FORM 10-QSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction period from to .
Commission file number: 333-32245
Heartland Bancshares, Inc.
(Exact name of small business issuer as specified in its charter)
Indiana 35-2017085
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
420 North Morton Street, P.O. Box 469, Franklin, Indiana 46131
(Address of principal executive offices)
(317)738-3915
(Registrant's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
As of August 13, 1999, the latest practicable date, 1,265,000 shares of the
Registrant's Common Stock, no par value, were issued and outstanding.
Transitional Small Business Disclosure Format Yes No X
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
HEARTLAND BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1999 and December 31, 1998
(Unaudited, dollars in thousands except per share data)
- ------------------------------------------------------------------------------
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 295 $ 403
Interest bearing deposits in other banks 1,257 1,560
Federal funds sold 850 1,200
-------- --------
Total cash and cash equivalents 2,402 3,163
Securities available-for-sale, at market 11,861 10,457
Loans 75,392 49,442
Allowance for loan losses (1,131) (742)
-------- --------
Loans, net 74,261 48,700
Premises, furniture and equipment, net 1,674 1,707
Accrued interest receivable and other assets 968 633
-------- --------
$ 91,166 $ 64,660
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 5,915 $ 4,341
Interest-bearing demand and savings deposits 20,492 13,397
Interest-bearing time deposits 48,845 35,016
-------- --------
Total deposits 75,252 52,754
Short-term borrowings 4,414 740
Accrued interest payable and other liabilities 477 250
-------- --------
80,143 53,744
Shareholders' equity
Common stock, no par value: 10,000,000 shares
authorized; 1,265,000 shares issued and
outstanding 1,265 1,265
Additional paid-in capital 10,466 10,466
Accumulated deficit (534) (868)
Accumulated other comprehensive income (174) 53
-------- --------
11,023 10,916
$ 91,166 $ 64,660
======== ========
</TABLE>
<PAGE>
<TABLE>
HEARTLAND BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three months and six months ended June 30, 1999 and 1998
(Unaudited, dollars in thousands except per share data)
- ------------------------------------------------------------------------------
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans $1,560 $ 489 $2,825 $ 716
Securities:
Taxable 163 134 329 247
Non-taxable 6 - 12 -
Other 12 49 27 62
------ ------ ------ ------
Total interest income 1,741 672 3,193 1,025
Interest expense
Deposits 798 267 1,463 348
Short-term borrowings 18 - 24 2
------ ------ ------ ------
Total interest expense 816 267 1,487 350
------ ------ ------ ------
Net interest income 925 405 1,706 675
Provision for loan losses 222 180 398 323
------ ------ ------ ------
Net interest income after
provision for loan losses 703 225 1,308 352
Noninterest income
Service charges and fees 51 9 78 13
Noninterest expense
Salaries and employee benefits 311 241 609 476
Occupancy and equipment
expenses, net 50 43 99 79
Data processing expense 65 40 127 69
Printing and supplies 19 14 32 39
Advertising 21 21 38 43
Director fees 7 7 14 14
Professional fees 16 7 28 29
Credit reports and other loan
expenses 12 9 26 21
Amortization of organization
costs - 19 - 22
Other operating expenses 46 30 79 54
------ ------ ------ ------
Total noninterest expense 547 431 1,052 846
------ ------ ------ ------
Income before income taxes 207 (197) 334 (481)
Income taxes - - - -
------ ------ ------ ------
Net income/(loss) $ 207 $ (197) $ 334 $ (481)
====== ====== ====== ======
Basic and diluted earnings
per share $ .16 $ (.16) $ .26 $ (.38)
====== ====== ====== ======
Comprehensive income (Note 1) $ 62 $ (208) $ 107 $ (466)
====== ====== ====== ======
</TABLE>
<PAGE>
<TABLE>
HEARTLAND BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the three months and six months ended June 30, 1999 and 1998
(Unaudited, dollars in thousands except per share through data)
- ------------------------------------------------------------------------------
<CAPTION>
Accumulated
Other Total
Additional Accum- Compre- Share-
Common Paid-in ulated hensive holders'
Stock Capital Deficit Income Equity
----- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1997 $ 1,265 $10,466 $ (240) $ 13 $11,504
Comprehensive income (loss)
Net loss for six months
Ended June 30, 1998 (481) (481)
Change in unrealized
gain on securities
available-for-sale 15 15
-------
Total comprehensive loss (466)
------ ------ ------- ------ ------
Balance June 30, 1998 1,265 10,466 (721) 28 11,038
Comprehensive income (loss)
Net loss for six months
ended December 31, 1998 (147) (147)
Change in unrealized
gain on securities
available-for-sale 25 25
-------
Total comprehensive loss (122)
------- ------- ------- ------ -------
Balance December 31, 1998 1,265 10,466 (868) 53 10,916
Comprehensive income (loss)
Net income for six months
ended June 30, 1999 334 334
Change in unrealized
gain on securities
available-for-sale (227) (227)
-------
Total comprehensive income 107
------- ------- ------- ------ -------
Balance June 30, 1999 $ 1,265 $10,466 $ (534) $ (174) $11,023
======= ======= ======= ====== =======
</TABLE>
<PAGE>
<TABLE>
HEARTLAND BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1999 and 1998
(Unaudited, dollars in thousands except per share data)
- ------------------------------------------------------------------------------
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income/(loss) $ 334 $ (481)
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation and amortization 40 72
Provision for loan losses 398 323
Change in assets and liabilities:
Accrued interest receivable and other assets (335) (243)
Accrued interest payable and other liabilities 227 (3)
Net cash from operating activities 664 (332)
Cash flows from investing activities
Purchase of securities available-for-sale (2,333) (3,043)
Proceeds from calls and maturities of securities
available-for-sale 700 1,000
Loans made to customers, net of payments collected (25,959) (20,604)
Net purchases of property and equipment (5) (602)
-------- --------
Net cash from investing activities (27,597) (23,249)
Cash flows from financing activities
Net change in deposit accounts 22,498 25,463
Net change in short-term borrowings 3,674 (800)
-------- --------
Net cash from financing activities 26,172 24,663
-------- --------
Net change in cash and cash equivalents (761) 1,082
Cash and cash equivalents at beginning of period 3,163 1,140
-------- --------
Cash and cash equivalents at end of period $ 2,402 $ 2,222
======== ========
Supplemental disclosures of cash flow information Cash paid during the period
for:
Interest $ 1,312 $ 238
Income taxes 169 -
</TABLE>
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: The consolidated financial statements include the
accounts of Heartland Bancshares, Inc. (Heartland) and its wholly-owned
subsidiary, Heartland Community Bank (Bank), after elimination of significant
inter-company transactions and accounts. The Bank commenced operation December
17, 1997.
Heartland operates primarily in the banking industry, which accounts for more
than 90% of its revenues, operating income and assets. The Bank is engaged in
the business of commercial and retail banking, with operations conducted through
its main office located in Franklin, Indiana. The Bank opened an additional
branch location in Greenwood, Indiana in January 1998. The majority of the
Bank's income is derived from commercial and retail business lending activities
and investments. The majority of the Bank's loans are secured by specific items
of collateral including business assets, real property and consumer assets.
Use of Estimates: To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ. The allowance for loan losses, the fair values of
financial instruments, and status of contingencies are particularly subject to
change.
Securities: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported separately in shareholders'
equity, net of tax. Securities are written down to fair value when a decline in
fair value is not temporary. Interest and dividend income, adjusted by
amortization of purchase premium or discount, is included in earnings. The Bank
had no held to maturity securities at June 30, 1998 or 1999.
Loans: Loans are reported at the principal balance outstanding, net of unearned
interest, deferred loan fees and costs, and an allowance for loan losses.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term.
Interest income is not reported when full loan repayment is in doubt, typically
when payments are past due over 90 days (180 days for residential mortgages).
Payments received on such loans are reported as principal reductions.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on known and inherent risks in the portfolio, information about specific
borrower situations and estimated collateral values, economic conditions, and
other factors. Allocations of the allowance may be made for specific loans, but
the entire allowance is available for any loan that, in management's judgment,
should be charged-off.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage, consumer and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral. Loans
are evaluated for impairment when payments are delayed, typically 90 days or
more, or when it is probable that all principal and interest amounts will not be
collected according to the original terms of the loan.
Premises, Furniture and Equipment: Premises, furniture and equipment are stated
at cost less accumulated depreciation. Depreciation expense is recognized over
the estimated useful lives of the assets, principally on the straight-line
method. These assets are reviewed for impairment when events indicate the
carrying amount may not be recoverable. Maintenance and repairs are expensed and
major improvements are capitalized.
Intangibles: A new accounting standard effective on January 1, 1999, requires
all previously capitalized organizational costs to be written off as of that
date. Early adoption was allowed, so Heartland completely amortized
organizational costs during 1998. The incremental amount written-off in 1998 by
early adoption of this accounting standard was not significant to the results of
operations.
Stock Compensation: Expense for employee compensation under stock option plans
is based on Accounting Principles Board Opinion 25, with expense reported only
if options are granted below market price at grant date. Pro forma disclosures
of net income and earnings per share are provided as if the fair value method of
Financial Accounting Standard No. 123 were used for stock based compensation.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
Financial Instruments: Financial instruments include credit instruments, such as
commitments to make loans and standby letters of credit, issued to meet customer
financing needs. The face amount for these items represents the exposure to
loss, before considering customer collateral or ability to repay.
Statement of Cash Flows: Cash and cash equivalents are defined to include cash
on hand, amounts due from banks, and federal funds sold. Heartland reports net
cash flows for customer loan transactions, deposit transactions, and short-term
borrowings.
Earnings Per Common Share: Basic earnings per common share is net income divided
by the weighted average number of common shares outstanding during the period.
Diluted earnings per common share includes the dilutive effect of additional
potential common shares issuable under stock options.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale which are also recognized as separate
components of equity. The accounting standard that requires reporting
comprehensive income first applies for 1998, with prior information restated to
be comparable. There are no reclassification adjustments to other comprehensive
income in 1998 or 1999.
Dividend Restriction: Banking regulations require maintaining certain
capital levels and may limit the dividends paid by the bank to the holding
company or by the holding company to shareholders.
Fair Values of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed separately. Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments, and
other factors, especially in the absence of broad markets for particular items.
Changes in assumptions or in market conditions could significantly affect the
estimates. The fair value estimates of existing on- and off-balance sheet
financial instruments does not include the value of anticipated future business
or the values of assets and liabilities not considered financial instruments.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Industry Segment: Internal financial information is primarily reported and
aggregated in one line of business, i.e. banking.
Financial Statement Presentation: Certain items in the prior financial
statements have been reclassified to correspond with the current presentation.
NOTE 2 - GENERAL
These financial statements were prepared in accordance with the Securities and
Exchange Commission instructions for Form 10-QSB and for interim periods donot
include all of the disclosures necessary for a complete presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. These financial statements have been
prepared on a basis consistent with the annual financial statements and include,
in the opinion of management, all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results of
operations and financial position at the end of and for the periods presented.
The interim period results of operations are not necessarily indicative of the
results that may be for the expected full year.
NOTE 3 - PER SHARE DATA
The following illustrates the computation of basic and diluted earnings per
share for the three months and six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per share
Net income/(loss) $ 207 $ (197) $ 334 $ (481)
========= ========= ========= =========
Weighted average shares
outstanding 1,265,000 1,265,000 1,265,000 1,265,000
========= ========= ========= =========
Basic earnings per share $ .16 $ (.16) $ .26 $ (.38)
========= ========= ========= =========
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
Dilutive earnings per share
Net income/(loss) $ 207 $ (197) $ 334 $ (481)
========= ========= ========= =========
Weighted average shares
outstanding 1,265,000 1,265,000 1,265,000 1,265,000
Dilutive effect of assumed
exercise of stock options - 7,595 - 6,068
--------- --------- --------- ---------
Diluted average shares
Outstanding 1,265,000 1,272,595 1,265,000 1,271,068
--------- --------- --------- ---------
Diluted earnings per share $ .16 $ (.16) $ .26 $ (.38)
========= ========= ========= =========
</TABLE>
<PAGE>
ITEM 2.
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
JUNE 30, 1999
- ------------------------------------------------------------------------------
INTRODUCTION
The following discussion focuses on the financial condition at June 30, 1999
compared to December 31, 1998 and the results of operations for the three and
six month periods ended June 30, 1999 in comparison to the three and six month
periods ended June 30, 1998 of Heartland Bancshares, Inc. (Heartland). Heartland
was incorporated May 27, 1997. Heartland was formed with the specific intent to
form a wholly owned subsidiary state chartered bank (Heartland Community Bank or
Bank). Heartland received approval from the Federal Reserve Bank of Chicago to
be a bank holding company in the fall of 1997. Operations of the Bank began
December 17, 1997.
This discussion should be read in conjunction with the interim financial
statements and related footnotes included in Part I, Item 1, of this report and
with the financial statements and other financial data, as well as the
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Heartland's Annual Report on Form 10-KSB for the year
ended December 31, 1998.
The registrant is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on the liquidity,
capital resources or operations except as discussed herein. Also, the Registrant
is not aware of any current recommendations by regulatory authorities that would
have such effect if implemented.
GENERAL
As of October 2, 1997, Heartland raised approximately $11,735,000 in equity
capital through the sale of 1,265,000 shares of the Company's common stock at
$10 per share, net of underwriting discounts and offering costs. Proceeds from
the offering were used to capitalize the Bank and provide working capital.
Heartland's only activity beyond holding stock of the Bank is investment in
securities using working capital provided by the issuance of shares of common
stock.
Heartland's plan of operation is centralized around the growth of the Bank. The
primary operation of the Bank is to accept deposits and make loans. The
operating results of Heartland are affected by general economic conditions, the
monetary and fiscal policies of federal agencies and the regulatory policies of
agencies that regulate financial institutions. Heartland's cost of funds is
influenced by interest rates on competing investments and general market rates
of interest. Lending activities are influenced by consumer and commercial
demand, which in turn are affected by the interest rates at which such loans are
made, general economic conditions and the availability of funds for lending
activities.
The Federal Financial Institutions Examination Council (FFIEC) has issued
several statements regarding preparing for the Year 2000 date change and related
issues. Those statements have identified specific actions and plans to be
adopted by financial institutions, all of which would be materially adversely
affected by Year 2000 failure of loan and deposit data processing systems. As of
June 30, 1999, Heartland has implemented the procedures and plans set out by
FFIEC. Heartland has completed the evaluation and testing of computer and
software systems, in cooperation with its independent data processing service
provider and hardware and software manufacturers and vendors, and estimates that
the amount of costs that will be incurred to prepare for the date change will
not be significant. Although Heartland has no reason to expect that its data
processing and other costs and expenses will be significant or that its
financial condition and results of operations will be adversely affected by Year
2000 problems, this is a forward-looking statement, and actual expenses may vary
materially from current expectations due to the possibility, among other risks,
that the Company's data processing service provider will be unable to perform in
accordance with the Year 2000 plan and the possibility that the Company's
customers may not be Year 2000 compliant.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
MANAGEMENT'S DISCUSSION AND ANALYSIS
JUNE 30, 1999
- ------------------------------------------------------------------------------
FINANCIAL CONDITION
Heartland experienced continued growth through the first six months of 1999.
Total assets at June 30, 1999 are $91.2 million, an increase of $26.5 million or
40.96% from the December 31, 1998 total assets of $64.7 million. Investment
securities total $11.9 million at June 30, 1999 compared to $10.5 million at
December 31, 1998, an increase of $1.4 million or 13.33%. Total gross loans were
$75.4 million at June 30, 1999, representing growth of $26.0 million, or 52.63%,
from the December 31, 1998 total of $49.4 million.
An increase in total deposits of $22.5 million to $75.3 million at June 30,
1999, or 42.61% from $52.8 million at December 31, 1998 primarily funded the
growth in assets. Short-term borrowings were increased by $3.7 million from
$740,000 at December 31, 1998 to $4.4 million at June 30, 1999. The increase was
due to a $4 million advance from the Federal Home Loan Bank of Indianapolis
(FHLBI). Heartland maintains a blanket collateral agreement with the FHLBI
whereby all available mortgage loans and securities within Heartland's portfolio
have been pledged as collateral for the advance, which matures in June of 2000.
Heartland's total equity to total asset ratio was 12.09% at June 30, 1999
compared to 16.88% at December 31, 1998. The change was primarily due to the
growth in assets, offset by the total comprehensive income for the six months
ended June 30, 1999. Book value per common share of Heartland was $8.71 at June
30, 1999 compared to $8.63 at December 31, 1998. The change in book value per
common share resulted from the total comprehensive income for the three months
ended June 30, 1999.
RESULTS OF OPERATIONS
Heartland recorded net income of $207,000 for the three months ended June 30,
1999 compared to a net loss of $197,000 for the three months ended June 30,
1998. Similarly net income for the six months ended June 30, 1999 was $334,000
compared to a net loss of $481,000 for the six months ended June 30, 1998. The
improvements were primarily due to the increase in net interest income. Net
interest income for the three months and six months ended June 30, 1999 was
$925,000 and $1.7 million compared to $405,000 and $675,000 for the three months
and six months ended June 30, 1998. Non-interest income was $51,000 and $78,000
for the three months and six months ended June 30, 1999. Comparatively,
non-interest income was $9,000 and $13,000 for the three months and six months
ended June 30, 1998.
Increases in net interest income were achieved primarily through increased
volume of interest earning assets. Total interest income for the three months
ended June 30, 1999 was $1.7 million compared to $672,000 for the same period in
1998. Interest income for the six months ended June 30, 1999 and 1998 was $3.2
million and $1.0 respectively. Interest expense of $816,000 and $1.5 million was
incurred during the three months and six months ended June 30, 1999. Interest
expense during the three months and six months ended June 30, 1998 was $267,000
and $350,000. Interest expense during all periods discussed is related to
interest-bearing deposits and short-term borrowings.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
MANAGEMENT'S DISCUSSION AND ANALYSIS
JUNE 30, 1999
- ------------------------------------------------------------------------------
Provision for loan losses recorded during the three months ended June 30, 1999
was $222,000 compared to $180,000 for the three months ended June 30, 1998.
Similarly, Heartland recorded provision for loan losses of $398,000 during the
six months ended June 30, 1999 and $323,000 during the same period in 1998.
Salaries and benefits expense was $311,000 and $609,000 for the three months and
six months ended June 30, 1999 compared to $241,000 and $476,000 for the three
months and six months ended June 30, 1998.
Net occupancy and equipment expenses of $50,000 were incurred during the three
months ended June 30, 1999 compared to $43,000 during the same period in 1998.
Heartland recorded net occupancy and equipment expenses of $99,000 and $79,000
for the six months ended 1999 and 1998 respectively. The Bank entered into a 10
year lease agreement with a non-related party for a facility located on Highway
135 in Greenwood, Indiana and commenced banking activities in that facility in
May, 1998.
Data processing expense was $65,000 for the three months ended June 30, 1999
compared to $40,000 for the three months ended June 30, 1998. Data processing
expense was $127,000 for the six months ended June 30, 1999 and $69,000 for the
same period in 1998. In the fourth quarter of 1997, the Bank entered into a
three-year contract with a third party service provider for core data
processing, with monthly expense partially based on volume of accounts and
transactions.
Printing and supplies expense was $19,000 for the three months ended June 30,
1999 and $14,000 for the three months ended June 30, 1998. Heartland incurred
printing and supplies expense of $32,000 for the six months ended June 30, 1999
compared to $39,000 for the same period in 1998.
Heartland incurred advertising expense of $21,000 during the three months ended
June 30, 1999 compared to $21,000 during the three months ended June 30, 1998.
Advertising expense for the six month periods ended June 30, 1999 and 1998 was
$38,000 and $43,000, respectively.
Directors' fees expense was $7,000 for both the three months ended June 30, 1999
and the three months ended June 30, 1998. Similarly, directors' fees expense was
$14,000 for both the six months ended June 30, 1999 and the six months ended
June 30, 1998.
Professional fees expense for the three months ended June 30, 1999 was $16,000
compared to $7,000 for the three months ended June 30, 1998. Professional fees
expense was $28,000 for the six months ended June 30, 1999 and $29,000 for the
six months ended June 30, 1998.
Credit reports and other loan expenses were $12,000 for the three months ended
June 30, 1999 and $9,000 for the three months ended June 30, 1998. Heartland
recorded credit reports and other loan expenses of $26,000 during the six months
ended June 30, 1999 and $21,000 during the six months ended June 30, 1998.
Amortization of organization costs were $19,000 during the three months ended
June 30, 1998 and $22,000 during the six months ended June 30, 1998. All
organization costs were fully amortized in 1998, therefore no related expense
has been recorded in the six months or three months ended June 30, 1999.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
MANAGEMENT'S DISCUSSION AND ANALYSIS
JUNE 30, 1999
- ------------------------------------------------------------------------------
The remaining expenses of $46,000 during the three months ended June 30, 1999,
$30,000 during the three months ended June 30, 1998, $79,000 during the six
months ended June 30, 1999 and $54,000 during the six months ended June 30,
1998, relate to various other items such as postage, insurance and training.
CAPITAL RESOURCES
Shareholders' equity totaled $11.0 million at June 30, 1999, compared to $10.9
million at December 31, 1998. The change is attributable to the total
comprehensive income for the three months ended June 30, 1999. As of June 30,
1999, 1,265,000 shares of common stock were issued and outstanding. Additional
paid-in capital was $10.5 million at December 31, 1998 and June 30, 1999.
LIQUIDITY
Liquidity management for Heartland focuses on the ability to keep funds
available to meet the requirements of withdrawals of depositors and funding of
new loans and investments. The primary source of liquidity for Heartland is the
receipt of new deposits. The Bank has the ability to borrow Federal funds from
other commercial banks on a daily basis. Such borrowings are secured by
investment securities. The Bank also has the ability to borrow from the Federal
Home Loan Bank of Indianapolis with various repayment terms ranging from 1 day
to 15 years. Such borrowings are secured by a "blanket" collateral agreement
covering all available mortgage loans and investment securities in the Bank's
portfolio. Heartland manages liquidity through the use of deposits with other
financial institutions, Federal Funds and investment securities.
<PAGE>
ITEM 4. Submission of Matters to a Vote of Security Holders.
Heartland held its Annual Meeting of Shareholders on April 19, 1999. At the
Annual Meeting, the shareholders elected as directors for an additional
three-year term the three nominees proposed by the Board of Directors, and
approved an amendment to the Heartland Bancshares, Inc. 1997 Stock Option Plan
to increase the shares available for grant from 75,000 to 137,000 shares (the
"Amendment").
Nominee Votes Votes Broker
Cast for Withheld Non-Votes
Steve Bechman 1,215,585 0 49,415
Gordon R. Dunn 1,215,585 0 49,415
James C. Stewart 1,215,585 0 49,415
There were no abstentions.
The following members of the Board of Directors continued in office following
the meeting for terms expiring at the annual meetings in the following years:
2000 -- Sharon Acton, Jeffrey L. Goben and John Norton; and
2001 -- J. Michael Jarvis, Robert Richardson and Patrick A. Sherman.
The shareholders approved the Amendment by a vote of 1,163,715 votes in favor
and 45,470 votes opposed with 55,815 abstentions or broker non-votes.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
PART II
- ------------------------------------------------------------------------------
Item 6 - Exhibits and Reports on Form 8-K:
(a) The following exhibits are filed as part of this report:
3.1 Amended and Restated Articles of Incorporation of Heartland
Bancshares, Inc., which are incorporated by reference to
Exhibit 3.1 in the Registration Statement Form SB-2, filed
July 28, 1997, as amended, ("Form SB-2"). 10.1 Amendment to
Stock Option Plan
3.2 Amended and Restated Bylaws of Heartland Bancshares, Inc., which
are incorporated by reference to Exhibit 3.2 in the Form SB-2
10.1 1997 Stock Option Plan, as amended
10.2 1997 Stock Option Plan for Nonemployee Directors, as amended
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three months
ended June 30, 1999.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
SIGNATURES
------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
HEARTLAND BANCSHARES, INC.
(Registrant)
/s/ Steve Bechman
Date: --------------------------
Steve Bechman
President and
Chief Executive Officer
/s/ Jeffery D. Joyce
Date: --------------------------
Jeffery D. Joyce
Chief Financial Officer
EXHIBIT 10.1
HEARTLAND BANCSHARES, INC.
1997 STOCK OPTION PLAN
(as amended by Board of Directors action approved at the annual meeting of
shareholders held April 19, 1999)
1. PURPOSE OF THE PLAN
This Stock Option Plan ("Plan") is designed to provide an incentive to key
employees of Heartland Bancshares, Inc. (the "Corporation") and any of its
subsidiaries, including officers and employee directors, and to offer an
additional inducement in obtaining the services of key personnel and
professional advisors by granting such persons options to purchase shares of the
Corporation's common stock ("Common Stock"). The Plan provides for the grant of
(i) options intended to qualify as "Incentive Stock Options" within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
(ii) non-qualified options.
2. STOCK SUBJECT TO THE PLAN
The shares of Common Stock to be issued upon exercise of options granted
under the Plan (the "Options") shall be made available, at the discretion of a
committee of the Board of Directors appointed hereunder, from either authorized
but unissued shares of Common Stock or shares of Common Stock held in the
treasury of the Corporation or any subsidiary of the Corporation, including
shares of Common Stock purchased in the open market or otherwise.
Subject to the provisions of the next succeeding paragraph of this Section
2, the aggregate number of shares for which Options may be granted under the
Plan shall be 137,000. If, prior to the expiration of the plan as provided in
Section 13, the Plan remains in effect and an Option granted under the Plan
shall have terminated for any reason without having been exercised in full, then
the unpurchased shares covered by the terminated Option shall become available
for option to other employees.
In the event that an optionee tenders shares of Common Stock owned by the
optionee in payment of the purchase price of shares the optionee has elected to
purchase pursuant to an Option, only the net shares issued in connection with
such transaction (calculated by subtracting the number of shares tendered in
payment from the number of shares purchased under the Option) shall be
considered to be shares for which Options have been granted under the Plan, and
the remaining number of shares issued under such Option shall be considered
unpurchased shares that shall again become available for grants of Options to
other employees.
<PAGE>
In the event that the outstanding shares of Common Stock hereafter are
changed into or exchanged for a different number or kind of shares or other
securities of the Corporation by reason of any recapitalization,
reclassification, combination of shares, stock split-up, stock dividend, or
other reorganization or (in the discretion of the Committee) in the event of any
spin-off or other distribution of a substantial portion of the assets of the
Corporation to the holders of the shares of the Corporation then subject to
Options granted hereunder:
(a) the aggregate number and kind of shares subject to Options which
may be granted hereunder shall be adjusted appropriately; and
(b) rights under outstanding Options granted hereunder, both as to the
number of subject shares and the Option price, shall be adjusted
appropriately.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined solely by the Committee, and any such adjustment
may provide for the elimination of fractional share interests.
3. ADMINISTRATION OF THE PLAN
The Plan shall be administered by a committee of the Board of Directors
(the "Committee") consisting of two or more members, each of whom shall qualify
at all times as a "Non-Employee Director" within the meaning of Rule 16b-3
adopted under the Securities Exchange Act of 1934, as amended, or any successor
rule ("Rule 16b- 3"). The members of the Committee shall be appointed by, and
may be changed from time to time in the discretion of, the Board of Directors of
the Corporation. A majority of the members shall constitute a quorum, and the
acts of a majority of the members present at any meeting at which a quorum is
present, and any acts approved in writing by all of the members without a
meeting, shall be the acts of the Committee.
<PAGE>
4. OPTION PRICE
The purchase price under each Option shall be determined by the Committee
at the time of grant. In the case of Incentive Stock Options, the purchase price
must be set as follows:
(a) for persons who at the time of grant own stock possessing ten
percent or less of the total combined voting power of all classes of stock
of the Corporation or any parent or subsidiary corporation, the Option
price at the time the Option is granted must be set at no less than the
fair market value of the shares of Common Stock subject to the Option; and
(b) for optionees who own stock possessing more than ten percent of
the total combined voting power of all classes of stock of the Corporation
or of any parent or subsidiary corporation, the Option price at the time
the Option is granted must be at least 110 percent of the fair market value
of the shares of Common Stock subject to the Option.
The purchase price for nonqualified Options shall be set at the fair market
value of the shares of Common Stock covered by the Option at the time of grant.
Fair market value shall be determined for purposes of Section 4 by the Committee
in good faith in accordance with all applicable requirements of the Code.
5. OPTIONS AND ELIGIBILITY OF OPTIONEES
The Committee may, consistent with the purposes of the Plan, from time to
time (a) grant Options to any or all salaried employees (including officers and
employee directors) of the Corporation and any of its future subsidiaries as
defined in applicable sections of the Code, and (b) grant nonqualified Options
to persons who act as consultants (not including non-employee directors) to the
Corporation but who are not employed by the Corporation. There shall be no
limitation on the aggregate number of shares for which an Option or Options may
be granted to any one individual; provided, however, that the aggregate fair
market value (determined at the time the Option is granted) of the shares with
respect to which Incentive Stock Options are exercisable for the first time
during any calendar year (under all such plans of the Corporation and any parent
or subsidiary corporation) shall not exceed $100,000 (the "Qualifying Limit").
Incentive Stock Options may not be granted under the Plan after the expiration
date of the Plan as set forth in Section 13. Notwithstanding the above and in
order that the Corporation retains the flexibility to provide additional
inducement to key personnel, the aggregate fair market value of shares of which
any individual may be granted Options that first become exercisable in any
calendar year may exceed the Qualifying Limit; provided, however, that the
Options granted in excess of the Qualifying Limit shall not be treated as
"Incentive Stock Options." Employees may receive more than one Option under the
Plan.
<PAGE>
The Committee, at the time of each grant under this Plan, shall specify
whether such grant is intended to qualify as an Incentive Stock Option or
constitute a non-qualified Option.
The Board of Directors, without further approval of the shareholders, may
substitute new Options for prior options of a constituent corporation or assume
the prior options of a constituent corporation. For the purposes of this Section
5, a constituent corporation shall include any corporation which has been merged
into or consolidated with the Corporation or one or more subsidiaries of the
Corporation, or whose assets or stock has been acquired by or liquidated into
the Corporation, or by or into any one or more subsidiaries of the Corporation,
or any parent or any subsidiary of such corporation.
Subject to the terms, provisions and conditions of the Plan, the Committee
shall have exclusive jurisdiction (i) to select the persons to whom Options may
be granted, (ii) to determine the number of shares subject to each Option, (iii)
to determine the time or times when Options will be granted, (iv) to determine
the Option price of the shares subject to each Option, which price in the case
of Incentive Stock Options shall be not less than the minimum specified in
Section 4 of the Plan, (v) to determine the time when each option may be
exercised within the limits stated in the Plan, (vi) to prescribe the form,
which shall be consistent with the Plan, of the instruments evidencing any
Options granted under the Plan, and (vi) to take any other action or make any
other determination under this Plan not expressly delegated to others by the
Articles of Incorporation or Bylaws of the Corporation, or by this Plan, or by
applicable law. The Committee's determination or interpretation of any matter
within the Committee's jurisdiction under the Plan shall be conclusive, final
and binding upon the Corporation, the optionees and all other interested
persons.
<PAGE>
6. RESTRICTIONS ON TRANSFERABILITY OF OPTIONS
No Option granted under the Plan shall be transferable by the optionee
unless the Committee, in its sole discretion, authorizes such transfer and such
transfer is permitted by, or is not in violation of, the provisions of the Code
and Rule 16b-3 (to the extent that such are applicable to the Option). Except as
specifically authorized by the Committee, an Option shall be exercisable during
the optionee's lifetime only by the optionee or, in the case of the optionee's
legal disability, by the optionee's guardian or legal representative.
7. EXERCISE OF OPTIONS; REPLACEMENT OPTIONS
Each Option granted under the Plan shall expire not later than ten years
from the date the Option was granted. The Committee may, in its discretion,
prescribe a shorter period for the expiration of any Option or Options.
Subject to the provisions of this Section 7 and of Section 8 hereof, each
Option may be exercised in whole or from time to time in part with respect to
the number of shares as to which it is then exercisable in accordance with the
terms of the Plan and the determinations of the Committee. Except as otherwise
provided in Section 8 hereof, no Option that is intended to qualify as an
Incentive Stock Option may be exercised unless the optionee shall have been in
the employ of the Corporation or one of its subsidiaries at all times during the
period beginning with the date of grant of such Option and ending on the date
three (3) months prior to the date of exercise of such Option. The Committee may
impose additional conditions upon the right of an optionee to exercise any
Option granted hereunder that are not inconsistent with the terms of the Plan
or, in the case of an Option intended to qualify as an Incentive Stock Option,
with the requirements for qualification as an Incentive Stock Option under
Section 422 of the Code.
A person exercising an Option shall give written notice to the Corporation
of such exercise and the number of shares the optionee has elected to purchase
and shall at the time of purchase tender an amount in cash, in shares of Common
Stock of the Corporation owned by such person, or in any combination of cash and
such shares of Common Stock, equal in value to the purchase price of the shares
the optionee has elected to purchase. Until the purchaser has made such payment
and has been issued a certificate or certificates for the shares so purchased,
the optionee shall possess no shareholder rights with respect to any such share
or shares.
In the event that an optionee tenders shares of Common Stock owned by such
optionee in payment (in whole or in part) of the purchase price of shares that
the optionee has elected to purchase under an Option, the Corporation shall be
obligated to use its best efforts to issue to such optionee a replacement option
of the same type (Incentive Stock Option or nonqualified Option) (a "Replacement
Option") as the Option exercised (the "Exercised Option") and with the same
expiration date as the Exercised Option. Such Replacement Option shall entitle
the optionee to purchase a number of shares equal to the number of shares
tendered to the Corporation to purchase shares under the Exercised Option, and
shall specify an exercise price equal to the fair market value of the shares of
Common Stock on the date of exercise of the Exercised Option. Such Replacement
Option shall not be exercisable during the twelve months following the date of
exercise of the Exercised Option and shall be cancelled if, during such period,
the optionee sells any shares of Common Stock of the Company other than in
payment of the exercise price of another Option under the Plan, or pursuant to a
corporate transaction in which all holders of shares of Common Stock are
obligated to sell or otherwise dispose of their shares. Replacement Options
shall be issuable upon exercise of other Replacement Options granted under this
paragraph if all conditions for such issuance are satisfied.
<PAGE>
8. TERMINATION OF EMPLOYMENT
(a) Termination Other Than for Disability, Retirement or Upon Death. In the
event that any optionee's employment by the Corporation and its subsidiaries
shall terminate for any reason, other than permanent and total disability as
such term is defined in Section 22(e)(3) of the Code ("Permanent and Total
Disability"), retirement or death, all of such optionee's Options (regardless of
whether they are intended to be Incentive Stock Options), and all of such
optionee's rights to purchase or receive shares of Common Stock pursuant
thereto, as the case may be, may be exercised, to the extent that the Optionee
was entitled to exercise such Options at the date of such termination of
employment, by the optionee until the earlier of (i) the respective expiration
dates of such Options or (ii) (x) if the Option is an Incentive Stock Option, on
the date that is three (3) months after the date of such termination of
employment or (y) if the Option is a nonqualified Option, on the date that is
one (1) year after the date of such termination of employment. If, however, an
optionee's employment is terminated for cause, the provisions of the preceding
sentence shall not apply and any Option held by such optionee will terminate
automatically upon the termination of the optionee's employment. Options granted
under the Plan shall not be affected by any change in service or employment so
long as the optionee continues to be employed by or in the service of the
Corporation or any of its subsidiaries, or a corporation (or a parent or
subsidiary of such corporation) issuing or assuming an Option in a transaction
in accordance with applicable Code requirements.
(b) Disability. In the event that any optionee's employment shall terminate
as a result of the Permanent and Total Disability of such optionee, such
optionee (or the optionee's guardian or legal representative), may exercise, to
the extent that the optionee was entitled to exercise any such Options at the
date of such termination of employment, any Options granted to the optionee
pursuant to the Plan at any time prior to the earlier of (i) the respective
expiration dates of any such Options or (ii) (x) if the Option is an Incentive
Stock Option, on the date that is one year after the date of such termination of
employment or (y) if the Option is a nonqualified Option, on the date that is
three (3) years after the date of such termination of employment.
(c) Death. In the event that any optionee's employment shall terminate as a
result of the death of the optionee, any Options granted to any such optionee,
may be exercised, to the extent that the optionee was entitled to exercise any
such Options at the date of death, by the person or persons to whom the
optionee's rights under any such Options pass by will or by the laws of descent
and distribution (including the optionee's estate during the period of
administration) at any time prior to the earlier of (i) the respective
expiration dates of any such Options or (ii) the date which is three (3) years
after date of death of such optionee.
<PAGE>
(d) Retirement. In the event that any optionee's employment terminates as a
result of the optionee's retirement on or after attaining the age of 62 and
after the optionee has been employed by the Corporation for at least three (3)
years, such optionee (or the optionee's guardian or legal representative), may
exercise, to the extent that the optionee was entitled to exercise any such
Option at the date of such termination of employment, any Options granted to the
optionee pursuant to the Plan at any time prior to the earlier of (i) the
respective expiration dates of any such Options or (ii) the date which is three
(3) years after the date of such termination of employment. In the event that an
optionee's employment terminates as a result of the optionee's retirement and
such optionee has not been employed by the Corporation for at least three (3)
years at the time of such retirement, then, on the date of such optionee's
retirement, all of such optionee's Options and rights to purchase or receive
shares of Common Stock pursuant thereto shall terminate.
(e) Nonqualified Options. Notwithstanding the above provisions of this
Section 8, the Committee in its sole discretion may extend the termination date
of any nonqualified Option to a date not later than the scheduled expiration
date of the nonqualified Option.
(f) Termination of Options. To the extent that any Option granted under the
Plan to any optionee whose employment by the Corporation terminates shall not
have been exercised within the applicable period set forth in this Section 8, as
it may be extended by the Committee hereunder, any such Option, and all rights
to purchase shares pursuant thereto, shall terminate on the last date of the
applicable period.
9. EFFECT OF CORPORATE REORGANIZATIONS
Upon the dissolution or liquidation of the Corporation, or upon a
reorganization, merger or consolidation of the Corporation as a result of which
the outstanding securities of the class then subject to Options hereunder are
changed into or exchanged for cash or property or securities not of the
Corporation's issue, or upon a sale of substantially all the property of the
Corporation to another corporation or person, the Plan shall terminate, unless
provision shall be made in writing in connection with such transaction for the
continuance of the Plan and/or for the assumption of Options theretofore
granted, or the substitution for such Options of options covering the stock of a
successor employer corporation, or a parent or a subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices, in which
event the Plan and Options theretofore granted shall continue in the manner and
under the terms so provided. If the Plan and unexercised Options shall terminate
pursuant to the foregoing sentence, all persons entitled to exercise any
unexercised portions of Options then outstanding shall have the right, at such
time prior to the consummation of the transaction causing such termination as
the Corporation shall designate, to exercise the unexercised portions of their
Options, including the portions thereof which would, but for this Section 9, not
yet be exercisable.
<PAGE>
10. OTHER EMPLOYEE STOCK BENEFIT PLANS
The Corporation reserves the right, in the discretion of its Board of
Directors, to establish other plans during the term of this Plan under which
employees and others providing services to the Corporation and its subsidiaries
(including officers and Directors thereof) may be entitled (in addition to their
rights under Options granted under this Plan) to receive or purchase shares of
the Corporation's capital stock or other securities, or cash amounts determined
in relation to the earnings, dividends, net worth or market appreciation of
shares of the Corporation's capital stock or other securities, including, but
not limited to, restricted stock, stock appreciation rights, stock bonuses, book
value stock, and the like.
11. AMENDMENTS TO PLAN
The Committee may from time to time prescribe, amend and rescind rules and
regulations relating to the Plan and, subject to the approval of the Board of
Directors of the Corporation, may at any time terminate, modify or suspend the
operation of the Plan, provided that no such modification shall be effected
without approval of the shareholders if such modification would cause the Plan
to no longer to comply with Rule 16b-3 or any successor rule or other regulatory
or legal requirements.
12. MISCELLANEOUS
(a) Compliance with Law.
(i) The Corporation shall not be required to sell or issue any shares under
any Option if the issuance of such shares shall constitute or result in a
violation by the optionee or the Corporation of any provisions of any law,
statute or regulation of any governmental authority. Without limiting the
generality of the foregoing, in connection with the Securities Act of 1933 (the
"Securities Act"), upon exercise of any Option, the Corporation shall not be
required to issue shares unless the Committee has received evidence satisfactory
to it to the effect that registration under the Securities Act and applicable
state securities laws is not required or that such registration is effective.
Any determination in this connection by the Committee shall be final, binding
and conclusive. If shares are issued under any Option without registration under
the Securities Act or applicable state securities laws, the Optionee may be
required to accept the shares subject to such restrictions on transferability as
may in the reasonable judgment of the Committee be required to comply with
exemptions from registration under such laws. The Corporation may, but shall in
no event be obligated to, register any securities covered hereby pursuant to the
Securities Act or applicable state securities laws. The Corporation shall not be
obligated to take any other affirmative action in order to cause the exercise of
an option or the issuance of shares pursuant thereto to comply with any law or
regulation of any governmental authority.
<PAGE>
(ii) With respect to persons subject to Section 16 of the Securities
Exchange Act of 1934 (the "1934 Act"), transactions under this Plan are intended
to comply with all applicable conditions of Rule 16b-3 or its successors under
the 1934 Act. To the extent any provision of the Plan or action by the Committee
fails to so comply, it shall be deemed null and void to the extent permitted by
law and deemed advisable by the Committee.
(b) Vesting. The Committee, in its sole discretion, shall determine the
conditions, if any, for the vesting of rights in Options granted pursuant to the
Plan.
(c) Tenure. Nothing in the Plan or in any Option granted hereunder or in
any agreement relating thereto shall confer upon any officer or employee the
right to continue in such position with the Corporation or any subsidiary
thereof.
(d) Withholding Taxes. Where an optionee is entitled to receive shares
pursuant to the exercise of an Option pursuant to the Plan, the Corporation
shall have the right to require the optionee to pay the Corporation the amount
of any taxes which the Corporation is required to withhold with respect to such
shares, or, in lieu thereof, to retain, or sell without notice, a number of such
shares sufficient to cover the amount required to be withheld.
(e) Singular, Plural; Gender. Whenever used herein, nouns in the singular
shall include the plural, and the feminine pronoun shall include the masculine
gender.
(f) Headings, Etc., No Part of the Plan. Headings of sections and
paragraphs hereof are inserted for convenience of reference; they constitute no
part of the Plan.
(g) Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of Indiana except to the extent that
Federal law shall be deemed to apply.
13. EFFECTIVE DATE
The Plan shall become effective on the date of adoption by the Board of
Directors and the Shareholders (the "Effective Date"). The Plan shall expire ten
years from the date of adoption of this Plan, after which no Options may be
granted under the Plan.
EXHIBIT 10.2
HEARTLAND BANCSHARES, INC.
1997 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
(Amended effective January 18, 1999, to increase shares and grant additional
options by resolution of the Board of Directors that appears at the end of
this Exhibit 10.2)
SECTION 1. PURPOSE
The purpose of this Heartland Bancshares, Inc. 1997 Stock Option Plan for
Nonemployee Directors ("Plan") is to increase the proprietary interest of those
members of the Board of Directors who are not employees of the Corporation or
its affiliates ("Nonemployee Directors") in the success of Heartland Bancshares,
Inc. (the "Corporation") and to enhance the Corporation's ability to retain and
attract experienced and knowledgeable directors.
SECTION 2. STOCK SUBJECT TO THIS PLAN
The Stock to be issued under this Plan shall be shares of common stock of
the Corporation (the "Common Stock"). The Common Stock shall be made available
from authorized but unissued shares (including shares acquired in the open
market). The total number of shares of Common Stock that may be issued under
this Plan pursuant to Options granted hereunder shall be 40,000. Such number of
shares shall be subject to adjustment in accordance with Section 9 hereof.
Common Stock subject to any unexercised portion of an Option which expires, is
cancelled, or is terminated for any reason, may again be subject to the grant of
Options under this Plan.
SECTION 3. ADMINISTRATION
This Plan shall be administered by a committee appointed by the Board of
Directors (the "Committee"), consisting of two or more members, each of whom
shall qualify at all times as a "Non-Employee Director" within the meaning of
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or
any successor rule ("Rule 16b-3"). The amount, nature, and timing of Options
shall be automatic, as described in Section 5, and not subject to the
determination of the Committee. The Committee may, subject to the provisions of
this Plan, establish such rules and regulations as it deems necessary or
advisable for the proper administration of this Plan, and may make
determinations and may take such other action in connection with or in relation
to this Plan as it deems necessary or advisable. Each determination or other
action made or taken by the Committee pursuant to this Plan, including
interpretations of this Plan, shall be final and conclusive for all purposes and
upon all persons, including, but without limitation, the Corporation and its
subsidiaries, the Board of Directors, the affected Nonemployee Directors, and
their respective successors in interest.
<PAGE>
SECTION 4. ELIGIBILITY
Each Nonemployee Director is eligible to participate in this Plan. Options
shall be automatically granted to Nonemployee Directors as provided for herein.
SECTION 5. GRANT AND EXERCISE OF OPTION
(a) Automatic Option Grants. Effective as of the close of business on the
day immediately preceding the date of the final Prospectus for the initial
public offering of Common Stock, each Nonemployee Director shall be granted
one Option to purchase 4,000 shares of Common Stock at the price of $10.00
per share, which the Board has determined to be not less than the fair
market value as of the date of the adoption of this Plan and which the
Board has determined will, by definition, be not less than the fair market
value as of the effective date of grant of the Options. Nonemployee
Directors who are appointed or elected after the date of the Prospectus,
shall receive an Option for a lesser number of shares, the number of which
will depend on which annual meeting is the first annual meeting occurring
concurrently with, or after, he or she becomes a Nonemployee Director, as
set forth in the table below:
The Nonemployee Director's
If the Nonemployee Director's Option will be for the
First Annual Meeting is the: Following Number of Shares:
---------------------------- ---------------------------
1998 Annual Meeting 3,000
1999 Annual Meeting 2,000
2000 Annual Meeting 1,000
(b) Schedule Under Which Options Become Fully Exercisable. Each Option
granted under the Plan shall be immediately exercisable for 1,000 shares of
Common Stock. Each Option will become exercisable for an additional 1,000
shares of Common Stock as of the date of each successive Annual Meeting,
until it is exercisable in full.
<PAGE>
(c) Option Price. The Option price of each share of Common Stock
purchasable under an Option shall be the Fair Market Value per Share on the
date of grant. "Fair Market Value per Share" on a particular date shall
mean (i) if the common stock is quoted on the OTC Bulletin Board (the
"Bulletin Board"), the mean between the closing high bid and low asked
quotations for such day (or, in the event that the common stock was not
quoted on such day, the most recent preceding business day on which the
common stock was quoted) of the common stock on the Bulletin Board, (ii) if
the common stock is quoted on The Nasdaq Stock Market ("Nasdaq"), the mean
between the closing high bid and low asked quotations for such day of the
common stock on Nasdaq, or (iii) if neither clause (i) nor (ii) is
applicable, a value determined by any fair and reasonable means prescribed
by the Committee.
(d) Option Agreement. Each Option granted under this Plan shall be
evidenced by a stock option agreement ("Stock Option Agreement") that is
duly executed on behalf of the Corporation and by the Nonemployee Director
to whom the Option is granted. Each Stock Option Agreement shall be subject
to the terms and conditions of this Plan and in such form, not inconsistent
with this Plan, as the Board of Directors or the Committee shall from time
to time approve. Appropriate officers of the Corporation are hereby
authorized to execute and deliver Stock Option Agreements on behalf of the
Corporation.
(e) Manner of Exercise. Any Option (subject to Section 5(b)) may be
exercised from time to time, in whole, or in part, by giving written notice
to the Corporation, signed by the person exercising the Option, stating the
number of shares of Common Stock with respect to which the Option is being
exercised, accompanied by payment of the full consideration for the shares
as to which the Option is being exercised, in one or a combination of the
following alternative forms: (i) cash, or (ii) shares of Common Stock
already owned by the person exercising the Option, valued at the Fair
Market Value per Share of Common Stock on the date of exercise.
(f) Expiration of Options. The unexercised portion of each Option shall
automatically and without notice expire and become null and void at the
time of the earliest to occur of the following:
(i) the expiration of ten years from the date the Option
was granted;
<PAGE>
(ii) the expiration of three months after the person granted an Option
under this Plan (an "Optionee") ceases to be a Nonemployee Director,
other than by reason of permanent disability (as defined in Section
22(e)(3) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code")), death, or for cause;
(iii) the expiration of one year following the death or permanent
disability (as defined in Section 22(e)(3) of the Internal Revenue
Code) of the Optionee; or
(iv) the termination of the Optionee's service as a Nonemployee
Director, if such termination is for cause (the Committee or the Board
of Directors shall have the right to determine what constitutes cause,
and such determination shall be conclusive and binding for all
purposes).
(g) Options are Nonqualified. Each Option granted under this Plan shall be
a nonqualified stock option which does not qualify as an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code.
SECTION 6. TRANSFERABILITY OF OPTIONS
No Option granted under the Plan shall be transferable by the optionee
unless the Committee, in its sole discretion, authorizes such transfer and such
transfer is permitted by, or is not in violation of, the provisions of the Code
and Rule 16b-3 (to the extent that such are applicable to the Option). Except as
specifically authorized by the Committee, an Option shall be exercisable during
the optionee's lifetime only by the optionee or, in the case of the optionee's
legal disability, by the optionee's guardian or legal representative.
SECTION 7. NO RIGHT TO CONTINUE AS DIRECTOR
Neither this Plan nor the granting of an Option, nor any other action taken
pursuant to this Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that the Board of Directors will nominate any
director for re-election, or that the Corporation will retain a director for any
period of time, or at any particular rate of compensation.
<PAGE>
SECTION 8. RIGHTS AS A SHAREHOLDER
An Optionee or a transferee of an Option pursuant shall have no rights as a
Shareholder with respect to any Common Stock that is the subject of either an
unexercised or exercised Option until the Optionee or such transferee shall have
become the holder of record of such Common Stock, and no adjustments shall be
made for dividends in cash or other property or other distributions or rights in
respect of such Common Stock for which the record date is prior to the date on
which the Optionee or such transferee shall have in fact become the holder of
record of the Common Stock acquired pursuant to the Option.
SECTION 9. ADJUSTMENT IN THE NUMBER OF SHARES AND IN OPTION PRICE
In the event there is any change in the number of shares of Common Stock
through the declaration of stock dividends or stock splits or through
recapitalization or merger or consolidation or combination of shares or
otherwise, the Committee or the Board of Directors shall make such adjustment,
if any, as it may deem appropriate in the number of shares of Common Stock
available for Options as well as the number of shares of Common Stock subject to
any outstanding Options, the option price thereof and any other terms it deems
appropriate. Any such adjustment may provide for the elimination of any
fractional shares which might otherwise become subject to any Option without
payment therefor. The grant of Options under this Plan shall not affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
SECTION 10. USE OF PROCEEDS
The cash proceeds received by the Corporation from the issuance of shares
pursuant to Options under this Plan shall be used for general corporate
purposes.
<PAGE>
SECTION 11. TAX WITHHOLDING
The delivery of any shares of Common Stock under the Plan shall be for the
account of the Company and any such delivery or distribution shall not be made
until the recipient shall have made satisfactory arrangements for the payment of
any applicable withholding taxes.
SECTION 12. EFFECTIVE DATE AND TERM OF THIS PLAN
(a) This Plan shall become effective on the date of adoption by the Board
of Directors (the "Effective Date").
(b) Unless previously terminated in accordance with Section 13 of this
Plan, this Plan shall terminate at the close of business on the date that
is five years subsequent to the date of the Effective Date, after which no
Options shall be granted under this Plan. Such termination shall not affect
any Options granted prior to such termination.
SECTION 13. AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN
The Board of Directors may, from time to time, terminate or suspend this
Plan, in whole or in part, or amend this Plan from time to time, including the
adoption of amendments deemed necessary or desirable to qualify the Options
under rules and regulations promulgated by the Securities and Exchange
Commission with respect to directors who are subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 (the "Act"), or to correct any
defect or supply any omission or reconcile any inconsistency in this Plan or in
any Option granted hereunder, without the approval of the Shareholders of the
Corporation; except that no such action may be taken which would (i) cause this
Plan not to satisfy all applicable requirements of Rule 16b-3, or (ii) impair
the rights of any Optionee under any Option previously granted under this Plan
without the Optionee's consent.
<PAGE>
SECTION 14. LIMITATION ON ISSUE OR TRANSFER OF SHARES
Notwithstanding any provisions of this Plan or the terms of
any Option, the Corporation shall not be required to issue any shares of Common
Stock or transfer on its books and records any shares of Common Stock if such
issue or transfer would, in the judgment of the Committee or of counsel for the
Corporation, constitute a violation of any state or Federal law, or of the rules
or regulations of any governmental regulatory body, or any securities exchange
or automated dealer quotation system. An Optionee desiring to exercise an Option
may be required by the Corporation, as a condition of the effectiveness of any
exercise of an Option, to agree in writing that all securities to be acquired
pursuant to such exercise shall be held for his or her account without a view to
any further distribution thereof, that the certificates for such shares shall
bear an appropriate legend to that effect, and that such shares will not be
transferred or disposed of except in compliance with applicable federal and
state securities laws.
SECTION 15. EFFECT OF CORPORATE REORGANIZATIONS
Upon the dissolution or liquidation of the Corporation, or upon a
reorganization, merger or consolidation of the Corporation as a result of which
the outstanding securities of the class then subject to Options hereunder are
changed into or exchanged for cash or property or securities not of the
Corporation's issue, or upon a sale of substantially all the property of the
Corporation to another corporation or person, the Plan shall terminate, unless
provision shall be made in writing in connection with such transaction for the
continuance of the Plan and/or for the assumption of Options theretofore
granted, or the substitution for such Options of options covering the stock of a
successor employer corporation, or a parent or a subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices, in which
event the Plan and Options theretofore granted shall continue in the manner and
under the terms so provided. If the Plan and unexercised Options shall terminate
pursuant to the foregoing sentence, all persons entitled to exercise any
unexercised portions of Options then outstanding shall have the right, at such
time prior to the consummation of the transaction causing such termination as
the Corporation shall designate, to exercise the unexercised portions of their
Options, including the portions thereof which would, but for this Section 15,
not yet be exercisable.
<PAGE>
SECTION 16. NO SEGREGATION OF CASH OR SHARES
The Corporation shall not be required to segregate any shares of Common
Stock that may at any time be represented by Options, and the Plan shall
constitute an "unfunded" plan of the Corporation. No employee shall have rights
with respect to shares of Common Stock prior to the delivery of such shares. The
Corporation shall not, by any provisions of the Plan, be deemed to be a trustee
of any Common Stock or any other property and the liabilities of the Corporation
to any employee pursuant to the Plan shall be those of a debtor pursuant to such
contract obligations as are created by or pursuant to the Plan, and the rights
of any employee, former employee or beneficiary under the Plan shall be limited
to those of a general creditor of the Corporation.
SECTION 17. DELIVERY OF SHARES
No shares shall be delivered pursuant to any exercise of an Option under
the Plan unless the requirements of such laws and regulations as may be deemed
by the Committee to be applicable thereto are satisfied. All certificates for
shares of Common Stock delivered under the Plan shall be subject to such
stock-transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the Securities and
Exchange Commission, any stock exchange upon which the Common Stock is then
listed, and any applicable Federal or state securities law, and the committee
may cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
SECTION 18. GOVERNING LAW
This Plan and all determinations made and actions taken pursuant thereto
shall be governed by the laws of the State of Indiana and construed in
accordance therewith.
<PAGE>
SECTION 19. SEVERABILITY
If any provision of the Plan, or any term or condition of any Option
granted thereunder, is invalid, such provision, term, condition or application
shall to that extent be void (or, in the discretion of the Board of Directors,
such provision, term or condition may be amended so as to avoid such invalidity
or failure), and shall not affect other provisions, terms or conditions or
applications thereof, and to this extent such provisions, terms and conditions
are severable.
TEXT OF RESOLUTION OF THE BOARD OF DIRECTORS
ADOPTED EFFECTIVE JANUARY 18, 1999
FURTHER RESOLVED, that the Heartland Bancshares, Inc. 1997 Stock Option
Plan for Nonemployee Directors (the "Nonemployee Director Plan") be, and hereby
is, amended as follows: (a) to increase the aggregate number of shares of Common
Stock of the Corporation that may be granted pursuant to Section 2 the
Nonemployee Director Plan from 40,000 to 95,000 shares (subject to adjustment as
provided by Section 2 of the Nonemployee Director Plan), and (b) to provide for
the automatic grant, effective as of the date hereof, of an option (the
"Option") to purchase 3,000 shares to each of the following Directors upon the
following terms:
Optionees: Sharon Acton, Gordon Dunn, Mike Jarvis, Robert Richardson,
Pat Sherman, John Norton and Jim Stewart;
Exercise Price: $10.00 per share (which the Board has determined to be not
less than the fair market value of one share of Common
Stock as of the date hereof);
Vesting: Each Option shall be immediately exercisable for 1,000 shares
of Common Stock and will become exercisable for an additional
1,000 shares of Common Stock as of the date of each Annual
Meeting of Shareholders subsequent to the 1999 Annual Meeting
of Shareholders, until exercisable in full.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the filer's Form 10-QSB for the Quarter
ended June 30, 1999, and is filed in its entirety by reference to such
finanacial statements.
</LEGEND>
<CIK> 0001042905
<NAME> Heartland Bancshares, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Jun-30-1999
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