial Accounting Standards Board
G - 1
<PAGE>
FDIC Federal Deposit Insurance Corporation
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
FedICIA Federal Deposit Insurance Corporation Improvement
Act of 1991, as amended
Holding Company Citizens Bancorp
IRA Individual retirement account or arrangement
IRS Internal Revenue Service
Keller Keller & Company, Inc.
MMDA Money Market Demand Account
NASD National Association of Securities Dealers, Inc.
Nasdaq System National Association of Securities Dealers
Automated Quotation System
NOW account Negotiable Order of Withdrawal Account
NPV Net portfolio value
OCC Office of the Comptroller of the Currency
Order Form Form for ordering stock accompanied by a
certification concerning certain matters
Other Members Savings account holders (other than Eligible
Account Holders and Supplemental Eligible Account
Holders) who are entitled to vote at the Special
Meeting due to the existence of a savings account
on the Voting Record Date for the Special Meeting
OTS Office of Thrift Supervision
Pension Plan Multiple-employer, noncontributory defined benefit
retirement plan adopted by Citizens for its
full-time employees through Pentegra Group
(formerly known as Financial Institutions
Retirement Fund)
Plan or Plan of Conversion Plan of Citizens Savings Bank of Frankfort to
convert from a federally chartered mutual savings
bank to a federally chartered stock savings bank
and the issuance of all of Citizens' outstanding
capital stock to Citizens Bancorp and the issuance
of Citizens Bancorp's Common Stock to the public
Purchase Price $10.00 per share price of the Common Stock
QTI Qualified thrift investment
QTL Qualified thrift lender
REO Real Estate Owned
RRP Management Recognition and Retention Plan to be
submitted for approval at a meeting of the Holding
Company's shareholders to be held at least six
months after the completion of the Conversion
SAIF Savings Association Insurance Fund of the FDIC
SEC Securities and Exchange Commission
G - 2
<PAGE>
Special Meeting Special Meeting of members of Citizens called for
the purpose of approving the Plan
Stock Option Plan The Citizens Bancorp Stock Option Plan for
directors and officers
Subscription Offering Offering of non-transferable rights to subscribe
for the Common Stock, in order of priority, to
Eligible Account Holders, the ESOP, Supplemental
Eligible Account Holders and Other Members
Supplemental Eligible Depositors of Citizens Savings Bank of Frankfort
Account Holders who are not Eligible Account Holders, with account
balances of at least $50 on June 30, 1997
Trident Securities Trident Securities, Inc.
Voting Record Date The close of business on August ___, 1997, the
date for determining members entitled to vote at
the special Meeting.
G - 3
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representation other than as contained in this Prospectus and, if given or made,
such information or representation must not be relied upon as having been
authorized by the Holding Company or Citizens. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any security
other than the shares of Common Stock offered hereby to any person in any
jurisdiction in which such offer or solicitation is not authorized, or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus nor any sale hereunder shall, under any
circumstances, create any implication that information herein is correct as of
any time subsequent to the date hereof.
Citizens Bancorp
(Proposed Holding Company for
Citizens Savings Bank of Frankfort)
Up to 920,000 Shares
Common Stock
(without par value)
SUBSCRIPTION AND
COMMUNITY OFFERING
PROSPECTUS
TRIDENT SECURITIES, INC.
August ____, 1997
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED
Until __________________, _________, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a prospectus. This is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution(1).
Blue Sky Legal Services and Registration Fees $ 15,000
OTS Filing Fees $ 8,400
NASD Filing Fee $ 1,558
Securities and Exchange Commission Registration Fee $ 3,206
NASDAQ Small Cap Market Listing Fee $ 6,000
Legal Services and Disbursements - Issuer's counsel $100,000
Auditing and Accounting Services $ 75,000
Appraisal fees and expenses $ 15,000
Business plan fees and expenses $ 4,000
Conversion agent fees and expenses $ 6,000
Printing costs $ 55,000
Postage and mailing $ 20,000
Commissions and other offering fees (2) $ 89,400
Expenses of Sales Agents
(Including Counsel Fees and Disbursements) $ 45,000
Advertising $ 2,000
Transfer agent fees $ 2,000
Other expenses $ 2,436
TOTAL (3) $450,000
(1) Costs represented by salaries and wages of regular employees and
officers of the Registrant are excluded.
(2) Assumes that the Common Stock is sold for $8,000,000, the midpoint of
the Estimated Valuation Range, that no shares of stock will be sold
through brokers, that all shares are sold in the Subscription Offering,
and that executive officers and directors of the Registrant and of
Citizens Savings Bank of Frankfort and their Associates and the
Citizens Bancorp Employee Stock Ownership Plan acquire 204,000 shares.
(3) All the above items, except the Registration, OTS and NASD Filing Fees,
are estimated.
Item 14. Indemnification of Directors and Officers.
Section 21 of the Indiana Business Corporation Law, as amended (the "BCL"),
grants to each corporation broad powers to indemnify directors, officers,
employees or agents against expenses incurred in certain proceedings if the
conduct in question was found to be in good faith and was reasonably believed to
be in the corporation's best interests. This statute provides, however, that
this indemnification should not be deemed exclusive of any other indemnification
rights provided by the articles of incorporation, by-laws, resolution or other
authorization adopted by a majority vote of the voting shares then issued and
outstanding. Section 10.05 and Article 13 of the Articles of Incorporation of
the Registrant state as follows:
Section 10.05. Limitation of Liability and Reliance on Corporate Records
and Other Information.
Clause 10.051. General Limitation. No Director, member of any committee
of the Board of Directors, or of another committee appointed by the Board,
Officer, employee or agent of the Corporation ("Corporate Person") shall be
liable for any loss or damage if, in taking or omitting to take any action
causing such loss or damage, either (1) such Corporate Person acted (A) in
good faith, (B) with the care an ordinarily prudent person in a like
position would have exercised under similar circumstances, and (C) in a
manner such Corporate Person reasonably believed was in the best interests
of the Corporation, or (2) such Corporate Person's breach of or failure to
act in accordance with the standards of conduct set forth in Clause
10.051(1) above (the "Standards of Conduct") did not constitute willful
misconduct or recklessness.
Clause 10.052. Reliance on Corporate Records and Other Information. Any
"Corporate Person" shall be fully protected, and shall be deemed to have
complied with the Standards of Conduct, in relying in good faith, with
respect to any information contained therein, upon (1) the Corporate
Records, or (2) information, opinions, reports or statements (including
financial statements and other financial data) prepared or presented by (A)
one or more other Corporate Persons whom such Corporate Person reasonably
believes to be competent in the matters presented, (B) legal counsel,
public accountants or other persons as to matters that such Corporate
Person reasonably believes are within such person's professional or expert
competence, (C) a committee of the Board of Directors or other committee
appointed by the Board of Directors, of which such Corporate Person is not
a member, if such Corporate Person reasonably believes such committee of
the Board of Directors or such appointed committee merits confidence, or
(D) the Board of Directors, if such Corporate Person is not a Director and
reasonably believes that the Board merits confidence.
<PAGE>
ARTICLE 13
Indemnification
Section 13.01. General. The Corporation shall, to the fullest extent to
which it is empowered to do so by the Act, or any other applicable laws, as
from time to time in effect, indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, by reason of the fact that he
is or was a Director, Officer, employee or agent of the Corporation, or
who, while serving as such Director, Officer, employee or agent of the
Corporation, is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, whether for profit or not, against expenses (including
counsel fees), judgments, settlements, penalties and fines (including
excise taxes assessed with respect to employee benefit plans) actually or
reasonably incurred by him in accordance with such action, suit or
proceeding, if he acted in good faith and in a manner he reasonably
believed, in the case of conduct in his official capacity, was in the best
interest of the Corporation, and in all other cases, was not opposed to the
best interests of the Corporation, and, with respect to any criminal action
or proceeding, he either had reasonable cause to believe his conduct was
lawful or no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not meet the prescribed standard of conduct.
Section 13.02. Authorization of Indemnification. To the extent that a
Director, Officer, employee or agent of the Corporation has been
successful, on the merits or otherwise, in the defense of any action, suit
or proceeding referred to in Section 13.01 of this Article, or in the
defense of any claim, issue or matter therein, the Corporation shall
indemnify such person against expenses (including counsel fees) actually
and reasonably incurred by such person in connection therewith. Any other
indemnification under Section 13.01 of this Article (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific
case, upon a determination that indemnification of the Director, Officer,
employee or agent is permissible in the circumstances because he has met
the applicable standard of conduct. Such determination shall be made (1) by
the Board of Directors by a majority vote of a quorum consisting of
Directors who were not at the time parties to such action, suit or
proceeding; or (2) if a quorum cannot be obtained under subdivision (1), by
a majority vote of a committee duly designated by the Board of Directors
(in which designation Directors who are parties may participate),
consisting solely of two or more Directors not at the time parties to such
action, suit or proceeding; or (3) by special legal counsel: (A) selected
by the Board of Directors or its committee in the manner prescribed in
subdivision (1) or (2), or (B) if a quorum of the Board of Directors cannot
be obtained under subdivision (1) and a committee cannot be designated
under subdivision (2), selected by a majority vote of the full Board of
Directors (in which selection Directors who are parties may participate);
or (4) by the Shareholders, but shares owned by or voted under the control
of Directors who are at the time parties to such action, suit or proceeding
may not be voted on the determination.
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as
to reasonableness of expenses shall be made by those entitled under
subsection (3) to select counsel.
Section 13.03. Good Faith Defined. For purposes of any determination
under Section 13.01 of this Article 13, a person shall be deemed to have
acted in good faith and to have otherwise met the applicable standard of
conduct set forth in Section 13.01 if his action is based on information,
opinions, reports, or statements, including financial statements and other
financial data, if prepared or presented by (1) one or more Officers or
employees of the Corporation or another enterprise whom he reasonably
believes to be reliable and competent in the matters presented; (2) legal
counsel, public accountants, appraisers or other persons as to matters he
reasonably believes are within the person's professional or expert
competence; or (3) a committee of the Board of Directors of the Corporation
or another enterprise of which the person is not a member if he reasonably
believes the committee merits confidence. The term "another enterprise" as
used in this Section 13.03 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other
enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent.
The provisions of this Section 13.03 shall not be deemed to be exclusive or
to limit in any way the circumstances in which a person may be deemed to
have met the applicable standards of conduct set forth in Section 13.01 of
this Article 13.
<PAGE>
Section 13.04. Payment of Expenses in Advance. Expenses incurred in
connection with any civil or criminal action, suit or proceeding may be
paid for or reimbursed by the Corporation in advance of the final
disposition of such action, suit or proceeding, as authorized in the
specific case in the same manner described in Section 13.02 of this
Article, upon receipt of a written affirmation of the Director, Officer,
employee or agent's good faith belief that he has met the standard of
conduct described in Section 13.01 of this Article and upon receipt of a
written undertaking by or on behalf of the Director, Officer, employee or
agent to repay such amount if it shall ultimately be determined that he did
not meet the standard of conduct set forth in this Article 13, and a
determination is made that the facts then known to those making the
determination would not preclude indemnification under this Article 13.
Section 13.05. Provisions Not Exclusive. The indemnification provided
by this Article shall not be deemed exclusive of any other rights to which
a person seeking indemnification may be entitled under these Articles of
Incorporation, the Corporation's Code of By-Laws, any resolution of the
Board of Directors or Shareholders, any other authorization, whenever
adopted, after notice, by a majority vote of all Voting Stock then
outstanding, or any contract, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a Director, Officer, employee
or agent, and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 13.06. Vested Right to Indemnification. The right of any
individual to indemnification under this Article shall vest at the time of
occurrence or performance of any event, act or omission giving rise to any
action, suit or proceeding of the nature referred to in Section 13.01 of
this Article 13 and, once vested, shall not later be impaired as a result
of any amendment, repeal, alteration or other modification of any or all of
these provisions. Notwithstanding the foregoing, the indemnification
afforded under this Article shall be applicable to all alleged prior acts
or omissions of any individual seeking indemnification hereunder,
regardless of the fact that such alleged acts or omissions may have
occurred prior to the adoption of this Article. To the extent such prior
acts or omissions cannot be deemed to be covered by this Article 13, the
right of any individual to indemnification shall be governed by the
indemnification provisions in effect at the time of such prior acts or
omissions.
Section 13.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, Officer,
employee or agent of the Corporation, or who is or was serving at the
request of the Corporation as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against any liability
asserted against or incurred by the individual in that capacity or arising
from the individual's status as a Director, Officer, employee or agent,
whether or not the Corporation would have power to indemnify the individual
against the same liability under this Article.
Section 13.08. Additional Definitions. For purposes of this Article,
references to the "Corporation" shall include any domestic or foreign
predecessor entity of the Corporation in a merger or other transaction in
which the predecessor's existence ceased upon consummation of the
transaction.
For purposes of this Article, serving an employee benefit plan at the
request of the Corporation shall include any service as a Director,
Officer, employee or agent of the Corporation which imposes duties on, or
involves services by such Director, Officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries. A
person who acted in good faith and in a manner he reasonably believed to be
in the best interests of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the
best interest of the Corporation" referred to in this Article.
<PAGE>
For purposes of this Article, "party" includes any individual who is or
was a plaintiff, defendant or respondent in any action, suit or proceeding,
or who is threatened to be made a named defendant or respondent in any
action, suit or proceeding.
For purposes of this Article, "official capacity," when used with
respect to a Director, shall mean the office of director of the
Corporation; and when used with respect to an individual other than a
Director, shall mean the office in the Corporation held by the Officer or
the employment or agency relationship undertaken by the employee or agent
on behalf of the Corporation. "Official capacity" does not include service
for any other foreign or domestic corporation or any partnership, joint
venture, trust, employee benefit plan, or other enterprise, whether for
profit or not.
Section 13.09. Payments a Business Expense. Any payments made to any
indemnified party under this Article under any other right to
indemnification shall be deemed to be an ordinary and necessary business
expense of the Corporation, and payment thereof shall not subject any
person responsible for the payment, or the Board of Directors, to any
action for corporate waste or to any similar action.
<PAGE>
Under the Act, an Indiana corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise, against any
liability asserted against him or incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under the provisions of the Act.
The Registrant has purchased insurance designed to protect and indemnify the
Registrant and its officers and directors in case they are required to pay any
amounts arising from certain claims, including claims under the Securities Act
of 1933, which might be made against the officers and directors by reason of any
actual or alleged act, error, omission, misstatement, misleading statement,
neglect, or breach of duty while acting in their respective capacities as
officers or directors of the Registrant.
Item 15. Recent Sales of Unregistered Securities.
Because the Registrant was only recently incorporated to act as a holding
company upon the completion of the offering registered by means of this
Registration Statement, the Registrant has not yet issued any shares of its
capital stock or other securities.
Item 16. Exhibits and Financial Statement Schedules.
(a) The exhibits furnished with this Registration Statement are
listed beginning on page E-l.
(b) No financial statement schedules are required.
Item 17. Undertakings.
(1) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii)To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table on the effective registration
statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement. (b) That, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(2) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of an action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Frankfort, State of
Indiana, on June 11, 1997.
CITIZENS BANCORP
By /s/ Fred W. Carter
------------------------------------
Fred W. Carter
President and Chief Executive Officer
Each person whose signature appears below hereby authorizes Fred W. Carter
and Stephen D. Davis, and each of them, to file one or more amendments
(including post-effective amendments) to the registration statement, which
amendments may make such changes in the registration statement as either of them
deem appropriate, and each such person hereby appoints Fred W. Carter and
Stephen D. Davis, and each of them, as attorney-in-fact to execute in the name
and on the behalf of each person individually, and in each capacity stated
below, any such amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
(1) Principal Executive
Officer and Director:
/s/ Fred W. Carter Director, )
------------------------- President and )
Fred W. Carter Chief Executive )
Officer )
)
)
)
(2) Principal Financial and )
Accounting Officer: )
)
)
/s/ Stephen D. Davis Controller )
------------------------- )
Stephen D. Davis )
)
) June 11, 1997
)
(3) The Board of Directors: )
)
)
Director )
Robert F. Ayres )
)
)
/s/ Perry W. Lewis Director )
------------------------- )
Perry W. Lewis )
)
)
/s/ John J. Miller Director )
------------------------- )
John J. Miller )
)
<PAGE>
)
)
)
/s/ Billy J. Wray Director ) June 11, 1997
------------------------- )
Billy J. Wray )
)
)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
1 Form of Agency Agreement to be entered into among
Registrant, Citizens Savings Bank of Frankfort, and
Trident Securities, Inc.
2 Plan of Conversion
3(1) Registrant's Articles of Incorporation
(2) Registrant's Code of By-Laws
4 Form of Stock Certificate
5 Opinion of Barnes & Thornburg re legality of
securities being registered
8(1) Opinion of Barnes & Thornburg re tax matters
(2) Opinion of Keller & Company, Inc. re economic value of
Subscription Rights
10(1) Letter Agreements entered into between Registrant and
Keller & Company, Inc. relating to appraisal and
business plan
(2) Citizens Bancorp Stock Option Plan
(3) Citizens Savings Bank of Frankfort Recognition and
Retention Plan and Trust
(4) Citizens Bancorp Employee Stock Ownership Plan and
Trust Agreement
(5) Employment Agreement between Citizens Savings Bank of
Frankfort and Fred W. Carter
(6) Director Deferred Compensation Agreement -- Fred W.
Carter
(7) Executive Supplemental Retirement Agreement and First
Amendment thereto -- Fred W. Carter
(8) Executive Supplemental Retirement Agreement and First
Amendment thereto -- Stephen D. Davis
(9) Executive Supplemental Retirement Agreement and First
Amendment thereto -- Cindy S. Chambers
(10) Exempt Loan and Share Purchase Agreement between Trust
under Citizens Bancorp Employee Stock Ownership Plan
and Trust Agreement and Citizens Bancorp
21 Subsidiaries of the Registrant
23(1) Consent of Keller & Company, Inc.
(2) Consent of Ernst & Young, LLP
(3) Consent of Barnes & Thornburg (included in Exhibit 5)
24 Power of Attorney included on page S-6 of the
Registration Statement
99(1) Appraisal Report of Keller & Company, Inc. *
(2) Stock Order Form
- -------------
*To be filed by amendment
CITIZENS BANCORP
680,000 to 920,000 Shares
of
COMMON STOCK
(without par value)
Subscription Price $10.00 Per Share
SALES AGENCY AGREEMENT
_________ ___, 1997
Trident Securities, Inc.
Suite 400
4601 Six Forks Road
Raleigh, North Carolina 27609
Gentlemen:
Citizens Bancorp, a corporation formed under the laws of
Indiana (hereinafter referred to as the "Company"), and Citizens Savings Bank of
Frankfort, a federal savings bank formed under the laws of the United States
(hereinafter referred to as the "Bank"), hereby confirm their respective
agreements with Trident Securities, Inc., a corporation formed under the laws of
North Carolina (hereinafter referred to as "Trident") as follows:
1. The Offering. The Company was incorporated on June ___,
1997, for the purpose of serving as a savings and loan holding company which
will own of record all of the shares of common stock to be issued by the Bank in
the conversion of the Bank from the mutual form to the capital stock form of
organization (hereinafter referred to as the "Conversion") pursuant to a Plan of
Conversion adopted by the Board of Directors of the Bank on April 9, 1997
(hereinafter referred to as the "Plan of Conversion"), and in accordance with
the regulations of the Office of Thrift Supervision (hereinafter referred to as
the "OTS"). As set forth in the Plan of Conversion, the Company intends to
conduct a subscription offering in which a minimum of 680,000 and a maximum of
920,000 shares (subject to a possible increase to 1,058,000 shares) of common
stock of the Company, without par value (hereinafter referred to as the
"Shares"), will be offered to certain eligible subscribers at a purchase price
of $10.00 per Share (hereinafter referred to as the "Subscription Offering") in
accordance with the terms and subject to the conditions of the Plan of
Conversion and the Prospectus (as hereinafter defined). After the Subscription
Offering, the Company intends to offer the Shares to the public in a direct
community offering (hereinafter referred to as the "Community Offering").
-1-
<PAGE>
The Company has been advised by Trident that Trident will
utilize its best efforts to assist the Company and the Bank in the completion of
the Conversion and to assist the Company and the Bank with the sale of the
Shares in the Subscription Offering and in the Community Offering. At the time
of the execution of this Sales Agency Agreement (hereinafter referred to as this
"Agreement"), the Company delivered to Trident the Prospectus for use in the
Subscription Offering and in the Community Offering. The Prospectus contains
information with respect to the Company, the Bank and the Shares.
2. Representations and Warranties. The Company and the Bank,
jointly and severally, represent and warrant to Trident that:
(a) The Company has filed with the Securities and Exchange
Commission (hereinafter referred to as the "Commission") a Registration
Statement on Form S-1 (Registration No. ___________) and an amendment
or amendments thereto, in respect of the registration of the Shares
under the Securities Act of 1933, as amended (hereinafter referred to
as the "Act"). The Registration Statement complies in all material
respects with the Act and the Regulations (as hereinafter defined). The
Registration Statement became effective under the Act on __________
___, 1997, and no stop order has been issued with respect thereto and
no proceedings therefor have been initiated or, to the knowledge of the
Company, threatened by the Commission. Except as the context may
otherwise require, such Registration Statement, as amended, on file
with the Commission at the time the Registration Statement became
effective, including the Prospectus, financial statements, schedules,
exhibits and all other documents filed as part thereof, is herein
referred to as the "Registration Statement" and the Prospectus on file
with the Commission at the time the Registration Statement became
effective is herein referred to as the "Prospectus"; provided, however,
that if the prospectus filed by the Company with the Commission
pursuant to Rule 424(b) of the rules and regulations of the Commission
(herein referred to as the "Regulations") promulgated under the Act
differs from the form of Prospectus on file at the time the
Registration Statement became effective, the term "Prospectus" shall
refer to the Rule 424(b) prospectus from and after the time such
prospectus is filed with the Commission and shall include any
amendments or supplements thereto from and after their dates of
effectiveness or use, respectively.
(b) The Bank has filed with the OTS an Application for
Approval of Conversion on Form AC, including exhibits and amendments
and/or supplements thereto (hereinafter referred to as the "Form AC").
The Form AC complies in all material respects with the rules and
regulations of the OTS. The Form AC has been approved by the OTS and
such approval is in full force and effect. The Proxy Statement, which
is included in the Form AC as Form PS, and the Prospectus, which is
included in the Form AC as Form OC, have been approved for use by the
OTS and such approval is in full force and effect. No order has
-2-
<PAGE>
been issued by the OTS preventing or suspending the use of such Proxy
Statement or the Prospectus. No action by or before the OTS revoking
such approvals or orders of effectiveness is pending or, to the
knowledge of the Bank, threatened.
(c) The Company has filed with the OTS an Application on Form
H-(e)l-S, including exhibits and amendments and/or supplements thereto
(hereinafter referred to as the "Form H-(e)l-S"), for approval of the
acquisition of the common stock to be issued by the Bank in connection
with the Conversion. The Form H-(e)l-S complies in all material
respects with the rules and regulations of the OTS. On the Closing Date
(hereinafter defined), the Form H-(e)l-S and the acquisition by the
Company of all of the common stock of the Bank to be issued by the Bank
in connection with the Conversion will each have received the approval
of the OTS.
(d) Each part of the Registration Statement (as amended or
supplemented, if amended or supplemented), when such part became or
becomes effective, did not or will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectus and any amendment or supplement thereto, on the date of
filing thereof with the Commission and at the Closing Date (as
hereinafter defined), did not or will not contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
Representations or warranties in this subparagraph (d) shall not apply
to statements or omissions which relate to Trident and which were made
in reliance upon and in conformity with written information furnished
to the Company or the Bank by or on behalf of Trident expressly for use
in the Registration Statement and/or the Prospectus.
(e) The Company is a corporation duly organized and validly
existing under the laws of the State of Indiana with full power and
authority to own its properties and conduct its business as set forth
in the Prospectus. The Company has all necessary corporate power and
authority to enter into this Agreement, to perform all of its
obligations hereunder and to consummate the transactions contemplated
hereby. The Company has obtained all licenses, permits and other
governmental authorizations currently required for the conduct of its
business, all of which are in full force and effect, and the Company is
in all material respects complying therewith.
(f) The Bank is a mutual savings bank duly organized, validly
existing and in good standing under the laws of the United States with
full power and authority to own its properties and conduct its business
as set forth in the Prospectus and is a member in good standing of the
Federal Home Loan Bank of Indianapolis. The Bank has all necessary
corporate power and authority to enter
-3-
<PAGE>
into this Agreement, to perform all of its obligations hereunder and to
consummate the transactions contemplated hereby. The deposit accounts
of the Bank are insured up to applicable limits by the Federal Deposit
Insurance Corporation (hereinafter referred to as the "FDIC"). The Bank
has obtained all licenses, permits and other governmental
authorizations currently required for the conduct of its business, all
of which are in full force and effect, and the Bank is in all material
respects complying therewith.
(g) The Plan of Conversion has been adopted by the Boards of
Directors of the Bank and the Company and, before the Closing Date,
will be adopted by the members of the Bank. As of the date of this
Agreement, no person has sought to obtain review of the final action of
the OTS in approving the Plan of Conversion, the Conversion or the Form
H-(e)l-S pursuant to the Home Owners' Loan Act ("HOLA"), as amended, or
any other statute or regulation.
(h) Upon the effectiveness of the amendment of the Bank's
Charter and Bylaws in accordance with the rules and regulations of the
OTS, and the completion of the sale by the Company of the Shares as
contemplated by the Prospectus and the Plan of Conversion, (i) the Bank
will be converted pursuant to the Plan of Conversion to a capital stock
savings bank duly organized, validly existing and in good standing
under the laws of the United States with full power and authority to
own its property and conduct its business as described in the
Prospectus; (ii) all of the outstanding capital stock of the Bank will
be owned of record and beneficially by the Company, free and clear of
all liens, charges, encumbrances or restrictions, and (iii) the Company
will have no directly-owned subsidiaries other than the Bank and will
not own, directly or indirectly, any equity securities in any entity or
business enterprise other than the shares of the Bank and its
wholly-owned subsidiary, Citizens Loan and Service Corporation (the
"Subsidiary"), or as otherwise disclosed in the Prospectus.
(i) Each of the Company and the Bank is duly qualified and in
good standing as a foreign corporation in all jurisdictions in which
the conduct of its business requires such qualification, except where
the failure to so qualify would not have a material adverse effect on
either the Company or the Bank.
(j) The Subsidiary is the sole direct or indirect subsidiary
of the Bank and is wholly owned by the Bank. The Subsidiary has been
duly organized and is validly existing and in good standing under the
laws of the State of Indiana with full power and authority to own its
properties and conduct its businesses as described in the Prospectus,
and the Subsidiary is not required to be qualified to do business as a
foreign corporation in any jurisdiction where non-qualification would
have a material adverse effect on the Bank, the Subsidiary and the
Company taken as a whole. The Subsidiary holds all material licenses,
certificates and permits from governmental authorities necessary for
the conduct
-4-
<PAGE>
of its business as described in the Prospectus, and all such licenses,
certificates and permits are in full force and effect and the
Subsidiary is in all material respects complying therewith. All of the
outstanding stock of the Subsidiary has been duly authorized and is
fully paid and nonassessable, and such stock is owned directly or
indirectly by the Bank free and clear of any liens or encumbrances. The
activities of the Subsidiary are permitted to subsidiaries of a
federally chartered savings bank by virtue of the applicable rules and
regulations of the OTS and Indiana law. The Subsidiary has good and
marketable title to all assets material to its businesses and to those
assets described in the Prospectus, if any, free and clear of all
material liens, charges, encumbrances or restrictions, except as set
forth in the Prospectus.
(k) Each of the Company and the Bank has good, marketable and
insurable title to all assets material to its respective business and
to those assets described in the Prospectus as owned by the Company or
the Bank, free and clear of all material liens, charges, encumbrances
or restrictions, except as set forth in the Prospectus. All of the
leases and subleases material to the business of the Company and the
Bank under which any one of them holds properties, including those set
forth in the Prospectus, are in full force and effect as described
therein.
(l) This Agreement has been duly and validly authorized,
executed and delivered by each of the Company and the Bank and
constitutes the valid and legally binding obligation of each of the
Company and the Bank, enforceable against each of them in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium, receivership, conservatorship or other laws
affecting creditors' rights generally and as may be limited by the
exercise of judicial discretion in applying principles of equity and
except as the obligations of the Company and the Bank under the
indemnification and contribution provisions of Sections 7 and 8 hereof
may be unenforceable or against public policy.
(m) The Conversion will constitute a tax free reorganization
under the Internal Revenue Code of 1986, as amended, and will not be a
taxable transaction under the laws of Indiana to the Bank or to persons
receiving subscription rights in accordance with the Plan of
Conversion. The Bank and Trident have received the opinion of Barnes &
Thornburg, special counsel to the Bank, with respect to the federal and
Indiana state tax consequences of the Conversion, a copy of which is
included as an Exhibit to the Registration Statement. The facts relied
upon by such counsel as set forth in such opinion are accurate and
complete as of the date of such opinion.
(n) Each of the Company and the Bank has all such power,
authority, authorizations, approvals and orders as may be required to
enter into this Agreement and to carry out the terms and conditions
hereof. Without limiting the
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<PAGE>
generality of the foregoing sentence, the Company has the power,
authority, authorizations, approvals and orders to issue and sell the
Shares to be sold by the Company in accordance with this Agreement and
the Bank has the power, authority, authorizations, approvals and orders
to issue and sell the shares of its capital stock to the Company as
provided in the Plan of Conversion, subject to the issuance to the Bank
of an amended Charter in the form required for a federal stock savings
bank (hereinafter referred to as the "Stock Charter"). The form of the
Stock Charter has been approved by the OTS.
(o) Neither the Company nor the Bank is in violation of any
rule or regulation of the Commission, the OTS or the FDIC which might
materially and adversely affect the condition (financial or otherwise),
operations, businesses, assets or properties of the Company or the
Bank. The Bank is not subject to any directive from the OTS or the FDIC
(or their predecessors) to make any change in the method of conducting
its business or affairs and has conducted its business in material
compliance with all applicable statutes and regulations (including,
without limitation, all regulations, decisions, directives and order of
the FHLB of Indianapolis, the OTS and the FDIC, or their predecessors).
Except as set forth in the Prospectus, there is not pending or, to the
knowledge of the Company or the Bank, threatened any litigation,
charge, investigation, action, suit or proceeding before or by any
court, regulatory authority or governmental agency or body which,
individually or in the aggregate, might affect the performance of the
terms and conditions of this Agreement or the consummation of the
transactions contemplated hereby or which, individually or in the
aggregate, might result in any material adverse change in the condition
(financial or otherwise), business, prospects or results of operations
of the Company and the Bank considered as one enterprise.
(p) The financial statements of the Bank which are included in
the Registration Statement and are part of the Prospectus fairly
present the financial condition, results of operations, changes in
retained income and cash flows of the Bank and the Subsidiary at the
respective dates thereof and for the respective periods covered thereby
and comply in all material respects with the applicable accounting
requirements of the Commission and the OTS. Such financial statements
have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except
as specifically noted in such financial statements, and are true,
complete and correct. The tabular information in the Prospectus
accurately presents the information purported to be shown thereby at
the respective dates and for the respective periods covered thereby.
(q) There has been no material adverse change in the condition
(financial or otherwise) of the Company or the Bank or in the assets,
properties, operations, earnings or business prospects of the Company
or the Bank since the
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<PAGE>
latest date as of which such condition is set forth in the Prospectus,
except as referred to therein. The capitalization, assets, properties
and business of each of the Company and the Bank conform in all
material respects to the descriptions thereof contained in the
Prospectus as of the date specified and, since such date, there has
been no material adverse change in either the condition (financial or
otherwise) of the Company or the Bank or in the assets, properties,
operations, earnings or business prospects of the Company or the Bank,
except as referred to therein. Neither the Company nor the Bank has any
material contingent liabilities of any kind, except as set forth in the
Prospectus.
(r) No material default exists, and no event has occurred
which, with notice or lapse of time, or both, would constitute a
default, on the part of either the Company or the Bank or, to their
knowledge, on the part of any other party in the due performance and
observance of any term, covenant or condition of any agreement which is
material to the condition (financial or otherwise) of the Company or
the Bank. Such agreements are in full force and effect, and no other
party to any such agreement has instituted or, to their knowledge,
threatened any action or proceeding wherein the Company or the Bank
would or might be alleged to be in default thereunder.
(s) Neither the Company nor the Bank is in violation of its
respective charter, articles of incorporation, code of bylaws or bylaws
or in default in any material respect in the performance of any
material obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness by which it is
bound. The execution, delivery and fulfillment of the terms of this
Agreement and the consummation of the transactions contemplated hereby
do not and will not violate or conflict with the respective charter,
articles of incorporation, code of bylaws or bylaws of the Company or
the Bank or, in any material respect, violate, conflict with or
constitute a breach of, or default (or an event which, with notice or
lapse of time, or both, would constitute a default) under any
agreement, indenture or other instrument by which the Company or the
Bank is bound, or under any governmental license or permit or any law,
administrative regulation or authorization, approval, order or court
decree, injunction or order to which the Company or the Bank is
subject.
(t) Subsequent to the respective dates as of which information
is given in the Prospectus and prior to the Closing Date, except as
otherwise may be indicated or contemplated therein, neither the Company
nor the Bank will issue any securities or incur any liability or
obligation, direct or contingent, for borrowed money, except borrowings
from the Federal Home Loan Bank of Indianapolis and other borrowings in
the ordinary course of business, or enter into any other transaction
not in the ordinary course of business which is material in light of
the businesses and properties of the Company and the Bank considered as
one enterprise.
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<PAGE>
(u) No equity or debt securities of the Company have ever been
issued or are outstanding. Upon the consummation of the Conversion, the
authorized, issued and outstanding equity capital of the Company shall
be as set forth in the Prospectus under the caption "Capitalization,"
adjusted to give effect to the actual sale of the Shares. The offer,
sale and issuance of the Shares have been duly authorized by all
necessary action of the Company and approved by the OTS. When issued in
accordance with the terms of the Plan of Conversion, the Shares will be
validly issued, fully paid and nonassessable, will conform to the
description thereof set forth in the Prospectus and will be issued in
full compliance with all securities laws applicable to the Company or
the Bank. The issuance of the Shares is not subject to preemptive
rights. Good title to the Shares will be transferred to the purchasers
thereof upon issuance thereof against payment therefor, free and clear
of all claims, encumbrances, security interests and liens created by
the Company or the Bank. The certificates evidencing the Shares will
conform with the requirements of applicable laws and regulations.
(v) No equity securities of the Bank have ever been issued or
are outstanding. The sale and issuance of the capital stock of the Bank
to the Company have been duly authorized by all necessary action of the
Bank and the Company and approved by the OTS. Immediately after the
Closing Date, the authorized capital of the Bank will consist of 1,000
shares of common stock, par value $.01 per share, 1,000 of which will
be issued to and held of record by the Company, and 1,000,000 shares of
preferred stock, par value $1.00 per share, none of which will be
issued or outstanding. When issued to the Company in accordance with
the terms of the Plan of Conversion, such shares of common stock will
be validly issued, fully paid and nonassessable and will be issued in
full compliance with all securities laws applicable to the Bank or the
Company. There are no preemptive rights or rights to subscribe for or
to purchase any securities of the Bank. None of the shares of such
common stock will be issued in violation of any rights of any member of
the Bank. Good title to such common stock will be transferred to the
Company upon issuance thereof against the payment to the Bank of all
but 50% of the net proceeds of the sale of the Shares, after giving
effect to the loan to be made by the Company to its employee stock
ownership plan (the "ESOP Loan"), in cash, free and clear of all
claims, encumbrances, security interests and liens whatsoever. Upon the
consummation of the Conversion, the liquidation account will be duly
established in accordance with the requirements of the OTS and the Plan
of Conversion.
(w) At the Closing Date, the Company and the Bank will have
satisfied all conditions precedent to, and conducted the Conversion in
all material respects in accordance with the Plan of Conversion, the
Regulations and all other applicable laws, regulations, decisions and
orders, including all terms, conditions, requirements and conditions
precedent to the consummation of the transactions
-8-
<PAGE>
contemplated by the Plan of Conversion or the approval of the Form AC
and the Form H-(e)l-S imposed upon them by the OTS.
(x) Appropriate arrangements for placing the funds received
from subscriptions for Shares in special interest-bearing accounts with
the Bank until all Shares are sold and paid for (hereinafter referred
to as the "Escrow Account") were made before the commencement of the
Subscription Offering, with provision (i) for prompt refund to the
subscribers if the minimum number of Shares is not sold within the
period prescribed by the Plan of Conversion and Prospectus or if the
transactions contemplated by the Prospectus and Plan of Conversion are
otherwise not consummated or (ii) for delivery to the Company if the
minimum number of Shares is sold and the transactions contemplated by
the Prospectus and Plan of Conversion are consummated.
(y) No approval of any regulatory or supervisory or other
public authority is required in connection with the execution and
delivery of this Agreement or the issuance and sale of the Shares,
except (i) the approval of the OTS, (ii) the declaration of
effectiveness of any required post-effective amendment to the
Registration Statement by the Commission and approval thereof by the
OTS, (iii) the issuance to the Bank of the Stock Charter by the OTS,
(iv) the approval of the Form H-(e)l-S, (v) the approval by the
National Association of Securities Dealers, Inc. (the "NASD") of the
fairness of the compensation to be paid to Trident pursuant to this
Agreement, (vi) the listing of the Shares on the NASDAQ Small Cap
Market, and (vii) as may be otherwise required under the securities
laws of various jurisdictions.
(z) All contracts and other documents required to be filed as
exhibits to the Registration Statement, the Form AC and the Form
H-(e)l-S have been filed with the Commission and the OTS.
(aa) Ernst & Young LLP, the public accounting firm that has
certified the financial statements and supporting schedules of the Bank
included in the Prospectus, are independent public accountants within
the meaning of the Code of Professional Ethics of the American
Institute of Certified Public Accountants ("AICPA") and 12 C.F.R. ss.
571.2(c)(3).
(bb) Each of the Company and the Bank has (i) timely filed all
required federal, state and foreign tax returns and no deficiency has
been asserted with respect to such returns by any taxing authorities,
(ii) paid all taxes that have become due and (iii) made adequate
reserves for similar future tax liabilities.
(cc) The records of account holders, depositors, borrowers and
other members of the Bank delivered to Trident by the Bank or its agent
for use during the Conversion are reliable and accurate.
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<PAGE>
(dd) The Bank has not engaged in any transaction in connection
with which the Bank or the Company could be subject to either a civil
penalty assessed pursuant to Section 502(i) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or a tax imposed by
Section 4975 of the Internal Revenue Code of 1986, as amended. No
material liability to the Pension Benefit Guaranty Corporation has been
or is expected by the Bank to be incurred by the Company or the Bank
with respect to any pension plan subject to ERISA (a "Pension Plan").
There has been no "reportable event" (within the meaning of Section
4043(b) of ERISA) with respect to any Pension Plan and no event or
condition which presents a material risk of the termination of any
Pension Plan by the Pension Benefit Guaranty Corporation. Full payment
has been made of all amounts which the Bank is required, under the
terms of any Pension Plan, to have paid as contributions to such
Pension Plan as of the date hereof, and no "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, exists with respect to any Pension Plan.
(ee) Keller & Company, Inc. (the "Appraiser"), the corporation
which prepared an appraisal of the estimated pro forma fair market
value of the Company and the Bank, has advised the Company and the Bank
that the Appraiser is independent with respect to each of them within
the meaning of the Conversion Regulations.
(ff) The Company and the Bank (including for all purposes of
this subsection (ff), the Subsidiary) are in compliance with all laws,
rules and regulations relating to environmental protection, and neither
the Company nor the Bank has any reason to believe that the Company or
the Bank is subject to liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or any
similar law, except for violations which, if asserted, would not have a
material adverse effect on the Company and the Bank. There are no
actions, suits, regulatory investigations or other proceedings pending
or, to the best knowledge of the Company or the Bank, threatened
against the Company or the Bank relating to environmental protection.
No disposal, release or discharge of hazardous or toxic substances,
pollutants or contaminants, including petroleum and gas products, as
any of such terms may be defined under federal, state or local law, has
been caused by the Company or the Bank or, to their best knowledge, has
occurred on, in, at or about any of the facilities or properties of the
Company or the Bank, except such disposal, release or discharge which,
if discovered, would not have a material adverse effect on the Company
and the Bank.
(gg) All of the loans represented as assets of the Bank on the
most recent financial statements of the Bank included in the Prospectus
meet or are
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<PAGE>
exempt from all requirements of federal, state or local law pertaining
to lending, including without limitation truth in lending (including
the requirements of 12 C.F.R. Part 226 ("Regulation Z")), real estate
settlement procedures, consumer credit protection, equal credit
opportunity and all disclosure laws applicable to such loans, except
for violations which, if asserted, would not have a material adverse
effect on the Company and the Bank taken as a whole.
(hh) Neither the Company nor the Bank nor any employee of the
Company or the Bank, has made any payment of funds of the Company or
the Bank prohibited by law, and no funds of the Company or the Bank
have been set aside to be used for any payment prohibited by law.
(ii) No labor dispute with the employees of the Company or the
Bank exists or, to the actual knowledge of the Company or the Bank, is
imminent; and the Company is not aware of any existing or imminent
labor disturbance by the employees of any of its principal suppliers or
contractors which might be expected to result in any material adverse
change in the financial condition, results of operations or business of
the Company and the Bank taken as a whole.
(jj) The Company and the Bank are in compliance in all
material respects with the applicable financial recordkeeping and
reporting requirements of the Currency and Foreign Transaction
Reporting Act of 1970, as amended, and the rules and regulations
thereunder.
(kk) The Company has received approval, subject to regulatory
approval to consummate the Conversion and issue the Shares and subject
to certain other standard conditions, to have the Shares quoted through
the NASDAQ Small Cap Market effective on the Closing Date.
3. Retention of Trident. On the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company and the Bank hereby agree with Trident as follows:
(a) Assistance with Conversion. The Bank and the Company
hereby retain Trident to assist the Bank and the Company in the
Conversion by (i) training and educating the Bank's employees in
respect of the mechanics and regulatory requirements of the conversion
process; (ii) keeping records of all subscriptions for the Shares; and
(iii) obtaining proxies from the Bank's members for use at the Special
Meeting of Members at which the Conversion is to be considered.
(b) Assistance with Community Offering. The Bank and the
Company hereby retain Trident to act as the exclusive agent of the Bank
and the Company in assisting in the sale of the Shares in the Community
Offering; provided,
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<PAGE>
however, that the Bank and the Company acknowledge and agree that
Trident may offer to other NASD-registered broker dealers selected by
the Bank and Trident ("Selected Dealers") the opportunity to solicit
subscriptions for the Shares to be sold in the Community Offering on a
best efforts basis pursuant to the terms and conditions of Selected
Dealer Agreements between Trident and such Selected Dealers. Trident
and the Bank will determine the Selected Dealers to assist the Bank
during the Community Offering. Preference in the Community Offering
shall be given to residents of Clinton County, Indiana.
(c) Other Matters. Subscriptions shall be offered in the
Subscription Offering only during the subscription period by means of
Order Forms as described in the Prospectus and may be offered in the
Community Offering by means of Order Forms or by solicitations of
indications of interest from customers of Trident or Selected Dealers
residing in those states in which the Shares may be qualified for offer
and sale. The Bank and the Company shall notify Trident promptly after
the expiration of the Subscription Offering of the number of Shares
sold in the Subscription Offering and the aggregate number of Shares
remaining available to be sold in the Community Offering. The Bank and
the Company shall provide Trident with any information (which shall be
accurate and reliable) necessary to assist Trident in allocating the
Shares in the event of an oversubscription. The Bank and the Company,
jointly and severally, shall indemnify and hold harmless each of
Trident and the Selected Dealers against any losses, claims, damages or
liabilities resulting from reliance under any records of depositors,
borrowers and other members of the Bank delivered to Trident by the
Bank or its agents for use during the Conversion.
Trident agrees that any Selected Dealer Agreements
between Trident and Selected Dealers will provide that Selected Dealers
will solicit indications of interest from their customers to place
orders for the purchase of Shares as of a certain date (the "Order
Date") and, upon request by Trident, (i) submit orders to purchase
Shares, for which they have previously received indications of interest
from their customers, (ii) mail confirmations of receipt of orders to
each subscriber confirming interest on the business day following the
Order Date, (iii) debit accounts of such subscribers on the third
business day from the Order Date ("Settlement Date"), and (iv) forward
completed Order Forms together with such funds to the Bank on the
Settlement Date for deposit in a segregated account.
(d) Fees and Expenses.
(i) As compensation for Trident's services hereunder, the
Company and the Bank, jointly and severally, agree to pay Trident
compensation and reimbursement as follows: (I) a commission equal
to one and one-half percent (1.5%) of the aggregate dollar
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amount of shares sold in the Subscription Offering and the
Community Offering, excluding any Shares sold to the Bank's
directors (including advisory directors), executive officers
(including in each case shares sold to "associates" as that term
is defined in the Plan of Conversion) or to the employee stock
ownership plan; and (II) for shares sold under agreements with
Selected Dealers a commission not to exceed a fee to be agreed
upon by Trident and the Bank to reflect market requirements at
the time of the stock allocation in the Community Offering.
(ii) In addition to the fees described in subparagraph (i)
of this Section 3(d), the Company and the Bank jointly and
severally agree to reimburse Trident for all reasonable
out-of-pocket expenses (including fees and disbursements of
counsel) incurred by Trident in connection with the Conversion,
which expenses shall not exceed $10,000 (of which $10,000 has
previously been paid to Trident as an advance) without the Bank's
consent; provided, however, that such $10,000 shall be exclusive
of fees and disbursements of counsel (which shall not exceed
$30,000, excluding reimbursable expenses of counsel) and any
expenses payable by the Bank and the Company pursuant to
subparagraph (iii) of this Section 3(d) to the extent incurred in
the first instance by Trident. The expenses to be reimbursed
hereunder, including fees and disbursements of Trident's counsel,
shall be payable by the Bank and the Company as they are incurred
by Trident and billed to the Bank, and shall be payable whether
or not the Closing occurs or this Agreement is terminated for any
reason.
(iii) Whether or not the Closing occurs or this Agreement is
terminated for any reason, (I) the Company and the Bank will pay
all expenses incident to the performance of their obligations in
connection with the Conversion, including, without limitation,
all fees and disbursements of their counsel, all expenses
incurred in the preparation, printing, filing and distribution of
all documents relating to the Conversion, telephone charges, air
freight, rental equipment, supplies, marketing materials, all
fees and expenses of the Company's transfer agent, all transfer
taxes payable with respect to the sale of the Shares, and all
fees relating to auditing and accounting and costs of printing
all documents necessary in connection with the foregoing, (II)
the Company and the Bank will reimburse Trident for all expenses
required to be reimbursed pursuant to subparagraph (d)(ii) of
this Section 3 and (III) the Company and the Bank will reimburse
Trident for any out-of-pocket accountable expenses (including
fees and disbursements of counsel) incurred by them in connection
with the matters referred to in Section 5(d) of this Agreement
and the preparation of memoranda relating thereto and for any
filing fees of the NASD relating to the Shares. The expenses to
be reimbursed to Trident pursuant to subparagraph (d)(iii)(I) and
(III) of this Section 3 shall be in addition to, and not subject
to the limitations on, the expenses to be reimbursed to Trident
pursuant to (ii) above.
<PAGE>
(e) Termination. The employment of Trident hereunder shall
terminate upon the first to occur of the following: (i) the forty-fifth
day after the expiration of the Subscription Offering, unless the Bank
and the Company, with the approval of the OTS, are permitted to extend
such date; (ii) the Closing; or (iii) the termination of this Agreement
pursuant to Section 10 hereof.
4. Closing.
(a) Upon the terms and subject to the conditions of this
Agreement, the closing of the purchase and sale of the Shares (herein
referred to as the "Closing") shall take place at the offices of Barnes
& Thornburg, 11 South Meridian Street, Indianapolis, Indiana, at 10:00
a.m., Indianapolis time, on a business day which is agreed upon by the
parties hereto, but which is not later than the third business day
after the date upon which the Bank certifies to the OTS that at least
the minimum number of Shares permitted to be sold in the Conversion has
been sold against payment therefor (herein referred to as the "Closing
Date").
(b) In accordance with the regulations of the OTS and the
Regulations, before the commencement of the Subscription Offering,
appropriate arrangements will be made for placing the funds received in
payment for the shares of Common Stock in the Escrow Account until such
shares are sold and paid for at the Closing. If the Closing does not
occur within the time specified in Section 3(e)(i) of this Agreement,
the Bank will promptly refund all funds in the Escrow Account to the
persons who have the beneficial interests therein.
(c) At the Closing, the Shares will be issued by the Company
against payment of the purchase price therefor by wire transfer in
immediately available funds from the Escrow Account. Certificates
representing the Shares shall be prepared in definitive form and in
such denominations and registered in such names as set forth in the
Order Forms or, in the case of Shares not subscribed for pursuant to
Order Forms, in such names as Trident (or Selected Dealers, if
applicable) may request, upon at least two business days' prior notice
to the Bank, and shall be, (i) in the case of Shares subscribed for
pursuant to Order Forms, delivered by the Company directly to the
purchasers thereof as promptly as
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<PAGE>
practicable following the Closing, and (ii) in the case of Shares not
subscribed for pursuant to Order Forms, made available for checking and
packaging at least one business day before the Closing at a location to
be designated by Trident.
5. Further Agreements. The Company and the Bank, jointly and
severally, covenant and agree that:
(a) The Company will deliver to Trident, from time to time,
such number of copies of the Prospectus as Trident may reasonably
require. The Company hereby authorizes and directs Trident to use the
Prospectus in connection with the offer and sale of the Shares.
(b) The Company will notify Trident immediately upon obtaining
knowledge thereof, and confirm the notice in writing: (i) when any
post-effective amendment to the Registration Statement becomes
effective or when any supplement to the Prospectus has been filed with
the Commission; (ii) of the issuance by the Commission of any stop
order relating to the Registration Statement or of the initiation or
the threat of any proceedings for such purpose; (iii) of the receipt of
any notice with respect to the suspension of the qualification of the
Shares for offering or sale in any jurisdiction; and (iv) of the
receipt of any comments from the staff of the Commission relating to
the Registration Statement or from the staff of the OTS relating to the
Form AC or the Form H-(e)l-S. In the event the Commission enters a stop
order relating to the Registration Statement at any time, the Company
will make every reasonable effort to obtain the lifting of such order
at the earliest possible moment.
(c) During the time when a prospectus is required to be
delivered under the Act, the Company will comply with all requirements
of the Act and the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), each as now in effect and as hereafter amended, and
with the Regulations, as from time to time in force, so far as
necessary to permit the continuance of offers and sales of or dealings
in the Shares in accordance with the provisions hereof and the
Prospectus. If, during the period when the Prospectus is used in
connection with the offer and sale of the Shares, any event relating to
or affecting the Company or the Bank shall occur as a result of which
it is necessary, in the opinion of counsel for the Company or counsel
for Trident, to amend or supplement the Prospectus in order to make the
Prospectus not false or misleading in light of the circumstances
existing at the time the Prospectus is delivered to a purchaser of the
Shares, the Company shall forthwith prepare and furnish to Trident a
reasonable number of copies of an amendment or amendments or of a
supplement or supplements to the Prospectus (in form and substance
reasonably satisfactory to counsel for Trident) which shall amend or
supplement the Prospectus so that, as amended or supplemented, the
Prospectus will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
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<PAGE>
therein, in light of the circumstances existing at the time the
Prospectus is delivered to a purchaser of the Shares, not misleading.
The Company will not file or use any amendment or supplement to the
Registration Statement or the Prospectus of which Trident has not first
been furnished a copy or as to which Trident shall reasonably object
after having been furnished such copy. For the purposes of this
subsection (c), the Company and the Bank shall furnish such information
with respect to themselves as Trident from time to time reasonably may
request.
(d) The Company will take all reasonably necessary action as
may be required to qualify or register the Shares for offer and sale by
the Company under the securities or "blue sky" laws of such
jurisdictions as Trident and the Company or its counsel may agree upon;
provided, however, that the Company will not be obligated to qualify as
a foreign corporation under the laws of any such jurisdiction. In each
jurisdiction in which such qualification or registration will be
effected, the Company, unless Trident agrees that such action is not
necessary or advisable in connection with the distribution of the
Shares, will file and make such statements or reports as are, or
reasonably may be, required by the laws of such jurisdiction.
(e) The liquidation account for the benefit of eligible
account holders as of December 31, 1995 and supplemental eligible
account holders as of June 30, 1997, will be duly established and
maintained in accordance with the requirements of the OTS and such
eligible account holders and supplemental eligible account holders who
continue to maintain their savings accounts in the Bank will have an
inchoate interest in their pro rata portion of the liquidation account
which shall have a priority superior to that of the holders of the
Shares in the event of a complete liquidation of the Bank.
(f) The Company will file a registration statement for the
Shares under Section 12(g) of the Exchange Act and will request that
such registration statement become effective upon the completion of the
Conversion. The Company will maintain the effectiveness of such
registration under Section 12(g) of the Exchange Act for not less than
three (3) years or such shorter period as may be required by the OTS'
approval of the Form AC.
(g) For a period of three (3) years from the date of this
Agreement, the Company will furnish the following to Trident:
(i) As soon as publicly available after the end of each
fiscal year, a copy of its Annual Report to Shareholders for such
year;
(ii) As soon as publicly available, a copy of each report or
definitive proxy statement of the Company filed with the
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Commission under the Exchange Act or mailed to shareholders; and
(iii) From time to time, such other public information
concerning the Company as Trident may reasonably request.
(h) The Company will use the net proceeds from the sale of the
Shares in the manner set forth in the Prospectus under the caption "Use
of Proceeds."
(i) The Company will not deliver the Shares until each and
every condition set forth in Section 6 of this Agreement has been
satisfied in full, unless such condition is waived in writing by
Trident.
(j) The Company will provide Trident with any information
necessary to assist Trident in allocating the Shares in the event of an
oversubscription. Such information will be accurate and reliable. The
Company will indemnify and hold harmless Trident from and against any
liability arising out of any records of account holders, other
depositors, borrowers or other members of the Bank delivered to Trident
by the Company or the Bank or their agents for use during the
Conversion.
(k) The Company and the Bank will take such actions and
furnish such information as are reasonably requested by Trident in
order for Trident to ensure compliance with the NASD's "Interpretation
Relating to Free Riding and Withholding."
(l) The Company and the Bank will not, directly or indirectly,
offer, sell, contract to sell, or otherwise dispose of any additional
Shares or securities convertible into Shares, without Trident's prior
written consent, for a period of 120 days after the date of this
Agreement, except that the Company may grant stock options and share
awards pursuant to the Stock Option Plan and RRP (each as defined and
substantially upon the terms set forth in the Prospectus).
(m) As soon as practicable, but not later than 15 months after
the end of its current fiscal quarter, the Company will make generally
available to its shareholders an earnings statement covering a period
of at least 12 months beginning after the date of this Agreement which
will satisfy the provisions of Section 11(a) of the Act and Rule 158 of
the Regulations.
6. Conditions of Trident's Obligations. The obligations of
Trident set forth in this Agreement shall be subject to the accuracy of the
representations and warranties contained in Section 2 of this Agreement as of
the date hereof and as of the Closing Date, to the accuracy of the statements of
officers and directors of the Company, the Bank and Citizens made pursuant to
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the provisions hereof, to the performance by the Company and the Bank of their
obligations hereunder, and to the following additional conditions:
(a) At the Closing Date, the Company and the Bank will have
satisfied the conditions precedent to, and will have conducted the
Conversion in all material respects in accordance with the Plan of
Conversion and all applicable laws, regulations, decisions and orders,
including all terms, conditions, requirements and conditions precedent
to the Conversion imposed by, among other authorities, the OTS and/or
the Commission.
(b) On the Closing Date, Trident shall receive an opinion of
Barnes & Thornburg, special counsel for the Company and the Bank
(hereinafter referred to as "Special Counsel"), dated as of the Closing
Date, addressed to Trident, in form and substance reasonably
satisfactory to counsel for Trident and to the effect that:
(i) The Company is a corporation duly organized and validly
existing under the laws of the State of Indiana with full power
and authority to own its properties and conduct its business as
set forth in the Prospectus. The Company has all necessary
corporate power and authority to enter into this Agreement, to
perform all of its obligations hereunder and to consummate the
transactions contemplated hereby. To their knowledge, the Company
has obtained all licenses, permits and other governmental
authorizations currently required for the conduct of its
business, all of which are in full force and effect, and the
Company is in all material respects complying therewith.
(ii) The Bank is a mutual savings bank validly existing and
in good standing under the laws of the United States with full
power and authority to own its properties and conduct its
business as set forth in the Prospectus and is a member in good
standing of the Federal Home Loan Bank of Indianapolis. The Bank
has all necessary corporate power and authority to enter into
this Agreement, to perform all of its obligations hereunder and
to consummate the transactions contemplated hereby. The deposit
accounts of the Bank are insured up to applicable limits by the
FDIC. To their knowledge, the Bank has obtained all licenses,
permits and other governmental authorizations currently required
for the conduct of its business, all of which are in full force
and effect, and the Bank is in all material respects complying
therewith.
(iii) The Plan of Conversion has been adopted by the Board
of Directors and members of the Bank and approved by the Board
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<PAGE>
of Directors of the Company. As of the Closing Date, no person
has sought to obtain review of the final action of the OTS in
approving the Plan of Conversion, the Conversion or the Form
H-(e)l-S pursuant to the HOLA, as amended, or any other statute
or regulation.
(iv) Upon the effectiveness of the amendment of the Bank's
Charter and Bylaws in accordance with the rules and regulations
of the OTS and the completion of the sale by the Company of the
Shares as contemplated by the Prospectus and the Plan of
Conversion, (I) the Bank will be converted pursuant to the Plan
of Conversion to a capital stock savings bank duly organized,
validly existing and in good standing under the laws of the
United States with full power and authority to own its property
and conduct its business as described in the Prospectus; (II) all
of the outstanding capital stock of the Bank will be owned of
record and beneficially by the Company; and (III) the Company
will have no direct subsidiaries other than the Bank.
(v) Each of the Company and the Bank is duly qualified and
in good standing to do business as a foreign corporation in all
jurisdictions in which the conduct of its business requires such
qualification, except where the failure to so qualify would not
have a material adverse effect on either the Company or the Bank.
(vi) Each of the Bank and the Subsidiary has obtained all
licenses, permits and other governmental authorizations currently
required for the conduct of its business, except where the
failure to obtain such licenses, permits and other governmental
authorizations would not have a material adverse effect on its
financial condition, business or results of its operations; and,
all such licenses, permits and other governmental authorizations
are in full force and effect.
(vii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
fully and validly authorized by all necessary action on the part
of each of the Company and the Bank. This Agreement is a legal,
valid and binding obligation of each of the Company and the Bank,
enforceable against each of them in accordance with its terms,
except as may be limited by bankruptcy, insolvency,
reorganization, moratorium, receivership, conservatorship or
other laws affecting creditors' rights generally and as may be
limited by the exercise of judicial discretion in applying
principles of equity
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<PAGE>
and except as the obligations of the Company and the Bank under
the indemnification and contribution provisions of Sections 7 and
8 hereof may be unenforceable or against public policy, as to
which no opinion need be rendered.
(viii) Each of the Company and the Bank has all such power,
authority, authorizations, approvals and orders as may be
required to enter into this Agreement and to carry out the terms
and conditions hereof. Without limiting the generality of the
foregoing sentence, the Company has the power, authority,
authorizations, approvals and orders to issue and sell the Shares
to be sold by the Company in accordance with this Agreement. The
Bank has the power, authority, authorizations, approvals and
orders to issue and sell the shares of its common stock to the
Company as provided in the Plan of Conversion, subject to the
issuance of an amended Charter in the form required for a federal
stock savings bank (hereinafter referred to as the "Stock
Charter"). The form of the Stock Charter has been approved by the
OTS.
(ix) To their knowledge, neither the Company nor the Bank is
in violation of any rule or regulation of the Commission or the
OTS, which might materially and adversely affect the condition
(financial or otherwise), operations, businesses, assets, or
properties of the Company or the Bank. To their knowledge, the
Bank is not subject to any written directive from the OTS or the
FDIC (or their predecessors) to make any material change in the
method of conducting its business or affairs and has conducted
its business in material compliance with all applicable statutes
and regulations (including, without limitation, all regulations,
decisions, directives and orders of the FHLB of Indianapolis, the
OTS, and the FDIC, or their predecessors). Except as set forth in
the Prospectus, to their knowledge, there is not pending or
threatened any litigation, charge, investigation, action, suit or
proceeding before or by any court, regulatory authority or
governmental agency or body which might affect the performance of
the terms and conditions of this Agreement or the consummation of
the transactions contemplated hereby or which might result in any
material adverse change in the condition (financial or
otherwise), business, prospects or results of operations of the
Company or the Bank.
(x) To their knowledge, no material default exists, and no
event has occurred which, with notice or lapse of time, or both,
would constitute a default, on the part of either the Company or
the
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<PAGE>
Bank in the due performance and observance of any term, covenant
or condition of any agreement which is material to the condition
(financial or otherwise) of the Company or the Bank. To their
knowledge, such agreements are in full force and effect, and no
other party to any such agreement has instituted or threatened
any action or proceeding wherein the Company or the Bank would or
might be alleged to be in default thereunder.
(xi) To their knowledge, neither the Company nor the Bank is
in violation of their respective charter, articles of
incorporation or bylaws or in default in any material respect in
the performance of any material obligation, agreement or
condition contained in any bond, debenture, note or any other
evidence of indebtedness. The execution, delivery and fulfillment
of the terms of this Agreement and the consummation of the
transactions contemplated hereby do not and will not violate or
conflict with the respective charter, articles of incorporation
or bylaws of the Company or the Bank or, in any material respect,
violate, conflict with or constitute a breach of, or default (or
an event which, with notice or lapse of time, or both, would
constitute a default) under any material agreement, indenture or
other instrument by which either the Company or the Bank is
bound, or under any governmental license or permit or any law,
administrative regulation or authorization, approval or order,
court decree, injunction or order to which the Company or the
Bank is subject.
(xii) No equity or debt securities of the Company have ever
been issued or are outstanding. Upon the consummation of the
Conversion, the authorized, issued and outstanding equity capital
of the Company shall be as set forth in the Prospectus under the
caption "Capitalization," adjusted to give effect to the actual
sale of the Shares. The offer, sale and issuance of the Shares
have been duly authorized by all necessary action of the Company
and approved by the OTS. When issued in accordance with the terms
of the Plan of Conversion, the Shares will be validly issued,
fully paid and nonassessable and will conform to the description
thereof set forth in the Prospectus. The issuance of the Shares
is not subject to preemptive rights. Good title to the Shares
will be transferred to the purchasers thereof upon issuance
thereof against payment therefor. The certificates evidencing the
Shares will conform in all material respects with the
requirements of applicable laws and regulations.
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<PAGE>
(xiii) No equity securities of the Bank have ever been
issued or are outstanding. The offer, sale and issuance of the
capital stock of the Bank to the Company have been duly
authorized by all necessary action of the Bank and the Company
and approved by the OTS. Immediately after the Closing Date, the
authorized capital of the Bank will consist of 1,000 shares of
common stock, par value $.01 per share, 1,000 of which will be
issued to and held of record by the Company, and 1,000,000 shares
of preferred stock, none of which will be issued or outstanding.
When issued in accordance with the terms of the Plan of
Conversion, such common stock will be validly issued, fully paid
and nonassessable. There are no preemptive rights or rights to
subscribe for or to purchase any capital stock of the Bank. None
of the shares of such capital stock will be issued in violation
of any rights of any member of the Bank. Good title to such
capital stock will be transferred to the Company upon issuance
thereof against the payment to the Bank of all but 50% of the net
proceeds of the sale of the Shares, after giving effect to the
ESOP Loan, in cash, free and clear of all claims, encumbrances,
security interests and liens whatsoever. Upon the consummation of
the Conversion, the liquidation account will be duly established
in accordance with the requirements of the OTS and the Plan of
Conversion.
(xiv) At the Closing Date, the Company and the Bank will
have satisfied all material conditions precedent to, and
conducted the Conversion in all material respects in accordance
with, the Plan of Conversion, the Regulations and all other
applicable laws, regulations, decisions and orders, including all
terms, conditions, requirements and provisions precedent to the
consummation of the transactions contemplated by the Plan of
Conversion and the approval of the Form AC and the Form H-(e)l-S
imposed upon them by the OTS.
(xv) No approval of any regulatory or supervisory or other
public authority is required in connection with the execution and
delivery of this Agreement or the issuance and sale of the
Shares, except (i) the approval of the OTS, (ii) the declaration
of effectiveness of any required post-effective amendment to the
Registration Statement by the Commission and approval thereof by
the OTS, (iii) the issuance to the Bank of the Stock Charter by
the OTS, (iv) the approval of the Form H-(e)l-S, (v) the approval
of the NASD of the fairness of the compensation to be paid to
Trident pursuant to this Agreement, (vi) the listing of the
Shares on the
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<PAGE>
NASDAQ Small Cap Market, and (vii) as may be otherwise required
under the securities laws of various jurisdictions.
(xvi) The Company may offer, issue and sell the Shares in
the Subscription Offering and, if necessary, in the Community
Offering without registration of the Company or its directors,
officers or employees as brokers, dealers, salesmen or investment
advisors under the Exchange Act or the Investment Company Act of
1940.
(xvii) The statements in the Prospectus under the captions
"Dividends," "Capitalization," "Regulation," "Taxation," "The
Conversion," "Restrictions on Acquisition of the Holding Company"
and "Description of Capital Stock," insofar as they are, or refer
to, statements of law or legal conclusions, have been reviewed by
such Special Counsel and are correct in all material respects.
(xviii) The Form AC and the Form H-(e)l-S have been approved
by the OTS and the Prospectus has been authorized by the OTS and
the Commission. The Stock Charter has been approved by the OTS.
The Registration Statement and any post-effective amendment
thereto have been declared effective by the Commission. No
proceedings are pending by or before the Commission or the OTS
seeking to revoke or rescind the orders declaring the
Registration Statement or the Prospectus effective nor, to their
knowledge, are any such proceedings contemplated or threatened.
(xix) The Form AC, the Registration Statement and the
Prospectus (in each case as amended or supplemented, if so
amended or supplemented) comply as to form in all material
respects with the requirements of the Act, and the applicable
rules, regulations, and all written decisions and orders of the
OTS and the Commission, as the case may be (except as to
financial statements, notes to financial statements, financial
tables and other financial and statistical data included therein
as to which no opinion need be expressed). All documents and
exhibits required to be filed with the Form AC and the
Registration Statement (in each case as amended or supplemented,
if so amended or supplemented) have been so filed, the
description in the Form AC and the Registration Statement of such
documents and exhibits is accurate in all material respects and
presents fairly the information required to be shown. To their
knowledge, there are no contracts or other
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<PAGE>
documents of a character required to be described in the
Registration Statement or the Prospectus which are not described
and there are no statutes or regulations applicable to,
certificates, permits or other authorizations from governmental
regulatory officials or bodies required to be obtained or
maintained by, or legal or governmental proceedings, past,
pending or threatened, against the Company or the Bank of a
character required to be disclosed in the Form AC, the
Registration Statement or the Prospectus which have not been so
disclosed and properly described therein.
(xx) In connection with the preparation of the Registration
Statement and Prospectus, Special Counsel has participated in
conferences with certain officers, employees and other
representatives of, and certain representatives of the
independent public accountants for the Company and the Bank as
well as reviewed various documents and other information deemed
relevant thereto and, in connection therewith, nothing has come
to the attention of Special Counsel that would lead them to
believe (I) that the Registration Statement, as amended or
supplemented, if amended or supplemented (except as to financial
statements, notes to financial statements, financial tables and
other financial and statistical data contained therein, as to
which Special Counsel need not express an opinion), at the time
it became effective, at the time any post-effective amendment
thereto became effective and at the Closing Date, contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
the statements made therein not misleading, or (II) that the
Prospectus, as amended or supplemented, if amended or
supplemented (except as to financial statements, notes to
financial statements, financial tables and other financial and
statistical data contained therein, as to which Special Counsel
need not express an opinion), at the time the Registration
Statement became effective or at the time any amendment or
supplement to the Prospectus was filed with the Commission or
transmitted to the Commission for filing, contained any untrue
statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. In
rendering such opinion, Special Counsel may state that they have
not undertaken to verify independently the information in the
Registration Statement or Prospectus and, therefore, do not
assume any responsibility for the accuracy or completeness
thereof.
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<PAGE>
In giving such opinion, such counsel may rely as to certain
matters of fact on certificates of officers and directors of the
Company and the Bank, and certificates of public officials delivered
pursuant hereto and on the opinion of qualified local counsel,
satisfactory to Trident, with respect to matters particularly within
the knowledge and scope of representation of such counsel. Such opinion
may be governed by, and interpreted in accordance with, the Legal
Opinion Accord of the ABA Section of Business Law (1991).
(c) On the Closing Date, Trident shall have received such
opinion of Baker & Daniels, counsel for Trident, with respect to
certain matters as Trident may reasonably request, and such counsel
shall have received such documents, papers and records as they request
for the purpose of enabling them to pass upon such matters.
(d) Counsel for Trident shall have been furnished such
documents as they reasonably may require for the purpose of enabling
them to review or pass upon the matters required by Trident and for the
purpose of evidencing the accuracy, completeness or satisfaction of any
of the representations, warranties or conditions herein contained,
including, but not limited to, resolutions of the Board of Directors of
the Company and the Bank regarding the authorization of this Agreement
and the transactions contemplated hereby.
(e) Prior to and at the Closing Date, in the reasonable
opinion of Trident: (i) there shall have been no material adverse
change in the financial or other condition of the Company or the Bank
considered as one enterprise from that as of the latest date as of
which such condition is set forth in the Prospectus; (ii) there shall
have been no material transaction entered into by the Company or the
Bank from the latest date as of which the financial condition of the
Company or the Bank is set forth in the Prospectus, other than
transactions referred to or contemplated therein and transactions in
the ordinary course of business; (iii) neither the Company nor the Bank
shall have received from the OTS any direction (oral or written) to
make any material change in the method of conducting their respective
businesses with which they have not complied (which direction, if any,
shall have been disclosed to Trident) or which materially and adversely
would affect the business, operations, financial condition or income of
the Company or the Bank; (iv) no action, suit or proceeding, at law or
in equity, or before or by any federal or state commission, board or
other administrative agency, or before any arbitrator or arbitrators,
shall be pending or threatened against the Company or the Bank or
affecting any of their respective assets wherein an unfavorable
decision, ruling or finding materially and adversely would affect the
business, operations, financial condition or income of the Company or
the Bank; and (v) the Shares shall have been qualified or registered
for offering and sale by the Company under the securities or "blue sky"
laws of each jurisdiction upon which Trident and the Company shall have
agreed.
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<PAGE>
(f) At the Closing Date, Trident shall receive a certificate
of the President and the Principal Financial Officer of each of the
Company and the Bank (hereinafter referred to as the "Officers"), dated
the Closing Date, to the effect that: (i) the Officers have carefully
examined the Prospectus and at the time the Prospectus became
authorized for final use, the Prospectus did not contain any untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; (ii) since the date the
Prospectus became authorized for final use, no event has occurred which
should have been set forth in an amendment or supplement to the
Prospectus which has not been so set forth, including, without
limitation, any material adverse change in the business, financial
condition, income or operations of the Company or the Bank and the
conditions set forth in clauses (ii) through (iv) inclusive of
subsection (e) of this Section 6 have been satisfied; (iii) no order
has been issued by the Commission or the OTS to suspend the
effectiveness of the Prospectus or to terminate the Subscription
Offering or the Community Offering and, to the best knowledge of the
Officers, no action for such purposes has been instituted or threatened
by the Commission or the OTS; (iv) to the best knowledge of the
Officers, no person has sought to obtain review of the final action of
the OTS approving the Plan pursuant to Section 5(i)(2)(B) of the Home
Owners' Loan Act of 1933, as amended; and (v) all of the
representations and warranties contained in Section 2 of this Agreement
are true and correct with the same force and effect as though expressly
made on the Closing Date.
(g) At the Closing Date, Trident shall receive, among other
documents, (i) a copy of the letter from the OTS approving the
Conversion and authorizing the use of the Prospectus, (ii) a copy of
the order of the Commission declaring the Registration Statement
effective; (iii) a copy of a letter from the OTS evidencing the good
standing of the Bank; (iv) a copy of a Certificate of Existence in
respect of the Company from the Indiana Secretary of State; (v) a copy
of the Company's articles of incorporation certified by the Indiana
Secretary of State; and (vi) a copy of the letter from the OTS
approving the Bank's Stock Charter.
(h) As soon as available after the Closing Date, Trident shall
receive a certified copy of the Bank's Stock Charter executed by the
OTS.
(i) Concurrently with the execution of this Agreement, Trident
shall have received a letter from Ernst & Young LLP, independent public
accountants, dated the date hereof and addressed to Trident: (i)
confirming that Ernst & Young LLP is a firm of independent public
accountants within the meaning of the Act and the Regulations and 12
C.F.R. ss. 571.2(c)(3) and stating in substance that in Ernst & Young
LLP's opinion the financial statements of the Bank and the
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<PAGE>
Subsidiary as are included in the Prospectus comply as to form in all
material respects with the applicable accounting requirements of the
Regulations and generally accepted accounting principles; (ii) stating
in substance that, on the basis of certain agreed upon procedures (but
not an audit examination in accordance with generally accepted auditing
standards) consisting of a reading of the latest available unaudited
interim financial statements of the Bank prepared by the Bank, a
reading of the minutes of the meetings of the Board of Directors of the
Bank, meetings of members of the Bank and consultations with officers
of the Bank responsible for financial and accounting matters, nothing
came to their attention which caused them to believe: (A) such
unaudited financial statements are not in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in
the Prospectus; or (B) during the period from the date of the latest
unaudited financial statements included in the Prospectus to a
specified date not more than three business days prior to the date
hereof, there was any material increase in borrowings, defined as
advances from the FHLB of Indianapolis, securities sold under
agreements to repurchase and any other form of debt other than deposits
of the Bank (increases in borrowings will not be deemed to be material
if such increase in total borrowings outstanding does not exceed
$1,000,000); (C) there was any decrease in retained earnings of the
Bank at the date of such letter as compared with amounts shown in the
latest unaudited statement of condition included in the Prospectus; or
(D) there was any decrease in net income or net interest income of the
Bank for the number of full months commencing immediately after the
period covered by the latest unaudited income statement included in the
Prospectus, and ended on the latest month end prior to the date of the
Prospectus or of such letter as compared to the corresponding period in
the preceding year, and (iii) stating that, in addition to the audit
examination of the Bank referred to in its opinion included in the
Prospectus and the performance of the procedures referred to in clause
(ii) of this subsection (i), they have compared with the general
accounting records of the Bank, which are subject to the internal
controls of the Bank, accounting system and other data prepared by the
Bank, directly from such accounting records, to the extent specified in
such letter, such amounts and/or percentages set forth in the
Prospectus as Trident may reasonably request; and they have found such
amounts and percentages to be in agreement therewith (subject to
rounding).
(j) At the Closing Date, Trident shall receive a letter in
form and substance satisfactory to counsel for Trident from Ernst &
Young LLP, independent public accountants, dated the Closing Date and
addressed to Trident, confirming the statements made by them in the
letter delivered by them pursuant to subsection (i) as of a specified
date not more than three (3) business days prior to the Closing Date.
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<PAGE>
(k) As of the Closing Date, Trident shall have received a
confirming letter from the Appraiser, dated the Closing Date, with
respect to its estimated pro forma market appraisal. Such letter shall
be of the type described in the Prospectus to be submitted promptly
after the completion of the Subscription Offering and Community
Offering (if any).
(l) All corporate proceedings and action taken by the Company
or the Bank in connection with the issuance and sale of the Shares as
herein contemplated and all opinions and certificates mentioned above
or elsewhere in this Agreement shall be reasonably satisfactory in form
and substance to Trident and its counsel.
All such opinions, certificates, letters and documents
prepared for Trident's reliance shall be in compliance with the provisions
hereof only if they are, in the reasonable opinion of Trident and its counsel,
satisfactory to Trident and its counsel. Any certificates signed by an officer
or director of the Company or the Bank prepared for Trident's reliance and
delivered to Trident or to counsel for Trident shall be deemed a representation
and warranty by the Company and the Bank to Trident as to the statements made
therein. If any condition to Trident's obligations hereunder to be fulfilled
prior to or at the Closing Date is not so fulfilled, Trident may terminate this
Agreement or, if Trident so elects, may waive any such conditions which have not
been fulfilled, or may extend the time of their fulfillment. If Trident
terminates this Agreement in accordance with the foregoing, the Company or the
Bank shall reimburse Trident for its accountable expenses as provided in Section
3(d) of this Agreement.
7. Indemnification. The Company and the Bank, jointly and
severally, hereby agree to indemnify and hold harmless Trident, its officers,
directors and employees and each person, if any, who controls Trident within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act:
(a) Against any and all loss, liability, claim, damage and
expense whatsoever, including, but not limited to, legal fees and
expenses, reasonably incurred by Trident in investigating, preparing to
defend or defending against any action, proceeding or claim (whether
commenced or threatened) (i) arising out of any misrepresentation by
the Company or the Bank in this Agreement, including, but not limited
to, the breach of any representation or warranty set forth in this
Agreement, or any breach of warranty by the Company or the Bank with
respect to this Agreement or (ii) arising out of or based upon any
untrue or alleged untrue statement of a material fact or the omission
or alleged omission of a material fact required to be stated or
necessary to make not misleading any statements contained in (I) the
Registration Statement or the Prospectus or (II) any application
(including, but not limited to, the Form AC) or other document or
communication (hereinafter collectively referred to in this Section 7
as the "Applications") prepared or executed by or on behalf of the
Company or the Bank or based upon written information furnished by or
on behalf of the Company or
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<PAGE>
the Bank with the consent of the Company or the Bank to effect the
Conversion or qualify the Shares under the securities laws of the
United States or any state or filed with the Commission or the OTS,
unless such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company or the
Bank with respect to Trident by or on behalf of Trident expressly for
use in the Prospectus or any amendment or supplement thereof or in any
Application. This indemnity shall be in addition to any liability the
Company or the Bank may have to Trident otherwise.
(b) Against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such settlement is
effected with the written consent of the Company or the Bank.
(c) Against any and all expenses whatsoever (including the
fees and disbursements of counsel chosen by Trident) reasonably
incurred in investigating, preparing or defending against any
litigation, investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement
or omission, to the extent that any such expense is not paid under
subsection (a) or (b) of this Section 7.
(d) Trident hereby agrees to indemnify and hold harmless the
Company and the Bank, their respective officers, directors and
employees and each person, if any, who controls the Company and the
Bank within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act, to the same extent as the foregoing indemnity from
the Company and the Bank to Trident, but only with respect to
statements or omissions, if any, made in the Prospectus or any
amendment or supplement thereof or in any Application in reliance upon,
and in conformity with, written information furnished to the Company or
the Bank with respect to Trident by or on behalf of Trident expressly
for use in the Prospectus or in any Application.
(e) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 7, notify the indemnifying party
of the commencement thereof; provided, however, that the omission to so
notify the indemnifying party will not relieve the indemnifying party
from any liability which it may have to any indemnified party otherwise
than under this Section 7. In case any such action is brought against
any indemnified party, and the indemnified party notifies the
indemnifying party of the commencement thereof, the indemnifying party
will be entitled to
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<PAGE>
participate therein and, to the extent that the indemnifying party may
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of the indemnifying party's election so to assume the
defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, other than the reasonable cost of investigation,
except as otherwise provided herein. In the event the indemnifying
party elects to assume the defense of any such action and retain
counsel acceptable to the indemnified party, the indemnified party may
retain additional counsel, but shall bear the fees and expenses of such
counsel unless (i) the indemnifying party shall have specifically
authorized the indemnified party to retain such counsel or (ii) the
parties to such suit include such indemnifying party and the
indemnified party, and such indemnified party shall have been advised
by counsel that one or more material legal defenses may be available to
the indemnified party which may not be available to the indemnifying
party, in which case the indemnifying party shall not be entitled to
assume the defense of such suit notwithstanding the indemnifying
party's obligation to bear the fees and expenses of such counsel. An
indemnifying party against whom indemnity may be sought shall not be
liable to indemnify an indemnified party under this Section 7 if any
settlement of any such action is effected without such indemnifying
party's consent.
8. Contribution.
(a) In order to provide for just and equitable contribution in
circumstances in which the indemnity provided for in Section 7 of this
Agreement is for any reason held to be unavailable to Trident other
than in accordance with its terms, the Company and/or the Bank and
Trident shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity
incurred by the Company and/or the Bank and Trident (i) in such
proportion as is appropriate to reflect the relative benefits received
by the Company and/or the Bank on the one hand and Trident on the other
from the offering of the Shares or, (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to
in clause (i) above but also the relative fault of the Company and/or
the Bank on the one hand and Trident on the other, in connection with
the statements or omissions which resulted in such losses, claims,
damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company
and/or the Bank, on the one hand, and Trident, on the other, shall be
deemed to be in the same proportions as the total proceeds from the
Conversion (before deducting expenses) received by the Company and/or
the Bank bear to the total fees received by Trident under this
Agreement. The relative fault of the Company and/or the
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<PAGE>
Bank on the one hand and Trident on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company
and/or the Bank or by Trident, the relative intent of the parties, the
knowledge of the parties, access to information, and opportunity to
correct or prevent such statement or omission.
(b) The Company and the Bank and Trident agree that it would
not be just and equitable if contribution pursuant to this Section 8
were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or
payable by an indemnified party as a result of the losses, claims,
damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of
this Section 8, Trident shall not be required to contribute any amount
in excess of the amount by which fees owed Trident pursuant to this
Agreement exceed the amount of any damages which Trident has otherwise
been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
9. Survival of Agreements, Representations and Indemnities.
The respective indemnities of the Company and the Bank and Trident and the
representations and warranties of the Company and the Bank set forth in or made
pursuant to this Agreement shall remain in full force and effect regardless of
any termination or cancellation of this Agreement or any investigation made by
or on behalf of Trident or the Company or the Bank or any controlling person or
indemnified party referred to in Section 7 of this Agreement, and shall survive
any termination of this Agreement and/or the issuance of the Shares. Any
successor or assign of Trident, the Company or the Bank, any such controlling
person and any legal representative of Trident, the Company or the Bank, and any
such controlling person of Trident, the Company or the Bank shall be entitled to
the benefit of the respective agreements, indemnities, warranties and
representations contained in this Agreement.
10. Termination. Trident may terminate this Agreement,
without liability on the part of Trident, by giving notice at any time after
this Agreement becomes effective, as follows:
(a) If any domestic or international event or act or
occurrence has materially disrupted the United States securities
markets such as to make impracticable, in Trident's opinion, proceeding
with the offering of the Shares; or
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<PAGE>
if trading on the New York Stock Exchange shall have been suspended or
if limits in prices or volumes or the manner of trading shall have been
imposed by the New York Stock Exchange; or if the United States shall
have become involved in a war or major hostilities; or if a general
banking moratorium has been declared by a state or federal authority;
or if a moratorium in foreign exchange trading by major international
banks or persons has been declared; or if there shall have been a
material adverse change in the capitalization, condition or business of
the Company or the Bank; or if the Company or the Bank shall have
sustained a material or substantial loss by, but not limited to, fire,
flood, accident, hurricane, earthquake, theft, sabotage or other
calamity or malicious act, whether or not said loss shall have been
insured; if there shall have been a material adverse change in the
condition or prospects of the Company or the Bank, considered as one
enterprise; or if Trident elects to terminate this Agreement under any
other section of this Agreement.
(b) If Trident elects to terminate this Agreement as provided
in this Section 10, the Company and the Bank shall be notified promptly
by Trident by telephone or telegram, confirmed by letter.
(c) If this Agreement is terminated by Trident for any of the
reasons set forth in subsection (a) of this Section 10, the Company or
the Bank shall reimburse Trident for any expenses incurred by it and
reimbursable in accordance with Section 3(d)(ii) and (iii) of this
Agreement.
11. Notices. All communications hereunder, except as herein
otherwise specifically provided, shall be in writing and:
If sent to Trident, shall be mailed, delivered or telegraphed
and confirmed to:
Trident Securities, Inc.
4601 Six Forks Road, Suite 400
Raleigh, North Carolina 27609
Attention: Timothy E. Lavelle
with a copy to:
J. Jeffrey Brown
Baker & Daniels
300 N. Meridian St., Suite 2700
Indianapolis, Indiana 46204
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<PAGE>
If sent to the Company or the Bank, shall be mailed, delivered
or telegraphed and confirmed to:
Citizens Savings Bank of Frankfort
60 South Main Street
Frankfort, Indiana 46041
Attn: Fred W. Carter
with a copy to:
Claudia V. Swhier
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
12. Parties. The Company and the Bank shall be entitled to act
and rely on any request, notice, consent, waiver or agreement purportedly given
on behalf of Trident when the same shall have been given by the undersigned.
Trident shall be entitled to act and rely on any request, notice, consent,
waiver or agreement purportedly given on behalf of the Company or the Bank, when
the same shall have been given by the undersigned or any other officer of the
Company or the Bank. This Agreement shall inure solely to the benefit of, and
shall be binding upon, Trident, the Company, the Bank and the controlling
persons and indemnified parties referred to in Section 7 of this Agreement, and
their respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under, or in respect of, or by virtue of, this Agreement or any
provision herein contained.
13. Closing. At the Closing, Trident shall submit a list of
the persons subscribing for the Shares and the number of Shares so subscribed.
The Company or the Bank shall deliver to Trident in immediately available funds
the fees, commissions and remaining expenses due and owing to Trident as set
forth in Section 3(d) of this Agreement and the opinions and certificates
required hereby and other documents deemed reasonably necessary by Trident shall
be executed and delivered to effect the sale of the Shares as contemplated
hereby and pursuant to the terms of the Prospectus.
14. Partial Invalidity. In the event that any term, provision
or covenant of this Agreement or the application thereof to any circumstance or
situation shall be invalid or unenforceable, in whole or in part, the remainder
hereof and the application of such term, provision or covenant to any other
circumstance or situation shall not be affected thereby, and each term,
provision or covenant of this Agreement shall be valid and enforceable to the
full extent permitted by law.
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<PAGE>
15. Construction. This Agreement shall be construed in
accordance with the substantive laws of the State of Indiana, except to the
extent that federal law applies.
16. Counterparts. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which together shall constitute but one and the same instrument.
If the foregoing correctly sets forth the understanding
between Trident and the Company and the Bank, please so indicate in the space
provided below for that purpose, whereupon it shall constitute a binding
agreement between Trident and the Company and the Bank.
Very truly yours,
CITIZENS BANCORP
By:
-------------------------------------------
Fred W. Carter
President and Chief Executive Officer
CITIZENS SAVINGS BANK OF FRANKFORT
By:
-------------------------------------------
Fred W. Carter
President and Chief Executive, Officer
Accepted as of the date first above written.
TRIDENT SECURITIES, INC.
By:
----------------------------------------
Timothy E. Lavelle
President
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CITIZENS SAVINGS BANK
OF FRANKFORT
PLAN OF CONVERSION
From Mutual to Stock Form of Organization
I. GENERAL
On April 9, 1997, the Board of Directors of Citizens Savings Bank (the
"Bank") adopted a Plan of Conversion whereby the Bank will convert from a
federal mutual savings bank to a federal stock savings bank and, upon
conversion, will become a wholly-owned subsidiary of a Holding Company to be
formed by the Bank, all pursuant to the Rules and Regulations of the Office of
Thrift Supervision. The Plan provides that non-transferable subscription rights
to purchase Conversion Stock will be offered first to the Bank's Eligible
Account Holders of record as of December 31, 1995, and then, to the extent that
stock is available, to a Tax-Qualified Employee Stock Benefit Plan, if any, and
then, to the extent that stock is available, to Supplemental Eligible Account
Holders, and then, to the extent that stock is available, to Other Members of
the Bank. Concurrently with, during or promptly after the Subscription Offering,
any shares of Conversion Stock not sold in the Subscription Offering may also be
offered to the general public in a Direct Community Offering. The price of the
Conversion Stock will be based upon an independent appraisal of the Bank and the
Holding Company and will reflect the Bank's estimated pro forma market value, as
converted. The Holding Company will use the net proceeds it derives from the
offering of Conversion Stock to purchase shares of the Capital Stock of the Bank
authorized upon its conversion; provided, however, that the Holding Company may
retain, for general business purposes, from the net proceeds of the Conversion
up to the maximum amount permitted to be retained by the Holding Company
pursuant to applicable regulations and policy guidelines. It is the desire of
the Board of Directors of the Bank to attract new capital to the Bank in order
to increase its net worth, repay certain outstanding indebtedness, support
future deposit growth, increase the amount of funds available for residential
mortgage and other lending, and to provide greater resources for possible
branching and acquisitions and for the expansion of customer services. The
Converted Bank is also expected to benefit from its management and other
personnel having a stock ownership in its business since stock ownership is
viewed as an effective performance incentive and a means of attracting,
retaining and compensating management and other personnel. In addition, the
stock form of organization will permit Members of the Bank and others the
opportunity to become shareholders of the Holding Company and thereby
participate more directly in earnings and growth. The Holding Company structure
has been adopted as a part of the Conversion to provide the Bank with greater
organizational flexibility to respond to the increasingly competitive
environment in which it operates. Except as provided below, no change will be
made in the Board of Directors or management of the Bank as a result of the
Conversion. Except as provided below, the Board of Directors and management of
the Holding Company will be selected from members of the Board and management of
the Bank.
II. DEFINITIONS
Affiliate: An "affiliate" of, or a person "affiliated" with, a specified
Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified.
Associate: The term "associate," when used to indicate relationship with
any Person, means (i) any corporation or organization (other than the Bank or a
majority-owned subsidiary of the Bank or the Holding Company) of which such
Person is a director, officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, except that for purposes of Sections VI.B., VI.D.1, .4 and .5, and
VI.E. 1, it does not include any Tax-Qualified Employee Stock Benefit Plan or
Non-Tax-Qualified Employee Stock Benefit Plan in which a Person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
- 1 -
<PAGE>
capacity, and that for purposes of Section VI.D.2 it does not include any
Tax-Qualified Employee Stock Benefit Plan, and (iii) any relative or spouse of
such Person, or any relative of such spouse, who has the same home as such
Person or who is a director or officer of the Bank or any of its parents or
subsidiaries.
Bank: Citizens Savings Bank of Frankfort, whose principal office is located
in Frankfort, Indiana, a federal mutual savings bank and including the Converted
Bank, as the context requires.
Capital Stock: Shares of common stock, par value $.01 per share, to be
issued by the Converted Bank to the Holding Company in the Conversion.
Clinton County: Clinton County, Indiana.
Conversion: Change of the Bank's articles and bylaws from a federal mutual
savings bank charter and bylaws to a federal savings bank charter and bylaws
authorizing issuance of shares of common stock by the Bank pursuant to and
otherwise conforming to the requirements of a federal stock savings bank. Such
term includes the issuance of Conversion Stock as provided for in the Plan, and
the purchase by the Holding Company of all of the shares of Capital Stock to be
issued by the Bank in connection with its Conversion from mutual to stock form.
Conversion Stock: Shares of common stock, without par value, to be issued
by the Holding Company in the Conversion.
Converted Bank: The federally chartered stock savings bank resulting from
the Conversion of the Bank in accordance with the Plan.
Dealer: Any Person who engages directly or indirectly as agent, broker or
principal in the business of offering, buying, selling, or otherwise dealing or
trading in securities issued by another Person.
Deposit Account: Any withdrawable or repurchasable shares, investment
certificates or deposits or other savings accounts, including money market
deposit accounts and negotiable order of withdrawal accounts held by Members of
the Bank.
Direct Community Offering: The offering for sale to the general public,
with preference given to Clinton County residents, of any shares of Conversion
Stock not subscribed for in the Subscription Offering.
Eligibility Record Date: The close of business on December 31, 1995.
Eligible Account Holder: Holder of a Qualifying Deposit in the Bank on the
Eligibility Record Date for purposes of determining Subscription Rights and
establishing subaccount balances in the liquidation account to be established
pursuant to Section XI hereof.
Estimated Price Range: The range of the estimated aggregate pro forma
market value of the total number of shares of Conversion Stock to be issued in
the Conversion, as determined by the independent appraiser in accordance with
Section VI.A hereof.
FDIC: Federal Deposit Insurance Corporation.
Holding Company: The corporation organized under Indiana law to own and
hold 100% of the outstanding Capital Stock of the Converted Bank.
Internal Revenue Code: The Internal Revenue Code of 1986, as amended.
Local Eligible Account Holders: Eligible Account Holders who reside in
Clinton County.
Local Other Members: Other Members who reside in Clinton County.
Local Supplemental Eligible Account Holders: Supplemental Eligible Account
Holders who reside in Clinton County.
Market Maker: A Dealer who, with respect to a particular security, (i)
regularly publishes bona fide, competitive bid and offer quotations in a
recognized inter-dealer quotation system; or (ii) furnishes bona fide
competitive bid and offer quotations on request; and (iii) is ready, willing,
and able to effect transactions in reasonable quantities at his quoted prices
with other brokers or dealers.
Members: All Persons or entities who qualify as members of the Bank
pursuant to its mutual charter and bylaws.
- 2 -
<PAGE>
Non-Local Eligible Account Holders: Eligible Account Holders who reside
outside of Clinton County.
Non-Local Other Members: Other Members who reside outside of Clinton
County.
Non-Local Supplemental Account Holders: Supplemental Eligible Account
Holders who reside outside of Clinton County.
Non-Tax-Qualified Employee Stock Benefit Plan: Any defined benefit plan or
defined contribution plan maintained by the Bank which is not a Tax-Qualified
Employee Stock Benefit Plan.
Officer: The Chairman of the Board, Vice-Chairman of the Board, President,
Vice-President, Secretary, Treasurer or principal financial officer, comptroller
or principal accounting officer, and any other person performing similar
functions with respect to any organization, whether incorporated or
unincorporated.
Order Forms: Forms to be used in the Subscription Offering to exercise
Subscription Rights.
Other Members: Members of the Bank, other than Eligible Account Holders or
Supplemental Eligible Account Holders, as of the Voting Record Date.
OTS: Office of Thrift Supervision.
Person: An individual, a corporation, a partnership, a bank, a joint-stock
company, a trust, any unincorporated organization, or a government or political
subdivision thereof.
Plan: The Plan of Conversion of the Bank, including any amendment approved
as provided in the Plan.
Purchase Price: The price per share, determined as provided in Section VI.A
of the Plan, at which Conversion Stock will be sold by the Holding Company in
the Conversion.
Qualifying Deposit: The aggregate balance as of the Eligibility Record Date
or Supplemental Eligibility Record Date of all Deposit Accounts of an Eligible
Account Holder or Supplemental Eligible Account Holder, as applicable, provided
such aggregate balance is not less than $50.00. Multiple deposit accounts which
are separate accounts for purposes of FDIC insurance shall be deemed to be
separate Qualifying Deposits for purposes of determining whether a holder is an
Eligible Account Holder, Supplemental Eligible Account Holder, or Other Member.
Sales Agents: The Dealer or Dealers or investment banking firm or firms
agreeing to offer and sell Conversion Stock for the Bank and the Holding Company
in the Direct Community Offering.
SEC: Securities and Exchange Commission.
Special Meeting: The Special Meeting of Members called for the purpose of
considering and voting upon the Plan.
Subscription Offering: The offering of shares of Conversion Stock for
subscription and purchase pursuant to Section VI.B of the Plan.
Subscription Rights: Non-transferable, non-negotiable personal rights of
Eligible Account Holders, any Tax-Qualified Employee Stock Benefit Plan,
Supplemental Eligible Account Holders, and Other Members to subscribe for shares
of Conversion Stock in the Subscription Offering.
Supplemental Eligibility Record Date: The last day of the calendar quarter
preceding OTS approval of the Application for Approval of Conversion of the
Bank.
Supplemental Eligible Account Holder: Any Person holding a Qualifying
Deposit, except officers, directors, and their Associates, as of the
Supplemental Eligibility Record Date for purposes of determining Subscription
Rights and establishing subaccount balances in the liquidation account to be
established pursuant to Section XI hereof.
Tax-Qualified Employee Stock Benefit Plan: Any defined benefit plan or
defined contribution plan maintained by the Bank or the Holding Company such as
an employee stock ownership plan, stock bonus plan, profit-sharing plan or other
plan, which, with its related trust, meets the requirements to be "qualified"
under Section 401 of the Internal Revenue Code.
Voting Record Date: The close of business on the date set by the Board of
Directors in accordance with applicable law for determining Members eligible to
vote at the Special Meeting.
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<PAGE>
III. PROCEDURE FOR CONVERSION
A. The Board of Directors of the Bank shall adopt the Plan by not less than
a two-thirds vote.
B. The Bank shall notify its Members of the adoption of the Plan by
publishing a statement in a newspaper having a general circulation in each
community in which the Bank maintains an office and/or by mailing a letter to
each of its members.
C. Copies of the Plan adopted by the Board of Directors shall be made
available for inspection at each office of the Bank.
D. The Bank shall submit an Application for Approval of Conversion to
convert to a stock form of organization to the OTS. Upon filing that Application
in the prescribed form, the Bank shall publish a "Notice of Filing of an
Application for Conversion to Convert to a Stock Savings Bank" in a newspaper of
general circulation, as referred to in Paragraph III.C. above. The Bank also
shall prominently display a copy of such notice in its office.
E. The Bank shall cause the Holding Company to be incorporated under the
laws of Indiana. Upon its organization, the Holding Company shall adopt and
approve the Plan.
F. An Application shall be filed with the OTS on behalf of the Holding
Company for permission to acquire control of the Bank and become a duly
registered savings and loan holding company ("Savings and Loan Holding Company
Application").
G. As soon as practicable after the adoption of the Plan by the Board of
Directors of the Bank, a registration statement relating to the Conversion Stock
will be filed with the SEC under the Securities Act of 1933, as amended, and
appropriate filings will be made under applicable state securities laws.
H. The Bank and the Holding Company shall obtain an opinion of counsel or a
favorable ruling from the Internal Revenue Service which shall state that the
Conversion of the Bank to a stock savings bank and the adoption of the holding
company structure will not result in any gain or loss for federal income tax
purposes to the Holding Company or the Bank or to the Bank's Eligible Account
Holders, Supplemental Eligible Account Holders, or Other Members. Receipt of a
favorable opinion or ruling is a condition precedent to completion of the
Conversion.
I. After approval by the OTS of the Application for Approval of Conversion
and registration of the Conversion Stock with the SEC and applicable blue sky
authorities, the Plan will be submitted to the Members at a Special Meeting for
their approval and the Conversion Stock may be offered as hereinafter provided.
IV. CONVERSION PROCEDURE
Upon registration with the SEC and receipt of other required regulatory
approvals, the Holding Company will offer the Conversion Stock for sale in the
Subscription Offering at the Purchase Price to Eligible Account Holders, any
Tax-Qualified Employee Stock Benefit Plan, Supplemental Eligible Account Holders
and Other Members of the Bank prior to or within 45 days after the date of the
Special Meeting. However, the Holding Company may delay commencing the
Subscription Offering beyond such 45 day period in the event that the Board of
Directors of the Bank determines that there exist unforeseen material adverse
market or financial conditions. The Bank and the Holding Company may,
concurrently with or promptly after the Subscription Offering, also offer the
Conversion Stock to and accept subscriptions from other persons in a Direct
Community Offering; provided that Eligible Account Holders, any Tax-Qualified
Employee Stock Benefit Plan, Supplemental Eligible Account Holders, and Other
Members shall have the priority rights to subscribe for Conversion Stock set
forth in Section VI.B of this Plan. If the Subscription Offering commences prior
to the Special Meeting, subscriptions will be accepted subject to the approval
of the Plan at the Special Meeting.
The period for the Subscription Offering will be not less than 20 days nor
more than 45 days unless extended by the Bank. If shares of Conversion Stock
falling within the Estimated Price Range are not sold in the Subscription
Offering, completion of the sale of shares of Conversion Stock at least
sufficient to fall within the Estimated Price Range is required within 45 days
- 4 -
<PAGE>
after termination of the Subscription Offering, subject to the extension of such
45 day period by the Bank and the Holding Company. The Bank and the Holding
Company may seek one or more extensions of such 45 day period if necessary to
complete the sale of shares at least sufficient to fall within the Estimated
Price Range. In connection with such extensions, subscribers and other
purchasers will be permitted to increase, decrease or rescind their
subscriptions or purchase orders. If for any reason the minimum amount of Common
Stock cannot be sold in the Subscription Offering and Direct Community Offering,
the Bank and the Holding Company will use their best efforts to obtain other
purchasers. Completion of the sale of the minimum amount of Conversion Stock is
required within 24 months after the date of the Special Meeting. The Holding
Company will purchase all of the Capital Stock of the Bank with the net proceeds
received by the Holding Company from the sale of Conversion Stock, provided that
the Holding Company may retain up to the maximum amount permitted to be retained
by the Holding Company pursuant to applicable regulations and policy guidelines,
subject to the approval of the Boards of Directors of the Holding Company and
the Bank.
V. SUBMISSION TO MEMBERS FOR APPROVAL
After the approval of the Plan and the Savings and Loan Holding Company
Application by the OTS, a Special Meeting of Members to vote on the Plan shall
be held in accordance with the Bank's mutual bylaws. The Bank will distribute
proxy solicitation materials to all Members as of the Voting Record Date, which
Voting Record Date shall be not less than ten (10) nor more than sixty (60) days
prior to the Special Meeting. Notice of the Special Meeting shall be given to
each Member by means of the approved proxy statement not less than twenty (20)
nor more than forty-five (45) days prior to the date of the Special Meeting. The
Bank shall use reasonable efforts to see that such notice is sent to each
beneficial holder of an account held in a fiduciary capacity.
The proxy materials will include such documents authorized for use by the
regulatory authorities and may also include a prospectus as provided below. The
Bank may also use a summary form of proxy statement, in which case the Bank will
provide Members with an attached postage-paid postcard on which to indicate
whether the Member wishes to receive the prospectus and the Subscription
Offering will not be closed prior to the expiration of 30 days after the mailing
of the postage-paid postcard. The Bank will also advise each Eligible Account
Holder and Supplemental Eligible Account Holder not entitled to vote at the
Special Meeting of the proposed Conversion and the scheduled Special Meeting,
and provide a postage-paid postcard on which to indicate whether such Person
wishes to receive the prospectus, if the Subscription Offering is not held
concurrently with the proxy solicitation, provided that the Subscription
Offering will not be closed prior to the expiration of 30 days after the mailing
of the postage-paid postcard.
Pursuant to OTS regulations, the affirmative vote of not less than a
majority of the total outstanding votes of the Bank's Members will be required
for approval. Voting may be in person or by proxy. The OTS shall be notified
promptly of the action of the Bank's Members.
VI. STOCK OFFERING
A. Number of Shares and Purchase Price of Conversion Stock
The aggregate price for which all shares of Conversion Stock will be sold
will be based on an independent appraisal of the estimated total pro forma
market value of the Converted Bank and the Holding Company. The appraisal shall
be stated in terms of an Estimated Price Range, the maximum of which shall be no
more than 15% above the average of the minimum and maximum of such price range
and the minimum of which shall be no more than 15% below such average. Such
appraisal shall be performed in accordance with OTS guidelines and will be
updated as appropriate under or required by applicable law.
The appraisal will be made by an independent investment banking or
financial consulting firm experienced in the area of financial institution
appraisals. The appraisal will include, among other things, an analysis of the
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historical and pro forma operating results and net worth of the Converted Bank
and the Holding Company and a comparison of the Converted Bank and the Holding
Company and the Conversion Stock with comparable stock financial institutions
and holding companies and their respective outstanding capital stocks.
All shares of Conversion Stock sold in the Conversion will be sold at the
same price per share referred to in the Plan as the Purchase Price. The Purchase
Price will be determined by the Boards of Directors of the Holding Company and
of the Bank prior to the filing of the Application for Approval of Conversion
with the OTS.
The number of shares of Conversion Stock to be issued and sold by the
Holding Company in the Conversion will be determined by the Boards of Directors
of the Bank and the Holding Company prior to the commencement of the
Subscription Offering and will fall within a range of shares based on the
Estimated Price Range divided by the Purchase Price, subject to adjustment if
necessitated by market or financial conditions prior to consummation of the
Conversion. The total number of shares of Conversion Stock may also be subject
to increase in connection with any right granted to the Bank and the Holding
Company to issue additional shares to cover over-allotments or
over-subscriptions in the Subscription Offering and Direct Community Offering;
provided that this option may not cover more than 15% of the maximum number of
shares offered in the Subscription Offering and Direct Community Offering. No
resolicitation of subscribers need be made and subscribers need not be permitted
to modify or cancel their subscriptions unless the changes in the number of
shares to be issued in the Conversion, in combination with the Purchase Price,
result in an offering which is below the low end of the Estimated Price Range or
more than 15% above the maximum of such range.
B. Subscription Rights
Non-transferable Subscription Rights to purchase shares will be issued
without payment therefor to Eligible Account Holders, any Tax-Qualified Employee
Stock Benefit Plan, Supplemental Eligible Account Holders, and Other Members as
set forth below. The Bank and the Holding Company may retain and pay for the
services of financial and other advisors and investment bankers to assist in
connection with any or all aspects of the Subscription Offering. All such fees,
expenses, commissions and retainers shall be reasonable.
1. Preference Category No. 1: Eligible Account Holders
Each Eligible Account Holder shall receive non-transferable Subscription
Rights to subscribe for a number of shares of Conversion Stock which shall be
determined by the Boards of Directors of the Holding Company and of the Bank
before the Subscription Offering commences and shall be no greater than 5.0% of
the number of shares of the Conversion Stock determined by dividing the maximum
of the Estimated Price Range as of the date the Conversion Stock is first
offered (without giving effect to any subsequent adjustment to the Estimated
Price Range) by the Purchase Price, except that any one or more Tax-Qualified
Employee Stock Benefit Plans may purchase in the aggregate not more than ten
percent (10%) of the shares of Conversion Stock offered in the Conversion, and
that shares held by one or more Tax-Qualified or Non-Tax-Qualified Employee
Stock Benefit Plans and attributed to a Person shall not be aggregated with
other shares purchased directly by or otherwise attributable to that Person. If
sufficient shares are not available in this Preference Category No. 1, shares
may be allocated first to Local Eligible Account Holders. If so, and if
sufficient shares are not available for Local Eligible Account Holders, shares
shall be allocated first to permit each Local Eligible Account Holder to
purchase the lesser of 100 shares or the number of shares subscribed for, and
thereafter pro rata in the same proportion that the Qualifying Deposit of the
subscribing Local Eligible Account Holder bears to the total Qualifying Deposits
of all subscribing Local Eligible Account Holders. If shares remain available
after subscriptions by all Local Eligible Account Holders are filled, shares
shall next be allocated to Non-Local Eligible Account Holders. If insufficient
shares are available for allocation to Non-Local Eligible Account Holders,
shares shall be allocated first to permit each Non-Local Eligible Account Holder
to purchase the lesser of 100 shares or the number of shares subscribed for, and
thereafter pro rata in the same proportion that the Qualifying Deposit of the
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Non-Local Eligible Account Holder bears to the total Qualifying Deposits of all
subscribing Non-Local Eligible Account Holders. If the Holding Company and the
Bank decide not to give preference to Local Eligible Account Holders, if
sufficient shares are not available in this Category No. 1, Conversion Stock
shall be allocated first to permit each subscribing Eligible Account Holder to
purchase the lesser of 100 shares or the number of shares subscribed for, and
thereafter pro rata in the same proportion that his Qualifying Deposit bears to
the sum of all Qualifying Deposits of all subscribing Eligible Account Holders.
The foregoing subscription rights are subject to the rights of Tax-Qualified
Employee Stock Benefit Plans in the event that shares of Conversion Stock in
excess of the maximum of the Estimated Price Range are sold, as provided in
section VI.B.2.
Subscription Rights to purchase Conversion Stock received by directors and
Officers of the Bank and their Associates, based on their increased deposits in
the Bank in the one year period preceding the Eligibility Record Date, shall be
subordinated to all other subscriptions involving the exercise of Subscription
Rights of Eligible Account Holders.
2. Preference Category No. 2: Tax-Qualified Employee Stock Benefit Plans
Each Tax-Qualified Employee Stock Benefit Plan shall receive Subscription
Rights to subscribe for the number of shares of Conversion Stock in the
Subscription Offering remaining after satisfying the subscriptions of Eligible
Account Holders provided for under Preference Category No. 1 above, requested by
any such Plan, subject to the purchase limitations set forth in Section VI. D.
of this Plan, provided, however, that if the shares of Conversion Stock sold in
the Conversion exceed the maximum of the Estimated Price Range, up to 10% of the
total offering of Conversion Stock may be sold to Tax-Qualified Employee Stock
Benefit Plans.
3. Preference Category No. 3: Supplemental Eligible Account Holders.
In the event that the Eligibility Record Date is more than 15 months prior
to the date of the latest amendment to the Application for Approval of
Conversion filed prior to OTS approval, and if there are any shares of
Conversion Stock remaining after satisfying the subscriptions of Eligible
Account Holders provided for under Preference Category No. 1 above and the
subscriptions of any Tax-Qualified Employee Stock Benefit Plans provided for
under Preference Category No. 2 above, then and only in that event each
Supplemental Eligible Account Holder of the Bank shall receive, without payment,
Subscription Rights to purchase a number of shares of Conversion Stock which
shall be determined by the Boards of Directors of the Holding Company and of the
Bank before the Subscription Offering commences and shall be no greater than
5.0% of the number of shares of the Conversion Stock determined by dividing the
maximum of the Estimated Price Range as of the date the Conversion Stock is
first offered (without giving effect to any subsequent adjustment to the
Estimated Price Range) by the Purchase Price, except that any one or more
Tax-Qualified Employee Stock Benefit Plans may purchase in the aggregate not
more than ten percent (10%) of the shares of Conversion Stock offered in the
Conversion, and that shares held by one or more Tax-Qualified or
Non-Tax-Qualified Employee Stock Benefit Plans and attributed to a person shall
not be aggregated with other shares purchased directly by or otherwise
attributable to that Person. Any Subscription Rights received by Eligible
Account Holders in accordance with Preference Category No. 1 shall reduce to the
extent thereof the Subscription Rights granted pursuant to this Preference
Category No. 3. If sufficient shares are not available in this Preference
Category No. 3, shares may be allocated first to Local Supplemental Eligible
Account Holders. If so, and if sufficient shares are not available for Local
Supplemental Eligible Account Holders, shares shall be allocated first to permit
each Local Supplemental Eligible Account Holder to purchase the lesser of 100
shares or the number of shares subscribed for, and thereafter pro rata in the
same proportion that the Qualifying Deposit of the subscribing Local
Supplemental Eligible Account Holder bears to the total Qualifying Deposits of
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all subscribing Local Supplemental Eligible Account Holders. If shares remain
available after subscriptions of all Local Supplemental Eligible Account Holders
are filled, shares shall next be allocated to Non-Local Supplemental Eligible
Account Holders. If insufficient shares are available for allocation to
Non-Local Supplemental Eligible Account Holders, shares shall be allocated first
to permit each Non-Local Supplemental Eligible Account Holder to purchase the
lesser of 100 shares or the number of shares subscribed for, and thereafter pro
rata in the same proportion that the Qualifying Deposit of the Non-Local
Supplemental Eligible Account Holder bears to the total Qualifying Deposits of
all subscribing Non-Local Supplemental Eligible Account Holders. If the Holding
Company and the Bank decide not to give preference to Local Supplemental
Eligible Account Holders, if sufficient shares are not available in this
Category 3, Conversion Stock shall be allocated first to permit each subscribing
Supplemental Eligible Account Holder to purchase the lesser of 100 shares or the
number of shares subscribed for, and thereafter pro rata in the same proportion
that the Qualifying Deposit of the Supplemental Eligible Account Holder bears to
the total Qualifying Deposits of all subscribing Supplemental Eligible Account
Holders.
4. Preference Category No. 4: Other Members
Each Other Member shall receive non-transferable Subscription Rights to
subscribe for shares of Conversion Stock remaining after satisfying the
subscriptions of Eligible Account Holders provided for under Category No. 1
above, the subscriptions of any Tax-Qualified Employee Stock Benefit Plans
provided for under Category No. 2 above, and the subscriptions of Supplemental
Eligible Account Holders provided for under Category No. 3 above, subject to the
following conditions:
a. Each Other Member shall be entitled to subscribe for a number
of shares which shall be determined by the Boards of Directors of the
Holding Company and the Bank before the Subscription Offering commences
and shall not exceed 5.0% of the number of shares of Conversion Stock
determined by dividing the maximum of the Estimated Price Range as of
the date the Conversion Stock is first offered (without giving effect
to any subsequent adjustment to the Estimated Price Range) by the
Purchase Price, to the extent that stock is available, except that any
one or more Tax-Qualified Employee Stock Benefit Plans may purchase in
the aggregate not more than ten percent (10%) of the shares offered in
the Conversion, and that shares held by one or more Tax-Qualified or
Non-Tax-Qualified Employee Stock Benefit Plans and attributed to a
Person shall not be aggregated with other shares purchased directly by
or otherwise attributable to that Person.
b. If sufficient shares are not available in this Preference
Category No. 4, shares may be allocated first to Local Other Members.
If so, and if sufficient shares are not available for Local Other
Members, the shares available shall be allocated among Local Other
Members pro rata in the same proportion that the number of shares
subscribed for by each Local Other Member bears to the total number of
shares subscribed for by all Local Other Members. If shares remain
available after subscriptions by all Local Other Members are filled,
shares shall next be allocated to Non-Local Other Members. If
insufficient shares are available for allocation to Non-Local Other
Members, shares shall be allocated among Non-Local Other Members pro
rata in the same proportion that the number of shares subscribed for by
each Non-Local Other Member bears to the total number of shares
subscribed for by all Non-Local Other Members. If the Holding Company
and the Bank decide not to give preference to Local Other Members, if
sufficient shares are not available in this Category 4, Conversion
Stock shall be allocated among subscribing Other Members pro rata in
the same proportion that the number of shares subscribed for by each
Other Member bears to the total number of shares subscribed for by all
Other Members.
If the total number of shares subscribed for in the Subscription Offering
falls within the Estimated Price Range, the Conversion may be consummated.
C. Direct Community Offering
1. If the total number of shares of Conversion Stock subscribed for in
the Subscription Offering does not fall within the Estimated Price Range,
additional shares representing up to the difference between the shares
subscribed for in the Subscription Offering and the number of shares equal
to the maximum of the Estimated Price Range may be offered for sale in a
Direct Community Offering. This will involve an offering of all
unsubscribed shares directly to the general public, giving preference to
residents of Clinton County. The Direct Community Offering, if any, shall
be for a period of not less than 20 days nor more than 90 days unless
extended by the Bank and the Holding Company, and shall commence
concurrently with, during or promptly after the Subscription Offering. The
purchase price per share to the general public in a Direct Community
Offering shall be equal to the Purchase Price. Purchase orders received
during the Direct Community Offering shall be filled up to a maximum of two
percent of the total number of shares of Conversion Stock, with any
remaining unfilled purchase orders to be allocated on an equal number of
shares basis. The Bank and the Holding Company may use an investment
banking firm or firms on a best efforts basis to sell the unsubscribed
shares in the Direct Community Offering. The Bank and the Holding Company
may pay a commission or other fee to the Sales Agents as to the
unsubscribed shares sold by such firm or firms in the Direct Community
Offering and may also reimburse such firm or firms for expenses incurred in
connection with the sale. Such Sales Agents may also be paid a management
fee based on shares of Conversion Stock sold in the Conversion to
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compensate them for any advisory assistance they provide during the
Conversion. The Conversion Stock will be offered and sold in the Direct
Community Offering so as to achieve the widest distribution of the
Conversion Stock. The Bank reserves the right to reject any orders received
in the Direct Community Offering in whole or in part.
2. If for any reason any shares remain unsold after the Subscription
Offering and Direct Community Offering, if any, the Board of Directors will
seek to make other arrangements for the sale of the remaining shares,
pursuant to procedures approved by the OTS. If such other arrangements
cannot be made, the Plan will terminate.
D. Additional Limitations Upon Purchases of Shares of Conversion Stock
The following additional limitations shall be imposed on all purchases of
Conversion Stock in the Conversion:
1. No person, by himself or herself, or with an Associate or group of
Persons acting in concert, may subscribe for or purchase more than a number
of shares of the Conversion Stock which shall be determined by the Boards
of Directors of the Holding Company and the Bank before the Subscription
Offering commences and shall not exceed 5.0% of the number of shares
determined by dividing the maximum of the Estimated Price Range as of the
date the Conversion Stock is first offered (without giving effect to any
subsequent adjustment to the Estimated Price Range) by the Purchase Price,
except that any one or more Tax-Qualified Employee Stock Benefit Plans may
purchase in the aggregate not more than ten percent (10%) of the shares
offered in the Conversion, and shall be entitled to purchase this quantity
regardless of the number of shares to be purchased by other parties, and
that shares held by one or more Tax-Qualified or Non-Tax-Qualified Employee
Stock Benefit Plans and attributed to a Person shall not be aggregated with
shares purchased directly by or otherwise attributable to that Person.
2. Directors and Officers and their Associates may not purchase in all
categories in the Conversion an aggregate of more than 35% of the
Conversion Stock offered in the Conversion. In calculating the number of
shares which may be purchased, any shares attributable to the Officers and
directors and their Associates but held by one or more Tax-Qualified
Employee Stock Benefit Plans shall not be included.
3. The minimum number of shares of Conversion Stock that may be
purchased by any Person in the Conversion is 25 shares, provided sufficient
shares are available; provided, however, that if the Purchase Price is
greater than $20.00 per share, such minimum number of shares shall be
adjusted so that the aggregate Purchase Price will not exceed $500.00.
4. The Boards of Directors of the Bank and the Holding Company may, in
their sole discretion, and without further approval of Members, increase
the maximum purchase limitation set forth in subparagraph (1) above up to
9.99% of the Conversion Stock offered in the Conversion, provided that
orders for shares exceeding 5% of the shares of Conversion Stock shall not
exceed, in the aggregate, 10% of the shares of Conversion Stock, except
that Tax-Qualified Employee Stock Benefit Plans may purchase in the
aggregate up to ten percent (10%) of the Conversion Stock offered in the
Conversion and not be included in the order limit.
5. In determining the maximum percentage limitation under subparagraph
(1) above and in Sections VI.B.1, 3, and 4 the Boards of Directors of the
Bank and the Holding Company may set separate limitations for (i) each
account held and/or loan borrowed, (ii) each household of a Person and/or
(iii) each Person together with Associates and Persons acting in concert.
Such separate limitations shall not, however, apply to any Tax-Qualified
Employee Stock Benefit Plan. The Boards of Directors of the Bank and the
Holding Company may, in their sole discretion decrease the maximum purchase
limitation set forth in subparagraph (1) above, without further approval of
Members.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, the Holding Company and the Bank may increase
or decrease any of the purchase limitations set forth herein at any time. In the
event that either the individual purchase limitation or the number of shares of
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Conversion Stock to be sold in the Conversion, is increased after commencement
of the Subscription Offering, the Holding Company and the Bank shall permit any
Person who subscribed for the maximum number of shares of Conversion Stock to
purchase an additional number of shares such that such Person shall be permitted
to subscribe for the then maximum number of shares permitted to be subscribed
for by such Person, subject to the rights and preferences of any person who has
priority Subscription Rights. In such event the Holding Company or the Bank, in
its sole discretion, may resolicit orders only from such persons who subscribed
for the prior maximum purchase amount and may resolicit certain other large
subscribers. In the event that either the individual purchase limitation or the
number of shares of Conversion Stock to be sold in the Conversion is decreased
after commencement of the Subscription Offering, the orders of any Person who
subscribed for the maximum number of shares of Conversion Stock shall be
decreased by the minimum amount necessary so that such Person shall be in
compliance with the then maximum number of shares permitted to be subscribed for
by such Person.
For purposes of this Section VI, the directors of the Bank and the Holding
Company shall not be deemed to be Associates or a group acting in concert solely
as a result of their being directors of the Bank or of the Holding Company.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the above purchase
limitations.
E. Restrictions and Other Characteristics of Conversion Stock Being Sold
1. Transferability. Conversion Stock purchased by Persons other than
directors and Officers of the Bank or the Holding Company will be
transferable without restriction. Shares purchased by directors or Officers
of the Bank or of the Holding Company shall not be sold or otherwise
disposed of for value for a period of one year from the date of Conversion,
except for any disposition of such shares.
(i) following the death of the original purchaser or (ii) resulting from an
exchange of securities in a merger or acquisition approved by the
applicable regulatory authorities. Transfers that could result in a change
of control of the Bank or the Holding Company or result in the ownership by
any person of more than 10% of any class of the Bank's or of the Holding
Company's equity securities may be subject to the prior approval of the
OTS. Moreover, transfers of Holding Company common stock are also subject
to restrictions in the Holding Company's Articles of Incorporation.
The certificates representing shares of Conversion Stock issued by
Holding Company to directors and Officers shall bear a legend giving
appropriate notice of the one year holding period restriction. The Holding
Company shall give appropriate instructions to the transfer agent for such
stock with respect to the applicable restrictions relating to the transfer
of restricted stock. Any shares subsequently issued as a stock dividend,
stock split, or otherwise with respect to any such restricted stock shall
be subject to the same holding period restrictions for directors and
Officers of the Bank and of the Holding Company as may be then applicable
to such restricted stock.
No director or Officer of the Bank or the Holding Company, or Associate
of such a director or Officer, shall purchase any outstanding shares of
common stock of the Holding Company for a period of three years following
the Conversion without the prior written approval of the OTS, except from a
broker or dealer registered with the SEC, in a negotiated transaction
involving more than one percent of the then outstanding shares of common
stock, pursuant to any one or more Tax-Qualified or Non-Tax-Qualified
Employee Stock Benefit Plans which may be attributable to individual
Officers or directors, or pursuant to stock option and other incentive
stock plans approved by Holding Company's shareholders. As used herein, the
term negotiated transaction means a transaction in which the securities are
offered and the terms and arrangements relating to any sale are arrived at
through direct communications between the seller or any Person acting on
its behalf and the purchaser or his investment representative. The term
investment representative shall mean a professional investment advisor
acting as agent for the purchaser and independent of the seller and not
acting on behalf of the seller in connection with the transaction.
2. Repurchase and Dividend Rights. Except as set forth below, for a
period of three years following Conversion, the Holding Company shall not
repurchase any shares of its capital stock, except in the case of an offer
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approved by the OTS to repurchase on a pro rata basis made to all holders
of common stock of the Holding Company, the repurchase of qualifying shares
of a director, or a purchase on the open market by a Tax-Qualified or
Non-Tax-Qualified Employee Stock Benefit Plan in an amount reasonable and
appropriate to fund the plan. Notwithstanding anything to the contrary in
the foregoing, the Holding Company may repurchase its common stock to the
extent and subject to the requirements set forth in 12 C.F.R. 563b.3(g)(3),
as it may be amended from time to time.
Present regulations also provide that the Converted Bank may not
declare or pay a cash dividend on or repurchase any of its Capital Stock if
the result thereof would be to reduce the net worth of the Converted Bank
below the amount required for the liquidation account to be established
pursuant to Section XI hereof. Any dividend declared or paid on, or
repurchase of, the Converted Bank's Capital Stock must also comply with
regulations adopted by the OTS setting standards for payment of dividends
and other "capital distributions" by federal stock savings banks insured by
the FDIC set forth in 12 C.F.R. ss. 563.134, as it may be amended from time
to time.
The above limitations shall not preclude payments of dividends or
repurchases of stock by the Converted Bank or by the Holding Company in the
event applicable federal regulatory limitations are liberalized subsequent
to OTS approval of the Plan.
3. Voting Rights. Upon Conversion, holders of deposit accounts and
borrowers will not have voting rights in the Converted Bank or the Holding
Company. Exclusive voting rights with respect to the Converted Bank will be
held and exercised by the Holding Company as holder of the Bank's Capital
Stock. Voting rights with respect to the Holding Company shall be held and
exercised by the holders of the Holding Company's common stock. Each
shareholder of the Holding Company will upon Conversion be entitled to vote
on any matters coming before the shareholders of the Holding Company for
consideration and will be entitled to one vote for each share of Holding
Company common stock owned by said shareholder, except as otherwise
prescribed by law and except insofar as the Holding Company's Articles of
Incorporation may provide with respect to the cumulation of votes for the
election of directors or may limit voting rights as set forth in Section
XII hereof.
F. Exercise of Subscription Rights; Order Forms
1. The Bank may commence the Subscription Offering concurrently with
the proxy solicitation for the Special Meeting. If the Subscription
Offering occurs concurrently with the solicitation of proxies for the
Special Meeting, the prospectus and Order Form may be sent to each Eligible
Account Holder, Supplemental Eligible Account Holder and Other Member at
their last known address as shown on the records of the Bank. However, the
Bank may furnish a prospectus and Order Form only to Eligible Account
Holders, Supplemental Eligible Account Holders and Other Members who have
returned to the Bank by a specified date a postcard or other written
communication requesting a prospectus and Order Form, provided that the
Subscription Offering shall not be closed prior to the expiration of 30
days after the mailing of the proxy solicitation material and/or letter
sent in lieu of the proxy statement to those Eligible Account Holders and
Supplemental Eligible Account Holders who are not Members on the Voting
Record Date. In such event, the Bank shall provide a postage-paid postcard
for this purpose and make appropriate disclosure in its proxy statement for
the solicitation of proxies to be voted at the Special Meeting and/or
letter sent in lieu of the proxy statement to those Eligible Account
Holders and Supplemental Eligible Account Holders who are not Members on
the Voting Record Date. If the Subscription Offering is not commenced
within 45 days after the Special Meeting, the Bank may transmit, no more
than 30 days prior to the commencement of the Subscription Offering, to
each Eligible Account Holder, Supplemental Eligible Account Holder and
Other Member who had been furnished with proxy solicitation materials a
notice which shall state that the Bank is not required to furnish a
prospectus or Order Form to them unless they return by a reasonable date a
certain postage-paid postcard or other written communication requesting a
prospectus and Order Form.
2. Each Order Form will be preceded or accompanied by a prospectus
describing the Bank and the shares of Conversion Stock being offered for
subscription and containing all other information required under the
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Securities Act of 1933 and by the OTS or necessary to enable Persons to
make informed investment decisions regarding the purchase of Conversion
Stock.
3. The Order Forms (or accompanying instructions) used for the
Subscription Offering will contain, among other things, the following:
(i) A clear and intelligible explanation of the Subscription
Rights granted under the Plan to Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible
Account Holders and Other Members;
(ii) A specified expiration date by which Order Forms must be
returned to and actually received by the Bank or the Holding Company or
their representative for purposes of exercising Subscription Rights,
which date will be not less than 20 days after the Order Forms are
mailed;
(iii) The Purchase Price to be paid for each share subscribed for
when the Order Form is returned;
(iv) Except as otherwise provided in Section VI.D.3 hereof, a
statement that 25 shares is the minimum number of shares of Conversion
Stock that may be subscribed for under the Plan;
(v) A specifically designated blank space for indicating the
number of shares being subscribed for;
(vi) A set of detailed instructions as to how to complete the
Order Form;
(vii) Specifically designated blank spaces for dating and signing
the Order Form;
(viii)An acknowledgment that the subscriber has received the
prospectus;
(ix) A statement of the consequences of failure to properly
complete and return the Order Form, including a statement that the
Subscription Rights will expire on the expiration date specified on the
Order Form unless such expiration date is extended by the Bank and the
Holding Company, and that the Subscription Rights may be exercised only
by delivering the Order Form, properly completed and executed, to the
Bank or the Holding Company or their representative by the expiration
date, together with required payment of the Purchase Price for all
shares of Conversion Stock subscribed for;
(x) A statement that the Subscription Rights are non-transferable
and that all shares of Conversion Stock subscribed for upon exercise of
Subscription Rights must be purchased on behalf of the Person
exercising the Subscription Rights for his own account; and
(xi) A statement that, after receipt by the Bank or the Holding
Company or their representative, a subscription may not be modified,
withdrawn or canceled without the consent of the Bank and the Holding
Company.
G. Method of Payment
Payment for all shares of Conversion Stock subscribed for, computed on the
basis of the Purchase Price, must accompany all completed Order Forms. Payment
may be made in cash (if presented in person), by check, or, if the subscriber
has a deposit in the Bank (including a certificate of deposit), the subscriber
may authorize the Bank to charge the subscriber's account.
Payment for shares of Conversion Stock subscribed for by Tax-Qualified
Employee Stock Benefit Plans may be made with funds contributed by the Bank or
the Holding Company and/or funds obtained pursuant to a loan from an unrelated
financial institution or the Holding Company pursuant to a loan commitment which
is in force from the time that any such plan submits an order form until the
closing of the Conversion.
If a subscriber authorizes the Bank to charge his or her account, the funds
will continue to earn interest, but may not be used by the subscriber until all
Conversion Stock has been sold or the Plan of Conversion is terminated,
whichever is earlier. The Bank will allow subscribers to purchase shares by
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withdrawing funds from certificate accounts, without the assessment of early
withdrawal penalties. In the case of early withdrawal of only a portion of such
account, the certificate evidencing such account shall be canceled if the
remaining balance of the account is less than the applicable minimum balance
requirement, in which event the remaining balance will earn interest at the
then-current passbook rate. This waiver of early withdrawal penalty is
applicable only to withdrawals made in connection with the purchase of
Conversion Stock under the Plan of Conversion. Interest will also be paid, at
not less than the then current passbook rate, on all orders paid in cash or by
check or money order, from the date payment is received until consummation of
the Conversion. Payments made in cash or by check or money order will be placed
by the Bank or the Holding Company in an escrow or other account established
specifically for this purpose.
In the event of an unfilled amount of any subscription order, the Converted
Bank will make an appropriate refund, or cancel an appropriate portion of the
related withdrawal authorization, after consummation of the Conversion. If for
any reason the Conversion is not consummated, purchasers will have refunded to
them all payments made and all withdrawal authorizations will be canceled in the
case of subscription payments authorized from accounts at the Bank.
H. Undelivered, Defective or Late Order Forms; Insufficient Payment
The Boards of Directors of the Bank and the Holding Company shall have the
absolute right, in their sole discretion, to reject any Order Form, including
but not limited to, any Order Forms which (i) are not delivered or are returned
by the United States Postal Service (or the addressee cannot be located); (ii)
are not received back by the Bank or the Holding Company or their
representative, or are received after termination of the date specified thereon;
(iii) are defectively completed or executed; (iv) are not accompanied by the
total required payment for the shares of Conversion Stock subscribed for
(including cases in which the subscribers' accounts in the Bank are insufficient
to cover the authorized withdrawal for the required payment); or (v) are
submitted by or on behalf of a person whose representations the Boards of
Directors believe to be false or who they otherwise believe, either alone or
acting in concert with others, is violating, evading or circumventing, or
intends to violate, evade or circumvent, the terms and conditions of this Plan.
In such event, the Subscription Rights of the person to whom such rights have
been granted will not be honored and will be treated as though such Person
failed to return the completed Order Form within the time period specified
therein. The Bank and the Holding Company may, but will not be required to,
waive any irregularity relating to any Order Form or require submission of
corrected Order Forms or the remittance of full payment for subscribed shares by
such date as the Bank or the Holding Company may specify. The Bank and the
Holding Company's interpretation of the terms and conditions of this Plan and of
the proper completion of the Order Form will be final, subject to the authority
of the OTS.
I. Members in Non-Qualified States or in Foreign Countries
The Bank and the Holding Company will make reasonable efforts to comply
with the securities laws of all states in the United States in which Persons
entitled to subscribe for Conversion Stock pursuant to the Plan reside. However,
the Bank or the Holding Company will not be required to offer Subscription
Rights to any Person who resides in a foreign country or who resides in a state
of the United States with respect to which all of the following apply: (i) a
small number of Persons otherwise eligible to subscribe for shares under this
Plan reside in such state and (ii) the granting of Subscription Rights or offer
or sale of shares of Conversion Stock to such Persons would require the Bank or
the Holding Company or their respective Officers or directors to register, under
the securities laws of such state, as a broker, dealer, salesman or agent or to
register or otherwise qualify the Conversion Stock for sale in such state; and
(iii) such registration, qualification or filing in the judgment of the Holding
Company and the Bank would be impracticable or unduly burdensome for reasons of
cost or otherwise.
VII. FEDERAL STOCK CHARTER AND BYLAWS
A. As part of the Conversion, the Bank take all appropriate steps to amend
its charter to read in the form of a federal stock charter as prescribed by the
OTS for a federal stock savings bank. By their approval of the Plan, the Members
of the Bank will thereby approve and adopt such federal stock charter.
B. The Bank will also take appropriate steps to amend its bylaws to read in
the form prescribed by the OTS for a federal stock savings bank.
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C. The effective date of the adoption of the Converted Bank's federal stock
charter and bylaws shall be the date of the issuance and sale of the Conversion
Stock as specified by the OTS.
D. Copies of the amended charter and bylaws will be mailed to all Members
as part of the proxy materials for the Special Meeting.
VIII. STOCK INCENTIVE PLANS AND EMPLOYMENT CONTRACTS
In order to provide an incentive for directors, Officers and employees of
the Holding Company and the Bank, the Board of Directors of the Holding Company
or of the Bank is authorized to adopt a stock option plan or plans, a management
recognition plan and trust, a restricted stock bonus plan, an employee stock
ownership plan and trust, and similar stock incentive plans. Such plans (other
than an employee stock ownership plan) shall be subject to approval at an annual
or special meeting of shareholders of the Holding Company, and in the case of
any such plans other than an employee stock ownership plan, will be implemented
no earlier than the date of such shareholder meeting to be held no earlier than
six (6) months following completion of the Conversion. Moreover, the Boards of
Directors of the Bank and Holding Company are authorized to enter into
employment contracts with key employees.
IX. SECURITIES REGISTRATION AND MARKET MAKING
In connection with the Conversion, the Holding Company will register its
common stock with the SEC, pursuant to the Securities Exchange Act of 1934, as
amended. In connection with the registration, the Holding Company will under
take not to deregister such stock, without the approval of the OTS, for a period
of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist two
or more Market Makers to establish and maintain a market for its common stock
promptly following Conversion. The Holding Company will also use its best
efforts to cause its common stock to be quoted on the National Association of
Securities Dealers Automated Quotations System or to be listed on a national or
regional securities exchange.
X. STATUS OF DEPOSIT ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION
All Deposit Accounts of the Converted Bank will retain the same status
after the Conversion as such Accounts had prior to the Conversion. Each Deposit
Account holder shall retain, without payment, a withdrawable Deposit Account or
Accounts in the Converted Bank, equal in amount to the withdrawable value of
such account holder's Deposit Account or Accounts immediately prior to
Conversion. All Deposit Accounts will continue to be insured by the FDIC up to
the applicable limits of insurance coverage, and shall be subject to the same
terms and conditions (except as to voting and liquidation rights) to which such
Deposit Accounts were subject at the time of the Conversion. All loans shall
retain the same status after Conversion as those loans had prior to Conversion.
Notwithstanding the foregoing, as provided in Section VI.E.3, voting rights of
Deposit Account holders and borrowers will terminate upon Conversion.
XI. LIQUIDATION ACCOUNT
For purposes of granting to Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain Deposit Accounts at the
Converted Bank a priority in the event of a complete liquidation of the
Converted Bank, the Converted Bank will, at the time of Conversion, establish a
liquidation account in an amount equal to the net worth of the Bank as shown on
its latest statement of financial condition contained in the final prospectus
used in connection with the Conversion. The operation and maintenance of the
liquidation account will not operate to restrict the use or application of any
of the net worth accounts of the Converted Bank; provided, however, that such
net worth accounts will not be voluntarily reduced below the required dollar
amount of the liquidation account. Each Eligible Account Holder and Supplemental
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<PAGE>
Eligible Account Holder shall, with respect to each Deposit Account held, have a
related inchoate interest in a portion of the liquidation account balance
("subaccount balance").
The initial subaccount balance of a Deposit Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of the Qualifying Deposit in the Deposit
Account on the Eligibility Record Date and/or the Supplemental Eligibility
Record Date of such Eligible Account Holder or Supplemental Eligible Account
Holder and the denominator is the total amount of the Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders on such
date(s). For savings accounts in existence at both dates, separate subaccounts
shall be determined on the basis of the Qualifying Deposits in such savings
accounts on such record dates. Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.
If the deposit balance in any Deposit Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing date subsequent to the respective record dates is less than the lesser
of (i) the deposit balance in such Deposit Account at the close of business on
any other annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date or (ii) the amount of the Qualifying
Deposit in such Deposit Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, the subaccount balance shall be reduced in
an amount proportionate to the reduction in such deposit balance. In the event
of a downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Deposit Account. If all funds in such Deposit Account are withdrawn, the related
subaccount balance shall be reduced to zero.
In the event of a complete liquidation of Converted Bank (and only in such
event), each Eligible Account Holder and/or Supplemental Eligible Account Holder
shall be entitled to receive a liquidation distribution from the liquidation
account in the amount of the then-current adjusted subaccount balances for
Deposit Accounts then held before any liquidation distribution may be made to
shareholders. No merger, consolidation, bulk purchase of assets with assumptions
of Deposit Accounts and other liabilities, or similar transactions in which the
Converted Bank is not the surviving institution, shall be considered to be a
complete liquidation if the surviving institution is a qualifying institution
insured by the FDIC. In such transactions, the liquidation account shall be
assumed by the surviving institution.
The Converted Bank shall not be required to recompute the liquidation
account and subaccount balances provided the Converted Bank maintains records
sufficient to make necessary computations in the event of a complete liquidation
or such other events as may require a computation of the balance of the
liquidation account. The liquidation subaccount of an account holder shall be
maintained for as long as the account holder maintains an account with the same
Social Security number.
XII. RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
A. Present regulations provide that for a period of three years following
completion of the Conversion, no person (i.e., individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, or any unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution) shall directly or indirectly offer to
purchase or actually acquire the beneficial ownership of more than ten percent
of any class of equity security of the Holding Company without the prior
approval of the OTS. However, approval is not required for purchases directly
from the Holding Company or from underwriters or a selling group acting on its
behalf with a view toward public resale, or for purchases not exceeding one
percent per annum of the shares outstanding. Civil penalties may be imposed by
the OTS for willful violation or assistance of any violation. Where any person
directly or indirectly acquires beneficial ownership of more than ten percent of
Holding Company common stock outstanding within such three year period without
the prior approval of the OTS, the Holding Company stock beneficially owned by
such person in excess of ten percent shall not be counted as shares entitled to
vote and shall not be voted by any person or counted as voting shares in
connection with any matter submitted to the shareholders of the Holding Company
for a vote.
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<PAGE>
B. The Holding Company may provide in its Articles of Incorporation that,
for a specified period of up to five years or for an unspecified period of time
following the date of the completion of the Conversion, no person shall directly
or indirectly offer to acquire or acquire the beneficial ownership of more than
ten percent of the outstanding Holding Company common stock. Furthermore, the
Articles of Incorporation may provide that, for a specified period of up to five
years or for an unspecified period of time following the date of the completion
of the Conversion, shares of Holding Company common stock beneficially owned in
violation of such percentage limitation shall not be entitled to vote and shall
not be voted by any person or counted as voting shares in connection with any
matter submitted to the shareholders of the Holding Company for a vote. The
Holding Company may provide in its Articles of Incorporation such other
provisions affecting acquisition of Holding Company common stock or possible
changes of control of the Holding Company as shall be determined by the Holding
Company's Board of Directors.
XIII. AMENDMENT OR TERMINATION OF PLAN
If necessary or desirable, the Plan may be amended at any time prior to
submission of the Plan and proxy materials to the Members by a two-thirds vote
of the Boards of Directors of the Bank and the Holding Company. After submission
of the Plan and proxy materials to the Members, the Plan may be amended by a
two-thirds vote of the Boards of Directors of the Bank and the Holding Company
only with the concurrence of the OTS or resubmission to the Members.
The Plan may be terminated by a two-thirds vote of the Boards of Directors
of the Bank and the Holding Company at any time prior to the Special Meeting of
Members, and at any time following such Special Meeting with the concurrence of
the OTS. In its discretion, the respective Boards of Directors may modify or
terminate the Plan upon the order or with the approval of the OTS, and without a
resolicitation of proxies or another meeting of Members. The Plan shall
terminate if the sale of shares of Conversion Stock falling within the Estimated
Price Range is not completed within 24 months of the date of the Special
Meeting. A specific resolution approved by a majority of the Boards of Directors
of the Bank and the Holding Company is required in order for the Bank and the
Holding Company to terminate the Plan prior to the end of such 24 month period.
XIV. EXPENSES OF THE CONVERSION
The Holding Company and the Bank shall use their best efforts to assure
that expenses incurred by the Bank and the Holding Company in connection with
the Conversion shall be reasonable.
XV. EXTENSION OF CREDIT FOR PURCHASE OF STOCK
Neither the Bank nor the Holding Company shall knowingly loan funds or
otherwise extend credit to any Person to purchase shares of Conversion Stock,
provided, however that, with the approval of the OTS, the Holding Company may be
permitted to loan funds to a Tax-Qualified Employee Stock Benefit Plan for
purposes of acquiring shares of Conversion Stock in the Conversion.
XVI. EFFECTIVE DATE
The effective date of the Conversion shall be the date of the closing of
the sale of all shares of Conversion Stock. The closing (which shall be within
45 days after the completion of the Subscription Offering, unless the Holding
Company and the Bank extend such period as provided herein) for all shares of
Conversion Stock sold in the Subscription Offering and any Direct Community
Offering shall occur simultaneously, and the closing is conditioned upon the
prior receipt of all requisite regulatory and other approvals.
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ARTICLES OF INCORPORATION
OF
CITIZENS BANCORP
ARTICLE 1
Name
The name of the Corporation is Citizens Bancorp.
ARTICLE 2
Purposes and Powers
Section 2.01. Purposes. The purposes for which the Corporation is formed
are the transaction of any or all lawful business for which corporations may be
incorporated under the Indiana Business Corporation Law, as the same may, from
time to time, be amended (the "Act").
Section 2.02. Powers. The Corporation shall have the same powers as an
individual to do all things necessary or convenient to carry out its business
and affairs, including without limitation, all the powers specifically
enumerated in the Act.
ARTICLE 3
Term of Existence
The period during which the Corporation shall continue is perpetual.
ARTICLE 4
Registered Office and Resident Agent
The street address of the registered office of the Corporation is:
60 South Main Street
P.O. Box 635
Frankfort, Indiana 46041
and the name and business office address of its registered agent in charge
of such office are:
Fred W. Carter
60 South Main Street
P.O. Box 635
Frankfort, Indiana 46041
ARTICLE 5
Number of Shares
The total number of shares which the Corporation shall have authority to
issue is Seven Million (7,000,000) shares, all of which are without par value.
ARTICLE 6
Terms of Shares
Section 6.01. Designation of Classes, Number and Par Value of Shares. The
shares of authorized capital shall be divided into Two Million (2,000,000)
shares of Preferred Stock, without par value, as hereinafter provided
("Preferred Stock"), and Five Million (5,000,000) shares of Common Stock,
without par value ("Common Stock"), as hereinafter provided.
Section 6.02. Rights, Privileges, Limitations and Restrictions of Preferred
Stock. The Board of Directors of the Corporation is vested with authority to
determine and state the designations and the relative preferences, limitations,
voting rights, if any, and other rights of the Preferred Stock and of each
series of Preferred Stock by the adoption and filing in accordance with the Act,
before the issuance of any shares of such Preferred Stock or series of Preferred
Stock, of an amendment or amendments to these Articles of Incorporation as the
same may, from time to time, be amended, determining the terms of such Preferred
Stock or series of Preferred Stock ("Preferred Stock Designation"). All shares
of Preferred Stock of the same series shall be identical with each other in all
respects. The number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the voting power of all of the
then outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of Directors, after giving effect to the provisions in
Article 11 hereof ("Voting Stock"), voting as a single class, without a separate
vote of the holders of the Preferred Stock or any series thereof, unless a vote
of any such holders is required pursuant to the Preferred Stock Designation.
Section 6.03. Rights, Privileges, Limitations and Restrictions of Common
Stock.
Clause 6.031. Single Class. The shares of Common Stock shall constitute
a separate and single class and shall not be issued in series. All shares
of Common Stock shall be identical with each other in all respects.
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<PAGE>
Clause 6.032. Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, the holders of
the shares of Common Stock shall be entitled, after payment or provision
for payment of the debts and other liabilities of the Corporation and of
all shares of stock having priority over the Common Stock, in the event of
voluntary or involuntary liquidation, dissolution or winding up, to share
ratably in the remaining net assets of the Corporation.
Clause 6.033. Voting Rights. Every holder of shares of Common Stock
shall have the right, at every Shareholders' meeting, to one vote for each
share of Common Stock standing in his name on the books of the Corporation,
except as otherwise provided in the Act.
Section 6.04. Issuance of Shares. The Board of Directors has authority to
authorize and direct the issuance by the Corporation of shares of Preferred
Stock and Common Stock at such times, in such amounts, to such persons, for such
considerations and upon such terms and conditions as it may, from time to time,
determine upon, subject only to the restrictions, limitations, conditions and
requirements imposed by the Act, other applicable laws and these Articles of
Incorporation, as the same may, from time to time, be amended.
Section 6.05. Distributions Upon Shares. The Board of Directors has
authority to authorize and direct the payment of dividends and the making of
other distributions by the Corporation in respect of the issued and outstanding
shares of Preferred Stock and Common Stock (i) at such times, in such amount and
forms, from such sources and upon such terms and conditions as it may, from time
to time, determine upon, subject only to the restrictions, limitations,
conditions and requirements imposed by the Act, other applicable laws and these
Articles of Incorporation, as the same may, from time to time, be amended, and
(ii) in shares of the same class or series or in shares of any other class or
series without obtaining the affirmative vote or the written consent of the
holders of the shares of the class or series in which the payment or
distribution is to be made.
Section 6.06. Acquisition of Shares. The Board of Directors has authority
to authorize and direct the acquisition by the Corporation of the issued and
outstanding shares of Preferred Stock and Common Stock at such times, in such
amounts, from such persons, for such considerations, from such sources and upon
such terms and conditions as it may, from time to time, determine upon, subject
only to the restrictions, limitations, conditions and requirements imposed by
the Act, other applicable laws and these Articles of Incorporation, as the same
may, from time to time, be amended.
Section 6.07. Recognition Procedure for Beneficial Ownership of Shares or
Rights. The Board of Directors may establish in the Code of By-Laws of the
Corporation a recognition procedure by which the beneficial owner of any share
or right of the Corporation that is registered on the books of the Corporation
in the name of a nominee is recognized by the Corporation, to the extent
provided in any such recognition procedure, as the owner thereof.
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<PAGE>
Section 6.08. Disclosure Procedure for Beneficial Ownership of Shares or
Rights. The Board of Directors may establish in the Corporation's Code of
By-Laws a disclosure procedure by which the name of the beneficial owner of any
share or right of the Corporation that is registered on the books of the
Corporation in the name of a nominee shall, to the extent not prohibited by the
Act or other applicable laws, be disclosed to the Corporation. Any disclosure
procedure established by the Board of Directors may include reasonable sanctions
to ensure compliance therewith, including without limitation (i) prohibiting the
voting of, (ii) providing for mandatory or optional reacquisition by the
Corporation of, and (iii) the withholding or payment into escrow of any dividend
or other distribution in respect of, any share or right of the Corporation as to
which the name of the beneficial owner is not disclosed to the Corporation as
required by such disclosure procedure.
Section 6.09. No Pre-emptive Rights. The holders of the Common Stock and
the holders of the Preferred Stock or any series of the Preferred Stock shall
have no pre-emptive rights to subscribe to or purchase any shares of Common
Stock, Preferred Stock or other securities of the Corporation.
Section 6.10. Record Ownership of Shares or Rights. The Corporation, to the
extent permitted by law, shall be entitled to treat the person in whose name any
share or right of the Corporation is registered on the books of the Corporation
as the owner thereof for all purposes, and shall not be bound to recognize any
equitable or any other claim to, or interest in, such share or right on the part
of any other person, whether or not the Corporation shall have notice thereof.
ARTICLE 7
Directors
Section 7.01. Number. The number of Directors of the Corporation shall not
be less than five (5) nor more than fifteen (15), as may be specified from time
to time by resolution adopted by a majority of the total number of the
Corporation's Directors. If and whenever the Board of Directors has not
specified the number of Directors, the number shall be five (5). The terms of
the initial directors of the Corporation shall expire at the first Annual
Meeting of Shareholders of the Corporation. At that meeting, the directors
elected by the Shareholders shall be divided into three (3) classes, as nearly
equal in number as possible, with the term of office of the first class to
expire at the Annual Meeting of Shareholders held following the fiscal year
ended June 30, 1998, the term of office of the second class to expire at the
Annual Meeting of Shareholders held following the fiscal year ended June 30,
1999, and the term of office of the third class to expire at the Annual Meeting
of Shareholders held following the fiscal year ended June 30, 2000. At each
Annual Meeting of Shareholders following such initial classification, Directors
elected by the Shareholders to succeed those Directors whose term expires shall
be elected for a term of office to expire at the third succeeding Annual Meeting
of Shareholders after their election. Each Director shall hold office until his
successor is chosen and qualified. There shall be no cumulative voting by
Shareholders of any class or series in the election of Directors of the
Corporation.
Section 7.02. Vacancies. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, newly-created directorships resulting from
any increase in the authorized number of Directors or any vacancies in the Board
of Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause shall be filled only by a majority vote of
the Continuing Directors, as defined in Section 11.02 of Article 11 hereof,
although less than a quorum of the Board of Directors. Directors so chosen shall
hold office for a term expiring at the Annual Meeting of Shareholders at which
the term of the class to which they have been elected expires. No decrease in
the number of authorized Directors constituting the entire Board of Directors
shall shorten the term of any incumbent Director.
Section 7.03. Removal. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, any Director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least 80% of the voting power of
all of the shares of the Corporation entitled to vote generally in the election
of Directors, voting together as a single class. For purposes of this section,
removal for cause shall be limited to the grounds then specifically enumerated
in 12 C.F.R. ss. 563.39 (or any successor provision) with respect to termination
for cause.
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<PAGE>
Section 7.04. Shareholder Nomination of Director Candidates and
Introduction of Business. Advance notice of Shareholder nominations for the
election of Directors and of business to be brought by Shareholders before any
meeting of the Shareholders of the Corporation shall be given in the manner
provided in the Corporation's Code of By-Laws.
Section 7.05. Calling of Special Shareholder Meetings. Special meetings of
the Shareholders of the Corporation may only be called by the Chairman of the
Board of Directors or by the Board of Directors pursuant to a resolution adopted
by a majority of the total number of Directors of the Corporation.
Section 7.06. Code of By-Laws. The Board of Directors of the Corporation
shall have power, without the assent or vote of the Shareholders, to make,
alter, amend or repeal the Code of By-Laws of the Corporation by the affirmative
vote of a number of Directors equal to a majority of the number who constitute a
full Board of Directors at the time of such action. Shareholders shall not have
any power to make, alter, amend or repeal the Corporation's Code of By-Laws.
Section 7.07. Factors to be Considered by Board. In addition to any other
considerations which the Board of Directors may lawfully take into account, in
determining whether to take or to refrain from taking corporate action on any
matter, including making or declining to make any recommendation to the
Shareholders of the Corporation, the Board of Directors may in its discretion
consider the long-term as well as short-term best interests of the Corporation
(including the possibility that these interests may be best served by the
continued independence of the Corporation), taking into account, and weighing as
the Directors deem appropriate, the social and economic effects of such action
on present and future employees, suppliers, customers of the Corporation and its
subsidiaries (including account holders and borrowers of any of the
Corporation's subsidiaries), the effect upon communities in which offices or
other facilities of the Corporation are located, and the effect on the
Corporation's ability to fulfill its corporate obligations as a savings and loan
holding company or a bank holding company and on the ability of any of its
subsidiary financial institutions to fulfill the objectives of a financial
institution under applicable statutes and regulations, and any other factors the
Directors consider pertinent.
Section 7.08. Authorized Board Actions. In furtherance and not in
limitation of the powers conferred by law or in these Articles of Incorporation,
as the same may, from time to time, be amended, the Board of Directors (and any
committee of the Board of Directors) is expressly authorized, to the extent
permitted by law, to take such action or actions as the Board or such committee
may determine to be reasonably necessary or desirable to (A) encourage any
person (as defined in Section 12.03, Clause 12.031 hereof) to enter into
negotiations with the Board of Directors and management of the Corporation with
respect to any transaction which may result in a change in control of the
Corporation which is proposed or initiated by such person or (B) contest or
oppose any such transaction which the Board of Directors or such committee
determines to be unfair, abusive or otherwise undesirable with respect to the
Corporation and its business, assets or properties or the Shareholders of the
Corporation, including, without limitation, the adoption of such plans or the
issuance of such rights, options, capital stock, notes, debentures or other
evidences of indebtedness or other securities of the Corporation (which issuance
may be with or without consideration, and may (but need not) be issued pro
rata), which rights, options, capital stock, notes, evidences of indebtedness
and other securities (i) may be exchangeable for or convertible into cash or
other securities on such terms and conditions as may be determined by the Board
or such committee and (ii) may provide for the treatment of any holder or class
of holders thereof designated by the Board of Directors or any such committee in
respect of the terms, conditions, provisions and rights of such securities which
is different from, and unequal to, the terms, conditions, provisions and rights
applicable to all other holders thereof.
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<PAGE>
Section 7.09. Amendment, Repeal. Notwithstanding anything contained in the
Articles of Incorporation or the Code of By-Laws of the Corporation to the
contrary and notwithstanding that a lesser percentage or no vote may be
specified by law, but in addition to any affirmative vote of the holders of any
particular class or series of capital stock of the Corporation required by law
or any Preferred Stock Designation, the affirmative vote of the holders of at
least 80% of the voting power of all of the then-outstanding shares of Voting
Stock, voting together as a single class, shall be required to alter, amend,
change or repeal this Article 7.
ARTICLE 8
Initial Directors
The names and post office addresses of the initial Board of Directors of
the Corporation are as follows:
Name Post Office Address
Robert F. Ayres 60 South Main Street
P.O. Box 635
Frankfort, Indiana 46041
Fred W. Carter 60 South Main Street
P.O. Box 635
Frankfort, Indiana 46041
Perry W. Lewis 60 South Main Street
P.O. Box 635
Frankfort, Indiana 46041
John J. Miller 60 South Main Street
P.O. Box 635
Frankfort, Indiana 46041
Billy J. Wray 60 South Main Street
P.O. Box 635
Frankfort, Indiana 46041
ARTICLE 9
Incorporator
The name and post office address of the Incorporator of the Corporation are
as follows:
Claudia V. Swhier, Esq.
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
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<PAGE>
ARTICLE 10
Provisions for Regulation of Business and Conduct
of Affairs of Corporation
Section 10.01. Amendments of Articles of Incorporation. Except as otherwise
provided in Articles 7, 11, and 12 hereof, the Corporation reserves the right to
increase or decrease the number of its authorized shares, or any class or series
thereof, and to reclassify the same, and to amend, alter, change or repeal any
provision contained in these Articles of Incorporation, or any amendment hereto,
or to add any provision to these Articles of Incorporation or to any amendment
hereto, in any manner now or hereafter prescribed or permitted by the Act or any
other applicable laws, and all rights and powers conferred upon Shareholders,
Directors and/or Officers in these Articles of Incorporation, or any amendment
hereto, are granted subject to this reserve power. No Shareholder has a vested
property right resulting from any provision in these Articles of Incorporation,
or any amendment hereto, or authorized to be in the Code of By-Laws of the
Corporation or these Articles of Incorporation by the Act, including, without
limitation, provisions relating to management, control, capital structure,
dividend entitlement, or purpose or duration of the Corporation.
Section 10.02. Action by Shareholders. Meetings of the Shareholders of the
Corporation shall be held at such place, within or without the State of Indiana,
as may be specified in the Code of By-Laws of the Corporation or in the
respective notices, or waivers of notice, thereof. Any action required or
permitted to be taken at any meeting of the Shareholders may be taken without a
meeting if a consent in writing setting forth the action so taken is signed by
all the Shareholders entitled to vote with respect thereto, and such written
consent is filed with the minutes of the proceedings of the Shareholders.
Section 10.03. Action by Directors. Meetings of the Board of Directors of
the Corporation or any committee thereof shall be held at such place, within or
without the State of Indiana, as may be specified in the Code of By-Laws of the
Corporation or in the respective notices, or waivers of notice, thereof. Any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if a
consent in writing setting forth the action so taken is signed by all members of
the Board of Directors or of such committee, as the case may be, and such
written consent is filed with the minutes of the proceedings of such Board or
committee.
Section 10.04. Places of Keeping of Corporate Records. The Corporation
shall keep at its principal office a copy of (1) its Articles of Incorporation,
and all amendments thereto currently in effect; (2) its Code of By-Laws, and all
amendments thereto currently in effect; (3) minutes of all meetings of the
Shareholders and records of all actions taken by the Shareholders without a
meeting (collectively, "Shareholders Minutes") for the prior three years; (4)
all written communications by the Corporation to the Shareholders including the
financial statements furnished by the Corporation to the Shareholders
("Shareholder Communications") for the prior three years; (5) a list of the
names and business addresses of the current Directors and the current Officers
of the Corporation; and (6) the most recent Annual Report of the Corporation as
filed with the Secretary of State of Indiana. The Corporation shall also keep
and maintain at its principal office, or at such other place or places within or
without the State of Indiana as may be provided, from time to time, in the Code
of By-Laws, (1) minutes of all meetings of the Board of Directors and of each
committee of such Board, and records of all actions taken by the Board of
Directors and by each committee without a meeting; (2) appropriate accounting
records of the Corporation; (3) a record of the Shareholders in a form that
permits preparation of a list of the names and addresses of all the
Shareholders, in alphabetical order, stating the number of shares held by each
Shareholder; and (4) Shareholders Minutes for periods preceding the prior three
years. All of the records of the Corporation described in this Section 10.04
(collectively, the "Corporate Records") shall be maintained in written form or
in another form capable of conversion into written form within a reasonable
time.
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Section 10.05. Limitation of Liability and Reliance on Corporate Records
and Other Information.
Clause 10.051. General Limitation. No Director, member of any committee
of the Board of Directors, or of another committee appointed by the Board,
Officer, employee or agent of the Corporation ("Corporate Person") shall be
liable for any loss or damage if, in taking or omitting to take any action
causing such loss or damage, either (1) such Corporate Person acted (A) in
good faith, (B) with the care an ordinarily prudent person in a like
position would have exercised under similar circumstances, and (C) in a
manner such Corporate Person reasonably believed was in the best interests
of the Corporation, or (2) such Corporate Person's breach of or failure to
act in accordance with the standards of conduct set forth in Clause
10.051(1) above (the "Standards of Conduct") did not constitute willful
misconduct or recklessness.
Clause 10.052. Reliance on Corporate Records and Other Information.
Any "Corporate Person" shall be fully protected, and shall be deemed to
have complied with the Standards of Conduct, in relying in good faith, with
respect to any information contained therein, upon (1) the Corporate
Records, or (2) information, opinions, reports or statements (including
financial statements and other financial data) prepared or presented by (A)
one or more other Corporate Persons whom such Corporate Person reasonably
believes to be competent in the matters presented, (B) legal counsel,
public accountants or other persons as to matters that such Corporate
Person reasonably believes are within such person's professional or expert
competence, (C) a committee of the Board of Directors or other committee
appointed by the Board of Directors, of which such Corporate Person is not
a member, if such Corporate Person reasonably believes such committee of
the Board of Directors or such appointed committee merits confidence, or
(D) the Board of Directors, if such Corporate Person is not a Director and
reasonably believes that the Board merits confidence.
Section 10.06. Interest of Directors in Contracts. Any contract or other
transaction between the Corporation and (i) any Director, or (ii) any
corporation, unincorporated association, business trust, estate, partnership,
trust, joint venture, individual or other legal entity ("Legal Entity") (A) in
which any Director has a material financial interest or is a general partner, or
(B) of which any Director is a director, officer, or trustee (collectively, a
"Conflict Transaction"), shall be valid for all purposes, if the material facts
of the Conflict Transaction and the Director's interest were disclosed or known
to the Board of Directors, a committee of the Board of Directors with authority
to act thereon, or the Shareholders entitled to vote thereon, and the Board of
Directors, such committee or such Shareholders authorized, approved or ratified
the Conflict Transaction. A Conflict Transaction is authorized, approved or
ratified:
(1) By the Board of Directors or such committee, if it receives the
affirmative vote of a majority of the Directors who have no interest in the
Conflict Transaction, notwithstanding the fact that such majority may not
constitute a quorum or a majority of the Board of Directors or such
committee or a majority of the Directors present at the meeting, and
notwithstanding the presence or vote of any Director who does have such an
interest; provided, however, that no Conflict Transaction may be
authorized, approved or ratified by a single Director; and
(2) By such Shareholders, if it receives the vote of a majority of the
shares entitled to be counted, in which vote shares owned or voted under
the control of any Director who, or of any Legal Entity that, has an
interest in the Conflict Transaction may be counted; provided, however,
that a majority of such shares, whether or not present, shall constitute a
quorum for the purpose of authorizing, approving or ratifying a Conflict
Transaction. This Section 10.06 shall not be construed to require
authorization, ratification or approval by the Shareholders of any Conflict
Transaction, or to invalidate any Conflict Transaction, that would
otherwise be valid under the common and statutory law applicable thereto.
Section 10.07. Compensation of Directors. The Board of Directors is hereby
specifically authorized, in and by the Code of By-Laws of the Corporation, or by
resolution duly adopted by such Board, to make provision for reasonable
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compensation to its members for their services as Directors, and to fix the
basis and conditions upon which such compensation shall be paid. Any Director of
the Corporation may also serve the Corporation in any other capacity and receive
compensation therefor in any form.
Section 10.08. Direction of Purposes and Exercise of Powers by Directors.
The Board of Directors, subject to any specific limitations or restrictions
imposed by the Act or these Articles of Incorporation, as the same may, from
time to time, be amended, shall direct the carrying out of the purposes and
exercise the powers of the Corporation, without previous authorization or
subsequent approval by the Shareholders of the Corporation.
ARTICLE 11
Certain Limitations
Section 11.01. Certain Limitations. Notwithstanding anything contained in
these Articles of Incorporation or the Corporation's Code of By-Laws to the
contrary, the following provisions shall apply:
No person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than ten percent (10%) of any class of equity
security of the Corporation. This limitation shall not apply to the purchase of
shares by underwriters in connection with a public offering or to the purchase
of shares by a defined benefit or defined contribution employee benefit plan
such as an employee stock ownership plan, stock bonus plan, profit-sharing plan
or other plan, which, with its related trust, meets the requirements to be
"qualified" under Section 401 of the Internal Revenue Code of 1986, as amended.
In the event shares are acquired in violation of this Section 11.01, all
shares beneficially owned by any person in excess of 10% shall be considered
"excess shares" and shall not be counted as shares entitled to vote and shall
not be voted by any person or counted as voting shares in connection with any
matters submitted to the Shareholders for a vote.
For purposes of this Section 11.01, the term "person" shall have the
meaning set forth in Section 12.03, Clause 12.031 hereof. The term "offer"
includes every offer to buy or otherwise acquire, solicitation of an offer to
sell, tender offer for, or request or invitation for tenders of, a security or
interest in a security for value. The term "acquire" includes every type of
acquisition, whether effected by purchase, exchange, operation of law or
otherwise. The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise.
For purposes of determining the beneficial ownership limitation imposed by
this Section 11.01, warrants, options, obligations or securities convertible
into such equity securities of the Corporation and other similar interests shall
be treated as having been exercised or converted into such equity securities.
Section 11.02. Amendment of Article 11. Notwithstanding anything elsewhere
in these Articles of Incorporation or in the Corporation's Code of By-Laws to
the contrary and notwithstanding that a lesser percentage or no vote may be
specified by law, but in addition to any affirmative vote of the holders of any
particular class or series of capital stock of the Corporation required by law
or any Preferred Stock Designation, the affirmative vote of the holders of at
least 80% of the total voting power of all of the then-outstanding shares of
Voting Stock, voting as a single class, shall be required to alter, amend or
repeal this Article 11, unless at least two-thirds of the Continuing Directors
(as defined below in this Section 11.02) shall have approved the proposed
changes prior to their submission to Shareholders for their vote (in which case
a favorable vote of the percentage of the total votes eligible to be cast
required by the Act or other applicable law shall be required). For purposes of
this Section 11.02, a "Continuing Director" shall mean any Director then serving
as such who was a member of the Corporation's Board of Directors on June 10,
1997, or was recommended for appointment or election (before such person's
initial assumption of office as a Director) by a majority of the Continuing
Directors then on the Board.
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ARTICLE 12
Provisions for Certain Business Combinations
Section 12.01. Vote Required.
Clause 12.011. Higher Vote for Certain Business Combinations. In
addition to any affirmative vote required by law or these Articles of
Incorporation, and except as otherwise expressly provided in Section 12.02
of this Article 12:
1. any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with (A) any Interested Shareholder (as
hereinafter defined), or (B) any other corporation (whether or not
itself an Interested Shareholder) which is, or after such merger
or consolidation would be, an Affiliate (as hereinafter defined)
of an Interested Shareholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or
with any Interested Shareholder or any Affiliate of any Interested
Shareholder, of any assets of the Corporation or any Subsidiary
having an aggregate Fair Market Value equaling or exceeding 25% or
more of the combined assets of the Corporation and its
Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Shareholder or
any Affiliate of any Interested Shareholder in exchange for cash,
securities or other property (or a combination thereof) having an
aggregate Fair Market Value equaling or exceeding 25% of the
combined assets of the Corporation and its Subsidiaries except
pursuant to an employee benefit plan of the Corporation or any
Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Shareholder or any Affiliate of any Interested
Shareholder; or
5. any reclassification of securities (including any reverse stock
split) or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or
any other transaction (whether or not with or into or otherwise
involving any Interested Shareholder) which has the effect,
directly or indirectly, of increasing the proportionate share of
the outstanding shares of any class or series of equity or
convertible securities of the Corporation or any Subsidiary which
is Beneficially Owned (as hereinafter defined) directly or
indirectly by any Interested Shareholder or any Affiliate of any
Interested Shareholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of all of the then-outstanding shares of Voting Stock, voting
together as a single class. Such affirmative vote shall be required
notwithstanding that any other provisions of these Articles of
Incorporation, or any provision of law, or any Preferred Stock Designation,
or any agreement with any national securities exchange or otherwise might
otherwise permit a lesser vote or no vote.
Clause 12.012. Definition of "Business Combination." The term "Business
Combination" as used in this Article 12 shall mean any transaction which is
referred to in any one or more of paragraphs (1) through (5) of Clause
12.011 of this Section 12.01.
Section 12.02. When Higher Vote is Not Required. The provisions of Section
12.01 of this Article 12 shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote as is required by law, and any other provision of these Articles of
Incorporation, and any Preferred Stock Designation, if, in the case of a
Business Combination that does not involve any cash or other consideration being
received by the Shareholders of the Corporation, solely in their capacity as
Shareholders of the Corporation, the condition specified in the following Clause
12.021 is met or, in the case of any other Business Combination, the conditions
specified in either of the following Clause 12.021 or 12.022 are met:
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Clause 12.021. Approval by Continuing Directors. The Business
Combination shall have been approved by a majority of the Continuing
Directors (as hereinafter defined); provided, however, that this condition
shall not be capable of satisfaction unless there are at least three
Continuing Directors.
Clause 12.022. Price and Procedure Requirements. All of the following
conditions shall have been met:
1. The consideration to be received by holders of shares of a
particular class (or series) of outstanding capital stock
(including Common Stock) shall be in cash or in the same form as
the Interested Shareholder or any of its Affiliates has previously
paid for shares of such class (or series) of capital stock. If the
Interested Shareholder or any of its Affiliates has paid for
shares of any class (or series) of capital stock with varying
forms of consideration, the form of consideration to be received
per share by holders of shares of such class (or series) of
capital stock shall be either cash or the form used to acquire the
largest number of shares of such class (or series) of capital
stock previously acquired by the Interested Shareholder.
2. The aggregate amount of (x) the cash and (y) the Fair Market Value
as of the date (the "Consummation Date") of the consummation of
the Business Combination, of the consideration other than cash to
be received per share by holders of Common Stock in such Business
Combination shall be at least equal to the higher of the following
(in each case appropriately adjusted in the event of any stock
dividend, stock split, combination of shares or similar event):
A. (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder or any of its
Affiliates for any shares of Common Stock acquired by them
within the two-year period immediately prior to the date of
the first public announcement of the proposal of the Business
Combination (the "Announcement Date") or in any transaction in
which the Interested Shareholder became an Interested
Shareholder, whichever is higher; and
B. The Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Shareholder became an Interested Shareholder (the
"Determination Date"), whichever is higher.
3. The aggregate amount of (x) the cash and (y) the Fair Market
Value, as of the Consummation Date, of the consideration other
than cash to be received per share by holders of shares of any
class (or series), other than Common Stock, of outstanding capital
stock of the Corporation shall be at least equal to the highest of
the following (in each case appropriately adjusted in the event of
any stock dividend, stock split, combination of shares or similar
event), it being intended that the requirements of this
subparagraph (3) shall be required to be met with respect to every
such class (or series) of outstanding capital stock whether or not
the Interested Shareholder or any of its Affiliates has previously
acquired any shares of a particular class (or series) of capital
stock:
A. (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder or any of its
Affiliates for any shares of such class (or series) of capital
stock acquired by them within the two-year period immediately
prior to the Announcement Date or in any transaction in which
it became an Interested Shareholder, whichever is higher;
B. the Fair Market Value per share of such class (or series)
of capital stock on the Announcement Date or on the
Determination Date, whichever is higher; and
C. (if applicable) the highest preferential amount per share, if
any, to which the holders of shares of such class (or series)
of capital stock would be entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding
up of the Corporation.
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4. After such Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business
Combination: (a) except as approved by a majority of the
Continuing Directors, there shall have been no failure to declare
and pay at the regular date therefor any full quarterly dividends
(whether or not cumulative) on any outstanding Preferred Stock;
(b) there shall have been (I) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect
any subdivision of the Common Stock), except as approved by a
majority of the Continuing Directors, and (II) an increase in such
annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of the
Common Stock, unless the failure so to increase such annual rate
is approved by a majority of the Continuing Directors; and (c)
neither such Interested Shareholder nor any of its Affiliates
shall have become the beneficial owner of any additional shares of
Voting Stock except as part of the transaction which results in
such Interested Shareholder becoming an Interested Shareholder;
provided, however, that no approval by Continuing Directors shall
satisfy the requirements of this subparagraph (4) unless at the
time of such approval there are at least three Continuing
Directors.
5. After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder and any of its Affiliates
shall not have received the benefit, directly or indirectly
(except proportionately, solely in such Interested Shareholder's
or Affiliate's capacity as a Shareholder of the Corporation), of
any loans, advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantages provided by
the Corporation, whether in anticipation of or in connection with
such Business Combination or otherwise.
6. A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules
or regulations) shall be mailed to all Shareholders of the
Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or
subsequent provisions).
7. Such Interested Shareholder shall have provided the Corporation
with such information as shall have been requested pursuant to
Section 12.05 of this Article 12 within the time period set forth
therein.
Section 12.03. Certain Definitions. For the purposes of this Article 12:
Clause 12.031. A "person" shall include an individual, a group acting
in concert, a corporation, a partnership, an association, a joint venture,
a pool, a joint stock company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities.
Clause 12.032. "Interested Shareholder" means any person (other than
the Corporation or any Subsidiary) who or which:
1. is the beneficial owner (as hereinafter defined), directly or
indirectly, of ten percent or more of the voting power of the
outstanding Voting Stock; or
2. is an Affiliate or an Associate of the Corporation and at any time
within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of ten
percent or more of the voting power of the then outstanding Voting
Stock; or
3. is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by
any Interested Shareholder, if such assignment or succession shall
have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of
the Securities Act of 1933, as amended.
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Clause 12.033. A person shall be a "beneficial owner" of, or shall
"Beneficially Own," any Voting Stock:
1. which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly
within the meaning of Rule 13d-3 under the Securities Exchange Act
of 1934, as in effect on June 10, 1997; or
2. which such person or any of its Affiliates or Associates has (a)
the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise, or (b) the right to vote pursuant to any agreement,
arrangement or understanding (but neither such person nor any such
Affiliate or Associate shall be deemed to be the beneficial owner
of any shares of Voting Stock solely by reason of a revocable
proxy granted for a particular meeting of Shareholders, pursuant
to a public solicitation of proxies for such meeting, and with
respect to which shares neither such person nor any such Affiliate
or Associate is otherwise deemed the beneficial owner); or
3. which are beneficially owned, directly or indirectly, within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934,
as in effect on June 10, 1997, by any other person with which such
person or any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting (other than solely by reason of a revocable proxy
as described in subparagraph (2) of this Clause 12.033) or
disposing of any shares of Voting Stock; provided, however, that
in the case of any employee stock ownership or similar plan of the
Corporation or of any Subsidiary in which the beneficiaries
thereof possess the right to vote any shares of Voting Stock held
by such plan, no such plan nor any trustee with respect thereto
(nor any Affiliate of such trustee), solely by reason of such
capacity of such trustee, shall be deemed, for any purpose hereof,
to beneficially own any shares of Voting Stock held under any such
plan.
Clause 12.034. For the purposes of determining whether a person is an
Interested Shareholder pursuant to Clause 12.032 of this Section 12.03, the
number of shares of Voting Stock deemed to be outstanding shall include
shares deemed owned through application of Clause 12.033 of this Section
12.03 but shall not include any other unissued shares of Voting Stock which
may be issuable pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or otherwise.
Clause 12.035. "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on June
10, 1997.
Clause 12.036. "Subsidiary" means any corporation of which a majority
of any class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Interested Shareholder set forth in Clause 12.032 of this Section 12.03,
the term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the
Corporation.
Clause 12.037. "Continuing Director" for purposes of this Article 12
means any member of the Board of Directors of the Corporation who is
unaffiliated with the Interested Shareholder and was a member of the Board
prior to the time that the Interested Shareholder became an Interested
Shareholder, and any director who is thereafter chosen to fill any vacancy
on the Board of Directors or who is elected and who, in either event, is
unaffiliated with the Interested Shareholder and in connection with his or
her initial assumption of office is recommended for appointment or election
by a majority of Continuing Directors then on the Board.
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Clause 12.038. "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding
the date in question of a share of such stock on the Composite Tape for New
York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such stock is not
listed on such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934, as amended, on which
such stock is listed, or, if such stock is not listed on any such exchange,
the highest closing bid quotation with respect to a share of such stock
during the 30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations System or any
system then in use, or if no such quotations are available, the fair market
value on the date in question of a share of such stock as determined by the
Board in accordance with Section 12.04 of this Article 12, in each case
with respect to any class of stock, appropriately adjusted for any dividend
or distribution in shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller number
of shares of such stock; and (ii) in the case of property other than cash
or stock, the fair market value of such property on the date in question as
determined by the Board in accordance with Section 12.04 of this Article
12.
Clause 12.039. Reference to "highest per share price" shall in each
case with respect to any class of stock reflect an appropriate adjustment
for any dividend or distribution in shares of such stock or any stock split
or reclassification of outstanding shares of such stock into a greater
number of shares of such stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of shares of such
stock.
Clause 12.310. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in Clauses 12.022(2) and 12.022(3) of Section 12.02 of
this Article 12 shall include the shares of Common Stock and/or the shares
of any other class (or series) of outstanding capital stock retained by the
holders of such shares.
Section 12.04. Powers of the Board of Directors. A majority of the total
number of Directors of the Corporation, but only if a majority of such Directors
shall then consist of Continuing Directors or, if a majority of the total number
of Directors shall not then consist of Continuing Directors, a majority of the
then Continuing Directors, shall have the power and duty to determine, on the
basis of information known to them after reasonable inquiry, all facts necessary
to determine compliance with this Article 12, including, without limitation, (a)
whether a person is an Interested Shareholder, (b) the number of shares of
Voting Stock beneficially owned by any person, (c) whether a person is an
Affiliate or Associate of another, (d) whether the applicable conditions set
forth in Clause 12.022 of Section 12.02 have been met with respect to any
Business Combination, (e) the Fair Market Value of stock or other property in
accordance with Clause 12.038 of Section 12.03 of this Article 12, and (f)
whether the assets which are the subject of any Business Combination referred to
in Clause 12.011(2) of Section 12.01 have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any Subsidiary
in any Business Combination referred to in Clause 12.011(3) of Section 12.01
has, an aggregate Fair Market Value equaling or exceeding 25% of the combined
assets of the Corporation and its Subsidiaries.
Section 12.05. Information to be Supplied to the Corporation. A majority of
the total number of Directors of the Corporation, but only if a majority of such
Directors shall then consist of Continuing Directors or, if a majority of the
total number of Directors shall not then consist of Continuing Directors, a
majority of the then Continuing Directors, shall have the right to demand that
any person who it is reasonably believed is an Interested Shareholder (or holds
of record shares of Voting Stock Beneficially Owned by any Interested
Shareholder) supply the Corporation with complete information as to (i) the
record owner(s) of all shares Beneficially Owned by such person who it is
reasonably believed is an Interested Shareholder, (ii) the number of, and class
or series of, shares Beneficially Owned by such person who it is reasonably
believed is an Interested Shareholder and held of record by each such record
owner and the number(s) of the stock certificate(s) evidencing such shares, and
(iii) any other factual matter relating to the applicability or effect of this
Article 12, as may be reasonably requested of such person, and such person shall
furnish such information within 10 days after receipt of such demand.
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Section 12.06. No Effect on Fiduciary Obligations of Interested
Shareholders. Nothing contained in this Article 12 shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
Section 12.07. Amendment, Repeal, Etc. Notwithstanding any other provisions
of these Articles of Incorporation or the Code of By-Laws of the Corporation to
the contrary and notwithstanding that a lesser vote or no vote may be specified
by law, but in addition to any affirmative vote of the holders of any particular
class or series of the Corporation's capital stock required by law or any
Preferred Stock Designation, the affirmative vote of the holders of at least 80
percent of the voting power of all of the then-outstanding shares of Voting
Stock, voting together as a single class, shall be required to alter, amend or
repeal this Article 12.
ARTICLE 13
Indemnification
Section 13.01. General. The Corporation shall, to the fullest extent to
which it is empowered to do so by the Act, or any other applicable laws, as from
time to time in effect, indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal, by reason of the fact that he is or was a Director,
Officer, employee or agent of the Corporation, or who, while serving as such
Director, Officer, employee or agent of the Corporation, is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, whether for profit or not, against
expenses (including counsel fees), judgments, settlements, penalties and fines
(including excise taxes assessed with respect to employee benefit plans)
actually or reasonably incurred by him in accordance with such action, suit or
proceeding, if he acted in good faith and in a manner he reasonably believed, in
the case of conduct in his official capacity, was in the best interests of the
Corporation, and in all other cases, was not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, he
either had reasonable cause to believe his conduct was lawful or no reasonable
cause to believe his conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not meet the prescribed standard of conduct.
Section 13.02. Authorization of Indemnification. To the extent that a
Director, Officer, employee or agent of the Corporation has been successful, on
the merits or otherwise, in the defense of any action, suit or proceeding
referred to in Section 13.01 of this Article, or in the defense of any claim,
issue or matter therein, the Corporation shall indemnify such person against
expenses (including counsel fees) actually and reasonably incurred by such
person in connection therewith. Any other indemnification under Section 13.01 of
this Article (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case, upon a determination that indemnification of
the Director, Officer, employee or agent is permissible in the circumstances
because he has met the applicable standard of conduct. Such determination shall
be made (1) by the Board of Directors by a majority vote of a quorum consisting
of Directors who were not at the time parties to such action, suit or
proceeding; or (2) if a quorum cannot be obtained under subdivision (1), by a
majority vote of a committee duly designated by the Board of Directors (in which
designation Directors who are parties may participate), consisting solely of two
or more Directors not at the time parties to such action, suit or proceeding; or
(3) by special legal counsel: (A) selected by the Board of Directors or its
committee in the manner prescribed in subdivision (1) or (2), or (B) if a quorum
of the Board of Directors cannot be obtained under subdivision (1) and a
committee cannot be designated under subdivision (2), selected by a majority
vote of the full Board of Directors (in which selection Directors who are
parties may participate); or (4) by the Shareholders, but shares owned by or
voted under the control of Directors who are at the time parties to such action,
suit or proceeding may not be voted on the determination.
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Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (3)
to select counsel.
Section 13.03. Good Faith Defined. For purposes of any determination under
Section 13.01 of this Article 13, a person shall be deemed to have acted in good
faith and to have otherwise met the applicable standard of conduct set forth in
Section 13.01 if his action is based on information, opinions, reports, or
statements, including financial statements and other financial data, if prepared
or presented by (1) one or more Officers or employees of the Corporation or
another enterprise whom he reasonably believes to be reliable and competent in
the matters presented; (2) legal counsel, public accountants, appraisers or
other persons as to matters he reasonably believes are within the person's
professional or expert competence; or (3) a committee of the Board of Directors
of the Corporation or another enterprise of which the person is not a member if
he reasonably believes the committee merits confidence. The term "another
enterprise" as used in this Section 13.03 shall mean any other corporation or
any partnership, joint venture, trust, employee benefit plan or other enterprise
of which such person is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent. The provisions of this
Section 13.03 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standards of conduct set forth in Section 13.01 of this Article 13.
Section 13.04. Payment of Expenses in Advance. Expenses incurred in
connection with any civil or criminal action, suit or proceeding may be paid for
or reimbursed by the Corporation in advance of the final disposition of such
action, suit or proceeding, as authorized in the specific case in the same
manner described in Section 13.02 of this Article, upon receipt of a written
affirmation of the Director, Officer, employee or agent's good faith belief that
he has met the standard of conduct described in Section 13.01 of this Article
and upon receipt of a written undertaking by or on behalf of the Director,
Officer, employee or agent to repay such amount if it shall ultimately be
determined that he did not meet the standard of conduct set forth in this
Article 13, and a determination is made that the facts then known to those
making the determination would not preclude indemnification under this Article
13.
Section 13.05. Provisions Not Exclusive. The indemnification provided by
this Article shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under these Articles of Incorporation,
the Corporation's Code of By-Laws, any resolution of the Board of Directors or
Shareholders, any other authorization, whenever adopted, after notice, by a
majority vote of all Voting Stock then outstanding, or any contract, both as to
action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
Director, Officer, employee or agent, and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 13.06. Vested Right to Indemnification. The right of any individual
to indemnification under this Article shall vest at the time of occurrence or
performance of any event, act or omission giving rise to any action, suit or
proceeding of the nature referred to in Section 13.01 of this Article 13 and,
once vested, shall not later be impaired as a result of any amendment, repeal,
alteration or other modification of any or all of these provisions.
Notwithstanding the foregoing, the indemnification afforded under this Article
shall be applicable to all alleged prior acts or omissions of any individual
seeking indemnification hereunder, regardless of the fact that such alleged acts
or omissions may have occurred prior to the adoption of this Article. To the
extent such prior acts or omissions cannot be deemed to be covered by this
Article 13, the right of any individual to indemnification shall be governed by
the indemnification provisions in effect at the time of such prior acts or
omissions.
Section 13.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, Officer, employee or
agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against any liability asserted against or incurred by the
individual in that capacity or arising from the individual's status as a
Director, Officer, employee or agent, whether or not the Corporation would have
power to indemnify the individual against the same liability under this Article.
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Section 13.08. Additional Definitions. For purposes of this Article,
references to the "Corporation" shall include any domestic or foreign
predecessor entity of the Corporation in a merger or other transaction in which
the predecessor's existence ceased upon consummation of the transaction.
For purposes of this Article, serving an employee benefit plan at the
request of the Corporation shall include any service as a Director, Officer,
employee or agent of the Corporation which imposes duties on, or involves
services by such Director, Officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries. A person who acted in
good faith and in a manner he reasonably believed to be in the best interests of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the Corporation"
referred to in this Article.
For purposes of this Article, "party" includes any individual who is or was
a plaintiff, defendant or respondent in any action, suit or proceeding, or who
is threatened to be made a named defendant or respondent in any action, suit or
proceeding.
For purposes of this Article, "official capacity," when used with respect
to a Director, shall mean the office of director of the Corporation; and when
used with respect to an individual other than a Director, shall mean the office
in the Corporation held by the Officer or the employment or agency relationship
undertaken by the employee or agent on behalf of the Corporation. "Official
capacity" does not include service for any other foreign or domestic corporation
or any partnership, joint venture, trust, employee benefit plan, or other
enterprise, whether for profit or not.
Section 13.09. Payments a Business Expense. Any payments made to any
indemnified party under this Article under any other right to indemnification
shall be deemed to be an ordinary and necessary business expense of the
Corporation, and payment thereof shall not subject any person responsible for
the payment, or the Board of Directors, to any action for corporate waste or to
any similar action.
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CODE OF BY-LAWS
OF
CITIZENS BANCORP
ARTICLE I
Offices
Section 1. Principal Office. The principal office (the "Principal Office")
of Citizens Bancorp (the "Corporation") shall be at 60 South Main Street, P.O.
Box 635, Frankfort, Indiana 46041, or such other place as shall be determined by
resolution of the Board of Directors of the Corporation (the "Board").
Section 2. Other Offices. The Corporation may have such other offices at
such other places within or without the State of Indiana as the Board may from
time to time designate, or as the business of the Corporation may require.
ARTICLE II
Seal
Section 1. Corporate Seal. The corporate seal of the Corporation (the
"Seal") shall be circular in form and shall have inscribed thereon the words
"Citizens Bancorp" and "INDIANA." In the center of the seal shall appear the
word "Seal." Use of the Seal or an impression thereof shall not be required, and
shall not affect the validity of any instrument whatsoever.
ARTICLE III
Shareholder Meetings
Section 1. Place of Meeting. Every meeting of the shareholders of the
Corporation (the "Shareholders") shall be held at the Principal Office, unless a
different place is specified in the notice or waiver of notice of such meeting
or by resolution of the Board or the Shareholders, in which event such meeting
may be held at the place so specified, either within or without the State of
Indiana.
Section 2. Annual Meeting. The annual meeting of the Shareholders (the
"Annual Meeting") shall be held each year at 1:30 P.M. on the second Tuesday
after the second Monday in October (or, if such day is a legal holiday, on the
next succeeding day not a legal holiday), for the purpose of electing directors
of the Corporation ("Directors") and for the transaction of such other business
as may legally come before the Annual Meeting. If for any reason the Annual
Meeting shall not be held at the date and time herein provided, the same may be
held at any time thereafter, or the business to be transacted at such Annual
Meeting may be transacted at any special meeting of the Shareholders (a "Special
Meeting") called for that purpose.
Section 3. Notice of Annual Meeting. Written or printed notice of the
Annual Meeting, stating the date, time and place thereof, shall be delivered or
mailed by the Secretary or an Assistant Secretary to each Shareholder of record
entitled to notice of such Meeting, at such address as appears on the records of
the Corporation, at least ten and not more than sixty days before the date of
such Meeting.
Section 4. Special Meetings. Special Meetings, for any purpose or purposes
(unless otherwise prescribed by law), may be called by only the Chairman of the
Board of Directors (the "Chairman"), if any, or by the Board, pursuant to a
resolution adopted by a majority of the total number of Directors of the
Corporation, to vote on the business proposed to be transacted thereat. All
requests for Special Meetings shall state the purpose or purposes thereof, and
the business transacted at such Meeting shall be confined to the purposes stated
in the call and matters germane thereto.
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Section 5. Notice of Special Meetings. Written or printed notice of all
Special Meetings, stating the date, time, place and purpose or purposes thereof,
shall be delivered or mailed by the Secretary or the President or any Vice
President calling the Meeting to each Shareholder of record entitled to notice
of such Meeting, at such address as appears on the records of the Corporation,
at least ten and not more than sixty days before the date of such Meeting.
Section 6. Waiver of Notice of Meetings. Notice of any Annual or Special
Meeting (a "Meeting") may be waived in writing by any Shareholder, before or
after the date and time of the Meeting specified in the notice thereof, by a
written waiver delivered to the Corporation for inclusion in the minutes or
filing with the corporate records. A Shareholder's attendance at any Meeting in
person or by proxy shall constitute a waiver of (a) notice of such Meeting,
unless the Shareholder at the beginning of the Meeting objects to the holding of
or the transaction of business at the Meeting, and (b) consideration at such
Meeting of any business that is not within the purpose or purposes described in
the Meeting notice, unless the Shareholder objects to considering the matter
when it is presented.
Section 7. Quorum. At any Meeting, the holders of a majority of the voting
power of all shares of the Corporation (the "Shares") issued and outstanding and
entitled to vote at such Meeting (after giving effect to the provisions in
Article 11 of the Articles of Incorporation of the Corporation, as the same may,
from time to time, be amended (the "Articles")), represented in person or by
proxy, shall constitute a quorum for the election of Directors or for the
transaction of other business, unless otherwise provided by law, the Articles or
this Code of By-Laws, as the same may, from time to time, be amended (these
"By-Laws"). If, however, a quorum shall not be present or represented at any
Meeting, the Shareholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the Meeting from time to time,
without notice other than announcement at the Meeting of the date, time and
place of the adjourned Meeting, unless the date of the adjourned Meeting
requires that the Board fix a new record date (the "Record Date") therefor, in
which case notice of the adjourned Meeting shall be given. At such adjourned
Meeting, if a quorum shall be present or represented, any business may be
transacted that might have been transacted at the Meeting as originally
scheduled.
Section 8. Voting. At each Meeting, every Shareholder entitled to vote
shall have one vote for each Share standing in his name on the books of the
Corporation as of the Record Date fixed by the Board for such Meeting, except as
otherwise provided by law or the Articles, and except that no Share shall be
voted at any Meeting upon which any installment is due and unpaid and no share
which is not entitled to vote pursuant to Article 11 of the Articles shall be
voted at any Meeting. Voting for Directors and, upon the demand of any
Shareholder, voting upon any question properly before a Meeting, shall be by
ballot. A plurality vote shall be necessary to elect any Director, and on all
other matters, the action or a question shall be approved if the number of votes
cast thereon in favor of the action or question exceeds the number of votes cast
opposing the action or question, except as otherwise provided by law or the
Articles.
Section 9. Shareholder List. The Secretary shall prepare before each
Meeting a complete list of the Shareholders entitled to notice of such Meeting,
arranged in alphabetical order by class of Shares (and each series within a
class), and showing the address of, and the number of Shares entitled to vote
held by, each Shareholder (the "Shareholder List"). Beginning five business days
before the Meeting and continuing throughout the Meeting, the Shareholder List
shall be on file at the Principal Office or at a place identified in the Meeting
notice in the city where the Meeting will be held, and shall be available for
inspection by any Shareholder entitled to vote at the Meeting. On written
demand, made in good faith and for a proper purpose and describing with
reasonable particularity the Shareholder's purpose, and if the Shareholder List
is directly connected with the Shareholder's purpose, a Shareholder (or such
Shareholder's agent or attorney authorized in writing) shall be entitled to
inspect and to copy the Shareholder List, during regular business hours and at
the Shareholder's expense, during the period the Shareholder List is available
for inspection. The original stock register or transfer book (the "Stock Book"),
or a duplicate thereof kept in the State of Indiana, shall be the only evidence
as to who are the Shareholders entitled to examine the Shareholder List, or to
notice of or to vote at any Meeting.
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Section 10. Proxies. A Shareholder may vote either in person or by proxy
executed in writing by the Shareholder or a duly authorized attorney-in-fact. No
proxy shall be valid after eleven months from the date of its execution, unless
a shorter or longer time is expressly provided therein.
Section 11. Notice of Shareholder Business. At an Annual Meeting of the
Shareholders, only such business shall be conducted as shall have been properly
brought before the Meeting. To be properly brought before an Annual Meeting,
business must be (a) specified in the notice of Meeting (or any supplement
thereto) given by or at the direction of the Board, (b) otherwise properly
brought before the Meeting by or at the direction of the Board, or (c) otherwise
properly brought before the Meeting by a Shareholder. For business to be
properly brought before an Annual Meeting by a Shareholder, the Shareholder must
have the legal right and authority to make the Proposal for consideration at the
Meeting and the Shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a Shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, not less than 120 days prior to the Meeting; provided, however,
that in the event that less than 130 days' notice or prior public disclosure of
the date of the Meeting is given or made to Shareholders (which notice or public
disclosure shall include the date of the Annual Meeting specified in these
By-Laws, if such By-Laws have been filed with the Securities and Exchange
Commission and if the Annual Meeting is held on such date), notice by the
Shareholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the Annual Meeting was mailed or such public disclosure was made. A
Shareholder's notice to the Secretary shall set forth as to each matter the
Shareholder proposes to bring before the Annual Meeting (a) a brief description
of the business desired to be brought before the Annual Meeting and the reasons
for conducting such business at the Annual Meeting, (b) the name and record
address of the Shareholders proposing such business, (c) the class and number of
shares of the Corporation which are beneficially owned by the Shareholder, and
(d) any material interest of the Shareholder in such business. Notwithstanding
anything in these By-Laws to the contrary, no business shall be conducted at an
Annual Meeting except in accordance with the procedures set forth in this
Section 11. The Chairman of an Annual Meeting shall, if the facts warrant,
determine and declare to the Meeting that business was not properly brought
before the Meeting and in accordance with the provisions of this Section 11, and
if he should so determine, he shall so declare to the Meeting and any such
business not properly brought before the Meeting shall not be transacted. At any
Special Meeting of the Shareholders, only such business shall be conducted as
shall have been brought before the Meeting by or at the direction of the Board
of Directors.
Section 12. Notice of Shareholder Nominees. Only persons who are nominated
in accordance with the procedures set forth in this Section 12 shall be eligible
for election as Directors. Nominations of persons for election to the Board may
be made at a Meeting of Shareholders by or at the direction of the Board of
Directors, by any nominating committee or person appointed by the Board of
Directors or by any Shareholder of the Corporation entitled to vote for the
election of Directors at the Meeting who complies with the notice procedures set
forth in this Section 12. Such nominations, other than those made by or at the
direction of the Board, shall be made pursuant to timely notice in writing to
the Secretary of the Corporation. To be timely, a Shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 120 days prior to the Meeting; provided, however, that
in the event that less than 130 days' notice or prior public disclosure of the
date of the Meeting is given or made to Shareholders (which notice or public
disclosure shall include the date of the Annual Meeting specified in these
By-Laws, if such By-Laws have been filed with the Securities and Exchange
Commission and if the Annual Meeting is held on such date), notice by the
Shareholders to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the Meeting was mailed or such public disclosure was made. Such Shareholder's
notice shall set forth (a) as to each person whom the Shareholder proposes to
nominate for election or re-election as a Director, (i) the name, age, business
address and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
Corporation which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including without limitation such person's written consent to being
named in the proxy statement as a nominee and to serving as a Director if
elected); and (b) as to the Shareholder giving the notice (i) the name and
record address of such Shareholder and (ii) the class and number of shares of
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the Corporation which are beneficially owned by such Shareholder. No person
shall be eligible for election as a Director of the Corporation unless nominated
in accordance with the procedures set forth in this Section 12. The Chairman of
the Meeting shall, if the facts warrant, determine and declare to the Meeting
that a nomination was not made in accordance with the procedures prescribed by
these By-Laws, and if he should so determine, he shall so declare to the Meeting
and the defective nomination shall be disregarded.
ARTICLE IV
Board of Directors
Section 1. Number. The business and affairs of the Corporation shall be
managed by a Board of not less than five (5) nor more than fifteen (15)
Directors, as may be specified from time to time by resolution adopted by a
majority of the total number of the Corporation's Directors, divided into three
classes as provided in the Articles. If and whenever the Board of Directors has
not specified the number of Directors, the number shall be six. Directors (a)
must have their primary domicile in Clinton County, Indiana, and (b) must have a
loan or deposit relationship with Citizens Savings Bank of Frankfort which they
have maintained for at least a continuous period of twelve (12) months
immediately prior to their nomination to the Board. In addition, each Director
who is not an employee of the Corporation or any of its subsidiaries must have
served as a member of a civic or community organization based in Clinton County,
Indiana for at least a continuous period of twelve (12) months during the five
(5) years prior to his or her nomination to the Board. The Board may elect or
appoint, from among its members, a Chairman of the Board (the "Chairman"), who
need not be an officer (an "Officer") or employee of the Corporation. The
Chairman, if elected or appointed, shall preside at all Shareholder Meetings and
Board Meetings and shall have such other powers and perform such other duties as
are incident to such position and as may be assigned by the Board.
Section 2. Vacancies and Removal. Any vacancy occurring in the Board shall
be filled as provided in the Articles. Shareholders shall be notified of any
increase in the number of Directors and the name, principal occupation and other
pertinent information about any Director elected by the Board to fill any
vacancy. Any Director, or the entire Board, may be removed from office only as
provided in the Articles.
Section 3. Powers and Duties. In addition to the powers and duties
expressly conferred upon it by law, the Articles or these By-Laws, the Board may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not inconsistent with the law, the Articles or these By-Laws.
Section 4. Annual Board Meeting. Unless otherwise determined by the Board,
the Board shall meet each year immediately after the Annual Meeting, at the
place where such Meeting has been held, for the purpose of organization,
election of Officers of the Corporation (the "Officers") and consideration of
any other business that may properly be brought before such annual meeting of
the Board (the "Annual Board Meeting"). No notice shall be necessary for the
holding of the Annual Board Meeting. If the Annual Board Meeting is not held as
above provided, the election of Officers may be held at any subsequent duly
constituted meeting of the Board (a "Board Meeting").
Section 5. Regular Board Meetings. Regular meetings of the Board ("Regular
Board Meetings") may be held at stated times or from time to time, and at such
place, either within or without the State of Indiana, as the Board may
determine, without call and without notice.
Section 6. Special Board Meetings. Special meetings of the Board ("Special
Board Meetings") may be called at any time or from time to time, and shall be
called on the written request of at least two Directors, by the Chairman or the
President, by causing the Secretary or any Assistant Secretary to give to each
Director, either personally or by mail, telephone, telegraph, teletype or other
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form of wire or wireless communication at least two days' notice of the date,
time and place of such Meeting. Special Board Meetings shall be held at the
Principal Office or at such other place, within or without the State of Indiana,
as shall be specified in the respective notices or waivers of notice thereof.
Section 7. Waiver of Notice and Assent. A Director may waive notice of any
Board Meeting before or after the date and time of the Board Meeting stated in
the notice by a written waiver signed by the Director and filed with the minutes
or corporate records. A Director's attendance at or participation in a Board
Meeting shall constitute a waiver of notice of such Meeting and assent to any
corporate action taken at such Meeting, unless (a) the Director at the beginning
of such Meeting (or promptly upon his arrival) objects to holding of or
transacting business at the Meeting and does not thereafter vote for or assent
to action taken at the Meeting; (b) the Director's dissent or abstention from
the action taken is entered in the minutes of such Meeting; or (c) the Director
delivers written notice of his dissent or abstention to the presiding Director
at such Meeting before its adjournment, or to the Secretary immediately after
its adjournment. The right of dissent or abstention is not available to a
Director who votes in favor of the action taken.
Section 8. Quorum. At all Board Meetings, a majority of the number of
Directors designated for the full Board (the "Full Board") shall be necessary to
constitute a quorum for the transaction of any business, except (a) that for the
purpose of filling of vacancies a majority of Directors then in office shall
constitute a quorum, and (b) that a lesser number may adjourn the Meeting from
time to time until a quorum is present. The act of a majority of the Board
present at a Meeting at which a quorum is present shall be the act of the Board,
unless the act of a greater number is required by law, the Articles or these
By-Laws.
Section 9. Audit and Other Committees of the Board. The Board shall, by
resolution adopted by a majority of the Full Board, designate an Audit Committee
comprised of two or more Directors, which shall have such authority and exercise
such duties as shall be provided by resolution of the Board. The Board may, by
resolution adopted by such majority, also designate other regular or special
committees of the Board ("Committees"), in each case comprised of two or more
Directors and to have such powers and exercise such duties as shall be provided
by resolution of the Board.
Section 10. Resignations. Any Director may resign at any time by giving
written notice to the Board, The Chairman, the President or the Secretary. Any
such resignation shall take effect when delivered unless the notice specifies a
later effective date. Unless otherwise specified in the notice, the acceptance
of such resignation shall not be necessary to make it effective.
ARTICLE V
Officers
Section 1. Officers. The Officers shall be the President, the Secretary and
the Treasurer, and may include one or more Assistant Secretaries, one or more
Vice Presidents, one or more Assistant Treasurers, a Comptroller and one or more
Assistant Comptrollers. Any two or more offices may be held by the same person.
The Board may from time to time elect or appoint such other Officers as it shall
deem necessary, who shall exercise such powers and perform such duties as may be
prescribed from time to time by these By-Laws or, in the absence of a provision
in these By-Laws in respect thereto, as may be prescribed from time to time by
the Board.
Section 2. Election of Officers. The Officers shall be elected by the Board
at the Annual Board Meeting and shall hold office for one year or until their
respective successors shall have been duly elected and shall have qualified;
provided, however, that the Board may at any time elect one or more persons to
new or different offices and/or change the title, designation and duties and
responsibilities of any of the Officers consistent with the law, the Articles
and these By-Laws.
Section 3. Vacancies; Removal. Any vacancy among the Officers may be filled
for the unexpired term by the Board. Any Officer may be removed at any time by
the affirmative vote of a majority of the Full Board.
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Section 4. Delegation of Duties. In the case of the absence, disability,
death, resignation or removal from office of any Officer, or for any other
reason that the Board shall deem sufficient, the Board may delegate, for the
time being, any or all of the powers or duties of such Officer to any other
Officer or to any Director.
Section 5. President. The President shall be a Director and, subject to the
control of the Board, shall have general charge of and supervision and authority
over the business and affairs of the Corporation, and shall have such other
powers and perform such other duties as are incident to this office and as may
be assigned to him by the Board. In the case of the absence or disability of the
Chairman or if no Chairman shall be elected or appointed by the Board, the
President shall preside at all Shareholder Meetings and Board Meetings.
Section 6. Vice Presidents. Each of the Vice Presidents, if any, shall have
such powers and perform such duties as may be prescribed for him by the Board or
delegated to him by the President. In the case of the absence, disability,
death, resignation or removal from office of the President, the powers and
duties of the President shall, for the time being, devolve upon and be exercised
by the Executive Vice President, if there be one, and if not, then by such one
of the Vice Presidents as the Board or the President may designate, or, if there
be but one Vice President, then upon such Vice President; and he shall
thereupon, during such period, exercise and perform all of the powers and duties
of the President, except as may be otherwise provided by the Board.
Section 7. Secretary. The Secretary shall have the custody and care of the
Seal, records, minutes and the Stock Book of the Corporation; shall attend all
Shareholder Meetings and Board Meetings, and duly record and keep the minutes of
their proceedings in a book or books to be kept for that purpose; shall give or
cause to be given notice of all Shareholder Meetings and Board Meetings when
such notice shall be required; shall file and take charge of all papers and
documents belonging to the Corporation; and shall have such other powers and
perform such other duties as are incident to the office of secretary of a
business corporation, subject at all times to the direction and control of the
Board and the President.
Section 8. Assistant Secretaries. Each of the Assistant Secretaries, if
any, shall assist the Secretary in his duties and shall have such other powers
and perform such other duties as may be prescribed for him by the Board or
delegated to him by the President. In case of the absence, disability, death,
resignation or removal from office of the Secretary, his powers and duties
shall, for the time being, devolve upon such one of the Assistant Secretaries as
the Board, the President or the Secretary may designate, or, if there be but one
Assistant Secretary, then upon such Assistant Secretary; and he shall thereupon,
during such period, exercise and perform all of the powers and duties of the
Secretary, except as may be otherwise provided by the Board.
Section 9. Treasurer. The Treasurer shall have control over all records of
the Corporation pertaining to moneys and securities belonging to the
Corporation; shall have charge of, and be responsible for, the collection,
receipt, custody and disbursements of funds of the Corporation; shall have the
custody of all securities belonging to the Corporation; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation; and shall disburse the funds of the Corporation as may be ordered
by the Board, taking proper receipts or making proper vouchers for such
disbursements and preserving the same at all times during his term of office.
When necessary or proper, he shall endorse on behalf of the Corporation all
checks, notes or other obligations payable to the Corporation or coming into his
possession for or on behalf of the Corporation, and shall deposit the funds
arising therefrom, together with all other funds and valuable effects of the
Corporation coming into his possession, in the name and the credit of the
Corporation in such depositories as the Board from time to time shall direct, or
in the absence of such action by the Board, as may be determined by the
President or any Vice President. If the Board has not elected a Comptroller or
an Assistant Comptroller, or in the absence or disability of the Comptroller and
each Assistant Comptroller or if, for any reason, a vacancy shall occur in such
offices, then during such period the Treasurer shall have, exercise and perform
all of the powers and duties of the Comptroller. The Treasurer shall also have
such other powers and perform such other duties as are incident to the office of
treasurer of a business corporation, subject at all times to the direction and
control of the Board and the President.
- 6 -
<PAGE>
If required by the Board, the Treasurer shall give the Corporation a bond,
in such an amount and with such surety or sureties as may be ordered by the
Board, for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
Section 10. Assistant Treasurers. Each of the Assistant Treasurers, if any,
shall assist the Treasurer in his duties, and shall have such other powers and
perform such other duties as may be prescribed for him by the Board or delegated
to him by the President. In case of the absence, disability, death, resignation
or removal from office of the Treasurer, his powers and duties shall, for the
time being, devolve upon such one of the Assistant Treasurers as the Board, the
President or the Treasurer may designate, or, if there be but one Assistant
Treasurer, then upon such Assistant Treasurer; and he shall thereupon, during
such period, exercise and perform all the powers and duties of the Treasurer
except as may be otherwise provided by the Board. If required by the Board, each
Assistant Treasurer shall likewise give the Corporation a bond, in such amount
and with such surety or sureties as may be ordered by the Board, for the same
purposes as the bond that may be required to be given by the Treasurer.
Section 11. Comptroller. The Comptroller, if any, shall have direct control
over all accounting records of the Corporation pertaining to moneys, properties,
materials and supplies, including the bookkeeping and accounting departments;
shall have direct supervision over the accounting records in all other
departments pertaining to moneys, properties, materials and supplies; shall
render to the President and the Board, at Regular Board Meetings or whenever the
same shall be required, an account of all his transactions as Comptroller and of
the financial condition of the Corporation; and shall have such other powers and
perform such other duties as are incident to the office of comptroller of a
business corporation, subject at all times to the direction and control of the
Board and the President.
Section 12. Assistant Comptrollers. Each of the Assistant Comptrollers, if
any, shall assist the Comptroller in his duties, and shall have such other
powers and perform such other duties as may be prescribed for him by the Board
or delegated to him by the President. In case of the absence, disability, death,
resignation or removal from office of the Comptroller, his powers and duties
shall, for the time being, devolve upon such one of the Assistant Comptrollers
as the Board, the President or the Comptroller may designate, or, if there be
but one Assistant Comptroller, then upon such Assistant Comptroller; and he
shall thereupon, during such period, exercise and perform all the powers and
duties of the Comptroller, except as may be otherwise provided by the Board.
ARTICLE VI
Certificates for Shares
Section 1. Certificates. Certificates for Shares ("Certificates") shall be
in such form, consistent with law and the Articles, as shall be approved by the
Board. Certificates for each class, or series within a class, of Shares, shall
be numbered consecutively as issued. Each Certificate shall state the name of
the Corporation and that it is organized under the laws of the State of Indiana;
the name of the registered holder; the number and class and the designation of
the series, if any, of the Shares represented thereby; and a summary of the
designations, relative rights, preferences and limitations applicable to such
class and, if applicable, the variations in rights, preferences and limitations
determined for each series and the authority of the Board to determine such
variations for future series; provided, however, that such summary may be
omitted if the Certificate states conspicuously on its front or back that the
Corporation will furnish the Shareholder such information upon written request
and without charge. Each Certificate shall be signed (either manually or in
facsimile) by (i) the President or a Vice President and (ii) the Secretary or an
Assistant Secretary, or by any two or more Officers that may be designated by
the Board, and may have affixed thereto the Seal, which may be a facsimile,
engraved or printed.
Section 2. Record of Certificates. Shares shall be entered in the Stock
Book as they are issued, and shall be transferable on the Stock Book by the
holder thereof in person, or by his attorney duly authorized thereto in writing,
upon the surrender of the outstanding Certificate therefor properly endorsed.
- 7 -
<PAGE>
Section 3. Lost or Destroyed Certificates. Any person claiming a
Certificate to be lost or destroyed shall make affidavit or affirmation of that
fact and, if the Board or the President shall so require, shall give the
Corporation and/or the transfer agents and registrars, if they shall so require,
a bond of indemnity, in form and with one or more sureties satisfactory to the
Board or the President and/or the transfer agents and registrars, in such amount
as the Board or the President may direct and/or the transfer agents and
registrars may require, whereupon a new Certificate may be issued of the same
tenor and for the same number of Shares as the one alleged to be lost or
destroyed.
Section 4. Shareholder Addresses. Every Shareholder shall furnish the
Secretary with an address to which notices of Meetings and all other notices may
be served upon him or mailed to him, and in default thereof notices may be
addressed to him at his last known address or at the Principal Office.
ARTICLE VII
Corporate Books and Records
Section 1. Places of Keeping. Except as otherwise provided by law, the
Articles or these By-Laws, the books and records of the Corporation (including
the "Corporate Records," as defined in the Articles) may be kept at such place
or places, within or without the State of Indiana, as the Board may from time to
time by resolution determine or, in the absence of such determination by the
Board, as shall be determined by the President.
Section 2. Stock Book. The Corporation shall keep at the Principal Office
the original Stock Book or a duplicate thereof, or, in case the Corporation
employs a stock registrar or transfer agent within or without the State of
Indiana, another record of the Shareholders in a form that permits preparation
of a list of the names and addresses of all the Shareholders, in alphabetical
order by class of Shares, stating the number and class of Shares held by each
Shareholder (the "Record of Shareholders").
Section 3. Inspection of Corporate Records. Any Shareholder (or the
Shareholder's agent or attorney authorized in writing) shall be entitled to
inspect and copy at his expense, after giving the Corporation at least five
business days' written notice of his demand to do so, the following Corporate
Records: (1) the Articles; (2) these By-Laws; (3) minutes of all Shareholder
Meetings and records of all actions taken by the Shareholders without a meeting
(collectively, "Shareholders Minutes") for the prior three years; (4) all
written communications by the Corporation to the Shareholders including the
financial statements furnished by the Corporation to the Shareholders for the
prior three years; (5) a list of the names and business addresses of the current
Directors and the current Officers; and (6) the most recent Annual Report of the
Corporation as filed with the Secretary of State of Indiana. Any Shareholder (or
the Shareholder's agent or attorney authorized in writing) shall also be
entitled to inspect and copy at his expense, after giving the Corporation at
least five business days' written notice of his demand to do so, the following
Corporate Records, if his demand is made in good faith and for a proper purpose
and describes with reasonable particularity his purpose and the records he
desires to inspect, and the records are directly connected with his purpose: (1)
to the extent not subject to inspection under the previous sentence,
Shareholders Minutes, excerpts from minutes of Board Meetings and of Committee
meetings, and records of any actions taken by the Board or any Committee without
a meeting; (2) appropriate accounting records of the Corporation; and (3) the
Record of Shareholders.
Section 4. Record Date. The Board may, in its discretion, fix in advance a
Record Date not more than seventy days before the date (a) of any Shareholder
Meeting, (b) for the payment of any dividend or the making of any other
distribution, (c) for the allotment of rights, or (d) when any change or
conversion or exchange of Shares shall go into effect. If the Board fixes a
Record Date, then only Shareholders who are Shareholders of record on such
Record Date shall be entitled (a) to notice of and/or to vote at any such
Meeting, (b) to receive any such dividend or other distribution, (c) to receive
any such allotment of rights, or (d) to exercise the rights in respect of any
such change, conversion or exchange of Shares, as the case may be,
notwithstanding any transfer of Shares on the Stock Book after such Record Date.
- 8 -
<PAGE>
Section 5. Transfer Agents; Registrars. The Board may appoint one or more
transfer agents and registrars for its Shares and may require all Certificates
to bear the signature either of a transfer agent or of a registrar, or both.
ARTICLE VIII
Checks, Drafts, Deeds and Shares of Stock
Section 1. Checks, Drafts, Notes, Etc. All checks, drafts, notes or orders
for the payment of money of the Corporation shall, unless otherwise directed by
the Board or otherwise required by law, be signed by one or more Officers as
authorized in writing by the President. In addition, the President may authorize
any one or more employees of the Corporation ("Employees") to sign checks,
drafts and orders for the payment of money not to exceed specific maximum
amounts as designated in writing by the President for any one check, draft or
order. When so authorized by the President, the signature of any such Officer or
Employee may be a facsimile signature.
Section 2. Deeds, Notes, Bonds, Mortgages, Contracts, Etc. All deeds,
notes, bonds and mortgages made by the Corporation, and all other written
contracts and agreements, other than those executed in the ordinary course of
corporate business, to which the Corporation shall be a party, shall be executed
in its name by the President, a Vice President or any other Officer so
authorized by the Board and, when necessary or required, the Secretary or an
Assistant Secretary shall attest the execution thereof. All written contracts
and agreements into which the Corporation enters in the ordinary course of
corporate business shall be executed by any Officer or by any other Employee
designated by the President or a Vice President to execute such contracts and
agreements.
Section 3. Sale or Transfer of Stock. Subject always to the further orders
and directions of the Board, any share of stock issued by any corporation and
owned by the Corporation (including reacquired Shares of the Corporation) may,
for sale or transfer, be endorsed in the name of the Corporation by the
President or a Vice President, and said endorsement shall be duly attested by
the Secretary or an Assistant Secretary either with or without affixing thereto
the Seal.
Section 4. Voting of Stock of Other Corporations. Subject always to the
further orders and directions of the Board, any share of stock issued by any
other corporation and owned or controlled by the Corporation (an "Investment
Share") may be voted at any shareholders' meeting of such other corporation by
the President or by a Vice President. Whenever, in the judgment of the
President, it is desirable for the Corporation to execute a proxy or give a
shareholder's consent in respect of any Investment Share, such proxy or consent
shall be executed in the name of the Corporation by the President or a Vice
President, and, when necessary or required, shall be attested by the Secretary
or an Assistant Secretary either with or without affixing thereto the Seal. Any
person or persons designated in the manner above stated as the proxy or proxies
of the Corporation shall have full right, power and authority to vote an
Investment Share the same as such Investment Share might be voted by the
Corporation.
ARTICLE IX
Fiscal Year
Section 1. Fiscal Year. The Corporation's fiscal year shall begin on July 1
of each year and end on June 30 of the same year.
ARTICLE X
Amendments
Section 1. Amendments. These By-Laws may be altered, amended or repealed,
in whole or in part, and new By-Laws may be adopted, at any Board Meeting by the
affirmative vote of a majority of the Full Board.
- 9 -
EXHIBIT 4
STOCK CERTIFICATE
Organized Under Indiana Law
CITIZENS BANCORP
NUMBER SHARES
THIS CERTIFIES that is the owner of See Reverse
Side for Certain
Definitions
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, WITHOUT PAR VALUE, OF
CITIZENS BANCORP
This Certificate is transferable only on the books of the Corporation upon the
surrender of the same properly endorsed.
The interest in said Corporation represented by this Certificate may not be
retired or withdrawn except as provided in the Articles of Incorporation and
Code of By-Laws of the Corporation. This security is not a deposit or account
and is not federally insured or guaranteed. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
The interest in said Corporation represented by this Certificate shall be
subject to all provisions in effect as provided in the Articles of Incorporation
and Code of By-Laws of the Corporation, including any amendments thereto which
may restrict the rights of the holder of this Certificate and may be adopted by
the Corporation at a date later than the date this Certificate is issued. Any
transferee of this Certificate should consult the Corporation's Articles of
Incorporation and Code of By-Laws with respect to any such restrictions.
Witness the facsimile seal of the Corporation and the duly authorized facsimile
signatures of its duly authorized officers.
Dated:
- ----------------------------- -----------------------------------
Cindy S. Chambers, Secretary Fred W. Carter, President and
Chief Executive Officer
-1-
<PAGE>
[STATEMENT FOR BACK OF CERTIFICATE]
CITIZENS BANCORP
THE ARTICLES OF INCORPORATION OF THE CORPORATION PROHIBIT CERTAIN PERSONS FROM
ACQUIRING THE BENEFICIAL OWNERSHIP OF MORE THAN 10% OF ANY CLASS OF SECURITY OF
THE CORPORATION. A COPY OF THESE ARTICLES OF INCORPORATION WILL BE FURNISHED,
WITHOUT CHARGE, TO ANY SHAREHOLDER UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION.
A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES, AND
LIMITATIONS APPLICABLE TO EACH CLASS OF SHARES AND THE VARIATIONS IN RIGHTS,
PREFERENCES, AND LIMITATIONS DETERMINED FOR EACH SERIES (AND THE AUTHORITY OF
THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS OF FUTURE SERIES) OF SHARES THAT
THE CORPORATION IS AUTHORIZED TO ISSUE WILL BE FURNISHED, WITHOUT CHARGE, TO ANY
SHAREHOLDER UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship
not as tenants in common
UNIF TRAN MIN ACT --_____________ Custodian_________________
(Cust.) (Minor)
___________________ under Uniform Transfers to Minors Act
___________
___________________ (State)
Additionalabbreviations may also be used
although not included in the above
list.
FOR VALUE RECEIVED, _________________ HEREBY
SELL, ASSIGN AND TRANSFER UNTO
Please insert Social Security or other
identifying number of Assignee
[----------------------------------------]
[----------------------------------------]
- ---------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING ZIP CODE, OF ASSIGNEE)
- ---------------------------------------------------------------
- ---------------------------------------------------------------
_________________ shares of the capital stock represented by the within
Certificate, and do hereby irrevocably constitute and appoint
_______________________________________ Attorney to transfer the said stock on
the books of the within named Corporation with full power of substitution in the
premises.
Dated _________________
In Presence of
NOTICE: The signature to this assignment must correspond
with the name as written upon the face of this Certificate
in every particular, without alteration or enlargement or
any change whatever.
EXHIBIT 5
June 11, 1997
Board of Directors
Citizens Bancorp
60 South Main Street
Frankfort, IN 46041
Gentlemen:
You have requested our opinion in connection with the Form S-1
Registration Statement (the "Registration Statement") to be filed by Citizens
Bancorp, an Indiana corporation (the "Corporation"), with respect to the offer
and sale by the Corporation of up to 1,058,000 shares of Common Stock, without
par value, of the Corporation (the "Shares"). We have examined such records and
documents and have made such investigation of law as we have deemed necessary in
the circumstances.
Based on that examination and investigation, it is our opinion that the
Shares are duly authorized and will be, when sold in the manner described in the
Registration Statement (including all Exhibits thereto) and in compliance with
the Securities Act of 1933, as amended, and applicable state blue sky laws,
validly issued, fully paid and non-assessable.
The foregoing opinion is limited to the application of the internal
laws of the State of Indiana and applicable federal law, and no opinion is
expressed herein as to any matter governed by the laws of any other
jurisdiction.
We consent to the use of our name under the caption "The Conversion -
Principal Effects of Conversion - Tax Effects" and "Legal Opinions" in the
Prospectus included in the Registration Statement, to the filing of this opinion
as Exhibit 5 to the Registration Statement, and to the filing of our tax opinion
as Exhibit 8(1) to the Registration Statement.
Very truly yours,
BARNES & THORNBURG
Board of Directors
Citizens Savings Bank of Frankfort
June 11, 1997
Page 1
Exhibit 8(1)
June 11, 1997
Board of Directors
Citizens Savings Bank of Frankfort
60 South Main Street
Frankfort, Indiana 46041
Re: Federal Income Tax Opinion Relating to Conversion of Citizens Savings
Bank of Frankfort ("Citizens") from a Federally-Chartered Mutual to a
Federally-Chartered Stock Organization
Gentlemen:
In accordance with your request, set forth hereinbelow is the opinion
of this firm relating to the Federal income tax consequences of the proposed
conversion (the "Conversion") of Citizens from a federally-chartered mutual
savings bank to a federally-chartered stock savings bank.
Citizens is a federally-chartered mutual savings bank. As a mutual
savings bank, Citizens has no authorized capital stock. Instead, Citizens, in
mutual form, has a unique equity structure. A depositor of Citizens is entitled
to interest on his account balance as declared and paid by Citizens. A depositor
has no right to a distribution of any earnings of Citizens, but rather these
amounts become retained earnings of Citizens. A depositor, however, has a right
to share pro rata, with respect to the withdrawal value of his respective
account, in any liquidation proceeds distributed in the event Citizens is ever
liquidated. Voting rights in Citizens are held by its members, i.e., depositors.
Each depositor is entitled to cast one vote for each $100 or a fraction thereof
deposited in a deposit account. No member may cast more than 1,000 votes. All of
the interests held by a depositor in Citizens cease when such depositor closes
his accounts with Citizens.
The Board of Directors of Citizens has decided that in order to
stimulate the growth and expansion of Citizens through the raising of additional
capital, it would be advantageous for Citizens to convert from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank and to form an Indiana corporation ("Holding Company") to own all of
Citizens's issued and outstanding capital stock. It is proposed pursuant to a
plan of Conversion (the "Plan") that Citizens's charter to operate as a mutual
savings bank be amended and a new charter be acquired to allow it to continue
its operations in the form of a stock savings bank ("Converted Bank"). Under the
Plan, Citizens will issue shares of its capital stock to Holding Company in
exchange for all but 50% of the net proceeds derived from the sale of Holding
Company's common stock, without par value ("Common Stock"), to members of
Citizens and certain members of the public through a subscription and direct
community offering. The Plan must be approved by the Office of Thrift
Supervision
<PAGE>
Board of Directors
Citizens Savings Bank of Frankfort
June 11, 1997
Page 2
("OTS") and by an affirmative vote of at least a majority of the total votes
eligible to be cast at a meeting of Citizens' members called to vote on the
Plan.
Following authorization, the Plan provides for the issuance of shares
of Common Stock. The aggregate purchase price at which all shares of Common
Stock will be offered and sold pursuant to the Plan will be equal to the
estimated pro forma market value of Citizens at the time of conversion. The
estimated pro forma market value will be determined by an independent appraiser.
Pursuant to the Plan, all such shares will be issued and sold at a uniform price
per share.
As required by OTS regulations, shares of Common Stock will be offered
pursuant to non-transferable subscription rights on the basis of preference
categories. No subscriber will be allowed to purchase fewer than 25 shares of
Common Stock. Citizens has established four preference categories under which
shares of Common Stock may be purchased and a direct community offering category
for the sale of shares not purchased under the preference categories.
The first category of preference is reserved for Citizens' eligible
account holders. The Plan defines "eligible account holders" as any person
holding a qualifying deposit. The Plan defines "qualifying deposit" as the
aggregate balance of all savings and deposit accounts of an eligible account
holder in Citizens at the close of business on December 31, 1995, provided such
aggregate balance is not less than $50.00. Once a Citizens savings account
holder qualifies as an eligible account holder, he will receive, without
payment, non-transferable subscription rights to purchase Common Stock. Subject
to certain limited exceptions, the maximum number of shares that each eligible
account holder may subscribe for is 10,000 per deposit account held as of
December 31, 1995, subject to a 30,000 maximum for each such account holder and
his Associates (as defined in the Plan) or group of persons acting in concert.
If there is an oversubscription, shares will be allocated among subscribing
eligible account holders so as to permit each such account holder, to the extent
possible, to purchase a number of shares sufficient to make his total allocation
equal to 100 shares. Any shares not then allocated shall be allocated among the
subscribing eligible account holders in the proportion that their qualifying
deposits bear to the total qualifying deposits of eligible account holders on
the eligibility record date. Non-transferable subscription rights to purchase
Common Stock received by officers and directors of Citizens and their Associates
based on their increased deposits in Citizens in the one-year period preceding
the eligibility record date shall be subordinated to all other subscriptions
involving the exercise of nontransferable subscription rights to purchase shares
of Common Stock under the first preference category. Notwithstanding the
foregoing, shares of Common Stock in excess of the maximum of the valuation
range of shares offered in the Conversion may be sold to the second category of
preference before fully satisfying the subscriptions of eligible account
holders.
<PAGE>
Board of Directors
Citizens Savings Bank of Frankfort
June 11, 1997
Page 3
The second category of preference is reserved for the Holding Company's
employee stock ownership plan (the "ESOP") to be established at the time of the
Conversion. This category may subscribe for up to 10% of the shares sold in the
Conversion; provided that shares remain available after satisfying the
subscription rights of eligible account holders up to the maximum of the
valuation range of shares offered in the Conversion. It is anticipated that the
ESOP will subscribe for 8% of the shares sold in the Conversion pursuant to this
category of preference.
The third category of preference is reserved for Citizens' supplemental
eligible account holders. These are persons holding savings and deposit accounts
at Citizens at the close of business on June 30, 1997, with an aggregate balance
of not less than $50.00. If there is not subscription for all of the Common
Stock in the first and second preference categories, supplemental eligible
account holders will receive, without payment, non-transferable subscription
rights to purchase Common Stock. Subject to certain limited exceptions, the
maximum number of shares that each supplemental eligible account holder may
subscribe for is 10,000 per deposit account held as of June 30, 1997, subject to
a 30,000 maximum for each such account holder and his Associates or group of
persons acting in concert. Any subscription rights received by eligible account
holders in accordance with the first category of preference will reduce to the
extent thereof the subscription rights granted in this third category of
preference. If there is an oversubscription, shares will be allocated among
subscribing supplemental eligible account holders so as to permit each such
account holder, to the extent possible, to purchase a number of shares
sufficient to make his total allocation equal to 100 shares. Any shares not then
allocated shall be allocated to supplemental eligible account holders in the
proportion that their qualifying deposits bear to the qualifying deposits of all
subscribing supplemental eligible account holders.
If there is not subscription for all of the Common Stock in the first,
second and third preference categories, the fourth preference category,
consisting of members of Citizens as of the record date for the special meeting
of members at which the Plan will be submitted for approval who are not eligible
account holders or supplemental eligible account holders ("Other Members"), will
receive, without payment, non-transferable subscription rights entitling them to
purchase Common Stock. Subject to certain limited exceptions, each Other Member
shall receive subscription rights to purchase up to 10,000 shares of Common
Stock per deposit account held or loan owed to Citizens as of the record date
for the special meeting of members at which the Plan will be submitted for
approval, subject to a 30,000 maximum for each such member and his Associates or
group of persons acting in concert, to the extent that such stock is available
after satisfaction of the first, second and third preference categories. In the
event of an oversubscription by Other Members, shares will be allocated pro rata
in the same proportion that the number of shares subscribed for by each Other
Member bears to the total number of shares subscribed for by all Other Members.
<PAGE>
Board of Directors
Citizens Savings Bank of Frankfort
June 11, 1997
Page 4
If there are shares of Common Stock available after the first, second,
third and fourth preference categories have been exhausted, it is anticipated
that they will be sold to members of the general public in a best efforts direct
community offering, giving preference to residents of Clinton County. The
maximum number of shares which may be purchased in this Direct Community
Offering by any person (including his Associates) or persons acting in concert
is 10,000 shares of Common Stock. A person with subscription rights who,
together with his Associates and persons acting in concert, has subscribed for
shares in the Subscription Offering, may subscribe for additional shares in the
Direct Community Offering that do not exceed the lesser of (i) 10,000 shares or
(iii) the number of shares which, when added to the number of shares subscribed
for by such person and his Associates and persons acting in concert would not
exceed 30,000 shares.
Citizens' Board of Directors may increase the maximum purchase
limitations in the Plan up to 9.99% of the shares of Common Stock offered in the
Conversion, provided that orders for Common Stock exceeding 5% of the total
offering may not exceed, in the aggregate, 10% of the total offering. Officers
and directors of Citizens and their Associates may not purchase in the aggregate
more than 35% of the shares offered pursuant to the Plan. Directors of Citizens
will not be deemed Associates or a group acting in concert solely as a result of
their membership on the Board of Directors of Citizens. All of the shares of
Common Stock purchased by officers and directors will be subject to certain
restrictions on sale for a period of one year. In order to achieve the widest
distribution of the stock in the Direct Community Offering, orders for stock
shall be filled up to a maximum of 2% of the Common Stock and thereafter
remaining shares shall be allocated on an equal number of shares basis per order
until all orders have been filled. The overall purchase limitation may be
reduced to any number to a minimum of 1% of the shares sold in the Conversion,
in the sole discretion of the Board of Directors of Citizens.
The Plan provides that no person will be issued any subscription rights
or be permitted to purchase any Common Stock if such person resides in a foreign
country or in a state of the United States with respect to which all of the
following apply: (a) a small number of persons otherwise eligible to subscribe
for shares under this Plan reside in such state; (b) the issuance of
subscription rights or the offer or sale of the Common Stock to such persons
would require Citizens or the Holding Company or their respective officers or
directors under the securities law of such state to register as a broker or
dealer or to register or otherwise qualify its securities for sale in such
state; and (c) such registration or qualification would be impracticable for
reasons of cost or otherwise.
The Plan also provides for the establishment of a liquidation account
by Citizens. The liquidation account will be equal in amount to the net worth of
Citizens near the time of conversion. The establishment of the liquidation
account will not operate to restrict the use or application of any
<PAGE>
Board of Directors
Citizens Savings Bank of Frankfort
June 11, 1997
Page 5
of the net worth accounts of Converted Bank, except that Converted Bank will not
voluntarily reduce the net worth accounts if the result thereof would be to
reduce its net worth below the amount required to maintain the liquidation
account. The liquidation account will be for the benefit of Citizens' eligible
account holders and supplemental eligible account holders who maintain accounts
in Citizens at the time of conversion. All such account holders, including those
account holders not entitled to subscription rights for reasons of foreign or
out-of-state residency (as described above), will have an interest in the
liquidation account. The interest such account holder will have is a right to
receive, in the event of a complete liquidation of Converted Bank, a liquidating
distribution from the liquidation account in the amount of the then current
adjusted subaccount balances for deposit accounts then held, prior to any
liquidation distribution being made with respect to capital stock.
The initial subaccount balance for a deposit account held by an
eligible account holder and supplemental eligible account holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of the qualifying deposit in the
deposit account and the denominator is the total amount of qualifying deposits
of all eligible account holders and supplemental eligible account holders in
Citizens. The initial subaccount balance will never be increased, but may be
decreased if the deposit balance in any qualifying savings account of any
eligible account holder or supplemental eligible account holder on any annual
closing date subsequent to the eligibility record date or supplemental
eligibility record date is less than the lesser of (1) the deposit balance in
the savings account at the close of business on any other annual closing date
subsequent to the eligibility record date or supplemental eligibility record
date, or (2) the amount of the qualifying deposit in such deposit account. In
such event, the subaccount balance for the deposit account will be adjusted by
reducing each subaccount balance in an amount proportionate to the reduction in
the deposit balance. Once decreased, the Plan provides that the subaccount
balance may never be subsequently increased, and if the deposit account of an
eligible account holder or supplemental eligible account holder is closed, the
related subaccount balance in the liquidation account will be reduced to zero.
Following the Conversion, voting rights with respect to Converted Bank
will rest with Holding Company, and with respect to Holding Company will rest
exclusively with the holders of Common Stock. The Conversion will not interrupt
the business of Citizens, and its business will continue as usual by Converted
Bank. Each depositor will retain a withdrawable savings or deposit account or
accounts equal in amount to the withdrawable account at the time of conversion.
Mortgage loans of Citizens will remain unchanged and retain their same
characteristics in Converted Bank after the conversion. The Converted Bank will
continue the membership of Citizens in the Savings Association Insurance Fund of
the Federal Deposit Insurance Corporation (the "FDIC") and
<PAGE>
Board of Directors
Citizens Savings Bank of Frankfort
June 11, 1997
Page 6
the Federal Home Loan Bank System, and will remain subject to the regulatory
authority of the OTS and the FDIC.
It is anticipated that approximately six months following the
Conversion, Holding Company and/or the Bank will adopt a stock option plan and a
"recognition and retention" plan and trust ("RRP"). A number of shares of Common
Stock equal to four percent (4.0%) of the shares of Common Stock sold in the
Conversion will be reserved to fund the RRP and a number of shares of Common
Stock equal to 10% of the shares of Common Stock sold in the Conversion will be
reserved for stock option grants under the stock option plan. In addition, the
Converted Bank will establish an employee stock ownership plan and trust for the
benefit of its employees at the time of the Conversion. The stock option plan,
RRP and employee stock ownership plan are referred to collectively herein as the
"Employee Plans." Additionally, Holding Company will adopt certain
"anti-takeover provisions" in its proposed Articles of Incorporation and Code of
By-Laws.
We have received, and are relying upon, certificates of certain
officers of Citizens to the effect that:
a. Converted Bank has no plan or intention to redeem or otherwise
acquire any of its capital stock issued to Holding Company in
connection with the Conversion.
b. Immediately following consummation of the Conversion,
Converted Bank will possess the same assets and liabilities as
Citizens held immediately prior to the proposed transaction,
plus all but 50% of the net proceeds from the sale of Common
Stock (after providing for the loan to the ESOP).
c. Converted Bank has no plan or intention to sell or otherwise
dispose of any of the assets of Citizens acquired in the
Conversion, except for dispositions in the ordinary course of
business.
d. Following the Conversion, Converted Bank will continue to
engage in the same business in substantially the same manner
as engaged in by Citizens before the Conversion.
e. The aggregate fair market value of the qualifying deposits (as
defined in the Plan) held by eligible account holders as of
the close of business on December 31, 1995, and by
supplemental eligible account holders on June 30, 1997,
equaled or exceeded or will equal or exceed 99% of the
aggregate fair market value of all savings accounts in
<PAGE>
Board of Directors
Citizens Savings Bank of Frankfort
June 11, 1997
Page 7
Citizens (including accounts of less than $50) at the close of
business on such respective dates.
f. No shares of Common Stock will be issued to or be purchased by
depositor-employees at a discount or as compensation in the
Conversion, although shares may be purchased at fair market
value by the RRP and the ESOP established in connection with
the Conversion.
g. No cash or property will be given to eligible account holders,
supplemental eligible account holders or Other Members in lieu
of (a) non-transferable subscription rights or (b) an interest
in the liquidation account of Converted Bank.
h. Citizens is not under the jurisdiction of a court in any Title
11 or similar case within the meaning of Section 368(a)(3)(A)
of the Internal Revenue Code of 1986, as amended (the "Code").
i. At the time of the Conversion the fair market value of the
assets of Citizens on a going concern basis will exceed the
amount of its liabilities plus the amount of liabilities to
which the assets are subject. All such liabilities were
incurred in the ordinary course of business and are associated
with the assets transferred. Immediately before the
Conversion, Citizens will have a positive net worth.
j. Citizens has received or will receive an opinion from Keller &
Company, Inc. which concludes that the subscription rights to
be received by eligible subscribers have no economic value at
the date of distribution or the time of exercise whether or
not a public offering takes place (the "Keller Financial
Opinion"). The exercise price of the subscription rights will
be approximately equal to the fair market value of the Common
Stock at the time of the Conversion.
k. Holding Company has no plan or intention to sell or otherwise
dispose of the capital stock of Converted Bank received by it
in the proposed transaction, and there is no plan or intention
for Converted Bank to be liquidated or merged with another
corporation following the transaction.
l. The fair market value of the withdrawable deposit accounts in
Converted Bank (plus the related interest in the Converted
Bank liquidation account) to be constructively received under
the Plan by the eligible account holders and supplemental
eligible
<PAGE>
Board of Directors
Citizens Savings Bank of Frankfort
June 11, 1997
Page 8
account holders of Citizens will, in each instance, be
approximately equal to the fair market value of Citizens'
deposit accounts (plus the related interest in the Citizens
liquidation account) surrendered in constructive exchange by
them. All proprietary rights in Citizens form an integral part
of the withdrawable savings accounts being surrendered in the
exchange.
m. Citizens utilizes a reserve for bad debts in accordance with
Section 593 of the Code, and following the Conversion,
Converted Bank shall likewise continue to utilize a reserve
for bad debts in accordance with Section 593 of the Code.
n. Holding Company, Citizens and Converted Bank are corporations
within the meaning of Section 7701(a)(3) of the Code. Citizens
and Converted Bank are domestic building and loan associations
within the meaning of Section 7701(a)(19)(C) of the Code.
o. Citizens deposit account holders and Other Members will pay
expenses of the Conversion solely attributable to them, if
any. Citizens and Holding Company will each pay its own
expenses of the Conversion and will not pay any expenses
solely attributable to the deposit account holders, Other
Members or the holders of Common Stock.
p. Immediately following the Conversion, the former depositors of
Citizens will own all of the outstanding interests in the
Converted Bank liquidation account and will own such interests
solely by reason of their ownership of deposits at Citizens
(including the attendant rights to liquidation proceeds)
immediately before the Conversion.
q. Assets of Citizens used to pay expenses of the Conversion
(without reference to expenses of the offering or sale of the
Common Stock) and to make distributions (other than regular,
normal interest payments) will, in the aggregate, constitute
less than 1% of the net assets of Citizens. Any such expenses
or distributions will be paid or reimbursed from proceeds of
the sale of the Common Stock.
r. At the time of the Conversion, Citizens will not have
outstanding any warrants, options, convertible securities, or
any other type of right pursuant to which any person could
acquire stock in Converted Bank.
<PAGE>
Board of Directors
Citizens Savings Bank of Frankfort
June 11, 1997
Page 9
s. No account holder of Citizens who is eligible to receive an
interest in the Converted Bank liquidation account will be
excluded from participation in the Converted Bank liquidation
account.
t. Holding Company has no plan or intention to redeem or
otherwise reacquire any of the Common Stock issued in the
proposed transaction.
u. Neither the Common Stock nor the stock of Converted Bank
issued pursuant to the proposed transactions will be callable
or subject to a put option (except as required under any
Employee Plan).
v. None of the compensation received by a Citizens employee who
is also an eligible account holder, supplemental eligible
account holder, or Other Member will be separate consideration
for, or allocable to, his or her status as eligible account
holder, supplemental eligible account holder, or Other Member;
none of the Common Stock or interests in the liquidation
account of Converted Bank received by any such employee will
be separate consideration for, or allocable to, any employment
agreement or arrangement (other than an Employee Plan); and
the compensation paid to the employee will be for services
actually rendered and will be commensurate with the
compensation that would be paid to third parties bargaining at
arm's length for similar services.
w. There is no intercorporate indebtedness existing between
Holding Company and Citizens that was issued or acquired, or
will be settled, at a discount.
x. Holding Company is not an investment company as described in
section 1.351-1(c) of the regulations under the Code.
y. The principal amount, interest rate and maturity date of each
deposit account in Converted Bank received by a Citizens
eligible account holder or supplemental eligible account
holder are identical to those of the corresponding Citizens
deposit account that was held by the account holder
immediately prior to the Conversion.
<PAGE>
Board of Directors
Citizens Savings Bank of Frankfort
June 11, 1997
Page 10
OPINION OF COUNSEL
Based solely upon the foregoing information, including the Keller
Financial Opinion, the provisions of the Code, the regulations thereunder and
such other authorities as we have deemed appropriate to consider, all as in
effect on the date hereof, our opinion is as follows:
(1) The change in the form of Citizens from a federally-chartered
mutual savings bank to a federally-chartered stock savings
bank, as described above, will constitute a reorganization
within the meaning of Section 368(a)(1)(F) of the Code and no
gain or loss will be recognized to either Citizens or to
Converted Bank as a result of such Conversion (see Rev. Rul.
80-105, 1980-1 C.B. 78). Citizens and Converted Bank will each
be a party to a reorganization within the meaning of Section
368(b) of the Code (Rev. Rul. 72-206, 1972-1 C.B. 105).
(2) No gain or loss will be recognized by Converted Bank on the
receipt of money and other property, if any, from Holding
Company in exchange for shares of Converted Bank's capital
stock (Section 1032(a) of the Code).
(3) No gain or loss will be recognized by Holding Company upon the
receipt of money for Common Stock (Section 1032(a) of the
Code).
(4) The assets of Citizens will have the same basis in the hands
of Converted Bank as in the hands of Citizens immediately
prior to the Conversion (Section 362(b) of the Code).
(5) The holding period of the assets of Citizens to be received by
Converted Bank will include the period during which the assets
were held by Citizens prior to the Conversion (Section 1223(2)
of the Code).
(6) Depositors will realize gain, if any, upon the constructive
issuance to them of withdrawable deposit accounts of Converted
Bank, non-transferable subscription rights to purchase Common
Stock, and/or interests in the liquidation account of
Converted Bank. Any gain resulting therefrom will be
recognized, but only in an amount not in excess of the fair
market value of the subscription rights and interests in the
liquidation accounts received. The liquidation accounts will
have nominal, if any, fair market value. See Paulsen v.
Commissioner, 469 U.S. 131, 139 (1985), quoting Society for
Savings v. Bowers, 349 U.S. 143 (1955); but see Rev. Rul.
69-3,
<PAGE>
Board of Directors
Citizens Savings Bank of Frankfort
June 11, 1997
Page 11
1969-1 C.B. 103 and Rev. Rul. 69-646, 1969-2 C.B. 54 (the
interest received rises to the level of "stock" and thus, in
some circumstances, Section 354 of the Code applies). Based
solely on the accuracy of the conclusion reached in the Keller
Financial Opinion, and our reliance on such opinion, that the
subscription rights have no economic value at the time of
distribution or exercise, no gain or loss will be required to
be recognized by eligible account holders or supplemental
eligible account holders upon receipt or distribution of
subscription rights. (Section 1001 of the Code.) Similarly,
based solely on the accuracy of the aforesaid conclusion
reached in the Keller Financial Opinion, and our reliance
thereon, we give the following opinions: (a) no taxable income
will be recognized by the Other Members of Citizens upon the
distribution to them of subscription rights or upon the
exercise of the subscription rights to acquire Common Stock at
fair market value; (b) no taxable income will be realized by
the depositors of Citizens as a result of the exercise of the
non-transferable subscription rights to purchase Common Stock
at fair market value, Rev. Rul. 56-572, 1956-2 C.B. 182; and
(c) no taxable income will be realized by Converted Bank,
Citizens or Holding Company on the issuance or distribution of
subscription rights to depositors and borrowers of Citizens to
purchase shares of Common Stock at fair market value. Section
311 of the Code.
(7) A depositor's basis in the deposits of Converted Bank will be
the same as the basis of such depositor's deposits in
Citizens. Section 1012 of the Code. The basis of the
non-transferable subscription rights will be zero increased by
the amount of gain, if any, recognized on their receipt. The
basis of the interest in the liquidation account of Converted
Bank received by eligible account holders and supplemental
eligible account holders will be equal to the cost of such
property, i.e., the fair market value of the proprietary
interest in Converted Bank received in exchange for the
proprietary interest in Citizens, which in this transaction we
assume to be zero.
(8) The basis of the Holding Company Common Stock to its
shareholders will be the purchase price thereof, plus, in the
case of stock acquired by the exercise of subscription rights,
the basis, if any, in the subscription rights exercised.
Section 1012 of the Code.
(9) A shareholder's holding period for Common Stock acquired
through the exercise of the non-transferable subscription
rights shall begin on the date on which the subscription
rights are exercised. Section 1223(6) of the Code. The holding
period of the Common Stock purchased pursuant to the Direct
Community Offering will
<PAGE>
Board of Directors
Citizens Savings Bank of Frankfort
June 11, 1997
Page 12
commence on the date following the date on which the stock
is purchased. Rev. Rul. 70-598, 1970-2 C.B. 168; Rev. Rul.
66-97, 1966-1 C.B. 190.
(10) The part of the taxable year of Citizens before the Conversion
and the part of the taxable year of Converted Bank after the
Conversion will constitute a single taxable year of Converted
Bank. (See Rev. Rul. 57-276, 1957-1 C.B. 126). Consequently,
Citizens will not be required to file a federal income tax
return for any short portion of such taxable year (Section
1.381(b)-1(a)(2) of the Income Tax Regulations).
(11) Converted Bank will succeed to and take into account the
earnings and profits or deficit in earnings and profits of
Citizens as of the date or dates of Conversion. (Section
381(c)(2) of the Code and Section 1.381(c)(2)-1 of the Income
Tax Regulations.)
(12) Regardless of book entries made for the creation of the
liquidation account, the Conversion will not diminish the
accumulated earnings and profits of the Converted Bank
available for the subsequent distribution of dividends within
the meaning of Section 316 of the Code (Sections 1.312-11(b)
and (c) of the Income Tax Regulations). The creation of the
liquidation account on the records of Converted Bank will have
no effect on its taxable income, deductions for addition to
reserve for bad debts under Section 593 of the Code, or
distributions to shareholders under Section 593(e) of the Code
(Rev. Rul. 68-475, 1968-2 C.B. 259).
(13) Converted Bank will succeed to and take into account,
immediately after the Conversion, those accounts of Citizens
which represent bad debt reserves in respect of which Citizens
has taken a bad debt deduction for taxable years ending on or
before the date of the Conversion. The bad debt reserves will
not be required to be restored to the gross income of either
Citizens or Converted Bank for the taxable year of the
Conversion, and such bad debt reserves will have the same
character in the hands of the Converted Bank as they would
have had in the hands of Citizens if no distribution or
Conversion had occurred. (Section 381(c)(4) of the Code and
Section 1.381(c)(4)-1(a)(1)(ii) of the Income Tax
Regulations.) No opinion is being expressed as to whether the
bad debt reserves will be required to be restored to the gross
income of either Citizens or Converted Bank for the taxable
year of the transfer if Converted Bank fails to meet the
requirements of Section 593(a)(2) of the Code during such
taxable year.
<PAGE>
Board of Directors
Citizens Savings Bank of Frankfort
June 11, 1997
Page 13
(14) Inasmuch as the Conversion constitutes a tax-free
reorganization for federal income tax purposes, Citizens will
not incur any liability for Indiana adjusted gross income tax,
financial institutions tax, supplemental net income tax,
county adjusted gross income tax or county option income tax
as a result of the Conversion. Citizens will not incur any
Indiana gross income tax liability as a result of the
Conversion. Amounts received by Holding Company in exchange
for the issuance of Common Stock and amounts received by
Converted Bank in exchange for the issuance of its capital
stock will constitute contributions to capital which are
exempt from the gross income tax.
(15) Assuming that the interests in the liquidation account and the
subscription rights that will be constructively issued to them
as a part of the Plan have nominal, if any, fair market value,
depositors will incur no liability for Indiana gross income
tax, adjusted gross income tax, financial institutions tax,
county adjusted gross income tax or county option income tax
as a result of the Conversion.
(16) Following the Conversion, the Converted Bank will continue to
be subject to the Indiana financial institutions tax.
Our opinion on the above issues is based on information and
representations provided by officers of Citizens on behalf of Citizens and its
members. Neither the Internal Revenue Service nor the Indiana Department of
Revenue has ruled on these issues and our opinion is not binding on either
agency. The Internal Revenue Service or the Indiana Department of Revenue could
take a position contrary to that expressed in this opinion on some or all of the
above issues, and such a position if ultimately sustained could result in
adverse tax consequences to Citizens or its members.
No opinion is provided as to possible tax consequences of the
Conversion under any federal, state, local or foreign tax laws except as
specifically provided above.
Very truly yours,
BARNES & THORNBURG
Exhibit 8(2)
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426 (614)
766-1459 FAX
June 10, 1997
The Board of Directors
Citizens Savings Bank of Frankfort
60 S. Main Street
P.O. Box 635
Frankfort, Indiana 46041-0635
Re: Subscription Rights - Conversion of Citizens Savings Bank of Frankfort
Frankfort, Indiana
Gentlemen:
The purpose of this letter is to provide an opinion of the value of the
subscription rights of the "to be issued" common stock of Citizens Bancorp
("Citizens Bancorp" or the "Corporation"), Frankfort, Indiana, in regard to the
conversion of Citizens Savings Bank of Frankfort ("Citizens") from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank.
Because the Subscription Rights to purchase shares of Common Stock in Citizens
Bancorp, which are to be issued to the depositors of Citizens and the other
members of Citizens and will be acquired by such recipients without cost, will
be nontransferable and of short duration and will afford the recipients the
right only to purchase shares of Common Stock at the same price as will be paid
by members of the general public in a Direct Community Offering, we are of the
opinion that:
(1) The Subscription Rights will have no ascertainable fair market
value, and;
(2) The price at which the Subscription Rights are exercisable
will not be more or less than the fair market value of the
shares on the date of the exercise.
Further, it is our opinion that the Subscription Rights will have no economic
value on the date of distribution or at the time of exercise, whether or not a
community offering takes place.
Sincerely,
KELLER & COMPANY, INC.
/s/ Michael R. Keller
Michael R. Keller, President
Board of Directors
April 11, 1997
Page 1
Exhibit 10(1)
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
April 11, 1997
The Board of Directors
Citizens Savings Bank of Frankfort
60 S. Main Street
P.O. Box 635
Frankfort, Indiana 46041-0635
Re: Business Plan Proposal
Attention: Fred W. Carter, President
This letter represents our proposal to prepare a complete Business Plan for
Citizens Savings Bank of Frankfort ("Citizens" or the "Bank") to fulfill the
requirements of the Office of Thrift Supervision ("OTS") relating to the Bank's
stock conversion. The Plan will focus on Citizens' new three-year pro formas,
the conversion impact on the Bank and the planned use of proceeds.
Keller & Company is experienced in preparing business plans for filing with and
approval by all regulatory agencies. We prepared thirty business plans in 1994,
thirty-two in 1995 and thirty-six in 1996, and all have been approved. Your Plan
will be based on the established format and guidelines incorporated in the
attached Exhibit A. We will prepare the three-year pro formas and each
discussion section in accordance with those requirements and based on your
input. Our objective is to ensure that your Business Plan is in compliance with
all applicable requirements, and that management and directorate are
knowledgeable of and comfortable with the assumptions, commitments and
projections contained in the Plan, making the Plan useful for the future.
Exhibit B provides a sample set of typical pro formas. Your pro formas will
incorporate the December 31, 1996, interest rate projections from OTS. Our
procedure is to request key financial information, including recent lending
activity, savings activity, costs and yields and other data from Citizens. Based
on a review of this information, I will then meet with management to discuss
your plans and expectations for the years 1997, 1998 and 1999, focusing on items
such as use of proceeds, deposit growth expectations, loan origination
projections, secondary market activity, new products and services, increases in
general valuation allowance, new branches or capital improvements, increases in
fixed assets, investment strategy, increases in board fees and total
compensation, etc. We will then prepare financial projections tying the
beginning figures to your December 31, 1996, balances, incorporating your
current yields on asset items and your current costs of interest-bearing
liabilities. Assets and liabilities will be repriced based on their maturity
period, with such items tied to rate indices and their yields and costs
adjusting based on interest rate trends. The projections will be based on your
actual performance in 1996, in conjunction with the input from our discussions.
<PAGE>
Board of Directors
April 11, 1997
Page 2
We can introduce numerous scenarios for internal use as part of the preparation
of the business plan to show the impact of alternative strategies.
With each set of pro formas, we will send you a discussion summary of the
assumptions for easy review and comments (Exhibit C). After your review of the
pro formas, we will make any adjustments that are required. When the pro formas
are complete, we will provide you with the final pro forma financial statements,
as well as pro formas for the holding company (Exhibit D).
With regard to the Business Plan text, we will complete each section in draft
form for your review, and revise each section based on your comments and
requests. We will also send copies to your accounting firm and counsel for their
input and comments. The Plan will be in full compliance with all regulatory
requirements. We also prepare a quarterly comparison chart each quarter after
the conversion for presentation to the board, showing the quarterly variance in
actual performance relative to projections and provide comments on the variance
at no additional charge.
Our fee for the preparation of the Business Plan text and pro formas is $4,000,
including out-of-pocket expense for travel, copying and binding.
I look forward to possibly working with you and would be pleased to meet with
you to discuss our proposal and provide samples of our work.
Sincerely,
KELLER & COMPANY, INC.
/s/ Michael R. Keller
Michael R. Keller
President
MRK:jmm
enclosure
Accepted this 28th day of April , 1997.
/s/ Fred W. Carter
Fred W. Carter
President
<PAGE>
Mr. Fred W. Carter
April 11, 1997
Page 1
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
April 11, 1997
Mr. Fred W. Carter
President
Citizens Savings Bank of Frankfort
60 S. Main Street
P.O. Box 635
Frankfort, Indiana 46041-0635
Re: Conversion Valuation Agreement
Attn: Fred W. Carter, President
Keller & Company, Inc. (hereinafter referred to as KELLER) hereby
proposes to prepare an independent conversion appraisal of Citizens Savings Bank
of Frankfort, Frankfort, Indiana, (hereinafter referred to as CITIZENS),
relating to the conversion of CITIZENS from a mutual to a stock institution.
KELLER will provide a pro forma valuation of the market value of the shares to
be sold in the proposed conversion of CITIZENS.
KELLER is a financial consulting firm that primarily serves the
financial institution industry. KELLER is experienced in evaluating and
appraising thrift institutions and thrift institution holding companies. KELLER
is an experienced conversion appraiser for filings with the Office of Thrift
Supervision ("OTS") and the Federal Deposit Insurance Corporation ("FDIC"), and
is also approved by the Internal Revenue Service as an expert in thrift stock
valuations.
KELLER agrees to prepare the conversion appraisal in the format
required by, and in compliance with regulations promulgated by the OTS in a
timely manner for prompt filing with the OTS and the Securities and Exchange
Commission. KELLER will provide any additional information as requested and will
complete appraisal updates in accordance with regulatory requirements.
The appraisal report will provide, among other things, a detailed
description of CITIZENS, including its financial condition, operating
performance, asset quality, rate sensitivity position,
<PAGE>
Mr. Fred W. Carter
April 11, 1997
Page 2
liquidity level and management qualifications. The appraisal will include a
description of CITIZENS' market area, including both economic and demographic
characteristics and trends. An analysis of other publicly-traded thrift
institutions will be performed to determine a comparable group, and adjustments
to the appraised value will be made based on a comparison of CITIZENS with the
comparable group.
In making its appraisal, KELLER will rely upon the information in the
Subscription and Community Offering Circular (Prospectus), including the
financial statements. Among other factors, KELLER will also consider the
following: the present and projected operating results and financial condition
of CITIZENS; the economic and demographic conditions in CITIZENS' existing
marketing area; pertinent historical financial and other information relating to
CITIZENS; a comparative evaluation of the operating and financial statistics of
CITIZENS with those of other thrift institutions; the proposed price per share;
the aggregate size of the offering of common stock; the impact of the conversion
on CITIZENS' capital position and earnings potential; CITIZENS' proposed
dividend policy; and the trading market for securities of comparable
institutions and general conditions in the market for such securities. In
preparing the appraisal, KELLER will rely solely upon, and assume the accuracy
and completeness of, financial and statistical information provided by CITIZENS,
and will not independently value the assets or liabilities of CITIZENS in order
to prepare the appraisal.
Upon completion of the conversion appraisal, KELLER will make a
presentation to the board of directors of CITIZENS to review the content of the
appraisal, the format and the assumptions.
A written presentation will be provided to each board member.
For its services in making this appraisal, KELLER's fee will be
$15,000, including out-of-pocket expenses. The appraisal fee will include the
preparation of two valuation updates. All additional valuation updates will be
subject to an additional fee of $1,000 each. Upon the acceptance of this
proposal, KELLER shall be paid a retainer of $3,000 to be applied to the total
appraisal fee of $15,000, the balance of which will be payable at the time of
the completion of the appraisal.
CITIZENS agrees, by the acceptance of this proposal, to indemnify
KELLER and its employees and affiliates for certain costs and expenses,
including reasonable legal fees, in connection with claims or litigation
relating to the appraisal and arising out of any misstatement or untrue
<PAGE>
Mr. Fred W. Carter
April 11, 1997
Page 3
statement of a material fact in information supplied to KELLER by CITIZENS or by
an intentional omission by CITIZENS to state a material fact in the information
so provided, except where KELLER or its employees and affiliates have been
negligent or at fault.
KELLER agrees to indemnify CITIZENS and its employees and affiliates
for certain cost and expenses, including reasonable legal fees, in connection
with claims or litigation relating to or based upon the negligence or willful
misconduct of KELLER or its employees or affiliates except where CITIZENS or its
employees and affiliates have been negligent or at fault.
This proposal will be considered accepted upon the execution of the two
enclosed copies of this agreement and the return of one executed copy to KELLER,
accompanied by the specified retainer.
KELLER & COMPANY, INC.
By: /s/ Michael R. Keller
Michael R. Keller
President
CITIZENS SAVINGS BANK OF FRANKFORT
By: /s/ Fred W. Carter
Fred W. Carter
President
Date: April 28, 1997
CITIZENS BANCORP
STOCK OPTION PLAN
1. Purpose. The purpose of the Citizens Bancorp Stock Option Plan (the
"Plan") is to provide to directors, officers and other key employees of Citizens
Bancorp (the "Holding Company") and its majority-owned and wholly-owned
subsidiaries (individually a "Subsidiary" and collectively the "Subsidiaries"),
including, but not limited to, Citizens Savings Bank of Frankfort upon its
conversion to stock form ("Citizens"), who are materially responsible for the
management or operation of the business of the Holding Company or a Subsidiary
and have provided valuable services to the Holding Company or a Subsidiary, a
favorable opportunity to acquire Common Stock, without par value ("Common
Stock"), of the Holding Company, thereby providing them with an increased
incentive to work for the success of the Holding Company and its Subsidiaries
and better enabling each such entity to attract and retain capable directors and
executive personnel.
2. Administration of the Plan. The Plan shall be administered,
construed and interpreted by a committee (the "Committee") consisting of at
least two members of the Board of Directors of the Holding Company, each of whom
is a "Non-Employee Director" within the meaning of the definition of that term
contained in Reg. ss. 16b-3 promulgated under the Securities Exchange Act of
1934, as amended (the "1934 Act"). The members of the Committee shall be
designated from time to time by the Board of Directors of the Holding Company.
The decision of a majority of the members of the Committee shall constitute the
decision of the Committee, and the Committee may act either at a meeting at
which a majority of the members of the Committee is present or by a written
consent signed by all members of the Committee. The Committee shall have the
sole, final and conclusive authority to determine, consistent with and subject
to the provisions of the Plan:
(a) the individuals (the "Optionees") to whom options or
successive options shall be granted under the Plan;
(b) the time when options shall be granted hereunder;
(c) the number of shares of Common Stock to be covered under each
option;
(d) the option price to be paid upon the exercise of each option;
(e) the period within which each such option may be exercised;
(f) the extent to which an option is an incentive stock option or
a non-qualified stock option; and
(g) the terms and conditions of the respective agreements by
which options granted shall be evidenced.
The Committee shall also have authority to prescribe, amend, waive, and rescind
rules and regulations relating to the Plan, to accelerate the vesting of any
stock options made hereunder (subject to Office of Thrift and Supervision
regulations), to make amendments or modifications in the terms and conditions
(including exercisability) of the options relating to the effect of termination
of employment of the optionee (subject to the last sentence of Section 9
hereof), to waive any restrictions or conditions applicable to any option or the
exercise thereof, and to make all other determinations necessary or advisable in
the administration of the Plan.
3. Eligibility. The Committee may, consistent with the purposes of the
Plan, grant options to officers and other key employees and directors or
directors emeritus (whether or not also employees) of the Holding Company or of
a Subsidiary who in the opinion of the Committee are from time to time
materially responsible for the management or operation of the business of the
Holding Company or of a Subsidiary and have provided valuable services to the
Holding Company or a Subsidiary; provided, however, that in no event may any
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employee who owns (after application of the ownership rules in ss. 425(d) of the
Internal Revenue Code of 1986, as amended (the "Code")) shares of stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Holding Company or any of its Subsidiaries be granted an
incentive stock option hereunder unless at the time such option is granted the
option price is at least 110% of the fair market value of the stock subject to
the option and such option by its terms is not exercisable after the expiration
of five (5) years from the date such option is granted. Subject to the
provisions of Section 7 hereof, an individual who has been granted an option
under the Plan (an "Optionee"), if he is otherwise eligible, may be granted an
additional option or options if the Committee shall so determine.
4. Stock Subject to the Plan. There shall be reserved for issuance upon
the exercise of options granted under the Plan, shares of Common Stock of the
Holding Company equal to 10% of the total number of shares of Common Stock
issued by the Holding Company upon the conversion of Citizens from mutual to
stock form, which may be authorized but unissued shares or treasury shares of
the Holding Company. Subject to Section 7 hereof, the shares for which options
may be granted under the Plan shall not exceed that number. If any option shall
expire or terminate or be surrendered for any reason without having been
exercised in full, the unpurchased shares subject thereto shall (unless the Plan
shall have terminated) become available for other options under the Plan.
5. Terms of Options. Each option granted under the Plan shall be
subject to the following terms and conditions and to such other terms and
conditions not inconsistent therewith as the Committee may deem appropriate in
each case:
(a) Option Price. The price to be paid for shares of stock upon
the exercise of each option shall be determined by the Committee at
the time such option is granted, but such price in no event shall be
less than the fair market value, as determined by the Committee
consistent with Treas. Reg. ss. 20.2031-2 and any requirements of ss.
422A of the Code, of such stock on the date on which such option is
granted.
(b) Period for Exercise of Option. An option shall not be
exercisable after the expiration of such period as shall be fixed by
the Committee at the time of the grant thereof, but such period in no
event shall exceed ten (10) years and one day from the date on which
such option is granted; provided, that incentive stock options granted
hereunder shall have terms not in excess of ten (10) years and options
issued to directors or directors emeritus of the Holding Company or
its Subsidiaries who are not employees of the Holding Company or its
Subsidiaries ("Outside Directors") shall be for a period of ten (10)
years and one day from the date of grant thereof. Options shall be
subject to earlier termination as hereinafter provided.
(c) Exercise of Options. The option price of each share of stock
purchased upon exercise of an option shall be paid in full at the time
of such exercise. Payment may be in (i) cash, (ii) if the Optionee may
do so in conformity with Regulation T (12 C.F.R. ss. 220.3(e)(4))
without violating ss. 16(b) or ss. 16(c) of the 1934 Act, pursuant to
a broker's cashless exercise procedure, by delivering a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Holding Company the total option
price in cash and, if desired, the amount of any taxes to be withheld
from the Optionee's compensation as a result of any withholding tax
obligation of the Holding Company or any of its Subsidiaries, as
specified in such notice, or (iii) beginning on a date which is three
years following Citizens' conversion from mutual to stock form and
with the approval of the Committee, by tendering whole shares of the
Holding Company's Common Stock owned by the Optionee and cash having a
fair market value equal to the cash exercise price of the shares with
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respect to which the option is being exercised. For this purpose, any
shares so tendered by an Optionee shall be deemed to have a fair market
value equal to the mean between the highest and lowest quoted selling
prices for the shares on the date of exercise of the option (or if
there were no sales on such date the weighted average of the means
between the highest and lowest quoted selling prices for the shares on
the nearest date before and the nearest after the date of exercise of
the options as presented by Treas. Reg. ss. 20-1031-2), as reported in
The Wall Street Journal or a similar publication selected by the
Committee. The Committee shall have the authority to grant options
exercisable in full at any time during their term, or exercisable in
such installments at such times during their term as the Committee may
determine; provide d, however, that options shall not be exercisable
during the first six (6) months of their term, and provided further
that options shall become exercisable at the rate of 20% per year
beginning on the anniversary of the date of grant of such options.
Installments not purchased in earlier periods shall be cumulated and be
available for purchase in later periods. Subject to the other
provisions of this Plan, an option may be exercised at any time or from
time to time during the term of the option as to any or all whole
shares which have become subject to purchase pursuant to the terms of
the option or the Plan, but not at any time as to fewer than one
hundred (100) shares unless the remaining shares which have become
subject to purchase are fewer than one hundred (100) shares. An option
may be exercised only by written notice to the Holding Company, mailed
to the attention of its Secretary, signed by the Optionee (or such
other person or persons as shall demonstrate to the Holding Company his
or their right to exercise the option), specifying the number of shares
in respect of which it is being exercised, and accompanied by payment
in full in either cash or by check in the amount of the aggregate
purchase price therefor, by delivery of the irrevocable broker
instructions referred to above, or, if the Committee has approved the
use of the stock swap feature provided for above, followed as soon as
practicable by the delivery of the option price for such shares.
(d) Certificates. The certificate or certificates for the shares
issuable upon an exercise of an option shall be issued as promptly as
practicable after such exercise. An Optionee shall not have any rights
of a shareholder in respect to the shares of stock subject to an option
until the date of issuance of a stock certificate to him for such
shares. In no case may a fraction of a share be purchased or issued
under the Plan, but if, upon the exercise of an option, a fractional
share would otherwise be issuable, the Holding Company shall pay cash
in lieu thereof.
(e) Termination of Option. If an Optionee (other than an Outside
Director) ceases to be an employee of the Holding Company and the
Subsidiaries for any reason other than retirement, permanent and total
disability (within the meaning of ss. 22(e)(3) of the Code), or death,
any option granted to him shall forthwith terminate. Leave of absence
approved by the Committee shall not constitute cessation of employment.
If an Optionee (other than an Outside Director) ceases to be an
employee of the Holding Company and the Subsidiaries by reason of
retirement, any option granted to him may be exercised by him in whole
or in part within three (3) years after the date of his retirement, to
the extent the option was otherwise exercisable at the date of his
retirement; provided, however, that if such employee remains a director
or director emeritus of the Holding Company, the option granted to him
may be exercised by him in whole or in part until the later of (a)
three (3) years after the date of his retirement, or (b) six months
after his service as a director or director emeritus of the Holding
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<PAGE>
Company terminates. (The term "retirement" as used herein means such
termination of employment as shall entitle such individual to early or
normal retirement benefits under any then existing pension plan of the
Holding Company or a Subsidiary.) If an Optionee (other than an Outside
Director) ceases to be an employee of the Holding Company and the
Subsidiaries by reason of permanent and total disability (within the
meaning of ss. 22(e)(3) of the Code), any option granted to him may be
exercised by him in whole or in part within one (1) year after the date
of his termination of employment by reason of such disability whether
or not the option was otherwise exercisable at the date of such
termination. Options granted to Outside Directors shall cease to be
exercisable six (6) months after the date such Outside Director is no
longer a director or director emeritus of the Holding Company and its
Subsidiaries for any reason other than death or disability. If an
Optionee who is an Outside Director ceases to be a director or a
director emeritus of the Holding Company or its Subsidiaries by reason
of disability, any option granted to him may be exercised in whole or
in part within one (1) year after the date the Optionee ceases to be a
director or a director emeritus by reason of such disability, whether
or not the option was otherwise exercisable at such date. In the event
of the death of an Optionee while in the employ or service as a
director or director emeritus of the Holding Company or a Subsidiary,
or, if the Optionee is not an Outside Director, within three (3) years
after the date of his retirement (or, if later, six months following
his termination of service as a director or director emeritus of the
Holding Company) or within one (1) year after the termination of his
employment by reason of permanent and total disability (within the
meaning of ss. 22(e)(3) of the Code), or, if the Optionee is an Outside
Director, within six (6) months after he is no longer a director or
director emeritus of the Holding Company or its Subsidiaries for
reasons other than disability or, within one (1) year after the
termination of his service by reason of disability, any option granted
to him may be exercised in whole or in part at any time within one (1)
year after the date of such death by the executor or administrator of
his estate or by the person or persons entitled to the option by will
or by applicable laws of descent and distribution until the expiration
of the option term as fixed by the Committee, whether or not the option
was otherwise exercisable at the date of his death. Notwithstanding the
foregoing provisions of this subsection (e), no option shall in any
event be exercisable after the expiration of the period fixed by the
Committee in accordance with subsection (b) above.
(f) Nontransferability of Option. No option may be transferred by
the Optionee otherwise than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder, and during the lifetime of the
Optionee options shall be exercisable only by the Optionee or his
guardian or legal representative.
(g) No Right to Continued Service. Nothing in this Plan or in any
agreement entered into pursuant hereto shall confer on any person any
right to continue in the employ or service of the Holding Company or
its Subsidiaries or affect any rights the Holding Company, a
Subsidiary, or the shareholders of the Holding Company may have to
terminate his service at any time.
(h) Maximum Incentive Stock Options. The aggregate fair market
value of stock with respect to which incentive stock options (within
the meaning of ss. 422A of the Code) are exercisable for the first time
by an Optionee during any calendar year under the Plan or any other
plan of the Holding Company or its Subsidiaries shall not exceed
$100,000. For this purpose, the fair market value of such shares shall
be determined as of the date the option is granted and shall be
computed in such manner as shall be determined by the Committee,
consistent with the requirements of ss. 422A of the Code.
(i) Agreement. Each option shall be evidenced by an agreement
between the Optionee and the Holding Company which shall provide, among
other things, that, with respect to incentive stock options, the
Optionee will advise the Holding Company immediately upon any sale or
transfer of the shares of Common Stock received upon exercise of the
option to the extent such sale or transfer takes place prior to the
later of (a) two (2) years from the date of grant or (b) one (1) year
from the date of exercise.
(j) Investment Representations. Unless the shares subject to an
option are registered under applicable federal and state securities
laws, each Optionee by accepting an option shall be deemed to agree for
himself and his legal representatives that any option granted to him
and any and all shares of Common Stock purchased upon the exercise of
the option shall be acquired for investment and not with a view to, or
for the sale in connection with, any distribution thereof, and each
notice of the exercise of any portion of an option shall be accompanied
by a representation in writing, signed by the Optionee or his legal
representatives, as the case may be, that the shares of Common Stock
are being acquired in good faith for investment and not with a view to,
or for sale in connection with, any distribution thereof (except in
case of the Optionee's legal representatives for distribution, but not
for sale, to his legal heirs, legatees and other testamentary
beneficiaries). Any shares issued pursuant to an exercise of an option
may bear a legend evidencing such representations and restrictions.
6. Incentive Stock Options and Non-Qualified Stock Options. Options
granted under the Plan may be incentive stock options under ss. 422A of the Code
or non-qualified stock options, provided, however, that Outside Directors shall
be granted only non-qualified stock options. All options granted hereunder will
be clearly identified as either incentive stock options or non-qualified stock
options. In no event will the exercise of an incentive stock option affect the
right to exercise any non-qualified stock option, nor shall the exercise of any
non-qualified stock option affect the right to exercise any incentive stock
option. Nothing in this Plan shall be construed to prohibit the grant of
incentive stock options and non-qualified stock options to the same person,
provided, further, that incentive stock options and non-qualified stock options
shall not be granted in a manner whereby the exercise of one non-qualified stock
option or incentive stock option affects the exercisability of the other.
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<PAGE>
7. Adjustment of Shares. In the event of any change after the effective
date of the Plan in the outstanding stock of the Holding Company by reason of
any reorganization, recapitalization, stock split, stock dividend, combination
of shares, exchange of shares, merger or consolidation, liquidation,
extraordinary distribution (consisting of cash, securities, or other assets), or
any other change after the effective date of the Plan in the nature of the
shares of stock of the Holding Company, the Committee shall determine what
changes, if any, are appropriate in the number and kind of shares reserved under
the Plan, and the Committee shall determine what changes, if any, are
appropriate in the option price under and the number and kind of shares covered
by outstanding options granted under the Plan. Any determination of the
Committee hereunder shall be conclusive.
8. Tax Withholding. Whenever the Holding Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the Holding
Company shall have the right to require the Optionee or his or her legal
representative to remit to the Holding Company an amount sufficient to satisfy
any federal, state and/or local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares, and whenever under
the Plan payments are to be made in cash, such payments shall be net of an
amount sufficient to satisfy any federal, state and/or local withholding tax
requirements. If permitted by the Committee and pursuant to procedures
established by the Committee, an Optionee may make a written election to have
shares of Common Stock having an aggregate fair market value, as determined by
the Committee, consistent with the requirements of Treas. Reg. ss. 20.2031-2,
sufficient to satisfy the applicable withholding taxes, withheld from the shares
otherwise to be received upon the exercise of a non-qualified option.
9. Amendment. The Board of Directors of the Holding Company may amend
the Plan from time to time and, with the consent of the Optionee, the terms and
provisions of his option, except that without the approval of the holders of at
least a majority of the shares of the Holding Company voting in person or by
proxy at a duly constituted meeting or adjournment thereof:
(a) the number of shares of stock which may be reserved for
issuance under the Plan may not be increased except as provided in
Section 7 hereof;
(b) the period during which an option may be exercised may not be
extended beyond ten (10) years and one day from the date on which such
option was granted; and
(c) the class of persons to whom options may be granted under the
Plan shall not be modified materially.
No amendment of the Plan, however, may, without the consent of the
Optionees, make any changes in any outstanding options theretofore granted under
the Plan which would adversely affect the rights of such Optionees.
10. Termination. The Board of Directors of the Holding Company may
terminate the Plan at any time and no option shall be granted thereafter. Such
termination, however, shall not affect the validity of any option theretofore
granted under the Plan. In any event, no incentive stock option may be granted
under the Plan after the date which is ten (10) years from the effective date of
the Plan.
11. Successors. This Plan shall be binding upon the successors and
assigns of the Holding Company.
12. Governing Law. The terms of any options granted hereunder and the
rights and obligations hereunder of the Holding Company, the Optionees and their
successors in interest shall, except to the extent governed by federal law, be
governed by Indiana law.
13. Government and Other Regulations. The obligations of the Holding
Company to issue or transfer and deliver shares under options granted under the
Plan shall be subject to compliance with all applicable laws, governmental rules
and regulations (including Officer of Thrift and Supervision regulations), and
administrative action. In particular, grants of stock options under the Plan
shall comply with the requirements of 12. C.F.R. ss. 563b.3(g)(4)(vii), to the
extent applicable to such grants.
14. Effective Date. The Plan shall become effective on the date it is
approved by the holders of at least a majority of the shares of the Holding
Company entitled to vote at a duly constituted meeting or adjournment thereof.
The options granted pursuant to the Plan may not be exercised until the Board of
Directors of the Holding Company has been advised by counsel that such approval
has been obtained and all other applicable legal requirements have been met.
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CITIZENS SAVINGS BANK OF FRANKFORT
RECOGNITION AND RETENTION PLAN AND TRUST
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Citizens Savings Bank of Frankfort hereby establishes the Recognition
and Retention Plan (the "Plan") and Trust (the "Trust") upon the terms and
conditions hereinafter stated in this Recognition and Retention Plan and Trust
Agreement (the "Agreement").
1.02 The Trustee, which initially shall be _______________________________,
hereby accepts this Trust and agrees to hold the Trust assets existing on the
date of this Agreement and all additions and accretions thereto upon the terms
and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to retain directors and executive officers
in key positions by providing such persons with a proprietary interest in the
Holding Company (as hereinafter defined) as compensation for their contributions
to the Holding Company and to the Bank and its Affiliates (as hereinafter
defined) and as an incentive to make such contributions and to promote the
Holding Company's and the Bank's growth and profitability in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01 "Affiliate" means the Holding Company and those subsidiaries or
affiliates of the Holding Company or the Bank which, with the consent of the
Board, agree to participate in this Plan.
3.02 "Bank" means Citizens Savings Bank of Frankfort and its successors,
whether in mutual or stock form.
3.03 "Beneficiary" means the person or persons designated by a Recipient to
receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or, if none, his estate.
3.04 "Board" means the Board of Directors of the Bank.
3.05 "Committee" means the Stock Compensation Committee of the Board of
Directors of the Holding Company. At all times during its administration of this
Plan, the Committee shall consist of two or more directors of the Holding
Company, each of whom shall be a "Non-Employee Director" within the meaning of
the definition of that term contained in Regulation 16b-3 ("Rule 16b-3")
promulgated under the Securities Exchange Act of 1934, as amended (the "1934
Act").
3.06 "Common Stock" means shares of the common stock, without par value, of
the Holding Company.
3.07 "Conversion" shall mean the conversion of the Bank from the mutual to
stock form of organization and the simultaneous acquisition of the Bank by the
Holding Company.
3.08 "Director" means a member of the Board of Directors of the Bank or the
Holding Company.
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3.09 "Director Emeritus" shall mean an honorary, non-voting member of the
Board of Directors of the Bank or the Holding Company.
3.10 "Disability" means any physical or mental impairment which qualifies
an Employee or Director for disability benefits under the applicable long-term
disability plan maintained by the Bank or an Affiliate, or, if no such plan
applies, which would qualify such Employee or Director for disability benefits
under the long-term disability plan maintained by the Bank, if such Employee or
Director were covered by that Plan.
3.11 "Employee" means any person who is currently employed by the Bank or
an Affiliate, including officers.
3.12 "Holding Company" shall mean Citizens Bancorp.
3.13 "Outside Director" means a member of the Board of Directors of the
Bank or the Holding Company, who is not also an Employee.
3.14 "Plan Shares" means shares of Common Stock held in the Trust and
issued or issuable to a Recipient pursuant to the Plan.
3.15 "Plan Share Award" or "Award" means a right granted under this Plan to
earn Plan Shares.
3.16 "Plan Share Reserve" means the shares of Common Stock held by the
Trustee pursuant to Sections 5.03 and 5.04.
3.17 "Recipient" means an Employee or Outside Director who receives a Plan
Share Award under the Plan.
3.18 "Trustee" means that person(s) or entity nominated by the Committee
and approved by the Board pursuant to Sections 4.01 and 4.02 to hold legal title
to the Plan assets for the purposes set forth herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and interpreted
by the Committee, which shall have all of the powers allocated to it in this and
other Sections of the Plan. The interpretation and construction by the Committee
of any provisions of the Plan or of any Plan Share Award granted hereunder shall
be final and binding. The Committee shall act by vote or written consent of a
majority of its members. Subject to the express provisions and limitations of
the Plan, the Committee may adopt such rules, regulations and procedures as it
deems appropriate for the conduct of its affairs. If permitted by applicable
law, the Committee, with the consent of Recipients, may change the vesting
schedule for Awards after the date of grant thereof. The Committee shall
recommend to the Board one or more persons or entities to act as Trustee in
accordance with the provisions of this Plan and Trust and the terms of Article
VIII hereof.
4.02 Role of the Board. The members of the Committee and the Trustee shall
be appointed or approved by, and will serve at the pleasure of, the Board of
Directors of the Holding Company. The Board of Directors of the Holding Company
may in its discretion from time to time remove members from, or add members to,
the Committee, and may remove, replace or add Trustees.
4.03 Limitation on Liability. Neither a Director nor the Committee nor the
Trustee shall be liable for any determination made in good faith with respect to
the Plan or any Plan Shares or Plan Share Awards granted under it. If a Director
or the Committee or any Trustee is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of anything done or
not done by him in such capacity under or with respect to the Plan, the Bank
shall indemnify such person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in the best interests of the
Bank and its Affiliates and, with respect to any criminal action or proceeding,
if he had no reasonable cause to believe his conduct was unlawful. The
indemnification of officers and directors of the Bank pursuant to this Section
4.03 shall be subject to 12 C.F.R. ss. 545.121.
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<PAGE>
ARTICLE V
CONTRIBUTION; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Bank shall be permitted to
contribute to the Trust an amount sufficient to purchase up to 4% of the shares
of Common Stock issued by the Holding Company in connection with the Conversion.
Such amounts shall be paid to the Trustee no later than the date required to
purchase shares of Common Stock for Awards made under this Plan. No
contributions by Employees or Outside Directors shall be permitted.
5.02 Initial Investment. Any amounts held by the Trust until such amounts
are invested in accordance with Section 5.03, shall be invested by the Trustee
in such interest-bearing account or accounts at the Bank as the Trustee shall
determine to be appropriate.
5.03 Investment of Trust Assets; Creation of Plan Share Reserve. As soon as
practicable following the first shareholder meeting of the Holding Company
following the Conversion ("First Shareholder Meeting Date"), the Trustee shall
invest all of the Trust's assets exclusively in the number of shares of Common
Stock, designated by the Bank as subject to Awards made under the Plan, which
may be purchased directly from the Holding Company, on the open market, or from
any other source; provided, however that the Trust shall not invest in an amount
of Common Stock greater than 4.0% of the shares of the Common Stock sold in the
Conversion, which shall constitute the "Plan Share Reserve" and provided,
further that if the Trustee is required to purchase such shares on the open
market or from the Holding Company for an amount per share greater than the
price per share at which shares were trading on the date the contributions
therefor were made to the Trust, the Bank shall have the discretion to reduce
the number of shares to be awarded and purchased. The Trust may hold cash in
interest-bearing accounts pending investment in Common Stock for periods of not
more than one year after deposit. The Trustee, in accordance with applicable
rules and regulations and Section 5.01 hereof, shall purchase shares of Common
Stock in the open market and/or shall purchase authorized but unissued shares of
the Common Stock from the Holding Company sufficient to acquire the requisite
percentage of shares. Any earnings received or distributions paid with respect
to Common Stock held in the Plan Share Reserve shall be held in an
interest-bearing account. Any earnings received or distributions paid with
respect to Common Stock subject to a Plan Share Award shall be held in an
interest-bearing account on behalf of the individual Recipient.
5.04 Effect of Allocations, Returns and Forfeitures Upon Plan Share
Reserves. Upon the allocation of Plan Share Awards under Sections 6.02 and 6.03
after acquisition by the Trustee of such shares, or the decision of the
Committee to return Plan Shares to the Holding Company, the Plan Share Reserve
shall be reduced by the number of Plan Shares so allocated or returned. Any
shares subject to an Award which may not be earned because of a forfeiture by
the Recipient pursuant to Section 7.01 shall be returned (added) to the Plan
Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Employees and Outside Directors are eligible to receive
Plan Share Awards provided in Section 6.02.
6.02 Allocations. The Committee may determine which of the Employees and
Outside Directors referenced in Section 6.01 above will be granted Plan Share
Awards and the number of Plan Shares covered by each Award, including grants
effective upon the First Shareholder Meeting Date, provided, however, that the
number of Plan Shares covered by such Awards may not exceed the number of Plan
Shares in the Plan Share Reserve immediately prior to the grant of such Awards,
and provided further, that in no event shall any Awards be made which will
violate the Charter, Articles of Incorporation, Bylaws or Plan of Conversion of
the Holding Company or the Bank or any applicable federal or state law or
regulation and provided further that Awards may not be granted at any time in
which the Bank fails to meet its applicable minimum capital requirements. In the
event Plan Shares are forfeited for any reason and unless the Committee decides
to return the Plan Shares to the Holding Company, the Committee may, from time
- 3 -
<PAGE>
to time, determine which of the Employees or Outside Directors referenced in
Section 6.01 above will be granted additional Plan Share Awards to be awarded
from forfeited Plan Shares. In selecting those Employees or Outside Directors to
whom Plan Share Awards will be granted and the number of Plan Shares covered by
such Awards, the Committee shall consider the position and responsibilities of
the eligible Employees or Outside Directors, the length and value of their
services to the Bank and its Affiliates, the compensation paid to such Employees
or Outside Directors, and any other factors the Committee may deem relevant.
6.03 Form of Allocation. As promptly as practicable after a determination
is made pursuant to Section 6.02 that a Plan Share Award is to be made, the
Committee shall notify the Recipient in writing of the grant of the Award, the
number of Plan Shares covered by the Award, and the terms upon which the Plan
Shares subject to the Award may be earned. The stock certificate for Plan Share
Awards shall be registered in the name of the Recipient until forfeited or
transferred by the Recipient after such Award has been earned. The Committee
shall maintain records as to all grants of Plan Share Awards under the Plan.
6.04 Allocations Not Required. Notwithstanding anything to the contrary in
Sections 6.01 and 6.02, no Employee or Outside Director shall have any right or
entitlement to receive a Plan Share Award hereunder, such Awards being at the
total discretion of the Committee, nor shall the Employees as a group have such
a right. The Committee may, with the approval of the Board (or, if so directed
by the Board, shall) return all Common Stock in the Plan Share Reserve not yet
allocated to the Holding Company at any time, and cease issuing Plan Share
Awards.
6.05. Distribution Election Before Plan Shares Are Earned. Notwithstanding
anything contained in the Plan to the contrary, an Employee or an Outside
Director who has received an allocation of Plan Shares in accordance with
Article VI may request in writing that the Committee authorize the distribution
to him or her of all or a portion of the Plan Shares awarded before the date on
which the Plan Shares become earned in accordance with Article VII. The decision
as to whether to distribute to any Employee or Outside Director who requests
distribution shall be made by the Committee, in its sole discretion. In
addition, the distribution shall be subject to the following parameters:
(a) The Committee shall be required to make a separate determination
for each request received by an Employee or Outside Director for
distribution.
(b) Any Plan Shares awarded shall be required to have a legend on the
Plan Shares confirming that the Plan Shares are subject to
restriction and transfer in accordance with the terms set forth in
the Plan. This legend may not be removed until the date that the
Plan Shares become earned in accordance with Article VII.
(c) The Plan Shares distributed shall be voted by the Trustee in
accordance with Section 7.04 until the date that the Plan Shares
are earned.
(d) Any cash dividends or other cash distributions paid with respect
to the Plan Shares before the date that the Plan Shares are earned
shall be paid to the Trustee to be held for the Employee or
Outside Director, whichever is applicable, until the date that the
Plan Shares are earned.
(e) At the date on which the Plan Shares are earned, the Trustee may
withhold from any cash dividends or other cash distributions held
on behalf of such Employee or Outside Director the amount needed
to cover any applicable withholding and employment taxes arising
at the time that the Plan Shares are earned. If the amount of such
cash dividends or distributions is insufficient, the Trustee may
require the Employee or Outside Director to pay to the Trustee the
amount required to be withheld as a condition of removing the
legend on the Plan Shares.
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<PAGE>
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earning Plan Shares; Forfeitures.
(a) General Rules. Plan Shares subject to an Award shall be earned by
a Recipient at the rate of twenty percent (20%) of the aggregate
number of Shares covered by the Award at the end of each full
twelve months of consecutive service with the Bank or an
Affiliate after the date of grant of the Award. If the term of
service of a Recipient terminates as an Employee, as a Director
and as a Director Emeritus prior to the fifth anniversary (or
such later date as the Committee shall determine) of the date of
grant of an Award for any reason (except as specifically provided
in Subsection (b) below or in Section 4.01 hereof), the Recipient
shall forfeit the right to earn any Shares subject to the Award
which have not theretofore been earned.
In determining the number of Plan Shares which are earned,
fractional shares shall be rounded down to the nearest whole
number, provided that such fractional shares shall be aggregated
and earned, on the fifth anniversary of the date of grant.
(b) Exception for Terminations due to Death and Disability.
Notwithstanding the general rule contained in Section 7.01(a)
above, all Plan Shares subject to a Plan Share Award held by a
Recipient whose term of service as an Employee and as a Director
or Director Emeritus with the Holding Company, Bank or an
Affiliate terminates due to death or Disability shall be deemed
earned as of the Recipient's last day of service with the Holding
Company, Bank or an Affiliate as a result of such death or
Disability. If the Recipient's service as an Employee and as a
Director or Director Emeritus terminates due to Disability within
one year of the effective date of the Conversion, the Shares
earned by the Recipient may not be disposed of by the Recipient
during the one-year period following the Conversion, and stock
certificate legends to that effect may be placed on the stock
certificates for any such shares.
(c) Revocation for Misconduct. Notwithstanding anything hereinafter
to the contrary, the Board may by resolution immediately revoke,
rescind and terminate any Plan Share Award, or portion thereof,
previously awarded under this Plan, to the extent Plan Shares
have not been delivered thereunder to the Recipient, whether or
not yet earned, in the case of an Employee who is discharged from
the employ of the Holding Company, Bank or an Affiliate for cause
(as hereinafter defined), or who is discovered after termination
of employment to have engaged in conduct that would have
justified termination for cause or, in the case of an Outside
Director or Director Emeritus, who is removed from the Board of
Directors of the Bank and the Holding Company or an Affiliate for
cause (as hereinafter defined), or who is discovered after
termination of service as an Outside Director or Director
Emeritus to have engaged in conduct which would have justified
removal for cause. "Cause" is defined as personal dishonesty,
willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, or
the willful violation of any law, rule, regulation (other than
traffic violations or similar offenses) or order which results in
a loss to the Holding Company, Bank or any Affiliate or in a
final cease and desist order.
(d) Cessation of Payment. The Trustee shall cease payment of benefits
to Recipients or, if applicable, their Beneficiaries in the event
of the Bank's insolvency. The Bank shall be considered insolvent
for purposes of this RRP if the Bank is unable to pay its debts
as they become due or if a receiver is appointed for the Bank
under applicable law. If payments cease by reason of this
subsection, payments will be resumed, with appropriate make-up
payments, once the Bank ceases to be insolvent but only to the
extent the payments were not made directly or its Affiliates.
7.02 Accrual of Dividends. Whenever Plan Shares are paid to a Recipient or
Beneficiary under Section 7.03, such Recipient or Beneficiary shall also be
entitled to receive, with respect to each Plan Share paid, an amount equal to
any cash dividends or cash distributions and a number of shares of Common Stock
- 5 -
<PAGE>
or other assets equal to any stock dividends and any other assets distributions
declared and paid with respect to a share of Common Stock between the date the
Plan Shares are being distributed and the date the Plan Shares were granted.
There shall also be distributed an appropriate amount of net earnings, if any,
of the Trust with respect to any cash dividends or cash distributions so paid
out. Until the Plan Shares are vested and distributed to any such Recipient or
Beneficiary, such dividends, distributions and net earnings thereon, if any,
shall be retained by the Trust.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Plan Shares shall be
distributed to the Recipient or his Beneficiary, as the case may
be, as soon as practicable after they have been earned.
(b) Form of Distribution. All Plan Shares, together with any shares
representing stock dividends, shall be distributed in the form of
Common Stock. One share of Common Stock shall be given for each
Plan Share earned and payable. Payments representing accumulated
cash dividends and cash or other distributions (and earnings
thereon) shall be made in cash or in the form of such non-cash
distributions.
(c) Withholding. The Trustee may withhold from any payment or
distribution made under this Plan sufficient amounts of cash or
shares of Common Stock to cover any applicable withholding and
employment taxes, and if the amount of such payment is
insufficient, the Trustee may require the Recipient or
Beneficiary to pay to the Trustee the amount required to be
withheld as a condition of delivering the Plan Shares.
Alternatively, a Recipient may pay to the Trustee that amount of
cash necessary to be withheld in taxes in lieu of any withholding
of payments or distribution under the Plan. The Trustee shall pay
over to the Holding Company, the Bank or Affiliate which employs
or employed such Recipient any such amount withheld from or paid
by the Recipient or Beneficiary.
(d) Cessation of Payment. The Trustee shall cease payment of benefits
to Recipients or, if applicable, their Beneficiaries in the event
of the Bank's insolvency. The Bank shall be considered insolvent
for purposes of this RRP if the Bank is unable to pay its debts as
they become due or if a receiver is appointed for the Bank under
applicable law. If payments cease by reason of this subsection,
payments will be resumed, with appropriate make-up payments, once
the Bank ceases to be insolvent but only to the extent the
payments were not made directly by the Bank or its Affiliates.
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<PAGE>
7.04 Voting of Plan Shares. All shares of Common Stock held by the Trust
shall be voted by the Trustee, taking into account the best interests of the
Plan Share Award recipients.
ARTICLE VIII
TRUST
8.01 Trust. The Trustee shall receive, hold, administer, invest and make
distributions and disbursements from the Trust in accordance with the provisions
of the Plan and Trust and the applicable directions, rules, regulations,
procedures and policies established by the Committee pursuant to the Plan.
8.02 Management of Trust. It is the intent of this Plan and Trust that,
subject to the provisions of this Plan, the Trustee shall have complete
authority and discretion with respect to the management, control and investment
of the Trust, and that the Trustee shall invest all assets of the Trust, except
those attributable to cash dividends paid with respect to Plan Shares, in Common
Stock to the fullest extent practicable, and except to the extent that the
Trustee determines that the holding of monies in cash or cash equivalents is
necessary to meet the obligation of the Trust. Neither the Holding Company, the
Bank, nor any Affiliate shall exercise any direct or indirect control or
influence over the time when, or the prices at which, the Trustee may purchase
such shares, the number of shares to be purchased, the manner in which the
shares are to be purchased, or the broker (if any) through whom the purchases
may be executed. In performing its duties, the Trustee shall have the power to
do all things and execute such instruments as may be deemed necessary or proper,
including the following powers:
(a) To invest up to one hundred percent (100%) of all Trust assets in
Common Stock without regard to any law now or hereafter in force
limiting investments for Trustees or other fiduciaries. The
investment authorized herein and in paragraph (b) constitutes the
only investment of the Trust, and in making such investment, the
Trustee is authorized to purchase Common Stock from the Holding
Company or an Affiliate or from any other source and such Common
Stock so purchased may be outstanding, newly issued, or treasury
shares.
(b) To invest any Trust assets not otherwise invested in accordance
with (a) above in such deposit accounts, and certificates of
deposit (including those issued by the Bank), securities of any
open-end or closed-end management investment company or investment
trust registered under the Investment Company Act of 1940, whether
or not the Trustee or any affiliate of the Trustee is being
compensated for providing services to the investment company or
trust as investment advisor or otherwise, obligations of the
United States government or its agencies or such other investments
as shall be considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any time
held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that
such security is an asset of the Trust (but accurate records shall
be maintained showing that such security is an asset of the
Trust).
(e) To hold cash without interest in such amounts as may be in the
opinion of the Trustee reasonable for the proper operation of the
Plan and Trust and to hold cash pending investment.
(f) To employ brokers, agents, custodians, consultants and accountants.
(g) To hire counsel to render advice with respect to their rights, duties
and obligations hereunder, and such other legal services or representation as
they may deem desirable.
(h) To hold funds and securities representing the amounts to be distributed
to a Recipient or his or her Beneficiary as a consequence of a dispute as to the
disposition thereof, whether in a segregated account or held in common with
other assets of the Trust.
Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.
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<PAGE>
8.03 Records and Accounts. The Trustee shall maintain accurate and detailed
records and accounts of all transactions of the Trust, which shall be available
at all reasonable times for inspection by any legally entitled person or entity
to the extent required by applicable law, or any other person determined by the
Committee.
8.04 Earnings. All earnings, gains and losses with respect to Trust assets
shall be allocated, in accordance with a reasonable procedure adopted by the
Committee, to bookkeeping accounts for Recipients or to the general account of
the Trust, depending on the nature and allocation of the assets generating such
earnings, gains and losses. In particular, any earnings on cash dividends or
distributions received with respect to shares of Common Stock shall be allocated
to accounts for Recipients, if such shares are the subject of outstanding Plan
Share Awards, or otherwise to the Plan Share Reserve. Recipients (or their
Beneficiaries) shall not be entitled to any such allocations until the Plan
Share Awards to which they relate are vested and distributed to those Recipients
(or their Beneficiaries).
8.05 Expenses. All costs and expenses incurred in the operation and
administration of this Plan, including those incurred by the Trustee, shall be
borne by the Bank or the Holding Company.
8.06 Indemnification. The Bank shall indemnify, defend and hold the Trustee
harmless against all claims, expenses and liabilities arising out of or related
to the exercise of the Trustee's powers and the discharge of its duties
hereunder, unless the same shall be due to its negligence or willful misconduct.
ARTICLE IX
MISCELLANEOUS
9.01 Adjustments for Capital Changes. The aggregate number of Plan Shares
available for issuance pursuant to the Plan Share Awards (which, as of the
effective date of this Plan, shall not exceed 4% of the shares of the Holding
Company's Common Stock issued in the Conversion), and the number of shares to
which any Plan Share Award relates shall be proportionately adjusted for any
increase or decrease in the total number of outstanding shares of Common Stock
issued subsequent to the effective date of the Plan resulting from any stock
dividend or split, recapitalization, merger, consolidation, spin-off,
reorganization, combination or exchange of shares, extraordinary cash or
non-cash distribution, or other similar capital adjustment, or other increase or
decrease in such shares effected without receipt or payment of consideration, by
the Committee.
9.02 Amendment and Termination of Plan. The Board may, by resolution, at
any time amend or terminate the Plan. The power to amend or terminate shall
include the power to direct the Trustee to return to the Holding Company all or
any part of the assets of the Trust, including shares of Common Stock held in
the Plan Share Reserve, as well as shares of Common Stock and other assets
subject to Plan Share Awards but not yet earned by the Employees or Directors to
whom they are allocated. However, the termination of the Trust shall not affect
a Recipient's right to the distribution of Common Stock relating to Plan Share
Awards already earned, including earnings thereon, in accordance with the terms
of this Plan and the grant by the Committee.
9.03 Nontransferable. Plan Share Awards and rights to Plan Shares shall not
be transferable by a Recipient other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Internal Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder, and
during the lifetime of the Recipient, Plan Shares may only be earned by and paid
to the Recipient who was notified in writing of the Award by the Committee
pursuant to Section 6.03. The assets of the RRP, prior to the distribution of
Plan Shares to a Recipient or his or her Beneficiary, shall be subject to the
claims of creditors of the Bank. Unless Plan Shares are distributed in
accordance with Section 6.05 or 7.03 to a Recipient or his or her Beneficiary,
such Recipient or, if applicable, Beneficiary shall not have any right in or
claim to any specific assets of the RRP or Trust and shall only be unsecured
creditor of the Bank, nor shall the Holding Company or the Bank be subject to
any claim for benefits hereunder.
9.04 Employment Rights. Neither the Plan nor any grant of a Plan Share
Award or Plan Shares hereunder nor any action taken by the Trustee, the
Committee or the Board in connection with the Plan shall create any right on the
part of any Employee to continue in the employ of, or of any Outside Director to
continue in the service of, the Bank, the Holding Company or any Affiliate
thereof.
- 8 -
<PAGE>
9.05 Voting and Dividend Rights. No Recipient shall have any voting or
dividend rights or other rights of a stockholder in respect of any Plan Shares
covered by a Plan Share Award, except as expressly provided in Sections 7.02 and
7.04 above, prior to the time said Plan Shares are actually distributed to him.
9.06 Governing Laws. The Plan and Trust shall be governed by the laws of
the State of Indiana, except to the extent governed by federal law, including
regulations of the Office of Thrift Supervision. In particular, grants of Plan
Share Awards under the Plan shall comply with the requirements of 12 C.F.R. ss.
563b.3(g)(4)(vii) to the extent applicable thereto.
9.07 Effective Date. This Plan shall be effective as of the date of its
approval by the shareholders of the Holding Company.
9.08 Term of Plan. This Plan shall remain in effect until the earlier of
(1) 21 years from the effective date of its adoption, (2) termination by the
Board, or (3) the distribution of all assets of the Trust. Termination of the
Plan shall not affect any Plan Share Awards previously granted, and such Awards
shall remain valid and in effect until they have been earned and paid, or by
their terms expire or are forfeited.
9.09 Tax Status of Trust. It is intended that the trust established hereby
be treated as a grantor trust of the Bank under the provisions of Section 671,
et seq., of the Internal Revenue Code of 1986, as amended.
9.10. Compensation. The Trustee shall be entitled to receive fair and
reasonable compensation for its services hereunder, as agreed to by the Trustee
and the Bank, and shall also be entitled to be reimbursed for all reasonable
out-of-pocket expenses, including, but not by way of limitation, legal,
actuarial and accounting expenses and all costs and expenses incurred in
prosecuting or defending any action concerning the Plan or the Trust or the
rights or responsibilities of any person hereunder, brought by or against the
Trustee. Such reasonable compensation and expenses shall be paid by the Bank or
the Holding Company.
9.11. Resignation of Trustee. The Trustee may resign at any time by giving
sixty (60) calendar days' prior written notice to the Bank, and the Trustee may
be removed, with or without cause, by the Bank on sixty (60) calendar days'
prior written notice to the Trustee. Such prior written notice may be waived by
the party entitled to receive it. Upon any such resignation or removal becoming
effective, the Trustee shall render to the Bank a written account of its
administration of the Plan and the Trust for the period since the last written
accounting and shall do all necessary acts to transfer the assets of the Trust
to the successor Trustee or Trustees.
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Citizens Bancorp
By ____________________________
Fred W. Carter, President
Attest: ____________________________
Cindy S. Chambers, Secretary
Citizens Savings Bank of Frankfort
By ____________________________
Fred W. Carter, President
Attest: ____________________________
Cindy S. Chambers, Secretary
IN WITNESS WHEREOF, I, ______________________________________ execute
this agreement for and on behalf of the Trustee, accepting and binding the
Trustee to undertake and perform the obligations and duties of the Trustee
hereunder and consenting to the foregoing Plan and Trust Agreement.
--------------------------------
By
----------------------------,
-----------------------------
- 10 -
CITIZENS BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST AGREEMENT
(EFFECTIVE JULY 1, 1997)
<PAGE>
CITIZENS BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST AGREEMENT
(EFFECTIVE JULY 1, 1997)
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.........................................1
Section 1.1. Accrued Company Contributions
Benefit...........................1
Section 1.2. Act............................................1
Section 1.3. Anniversary Date...............................1
Section 1.4. Annual Addition................................1
Section 1.5. Bank...........................................1
Section 1.6. Beneficiary....................................2
Section 1.7. Code...........................................2
Section 1.8. Committee......................................2
Section 1.9. Company........................................2
Section 1.10. Company Contributions Account..................2
Section 1.11. Compensation...................................2
Section 1.12. Date of Employment.............................3
Section 1.13. Date of Separation.............................3
Section 1.14. Deferred Retirement............................3
Section 1.15. Deferred Retirement Date.......................3
Section 1.16. Defined Benefit Fraction.......................3
Section 1.17. Defined Contribution Fraction..................4
Section 1.18. Effective Date.................................4
Section 1.19. Employee.......................................4
Section 1.20. Exempt Loan....................................5
Section 1.21. Fund...........................................5
Section 1.22. Highly Compensated Employee....................5
Section 1.23. Holding Company................................6
Section 1.24. Hour of Service................................6
Section 1.25. Leave of Absence...............................6
Section 1.26. Normal Retirement..............................6
Section 1.27. Normal Retirement Date.........................6
Section 1.28. One Year Service Break.........................7
Section 1.29. Participant....................................7
Section 1.30. Period of Separation...........................7
Section 1.31. Period of Service..............................7
Section 1.32. Period of Severance............................7
Section 1.33. Plan...........................................8
Section 1.34. Plan Year......................................8
Section 1.35. Re-employed Individual.........................8
Section 1.36. Section 415 Compensation.......................9
Section 1.37. Stock.........................................10
Section 1.38. Top Paid Group................................10
Section 1.39. Total Disability..............................11
Section 1.40. Trust.........................................11
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Section 1.41. Trustee.......................................11
Section 1.42. Valuation Date................................11
ARTICLE II ELIGIBILITY AND PARTICIPATION......................11
Section 2.1. Eligibility...................................11
Section 2.2. Entry Dates...................................11
Section 2.3. Certification by Company......................12
Section 2.4. Deferred Retirement...........................12
ARTICLE III COMPANY CONTRIBUTIONS..............................12
Section 3.1. Company Contributions.........................12
Section 3.2. Form of Contributions.........................12
Section 3.3. Holding by Trustee............................13
Section 3.4. Expenses......................................13
Section 3.5. No Company Liability for Benefits.............13
Section 3.6. No Rollover Contributions.....................13
ARTICLE IV ALLOCATION TO PARTICIPANTS' ACCOUNTS...............13
Section 4.1. Company Contributions Accounts................13
Section 4.2. Allocation of Company
Contributions.....................13
Section 4.3. Limitations on Annual Additions...............14
Clause (a). Basic Limitations.....................14
Clause (b). Participation in Other Plans..........15
Section 4.4. Effective Date of Allocations.................15
Section 4.5. Cash Dividends................................15
Section 4.6. Allocation of Forfeitures.....................15
Section 4.7. Special Allocation Rules......................15
ARTICLE V VALUATIONS AND ADJUSTMENTS.........................17
Section 5.1. Valuation of Fund.............................17
Clause (a). Valuations............................17
Clause (b). Frequency.............................17
Clause (c). Records...............................17
Section 5.2. Adjustments...................................18
Section 5.3. Amount of Adjustments.........................18
Section 5.4. Effective Date of Adjustments.................19
Section 5.5. Notice to Participants........................19
ARTICLE VI BENEFITS...........................................19
Part A. Retirement Benefits.........................................19
Section 6.1. Retirement....................................19
Part B. Termination Benefits........................................19
Section 6.2. Effect of Termination.........................19
Section 6.3. Vesting.......................................19
Section 6.4. Payment.......................................21
Part C. Death Benefits..............................................21
Section 6.5. Benefits upon Death...........................21
Section 6.6. Beneficiaries.................................21
Section 6.7. Lack of Beneficiaries.........................21
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Section 6.8. Termination or Retirement prior
to Death..........................21
Part D. General.....................................................22
Section 6.9. Date of Distribution..........................22
Section 6.10. Form of Distribution..........................22
Section 6.11. Liability.....................................23
Section 6.12. Right of First Refusal........................23
Section 6.13. Put Options...................................24
Section 6.14. Eligible Rollover Distributions...............25
ARTICLE VII ADMINISTRATIVE COMMITTEE...........................25
Section 7.1. Establishment.................................25
Section 7.2. Duties........................................26
Section 7.3. Actions.......................................26
Section 7.4. Disqualification..............................26
Section 7.5. Powers........................................26
Section 7.6. Discrimination Prohibited.....................27
Section 7.7. Statements and Forms..........................27
Section 7.8. Liability.....................................27
Section 7.9. Determination of Right to Benefits............27
Section 7.10. Investment Directions.........................28
Section 7.11. Voting Power..................................28
ARTICLE VIII THE TRUSTEE........................................28
Section 8.1. Assets Held in Trust..........................28
Section 8.2. Investments...................................28
Section 8.3. Directions of Committee.......................29
Section 8.4. Receipt of Additional Shares..................29
Section 8.5. Delivery of Materials to Committee............29
Section 8.6. Powers........................................29
Section 8.7. Loans to the Trust............................31
Clause (a). Interest..............................31
Clause (b). Use of Proceeds.......................31
Clause (c). Terms of Exempt Loan..................31
Clause (d). Collateral............................31
Clause (e). Limited Recourse......................31
Clause (f). Repayment.............................31
Clause (g). Agreement by Companies................32
Clause (h). Release of Collateral.................32
Clause (i). Default...............................32
Clause (j). Termination of Plan...................33
Section 8.8. Annual Accounting.............................33
Section 8.9. Audit.........................................33
Section 8.10. Uncertainty Concerning Payment
of Benefits.......................33
Section 8.11. Compensation..................................34
Section 8.12. Standard of Care..............................34
Section 8.13. Request for Instructions......................34
Section 8.14. Resignation of Trustee........................34
Section 8.15. Vacancies in Trusteeship......................35
Section 8.16. Information to Be Furnished...................35
Section 8.17. Voting Rights of Participants.................35
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<PAGE>
Section 8.18. Delegation of Authority.......................36
Section 8.19. Diversification of Company
Contributions Account.............36
Section 8.20. Tender Offer..................................37
ARTICLE IX AMENDMENT, TERMINATION AND MERGER..................37
Section 9.1. Amendment.....................................37
Section 9.2. Termination or Complete
Discontinuance of Contributions...38
Section 9.3. Determination by Internal Revenue
Service ..........................38
Section 9.4. Nonreversion..................................39
Section 9.5. Merger........................................39
ARTICLE X MISCELLANEOUS......................................40
Section 10.1. Creation of Plan Voluntary...................40
Section 10.2. No Employment Contract.......................40
Section 10.3. Limitation on Rights Created.................40
Section 10.4. Waiver of Claims.............................40
Section 10.5. Spendthrift Provision........................40
Section 10.6. Payment of Benefits to Others................41
Section 10.7. Payments to Missing Persons..................41
Section 10.8. Severability.................................41
Section 10.9. Captions.....................................42
Section 10.10. Construction.................................42
Section 10.11. Counterparts.................................42
Section 10.12. Indemnification..............................42
Section 10.13. Standards of Interpretation
and Administration...............42
Section 10.14. Governing Law................................42
Section 10.15. Successors and Assigns.......................42
Section 10.16. Adoption of Plan.............................42
Section 10.17. Withdrawal from Plan.........................43
ARTICLE XI TEFRA TOP-HEAVY RULES..............................43
Section 11.1. Application..................................43
Section 11.2. Determination................................43
Section 11.3. Accrued Benefits.............................45
Section 11.4. Vesting Provisions...........................45
Section 11.5. Minimum Contribution.........................46
Section 11.6. Code Section 415 Limitations.................47
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CITIZENS BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST AGREEMENT
(EFFECTIVE JULY 1, 1997)
ARTICLE I
DEFINITIONS
Section 1.1. "Accrued Company Contributions Benefit" shall mean the
balance of a Participant's Company Contributions Account as of the last
preceding Valuation Date.
Section 1.2. "Act" shall mean the Employee Retirement Income Security
Act of 1974, as now in effect or hereafter amended, and shall also include all
regulations promulgated thereunder.
Section 1.3. "Anniversary Date" shall mean the last calendar
day of any Plan Year.
Section 1.4. "Annual Addition" shall mean, with respect to any
Participant for any Plan Year and with respect to this Plan and to all other
qualified defined contribution plans maintained by a Company, the sum of:
(a) Company contributions credited to his Company Contributions
Account for that Plan Year under this Plan;
(b) that Participant's non-deductible contributions;
(c) forfeitures; and
(d) amounts allocated to an individual medical account as defined
in Section 415(1)(2) of the Code which is part of a qualified
defined benefit plan maintained by a Company shall be treated
as Annual Additions to a qualified defined contribution plan,
and amounts derived from Company contributions paid or
accrued in taxable years ending after such date which are
attributable to post-retirement medical benefits allocated to
the separate account of a key employee as defined in Section
416 of the Code under a welfare benefit fund as defined in
Section 419(e) of the Code maintained by a Company shall also
be treated as Annual Additions to a qualified defined
contribution plan.
Annual Additions shall not include any amounts allocated as income to a
Participant's Company Contributions Account in accordance with Section 8.7(j).
Section 1.5. "Bank" means the Citizens Savings Bank of Frankfort and
any successor thereto.
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Section 1.6. "Beneficiary" shall mean the person(s) entitled under the
provisions of Section 6.5 to receive benefits after the death of a Participant.
Section 1.7. "Code" shall mean the Internal Revenue Code of 1986, as
now in effect or hereafter amended, and shall also include all regulations
promulgated thereunder.
Section 1.8. "Committee" shall mean the administrative committee
appointed and acting in accordance with the provisions of Article VII. The
Committee shall be deemed to be the Plan Administrator for purposes of the Act.
Section 1.9. "Company" shall mean the Holding Company, the Bank, any
Company which becomes a participating employer pursuant to Section 10.16, and
any successors thereto. Solely for the purpose of:
(a) computing an Employee's Period of Service to determine his
eligibility to participate in and the vesting of his benefits
under this Plan;
(b) applying the limitations contained in Section 4.3;
(c) determining whether this Plan is a Top Heavy Plan under
Section 11.2 and, thus, subject to the provisions of Article
XI; and
(d) determining whether an Employee terminated his employment
with the Companies,
"Company" shall also include any entity which, together with a participating
Company, constitutes a member of a controlled group of corporations, a member of
a commonly controlled group of trades or businesses or a member of an affiliated
service group within the meaning of Section 414(b), Section 414(c) or Section
414(m) of the Code or any entity which is required to be aggregated with a
participating Company under Section 414(o) of the Code.
Section 1.10. "Company Contributions Account" shall mean the account
maintained for each Participant to which contributions made by the Companies
shall be allocated.
Section 1.11. "Compensation" shall mean the total of all amounts paid
or payable in cash by the Companies by reason of services performed by an
Employee during any period, including bonuses, overtime, any over cash payments
included on an Employee's W-2, amounts deferred by the Employee under any cash
or deferred arrangement maintained by a Company under Section 401(k) of the Code
and any salary reductions elected by the Employee pursuant to a salary reduction
plan maintained by a Company under Section 125 of the Code but excluding, with
respect to any Employee, any other
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amounts contributed by a Company for or on account of that Employee under this
Plan or under any other employee benefit plan; provided, however, that
Compensation in a Plan Year in excess of one hundred and fifty thousand
($150,000), as adjusted pursuant to Section 401(a)(17) of the Code, shall be
disregarded.
Section 1.12. "Date of Employment" means any date on which an
Employee first completes an Hour of Service.
Section 1.13. "Date of Separation" means the earlier of:
(a) the date an Employee's employment with the Companies
terminates by reason of a quit, discharge, retirement
(including disability retirement) or death; or
(b) the first anniversary of the first date of a period in which
the Employee remains absent from active employment with the
Companies for some reason other than a quit, discharge,
retirement, death, approved leave of absence or military
service.
Section 1.14. "Deferred Retirement" shall mean retirement after a
Participant's Normal Retirement Date in accordance with Section 2.4.
Section 1.15. "Deferred Retirement Date" shall mean the first (1st)
calendar day of the month after a Participant's Normal Retirement Date as of
which he retires or his employment with the Companies is terminated for any
reason other than his death.
Section 1.16. "Defined Benefit Fraction" shall mean for a
given Plan Year a fraction:
(a) the numerator of which is the projected annual benefit of a
Participant under all qualified defined benefit plans
maintained by a Company (determined as of the Anniversary Date
of that Plan Year), and
(b) the denominator of which is the lesser of:
(i) the product of one and twenty-five one hundredths
(1.25) multiplied by ninety thousand dollars
($90,000), as adjusted pursuant to Section
415(b)(1)(A) and (d)(1) of the Code, or
(ii) the product of one and four tenths (1.4) multiplied
by one hundred percent (100%) of that Participant's
average Section 415 Compensation for his three (3)
consecutive highest paid Years of Service with the
Companies.
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Section 1.17. "Defined Contribution Fraction" shall mean for
a given Plan Year a fraction:
(a) the numerator of which is the sum of the Annual Additions to a
Participant's accounts under all qualified defined
contribution plans maintained by a Company as of the
Anniversary Date of that Plan Year, and
(b) the denominator of which is the sum of the lesser of the
following amounts determined for that Plan Year and for each
prior year of service with the Companies:
(i) the product of one and twenty-five one hundredths
(1.25) multiplied by the dollar limit in effect for
that Plan Year pursuant to Section 415(c)(1)(A) of
the Code, or
(ii) the product of one and four tenths (1.4) multiplied
by twenty-five percent (25%) of that Participant's
Section 415 Compensation for that Plan Year.
Section 1.18. "Effective Date" shall mean July 1, 1997; provided,
however, that if prior to December 31, 1997, the Bank shall not have completed
its conversion from mutual to stock form, this Plan shall be null and void and
any shares of Stock and other assets held hereunder shall be returned to the
Companies.
Section 1.19. "Employee" shall mean any person employed by a Company,
and shall also include any individual deemed to be a leased employee (as defined
below) of the Companies but only to the extent required by the Code. For
purposes of this Plan, the term "leased employee" means any person (other than
an employee of the recipient) who pursuant to an agreement between the recipient
and any other person ("leasing organization") has performed services for the
recipient (or for the recipient and related persons determined in accordance
with Section 414(n)(6) of the Code) on a substantially full-time basis for a
period of at least one (1) year, and such services are of a type historically
performed by employees in the business field of the recipient employer;
provided, however, that a leased employee shall not be considered an employee of
the recipient if (a) such employee is covered by a money purchase pension plan
providing a nonintegrated employer contribution rate of at least ten percent
(10%) of Compensation, immediate participation and full and immediate vesting
and (b) leased employees do not constitute more than twenty percent (20%) of the
recipient's non-highly compensated workforce. A leased employee within the
meaning of Section 414(n)(2) of the Code shall become a Participant in the Plan
based on service as a leased employee only as provided in provisions of the Plan
other than this Section. Contributions or benefits provided a leased employee by
the leasing organization which are attributable to services
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performed for the recipient employer shall be treated as provided by the
recipient employer.
Section 1.20. "Exempt Loan" shall mean a loan made to this Plan by a
party in interest or disqualified person or a loan to this Plan which is
guaranteed by a party in interest or disqualified person, including a direct
loan of cash, a purchase-money transaction and an assumption of any obligation
of this Plan. For purposes of this definition, a guarantee shall include an
unsecured guarantee and the use of assets of a party in interest or disqualified
person as collateral for a loan even though the use of assets may not constitute
a guarantee under any applicable State laws.
Section 1.21. "Fund" shall mean all cash, investments and
other properties held by the Trustee hereunder.
Section 1.22. "Highly Compensated Employee" shall include any
Employee described in Section 414(q) of the Code who:
(a) is a five percent (5%) or more owner (as then defined
in Section 416(i)(1) of the Code) of the Company at
any time during that Plan Year or the immediately
preceding Plan Year; or
(b) received more than eighty thousand dollars ($80,000),
as automatically adjusted pursuant to Sections
414(q)(1) and 415(d) of the Code without the
necessity of any amendment to the Plan, of Section
415 Compensation from the Company in the immediately
preceding Plan Year and was in the Top Paid Group for
that immediately preceding Plan Year.
For purposes of determining whether an Employee is a Highly
Compensated Employee and notwithstanding anything else
contained in this Section, the following rules shall
apply:
(c) A former Employee shall be treated as a Highly
Compensated Employee if he was a Highly Compensated
Employee in the Plan Year during which his employment
with the Company terminated or in any Plan Year
during which occurs or commencing after his
fifty-fifth (55th) birthday.
(d) Section 415 Compensation shall include any amount
which is contributed by the Company pursuant to a
salary reduction agreement and which is not
includible in the gross income of an Employee under
Sections 125, 401(k), 402(a)(8), 402(h)(1)(B) and
403(b) of the Code.
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(e) An Employee shall only be deemed to be a Highly
Compensated Employee to the extent required by the
Code.
Section 1.23. "Holding Company" shall mean Citizens Bancorp.
Section 1.24. "Hour of Service" shall mean:
(a) each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for a Company; these
hours shall be credited to the Employee for the computation
period or periods in which the duties are performed; and
(b) each hour for which an Employee is paid, or entitled to
payment, by a Company on account of a period of time during
which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation,
holiday, illness, incapacity (including disability but
excluding payments made because of Total Disability under
Section 6.3), layoff, jury duty, military duty or leave of
absence; no more than five hundred and one (501) Hours of
Service shall be credited under this Subsection (b) for any
single continuous period (whether or not such period occurs in
a single computation period); hours under this Subsection (b)
shall be calculated and credited pursuant to Section
2530.200b-2 of the Department of Labor Regulations which are
incorporated herein by this reference; and
(c) each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by a Company; the same
Hours of Service shall not be credited both under Subsection
1.24(a) or Subsection 1.24(b), as the case may be, and under
this Subsection 1.24(c); these hours shall be credited to the
Employee for the computation period or periods to which the
award or agreement pertains, rather than to the computation
period in which the award, agreement or payment is made.
Section 1.25. "Leave of Absence" shall mean a leave granted by a
Company, in accordance with rules uniformly applied to all Employees in a
non-discriminatory manner, for reasons of health, public service or other
satisfactory reasons.
Section 1.26. "Normal Retirement" shall mean retirement on a
Participant's Normal Retirement Date.
Section 1.27. "Normal Retirement Date" shall mean the first (1st)
calendar day of the month immediately following a Participant's sixty-fifth
(65th) birthday. A Participant's benefits under this Plan shall be fully vested
and non-forfeitable
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on and after the date he attains age sixty-five (65), which is deemed to be the
normal retirement age under this Plan, regardless of his Period of Service and
regardless of the vesting schedules in Section 6.3 and in Section 11.4.
Section 1.28. "One Year Service Break" shall mean a consecutive twelve
(12) month Period of Severance.
Section 1.29. "Participant" shall mean any Employee who has commenced
participation in this Plan pursuant to Section 2.2. Participation in this Plan
shall continue until such time as the Participant has received all of the
benefits to which he is entitled under the terms of this Plan.
Section 1.30. "Period of Separation" means, for an Employee, the period
of time commencing with the date such Employee separates from service with the
Companies and ending with the date such Employee resumes his employment with the
Companies.
Section 1.31. "Period of Service" means, for an Employee, the period
commencing on the later of the following dates:
(a) such Employee's Date of Employment; or
(b) the date on which such Employee's Employer is required to be
aggregated with the Company under Code Section 414(b), (c),
(m) or (o), whichever is applicable,
and ending on the date a Period of Severance begins, including any Period of
Separation of less than twelve (12) consecutive months; provided, however, that
in the case of any person who terminates his employment with the Employers but
later resumes his employment with the Companies, the Period of Service before
such resumption of employment shall be aggregated only if that person is a
Re-employed Individual; provided, further, that for purposes of determining a
Participant's non-forfeitable interest in his Company Contributions Account
under Section 6.3, a Participant's Date of Employment shall be deemed to be July
1, 1997 if later than his actual Date of Employment.
Section 1.32. "Period of Severance" means, for an Employee, the period
of time commencing with the earlier of:
(a) the date on which such Employee terminates his employment with
the Companies by reason of quitting, retirement, death or
discharge, or
(b) the date twelve (12) consecutive months after the date a
person remains absent from service with the Companies (with or
without pay) for any reason other than quitting, retirement,
death or discharge,
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and ending, in the case of an Employee who terminates his employment with the
Companies by reason other than death, with the date such Employee resumes his
employment with the Companies. Solely for purposes of determining whether a One
Year Service Break has occurred for participation and vesting purposes has
occurred, an Employee who is absent from work for maternity or paternity reasons
shall receive credit at least one (1) year. For purposes of this Section 1.32,
an absence from work for maternity and paternity reasons means an absence:
(d) by reason of the pregnancy of the Employee,
(e) by reason of the birth of a child of the Employee,
(f) by reason of the placement of a child with the Employee in
connection with the adoption of that child by the Employee, or
(g) for purposes of caring for such a child for the period
beginning immediately following such birth or placement.
Section 1.33. "Plan" shall mean the employee stock ownership plan and
trust established pursuant to the provisions of this Agreement, as amended from
time to time, which shall be known as the "Citizens Bancorp Savings Employee
Stock Ownership Plan." This Plan is intended to be an employee stock ownership
plan under Section 4975(e)(7) of the Code and under Section 407(d)(6) of the
Act.
Section 1.34. "Plan Year" shall mean the consecutive twelve (12) month
period beginning each July 1 and ending on the following June 30. The Plan Year
shall also be the limitation year for purposes of Section 415 of the Code for
this Plan and for all other qualified retirement plans maintained by a Company.
Section 1.35. "Re-employed Individual" shall mean a person who, after
having terminated his employment with the Companies, resumes his employment with
the Companies:
(a) with any vested interest in his Company Contributions
Account as provided in Section 6.3 or 11.4, or
(b) with no such vested interest but who resumes his
employment with the Companies either:
(i) before a One Year Service Break,
(ii) after a One Year Service Break but before his latest
Period of Severance equals or exceeds his Period of
Service, or
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(iii) after a One Year Service Break but before the number
of his consecutive One Year Service Breaks equals or
exceeds the greater of five (5) or his Period of
Service.
Section 1.36. "Section 415 Compensation" shall mean with
respect to any Plan Year and shall:
(a) include amounts accrued to a Participant (regardless of
whether he was a Participant during the entire Plan Year and
regardless of whether in cash):
(i) as wages, salaries, fees for professional services
and other amounts received for personal services
actually rendered in the course of his employment
with the Companies including but not limited to
commissions, compensation for services on the basis
of a percentage of profits and bonuses;
(ii) for purposes of Subsection (a)(i) above, earned
income from sources outside the United States (as
defined in Section 911(b) of the Code), whether or
not excludible from gross income under Section 911 of
the Code or deductible under Section 913 of the Code;
(iii) amounts described in Sections 104(a)(3), 105(a) and
115(h) of the Code but only to the extent that these
amounts are includible in the gross income of that
Participant; and
(iv) amounts paid or reimbursed by the Companies for
moving expenses incurred by that Participant, but
only to the extent that these amounts are not
deductible by that Participant under Section 217 of
the Code;
(b) not include:
(i) notwithstanding Subsection (a)(i) above, there shall
be excluded from Section 415 Compensation amounts
contributed to a plan as contributions to a qualified
cash or deferred plan under Section 401(k) of the
Code;
(ii) other contributions made by a Company to any plan of
deferred compensation to the extent that, before the
application of the Section 415 of the Code
limitations to that plan, the contributions are not
includible in the gross income of that Participant
for the taxable year in which contributed; in
addition, Company contributions made on behalf of
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that Participant to a simplified employee pension
plan described in Section 408(k) of the Code shall
not be considered as Section 415 Compensation for the
Plan Year in which contributed; additionally, any
distributions from a plan of deferred compensation
shall not be considered as Section 415 Compensation,
regardless of whether such amounts are includible in
the gross income of that Participant when
distributed; however, any amounts received by that
Participant pursuant to an unfunded nonqualified plan
shall be considered as Section 415 Compensation in
the Plan Year in which such amounts are includible in
the gross income of that Participant; and
(iii) other amounts which receive special federal income
tax benefits, such as premiums for group term life
insurance (but only to the extent that the premiums
are not includible in the gross income of that
Participant);
provided, however, that Section 415 Compensation in a Plan Year in excess of one
hundred and fifty thousand ($150,000), as adjusted pursuant to Section
401(a)(17) of the Code, shall be disregarded. Notwithstanding anything in this
Section 1.36 to the contrary, for Plan Years beginning on or after January 1,
1998, Section 415 Compensation shall include any elective deferral (as defined
in Section 402(g) of the Code) and any amount contributed or deferred at the
election of the Participant that is not includible in that Participant's gross
income by reason of Section 125 or Section 457 of the Code.
Section 1.37. "Stock" shall mean any duly-issued shares of common stock
of the Holding Company, without par value, which shares constitute employer
securities under Section 409(1) and Section 4975(e)(8) of the Code.
Section 1.38. "Top Paid Group" shall mean the Employees who are in the
top twenty percent (20%) of the Employees of the Company in terms of Section 415
Compensation for such Plan Year; provided, however, that for purposes of
determining the number of Employees to be included in the Top Paid Group, the
following Employees shall be excluded to the extent permitted by Section
414(q)(4) of the Code:
(a) Employees who have not completed six (6) months of
service with the Group;
(b) Employees who normally work less than seventeen and
one-half (17 1/2) hours per week or less than six (6)
months during a Plan Year;
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(c) Employees who have not attained age twenty-one (21);
(d) except as provided by regulations promulgated under
the Code, Employees who are covered by a collectively
bargained agreement; and
(e) Employees who are non-resident aliens and who receive
no earned income (within the meaning of Section
911(d)(2) of the Code) from the Company which
constitutes income from sources in the United States
(within the meaning of Section 861(a)(3) of the
Code).
Section 1.39. "Total Disability" shall mean a mental or physical
condition which, in the judgment of the Committee based upon medical reports and
other evidence satisfactory to the Committee, presumably permanently prevents a
Participant from satisfactorily performing his usual duties for his employing
Company or the duties of such other position or job which his employing Company
makes available to that Participant and for which that Participant is qualified
by reason of training, education or experience.
Section 1.40. "Trust" shall mean the employee stock ownership trust
established pursuant to the provisions of this Agreement, as amended from time
to time, which shall be known as the "Citizens Bancorp Employee Stock Ownership
Trust."
Section 1.41. "Trustee" shall mean Valley American Bank and Trust
Company, and any successors thereto.
Section 1.42. "Valuation Date" shall mean each December 31 and each
other date as of which the Committee shall cause the Trustee to determine the
value of the Trust assets as prescribed in Section 5.1.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
Section 2.1. Eligibility. Each Employee in the employ of a Company
shall become eligible to participate in this Plan on the date on which his
Period of Service is at least one (1) year or, if later, on the date on which he
attains age twenty-one (21).
Section 2.2. Entry Dates. Each Employee who was eligible to participate
under Section 2.1 on the Effective Date automatically became a Participant in
this Plan as of the Effective Date. Each other Employee shall become a
Participant in this Plan on the first day of January or July coincident with or
next following the first (1st) date on which he meets the eligibility
requirements of
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Section 2.1. A re-employed Employee who has once met the one (1) year Period of
Service requirement for eligibility shall become (or, if formerly a Participant,
be reinstated as) a Participant in this Plan on his re-employment date or, if
later, on the first day of January or July coincident with or next following the
date he attains age twenty-one (21).
Section 2.3. Certification by Company. Not later than thirty (30)
calendar days after an Employee shall become a Participant in this Plan, his
employing Company shall certify such fact in writing to the Committee, together
with such additional facts regarding such Participant as the Committee may
request. Except as otherwise provided by the Act, each such certification shall
be final and conclusive and the Committee shall be entitled to rely thereon
without any investigation, but it may correct any errors discovered in any such
certificate.
Section 2.4. Deferred Retirement. A Participant who continues in the
employment of a Company after his Normal Retirement Date shall continue to
participate in this Plan, and contributions shall be allocated to his Company
Contributions Account as otherwise provided in this Plan. Any such Participant
who elects Deferred Retirement shall be entitled to benefits under this Plan
payable at his Deferred Retirement Date in the same manner as if he had retired
on his Normal Retirement Date; provided, however, that the deferral of benefit
payments after a Participant's Normal Retirement Date shall be permitted only to
the extent authorized by and in compliance with all requirements imposed under
Section 2530.203-3 of the Department of Labor Regulations which are incorporated
herein by reference.
ARTICLE III
COMPANY CONTRIBUTIONS
Section 3.1. Company Contributions. For the initial Plan Year and for
each Plan Year thereafter, the Companies shall make contributions to the Trust
in one (1) or more installments in such amounts as the Board of Directors of the
Bank may determine.
If Company contributions are paid to the Trust by reason of a mistake
in fact made in good faith or a mistake made in good faith in determining the
deductibility of such Company contributions for federal income tax purposes
under Section 404 of the Code, such Company contributions may, except as
otherwise provided in Section 8.7, be returned to the Companies by the Trustee
(upon the written direction of the Committee) within one (1) year after the
payment to the Trust or after the date the federal income tax deduction is
denied, whichever is applicable.
Section 3.2. Form of Contributions. The Companies' contributions, if
any, for each Plan Year shall be paid to the
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Trustee either in cash or in Stock valued at the fair market value thereof as of
the date of the contribution (as determined consistent with Section 5.1(a)) and
within such period as is provided for in Section 404 of the Code or any other
statute of similar import or any rule or regulations thereunder.
Section 3.3. Holding by Trustee. All contributions made by the
Companies under Section 3.1 shall be a part of the Fund and shall be held in
trust by the Trustee until distributed as provided in this Plan.
Section 3.4. Expenses. In addition to the contributions to be made
under Section 3.1, the Companies shall pay all reasonable expenses incident to
the operation of this Plan; in the event of any failure by the Companies to make
such payment, the same shall be a charge against and paid from the Fund but only
to the extent permitted under the Code and under the Act.
Section 3.5. No Company Liability for Benefits. The benefits under this
Plan shall be only such as can be provided by the Fund, and there shall be no
liability or obligation on the part of the Company to make any further
contributions or payments. Except as otherwise provided by the Act, no liability
for the payment of benefits under this Plan shall be imposed upon the Companies
or upon the officers, directors or shareholders of the Companies.
Section 3.6. No Rollover Contributions. Rollover contributions (within
the meaning of Section 402(a)(5) of the Code) shall not be permitted nor
accepted.
ARTICLE IV
ALLOCATION TO PARTICIPANTS' ACCOUNTS
Section 4.1. Company Contributions Accounts. For purposes of allocating
the Company contributions, the Committee shall establish and maintain a separate
Company Contributions Account in the name of each Participant.
Section 4.2. Allocation of Company Contributions. Except as provided in
Section 4.7, the Company contributions for each Plan Year shall be allocated
among the Company Contributions Accounts of all Employees who were or became
Participants on the Anniversary Date of that Plan Year or whose employment with
the Companies terminated during that Plan Year because of death, Total
Disability or Deferred or Normal Retirement proportionately in the ratio that
the Compensation paid to such Participant, if any, for that Plan Year or since
becoming a Participant in this Plan if he became a Participant within that Plan
Year bears to the aggregate Compensation paid to all Participants for that Plan
Year or since becoming Participants in this Plan if they became Participants
within that Plan Year. To the extent cash dividends are applied to
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pay of an Exempt Loan under Section 4.5 and notwithstanding anything contained
herein to the contrary, Company contributions shall first be applied towards
crediting the Participant's Company Contributions Account to which the cash
dividends would have been allocated before they are allocated under the
preceding provisions of this Section.
Section 4.3. Limitations on Annual Additions.
Clause (a). Basic Limitations. Notwithstanding any other
provision of this Plan, the maximum Annual Addition during any Plan Year for any
Participant under this Plan and under any other qualified defined contribution
plans maintained by the Companies shall in no event exceed the lesser of:
(i) twenty-five percent (25%) of that Participant's Section 415
Compensation for that Plan Year, or
(ii) thirty thousand dollars ($30,000), or, if greater, one-fourth
(1/4) of the dollar limitation in effect for that Plan Year
pursuant to Section 415(b)(1)(A) of the Code; provided,
however, that such adjustments shall only apply to the Plan
Years ending on or after the date in which the adjustment was
made.
Any Company contributions which are applied by the Trustee (not later
than the due date, including extensions, for filing a Company's federal income
tax return for that Plan Year) to pay interest on an Exempt Loan shall not be
included as Annual Additions under this Section 4.3; provided, however, that the
provisions of this Section shall be applicable only in Plan Years for which not
more than one-third (1/3) of the Company contributions applied to pay principal
and interest on an Exempt Loan are allocated among Highly Compensated Employees.
The Committee may reallocate Company contributions in order to satisfy this
special limitation.
If due to a reasonable error in estimation of a Participant's
Compensation or due to the allocation of forfeitures these maximum Annual
Additions would be exceeded as to any Participant, any excess amount shall be
used to reduce Company Contributions for that Participant in the next, and
succeeding, Plan Years. If that Participant was not covered by this Plan at the
Anniversary Date of that Plan Year, such excess shall be reallocated among the
Company Contributions Accounts of the other Participants under Section 4.2 to
the fullest extent possible without exceeding the limitations with respect to
any other Participant for that Plan Year. Any excess amount which cannot be so
allocated to any Participant's Company Contributions Account by reason of these
limitations shall be allocated under this Section 4.3(a) for the next succeeding
Plan Years (prior to the allocation of Company Contributions for such succeeding
Plan Years).
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Clause (b). Participation in Other Plans. In any case in which
an Employee is a participant in one (1) or more qualified defined contribution
plans and in one (1) or more qualified defined benefit plans (as these terms are
defined in Section 415(k) of the Code) maintained by a Company and for Plan
Year, beginning before January 1, 2000, the sum of the Defined Benefit Fraction
and of the Defined Contribution Fraction, computed as of the Anniversary Date of
that Plan Year, shall not exceed one (1.0).
Section 4.4. Effective Date of Allocations. For all purposes of this
Plan, allocations to the Participants' Company Contributions Accounts under this
Article shall be deemed to have been made on the Anniversary Date to which they
relate although they may actually be determined at some later date. The fact
that such allocations are made, however, shall not vest in any Participant or in
his spouse or other Beneficiary any right, title or interest in or to any part
of the Fund except at the times, to the extent and on the terms and conditions
specified in this Plan.
Section 4.5. Cash Dividends. Any cash dividends received by the Trustee
on Stock allocated to the Company Contributions Accounts of Participants shall
be credited to the applicable Participants' Company Contributions Accounts
unless the Bank, in its sole discretion, elects to pay the cash dividends
directly to the applicable Participants or directs the Trustee to pay the cash
dividends to the Participants (or, if applicable, their Beneficiaries) within
ninety (90) calendar days of the close of the Plan Year in which the cash
dividends were paid by the Holding Company to the Fund. Notwithstanding anything
contained in this Section to the contrary, the Bank may direct cash dividends,
including dividends on non-allocated shares, be applied to repay an Exempt Loan,
but only to the extent shares of Stock with an aggregate fair market value equal
to the amount of dividends so applied are allocated to the Company Contributions
Accounts of the applicable Participants and to the extent the cash dividends are
deductible under Section 404(k) of the Code.
Section 4.6. Allocation of Forfeitures. The Trustee, shall, as soon as
practicable following the Anniversary Date marking the close of each Plan Year,
allocate the forfeitures which have occurred in that Plan Year first to
reinstate any forfeitures of any reemployed Participant under Section 6.2 and
second, if any forfeitures are remaining after the reinstatements described
above are completed, among the Company Contributions Accounts of all Employees
who were or became Participants on the Anniversary Date of that Plan Year or
whose Years of Service terminated during that Plan Year because of death, Total
Disability or Deferred or Normal Retirement. The forfeitures shall be allocated
among such Accounts in the same manner provided for under Section 4.2.
Section 4.7. Special Allocation Rules. Notwithstanding any other
provision in this Plan to the contrary, no Stock acquired by
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this Plan in a sale to which Section 1042 of the Code applies may be allocated
directly or indirectly under this Plan:
(a) during the non-allocation period (as such term is defined
below), for the benefit of:
(i) any Participant who makes an election under Section
1042(a) of the Code with respect to Stock sold to
this Plan, or
(ii) any Participant who is related to the Participant
making the election under Section 1042(a) of the Code
or to the deceased Participant (within the meaning of
Section 267(b) of the Code); provided, however, that
this Subsection (a)(ii) shall not apply to any
Participant who is a lineal descendent of a
Participant as long as the aggregate amount allocated
to the benefit of all such lineal descendants during
the non-allocation period (as such term is defined
below) does not exceed more than five percent (5%) of
the Stock (or amounts allocated in lieu thereof) held
by this Plan which are attributable to the sale to
this Plan by any person related to such descendants
(within the meaning of Section 267(c)(4)) in a
transaction to which Section 1042 of the Code
applies,
or
(b) for the benefit of any Participant who owns (after the
application of the attribution rules contained in Section
318(a) of the Code, but disregarding Section 318(a)(2)(B)(i)
of the Code) more than twenty-five
percent (25%) of:
(i) any class of the outstanding stock of the Holding
Company or of any other corporation which is a member
of a controlled group of corporations (within the
meaning of Section 409(1)(4) of the Code) which
includes the Holding Company, or
(ii) the total value of any class of outstanding stock of
the Holding Company or of any other corporation which
is a member of the controlled group of corporations
(within the meaning of Section 409(1)(4) of the Code)
which includes the Holding Company.
For purposes of this Section 4.7, the "non-allocation period" shall mean a
period beginning on the date of the sale of the stock to the Plan and ending on
the later of:
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(c) the date which is ten (10) years after the sale of the Stock
to this Plan to which Section 1042 of the Code applies, or
(d) the date of the Plan allocation of Stock attributable to the
final payment of any acquisition indebtedness incurred in
connection with a sale of such Stock to this Plan to which
Section 1042 of the Code applies.
For purposes of this Section 4.7 a Participant shall be deemed to be a
twenty-five percent (25%) or greater shareholder if such Participant owns more
than twenty-five percent (25%) of the shares at any time during a one (1) year
period ending:
(e) on the date of a sale of the Stock to this Plan to which
Section 1042 of the Code applies, or
(f) on the date as of which the Stock sold to this Plan through a
sale to which Section 1042 of the Code applies is allocated to
Participants.
The provisions contained in this Section 4.7 shall be interpreted consistent
with and in accordance with Section 409(n) of the Code.
ARTICLE V
VALUATIONS AND ADJUSTMENTS
Section 5.1. Valuation of Fund.
Clause (a). Valuations. The Committee shall provide the
Trustee with a written valuation showing the fair market value of the Stock,
upon which valuation the Trustee may fully rely. For all purposes of this Plan,
fair market value shall be determined by an independent appraiser (as such term
is defined in Treasury Regulations promulgated under Section 170(a)(1) of the
Code) unless the Stock is readily tradeable on an established securities market
at the date of valuation. The Committee shall also direct the Trustee to
determine the fair market value of all other assets of the Fund on each
Valuation Date.
Clause (b). Frequency. The Fund shall be valued as soon as
practical after the Anniversary Date of each Plan Year and as soon as practical
after the removal or resignation of the Trustee on the basis of fair market
values determined as of the Anniversary Date of the Plan Year or as of the
effective date of the resignation or removal of the Trustee, respectively. The
Committee may require valuation of the Fund on such other dates as it may
prescribe.
Clause (c). Records. Records of valuation of the Fund
shall be prepared by the Trustee in such manner and within such
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time after each Valuation Date as may be prescribed in this Section 5.1, and
such records shall be filed with the Committee, including a written statement
reflecting the value of the assets and liabilities of the Fund and the receipts
and disbursements of the Fund since the last previous statement filed with the
Committee. As to the fair market value of Stock, the Trustee shall rely solely
upon the most recent valuation furnished by the Committee as provided in Section
5.1(a). If information necessary to ascertain the fair market value of the Fund
assets other than Stock is not readily available to the Trustee or if the
Trustee is unable in its sole discretion fairly to determine the fair market
value of the other Fund assets, the Trustee may request the Committee in writing
to instruct the Trustee as to such values to be used for all purposes under this
Plan; in such event, the values as determined by the Committee shall be binding
and conclusive, except as otherwise provided by the Act. If the Committee shall
fail or refuse to instruct the Trustee as to such values within a reasonable
time after receipt of the Trustee's written request therefor, the Trustee may
take such action as it deems necessary or advisable to ascertain such values.
Except for the Trustee's negligence, willful misconduct or lack of good faith,
upon the expiration of ninety (90) calendar days from the filing of such records
and except as otherwise provided by the Act, the Trustee shall be forever
released and discharged from all liability and accountability to anyone with
respect to the propriety of its acts or transactions as set forth in such
records unless written objection is filed with the Trustee within the said
ninety (90) calendar day period by the Committee or by the Bank.
Section 5.2. Adjustments. As of each Valuation Date the Committee shall
cause the Trustee to allocate to each Participant's Company Contributions
Account, by credit thereto or deduction therefrom as the case may be, a
proportion of the increase or decrease in the fair market value of the Fund
since the last preceding Effective Date or Valuation Date. Such allocation shall
be made in the proportion that each Participant's Company Contributions Account
on such date bears to the total of all such Company Contributions Accounts on
such date.
Section 5.3. Amount of Adjustments. The increase or decrease in the
Fund to be allocated shall be the difference between:
(a) the fair market value of the Fund on the last preceding
Effective Date or Valuation Date (excluding any amounts
withdrawn from the Fund as of such Date for the payment of
benefits hereunder), and
(b) the fair market value of the Fund on the current Valuation
Date (including any amounts to be withdrawn from the Fund as
of such Date for the payment of benefits hereunder).
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Section 5.4. Effective Date of Adjustments. For all purposes of this
Plan, allocations to the Participants' Company Contributions Accounts under this
Article shall be deemed to have been made on the Effective Date or Valuation
Date to which they relate although they may actually be determined at some later
date. The fact that such allocations are made, however, shall not vest in any
Participant or in his spouse or other Beneficiary any right, title or interest
in or to any part of the Fund except at the times, to the extent and on the
terms and conditions specified in this Plan.
Section 5.5. Notice to Participants. Promptly after the allocations
herein described shall be completed, the Committee shall advise each Participant
in writing of the fair market value of the Stock and other Fund assets then
credited to his Company Contributions Account.
ARTICLE VI
BENEFITS
Part A. Retirement Benefits.
Section 6.1. Retirement. Each Participant who retires on his Normal
Retirement Date or Deferred Retirement Date shall be entitled to receive the
entire balance credited to his Company Contributions Account as of the Valuation
Date coincidental with or immediately following such Retirement Date plus any
Company contributions to which he is entitled pursuant to Section 4.2 for the
Plan Year in which his Normal Retirement or Deferred Retirement occurs. Payment
of such benefits shall be made in accordance with the provisions of Section
6.10.
Part B. Termination Benefits.
Section 6.2. Effect of Termination. If a Participant's employment with
the Companies is terminated before his Normal Retirement Date for any reason
other than his death, that Participant shall cease to be a Participant in this
Plan and shall not be entitled to any benefits under this Plan except as
expressly provided in this Part B.
Section 6.3. Vesting. Any Participant whose employment with the
Companies is terminated as set forth in Section 6.2 shall be entitled to a
percentage (as determined below) of the entire balance credited to his Company
Contributions Account as of the Valuation Date coincidental with or immediately
following the date of termination of his employment. The percentage of his
Company Contributions Account to which a terminated Participant is entitled
shall be determined on the basis of his Period of Service (disregarding any
Period of Service accruing before July 1, 1997) on such date of termination of
employment, as follows:
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Period of Service Vested Percentage
Less than five (5) years 0
Five (5) years or more 100%
Any portion of the terminated Participant's Company Contributions Account which
is not vested shall be treated as a forfeiture; provided, however, that such
forfeiture shall not be allocated to the other Plan Participants until the first
(1st) to occur of the following:
(a) that Participant's Period of Severance is at least five (5)
years; or
(b) that Participant's death;
provided, further, that if that Participant is reemployed prior to his
completion of a five (5) year Period of Severance, the forfeited amount shall be
reinstated as the beginning balance of that Participant's Company Contribution
Account. A Participant whose vested percentage of his Company Contributions
Account is zero (0) at the date of his termination of employment shall be deemed
to have received a distribution upon his termination of employment.
In the case of any Participant whose Period of Severance is at least
five (5) years, that Participant's pre-break service shall count in vesting of
his post-break Company Contributions Account balance only if either:
(a) that Participant has any nonforfeitable interest in his
Company Contributions Account balance at the time of his
separation from service with the Companies; or
(b) upon returning to service with a Company his Period of
Severance is less than five (5) or, if greater, less than his
Period of Service completed prior to his Period of Severance.
In the case of any Participant whose Period of Separation is at least
five (5) years, all service after such Period of Severance shall be disregarded
for the purpose of vesting the Company Contributions Account balance that
accrued before such Period of Severance.
Separate sub-accounts shall be maintained for that Participant's
pre-break and post-break Company Contributions Account. Both sub-accounts shall
share in the earnings and losses of the Fund.
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Any Participant whose employment with the Companies is terminated
because of his Total Disability shall be entitled to his entire Company
Contributions Account balance and shall also be entitled to receive any Company
contributions to which he is entitled pursuant to Section 4.2 for the Plan Year
in which his employment is so terminated.
Section 6.4. Payment. All benefits payable under Part B shall be paid
in accordance with the provisions of Section 6.10.
Part C. Death Benefits.
Section 6.5. Benefits upon Death. If the death of any Employee occurs
while he is still a Participant in this Plan and prior to his actual retirement
or other termination of employment with the Companies, the entire balance
credited to his Company Contributions Account as of the Valuation Date
coincidental with or immediately preceding the date of his death plus any
Company contributions to which he is entitled pursuant to Section 4.2 for the
Plan Year in which his death occurs shall be paid to the Beneficiary of that
deceased Participant in accordance with the provisions of Section 6.10.
Section 6.6. Beneficiaries. Each Participant shall notify the Committee
in writing of one (1) or more primary and contingent Beneficiaries to receive on
his death any benefits payable under this Part C. Each such Beneficiary
designation may be revoked, amended or changed by a Participant by like notice
in writing delivered to the Committee prior to his death. The Beneficiary
designation of any Participant who is married at the date such a designation is
made or changed shall be signed by that Participant's spouse and witnessed by
the Committee or by a Notary Public if it results in a designation of a
Beneficiary other than that Participant's spouse. Notwithstanding anything
contained in this Section to the contrary, the Beneficiary of a married
Participant shall be his spouse unless his spouse consents to the designation of
a non-spouse Beneficiary in a writing witnessed by the Committee or by a Notary
Public.
Section 6.7. Lack of Beneficiaries. Any portion of the amounts payable
under Section 6.5 which is undisposed of because all or some of the designated
Beneficiaries have predeceased a Participant or because of a Participant's
failure to designate a Beneficiary in writing prior to his death shall be paid
to the deceased Participant's surviving spouse, if any, and, if none, to the
deceased Participant's estate.
Section 6.8. Termination or Retirement prior to Death. On and after the
actual retirement of a Participant from the employ of the Companies or other
termination of his employment, the rights of such Participant and his spouse or
other Beneficiary to any benefits under this Part C shall cease and the benefits
payable to
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such Participant or to any person claiming through or under him shall be limited
to the benefits provided in Parts A or B of this Article.
Part D. General.
Section 6.9. Date of Distribution. Unless the Participant or, if
deceased, his Beneficiary, surviving spouse or estate, as the case may be,
otherwise elects, the payment of benefits to which any such person is entitled
shall begin not later than sixty (60) calendar days after the latest of the
Anniversary Date of the Plan Year in which:
(a) the Participant attains age sixty-five (65),
(b) occurs the tenth (10th) anniversary of the date on which the
Participant initially became eligible to participate in this
Plan, or
(c) the Participant terminates his employment with the Companies;
provided, however, that the distribution of benefits to a Participant shall
commence on or before April 1 of the calendar year following the calendar year
during which that Participant attains age seventy and one-half (70 1/2) or, if
the Participant is not a five percent (5%) owner of a Company and if later, of
the calendar year during which his employment with the Company is terminated.
Section 6.10. Form of Distribution. The distributions provided under
this Article VI shall be made by the Trustee, as directed by the Participant or,
if deceased, his Beneficiary, in a single lump sum distribution of the amount to
be paid to the Participant or, if deceased, to his Beneficiary; provided,
however, that except as otherwise provided in Section 6.9, payment shall be made
as soon as practicable after the Plan Year during which the employment of the
Participant from the Companies terminated; provided, further, that in no event
shall payments to a deceased Participant's estate or to any Beneficiary other
than the surviving spouse of a deceased Participant extend more than five (5)
years after the date of the Participant's death. Notwithstanding the above, a
Participant whose Company Contributions Account at the initial distribution date
or at any subsequent distribution date (when aggregated with other
distributions) is greater than three thousand and five hundred dollars ($3,500),
may elect to defer the commencement of the distribution of his Company
Contributions Account to the date on which he attains age sixty-five (65).
Distributions under this Section 6.10 shall be distributed in Stock with
fractional share interests distributed in cash. If shares of Stock are
distributed and the shares of Stock available for distribution consist of more
than one (1) class of security, a
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distributee shall receive substantially the same proportion of each such class.
If the Trust purchases shares of Stock from a Company shareholder who
is eligible to elect and so elects nonrecognition of gain under Section 1042 of
the Code in connection with such purchase and notwithstanding anything contained
herein to the contrary, no distribution that would be made within three (3)
years after the date of such purchase shall be made to a Participant before he
incurs a one (1) year Break in Service, unless his employment with the Companies
terminates as a result of his Normal Retirement, Total Disability or death or
unless the distribution is made pursuant to Section 8.19.
Section 6.11. Liability. Any payment to a Participant or to that
Participant's legal representative, Beneficiary, surviving spouse or estate, in
accordance with the provisions of this Plan, shall to the extent thereof be in
full satisfaction of all claims hereunder against the Trustee, the Committee and
the Companies, any of whom may require such Participant, legal representative,
Beneficiary, surviving spouse or estate, as a condition precedent to such
payment, to execute a receipt and release therefor in such form as shall be
determined by the Trustee, the Committee or the Companies. The Companies do not
guarantee the Trust, the Participants or, if deceased, their Beneficiaries,
surviving spouses or estates, as the case may be, against the loss of or
depreciation in value of any right or benefit that any of them may acquire under
the terms of this Plan.
Section 6.12. Right of First Refusal. If any recipient of shares of
Stock from this Plan elects at any time to sell all or any part of such shares,
the Trustee shall have a right of first refusal to purchase all or any part of
such shares of Stock for the Fund. The price to be paid by the Trustee for
shares of Stock purchased pursuant to this Section 6.12 shall be no less than
the greater of:
(a) the fair market value of such shares of Stock at the date of
their purchase, or
(b) the price offered to the recipient by another potential buyer
(other than a Company) making a good faith, bona fide offer to
buy such shares of Stock,
and the terms of the purchase may not be less favorable to the recipient than
the terms offered in the bona fide offer. This right of first refusal shall
lapse no later than fourteen (14) calendar days after the recipient gives
written notice to the Trustee that an offer by a third party to purchase his
shares of Stock has been received. The right of first refusal granted by this
Section 6.12 shall only exist if the Stock is not publicly
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traded within the meaning of Treasury Regulations ss. 54.4975-7(b)(1)(iv).
Section 6.13. Put Options. The Holding Company shall issue a put option
to any Participant, Beneficiary, surviving spouse or estate of a deceased
Participant, or any other person (including distributees of an estate) to whom
shares of Stock distributed under this Plan may pass by reason of a
Participant's death (herein collectively referred to as the "Recipient"). This
put option shall permit the Recipient to sell such Stock to the Holding Company,
at any time during two (2) option periods, at the then fair market value. The
first put option period shall be a period of at least sixty (60) calendar days
beginning on the actual date of distribution of such Stock to the Recipient. The
second put option period shall be a period of at least sixty (60) calendar days
beginning after the determination of the fair market value of such Stock is made
by the Committee (and notice of same is given in writing to the Recipient) for
the next succeeding Plan Year. Such Recipient shall be deemed to have a put
option as herein provided with respect to the shares of Stock and may exercise
this put option by delivering to the Holding Company a written notice of his
election to sell such shares of Stock, or any portion thereof, together with the
certificates representing the shares of Stock to be sold duly endorsed for
transfer. The Holding Company shall be obligated to purchase the shares of
Stock, or the designated portion thereof, at their fair market value at the date
the put option is exercised; provided, however, that the Holding Company may
grant the Trustee an option to assume on behalf of this Plan and Trust the
Holding Company's rights and obligations with respect to the put option at the
date the put option is actually exercised by the Recipient. Except as
hereinafter provided, the Holding Company (or the Trustee, if it assumes the
Holding Company's obligation) shall pay for the shares of Stock so sold to it by
check within thirty (30) calendar days following the date of sale.
Notwithstanding anything contained herein to the contrary, the Holding Company
(or, if applicable, the Trustee) may pay the purchase price in substantially
equal periodic payments (not less frequently than annually) over a period
beginning not later than thirty (30) calendar days after the exercise of the put
option and not exceeding five (5) years as long as reasonable interest is paid
on the unpaid amounts and adequate security is provided to the Recipient. If the
Stock is readily tradeable on an established market on the date of distribution,
the put option granted by this Section 6.13 shall not exist; provided, however,
that if the Stock ceases to be publicly traded within either of the sixty (60)
day calendar periods as provided herein, the Holding Company shall notify the
Recipient in writing within a reasonable time after the Stock ceases to be so
publicly traded that the Stock shall be subject to the put option for the
remainder of the applicable sixty (60) day calendar period. If the date of
actual written notice to the Recipient by the Holding Company is later than ten
(10) calendar days after the Stock ceases to be so publicly traded, the put
option shall automatically be extended to the extent that the
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date on which written notice is actually given to the Recipient is more than ten
(10) calendar days later.
Section 6.14. Eligible Rollover Distributions. Notwithstanding any
provision of the Plan to the contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect, at the time and in the
manner prescribed by the Committee, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover. For purposes of this Section, the following
terms shall have the meanings set forth below:
(a) Eligible rollover distribution: An eligible rollover distribution
is any distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include: (1)
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten (10) years or more; (2) any distribution to the extent
such distribution is required under Section 401(a)(9) of the Code; and (3) the
portion of any distribution that is not includible in gross income.
(b) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an eligible rollover distribution
to the surviving spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity.
(c) Distributee: A distributee includes an Employee or former Employee.
In addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is an alternate
payee under a qualified domestic relations order, as defined in Section 414(p)
of the Code, are distributees with regard to the interest of the spouse or
former spouse.
ARTICLE VII
ADMINISTRATIVE COMMITTEE
Section 7.1. Establishment. The Committee shall consist of at least two
(2) members to be appointed by the Board of Directors of the Bank, and the
members shall hold office at the pleasure of such Board of Directors. The
members of the Committee shall be
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individuals and may, but need not, be officers, shareholders or Directors of the
Holding Company or the Bank, Participants or Beneficiaries. The Bank may, at its
sole discretion, designate to serve as the Committee its Board of Directors as
duly-constituted from time to time.
Section 7.2. Duties. The Committee shall discharge its duties and
powers in conformance with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims. It shall have complete control of the
administration of this Plan and shall have all powers necessary or convenient to
enable it to exercise such control. In connection therewith, it may provide
rules and regulations, not inconsistent with the provisions hereof or with
requirements imposed under the Code or under the Act, for the administration of
this Plan and may from time to time amend or rescind such rules and regulations.
In addition, it may employ or appoint a secretary and such advisors, agents or
representatives as it may deem desirable and may consult with and employ counsel
(who may, but need not, be counsel to a Company or to the Trustee) or actuaries
with regard to any questions arising in connection with this Plan. All
reasonable expenses incurred by the Committee in connection with this Plan shall
be paid as provided in Section 3.4.
Section 7.3. Actions. The Committee may decide any questions hereunder
and may take or authorize or direct the taking of any action hereunder with the
approval of a majority of the members of the Committee. The approval of such
members, expressed from time to time by a vote at a meeting or in writing
without a meeting, shall constitute the action of the Committee and shall be
valid and effective for all purposes of this Plan. The fact that any member of
the Committee shall be a Participant, former Participant or Beneficiary shall
not disqualify or debar him from participating in any action or decision
affecting any class of Participants, former Participants or Beneficiaries, but
he shall not participate in any action or decision affecting his own separate
interest as a Participant, former Participant or Beneficiary.
Section 7.4. Disqualification. The fact that any member of the
Committee is a Director, shareholder or officer of a Company or a Participant or
Beneficiary shall not disqualify him from doing any act or thing which this Plan
authorizes or requires him to do as a member of the Committee (except as
otherwise provided in Section 7.3) or render him accountable for any allowance
or distribution or other pecuniary or material profit or advantage received by
him.
Section 7.5. Powers. The Committee shall have the power to construe
this Plan and to determine all questions of fact or law arising under it. It may
correct any defect, supply any omission
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or reconcile any inconsistency in this Plan in such manner and to such extent as
it may deem expedient and, except as otherwise provided by the Act, it shall be
the sole and final judge of such expediency. Except as otherwise provided in
Section 7.9, all acts and determinations of the Committee made in good faith
within the scope of its authority shall be final and conclusive on all the
parties hereto and on all Employees, Participants and their Beneficiaries,
surviving spouses or estates hereunder and shall not be subject to appeal or
review.
Section 7.6. Discrimination Prohibited. The Committee shall not take
any action or direct the Trustee to take any action with respect to any of the
benefits provided hereunder or otherwise in pursuance of the powers conferred
herein upon the Committee which would be discriminatory in favor of Employees
who are officers, Directors, shareholders, persons whose principal duties
consist of supervising the work of other Employees or Highly Compensated
Employees or which would result in benefiting one (1) Participant or group of
Participants at the expense of another or in discrimination as between
Participants similarly situated or in the application of different rules to
substantially-similar sets of facts.
Section 7.7. Statements and Forms. The Committee shall be authorized to
require of a Company and of any person claiming any rights hereunder a written
statement of any information or the execution of any forms or instruments it may
deem necessary or desirable for the administration of this Plan.
Section 7.8. Liability. Except as otherwise provided by the Act, no
member of the Committee shall be directly or indirectly responsible or under any
liability by reason of any action or default by him as a member of the Committee
or the exercise of or failure to exercise any power or discretion as such member
except for his own fraud or bad faith shown in the exercise of or failure to
exercise such power or discretion, and no member of the Committee shall be
liable in any way for the acts or defaults of any other member. The Committee
may consult with counsel (who may, but need not, be counsel to a Company or to
the Trustee) or accountants selected by it and, except as otherwise provided by
the Act, the opinion of such counsel or the recommendations of such accountants
shall be full and complete authority and protection for any action or conduct
pursued by the Committee in good faith and in accordance with such opinion or
recommendations.
Section 7.9. Determination of Right to Benefits. The Committee shall
make all determinations as to the right of any person to a benefit under the
provisions of this Plan. Any denial by the Committee of a claim for benefits
under this Plan by an Employee or, if deceased, by such Employee's spouse or
other Beneficiary, shall be stated in writing by the Committee and delivered or
mailed to the Employee, spouse or other Beneficiary,
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as the case may be, within ninety (90) calendar days after receipt of such
benefit claim by the Committee. Such notice shall set forth the specific reasons
for the denial and such additional information as is required under Section 503
of the Act, written to the best of the Committee's ability in a manner that may
be understood without legal or actuarial counsel. In addition, the Committee
shall afford a reasonable opportunity to any Employee, spouse or other
Beneficiary, as the case may be, whose claim for benefits has been denied, for a
review of the decision denying the claim in accordance with Section 503 of the
Act.
Section 7.10. Investment Directions. The Committee may direct the
investment of the Fund, by written directions to the Trustee, but such direction
shall not be inconsistent with the provisions of this Plan, of the Act or of the
Code.
Section 7.11. Voting Power. Except as otherwise provided in Section
8.17, the Committee shall be authorized to vote, either in person or by proxy,
the Stock or other securities which are held by the Trustee as part of the Fund.
ARTICLE VIII
THE TRUSTEE
Section 8.1. Assets Held in Trust. The Trustee shall hold the Fund and
shall accept and hold all contributions thereto and all investments and
reinvestments thereof in trust for the persons ultimately entitled thereto under
the terms of this Plan.
Section 8.2. Investments. This Plan is designed to invest primarily in
shares of Stock. Except as otherwise provided in this Plan, the Trustee shall
invest the cash contributed or accruing to the Fund in Stock and shall not make
any other investment for the Fund. There shall be no limit on the permissible
investment in shares of Stock. The Trustee may purchase such shares of Stock
from the Holding Company or from any other source, and such shares of Stock may
be outstanding, newly-issued or treasury shares. All such purchases shall be
made at fair market value (as determined consistent with Section 5.1(a)). If no
shares of Stock are available for purchase, the Trustee may retain cash
uninvested or may invest all or any part thereof in any other investment if such
retention or investment is prudent under all the facts and circumstances then
prevailing. The Trustee shall have the power at any time to enter into
legally-binding agreements to purchase shares of Stock from any person or
entity, whether or not such person or entity shall own such shares of Stock at
the date such purchase agreement is entered into, including but not limited to
Participants in and Beneficiaries of this Plan, except as otherwise provided in
the Act and in Treasury Regulations ss. 54.4975-11(a)(7). Except as otherwise
required by Section 6.12, the purchase price set forth in any such purchase
agreement shall be determined by the
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fair market value of such shares of Stock at the date of purchase (as determined
consistent with Section 5.1(a)).
Section 8.3. Directions of Committee. The powers granted to the Trustee
under this Plan shall be exercised by the Trustee in its sole discretion. Except
as provided in Section 8.20, the Committee may at any time and from time to time
by written direction to the Trustee require the Trustee to invest in, to retain
or to dispose of any security or other form of investment as may be specified in
such direction, limited, however, to investments permitted under this Plan,
under the Act and under the Code. Neither the Trustee nor any other person shall
be under any duty to question any such written direction of the Committee, and
the Trustee shall as promptly as possible comply with any such written
direction. Any such direction may be of a continuing nature or otherwise and may
be revoked in writing by the Committee at any time. The Trustee shall not be
liable in any manner or for any reason for the making, retention or disposition
of any investment pursuant to the lawful written direction of the Committee.
Section 8.4. Receipt of Additional Shares. Any securities received by
the Trustee as a stock split or a stock dividend or as a result of a
reorganization or other recapitalization shall be allocated as of each Valuation
Date in the same manner as the Stock to which it is attributable is then
allocated. If any rights, warrants or options are issued on common shares or
other securities held in the Fund, the Trustee shall exercise them for the
acquisition of additional common shares or other securities to the extent that
cash is then available. Any common shares or other securities acquired in this
fashion shall be treated as common shares or other securities bought by the
Trustee for the net price paid. Any rights, warrants or options on common shares
or other securities which cannot be exercised for lack of cash may be sold by
the Trustee with the proceeds thereof treated as a current cash dividend
received on such common shares or other securities.
Section 8.5. Delivery of Materials to Committee. Except as otherwise
provided in Section 8.17 and Section 8.20, the Trustee shall deliver or cause to
be delivered to the Committee copies of all notices, prospectuses and financial
statements relating to investments held in the Fund.
Section 8.6. Powers. The Trustee shall have power with regard to all
property in the Fund at any time and from time to time:
(a) to sell, convey, transfer, mortgage, pledge, lease, exchange
or otherwise dispose of the same, without the necessity of
approval of any court therefor or notice to any person,
natural or legal, thereof and without obligation on the part
of any person dealing with the
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Trustee to see to the application of any money or property
delivered to it;
(b) except as otherwise provided in Section 7.11, Section 8.17 and
Section 8.20, to exercise any and all rights or options
pertaining to any share of Stock held as part of the assets of
the Fund and to enter into agreements and consent to or oppose
the reorganization, consolidation, merger, readjustment of
financial structure or sale of assets of any corporation or
organization, the securities of which are held in the Fund;
(c) except as otherwise provided in Section 4.5, to collect the
principal and income of such property as the same shall become
due and payable and to give binding receipt therefor;
(d) to take such action, whether by legal proceedings, compromise,
abandonment or otherwise, as the Trustee, in its sole
discretion, shall deem to be in the best interest of the Fund,
but the Trustee shall be under no obligation to take any legal
action unless it shall have been first indemnified by the
Companies with respect to any expenses or losses to which it
may be subjected through taking such action;
(e) to register any securities and to hold any other property in
the Fund in its own name or in the name of a nominee with or
without the addition of words indicating that such securities
or other property are held in a fiduciary capacity;
(f) pending the selection or the purchase of suitable investments
or the payment of expenses or the making of any other payment
required or permitted under this Plan, to retain in or to
convert to cash, without liability for interest or any other
return thereon, such portion of the Fund as it shall deem
reasonable under the circumstances, including, but not by way
of limitation, the power to retain sufficient cash to permit
the acquisition of large blocks of shares of Stock as the same
may from time to time become available for purchase;
(g) to borrow from banks or similar lending institutions
reasonable sums of money for the purchase of shares of Stock
for the Company Contributions Accounts of Participants in
accordance with the provisions of Section 8.7; provided,
however, that the Trustee may not borrow from itself or from
an affiliated institution even if the Trustee is a bank or
similar lending institution except to the extent specifically
permitted by the Act and by the Code; and
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(h) to do all other acts in its judgment necessary or desirable
for the proper administration of the Trust and permissible
under the Act and under the Code although the power to do such
acts is not specifically set forth herein.
Section 8.7. Loans to the Trust. The following conditions shall be met
with respect to any Exempt Loan to the Trust:
Clause (a). Interest. The rate of interest on any Exempt Loan
shall not be in excess of a reasonable rate of interest. At the date an Exempt
Loan is made, the interest rate for the Exempt Loan and the price of any shares
of Stock to be purchased with the Exempt Loan proceeds shall not be such that
the Plan assets might be drained off.
Clause (b). Use of Proceeds. The proceeds of an Exempt Loan
shall be used within a reasonable time after receipt by the Trustee for any or
all of the following purposes:
(i) to acquire Stock;
(ii) to repay that Exempt Loan; or
(iii) to repay a prior Exempt Loan.
Except as otherwise provided in Section 6.12 and Section 6.13, no Stock acquired
with Exempt Loan proceeds shall be subject to a put, call or other option or a
buy-sell or similar arrangement while held by the Trustee and when distributed
from this Plan.
Clause (c). Terms of Exempt Loan. The terms of each Exempt
Loan shall be, at the time that Exempt Loan is made, as favorable to this Plan
as the terms of a comparable loan resulting from arm's-length negotiations
between independent parties. Each Exempt Loan shall be for a specific term and
shall not be payable at the demand of any person, except in the case of default.
Clause (d). Collateral. Any collateral pledged to the lender
by the Trustee shall consist only of Stock purchased with the borrowed funds or
Stock that was used as collateral for a prior Exempt Loan repaid with the
proceeds of the current Exempt Loan; provided, however, that in addition to such
collateral, the Companies may guarantee the repayment of an Exempt Loan.
Clause (e). Limited Recourse. Under the terms of each Exempt
Loan, the lender shall not have any recourse against the Fund or the Trust
except with respect to the collateral.
Clause (f). Repayment. No person entitled to payment under any
Exempt Loan shall have any right to assets of the Fund or the Trust other than:
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(i) collateral given for that Exempt Loan;
(ii) contributions (other than contributions of Stock)
that are made by the Companies under this Plan to
meet this Plan's obligations under that Exempt Loan;
(iii) earnings attributable to such collateral and the
investment of such contributions; and
(iv) to the extent directed by the Holding Company under
Section 4.5, cash dividends on allocated shares of
Stock.
Payments made with respect to an Exempt Loan by the Trustee during any Plan Year
shall not exceed an amount equal to the sum of such contributions and earnings
received during or prior to that Plan Year less such payments in prior Plan
Years. Such contributions and earnings shall be accounted for separately in the
books of account of this Plan and Trust until that Exempt Loan is repaid.
Clause (g). Agreement by Companies. The Companies shall agree
in writing with the Trustee to contribute to the Fund amounts sufficient to
enable the Trustee to pay each installment of principal and interest on each
Exempt Loan on or before the date such installment is due, even if no tax
benefit to the Companies results from such contribution.
Clause (h). Release of Collateral. All assets of the Fund
acquired by this Plan and Trust with Exempt Loan proceeds and all collateral
pledged to secure an Exempt Loan shall be held in a suspense account and
considered encumbered by the Exempt Loan. For each Plan Year during the duration
of an Exempt Loan, the number of assets to be released from encumbrance and
withdrawn from the suspense account shall be based upon the ratio that the
payment of principal and interest on that Exempt Loan for that Plan Year bears
to the total projected payments of principal and interest over the duration of
the Exempt Loan period. Assets released from encumbrance and withdrawn from the
suspense account shall be allocated to the various Company Contributions
Accounts in the Plan Year during which such portion is paid off and in the same
manner as if the assets had been obtained by the Trustee when no Exempt Loan was
involved. Income with respect to shares of Stock acquired with Exempt Loan
proceeds and held in the suspense account shall be allocated to Company
Contributions Accounts along with other income earned by the Fund, except to the
extent that such income is to be used to repay an Exempt Loan.
Clause (i). Default. In the event of any default upon an
Exempt Loan, the value of Trust assets transferred in satisfaction of that
Exempt Loan shall not exceed the amount of the default. If the lender is a
disqualified person within the meaning
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of Section 4975(e)(2) of the Code, the Exempt Loan shall provide for a transfer
of Trust assets upon default only upon and to the extent of the failure of the
Trustee to meet the payment schedule of that Exempt Loan; provided, however,
that the making of a guarantee shall not make a person a lender within the
meaning of this Clause (i).
Clause (j). Termination of Plan. Upon a complete termination
of the Plan but only to the extent permitted by the Code and the Act, any
unallocated Stock shall be sold to the Corporation at a price no less than fair
market value or on the open market. To the extent permitted by Code and the Act,
the proceeds of such sale shall be used to satisfy any outstanding Exempt Loan
and the balance of any funds remaining shall be allocated as income to each
Participant's Company Contributions Account based on the proportion that the
Participant's Company Contributions Account balance as of the immediately
preceding Valuation Date bears to the aggregate Company Contributions Account
balances of all Participants as of the immediately preceding Valuation Date.
Section 8.8. Annual Accounting. At least annually the Trustee shall
render to the Committee a written account of its administration of the Fund
during the period since the establishment of this Plan or the last accounting
thereafter. Pursuant to this requirement, Stock acquired by the Trustee shall be
accounted for as provided in Treasury Regulations ss. 1.402(a)-1(b)(2)(ii).
Unless written notice of disapproval is furnished to the Trustee by the
Committee within ninety (90) calendar days after receipt of such account, such
account shall be deemed to have been approved.
Section 8.9. Audit. In the case of any disapproval as provided in
Section 8.8 and unless a satisfactory corrected written account is furnished to
the Committee, an audit of the Trustee's account shall be made by a certified
public accountant selected jointly by the Holding Company and the Trustee, but
at the expense of the Companies. Upon completion of any such audit, the
inaccuracies in the Trustee's account, if any, shall be corrected to conform to
such audit and a corrected written account shall be delivered to the Committee
by the Trustee. Except as otherwise provided by the Act, an approved account or
an account corrected pursuant to such an audit shall be final and binding upon
the Companies and upon all other persons who shall then or thereafter have any
interest under this Plan.
Section 8.10. Uncertainty Concerning Payment of Benefits. In the event
of any dispute or uncertainty as to the person to whom payment of any funds or
other property shall be made under this Plan, the Trustee may, in its sole
discretion, withhold such payment or delivery until such dispute or uncertainty
shall have
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been determined or resolved by a court of competent jurisdiction or otherwise
settled by the parties concerned.
Section 8.11. Compensation. The Trustee shall be entitled to receive
fair and reasonable compensation for its services hereunder, taking into account
the amount and nature of its services and the responsibilities involved, and
shall also be entitled to be reimbursed for all reasonable out-of-pocket
expenses, including, but not by way of limitation, legal, actuarial and
accounting expenses and all costs and expenses incurred in prosecuting or
defending any action concerning this Plan or the Trust or the rights or
responsibilities of any person hereunder, brought by or against the Trustee.
Such reasonable compensation and expenses shall be paid by the Companies as
provided in Section 3.4.
Section 8.12. Standard of Care. The Trustee shall use its best judgment
in exercising any duties or powers or in taking any action hereunder and shall
be bound at all times to act in good faith and in accordance with all
requirements imposed under the Act and under the Code. Except as otherwise
provided by the Act, the Trustee shall not incur any liability by reason of any
error of judgment, mistake of law or fact or any act or omission hereunder of
itself or of any agent, proxy or attorney so long as it has acted in good faith.
The Trustee may act on any paper or document believed by it to be genuine and to
have been signed and presented by the proper person. The Trustee may consult
with counsel (who may, but need not, be counsel to a Company), accountants or
actuaries selected by it and, except as otherwise provided by the Act, the
written opinion of such counsel or the written recommendations of such
accountants or actuaries shall be full and complete authority and protection for
any action or conduct pursued by the Trustee in good faith and in accordance
with such written opinion or recommendations. Except as otherwise provided by
the Act, the Trustee shall not be liable for any action taken by it pursuant to
the written direction of the Committee.
Section 8.13. Request for Instructions. In addition to written
instructions relating to valuation and except as otherwise provided in Section
8.20, at any time the Trustee may, by written request, seek written instructions
from the Committee on any matter and may await such written instructions from
the Committee without incurring any liability whatsoever. If at any time the
Committee should fail to give written directions to the Trustee, the Trustee may
act, and shall be protected in acting, without such written directions, in such
manner as in its sole discretion seems appropriate and advisable under the
circumstances for carrying out the purposes of the Trust.
Section 8.14. Resignation of Trustee. The Trustee may resign at any
time by giving sixty (60) calendar days' prior written notice to the Bank, and
the Trustee may be removed, with or without
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cause, by the Bank on sixty (60) calendar days' prior written notice to the
Trustee. Such prior written notice may be waived by the party entitled to
receive it. Upon any such resignation or removal becoming effective, the Trustee
shall render to the Committee a written account of its administration of the
Fund for the period since the last written accounting and shall do all necessary
acts to transfer the assets of the Fund to the successor Trustee or Trustees.
Section 8.15. Vacancies in Trusteeship. In the event of any vacancy in
the trusteeship of the Trust hereby created, the Bank may designate and appoint
a qualified successor Trustee or Trustees. Any such successor Trustee or
Trustees shall have all the powers herein conferred upon the original Trustee.
Section 8.16. Information to Be Furnished. The Companies shall furnish
to the Trustee, and the Trustee shall furnish to the Companies, such information
relevant to this Plan and Trust as may be required under the Code and under the
Act. The Trustee shall keep such records, make such identification and file with
the Internal Revenue Service and with the U.S. Department of Labor such returns
and other information concerning this Plan and Trust as may be required of it
under the Code and under the Act. The Companies shall fulfill any reporting and
disclosure obligations imposed on it by the Act, and each Participant shall be
given any reports required by the Act. To the extent that the Trustee assumes
any such Company obligations, it may charge a reasonable fee for its services
apart from its normal fee and its expenses as provided in Section 8.11.
Section 8.17. Voting Rights of Participants. Each Participant (or, if
applicable, his Beneficiary) shall have the right to direct the Trustee as to
the manner in which voting rights of shares of Stock which are allocated to his
Company Contributions Account are to be exercised with respect to any corporate
matter which involves the voting of such shares with respect to the approval or
disapproval of any corporate merger or consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of substantially all assets of
a trade or business, or such similar transactions which may be prescribed by the
Secretary of Treasury in regulations. Each Participant (or, if applicable, his
Beneficiary) shall also have the right to direct the Trustee as to the manner in
which voting rights of shares of Stock which are allocated to his Company
Contributions Account are to be exercised at any time the Holding Company has a
class of securities that are required to be registered under Section 12 of the
Securities Exchange Act of 1934 or that would be required to be so registered
except for the exemption from registration provided by Section 12(g)(2)(H) of
the Securities Exchange Act of 1934. In all other cases, the Committee shall be
authorized to vote the Stock held by the Trustee as part of the Fund as provided
in Section 7.11. Not less than thirty (30) calendar days prior to each annual or
special
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meeting of shareholders of the Holding Company at which one (1) or more
Participants are entitled to vote shares of Stock allocated to their Company
Contributions Accounts under this Section 8.17, the Trustee shall cause to be
prepared and delivered to each such Participant who has a Company Contributions
Account as of the record date established by the Holding Company a copy of the
notice of the meeting and form of proxy directing the Trustee as to how it shall
vote at such meeting or at any adjournment thereof with respect to each issue.
Upon receipt of such proxies, the Trustee shall vote or may grant the Committee
a proxy to vote the shares of Stock in accordance with the proxies received by
the Participants. The shares of Stock for which no direction is received by the
Participant (or, if applicable, his Beneficiary) or held by the Trustee in any
unallocated account shall be tendered in proportion to the tendering directions
received by the Trustee with respect to the allocated shares of Stock. The
Trustee shall take steps to keep a Participant's voting directions confidential
and shall not provide them to the Companies.
Section 8.18. Delegation of Authority. The Trustee may delegate any of
its ministerial powers or duties under this Plan, including the signing of any
checks drawn on the Fund, to any of its agents or employees.
Section 8.19. Diversification of Company Contributions Account.
Notwithstanding anything contained in Article VI to the contrary, a Participant
who has attained age fifty-five (55) and who has completed at least ten (10)
years of participation in this Plan shall be permitted to elect that during a
six (6) year period beginning with the Plan Year during which he had obtained
age fifty-five (55) or, if later, during which he completed his tenth (10th)
year of participation in this Plan a portion of his vested Company Contribution
Account be distributed. In the first (1st) Plan Year for which the Participant
has an election under this Section 8.19, the Participant may elect a
distribution of up to twenty-five percent (25%) of his vested Company
Contribution Account as of the end of such Plan Year. In the second (2nd), third
(3rd), fourth (4th) and fifth (5th) Plan Year for which the Participant has an
election under this Section 8.19, the Participant may elect a distribution
which, when aggregated to any earlier distributions made by reason of this
Section 8.19, does not exceed twenty-five percent (25%) of the vested balance
held in his Company Contribution Account as of the end of the Plan Year for
which the election is made. In the final Plan Year for which a Participant has
an election under this Section 8.19, the Participant may elect a distribution of
an amount which, when aggregated with any other distribution made by reason of
this Section 8.19, does not exceed fifty percent (50%) of his vested Company
Contribution Account balance as of the end of such Plan Year. The Trustee shall
provide Participants eligible for an election under this Section 8.19 with
information relating to the election before the end of the first (1st) Plan Year
for which the
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election relates. A Participant electing a distribution under this Section 8.19
shall have until the ninetieth (90th) calendar day immediately following the end
of the Plan Year for which the election is made to make his election. Any
distribution made by reason of this Section 8.19 shall be in cash and shall be
made within one hundred and eighty (180) calendar days after the end of the Plan
Year for which the election is made.
Section 8.20. Tender Offer. Each Participant (or, if applicable, his
Beneficiary) shall have the right to direct the Trustee as to whether the shares
of Stock which are allocated to his Company Contributions Account are to be
tendered pursuant to any tender offer made for the Stock of the Holding Company.
The Trustee shall as soon as practical (and in no event later than five (5)
calendar days) after its receipt of the tender offer documents shall cause to be
prepared and delivered to each Participant (and, if applicable, his Beneficiary)
who has a Company Contributions Account as of the date of the tender offer a
copy of all relevant information as to the tender offer and a written election
form which will direct the Trustee as to whether it should tender the shares of
Stock held in such Participant's Company Contributions Account. The shares of
Stock for which no direction is received by the Participant (or, if applicable,
his Beneficiary) or held by the Trustee in any unallocated account shall be
tendered in proportion to the tendering directions received by the Trustee with
respect to the allocated shares of Stock. The Trustee shall take steps to keep a
Participant's decision whether or not to tender shares of Stock confidential and
shall not provide the information to the Companies.
ARTICLE IX
AMENDMENT, TERMINATION AND MERGER
Section 9.1. Amendment. Except for such amendments as are permitted
under this Section 9.1 and as otherwise provided in Section 1.18 and Section
9.3, the Trust is irrevocable. The Bank reserves the right to amend this Plan,
at any time and from time to time, in whole or in part, including without
limitation, retroactive amendments necessary or advisable to qualify this Plan
and the Trust under the provisions of Sections 401(a) and 501(a) of the Code or
the corresponding provisions of any similar statute hereafter enacted. However,
the Bank's right to amend this Plan shall remain at all times subject to the
provisions of Section 9.4.
Further, no amendment of this Plan shall:
(a) alter, change or modify the duties, powers, or liabilities of
the Trustee hereunder without their written consent;
(b) permit any part of the Fund to be used to pay premiums or
contributions of the Companies under any other employee
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benefit plan maintained by the Companies for the benefit
of its Employees;
(c) effect any discrimination among the Participants;
(d) change the vesting schedule in Section 6.3 or, if applicable,
in Section 11.4 unless each Participant who has completed
three (3) or more Years of Service as of the effective date of
the amendment is permitted to elect, within sixty (60)
calendar days after he is notified by the Committee of his
rights under this Subsection (d), to have his vested interest
determined without regard to such amendment;
(e) decrease the accrued benefit of any Participant unless the
amendment is approved by the Department of Labor because of
substantial business hardship; or
(f) decrease a Participant's Company Contributions Account balance
or eliminate an optional form of distribution for the accrued
benefits of a Participant determined as of the date of the
amendment.
Section 9.2. Termination or Complete Discontinuance of Contributions.
The Companies are not and shall not be under any obligation or liability
whatsoever to continue their contributions pursuant to this Plan or to maintain
this Plan for any given length of time, except as otherwise provided in Section
8.7. A Company may, in its sole discretion, discontinue Company contributions to
this Plan completely, except as otherwise provided in Section 8.7, with or
without notice, or partially or totally terminate this Plan in accordance with
its provisions at any time without any liability whatsoever for such
discontinuance or termination. If this Plan shall be partially or totally
terminated or if contributions of a Company shall be completely discontinued,
the rights of all Participants directly affected by the partial or total
termination or the complete discontinuance of contributions in their Company
Contributions Accounts shall thereupon become fully vested and non-forfeitable
notwithstanding any other provisions of this Plan. However, the Trust shall
continue until all Participants' Company Contributions Accounts have been
completely distributed to, or for the benefit of, the Participants in accordance
with this Plan.
Section 9.3. Determination by Internal Revenue Service. Notwithstanding
any other provisions of this Plan, if the Internal Revenue Service shall fail or
refuse to issue a favorable written determination or ruling with respect to the
initial qualification of this Plan and the initial exemption of the Trust from
tax under Sections 401(a) and 501(a) of the Code, the Trustee shall, within a
reasonable time after receiving a written direction from the Committee to do so,
return to the Companies the current value of all Company contributions
theretofore made. As a condition to such
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repayment, the Companies shall execute, acknowledge and deliver to the Trustee
its written undertaking, in form satisfactory to the Trustee, to indemnify,
defend and hold the Trustee harmless from all claims, actions, demands, or
liabilities arising in connection with such repayment. If for any reason the Key
District Director of the Internal Revenue Service should at any time after
initial qualification fail to approve any of the terms, conditions or amendments
contained in or implied from this Plan and Trust for continuing qualification
and tax exemption under Sections 401(a) and 501(a) of the Code, then the Holding
Company shall make such modifications, alterations and amendments of this Plan
as are necessary to retain such approval and such modifications, alterations and
amendments shall be effective retroactively to the Effective Date or to such
later date as is required to retain such approval.
Section 9.4. Nonreversion. Except as otherwise provided in Section 3.1
and Section 9.3:
(a) The Bank shall have no power to amend or to terminate this
Plan in such a manner which would cause or permit any part of
the Fund to be diverted to purposes other than for the
exclusive benefit of Participants or, if deceased, of their
spouse or other Beneficiaries or as would cause or permit any
portion of the Fund to revert to or to become the property of
the Companies, and
(b) The Bank shall have no right to modify or to amend this Plan
retroactively in such a manner as to deprive any Participants,
or if deceased, their spouses or other Beneficiaries of any
benefits to which they are entitled under this Plan by reason
of contributions made by the Companies prior to the
modification or amendment, unless such modification or
amendment is necessary to meet the qualification requirements
of Sections 401(a) and 501(a) of the Code.
Section 9.5. Merger. The Bank shall have the right, by action of its
Board of Directors, to merge or to consolidate this Plan with, or to transfer
the assets or liabilities of the Fund to, any other qualified retirement plan
and trust at any time, except that no such merger, consolidation or transfer
shall be authorized unless each Participant in this Plan would receive a benefit
immediately after the merger, consolidation or transfer (if the merged,
consolidated or transferred plan and trust then terminated) equal to or greater
than the benefit to which he would have been entitled immediately before the
merger, consolidation or transfer (if this Plan then terminated).
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ARTICLE X
MISCELLANEOUS
Section 10.1. Creation of Plan Voluntary. The Plan hereby created is
purely voluntary on the part of the Companies and, except as otherwise provided
in Section 8.7, any Company may suspend or discontinue payments hereunder at any
time or from time to time as it may decide in accordance with Section 10.17, but
no suspension or discontinuance shall operate retroactively with respect to the
rights of any Participant hereunder or his spouse or other Beneficiary.
Section 10.2. No Employment Contract. Except as may be required by the
Act, no contributions or other payments under this Plan shall constitute any
contract on the part of the Company to continue such contributions or other
payments hereunder. Participation hereunder shall not give any Participant the
right to be retained in the service of the Companies or any right or claim to
any benefits hereunder unless the right to such benefits has accrued under this
Plan. All Participants shall remain subject to assignment, reassignment,
promotion, transfer, layoff, reduction, suspension and discharge by the
Companies to the same extent as if this Plan had never been established.
Section 10.3. Limitation on Rights Created. Nothing contained in this
Plan or any modification of the same or act done in pursuance hereof shall be
construed as giving any person whomsoever any legal or equitable right against
the Companies, the Committee, the Trustee or the Fund, unless specifically
provided herein or granted by the Act.
Section 10.4. Waiver of Claims. Except as otherwise provided by the
Act, no liability whatsoever shall attach to or be incurred by any shareholder,
officer or Director, as such, of the Companies under or by reason of any
provision of this Plan or any act with reference to this Plan, and any and all
rights and claims thereof, as such, whether arising at common law or in equity
or created by statute, constitution or otherwise, are hereby expressly waived
and released to the fullest extent permitted by law by every Participant and by
his spouse or other Beneficiary as a condition of and as part of the
consideration for the payments by the Companies under this Plan and for the
receipt of benefits hereunder.
Section 10.5. Spendthrift Provision. To the fullest extent permitted by
law, none of the benefits, payments, accounts, funds or proceeds of any contract
held hereunder shall be subject, voluntarily or involuntarily, to any claim of
any creditor of any Participant or of his spouse or other Beneficiary, nor shall
the same be subject to attachment, garnishment or other legal or equitable
process by any creditor of a Participant or of his spouse or other Beneficiary,
nor shall any Participant or his spouse or
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other Beneficiary have any right to alienate, anticipate, commute, pledge,
encumber or assign any such benefits, payments, accounts, funds or proceeds of
any such contract. The preceding sentence shall also apply to the creation,
assignment or recognition of a right to any benefit payable with respect to a
Participant pursuant to a domestic relations order, unless such order is
determined to be a qualified domestic relations order as defined in Section
414(p) of the Code. It is the intention of the Companies that benefit payments
hereunder shall be made only at the times, in the amounts and to the
distributees as specified in this Plan regardless of any marital dissolution,
bankruptcy or other legal proceedings to which such distributees may be a party
to the fullest extent permitted by law.
Section 10.6. Payment of Benefits to Others. If any person to whom
benefit payments are due or payable under this Plan shall be unable to care for
his affairs because of illness or accident, any such payment may be made (unless
prior claim thereto shall have been made by a duly-qualified guardian or other
legal representative) to the spouse, parent, brother, sister or other person
deemed by the Committee, in its sole discretion, to have incurred expense for
such person and on such terms as the Committee, in its sole discretion, may
impose. Any such payment and any payment to a Participant or to his legal
representative or, if deceased, to his spouse or other Beneficiary made pursuant
to the provisions of this Plan shall to the extent thereof be in full
satisfaction of all claims arising hereunder against this Plan, the Fund, the
Committee, the Trustee and the Companies.
Section 10.7. Payments to Missing Persons. If the Trustee is unable to
effect delivery of any amounts payable under this Plan to the person entitled
thereto or, upon such person's death, to such person's personal representative,
they shall so advise the Committee in writing, and the Committee shall give
written notice by certified mail to said person at the last known address of
such person as shown in the Companies' records. If such person or the personal
representative thereof shall not have responded to the Committee within three
(3) years from the date of mailing such certified notice, the Committee shall
direct the Trustee to distribute such amount, including any amount thereafter
becoming due to such person or the personal representative thereof, in the
manner provided in Section 6.7 with respect to the death of a Participant when
there is no valid designation of Beneficiary on file.
Section 10.8. Severability. If any provisions of this Plan shall be
held illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining part of this Plan and it shall be construed and enforced as
if such illegal or invalid provisions had never been inserted herein.
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<PAGE>
Section 10.9. Captions. Titles of Articles, Sections and Clauses herein
are for general information only and shall be ignored in any construction of the
provisions hereof.
Section 10.10. Construction. Words in the masculine gender shall be
construed to include the feminine gender in all cases where appropriate, and
words in the singular or plural shall be construed as being in the plural or
singular where appropriate.
Section 10.11. Counterparts. This Plan may be executed in any number of
counterparts, each of which shall be deemed to be an original. All the
counterparts shall constitute but one (1) and the same instrument and may be
sufficiently evidenced by any one (1) counterpart.
Section 10.12. Indemnification. The Companies shall indemnify and hold
harmless each member of the Committee and any individual Trustee who is also an
Employee of the Company from any and all claims, loss, damage, expense and
liability arising from any act or omission of such member or Trustee, as the
case may be, except when the same is judicially determined to be due to the
fraud or bad faith of such member or Trustee, as the case may be, if possible.
Section 10.13. Standards of Interpretation and Administration. This
Plan and the Fund held hereunder shall be for the exclusive benefit of Employees
of the Companies and their spouses or other Beneficiaries and defraying
reasonable costs of administration. This Plan shall be interpreted and
administered in a manner consistent with the requirements of the Code relating
to qualified stock bonus plans and trusts and the requirements imposed by the
Act. Wherever in this Plan discretionary powers are given to any party or
wherever any interpretation may be necessary, such powers shall be exercised and
such interpretation shall be made in a non-discriminatory manner and in
conformity with the fiduciary duties imposed under Section 404 of the Act.
Section 10.14. Governing Law. Except as otherwise provided by the Act,
this Plan shall be administered and construed and its validity determined under
the laws of the State of Indiana.
Section 10.15. Successors and Assigns. This Plan shall be binding upon
the successors and assigns of the Companies and of the Trustee.
Section 10.16. Adoption of Plan. Any corporation, who together with the
Holding Company, constitutes a member of a controlled group of corporations
under Section 414(b) of the Code, with the approval of the Board of Directors of
the Holding Company may adopt this Plan and participate as a Company in this
Plan by the execution of an instrument of adoption of this Plan which shall
specify the Effective Date as to such party. A listing of the
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subsidiaries and affiliates who have adopted this Plan is shown as Appendix A.
Section 10.17. Withdrawal from Plan. Any Company in this Plan may, by
resolution of its Board of Directors or other governing body, withdraw from
participation as a Company in this Plan.
ARTICLE XI
TEFRA TOP-HEAVY RULES
Section 11.1. Application. The rules set forth in this Article XI shall
be applicable with respect to any Plan Year beginning on or after the Effective
Date in which this Plan is determined to be a Top-Heavy Plan. The provisions of
this Article XI shall be applied only to the extent necessary to comply with
Section 416 of the Code and in a manner consistent with all requirements imposed
under Section 416 of the Code.
Section 11.2. Determination. This Plan shall be considered a Top-Heavy
Plan with respect to any Plan Year if as of the Anniversary Date of the
immediately preceding Plan Year or, if the determination is to be made for this
Plan's first (1st) Plan Year, the last calendar day of the first (1st) Plan Year
(the "determination date"):
(a) the present value of the Accrued Benefits (as such term is
defined in Section 11.3) of Key Employees (as such term is
defined below) exceeds sixty percent (60%) of the present
value of the Accrued Benefits of all Employees and former
Employees (other than former Key Employees (as such term is
defined below)); provided, however, that the Accrued Benefits
of any Participant who has not completed an Hour of Service
for the Company during a five (5) year period ending on the
determination date (as such term is defined above) shall be
disregarded, or
(b) this Plan is part of a required aggregation group (as such
term is defined below) and the required aggregation group is
top-heavy;
provided, however, that this Plan shall not be considered a Top-Heavy Plan with
respect to any Plan Year in which this Plan is part of a required or permissive
aggregation group (as such terms are defined below) which is not top-heavy. For
purposes of this Article XI, the term "Key Employee" shall include for any Plan
Year any Employee or former Employee who at any time during that Plan Year or
any of the four (4) preceding Plan Years is:
(c) an officer of a Company whose Section 415 Compensation from
the Companies is greater than fifty percent (50%) of the
maximum dollar limitation under Section 415(b)(1)(A)
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<PAGE>
of the Code in effect for the calendar year in which the
determination date (as such term is defined above) falls,
(d) one (1) of the ten (10) Employees owning (or considered as
owning within the meaning of Section 318 of the Code) the
largest interest in a Company whose ownership interest in that
Company is at least one-half of one percent (0.5%) and whose
Section 415 Compensation from the Companies is equal to or
greater than the maximum dollar limitation under Section
415(c)(1)(A) of the Code in effect for the calendar year in
which the determination date (as such term is defined above)
falls; provided, however, that if two (2) Employees have the
same interest in a Company, the Employee whose annual Section
415 Compensation from the Companies is greater shall be
treated as having a larger interest in the Company,
(e) a five percent (5%) owner (determined without regard to
Sections 414(b),(c) and (n) of the Code) of a Company,
(f) a one percent (1%) owner (determined without regard to
Sections 414(b),(c) and (n) of the Code) of a Company whose
Section 415 Compensation from the Companies is in excess of
one hundred and fifty thousand dollars ($150,000);
provided, however, that the Beneficiary of any deceased Employee or of any
deceased former Employee who was included as a Key Employee by reason of this
Section 11.2 shall also be included as a Key Employee; provided, further, that
an individual shall only be included as a Key Employee to the extent required by
Section 416(i) of the Code. For purposes of this Article XI, "Non-Key Employee"
is any Employee or former Employee who is not a Key Employee. For purposes of
determining who is a key employee, Section 415 Compensation shall include
amounts deferred or redirected by an Employee pursuant to Sections 401(k) and
125 of the Code. For purposes of this Section 11.2, the term "required
aggregation group" shall include:
(g) all qualified retirement plans maintained by a Company in
which a Key Employee (as such term is defined above) is a
participant; provided, however, that the term "required
aggregation group" shall also include all qualified retirement
plans previously maintained by a Company but terminated within
the five (5) year period ending on the determination date (as
such term is defined above) in which a key employee (as such
term is defined above) was a participant; and
(h) any other qualified retirement plans maintained by a Company
which enable any qualified retirement plan
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described in Subsection (g) above to meet the requirements of
Section 401(a)(4) or of Section 410 of the Code.
For purposes of this Section 11.2, the term "permissive aggregation group" shall
include all qualified retirement plans that are part of a required aggregation
group (as such term is defined above) and any other qualified retirement plans
maintained by a Company if such group will continue to meet the requirements of
Section 401(a)(4) and of Section 410 of the Code.
Section 11.3. Accrued Benefits. For purposes of this Article XI,
Accrued Benefits with respect to any Plan Year shall be determined as of the
determination date (as such term is defined in Section 11.2) for that Plan Year
based on the Company Contributions Account balances as of the most recent
Valuation Date within a consecutive twelve (12) month period ending on such
determination date; provided, however, that such Company Contributions Account
balances shall be adjusted to the extent required by Section 416 of the Code to
increase the Company Contributions Accounts balances by the amount of any
Company Contributions made and allocated after the Valuation Date but on or
before such determination date and by any distributions made to Participants
prior to the Valuation Date during any of the five (5) consecutive Plan Years
immediately preceding the Plan Year for which the determination as to whether
this Plan is a Top-Heavy Plan is being made (including distributions from a
terminated plan which if not terminated would have been part of a required
aggregation group (as such term is defined in Section 11.7)) and to reduce the
Company Contributions Account balances by any rollovers or plan to plan
transfers made to this Plan before the Valuation Date which are initiated by a
Participant from any qualified retirement plan maintained by an unrelated
employer and by any deductible employee contributions.
Section 11.4. Vesting Provisions. Notwithstanding the provisions of
Section 6.3, with respect to any Plan Year in which this Plan is determined to
be a Top-Heavy Plan, a Participant's Accrued Benefit which is derived from
Company Contributions shall vest in accordance with the following vesting
schedule if it would result in a larger vested percentage than the percentage
determined under Section 6.3:
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Period of Service Vested Percentage
Less than two (2) years 0
Two (2) years or more but
less than three (3) years 20%
Three (3) years or more but
less than four (4) years 40%
Four (4) years or more but
less than five (5) years 60%
Five (5) years or more but
less than six (6) years 80%
Six (6) years or more 100%
provided, however, that if this Plan becomes a Top-Heavy Plan and subsequently
ceases to be such:
(a) the vesting schedule shown above shall continue to apply but
only with respect to Participants whose Period of Service is
as least three (3) years as of the Anniversary Date of the
final Top-Heavy Plan Year,
(b) the vesting schedule shown above shall continue to apply but
only with respect to the Accrued Benefits of all other
Participants as of the Anniversary Date of the final Top-Heavy
Plan Year, and
(c) the vesting schedule in Section 6.3 shall apply to any
additional Accrued Benefits of the Participants described in
Subsection (b) above which accrue after the Anniversary Date
of the final Top-Heavy Plan Year.
Section 11.5. Minimum Contribution. Notwithstanding the provisions of
Section 4.2, with respect to any Plan Year in which this Plan is a Top-Heavy
Plan, the Company contributions for such Plan Year shall be allocated in the
following order of priority:
(a) first, among the Company Contributions Accounts of all
eligible Participants who had not separated from service with
the Companies as of the Anniversary Date of that Plan Year
regardless of the number of Hours of Service completed by each
such Participant during that Plan Year according to the ratio
that each Participant's Compensation for that Plan Year bears
to the total Compensation of all eligible Participants;
provided, however, that the portion of the Company
contributions to be allocated pursuant to this Subsection (a)
shall not
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<PAGE>
exceed three percent (3%) of the total Compensation of all
eligible Participants for that Plan Year;
(b) next, the remaining portion, if any, of the Company
contributions for such Plan Year shall be allocated in
accordance with Section 4.2;
provided, however, that if a Participant also participates in a top-heavy
defined benefit plan, he shall receive the minimum benefit for such Plan Year
under the defined benefit plan.
Section 11.6. Code Section 415 Limitations. With respect to any Plan
Year in which this Plan is a Top-Heavy Plan, Section 4.3 shall be read by
substituting the number one (1.00) for the number one and twenty-five one
hundredths (1.25) wherever it appears therein; provided, however, that such
substitution shall not have the effect of reducing a Participant's Accrued
Benefit under any qualified defined benefit plan maintained by a Company prior
to the first (1st) calendar day of the Plan Year in which this Article XI
initially becomes applicable.
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This Plan has been adopted on this day of , 1997, but is to be
effective as of July 1, 1997.
CITIZENS BANCORP
By:
------------------------------
Its:
------------------------------
Attest:
By:
--------------------------
Its:
--------------------------
CITIZENS SAVINGS BANK OF
FRANKFORT
By:
------------------------------
Its:
------------------------------
Attest:
By:
--------------------------
Its:
--------------------------
-48-
Exhibit 10(5)
EMPLOYMENT AGREEMENT
This Agreement, made and dated as of ________, 1997, by and between
Citizens Savings Bank of Frankfort, A federal savings bank ("Employer"), and
Fred W. Carter, a resident of Clinton County, Indiana ("Employee").
W I T N E S S E T H
WHEREAS, Employee is employed by Employer as its President and has made
valuable contributions to the profitability and financial strength of Employer;
WHEREAS, Employer desires to encourage Employee to continue to make
valuable contributions to Employer's business operations and not to seek or
accept employment elsewhere;
WHEREAS, Employee desires to be assured of a secure minimum
compensation from Employer for his services over a defined term;
WHEREAS, Employer desires to assure the continued services of Employee
on behalf of Employer on an objective and impartial basis and without
distraction or conflict of interest in the event of an attempt by any person to
obtain control of Employer or Citizens Bancorp (the "Holding Company"), the
Indiana corporation which owns all of the issued and outstanding capital stock
of Employer;
WHEREAS, Employer recognizes that when faced with a proposal for a
change of control of Employer or the Holding Company, Employee will have a
significant role in helping the Boards of Directors assess the options and
advising the Boards of Directors on what is in the best interests of Employer,
the Holding Company, and its shareholders, and it is necessary for Employee to
be able to provide this advice and counsel without being influenced by the
uncertainties of his own situation;
WHEREAS, Employer desires to provide fair and reasonable benefits to
Employee on the terms and subject to the conditions set forth in this Agreement;
WHEREAS, Employer desires reasonable protection of its confidential
business and customer information which it has developed over the years at
substantial expense and assurance that Employee will not compete with Employer
for a reasonable period of time after termination of his employment with
Employer, except as otherwise provided herein.
NOW, THEREFORE, in consideration of these premises, the mutual
covenants and undertakings herein contained and the continued employment of
Employee by Employer as its
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President, Employer and Employee, each intending to be legally bound, covenant
and agree as follows:
1. Upon the terms and subject to the conditions set forth in this
Agreement, Employer employs Employee as Employer's President, and Employee
accepts such employment.
2. Employee agrees to serve as Employer's President and to perform
such duties in that office as may reasonably be assigned to him by Employer's
Board of Directors; provided, however, that such duties shall be performed in or
from the offices of Employer currently located at Frankfort, Indiana, and shall
be of the same character as those previously performed by Employee and generally
associated with the office held by Employee. Employee shall not be required to
be absent from the location of the principal executive offices of Employer on
travel status or otherwise more than 45 days in any calendar year. Employer
shall not, without the written consent of Employee, relocate or transfer
Employee to a location more than 30 miles from his principal residence. Employee
shall render services to Employer as President in substantially the same manner
and to substantially the same extent as Employee rendered his services to
Employer before the date hereof. While employed by Employer, Employee shall
devote substantially all his business time and efforts to Employer's business
during regular business hours and shall not engage in any other related
business. Employer shall nominate the Employee to successive terms as a member
of Employer's Board of Directors and shall use its best efforts to elect and
re-elect Employee as a member of such Board.
3. The term of this Agreement shall begin on the date of completion of
the conversion of Employer from mutual to stock form (the "Effective Date") and
shall end on the date which is three years following such date; provided,
however, that such term shall be extended automatically for an additional year
on each anniversary of the Effective Date if Employer's Board of Directors
determines by resolution to extend this Agreement prior to such anniversary of
the Effective Date, unless either party hereto gives written notice to the other
party not to so extend within ninety (90) days prior to such anniversary, in
which case no further automatic extension shall occur and the term of this
Agreement shall end two years subsequent to the anniversary as of which the
notice not to extend for an additional year is given (such term, including any
extension thereof shall herein be referred to as the "Term").
4. Employee shall receive an annual salary of ("Base Compensation")
payable at regular intervals in accordance with Employer's normal payroll
practices now or hereafter in effect. Employer may consider and declare from
time to time increases in the salary it pays Employee and thereby increases in
his Base Compensation. Prior to a Change of Control, Employer may also declare
decreases in the salary it pays Employee if the operating results of Employer
are significantly less favorable than those for the fiscal year ending June 30,
1996, and Employer makes similar decreases in the salary it pays to other
executive officers of Employer. After a Change in Control, Employer shall
consider and declare salary increases based upon the following standards:
Inflation;
Adjustments to the salaries of other senior management personnel; and
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<PAGE>
Past performance of Employee and the contribution which Employee makes
to the business and profits of Employer during the Term.
Any and all increases or decreases in Employee's salary pursuant to this section
shall cause the level of Base Compensation to be increased or decreased by the
amount of each such increase or decrease for purposes of this Agreement. The
increased or decreased level of Base Compensation as provided in this section
shall become the level of Base Compensation for the remainder of the Term of
this Agreement until there is a further increase or decrease in Base
Compensation as provided herein.
5. So long as Employee is employed by Employer pursuant to this
Agreement, he shall be included as a participant in all present and future
employee benefit, retirement, and compensation plans generally available to
employees of Employer, consistent with his Base Compensation and his position as
President of Employer, including, without limitation, Employer's or the Holding
Company's pension plan, Stock Option Plan, Recognition and Retention Plan and
Trust, Employee Stock Ownership Plan, and hospitalization, disability and group
life insurance plans, each of which Employer agrees to continue in effect on
terms no less favorable than those currently in effect as of the date hereof (as
permitted by law) during the Term of this Agreement unless prior to a Change of
Control the operating results of Employer are significantly less favorable than
those for the fiscal year ending June 30, 1996, and unless (either before or
after a Change of Control) changes in the accounting, legal, or tax treatment of
such plans would adversely affect Employer's operating results or financial
condition in a material way, and the Board of Directors of Employer or the
Holding Company concludes that modifications to such plans need to be made to
avoid such adverse effects.
6. So long as Employee is employed by Employer pursuant to this
Agreement, Employee shall receive reimbursement from Employer for all reasonable
business expenses incurred in the course of his employment by Employer, upon
submission to Employer of written vouchers and statements for reimbursement.
Employee shall attend, upon the prior approval of Employer's Board of Directors,
those professional meetings, conventions, and/or similar functions that he deems
appropriate and useful for purposes of keeping abreast of current developments
in the industry and/or promoting the interests of Employer. So long as Employee
is employed by Employer pursuant to the terms of this Agreement, Employer shall
continue in effect vacation policies applicable to Employee no less favorable
from his point of view than those written vacation policies in effect on the
date hereof. So long as Employee is employed by Employer pursuant to this
Agreement, Employee shall be entitled to office space and working conditions no
less favorable from his point of view than were in effect for him on the date
hereof.
7. Subject to the respective continuing obligations of the parties,
including but not limited to those set forth in subsections 9(A), 9(B), 9(C) and
9(D) hereof, Employee's employment by Employer may be terminated prior to the
expiration of the Term of this Agreement as follows:
(A) Employer, by action of its Board of Directors and upon written
notice to Employee, may terminate Employee's employment with
Employer immediately for cause. For purposes of this
subsection 7(A), "cause" shall be defined as (i) personal
dishonesty,
3
<PAGE>
(ii) incompetence, (iii) willful misconduct, (iv) breach of
fiduciary duty involving personal profit, (v) intentional
failure to perform stated duties, (vi) willful violation of
any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or (vii)
any material breach of any term, condition or covenant of this
Agreement.
(B) Employer, by action of its Board of Directors may terminate
Employee's employment with Employer without cause at any time;
provided, however, that the "date of termination" for purposes
of determining benefits payable to Employee under subsection
8(B) hereof shall be the date which is 60 days after Employee
receives written notice of such termination.
(C) Employee, by written notice to Employer, may terminate his
employment with Employer immediately for cause. For purposes
of this subsection 7(C), "cause" shall be defined as (i) any
action by Employer's Board of Directors to remove the Employee
as President of Employer, except where the Employer's Board of
Directors properly acts to remove Employee from such office
for "cause" as defined in subsection 7(A) hereof, (ii) any
action by Employer's Board of Directors to materially limit,
increase, or modify Employee's duties and/or authority as
President of Employer, (iii) any failure of Employer to obtain
the assumption of the obligation to perform this Agreement by
any successor or the reaffirmation of such obligation by
Employer, as contemplated in section 20 hereof; or (iv) any
material breach by Employer of a term, condition or covenant
of this Agreement.
(D) Employee, upon sixty (60) days written notice to Employer, may
terminate his employment with Employer without cause.
(E) Employee's employment with Employer shall terminate in the
event of Employee's death or disability. For purposes hereof,
"disability" shall be defined as Employee's inability by
reason of illness or other physical or mental incapacity to
perform the duties required by his employment for any
consecutive One Hundred Eighty (180) day period, provided that
notice of any termination by Employer because of Employee's
"disability" shall have been given to Employee prior to the
full resumption by him of the performance of such duties.
8. In the event of termination of Employee's employment with Employer
pursuant to section 7 hereof, compensation shall continue to be paid by Employer
to Employee as follows:
(A) In the event of termination pursuant to subsection 7(A) or
7(D), compensation provided for herein (including Base
Compensation) shall continue to be paid, and Employee shall
continue to participate in the employee benefit, retirement,
and compensation plans and other perquisites as provided in
sections 5 and 6 hereof, through the date of termination
specified in the notice of termination. Any benefits
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<PAGE>
payable under insurance, health, retirement and bonus plans as
a result of Employee's participation in such plans through
such date shall be paid when due under those plans. The date
of termination specified in any notice of termination pursuant
to subsection 7(A) shall be no later than the last business
day of the month in which such notice is provided to Employee.
(B) In the event of termination pursuant to subsection 7(B) or
7(C), compensation provided for herein (including Base
Compensation) shall continue to be paid, and Employee shall
continue to participate in the employee benefit, retirement,
and compensation plans and other perquisites as provided in
sections 5 and 6 hereof, through the date of termination
specified in the notice of termination. Any benefits payable
under insurance, health, retirement and bonus plans as a
result of Employee's participation in such plans through such
date shall be paid when due under those plans. In addition,
Employee shall be entitled to continue to receive from
Employer his Base Compensation at the rates in effect at the
time of termination (1) for three additional l2-month periods
if the termination follows a Change of Control or (2) for the
remaining Term of the Agreement if the termination does not
follow a Change of Control. In addition, during such periods,
Employer will maintain in full force and effect for the
continued benefit of Employee each employee welfare benefit
plan and each employee pension benefit plan (as such terms are
defined in the Employee Retirement Income Security Act of
1974, as amended) in which Employee was entitled to
participate immediately prior to the date of his termination,
unless an essentially equivalent and no less favorable benefit
is provided by a subsequent employer of Employee. If the terms
of any employee welfare benefit plan or employee pension
benefit plan of Employer do not permit continued participation
by Employee, Employer will arrange to provide to Employee a
benefit substantially similar to, and no less favorable than,
the benefit he was entitled to receive under such plan at the
end of the period of coverage. For purposes of this Agreement,
a "Change of Control" shall mean an acquisition of "control"
of the Holding Company or of Employer within the meaning of 12
C.F.R.ss.574.4(a) (other than a change of control resulting
from a trustee or other fiduciary holding shares of Common
Stock under an employee benefit plan of the Holding Company or
any of its subsidiaries).
(C) In the event of termination pursuant to subsection 7(E),
compensation provided for herein (including Base Compensation)
shall continue to be paid, and Employee shall continue to
participate in the employee benefit, retirement, and
compensation plans and other perquisites as provided in
sections 5 and 6 hereof, (i) in the event of Employee's death,
through the date of death, or (ii) in the event of Employee's
disability, through the date of proper notice of disability as
required by subsection 7(E). Any benefits payable under
insurance, health, retirement and bonus plans as a result of
Employer's participation in such plans through such date shall
be paid when due under those plans.
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<PAGE>
(D) Employer will permit Employee or his personal
representative(s) or heirs, during a period of three months
following Employee's termination of employment by Employer for
the reasons set forth in subsections 7(B) or (C), if such
termination follows a Change of Control, to require Employer,
upon written request, to purchase all outstanding stock
options previously granted to Employee under any Holding
Company stock option plan then in effect whether or not such
options are then exercisable at a cash purchase price equal to
the amount by which the aggregate "fair market value" of the
shares subject to such options exceeds the aggregate option
price for such shares. For purposes of this Agreement, the
term "fair market value" shall mean the higher of (1) the
average of the highest asked prices for Holding Company shares
in the over-the-counter market as reported on the NASDAQ
system if the shares are traded on such system for the 30
business days preceding such termination, or (2) the average
per share price actually paid for the most highly priced 1% of
the Holding Company shares acquired in connection with the
Change of Control of the Holding Company by any person or
group acquiring such control.
9. In order to induce Employer to enter into this Agreement, Employee
hereby agrees as follows:
(A) While Employee is employed by Employer and for a period of
three years after termination of such employment for reasons
other than those set forth in subsections 7(B) or (C) of this
Agreement, Employee shall not divulge or furnish any trade
secrets (as defined in IND. CODEss. 24-2-3-2) of Employer or
any confidential information acquired by him while employed by
Employer concerning the policies, plans, procedures or
customers of Employer to any person, firm or corporation,
other than Employer or upon its written request, or use any
such trade secret or confidential information directly or
indirectly for Employee's own benefit or for the benefit of
any person, firm or corporation other than Employer, since
such trade secrets and confidential information are
confidential and shall at all times remain the property of
Employer.
(B) For a period of three years after termination of Employee's
employment by Employer for reasons other than those set forth
in subsections 7(B) or (C) of this Agreement, Employee shall
not directly or indirectly provide banking or bank-related
services to or solicit the banking or bank-related business of
any customer of Employer at the time of such provision of
services or solicitation which Employee served either alone or
with others while employed by Employer in any city, town,
borough, township, village or other place in which Employee
performed services for Employer while employed by it, or
assist any actual or potential competitor of Employer to
provide banking or bank-related services to or solicit any
such customer's banking or bank-related business in any such
place.
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(C) While Employee is employed by Employer and for a period of one
year after termination of Employee's employment by Employer
for reasons other than those set forth in subsections 7(B) or
(C) of this Agreement, Employee shall not, directly or
indirectly, as principal, agent, or trustee, or through the
agency of any corporation, partnership, trade association,
agent or agency, engage in any banking or bank-related
business which competes with the business of Employer as
conducted during Employee's employment by Employer within a
radius of twenty-five (25) miles of Employer's main office.
(D) If Employee's employment by Employer is terminated for reasons
other than those set forth in subsections 7(B) or (C) of this
Agreement, Employee will turn over immediately thereafter to
Employer all business correspondence, letters, papers,
reports, customers' lists, financial statements, credit
reports or other confidential information or documents of
Employer or its affiliates in the possession or control of
Employee, all of which writings are and will continue to be
the sole and exclusive property of Employer or its affiliates.
If Employee's employment by Employer is terminated during the Term of this
Agreement for reasons set forth in subsections 7(B) or (C) of this Agreement,
Employee shall have no obligations to Employer with respect to trade secrets,
confidential information or noncompetition under this section 9.
10. Any termination of Employee's employment with Employer as
contemplated by section 7 hereof, except in the circumstances of Employee's
death, shall be communicated by written "Notice of Termination" by the
terminating party to the other party hereto. Any "Notice of Termination"
pursuant to subsections 7(A), 7(C) or 7(E) shall indicate the specific
provisions of this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for such
termination.
11. If Employee is suspended and/or temporarily prohibited from
participating in the conduct of Employer's affairs by a notice served under
section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. ss.
1818(e)(3) and (g)(1)), Employer's obligations under this Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, Employer shall (i) pay Employee all
or part of the compensation withheld while its obligations under this Agreement
were suspended and (ii) reinstate (in whole or in part) any of its obligations
which were suspended.
12. If Employee is removed and/or permanently prohibited from
participating in the conduct of Employer's affairs by an order issued under
section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. ss.
1818(e)(4) or (g)(1)), all obligations of Employer under this Agreement shall
terminate as of the effective date of the order, but vested rights of the
parties to the Agreement shall not be affected.
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13. If Employer is in default (as defined in section 3(x)(1) of the
Federal Deposit Insurance Act), all obligations under this Agreement shall
terminate as of the date of default, but this provision shall not affect any
vested rights of Employer or Employee.
14. All obligations under this Agreement may be terminated except to
the extent determined that the continuation of the Agreement is necessary for
the continued operation of Employer: (i) by the Director of the Office of Thrift
Supervision or his or her designee (the "Director"), at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of Employer under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act; or (ii) by the Director at the time the Director
approves a supervisory merger to resolve problems related to operation of
Employer or when Employer is determined by the Director to be in an unsafe and
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
15. Anything in this Agreement to the contrary notwithstanding, in the
event that the Employer's independent public accountants determine that any
payment by the Employer to or for the benefit of the Employee, whether paid or
payable pursuant to the terms of this Agreement, would be non-deductible by the
Employer for federal income tax purposes because of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), then the amount payable to or for
the benefit of the Employee pursuant to this Agreement shall be reduced (but not
below zero) to the Reduced Amount. For purposes of this section 15, the "Reduced
Amount" shall be the amount which maximizes the amount payable without causing
the payment to be non-deductible by the Employer because of Section 280G of the
Code. Any payments made to Employee pursuant to this Agreement or otherwise, are
subject to and conditional upon their compliance with 12 U.S.C. ss.1828(k) and
any regulations promulgated thereunder, to the extent applicable to such
parties.
16. If a dispute arises regarding the termination of Employee pursuant
to section 7 hereof or as to the interpretation or enforcement of this Agreement
and Employee obtains a final judgment in his favor in a court of competent
jurisdiction or his claim is settled by Employer prior to the rendering of a
judgment by such a court, all reasonable legal fees and expenses incurred by
Employee in contesting or disputing any such termination or seeking to obtain or
enforce any right or benefit provided for in this Agreement or otherwise
pursuing his claim shall be paid by Employer, to the extent permitted by law.
17. Should Employee die after termination of his employment with
Employer while any amounts are payable to him hereunder, this Agreement shall
inure to the benefit of and be enforceable by Employee's executors,
administrators, heirs, distributees, devisees and legatees and all amounts
payable hereunder shall be paid in accordance with the terms of this Agreement
to Employee's devisee, legatee or other designee or, if there is no such
designee, to his estate.
18. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
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If to Employee: Fred W. Carter
808 Maple Drive
Frankfort, Indiana 46041
If to Employer: Citizens Savings Bank of Frankfort
60 South Main Street
P.O. Box 635
Frankfort, Indiana 46041
or to such address as either party hereto may have furnished to the other party
in writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
19. The validity, interpretation, and performance of this Agreement
shall be governed by the laws of the State of Indiana, except as otherwise
required by mandatory operation of federal law.
20. Employer shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business or assets of Employer, by agreement in form and substance
satisfactory to Employee to expressly assume and agree to perform this Agreement
in the same manner and same extent that Employer would be required to perform it
if no such succession had taken place. Failure of Employer to obtain such
agreement prior to the effectiveness of any such succession shall be a material
intentional breach of this Agreement and shall entitle Employee to terminate his
employment with Employer pursuant to subsection 7(C) hereof. As used in this
Agreement, "Employer" shall mean Employer as hereinbefore defined and any
successor to its business or assets as aforesaid.
21. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by Employee and Employer. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of dissimilar provisions or conditions at the same or any prior
subsequent time. No agreements or representation, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement.
22. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement which shall remain in full force and effect.
23. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same agreement.
24. This Agreement is personal in nature and neither party hereto
shall, without consent of the other, assign or transfer this Agreement or any
rights or obligations hereunder except as provided in section 17 and section 20
above. Without limiting the foregoing, Employee's right to
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receive compensation hereunder shall not be assignable or transferable, whether
by pledge, creation of a security interest or otherwise, other than a transfer
by his will or by the laws of descent or distribution as set forth in section 17
hereof, and in the event of any attempted assignment or transfer contrary to
this paragraph, Employer shall have no liability to pay any amounts so attempted
to be assigned or transferred.
IN WITNESS WHEREOF, the parties have caused the Agreement to be
executed and delivered as of the day and year first above set forth.
CITIZENS SAVINGS BANK OF FRANKFORT
By:
-------------------------------------
Stephen D. Davis, Controller
"Employer"
-------------------------------------
Fred W. Carter
"Employee"
The undersigned, Citizens Bancorp, sole shareholder of Employer, agrees
that if it shall be determined for any reason that any obligations on the part
of Employer to continue to make any payments due under this Agreement to
Employee is unenforceable for any reason, Citizens Bancorp, agrees to honor the
terms of this Agreement and continue to make any such payments due hereunder to
Employee pursuant to the terms of this Agreement.
Citizens Bancorp
By:
------------------------------
Stephen D. Davis, Treasurer
10
Exhibit 10(6)
DIRECTOR DEFERRED
COMPENSATION AGREEMENT
Citizens Savings Bank
Frankfort, Indiana
Financial Institution Consulting Corporation
700 Colonial Road
Memphis, Tennessee 38117
WATS: 1-800-873-0089
FAX: (901) 68-7414
(901) 684-7400
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DIRECTOR DEFERRED COMPENSATION AGREEMENT
This Director Deferred Compensation Agreement (the "Agreement"),
effective as of the 1st day of January, 1993, by and between CITIZENS SAVINGS
BANK (the "Bank"), a banking corporation organized and existing under the laws
of the State of Indiana, hereinafter referred to as "Bank" and FRED W. CARTER,
hereinafter referred to as "Director", for the purpose of formalizing the
agreement between the Bank and the Director in which the Director defers receipt
of fees under the terms and conditions described below.
W I T N E S S E T H:
WHEREAS, the Director serves the Bank as a member of the Board; and
WHEREAS, the Bank recognizes the valuable services heretofore performed
for it by the
Director and wishes to encourage continued service; and
WHEREAS, the Bank values the efforts, abilities and accomplishments of
the Director and recognizes that the Director's services will substantially
contribute to its continued growth and profits in the future; and
WHEREAS, the Director wishes to defer a certain portion of fees to be
earned in the future; and
WHEREAS, the parties hereto desire to formalize the terms and
conditions upon which the Bank shall pay such deferred compensation to the
Director or his designated beneficiary; and
WHEREAS, the Bank has adopted this Director Deferred Compensation
Agreement which controls all issues relating to the Deferred Compensation
Benefit as described herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree to the following terms and conditions:
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SECTION I
DEFINITIONS
When used herein, the following words and phrases shall have the
meanings below unless the context clearly indicates otherwise: 1.1 "Accrued
Benefit" means the sum of all deferred amounts and interest credited to the
Director's Retirement Account and due and owing to the Director or his
Beneficiaries pursuant to this Agreement.
1.2 "Bank" means CITIZENS SAVINGS BANK and any successor thereto.
1.3 "Beneficiary" means the person or persons (and their heirs) designated
as Beneficiary in writing to the Bank to whom the Director's benefits
are payable in the event of his death. If no Beneficiary is so
designated, then the Director's Spouse, if living, will be deemed the
Beneficiary. If the Director's Spouse is not living, then the Children
of Director will be deemed the Beneficiaries and will take on a per
stirpes basis. If there are no living Children, then the Estate of the
Director will be deemed the Beneficiary.
1.4 "Cause" means personal dishonesty, willful misconduct, willful
malfeasance, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than traffic violations or similar
offenses), or final cease-and-desist order, material breach of any
provision of this Agreement, or gross negligence in matters of material
importance to the Bank.
1.5 "Children" means the Director's children, both natural and adopted,
then living at the time payments are due the Children under this
Agreement.
1.6 "Deferral Period" means the sixty month (60) month period which
commences on January __, 1993.
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1.7 "Deferred Compensation Benefit" means Three Hundred Eighty-One
($381.00) Dollars (or such reduced amount as calculated under
Subsections 4.2 or 4.5) per month payable for a one hundred eighty
(180) month period, such period to begin at Director's Normal
Retirement Date.
1.8 "Disability" means the determination by a duly licensed physician
selected by the Bank that because of ill health, accident, disability
or general inability because of age, that the Director is no longer
able, properly and satisfactorily, to perform his duties as a Director.
1.9 "Effective Date" shall be the execution date of this Agreement.
1.10 "Estate" means the Estate of the Director.
1.11 "Financial Hardship" means an unforeseeable emergency resulting from a
sudden and unexpected illness or accident of the Director or of a
dependent of the Director, loss of the Director's property due to
casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Director. The circumstances that will constitute an unforeseeable
emergency will depend upon the facts of each case, but, in any case,
payment may not be made to the extent that such hardship is or may be
relieved (i) through reimbursement or compensation by insurance or
otherwise, (ii) by liquidation of the Director's assets, to the extent
the liquidation of such assets would not itself cause severe financial
hardship, or (iii) by cessation of deferral under the plan. Examples of
what are not considered to be unforeseeable emergencies include the
need to send the Director's child to college or the decision to
purchase a home.
1.12 "Financial Hardship Benefit" means a withdrawal or withdrawals of an
amount or amounts attributable to a Financial Hardship and limited to
the extent reasonably needed to satisfy the emergency need.
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1.13 "Normal Retirement Date" means the first day of the month following the
Director's seventieth (70) birthday.
1.14 "Payout Period" means the time frame in which certain benefits payable
hereunder shall be distributed. Payments shall be made in equal monthly
installments commencing on the first day of the month coincident with
or next following the occurrence of the event which triggers
distribution and continuing for a period of one hundred eighty (180)
months.
1.15 "Retirement Account" means book entries maintained by the Bank
reflecting deferred amounts; provided, however, that the existence of
such book entries and the Retirement Account shall not create and shall
not be deemed to create a trust of any kind, or a fiduciary
relationship between the Bank and the Director, his designated
Beneficiary, or other Beneficiaries under this Agreement.
1.16 "Spouse" means the individual to whom the Director is legally married
at the time of the Director's death.
1.17 "Survivor's Benefit" means monthly level payments to the Beneficiary in
an amount of Three Hundred Eighty-One ($381.00) Dollars (or such
reduced amount as calculated under Subsection 4.5 or 5.1(c)) for one
hundred eighty (180) months.
SECTION II
DEFERRED COMPENSATION
Commencing on the Effective Date, and continuing through the end of the
Deferral Period, the Director and the Bank agree that the Director shall defer
into his Retirement Account monthly Director's fees of Three Hundred ($300.00)
Dollars that the Director would otherwise be entitled to receive from the Bank
for each month of the Deferral Period. Compensation shall be deferred when it is
earned by the Director. In the event the Director desires to increase his
monthly deferrals during
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the term of this Agreement, the Director shall have the option to defer such
additional amounts, provided such election is made prior to earning the higher
fee and approval of the Board of Directors is obtained. If an election to defer
a higher amount is made and the required approval is obtained, the Deferred
Compensation Benefit shall be increased proportionately, taking into account the
timing and amount of such increased deferrals. Such additional deferrals and the
compensation payable will be evidenced by an Amendment to this Agreement.
SECTION III
TERMINATION OF ELECTION
The Director's election to defer compensation shall continue in effect,
pursuant to the terms of this Agreement unless and until the Director files with
the Bank a Notice of Discontinuance (Exhibit B attached hereto). A Notice of
Discontinuance shall be effective if filed at least twenty (20) days prior to
any January 1st, April 1st, July 1st or October 1st. Such Notice of
Discontinuance shall be effective commencing with the January 1st, April 1st,
July 1st or October 1st following its filing, whichever applies, and shall apply
only with respect to the Director's compensation attributable to services not
yet performed.
SECTION IV
RETIREMENT BENEFIT
4.1 Retirement Benefit. Provided Director has deferred all fees during the
Deferral Period and subject to Subsection 5.1 of this Agreement, the
Bank agrees to pay the Deferred Compensation Benefit commencing upon
the Director's Normal Retirement Date. Such payments will be made over
the term of the Payout Period.
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4.2 Reduced Retirement Benefit. In the event the Director defers fees in an
amount less than Eighteen Thousand ($18,000.00) Dollars, the Director
shall be entitled to receive, upon reaching Normal Retirement Age, a
Deferred Compensation Benefit determined by multiplying Three Hundred
Eighty-One ($381.00) Dollars by a fraction, the numerator of which is
equal to the total Board fees actually deferred by the Director and the
denominator of which is equal to Eighteen Thousand ($18,000.00)
Dollars. Such benefit payments will be made over the term of the Payout
Period.
4.3 Continued Service Beyond Normal Retirement Date. Notwithstanding any
provisions to the contrary, if requested by the Director and approved
by the Board in the exercise of its sole discretion, the Director shall
be entitled to receive, upon attaining his Normal Retirement Date, his
Deferred Compensation Benefit, notwithstanding his continued service on
the Board of Directors of the Bank. If not approved, payment will be
deferred to actual termination of service. The Director's request to
receive this benefit notwithstanding his continued service must be made
in writing at least one (1) year prior to his Normal Retirement Date.
The Deferred Compensation Benefit payable upon approval pursuant to
this paragraph shall be the amount that would have been payable had the
Director retired from service with the Bank as of his Normal Retirement
Date. Any such request, if approved, shall be irrevocable, and shall
result in the termination of the Director's right to any further
deferrals hereunder.
4.4 Disability Retirement Benefit. Notwithstanding any other provision
hereof, if requested by the Director and approved by the Board, the
Director shall be entitled to receive the disability retirement benefit
hereunder prior to his Normal Retirement Date, in any case the Director
terminates due to Disability. If the Director's service is terminated
pursuant to this paragraph and Board approval is obtained, the Director
may elect to begin receiving the disability retirement benefit. The
amount of the monthly benefit shall be the annuity value of the
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Director's Accrued Benefit over one hundred eighty (180) months. The
interest factor used to annuitize the Accrued Benefit shall be equal to
the greater of the average cost of funds of the Bank for the prior
twelve (12) month period or the internal rate of return earned on the
Director's deferrals up to the date of disability. Said benefit shall
be distributed in accordance with the Payout Period. In the event the
Director dies while receiving payments pursuant to this Subsection, or
after becoming eligible for such payments but before the actual
commencement of such payments, his Beneficiary shall be entitled to
receive the full Survivor's Benefit for a period of one hundred eighty
(180) months, reduced by the number of months disability payments were
made to the Director. If the total amount of disability payments
received by the Director under the provisions of this Subsection is
less than the total amount of payments that would have been received
had the Survivor's Benefit been paid in lieu of the disability benefit,
the Bank shall pay the Director's Beneficiary a lump sum payment for
the difference. This lump sum payment shall be made within thirty (30)
days of the Director's death.
4.5 Financial Hardship Benefit. In the event the Director incurs a
Financial Hardship, the Director may request a Financial Hardship
Benefit. Such request shall be either approved or rejected by the Bank
in the exercise of its sole discretion. The Director will be required
to demonstrate to the satisfaction of the Bank that a Financial
Hardship has occurred and that the Director is otherwise entitled to a
Financial Hardship Benefit. If a Financial Hardship Benefit is
requested by the Director or his Beneficiary and approved by the Bank
in the exercise of its sole discretion, then the Financial Hardship
Benefit may be paid in a lump sum within thirty (30) days of the event
which triggers payment. The Director's Retirement Account shall be
reduced for any distributions made pursuant to this Subsection. Any
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Deferred Compensation Benefit or Survivor's Benefit subsequently made
shall be actuarially reduced to reflect any Financial Hardship Benefit
distribution.
4.6 Removal For Cause. In the event the Director is removed for Cause by
the Board of Directors pursuant to the Bylaws of the Bank, he shall be
paid his Accrued Benefit in a lump sum within thirty (30) days of the
Director's date of removal. All other benefits provided under this
Agreement shall be forfeited and the Agreement shall become null and
void.
SECTION V
DEATH BENEFITS
5.1 Death Benefit Prior to Commencement of Deferred Compensation Benefit.
In the event of the Director's death prior to commencement of the
Deferred Compensation Benefit, the Bank shall pay the Director's
Beneficiary a monthly amount for a period of one hundred eighty (180)
months, commencing within thirty (30) days of the Director's death. The
amount of such benefit payments shall be determined as follows: (a) In
the event death occurs following retirement due to disability, the
benefits payable to the Director's Beneficiary shall be governed by
Subsection 4.4 of this Agreement.
(b) In the event death occurs while the Director is in the service
of the Bank and deferring fees pursuant to Section II of this
Agreement, the Director's Beneficiary shall be paid the
Survivor's Benefit.
(c) In the event the Director completes less than one hundred
(100%) percent of the planned deferrals (i.e., Eighteen
Thousand ($18,000.00) Dollars) due to other voluntary or
involuntary terminations, the Director's Beneficiary shall be
paid a reduced Survivor's Benefit, such amount being
determined by multiplying the Survivor's Benefit (Three
Hundred Eighty-One ($381.00) Dollars) by a fraction, the
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numerator of which is equal to the Board fees actually
deferred by the Director and the denominator of which is equal
to Eighteen Thousand ($18,000.00) Dollars.
5.2 Death Benefit After Commencement of Deferred Compensation Benefit. In
the event of the Director's death after the commencement of the
Deferred Compensation Benefit, but prior to the completion of all such
payments due and owing hereunder, the Bank shall pay to the Director's
Beneficiary the Survivor's Benefit for the remainder of the one hundred
eighty (180) month period.
SECTION VI
BENEFICIARY DESIGNATION
The Director shall have the right, at any time, to submit in
substantially the form attached hereto as Exhibit A, a written designation of
primary and secondary beneficiaries to whom payment under this Agreement shall
be made in the event of his death prior to complete distribution of the benefits
due and payable under the Agreement. Each beneficiary designation shall become
effective only when receipt thereof is acknowledged in writing by the Bank.
SECTION VII
DIRECTOR'S RIGHT TO ASSETS
The rights of the Director, any Beneficiary, or any other person
claiming through the Director under this Agreement, shall be solely those of an
unsecured general creditor of the Bank. The Director, the Beneficiary, or any
other person claiming through the Director, shall only have the right to receive
from the Bank those payments so specified under this Agreement. The Director
agrees that he, his Beneficiary, or any other person claiming through him shall
have no rights or interests whatsoever in any asset of the Bank, including any
insurance policies or contracts which the Bank
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may possess or obtain to informally fund this Agreement. Any asset used or
acquired by the Bank in connection with the liabilities it has assumed under
this Agreement, unless expressly provided herein, shall not be deemed to be held
under any trust for the benefit of the Director or his Beneficiaries, nor shall
any asset be considered security for the performance of the obligations of the
Bank. Any such asset shall be and remain, a general, unpledged, and unrestricted
asset of the Bank.
SECTION VIII
RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement. The
Director, his Beneficiaries or any successor in interest to him shall be and
remain simply a general unsecured creditor of the Bank in the same manner as any
other creditor having a general claim for matured and unpaid compensation. The
Bank reserves the absolute right in its sole discretion to either purchase
assets to meet its obligations undertaken by this Agreement or to refrain from
the same and to determine the extent, nature, and method of such asset
purchases. Should the Bank decide to purchase assets such as life insurance,
mutual funds, disability policies or annuities, the Bank reserves the absolute
right, in its sole discretion, to terminate such assets at any time, in whole or
in part. At no time shall the Director be deemed to have any lien, right, title
or interest in or to any specific investment or to any assets of the Bank. If
the Bank elects to invest in a life insurance, disability or annuity policy upon
the life of the Director, then the Director shall assist the Bank by freely
submitting to a physical examination and supplying such additional information
necessary to obtain such insurance or annuities.
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SECTION IX
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither the Director nor any Beneficiary under this Agreement shall
have any power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits payable
hereunder, nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the Director or
his Beneficiary, nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the Director or any
Beneficiary attempts assignment, communication, hypothecation, transfer or
disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease
and terminate.
SECTION X
ACT PROVISIONS
10.1 Named Fiduciary and Administrator. The Bank shall be the Named
Fiduciary and Administrator (the "Administrator") of this Agreement. As
Administrator, the Bank shall be responsible for the management,
control and administration of the Agreement as established herein. The
Administrator may delegate to others certain aspects of the management
and operational responsibilities of the Agreement, including the
employment of advisors and the delegation of ministerial duties to
qualified individuals.
10.2 Claims Procedure and Arbitration. In the event that benefits under this
Agreement are not paid to the Director (or to his Beneficiary in the
case of the Director's death) and such claimants feel they are entitled
to receive such benefits, then a written claim must be made to the
Administrator within sixty (60) days from the date payments are
refused. The Bank and its Board shall review the written claim and, if
the claim is denied, in whole or in part, they
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shall provide in writing, within ninety (90) days of receipt of such
claim, their specific reasons for such denial, reference to the
provisions of this Agreement upon which the denial is based, and any
additional material or information necessary to perfect the claim. Such
written notice shall further indicate the additional steps to be taken
by claimants if a further review of the claim denial is desired.
If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim
denial. Claimants may review the Agreement or any documents relating
thereto and submit any written issues and comments they may feel
appropriate. In its sole discretion, the Administrator shall then
review the second claim and provide a written decision within sixty
(60) days of receipt of such claim. This decision shall likewise state
the specific reasons for the decision and shall include reference to
specific provisions of the Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of the Agreement or the meaning and effect of the
terms and conditions thereof, then claimants may submit the dispute to
a Board of Arbitration for final arbitration. Said Board shall consist
of one member selected by the claimant, one member selected by the
Bank, and the third member selected by the first two members. The Board
shall operate under any generally recognized set of arbitration rules.
The parties hereto agree that they and their heirs, personal
representatives, successors and assigns shall be bound by the decision
of such Board with respect to any controversy properly submitted to it
for determination.
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SECTION XI
MISCELLANEOUS
11.1 No Effect on Directorship Rights. Nothing contained herein will confer
upon the Director the right to be retained in the service of the Bank
nor limit the right of the Bank to discharge or otherwise deal with the
Director without regard to the existence of the Agreement. Pursuant to
12 C.F.R. ss.563.39(b), the following conditions shall apply to this
Agreement:
(1) The Bank's Board of Directors may remove the Director at any
time, but any removal by the Bank's Board of Directors other
than removal for Cause shall not prejudice the Director's
vested right to compensation or other benefits under the
contract. As provided in Section 4.6, the Director shall be
paid his Accrued Benefit in a lump sum within thirty (30) days
of his removal in the event he is removed for Cause. He shall
have no right to receive additional compensation or other
benefits for any period after removal for Cause.
(2) If the Director is suspended and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a
notice served under Section 8(e)(3) or (g)(1) of the Federal
Deposit Insurance Act (12 U.S.C. 1818(e)(3) and (g)(1)) the
Bank's obligations under the contract shall be suspended
(except vested rights) as of the date of termination of
service unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Director all or part of the
compensation withheld while its contract obligations were
suspended and (ii) reinstate (in whole or in part) any of its
obligations which were suspended.
(3) If the Director is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. 1818(e)(4) or (g)(1)), all non-vested
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obligations of the Bank under the contract shall terminate as
of the effective date of the order, but vested rights of the
Director shall not be affected.
(4) If the Bank is in default (as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act), all non-vested obligations
under the contract shall terminate as of the date of default.
(5) All non-vested obligations under the contract shall be
terminated, except to the extent determined that continuation
of the contract is necessary for the continued operation of
the Bank:
(i) by the Director or his designee at the time the
Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement
to provide assistance to or on behalf of the Bank
under the authority contained in ss. 13(c) of the
Federal Deposit Insurance Act; or
(ii) by the Director or his designee, at the time the
Director or his designee approves a supervisory
merger to resolve problems related to operation of
the Bank or when the Bank is determined by the
Director to be in an unsafe or unsound condition. Any
rights of the parties that have already vested,
(i.e., his Accrued Benefit), however, shall not be
affected by such action.
11.2 State Law. The Agreement is established under, and will be construed
according to, the laws of the State of Indiana.
11.3 Severability. In the event that any of the provisions of this Agreement
or portion thereof, are held to be inoperative or invalid by any court
of competent jurisdiction, then: (1) insofar as is reasonable, effect
will be given to the intent manifested in the provisions held invalid
or
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inoperative, and (2) the validity and enforceability of the remaining
provisions will not be affected thereby.
11.4 Incapacity of Recipient. In the event the Director is declared
incompetent and a conservator or other person legally charged with the
care of his person or Estate is appointed, any benefits under the
Agreement to which such Director is entitled shall be paid to such
conservator or other person legally charged with the care of his person
or Estate. Except as provided above in this paragraph, when the Bank's
Board of Directors, in its sole discretion, determines that the
Director is unable to manage his financial affairs, the Board may
direct the Bank to make distributions to any person for the benefit of
the Director.
11.5 Recovery of Estate Taxes. If the Director's gross estate for federal
estate tax purposes includes any amount determined by reference to and
on account of this Deferred Compensation Agreement, and if the
Beneficiary is other than the Director's estate, then the Director's
estate shall be entitled to recover from the Beneficiary receiving such
benefit under the terms of the Deferred Compensation Benefit an amount
by which the total estate tax due by the Director's estate, exceeds the
total estate tax which would have been payable if the value of such
benefit had not been included in the Director's gross estate. If there
is more than one person receiving such benefit, the right of recovery
shall be against each such person. In the event the Beneficiary has a
liability hereunder, the Beneficiary may petition the Bank for a lump
sum payment in an amount not to exceed the Beneficiary's liability
hereunder.
11.6 Unclaimed Benefit. The Director shall keep the Bank informed of his
current address and the current address of his Beneficiaries. The Bank
shall not be obligated to search for the whereabouts of any person. If
the location of the Director is not made known to the Bank within three
(3) years after the date on which any payment of the Deferred
Compensation Benefit may be made, payment may be made as though the
Director had died at the end of the
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three (3) year period. If, within one (1) additional year after such
three (3) year period has elapsed, or, within three (3) years after the
actual death of the Director, the Bank is unable to locate any
Beneficiary of the Director, then the Bank may fully discharge its
obligation by payment to the Estate.
11.7 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Agreement, neither the Bank, nor any individual
acting as an employee or agent of the Bank, or as a member of the Board
of Directors shall be liable to the Director or any other person for
any claim, loss, liability or expense incurred in connection with the
Agreement.
11.8 Gender. Whenever in this Agreement words are used in the masculine or
neuter gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
11.9 Affect on Other Corporate Benefit Agreements. Nothing contained in this
Agreement shall affect the right of the Director to participate in or
be covered by any qualified or non-qualified pension, profit sharing,
group, bonus or other supplemental compensation or fringe benefit
agreement constituting a part of the Bank's existing or future
compensation structure.
11.10 Suicide. Notwithstanding anything to the contrary in this Agreement,
the benefits otherwise provided herein shall not be payable if the
Director's death results from suicide, whether sane or insane, within
two years after the execution of this Agreement. If the Director dies
during this two year period due to suicide, the Accrued Benefit will be
paid to the Director's designated Beneficiary in a single payment.
Payment is to be made within thirty (30) days after the Director's
death is declared a suicide by competent legal authority. Credit shall
be given to the Bank for payments made prior to determination of
suicide.
11.11 Headings. Headings and sub-headings in this Agreement are inserted for
reference and convenience only and shall not be deemed a part of this
Agreement.
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SECTION XII
AMENDMENT/REVOCATION
12.1 Amendment or Termination. The Bank intends the Agreement to be
permanent, but reserves the right to amend or terminate the Agreement
when, in the sole opinion of the Bank, such amendment or termination is
advisable. Any such amendment or termination shall be made pursuant to
a resolution of the Board of Directors of the Bank and shall be
effective as of the date of such resolution. No amendment or
termination of the Agreement shall directly or indirectly deprive any
Director of all or any portion of any Deferred Compensation Benefit
payment which has commenced prior to the effective date of the
resolution amending or terminating the Agreement.
12.2 Termination Benefit. In the case of a termination of the Agreement, the
Director shall be entitled to his Accrued Benefit as of the termination
date. Payment of the Director's Accrued Benefit shall not be dependent
upon his continuation of service with the Bank following the Agreement
termination date. Payment of the Accrued Benefit shall be made in a
lump sum within thirty (30) days of termination of the Agreement.
SECTION XIII
EXECUTION
13.1 This Agreement sets forth the entire understanding of the parties
hereto with respect to the transactions contemplated hereby, and any
previous agreements or understandings between the parties hereto
regarding the subject matter hereof are merged into and superseded by
this Agreement.
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13.2 This Agreement shall be executed in triplicate, each copy of which,
when so executed and delivered, shall be an original, but all three
copies shall together constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on this ______ day of _________________, 1993.
/s/ Fred W. Carter
--------------------------------
FRED W. CARTER
CITIZENS SAVINGS BANK
By: /s/ Cindy S. Chambers
--------------------------------
Secretary
(Title)
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Exhibit 10(7)
EXECUTIVE SUPPLEMENTAL
RETIREMENT INCOME AGREEMENT
Citizens Savings Bank
Frankfort, Indiana
Financial Institution Consulting Corporation
700 Colonial Road
Memphis, Tennessee 38117
WATS: 1-800-873-0089
FAX: (901) 68-7414
(901) 684-7400
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EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
This Agreement, made and entered into this 1st day of January, 1993, by
and between Citizens Savings Bank, Frankfort, Indiana (the "Bank"), a banking
corporation organized and existing under the laws of the State of Indiana, and
FRED W. CARTER (the "Executive"), a key employee and executive.
W I T N E S S E T H:
WHEREAS, the Executive is employed by the Bank; and
WHEREAS, the Bank recognizes the valuable services heretofore performed
for it by the Executive and wishes to encourage continued employment; and
WHEREAS, the Executive wishes to be assured that he will be entitled to
a certain amount of additional compensation for some definite period of time
from and after his retirement from active service with the Bank or other
termination of his employment and wishes to provide his beneficiary with
benefits from and after his death; and
WHEREAS, the parties hereto wish to provide the terms and conditions
upon which the Bank shall pay such additional compensation to the Executive
after his retirement or other termination of his employment and/or death
benefits to his beneficiary after his death; and
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement, maintained primarily to provide supplemental retirement
income for the Executive, a member of a select group of management or highly
compensated employees of the Bank, for purposes of the Employee Retirement
Income Security Act of 1974, as amended; and
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WHEREAS, the Bank has adopted this Executive Supplemental Retirement
Income Agreement which controls all issues relating to Supplemental Retirement
Income Benefit as described herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
SECTION I
DEFINITIONS
When used herein, the following words shall have the meanings below
unless the context clearly indicates otherwise:
1.1 "Accrued Benefit" means that portion of the Supplemental Retirement
Income Benefit which is required to be expensed and accrued under
generally accepted accounting principles (GAAP) by any appropriate
methodology which the Board of Directors may require in the exercise of
its sole discretion. The Accrued Benefit shall be increased monthly by
the greater of the Interest Factor or the accrual required under GAAP.
At Normal Retirement Date, such Accrued Benefit shall be paid to the
Executive in one hundred eighty (180) equal monthly installments using
the Interest Factor to annuitize the benefit.
1.2 "Act" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.3 "Bank" means CITIZENS SAVINGS BANK and any successor thereto.
1.4 "Beneficiary" means the person or persons (and their heirs) designated
as Beneficiary in writing to the Bank to whom the Executive's benefits
are payable in the event of his death. If no Beneficiary is so
designated, then the Executive's Spouse, if living, will be deemed the
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Beneficiary. If the Executive's Spouse is not living, then the Children
of the Executive will be deemed Beneficiaries and will take on a per
stirpes basis. If there are no Children, then the Estate of the
Executive will be deemed the Beneficiary.
1.5 "Cause" means personal dishonesty, willful misconduct, willful
malfeasance, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than traffic violations or similar
offenses), or final cease-and-desist order, material breach of any
provision of this Agreement, or gross negligence in matters of material
importance to the Bank.
1.6 "Children" means the Executive's children, both natural and adopted,
then living at the time payments are due the Children under this
Agreement.
1.7 "Code" means the Internal Revenue Code of 1986 as amended from time to
time.
1.8 "Cost of Funds" means total interest expense, divided by the monthly
weighted average of total interest-bearing liabilities. The time frame
for measuring Cost of Funds shall be the last twelve (12) complete
months immediately prior to the event which triggered the need for
measurement.
1.9 "Effective Date" means the date of execution of this Agreement.
1.10 "Estate" means the estate of the Executive.
1.11 "Financial Hardship" means an unforeseeable emergency resulting from a
sudden and unexpected illness or accident of the Executive or of a
dependent of the Executive, loss of the Executive's property due to
casualty, or similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Executive. The
circumstances that will constitute an unforeseeable emergency will
depend upon the facts of each case, but, in any case, payment may not
be made to the extent that such hardship is or may be relieved (i)
through reimbursement or compensation by insurance or otherwise, (ii)
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by liquidation of the Executive's assets, to the extent the liquidation
of such assets would not itself cause severe financial hardship, or
(iii) by cessation of deferral under the plan. Examples of what are not
considered to be unforeseeable emergencies include the need to send the
Executive's child to college or the decision to purchase a home.
1.12 "Financial Hardship Benefit" means a withdrawal or withdrawals of an
amount or amounts attributable to a Financial Hardship and limited to
the extent reasonably needed to satisfy the emergency need. If a
Financial Hardship Benefit is requested by the Executive or his
Beneficiary and approved by the Bank in the exercise of its sole
discretion, then the Financial Hardship Benefit may be paid in a lump
sum within thirty (30) days of the event which triggers payment.
1.13 "Interest Factor" means monthly compounding of the greater of .667% or
the Bank's Cost of Funds.
1.14 "Normal Retirement Date" means the first day of the month coincident
with or next following the Executive's sixty-fifth (65th) birthday.
1.15 "Permanently and Totally Disabled" means the Executive has, for at
least six (6) months, been unable to perform the services incident to
his position with the Bank as a result of accidental bodily injury or
sickness and that the status is likely to continue for an indefinite
period, as reasonably determined subsequent to the expiration of the
six (6) month period by a duly licensed physician selected in good
faith by the Bank.
1.16 "Postponed Retirement Date" means the first day of the month coincident
with or next following the Executive's termination of employment with
the Bank after his Normal Retirement Date.
1.17 "Spouse" means the individual to whom the Executive is legally married
at the time of the Executive's death.
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1.18 "Suicide" means the act of intentionally killing oneself.
1.19 "Supplemental Retirement Income Benefit" means an amount equal to
eighty (80%) percent of the average of the highest salary and bonuses
earned by the Executive for any three (3) calendar years during the
Executive's employment at the Bank: (i) less the actual annual amount
provided through social security, and (ii) less the actual annual
amount available to the Executive from Bank funding of tax-qualified
plan(s). If no actual social security payments are to be received by
the Executive as of Normal Retirement, the Executive shall be deemed to
receive the amount of annual social security benefits (if any) for
which the Executive is eligible as of Normal Retirement. If the
Executive elects a payment option from a tax-qualified plan (or plans)
which provides an actual annual benefit which is less than the annual
benefit available to the Executive under a one hundred (100%) percent
joint and survivor, ten year certain payment option, the Executive
shall be deemed to receive an amount equal to the annual amount
available under such one hundred (100%) percent joint and survivor, ten
(10) year certain payment option. This net amount, which shall not
exceed Forty-Five Thousand ($45,000.00) Dollars, shall be divided by
twelve (12) and paid in monthly installments for a period of one
hundred eighty (180) months.
1.20 "Survivor's Benefit" means an amount equal to forty (40%) percent of
the average of the highest salary and bonuses earned by the Executive
for any three (3) calendar years during the Executive's employment at
the Bank. Such amount shall not exceed Forty-Five Thousand ($45,000)
Dollars and shall be divided by twelve (12) and paid in monthly
installments for a period of one-hundred eighty (180) months. The
Executive's Beneficiary shall also be entitled to receive a one-time
lump sum death benefit in the amount of Ten Thousand ($10,000) Dollars
for the Executive's burial expenses. The lump sum payment made pursuant
to this Section shall be payable within thirty (30) days of the
Executive's death. If the Executive's
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Beneficiary receives benefits pursuant to this Section, he shall not be
entitled to the death benefit provided in Section 2.3.
1.21 "Vested Accrued Benefit" means the non-forfeitable portion of the
Supplemental Retirement Income Benefit to which the Executive is
entitled. The Executive shall be one hundred (100%) percent Vested in
his Accrued Benefit upon execution of this Agreement.
SECTION II
PRE-RETIREMENT AND POST- RETIREMENT DEATH BENEFITS
2.1 Death Prior to Termination of Employment. In the event of the
Executive's death prior to termination of employment with the Bank,
while covered by the provisions of this Agreement, the Executive's
Beneficiary (or the Beneficiary's estate) shall be paid the Survivor's
Benefit. Payments shall commence within thirty (30) days of the date of
death of Executive.
2.2 Death During Receipt of Supplemental Retirement Income Benefit. In the
event of death of the Executive after commencement of the Supplemental
Retirement Income Benefit covered in Subsection 3.1 of this Agreement,
the Executive's Beneficiary (or the Beneficiary's estate) shall be
entitled to receive a monthly amount which shall be payable for the
balance of the one hundred eighty (180) month period and equal to the
monthly benefit paid to the Executive prior to his death.
2.3 Additional Death Benefit - Burial Expenses. In addition to the
above-described death benefits, upon his death, the Executive's
Beneficiary shall be entitled to receive a one-time lump sum death
benefit in the amount of Ten Thousand ($10,000.00) Dollars.
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2.4 Death by Reason of Suicide. In the event the Executive dies by reason
of suicide within two years of the Effective Date of this Agreement,
all benefits under this Agreement shall be forfeited and the Agreement
shall become null and void.
SECTION III
SUPPLEMENTAL RETIREMENT INCOME BENEFIT AND DISABILITY BENEFIT
3.1 Normal Retirement Benefit. At Normal Retirement Date, if the Executive
is still covered by this Agreement, the Bank shall be obligated to pay
the Executive the Supplemental Retirement Income Benefit. Such payments
shall commence the first day of the month coincident with or next
following the Executive's Normal Retirement Date and shall be payable
monthly thereafter until all payments have been made.
3.2 Postponed Retirement Benefit. The postponed retirement benefit of the
Executive shall be the Supplemental Retirement Income Benefit as set
forth in Subsection 3.1. However, the Board of Directors, in the
exercise of its sole discretion, may elect to increase benefits if
retirement is postponed past the Normal Retirement Date. The postponed
retirement benefit shall not be paid to Executive until the Postponed
Retirement Date.
3.3 Disability. If the Executive becomes Permanently and Totally Disabled
prior to reaching his retirement, the Executive shall be entitled to
receive a monthly amount equal to the annuity value of his Accrued
Benefit at the time of disability, with such annuity value to be
calculated over a term of one hundred eighty (180) months. Payments
shall begin within thirty (30) days after the Executive becomes
Permanently and Totally Disabled. In the event the Executive dies while
receiving payments pursuant to this Subsection, or after becoming
eligible for such payments but before the actual commencement of such
payments, his Beneficiary shall be
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entitled to receive the full Survivor's Benefit for a period of one
hundred eighty (180) months, reduced by the number of months disability
payments were made to the Executive. If the total amount of disability
payments received by the Executive under the provisions of this
Subsection is less than the total amount of payments that would have
been received had the Survivor's Benefit been paid in lieu of the
disability benefit, the Bank shall pay the Executive's Beneficiary a
lump sum payment for the difference. This lump sum payment shall be
made within thirty (30) days of the Executive's death.
3.4 Financial Hardship Benefit. In the event the Executive suffers a
Financial Hardship, the Bank may, if the Board deems it advisable in
its sole and absolute discretion, distribute to the Executive as a
Financial Hardship Benefit any portion of the Executive's Accrued
Benefit existing at the date such distribution is authorized. A
Financial Hardship Benefit shall be distributed at such times as the
Board shall determine, and the Executive's Accrued Benefit shall be
reduced by the amount so distributed. Retirement and/or death benefit
payments subsequently made pursuant to this Agreement, shall be
actuarially reduced for any Financial Hardship Benefit paid to
Executive.
3.5 Service. Payment of the Supplemental Retirement Income Benefit for the
first five (5) years after retirement is conditioned upon the Executive
rendering such reasonable business consulting, advisory and public
relations services as the Bank's Board of Directors may call upon the
Executive to provide. Such service shall be for approximately
thirty-five (35) service days per year for the five (5) year period
immediately after retirement, provided the Executive has met the other
requirements of this Agreement. The Bank shall provide the Executive
with advance notice, sufficient to Executive, of its desire to have
such service provided. In rendering these services, the Executive shall
not be considered an employee of the Bank but shall act in the capacity
of an independent contractor. The Executive shall not
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be required to perform these services during reasonable vacation
periods or any periods of illness or disability. Furthermore, the
Executive shall be reimbursed for all expenses incurred in performing
such services.
SECTION IV
EXECUTIVE'S RIGHT TO ASSETS
The rights of the Executive, any Beneficiary of the Executive, or any
other person claiming through the Executive under this Agreement, shall be
solely those of an unsecured general creditor of the Bank. The Executive, the
Beneficiary of the Executive, or any other person claiming through the
Executive, shall only have the right to receive from the Bank those payments so
specified under this Agreement. The Executive agrees that he, his Beneficiary,
or any other person claiming through him shall have no rights or interests
whatsoever in any asset of the Bank, including any insurance policies or
contracts which the Bank may possess or obtain to informally fund this
Agreement. Any asset used or acquired by the Bank in connection with the
liabilities it has assumed under this Agreement, unless expressly provided
herein, shall not be deemed to be held under any trust for the benefit of the
Executive or his Beneficiaries, nor shall any asset be considered security for
the performance of the obligations of the Bank. Any such asset shall be and
remain a general, unpledged, and unrestricted asset of the Bank.
SECTION V
RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement. The
Executive, his Beneficiaries or any successor in interest to him shall be and
remain simply a general unsecured creditor of the Bank in the same
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manner as any other creditor having a general claim for matured and unpaid
compensation. The Bank reserves the absolute right, at its sole discretion, to
either purchase assets to meet its obligations undertaken by this Agreement or
to refrain from the same and to determine the extent, nature, and method of such
asset purchases. Should the Bank decide to purchase assets such as life
insurance, mutual funds, disability policies or annuities, the Bank reserves the
absolute right, in its sole discretion, to terminate such assets at any time, in
whole or in part. At no time shall the Executive be deemed to have any lien,
right, title or interest in or to any specific investment or to any assets of
the Bank. If the Bank elects to invest in a life insurance, disability or
annuity policy upon the life of the Executive, then the Executive shall assist
the Bank by freely submitting to a physical examination and supplying such
additional information necessary to obtain such insurance or annuities.
SECTION VI
ACCELERATION OF PAYMENTS
The Bank reserves the right to accelerate the payment of any benefits
payable under this Agreement without the consent of the Executive, his Estate,
his Beneficiaries, or any other person claiming through the Executive. In the
event that the Bank accelerates the payment, the benefit shall be discounted by
a rate equal to the Interest Factor.
SECTION VII
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither the Executive nor any Beneficiary under this Agreement shall
have any power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits payable
hereunder, nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the Executive
or his
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Beneficiary, nor shall they be transferrable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the Executive or any
Beneficiary attempts assignment, communication, hypothecation, transfer or
disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease
and terminate.
SECTION VIII
TERMINATION OF EMPLOYMENT
8.1 Termination of Service Prior to Retirement Date. If, prior to the
Executive's Normal Retirement Date, the Executive voluntarily
terminates or is terminated without Cause by the Bank, the Bank shall
pay to the Executive the amount of the Executive's Vested Accrued
Benefit as of the date of termination, annuitized over the Payout
Period, with such payments to commence the first day of the month
coincident with or next following Normal Retirement Date. If the
Executive dies before actual commencement of the benefit annuity or
while receiving annuity payments, the Executive's Beneficiary shall be
entitled to receive a continuation of the annuity for the balance of
the one hundred eighty (180) month period. The Beneficiary shall also
be entitled to the one-time lump sum payment provided for in Section
2.3 upon the Executive's death.
8.2 Termination of Service for Cause. Should the Executive be terminated
for Cause, all benefits provided under this Agreement shall be
forfeited and the Agreement shall become null and void.
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SECTION IX
ACT PROVISIONS
9.1 Named Fiduciary and Administrator. The Bank or its successor in
interest shall be the Named Fiduciary and Administrator (the
"Administrator") of this Agreement. As Administrator, the Bank shall be
responsible for the management, control and administration of the
Agreement as established herein. It may delegate to others certain
aspects of the management and operation responsibilities of the
Agreement including the employment of advisors and the delegation of
ministerial duties to qualified individuals.
9.2 Claims Procedure. In the event that benefits under this Agreement are
not paid to the Executive (or to his Beneficiary in the case of the
Executive's death) and such claimants feel they are entitled to receive
such benefits, then a written claim must be made to the Administrator
named above within sixty (60) days from the date payments are refused.
The Administrator shall review the written claim and, if the claim is
denied, in whole or in part, they shall provide in writing within sixty
(60) days of receipt of such claim their specific reasons for such
denial, reference to the provisions of this Agreement upon which the
denial is based and any additional material or information necessary to
perfect the claim. Such written notice shall further indicate the
additional steps to be taken by claimants if an additional review of
the claim denial is desired.
If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim
denial. Claimants may review the Agreement or any documents relating
thereto and submit any written issues and comments they may feel
appropriate. In its sole discretion, the Administrator shall then
review the second claim and provide a written decision within thirty
(30) days of receipt of such claim. This decision shall likewise state
the specific reasons for the decision and shall include reference to
specific provisions of the
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Agreement upon which the decision is based. If claimants disagree with
the decision of the Administrator, nothing herein shall serve to
preclude them from seeking any and all remedies available at law.
SECTION X
MISCELLANEOUS
10.1 No Effect on Employment Rights. Nothing contained herein will confer
upon the Executive the right to be retained in the service of the Bank
nor limit the right of the Bank to discharge or otherwise deal with
Executive without regard to the existence of the Agreement. Pursuant to
12 C.F.R. ss. 563.39(b), the following conditions shall apply to this
Agreement:
(1) The Bank's Board of Directors may terminate the Executive at
any time, but any termination by the Bank's Board of Directors
other than for Cause, shall not prejudice the Executive's
vested right to compensation or other benefits under the
contract. As provided in Section 8.2, the Executive shall not
be entitled to any of the benefits provided for in this
Agreement, including any vested benefits, in the event he is
terminated for cause.
(2) If the Executive is suspended and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a
notice served under Section 8(e)(3) or (g)(1) of the Federal
Deposit Insurance Act (12 U.S.C. 1818(e)(3) and (g)(1)) the
Bank's obligations under the contract shall be suspended as of
the date of service unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in
its discretion (i) pay the Executive all or part of the
compensation withheld while its contract obligations were
suspended and (ii) reinstate (in whole or in part) any of its
obligations which were suspended.
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(3) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. 1818(e)(4) or (g)(1)), all non-vested
obligations of the Bank under the contract shall terminate as
of the effective date of the order, but vested rights of the
Executive shall not be affected.
(4) If the Bank is in default (as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act), all non-vested obligations
under the contract shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the
contracting parties.
(5) All non-vested obligations under the contract shall be
terminated, except to the extent determined that continuation
of the contract is necessary for the continued operation of
the Bank:
(i) by the Executive or his designee at the time the
Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement
to provide assistance to or on behalf of the Bank
under the authority contained in ss. 13(c) of the
Federal Deposit Insurance Act; or
(ii) by the Executive or his designee, at the time the
Executive or his designee approves a supervisory
merger to resolve problems related to operation of
the Bank or when the Bank is determined by the
Executive to be in an unsafe or unsound condition.
The Executive shall be vested in his Accrued Benefit;
therefore, other than termination for Cause, such amount shall
not be affected by any action pursuant to this Subsection.
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10.2 Disclosure. Each Executive shall receive a copy of his Agreement and
the Administrator will make available, upon request, a copy of the
rules and regulations that govern this type of Agreement.
10.3 State Law. The Agreement is established under, and will be construed
according to, the laws of the State of Indiana, to the extent that such
laws are not preempted by the Act and valid regulations published
thereunder.
10.4 Severability. In the event that any of the provisions of this Agreement
or portion thereof, are held to be inoperative or invalid by any court
of competent jurisdiction, then: (1) insofar as is reasonable, effect
will be given to the intent manifested in the provisions held invalid
or inoperative, and (2) the validity and enforceability of the
remaining provisions will not be affected thereby.
10.5 Incapacity of Recipient. In the event the Executive is declared
incompetent and a conservator or other person legally charged with the
care of his person or Estate is appointed, any benefits under the
Agreement to which such Executive is entitled shall be paid to such
conservator or other person legally charged with the care of his person
or Estate. Except as provided above in this paragraph, when the Bank's
Board of Directors in its sole discretion, determines that an Executive
is unable to manage his financial affairs, the Board may direct the
Bank to make distributions to any person for the benefit of such
Executive.
10.6 Recovery of Estate Taxes. If the Executive's gross estate for federal
estate tax purposes includes any amount determined by reference to and
on account of this Executive Supplemental Retirement Income Agreement,
and if the Beneficiary is other than the Executive's estate, then the
Executive's estate shall be entitled to recover from the Beneficiary
receiving such benefit under the terms of the Supplemental Retirement
Income Benefit an amount by which the total estate tax due by
Executive's estate, exceeds the total
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estate tax which would have been payable if the value of such benefit
had not been included in the Executive's gross estate. If there is more
than one person receiving such benefit, the right of recovery shall be
against each such person. In the event any Beneficiary has a liability
hereunder, such Beneficiary may petition the Bank for a lump sum
payment in an amount not to exceed the Beneficiary's liability
hereunder.
10.7 Beneficiary Designation. The Director shall have the right, at any
time, to submit in substantially the form attached hereto as Exhibit A,
a written designation of primary and secondary beneficiaries to whom
payment under this Agreement shall be made in the event of his death
prior to complete distribution of the benefits due and payable under
the Agreement. Each beneficiary designation shall become effective only
when receipt thereof is acknowledged in writing by the Bank.
10.8 Unclaimed Benefit. The Executive shall keep the Bank informed of his
current address and the current address of his Beneficiaries. The Bank
shall not be obligated to search for the whereabouts of any person. If
the location of an Executive is not made known to the Bank within three
years after the date on which any payment of the Executive's
Supplemental Retirement Income Benefit may be made, payment may be made
as though the Executive had died at the end of the three-year period.
If, within one additional year after such three-year period has
elapsed, or, within three years after the actual death of the
Executive, the Bank is unable to locate any Beneficiary of the
Executive, then the Bank may fully discharge its obligation by payment
to the Estate.
10.9 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Agreement, neither the Bank, nor any individual
acting as an employee or agent of the Bank or as a member of the Board
of Directors shall be liable to any Executive, former Executive, or any
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other person for any claim, loss, liability or expense incurred in
connection with the Agreement.
10.10 Gender. Whenever, in this Agreement, words are used in the masculine or
neuter gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
10.11 Affect on Other Corporate Benefit Agreements. Nothing contained in this
Agreement shall affect the right of the Executive to participate in, or
be covered by, any qualified or non-qualified pension, profit sharing,
group, bonus or other supplemental compensation or fringe benefit
agreement constituting a part of the Bank's existing or future
compensation structure.
10.12 Headings. Headings and sub-headings in this Agreement are
inserted for reference and convenience only and shall not be deemed a
part of this Agreement.
SECTION XI
NON-COMPETITION AFTER NORMAL RETIREMENT
11.1 Non-Compete Clause. The Executive expressly agrees that, as
consideration for the agreements of the Bank contained herein and as a
condition to the performance by the Bank of its obligations hereunder,
throughout the entire period beginning with the date of this Agreement
and continuing until the final payment is made to Executive, as
provided herein, he will not, without the prior written consent of the
Bank, engage in, become interested, directly or indirectly, as a sole
proprietor, as a partner in a partnership, or as a substantial
shareholder in a corporation, nor become associated with, in the
capacity of an employee, director, officer, principal, agent, trustee
or in any other capacity whatsoever, any enterprise conducted in the
trading area of the business of the Bank which may be deemed to be
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competitive with any business carried on by the Bank as of the date of
the termination of the Executive's employment or his retirement.
11.2 Breach. In the event of any breach by the Executive of the agreements
and covenants contained herein, the Board of Directors of the Bank
shall direct that any unpaid balance of any payments to the Executive
under this Agreement be suspended, and shall thereupon notify the
Executive of such suspensions, in writing. Thereupon, if the Board of
Directors of the Bank shall determine that said breach by the Executive
has continued for a period of one (1) month following notification of
such suspension, all rights of the Executive and his Beneficiaries
under this Agreement, including rights to further payments hereunder,
shall thereupon terminate.
SECTION XII
AMENDMENT/REVOCATION
12.1 Amendment or Termination. The Bank intends the Agreement to be
permanent, but reserves the right to amend or terminate the Agreement
when, in the sole opinion of the Bank, such amendment or termination is
advisable. Any such amendment or termination shall be made pursuant to
a resolution of the Board of Directors of the Bank and shall be
effective as of the date of such resolution. No amendment or
termination of the Agreement shall directly or indirectly deprive any
Executive of all or any portion of any Supplemental Retirement Income
Benefit payment which has commenced prior to the effective date of the
resolution amending or terminating the Agreement.
12.2 Termination Benefit. In the case of a termination of the Agreement, the
Executive shall be entitled to his Accrued Benefit as of the
termination date. Payment of the Executive's Accrued Benefit shall not
be dependent upon his continuation of service with the Bank
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following the Agreement termination date. Payment of the Accrued
Benefit shall be made in a lump sum within thirty (30) days of the
termination of the Agreement.
ARTICLE XIII
EXECUTION
13.1 This Agreement sets forth the entire understanding of the parties
hereto with respect to the transactions contemplated hereby, and any
previous agreements or understandings between the parties hereto
regarding the subject matter hereof are merged into and superseded by
this Agreement.
13.2 This Agreement shall be executed in triplicate, each copy of which,
when so executed and delivered, shall be an original, but all three
copies shall together constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on this day of , 19___.
/s/ Fred W. Carter
----------------------------------
FRED W. CARTER
CITIZENS SAVINGS BANK
By: /s/ Cindy S. Chambers
----------------------------------
Secretary
(Title)
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FIRST
AMENDMENT
OF THE
EXECUTIVE SUPPLEMENTAL RETIREMENT AGREEMENT
OF
FRED W. CARTER
This First Amendment ("Amendment"), dated as of the 1st day of January,
1993, hereby amends the Director Deferred Compensation Joinder Agreement
("Agreement"), dated the 1st day of January, 1993, by and between FRED W. CARTER
and Citizens Savings Bank.
Section 1.19 shall be replaced with the following language:
1.19 "Supplemental Retirement Income Benefit" means an amount equal to
eighty (80%) percent of the highest salary and bonus earned by the
Executive during any twelve (12) month period prior to the Executive's
Normal Retirement Date less the actual annual amount available to the
Executive from Bank funding of tax-qualified plan(s). If the Executive
elects a payment option from a tax-qualified plan (or plans) which
provides an actual annual benefit which is less than the annual benefit
available to the Executive under a one hundred (100%) percent joint and
survivor, ten year certain payment option, the Executive shall be
deemed to receive an amount equal to the annual amount available under
such one hundred (100%) percent joint and survivor, ten (10) year
certain payment option. This net amount, which shall not exceed
Forty-Five Thousand ($45,000.00) Dollars, shall be divided by twelve
(12) and paid in monthly installments for a period of one hundred
eighty (180) months.
IN WITNESS WHEREOF, the parties have executed this Amendment in
triplicate, the day and year written here below:
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/s/ Fred W. Carter
----------------------------------
Date Fred W. Carter
Citizens Savings Bank
By: /s/ Cindy S. Chambers, Secretary
----------------------------------
Date
Exhibit 10(8)
EXECUTIVE SUPPLEMENTAL
RETIREMENT INCOME AGREEMENT
Citizens Savings Bank
Frankfort, Indiana
Financial Institution Consulting Corporation
700 Colonial Road
Memphis, Tennessee 38117
WATS: 1-800-873-0089
FAX: (901) 68-7414
(901) 684-7400
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EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
This Agreement, made and entered into this 1st day of January, 1993, by
and between Citizens Savings Bank, Frankfort, Indiana (the "Bank"), a banking
corporation organized and existing under the laws of the State of Indiana, and
STEVE DAVIS (the "Executive"), a key employee and executive.
W I T N E S S E T H:
WHEREAS, the Executive is employed by the Bank; and
WHEREAS, the Bank recognizes the valuable services heretofore performed
for it by the Executive and wishes to encourage continued employment; and
WHEREAS, the Executive wishes to be assured that he will be entitled to
a certain amount of additional compensation for some definite period of time
from and after his retirement from active service with the Bank or other
termination of his employment and wishes to provide his beneficiary with
benefits from and after his death; and
WHEREAS, the parties hereto wish to provide the terms and conditions
upon which the Bank shall pay such additional compensation to the Executive
after his retirement or other termination of his employment and/or death
benefits to his beneficiary after his death; and
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement, maintained primarily to provide supplemental retirement
income for the Executive, a member of a select group of management or highly
compensated employees of the Bank, for purposes of the Employee Retirement
Income Security Act of 1974, as amended; and
WHEREAS, the Bank has adopted this Executive Supplemental Retirement
Income Agreement which controls all issues relating to Supplemental Retirement
Income Benefit as described herein;
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NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
SECTION I
DEFINITIONS
When used herein, the following words shall have the meanings below
unless the context clearly indicates otherwise:
1.1 "Accrued Benefit" means that portion of the Supplemental Retirement
Income Benefit which is required to be expensed and accrued under
generally accepted accounting principles (GAAP) by any appropriate
methodology which the Board of Directors may require in the exercise of
its sole discretion. The Accrued Benefit shall be increased monthly by
the greater of the Interest Factor or the accrual required under GAAP.
At Normal Retirement Date, such Accrued Benefit shall be paid to the
Executive in one hundred eighty (180) equal monthly installments using
the Interest Factor to annuitize the benefit.
1.2 "Act" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.3 "Bank" means CITIZENS SAVINGS BANK and any successor thereto.
1.4 "Beneficiary" means the person or persons (and their heirs) designated
as Beneficiary in writing to the Bank to whom the Executive's benefits
are payable in the event of his death. If no Beneficiary is so
designated, then the Executive's Spouse, if living, will be deemed the
Beneficiary. If the Executive's Spouse is not living, then the Children
of the Executive will be deemed Beneficiaries and will take on a per
stirpes basis. If there are no Children, then the Estate of the
Executive will be deemed the Beneficiary.
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1.5 "Cause" means personal dishonesty, willful misconduct, willful
malfeasance, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than traffic violations or similar
offenses), or final cease-and-desist order, material breach of any
provision of this Agreement, or gross negligence in matters of material
importance to the Bank.
1.6 "Children" means the Executive's children, both natural and adopted,
then living at the time payments are due the Children under this
Agreement.
1.7 "Code" means the Internal Revenue Code of 1986 as amended from time to
time.
1.8 "Cost of Funds" means total interest expense, divided by the monthly
weighted average of total interest-bearing liabilities. The time frame
for measuring Cost of Funds shall be the last twelve (12) complete
months immediately prior to the event which triggered the need for
measurement.
1.9 "Effective Date" means the date of execution of this Agreement.
1.10 "Estate" means the estate of the Executive.
1.11 "Financial Hardship" means an unforeseeable emergency resulting from a
sudden and unexpected illness or accident of the Executive or of a
dependent of the Executive, loss of the Executive's property due to
casualty, or similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Executive. The
circumstances that will constitute an unforeseeable emergency will
depend upon the facts of each case, but, in any case, payment may not
be made to the extent that such hardship is or may be relieved (i)
through reimbursement or compensation by insurance or otherwise, (ii)
by liquidation of the Executive's assets, to the extent the liquidation
of such assets would not itself cause severe financial hardship, or
(iii) by cessation of deferral under the plan. Examples of what are not
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considered to be unforeseeable emergencies include the need to send
the Executive's child to college or the decision to purchase a home.
1.12 "Financial Hardship Benefit" means a withdrawal or withdrawals of an
amount or amounts attributable to a Financial Hardship and limited to
the extent reasonably needed to satisfy the emergency need. If a
Financial Hardship Benefit is requested by the Executive or his
Beneficiary and approved by the Bank in the exercise of its sole
discretion, then the Financial Hardship Benefit may be paid in a lump
sum within thirty (30) days of the event which triggers payment.
1.13 "Interest Factor" means monthly compounding of the greater of .667% or
the Bank's Cost of Funds.
1.14 "Normal Retirement Date" means the first day of the month coincident
with or next following the Executive's sixty-fifth (65th) birthday.
1.15 "Permanently and Totally Disabled" means the Executive has, for at
least six (6) months, been unable to perform the services incident to
his position with the Bank as a result of accidental bodily injury or
sickness and that the status is likely to continue for an indefinite
period, as reasonably determined subsequent to the expiration of the
six (6) month period by a duly licensed physician selected in good
faith by the Bank.
1.16 "Postponed Retirement Date" means the first day of the month coincident
with or next following the Executive's termination of employment with
the Bank after his Normal Retirement Date.
1.17 "Spouse" means the individual to whom the Executive is legally married
at the time of the Executive's death.
1.18 "Suicide" means the act of intentionally killing oneself.
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1.19 "Supplemental Retirement Income Benefit" means an amount equal to
eighty (80%) percent of the highest base compensation earned by the
Executive during any twelve (12) month period prior to the Executive's
Normal Retirement Date: (i) less the actual annual amount provided
through social security, and (ii) less the actual annual amount
available to the Executive from Bank funding of tax-qualified plan(s).
If no actual social security payments are to be received by the
Executive as of Normal Retirement, the Executive shall be deemed to
receive the amount of annual social security benefits (if any) for
which the Executive is eligible as of Normal Retirement. If the
Executive elects a payment option from a tax-qualified plan (or plans)
which provides an actual annual benefit which is less than the annual
benefit available to the Executive under a one hundred (100%) percent
joint and survivor, ten year certain payment option, the Executive
shall be deemed to receive an amount equal to the annual amount
available under such one hundred (100%) percent joint and survivor, ten
(10) year certain payment option. This net amount, which shall not
exceed Thirty-Eight Thousand ($38,000.00) Dollars, shall be divided by
twelve (12) and paid in monthly installments for a period of one
hundred eighty (180) months. 1.20 "Survivor's Benefit" means an amount
equal to the following: If the Executive's death occurs during the
first year of the Agreement, upon the Executive's death, the
Executive's Beneficiary shall be entitled to receive a one-time lump
sum death benefit in the amount of Ten Thousand ($10,000.00) Dollars,
to cover the Executive's burial expenses. If the Executive's death
occurs during the second, third, fourth or fifth years of the
Agreement, upon the Executive's death, the Executive's Beneficiary
shall be entitled to receive a one-time lump sum death benefit in the
amount of: Fifteen Thousand ($15,000.00) Dollars, Twenty Thousand
($20,000.00) Dollars, Twenty-Five Thousand ($25,000.00) Dollars or
Thirty Thousand ($30,000.00) Dollars, respectively, and which includes
Ten Thousand ($10,000.00)
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Dollars for the Executive's burial expenses. If the Executive's death
occurs during the sixth year of the Agreement, or any year thereafter
prior to Normal Retirement and 100% Vesting in the Accrued Benefit,
upon the Executive's death, the Executive's Beneficiary shall be
entitled to receive a one-time lump sum death benefit in the amount of
Thirty Thousand ($30,000.00) Dollars which includes Ten Thousand
($10,000.00) Dollars for the Executive's burial expenses, and the
Executive shall receive payment for the amount of his Vested Accrued
Benefit. If the Executive's death occurs at anytime after the Executive
is 100% Vested in the Accrued Benefit, the Executive's Beneficiary
shall be entitled to a one-time lump sum death benefit in the amount of
Ten Thousand ($10,000) Dollars for the Executive's burial expenses and
the Executive shall receive payment for the amount of his Vested
Accrued Benefit. The Vested Accrued Benefit shall be annuitized into
one hundred eighty (180) equal monthly installments using the Interest
Factor and shall commence within thirty (30) days of the Executive's
death. Any lump sum payment made pursuant to this Section shall be
payable within thirty (30) days of the Executive's death. If the
Executive's Beneficiary receives benefits pursuant to this Section, he
shall not be entitled to the death benefit provided in Section 2.3.
1.21 "Vested Accrued Benefit" means the non-forfeitable portion of the
Supplemental Retirement Income Benefit to which the Executive is
entitled. It is computed by multiplying the Accrued Benefit by the
Vesting percentage specified in Section 3.5.
1.22 "Year of Service" shall be earned upon completing twelve (12) months of
continuous service (including authorized leaves of absence) after the
1st day of January, 1993.
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SECTION II
PRE-RETIREMENT AND POST- RETIREMENT DEATH BENEFITS
2.1 Death Prior to Termination of Employment. In the event of the
Executive's death prior to termination of employment with the Bank,
while covered by the provisions of this Agreement, the Executive's
Beneficiary (or the Beneficiary's estate) shall be paid the Survivor's
Benefit. Payments shall commence within thirty (30) days of the date of
death of Executive.
2.2 Death During Receipt of Supplemental Retirement Income Benefit. In the
event of death of the Executive after commencement of the Supplemental
Retirement Income Benefit covered in Subsection 3.1 of this Agreement,
the Executive's Beneficiary (or the Beneficiary's estate) shall be
entitled to receive a monthly amount which shall be payable for the
balance of the one hundred eighty (180) month period and equal to the
monthly benefit paid to the Executive prior to his death.
2.3 Additional Death Benefit - Burial Expenses. In addition to the
above-described death benefits, upon his death, the Executive's
Beneficiary shall be entitled to receive a one-time lump sum death
benefit in the amount of Ten Thousand ($10,000.00) Dollars.
2.4 Death by Reason of Suicide. In the event the Executive dies by reason
of suicide within two years of the Effective Date of this Agreement,
all benefits under this Agreement shall be forfeited and the Agreement
shall become null and void.
SECTION III
SUPPLEMENTAL RETIREMENT INCOME BENEFIT AND DISABILITY BENEFIT
3.1 Normal Retirement Benefit. At Normal Retirement Date, if the Executive
is still covered by this Agreement, the Bank shall be obligated to pay
the Executive the Supplemental Retirement Income Benefit. Such payments
shall commence the first day of the month coincident with or next
following the Executive's Normal Retirement Date and shall be payable
monthly thereafter until all payments have been made.
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3.2 Postponed Retirement Benefit. The postponed retirement benefit of the
Executive shall be the Supplemental Retirement Income Benefit as set
forth in Subsection 3.1. However, the Board of Directors, in the
exercise of its sole discretion, may elect to increase benefits if
retirement is postponed past the Normal Retirement Date. The postponed
retirement benefit shall not be paid to Executive until the Postponed
Retirement Date.
3.3 Disability. If the Executive becomes Permanently and Totally Disabled
prior to reaching his retirement, the Executive shall be entitled to
receive a monthly amount equal to the annuity value of his Accrued
Benefit at the time of disability, with such annuity value to be
calculated over a term of one hundred eighty (180) months. Payments
shall begin within thirty (30) days after the Executive becomes
Permanently and Totally Disabled. In the event the Executive dies while
receiving payments pursuant to this Subsection, or after becoming
eligible for such payments but before the actual commencement of such
payments, his Beneficiary shall be entitled to receive the full
Survivor's Benefit for a period of one hundred eighty (180) months,
reduced by the number of months disability payments were made to the
Executive. If the total amount of disability payments received by the
Executive under the provisions of this Subsection is less than the
total amount of payments that would have been received had the
Survivor's Benefit been paid in lieu of the disability benefit, the
Bank shall pay the Executive's Beneficiary a lump sum payment for the
difference. This lump sum payment shall be made within thirty (30) days
of the Executive's death.
3.4 Financial Hardship Benefit. In the event the Executive suffers a
Financial Hardship, the Bank may, if the Board deems it advisable in
its sole and absolute discretion, distribute to the Executive as a
Financial Hardship Benefit any portion of the Executive's Accrued
Benefit existing at the date such distribution is authorized. A
Financial Hardship Benefit shall be distributed at such times as the
Board shall determine, and the Executive's Accrued Benefit
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shall be reduced by the amount so distributed. Retirement and/or death
benefit payments substantially made pursuant to this Agreement, shall
be actuarially reduced for any Financial Hardship Benefit paid to
Executive.
3.5 Vesting. Vested Accrued Benefits, as described in Subsection 1.21,
shall be determined according to the following schedule:
Year(s) of Service Percentage Vested
1 0%
2 0%
3 0%
4 0%
5 0%
6 10%
7 20%
8 30%
9 40%
10 50%
11 60%
12 70%
13 80%
14 90%
15 100%
Interpolation shall be made for partial years. For example, 6.5 Years
of Service would result in vesting of 15%. No vesting shall occur,
however, until six (6) full Years of Service have been completed.
SECTION IV
EXECUTIVE'S RIGHT TO ASSETS
The rights of the Executive, any Beneficiary of the Executive, or any other
person claiming through the Executive under this Agreement, shall be solely
those of an unsecured general creditor of the Bank. The Executive, the
Beneficiary of the Executive, or any other person claiming through the
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the Executive, shall only have the right to receive from the Bank those payments
so specified under this Agreement. The Executive agrees that he, his
Beneficiary, or any other person claiming through his shall have no rights or
interests whatsoever in any asset of the Bank, including any insurance policies
or contracts which the Bank may possess or obtain to informally fund this
Agreement. Any asset used or acquired by the Bank in connection with the
liabilities it has assumed under this Agreement, unless expressly provided
herein, shall not be deemed to be held under any trust for the benefit of the
Executive or his Beneficiaries, nor shall any asset be considered security for
the performance of the obligations of the Bank. Any such asset shall be and
remain a general, unpledged, and unrestricted asset of the Bank.
SECTION V
RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement. The
Executive, his Beneficiaries or any successor in interest to his shall be and
remain simply a general unsecured creditor of the Bank in the same manner as any
other creditor having a general claim for matured and unpaid compensation. The
Bank reserves the absolute right, at its sole discretion, to either purchase
assets to meet its obligations undertaken by this Agreement or to refrain from
the same and to determine the extent, nature, and method of such asset
purchases. Should the Bank decide to purchase assets such as life insurance,
mutual funds, disability policies or annuities, the Bank reserves the absolute
right, in its sole discretion, to terminate such assets at any time, in whole or
in part. At no time shall the Executive be deemed to have any lien, right, title
or interest in or to any specific investment or to any assets of the Bank. If
the Bank elects to invest in a life insurance, disability or annuity policy upon
the life of
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the Executive, then the Executive shall assist the Bank by freely submitting to
a physical examination and supplying such additional information necessary to
obtain such insurance or annuities.
SECTION VI
ACCELERATION OF PAYMENTS
The Bank reserves the right to accelerate the payment of any benefits
payable under this Agreement without the consent of the Executive, his Estate,
his Beneficiaries, or any other person claiming through the Executive. In the
event that the Bank accelerates the payment, the benefit shall be discounted by
a rate equal to the Interest Factor.
SECTION VII
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither the Executive nor any Beneficiary under this Agreement shall
have any power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits payable
hereunder, nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the Executive
or his Beneficiary, nor shall they be transferrable by operation of law in the
event of bankruptcy, insolvency or otherwise. In the event the Executive or any
Beneficiary attempts assignment, communication, hypothecation, transfer or
disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease
and terminate.
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SECTION VIII
TERMINATION OF EMPLOYMENT
8.1 Termination of Service Prior to Retirement Date. If, prior to the
Executive's Normal Retirement Date, the Executive voluntarily
terminates or is terminated without Cause by the Bank, the Bank shall
pay to the Executive the amount of the Executive's Vested Accrued
Benefit as of the date of termination, annuitized over the Payout
Period, with such payments to commence the first day of the month
coincident with or next following Normal Retirement Date. If the
Executive dies before actual commencement of the benefit annuity or
while receiving annuity payments, the Executive's Beneficiary shall be
entitled to receive a continuation of the annuity for the balance of
the one hundred eighty (180) month period. The Beneficiary shall also
be entitled to the one-time lump sum payment provided for in Section
2.3 upon the Executive's death. For purposes of this Section only, the
amount of the death benefit provided for in Section 2.3 will be limited
to the Executive's vesting as shown in Section 3.5. The death benefit
shall be computed by multiplying Ten Thousand ($10,000.00) Dollars
times the appropriate vesting percentage in Section 3.5.
8.2 Termination of Service for Cause. Should the Executive be terminated
for Cause, all benefits provided under this Agreement shall be
forfeited and the Agreement shall become null and void.
SECTION IX
ACT PROVISIONS
9.1 Named Fiduciary and Administrator. The Bank or its successor in
interest shall be the Named Fiduciary and Administrator (the
"Administrator") of this Agreement. As Administrator, the Bank shall be
responsible for the management, control and administration of the
Agreement
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as established herein. It may delegate to others certain aspects of the
management and operation responsibilities of the Agreement including
the employment of advisors and the delegation of ministerial duties to
qualified individuals.
9.2 Claims Procedure. In the event that benefits under this Agreement are
not paid to the Executive (or to her Beneficiary in the case of the
Executive's death) and such claimants feel they are entitled to receive
such benefits, then a written claim must be made to the Administrator
named above within sixty (60) days from the date payments are refused.
The Administrator shall review the written claim and, if the claim is
denied, in whole or in part, they shall provide in writing within sixty
(60) days of receipt of such claim their specific reasons for such
denial, reference to the provisions of this Agreement upon which the
denial is based and any additional material or information necessary to
perfect the claim. Such written notice shall further indicate the
additional steps to be taken by claimants if an additional review of
the claim denial is desired. If claimants desire a second review, they
shall notify the Administrator in writing within sixty (60) days of the
first claim denial. Claimants may review the Agreement or any documents
relating thereto and submit any written issues and comments they may
feel appropriate. In its sole discretion, the Administrator shall then
review the second claim and provide a written decision within thirty
(30) days of receipt of such claim. This decision shall likewise state
the specific reasons for the decision and shall include reference to
specific provisions of the Agreement upon which the decision is based.
If claimants disagree with the decision of the Administrator, nothing
herein shall serve to preclude them from seeking any and all remedies
available at law.
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SECTION X
MISCELLANEOUS
10.1 No Effect on Employment Rights. Nothing contained herein will confer
upon the Executive the right to be retained in the service of the Bank
nor limit the right of the Bank to discharge or otherwise deal with
Executive without regard to the existence of the Agreement. Pursuant to
12 C.F.R. ss. 563.39(b), the following conditions shall apply to this
Agreement:
(1) The Bank's Board of Directors may terminate the Executive at
any time, but any termination by the Bank's Board of Directors
other than for Cause, shall not prejudice the Executive's
vested right to compensation or other benefits under the
contract. As provided in Section 8.2, the Executive shall not
be entitled to any of the benefits provided for in this
Agreement, including any vested benefits, in the event he is
terminated for cause.
(2) If the Executive is suspended and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a
notice served under Section 8(e)(3) or (g)(1) of the Federal
Deposit Insurance Act (12 U.S.C. 1818(e)(3) and (g)(1)) the
Bank's obligations under the contract shall be suspended as of
the date of service unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in
its discretion (i) pay the Executive all or part of the
compensation withheld while its contract obligations were
suspended and (ii) reinstate (in whole or in part) any of its
obligations which were suspended.
(3) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. 1818(e)(4) or (g)(1)), all non-vested
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obligations of the Bank under the contract shall terminate as
of the effective date of the order, but vested rights of the
Executive shall not be affected.
(4) If the Bank is in default (as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act), all non-vested obligations
under the contract shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the
contracting parties.
(5) All non-vested obligations under the contract shall be
terminated, except to the extent determined that continuation
of the contract is necessary for the continued operation of
the Bank:
(i) by the Executive or his designee at the time the
Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement
to provide assistance to or on behalf of the Bank
under the authority contained in ss. 13(c) of the
Federal Deposit Insurance Act; or
(ii) by the Executive or his designee, at the time the
Executive or his designee approves a supervisory
merger to resolve problems related to operation of
the Bank or when the Bank is determined by the
Executive to be in an unsafe or unsound condition.
The Executive shall be vested in his Accrued Benefit;
therefore, other than termination for Cause, such amount shall
not be affected by any action pursuant to this Subsection.
10.2 Disclosure. Each Executive shall receive a copy of his Agreement and
the Administrator will make available, upon request, a copy of the
rules and regulations that govern this type of Agreement.
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10.3 State Law. The Agreement is established under, and will be construed
according to, the laws of the State of Indiana, to the extent that such
laws are not preempted by the Act and valid regulations published
thereunder.
10.4 Severability. In the event that any of the provisions of this Agreement
or portion thereof, are held to be inoperative or invalid by any court
of competent jurisdiction, then: (1) insofar as is reasonable, effect
will be given to the intent manifested in the provisions held invalid
or inoperative, and (2) the validity and enforceability of the
remaining provisions will not be affected thereby.
10.5 Incapacity of Recipient. In the event the Executive is declared
incompetent and a conservator or other person legally charged with the
care of his person or Estate is appointed, any benefits under the
Agreement to which such Executive is entitled shall be paid to such
conservator or other person legally charged with the care of his person
or Estate. Except as provided above in this paragraph, when the Bank's
Board of Directors in its sole discretion, determines that an Executive
is unable to manage his financial affairs, the Board may direct the
Bank to make distributions to any person for the benefit of such
Executive.
10.6 Recovery of Estate Taxes. If the Executive's gross estate for federal
estate tax purposes includes any amount determined by reference to and
on account of this Executive Supplemental Retirement Income Agreement,
and if the Beneficiary is other than the Executive's estate, then the
Executive's estate shall be entitled to recover from the Beneficiary
receiving such benefit under the terms of the Supplemental Retirement
Income Benefit an amount by which the total estate tax due by
Executive's estate, exceeds the total estate tax which would have been
payable if the value of such benefit had not been included in the
Executive's gross estate. If there is more than one person receiving
such benefit, the right of recovery shall be against each such person.
In the event any Beneficiary has a liability
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hereunder, such Beneficiary may petition the Bank for a lump sum
payment in an amount not to exceed the Beneficiary's liability
hereunder.
10.7 Beneficiary Designation. The Director shall have the right, at any
time, to submit in substantially the form attached hereto as Exhibit A,
a written designation of primary and secondary beneficiaries to whom
payment under this Agreement shall be made in the event of his death
prior to complete distribution of the benefits due and payable under
the Agreement. Each beneficiary designation shall become effective only
when receipt thereof is acknowledged in writing by the Bank.
10.8 Unclaimed Benefit. The Executive shall keep the Bank informed of his
current address and the current address of his Beneficiaries. The Bank
shall not be obligated to search for the whereabouts of any person. If
the location of an Executive is not made known to the Bank within three
years after the date on which any payment of the Executive's
Supplemental Retirement Income Benefit may be made, payment may be made
as though the Executive had died at the end of the three-year period.
If, within one additional year after such three-year period has
elapsed, or, within three years after the actual death of the
Executive, the Bank is unable to locate any Beneficiary of the
Executive, then the Bank may fully discharge its obligation by payment
to the Estate.
10.9 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Agreement, neither the Bank, nor any individual
acting as an employee or agent of the Bank or as a member of the Board
of Directors shall be liable to any Executive, former Executive, or any
other person for any claim, loss, liability or expense incurred in
connection with the Agreement.
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10.10 Gender. Whenever, in this Agreement, words are used in the masculine or
neuter gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
10.11 Affect on Other Corporate Benefit Agreements. Nothing contained in this
Agreement shall affect the right of the Executive to participate in, or
be covered by, any qualified or non-qualified pension, profit sharing,
group, bonus or other supplemental compensation or fringe benefit
agreement constituting a part of the Bank's existing or future
compensation structure.
10.12 Headings. Headings and sub-headings in this Agreement are inserted for
reference and convenience only and shall not be deemed a part of this
Agreement.
SECTION XI
NON-COMPETITION AFTER NORMAL RETIREMENT
11.1 Non-Compete Clause. The Executive expressly agrees that, as
consideration for the agreements of the Bank contained herein and as a
condition to the performance by the Bank of its obligations hereunder,
throughout the entire period beginning with the date of this Agreement
and continuing until the final payment is made to Executive, as
provided herein, he will not, without the prior written consent of the
Bank, engage in, become interested, directly or indirectly, as a sole
proprietor, as a partner in a partnership, or as a substantial
shareholder in a corporation, nor become associated with, in the
capacity of an employee, director, officer, principal, agent, trustee
or in any other capacity whatsoever, any enterprise conducted in the
trading area of the business of the Bank which may be deemed to be
competitive with any business carried on by the Bank as of the date of
the termination of the Executive's employment or his retirement.
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11.2 Breach. In the event of any breach by the Executive of the agreements
and covenants contained herein, the Board of Directors of the Bank
shall direct that any unpaid balance of any payments to the Executive
under this Agreement be suspended, and shall thereupon notify the
Executive of such suspensions, in writing. Thereupon, if the Board of
Directors of the Bank shall determine that said breach by the Executive
has continued for a period of one (1) month following notification of
such suspension, all rights of the Executive and his Beneficiaries
under this Agreement, including rights to further payments hereunder,
shall thereupon terminate.
SECTION XII
AMENDMENT/REVOCATION
12.1 Amendment or Termination. The Bank intends the Agreement to be
permanent, but reserves the right to amend or terminate the Agreement
when, in the sole opinion of the Bank, such amendment or termination is
advisable. Any such amendment or termination shall be made pursuant to
a resolution of the Board of Directors of the Bank and shall be
effective as of the date of such resolution. No amendment or
termination of the Agreement shall directly or indirectly deprive any
Executive of all or any portion of any Supplemental Retirement Income
Benefit payment which has commenced prior to the effective date of the
resolution amending or terminating the Agreement.
12.2 Termination Benefit. In the case of a termination of the Agreement, the
Executive shall be entitled to his Accrued Benefit as of the
termination date. Payment of the Executive's Accrued Benefit shall not
be dependent upon his continuation of service with the Bank following
the Agreement termination date. Payment of the Accrued Benefit shall be
made in a lump sum within thirty (30) days of the termination. The
Executive shall be deemed to be one hundred (100%) vested in his
Accrued Benefit in the event of such termination of the Agreement.
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ARTICLE XIII
EXECUTION
13.1 This Agreement sets forth the entire understanding of the parties
hereto with respect to the transactions contemplated hereby, and any
previous agreements or understandings between the parties hereto
regarding the subject matter hereof are merged into and superseded by
this Agreement.
13.2 This Agreement shall be executed in triplicate, each copy of which,
when so executed and delivered, shall be an original, but all three
copies shall together constitute one and the same instrument. IN
WITNESS WHEREOF, the parties have caused this Agreement to be executed on
this day of _____________, 19___.
/s/ Steve Davis
--------------------------------
STEVE DAVIS
CITIZENS SAVINGS BANK
By: /s/ Fred W. Carter
----------------------------
President
(Title)
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FIRST
AMENDMENT
OF THE
EXECUTIVE SUPPLEMENTAL RETIREMENT AGREEMENT
OF
STEVE DAVIS
This First Amendment ("Amendment"), dated as of the 1st day of January,
1993, hereby amends the Director Deferred Compensation Joinder Agreement
("Agreement"), dated the 1st day of January, 1993, by and between STEVE DAVIS
and Citizens Savings Bank.
Section 1.19 shall be replaced with the following language:
1.19 "Supplemental Retirement Income Benefit" means an amount equal to
eighty (80%) percent of the highest base compensation earned by the
Executive during any twelve (12) month period prior to the Executive's
Normal Retirement Date less the actual annual amount available to the
Executive from Bank funding of tax-qualified plan(s). If the Executive
elects a payment option from a tax-qualified plan (or plans) which
provides an actual annual benefit which is less than the annual benefit
available to the Executive under a one hundred (100%) percent joint and
survivor, ten year certain payment option, the Executive shall be
deemed to receive an amount equal to the annual amount available under
such one hundred (100%) percent joint and survivor, ten (10) year
certain payment option. This net amount, which shall not exceed
Thirty-Eight Thousand ($38,000.00) Dollars, shall be divided by twelve
(12) and paid in monthly installments for a period of one hundred
eighty (180) months.
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IN WITNESS WHEREOF, the parties have executed this Amendment in
triplicate, the day and year written here below:
/s/ Steve Davis
---------------------------
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Date Steve Davis
Citizens Savings Bank
By: /s/ Fred W. Carter
----------------------
- -------------------------------
Date
Exhibit 10(9)
EXECUTIVE SUPPLEMENTAL
RETIREMENT INCOME AGREEMENT
Citizens Savings Bank
Frankfort, Indiana
Financial Institution Consulting Corporation
700 Colonial Road
Memphis, Tennessee 38117
WATS: 1-800-873-0089
FAX: (901) 68-7414
(901) 684-7400
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EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
This Agreement, made and entered into this 1st day of January, 1993, by
and between Citizens Savings Bank, Frankfort, Indiana (the "Bank"), a banking
corporation organized and existing under the laws of the State of Indiana, and
CINDY CHAMBERS (the "Executive"), a key employee and executive.
W I T N E S S E T H:
WHEREAS, the Executive is employed by the Bank; and
WHEREAS, the Bank recognizes the valuable services heretofore performed
for it by the Executive and wishes to encourage continued employment; and
WHEREAS, the Executive wishes to be assured that she will be entitled
to a certain amount of additional compensation for some definite period of time
from and after her retirement from active service with the Bank or other
termination of her employment and wishes to provide her beneficiary with
benefits from and after her death; and
WHEREAS, the parties hereto wish to provide the terms and conditions
upon which the Bank shall pay such additional compensation to the Executive
after her retirement or other termination of her employment and/or death
benefits to her beneficiary after her death; and
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement, maintained primarily to provide supplemental retirement
income for the Executive, a member of a select group of management or highly
compensated employees of the Bank, for purposes of the Employee Retirement
Income Security Act of 1974, as amended; and
WHEREAS, the Bank has adopted this Executive Supplemental Retirement
Income Agreement which controls all issues relating to Supplemental Retirement
Income Benefit as described herein;
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NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
SECTION I
DEFINITIONS
When used herein, the following words shall have the meanings below
unless the context clearly indicates otherwise:
1.1 "Accrued Benefit" means that portion of the Supplemental Retirement
Income Benefit which is required to be expensed and accrued under
generally accepted accounting principles (GAAP) by any appropriate
methodology which the Board of Directors may require in the exercise of
its sole discretion. The Accrued Benefit shall be increased monthly by
the greater of the Interest Factor or the accrual required under GAAP.
At Normal Retirement Date, such Accrued Benefit shall be paid to the
Executive in one hundred eighty (180) equal monthly installments using
the Interest Factor to annuitize the benefit.
1.2 "Act" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.3 "Bank" means CITIZENS SAVINGS BANK and any successor thereto.
1.4 "Beneficiary" means the person or persons (and their heirs) designated
as Beneficiary in writing to the Bank to whom the Executive's benefits
are payable in the event of her death. If no Beneficiary is so
designated, then the Executive's Spouse, if living, will be deemed the
Beneficiary. If the Executive's Spouse is not living, then the Children
of the Executive will be deemed Beneficiaries and will take on a per
stirpes basis. If there are no Children, then the Estate of the
Executive will be deemed the Beneficiary.
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1.5 "Cause" means personal dishonesty, willful misconduct, willful
malfeasance, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than traffic violations or similar
offenses), or final cease-and-desist order, material breach of any
provision of this Agreement, or gross negligence in matters of material
importance to the Bank.
1.6 "Children" means the Executive's children, both natural and adopted,
then living at the time payments are due the Children under this
Agreement.
1.7 "Code" means the Internal Revenue Code of 1986 as amended from time to
time.
1.8 "Cost of Funds" means total interest expense, divided by the monthly
weighted average of total interest-bearing liabilities. The time frame
for measuring Cost of Funds shall be the last twelve (12) complete
months immediately prior to the event which triggered the need for
measurement.
1.9 "Effective Date" means the date of execution of this Agreement.
1.10 "Estate" means the estate of the Executive.
1.11 "Financial Hardship" means an unforeseeable emergency resulting from a
sudden and unexpected illness or accident of the Executive or of a
dependent of the Executive, loss of the Executive's property due to
casualty, or similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Executive. The
circumstances that will constitute an unforeseeable emergency will
depend upon the facts of each case, but, in any case, payment may not
be made to the extent that such hardship is or may be relieved (i)
through reimbursement or compensation by insurance or otherwise, (ii)
by liquidation of the Executive's assets, to the extent the liquidation
of such assets would not itself cause severe financial hardship, or
(iii) by cessation of deferral under the plan. Examples of what are not
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considered to be unforeseeable emergencies include the need to send
the Executive's child to college or the decision to purchase a home.
1.12 "Financial Hardship Benefit" means a withdrawal or withdrawals of an
amount or amounts attributable to a Financial Hardship and limited to
the extent reasonably needed to satisfy the emergency need. If a
Financial Hardship Benefit is requested by the Executive or her
Beneficiary and approved by the Bank in the exercise of its sole
discretion, then the Financial Hardship Benefit may be paid in a lump
sum within thirty (30) days of the event which triggers payment.
1.13 "Interest Factor" means monthly compounding of the greater of .667% or
the Bank's Cost of Funds.
1.14 "Normal Retirement Date" means the first day of the month coincident
with or next following the Executive's sixty-fifth (65th) birthday.
1.15 "Permanently and Totally Disabled" means the Executive has, for at
least six (6) months, been unable to perform the services incident to
her position with the Bank as a result of accidental bodily injury or
sickness and that the status is likely to continue for an indefinite
period, as reasonably determined subsequent to the expiration of the
six (6) month period by a duly licensed physician selected in good
faith by the Bank.
1.16 "Postponed Retirement Date" means the first day of the month coincident
with or next following the Executive's termination of employment with
the Bank after her Normal Retirement Date.
1.17 "Spouse" means the individual to whom the Executive is legally married
at the time of the Executive's death.
1.18 "Suicide" means the act of intentionally killing oneself.
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1.19 "Supplemental Retirement Income Benefit" means an amount equal to
eighty (80%) percent of the highest base compensation earned by the
Executive during any twelve (12) month period prior to the Executive's
Normal Retirement Date: (i) less the actual annual amount provided
through social security, and (ii) less the actual annual amount
available to the Executive from Bank funding of tax-qualified plan(s).
If no actual social security payments are to be received by the
Executive as of Normal Retirement, the Executive shall be deemed to
receive the amount of annual social security benefits (if any) for
which the Executive is eligible as of Normal Retirement. If the
Executive elects a payment option from a tax-qualified plan (or plans)
which provides an actual annual benefit which is less than the annual
benefit available to the Executive under a one hundred (100%) percent
joint and survivor, ten year certain payment option, the Executive
shall be deemed to receive an amount equal to the annual amount
available under such one hundred (100%) percent joint and survivor, ten
(10) year certain payment option. This net amount, which shall not
exceed Thirty-Eight Thousand ($38,000.00) Dollars, shall be divided by
twelve (12) and paid in monthly installments for a period of one
hundred eighty (180) months.
1.20 "Survivor's Benefit" means an amount equal to the following: If the
Executive's death occurs during the first year of the Agreement, upon
the Executive's death, the Executive's Beneficiary shall be entitled to
receive a one-time lump sum death benefit in the amount of Ten Thousand
($10,000.00) Dollars, to cover the Executive's burial expenses. If the
Executive's death occurs during the second, third, fourth or fifth
years of the Agreement, upon the Executive's death, the Executive's
Beneficiary shall be entitled to receive a one-time lump sum death
benefit in the amount of: Fifteen Thousand ($15,000.00) Dollars, Twenty
Thousand ($20,000.00) Dollars, Twenty-Five Thousand ($25,000.00)
Dollars or Thirty Thousand ($30,000.00) Dollars, respectively, and
which includes Ten Thousand ($10,000.00) Dollars for the Executive's
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burial expenses. If the Executive's death occurs during the sixth year
of the Agreement, or any year thereafter prior to Normal Retirement
and 100% Vesting in the Accrued Benefit, upon the Executive's death,
the Executive's Beneficiary shall be entitled to receive a one-time
lump sum death benefit in the amount of Thirty Thousand ($30,000.00)
Dollars which includes Ten Thousand ($10,000.00) Dollars for the
Executive's burial expenses, and the Executive shall receive payment
for the amount of her Vested Accrued Benefit. If the Executive's death
occurs at anytime after the Executive is 100% Vested in the Accrued
Benefit, the Executive's Beneficiary shall be entitled to a one-time
lump sum death benefit in the amount of Ten Thousand ($10,000) Dollars
for the Executive's burial expenses and the Executive shall receive
payment for the amount of her Vested Accrued Benefit. The Vested
Accrued Benefit shall be annuitized into one hundred eighty (180)
equal monthly installments using the Interest Factor and shall
commence within thirty (30) days of the Executive's death. Any lump
sum payment made pursuant to this Section shall be payable within
thirty (30) days of the Executive's death. If the Executive's
Beneficiary receives benefits pursuant to this Section, she shall not
be entitled to the death benefit provided in Section 2.3. .21 "Vested
Accrued Benefit" means the non-forfeitable portion of the Supplemental
Retirement Income Benefit to which the Executive is entitled. It is
computed by multiplying the Accrued Benefit by the Vesting percentage
specified in Section 3.5. .22 "Year of Service" shall be earned upon
completing twelve (12) months of continuous service (including
authorized leaves of absence) after the 1st day of January, 1993.
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SECTION II
PRE-RETIREMENT AND POST- RETIREMENT DEATH BENEFITS
2.1 Death Prior to Termination of Employment. In the event of the
Executive's death prior to termination of employment with the Bank,
while covered by the provisions of this Agreement, the Executive's
Beneficiary (or the Beneficiary's estate) shall be paid the Survivor's
Benefit. Payments shall commence within thirty (30) days of the date of
death of Executive.
2.2 Death During Receipt of Supplemental Retirement Income Benefit. In the
event of death of the Executive after commencement of the Supplemental
Retirement Income Benefit covered in Subsection 3.1 of this Agreement,
the Executive's Beneficiary (or the Beneficiary's estate) shall be
entitled to receive a monthly amount which shall be payable for the
balance of the one hundred eighty (180) month period and equal to the
monthly benefit paid to the Executive prior to her death.
2.3 Additional Death Benefit - Burial Expenses. In addition to the
above-described death benefits, upon her death, the Executive's
Beneficiary shall be entitled to receive a one-time lump sum death
benefit in the amount of Ten Thousand ($10,000.00) Dollars.
2.4 Death by Reason of Suicide. In the event the Executive dies by reason
of suicide within two years of the Effective Date of this Agreement,
all benefits under this Agreement shall be forfeited and the Agreement
shall become null and void.
SECTION III
SUPPLEMENTAL RETIREMENT INCOME BENEFIT AND DISABILITY BENEFIT
3.1 Normal Retirement Benefit. At Normal Retirement Date, if the Executive
is still covered by this Agreement, the Bank shall be obligated to pay
the Executive the Supplemental Retirement Income Benefit. Such payments
shall commence the first day of the month coincident with or next
following the Executive's Normal Retirement Date and shall be payable
monthly thereafter until all payments have been made.
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3.2 Postponed Retirement Benefit. The postponed retirement benefit of the
Executive shall be the Supplemental Retirement Income Benefit as set
forth in Subsection 3.1. However, the Board of Directors, in the
exercise of its sole discretion, may elect to increase benefits if
retirement is postponed past the Normal Retirement Date. The postponed
retirement benefit shall not be paid to Executive until the Postponed
Retirement Date.
3.3 Disability. If the Executive becomes Permanently and Totally Disabled
prior to reaching her retirement, the Executive shall be entitled to
receive a monthly amount equal to the annuity value of her Accrued
Benefit at the time of disability, with such annuity value to be
calculated over a term of one hundred eighty (180) months. Payments
shall begin within thirty (30) days after the Executive becomes
Permanently and Totally Disabled. In the event the Executive dies while
receiving payments pursuant to this Subsection, or after becoming
eligible for such payments but before the actual commencement of such
payments, her Beneficiary shall be entitled to receive the full
Survivor's Benefit for a period of one hundred eighty (180) months,
reduced by the number of months disability payments were made to the
Executive. If the total amount of disability payments received by the
Executive under the provisions of this Subsection is less than the
total amount of payments that would have been received had the
Survivor's Benefit been paid in lieu of the disability benefit, the
Bank shall pay the Executive's Beneficiary a lump sum payment for the
difference. This lump sum payment shall be made within thirty (30) days
of the Executive's death.
3.4 Financial Hardship Benefit. In the event the Executive suffers a
Financial Hardship, the Bank may, if the Board deems it advisable in
its sole and absolute discretion, distribute to the Executive as a
Financial Hardship Benefit any portion of the Executive's Accrued
Benefit existing at the date such distribution is authorized. A
Financial Hardship Benefit shall be distributed at such times as the
Board shall determine, and the Executive's Accrued Benefit shall be
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reduced by the amount so distributed. Retirement and/or death benefit
payments substantially made pursuant to this Agreement, shall be
actuarially reduced for any Financial Hardship Benefit paid to
Executive.
3.5 Vesting. Vested Accrued Benefits, as described in Subsection 1.21,
shall be determined according to the following schedule:
Year(s) of Service Percentage Vested
------------------ -----------------
1 0%
2 0%
3 0%
4 0%
5 0%
6 10%
7 20%
8 30%
9 40%
10 50%
11 60%
12 70%
13 80%
14 90%
15 100%
Interpolation shall be made for partial years. For example, 6.5 Years
of Service would result in vesting of 15%. No vesting shall occur,
however, until six (6) full Years of Service have been completed.
SECTION IV
EXECUTIVE'S RIGHT TO ASSETS
The rights of the Executive, any Beneficiary of the Executive, or any other
person claiming through the Executive under this Agreement, shall be solely
those of an unsecured general creditor of the Bank. The Executive, the
Beneficiary of the Executive, or any other person claiming through the
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Executive, shall only have the right to receive from the Bank those payments so
specified under this Agreement. The Executive agrees that she, her Beneficiary,
or any other person claiming through her shall have no rights or interests
whatsoever in any asset of the Bank, including any insurance policies or
contracts which the Bank may possess or obtain to informally fund this
Agreement. Any asset used or acquired by the Bank in connection with the
liabilities it has assumed under this Agreement, unless expressly provided
herein, shall not be deemed to be held under any trust for the benefit of the
Executive or her Beneficiaries, nor shall any asset be considered security for
the performance of the obligations of the Bank. Any such asset shall be and
remain a general, unpledged, and unrestricted asset of the Bank.
SECTION V
RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement. The
Executive, her Beneficiaries or any successor in interest to her shall be and
remain simply a general unsecured creditor of the Bank in the same manner as any
other creditor having a general claim for matured and unpaid compensation. The
Bank reserves the absolute right, at its sole discretion, to either purchase
assets to meet its obligations undertaken by this Agreement or to refrain from
the same and to determine the extent, nature, and method of such asset
purchases. Should the Bank decide to purchase assets such as life insurance,
mutual funds, disability policies or annuities, the Bank reserves the absolute
right, in its sole discretion, to terminate such assets at any time, in whole or
in part. At no time shall the Executive be deemed to have any lien, right, title
or interest in or to any specific investment or to any assets of the Bank. If
the Bank elects to invest in a life insurance, disability or annuity policy upon
the life of
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the Executive, then the Executive shall assist the Bank by freely submitting to
a physical examination and supplying such additional information necessary to
obtain such insurance or annuities.
SECTION VI
ACCELERATION OF PAYMENTS
The Bank reserves the right to accelerate the payment of any benefits
payable under this Agreement without the consent of the Executive, her Estate,
her Beneficiaries, or any other person claiming through the Executive. In the
event that the Bank accelerates the payment, the benefit shall be discounted by
a rate equal to the Interest Factor.
SECTION VII
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither the Executive nor any Beneficiary under this Agreement shall
have any power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits payable
hereunder, nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the Executive
or her Beneficiary, nor shall they be transferrable by operation of law in the
event of bankruptcy, insolvency or otherwise. In the event the Executive or any
Beneficiary attempts assignment, communication, hypothecation, transfer or
disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease
and terminate.
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SECTION VIII
TERMINATION OF EMPLOYMENT
8.1 Termination of Service Prior to Retirement Date. If, prior to the
Executive's Normal Retirement Date, the Executive voluntarily
terminates or is terminated without Cause by the Bank, the Bank shall
pay to the Executive the amount of the Executive's Vested Accrued
Benefit as of the date of termination, annuitized over the Payout
Period, with such payments to commence the first day of the month
coincident with or next following Normal Retirement Date. If the
Executive dies before actual commencement of the benefit annuity or
while receiving annuity payments, the Executive's Beneficiary shall be
entitled to receive a continuation of the annuity for the balance of
the one hundred eighty (180) month period. The Beneficiary shall also
be entitled to the one-time lump sum payment provided for in Section
2.3 upon the Executive's death. For purposes of this Section only, the
amount of the death benefit provided for in Section 2.3 will be limited
to the Executive's vesting as shown in Section 3.5. The death benefit
shall be computed by multiplying Ten Thousand ($10,000.00) Dollars
times the appropriate vesting percentage in Section 3.5.
8.2 Termination of Service for Cause. Should the Executive be terminated
for Cause, all benefits provided under this Agreement shall be
forfeited and the Agreement shall become null and void.
SECTION IX
ACT PROVISIONS
9.1 Named Fiduciary and Administrator. The Bank or its successor in
interest shall be the Named Fiduciary and Administrator (the
"Administrator") of this Agreement. As Administrator, the Bank shall be
responsible for the management, control and administration of the
Agreement
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as established herein. It may delegate to others certain aspects of the
management and operation responsibilities of the Agreement including
the employment of advisors and the delegation of ministerial duties to
qualified individuals.
9.2 Claims Procedure. In the event that benefits under this Agreement are
not paid to the Executive (or to her Beneficiary in the case of the
Executive's death) and such claimants feel they are entitled to receive
such benefits, then a written claim must be made to the Administrator
named above within sixty (60) days from the date payments are refused.
The Administrator shall review the written claim and, if the claim is
denied, in whole or in part, they shall provide in writing within sixty
(60) days of receipt of such claim their specific reasons for such
denial, reference to the provisions of this Agreement upon which the
denial is based and any additional material or information necessary to
perfect the claim. Such written notice shall further indicate the
additional steps to be taken by claimants if an additional review of
the claim denial is desired.
If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim
denial. Claimants may review the Agreement or any documents relating
thereto and submit any written issues and comments they may feel
appropriate. In its sole discretion, the Administrator shall then
review the second claim and provide a written decision within thirty
(30) days of receipt of such claim. This decision shall likewise state
the specific reasons for the decision and shall include reference to
specific provisions of the Agreement upon which the decision is based.
If claimants disagree with the decision of the Administrator, nothing
herein shall serve to preclude them from seeking any and all remedies
available at law.
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SECTION X
MISCELLANEOUS
10.1 No Effect on Employment Rights. Nothing contained herein will confer
upon the Executive the right to be retained in the service of the Bank
nor limit the right of the Bank to discharge or otherwise deal with
Executive without regard to the existence of the Agreement. Pursuant to
12 C.F.R. ss. 563.39(b), the following conditions shall apply to this
Agreement:
(1) The Bank's Board of Directors may terminate the Executive at
any time, but any termination by the Bank's Board of Directors
other than for Cause, shall not prejudice the Executive's
vested right to compensation or other benefits under the
contract. As provided in Section 8.2, the Executive shall not
be entitled to any of the benefits provided for in this
Agreement, including any vested benefits, in the event she is
terminated for cause.
(2) If the Executive is suspended and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a
notice served under Section 8(e)(3) or (g)(1) of the Federal
Deposit Insurance Act (12 U.S.C. 1818(e)(3) and (g)(1)) the
Bank's obligations under the contract shall be suspended as of
the date of service unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in
its discretion (i) pay the Executive all or part of the
compensation withheld while its contract obligations were
suspended and (ii) reinstate (in whole or in part) any of its
obligations which were suspended.
(3) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. 1818(e)(4) or (g)(1)), all non-vested
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obligations of the Bank under the contract shall terminate as
of the effective date of the order, but vested rights of the
Executive shall not be affected.
(4) If the Bank is in default (as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act), all non-vested obligations
under the contract shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the
contracting parties.
(5) All non-vested obligations under the contract shall be
terminated, except to the extent determined that continuation
of the contract is necessary for the continued operation of
the Bank:
(i) by the Executive or her designee at the time the
Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement
to provide assistance to or on behalf of the Bank
under the authority contained in ss. 13(c) of the
Federal Deposit Insurance Act; or
(ii) by the Executive or her designee, at the time the
Executive or her designee approves a supervisory
merger to resolve problems related to operation of
the Bank or when the Bank is determined by the
Executive to be in an unsafe or unsound condition.
The Executive shall be vested in her Accrued Benefit;
therefore, other than termination for Cause, such amount shall
not be affected by any action pursuant to this Subsection.
10.2 Disclosure. Each Executive shall receive a copy of her Agreement and
the Administrator will make available, upon request, a copy of the
rules and regulations that govern this type of Agreement.
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10.3 State Law. The Agreement is established under, and will be construed
according to, the laws of the State of Indiana, to the extent that such
laws are not preempted by the Act and valid regulations published
thereunder.
10.4 Severability. In the event that any of the provisions of this Agreement
or portion thereof, are held to be inoperative or invalid by any court
of competent jurisdiction, then: (1) insofar as is reasonable, effect
will be given to the intent manifested in the provisions held invalid
or inoperative, and (2) the validity and enforceability of the
remaining provisions will not be affected thereby.
10.5 Incapacity of Recipient. In the event the Executive is declared
incompetent and a conservator or other person legally charged with the
care of her person or Estate is appointed, any benefits under the
Agreement to which such Executive is entitled shall be paid to such
conservator or other person legally charged with the care of her person
or Estate. Except as provided above in this paragraph, when the Bank's
Board of Directors in its sole discretion, determines that an Executive
is unable to manage her financial affairs, the Board may direct the
Bank to make distributions to any person for the benefit of such
Executive.
10.6 Recovery of Estate Taxes. If the Executive's gross estate for federal
estate tax purposes includes any amount determined by reference to and
on account of this Executive Supplemental Retirement Income Agreement,
and if the Beneficiary is other than the Executive's estate, then the
Executive's estate shall be entitled to recover from the Beneficiary
receiving such benefit under the terms of the Supplemental Retirement
Income Benefit an amount by which the total estate tax due by
Executive's estate, exceeds the total estate tax which would have been
payable if the value of such benefit had not been included in the
Executive's gross estate. If there is more than one person receiving
such benefit, the right of recovery shall be against each such person.
In the event any Beneficiary has a liability
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hereunder, such Beneficiary may petition the Bank for a lump sum
payment in an amount not to exceed the Beneficiary's liability
hereunder.
10.7 Beneficiary Designation. The Director shall have the right, at any
time, to submit in substantially the form attached hereto as Exhibit A,
a written designation of primary and secondary beneficiaries to whom
payment under this Agreement shall be made in the event of her death
prior to complete distribution of the benefits due and payable under
the Agreement. Each beneficiary designation shall become effective only
when receipt thereof is acknowledged in writing by the Bank.
10.8 Unclaimed Benefit. The Executive shall keep the Bank informed of her
current address and the current address of her Beneficiaries. The Bank
shall not be obligated to search for the whereabouts of any person. If
the location of an Executive is not made known to the Bank within three
years after the date on which any payment of the Executive's
Supplemental Retirement Income Benefit may be made, payment may be made
as though the Executive had died at the end of the three-year period.
If, within one additional year after such three-year period has
elapsed, or, within three years after the actual death of the
Executive, the Bank is unable to locate any Beneficiary of the
Executive, then the Bank may fully discharge its obligation by payment
to the Estate.
10.9 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Agreement, neither the Bank, nor any individual
acting as an employee or agent of the Bank or as a member of the Board
of Directors shall be liable to any Executive, former Executive, or any
other person for any claim, loss, liability or expense incurred in
connection with the Agreement.
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10.10 Gender. Whenever, in this Agreement, words are used in the masculine or
neuter gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
10.11 Affect on Other Corporate Benefit Agreements. Nothing contained in this
Agreement shall affect the right of the Executive to participate in, or
be covered by, any qualified or non-qualified pension, profit sharing,
group, bonus or other supplemental compensation or fringe benefit
agreement constituting a part of the Bank's existing or future
compensation structure. 10.12 Headings. Headings and sub-headings in
this Agreement are inserted for reference and convenience only and
shall not be deemed a part of this Agreement.
SECTION XI
NON-COMPETITION AFTER NORMAL RETIREMENT
11.1 Non-Compete Clause. The Executive expressly agrees that, as
consideration for the agreements of the Bank contained herein and as a
condition to the performance by the Bank of its obligations hereunder,
throughout the entire period beginning with the date of this Agreement
and continuing until the final payment is made to Executive, as
provided herein, she will not, without the prior written consent of the
Bank, engage in, become interested, directly or indirectly, as a sole
proprietor, as a partner in a partnership, or as a substantial
shareholder in a corporation, nor become associated with, in the
capacity of an employee, director, officer, principal, agent, trustee
or in any other capacity whatsoever, any enterprise conducted in the
trading area of the business of the Bank which may be deemed to be
competitive with any business carried on by the Bank as of the date of
the termination of the Executive's employment or her retirement.
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<PAGE>
11.2 Breach. In the event of any breach by the Executive of the agreements
and covenants contained herein, the Board of Directors of the Bank
shall direct that any unpaid balance of any payments to the Executive
under this Agreement be suspended, and shall thereupon notify the
Executive of such suspensions, in writing. Thereupon, if the Board of
Directors of the Bank shall determine that said breach by the Executive
has continued for a period of one (1) month following notification of
such suspension, all rights of the Executive and her Beneficiaries
under this Agreement, including rights to further payments hereunder,
shall thereupon terminate.
SECTION XII
AMENDMENT/REVOCATION
12.1 Amendment or Termination. The Bank intends the Agreement to be
permanent, but reserves the right to amend or terminate the Agreement
when, in the sole opinion of the Bank, such amendment or termination is
advisable. Any such amendment or termination shall be made pursuant to
a resolution of the Board of Directors of the Bank and shall be
effective as of the date of such resolution. No amendment or
termination of the Agreement shall directly or indirectly deprive any
Executive of all or any portion of any Supplemental Retirement Income
Benefit payment which has commenced prior to the effective date of the
resolution amending or terminating the Agreement.
12.2 Termination Benefit. In the case of a termination of the Agreement, the
Executive shall be entitled to her Accrued Benefit as of the
termination date. Payment of the Executive's Accrued Benefit shall not
be dependent upon her continuation of service with the Bank following
the Agreement termination date. Payment of the Accrued Benefit shall be
made in a lump sum within thirty (30) days of the termination. The
Executive shall be deemed to be
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one hundred (100%) vested in her Accrued Benefit in the event of such
termination of the Agreement.
ARTICLE XIII
EXECUTION
13.1 This Agreement sets forth the entire understanding of the parties
hereto with respect to the transactions contemplated hereby, and any
previous agreements or understandings between the parties hereto
regarding the subject matter hereof are merged into and superseded by
this Agreement.
13.2 This Agreement shall be executed in triplicate, each copy of which,
when so executed and delivered, shall be an original, but all three
copies shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on this day of _______________, 19____.
/s/ Cindy S. Chambers
-------------------------------
CINDY S. CHAMBERS
CITIZENS SAVINGS BANK
By: /s/ Fred W. Carter
--------------------------
President
(Title)
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<PAGE>
FIRST
AMENDMENT
OF THE
EXECUTIVE SUPPLEMENTAL RETIREMENT AGREEMENT
OF
CINDY CHAMBERS
This First Amendment ("Amendment"), dated as of the 1st day of January,
1993, hereby amends the Director Deferred Compensation Joinder Agreement
("Agreement"), dated the 1st day of January, 1993, by and between CINDY CHAMBERS
and Citizens Savings Bank.
Section 1.19 shall be replaced with the following language:
1.19 "Supplemental Retirement Income Benefit" means an amount equal to
eighty (80%) percent of the highest base compensation earned by the
Executive during any twelve (12) month period prior to the Executive's
Normal Retirement Date less the actual annual amount available to the
Executive from Bank funding of tax-qualified plan(s). If the Executive
elects a payment option from a tax-qualified plan (or plans) which
provides an actual annual benefit which is less than the annual benefit
available to the Executive under a one hundred (100%) percent joint and
survivor, ten year certain payment option, the Executive shall be
deemed to receive an amount equal to the annual amount available under
such one hundred (100%) percent joint and survivor, ten (10) year
certain payment option. This net amount, which shall not exceed
Thirty-Eight Thousand ($38,000.00) Dollars, shall be divided by twelve
(12) and paid in monthly installments for a period of one hundred
eighty (180) months.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment in
triplicate, the day and year written here below:
/s/ Cindy S. Chambers
---------------------------------
Date_______________________ Cindy Chambers
CITIZENS SAVINGS BANK
By: /s/ Fred W. Carter
-----------------------------
Date________________________ Fred W. Carter
Exhibit 10(10)
EXEMPT LOAN AND SHARE PURCHASE AGREEMENT
between
TRUST UNDER
CITIZENS BANCORP
EXEMPT STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
and
CITIZENS BANCORP
Dated September ___, 1997
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<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS AND INTERPRETATION...................................-2-
Section 1.1. General Interpretation...........................-2-
Section 1.2. Certain Definitions..............................-2-
ARTICLE II- TRUST LOAN; TRUST NOTE; PAYMENTS.................................-2-
Section 2.1. Trust Loan.......................................-2-
Section 2.2. Use of Trust Loan Proceeds.......................-3-
Section 2.3. Trust Note.......................................-3-
Section 2.4. Interest.........................................-3-
Section 2.5. Payments.........................................-3-
Section 2.6. Optional Prepayment..............................-4-
Section 2.7. Place and Time of Payment........................-4-
Section 2.8. Application of Certain Payments..................-4-
Section 2.9. Due Date Extension...............................-5-
Section 2.10. Computations.....................................-5-
Section 2.11. Interest on Overdue Amounts......................-5-
ARTICLE III - SECURITY.......................................................-5-
Section 3.1. Security.........................................-5-
Section 3.2. Release of Shares................................-5-
ARTICLE IV - REPRESENTATIONS, WARRANTIES AND COVENANTS.......................-5-
Section 4.1. Representations and Warranties of Trustee........-5-
Section 4.2. Representations and Warranties of Company........-6-
Section 4.3. Covenants of Company.............................-8-
ARTICLE V - CONDITIONS PRECEDENT.............................................-9-
Section 5.1. Documentation Satisfactory to Company............-9-
Section 5.2. Other Conditions Precedent to
Company Obligations............................-9-
Section 5.3. Documentation Satisfactory to Trustee............-9-
Section 5.4. Other Conditions Precedent to Trustee's
Obligation.....................................-9-
ARTICLE VI - EVENTS OF DEFAULT AND THEIR EFFECT.............................-10-
Section 6.1. Events of Default; Effect.......................-10-
ARTICLE VII - SHARE PURCHASES...............................................-10-
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Section 7.1. Purchase of Shares..............................-10-
Section 7.2. Manner of Purchase..............................-10-
Section 7.3. Readily Tradeable...............................-10-
Section 7.4. No Prohibited Transactions......................-10-
Section 7.5. Maximum Number of Shares........................-11-
ARTICLE VIII - GENERAL......................................................-11-
Section 8.1. Waivers; Amendments.............................-11-
Section 8.2. Confirmations; Information......................-11-
Section 8.3. Captions........................................-11-
Section 8.4. Governing Law...................................-11-
Section 8.5. Notices.........................................-11-
Section 8.6. Expenses........................................-12-
Section 8.7. Reimbursement...................................-12-
Section 8.8. Entire Agreement................................-12-
Section 8.9. Severability....................................-12-
Section 8.10. No Assignment...................................-12-
Section 8.11. Counterparts....................................-12-
ARTICLE IX - LIMITED RECOURSE...............................................-12-
Section 9.1. Limited Recourse................................-12-
Section 9.2. No Personal Recourse Against Trustee............-13-
Exhibit A - TRUST NOTE.......................................................-1-
Exhibit B - SHARE PLEDGE AGREEMENT-..........................................-1-
Exhibit C - CERTIFICATE OF TRUSTEE.......................................... 10-
Exhibit D - CERTIFICATE OF THE COMPANY......................................-11-
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<PAGE>
EXEMPT LOAN AND SHARE PURCHASE AGREEMENT
THIS EXEMPT LOAN AND SHARE PURCHASE AGREEMENT (this "Agreement" or
"Loan Agreement"), dated September ___, 1997, between the Trust (the "Trust")
established pursuant to the provisions of the CITIZENS BANCORP EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST AGREEMENT (EFFECTIVE AS OF JULY 1, 1997) (the "ESOP")
by CITIZENS BANCORP, as Trustee (the "Trustee"), and CITIZENS BANCORP, an
Indiana corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company has duly established the ESOP in connection with
which the Trust has been created;
WHEREAS, pursuant to the ESOP and direction of the Company pursuant to
Section 8.7 of the ESOP, the Trust desires to borrow from the Company, and the
Company desires to lend to the Trust, an aggregate principal amount equal to up
to Eight Hundred Forty-Six Thousand Four Hundred Dollars ($846,400) (the "Trust
Loan"), representing the cost of 8% of the shares of Common Stock, without par
value, of the Company (the "Common Stock"), offered in the Subscription Offering
and the Direct Community Offering of the Company's Common Stock being made in
connection with the Company's acquisition of the common stock of Citizens
Savings Bank of Frankfort (the "Bank") upon conversion of the Bank from an
Indiana mutual savings bank to an Indiana stock savings bank (the "Conversion"),
on the terms and conditions hereof;
WHEREAS, the parties hereto intend that the Trust Loan constitute an
"exempt loan" within the meaning of Section 4975(d)(3) of the Code, Treasury
Regulation ss. 54.4975-7(b), Section 408(b)(3) of ERISA, and Department of Labor
Regulation ss. 2550.408b-3 (collectively, the "Exempt Loan Rules") and an
"Exempt Loan" within the meaning of Sections 1.20 and 8.7 of the ESOP;
WHEREAS, the parties intend that the Trustee will utilize the Trust
Loan for the purpose of effecting purchases in the Subscription Offering and
Direct Community Offering (collectively, the "Offering") or otherwise of shares
of Company Common Stock, without par value ("Shares"), to be held in the Trust
for participants in the ESOP.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained and other good and valuable
consideration (the receipt, adequacy and sufficiency of which each party hereto
respectively acknowledges by its execution hereof), the parties hereto intending
legally to be bound do hereby agree as follows:
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ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1. General Interpretation. This Agreement shall be construed
and interpreted so as to maintain the status of the ESOP as a qualified
leveraged employee stock ownership plan under Sections 401(a) and 4975(e)(7) of
the Code, the Trust as exempt from taxation under Section 501(a) of the Code,
and the Trust Loan as an "exempt loan" under the Exempt Loan Rules, and as an
"Exempt Loan" under Section 8.7 of the ESOP (collectively, the "Required
Status").
Section 1.2. Certain Definitions. In this Agreement, unless a clear
contrary intention appears, the terms set forth below have the following
meanings when used herein. Other terms are defined elsewhere herein.
(a) "Business Day" means a day, other than a Saturday, Sunday or public
holiday, on which commercial banks are open in Spencer, Indiana for the purpose
of conducting commercial banking business.
(b) "Code" means the Internal Revenue Code of 1986, as amended, and
regulations promulgated thereunder.
(c) "Default" means an event or circumstance which, with notice or
lapse of time or both, would constitute an Event of Default as defined in
Section 6.1.
(d) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and regulations promulgated thereunder.
(e) "Loan Documents" shall mean, collectively, this Agreement, the
Trust Note, the Share Pledge Agreement and any other instruments or documents
required to be delivered pursuant hereto or thereto, in each case as amended and
in effect from time to time.
ARTICLE II
TRUST LOAN; TRUST NOTE; PAYMENTS
Section 2.1. Trust Loan. Subject to the terms and conditions of this
Agreement, the Company agrees to make available to the Trust, and the Trust may
borrow from the Company, on the Closing Date (hereinafter defined), the Trust
Loan under this Agreement in an amount up to Eight Hundred Forty-Six Thousand
and Four Hundred Dollars ($846,400), representing the cost of 8% of the Shares
offered in the Offering. The Company shall, upon fulfillment of the applicable
conditions set forth in Article V, on the Closing Date make the Trust Loan up to
such amount available to the Trustee in immediately available funds, at its
principal office. Notwithstanding the foregoing, the Company shall not be
obligated to make any portion of the Trust Loan available to the Trust if the
Conversion is not consummated, or if the ESOP is not permitted to purchase any
shares because of an oversubscription in the first category of eligible
subscribers. The Closing of the Trust Loan (the "Closing") will occur at the
offices of Barnes & Thornburg, 1313 Merchants Bank Building, 11 South Meridian
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<PAGE>
Street, Indianapolis, Indiana 46204, on the same date that the Conversion
closes, or such later date as the parties shall agree upon (the "Closing Date").
Section 2.2. Use of Trust Loan Proceeds. The Trust will use the
proceeds of the Trust Loan to purchase Shares in the Offering, in accordance
with Article VII hereof.
Section 2.3. Trust Note. The Trust Loan will be represented by a
promissory note of the Trust (the "Trust Note"), substantially in the form of
Exhibit A hereto, appropriately completed, dated the Closing Date, payable to
the order of the Company in the original principal amount of the Trust Loan, or
so much thereof as may at any time have been advanced hereunder and thereunder,
on the maturity date thereof.
Section 2.4. Interest. The portion of the Trust Loan principal
outstanding at any time shall accrue and bear daily interest at a fixed rate per
annum equal to the prime rate as published in "The Wall Street Journal" on the
Closing Date (the "Interest Rate"), payable annually in accordance with Section
2.5. On any stated or accelerated maturity of the Trust Loan all accrued and
unpaid interest thereon shall be forthwith due and payable.
Section 2.5. Payments. The Trust shall pay the principal amount of the
Trust Loan together with accrued interest as follows:
(a) an initial principal installment of one fortieth (1/40) of
the initial principal amount of the Trust Loan, shall be due and
payable on December 31, 1997, together with all interest accrued on the
Trust Loan from the Closing Date through and including December 31,
1997; and
(b) thereafter, payments of principal and interest shall be
made in annual installments due and payable on the last business day of
December of each year, commencing on December 31, 1997, through and
including December 31, 2006, which annual installments shall include a
principal payment in the amount of one-tenth of the initial principal
amount of the Trust Loan, plus all interest accrued on the Trust Loan
through and including the date of such payment; and
(c) a final payment of principal in the amount of
three-fortieths (3/40) of the initial principal amount of the Trust
Loan, together with all interest accrued on the Trust Loan through and
including the date of such payment shall be due and payable on
September 30, 2007.
The outstanding principal of the Trust Loan, together with all accrued and
unpaid interest and any other obligations then outstanding, will in any event be
due and payable in full on September 30, 2007.
Section 2.6. Optional Prepayment.
(a) Upon compliance with this Section 2.6, the Trust, at its
option, may prepay the Trust Note at any time and from time to time,
either in whole or in part, by payment of the principal amount of the
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Trust Note or portion thereof to be prepaid and accrued interest
thereon to the date of such prepayment.
(b) The Trustee will give notice of any prepayment of the
Trust Note pursuant to this Section 2.6 to the Company not less than 3
days nor more than 60 days before the date fixed for such optional
prepayment specifying (i) such date, (ii) that prepayment is to be made
under Section 2.6 of this Agreement, (iii) the principal amount of the
Trust Note to be prepaid on such date, and (iv) accrued interest
applicable to the prepayment. Such notice of prepayment shall be signed
by the Trustee. Notice of prepayment having been so given, the
aggregate principal amount of the Trust Note specified in such notice,
together with accrued interest thereon shall become due and payable on
the prepayment date.
(c) Partial prepayments of the Trust Note made pursuant to
this Section 2.6 shall be credited in each case against remaining
scheduled payments on the Trust Note in the inverse order of the due
dates of such payments.
(d) No such prepayment shall, however, be permitted if such
prepayment would adversely affect the Required Status.
Section 2.7. Place and Time of Payment. All payments of principal of,
or interest on, the Trust Note shall be made by the Trust to the Company in same
day funds at Frankfort, Indiana, not later than 11:00 a.m. on the date due.
Funds received after that hour shall be deemed to have been received on the next
following Business Day.
Section 2.8. Application of Certain Payments. If, and to the extent,
Shares acquired with proceeds of the Trust Loan, held in the Trust and not yet
allocated to participant accounts are sold, then, to the extent allowable by the
Exempt Loan Rules and applicable law, the Trustee, at the direction of the ESOP
Committee administering the ESOP (the "Committee"), may apply the proceeds
thereof toward the repayment of the Trust Loan. Dividends or other cash
distribution paid on the Shares purchased with the proceeds of the Trust Loan
(whether or not allocated to the accounts of Participants) shall be used by the
Trustee, at the discretion of the Committee, to the extent permissible to repay
the Trust Loan in accordance with the provisions of Section 4.5 of the ESOP.
Section 2.9. Due Date Extension. If any payment of principal of, or
interest on, the Trust Note falls due on a day that is not a Business Day, then
such due date shall be extended to the next following Business Day, and
additional interest shall accrue and be payable for the period of such
extension.
Section 2.10. Computations. All computations of interest on the Trust
Loan and other amounts due hereunder shall be based on a year of 360 days,
comprising twelve 30-day months.
Section 2.11. Interest on Overdue Amounts. If any payment of principal
of, or interest on, the Trust Note is not made when due, interest shall accrue
on the amount thereof, commencing on such due date through the date on which
such amount is paid in full, at a rate per annum equal to the Interest Rate plus
two percent (2%).
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ARTICLE III
SECURITY
Section 3.1. Security. Payment of the Trust Note and performance by the
Trust of its obligations under this Agreement and the Trust Note will be secured
by a pledge of, and the grant of a security interest in, the Shares by the
Trustee on behalf of the Trust to and in favor of the Company under a Share
Pledge Agreement, substantially in the form of Exhibit B hereto (the "Share
Pledge Agreement").
Section 3.2. Release of Shares. Notwithstanding any provision of this
Agreement or the Share Pledge Agreement to the contrary contained or implied,
the Company will release from the pledge and security interest under the Share
Pledge Agreement, such Shares as must be allocated to ESOP participants under
the ESOP pursuant to Section 8.7(h) of the ESOP and otherwise under the Code,
the Exempt Loan Rules or other applicable law, provided that Section 8.7(h) of
the ESOP shall not be amended without the Trustee's prior consent.
ARTICLE IV
REPRESENTATIONS, WARRANTIES
AND COVENANTS
Section 4.1. Representations and Warranties of Trustee. To induce the
Company to enter this Agreement and to make the Trust Loan, the Trustee
represents and warrants to the Company as follows:
(a) The Trustee has determined that the Trust Loan is
primarily for the benefit of ESOP participants and their beneficiaries
and bears interest at a rate not in excess of a reasonable rate and
that the terms of the loan are at least as favorable to the Trust and
the ESOP participants as the terms of a comparable loan resulting from
arm's-length negotiations between completely independent parties;
(b) The Trustee is a national bank, legally existing and in
good standing under federal law, has corporate power and authority and
is duly authorized to enter into and perform the Trust;
(c) The Trustee has full right, power and authority to
execute, deliver and perform on behalf of the Trust under the Trust
Agreement, the ESOP and otherwise the obligations set forth in the Loan
Documents, and the execution and performance of such obligations will
not conflict with or result in a breach of the terms of the ESOP or the
Trust or result in a breach or violation of the Trustee's Articles of
Association or By-Laws or of any law or regulation, order, writ,
injunction or decree of any court or governmental authority binding on
the Trust or Trustee;
(d) The ESOP (and related Trust) has been duly authorized by
all necessary corporate action on the part of the Trustee, if any, has
been duly executed by an authorized officer of the Trustee and
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delivered andconstitutes a legal, valid and binding obligation of the
Trustee and declaration of trust enforceable in accordance with its
terms;
(e) The Loan Documents have been duly authorized, executed and
delivered by the Trustee and constitute legal, valid and binding
obligations, contracts and agreements of the Trustee on behalf of the
Trust, enforceable in accordance with their respective terms;
(f) The execution, delivery and performance of the Loan
Documents do not conflict with, or result in the creation or imposition
of any lien or encumbrance upon any of the property of the Trustee
(other than the Collateral, as defined in the Share Pledge Agreement)
pursuant to the provisions of the ESOP (and related Trust) or any other
agreement or other instrument to which the Trustee is a party or may be
bound; and
(g) No approval, consent or withholding of objection on the
part of, or filing, registration or qualification with, any
governmental body, Federal, state or local, is necessary in connection
with the execution, delivery and performance by the Trustee of the Loan
Documents.
Section 4.2. Representations and Warranties of Company. To induce the
Trust to enter this Agreement and undertake the obligations hereunder, the
Company represents and warrants to the Trust as follows:
(a) The Company is a corporation duly organized and validly
existing under the laws of the State of Indiana, has corporate power
and authority and is duly authorized to enter into and perform its
obligations under this Agreement;
(b) Neither the execution and delivery of this Agreement, nor
the performance of the terms hereof nor the establishment of the ESOP
or the Trust violates, conflicts with or constitutes a default under
Company's Articles of Incorporation or By-Laws or any material
agreement to which the Company is a party or by which the Company or
any of its assets is bound, or violates any law, regulation, order or
decree of any court, arbitration or governmental authority applicable
to the Company, in any manner that would have a material adverse effect
on the Trust, the ESOP, the Required Status or the Company;
(c) The Company and the Bank have taken all actions required
to be taken by it to establish the ESOP and the related Trust. The ESOP
and related Trust are intended to, and the terms thereof have been
drafted with the purpose to, comply with the requirements of Sections
401(a) and 501(a) of the Code, as applicable, with the requirements for
treatment as a leveraged employee stock ownership plan, as that term is
defined in Section 4975(e)(7) of the Code, and with other applicable
laws;
(d) The Bank has duly appointed the Trustee as trustee of the
Trust and the Committee under the ESOP;
(e) The Company has delivered to Trustee copies of its
Articles of Incorporation and its By-Laws, the ESOP, and resolutions of
its Board of Directors with respect to approval of this Agreement and
entering into of the transactions and execution of all documents
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contemplated by this Agreement, in each case certified by the Secretary
of the Company, which copies are true, correct and complete. None of
such documents or resolutions has been amended or modified in any
respect and such documents and resolutions remain in full force and in
effect, in the form previously delivered to the Trustee;
(f) Other than the Common Stock, the Company has no other
classes of shares outstanding or treasury shares.
(g) The Company's ability to honor put options (the "Put
Options"), which would obligate the Company to repurchase shares of
Common Stock distributed from time to time to ESOP participants and
beneficiaries under Section 6.13 of the ESOP, is not presently
restricted by the provisions of any law, rule or regulation in effect
on the date hereof (except for capital, liquidation account,
requirements to obtain regulatory approval of repurchase transactions,
and similar constraints imposed by regulatory authorities on savings
associations) or by the terms of any loan, financing or other agreement
or instrument to which the Company is a party or by which the Company
is or may be bound.
(h) There are no actions, proceedings, or investigations
pending or, to the Company's knowledge, threatened against or affecting
the Company or any of its property or rights at law or in equity or
before or by any court or tribunal that have not been disclosed to the
Trustee and may have a material adverse effect on the value of the
Common Stock.
(i) All employee plans of the Bank and the Company are in
compliance, in all material respects, with all applicable reporting,
disclosure and filing requirements pertaining to employee benefit plans
set forth in the Code and ERISA.
(j) No consent, approval or other authorization or notice to
any governmental authority or expiration of any government-imposed
waiting period is required in connection with the execution or delivery
of this Agreement, except such as has been obtained, given or expired.
(k) The shares of Common Stock constitute "qualifying employer
securities" within the meaning of Section 409(l) of the Code.
Section 4.3. Covenants of Company. The Company covenants that:
(a) The Company shall submit or cause to be submitted to the
Internal Revenue Service within ninety (90) days following the Closing
Date an application for a determination letter confirming that the
ESOP, effective as of July 1, 1997, and the related Trust are qualified
and exempt from taxation under Sections 401(a) and 501(a),
respectively, of the Code and that the ESOP meets the requirements of
Section 4975(e)(7) of the Code.
(b) The Company and the Bank shall make all changes reasonably
requested by the Internal Revenue Service as a condition of obtaining a
determination letter from the Internal Revenue Service with respect to
the ESOP, effective July 1, 1997. The Company and the Bank shall
continue to do all things necessary to cause the ESOP and the Trust at
all times to be operated and administered such that the ESOP remains
qualified under Section 401(a) and remains an employee stock ownership
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plan under Section 4975(e)(7) of the Code and the Trust remains
tax-exempt under Section 501(a) of the Code.
(c) If at any time the ESOP is required, by applicable law,
court order, or otherwise, to make distributions of Shares that
otherwise would be in violation of Federal or state securities laws,
the Company shall take all actions necessary to permit such required
distributions to be made in full compliance with such laws.
(d) The Company shall honor the Put Options if, and to the
extent, required by Section 409(h) of the Code and regulations
thereunder, and shall not permit its ability to honor such Options to
be materially restricted in any way.
(e) The Company or the Bank shall provide to the Trustee all
governmental filings relating to the ESOP and all ESOP amendments
within sixty days of the date on which such filing or amendment is
effected, and, on an annual basis, shall provide complete financial
statements of the ESOP and the Company.
ARTICLE V
CONDITIONS PRECEDENT
Section 5.1. Documentation Satisfactory to Company. The obligation of
the Company to make the Trust Loan is, in addition to the conditions precedent
contained in Section 5.2, subject to the condition precedent that the Company
shall have received each of the following, duly executed and dated as of the
Closing Date (or such earlier date as shall be satisfactory to the Company) and
in form and substance satisfactory to the Company:
(a) the Trust Note;
(b) the Share Pledge Agreement; and
(c) a certificate of the Trustee, substantially in the form of
Exhibit C hereto, with such changes thereto as shall be acceptable to
the Company and its counsel, and with respect to such other matters as
the Company may reasonably request.
Section 5.2. Other Conditions Precedent to Company Obligations. In
addition to the condition precedent contained in Section 5.1, the obligation of
the Company to make the Trust Loan available is subject to the conditions
precedent that (i) the Conversion is consummated, (ii) the representations and
warranties made by the Trustee herein shall be true and correct in all material
respects on the Closing Date as if made on and as of the Closing Date; and (iii)
the ESOP shall be permitted to purchase Shares in the Conversion.
Section 5.3. Documentation Satisfactory to Trustee. The obligation of
the Trust to enter into the Trust Loan is subject to the condition precedent
that the Trustee shall have received each of the following, duly executed and
dated as of the Closing Date (or such earlier date as shall be satisfactory to
Trustee) and in form and substance satisfactory to Trustee:
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(a) The Share Pledge Agreement; and
(b) A certificate of the Company, substantially in the form of
Exhibit D hereto, with such changes thereto as shall be acceptable to
the Trustee and its counsel, and with respect to such other matters as
the Trustee may reasonably request.
Section 5.4. Other Conditions Precedent to Trustee's Obligation. The
obligation of the Trustee to enter into the Trust Loan is subject to the
conditions precedent that (i) the Conversion is consummated, (ii) the
representations and warranties made by the Company herein shall be true and
correct in all material respects on the Closing Date as if made on and as of the
Closing Date, and (iii) no injunction or restraining order shall be in effect or
litigation pending or threatened to forbid or enjoin the consummation of the
transaction contemplated by this Agreement.
ARTICLE VI
EVENTS OF DEFAULT AND THEIR EFFECT
Section 6.1. Events of Default; Effect. If default in the payment when
due of any principal of, or default (and continuance thereof for 5 days) in the
payment when due of interest on, the Trust Note (an "Event of Default") occurs,
unless the effect thereof as an Event of Default has been waived in writing by
the Company, then the Company may declare the Trust Note to be due and payable,
whereupon the Trust Note shall become immediately due and payable, without
presentment, demand, protest or notice to the Trust or other action by the
Company of any kind whatsoever, all of which actions the Trust hereby waives to
the maximum extent permitted by law. The Company shall promptly advise the Trust
of any declaration of default, but failure to do so or delay in doing so shall
not impair the effect of such declaration. Notwithstanding anything to the
contrary herein or in the Trust Note or the Share Pledge Agreement contained or
implied, if a Default or Event of Default occurs with respect to the Trust Loan
by the Trust, the value of Trust assets transferred in satisfaction thereof
shall not exceed the amount of such default. In addition, such a transfer of
such Trust assets shall only occur upon and to the extent of the failure of the
Trust to meet the payment schedule of the Trust Loan provided in Article II.
ARTICLE VII
SHARE PURCHASES
Section 7.1. Purchase of Shares. The Company is making the Trust Loan
available to the Trustee for the purpose of allowing the Trustee to purchase
Shares in the Conversion. To the extent the ESOP is permitted to purchase up to
84,640 Shares in the Conversion, the Trustee agrees to use all of the proceeds
of the Trust Loan to purchase Shares in accordance with this Article VII.
Section 7.2. Manner of Purchase. The Trustee shall timely subscribe to
purchase the Shares the ESOP is permitted to purchase in the Conversion pursuant
to the Bank's Plan of Conversion. The Trustee shall draw upon the Trust Loan and
use the proceeds thereof to purchase the number of Shares the ESOP may purchase
in the Offering, simultaneously with consummation of the Conversion.
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Section 7.3. Readily Tradeable. The Company agrees to use reasonable
efforts to cause the Shares to be, and to maintain the Shares' status as,
"readily tradeable on an established securities market" within the meaning of
Section 409(l)(1) of the Code.
Section 7.4. No Prohibited Transactions. The Trustee in the performance
of its obligations under this Agreement, shall observe its fiduciary obligations
under Section 404 of ERISA, shall not engage in any transaction prohibited by
ERISA or contrary to such fiduciary obligations, and, in acquiring Shares, shall
not (and shall not be deemed obligated to) pay more than "adequate
consideration", as defined in Section 3(18) of ERISA.
Section 7.5. Maximum Number of Shares. The Trust shall not purchase
Shares with proceeds of the Trust Loan in excess of 8% of the outstanding Shares
of the Company at the time of purchase.
ARTICLE VIII
GENERAL
Section 8.1. Waivers; Amendments. No delay on the part of the Company,
or the holder of the Trust Note in the exercise of any right, power or remedy
shall operate as a waiver thereof, nor shall any single or partial exercise by
any of them of any right, power or remedy preclude other or further exercise
thereof, or the exercise of any other right, power or remedy. No amendment,
modification or waiver of, or consent with respect to, any provision of this
Agreement, the Trust Note or the Share Pledge Agreement shall in any event be
effective unless the same shall be in writing and signed and delivered by the
Company and then any such amendment, modification, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
Section 8.2. Confirmations; Information. The Company and the Trust (or
holder of the Trust Note) agree from time to time, upon written request received
by it from the other, to confirm to the other in writing the aggregate unpaid
principal balance then outstanding under the Trust Note and such other matters
relating to the Trust Loan, the Trust, the ESOP or the purchase of Shares as may
reasonably be the subject of inquiry.
Section 8.3. Captions. Section captions used in this Agreement are for
convenience only, and shall not affect the construction of this Agreement.
Section 8.4. Governing Law. To the extent not preempted by ERISA, this
Agreement and the Trust Note shall be a contract made under and governed by the
laws of the State of Indiana, without regard to conflict of laws principles. All
obligations of the Trust and rights of the Company and other holder of the Trust
Note expressed herein or in such Trust Note shall be in addition to and not in
limitation of those provided by law.
Section 8.5. Notices. All communications and notices hereunder shall be
in writing and shall be deemed to be given when sent by registered or certified
mail, postage prepaid, return receipt requested, or by telecopier, duly
confirmed, and addressed to such party at the address indicated below or to such
other address as such party may designate in writing pursuant to this Section
8.5.
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Citizens Bancorp
60 South Main Street
Frankfort, Indiana 46041
Attention: Fred W. Carter, President
[ ]
Section 8.6. Expenses. All expenses of the transaction contemplated by
this Agreement shall be paid by the Company.
Section 8.7. Reimbursement. If the Trustee uses proceeds from the Trust
Loan to purchase Common Stock directly from the Company and it is subsequently
determined by a court of competent jurisdiction that the Trustee paid in excess
of "adequate consideration" within the meaning of ERISA for such shares, the
Company shall, as soon as practicable following such judgment, reimburse the
Trustee for the amount of the excess payment.
Section 8.8. Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings between the parties.
Section 8.9. Severability. Should any clause, paragraph or part of this
Agreement be held or declared to be void or illegal for any reason, all other
clauses, paragraphs or parts of this Agreement which can be affected without
such illegal clause, paragraph or part shall nevertheless remain in full force
and effect.
Section 8.10. No Assignment. This Agreement and the obligations of the
parties herein may not be assigned or assumed by any other parties.
Section 8.11. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
put together shall constitute one and the same instrument.
ARTICLE IX
LIMITED RECOURSE
Section 9.1. Limited Recourse. Notwithstanding anything to the contrary
herein or in the Trust Note, the Share Pledge Agreement or any other instrument,
agreement or document contained or implied, the obligations of the Trust under
this Agreement, the Trust Note and the Share Pledge Agreement (collectively, the
"Trust Loan Obligations") shall be enforceable to the extent permitted under
law, including (without limitation) the Exempt Loan Rules, only against the
Trust to the extent of the Collateral (as defined in the Share Pledge Agreement)
not theretofore released from the pledge and security interest under the Share
Pledge Agreement as provided in Section 3.2 and contributions and other payments
(other than contributions of employer securities) made to the Trust in
accordance with the ESOP to enable the Trust to pay and satisfy the Trust Loan
Obligations and from earnings attributable to the Shares purchased with Trust
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Loan proceeds and the investment of such contributions and payments
(collectively, the "Trust Loan Collateral"). No recourse shall be had to or
against the Trust or the assets thereof (other than the Trust Loan Collateral)
for any deficiency judgment against the Trust for the purpose of obtaining
payment or other satisfaction of the Trust Loan Obligations.
Section 9.2. No Personal Recourse Against Trustee. Without limiting the
provisions of Section 9.1, the Trustee of the Trust shall have no personal
liability for any of the Trust Loan Obligations.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their respective representatives thereunto duly
authorized as of the date first above written.
TRUST UNDER CITIZENS BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
By: _______________________________, Trustee
By:
Printed:
Its:
CITIZENS BANCORP
By:
Printed: Fred W. Carter
Its: President
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Exhibit A
TRUST NOTE
$___________ September ___, 1997
Due: September 30, 2007
FOR VALUE RECEIVED, the undersigned, the Trust (the "Trust")
established pursuant to the provisions of the CITIZENS BANCORP EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST AGREEMENT, DATED AND EFFECTIVE AS OF JULY 1, 1997 (the
"Plan") by _________________________, as Trustee (the "Trustee"), promises to
pay to the order of CITIZENS BANCORP, an Indiana corporation (together with its
successors, endorsees and assigns, the "Company"), at such place and in such
other manner as the Company may direct in writing, and when required pursuant to
the provisions of that certain Exempt Loan and Share Purchase Agreement, dated
September ___, 1997 (the "Loan Agreement"), by and among the Trustee and the
Company, the principal amount of ____________________________ Dollars
($__________) or so much thereof as may be advanced by the Company to the Trust
hereunder and under the Loan Agreement, said amount being due and payable
together with accrued interest in such installments and at such times as
provided in the Loan Agreement, with the entire unpaid principal balance due and
payable with accrued interest in full on September 30, 2007, as provided in the
Loan Agreement.
The principal balance hereof from time to time outstanding shall bear
interest from the date of each disbursement of the Trust Loan evidenced by this
Trust Note through and including the date on which such principal amount is paid
in full, at the times provided in the Loan Agreement, at the Interest Rate, as
defined in the Loan Agreement which is _____________ percent (_____%) per annum
(or, in the case of overdue principal and, to the extent legally enforceable,
overdue interest, at the Interest Rate plus two percent (2%) per annum).
This Trust Note has been issued by the Trust in accordance with the
terms of the Loan Agreement to evidence the Trust Loan made by the Company to
the Trust under the Loan Agreement, to which reference is hereby made for the
statement of the terms thereof. This Trust Note and the Company are entitled to
the benefits of the Loan Agreement and the Company may enforce the agreements of
the Trust contained therein and in the Loan Documents, and may exercise the
respective remedies provided for thereby or otherwise available in respect
thereof, all in accordance with the respective terms thereof. All capitalized
terms used in this Trust Note which are not otherwise defined herein have the
respective meanings assigned to them in the Loan Agreement.
The Trust has the right to prepay the principal amount of this Trust
Note without penalty on the terms and conditions specified in the Loan
Agreement.
If any Event of Default shall occur, the entire unpaid principal amount
of this Trust Note and all of the accrued but unpaid interest thereon may become
or be due and payable in the manner and with the effect provided in the Loan
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Agreement. The collection and enforcement of this Trust Note are subject to the
provisions and limitations of Section 9.1 of the Loan Agreement.
To the extent not preempted by ERISA, this Trust Note and the
obligations of the Trust hereunder shall be governed by the laws of the State of
Indiana without regard to principles of conflict of laws.
All parties to this Trust Note, including endorsers, sureties and
guarantors, if any, hereby waive presentment, demand, protest, notice, relief
from valuation and appraisement laws and any and all other notices and demands
in connection with the delivery, acceptance, performance and enforcement of this
Trust Note and also hereby assent to extensions of the time of payment or
forbearance or other indulgences without notice, and agree to remain bound until
the principal, premium, if any, and interest are paid in full, notwithstanding
any extensions of time for payment which may be granted, even though the period
or periods of extension may be indefinite, and notwithstanding any inaction by,
or failure to assert any legal rights available to, the holder of this Trust
Note.
IN WITNESS WHEREOF, the Trust has caused this instrument to be executed
by the Trustee, the day and year first above written.
TRUST UNDER CITIZENS BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
By: _______________________________, Trustee
By:________________________________
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Exhibit B
SHARE PLEDGE AGREEMENT
between
TRUST UNDER
CITIZENS BANCORP
STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
and
CITIZENS BANCORP
Dated: September ___, 1997
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<PAGE>
SHARE PLEDGE AGREEMENT
THIS SHARE PLEDGE AGREEMENT (this "Agreement" or "Share Pledge
Agreement"), dated as of September ___, 1997, between the Trust (the "Trust")
established pursuant to the provisions of CITIZENS BANCORP EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST AGREEMENT (EFFECTIVE AS OF JULY 1, 1997) (the "Plan")
by ________________________, as Trustee ("Trustee"), and CITIZENS BANCORP, an
Indiana corporation (the "Company").
WITNESSETH:
WHEREAS, contemporaneously herewith, the Trust and the Company have
entered into that certain Exempt Loan and Share Purchase Agreement (the "Loan
Agreement"; definitions of terms appearing in which have the same meanings
herein, unless a clear contrary intention appears), dated September ____, 1997,
pursuant to which the Company has agreed to lend to the Trust, and the Trust has
agreed to borrow from the Company, the Trust Loan, and the Trust, to evidence
its indebtedness to the Company with respect to the Trust Loan, has executed and
delivered the Trust Note to the Company; and
WHEREAS, it is a condition precedent to the obligation of the Company
to make the Trust Loan that, among other things, the Trust execute and deliver
this Agreement to the Company,
NOW, THEREFORE, in consideration of the Loan Agreement and the Trust
Loan and other good and valuable consideration (the receipt, adequacy and
sufficiency of which the Trust acknowledges by its execution hereof, the Trust
intending to be legally bound does hereby covenant and agree with the Company as
follows:
Section 1. Pledge. To secure the due and punctual payment and
performance of the obligations of the Trust hereunder and under the Loan
Agreement and the Trust Note (collectively, the "Liabilities"), the Trustee on
behalf of the Trust hereby pledges, hypothecates, assigns, transfers, sets over
and delivers unto the Company, its successors and assigns and hereby grants to
the Company, its successors and assigns a security interest in:
(a) All Shares of Company Common Stock purchased or to be
purchased with the proceeds of the Trust Loan (collectively, the
"Pledged Shares") and the certificates representing or evidencing the
Pledged Shares, and, to the extent permitted by Section 4975(e)(7) of
the Internal Revenue Code of 1986, as amended, and Reg. ss.
54.4975-7(b)(5) promulgated thereunder, all cash, securities, interest,
dividends, rights and other property at any time and from time to time
received in respect of or in exchange for any or all of the Pledged
Shares; and
(b) all proceeds of all of the foregoing
(all such Pledged Shares, certificates, cash, securities, interest, dividends,
rights and other property, and proceeds thereof, other than as released, sold or
otherwise applied by the Company pursuant to the' terms hereof, being herein
collectively called the "Collateral"), TO HAVE AND TO HOLD such Collateral,
together with all rights, titles, interests, privileges and preferences
appertaining or incidental thereto, forever, subject, however, to the terms,
covenants and conditions hereafter set forth.
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Section 2. Warranties and Covenants.
(a) The Trust represents and warrants to the Company that the
Trust is, or at the time of any future delivery, pledge, assignment or
transfer will be, the lawful owner of the Collateral, free of all
claims and liens other than the security interest hereunder, with full
right to deliver, pledge, assign and transfer the Collateral to the
Company as Collateral hereunder.
(b) So long as any of the Liabilities remain outstanding, the
Trust will, unless the Company shall otherwise consent in writing:
(i) promptly deliver to the Company from time to time
certificates representing Pledged Shares as the Trustee
acquires them and, upon request of the Company, such stock
powers and other documents, satisfactory in form and substance
to the Company, with respect to the Collateral as the Company
may reasonably request to preserve and protect, and to enable
the Company to enforce, its rights and remedies hereunder;
(ii) not create or suffer to exist any lien, security
interest or other charge or encumbrance against, in or with
respect to any of the Collateral except for the pledge
hereunder and the security interest created hereby;
(iii) not make or consent to any amendment or other
modification or waiver with respect to any of the Collateral
or enter into any agreement or permit to exist any restriction
with respect to any of the Collateral other than pursuant
hereto; and
(iv) not take or fail to take any action which would
in any manner impair the value or enforceability of the
Company's security interest in any of the Collateral.
Section 3. Care of Collateral. The Company shall be deemed to have
exercised reasonable care with respect to the interest of the Trust in the
custody and preservation of the Collateral if it takes such action for that
purpose as the Trust shall request in writing or as it would with respect to
similar assets of its own, but failure of the Company to comply with any such
request shall not of itself be deemed a failure to exercise reasonable care.
Section 4. Certain Rights Regarding Collateral and Liabilities.
(a) The Company may from time to time, whether before or after any of
the Liabilities shall become due and payable, without notice to the Trust, to
the extent otherwise permitted (i) retain or obtain a security interest in the
Collateral, to secure payment and performance of any of the Liabilities, (ii)
retain or obtain the primary or secondary liability of any party or parties, in
addition to the Trust, with respect to any of the Liabilities, (iii) extend or
renew for any period (whether or not longer than the original period) or
exchange any of the Liabilities or release or compromise any obligation of any
nature of any party with respect thereto, and (iv) surrender, release or
exchange all or any part of any property, in addition to the Collateral,
-3-
<PAGE>
securing payment and performance of any of the Liabilities, or compromise or
extend or renew for any period (whether or not longer than the original period)
any obligations of any nature of any party with respect to any such property.
(b) The Company shall have no right to vote the Pledged Shares prior to
the occurrence of an Event of Default (hereinafter in Section 6(a) hereof
defined). After the occurrence of an Event of Default, the Trust shall have the
right to vote any and all of the Pledged Shares in accordance with the Plan
unless and until it receives notice from the Company that such right has been
terminated with respect to shares subject to execution as a result of the
Default.
Section 5. Dividends, etc.
(a) So long as no Default or Event of Default, shall have occurred and
be continuing, the Trust shall be entitled to receive any and all cash dividends
on the Pledged Shares which it is otherwise entitled to receive, and to vote the
Pledged Shares in accordance with the terms of the Plan and to give consents,
waivers and ratifications in respect of the Pledged Shares, but any and all
stock and/or liquidating dividends, distributions in property, returns of
capital or other distributions made on or in respect of the Pledged Shares,
whether resulting from a subdivision, combination or reclassification of the
outstanding capital stock of any issuer thereof or received in exchange for the
Pledged Shares or any part thereof or as a result of any merger, consolidation,
acquisition or other exchange of assets to which any issuer may be a party or
otherwise, and any and all cash and other property received in exchange for any
Collateral shall be, and become part of the Collateral pledged hereunder and, if
received by the Trust, shall forthwith be delivered to the Company or its
designated nominee (accompanied, if appropriate, by proper instruments of
assignment and/or stock powers executed by the Trust in accordance with the
Company's instructions) to be held subject to the terms of this Agreement and
the Plan.
(b) Upon the occurrence and during the continuance of an Event of
Default, subject to the terms of Section 4(b) hereof, all rights of the Trust
pursuant to Section 5(a) hereof shall cease and the Company shall have the sole
and exclusive right and authority to receive and retain the dividends which the
Trust would otherwise be authorized to retain and, to the extent permitted by
law, to vote and give consents, waivers and ratifications pursuant to Section
5(a) hereof. Any and all money and other property paid over to or received by
the Company pursuant to the provisions of this paragraph (b) shall be retained
by the Company as additional Collateral hereunder and be applied in accordance
with the provisions hereof.
Section 6. Event of Default.
(a) The occurrence of any of the following shall constitute an Event
of Default hereunder nonpayment, when due, whether by acceleration or otherwise,
of any amount payable on any of the Liabilities; an Event of Default as defined
in the Loan Agreement; any representation or warranty of the Trust contained
herein or given pursuant hereto being untrue in any material respect; or the
Trust's failure to perform any covenant or agreement contained herein.
(b) Upon the occurrence of an Event of Default, (i) the Company may
exercise from time to time any rights and remedies available to it under the
Uniform Commercial Code as in effect from time to time in Indiana or otherwise
available to it, including, but not limited to, sale, assignment, or other
-4-
<PAGE>
disposal of the Pledged Shares in exchange for cash or credit, and (ii) the
Company may, without demand or notice of any kind, but subject to Section 7,
appropriate and apply toward the payment of such of the Liabilities, and in such
order of application, as the Company may from time to time elect, any balances,
credits, deposits, accounts or moneys of the Trust. If any notification of
intended disposition of any of the Collateral is required by law, such
notification, if mailed, shall be deemed reasonably and properly given if mailed
at least five (5) days before such disposition, postage prepaid, addressed to
the Trust, either at the address of the Trust shown below, or at any other
address of the Trust appearing on the records of the Company. Any proceeds of
any disposition of Collateral shall be applied as provided in Section 7 hereof.
All rights and remedies of the Company expressed hereunder are in addition to
all other rights and remedies possessed by it, including those under any other
agreement or instrument relating to any of the Liabilities or security therefor.
No delay on the part of the Company in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by the Company of
any right or remedy shall preclude other or further exercise thereof or the
exercise of any other right or remedy. No action of the Company permitted
hereunder shall impair or affect the rights of the Company in and to the
Collateral.
(c) The Trust agrees that in any sale of any of the Collateral
whenever an Event of Default hereunder shall have occurred and be continuing,
the Company is hereby authorized to comply with any limitation or restriction in
connection with such sale as it may be advised by counsel is necessary in order
to avoid any violation of law (including, without limitation, compliance with
such procedures as may restrict the number of prospective bidders and
purchasers, require that such prospective bidders and purchasers have certain
qualification, and restrict such prospective bidders and purchasers to persons
who will represent and agree that they are purchasing for their own account for
investment and not with a view to the distribution or resale of such
Collateral), or in order to obtain any required approval of the sale or of the
purchaser by any governmental regulatory authority or official, and the Trust
further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall the Company be liable nor accountable to the Trust for any discount
allowed by the reason of the fact that such Collateral is sold in compliance
with any such limitation or restriction.
(d) Notwithstanding anything to the contrary herein or in the Trust
Note or the Loan Agreement contained or implied, if an Event of Default occurs
with respect to the Trust Loan by the Trust, the value of Trust assets
transferred in satisfaction thereof shall not exceed the amount of such default.
In addition, such a transfer of such Trust assets shall only occur upon, and to
the extent of the failure of, the Trust to meet the payment schedule of the
Trust Loan provided in Article II of the Loan Agreement.
Section 7. Application of Proceeds of Sale or Cash Held as
Collateral. The proceeds of sale of Collateral sold pursuant to the terms of
Section 6 hereof and/or, after an Event of Default, the cash held as Collateral
hereunder, shall be applied by the Company, to the extent permitted by
applicable law, as follows:
First: to payment of the costs and expenses of such sale,
including the out-of-pocket costs and expenses of the Company and the
reasonable fees and out-of-pocket costs and expenses of counsel
employed in connection therewith, and to the payment of all advances
made by the Company for the account of the Trust hereunder and the
payment of all costs and expenses incurred by the Company in
connection with the administration and enforcement of this Agreement,
-5-
<PAGE>
to the extent that such advances, costs and expenses shall not have
been reimbursed to the Company;
Second: to the payment in full of the Liabilities; and
Third: the balance, if any, of such proceeds shall be paid to
the Trust, its successors and assigns, or as a court of competent
jurisdiction may direct.
Section 8. Authority of Company. The Company shall have and be
entitled to exercise all such powers hereunder as are specifically delegated to
the Company by the terms hereof, together with such powers as are incidental
thereto. The Company may execute any of its duties hereunder by or through
agents or employees and shall be entitled to retain counsel and to act in
reliance upon the advice of such counsel concerning all matters pertaining to
its duties hereunder. Neither the Company, nor any director, officer or employee
of the Company, shall be liable for any action taken or omitted to be taken by
it or them hereunder or in connection herewith, except for its or their own
gross negligence or wilful misconduct. The Trust hereby agrees, to the extent
permitted by applicable law, to reimburse the Company, on demand, for all costs
and expenses incurred by the Company in connection with the enforcement of this
Agreement (including costs and expenses incurred by any agent employed by the
Company).
Section 9. Termination. This Agreement shall terminate when all the
Liabilities have been fully paid and performed, at which time the Company shall
reassign and redeliver (or cause to be reassigned and redelivered) to the Trust,
or to such person or persons as the Trust shall designate, against receipt, such
of the Collateral (if any) as shall not have been theretofore released, sold or
otherwise applied by the Company pursuant to the terms hereof and shall still be
held by it hereunder, together with any appropriate instruments of reassignment
and release. Any such reassignment shall be without recourse upon, or
representation or warranty by, the Company.
Section 10. Required Release of Collateral. Notwithstanding any
provision of this Agreement or the Loan Agreement to the contrary, the Company
from time to time will release from the pledge and security interest under the
Loan Agreement, such Collateral as must be allocated to participants under the
Plan pursuant to Section 8.7(h) of the Plan and otherwise under the Code, the
Exempt Loan Rules or other applicable law.
Section 11. Limited Recourse. Notwithstanding anything to the
contrary herein or in the Trust Note, the Loan Agreement or any other
instrument, agreement or document contained or implied, the Liabilities shall be
enforceable to the extent permitted under applicable law, including, without
limitation, the Exempt Loan Rules, only against the Trust to the extent of the
Collateral not theretofore released from the pledge and security interest under
this Agreement as provided herein and contributions (other than contributions of
employer securities) made to the Trust in accordance with the Plan to enable the
Trust to pay and satisfy the Liabilities and from earnings attributable to the
Shares and the investment of such contributions (collectively, the "'Trust Loan
Collateral"). No recourse shall be had to or against the Trust or the assets
thereof (other than the Trust Loan Collateral) for any deficiency judgment
against the Trust for the purpose of obtaining payment or other satisfaction of
the Liabilities. Without limiting the foregoing, the Trustee of the Trust shall
have no personal liability for any of the Liabilities, other than as required by
or arising under applicable law.
-6-
<PAGE>
Section 12. Notices. All communications and notices hereunder shall
be in writing and, if mailed, shall be deemed to be given when sent by
registered or certified mail, postage prepaid, return receipt requested, or by
telecopier, duly confirmed, and addressed to such party at the address indicated
below or to such other address as such party may designate in writing pursuant
to this Section 12.
CITIZENS BANCORP
60 South Main Street
P.O. Box 635
Frankfort, Indiana 46041
Attention: Fred W. Carter, President
[ ]
Section 13. Binding Agreement Assignment. This Agreement, and the
terms, covenants and conditions hereof, shall be binding upon and inure to the
benefit of the parties hereto, and their respective successors and assigns,
except the Trust shall not be permitted to assign this Agreement or any interest
herein or in the Collateral, or any part thereof, or otherwise grant any option
with respect to the Collateral, or any part thereof and the Company shall not
assign any interest herein or in the Collateral unless such assignment is
expressly made subject to the terms of the Loan Documents.
Section 14. Miscellaneous Provisions. Neither this Agreement nor any
provision hereof may be amended, modified, waived, discharged or terminated nor
may any of the Collateral be released or the pledge or the security interest
created hereby extended, except by an instrument in writing duly signed by or on
behalf of the Company hereunder. The section headings used herein are for
convenience of reference only and shall not define or limit the provisions of
this Agreement. This Agreement may be executed in any number of counterparts and
by the different parties on separate counterparts and each such counterpart
shall be deemed to be an original, but all such counterparts shall together
constitute but one and the same Agreement.
Section 15. Governing Law; Interpretation. This Agreement has been
made and delivered at Spencer, Indiana, and, except to the extent preempted by
ERISA, shall be governed by the internal laws of the State of Indiana, without
regard to principles of conflict of laws. Wherever possible each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under such law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
Section 16. Filing as a Financing Statement. At the option of the
Company, this Agreement, or a carbon, photographic or other reproduction of this
Agreement or of any Uniform Commercial Code financing statement covering the
Collateral or any portion thereof shall be sufficient as a Uniform Commercial
Code financing statement and may be filed as such.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective representatives thereunto duly authorized
as of the date first above written.
TRUST UNDER CITIZENS BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
By: _________________________, Trustee
By:
-------------------------------
Printed:
Its:
CITIZENS BANCORP
By:
-------------------------------
Printed: Fred W. Carter
Its: President
-8-
<PAGE>
Exhibit C
CERTIFICATE OF TRUSTEE
The undersigned, __________________________________, a national bank,
in its capacity as Trustee ("Trustee") of the Trust under Citizens Bancorp
Employee Stock Ownership Plan and Trust Agreement (Effective as of July 1, 1997)
(the "Trust") hereby certifies, pursuant to Section 5.1(c) of that certain
Exempt Loan and Share Purchase Agreement between the Trust and Citizens Bancorp
of even date herewith (the "Loan Agreement") that:
(i) it has determined that the Trust Loan, as defined in the
Loan Agreement, is primarily for the benefit of ESOP participants and
their beneficiaries and bears interest at a rate not in excess of a
reasonable rate and that the terms of the loan are at least as
favorable to the Trust and the ESOP participants as the terms of a
comparable loan resulting from arm's-length negotiations between
completely independent parties;
(ii) the other representations and warranties of the Trust
contained in the Loan Agreement are true in all material respects as
of the date of this Certificate; and
(iii) the conditions set forth in Article V of the Loan
Agreement, to the extent their satisfaction depends upon action on
the part of the Trust or the Trustee, have been satisfied as of the
date of this Certificate.
EXECUTED this ____ day of September, 1997.
______________________________, as Trustee of
Trust under the Citizens Bancorp Employee Stock
Ownership Plan and Trust Agreement (Effective as of
July 1, 1997)
By:
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<PAGE>
Exhibit D
CERTIFICATE OF THE COMPANY
The undersigned, Citizens Bancorp, an Indiana corporation (the
"Company"), pursuant to Section 5.3(b) of that certain Exempt Loan and Share
Purchase Agreement between ____________________________, a national bank, in its
capacity as Trustee of the Trust under the Citizens Bancorp Employee Stock
Ownership Plan and Trust Agreement (Effective as of July 1, 1997) and the
Company of even date herewith (the "Loan Agreement"), hereby certifies that the
representations and warranties of the Company contained in the Loan Agreement
are true and correct in all material respects, and the Company is in compliance
with its covenants set forth in the Loan Agreement in all material respects, as
of the date of this Certificate.
EXECUTED as of this ___ day of September, 1997.
CITIZENS BANCORP
By:
------------------------------
Fred W. Carter, President
-10-
Exhibit 21
Subsidiaries of Citizens Bancorp following the Stock Conversion of Citizens
Savings Bank of Frankfort:
Name Jurisdiction of Incorporation
Citizens Savings Bank of Frankfort Federal
Citizens Loan and Service Corporation Indiana
Exhibit 23(1)
KELLER & COMPANY, INC.
555 Metro Place North
Suite 524
Dublin, Ohio 43017
(614)766-1246
(614)766-1459 FAX
June 10, 1997
RE: Valuation Appraisal of Citizens Bancorp
Citizens Savings Bank of Frankfort
Frankfort, Indiana
We hereby consent to the use of our firm's name, Keller & Company, Inc., and the
reference to our firm as experts in the Application for Conversion on Form AC to
be filed by Citizens Savings Bank of Frankfort with the Office of Thrift
Supervision and the Registration Statement on Form S-1 to be filed by Citizens
Bancorp with the Securities and Exchange Commission and any amendments thereto,
and to the statements with respect to us and the references to our Valuation
Appraisal Report in the Prospectus, in the said Form AC and in the said Form S-1
and any amendments thereto.
Very truly yours,
KELLER & COMPANY, INC.
By:/s/ Michael R. Keller
Michael R. Keller
President
Exhibit 23(2)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 16, 1996 on the consolidated financial statements
of Citizens Savings Bank of Frankfort and subsidiary, in the Registration
Statement (Form S-1) and related Prospectus of Citizens Bancorp dated June 11,
1997.
/s/ Ernst & Young, LLP
Indianapolis, Indiana
June 10, 1997
Exhibit 99(2)
Citizens Savings Bank Stock
of Frankfort Order
Form
----------------------------------------
Note: Please read the Stock Order Form
Instructions and Guide on the back as
you complete this form.
----------------------------------------
DEADLINE: The Subscription Offering will expire at 12:00 p.m.,local
time, on September ___, 1997, unless extended. The
Community Offering, if made, will commence after the
completion of the Subscription Offering and may terminate
at any time thereafter, but not later than November ___,
1997, unless extended.
- --------------------------------------------------------------------------------
(1) Number of Shares Purchase Price (2) Total Payment Due
- -------------------- X $10.00 = ---------------------
The minimum number of shares that may be subscribed for is 25 shares. Members of
Citizens Savings Bank of Frankfort ("Citizens") may subscribe in the
Subscription Offering for a maximum of 10,000 shares per eligible account.
Notwithstanding the foregoing sentence, the maximum number of shares which may
be purchased in the Subscription Offering by any subscribing member (including
such person's Associates) or group acting in concert is 30,000 shares. A member
who, together with his/her Associates and persons acting in concert, has
subscribed for shares in the Subscription Offering, may subscribe for a number
of additional shares in the Community Offering that does not exceed the lesser
of (i) 10,000 shares, or (ii) the number of shares which, when added to the
number of shares subscribed for by the member in the Subscription Offering,
would not exceed 30,000. The maximum number of shares which may be purchased in
the Community Offering by any person (including such person's Associates) or
persons acting in concert is 10,000 in the aggregate. See the Stock Order Form
Instructions and Guide on the back.
Important Subscription
Method of Payment Offering Information
----------------- --------------------
(3) |_| Enclosed is a check, bank (5) a|_| Eligible Account Holder -- Check
draft or money order made here if you were a depositor of at
payable to Citizens Savings least $50.00 at Citizens on December
Bank of Frankfort 31, 1995. Enter information below
("Citizens") in the for all deposit accounts that you
amount of: had at Citizens on December 31,
1995.
(5) b |_|Supplemental Eligible Account
- ------------------ Cash can be used Holder -- Check here if you were
$ only if presented a depositor of at least $50.00 at
in person at one Citizens on June 30, 1997, but
of Citizens' are not an Eligible Account
offices. Holder. Enter information below
- ------------------ for all deposit accounts that you
had at Citizens on June 30, 1997.
(5) c |_|Other Member -- Check here if you
<PAGE>
(4) |_| The undersigned authorizes were a depositor at Citizens on
withdrawal from this (these) August ___, 1997, but are not an
account(s) at Citizens. Eligible Account Holder or
Please contact the Stock Supplemental Account Holder.
Information Center if you
wish to use your IRA for
stock purchase.
Account Number Amount Account Title Deposit Loan Account
(Names on Accounts) Account Account Number
- ------------------------- ------------------------------------------------
$ [ ] [ ]
$ [ ] [ ]
$ [ ] [ ]
Total Withdrawal $ [ ] [ ]
Amount
-------- ------------------------------------------------
There is no penalty for early withdrawals used for
stock payment.
Important Direct Community Offering Information
(6) a [ ] Check here if you are a resident of Clinton County, Indiana.
Stock Registration (See back under Stock Ownership Guide)
(7) Form of Stock Ownership:
[ ] Individual [ ] Joint tenants with right of survivorship
[ ] Tenants in common [ ] Uniform Gifts Transfer to Minors
[ ] Fiduciary (i.e., trust estate, etc.) [ ] Corporation or Partnership
[ ] Other __________________________________________________
<PAGE>
- --------------------------------------------------------------------------------
(8) Name(s) in which your stock Social Security No. or Tax ID No.
is to be registered
(Please Print Clearly)
- --------------------------------------------------------------------------------
Name(s) continued
- --------------------------------------------------------------------------------
Street Address City County State Zip Code
- --------------------------------------------------------------------------------
(9) Telephone Information Daytime Phone ( ) Evening Phone ( )
---------------------------------------------------
(10) NASD Affiliation. |_| Check here if you are a member of the National
Association of Securities Dealers, Inc. ("NASD"), a person associated with a
NASD member, a member of the immediate family of any such person to whose
support such person contributes, directly or indirectly, or the holder of an
account in which an NASD member or person associated with an NASD member has a
beneficial interest. To comply with conditions under which an exemption from the
NASD's Interpretation With Respect to Free-Riding and Withholding is available,
you agree, if you have checked the NASD Affiliation box, (i) not to sell,
transfer or hypothecate the stock for a period of three months following
issuance, and (ii) to report this subscription in writing to the applicable NASD
member within one day of payment therefor.
(11) Acknowledgement. To be effective, this fully completed Stock Order Form
must be actually received together with an executed from of certification, by
Citizens no later than September ____, 1997, otherwise this Stock Order Form and
all subscription rights will be void. All Stock Order Forms submitted in the
Subscription Offering must be actually received by Citizens no later than 12:00
p.m., local time, on September ____, 1997, unless extended. If there is a
Community Offering, it will begin after September ___, 1997, and may end at any
time but no later than November ___, 1997, unless extended. Completed Stock
Order Forms, together with the required payment or withdrawal authorization and
form of Certification, may be delivered to Citizens or may be mailed to the Post
Office Box indicated on the enclosed business reply envelope. ALL RIGHTS
EXERCISABLE HEREUNDER ARE NOT TRANSFERABLE AND SHARES PURCHASED UPON EXERCISE OF
SUCH RIGHTS MUST BE PURCHASED FOR THE ACCOUNT OF THE PERSON EXERCISING SUCH
RIGHTS.
It is understood that this Stock Order Form will be accepted in accordance with,
and subject to, the terms and conditions of the Plan of Conversion ("Plan of
Conversion") of Citizens described in the accompanying Subscription and
Community Offering Prospectus dated August ____, 1997. The undersigned
acknowledges receipt of such Prospectus. If the Plan of Conversion is not
approved by the voting members of Citizens at a Special Meeting to be held on
September ___, 1997, or any adjournment thereof, all orders will be cancelled
and funds received as payment, with accrued interest, will be returned promptly.
The undersigned agrees that after receipt by Citizens, this Stock Order Form may
not be modified, withdrawn or cancelled (unless the conversion is not completed
with 45 days of the completion of the Subscription Offering) without Citizens'
consent and if authorization to withdraw from deposit accounts at Citizens has
been given as payment for shares, the amount authorized for withdrawal shall not
otherwise be available for withdrawal by the undersigned.
Under penalty of perjury, the undersigned certifies that the Social
Security or Tax ID Number and the information provided in this Stock Order Form
are true, correct and complete, that he/she is not subject to back-up
withholding and that he/she is purchasing for his/her own account and that there
is no agreement or understanding regarding the transfer of his/her subscription
rights or the sale or transfer of these shares.
Applicable State and Federal regulations prohibit any person from
transferring or entering into any agreement directly or indirectly to transfer
the legal or beneficial ownership of subscription rights, or the underlying
securities to the account of another. Citizens will pursue any and all legal and
equitable remedies in the event it becomes aware of the transfer of subscription
rights and will not honor orders known by it to involve such transfer.
<PAGE>
The undersigned acknowledges that the common stock offered is not a savings
or deposit account and is not insured by the Savings Association Insurance Fund,
the Bank Insurance Fund, the Federal Deposit Insurance Corporation, or any other
government agency.
A VALID STOCK ORDER FORM MUST BE SIGNED AND DATED BELOW AND ACCOMPANIED BY A
SIGNED AND DATED FORM OF CERTIFICATION.
- --------------------------------------------------------------------------------
(12) Signature Date Signature Date
- --------------------------------------------------------------------------------
FOR OFFICE USE ONLY STOCK INFORMATION CENTER
- ------------------------------------- Citizens Savings Bank
Date Received ______/______/______ of Frankfort
60 South Main Street
Category _______________ P.O. Box 635
Frankfort, Indiana 47041
- ------------------------------------- (765)659-5708
Order #__________ Deposit __________
Batch #__________ Date Input ____/____/____
- --------------------------------------------------------------------------------
<PAGE>
CITIZENS SAVINGS BANK OF FRANKFORT
-----------------------------------------------------------
SUBSCRIPTION AND DIRECT COMMUNITY OFFERING
STOCK ORDER FORM INSTRUCTIONS AND GUIDE
------------------------------------------------------------
- ---------------------
Stock Ownership Guide
- ---------------------
Individual
Include the first name, middle initial and last name of the shareholder. Avoid
the use of two initials. Please omit words that do not affect ownership rights,
such as "Mrs.," "Mr.," "Dr.," "special account," "single person," etc.
Joint Tenants with Right of Survivorship
Joint tenants with right of survivorship may be specified to identify two or
more owners. When stock is held by joint tenants with right of survivorship,
ownership is intended to pass automatically to the surviving joint tenant(s)
upon the death of any joint tenant. All parties must agree to the transfer or
sale of shares held by joint tenants.
Tenants in Common
Tenants in common may also be specified to identify two or more owners. When
stock is held by tenants in common, upon the death of one co-tenant, ownership
of the stock will be held by the surviving co-tenant(s) and by the heirs of the
deceased co-tenant. All parties must agree to the transfer or sale of shares
held by tenants in common.
Uniform Transfer to Minors
Stock may be held in the name of a custodian for a minor under the Uniform
Transfer to Minors Acts of each state. There may be only one custodian and one
minor designated on a stock certificate. The standard abbreviation for Custodian
is "CUST," while the Uniform Transfer to Minors Act is "Unif Tran Min Act."
Standard U.S. Postal Service state abbreviation should be used to describe the
appropriate state. For example, stock held by John Doe as custodian for Susan
Doe under the Indiana Uniform Transfer to Minors Act will be abbreviated John
Doe, CUST Susan Doe Unif Tran Min Act, IN (use minor's social security number).
Fiduciaries
Information provided with respect to stock to be held in a fiduciary capacity
must contain the following:
* The name(s) of the fiduciary. If an individual, list the first name, middle
initial and last name. If a corporation, list the full corporate title
(name). If an individual and a corporation list the corporation's title
before the individual.
* The fiduciary capacity, such as administrator, executor, personal
representative, conservator, trustee, committee, etc.
* A copy and description of the document governing the fiduciary
relationship, such as living trust agreement or court order. Without
documentation establishing a fiduciary relationship, your stock may not be
registered in a fiduciary capacity.
* The date of the document governing the relationship except that the date of
a trust created by a will need not be included in the description.
* The name of the maker, donor, or testator and the name of the beneficiary.
<PAGE>
An example of fiduciary ownership of stock in the case of a trust is: John Doe,
Trustee Under Agreement Dated 10-1-87 for Susan Doe.
You may mail your completed Stock Order Form in the envelope that has been
provided, or you may deliver your Stock Order Form to Citizens' office. If you
are purchasing in the Subscription Offering, your properly completed Stock Order
Form and executed Certification, together with payment in full (or withdrawal
authorization) at the Purchase Price, must be received by Citizens no later than
12:00 p.m. Frankfort, Indiana, time, on September ___, 1997. If there is a
Community Offering, it will commence after that time and may end at any time but
not later than November ___, 1997, unless extended. Stock Order Forms shall be
deemed received only upon actual receipt at Citizens' office.
If you need further assistance, please call the Stock Information Center at
(765) 659-5708. We will be pleased to help you with the completion of your Stock
Order Form or answer any questions you may have.
<PAGE>
Item Instructions
Items 1 and 2 -
Fill in the number of shares that you wish to purchase and the total payment
due. The amount due is determined by multiplying the number of shares purchased
by the Purchase Price of $10.00 per share. The minimum purchase is 25 shares.
Members of Citizens may subscribe in the Subscription Offering for a maximum of
10,000 shares per eligible account and/or eligible loan. Notwithstanding the
foregoing sentence, the maximum number of shares which may be purchased in the
Subscription Offering by any subscribing member (including such person's
Associates) or group acting in concert is 30,000 shares. A member who, together
with his/her Associates and persons acting in concert, has subscribed for shares
in the Subscription Offering may subscribe for a number of additional shares in
the Direct Community Offering that does not exceed the lesser of (i) 10,000
shares, or (ii) the number of shares which, when added to the number of shares
subscribed for by the member in the Subscription Offering, would not exceed
30,000. The maximum number of shares which may be purchased in the Direct
Community Offering by any person (including such person's Associates) or persons
acting in concert is 10,000 in the aggregate. Citizens reserves the right to
reject any order received in the Community Offering, in whole or in part.
Item 3 -
Payment for shares may be made in cash (only if delivered by you in person) or
by check, bank draft or money order made payable to Citizens. Your funds will
earn interest at Citizens' passbook rate until the conversion is completed or
terminated. DO NOT MAIL CASH TO PURCHASE STOCK! Please check this box if your
method of payment is by cash, check , bank draft or money order.
Item 4 -
If you pay for your stock by a withdrawal from a Citizens deposit account,
insert the account number(s) and the amount of your withdrawal authorization for
each account. The total amount withdrawn should equal the amount of your stock
purchase. There will be no penalty assessed for early withdrawals from
certificate accounts used for stock purchases. This form of payment may not be
used if your account is an Individual Retirement Account. Please contact the
Stock Information Center for information regarding purchases from an Individual
Retirement Account.
Item 5 -
a. Please check this box if you are a depositor of Citizens as of December 31,
1995 (Eligible Account Holder). You must list the full title and account numbers
of all accounts you had at these dates in order to ensure proper identification
of your subscription rights and to receive credit for your qualifying deposits.
b. Please check this box if you are a depositor of Citizens on June 30, 1997
(Supplemental Eligible Account Holder). You must list the name of all deposit
accounts you had on this date in order to ensure proper identification of your
subscription rights and to receive credit for your qualifying deposits.
c. Please check this box if you were a depositor on August ___, 1997, but are
not an Eligible Account Holder or Supplemental Eligible Account Holder. You must
list the full title and account numbers of all accounts that you had on August
___, 1997, in order to ensure proper identification of your subscription rights.
Item 6 -
Please check the box if you are a resident of Clinton County, Indiana.
Items 7, 8 and 9 -
The stock transfer industry has developed a uniform system of shareholder
registrations that we will use in the issuance of your common stock. Please
complete items 6, 7 and 8 as fully and accurately as possible, and be certain to
supply your social security number or tax identification number and your daytime
and evening telephone number(s). If you have any questions or concerns regarding
the registration of your stock, please consult your legal advisor. Stock
ownership must be registered in one of the ways described under "Stock Ownership
Guide."
Item 10 -
Please check this box if you are a member of the NASD or if this item otherwise
applies to you.
Items 11 and 12 -
Please sign and date the Stock Order Form where indicated. Review the Stock
Order form carefully before you sign, including the acknowledgement. Normally,
one signature is required. An additional signature is required only when payment
is to be made by withdrawal from a deposit account that requires multiple
signatures to withdraw funds. If you have any remaining questions, or if you
would like assistance in completing your Stock Order Form, you may call the
Stock Information Center. The Stock Information Center phone number is (765)
659-5708. The Stock Information Center is open between the hours of 9:00 a.m.
and 4:30 p.m., Monday through Wednesday, 9:00 a.m. to 12:00 noon p.m. on
Thursday, and 9:00 a.m. and 6:00 p.m. on Friday.
A valid stock order form must be signed and dated on the front of this
form.
<PAGE>
FORM OF CERTIFICATION
I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR AN ACCOUNT AND IS
NOT FEDERALLY INSURED, AND IS NOT GUARANTEED BY CITIZENS SAVINGS BANK OF
FRANKFORT, OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that this security is federally insured or
guaranteed, or is as safe as an insured deposit, I should call the Office of
Thrift Supervision Regional Director, Ronald N. Karr at (312) 565-5300.
I further certify that, before purchasing the common stock, without par
value, of Citizens Bancorp, I received an offering circular (also known as the
prospectus).
The offering circular that I received contains disclosure concerning
the nature of the security being offered and describes the risks involved in the
investment, including but not limited to:
1. Lack of Active Market for Common Stock (page 1)
2. Decreased Return on Average Equity and Increased Expenses
Immediately After Conversion (page 1)
3. Potential Impact of Changes in Interest Rates and Current
Interest Rate Environment (page 1)
4. Nonresidential Real Estate and Multi-Family Lending (page 1)
5 Dependence on President and Possible New Management (page 2)
6 Potential Impact of Future Changes in or the Discontinuance of
the Business of Citizens' Subsidiary (page 2)
7. Intent to Remain Independent (page 2)
8 Anti-Takeover Provisions and Statutory Provisions that Could
Discourage Hostile Acquisitions of Control (page 2)
9. Potential Voting Control by Directors and Officers (page 2)
10. Possible Dilutive Effect of RRP and Stock Options (page 3)
11. Financial Institution Regulation and Future of the Thrift
Industry (page 3)
12. Restrictions on Repurchase of Shares (page 3)
13. Competition (page 3)
14. Geographic Concentration of Loans (page 3)
15. Risk of Delayed Offering (page 3)
16. Income Tax Consequences of Subscription Rights (page 3).
Signature:___________________________________________
Date: _______________________________________________
