FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20552
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES ACT OF 1934
For the Quarterly Period Ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number
0-24501
BLUE RIVER BANCSHARES, INC.
----------------------------------------
(Exact name of small business issuer as specified in its charter)
Indiana 35-2016637
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
29 East Washington Street
Shelbyville, Indiana 46176
- ------------------------------- -------------------------------
(Address of principal executive (Zip Code)
office)
Issuer's telephone number, including area code:
(317) 398-9721
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
As of March 31, 1999, there were 1,490,870 shares of the Registrant's Common
Stock issued outstanding.
Transitional Small Business Disclosure Format.
(Check one):
Yes No X
--- ---
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
INDEX
-----
Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Statement of Financial Condition (Unaudited)
as of March 31, 1999 of the Successor 3
Consolidated Statements of Earnings (Unaudited) for the
three month periods ended March 31, 1999 of the
Successor and 1998 of the Predecessor 4
Consolidated Statements of Cash Flows (Unaudited) for the
three month periods ended March 31, 1999 of the
Successor and 1998 of the Predecessor 5
Notes to Consolidated Financial Statements (Unaudited) 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-15
PART II. OTHER INFORMATION: 16-17
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE PAGE 18
2
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (Unaudited)
AS OF MARCH 31, 1999
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS SUCCESSOR
--------------
<S> <C>
Cash and due from banks $ 5,239,643
Interest-bearing deposits with banks 1,754,469
Securities available for sale 20,312,040
Securities held-to-maturity 410,052
Loans receivable, net 91,289,800
Accrued interest receivable 808,588
FHLB stock of Indianapolis 1,357,800
Prepaid expenses and other assets 1,632,570
Premises and equipment, net 2,116,524
Goodwill, net 3,047,814
-------------
TOTAL ASSETS $ 127,969,300
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 90,099,413
FHLB advances and other borrowings 20,000,000
Accrued expenses and other liabilities 1,344,065
Accrued interest payable 244,030
-------------
Total liabilities 111,687,508
-------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, without par value: 1,490,870 shares
issued and outstanding 16,224,560
Accumulated deficit (25,758)
Unrealized gain on available for sale securities 82,990
-------------
Total shareholders' equity 16,281,792
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 127,969,300
=============
</TABLE>
See notes to consolidated financial statements (unaudited).
3
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
----------- -------------
1999 1998
<S> <C> <C>
INTEREST INCOME:
Loans receivable $ 1,827,192 $ 1,709,583
Securities 258,466 109,875
Interest-bearing deposits 103,890 35,022
Dividends from FHLB 26,784 18,152
----------- -----------
Total interest income 2,216,332 1,872,632
----------- -----------
INTEREST EXPENSE:
Interest expense on deposits 939,051 849,635
Interest expense on FHLB advances and other borrowings 294,646 251,785
----------- -----------
Total interest expense 1,233,697 1,101,420
----------- -----------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN
LOSSES 982,635 771,212
PROVISION FOR LOAN LOSSES (45,000) (405,000)
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 937,635 366,212
----------- -----------
NON-INTEREST INCOME:
Service charges and fees 59,629 60,546
Gain on sale of available-for-sale securities 157,252 17,271
Other 33,154 40,320
----------- -----------
Total non-interest income 250,035 118,137
----------- -----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 394,624 240,461
Premises and equipment 119,611 63,551
Federal deposit insurance 60,508 33,392
Data processing 85,992 69,141
Advertising & promotion 32,761 27,114
Bank fees and charges 18,366 12,576
Professional fees 91,135 82,542
Stationery, supplies & printing 28,296 10,935
Environmental charges 0 145,780
Other 92,837 83,096
Goodwill amortization 46,768 0
----------- -----------
Total non-interest expense 970,898 768,588
----------- -----------
EARNINGS BEFORE INCOME TAX EXPENSE 216,772 (284,239)
INCOME TAX EXPENSE 111,927 (112,039)
----------- -----------
NET EARNINGS $ 104,845 $ (172,200)
=========== ===========
BASIC EARNINGS PER SHARE $ 0.07 N/A
DILUTIVE EARNINGS PER SHARE $ 0.07 N/A
</TABLE>
See notes to consolidated financial statements (unaudited).
4
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------ ------------
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 104,845 $ (172,200)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 40,384 39,322
Net deferred loan fees (8,546) (13,999)
Gain on sale of securities available for sale 157,252 13,569
Provision for loan losses 45,000 405,000
Changes in assets and liabilities:
Accrued interest receivable (43,990) 45,030
Other assets (556,643) (236,617)
Other liabilities 68,116 100,026
------------- ------------
Net cash provided by (used in) operating activities (193,582) 180,131
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations, net of principal repayments (5,015,374) (6,487,252)
Principal maturities collected on securities 1,224,045 114,732
Investment in FHLB stock 0 (78,700)
Capital expenditures (209,534) (22,910)
Proceeds from sale of securities available for sale 1,050,178 3,380,483
Purchase of securities available for sale (1,508,356) (3,313,935)
------------- ------------
Net cash used in investing activities (4,459,041) (6,407,582)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
FHLB advances and other borrowings 0 1,575,000
Payment of FHLB advances and other borrowings (6,500,000) (3,391)
Net change in deposits 262,313 (250,326)
Payment to former shareholders of Shelby County Bancorp 18,725 0
Cash dividends paid 0 (21,994)
------------- ------------
Net cash provided by (used in) financing activities (6,218,962) 1,299,289
------------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (10,871,585) (4,928,162)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 17,865,697 5,667,588
------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,994,112 $ 739,426
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 1,178,689 $ 838,194
Income taxes paid $ 50,000 $ 265,000
Loans transferred to real estate owned $ 6,915 $ 36,727
</TABLE>
See notes to consolidated financial statements (unaudited).
5
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
- ------------------------------------------------------------------------------
1. BASIS OF CONSOLIDATION AND PRESENTATION
The unaudited consolidated financial statements include the accounts of
Blue River Bancshares, Inc. (the "Successor"), Shelby County Bancorp (the
"Predecessor") and its wholly-owned subsidiary Shelby County Bank
(formerly, Shelby County Savings Bank, FSB - the "Bank"). Summary of
significant accounting policies is set forth in Note 1 of the Notes to the
Consolidated Financial Statements of the Successor included in the
December 31, 1998 Annual Report to Shareholders.
The accompanying consolidated interim financial statements at March 31,
1999 and for the three month periods ended March 31, 1999 and 1998 are
unaudited and have been prepared in accordance with instructions to Form
10-QSB. In the opinion of management, the financial statements include all
the adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations
and cash flows for such periods.
2. SHAREHOLDER'S EQUITY (SUCCESSOR)
On June 26, 1998, the Successor completed an initial public offering. The
Successor issued 1,500,000 common shares at a offering price of $12 per
share. The Successor received approximately $16.2 million in net proceeds
from the offering. The Successor's Common Stock currently trades on the
Nasdaq SmallCap Market under the BRBI symbol.
Effective June 18, 1998, the Company amended and restated its articles of
incorporation to revise the total number of authorized shares of capital
stock to 12,000,000 shares, consisting of 10,000,000 shares designated as
"Common Stock" and 2,000,000 shares designated as "Preferred Stock."
Stock Option Plan - The Successor has adopted separate stock option plans
for Directors and for key employees. Under the option plans, options for
the purchase of 150,000 shares of Common Stock may be granted. Options for
105,000 shares at an option price of $12 per share have been granted and
remain unexercised under the plans as of March 31, 1999.
3. ACQUISITION OF SHELBY COUNTY BANCORP
On February 5, 1998, the Successor, the Predecessor and the Bank entered
into an Agreement of Affiliation and Merger as amended and restated on
March 12, 1998 and further amended on June 2, 1998, pursuant to which the
Successor would acquire the Bank pursuant to the merger of the Predecessor
into the Successor. On June 26, 1998, the effective date of the merger,
pursuant to the merger agreement each outstanding share of common stock of
the Predecessor was converted into the right to receive $56.00 per share
from the Successor. The merger has been accounted for by the purchase
method of accounting. Accordingly, the excess of the purchase price over
the fair value of the net assets acquired has been allocated to goodwill.
For financial reporting purposes, the Successor reported the transaction
as if it was effective June 30, 1998.
6
<PAGE>
The consideration given and the assets acquired and liabilities assumed
were comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 10,626,000
Acquisition costs 202,934
------------
Total purchase price $ 10,828,934
============
Net cost of acquisition $ 10,828,934
Less Shelby County Bancorp, Inc. shareholders' equity at June 26, 1998 (7,828,531)
------------
Excess consideration over book value 3,000,403
------------
Adjustments to reflect fair value:
Investment securities held to maturity 14,406
Loans 554,374
Deposits (737,602)
Other liabilities (421,407)
Other assets 28,082
Tax effect of above adjustments 395,859
------------
Total fair value adjustments (166,288)
------------
Total goodwill $ 3,166,691
============
</TABLE>
Generally accepted accounting principles provide for an allocation period,
generally not to exceed one year, to identify and quantify the fair value
of assets acquired and liabilities assumed. Therefore, the allocations
reflected in the accompanying financial statements are subject to change
as additional information concerning fair values becomes available.
4. NEW ACCOUNTING PRONOUNCEMENTS AND POLICIES (SUCCESSOR)
In accordance with SFAS No. 130, reclassification adjustments have been
determined for all components of other comprehensive income reported in
the consolidated statements of changes in shareholders' equity. Amounts
presented within those statements for the successor's three month period
ended March 31, 1999; and the predecessor's three month period ended March
31, 1998 are as follows:
7
<PAGE>
<TABLE>
<CAPTION>
Successor Predecessor
-------------------- ------------------
Period from Period from
January 1, 1999 January 1, 1998
through through
March 31, 1999 March 31, 1998
<S> <C> <C>
Other comprehensive income before tax:
Net unrealized holding gains/(losses) $(337,458) $ 100,981
Less: reclassification adjustment for
gains realized in net income (157,252) (13,569)
---------- ---------
Other comprehensive income/(loss) before tax (494,710) 87,412
Income tax expense/(benefit) related to items of
other comprehensive income (197,884) 34,965
---------- ---------
Other comprehensive income/(loss), net of tax $(296,826) $ 52,447
========== =========
</TABLE>
New Accounting Pronouncements - In June 1998, SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities was issued and is effective
for all fiscal quarters of all fiscal years beginning after June 15, 1999.
This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at fair
value. If certain conditions are met, a derivative may be specifically
designated as a fair value hedge, a cash flow hedge, or a hedge of foreign
currency exposure. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. Management has not yet fully
evaluated the effect, if any, of the new standard on the consolidated
financial statements.
5. SHAREHOLDERS' EQUITY (PREDECESSOR)
In connection with the acquisition of Shelby County Bancorp by Blue River
Bancshares, Inc., all outstanding options of the predecessor were
exercised prior to the acquisition. Upon completion of the merger, the
Predecessor stock option plan was terminated.
On March 16, 1998, the Board of Directors of the Predecessor declared a
quarterly cash dividend of $.125 per share. The dividend was paid April
13, 1998 to shareholders of record as of March 30, 1998.
Earnings per share are not presented for the consolidated statements of
earnings of the Predecessor since the information is not considered
meaningful.
8
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Certain statements throughout this section regarding the Successor's,
Predecessor's and the Bank's financial position, business strategy and
plans and objectives of management for future operations are
forward-looking statements rather than historical or current facts. When
used in this section, words such as "anticipate," "believe," "estimate,"
"expect," "intend" and similar expressions, as they relate to the
Successor, Predecessor and the Bank or their respective management,
identify forward-looking statements. Such forward-looking statements are
based on the beliefs of management of the Successor, Predecessor and the
Bank as well as assumptions made by and information currently available to
management of the Successor, Predecessor and the Bank. Such statements are
inherently uncertain, and there can be no assurance that the underlying
assumptions will prove to be valid. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of
certain factors, including but not limited to competitive factors and
pricing pressures, changes in legal and regulatory requirements,
technological change, product development risks and general economic
conditions, including, but not limited to, changes in interest rates, loss
of deposits and loans to other savings and financial institutions,
substantial changes in financial markets, substantial changes in real
estate values and the real estate market and unanticipated results in
pending legal proceedings. Such statements reflect the current view of the
Successor, Predecessor and the Bank with respect to future events and are
subject to these and other risks, uncertainties and assumptions relating
to the operations, results of operations, growth strategy and liquidity of
the Successor, Predecessor and the Bank.
FINANCIAL CONDITION:
--------------------
The merger was accounted for by the purchase method of accounting.
Accordingly, the fair value of the assets acquired and liabilities assumed
have been adjusted in accordance with APB 16, "Business Combinations" as
noted in footnote 3 on pages 6 and 7. Therefore, the changes in financial
condition described below include purchase accounting adjustments recorded
by the Successor.
Total assets at March 31, 1999, were $127,969,000, an increase of
$29,504,000 from total assets of $98,465,000 at March 31, 1998. Investment
securities at March 31, 1999 were $20,722,000, an increase of $11,888,000
from $8,834,000 at March 31, 1998. The Bank's investment portfolio is used
to manage the liquidity and interest rate sensitivity of the balance
sheet. The Bank's current investment strategy also includes acquiring
securities with favorable risk-based capital treatment to continue to
enhance the capital adequacy of the institution. Total net loans
receivable increased from $84,758,000 at March 31, 1998 to $91,290,000 at
March 31, 1999. Residential mortgages at March 31, 1999 were $51,467,000,
a decrease of $1,529,000 from $52,996,000 at March 31, 1998. This
reduction results from increased brokering activities related to fixed
rate mortgage loans, enabling the Bank to reduce its interest rate
sensitivity. Commercial loans secured with real estate were $23,497,000 at
March 31, 1999 compared to $18,291,000 at March 31, 1998. Commercial
loans increased $1,371,000 to $7,451,000 at March 31, 1999. Consumer and
home equity loans increased $1,429,000 to $9,651,000 at March 31, 1999.
This shift in loan mix is being strategically pursued to continue to
enhance net interest margin while reducing the interest rate sensitivity
inherent in fixed rate residential mortgages.
9
<PAGE>
<TABLE>
<CAPTION>
(SUCCESSOR) (PREDECESSOR)
MARCH 31, MARCH 31,
1999 1998
<S> <C> <C>
Residential mortgages $ 51,474,954 $ 52,995,931
Commercial loans secured by real estate 23,497,267 18,291,367
Commercial, agriculture 7,451,592 6,080,099
Consumer loans 7,567,523 6,848,327
Home equity loans 2,083,879 1,373,604
Less allowance for Loan Losses (785,415) (831,139)
------------ ------------
Total Net Loans $ 91,289,800 $ 84,758,189
============ ============
</TABLE>
Total liabilities at March 31, 1999 were $111,688,000, an increase of
$20,750,000 compared to $91,118,000 at March 31, 1998. Deposits at March
31, 1999 were $90,099,000 compared to $70,533,000 at March 31, 1998.
Transaction accounts, including Savings, NOW, and Money Market accounts
resulted in $7,045,000 of the $19,566,000 increase in total deposits for
the comparative periods.
Shareholders' equity at March 31, 1999 was $16,282,000, an increase of
$8,936,000 over March 31, 1998. This increase is primarily due to the
capital raised in the initial public offering by Blue River Bancshares in
June of 1998.
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
<S> <C> <C>
Non-performing loans consists of the following:
Non-accrual loans $ 750,205 $ 672,572
Real estate owned-net 185,528 36,727
--------- --------
Total non-performing loans $ 935,733 $ 709,299
========= =========
Non-performing loans to total assets 0.73 % 0.72 %
</TABLE>
The Bank stops accruing interest on loans that become delinquent in excess
of 90 days. At March 31, 1999 loans in non-accruing status were $750,000,
an increase of $78,000 over March 31, 1998. The Bank's real estate owned,
containing properties foreclosed upon, have increased to $185,000 at March
31, 1999 compared to $37,000 at March 31, 1998.
10
<PAGE>
Activity in the allowance for loan losses consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1999 1998
<S> <C> <C>
Balance, beginning of period $ 750,022 $ 422,376
Add:
Provision for loan losses 45,000 405,000
Recoveries of loans previously charged off 321 3,763
Less gross charge-offs:
Residential real estate loans (5,900)
Consumer loans (4,028) 0
--------- ---------
Balance, end of period $ 785,415 $ 831,139
========= =========
Net charge-offs to total average loans outstanding 0.01% 0.00%
Allowance to total average loans outstanding 0.87% 1.02%
</TABLE>
Allowance for loan losses at March 31, 1999 was $785,000, a decrease of
$46,000 from March 31, 1998. The March 31, 1998 allowance included
additional provisions being recorded to address conditions observed during
an OTS safety and soundness examination prior to the effective date of
merger. Specific reserves had been established to address concerns related
to certain classified loans.
11
<PAGE>
RESULTS OF OPERATIONS: Three Month Period Ended March 31, 1999
--------------------------------------------------------------
During the three month period ended March 31, 1999, net earnings increased
to $105,000 compared to a net loss of ($172,000) during the three month
period ended March 31, 1998. This increase includes an increase in net
interest income before provision for loan losses of $212,000, a reduction
in provision for loan losses from $405,000 for the three months ended
March 31, 1998 to $45,000 for the three months ended March 31, 1999, an
increase in non-interest income of $132,000, offset by an increase in
non-interest expenses of $202,000. The effective tax rate of the Company
is impacted by the disallowance of goodwill amortization in calculating
income taxes.
Net interest income was $938,000, after provision for loan losses, for the
three month period ended March 31, 1999, compared to $366,000 for the
three month period ended March 31, 1998. Net interest income before
provision for loan losses improved to $983,000 compared to $771,000 for
the three month period ended March 31, 1999 and 1998, respectively. The
net interest income reported for the Predecessor reflects the special
provision for loan losses recognized in the three month period ended March
31, 1998 of $385,000.
Interest income increased from $1,872,000 for the three month period ended
March 31, 1998 to $2,216,000 for the three month period ended March 31,
1999. Interest income from loans was $1,827,000 for the three month period
ended March 31, 1999, an increase of $118,000 over the same period in
1998. The increase in loan interest income consists of a favorable volume
variance of $165,000 offset by an unfavorable rate variance of $47,000.
The unfavorable rate variance is due partially to the margin reduction
related to fair value treatment of the loans acquired at June 26, 1998.
Interest income on investment securities and interest bearing deposits
increased $217,000 to $362,000 for the three months ended March 31, 1999,
resulting from a favorable volume variance of $246,000 offset by an
unfavorable rate variance of $29,000. Interest expense for the three
month period ended March 31, 1999 was $1,234,000 compared to $1,101,000
for the three month period ended March 31, 1998. Interest expense on
deposit accounts increased from $849,000 for the three month period ended
March 31, 1998 to $939,000 for the three month period ended March 31,
1999. The increase in interest expense on deposits consists of a $249,000
increase due to increased deposit balances, offset by a $159,000 reduction
due to a decrease in the rates related to the deposit portfolio. Interest
expense on advances from the Federal Home Loan Bank ("FHLB") increased to
$295,000 for 1999 compared to $252,000 for 1998. The increase in balances
related to FHLB funding accounts for an increase of $48,000, however,
rates on such advances declined, resulting in a $5,000 favorable rate
variance.
12
<PAGE>
Total non-interest income was $250,000 for the three month period ended
March 31, 1999, compared to $118,000 for the same period in 1998.
Included in the 1999 results is a gain on sale of FHLMC stock of $157,000.
Non-interest expense totaled $971,000 for the three month period ended
March 31, 1999 compared to $768,000 for the same period in the prior year.
The primary increase in non-interest expense relates to a $154,000
increase in salaries and employee benefits, resulting in strengthening the
Bank's management functions and increasing staff in sales and service
areas to enhance customer service and to accommodate growth in product
offerings and market presence. Expenses related to premises and equipment
increased $56,000 over the three months ended March 31, 1998 due to
expanded office space utilization at the main banking facility, improved
and larger quantities computer hardware, and enhanced office equipment
such as copiers, laser printers, and fax machines acquired to boost
productivity. Deposit insurance premiums increased $27,000 over 1998,
resulting from a larger deposit base coupled with a higher assessment rate
being assigned to the Bank's deposits when compared to 1998. Stationery,
supplies and printing for the three month period ended March 31, 1999 were
$28,000 compared to $10,000 for the three months ended March 31, 1998,
reflecting continuation of orders necessary to replace materials produced
prior to the name change from Shelby County Savings Bank to Shelby County
Bank. Goodwill amortization for the three months ended March 31, 1999
were $47,000, expenses not reflected in the three months ended March 31,
1998.
CAPITAL RESOURCES AND LIQUIDITY
-------------------------------
The Successor is subject to regulation as a savings and loan holding
company, and is subject to certain restrictions in its dealings with the
Bank. The Bank is subject to the regulatory requirements applicable to a
federal savings bank.
Current capital regulations required savings institutions to have minimum
tangible capital equal to 1.5% to total assets and a core capital ratio
equal to 3.0% of total assets. Additionally, savings institutions are
required to meet a risk based capital ratio equal to 8.0% for
risk-weighted assets. At March 31, 1999, the Bank satisfied all capital
requirements.
The following is a summary of the Bank's regulatory capital and capital
requirements at March 31, 1999 based on capital regulations currently in
effect for savings institutions.
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
<S> <C> <C> <C>
Regulatory capital $ 9,355,000 $ 9,355,000 $10,105,000
Minimum capital requirements 1,902,000 3,805,000 6,738,000
----------- ----------- -----------
Excess capital $ 7,453,000 $ 5,550,000 $ 3,367,000
=========== =========== ===========
Regulatory capital ratio 7.91% 7.38% 12.53%
Required capital ratio 1.50% 3.00% 8.00%
</TABLE>
Liquidity measures the Bank's ability to meet its savings withdrawals and
lending commitments. Management believes that the Bank's liquidity is
adequate to meet current requirements. The Bank maintains liquidity of at
least 4% of net withdrawable assets. At March 31, 1999, its regulatory
liquidity ratio was 23.85%.
13
<PAGE>
Year 2000 Compliance
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Bank's computer
programs and those of third-party computer related providers may recognize a
date using "00" as the year 1900 rather than the year 2000. This situation could
result in system failures or miscalculations causing disruption of operations
that could affect the ability of the Bank to operate effectively and service
customers.
I. THE BANK'S STATE OF READINESS
The Bank is preparing for the year 2000 by testing and evaluating both its
information technology (IT) and non-information technology systems. The Bank
does not have any mission critical processes that are dependent on non-IT
systems. The non-IT systems, such as the telephone system, are either currently
compliant or are expected to be compliant in the fiscal year 1999. The IT
systems used by the Bank have been or are being tested. The components of the IT
systems being examined are: personal computers (hardware and software), data
service bureau, and other service providers.
In 1998, a comprehensive project plan to address the Year 2000 issue as it
relates to the Bank's operation was developed, approved by the Board of
Directors and implemented. The scope of the plan includes phases of Awareness,
Assessment, Renovation, Validation, and Implementation as defined by federal
banking regulatory agencies. The Bank's project team consists of key members of
the technology staff, representatives of functional business units, and senior
management. The project team estimates that the Bank's Year 2000 readiness
project is 75% complete and that activities involved in assessing external risks
and operational issues are 90% complete overall. The following table provides a
summary of the current status of the five phases involved in Year 2000 readiness
and a projected timetable for completion as of March 31, 1999:
PERCENTAGE PROJECTED
PROJECT PHASE COMPLETED COMPLETION COMMENTS
------------- ---------- ---------- --------
Awareness 100% Completed
Assessment 100% Completed
Renovation 90% June 30, 1999
Validation 75% June 30, 1999
Implementation 50% June 30, 1999
An assessment of the impact of the Year 2000 issue on the Bank's computer
systems has been completed. The scope of the project also includes other
operational and environmental systems since they may be impacted if embedded
computer chips control the functionality of those systems. From the assessment,
the Bank has identified and prioritized those systems deemed to be mission
critical or those that have a significant impact on normal operations.
The Bank relies on third party vendors and service providers for its data
processing capabilities and to maintain its computer systems. Formal
communications with these providers were initiated in 1998 to assess the Year
2000 readiness of their products and services. Their progress in meeting their
targeted schedules is being monitored for any indication that they may not be
able to address the problems in time. Thus far, responses indicate that most of
the significant providers currently have compliant versions available or are
well into the renovation and testing phases.
Additionally, the Bank has implemented a plan to manage the potential risk
imposed by the impact of the Year 2000 issue on its major customers. Formal
communications were initiated, and the assessment was significantly completed by
December 31, 1998.
II. THE COSTS TO ADDRESS THE BANK'S YEAR 2000 ISSUES
The Bank has thus far primarily used and expects to continue to primarily use
internal resources to implement its readiness plan and to upgrade or replace and
test systems affected by the Year 2000 issue. The total cost to the Bank of
those Year 2000 compliance activities has not been and is not anticipated to be
material to its financial position or results of operations in any given year.
In total, the Bank estimates that its costs, excluding personnel expenses, for
Year 2000 remediation and testing of its computer systems will amount to less
than $60,000 over the eighteen month period from 1998 through 2000. Not included
in this estimate is the cost to replace fully depreciated systems during
14
<PAGE>
this period, which occurs in the normal course of business and is not directly
attributable to the Year 2000 issue.
The costs and the estimated timing in which the Bank plans to complete the Year
2000 readiness activities are based on management's best estimates, which were
derived using numerous assumptions of future events including the continued
availability of certain resources, third party readiness plans and other
factors. The Bank can make no guarantee that these estimates will be achieved,
and actual results could differ from such plans.
III. THE RISKS OF THE BANK'S YEAR 2000 ISSUES
The Bank is substantially dependent upon the services of Intrieve, Incorporated
of Cincinnati, Ohio. Intrieve is a provider of data processing services for
financial institutions throughout the United States. Intrieve is concentrating
on Year 2000 preparedness, including a recent migration to a new processing
system upon which testing is currently being conducted. A proxy test was
concluded in October 1998 with results indicating no significant errors under
the testing environment. The Bank continues to monitor the Intrieve efforts
related to Year 2000 compliance due to the potential risk to the Bank in the
failure of Intrieve to realize Year 2000 preparedness.
The Bank has established parameters and processes for management to identify
material customers, evaluate their preparedness, assess their credit risk and
implement controls to manage the risk arising from their failure to properly
address Year 2000 technology issues. The Bank faces increased credit and
liquidity risk when customers encounter Year 2000 related problems. Customers
that must be evaluated and monitored are those that, if adversely impacted by
Year 2000 technology issues, represent a significant financial exposure to the
Bank in terms of either credit loss or liquidity. The organizations that have
been identified as material customers of the Bank will be monitored because of
their reliance on technology for their successful business operations.
Failure of borrowers, or servicers to address Year 2000 problems may increase
credit risk to the Bank through the inability of these parties to meet the terms
of their contracts and make timely payments of principal and interest to the
Bank. Liquidity risk may result if depositors, or lenders experience Year 2000
related business disruption or operational failures and are unable to provide
funds or fulfill funding commitments to the Bank.
IV. THE BANK'S CONTINGENCY PLAN
Realizing that some disruption may occur despite its best efforts, the Bank is
in the process of developing contingency plans for each critical system in the
event that one or more of those systems fail. While this is an ongoing process,
the Bank expects to have the plan formally documented by June 30, 1999.
15
<PAGE>
II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Neither the Successor nor the Bank are engaged in any legal proceedings
of a material nature at the present time. From time to time, the Bank
is a party to legal proceedings wherein it enforces its security
interest in mortgage loans made by it.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
(1) The Successor completed its initial public offering pursuant to a
Registration Statement on Form SB-2 (File No. 333-48269) declared
effective by the Securities and Exchange Commission on June 22,
1998 and issued 1,500,000 shares of its Common Stock, no par, to
the public at a price of $12.00 per share.
(2) The offering pursuant to the Registration Statement was commenced
on June 23, 1998.
(3) The offer terminated after 1,500,000 shares of common stock
registered under the Registration Statement were sold.
(i) The underwriter for the initial public offering was Roney
Capital markets, a division of First Chicago Capital
Markets, Inc.
(ii) The Registration Statement registered 1,725,000 shares of
common stock which included 225,000 shares of common stock
for the Underwriter to cover over-allotments. The
Underwriter did not exercise its option to purchase these
225,000 shares of common stock.
(iii) From June 22, 1998 through June 30, 1998, the Successor
incurred the following expenses in connection with the
issuance and distribution of the securities registered
pursuant to the Registration Statement, none of which
constituted direct or indirect payments to directors,
officers or general partners of the Successor (other
expenses represent a reasonable estimate of actual costs
incurred):
Underwriting discounts and commissions $1,194,000
Other expenses 10,500
----------
Total expenses $1,204,500
----------
(iv) The net proceeds to the Successor of the offering pursuant
to the Registration Statement, after deducting the expenses
listed in (iii) above are $16,795,500. The Successor
received approximately $16,200,000 of cash from the initial
public offering, net of underwriting discounts, commissions,
and other offering costs and expenses.
(v) From June 22, 1998 through June 30, 1998, the Successor has
applied the following amounts of its net proceeds from the
offering pursuant to the Registration Statement, none of
which constituted direct or indirect payments to the
Company's affiliates, 10 percent stockholders, directors,
officers or general partners or their associates, direct or
indirect payments to others, except for repayment of
indebtedness to Steven R. Abel, Robert C. Reed and D. Warren
Robison (collectively, the "Founders"), each of whom is an
officer and shareholder of the Successor:
16
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Construction of plant, building and facilities $
Purchase and installation of machinery and equipment
Purchases of real estate
Acquisitions of other business(es)
Repayment of indebtedness to the Founders 346,000
Working capital (Holding Company) 2,848,750
Contribution of Capital to the Bank 2,500,000
Temporary investments (footnote a) 24,120
Other uses of at least $100,000 (footnote b) 10,481,130
</TABLE>
(a) Temporary investments consist of high quality, short term, liquid
investments.
(b) Payment of consideration to former shareholders of Shelby County
Bancorp
Item 3. Defaults upon Senior Securities
-------------------------------
None
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibit 27--Financial Data Schedule
b) Employment Agreement between Blue River Bancshares, Inc. and
Jay Powell (Attached as Exhibit 10.1)
c) Employment Agreement between Blue River Bancshares, Inc. and
David Morrison (Attached as Exhibit 10.2)
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on behalf of the undersigned
thereto duly authorized.
Blue River Bancshares, Inc.
Date: May 17, 1999 By /s/ Bradley A. Long
--------------- ---------------------
Bradley A. Long, Vice President,
Chief Financial Officer and Treasurer
18
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into this day of
March, 1999, and effective as of the __ day of December, 1998, by and between
Blue River Bancshares, Inc. ("Blue River") and Jay R. Powell, a resident of
Indiana ("Employee").
WITNESSETH:
WHEREAS, Blue River's wholly-owned subsidiary Shelby County Bank
("SCB") has filed an application to establish three (3) de novo branches in Fort
Wayne, Indiana under the name "First Community Bank of Fort Wayne" (the "Bank");
WHEREAS, the Employee will be employed by Bank to serve as its Chairman
and Vice Chairman of SCB upon approval of the related application;
WHEREAS, Employee desires to be assured of a secure minimum
compensation from Blue River for his services over a defined term;
WHEREAS, Blue River recognizes that when faced with a proposal for a
change of control, Employee will have a significant role in helping Blue River's
Board of Directors (hereinafter referred to as the "Holding Company Board")
assess the options and advising the Holding Company Board on what is in the best
interests of Blue River 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, Blue River desires reasonable protection of its confidential
business and customer information which it will develop over the years at
substantial expense and assurance that Employee will not compete with Blue River
for a reasonable period of time after termination of his employment with Blue
River, except as otherwise provided herein.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and undertakings herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Blue River and Employee, each intending to be legally bound, covenant and agree
as follows:
1. Employment. Upon the terms and subject to the conditions set forth
in this Agreement, Blue River employs Employee, and Employee accepts such
employment. Employee agrees to render such banking services to Blue River as may
reasonably be assigned to him by the President or Board of Directors of Blue
River. So long as Employee is employed by Blue River pursuant to this Agreement,
Employee shall be entitled to reasonable office space and working conditions.
Employee shall not be required to be absent from his current offices on travel
status or otherwise more than forty-five (45) days in any calendar year. Blue
River shall not, without the written consent of Employee, relocate or transfer
Employee to a location more than thirty (30) miles from his principal residence.
Although while employed by Blue River, Employee shall devote substantially all
his business time and efforts to Blue River's business and shall not engage in
any
-1-
<PAGE>
other related business, Employee may use his discretion in fixing his hours and
schedule of work consistent with the proper discharge of his duties.
2. Term of Employment. The term of this Agreement shall begin on
December , 1998 (the "Effective Date") and shall end on the date which is three
(3) years following such date; provided, however, that such term shall be
extended automatically for an additional year on each anniversary of the
Effective Date, unless either party hereto gives written notice to the other
party not to so extend prior to an anniversary, in which case no further
automatic extension shall occur and the term of this Agreement shall end three
(3) 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").
3. Compensation.
(A) Employee shall receive an annual minimum salary of Seventy-Two
Thousand and 00/100 Dollars ($72,000) ("Base Salary") payable at regular
intervals in accordance with Blue River's normal payroll practices in effect
from time to time. The rate of Employee's Base Salary shall be reviewed by the
Holding Company Board not less often than annually and may be increased, but not
decreased, from time to time in such amounts as the Holding Company Board in its
discretion may determine. Base Salary payments shall be subject to the
withholding of applicable income and employment taxes and other appropriate and
customary amounts. Upon any change in Employee's Base Salary, the Employee and
the appropriate officer(s) of Blue River shall execute a written amendment to
this Agreement identifying such change.
(B) Any and all increases in Employee's salary pursuant to this Section
3 shall cause the level of Base Salary to be increased by the amount of each
such increase for purposes of this Agreement. The increased level of Base Salary
as provided in this Section shall become the level of Base Salary for the
remainder of the Term until there is a further increase in Base Salary as
provided herein. Employee shall not receive fees for his services as a director
or committee member of the Blue River or any of its affiliates.
(C) In addition to his Base Salary, Employee shall be entitled to
receive an annual cash bonus, to be paid in a single sum, not later than sixty
(60) days following the end of each fiscal year of the Blue River to which the
bonus relates. Employee and Blue River, with the approval of the Holding Company
Board, shall negotiate the terms and conditions of such bonus which will be
evidenced by a written addendum to this Agreement executed by Employee and the
appropriate officer or officers of the Blue River. The Holding Company Board
shall provide Employee with such additional compensation, including long-term
cash incentive and equity-based compensation programs, as it may determine in
its sole discretion.
-2-
<PAGE>
4. Benefits.
(A) During the Term, Employee shall be entitled to participate in or
receive benefits under any (i) life, health, hospitalization, medical, dental,
disability or other insurance policy or plan, (ii) pension, retirement or
employee stock ownership plan, (iii) bonus or profit-sharing plan or program,
(iv) deferred compensation plan or arrangement, and (v) other employee benefit
plan, program or arrangement, made available by Blue River on the date of this
Agreement and from time to time in the future to Blue River's directors,
officers and employees on a basis consistent with the terms, conditions and
overall administration of the foregoing plans, programs or arrangements and with
respect to which Employee is otherwise eligible to participate or receive
benefits.
(B) During the Term, Blue River shall provide Employee with an
automobile (the size, make and model which is mutually agreeable to Blue River
and Employee) for use in performing his duties under this Agreement. Such
automobile shall be replaced no less frequently than intervals of every three
(3) years during the Term, and all replacement automobiles shall be of
comparable size, make and model to that of the initial automobile agreed to by
Blue River and Employee. All maintenance, repairs, insurance, fuel, taxes and
license plate fees on such automobile shall be paid by Blue River. Employee's
use of the automobile will be consistent with applicable requirements and
limitations under the Internal Revenue Code of 1986, as amended.
(C) During the Term, Employee shall be provided with a family
membership at the Country Club, and all membership fees, dues and assessments
shall be paid by Blue River so long as Employee utilizes such membership
primarily in furtherance of his duties under this Agreement.
5. Expenses. So long as Employee is employed by Blue River pursuant to
this Agreement, Employee shall receive reimbursement from Blue River for all
reasonable business expenses incurred in the course of his employment by Blue
River, upon submission to Blue River of written vouchers and statements for
reimbursement. Employee shall attend, at his discretion, those professional
meetings, conventions, and/or similar functions that Employee and Blue River
mutually deem appropriate and useful for purposes of keeping abreast of current
developments in the industry and/or promoting the interests of Blue River.
6. Vacation. During the Term, Employee shall be entitled to five (5)
weeks per calendar year of paid vacation, which shall be utilized at such times
when his absence will not materially impair Blue River's normal business
functions. Any unused vacation time in any calendar year may be carried over and
must be used prior to March 31 of the succeeding calendar year. If any unused
vacation time is not used by March 31 of the succeeding calendar year, such
unused vacation time shall lapse, and Employee shall not be entitled to any
additional compensation for any such unused and lapsed vacation time. In
addition to the vacation described above, Employee also shall be entitled to all
paid holidays customarily given by Blue River to its officers.
-3-
<PAGE>
7. Termination. Subject to the respective continuing obligations of the
parties, including but not limited to those set forth in Section (A) below,
Employee's employment by Blue River may be terminated prior to the expiration of
the Term as follows:
(A) The Holding Company Board may terminate Employee's employment with
Blue River 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, (vii) failure to obtain regulatory approval for the
operation of the Bank in Fort Wayne, Indiana, upon terms which are satisfactory
to SCB or (viii) any material breach of any term, condition or covenant of this
Agreement.
(B) The Holding Company Board may terminate Employee's employment with
Blue River without cause at any time; provided, however, that the "date of
termination" for purposes of determining benefits payable to Employee under
subsection 8(B) below shall be the date which is thirty (30) days after Employee
receives written notice of such termination.
(C) Employee, by written notice to Blue River, may terminate his
employment with Blue River immediately for cause. For purposes of this
subsection 7(C), "cause" shall be defined as: (i) any action to remove the
Employee as an employee of Blue River, except where the Holding Company Board
properly acts to remove Employee for "cause" as defined in subsection 7(A)
hereof;; (ii) any failure of Blue River to obtain the assumption its respective
obligation to perform this Agreement by any successor, as contemplated in
Section 17 hereof; or (iii) any intentional breach by Blue River of a term,
condition or covenant of this Agreement.
(D) Employee, upon sixty (60) days written notice to Blue River, may
terminate his employment with Blue River without cause.
(E) Employee's employment with Blue River 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
Blue River because of Employee's disability shall have been given to Employee
prior to the full resumption by him of the performance of such duties.
8. Compensation Upon Termination. In the event of termination of
Employee's employment with Blue River pursuant to Section 7 hereof, compensation
shall continue to be paid by Blue River to Employee as follows:
(A) In the event of termination pursuant to subsection 7(A) or 7(D),
compensation provided for herein (including Base Salary) shall continue to be
paid, and Employee shall continue to participate in the employee benefit,
retirement, and compensation plans and other perquisites as
-4-
<PAGE>
provided in Section 4 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 Salary) 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 Section
4 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 Blue River his Base Salary at the rates in
effect at the time of termination: (i) for three (3) years following termination
if the termination follows a Change of Control; or (ii) for the remainder of
Term if the termination does not follow a Change of Control. In addition, during
such periods, Blue River will maintain in full force and effect for the
continued benefit of Employee each employee welfare benefit plan (as such term
is 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 of Blue River do not permit continued participation by
Employee, Blue River 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.
(C) For purposes of this Agreement, a "Change of Control" shall mean a
change in control of Blue River not approved in advance by the Holding Company
Board of a nature which would be required to be reported in response to Item
5(f) of Schedule 14A promulgated under the Securities Exchange Act of 1934, as
amended, or any merger tender offer, consolidation or sale of substantially all
of the assets of Blue River, or related series of such events, as a result of
which: (i) the majority shareholders of Blue River immediately prior to such
event hold less than fifty-percent (50%) of the outstanding voting securities of
Blue River or its survivor or successor immediately after such event; (ii)
persons holding less than twenty-percent (20%) of such securities before such
event own more than fifty-percent (50%) of such securities after such event; or
(iii) persons constituting a majority of the Holding Company Board were not
directors of Blue River for at least twenty-four (24) preceding months.
(D) In the event of termination pursuant to subsection 7(E),
compensation provided for herein (including Base Salary) 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 Section
4 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
-5-
<PAGE>
7(E). Any benefits payable under insurance, health, retirement and bonus plans
as a result of Blue River's participation in such plans through such date shall
be paid when due under those plans.
(E) Blue River will permit Employee or his personal representative(s)
or heirs, during a period of three (3) months following Employee's termination
of employment (as specified in the notice of termination) by Blue River for the
reasons set forth in subsections 7(B) or 7(C), if such termination follows a
Change of Control, to require Blue river, upon written request, to purchase all
outstanding stock options previously granted to Employee under any Blue River
stock option plan then in effect whether or not such options are then
exercisable or have terminated at a cash purchase price equal to the amount by
which the aggregate fair market value of the shares subject to such options on
the date of termination specified in the notice of termination exceeds the
aggregate option price for such shares. For purposes of this subsection 8(D),
"fair market value" shall mean between the reported closing bid and ask prices
for the shares of common stock of the Holding Company as quoted by the North
American Securities Dealer Automated Quotation System ("NASDAQ"). If the common
stock of Blue River is not quoted on NASDAQ, the fair market value shall be
determined by the Compensation Committee of Blue River based upon quotations of
the entities which make a market in Blue River's stock. In the event no entities
make a market in the Blue River's stock, "fair market value" shall mean the
amount agreed upon by the Employee and Blue River. If the Employee and Blue
River are unable to reach an agreement regarding the fair market value of the
stock within ten (10) days of the date of termination specified in the notice of
termination, then the Employee and Blue River shall each select an appraisal
firm and the two (2) firms shall determine the fair market value of the
Employee's stock. If the two appraisal firms cannot agree upon the value within
thirty (30) days of their appointment, they shall appoint a third appraiser, the
decision of a majority of the three (3) appraisers shall be final and binding on
the Employee and Blue River; provided, however, the Employee may elect, by
notifying Blue River within thirty (30) days after the date of termination
specified in the notice of termination, to have the following definition of
"fair market value" apply for purposes of this subsection 8(D): the per share
book value of the Blue River's stock, calculated in accordance with generally
accepted accounting principles as of the last day of the month coinciding with
or immediately preceding the date of termination as specified in the notice of
termination. The costs of any appraisals shall be paid one-half (1/2) by Blue
River and one-half (1/2) by the Employee or his personal representative(s) or
heirs, as the case may be.
9. Nonsolicitation and Nondisclosure Covenants of Employee. In order to
induce Blue River to enter into this Agreement, Employee hereby agrees as
follows:
(A) While Employee is employed by Blue River and for a period of one
(1) year 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. CODE Section 24-2-3-2) of Blue
River or any confidential information acquired by him while employed by Blue
River concerning the policies, plans, procedures or customers of Blue River to
any person, firm or corporation, other than Blue River, 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
-6-
<PAGE>
than Blue River, since such trade secrets and confidential information are
confidential and shall at all times remain the property of Blue River.
(B) For a period of one (1) year after termination of Employee's
employment by Blue River 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 person, firm, company or other business entity that is doing
business with Blue River, or assist any actual or potential competitor of Blue
River 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 Blue River and for a period of one
(1) year after termination of Employee's employment by Blue River 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 or venture which competes
with the business of Blue River as conducted during Employee's employment by
Blue River within a radius of fifty (50) miles of any office of Blue River, SCB
or the Bank.
(D) If Employee's employment by Blue River is terminated for reasons
other than those set forth in subsections 7(B) or 7(C) of this Agreement,
Employee will turn over immediately thereafter to Blue River all business
correspondence, letters, papers, reports, customers' lists, financial
statements, credit reports or other confidential information or documents of
Blue River in the possession or control of Employee, all of which writings are
and will continue to be the sole and exclusive property of Blue River.
(E) If Employee's employment by Blue River is terminated during the
Term for reasons set forth in subsections 7(B) or (C) or this Agreement,
Employee shall have no obligations to Blue River with respect to trade secrets,
confidential information or noncompetition under this Section 9.
10. Notice of Termination. Any termination of Employee's employment
with Blue River 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. Employee Discipline.
(A) If Employee is suspended and/or temporarily prohibited from
participating in the conduct of any of Blue River's affairs by a notice served
under section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
Section 1818(e)(3) and (g)(1)), Blue River's obligations under
-7-
<PAGE>
this Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, Blue River
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.
(B) If Employee is removed and/or permanently prohibited from
participating in the conduct by an order issued under section 8(e)(4) or (g)(1)
of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(4) or (g)(1)),
all obligations of Blue River 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. If Blue River 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 Blue River or Employee.
12. Termination of Obligations. All obligations under this Agreement
may be terminated except to the extent determined that the continuation of the
Agreement is necessary for the continued operation of Blue River by order of any
state or federal banking regulatory with agency supervision of Blue River or any
of its affiliates, unless stayed by appropriate proceedings.
13. Litigation Expenses. 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 Blue River 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 Blue River, to the extent
permitted by law.
14. Heirs of Employee. Should Employee die after termination of his
employment with Blue River while any amounts are payable to him hereunder, this
Agreement shall inure to the benefit of and be enforceable by Employee's
executors, administrators, heirs, distributees, devisees and legatees and all
amounts payable hereunder shall be paid in accordance with the terms of this
Agreement to Employee's devisee, legatee or other designee or, if there is no
such designee, to his estate.
15. Notices. 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: Jay R. Powell
-8-
<PAGE>
If to Blue River: Blue River Bancshares, Inc.
Attn: President
29 East Washington Street
Shelbyville, Indiana 46176
or to such other 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.
16. Governing Law. The validity, interpretation, and performance of
this Agreement shall be governed by the laws of the State of Indiana without
reference to the choice of law principles thereof.
17. Successors and Assigns. Blue River 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 Blue River, by agreement
in form and in substance satisfactory to Employee to expressly assume and agree
to perform this Agreement in the same manner and same extent that Blue River
would be required to perform it if no such succession had taken place. Failure
of Blue River 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 Blue River pursuant to
subsection 7(C) hereof. As used in this Agreement, the term "Blue River" means
the organization as hereinbefore defined and any successor to its business or
assets as aforesaid.
18. Waiver of Terms. No provision of this agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in a writing signed by Employee and Blue River. 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 wavier 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.
19. Severability. 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.
20. Counterparts. 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.
21. Nature of the Agreement. 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 14 and Section 17 above. Without limiting the foregoing, Employee's
right to receive compensation hereunder shall not be assignable or
-9-
<PAGE>
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 14 hereof, and in the event of any attempted assignment or
transfer contrary to this paragraph, Blue River shall have no liability to pay
any amounts so attempted to be assigned or transferred.
22. Tax-Based Salary Adjustments. Anything in this Agreement to the
contrary notwithstanding, in the event Blue River's independent public
accountants determine that any payment by Blue River to or for the benefit of
Employee, whether paid or payable pursuant to the terms of this Agreement, would
be non-deductible by Blue River for federal income tax purposes because of
Section 280G of the Internal Revenue Code, then the amount payable to or for the
benefit of Blue River pursuant to the Agreement shall be reduced (but not below
zero) to the Reduced Amount. For purposes of this Section 22, the "Reduced
Amount" shall be the amount which maximizes the amount payable without causing
the payment to be non-deductible by Blue River because of Section 280G of the
Internal Revenue Code.
* * * * * *
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have caused the Agreement to be
executed and delivered as of the _____ day of March, 1999.
BLUE RIVER BANCSHARES, INC.
By:
Printed:
Title:
"EMPLOYEE"
Printed: Jay R. Powell
-11-
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into this day of
March, 1999, and effective as of the __ day of December, 1998, by and between
Blue River Bancshares, Inc. ("Blue River") and David Morrison, a resident of
Indiana ("Employee").
WITNESSETH:
WHEREAS, Blue River's wholly-owned subsidiary Shelby County Bank
("SCB") has filed an application to establish three (3) de novo branches in Fort
Wayne, Indiana under the name "First Community Bank of Fort Wayne" (the "Bank");
WHEREAS, the Employee will be employed by Bank to serve as its
President upon approval of the related application;
WHEREAS, Employee desires to be assured of a secure minimum
compensation from Blue River for his services over a defined term;
WHEREAS, Blue River recognizes that when faced with a proposal for a
change of control, Employee will have a significant role in helping Blue River's
Board of Directors (hereinafter referred to as the "Holding Company Board")
assess the options and advising the Holding Company Board on what is in the best
interests of Blue River 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, Blue River desires reasonable protection of its confidential
business and customer information which it will develop over the years at
substantial expense and assurance that Employee will not compete with Blue River
for a reasonable period of time after termination of his employment with Blue
River, except as otherwise provided herein.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and undertakings herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Blue River and Employee, each intending to be legally bound, covenant and agree
as follows:
1. Employment. Upon the terms and subject to the conditions set forth
in this Agreement, Blue River employs Employee, and Employee accepts such
employment. Employee agrees to render such banking services to Blue River as may
reasonably be assigned to him by the President or Board of Directors of Blue
River. So long as Employee is employed by Blue River pursuant to this Agreement,
Employee shall be entitled to reasonable office space and working conditions.
Employee shall not be required to be absent from his current offices on travel
status or otherwise more than forty-five (45) days in any calendar year. Blue
River shall not, without the written consent of Employee, relocate or transfer
Employee to a location more than thirty (30) miles from his principal residence.
Although while employed by Blue River, Employee shall devote substantially all
his business time and efforts to Blue River's business and shall not engage in
any
-1-
<PAGE>
other related business, Employee may use his discretion in fixing his hours and
schedule of work consistent with the proper discharge of his duties.
2. Term of Employment. The term of this Agreement shall begin on
December , 1998 (the "Effective Date") and shall end on the date which is one
(1) year following such date; provided, however, that such term shall be
extended automatically for an additional year on each anniversary of the
Effective Date, unless either party hereto gives written notice to the other
party not to so extend prior to an anniversary, in which case no further
automatic extension shall occur and the term of this Agreement shall end one (1)
year 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").
3. Compensation.
(A) Employee shall receive an annual minimum salary of Eighty-Five
Thousand and 00/100 Dollars ($85,000) ("Base Salary") payable at regular
intervals in accordance with Blue River's normal payroll practices in effect
from time to time. The rate of Employee's Base Salary shall be reviewed by the
Holding Company Board not less often than annually and may be increased, but not
decreased, from time to time in such amounts as the Holding Company Board in its
discretion may determine. Base Salary payments shall be subject to the
withholding of applicable income and employment taxes and other appropriate and
customary amounts. Upon any change in Employee's Base Salary, the Employee and
the appropriate officer(s) of Blue River shall execute a written amendment to
this Agreement identifying such change.
(B) Any and all increases in Employee's salary pursuant to this Section
3 shall cause the level of Base Salary to be increased by the amount of each
such increase for purposes of this Agreement. The increased level of Base Salary
as provided in this Section shall become the level of Base Salary for the
remainder of the Term until there is a further increase in Base Salary as
provided herein. Employee shall not receive fees for his services as a director
or committee member of the Blue River or any of its affiliates.
(C) In addition to his Base Salary, Employee shall be entitled to
receive an annual cash bonus, to be paid in a single sum, not later than sixty
(60) days following the end of each fiscal year of the Blue River to which the
bonus relates. Employee and Blue River, with the approval of the Holding Company
Board, shall negotiate the terms and conditions of such bonus which will be
evidenced by a written addendum to this Agreement executed by Employee and the
appropriate officer or officers of the Blue River. The Holding Company Board
shall provide Employee with such additional compensation, including long-term
cash incentive and equity-based compensation programs, as it may determine in
its sole discretion.
4. Benefits.
-2-
<PAGE>
(A) During the Term, Employee shall be entitled to participate in or
receive benefits under any (i) life, health, hospitalization, medical, dental,
disability or other insurance policy or plan, (ii) pension, retirement or
employee stock ownership plan, (iii) bonus or profit-sharing plan or program,
(iv) deferred compensation plan or arrangement, and (v) other employee benefit
plan, program or arrangement, made available by Blue River on the date of this
Agreement and from time to time in the future to Blue River's directors,
officers and employees on a basis consistent with the terms, conditions and
overall administration of the foregoing plans, programs or arrangements and with
respect to which Employee is otherwise eligible to participate or receive
benefits.
(B) During the Term, Blue River shall provide Employee with an
automobile (the size, make and model which is mutually agreeable to Blue River
and Employee) for use in performing his duties under this Agreement. Such
automobile shall be replaced no less frequently than intervals of every three
(3) years during the Term, and all replacement automobiles shall be of
comparable size, make and model to that of the initial automobile agreed to by
Blue River and Employee. All maintenance, repairs, insurance, fuel, taxes and
license plate fees on such automobile shall be paid by Blue River. Employee's
use of the automobile will be consistent with applicable requirements and
limitations under the Internal Revenue Code of 1986, as amended.
(C) During the Term, Employee shall be provided with a family
membership at the Country Club, and all membership fees, dues and assessments
shall be paid by Blue River so long as Employee utilizes such membership
primarily in furtherance of his duties under this Agreement.
5. Expenses. So long as Employee is employed by Blue River pursuant to
this Agreement, Employee shall receive reimbursement from Blue River for all
reasonable business expenses incurred in the course of his employment by Blue
River, upon submission to Blue River of written vouchers and statements for
reimbursement. Employee shall attend, at his discretion, those professional
meetings, conventions, and/or similar functions that Employee and Blue River
mutually deem appropriate and useful for purposes of keeping abreast of current
developments in the industry and/or promoting the interests of Blue River.
6. Vacation. During the Term, Employee shall be entitled to five (5)
weeks per calendar year of paid vacation, which shall be utilized at such times
when his absence will not materially impair Blue River's normal business
functions. Any unused vacation time in any calendar year may be carried over and
must be used prior to March 31 of the succeeding calendar year. If any unused
vacation time is not used by March 31 of the succeeding calendar year, such
unused vacation time shall lapse, and Employee shall not be entitled to any
additional compensation for any such unused and lapsed vacation time. In
addition to the vacation described above, Employee also shall be entitled to all
paid holidays customarily given by Blue River to its officers.
7. Termination. Subject to the respective continuing obligations of the
parties, including but not limited to those set forth in Section (A) below,
Employee's employment by Blue River may be terminated prior to the expiration of
the Term as follows:
-3-
<PAGE>
(A) The Holding Company Board may terminate Employee's employment with
Blue River 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 term, condition or
covenant of this Agreement.
(B) The Holding Company Board may terminate Employee's employment with
Blue River without cause at any time; provided, however, that the "date of
termination" for purposes of determining benefits payable to Employee under
subsection 8(B) below shall be the date which is thirty (30) days after Employee
receives written notice of such termination.
(C) Employee, by written notice to Blue River, may terminate his
employment with Blue River immediately for cause. For purposes of this
subsection 7(C), "cause" shall be defined as: (i) any action to remove the
Employee as an employee of Blue River, except where the Holding Company Board
properly acts to remove Employee for "cause" as defined in subsection 7(A)
hereof;; (ii) any failure of Blue River to obtain the assumption its respective
obligation to perform this Agreement by any successor, as contemplated in
Section 17 hereof; or (iii) any intentional breach by Blue River of a term,
condition or covenant of this Agreement.
(D) Employee, upon sixty (60) days written notice to Blue River, may
terminate his employment with Blue River without cause.
(E) Employee's employment with Blue River 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
Blue River because of Employee's disability shall have been given to Employee
prior to the full resumption by him of the performance of such duties.
8. Compensation Upon Termination. In the event of termination of
Employee's employment with Blue River pursuant to Section 7 hereof, compensation
shall continue to be paid by Blue River to Employee as follows:
(A) In the event of termination pursuant to subsection 7(A) or 7(D),
compensation provided for herein (including Base Salary) 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 Section
4 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.
-4-
<PAGE>
(B) In the event of termination pursuant to subsection 7(B) or 7(C),
compensation provided for herein (including Base Salary) 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 Section
4 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 Blue River his Base Salary at the rates in
effect at the time of termination: (i) for three (3) years following termination
if the termination follows a Change of Control; or (ii) for the remainder of
Term if the termination does not follow a Change of Control. In addition, during
such periods, Blue River will maintain in full force and effect for the
continued benefit of Employee each employee welfare benefit plan (as such term
is 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 of Blue River do not permit continued participation by
Employee, Blue River 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.
(C) For purposes of this Agreement, a "Change of Control" shall mean a
change in control of Blue River not approved in advance by the Holding Company
Board of a nature which would be required to be reported in response to Item
5(f) of Schedule 14A promulgated under the Securities Exchange Act of 1934, as
amended, or any merger tender offer, consolidation or sale of substantially all
of the assets of Blue River, or related series of such events, as a result of
which: (i) the majority shareholders of Blue River immediately prior to such
event hold less than fifty-percent (50%) of the outstanding voting securities of
Blue River or its survivor or successor immediately after such event; (ii)
persons holding less than twenty-percent (20%) of such securities before such
event own more than fifty-percent (50%) of such securities after such event; or
(iii) persons constituting a majority of the Holding Company Board were not
directors of Blue River for at least twenty-four (24) preceding months.
(D) In the event of termination pursuant to subsection 7(E),
compensation provided for herein (including Base Salary) 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 Section
4 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 Blue River's participation in
such plans through such date shall be paid when due under those plans.
(E) Blue River will permit Employee or his personal representative(s)
or heirs, during a period of three (3) months following Employee's termination
of employment (as specified in the notice of termination) by Blue River for the
reasons set forth in subsections 7(B) or 7(C), if such termination follows a
Change of Control, to require Blue river, upon written request, to purchase all
outstanding stock options previously granted to Employee under any Blue River
stock option plan
-5-
<PAGE>
then in effect whether or not such options are then exercisable or have
terminated at a cash purchase price equal to the amount by which the aggregate
fair market value of the shares subject to such options on the date of
termination specified in the notice of termination exceeds the aggregate option
price for such shares. For purposes of this subsection 8(D), "fair market value"
shall mean between the reported closing bid and ask prices for the shares of
common stock of the Holding Company as quoted by the North American Securities
Dealer Automated Quotation System ("NASDAQ"). If the common stock of Blue River
is not quoted on NASDAQ, the fair market value shall be determined by the
Compensation Committee of Blue River based upon quotations of the entities which
make a market in Blue River's stock. In the event no entities make a market in
the Blue River's stock, "fair market value" shall mean the amount agreed upon by
the Employee and Blue River. If the Employee and Blue River are unable to reach
an agreement regarding the fair market value of the stock within ten (10) days
of the date of termination specified in the notice of termination, then the
Employee and Blue River shall each select an appraisal firm and the two (2)
firms shall determine the fair market value of the Employee's stock. If the two
appraisal firms cannot agree upon the value within thirty (30) days of their
appointment, they shall appoint a third appraiser, the decision of a majority of
the three (3) appraisers shall be final and binding on the Employee and Blue
River; provided, however, the Employee may elect, by notifying Blue River within
thirty (30) days after the date of termination specified in the notice of
termination, to have the following definition of "fair market value" apply for
purposes of this subsection 8(D): the per share book value of the Blue River's
stock, calculated in accordance with generally accepted accounting principles as
of the last day of the month coinciding with or immediately preceding the date
of termination as specified in the notice of termination. The costs of any
appraisals shall be paid one-half (1/2) by Blue River and one-half (1/2) by the
Employee or his personal representative(s) or heirs, as the case may be.
9. Nonsolicitation and Nondisclosure Covenants of Employee. In order to
induce Blue River to enter into this Agreement, Employee hereby agrees as
follows:
(A) While Employee is employed by Blue River and for a period of one
(1) year 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. CODE Section 24-2-3-2) of Blue
River or any confidential information acquired by him while employed by Blue
River concerning the policies, plans, procedures or customers of Blue River to
any person, firm or corporation, other than Blue River, 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 Blue
River, since such trade secrets and confidential information are confidential
and shall at all times remain the property of Blue River.
(B) For a period of one (1) year after termination of Employee's
employment by Blue River 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 person, firm, company or other business entity that is doing
business with Blue River, or assist any actual or potential competitor of Blue
River to provide banking or
-6-
<PAGE>
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 Blue River and for a period of one
(1) year after termination of Employee's employment by Blue River 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 or venture which competes
with the business of Blue River as conducted during Employee's employment by
Blue River within a radius of fifty (50) miles of any office of Blue River, SCB
or the Bank.
(D) If Employee's employment by Blue River is terminated for reasons
other than those set forth in subsections 7(B) or 7(C) of this Agreement,
Employee will turn over immediately thereafter to Blue River all business
correspondence, letters, papers, reports, customers' lists, financial
statements, credit reports or other confidential information or documents of
Blue River in the possession or control of Employee, all of which writings are
and will continue to be the sole and exclusive property of Blue River.
(E) If Employee's employment by Blue River is terminated during the
Term for reasons set forth in subsections 7(B) or (C) or this Agreement,
Employee shall have no obligations to Blue River with respect to trade secrets,
confidential information or noncompetition under this Section 9.
10. Notice of Termination. Any termination of Employee's employment
with Blue River 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. Employee Discipline.
(A) If Employee is suspended and/or temporarily prohibited from
participating in the conduct of any of Blue River's affairs by a notice served
under section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
Section 1818(e)(3) and (g)(1)), Blue River'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, Blue River 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.
(B) If Employee is removed and/or permanently prohibited from
participating in the conduct by an order issued under section 8(e)(4) or (g)(1)
of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(4) or (g)(1)),
all obligations of Blue River 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
-7-
<PAGE>
affected. If Blue River 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 Blue River or Employee.
12. Termination of Obligations. All obligations under this Agreement
may be terminated except to the extent determined that the continuation of the
Agreement is necessary for the continued operation of Blue River by order of any
state or federal banking regulatory with agency supervision of Blue River or any
of its affiliates, unless stayed by appropriate proceedings.
13. Litigation Expenses. 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 Blue River 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 Blue River, to the extent
permitted by law.
14. Heirs of Employee. Should Employee die after termination of his
employment with Blue River while any amounts are payable to him hereunder, this
Agreement shall inure to the benefit of and be enforceable by Employee's
executors, administrators, heirs, distributees, devisees and legatees and all
amounts payable hereunder shall be paid in accordance with the terms of this
Agreement to Employee's devisee, legatee or other designee or, if there is no
such designee, to his estate.
15. Notices. 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: David Morrison
If to Blue River: Blue River Bancshares, Inc.
Attn: President
29 East Washington Street
Shelbyville, Indiana 46176
or to such other 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.
16. Governing Law. The validity, interpretation, and performance of
this Agreement shall be governed by the laws of the State of Indiana without
reference to the choice of law principles thereof.
-8-
<PAGE>
17. Successors and Assigns. Blue River 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 Blue River, by agreement
in form and in substance satisfactory to Employee to expressly assume and agree
to perform this Agreement in the same manner and same extent that Blue River
would be required to perform it if no such succession had taken place. Failure
of Blue River 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 Blue River pursuant to
subsection 7(C) hereof. As used in this Agreement, the term "Blue River" means
the organization as hereinbefore defined and any successor to its business or
assets as aforesaid.
18. Waiver of Terms. No provision of this agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in a writing signed by Employee and Blue River. 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 wavier 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.
19. Severability. 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.
20. Counterparts. 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.
21. Nature of the Agreement. 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 14 and Section 17 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 14 hereof, and in the event of any attempted assignment or transfer
contrary to this paragraph, Blue River shall have no liability to pay any
amounts so attempted to be assigned or transferred.
22. Tax-Based Salary Adjustments. Anything in this Agreement to the
contrary notwithstanding, in the event Blue River's independent public
accountants determine that any payment by Blue River to or for the benefit of
Employee, whether paid or payable pursuant to the terms of this Agreement, would
be non-deductible by Blue River for federal income tax purposes because of
Section 280G of the Internal Revenue Code, then the amount payable to or for the
benefit of Blue River pursuant to the Agreement shall be reduced (but not below
zero) to the Reduced Amount. For purposes of this Section 22, the "Reduced
Amount" shall be the amount which
-9-
<PAGE>
maximizes the amount payable without causing the payment to be non-deductible by
Blue River because of Section 280G of the Internal Revenue Code.
* * * * * *
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have caused the Agreement to be
executed and delivered as of the _____ day of March, 1999.
BLUE RIVER BANCSHARES, INC.
By:
Printed:
Title:
"EMPLOYEE"
Printed: David Morrison
-11-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ISSUER'S
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,239,643
<INT-BEARING-DEPOSITS> 1,754,469
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 410,052
<INVESTMENTS-MARKET> 20,312,040
<LOANS> 92,075,215
<ALLOWANCE> 785,415
<TOTAL-ASSETS> 127,969,300
<DEPOSITS> 90,099,413
<SHORT-TERM> 21,588,095
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 16,224,560
<OTHER-SE> 57,232
<TOTAL-LIABILITIES-AND-EQUITY> 127,969,300
<INTEREST-LOAN> 1,827,192
<INTEREST-INVEST> 285,250
<INTEREST-OTHER> 103,890
<INTEREST-TOTAL> 2,216,332
<INTEREST-DEPOSIT> 939,051
<INTEREST-EXPENSE> 294,646
<INTEREST-INCOME-NET> 982,635
<LOAN-LOSSES> 45,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 970,898
<INCOME-PRETAX> 216,772
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104,845
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
<YIELD-ACTUAL> 3.09
<LOANS-NON> 935,733
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 750,022
<CHARGE-OFFS> 9,928
<RECOVERIES> 321
<ALLOWANCE-CLOSE> 785,415
<ALLOWANCE-DOMESTIC> 785,415
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
