Filed with the Securities and Exchange Commission on September 17, 1997
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
UNION COMMUNITY BANCORP
(Exact name of registrant as specified in its charter)
Indiana 6712 35-2025237
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code No.) Identification No.)
incorporation or
organization)
221 East Main Street Joseph E. Timmons
P.O. Box 151 Union Federal Savings and
Crawfordsville, Indiana 47933 Loan Association
(765) 362-2400 221 East Main Street
P.O. Box 151
Crawfordsville, Indiana 47933
(765) 362-2400
Copy to:
Claudia V. 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:
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 2,645,000 $10.00 $26,450,000 $8,015.15
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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.
<PAGE>
<TABLE>
<CAPTION>
CROSS-REFERENCE SHEET
Item in Form S-1 Caption in Prospectus
<S> <C> <C>
1. Forepart of Registration Statement Forepart of Registration Statement and
and Outside Front Cover Page of Prospectus and Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages
of Prospectus of 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,"
"-Marketing Arrangements," "- 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 "UNION COMMUNITY BANCORP"; "UNION FEDERAL
SAVINGS AND LOAN ASSOCIATION", "BUSINESS
OF UNION FEDERAL SAVINGS AND LOAN
ASSOCIATION"
(b) Description of Property "BUSINESS OF UNION FEDERAL SAVINGS AND LOAN
ASSOCIATION - Properties"
(c) Legal Proceedings "BUSINESS OF UNION FEDERAL SAVINGS
AND LOAN ASSOCIATION - 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 UNION FEDERAL SAVINGS AND LOAN
ASSOCIATION 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 UNION FEDERAL
SAVINGS AND LOAN ASSOCIATION"
(i) Changes in and Disagreements with Accountants Not Applicable
on Accounting and Financial Disclosure
<PAGE>
(j) Directors and Executive Officers "MANAGEMENT OF UNION COMMUNITY BANCORP";
"MANAGEMENT OF UNION FEDERAL SAVINGS AND
LOAN ASSOCIATION"
(k) Executive Compensation "EXECUTIVE COMPENSATION
AND RELATED TRANSACTIONS OF UNION FEDERAL"
(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 UNION FEDERAL - - Transactions
with Certain Related Persons"
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
</TABLE>
<PAGE>
PROSPECTUS
Up to 2,300,000 Shares of Common Stock
Union Community Bancorp
221 E. Main Street
Crawfordsville, Indiana 47933
(765) 362-2400
Union Federal Savings and Loan Association based in Crawfordsville,
Indiana is converting from the mutual form to the stock form of organization. As
part of the conversion, Union Federal Savings and Loan Association will become a
wholly-owned subsidiary of Union Community Bancorp, which was formed in August,
1997. Upon the completion of the conversion, Union Community Bancorp will own
all of the shares of Union Federal Savings and Loan Association. The common
stock of Union Community Bancorp is being offered to the public under the terms
of a Plan of Conversion which must be approved by a majority of the votes
eligible to be cast by members of Union Federal Savings and Loan Association and
by the Office of Thrift Supervision. The offering will not go forward if Union
Federal Savings and Loan Association does not receive these approvals and Union
Community Bancorp does not sell at least the minimum number of shares.
TERMS OF OFFERING
An independent appraiser has estimated the market value of the
converted Union Federal Savings and Loan Association to be between $17,000,000
to $23,000,000, which establishes the number of shares to be offered. Subject to
Office of Thrift Supervision approval, 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: 1,700,000 to 2,300,000
o Conversion Expenses
Minimum/Maximum: $584,980 to $668,500
o Net Proceeds to
Union Community Bancorp
Minimum/Maximum: $16,415,020 to $22,331,500
o Net Proceeds per share to
Union Community Bancorp
Minimum/Maximum: $9.66 to $9.71
Please refer to Risk Factors beginning on page 10 of this document.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, 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. will use its best efforts to help Union Community
Bancorp sell at least the minimum number of shares but does not guarantee this
number will be sold. All funds received from subscribers will be held in an
escrow savings account at Union Federal Savings and Loan Association until the
completion or termination of the Conversion.
For information on how to subscribe, call the Stock Information Center at (765)
362-2428.
TRIDENT SECURITIES, INC.
Prospectus dated November ___, 1997
<PAGE>
TABLE OF CONTENTS
Page
Questions and Answers...................................................... 3
Summary.................................................................... 5
Selected Consolidated Financial Data of
Union Federal Savings and Loan Association and Subsidiary............... 7
Risk Factors............................................................... 10
Proposed Purchases by Directors and Executive Officers..................... 13
Union Community Bancorp.................................................... 13
Union Federal Savings and Loan Association................................. 14
Market Area................................................................ 14
Use of Proceeds............................................................ 14
Dividends.................................................................. 15
Market for the Common Stock................................................ 16
Competition................................................................ 16
Capitalization............................................................. 16
Pro Forma Data............................................................. 18
The Conversion............................................................. 22
Management's Discussion and Analysis of Financial
Condition and Results of Operations of
Union Federal Savings and Loan Association............................ 33
Business of Union Federal Savings and Loan Association..................... 47
Management of Union Community Bancorp...................................... 62
Management of Union Federal Savings and Loan Association................... 63
Executive Compensation and Related Transactions of Union Federal.......... 64
Regulation................................................................. 68
Taxation................................................................... 74
Restrictions on Acquisition of the Holding Company......................... 75
Description of Capital Stock............................................... 80
Transfer Agent............................................................. 81
Registration Requirements.................................................. 81
Legal and Tax Matters...................................................... 81
Experts.................................................................... 81
Additional Information..................................................... 81
Index to Consolidated Financial Statements................................. F-1
Glossary................................................................... G-1
This document contains forward-looking statements which involve risks
and uncertainties. Union Community 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 10 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: What is the purpose of the offering?
A: The offering means that you will have the opportunity to become a
shareholder of our newly formed holding company, Union Community
Bancorp, which will allow you to share in our future as an indirect
owner of Union Federal Savings and Loan Association. The stock offering
will increase our capital and the amount of funds available to us for
lending and investment activities. This will give us greater
flexibility to diversify operations and expand into other geographic
markets if we choose to do so. 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, our
shareholders might also receive dividends and benefit from any
long-term appreciation of our stock price.
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 November ___, 1997.
Q: How much stock may I purchase?
A: The minimum purchase is 25 shares (or $250). The maximum purchase in
the Subscription Offering is 10,000 shares (or $100,000) for each
deposit account, subject to an overall maximum of 20,000 shares (or
$200,000). 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 20,000 shares when combined with any shares purchased
in the Subscription Offering). For purposes of these limitations, joint
account holders ordering through a single account may not collectively
exceed the 10,000 and 20,000 share limits. In certain instances, your
purchase may be grouped together with purchases by other persons who
are associated with you and, in that event, the aggregate purchases may
not exceed 20,000 shares. 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.
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. (Union Community Bancorp's employee stock ownership plan
will have priority over such persons if more than 2,300,000
shares are sold, to the extent of any shares sold over
2,300,000 and up to the number of shares subscribed for by
such plan). Any remaining shares will be offered to:
o The employee stock ownership plan of Union Community Bancorp.
Any remaining shares will be offered to:
o Persons who had a deposit account with us on September 30,
1997. Any remaining shares will be offered to:
o Other depositors of ours, as of October ___, 1997, and our
borrowers as of July 30, 1997 who remain borrowers on October
___, 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 Montgomery County,
Indiana.
Q: What particular factors should I consider when deciding whether or not
to buy the stock?
A: Even though we expect that the shares of Common Stock will be traded on
the Nasdaq National Market System, 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 10 to 12 of this document.
<PAGE>
Q: As a depositor of Union Federal Savings and Loan Association, 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 Union Federal Savings and Loan Association.
You are not required to purchase stock. Your deposit account,
certificate accounts and any loans you may have with us will not be
affected by the Conversion. In addition, we will operate with our
present management and staff immediately following the Conversion.
Q: Can I purchase stock on behalf of someone else who does not have an
account or is not a borrower at Union Federal Savings and Loan
Association?
A: No. You may not transfer the subscription rights that you have as a
depositor or borrower at Union Federal Savings and Loan Association.
You will be required to certify that you are purchasing shares solely
for your own account and that you have no agreement or understanding
with another person involving the transfer of the shares that you
purchase. We will not honor orders for shares of the Common Stock by
anyone known to us to be a party to such an agreement and we will
pursue all legal remedies against any person who is a party to such an
agreement.
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 if you have questions or need assistance, you should contact:
Stock Information Center
Union Federal Savings and Loan Association
P.O. Box 627
221 E. Main Street
Crawfordsville, Indiana 47933
(765) 362-2428
<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 Union Federal Savings and Loan Association. References
in this document to "we", "us", "our" and "Union Federal" refer to Union Federal
Savings and Loan Association. In certain instances where appropriate, "us" or
"our" refers collectively to Union Community Bancorp and Union Federal Savings
and Loan Association. References in this document to "the Holding Company" refer
to Union Community Bancorp.
The Companies
Union Community Bancorp
221 E. Main Street
Crawfordsville, Indiana 47933
(765) 362-2400
Union Community Bancorp is not an operating company and has not engaged
in any significant business to date. It was formed in September, 1997, as an
Indiana corporation to be the holding company for Union Federal Savings and Loan
Association. The holding company structure will provide greater flexibility in
terms of operations, expansion and diversification. See page 13.
Union Federal Savings and Loan Association
221 E. Main Street
Crawfordsville, Indiana 47933
(765) 362-2400
We are a community- and customer-oriented federal mutual savings and
loan association. We provide financial services to individuals, families and
small business. Historically, we have emphasized residential mortgage lending,
primarily one- to four-family mortgage loans. On June 30, 1997, we had total
assets of $84.3 million, deposits of $62.1 million, and retained earnings of
$14.5 million. See pages 13 to 14.
The Stock Offering
Union Community Bancorp is offering for sale between 1,700,000 and
2,300,000 shares of its Common Stock at $10 per share. This offering may be
increased to 2,645,000 shares without further notice to you if market or
financial conditions change prior to the completion of this stock offering or if
additional shares of stock are needed to fill the order of our employee stock
ownership plan.
Stock Purchases
Union Community Bancorp will offer shares of its Common Stock to our
depositors who held deposit accounts as of certain dates and to our borrowers
with outstanding loans as of certain dates. The shares will be offered first in
a Subscription Offering and any remaining shares may be offered in a Community
Offering to members of the general public with preference given to residents of
Montgomery County. See pages 26 to 29. We have engaged Trident Securities, Inc.
to assist in the marketing of the Common Stock.
Prohibition on Transfer of 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. We intend to 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 Office of
Thrift Supervision.
<PAGE>
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 RP Financial, LC. an appraisal firm
experienced in appraisals of savings associations. RP Financial, LC. has
estimated that, in its opinion, as of August 22, 1997 the aggregate pro forma
market value of the Common Stock ranged between $17 million and $23 million
(with a mid-point of $20 million). The pro forma market value of the shares is
our market value after taking into account 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
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 completion of the Conversion. If the pro forma market value of the Common
Stock changes to either below $17 million or above $26.45 million, we will
notify you and provide you with the opportunity to modify or cancel your order.
See pages 32 to 33.
Termination of the Offering
The Subscription Offering will terminate at 12:00 noon, Crawfordsville
time, on November ___, 1997. The Community Offering, if any, may terminate at
any time without notice but no later than January ___, 1998, without approval by
the OTS.
Benefits to Management from the Offering
Our full-time employees will participate in our employee stock
ownership plan, which is a form of retirement plan that will purchase shares of
Union Community Bancorp's Common Stock. We also intend to implement a management
recognition and retention plan and a stock option plan following completion of
the Conversion, which will benefit our officers and directors. If we adopt the
management recognition and retention plan, our executive officers and directors
will be awarded shares of Common Stock without paying cash for the shares.
However, the management recognition and retention plan 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 66 to 68.
Use of the Proceeds Raised from the Sale of Common Stock
Union Community Bancorp intends to use a portion of the proceeds from
the stock offering to make a loan to our employee stock ownership plan to fund
its purchase of 8% of the Common Stock issued in the Conversion. Union Community
Bancorp will use 50% of the proceeds that remain after it pays expenses incurred
in connection with the Conversion to purchase all of the capital stock to be
issued by Union Federal Savings and Loan Association. Union Community Bancorp
will retain the balance of the proceeds as a possible source of funds for the
payment of dividends to shareholders or to repurchase shares of Common Stock in
the future and for other general corporate purposes. See pages 14 to 15.
Dividends
Management of Union Community Bancorp has not yet made a decision
regarding the payment of dividends. Union Community Bancorp will consider a
policy of paying cash dividends on its Common Stock following the Conversion.
See page 15.
Market for the Common Stock
Union Community Bancorp has received conditional approval to have its
Common Stock quoted on the National Association of Security Dealers Automated
Quotation National Market System under the symbol "UCBC." Even though we expect
that the shares of Common Stock will be sold on the Nasdaq National Market
System, 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. If you purchase shares, you may not be able to sell them when you want
to at a price that is equal to or more than the price you paid. See page 16.
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 10 to 12 of this document.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
The following selected consolidated financial data of Union Federal and its
subsidiary is qualified in its entirety by, and should be read in conjunction
with, the consolidated financial statements, including notes thereto, included
elsewhere in this Prospectus. Information at June 30, 1997 and for the six
months ended June 30, 1997 and 1996 is unaudited but, in the opinion of
management, includes all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial position and
results of operations as of and for such dates. The operating results for the
six-months ended June 30, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997.
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<CAPTION>
AT JUNE 30, AT DECEMBER 31,
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(In thousands)
Summary of Financial Condition Data:
<S> <C> <C> <C> <C> <C> <C>
Total assets......................................... $84,291 $82,789 $73,631 $72,540 $66,833 $63,107
Loans, net........................................... 73,167 72,697 61,279 60,059 55,256 46,783
Cash and short-term interest-bearing deposits (1).... 2,258 1,465 1,993 1,329 963 1,999
Investment securities held to maturity............... 5,920 5,747 7,423 7,985 9,355 13,038
Deposits............................................. 62,055 60,436 57,407 54,886 55,076 52,802
Borrowings........................................... 7,073 7,880 2,642 4,943 --- ---
Retained earnings - substantially restricted......... 14,473 13,910 13,024 12,033 10,878 9,719
</TABLE>
(1) Includes certificates of deposit in other financial institutions.
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(In thousands)
Summary of Operating Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest and dividend income.......... $3,275 $2,920 $6,112 $5,729 $5,249 $5,334 $5,507
Total interest expense...................... 1,822 1,627 3,424 3,148 2,507 2,594 3,006
------- ------- ------ ------- ------ ------ ------
Net interest income...................... 1,453 1,293 2,688 2,581 2,742 2,740 2,501
Provision for loan losses................... 111 24 48 24 24 15 12
------- ------- ------ ------- ------ ------ ------
Net interest income after provision
for loan losses........................ 1,342 1,269 2,640 2,557 2,718 2,725 2,489
------- ------- ------ ------- ------ ------ ------
Other income (losses):
Equity in losses of
limited partnership.................... (114) (79) (173) (249) (54) --- ---
Investment securities gains.............. --- --- --- --- --- --- 306
Other.................................... 19 21 57 32 14 13 22
------- ------- ------ ------- ------ ------ ------
Total other income (losses)............ (95) (58) (116) (217) (40) 13 328
------- ------- ------ ------- ------ ------ ------
Other expenses:
Salaries and employee benefits........... 252 230 461 481 489 434 378
Net occupancy expenses................... 16 12 39 66 44 57 90
Equipment expenses....................... 11 10 20 20 17 17 25
Deposit insurance expense................ 12 65 495 127 126 94 111
Other.................................... 158 127 287 328 208 234 210
------- ------- ------ ------- ------ ------ ------
Total other expenses................... 449 444 1,302 1,022 884 836 814
------- ------- ------ ------- ------ ------ ------
Income before income taxes
and cumulative effect
of change in accounting principle........ 798 767 1,222 1,318 1,794 1,902 2,003
Income taxes................................ 235 231 336 326 639 755 797
Cumulative effective of change
in accounting principle.................. --- --- --- --- --- 12 ---
------- ------- ------ ------- ------ ------ ------
Net income............................... $ 563 $ 536 $ 886 $ 992 $1,155 $1,159 $1,206
======= ======= ====== ======= ====== ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
Supplemental Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest rate spread during period................. 2.62% 2.54% 2.54% 2.69% 3.25% 3.45% 3.22%
Net yield on interest-earning assets (1) (2)....... 3.56 3.55 3.53 3.67 4.01 4.23 4.08
Return on assets (2) (3)........................... 1.35 1.43 1.13 1.36 1.63 1.77 1.94
Return on equity (2) (4)........................... 7.90 8.04 6.54 7.84 10.02 11.19 13.08
Equity to assets (5)............................... 17.17 17.55 16.80 17.69 16.59 16.28 15.40
Average interest-earning assets to average
interest-bearing liabilities.................... 1.21x 1.23x 1.22x 1.22x 1.21x 1.19x 1.18x
Non-performing assets to total assets (5).......... .24 .44 .59 .21 .20 .31 .50
Allowance for loan losses to total loans
outstanding (5)................................. .27 .20 .22 .18 .15 .11 .10
Allowance for loan losses to
non-performing loans (5)........................ 162.30 39.36 32.52 71.15 60.84 30.88 15.05
Net charge-offs to average
total loans outstanding ........................ .1 --- --- --- --- --- ---
Other expenses to
average assets (2)(6)........................... 1.07x 1.18x 1.66x 1.41x 1.25x 1.28x 1.31x
Number of full service offices (5)................. 1 1 1 1 1 1 1
</TABLE>
(1) Net interest income divided by average interest-earning assets.
(2) Information for six months ended June 30, 1997 and 1996, has been
annualized. Interim results are not necessarily indicative of the results of
operations for an entire year.
(3) Net income divided by average total assets.
(4) Net income divided by average total equity.
(5) At end of period.
(6) 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.
Commercial Real Estate and Multi-Family Lending
As of June 30, 1997, we had commercial real estate and multi-family
loans of $3.5 million and $10.2 million, respectively, or 4.7% and 13.6%,
respectively, of our total loan portfolio as of that date. Although commercial
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. Commercial 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 commercial real estate
and multi-family loans were non-performing as of June 30, 1997, if a significant
number of 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, would reduce
our net income. See "Business of Union Federal Savings and Loan
Association--Lending Activities."
Dependence on President and Possible New Management
Our successful operations depend to a considerable degree on our
President, Joseph E. Timmons, who is 62 years of age. We have entered into a
three-year employment agreement with Mr. Timmons. The employment agreement
requires certain payments to Mr. Timmons if he is terminated without "just
cause" by us or by an entity that acquires us, or if Mr. Timmons terminates the
employment agreement "for cause." The loss of Mr. Timmons' 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. Timmons,
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 Union Federal Savings and Loan Association"
and "Executive Compensation and Related Transactions of Union Federal--
Employment Contract."
Geographic Concentration of Loans
Substantially all of our real estate mortgage loans are secured by
properties located in Indiana, mostly in Montgomery 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.]
Allowance for Loan Losses
We have established our allowance for loan losses based upon historic
practice and in accordance with generally accepted accounting principles. We
determine the adequacy of our allowance for loan losses based upon estimates
that are particularly susceptible to significant changes in the economic
environment and changes in market conditions. Thus, a weakening in the local or
national economy would likely require us to increase our allowance for loan
losses to account for the increased likelihood that we would experience losses
from our loan portfolio. At June 30, 1997, our allowance for loan losses was
$198,000, or .27% of total loans outstanding. This amount reflects our history
of low loan losses and our low level of non-performing assets and, based upon
information currently available to us, we believe that this amount is sufficient
to absorb future loan losses. There can be no assurance, however, that
regulators, when reviewing our loan portfolio in the future, will not require us
to increase our allowance for loan losses. Any future increase in our allowance
for loan losses would adversely affect earnings.
<PAGE>
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 our management opposes. 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 Montgomery 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 Montgomery County for at least 12
months in the five-year period prior to being nominated to the Board (or in the
case of existing directors, prior to August ___, 1997). 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."
Lack of Active Market for Common Stock
Even though we expect that the Common Stock will be listed on the
Nasdaq National Market System, 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 six-month periods ended June 30, 1997 and 1996, our returns on
average equity (on an annualized basis) were 7.9% and 8.04%, 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 ("ESOP"), management recognition and retention plan ("RRP"), 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, Union Federal intends to use a portion of the
proceeds of this offering to repay some or all of its short-term obligations
owed to the Federal Home Loan Bank of Indianapolis ("FHLB of Indianapolis").
Union Federal 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). As of June 30, 1997, approximately 72 percent of
our mortgage loans have rates of interest which are fixed for the term of the
loan ("fixed rate") and are originated generally 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 Union Federal Savings and Loan Association -- Asset/Liability
Management."
<PAGE>
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.
Intent to Remain Independent
We have operated as an independent community oriented savings and loan
association since 1913. It is our intention to continue to operate as an
independent community oriented savings and loan 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 Union Federal
Savings and Loan Association."
Possible Voting Control by Directors and Officers
Our directors and executive officers intend to subscribe for 110,800
shares of Common Stock which, at the midpoint of the Estimated Valuation Range,
would constitute 5.5% of the outstanding shares. When aggregated with the shares
of Common Stock our executive officers and directors expect to acquire through
the Stock Option Plan and RRP, our executive officers and directors would own
approximately 330,800 shares of Common Stock, or 15.3% of the outstanding shares
at the midpoint of the Estimated Valuation Range. This ownership of Common Stock
by our management could make it difficult to obtain majority support for
shareholder proposals which are opposed by management. In addition, our
management would be able 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 if additional shares are issued to them pursuant to
the RRP and/or the Stock Option Plan. These shares may either be purchased from
the market or acquired from the Holding Company's authorized but unissued shares
of Common Stock. See "Proposed Purchases by Directors and Executive Officers,"
"Executive Compensation and Related Transactions of Union Federal," "Description
of Capital Stock," and "Restrictions on Acquisition of the Holding Company."
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% at the midpoint of the Estimated Valuation Range. If the
shares for the Stock Option Plan are issued from our authorized but unissued
stock, your ownership percentage could be diluted by up to approximately 3.4%
at the midpoint of the Estimated Valuation Range. In either case, the trading
price of our Common Stock may be reduced. See "Pro Forma Data" and "Executive
Compensation and Related Transactions of Union Federal."
Financial Institution Regulation and Future of the Thrift Industry
We are subject to extensive regulation, supervision, and examination by
the Office of Thrift Supervision ("OTS") and the Federal Deposit Insurance
Corporation (the "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 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."
<PAGE>
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."
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 RP Financial, LC. ("RP Financial"),
however, the subscription rights do not have an ascertainable fair market value.
See "The Conversion -- Principal Effects of Conversion - Tax Effects."
<PAGE>
PROPOSED PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the intended purchases of Common Stock
by each director and executive officer and their Associates in the Conversion.
All directors and executive officers will pay the same Purchase Price as all
subscribers and will be subject to the same terms and conditions. In addition,
directors and executive officers may not re-sell the shares of Common Stock that
they purchase for at least one year from the date that they purchase the shares.
All shares will be purchased for investment purposes and not for purposes of
resale. The table assumes that 2,000,000 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.
<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>
Philip L. Boots Director $100,000 10,000 .5%
Marvin L. Burkett Director 10,000 1,000 .05
Phillip E. Grush Director 75,000 7,500 .375
Samuel H. Hildebrand Director 200,000 20,000 1.0
John M. Horner Chairman 200,000 20,000 1.0
Harry A. Siamas Director 100,000 10,000 .5
Lester B. Sommer Director Emeritus 170,000 17,000 .85
Joseph E. Timmons Director, President and
Chief Executive Officer 200,000 20,000 1.0
All Other Executive
Officers 53,000 5,300 .265
---------- ------- ----
All Directors and
Executive Officers
as a group (10 persons)(2) $1,108,000 110,800 5.54%
========== ======= ====
</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 all shares subject to stock options are issued from
authorized but unissued shares, 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 297,800 shares (16.2%), 330,800 shares (15.3%),
363,800 shares (14.6%), and 401,750 shares (14.1%) 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 Union Federal -- RRP," "-- Stock Option Plan."
<PAGE>
UNION COMMUNITY BANCORP
The Holding Company was formed in September, 1997 as an Indiana
corporation to be the holding company for Union Federal. 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 Union Federal to be issued upon
completion of the Conversion.
The Holding Company will initially receive 50% of the net Conversion
proceeds after payment of expenses incurred in connection with the Conversion.
The holding company structure will provide the Holding Company with greater
flexibility than Union Federal to diversify its business activities, 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 221 East Main Street,
P.O. Box 151, Crawfordsville, Indiana, 47933. The telephone number is (765)
362-2400.
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION
We were originally organized in 1913 as "Union Savings and Loan
Association of Crawfordsville," a state-chartered savings association. We have
operated since then as an independent, community-oriented savings association.
In 1962, we converted to a federal charter and changed our name to "Union
Federal Savings and Loan Association." We currently conduct our business from a
full-service office located in Crawfordsville, which is located in Montgomery
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 Montgomery County. We also offer multi-family loans, commercial real
estate loans, construction loans, loans secured by deposits and home-improvement
loans. We derive most of our funds for lending from deposits of our customers,
which consist primarily of certificates of deposit, demand accounts and savings
accounts.
We have maintained a relatively strong capital position by focusing
primarily on residential real estate mortgage lending in Montgomery County,
Indiana and, to a limited extent, in other nearby counties. At June 30, 1997, we
had total assets of $84.3 million, deposits of $62.1 million and retained
earnings of $14.5 million, or 17.2% of assets. For the fiscal year ended
December 31, 1996, we had net income of $886,000, a return on assets of 1.1% and
a return on equity of 6.5%. We have historically experienced very few asset
quality problems in our total loan portfolio, and at June 30, 1997, our ratio of
non-performing assets to total assets was .24%. During the six months ended June
30, 1997, we charged off $72,000 of loans. During the fiscal year ended December
31, 1996, we did not charge off any loans.
MARKET AREA
Our primary market area is Montgomery County, Indiana. Crawfordsville,
the county seat of Montgomery County, is located in central Indiana,
approximately 45 miles west of Indianapolis. According to the U.S. Bureau of
Census, in 1996 the city of Crawfordsville had a population of 16,096, and
Montgomery County had a population of 35,888 residents. The Crawfordsville
economy is based on a mixture of agriculture, industrial as well as a variety of
service, wholesale and retail businesses. R.R. Donnelley & Sons, Lithonia Hi-Tek
Lighting and Raybestos Products are Crawfordsville's largest employers.
Crawfordsville is also home to Wabash College which has a student population of
800.
Most of our deposits and lending activities come from individuals
residing in Montgomery County. Montgomery County had an unemployment rate of
3.0% as of June 30, 1997 compared to a nationwide unemployment rate of 5.2%. We
think that our diverse economy will continue to provide for a stable market
area.
<PAGE>
USE OF PROCEEDS
The Holding Company will retain 50% of the net proceeds from the
offering, after payment of expenses incurred in connection with the Conversion,
and will use the balance of the proceeds to purchase all of the capital stock
issued by Union Federal 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
to acquire one or more other financial institutions, to pay dividends to
shareholders or to repurchase shares of Common Stock. The Holding Company has no
present plans to acquire another financial institution, however. The Holding
Company will not take any action in furtherance of an extraordinary capital
distribution during the year following the Conversion.
Union Federal intends to use a portion of the net proceeds that it
receives from the Holding Company to make adjustable- and fixed-rate mortgage
loans and commercial real estate loans to the extent there is demand for such
loans and subject to market conditions. Union Federal may also use a portion of
the net proceeds to fund the purchase of up to 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 may 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 Union Federal Savings and Loan Association -- Investments."
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,
1,700,000 2,000,000 2,300,000 2,645,000
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........................ $17,000 $20,000 $23,000 $26,450
Less:
Estimated Underwriting Commissions
and Other Expenses(1) (2).......... 585 625 669 719
------- ------- ------- -------
Estimated net Conversion
proceeds(1)........................ $16,415 $19,375 $22,331 $25,731
======= ======= ======= =======
</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 Union
Federal and their Associates purchase 110,800 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.
<PAGE>
DIVIDENDS
Upon Conversion, the Holding Company's board of directors will have the
authority to declare dividends, subject to statutory and regulatory
restrictions. The Holding Company expects initially to pay quarterly cash
dividends on the shares at a rate of 3% per annum ($0.30 per share per annum
based on the $10.00 per share offering price) commencing after the quarter ended
March 31, 1998. However, declarations of dividends by the board of directors
will depend upon a number of factors, including: (i) the amount of the net
proceeds retained by the Holding Company in the Conversion, (ii) investment
opportunities available, (iii) capital requirements, (iv) regulatory
limitations, (v) results of operations and financial condition, (vi) tax
considerations, and (vii) general economic conditions. Upon review of such
considerations, the board may authorize future dividends if it deems such
payment appropriate and in compliance with applicable laws and regulations. In
addition, from time to time in an effort to manage capital at a desirable level,
the board may determine to pay special cash dividends. Special cash dividends
may be paid in addition to, or in lieu of, regular cash dividends. In any event,
there can be no assurance that regular or special dividends will be paid, or, if
paid, will continue to be paid. 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 depend 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 the Notes to the Consolidated Financial Statements at page F-19.
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.
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 conditional approval to have the Common Stock quoted on the
NASDAQ National Market System under the symbol "UCBC" upon the successful
closing of the offering, subject to certain conditions which we believe will be
met. Trident Securities has advised us that it intends to act as a market maker
for the Common Stock. In order for the Common Stock to be traded on the NASDAQ
National Market System, there must be at least three market makers for the
Common Stock. We anticipate that we will be able to secure two other market
makers to enable the stock to be quoted on the NASDAQ National Market System.
The existence of a public trading market will depend upon the presence
in the market of both willing buyers and willing sellers at any given time. The
presence of a sufficient number of buyers and sellers at any given time is a
factor over which neither the Holding Company nor any broker or dealer has
control. Although the shares issued in the Conversion are expected to be traded
on the Nasdaq National Market System, it is unlikely that an active or liquid
trading market for the Common Stock will be developed and be maintained.
Further, the absence of an active and liquid trading market may make it
difficult to sell the Common Stock and may have an adverse effect on the price
of the Common Stock. Purchasers should consider the potentially illiquid and
long-term nature of their investment in the shares offered hereby.
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.
<PAGE>
COMPETITION
We originate most of our loans to and accept most of our deposits from
residents of Montgomery 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 Montgomery County with significantly
larger resources than are available to us. In total, there are 13 other
financial institutions located in Montgomery County, including nine banks, two
credit unions and two other savings associations. 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 June 30,
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
1,700,000 and 2,645,000 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.
<TABLE>
<CAPTION>
At June 30, 1997
Pro Forma Holding Company
Capitalization Based on Sale of
1,700,000 2,000,000 2,300,000 2,645,000
Shares Shares Shares Shares
Sold at Sold at Sold at Sold at
Union Federal 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)..................................... $62,055 $62,055 $62,055 $62,055 $62,055
======= ======= ======= ======= =======
Federal Home Loan Bank advances.................. $ 5,873 $ 5,873 $ 5,873 $ 5,873 $ 5,873
======= ======= ======= ======= =======
Note payable..................................... $ 1,200 $ 1,200 $ 1,200 $ 1,200 $ 1,200
======= ======= ======= ======= =======
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) ............ 16,415 19,375 22,331 25,731
Retained earnings (3)......................... 14,473 14,473 14,473 14,473 14,473
Common Stock acquired by ESOP(4) ................ (1,360) (1,600) (1,600) (1,600)
Common Stock acquired by the RRP (5)........... (680) (800) (920) (1,058)
------- ------- ------- ------- -------
Total capital and retained earnings.............. $14,473 $28,848 $31,448 $34,284 $37,546
======= ======= ======= ======= =======
</TABLE>
<PAGE>
(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 $585,000, $625,000,
$669,000 and $719,000 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 Notes to Union
Federal's 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 Union Federal's 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."
(4) Assumes purchases by the ESOP of a number of shares equal to 8% of the
shares issued in the Conversion up to a maximum of 160,000 shares. The
funds used to acquire the ESOP shares will be borrowed from the Holding
Company. See "Use of Proceeds." Union Federal 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 Union Federal -- Employee Stock Ownership Plan and Trust."
(5) Assuming the receipt of shareholder approval, 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 Union
Federal. 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 2,000,000 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 $.61 per share, or 3.88% on a pro forma basis as of June 30,
1997 at the midpoint of the Estimated Valuation Range. The dilution would
be $.65 per share (3.83%) and $.57 per share (3.83%) at the minimum and
maximum levels, respectively, of the Estimated Valuation Range on a pro
forma basis at June 30, 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.
<PAGE>
PRO FORMA DATA
The following table sets forth the pro forma combined consolidated net
income of the Holding Company for the six months ended June 30, 1997 and for the
year ended December 31, 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 5.86% for the six months ended June 30, 1997
and 5.13% for the year ended December 31, 1996 (the yield on one-year U.S.
government securities). The pro forma after-tax return for the Holding Company
on a consolidated basis is assumed to be 3.54% for the six months ended June 30,
1997 and 3.10% for the year ended December 31, 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 absorption 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.
<PAGE>
<TABLE>
<CAPTION>
1,700,000 Shares 2,000,000 Shares
Sold at Sold at
$10.00 Per Share $10.00 Per Share
Six Months Year Six Months Year
ended ended ended ended
6/30/97 12/31/96 6/30/97 12/31/96
(In thousands, except share data)
<S> <C> <C> <C> <C>
Gross proceeds ........................... $ 17,000 $ 17,000 $ 20,000 $ 20,000
Less offering expenses ................... (585) (585) (625) (625)
--------- --------- --------- ---------
Estimated net conversion
proceeds (2) ........................... 16,415 16,415 19,375 19,375
Less:
Common Stock acquired
by ESOP (3) ......................... (1,360) (1,360) (1,600) (1,600)
Common Stock acquired
by the RRP (4) ...................... (680) (680) (800) (800)
--------- --------- --------- ---------
Investable net proceeds .................. $ 14,375 $ 14,375 $ 16,975 $ 16,975
========= ========= ========= =========
Consolidated net income:
Historical ............................. $ 563 $ 886 $ 563 $ 886
Pro forma income on investable
net proceeds (5) ...................... 253 443 299 523
Pro forma ESOP adjustment (3) .......... (20) (41) (24) (48)
Pro forma RRP adjustment (4) ........... (41) (82) (48) (96)
--------- --------- --------- ---------
Pro forma net income ................... $ 755 1,206 $ 790 $ 1,265
========= ========= ========= =========
Consolidated earnings per share (7)(8):
Historical ............................. $ 0.36 $ 0.56 $ 0.30 $ 0.48
Pro forma income on investable
net proceeds .......................... 0.16 0.28 0.16 0.28
Pro forma ESOP adjustment (3) .......... (0.01) (0.03) (0.01) (0.03)
Pro forma RRP adjustment (4) ........... (0.03) (0.05) (0.03) (0.05)
--------- --------- --------- ---------
Pro forma earnings per share ........... $ 0.48 $ 0.77 $ 0.43 $ 0.68
========= ========= ========= =========
Consolidated book value (6) :
Historical.............................. $ 14,473 $ 13,910 $ 14,473 $ 13,910
Estimated net conversion
proceeds (2) ......................... 16,415 16,415 19,375 19,375
Less:
Common Stock acquired
by ESOP (3) ......................... (1,360) (1,360) (1,600) (1,600)
Common Stock acquired
by the RRP (4) ...................... (680) (680) (800) (800)
--------- --------- --------- ---------
Pro forma book value ................... $ 28,848 $ 28,285 $ 31,448 $ 30,885
========= ========= ========= =========
Consolidated book value per share (7)(8):
Historical ............................. $ 8.51 $ 8.18 $ 7.24 $ 6.96
Estimated net conversion proceeds
per share ............................. 9.66 9.66 9.69 9.69
Less:
Common Stock acquired
by the ESOP (3) ..................... (0.80) (0.80) (0.80) (0.80)
Common Stock acquired
by the RRP (4) ...................... (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ---------
Pro forma book value per share ......... $ 16.97 $ 16.64 $ 15.73 $ 15.45
========= ========= ========= =========
Offering price as a percentage of pro
forma book value per share ............. 58.93% 60.10% 63.57% 64.72%
========= ========= ========= =========
Ratio of offering price to pro forma
earnings per share (annualized) ........ 10.42x 12.99x 11.63x 14.71x
========= ========= ========= =========
Number of shares used in
calculating earnings per share (7) ..... 1,570,800 1,570,800 1,848,000 1,848,000
========= ========= ========= =========
Number of shares used in
calculating book value ................. 1,700,000 1,700,000 2,000,000 2,000,000
========= ========= ========= =========
</TABLE>
(Footnotes on following page.)
<PAGE>
<TABLE>
<CAPTION>
2,300,000 Shares 2,645,000 Shares (1)
Sold at Sold at
$10.00 Per Share $10.00 Per Share
---------------------------- --------------------------
Six Months Year Six Months Year
ended ended ended ended
6/30/97 12/31/96 6/30/97 12/31/96
<S> <C> <C> <C> <C>
Gross proceeds ........................... $ 23,000 $ 23,000 $ 26,450 $ 26,450
Less offering expenses ................... (669) (669) (719) (719)
Estimated net conversion
proceeds (2) ........................... 22,331 22,331 25,731 25,731
Less:
Common Stock acquired
by ESOP (3) ......................... (1,600) (1,600) (1,600) (1,600)
Common Stock acquired
by the RRP (4) ...................... (920) (920) (1,058) (1,058)
--------- --------- --------- ---------
Investable net proceeds .................. $ 19,811 $ 19,811 $ 23,073 $ 23,073
========= ========= ========= =========
Consolidated net income:
Historical ............................. $ 563 $ 886 $ 563 $ 886
Pro forma income on investable
net proceeds (5) ...................... 349 610 406 711
Pro forma ESOP adjustment (3) .......... (24) (48) (24) (48)
Pro forma RRP adjustment (4) ........... (55) (110) (63) (127)
--------- --------- --------- ---------
Pro forma net income ................... $ 833 $ 1,338 $ 882 $ 1,422
========= ========= ========= =========
Consolidated earnings per share (7)(8):
Historical ............................. $ 0.26 $ 0.41 $ 0.23 $ 0.36
Pro forma income on investable
net proceeds .......................... 0.16 0.28 0.16 0.29
Pro forma ESOP adjustment (3) .......... (0.01) (0.02) (0.01) (0.02)
Pro forma RRP adjustment (4) ........... (0.03) (0.05) (0.03) (0.05)
--------- --------- --------- ---------
Pro forma earnings per share ........... $ 0.38 $ 0.62 $ 0.35 $ 0.58
========= ========= ========= =========
Consolidated book value (6) :
Historical.............................. $ 14,473 $ 13,910 $ 14,473 $ 13,910
Estimated net conversion
proceeds (2) ......................... 22,331 22,331 25,731 25,731
Less:
Common Stock acquired
by ESOP (3) ......................... (1,600) (1,600) (1,600) (1,600)
Common Stock acquired
by the RRP (4) ...................... (920) (920) (1,058) (1,058)
--------- --------- --------- ---------
Pro forma book value ................... $ 34,284 $ 33,721 $ 37,546 $ 36,983
========= ========= ========= =========
Consolidated book value per share (7)(8):
Historical ............................. $ 6.29 $ 6.05 $ 5.47 $ 5.26
Estimated net conversion proceeds
per share ............................. 9.71 9.71 9.73 9.73
Less:
Common Stock acquired
by the ESOP (3) ..................... (0.70) (0.70) (0.60) (0.60)
Common Stock acquired
by the RRP (4) ...................... (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ---------
Pro forma book value per share ......... $ 14.90 $ 14.66 $ 14.20 $ 13.99
========= ========= ========= =========
Offering price as a percentage of pro
forma book value per share ............. 67.11% 68.21% 70.42% 71.48%
========= ========= ========= =========
Ratio of offering price to pro forma
earnings per share (annualized) ........ 13.16x 16.13x 14.29x 17.24x
========= ========= ========= =========
Number of shares used in
calculating earnings per share (7) ..... 2,148,000 2,148,000 2,493,000 2,493,000
========= ========= ========= =========
Number of shares used in
calculating book value ................. 2,300,000 2,300,000 2,645,000 2,645,000
========= ========= ========= =========
</TABLE>
<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, up to a maximum of 160,000 shares, 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"). Union Federal
intends to make annual contributions to the ESOP in an amount at least
equal to the principal and interest requirements on the debt. Union
Federal's total annual expense in payment of the ESOP debt is based
upon 20 equal annual installments of principal with an assumed tax
benefit of 40%. The pro forma net income assumes: (i) Union Federal's
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, Union
Federal's 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, 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 Union Federal. 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 by the RRP, the interests
of existing shareholders will be diluted. Assuming that 2,000,000
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 $.61 per
share, or 3.88% on a pro forma basis as of June 30, 1997, at the
midpoint of the Estimated Valuation Range. The dilution would be $.65
per share (3.83%) and $.57 per share (3.83%) at the minimum and maximum
levels, respectively, of the Estimated Valuation Range on a pro forma
basis as of June 30, 1997.
<PAGE>
(5) Assuming investable net proceeds had been invested since the beginning
of the period at 3.52% for the six months ended June 30, 1997 and 3.08%
for the year ended December 31, 1996 (the yield on one-year U.S.
government securities) 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 earnings per share was
calculated using the indicated number of shares sold reduced by the
assumed number of ESOP shares that would be unallocated at the end of
the first allocation period. Allocation of ESOP shares is assumed to
occur on the first day of the fiscal year.
(8) Assuming the receipt of shareholder approval, 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 $.53 per share, or 3.37% on a pro forma basis as of June 30,
1997, assuming the issuance of 2 million shares in the Conversion, the
midpoint, of the Estimated Valuation Range and the exercise of 200,000
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. The dilution would be $.63 per share (3.71%) and $.44 per share
(2.95%) at the minimum and maximum levels, respectively, of the
Estimated Valuation Range on a pro forma basis as of June 30, 1997.
<PAGE>
Regulatory Capital Compliance
The following table compares our historical and pro forma regulatory
capital levels as of June 30, 1997 to our capital requirements after giving
effect to the Conversion.
<TABLE>
<CAPTION>
At June 30, 1997
Pro Forma Capital Based on Sale of
1,700,000 Shares 2,000,000 Shares 2,300,000 Shares2,645,000 Shares
Union Federal 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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity capital based upon
generally accepted
accounting principles.................. $14,473 17.2% $20,641 22.8% $21,761 23.8% $23,119 24.9% $24,681 26.1%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Tangible capital :
Historical or
pro forma............................ $14,473 17.2% $20,641 22.8% $21,761 23.8% $23,119 24.9% $24,681 26.1%
Required............................... 1,264 1.5 1,357 1.5 1,374 1.5 1,394 1.5 1,417 1.5
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess............................... $13,209 15.7% $19,264 21.3% $20,387 22.3% $21,725 23.4% $23,264 24.6%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Core capital :
Historical or
pro forma ........................... $14,473 17.2% $20,641 22.8% $21,761 23.8% $23,119 24.9% $24,681 26.1%
Required............................... 2,529 3.0 2,714 3.0 2,747 3.0 2,788 3.0 2,835 3.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess............................... $11,944 14.2% $17,927 19.8% $19,014 20.8% $20,331 21.9% $21,846 23.1%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Risk-based capital:
Historical or
pro forma ........................... $14,671 34.6% $20,839 47.8% $21,959 50.1% $23,317 52.9% $24,879 56.0%
Required............................... 3,390 8.0 3,489 8.0 3,507 8.0 3,529 8.0 3,554 8.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess............................... $11,281 26.6% $17,350 39.8% $18,452 42.1% $19,788 44.9% $21,325 48.0%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
</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. Computations
of ratios are based on historical adjusted total assets of $84,291,000
and risk-weighted assets of $42,384,000.
(4) Capital levels are reduced for charges to capital resulting from the
ESOP and RRP. See notes (3) and (4) on page 20.
<PAGE>
THE CONVERSION
THE BOARDS OF DIRECTORS OF UNION FEDERAL 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 June 2, 1997, our Board of Directors adopted a Plan of Conversion
(the "Plan") pursuant to which we will convert from a federal mutual savings and
loans association to a federal stock savings and loan association, 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, if necessary, to the general public, with a
preference given to residents of Montgomery County, Indiana. 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 November ___, 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 material 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
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 payment
of expenses incurred in connection with the Conversion, will increase our
existing net worth and thus provide an even stronger capital base to support our
lending and investment activities. This increase in our net worth, when combined
with the extra expenses we will incur as a publicy-traded company, will also,
however, likely cause our return on equity to decrease in comparison with our
performance in previous years. The net proceeds will also enable us to take
advantage of new opportunities that may arise, including the possible
acquisition of another financial institution, although we have no such present
plans. 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.
<PAGE>
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 and loan
association such as Union Federal 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, we will
continue without interruption our normal business of accepting deposits and
making loans. 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.
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 and certain borrower members have voting rights and may vote for the
election of directors. Following the Conversion, depositors and borrowers will
cease to have voting rights. All voting rights in Union Federal 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 Union Federal 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 September 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 Union
Federal is unlikely.
<PAGE>
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 September 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 September 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 Union Federal 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 that are material to the Conversion. 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 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 RP Financial 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 and loan association to a
stock savings and loan association will qualify as a reorganization
under Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as
amended (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.
<PAGE>
3. The basis of the assets of the converted savings and loan association
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 and loan
association 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 or
borrowers, 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 and loan association 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 and loan association will succeed to and take
into account the dollar amounts of those accounts of Union Federal in
its mutual form which represent bad debt reserves in respect of which
Union Federal 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.
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 RP Financial, 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.
Offering of Common Stock
Under the Plan of Conversion, up to 2,300,000 shares of Common Stock
are being offered for sale, initially through the Subscription Offering (subject
to a possible increase to 2,645,000 shares). See "-- Subscription Offering." The
Plan of Conversion requires, with certain exceptions, that a number of shares
equal to at least 1,700,000 be sold in order for the Conversion to be completed.
Shares may also be offered to the public in a Community Offering which is
expected to commence after the Subscription Offering terminates, but may begin
at any time during the Subscription Offering. The Community Offering may expire
at any time when orders for at least 1,700,000 shares have been received in the
Subscription Offering and Community Offering, but no later than January ___,
1998, 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 November ___, 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
1,700,000 shares or more than 2,645,000 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."
<PAGE>
The Subscription Offering expires at 12:00 noon, Crawfordsville time,
on November ___, 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 January ___, 1998. 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 November ___, 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 completed, we will remain a mutual savings and loan
association, all subscription funds will be promptly returned to subscribers
with interest earned thereon at our passbook rate, which is currently 4.0% per
annum, or 4.06% 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.
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 Eligible Account Holders; (2) the ESOP; (3) our Supplemental
Eligible Account Holders; and (4) our members other than Eligible Account
Holders and Supplemental Eligible Account Holders, at the close of business on
October ___, 1997, the voting record date for the Special Meeting, including
holders of deposit accounts on October ____, 1997 and borrowers of Union Federal
on July 30, 1997, who remain borrowers on October ___, 1997 ("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 September 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 20,000 shares of Common Stock. For purposes of these limitations,
joint account holders may not collectively exceed the 10,000 and 20,000 share
limits.
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.
<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, including demand 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
Union Federal 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 $23,000,000, 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, up to a maximum of 160,000 shares. 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 September 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 20,000 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. For purposes of these limitations, joint account holders
may not collectively exceed the 10,000 and 20,000 share limits. 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, including demand deposit accounts, as
of the close of business on September 30, 1997.
Category IV: Other Members. The Other Members of Union Federal 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 and each loan owed as of October ___, 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 20,000 shares of Common Stock. For purposes of these
limitations, joint account holders ordering through a single account or joint
obligors ordering under a single loan may not collectively exceed the 10,000 and
20,000 share limits. Such subscription rights will be applicable only to such
shares as remain available after the subscriptions of Eligible Account Holders,
the ESOP, 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.
<PAGE>
Timing of Offering and Method of Payment. The Subscription Offering
will expire at 12:00 noon, Crawfordsville time, on November ___, 1997 (the
"Expiration Date"). The Expiration Date may be extended by Union Federal and the
Holding Company for successive 90-day periods, subject to OTS approval, to
November ___, 1999.
Subscribers must, before the Expiration Date, or such date to which the
Expiration Date may be extended, return an original Order Form 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 original Order Form of withdrawals from accounts
with us (including a certificate of deposit). Funds must actually be in the
account when an order for the purchase of Common Stock is submitted. We have the
right to reject any orders transmitted by facsimile or on copies of Order Forms
and any payments made by wire transfer.
In the event an Order Form (i) is not delivered and is returned to us
by the United States Postal Service or we are unable to locate the addressee,
(ii) is not received or is received after the Expiration Date, (iii) is
defectively completed or executed, or (iv) is not accompanied by full payment
for the shares subscribed for (including instances where a savings account or
certificate balance from which withdrawal is authorized is insufficient to fund
the amount of such required payment), the subscription rights for the person to
whom such rights have been granted will lapse as though that person failed to
return the completed Order Form within the time period specified. We may, but
will not be required to, waive any irregularity on any Order Form within the
time period specified. We may, but will not be required to, waive any
irregularity on any Order Form or require the submission of corrected Order
Forms or the remittance of full payment for subscribed shares by such date as we
specify. The waiver of an irregularity on an Order Form in no way obligates us
to waive any other irregularity on that, or any irregularity on any other, Order
Form. Waivers will be considered on a case by case basis. Photocopies of Order
Forms, payments from private third parties, or electronic transfers of funds
will not be accepted. Our interpretation of the terms and conditions of the Plan
and of the acceptability of the Order Forms will be final. We have the right to
investigate any irregularity on any Order Form.
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), no prospectus will be mailed
any later than five days prior to such date or hand delivered any later than two
days prior to such date. Execution of the Order Form will confirm receipt or
delivery in accordance with Rule 15c2-8. Order Forms will only be distributed
with a prospectus.
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 4.0% per annum, for an APY of 4.06%, 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 and may not be revoked by the purchaser.
Subscriptions may be withdrawn only in the event that we extend the Expiration
Date of the Subscription Offering as described above.
<PAGE>
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) 362-2428. 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 Montgomery 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
1,700,000 shares have been received in the Subscription Offering and Community
Offering (but no later than January ___, 1998, 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. 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.
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 20,000. 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 4.0% per annum, for an APY of 4.06%, 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.
<PAGE>
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 addresses of such persons 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.
Marketing Arrangements
To assist us and the Holding Company in marketing the Common Stock, we
have retained the services of Trident Securities as our financial advisor.
Trident Securities is a broker-dealer registered with the Securities and
Exchange Commission (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 1.45% 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
$28,000 without our consent (including legal fees and disbursements). Offers and
sales in the Subscription Offering and 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
Securitities Act of 1933 (the "1933 Act").
Selected Dealers
Trident Securities may enter into an agreement with certain dealers
chosen by Union Federal 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 or Syndicated 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, Union
Federal and Trident Securities believe that enough indications of interest and
orders have been received in the Subscription 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 4.0% per annum, for an APY of 4.06%,
until the completion of the offering. Funds will be returned promptly in the
event the Conversion is not consummated.
<PAGE>
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 or September 30, 1997, or each deposit account or loan owed as
of October ___, 1997, as applicable. For this purpose, joint account
holders ordering through a single account may not collectively exceed
the 10,000 share limit and joint obligors ordering through a single
loan may not collectively 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 20,000 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 20,000. Union Federal's 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 Union Federal 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 Union Federal.
(3) No more than 34.0% of the shares of Common Stock may be purchased
in the Conversion by directors and officers of Union Federal and the
Holding Company and their Associates. This restriction does not apply
to shares purchased by the ESOP.
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 Holding Company and Union
Federal may presume that certain persons are acting in concert based upon, among
other things, joint account relationships or the fact that such persons have
filed joint Schedules 13D with the SEC with respect to other companies.
<PAGE>
The term "Associate" of a person is defined to mean (i) any corporation
or organization (other than Union Federal 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 Union Federal 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 Union Federal 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 the 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."
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 prohibit the Holding Company 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. 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
Union Federal 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.
<PAGE>
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 Union Federal 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.
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 intend to 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 and/or the SEC.
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 RP Financial, which is experienced in the valuation and appraisal of
financial institutions, including savings associations involved in the
conversion process, to prepare an appraisal. RP Financial will receive a fee of
$17,500 for its appraisal, plus out-of-pocket expenses. RP Financial has also
prepared a business plan for us for a fee of $5,000, plus out-of-pocket
expenses. We have agreed to indemnify RP Financial, under certain circumstances,
against liabilities and expenses (including legal fees) arising out of RP
Financial's engagement by us.
RP Financial has prepared an appraisal that establishes the Estimated
Valuation Range of the pro forma market value of the Common Stock as of August
22, 1997 from a minimum of $17,000,000 to a maximum of $23,000,000, with a
midpoint of $20,000,000. 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
Union Federal's and the Holding Company's assets and liabilities was performed
in connection with the evaluation. The Board of Directors reviewed with
management RP Financial's methods and assumptions and accepted RP Financial'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.
<PAGE>
Promptly after the completion of the Subscription Offering and the
Community Offering, if any, RP Financial will confirm to us that, to the best of
RP Financial's knowledge and judgment, nothing of a material nature has occurred
which would cause RP Financial 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 $26,450,000 (15%
above the maximum of the Estimated Valuation Range), the Holding Company and
Union Federal 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 2,000,000 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 accompanying 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.
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."
<PAGE>
Interpretation and Amendment of the Plan
To the extent permitted by law, all interpretations of the Plan by
Union Federal 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 Union Federal, 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 Union Federal 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."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF UNION FEDERAL SAVINGS AND LOAN ASSOCIATION
General
Union Community Bancorp was recently formed as an Indiana corporation
on September ___, 1997, for the purpose of issuing the Common Stock and owning
all of the capital stock of Union Federal 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 primarily depend 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.
We are also affected by prevailing economic conditions, as well as
government 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 levels 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.
<PAGE>
Current Business Strategy
Our business strategy is to operate a well-capitalized, profitable and
independent community savings and loan association 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 high 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 $886,000 in
fiscal 1996, $992,000 in fiscal 1995, and $1.2 million in
fiscal 1994. Our net income for the six months ended June 30,
1997, was $563,000. Our average return on average assets for
the five years ended December 31, 1996, was 1.6%. Our returns
on average assets for the year ended December 31, 1996, and
the six months ended June 30, 1997 (on an annualized basis)
were 1.1% and 1.4%, respectively. Our net income for the
fiscal year ended December 31, 1996 would have been $1.1
million, and our annualized return on average assets would
have been 1.4% if not for our recognition during that period
of the one-time, non-recurring special assessment of
approximately $362,000 ($219,000 net of tax) to replenish the
Savings Association Insurance Fund ("SAIF") of the FDIC. See
"--Comparison of Operation Results for the Six Months ended
June 30, 1997 and 1996."
o Origination of One- to Four-Family Loans. Our primary lending
activity is the origination of one- to four- family
residential loans secured by property in our primary market
area. As of June 30, 1997, more than 90% of the loans in this
category in our portfolio were secured by property located in
Montgomery County.
o Asset Quality. Due largely to our conservative loan
underwriting standards, we have been successful in maintaining
a high level of asset quality. At June 30, 1997, only
$203,000, or .24% of our total assets were included in
nonperforming assets. At the same date, $269,000, or .32% of
our total assets were delinquent more than 30 days but less
than 90 days. See "Business of Union Federal--Non-Performing
and Problem Assets."
o Capital Position. At June 30, 1997, we exceeded all of our
regulatory capital requirements, and our equity capital was
$14.5 million, or 17.2% of total assets. Assuming net proceeds
at the midpoint of the Estimated Valuation Range, our pro
forma equity to assets ratio (excluding $7.3 million of net
proceeds to be retained by the Holding Company), at such date,
would have been 23.8%.
<PAGE>
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 June 30, 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 June 30, 1997, 2% of the present value of our
assets was approximately $1.7 million. 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 $3.8 million at June 30, 1997, we would
have been required to deduct $1.05 million from our total capital available to
calculate our risk based capital requirement if we had been subject to the OTS'
reporting requirements under this methodology. Our exposure to interest rate
risk results from the concentration of fixed rate mortgage loans in our
portfolio.
<TABLE>
<CAPTION>
Change Net Portfolio Value NPV as % of PV of Assets
In Rates $ Amount $ Change % Change NPV Ratio Change
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+ 400 bp * $ 8,112 $(8,134) (50)% 10.62% (821)bp
+ 300 bp 10,243 (6,003) (37)% 12.97% (585)bp
+ 200 bp 12,427 (3,819) (24)% 15.23% (359)bp
+ 100 bp 14,425 (1,821) (11)% 17.17% (166)bp
0 bp 16,246 --- --- % 18.83% --- bp
- 100 bp 17,611 1,365 8% 19.19% (116)bp
- 200 bp 18,299 2,053 13% 20.51% 168bp
- 300 bp 18,816 2,570 16% 20.86% 204bp
- 400 bp 19,667 3,422 21% 21.50% 268bp
</TABLE>
* Basis points.
<PAGE>
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the methods of analysis presented above. 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 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 the balances and interest rates at June
30, 1997, and for the six-month periods ended June 30, 1997, and 1996, and the
years ended December 31, 1996, 1995 and 1994, the average monthly balances, of
each category of our interest-earning assets and interest-bearing liabilities,
and the interest earned or paid on such amounts. 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.
<PAGE>
<TABLE>
<CAPTION>
At June 30, Six Months Ended June 30,
1997 1997 1996
------------------- ----------------------------- -----------------------------
Average Average Average Average
Balance Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning deposits.......... $ 2,220 5.60% $ 2,213 $ 50 4.52% $ 1,206 $ 40 6.63%
Mortgage-backed securities
held to maturity................. 2,424 8.41 2,583 111 8.59 3,241 139 8.58
Other investment securities
held to maturity................. 3,496 5.76 3,411 96 5.63 3,328 93 5.59
Loans receivable (1)............... 73,365 8.17 72,732 2,994 8.23 64,484 2,626 8.14
FHLB Stock......................... 708 7.76 644 25 7.76 571 22 7.71
-------- -------- ----- -------- -----
Total interest-earning assets.... 82,213 8.00 81,583 3,276 8.03 72,830 2,920 8.02
----- -----
Non-interest earning assets, net of
allowance for loan losses ......... 2,078 2,042 2,180
Total assets..................... $ 84,291 $ 83,625 $ 75,010
Liabilities and retained earnings:
Interest-bearing liabilities:
Savings deposits...................$ 3,821 4.00 $ 3,817 76 3.98 3,674 73 3.97
Interest-bearing demand............... 10,352 4.29 9,903 186 3.76 8,720 160 3.67
Certificates of deposit............ 47,882 5.84 47,666 1,392 5.84 45,528 1,359 5.97
FHLB advances...................... 5,873 5.76 5,956 169 5.67 1,483 35 4.72
-------- -------- ----- -------- -----
Total interest-bearing
liabilities................. 67,928 5.49 67,342 1,823 5.41 59,405 1,627 5.48
----- -----
Other liabilities..................... 1,890 2,022 2,269
-------- -------- --------
Total liabilities................ 69,818 69,364 61,674
Retained earnings..................... 14,473 14,261 13,336
-------- -------- --------
Total liabilities and
retained earnings............ $ 84,291 $ 83,625 $ 75,010
======== ======== ========
Net interest-earning assets........... $ 14,285 $ 14,241 $ 13,425
======== ======== ========
Net interest income................... $1,453 $1,293
====== ======
Interest rate spread (2).............. 2.51% 2.62% 2.54%
==== ==== ====
Net yield on weighted average
interest-earning assets (3)........ 3.56% 3.55%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 121.15% 122.60%
</TABLE>
(1) Total loans less loans in process.
(2) Interest rate spread is calculated by subtracting weighted average interest
rate cost from weighted average interest rate yield for the period
indicated.
(3) The net yield on weighted average interest-earning assets is calculated by
dividing net interest income by weighted average interest-earning assets
for the period indicated. No net yield amount is presented at June 30,
1997, because the computation of net yield is applicable only over a period
rather than at a specific date.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---------------------------- ----------------------------- ----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning deposits............$ 959 $ 67 6.99% $ 1,089 $ 71 6.52% $1,408 $ 61 4.33%
Mortgage-backed securities
held to maturity................... 3,061 263 8.59 3,777 321 8.50 4,553 390 8.57
Other investment securities
held to maturity................... 3,169 175 5.52 3,918 227 5.79 3,805 233 6.12
Loans receivable (1)................. 68,346 5,562 8.14 60,950 5,066 8.31 58,098 4,533 7.80
FHLB Stock........................... 576 45 7.81 562 44 7.83 547 32 5.85
------ ------ ------- ------ ------- -----
Total interest-earning assets...... 76,111 6,112 8.03 70,296 5,729 8.15 68,411 5,249 7.67
------ ------ -----
Non-interest earning assets, net of
allowance for loan losses............ 2,152 2,391 2,463
------- ------- -------
Total assets.......................$78,263 $72,687 $70,874
======= ======= =======
Liabilities and retained earnings:
Interest-bearing liabilities:
Savings deposits.....................$ 3,754 148 3.94 $ 3,650 146 4.00 $ 4,616 159 3.44
Interest-bearing demand.............. 9,061 369 4.07 8,594 385 4.48 10,122 364 3.60
Certificates of deposit.............. 46,035 2,716 5.90 43,597 2,505 5.75 40,713 1,925 4.73
FHLB advances........................ 3,566 191 5.36 1,857 112 6.03 1,261 59 4.68
Total interest-bearing liabilities. 62,416 3,424 5.49 57,698 3,148 5.46 56,712 2,507 4.42
------ ------ -----
Other liabilities....................... 2,303 2,333 2,640
----- ----- -----
Total liabilities.................. 64,719 60,031 59,352
Retained earnings....................... 13,544 12,656 11,522
------ ------ ------
Total liabilities and
retained earnings..............$78,263 $ 72,687 $ 70,874
======= ======== ========
Net interest-earning assets.............$13,695 $ 12,598 $ 11,699
======= ======== ========
Net interest income..................... $2,688 $2,581 $2,742
====== ====== ======
Interest rate spread (2)................ 2.54% 2.69% 3.25%
==== ==== ====
Net yield on weighted average
interest-earning assets (3).......... 3.53% 3.67% 4.01%
==== ==== ====
Average interest-earning assets to
average interest-bearing liabilities. 121.94% 121.83% 120.63%
</TABLE>
(1) Total loans less loans in process.
(2) Interest rate spread is calculated by subtracting weighted average interest
rate cost from weighted average interest rate yield for the period
indicated.
(3) 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 June 30,
1997, because the computation of net yield is applicable only over a period
rather than at a specific date.
<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 month-end 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>
Six Months Ended
At June 30, June 30, Year Ended December 31,
1997 1997 1996 1996 1995 1994
-------------------------------------------------------------------------
Weighted average interest rate earned on:
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits.................... 5.60% 4.52% 6.63% 6.99% 6.52% 4.33%
Mortgage-backed securities held to maturity.. 8.41 8.59 8.58 8.59 8.50 8.57
Other investment securities held to maturity. 5.76 5.63 5.59 5.52 5.79 6.12
Loans receivable............................. 8.17 8.23 8.14 8.14 8.31 7.80
FHLB stock................................... 7.76 7.76 7.71 7.81 7.83 5.85
Total interest-earning assets.............. 8.00 8.03 8.02 8.03 8.15 7.67
Weighted average interest rate cost of:
Savings deposits............................. 4.00 3.98 3.97 3.94 4.00 3.44
Interest-bearing demand...................... 4.29 3.76 3.67 4.07 4.48 3.60
Certificates of deposit...................... 5.84 5.84 5.97 5.90 5.75 4.73
FHLB advances................................ 5.76 5.67 4.72 5.36 6.03 4.68
Total interest-bearing liabilities......... 5.49 5.41 5.48 5.49 5.46 4.42
Interest rate spread (1)........................ 2.51 2.62 2.54 2.54 2.69 3.25
Net yield on weighted average
interest-earning assets (2).................. N/A 3.56 3.55 3.53 3.67 4.01
</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 June
30, 1997 because the computation of net yield is applicable only over a
period rather than at a specific date.
<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 prior period volume) and (2) changes in volume (changes in volume
multiplied by prior period 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)
Six months ended June 30, 1997 compared
to six months ended June 30, 1996
Interest-earning assets:
<S> <C> <C> <C>
Interest-earning deposits.................................. $ (34) $ 44 $10
Mortgage-backed securities held to maturity................ 1 (29) (28)
Other investment securities held to maturity............... 1 2 3
Loans receivable........................................... 29 339 368
FHLB stock................................................. 3 3
------ ---- -----
Total.................................................... (3) 359 356
------ ---- -----
Interest-bearing liabilities:
Savings deposits........................................... --- 3 3
Interest-bearing demand.................................... 4 22 26
Certificates of deposit.................................... (70) 103 33
FHLB advances.............................................. 8 126 134
------ ---- -----
Total.................................................... (58) 254 196
------ ---- -----
Net change in net interest income............................ $ 55 $105 $ 160
====== ==== =====
Year ended December 31, 1996 compared
to year ended December 31, 1995
Interest-earning assets:
Interest-earning deposits.................................. $ 5 $ (9) $ (4)
Mortgage-backed securities held to maturity................ 3 (61) (58)
Other investment securities held to maturity............... (10) (42) (52)
Loans receivable........................................... (108) 604 496
FHLB stock................................................. --- 1 1
------ ---- -----
Total.................................................... (110) 493 383
------ ---- -----
Interest-bearing liabilities:
Savings deposits........................................... (2) 4 2
Interest-bearing demand.................................... (36) 20 (16)
Certificates of deposit.................................... 68 143 211
FHLB advances.............................................. (14) 93 79
------ ---- -----
Total.................................................... 16 260 276
------ ---- -----
Net change in net interest income............................ $ (126) $233 $107
====== ==== ====
Year ended December 31, 1995 compared
to year ended December 31, 1994
Interest-earning assets:
Interest-earning deposits.................................. $ 26 $ (16) $ 10
Mortgage-backed securities held to maturity................ (3) (66) (69)
Other investment securities held to maturity............... (13) 7 (6)
Loans receivable........................................... 304 229 533
FHLB stock................................................. 11 1 12
----- ---- -----
Total.................................................... 325 155 480
----- ---- -----
Interest-bearing liabilities:
Savings deposits........................................... 23 (36) (13)
Interest-bearing demand.................................... 81 (60) 21
Certificates of deposit.................................... 436 144 580
FHLB advances.............................................. 20 33 53
----- ---- -----
Total.................................................... 560 81 641
----- ---- -----
Net change in net interest income............................ $(235) $ 74 $ (161)
===== ===== ========
</TABLE>
<PAGE>
Financial Condition at June 30, 1997 Compared to Financial Condition at December
31, 1996
Total assets increased $1.5 million, or 18.1% at June 30, 1997,
compared to December 31, 1996. The largest increases were primarily in cash and
cash equivalents which increased $793,000, or 54.1%, and net loans which
increased $470,000, or .6%. The increase in cash and cash equivalents was
principally in short-term interest-bearing deposits. Funds were retained in
short-term interest-bearing deposits to meet the liquidity demands of short-term
public funds deposits and to provide additional liquidity for Federal Home Loan
Bank ("FHLB") advances maturing in the third quarter of 1997. The increase in
net loans was principally in real estate mortgage loans, and a result of
increased customer demand. An increase of $1.6 million, or 2.7%, in deposits
funded this growth.
Average assets increased $5.3 million from $78.3 million for the period
ended December 31, 1996, to $83.6 million for the period ended June 30, 1997, an
increase of 6.8%. Average interest-earning assets represented 97.3% of average
assets for the period ended December 31, 1996 compared to 97.6% for the period
ended June 30, 1997. Although the average of most interest-earning assets
increased during the period ended June 1997, average loans experienced the
largest increase amounting to $4.4 million, or 6.4%, compared to the December
1996 period. Average interest-earning assets as a percentage of average
interest-bearing liabilities were 121.9% for the period ended December 31, 1996
and 121.2% for the period ended June 30, 1997.
Average balances of mortgage-backed securities held to maturity
decreased $478,000, or 15.6%, from December 31, 1996 to June 30, 1997 as a
result of principal repayments, while other investment securities held to
maturity increased $242,000, or 7.6%, from $3.2 million for the period ended
December 31, 1996 to $3.4 million for the period ended June 30, 1997 due to
purchases. Although we have not purchased any mortgage-backed securities for
several years, mortgage-backed securities have been purchased on occasion and
are considered for purchase on an ongoing basis because such instruments offer
liquidity and lower credit risk than other types of investments. The primary
risk associated with these instruments is that in a declining interest rate
environment the prepayment level of the loans underlying these securities will
accelerate, which reduces the effective yield and exposes the association to
interest rate risk on the prepaid amounts. In an increasing rate environment,
the primary risk associated with these securities is that the fixed-rate portion
of such securities will not adjust to market rates which reduces our spread. See
"Business -- Lending Activities -- Mortgage-Backed Securities."
Loans and Allowance for Loan Losses. Average loans increased $4.4
million, or 6.4%, from the period ended December 31, 1996, to June 30, 1997. The
growth in loans was funded by increased average deposits of $2.5 million and
increased average FHLB advances of $2.4 million. Average loans were $68.3
million for the December 1996 period and $72.7 million for the June 1997 period.
The average rates on loans were 8.14% for the December, 1996 period and 8.23%
for the June 1997 period, an increase of 9 basis points. The allowance for loan
losses as a percentage of total loans increased from .22% to .27% due to an
increase in the allowance for loan losses from $159,000 at December 31, 1996 to
$198,000 at June 30, 1997. The increase in our allowance for loan losses was a
result of a $111,000 provision for loan losses for the period ending June 30,
1997 offset by a $72,000 of a charge-off taken during that same period . The
ratio of the allowance for loan losses to non-performing loans was 32.5% at
December 31, 1996 compared to 162.3% at June 30, 1997. Nonperforming loans
decreased from $489,000 at December 31, 1996 to $122,000 at June 30, 1997.
Nonperforming loans of $203,000 were transferred to foreclosed real estate
during the period ended June 30, 1997 and a charge-off of $72,000 relating to a
multi-family loan taken at the time of the transfer. In response to this loss,
we increased the risk factor used to calculate the necessary allowance for loan
losses related to loans secured by multi-family and commercial real estate. We
have experienced minimum residential loan losses in the past with no losses
recorded in over five years and do not expect our experience in this area to
change in future years; therefore, we have not adjusted the risk factor used on
the residential loan portfolio.
Premises and Equipment. Premises and equipment decreased slightly from
December 31, 1996 to June 30, 1997 due to depreciation for the period exceeding
purchases. We have no branches and lease to other businesses a portion of our
main office and parking lot. See "Business -- Properties."
<PAGE>
Deposits. Deposits increased $1.6 million to $62.1 million during the
period from December 31, 1996 to June 30, 1997, an increase of 2.6%. Increased
deposits were utilized to fund loan growth and resulted in an increase in cash
and short-term interest-bearing deposits. Interest-bearing demand and savings
deposits increased $792,000, or 5.9%, between December 31, 1996 and June 30,
1997. Certificates of deposits also increased $827,000, or 1.8%, during this
period. Average total deposits increased $2.5 million, or 4.2%, from $58.9
million for the period ended December 31, 1996 compared to $61.4 million for the
period ended June 30, 1997.
Borrowed Funds. Borrowed funds decreased $807,000, or 10.2%, from
December 31, 1996 to June 30, 1997. The decline in total borrowed funds was
comprised of a decrease in FHLB advances of $609,000, or 9.4%, and a decrease in
the note payable to Pedcor Investments - 1993-XVI, LP ("Pedcor"), a limited
partnership organized to build, own and operate a 48-unit apartment complex, of
$198,000, or 14.2%. The note to Pedcor was used to fund our investment in the
Pedcor low-income housing income tax credit limited partnership and bears no
interest so long as there exists no event of default. Average FHLB advances
increased to $6.0 million for the June 1997 period compared to $3.6 million for
the December 1996 period, an increase of $2.4 million, or 66.7%.
Retained Earnings. Retained earnings increased $563,000, or 4.1%, from
$13.9 million at December 31, 1996 to $14.5 million at June 30, 1997. The
increase was due to net income during the period.
Financial Condition at December 31, 1996 Compared to Financial Condition at
December 31, 1995
Total assets increased $9.2 million, or 12.4%, at December 31, 1996,
compared to December 31, 1995. The largest increase was in net loans which
increased $11.4 million, or 18.6%. This increase was funded in part by an
increase in deposits of $3.0 million, or 5.3%, and an increase in FHLB advances
of $5.4 million, or 508.6%. The increase in net loans of $11.4 million was
primarily in one-to-four family loans and resulted from a strong local demand
for residential financing.
Average assets increased from $72.7 million for the period ended
December 31, 1995, to $78.3 million for the period ended December 31, 1996, an
increase of $5.6 million, or 7.7%. Average interest-earning assets represented
97.3% of average assets for the period ended in 1996 compared to 96.7% for the
period ended in 1995. The increase in average earning assets was primarily in
the loan portfolio. Average interest-bearing assets as a percentage of average
interest-bearing liabilities was 121.9% and 121.8% for 1996 and 1995,
respectively.
Average balances of mortgage-backed securities held to maturity
decreased $716,000, or 19.0%, for the year ended December 31, 1996 as a result
of principal repayments, while other investment securities held to maturity
decreased $749,000, or 19.1%, from $3.9 million for the period ended December
31, 1995 to $3.2 million for the period ended December 31, 1996 due to
maturities.
Loans and Allowance for Loan Losses. The increase in our net loans of
$11.4 million, or 18.6% from December 31, 1995 to December 31, 1996 was
primarily in real estate mortgage loans. Average loans increased from $61.0
million to $68.3 million while the average rates earned on such loans decreased
17 basis points to 8.14%. The allowance for loan losses as a percentage of total
loans increased to 0.22% from 0.18% as a result of an increase in loans and no
charge-offs. The allowance for loan losses as a percentage non-performing loans
was 32.5% and 71.15% at December 31, 1996 and 1995 respectively. Non-performing
loans were $489,000 and $156,000 at each date, respectively. Included in
non-performing loans at December 31, 1996 was an impaired loan of $112,000. A
provision for loss of $37,000 had been recorded on this loan.
Premises and Equipment. Premises and equipment decreased slightly from
December 31, 1995 to December 31, 1996 due to depreciation for the period
exceeding purchases.
Deposits. Deposits increased approximately $3.0 million, or 5.3%,
during the period ended December 31, 1996. Interest-bearing demand and savings
deposits increased $1.2 million, or 10.2%, while certificates of deposit
increased $1.8 million, or 3.9%. Average deposits increased $3.0 million, or
5.4%, during the period ended December 31, 1996. Average interest-bearing demand
and savings deposits increased $571,000, or 4.7% while certificates of deposits
increased $2.4 million, or 5.6%. The rates paid on interest-bearing demand and
saving deposits decreased 41 and 6 basis points, respectively, while the rate
paid on certificates of deposits increased 15 basis points.
<PAGE>
Borrowed Funds. The growth in loans was partially funded by the
increase in FHLB advances of $5.4 million, or 508.6% from December 31, 1995 to
December 31, 1996. We elected to utilize FHLB advances available at rates
comparable to the cost of acquiring local deposits to partially fund the
increase in loans. The majority of these FHLB advances matured in less than one
year. Average FHLB advances increased from $1.9 million at December 31, 1995 to
$3.6 million at December 31, 1996.
Retained Earnings. Retained earnings increased $886,000, or 6.8%, from
$13.0 million at December 31, 1995 to $13.9 million at December 31, 1996. The
increase was due to net income during the period.
Comparison of Operating Results For Six Months Ended June 30, 1997 and 1996
General. Net income increased $27,000, or 5.0%, from $536,000 for the
six months ended June 30, 1996 to $563,000 for the six months ended June 30,
1997. Net interest income after provision for losses on loans increased $73,000,
or 5.8%, for the 1997 period compared to the 1996. The increase in net interest
income after provision for loan losses more than offset the $37,000 decrease in
other income, the $5,000 increase in other expenses and the $4,000 increase in
income taxes. Annualized return on average assets was 1.35% and 1.43 % for the
six months ended June 30, 1997 and 1996, respectively.
Interest Income. Our total interest income was $3.3 million for the
1997 period compared to $2.9 million for the 1996 period. The increase in
interest income was due primarily to an increase in volume. Average earning
assets increased $8.8 million, or 12.1%, from $72.8 million for the 1996 period
compared to $81.6 for the 1997 period. The average yield on interest-earning
assets increased slightly from 8.02% for the six months ended June 30, 1996 to
8.03% for the comparable period in 1997.
Interest Expense. Interest expense increased $195,000, or 12.0%, for
the six month period ended June 30, 1997 compared to the 1996 period. Average
interest-bearing liabilities increased $7.9 million, or 13.4%, from $59.4
million for the 1996 period to $67.3 million during the 1997 period. The average
balance of each deposit type increased from the 1996 period to the 1997 period
with a $3.5 million, or 6.0%, increase in total average deposits. Average FHLB
advances increased $4.5 million, or 300.0%, from $1.5 million for the 1996
period to $6.0 million during the 1997 period. We continued to use FHLB advances
to partially fund loan growth.
Net Interest Income. Net interest income increased $160,000, or 12.4%,
for the 1997 period compared to the 1996 period. The increase was primarily due
to the $105,000 increase due to volume increases while the lower cost of
interest-bearing liabilities was primarily responsible for the $55,000 increase
due to rate. The interest spread was 2.62% for the six months ended June 30,
1997 compared to 2.54% for the comparable 1996 period.
Provision for Loan Losses. The provision for loan losses for the period
ended June 30, 1997 was $111,000 compared to $24,000 for the same period in
1996. We increased the provision for loan losses due to the increase in
outstanding loans and the losses recorded in 1997 associated with non-performing
loans secured by multi-family real estate. In response to the loss experienced
in 1997, we increased the risk factor used on multi-family and commercial real
estate loans.
Other Income (Losses). Other income (losses) decreased $37,000 , or
63.8%, for the 1997 period compared to the 1996 period primarily due to
increased losses of $35,000 from our investment in a low-income housing income
tax credit limited partnership. Our investment in the limited partnership
represents a 99% equity in Pedcor. In addition to recording our equity in the
losses of Pedcor, we recorded the benefit of low income housing income tax
credits in the amount of $89,000 for both six-month periods.
Salaries and Employee Benefits. Salaries and employee benefits were
$252,000 for the six-month period ended June 30, 1997 compared to $230,000 for
the 1996 period, and increase of $22,000, or 9.6%. This increase resulted from
the addition of 3 full-time employees to our staff and normal increases in
employee compensation and related payroll taxes.
<PAGE>
Net Occupancy and Equipment Expenses. Occupancy expenses increased
$4,000, or 33.3%, and equipment expenses increased $1,000, or 10.0%, during the
1997 period compared to the 1996 period.
Deposit Insurance Expense. Deposit insurance expense decreased $53,000,
or 81.5%, from $65,000 for the six months ended June 30, 1996 to $12,000 for the
same period in 1997. This decrease was due to the recapitalization of the
Savings Association Insurance Fund ("SAIF") which ultimately resulted in a
decline in our assessment. Prior to the recapitalization of SAIF, we paid an
assessment of $.23 per $100 of deposits. Subsequent to the recapitalization, the
assessment was reduced to $.0644 per $100 of deposits.
Other Expense. Other expenses, consisting primarily of expenses related
to service center fees, advertising, directors' fees, professional fees,
supervisory examination fees, supplies, and postage increased $31,000, or 24.4%
for the 1997 period compared to the 1996 period. The increase resulted from
nominal increases in a variety of expense categories.
Income Tax Expense. Income tax expense increased $4,000, or 1.7%,
during the six months ended June 30, 1997 compared to the 1996 period. The
increase was directly related to the increase in taxable income for the period.
The effective tax rate was 29.4% and 30.1% for the respective 1997 and 1996
periods.
Comparison of Operating Results For Years Ended December 31, 1996, 1995, and
1994
General. Net income for the year ended December 31, 1996 decreased
$106,000, or 10.7%, to $886,000 compared to $992,000 for 1995. Net income for
1994 was $1,155,000, $163,000, or 14.1%, greater than the 1995 net income.
Return on average assets for the years ended December 31, 1996, 1995 and 1994
was 1.13%, 1.36% and 1.63%, respectively. Return on average equity was 6.54% for
1996, 7.84% for 1995 and 10.02% for 1994.
Interest Income. Total interest income was $6.1 million for 1996
compared to $5.7 million for 1995. Average earning assets increased $5.8
million, or 8.3%, from $70.3 million to $76.1 million from 1995 to 1996. Volume
increases, primarily from loans, accounted for $493,000 of the increase while
lower interest rates offset the increase by $110,000. Total interest income
increased $480,000, or 9.1%, from 1994 to 1995 due to an increase in the average
earning assets accompanied by an increase in the average yields. Average earning
assets increased $1.9 million, or 2.8%, during this period while the average
yield on earning assets increased 48 basis points to 8.15% from 7.67%. The
increase in average loans and the increased loan yield were the primary factors
contributing to these increases.
Interest Expense. Interest expense increased $276,000, or 8.8%, during
1996 compared to 1995. The increase in interest expense was primarily the result
of an increase in average interest-bearing liabilities of $4.7 million, or 8.1%,
from $57.7 million to $62.4 million. The growth in average interest-bearing
liabilities was primarily attributable to the growth in certificates of deposit
and FHLB advances. The average balance of certificates of deposit increased $2.4
million, or 5.6%, while average FHLB advances increases $1.7 million, or 92.0%.
We utilized the deposit growth and increased borrowings from the FHLB to fund
loan growth. Interest expense increased $641,000, or 25.6%, in 1995 compared to
1994 reflecting increases in interest rates of $560,000 and volume increases of
$81,000. The average cost of interest-bearing liabilities increased from 4.42%
in 1994 to 5.46% in 1995.
Net Interest Income. Net interest income increased $107,000, or 4.1%,
from $2.6 million for 1995 to $2.7 million for 1996. Net interest income
decrease $161,000, or 5.9%, in 1995 from 1994. Our interest rate spread was
2.54%, 2.69% and 3.25% for 1996, 1995 and 1994, respectively.
Provision for Loan Losses. Our provision for loan losses for the year
ended December 31, 1996 was $48,000. The 1996 provision and the related increase
in the allowance for loan losses was considered adequate, based on growth, size,
condition and components of the loan portfolio. The provision of $24,000 for
both 1995 and 1994 reflected the more moderate growth of the loan portfolio.
<PAGE>
Other Income (Losses). Other income (losses) increased $101,000, or
46.5%, from 1995 to 1996 primarily due to a decrease in losses of $76,000 from
our investment in a limited partnership. Other income (losses) decreased
$177,000 from 1994 to 1995 primarily due to increased losses of $195,000 from
our investment in the limited partnership.
Salaries and Employee Benefits. Salaries and employee benefits were
$461,000 for 1996 compared to $481,000 for 1995, a decrease of $20,000, or 4.2%.
This decrease was primarily a result of a $5,000 decrease in retirement plan
contributions and a $13,000 increase loan origination costs which are deferred
over the lives of the related loans. Salaries and employee benefits decreased
$8,000, or 1.6%, from 1994 to 1995.
Net Occupancy and Equipment Expenses. Occupancy expenses decreased
$27,000, or 40.9%, and equipment expenses remained constant during 1996 as
compared to 1995. The decrease in occupancy expenses was primarily attributable
to an additional $32,000 of repairs and maintenance expenses in 1995 as compared
to 1996. Occupancy expenses for 1994 were $22,000, or 50.0%, less than the 1995
expenses and equipment expenses were $3,000, or 17.6%, less than the 1995
expenses. Once again, additional repairs and maintenance expense was the primary
reason for the increase in 1995.
Deposit Insurance Expense. Deposit insurance expense increased
$368,000, or 289.8%, from $127,000 for 1995 to $495,000 for 1996 due to the one
time SAIF special assessment of approximately $362,000. Deposit insurance
expense for 1994 was $126,000, $1,000 less than the 1995 expense.
Other Expense. Other expenses, consisting primarily of expenses related
to service center fees, advertising, directors' fees, professional fees,
supervisory examination fees, supplies, and postage decreased $41,000, or 12.5%,
from 1995 to 1996. The decrease resulted from decreases in a variety of expense
categories. Other expenses increased $120,000, or 57.7%, from 1994 to 1995. The
increase resulted from increases in a variety of expense categories and was not
attributable to any one item.
Income Tax Expense. Income tax expense increased $10,000, or 3.1%, from
1995 to 1996. Income tax expense decreased $313,000, or 49.0%, from 1994 to
1995. The decrease in 1995 was directly related to the decrease in taxable
income for the year and the increase in tax credits from $75,000 in 1994 to
$178,000 in 1995. The effective tax rate was 27.5%, 24.7% and 35.6% for 1996,
1995 and 1994, respectively.
<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 six-month periods ended
June 30, 1997 and 1996 and each year in the three-year period ended December 31,
1996.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
1997 1996 1996 1995 1994
------ -------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities........................ $ 934 $ 796 $ 1,088 $1,160 $941
------ -------- ------- ------- -------
Investing activities:
Investment securities
Proceeds from maturities and
paydowns of mortgage-backed
securities held to maturity............ 330 341 676 663 1,769
Purchases of other investment
securities held to maturity.......... (700) (494) (994) (100) (799)
Proceeds from maturities of other
investment securities
held to maturity..................... 200 1,500 2,000 --- 400
Purchase of loans...................... (500) (1,000) (1,350) (742) (1,523)
Proceeds from loan sales............... --- --- --- --- 171
Other net change in loans.............. (162) (5,687) (10,116) (502) (3,475)
Purchase of FHLB of
Indianapolis Stock................... (128) (18) (18) (1) (59)
Purchases of premises
and equipment........................ (7) --- (3) (38) (36)
------ -------- ------- ------- -------
Net cash used by
investing activities................. (967) (5,358) (9,805) (720) (3,552)
------ -------- ------- ------- -------
Financing activities:
Net change in
Interest-bearing
demand and savings deposits............ 791 635 1,243 (1,375) (572)
Certificates of deposits................. 827 476 1,786 3,896 382
Proceeds from borrowings................. 1,000 2,000 10,500 2,500 3,200
Repayment of borrowings.................. (1,807) (261) (5,261) (4,801) (67)
Net change in advances by borrowers
for taxes and insurance.............. 15 97 (79) 4 34
------ -------- ------- ------- -------
Net cash provided by financing
activities........................... 826 2,947 8,189 224 2,977
------ -------- ------- ------- -------
Net increase(decrease) in cash
and cash equivalents..................... $ 793 $ (1,615) $ (528) $ 664 $ 366
====== ======== ======= ======= =======
</TABLE>
<PAGE>
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 June 30, 1997, we had liquid assets of
$5.5 million, and a regulatory liquidity ratio of 8.7%, of which 56% constituted
short-term investments.
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 June 30, 1997, our tangible capital ratio was 17.2%, our core
capital ratio was 17.2%, and our risk-based capital to risk-weighted assets
ratio was 34.6%. Therefore, at June 30, 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 June 30, 1997:
<TABLE>
<CAPTION>
At June 30, 1997
OTS Requirement Union Federal's 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% $1,264 17.2% $14,473 $13,209
Core capital (2)............................ 3.0 2,529 17.2 14,473 11,944
Risk-based capital.......................... 8.0 3,390 34.6 14,671 11,281
</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 recently
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. Union Federal expects to be in compliance
with such new requirements. See "Regulation -- Regulatory Capital."
For definitions of tangible capital, core capital and risk-based
capital, see "Regulation -- Savings Association Regulatory Capital."
As of June 30, 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 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.
<PAGE>
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.
In February 1997, the FASB issued SFAS No. 128, Earnings per Share,
establishing standards for computing and presenting earnings per share (EPS) and
applies to entities with publicly held common stock or potential common stock,
as well as any other entity that chooses to present EPS in its financial
statements.
This Statement simplifies the current standards of APB Opinion No. 15,
Earnings per Share, and makes them comparable to international EPS standards. It
eliminates the presentation of primary EPS and requires presentation of basic
EPS (the principal difference being that common stock equivalents are not
considered in the computation of basic EPS). It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.
Basic EPS includes no dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if the potential common shares were exercised or converted into
common stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. Diluted EPS is computed similarly to that of fully
diluted EPS pursuant to Opinion No. 15.
The Statement is effective for our financial statements issued for
periods ending after December 15, 1997, including interim periods. Earlier
application is not permitted. The Statement requires restatement of all
prior-period EPS data presented.
<PAGE>
In February 1997, the FASB issued SFAS No. 129, Disclosure of
Information about Capital Structure, continuing the current requirements to
disclose certain information about an entity's capital structure found in APB
Opinion No. 10, Omnibus Opinion--1966, Opinion No. 15, and SFAS No. 47,
Disclosure of Long-Term Obligations. It consolidates specific disclosure
requirements from those standards. SFAS No. 129 is effective for our financial
statements issued for periods ending after December 15, 1997, including interim
periods.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income, establishing standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. It requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This Statement does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement.
SFAS No. 130 will also require us to (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
The Statement is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information, establishing standards for the way
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. This Statement
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, but retains the requirement to report information about major
customers. It amends SFAS No. 94, Consolidation of All Majority-Owned
Subsidiaries, to remove the special disclosure requirements for previously
unconsolidated subsidiaries. This Statement does not apply to nonpublic business
enterprises or to not-for-profit organizations.
SFAS No. 131 requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.
This Statement requires that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. It requires reconciliations of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to corresponding amounts in the enterprise's general-purpose financial
statements. This Statement also requires that a public business enterprise
report descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period.
SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. This Statement need
not be applied to interim financial statements in the initial year of its
application, but comparative information for interim periods in the initial year
of application is to be reported in financial statements for interim periods in
the second year of application.
<PAGE>
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 UNION FEDERAL SAVINGS AND LOAN ASSOCIATION
General
We were organized as a state-chartered savings and loan association in
1913. Since then, we have conducted our business from our full-service office
located in Crawfordsville, 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 residential 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 financial services,
including: (i) residential real estate loans; (ii) multi-family loans; (iii)
commercial real estate loans; (iv) construction loans; (v) home improvement
loans (vi) money market demand accounts ("MMDAs") (vii) passbook savings
accounts; and (viii) certificates of deposit.
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 77.9% of our total loan portfolio
at June 30, 1997. We also offer multi-family mortgage loans, commercial real
estate loans, construction loans, and, to a limited extent, consumer loans
consisting of loans secured by deposits and home improvement loans. Mortgage
loans secured by multi-family properties and commercial real estate totaled
approximately 13.6% and 4.7%, respectively, of our total loan portfolio at June
30, 1997. Construction loans totaled approximately 3.7% of our total loans as of
June 30, 1997. Consumer loans, which consist of home improvement loans and
passbook loans, constituted approximately .2% of our total loan portfolio at
June 30, 1997.
<PAGE>
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.
<TABLE>
<CAPTION>
At June 30, At December 31,
1997 1996 1995 1994 1993 1992
---------------- --------------- --------------- --------------- --------------- ---------------
Percent Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
TYPE OF LOAN Real estate mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One-to-four-family........ $58,664 77.90% $57,031 77.46% $48,295 76.64% $47,299 76.44% $45,258 80.20% $38,819 81.38%
Multi-family.............. 10,212 13.56 10,920 14.83 9,617 15.26 8,641 13.96 6,651 11.79 4,309 9.03
Commercial................ 3,513 4.66 3,593 4.88 2,814 4.46 3,000 4.85 3,079 5.45 2,565 5.38
Real estate construction
loans................... 2,782 3.69 1,740 2.36 2,107 3.34 2,748 4.44 1,286 2.28 1,748 3.66
Consumer loans: ............. 143 .19 346 .47 191 .30 192 .31 156 .28 260 .55
------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Gross loans receivable.. $75,314 100.00% $73,630 100.00% $63,024 100.00% $61,880 100.00% $56,430 100.00% $47,701 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ====== ======= ======
TYPE OF SECURITY
One-to-four-
family real estate...... $60,936 80.91% $58,271 79.14% $49,762 78.96% $48,225 77.93% $45,719 81.02% $39,034 81.83%
Multi-family real estate.. 10,812 14.36 11,520 15.65 10,367 16.45 10,319 16.68 7,331 12.99 5,305 11.12
Commercial real estate.... 3,513 4.66 3,593 4.88 2,814 4.46 3,236 5.23 3,315 5.87 3,210 6.73
Deposits.................. 53 .07 246 .33 81 .13 100 .16 65 .12 152 .32
------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Gross loans receivable.. $75,314 100.00% $73,630 100.00% $63,024 100.00% $61,880 100.00% $56,430 100.00% $47,701 100.00%
Deduct:
Allowance for loan losses.... 198 .26 159 .22 111 .18 87 .14 63 .11 48 .10
Deferred loan fees........... 329 .44 356 .48 379 .60 405 .65 378 .67 227 .48
Loans in process............. 1,620 2.15 418 .57 1,255 1.99 1,329 2.15 733 1.30 643 1.35
------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Net loans receivable...... $73,167 97.15% $72,697 98.73% $61,279 97.23% $60,059 97.06% $55,256 97.92% $46,783 98.07%
======= ====== ======= ====== ======= ====== ======= ====== ======= ====== ======= ======
Mortgage Loans:
Adjustable-rate........... $21,282 28.31% $24,238 33.07% $27,057 43.06% $26,601 43.12% $22,220 39.49% $17,348 36.57%
Fixed-rate................ 53,889 71.69 49,046 66.93 35,776 56.94 35,087 56.88 34,054 60.51 30,093 63.43
------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total................... $75,171 100.00% $73,284 100.00% $62,833 100.00% $61,688 100.00% $56,274 100.00% $47,441 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
<PAGE>
The following table sets forth certain information at December 31, 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 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 that prepayments will cause actual maturities to
be shorter.
<TABLE>
<CAPTION>
Balance Due During Years Ended December 31,
Outstanding at 2000 2002 2007 2012
December 31, 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.................. $57,031 $ 194 $435 $ 277 $ 936 $13,554 $22,985 $18,650
Multi-family loans.................... 10,920 --- 4 --- 480 3,398 6,163 875
Commercial loans................... 3,593 5 --- --- 23 1,473 1,204 888
Construction loans.................... 1,740 600 321 --- --- 306 98 415
Loans secured by deposits............. 246 246 --- --- --- --- --- ---
Home improvement loans................ 100 3 14 11 38 34 --- ---
------- ------ ---- ----- ------ ------- ------- -------
Total............................ $73,630 $1,048 $774 $ 288 $1,477 $18,765 $30,450 $20,828
======= ====== ==== ===== ====== ======= ======= =======
</TABLE>
The following table sets forth, as of December 31, 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 December 31, 1997
Fixed Rates Variable Rates Total
----------- -------------- -----
(In thousands)
Real estate mortgage loans:
<S> <C> <C> <C>
Residential loans................... $40,914 $15,923 $56,837
Multi-family loans.................. 5,699 5,221 10,920
Commercial loans.................... 1,405 2,183 3,588
Construction loans..................... 993 147 1,140
Installment loans...................... --- --- ---
Loans secured by deposits.............. --- --- ---
Home improvement loans................. 97 --- 97
------- ------- -------
Total............................... $49,108 $23,474 $72,582
======= ======= =======
</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 do not
originate one- to four-family residential mortgage loans if the ratio of the
loan amount to the lesser of the current cost or appraised value of the property
(the "Loan-to-Value Ratio") exceeds 95%. We require private mortgage insurance
on loans with a Loan-to-Value Ratio in excess of 80%. The cost of such insurance
is factored into the annual percentage rate 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 15 years
with principal and interest payments calculated using a 30-year amortization
period.
<PAGE>
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 June 30, 1997 provide for maximum rate
adjustments per year and over the life of the loan of 1% and 5%, respectively.
Our residential ARMs are amortized for terms up to 25 years.
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 also 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 June 30, 1997, approximately 28.3%
of our one- to four-family residential loans had adjustable rates of interest.
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 June 30, 1997, approximately $58.7 million, or 77.9% of our
portfolio of loans, consisted of one- to four-family residential loans.
Approximately $122,000, or .21% of total residential loans, were included in
non-performing assets as of that date. See "--Non-Performing and Problem
Assets."
Multi-Family Loans. At June 30, 1997, approximately $10.2 million, or
13.6% 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 with an original term of up to 20
years. We write multi-family loans with maximum Loan-to-Value ratios of 80%. Our
largest multi-family loan as of June 30, 1997 had a balance of approximately
$1.1 million and was secured by 28 duplexes located in Crawfordsville, Indiana.
On the same date, none of our multi-family loans were included in non-performing
assets.
Multi-family loans, like commercial real estate loans, involve a
greater risk than do residential loans. See "-- Commercial Real Estate Loans"
below.
Commercial Real Estate Loans. Our commercial real estate loans are
secured by churches, office buildings, and other commercial properties. We
generally originate commercial 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 80%. At June 30, 1997, our largest commercial loan had
an outstanding balance of $500,000 and was secured by a nursing home in
Richmond, Indiana. At June 30, 1997, approximately $3.5 million, or 4.7% of our
total loan portfolio, consisted of commercial real estate loans. On the same
date, there were no commercial real estate loans included in non-performing
assets.
Loans secured by commercial real estate generally are larger than one-
to four-family residential loans and involve a greater degree of risk.
Commercial 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.
<PAGE>
Construction Loans. We offer construction loans with respect to
residential and commercial 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). We provide construction
loans only to borrowers who commit to permanent financing with us on the
finished project. At June 30, 1997, approximately $2.8 million, or 3.7% of our
total loan portfolio, consisted of construction loans. The largest construction
loan had a balance of $330,000 on June 30, 1997 and was secured by a
single-family residence in Crawfordsville. None of our construction loans were
included in non-performing assets on that date.
Construction loans generally match the term of the construction
contract and are written as fixed-rate loans with interest calculated on the
amount disbursed under the loan and payable monthly. The maximum Loan-to-Value
Ratio for a construction loan is based upon the nature of the construction
project. For example, a construction loan for a one- to four-family residence
may be written with a maximum Loan-to-Value Ratio of 95%, while a construction
loan for a multi-family project may be written with a maximum Loan-to-Value
Ratio of 80%. 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 conventional mortgage loans, 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.
Consumer Loans. Our consumer loans, consisting of passbook loans and
home improvement loans, aggregated approximately $143,000 at June 30, 1997, or
.2% of our total loan portfolio. Our home improvement loans generally have a
fixed rate and a term of up to seven years. Our passbook loans are made up to
90% of the deposit account balance and, at June 30, 1997, accrued at a rate of
8.6%. This rate may change but will always be at least 3% over the underlying
passbook or certificate of deposit rate. Interest on loans secured by deposits
is paid semi-annually. At June 30, 1997, none of our consumer loans were
included in non-performing assets. See "-- Non-Performing and Problem Assets."
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"). In
the event that we begin originating fixed-rate residential mortgage 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 have no intention to originate loans for
sale to the FHLMC at this time, however.
We confine our loan origination activities primarily to Montgomery
County and the surrounding counties of Boone, Hendricks, Putnam, Parke and
Fountain. We have also originated several loans in Marion County. At June 30,
1997, we also had seven loans which we originated, totaling approximately
$740,000, 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 or ratified by our board of directors.
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 our interest
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.
<PAGE>
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.
We occasionally purchase participation interests in loans originated by
other financial institutions in order to diversify our portfolio, supplement
local loan demand and to obtain more favorable yields. The participations that
we purchase normally represent a portion of residential or commercial real
estate loans originated by other Indiana financial institutions, most of which
are secured by property located in Indiana. As of June 30, 1997, we held in our
loan portfolio participations in mortgage loans aggregating $6.7 million that we
purchased, all of which were serviced by others. Included within this amount
were participations in the aggregate amount of $746,000 which were secured by
property located outside of Indiana. The largest participation loan in our
portfolio at June 30, 1997 was a $500,000 interest in a loan secured by a
nursing home located in Richmond, Indiana.
The following table shows our loan origination and repayment activity
during the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Gross loans receivable
at beginning of period.......................... $73,630 $63,024 $63,024 $61,880 $56,430
------- ------- ------- ------- -------
Loans Originated:
Real estate mortgage loans:
One-to-four family loans.................... 8,112 10,325 19,332 9,655 12,373
Multi-family loans.......................... 304 1,532 1,532 --- 2,889
Commercial loans............................ 13 45 45 139 361
Construction loans............................ 1,953 1,507 2,220 2,135 2,513
Loans secured by deposits..................... 42 116 322 95 153
Home improvement loans........................ 50 23 36 50 69
------- ------- ------- ------- -------
Total originations........................ 10,474 13,548 23,487 12,074 18,358
Purchases (sales) of participation loans, net...... 500 1,000 1,350 742 1,352
Reductions:
Principal loan repayments..................... 9,087 7,636 14,211 11,672 14,260
Transfers from loans to real estate owned..... 203 20 20 --- ---
------- ------- ------- ------- -------
Total reductions.......................... 9,290 7,656 14,231 11,672 14,260
------- ------- ------- ------- -------
Total gross loans receivable at
end of period................................... $75,314 $69,916 $73,630 $63,024 $61,880
======= ======= ======= ======= =======
</TABLE>
Our residential loan originations during the year ended December 31,
1996 totaled $19.3 million, compared to $9.7 million and $12.4 million in the
years ended December 31, 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 a commitment fee of $200 on all loans and an additional $500
origination fee on construction loans. 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.
<PAGE>
Non-Performing and Problem Assets
After a mortgage loan becomes 30 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.
Non-performing Assets. At June 30, 1997, $203,000, or .24% of our total
assets, were non-performing (non-performing loans and non-accruing loans)
compared to $489,000, or .59%, of our total assets at December 31, 1996. At June
30, 1997, residential loans accounted for $122,000 of our non-performing assets.
We had real estate owned ("REO") properties in the amount of $81,000 as of June
30, 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 June 30, At December 31,
1997 1996 1995 1994
----------- ------ ---- ----
(Dollars in thousands)
Non-performing assets:
<S> <C> <C> <C> <C>
Non-performing loans..................... $122 $ 489 $ 156 $ 143
Foreclosed real estate................... 81 --- --- ---
Total non-performing assets............ $203 $489 $ 156 $ 143
==== ==== ===== =====
Non-performing loans to total loans......... .17% .67% .25% .24%
=== === === ===
Non-performing assets to total assets....... .24% .59% .21% .20%
=== === === ===
</TABLE>
Interest income of $3,000, $10,000, $14,000 and $14,000 for the six
months ended June 30, 1997 and the years ended December 31, 1996, 1995 and 1994,
respectively, was recognized on the non-performing loans summarized above.
Interest income of $6,000, $33,000, $17,000 and $15,000 for the six months ended
June 30, 1997 and the years ended December 31, 1996, 1995, and 1994,
respectively, would have been recognized under their original loan terms.
At June 30, 1997, we held loans delinquent from 30 to 89 days totaling
approximately $269,000. 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.
<PAGE>
Delinquent Loans. The following table sets forth certain information at
June 30, 1997, and at December 31, 1996, 1995, and 1994, relating to
delinquencies in our portfolio. Delinquent loans that are 90 days or more past
due are considered non-performing assets.
<TABLE>
<CAPTION>
At June 30, 1997 At December 31, 1996
-------------------------------------------- -----------------------------------------------
30-89 Days 90 Days or More 30-89 Days 90 Days or More
-------------------- ----------------------- ---------------------- -----------------------
Principal Principal Principal Principal
Balance Number Balance Number Balance Number Balance Number
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
(Dollars in thousands)
One- to four-
<S> <C> <C> <C> <C> <C> <C> <C> <C>
family loans ...... 6 $264 6 $122 7 $226 8 $377
Commercial
real estate loans . -- -- -- -- -- -- -- --
Multi-family
loans ............. -- -- -- -- -- -- 1 112
Loans secured
by deposits ....... -- -- -- -- -- -- -- --
Home improvement loans 1 5 -- -- -- -- -- --
Total ............. 7 $269 6 $122 7 $226 9 $489
= ==== = ==== = ==== = ====
Delinquent loans to
total loans ....... .53% .98%
=== ===
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1995 At December 31, 1994
----------------------------------------- --------------------------------------
30-89 Days 90 Days or More 30-89 Days 90 Days or More
Principal Principal Principal Principal
Balance Number Balance Number Balance Number Balance Number
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
-------- -------- -------- -------- -------- -------- -------- --------
One- to four-
<S> <C> <C> <C> <C> <C> <C> <C> <C>
family loans ...... 9 $280 7 $153 6 $171 5 $140
Commercial
real estate loans . -- -- -- -- -- -- -- --
Multi-family
loans ............. 1 109 -- -- -- -- -- --
Loans secured
by deposits ....... -- -- -- -- -- -- -- --
Home improvement loans -- -- 1 3 -- -- 1 3
-- ---- - ---- - ---- - ----
Total ............. 10 $389 8 $156 6 $171 6 $143
== ==== = ==== = ==== = ====
Delinquent loans to
total loans ....... .89% .52%
=== ===
</TABLE>
<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 June 30, 1997, the aggregate amount of our classified assets, and of
our general and specific loss allowances were as follows:
At June 30, 1997
(Unaudited)
(In thousands)
Substandard assets................................. $203
Doubtful assets.................................... ---
Loss assets........................................ ---
Total classified assets........................ $203
General loss allowances............................ $198
Specific loss allowances........................... ---
Total allowances............................... $198
We regularly review our loan portfolio to determine whether any loans
require classification in accordance with applicable regulations. All of our
classified assets constitute non-performing assets.
Allowance for Loan Losses
The allowance for loan losses is maintained through the provision for
loan losses, which is charged to earnings. The allowance 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 June 30, 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.
Summary of Loan Loss Experience. The following table analyzes changes
in the allowance during the past three fiscal years ended December 31, 1996, and
the six-month periods ended June 30, 1997, and June 30, 1996.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.............. $159 $ 111 $111 $ 87 $63
Charge-offs - Multi-family loans............ (72)
Provision for losses on loans............... 111 24 48 24 24
---- ---- ---- ---- ---
Balance end of period.................... $198 $135 $159 $111 $87
==== ==== ==== ==== ===
Allowance for loan losses as a percent of
total loans outstanding.................. .27% .20% .22% .18% .15%
Ratio of net charge-offs to average
loans outstanding........................ .10 --- --- --- ---
</TABLE>
<PAGE>
Allocation of Allowance for Loan Losses. The following table presents
an analysis of the allocation of our 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 June 30, At December 31,
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 total to total to total 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............... $65 77.90% $50 75.82% $60 77.46% $57 76.64% $43 76.44%
Commercial................ 28 4.66 10 4.64 13 4.88 11 4.46 9 4.85
Multi-family.............. 82 13.56 71 15.62 75 14.83 39 15.26 28 13.96
Construction loans.......... 7 3.69 4 3.53 11 2.36 4 3.34 7 4.44
Loans secured by deposits... .07 .16 .33 .13 .16
Home improvement loans...... .12 .23 .14 .17 .15
Unallocated................. 16
---- ------ ---- ------ ---- ------ ---- ------ --- ------
Total....................... $198 100.00% $135 100.00% $159 100.00% $111 100.00% $87 100.00%
==== ====== ==== ====== ==== ====== ==== ====== === ======
</TABLE>
Investments
Investments. Our investment portfolio consists of U.S. Treasury and federal
agency securities, FHLB stock and an investment in Pedcor Investments - 1993 -
XVI, L.P. See "--Service Corporation Subsidiary." At June 30, 1997,
approximately $7.8 million, or 9.3%, of our total assets consisted of such
investments. We also had $2.2 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 June 30, At December 31,
1997 1996 1995 1994
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- ----- ---- -----
(Unaudited) (In thousands)
Investment securities held to maturity:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury....................... $ 350 $ 349 $ 350 $ 348 $1,050 $1,051 $ 1,056 $1,023
Federal agencies.................... 3,146 3,122 2,645 2,611 2,950 2,944 2,850 2,688
Mortgage-backed securities.......... 2,424 2,597 2,752 2,933 3,423 3,668 4,079 4,138
----- ----- ----- ----- ----- ----- ----- -----
Total investment securities
held to maturity................ $5,920 $6,068 $5,747 $5,892 $7,423 $7,663 $ 7,985 $7,849
Investment in limited partnership...... 1,220 (1) 1,334 (1) 1,506 (1) 1,756 (1)
FHLB stock (2)......................... 708 708 580 580 563 563 562 562
------ ------ ------ -------
Total investments...................... $7,848 $7,661 $9,492 $10,303
====== ====== ====== =======
</TABLE>
(1) Market values are not available
(2) Market value is based on the price at which stock may be resold to the
FHLB of Indianapolis.
<PAGE>
The following table sets forth the amount of investment securities
(excluding mortgage-backed securities, FHLB stock and investment in limited
partnership) which mature during each of the periods indicated and the weighted
average yields for each range of maturities at June 30, 1997.
<TABLE>
<CAPTION>
Amount at June 30, 1997 which matures in
One Year One Year Five Years
or Less to Five Years to Ten Years
Amortized Average Amoritzed Average Amortized Average
Cost Yield Cost Yield Cost Yield
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities............ $350 5.14% $ --- ---% $ --- ---%
Federal agency securities........... 500 5.02 2,346 5.85 300 7.03
---- ------ ----
$850 5.07% $2,346 5.85% $300 7.03%
==== ====== ====
</TABLE>
Mortgage-backed Securities
The following table sets forth the composition of our mortgage-backed
securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
December 31,
June 30, ------------------------------------------------------------------------------------
1997 1996 1995 1994
--------------------------- --------------------------- ------------------------- --------------------------
Amortized Percent Market Amortized Percent Market Amortized Percent Market Amortized Percent Market
Cost of Total Value Cost of Total Value Cost of Total Value Cost of Total Value
------ ----- ------ ------ ----- ------ ------ ----- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Governmental
National Mortgage
Corporation..... $1,307 53.9% $1,425 $1,391 50.5% $1,511 $1,707 49.9% $1,856 $2,009 49.2% $2,066
Federal Home
Loan Mortgage
Corporation..... 818 33.8 877 1,039 37.8 1,103 1,338 39.1 1,431 1,651 40.5 1,675
Federal National
Mortgage
Corporation..... 274 11.3 270 294 10.7 291 341 9.9 343 375 9.2 355
Other.............. 25 1.0 25 28 1.0 28 37 1.1 38 44 1.1 42
------ ----- ------ ------ ----- ------ ------ ----- ------ ------ ----- ------
Total mortgage-
backed securities $2,424 100.0% $2,597 $2,752 100.0% $2,933 $3,423 100.0% $3,668 $4,079 100.0% $4,138
====== ===== ====== ====== ===== ====== ====== ===== ====== ====== ===== ======
</TABLE>
<PAGE>
The following table sets forth the amount of mortgage-backed securities
which mature during each of the periods indicated and the weighted average
yields for each range of maturities at December 31, 1996.
<TABLE>
<CAPTION>
Amount at December 31, 1996 which matures in
One Year One Year to After
or Less Five Years Five Years
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities...................... $177 7.70% $422 8.05% $2,153 8.50%
==== ==== ==== ==== ====== ====
</TABLE>
The following table sets forth the changes in the Union Federal's
mortgage-backed securities portfolio for the six-month periods ended June 30,
1997 and 1996 and for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
For the Six Months For the Year Ended
Ended June 30, December 31,
1997 1996 1996 1995 1994
--------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance......... $2,752 $3,423 $3,423 $4,079 $5,841
Repayments/sales.......... (330) (341) (676) (663) (1,769)
Premium and discount
amortization, net...... 2 2 5 7 7
------ ------ ------ ------ ------
Ending balance............ $2,424 $3,084 $2,752 $3,423 $4,079
====== ====== ====== ====== ======
</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. 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 Montgomery 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
Montgomery 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.
An analysis of our deposit accounts by type, maturity, and rate at June
30, 1997, is as follows:
<TABLE>
<CAPTION>
Minimum Balance at Weighted
Opening June 30, % of Average
Type of Account Balance 1997 Deposits Rate
- --------------- ------------- ----------- --------- ---------
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C>
Fixed rate, passbook accounts.............................. $ 10 $ 3,821 6.16% 4.00%
Variable rate, money market................................ 10 9,212 14.84 4.58
NOW accounts............................................... 500 1,140 1.84 2.00
------ ----- ----
Total withdrawable....................................... 14,173 22.84 4.22
====== ===== ====
Certificates (original terms):
3 months or less........................................... 1,000 133 .21 4.23
6 months................................................... 1,000 4,132 6.66 4.94
12 months.................................................. 1,000 6,041 9.73 5.51
18 months.................................................. 1,000 7,627 12.29 5.76
24 months.................................................. 1,000 5,483 8.84 5.99
30 months.................................................. 1,000 6,216 10.02 6.04
36 months ................................................. 1,000 4,082 6.58 6.16
48 months.................................................. 1,000 344 .55 5.73
60 months.................................................. 1,000 6,297 10.15 5.98
Jumbo certificates - $100,000 and over........................ 100,000 7,527 12.13 6.12
------- ------ ----
Total certificates............................................ 47,882 77.16 5.84
------- ------ ----
Total deposits................................................ $62,055 100.00% 5.47%
======= ====== ====
</TABLE>
The following table sets forth by various interest rate categories the
composition of time deposits of Union Federal at the dates indicated:
<TABLE>
<CAPTION>
At June 30, At December 31,
1997 1996 1995 1994
------- ------- -------- -------
(In thousands)
<C> <C> <C> <C> <C>
3.00 to 3.99%............ $ --- $ --- $ --- $3,697
4.00 to 4.99%............ 4,149 4,760 5,432 17,929
5.00 to 5.99%............ 19,728 19,400 11,330 10,368
6.00 to 6.99%............ 23,428 20,954 21,991 7,615
7.00 to 7.99%............ 577 1,941 6,516 650
8.00 to 8.99%............ --- --- --- 1,114
------- ------- -------- -------
Total................. $47,882 $47,055 $ 45,269 $41,373
======= ======= ======== =======
</TABLE>
<PAGE>
The following table represents, by various interest rate categories, the
amounts of time deposits maturing during each of the three years following June
30, 1997. Matured certificates, which have not been renewed as of June 30, 1997,
have been allocated based upon certain rollover assumptions.
<TABLE>
<CAPTION>
Amounts at June 30, 1997 Maturing In
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%............ 4,129 --- --- ---
5.00 to 5.99%............ 10,835 7,482 1,046 386
6.00 to 6.99%............ 10,825 8,476 2,271 1,855
7.00 to 7.99%............ 551 10 16 ---
------- ------- ------ ------
Total................. $26,340 $15,968 $3,333 $2,241
======= ======= ====== ======
</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 June 30,
1997.
At June 30, 1997
Maturity Period (In thousands)
Three months or less................................. $ 933
Greater than three months through six months......... 407
Greater than six months through twelve months........ 3,252
Over twelve months................................... 2,935
-----
Total........................................... $7,527
======
<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 Balance
at (Decrease) at (Decrease) at
June 30, % of from December 31, % of from December 31,
1997 Deposits 1996 1996 Deposits 1995 1995
---- -------- ---- ---- -------- ---- ----
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate, passbook accounts.... $3,821 6.16% $(46) $3,867 6.40% $356 $3,511
Variable rate, money market...... 9,212 14.84 597 8,615 14.25 218 8,397
NOW accounts..................... 1,140 1.84 241 899 1.49 669 230
------- ------ ------ ------- ------ ------ -------
Total withdrawable............. 14,173 22.84 792 13,381 22.14 1,243 12,138
Certificates (original terms):
3 months......................... 133 .21 (16) 149 .25 19 130
6 months......................... 4,132 6.66 (135) 4,267 7.06 (265) 4,532
12 months........................ 6,041 9.73 808 5,233 8.66 (131) 5,364
18 months........................ 7,627 12.29 (563) 8,190 13.55 1,152 7,038
24 months........................ 5,483 8.84 987 4,496 7.44 (94) 4,590
30 months........................ 6,216 10.02 734 5,482 9.07 273 5,209
36 months ....................... 4,082 6.58 (1,116) 5,198 8.60 113 5,085
48 months........................ 344 .55 (32) 376 .62 (29) 405
60 months........................ 6,297 10.15 (311) 6,608 10.93 79 6,529
Other certificates..................
Jumbo certificates.................. 7,527 12.13 471 7,056 11.68 669 6,387
------- ------ ------ ------- ------ ------ -------
Total certificates.................. 47,882 77.16 827 47,055 77.86 1,786 45,269
------- ------ ------ ------- ------ ------ -------
Total deposits...................... $62,055 100.00% $1,619 $60,436 100.00% $3,029 $57,407
======= ====== ====== ======= ====== ====== =======
</TABLE>
<PAGE>
Increase Balance
(Decrease) at
% of from December 31, % of
Deposits 1994 1994 Deposits
Withdrawable:
Fixed rate, passbook accounts.... 6.11% $(599) $4,110 7.49%
Variable rate, money market...... 14.63 (833) 9,230 16.82
NOW accounts..................... .40 57 173 .31
Total withdrawable............. 21.14 (1,375) 13,513 24.62
Certificates (original terms):
3 months......................... .23 1 129 .23
6 months......................... 7.89 (895) 5,427 9.89
12 months........................ 9.34 1,953 3,411 6.21
18 months........................ 12.26 (1,855) 8,893 16.20
24 months........................ 8.00 2,380 2,210 4.03
30 months........................ 9.07 347 4,862 8.86
36 months ....................... 8.86 587 4,498 8.20
48 months........................ .71 (43) 448 .82
60 months........................ 11.37 190 6,339 11.55
Other certificates.................. (49) 49 .09
Jumbo certificates.................. 11.13 1,280 5,107 9.30
Total certificates.................. 78.86 3,896 41,373 75.38
Total deposits...................... 100.00% $2,521 $54,886 100.00%
<PAGE>
Total deposits at June 30, 1997 were approximately $62.1 million,
compared to approximately $54.9 million at December 31, 1994. Our deposit base
is somewhat dependent upon the manufacturing sector of Montgomery County's
economy. Although Montgomery 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 Union Federal. 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 June 30,
1997, we had borrowings in the amount of $5.9 million from the FHLB of
Indianapolis which bear fixed and variable interest rates and are due at various
dates through 2004. 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. We also owe Pedcor
Investments 1993-XVI,L.P. ("Pedcor") $1.2 million under a note payable that is
not included in the following table. See "--Service Corporation Subsidiary."
The following table presents certain information relating to our
borrowings at or for the six months ended June 30, 1997 and 1996 and at or for
the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
At or for the
Six Months At or for the Year
Ended June 30, Ended December 31,
1997 1996 1996 1995 1994
-----------------------------------------------------------------
(Dollars in thousands)
FHLB Advances:
<S> <C> <C> <C> <C> <C>
Outstanding at end of period.................... $5,873 $2,982 $6,482 $1,065 $3,189
Average balance outstanding for period.......... 5,956 1,483 3,566 1,857 1,261
Maximum amount outstanding at any
month-end during the period................... 6,373 2,982 6,482 3,065 3,189
Weighted average interest rate
during the period............................. 5.67 % 4.72% 5.36 % 6.03% 4.68%
Weighted average interest rate
at end of period.............................. 5.76 % 5.57% 5.52 % 5.46% 5.74%
</TABLE>
Properties
The following table provides certain information with respect to our
office as of June 30, 1997:
<TABLE>
<CAPTION>
Property, Approximate
Description Owned or Year Total Furniture & Square
and Address leased Opened Deposits Fixtures Footage
(Dollars in thousands)
<C> <C> <C> <C> <C> <C>
221 East Main Street Owned 1913 $62,055 $365 19,065
Crawfordsville, Indiana 47933
</TABLE>
<PAGE>
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 $4,000 at June 30,
1997.
We have also contracted for the data processing and reporting services
of On-Line Financial Services, Inc. in Oak Brook, Illinois. The cost of these
data processing services is approximately $5,000 per month.
We have also executed a Correspondent Services Agreement with the FHLB
of Indianapolis under which we receive item processing and other services for a
fee of approximately $1,100 per month.
We also receive income from leasing office space on the second floor of
our building and parking spaces located behind our building. Our gross income
from renting the office space was $27,000 for fiscal year ended December 31,
1996 and $14,000 for the six-month period ended June 30, 1997. Our gross income
from renting the parking spaces was approximately $9,000 for the fiscal year
ended December 31, 1996 and approximately $8,000 for the six-month period ended
June 30, 1997.
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, UFS Service Corp. ("UFS"), whose sole
asset is its investment in Pedcor, which is an Indiana limited partnership that
was established to organize, build, own, operate and lease a 48-unit apartment
complex in Crawfordsville, Indiana known as Shady Knoll II Apartments (the
"Project"). We own the limited partner interest in Pedcor. The general partner
is Pedcor Investments, A Limited Liability Company. The Project, operated as a
multi-family, low- and moderate-income housing project, is completed and is
performing as planned. Because UFS engages exclusively in activities that are
permissible for a national bank, OTS regulations permit us to include our
investment in UFS in our calculation of regulatory capital.
A low- and moderate-income housing project qualifies for certain
federal income tax credits if (i) it is a residential rental property, (ii) the
units are used on a nontransient basis, and (iii) 20% or more of the units in
the project are occupied by tenants whose incomes are 50% or less of the area
median gross income, adjusted for family size, or alternatively, at least 40% of
the units in the project are occupied by tenants whose incomes are 60% of the
area median gross income. Qualified low income housing projects generally must
comply with these and other rules for fifteen years, beginning with the first
year the project qualified for the tax credit, or some or all of the tax credit
together with interest may be recaptured. The tax credit is subject to the
limitations on the use of general business credit, but no basis reduction is
required for any portion of the tax credit claimed.
<PAGE>
UFS committed to invest approximately $1.8 million in Pedcor at the
inception of the project in November, 1993. Through June 30, 1997, UFS had
invested cash of approximately $610,000 in Pedcor with seven additional annual
capital contributions remaining to be paid in January of each year through
January, 2004, totaling $1,200,000. The additional contributions will be used
for operating and other expenses of the partnership. In addition, Union Federal
borrowed funds from the FHLB of Indianapolis to advance to Pedcor, and Pedcor
currently owes Union Federal $873,000 pursuant to a promissory note payable in
installments through January 1, 2004 and bearing interest at an annual rate of
9%.
UFS transfers the tax credits resulting from Pedcor's operation of the
Project to us. These tax credits will be available to us through 2003. Although
we have reduced income tax expense by the full amount of the tax credit
available each year, we have not been able to fully utilize available tax
credits to reduce income taxes payable because we may not use tax credits that
would reduce our regular corporate tax liability below our alternative minimum
tax liability. We may carry forward unused tax credits for a period of fifteen
years and we believe that we will be able to utilize available tax credits
during the carry forward period. Additionally, Pedcor has incurred operating
losses in the early years of its operations primarily due to its accelerated
depreciation of assets. UFS has accounted for its investment in Pedcor on the
equity method and, accordingly, has recorded its share of these losses as
reductions to its investment in Pedcor, which at June 30, 1997, was $1.2
million. As of June 30, 1997, 92% of the units in the Project were occupied, and
all of the tenants met the income test required for the tax credits. UFS does
not engage in any activity or hold any assets other than its investment in
Pedcor.
The following summarizes UFS's equity in Pedcor's losses and tax
credits recognized in Union Federal's consolidated financial statements.
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
1997 1996 1995 1994
(In Thousands)
Investment in Pedcor:
<S> <C> <C> <C> <C>
Initial investment....................... $ --- $ --- $ --- $1,810
Net of equity in losses.................. 1,220 1,334 1,506 1,756
Equity in losses, net
of income tax effect..................... $ (69) $ (104) $(150) $ (33)
Tax credit.................................. 89 178 178 75
Increase in after-tax net income from
-------- ------- ------- -------
Pedcor investment........................ $ 20 $ 74 $ 28 $ 42
======== ======= ======= =======
</TABLE>
Employees
As of June 30, 1997, we employed 12 persons on a full-time basis. We do
not have any part-time employees. None of our employees is represented by a
collective bargaining group and we consider our employee relations to be good.
Employee benefits for our 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 insurance, dental and eye care insurance, long-term disability
insurance, life insurance, and participation in the Financial Institutions
Thrift Plan.
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 Union Federal."
<PAGE>
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 UNION COMMUNITY 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 Union Federal. 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 June, 1998. At that meeting, it is
anticipated that the directors will be nominated to serve for the following
terms: the terms of Joseph E. Timmons, Marvin L. Burkett and Phillip E. Grush
will expire in 1999, the terms of Harry A. Siamas and Samuel H. Hildebrand will
expire in 2000 and the terms of John M. Horner and Philip L. Boots will expire
in 2001. See "Management of Union Federal Savings and Loan Association of
Crawfordsville."
The Holding Company's Bylaws provide that directors must (1) be
residents of Montgomery 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 Montgomery
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
Joseph E. Timmons Chairman of the Board, President
and Chief Executive Officer
Ronald Keeling Vice President
Denise Swearingen Secretary and Treasurer
MANAGEMENT OF UNION FEDERAL SAVINGS AND LOAN ASSOCIATION
Directors of Union Federal
Our Board of Directors currently consists of seven persons with one
additional person who serves as a director emeritus. Our director emeritus
attends the Board's regular meetings but does 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
December 31, 1996. No director attended fewer than 75% of the aggregate number
of meetings of the Board of Directors and the Board's committees in the past 12
months.
Listed below are the current directors of Union Federal:
<TABLE>
<CAPTION>
Director of Position
Union Federal Expiration with
Director Since of Term Union Federal
<S> <C> <C> <C>
Philip L. Boots 1991 1998 Director
Marvin L. Burkett 1975 1999 Director
Phillip E. Grush 1982 1999 Director, Vice Chairman
of the Board and
Vice President
Samuel H. Hildebrand 1995 2000 Director
John M. Horner 1979 1998 Director, Chairman of the
Board and
Vice President
Harry A. Siamas 1994 2000 Director
Joseph E. Timmons 1973 1999 Director, President and
Chief Executive Officer
</TABLE>
<PAGE>
Presented below is certain information concerning the directors of Union
Federal:
Philip L. Boots (age 50) is the President of Boots Brothers Oil
Company, Inc., a petroleum marketer that operates gasoline outlets, convenience
grocery stores and car washes in the Crawfordsville area.
Marvin L. Burkett (age 69) is a semi-retired, self-employed farmer in
Montgomery County.
Phillip E. Grush (age 66) worked as a self-employed optometrist in
Crawfordsville until September, 1996 when he sold his practice. He currently
works for Dr. Michael Scheidler in Crawfordsville as a full-time
employee/consultant.
Samuel H. Hildebrand, II (age 58) is the former Executive Vice
President of Atapco Custom Products Division, a manufacturer of custom decorated
looseleaf ring binders in Crawfordsville. He is also the President of Village
Traditions, Inc., a home builder located in Crawfordsville.
John M. Horner (age 60) is the president of Horner Pontiac Buick, Inc.
in Crawfordsville.
Harry A. Siamas (age 46) is an attorney in the firm of Collier Homann &
Siamas in Crawfordsville and has served as Union Federal's attorney for 18
years.
Joseph E. Timmons (age 62) has served as President and Chief Executive
Officer of Union Federal since 1974 and of UFS Service Corp. since its inception
in 1994. He has been an employee of Union Federal since 1954.
We also have a director emeritus 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, Lester B. Sommer serves as
a director emeritus. Mr. Sommer receives the same directors' fees as the other
directors of Union Federal. See "Executive Compensation and Related Transactions
of Union Federal -- Compensation of Directors."
Executive Officers of Union Federal Who Are Not Directors
Presented below is certain information regarding our executive officers
who are not directors:
Name Position
Ronald L. Keeling Senior Loan Officer, Vice President and
Assistant Secretary
Denise E. Swearingen Secretary, Controller/Treasurer
Ronald L. Keeling (age 46) has served as Union Federal's Vice President
and Assistant Secretary since 1984 and as Senior Loan Officer since 1979. He has
worked for Union Federal since 1971.
Denise E. Swearingen (age 38) has served as Union Federal's Secretary
and Controller/Treasurer since 1995. She has worked for Union Federal since
1983.
Committees of the Boards of Directors of Union Federal and the Holding Company
Our Board of Directors has two committees. The Salary Committee, which
is comprised of John M. Horner, Phillip E. Grush and Harry A. Siamas,
establishes the compensation for our employees and officers. The Budget
Committee, which is comprised of Marvin L. Burkett, Samuel H. Hildebrand and
Philip L. Boots, reviews and approves our operating budget for the following
fiscal year.
<PAGE>
EXECUTIVE COMPENSATION AND RELATED TRANSACTIONS OF UNION FEDERAL
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 December 31, 1996. Other than Mr.
Timmons, 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 (1) Compensation
<S> <C> <C> <C> <C> <C>
Joseph E. Timmons, President 1996 $105,000 (1)(2) $20,000 -- --
and Chief Executive Officer
</TABLE>
(1) Mr. Timmons received certain perquisites, but the incremental cost of
providing such perquisites did not exceed the lesser of $50,000 or 10% of
his salary and bonus.
(2) This column includes $5,000 directors fees paid to Mr. Timmons.
Employment Contract
We have entered into a three-year employment contract with Mr. Timmons.
The contract with Mr. Timmons, 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.
Timmons 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. Timmons may terminate his
employment upon 60 days' written notice to us. We may discharge Mr. Timmons for
cause (as defined in the contract) at any time or in certain specified events.
If we terminate Mr. Timmons' employment for other than cause or if Mr. Timmons
terminates his own employment for cause (as defined in the contract), Mr.
Timmons 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. Timmons 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. Timmons 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. Timmons 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. Timmons if the
contract were terminated either after a change of control of the Holding
Company, without cause by us, or for cause by Mr. Timmons, would be $________.
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. Timmons should he voluntarily terminate
his employment without cause or be terminated by us for cause.
<PAGE>
Compensation of Directors
We pay our directors and director emeritus a monthly retainer of $250
plus $300 for each month in which they attend one or more meetings. Total fees
paid to our directors and advisory directors for the year ended December 31,
1996 were approximately $38,800. Beginning in July, 1997, we began paying our
directors a monthly retainer of $500 plus $250 for each monthly meeting
attended.
Directors of the Holding Company and UFS 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
non-contributory medical, dental, eyecare and disability insurance plans. This
coverage is provided pursuant to group plans sponsored by the Indiana League of
Savings Institutions Group Insurance Trust.
Thrift Plan. Our full-time salaried employees who are over 21 years of
age with at least one year of service may also participate in the Financial
Institution's Thrift Plan (the "Thrift Plan"), a contributory multiple employer
tax-exempt trust and savings plan. Participants may elect to make monthly
contributions up to 15% of their salary. We make a matching contribution of 50%
of the employee's contribution that does not exceed 5% of the employee's salary.
Contributions may be invested in an equity fund which invests in widely traded
stocks, a fixed income fund which invests in fixed income instruments including
group annuity contracts, an equity growth fund that invests in higher risk
stocks, a fund which invests in obligations issued by the U.S. government or
agencies and a fund which invests in treasury, agency, corporate and
asset/mortgage-backed securities. The normal distribution is a lump sum upon
termination of employment. Other payment options may be elected. During fiscal
1996, Mr. Timmons received employer contributions of $3,000 under the Thrift
Plan.
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 of service for us and
provided that the employee is expected to complete a mimimum of 1,000 hours of
service in the 12 consecutive months following his enrollment date. An
employee's pension benefits are 100% vested after five years of service.
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 $47,000 for
the Pension Plan during the fiscal year ended December 31, 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>
<PAGE>
Benefits are currently subject to maximum Code limitations of $120,000
per year. The years of service credited to Mr. Timmons under the Pension Plan as
of December 31, 1996 were 41.
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 $1.8 million, or
approximately 12.7% of consolidated retained earnings at June 30, 1997.
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.
Employee Stock Ownership Plan and Trust
The Holding Company has established for our eligible employees an ESOP
effective January 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, up to a
maximum of 160,000 shares. 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 twenty 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").
<PAGE>
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 Union Federal 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 2,000,000 shares in the Conversion, an aggregate of
200,000 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 Union Federal and the Holding Company:
Percentage of Shares
Optionee Issued in Conversion
Joseph E. Timmons................................... 2.5%
Other Executive Officers as a group ................ 2.5
Directors .......................................... 3.0
Total........................................... 8.0%
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.
The Stock Option Plan would be administered by a Committee of
non-employee members 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 to receive grants of stock options. In the event an option recipient
terminated his or her employment or service as an employee or 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 the RRP for shareholder approval. The RRP will provide our
directors and officers with an ownership interest in the Holding Company in a
manner designed to encourage them to continue their service with us. Union
Federal 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. Four percent of the shares issued in the Conversion would
amount to 68,000 shares, 80,000 shares, 92,000 or 105,800 shares at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation Range,
respectively. 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. Our executive officers and directors will be
awarded Common Stock under the RRP without having to pay cash for the shares.
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 Union Federal:
<PAGE>
Percentage of Shares
Recipient of Issued in Conversion to be
Awards Awarded Under RRP
Joseph E. Timmons..................................... 1.0%
Other Executive Officers as a group .................. .8
Directors............................................. 1.2
Total............................................. 3.0%
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 would forfeit any nonvested award. 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.
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 $13,875.
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 Union Federal, 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 Union Federal.
<PAGE>
Savings and Loan Holding Company Regulation
As the holding company for Union Federal, 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 June 30, 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 Union
Federal, 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
its subsidiaries (other than Union Federal 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 association, (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.
<PAGE>
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 June 30, 1997, our investment in stock of the
FHLB of Indianapolis was $708,000. 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 December 31, 1996, dividends paid by
the FHLB of Indianapolis to us totaled approximately $45,000, for an annual rate
of 7.8%.
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 Union
Federal 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.
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.
<PAGE>
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 $362,000 ($219,000 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 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%. 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). At June 30, 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
interest rate risk in conformity with the OTS regulation and, as of June 30,
1997, our interest rate risk was within the parameters set forth in the
regulation. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Union Federal Savings and Loan Association --
Asset/Liability Management."
<PAGE>
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 June 30,
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.
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 June 30, 1997, we had available approximately $5,970,000 for
distribution, without consideration of any capital infusion from the Conversion
and without consideration of the restrictions on our capital distributions as a
result of the establishment of a liquidation account in connection with the
Conversion. See "The Conversion -- Effect on Liquidation Rights."
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.
<PAGE>
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.
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. On August 27, 1996, the federal banking agencies added asset
quality and earning standards 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.
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 June 30, 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.
<PAGE>
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 June 30, 1997, we were in compliance with our QTL
requirement, with approximately 98.7% 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 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,
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 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.
<PAGE>
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 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
satisfactory.
TAXATION
Federal Taxation
Historically, savings associations, such as Union Federal, 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. Union Federal
will recapture approximately $55,000 over a six-year period that began with the
year ended December 31, 1996. 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.
<PAGE>
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
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."
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
General
Although the Boards of Directors of Union Federal 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 Union Federal, the Holding
Company or the Holding Company's shareholders.
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."
<PAGE>
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 By-laws
provide that directors of the Holding Company must be residents of Montgomery
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 Montgomery County, Indiana for at least twelve
(12) months during the five years prior to their nomination to the Board (or in
the case of existing directors, prior to August ____, 1997). 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
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.
<PAGE>
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, Union Federal 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 Union Federal's present and future
account holders, borrowers, employees and suppliers; the effect on the
communities in which the Holding Company and Union Federal 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 financial institution 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 August ___, 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).
The By-Laws may be amended only by a majority vote of the total number
of directors of the Holding Company.
<PAGE>
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
Union Federal 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 Union Federal
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.
<PAGE>
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
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 Union
Federal 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.
<PAGE>
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.
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.
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 2,645,000 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.
<PAGE>
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." Shareholders may not
cumulate their votes in the election of the Board of Directors. Holders of
Common Stock will be entitled to payment of dividends as may be declared from
time to time by the Holding Company's Board of Directors.
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.
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.
<PAGE>
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, 11 South Meridian Street, Indianapolis, Indiana
46204, special counsel to Union Federal, 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 Luse
Lehman Gorman Pomerenk & Schick, P.C., 5335 Wisconsin Avenue, N.W., Suite 400,
Washington, D.C. 20015.
EXPERTS
Our consolidated financial statements at December 31, 1996, 1995 and
for each of the three years in the period ended December 31, 1996 appearing in
this Prospectus and Registration Statement have been audited by Geo. S. Olive &
Co, LLC, 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.
RP Financial 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.
Union Federal has filed with the OTS an Application for Conversion from
a federal mutual savings and loan association to a federal stock savings and
loan association, 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.
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Table of Contents
Page
Report of Geo. S. Olive & Co. LLC......................................... F-2
Consolidated balance sheet--June 30, 1997 (unaudited) and
December 31, 1996 and 1995........................................... F-3
Consolidated statement of income--for the
six months ended June 30, 1997
and 1996 (unaudited) and the years
ended December 31, 1996, 1995 and 1994............................... F-4
Consolidated statement of changes in retained
earnings for the six months ended
June 30, 1997 (unaudited) and for the
years ended December 31, 1996, 1995 and 1994......................... F-5
Consolidated statement of cash flows--for the
six months ended June 30, 1997 and 1996
(unaudited) and the years ended
December 31, 1996, 1995 and 1994..................................... F-6
Notes to consolidated financial statements................................ F-8
All schedules are omitted because the required information is not applicable or
is included in the consolidated financial statements and related notes.
Union Community Bancorp, the Holding Company, has not commenced operations as of
June 30, 1997 and will not commence operations prior to the conversion of Union
Federal Savings and Loan Association from a federal mutual savings and loan
association to a federal stock savings and loan association. Accordingly, the
financial statements of the Holding Company have been omitted and are not
required.
<PAGE>
Independent Auditor's Report
Board of Directors
Union Federal Savings and Loan Association
Crawfordsville, Indiana
We have audited the consolidated balance sheet of Union Federal Savings and Loan
Association (formerly Union Federal Savings and Loan Association of
Crawfordsville, Indiana) and subsidiary as of December 31, 1996 and 1995 and for
each of the three years in the period ended December 31, 1996 and the related
consolidated statements of income, changes in retained earnings, and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Association's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of Union
Federal Savings and Loan Association and subsidiary as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Geo. S. Olive & Co. LLC
Geo. S. Olive & Co. LLC
Indianapolis, Indiana
September 12, 1997
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1995
---------------------------------------------------------
(Unaudited)
Assets
<S> <C> <C> <C>
Cash $ 38,229 $ 29,297 $ 25,300
Short-term interest-bearing deposits 2,220,067 1,435,893 1,968,177
---------------------------------------------------------
Total cash and cash equivalents 2,258,296 1,465,190 1,993,477
Investment securities held to maturity 5,920,226 5,747,347 7,422,737
Loans 73,365,481 72,856,009 61,389,595
Allowance for loan losses (198,258) (159,000) (111,000)
---------------------------------------------------------
Net loans 73,167,223 72,697,009 61,278,595
Premises and equipment 365,410 371,364 394,675
Federal Home Loan Bank stock 707,700 580,100 562,600
Foreclosed real estate 81,377
Investment in limited partnership 1,220,179 1,333,909 1,506,461
Interest receivable
Loans 342,046 385,530 278,124
Mortgage-backed securities 20,140 23,600 29,512
Other investment securities and interest-
bearing deposits 57,088 44,474 62,509
Deferred income tax 71,062 75,424 61,514
Other assets 80,198 64,813 40,613
---------------------------------------------------------
Total assets $84,290,945 $82,788,760 $73,630,817
=========================================================
Liabilities
Deposits $62,055,063 $60,436,442 $57,407,222
Federal Home Home Bank advances 5,873,051 6,482,478 1,065,209
Note payable 1,200,042 1,397,892 1,576,492
Interest payable 110,171 91,452 93,416
Other liabilities 579,684 470,663 464,341
---------------------------------------------------------
Total liabilities 69,818,011 68,878,927 60,606,680
Retained Earnings--substantially restricted 14,472,934 13,909,833 13,024,137
---------------------------------------------------------
Total liabilities and retained earnings $84,290,945 $82,788,760 $73,630,817
=========================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Consolidated Statement of Income
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
1997 1996 1996 1995 1994
(Unaudited)
---------------------------------------------------------------------------------
Interest and Dividend Income
<S> <C> <C> <C> <C> <C>
Loans $2,994,235 $2,625,754 $5,561,735 $5,065,944 $4,533,050
Investment securities
Mortgage-backed securities 110,509 139,325 262,711 321,262 389,790
Other investment securities 95,561 92,879 175,332 227,154 232,664
Dividends on Federal Home
Loan Bank stock 24,969 22,134 45,027 44,291 31,593
Deposits with financial institutions 50,053 39,685 66,886 70,575 61,554
---------------------------------------------------------------------------------
Total interest and
dividend income 3,275,327 2,919,777 6,111,691 5,729,226 5,248,651
---------------------------------------------------------------------------------
Interest Expense
Deposits 1,653,754 1,592,387 3,232,877 3,036,215 2,447,864
Federal Home Loan Bank advances 168,945 34,461 190,800 111,569 59,190
---------------------------------------------------------------------------------
Total interest expense 1,822,699 1,626,848 3,423,677 3,147,784 2,507,054
---------------------------------------------------------------------------------
Net Interest Income 1,452,628 1,292,929 2,688,014 2,581,442 2,741,597
Provision for loan losses 111,000 24,000 48,000 24,000 24,000
---------------------------------------------------------------------------------
Net Interest Income After
Provision for Loan Losses 1,341,628 1,268,929 2,640,014 2,557,442 2,717,597
---------------------------------------------------------------------------------
Other Income (Losses)
Equity in losses of limited partnership (113,730) (78,558) (172,552) (249,092) (54,239)
Other income 18,792 20,703 56,457 31,346 14,238
---------------------------------------------------------------------------------
Total other income (losses) (94,938) (57,855) (116,095) (217,746) (40,001)
---------------------------------------------------------------------------------
Other Expenses
Salaries and employee benefits 252,272 229,697 460,615 480,770 488,745
Net occupancy expenses 15,924 11,959 39,103 65,698 44,003
Equipment expenses 11,379 10,108 19,886 20,460 16,867
Deposit insurance expense 12,068 65,463 494,679 127,053 126,482
Other expenses 157,090 127,359 287,654 328,184 207,718
---------------------------------------------------------------------------------
Total other expenses 448,733 444,586 1,301,937 1,022,165 883,815
---------------------------------------------------------------------------------
Income Before Income Tax 797,957 766,488 1,221,982 1,317,531 1,793,781
Income tax expense 234,856 230,637 336,286 326,018 638,769
---------------------------------------------------------------------------------
Net Income $ 563,101 $ 535,851 $ 885,696 $ 991,513 $1,155,012
=================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Consolidated Statement of Changes in Retained Earnings
Balance, January 1, 1994 $10,877,612
Net income for 1994 1,155,012
-----------
Balance, December 31, 1994 12,032,624
Net income for 1995 991,513
-----------
Balance, December 31, 1995 13,024,137
Net income for 1996 885,696
-----------
Balance, December 31, 1996 13,909,833
Net income for the six months ended June 30, 1997 (unaudited) 563,101
-----------
Balance, June 30, 1997 (unaudited) $14,472,934
-----------
===========
See notes to consolidated financial statements.
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
1997 1996 1996 1995 1994
---------------------------------------------------------------------------------
(Unaudited)
Operating Activities
<S> <C> <C> <C> <C> <C>
Net income $ 563,101 $535,851 $ 885,696 $ 991,513 $1,155,012
Adjustments to reconcile net
income to net cash provided by
operating activities
Provision for loan losses 111,000 24,000 48,000 24,000 24,000
Depreciation 13,364 12,913 25,913 25,005 21,577
Deferred income tax 4,362 10,181 (13,910) 40,462 29,224
Investment securities accretion, net (3,362) (2,798) (6,181) (812) (405)
Equity in losses of limited partnership 113,730 78,558 172,552 249,092 54,239
Net change in
Interest receivable 34,330 17,506 (83,459) (103,132) (109,578)
Interest payable 18,719 (10,932) (1,964) 12,260 (1,824)
Other assets (15,385) (21,883) (24,199) 59,003 (73,106)
Other liabilities 94,064 152,852 85,879 (137,157) (158,455)
---------------------------------------------------------------------------------
Net cash provided by
operating activities 933,923 796,248 1,088,327 1,160,234 940,684
---------------------------------------------------------------------------------
Investing Activities
Investment securities
Purchases of other investment
securities held to maturity (700,000) (494,342) (994,342) (100,000) (799,492)
Proceeds from maturities and
paydowns of mortgage-backed
securities held to maturity 330,483 341,407 675,913 663,446 1,769,250
Proceeds from maturities of other
investment securities
held to maturity 200,000 1,500,000 2,000,000 400,000
Purchases of loans (500,000) (1,000,000) (1,350,000) (742,000) (1,522,700)
Proceeds from loan sales 171,000
Other net change in loans (162,591) (5,687,855) (10,116,414) (501,891) (3,474,715)
Purchases of premises
and equipment (7,410) (2,602) (38,381) (36,352)
Purchase of FHLB of Indianapolis
stock (127,600) (17,500) (17,500) (1,000) (58,500)
---------------------------------------------------------------------------------
Net cash used by
investing activities (967,118) (5,358,290) (9,804,945) (719,826) (3,551,509)
---------------------------------------------------------------------------------
</TABLE>
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Consolidated Statement of Cash Flows (continued)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
1997 1996 1996 1995 1994
(Unaudited)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financing Activities
Net change in
Interest-bearing demand and
savings deposits 791,375 634,790 1,243,027 (1,375,313) (571,706)
Certificates of deposit 827,246 476,355 1,786,193 3,896,285 382,018
Proceeds from borrowings 1,000,000 2,000,000 10,500,000 2,500,000 3,200,000
Repayment of borrowings (1,807,277) (261,331) (5,261,331) (4,801,291) (66,800)
Net change in advances by
borrowers for taxes and insurance 14,957 97,233 (79,558) 4,201 33,660
---------------------------------------------------------------------------------
Net cash provided by
financing activities 826,301 2,947,047 8,188,331 223,882 2,977,172
---------------------------------------------------------------------------------
Net Change in
Cash and Cash Equivalents 793,106 (1,614,995) (528,287) 664,290 366,347
Cash and Cash Equivalents,
Beginning of Year 1,465,190 1,993,477 1,993,477 1,329,187 962,840
---------------------------------------------------------------------------------
Cash and Cash Equivalents,
End of Year $2,258,296 $378,482 $1,465,190 1,993,477 $1,329,187
=================================================================================
Additional Cash Flows Information
Interest paid $1,803,980 $1,634,780 $3,425,641 $3,135,524 $2,508,878
Income tax paid 230,033 191,000 375,405 227,747 800,543
Investment in limited partnership 1,809,792
Loans transferred to foreclosed
real estate 203,120
</TABLE>
See notes to consolidated financial statements.
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Nature of Operations and Summary of Significant Accounting Policies
The accounting and reporting policies of Union Federal Savings and Loan
Association ("Association") and its wholly owned subsidiary, UFS Service Corp.
("UFS"), conform to generally accepted accounting principles and reporting
practices followed by the thrift industry. The more significant of the policies
are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Association operates under a federal thrift charter and provides full
banking services. As a federally-chartered thrift, the Association is subject to
regulation by the Office of Thrift Supervision.
The Association generates mortgage and consumer loans and receives deposits from
customers located primarily in Montgomery County, Indiana and surrounding
counties. The Association's loans are generally secured by specific items of
collateral including real property, consumer assets and business assets. UFS
invests in a low income housing partnership.
Consolidation--The consolidated financial statements include the accounts of the
Association and UFS after elimination of all material intercompany transactions
and accounts.
Investment Securities--The Association adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities, on January 1, 1994. At adoption, all investment securities
were classified as held to maturity.
Debt securities are classified as held to maturity when the Association has the
positive intent and ability to hold the securities to maturity. Securities held
to maturity are carried at amortized cost.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
Loans are carried at the principal amount outstanding. A loan is impaired when,
based on current information or events, it is probable that the Association will
be unable to collect all amounts due (principal and interest) according to the
contractual terms of the loan agreement. Payments with insignificant delays not
exceeding 90 days outstanding are not considered impaired. Certain nonaccrual
and substantially delinquent loans may be considered to be impaired. The
Association considers its investment in one-to-four family residential loans and
consumer loans to be homogeneous and therefore excluded from separate
identification for evaluation of impairment. Interest income is accrued on the
principal balances of loans. The accrual of interest on impaired and nonaccrual
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed when considered uncollectible. Interest
income is subsequently recognized only to the extent cash payments are received.
Certain loan fees and direct costs are being deferred and amortized as an
adjustment of yield on the loans over the contractual lives of the loans. When a
loan is paid off or sold, any unamortized loan origination fee balance is
credited to income.
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Allowance for loan losses is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of June
30, 1997 (unaudited) and December 31, 1996, the allowance for loan losses is
adequate based on information currently available. A worsening or protracted
economic decline in the area within which the Association operates would
increase the likelihood of additional losses due to credit and market risks and
could create the need for additional loss reserves.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based principally on the
estimated useful lives of the assets which range from 5 to 31.5 years.
Maintenance and repairs are expensed as incurred while major additions and
improvements are capitalized. Gains and losses on dispositions are included in
current operations.
Federal Home Loan Bank stock is a required investment for institutions that are
members of the Federal Home Loan Bank ("FHLB") system. The required investment
in the common stock is based on a predetermined formula.
Foreclosed real estate is carried at the lower of cost or fair value less
estimated selling costs. When foreclosed real estate is acquired, any required
adjustment is charged to the allowance for loan losses. All subsequent activity
is included in current operations.
Income tax in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The
Association files consolidated income tax returns with its subsidiary.
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Investment Securities Held to Maturity
<TABLE>
<CAPTION>
June 30, 1997
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
U.S. Treasury $ 350 $ 1 $ 349
Federal agencies 3,146 $ 3 27 3,122
Mortgage-backed securities 2,424 179 6 2,597
----------------------------------------------------------------
Total investment securities $5,920 $182 $34 $6,068
=================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 350 $ 2 $ 348
Federal agencies 2,645 $ 1 35 2,611
Mortgage-backed securities 2,752 186 5 2,933
----------------------------------------------------------------
Total investment securities $5,747 $187 $42 $5,892
================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $1,050 $ 2 $ 1 $1,051
Federal agencies 2,950 10 16 2,944
Mortgage-backed securities 3,423 249 4 3,668
----------------------------------------------------------------
Total investment securities $7,423 $261 $21 $7,663
================================================================
</TABLE>
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The amortized cost and fair value of securities held to maturity at June 30,
1997 (unaudited) and December 31, 1996, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
Amortized Fair Amoritzed Fair
Cost Value Cost Value
----------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Within one year $ 850 $ 847 $ 300 $ 300
One to five years 2,346 2,324 2,695 2,659
Five to ten years 300 300
----------------------------------------------------------------
3,496 3,471 2,995 2,959
Mortgage-backed securities 2,424 2,597 2,752 2,933
----------------------------------------------------------------
Totals $5,920 $6,068 $5,747 $5,892
================================================================
</TABLE>
Securities with a carrying value of $2,502,000 and $2,832,000 were pledged at
June 30, 1997 (unaudited) and December 31, 1996 to secure Federal Home Loan Bank
advances.
Mortgage-backed securities included in investment securities held to maturity
above consist of the following:
<TABLE>
<CAPTION>
June 30, 1997
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Government National Mortgage Corporation $1,307 $118 $1,425
Federal Home Loan Mortgage Corporation 818 59 877
Federal National Mortgage Corporation 274 2 $6 270
Other 25 25
------------------------------------------------------------------
Total mortgage-backed securities $2,424 $179 $6 $2,597
==================================================================
</TABLE>
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
December 31, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Government National Mortgage Corporation $1,391 $120 $1,511
Federal Home Loan Mortgage Corporation 1,039 64 1,103
Federal National Mortgage Corporation 294 2 $5 291
Other 28 28
----------------------------------------------------------------
Total mortgage-backed securities $2,752 $186 $5 $2,933
================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Government National Mortgage Corporation $1,707 $149 $1,856
Federal Home Loan Mortgage Corporation 1,338 93 1,431
Federal National Mortgage Corporation 341 6 $4 343
Other 37 1 38
----------------------------------------------------------------
Total mortgage-backed securities $3,423 $249 $4 $3,668
================================================================
</TABLE>
o Loans and Allowance
June 30, December 31,
1997 1996 1995
--------------------------------------
(Unaudited)
Real estate mortgage loans
One-to-four family $58,664 $57,031 $48,295
Multi-family 10,212 10,920 9,617
Commercial 3,513 3,593 2,814
Real estate construction loans 1,162 1,322 852
Individuals' loans for household and
other personal expenditures 143 346 191
----------------------------------
73,694 73,212 61,769
Deferred loan fees (329) (356) (379)
----------------------------------
Total loans $73,365 $72,856 $61,390
==================================
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
1997 1996 1996 1995 1994
---------------------------------------------------------
(Unaudited)
Allowance for loan losses
<S> <C> <C> <C> <C> <C>
Balances, Beginning of Period $159 $111 $111 $ 87 $63
Provision for losses 111 24 48 24 24
Loans charged off (72)
--------------------------------------------------------
Balances, End of Period $198 $135 $159 $111 $87
========================================================
</TABLE>
On January 1, 1995, the Association adopted SFAS Nos. 114 and 118, Accounting by
Creditors for Impairment of a Loan and Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosures. At June 30, 1997, (unaudited) the
Association had no impaired loans. At December 31, 1996, the Association had an
impaired loan of $112,000 and had recorded an allowance for losses of $37,000.
The average balance of impaired loans for the six months ended June 30, 1997
(unaudited) and the year ended December 31, 1996 was $66,000 and $110,000. The
Association had no interest income or cash receipts on impaired loans during the
six months ended June 30, 1997 (unaudited) and during the year ended December
31, 1997.
In addition, at June 30, 1997 (unaudited) and December 31, 1996, the Association
had nonaccrual loans of $122,000 and $377,000, for which impairment had not been
recognized. If interest on these loans had been recognized at the original
interest rates, interest income would have increased approximately $3,000 and
$14,000 for the six months ended June 30, 1997 (unaudited) and for the year
ended December 31, 1996.
The Association has no commitments to loan additional funds to the borrowers of
impaired or nonaccrual loans.
Nonaccruing loans totaled $156,000 and $143,000 at December 31, 1995 and 1994.
Additional interest income of approximately $3,000 for 1995 and $1,000 for 1994
would have been recorded had income on those loans been considered collectible
and accounted for on the accrual basis under the original terms of the loans.
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The Association has entered into transactions with certain directors and
officers. Such transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management, involve more
than normal credit risk or present other unfavorable features. The aggregate
amount of loans, as defined, to such related parties was as follows:
Balances, December 31, 1995 $1,316
Changes in composition of related parties (57)
New loans, including renewals 378
Payments, etc. including renewals (109)
------
Balances, December 31, 1996 1,528
New loans, including renewals (unaudited) 460
Payments, etc. including renewals (unaudited) (151)
------
Balances, June 30, 1997 (unaudited) $1,837
======
o Premises and Equipment
June 30, December 31,
1997 1996 1995
------------------------------------------
(Unaudited)
Land $146 $146 $146
Buildings 538 538 538
Equipment 142 134 133
------------------------------------------
Total cost 826 818 817
Accumulated depreciation (461) (447) (422)
------------------------------------------
Net $365 $371 $395
==========================================
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Investment in Limited Partnership
The investment in limited partnership of $1,220,000, $1,334,000 and $1,506,000
at June 30, 1997 (unaudited), December 31, 1996 and 1995 represents a 99 percent
equity in Pedcor Investments - 1993-XVI, LP ("Pedcor"), a limited partnership
organized to build, own and operate a 48-unit apartment complex. In addition to
recording its equity in the losses of Pedcor, the Association has recorded the
benefit of low income housing tax credits of $89,000 (unaudited) for the six
months ended June 30, 1997 and 1996 and $178,000 for the years ended December
31, 1996 and 1995 and $75,000 for the year ended December 31, 1994. Condensed
financial statements for Pedcor are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1995
-----------------------------------------------
(Unaudited)
Condensed statement of financial condition
Assets
<S> <C> <C> <C>
Cash $ 5 $ 29 $ 21
Land and property 2,321 2,350 2,408
Other assets 57 30 76
-----------------------------------------
Total assets $2,383 $2,409 $2,505
=========================================
Liabilities
Notes payable--Association $ 873 $ 982 $1,065
Notes payable--other 1,282 1,290 1,304
Other liabilities 129 173 135
-----------------------------------------
Total liabilities 2,284 2,445 2,504
Partners' equity 99 (36) 1
-----------------------------------------
Total liabilities and partners' equity $2,383 $2,409 $2,505
=========================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
1997 1996 1996 1995 1994
-------------------------------------------------------------
(Unaudited)
Condensed statement of operations
<S> <C> <C> <C> <C> <C>
Total revenue $110 $107 $219 $222 $96
Total expenses 172 220 435 454 151
-------------------------------------------------------------
Net loss $ (62) $(113) $(216) $(232) $(55)
=============================================================
</TABLE>
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Deposits
June 30, December 31,
1997 1996 1995
-----------------------------------
(Unaudited)
Interest-bearing demand $10,352 $ 9,514 $ 8,627
Savings deposits 3,821 3,867 3,511
Certificates and other time deposits
of $100,000 or more 7,527 7,056 6,387
Other certificates and time deposits 40,355 39,999 38,882
-----------------------------------
Total deposits $62,055 $60,436 $57,407
===================================
Certificates maturing in years ending June 30 December 31
-------------------------------
(Unaudited)
1997 $28,545
1998 $26,340 12,844
1999 15,968 3,742
2000 3,333 1,292
2001 1,517 632
2002 724
----------------------------
$47,882 $47,055
============================
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $7,527,000 (unaudited), $7,056,000, and $6,387,000 at
June 30, 1997 and December 31, 1996 and 1995. Deposits in excess of $100,000 are
not federally insured.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
1997 1996 1996 1995 1994
---------------------------------------------------------------------------
(Unaudited)
Interest expense on deposits
<S> <C> <C> <C> <C> <C>
Interest-bearing demand $ 186 $ 160 $ 369 $ 385 $ 364
Savings deposits 76 73 148 146 159
Certificates 1,392 1,359 2,716 2,505 1,925
---------------------------------------------------------------------------
$1,654 $1,592 $3,233 $3,036 $2,448
===========================================================================
</TABLE>
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Federal Home Loan Advances
June 30, 1997 December 31, 1996
-----------------------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
-----------------------------------------------
(Unaudited)
Advances from FHLB
Maturities in years ending
1997 $5,609 5.50%
1998 $5,101 5.77% 101 5.14
1999 114 5.33 114 5.33
2000 123 5.49 123 5.49
2001 129 5.67 129 5.67
2002 138 5.80 138 5.80
2003 147 5.90 147 5.90
2004 121 6.03 121 6.03
------ ------
$5,873 5.76% $6,482 5.52%
====== ======
The FHLB advances are secured by first-mortgage loans and investment securities
totaling $59,019,000 and $57,954,000 at June 30, 1997 (unaudited) and December
31, 1996. Advances are subject to restrictions or penalties in the event of
prepayment.
o Note Payable
The note payable to Pedcor dated February 1, 1994 in the original amount of
$1,809,792 bears no interest so long as there exists no event of default. In the
instances where an event of default has occurred, interest shall be calculated
at a rate equal to the lesser of 14% per annum or the highest amount permitted
by applicable law.
June 30, 1997 December 31, 1996
-------------------------------------------
(Unaudited)
Note payable to Pedcor
Maturities in years ending:
1997 $ 198
1998 $ 179 179
1999 184 184
2000 183 183
2001 177 177
2002 174 174
Thereafter 303 303
-----------------------------
$1,200 $1,398
=============================
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The Association has an available line of credit with the FHLB totaling
$1,000,000. The line of credit expires September 16, 1997 and bears interest at
a rate equal to the current variable advance rate. There were no drawings on
this line of credit at June 30, 1997 (unaudited) and December 31, 1996.
o Income Tax
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
1997 1996 1996 1995 1994
-------------------------------------------------------------
(Unaudited)
Income tax expense
Currently payable
<S> <C> <C> <C> <C> <C>
Federal $161 $156 $246 $184 $461
State 70 65 104 102 149
Deferred
Federal 4 6 (20) 32 23
State 4 6 8 6
-------------------------------------------------------------
Total income tax expense $235 $231 $336 $326 $639
=============================================================
Reconciliation of federal statutory
to actual tax expense
Federal statutory income tax at 34% $271 $261 $415 $448 $610
Effect of state income taxes 46 45 73 73 102
Tax credits (89) (89) (178) (178) (75)
Other 7 14 26 (17) 2
-------------------------------------------------------------
Actual tax expense $235 $231 $336 $326 $639
=============================================================
Effective tax rate 29.4% 30.1% 27.5% 24.7% 35.6%
</TABLE>
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The components of the cumulative net deferred tax asset are as follows:
June 30, December 31,
1997 1996 1995
---------------------------------
(Unaudited)
Differences in depreciation methods $(28) $(28) $(34)
FHLB stock dividend (23) (23) (23)
Differences in accounting for loan fees 51 66 95
Differences in accounting for loan losses 70 49 28
Equity in partnership losses (59) (67) (25)
Business income tax credits 62 68 27
State income tax (2) (2) (4)
Other 13 (2)
------------------------------
$71 $76 $62
==============================
Assets $183 $196 $150
Liabilities (112) (120) (88)
------------------------------
$ 71 $ 76 $ 62
==============================
At June 30, 1997 (unaudited) and December 31, 1996, the Association had an
unused business income tax credit carryforward of $62,000 and $68,000 expiring
in 2011.
Retained earnings at June 30, 1997 (unaudited) and December 31, 1996 and 1995
include approximately $2,632,000 for which no deferred income tax liability has
been recognized. This amount represents an allocation of income to bad debt
deductions as of December 31, 1987 for tax purposes only. Reduction of amounts
so allocated for purposes other than tax bad debt losses or adjustments arising
from carryback of net operating losses or loss of "bank" status, would create
income for tax purposes only, which income would be subject to the then-current
corporate income tax rate. The unrecorded deferred income tax liability on the
above amounts was approximately $1,043,000 at June 30, 1997 (unaudited) and
December 31, 1996 and 1995.
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Commitments and Contingent Liabilities
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements. The
Association's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual or notional amount
of those instruments. The Association uses the same credit policies in making
such commitments as it does for instruments that are included in the
consolidated balance sheet.
Financial instruments whose contract amount represents credit risk were as
follows:
June 30, December 31,
1997 1996 1995
-----------------------------------
(Unaudited)
Mortgage loan commitments
At variable rates $57 $28
At fixed rates ranging from
7.50 to 9.25% for June 30, 1997,
7.38 to 9.00% for 1996 and
7.75 to 8.50% for 1995 397 $386 295
Standby letters of credit 2,018 1,500 1,500
Commitments to purchase loans 300 500
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Association evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Association upon extension of credit is based on
management's credit evaluation. Collateral held varies but may include accounts
receivable, inventory, property and equipment, and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by the Association
to guarantee the performance of a customer to a third party.
The Association and UFS are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and lawsuits will not
have a material adverse effect on the consolidated financial position of the
Association.
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Regulatory Capital
The Association is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate actions by the regulatory agencies that, if
undertaken, could have a material effect on the Association's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Association must meet specific capital guidelines
that involve quantitative measures of the Association's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Association's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors.
At June 30, 1997 (unaudited) and December 31, 1996, the management of the
Association believes that it meets all capital adequacy requirements to which it
is subject. The most recent notification from the regulatory agency categorized
the Association as well capitalized under the regulatory framework for prompt
corrective action. There have been no conditions or events since that
notification that management believes have changed this categorization.
The Association's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
June 30, 1997
Required for To Be Well
------------------------------------------------------------------------
Actual Adequate Capital (1) Capitalized (1)
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital (1)
(to risk weighted assets) $14,671 34.6% $3,390 8.0% $4,238 10.0%
Core capital (1) (to adjusted tangible assets) 14,473 17.2 2,529 3.0 5,057 6.0
Core capital (1) (to adjusted total assets) 14,473 17.2 2,529 3.0 4,215 5.0
</TABLE>
(1) As defined by regulatory agencies
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
December 31, 1996
Required for To Be Well
------------------------------------------------------------------------
Actual Adequate Capital (1) Capitalized (1)
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital (1)
(to risk-weighted assets) $14,069 33.6% $3,346 8.0% $4,183 10.0%
Core capital (1) (to adjusted tangible assets) 13,910 16.8 2,484 3.0 4,967 6.0
Core capital (1) (to adjusted total assets) 13,910 16.8 2,484 3.0 4,139 5.0
</TABLE>
(1) As defined by regulatory agencies
The Association's tangible capital at June 30, 1997 (unaudited) and December 31,
1996 was $14,473,000 and $13,910,000, which amount was 17.2% and 16.8% of
tangible assets and exceeded the required ratio of 1.5%.
Reconciliation of capital for financial statement purposes to regulatory capital
was as follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
Core Tangible Risk-Based Core Tangible Risk-Based
Capital Capital Capital Capital Capital Capital
--------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Capital for financial
statement purposes $14,473 $14,473 $14,473 $13,910 $13,910 $13,910
Add
General loan
valuation allowance 198 159
--------------------------------------------------------------------------------------
Regulatory capital $14,473 $14,473 $14,671 $13,910 $13,910 $14,069
======================================================================================
</TABLE>
o Employee Benefit Plans
The Association provides pension benefits for substantially all of its
employees, and is a participant in a pension fund known as the Pentegra Group
(formerly known as the Financial Institutions Retirement Fund). This plan is a
multi-employer plan; separate actuarial valuations are not made with respect to
each participating employer. Pension expense was $20,000 and $26,000 for the six
months ended June 30, 1997 and 1996 (unaudited) and $47,000, $53,000 and $56,000
for 1996, 1995 and 1994.
The Association has a retirement savings 401(k) plan in which substantially all
employees may participate. The Association matches employees' contributions at
the rate of 50% for the first 5% of base salary contributed by participants. The
Association's expense for the plan was $5,000 for the six months ended June 30,
1997 and 1996 (unaudited) and $10,000, $11,000 and $9,000 for 1996, 1995 and
1994.
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Cash Equivalents--The fair value of cash and cash equivalents
approximates carrying value.
Investment Securities--Fair values are based on quoted market prices.
Loans--The fair value for loans is estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
FHLB Stock--Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
Interest Receivable/Payable--The fair value of accrued interest
receivable/payable approximates carrying values.
Deposits--Fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on such time deposits.
Federal Home Loan Bank Advances--The fair value of these borrowings are
estimated using a discounted cash flow calculation, based on current rates for
similar debt.
Note Payable--Limited Partnership--The fair value of the borrowing is estimated
using a discounted cash flow calculation, based on current rates for similar
debt.
Advance Payments by Borrowers for Taxes and Insurance--The fair value
approximates carrying value.
Off-Balance Sheet Commitments--Commitments include commitments to originate
mortgage and consumer loans, and are generally of a short-term nature. The fair
value of such commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the counterparties' credit standing. The carrying amounts of these
commitments, which are immaterial, are reasonable estimates of the fair value of
these financial instruments.
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The estimated fair values of the Association's financial instruments are as
follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 December 31, 1995
----------------------------------------------------------------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
----------------------------------------------------------------------------
(Unaudited)
Assets
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $2,258 $2,258 $1,465 $1,465 $1,993 $1,993
Investment securities held to maturity 5,920 6,068 5,747 5,892 7,423 7,663
Loans, net 73,167 73,633 72,697 73,220 61,279 62,038
Stock in FHLB 708 708 580 580 370 370
Interest receivable 419 419 454 454 563 563
Liabilities
Deposits 62,055 61,985 60,436 60,683 57,407 58,091
Borrowings
FHLB advances 5,873 5,831 6,482 6,587 1,065 1,043
Note payable--limited partnership 1,200 1,142 1,398 1,343 1,577 1,547
Interest payable 110 110 91 91 93 93
Advances by borrowers for
taxes and insurance 216 216 201 201 280 280
</TABLE>
o Subsequent Event--Plan of Conversion
On June 2, 1997, the Board of Directors adopted a Plan of conversion ("Plan")
whereby the Association will convert from a Federally chartered mutual
institution to a Federally chartered stock savings and loan association. The
Plan is subject to approval of regulatory authorities and members at a special
meeting. The stock of the Association will be issued to Union Community Bancorp
("Union"), a holding company formed in connection with the conversion, and the
Association will become a wholly-owned subsidiary of Union. Pursuant to the
Plan, shares of capital stock of Union are expected to be offered initially for
subscription to eligible members of the Association and certain other persons as
of specified dates subject to various subscription priorities as provided in the
Plan. The capital stock will be offered at a price to be determined by the Board
of Directors based upon an appraisal to be made by an independent appraisal
firm. The exact number of shares to be offered will be determined by the Board
of Directors in conjunction with the determination of the subscription price. At
least the minimum number of shares offered in the conversion must be sold. Any
stock not purchased in the subscription offering will be sold in a community
offering expected to be commenced following the subscription offering.
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The Plan provides that when the conversion is completed, a "liquidation account"
will be established in an amount equal to the retained income of the Association
as of the date of the most recent financial statements contained in the final
conversion prospectus. The liquidation account is established to provide a
limited priority claim to the assets of the Association to qualifying depositors
("eligible account holders") at December 31, 1995 and other depositors
("supplemental eligible account holders") as of September 30, 1997 who continue
to maintain deposits in the Association after conversion. In the unlikely event
of a complete liquidation of the Association, and only in such event, eligible
account holders would receive from the liquidation account a liquidation
distribution based on their proportionate share of the then total remaining
qualifying deposits.
Current regulations allow the Association to 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. Also, capital
distribution regulations limit the Association's ability to make capital
distributions which include dividends, stock redemptions or repurchases,
cash-out mergers, interest payments on certain convertible debt and other
transactions charged to the capital account based on its capital level and
supervisory condition. Under regulations in effect at June 30, 1997, no
repurchase of bank or holding company stock may be made during the first year
following conversion. For the second and third years following conversion,
subject to the demonstration of a valid business purpose and approval by the
Office of Thrift Supervision, annual repurchases of up to 5 percent of
outstanding stock can be made.
Costs of conversion will be netted from proceeds of sale of common stock and
recorded as a reduction of additional paid-in capital or common stock. If the
conversion is not competed, such costs, totalling $7,500 at June 30, 1997
(unaudited), would be charged to expense.
o Unaudited Financial Statements
The accompanying consolidated balance sheet as of June 30, 1997, and the
consolidated statements of income, changes in retained earnings and cash flows
for the six months ended June 30, 1997 and 1996 are unaudited, but management is
of the opinion that all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the results of the periods
reported, have been included in the accompanying financial statements. The
results of operations for the six months ended June 30, 1997 are not necessarily
indicative of those expected for the remainder of the year.
<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" of a person is defined to
mean (i) any corporation or organization (other
than Union Federal 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 Union Federal 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 Union Federal or its subsidiaries or
the Holding Company.
ATM Automated Teller Machine
BIF Bank Insurance Fund of the FDIC
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 Montgomery County
Common Stock Up to 2,645,000 shares of Common Stock, with no
par value, offered by Union Community Bancorp in
connection with the Conversion
Conversion Simultaneous conversion of Union Federal Savings
and Loan Association to stock form, the issuance
of Union Federal's outstanding capital stock to
Union Community Bancorp and Union Community
Bancorp's offer and sale of Common Stock
Eligible Account Holders Savings account holders of Union Federal 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 Union Community Bancorp Employee Stock
Ownership Plan and Trust
Estimated Valuation Range Estimated pro forma market value of the Common
Stock ranging from $17,000,000 to $23,000,000
Expiration Date 12:00 noon, Crawfordsville Time, on November ___,
1997
FASB Financial Accounting Standards Board
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 Union Community Bancorp
IRA Individual retirement account or arrangement
IRS Internal Revenue Service
RP Financial RP Financial, LC
MMDA Money Market Demand Account
NASD National Association of Securities Dealers, Inc.
Nasdaq National National Association of Securities Dealers
Market System Automated Quotation System--National Market
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 Union Federal for its
full-time employees through Pentegra Group
(formerly known as Financial Institutions
Retirement Fund)
Plan or Plan of Conversion Plan of Union Federal Savings and Loan Association
to convert from a federally chartered mutual
savings and loan association to a federally
chartered stock savings and loan association and
the issuance of all of Union Federal's outstanding
capital stock to Union Community Bancorp and the
issuance of Union Community 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
SFAS Statement of Financial Accounting Standard
SEC Securities and Exchange Commission
Special Meeting Special Meeting of members of Union Federal called
for the purpose of approving the Plan
Stock Option Plan The Union Community Bancorp Stock Option Plan for
directors and officers 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 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 Union
Federal Savings and Loan Association who are not
Eligible Account Holders, Account Holders with
account balances of at least $50 on September 30,
1997 Trident Securities Trident Securities, Inc.
UFS UFS Service Corp., a wholly-owned subsidiary
of Union Federal Savings and Loan Association
Union Federal Union Federal Savings and Loan Association of
Crawfordsville, Indiana
Voting Record Date The close of business on October ___, 1997, the
date for determining members entitled to vote at
the Special Meeting
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution(1).
Blue Sky Legal Services and Registration Fees $ 5,000
OTS Filing Fees $ 8,400
NASD Filing Fee $ 3,145
Securities and Exchange Commission Registration Fee $ 8,015
NASDAQ National Market System Listing Fee $ 18,225
Legal Services and Disbursements - Issuer's counsel $100,000
Auditing and Accounting Services $ 55,000
Appraisal fees and expenses $ 20,000
Business plan fees and expenses $ 5,500
Conversion agent fees and expenses $ 7,500
Printing costs
(including Desktop Publishing and EDGAR fees) $ 75,000
Postage and mailing $ 30,000
Commissions and other offering fees (2) $250,734
Expenses of Sales Agents
(Including Counsel Fees and Disbursements) $ 28,000
Advertising $ 2,000
Transfer agent fees $ 2,000
Other expenses $ 6,481
--------
TOTAL (3) $625,000
========
(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 $20,000,000, 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
Union Federal Savings and Loan Association and their Associates and the
Union Community Bancorp Employee Stock Ownership Plan acquire 207,800
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.
<PAGE>
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.
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.
<PAGE>
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 Article13.
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.
<PAGE>
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.
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.
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.
<PAGE>
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 Crawfordsville, State of
Indiana, on September 16, 1997.
UNION COMMUNITY BANCORP
By /s/ Joseph E. Timmons
-------------------------------------
Joseph E. Timmons
President and Chief Executive Officer
Each person whose signature appears below hereby authorizes Joseph E.
Timmons and Denise Swearingen, 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 Joseph E. Timmons and
Denise E. Swearingen, 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/ Joseph E. Timmons Director, )
Joseph E. Timmons President and )
Chief Executive Officer )
)
)
(2) Principal Financial )
and Accounting Officer: )
)
)
/s/ Denise Swearingen Treasurer and )
Denise E. Swearingen Secretary )
)
) September 16, 1997
)
(3) The Board of Directors: )
)
)
/s/ Philip L. Boots Director )
Philip L. Boots )
)
)
/s/ Marvin L. Burkett Director )
Marvin L. Burkett )
)
)
/s/ Phillip E. Grush Director )
Phillip E. Grush )
)
)
<PAGE>
/s/ Samuel H. Hildebrand Director )
Samuel H. Hildebrand )
)
)
/s/ John M. Horner Director )
John M. Horner )
) September 16, 1997
)
/s/ Harry A. Siamas Director )
Harry A. Siamas )
)
)
/s/ Joseph E. Timmons Director )
Joseph E. Timmons )
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
1 Form of Agency Agreement to be entered into among
Registrant, Union Federal Savings and Loan
Association, 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 RP Financial, LLC re economic value of
Subscription Rights
10(1) Letter Agreements entered into between Registrant
and RP Financial, LLC relating to appraisal and
business plan
(2) Union Community Bancorp Stock Option Plan
(3) Union Federal Savings and Loan Association
Recognition and Retention Plan and Trust
(4) Union Community Bancorp Employee Stock Ownership
Plan and Trust Agreement
(5) Employment Agreement between Union Federal Savings
and Loan Association and Joseph E. Timmons
(6) Exempt Loan and Share Purchase Agreement between
Trust under Union Community Bancorp Employee Stock
Ownership Plan and Trust Agreement and Union
Community Bancorp
21 Subsidiaries of the Registrant
23(1) Consent of RP Financial, LLC
(2) Consent of Geo. S. Olive & Co. LLC
(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 RP Financial, LLC*
(2) Stock Order Form
- -------------------
*To be filed by amendment
Trident Securities, Inc.
Sales Agency Agreement
Page 1
Union Community Bancorp
__________ to __________ Shares
Common Stock
(Par Value $.01 Per Share)
$10.00 Per Share
SALES AGENCY AGREEMENT
Trident Securities, Inc.
4601 Six Forks Road, Suite 400
Raleigh, North Carolina 27609
Dear Sirs:
Union Community Bancorp, an Indiana corporation (the "Company"), and
Union Federal Savings and Loan Association, a federally-chartered and federally
insured mutual savings and loan association (the "Association"), hereby confirm,
as of __________, 1997, their respective agreements with Trident Securities,
Inc. ("Trident"), a broker-dealer registered with the Securities and Exchange
Commission ("Commission") and a member of the National Association of Securities
Dealers, Inc.
("NASD"), as follows:
1. Introductory. The Association intends to convert from a
federally-chartered mutual savings association to a federally-chartered stock
savings association as a wholly owned subsidiary of the Company (together with
the Offerings, as defined below, the issuance of shares of common stock of the
Association to the Company and the incorporation of the Company, the
"Conversion") pursuant to a plan of conversion adopted on June 2, 1997 (the
"Plan"). In accordance with the Plan, the Company is offering shares of its
common stock, with no par value (the "Shares" and the "Common Stock"), pursuant
to nontransferable subscription rights in a subscription offering (the
"Subscription Offering") to certain depositors of the Association and the
Association's tax-qualified employee benefit plans (i.e., the Association's
Employee Stock Ownership Plan (the "ESOP")). Shares of the Common Stock not sold
in the Subscription Offering may be offered to the general public in a community
offering (the "Community Offering", and together with the Subscription Offering
the "Offerings"), subject to the right of the Company and the Association, in
their absolute discretion, to reject orders in the Community Offering in whole
or in part. It is anticipated that shares of the Common Stock not otherwise
subscribed for in the Subscription and Community Offerings may be offered at the
discretion of the Company to certain members of the general public as part of a
community offering on a best efforts basis by a selling group of selected
broker-dealers to be managed by Trident Securities, Inc. (the "Syndicated
Community Offering"). In the Offerings, the Company is offering between
1,700,000 and 2,300,000 shares, with the possibility of offering up to 2,645,000
Shares without a resolicitation of subscribers. No Eligible Account Holder,
Supplemental Account
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 2
Holder or Other Member may purchase in his capacity as such more than 10,000
shares of Common Stock in the Subscription Offering. No individual person or
other entity, together with associates of and persons acting in concert with
such person, may purchase in the Community Offering and the Syndicated Community
Offering more than 20,000 shares of Common Stock. No person, individually or
together with associates of and persons acting in concert with such person, may
purchase more than 20,000 shares of Common Stock in the Conversion.
The Company and the Association have been advised by Trident that it
will utilize its best efforts in assisting the Company and the Association with
the sale of the Shares in the Offerings and, if deemed necessary by the Company,
in a syndicated community offering. Prior to the execution of this Agreement,
the Company has delivered to Trident the Prospectus dated ___________, 1997 (as
hereinafter defined) and all supplements thereto to be used in the Offerings.
Such Prospectus contains information with respect to the Company, the
Association and the Shares.
2. Representations and Warranties.
(a) The Company and the Association jointly and severally
represent and warrant to Trident that:
(i) The Company has filed with the Commission a
registration statement, including exhibits and an amendment or
amendments thereto, on Form S-1 (No. 333- _____), including a
Prospectus relating to the Offerings, for the registration of
the Shares under the Securities Act of 1933, as amended (the
"Act"); and such registration statement has become effective
under the Act and no stop order has been issued with respect
thereto and no proceedings therefor have been initiated or, to
the Company's best knowledge, threatened by the Commission.
Except as the context may otherwise require, such registration
statement, as amended or supplemented, 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, as amended and supplemented, is herein called the
"Registration Statement," and the prospectus, as amended or
supplemented, on file with the Commission at the time the
Registration Statement became effective is herein called the
"Prospectus," except that if the prospectus filed by the
Company with the Commission pursuant to Rule 424(b) of the
general rules and regulations of the Commission under the Act
(together with the enforceable published policies and actions
of the Commission thereunder, the "SEC Regulations") 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 it is filed with or mailed for filing to the Commission
and shall include any amendments
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 3
or supplements thereto from and after their dates of
effectiveness or use, respectively. If any Shares remain
unsubscribed following completion of the Subscription Offering
and the Community Offering, the Company (i) will, if required
by the SEC Regulations, promptly file with the Commission a
post-effective amendment to such Registration Statement
relating to the results of the Subscription and the Community
Offerings, any additional information with respect to the
proposed plan of distribution and any revised pricing
information or (ii) if no such post-effective amendment is
required, will file with, or mail for filing to, the
Commission a prospectus or prospectus supplement containing
information relating to the results of the Subscription and
Community Offerings and pricing information pursuant to Rule
424(c) of the Regulations, in either case in a form reasonably
acceptable to the Company and Trident.
(ii) The Association has filed an Application for
Approval of Conversion including exhibits (as amended or
supplemented, the "Conversion Application" with the Office of
Thrift Supervision ("OTS") under the Home Owners' Loan Act
(the "HOLA") and the rules and regulations promulgated
thereunder, which has been approved by the OTS; and the
Prospectus and the proxy statement for the solicitation of
proxies from members for the special meeting to approve the
Plan (the "Proxy Statement") included as part of the
Conversion Application have been approved for use by the OTS.
No order has been issued by the OTS preventing or suspending
the use of the Prospectus or the Proxy Statement; and no
action by or before the OTS revoking such approvals is, to the
Association's best knowledge, pending or threatened.
(iii) The Company has filed with the OTS a holding
company application on Form H(e)-1s (the "H(e)-1s") under the
HOLA and the regulations promulgated thereunder and shall
receive approval of its acquisition of the Association from
the OTS prior to closing.
(iv) At the date of the Prospectus and at all times
subsequent thereto through and including the Closing Date (i)
the Registration Statement and the Prospectus (as amended or
supplemented, if amended or supplemented) complied with the
Act and the SEC Regulations, (ii) the Registration Statement
(as amended or supplemented, if amended or supplemented) did
not contain an 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, in light of the
circumstances under which they were made, not misleading,
(iii) the Prospectus (as amended or supplemented, if amended
or supplemented) did 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
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 4
the statements therein, in light of the circumstances under
which they were made, not misleading, and (iv) the Conversion
Application was complete and did not contain an untrue
statement or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading. Representations or warranties in this subsection
shall not apply to statements or omissions made in reliance
upon and in conformity with written information furnished to
the Company or the Association relating to Trident by or on
behalf of Trident expressly for use in the Registration
Statement or Prospectus.
(v) The Company has been duly incorporated as an
Indiana corporation and the Association has been duly
organized as a mutual savings Association under the laws of
the United States of America, and each of them is validly
existing and in good standing under the laws of the
jurisdiction of its organization with full power and authority
to own its property and conduct its business as described in
the Registration Statement and Prospectus; the Association is
a member in good standing of the Federal Home Loan Bank of
Indianapolis; and the deposit accounts of the Association are
insured by the Savings Association Insurance Fund ("SAIF")
administered by the Federal Deposit Insurance Corporation
("FDIC") up to the applicable legal limits. The Company is
qualified to do business in the state of Indiana. Neither the
Company nor the Association is 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
operations of the Company and the Association, taken as a
whole. The Association does not own equity securities of or an
equity interest in any business enterprise other than the
Company and the Association's wholly owned service
corporation. Upon amendment of the Association's charter and
bylaws to read in the form of a federal stock charter as
provided in the HOLA and the rules and regulations promulgated
thereunder and completion of the sale by the Company of the
Shares as contemplated by the Prospectus, (i) the Association
will be converted pursuant to the Plan to a
federally-chartered capital stock savings Association with
full power and authority to own its property and conduct its
business as described in the Prospectus, (ii) all of the
authorized and outstanding capital stock of the Association
will be owned of record and beneficially by the Company, and
(iii) the Company will have no direct subsidiaries other than
the Association.
(vi) The Association has good and marketable title to
all assets material to its business and to those assets
described in the Prospectus as owned by it, free and clear of
all material liens, charges, encumbrances or restrictions,
except for liens for taxes not yet due, except as described in
the Prospectus and except as could not in the aggregate have a
material adverse effect upon the operations or financial
condition of
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 5
the Company and the Association taken as a whole; and all of
the leases and subleases material to the operations or
financial condition of the Association, under which it holds
properties, including those described in the Prospectus, are
in full force and effect as described therein.
(vii) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary actions
on the part of each of the Company and the Association, and
this Agreement is a valid and binding obligation with valid
execution and delivery by each of the Company and the
Association, enforceable in accordance with its terms (except
as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws
relating to or affecting the enforcement of creditors' rights
generally or the rights of creditors of Association holding
companies the accounts of whose subsidiaries are insured by
the FDIC or by general equity principles, regardless of
whether such enforceability is considered in a proceeding in
equity or at law, and except to the extent that the provisions
of Sections 8 and 9 hereof may be unenforceable as against
public policy or pursuant to Section 23A of the Federal
Reserve Act, 12 U.S.C. Section 371c ("Section 23A")).
(viii) Except as described in the Prospectus, there
is no litigation or governmental proceeding pending or, to the
best knowledge of the Company or the Association, threatened
against or involving the Company, the Association or any of
their respective assets which individually or in the aggregate
would reasonably be expected to have a material adverse effect
on the condition (financial or otherwise), results of
operations and business, including the assets and properties,
of the Company and the Association, taken as a whole.
(ix) The Company and the Association have received
the opinion of Barnes & Thornburg to the effect that the
Conversion will constitute a tax-free reorganization under the
Internal Revenue Code of 1986, as amended, and the opinion of
Geo. Olive & Co. LLC to the effect that the Conversion will
not be a taxable transaction for the Company or the
Association under the income tax laws of Indiana. The facts
relied upon in such opinions are accurate and complete.
(x) Each of the Company and the Association has all
such corporate power, authority, authorizations, approvals and
orders as may be required to enter into this Agreement and to
carry out the provisions and conditions hereof, subject to the
limitations set forth herein and subject to the satisfaction
of certain conditions imposed by the OTS in connection with
its approval of the Conversion Application and the H(e)-1s
application, and except as may be required under the
securities, or
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 6
"blue sky," laws of various jurisdictions, and in the case of
the Company, as of the Closing Date, will, to the best
knowledge of the Association, have such approvals and orders
to issue and sell the Shares to be sold by the Company as
provided herein, and in the case of the Association, as of the
Closing Date, will, to the best knowledge of the Company, have
such approvals and orders to issue and sell the Shares of its
Common Stock to be sold to the Company as provided in the
Plan, subject to the issuance of an amended charter in the
form required for federally-chartered stock savings
Association (the "Stock Charter"), the form of which Stock
Charter has been approved by the OTS.
(xi) To the best knowledge of the Company and the
Association, neither the Company nor the Association is in
violation of any rule or regulation of the OTS or FDIC that
could reasonably be expected to result in any enforcement
action against the Company, the Association or their
respective officers or directors that could reasonably be
expected to have a material adverse effect on the condition
(financial or otherwise), operations, businesses, assets or
properties of the Company and the Association, taken as a
whole.
(xii) The financial statements and any related notes
or schedules which are included in the Registration Statement
and the Prospectus fairly present the financial condition,
income, retained earnings and cash flows of the Association at
the respective dates thereof and for the respective periods
covered thereby and comply as to form with the applicable
accounting requirements of the SEC Regulations and the
applicable accounting regulations of the OTS. Such financial
statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout
the periods involved, except as set forth therein, and such
financial statements are consistent with financial statements
and other reports filed by the Association with supervisory
and regulatory authorities except as such generally accepted
accounting principles may otherwise require. The tables in the
Prospectus accurately present the information purported to be
shown thereby at the respective dates thereof and for the
respective periods therein.
(xiii) There has been no material change in the
condition (financial or otherwise), results of operations or
business, including assets and properties, of the Company and
the Association, taken as a whole, since the latest date as of
which such condition is set forth in the Prospectus, except as
set forth therein; and the capitalization, assets, properties
and business of each of the Company and the Association
conform in all material respects to the descriptions thereof
contained in the Prospectus. Neither the Company nor the
Association has any material liabilities of any kind,
contingent or otherwise, except as set forth in the
Prospectus.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 7
(xiv) There has been no breach or default (or the
occurrence of any event which, with notice or lapse of time or
both, would constitute a default) under, or creation or
imposition of any lien, charge or other encumbrance upon any
of the properties or assets of the Company or the Association
pursuant to any of the terms, provisions or conditions of, any
agreement, contract, indenture, bond, debenture, note,
instrument or obligation to which the Company or the
Association is a party or by which any of them or any of their
respective assets or properties may be bound or is subject, or
violation of any governmental license or permit or any
enforceable published law, administrative regulation or order
or court order, writ, injunction or decree, which breach,
default, encumbrance or violation would have a material
adverse effect on the condition (financial or otherwise),
operations, business, assets or properties of the Company and
the Association taken as a whole; all agreements which are
material to the condition (financial or otherwise), results of
operations or business of the Company and the Association
taken as a whole are in full force and effect, and no party to
any such agreement has instituted or, to the best knowledge of
the Company and the Association, threatened any action or
proceeding wherein the Company or the Association would be
alleged to be in default thereunder.
(xv) Neither the Company nor the Association is in
violation of its respective Articles of Incorporation, charter
or bylaws. The execution and delivery hereof and the
consummation of the transactions contemplated hereby by the
Company and the Association do not conflict with or result in
a breach of the Articles of Incorporation, charter or bylaws
of the Company or the Association (in either mutual or stock
form) or constitute a material breach of or default (or an
event which, with notice or lapse of time or both, would
constitute a default) under, give rise to any right of
termination, cancellation or acceleration contained in, or
result in the creation or imposition of any lien, charge or
other encumbrance upon any of the properties or assets of the
Company or the Association pursuant to any of the terms,
provisions or conditions of, any material agreement, contract,
indenture, bond, debenture, note, instrument or obligation to
which the Company or the Association is a party or violate any
governmental license or permit or any enforceable published
law, administrative regulation or order or court order, writ,
injunction or decree (subject to the satisfaction of certain
conditions imposed by the Director of the OTS in connection
with his approval of the Conversion Application or the
H(e)-1s), which breach, default, encumbrance or violation
would have a material adverse effect on the condition
(financial or otherwise), operations or business of the
Company and the Association taken as a whole.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 8
(xvi) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus and prior to the Closing Date (as hereinafter
defined), except as otherwise may be indicated or contemplated
therein (including any judgment resulting from litigation
described in the Prospectus), neither the Company nor the
Association has issued any securities which will remain issued
at the Closing Date or incurred any liability or obligation,
direct or contingent, or borrowed money, except liabilities,
obligations or borrowings in the ordinary course of business,
or entered into any other transaction not in the ordinary
course of business and consistent with prior practices, which
is material in light of the business of the Company and the
Association, taken as a whole.
(xvii) Upon consummation of the Conversion, the
authorized, issued and outstanding equity capital of the
Company shall be within the range as set forth in the
Prospectus under the caption "Capitalization," and no Common
Stock of the Company shall be outstanding immediately prior to
the Closing Date (other than any such shares held by the
Association); the issuance and the sale of the Shares of the
Company have been duly authorized by all necessary action of
the Company and approved by the OTS, and, when issued in
accordance with the terms of the Plan and paid for, shall be
validly issued, fully paid and nonassessable and shall conform
to the description thereof contained in the Prospectus; the
issuance of the Shares is not subject to preemptive rights;
and purchasers of the Shares from the Company, upon issuance
thereof against payment therefor, will acquire such Shares
free and clear of all claims, encumbrances, security interests
and liens against the Company whatsoever. The certificates
representing the Shares will conform in all material respects
with the requirements of applicable laws and regulations. The
issuance and sale of the capital stock of the Association to
the Company has been duly authorized by all necessary action
of the Association and the Company and appropriate regulatory
authorities (subject to the satisfaction of various conditions
imposed by the OTS in connection with its approval of the
Conversion Application and H(e)-1s, and such capital stock,
when issued in accordance with the terms of the Plan, will be
fully paid and nonassessable and will conform in all material
respects to the description thereof contained in the
Prospectus.
(xviii) 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 of
the Shares, except for the declaration of effectiveness of any
required post-effective amendment by the Commission and
approval thereof by the OTS and approval of the Company's
application on H(e)-1s by the OTS, the issuance of the Stock
Charter by the OTS and as may be required under the securities
laws of various jurisdictions.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 9
(xix) All contracts and other documents required to
be filed as exhibits to the Registration Statement or the
Conversion Application and the H(e)-1s have been filed with
the Commission and the OTS, as the case may be.
(xx) Geo. S. Olive & Co. LLC which has audited the
financial statements of the Association at December 31, 1996
and 1995 and for the years ended December 31, 1996 and 1995
included in the Prospectus and K.B. Parrish & Co. which has
audited the financial statements of the Bank for the year
ended December 31, 1994, are independent public accountants
within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountant.
(xxi) The Company and the Association have timely
filed all required federal, state and local franchise tax
returns, and no deficiency has been asserted with respect to
such returns by any taxing authorities, and the Company and
the Association have paid all taxes that have become due and,
to the best of their knowledge, have made adequate reserves
for similar future tax liabilities, except where any failure
to make such filings, payments and reserves, or the assertion
of such a deficiency, would not have a material adverse effect
on the condition of the Company and the Association, taken as
a whole or in the case of taxes which the Association is
contesting in good faith.
(xxii) To the best knowledge of the Company and the
Association, all of the loans represented as assets of the
Association on the most recent financial statements of the
Association included in the Prospectus meet or are exempt from
all requirements of federal, state or local law pertaining to
lending, including without limitation truth in lending
(including the requirements of Regulation Z and 12 C.F.R. Part
226 and Section 563.99), 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 Association, taken as a
whole.
(xxiii) The records of account holders, depositors,
borrowers and other members of the Association delivered to
Trident by the Association or its agent for use during the
Conversion have been prepared or reviewed by the Association
and, to the best knowledge of the Company and the Association,
are reliable and accurate.
(xxiv) None of the Company, the Association or the
employees of the Company or the Association, has made any
payment of funds to the Company or the Association prohibited
by law, and no funds of the Company or the Association have
been set aside to be used for any payment prohibited by law.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 10
(xxv) To the best knowledge of the Company or the
Association, there are no actions, suits, regulatory
investigations or other proceedings pending or, to the best
knowledge of the Company or the Association, threatened
against the Company or the Association relating to
environmental protection. To the best knowledge of the Company
and the Association, 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 Association or, to the best knowledge of
the Company or the Association, has occurred on, in or at any
of the facilities or properties of the Company or the
Association, except such disposal, release or discharge which
would not have a material adverse effect on the Company or the
Association, taken as a whole.
(xxvi) At the Closing Date, the Company and the
Association will have completed the conditions precedent to,
and shall have conducted the Conversion in all material
respects in accordance with, the Plan, the HOLA and
regulations promulgated thereunder and all other applicable
laws, regulations, published decisions and orders, including
all terms, conditions, requirements and provisions precedent
to the Conversion imposed by the OTS.
(b) Trident represents and warrants to the Company and the
Association that:
(i) Trident is registered as a broker-dealer with the
Commission, and is in good standing with the Commission and
the NASD.
(ii) Trident is validly existing as a corporation in
good standing under the laws of _____________ and is licensed
to conduct business in the State of Indiana, with full
corporate power and authority to provide the services to be
furnished to the Company and the Association hereunder.
(iii) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary action
on the part of Trident, and this Agreement is a legal, valid
and binding obligation of Trident, enforceable in accordance
with its terms (except as the enforceability thereof may be
limited by Bankruptcy, insolvency, moratorium, reorganization
or similar laws relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors of
registered broker-dealers accounts of whose may be protected
by the Securities Investor Protection Corporation or by
general equity principles, regardless of whether such
enforceability is considered in a proceeding in equity or at
law, and except to the extent that the provisions of
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 11
Sections 8 and 9 hereof may be unenforceable as against public
policy or pursuant to Section 23A).
(iv) Each of Trident and, to Trident's knowledge, its
employees, agents and representatives who shall perform any of
the services required hereunder to be performed by Trident
shall be duly authorized and shall have all licenses,
approvals and permits necessary to perform such services, and
Trident is a registered selling agent in the jurisdictions in
which the Common Stock is to be offered and sold and will
remain registered in such jurisdictions in which the Company
is relying on such registration for the sale of the Shares,
until the Conversion is consummated or terminated.
(v) The execution and delivery of this Agreement by
Trident, the fulfillment of the terms set forth herein and the
consummation of the transactions contemplated hereby shall not
violate or conflict with the corporate charter or bylaws of
Trident or 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 Trident is
bound or under any governmental license or permit or any law,
administrative regulation, authorization, approval or order or
court decree, injunction or order.
(vi) Any funds received by Trident to purchase Common
Stock will be handled in accordance with Rule 15c2-4 under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(vii) There is not now pending or, to Trident's
knowledge, threatened against Trident any action or proceeding
before the Commission, the NASD, any state securities
commission or any state or federal court concerning Trident's
activities as a broker-dealer.
3. Employment of Trident; Sale and Delivery of the Shares. On the basis
of the representations and warranties herein contained, but subject to the terms
and conditions herein set forth, the Company and the Association hereby employ
Trident as their agent to utilize its best efforts in assisting the Company with
the Company's sale of the Shares in the Subscription Offering and Community
Offering. The employment of Trident hereunder shall terminate (a) forty-five
(45) days after the Offerings close, unless the Company and the Association,
with the approval of the OTS, are permitted to extend such period of time, or
(b) upon consummation of the Conversion, whichever date shall first occur.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 12
In the event the Company is unable to sell a minimum of 1,700,000
Shares (or such lesser amount as the OTS may permit) within the period herein
provided, this Agreement shall terminate, and the Company and the Association
shall refund promptly to any persons who have subscribed for any of the Shares,
the full amount which it may have received from them, together with interest as
provided in the Prospectus, and no party to this Agreement shall have any
obligation to the other party hereunder, except as set forth in Sections 6, 8(a)
and 9 hereof. Appropriate arrangements for placing the funds received from
subscriptions for Shares in special interest-bearing accounts with the
Association until all Shares are sold and paid for were made prior to the
commencement of the Subscription Offering, with provision for prompt refund to
the purchasers as set forth above, or for delivery to the Company if all Shares
are sold.
If all conditions precedent to the consummation of the Conversion are
satisfied, including the sale of all Shares required by the Plan to be sold, the
Company agrees to issue or have issued such Shares and to release for delivery
certificates to subscribers thereof for such Shares on the Closing Date against
payment to the Company by any means authorized pursuant to the Prospectus, at
the principal office of the Company at 221 E. Main Street, Crawfordsville,
Indiana 47933-1800 or at such other place as shall be agreed upon between the
parties hereto. The date upon which Trident is paid the compensation due
hereunder is herein called the "Closing Date."
Trident agrees either (a) upon receipt of executed order forms of
subscribers to forward, for deposit in a segregated account, the offering price
of the Common Stock ordered on or before twelve noon on the next business day
following receipt or execution of an order form by Trident to the Association or
(b) to solicit indications of interest in which event (i) Trident will
subsequently contact any potential subscriber indicating interest to confirm the
interest and give instructions to execute and return an order form or to receive
authorization to execute the order form on the subscriber's behalf, (ii) Trident
will mail acknowledgments of receipt of orders to each subscriber confirming
interest on the business day following such confirmation, (iii) Trident will
debit accounts of such subscribers on the third business day ("debit date")
following receipt of the confirmation referred to in (i), and (iv) Trident will
forward completed order forms together with such funds to the Association on or
before twelve noon on the next business day following the debit date for deposit
in a segregated account. Trident acknowledges that if the procedure in (b) is
adopted, subscribers' funds are not required to be in their accounts until the
debit date.
In addition to the expenses specified in Section 6 hereof, Trident
shall receive the following compensation for its services hereunder:
(a) Except for shares purchased by the Association's executive
officers, directors, employees and associates and by any employee
benefit plan, for which no commission shall be paid: (i) a commission
equal to 1.45% of the aggregate dollar amount of stock sold to
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 13
eligible account holders, supplemental eligible account holders and
other members and persons in the Community Offering; and (ii) a
commission to be agreed upon by Trident and the Company for Shares sold
by other member firms of the NASD through a selected dealers
arrangement (the "Selected Dealer Offering"). All such fees are to be
payable in next-day funds to Trident on the Closing Date.
(b) Trident shall be reimbursed for allocable expenses,
including but not limited to travel, communications, legal fees and
postage, incurred by it whether or not the Offerings are successfully
completed; provided, however, that reimbursable out-of-pocket expenses
and legal fees will not exceed $28,000. This limitation on reimbursable
expenses does not apply to expenses and legal fees incurred in
connection with any "blue sky" filing requirements. Neither the Company
nor the Association shall pay or reimburse Trident for any of the
foregoing expenses accrued after Trident shall have notified the
Company or the Association of its election to terminate this Agreement
pursuant to Section 11 hereof or after such time as the Company or the
Association shall have given notice in accordance with Section 12
hereof that Trident is in breach of this Agreement. Full payment to
defray Trident's reimbursable expenses shall be made in next-day funds
on the Closing Date or, if the Conversion is not completed and is
terminated for any reason, within ten (10) business days of receipt by
the Company of a written request from Trident for reimbursement of its
expenses. Trident acknowledges receipt of $7,500 advance payment from
the Association which shall be credited against the total reimbursement
due Trident hereunder.
The Company shall pay any stock issue and transfer taxes which may be
payable with respect to the sale of the Shares. The Company and the Association
shall also pay all reasonable expenses of the Conversion incurred by them or on
their prior approval including but not limited to their attorneys' fees, NASD
filing fees, and attorneys' fees relating to any required state securities laws
research and filings, telephone charges, air freight, rental equipment,
supplies, transfer agent charges, fees relating to auditing and accounting and
costs of printing all documents necessary in connection with the Conversion.
4. Offering. Subject to the provisions of Section 7 hereof, Trident is
assisting the Company on a best efforts basis in offering a minimum of 1,700,000
and a maximum of 2,300,000 Shares, with the possibility of offering up to
2,645,000 Shares (except as the OTS may permit to be decreased or increased) in
the Subscription and Community Offerings. The Shares are to be offered to the
public at the price set forth on the cover page of the Prospectus.
5. Further Agreements. The Company and the Association jointly and
severally covenant and agree that:
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 14
(a) The Company shall deliver to Trident, from time to time,
such number of copies of the Prospectus as Trident reasonably may
request. The Company authorizes Trident to use the Prospectus in any
lawful manner in connection with the offer and sale of the Shares.
(b) The Company will notify Trident immediately upon
discovery, and confirm the notice in writing, (i) when any
post-effective amendment to the Registration Statement becomes
effective or any supplement to the Prospectus has been filed, (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 that 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 (other than those of a non-substantive nature) from the staff
of the Commission relating to the Registration Statement. If 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 so far as it is able
with all requirements imposed upon it by the Act, as now in effect and
hereafter amended, and by the SEC 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
required to be delivered in connection with the offer and sale of the
Shares any event relating to or affecting the Company and the
Association, taken as a whole, shall occur as a result of which it is
necessary, in the opinion of counsel for Trident, with the concurrence
of counsel to the Company, 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 it is delivered to a purchaser of
the Shares, the Company forthwith shall 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
satisfactory to counsel for Trident and counsel to the Company) which
shall amend or supplement the Prospectus so that, as amended or
supplemented, the Prospectus shall not contain an 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 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 to which Trident shall
reasonably object after having been furnished such copy. For the
purposes of this subsection the Company and the Association shall
furnish such information with respect to themselves as Trident from
time to time may reasonably request.
(d) The Company and the Association have taken or will take
all reasonable necessary action as may be required to qualify or
register the Shares for offer and sale by the
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 15
Company under the securities or blue sky laws of such jurisdictions as
Trident and the Company may agree upon; provided, however, that the
Company shall not be obligated to qualify as a foreign corporation to
do business under the laws of any such jurisdiction. In each
jurisdiction where such qualification or registration shall be
effected, the Company, unless Trident agrees that such action is not
necessary or advisable in connection with the distribution of the
Shares, shall file and make such statements or reports as are, or
reasonably may be, required by the laws of such jurisdiction.
(e) Appropriate entries will be made in the financial records
of the Association sufficient to establish a liquidation account for
the benefit of eligible account holders in accordance with the
requirements of the OTS.
(f) The Company will file a registration statement for the
Common Stock under Section 12(g) of the Exchange Act, prior to
completion of the stock offering pursuant to the Plan and shall request
that such registration statement be effective upon completion of the
Conversion. The Company shall maintain the effectiveness of such
registration for a minimum period of three years or for such shorter
period as may be required by applicable law.
(g) The Company will make generally available to its security
holders as soon as practicable, but not later than 90 days after the
close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 of the regulations
promulgated under the Act) covering a twelve-month period beginning not
later than the first day of the Company's fiscal quarter next following
the effective date (as defined in said Rule 158) of the Registration
Statement.
(h) For a period of three (3) years from the date of this
Agreement (unless the Common Stock shall have been deregistered under
the Exchange Act), the Company will furnish to Trident, as soon as
publicly available after the end of each fiscal year, a copy of its
annual report to shareholders for such year; and the Company will
furnish to Trident (i) as soon as publicly available, a copy of each
report or definitive proxy statement of the Company filed with the
Commission under the Exchange Act or mailed to shareholders, and (ii)
from time to time, such other public information concerning the Company
as Trident may reasonably request.
(i) The Company shall use the net proceeds from the sale of
the Shares consistently with the manner set forth in the Prospectus.
(j) The Company shall not deliver the Shares until each and
every condition set forth in Section 7 hereof has been satisfied,
unless such condition is waived by Trident.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 16
(k) The Company shall advise Trident, if necessary, as to the
allocation of deposits, in the case of eligible account holders and
votes, in the case of other members, and of the Shares in the event of
an oversubscription and shall provide Trident final instructions as to
the allocation of the Shares ("Allocation Instructions") in such event
and such information shall be accurate and reliable. Trident shall be
entitled to rely on such instructions and shall have no liability in
respect of its reliance thereon, including without limitation, no
liability for or related to any denial or grant of a subscription in
whole or in part.
(l) The Company and the Association 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."
6. Payment of Expenses. Whether or not the Conversion is consummated,
the Company and the Association shall pay or reimburse Trident for (a) all
filing fees paid or incurred by Trident in connection with all filings with the
NASD with respect to the Subscription and Community Offerings and, (b) if the
Company is unable to sell a minimum of 1,700,000 Shares or such lesser amount as
the OTS may permit or the Conversion is otherwise terminated, the Company and
the Association shall reimburse Trident for allocable expenses incurred by
Trident relating to the offering of the Shares as provided in Section 3 hereof;
provided, however, that neither the Company nor the Association shall pay or
reimburse Trident for any of the foregoing expenses accrued after Trident shall
have notified the Company or the Association of its election to terminate this
Agreement pursuant to Section 11 hereof or after such time as the Company or the
Association shall have given notice in accordance with Section 12 hereof that
Trident is in breach of this Agreement.
7. Conditions of Trident's Obligations. Except as may be waived by
Trident, the obligations of Trident as provided herein shall be subject to the
accuracy of the representations and warranties contained in Section 2 hereof as
of the date hereof and as of the Closing Date, to the performance by the Company
and the Association of their obligations hereunder and to the following
conditions:
(a) At the Closing Date, Trident shall receive the favorable
opinion of Barnes & Thornburg, special counsel for the Company and the
Association, dated the Closing Date, addressed to Trident, in form and
substance reasonably satisfactory to counsel for Trident and to the
effect that:
(i) the Company has been duly incorporated and is
validly existing as a corporation under the laws of the State
of Indiana, and the Association is validly existing as a
savings Association in mutual form under the laws of the
United States, each with full corporate power and authority to
own its properties and conduct its business as described in
the Prospectus;
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Trident Securities, Inc.
Sales Agency Agreement
Page 17
(ii) the Association is a member of the Federal Home
Loan Bank of Indianapolis, and the deposit accounts of the
Association are insured by the SAIF up to the applicable legal
limits;
(iii) to the Actual Knowledge of such counsel, the
activities of the Association as such activities are described
in the Prospectus are permitted under federal and Indiana law
to subsidiaries of an Indiana business corporation and the
activities of the Association's wholly-owned service
corporation as described in the Prospectus are permitted for a
service corporation of a federal savings association under the
HOLA;
(iv) the Plan complies with, and to such counsel's
Actual Knowledge, the Conversion has been effected in all
material respects in accordance with, the HOLA and the
regulations promulgated thereunder (except with respect to the
securities or "blue sky" laws of various states and except for
compliance with post-Closing conditions in the OTS approvals
as to which no opinion need be rendered); to such counsel's
Actual Knowledge, all of the terms, conditions, requirements
and provisions with respect to the Plan and the Conversion
imposed by the OTS, except with respect to the Conversion
Application, the Prospectus and the Proxy Statement (which are
covered by clause (xix) below) and the filing or submission of
certain required post- Conversion reports or other materials
by the Company or the Association, have been complied with by
the Company and the Association in all material respects; and,
to the Actual Knowledge of such counsel, no person has sought
to obtain regulatory or judicial review of the final action of
the OTS in approving the Plan;
(v) the Company has authorized Common Stock as set
forth in the Registration Statement and the Prospectus, and
the description of such Common Stock in the Registration
Statement and the Prospectus is accurate in all material
respects;
(vi) the issuance and sale of the Shares have been
duly and validly authorized by all necessary corporate action
on the part of the Company; the Shares, upon receipt of
payment and issuance in accordance with the terms of the Plan
and this Agreement, will be validly issued, fully paid,
nonassessable and free of preemptive rights, and purchasers of
the Shares from the Company, upon issuance thereof against
payment therefor, will acquire such Shares free and clear of
all claims, encumbrances, security interests and liens created
by the Company;
(vii) the form of certificate used to evidence the
Shares is in proper form and complies in all material respects
with applicable Indiana law;
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Trident Securities, Inc.
Sales Agency Agreement
Page 18
(viii) the issuance and sale of the capital stock of
the Association to the Company have been duly authorized by
all necessary corporate action of the Association and the
Company and have received the approval of the OTS, and such
capital stock, upon receipt of payment and issuance in
accordance with the terms of the Plan, will be validly issued,
fully paid and nonassessable and owned of record and, to the
Actual Knowledge of such counsel, beneficially by the Company;
(ix) subject to the satisfaction of the conditions to
the OTS's approval of the Conversion Application and H(e)-1s,
no further approval, authorization, consent or other order of
any federal regulatory agency or the OTS is required in
connection with the execution and delivery of this Agreement
and the consummation of the Conversion, except with respect to
the issuance to the Association of the Stock Charter by the
OTS, except as may be required under the "blue sky" laws of
various jurisdictions and except as may be required under the
rules and regulations of the NASD;
(x) to the Actual Knowledge of such counsel, the
Association has obtained all licenses, permits and other
governmental authorizations currently required for the conduct
of its business by federal laws and regulations as such
business is described in the Prospectus, all such licenses,
permits and other governmental authorizations are in full
force and effect and the Association is in all material
respects complying therewith, except where the failure to hold
such licenses, permits or governmental authorizations or the
failure to so comply would not have a material adverse effect
on the Company and the Association, taken as a whole;
(xi) to the Actual Knowledge of such counsel, there
are no material legal or governmental proceedings pending or
threatened against or involving the assets of the Company or
the Association (provided that for this purpose such counsel
need not regard any litigation or governmental procedure to be
"threatened" unless the potential litigant or government
authority has manifested to the management of the Company or
the Association, or to such counsel, a present intention to
initiate such litigation or proceeding);
(xii) to the Actual Knowledge of such counsel, the
execution and delivery of this Agreement and the consummation
of the Conversion by the Company and the Association do not
constitute a material breach of or default (or an event which,
with notice or lapse of time or both, would constitute a
default) under, nor give rise to any right of termination,
cancellation or acceleration contained in, or result in the
creation or imposition of any lien, charge or other
encumbrance upon any of the properties or assets of the
Company or the Association pursuant to any of the terms,
provisions or
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Trident Securities, Inc.
Sales Agency Agreement
Page 19
conditions of, any material agreement, contract, indenture,
bond, debenture, note, instrument or obligation to which the
Company or the Association is a party or violate any federal
governmental license or permit or any federal law,
administrative regulation or order or court order, writ,
injunction or decree (subject to the satisfaction of certain
conditions imposed by the OTS), which breach, default,
encumbrance or violation would have a material adverse effect
on the condition (financial or otherwise), operations,
business, assets or properties of the Company and the
Association, taken as a whole; and
(xiii) to the Actual Knowledge of such counsel, there
has been no material breach of any provision of the Company's
or the Association's Articles of Incorporation, charter or
bylaws or breach or default (or the occurrence of any event
which, with notice or lapse of time or both, would constitute
a default) under any agreement, contract, indenture, bond,
debenture, note, instrument or obligation to which the Company
or the Association is a party or by which any of them or any
of their respective assets or properties may be bound, or a
violation of any court order, writ, injunction or decree which
breach, default, or violation would have a material adverse
effect on the condition (financial or otherwise), operations,
business, assets or properties of the Company and the
Association, taken as a whole;
(xiv) the execution and delivery of this Agreement
and the consummation of the Conversion have been duly and
validly authorized by all necessary corporate action on the
part of each of the Company and the Association;
(xv) this Agreement is a legal, valid and binding
obligation of each of the Company and the Association,
enforceable in accordance with its terms except as the
enforceability thereof may be limited by (i) Bankruptcy,
insolvency, moratorium, reorganization, receivership,
conservatorship or other laws relating to or affecting the
enforcement of creditors' rights generally or the rights of
creditors of depository institutions whose accounts are
insured by the FDIC or Association holding companies the
accounts of whose subsidiaries are insured by the FDIC, (ii)
by general equity principles, regardless of whether such
enforceability is considered in a proceeding in equity or at
law, or (iii) laws relating to the safety and soundness of
insured depository institutions and their affiliates and
except to the extent that the provisions of Sections 8 and 9
hereof may be unenforceable as against public policy or
applicable law, including but not limited to Section 23A, (as
to which no opinion need be rendered);
(xvi) the statements in the Prospectus and
incorporated by reference in the Proxy Statement under the
captions "Regulation," "Dividends," "Restrictions on
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Trident Securities, Inc.
Sales Agency Agreement
Page 20
Acquisition of the Holding Company" and "Description of
Capital Stock," insofar as they are, or refer to, statements
of law or legal conclusions (excluding financial data included
therein, as to which an opinion need not be expressed), have
been prepared or reviewed by counsel and are correct in all
material respects;
(xvii) the Conversion Application has been approved
by the OTS, and the Prospectus and the Proxy Statement have
been authorized for use by the OTS; the Registration Statement
and any post-effective amendment thereto has been declared
effective by the Commission, and to the Actual Knowledge of
such counsel, no proceedings are pending by or before the
Commission or the OTS seeking to revoke or rescind the orders
declaring the Registration Statement effective or approving
the Conversion Application, or, to the Actual Knowledge of
such counsel, are contemplated or threatened;
(xviii) the execution and delivery of this Agreement
and the consummation of the Conversion by the Company and the
Association do not conflict with or result in a breach of the
Articles of Incorporation, charter or bylaws of the Company or
the Association (in either mutual or stock form); and
(xix) at the time the Conversion Application, the
Registration Statement, the Prospectus and the Proxy
Statement, in each case as amended, were approved or declared
effective, such documents complied as to form in all material
respects with the requirements of the Act, the HOLA and the
SEC Regulations and rules and regulations of the OTS, as the
case may be (except as to information with respect to Trident
included therein and financial statements, notes to financial
statements, financial tables and other financial and
statistical data, and stock valuation information, included
therein, as to which an opinion need not be expressed); to
such counsel's Actual Knowledge, all documents and exhibits
required to be filed with the Conversion Application and the
Registration Statement have been so filed and the descriptions
in the Conversion Application and the Registration Statement
of such documents and exhibits are accurate in all material
respects.
In rendering such opinions, such counsel may rely as to
matters of fact on certificates of officers and directors of the
Company and the Association and certificates of public officials
delivered pursuant hereto. Such counsel may assume that any agreement
is the valid and binding obligation of any parties to such agreement
other than the Company and the Association. Such opinion may be
governed by, and interpreted in accordance with, the Legal Opinion
Accord (the "Accord") of the ABA Section of Business Law (1991), and,
as a consequence, such opinion is subject to the qualifications,
exceptions, definitions, limitations on coverage and other limitations,
all as more particularly described in the Accord, and it
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Trident Securities, Inc.
Sales Agency Agreement
Page 21
should be read in conjunction therewith. In addition, the General
Qualifications set forth in the Accord apply to the opinions set forth
in such opinion, and the term "Actual Knowledge" as used therein shall
have the meaning set forth in the Accord. Such opinion may be limited
to present statutes, regulations and judicial interpretations and to
facts as they presently exist; in rendering such opinion, such counsel
need assume no obligation to revise or supplement it should the present
laws be changed by legislative or regulatory action, judicial decision
or otherwise which occur subsequent to the date of the opinion; and
such counsel need express no view, opinion or belief with respect to
whether any proposed or pending legislation, if enacted, or any
regulations or any policy statements issued by any regulatory agency,
whether or not promulgated pursuant to any such legislation, would
affect the validity of the execution and delivery by the Company and
the Association of this Agreement or the issuance of the Shares.
Further, in rendering such opinions, Barnes & Thornburg will opine
solely as to matters of Federal Securities and Banking law and Indiana
law.
(c) At the Closing Date, Trident shall receive the letter of
Barnes & Thornburg, special counsel for the Company and the
Association, dated the Closing Date, addressed to Trident, in form and
substance reasonably satisfactory to counsel for Trident and to the
effect that: based on such counsel's participation in conferences with
representatives of the Company, the Association, its counsel, the
independent appraiser, the independent certified public accountants,
Trident and its counsel, review of documents and understanding of
applicable law (including the requirements of Form S-1 and the
character of the Registration Statement contemplated thereby) and the
experience such counsel has gained in its practice under the Act,
nothing has come to such counsel's attention that would lead it to
believe that the Registration Statement, as amended or supplemented
(except as to information in respect of Trident contained therein and
except as to the financial statements, notes to financial statements,
financial tables and other financial and statistical data and stock
valuation information contained therein, as to which counsel need
express no view), at the time it became effective 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, in light of the circumstances under which they were made, not
misleading, or that the Prospectus, as amended or supplemented (except
as to information in respect of Trident contained therein and except as
to financial statements, notes to financial statements, financial
tables and other financial and statistical data and stock valuation
information contained therein as to which such counsel need express no
view), as of its date and at the Closing Date, 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 making this statement
such counsel may state that it has not undertaken to verify
independently the information in the Registration Statement or
Prospectus and, therefore, does not assume any responsibility for the
accuracy of completeness or fairness thereof).
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Trident Securities, Inc.
Sales Agency Agreement
Page 22
(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 Association 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 condition, financial or otherwise, business or results of
operations of the Company and the Association, taken as a whole, since
the latest date as of which such condition is set forth in the
Prospectus, except as referred to therein; (ii) there shall have been
no transaction entered into by the Company or the Association after the
latest date as of which the financial condition of the Company and the
Association is set forth in the Prospectus other than transactions
referred to or contemplated therein, transactions in the ordinary
course of business, and transactions which are not materially adverse
to the Company and the Association, taken as a whole; (iii) none of the
Company or the Association shall have received from the OTS or
Commission any direction (oral or written) to make any change in the
method of conducting their respective businesses which is material and
adverse to the business of the Company and the Association, taken as a
whole, with which they have not complied; (iv) except as noted in the
Prospectus, no action, suit or proceeding, at law or in equity or
before or by any federal or state commission, board or other
administrative agency, shall be pending or threatened against the
Company or the Association or affecting any of their respective assets,
wherein an unfavorable decision, ruling or finding would have a
material adverse effect on the business, operations, financial
condition or income of the Company and the Association, taken as a
whole; 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 such jurisdictions as Trident and the Company shall have agreed
upon.
(f) At the Closing Date, Trident shall receive a certificate
of the principal executive officer and the principal financial officer
of each of the Company and the Association, dated the Closing Date, to
the effect that: (i) they have examined the Prospectus and, at the time
the Prospectus became authorized by the Company for use, the Prospectus
did not contain an 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
with respect to the Company or the Association; (ii) since the date the
Prospectus became authorized by the Company for 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
specifically, but without limitation, any material change in the
business, condition (financial or otherwise) or results of operations
of the Company or the Association and, the conditions set forth in
clauses (ii) through (iv) inclusive of subsection (e) of this
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Trident Securities, Inc.
Sales Agency Agreement
Page 23
Section 7 have been satisfied; (iii) to the best knowledge of such
officers, no order has been issued by the Commission or the OTS to
suspend the Subscription Offering or the Community Offering or the
effectiveness of the Prospectus, and no action for such purposes has
been instituted or threatened by the Commission or the OTS; (iv) to the
best knowledge of such officers, no person has sought to obtain review
of the final actions of the Office approving the Plan; 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) copies of the letters from the OTS authorizing the use
of the Prospectus and the Proxy Statement; (ii) if available, a copy of
the order of the Commission declaring the Registration Statement
effective; (iii) copies of the letters from the OTS evidencing the
corporate existence of the Association; (iv) a copy of the letter from
the appropriate Indiana authority evidencing the incorporation (and, if
generally available from such authority, good standing) of the Company;
(v) a copy of the Company's Articles of Incorporation certified by the
appropriate Indiana governmental authority; (vi) a copy of the OTS
order approving the Conversion; (vii) a copy of the OTS letter
authorizing the acquisition of the Association by the Company; (viii) a
copy of the letter from the OTS approving the use of the prospectus,
proxy statement and offering materials; and (ix) such other documents
as Trident may reasonably request and which are normal and customary
documents to be provided at the Closing Date.
(h) As soon as available after the Closing Date, Trident shall
receive a certified copy of the Association's Stock Charter executed by
the OTS.
(i) Concurrently with the execution of this Agreement, Trident
acknowledges receipt of a letter from Geo. S. Olive & Co., LLC,
independent certified public accountants, addressed to Trident and the
Company, in substance and form satisfactory to counsel for Trident,
with respect to the financial statements and certain financial
information contained in the Prospectus.
(j) At the Closing Date, Trident shall receive a letter in
form and substance satisfactory to counsel for Trident from Geo. S.
Olive & Co., LLC, independent certified public accountants, dated the
Closing Date and addressed to Trident and the Company, confirming the
statements made by them in the letter delivered by them pursuant to the
preceding subsection as of a specified date not more than three (3)
business days prior to the Closing Date.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are, in the reasonable
opinion of Trident and its counsel, satisfactory
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Trident Securities, Inc.
Sales Agency Agreement
Page 24
to Trident and its counsel. Any certificates signed by an officer or director of
the Company or the Association prepared for Trident's reliance and delivered to
Trident or to counsel for Trident shall be deemed a representation and warranty
by the Company or the Association 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 as aforesaid, the Company and the Association shall reimburse
Trident for its expenses as provided in Section 3(b) hereof.
8. Indemnification.
(a) The Company and the Association jointly and severally
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,
against any and all loss, liability, claim, damage and expense
whatsoever and shall further promptly reimburse such persons upon
written demand for any legal or other expenses reasonably incurred by
each or any of them in investigating, preparing to defend or defending
against any such action, proceeding or claim (whether commenced or
threatened) arising out of or based upon (A) any misrepresentation by
the Company or the Association in this Agreement or any breach of
warranty by the Company or the Association with respect to this
Agreement or 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 or other document or communication
(in this Section 8 collectively called "Application") prepared or
executed by or on behalf of the Company or the Association or based
upon (B) written information furnished by or on behalf of the Company
or the Association, whether or not filed in any jurisdiction, to effect
the Conversion or qualify the Shares under the securities laws thereof
or filed with the OTS or Commission, unless such statement or omission
was made in reliance upon and in conformity with written information
furnished to the Company or the Association 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, as the case may
be.
(b) The Company shall indemnify and hold Trident harmless for
any liability whatsoever arising out of (i) the Allocation Instructions
or (ii) any records of account holders, depositors, and other members
of the Association delivered to Trident by the Association or its
agents for use during the Conversion.
(c) Trident agrees to indemnify and hold harmless the Company
and the Association, their officers, directors and employees and each
person, if any, who controls the
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Trident Securities, Inc.
Sales Agency Agreement
Page 25
Company or the Association 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 Association to Trident,
but only with respect to (A) statements or omissions, if any, made in
the Prospectus or any amendment or supplement thereof, in any
Application or to a purchaser of the Shares in reliance upon, and in
conformity with, written information furnished to the Company or the
Association with respect to Trident by or on behalf of Trident
expressly for use in the Prospectus or in any Application; (B) any
misrepresentation or breach of warranty by Trident in Section 2(b) of
this Agreement; or (C) any liability of the Company or the Association
which is found in a final judgment by a court of competent jurisdiction
(not subject to further appeal) to have principally and directly
resulted from gross negligence or willful misconduct of Trident.
(d) Promptly after receipt by an indemnified party under this
Section 8 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 8, notify the indemnifying party
of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under this Section 8. In
case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, jointly with the 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 its election so to
assume the defense thereof, the indemnifying party will not be liable
to such indemnified party under this Section 8 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 8 if any
settlement of any such action is effected without such indemnifying
party's consent. To the extent required by law, this Section 8 is
subject to and limited by the provisions of Section 23A.
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Trident Securities, Inc.
Sales Agency Agreement
Page 26
9. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 8 above is for any reason held to be unavailable to Trident, the Company
and/or the Association other than in accordance with its terms, the Company or
the Association and Trident shall contribute to the aggregate losses,
liabilities, claims, damages, and expenses of the nature contemplated by said
indemnity agreement incurred by the Company or the Association and Trident (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Association 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 or the Association on the one hand and
Trident on the other hand 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 the Association on the one hand and Trident on the other shall
be deemed to be in the same proportions as the total net proceeds from the
Conversion received by the Company and the Association bear to the total fees
received by Trident under this Agreement. The relative fault of the Company or
the Association 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 or the Association or by Trident
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Association and Trident agree that it would not be
just and equitable if contribution pursuant to this Section 9 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 the indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, Trident shall not be required
to contribute any amount in excess of the amount by which fees owed Trident
pursuant to this Agreement exceeds 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. To the extent required by law, this Section 9 is subject to
and limited by the provisions of Section 23A.
10. Survival of Agreements, Representations and Indemnities. The
respective indemnities of the Company and the Association and Trident and the
representation and warranties of the Company and the Association and of Trident
set forth in or made pursuant to this Agreement shall
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Trident Securities, Inc.
Sales Agency Agreement
Page 27
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 Association or any controlling person or indemnified party
referred to in Section 8 hereof, and shall survive any termination or
consummation of this Agreement and/or the issuance of the Shares, and any legal
representative of Trident, the Company, the Association and any such controlling
persons shall be entitled to the benefit of the respective agreements,
indemnities, warranties and representations.
11. Termination. Trident may terminate this Agreement by giving the
notice indicated below in this Section 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 it, in Trident's reasonable opinion,
impracticable to proceed with the offering of the Shares; or if trading
on the New York Stock Exchange ("NYSE") shall have suspended (except
that this shall not apply to the imposition of NYSE trading collars
imposed on program trading); 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 which has
a material effect on the Association or the Conversion; or if a
moratorium in foreign exchange trading by major international
Associations 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 if the Association shall have sustained a material
or substantial loss by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act, whether or not said
loss shall have been insured; or if there shall have been a material
adverse change in the condition or prospects of the Company or the
Association.
(b) If Trident elects to terminate this Agreement as provided
in this Section, the Company and the Association 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) above, the Company and the
Association shall, upon demand, pay Trident the full amount owing
pursuant to Sections 3(b), 6, 8(a) and 9 of this Agreement.
(d) The Association may terminate the Conversion in accordance
with the terms of the Plan. Such termination shall be without liability
to any party, except that the Company and the Association shall be
required to fulfill their obligations pursuant to Sections 3(b), 6,
8(a) and 9 of this Agreement and Trident shall be required to fulfill
its obligations, if any, pursuant to Section 9 of this Agreement.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 28
12. 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: Mr. R. Lee
Burrows, Jr. (with a copy to Luse Lehman Gorman Pomerenk & Schick, P.C. Suite
400, 5335 Wisconsin Avenue, N.W., Washington, D.C., 20015, Attention: Alan
Schick, Esquire). and if sent to the Company or the Association, shall be
mailed, delivered or telegraphed and confirmed to Union Federal Savings and Loan
Association, 221 E. Main Street, Crawfordsville, Indiana 47933-1808, Attention:
Joseph E. Timmons, President (with a copy to Barnes & Thornburg, 1313 Merchants
Bank Building, 11 South Meridian Street, Indianapolis, Indiana 46204, Attention:
Claudia V. Swhier, Esquire).
13. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, Trident, the Company, the Association and the controlling
and other persons referred to in Section 8 hereof, 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.
14. Construction. Unless governed by preemptive federal law, this
Agreement shall be governed by and construed in accordance with the substantive
laws of Indiana.
15. 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.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 29
Please acknowledge your agreement to the foregoing by signing below and
returning to the Company one copy of this letter.
UNION COMMUNITY BANCORP UNION FEDERAL SAVINGS AND LOAN
ASSOCIATION
By: By:
Joseph E. Timmons Joseph E. Timmons
President and Chief Executive Officer President and Chief
Executive Officer
Date: _________, 1997 Date: __________, 1997
Agreed to and accepted:
TRIDENT SECURITIES, INC.
By:
Date: __________, 1997
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION
PLAN OF CONVERSION
From Mutual to Stock Form of Organization
I. GENERAL
On June 2, 1997, the Board of Directors of Union Federal Savings and Loan
Association (the "Association") adopted a Plan of Conversion whereby the
Association will convert from a federal mutual savings and loan association to a
federal stock savings and loan association and, upon conversion, will become a
wholly-owned subsidiary of a Holding Company to be formed by the Association,
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 Association'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
Association. 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
Association and the Holding Company and will reflect the Association'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 Association 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 Association to
attract new capital to the Association 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 Association 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 Association 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 Association with greater organizational flexibility to respond to
the increasingly competitive environment in which it operates. No change will be
made in the Board of Directors or management of the Association as a result of
the Conversion. The Board of Directors and management of the Holding Company
will be selected from members of the Board and management of the Association.
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
Association or a majority-owned subsidiary of the Association or the Holding
Company) of which such Person is a director, officer or partner or is, directly
or indirectly, the beneficial owner of 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 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 Association or any of its
parents or subsidiaries.
Association: Union Federal Savings and Loan Association, whose principal
office is located in Crawfordsville, Indiana, a federal mutual savings and loan
association and including the Converted Association, as the context requires.
Capital Stock: Shares of common stock, par value $.01 per share, to be
issued by the Converted Association to the Holding Company in the Conversion.
Conversion: Change of the Association's articles and bylaws from a federal
mutual savings and loan association charter and bylaws to a federal savings and
loan association charter and bylaws authorizing issuance of shares of common
stock by the Association pursuant to and otherwise conforming to the
requirements of a federal stock savings and loan association. 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
Association 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 Association: The federally chartered stock savings and loan
association resulting from the Conversion of the Association 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 Association.
Direct Community Offering: The offering for sale to the general public,
with preference given to Montgomery 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 Association
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 Association.
Internal Revenue Code: The Internal Revenue Code of 1986, as amended.
Local Eligible Account Holders: Eligible Account Holders who reside in
Montgomery County.
Local Other Members: Other Members who reside in Montgomery County.
Local Supplemental Eligible Account Holders: Supplemental Eligible Account
Holders who reside in Montgomery 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 Association
pursuant to its mutual charter and bylaws.
Montgomery County: Montgomery County, Indiana.
Non-Local Eligible Account Holders: Eligible Account Holders who reside
outside of Montgomery County.
Non-Local Other Members: Other Members who reside outside of Montgomery
County.
Non-Local Supplemental Account Holders: Supplemental Eligible Account
Holders who reside outside of Montgomery County.
Non-Tax-Qualified Employee Stock Benefit Plan: Any defined benefit plan or
defined contribution plan maintained by the Association 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 Association, 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 Association, 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 Association 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
Association.
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 Association 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.
III. PROCEDURE FOR CONVERSION
A. The Board of Directors of the Association shall adopt the Plan by not
less than a two-thirds vote.
B. The Association shall notify its Members of the adoption of the Plan by
publishing a statement in a newspaper having a general circulation in the
community in which the Association maintains its 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 the office of the Association.
D. The Association 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 Association shall publish a "Notice of
Filing of an Application for Conversion to Convert to a Stock Savings and Loan
Association" in a newspaper of general circulation, as referred to in Paragraph
III.C. above. The Association also shall prominently display a copy of such
notice in its office.
E. The Association 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 Association 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 Association, 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 Association 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 Association to a stock savings and loan
association 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
Association or to the Association'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 Association 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 Association determines that there exist unforeseen material
adverse market or financial conditions. The Association 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 Association. 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
after termination of the Subscription Offering, subject to the extension of such
45 day period by the Association and the Holding Company. The Association 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 Association 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 Association 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 Association.
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 Association's mutual bylaws. The Association 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 Association 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
Association may also use a summary form of proxy statement, in which case the
Association 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 Association 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 Association'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 Association'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 Association 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
historical and pro forma operating results and net worth of the Converted
Association and the Holding Company and a comparison of the Converted
Association 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 Association 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 Association 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 Association 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 Association 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
Association 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 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 Association 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 Association and their Associates, based on their increased
deposits in the Association 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 Association 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 Association 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
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 Association 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 Association 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 Association 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 Montgomery 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 Association 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 Association 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 Association 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
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 Association 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 Association 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 34% 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 Association 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
Association 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
Association 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 Association 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 Conversion Stock to be sold in the Conversion, is increased after
commencement of the Subscription Offering, the Holding Company and the
Association 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 Association, 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 Association 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 Association 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 Association or the Holding Company will be
transferable without restriction. Shares purchased by directors or Officers
of the Association 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 Association or
the Holding Company or result in the ownership by any person of more than
10% of any class of the Association'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 Association and of the Holding Company as may be then
applicable to such restricted stock.
No director or Officer of the Association 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
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 Association 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
Association 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 Association'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
savings and loan associations 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 Association 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 Association or the
Holding Company. Exclusive voting rights with respect to the Converted
Association will be held and exercised by the Holding Company as holder of
the Association'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 Association 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 Association.
However, the Association may furnish a prospectus and Order Form only to
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members who have returned to the Association 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 Association 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 Association 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 Association 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 Association and the shares of Conversion Stock being offered
for subscription and containing all other information required under the
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 Association 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 Association and the Holding
Company, and that the Subscription Rights may be exercised only by
delivering the Order Form, properly completed and executed, to the
Association 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 Association or the Holding
Company or their representative, a subscription may not be modified,
withdrawn or canceled without the consent of the Association 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 Association (including a certificate of deposit), the
subscriber may authorize the Association 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
Association 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 Association 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 Association will allow subscribers to
purchase shares by 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 Association 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
Association 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 Association.
H. Undelivered, Defective or Late Order Forms; Insufficient Payment
The Boards of Directors of the Association 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 Association 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 Association are
insufficient to cover the authorized withdrawal for the required payment); (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;
or (vi) are transmitted by facsimile or accompanied by payments made by wire
transfer. 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 Association 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 Association or the Holding Company may
specify. The Association 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 Association 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 Association 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 Association 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
Association 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 Association 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 and loan association. By their approval
of the Plan, the Members of the Association will thereby approve and adopt such
federal stock charter.
B. The Association will also take appropriate steps to amend its bylaws to
read in the form prescribed by the OTS for a federal stock savings and loan
association.
C. The effective date of the adoption of the Converted Association'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 Association, the Board of Directors of the Holding
Company or of the Association 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 Association 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 Association 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 Association, 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 not
survive the 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 Association a priority in the event of a complete liquidation of the
Converted Association, the Converted Association will, at the time of
Conversion, establish a liquidation account in an amount equal to the net worth
of the Association 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 Association; 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 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 Association (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 Association 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 Association shall not be required to recompute the
liquidation account and subaccount balances provided the Converted Association
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.
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 Association 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 Association 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 Association 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 Association and the Holding Company is required in order for
the Association 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 Association shall use their best efforts to
assure that expenses incurred by the Association and the Holding Company in
connection with the Conversion shall be reasonable.
XV. EXTENSION OF CREDIT FOR PURCHASE OF STOCK
Neither the Association 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 Association 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.
ARTICLES OF INCORPORATION
OF
UNION COMMUNITY BANCORP
ARTICLE 1
Name
The name of the Corporation is Union Community 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:
221 East Main Street
Crawfordsville, Indiana 47933
and the name and business office address of its registered agent in charge
of such office are:
Joseph E. Timmons
221 East Main Street
P.O. Box 151
Crawfordsville, Indiana 47933
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.
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.
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 seven (7). 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 December 31, 1998, the term of office of the second class to expire at the
Annual Meeting of Shareholders held following the fiscal year ended December 31,
1999, and the term of office of the third class to expire at the Annual Meeting
of Shareholders held following the fiscal year ended December 31, 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.
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.
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
Philip L. Boots 221 East Main Street
P.O. Box 151
Crawfordsville, Indiana 47933
Marvin L. Burkett 221 East Main Street
P.O. Box 151
Crawfordsville, Indiana 47933
Phillip E. Grush 221 East Main Street
P.O. Box 151
Crawfordsville, Indiana 47933
Samuel H. Hildebrand 221 East Main Street
P.O. Box 151
Crawfordsville, Indiana 47933
John M. Horner 221 East Main Street
P.O. Box 151
Crawfordsville, Indiana 47933
Harry A. Siamas 221 East Main Street
P.O. Box 151
Crawfordsville, Indiana 47933
Joseph E. Timmons 221 East Main Street
P.O. Box 151
Crawfordsville, Indiana 47933
ARTICLE 9
Incorporator
The name and post office address of the Incorporator of the Corporation are
as follows:
Claudia V. Swhier, Esq.
Barnes & Thornburg
11 South Meridian Street
Indianapolis, Indiana 46204
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.
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
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 September
11, 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.
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:
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.
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.
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 September 11, 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 September 11, 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
September 11, 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.
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.
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.
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.
<PAGE>
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.
CODE OF BY-LAWS
OF
UNION COMMUNITY BANCORP
ARTICLE I
Offices
Section 1. Principal Office. The principal office (the "Principal Office")
of Union Community Bancorp (the "Corporation") shall be at 221 East Main Street,
Crawfordsville, Indiana 47933, 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
"Union Community 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 third Wednesday in
April (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.
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.
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
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 seven. Directors (a)
must have their primary domicile in Montgomery County, Indiana, and (b) must
have a loan or deposit relationship with Union Federal Savings and Loan
Association which they have maintained for at least a continuous period of
twelve (12) months immediately prior to their nomination to the Board (or in
case of directors of the Corporation on August ___ 1997, prior to the filing of
the Corporation's Articles). 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 Montgomery 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
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 may, 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.
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.
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.
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.
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
January 1 of each year and end on December 31 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.
EXHIBIT 4
STOCK CERTIFICATE
Organized Under Indiana Law
UNION COMMUNITY 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
UNION COMMUNITY 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:
- ------------------------------- -------------------------------------
Denise E. Swearingen, Secretary Joseph E. Timmons,
President and Chief Executive Officer
-1-
<PAGE>
[STATEMENT FOR BACK OF CERTIFICATE]
UNION COMMUNITY 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
-2-
EXHIBIT 5
September 16, 1997
Board of Directors
Union Community Bancorp
221 E. Main Street
Crawfordsville, Indiana 47933
Gentlemen:
You have requested our opinion in connection with the Form S-1
Registration Statement (the "Registration Statement") to be filed by Union
Community Bancorp, an Indiana corporation (the "Corporation"), with respect to
the offer and sale by the Corporation of up to 2,645,000 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 and Tax Matters" 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
Union Federal Savings and Loan Association
September 16, 1997
Page 1
EXHIBIT 8(1)
September 16, 1997
Board of Directors
Union Federal Savings and Loan Association
221 East Main Street
Crawfordsville, Indiana 47933
Re: Federal Income Tax Opinion Relating to Conversion of Union
Federal Savings and Loan Association ("Union") 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 Union from a federally-chartered mutual savings
and loan association to a federally-chartered stock savings and loan
association.
Union is a federally-chartered mutual savings and loan association. As
a mutual savings and loan association, Union has no authorized capital stock.
Instead, Union, in mutual form, has a unique equity structure. A depositor of
Union is entitled to interest on his account balance as declared and paid by
Union. A depositor has no right to a distribution of any earnings of Union, but
rather these amounts become retained earnings of Union. 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 Union
is ever liquidated. Voting rights in Union are held by its members, i.e.,
depositors and certain borrowers. Each depositor is entitled to cast one vote
for each $100 or a fraction thereof deposited in a deposit account. Each
eligible borrower member may cast one vote for each loan held. No member may
cast more than 1,000 votes. All of the interests held by a depositor in Union
cease when such depositor closes his accounts with Union.
The Board of Directors of Union has decided that in order to stimulate
the growth and expansion of Union through the raising of additional capital, it
would be advantageous for Union to convert from a federally-chartered mutual
savings and loan association to a federally-chartered stock savings and loan
association and to form an Indiana corporation ("Holding Company") to own all of
Union's issued and outstanding capital stock. It is proposed pursuant to a plan
of Conversion (the "Plan") that Union's charter to operate as a mutual savings
and loan association be amended and a
<PAGE>
Board of Directors
Union Federal Savings and Loan Association
September 16, 1997
Page 2
new charter be acquired to allow it to continue its operations in the form of a
stock savings and loan association ("Converted Association"). Under the Plan,
Union 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 Union and
certain members of the public through a subscription and community offering, if
necessary. The Plan must be approved by the Office of Thrift Supervision ("OTS")
and by an affirmative vote of at least a majority of the total votes eligible to
be cast at a meeting of Union's 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 Union 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. Union 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 Union's 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 Union at the close of business on December 31, 1995, provided such
aggregate balance is not less than $50.00. Once a Union 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 20,000 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 Union and their Associates
based on their increased deposits in Union in the
<PAGE>
Board of Directors
Union Federal Savings and Loan Association
September 16, 1997
Page 3
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.
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; provided that in no event will it subscribe for more
than 160,000 shares of Common Stock.
The third category of preference is reserved for Union's supplemental
eligible account holders. These are persons holding savings and deposit accounts
at Union at the close of business on September 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 September 30,
1997, subject to a 20,000 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 Union 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
<PAGE>
Board of Directors
Union Federal Savings and Loan Association
September 16, 1997
Page 4
purchase up to 10,000 shares of Common Stock per deposit account held or loan
owed to Union as of the record date for the special meeting of members at which
the Plan will be submitted for approval, subject to a 20,000 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.
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 Montgomery County. The
maximum number of shares which may be purchased in this 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 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 20,000
shares.
Union's 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 Union and their Associates may not purchase in the aggregate
more than 34% of the shares offered pursuant to the Plan. Directors of Union
will not be deemed Associates or a group acting in concert solely as a result of
their membership on the Board of Directors of Union. 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 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 Union.
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
<PAGE>
Board of Directors
Union Federal Savings and Loan Association
September 16, 1997
Page 5
rights or the offer or sale of the Common Stock to such persons would require
Union 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 Union. The liquidation account will be equal in amount to the net worth of
Union near the time of conversion. The establishment of the liquidation account
will not operate to restrict the use or application of any of the net worth
accounts of Converted Association, except that Converted Association 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 Union's eligible
account holders and supplemental eligible account holders who maintain accounts
in Union 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 Association, 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
Union. 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.
<PAGE>
Board of Directors
Union Federal Savings and Loan Association
September 16, 1997
Page 6
Following the Conversion, voting rights with respect to Converted
Association 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 Union, and its business will continue as usual by
Converted Association. 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 Union will remain unchanged and retain
their same characteristics in Converted Association after the conversion. The
Converted Association will continue the membership of Union in the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation (the
"FDIC") and the Federal Home Loan Bank System, and will remain subject to the
regulatory authority of the OTS and the FDIC.
It is anticipated that on a date which is at least six months following
the Conversion, Holding Company and/or the Association 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 Association 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 Union to the effect that:
a. Converted Association 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 Association will possess the same assets and
liabilities as Union held immediately prior to the proposed
transaction, plus all but 50% of the net proceeds from the
sale of Common Stock.
c. Converted Association has no plan or intention to sell or
otherwise dispose of any of the assets of Union acquired in
the Conversion, except for dispositions in the ordinary course
of business.
<PAGE>
Board of Directors
Union Federal Savings and Loan Association
September 16, 1997
Page 7
d. Following the Conversion, Converted Association will continue
to engage in the same business in substantially the same
manner as engaged in by Union 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 September 30, 1997,
equaled or exceeded or will equal or exceed 99% of the
aggregate fair market value of all savings accounts in Union
(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 Association.
h. Union 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 Union 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, Union will have a positive net worth.
j. Union has received or will receive an opinion from RP
Financial, LLC, 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 "RP 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.
<PAGE>
Board of Directors
Union Federal Savings and Loan Association
September 16, 1997
Page 8
k. Holding Company has no plan or intention to sell or otherwise
dispose of the capital stock of Converted Association received
by it in the proposed transaction, and there is no plan or
intention for Converted Association to be liquidated or merged
with another corporation following the transaction.
l. The fair market value of the withdrawable deposit accounts in
Converted Association (plus the related interest in the
Converted Association liquidation account) to be
constructively received under the Plan by the eligible account
holders and supplemental eligible account holders of Union
will, in each instance, be approximately equal to the fair
market value of Union's deposit accounts (plus the related
interest in the Union liquidation account) surrendered in
constructive exchange by them. All proprietary rights in Union
form an integral part of the withdrawable savings accounts
being surrendered in the exchange.
m. Union utilizes a reserve for bad debts in accordance with
Section 593 of the Code, and following the Conversion,
Converted Association shall likewise continue to utilize a
reserve for bad debts in accordance with Section 593 of the
Code.
n. Holding Company, Union and Converted Association are
corporations within the meaning of Section 7701(a)(3) of the
Code. Union and Converted Association are domestic building
and loan associations within the meaning of Section
7701(a)(19)(C) of the Code.
o. Union deposit account holders and Other Members will pay
expenses of the Conversion solely attributable to them, if
any. Union 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
Union will own all of the outstanding interests in the
Converted Association liquidation account and will own such
interests solely by reason of their ownership of deposits at
Union (including the attendant rights to liquidation proceeds)
immediately before the Conversion.
q. Assets of Union 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
<PAGE>
Board of Directors
Union Federal Savings and Loan Association
September 16, 1997
Page 9
than 1% of the net assets of Union. 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, Union 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 Association.
s. No account holder of Union who is eligible to receive an
interest in the Converted Association liquidation account will
be excluded from participation in the Converted Association
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
Association 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 Union 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 Association 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 Union that was issued or acquired, or will
be settled, at a discount.
x. Holding Company is not an investment company as described in
Section 351(e) of the Code.
y. The principal amount, interest rate and maturity date of each
deposit account in Converted Association received by a Union
eligible account holder or supplemental
<PAGE>
Board of Directors
Union Federal Savings and Loan Association
September 16, 1997
Page 10
eligible account holder are identical to those of the
corresponding Union deposit account that was held by the
account holder immediately prior to the Conversion.
OPINION OF COUNSEL
Based solely upon the foregoing information, including the RP 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 Union from a federally-chartered
mutual savings and loan association to a federally-chartered
stock savings and loan association, 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 Union or to Converted Association as a
result of such Conversion (see Rev. Rul. 80-105, 1980-1 C.B.
78). Union and Converted Association 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 Association on
the receipt of money and other property, if any, from Holding
Company in exchange for shares of Converted Association'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 Union will have the same basis in the hands of
Converted Association as in the hands of Union immediately
prior to the Conversion (Section 362(b) of the Code).
(5) The holding period of the assets of Union to be received by
Converted Association will include the period during which the
assets were held by Union 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
Association, non-transferable subscription rights to purchase
Common Stock, and/or interests in the liquidation account of
Converted Association. Any gain resulting therefrom will be
recognized,
<PAGE>
Board of Directors
Union Federal Savings and Loan Association
September 16, 1997
Page 11
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, 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 RP 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 RP Financial Opinion and
our reliance thereon, we give the following opinions: (a) no
taxable income will be recognized by the Other Members of
Union 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 or borrowers of Union 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 Association, Union or Holding Company on the
issuance or distribution of subscription rights to depositors
and borrowers of Union 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 Association
will be the same as the basis of such depositor's deposits in
Union. 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
Association 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 Association received in
exchange for the proprietary interest in Union, 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.
<PAGE>
Board of Directors
Union Federal Savings and Loan Association
September 16, 1997
Page 12
(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 Community
Offering will 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 Union before the Conversion
and the part of the taxable year of Converted Association
after the Conversion will constitute a single taxable year of
Converted Association. (See Rev. Rul. 57-276, 1957-1 C.B.
126). Consequently, Union 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 Association will succeed to and take into account
the earnings and profits or deficit in earnings and profits of
Union 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 Association
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 Association
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 Association will succeed to and take into account,
immediately after the Conversion, those accounts of Union
which represent bad debt reserves in respect of which Union
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
Union or Converted Association solely as a result of the
taxable year of the Conversion, and such bad debt reserves
will have the same character in the hands of the Converted
Association as they would have had in the hands of Union 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
<PAGE>
Board of Directors
Union Federal Savings and Loan Association
September 16, 1997
Page 13
opinion is being expressed as to whether the bad debt reserves
will be required to be restored to the gross income of either
Union or Converted Association for the taxable year of the
transfer as a result of the requirements of Section 593(g) of
the Code.
(14) Inasmuch as the Conversion constitutes a tax-free
reorganization for federal income tax purposes, Union 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. Union 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 Association 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 Association 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 Union on behalf of Union 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 Union 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)
RP Financial, LC.
Financial Services Industry Consultants
September 15, 1997
Board of Directors
Union federal Savings and Loan Association
221 E. Main Street
Crawfordsville, Indiana 47933
Re: Plan of Conversion: Subscription Rights
Union Federal Savings and Loan Association
Gentlemen:
All capitalized items not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion adopted by the Board of
Directors of Union Federal Savings and Loan Association ("Union Federal" or the
"Association") whereby the Association will convert from a federally chartered
mutual savings and loan association to a federally chartered stock savings and
loan association and issue all of the Association's outstanding capital stock to
Union Community Bancorp (the "Holding Company"). Simultaneously, the Holding
Company will issue shares of common stock.
We understand that in accordance with the Plan of Conversion,
Subscription Rights to purchase shares of Common Stock in the Holding Company
are to be issued to: (1) Eligible Account Holders; (2) the ESOP; (3)
Supplemental Eligible Account Holders; and (4) Other Members. Based solely upon
our observation that the Subscription Rights will be available to such parties
without cost, will be legally non-transferable and of short duration, and will
afford such parties the right only to purchase shares of Common Stock at the
same price as will be paid by members of the general public in the Community
Offering, but without undertaking any independent investigation of state or
federal law or the position of the Internal Revenue Service with respect to this
issue, we are of the belief that, pursuant to our valuation of the Subscription
Rights:
(1) the Subscription Rights will have no ascertainable market
value; and,
(2) the price at which the Subscription Rights are exercisable
will not be more or less than the pro forma market value of
the shares upon issuance.
Changes in the local and national economy, the legislative and
regulatory environment, the stock market, interest rates, and other external
forces (such as natural disasters or significant world events) may occur from
time to time, often with great unpredictability and may materially impact the
value of thrift stocks as a whole or the Holding Company's value alone.
Accordingly, no assurance can be given that persons who subscribe to shares of
common stock in the conversion will thereafter be able to buy or sell such
shares at the same price paid in the Subscription Offering.
Very truly yours,
RP FINANCIAL, LC.
By: /s/ Gregory E. Dunn
-------------------
Gregory E. Dunn
Senior Vice President
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
Exhibit 10(1)
RP Financial, LC.
Financial Services Industry Consultants
June 27, 1997
Mr. J.E. Timmons
President and Chief Executive Officer
Union Federal Savings and Loan Association
221 East Main Street
Crawfordsville, Indiana 47993-1800
Dear Mr. Timmons:
This letter sets forth the agreement between Union Federal Savings and
Loan Association, Crawfordsville, Indiana ("Union Federal" or the
'Association"), and RP Financial, LC. ("RP Financial") for certain conversion
appraisal services pertaining to the Association's mutual-to-stock conversion
and simultaneous holding company formation. The specific appraisal services to
be rendered by RP Financial are described below. These appraisal services will
be rendered by a team of one to two senior consultants on staff and will be
directed by the undersigned.
Description of Conversion Appraisal Services
Prior to preparing the valuation report, RP Financial will conduct a
financial due diligence, including on-site interviews of senior management and
reviews of financial and other documents and records, to gain insight into the
Association's operations, financial condition, profitability, market area, risks
and various internal and external factors which impact the pro forma value of
the Association. RP Financial will prepare a written detailed valuation report
of Union Federal which will be fully consistent with applicable regulatory
guidelines and standard pro forma valuation practices. The appraisal report will
include an in-depth analysis of the Association's financial condition and
operating results, as well as an assessment of the Association's interest rate
risk, credit risk and liquidity risk. The appraisal report will describe the
Association's business strategies, market area, prospects for the future and the
intended use of proceeds both in the short term and over the longer term. A peer
group analysis relative to publicly-traded savings institutions will be
conducted for the purpose of determining appropriate valuation adjustments
relative to the group. We will review pertinent sections of the prospectus to
obtain necessary data and information for the appraisal, including the impact of
key deal elements on the appraised value, such as dividend policy, use of
proceeds and reinvestment rate, tax rate, conversion expenses and
characteristics of stock plans. The appraisal report will establish a midpoint
pro forma value as well as the range of value. The appraisal report may be
periodically updated throughout the conversion process and there will be at
least one updated valuation prepared at the time of the closing of the stock
offering.
RP Financial agrees to deliver the valuation report and subsequent
updates, in writing, to Union Federal at the above address in conjunction with
the filing of the regulatory application. Subsequent updates will be riled
promptly as certain events occur which would warrant the preparation and filing
of such valuation updates. Further, RP Financial agrees to perform such other
services as are necessary or required in connection with the regulatory review
of the appraisal and respond to the regulatory comments, if any, regarding the
valuation appraisal and subsequent updates.
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
<PAGE>
RP Financial, LC.
Mr. J.E. Timmons
June 27, 1997
Page 2
Fee Structure and Payment Schedule
Union Federal agrees to pay RP Financial a fixed fee of $17,500 for
these services, plus reimbursable expenses. Payment of these fees shall be made
according to the following schedule:
o $5,000 upon execution of the letter of agreement engaging RP
Financial's appraisal services;
o $10,000 upon delivery of the completed original appraisal
report; and
o $2,500 upon completion of the conversion to cover all
subsequent valuation updates that may be required.
The Association will reimburse RP Financial for out-of-pocket expenses
incurred in preparation of the valuation. Such out-of-pocket expenses will
likely include travel, printing, telephone, facsimile, shipping, computer and
data services. RP Financial will agree to limit reimbursable expenses to a
reasonable cap, subject to written authorization from the Association to exceed
such level.
In the event Union Federal shall, for any reason, discontinue the
proposed conversion prior to delivery of the completed documents set forth above
and payment of the respective progress payment fees, Union Federal agrees to
compensate RP Financial according to RP Financial's standard billing rates for
consulting services based on accumulated and verifiable time expenses, not to
exceed the respective fee caps noted above, after giving full credit to the
initial retainer fee. RP Financial's standard billing rates range from $75 per
hour for research associates to $250 per hour for managing directors.
If during the course of the proposed transaction, unforeseen events
occur so as to materially change the nature or the work content of the services
described in this contract, the terms of said contract shall be subject to
renegotiation by Union Federal and RP Financial. Such unforeseen events shall
include, but not be limited to, major changes in the conversion regulations,
appraisal guidelines or processing procedures as they relate to conversion
appraisals, major changes in management or procedures, operating policies or
philosophies, and excessive delays or suspension of processing of conversion
applications by the regulators such that completion of the conversion
transaction requires the preparation by RP Financial of a new appraisal or
financial projections.
Representations and Warranties
Union Federal and RP Financial agree to the following:
1. The Association agrees to make available or to supply to RP
Financial such information with respect to its business and financial condition
as RP Financial may reasonably request in order to provide the aforesaid
valuation. Such information heretofore or hereafter supplied or made available
to RP Financial shall include: annual financial statements, periodic regulatory
filings and material agreements, debt instruments, off balance sheet assets or
liabilities, commitments and contingencies, unrealized gains or losses and
corporate books and records. All information provided by the Association to RP
Financial shall remain strictly confidential (unless such information is
otherwise made available to the public), and if conversion is not consummated or
the services of RP Financial are terminated hereunder, RP Financial shall upon
request promptly return to the Association the original and any copies of such
information.
2. The Association hereby represents and warrants to RP Financial that
any information provided to RP Financial does not and will not, to the best of
the Association's knowledge, at the times it is provided to RP Financial,
<PAGE>
RP Financial, LC.
Mr. J.E. Timmons
June 27, 1997
Page 3
contain any untrue statement of a material fact or fail to state a material fact
necessary to make the statements therein not false or misleading in light of the
circumstances under which they were made.
3. (a) The Association agrees that it will indemnify and hold harmless
RP Financial, any affiliates of RP Financial, the respective directors,
officers, agents and employees of RP Financial or their successors and assigns
who act for or on behalf of RP Financial in connection with the services called
for under this agreement (hereinafter referred to as "RP Financial"), from and
against any and all losses, claims, damages and liabilities (including, but not
limited to, all losses and expenses in connection with claims under the federal
securities laws) attributable to (i) any untrue statement or alleged untrue
statement of a material fact contained in the financial statements or other
information furnished or otherwise provided by the Association to RP Financial,
either orally or in writing; (ii) the omission or alleged omission of a material
fact from the financial statements or other information furnished or otherwise
made available by the Association to RP Financial; or (iii) any action or
omission to act by the Association, or the Association's respective officers,
directors, employees or agents which action or omission is willful or negligent.
The Association will be under no obligation to indemnify RP Financial hereunder
if a court determines that RP Financial was negligent or acted in bad faith with
respect to any actions or omissions of RP Financial related to a matter for
which indemnification is sought hereunder. Any time devoted by employees of RP
Financial to situations for which indemnification is provided hereunder, shall
be an indemnifiable cost payable by the Association at the normal hourly
professional rate chargeable by such employee.
(b) RP Financial shall give written notice to the Association of such
claim or facts within thirty days of the assertion of any claim or discovery of
material facts upon which the RP Financial intends to base a claim for
indemnification hereunder. In the event the Association elects, within seven
days of the receipt of the original notice thereof, to contest such claim by
written notice to RP Financial, RP Financial will be entitled to be paid any
amounts payable by the Association hereunder, together with interest on such
costs from the date incurred at the annual rate of prime plus two percent within
rive days after the final determination of such contest either by written
acknowledgment of the Association or a final judgment of a court of competent
jurisdiction. If the Association does not so elect, RP Financial shall be paid
promptly and in any event within thirty days after receipt by the Association of
the notice of the claim.
(c) The Association shall pay for or reimburse the reasonable expenses,
including attorneys' fees, incurred by RP Financial in advance of the final
disposition of any proceeding within thirty days of the receipt of such request
if RP Financial furnishes the Association: (1) a written statement of RP
Financial's good faith belief that it is entitled to indemnification hereunder;
and (2) a written undertaking to repay the advance if it ultimately is
determined in a final adjudication of such proceeding that it or he is not
entitled to such indemnification.
(d) In the event the Association does not pay any indemnified loss or
make advance reimbursements of expenses in accordance with the terms of this
agreement, RP Financial shall have all remedies available at law or in equity to
enforce such obligation.
It is understood that, in connection with RP Financial's
above-mentioned engagement, RP Financial may also be engaged to act for the
Association in one or more additional capacities, and that the terms of the
original engagement may be embodied in one or more separate agreements. The
provisions of Paragraph 3 herein shall apply to the original engagement, any
such additional engagement, any modification of the original engagement or such
additional engagement and shall remain in full force and effect following the
completion or termination of RP Financial's engagement(s). This agreement
constitutes the entire understanding of the Association and RP Financial
concerning the subject matter addressed herein, and such contract shall be
governed and construed in accordance with the laws of the Commonwealth of
Virginia. This agreement may not be modified, supplemented or amended except by
written agreement executed by both parties.
<PAGE>
RP Financial, LC.
Mr. J.E. Timmons
June 27, 1997
Page 4
Union Federal and RP Financial are not affiliated, and neither Union
Federal nor RP Financial has an economic interest in, or is held in common with,
the other and has not derived a significant portion of its gross revenues,
receipts or net income for any period from transactions with the other.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as
indicated below and returning to RP Financial a signed copy of this letter,
together with the initial retainer fee of $5,000.
Sincerely,
By: /s/ William E. Pommerening
--------------------------
William E. Pommerening
Chief Executive Officer and
Managing Director
Agreed To and Accepted By: J.E. Timmons /s/ Joseph E. Timmons, President
--------------------------------
Upon Authorization by the Board of Directors for:
Union Federal Savings and Loan Association
Crawfordsville, Indiana
Date Executed: July 1, 1997
<PAGE>
RP Financial, LC.
Financial Services Industry Consultants
June 27, 1997
Mr. J.E. Timmons
President and Chief Executive Officer
Union Federal Savings and Loan Association
221 East Main Street
Crawfordsville, Indiana 47993-1800
Dear Mr. Timmons:
This letter sets forth the agreement between Union Federal Savings and
Loan Association, Crawfordsville, Indiana ("Union Federal" or the
"Association'), and RP Financial, LC. ("RP Financial"), whereby the Association
has engaged RP Financial to prepare the regulatory business plan and financial
projections to be adopted by the Association's Board of Directors in conjunction
with the concurrent formation of a holding company and the Association's
mutual-to-stock conversion. These services are described in greater detail
below.
Description of Proposed Services
RP Financial's business planning services will include the following
areas: (1) evaluating Union Federal's current financial and operating condition,
business strategies and anticipated strategies in the future; (2) analyzing and
quantifying the impact of business strategies, incorporating the use of net
conversion proceeds both in the short and long term; (3) preparing detailed
financial projections on a quarterly basis for a period of at least three fiscal
years to reflect the impact of Board approved business strategies arid use of
proceeds; (4) preparing the written business plan document which conforms with
applicable regulatory guidelines including a description of the use of proceeds
and how the convenience and needs of the community will be addressed; and (5)
preparing the detailed schedules of the capitalization of the holding company
and the cash flows between the holding company and the Association.
Contents of the business plan will include: Philosophy/Goals; Economic
Environment and Background; Lending, Leasing and Investment Activities; Deposit,
Savings and Borrowing Activity; Asset and Liability Management; Operations;
Records, Systems and Controls; Growth, Profitability and Capital; Responsibility
for Monitoring this Plan.
RP Financial agrees to prepare the business plan and accompanying
financial projections in writing such that the business plan can be filed with
the appropriate regulatory agencies prior to filing the conversion application.
Fee Structure and Payment Schedule
The Association agrees to compensate RP Financial for preparation of
the business plan on a fixed fee basis of $5,000. Payment of the professional
fees shall be made upon delivery of the completed business plan.
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
<PAGE>
RP Financial, LC.
Mr. J.E. Timmons
June 27, 1997
Page 2
The Association also agrees to reimburse RP Financial for those direct
out-of-pocket expenses necessary and incidental to providing the business
planning services. Reimbursable expenses will likely include shipping,
telephone/facsimile printing, computer and data services, and shall be paid to
RP Financial as incurred and billed. RP Financial will agree to limit
reimbursable expenses to a reasonable cap, subject to written authorization from
the Association to exceed such level.
In the event the Association shall, for any reason, discontinue this
planning engagement prior to delivery of the completed business plan and payment
of the progress payment fee, the Association agrees to compensate RP Financial
according to RP Financial's standard billing rates for consulting services based
on accumulated and verifiable time expenses, not to exceed the fixed fee
described above, plus reimbursable expenses incurred.
If during the course of the planning engagement, unforeseen events
occur so as to materially change the nature or the work content of the business
planning services described in this contract, the terms of said contract shall
be subject to renegotiation by the Association and RP Financial. Such unforeseen
events may include changes in regulatory requirements as it specifically relates
to Union Federal or potential transactions which will dramatically impact the
Association such as a pending acquisition or branch transaction.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as
indicated below and returning to RP Financial a signed copy of this letter.
Sincerely,
By: /s/ William E. Pommerening
--------------------------
William E. Pommerening
Chief Executive Officer and
Managing Director
Agreed To and Accepted By: J.E. Timmons /s/ Joseph E. Timmons, President
--------------------------------
Upon Authorization by the Board of Directors For:
Union Federal Savings and Loan Association
Crawfordsville, Indiana
Date Executed: July 1, 1997
UNION COMMUNITY BANCORP
STOCK OPTION PLAN
1. Purpose. The purpose of the Union Community Bancorp Stock Option
Plan (the "Plan") is to provide to directors, officers and other key employees
of Union Community Bancorp (the "Holding Company") and its majority-owned and
wholly-owned subsidiaries (individually a "Subsidiary" and collectively the
"Subsidiaries"), including, but not limited to, Union Federal Savings and Loan
Association upon its conversion to stock form ("Union"), 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
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 Union 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
non-qualified options shall be for a period of not in excess 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
Union's 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 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 option as prescribed
by Treas. Reg. ss. 20-2031-2), 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; provided, 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 a
director or director emeritus of the Holding Company or its
Subsidiaries who is not an employee of the Holding Company or its
Subsidiaries ("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 shall continue to vest while he
serves as a director or director emeritus and 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 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 or 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
its Subsidiaries) 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.
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. Subject to Section 13, 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)(vi), 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.
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION
RECOGNITION AND RETENTION PLAN AND TRUST
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Union Federal Savings and Loan Association 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 Association and its Affiliates (as hereinafter
defined) and as an incentive to make such contributions and to promote the
Holding Company's and the Association'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 Association which, with the consent of
the Board, agree to participate in this Plan.
3.02 "Association" means Union Federal Savings and Loan Association 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 Association.
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 Association from the
mutual to stock form of organization and the simultaneous acquisition of the
Association by the Holding Company.
3.08 "Director" means a member of the Board of Directors of the Association
or the Holding Company.
3.09 "Director Emeritus" shall mean an honorary, non-voting member of the
Board of Directors of the Association or the Holding Company.
3.10 "Disability" means any physical or mental impairment which qualifies
an Employee, Director or Director Emeritus for disability benefits under the
applicable long-term disability plan maintained by the Association or an
Affiliate, or, if no such plan applies, which would qualify such Employee,
Director or Director Emeritus for disability benefits under the long-term
disability plan maintained by the Association, if such Employee, Director or
Director Emeritus were covered by that Plan.
3.11 "Employee" means any person who is currently employed by the
Association or an Affiliate, including officers.
3.12 "Holding Company" shall mean Union Community Bancorp.
3.13 "Outside Director" means a member of the Board of Directors of the
Association or the Holding Company, who is not also an Employee and who may be a
Director or Director Emeritus.
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
Association 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 Association 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 Association
pursuant to this Section 4.03 shall be subject to 12 C.F.R. ss. 545.121.
ARTICLE V
CONTRIBUTION; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Association 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 Association 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 Association 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 Association 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 Association or any applicable federal or state law or
regulation and provided further that Awards may not be granted at any time in
which the Association 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 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 Association 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 certificates for Plan Share
Awards shall be registered in the name of the Recipient until forfeited or
transferred to 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 or Outside Directors
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.
(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.
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 Association 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, Association 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, Association 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, Association 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 who is removed from the Board of Directors of
the Association and the Holding Company or an Affiliate for cause
(as hereinafter defined), or who is discovered after termination
of service as an Outside Director 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, Association
or any Affiliate or in a final cease and desist order.
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
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 Association 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 Association's insolvency. The Association shall be
considered insolvent for purposes of this RRP if the Association
is unable to pay its debts as they become due or if a receiver is
appointed for the Association under applicable law. If payments
cease by reason of this subsection, payments will be resumed,
with appropriate make-up payments, once the Association ceases to
be insolvent but only to the extent the payments were not made
directly by the Association or its Affiliates.
7.04 Voting of Plan Shares. After a Plan Share Award has been granted, the
Recipient shall be entitled to direct the Trustee as to the voting of the Plan
Shares which are covered by the Plan Share Award and which have not yet been
earned and distributed to him pursuant to Section 7.03, subject to rules and
procedures adopted by the Committee for this purpose. All shares of Common Stock
held by the Trust as to which Recipients are not entitled to direct and have not
directed the voting, shall be voted by the Trustee in the same proportion as
Plan Shares which have been awarded are voted.
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
Association, 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 Association), 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.
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 Association or the Holding Company.
8.06 Indemnification. The Association 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 Outside
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 Association. 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 an unsecured
creditor of the Association, nor shall the Holding Company or the Association 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 Association, the Holding Company or any
Affiliate thereof.
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)(vi) 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 Association 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 Association, 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
Association 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 Association, and the
Trustee may be removed, with or without cause, by the Association 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 Association 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.
IN WITNESS WHEREOF, the Holding Company and the Association have caused
this Plan and Trust Agreement to be executed by their duly authorized officers
as of the ___ day of ____________, 1997.
Exhibit 10(4)
UNION COMMUNITY BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST AGREEMENT
(EFFECTIVE JANUARY 1, 1997)
<PAGE>
UNION COMMUNITY BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST AGREEMENT
(EFFECTIVE JANUARY 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....................3
Section 1.18. Effective Date...................................4
Section 1.19. Employee.........................................4
Section 1.20. Exempt Loan......................................4
Section 1.21. Fund.............................................4
Section 1.22. Highly Compensated Employee......................4
Section 1.23. Holding Company..................................5
Section 1.24. Hour of Service..................................5
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...........................6
Section 1.29. Participant......................................6
Section 1.30. Period of Separation.............................6
Section 1.31. Period of Service................................6
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Section 1.32. Period of Severance...............................7
Section 1.33. Plan..............................................7
Section 1.34. Plan Year.........................................7
Section 1.35. Re-employed Individual............................7
Section 1.36. Section 415 Compensation..........................8
Section 1.37. Stock.............................................9
Section 1.38. Top Paid Group....................................9
Section 1.39. Total Disability.................................10
Section 1.40. Trust............................................10
Section 1.41. Trustee..........................................10
Section 1.42. Valuation Date...................................10
Section 1.43. Year of Service..................................10
ARTICLE II ELIGIBILITY AND PARTICIPATION.............................11
Section 2.1. Eligibility......................................11
Section 2.2. Entry Dates......................................11
Section 2.3. Certification by Company.........................11
Section 2.4. Deferred Retirement..............................11
ARTICLE III COMPANY CONTRIBUTIONS.....................................11
Section 3.1. Company Contributions............................11
Section 3.2. Form of Contributions............................12
Section 3.3. Holding by Trustee...............................12
Section 3.4. Expenses.........................................12
Section 3.5. No Company Liability for Benefits. ..............12
Section 3.6. No Rollover Contributions........................12
ARTICLE IV ALLOCATION TO PARTICIPANTS' ACCOUNTS......................12
Section 4.1. Company Contributions Accounts...................12
Section 4.2. Allocation of Company Contributions..............12
Section 4.3. Limitations on Annual Additions..................13
Clause (a). Basic Limitations........................13
Clause (b). Participation in Other Plans.............13
Section 4.4. Effective Date of Allocations....................14
Section 4.5. Cash Dividends...................................14
Section 4.6. Allocation of Forfeitures........................14
Section 4.7. Special Allocation Rules.........................14
Section 4.8. Rehire after Military Service....................16
ARTICLE V VALUATIONS AND ADJUSTMENTS................................16
Section 5.1. Valuation of Fund................................16
Clause (a). Valuations...............................16
Clause (b). Frequency................................16
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Clause (c). Records..................................16
Section 5.2. Adjustments......................................17
Section 5.3. Amount of Adjustments............................17
Section 5.4. Effective Date of Adjustments....................17
Section 5.5. Notice to Participants...........................17
ARTICLE VI BENEFITS..........................................17
Part A. Retirement Benefits...............................17
Section 6.1. Retirement.......................................17
Part B. Termination Benefits..............................18
Section 6.2. Effect of Termination............................18
Section 6.3. Vesting..........................................18
Section 6.4. Payment..........................................19
Part C. Death Benefits....................................19
Section 6.5. Benefits upon Death..............................19
Section 6.6. Beneficiaries....................................19
Section 6.7. Lack of Beneficiaries............................19
Section 6.8. Termination or Retirement prior to Death.........20
Part D. General...........................................20
Section 6.9. Date of Distribution.............................20
Section 6.10. Form of Distribution.............................20
Section 6.11. Liability........................................21
Section 6.12. Right of First Refusal...........................21
Section 6.13. Put Options......................................21
Section 6.14. Eligible Rollover Distributions..................22
ARTICLE VII ADMINISTRATIVE COMMITTEE..........................23
Section 7.1. Establishment....................................23
Section 7.2. Duties...........................................23
Section 7.3. Actions..........................................23
Section 7.4. Disqualification.................................23
Section 7.5. Powers...........................................24
Section 7.6. Discrimination Prohibited........................24
Section 7.7. Statements and Forms.............................24
Section 7.8. Liability........................................24
Section 7.9. Determination of Right to Benefits...............24
Section 7.10. Investment Directions............................25
Section 7.11. Voting Power.....................................25
ARTICLE VIII THE TRUSTEE.......................................25
Section 8.1. Assets Held in Trust.............................25
Section 8.2. Investments......................................25
Section 8.3. Directions of Committee..........................25
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Section 8.4. Receipt of Additional Shares......................26
Section 8.5. Delivery of Materials to Committee................26
Section 8.6. Powers............................................26
Section 8.7. Loans to the Trust................................27
Clause (a). Interest..................................27
Clause (b). Use of Proceeds...........................27
Clause (c). Terms of Exempt Loan......................28
Clause (d). Collateral................................28
Clause (e). Limited Recourse..........................28
Clause (f). Repayment.................................28
Clause (g). Agreement by Companies....................28
Clause (h). Release of Collateral.....................28
Clause (i). Default...................................29
Clause (j). Termination of Plan.......................29
Section 8.8. Annual Accounting.................................29
Section 8.9. Audit.............................................29
Section 8.10. Uncertainty Concerning Payment of Benefits........30
Section 8.11. Compensation......................................30
Section 8.12. Standard of Care..................................30
Section 8.13. Request for Instructions..........................30
Section 8.14. Resignation of Trustee............................30
Section 8.15. Vacancies in Trusteeship..........................31
Section 8.16. Information to Be Furnished.......................31
Section 8.17. Voting Rights of Participants.....................31
Section 8.18. Delegation of Authority...........................32
Section 8.19. Diversification of Company Contributions Account..32
Section 8.20. Tender Offer......................................32
ARTICLE IX AMENDMENT, TERMINATION AND MERGER..........................33
Section 9.1. Amendment.........................................33
Section 9.2. Termination or Complete
Discontinuance of Contributions.................33
Section 9.3. Determination by Internal Revenue Service.........34
Section 9.4. Nonreversion......................................34
Section 9.5. Merger............................................34
ARTICLE X MISCELLANEOUS..............................................35
Section 10.1. Creation of Plan Voluntary........................35
Section 10.2. No Employment Contract............................35
Section 10.3. Limitation on Rights Created......................35
Section 10.4. Waiver of Claims..................................35
Section 10.5. Spendthrift Provision.............................35
Section 10.6. Payment of Benefits to Others.....................36
Section 10.7. Payments to Missing Persons.......................36
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Section 10.8. Severability.........................................36
Section 10.9. Captions.............................................36
Section 10.10. Construction.........................................36
Section 10.11. Counterparts.........................................36
Section 10.12. Indemnification......................................36
Section 10.13. Standards of Interpretation
and Administration.................................37
Section 10.14. Governing Law........................................37
Section 10.15. Successors and Assigns...............................37
Section 10.16. Adoption of Plan.....................................37
Section 10.17. Withdrawal from Plan.................................37
ARTICLE XI TEFRA TOP-HEAVY RULES......................................37
Section 11.1. Application.......................................37
Section 11.2. Determination.....................................37
Section 11.3. Accrued Benefits..................................39
Section 11.4. Vesting Provisions................................39
Section 11.5. Minimum Contribution..............................40
Section 11.6. Code Section 415 Limitations......................41
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<PAGE>
UNION COMMUNITY BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST AGREEMENT
(EFFECTIVE JANUARY 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 Union Federal Savings & Loan Association
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 Years of Service and 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 other 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 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.
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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.
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:
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(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 January 1, 1997; provided,
however, that if prior to March 31, 1998, 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 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:
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(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.
(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 Union Community 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
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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 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,
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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.
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,
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:
(c) by reason of the pregnancy of the Employee,
(d) by reason of the birth of a child of the Employee,
(e) by reason of the placement of a child with the Employee in
connection with the adoption of that child by the Employee, or
(f) 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 "Union Community 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 calendar year. 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.
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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
(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:
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(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
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;
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(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;
(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 ________________, 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.
Section 1.43. "Year of Service" shall mean for purposes of
participation the consecutive twelve (12) month period computed with reference
to the date on which the Employee first (1st) completes an Hour of Service and
any Plan Year beginning after such date during which twelve (12) month period an
Employee has completed at least one thousand (1,000) Hours of Service.
Notwithstanding the foregoing, periods of time during which an Employee or
Participant:
(a) is on an approved Leave of Absence continuing for a period of
not more than two (2) consecutive years; or
(b) is on military leave for training or service, or both, with
the Armed Forces of the United States under any form of law
requiring military service; provided, however, that he shall
make application for re-employment by a Company within ninety
(90) calendar days after discharge or release from such Armed
Forces or from
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hospitalization continuing after such discharge for a period
of not more than one (1) year;
shall also be credited towards his Years of Service and shall not constitute a
Break in Service for purposes of this Plan. A Participant's Years of Service
shall be calculated taking into account employment before the Effective Date.
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 he
completes one (1) Year of Service 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 Section 2.1. A re-employed Employee who has once met the one (1)
Year 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.
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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 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.
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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 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 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.
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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).
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
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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 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.
Section 4.8. Rehire after Military Service. The provisions relating to
qualified retirement plans which are set forth in the Uniformed Services
Employment and Reemployment Rights Act of 1994 ("USERRA") are hereby
incorporated into, and made a part of, this Plan by reference. The Committee
shall apply the provisions of the USERRA with respect to any Participant who is
reemployed after completing covered military service in a manner consistent with
the USERRA and all other applicable law and regulations.
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
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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 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).
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
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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 on such date of
termination of employment, as follows:
Period of Service Vested Percentage
Less than five (5) years 0
Five (5) years or more 100%
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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.
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.
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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 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
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(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 (within the
meaning of Section 416 of the Code) 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 five thousand dollars ($5,000) effective on or
after January, 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 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 Year Service Break, 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.
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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 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
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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
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
three (3) 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 individuals and may, but need not, be
officers, shareholders or Directors of the Holding Company or the Bank,
Participants or
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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 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
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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, 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.
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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 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.
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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 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
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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
(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
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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:
(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
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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 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 been determined or resolved by a court of competent jurisdiction or
otherwise settled by the parties concerned.
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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 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.
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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 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.
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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 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
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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
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.
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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 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 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
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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.
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
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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 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"):
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(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) 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
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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 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
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allocated pursuant to this Subsection (a) shall not 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 beginning before January 1, 2000, 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 January 1, 1997.
UNION COMMUNITY BANCORP
By:
Its:
Attest:
By:
Its:
UNION FEDERAL SAVINGS &
LOAN ASSOCIATION
By:
Its:
Attest:
By:
Its:
By:
Its:
Attest:
By:
Its:
Exhibit 10(5)
EMPLOYMENT AGREEMENT
This Agreement, made and dated as of ________, 1997, by and between
Union Federal Savings and Loan Association, a federal savings and loan
association ("Employer"), and Joseph E.
Timmons, a resident of Montgomery 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 Union Community 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.
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<PAGE>
NOW, THEREFORE, in consideration of these premises, the mutual
covenants and undertakings herein contained and the continued employment of
Employee by Employer as its 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 Crawfordsville, 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 Employer's primary
office. 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 that the performance of the Employee has met the
Board's requirements and standards and that this Agreement should be extended
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 December
31, 1996, and Employer makes similar
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<PAGE>
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
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, thrift 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 December 31,
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 than were in effect for him on the date hereof.
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<PAGE>
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, (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 provision 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.
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<PAGE>
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 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
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<PAGE>
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.
(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
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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.
(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) or (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.
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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.
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 shall 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
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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:
If to Employee: Joseph E. Timmons
413 Englewood Drive
Crawfordsville, Indiana 47933
If to Employer: Union Federal Savings and Loan Association
221 E. Main Street
P.O. Box 151
Crawfordsville, Indiana 47933
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.
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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 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.
UNION FEDERAL SAVINGS AND LOAN
ASSOCIATION
By:
Denise E. Swearingen
Controller/Treasurer
"Employer"
Joseph E. Timmons
"Employee"
The undersigned, Union Community 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, Union Community 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.
UNION COMMUNITY BANCORP
By:
Denise E. Swearingen
Controller/Treasurer
10
Exhibit 10(6)
EXEMPT LOAN AND SHARE PURCHASE AGREEMENT
between
TRUST UNDER
UNION COMMUNITY BANCORP
EXEMPT STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
(EFFECTIVE AS OF JANUARY 1, 1997)
and
UNION COMMUNITY BANCORP
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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.................................3
Section 2.7 Place and Time of Payment...........................4
Section 2.8 Application of Certain Payments.....................4
Section 2.9 Due Date Extension..................................4
Section 2.10 Computations........................................4
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................................8
Section 5.1 Documentation Satisfactory to Company...............8
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
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ARTICLE VI EVENTS OF DEFAULT AND THEIR EFFECT.................9
Section 6.1 Events of Default; Effect..........................9
ARTICLE VII SHARE PURCHASES...................................10
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..........................10
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
Exhibit B - SHARE PLEDGE AGREEMENT
Exhibit C - CERTIFICATE OF TRUSTEE
Exhibit D - CERTIFICATE OF THE COMPANY
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EXEMPT LOAN AND SHARE PURCHASE AGREEMENT
THIS EXEMPT LOAN AND SHARE PURCHASE AGREEMENT (this "Agreement" or
"Loan Agreement"), dated December ___, 1997, between the Trust (the "Trust")
established pursuant to the provisions of the UNION COMMUNITY BANCORP EMPLOYEE
STOCK OWNERSHIP PLAN AND TRUST AGREEMENT (EFFECTIVE AS OF JANUARY 1, 1997) (the
"ESOP") by ________________________, as Trustee (the "Trustee"), and UNION
COMMUNITY 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 One Million Six Hundred Thousand Dollars ($1,600,000) (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
Community Offering of the Company's Common Stock being made in connection with
the Company's acquisition of the common stock of Union Federal Savings and Loan
Association (the "Association") upon conversion of the Association from a
federal mutual savings and loan association to a federal stock savings and loan
association (the "Conversion"), but no more than 160,000 such shares, 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
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 Crawfordsville, 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 One Million Six Hundred Thousand
Dollars ($1,600,000), representing the cost of 8% of the Shares offered in the
Offering, subject to a maximum of 160,000 such Shares. 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
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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 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 twentieth (1/20)
of the initial principal amount of the Trust Loan, shall be due and
payable on December 31, 1998, together with all interest accrued on the
Trust Loan from the Closing Date through and including December 31,
1998; 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, 1999, through and
including December 31, 2017, which annual installments shall include a
principal payment in the amount of one-twentieth 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.
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 December 31, 2017.
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
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principal amount of the 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 Crawfordsville, 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
distributions 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.
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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%).
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
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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
delivered and constitutes 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;
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(c) The Company and the Association 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 Association 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
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 Association 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.
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(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 January 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 Association 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 January 1, 1997. The Company and the
Association 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 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 Association 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:
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(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:
(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
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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
160,000 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 Association'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.
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 the lesser of 8% of the
outstanding Shares of the Company at the time of purchase and 160,000 Shares.
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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.
Union Community Bancorp
221 East Main Street
Crawfordsville, Indiana 47933
Attention: Joseph E. Timmons, President
[ ]
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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
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.
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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 UNION COMMUNITY BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
By: _______________________________, Trustee
By:
Printed:
Its:
UNION COMMUNITY BANCORP
By:
Printed: Joseph E. Timmons
Its: President
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Exhibit A
TRUST NOTE
$___________ December ___, 1997
Due: December 31, 2017
FOR VALUE RECEIVED, the undersigned, the Trust (the "Trust")
established pursuant to the provisions of the UNION COMMUNITY BANCORP EMPLOYEE
STOCK OWNERSHIP PLAN AND TRUST AGREEMENT, DATED AND EFFECTIVE AS OF JANUARY 1,
1997 (the "Plan") by _________________________, as Trustee (the "Trustee"),
promises to pay to the order of UNION COMMUNITY BANCORP, an Indiana corporation
(together with its successors, endorsees and assigns, the "Company"), at such
place and in such other manner as the Company may direct in writing, and when
required pursuant to the provisions of that certain Exempt Loan and Share
Purchase Agreement, dated December ___, 1997 (the "Loan Agreement"), by and
among the Trustee and the Company, the principal amount of
____________________________ Dollars ($__________) 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
December 31, 2017, 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.
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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
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 UNION COMMUNITY BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
By: __________________________, Trustee
By:
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Exhibit B
SHARE PLEDGE AGREEMENT
between
TRUST UNDER
UNION COMMUNITY BANCORP
STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
and
UNION COMMUNITY BANCORP
Dated: December ___, 1997
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SHARE PLEDGE AGREEMENT
THIS SHARE PLEDGE AGREEMENT (this "Agreement" or "Share Pledge
Agreement"), dated as of December ___, 1997, between the Trust (the "Trust")
established pursuant to the provisions of UNION COMMUNITY BANCORP EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST AGREEMENT (EFFECTIVE AS OF JANUARY 1, 1997) (the
"Plan") by ________________________, as Trustee ("Trustee"), and UNION COMMUNITY
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 December ____, 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
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(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.
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.
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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,
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
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(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
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.
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(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,
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,
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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.
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.
UNION COMMUNITY BANCORP
221 East Main Street
P.O. Box 151
Crawfordsville, Indiana 47933
Attention: Joseph E. Timmons, 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
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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.
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 UNION COMMUNITY BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
By: _________________________, Trustee
By:
Printed:
Its:
-8-
<PAGE>
UNION COMMUNITY BANCORP
By:
Printed: Joseph E. Timmons
Its: President
-9-
<PAGE>
Exhibit C
CERTIFICATE OF TRUSTEE
The undersigned, __________________________________, a national bank,
in its capacity as Trustee ("Trustee") of the Trust under Union Community
Bancorp Employee Stock Ownership Plan and Trust Agreement (Effective as of
January 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
Union Community 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 December, 1997.
______________________________, as Trustee of
the Trust under the Union Community Bancorp
Employee Stock Ownership Plan and Trust Agreement
(Effective as of January 1, 1997)
By:
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<PAGE>
Exhibit D
CERTIFICATE OF THE COMPANY
The undersigned, Union Community 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 Union Community Bancorp Employee
Stock Ownership Plan and Trust Agreement (Effective as of January 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 December, 1997.
UNION COMMUNITY BANCORP
By:
Joseph E. Timmons, President
-11-
Exhibit 21
Subsidiaries of Union Community Bancorp following the Stock Conversion
of Union Federal Savings and Loan Association:
Name Jurisdiction of Incorporation
- ---------------------------------------------- ------------------------------
Union Federal Savings and Loan Association Federal
UFS Service Corp. Indiana
Exhibit 23(1)
RP Financial, LC.
Financial Services Industry Consultants
September 15, 1997
Board of Directors
Union Federal Savings and Loan Association
221 E. Main street
Crawfordsville, Indiana 47933
Gentlemen:
We hereby consent to the use of our firm's name in the Form AC
Application for Conversion of Union Federal Savings and Loan Association,
Crawfordsville, Indiana, and any amendments hereto and in the Form S-1
Registration Statement for Union Community Bancorp, and any amendments thereto.
We also hereby consent to the inclusion of, summary of and references to our
Appraisal Report and our statement concerning subscription rights in such
filings including the Prospectus of Union Community Bancorp.
Very truly yours,
RP FINANCIAL, LC.
/s/ Gregory E. Dunn
Gregory E. Dunn
Senior Vice President
- --------------------------------------------------------------------------------
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
Exhibit 23(2)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report dated September 12, 1997 on the financial
statements of Union Federal Savings and Loan Association (the "Association") and
to the reference made to us under the caption "Experts" in the Application of
Conversion filed by the Association with the Office of Thrift Supervision and in
the Registration Statement on Form S-1 filed by Union Community Bancorp with the
United States Securities and Exchange Commission.
/s/ Geo. S. Olive & Co. LLC
Indianapolis, Indiana
September 12, 1997
Exhibit 99(2)
Union Federal Savings and Loan Association Stock 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 noon., local
time, on November ___, 1997, unless extended. The Community
Offering, if made, is expected to commence after the
completion of the Subscription Offering and may terminate at
any time thereafter, but not later than January ___, 1998,
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
Union Federal Savings and Loan Association ("Union") 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 20,000
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 20,000. 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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Method of Payment Important Subscription Offering Information
<S> <C> <C>
(3) |_| Enclosed is a check, bank draft or (5) a |_|Eligible Account Holder -- Check here if you were a depositor of at
money order made payable Union Federal least $50.00 at Union on December 31, 1995. Enter information
Savings and Loan Association ("Union") below for all deposit accounts that you had at Union on December 31,
in the amount of: 1995.
(5) b |_|Supplemental Eligible Account Holder -- Check here if you were a
Cash can be used only if presented in depositor of at least $50.00 at Union on September 30, 1997, but are
$ person at Union's office. not an Eligible Account Holder. Enter information below for all
deposit accounts that you had at Union on September 30, 1997.
(5) c |_|Other Member -- Check here if you were a depositor at Union on
(4) |_| The undersigned authorizes withdrawal
from this (these) account(s) October ___,
1997, or a borrower on July 30, 1997,
who remained a at Union. Please contact
the Stock Information Center if you
wish to borrower on October ___, 1997,
but are not an Eligible Account use
your IRA for stock purchase. Holder or
Supplemental Account Holder.
</TABLE>
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
<PAGE>
(6) |_| Check here if you are a resident of Montgomery 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 __________________________________________________
- --------------------------------------------------------------------------------
(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
Union no later than November ___, 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 Union no later than 12:00
noon, Crawfordsville time, on October ___, 1997, unless extended. If there is a
Community Offering, it is expected to begin after November ___, 1997, and may
end at any time but no later than January ___, 1998, unless extended. Completed
Stock Order Forms, together with the required payment or withdrawal
authorization and form of Certification, may be delivered to Union 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 Union described in the accompanying
Prospectus dated November ___, 1997. The undersigned acknowledges receipt of
such Prospectus. If the Plan of Conversion is not approved by the voting members
of Union at a Special Meeting to be held on November ___, 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 Union, this Stock Order Form may not be modified, withdrawn or
cancelled (unless the conversion is not completed within 45 days of the
completion of the Subscription Offering) without Union's consent and if
authorization to withdraw from deposit accounts at Union 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. Union 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.
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.
<TABLE>
<CAPTION>
(12) Signature Date Signature Date
- ---------------------- ----- ------------------------- ----------------
FOR OFFICE USE ONLY STOCK INFORMATION CENTER
<S> <C> <C>
Date Received ______/______/_____ Category ______________ Union Federal Savings and Loan Association
Order #_________________________ Deposit _______________ 221 East Main Street
P.O. Box 151
Batch #_________________________ Date Input ____/____/__ Crawfordsville, Indiana 47933
(765) ____-_______
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION
-----------------------------------------------------------
SUBSCRIPTION AND 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.
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.
Payment
You may mail your completed Stock Order Form in the envelope that has been
provided, or you may deliver your Stock Order Form to Union's 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) for the number of shares purchased multiplied by the Purchase
Price, must be received by Union no later than 12:00 noon Crawfordsville,
Indiana, time, on November ____, 1997. If there is a Community Offering, it is
expected to commence after that time and may end at any time but not later than
January ___, 1998, unless extended. Stock Order Forms shall be deemed received
only upon actual receipt at Union's office.
If you need further assistance, please call the Stock Information Center at
(765) ___-_____. 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 Union 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 20,000 shares. 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. Union reserves the right to reject any order received in the
Community Offering, in whole or in part. 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 20,000.
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 Union. Your funds will earn
interest at Union's 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 Union 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. 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 Union's passbook rate. 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 Union 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 Union on September 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 October ___, 1997, or you
were a borrower on July 30, 1997, and remained a borrower on October ___, 1997,
but are not an Eligible Account Holder or Supplemental Eligible Account Holder.
You must list the full title and account numbers of all deposit and loan
accounts that you had on October ___, 1997, in order to ensure proper
identification of your subscription rights.
Item 6 -
Please check the box if you are a resident of Montgomery 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 7, 8 and 9 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."
<PAGE>
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)
___-_____. The Stock Information Center is open between the hours of 8:00 a.m.
and 4:00 p.m., Monday through Thursday and 8:00 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 UNION FEDERAL SAVINGS AND LOAN
ASSOCIATION, OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that this security is federally insured or
guaranteed, or is as safe as an insured deposit, I should call the Office of
Thrift Supervision Regional Director, Ronald N. Karr at (312) 565-5300.
I further certify that, before purchasing the common stock, without par
value, of Union Community 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. Commercial Real Estate and Multi-Family Lending (page 10)
2. Dependence on President and Possible New Management (page 10)
3. Geographic Concentration of Loans (page 10)
4. Allowance for Loan Losses (page 10)
5. Anti-Takeover Provisions and Statutory Provisions that Could
Discourage Hostile Acquisitions of Control (page 10)
6. Lack of Active Market for Common Stock (page 11)
7. Decreased Return on Average Equity and Increased Expenses
Immediately After Conversion (page 11)
8. Potential Impact of Changes in Interest Rates and Current
Interest Rate Environment (page 11)
9. Intent to Remain Independent (page 11)
10. Possible Voting Control by Directors and Officers (page 11)
11. Possible Dilutive Effect of RRP and Stock Options (page 12)
12. Financial Institution Regulation and Future of the Thrift
Industry (page 12)
13. Restrictions on Repurchase of Shares (page 12)
-1-
<PAGE>
14. Competition (page 12)
15. Risk of Delayed Offering (page 12)
16. Income Tax Consequences of Subscription Rights (page 12).
Signature:___________________________________
Date: _______________________________________
