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As filed with the Securities and Exchange Commission on May l, 1998
Registration No. 333-48191
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(INCLUDING EXHIBITS)
PCB HOLDING COMPANY
(Exact name of registrant as specified in charter)
Indiana 6035 35-2040715
(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
819 Main Street
Tell City, Indiana 47586
(812) 547-7094
(Address and telephone number of principal executive offices)
Paul M. Aguggia, Jr., Esquire
Aaron M. Kaslow, Esquire
BREYER & AGUGGIA
Suite 470 East 1300 I Street, N.W.
Washington, D.C. 20005
(Name and address of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
Calculation of Registration Fee
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Title of Each Class of Securities Proposed Maximum Proposed Offering Proposed Maximum Amount of
Being Registered Amount Being Price(1) Aggregate Offering Registration Fee
Registered(1) Price(1)
====================================================================================================================================
<S> <C> <C> <C> <C>
Common Stock, $0.01 Par Value 396,750 $10.00 $3,967,500 $1,170.41(2)
Participation interests 23,500 -- -- (3)
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee. As
described in the Prospectus, the actual number of shares to be issued and
sold are subject to adjustment based upon the estimated pro forma market
value of the registrant and market and financial conditions.
(2) Previously paid.
(3) The securities of PCB Holding Company to be purchased by the Peoples
Building and Loan Association 401(k) Salary Reduction Plan and Trust are
included in the amount shown for Common Stock. Accordingly, pursuant to
Rule 457(h) of the Securities Act of 1933, as amended, no separate fee is
required for the participation interests. Pursuant to such rule, the amount
being registered has been calculated on the basis of the number of shares
of Common Stock that may be purchased with the current assets of such Plan.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS SUPPLEMENT
PCB HOLDING COMPANY
PEOPLES BUILDING & LOAN ASSOCIATION
401(K) SALARY REDUCTION PLAN
This Prospectus Supplement relates to the offer and sale to participants
("Participants") in the 401(k) Salary Reduction Plan ("Plan" or "401(k) Plan")
of participation interests and shares of PCB Holding Company common stock, par
value $.01 per share ("Common Stock"), as set forth herein.
In connection with the proposed conversion of Peoples Building & Loan
Association ("Association" or "Employer") from a federally chartered mutual
savings association to a federally chartered stock savings bank to be known as
Peoples Community Bank, a holding company, PCB Holding Company ("Holding
Company"), has been formed. The simultaneous conversion of the Association to
stock form, the issuance of the Association's common stock to the Holding
Company and the offer and sale of the Holding Company's Common Stock to the
public are herein referred to as the "Conversion." Applicable provisions of the
401(k) Plan permit the investment of the Plan assets in Common Stock of the
Holding Company at the direction of a Plan Participant. This Prospectus
Supplement relates to the election of a Participant to direct the purchase of
Common Stock in connection with the Conversion.
The Prospectus, dated __________, 1998, of the Holding Company
("Prospectus"), which is attached to this Prospectus Supplement, includes
detailed information with respect to the Conversion, the Common Stock and the
financial condition, results of operations and business of the Association and
the Holding Company. This Prospectus Supplement, which provides detailed
information with respect to the Plan, should be read only in conjunction with
the Prospectus. Terms not otherwise defined in this Prospectus Supplement are
defined in the Plan or the Prospectus.
A PARTICIPANT'S ELIGIBILITY TO PURCHASE COMMON STOCK IN THE CONVERSION
THROUGH THE PLAN IS SUBJECT TO THE PARTICIPANT'S GENERAL ELIGIBILITY TO PURCHASE
SHARES OF COMMON STOCK IN THE CONVERSION AND THE MAXIMUM AND MINIMUM LIMITATIONS
SET FORTH IN THE PLAN OF CONVERSION. SEE "THE CONVERSION" AND "-- LIMITATIONS
ON PURCHASES OF SHARES" IN THE PROSPECTUS.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS" IN THE PROSPECTUS BEGINNING ON PAGE ___.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE OFFICE OF THRIFT SUPERVISION ("OTS"), THE
FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") OR ANY OTHER FEDERAL OR STATE
AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, THE OTS, THE FDIC OR
ANY OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus Supplement is __________, 1998.
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement in connection with the offering made hereby, and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Holding Company, the Association or the Plan. This Prospectus
Supplement does not constitute an offer to sell or solicitation of an offer to
buy any securities in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall
under any circumstances create any implication that there has been no change in
the affairs of the Association or the Plan since the date hereof, or that the
information herein contained or incorporated by reference is correct as of any
time subsequent to the date hereof. This Prospectus Supplement should be read
only in conjunction with the Prospectus that is attached herein and should be
retained for future reference.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
The Offering
Securities Offered....................................... S-1
Election to Purchase Common Stock in the Conversion...... S-1
Value of Participation Interests......................... S-1
Method of Directing Transfer............................. S-1
Time for Directing Transfer.............................. S-2
Irrevocability of Transfer Direction..................... S-2
Direction Regarding Common Stock After the Conversion.... S-2
Purchase Price of Common Stock........................... S-2
Nature of a Participant's Interest in the Common Stock... S-2
Voting and Tender Rights of Common Stock................. S-3
Description of the Plan
Introduction............................................. S-3
Eligibility and Participation............................ S-4
Contributions Under the Plan............................. S-4
Limitations on Contributions............................. S-5
Investment of Contributions.............................. S-7
The Employer Stock Fund.................................. S-7
Benefits Under the Plan.................................. S-8
Withdrawals and Distributions from the Plan.............. S-8
Administration of the Plan............................... S-9
Reports to Plan Participants............................. S-10
Plan Administrator....................................... S-10
Amendment and Termination................................ S-10
Merger, Consolidation or Transfer........................ S-10
Federal Income Tax Consequences.......................... S-11
Restrictions on Resale................................... S-14
Legal Opinions................................................ S-14
Investment Form............................................... S-15
</TABLE>
i
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan and
up to ______ shares, at the actual purchase price of $10.00 per share, of Common
Stock which may be acquired by the Plan for the accounts of employees
participating in the Plan. The Holding Company is the issuer of the Common
Stock. Only employees and former employees of the Association and their
beneficiaries may participate in the Plan. Information with regard to the Plan
is contained in this Prospectus Supplement and information with regard to the
Conversion and the financial condition, results of operation and business of the
Association and the Holding Company is contained in the attached Prospectus.
The address of the principal executive office of the Association is 819 Main
Street, Tell City, Indiana 47586-0068. The Association's telephone number is
(812) 547-7094.
ELECTION TO PURCHASE COMMON STOCK IN THE CONVERSION
In connection with the Association's Conversion, each Participant in the
401(k) Plan may direct the trustees of the Plan (collectively, the "Trustees")
to transfer up to 100% of a Participant's account balance to a newly created
Employer Stock Fund and to use such funds to purchase Common Stock issued in
connection with the Conversion. Amounts transferred may include salary
deferral, matching and profit sharing contributions as well as amounts
transferred from the Association's prior retirement programs. The Employer
Stock Fund may consist of investments in the Common Stock made in connection
with the Conversion. Funds not transferred to the Employer Stock Fund will
continue to be invested at the direction of Plan Participants. See "DESCRIPTION
OF THE PLAN -- INVESTMENT OF CONTRIBUTIONS" below. A PARTICIPANT'S ABILITY TO
TRANSFER FUNDS TO THE EMPLOYER STOCK FUND IN THE CONVERSION IS SUBJECT TO THE
PARTICIPANT'S GENERAL ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IN THE
CONVERSION. FOR GENERAL INFORMATION AS TO THE ABILITY OF THE PARTICIPANTS TO
PURCHASE SHARES IN THE CONVERSION, SEE "THE CONVERSION -- THE SUBSCRIPTION,
DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS" IN THE ATTACHED PROSPECTUS.
VALUE OF PARTICIPATION INTERESTS
The assets of the Plan are valued on an ongoing basis and each Participant
is informed of the value of his or her beneficial interest in the Plan on at
least an annual basis. This value represents the market value of past
contributions to the Plan by the Association and by the Participants and
earnings thereon, less previous withdrawals, and transfers from other plans.
METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is an investment form to direct
a transfer to the Employer Stock Fund ("Investment Form"). If a Participant
wishes to transfer funds to the Employer Stock Fund to purchase Common Stock
issued in connection with the Conversion, the Participant
S-1
<PAGE>
should indicate that decision in Part 2 of the Investment Form. If a Participant
does not wish to make such an election, he or she does not need to take any
action.
TIME FOR DIRECTING TRANSFER
THE DEADLINE FOR SUBMITTING A DIRECTION TO TRANSFER AMOUNTS TO THE EMPLOYER
STOCK FUND IN ORDER TO PURCHASE COMMON STOCK ISSUED IN CONNECTION WITH THE
CONVERSION IS _______, 1998. The Investment Form should be returned to
_______________ at the Association no later than the close of business on such
date.
IRREVOCABILITY OF TRANSFER DIRECTION
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Conversion shall be
irrevocable. Participants, however, will be able to direct the sale of Common
Stock, as explained below.
DIRECTION REGARDING COMMON STOCK AFTER THE CONVERSION
It is currently anticipated that Participants will not be permitted to
transfer additional funds from their existing account balances to the Employer
Stock Fund following the Conversion. However, Participants will be permitted to
direct the sale of Common Stock on a periodic basis. If Common Stock is sold,
the proceeds will be credited to the Participant's account and may be reinvested
in the other investment options available under the Plan. Special restrictions
may apply to sales directed by those Participants who are executive officers,
directors and principal stockholders of the Holding Company who are subject to
the provisions of Section 16(b) of the Securities and Exchange Act of 1934, as
amended ("Exchange Act"), or applicable OTS regulations.
PURCHASE PRICE OF COMMON STOCK
The funds transferred to the Employer Stock Fund for the purchase of Common
Stock in connection with the Conversion will be used by the Trustees to purchase
shares of Common Stock. The price paid for such shares of Common Stock will be
the same price as is paid by all other persons who purchase shares of Common
Stock in the Conversion.
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK
The Common Stock purchased for an account of a Participant will be held in
the name of the Trustees of the Plan in the Employer Stock Fund. Any earnings,
losses or expenses with respect to the Common Stock, including dividends and
appreciation or depreciation in value, will be credited or debited to the
account and will not be credited to or borne by any other accounts.
S-2
<PAGE>
VOTING AND TENDER RIGHTS OF COMMON STOCK
The Trustees generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust as directed by Participants with an
interest in the Employer Stock Fund. With respect to each matter as to which
holders of Common Stock have the right to vote, each Participant will be
allocated a number of voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund. The percentage of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
or negative on each matter shall be the same percentage of the total number of
voting instruction rights that are exercised in either the affirmative or
negative, respectively.
DESCRIPTION OF THE PLAN
INTRODUCTION
The Association adopted the Plan in 1992 as an amendment and restatement of
the Association's prior defined contribution retirement plan. The Plan is a
cash or deferred arrangement established in accordance with the requirements
under Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as
amended ("Code").
The Association intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The
Association will adopt any amendments to the Plan that may be necessary to
ensure the qualified status of the Plan under the Code and applicable Treasury
Regulations. The Association has received a determination from the Internal
Revenue Service ("IRS") that the Plan is qualified under Section 401(a) of the
Code and that it satisfies the requirements for a qualified cash or deferred
arrangement under Section 401(k) of the Code.
EMPLOYEE RETIREMENT INCOME SECURITY ACT. The Plan is an "individual
account plan" other than a "money purchase pension plan" within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). As
such, the Plan is subject to all of the provisions of Title I (Protection of
Employee Benefit Rights) and Title II (Amendments to the Internal Revenue Code
Relating to Retirement Plans) of ERISA, except the funding requirements
contained in Part 3 of Title I of ERISA, which by their terms do not apply to an
individual account plan (other than a money purchase pension plan). The Plan is
not subject to Title IV (Plan Termination Insurance) of ERISA. Neither the
funding requirements contained in Title IV of ERISA nor the plan termination
insurance provisions contained in Title IV will be extended to Participants or
beneficiaries under the Plan.
REFERENCE TO FULL TEXT OF PLAN. THE FOLLOWING STATEMENTS ARE SUMMARIES OF
THE MATERIAL PROVISIONS OF THE PLAN. THE FULL TEXT OF THE PLAN IS FILED AS AN
EXHIBIT TO THE REGISTRATION STATEMENT FILED WITH THE SEC. COPIES OF THE PLAN
ARE AVAILABLE TO ALL EMPLOYEES BY FILING A REQUEST WITH THE PLAN ADMINISTRATOR.
EACH EMPLOYEE IS URGED TO READ CAREFULLY THE FULL TEXT OF XTHE PLAN.
S-3
<PAGE>
ELIGIBILITY AND PARTICIPATION
Any employee of the Association is eligible to participate and becomes a
Participant in the Plan following completion of one year of service with the
Association and the attainment of age 21. The Plan year is the calendar year
("Plan Year"). Directors who are not employees of the Association and hourly
paid or leased employees are not eligible to participate in the Plan.
During 1997, approximately __ employees participated in the Plan.
CONTRIBUTIONS UNDER THE PLAN
PARTICIPANT CONTRIBUTIONS. Each Participant in the Plan is permitted to
elect to reduce such Participant's Compensation (as defined below) pursuant to a
salary reduction agreement in an amount not in excess of applicable Code limits
($10,000 in 1998) and have that amount contributed to the Plan on such
Participant's behalf. Such amounts are credited to the Participant's deferral
contributions account. For purposes of the Plan, "Compensation" means a
Participant's total amount of earnings reportable W-2 wages for federal income
tax withholding purposes plus a Participant's elective deferrals pursuant to a
salary reduction agreement under the Plan or any elective deferrals to a Section
125 plan. Due to recent statutory changes, the annual Compensation of each
Participant taken into account under the Plan is limited to $160,000 (as
adjusted under applicable Code provisions). A Participant may elect to modify
the amount contributed to the Plan under the participant's salary reduction
agreement during the Plan Year. Deferral contributions are transferred by the
Association to the Trustees of the Plan on a periodic basis as required by
applicable law.
EMPLOYER CONTRIBUTIONS. The Association matches each dollar of Participant
deferral contributions on a two-for-one basis to a maximum of three percent of
compensation. Additional contributions may also be made on a discretionary
basis in proportion to each Participant's Compensation.
LIMITATIONS ON CONTRIBUTIONS
LIMITATIONS ON ANNUAL ADDITIONS AND BENEFITS. Pursuant to the requirements
of the Code, the Plan provides that the amount of contributions allocated to
each Participant's Account during any Plan Year may not exceed the lesser of 25%
of the Participant's "Section 415 Compensation" for the Plan Year or $30,000 (as
adjusted under applicable Code provisions). A Participant's "Section 415
Compensation" is a Participant's Compensation. In addition, annual additions
are limited to the extent necessary to prevent the limitations for the combined
plans of the Association from being exceeded. To the extent that these
limitations would be exceeded by reason of excess annual additions to the Plan
with respect to a Participant, the excess must be reallocated to the remaining
Participants who are eligible for an allocation of Employer contributions for
the Plan Year.
LIMITATION ON 401(K) PLAN CONTRIBUTIONS. The annual amount of deferred
compensation of a Participant (when aggregated with any elective deferrals of
the Participant under any other
S-4
<PAGE>
employer plan, a simplified employee pension plan or a tax-deferred annuity) may
not exceed $10,000 (as adjusted under applicable Code provisions). Contributions
in excess of this limitation ("excess deferrals") will be included in the
Participant's gross federal income tax purposes in the year they are made. In
addition, any such excess deferral will again be subject to federal income tax
when distributed by the Plan to the Participant, unless the excess deferral
(together with any income allocable thereto) is distributed to the Participant
not later than the first April 15th following the close of the taxable year in
which the excess deferral is made. Any income on the excess deferral that is
distributed not later than such date shall be treated, for federal income tax
purposes, as earned and received by the Participant in the taxable year in which
the excess deferral is made.
LIMITATION ON PLAN CONTRIBUTIONS FOR HIGHLY COMPENSATED EMPLOYEES.
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
contributed to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of deferred compensation
contributed by or on behalf of all other employees eligible to participate in
the Plan. Specifically, the actual deferral percentage for a Plan Year (i.e.,
----
the average of the ratios, calculated separately for each eligible employee in
each group, by dividing the amount of salary reduction contributions credited to
the salary reduction contribution account of such eligible employee by such
employee's compensation for the Plan Year) of the Highly Compensated Employees
may not exceed the greater of (a) 125% of the actual deferred percentage of all
other eligible employees, or (b) the lesser of (i) 200% of the actual deferred
percentage of all other eligible employees, or (ii) the actual deferral
percentage of all other eligible employees plus two percentage points. In
addition, the actual contribution percentage for a Plan Year (i.e., the average
----
of the ratios calculated separately for each eligible employee in each group, by
dividing the amount of employer contributions credited to the matching
contributions account of such eligible employee by each eligible employee's
compensation for the Plan Year) of the Highly Compensated Employees may not
exceed the greater of (a) 125% of the actual contribution percentage of all
other eligible employees, or (b) the lesser of (i) 200% of the actual
contributions percentage of all other eligible employees, or (ii) the actual
contribution percentage of all other eligible employees plus two percentage
points.
In general, a Highly Compensated Employee includes any employee who, during
the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner (i.e.,
----
owns directly or indirectly more than 5% of the stock of the Employer, or stock
possessing more than 5% of the total combined voting power of all stock of the
Employer) or, (2) during the preceding Plan Year, received Section 415
Compensation in excess of $80,000 (as adjusted under applicable Code provisions)
and, if elected by the Association, was in the top paid group of employees for
such Plan Year.
In order to prevent disqualification of the Plan, any amounts contributed
by Highly Compensated Employees that exceed the average deferral limitation in
any Plan Year ("excess contributions"), together with any income allocable
thereto, must be distributed to such Highly Compensated Employees before the
close of the following Plan Year. However, the Association will be subject to a
10% excise tax on any excess contributions unless such excess contributions,
together with any income allocable thereto, either are recharacterized or are
distributed before the close of
S-5
<PAGE>
the first 2 1/2 months following the Plan Year to which such excess
contributions relate. In addition, in order to avoid disqualification of the
Plan, any contributions by Highly Compensated Employees that exceed the average
contribution limitation in any Plan Year ("excess aggregate contributions")
together with any income allocable thereto, must be distributed to such Highly
Compensated Employees before the close of the following Plan Year. However, the
10% excise tax will be imposed on the Association with respect to any excess
aggregate contributions, unless such amounts, plus any income allocable thereto,
are distributed within 2 1/2 months following the close of the Plan Year in
which they arose.
TOP-HEAVY PLAN REQUIREMENTS. If, for any Plan Year, the Plan is a Top-
Heavy Plan (as defined below), then (i) the Association may be required to make
certain minimum contributions to the Plan on behalf of non-key employees (as
defined below), and (ii) certain additional restrictions would apply with
respect to the combination of annual additions to the Plan and projected annual
benefits under any defined plan maintained by the Association.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year, if as of the last day of the preceding Plan Year, the aggregate balance of
the accounts of all Participants who are Key Employees exceeds 60% of the
aggregate balance of the Accounts of the Participants. "Key Employees"
generally include any employee, who at any time during the Plan Year or any
other the four preceding Plan Years, if (1) an officer of the Association having
annual compensation in excess of $60,000 who is in an administrative or policy-
making capacity, (2) one of the ten employees having annual compensation in
excess of $30,000 and owing, directly or indirectly, the largest interest in the
employer, (3) a 5% owner of the employer (i.e., owns directly or indirectly more
----
than 5% of the stock of the employer, or stock possessing more than 5% of the
total combined voting power of all stock of the employer), or (4) a 1% owner of
the employer having compensation in excess of $150,000.
INVESTMENT OF CONTRIBUTIONS
All amounts credited to Participant's Accounts under the Plan are held in
the Trust which is administered by the Trustees who are appointed by the Savings
Bank's Board of Directors. The Plan provides that a Participant may direct the
Trustees to invest all or a portion of his or her Accounts in various investment
options, as listed below. A Participant may periodically elect to change his or
her investment directions with respect to both past contributions and additions
to the Participant's accounts invested in these investment options in accordance
with rules established by the Trustees.
Under the Plan, the Accounts of a Participant held in the Trust will be
invested by the Trustees at the direction of the Participant in the following
portfolios:
[TO BE COMPLETED]
For additional information regarding these investment options, please
contact _______________.
S-6
<PAGE>
In connection with the Conversion, a Participant may elect to have prior
contributions and additions to the Participant's Account invested either in the
Employer Stock Fund or in any of the other portfolios listed above. Any amounts
credited to a Participant's Accounts for which investment directions are not
given will be invested in the ____________________________.
The net gain (or loss) in the Accounts from investments (including interest
payments, dividends, realized and unrealized gains and losses on securities, and
expenses paid from the Trust) are determined on a daily basis. For purposes of
such allocation, all assets of the Trust are valued at their fair market value.
THE EMPLOYER STOCK FUND
The Employer Stock Fund will consist of investments in Common Stock made in
connection with the Conversion.
Following the Conversion, when Common Stock is sold, the cost or net
proceeds will be charged or credited to the Accounts of Participants affected by
the purchase or sale. A Participant's Account will also be adjusted to reflect
changes in the value of shares of Common Stock resulting from stock dividends,
stock splits and similar changes.
To the extent dividends are not paid on Common Stock held in the Employer
Stock Fund, the return on any investment in the Employer Stock Fund will consist
only of the market value appreciation of the Common Stock subsequent to its
purchase. Declarations and payments of any dividends (regular and special) by
the Board of Directors will depend upon a number of factors, including the
amount of the net proceeds retained by the Holding Company, capital
requirements, regulatory limitations, the Association's and the Holding
Company's financial condition and results of operations, tax considerations and
general economic conditions.
As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock. Accordingly, there is no record of the historical performance
of the Employer Stock Fund.
INVESTMENTS IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN RISK FACTORS
ASSOCIATED WITH INVESTMENTS IN COMMON STOCK OF THE HOLDING COMPANY. FOR A
DISCUSSION OF THESE RISK FACTORS, SEE "RISK FACTORS" IN THE PROSPECTUS.
BENEFITS UNDER THE PLAN
VESTING. A Participant has, at all times, a fully vested, nonforfeitable
interest in all of his or her Participant contributions and the earnings thereon
under the Plan. All Employer contributions vest at the rate of 20 percent per
year beginning with the third year of service, with full vesting upon the
completion of seven years of service.
S-7
<PAGE>
WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2
UNLESS A PARTICIPANT RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER
SUCH A WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE ASSOCIATION.
DISTRIBUTION UPON RETIREMENT, DEATH, DISABILITY OR TERMINATION OF
EMPLOYMENT. The distribution of benefits under the 401(k) Plan to a Participant
who retires may be made in the form of a lump-sum payment or installment periods
over a specified period. Distributions generally commence as soon as practicable
following the Participant's termination of employment. At the request of the
Participant, the distribution may include an in-kind distribution of Common
Stock of the Holding Company credited to the Participant's Account. Benefits
payments ordinarily must begin not later than 60 days following the end of the
Plan Year in which occurs later of the Participant's: (i) termination of
employment; (ii) attainment of age 65; or (iii) tenth anniversary of
commencement of participation in the Plan; but in no event later than April 1
following the calendar year in which the Participant attains age 70 1/2 (if the
Participant is retired). However, if the vested portion of the Participant's
Account balances exceeds $5,000, no distribution will be made from the Plan
prior to the Participant's attaining age 65 unless the Participant consents to
an earlier distribution. Special rules may apply to the distribution of Common
Stock of the Holding Company to those Participants who are executive officers,
directors and principal shareholders of the Holding Company who are subject to
the provisions of Section 16(b) of the Exchange Act.
IN-SERVICE WITHDRAWALS AND LOANS. The Plan provides for distributions of
Participant deferral contributions prior to termination of employment in the
form of hardship withdrawals. Such withdrawals are permitted where the funds
are applied to (i) uninsured medical expenses, (ii) the purchase of a principal
residence, (iii) the payment of tuition and other education expenses or (iv)
payments necessary to prevent eviction from a principal residence or foreclosure
on a mortgage. In order to qualify for a hardship withdrawal, the Participant
must satisfy certain requirements relating to his or her financial resources and
the amount of the withdrawal may not exceed the Participant's immediate and
heavy financial need.
The Plan does not provide for other in-service withdrawals or loans.
NONALIENATION OF BENEFITS. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
S-8
<PAGE>
ADMINISTRATION OF THE PLAN
TRUSTEES. The Trustees with respect to Plan assets are currently
___________________, ______________ and ________________.
Pursuant to the terms of the Plan, the Trustees receive and hold
contributions to the Plan in trust and have exclusive authority and discretion
to manage and control the assets of the Plan pursuant to the terms of the Plan
and to manage, invest and reinvest the Trust and income therefrom. The Trustees
have the authority to invest and reinvest the Trust and may sell or otherwise
dispose of Trust investments at any time and may hold trust funds uninvested.
The Trustees have authority to invest the assets of the Trust in "any type of
property, investment or security" as defined under ERISA.
The Trustees have full power to vote any corporate securities in the Trust
in person or by proxy; provided, however, that the Participants will direct the
Trustees as to voting and tendering of all Common Stock held in the Employer
Stock Fund.
The Trustees receive no compensation for their services. The expenses of
the Trustees are paid out of the Trust except to the extent such expenses and
compensation are paid by the Association.
The Trustees must render at least annual reports to the Association and to
the Participants in such form and containing such information that the Trustees
deem necessary.
REPORTS TO PLAN PARTICIPANTS
The Plan Administrator furnishes to each Participant a statement at least
semi-annually showing (i) the balance in the Participant's Account as of the end
of that period, (ii) the amount of contributions allocated to any such
Participant's Account for that period, and (iii) the adjustments to such
Participant's Account to reflect earnings or losses (if any).
PLAN ADMINISTRATOR
The Association currently serves as the Plan Administrator. The Plan
Administrator is responsible for the administration of the Plan, interpretation
of the provisions of the Plan, prescribing procedures for filing applications
for benefits, preparation and distribution of information explaining the Plan,
maintenance of plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing of all returns
and reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
Participants, beneficiaries and others under Sections 104 and 105 of ERISA.
S-9
<PAGE>
AMENDMENT AND TERMINATION
The Association may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee who ceases to be a Participant shall have a fully vested interest
in his or her Account. The Association reserves the right to make, from time to
time, any amendment or amendments to the Plan which do not cause any part of the
Trust to be used for, or diverted to, any purpose other than the exclusive
benefit of the Participants or their beneficiaries.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust to another plan, the Plan requires that each
Participant (if either the Plan or the other plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he or she would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN. THE
SUMMARY IS NECESSARILY GENERAL IN NATURE AND DOES NOT PURPORT TO BE COMPLETE.
MOREOVER, STATUTORY PROVISIONS ARE SUBJECT TO CHANGE, AS ARE THEIR
INTERPRETATIONS, AND THEIR APPLICATION MAY VARY IN INDIVIDUAL CIRCUMSTANCES.
FINALLY, THE CONSEQUENCES UNDER APPLICABLE STATE AND LOCAL INCOME TAX LAWS MAY
NOT BE THE SAME AS UNDER THE FEDERAL INCOME TAX LAWS.
PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY
DISTRIBUTION FROM THE PLAN AND TRANSACTIONS INVOLVING THE PLAN.
The Plan has received a determination from the IRS that it is qualified
under Sections 401(a) and 401(k) of the Code, and that the related Trust is
exempt from tax under Section 501(a) of the Code. A plan that is "qualified"
under these sections of the Code is afforded special tax treatment which include
the following: (1) the sponsoring employer is allowed an immediate tax deduction
for the amount contributed to the Plan of each year; (2) Participants pay no
current income tax on amounts contributed by the employer on their behalf; and
(3) earnings of the Plan are tax-exempt thereby permitting the tax-free
accumulation of income and gains on investments. The Plan will be administered
to comply in operation with the requirements of the Code as of the applicable
effective date of any change in the law. The Association expects to timely
adopt any amendments to the Plan that may be necessary to maintain the qualified
status of the Plan under the Code. Following such an amendment, the Plan will
be submitted to the IRS for a determination that the Plan, as amended,
S-10
<PAGE>
continues to qualify under Sections 401(a) and 501(a) of the Code and that it
continues to satisfy the requirements for a qualified cash or deferred
arrangement under Section 401(k) of the Code.
Assuming that the Plan is administered in accordance with the requirements
of the Code, participation in the Plan under existing federal income tax laws
will have the following effects:
(a) Amounts contributed to a Participant's 401(k) account and the
investment earnings are actually distributed or withdrawn from the Plan. Special
tax treatment may apply to the taxable portion of any distribution that includes
Common Stock or qualified as a "Lump Sum Distribution" (as described below).
(b) Income earned on assets held by the Trust will not be taxable to the
Trust.
LUMP SUM DISTRIBUTION. A distribution from the Plan to a Participant or
the beneficiary of a Participant will qualify as a "Lump Sum Distribution" if it
is made: (i) within a single taxable year of the Participant or beneficiary;
(ii) on account of the Participant's death or separation from service, or after
the Participant attains age 59 1/2; and (iii) consists of the balance to the
credits of the Participant under the Plan and all other profit sharing plans, if
any, maintained by the Association. The portion of any Lump Sum Distribution
that is required to be included in the Participant's or beneficiary's taxable
income for federal income tax purposes ("total taxable amount") consists of the
entire amount of such Lump Sum Distribution less the amount of after-tax
contributions, if any, made by the Participant to any other profit sharing plans
maintained by the Association which is included in such distribution.
AVERAGING RULES. The portion of the total taxable amount of a Lump Sum
Distribution ("ordinary income portion") will be taxable generally as ordinary
income for federal income tax purposes. However, for distributions occurring
prior to January 1, 2000, a Participant who has completed at least five years of
participation in the Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
Participant's death (regardless of the period of the Participant's participation
in the Plan or any other profit sharing plan maintained by the Employer), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging"). The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the Participant or beneficiary, provided such amount is received on or after
the Participant turns 59 1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule. The special five-year averaging rule has been
repealed for distributions occurring after December 31, 1999. Under a special
grandfather rule, individuals who turned 50 by 1986 may elect to have their Lump
Sum Distribution taxed under either the five-year averaging rule (if available)
or the prior law ten-year averaging rule. Such individuals also may elect to
have that portion of the Lump Sum Distribution attributable to the Participant's
pre-1974 participation in the Plan taxed at a flat 20% rate as gain from the
sale of a capital asset.
S-11
<PAGE>
COMMON STOCK INCLUDED IN LUMP SUM DISTRIBUTION. If a Lump Sum Distribution
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
- ----
distribution over its cost to the Plan. The tax basis of such Common Stock to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common Stock, to the extent
of the amount of net unrealized appreciation at the time of distribution, will
be considered long-term capital gain regardless of the holding period of such
Common Stock. Any gain on a subsequent sale or other taxable disposition of the
Common Stock in excess of the amount of net unrealized appreciation at the time
of distribution will be considered either short-term capital gain or long-term
capital gain depending upon the length of the holding period of the Common
Stock. The recipient of a distribution may elect to include the amount of any
net unrealized appreciation in the total taxable amount of such distribution to
the extent allowed by the regulations by the IRS.
DISTRIBUTIONS: ROLLOVERS AND DIRECT TRANSFERS TO ANOTHER QUALIFIED PLAN OR
TO AN IRA. Pursuant to a change in the law, effective January 1, 1993, virtually
all distributions from the Plan may be rolled over to another qualified Plan or
to an individual retirement account ("IRA") without regard to whether the
distribution is a Lump Sum Distribution or Partial Distribution. Effective
January 1, 1993, Participants have the right to elect to have the Trustees
transfer all or any portion of an "eligible rollover distribution" directly to
another plan qualified under Section 401(a) of the Code or to an IRA. If the
Participant does not elect to have an "eligible rollover distribution"
transferred directly to another qualified plan or to an IRA, the distribution
will be subject to a mandatory federal withholding tax equal to 20% of the
taxable distribution. An "eligible rollover distribution" means any amount
distributed from the Plan except: (1) a distribution that is (a) one of a
series of substantially equal periodic payments made (not less frequently than
annually) over the Participant's life of the joint life of the Participant and
the Participant's designated beneficiary, or (b) for a specified period of ten
years or more; (2) any amount that is required to be distributed under the
minimum distribution rules; and (3) any other distributions excepted under
applicable federal law. The tax law change described above did not modify the
special tax treatment of Lump Sum Distributions, that are not rolled over or
transferred, i.e., forward averaging, capital gains tax treatment and the
----
nonrecognition of net unrealized appreciation, discussed earlier.
ADDITIONAL TAX ON EARLY DISTRIBUTIONS. A Participant who receives a
distribution from the Plan prior to attaining age 59 1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled over into an IRA or another qualified plan or the
distribution is (i) made to a beneficiary (or to the estate of a Participant) on
or after the death of the Participant, (ii) attributable to the Participant's
being disabled within the meaning of Section 72(m)(7) of the Code, (iii) part of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and his or her
beneficiary, (iv) made to the Participant after separation from service on
S-12
<PAGE>
account of early retirement under the Plan after attainment of age 55, (v) made
to pay medical expenses to the extent deductible for federal income tax
purposes, (vi) pursuant to a qualified domestic relations order, or (vii) made
to effect the distribution of excess contributions or excess deferrals.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
RESTRICTIONS ON RESALE
Any person receiving shares of the Common Stock under the Plan who is an
"affiliate" of the Association or the Holding Company as the term "affiliate" is
used in Rules 144 and 405 under the Securities Act of 1933, as amended
("Securities Act") (e.g., directors, officers and substantial shareholders of
the Association) may reoffer or resell such shares only pursuant to a
registration statement filed under the Securities Act (the Holding Company and
the Association having no obligation to file such registration statement) or,
assuming the availability thereof, pursuant to Rule 144 or some other exemption
from the registration requirements of the Securities Act. Any person who may be
an "affiliate" of the Association or the Holding Company may wish to consult
with counsel before transferring any Common Stock owned by him or her. In
addition, Participants who are officers of the Association or the Holding
Company are advised to consult with counsel as to the applicability of the
reporting and short-swing profit liability rules of Section 16 of the Exchange
Act which may affect the purchase and sale of the Common Stock where acquired or
sold under the Plan or otherwise.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Breyer & Aguggia, Washington, D.C., which firm is acting as special counsel for
the Holding Company in connection with the Conversion.
S-13
<PAGE>
Investment Form
(Employer Stock Fund)
PEOPLES BUILDING & LOAN ASSOCIATION
401(K) SALARY REDUCTION PLAN
Name of Participant:___________________
Social Security Number:________________
1. Instructions. In connection with the proposed conversion of Peoples
Building & Loan Association ("Association") to a stock savings bank to be known
as Peoples Community Bank and the simultaneous formation of a holding company
("Conversion"), participants in the Peoples Building & Loan Association 401(k)
Plan ("Plan") may elect to direct the investment of up to 100% of their account
balance into the Employer Stock Fund ("Employer Stock Fund"). Amounts
transferred at the direction of Participants into the Employer Stock Fund will
be used to purchase shares of the common stock of PCB Holding Company ("Common
Stock"), the proposed holding company for the Association. A PARTICIPANT'S
ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IS SUBJECT TO THE PARTICIPANT'S
GENERAL ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IN THE CONVERSION AND THE
MAXIMUM AND MINIMUM LIMITATIONS SET FORTH IN THE PLAN CONVERSION. SEE THE
PROSPECTUS FOR ADDITIONAL INFORMATION.
You may use this form to direct a transfer of funds credited to your
account to the Employer Stock Fund, to purchase Common Stock in the Conversion.
To direct such a transfer to the Employer Stock Fund, you should complete this
form and return it to _______________ at the Association, NO LATER THAN THE
CLOSE OF BUSINESS ON _______, 1998. The Association will keep a copy of this
form and return a copy to you. (If you need assistance in completing this form,
please contact _______________).
2. Transfer Direction. I hereby direct the Plan Administrator to
transfer $__________ (in increments of $15) to the Employer Stock Fund to be
applied to the purchase of Common Stock in the Conversion. Please transfer this
amount from the following Plan investments
_____________________________________________________.
3. Effectiveness of Direction. I understand that this Investment Form
shall be subject to all of the terms and conditions of the Plan and the terms
and conditions of the Conversion. I acknowledge that I have received a copy of
the Prospectus and the Prospectus Supplement.
___________________________ _________________________
Signature Date
* * * * *
4. Acknowledgement of Receipt. This Investment Form was received by the
Plan Administrator and will become effective on the date noted below.
___________________________ __________________________
Plan Administrator Date
S-14
<PAGE>
PROSPECTUS
PCB Holding Company
(Proposed Holding Company for Peoples Building and Loan Association, F.A.,
to be known as Peoples Community Bank)
Between 255,000 and 396,750 Shares of Common Stock
Peoples Building and Loan Association, F.A. is converting from the mutual form
to the stock form of organization and changing its name to Peoples Community
Bank. As part of the conversion, Peoples Building and Loan Association, F.A.
will become a wholly-owned subsidiary of PCB Holding Company, which was formed
in March 1998. The common stock of PCB Holding Company is being offered to the
public under the terms of a Plan of Conversion which must be approved by a
majority of the votes eligible to be cast by the members of Peoples Building and
Loan Association, F.A.. The conversion will not go forward if Peoples Building
and Loan Association, F.A. does not receive this approval or PCB Holding Company
does not sell at least the minimum number of shares.
- --------------------------------------------------------------------------------
OFFERING SUMMARY
Price Per Share: $10.00
<TABLE>
<CAPTION>
Minimum Midpoint Maximum Maximum, as adjusted
------- -------- ------- --------------------
<S> <C> <C> <C> <C>
Number of shares: 255,000 300,000 345,000 396,750
Gross offering proceeds: $2,550,000 $3,000,000 $3,450,000 $3,967,500
Estimated offering expenses: $315,000 $315,000 $315,000 $315,000
Estimated net proceeds: $2,235,000 $2,685,000 $3,135,000 $3,652,500
Estimated net proceeds per share: $8.76 $8.95 $9.09 $9.21
</TABLE>
The amount of common stock being offered in the conversion is based on an
independent appraisal of the market value of Peoples Building and Loan
Association, F.A., after giving effect to the conversion and the formation of
PCB Holding Company. The independent appraiser has stated that as of March 6,
1998 the market value of PCB Holding Company and the converted Peoples Building
and Loan Association, F.A. ranged from $2,550,000 to $3,450,000. Subject to
approval of the Office of Thrift Supervision, an additional 15% above the
maximum number of shares may be sold.
Capital Resources, Inc., which has been retained by PCB Holding Company, will
use its best efforts to assist PCB Holding Company in selling at least the
minimum number of shares, but does not guarantee that this number will be sold.
All funds received from subscribers will be held in an interest-bearing savings
account at Peoples Building and Loan Association, F.A. until the completion or
termination of the conversion.
The subscription offering will terminate at 12:00 Noon, local time, on
______________, 1998, unless extended for up to ___ days.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
For a discussion of certain risks that you should consider, see "RISK FACTORS"
beginning on page _.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any state securities regulator has approved or disapproved
these securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
For additional information about the conversion and the stock offering, please
refer to the more detailed information in this prospectus. For assistance,
please contact the stock center at (___)___________.
CAPITAL RESOURCES, INC.
The date of this prospectus is ___________, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
Summary........................................
Risk Factors...................................
Selected Consolidated
Financial Information........................
Use of Proceeds................................
Dividend Policy................................
Market for Common Stock........................
Capitalization.................................
Historical and Pro Forma
Regulatory Capital Compliance................
Pro Forma Data.................................
Shares to be Purchased by Management
Pursuant to Subscription Rights..............
Peoples Building and Loan Association
Statements of Income.........................
Management's Discussion and
Analysis of Financial........................
Condition and Results of Operations............
Business of the Holding Company................
Business of the Association....................
Management of the Holding Company..............
Management of the Association..................
Regulation.....................................
Taxation.......................................
The Conversion.................................
Restrictions on Acquisition
of the Holding Company.......................
Description of Capital Stock
of the Holding Company ......................
Registration Requirements......................
Legal and Tax Opinions.........................
Experts........................................
Additional Information.........................
Index to Consolidated
Financial Statements.........................
Glossary....................................... G-1
[map of Indiana showing county boarders, with enlargement of Perry County
showing the location of Tell City appears here]
<PAGE>
SUMMARY
The following summary explains the significant aspects of the conversion.
For additional information about the conversion and the stock offering, please
refer to the more detailed information in this prospectus. For assistance,
please contact the stock center at (___) ____________. Throughout this
prospectus, Peoples Building and Loan Association, F.A. in both its current and
converted form is referred to as the "Association" and PCB Holding Company is
referred to as the "Holding Company." See the glossary at the back of this
prospectus for the definitions of certain terms that are printed in boldface
type the first time they appear in this prospectus.
PCB Holding Company
The Association formed the Holding Company under Indiana law in March 1998
for the purpose of owning all of the Association's capital stock following
completion of the conversion. The Holding Company has received conditional
approval of the OTS to become a savings and loan holding company by acquiring
the capital stock of the Association in the conversion. Before the completion of
the conversion, the Holding Company will not have any material assets or
liabilities and will not conduct any business other than business related to the
conversion. After the conversion, the Holding Company's primary assets will be
all of the capital stock of the Association, and the net proceeds of the sale of
Holding Company's common stock remaining after acquiring the capital stock of
the Association. Initially, the primary activity of the Holding Company will be
to direct, plan and coordinate the Association's business activities. In the
future, the Holding Company might become an operating company or acquire or
organize other operating subsidiaries, including other financial institutions,
although it has no current plans to do so. The Holding Company's main office is
located at 819 Main Street, Tell City, Indiana 47586 and its telephone number is
(812) 547- 7094.
Peoples Building and Loan Association, F.A.
The Association was chartered in 1914 as an Indiana mutual building and
loan association, and in February 1998 became a federal mutual savings and loan
association. Through the conversion, the Association will become a federal stock
savings bank and will change its name to Peoples Community Bank. The Association
is located at 819 Main Street, Tell City, Indiana 47586 and its telephone number
is (812) 547-7094.
The Association is regulated by the OTS and the FDIC. The Association's
deposits have been federally-insured by the FDIC since 1936 and are currently
insured by the FDIC under the SAIF. The Association has been a member of the
FHLB-System since 1933.
The Association is a community oriented financial institution that operates
out of one office in Tell City, Indiana. The Association's principal business is
attracting deposits from the general public and using those funds to originate
residential and other mortgage loans. At December 31, 1997, the Association had
total assets of $22.0 million, deposits of $19.8 million and total retained
earnings of $2.1 million. At that date, $16.9 million, or 85.7%, of the
Association's loans were one- to four-family mortgage loans and $16.4 million,
or 82.7%, of the Association's deposits were certificates of deposit. The
Association also originates multi-family, commercial real estate, land and
residential construction loans, as well as loans secured by savings accounts. In
early 1998, the Association expanded its loan offering to include automobile
loans. Later in 1998, the Association intends to offer additional secured and
unsecured consumer loans. The Association also intends to introduce checking
accounts within the next six to nine months. For a discussion of the
Association's business strategy and recent results of operations, see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." For a discussion of the Association's business activities, see
"BUSINESS OF THE ASSOCIATION."
The Conversion
The conversion is a change in the Association's legal form of organization.
The Association currently operates as a federally chartered mutual savings and
loan association with no stockholders. Through the conversion, the
1
<PAGE>
Association will become a federally chartered stock savings bank and will issue
shares of its common stock to PCB Holding Company. As part of the conversion,
PCB Holding Company, as the Association's holding company, will issue shares of
its common stock to the public. The Association is undertaking the conversion
pursuant to its Plan of Conversion, which was approved by the OTS.
Currently, the Association's depositor and borrower members have voting
rights in the Association and are entitled to elect directors of the Association
and to vote on other important matters. After completion of the conversion,
depositors and borrowers will have no voting rights in the Association or the
Holding Company. Following the conversion, the Holding Company will exercise all
voting rights with respect to the Association's common stock, and the Holding
Company's stockholders will elect the directors of the Holding Company and
exercise all other voting rights with respect to the Holding Company's common
stock. The OTS has approved the conversion, subject to approval by the
Association's members at a special meeting to be held on _________, 1998. For
further description of the conversion, see "THE CONVERSION."
Reasons for the Conversion
As a federal mutual savings association, the Association does not have
stockholders or the authority to issue capital stock. By converting to the stock
form of organization, the Association will be structured in the form used by
commercial banks, most business entities and a growing number of savings
institutions. The conversion will be important to the Association's future
growth and performance by providing a larger capital base from which it can
operate, by enhancing its ability to attract and retain qualified management
through stock-based compensation plans, by enhancing its ability to diversify
into other financial services related activities and by expanding its ability to
provide services to the public. At this time, the Association does not have any
specific plans or arrangements for diversification or expansion. See "THE
CONVERSION -- Reasons for the Conversion."
Use of Proceeds
The Holding Company will use the net proceeds of this offering as follows:
o 50% will be used to buy all of the common stock of the Association.
The Association will use these funds for general corporate purposes,
including making loans and purchasing investments similar to the kinds
it currently holds.
o 50% will be kept for general corporate purposes. These purposes may
include, for example, purchasing investments similar to the kinds the
Association currently holds, paying dividends or buying back shares of
common stock, subject to applicable regulatory restrictions.
For further discussion, see "USE OF PROCEEDS."
The Subscription and Direct Community Offerings
The Holding Company is offering shares of its common stock in a
Subscription Offering to certain current and former depositor and borrower
customers of the Association. Pursuant to its Plan of Conversion, the
Association has granted subscription rights in the following order of priority
in accordance with applicable regulatory requirements to:
1. "Eligible Account Holders" -- the Association's depositors with $50 or
more on deposit as of December 31, 1996.
2. "Supplemental Eligible Account Holders" -- the Association's
depositors with $50 or more on deposit as of March 31, 1998.
2
<PAGE>
3. "Other Members" -- the Association's depositors as of April 30, 1998
and borrowers of the Association as of February 25, 1998 whose loans
continue to be outstanding as of April 30, 1998.
Subscription rights are not transferable, and persons with
subscription rights may not subscribe for shares for the benefit of
any other person. If you violate this prohibition you may lose your
right to purchase shares in the conversion and may be subject to
criminal prosecution and/or other sanctions.
The Subscription Offering will expire at 12:00 Noon, local time, on the
Expiration Date of ___________, 1998, unless extended by the Association and the
Holding Company for up to ___ days. In the event of an oversubscription, shares
will be allocated in accordance with the Plan of Conversion.
Shares not sold in the Subscription Offering may be offered to the general
public in a Direct Community Offering. Natural persons and trusts of natural
persons who are residents of Perry County, Indiana will have first preference to
purchase shares in the Direct Community Offering. The Direct Community Offering,
if one is held, is expected to begin immediately after the conclusion of the
Subscription Offering, but may begin at any time during the Subscription
Offering. The Subscription Offering, and the Direct Community Offering, if any,
are being managed by Capital Resources. Capital Resources is a registered
broker-dealer and a member of the NASD. Capital Resources is not obligated to
purchase any shares of common stock in this offering. Shares not sold in the
Subscription Offering or Direct Community Offering may be offered for sale in a
Syndicated Community Offering, which would be an offering to the general public
on a best efforts basis by a selling group of broker-dealers managed by Capital
Resources. See "THE CONVERSION -- The Subscription, Direct Community and
Syndicated Community Offerings."
Stock Pricing and Number of Shares to be Issued in the Conversion
Between 255,000 and 345,000 shares of the common stock will be sold, all at
a price of $10.00 per share. You will not pay a commission to buy any shares in
the conversion. With the approval of the OTS, the number of shares may be
increased to 396,750.
The amount of common stock being offered in the conversion is based on an
independent appraisal of the estimated pro forma market value of the Holding
Company and the Association. Capital Resources Group, Inc. ("CRG"), the
independent appraiser, has estimated that, in its opinion, as of March 6, 1998,
the aggregate pro forma market value of the Holding Company and the Association
ranged between $2,550,000 and $3,450,000 (with a midpoint of $3,000,000)
("Estimated Valuation Range"). CRG is affiliated with Capital Resources. The pro
forma market value is the market value of the Holding Company and the
Association after taking into account the sale of shares in this offering. The
appraisal was based in part on the Association's financial condition and
operations and the effect of the additional capital raised by the sale of common
stock in this offering. The independent appraisal will be updated prior to the
completion of the conversion. If the pro forma market value of the Holding
Company and the Association changes to either below $2,550,000 or above
$3,967,500 (the adjusted maximum of the offering), you will be notified and
provided with the opportunity to modify or cancel your order. The $10.00 per
share purchase price was determined by the Boards of Directors of the Holding
Company and the Association. See "THE CONVERSION -- Stock Pricing and Number of
Shares to be Issued."
Purchase Limitations
The minimum number of shares that you may purchase is 25 ($250). The
maximum number of shares that you may purchase, either alone or together with
your associates or persons acting in concert with you, is 6,500 ($65,000). For
further discussion of the purchase limits and definitions of "associate" and
"acting in concert," see "THE CONVERSION -- Limitations on Purchases of Shares."
3
<PAGE>
Procedure for Purchasing Common Stock
To subscribe for shares of common stock in the Subscription Offering you
should send or deliver an original, signed stock order form together with full
payment (or appropriate instructions for withdrawal of full payment from
permitted deposit accounts, as described below) to the Association in the
postage-paid envelope provided so that the stock order form is received before
the end of the Subscription Offering. You must also sign the certification that
is part of the stock order form. Payment for shares may be made in cash (if made
in person) or by check or money order. Payment for subscriptions of $25,000 or
more must be by certified or cashier's check or money order. The Association
will pay interest at the rate it pays on passbook accounts from the date funds
are received until completion or termination of the conversion. Subscribers who
have deposit accounts with the Association may include instructions on the stock
order form requesting withdrawal from such deposit account(s) to purchase
shares. Withdrawals from certificates of deposit may be made without incurring
an early withdrawal penalty. All funds authorized for withdrawal from deposit
accounts with the Association will earn interest at the applicable account rate,
but a hold will be placed on such funds making them unavailable until the
completion of the conversion. After the Association receives your order, your
order cannot be withdrawn or changed, except with the consent of the
Association.
To ensure that your subscription rights are properly identified, you must
list all qualifying savings accounts and loans, as of the respective qualifying
dates, on the stock order form. Persons who do not list all qualifying savings
accounts and loans may be subject to reduction or rejection of their
subscription.
The Holding Company and the Association have the discretion to accept or
reject orders received either through the Direct Community Offering or the
Syndicated Community Offering. If your order is rejected in part, you will not
have the right to cancel the remainder of the order.
Owners of self-directed IRAs may use the assets of their IRAs to purchase
shares of common stock in the conversion, provided that their IRAs are not
maintained on deposit with the Association. If you want to use funds in a
self-directed IRA maintained by the Association to purchase shares of common
stock, you must transfer your account to an unaffiliated institution or broker.
If you are interested in doing so, you should contact the Association's stock
center at least one week before the Expiration Date.
For further information on how to purchase stock, see "THE CONVERSION --
Procedure for Purchasing Shares in the Subscription and Direct Community
Offerings."
Purchases by Officers and Directors
The Association expects its directors and executive officers and their
associates to subscribe for a total of 26,500 shares, which equals 8.8% of the
shares issued at the midpoint of the offering range. The purchase price paid by
them will be the same $10.00 per share price as that paid by all other persons
who purchase shares in the conversion. See "SHARES TO BE PURCHASED BY MANAGEMENT
PURSUANT TO SUBSCRIPTION RIGHTS."
Benefits of the Conversion to Management
Management Recognition and Development Plan. The Holding Company expects to
seek stockholder approval of the MRDP no earlier than six months after
completion of the conversion, or 13,800 shares based on the sale of shares at
the maximum of the Estimated Valuation Range. The MRDP is a restricted stock
plan that will reserve a number of shares equal to 4% of the number of shares
issued in the conversion. Pursuant to the MRDP, the Holding Company would be
able to make awards of shares of common stock to key employees and directors of
the Holding Company and the Association at no cost to the recipient. All awards
would be subject to vesting over a period of years. The size of individual
awards will be determined prior to submitting the MRDP for stockholder approval,
and disclosure of anticipated awards will be included in the proxy materials for
such meeting. The Holding Company will recognize significant compensation
expense as a result of the adoption of the MRDP. For additional information
about the MRDP,
4
<PAGE>
see "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Management Recognition Plan."
See also "RISK FACTORS -- New Expenses Associated With MRDP" and "PRO FORMA
DATA."
Stock Option Plan. The Holding Company expects to seek stockholder approval
of a Stock Option Plan no earlier than six months after completion of the
conversion. The Stock Option Plan will reserve a number of shares equal to 10%
of the number of shares issued in the conversion. Pursuant to the Stock Option
Plan, the Holding Company would be able to award options to acquire shares of
common stock to key employees and directors of the Holding Company and the
Association at no cost to the recipient. The exercise price of such options
would be 100% of the fair market value of the common stock on the date the
option is granted. All awards would be subject to vesting over a period of
years. The size of individual awards will be determined prior to submitting the
Stock Option Plan for stockholder approval, and disclosure of anticipated awards
will be included in the proxy materials for such meeting. For additional
information about the Stock Option Plan, see "MANAGEMENT OF THE ASSOCIATION --
Benefits --Stock Option Plan."
Employment Agreements. The Holding Company and the Association plan to
enter into employment agreements with Carl D. Smith, the Association's Chief
Executive Officer, and Clarke A. Blackford, the Association's Vice President and
Treasurer. The employment agreements will provide certain benefits to the
officers if they are terminated following a change in control of the Holding
Company or the Association. If there is a change in control of the Holding
Company or the Association, the officer will be entitled to a package of cash
and/or benefits with a maximum value equal to 2.99 times his average annual
compensation during the five-year period preceding the change in control. If a
change in control had occurred as of December 31, 1997, the total value of the
severance benefits payable under the proposed employment agreements would have
been approximately $288,000. See "RISK FACTORS -- Provisions of Employment
Agreements" and "MANAGEMENT OF THE ASSOCIATION -- Executive Compensation --
Employment Agreements."
Market for Common Stock
The Holding Company intends to list the common stock over-the-counter
either through the National Daily Quotation System "Pink Sheets" published by
the National Quotation Bureau, Inc. or through the OTC-Bulletin Board, and will
request that Capital Resources undertake to match offers to buy and offers to
sell the common stock. Capital Resources intends to be a market maker for the
common stock. However, the Holding Company cannot assure you that timely or
accurate quotations will be available. Due to the small size of the offering and
the small number of shareholders expected, it is highly unlikely that there will
be an active trading market for the common stock. See "RISK FACTORS -- Absence
of Prior Market for Common Stock" and "MARKET FOR COMMON STOCK."
Dividend Policy
The Holding Company intends to adopt a policy of paying regular cash
dividends following consummation of the conversion. However, the Board of
Directors has not made a decision as to the amount or timing of such dividends.
Dividends will be subject to determination and declaration by the Holding
Company's Board of Directors, which will take into account a number of factors,
including the Holding Company's consolidated operating results and financial
condition, net worth and capital requirements, as well as regulatory
restrictions on the payment of dividends from the Association to the Holding
Company (which would be a primary source of funds for the Holding Company). The
Holding Company cannot assure you that dividends will in fact be paid or that if
paid such dividends will not be reduced or eliminated in the future. For further
information about the payment of dividends, see "DIVIDEND POLICY."
5
<PAGE>
RISK FACTORS
Before investing in the common stock please carefully consider the matters
discussed below. The common stock is not a savings account or deposit and is not
insured by the FDIC or any other government agency.
Reliance on Certificates of Deposit
At December 31, 1997, $16.4 million, or 82.7%, of the Association's
deposits were certificates of deposit, of which $8.8 million mature within one
year. As a result of the large percentage of certificates of deposit, the
average rate paid on the Association's deposits is higher than the average rate
paid by institutions that have more checking and savings accounts, which
generally pay lower rates of interest. The Association's high cost of deposits
results in a lower interest rate spread and negatively impacts the Association's
profitability. In addition, certificates of deposit can be a more interest rate
sensitive source of funds than checking or savings accounts. If interest rates
rise significantly or if the Association does not offer competitive interest
rates on its certificates of deposit, the Association could experience a
significant decrease in its deposit accounts.
Dependence on Local Economy and Limited Growth Prospects
The Association focuses on serving customers in Perry County, Indiana,
which currently has a population of approximately 20,000. The unemployment rate
in Perry County in December 1997 was 7.3%, which was greater than the Indiana
and U.S. employment rates of 3.4% and 4.7%, respectively. Most of the
Association's loan portfolio consists of loans made to borrowers and
collateralized by properties located in Perry County. Furthermore, most of the
Association's depositors reside in Perry County. As a result of this
concentration, a downturn in the economy of Perry County or the surrounding area
could increase the risk of loss associated with the Association's loan
portfolio. In addition, because the Association operates in a market area with a
small population and limited growth prospects, the Association's ability to
achieve loan and deposit growth is limited.
Competition
The Association faces intense competition both in making loans and
attracting deposits. Competition for both loans and deposits principally comes
from the three commercial banks in Tell City, all of which are larger than the
Association. All of the commercial banks in Tell City are affiliated with
multi-state bank holding companies and, therefore, have significantly greater
resources than the Association. The Association is at a competitive disadvantage
due to its small size, insofar as the Association has fewer resources to devote
to marketing and is less able to take advantage of technological advancements.
Competition may also result in a lower interest rate spread. In competing for
loans, the Association may be forced periodically to offer lower loan interest
rates. Conversely, in competing for deposits, the Association may be forced to
offer higher deposit interest rates periodically. Either case or both cases
could reduce the difference between the yield on the Association's
interest-earning assets and the cost of its interest-bearing liabilities. See
"BUSINESS OF THE ASSOCIATION -- Competition."
Dependence on Key Personnel
Mr. Carl D. Smith, President of the Association, and Mr. Clarke A.
Blackford, Vice President of the Association, have been instrumental in
directing the business strategy of the Association for over 20 years. The loss
of either Mr. Smith or Mr. Blackford could have an adverse impact on the
operations of the Association. Neither the Association nor the Holding Company
has obtained, or expects to obtain, a "key man" life insurance policy for either
officer. The Holding Company and the Association intend to enter into three-year
employment agreements with Mr. Smith and Mr. Blackford. See "MANAGEMENT OF THE
ASSOCIATION -- Executive Compensation -- Employment Agreements." In addition,
subject to the approval of the MRDP and Stock Option Plan by stockholders, the
Holding Company anticipates granting stock options and restricted stock to Mr.
Smith and Mr. Blackford. Such options and restricted stock grants will vest over
a period of years in accordance with the terms of such plans.
6
<PAGE>
Limited Market for the Common Stock
The Holding Company has never issued capital stock and, consequently, there
is no existing market for the common stock. It is highly unlikely that an active
and liquid market for the common stock will develop after the conversion because
of the small size of the offering. You should consider the potentially illiquid
and long-term nature of an investment in the common stock. Furthermore, the
Holding Company cannot guarantee that if you purchase shares in the conversion
you will be able to sell your shares at or above the $10.00 purchase price. See
"MARKET FOR COMMON STOCK."
Interest Rate Risk
Changes in interest rates can have significant effects on the Association's
profitability. The Association's ability to make a profit, like that of most
financial institutions, depends largely on its net interest income, which is the
difference between the interest income received from its interest-earning assets
(such as loans and investment securities) and the interest expense incurred in
connection with its interest-bearing liabilities (such as deposits and
borrowings). The Association's net interest income and the market value of its
assets and liabilities could be significantly affected by changes in interest
rates. In a rising interest rate environment, the Association anticipates that
its net interest income could be adversely affected as liabilities could reprice
to higher market rates more quickly than assets. In addition, rising interest
rates may adversely affect the Association's earnings because they may cause a
decrease in customer demand for loans. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Asset and Liability
Management."
Changes in interest rates also can affect the average life of loans and
mortgage-backed securities. During periods of declining interest rates, loans
and mortgage-backed securities prepay faster as loans are prepaid and refinanced
at lower interest rates. During such periods, the Association generally will not
be able to reinvest the proceeds of any such prepayments at comparable yields.
Conversely, during periods of rising interest rates, the rate of prepayments
generally slows. Moreover, volatility in interest rates also can result in
disintermediation, or the flow of funds away from savings institutions into
direct investments, such as U.S. Government and corporate securities and other
investment vehicles which, because of the absence of federal insurance premiums
and reserve requirements, generally pay higher rates of return than savings
institutions.
Below Average Return on Equity After Conversion
Return on equity (net income divided by average equity) is a ratio used by
many investors to compare the performance of a particular company with other
companies. In recent years, the Association's return on equity has been below
the average return on equity for many publicly held savings associations and
banks. The Holding Company's post-conversion return on equity will be below the
average return on equity for many publicly held savings associations and banks.
In addition, the expenses associated with the MRDP, along with other
post-conversion expenses, are expected to limit earnings growth levels. Over
time, the Holding Company intends to deploy the net proceeds from the conversion
to increase earnings per share and book value per share, without assuming undue
risk, with the goal of achieving a return on equity competitive with other
publicly traded savings associations. This goal could take a number of years to
achieve, and the Holding Company cannot assure you that this goal can be
attained. Consequently, you should not expect a competitive return on equity in
the near future. See "SELECTED CONSOLIDATED FINANCIAL INFORMATION,"
"CAPITALIZATION" AND "PRO FORMA DATA."
New Expenses Associated with MRDP
If the MRDP is implemented, the Association will recognize additional
material employee compensation and benefit expenses that stem from the shares
granted to employees and executives under the plan. The Association cannot
predict the actual amount of these new expenses because applicable accounting
practices require that they be based on the fair market value of the shares of
common stock when the shares are granted . Expenses for the MRDP would be
recognized over the vesting period of awards made to recipients. These expenses
have been reflected in the pro forma
7
<PAGE>
financial information under "PRO FORMA DATA" assuming the $10.00 per share
purchase price as fair market value. Actual expenses, however, will be based on
the fair market value of the common stock, which may be higher or lower than
$10.00. For further discussion of these plans, see "MANAGEMENT OF THE
ASSOCIATION -- Benefits --Management Recognition and Development Plan."
Possible Dilutive Effect of Benefit Programs
If the conversion is completed and stockholders approve the MRDP and Stock
Option Plan, the Holding Company intends to issue shares to its officers and
directors through these plans. If the shares for the MRDP are issued from
authorized but unissued stock instead of repurchased treasury shares, your
ownership interest could be diluted by up to approximately 3.85%. If the shares
for the Stock Option Plan are issued from authorized but unissued stock, your
ownership interest could be diluted by up to approximately 9.09%. In either
case, the issuance of additional shares would decrease net income per share and
stockholders' equity per share. See "PRO FORMA DATA."
Possible Voting Control by Management and Employees
The 26,500 shares of common stock expected to be purchased by the
Association's directors and executive officers and their associates in the
conversion, combined with the shares expected to be awarded or sold to plan
participants under the MRDP and the Stock Option Plan, could ultimately result
in management and employees and their associates controlling up to approximately
22.8% of the outstanding shares of the common stock (assuming the sale of
300,000 shares in the conversion and that the shares issued under the MRDP and
the Stock Option Plan are repurchased treasury shares). This voting control
could permit management to benefit from certain statutory and regulatory
provisions, as well as certain provisions in the Holding Company's Articles of
Incorporation and Bylaws, that may tend to promote the continuity of existing
management. If these individuals were to act as a group or in concert with each
other, they could have significant influence over the outcome of any stockholder
vote requiring a majority vote and in the election of directors and could
effectively exercise veto power in matters requiring the approval of
stockholders, such as certain business combinations. Management might thus have
the power to authorize actions that may be viewed as contrary to the best
interests of non-affiliated holders of the common stock and might have veto
power over actions that such holders may deem to be in their best interests. See
"SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS,"
"MANAGEMENT OF THE ASSOCIATION -- Executive Compensation" and "RESTRICTIONS ON
ACQUISITION OF THE HOLDING COMPANY."
Anti-Takeover Provisions and Statutory Provisions That Could Discourage Hostile
Acquisitions of Control
Provisions in the Holding Company's Articles of Incorporation and Bylaws,
the corporation law of the state of Indiana, and certain federal regulations may
make it difficult and expensive to pursue a tender offer, change in control or
takeover attempt that management opposes. As a result, stockholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions will also make the removal of the current board of directors
or management of the Holding Company, or the appointment of new directors, more
difficult. These provisions include: limitations on voting rights of beneficial
owners of more than 10% of the Holding Company's common stock; super-majority
voting requirements for certain business combinations; the election of directors
to staggered terms of three years; and the removal of directors without cause
only upon the vote of holders of two-thirds of the outstanding voting shares.
The Articles of Incorporation of the Holding Company also contain provisions
regarding the timing and content of stockholder proposals and nominations and
limiting the calling of special meetings. See "RESTRICTIONS ON ACQUISITION OF
THE HOLDING COMPANY."
Provisions of Employment Agreements
The employment agreements with the two senior officers of the Holding
Company and the Association provide for cash severance payments and/or the
continuation of health, life and disability benefits in the event of their
termination of employment following a change in control of the Holding Company
or the Association. If a change in control had occurred at December 31, 1997,
the aggregate value of the severance benefits available to these executive
8
<PAGE>
officers under the agreements would have been approximately $288,000. These
arrangements may have the effect of increasing the costs of acquiring the
Holding Company, thereby discouraging future attempts to take over the Holding
Company or the Association. For information about the proposed employment
agreements, see "MANAGEMENT OF THE ASSOCIATION -- Executive Compensation."
Possible Increase in Estimated Valuation Range and Number of Shares Issued
CRG may increase the Estimated Valuation Range up to 15% to reflect
material changes in the financial condition or results of operations of the
Association or changes in market conditions or general financial, economic or
regulatory conditions following the commencement of the offering. If the
Estimated Valuation Range is increased, the Holding Company anticipates that it
would issue, without any additional notice, up to 396,750 shares of common stock
for an aggregate price of up to $3,967,500. This increase in the number of
shares would decrease pro forma net earnings per share and stockholders' equity
per share, increase the Holding Company's pro forma consolidated stockholders'
equity and net earnings, and increase the purchase price as a percentage of pro
forma stockholders' equity per share and net earnings per share. See "PRO FORMA
DATA."
Risk of Year 2000 Data Processing Problems
Computer programs that use only two digits to identify a year could fail or
create erroneous results by or at the year 2000. All of the material data
processing of the Association that could be affected by this problem is provided
by a third party service bureau. If the Association's service bureau is unable
to complete its year 2000 adjustments in a timely fashion and the Association is
unable to find a new service bureau, or if the Association's service bureau does
not successfully make all the necessary year 2000 adjustments, resulting
computer malfunctions could interrupt the operations of the Association and have
a significant adverse impact on the Association's financial condition and
results of operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Year 2000 Issues."
Financial Institution Regulation and the Future of the Thrift Industry
The Association is subject to extensive regulation, supervision and
examination by the OTS and the FDIC. Legislation has been introduced into
Congress that would consolidate the OTS with the Office of the Comptroller of
the Currency, which regulates national banks. If this or similar legislation is
enacted into law, the Association could be forced to become a state or national
bank and become subject to regulation by a different government agency. If the
Association is required to change charters, its activities and investment
authority and the ability of the Holding Company to engage in diversified
activities may be altered or limited. It is impossible at this time to predict
whether such legislation will be passed or the impact of any such legislation on
the operations of the Association and the Holding Company.
9
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables set forth certain information concerning the
financial position and results of operations of the Association at the dates and
for the periods indicated. This information should be read in conjunction with
the Consolidated Financial Statements and Notes thereto presented elsewhere in
this prospectus.
<TABLE>
<CAPTION>
At December 31,
-------------------------------
1997 1996 1995
------- ------- -------
(In thousands)
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets ...................................... $21,989 $22,247 $24,115
Loans receivable, net ............................. 19,296 19,837 19,987
Mortgage-backed securities, held to maturity ...... 20 27 34
Mortgage-backed securities, available for sale .... -- -- 475
Securities available for sale ..................... 1,319 812 701
Cash and interest-bearing deposits(1) ............. 752 977 2,298
Deposits .......................................... 19,846 20,194 20,648
Advances from Federal Home Loan Bank .............. -- -- 1,400
Total retained earnings ........................... 2,092 2,018 2,036
<CAPTION>
Year Ended December 31,
-------------------------------
1997 1996 1995
------- ------- -------
(In thousands)
<S> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income ................................... $ 1,646 $ 1,726 $ 1,756
Interest expense .................................. 1,107 1,143 1,161
------- ------- -------
Net interest income ............................... 539 583 595
Provision for loan losses ......................... -- 8 4
------- ------- -------
Net interest income after provision for loan losses 539 575 591
Non-interest income ............................... 7 12 12
Non-interest expense .............................. 448 612(2) 527
------- ------- -------
Income before income taxes ........................ 98 (25) 76
Income tax expense (credit) ....................... 28 (8) 18
------- ------- -------
Net income (loss) ................................. $ 70 $ (17) $ 58
======= ======= =======
</TABLE>
- ----------
(1) Includes interest-bearing deposits in other depository institutions.
(2) Includes one-time SAIF assessment of $135,000.
10
<PAGE>
<TABLE>
<CAPTION>
At December 31,
---------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
SELECTED OTHER DATA:
Number of:
Mortgage loans outstanding................................... 733 764 789
Deposit accounts............................................. 2,336 2,445 2,312
Offices...................................................... 1 1 1
<CAPTION>
At or For the Year Ended
December 31,
---------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
SELECTED FINANCIAL RATIOS:
Performance Ratios:
Return on average assets(1) .................................. 0.31% (0.07%) 0.24%
Return on average retained earnings(2)........................ 3.23 (0.78) 2.73
Average retained earnings as a percent of average assets...... 9.46 9.36 8.78
Interest rate spread(3)....................................... 1.97 2.14 2.14
Net interest margin(4)........................................ 2.43 2.59 2.54
Average interest-earning assets to
average interest-bearing liabilities......................... 109.19 108.83 108.03
Non-interest expense as a
percent of average total assets.............................. 1.95 2.63 2.18
Capital Ratios:
Tangible...................................................... 9.59 9.16 8.64
Core.......................................................... 9.59 9.16 8.64
Risk-based.................................................... 18.16 17.63 14.89
Asset Quality Ratios:
Nonperforming loans as a percent
of loans receivable, net(5).................................. 0.00 0.42 0.22
Nonperforming assets as a
percent of total assets(6)................................... 0.00 0.37 0.19
Allowance for loan losses as a percent
of gross loans receivable.................................... 0.26 0.26 0.22
Allowance for loan losses as a
percent of nonperforming loans............................... N/M 62.65 97.76
Net charge-offs as a percent of
average outstanding loans.................................... 0.01 0.00 0.06
</TABLE>
- ----------
(1) Net income divided by average total assets.
(2) Net income divided by average total retained earnings.
(3) Difference between weighted average yield on interest-earning assets and
weighted average cost of interest-bearing liabilities.
(4) Net interest income as a percentage of average interest-earning assets.
(5) Nonperforming loans consist of loans accounted for on a nonaccrual basis
and accruing loans 90 days or more past due.
(6) Nonperforming assets consist of nonperforming loans and real estate
acquired in settlement of loans. See "BUSINESS OF THE ASSOCIATION --
Lending Activities -- Nonperforming Assets and Delinquencies."
11
<PAGE>
RECENT DEVELOPMENTS
The following tables sets forth selected financial condition data for the
Association at March 31, 1998, and December 31, 1997, selected operating data
for the Association for the three months ended March 31, 1998 and 1997 and
selected financial ratios for the Association at and for the three months ended
March 31, 1998 and 1997. The selected financial and operating data and financial
ratios at and for the three months ended March 31, 1998 and 1997 are derived
from the unaudited financial statements of the Association, which, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation. This information should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto presented elsewhere in this prospectus.
<TABLE>
<CAPTION>
At At
March 31, December 31,
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets ......................................... $22,558 $21,989
Loans receivable, net ................................ 19,131 19,296
Mortgage-backed securities, held to maturity ......... 19 20
Securities available for sale ....................... 1,216 1,319
Cash and interest-bearing deposits ................... 1,487 752
Deposits ............................................. 20,424 19,846
Total retained earnings .............................. 2,094 2,092
<CAPTION>
Three Months
Ended March 31,
--------------------
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
SELECTED OPERATING DATA:
Interest income ...................................... $ 401 $ 404
Interest expense ..................................... 265 271
------- -------
Net interest income .................................. 136 133
Provision for loan losses ............................ -- --
------- -------
Net interest income after
provision for loan losses .......................... 136 133
Non-interest income .................................. 2 1
Non-interest expense ................................. 132 129
------- -------
Income before income taxes ........................... 6 5
Income tax expense ................................... 1 1
------- -------
Net income ........................................... $ 5 $ 4
======= =======
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
At or For the
Three Months
Ended March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
SELECTED FINANCIAL RATIOS:
Performance Ratios:(1)
Return on average assets(2) .......................... 0.09% 0.07%
Return on average retained earnings(3) ............... 0.94 0.77
Average equity as a percent of average assets ........ 9.61 9.26
Interest rate spread(4) .............................. 2.07 1.91
Net interest margin(5) ............................... 2.53 2.35
Average interest-earning assets to
average interest-bearing liabilities ................ 109.23 108.85
Non-interest expense as a
percent of average total assets ..................... 2.38 2.29
Capital Ratios:
Tangible ............................................. 9.36 9.04
Core ................................................. 9.36 9.04
Risk-based ........................................... 17.41 18.48
Asset Quality Ratios:
Nonperforming loans as a percent
of loans receivable, net(6) ......................... -- 0.07
Nonperforming assets as a
percent of total assets(7) .......................... 0.08 0.06
Allowance for loan losses as a percent
of gross loans receivable ........................... 0.26 0.26
Allowance for loan losses as a
percent of nonperforming loans ...................... -- 371.43
Net charge-offs as a percent of
average outstanding loans ........................... -- --
</TABLE>
- ----------
(1) Ratios for the three-month periods are annualized where appropriate.
(2) Net income divided by average total assets.
(3) Net income divided by average retained earnings.
(4) Difference between weighted average yield on interest-earning assets and
weighted average rate on interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Nonperforming loans consist of loans accounted for on a nonaccrual basis
and accruing loans 90 days or more past due.
(7) Nonperforming assets consist of nonperforming loans and real estate
acquired in settlement of loans, but exclude restructured loans.
13
<PAGE>
Comparison of Financial Condition at March 31, 1998 and December 31, 1997
Total assets increased 2.7% from $22.0 million at December 31, 1997 to
$22.6 million at March 31, 1998, primarily as a result of an increase in
deposits. Loans receivable, net, decreased 1.0% to $19.1 million at March 31,
1998, from $19.3 million at December 31, 1997. The decrease resulted primarily
from principal repayments on real estate mortgage loans. Mortgage-backed
securities held-to-maturity decreased from $20,000 at December 31, 1997 to
$19,000 at March 31, 1998 as a result of principal reductions. Other debt
securities available for sale (U.S. agency obligations and corporate notes)
decreased from $1.3 million at December 31, 1997 to $1.2 million at March 31,
1998. During the three month period ended March 31, 1998, the Association had
sales and maturities of other debt securities with a carrying value of $599,000
and purchases of $499,000.
Total deposits increased 2.9% from $19.8 million at December 31, 1997 to
$20.4 million at March 31, 1998 as a result of normal growth. The Association
had no borrowed funds at December 31, 1997 or March 31, 1998.
Comparison of Operating Results for the Three Months Ended March 31, 1998 and
1996
Net Income. Net income was $5,000 for the three months ended March 31,
1998, compared to $4,000 for the three months ended March 31, 1997. The increase
in net income for 1998 compared to 1997 resulted primarily from increases in net
interest income and non-interest income.
Net Interest Income. Net interest income increased 2.3% from $133,000 in
1997 to $136,000 in 1998 as a result of a decrease in total interest expense,
offset by a slight decrease in interest income. The average yield on
interest-earning assets increased from 7.28% in 1997 to 7.38% in 1998. The
average balance of total interest-earning assets was $22.0 million for 1997
compared to $21.8 million for 1998. The average cost of interest-bearing
liabilities decreased from 5.37% in 1997 to 5.31% in 1998 while the average
balance of interest-bearing liabilities was $20.2 million for 1997 compared to
$19.9 million for 1998. The interest rate spread for 1997 was 1.91% compared to
2.07% for 1998.
Provision for Loan Losses. There was no provision for loan losses during
the first quarter of 1998 or 1997. Provision for loan losses are charged to
earnings to bring the total allowance for loan losses to a level considered by
management to be adequate to provide for estimated losses based on management's
evaluation of the collectibility of the loan portfolio, including the nature of
the portfolio, credit concentrations, trends in historical loss experience,
specific impaired loans, and economic conditions. In determining the adequacy of
the allowance for loan losses, the Association reviews all loans quarterly, and
loans are assigned a risk weighting based on asset clarification. The allowance
for loan losses was $51,000 and $52,000 at March 31, 1998 and 1997,
respectively. Management has deemed those amounts as adequate on those dates
based on its best estimate of probable known and inherent loan losses. At March
31, 1998, the Association had no nonperforming loans.
Non-interest Income. Non-interest income was $2,000 for 1998 compared to
$1,000 for 1997. Commissions on mortgage life insurance sold to customers of the
Association is the Association's primary source of non-interest income.
Non-interest Expense. Non-interest expenses totaled $132,000 for 1998
compared to $129,000 for 1997. The increase for 1998 compared to 1997 resulted
primarily from increases in compensation and benefits of $4,000, deposit
insurance premiums of $2,000, and other expenses of $3,000, offset by a decrease
in occupancy and equipment expenses of $6,000.
Income Taxes. Income tax expense was unchanged from 1997 to 1998.
14
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the common stock offered hereby are
estimated to range from $2.2 million to $3.1million, or up to $3.7 million if
the Estimated Valuation Range is increased by 15%. See "PRO FORMA DATA" for the
assumptions used to arrive at such amounts. The Holding Company has received
conditional OTS approval to purchase all of the capital stock of the Association
to be issued in the conversion in exchange for 50% of the net proceeds of the
conversion.
The following table presents the estimated net proceeds of the offering
based on the number of shares set forth below together with the amount to be
retained by the Holding Company and the amount to be contributed to the
Association.
<TABLE>
<CAPTION>
255,000 300,000 345,000 396,750
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Gross proceeds................... $2,550 $3,000 $3,450 $3,968
Less expenses.................... 315 315 315 315
------ ------ ------ ------
Net proceeds..................... $2,235 $2,685 $3,135 $3,653
====== ====== ====== ======
Amount to be retained by
Holding Company................. $1,118 $1,343 $1,568 $1,827
Amount to be contributed to
Association..................... $1,118 $1,343 $1,568 $1,827
</TABLE>
Receipt of 50% of the net proceeds of the sale of the common stock will
increase the Association's capital and will support the expansion of the
Association's existing business activities. The Association will use the funds
contributed to it for general corporate purposes, including, initially, lending
and investment in short-term U.S. Government and agency obligations. Depending
on loan demand, the Association may consider using a portion of the conversion
proceeds for investment in mortgage-backed securities.
The remaining net proceeds retained by the Holding Company initially will
be invested primarily in short-term U.S. Government and agency obligations. Such
proceeds will be available for additional contributions to the Association in
the form of debt or equity, to support future diversification activities, as a
source of dividends to the stockholders of the Holding Company and for future
repurchases of common stock to the extent permitted under Indiana law and
federal regulations.
The use of proceeds may be subject to change depending on the demand for
loans in the Association's market area, the prevailing interest rate environment
and the Association's interest rate risk position.
Following consummation of the conversion, the Board of Directors will have
the authority to adopt plans for repurchases of common stock, subject to
statutory and regulatory requirements. Since the Holding Company has not yet
issued stock, there currently is insufficient information upon which an
intention to repurchase stock could be based. The facts and circumstances upon
which the Board of Directors may determine to repurchase stock in the future
would include but are not limited to: (i) market and economic factors such as
the price at which the stock is trading in the
15
<PAGE>
market, the volume of trading, the attractiveness of other investment
alternatives in terms of the rate of return and risk involved in the investment,
the ability to increase the book value and/or earnings per share of the
remaining outstanding shares, and the ability to improve the Holding Company's
return on equity; (ii) the avoidance of dilution to stockholders by not having
to issue additional shares to cover the exercise of stock options or to fund
employee stock benefit plans; and (iii) any other circumstances in which
repurchases would be in the best interests of the Holding Company and its
stockholders. Any stock repurchases will be subject to a determination by the
Board of Directors that both the Holding Company and the Association will be
capitalized in excess of all applicable regulatory requirements after any such
repurchases and that capital will be adequate, taking into account, among other
things, the Association's level of nonperforming and classified assets, the
Holding Company's and the Association's current and projected results of
operations and asset/liability structure, the economic environment and tax and
other regulatory considerations. For a discussion of the regulatory limitations
applicable to stock repurchases, see "THE CONVERSION -- Restrictions on
Repurchase of Stock."
DIVIDEND POLICY
General
The Holding Company's Board of Directors intends to adopt a policy of
paying regular cash dividends following consummation of the conversion. However,
the Board of Directors has not made a decision as to the amount or timing of
such dividends. In addition, the Board of Directors may determine to pay
periodic special cash dividends in addition to, or in lieu of, regular cash
dividends. Declarations or payments of any dividends (regular and special) will
be subject to determination by the Holding Company's Board of Directors, which
will take into account the amount of the net proceeds retained by the Holding
Company, the Holding Company's financial condition, results of operations, tax
considerations, capital requirements, industry standards, economic conditions
and other factors, including the regulatory restrictions that affect the payment
of dividends by the Association to the Holding Company discussed below. Under
Indiana law, the Holding Company will be permitted to pay cash dividends after
the conversion so long as the Holding Company is able to pay its debts as they
come due in the usual course of business and the Holding Company's assets are
greater than the sum of its total liabilities plus the amount that would be
needed, if the Holding Company were to be dissolved at the time of the dividend,
to satisfy any rights that are preferential to those of the persons receiving
the dividend. In order to pay such cash dividends, however, the Holding Company
must have available cash either from the net proceeds raised in the conversion
and retained by the Holding Company, borrowings by the Holding Company,
dividends received from the Association or earnings on Holding Company assets.
No assurances can be given that any dividends, either regular or special, will
be declared or, if declared, what the amount of dividends will be or whether
such dividends, if commenced, will continue.
Current Restrictions
Dividends from the Holding Company will depend, in part, upon receipt of
dividends from the Association because the Holding Company initially will have
no source of income other than dividends from the Association and earnings from
the investment of the net proceeds from the offering retained by the Holding
Company. OTS regulations require the Association to give the OTS 30 days'
advance notice of any proposed declaration of dividends to the Holding Company,
and the OTS has the authority under its supervisory powers to prohibit the
payment of dividends to the Holding Company. The OTS imposes certain limitations
on the payment of dividends from the Association to the Holding Company which
utilize a three-tiered approach that permits various levels of distributions
based primarily upon a savings association's capital level. The Association
currently meets the criteria to be designated a Tier 1 association, as
hereinafter defined, and consequently could at its option (after prior notice to
and no objection made by the OTS) distribute up to 100% of its net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year. In
addition, the Association may not declare or pay a cash dividend on its capital
stock if the effect thereof would be to reduce the regulatory capital of the
Association below the amount required for the liquidation account to be
established pursuant to the Association's Plan
16
<PAGE>
of Conversion. See "REGULATION - Federal Regulation of Savings Associations -
Limitations on Capital Distributions," "THE CONVERSION - Effects of Conversion
to Stock Form on Depositors and Borrowers of the Association - Liquidation
Account" and Note 16 of the Notes to Consolidated Financial Statements included
elsewhere herein.
Additionally, in connection with the conversion, the Holding Company and
the Association have committed to the OTS that during the one-year period
following consummation of the conversion, the Holding Company will not take any
action to declare an extraordinary dividend to stockholders that would be
treated by recipients as a tax-free return of capital for federal income tax
purposes.
Tax Considerations
In addition to the foregoing, retained earnings of the Association
appropriated to bad debt reserves and deducted for federal income tax purposes
cannot be used by the Association to pay cash dividends to the Holding Company
without the payment of federal income taxes by the Association at the then
current income tax rate on the amount deemed distributed, which would include
the amounts of any federal income taxes attributable to the distribution. See
"TAXATION - Federal Taxation" and Note 6 of the Notes to Consolidated Financial
Statements included elsewhere herein. The Holding Company does not contemplate
any distribution by the Association that would result in a recapture of the
Association's bad debt reserve or create the above-mentioned federal tax
liabilities.
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock and, consequently, there
is no existing market for the common stock. The Holding Company intends to list
the common stock over-the-counter through either the National Daily Quotation
System "Pink Sheets" published by the National Quotation Bureau, Inc. or the
OTC-Bulletin Board and to request that Capital Resources undertake to match
offers to buy and offers to sell the common stock. Capital Resources has agreed
to make a market for the Holding Company's common stock following consummation
of the conversion, although it has no obligation to do so. However, there can be
no assurance that timely and accurate quotations will be available. The
development of a liquid public market depends on the existence of willing buyers
and sellers, the presence of which is not within the control of the Holding
Company, the Association or any market maker. Because of the small size of the
offering, it is highly unlikely that an active and liquid market for the common
stock will develop. The number of active buyers and sellers of the common stock
at any particular time may be limited. Under such circumstances, you could have
difficulty disposing of your shares on short notice and should not view the
common stock as a short-term investment. Furthermore, there can be no assurance
that you will be able to sell your shares at or above the $10.00 purchase price.
17
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the
Association at December 31, 1997, and the pro forma consolidated capitalization
of the Holding Company after giving effect to the assumptions set forth under
"PRO FORMA DATA," based on the sale of the number of shares of common stock at
the minimum, midpoint, maximum and maximum, as adjusted, of the Estimated
Valuation Range. The shares that would be issued at the maximum, as adjusted, of
the Estimated Valuation Range would be subject to receipt of OTS approval of an
updated appraisal confirming such valuation. A change in the number of shares to
be issued in the conversion may materially affect pro forma consolidated
capitalization.
<TABLE>
<CAPTION>
Holding Company
Pro Forma Consolidated Capitalization
Based Upon the Sale of
-------------------------------------------------------------
255,000 300,000 345,000 396,750
Capitalization Shares at Shares at Shares at Shares at
as of $10.00 $10.00 $10.00 $10.00
December 31, 1997 Per Share(1) Per Share(1) Per Share(1) Per Share(2)
----------------- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(3) .................................... $ 19,846 $ 19,846 $ 19,846 $ 19,846 $ 19,846
======== ======== ======== ======== ========
Stockholders' equity:
Preferred stock:
1,000,000 shares, $.01
par value per share,
authorized; none issued
or outstanding ............................ $ -- $ -- $ -- $ -- $ --
Common stock:
5,000,000 shares, $.01 par
value per share, authorized;
specified number of shares
assumed to be issued and
outstanding(4) ............................ -- 3 3 3 4
Additional paid-in capital .................. -- 2,232 2,682 3,132 3,649
Total retained earnings(5) .................. 2,092 2,092 2,092 2,092 2,092
Less:
Common Stock to be acquired
by MRDP(6) .............................. -- (102) (120) (138) (159)
-------- -------- -------- -------- --------
Total stockholders' equity ..................... $ 2,092 $ 4,225 $ 4,657 $ 5,089 $ 5,586
======== ======== ======== ======== ========
</TABLE>
(footnotes on following page)
18
<PAGE>
- ---------
(1) Does not reflect the possible increase in the Estimated Valuation Range to
reflect material changes in the financial condition or results of
operations of the Association or changes in market conditions or general
financial, economic and regulatory conditions, or the issuance of
additional shares under the Stock Option Plan.
(2) This column represents the pro forma capitalization of the Holding Company
in the event the aggregate number of shares of common stock issued in the
conversion is 15% above the maximum of the Estimated Valuation Range. See
"PRO FORMA DATA" and Footnote 1 thereto.
(3) Withdrawals from deposit accounts for the purchase of common stock are not
reflected. Such withdrawals will reduce pro forma deposits by the amounts
thereof.
(4) The Association's authorized capital will consist solely of 1,000 shares of
common stock, par value $1.00 per share, 1,000 shares of which will be
issued to the Holding Company, and 9,000 shares of preferred stock, no par
value per share, none of which will be issued in connection with the
conversion.
(5) Retained earnings are substantially restricted by applicable regulatory
capital requirements. Additionally, the Association will be prohibited from
paying any dividend that would reduce its regulatory capital below the
amount in the liquidation account, which will be established for the
benefit of the Association's Eligible Account Holders and Supplemental
Eligible Account Holders at the time of the conversion and adjusted
downward thereafter as such account holders reduce their balances or cease
to be depositors. See "THE CONVERSION -- Effects of Conversion to Stock
Form on Depositors and Borrowers of the Association -- Liquidation
Account."
(6) Assumes the purchase in the open market at $10.00 per share, pursuant to
the proposed MRDP, of a number of shares equal to 4% of the shares of
common stock issued in the conversion at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range. The issuance of an
additional 4% of the shares of common stock for the MRDP from authorized
but unissued shares would dilute the ownership interest of stockholders by
3.85%. The shares are reflected as a reduction of stockholders' equity. See
"RISK FACTORS -- Possible Dilutive Effect of Benefit Programs," "PRO FORMA
DATA" and "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Management
Recognition and Development Plan." The MRDP is subject to stockholder
approval, which is expected to be sought at a meeting to be held no earlier
than six months following consummation of the conversion.
19
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table presents the Association's historical and pro forma
capital position relative to its capital requirements at December 31, 1997. The
amount of capital infused into the Association for purposes of the following
table is 50% of the net proceeds of the offering. For purpose of the table
below, the cost of the shares expected to be acquired by the MRDP is deducted
from pro forma regulatory capital. For a discussion of the assumptions
underlying the pro forma capital calculations presented below, see "USE OF
PROCEEDS," "CAPITALIZATION" and "PRO FORMA DATA." The definitions of the terms
used in the table are those provided in the capital regulations issued by the
OTS. For a discussion of the capital standards applicable to the Association,
see "REGULATION -- Federal Regulation of Savings Associations -- Capital
Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT DECEMBER 31, 1997
------------------------------
Minimum of Estimated
Valuation Range
255,000 Shares
December 31, 1997 at $10.00 Per Share
------------------------- -------------------------
Percent of Percent of
Adjusted Adjusted
Total Total
Amount Assets (1) Amount Assets (1)
------ ---------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
GAAP capital(2) ............................... $2,092 9.51% $3,107 13.51%
Tangible capital(2) ........................... $2,110 9.59% $3,125 13.57%
Tangible capital requirement .................. 330 1.50 345 1.50
------ ------ ------ ------
Excess ........................................ $1,780 8.09% $2,780 12.07%
====== ====== ====== ======
Core capital(2) ............................... $2,110 9.59% $3,125 13.57%
Core capital requirement(3) ................... 660 3.00 691 3.00
------ ------ ------ ------
Excess ........................................ $1,450 6.59% $2,434 10.57%
====== ====== ====== ======
Total capital(4) .............................. $2,161 20.14% $3,176 29.05%
Risk-based
capital requirement .......................... 858 8.00 876 8.00
------ ------ ------ ------
Excess ........................................ $1,303 12.14% $2,300 21.05%
====== ====== ====== ======
<CAPTION>
PRO FORMA AT DECEMBER 31, 1997
-----------------------------------------------------------------------------------
15% above
Midpoint of Estimated Maximum of Estimated Maximum of Estimated
Valuation Range Valuation Range Valuation Range
---------------------- ---------------------- -----------------------
300,000 Shares 345,000 Shares 396,750 Shares
at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
----------------------- ---------------------- -----------------------
Percent of Percent of Percent of
Adjusted Adjusted Adjusted
Total Total Total
Amount Assets (1) Amount Assets (1) Amount Assets (1)
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
GAAP capital(2) .......................... $3,314 14.28% $3,521 15.04% $3,759 15.89%
Tangible capital(2) ...................... $3,332 14.34% $3,539 15.10% $3,777 15.95%
Tangible capital requirement ............. 348 1.50 352 1.50 355 1.50
------ ----- ------ ----- ------ -----
Excess ................................... $2,984 12.84% $3,187 13.60% $3,422 14.45%
====== ===== ====== ===== ====== =====
Core capital(2) .......................... $3,332 14.34% $3,539 15.10% $3,777 15.95%
Core capital requirement(3) .............. 697 3.00 703 3.00 710 3.00
------ ----- ------ ----- ------ -----
Excess ................................... $2,635 11.34% $2,836 12.10% $3,067 12.95%
====== ===== ====== ===== ====== =====
Total capital(4) ......................... $3,383 30.83% $3,590 32.59% $3,828 34.60%
Risk-based
capital requirement ..................... 878 8.00 881 8.00 885 8.00
------ ----- ------ ----- ------ -----
Excess ................................... $2,505 22.83% $2,709 24.59% $2,943 26.60%
====== ===== ====== ===== ====== =====
</TABLE>
- ----------
(1) Tangible capital levels and core capital levels are shown as a percentage
of adjusted total assets. Risk-based capital levels are shown as a
percentage of risk-weighted assets.
(2) An unrealized loss on securities available-for-sale, net of taxes, accounts
for the difference between GAAP capital and each of tangible capital and
core capital.
(3) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements which
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and
soundness and a core capital ratio of 4% to 5% for all other thrifts.
(4) Percentage represents total core and supplementary capital divided by total
risk-weighted assets. Assumes net proceeds are invested in assets that
carry a 20% risk-weighting.
20
<PAGE>
PRO FORMA DATA
Under the Plan of Conversion, the common stock must be sold at a price
equal to the estimated pro forma market value of the Holding Company and the
Association as converted, based upon an independent valuation. The Estimated
Valuation Range as of March 6, 1998 is from a minimum of $2,550,000 to a maximum
of $3,450,000 with a midpoint of $3,000,000. At a price per share of $10.00,
this results in a minimum number of shares of 255,000, a maximum number of
shares of 345,000 and a midpoint number of shares of 300,000. The actual net
proceeds from the sale of the common stock cannot be determined until the
conversion is completed. However, net proceeds set forth on the following table
are based upon the following assumptions: (i) all of the common stock will be
sold in the Subscription and Direct Community Offerings; and (ii) conversion
expenses, including the fees paid to Capital Resources, will total approximately
$315,000 at each of the minimum, midpoint, maximum and 15% above the Estimated
Valuation Range. Actual expenses may vary from this estimate, and the fees paid
will depend upon the percentages and total number of shares sold in the
Subscription Offering, Direct Community Offering and Syndicated Community
Offering and other factors.
The following table summarizes the historical net income and retained
earnings of the Association and the pro forma consolidated net income and
stockholders' equity of the Holding Company at and for the year ended December
31, 1997, based on the minimum, midpoint and maximum of the Estimated Valuation
Range and based on a 15% increase in the maximum of the Estimated Valuation
Range. The pro forma consolidated net income of the Association for the year
ended December 31, 1997 has been calculated as if the conversion had been
consummated at the beginning of the period and the estimated net proceeds
received by the Holding Company and the Association had been invested at 5.5% at
the beginning of the period, which represents the one-year U.S. Treasury Bill
yield as of December 31, 1997. While OTS regulations provide for the use of a
yield representing the arithmetic average of the weighted average yield earned
by the Association on its interest-earning assets and the rates paid on its
deposits, the Holding Company believes that the U.S. Treasury Bill yield
represents a more realistic yield on the initial investment of the conversion
proceeds. As discussed under "USE OF PROCEEDS," the Holding Company expects to
retain 50% of the net proceeds of the offering. A pro forma after-tax return of
3.74% is used for both the Holding Company and the Association for the period,
after giving effect to an incremental combined federal and state income tax rate
of 32.0%. Historical and pro forma per share amounts have been calculated by
dividing historical and pro forma amounts by the number of shares of common
stock indicated in the footnotes to the table. Per share amounts have been
computed as if the common stock had been outstanding at the beginning of the
respective periods or at December 31, 1997, but without any adjustment of per
share historical or pro forma stockholders' equity to reflect the earnings on
the estimated net proceeds.
No effect has been given to: (i) the shares to be reserved for issuance
under the Stock Option Plan, which is expected to be voted upon by stockholders
at a meeting to be held no earlier than six months following consummation of the
conversion; (ii) withdrawals from deposit accounts for the purpose of purchasing
common stock in the conversion; (iii) the issuance of shares from authorized but
unissued shares to the MRDP, which is expected to be voted upon by stockholders
at a meeting to be held no earlier than six months following consummation of the
conversion; or (iv) the establishment of a liquidation account for the benefit
of Eligible Account Holders and Supplemental Eligible Account Holders. See
"MANAGEMENT OF THE ASSOCIATION -- Benefits -- Stock Option Plan" and "THE
CONVERSION -- Stock Pricing and Number of Shares to be Issued."
The following pro forma information may not be representative of the
financial effects of the conversion at the date on which the conversion actually
occurs and should not be taken as indicative of future results of operations.
Stockholders' equity represents the difference between the stated amounts of
consolidated assets and liabilities of the Holding Company computed in
accordance with GAAP. Stockholders' equity has not been increased or decreased
to reflect the difference between the carrying value of loans and other assets
and market value. Stockholders' equity is not intended to represent fair market
value nor does it represent amounts that would be available for distribution to
stockholders in the event of liquidation.
21
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1997
--------------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range
--------- --------- --------- ---------------
255,000 300,000 345,000 396,750(1)
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds ............................................. $ 2,550 $ 3,000 $ 3,450 $ 3,968
Less: estimated expenses ................................... (315) (315) (315) (315)
------- ------- ------- -------
Estimated net proceeds ..................................... 2,235 2,685 3,135 3,653
Less: Common stock to be acquired by MRDP .................. (102) (120) (138) (159)
------- ------- ------- -------
Net investable proceeds(2) ............................ $ 2,133 $ 2,565 $ 2,997 $ 3,494
======= ======= ======= =======
Consolidated net income:
Historical ................................................ $ 70 $ 70 $ 70 $ 70
Pro forma income on net proceeds .......................... 80 96 112 131
Pro forma MRDP adjustments(3) ............................. (14) (16) (19) (22)
------- ------- ------- -------
Pro forma net income .................................... $ 136 $ 150 $ 163 $ 179
======= ======= ======= =======
Consolidated net income per share (4)(5):
Historical ................................................ $ 0.27 $ 0.23 $ 0.21 $ 0.18
Pro forma income on net proceeds .......................... 0.31 0.32 0.32 0.33
Pro forma MRDP adjustments(3) ............................. (0.05) (0.05) (0.06) (0.06)
------- ------- ------- -------
Pro forma net income per share .......................... $ 0.53 $ 0.50 $ 0.47 $ 0.45
======= ======= ======= =======
Consolidated stockholders' equity (book value):
Historical ................................................ $ 2,092 $ 2,092 $ 2,092 $ 2,092
Estimated net proceeds .................................... 2,235 2,685 3,135 3,653
Less: Common stock to be acquired by MRDP(3) .............. (102) (120) (138) (159)
------- ------- ------- -------
Pro forma stockholders' equity(6) ....................... $ 4,225 $ 4,657 $ 5,089 $ 5,586
======= ======= ======= =======
Consolidated stockholders' equity per share(3)(4):
Historical(5) ............................................. $ 8.21 $ 6.97 $ 6.06 $ 5.27
Estimated net proceeds .................................... 8.76 8.95 9.09 9.21
Less: Common stock to be acquired by MRDP(3) .............. (0.40) (0.40) (0.40) (0.40)
------- ------- ------- -------
Pro forma stockholders' equity per share(7) ............. $ 16.57 $ 15.52 $ 14.75 $ 14.08
======= ======= ======= =======
Purchase price as a percentage of pro forma
stockholders' equity per share ............................ 60.35% 64.43% 67.80% 71.02%
Purchase price as a multiple of pro forma
net income per share ...................................... 18.87x 20.00x 21.28x 22.22x
</TABLE>
- ----------
(1) Gives effect to the sale of an additional 51,750 shares in the conversion,
which may be issued to cover an increase in the pro forma market value of
the Holding Company and the Association as converted, without the
resolicitation of subscribers or any right of cancellation. The issuance of
such additional shares will be conditioned on a determination by CRG that
such issuance is compatible with its determination of the estimated pro
forma market value of the Holding Company and the Association as converted.
See "THE CONVERSION -- Stock Pricing and Number of Shares to be Issued."
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing common stock in the conversion. Since funds on
deposit at the Association may be withdrawn to purchase shares of common
stock (which will reduce deposits by the amount of such purchases), the net
amount of funds available to the Association for investment following
receipt of the net proceeds of the conversion will be reduced by the amount
of such withdrawals.
(3) In calculating the pro forma effect of the MRDP, it is assumed that the
required stockholder approval has been received, that the shares were
acquired by the MRDP at the beginning of the period presented in open
market purchases at the $10.00 per share purchase price, that 20% of the
amount contributed was an amortized expense
22
<PAGE>
during such period, and that the combined federal and state income tax rate
is 32%. The issuance of authorized but unissued shares of the common stock
instead of open market purchases would dilute the voting interests of
existing stockholders by approximately 3.85% and pro forma net income per
share would be $0.53, $0.49, $0.47 and $0.45 at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range for the
year ended December 31, 1997, respectively, and pro forma stockholders'
equity per share would be $16.32, $15.31, $14.57 and $13.92 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range at December 31, 1997, respectively. Shares issued under the MRDP vest
20% per year and for purposes of this table compensation expense is
recognized on a straight-line basis over each vesting period. In the event
the fair market value per share is greater than $10.00 per share on the
date shares are awarded under the MRDP, total MRDP expense would increase.
The total estimated MRDP expense was multiplied by 20% (the total percent
of shares for which expense is recognized in the first year) resulting in
pre-tax MRDP expense of $20,400, $24,000, $27,600 and $31,740 at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range for the year ended December 31, 1997, respectively. No
effect has been given to the shares reserved for issuance under the
proposed Stock Option Plan.
(4) Per share amounts are based upon shares outstanding of 255,000, 300,000,
345,000 and 396,750 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively.
(5) Historical per share amounts have been computed as if the shares of common
stock expected to be issued in the conversion had been outstanding at the
beginning of the period or on the date shown, but without any adjustment of
historical net income or historical retained earnings to reflect the
investment of the estimated net proceeds of the sale of shares in the
conversion, the proposed MRDP expense, as described above.
(6) "Book value" represents the difference between the stated amounts of the
Association's assets and liabilities. The amounts shown do not reflect the
liquidation account which will be established for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in the
conversion, or the federal income tax consequences of the restoration to
income of the Association's special bad debt reserves for income tax
purposes which would be required in the unlikely event of liquidation. See
"THE CONVERSION -- Effects of Conversion to Stock Form on Depositors and
Borrowers of the Association" and "TAXATION." The amounts shown for book
value do not represent fair market values or amounts distributable to
stockholders in the unlikely event of liquidation.
(7) Does not represent possible future price appreciation or depreciation of
the common stock.
23
<PAGE>
SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS
The following table sets forth certain information as to the approximate
purchases of common stock by each director and executive officer of the
Association, including their associates, as defined by applicable regulations.
No individual has entered into a binding agreement with respect to such intended
purchases, and, therefore, actual purchases could be more or less than indicated
below. Directors and officers of the Association and their associates may not
purchase in excess of 35% of the shares sold in the conversion. For purposes of
the following table, it has been assumed that sufficient shares will be
available to satisfy subscriptions in all categories. Directors, officers, their
associates and employees will pay the same price as all other subscribers for
the shares that they purchase.
<TABLE>
<CAPTION>
Percent of Percent of
Shares at Shares at
Minimum of Maximum of
Name and Anticipated Number of Anticipated Dollar Estimated Estimated
Position Shares Purchased (1) Amount Purchased Valuation Range Valuation Range
-------- ------------------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
James L. Wittmer 3,500 $35,000 1.37% 1.01%
Chairman of the Board
Carl D. Smith 2,000 20,000 0.78 0.58
President, Chief Executive
Officer and Director
Marion L. Ress 6,500 65,000 2.55 1.88
Director
Howard L. Traphagen 6,500 65,000 2.55 1.88
Director
James G. Tyler 3,000 30,000 1.18 0.87
Director
Daniel P. Lutgring 4,000 40,000 1.57 1.16
Director
Clarke A. Blackford 1,000 10,000 0.39 0.29
Vice President
and Treasurer
------ -------- ----- ----
Total 26,500 $265,000 10.39% 7.68%
====== ======== ===== ====
</TABLE>
- ----------
(1) Does not include any shares to be awarded pursuant to the MRDP or options
to acquire shares pursuant to the Stock Option Plan.
24
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of Peoples Building and
Loan Association for the fiscal years ended December 31, 1997 and 1996 have been
audited by Monroe Shine & Co., Inc., independent auditors, whose report thereon
appears elsewhere in this prospectus. These statements should be read in
conjunction with the Consolidated Financial Statements and related Notes
included elsewhere herein.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
INTEREST INCOME
Loans:
Real estate mortgage loans ....................... $ 1,479,590 $ 1,571,123
Other loans ...................................... 13,961 15,320
Mortgage-backed securities ......................... 1,837 21,324
Other debt securities ............................... 83,404 41,800
Federal Home Loan Bank dividends .................... 15,666 15,345
Interest bearing deposits with banks ................ 51,443 61,021
----------- -----------
Total interest income ............................ 1,645,901 1,725,933
INTEREST EXPENSE
Deposits ............................................ 1,091,908 1,128,689
Advances from Federal Home Loan Bank ................ 14,711 14,653
----------- -----------
Total interest expense ........................... 1,106,619 1,143,342
----------- -----------
Net interest income .............................. 539,282 582,591
Provision for loan losses ........................... -- 8,000
----------- -----------
Net interest income after provision for loan losses 539,282 574,591
NON-INTEREST INCOME
Net realized securities gain ........................ -- 760
Gain on sale of restricted equity security .......... -- 4,840
Other income ........................................ 7,215 6,695
----------- -----------
Total non-interest income ........................ 7,215 12,295
----------- -----------
NON-INTEREST EXPENSES
Compensation and benefits ........................... 268,960 251,583
Occupancy and equipment ............................. 45,229 53,266
Deposit insurance premiums .......................... 10,168 181,879
Other operating expenses ............................ 123,596 124,756
----------- -----------
Total non-interest expenses ...................... 447,953 611,484
----------- -----------
Income (loss) before income taxes ................ 98,544 (24,598)
Income tax expense (credit) ......................... 28,561 (7,597)
----------- -----------
Net income (loss) ............................... $ 69,983 $ (17,001)
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Association. The information contained in this
section should be read in conjunction with the Consolidated Financial Statements
and accompanying Notes thereto and the other sections contained in this
prospectus.
Operating Strategy
The Association's business consists principally of attracting retail
deposits (primarily certificates of deposit) from the general public and using
these funds to originate mortgage loans secured by one- to four-family
residences located in its primary market area. To a lesser extent, the
Association also originates multi-family and commercial real estate loans, land
loans, residential construction loans and loans secured by savings accounts. The
Association funds its assets primarily with retail deposits, although it
occasionally uses advances from the FHLB-Indianapolis as a supplemental source
of funds.
The Association's profitability depends primarily on its net interest
income, which is the difference between the income it receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits and borrowings. Net interest income is also affected by the relative
amounts of interest-earning assets and interest-bearing liabilities. When
interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The
Association's profitability is also affected by the level of income and
expenses. Non-interest income includes service charges and fees and gain on sale
of investments. Non-interest expenses primarily include compensation and
benefits, occupancy and equipment expenses, deposit insurance premiums and data
processing expenses. The Association's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government legislation and
regulation and monetary and fiscal policies.
The Association's business strategy is to operate as a traditional,
community-oriented savings association dedicated to financing home ownership and
providing quality customer service. Historically, the Association has emphasized
the origination of loans secured by real estate and has retained for its
portfolio almost all of the loans that it originates. To help increase the yield
on its loan portfolio and to better serve its customers, the Association began
offering automobile loans in February 1998. The Association intends to begin
offering other secured and unsecured consumer loans later in 1998. The
Association relies heavily on certificates of deposit as its source of funds. As
a result, the Association's cost of funds is generally higher than that of
institutions that have more checking and savings accounts. The Association's
high cost of funds has contributed to a lower interest rate spread and reduced
profitability in recent years. The Association intends to attempt to reduce its
reliance on certificates of deposit by introducing checking accounts later in
1998 or early in 1999. Management anticipates that offering and implementing
checking accounts will require the hiring of another employee and will increase
other operating expenses.
The conversion will increase the consolidated capital of the Holding
Company by the amount of the net proceeds. Funds withdrawn from deposit accounts
will decrease interest-bearing liabilities, and new funds used to purchase
shares will increase interest-earning assets. While the Holding Company expects
these changes to increase its net interest income, the Holding Company also
expects that the adoption of the MRDP and the additional costs of operating as a
public company will increase its non-interest expenses. For additional
information regarding the effects of this offering, see "PRO FORMA DATA."
26
<PAGE>
Comparison of Financial Condition at December 31, 1997 and 1996
At December 31, 1997, total assets were $22.0 million compared with $22.2
million at December 31, 1996. This decrease was primarily due to a $542,000
decrease in loans and a $231,000 decrease in interest-bearing deposits, which
were partially offset by a $501,000 increase in securities. The low interest
rate environment in 1997 led to loans being repaid faster than the Association
was able to originate new loans. The excess liquidity generated by loan
repayments was invested in securities.
At December 31, 1997, total deposits were $19.8 million compared with $20.2
million at December 31, 1996. Savings deposits decreased $149,000, while time
deposits decreased $198,000. The Association utilized advances from the
FHLB-Indianapolis during both 1996 and 1997 but had no advances outstanding at
either December 31, 1996 or December 31, 1997.
Total retained earnings increased $74,000 to $2.1 million as a result of
retained earnings of $70,000 and a decrease of $4,000 in the net unrealized loss
on available-for-sale securities.
Comparison of Operating Results for the Years Ended December 30, 1997 and 1996
Net Income. Net income was $70,000 for 1997 compared with a loss of $17,000
for 1996. The results for 1996 reflect the payment of the one-time,
industry-wide assessment to recapitalize the SAIF. Without the SAIF assessment,
net income for 1996 would have been $77,000. In 1997, the Association's return
on average assets was 0.31% and its return on average retained earnings was
3.23%.
Net Interest Income. Net interest income decreased 7.4% to $539,000 in 1997
from $582,000 in 1996 as a result of a 17 basis point decrease in the interest
rate spread and a decrease in the average balance of interest-earning assets.
The Association's interest rate spread was 1.97% in 1997 compared with 2.14% in
1996.
Total interest income decreased $79,000, or 4.6%, in 1997 primarily as a
result of lower interest income on loans. Interest on loans receivable decreased
$92,000, or 5.8%, as a result of a 31 basis point decrease in the average yield
of the portfolio and, to a lesser degree, a decline in the average balance of
the portfolio. As a result of the lower interest rate environment in 1997, new
loan originations and downward repricing on ARM loans led to a lower average
yield on loans receivable. The lower interest rate environment also led to
increased refinancing activity, which resulted in loans being repaid faster than
the Association was able to originate new loans. Interest on investment
securities increased $22,000 due to a higher average yield and an increase in
the size of the portfolio. In 1997 the Association used excess liquidity
generated by loan repayments to invest in securities. Interest on
interest-bearing deposits decreased $10,000 because of a decrease in the average
yield and a lower average balance in 1997. The Association's yield on
interest-earning assets was 7.43% in 1997 compared with 7.68% in 1996.
Interest expense decreased 3.1%, or $36,000, from 1996 to 1997 as a result
of a decrease in interest paid on deposits. Interest expense on time deposits
decreased $31,000 primarily as a result of a lower average balance in 1997,
while interest income on savings accounts decreased $6,000 as a result of a
lower average rate paid. Interest expense on FHLB advances was essentially
unchanged from 1996 to 1997.
Provision for Loan Losses. Provisions for loan losses are charged to
operations to bring the total allowance for loan losses to a level considered by
management to be adequate to provide for estimated losses based on management's
evaluation of the collectibility of the loan portfolio, including the nature of
the portfolio, credit concentrations, trends in historical loss experience,
specified impaired loans, and economic conditions. The Association made no
provision for loan losses in 1997 compared with a provision of $8,000 in fiscal
1996. Although management uses the best information available, future
adjustments to the allowance may be necessary due to changes in economic,
operating, regulatory and other conditions that may be beyond the Association's
control. While the Association maintains its allowance for loan losses at a
level which it considers to be adequate to provide for estimated losses, there
27
<PAGE>
can be no assurance that further additions will not be made to the allowance for
loan losses and that actual losses will not exceed the estimated amounts.
Non-interest Income. Non-interest income was $7,000 in 1997 compared with
$12,000 in 1996. Commissions on mortgage life insurance sold to customers of the
Association is the Association's primary source of non-interest income. In 1996
the Association recognized gain of $5,000 in connection with the sale of an
interest in the company through which the Association offers mortgage life
insurance, with no comparable gain in 1997.
Non-interest Expenses. Non-interest expense decreased $164,000, or 26.8% in
1997 to $448,000. Included in non-interest expense in 1996 was the one-time,
industry-wide assessment to recapitalize the SAIF. The Association's portion of
the assessment was $135,000. As a result of the recapitalization of the SAIF,
the FDIC substantially reduced deposit insurance premiums. Since January 1,
1997, the Association has paid deposit insurance premiums at the rate of $.065
per $100 of deposits. Prior to the recapitalization of the SAIF, deposit
insurance premiums were $.23 per $100 of deposits. Compensation and benefits
expense increased $17,000, primarily as a result of the addition of a director
and an employee. Occupancy and equipment expense decreased $8,000 primarily as a
result of lower property taxes and insurance. The Association anticipates that
non-interest expenses will increase following the conversion as a result of
increased costs associated with operating as a public company and increased
compensation expense as a result of the adoption of the MRDP, if approved by the
Holding Company's stockholders.
Income Taxes. The provision for income taxes was $29,000 in 1997 compared
with a credit of $8,000 in 1996. The Association recognized a credit in 1996
because of the net loss before taxes resulting from the SAIF special assessment.
Average Balances, Interest and Average Yields/Cost
The following table sets forth certain information for the periods
indicated regarding average balances of assets and liabilities as well as the
total dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and average yields and
costs. Such yields and costs for the periods indicated are derived by dividing
income or expense by the average balances of assets or liabilities,
respectively, for the periods presented. Average balances were derived from
month-end balances. Management does not believe that the use of month-end
balances instead of daily balances causes any material differences in the
information presented.
28
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------
1997 1996
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
------- --------- ---- ------- --------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (1) .................... $19,403 $ 1,494 7.70% $19,789 $ 1,586 8.01%
Investment securities (2) .................... 1,365 85 6.21 1,189 63 5.28
FHLB stock ................................... 196 16 8.16 196 15 7.65
Interest bearing deposits with banks ......... 1,179 51 4.33 1,289 61 4.73
------- ------- ------- -------
Total interest-earning assets .............. 22,143 1,646 7.43 22,463 1,725 7.68
------- ------- ------- -------
Non-interest-earning assets ................... 777 793
------- ------
Total assets ............................... $22,920 $23,256
======= ======
Interest-bearing liabilities:
Savings deposits ............................. 3,564 132 3.70 3,563 138 3.87
Time deposits ................................ 16,462 960 5.83 16,924 991 5.86
------- ------- ------- -------
Total deposits ............................. 20,026 1,092 5.45 20,487 1,129 5.51
------- ------- ------- -------
FHLB advances ................................ 254 15 5.91 154 14 9.09
------- ------- ------- -------
Total interest-bearing liabilities ......... 20,280 1,107 5.46 20,641 1,143 5.54
------- ------- ------- -------
Non-interest-bearing liabilities .............. 473 439
------- ------
Total liabilities .......................... 20,753 21,080
Retained earnings ............................. 2,167 2,176
------- ------
Total liabilities and retained
earnings ................................... $22,920 $23,256
======= ======
Net interest income ........................... $ 539 $ 582
======= =======
Interest rate spread .......................... 1.97% 2.14%
======= =======
Net interest margin ........................... 2.43% 2.59%
======= =======
Ratio of average interest-earning
assets to average interest-
bearing liabilities .......................... 109.19% 108.83%
======= ======
</TABLE>
- ----------
(1) Average loans receivable includes nonperforming loans. Interest income does
not include interest on loans 90 days or more past due.
(2) Includes debt securities classified as available for sale and
mortgage-backed securities classified as held to maturity.
29
<PAGE>
Yields Earned and Rates Paid
The following table sets forth at the date and for the periods
indicated the weighted average yields earned on the Association's assets and the
weighted average interest rates paid on the Association's liabilities, together
with the Association's interest rate spread and net interest margin.
<TABLE>
<CAPTION>
At Years Ended December 31,
December 31, ------------------------
1997 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average yield earned on:
Loans receivable, net ........................... 7.57% 7.70% 8.01%
Investment securities ........................... 6.08 6.21 5.28
FHLB stock ...................................... 8.00 8.16 7.65
Interest bearing deposits with banks ............ 5.51 4.33 4.73
Total interest-earning assets ................. 7.42 7.43 7.68
Weighted average rate paid on:
Savings deposits ................................ 3.71 3.70 3.87
Time deposits ................................... 5.78 5.83 5.86
Total deposits ................................ 5.42 5.45 5.51
FHLB advances ................................... -- 5.91 9.09
Total interest-bearing liabilities ............ 5.42 5.46 5.54
Interest rate spread (spread between
weighted average rate earned on all
interest-earning assets and paid on all interest-
bearing liabilities) ............................ 2.00 1.97 2.14
Net interest margin (net interest
income as a percentage of average
interest-earning assets) ......................... N/A 2.43 2.59
</TABLE>
30
<PAGE>
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on
the interest income and interest expense of the Association. Information is
provided with respect to: (i) effects attributable to changes in volume (changes
in volume multiplied by prior rate); (ii) effects attributable to changes in
rate (changes in rate multiplied by prior volume; and (iii) effects attributable
to changes in rate and volume (changes in rate multiplied by changes in volume).
<TABLE>
<CAPTION>
Year Ended December 31, 1997
Compared to Year Ended December 31, 1996
Increase (Decrease)
Due to
-----------------------------------
Rate/
Rate Volume Volume Total
---- ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net ................. $(62) $(31) $ 1 $(92)
Investment securities ................. 11 9 2 22
FHLB stock ............................ 1 -- -- 1
Interest-bearing deposits ............. (5) (5) -- (10)
---- ---- ---- ----
Total net change in income
on interest-earning assets ............ (55) (27) 3 (79)
---- ---- ---- ----
Interest-bearing liabilities:
Savings deposits ...................... (6) -- -- (6)
Time deposits ......................... (5) (26) -- (31)
FHLB advances ......................... (5) 9 (3) 1
---- ---- ---- ----
Total net change in expense
on interest-bearing liabilities ....... (16) (17) (3) (36)
---- ---- ---- ----
Net change in net interest
income ................................ $(39) $(10) $ 6 $(43)
==== ==== ==== ====
</TABLE>
Asset and Liability Management
Quantitative Aspects of Market Risk. The Association does not maintain a
trading account for any class of financial instrument nor does it engage in
hedging activities or purchase high-risk derivative instruments. Furthermore,
the Association is not subject to foreign currency exchange rate risk or
commodity price risk. For information regarding the sensitivity to interest rate
risk of the Association's interest-earning assets and interest-bearing
liabilities, see the tables under "BUSINESS OF THE ASSOCIATION-- Lending
Activities -- Loan Maturity," "-- Investment Activities" and "-- Deposit
Activities and Other Sources of Funds -- Deposit Accounts -- Time Deposits by
Maturities."
Qualitative Aspects of Market Risk. The Association has sought to reduce
the exposure of its earnings to changes in market interest rates by attempting
to manage the mismatch between asset and liability maturities and interest
rates. The principal element in achieving this objective is to increase the
interest-rate sensitivity of the Association's interest-earning assets by
originating for its portfolio loans with interest rates subject to periodic
adjustment to market conditions. The Association relies on retail deposits as
its primary source of funds. Management believes retail deposits, compared to
brokered deposits, reduce the effects of interest rate fluctuations because they
generally represent a more stable source of funds.
31
<PAGE>
In order to encourage institutions to reduce their interest rate risk, the
OTS adopted a rule incorporating an interest rate risk component into the
risk-based capital rules. Using data compiled by the OTS, the Association
receives a report which measures interest rate risk by modeling the change in
NPV (net portfolio value) over a variety of interest rate scenarios. This
procedure for measuring interest rate risk was developed by the OTS to replace
the "gap" analysis (the difference between interest-earning assets and
interest-bearing liabilities that mature or reprice within a specific time
period). NPV is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The calculation is intended to
illustrate the change in NPV that will occur in the event of an immediate change
in interest rates of at least 200 basis points with no effect given to any steps
that management might take to counter the effect of that interest rate movement.
Under OTS regulations, an institution with a greater than "normal" level of
interest rate risk is subject to a deduction from total capital for purposes of
calculating its risk-based capital. The OTS, however, has delayed the
implementation of this regulation. An institution with a "normal" level of
interest rate risk is defined as one whose "measured interest rate risk" is less
than 2.0%. Institutions with assets of less than $300 million and a risk-based
capital ratio of more than 12.0% are exempt. The Association is exempt because
of its asset size. Based on the Association's regulatory capital levels at
December 31, 1997, the Association believes that, if the proposed regulation was
implemented at that date, the Association's level of interest rate risk would
have caused it to be treated as an institution with greater than "normal"
interest rate risk.
The following table is provided by the OTS and sets forth the change in the
Association's NPV at December 31, 1997, based on OTS assumptions, that would
occur in the event of an immediate change in interest rates, with no effect
given to any steps that management might take to counteract that change.
<TABLE>
<CAPTION>
Net Portfolio as % of
Net Portfolio Value Portfolio Value of Assets
Basis Point ("bp") ------------------------------------------ ------------------------------------
Change in Rates $ Amount $ Change(1) % Change NPV Ratio(2) Change(bp)(3)
----------------- -------- ----------- -------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
400 $ 870 $(1,267) (59)% 4.31% (535)bp
300 1,282 (855) (40) 6.18 (349)
200 1,655 (482) (23) 7.78 (189)
100 1,948 (189) (9) 8.96 (71)
0 2,137 -- - 9.67 --
(100) 2,234 97 5 9.98 32
(200) 2,341 204 10 10.33 66
(300) 2,561 424 20 11.10 144
(400) 2,832 695 33 12.04 238
</TABLE>
- ----------
(1) Represents the increase (decrease) of the estimated NPV at the indicated
change in interest rates compared to the NPV assuming no change in interest
rates.
(2) Calculated as the estimated NPV divided by the portfolio value of total
assets ("PV").
(3) Calculated as the increase (decrease) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
The following table is provided by the OTS and is based on the calculations
in the above table. At December 31, 1997, the change in NPV as a percentage of
portfolio value of total assets is negative 2.18%, which is greater than
negative 2.0%, indicating that the Association has a greater than "normal" level
of interest rate risk.
32
<PAGE>
<TABLE>
<CAPTION>
At At At
December 31, September 30, December 31,
1997 1997 1996
------------ ------------- ------------
<S> <C> <C> <C>
RISK MEASURES: 200 BP RATE SHOCK:
Pre-Shock NPV Ratio: NPV as % of PV of Assets....................... 9.67% 10.06% 9.02%
Exposure Measure: Post-Shock NPV Ratio.............................. 7.78% 7.86% 6.81%
Sensitivity Measure: Change in NPV Ratio............................ (189)bp (220)bp (222)bp
</TABLE>
Certain assumptions utilized by the OTS in assessing the interest rate risk
of savings associations within its region were utilized in preparing the
preceding table. These assumptions relate to interest rates, loan prepayment
rates, deposit decay rates, and the market values of certain assets under
differing interest rate scenarios, among others.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates could deviate
significantly from those assumed in calculating the table.
Liquidity and Capital Resources
The Association's primary sources of funds are customer deposits, proceeds
from principal and interest payments on loans, maturing securities and FHLB
advances. While maturities and scheduled amortization of loans are a predictable
source of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition.
The Association must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. The Association generally maintains sufficient cash
and short-term investments to meet short-term liquidity needs. At December 31,
1997, cash and interest-bearing deposits totaled $752,000, or 3.4% of total
assets, and investment securities classified as available-for-sale totaled $1.3
million. At December 31, 1997, the Association also maintained, but did not draw
upon, an uncommitted credit facility with the FHLB-Indianapolis, which provided
for immediately available advances up to an aggregate amount of $3.9 million.
OTS regulations require savings institutions to maintain an average daily
balance of liquid assets (cash and eligible investments) equal to at least 4.0%
of the average daily balance of its net withdrawable deposits and short-term
borrowings. The Association's actual liquidity ratio at December 31, 1997 was
9.6%. See "-- Comparison of Financial Condition at December 31, 1997 and 1996"
and "BUSINESS OF THE ASSOCIATION -- Investment Activities."
The Association's primary investing activity is the origination of one- to-
four family mortgage loans. During the years ended December 31, 1997 and 1996
the Association originated $3.5 million and $3.7 million of such loans,
respectively. At December 31, 1997, the Association had loan commitments
totaling $157,000, and undisbursed loans in process totaling $295,000. The
Association anticipates that it will have sufficient funds available to meet
current loan commitments. Certificates of deposit that are scheduled to mature
in less than one year from December 31, 1997 totaled $8.8 million. Historically,
the Association has been able to retain a significant amount of its deposits as
they mature. In addition, management of the Association believes that it can
adjust the offering rates of certificates of deposit to retain deposits in
changing interest rate environments. In the event that a significant portion of
these deposits are not retained
33
<PAGE>
by the Association, the Association would be able to utilize FHLB advances to
fund deposit withdrawals, which would result in an increase in interest expense
to the extent that the average rate paid on such advances exceeds the average
rate paid on deposits of similar duration.
OTS regulations require the Association to maintain specific amounts of
regulatory capital. As of December 31, 1997, the Association complied with all
regulatory capital requirements as of that date with tangible, core and
risk-based capital ratios of 9.6%, 9.6% and 18.2%, respectively. For a detailed
discussion of regulatory capital requirements, see "REGULATION -- Federal
Regulation of Savings Associations -- Capital Requirements." See also
"HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE."
Year 2000 Issues
Computer programs that use only two digits to identify a year could fail or
create erroneous results by or at the year 2000. All of the material data
processing of the Association that could be affected by this problem is provided
by a third party service bureau. In October 1997 the Association adopted a year
2000 Action Plan pursuant to which it is examining its internal systems and
contacting its vendors to identify potential year 2000 problems. The
Association's service bureau informed the Association that it intends to
complete its year 2000 adjustments by October 1998. The Association has been in
constant contact with its service bureau, which provides status reports on its
year 2000 upgrades over the Internet and through weekly mailings. The
Association expects to begin testing its service bureau's compliance in
September 1998 by submitting mock data files that involve transactions occuring
in the year 2000. If the service bureau is unable to make its systems year 2000
compliant, the Association is prepared to secure bids and change service bureaus
if necessary. The Association has completed its hardware upgrades and, while its
service bureau has not indicated what, if any, costs it may pass on to its
customers, the Association does not believe that the costs associated with its
actions and those of its vendors will be material to the Association. However,
in the event the Association's service bureau is unable to fulfill its
contractual obligations to the Association, it could have a significant adverse
impact on the financial condition and results of operations of the Association.
Impact of Accounting Pronouncements and Regulatory Policies
Accounting for Stock-Based Compensation. SFAS No. 123, "Accounting for
Stock-Based Compensation," establishes financial accounting and reporting
standards for stock-based employee compensation plans. This statement encourages
all entities to adopt a new method of accounting to measure compensation cost of
all employee stock compensation plans based on the estimated fair value of the
award at the date it is granted. Companies are, however, allowed to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting, which generally does not result in compensation expense
recognition for most plans. Companies that elect to remain with the existing
accounting method are required to disclose in a footnote to the financial
statements pro forma net income and, if presented, earnings per share, as if
this statement had been adopted. The accounting requirements of this statement
are effective for transactions entered into in fiscal years that begin after
December 15, 1995; however, companies are required to disclose information for
awards granted in their first fiscal year beginning after December 15, 1994.
Management expects to use the intrinsic value method upon consummation of the
conversion and the adoption of stock based benefit plans.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted.
SFAS No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. The standards
are based on consistent application of a financial-components approach that
focuses on a control period. Under the approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control
34
<PAGE>
has been surrendered, and derecognizes liabilities when extinguished. SFAS No.
125 provides consistent standards distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings.
SFAS No. 125 amends SFAS No. 122. Adoption of this statement on January 1,
1997 did not have a material impact on the Association's financial position or
results of operations.
Earnings Per Share. SFAS No. 128, "Earnings Per Share," issued in February
1997, establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly-held common stock or potential
common stock. It replaces the presentation of primary EPS with a presentation of
basic EPS and requires the dual presentation of basic and diluted EPS on the
face of the income statement. This statement is effective for financial
statements issued for periods after December 15, 1997 including interim periods;
earlier applications not permitted. This statement requires restatement of all
prior period EPS data presented.
Disclosure of Information About Capital Structure. SFAS No. 129,
"Disclosure of Information About Capital Structure," establishes standards for
disclosing information about an entity's capital structure and applies to all
entities. SFAS No. 129 continues the previous requirements to disclose certain
information about an entity's capital structure found in Accounting Principles
Board ("APB") Opinions No. 10, "Omnibus Opinion - 1966," and No. 15, "Earnings
Per Share," and SFAS No. 47, "Disclosure of Long-Term Obligations," for entities
that were subject to those standards. SFAS No. 129 is effective for financial
statements for periods ending after December 15, 1997. SFAS No. 129 contains no
change in disclosure requirements for entities that were previously subject to
the requirements of APB Opinion Nos. 10 and 15 and SFAS No. 47.
Comprehensive Income. SFAS No. 130, "Reporting Comprehensive Income,"
issued in July 1997, establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. It requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
presented with the same prominence as other financial statements. SFAS No. 130
requires that companies (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial condition.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comprehensive purposes is required.
Disclosure About Segments. SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information," issued in June 1997, establishes standards
for disclosure about operating segments in annual financial statements and
selected information in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise." SFAS No. 131 becomes effective for the
Association's fiscal year ending September 30, 1999, and requires that
comparative information from earlier years be restated to conform to its
requirements.
Employers' Disclosures about Pensions and Other Postretirement Benefits.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits", issued in February 1998, standardizes disclosure requirements for
pensions and other postretirement benefits and requires additional disclosure on
changes in benefit obligations and fair values of plan assets in order to
facilitate financial analysis. SFAS No. 132 is effective for fiscal years
beginning after December 15, 1997, with earlier application encouraged. The
adoption of SFAS No. 132 will have no impact on the Association's results of
operations and financial condition as this statement relates to disclosure
requirements. The Association adopted SFAS No. 132 on January 1, 1998.
35
<PAGE>
Effect of Inflation and Changing Prices
The financial statements and related financial data presented herein have
been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time due
to inflation. The primary impact of inflation is reflected in the increased cost
of the Association's operations. Unlike most industrial companies, virtually all
the assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates do
not necessarily move in the same direction or to the same extent as the prices
of goods and services.
BUSINESS OF THE HOLDING COMPANY
General
The Holding Company was organized as an Indiana business corporation at the
direction of the Association in March 1998 for the purpose of becoming the
holding company for the Association upon completion of the conversion. As a
result of the conversion, the Association will be a wholly-owned subsidiary of
the Holding Company and all of the issued and outstanding capital stock of the
Association will be owned by the Holding Company.
Business
Before the completion of the conversion, the Holding Company will not
engage in any significant activities other than of an organizational nature.
Upon completion of the conversion, the Holding Company's sole business activity
will be the ownership of the outstanding capital stock of the Association. In
the future, the Holding Company may acquire or organize other operating
subsidiaries, although there are no current plans, arrangements, agreements or
understandings, written or oral, to do so.
Initially, the Holding Company will neither own nor lease any property but
will instead use the premises, equipment and furniture of the Association with
the payment of appropriate rental fees, as required by applicable law and
regulations.
Since the Holding Company will only hold the outstanding capital stock of
the Association upon consummation of the conversion, the competitive conditions
applicable to the Holding Company will be the same as those confronting the
Association. See "BUSINESS OF THE ASSOCIATION -- Competition."
BUSINESS OF THE ASSOCIATION
General
The Association operates as a traditional savings association, specializing
in single-family residential mortgage lending and savings deposits. The
Association's business consists primarily of attracting retail deposits from the
general public and using those funds to originate real estate loans. The
Association generally holds its loans for long-term investment purposes. See "--
Lending Activities."
Market Area
The Association conducts operations out of its one office in Tell City,
which is the largest town in Perry County, Indiana. Tell City has a population
of approximately 9,000 persons, and Perry County has a population of
approximately 20,000 persons. Most of the Association's depositors live in Perry
County and most of the Association's
36
<PAGE>
loans are secured by real estate in Perry County. The Association also makes
loans in Spencer County, Indiana. Perry County is a rural county that
historically has had higher unemployment and lower income compared to the rest
of Indiana and occasionally in other surrounding counties. The economy of Perry
County is dependent on manufacturing, much of which is located across the Ohio
River in Kentucky. Industries present in the region include woodworking, steel,
motors, aluminum and paper.
The Association faces intense competition for deposits and loan
originations from the other financial institutions conducting business within
its market area. See "-- Competition" and "RISK FACTORS -- Competition."
Lending Activities
General. At December 31, 1997, the Association's net loans receivable
totaled $19.3 million, or 87.8% of total assets. The Association has
concentrated its lending activities on one- to four-family mortgage loans, with
such loans amounting to 85.7% of loans at December 31, 1997. The Association
also offers multi-family, commercial real estate, land and residential
construction loans, as well as loans secured by saving accounts. All of the
Association's mortgage loan portfolio is secured by real estate located in
Indiana. In early 1998, the Association expanded its loan offerings to include
automobile loans. Later in 1998, the Association intends to offer additional
secured and unsecured consumer loans.
Loan Portfolio Analysis. The following table sets forth the composition of
the Association's loan portfolio at the dates indicated. The Association had no
concentration of loans exceeding 10% of total loans receivable other than as
disclosed below.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------
1997 1996
--------------------- ---------------------
Amount Percent Amount Percent
------- --------- ------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
One- to four-family ............... $16,893 85.7% $17,272 85.0%
Multi-family ...................... 468 2.4 394 1.9
Commercial real estate ............ 864 4.4 873 4.3
Land .............................. 528 2.6 583 2.9
Residential construction .......... 783 4.0 977 4.8
------- --------- ------- ---------
Total mortgage loans ............. 19,536 99.1 20,099 98.9
------- --------- ------- ---------
Loans secured by savings accounts .. 178 0.9 233 1.1
------- --------- ------- ---------
Total loans ...................... 19,714 100.0% 20,332 100.0%
------- ========= ------- =========
Less:
Undisbursed portion of loans in
process .......................... 295 370
Deferred loan origination fees, net 72 73
Allowance for loan losses ......... 51 52
-------
Total loans receivable, net ...... $19,296 $19,837
======= =======
</TABLE>
37
<PAGE>
One- to Four-Family Real Estate Loans. The Association's primary lending
activity is the origination of loans secured by one- to four-family residences
located in its market area. At December 31, 1997, $16.9 million, or 85.7%, of
the Association's total loans consisted of one- to four-family loans.
The Association offers ARM loans which provide for an interest rate that
adjusts every year or that is fixed for three years and then adjusts every year
after the initial period. The Association's ARM loans generally provide for
annual and lifetime interest rate adjustment limits of 1% and 5%, respectively.
When it was a state-chartered savings association, the Association based its ARM
loans on the Association's internal cost of funds. When the Association adopted
a federal mutual charter in February 1998 it began basing its ARM loans on the
One Year U.S. Treasury Note Constant Maturity Rate. The Association's ARM loans
are typically based on a 30-year amortization schedule. The initial rate on most
of the Association's ARM loans is 1% to 1.5% below the rate offered for
fixed-rate loans that have a term of ten to 20 years.
The Association offers fixed-rate, one- to four-family mortgage loans with
maturities of up to 20 years. These loans are fully amortizing with monthly
payments sufficient to repay the total amount of the loan with interest by the
end of the loan term. Generally, they are underwritten and documented in
accordance with guidelines established by Freddie Mac. The Association's
fixed-rate loans customarily include "due on sale" clauses, which give the
Association the right to declare a loan immediately due and payable in the event
the borrower sells or otherwise disposes of the real property subject to the
mortgage and the loan is not paid.
The Association offers second mortgage loans. Generally, the Association
makes second mortgage loans only where it holds the first mortgage, unless the
combined loan to value ratio is less than 50%. Second mortgages are made on the
same terms as first mortgage loans when the combined loan to value ratio is less
than 80%. At December 31, 1997, the Association had $777,000 of second mortgage
loans included in its one- to four-family mortgage loans.
Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of interest rates, the expectations of changes in the
level of interest rates and the difference between the initial interest rates
and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment.
The retention of ARM loans in the Association's loan portfolio helps reduce
the Association's exposure to changes in interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs due
to changed rates to be paid by the borrower. It is possible that during periods
of rising interest rates the risk of default on ARM loans may increase as a
result of repricing and the increased payments required by the borrower. In
addition, although ARM loans allow the Association to increase the sensitivity
of its asset base to changes in the interest rates, the extent of this interest
sensitivity is limited by the annual and lifetime interest rate adjustment
limits. Because of these considerations the Association has no assurance that
yields on ARM loans will be sufficient to offset increases in the Association's
cost of funds. The Association believes these risks, which have not had a
material adverse effect on the Association to date, generally are less than the
risks associated with holding fixed-rate loans in portfolio during a rising
interest rate environment.
The Association generally requires an acceptable attorney's opinion on the
status of its lien on all loans where real estate is the primary source of
security. The Association also requires that fire and casualty insurance (and,
if appropriate, flood insurance) be maintained in an amount at least equal to
the outstanding loan balance.
The Association's one- to four-family residential mortgage loans typically
do not exceed 80% of the appraised value of the security property. Pursuant to
underwriting guidelines adopted by the Association's Board of Directors, the
Association can lend up to 95% of the appraised value of the property securing a
one- to- four family residential loan; however, the Association generally
requires private mortgage insurance on the portion of the principal amount that
exceeds 90% of the appraised value of the security property.
38
<PAGE>
Multi-family and Commercial Real Estate Loans. The Association occasionally
originates mortgage loans for the acquisition and refinancing of multi-family
and commercial real estate properties. At December 31, 1997, $468,000, or 2.4%,
of the Association's total loans consisted of loans secured by multi-family
residential property, and $864,000, or 4.4%, of the Association's total loans
consisted of loans secured by commercial real estate. The majority of the
Association's commercial real estate loans are secured by churches, motels and a
country club, all of which are located in Indiana. At December 31 1997, the
Association's largest multi-family or commercial real estate loan was $218,000
and is secured by a motel.
Most of the Association's commercial real estate loans have adjustable
interest rates and terms of 15 years or less. The Association requires
appraisals of all properties securing commercial real estate loans. Appraisals
are performed by an independent appraiser designated by the Association, all of
which are reviewed by management.
Multi-family and commercial real estate lending affords the Association an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending. However, loans secured by such
properties usually are greater in amount and are more difficult to evaluate and
monitor, and, therefore, involve a greater degree of risk than one- to
four-family residential mortgage loans. Because payments on loans secured by
income producing properties are often dependent on the successful operation and
management of the properties, repayment of such loans may be affected by adverse
conditions in the real estate market or the economy. The Association seeks to
minimize these risks by limiting the maximum loan-to-value ratio to 80% and
strictly scrutinizing the financial condition of the borrower, the cash flow of
the project, the quality of the collateral and the management of the property
securing the loan. The Association also obtains loan guarantees from financially
capable parties based on a review of personal financial statements.
Residential Construction Loans. The Association originates residential
construction loans to local home builders and to individuals for the
construction and acquisition of their personal residence. At December 31 1997,
residential construction loans amounted to $783,000, or 4.0% of the
Association's total loans.
The Association's construction loans to builders generally have fixed
interest rates and are for a term of one year. Such loans to builders are
typically made with a maximum loan to value ratio of 85%. These loans are
usually made on a speculative (unsold) basis. The maximum amount that any one
builder may borrow from the Association is $500,000, which is the Association's
internal loan-to-one-borrower limit. At December 31, 1997, the largest amount of
construction loans outstanding to one builder was $135,000, all of which was for
speculative construction. Construction loans to individuals are made on the same
terms as the Association's one- to four-family mortgage loans, but provide for
the payment of interest only during the construction phase, which is usually six
months. At the end of the construction phase, the loan converts to a permanent
mortgage loan.
Prior to making a commitment to fund a construction loan, the Association
requires an appraisal of the property by a staff appraiser. The Association also
reviews and inspects each project prior to disbursement of funds during the term
of the construction loan. Loan proceeds are disbursed after inspection of the
project based on percentage of completion.
Construction lending affords the Association the opportunity to earn higher
interest rates with shorter terms to maturity relative to single-family
permanent mortgage lending. Construction lending, however, is generally
considered to involve a higher degree of risk than single-family permanent
mortgage lending because of the inherent difficulty in estimating both a
property's value at completion of the project and the estimated cost of the
project. The nature of these loans is such that they are generally more
difficult to evaluate and monitor. If the estimate of construction cost proves
to be inaccurate, the Association may be required to advance funds beyond the
amount originally committed to permit completion of the project. If the estimate
of value upon completion proves to be inaccurate, the Association may be
confronted with a project whose value is insufficient to assure full repayment.
Projects may also be jeopardized by disagreements between borrowers and builders
and by the failure of builders to pay subcontractors. Loans to builders to
construct homes for which no purchaser has been identified carry more risk
because
39
<PAGE>
the payoff for the loan is dependent on the builder's ability to sell the
property prior to the time that the construction loan is due.
The Association has attempted to minimize the foregoing risks by, among
other things, limiting its construction lending to residential properties. It is
also the Association's general policy to obtain regular financial statements
from builders so that it may monitor their financial strength.
Land Loans. The Association occasionally originates loans secured by
unimproved land. Most of these loans have a term of 10 years or less and may
have fixed or adjustable interest rates. At December 31, 1997, land loans
totaled $528,000, or 2.6% of total loans. The largest land loan at such date was
$52,000.
Savings Account Loans. The Association offers loans secured by savings
deposits. At December 31, 1997, savings account loans totaled $178,000, or 0.9%
of total loans. Generally, such loans are made at an interest rate that is 2%
above the account for an amount up to 100% of the amount on deposit at the
Association less six month's interest.
Other Consumer Loans. In February 1998 the Association began offering
automobile loans. The Association intends to expand its consumer loan offering
later in 1998 to include other secured and unsecured consumer loans. The
Association does not anticipate that consumer loans will constitute a
significant portion of its loan portfolio for the foreseeable future.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans that are unsecured or secured by rapidly
depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Loans to One Borrower. The maximum amount that the Association may lend to
one borrower is limited by federal regulations. At December 31, 1997, the
Association's regulatory limit on loans to one borrower was $500,000. At such
date, the Association's largest amount of loans to one borrower (including the
borrower's related interests) was $500,000 and consisted of ten single family
mortgage loan's (nine of which were secured by non-owner-occupied properties)
and one commercial real estate loan.
Maturity of Loan Portfolio. The following table sets forth certain
information at December 31, 1997 regarding the dollar amount of loans maturing
in the Association's portfolio based on their contractual terms to maturity, but
does not include scheduled payments or potential prepayments. Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as becoming due within one year. Loan balances do not
include undisbursed loan proceeds, unearned discounts, unearned income and
allowance for loans losses.
40
<PAGE>
<TABLE>
<CAPTION>
After After After After
One Year 3 Years 5 Years 10 Years
Within Through Through Through Through After
One Year 3 Years 5 Years 10 Years 15 Years 15 Years Total
-------- ------- ------- -------- -------- -------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family .................... $ 1,061 $ 1,833 $ 1,904 $ 4,670 $ 3,492 $ 3,933 $16,893
Multi-family ........................... 29 72 68 151 57 91 468
Commercial real estate ................. 146 206 88 168 149 107 864
Land ................................... 31 75 82 207 124 9 528
Residential construction ............... 783 -- -- -- -- -- 783
Loans secured by savings
accounts ............................... 178 -- -- -- -- -- 178
------- ------- ------- ------- ------- ------- -------
Total gross loans ..................... $ 2,228 $ 2,186 $ 2,142 $ 5,196 $ 3,822 $ 4,140 $19,714
======= ======= ======= ======= ======= ======= =======
</TABLE>
The following table sets forth the dollar amount of all loans due after
December 31, 1998, which have fixed interest rates and have floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Fixed- Floating- or
Rates Adjustable-Rates
----- ----------------
(In thousands)
<S> <C> <C>
Mortgage loans:
One- to- four family .......................... $ 5,541 $10,290
Multi-family .................................. 184 255
Commercial real estate ........................ 460 258
Land .......................................... 283 215
Residential construction ...................... -- --
Loans secured by savings accounts .............. -- --
------- -------
Total gross loans ............................ $ 6,468 $11,018
======= =======
</TABLE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of a loan is substantially less
than its contractual term because of prepayments. In addition, due-on-sale
clauses on loans generally give the Association the right to declare loans
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of a mortgage loan tends to increase, however, when current
mortgage loan market rates are substantially higher than rates on existing
mortgage loans and, conversely, tends to decrease when rates on existing
mortgage loans are substantially higher than current mortgage loan market rates.
Loan Solicitation and Processing. The Association's lending activities are
subject to the written, non-discriminatory, underwriting standards and loan
origination procedures established by the Association's Board of Directors and
management. Loan originations come from a number of sources. The customary
sources of loan originations are realtors, referrals and existing customers. The
Association does not utilize mortgage brokers or other third-party originators.
Single-family residential mortgage loans up to $100,000 may be approved by
unanimous vote of the Association's Loan Committee, which consists of the
President and three Directors. If the Loan Committee does not unanimously
approve a loan, it is referred to the Board of Directors. All single-family
residential mortgage loans of
41
<PAGE>
$100,000 or more and all other mortgage loans must be approved by the
Association's Board of Directors Consumer loans must be approved by an
authorized officer and ratified by the Board of Directors.
Loan Originations, Purchases and Sales. While the Association originates
both adjustable-rate and fixed-rate loans, its ability to generate each type of
loan depends upon relative customer demand for loans. During the years ended
December 31, 1997 and 1996, the Association originated $4.8 million and $5.2
million of loans, respectively. Of the $4.8 million of loans originated in 1997,
$2.9 million, or 60.4%, had adjustable rates of interest.
The Association generally retains for its portfolio all of the loans that
is originates and does not frequently purchase loans. Occasionally, the
Association will participate with other area financial institutions in
multi-family or commercial real estate loans. In 1995, the Association
established an informal relationship with another financial institution pursuant
to which the Association occasionally sells 90% participations in single-family
mortgage loans and purchases participations in loans secured by
non-owner-occupied, one- to four-family properties. The Association retains the
servicing rights on the participation loans that it sells. The Association does
not receive a fee for the loans sold under this arrangement and pays no fee on
the loans it purchases.
The following table sets forth total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
Total gross loans at beginning of period ....... $ 20,332 $ 20,264
Loans originated:
Mortgage loans:
One- to four-family .......................... 3,456 3,740
Multi-family ................................. -- --
Commercial real estate ....................... 70 55
Land ......................................... 84 110
Residential construction ..................... 972 1,150
Loans secured by savings accounts .............. 180 154
-------- --------
Total loans originated ...................... 4,762 5,209
-------- --------
Loans purchased:
Mortgage loans:
One- to four-family .......................... -- 44
Multi-family ................................. -- --
Commercial real estate ....................... 73 --
Land ......................................... -- --
Residential construction ..................... -- --
Loans secured by savings accounts .............. -- --
-------- --------
Total loans purchased ....................... 73 44
-------- --------
Loans sold:
Mortgage loans:
One- to four-family .......................... -- (180)
Loan principal repayments ...................... (5,453) (5,005)
-------- --------
Net loan activity .............................. (618) 68
-------- --------
Total gross loans at end of period ............. $ 19,714 $ 20,332
======== ========
</TABLE>
42
<PAGE>
Loan Commitments. The Association issues commitments for mortgage loans
conditioned upon the occurrence of certain events. Such commitments are made in
writing on specified terms and conditions and are honored for up to 90 days from
approval. At December 31, 1997, the Association had loan commitments totaling
$157,000 (not including undisbursed portions of loans in process of $295,000).
See Note 8 of the Notes to Consolidated Financial Statements.
Loan Fees. In addition to interest earned on loans, the Association
receives income from fees in connection with loan originations, loan
modifications, late payments and for miscellaneous services related to its
loans. Income from these activities varies from period to period depending upon
the volume and type of loans made and competitive conditions.
The Association charges loan origination fees for fixed-rate loans which
are calculated as a percentage of the amount borrowed. In accordance with
applicable accounting procedures, loan origination fees and discount points in
excess of loan origination costs are deferred and recognized over the
contractual remaining lives of the related loans on a level yield basis.
Discounts and premiums on loans purchased are accreted and amortized in the same
manner. At December 31, 1997, the Association had $72,000 of deferred loan fees.
The Association recognized $12,000, and $20,000 of deferred loan fees during the
years ended December 31, 1997 and 1996 respectively, in connection with loan
refinancing, payoffs, sales and ongoing amortization of outstanding loans.
Nonperforming Assets and Delinquencies. When a borrowers fails to make a
required payment on a loan, the Association attempts to cure the deficiency by
contacting the borrower and seeking the payment. A late notice is mailed 20 days
after a payment is due. In most cases, deficiencies are cured promptly. If a
delinquency continues, additional contact is made either through additional
notices or other means and the Association will attempt to work out a payment
schedule. While the Association generally prefers to work with borrowers to
resolve such problems, the Association will institute foreclosure or other
proceedings, as necessary, to minimize any potential loss.
The Association's Board of Directors is informed monthly of the amounts of
loans delinquent more than 60 days, all loans in foreclosure and all foreclosed
and repossessed property owned by the Association.
The Association ceases accruing interest on a loan when, in the judgment of
management, the probability of collection of interest is deemed to be
insufficient to warrant further accrual. The Association does not accrue
interest on loans past due 90 days or more when the estimated value of
collateral and collection efforts are deemed insufficient to ensure full
recovery.
43
<PAGE>
The following table sets forth information with respect to the
Association's nonperforming assets at the dates indicated. The Association had
no restructured loans within the meaning of SFAS No. 15 at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-----------------
1997 1996
------ ------
(Dollars in thousands)
<S> <C> <C>
Loans accounted for on a nonaccrual basis ............... $ -- $ --
Accruing loans which are contractually
past due 90 days or more:
Mortgage loans ......................................... -- 83
Loans secured by savings accounts ...................... -- --
------ ------
Total ................................................. -- 83
------ ------
Foreclosed real estate, net ............................. -- --
------ ------
Total nonperforming assets ............................ $ -- $ 83
====== ======
Total loans delinquent 90 days or more to net loans ..... 0.00% 0.42%
Total loans delinquent 90 days or more to total assets .. 0.00% 0.37%
Total nonperforming assets to total assets .............. N/M 0.37%
</TABLE>
Real Estate Owned. Real estate acquired by the Association as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until sold. When property is acquired it is recorded at fair market value at the
date of foreclosure. Subsequent to foreclosure, real estate owned is carried at
the lower of the foreclosed amount or fair value, less estimated selling costs.
At December 31, 1997, the Association had no real estate owned.
Asset Classification. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover possible losses related to assets
classified substandard or doubtful can be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention" and monitored by the Association.
44
<PAGE>
The aggregate amounts of the Association's classified and special mention
assets at the dates indicated were as follows:
<TABLE>
<CAPTION>
At December 31,
----------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Classified assets:
Loss ...................................... $ -- $ --
Doubtful .................................. -- --
Substandard ............................... -- --
Special mention ........................... 328 355
</TABLE>
At December 31, 1997, assets designated as special mention consisted of 13
one- to four-family mortgage loans.
Allowance for Loan Losses. In originating loans, the Association recognizes
that losses will be experienced and that the risk of loss will vary with, among
other things, the type of loan being made, the creditworthiness of the borrower
over the term of the loan, general economic conditions and, in the case of a
secured loan, the quality of the security for the loan. The allowance method is
used in providing for loan losses. Accordingly, all loan losses are charged to
the allowance and all recoveries are credited to it. The allowance for loan
losses is established through a provision for loan losses charged to operations.
The provision for loan losses is based on management's evaluation of of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specified impaired
loans, and economic conditions.
At December 31, 1997, the Association had an allowance for loan losses of
$51,000. Although management believes that it uses the best information
available to establish the allowance for loan losses, future adjustments to the
allowance for loan losses may be necessary and results of operations could be
significantly and adversely affected if circumstances differ substantially from
the assumptions used in making the determinations. Furthermore, while the
Association believes it has established its existing allowance for loan losses
in accordance with GAAP, there can be no assurance that regulators, in reviewing
the Association's loan portfolio, will not request the Association to increase
significantly its allowance for loan losses. In addition, because future events
affecting borrowers and collateral cannot be predicted with certainty, there can
be no assurance that the existing allowance for loan losses is adequate or that
substantial increases will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above. Any material increase in
the allowance for loan losses may adversely affect the Association's financial
condition and results of operations.
45
<PAGE>
The following table sets forth an analysis of the Association's allowance
for loan losses.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Allowance at beginning of period ..................... $52 $44
Provision for loan losses ............................ -- 8
Recoveries ........................................... -- --
Charge-offs:
Mortgage loans ...................................... -- --
Savings account loans ............................... 1 --
--- ---
Total charge-offs ................................. 1 --
--- ---
Net charge-offs ................................... 1 1
--- ---
Balance at end of period .......................... $51 $52
=== ===
Allowance for loan losses as a
percentage of total loans outstanding
at the end of the period ............................ 0.26% 0.26%
Net charge-offs (recoveries) as a
percentage of average loans outstanding
during the period ................................... 0.01% 0.00%
Allowance for loan losses as a
percentage of nonperforming loans
at end of period .................................... N/M 62.65%
</TABLE>
For additional discussion regarding the provisions for loan losses in
recent periods, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Comparison of Operating Results for the Years Ended
December 31, 1997 and 1996 -- Provision for Loan Losses."
46
<PAGE>
The following table sets forth the breakdown of the allowance for
loan losses by loan category at the dates indicated. Management believes that
the allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------
1997 1996
----------------------------- -------------------------------
Percent Percent
of Loans of Loans
in Category in Category
to Total to Total
Amount Loans Amount Loans
------ ----------- ------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
One- to four-family.......................... $ 36 85.7% $ 37 85.0%
Multi-family................................. 2 2.4 2 1.9
Commercial real estate....................... 7 4.4 7 4.3
Land......................................... 4 2.6 5 2.9
Residential construction..................... 1 4.0 1 4.8
Loans secured by savings
accounts..................................... -- 0.9 -- 1.1
Unallocated................................... -- N/A -- N/A
---- ----- ---- -----
Total allowance for loan losses............. $ 50 100.0% $ 52 100.0%
==== ===== ==== =====
</TABLE>
Investment Activities
The Association is permitted under federal law to invest in various types
of liquid assets, including U.S. Government obligations, securities of various
federal agencies and of state and municipal governments, deposits at the
FHLB-Indianapolis, certificates of deposit of federally insured institutions,
certain bankers' acceptances and federal funds. Subject to various restrictions,
the Association may also invest a portion of its assets in commercial paper and
corporate debt securities. Savings institutions like the Association are also
required to maintain an investment in FHLB stock. The Association is required
under federal regulations to maintain a minimum amount of liquid assets. See
"REGULATION" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that investments be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." Such securities are reported at fair value, and
unrealized gains and losses on such securities would be included in earnings.
The Association does not currently use or maintain a trading account. Debt and
equity securities not classified as either "held to maturity" or "trading
securities" are classified as "available for sale." Such securities are reported
at fair value, and unrealized gains and losses on such securities are excluded
from earnings and reported as a net amount in a separate component of equity.
The Association's investment policies limit investments to U.S. Government
and agency securities, mortgage-backed securities and higher rated corporate
securities. A high credit rating indicates only that the rating agency
47
<PAGE>
believes there is a low risk of default. However, all of the Association's
investment securities, including those that have high credit ratings, are
subject to market risk insofar as increases in market rates of interest may
cause a decrease in their market value. Corporate securities are also subject to
credit risk insofar as the payment obligations on such securities are dependent
on the successful operation of issuer's business. The Association's investment
policy does not permit engaging directly in hedging activities or purchasing
high risk mortgage derivative products. Investments are made based on certain
considerations, which include the interest rate, yield, settlement date and
maturity of the investment, the Association's liquidity position, and
anticipated cash needs and sources (which in turn include outstanding
commitments, upcoming maturities, estimated deposits and anticipated loan
amortization and repayments). The effect that the proposed investment would have
on the Association's credit and interest rate risk and risk-based capital is
also considered.
The Association purchases investment securities to provide for necessary
liquidity for day-to-day operations. The Association also purchases investment
securities when investable funds exceed loan demand. In recent years, the
Association has preferred to invest in individual mortgage loans rather than
mortgage-backed securities. Depending on loan demand, the Association may
consider increasing its investment in mortgage-backed securities after the
conversion.
The following table sets forth the amortized cost and fair value of the
Association's securities, by accounting classification and by type of security,
at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------
1997 1996
----------------- -----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C>
Available for sale:
Investment securities:
U.S. Treasury obligations ......... $ -- $ -- $ 100 $ 100
U.S. Government agency obligations 970 999 614 649
Corporate notes ................... 349 350 99 100
------ ------ ------ ------
Total available for sale ......... 1,319 1,349 813 849
Held to maturity:
Mortgage-backed securities:
Fannie Mae ........................ 16 17 20 20
Freddie Mac ....................... 5 4 7 7
------ ------ ------ ------
Total held to maturity .......... 21 21 27 27
------ ------ ------ ------
Total ........................... $1,346 $1,370 $ 840 $ 876
====== ====== ====== ======
</TABLE>
At December 31, 1997, the only security owned by the Association (other
than U.S. Government and agency securities) which had an aggregate book value in
excess of 10% of the Association's retained earnings was Union Pacific Corp.
commercial paper due January 6, 1998, which had an aggregate book value and
market value of $250,000 at such date.
48
<PAGE>
The following table sets forth certain information regarding the
carrying value, weighted average yields and maturities or periods to repricing
of the Association's debt securities at December 31, 1997, all of which are
available for sale. U.S. Treasury obligations and certain U.S. Government agency
obligations are exempt from state taxation. Their yields, however, have not been
computed on a tax equivalent basis for purposes of the table.
<TABLE>
<CAPTION>
Less Than One to After Five
One Year Five Years to Ten Years
---------------------- --------------------- -----------------------
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
-------- ------ ------- ------ ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Government agency
obligations ............................. $100 5.05% $450 6.70% $250 4.20%
Corporate notes ........................... 250 5.95 100 5.71 -- --
---- ---- ----
Total available for sale .............. $350 5.69 $550 6.52 $250 4.20
==== ==== ====
<CAPTION>
After
Ten Years Totals
--------------------- -----------------------
Weighted Weighted
Amortized Average Amortized Average
Cost Yield Cost Yield
------- ------ ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Investment securities:
U.S. Government agency
obligations ...................... $ 199 7.57% $ 999 6.08%
Corporate notes .................... -- -- 350 6.00
------ ------
Total available for sale ....... $ 199 7.57 $1,349 6.06
====== ======
</TABLE>
49
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits are the major external source of funds for the
Association's lending and other investment activities. In addition, the
Association also generates funds internally from loan principal repayments and
prepayments and maturing investment securities. Scheduled loan repayments are a
relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are influenced significantly by general interest rates and money
market conditions. The Association may use borrowings from the FHLB-Indianapolis
to compensate for reductions in the availability of funds from other sources.
Presently, the Association has no other borrowing arrangements.
Deposit Accounts. Nearly all of the Association's depositors reside in
Indiana. The Association's deposit products include money market accounts,
passbook accounts, and term certificate accounts. The Association intends to
introduce checking accounts later in 1998 or early in 1999. Deposit account
terms vary with the principal difference being the minimum balance deposit,
early withdrawal penalties and the interest rate. The Association reviews its
deposit mix and pricing weekly. The Association does not utilize brokered
deposits, nor has it aggressively sought jumbo certificates of deposit.
The Association believes it is competitive in the interest rates it offers
on its deposit products. The Association determines the rates paid based on a
number of factors, including rates paid by competitors, the Association's need
for funds and cost of funds, borrowing costs and movements of market interest
rates.
In the unlikely event the Association is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to the Holding Company as the sole stockholder of the
Association.
The following table sets forth information concerning the Association's
time deposits and other interest-bearing deposits at December 31, 1997.
<TABLE>
<CAPTION>
Weighted Percentage
Average Minimum of Total
Interest Rate Term Category Amount Balance Deposits
- ------------- ---- -------- ------ ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Demand and Savings Deposits:
----------------------------
2.65% None Regular savings accounts $ 10 $ 1,301 6.56%
4.22 None Money market deposit accounts 2,500 2,129 10.73
Time Deposits:
--------------
4.00 91 days Fixed term, fixed rate 2,500 35 0.18
4.51 6 months Fixed term, fixed rate 2,500 404 2.04
5.03 12 months Fixed term, fixed rate 100 2,705 13.63
4.50 24 months Fixed term, variable rate 1,000 16 0.08
5.63 24 months Fixed term, fixed rate 100 3,505 17.66
5.93 36 months Fixed term, fixed rate 100 1,962 9.88
6.67 48 months Fixed term, fixed rate 100 2,288 11.53
5.95 60 months Fixed term, fixed rate 100 3,779 19.04
5.85 Individual retirement account 500 1,722 8.67
------- ------
TOTAL $19,846 100.00%
======= ======
</TABLE>
50
<PAGE>
The following table indicates the amount of the Association's jumbo
certificate accounts by time remaining until maturity as of December 31, 1997.
Jumbo certificate accounts have principal balances of $100,000 or more.
<TABLE>
<CAPTION>
Certificate
Maturity Period Accounts
--------------- --------
(In thousands)
<S> <C>
Three months or less..................... $ 301
Over three through six months............ 357
Over six through 12 months............... 617
Over 12 months........................... 943
------
Total............................... $2,218
======
</TABLE>
Deposit Flow. The following table sets forth the balances (inclusive of
interest credited) and changes in dollar amounts of deposits in the various
types of accounts offered by the Association between the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------
1997 1996
---------------------------------------- ----------------------
Percent Percent
of Increase of
Amount Total (Decrease) Amount Total
------ ----- ---------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Regular savings accounts .......................... $ 1,301 6.56% $ (28) $ 1,329 6.58%
Money market deposit accounts ..................... 2,129 10.73 (121) 2,250 11.14
Fixed-rate certificates which mature:
Within 1 year ................................... 8,809 44.39 1,071 7,738 38.32
After 1 year, but within 2 years ................ 4,638 23.37 (492) 5,130 25.40
After 2 years, but within 4 years ............... 2,360 11.89 93 2,267 11.23
After 4 years, but within 6 years ............... 609 3.06 (871) 1,480 7.33
------- ------ ------- ------- ------
Total ........................................ $19,846 100.00% $ (348) $20,194 100.00%
======= ====== ======= ======= ======
</TABLE>
Time Deposits by Maturities. The following table sets forth the amount of
time deposits in the Association categorized by maturities at December 31, 1997.
<TABLE>
<CAPTION>
Amount Due
--------------------------------------------------------------------------------------------
Less Than One to Two Two to Three Three to Four After Four
One Year Years Years Years Years Total
--------- ---------- ------------ ------------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Below 4.99% .................. $ 2,154 $ 16 $ -- $ -- $ -- $ 2,170
5.00 - 5.49% ................. 2,284 765 624 159 -- 3,832
5.50 - 5.99% ................. 2,093 586 40 141 217 3,077
6.00 - 6.49% ................. 1,534 1,469 22 37 10 3,072
6.50 - 6.99% ................. 429 328 1,135 139 382 2,413
7.00 - 7.49% ................. 908 944 -- -- -- 1,852
------- ------- ------- ------- ------- -------
Totals ....................... $ 9,402 $ 4,108 $ 1,821 $ 476 $ 609 $16,416
======= ======= ======= ======= ======= =======
</TABLE>
51
<PAGE>
Deposit Activity. The following table sets forth the deposit activity of
the Association for the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
Beginning balance ........................ $ 20,194 $ 20,648
Net deposits (withdrawals)
before interest credited ............... (1,088) (1,195)
Interest credited ........................ 740 741
-------- --------
Net increase in deposits ................. (348) (454)
-------- --------
Ending balance ........................... $ 19,846 $ 20,194
======== ========
</TABLE>
Borrowings. The Association has the ability to use advances from the
FHLB-Indianapolis to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. The FHLB-Indianapolis functions as a central reserve
bank providing credit for savings associations and certain other member
financial institutions. As a member of the FHLB-Indianapolis, the Association is
required to own capital stock in the FHLB-Indianapolis and is authorized to
apply for advances on the security of such stock and certain of its mortgage
loans and other assets (principally securities that are obligations of, or
guaranteed by, the U.S. Government or agencies thereof) provided certain
creditworthiness standards have been met. Advances are made pursuant to several
different credit programs. Each credit program has its own interest rate and
range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit.
The following table sets forth certain information regarding the
Association's use of FHLB advances during the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Maximum balance at any month end.............. $500 $400
Average balance............................... 254 154
Year end balance.............................. -- --
Weighted average interest rate:
At end of year.............................. -- --
During the year............................. 5.91% 9.09%
</TABLE>
Competition
The Association faces intense competition in its primary market area for
the attraction of deposits (its primary source of lendable funds) and in the
origination of loans. Its most direct competition for deposits has historically
come from the three commercial banks operating in Tell City, and, to a lesser
extent, from other financial institutions, such as brokerage firms and insurance
companies. All of the three commercial banks in Tell City are affiliated with
large,
52
<PAGE>
multi-state bank holding companies and, therefore, have significantly greater
resources than the Association. Particularly in times of high interest rates,
the Association has faced additional significant competition for investors'
funds from short-term money market securities and other corporate and government
securities. The Association's competition for loans comes primarily from the
commercial banks operating in Tell City. Such competition for deposits and the
origination of loans may limit the Association's growth in the future. See "RISK
FACTORS -- Competition."
Subsidiary Activities
Under OTS regulations, the Association generally may invest up to 3% of its
assets in service corporations, provided that at least one-half of investment in
excess of 1% is used primarily for community, inner-city and community
development projects. In 1989 the Association formed Peoples Building and Loan
Association Service Corporation for the purpose of selling annuities and mutual
funds to customers of the Association. The Association's service corporation is
currently inactive.
Properties
The Association owns its one office. At December 31, 1997, the net book
value of the Association's properties (including land and buildings), fixtures,
furniture and equipment was $198,000.
Personnel
As of December 31, 1997, the Association had six full-time employees and
one part-time employee, none of whom is represented by a collective bargaining
unit. The Association believes its relationship with its employees is good.
Legal Proceedings
Periodically, there have been various claims and lawsuits involving the
Association, such as claims to enforce liens, condemnation proceedings on
properties in which the Association holds security interests, claims involving
the making and servicing of real property loans and other issues incident to the
Association's business. The Association is not a party to any pending legal
proceedings that it believes would have a material adverse effect on the
financial condition or operations of the Association.
MANAGEMENT OF THE HOLDING COMPANY
Directors shall be elected by the stockholders of the Holding Company for
staggered three-year terms, or until their successors are elected and qualified.
The Holding Company's Board of Directors consists of six persons divided into
three classes, each of which contains one third of the Board. One class,
consisting of Messrs. James L. Wittmer and Howard L. Traphagen, has a term of
office expiring at the first annual meeting of stockholders after their initial
election by stockholders; a second class, consisting of Messrs. James G. Tyler
and Daniel P. Lutgring, has a term of office expiring at the second annual
meeting of stockholders after their initial election by stockholders; and a
third class, consisting of Messrs. Carl D. Smith and Marion L. Ress, has a term
of office expiring at the third annual meeting of stockholders after their
initial election by stockholders. The Holding Company anticipates that its first
annual meeting of stockholders will be held in April 1999.
53
<PAGE>
The executive officers of the Holding Company are elected annually
and hold office until their respective successors have been elected and
qualified or until death, resignation or removal by the Board of Directors. The
executive officers of the Holding Company are:
Name Position
- ---- --------
Carl D. Smith President and Chef Executive Officer
Clarke A. Blackford Vice President, Treasurer and Secretary
Since the formation of the Holding Company, none of the executive officers,
directors or other personnel has received remuneration from the Holding Company.
Initially, no separate compensation will be paid for service as an executive
officer of the Holding Company. For information concerning the principal
occupations, employment and compensation of the directors and executive officers
of the Holding Company during the past five years, see "MANAGEMENT OF THE
ASSOCIATION -- Biographical Information."
MANAGEMENT OF THE ASSOCIATION
Directors and Executive Officers
The Board of Directors of the Association is presently composed of six
members who are elected for terms of three years, approximately one third of
whom are elected annually in accordance with the Bylaws of the Association. The
executive officers of the Association are elected annually by the Board of
Directors and serve at the Board's discretion. The following table sets forth
information with respect to the directors and executive officers of the
Association.
<TABLE>
<CAPTION>
Directors
Current
Director Term
Name Age (1) Position with Association Since Expires
- ---- ------- ------------------------- ------- -------
<S> <C> <C> <C> <C>
James L. Wittmer 72 Chairman of the Board 1976 2000
Carl D. Smith 51 President and Director 1976 1999
Marion L. Ress 67 Director 1980 1999
Howard L. Traphagen 67 Director 1987 2000
James G. Tyler 48 Director 1989 2001
Daniel P. Lutgring 44 Director 1997 2001
<CAPTION>
Executive Officers Who Are Not Directors
Name Age (1) Position with Association
- ---- ------- -------------------------
<S> <C> <C>
Clarke A. Blackford 50 Vice President, Secretary and Treasurer
</TABLE>
- ----------
(1) As of December 31, 1997.
54
<PAGE>
Biographical Information
Set forth below is certain information regarding the Directors and
executive officers of the Association. Unless otherwise stated, each director
and executive officer has held his current occupation for the last five years.
There are no family relationships among or between the directors or executive
officers, except that Mr. Wittmer and Mr. Ress are first cousins by marriage.
James G. Tyler has practiced as an attorney in Tell City, Indiana since
1982.
Daniel P. Lutgring is the co-owner of Lutgring Bros., Inc., a contractor
and earthmover in Tell City, Indiana.
Carl D. Smith is the President and Chief Executive Officer of the
Association, positions he has held since 1976. Mr. Smith has been employed by
the Association since 1969.
Clarke A. Blackford has served as Vice President of the Association since
1993 and as Treasurer and Secretary since 1980. Mr. Blackford has been employed
by the Association since 1974.
James L. Wittmer is a retired businessman and investor.
Marion L. Ress is the retired president and majority owner of Frederick
Sheet Metal, Inc. in Tell City, Indiana.
Howard L. Traphagen is a retired businessman.
Meetings and Committees of the Board of Directors
The business of the Association is conducted through meetings and
activities of the Board of Directors and its committees. During the fiscal year
ended December 31, 1997, the Board of Directors held 24 regular meetings. No
director attended fewer than 75% of the total meetings of the Board of Directors
and of committees on which such director served.
The Board of Directors maintains an Audit Committee, consisting of
Directors Tyler and Wittmer, which receives and reviews all reports prepared by
the Association's external auditor. The Board of Directors met one time in its
capacity as Audit Committee during 1997.
The Board of Directors maintains a Salary Committee, consisting of
Directors Tyler, Traphagen and Wittmer, which is responsible for setting the
salaries of all employees. The Salary Committee met three times in 1997.
The Board of Directors maintains a Loan Committee, consisting of Directors
Wittmer, Ress, Traphagen and Smith, which reviews and approves mortgage loan
applications. The Loan Committee met 32 times in 1997.
Directors' Compensation
Fees. Directors of the Association receive an annual retainer of $3,800
plus $50 per meeting attended. The Chairman of the Board receives an additional
$1,000 per year. Non-employee members of the Loan Committee receive $25 per
meeting attended. Following consummation of the conversion, directors' fees will
continue to be paid by the Association and, initially, no separate fees are
expected to be paid for service on the Holding Company's Board of Directors.
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Executive Compensation
Summary Compensation Table. The following information is furnished
for Mr. Smith for the year ended December 31, 1997. No executive officer of the
Association received salary and bonus of $100,000 or more during the year ended
December 31, 1997.
<TABLE>
<CAPTION>
Annual Compensation(1)
-----------------------------------------------------------------------
Name and Other Annual All Other
Position Year Salary Bonus Compensation(2) Compensation
- -------- ---- ------ ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
Carl D. Smith 1997 $54,335 $1,605 $5,350 $8,477(3)
President and Chief
Executive Officer
</TABLE>
- ----------
(1) Compensation information for the years ended December 31, 1996 and 1995 has
been omitted as the Association was not a public company nor a subsidiary
thereof at such time.
(2) Consists of fees for review of appraisals. Does not include the aggregate
amount of perquisites and other personal benefits, which was less than 10%
of the total annual salary and bonus reported.
(3) Consists of $3,358 contribution to 401(k) plan and $5,119 contribution to
money purchase pension plan.
Employment Agreements. In connection with the conversion, the Holding
Company and the Association (collectively, the "Employers") plan to enter into
three-year employment agreements ("Employment Agreement") with Messrs. Smith and
Blackford. Under the Employment Agreements, the initial salary levels for Mr.
Smith and Mr. Blackford will be $________ and $_______, respectively, which
amount will be paid by the Association and may be increased at the discretion of
the Board of Directors or an authorized committee of the Board. On each
anniversary of the commencement date of the Employment Agreement, the term of
each agreement may be extended for an additional year at the discretion of the
Board. The agreements are terminable by the Employers at any time, by the
executive if he is assigned duties inconsistent with his initial position,
duties, responsibilities and status, or upon the occurrence of certain events
specified by federal regulations. In the event that the executive's employment
is terminated without cause or upon the executive's voluntary termination
following the occurrence of an event described in the preceding sentence, the
Association would be required to honor the terms of the agreement through the
expiration of the current term, including payment of current cash compensation
and continuation of employee benefits.
The Employment Agreements also provide for a severance payment and other
benefits in the event of involuntary termination of employment in connection
with any change in control of the Employers. A severance payment also will be
provided on a similar basis in connection with a voluntary termination of
employment where, subsequent to a change in control, the executive is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to such change in control. The term "change in control" is
defined in the agreement as having occurred when, among other things, (a) a
person other than the Holding Company purchases shares of the Holding Company's
common stock pursuant to a tender or exchange offer for such shares, (b) any
person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act)
is or becomes the beneficial owner, directly or indirectly, of securities of the
Holding Company representing 25% or more of the combined voting power of the
Holding Company's then outstanding securities, (c) the membership of the Board
of Directors changes as the result of a contested election, or (d) shareholders
of the Holding Company approve a merger, consolidation, sale or disposition of
all or substantially all of the Holding Company's assets, or a plan of partial
or complete liquidation.
The maximum value of the severance benefits under the Employment Agreements
is 2.99 times the executive's average annual compensation during the five-year
period preceding the effective date of the change in control (the "base
amount"). The Employment Agreements provides that the value of the maximum
benefit may be distributed, at the
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executive's election, (i) in the form of a lump sum cash payment equal to 2.99
times the executive's base amount or (ii) a combination of a cash payment and
continued coverage under the Employers' health, life and disability programs for
a 36- month period following the change in control, the total value of which
does not exceed 2.99 times the executive's base amount. Assuming that a change
in control had occurred at December 31, 1997 and that Mr. Smith and Mr.
Blackford elected to receive a lump sum cash payment, they would have been
entitled to payments of approximately $155,000 and $133,000, respectively.
Section 280G of the Internal Revenue Code, provides that severance payments that
equal or exceed three times the individual's base amount are deemed to be
"excess parachute payments" if they are contingent upon a change in control.
Individuals receiving excess parachute payments are subject to a 20% excise tax
on the amount of such excess payments, and the Employers would not be entitled
to deduct the amount of such excess payments.
The Employment Agreements restrict the executive's right to compete against
the Employers for a period of one year from the date of termination of the
agreement if he voluntarily terminates employment, except in the event of a
change in control.
Benefits
General. The Association currently pays 100% of the premiums for medical,
dental, life and disability insurance benefits for full-time employees, subject
to certain deductibles.
401(k) Plan. The Association maintains the Peoples Building and Loan
Association 401(k) Salary Reduction Plan and Trust ("401(k) Plan") for the
benefit of eligible employees of the Association. The 401(k) Plan is intended to
be a tax-qualified plan under Sections 401(a) and 401(k) of the Internal Revenue
Code. Employees of the Association who have completed one year of service and
who have attained age 21 are eligible to participate in the 401(k) Plan on the
January 1 next following the date such requirements are satisfied. Participants
may contribute up to the applicable IRS limits ($10,000 in 1998) to the 401(k)
Plan through a salary reduction election. The Association matches participant
contributions at the rate of 200% up to 3% of the participant's annual
compensation.
In addition to employer matching contributions, the Association may
contribute a discretionary amount to the 401(k) Plan in any plan year which is
allocated to individual participants in the proportion that their annual
compensation bears to the total compensation of all participants during the plan
year. Participants are at all times 100% vested in all salary reduction
contributions. Employer matching and profit-sharing contributions vest at the
rate of 20% per year beginning with the completion of three years of service.
For the year ended December 31, 1997, the Association incurred total
contribution-related expenses of $10,000 in connection with the 401(k) Plan.
Generally, the investment of 401(k) Plan assets is directed by plan
participants. In connection with the conversion, the investment options
available to participants will be expanded to include the opportunity to direct
the investment of up to 100% of their 401(k) Plan account balance to purchase
shares of the Holding Company's common stock. A participant in the 401(k) Plan
who elects to purchase common stock in the conversion through the 401(k) Plan
will receive the same subscription priority and be subject to the same
individual purchase limitations as if the participant had elected to make such
purchase using other funds. See "THE CONVERSION -- Limitations on Purchases of
Shares."
Money Purchase Pension Plan. The Association maintains a money purchase
pension plan for the benefit of eligible employees. Employee are eligible to
participate in the plan upon the completion of one year of service. The
Association makes annual contributions on behalf of plan participants at the
rate of 6% of compensation up to $15,000 and 10.3% for compensation in excess of
$15,000. Association contributions vest at the rate of 20% per year begining
with the completion of three years of service. At retirement, the normal form of
distribution of benefits is a lump-sum payment or one of various forms of
annuities. For the year ended December 31, 1997, the Association made
contributions of $14,000 to the plan.
Stock Option Plan. The Board of Directors of the Holding Company intends to
adopt the Stock Option Plan and to submit the Stock Option Plan to the
stockholders for approval at a meeting held no earlier than six months following
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consummation of the conversion. Under current OTS regulations, the approval of a
majority vote of the Holding Company's outstanding shares is required for
implementation of the Stock Option Plan within one year of the consummation of
the conversion. The Stock Option Plan will comply with all applicable regulatory
requirements. However, the Stock Option Plan will not be approved or endorsed by
the OTS.
The Stock Option Plan will be designed to attract and retain qualified
management personnel and nonemployee directors, to provide such officers, key
employees and nonemployee directors with a proprietary interest in the Holding
Company as an incentive to contribute to the success of the Holding Company and
the Association, and to reward officers and key employees for outstanding
performance. The Stock Option Plan will provide for the grant of incentive stock
options ("ISOs") intended to comply with the requirements of Section 422 of the
Internal Revenue Code and for nonqualified stock options ("NQOs"). Upon receipt
of stockholder approval of the Stock Option Plan, stock options may be granted
to key employees of the Holding Company and its subsidiaries, including the
Association. Unless sooner terminated, the Stock Option Plan will continue in
effect for a period of ten years from the date the Stock Option Plan is approved
by stockholders.
A number of authorized shares of common stock equal to 10% of the number of
shares of common stock issued in connection with the conversion will be reserved
for future issuance under the Stock Option Plan (34,500 shares based on the
issuance of 345,000 shares at the maximum of the Estimated Valuation Range).
Shares acquired upon exercise of options will be authorized but unissued shares
or treasury shares. In the event of a stock split, reverse stock split, stock
dividend, or similar event, the number of shares of common stock under the Stock
Option Plan, the number of shares to which any award relates and the exercise
price per share under any option may be adjusted by the Committee (as defined
below) to reflect the increase or decrease in the total number of shares of
common stock outstanding.
The Stock Option Plan will be administered and interpreted by a committee
of the Board of Directors ("Committee"). Subject to applicable OTS regulations,
the Committee will determine which nonemployee directors, officers and key
employees will be granted options, whether, in the case of officers and
employees, such options will be ISOs or NQOs, the number of shares subject to
each option, and the exercisability of such options. All options granted to
nonemployee directors will be NQOs. The per share exercise price of all options
will equal at least 100% of the fair market value of a share of common stock on
the date the option is granted.
Under current OTS regulations, if the Stock Option Plan is implemented
within one year of the consummation of the conversion, (i) no officer or
employees could receive an award of options covering in excess of 25%, (ii) no
nonemployee director could receive in excess of 5% and (iii) nonemployee
directors, as a group, could not receive in excess of 30% of the number of
shares reserved for issuance under the Stock Option Plan.
It is anticipated that all options granted under the Stock Option Plan will
be granted subject to a vesting schedule whereby the options become exercisable
over a specified period following the date of grant. Under OTS regulations, if
the Stock Option Plan is implemented within the first year following
consummation of the conversion the minimum vesting period will be five years.
All unvested options will be immediately exercisable in the event of the
recipient's death or disability. Unvested options also will be exercisable
following a change in control (as defined in the Stock Option Plan) of the
Holding Company or the Association to the extent authorized or not prohibited by
applicable law or regulations. OTS regulations currently provide that if the
Stock Option Plan is implemented prior to the first anniversary of the
conversion, vesting may not be accelerated upon a change in control of the
Holding Company or the Association.
Each stock option that is awarded to an officer or key employee will remain
exercisable at any time on or after the date it vests through the earlier to
occur of the tenth anniversary of the date of grant or three months after the
date on which the optionee terminates employment (one year in the event of the
optionee's termination by reason of death or disability), unless such period is
extended by the Committee. Each stock option that is awarded to a nonemployee
director will remain exercisable through the earlier to occur of the tenth
anniversary of the date of grant or one year (two years in the event of a
nonemployee director's death or disability) following the termination of a
nonemployee director's service on the Board. All stock options are
nontransferable except by will or the laws of descent or distribution.
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Under current provisions of the Internal Revenue Code, the federal tax
treatment of ISOs and NQOs is different. With respect to ISOs, an optionee who
satisfies certain holding period requirements will not recognize income at the
time the option is granted or at the time the option is exercised. If the
holding period requirements are satisfied, the optionee will generally recognize
capital gain or loss upon a subsequent disposition of the shares of common stock
received upon the exercise of a stock option. If the holding period requirements
are not satisfied, the difference between the fair market value of the common
stock on the date of grant and the option exercise price, if any, will be
taxable to the optionee at ordinary income tax rates. A federal income tax
deduction generally will not be available to the Holding Company as a result of
the grant or exercise of an ISO, unless the optionee fails to satisfy the
holding period requirements. With respect to NQOs, the grant of an NQO generally
is not a taxable event for the optionee and no tax deduction will be available
to the Holding Company. However, upon the exercise of an NQO, the difference
between the fair market value of the common stock on the date of exercise and
the option exercise price generally will be treated as compensation to the
optionee upon exercise, and the Holding Company will be entitled to a
compensation expense deduction in the amount of income realized by the optionee.
Although no specific award determinations have been made at this time, the
Holding Company and the Association anticipate that if stockholder approval is
obtained it would provide awards to its directors, officers and employees to the
extent and under terms and conditions permitted by applicable regulations. The
size of individual awards will be determined prior to submitting the Stock
Option Plan for stockholder approval, and disclosure of anticipated awards will
be included in the proxy materials for such meeting.
Management Recognition and Development Plan. Following the conversion, the
Board of Directors of the Holding Company intends to adopt an MRDP for officers,
employees, and nonemployee directors of the Holding Company and the Association,
and to submit the MRDP to the stockholders for approval at a meeting held no
earlier than six months following consummation of the conversion. The MRDP will
enable the Holding Company and the Association to provide participants with a
proprietary interest in the Holding Company as an incentive to contribute to the
success of the Holding Company and the Association. The MRDP will comply with
all applicable regulatory requirements. However, the MRDP will not be approved
or endorsed by the OTS. Under current OTS regulations, the approval of a
majority vote of the Holding Company's outstanding shares is required for
implementation of the MRDP within one year of the consummation of the
conversion.
The MRDP expects to acquire a number of shares of the Holding Company's
common stock equal to 4% of the common stock issued in connection with the
conversion (13,800 shares based on the issuance of 345,000 shares in the
conversion at the maximum of the Estimated Valuation Range). Such shares will be
acquired on the open market, if available, with funds contributed by the Holding
Company or the Association to a trust which the Holding Company may establish in
conjunction with the MRDP ("MRDP Trust") or from authorized but unissued shares
or treasury shares of the Holding Company.
A committee of the Board of Directors of the Holding Company will
administer the MRDP, the members of which will also serve as trustees of the
MRDP Trust, if formed. The trustees will be responsible for the investment of
all funds contributed by the Holding Company or the Association to the MRDP
Trust. The Board of Directors of the Holding Company may terminate the MRDP at
any time and, upon termination, all unallocated shares of common stock will
revert to the Holding Company.
Shares of common stock granted pursuant to the MRDP will be in the form of
restricted stock payable ratably over a specified vesting period following the
date of grant. During the period of restriction, all shares will be held in
escrow by the Holding Company or by the MRDP Trust. Under OTS regulations, if
the MRDP is implemented within the first year following consummation of the
conversion, the minimum vesting period will be five years. All unvested MRDP
awards will vest in the event of the recipient's death or disability. Unvested
MRDP awards will also vest following a change in control (as defined in the
MRDP) of the Holding Company or the Association to the extent authorized or not
prohibited by applicable law or regulations. OTS regulations currently provide
that, if the MRDP is implemented prior
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to the first anniversary of the conversion, vesting may not be accelerated upon
a change in control of the Holding Company or the Association.
A recipient of an MRDP award in the form of restricted stock generally will
not recognize income upon an award of shares of common stock, and the Holding
Company will not be entitled to a federal income tax deduction, until the
termination of the restrictions. Upon such termination, the recipient will
recognize ordinary income in an amount equal to the fair market value of the
common stock at the time and the Holding Company will be entitled to a deduction
in the same amount after satisfying federal income tax withholding requirements.
However, the recipient may elect to recognize ordinary income in the year the
restricted stock is granted in an amount equal to the fair market value of the
shares at that time, determined without regard to the restrictions. In that
event, the Holding Company will be entitled to a deduction in such year and in
the same amount. Any gain or loss recognized by the recipient upon subsequent
disposition of the stock will be either a capital gain or capital loss.
Although no specific award determinations have been made at this time, the
Holding Company and the Association anticipate that if stockholder approval is
obtained it would provide awards to its directors, officers and employees to the
extent and under terms and conditions permitted by applicable regulations. Under
current OTS regulations, if the MRDP is implemented within one year of the
consummation of the conversion, (i) no officer or employees could receive an
award covering in excess of 25%, (ii) no nonemployee director could receive in
excess of 5% and (iii) nonemployee directors, as a group, could not receive in
excess of 30% of the number of shares reserved for issuance under the MRDP. The
size of individual awards will be determined prior to submitting the MRDP for
stockholder approval, and disclosure of anticipated awards will be included in
the proxy materials for such meeting.
Transactions with the Association
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons (unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee) and must not involve more than the normal risk of repayment or present
other unfavorable features. The Association's policy is not to make any new
loans or extensions of credit to the Association's executive officers and
directors at different rates or terms than those offered to the general public.
In addition, loans made to a director or executive officer in an amount that,
when aggregated with the amount of all other loans to such person and his
related interests, are in excess of the greater of $25,000 or 5% of the
Association's capital and surplus (up to a maximum of $500,000) must be approved
in advance by a majority of the disinterested members of the Board of Directors.
See "REGULATION -- Federal Regulation of Savings Associations -- Transactions
with Affiliates." The aggregate amount of loans by the Association to its
executive officers and directors was $145,000 at December 31, 1997, or
approximately 2.85% of pro forma stockholders' equity (based on the issuance of
the maximum of the Estimated Valuation Range).
REGULATION
General
The Association is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer of
its deposits. The activities of federal savings institutions are governed by the
Home Owners' Loan Act, as amended (the "HOLA") and, in certain respects, the
Federal Deposit Insurance Act ("FDIA") and the regulations issued by the OTS and
the FDIC to implement these statutes. These laws and regulations delineate the
nature and extent of the activities in which federal savings associations may
engage. Lending activities and other investments must comply with various
statutory and regulatory capital requirements. In addition, the Association's
relationship with its depositors and borrowers is also regulated to a great
extent, especially in such matters as the ownership of deposit accounts and the
form and content of the Association's mortgage documents. The Association must
file reports
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with the OTS and the FDIC concerning its activities and financial condition in
addition to obtaining regulatory approvals prior to entering into certain
transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the OTS and the FDIC to review
the Association's compliance with various regulatory requirements. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the OTS, the FDIC or Congress, could have a
material adverse impact on the Association and its operations.
Federal Regulation of Savings Associations
Office of Thrift Supervision. The OTS is an office in the Department of the
Treasury subject to the general oversight of the Secretary of the Treasury. The
OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
Federal Home Loan Bank System. The FHLB System, consisting of 12 FHLBs, is
under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner. The Association, as a
member of the FHLB-Indianapolis, is required to acquire and hold shares of
capital stock in the FHLB-Indianapolis in an amount equal to the greater of (i)
1.0% of the aggregate outstanding principal amount of residential mortgage
loans, home purchase contracts and similar obligations at the beginning of each
year, or (ii) 1/20 of its advances (i.e., borrowings) from the
FHLB-Indianapolis. The Association is in compliance with this requirement with
an investment in FHLB-Indianapolis stock of $196,000 at December 31, 1997. Among
other benefits, the FHLB-Indianapolis provides a central credit facility
primarily for member institutions. It is funded primarily from proceeds derived
from the sale of consolidated obligations of the FHLB System. It makes advances
to members in accordance with policies and procedures established by the FHFB
and the Board of Directors of the FHLB-Indianapolis.
Federal Deposit Insurance Corporation. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
depository institutions. The FDIC currently maintains two separate insurance
funds: the Bank Insurance Fund ("BIF") and the SAIF. As insurer of the
Association's deposits, the FDIC has examination, supervisory and enforcement
authority over the Association.
The Association's accounts are insured by the SAIF to the maximum extent
permitted by law. The Association pays deposit insurance premiums based on a
risk-based assessment system established by the FDIC. Under applicable
regulations, institutions are assigned to one of three capital groups that are
based solely on the level of an institution's capital -- "well capitalized,"
"adequately capitalized," and "undercapitalized" -- which are defined in the
same manner as the regulations establishing the prompt corrective action system,
as discussed below. These three groups are then divided into three subgroups
which reflect varying levels of supervisory concern, from those which are
considered to be healthy to those which are considered to be of substantial
supervisory concern. The matrix so created results in nine assessment risk
classifications, with rates that until September 30, 1996 ranged from 0.23% for
well capitalized, financially sound institutions with only a few minor
weaknesses to 0.31% for undercapitalized institutions that pose a substantial
risk of loss to the SAIF unless effective corrective action is taken.
Pursuant to the Deposit Insurance Funds Act ("DIF Act"), which was enacted
on September 30, 1996, the FDIC imposed a special assessment on each depository
institution with SAIF-assessable deposits which resulted in the SAIF achieving
its designated reserve ratio. In connection therewith, the FDIC reduced the
assessment schedule for SAIF members, effective January 1, 1997, to a range of
0% to 0.27%, with most institutions, including the Association, paying 0%. This
assessment schedule is the same as that for the BIF, which reached its
designated reserve ratio in 1995. In addition, since January 1, 1997, SAIF
members are charged an assessment of .065% of SAIF-assessable deposits for the
purpose of paying interest on the obligations issued by the Financing
Corporation ("FICO") in the 1980s to help fund the
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thrift industry cleanup. BIF-assessable deposits will be charged an assessment
to help pay interest on the FICO bonds at a rate of approximately .013% until
the earlier of December 31, 1999 or the date upon which the last savings
association ceases to exist, after which time the assessment will be the same
for all insured deposits.
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF Act contemplates the
development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter may
take and what effect, if any, the adoption of a new charter would have on the
operation of the Association.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend deposit
insurance temporarily during the hearing process for the permanent termination
of insurance, if the institution has no tangible capital. If insurance of
accounts is terminated, the accounts at the institution at the time of
termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of the Association.
Liquidity Requirements. Under OTS regulations, each savings institution is
required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
4.0%) of its net withdrawable accounts plus short-term borrowings. Monetary
penalties may be imposed for failure to meet liquidity requirements. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
Prompt Corrective Action. Under the FDIA, each federal banking agency is
required to implement a system of prompt corrective action for institutions that
it regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action. Under
the regulations, an institution shall be deemed to be (i) "well capitalized" if
it has a total risk-based capital ratio of 10.0% or more, has a Tier I
risk-based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more
and is not subject to specified requirements to meet and maintain a specific
capital level for any capital measure; (ii) "adequately capitalized" if it has a
total risk-based capital ratio of 8.0% or more, has a Tier I risk-based capital
ratio of 4.0% or more, has a leverage ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than
8.0%, has a Tier I risk-based capital ratio that is less than 4.0% or has a
leverage ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, has a Tier I risk-based capital ratio that is less than 3.0%
or has a leverage ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. (The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.)
An institution generally must file a written capital restoration plan that
meets specified requirements, as well as a performance guaranty by each company
that controls the institution, with the appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized, significantly
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undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to various mandatory and
discretionary restrictions on its operations.
At December 31, 1997, the Association was categorized as "well capitalized"
under the prompt corrective action regulations of the OTS.
Standards for Safety and Soundness. The federal banking regulatory agencies
have prescribed, by regulation, standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii)
earnings; and (viii) compensation, fees and benefits ("Guidelines"). The
Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. If the OTS determines that the Association
fails to meet any standard prescribed by the Guidelines, the agency may require
the Association to submit to the agency an acceptable plan to achieve compliance
with the standard. OTS regulations establish deadlines for the submission and
review of such safety and soundness compliance plans.
Qualified Thrift Lender Test. All savings associations are required to meet
a qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. A savings institution that fails to become or remain a QTL shall
either convert to a national bank charter or be subject to the following
restrictions on its operations: (i) the association may not make any new
investment or engage in activities that would not be permissible for national
banks; (ii) the association may not establish any new branch office where a
national bank located in the savings institution's home state would not be able
to establish a branch office; (iii) the association shall be ineligible to
obtain new advances from any FHLB; and (iv) the payment of dividends by the
association shall be subject to the rules regarding the statutory and regulatory
dividend restrictions applicable to national banks. Also, beginning three years
after the date on which the savings institution ceases to be a QTL, the savings
institution would be prohibited from retaining any investment or engaging in any
activity not permissible for a national bank and would be required to repay any
outstanding advances to any FHLB. In addition, within one year of the date on
which a savings association controlled by a company ceases to be a QTL, the
company must register as a bank holding company and become subject to the rules
applicable to such companies. A savings institution may requalify as a QTL if it
thereafter complies with the QTL test.
Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Internal Revenue Code or that
65% of an institution's "portfolio assets" (as defined) consist of certain
housing and consumer-related assets on a monthly average basis in nine out of
every 12 months. Assets that qualify without limit for inclusion as part of the
65% requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity loans;
mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct or indirect
obligations of the FDIC; and loans for educational purposes, loans to small
businesses and loans made through credit cards. In addition, the following
assets, among others, may be included in meeting the test subject to an overall
limit of 20% of the savings institution's portfolio assets: 50% of residential
mortgage loans originated and sold within 90 days of origination; 100% of
consumer loans; and stock issued by Freddie Mac or Fannie Mae. Portfolio assets
consist of total assets minus the sum of (i) goodwill and other intangible
assets, (ii) property used by the savings institution to conduct its business,
and (iii) liquid assets up to 20% of the institution's total assets. At December
31, 1997, the Association was in compliance with the QTL test.
Capital Requirements. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in order
to comply with the capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital is
defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets,
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except for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities. In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion of
certain assets from capital and to account appropriately for the investments in
and assets of both includable and non-includable subsidiaries. Institutions that
fail to meet the core capital requirement would be required to file with the OTS
a capital plan that details the steps they will take to reach compliance. In
addition, the OTS's prompt corrective action regulation provides that a savings
institution that has a leverage ratio of less than 4% (3% for institutions
receiving the highest CAMEL examination rating) will be deemed to be
"undercapitalized" and may be subject to certain restrictions. See "-- Federal
Regulation of Savings Associations -- Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not less than
1.5% of the Association's adjusted total assets. "Tangible capital" is defined,
generally, as core capital minus any "intangible assets" other than purchased
mortgage servicing rights.
Each savings institution must maintain total risk-based capital equal to at
least 8% of risk-weighted assets. Total risk-based capital consists of the sum
of core and supplementary capital, provided that supplementary capital cannot
exceed core capital, as previously defined. Supplementary capital includes (i)
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt, (ii)
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, subject to an
amortization schedule, and (iii) general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held by
a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not included
for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities that
are backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans (including multi-family mortgage loans) are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans are
assigned a 100% risk weight, as are nonqualifying residential mortgage loans and
that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totaled to arrive at total risk-weighted assets.
Off-balance sheet items are included in risk-weighted assets by converting them
to an approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of the
association's assets, as calculated in accordance with guidelines set forth by
the OTS. A savings association whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate risk component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
association's assets. That dollar amount is deducted from an association's total
capital in calculating compliance with its risk-based capital requirement. Under
the rule, there is a two quarter lag between the reporting date of an
institution's financial data and the effective date for the new capital
requirement based on that data. A savings association with assets of less than
$300 million and risk-based capital ratios in excess of 12% is not subject to
the interest rate risk component, unless the OTS determines otherwise. The rule
also provides that the Director of the OTS may waive or defer an association's
interest rate risk component on a case-by-case basis. Under certain
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circumstances, a savings association may request an adjustment to its interest
rate risk component if it believes that the OTS-calculated interest rate risk
component overstates its interest rate risk exposure. In addition, certain
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to calculate their interest rate risk component in lieu
of the OTS-calculated amount. The OTS has postponed the date that the component
will first be deducted from an institution's total capital.
See "HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE" for a table
that sets forth in terms of dollars and percentages the OTS tangible, core and
risk-based capital requirements, the Association's historical amounts and
percentages at December 31, 1997 and pro forma amounts and percentages based
upon the assumptions stated therein.
Limitations on Capital Distributions. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Association to give the OTS 30
days' advance notice of any proposed declaration of dividends, and the OTS has
the authority under its supervisory powers to prohibit the payment of dividends.
The regulation utilizes a three-tiered approach which permits various levels of
distributions based primarily upon a savings association's capital level.
A Tier 1 savings association has capital in excess of its fully phased-in
capital requirement (both before and after the proposed capital distribution). A
Tier 1 savings association may make (without application but upon prior notice
to, and no objection made by, the OTS) capital distributions during a calendar
year up to 100% of its net income to date during the calendar year plus one-half
its surplus capital ratio (i.e., the amount of capital in excess of its fully
phased-in requirement) at the beginning of the calendar year or the amount
authorized for a Tier 2 association. Capital distributions in excess of such
amount require advance notice to the OTS. A Tier 2 savings association has
capital equal to or in excess of its minimum capital requirement but below its
fully phased-in capital requirement (both before and after the proposed capital
distribution). Such an association may make (without application) capital
distributions up to an amount equal to 75% of its net income during the previous
four quarters depending on how close the association is to meeting its fully
phased-in capital requirement. Capital distributions exceeding this amount
require prior OTS approval. Tier 3 associations are savings associations with
capital below the minimum capital requirement (either before or after the
proposed capital distribution). Tier 3 associations may not make any capital
distributions without prior approval from the OTS.
The Association currently meets the criteria to be designated a Tier 1
association and, consequently, could at its option (after prior notice to, and
no objection made by, the OTS) distribute up to 100% of its net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year.
Loans to One Borrower. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans to one borrower. Generally, this
limit is 15% of the Association's unimpaired capital and surplus, plus an
additional 10% of unimpaired capital and surplus, if such loan is secured by
readily-marketable collateral, which is defined to include certain financial
instruments and bullion. The OTS by regulation has amended the loans to one
borrower rule to permit savings associations meeting certain requirements,
including capital requirements, to extend loans to one borrower in additional
amounts under circumstances limited essentially to loans to develop or complete
residential housing units. At December 31, 1997, the Association's regulatory
limit on loans to one borrower was $500,000. At December 31, 1997, the
Association's largest aggregate amount of loans to one borrower was $500,000.
Activities of Associations and Their Subsidiaries. A savings association
may establish operating subsidiaries to engage in any activity that the savings
association may conduct directly and service corporation subsidiaries to engage
in certain preapproved activities or, with approval of the OTS, other activities
reasonably related to the activities of financial institutions. When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in
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advance and provide the information each agency may, by regulation, require.
Savings associations also must conduct the activities of subsidiaries in
accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the SAIF. If so, it may require that no SAIF member engage in
that activity directly.
Transactions with Affiliates. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act relative to transactions with
affiliates in the same manner and to the same extent as if the savings
association were a Federal Reserve member bank. A savings and loan holding
company, its subsidiaries and any other company under common control are
considered affiliates of the subsidiary savings association under the HOLA.
Generally, Sections 23A and 23B: (i) limit the extent to which the insured
association or its subsidiaries may engage in certain covered transactions with
an affiliate to an amount equal to 10% of such institution's capital and surplus
and place an aggregate limit on all such transactions with affiliates to an
amount equal to 20% of such capital and surplus, and (ii) require that all such
transactions be on terms substantially the same, or at least as favorable to the
institution or subsidiary, as those provided to a non-affiliate. The term
"covered transaction" includes the making of loans, the purchase of assets, the
issuance of a guarantee and similar types of transactions. Any loan or extension
of credit by the Association to an affiliate must be secured by collateral in
accordance with Section 23A.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve, as is currently the case with respect to all
FDIC-insured banks.
The Association's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder. Among other things, these regulations require that
such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk of
repayment. Regulation O also places individual and aggregate limits on the
amount of loans the Association may make to such persons based, in part, on the
Association's capital position, and requires certain board approval procedures
to be followed. The OTS regulations, with certain minor variances, apply
Regulation O to savings institutions.
Community Reinvestment Act. Savings associations are also subject to the
provisions of the Community Reinvestment Act of 1977, which requires the
appropriate federal bank regulatory agency, in connection with its regular
examination of a savings association, to assess the savings association's record
in meeting the credit needs of the community serviced by the savings
associations, including low and moderate income neighborhoods. The regulatory
agency's assessment of the savings association's record is made available to the
public. Further, such assessment is required of any savings associations which
has applied, among other things, to establish a new branch office that will
accept deposits, relocate an existing office or merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally regulated financial
institution.
Savings and Loan Holding Company Regulations
Holding Company Acquisitions. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof. They also prohibit, among other
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things, any director or officer of a savings and loan holding company, or any
individual who owns or controls more than 25% of the voting shares of such
holding company, from acquiring control of any savings association not a
subsidiary of such savings and loan holding company, unless the acquisition is
approved by the OTS.
Holding Company Activities. As a unitary savings and loan holding company,
the Holding Company generally is not subject to activity restrictions under the
HOLA. If the Holding Company acquires control of another savings association as
a separate subsidiary other than in a supervisory acquisition, it would become a
multiple savings and loan holding company. There generally are more restrictions
on the activities of a multiple savings and loan holding company than on those
of a unitary savings and loan holding company. The HOLA provides that, among
other things, no multiple savings and loan holding company or subsidiary thereof
which is not an insured association shall commence or continue for more than two
years after becoming a multiple savings and loan association holding company or
subsidiary thereof, any business activity other than: (i) furnishing or
performing management services for a subsidiary insured institution, (ii)
conducting an insurance agency or escrow business, (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary insured institution,
(iv) holding or managing properties used or occupied by a subsidiary insured
institution, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by regulation as of March 5, 1987 to be engaged
in by multiple holding companies or (vii) those activities authorized by the
Federal Reserve Board as permissible for bank holding companies, unless the OTS
by regulation, prohibits or limits such activities for savings and loan holding
companies. Those activities described in (vii) above also must be approved by
the OTS prior to being engaged in by a multiple savings and loan holding
company.
Qualified Thrift Lender Test. The HOLA provides that any savings and loan
holding company that controls a savings association that fails the QTL test, as
explained under "-- Federal Regulation of Savings Associations -- Qualified
Thrift Lender Test," must, within one year after the date on which the
association ceases to be a QTL, register as and be deemed a bank holding company
subject to all applicable laws and regulations.
TAXATION
Federal Taxation
General. The Holding Company and the Association will report their income
on a calendar year basis using the accrual method of accounting and will be
subject to federal income taxation in the same manner as other corporations with
some exceptions, including particularly the Association's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Association or the Holding Company.
Bad Debt Reserve. Historically, savings institutions such as the
Association which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrift") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income. The Association's
deductions with respect to "qualifying real property loans," which are generally
loans secured by certain interest in real property, were computed using an
amount based on the Association's actual loss experience, or a percentage equal
to 8% of the Association's taxable income, computed with certain modifications
and reduced by the amount of any permitted additions to the non-qualifying
reserve. Due to the Association's loss experience, the Association generally
recognized a bad debt deduction equal to 8% of taxable income.
In August 1996, the provisions repealing the current thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Association has no
post-1987 reserves subject to recapture. For taxable years beginning after
December 31, 1995, the Association's bad debt deduction will be determined under
the experience method
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using a formula based on actual bad debt experience over a period of years. The
unrecaptured base year reserves will not be subject to recapture as long as the
institution continues to carry on the business of banking. In addition, the
balance of the pre-1988 bad debt reserves continue to be subject to provisions
of present law referred to below that require recapture in the case of certain
excess distributions to shareholders.
Distributions. To the extent that the Association makes "nondividend
distributions" to the Holding Company, such distributions will be considered to
result in distributions from the balance of its bad debt reserve as of December
31, 1987 (or a lesser amount if the Association's loan portfolio decreased since
December 31, 1987) and then from the supplemental reserve for losses on loans
("Excess Distributions"), and an amount based on the Excess Distributions will
be included in the Association's taxable income. Nondividend distributions
include distributions in excess of the Association's current and accumulated
earnings and profits, distributions in redemption of stock and distributions in
partial or complete liquidation. However, dividends paid out of the
Association's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a distribution
from the Association's bad debt reserve. The amount of additional taxable income
created from an Excess Distribution is an amount that, when reduced by the tax
attributable to the income, is equal to the amount of the distribution. Thus,
if, after the conversion, the Association makes a "nondividend distribution,"
then approximately one and one-half times the Excess Distribution would be
includable in gross income for federal income tax purposes, assuming a 34%
corporate income tax rate (exclusive of state and local taxes). See "REGULATION"
and "DIVIDEND POLICY" for limits on the payment of dividends by the Association.
The Association does not intend to pay dividends that would result in a
recapture of any portion of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Internal Revenue Code imposes a tax
on alternative minimum taxable income ("AMTI") at a rate of 20%. The excess of
the tax bad debt reserve deduction using the percentage of taxable income method
over the deduction that would have been allowable under the experience method is
treated as a preference item for purposes of computing the AMTI. In addition,
only 90% of AMTI can be offset by net operating loss carry-overs. AMTI is
increased by an amount equal to 75% of the amount by which the Association's
adjusted current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses). For taxable years
beginning after December 31, 1986, and before January 1, 1996, an environmental
tax of 0.12% of the excess of AMTI (with certain modification) over $2.0 million
is imposed on corporations, including the Association, whether or not an
Alternative Minimum Tax is paid.
Dividends-Received Deduction. The Holding Company may exclude from its
income 100% of dividends received from the Association as a member of the same
affiliated group of corporations. The corporate dividends-received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Holding Company and the Association will not file a consolidated
tax return, except that if the Holding Company or the Association owns more than
20% of the stock of a corporation distributing a dividend, then 80% of any
dividends received may be deducted.
Audits. The IRS audited the Association's federal income tax returns for
1994.
Indiana Taxation
Indiana imposes an 8.5% franchise tax based on a financial institution's
adjusted gross income as defined by statute. In computing adjusted gross income,
deductions for municipal interest, U.S. government interest, the bad debt
deduction computed using the reserve method and pre-1990 net operating losses
are disallowed. The Association's state franchise tax returns have not been
audited for the past five years.
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THE CONVERSION
The OTS has approved the Plan of Conversion subject to its approval by the
members of the Association entitled to vote thereon and to the satisfaction of
certain other conditions imposed by the OTS in its approval. OTS approval does
not constitute a recommendation or endorsement of the Plan of Conversion.
General
On January 14, 1998, the Board of Directors of the Association unanimously
adopted the Plan of Conversion, which was subsequently amended on March 16,
1998, pursuant to which the Association will be converted from a mutual savings
association to a federally chartered stock savings bank to be held as a
wholly-owned subsidiary of the Holding Company, a newly formed Indiana
corporation. The following discussion of the Plan of Conversion is qualified in
its entirety by reference to the Plan of Conversion, which is attached as
Exhibit A to the Association's Proxy Statement and is available to members of
the Association upon request. The Plan of Conversion is also filed as an exhibit
to the Registration Statement. See "ADDITIONAL INFORMATION." The OTS has
approved the Plan of Conversion subject to its approval by the members of the
Association entitled to vote on the matter at a Special Meeting called for that
purpose to be held on _______________, 1998, and subject to the satisfaction of
certain other conditions imposed by the OTS in its approval.
The conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by the
Association. As part of the conversion, the Association will issue all of its
newly issued common stock (1,000 shares) to the Holding Company in exchange for
50% of the net proceeds from the sale of common stock by the Holding Company.
The Plan of Conversion provides generally that: (i) the Association will
convert from a mutual savings association to a federally chartered stock savings
bank; (ii) the Holding Company will offer its common stock in the Subscription
Offering to persons having subscription rights; (iii) if necessary, shares of
common stock not subscribed for in the Subscription Offering will be offered in
a Direct Community Offering to certain members of the general public, with
preference given to natural persons and trusts of natural persons residing in
Perry County, Indiana, and then to certain members of the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
pursuant to selected dealers agreements; and (iv) the Holding Company will
purchase all of the capital stock of the Association to be issued in connection
with the conversion.
As part of the conversion, the Holding Company is making a Subscription
Offering of its common stock to holders of subscription rights in the following
order of priority: (i) Eligible Account Holders (depositors with $50.00 or more
on deposit as of December 31, 1996); (ii) Supplemental Eligible Account Holders
(depositors with $50.00 or more on deposit as of March 31, 1998); and (iii)
Other Members (depositors of the Association as of April 30, 1998 and borrowers
of the Association with loans outstanding as of February 25, 1998 which continue
to be outstanding as of April 30, 1998).
Shares of common stock not subscribed for in the Subscription Offering may
be offered for sale in the Direct Community Offering. The Direct Community
Offering, if one is held, is expected to begin immediately after the expiration
of the Subscription Offering, but may begin at any time during the Subscription
Offering. Shares of common stock not sold in the Subscription and Direct
Community Offerings may be offered in the Syndicated Community Offering.
Regulations require that the Direct Community and Syndicated Community Offerings
be completed within 45 days after completion of the fully extended Subscription
Offering unless extended by the Association or the Holding Company with the
approval of the regulatory authorities. If the Syndicated Community Offering is
determined not to be feasible, the Board of Directors of the Association will
consult with the regulatory authorities to determine an appropriate alternative
method for selling the unsubscribed shares of common stock. The Plan of
Conversion provides that the conversion must be completed within 24 months after
the date of the approval of the Plan of Conversion by the members of the
Association.
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No sales of common stock may be completed, either in the Subscription
Offering, Direct Community Offering or Syndicated Community Offering unless the
Plan of Conversion is approved by the members of the Association.
The completion of the offering, however, is subject to market conditions
and other factors beyond the Association's control. No assurance can be given as
to the length of time after approval of the Plan of Conversion at the Special
Meeting that will be required to complete the Direct Community or Syndicated
Community Offerings or other sale of the common stock. If delays are
experienced, significant changes may occur in the estimated pro forma market
value of the Holding Company and the Association as converted, together with
corresponding changes in the net proceeds realized by the Holding Company from
the sale of the common stock. In the event the conversion is terminated, the
Association would be required to charge all conversion expenses against current
income.
Orders for shares of common stock will not be filled until at least
$2,550,000 of common stock has been subscribed for or sold and the OTS approves
the final valuation and the conversion closes. If the conversion is not
completed within 45 days after the last day of the fully extended Subscription
Offering and the OTS consents to an extension of time to complete the
conversion, subscribers will be given the right to increase, decrease or rescind
their subscriptions. Unless an affirmative indication is received from
subscribers that they wish to continue to subscribe for shares, the funds will
be returned promptly, together with accrued interest at the Association's
passbook rate from the date payment is received until the funds are returned to
the subscriber. If such period is not extended, or, in any event, if the
conversion is not completed, all withdrawal authorizations will be terminated
and all funds held will be promptly returned together with accrued interest at
the Association's passbook rate from the date payment is received until the
conversion is terminated.
Reasons for the Conversion
The Board of Directors and management believe that the conversion is in the
best interests of the Association, its members and the communities it serves.
The Association's Board of Directors has formed the Holding Company to serve as
a holding company, with the Association as its subsidiary, upon the consummation
of the conversion. By converting to the stock form of organization, the Holding
Company and the Association will be structured in the form used by holding
companies of commercial banks, most business entities and by a growing number of
savings institutions. Management of the Association believes that the conversion
offers a number of advantages which will be important to the future growth and
performance of the Association. The capital raised in the conversion is intended
to support the Association's current lending and investment activities and may
also support possible future expansion and diversification of operations,
although there are no current specific plans, arrangements or understandings,
written or oral, regarding any such expansion or diversification. The conversion
is also expected to afford the Association's management, members and others the
opportunity to become stockholders of the Holding Company and participate more
directly in, and contribute to, any future growth of the Holding Company and the
Association. The conversion will also enable the Holding Company and the
Association to raise additional capital in the public equity or debt markets
should the need arise, although there are no current specific plans,
arrangements or understandings, written or oral, regarding any such financing
activities. The Association, as a mutual savings association, does not have the
authority to issue capital stock or debt instruments, other than by accepting
deposits.
Effects of Conversion to Stock Form on Depositors and Borrowers of the
Association
Voting Rights. Depositors and borrowers will have no voting rights in the
converted Association or the Holding Company and therefore will not be able to
elect directors of the Association or the Holding Company or to control their
affairs. Currently, these rights are accorded to members of the Association.
Subsequent to the conversion, voting rights will be vested exclusively in the
Holding Company with respect to the Association and the holders of the common
stock as to matters pertaining to the Holding Company. Each holder of common
stock shall be entitled to vote on any matter to be considered by the
stockholders of the Holding Company. A stockholder will be entitled to one vote
for each share of common stock owned.
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Savings Accounts and Loans. The Association's savings accounts, account
balances and existing FDIC insurance coverage of savings accounts will not be
affected by the conversion. Furthermore, the conversion will not affect the loan
accounts, loan balances or obligations of borrowers under their individual
contractual arrangements with the Association.
Tax Effects. The Association has received an opinion from Breyer & Aguggia,
Washington, D.C., that the conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Code. Among other things, the
opinion states that:
(i) no gain or loss will be recognized to the Association in its mutual or
stock form by reason of the conversion;
(ii) no gain or loss will be recognized to its account holders upon the
issuance to them of accounts in the Association immediately after the
conversion, in the same dollar amounts and on the same terms and conditions
as their accounts at the Association in its mutual form plus interest in
the liquidation account;
(iii) the tax basis of account holders' accounts in the Association
immediately after the conversion will be the same as the tax basis of their
accounts immediately prior to conversion;
(iv) the tax basis of each account holder's interest in the liquidation
account will be equal to the value, if any, of that interest;
(v) the tax basis of the common stock purchased in the conversion will be
the amount paid and the holding period for such stock will commence at the
date of purchase; and
(vi) no gain or loss will be recognized to account holders upon the receipt
or exercise of subscription rights in the conversion, except to the extent
subscription rights are deemed to have value as discussed below.
Unlike a private letter ruling issued by the IRS, an opinion of counsel is
not binding on the IRS and the IRS could disagree with the conclusions reached
therein. In the event of such disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of subscription rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan of Conversion will be
taxable to the extent, if any, that the subscription rights are deemed to have a
fair market value. CRG, a financial consulting firm retained by the Association,
whose findings are not binding on the IRS, has issued a letter indicating that
the subscription rights do not have any value, based on the fact that such
rights are acquired by the recipients without cost, are nontransferable and of
short duration and afford the recipients the right only to purchase shares of
the common stock at a price equal to its estimated fair market value, which will
be the same price paid by purchasers in the Direct Community Offering for
unsubscribed shares of common stock. If the subscription rights are deemed to
have a fair market value, the receipt of such rights may only be taxable to
those Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members who exercise their subscription rights. The Association could also
recognize a gain on the distribution of such subscription rights. Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members are
encouraged to consult with their own tax advisors as to the tax consequences in
the event the subscription rights are deemed to have a fair market value.
The Association has also received an opinion from Monroe Shine & Co., Inc.
that, assuming the conversion does not result in any federal income tax
liability to the Association, its account holders, or the Holding Company,
implementation of the Plan of Conversion will not result in any Indiana income
tax liability to such entities or persons.
The opinions of Breyer & Aguggia and Monroe Shine & Co., Inc. and the
letter from CRG are filed as exhibits to the Registration Statement. See
"ADDITIONAL INFORMATION."
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PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
Liquidation Account. In the unlikely event of a complete liquidation of the
Association in its present mutual form, each depositor in the Association would
receive a pro rata share of any assets of the Association remaining after
payment of claims of all creditors (including the claims of all depositors up to
the withdrawal value of their accounts). Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his or her
deposit account to the total value of all deposit accounts in the Association at
the time of liquidation.
After the conversion, holders of withdrawable deposit(s) in the
Association, including certificates of deposit ("Savings Account(s)"), shall not
be entitled to share in any residual assets in the event of liquidation of the
Association. However, pursuant to OTS regulations, the Association shall, at the
time of the conversion, establish a liquidation account in an amount equal to
its total equity as of the date of the latest statement of financial condition
contained herein.
The liquidation account shall be maintained by the Association subsequent
to the conversion for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who retain their Savings Accounts in the Association.
Each Eligible Account Holder and Supplemental Eligible Account Holder shall,
with respect to each Savings Account held, have a related inchoate interest in a
portion of the liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's "qualifying deposit" in the
Savings Account and the denominator is the total amount of the "qualifying
deposits" of all such holders. Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing day of the Association subsequent to December 31, 1996, or March 31,
1998 is less than the lesser of (i) the deposit balance in such Savings Account
at the close of business on any other annual closing date subsequent to December
31, 1996 or March 31, 1998 or (ii) the amount of the "qualifying deposit" in
such Savings Account on December 31, 1996 or March 31, 1998, then the subaccount
balance for such Savings Account shall be adjusted by reducing such subaccount
balance in an amount proportionate to the reduction in such deposit balance. In
the event of a downward adjustment, such subaccount balance shall not be
subsequently increased, notwithstanding any increase in the deposit balance of
the related Savings Account. If any such Savings Account is closed, the related
subaccount balance shall be reduced to zero.
In the event of a complete liquidation of the Association (and only in such
event) each Eligible Account Holder and Supplemental Eligible Account Holder
shall be entitled to receive a liquidation distribution from the liquidation
account in the amount of the then current adjusted subaccount balance(s) for
Savings Account(s) then held by such holder before any liquidation distribution
may be made to stockholders. No merger, consolidation, bulk purchase of assets
with assumptions of Savings Accounts and other liabilities or similar
transactions with another federally insured institution in which the Association
is not the surviving institution shall be considered to be a complete
liquidation. In any such transaction the liquidation account shall be assumed by
the surviving institution.
In the unlikely event the Association is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to the Holding Company as the sole stockholder of the
Association.
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The Subscription, Direct Community and Syndicated Community Offerings
Subscription Offering. In accordance with the Plan of Conversion,
nontransferable subscription rights to purchase the common stock have been
issued to persons and entities entitled to purchase the common stock in the
Subscription Offering. The amount of the common stock which these parties may
purchase will be subject to the availability of the common stock for purchase
under the categories set forth in the Plan of Conversion. Subscription
priorities have been established for the allocation of stock to the extent that
the common stock is available. These priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or more on
deposit at the Association as of December 31, 1996 will receive nontransferable
subscription rights to subscribe for up to the greater of $65,000 of common
stock, one-tenth of one percent of the total offering of common stock or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders. If the exercise of subscription rights
in this category results in an oversubscription, shares of common stock will be
allocated among subscribing Eligible Account Holders so as to permit each
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make such person's total allocation equal 100 shares or the number
of shares actually subscribed for, whichever is less. Thereafter, unallocated
shares will be allocated among subscribing Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all subscribing Eligible Account
Holders. Subscription rights received by officers and directors in this category
based on their increased deposits in the Association in the one year period
preceding December 31, 1996 are subordinated to the subscription rights of other
Eligible Account Holders.
Category 2: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of March 31, 1998 will receive nontransferable
subscription rights to subscribe for up to the greater of $65,000 of common
stock, one-tenth of one percent of the total offering of common stock or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposits of the
Supplemental Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders. If the
exercise of subscription rights in this category results in an oversubscription,
shares of common stock will be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each Supplemental Eligible Account Holder, to
the extent possible, to purchase a number of shares sufficient to make his or
her total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less. Thereafter, unallocated shares will be
allocated among subscribing Supplemental Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all subscribing Supplemental Eligible
Account Holders.
Category 3: Other Members. Each depositor of the Association as of the
Voting Record Date (April 30, 1998) and each borrower with a loan outstanding on
February 25, 1998 which continues to be outstanding as of the Voting Record Date
will receive nontransferable subscription rights to purchase up to $65,000 of
common stock in the conversion to the extent shares are available following
subscriptions by Eligible Account Holders and Supplemental Eligible Account
Holders. In the event of an oversubscription in this category, the available
shares will be allocated proportionately based on the amount of the respective
subscriptions.
Subscription rights are nontransferable. Persons selling or otherwise
transferring their rights to subscribe for common stock in the Subscription
Offering or subscribing for common stock on behalf of another person will be
subject to forfeiture of such rights and possible further sanctions and
penalties imposed by the OTS or another agency of the U.S. Government. Each
person exercising subscription rights will be required to certify that he or she
is purchasing such shares solely for his or her own account and that he or she
has no agreement or understanding with any other person for the sale or transfer
of such shares. ONCE TENDERED,
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SUBSCRIPTION ORDERS CANNOT BE REVOKED WITHOUT THE CONSENT OF THE ASSOCIATION
AND THE HOLDING COMPANY.
The Holding Company and the Association will make reasonable attempts to
provide a prospectus and related offering materials to holders of subscription
rights. However, the Subscription Offering and all subscription rights under the
Plan of Conversion will expire at 12:00 Noon, local time, on the Expiration
Date, whether or not the Association has been able to locate each person
entitled to such subscription rights. Orders for common stock in the
Subscription Offering received in hand by the Association after the Expiration
Date will not be accepted. The Subscription Offering may be extended by the
Holding Company and the Association up to _____ __, 1998 without the OTS's
approval.
Direct Community Offering. Any shares of common stock which remain
unsubscribed for in the Subscription Offering may be offered by the Holding
Company to certain members of the general public in a Direct Community Offering,
with preference given to natural persons and trusts of natural persons residing
in Perry County, Indiana. Purchasers in the Direct Community Offering are
eligible to purchase up to $65,000 of common stock. In the event an insufficient
number of shares are available to fill orders in the Direct Community Offering,
the available shares will be allocated on a pro rata basis determined by the
amount of the respective orders. The Direct Community Offering, if held, is
expected to commence immediately subsequent to the Expiration Date, but may
begin at anytime during the Subscription Offering. The Direct Community Offering
may terminate on or at any time subsequent to the Expiration Date, but no later
than 45 days after the close of the Subscription Offering, unless extended by
the Holding Company and the Association, with approval of the OTS.
The right of any person to purchase shares in the Direct Community Offering
is subject to the absolute right of the Holding Company and the Association to
accept or reject such purchases in whole or in part. If an order is rejected in
part, the purchaser does not have the right to cancel the remainder of the
order. The Holding Company presently intends to terminate the Direct Community
Offering as soon as it has received orders for all shares available for purchase
in the conversion.
If all of the common stock offered in the Subscription Offering is
subscribed for, no common stock will be available for purchase in the Direct
Community Offering.
Syndicated Community Offering. The Plan of Conversion provides that, if
necessary, all shares of common stock not purchased in the Subscription Offering
and Direct Community Offering, if any, may be offered for sale to certain
members of the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers to be formed and managed by Capital
Resources acting as agent of the Holding Company. The Holding Company and the
Association have the right to reject orders, in whole or part, in their sole
discretion in the Syndicated Community Offering. Neither Capital Resources nor
any registered broker-dealer shall have any obligation to take or purchase any
shares of the common stock in the Syndicated Community Offering; however,
Capital Resources has agreed to use its best efforts in the sale of shares in
the Syndicated Community Offering.
Stock sold in the Syndicated Community Offering also will be sold at the
$10.00 purchase price. See "-- Stock Pricing and Number of Shares to be Issued."
No person will be permitted to subscribe in the Syndicated Community Offering
for shares of common stock with an aggregate purchase price of more than
$65,000. See "-- Plan of Distribution for the Subscription, Direct Community and
Syndicated Community Offerings" for a description of the commission to be paid
to the selected dealers and to Capital Resources.
Capital Resources may enter into agreements with selected dealers to assist
in the sale of shares in the Syndicated Community Offering. If a syndicate of
broker-dealers ("selected dealers") is formed to assist in the Syndicated
Community Offering, a purchaser may pay for his or her shares with funds held by
or deposited with a selected dealer. If an order form is executed and forwarded
to the selected dealer or if the selected dealer is authorized to execute the
order form on behalf of a purchaser, the selected dealer is required to forward
the order form and funds
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to the Association for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. Those indicating an
intent to purchase shall execute order forms and forward them to their selected
dealer or authorize the selected dealer to execute such forms. The selected
dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will send order forms and funds to the Association for deposit in a segregated
account. Although purchasers' funds are not required to be in their accounts
with selected dealers until the debit date in the event that such alternative
procedure is employed once a confirmation of an intent to purchase has been
received by the selected dealer, the purchaser has no right to rescind his or
her order.
The Syndicated Community Offering may terminate no more than 45 days after
the expiration of the Subscription Offering, unless extended by the Holding
Company and the Association, with approval of the OTS. In the event the
Association is unable to find purchasers from the general public for all
unsubscribed shares, other purchase arrangements will be made by the Board of
Directors of the Association, if feasible. Such other arrangements will be
subject to the approval of the OTS.
Time to Complete the Offering. OTS regulations require that the Holding
Company complete the sale of common stock within 45 days after the close of the
Subscription Offering. If the offering is not completed within such period all
funds received will be promptly returned with interest at the Association's
passbook rate and all withdrawal authorizations will be canceled. The OTS may
grant one or more extensions of the offering period, provided that (i) no single
extension exceeds 90 days, (ii) subscribers are given the right to increase,
decrease or rescind their subscriptions during the extension period, and (iii)
the extensions do not go more than two years beyond the date on which the
members approved the Plan of Conversion. If the OTS grants approval of an
extension offering period, all subscribers will be notified of such extension
and of the duration of any extension that has been granted, and will be given
the right to increase, decrease or rescind their orders. If an affirmative
response to any resolicitation is not received by the Holding Company from a
subscriber, the subscriber's order will be rescinded and all funds received will
be promptly returned with interest (or withdrawal authorizations will be
canceled).
Persons in Non-Qualified States. The Holding Company and the Association
will make reasonable efforts to comply with the securities laws of all states in
the United States in which persons entitled to subscribe for stock pursuant to
the Plan of Conversion reside. However, the Holding Company and the Association
are not required to offer stock in the Subscription Offering to any person (i)
who resides in a foreign country or in a state of the United States in which a
small number of persons otherwise eligible to subscribe for shares of common
stock reside in such state or (ii) who resides in a state with respect to which
the Holding Company or the Association determines that compliance with the
securities laws of such state would be impracticable for reasons of cost or
otherwise, including but not limited to a request or requirement that the
Holding Company and the Association or their officers, directors or trustees
register as a broker, dealer, salesman or selling agent, under the securities
laws of such state, or a request or requirement to register or otherwise qualify
the subscription rights or common stock for sale or submit any filing with
respect thereto in such state. Where the number of persons eligible to subscribe
for shares in one state is small, the Holding Company and the Association will
base their decision as to whether or not to offer the common stock in such state
on a number of factors, including the size of accounts held by account holders
in the state, the cost of reviewing the registration and qualification
requirements of the state (and of actually registering or qualifying the shares)
or the need to register the Holding Company, its officers, directors or
employees as brokers, dealers or salesmen.
Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings
The Holding Company and the Association have retained Capital Resources, a
broker-dealer registered with the SEC and a member of the NASD, to consult with
and advise the Holding Company and the Association and to assist,
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on a best efforts basis, in the distribution of the common stock in the
conversion. The services Capital Resources will perform include: (i) training
and educating the Company's and the Association's employees regarding the
mechanics and regulatory requirements of the stock conversion process; (ii)
conducting information meetings for potential subscribers, if necessary; (iii)
managing the sales efforts in the offering; (iv) assisting in the collection of
proxies from depositors for use at the Special Meeting; and (v) keeping records
of subscriptions and orders for common stock. Capital Resources will receive for
its services a fee of $50,000. If selected dealers are utilized in connection
with the offering, the Holding Company will pay a fee (negotiated at such time)
to such selected dealers and a management fee to Capital Resources to a selected
dealer's agreement. The fee to be negotiated with the selected dealers is
expected to be up to 4.0% of the total dollar amount sold through selected
dealers. Capital Resources will also be reimbursed for its legal fees and for
reasonable out-of-pocket expenses. Capital Resources has received fees totaling
$20,000 for consulting and advisory services relating to the Conversion, which
fees will be credited against marketing fees payable to Capital Resources.
Capital Resources' legal and out of pocket expenses will not exceed $32,000.
Capital Resources is affiliated with CRG.
Subject to certain limitations, the Holding Company and the Association
have also agreed to indemnify Capital Resources against liabilities and expenses
(including legal fees) incurred in connection with certain claims or litigation,
including claims or litigation arising out of or based upon untrue statements or
omissions contained in the offering material for the common stock.
Description of Sales Activities
The common stock will be offered in the Subscription Offering and Direct
Community Offering principally by the distribution of this prospectus and
through activities conducted at the Association's stock center at its office
facility. The stock center is expected to operate during normal business hours
throughout the Subscription Offering and Direct Community Offering. It is
expected that at any particular time one or more Capital Resources employees
will be working at the stock center. Such employees of Capital Resources will be
responsible for mailing materials relating to the offering, responding to
questions regarding the conversion and the offering and processing stock orders.
Sales of common stock will be made by registered representatives affiliated
with Capital Resources or by the selected dealers managed by Capital Resources.
The management and employees of the Association may participate in the offering
in clerical capacities, providing administrative support in effecting sales
transactions or, when permitted by state securities laws, answering questions of
a mechanical nature relating to the proper execution of the order form.
Management of the Association may answer questions regarding the business of the
Association when permitted by state securities laws. Other questions of
prospective purchasers, including questions as to the advisability or nature of
the investment, will be directed to registered representatives. The management
and employees of the Holding Company and the Association have been instructed
not to solicit offers to purchase common stock or provide advice regarding the
purchase of common stock.
No officer, director or employee of the Association or the Holding Company
will be compensated, directly or indirectly, for any activities in connection
with the offer or sale of securities issued in the conversion.
None of the Association's personnel participating in the offering is
registered or licensed as a broker or dealer or an agent of a broker or dealer.
The Association's personnel will assist in the above-described sales activities
pursuant to an exemption from registration as a broker or dealer provided by
Rule 3a4-1 promulgated under the Exchange Act. Rule 3a4-1 generally provides
that an "associated person of an issuer" of securities shall not be deemed a
broker solely by reason of participation in the sale of securities of such
issuer if the associated person meets certain conditions. Such conditions
include, but are not limited to, that the associated person participating in the
sale of an issuer's securities not be compensated in connection therewith at the
time of participation, that such person not be associated with a broker or
dealer and that such person observe certain limitations on his or her
participation in the sale of securities. For purposes of this exemption,
"associated person of an issuer" is defined to include any person who is a
director, officer or employee of the issuer or a company that controls, is
controlled by or is under common control with the issuer.
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Procedure for Purchasing Shares in the Subscription and Direct Community
Offerings
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 under the Exchange Act, no
prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will confirm receipt or delivery in accordance with Rule 15c2-8. Order
forms will only be distributed with a prospectus. The Association will accept
for processing only orders submitted on original order forms. The Association is
not obligated to accept orders submitted on photocopied or telecopied order
forms. Orders cannot and will not be accepted without the execution of the
certification appearing on the order form.
To purchase shares in the Subscription Offering, an executed order form
with the required full payment for each share subscribed for, or with
appropriate authorization for withdrawal of full payment from the subscriber's
deposit account with the Association (which may be given by completing the
appropriate blanks in the order form), must be received by the Association by
12:00 Noon, local time, on the Expiration Date. Order forms that are not
received by such time or are executed defectively or are received without full
payment (or without appropriate withdrawal instructions) are not required to be
accepted. The Holding Company and the Association have the right to waive or
permit the correction of incomplete or improperly executed order forms, but do
not represent that they will do so. Pursuant to the Plan of Conversion, the
interpretation by the Holding Company and the Association of the terms and
conditions of the Plan of Conversion and of the order form will be final. In
order to purchase shares in the Direct Community Offering, the order form,
accompanied by the required payment for each share subscribed for, must be
received by the Association prior to the time the Direct Community Offering
terminates, which may be on or at any time subsequent to the Expiration Date.
Once received, an executed order form may not be modified, amended or rescinded
without the consent of the Association unless the conversion has not been
completed within 45 days after the end of the Subscription Offering, unless such
period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (December 31,
1996) and/or the Supplemental Eligibility Record Date (March 31, 1998) and/or
the Voting Record Date (April 30, 1998) must list all accounts on the order form
giving all names in each account, the account number and the approximate account
balance as of such date. Failure to list an account could result in fewer shares
being allocated in the event of an oversubscription than if all accounts had
been disclosed.
Full payment for subscriptions may be made (i) in cash if delivered in
person at the Association's stock center, (ii) by check, bank draft, or money
order, or (iii) by authorization of withdrawal from deposit accounts maintained
with the Association. Appropriate means by which such withdrawals may be
authorized are provided on the order form. No wire transfers will be accepted.
Payment for subscriptions of $25,000 or more must be by certified or cashier's
check or money order. Interest will be paid on payments made by cash, check,
bank draft or money order at the Association's passbook rate from the date
payment is received until the completion or termination of the conversion. If
payment is made by authorization of withdrawal from deposit accounts, the funds
authorized to be withdrawn from a deposit account will continue to accrue
interest at the contractual rates until completion or termination of the
conversion (unless the certificate matures after the date of receipt of the
order form but prior to closing, in which case funds will earn interest at the
passbook rate from the date of maturity until consummation of the conversion),
but a hold will be placed on such funds, thereby making them unavailable to the
depositor until completion or termination of the conversion. At the completion
of the conversion, the funds received in the offering will be used to purchase
the shares of common stock ordered. The shares of common stock issued in the
conversion cannot and will not be insured by the FDIC or any other government
agency. In the event that the conversion is not consummated for any reason, all
funds submitted will be promptly refunded with interest as described above.
If a subscriber authorizes the Association to withdraw the amount of the
aggregate purchase price from his or her deposit account, the Association will
do so as of the effective date of conversion, though the account must contain
the full amount necessary for payment at the time the subscription order is
received. The Association will waive any
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applicable penalties for early withdrawal from certificate accounts. If the
remaining balance in a certificate account is reduced below the applicable
minimum balance requirement at the time that the funds actually are transferred
under the authorization the certificate will be canceled at the time of the
withdrawal, without penalty, and the remaining balance will earn interest at the
Association's passbook rate.
IRAs maintained in the Association do not permit investment in the common
stock. A depositor interested in using his or her IRA funds to purchase common
stock must do so through a self-directed IRA. Since the Association does not
offer such accounts, it will allow such a depositor to make a trustee-to-trustee
transfer of the IRA funds to a trustee offering a self-directed IRA program with
the agreement that such funds will be used to purchase the Holding Company's
common stock in the offering. There will be no early withdrawal or IRS interest
penalties for such transfers. The new trustee would hold the common stock in a
self-directed account in the same manner as the Association now holds the
depositor's IRA funds. An annual administrative fee may be payable to the new
trustee. Depositors interested in using funds in an Association IRA to purchase
common stock should contact the stock center as soon as possible so that the
necessary forms may be forwarded for execution and returned prior to the
Expiration Date. In addition, the provisions of ERISA and IRS regulations
require that officers, directors and 10% shareholders who use self-directed IRA
funds to purchase shares of common stock in the Subscription Offering, make such
purchases for the exclusive benefit of IRAs.
Certificates representing shares of common stock purchased, and any refund
due, will be mailed to purchasers at such address as may be specified in
properly completed order forms or to the last address of such persons appearing
on the records of the Association as soon as practicable following consummation
of the sale of all shares of common stock. Any certificates returned as
undeliverable will be disposed of in accordance with applicable law. Purchasers
may not be able to sell the shares of common stock which they purchased until
certificates for the common stock are available and delivered to them, even
though trading of the common stock may have commenced.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities sold in connection with the conversion be based upon an estimated pro
forma value of the Holding Company and the Association as converted (i.e.,
taking into account the expected receipt of proceeds from the sale of securities
in the conversion), as determined by an independent appraisal. The Association
and the Holding Company have retained CRG to prepare an appraisal of the pro
forma market value of the Holding Company and the Association as converted and
to assist in preparing, a business plan. CRG will receive a fee expected to
total $20,000 for its appraisal services and assistance in the preparation of a
business plan, plus reasonable out-of-pocket expenses incurred in connection
with the appraisal. The Association has agreed to indemnify CRG under certain
circumstances against liabilities and expenses (including legal fees) arising
out of, related to, or based upon the conversion. CRG will also receive a fee of
$7,500 for records management services in connection with the conversion.
The appraisal contains an analysis of a number of factors including, but
not limited to, the Association's financial condition and operating trends, the
competitive environment within which the Association operates, operating trends
of certain thrift institutions and savings and loan holding companies, relevant
economic conditions both nationally and in the State of Indiana which affect the
operations of thrift institutions, and stock market values of certain
institutions. In addition, CRG has advised the Association that it has
considered and will consider the effect of the additional capital raised by the
sale of the common stock on the estimated aggregate pro forma market value of
such shares. The Board of Directors has reviewed the appraisal, including the
stated methodology of CRG and the assumptions used in the preparation of the
appraisal. The Board of Directors is relying upon the expertise, experience and
independence of CRG and is not qualified to determine the appropriateness of the
assumptions or the methodology. The appraisal has been filed as an exhibit to
the registration statement of which this prospectus is a part. See "ADDITIONAL
INFORMATION."
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On the basis of the foregoing, CRG has advised the Holding Company and the
Association that, in its opinion, as of March 6, 1998, the aggregate estimated
pro forma market value of the Holding Company and the Association as converted
and, therefore, the common stock was within the valuation range of $2,550,000 to
$3,450,000 with a midpoint of $3,000,000. After reviewing the methodology and
the assumptions used by CRG in the preparation of the appraisal, the Board of
Directors accepted the Estimated Valuation Range which is equal to the valuation
range of $2,550,000 to $3,450,000 with a midpoint of $3,000,000. Assuming that
the shares are sold at $10.00 per share in the conversion, the estimated number
of shares would be between 255,000 and 345,000 with a midpoint of 300,000. The
purchase price of $10.00 was determined by discussion among the Boards of
Directors of the Association and the Holding Company and Capital Resources,
taking into account, among other factors (i) the requirement under OTS
regulations that the common stock be offered in a manner that will achieve the
widest distribution of the stock and (ii) desired liquidity in the common stock
subsequent to the conversion. Since the outcome of the offering relates in large
measure to market conditions at the time of sale, it is not possible to
determine the exact number of shares that will be issued by the Holding Company
at this time. The Estimated Valuation Range may be amended, with the approval of
the OTS, if necessitated by developments following the date of such appraisal
in, among other things, market conditions, the financial condition or operating
results of the Association, regulatory guidelines or national or local economic
conditions.
If, upon completion of the Subscription Offering, at least the minimum
number of shares are subscribed for, CRG, after taking into account factors
similar to those involved in its prior appraisal, will determine its estimate of
the pro forma market value of the Holding Company and the Association as
converted, as of the close of the Subscription Offering.
No sale of the shares will take place unless prior thereto CRG confirms to
the OTS that, to the best of CRG's knowledge and judgment, nothing of a material
nature has occurred that would cause it to conclude that the actual total
purchase price on an aggregate basis was incompatible with its estimate of the
total pro forma market value of the Holding Company and the Association as
converted at the time of the sale. If, however, the facts do not justify such a
statement, the offering or other sale may be canceled, a new Estimated Valuation
Range and price per share set and new Subscription, Direct Community and
Syndicated Community Offerings held. Under such circumstances, subscribers would
have the right to modify or rescind their subscriptions and to have their
subscription funds returned promptly with interest and holds on funds authorized
for withdrawal from deposit accounts would be released or reduced.
Depending upon market and financial conditions, the number of shares issued
may be more or less than the range in number of shares discussed herein. In the
event the total amount of shares issued is less than 255,000 or more than
396,750 (15% above the maximum of the Estimated Valuation Range), for aggregate
gross proceeds of less than $2,550,000 or more than $3,967,500, subscription
funds will be returned promptly with interest to each subscriber unless he
indicates otherwise. In the event a new valuation range is established by CRG,
such new range will be subject to approval by the OTS.
If purchasers cannot be found for an insignificant residue of unsubscribed
shares from the general public, other purchase arrangements will be made by the
Boards of Directors of the Association and the Holding Company, if possible.
Such other purchase arrangements will be subject to the approval of the OTS and
may provide for purchases for investment purposes by directors, officers, their
associates and other persons in excess of the limitations provided in the Plan
of Conversion and in excess of the proposed director purchases set forth herein,
although no such purchases are currently intended. If such other purchase
arrangements cannot be made, the Plan of Conversion will terminate.
In formulating its appraisal, CRG relied upon the truthfulness, accuracy
and completeness of all documents the Association furnished to it. CRG also
considered financial and other information from regulatory agencies, other
financial institutions, and other public sources, as appropriate. While CRG
believes this information to be reliable, CRG does not guarantee the accuracy or
completeness of such information and did not independently verify the financial
statements and other data provided by the Association and the Holding Company or
independently value the assets or
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liabilities of the Holding Company and the Association. The appraisal by CRG is
not intended to be, and must not be interpreted as, a recommendation of any kind
as to the advisability of voting to approve the Plan of Conversion or of
purchasing shares of common stock. Moreover, because the appraisal is
necessarily based on many factors which change from time to time, there is no
assurance that persons who purchase such shares in the conversion will later be
able to sell shares thereafter at prices at or above the purchase price in the
offering.
Limitations on Purchases of Shares
The Plan of Conversion provides for certain limitations to be placed upon
the purchase of common stock by eligible subscribers and others in the
conversion. Each subscriber must subscribe for a minimum of 25 shares. The Plan
of Conversion provides that no person, either alone or together with associates
of or persons acting in concert with such person, may purchase in the aggregate
more than $65,000 of common stock (or 6,500 shares). For purposes of the Plan of
Conversion, the directors are not deemed to be acting in concert solely by
reason of their Board membership. Pro rata reductions within each subscription
rights category will be made in allocating shares to the extent that the maximum
purchase limitations are exceeded.
The Association's and the Holding Company's Boards of Directors may, in
their sole discretion, increase the maximum purchase limitation set forth above
up to 9.99% of the shares of common stock sold in the conversion, provided that
orders for shares which exceed 5% of the shares of common stock sold in the
conversion may not exceed, in the aggregate, 10% of the shares sold in the
conversion. The Association and the Holding Company do not intend to increase
the maximum purchase limitation unless market conditions are such that an
increase in the maximum purchase limitation is necessary to sell a number of
shares in excess of the minimum of the Estimated Valuation Range. If the Boards
of Directors decide to increase the purchase limitation above, persons who
subscribed for the maximum number of shares of common stock will be, and other
large subscribers in the discretion of the Holding Company and the Association
may be, given the opportunity to increase their subscriptions accordingly,
subject to the rights and preferences of any person who has priority
subscription rights.
The term "acting in concert" is defined in the Plan of Conversion to mean
(i) knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not pursuant to an express
agreement; or (ii) a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise. In general, a person who acts in concert with another party shall
also be deemed to be acting in concert with any person who is also acting in
concert with that other party. The Holding Company and the Association may
presume that certain persons are acting in concert based upon, among other
things, joint account relationships and the fact that such persons have filed
joint Schedules 13D with the SEC with respect to other companies.
The term "associate" of a person is defined in the Plan of Conversion to
mean (i) any corporation or organization (other than the Association or a
majority-owned subsidiary of the Association) of which such person is an officer
or partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities; (ii) any trust or other estate in which such
person has a substantial beneficial interest or as to which such person serves
as trustee or in a similar fiduciary capacity (excluding tax-qualified employee
plans); and (iii) any relative or spouse of such person, or any relative of such
spouse, who either has the same home as such person or who is a director or
officer of the Association or any of its parents or subsidiaries. For example, a
corporation of which a person serves as an officer would be an associate of such
person and, therefore, all shares purchased by such corporation would be
included with the number of shares which such person could purchase individually
under the above limitations.
The term "officer" is defined in the Plan of Conversion to mean an
executive officer of the Association, including its Chairman of the Board,
President, Vice Presidents, Secretary and Treasurer.
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Common stock purchased pursuant to the conversion will be freely
transferable, except for shares purchased by directors and officers of the
Association and the Holding Company and by NASD members. See "-- Restrictions on
Transferability by Directors and Officers and NASD Members."
Restrictions on Repurchase of Stock
Pursuant to OTS regulations, OTS-regulated savings associations (and their
holding companies) may not for a period of three years from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except in the event of (i) an offer made to all of its stockholders
to repurchase the common stock on a pro rata basis, approved by the OTS; or (ii)
the repurchase of qualifying shares of a director. Furthermore, repurchases of
any common stock are prohibited if the effect thereof would cause the
association's regulatory capital to be reduced below (a) the amount required for
the liquidation account or (b) the regulatory capital requirements imposed by
the OTS. Repurchases are generally prohibited during the first year following
conversion. Upon ten days' written notice to the OTS, and if the OTS does not
object, an institution may make open market repurchases of its outstanding
common stock during years two and three following the conversion, provided that
certain regulatory conditions are met and that the repurchase would not
adversely affect the financial condition of the institution. Any repurchases of
common stock by the Holding Company would be subject to these regulatory
restrictions unless the OTS would provide otherwise.
Restrictions on Transferability by Directors and Officers and NASD Members
Shares of common stock purchased in the offering by directors and officers
of the Holding Company may not be sold for a period of one year following
consummation of the conversion, except in the event of the death of the
stockholder or in any exchange of the common stock in connection with a merger
or acquisition of the Holding Company. Shares of common stock received by
directors or officers through the MRDP or upon exercise of options issued
pursuant to the Stock Option Plan or purchased subsequent to the conversion are
not subject to this restriction. Accordingly, shares of common stock issued by
the Holding Company to directors and officers shall bear a legend giving
appropriate notice of the restriction and, in addition, the Holding Company will
give appropriate instructions to the transfer agent for the Holding Company's
common stock with respect to the restriction on transfers. Any shares issued to
directors and officers as a stock dividend, stock split or otherwise with
respect to restricted common stock shall be subject to the same restrictions.
Purchases of outstanding shares of common stock of the Holding Company by
directors, executive officers (or any person who was an executive officer or
director of the Association after adoption of the Plan of Conversion) and their
associates during the three-year period following the conversion may be made
only through a broker or dealer registered with the SEC, except with the prior
written approval of the OTS. This restriction does not apply, however, to
negotiated transactions involving more than 1% of the Holding Company's
outstanding common stock or to the purchase of stock pursuant to the Stock
Option Plan.
The Holding Company has filed with the SEC a registration statement under
the Securities Act for the registration of the common stock to be issued
pursuant to the conversion. The registration under the Securities Act of shares
of the common stock to be issued in the conversion does not cover the resale of
such shares. Shares of common stock purchased by persons who are not affiliates
of the Holding Company may be resold without registration. Shares purchased by
an affiliate of the Holding Company will be subject to the resale restrictions
of Rule 144 under the Securities Act. If the Holding Company meets the current
public information requirements of Rule 144 under the Securities Act, each
affiliate of the Holding Company who complies with the other conditions of Rule
144 (including those that require the affiliate's sale to be aggregated with
those of certain other persons) would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of (i) 1% of the outstanding shares of the Holding Company
or (ii) the average weekly volume of trading in such shares during the preceding
four calendar weeks. Provision may be made in the future by the Holding Company
to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
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Under guidelines of the NASD, members of the NASD and their associates are
subject to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements upon
purchase of such securities.
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
The following discussion is a summary of certain provisions of federal law
and regulations and Indiana corporate law, as well as the Articles of
Incorporation and Bylaws of the Holding Company, relating to stock ownership and
transfers, the Board of Directors and business combinations, all of which may be
deemed to have "anti-takeover" effects. The description of these provisions is
necessarily general and reference should be made to the actual law and
regulations and to the Articles of Incorporation and Bylaws of the Holding
Company contained in the Registration Statement filed with the SEC. See
"ADDITIONAL INFORMATION" as to how to obtain a copy of these documents.
Conversion Regulations
OTS regulations prohibit any person from making an offer, announcing an
intent to make an offer or participating in any other arrangement to purchase
stock or acquiring stock or subscription rights in a converting institution (or
its holding company) from another person prior to completion of its conversion.
Further, without the prior written approval of the OTS, no person may make such
an offer or announcement of an offer to purchase shares or actually acquire
shares in the converting institution (or its holding company) for a period of
three years from the date of the completion of the conversion if, upon the
completion of such offer, announcement or acquisition, that person would become
the beneficial owner of more than 10% of the outstanding stock of the
institution (or its holding company). The OTS has defined "person" to include
any individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution. However, offers made
exclusively to an association (or its holding company) or an underwriter or
member of a selling group acting on the converting institution's (or its holding
company's) behalf for resale to the general public are excepted. The regulation
also provides civil penalties for willful violation or assistance in any such
violation of the regulation by any person connected with the management of the
converting institution (or its holding company) or who controls more than 10% of
the outstanding shares or voting rights of a converting or converted institution
(or its holding company).
Change of Control Regulations
Under the Change in Bank Control Act, no person may acquire control of an
insured federal savings and loan association or its parent holding company
unless the OTS has been given 60 days' prior written notice and has not issued a
notice disapproving the proposed acquisition. In addition, OTS regulations
provide that no company may acquire control of a savings association without the
prior approval of the OTS. Any company that acquires such control becomes a
"savings and loan holding company" subject to registration, examination and
regulation by the OTS.
Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings
association's directors, or a determination by the OTS that the acquiror has the
power to direct, or directly or indirectly to exercise a controlling influence
over, the management or policies of the institution. Acquisition of more than
10% of any class of a savings association's voting stock, if the acquiror also
is subject to any one of specified "control factors," constitutes a rebuttable
determination of control under the regulations. Such control factors include the
acquiror being one of the two largest stockholders. The determination of control
may be rebutted by submission to the OTS, prior to the acquisition of stock or
the occurrence of any other circumstances giving rise to such determination, of
a statement setting forth facts and circumstances which would support a finding
that no control relationship will exist and containing certain undertakings. The
regulations provide that persons or companies which acquire beneficial ownership
exceeding 10% or more of any class of a savings association's stock must file
with the OTS a certification
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form that the holder is not in control of such institution, is not subject to a
rebuttable determination of control and will take no action which would result
in a determination or rebuttable determination of control without prior notice
to or approval of the OTS, as applicable. There are also rebuttable presumptions
in the regulations concerning whether a group "acting in concert" exists,
including presumed action in concert among members of an "immediate family."
The OTS may prohibit an acquisition of control if it finds, among other
things, that (i) the acquisition would result in a monopoly or substantially
lessen competition, (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the institution, or (iii) the competence,
experience or integrity of the acquiring person indicates that it would not be
in the interest of the depositors or the public to permit the acquisition of
control by such person.
Anti-takeover Provisions in the Holding Company's Articles of Incorporation and
Bylaws and in Delaware Law
A number of provisions of the Holding Company's Articles of Incorporation
and Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
provisions of the Holding Company's Articles of Incorporation and Bylaws and
regulatory provisions relating to stock ownership and transfers, the Board of
Directors and business combinations, which might be deemed to have a potential
"anti-takeover" effect. These provisions may have the effect of discouraging a
future takeover attempt which is not approved by the Board of Directors but
which individual Holding Company stockholders may deem to be in their best
interests or in which stockholders may receive a substantial premium for their
shares over then current market prices. As a result, stockholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions will also render the removal of the incumbent Board of
Directors or management of the Holding Company more difficult. The following
description of certain of the provisions of the Articles of Incorporation and
Bylaws of the Holding Company is necessarily general and reference should be
made in each case to such Articles of Incorporation and Bylaws, which are
incorporated herein by reference. See "ADDITIONAL INFORMATION" as to where to
obtain a copy of these documents.
Limitation on Voting Rights. The Articles of Incorporation of the Holding
Company provide that in no event shall any record owner of any outstanding
common stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of common
stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit, unless permitted by a resolution adopted by
a majority of the board of directors. Beneficial ownership is determined
pursuant to Rule 13d-3 of the General Rules and Regulations of the Exchange Act
and includes shares beneficially owned by such person or any of his or her
affiliates (as defined in the Articles of Incorporation), shares which such
person or his or her affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his or her
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by directors, officers and employees of the
Association or Holding Company or shares that are subject to a revocable proxy
and that are not otherwise beneficially, or deemed by the Holding Company to be
beneficially, owned by such person and his or her affiliates.
Board of Directors. The Board of Directors of the Holding Company is
divided into three classes, each of which shall contain approximately one-third
of the whole number of the members of the Board. The members of each class shall
be elected for a term of three years, with the terms of office of all members of
one class expiring each year so that approximately one-third of the total number
of directors are elected each year. The Articles of Incorporation provide that
any vacancy occurring in the Board, including a vacancy created by an increase
in the number of directors, may be filled by a vote of a majority of the
directors then in office and any director so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of the class to
which the director has been chosen expires. The classified Board is intended to
provide for continuity of the Board of Directors and to make it more difficult
and time consuming for a stockholder group to fully use its voting power to gain
control of the Board of Directors without the consent of the incumbent Board of
Directors of the Holding Company. The Articles of Incorporation of the Holding
Company provide that a director may be removed from the Board of Directors prior
to the
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expiration of his or her term only for cause and only upon the vote of
two-thirds of the outstanding shares of voting stock. In the absence of this
provision, the vote of the holders of a majority of the shares could remove one
or more directors with or without cause.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Articles of Incorporation do not provide for cumulative voting for any purpose.
Moreover, the Articles of Incorporation provide that special meetings of
stockholders of the Holding Company may be called only by the Board of Directors
of the Holding Company. Under Indiana law, action may be taken by shareholders
without a meeting only if evidenced by a written consent signed by all
shareholders entitled to vote.
Authorized Shares. The Articles of Incorporation authorizes the issuance of
5,000,000 shares of common stock and 1,000,000 shares of preferred stock. The
shares of common stock and preferred stock were authorized in an amount greater
than that to be issued in the conversion to provide the Holding Company's Board
of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits,
restricted stock grants and the exercise of stock options. However, these
additional authorized shares may also be used by the Board of Directors,
consistent with fiduciary duties, to deter future attempts to gain control of
the Holding Company. The Board of Directors also has sole authority to determine
the terms of any one or more series of preferred stock, including voting rights,
conversion rates, and liquidation preferences. As a result of the ability to fix
voting rights for a series of preferred stock, the Board has the power, to the
extent consistent with its fiduciary duty, to issue a series of preferred stock
to persons friendly to management in order to attempt to block a tender offer,
merger or other transaction by which a third party seeks control of the Holding
Company, and thereby assist members of management to retain their positions. The
Holding Company's Board currently has no plans for the issuance of additional
shares, other than the issuance of shares of common stock upon exercise of stock
options and in connection with the MRDP.
Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders. The Articles of Incorporation require the approval of the holders
of at least 80% of the Holding Company's outstanding shares of voting stock to
approve certain "Business Combinations" (as defined therein) involving a
"Related Person" (as defined therein) except in cases where the proposed
transaction has been approved in advance by a majority of those members of the
Holding Company's Board of Directors who are unaffiliated with the Related
Person and were directors prior to the time when the Related Person became a
Related Person. The term "Related Person" is defined to include any individual,
corporation, partnership or other entity (other than the Holding Company or its
subsidiary) which owns beneficially or controls, directly or indirectly, 10% or
more of the outstanding shares of voting stock of the Holding Company or an
affiliate of such person or entity. This provision of the Articles of
Incorporation applies to any "Business Combination," which is defined to
include: (i) any merger or consolidation of the Holding Company with or into any
Related Person; (ii) any sale, lease, exchange, mortgage, transfer, or other
disposition of 25% or more of the assets of the Holding Company or combined
assets of the Holding Company and its subsidiaries to a Related Person; (iii)
any merger or consolidation of a Related Person with or into the Holding Company
or a subsidiary of the Holding Company; (iv) any sale, lease, exchange,
transfer, or other disposition of 25% or more of the assets of a Related Person
to the Holding Company or a subsidiary of the Holding Company; (v) the issuance
of any securities of the Holding Company or a subsidiary of the Holding Company
to a Related Person; (vi) the acquisition by the Holding Company or a subsidiary
of the Holding Company of any securities of a Related Person; (vii) any
reclassification of common stock of the Holding Company or any recapitalization
involving the common stock of the Holding Company; or (viii) any agreement or
other arrangement providing for any of the foregoing.
Under Indiana law, absent this provision, business combinations, including
mergers, share exchanges and sales of substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of a majority of the outstanding shares of common stock of the Holding
Company and any other affected class of stock. The increased stockholder vote
required to approve a business combination may have the effect of foreclosing
mergers and other business combinations which a majority of stockholders deem
desirable and placing the power to prevent such a merger or combination in the
hands of a minority of stockholders.
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Amendment of Articles of Incorporation and Bylaws. Amendments to the
Holding Company's Articles of Incorporation must be approved by a two-thirds
vote of its Board of Directors and also by a majority of the outstanding shares
of its voting stock, provided, however, that an affirmative vote of at least
two-thirds of the outstanding voting stock entitled to vote (after giving effect
to the provision limiting voting rights) is required to amend or repeal certain
provisions of the Articles of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by the Holding Company and
amendment of the Holding Company's Bylaws and Articles of Incorporation. The
Holding Company's Bylaws may be amended by its Board of Directors.
Stockholder Nominations and Proposals. The Articles of Incorporation of the
Holding Company requires a stockholder who intends to nominate a candidate for
election to the Board of Directors, or to raise new business at a stockholder
meeting to give not less than 30 nor more than 60 days' advance notice to the
Secretary of the Holding Company. The notice provision requires a stockholder
who desires to raise new business to provide certain information to the Holding
Company concerning the nature of the new business, the stockholder and the
stockholder's interest in the business matter. Similarly, a stockholder wishing
to nominate any person for election as a director must provide the Holding
Company with certain information concerning the nominee and the proposing
stockholder.
Purpose and Takeover Defensive Effects of the Holding Company's Articles of
Incorporation and Bylaws. The Board of Directors of the Association believes
that the provisions described above are prudent and will reduce the Holding
Company's vulnerability to takeover attempts and certain other transactions that
have not been negotiated with and approved by its Board of Directors. These
provisions will also assist the Holding Company and the Association in the
orderly deployment of the conversion proceeds into productive assets during the
initial period after the conversion. The Board of Directors believes these
provisions are in the best interest of the Association and Holding Company and
its stockholders. In the judgment of the Board of Directors, the Holding
Company's Board will be in the best position to determine the true value of the
Holding Company and to negotiate more effectively for what may be in the best
interests of its stockholders. Accordingly, the Board of Directors believes that
it is in the best interest of the Holding Company and its stockholders to
encourage potential acquirors to negotiate directly with the Board of Directors
of the Holding Company and that these provisions will encourage such
negotiations and discourage hostile takeover attempts. It is also the view of
the Board of Directors that these provisions should not discourage persons from
proposing a merger or other transaction at a price reflective of the true value
of the Holding Company and that is in the best interest of all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available. A transaction that is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value of the Holding
Company for its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of the Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
that is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners became less
than 300, thereby allowing for deregistration under the Exchange Act.
85
<PAGE>
Despite the belief of the Association and the Holding Company as to the
benefits to stockholders of these provisions of the Holding Company's Articles
of Incorporation and Bylaws, these provisions may also have the effect of
discouraging a future takeover attempt that would not be approved by the Holding
Company's Board, but pursuant to which stockholders may receive a substantial
premium for their shares over then current market prices. As a result,
stockholders who might desire to participate in such a transaction may not have
any opportunity to do so. Such provisions will also render the removal of the
Holding Company's Board of Directors and of management more difficult. The Board
of Directors of the Association and the Holding Company, however, have concluded
that the potential benefits outweigh the possible disadvantages.
Following the conversion, pursuant to applicable law and, if required,
following the approval by stockholders, the Holding Company may adopt additional
anti-takeover charter provisions or other devices regarding the acquisition of
its equity securities that would be permitted for an Indiana business
corporation.
The cumulative effect of the restriction on acquisition of the Holding
Company contained in the Articles of Incorporation and Bylaws of the Holding
Company and in Federal and Indiana law may be to discourage potential takeover
attempts and perpetuate incumbent management, even though certain stockholders
of the Holding Company may deem a potential acquisition to be in their best
interests, or deem existing management not to be acting in their best interests.
DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY
General
The Holding Company is authorized to issue 5,000,000 shares of common stock
having a par value of $.01 per share and 1,000,000 shares of preferred stock
having a par value of $.01 per share. Each share of the Holding Company's common
stock will have the same relative rights as, and will be identical in all
respects with, each other share of common stock. Upon payment of the purchase
price for the common stock, in accordance with the Plan of Conversion, all such
stock will be duly authorized, fully paid and nonassessable.
The common stock of the Holding Company will represent nonwithdrawable
capital, will not be an account of any type, and will not be insured by the FDIC
or any other government agency.
Common Stock
Dividends. The payment of dividends by the Holding Company is subject to
limitations which are imposed by law and applicable regulation. See "DIVIDEND
POLICY" and "REGULATION." The holders of common stock of the Holding Company
will be entitled to receive and share equally in such dividends as may be
declared by the Board of Directors of the Holding Company out of funds legally
available therefor. If the Holding Company issues preferred stock, the holders
thereof may have a priority over the holders of the common stock with respect to
dividends.
Voting Rights. Upon conversion, the holders of common stock of the Holding
Company will possess exclusive voting rights in the Holding Company. They will
elect the Holding Company's Board of Directors and act on such other matters as
are required to be presented to them under Indiana law or as are otherwise
presented to them by the Board of Directors. Except as discussed in
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY," each holder of common
stock will be entitled to one vote per share and will not have any right to
cumulate votes in the election of directors. If the Holding Company issues
preferred stock, holders of the Holding Company preferred stock may also possess
voting rights. Certain matters require a vote of more than 50% of the
outstanding shares entitled to vote thereon. See "RESTRICTIONS ON ACQUISITION OF
THE HOLDING COMPANY."
86
<PAGE>
As a federal mutual savings and loan association, corporate powers and
control of the Association are vested in its Board of Directors, who elect the
officers of the Association and who fill any vacancies on the Board of Directors
as it exists upon conversion. Subsequent to conversion, voting rights will be
vested exclusively in the owners of the shares of capital stock of the
Association, all of which will be owned by the Holding Company, and voted at the
direction of the Holding Company's Board of Directors. Consequently, the holders
of the common stock will not have direct control of the Association.
Liquidation. In the event of any liquidation, dissolution or winding up of
the Association, the Holding Company, as holder of the Association's capital
stock would be entitled to receive, after payment or provision for payment of
all debts and liabilities of the Association (including all deposit accounts and
accrued interest thereon) and after distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders (see "THE CONVERSION"), all assets of the Association available
for distribution. In the event of liquidation, dissolution or winding up of the
Holding Company, the holders of its common stock would be entitled to receive,
after payment or provision for payment of all its debts and liabilities, all of
the assets of the Holding Company available for distribution. If Holding Company
preferred stock is issued, the holders thereof may have a priority over the
holders of the common stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of the common stock of the Holding Company will
not be entitled to preemptive rights with respect to any shares that may be
issued. The common stock is not subject to redemption.
Preferred Stock
None of the shares of the authorized Holding Company preferred stock will
be issued in the conversion and there are no plans to issue the preferred stock.
Such stock may be issued with such designations, powers, preferences and rights
as the Board of Directors may from time to time determine. The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
Restrictions on Acquisition
Acquisitions of the Holding Company are restricted by provisions in its
Articles of Incorporation and Bylaws and by the rules and regulations of various
regulatory agencies. See "REGULATION" and "RESTRICTIONS ON ACQUISITION OF THE
HOLDING COMPANY."
REGISTRATION REQUIREMENTS
The Holding Company has registered the common stock with the SEC pursuant
to Section 12(g) of the Exchange Act and will not deregister its common stock
for a period of at least three years following the completion of the conversion.
As result of such registration, the proxy and tender offer rules, insider
trading reporting and restrictions, annual and periodic reporting and other
requirements of the Exchange Act will be applicable.
LEGAL AND TAX OPINIONS
The legality of the common stock has been passed upon for the Holding
Company by Breyer & Aguggia, Washington, D.C. The federal tax consequences of
the offering have been opined upon by Breyer & Aguggia and the Indiana tax
consequences of the offering have been opined upon by Monroe Shine & Co., Inc.
Breyer & Aguggia and Monroe Shine & Co., Inc. have consented to the references
herein to their opinions. Certain legal matters will be passed upon for Capital
Resources by Malizia, Spidi, Sloane & Fisch, P.C.
87
<PAGE>
EXPERTS
The financial statements of the Association as of December 31, 1997 and
1996 and for the years ended December 31, 1997 and 1996 included in this
prospectus have been audited by Monroe Shine & Co., Inc. independent auditors,
as stated in their report appearing herein, and have been so included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
CRG has consented to the publication herein of the summary of its report to
the Association setting forth its opinion as to the estimated pro forma market
value of the Holding Company and the Association as converted and its letter
with respect to subscription rights and to the use of its name and statements
with respect to it appearing herein.
CHANGE IN ACCOUNTANTS
Prior to the fiscal year ended December 31, 1997, the Association's
consolidated financial statements were audited by Umbach & Associates. The
former accountant was replaced and Monroe Shine & Co., Inc. was engaged on
January 28, 1998 and continues as the independent auditors of the Association.
The decision to change auditors was approved by the Board of Directors on
January 12, 1998. The Association's consolidated financial statements included
in this prospectus were audited by Monroe Shine & Co., Inc.
For the fiscal years ended December 31, 1996 and 1995 and up to the date of
the replacement of the Association's former accountant, there were no
disagreements with the former accountant on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure
which, if not resolved to the satisfaction of the former accountant, would have
caused it to make a reference to the subject matter of the disagreement in
connection with its reports. The independent auditors' report on the
consolidated financial statements for the fiscal years ended December 31, 1996
and 1995 did not contain an adverse opinion or a disclaimer of opinion, and was
not qualified or modified as to uncertainty, audit scope, or accounting
principles.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on Form
SB-2 (File No. 333- 48191) under the Securities Act with respect to the common
stock offered in the conversion. This prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. You may read
and copy such information at the SEC's public reference room in Washington, D.C.
You can request copies of those documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The Registration
Statement also is available through the SEC's World Wide Web site on the
Internet (http://www.sec.gov).
The Association has filed with the OTS an Application for Approval of
Conversion, which includes proxy materials for the Association's Special Meeting
and certain other information. This prospectus omits certain information
contained in such Application. The Application, including the proxy materials,
exhibits and certain other information that are a part thereof, may be
inspected, without charge, at the offices of the OTS, 1700 G Street, N.W.,
Washington, D.C. 20552 and at the office of the Regional Director of the OTS at
the Central Regional Office of the OTS, 200 West Madison Street, Suite 1300,
Chicago, IL 60606.
88
<PAGE>
Index To Consolidated Financial Statements
Peoples Building and Loan Association
Page
----
Independent Auditors' Report........................................... F-1
Consolidated Balance Sheets as of December 31, 1997 and 1996........... F-2
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 1997 and 1996................................ F-3
Consolidated Statements of Income for the
Years Ended December 31, 1997 and 1996................................ 25
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997 and 1996................................ F-4
Notes to Consolidated Financial Statements............................. F-5
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.
Separate financial statements for the Holding Company have not been
included herein because the Holding Company, which has engaged in only
organizational activities to date, has no significant assets, liabilities
(contingent or otherwise), revenues or expenses.
89
<PAGE>
MONROE SHINE & CO., INC.
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
==========================================
P.O. Box 1407, 22 E. Market St. New Albany, IN 47150 812-945-2311
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
PEOPLES BUILDING AND LOAN ASSOCIATION
Tell City, Indiana
We have audited the accompanying consolidated balance sheets of PEOPLES BUILDING
AND LOAN ASSOCIATION AND SUBSIDIARY as of December 31, 1997 and 1996, and the
related consolidated statements of income, retained earnings and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Association's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PEOPLES BUILDING AND
LOAN ASSOCIATION AND SUBSIDIARY as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Monroe Shine & Co., Inc.
January 30, 1998
F-1
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 18,028 $ 12,351
Interest bearing deposits with banks 733,720 964,951
Securities available for sale, at fair value 1,318,817 812,313
Mortgage-backed securities held to maturity
(fair value $20,696; 1996 $26,605) 20,944 26,872
Loans, net of allowance for loan losses of
$50,802 in 1997 and $51,729 in 1996 19,295,524 19,837,163
Federal Home Loan Bank stock, at cost 196,100 196,100
Premises and equipment 198,040 187,129
Accrued interest receivable:
Loans 108,636 116,197
Debt securities and other 23,378 18,318
Other assets 75,494 75,642
----------- -----------
TOTAL ASSETS $21,988,681 $22,247,036
=========== ===========
LIABILITIES
Deposits:
Savings deposits $ 3,430,092 $ 3,579,381
Time deposits 16,416,025 16,614,767
----------- -----------
Total deposits 19,846,117 20,194,148
Accrued interest payable on deposits 6,174 6,365
Accrued expenses and other liabilities 44,871 28,579
----------- -----------
Total Liabilities 19,897,162 20,229,092
----------- -----------
COMMITMENTS AND CONTINGENCIES
RETAINED EARNINGS
Retained earnings-substantially restricted 2,109,721 2,039,739
Net unrealized loss on securities available for sale,
net of tax of $11,939 (1996 $14,296) (18,202) (21,795)
----------- -----------
Total Retained Earnings 2,091,519 2,017,944
----------- -----------
TOTAL LIABILITIES AND RETAINED EARNINGS $21,988,681 $22,247,036
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
NET UNREALIZED
LOSS ON
SECURITIES
RETAINED AVAILABLE
EARNINGS FOR SALE TOTAL
<S> <C> <C> <C>
Balances at December 31, 1995, as
previously reported $2,086,047 $(20,976) $2,065,071
Prior-period adjustment-correction of
errors (29,308) - (29,308)
---------- -------- ----------
Balances at December 31, 1995, as restated 2,056,739 (20,976) 2,035,763
Net loss (17,001) - (17,001)
Net change in unrealized gain on
securities available for sale, net of tax - (819) (819)
---------- -------- ----------
Balances at December 31, 1996 2,039,738 (21,795) 2,017,943
Net income 69,983 - 69,983
Net change in unrealized gain on
securities available for sale, net of tax - 3,593 3,593
---------- -------- ----------
Balances at December 31, 1997 $2,109,721 $(18,202) $2,091,519
========== ======== ==========
</TABLE>
See notes to consolidate financial statements.
F-3
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 69,983 $ (17,001)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Provision for loan losses - 8,000
Net realized securities gain - (760)
Gain on sale of restricted equity security - (4,840)
Amortization of premiums and accretion of discounts on securities, net (3,221) (4)
Depreciation expense 17,093 21,272
Deferred income taxes (credit) 6,246 (8,470)
(Increase) decrease in accrued interest receivable 2,501 (4,846)
Increase (decrease) in accrued interest payable (191) 1,680
Net change in other assets/liabilities 7,837 (7,436)
------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 100,248 (12,405)
------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest bearing deposits with banks 231,231 1,320,259
Proceeds from sale of securities available for sale - 750,269
Proceeds from maturity of securities available for sale 599,850 88,203
Purchases of securities available for sale (1,097,118) (499,014)
Principal collected on mortgage-backed securities 5,862 30,040
Net decrease in loans receivable 612,756 164,790
Purchase of participation loans (71,117) -
Proceeds from sale of restricted equity securities - 19,840
Purchase of premises and equipment (28,004) (9,322)
------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 253,460 1,865,065
------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in savings deposits (149,289) 715,386
Net decrease in time deposits (198,742) (1,168,920)
Repayment of advances from Federal Home Loan Bank (750,000) (1,400,000)
Advances from Federal Home Loan Bank 750,000 -
------------------------
NET CASH USED IN FINANCING ACTIVITIES (348,031) (1,853,534)
------------------------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 5,677 (874)
Cash and due from banks at beginning of year 12,351 13,225
------------------------
CASH AND DUE FROM BANKS AT END OF YEAR $ 18,028 $ 12,351
========================
</TABLE>
See notes to consolidated financial statments.
F-4
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Peoples Building and Loan Association is a state chartered mutual building
and loan association which provides a variety of banking services to
customers through its office in Tell City, Indiana. The Bank's primary
source of revenue is single-family residential loans.
The Association's wholly-owned subsidiary, Peoples Building and Loan
Service Corp., was inactive in 1997 and 1996.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Peoples
Building and Loan Association and its wholly-owned subsidiary, Peoples
Building and Loan Service Corp. All material intercompany balances and
transactions have been eliminated in consolidation.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Association has defined
cash and cash equivalents as those amounts included in the balance sheet
caption "Cash and due from banks."
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the
valuation of foreclosed real estate. In connection with the determination
of the estimated losses on loans and foreclosed real estate, management
obtains appraisals for significant properties.
SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of debt securities not classified as
held to maturity and are stated at fair value. Amortization of premium and
accretion of discount are recognized in interest income using the interest
method. Unrealized gains and losses, net of tax, on securities available
for sale are reported as a separate component of retained earnings until
realized. Gains and losses on the sale of securities available for sale are
determined using the specific identification method.
F-5
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997 AND 1996
(1 - continued)
SECURITIES HELD TO MATURITY
Debt securities, including mortgage-backed securities, for which the
Association has the positive intent and ability to hold to maturity are
carried at cost, adjusted for amortization of premium and accretion of
discount using the interest method over the remaining period to maturity,
adjusted for anticipated prepayments. Mortgage-backed securities represent
participating interests in pools of long-term first mortgage loans
originated and serviced by issuers of the securities.
LOANS
Loans are stated at unpaid principal balances, less net deferred loan fees
and the allowance for loan losses. The Association's real estate loan
portfolio consists primarily of long-term loans collateralized by first
mortgages on single-family residences and multi-family residential property
located in the southern Indiana area and commercial real estate loans. In
addition to real estate loans, the Association makes consumer loans secured
by savings accounts.
Loan origination fees and certain direct costs of underwriting and closing
loans are deferred and the net fee or cost is recognized as an adjustment
to interest income over the contractual life of the loans using the
interest method.
The accrual of interest is discontinued on a loan when, in the judgment of
management, the probability of collection of interest is deemed to be
insufficient to warrant further accrual. The Association does not accrue
interest on loans past due 90 days or more except when the estimated value
of collateral and collection efforts are deemed sufficient to ensure full
recovery. When a loan is placed on non-accrual status, previously accrued
but unpaid interest is deducted from interest income.
Subsequent receipts on nonaccrual loans, including specific impaired loans,
are recorded as a reduction of principal, and interest income is only
recorded once principal recovery is reasonably assured.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the
loan portfolio. The amount of the allowance is based on management's
evaluation of the collectibility of the loan portfolio, including the
nature of the portfolio, credit concentrations, trends in historical loss
experience, specified impaired loans, and economic conditions. Allowances
for impaired loans are generally determined based on collateral values or
the present value of estimated cash flows. The allowance is increased by a
provision for loan losses, which is charged to expense, and reduced by
charge-offs, net of recoveries. Changes in the allowance relating to
impaired loans are charged or credited to the provision for loan losses.
Because of uncertainties inherent in the estimation process, management's
estimate of credit losses inherent in the loan portfolio and the related
allowance may change in the near term.
F-6
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997 AND 1996
(1 - continued)
FORECLOSED REAL ESTATE
Foreclosed real estate is carried at the lower of fair value minus
estimated costs to sell or cost. Costs of holding foreclosed real estate
are charged to expense in the current period, except for significant
property improvements, which are capitalized. Valuations are periodically
performed by management and an allowance is established by a charge to non-
interest expense if the carrying value exceeds the fair value minus
estimated costs to sell. The net expense from operations of foreclosed real
estate held for sale is reported in non-interest expense.
PREMISES AND EQUIPMENT
The Association uses the straight line and accelerated methods of computing
depreciation at rates adequate to amortize the cost of the applicable
assets over their useful lives (5 to 40 years). Items capitalized as part
of premises and equipment are valued at cost. Maintenance and repairs are
expensed as incurred. The cost and related accumulated depreciation of
assets sold, or otherwise disposed of, are removed from the related
accounts and any gain or loss is included in earnings.
INCOME TAXES
Income taxes are provided for the tax effects of the transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of
available for sale securities, allowance for loan losses, accumulated
depreciation, and accrued income and expenses for financial and income tax
reporting. The deferred tax assets and liabilities represent the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
ADVERTISING COSTS
Advertising costs are charged to operations when incurred.
F-7
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997 AND 1996
(2) DEBT SECURITIES
Debt securities have been classified in the balance sheets according to
management's intent.
The Association's investment in debt securities at December 31, 1997 and
1996 is summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
DECEMBER 31, 1997:
Securities available for sale:
U.S. government agency $ 999,596 $ - $ 29,097 $ 970,499
Corporate notes 349,362 - 1,044 348,318
------------------------------------------------------
$1,348,958 $ - $ 30,141 $1,318,817
=======================================================
Securities held to maturity:
Mortgage-backed securities:
FNMA certificates $ 17,269 $ - $ 1,008 $ 16,261
FHLMC certificates 3,675 760 - 4,435
-------------------------------------------------------
$ 20,944 $ 760 $ 1,008 $ 20,696
=======================================================
DECEMBER 31, 1996:
Securities available for sale:
U.S. Treasury $ 99,850 $ - $ 5 $ 99,845
U.S. government agency 649,027 - 35,059 613,968
Corporate notes 99,526 - 1,026 98,500
-------------------------------------------------------
$ 848,403 $ - $ 36,090 $ 812,313
=======================================================
Securities held to maturity:
Mortgage-backed securities:
FNMA certificates $ 19,998 $ - $ 391 $ 19,607
FHLMC certificates 6,874 124 - 6,998
-------------------------------------------------------
$ 26,872 $ 124 $ 391 $ 26,605
========================================================
</TABLE>
Corporate notes include corporate notes or debentures and commercial paper.
F-8
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997 AND 1996
(2 - continued)
The amortized cost and fair value of debt securities as of December 31,
1997 by contractual maturity, are shown below. Expected maturities of
mortgage-backed securities may differ from contractual maturities because
the mortgages underlying the obligations may be prepaid without penalty.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Due in one year or less $ 349,692 $ 349,098
Due after one year through
five years 549,866 549,656
Due after five years through
ten years 250,000 219,063
Due after ten years 199,400 201,000
---------- ----------
$1,348,958 $1,318,817
========== ==========
</TABLE>
Gross gains of $1,500 and gross losses of $740 were realized on sales of
securities available for sale during the year ended December 31, 1996.
(3) LOANS RECEIVABLE
Loans receivable at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Real estate mortgage loans:
One to four family $16,892,966 $17,272,078
Multi-family 468,147 394,396
Commercial real estate 863,876 873,425
Land 527,971 582,674
Residential construction 783,200 976,663
Loan secured by savings accounts 177,664 232,344
----------- -----------
19,713,824 20,331,580
----------- -----------
Less:
Deferred loan origination fees, net 72,167 72,646
Undisbursed portion of loans in process 295,331 370,042
Allowance for loan losses 50,802 51,729
----------- -----------
418,300 494,417
----------- -----------
Loans receivable, net $19,295,524 $19,837,163
=========== ===========
</TABLE>
F-9
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997 AND 1996
(3 - continued)
An analysis of the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Beginning balances $51,729 $43,729
Recoveries - -
Loans charged-off (927) -
Provision for loan losses - 8,000
------- -------
Ending balances $50,802 $51,729
======= =======
</TABLE>
The Association had no loans specifically classified as impaired at
December 31, 1997 and 1996.
The Association has entered into loan transactions with certain directors,
officers and their affiliates (related parties). In the opinion of
management, such indebtedness was incurred in the ordinary course of
business on substantially the same terms as those prevailing at the time
for comparable transactions with other persons and does not involve more
than normal risk of collectibility or present other unfavorable features.
The following represents the aggregate activity for related party loans
which exceeded $60,000 in total:
<TABLE>
<S> <C>
Balance, December 31, 1996 $ 70,709
Adjustments 36,800
New loans 177,028
Payments (107,509)
---------
Balance, December 31, 1997 $ 177,028
=========
</TABLE>
(4) PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Land and land improvements $ 36,000 $ 36,000
Office buildings 354,654 345,679
Furniture, fixtures and equipment 120,927 101,897
-------- ---------
511,581 483,576
Less accumulated depreciation 313,540 296,447
-------- ---------
Totals $198,041 $ 187,129
======== =========
</TABLE>
F-10
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997 AND 1996
(5) DEPOSITS
The aggregate amount of time deposit accounts with balances of $100,000 or
more was approximately $2,218,000 at December 31, 1997.
At December 31, 1997, scheduled maturities of time deposits were as
follows:
<TABLE>
Year ending December 31:
<S> <C>
1998 $ 8,809,273
1999 4,637,547
2000 1,668,308
2001 691,537
2002 and thereafter 609,360
-----------
Total $16,416,025
===========
</TABLE>
The Association held deposits of approximately $610,000 and $534,000 for
related parties at December 31, 1997 and 1996, respectively.
Deposit account balances in excess of $100,000 are not federally insured.
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Savings deposits $ 131,452 $ 137,670
Time deposits 960,456 991,019
---------- ----------
Totals $1,091,908 $1,128,689
========== ==========
</TABLE>
(6) INCOME TAXES
The components of income tax expense (credit) were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Current $ 22,315 $ 873
Deferred 6,246 (8,470)
---------- ----------
Totals $ 28,561 $ (7,597)
========== ==========
</TABLE>
F-11
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997 AND 1996
(6 - continued)
Significant components of the Association's deferred tax assets and
liabilities as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Deferred tax assets:
Deferred loan fees and costs $ 23,473 $ 23,663
Allowance for loan losses 20,123 20,490
Unrealized loss on securities available for sale 11,939 14,296
-------- --------
Total deferred tax assets 55,535 58,449
-------- --------
Deferred tax liabilities:
Cumulative effect of change to the accrual basis
of accounting for tax reporting (36,816) (46,020)
Depreciation (6,453) (4,214)
-------- --------
Total deferred tax liabilities (43,269) (50,234)
-------- --------
Net deferred tax asset $ 12,266 $ 8,215
======== ========
</TABLE>
The reconciliation of income tax expense with the amount which would have
been provided at the federal statutory rate of 34 percent follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Provision at federal statutory rate $ 33,505 $(8,363)
State income tax-net of federal tax benefit 6,529 (277)
Effect of federal graduated rates (11,750) 665
Other 277 378
-------- -------
Totals $ 28,561 $(7,597)
======== =======
Effective tax rate 29.0% 30.9%
======== =======
</TABLE>
F-12
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997 AND 1996
(6 - continued)
Prior to January 1, 1996, the Association was permitted by the Internal
Revenue Code to deduct from taxable income an annual addition to a
statutory bad debt reserve subject to certain limitations. Retained
earnings at December 31, 1997 include approximately $695,000 of cumulative
deductions for which no deferred federal income tax liability has been
recorded. Reduction of these reserves for purposes other than tax bad debt
losses or adjustments arising from carryback of net operating losses would
create income for tax purposes subject to the then current corporate income
tax rate. The unrecorded deferred liability on these amounts was
approximately $236,000 at December 31, 1997.
Recently enacted federal legislation repealed the reserve method of
accounting for bad debts by qualified thrift institutions for tax years
beginning after December 31, 1995. As a result, the Association will no
longer be able to calculate the annual addition to the statutory bad debt
reserve using the percentage-of-taxable-income method. Instead, the
Association will be required to compute its federal tax bad debt deduction
based on actual loss experience over a period of years. The legislation
requires the Association to recapture into taxable income over a six-year
period its post-1987 additions to the statutory bad debt reserve, thereby
generating additional tax liability. The recapture may be suspended for up
to two years, if during those years the Association satisfies a residential
loan requirement. The Association has no post-1987 reserves subject to
recapture.
The legislation also provides that the Association will not be required to
recapture its pre-1988 statutory bad debt reserves if it ceases to meet the
qualifying thrift definitional tests and if the Association continues to
qualify as a "bank" under existing provisions of the Internal Revenue Code.
(7) EMPLOYEE BENEFIT PLANS
The Association has a qualified contributory defined contribution plan that
allows participating employees to make tax-deferred contributions under
Internal Revenue Code Section 401(k). Employees of the Association who
have completed one year of service and who have attained age 21 are
eligible to participate in the 401(k) plan. The Association matches
participant contributions at the rate of 200% to 3% of the participants
annual compensation. The Association made matching contributions to the
plan totaling $10,152 and $9,576 for 1997 and 1996, respectively.
The Association also has a qualified defined contribution plan available to
all eligible employees. Employees are eligible to participate in the plan
upon the completion of one year of service. Contributions to the plan are
based on a formula set forth in the plan documents. The Association made
contributions to the plan of $13,893 and $12,867 for 1997 and 1996,
respectively.
F-13
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997 AND 1996
(8) COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding various commitments
and contingent liabilities, such as commitments to extend credit and legal
claims, which are not reflected in the financial statements.
The following is a summary of the commitments to extend credit at December
31, 1997:
<TABLE>
<S> <C>
Commitments to originate mortgage loans:
Variable rate 15 to 20 year terms $ 80,000
Fixed rate (7%) one year term 76,650
Undisbursed home improvement loans in process 43,498
Undisbursed portion of construction loans in process 251,833
-------
Total commitments to extend credit $451,981
=======
</TABLE>
Commitments to originate mortgage loans at December 31, 1997 generally
expire in 90 days. No commitment fees are required for commitments to
originate mortgage loans.
(9) CONCENTRATIONS OF CREDIT RISK
At December 31, 1997, the Association had concentrations of credit risk
with a correspondent bank representing interest bearing deposits with banks
in excess of federal deposit insurance limits of $511,000.
(10) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Association is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amounts recognized in the balance sheet.
The Association's exposure to credit loss in the event of nonperformance by
the other party to the financial instruments for commitments to extend
credit and standby letters of credit is represented by the contractual
notional amount of those instruments (see Note 8). The Association uses
the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments.
F-14
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997 AND 1996
(10 - continued)
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Association
evaluates each customer's creditworthiness on a case-by-case basis. The
amount and type of collateral obtained, if deemed necessary by the
Association upon extension of credit, varies and is based on management's
credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the
Association to guarantee the performance of a customer to a third party.
Standby letters of credit generally have fixed expiration dates or other
termination clauses and may require payment of a fee. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Association's
policy for obtaining collateral, and the nature of such collateral, is
essentially the same as that involved in making commitments to extend
credit.
The Association has not been required to perform on any financial
guarantees during the past two years. The Association has not incurred any
losses on its commitments in either 1997 or 1996.
(11) REGULATORY MATTERS
The Association is subject to various regulatory capital requirements
administered by the Office of Thrift Supervision (OTS). Failure to meet
minimum capital requirements can initiate certain mandatory-and possibly
additional discretionary-actions by regulators that, if undertaken, could
have a direct material effect on the Association's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Association must meet specific capital guidelines
that involve quantitative measures of the Association's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Association's capital amounts and
classification are also subject to quantitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios (set forth
in the table below) of tangible capital to adjusted total assets (as
defined), Tier I (core) capital (as defined) to adjusted total assets, Tier
I capital to risk-weighted assets (as defined), and of total risk-based
capital (as defined) to risk-weighted assets. Management believes, as of
December 31, 1997, that the Association meets all capital adequacy
requirements to which it is subject.
F-15
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997 AND 1996
(11 - continued)
As of December 31, 1997, the most recent notification from the OTS
categorized the Association as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, the Association must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table below.
There are no conditions or events since that notification that management
believes have changed the Association's category.
The Association's actual capital amounts and ratios are also presented in
the table. No amount was deducted from capital for interest-rate risk in
either year.
<TABLE>
<CAPTION>
MINIMUM TO BE WELL
CAPITALIZED UNDER
MINIMUM FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997:
Total equity capital
and ratio to total
assets $ 2,092 9.5%
Adjustments to
equity capital 18
-------
Tangible capital
and ratio to
adjusted total
assets $ 2,110 9.6% $ 330 1.5%
======= ===
Tier I (core) capital
and ratio to
adjusted total
assets $ 2,110 9.6% $ 660 3.0% $ 1,100 5.0%
======= === =======
Tier I capital and
ratio to risk-weighted
assets $ 2,110 17.7% $ 714 6.0%
=======
Allowance for loan
losses 51
-------
Total risk-based
capital and ratio to
risk-weighted assets $ 2,161 18.2% $ 952 8.0% $ 1,199 10.0%
======= === =======
Total assets $21,989
=======
Adjusted total assets $22,007
=======
Risk-weighted assets $11,898
=======
</TABLE>
F-16
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997 AND 1996
(11 - continued)
<TABLE>
<CAPTION>
MINIMUM TO BE WELL
CAPITALIZED UNDER
MINIMUM FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
Total equity capital
and ratio to total
assets $ 2,018 9.1%
Adjustments to
equity capital 22
-------
Tangible capital
and ratio to
adjusted total
assets $ 2,040 9.2% $ 334 1.5%
======= ===
Tier I (core) capital
and ratio to
adjusted total
assets $ 2,040 9.2% $ 668 3.0% $ 1,113 5.0%
======= === =======
Tier I capital and
ratio to risk-weighted
assets $ 2,040 17.2% $ 712 6.0%
=======
Allowance for loan
losses 52
-------
Total risk-based
capital and ratio to
risk-weighted assets $ 2,092 17.6% $ 949 8.0% $ 1,187 10.0%
======= === =======
Total assets $22,247
=======
Adjusted total assets $22,269
=======
Risk-weighted assets $11,868
=======
</TABLE>
F-17
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997 AND 1996
(12) FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. The Statement provides consistent standards
for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings based on a control-oriented
"financial-components" approach. Under this approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets
it controls and liabilities it has incurred, derecognizes financial assets
when control has been surrendered and derecognizes liabilities when
extinguished. The provisions of SFAS No. 125 are effective for transactions
occurring after December 31, 1996, except those provisions relating to
repurchase agreements, securities lending, and other similar transactions
and pledged collateral, which have been delayed until after December 31,
1997 by SFAS No. 127, Deferral of the Effective Date of Certain Provisions
of FASB Statement No. 125, an amendment of FASB Statement No. 125. The
adoption of these statements has no material impact on financial position
or results of operations.
(13) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH PAYMENTS FOR:
Interest $ 1,106,810 $ 1,141,662
Taxes (10,655) 9,650
NONCASH INVESTING ACTIVITIES:
Proceeds from sale of foreclosed real estate
financed through loans - 24,757
</TABLE>
F-18
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997 AND 1996
(14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair value of financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(In thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 18 $ 18 $ 12 $ 12
Interest bearing deposits with banks 734 734 965 965
Securities available for sale 1,319 1,319 812 812
Securities held to maturity 21 21 27 27
Loans, net 19,296 19,320 19,837 20,002
Federal Home Loan Bank stock 196 196 196 196
Financial liabilities:
Deposits (19,846) (19,916) (20,194) (20,334)
Unrecognized financial
instruments:
Commitments to extend credit - - - (2)
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to
estimate that value:
CASH AND SHORT-TERM INVESTMENTS
For cash and short-term investments, including cash and due from banks and
interest bearing deposits with banks, the carrying value is a reasonable
estimate of fair value.
DEBT AND EQUITY SECURITIES
For debt securities, including mortgage-backed securities, the fair values
are based on quoted market prices. For restricted equity securities held
for investment, the carrying value is a reasonable estimate of fair value.
LOANS
The fair value of loans is estimated by discounting the estimated future
cash flows using current rates at which loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
F-19
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997 AND 1996
(14 - continued)
DEPOSITS
The fair value of savings deposits is the amount payable on demand at the
balance sheet date. The fair value of fixed-maturity time deposits is
estimated by discounting the future cash flows using the rates currently
offered for deposits of similar remaining maturities.
COMMITMENTS TO EXTEND CREDIT
The majority of commitments to extend credit would result in loans with a
market rate of interest if funded. The value of those commitments are the
fees that would be charged to customers to enter into similar agreements.
For fixed rate loan commitments, the fair value also considers the
difference between current levels of interest rates and the committed
rates.
(15) SUBSEQUENT EVENT-PLAN OF CONVERSION
On December 22, 1997, the Association's Board of Directors adopted a plan
of conversion from an Indiana-chartered mutual building and loan
association to a federally-chartered mutual savings and loan association
pending approval from the OTS and the Indiana Department of Financial
Institutions.
On January 14, 1998, the Association's Board of Directors adopted a plan of
conversion in connection with the formation of a holding company whereby
the Association proposes to reorganize by amending its charter from a
federally-chartered mutual savings Association into a federally-chartered
stock savings association and concurrent formation of a holding company for
the Association.
Pursuant to this plan, shares of conversion stock will be offered as part
of the conversion in a subscription offering pursuant to nontransferable
subscription rights at a predetermined and uniform price first to the
Association's eligible account holders, second to the tax-qualified
employee stock benefit plans, third to the Association's supplemental
eligible account holders, and fourth to other members of the Association.
Shares not subscribed for in the subscription offering will be offered as
part of the conversion to the general public in a direct community
offering. Shares still remaining may then be offered to the general public
in a syndicated community offering, an underwritten public offering, or
otherwise. The aggregate purchase price of the conversion stock will be
based upon an independent appraisal of the Association and will reflect the
estimated pro forma market value of the Association as a subsidiary of the
holding company.
F-20
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997 AND 1996
(15 - continued)
At the time of the conversion, the Association will establish a liquidation
account in an amount equal to its retained earnings as of the date of the
latest balance sheet appearing in the final prospectus. The liquidation
account will be maintained for the benefit of eligible account holders and
supplemental eligible account holders who continue to maintain their
accounts at the Association after the conversion. The liquidation account
will be reduced annually to the extent that eligible account holders and
supplemental eligible account holders have reduced their qualifying
deposits as of each anniversary date. Subsequent increases will not
restore an eligible or supplemental eligible account holder's interest in
the liquidation account. In the event of a complete liquidation of the
Association, each eligible account holder and supplemental eligible account
holder will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying
balances for accounts then held.
Subsequent to the conversion, the Association may not declare or pay cash
dividends on or repurchase any of its share of common stock, if the effect
thereof would cause equity to be reduced below applicable regulatory
capital requirements.
Consummation of the conversion is subject to the approval of the plan of
conversion by the OTS and by the members of the Association at a special
meeting of the members to be called to consider the conversion.
Upon completion of the conversion and offering, the costs related to the
conversion and offering will be charged against the proceeds from the sale
of conversion stock. If the transactions are not consummated, the
Association will charge all costs to operations. At December 31, 1997, the
amount of deferred costs related to the conversion and offering totaled
approximately $24,000.
F-21
<PAGE>
GLOSSARY
ARM loans Adjustable-rate mortgage loans.
Capital Resources Capital Resources, Inc., the firm the
Association engaged to advise and assist
it in marketing the Common Stock and
conducting the Subscription Offering
and, if any, the Direct Community
Offering and/or Syndicated Community
Offering.
CRG Capital Resources Group, Inc. the firm
the Association engaged to prepare the
appraisal of its estimated pro forma
market value in the conversion and to
advise the Association about its
business plan.
Direct Community Offering The offering of shares of the common
stock to the general public with
preference given to natural persons and
trusts of natural persons who are
residents of the Perry County, Indiana.
Exchange Act The Securities Exchange Act of 1934,
as amended.
Expiration Date _____________, 1998.
FDIC Federal Deposit Insurance Corporation.
FHLB Federal Home Loan Bank.
GAAP Generally accepted accounting
principles.
Internal Revenue Code Internal Revenue Code of 1986, as
amended.
IRA Individual Retirement Account.
IRS Internal Revenue Service.
MRDP The Management Recognition and
Development Plan, a restricted stock
plan that the Holding Company intends to
adopt following the conversion.
NASD National Association of Securities
Dealers, Inc.
OTS Office of Thrift Supervision of the
United States Department of the
Treasury.
Plan of Conversion The plan of conversion adopted by the
Association, pursuant to which the
conversion is being undertaken.
SAIF Savings Association Insurance Fund.
SEC Securities and Exchange Commission.
G-1
<PAGE>
Securities Act The Securities Act of 1933, as amended.
SFAS Statement of Financial Accounting
Standards.
Stock Option Plan The stock option plan that the Holding
Company intends to adopt following the
conversion.
Subscription Offering The offering of shares of the Common
Stock, in order of priority, to Eligible
Account Holders, Supplement Eligible
Account Holders and Other Members.
Syndicated Community Offering The offering of shares of the common
stock to the general public by a group
of selected dealers.
G-2
<PAGE>
You should rely only on the information contained in this document. Neither PCB
Holding Company nor Peoples Building and Loan Association, F.A. have authorized
anyone to provide you with information that is different. This prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person or in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this prospectus nor any sale hereunder shall under any circumstances
create any implication that there has been no change in the affairs of PCB
Holding Company or Peoples Building and Loan Association, F.A. since any of the
dates as of which information is furnished herein or since the date hereof.
[Logo for PCB Holding Company]
(Proposed Holding Company for
Peoples Building and Loan Association, F.A.
to be known as Peoples Community Bank)
255,000 to 396,750 Shares of
Common Stock
Prospectus
Capital Resources, Inc.
______ __, 1998
Until the later of _______, 1998, or 90 days after commencement of the
Syndicated Community Offering of Common Stock, if any, all dealers that buy,
sell or trade these securities, whether or not participating in this offering,
may be required to deliver a prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors
Article 8 of the Articles of Incorporation requires indemnification of
directors, officers and employees as follows:
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. GENERAL PROVISIONS. The corporation shall, to the fullest
extent to which it is empowered to do so by the Indiana Business Corporation Act
or any other applicable laws, as from time to time in effect, indemnify any
person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal, by
reason of the fact that he is or was a director, officer or employee of the
corporation, or who, while serving as such director, officer or employee of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
whether for profit or not, against expenses (including attorneys' fees),
judgments, settlements, penalties and fines (including excise taxes assessed
with respect to employee benefit plans) actually or reasonably incurred by him
in accordance with such action, suit or proceeding, if he acted in good faith
and in a manner he reasonably believed, in the case of conduct in his official
capacity, was in the best interest of the corporation, and in all other cases,
was not opposed to the best interests of the corporation, and with respect to
any criminal action or proceeding, he either had reasonable cause to believe his
conduct was lawful or no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not meet the prescribed
standard of conduct.
SECTION 8.02. INDEMNIFICATION AUTHORIZED. To the extent that a director,
officer or employee of the corporation has been successful, on the merits or
otherwise, in the defense of any action, suit or proceeding referred to in
Section 8.01 of this Article, or in the defense of any claim, issue or matter
therein, the corporation shall indemnify such person against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith. Any other indemnification under Section 8.01 of this Article (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case, upon a determination that indemnification of the director,
officer or employee is permissible in the circumstances because he has met the
applicable standard of conduct. Such determination shall be made (a) by the
board of directors by a majority vote of a quorum consisting of directors who
were not at the time parties to such action, suit or proceeding; or (b) if a
quorum cannot be obtained under subdivision (a), by a majority vote of a
committee duly designated by the board of directors (in which designation
directors who are parties may participate), consisting solely of two or more
directors not at the time parties to such action, suit or proceeding; or (c) by
special legal counsel: (i) selected by the board of directors or its committee
in the manner prescribed in subdivision (a) or (b), or (ii) if a quorum of the
board of directors cannot be obtained under subdivision (a) and a committee
cannot be designated under subdivision (b), selected by a majority vote of the
full board of directors (in which selection directors who are parties may
participate); or (d) by stockholders, but shares owned by or voted under the
control of directors who are at the time parties to such action, suit or
proceeding may not be voted on the determination.
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (c)
to select counsel.
II-1
<PAGE>
SECTION 8.03. DEFINITION OF GOOD FAITH. For purposes of any determination
under Section 8.01 of this Article, a person shall be deemed to have acted in
good faith and to have otherwise met the applicable standard of conduct set
forth in Section 8.01 if his action is based on information, opinions, reports,
or statements, including financial statements and other financial data, if
prepared or presented by (a) one or more officers or employees of the
corporation or other enterprise whom he reasonably believes to be reliable and
competent in the matters presented; (b) legal counsel, public accountants,
appraisers or other persons as to matters he reasonably believes are within the
person's professional or expert competence; or (c) a committee of the board of
directors of the corporation or another enterprise of which the person is not a
member if he reasonably believes the committee merits confidence. The term
"another enterprise" as used in this Section 8.03 shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise of which such person is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent. The
provisions of this Section 8.03 shall not be deemed to be exclusive or to limit
in any way the circumstances in which a person may be deemed to have met the
applicable standards of conduct set forth in Section 8.01 of this Article.
SECTION 8.04. ADVANCEMENT OF EXPENSES. Expenses incurred in connection
with any civil or criminal action, suit or proceeding may be paid for or
reimbursed by the corporation in advance of the final disposition of such
action, suit or proceeding, as authorized in the specific case in the same
manner described in Section 8.02 of this Article, upon receipt of a written
affirmation of the director, officer or employee's good faith belief that he has
met the standard of conduct described in Section 8.01 of this Article and upon
receipt of a written undertaking on behalf of the director, officer or employee
to repay such amount if it shall ultimately be determined that he did not meet
the standard of conduct set forth in this Article, and a determination is made
that the facts then known to those making the determination would not preclude
indemnification under this Article.
SECTION 8.05. NON-EXCLUSIVITY. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under these Articles of Incorporation,
the corporation's Bylaws, any resolution of the board of directors or
stockholders, any other authorization, whenever adopted, after notice, by a
majority vote of all voting stock then outstanding, or any contract, both as to
action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer or employee, and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 8.06. VESTMENT OF RIGHTS. The right of any individual to
indemnification under this Article shall vest at the time of occurrence or
performance of any event, act or omission giving rise to any action, suit or
proceeding of the nature referred to in Section 8.01 of this Article and, once
vested, shall not later be impaired as a result of any amendment, repeal,
alteration or other modification of any or all of these provisions.
Notwithstanding the foregoing, the indemnification afforded under this Article
shall be applicable to all alleged prior acts or omissions of any individual
seeking indemnification hereunder, regardless of the fact that such alleged acts
or omissions may have occurred prior to the adoption of this Article. To the
extent such prior acts or omissions cannot be deemed to be covered by this
Article, the right of any individual to indemnification shall be governed by the
indemnification provisions in effect at the time of such prior acts or
omissions.
SECTION 8.07. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or who is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against any liability asserted against or incurred by the
individual in that capacity or arising from the individual's status as a
director, officer, employee or agent, whether or not the corporation would have
power to indemnify the individual against the same liability under this Article.
II-2
<PAGE>
SECTION 8.08. OTHER DEFINITIONS.
For purposes of this Article, serving an employee benefit plan at the
request of the corporation shall include any service as a director, officer or
employee of the corporation which imposes duties on, or involves services by
such director, officer or employee with respect to an employee benefit plan, its
participants, or beneficiaries. A person who acted in good faith and in a
manner he reasonably believed to be in the best interests of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interest of the corporation" referred to in this
Article.
For purposes of this Article, "party" includes any individual who is or was
a plaintiff, defendant or respondent in any action, suit or proceeding.
For purposes of this Article, "official capacity," when used with respect
to a director, shall mean the office of director of the corporation; and when
used with respect to an individual other than a director, shall mean the office
in the corporation held by the officer or the employment or agency relationship
undertaking by the employee or agent on behalf of the corporation. "Official
capacity" does not include service for any other foreign or domestic corporation
or any partnership, joint venture, trust, employee benefit plan, or other
enterprise, whether for profit or not, except as set forth in Section 1 of this
Article.
SECTION 8.09. BUSINESS EXPENSES. Any payments made to any indemnified
party under this Article under any other right of indemnification shall be
deemed to be an ordinary and necessary business expense of the corporation, and
payment thereof shall not subject any person responsible for the payment, or the
board of directors, to any action for corporate waste or to any similar action.
PEOPLES BUILDING AND LOAN ASSOCIATION, F.A.
Section 545.121 of the Regulations for Federal Savings Associations
provides that any person against whom any action is brought or threatened by
reason of the fact that such person is or was a director or officer of the
Savings Bank shall be indemnified by such Savings Bank for reasonable costs and
expenses, including reasonable attorney's fees, actually paid or incurred by
such person in connection with proceedings related to the defense or settlement
of such action; any amount of which such person becomes liable by reason of any
judgment in such action; and reasonable costs and expenses, including reasonable
attorney's fees, actually paid or incurred in any action to enforce his rights
under this section, which results in a final judgment on the merits in favor of
the director or officer, the Savings Bank may make the indemnification provided
in the preceding sentence if a majority of the directors of the Savings Bank
determine that such director or officer was acting in good faith within what he
was reasonably entitled to believe under the circumstances was the best
interests of the Savings Bank or its stockholders or members. In which event,
regulations require a 60 day notice to the OTS. Additionally, Section
545.121(d) authorizes the obtaining of insurance to protect against such losses.
II-3
<PAGE>
Item 25. Other Expenses of Issuance and Distribution(1)
Legal fees and expenses........................ $ 80,000
Securities marketing legal fees................ 22,000
EDGAR, copying, printing, postage and mailing.. 75,000
Appraisal and business plan preparation........ 22,000
Accounting fees................................ 20,000
Securities marketing fees and expenses......... 60,000
Data processing fees and expenses.............. 9,000
SEC registration fee........................... 1,170
Blue Sky filing fees and expenses.............. 10,000
OTS filing fees................................ 8,400
Other expenses................................. 7,430
--------
Total..................................... $315,000
========
- -------------------------
(1) Assumes all of the Common Stock will be sold in the Subscription and
Direct Community Offerings.
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits.
The exhibits filed as part of this Registration Statement are as
follows:
<TABLE>
<S> <C>
1.1 -- Form of proposed Agency Agreement among PCB Holding Company, Peoples
Building and Loan Association, F.A. and Capital Resources, Inc.
1.2 -- Engagement Letter between Peoples Building and Loan Association and
Capital Resources, Inc. (a)
2 -- Plan of Conversion of Peoples Building and Loan Association
(attached as an exhibit to the Proxy Statement included as
Exhibit 99.5)
3.1 -- Articles of Incorporation of PCB Holding Company (a)
3.2 -- Bylaws of PCB Holding Company (a)
4 -- Form of Certificate for Common Stock (a)
5 -- Opinion of Breyer & Aguggia regarding legality of securities
registered (a)
8.1 -- Federal Tax Opinion of Breyer & Aguggia
8.2 -- State Tax Opinion of Monroe Shine & Co., Inc.
8.3 -- Opinion of Capital Resources Group, Inc. as to the value of
subscription rights (a)
10.1 -- Proposed Form of Employment Agreement for Senior Officers
10.2 -- Peoples Building and Loan Association 401(k) Salary Reduction Plan
and Trust
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
16 -- Letter of former accountants (a)
21 -- Subsidiaries of PCB Holding Company (a)
23.1 -- Consent of Monroe Shine & Co., Inc.
23.2 -- Consent of Breyer & Aguggia (contained in opinion included as
Exhibit 5) (a)
23.3 -- Consent of Breyer & Aguggia as to its Federal Tax Opinion
23.4 -- Consent of Capital Resources Group, Inc. (a)
24 -- Power of Attorney (a)
27 -- Financial Data Schedule (a)
99.1 -- Order Form
99.2 -- Solicitation and Marketing Materials
99.3 -- Appraisal Agreement with Capital Resources Group, Inc. (a)
99.4 -- Appraisal Report of Capital Resources Group, Inc. (P)
99.5 -- Proxy Statement for Special Meeting of Members of Peoples Building
and Loan Association, F.A. (a)
</TABLE>
- -----------
(a) Previously filed.
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended ("Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
II-5
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") (and, where
applicable, each filing of any employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this statement to be
signed on its behalf by the undersigned in the city of Tell City, state of
Indiana, on May 1, 1998.
PCB HOLDING COMPANY
By: /s/ Carl D. Smith
-------------------------------------
Carl D. Smith
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amended Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Carl D. Smith Chief Executive Officer and Director May 1, 1998
- --------------------------- (Principal Executive Officer)
Carl D. Smith
/s/ Clarke A. Blackford Vice President, Treasurer and Secretary May 1, 1998
- --------------------------- (Principal Financial
Clarke A. Blackford and Accounting Officer)
/s/ James L. Wittmer* Director May 1, 1998
- ---------------------------
James L. Wittmer
/s/ Marion L. Ress* Director May 1, 1998
- ---------------------------
Marion L. Ress
/s/ Howard L. Traphagen* Director May 1, 1998
- ---------------------------
Howard L. Traphagen
/s/ James G. Tyler* Director May 1, 1998
- ---------------------------
James G. Tyler
/s/ Daniel P. Lutgring* Director May 1, 1998
- ---------------------------
Daniel P. Lutgring
</TABLE>
- --------------------------------
* By power of attorney dated March 18, 1998.
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
1.1 -- Form of proposed Agency Agreement among PCB Holding Company, Peoples
Building and Loan Association, F.A. and Capital Resources, Inc.
1.2 -- Engagement Letter between Peoples Building and Loan Association and
Capital Resources, Inc. (a)
2 -- Plan of Conversion of Peoples Building and Loan Association (attached
as an exhibit to the Proxy Statement included as Exhibit 99.5) (a)
3.1 -- Articles of Incorporation of PCB Holding Company (a)
3.2 -- Bylaws of PCB Holding Company (a)
4 -- Form of Certificate for Common Stock (a)
5 -- Opinion of Breyer & Aguggia regarding legality of securities
registered (a)
8.1 -- Federal Tax Opinion of Breyer & Aguggia
8.2 -- State Tax Opinion of Monroe Shine & Co., Inc.
8.3 -- Opinion of Capital Resources Group, Inc. as to the value of
subscription rights (a)
10.1 -- Proposed Form of Employment Agreement with Senior Officers
10.2 -- Peoples Building and Loan Association, F.A. 401(k) Salary Reduction
Plan and Trust
16 -- Letter of Former Accountants (a)
21 -- Subsidiaries of PCB Holding Company (a)
23.1 -- Consent of Monroe Shine & Co., Inc.
23.2 -- Consent of Breyer & Aguggia (contained in opinion included as
Exhibit 5) (a)
23.3 -- Consent of Breyer & Aguggia as to its Federal Tax Opinion
23.4 -- Consent of Capital Resources Group, Inc. (a)
24 -- Power of Attorney (a)
27 -- Financial Data Schedule (a)
99.1 -- Order Form
99.2 -- Solicitation and Marketing Materials
99.3 -- Appraisal Agreement with Capital Resources Group, Inc. (a)
99.4 -- Appraisal Report of Capital Resources Group, Inc. (P)
99.5 -- Proxy Statement for Special Meeting of Members of Peoples Building
and Loan Association, F.A. (a)
- ---------------
</TABLE>
(a) Previously filed.
<PAGE>
Exhibit 1.1
DRAFT
345,000 Shares
(subject to increase up to 396,750 shares
in the event of an oversubscription)
PCB HOLDING COMPANY
(an Indiana-chartered corporation)
COMMON STOCK
($0.01 Par Value Per Share)
Subscription Price: $10.00 Per Share
AGENCY AGREEMENT
May __, 1998
Capital Resources, Inc.
1211 Connecticut Avenue
Suite 200
Washington, D.C. 20036
Ladies and Gentlemen:
PCB Holding Company (the "Holding Company") and Peoples Building and Loan
Association, F.A., a federally chartered mutual savings association
("Association"), with its deposit accounts insured by the Savings Association
Insurance Fund ("SAIF") administered by the Federal Deposit Insurance
Corporation ("FDIC"), hereby confirm their agreement with Capital Resources,
Inc. ("Capital Resources") as follows:
SECTION 1. THE OFFERING. The Association, in accordance with and pursuant
to its plan of conversion adopted by the Board of Directors of the Association
(the "Plan"), intends to be converted from a federally chartered mutual savings
association to a federally chartered stock savings association and will change
its name to Peoples Community Bank and sell all of its issued and outstanding
stock to the Holding Company. These events along with the simultaneous issuance
of common stock by the Holding Company are referred to as the "Conversion." The
Holding Company will offer and sell its common stock (the "Common Stock" or the
"Shares") in a subscription offering ("Subscription Offering") to (1) depositors
of the Association with $50.00 or more on deposit as of December 31, 1996
("Eligible Account Holders"), (2) depositors of the Association with $50.00 or
more on deposit as of March 31, 1998 ("Supplemental Eligible Account Holders")
and (3) deposit account holders of the Association as of a voting record date
and borrowers of the Association with loans outstanding as of February 25, 1998
which continue to be outstanding as of a voting record date ("Other Members").
Subject to the prior subscription rights of the above-listed parties, the
Holding Company may offer for sale in a direct community offering (the
"Community Offering," and when referred to together with the Subscription
Offering, the "Subscription and Community Offerings") conducted after the
Subscription Offering, the Shares not so subscribed for or ordered in the
Subscription Offering to the general public
<PAGE>
(all such offerees being referred to in the aggregate as "Eligible Offerees").
It is acknowledged that the purchase of Shares in the Subscription and Community
Offerings is subject to maximum and minimum purchase limitations as described in
the Plan and that the Holding Company may reject in whole or in part any
subscriptions received from subscribers in the Community Offering.
The Holding Company and the Association desire to retain Capital Resources
to assist the Holding Company with its sale of the Shares in the Subscription
and Community Offerings and, if deemed necessary by the Holding Company, in a
syndicated community offering. By and through this Agreement, the Holding
Company and the Association confirm the retention of Capital Resources to assist
the Holding Company and the Association during the Subscription and Community
Offerings.
The Holding Company has filed with the Securities and Exchange Commission
(the "SEC") a registration statement on Form SB-2 (File No. 333-48191)
containing a prospectus relating to the Subscription and Community Offerings for
the registration of the Shares under the Securities Act of 1933, as amended (the
"1933 Act"), and has filed such amendments thereto, if any, and such amended
prospectuses as may have been required to the date hereof (the "Registration
Statement"). The prospectus, as amended, included in the Registration Statement
at the time it initially becomes effective, is hereinafter called the
"Prospectus", except that if any prospectus is filed by the Holding Company
pursuant to Rule 424(b) or (c) of the rules and regulations of the SEC under the
1933 Act (the "1933 Act Regulations") differing from the prospectus included in
the Registration Statement at the time it initially becomes effective, the term
"Prospectus" shall refer to the prospectus filed pursuant to Rule 424(b) or (c)
from and after the time the prospectus is filed with or mailed to the SEC for
filing.
In accordance with Title 12, Part 563b of the Code of Federal Regulations
(the "Conversion Regulations"), the Association has filed with the Office of
Thrift Supervision (the "OTS") an Application for Approval of Conversion on Form
AC (the "Conversion Application") including the Prospectus and has filed such
amendments thereto, if any, as may have been required by the OTS. The Conversion
Application has been approved by the OTS. The Holding Company has filed with
the OTS its application on Form H-(e)1-S (the "Holding Company Application") to
acquire the Association under the Home Owners' Loan Act, as amended ("HOLA").
SECTION 2. RETENTION OF CAPITAL RESOURCES; COMPENSATION; SALE AND DELIVERY
OF THE SHARES. Subject to the terms and conditions herein set forth, the
Holding Company and the Association hereby appoint Capital Resources as their
agent to advise and assist the Holding Company and the Association with the
Holding Company's sale of the Shares in the Subscription and Community
Offerings.
On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, Capital
Resources accepts such appointment and agrees to consult with and advise the
Holding Company and the Association as to matters relating to the Conversion and
the Subscription and Community Offerings. It is acknowledged by the Holding
Company and the Association that Capital Resources shall not be required to
purchase any Shares and shall not be obligated to take any action which is
inconsistent with any applicable laws, regulations, decisions or orders. The
obligations of Capital Resources pursuant to this Agreement shall terminate upon
the completion or termination or abandonment of the Plan by the Holding Company
or the Association or upon termination of the Subscription and Community
Offerings, or if the terms of the Conversion are substantially amended so as to
materially and adversely change the role of Capital Resources, but in no event
later than 45 days after the completion of the Subscription and Community
Offerings (the "End
-2-
<PAGE>
Date"). All fees due to Capital Resources but unpaid will be payable to Capital
Resources in next day funds at the earlier of the Closing Date (as hereinafter
defined) or the End Date. In the event the Subscription and Community Offerings
are extended beyond the End Date, the Holding Company, the Association and
Capital Resources may mutually agree to renew this Agreement under mutually
acceptable terms.
In the event the Holding Company determines to proceed with a syndicated
community offering managed by Capital Resources, the Holding Company will be
responsible for paying a fee (negotiated at such time) to members of the
syndicate of registered broker dealers that is formed by Capital Resources and
will pay a related management fee to Capital Resources (negotiated at such time)
and Capital Resources and the Holding Company will jointly agree to the form of
a selected dealer's agreement.
In the event the Holding Company is unable to sell a minimum of 255,000
Shares within the period herein provided, this Agreement shall terminate, and
the Holding Company shall refund to any persons who have subscribed for any of
the Shares the full amount which it may have received from them plus accrued
interest as set forth in the Prospectus; and none of the parties to this
Agreement shall have any obligation to the other parties hereunder, except as
set forth in this Section 2 and in Sections 7, 9 and 10 hereof.
In the event the closing does not occur, the Conversion is terminated or
otherwise abandoned, or the terms of the Conversion are substantially amended so
as to materially and adversely change the role of Capital Resources, Capital
Resources shall be reimbursed for all reasonable legal fees and out-of-pocket
expenses for rendering financial advice to the Association concerning the
structure of the Conversion, preparing a market and financial analysis,
performing due diligence and assisting in the preparation of the Application for
Conversion and the Registration Statement, which shall be paid upon such
termination, abandonment or amendment or within five days of such event. The
amount of reimbursement is limited by Section 2(b).
If all conditions precedent to the consummation of the Conversion,
including, without limitation, the sale of all Shares required by the Plan to be
sold, are satisfied, the Holding Company agrees to issue or have issued the
Shares sold in the Subscription and Community Offerings and to release for
delivery certificates for such Shares on the Closing Date (as hereinafter
defined) against payment to the Holding Company by any means authorized by the
Plan, provided, however, that except as otherwise required by law, no
certificates shall be released for such shares until the conditions specified in
Sections 4(a) and 7 hereof shall have been complied with. The release of Shares
against payment therefor shall be made on a date and at a time and place
acceptable to the Holding Company, the Association and Capital Resources. The
date upon which the Holding Company shall release or deliver the Shares sold in
the Subscription and Community Offerings, in accordance with the terms hereof,
is herein called the "Closing Date."
Capital Resources shall receive the following compensation for its services
hereunder:
(a) a fixed marketing fee of $50,000;
(b) Capital Resources shall be reimbursed for all reasonable out-of-pocket
expenses, including, but not limited to, legal fees, travel, communications and
postage, incurred by it whether or not the Conversion is successfully completed
as set forth in Section 7 hereof. Reimbursement for Capital Resources' legal
and other expense hereunder shall not exceed $22,000 and $10,000 respectively,
unless
-3-
<PAGE>
the Association has approved such expense prior to its incurrence. Capital
Resources shall be reimbursed promptly for all out-of-pocket expenses upon
receipt by the Holding Company or the Association of a monthly itemized bill
summarizing such expenses since the date of the last bill, if any, to the date
of the current bill.
All subscription funds received by Capital Resources (and if by check shall
be made payable to the Holding Company) shall be transmitted (either by U.S.
Mail or similar type of transmittal) to the Holding Company by noon of the
following business day.
SECTION 3. PROSPECTUS; SUBSCRIPTION AND COMMUNITY OFFERINGS. The Shares
are to be initially offered in the Subscription and Community Offerings at the
Purchase Price as set forth on the cover page of the Prospectus.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Holding Company and the
Association jointly and severally represent and warrant to Capital Resources as
follows:
(a) The Registration Statement was declared effective by the SEC on May __,
1998. At the time the Registration Statement, including the Prospectus
contained therein (including any amendment or supplement thereto), became
effective, the Registration Statement complied in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations and the Registration
Statement, including the Prospectus contained therein (including any amendment
or supplement thereto), any Blue Sky Application or any Sales Information (as
such terms are defined in Section 9 hereof) authorized by the Holding Company or
the Association for use in connection with the Subscription and Community
Offerings did not contain an untrue statement of a material fact or except as to
any Blue Sky Application, omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and at the time any
Rule 424(b) or (c) Prospectus was filed with or mailed to the SEC for filing and
at the Closing Date referred to in Section 2, the Registration Statement
including the Prospectus contained therein (including any amendment or
supplement thereto), any Blue Sky Application or any Sales Information (as such
terms are defined in Section 9 hereof) authorized by the Holding Company or the
Association for use in connection with the Subscription and Community Offerings
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this Section 4(a) shall not apply to
statements in or omissions from such Registration Statement or Prospectus made
in reliance upon and in conformity with written information furnished to the
Holding Company or the Association by Capital Resources expressly and
specifically regarding Capital Resources for use under the captions "The
Conversion - Syndicated Community Offering," "- Plan of Distribution for the
Subscription, Direct Community and Syndicated Community Offerings," or "-
Description of Sales Activities," or for inclusion in any Blue Sky Application
or Sales Information, as such terms are defined herein.
(b) The Conversion Application, including the Prospectus, was approved by
the OTS on ___________ __, 1998. At the time of the approval of the Conversion
Application, including the Prospectus, by the OTS (including any amendment or
supplement thereto) and at all times subsequent thereto until the Closing Date,
the Conversion Application, including the Prospectus, will comply in all
material respects with the Conversion Regulations and any other rules and
regulations of the OTS. The Conversion Application, including the Prospectus
(including any amendment or supplement thereto), does not include any untrue
statement of a material fact or omit to state any material fact required to be
stated
-4-
<PAGE>
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that representations or warranties in this Section 4(b) shall not apply to
statements in or omissions from such Conversion Application or Prospectus made
in reliance upon and in conformity with written information furnished to the
Association by Capital Resources expressly and specifically regarding Capital
Resources for use in the Prospectus contained in the Conversion Application
under the captions "The Conversion - Syndicated Community Offering," "- Plan of
Distribution for the Subscription, Direct Community and Syndicated Community
Offerings," or "-Description of Sales Activities."
(c) The Holding Company has filed with the OTS the Holding Company
Application and will have received, as of the Closing Date, approval of its
acquisition of the Association from the OTS.
(d) No order has been issued by the OTS, the SEC, the FDIC (and hereinafter
reference to the FDIC shall include the SAIF), or, to the best knowledge of the
Holding Company or the Association, any State regulatory or Blue Sky authority,
preventing or suspending the use of the Prospectus and no action by or before
any such government entity to revoke any approval, authorization or order of
effectiveness related to the Conversion is, to the best knowledge of the
Association or the Holding Company, pending or threatened.
(e) At the Closing Date referred to in Section 2, the Plan will have been
adopted by the Board of Directors of both the Holding Company and the
Association, the Holding Company and the Association will have completed all
material conditions precedent to the Conversion and the offer and sale of the
Shares will have been conducted in accordance with the Plan, the Conversion
Regulations and all other applicable laws, regulations, and all written terms,
conditions, requirements and provisions precedent to the Conversion imposed upon
the Holding Company or the Association by the OTS (including the OTS approval
order described in paragraph (b) of this Section 4), the SEC or any other
regulatory authority and in the manner described in the Prospectus. At the
Closing Date, no person will have sought to obtain review of the final action of
the OTS, to the knowledge of the Holding Company or the Association, in
approving the Plan or in approving the Conversion or the Holding Company's
application to acquire all of the capital stock and control of the Association
pursuant to the HOLA or any other statute or regulation.
(f) The Association is now an organized and validly existing federally
chartered savings association in mutual form of organization and upon the
Conversion will become a duly organized and validly existing federally chartered
savings association in capital stock form of organization, in both instances
duly authorized to conduct its business and own its property as described in the
Registration Statement and the Prospectus; the Holding Company and the
Association have obtained all material licenses, permits and other governmental
authorizations currently required for the conduct of their respective
businesses; all such licenses, permits and governmental authorizations are in
full force and effect, and the Holding Company and the Association are in all
material respects complying with all material laws, rules, regulations and
orders applicable to the operation of their businesses; and the Association is
duly qualified as a foreign corporation to transact business in each
jurisdiction in which its ownership of property or leasing of properties or the
conduct of its business requires such qualification, unless the failure to be so
qualified in one or more of such jurisdictions would not have a material adverse
effect on the condition, financial or otherwise, or the business, operations or
income of the Association. The Association does not own equity securities or
any equity interest in any other business enterprise except as described in the
Prospectus. Upon the completion of the Conversion of the
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Association pursuant to the Plan to a federally chartered stock savings bank,
(i) all of the authorized and outstanding capital stock of the Association will
be owned by the Holding Company, and (ii) the Holding Company will have no
direct subsidiaries other than the Association. The Conversion will have been
effected in all material respects in accordance with all applicable statutes,
regulations, decisions and orders except to the extent compliance therewith
shall have been waived by OTS; and except with respect to the filing of certain
post-sale, post-conversion reports and documents in compliance with the 1933 Act
Regulations or the OTS's resolutions or letters of approval. All terms,
conditions, requirements and provisions with respect to the Conversion imposed
by the SEC, the OTS and the FDIC, if any, will have been complied with by the
Holding Company and the Association in all material respects or appropriate
waivers will have been obtained and all material notice and waiting periods will
have been satisfied, waived or elapsed.
(g) The Holding Company has been incorporated and is validly existing as a
corporation in good standing under the laws of the State of Indiana with
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus, and the Holding Company is qualified to do business as a foreign
corporation in any jurisdiction in which the conduct of its business requires
such qualification, except where the failure to so qualify would not have a
material adverse effect on the financial condition or the business operations or
income of the Holding Company.
(h) The Association is a member of the Federal Home Loan Bank of
Indianapolis ("FHLB-Indianapolis"); and the deposit accounts of the Association
are insured by the FDIC up to the applicable limits. Upon consummation of the
Conversion, the liquidation account for the benefit of Eligible Account Holders
and Supplemental Eligible Account Holders will be duly established in accordance
with the requirements of the Conversion Regulations.
(i) The Holding Company and the Association have good and marketable title
to all assets owned by them which are material to the business of the Holding
Company and the Association and to those assets described in the Registration
Statement and Prospectus as owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the Registration
Statement and Prospectus or are not materially significant or important in
relation to the business of the Holding Company and the Association; and all of
the leases and subleases material to the business of the Holding Company and the
Association under which the Holding Company or the Association holds properties,
including those described in the Registration Statement and Prospectus, are in
full force and effect.
(j) The Association has received an opinion of its counsel, Breyer &
Aguggia, ("B&A") with respect to the federal income tax consequences and Monroe
Shine & Co., Inc. with respect to state income tax consequences of, and other
matters relating to the Conversion of the Association from mutual to stock form
as described in the Registration Statement and the Prospectus; all material
aspects of the opinion of B&A are accurately summarized in the Prospectus; and
the facts and representations upon which such opinion is based are truthful,
accurate and complete, and neither the Association nor the Holding Company will
take any action inconsistent therewith.
(k) The Holding Company and the Association have all such power, authority,
authorizations, approvals and orders as may be required to enter into this
Agreement, to carry out the provisions and conditions hereof and to issue and
sell the Capital Stock of the Association to the Holding Company and Shares to
be sold by the Holding Company as provided herein and as described in the
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Prospectus. The consummation of the Conversion, the execution, delivery and
performance of this Agreement and the consummation of the transactions herein
contemplated have been duly and validly authorized by all necessary corporate
action on the part of the Holding Company and the Association and this Agreement
has been validly executed and delivered by the Holding Company and the
Association and is the valid, legal and binding agreement of the Holding Company
and the Association enforceable in accordance with its terms (except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors of savings and loan
holding companies, the accounts of whose subsidiaries are insured by the FDIC or
by general equity principles regardless of whether such enforceability is
considered in a proceeding in equity or at law, and except to the extent, if
any, that the provisions of Sections 9 and 10 hereof may be unenforceable as
against public policy).
(l) The Holding Company and the Association are not in violation of any
written directive which has been delivered to the Holding Company or the
Association or of which management of the Holding Company or the Association has
actual knowledge from the OTS, the SEC, the FDIC or any other agency to make any
material change in the method of conducting their businesses so as to comply in
all material respects with all applicable statutes and regulations (including,
without limitation, regulations, decisions, directives and orders of the OTS,
the SEC and the FDIC) and except as set forth in the Registration Statement and
the Prospectus there is no suit or proceeding or, to the knowledge of the
Holding Company or the Association, charge, investigation or action before or by
any court, regulatory authority or governmental agency or body, pending or, to
the knowledge of the Holding Company or the Association, threatened, which might
materially and adversely affect the Conversion, the performance of this
Agreement or the consummation of the transactions contemplated in the Plan and
as described in the Registration Statement or which specifically involves the
Holding Company or the Association and which might result in any material
adverse change in the condition (financial or otherwise), earnings, capital,
properties, business affairs or business prospects of the Holding Company or the
Association or which would materially affect their properties and assets.
(m) The financial statements which are included in the Registration
Statement and which are part of the Prospectus fairly present the financial
condition, results of operations, retained earnings and cash flows of the
Association at the respective dates thereof and for the respective periods
covered thereby, and comply as to form in all material respects with the
applicable accounting requirements of Title 12 of the Code of Federal
Regulations and generally accepted accounting principles ("GAAP") (including
those requiring the recording of certain assets at their current market value).
To the knowledge of the Holding Company and the Association, such financial
statements have been prepared in accordance with generally accepted accounting
principles consistently applied through the periods involved, present fairly in
all material respects the information required to be stated therein and are
consistent with the most recent financial statements and other reports filed by
the Association with the OTS and the FDIC, except that accounting principles
employed in such filings conform to requirements of such authorities and not
necessarily to generally accepted accounting principles. The other financial,
statistical and pro forma information and related notes included in the
Prospectus present fairly the information shown therein on a basis consistent
with the audited and unaudited financial statements, if any, of the Association
included in the Prospectus, and as to the pro forma adjustments, the adjustments
made therein have been properly applied on the basis described therein.
(n) Since the date as of which the Registration Statement was declared
effective by the SEC: (i) there has not been any material adverse change,
financial or otherwise, in the condition of the Holding Company or the
Association, or of the Holding Company and the Association considered as
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one enterprise, or in the earnings, capital or properties of the Holding Company
or the Association, whether or not arising in the ordinary course of business,
(ii) there has not been any other material change which would require an
amendment to the Prospectus; (iii) the Association has not issued any securities
or incurred any liability or obligation for borrowing other than in the ordinary
course of business; (iv) there have not been any material transactions entered
into by the Holding Company or the Association, except with respect to those
transactions entered into in the ordinary course of business; and (v) the
capitalization, liabilities, assets, properties and business of the Holding
Company and the Association conform in all material respects to the descriptions
thereof contained in the Prospectus, and neither the Holding Company nor the
Association have any material liabilities of any kind, contingent or otherwise,
except as set forth in the Prospectus.
(o) As of the date hereof and as of the Closing Date, neither the Holding
Company nor the Association is in violation of its articles of incorporation or
charter, respectively, or its bylaws (and the Association will not be in
violation of its charter or bylaws in capital stock form as of the Closing Date)
or in default in the performance or observance of any material obligation,
agreement, covenant, or condition contained in any material contract, lease,
loan agreement, indenture or other instrument to which it is a party or by which
it, or any of its property may be bound which would result in a material adverse
change in the condition (financial or otherwise), earnings, capital or
properties of the Holding Company or the Association or which would materially
affect their properties or assets. The consummation of the transactions herein
contemplated will not (i) conflict with or constitute a breach of, or default
under, the articles of incorporation and bylaws of the Holding Company, the
charter and bylaws of the Association (in either mutual or capital stock form),
or any material contract, lease or other instrument to which the Holding Company
or the Association has a beneficial interest, or any applicable law, rule,
regulation or order; (ii) violate any authorization, approval, judgment, decree,
order, statute, rule or regulation applicable to the Holding Company or the
Association; or (iii) with the exception of the liquidation account established
in the Conversion, result in the creation of any material lien, charge or
encumbrance upon any property of the Holding Company or the Association.
(p) All material instruments and agreements to which the Holding Company or
the Association is a party or by which any of them. or any of their property is
bound or affected in any respect which, in any such cases, is material to the
Holding Company or the Association on a consolidated basis are in full force and
effect; no other party to any such instruments or agreements has instituted or,
to the best knowledge of the Holding Company or the Association, threatened any
action or proceeding wherein the Holding Company or the Association would or
might be alleged to be in default thereunder.
(q) Upon consummation of the Conversion, the authorized, issued and
outstanding equity capital of the Holding Company will be within the range set
forth in the Registration Statement under the caption "Capitalization," and no
shares of Common Stock have been or will be issued and outstanding prior to the
Closing Date referred to in Section 2; the Shares will have been duly and
validly authorized for issuance and, when issued and delivered by the Holding
Company pursuant to the Plan against payment of the consideration calculated as
set forth in the Plan and in the Prospectus, will be duly and validly issued and
fully paid and non-assessable; the issuance of the Shares will not violate any
preemptive rights; and the terms and provisions of the Shares will conform in
all material respects to the description thereof contained in the Registration
Statement and the Prospectus. To the knowledge of the Association and the
Holding Company, upon the issuance of the Shares, good title to the Shares will
be transferred from the Holding Company to the purchasers thereof against
payment therefor, subject to such claims as may be asserted against the
purchasers thereof by third party claimants.
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<PAGE>
(r) No approval of any regulatory or supervisory or other public authority
is required in connection with the execution and delivery of this Agreement or
the issuance of the Shares, except for the approval of the OTS, the SEC and any
necessary qualification or registration under the securities or blue sky laws of
the various states in which the Shares are to be offered and as may be required
under the regulations of the National Association of Securities Dealers, Inc.
("NASD") and the National Quotation Bureau, Inc. or the OTC-Bulletin Board.
(s) Monroe Shine & Co., Inc. ("M&S") has certified the financial statements
of the Association included in the Registration Statement at and for the two
years ended December 31, 1997, and M&S is with respect to the Holding Company
and the Association an independent public accountant within the meaning of the
Code of Professional Ethics of the American Institute of Certified Public
Accountants and Title 12 of the Code of Federal Regulations, Section 571.2(c)(3)
and the 1933 Act and the 1933 Act Regulations.
(t) The Holding Company and the Association have (subject to all properly
obtained extensions) timely filed all required federal and state tax returns,
have paid all taxes that have become due and payable in respect of such returns,
have made adequate reserves for similar future tax liabilities and no deficiency
has been asserted with respect thereto by any taxing authority.
(u) Appropriate arrangements have been made for placing the funds received
from subscriptions for Shares in special interest-bearing accounts with the
Association until all Shares are sold and paid for as described in the
Prospectus, with provision for refund to the purchasers in the event that the
Conversion is not completed for whatever reason or for delivery to the Holding
Company if all Shares are sold.
(v) The Holding Company and the Association are in compliance in all
material respects with the applicable financial record keeping and reporting
requirements of the Currency and Foreign Transactions Reporting Act of 1970, as
amended, and the regulations and rules thereunder.
(w) To the knowledge of the Holding Company and the Association, none of
the Holding Company, the Association nor directors or employees of the Holding
Company or the Association have made any payment of funds of the Holding Company
or the Association as a loan to any person other than the employee stock
ownership plan trust for the purchase of the Shares.
(x) Prior to the Conversion, the Association was not authorized to issue
shares of capital stock and neither the Holding Company nor the Association has:
(i) issued any securities within the last 18 months (except for notes to
evidence other bank loans and reverse repurchase agreements or other
liabilities); (ii) had any material dealings within the twelve months prior to
the date hereof with any member of the NASD, or any person related to or
associated with such member, other than discussions and meetings relating to the
proposed Subscription and Community Offerings and routine purchases and sales of
U.S. government and agency securities and other investment securities; (iii)
entered into a financial or management consulting agreement except as
contemplated hereunder; and (iv) engaged any intermediary between Capital
Resources and the Holding Company and the Association in connection with the
offering of Common Stock, and no person is being compensated in any manner for
such service.
(y) All pending legal proceedings to which the Holding Company or the
Association is a party or of which any of their property is the subject which
are not described in the Registration
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Statement and the Prospectus, including ordinary routine litigation incidental
to the business are, considered in the aggregate, not material.
(z) To the knowledge of the Holding Company and the Association, the
Holding Company and the Association comply in all material respects with all
laws, rules and regulations relating to environmental protection, and neither
the Holding Company nor the Association has been notified or is otherwise aware
that any of them is potentially liable, or is considered potentially liable in
any material respect, under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or any similar state or
local laws. There are no actions, suits, regulatory investigations or other
proceedings pending or, to the knowledge of the Holding Company or the
Association, threatened against the Holding Company or the Association relating
to environmental protection, nor does the Holding Company or the Association
have any reason to believe any such proceedings may be brought against any of
them.
(aa) The only subsidiary of the Association is Peoples Building and Loan
Service Corp., an inactive Indiana-chartered corporation that has no material
assets or liabilities.
Any certificates signed by an officer of the Holding Company or the
Association and delivered to Capital Resources or its counsel that refer to this
Agreement shall be deemed to be a representation and warranty by the Holding
Company or the Association to Capital Resources as to the matters covered
thereby with the same effect as if such representation and warranty were set
forth herein.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF CAPITAL RESOURCES:
(a) Capital Resources is a corporation and is validly existing in good
standing under the laws of the District of Columbia with full power and
authority to provide the services to be furnished to the Holding Company and the
Association hereunder.
(b) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary action on the part of Capital Resources, and this Agreement has
been duly and validly executed and delivered by Capital Resources and is the
legal, valid and binding agreement of Capital Resources, enforceable in
accordance with its terms.
(c) Each of Capital Resources and its employees, agents and representatives
who shall perform any of the services hereunder shall be duly authorized and
empowered, and shall have all licenses, approvals and permits necessary, to
perform such services and Capital Resources is a registered selling agent in the
jurisdictions listed in Exhibit A hereto and will remain registered in such
jurisdictions in which the Holding Company is relying on such registration for
the sale of the Shares, until the Conversion is consummated or terminated.
(d) The execution and delivery of this Agreement by Capital Resources, the
consummation of the transactions contemplated hereby and compliance with the
terms and provisions hereof will not conflict with, or result in a breach of,
any of the terms, provisions or conditions of, or constitute a default (or event
which with notice or lapse of time or both would constitute a default) under,
the certificate of incorporation of Capital Resources or any agreement,
indenture or other instrument to which Capital Resources is a party or by which
its property is bound, or law or regulation by which Capital Resources is bound.
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(e) Funds received by Capital Resources to purchase Common Stock will be
handled in accordance with Rule 15c2-4 under the Securities Exchange Act of
1934, as amended.
(f) Capital Resources will comply with all applicable laws and regulations
in the performance of its obligations hereunder.
SECTION 6. COVENANTS OF THE HOLDING COMPANY AND ASSOCIATION. The Holding
Company and the Association hereby jointly and severally covenant with Capital
Resources as follows:
(a) The Holding Company has filed the Registration Statement with the SEC.
The Holding Company will not, at any time after the date the Registration
Statement is declared effective, file any amendment or supplement to the
Registration Statement without providing Capital Resources and its counsel
reasonable time to review such amendment or file any amendment or supplement to
which amendment Capital Resources or its counsel shall reasonably object.
(b) The Association has filed the Conversion Application and the Holding
Company Application with the OTS. The Association will not, at any time after
the date the Conversion Application is approved, file any amendment or
supplement to the Conversion Application without providing Capital Resources and
its counsel an opportunity to review such amendment or supplement or file any
amendment or supplement to which amendment or supplement Capital Resources or
its counsel shall reasonably object.
(c) The Holding Company and the Association will use their best efforts to
cause any post-effective amendment to the Registration Statement to be declared
effective by the SEC and any post-effective amendment to the Conversion
Application to be approved by the OTS and will immediately upon receipt of any
information concerning the events listed below notify Capital Resources and
promptly confirm the notice in writing: (i) when the Registration Statement, as
amended, has become effective; (ii) when the Conversion Application, as amended,
has been approved by the OTS; (iii) of the receipt of any comments from the SEC,
the OTS or the FDIC or any other governmental entity with respect to the
Conversion or the transactions contemplated by this Agreement; (iv) of the
request by the SEC, the OTS or the FDIC or any other governmental entity for any
amendment or supplement to the Registration Statement or for additional
information; (v) of the issuance by the SEC, the OTS, the FDIC or any other
governmental entity of any order or other action suspending the Subscription or
Community Offerings or the use of the Registration Statement or the Prospectus
or any other filing of the Holding Company and the Association under the
Conversion Regulations or other applicable law, or the threat of any such
action; (vi) the issuance by the SEC, the OTS or the FDIC, or any other state
authority, of any stop order suspending the effectiveness of the Registration
Statement or of the initiation or threat of initiation or threat of any
proceedings for that purpose; or (vii) of the occurrence of any event mentioned
in paragraph (h) below. The Holding Company and the Association will make every
reasonable effort to prevent the issuance by the SEC, the OTS or the FDIC, or
any other state authority of any such order and, if any such order shall at any
time be issued, to obtain the lifting thereof at the earliest possible time.
(d) The Holding Company and the Association will deliver to Capital
Resources and to its counsel two conformed copies of each of the following
documents, with all exhibits: the Conversion Application and the Holding Company
Application, as originally filed and of each amendment or supplement thereto,
and the Registration Statement, as originally filed and each amendment thereto.
Further, the Holding Company and the Association will deliver such additional
copies of the foregoing documents to counsel for Capital Resources as may be
required for any NASD filings. In addition, the
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Holding Company and the Association will also deliver to Capital Resources such
number of copies of the Prospectus, as amended or supplemented, as Capital
Resources or its counsel may reasonably request.
(e) The Holding Company will furnish to Capital Resources, from time to
time during the period when the Prospectus (or any later prospectus related to
this Offering) is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of such prospectus
(as amended or supplemented) as Capital Resources or its counsel may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act or the
respective applicable rules and regulations of the SEC thereunder. The Holding
Company authorizes Capital Resources to use the Prospectus (as amended or
supplemented, if amended or supplemented) for any lawful manner in connection
with the sale of the Shares by Capital Resources.
(f) The Holding Company and the Association will comply in all material
respects with any and all terms, conditions, requirements and provisions with
respect to the Conversion and the transactions contemplated thereby imposed by
the SEC, by applicable Blue Sky laws and regulations, and by the 1933 Act, the
1934 Act and the rules and regulations of the SEC promulgated under such
statutes, to be complied with prior to or subsequent to the Closing Date and
when the Prospectus is required to be delivered, the Holding Company and the
Association will comply in all material respects, at their own expense, with all
requirements imposed upon them by the OTS, the Conversion Regulations, the FDIC,
the SEC, by applicable state law and regulations and by the 1933 Act, the 1934
Act and the rules and regulations of the SEC promulgated under such statutes,
including, without limitation, Regulation M under the 1934 Act, in each case as
from time to time in force, so far as necessary to permit the continuance of
sales or dealing in shares of Common Stock during such period in accordance with
the provisions hereof and the Prospectus.
(g) If, at any time during the period when the Prospectus relating to the
Shares is required to be delivered, any event relating to or affecting the
Holding Company or the Association shall occur, as a result of which it is
necessary or appropriate, in the reasonable opinion of counsel for the Holding
Company and the Association to amend or supplement the Registration Statement or
Prospectus in order to make the Registration Statement or Prospectus not
misleading in light of the circumstances existing at the time it is delivered to
a purchaser, the Holding Company and the Association will, at their sole
expense, forthwith prepare, file with the SEC and the OTS and furnish to Capital
Resources a reasonable number of copies of any amendment or amendments of, or a
supplement or supplements to, the Registration Statement or Prospectus (in form
and substance reasonably satisfactory to Capital Resources and its counsel after
a reasonable time for review) which will amend or supplement the Registration
Statement or Prospectus so that as amended or supplemented it will not contain
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
existing at the time the Prospectus reasonably is delivered to a purchaser, not
misleading. For the purpose of this Agreement, the Holding Company and the
Association each will timely furnish to Capital Resources such information with
respect to itself as Capital Resources may from time to time request.
(h) The Holding Company and the Association will take all necessary
actions, in cooperation with Capital Resources, to qualify or register the
Shares for offering and sale by the Holding Company under the applicable
securities or blue sky laws of such jurisdictions in which the shares are
required under the Conversion Regulations to be sold or as Capital Resources and
the Association may mutually agree; provided, however, that the Holding Company
shall not be obligated to file any general consent to service of process or to
qualify to do business in any jurisdiction in which it is not so
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qualified. In each jurisdiction where any of the Shares shall have been
qualified or registered as above provided, the Holding Company will make and
file such statements and reports in each fiscal period as are or may be required
by the laws of such jurisdiction.
(i) The liquidation account for the benefit of account holders with account
balances of $50 or more as of the applicable record dates will be duly
established and maintained in accordance with the requirements of the OTS.
(j) The Holding Company and the Association will not sell or issue,
contract to sell or otherwise dispose of, for a period of 180 days after the
date hereof, without Capital Resources' prior written consent, any shares of
Common Stock other than in connection with any plan or arrangement described in
the Prospectus.
(k) The Holding Company shall register its Common Stock under Section 12(g)
of the 1934 Act concurrent with the stock offering pursuant to the Plan. The
Holding Company shall maintain the effectiveness of such registration for not
less than three years or such shorter period as permitted by the OTS.
(l) During the period during which the Holding Company's common stock is
registered under the 1934 Act or for three years from the date hereof, whichever
period is greater, the Holding Company will furnish to its stockholders as soon
as practicable after the end of each fiscal year an annual report (including a
balance sheet and statements of income, stockholders' equity and changes in
financial position or cash flow statement of the Holding Company as at the end
of and for such year, certified by independent public accountants and prepared
in accordance with Regulation S-X or Regulation S-B under the 1934 Act).
(m) During the period of three years from the date hereof, the Holding
Company will furnish to Capital Resources: (i) a copy of each public report of
the Holding Company furnished to or filed with the SEC under the 1934 Act or any
national securities exchange or system on which any class of securities of the
Holding Company is listed or quoted (including but not limited to, reports on
Form 10-K, 10-KSB, 10-QSB, 10-Q and 8-K and all proxy statements and annual
reports to stockholders), a copy of each public report of the Holding Company
mailed to its stockholders or filed with the SEC or the OTS or any other
supervisory or regulatory authority or any national securities exchange or
system on which any class of securities of the Holding Company is listed or
quoted, each press release and material news items and additional public
documents and information with respect to the Holding Company or the Association
as Capital Resources may reasonably request, and (ii) from time to time, such
other publicly available information concerning the Holding Company and the
Association as Capital Resources may reasonably request.
(n) The Holding Company and the Association will use the net proceeds from
the sale of the Shares in the manner set forth in the Prospectus under the
caption "Use of Proceeds."
(o) Other than as permitted by the Conversion Regulations, the 1933 Act,
the 1933 Act Regulations and the laws of any state in which the Shares are
qualified for sale, neither the Holding Company nor the Association will
distribute any prospectus, offering circular or other offering material in
connection with the offer and sale of the Shares.
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(p) The Holding Company will make generally available to its security
holders as soon as practicable, but not later than 90 days after the close of
the period an earnings statement (in form complying with the provisions of Rule
158 under the 1933 Act) covering a twelve-month period beginning not later than
the first day of the Holding Company's fiscal quarter next following the
effective date (as defined in said Rule 158) of the Registration Statement.
(q) The Holding Company will file with the SEC the information required
pursuant to Rule 463 under the 1933 Act.
(r) The Holding Company will use its best efforts to have quotations for
its shares available on the OTC-Bulletin Board or the pink sheets of the
National Quotation Bureau, Inc.
(s) The Association will maintain appropriate arrangements for depositing
all funds received from persons mailing subscriptions for or orders to purchase
Shares in the Subscription and Community Offerings on an interest-bearing basis
at the rate described in the Prospectus until the Closing Date and satisfaction
of all conditions precedent to the release of the Association's obligation to
refund payments received from persons subscribing for or ordering Shares in the
Subscription and Community Offerings in accordance with the Plan as described in
the Prospectus or until refunds of such funds have been made to the persons
entitled thereto or withdrawal authorizations canceled in accordance with the
Plan and as described in the Prospectus. The Association will maintain such
records of all funds received to permit the funds of each subscriber to be
separately insured by the FDIC (to the maximum extent allowable) and to enable
the Association to make the appropriate refunds of such funds in the event that
such refunds are required to be made in accordance with the Plan and as
described in the Prospectus.
(t) The Holding Company will register as a savings and loan holding company
under the HOLA within the period required by applicable law.
(u) The Holding Company and the Association will take such actions and
furnish such information as are reasonably requested by Capital Resources in
order for Capital Resources to ensure compliance with the "Interpretation of the
Board of Governors of the NASD on Free Riding and Withholding."
(v) The Association will not amend the Plan of Conversion without Capital
Resources' prior written consent in any manner that, in the reasonable opinion
of Capital Resources, would materially and adversely affect the sale of the
Shares or the terms of this Agreement except to comply with any regulatory
requirement.
SECTION 7. PAYMENT OF EXPENSES. Whether or not this Agreement becomes
effective, the Conversion is completed or the sale of the Shares by the Holding
Company is consummated, the Holding Company and the Association jointly and
severally agree to pay directly for or to reimburse Capital Resources for (to
the extent that such expenses have been reasonably incurred by Capital
Resources) (a) all filing fees and expenses incurred in connection with the
qualification or registration of the Shares for offer and sale by the Holding
Company under the securities or blue sky laws of any jurisdictions Capital
Resources and the Holding Company may agree upon pursuant to subsection (i) of
Section 6 above, including counsel fees paid or incurred by the Holding Company,
the Association or Capital Resources in connection with such qualification or
registration or exemption from qualification or registration; (b) all filing
fees in connection with all filings with the NASD; (c) any stock issue or
transfer taxes which may be payable with respect to the sale of the Shares to
purchasers in the
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Conversion; (d) reasonable and necessary expenses of the Conversion, including
but not limited to, attorneys' fees, transfer agent, registrar and other agent
charges, fees relating to auditing and accounting or other advisors and costs of
printing all documents necessary in connection with the Conversion; and (e) out-
of-pocket expenses incurred by Capital Resources in connection with the
Conversion or any of the transactions contemplated hereby, including, without
limitation, the fees of its attorneys, and reasonable communication and travel
expenses, as limited by Section 2 hereof.
SECTION 8. CONDITIONS TO CAPITAL RESOURCES' OBLIGATIONS. Capital
Resources' obligations hereunder, as to the Shares to be delivered at the
Closing Date, are subject to the condition that all representations and
warranties and other statements of the Holding Company and the Association
herein are, at and as of the commencement of the Subscription and Community
Offerings and at and as of the Closing Date, true and correct in all material
respects, the condition that the Holding Company and the Association shall have
performed in all material respects all of their obligations hereunder to be
performed on or before such dates, and to the following further conditions:
(a) At the Closing Date, the Holding Company and the Association will have
completed the conditions precedent to, and shall have conducted the Conversion
in all material respects in accordance with, the Plan, the Conversion
Regulations and all other applicable laws, regulations, decisions and orders,
including all terms, conditions, requirements and provisions precedent to the
Conversion imposed upon them by the OTS.
(b) The Registration Statement shall have been declared effective by the
SEC and the Conversion Application approved by the OTS not later than 5:30 p.m.
(eastern time) on the date of this Agreement, or with Capital Resources' consent
at a later time and date; and at the Closing Date no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act or proceedings therefore initiated or threatened by the SEC or any
state authority, and no order or other action suspending the authorization of
the Prospectus or the consummation of the Conversion shall have been issued or
proceedings therefore initiated or, to the Holding Company's or the
Association's knowledge, threatened by the SEC, the OTS, the FDIC or any state
authority.
(c) At the Closing Date, Capital Resources shall have received:
(1) The favorable opinion, dated as of the Closing Date addressed to
Capital Resources and for its benefit, of B&A counsel for the Holding Company
and the Association as to issues of law set forth below. The opinion of B&A
shall in form and substance be to the effect that:
(i) The Holding Company has been incorporated and is validly existing
as a corporation in good standing under the laws of the State of Indiana.
(ii) The Holding Company has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus.
(iii) The Association was organized and is a validly existing federally
chartered savings association in mutual form of organization and upon
consummation of the Conversion will become an organized and validly existing
federally chartered savings association in capital stock form of organization,
in both instances duly authorized to conduct its business and own its property
as described in the Registration Statement. The activities of the Association
as described in the Prospectus, insofar
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as they are material to the operations and financial condition of the
Association, are permitted by the rules and regulations of the OTS.
(iv) The Association is a member of the FHLB-Indianapolis, and the
deposit accounts of the Association are insured by the FDIC up to the maximum
amount allowed under law and to such counsel's knowledge no proceedings for the
termination or revocation of such insurance are pending or threatened; the
description of the liquidation account as set forth in the Registration
Statement and the Prospectus under the caption "The Conversion - Effects of
Conversion to Stock Form on Depositors and Borrowers of the Association -
Liquidation Account" to the extent that it constitutes matters of law, summaries
of legal matters, documents, proceedings or legal conclusions has been reviewed
by such counsel and is accurate in all material respects.
(v) On the Closing Date, the authorized, issued and outstanding capital
stock of the Holding Company will be within the range set forth in the
Registration Statement and the Prospectus under the caption "Capitalization,"
and to such counsel's knowledge no shares of Common Stock have been issued prior
to the Closing Date; at the time of consummation of the Conversion, the Shares
subscribed for pursuant to the Offerings will have been duly and validly
authorized for issuance, and when issued and delivered by the Holding Company
pursuant to the Plan against payment of the consideration calculated as set
forth in the Plan, will be duly and validly issued and fully paid and non-
assessable; and the issuance of the Shares is not subject to preemptive rights
provided by statute or the articles of incorporation of the Holding Company.
(vi) The issuance and sale of the common stock of the Association to the
Holding Company have been duly and validly authorized by all necessary corporate
action on the part of the Holding Company and the Association and, upon payment
therefor in accordance with the terms of the Plan of Conversion, the common
stock of the Association will be duly and validly issued, fully paid and non-
assessable and will be owned of record by the Holding Company to such counsel's
knowledge, free and clear of any mortgage, pledge, lien, encumbrance or claim
(legal or equitable).
(vii) This Agreement is a valid and binding obligation of the Holding
Company and the Association, enforceable in accordance with its terms (except as
the enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors of savings associations
or savings and loan holding companies, or by general equity principles,
regardless of whether such enforceability is considered in a proceeding in
equity or at law, and except as the obligations of the Association and the
Holding Company under the indemnification provisions of Sections 9 and 10 hereof
may be limited by law or unenforceable as against public policy, as to which, no
opinion need be expressed).
(viii) The Plan has been duly adopted by the required vote of the
Directors and, to such counsel's knowledge based on a certificate of the
inspector of elections, by the members of the Association.
(ix) Subject to the satisfaction of the conditions to the OTS's approval
of the Conversion and the Holding Company Application, no further approval,
registration, authorization, consent or other order of any regulatory agency,
public board or body is required in connection with the execution and delivery
of this Agreement, the issuance of the Shares and the consummation of the
Conversion, except as may be required under Blue Sky laws or the regulations of
the NASD. The
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Conversion has been consummated in all material respects in accordance with all
applicable provisions of the HOLA and the Conversion Regulations.
(x) The Conversion Application including the Prospectus as filed with
the OTS was complete in all material respects and has been approved by the OTS.
The OTS has issued its order of approval under the savings and loan holding
company provisions of the HOLA, and the purchase by the Holding Company of all
of the issued and outstanding capital stock of the Association has been
authorized by the OTS and to such counsel's knowledge, no action has been taken,
or to counsel's knowledge is pending or threatened, to revoke any such
authorization or approval .
(xi) The Registration Statement is effective under the 1933 Act and to
such counsel's knowledge, no stop order suspending the effectiveness has been
issued under the 1933 Act or proceedings therefor initiated or threatened by the
SEC.
(xii) At the time the Conversion Application, including the Prospectus
contained therein, was approved, the Conversion Application including the
Prospectus contained therein (as amended or supplemented, if so amended or
supplemented) complied as to form in all material respects with the requirements
of all rules and regulations of the OTS (except as to the financial statements,
other financial and statistical data and stock valuation and pro forma
information included therein as to which such counsel need express no opinion);
to such counsel's knowledge, all material documents and exhibits required to be
filed with the Conversion Application (as amended or supplemented, if so amended
or supplemented) have been so filed. The description in the Conversion
Application and the Prospectus contained therein of such documents and exhibits
is accurate in all material respects. To such counsel's knowledge, no person
has sought to obtain regulatory or judicial review of the final action of the
OTS in approving the Conversion Application or in approving the Holding Company
Application.
(xiii) At the time that the Registration Statement became effective, (i)
the Registration Statement (as amended or supplemented if so amended or
supplemented) (other than the financial statements and other financial and
statistical data and stock valuation and pro forma information included therein,
as to which no opinion need be rendered), complied as to form in all material
respects with the requirements of the 1933 Act and the 1933 Act Regulations and
(ii) the Prospectus (other than the financial statements and other financial and
statistical data and the stock valuation and pro forma information included
therein, as to which no opinion need be rendered) complied as to form in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations. To such counsel's knowledge, all material documents and exhibits
required to be filed with the Registration Statement (as amended or
supplemented, if so amended or supplemented) have been so filed. The
description in the Registration Statement and the Prospectus of such documents
and exhibits is accurate in all material respects.
(xiv) The terms and provisions of the Common Stock of the Holding Company
conform to the description thereof contained in the Registration Statement and
the Prospectus, and the form of certificate used to evidence the Shares complies
with applicable requirements of Indiana law.
(xv) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened which are required to be disclosed in the
Registration Statement and the Prospectus, other than those disclosed therein,
provided that for this purpose, any litigation or governmental proceeding is not
considered to be "threatened" unless the potential litigant or governmental
authority has
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manifested to the management of the Holding Company or the Association, or to
such counsel, a present intention to initiate such litigation or proceeding.
(xvi) To such counsel's knowledge, the Holding Company and the
Association have obtained all licenses, permits and other governmental
authorizations required for the conduct of their respective businesses, except
where the failure to have such licenses, permits or authorizations would not
have a material adverse effect on the business, financial condition, operations
or income of the Holding Company and the Association on a consolidated basis,
and, to such counsel's knowledge, all such licenses, permits and other
governmental authorizations are in full force and effect.
(xvii) To such counsel's knowledge neither the Holding Company nor the
Association is in contravention of its articles of incorporation or its charter,
respectively, or its bylaws (and the Association will not be in contravention of
its charter or bylaws in stock form upon consummation of the Conversion) or, to
such counsel's knowledge, in default or violation of any material obligation,
agreement, covenant or condition contained in any material contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which it is a party
or by which it or its property may be bound which default or violation would be
material to the business of the Holding Company and the Association considered
as one enterprise; to such counsel's knowledge, the execution and delivery of
this Agreement by the Holding Company and the Association, the incurring of the
obligations herein set forth and the consummation of the transactions
contemplated herein have been duly authorized by all necessary corporate action
of the Holding Company and the Association, and, to such counsel's knowledge,
will not constitute a material breach of, or default under, or result in the
creation or imposition of any material lien, charge or encumbrance upon any
property or assets of the Holding Company or the Association which are material
to their business considered as one enterprise, pursuant to any material
contract, indenture, mortgage, loan agreement, note, lease or other instrument
to which the Holding Company or the Association is a party or by which any of
them may be bound, or to which any of the property or assets of the Holding
Company or the Association is subject. In addition to such counsel's knowledge,
such action will not result in any material violation of the provisions of the
articles of incorporation or bylaws of the Holding Company or the charter and
bylaws of the Association.
(xviii) To such Counsel's knowledge the Holding Company and the
Association are not in violation of any directive from the OTS or the FDIC
requiring them to make any material change in the method of conducting their
business.
(xix) The information in the Registration Statement and Prospectus under
the captions "Regulation," "Restrictions on Acquisition of the Holding Company,"
"The Conversion - Effects of Conversion to Stock Form on Depositors and
Borrowers of the Association - Tax Effects", "Taxation-Federal Taxation", and
"Description of Capital Stock of the Holding Company" to the extent that it
constitutes matters of law, summaries of legal matters, documents or
proceedings, or legal conclusions, has been reviewed by such counsel and is
correct in all material respects (except as to the financial statements and
other financial and statistical data and stock valuation and pro forma data
included therein as to which such counsel need express no opinion).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the United
States, to the extent such counsel deems proper and specified in such opinion
satisfactory to Capital Resources, upon the opinion of other counsel of good
standing (providing that such counsel states that Capital Resources is justified
in relying upon such specified opinion or opinions), and (B) as to matters of
fact, to the extent such counsel deems
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proper, on certificates of responsible officers of the Holding Company and the
Association and public officials (but not on conclusions of law which may be set
forth in said certificates); provided copies of any such opinion(s) or
certificates are delivered pursuant hereto or to Capital Resources together with
the opinion to be rendered hereunder by special counsel to the Holding Company
and the Association. Such counsel may assume that any agreement is the valid and
binding obligation of any parties to such agreement other than the Holding
Company or the Association.
(2) The letter of B&A, counsel for the Holding Company and the Association
addressed to Capital Resources, dated the Closing Date, in form and substance to
the effect that:
During the preparation of the Registration Statement and the Prospectus,
such counsel participated in conferences with officers, directors and
representatives of the Association and the Holding Company, representatives of
the independent public accountants for the Holding Company and the Association
and representatives of Capital Resources, at which the contents of the
Registration Statement and Prospectus were discussed. Based upon such
conferences and a review of corporate records of the Holding Company and the
Association as such counsel conducted in connection with the preparation of the
Registration Statement and Conversion Application, and on the basis of the
foregoing (relying as to factual matters on officers' certificates and other
statements of fact made by the Association and the Holding Company), nothing has
come to such counsel's attention that would lead them to believe that the
Registration Statement at the time it was declared effective or, the Prospectus
as of its date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (it being understood that such counsel need express no opinion
with respect to the financial statements schedules and other financial,
statistical, valuation and pro forma data included or statistical methodology
employed in the Registration Statement or Prospectus).
(3) The favorable opinion, dated as of the Closing Date, of Malizia, Spidi,
Sloane & Fisch, P.C., Capital Resources' counsel, with respect to such matters
as Capital Resources may reasonably require. Such opinion may rely upon the
opinions of counsel to the Holding Company and the Association, and as to
matters of fact, upon certificates of officers and directors of the Holding
Company and the Association delivered pursuant hereto or as such counsel shall
reasonably request.
(d) At the Closing Date, counsel to Capital Resources shall have been
furnished with such documents and opinions as they may reasonably require for
the purpose of enabling them to render the opinion as herein contemplated and
related proceedings or in order to evidence the occurrence or completeness of
any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained.
(e) At the Closing Date, Capital Resources shall receive a certificate of
the Chief Executive Officer and the Treasurer of the Holding Company and of the
Chief Executive Officer and Treasurer of the Association, dated as of such
Closing Date, to the effect that: (i) they have carefully examined the
Prospectus and, in their opinion, at the time the Prospectus became authorized
for final use, the Prospectus did not contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; (ii) since the date the Prospectus became authorized for final use,
in their opinion no event has occurred which should have been set forth in an
amendment or supplement to the Prospectus which has not been so set forth,
including specifically, but without limitation, any material adverse change in
the condition, financial or otherwise, or in the earnings, capital, properties,
or business affairs of the Holding Company or the Association, and the
conditions set forth in this Section 8 have been
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satisfied; (iii) to their knowledge since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there has
been no material adverse change in the condition, financial or otherwise, or in
the earnings, capital, properties, or business affairs of the Holding Company or
the Association, independently, or of the Holding Company and the Association
considered as one enterprise, whether or not arising in the ordinary course of
business; (iv) to the knowledge of such officers the representations and
warranties in Section 4 are true and correct with the same force and effect as
though expressly made at and as of the Closing Date; (v) to their knowledge, the
Holding Company and the Association have complied with all material agreements
and satisfied, in all material respects at or prior to the Closing Date, all
obligations required to be met by such date and will in all material respects
comply with all obligations to be satisfied by them after Conversion; (vi) to
their knowledge no stop order suspending the effectiveness of the Registration
Statement has been initiated or, to their knowledge, threatened by the SEC or
any state authority; (vii) no order suspending the Subscription or Community
Offerings, the Conversion, the acquisition of all of the shares of the
Association by the Holding Company or the effectiveness of the Prospectus has
been issued and to the best knowledge of the Holding Company or Association, no
proceedings for that purpose have been initiated or threatened by the OTS, the
SEC, the FDIC, or any state authority; and (viii) to their knowledge, no person
has sought to obtain review of the final action of the OTS approving the Plan.
(f) Prior to and at the Closing Date: (i) in the reasonable opinion of
Capital Resources, there shall have been no material adverse change in the
condition, financial or otherwise, or in the earnings, or the business affairs
or business prospects of the Holding Company or the Association independently,
or of the Holding Company or the Association, considered as one enterprise,
since the latest dates as of which such condition is set forth in the
Prospectus, except as referred to therein; (ii) there shall have been no
material transaction entered into by the Holding Company or the Association from
the latest date as of which the financial condition of the Holding Company or
the Association is set forth in the Prospectus other than transactions referred
to or contemplated therein; (iii) the Holding Company or the Association shall
not have received from the OTS or the FDIC any direction (oral or written) to
make any material change in the method of conducting their business with which
it has not complied (which direction, if any, shall have been disclosed to
Capital Resources) and which would reasonably be expected to have a material and
adverse effect on the business, operations or financial condition or income of
the Holding Company or the Association taken as a whole; (iv) neither the
Holding Company nor the Association shall have been in default (nor shall an
event have occurred which, with notice or lapse of time or both, would
constitute a default) under any provision of and agreement or instrument
relating to any material outstanding indebtedness; (v) no action, suit or
proceedings, at law or in equity or before or by any federal or state
commission, board or other administrative agency, shall be pending, or, to the
knowledge of the Holding Company or the Association, threatened against the
Holding Company or the Association or affecting any of their properties wherein
an unfavorable decision, ruling or finding would reasonably be expected to have
a material and adverse effect on the business, operations, financial condition
or income of the Holding Company or the Association, taken as a whole; and (vi)
the Shares have been qualified or registered for offering and sale under the
securities or blue sky laws of the jurisdictions as Capital Resources shall have
requested and as agreed to by the Holding Company.
(g) Concurrently with the execution of this Agreement, Capital Resources
shall receive a letter from M&S, dated the date hereof and addressed to Capital
Resources: (i) confirming that M&S is a firm of independent public accountants
within the meaning of the 1933 Act and the 1933 Act Regulations and no
information concerning its relationship with or interests in the Holding Company
and the Association is required to be disclosed in the Prospectus by the
Conversion Regulations or Item 13 of the Registration Statement, and stating in
effect that in M&S's opinion the financial statements of the
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Association as are included in the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act and the
related published rules and regulations of the SEC thereunder and the Conversion
Regulations and generally accepted accounting principles; (ii) stating in effect
that, on the basis of certain agreed upon procedures (but not an audit
examination in accordance with generally accepted auditing standards) consisting
of a reading of the latest available unaudited interim financial statements of
the Association prepared by the Association, a reading of the minutes of the
meetings of the Board of Directors and members of the Association and
consultations with officers of the Association responsible for financial and
accounting matters, nothing came to their attention which caused them to believe
that: (A) such unaudited financial statements are not in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in the
Prospectus; or (B) during the period from the date of the latest audited
financial statements included in the Prospectus to a specified date not more
than five business days prior to the date hereof, there has been (1) any
increase in the long term debt of the Association or (2) an increase of greater
than [$20,000] in non performing assets (consisting of accruing loans past due
90 days or more, non-accruing loans and foreclosed assets) or (3) any decrease
in the allowance for loan losses or (4) any decrease in total equity or (5) a
decrease in net income when compared to the like period in 1997 or (6) any
change in total assets of the Association in an amount greater than $[1,000,000]
(excluding the proceeds of stock subscriptions); and (iii) stating that, in
addition to the audit examination referred to in its opinion included in the
Prospectus and the performance of the procedures referred to in clause (ii) of
this subsection (g), they have compared with the general accounting records of
the Holding Company and/or the Association, as applicable, which are subject to
the internal controls of the Holding Company and/or the Association, as
applicable, accounting system and other data prepared by the Holding Company
and/or the Association, as applicable, directly from such accounting records, to
the extent specified in such letter, such amounts and/or percentages set forth
in the Prospectus as Capital Resources may reasonably request; and they have
found such amounts and percentages to be in agreement therewith (subject to
rounding).
(h) At the Closing Date, Capital Resources shall receive a letter from M&S,
dated the Closing Date, addressed to Capital Resources, confirming the
statements made by its letter delivered by it pursuant to subsection (g) of this
Section 8, except that the "specified date" referred to in clause (ii)(B)
thereof to be a date specified in such letter, which shall not be more than
three business days prior to the Closing Date.
(i) The Holding Company and the Association shall not have sustained since
the date of the latest audited financial statements included in the Registration
Statement and Prospectus any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Registration
Statement and Prospectus.
(j) At or prior to the Closing Date, Capital Resources shall receive (i) a
copy of the letter from the OTS authorizing the use of the Prospectus, (ii) a
copy of the order from the SEC declaring the Registration Statement effective,
(iii) a copy of a certificate from the OTS evidencing the corporate existence of
the Association, (iv) certificate of good standing from the State of Indiana
evidencing the good standing of the Holding Company and (v) a copy of the letter
from the OTS approving the Holding Company Application.
(k) As soon as available after the Closing Date, Capital Resources shall
receive a copy of the Association's certified stock charter.
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(1) Subsequent to the date hereof, there shall not have occurred any of the
following: (i) a suspension or limitation in trading in securities generally on
the New York Stock Exchange or American Stock Exchange or in the over-the-
counter market, or quotations halted generally on The Nasdaq Stock Market, or
minimum or maximum prices for trading being fixed, or maximum ranges for prices
for securities being required by either of such exchanges or the NASD or by
order of the SEC or any other governmental authority; (ii) a general moratorium
on the operations of commercial banks or federal savings banks or general
moratorium on the withdrawal of deposits from commercial banks or federal
savings banks declared by either federal or state authorities; (iii) the
engagement by the United States in hostilities which have resulted in the
declaration, on or after the date hereof, of a national emergency or war; or
(iv) a material decline in the price of equity or debt securities if, as to
clauses (iii) or (iv), the effect of such hostilities or decline, in Capital
Resources' reasonable judgment, makes it impracticable or inadvisable to proceed
with the Subscription or Community Offerings or the delivery of the Shares on
the terms and in the manner contemplated in the Registration Statement and the
Prospectus.
All such opinions, certifications, letters and documents shall be in
compliance with the provisions hereof only if they are, in the reasonable
opinion of Capital Resources and its counsel, satisfactory to Capital Resources
and its counsel. Any certificates signed by an officer or director of the
Holding Company or the Association and delivered to Capital Resources or its
counsel shall be deemed a representation and warranty by the Holding Company or
the Association to Capital Resources as to the statements made therein.
If any of the conditions specified in this Section shall not have been
fulfilled when and as required by this Agreement, this Agreement and all of
Capital Resources' obligations hereunder may be canceled by Capital Resources by
notifying the Association of such cancellation in writing or by telegram at any
time at or prior to the Closing Date, and any such cancellation shall be without
liability of any party to any other party except as otherwise provided in
Sections 2, 7, 9 and 10 hereof. Notwithstanding the above, if this Agreement is
canceled pursuant to this paragraph, the Holding Company and the Association
jointly and severally agree to reimburse Capital Resources for all out-of-pocket
expenses, (including without limitation the fees and expenses of Capital
Resources' counsel) reasonably incurred by Capital Resources and Capital
Resources' counsel at its normal rates, in connection with the preparation of
the Registration Statement and the Prospectus, and in contemplation of the
proposed Subscription or Community Offerings to the extent provided for in
Sections 2 and 7 hereof.
SECTION 9. INDEMNIFICATION.
(a) The Holding Company and the Association jointly and severally agree to
indemnify and hold harmless Capital Resources, its officers, directors, agents
and employees and each person, if any, who controls or is under common control
with Capital Resources within the meaning of Section 15 of the 1933 Act or
Section 20(a) of the 1934 Act, against any and all loss, liability, claim,
damage or expense whatsoever (including but not limited to settlement expenses),
joint or several, that Capital Resources or any of them may suffer or to which
Capital Resources and any such persons upon written demand for any expenses
(including fees and disbursements of counsel) incurred by Capital Resources or
any of them in connection with investigating, preparing or defending any
actions, proceedings or claims (whether commenced or threatened) to the extent
such losses, claims, damages, liabilities or actions (i) arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment or supplement
thereto), Prospectus (or any amendment or supplement thereto), the Conversion
Application or any Blue Sky
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application or other instrument or document of the Holding Company or the
Association or based upon written information supplied by the Holding Company or
the Association filed in any state or jurisdiction to register or qualify any or
all of the Shares or the subscription rights applicable thereto under the
securities laws thereof (collectively, the "Blue Sky Application"), or any
application or other document, advertisement, oral statement, or communication
("Sales Information") prepared, made or executed by or on behalf of the Holding
Company with its consent or based upon written or oral information furnished by
or on behalf of the Holding Company or the Association, whether or not filed in
any jurisdiction in order to qualify or register the Shares under the securities
laws thereof; (ii) arise out of or are based upon the omission or alleged
omission to state in any of the foregoing documents or information, a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; or,
(iii) arise from any theory of liability whatsoever relating to or arising from
or based upon the Registration Statement (or any amendment or supplement
thereto), Prospectus (or any amendment or supplement thereto), the Conversion
Application, any Blue Sky Application or Sales Information or other
documentation distributed in connection with the Conversion; provided, however,
that no indemnification is required under this paragraph (a) to the extent such
losses, claims, damages, liabilities or actions arise out of or are based upon
any untrue material statements or alleged untrue material statements in, or
material omission or alleged material omission from, the Registration Statement
(or any amendment or supplement thereto), the Conversion Application, any Blue
Sky Application, the Prospectus (or any amendment or supplement thereto), or
Sales Information made in reliance upon and in conformity with written
information furnished to the Holding Company or the Association by Capital
Resources regarding Capital Resources expressly for use under the captions "The
Conversion - The Subscription, Direct Community and Syndicated Community
Offerings - Syndicated Community Offering," "- Plan of Distribution for the
Subscription, Direct Community and Syndicated Community Offerings," or "-
Description of Sales Activities" in the Prospectus nor is indemnification
required for material oral misstatements made by Capital Resources, which are
not based upon information provided by the Association or the Holding Company
orally or in writing or based on information contained in the Registration
Statement (or any amendment or supplement thereto), preliminary or final
Prospectus (or any amendment or supplement thereto), the Conversion Application,
any Blue Sky Application or Sales Information distributed in connection with the
Conversion. In addition, the Association and the Holding Company will not be
liable under the foregoing provisions to the extent that the loss, claim,
damage, liability or action is expressly found in a final judgment by a court of
competent jurisdiction to have resulted from Capital Resources' bad faith or
gross negligence.
(b) Capital Resources agrees to indemnify and hold harmless the Holding
Company and the Association, their directors and officers, agents, servants and
employees and each person, if any, who controls the Holding Company or the
Association within the meaning of Section 15 of the 1933 Act or Section 20(a) of
the 1934 Act against any and all loss, liability, claim, damage or expense
whatsoever (including but not limited to settlement expenses), joint or several
which they, or any of them, may suffer or to which they, or any of them, may
become subject under all applicable federal and state laws or otherwise, and to
promptly reimburse the Holding Company, the Association and any such persons
upon written demand for any expenses (including fees and disbursements of
counsel) incurred by them, or any of them, in connection with investigating,
preparing or defending any actions, proceedings or claims (whether commenced or
threatened) to the extent such losses, claims, damages, liabilities or actions
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement (or any amendment or
supplement thereto), or the preliminary or final Prospectus (or any amendment or
supplement thereto), or the Conversion Application or any Blue Sky Application
or Sales Information or are based upon the omission or alleged omission to state
in any of the foregoing documents a material fact required to be stated therein
or necessary to make the statements
-23-
<PAGE>
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that Capital Resources obligations under this
Section 9(b) shall exist only if and only to the extent that such untrue
statement or alleged untrue statement was made in, or such material fact or
alleged material fact was omitted from, the Registration Statement (or any
amendment or supplement thereto), the Prospectus (or any amendment or supplement
thereto), or the Conversion Application, any Blue Sky Application or Sales
Information in reliance upon and in conformity with written information
furnished to the Holding Company or the Association by Capital Resources
regarding Capital Resources expressly for use under the caption "The Conversion
- - The Subscription, Direct Community and Syndicated Community Offering -
Syndicated Community Offering," "- Plan of Distribution for the Subscription,
Direct Community and Syndicated Community Offerings," "- Description of Sales
Activities" in the Prospectus or in the event of oral misstatements made by
Capital Resources, which are not based upon information provided by the
Association or the Holding Company orally or in writing or based on information
contained in the Registration Statement (or any amendment or supplement
thereto), Prospectus (or any amendment or supplement thereto), the Conversion
Application, any Blue Sky Application or Sales Information distributed in
connection with the Conversion. In addition, Capital Resources will not be
liable under the foregoing provisions to the extent that the loss, claim,
damage, liability or action is expressly found in a final judgment by a court of
competent jurisdiction to have resulted from the Association's or the Holding
Company's bad faith or gross negligence.
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, proceeding, claim (whether commenced or
threatened), or suit instituted against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve it from any liability which it may have on account of this Section 9 or
otherwise. An indemnifying party may participate at its own expense in the
defense of such action. In addition, if it so elects within a reasonable time
after receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume defense of such action
with counsel chosen by it and approved by the indemnified parties that are
defendants in such action, unless such indemnified parties reasonably object to
such assumption on the ground that there may be legal defenses available to them
that are different from or in addition to those available to such indemnifying
party. If an indemnifying party assumes the defense of such action, the
indemnifying parties shall not be liable for any fees and expenses of counsel
for the indemnified parties incurred thereafter in connection with such action,
proceeding or claim, other than reasonable costs of investigation. In no event
shall the indemnifying parties be liable for the fees and expenses of more than
one separate firm of attorneys (and any special counsel that said firm may
retain) for all indemnified parties in connection with any one action,
proceeding or claim or separate but similar or related actions, proceedings or
claims in the same jurisdiction arising out of the same general allegations or
circumstances.
(d) This Section 9 and Section 10 hereof and the representations and
warranties of the Holding Company and the Association set forth in this
Agreement shall survive, remain operative and in full force and effect
regardless of any termination of this Agreement.
(e) No indemnification by the Association under Section 9(a) hereof nor
contribution under Section 10 hereof shall be effective if the same shall be
deemed to be in violation of any law, rule or regulation applicable to the
Association including, without limitation, Section 23A of the Federal Reserve
Act. If the indemnification or contribution by the Association is not effective
pursuant to the preceding sentence, then the indemnification by Capital
Resources pursuant to Section 9(b) shall be given only to the Holding Company,
its directors and officers, agents, servants and employees and not to the
Association, its directors and officers, agents, servants and employees and the
Association shall not be entitled to any contribution from Capital Resources
pursuant to Section 10.
-24-
<PAGE>
SECTION 10. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 9 is due in accordance with its terms but is for any reason unavailable
as a result of Section 9(e) or held by a court to be unavailable from the
Holding Company, the Association or Capital Resources, the Holding Company, the
Association and Capital Resources shall contribute to the aggregate losses,
claims, damages and liabilities (including any investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement of any
action, suit or proceeding of any claims asserted, but after deducting any
contribution received by the Holding Company or the Association or Capital
Resources from persons other than the other party thereto, who may also be
liable for contribution) in such proportion so that Capital Resources is
responsible for that portion represented by the percentage that the fees paid to
Capital Resources pursuant to Section 2 of this Agreement (not including
expenses) bears to the gross proceeds received by the Holding Company from the
sale of the Shares in the Subscription and Community Offerings and the Holding
Company and the Association shall be responsible for the balance. If, however,
the allocation provided above is not permitted by applicable law or if the
indemnified party failed to give the notice required under Section 9 above, then
each indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative fault of the Holding Company and the Association on the one hand and
Capital Resources on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions,
proceedings or claims in respect thereof), but also the relative benefits
received by the Holding Company and the Association on the one hand and Capital
Resources on the other from the offering as well as any other relevant equitable
considerations. The relative benefits received by the Holding Company and the
Association on the one hand and Capital Resources on the other shall be deemed
to be in the same proportion as the total gross proceeds from the Subscription
and Community Offerings (before deducting expenses) received by the Holding
Company bear to the total fees (not including expenses) received by Capital
Resources. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Holding Company and/or the Association on the one hand or
Capital Resources on the other and the parties' relative intent, good faith,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Holding Company, the Association and Capital
Resources agree that it would not be just and equitable if contribution pursuant
to this Section 10 were determined by pro rata allocation or by any other method
of allocation which does not take account of the equitable considerations
referred to above in this Section 10. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
action, proceedings or claims in respect thereof) referred to above in this
Section 10 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action, proceeding or claim. It is expressly agreed that Capital
Resources shall not be liable for any loss, liability, claim, damage or expense
or be required to contribute any amount which in the aggregate exceeds the
amount paid (excluding reimbursable expenses) to Capital Resources under this
Agreement. It is understood that the above-stated limitation on Capital
Resources' liability is essential to Capital Resources and that Capital
Resources relied upon such limitation and would not have entered into this
Agreement if such limitation had not been agreed to by the parties to this
Agreement. No person found guilty of any fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not found guilty of such fraudulent misrepresentation.
The obligations of the Holding Company and the Association under this Section 10
and under Section 9 shall be in addition to any liability which the Holding
Company and the Association may otherwise have. For purposes of this Section 10,
each of Capital Resources', the Holding Company's or the Association's officers
and directors and each person, if any, who controls Capital Resources or the
Holding Company or the Association within the meaning of the 1933 Act and the
1934 Act shall have the same rights to contribution as the
-25-
<PAGE>
Holding Company and the Association. Any party entitled to contribution,
promptly after receipt of notice of commencement of any action, suit, claim or
proceeding against such party in respect of which a claim for contribution may
be made against another party under this Section 10, will notify such party from
whom contribution may be sought, but the omission to so notify such party shall
not relieve the party from whom contribution may be sought from any other
obligation it may have hereunder or otherwise than under this Section 10. This
Section 10 is subject to and limited by the provisions of Section 23A of the
Federal Reserve Act, as applicable.
SECTION 11. SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND INDEMNITIES. The
respective indemnities of the Holding Company, the Association and Capital
Resources and the representations and warranties and other statements of the
Holding Company and the Association set forth in or made pursuant to this
Agreement shall remain in full force and effect, regardless of any termination
or cancellation of this Agreement or any investigation made by or on behalf of
Capital Resources, the Holding Company, the Association or any indemnified
person referred to in Section 9 hereof, and shall survive the issuance of the
Shares, and any legal representative, successor or assign of Capital Resources,
the Association, and any such indemnified person shall be entitled to the
benefit of the respective agreements, indemnities, warranties and
representations.
SECTION 12. TERMINATION. Capital Resources may terminate this Agreement
by giving the notice indicated below in this Section at any time after this
Agreement becomes effective as follows:
(a) In the event the Holding Company fails to sell all of the Shares within
the period specified, and in accordance with the provisions of the Plan or as
required by the Conversion Regulations and applicable law, this Agreement shall
terminate upon refund by the Association to each person who has subscribed for
or ordered any of the Shares the full amount which it may have received from
such person, together with interest as provided in the Prospectus, and no party
to this Agreement shall have any obligation to the other hereunder, except as
set forth in Sections 2, 7, 9 and 10 hereof.
(b) If any of the conditions specified in Section 8 shall not have been
fulfilled when and as required by this Agreement, or by the Closing Date, or
waived in writing by Capital Resources, this Agreement and all of Capital
Resources obligations hereunder may be canceled by Capital Resources by
notifying the Association of such cancellation in writing or by telegram at any
time at or prior to the Closing Date, and, any such cancellation shall be
without liability of any party to any other party except as set forth in
Sections 2, 7, 9 and 10 hereof.
(c) If Capital Resources elects to terminate this Agreement as provided in
this section, the Holding Company and the Association shall be notified as
provided in Section 13 hereof, promptly by Capital Resources by telephone or
telegram, confirmed by letter.
SECTION 13. NOTICES. All communications hereunder, except as herein
otherwise specifically provided, shall be mailed in writing and if sent to
Capital Resources shall be mailed, delivered or telegraphed and confirmed to
Capital Resources, Inc., 1211 Connecticut Avenue, N.W., Suite 700, Washington,
D.C. 20036 Attention: Ms. Catherine K. Rochester (with a copy to Malizia,
Spidi, Sloane & Fisch, P.C., 1301 K. Street, N.W., Suite 700 East, Washington,
D.C. 20005, Attention: John J. Spidi, Esq.) and, if sent to the Holding Company
and the Association, shall be mailed, delivered or telegraphed and confirmed to
the Holding Company and the Association at 819 Main Street, Tell City, Indiana,
47586, Attention: Mr. Carl D. Smith (with a copy to Breyer & Aguggia, 1300 I
Street, N.W., Suite 470 East, Washington D.C., Attention: Paul M. Aguggia,
Esq.)
-26-
<PAGE>
SECTION 14. PARTIES. The Holding Company and the Association shall be
entitled to act and rely on any request, notice, consent, waiver or agreement
purportedly given on behalf of Capital Resources when the same shall have been
given by the undersigned. Capital Resources shall be entitled to act and rely
on any request, notice, consent, waiver or agreement purportedly given on behalf
or the Holding Company or the Association, when the same shall have been given
by the undersigned or any other officer of the Holding Company or the
Association. This Agreement shall inure solely to the benefit of, and shall be
binding upon, Capital Resources and the Holding Company, the Association and the
controlling persons referred to in Section 9 hereof, and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
SECTION 15. CLOSING. The closing for the sale of the Shares shall take
place on the Closing Date at the offices of B&A, or such other location as
mutually agreed upon by Capital Resources, the Holding Company and the
Association. At the closing, the Association shall deliver to Capital Resources
in next day funds the commissions, fees and expenses due and owing to Capital
Resources as set forth in Sections 2 and 7 hereof and the opinions and
certificates required hereby and other documents deemed reasonably necessary by
Capital Resources shall be executed and delivered to effect the sale of the
Shares as contemplated hereby and pursuant to the terms of the Prospectus.
SECTION 16. PARTIAL INVALIDITY. In the event that any term, provision or
covenant herein or the application thereof to any circumstances or situation
shall be invalid or unenforceable, in whole or in part, the remainder hereof and
the application of said term, provision or covenant to any other circumstance or
situation shall not be affected thereby, and each term, provision or covenant
herein shall be valid and enforceable to the full extent permitted by law.
SECTION 17. CONSTRUCTION. This Agreement shall be construed in accordance
with the laws of the District of Columbia.
SECTION 18. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which so executed and delivered shall be an original, but
all of which together shall constitute but one and the same instrument.
SECTION 19. HEADINGS. Section headings are not to be considered part of
this Agreement, are for convenience and reference only and are not to be deemed
to be full or accurate descriptions of the contents of any paragraph or
subparagraph.
SECTION 20. ENTIRE AGREEMENT: AMENDMENT. This Agreement represents the
entire understanding of the parties hereto with reference to the transactions
contemplated hereby and supersedes any and all other oral or written agreements
heretofore made, except for (i) the engagement letter, dated November 18, 1997
by and between Capital Resources and the Association relating to Capital
Resources providing marketing agent services to the Holding Company and the
Association in connection with the Conversion and (ii) the two other engagement
letters, also dated 11/18/97, by and between Capital Resources Group, Inc. and
the Association, relating to Capital Resources Group, Inc. providing records
management services, and appraisal and business planning assistance to the
Association in connection with the Conversion. In the event of a conflict
between any provision of this Agreement and any provision of any of the other
writings identified in the preceding sentence, the provisions of this Agreement
shall control. No waiver, amendment or other modification of this Agreement
shall be effective unless in writing and signed by the parties hereto.
-27-
<PAGE>
Time shall be of the essence of this Agreement.
-28-
<PAGE>
If the foregoing correctly sets forth the arrangement among the Holding
Company, the Association and Capital Resources, please indicate acceptance
thereof in the space provided below for that purpose, whereupon this letter and
Capital Resources' acceptance shall constitute a binding agreement.
Very truly yours,
PCB HOLDING COMPANY
By:
--------------------------------
Carl Smith, President and
Chief Executive Officer
PEOPLES BUILDING AND LOAN ASSOCIATION, F.A.
By:
-------------------------------
Carl Smith, President and
Chief Executive Officer
Accepted as of the date first above written.
CAPITAL RESOURCES, INC.
By:
-------------------------------------
Catherine K. Rochester, President
-29-
<PAGE>
EXHIBIT A
BROKER APPROVED STATES
- ------ ---------------
Capital Resources California
Colorado
Connecticut
District
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Minnesota
Missouri
New Jersey
New Mexico
New York
North Carolina
Nevada
Ohio
Oregon
Pennsylvania
South Carolina
Tennessee
Texas
Virginia
Washington
West Virginia
Wisconsin
-30-
<PAGE>
PCB Holding Company
(an Indiana-chartered corporation)
Up to 396,750 Shares
(Par Value $0.01 Per Share)
Form of Selected Dealers' Agreement
, 1998
[ ]
[ ]
[ ] [ ], [ ]
Gentlemen:
We have agreed to assist PCB Holding Company (the "Company") and Peoples
Building and Loan Association, a federally chartered mutual savings association
(the "Bank"), in connection with the offer and sale of up to 396,750 shares of
the Company's common stock, $0.01 par value (the "Shares"), to be issued in
connection with the conversion of the Bank to a federally chartered stock
savings association (the "Conversion"). The total number of Shares may be
decreased to a minimum of 255,000 Shares. The Shares, the number of shares to be
issued, and certain of the terms on which they are being offered, are more fully
described in the enclosed Prospectus dated ______, 1998 (the "Prospectus").
In connection with its Conversion, the Company has offered the Shares in a
Subscription Offering to certain account holders and other members of the Bank
as well as in a Direct Community Offering. The Shares are also being offered in
accordance with the Plan of Conversion by a selling group of broker-dealers.
We are offering the selected dealers (of which you are one) the opportunity
to participate in the solicitation of offers to buy the Shares and we will pay
you a fee in the amount of _____ percent (______%) of the dollar amount of the
Shares sold on behalf of the Company by you, as evidenced by the authorized
designation of your firm on the order form or forms of such Shares accompanying
the funds transmitted for payment therefor to the special account established by
the Company for the purpose of holding such funds. It is understood, of course,
that payment of your fee will be made only out of compensation received by us
for the Shares sold on behalf of the Company by you, as evidenced in accordance
with the preceding sentence. As soon as practicable after the closing date of
the offering, we will remit to you, out of our compensation as provided above,
the fees to which you are entitled hereunder.
Each order form for the purchase of Shares must set forth the identity and
---- --------
address of each person to whom the certificates for such Shares should be issued
- -------
and delivered. Such order form should clearly identify your firm. You shall
instruct any subscriber who elects to send his order form to you to make any
accompanying check payable to "PCB Holding Company"
<PAGE>
[SELECTED DEALER]
[ ] [ ], 1998
Page 2
This offer is made subject to the terms and conditions herein set forth and
is made only to selected dealers who are (i) members in good standing of the
National Association of Securities Dealers, Inc. ("NASD") who are to comply with
all applicable rules of the NASD, including without limitation, the "Free-Riding
and Withholding" interpretation (IM-2110-1) of the Board of Governors of the
NASD and Conduct Rule 2740 of the NASD's Conduct Rules, or (ii) foreign dealers
not eligible for membership in the NASD who agree (A) not to sell any Common
Stock within the United States, its territories or possessions or to persons who
are citizens thereof or residents therein and (B) in making other sales to
comply with the above-mentioned NASD Interpretation and Conduct Rules 2878, 2740
and 2750 as if they were NASD members, and Conduct Rule 2420 as it applies to
non-member brokers or dealers in a foreign country.
Orders for Shares will be strictly subject to confirmation and we, acting
on behalf of the Company and the Bank, reserve the right in our uncontrolled
discretion to reject any order in whole or in part, to accept or reject orders
in the order of their receipt or otherwise, and to allot. Neither you nor any
person is authorized by the Company, the Bank or by us to give any information
or make any representations other than those contained in the Prospectus in
connection with the sale of the Shares. No selected dealer is authorized to act
as agent for us when soliciting offers to buy the Shares from the public or
otherwise. No selected dealer shall engage in any stabilizing (as defined in
Regulation M promulgated under the Securities Exchange Act of 1934, as amended)
with respect to the Shares during the offering.
We and each selected dealer assisting in selling Shares pursuant hereto
agree to comply with the applicable requirements of the Securities Exchange Act
of 1934, as amended and applicable state rules and regulations. In addition, we
and each selected dealer confirm that the Securities and Exchange Commission
interprets Rule 15c2-8 promulgated under the Securities Exchange Act of 1934, as
amended, as requiring that a Prospectus be supplied to each person who is
expected to receive a confirmation of sale 48 hours prior to delivery of such
person's order form.
We and each selected dealer further agree to the extent that our customers
desire to pay for shares with funds held by or to be deposited with us, in
accordance with the interpretation of the Securities and Exchange Commission of
Rule 15c2-4 promulgated under the Securities Exchange Act of 1934, as amended,
either (a) upon receipt of an executed order form or direction to execute an
order on behalf of a customer, to forward the offering price for the Shares
ordered on or before twelve noon of the business day following receipt or
execution of an order form by us to the Company for deposit in a segregated
account or (b) to solicit indications of interest in which event (i) we will
subsequently contact any customer indicating interest to confirm the interest
and give an order form or to receive authorization to execute the order form on
the customer's behalf, (ii) we will mail acknowledgements of receipt of orders
<PAGE>
[SELECTED DEALER]
[ ] [ ], 1998
Page 3
to each customer confirming interest on the business day following such
confirmation, (iii) we will debit accounts of such customers on the fifth
business day (the "debit date") following receipt of the confirmation referred
to in (i) and (iv) we will forward completed order forms together with such
funds to the Company on or before twelve noon on the next business day following
the debit date for deposit in a segregated account. We and each selected dealer
acknowledge that if the procedure in (b) is adopted, our customers' funds are
not required to be in their accounts until the debit date. We and each selected
dealer agree that no method of payment, other than as set forth in this
paragraph, will be employed for shares of Shares sold pursuant to this
Agreement.
Unless earlier terminated by us, this Agreement shall terminate upon the
closing date of this offering. We may terminate this Agreement or any provisions
hereof at any time by written or telegraphic notice to you. Of course, our
obligations hereunder are subject to the successful completion of the offering.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of shares of
Shares sold on behalf of the Company by you under this Agreement.
We shall have full authority to take such actions as we may deem advisable
in respect of all matters pertaining to the offering. We shall be under no
liability to you except for the lack of good faith and for obligations expressly
assumed by us in this Agreement.
Upon application to us, we will inform you as to the states in which we
believe the Shares has been qualified for sale under, or are exempt from the
requirements of, the respective blue sky laws of such states, but we assume no
responsibility or obligation as to your rights to sell Shares in any state.
Additional copies of the Prospectus and any supplements thereto will be
supplied in reasonable quantities upon request.
Any notice from us to you shall be deemed to have been duly given if
mailed, telephoned, or telegraphed to you at the address to which this Agreement
is mailed.
This Agreement shall be construed in accordance with the laws of the
District of Columbia.
<PAGE>
[SELECTED DEALER]
[ ] [ ], 1998
Page 4
Please confirm your agreement hereto by signing and returning the
confirmation accompanying this letter at once to us at Capital Resources, Inc.,
1211 Connecticut Avenue, N.W., Suite 200, Washington, D.C. 20036. The enclosed
duplicate copy will evidence the agreement between us.
Sincerely,
CAPITAL RESOURCES, INC.
By:
--------------------------
<PAGE>
[SELECTED DEALER]
[ ] [ ], 1998
Page 5
CONFIRMATION:
We hereby confirm our agreement to participate in the solicitation of
offers to purchase Shares upon the terms and conditions set forth herein and
certify that we are a member in good standing of the National Association of
Securities Dealers, Inc.
[SELECTED DEALER]
By:
-------------------
Date: [ ] [ ], 1998
<PAGE>
Exhibit 8.1
1300 I Street, N.W.
Suite 470 East
Washington, D.C. 20005
Telephone (202) 737-7900
Breyer & Aguggia Facsimile (202) 737-7979
================================================================================
ATTORNEYS AT LAW
April 20, 1998
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
819 Main Street
Tell City, Indiana 47586
Re: Certain Federal Income Tax Consequences Relating to
Proposed Holding Company Conversion of Peoples
Building and Loan Association, F.A.
----------------------------------------------------
To the Board of Directors:
In accordance with your request, set forth herein is the opinion of this
firm relating to certain federal income tax consequences of (i) the proposed
conversion of Peoples Building and Loan Association, F.A. (the "Association")
from a federally-chartered mutual savings and loan association to a
federally-chartered stock savings bank (the "Converted Association") (the "Stock
Conversion") and (ii) the concurrent acquisition of 100% of the outstanding
capital stock of the Converted Association by a parent holding company formed at
the direction of the Board of Directors of the Association and to be known as
PCB Holding Company (the "Holding Company").
For purposes of this opinion, we have examined such documents and questions
of law as we have considered necessary or appropriate, including but not limited
to, the Plan of Conversion as adopted by the Association's Board of Directors on
January 14, 1998, and subsequently amended on March 16, 1998 (the "Plan"); the
federal mutual charter and bylaws of the Association; the certificate of
incorporation and bylaws of Holding Company; the Affidavit of Representations
dated April 17, 1998 provided to us by the Association and the Holding Company
(the "Affidavit"), and the Prospectus (the "Prospectus") included in the
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission ("SEC") on March 18, 1998 (the "Registration Statement"). In such
examination, we have assumed, and have not independently verified, the
genuineness of all signatures on original documents where due execution and
delivery are
<PAGE>
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
April 20, 1998
Page 2
requirements to the effectiveness thereof. Terms used but not defined herein,
whether capitalized or not, shall have the same meaning as defined in the Plan.
BACKGROUND
Based solely upon our review of such documents, and upon such information
as the Association has provided to us (which we have not attempted to verify in
any respect), and in reliance upon such documents and information, we set forth
herein a general summary of the relevant facts and proposed transactions,
qualified in its entirety by reference to the documents cited above.
The Association is a federally-chartered mutual savings and loan
association which is in the process of converting to a federally-chartered stock
savings bank. The Association was initially chartered in 1914 as an Indiana
mutual building and loan association. In 1998, the Association became a federal
mutual savings and loan assocation. The Association is also a member of the
Federal Home Loan Bank System and its deposits are federally insured under the
Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation. The Association operates out of one office in Tell City, Indiana.
The Association's principal business is attracting retail deposits from the
general public and using those funds to originate residential mortgage loans. At
December 31, 1997, the Association had total assets of $22.0 million, deposits
of $19.8 million and total retained earnings of $2.1 million.
As a federally-chartered mutual savings and loan association, the
Association has no authorized capital stock. Instead, the Association, in mutual
form, has a unique equity structure. A savings depositor of the Association is
entitled to payment of interest on his account balance as declared and paid by
the Association, but has no right to a distribution of any earnings of the
Association except for interest paid on his deposit. Rather, such earnings
become retained earnings of the Association.
However, a savings depositor does have a right to share pro rata, with
respect to the withdrawal value of his respective savings account, in any
liquidation proceeds distributed if the Association is ever liquidated. Savings
depositors and certain borrowers are members of the Association and thereby have
voting rights in the Association. Each savings depositor is entitled to cast
votes in proportion to the size of their account balances or fraction thereof
held in a withdrawable deposit account of the Association, and each borrower
member (hereinafter "borrower") is entitled to one vote in addition to the votes
(if any) to which such person is entitled
<PAGE>
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
April 20, 1998
Page 3
in such borrower's capacity as a savings depositor of the Association. All of
the interests held by a savings depositor in the Association cease when such
depositor closes his accounts with the Association.
The Holding Company was incorporated in March 1998 under the laws of the
State of Indiana as a general business corporation in order to act as a savings
institution holding company. The Holding Company has an authorized capital
structure of 5,000,000 shares of common stock and 1,000,000 shares of preferred
stock.
PROPOSED TRANSACTION
Management of the Association believes that the Stock Conversion offers a
number of advantages which will be important to the future growth and
performance of the Converted Association in that it is intended to (i) provide
substantially increased capital for investment in its business to expand the
operations of the Converted Association; (ii) provide future access to capital
markets; (iii) enhance the ability to diversify its operations into new business
activities; and (iv) afford depositors and others the opportunity to become
stockholders of the Converted Association and thereby participate more directly
in any future growth of the Converted Association.
Accordingly, pursuant to the Plan, the Association will undergo the Stock
Conversion whereby it will be converted from a federally-chartered mutual
savings and loan association to a federally-chartered stock savings bank to be
known as Peoples Community Bank. As part of the Stock Conversion, the
Association will amend its existing mutual savings and loan association charter
and bylaws to read in the form of a Federal Stock Charter and Bylaws. The
Converted Association will then issue to the Holding Company shares of the
Converted Association's common stock, representing all of the shares of capital
stock to be issued by the Converted Association in the Conversion, in exchange
for payment by the Holding Company of 50% of the net proceeds realized by the
Holding Company from such sale of its Common Stock, or such other percentage as
the Office of Thrift Supervision ("OTS") may authorize or require.
Also pursuant to the Plan, the Holding Company will offer its shares of
Common Stock for sale in a Subscription Offering and, if necessary, a Direct
Community Offering. The aggregate purchase price at which all shares of Common
Stock will be offered and sold pursuant to the Plan and the total number of
shares of Common Stock to be offered in the Conversion will be determined by the
Boards of Directors of the Association and the Holding Company on the basis of
the estimated pro forma market value of the Converted Association as a
subsidiary of the Holding Company. The estimated pro forma market value will be
determined by an independent appraiser.
<PAGE>
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
April 20, 1998
Page 4
Pursuant to the Plan, all such shares will be issued and sold at a uniform price
per share. The Stock Conversion, including the sale of newly issued shares of
the stock of the Converted Association to the Holding Company, will be deemed
effective concurrently with the closing of the sale of the Common Stock.
Under the Plan and in accordance with regulations of the OTS, the shares of
Common Stock will first be offered through the Subscription Offering pursuant to
nontransferable subscription rights on the basis of preference categories in the
following order of priority:
(1) Eligible Account Holders;
(2) Supplemental Eligible Account Holders; and
(3) Other Members.
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered in the Direct Community Offering in the following order of
priority:
(a) Natural persons and trust of natural persons who are residing in the
Local Community, consisting of Perry County, Indiana; and
(b) The general public.
Any shares of Common Stock not subscribed for in the Direct Community
Offering may be offered to certain members of the general public on a best
efforts basis by a selling group of broker dealers in a Syndicated Community
Offering.
The Plan also provides for the establishment of a Liquidation Account by
the Converted Association for the benefit of all Eligible Account Holders and
any Supplemental Eligible Account Holders in an amount equal to the net worth of
the Association as of the date of the latest statement of financial condition
contained in the final prospectus issued in connection with the Conversion. The
establishment of the Liquidation Account will not operate to restrict the use or
application of any of the net worth accounts of the Converted Association. The
account holders will have an inchoate interest in a proportionate amount of the
Liquidation Account with respect to each savings account held and will be paid
by the Converted Association in event of liquidation prior to any liquidation
distribution being made with respect to capital stock.
<PAGE>
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
April 20, 1998
Page 5
Following the Stock Conversion, voting rights in the Converted
Association shall be vested in the sole holder of stock in the Converted
Association, which will be the Holding Company. Voting rights in the Holding
Company after the Stock Conversion will be vested in the holders of the Common
Stock.
The Stock Conversion will not interrupt the business of the Association.
The Converted Association will continue to engage in the same business as the
Association immediately prior to the Stock Conversion, and the Converted
Association will continue to have its savings accounts insured by the SAIF. Each
depositor will retain a withdrawable savings account or accounts equal in dollar
amount to, and on the same terms and conditions as, the withdrawable account or
accounts at the time of Stock Conversion except to the extent funds on deposit
are used to pay for Common Stock purchased in the Stock Conversion. All loans of
the Association will remain unchanged and retain their same characteristics in
the Converted Association.
The Plan must be approved by the OTS and by an affirmative vote of at least
a majority of the total votes eligible to be cast at a meeting of the
Association's members called to vote on the Plan.
Immediately prior to the Conversion, the Association will have a positive
net worth determined in accordance with generally accepted accounting
principles.
OPINION
Based on the foregoing and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed transaction.
1. The Stock Conversion will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended (the "Code"), and no gain or loss will be recognized to
either the Association or the Converted Association as a result of the
Stock Conversion (see Rev. Rul. 80-105, 1980-1 C.B. 78).
2. The assets of the Association will have the same basis in the hands of
the Converted Association as in the hands of the Association
immediately prior to the Stock Conversion (Section 362(b) of the
Code).
<PAGE>
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
April 20, 1998
Page 6
3. The holding period of the assets of the Association to be received by
the Converted Association will include the period during which the
assets were held by the Association prior to the Stock Conversion
(Section 1223(2) of the Code).
4. No gain or loss will be recognized by the Converted Association on the
receipt of money from the Holding Company in exchange for shares of
common stock of the Converted Association (Section 1032(a) of the
Code). The Holding Company will be transferring solely cash to the
Converted Association in exchange for all the outstanding capital
stock of the Converted Association and therefore will not recognize
any gain or loss upon such transfer. (Section 351(a) of the Code; see
Rev. Rul. 69-357, 1969-1 C.B. 101).
5. No gain or loss will be recognized by the Holding Company upon receipt
of money from stockholders in exchange for shares of Common Stock
(Section 1032(a) of the Code).
6. No gain or loss will be recognized by the Eligible Account Holders and
Supplemental Eligible Account Holders of the Association upon the
issuance to them of deposit accounts in the Converted Association in
the same dollar amount and on the same terms and conditions in
exchange for their deposit accounts in the Association held
immediately prior to the Stock Conversion (Section 1001(a) of the
Code; Treas. Reg. ss.1.1001-1(a)).
7. The tax basis of the Eligible Account Holders' and Supplemental
Eligible Account Holders' savings accounts in the Converted
Association received as part of the Stock Conversion will equal the
tax basis of such account holders' corresponding deposit accounts in
the Association surrendered in exchange therefor (Section 1012 of the
Code).
8. Gain or loss, if any, will be realized by the deposit account holders
of the Association upon the constructive receipt of their interest in
the liquidation account of the Converted Association and on the
nontransferable subscription rights to purchase stock of the Holding
Company in exchange for their proprietary rights in the Association.
Any such gain will be recognized by the Association deposit account
holders, but only in an amount not in excess of the fair market value
of the liquidation account and subscription rights received. (Section
1001 of the Code; Paulsen v. Commissioner, 469 U.S. 131 (1985); Rev.
Rul. 69-646, 1969-2 C.B. 54.)
<PAGE>
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
April 20, 1998
Page 7
9. The basis of each account holder's interest in the Liquidation Account
received in the Stock Conversion and to be established by the
Converted Association pursuant to the Stock Conversion will be equal
to the value, if any, of that interest.
10. No gain or loss will be recognized upon the exercise of a subscription
right in the Stock Conversion. (Rev. Rul. 56-572, 1956-2 C.B. 182).
11. The basis of the Common Stock acquired in the Stock Conversion will be
equal to the purchase price of such stock, increased, in the case of
such stock acquired pursuant to the exercise of subscription rights,
by the fair market value, if any, of the subscription rights exercised
(Section 1012 of the Code).
12. The holding period of the Common Stock acquired in the Stock
Conversion pursuant to the exercise of subscription rights will
commence on the date on which the subscription rights are exercised
(Section 1223(6) of the Code). The holding period of the Common Stock
acquired in the Community Offering will commence on the date following
the date on which such stock is purchased (Rev. Rul. 70-598, 1970- 2
C.B. 168; Rev. Rul. 66-97, 1966-1 C.B. 190).
SCOPE OF OPINION
Our opinion is limited to the federal income tax matters described above
and does not address any other federal income tax considerations or any federal,
state, local, foreign or other tax considerations. If any of the information
upon which we have relied is incorrect, or if changes in the relevant facts
occur after the date hereof, our opinion could be affected thereby. Moreover,
our opinion is based on the case law, Code, Treasury Regulations thereunder and
Internal Revenue Service rulings as they now exist. These authorities are all
subject to change, and such change may be made with retroactive effect. We can
give no assurance that, after such change, our opinion would not be different.
We undertake no responsibility to update or supplement our opinion. This opinion
is not binding on the Internal Revenue Service and there can be no assurance,
and none is hereby given, that the Internal Revenue Service will not take a
position contrary to one or more of the positions reflected in the foregoing
opinion, or that our opinion will be upheld by the courts if challenged by the
Internal Revenue Service.
Regarding the valuation of subscription rights, we understand that the
Association has received an opinion of Capital Resources Group, Inc. to the
effect that the subscription rights have
<PAGE>
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
April 20, 1998
Page 8
no ascertainable market value. We express no opinion regarding the valuation of
the subscription rights.
CONSENTS
We hereby consent to the filing of this opinion with the OTS as an exhibit
to the Application H-(e)1-S filed by the Holding Company with the OTS in
connection with the Conversion and the reference to our firm in the Application
H-(e)1-S under Item 110.55 therein.
We also hereby consent to the filing of this opinion with the SEC and the
OTS as exhibits to the Registration Statement and the Association's Application
for Conversion on Form AC ("Form AC"), respectively, and the reference on our
firm in the Prospectus, which is a part of both the Registration Statement and
the Form AC, under the headings "THE CONVERSION -- Effect of Conversion to Stock
Form on Depositors and Borrowers of the Association -- Tax Effects" and "LEGAL
AND TAX OPINIONS."
Very truly yours,
/s/ Breyer & Aguggia
BREYER & AGUGGIA
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF MONROE SHINE & CO., INC. APPEARS HERE]
April 23, 1998
Board of Directors
Peoples Building and Loan Association, F.A.
PBC Holding Company
819 Main Street
Tell City, Indiana 47586
Re: Certain State Income Tax Consequences Relating to Proposed Holding
Company of Peoples Building and Loan Association, F.A.
To the Board of Directors:
In accordance with your request, set forth herein is the opinion of this firm
regarding certain Indiana income tax consequences of the proposed conversion of
Peoples Building and Loan Association, F.A., ("the Association") from a
federally-chartered mutual savings and loan association to a federally-chartered
stock savings bank (the "Converted Association")(the "Stock Conversion") and the
concurrent acquisition of 100% of the outstanding capital stock of the Converted
Association by at parent Holding Company formed at the direction of the Board of
Directors of the Association and to be known as PCB Holding Company, (the
"Holding Company").
In connection with the opinions expressed below, we have examined and relied
upon originals or copies, certified or otherwise identified to our satisfaction,
of the Plan of Conversion as adopted by the Association's Board of Directors of
January 14, 1998, and subsequently amended on March 16, 1998 (the "Plan"); the
federal mutual charter and bylaws of the Association; the Certificate of
Incorporation and bylaws of Holding Company; and the prospectus (the
"Prospectus") included in the registration statement on Form SB-2 filed with the
Securities and Exchange Commission on March 18, 1998 (the "Registration
Statement"). We have assumed the representations are true and that the parties
to the conversion will act in accordance with the Plan also, we have relied upon
the federal tax opinion of Breyer and Aguggia dated April 20, 1998 ("Federal Tax
Opinion"), incorporated hereunder by reference.
Pursuant to the Plan, the Association will undergo the stock conversion whereby
it will be converted from a federally-chartered savings and loan association to
a federally-chartered stock savings bank to be known as Peoples Community Bank.
As part of the stock conversion, the Association will amend its existing
mutual savings and loan association charter and bylaws to read in the form of a
federal stock charter and bylaws. The Converted Association will then issue to
the Holding Company shares of the Converted Association's common stock,
representing all of the shares of capital stock to be issued by the Converted
Association in the conversion, in exchange for payment by the Holding Company of
50% of the net proceeds realized by the Holding Company from such sale of its
common stock, or such other percentage as the Office of Thrift Supervision may
authorize or require.
<PAGE>
Also, pursuant to the Plan, the Holding Company will offer its shares of common
stock for sale in a subscription offering and if necessary, a direct community
offering. The aggregate purchase price at which all shares of common stock will
be offered and sold pursuant to the Plan and the total number of shares of
common stock to be offered in the conversion will be determined by the Board of
Directors of the Association and the Holding Company on the basis of the
estimated pro forma market value of the Converted Association as a subsidiary of
the Holding Company. The estimated pro forma market value will be determined by
an independent appraiser.
The Plan provides for the establishment of a liquidation account by the
Converted Association for the benefit of all eligible account holders and any
supplemental eligible account holders in an amount equal to the net worth of the
Association as of the date of the latest statement of financial condition
contained in the final prospectus issued in connection with the conversion. The
establishment of the liquidation account will not operate to restrict the use or
application of any of the net worth accounts of the Converted Association. The
liquidation account will be maintained by the Converted Association subsequent
to the conversion for the benefit of eligible account holders and supplemental
eligible account holders who retain their savings accounts in the Converted
Association. Each eligible account holder and supplemental eligible account
holder shall, with respect to each savings account held, have a related inchoate
interest in a portion of the liquidation account balance and will be paid by the
Converted Association in event of liquidation prior to any liquidation
distribution being made with respect to capital stock.
Based on and subject to the foregoing, and the conclusions stated in the Federal
Tax Opinion as to the federal income tax consequences of the proposed
transaction, it is our opinion that for Indiana income tax purposes, under
current law:
A. The stock conversion, Holding Company reorganization and the subsequent
stock offering will be treated in an identical manner as it is treated for
federal income tax purposes under the Internal Revenue Code. The Internal
Revenue Code in effect as of January 1, 1998, is incorporated by reference
into the income tax laws of the State of Indiana.
B. Under the income tax laws of the State of Indiana, consummation of the Plan
will not be a taxable event to the Converted Association, Holding Company,
or to the Association's depositors.
This opinion is given solely for the benefit of the parties to the Plan of
Conversion, the shareholders of the Holding Company and eligible account
holders, supplemental eligible account holders and other investors who purchase
common stock pursuant to the Plan of Conversion, and may not be relied upon by
any other party or entity or referred to in any document without our expressed
written consent. As noted above, this is limited to the Indiana income tax
consequences of the Plan of Conversion and we undertake no responsibility to
update or supplement our opinion.
Very truly yours,
/s/ Monroe Shine & Co., Inc.
Monroe Shine & Co., Inc.
:sgl
<PAGE>
Exhibit 10.1
FORM OF EMPLOYMENT AGREEMENT
FOR EXECUTIVE OFFICERS
THIS AGREEMENT is made effective as of ________________, 1998, by and
between PEOPLES COMMUNITY BANK (the "BANK"), PCB HOLDING COMPANY (the
"COMPANY"), an Indiana corporation; and ________________________ ("EXECUTIVE").
WHEREAS, EXECUTIVE serves in a position of substantial responsibility;
WHEREAS, the BANK wishes to assure itself of the services of EXECUTIVE for
the period provided in this Agreement; and
WHEREAS, EXECUTIVE is willing to serve in the employ of the BANK on a
full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, EXECUTIVE agrees to serve as
_______________ of the BANK. During said period, EXECUTIVE also agrees to serve,
if elected, as an officer and director of the COMPANY or any subsidiary or
affiliate of the COMPANY or the BANK. Executive shall render administrative and
management duties to the BANK such as are customarily performed by persons
situated in a similar executive capacity.
FOR SMITH
Specifically, EXECUTIVE shall perform all duties which are commonly
incident to the office of President and Chief Executive Officer including, but
not limited to, (i) managing the day-to-day operations of the BANK, (ii)
oversight of the BANK's compliance with applicable laws and regulations, (iii)
marketing of the BANK and its services, (iv) supervising the BANK's employees,
(v) reporting to the Board on the activities and condition of the BANK, and (vi)
making recommendations to the Board concerning the strategies, capital
structure, tactics and general operations of the BANK.
FOR BLACKFORD
Specifically, EXECUTIVE shall perform all duties which are commonly
incident to the office of a Vice President of the BANK including, but not
limited to, responsibility for the BANK's mortgage lending operations and such
other tasks related to the operations of the BANK as may be assigned to
EXECUTIVE by the Chief Executive Officer of the Bank.
<PAGE>
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date, and
continuing at each anniversary date thereafter, the Board of Directors of the
BANK (the "Board") may extend the Agreement for an additional year. Prior to the
extension of the Agreement as provided herein, the Board of Directors of the
BANK will conduct a formal performance evaluation of EXECUTIVE for purposes of
determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, EXECUTIVE shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the BANK; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
EXECUTIVE may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
such Board's judgment, will not present any conflict of interest with the BANK,
or materially affect the performance of EXECUTIVE's duties pursuant to this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The BANK
shall pay EXECUTIVE as compensation a salary of $________________ per year
("Base Salary"). Such Base Salary shall be payable in accordance with the
customary payroll practices of the BANK. During the period of this Agreement,
EXECUTIVE's Base Salary shall be reviewed at least annually; the first such
review will be made no later than one year from the date of this Agreement. Such
review shall be conducted by a Committee designated by the Board, and the Board
may increase EXECUTIVE's Base Salary. In addition to the Base Salary provided in
this Section 3(a), the BANK shall provide EXECUTIVE at no cost to EXECUTIVE with
all such other benefits as are provided uniformly to permanent full-time
employees of the BANK.
(b) The BANK will provide EXECUTIVE with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
EXECUTIVE was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the BANK will not, without
EXECUTIVE's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect EXECUTIVE's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), EXECUTIVE will be entitled to participate in or receive benefits
under any employee benefit plans including, but not limited to, retirement
plans, supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plan, medical coverage or any other employee benefit plan or
2
<PAGE>
arrangement made available by the BANK in the future to its senior executives
and key management employees, subject to, and on a basis consistent with, the
terms, conditions and overall administration of such plans and arrangements.
EXECUTIVE will be entitled to incentive compensation and bonuses as provided in
any plan, or pursuant to any arrangement of the BANK, in which EXECUTIVE is
eligible to participate. Nothing paid to EXECUTIVE under any such plan or
arrangement will be deemed to be in lieu of other compensation to which
EXECUTIVE is entitled under this Agreement, except as provided under Section
5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the BANK shall pay or reimburse EXECUTIVE for all reasonable travel
and other obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during EXECUTIVE's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the BANK of EXECUTIVE's full-time employment hereunder for any reason other than
a Change in Control, as defined in Section 5(a) hereof; disability, as defined
in Section 6(a) hereof; death; retirement, as defined in Section 7 hereof; or
Termination for Cause, as defined in Section 8 hereof; (ii) EXECUTIVE's
resignation from the BANK's employ, upon (A) unless consented to by EXECUTIVE, a
material change in EXECUTIVE's function, duties, or responsibilities, which
change would cause EXECUTIVE's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Sections 1 and 2, above (any such material change shall be deemed a continuing
breach of this Agreement), (B) a relocation of EXECUTIVE's principal place of
employment by more than 35 miles from its location at the effective date of this
Agreement, or a material reduction in the benefits and perquisites to EXECUTIVE
from those being provided as of the effective date of this Agreement, (C) the
liquidation or dissolution of the BANK, or (D) any material breach of this
Agreement by the BANK. Upon the occurrence of any event described in clauses
(A), (B), (C) or (D), above, EXECUTIVE shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within a reasonable period of time
not to exceed, except in case of a continuing breach, four (4) calendar months
after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the BANK shall pay
EXECUTIVE, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to EXECUTIVE for the remaining
term of the Agreement, including Base Salary, bonuses, and any other cash or
deferred compensation paid or to be paid (including the value of employer
contributions that would have been made on EXECUTIVE's behalf over the remaining
term of the agreement to any tax-qualified retirement plan sponsored by the BANK
as of the Date of
3
<PAGE>
Termination), to EXECUTIVE for the term of the Agreement provided, however, that
if the BANK is not in compliance with its minimum capital requirements or if
such payments would cause the BANK's capital to be reduced below its minimum
capital requirements, such payments shall be deferred until such time as the
BANK is in capital compliance. All payments made pursuant to this Section 4(b)
shall be paid in substantially equal monthly installments over the remaining
term of this Agreement following EXECUTIVE's termination; provided, however,
that if the remaining term of the Agreement is less than one (1) year
(determined as of EXECUTIVE's Date of Termination), such payments and benefits
shall be paid to EXECUTIVE in a lump sum within thirty (30) days of the Date of
Termination.
(c) Upon the occurrence of an Event of Termination, the BANK will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
termination. Such coverage shall cease upon the expiration of the remaining term
of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall have
occurred a Change in Control of the COMPANY or the BANK. For purposes of this
Agreement, a "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan Act of 1933 and 12 C.F.R.
Part 574, (b) any person (as such term is used in Sections 13(d) and 14(d)(2) of
the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of
securities of the COMPANY or the BANK representing twenty-five percent (35%) or
more of the combined voting power of the COMPANY's or the BANK's then
outstanding securities, (c) the membership of the board of directors of the
COMPANY or the BANK changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four (24) month
period (whether commencing before or after the date of adoption of this
Agreement) do not constitute a majority of the Board at the end of such period,
or (d) shareholders of the COMPANY or the BANK approve a merger, consolidation,
sale or disposition of all or substantially all of the COMPANY's or the BANK's
assets, or a plan of partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the BANK or the COMPANY has
reasonably determined that a Change in Control (as defined herein) has occurred,
EXECUTIVE shall be entitled to the benefits provided in paragraphs (c), (d) and
(e) of this Section 5 upon his subsequent involuntary termination following the
effective date of a Change in Control (or voluntary termination within twelve
(12) months of the effective date of a Change in Control following any material
demotion, loss of title, office or significant authority, material reduction in
his annual compensation or benefits (other than a reduction affecting the BANK's
personnel generally), or the relocation of his principal place of employment by
more than 35 miles from its location immediately prior to the Change in
Control), unless such termination is because of his death, retirement as
provided in Section 7, termination for Cause, or termination for Disability.
4
<PAGE>
(c) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK shall pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to 2.99
times EXECUTIVE's "base amount," within the meaning of ss.280G(b)(3) of the
Internal Revenue Code of 1986 ("Code"), as amended. Such payment shall be made
in a lump sum paid within ten (10) days of EXECUTIVE's Date of Termination.
(d) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK will cause to be continued life, medical,
dental and disability coverage substantially identical to the coverage
maintained by the BANK for EXECUTIVE prior to his severance. Such coverage shall
cease upon the expiration of thirty-six (36) months. In addition, EXECUTIVE
shall be entitled to receive the value of employer contributions that would have
been made on EXECUTIVE's behalf over the remaining term of the agreement to any
tax-qualified retirement plan sponsored by the BANK as of the Date of
Termination.
(e) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under ss.280G of the
Code, then, at the election of EXECUTIVE, (i) such payments or benefits shall be
payable or provided to EXECUTIVE over the minimum period necessary to reduce the
present value of such payments or benefits to an amount which is one dollar
($1.00) less than three (3) times EXECUTIVE's "base amount" under ss.280G(b)(3)
of the Code or (ii) the payments or benefits to be provided under this Section 5
shall be reduced to the extent necessary to avoid treatment as an excess
parachute payment with the allocation of the reduction among such payments and
benefits to be determined by EXECUTIVE.
6. TERMINATION FOR DISABILITY.
(a) If EXECUTIVE shall become disabled as defined in the BANK's then
current disability plan (or, if no such plan is then in effect, if EXECUTIVE is
permanently and totally disabled within the meaning of Section 22(e)(3) of the
Code as determined by a physician designated by the Board), the BANK may
terminate EXECUTIVE's employment for "Disability."
(b) Upon EXECUTIVE's termination of employment for Disability, the BANK
will pay EXECUTIVE, as disability pay, a bi-weekly payment equal to
three-quarters (3/4) of EXECUTIVE's
5
<PAGE>
bi-weekly rate of Base Salary on the effective date of such termination. These
disability payments shall commence on the effective date of EXECUTIVE's
termination and will end on the earlier of (i) the date EXECUTIVE returns to the
full-time employment of the BANK in the same capacity as he was employed prior
to his termination for Disability and pursuant to an employment agreement
between EXECUTIVE and the BANK; (ii) EXECUTIVE's full-time employment by another
employer; (iii) EXECUTIVE attaining the age of sixty-five (65); or (iv)
EXECUTIVE's death; or (v) the expiration of the term of this Agreement. The
disability pay shall be reduced by the amount, if any, paid to EXECUTIVE under
any plan of the BANK providing disability benefits to EXECUTIVE.
(c) The BANK will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
BANK for EXECUTIVE prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date EXECUTIVE returns to the
full-time employment of the BANK, in the same capacity as he was employed prior
to his termination for Disability and pursuant to an employment agreement
between EXECUTIVE and the BANK; (ii) EXECUTIVE's full-time employment by another
employer; (iii) EXECUTIVE's attaining the age of sixty-five (65); (iv)
EXECUTIVE's death; or (v) the expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to EXECUTIVE during any period during which
EXECUTIVE is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE; RESIGNATION
Termination by the BANK of EXECUTIVE based on "Retirement" shall mean
retirement at or after attaining age sixty-five (65) or in accordance with any
retirement arrangement established with EXECUTIVE's consent with respect to him.
Upon termination of EXECUTIVE upon Retirement, EXECUTIVE shall be entitled to
all benefits under any retirement plan of the BANK or the COMPANY and other
plans to which EXECUTIVE is a party. Upon the death of EXECUTIVE during the term
of this Agreement, the BANK shall pay to EXECUTIVE's estate the compensation due
to EXECUTIVE through the last day of the calendar month in which his death
occurred. Upon the voluntary resignation of EXECUTIVE during the term of this
Agreement, other than in connection with an Event of Termination, the BANK shall
pay to EXECUTIVE the compensation due to EXECUTIVE through his Date of
Termination.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of EXECUTIVE's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing,
6
<PAGE>
EXECUTIVE shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to him a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths (3/4) of the members of the
Board at a meeting of the Board called and held for that purpose (after
reasonable notice to EXECUTIVE and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, EXECUTIVE was guilty of conduct justifying termination for Cause
and specifying the reasons thereof. EXECUTIVE shall not have the right to
receive compensation or other benefits for any period after termination for
Cause. Any stock options granted to EXECUTIVE under any stock option plan or any
unvested awards granted under any other stock benefit plan of the BANK, the
COMPANY, or any subsidiary or affiliate thereof, shall become null and void
effective upon EXECUTIVE's receipt of Notice of Termination for Cause pursuant
to Section 10 hereof, and shall not be exercisable by EXECUTIVE at any time
subsequent to such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not prejudice
EXECUTIVE's right to compensation or other benefits under this Agreement.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement shall be terminated (except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his designee at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the BANK under the authority contained in Section 13(c) of the FDIA or
(ii) by
7
<PAGE>
the Director, or his designee at the time the Director or such designee approves
a supervisory merger to resolve problems related to operation of the BANK or
when the BANK is determined by the Director to be in an unsafe or unsound
condition. Any rights of the parties that have already vested, however, shall
not be affected by such action.
(f) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
ss.1828(k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the BANK or by EXECUTIVE shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of EXECUTIVE's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if EXECUTIVE's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, other than Termination for Cause,
the date specified in the Notice of Termination . In the event of EXECUTIVE's
Termination for Cause, the Date of Termination shall be the same as the date of
the Notice of Termination.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by EXECUTIVE in which case the Date
of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal there from having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
11. NON-COMPETITION.
(a) Upon any termination of EXECUTIVE's employment hereunder pursuant to an
Event of Termination as provided in Section 4 hereof, EXECUTIVE agrees not to
compete with the BANK and/or the COMPANY for a period of one (1) year following
such termination in any city, town or county in which the BANK and/or the
COMPANY has an office or has filed an application for regulatory approval to
establish an office, determined as of the effective date of such termination.
8
<PAGE>
EXECUTIVE agrees that during such period and within said cities, towns and
counties, EXECUTIVE shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the BANK and/or the
COMPANY. The parties hereto, recognizing that irreparable injury will result to
the BANK and/or the COMPANY, its business and property in the event of
EXECUTIVE's breach of this Subsection 11(a) agree that in the event of any such
breach by EXECUTIVE, the BANK and/or the COMPANY will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by EXECUTIVE, EXECUTIVE's partners, agents, servants,
employers, employees and all persons acting for or with EXECUTIVE. EXECUTIVE
represents and admits that in the event of the termination of his employment
pursuant to Section 4 hereof, EXECUTIVE's experience and capabilities are such
that EXECUTIVE can obtain employment in a business engaged in other lines and/or
of a different nature than the BANK and/or the COMPANY, and that the enforcement
of a remedy by way of injunction will not prevent EXECUTIVE from earning a
livelihood. Nothing herein will be construed as prohibiting the BANK and/or the
COMPANY from pursuing any other remedies available to the BANK and/or the
COMPANY for such breach or threatened breach, including the recovery of damages
from EXECUTIVE.
(b) EXECUTIVE recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the BANK and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the BANK. EXECUTIVE will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the BANK or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, EXECUTIVE may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the BANK. In the
event of a breach or threatened breach by EXECUTIVE of the provisions of this
Section, the BANK will be entitled to an injunction restraining EXECUTIVE from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the BANK or affiliates thereof, or from
rendering any services to any person, firm, corporation, other entity to whom
such knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the BANK from
pursuing any other remedies available to the BANK for such breach or threatened
breach, including the recovery of damages from EXECUTIVE.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
9
<PAGE>
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the BANK or any
predecessor of the BANK and EXECUTIVE, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to EXECUTIVE of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that EXECUTIVE is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the BANK, the COMPANY and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
10
<PAGE>
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Indiana,
unless otherwise specified herein; provided, however, that in the event of a
conflict between the terms of this Agreement and any applicable federal or state
law or regulation, including , specifically, 12 C.F.R. Section 563.39(b), the
provisions of such law or regulation shall prevail.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
miles from the location of the BANK, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
EXECUTIVE shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK, if EXECUTIVE is successful pursuant to a legal
judgment, arbitration or settlement.
21. INDEMNIFICATION.
The BANK shall provide EXECUTIVE (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
EXECUTIVE (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be involved by reason of his having been a director or officer of the
BANK (whether or not he continues to be a directors or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements. The provisions of 12 C.F.R. 545.121 shall
apply to the BANK's obligations under this Section 21.
11
<PAGE>
22. SUCCESSOR TO THE BANK OR THE COMPANY.
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent that
the BANK or the COMPANY would be required to perform if no such succession or
assignment had taken place.
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement to
be executed and their seal to be affixed hereunto by a duly authorized officer,
and EXECUTIVE has signed this Agreement, all on the ____ day of _____________,
1998.
ATTEST: PEOPLES COMMUNITY BANK
_______________________________ BY:_________________________________
[SEAL]
ATTEST: PCB HOLDING COMPANY
_______________________________ BY:________________________________
[SEAL]
WITNESS:
_______________________________ ___________________________________
Executive
12
<PAGE>
EXHIBIT 10.2
401(k) Salary Reduction
-----------------------
Non-Standardized
----------------
Adoption Agreement
------------------
IRS Serial #D359971a
Approved April 30, 1992
LINCOLN NATIONAL
LIFE INSURANCE CO.
A part of LINCOLN NATIONAL CORPORATION
1300 South Clinton Street Fort Wayne, IN 46801
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Internal Revenue Service Department of the Treasury
Plan Description: Prototype Non-standardized profit
Sharing Plan with CODA
FFN 50337590001-007 Case: 9100610 EIN: 35-0472300
BFD 01 Plan: 007 Letter Serial No: D359971a Washington, D.C. 20224
Person to Contact: Mr. Wolf
LINCOLN NATIONAL LIFE INSURANCE CO.
Telephone Number: (202) 566-6421
1300 South Clinton Street
P.O. Box 2340 Refer Report to E:EP:Q:I
Fort Wayne, IN 46801
Date: 4/30/92
</TABLE>
Dear Applicant:
In our opinion, the form of the plan identified above is acceptable under
section 401 of the Internal Revenue Code for use by employers for the benefit of
their employees. This opinion relates only to the acceptability of the form of
the plan under the Internal Revenue Code. It is not an opinion of the effect of
other Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
Our opinion on the acceptability of the form of the plan is not a ruling or
determination as to whether an employer's plan qualifies under Code section
401(a). Therefore, an employer adopting the form of the plan should apply for a
determination letter by filing an application with the Key District Director of
Internal Revenue Service on Form 5307, Short Form Application for Determination
for Employee Benefit Plan.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial
Number and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerely yours,
/s/ John Siveca
Chief, Employee Plans Qualifications Branch
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
NON-STANDARDIZED
401(K)SALARY REDUCTION PLAN AND TRUST PROTOTYPE PLAN
ADOPTION AGREEMENT
PLAN #007
IRS SERIAL # D359971A DATE APRIL 30, 1992
The PEOPLES BUILDING AND LOAN ASSOCIATION, INC.
--------------------------------------------------------------------------
(exact legal name of Employer)
(hereinafter referred to as the Employer), having its principal place of
business in Tell City Indiana
-------------------------------------------------------------------
(City) (State)
hereby adopts The Lincoln National Insurance Company Non-Standardized 401(k)
Salary Reduction Plan and Trust Prototype Plan, and further appoints as:
Trustee(s), James Tyler, Howard Traphagen, Marion Ress
------------------------------------------------------------------
__________________________________________________________________
Named Fiduciary*, Same ;
------------------------------------------------------------
Plan Administrator*, Same ; and
-------------------------------------------------------
Agent for Legal Service of Process*, Same .
-----------------------------------------
*If same as Employer, write 'Same'.
The Employer's Tax Year begins January 1 and ends December 31 .
--------------- -------------
Employer Telephone Number (812) 547-7094 .
-------------------------------------------
Business Code Number (same as shown on 1120) 6120 .
----------
Date Business Commenced April, 1914 .
----------------------
In connection herewith, the Employer makes the following statements and
selections:
This Plan shall be known as Peoples Building and Loan Association, Inc.
-------------------------------------
(name of Employer)
____________________________________ 401(k) Salary Reduction Plan and
Trust which shall be identified by Employer I.D. # 35-0575890
--------------
and Plan Serial # 002 (001, 002, etc. - assign sequentially).
-------
<PAGE>
The employer maintains, or has maintained, the following qualified plans: (List
all plans, including this Plan, ever maintained by the Employer starting with
Plan Serial #001.)
<TABLE>
<CAPTION>
Plan Status
------
Serial # Type of Plan In Force Terminated
- --------- ------------ -------- ----------
<S> <C> <C> <C>
The Peoples Building & Loan Association
001 Defined Benefit Pension Trust [_] [X]
- --------- ------------------------------------
002 Peoples Building and Loan Assn., Inc. [X] [_]
- --------- ------------------------------------
003 401K Salary Reduction Plan [_] [_]
- --------- ------------------------------------
004 [_] [_]
- --------- ____________________________________
005 [_] [_]
- --------- ____________________________________
</TABLE>
This Employer is _____ Sole Proprietor
_____ Partnership
X Corporation
-----
_____ S Corporation
_____ Professional Corporation
_____ Non Profit Corporation
[_] Yes [X] No Is the Employer a member of a Controlled Group of
Corporations, a group of businesses under common control, or
an Affiliated Service Group as defined below. THIS QUESTION
MUST BE ANSWERED "YES" OR "NO". If yes, complete the rest of
this section.
In the case of a group of employers which constitutes a Controlled Group of
Corporations, or an Affiliated Service Group [as defined in Section 414(b) and
414(m), respectively, of the Internal Revenue Code], or which constitutes one or
more trades or businesses whether or not incorporated which are under common
control [as defined in Section 414(c)], all such employers shall be considered a
single employer for purposes of determining plan qualification, minimum
participation, benefit accrual, vesting standards, and limitations on benefits
and contributions. The employers listed below are required to be aggregated with
the adopting employer under Code Sections 414(b), (c), (m) or (o), and shall
participate in this Plan to the extent indicated as evidenced by written
resolution adopting this Plan. (If there are no affiliated employers, indicate
None.)
- ----
<TABLE>
<CAPTION>
Employer Employer Participating Participation
Name I.D. # Employer Effective Date
-------- -------- ------------- --------------
<S> <C> <C> <C>
___________________________ --------- [_] Yes [_] No _______________
___________________________ --------- [_] Yes [_] No _______________
___________________________ --------- [_] Yes [_] No _______________
___________________________ --------- [_] Yes [_] No _______________
___________________________ --------- [_] Yes [_] No _______________
</TABLE>
If this Plan and Trust is adopted by more than one member of the aggregation
group, this Plan
[_] (a) shall be administered as one plan (i.e., contributions, and
forfeitures shall not be separated for each participating Employer).
[_] (b) shall be administered as a single employer plan for each
participating Employer [i.e., contributions shall be made by each
Employer only for those Participants employed by such Employer and
forfeitures shall be used to reduce the contribution made by the
applicable Employer - each asset pool shall be considered a separate
plan which must independently satisfy Code Section 401(a)(26)].
[X] (c) N/A
2
<PAGE>
Any Employee of a participating Employer must receive credit for service while
employed by any member of the aggregation group (including non-participating
employers) for purposes of vesting and eligibility under this Plan from the date
such Employer became a member of the aggregation group.
A-1.22 The adoption of this Plan constitutes: (check appropriate statement
and provide information)
[_] (a) The initial adoption of this Plan and Trust by the
Employer. The Effective Date of this Plan is __________________
___________________________________.
(month/day/year)
[X] (b) An [X] amendment and restatement, or [_] merger of the
following Plan(s) known as Peoples Building and Loan Association,
--------------------------------------
Inc., 401(k) Salary Reduction and Trust.
---------------------------------------
(name of Plans and Trusts)
with the original effective date(s) of September 31, 1986
------------------
(month/day/year)
The effective date of this amendment and restatement is
September 01, 1989
---------------------------------------
(month/day/year)
I. DEFINITIONS
A-1.38 Hours of Service: Hours of Service shall be determined on the basis
of the method selected below. The method selected shall be applied
to all Employees. If the Elapsed Time Method is selected in A-1.74,
Hours of Service as designated below shall be applicable for
eligibility purposes only. (Select one)
[X] (a) On the basis of actual hours for which an Employee is paid
or entitled to payment.
[_] (b) On the basis of days worked. An Employee shall be credited
with ten (10) Hours of Service if, under Section 1.38 of the
Plan, such Employee would be credited with at least one (1)
Hour of Service during such day.
[_] (c) On the basis of weeks worked. An Employee shall be credited
with 45 Hours of Service if, under Section 1.38 of the Plan,
such Employee would be credited with at least one (1) Hour
of Service during such week.
3
<PAGE>
[_] (d) On the basis of semi-monthly payroll periods. An Employee
shall be credited with 35 Hours of Service if, under Section
1.38 of the Plan, such Employee would be credited with at
least one (1) Hour of Service during such semi-monthly
period.
[_] (e) On the basis of months worked. An Employee shall be credited
with 190 Hours of Service if under Section 1.38 of the plan
such Employee would be credited with at least one (1) Hour
of Service during such month.
A-1.54 Plan Year: (select one and complete)
[X] (a) Shall be the consecutive 12 month period for which records
for this Plan shall be maintained beginning each September
----------
01 and ending each August 31.
-- ---------
[_] (b) There shall be a short Plan Year beginning ______________
and ending ______________. (The Plan must retain its
qualified status during this period.)
All subsequent Plan Years shall begin each ______________
and end each ______________.
The previous Plan Year prior to this amendment began
_________ and ended each ______________.
Adjustments for eligibility and vesting shall be made as
required by Section 11.04 if the Plan Year is changed.
A-1.55 For purposes of establishing Present Value to compute the Top-Heavy
Ratio, any benefit (under a Defined Benefit plan) shall be discounted
for mortality and interest based on the following: (If the Employer
maintains a Defined Benefit plan, this section must be completed.)
Interest Rate 7% Mortality Table 1983 Group Annuity Table
-- ----
[_] N/A The Employer has no Defined Benefit plan.
A-1.64 Years of Service with a predecessor employer:
Years of Service with _____________________________________, for whom
this Employer does not maintain a predecessor plan shall be considered
under the Plan for purposes of: (select as desired)
[_] (a) Vesting
[_] (b) Eligibility
[X] (c) None of the above
*A-1.71 For purposes of computing the Top-Heavy Ratio, the Valuation Date
shall be August 31 of each year.
---------
4
<PAGE>
A-1.73 Vesting Years of Service: Years of Service credited for vesting shall
exclude the years checked below subject to Section 11.01: (select as
desired)
[X] (a) Years of Service before the Employee's 18 (cannot exceed 18)
birthday. (If Regular Method is used, the Plan Year in which
the Employee attains age 18 shall not be excluded.)
[_] (b) Years of Service prior to the original Effective Date of
this Plan or a predecessor plan.
[_] (c) Years of Service prior to ____________________ (Date
selected may not be later than the original effective date
of this Plan or a predecessor plan.)
[_] (d) Years of Service during a period for which the Employee
declined(d) Years of Service during a period for which the
Employee declined(d) Years of Service during a period for
which the Employee declined to contribute to a plan
requiring Employee Contributions. In the case of a plan
using the elapsed time method, the Service which shall be
disregarded is the period with respect to which the
mandatory contribution is not made.
[_] (e) No exclusions.
Note: In general, a predecessor plan is a plan which terminates
within the five (5) year period immediately preceding or
following the establishment of this Plan.
A-1.74 Years of Service shall be computed under the following method:
(select one)
[X] (a) Regular Method--based on Hours of Service credited under the
method selected in A-1.38.
[_] (b) Elapsed Time Method--based on total time an Employee is
employed without regard to actual hours credited as
explained in Section 1.74 of this Plan.
II. ELIGIBILITY
A-2.01 (a) For purposes of plan coverage and benefits, employees of
affiliated employers required to be aggregated with the Employer
under Section 414(b), (c), (m) or (o) of the Code shall not be
---
treated as Employees of the Employer unless such affiliated
employers are identified as Participating Employers on page 2 of
this Adoption Agreement.
For purposes of plan coverage and benefits, the term "Employee"
[_] (1) shall include
[_] (2) shall not include
[X] (3) N/A (Employer has no "leased employees.")
"leased employees" who are required to be considered employees of
the Employer under Code Section 414(n) or (o).
5
<PAGE>
(b) The following classes of Employees of the Employer shall be
eligible to participate in the Plan:
[X] (1) All Employees
[_] (2) Hourly paid Employees
[_] (3) Salaried Employees
[_] (4) All Employees except Employees included in a unit of
Employees covered by a collective bargaining agreement
between the Employer and Employee representatives, if
retirement benefits were the subject of good faith
bargaining and if two percent or less of the Employees
of the Employer who are covered pursuant to that
agreement are professionals as defined in Section
1.410(b)-9(g) of the Regulations. For this purpose, the
term "employee representatives" does not include any
organization more than half of whose members are
Employees who are owners, officers, or executives of
the Employer.
[_] (5) Other __________________________________________
__________________________________________
The above classes of Employees
[_] (6) shall
[X] (7) shall not
include Employees who are non-resident aliens [within the meaning
of Section 7701(b)(1)(B)] and who receive no earned income
[within the meaning of Section 911(d)(2)] from the Employer which
constitutes income from sources within the United States [within
the meaning of Section 861(a)(3)].
(c) Minimum age and service requirements: (select one)
[X] (1) An Employee shall become a Participant on the Entry
Date coincident with or next following Age 21 (cannot
--
exceed 21) and the completion of 1 (cannot exceed 1
-
year) Eligibility Year of Service. MUST HAVE AT LEAST 2
ENTRY DATES, I.E., CANNOT ELECT (e)(1) BELOW.
If the Eligibility Year of Service includes a
fractional year, an Employee shall not be required to
complete any specified number of Hours of Service to
receive credit for such fractional year.
[_] (2) An Employee shall become a Participant on the Entry
Date coincident with or next following Age _____
(cannot exceed 20 1/2) and the completion of _____
(cannot exceed 1/2 year (6 months)] Eligibility Year of
Service. USE THIS PROVISION ONLY WHEN (e)(1) (ONE ENTRY
DATE) IS ELECTED BELOW.
6
<PAGE>
If the Eligibility Year of Service includes a
fractional year, an Employee shall not be required to
complete any specified number of Hours of Service to
receive credit for such fractional year.
(d) The preceding election in A-2.01(c) notwithstanding, Employees
who are actively employed on ___________________ shall be deemed
to have satisfied the
[_] (1) Age requirement as of the Effective Date.
[_] (2) Service requirement as of the Effective Date.
[_] (3) Age and service requirements as of the Effective
Date.
[X] (4) N/A (Age and Service requirements in A-2.01(c)
apply to all Employees.)
(e) Entry Date: Shall mean: (select one)
[_] (1) First day of Plan Year.
[X] (2) First day of Plan Year and the date 6 months after the
first day of the Plan Year.
[_] (3) The first date of the Plan Year and the dates which are
3, 6 and 9 months after the first day of the Plan Year.
(Not recommended.)
[_] (4) First day of each month. (Not recommended.)
III. PROFIT SHARING CONTRIBUTIONS AND ALLOCATIONS
A-3.01 Contributions
(a) The Employer shall contribute [select (1), (2) or (3)]
[X] (1) out of current or accumulated profits.
[_] (2) without regard to current or accumulated profits.
[_] (3) N/A [A-3.01(a)(6) is elected]
The amount of such contribution shall be: [select (4), (5) or
(6)]
[X] (4) As determined by the Board of Directors each year.
[_] (5) Other ________________________________________________
________________________________________________
[_] (6) The Employer will make no contribution under this
Section A-3.01(a). [Do not complete Sections A-3.01(b),
(d) and (e). Section A-3.01(c) must still be
completed.]
7
<PAGE>
(b) Allocation of contributions under A-3.01(a), above, shall be made
for all Participants who are credited with at least [select (1),
(2), or (3)]
[X] (1) 1,000 Hours of Service
[_] (2) 500 Hours of Service
[_] (3) one Hour of Service
during the Plan Year and [select (4 or (5)]
[X] (4) regardless of employment on the last day of the Plan
Year.
[_] (5) who is employed with the Employer on the last day of
the Plan Year.
The preceding notwithstanding , for Plan Years beginning after
December 31, 1989, if the Plan would otherwise fail to satisfy
the requirements of Code Section 401(a)(26) or 410(b) because the
Employer contributions have not been allocated to a sufficient
number or percentage of Participants for a Plan Year, then the
following rules shall apply:
(6) The group of Participants eligible to share in the
Employer's contribution shall be expanded to include
all Participants who are employed on the last day of
the Plan Year and who are credited with at least 500
Hours of Service.
(7) If after the application of paragraph (6) above, the
applicable test is still not satisfied, then the group
of Participants eligible to share in the Employer's
contribution shall be further expanded to include all
Participants who are credited with at least 500 Hours
of Service regardless of employment on the last day of
the Plan Year.
Note: Employer includes all employers which are required to
be aggregated with the Employer under Code Section
414(b), (c), (m) or (o).
(c) If a Participant dies, retires, or becomes disabled during the
Plan Year and does not complete the hours requirements for a
contribution, an allocation
[_] (1) shall not be made on such Participant's behalf for
such Plan Year.
[X] (2) shall be made on such Participant's behalf for such
plan Year regardless of any last day requirement
elected under A-3.01(b)(5).
Note: The above election applies to Profit Sharing
Contribution under Section A-3.01(a), Matching
Contributions under Section A-4.02 and Qualified Non-
elective Contributions under A-4.03.
8
<PAGE>
(d) Employer contributions under this Section and forfeitures, if
applicable, shall be allocated to Participant's Accounts as
follows:
[X] (1) NON-INTEGRATED FORMULA
On a pro-rata basis to all Participants in the
proportion that a Participant's Compensation bears to
the total of all Participant's Compensation.
[_] (2) INTEGRATED FORMULA (INTEGRATED WITH SOCIAL SECURITY)
Note: This Plan may not provide for permitted disparity
(integration with Social Security) if the Employer
maintains any other plan that provides for permitted
disparity and benefits any of the same Participants.
STEP ONE: In any Plan Year the Plan is Top-Heavy
--------
contributions and forfeitures (if applicable) shall be
allocated to all Participants in the ratio that each
Participant's Compensation bears to all Participant's
Compensation, but not in excess of 3% of such
Compensation.
(If the Plan is not top-heavy, proceed to step two.)
STEP TWO: Any contributions and forfeitures not
--------
allocated in STEP ONE shall be allocated to each
Participant's Account in the ratio that the sum of each
Participant's total Compensation plus Compensation in
excess of the integration level bears to the sum of all
Participants total Compensation plus Compensation in
excess of the integration level, but not in excess of
the maximum disparity rate.
STEP THREE: Any remaining Employer contributions or
----------
forfeitures shall be allocated to each Participant's
Account in the ratio that each Participant's total
Compensation for the Plan Year bears to all
Participant's total Compensation for that year.
For the purpose of this Section, Compensation shall
mean Compensation as defined in Section 1.13 of the
Plan.
The integration level shall be:
[_] (i) The Taxable Wage Base [The maximum amount of
earnings which may be considered wages for a
year under Section 3121(a)(1) of the Code in
effect as of the first day of the Plan Year.]
[_] (ii) $__________ (Must be less than the Taxable
Wage Base.)
9
<PAGE>
The maximum profit sharing disparity rate is equal to
the lesser of :
(a) 5.7%, or
(b) The applicable percentage determined in accordance
with the table below:
If the integration level:
<TABLE>
<CAPTION>
Is more But note more The applicable
than than percentage is
------- ------------- --------------
<S> <C> <C>
$0.00 $X* 5.7%
X* 80% of TWB*** 4.3%
80% of TWB*** Y** 5.4%
</TABLE>
* X = the greater of $10,000 or 20% of the TWB.
** Y = any amount more than 80% of the TWB but
less than 100% of the TWB.
***TWB = Taxable Wage Base at the beginning of the
Plan Year. The TWB for 1989 is $48,000.
The TWB for 1990 is $51,300.
(e) Is any Employee who is eligible to participate under this Plan
covered by any other plan [including plans of non-participating
employers required to be aggregated under Section 414(b), (c),
(m) or (o) of the Code] which is integrated with Social Security?
[X] (1) No
[_] (2) Yes [may not elect A-3.01(a)(2)]
A-3.03 (a) Rollover contributions:
[_] (1) shall not be permitted under this Plan.
[X] (2) shall be permitted under this Plan.
(b) Rollover contributions shall be accepted from:
[_] (1) Participants only.
[X] (2) Participants and non-Participants (otherwise eligible
Employees who have not yet satisfied the age and/or service
requirements for participation).
A-3.07 ALLOCATION OF EARNINGS shall be based on the Account balance as of the
beginning of the allocation period plus 1/2 of the contribution
allocated at the end of the allocation period, less all withdrawals,
plus investment transfers in, and less investment transfers out,
unless otherwise specified.
Allocation of Earnings shall be in accordance with each individual
----------------------------------------------------------------------
certificate.
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
10
<PAGE>
A-3.08 ALL FORFEITURES occurring at the end of Plan Year: (select one)
[_] (a) shall be used to reduce the Employer's contribution for
the current Plan Year. If the Employer does not make a
contribution for a Plan Year, any available forfeitures
shall be treated as Employer Contributions.
[X] (b) shall be allocated in the same manner as Employer
contributions under Section 3.01 for the current Plan Year.
However, forfeitures shall not be allocated to Participants
who are not employed on the last day of the Plan Year unless
such allocation is required to satisfy the requirements of
Code Section 401(a)(26) and/or 410(b). (Do not elect if no
Profit Sharing contribution is specified in A-3.01).
IV. CASH OR DEFERRED ARRANGEMENT (CODA)
A-4.01 ELECTIVE DEFERRALS
(a) An eligible Employee may elect to have his or her annual
Compensation reduced by
[_] (1) from __________% to __________%
[X] (2) No less than 3% and no more than the maximum
percentage allowable not to exceed the allocation
--------------------------------------
limits of IRS Section 415, 401K, and 404.
------
Such election shall be in writing and in a form and manner
specified by the Plan Administrator.
(b) A Participant may elect to commence, or to modify the amount of,
Elective Deferrals as of:
[_] (1) the first day of each Plan Year.
[X] (2) the first day of each Plan Year and the date 6 months
after the first day of each Plan Year.
[_] (3) the first day of each Plan Year quarter.
The Plan Administrator may permit an additional election in the
event an Actual Deferral Percentage Test, performed during the
Plan Year, permits or requires an adjustment in the deferral
percentages.
A-4.02 MATCHING CONTRIBUTIONS
(a) The Employer [select (1) or (2)]
[X] (1) shall
[_] (2) shall not
make Matching Contributions to the Plan on behalf of all
Participants who elect to have Elective Deferrals made under the
Plan and who are credited with at least [select (3), (4) or (5)]
[X] (3) 1,000 Hours of Service
11
<PAGE>
[_] (4) 500 Hours of Service
[_] (5) one Hour of Service
during the Plan Year and [select (6) or (7)]
[X] (6) regardless of employment on the last day of the Plan
Year.
[_] (7) who is employed with the Employer on the last day of
the Plan Year.
The preceding notwithstanding, for Plan Years beginning after
December 31, 1989, if the Plan would otherwise fail to satisfy
the requirements of Code Section 401(a)(26) or 410(b) because the
Employer contributions have not been allocated to a sufficient
number or percentage of Participants for a Plan Year, then the
following rules shall apply:
(1) The group of participants eligible to share in the
Employer's contribution shall be expanded to include
all Participants who are employed on the last day of
the Plan Year and who are credited with at least 500
Hours of Service.
(2) If after the application of paragraph (1) above, the
applicable test is still not satisfied, then the group
of Participants eligible to share in the Employer's
contribution shall be further expanded to include all
Participants who are credited with at least 500 Hours
of Service regardless of employment on the last day of
the Plan year.
Note: Employer includes all employers which are required to
be aggregated with the Employer under Code Sections
414(b), (c), (m) or (o).
(b) The Employer shall contribute and allocate to each Participant's
Matching Contribution Account:
[X] (1) an amount equal to 200 percent of the Participant's
---
Elective Deferrals.
[_] (2) a discretionary matching contribution equal to a
percentage (to be determined each year by the
Employer) of each Participant's Elective Deferrals.
(c) The Employer shall not match Elective Deferrals in excess of 3
-
percent of a Participant's
[X] (1) compensation per pay period.
[_] (2) annual compensation.
(d) The Matching Contribution allocated to any Participant's account
for the Plan Year shall not exceed
[_] (1) $________________
[X] (2) N/A
12
<PAGE>
(e) Matching Contributions shall be vested in accordance with the
following schedule:
[_] (1) 100% vested at all times.
[X] (2) The vesting schedule as elected in A-11.02 of the
Adoption Agreement.
(f) Matching contributions shall be made
[X] (1) only from current or accumulated profits.
[_] (2) without regard to current or accumulated profits.
A-4.03 (a) Qualified Non-elective Contributions shall be allocated to the
accounts of Non-highly Compensated Participants who are credited
with at least [select (1), (2) or (3)]
[X] (1) 1,000 Hours of Service
[_] (2) 500 Hours of Service
[_] (3) one Hour of Service
during the Plan Year [select (4) or (5)]
[X] (4) regardless of employment on the last day of the Plan
Year.
[_] (5) who is employed with the Employer on the last day of
the Plan Year.
The preceding notwithstanding, for Plan Years beginning after
December 31, 1989, if the Plan would otherwise fail to satisfy
the requirements of Code Sections 401(a)(26) or 410(b) because
the Employer contributions have not been allocated to a
sufficient number or percentage of Participants for a Plan Year,
then the following rules shall apply:
(1) The group of Participants eligible to share in the
Employer's contribution shall be expanded to include
all Participants who are employed on the last day of
the Plan Year and who are credited with at least 500
Hours of Service.
(2) If after the application of paragraph (1) above, the
applicable test is still not satisfied, then the group
of Participants eligible to share in the Employer's
contribution shall be further expanded to include all
Participants who are credited with at least 500 Hours
of Service regardless of employment on the last day of
the Plan Year.
Note: Employer includes all employers required to be
aggregated with the Employer under Code Section
414(b), (c), (m) or (o).
13
<PAGE>
A-4.13 Pre-retirement distributions of a Participant's entire Account
balance, including Elective Deferrals and Qualified Non-elective
Contributions, upon attainment of age 59 1/2 (may not be less than 59
------
1/2)
[X] (a) shall
[_] (b) shall not
be permitted provided the Participant is 100% vested, and the balance
in the Participant's Account has accumulated for at least two (2)
years or the Participant has completed five (5) years of participation
in the Plan.
A-4.14 Distributions on account of financial hardship
[X] (a) shall
[_] (b) shall not
be permitted to the extent provided in Section 4.14, and subject to
applicable regulations.
Distributions on account of financial hardship shall be made only
from:
[_] (c) Elective Deferrals (and any earnings credited to a
Participant's Elective Deferral account as of the end of the
last Plan Year ending before July 1, 1989.) The amount
available for distribution shall include the amount credited
to the Participant's Qualified Matching Contribution and
Qualified Non-elective Contribution accounts as of the end
of the last Plan Year ending before July 1, 1989.
[X] (d) Account balances which are not subject to the withdrawal
restrictions of Section 4.13 provided the Participant is
100% vested, and the funds have accumulated for at least two
(2) years or the Participant has completed five (5) years of
participation in the Plan.
Note: Hardship withdrawal provisions for funds described in (d)
above, are protected benefits under Code Section 411(d)(6).
If the conditions described in Section 4.14 are more
restrictive than those in effect immediately prior to the
adoption of this Plan, the prior conditions shall continue
to apply to all such funds including those which have
accrued after the date this Plan is adopted, and the
Employer should attach to this Adoption Agreement a hardship
withdrawal policy statement fully describing the objective
and nondiscriminatory conditions applicable to such
withdrawals.
14
<PAGE>
V. LIMITATIONS ON ALLOCATIONS
If the Employer maintains or ever maintained another qualified plan in which any
Participant in this Plan is (or was) a Participant or could become a
Participant, the Employer must complete this Section. The Employer must also
complete this Section if it maintains a welfare benefit fund, as defined in
Section 419(e) of the Code, or an individual medical account, as defined in
Section 415(1)(2) of the Code, under which amounts are treated as Annual
Additions with respect to any Participant in this Plan.
A-5.11 If a Participant is covered under another qualified Defined
Contribution plan maintained by the Employer, other than a Master or
Prototype plan:
[_] (a) The provisions of Section 5.05 through 5.10 of Article V
shall apply as if the other plan were a Master or Prototype
plan.
[_] (b) Provide the method under which the Plans shall limit total
Annual Additions to the Maximum Permissible Amount, and
shall properly reduce any excess amounts, in a manner than
precludes Employer discretion.
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
[X] (c) N/A The Employer maintains no other plan which provides an
Annual Addition as defined under Section 5.13(a).
A-5.12 If the participant is or has ever been a participant in a Defined
Benefit plan maintained by the Employer:
[_] (a) The Annual Additions which may be credited to the
Participant's Account under this Plan shall not be limited
other than by the Maximum Permissible Amount as defined in
Section 5.13(k). If the sum of the Defined Benefit Fraction
and the Defined Contribution Fraction would otherwise exceed
1.0, such sum shall be reduced to not exceed 1.0 by
adjusting the Participant's Projected Annual Benefit under
the Defined Benefit Plan.
[X] (b) Provide language which shall satisfy the 1.0 limitation of
Section 415(e) of the Code. Such language must preclude
Employer discretion.
If the sum of the Defined Benefit Fraction and the Defined
-----------------------------------------------------------
Contribution Fraction would otherwise exceed 1.0, such sum
shall be reduced to not exceed 1.0 by adjusting the
-----------------------------------------------------------
Participant's annual additions under this plan.
-----------------------------------------------------------
___________________________________________________________
[_] (c) N/A The Employer does not and has never maintained a
Defined Benefit plan.
15
<PAGE>
VI. INVESTMENT OF CONTRIBUTIONS
A-6.02 Life Insurance: The Trustee may, at the direction of the Participant
and subject to the requirements of Section 6.02, use a portion of each
contribution to purchase life insurance.
[X] (a) Yes, subject to the guidelines outlined below, if any.
The purchase of life insurance contracts shall be deferred
---------------------------------------------
until the first day of the first (1st ) plan year following
date of entry. At no time during the life of the plan may
----------------------------------------------------------
the percentage limitations (Incidental Rules) of Section
7.2(d) be exceeded. Life insurance shall be purchased using
------------------------------------------------------------
a portion of the Employer Elective contribution, at the
-
election of each participant.
[_] (b) No
A-6.03 Participants may direct the Trustee as to the investment of their
individual Account balances which are attributable to: (check all
which apply)
[_] (a) Elective Deferrals
[_] (b) Employer Matching Contributions
[_] (c) Rollovers
[X] (d) All contributions regardless of source
[_] (e) None of the above -- participants may not direct the
investment of their accounts
A-6.05 Participant Loans
[_] (a) shall be permitted in accordance with the Employer's written
loan policy.
[X] (b) shall not be permitted.
VIII. BENEFITS
A-8.01 Normal Retirement Date: (select one)
[X] (a) The later of the first day of the month (select one)
[X] nearest
[_] on or following
a Participant's 65 (cannot be less than 55) birthday or
--
the first day of the month on or following the N/A (1st -
----
7th or N/A) anniversary in which (select one)
[_] participation commenced
[_] the Employee first performed an Hour of Service
but in no event later than the first day of the month on or
following a Participant's _______ birthday.
16
<PAGE>
[_] (b) The later of the first day of the Plan Year nearest a
Participant's __________ (cannot be less than 55) birthday,
or the first day of the Plan Year nearest the __________
(1st - 7th or N/A) anniversary in which (select one)
[_] participation commenced
[_] the Employee first performed an Hour of Service
but in no event later than the first day of the Plan Year
nearest a Participant's __________ birthday.
A-8.02 (a) Early Retirement Date: Shall mean: (select one)
[_] (1) None -- no Early Retirement Date.
[X] (2) First day of any [X] month [_] Plan Year on or
following a Participant's 55th (cannot be less than 55)
birthday or after 7 (1-7 or N/A) [X] Vesting Years of
Service [_] years of participation in the Plan,
whichever date is later.
(b) Early Retirement Benefit: Upon satisfaction of the age and
service requirements for Early Retirement, a Participant shall:
(select one)
[_] (1) automatically become 100% vested in the Account.
[X] (2) be entitled to the vested Account based on the vesting
schedule designated in the Adoption Agreement.
A-8.04 Disability Retirement Benefit:
(a) In the event of total and permanent disability, a Participant
shall: (select one)
[_] (1) automatically become 100% Vested in the Account.
[X] (2) be entitled to the vested Account based on the vesting
schedule designated in the Adoption Agreement.
(b) Disability shall mean a physical or mental impairment which is
expected to result in death or blindness or which can be expected
to last for a continuous period of not less than 12 months
resulting in: (select one)
[_] (1) an inability to engage in any substantial gainful
activity for which the Participant is reasonably suited
by reason of training, education and experience as
determined by the Plan Administrator. The Plan
Administrator may require that the Participant be
examined by physician(s) selected by the Plan
Administrator.
[X] (2) the Participant being entitled to Social Security
Disability Benefits. In the event a Participant has
applied for Social Security Disability Benefits, the
disability benefits provided by this Plan shall
commence upon qualifying for Social Security Disability
Benefits.
17
<PAGE>
[_] (3) an inability to perform the normal duties for the
Employer as determined by the Plan Administrator. The
Plan Administrator may require that the Participant be
examined by physician(s) selected by the Plan
Administrator.
A-8.09 Benefits shall be distributed:
[_] (a) only in the form of a single lump-sum payment. (May not
elect if other forms were available immediately preceding
the adoption of this Plan.)
[X] (b) in accordance with the provisions of Section 8.08.
XI. TERMINATION OF SERVICE
A-11.02 The vesting schedule for benefits (derived from the Employer's
contributions pursuant to Article III) upon termination of employment
shall be determined according to the selection based on Vesting Years
of Service as credited in accordance with A-1.73: (select one)
[_] (a) 100% vested at all times
[_] (b) 100% vested after _____ (not to exceed 5) years of service.
[_] (c) 20% vested after 2 years of service
40% vested after 3 years of service
60% vested after 4 years of service
80% vested after 5 years of service
100% vested after 6 years of service
[X] (d) 20% vested after 3 years of service
40% vested after 4 years of service
60% vested after 5 years of service
80% vested after 6 years of service
100% vested after 7 years of service
[_] (e) Specify: (Must in all years be as favorable as the schedule
in (b) above, or as favorable as the schedule in (d) above.)
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
NOTE: IF THIS IS A RESTATED PLAN AND THE VESTING SCHEDULE HAS BEEN
AMENDED, ENTER THE PRE-AMENDED SCHEDULE BELOW:
[_] (f) _____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
[X] (g) Vesting schedule has not been amended.
18
<PAGE>
A-11.05 Distributions upon termination of Service shall be made as soon as
administratively feasible following:
[_] (a) Termination of employment.
[X] (b) The end of the Plan Year following termination of
employment.
[_] (c) The end of the Plan Year during which a One-Year Break in
Service occurs.
[_] (d) Early or Normal Retirement Date, Death, or Disability.
Note: May not be more restrictive than the provision in effect
immediately preceding the adoption of this Plan.
A-11.09 Benefits which are no longer immediately distributable
[X] (a) shall not be distributed without the consent of the
Participant and/or Beneficiary prior to the time required by
Article X.
[_] (b) shall, subject to the requirements of Article IX, be
distributed as soon as administratively feasible following
the date on which they cease to be immediately
distributable.
Note: An Account balance is immediately distributable if any part
of the Account balance could be distributed to the
Participant (or Surviving Spouse) before the Participant
attains (or would have attained if not deceased) the later
of Normal Retirement Age or age 62.
XV. TOP-HEAVY
Before completing this Section of the Adoption Agreement, the Employer should
carefully read Article XV of the Basic Plan Documents paying particular
attention to Section 15.03 thru 15.05.
A-15.02 Minimum Top-heavy Allocation: The purpose of this Section A-15.02 is
to coordinate Top-Heavy minimum contributions or benefits when two or
more plans of the Employer are involved. If the Employer maintains
only this plan, and has never maintained a Defined Benefit plan, the
Employer is required to complete only Section (d). If the Employer
maintains (or has maintained) a Defined Benefit plan, this Section
should be completed only with the advice of that plan's actuary. If
the Employer maintains two Defined Contribution plans, and has never
maintained a Defined Benefit plan, the Employer is required to
complete only Sections (c) or (d).
(a) If the Employer maintains a Defined Benefit plan, this Section or
---------------------------
Section (d) below must be completed.
If a non-key Employee participates in both a Defined Benefit plan
and a Defined Contribution plan which are part of a Required
Aggregation Group or a Permissive Aggregation Group and the Top-
Heavy Ratio exceeds 60% (but does not exceed 90%), Top-Heavy
minimum benefits shall be provided as follows:
19
<PAGE>
[_] (1) In the Defined Contribution Plan, with a minimum
allocation of:
[_] (i) 5% of total compensation (Defined Benefit
and Defined Contribution Fractions
computed using 100% of the dollar
limitation)
[_] (ii) 7.5% of total compensation (Defined Benefit
and Defined Contribution Fractions
computed using 125% of the dollar
limitation)
[_] (2) In the Defined Benefit Plan, with a minimum annual
accrual of:
[_] (i) 2% of the highest 5 consecutive year
average compensation (Defined Benefit
and Defined Contribution fractions
computed using 100% of the dollar
limitation)
[_] (ii) 3% of the highest 5 consecutive year
average compensation (Defined Benefit
and Defined Contribution Fractions
computed using 125% of the dollar
limitation)
If the Top-Heavy Ratio exceeds 90%, the minimum benefit shall be
provided in:
[_] (3) the Defined Contribution plan with a minimum allocation
of 5% of total compensation
[_] (4) the Defined Benefit plan with a minimum accrual of 2%
of the highest 5 consecutive year average compensation
Note: When the Top-Heavy Ratio exceeds 90%, the Defined
Benefit and Defined Contribution Fractions shall be
computed using 100% of the dollar limitation.
(b) If the Employer maintains (or has maintained) a Defined Benefit
--------- ----------------- -----------------
plan, this Section or Section (d) below must be completed.
If the Employer maintains both a Defined Benefit plan and a
Defined Contribution plan which are part of a Required
Aggregation Group or a Permissive Aggregation Group and the Top-
Heavy Ratio exceeds 60% (but does not exceed 90%), a non-key
Employee who participates only in the Defined Contribution plan
shall receive a minimum allocation of:
[_] (1) 3% of total compensation (Defined Benefit and
Defined Contribution Fractions computed using
100% of the dollar limitation)
[X] (2) 4% of total compensation (Defined Benefit and
Defined Contribution Fractions computed using
125% of the dollar limitation)
If the Top-Heavy Ratio exceeds 90% each non-key Employee who
participates only in the Defined Contribution plan shall receive
a minimum of 3% of total compensation
20
<PAGE>
(c) If the Employer maintains two Defined Contribution plans, this
----------------------------------
Section or Section (d) below must be completed.
If a non-key Employee participates in two Defined Contribution
plans maintained by the Employer, the Defined Contribution
minimum allocation requirement shall be met
[_] (1) in this plan
[_] (2) in the other plan. ______________________________
(Name of Plan)
(d) Complete this Section only if (a), (b) and/or (c) have not been
---------------------------------------------------------------
completed.
---------
[_] (1) Specify how the plans shall provide Top-Heavy minimum
benefits for non-key Employees precluding Employer
discretion and avoiding inadvertent omissions.
____________________________________________________
____________________________________________________
____________________________________________________
[_] (2) The Employer maintains only this Plan and has
never maintained a Defined Benefit Plan.
A-15.06 TOP HEAVY VESTING...If this Plan becomes a Top-Heavy Plan, the
following vesting schedule for such Plan Year and each succeeding Plan
Year, whether or not Top-Heavy, shall be effective and shall be
treated as a Plan amendment pursuant to this Agreement.
[_] (a) 100% vested after _____ (not to exceed 3) years of service.
[X] (b) 20% vested after 2 years of service
40% vested after 3 years of service
60% vested after 4 years of service
80% vested after 5 years of service
100% vested after 6 years of service
[_] (c) Specify: (Must in all years be as favorable as the schedule
in (a) above, or as favorable as the schedule in (b)
above.)
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
_____% vested after _____ years of service
[_] (d) N/A, Vesting schedule in A-11.02 is equal to or more
favorable than (a) or (b) above.
However, this Section does not apply to the Account balance of any
Participant who does not have an Hour of Service after the Plan has
initially become Top-Heavy. Such Participant's Account balance
attributable to Employer contributions and forfeitures shall be
determined without regard to this Section.
21
<PAGE>
The adopting Employer may not rely on an Opinion Letter issued by the National
Office of the Internal Revenue Service as evidence that the Plan is qualified
under Section 401 of the Internal Revenue Code. In order to obtain reliance
with respect to plan qualification, the Employer must apply to the appropriate
key district office for a Determination Letter.
This adoption agreement may be used only in conjunction with basic plan document
#01.
Provided the adoption of this Plan is properly registered with the Prototype
Sponsor, the Prototype Sponsor shall inform the adopting Employer of any
amendment made to the Plan or of the discontinuance or abandonment of the Plan.
The adoption of the Plan is not properly registered unless the attached
registration form along with the applicable registration fee is returned to:
Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box #2248
Ft. Wayne, IN 46801-2248
Inquiries by adopting Employers regarding the adoption of this Plan, the
intended meaning of any Plan provisions, or the effect of the Opinion Letter may
be directed to the Prototype Sponsor at the above address or phone (219) 455-
4940.
22
<PAGE>
USE OF THIS PLAN DOCUMENT WITHOUT PROPER REGISTRATION AND PAYMENT OF THE
APPLICABLE REGISTRATION FEE CONSTITUTES AN UNAUTHORIZED USE.
THE EMPLOYER REPRESENTS THAT IS HAS CONSULTED WITH ITS ATTORNEY WITH RESPECT TO
ITS ADOPTION OF THIS PLAN, AND AGREES TO THE PROVISIONS OF THE PLAN AND TRUST.
IN WITNESS HEREOF, the Employer has caused this Agreement to be signed by its
duly authorized Officer and the Trustee(s) have accepted the appointment and
signed this Agreement.
PEOPLES BLDG. & LOAN
-------------------------------------------
(Legal Name of Employer)
BY:
/s/ Carl D. Smith
-------------------------------------------
(Signature of Officer)
Carl Smith
_______________________________ -------------------------------------------
(Date) (Typed or Printed Name
and Title of Officer)
Accepted By:
9-8-92 /s/ Howard L. Traphagen
- ------------------------------- -------------------------------------------
(Date) (Signature of Trustee)
9-8-92 /s/ Marion L. Ress
- ------------------------------- -------------------------------------------
(Date) (Signature of Trustee)
9-10-92 /s/ James G. Tyler
- ------------------------------- -------------------------------------------
(Date) (Signature of Trustee)
Participating Employer Authorized Signature Date
- ---------------------- -------------------- ----
________________________ ________________________ ___________________
________________________ ________________________ ___________________
________________________ ________________________ ___________________
________________________ ________________________ ___________________
Failure to properly complete this Adoption Agreement may result in
disqualification of the Plan.
23
<PAGE>
AGREEMENT #1 AMENDING
Peoples Building and Loan Association, Inc.
401(k) Salary Reduction Plan and Trust
THIS AGREEMENT, made and entered in this 11th day of July, 1994, by and between
Peoples Building and Loan Association, Inc. organized under the laws of Indiana
with principal offices at Tell City, Indiana (hereinafter called the "Employer"
or the "Company") and James Tyler, Howard Traphagen and Marion Ress hereinafter
referred to as Trustees):
W I T N E S S E T H:
--------------------
That at a meeting of the Board of Directors of the Company held on the 11th day
of July, 1994, certain amendments to the 401(k) Salary Reduction Plan and Trust
were authorized and directed:
Now, therefore, it is agreed by and between the parties hereto that the
aforementioned 401(k) Salary Reduction Plan and Trust Agreement be and it is
hereby amended effective September 1, 1994 as follows:
Section A-3.07 shall be amended to read as follows:
"This plan utilizes Daily Accounting."
Section A-4.02(a) shall be amended to read ad follows:
"The Employer shall make Matching Contributions to the Plan on behalf of
all Participants who elect to have Elective Deferrals made under the Plan
and who are credited with at least one Hour of Service during the Plan Year
and regardless of Employment on the last day of the Plan year.
The preceding notwithstanding, for Plan Years beginning after December 31,
1989, if the Plan would otherwise fail to satisfy the requirements of Code
Sections 401(a)(26) or 410(b) because the Employer contributions have not
been allocated to a sufficient number or percentage of Participants for a
Plan Year, then the following rules shall apply:
(1) The group of Participants eligible to share in the Employer's
contribution shall be expanded to include all Participants who
are employed on the last day of the Plan Year and who are
credited with at least 500 Hours of Service.
(2) If after the application of paragraph (1) above, the applicable
test is still not satisfied, then the group of Participants
eligible to share in the Employer's contribution shall be further
expanded to include all Participants who are credited with at
least 500 Hours of Service regardless of Employment on the last
day of the Plan Year.
<PAGE>
Note: Employer includes all employers which are required to be
aggregated with the Employer under Code Sections 414(b), (c), (m)
or (o)."
Section 6.02 shall be amended to read as follows:
"Life Insurance shall not be purchased under the Plan."
IN WITNESS WHEREOF, the Employer has caused this agreement to be signed by its
duly authorized officer and the Trustees have also signed this amendment.
Peoples Building and Loan Association, Inc.
-------------------------------------------
Name of Employer
BY: /s/ Carl Smith
------------------------------------------
Signature of Officer
July 11, 1994 Carl Smith, President
- ------------- ------------------------------------------
Date Typed or Printed Name and
Title of Officer
Accepted By:
July 11, 1994 /s/ Marion L. Ress
- ------------- ------------------------------------------
Date Signature of Trustee
July 11, 1994 /s/ Howard L. Traphagen
- ------------- ------------------------------------------
Date Signature of Trustee
July 11, 1994 /s/ James G. Tyler
- ------------- ------------------------------------------
Date Signature of Trustee
<PAGE>
AGREEMENT #2 AMENDING
PEOPLES BUILDING AND LOAN ASSOCIATION, INC.
401(k) Salary Reduction Plan and Trust
THIS AGREEMENT, made and entered into this 7th day of October, 1996, by and
between Peoples Bldg. and Loan organized under the laws of Indiana with
principal offices at Tell City (herein after called the "Employer" or the
"Company") and James Tyler, Howard Traphagen and Marion Ress (hereinafter
referred to as Trustees):
W I T N E S S E T H
-------------------
That at a meeting of the Board of Directors of the Company held in the 7th day
of October, 1996, certain amendments to the 401(k) Savings & Retirement
Prototype Plan were authorized and directed:
Now, therefore, it is agreed by and between the parties hereto that the
aforementioned 401(k) Savings & Retirement Plan and Trust Agreement be and it is
hereby amended effective September 1, 1996 as follows:
Section A-6.05 shall be amended to read as follows:
"Participant Loans shall be permitted in accordance with the Employer's
written loan policy."
IN WITNESS WHEREOF, the employer as caused this agreement to be signed by its
duly authorized officer and the Trustees have also signed this amendment.
Peoples Building and Loan Association, Inc.
-------------------------------------------
Name of Employer
BY: /s/ Carl Smith
-------------------------------------------
Signature of Officer
10/7/96 Carl Smith, President
------- -------------------------------------------
Date Typed or Printed Name and
Title of Officer
Accepted By:
10-7-96 /s/ Howard Traphagen
------- -------------------------------------------
Date Signature of Trustee
10/7/96 /s/ James G. Tyler
------- -------------------------------------------
Date Signature of Trustee
7 Oct 96 /s/ Marion L. Ress
-------- -------------------------------------------
Date Signature of Trustee
<PAGE>
Defined Contribution
--------------------
Prototype
---------
Basic Plan Document
-------------------
Approved April 30, 1992
LINCOLN NATIONAL
LIFE INSURANCE CO.
------------------
A part of LINCOLN NATIONAL CORPORATION
1300 South Clinton Street Fort Wayne, IN 46801
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
ADOPTS
AMENDMENT NO. I
Attached to and made a part of Defined Contribution Prototype Plan Basic Plan
#01 used in conjunction with the following Adoption Agreements:
<TABLE>
<CAPTION>
PLAN TYPE IRS SERIAL # FORM #
--------- ------------ ------
<S> <C> <C>
Non-Standardized Money Purchase D359967a 27365NS-MP
Standardized Money Purchase D259968a 27365S-MP
Non-Standardized Profit Sharing D359969a 27365NS-PS
Standardized Profit Sharing D259970a 27365S-PS
Non-Standardized Target Benefit D360949a 27365NS-TB
Standardized Target Benefit D260948a 27365S-TB
Non-Standardized 401(k) Salary Reduction D359971a 27365NS401K
Standardized 401(k) Salary Reduction D259972a 27365S401K
</TABLE>
Pursuant to the authority reserved by Section 12.01 of Article XII of The
Lincoln National Life Insurance Company Defined Contribution Prototype Plan
Basic Plan #01 (the "Prototype Plan"), the Prototype Plan (and each individual
Plan maintained in the form of the Prototype Plan) is hereby amended, effective
January 1, 1993, as follows:
Article XII is amended by the addition of the following paragraph.
"12.08 This Article applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this Article, a Distributee
may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an Eligible Rollover Distribution
paid directly to an Eligible Retirement Plan specified by the Distributee
in a Direct Rollover.
DEFINITIONS:
(a) Eligible Rollover Distribution: An Eligible Rollover Distribution is
any distribution of all or any portion of the balance to the credit of
the Distributee, except that an Eligible Rollover Distribution does
not include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the Distributee or the joint lives
(or joint life expectancies) of the Distributee and the Distributee's
designated beneficiary, or for a specified period of ten years or
more; any distribution to the extent such distribution is required
under section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation with
respect to Employer securities).
(b) Eligible Retirement Plan: An Eligible Retirement Plan is an individual
retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code,
an annuity plan described in section 403(a) of the Code, or a
qualified trust described in section 401(a) of the Code, that accepts
the Distributee's Eligible Rollover distribution. However, in the case
of an Eligible Rollover Distribution to the surviving spouse, an
Eligible Retirement Plan is an individual retirement account or
individual retirement annuity.
(c) Distributee: A Distributee includes an Employee or former Employee. In
addition, the Employee's or former Employee's Surviving Spouse and the
Employee's or former Employee's Spouse or former Spouse who is the
alternate payee under a qualified domestic relations order, as defined
in section 414(p) of the Code, are Distributees with regard to the
interest of the Spouse or former Spouse.
(d) Direct Rollover: A Direct Rollover is a payment by the plan to the
Eligible Retirement plan specified by the Distributee. "
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
ADOPTS
AMENDMENT NO. II
Attached to and made a part of Defined Contribution Prototype Plan Basic Plan
#01 used in conjunction with the following Adoption Agreements:
<TABLE>
<CAPTION>
PLAN TYPE IRS SERIAL # FORM #
--------- ------------ ------
<S> <C> <C>
Non-Standardized Money Purchase D359967a 27365NS-MP
Standardized Money Purchase D259968a 27365S-MP
Non-Standardized Profit Sharing D359969a 27365NS-PS
Standardized Profit Sharing D259970a 27365S-PS
Non-Standardized Target Benefit D360949a 27365NS-TB
Standardized Target Benefit D260948a 27365S-TB
Non-Standardized 401(k) Salary Reduction D359971a 27365NS401K
Standardized 401(k) Salary Reduction D259972a 27365S401K
</TABLE>
Pursuant to the authority reserved by Section 12.01 of Article XII of The
Lincoln National Life Insurance Company Defined Contribution Prototype Plan
Basic Plan #01 (the "Prototype Plan"), the Prototype Plan (and each individual
Plan maintained in the form of the Prototype Plan) is hereby amended, effective
January 1, 1994, as follows:
Section 1.13 is amended by the addition of the following paragraphs.
"In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to the contrary, for plan
years beginning on or after January 1, 1994, the annual compensation of
each employee taken into account under the plan shall not exceed the OBRA
'93 annual compensation limit. The OBRA '93 annual compensation limit is
$150,000, as adjusted by the Commissioner for increases in the cost of
living in accordance with section 401(a)(17)(B) of the Internal Revenue
Code. The cost-of-living adjustment in effect for a calendar year applies
to any period, not exceeding 12 months, over which compensation is
determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA '93 annual
compensation limit will be multiplied by a fraction, the numerator of which
is the number of months in the determination period, and the denominator of
which is 12.
For plan years beginning on or after January 1, 1994, any reference in this
plan to the limitation under section 401(a)(17) of the Code shall mean the
OBRA '93 annual compensation limit set forth in this provision.
If compensation for any prior determination period is taken into account in
determining an employee's benefits accruing in the current plan year, the
compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period.
For this purpose, for determination periods beginning before the first day
of the first plan year beginning on or after January 1, 1994, the OBRA '93
annual compensation limit is $150,000."
Section 9.04 is amended by the addition of the following paragraph.
"(d) THIS SECTION SHALL APPLY IF SECTION 8.09 IS OPERATIVE. If a
distribution is one to which sections 401(a)(11) and 417 of the Internal
Revenue Code do not apply, such distribution may commence less than 30 days
after the notice required under section 1.411(a)-11(c) of the Income Tax
Regulations is given, provided that:
(1) the plan administrator clearly informs the participant that the
participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular distribution
option), and
(2) the participant, after receiving the notice, affirmatively elects a
distribution.
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
ADOPTS
AMENDMENT NO. III
Attached to and made a part of Defined Contribution Prototype Plan Basic Plan
#01 used in conjunction with the following Adoption Agreements:
<TABLE>
<CAPTION>
PLAN TYPE IRS SERIAL # FORM #
--------- ------------ ------
<S> <C> <C>
Non-Standardized Money Purchase D359967a 27365NS-MP
Standardized Money Purchase D259968a 27365S-MP
Non-Standardized Profit Sharing D359969a 27365NS-PS
Standardized Profit Sharing D259970a 27365S-PS
Non-Standardized 401(k) Salary Reduction D359971a 27365NS401K
Standardized 401(k) Salary Reduction D259972a 27365S401K
</TABLE>
Pursuant to the authority reserved by Section 12.01 of Article XII of The
Lincoln National Life Insurance Company Defined Contribution Prototype Plan
Basic Plan #01 (the "Prototype Plan"), the Prototype Plan (and each individual
Plan maintained in the form of the Prototype Plan) is hereby amended, effective
January 1, 1995, unless otherwise specified, as follows:
Section 1.08 of Article I is amended to read as follows:
"1.08 "ANNUITY AND ANNUITY STARTING DATE": A straight life annuity means an
annuity payable in equal installments for the life of the participant that
terminates upon the participant's death. An Annuity Starting Date is the
first day a payment is made pursuant to Article VIII."
Section 1.15 of Article I is amended to read as follows:
"1.15 "CONTRIBUTION PERCENTAGE AMOUNTS": The sum of the Employee
Contributions and Matching Contributions under the Plan on behalf of the
Participants for the Plan Year. Such Contribution Percentage Amounts shall
not include Matching Contributions that are forfeited either to correct
Excess Aggregate Contributions or because the contributions to which they
relate are Excess Deferrals, Excess Contributions, or Excess Aggregate
Contributions. The Employer may include Elective Deferrals (to the extent
needed to satisfy the Average Contribution Percentage test described in
Section 4.08(a), and subject to such other requirements as may be
prescribed by the Secretary of the Treasury) in the Contribution Percentage
Amounts so long as the ADP test is met before the Elective Deferrals are
used in the ACP test and continues to be met following the exclusion of
those Elective Deferrals that are used to meet the ACP test."
Section 1.49 of Article I is amended by the addition of the following paragraph:
"A Participant is treated as benefiting under the plan for any Plan Year
during which the participant received or is deemed to receive an allocation
in accordance with Internal Revenue Code Section 1.410(b)-3(a)."
Section 3.01 of Article III is renumbered 3.01(a) and titled EMPLOYER
CONTRIBUTIONS.
1
<PAGE>
A new Section 3.01(b) is added to Section 3.01 of Article III to read as
follows:
"3.01 (b) ALLOCATION FORMULAS
(1) General: The Employer Contribution and forfeitures (if applicable) for
any Plan Year will be allocated or contributed to the Participant's
Accounts of Participants eligible to receive a contribution on the
allocation date or dates in accordance with the allocation or contribution
formula specified in the Section 3.01 of the Adoption Agreement.
(2) Profit Sharing Plan Allocation Formula
(i) Non-Integrated Formula: On a pro-rata basis to all Participants
in the proportion that a Participant's Compensation bears to the total
of all Participants' Compensation.
(ii) Integrated Formula (Integrated with Social Security):
STEP ONE: In any Plan Year the Plan is Top-Heavy, contributions and
forfeitures (if applicable) shall be allocated to all Participants'
Accounts in the ratio that each Participant's Compensation bears to
all Participant's Compensation, but not in excess of 3% of such
Compensation.
(If the plan is not top-heavy, proceed to step two.)
STEP TWO: Any contributions and forfeitures not allocated in STEP ONE
shall be allocated to each Participant's Account in the ratio that the
sum of each Participant's total Compensation plus Compensation in
excess of the integration level bears to the sum of all Participants
total Compensation plus Compensation in excess of the integration
level, but not in excess of the maximum disparity rate. In the case of
any Participant who has exceeded the Cumulative Permitted Disparity
Limit defined below, two times such Participant's total Compensation
for the Plan Year will be taken into account.
STEP THREE: Any remaining Employer contributions or forfeitures shall
be allocated to each Participant's Account in the ratio that each
Participant's total Compensation for the Plan Year bears to all
Participants' total Compensation for that year.
(3) Money Purchase Plan Contribution Formula
(i) Non-Integrated Formula: The Employer shall contribute on behalf
of each eligible Participant an amount specified in Section 3.01 (b)
of the Adoption Agreement.
(ii) Integrated Formula:
A % as specified in Section 3.01 (b) (i) or (ii) of the Adoption
Agreement, of each Participant's Compensation (in Top-Heavy Plan Years
the contribution shall be the greater of the amount shown or 3% of
Compensation), plus a % as specified in Section 3.01(b) (iii) of the
Adoption Agreement (excess contribution percentage) of
2
<PAGE>
each Participant's Compensation in excess of the integration level
[may not be greater than the lesser of the percentage in A-3.01 (b)
(i) or the maximum disparity rate]. However, in the case of any
Participant who has exceeded the Cumulative Permitted Disparity Limit,
the Employer will contribute for each such Participant an amount equal
to the excess contribution percentage multiplied by the Participant's
total Compensation.
(4) Integration Level: The integration level shall be selected in A-
3.01(b)(3), A-3.01(b)(4), or A-3.02(d)(2) of the Adoption Agreement, but
shall not exceed The Taxable Wage Base [the contribution and benefit base
in effect under Section 230 of the Social Security Act of the Code in
effect as of the first day of the Plan Year.]
The maximum disparity rate is equal to the lesser of 5.7%, or the
applicable percentage determined in accordance with the table below:
If the integration level:
<TABLE>
<S> <C> <C>
Is more But not more The applicable
than than percentage is
$0.00 $X* 5.7%
X* 80% of TWB*** 4.3%
80% of TWB*** Y** 5.4%
</TABLE>
* X = the greater of $10,000 or 20% of the TWB.
** Y = any amount more than 80% of the TWB but less than 100% of the TWB.
*** TWB = Taxable Wage Base at the beginning of the Plan Year.
(5) Annual Overall Permitted Disparity Limit: Pursuant to Section 16.03,
only one paired plan adopted by the Employer may be integrated with Social
Security. This Plan may not provide for permitted disparity (integration
with Social Security) if the Employer maintains any other plan that
provides for permitted disparity and benefits any of the same Participants.
(6) Cumulative Permitted Disparity Limit: Effective for Plan Years
beginning on or after January 1, 1995, the Cumulative Permitted Disparity
Limit for a Participant is 35 total cumulative permitted disparity years.
Total cumulative permitted years means the number of years credited to the
Participant for allocation or accrual purposes under this Plan, any other
qualified plan or simplified employee pension plan (whether or not
terminated) ever maintained by the employer. For purposes of determining
the Participant's Cumulative Permitted Disparity Limit, all years ending in
the same calendar year are treated as the same year. If the Participant has
not benefited under a defined benefit or target benefit plan for any year
beginning on or after January 1, 1994, the Participant has no Cumulative
Permitted Disparity Limit.
(7) For purpose of this Section, Compensation shall mean Compensation as
defined in Section 1.13 of the Plan."
3
<PAGE>
The first paragraph of Section 3.03 of Article III is amended to read as
follows:
"3.03 If so designated in the Adoption Agreement, rollover contributions
may be made to the Plan. Such contributions may be in the form of cash
and/or in the form of a Participant note representing a plan loan offset
amount, and shall consist of:
(a) all or a portion of the amount received in a "Eligible Rollover
Distribution" as defined in Code Section 402(c)(4), provided that such
distribution is from a plan which is qualified under Section 401(a) of
the Code; or
(b) the amount received in a distribution described in Section
408(d)(3)(A)(ii) of the Code from an individual retirement account,
annuity, or bond, the proceeds of which are attributed solely to a
rollover contribution from a plan qualified under Section 401(a) of
the Code.
The rollover contribution must be made within 60 days following the date of
the distribution. If a rollover includes deductible voluntary
contributions, the amount of the rollover attributable to such
contributions shall be added to the deductible voluntary contribution
account under this Plan."
A new Section 3.11 is added to Article III to read as follows:
"3.11 Omission of Participant shall be corrected as follows:
(a) If the Plan is a money purchase plan or a target benefit plan and,
if in any Plan Year, any Employee who should be included as a
Participant is omitted by not following the terms of the Plan and
discovery of such omission is not made until after a contribution by
the Employer for the year has been made and allocated, the Employer
shall make a subsequent contribution to include earnings thereon, with
respect to the omitted Employee in the amount which the Employer would
have contributed with respect to that Employer had he or she not been
omitted.
(b) If the Plan is a profit sharing plan, and if in any Plan Year, any
Employee who should be included as a participant is omitted by not
following the terms of the plan and discovery of such omission is not
made until after the Employer Contribution has been made and
allocated, then the Plan Administrator must re-do the allocation (if a
correction can be made) and inform the Employee. Alternatively, the
Employer may choose to contribute for the omitted Employee the amount
to include earnings thereon, which the Employer would have contributed
for the Employee."
A new Section 3.12 is added to Article III to read as follows:
3.12 Erroneous inclusion of employee shall be corrected as follows:
(a) If the Plan is a money purchase plan or a target benefit plan and,
if in any Plan Year, any Employee who should have been omitted as a
Participant is erroneously included and discovery of such inclusion is
not made until after a contribution by the Employer and/or Employee
has been made and allocated,
4
<PAGE>
the erroneous contribution shall be forfeited. The forfeiture shall be
held in a non-interest earning suspense account until the next
allocation date and allocated in accordance with Section 3.08.
(b) If the Plan is a profit sharing plan and if in any Plan Year, any
Employee who should have been omitted as a Participant is erroneously
included and discovery of such inclusion is not made until after a
contribution by the Employer and/or Employee has been made and
allocated, any erroneous Elective Deferral and attributable earnings
will be returned to the Employee as soon as practicable after the
discovery of the error. Any Employer Matching or Employer
Discretionary contributions shall be forfeited. The forfeiture shall
be held in a non-interest earning suspense account until the next
allocation date and allocated in accordance with Section 3.08."
Section 4.02 of Article IV is amended by the addition of the following
paragraph:
"(c) Notwithstanding any other provisions of the Plan, Matching
Contributions shall be forfeited (even if vested) if the contributions to
which they relate are Excess Elective Deferrals, Excess Contributions,
Excess Aggregate Contributions or excess annual contributions which are
distributed pursuant to Article V. Such Forfeitures shall be disposed of in
accordance with Section 3.08."
Section 4.06(b) of Article IV is amended by the addition of the following
paragraph:
"(7) In the event that the Plan Administrator determines that it is not
likely that the ADP and/or ACP test will be satisfied for a particular Plan
Year unless certain steps are taken prior to the end of such Plan Year, the
Plan Administrator may require Participants making Elective Deferrals who
are Highly Compensated Employees to reduce or eliminate their Elective
Deferrals for such Plan Year in order to satisfy such requirements. Said
reduction or elimination shall also be required by the Plan Administrator
in the event that the Plan Administrator anticipates that the Employer will
not be able to deduct all Employer Contributions from its income for
Federal income tax purposes."
Section 4.06(c)(1) of Article IV is amended to read as follows:
"(1) any Elective Deferrals made pursuant to the Participant's deferral
election, (including Excess Elective Deferrals of Highly Compensated
Employees), but excluding (a) Excess Elective Deferrals of Non-highly
Compensated Employees that arise solely from Elective Deferrals made under
the Plan or plans of this Employer and (b) Elective Deferrals that are
taken into account in the Contribution Percentage test (provided the ADP
test is satisfied both with and without exclusion of these elective
Deferrals), and"
Section 4.07(d) of Article IV is amended to read as follows:
"(d) Accounting for Excess Contributions: Excess Contributions shall be
-----------------------------------
distributed from the Participant's Elective Deferral Account. The
distribution shall be made first from unmatched Elective Deferrals and,
thereafter from Elective Deferrals
5
<PAGE>
which were matched. Excess Contributions shall be distributed from the
Participant's Qualified Non-Elective Contribution account only to the
extent that such Excess Contributions exceed the balance in the
Participant's Elective Deferral Account."
Section 4.14(a)(3) of Article IV is amended to read as follows:
"(3) Payment of tuition, related educational fees, and room and board
expenses, for the next 12 months of post-secondary education for the
Employee, the Employee's Spouse or dependents."
The first paragraph of Section 5.04 and Section 5.04(a) of Article V are amended
to read as follows:
"5.04 If pursuant to Section 5.03 or as a result of
-- the allocation of Forfeitures, or
-- a reasonable error in determining the amount of Elective Deferrals
that may be made with respect to any individual under the limits of
Section 415 of the Internal Revenue Code, there is an Excess
Amount, the excess shall be disposed of as follows:
(a) To the extent they would reduce the Excess Amount, any
nondeductible voluntary Employee Contributions (and earnings
thereon) shall be returned to the Participant, and any Elective
Deferrals (and earnings thereon) shall be distributed to the
Participant in the same manner as described in Sec. 4.07."
The first paragraph of Section 6.05 of Article VI is amended to read as follows:
"6.05 If elected in the Adoption Agreement, the Plan Administrator shall
direct the Trustee to make loans to Participants and Beneficiaries in
accordance with a loan policy which shall be evidenced by a separate
written document. Such written document shall include, at a minimum, the
following: (i) the identity of the person or positions authorized to
administer the Participant loan program; (ii) the procedure for applying
for loans; (iii) the basis on which loans will be approved or denied; (iv)
limitations (if any) on the types and amounts of loans offered; (v) the
procedure under the program for determining a reasonable rate of interest;
(vi) the types of collateral which may secure a Participant loan; and (vii)
the events constituting default and the steps that will be taken to
preserve Plan assets in the event of such default. Loans will be subject to
the following conditions:"
Section 6.05 is amended by deleting paragraph (i).
Section 7.04 of Article VII is amended to read as follows:
"7.04 As soon as practicable after the end of each Allocation Period, the
Plan Administrator shall convey to each Participant a statement of his/her
Account balances as of the Allocation Date. The Participant must notify the
Plan Administrator within thirty (30) days of the receipt of the statement
of any errors relevant to the allocation of the Participant's Account
balances in specific investments permitted under the Plan at the
Participant's direction ("investment mix"). If such notification is not
given within the prescribed period, the statement shall be deemed correct
with respect to the Participant's
6
<PAGE>
choice of investment mix and any subsequent adjustments to that investment
mix shall be made on a prospective basis only. Neither the maintenance of
accounts nor the allocations of credits to accounts shall operate to vest
in any Participant any right to or interest in any assets of the trust
except as the Plan specifically provides."
Section 9.03 of Article IX is amended by the addition of the following
paragraph:
"The preceding notwithstanding, if
-- the Surviving Spouse has not consented to the election of a non-spouse
Beneficiary pursuant to a Qualified Election, and
-- the Participant had agreed that the Surviving Spouse may determine the
form of payment,
the Surviving Spouse may after the death of the Participant elect to
receive the benefit in any alternate form available under the Plan."
Section 9.04 of Article IX is amended with respect to distributions which
commence on or after September 22, 1995, by the addition of the following
paragraph:
"(e) If a distribution is one to which the Joint and Survivor and spousal
consent requirements of Sections 401(a)(11) and 417 of the Internal Revenue
Code apply, such distribution may commence at any time following the first
seven days after the Participant has received the QJSA explanation required
by Section 9.04(a), provided:
-- the Plan Administrator provides information to the Participant clearly
indicating that the Participant has a right to at least 30 days to
consider whether to waive the QJSA and consent to a form of
distribution other than QJSA,
-- the distribution occurs after the Participant has made an affirmative
distribution election,
-- applicable spousal consent has been obtained,
-- the Annuity Starting Date is a date after the explanation of the QJSA
is provided to the participant, and
-- the distribution election remains revocable until the later of the
Annuity Starting Date or the expiration of the seven-day period that
begins the day after the QJSA explanation is provided."
The first paragraph of Section 13.03 of Article XIII is amended to read as
follows:
"13.03 The Plan Administrator shall have the authority to administer this
Plan pursuant to the terms and conditions of this Plan. The Plan
Administrator has the absolute discretion to determine eligibility for
benefits and to construe and interpret the terms of the Plan. Delegation of
any ministerial or discretionary duties by the Plan Administrator does not
necessarily relieve him/her of the responsibility for these duties."
Section 15.02 of Article XV is amended by the addition of the following
paragraph:
"(e) Neither Elective Deferrals nor Matching Contributions may be taken
into account for purposes of satisfying the minimum allocation requirement
applicable to Top-Heavy Plans described in (a) above."
7
<PAGE>
Article XVII is amended by the addition of the following two paragraphs:
"17.12 All rights and benefits, including elections, provided to a
Participant in this Plan shall be subject to the rights afforded to any
"alternate payee" under a "qualified domestic relations order". A
distribution to an "alternate payee" shall be permitted if the distribution
is authorized by a "qualified domestic relations order". Furthermore, if
the written procedures established by the Plan to administer distributions
under "qualified domestic relations orders" so provide, such distributions
may be made at a time when the affected Participant has not separated from
service and has not reached the "earliest retirement age" under the Plan.
For the purposes of this Section, "alternate payee", "qualified domestic
relations order" and "earliest retirement age" shall have the meaning set
forth under Internal Revenue Code Section 414(p)."
"17.13 Reliance on opinion letter, Standardized Adoption Agreements: The
employer may not rely on the opinion letter issued by the National Office
of the Internal Revenue Service as evidence that this plan is qualified
under section 401 of the Code unless the terms of the plan, as herein
adopted or amended, that pertain to the requirements of sections 401(a)(4),
401(a)(17), 401(1), 401(a)(5), 410(b) and 414(s) of the Code, as amended by
the Tax Reform Act of 1986 or later laws, (a) are made effective
retroactively to the first day of the first plan year beginning after
December 31, 1988 (or such date on which these requirements first become
effective with respect to this plan); or (b) are made effective no later
than the first day on which the employer is no longer entitled, under
regulations, to rely on a reasonable, good faith interpretation of these
requirements, and the prior provisions of the plan constitute such an
interpretation."
A new Article XVIII is added to read as follows:
ARTICLE XVIII
APPOINTMENT OF NON-DISCRETIONARY TRUSTEE
18.01 The Employer, pursuant to a resolution of its board of directors or
pursuant to a separate written instrument, may designate Delaware Management
Trust Company to serve as a nondiscretionary trustee to this Plan (the "Non-
Discretionary Trustee"). In such case, the Employer and the Non-Discretionary
Trustee shall enter into the trust agreement which is attached to and which
forms part of this Plan. Notwithstanding any term or provision expressed or
implied to the contrary in the prior Articles of this Plan or in the Adoption
Agreement, the duties and responsibilities of the Non-Discretionary Trustee
shall be governed exclusively by the provisions of such trust agreement.
Furthermore, and notwithstanding any term or provision expressed or implied in
the prior articles of this Plan or in the Adoption Agreement, any power and
responsibility reserved to the Trustee in the prior articles of this Plan or in
the Adoption Agreement shall instead be the power and responsibility of the Plan
Administrator, except for those powers and responsibilities of the Non-
Discretionary Trustee which are set forth in the trust agreement.
8
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
ADOPTS
AMENDMENT NO. IV
Attached to and made a part of Defined Contribution Prototype Plan Basic Plan
#01 used in conjunction with the following Adoption Agreements:
<TABLE>
<CAPTION>
PLAN TYPE IRS SERIAL # FORM #
--------- ------------ ------
<S> <C> <C>
Non-Standardized Money Purchase D359967b 27365NS-MP
Standardized Money Purchase D259968b 27365S-MP
Non-Standardized Profit Sharing D359969b 27365NS-PS
Standardized Profit Sharing D259970b 27365S-PS
Non-Standardized 401(k) Salary Reduction D359971b 27365NS401K
Standardized 401(k) Salary Reduction D259972b 27365S401K
</TABLE>
Pursuant to the authority reserved by Section 12.01 of Article XII of The
Lincoln National Life Insurance Company Defined Contribution Prototype Plan
Basic Plan #01 (the "Prototype Plan"), the Prototype Plan (and each individual
Plan maintained in the form of the Prototype Plan) is hereby amended as follows:
Section 17.14 shall be added to read as follows:
"17.14 Notwithstanding any provision of this plan to the contrary, to the
extent that any optional form of benefit under this plan permits a
distribution prior to the employee's retirement, death, disability, or
severance from employment, and prior to plan termination, the optional form
of benefit is not available with respect to benefits attributable to assets
(including the post-transfer earnings thereon) and liabilities that are
transferred, within the meaning of (S) 414(1) of the Internal Revenue Code
to this plan from a money purchase pension plan qualified under (S) 401(a)
of the Internal Revenue Code (other than any portion of those assets and
liabilities attributable to voluntary employee contributions)."
Section 17.14 shall be operative only if the Plan is a Profit Sharing or
401(k) Plan. Section 17.14 is effective the first day of the plan year
commencing after December 12, 1994, for plans other than those entitled to
extended reliance. Section 17.14 is effective the first day of the plan
year that begins on or after January 1, 2000, for plans entitled to
extended reliance who have not transferred assets from a money purchase
pension plan after the later of the date of the most recent determination
letter or December 12, 1994. For plans that have transferred money purchase
assets after the later of the date of the most recent determination letter
or December 12, 1994, Section 17.14 shall be effective the first day of the
plan year during which such transfer takes place.
Section 17.15 shall be added to read as follows:
"17.15 Notwithstanding any provision of this plan to the contrary,
contributions, benefits and service credit with respect to qualified
military service will be provided in accordance with (S) 414(u) of the
Internal Revenue Code."
Section 17.15 shall be effective December 12, 1994.
Section 17.16 shall be added to read as follows:
17.16 Loan repayments will be suspended under this plan as permitted under
(S) 414(u)(4) of the Internal Revenue Code."
Section 17.16 shall be effective December 12, 1994, and shall be operative
only if the Plan Sponsor's Loan Policy so provides.
<PAGE>
GENERAL INFORMATION
This Plan and Trust and the Adoption Agreement have been approved as to form by
the Internal Revenue Service (IRS) for corporate and non-corporate Employers.
The Employer adopts the Plan and Trust by completing and signing the Adoption
Agreement. In order to retain prototype status, no changes in the wording of
this Plan and Trust, except the elections by the Employer in the Adoption
Agreement, can be made.
In general, the approval of this Prototype by the IRS does not constitute a
determination as to the qualification of the Plan as adopted by the Employer,
nor as to the exempt status of the related Trust. This determination is made by
the Employer's local District Director of Internal Revenue upon submission by
the Employer of an Application for Determination for Defined Contribution Plan,
IRS Form 5307, with a copy of the executed Adoption Agreement, and such
additional information and documents as the District Director may require.
There is an exception for certain standardized form plans. An Employer who
adopts a standardized form plan for which a favorable opinion letter has been
issued does not need a determination letter in order to obtain reliance provided
the Employer does not maintain, and has never maintained at any time (except in
the case of one combination of paired plans) any other qualified plan, including
a standardized form plan or after December 31, 1985, a welfare benefit fund
which provides post-retirement medical benefits allocated to separate accounts
for key-employees.
This Plan and Trust and Adoption Agreement are instruments having significant
legal and tax implications for the Employer. Each Employer must assume the
responsibility for the legal and tax aspects pertaining to its Plan. Neither The
Lincoln National Life Insurance Company (hereinafter referred to as "Lincoln")
nor its representatives can give any assurance that the Plan as adopted by a
given Employer shall be qualified by the IRS. Accordingly, the Lincoln
encourages the Employer to consult with its legal and tax advisors to the extent
considered necessary.
This basic plan document #01 may be used in conjunction with the following
adoption agreements:
<TABLE>
<CAPTION>
Plan Type IRS Serial # Form #
--------- ------------ ----------
<S> <C> <C>
Non-Standardized Money Purchase D359967a 27365NS-MP
Standardized Money Purchase D259968a 27365S-MP
Non-Standardized Profit Sharing D359969a 27365NS-PS
Standardized Profit Sharing D259970a 27365S-PS
Non-Standardized Target Benefit
Standardized Target Benefit
Non-Standardized 401(k) Salary Reduction D359971a 27365NS401K
Standardized 401(k) Salary Reduction D259972a 27365S401K
</TABLE>
<PAGE>
PROCEDURE
a. The Employer and Trustee(s) should sign enough copies of the Adoption
Agreement for all those needing a copy. This usually includes one for the
Employer, one for the Trustee, one for the Plan Administrator if other than
the Trustee, one for Lincoln, and one for the IRS.
b. One copy should be filed with Lincoln along with other information,
applications, and other documents as required by Lincoln.
c. If appropriate, the Employer should file the Plan with the IRS (by the due
date for filing corporate tax returns for the year in which the Plan is
adopted or amended) to obtain a Letter of Determination that the Plan as
established or amended is qualified. In addition, the Employer must furnish
information, reports, and certain documents as required for the IRS, the
Department of Labor, Participants, and Beneficiaries receiving any benefits
from the Plan.
d. Retirement Plan Services (Plan Implementation, Ongoing Plan Management and
Allocation Services) are available for a fee upon request provided the Plan
meets the servicing guidelines. Such services performed by authorization of
the Plan Fiduciaries are only of the ministerial and mechanical type.
Lincoln assumes no fiduciary duties on behalf of the Plan nor offers any
legal advice. Any information given is presented as information only and
not as advice, recommended action, or policy decisions for the Plan.
2
<PAGE>
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
DEFINED CONTRIBUTION PROTOTYPE PLAN
BASIC PLAN DOCUMENTS #01
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Article I Definitions and Construction 4
Article II Eligibility 21
Article III Contribution and Allocations 23
Article IV Cash or Deferred Arrangement (CODA) 26
Article V Limitations on Allocations To Participants' Accounts 35
Article VI Investment of Contributions 41
Article VII Valuation of Assets 45
Article VIII Benefits 46
Article IX Joint and Survivor Annuity Requirements 49
Article X Distribution Requirements 54
Article XI Termination of Service 58
Article XII Amendment or Termination of Plan 62
Article XIII Administration and Fiduciaries 64
Article XIV Insurer 67
Article XV Top Heavy 68
Article XVI Paired Plans 70
Article XVII Miscellaneous 71
</TABLE>
3
<PAGE>
ARTICLE I
DEFINITIONS AND CONSTRUCTION
The following words and phrases as used in this Plan and Trust (hereinafter
referred to as 'Plan') shall have the meanings set forth in this Article, unless
a different meaning is clearly required by the context. Refer to the same
Section number in the Adoption Agreement as in the Plan for cross-reference
purposes.
1.01 "ACCOUNT": The value of the Participant's share of the General Investment
Account, and/or the Participant's Designated Investment Account, and/or the
Participant's Directed Group Account, if any.
(a) The General Investment Account includes all investments which are held
as general assets of the Plan. The Trustee shall manage the investment
of this account. The account shall include the total of all deposits
credited to the account decreased by any amounts withdrawn from or
charged against the account, and less any allocations to the
Participant's Designated Investment Account and/or the Participant's
Directed Group Account. The Participant's share of the General
Investment Account shall be the value determined as of the end of the
Allocation Period prior to the event making the account payable,
adjusted to reflect advance contributions which have not accrued or
contributions which have accrued to the Participant, but have not been
credited, and any withdrawals which have not been debited.
(b) The Designated Investment Account shall consist of investments made at
the Participant's direction as permitted under Section A-6.03 of the
Adoption Agreement. The number and types of investments made available
shall be determined by the Trustee(s). Such investments may include
individual insurance or annuity policies purchased on behalf of a
Participant. The Participant's Designated Investment Account shall be
valued as of the date the account is surrendered and shall be adjusted
to reflect advance contributions which have not accrued or
contributions which have accrued to the Participant but have not been
credited and any withdrawals which have not been debited.
(c) The Directed Group Account consists of one or more investment funds
provided by the Trustee into and among which Participants may, if
permitted under Section A-6.03 of the Adoption Agreement, direct the
investment of their Account balances. The Participant's share of the
Directed Group Account shall be the value determined as of the end of
the Allocation Period prior to the event making the account payable
and shall be adjusted to reflect advance contributions which have not
accrued or contributions which have accrued to the Participant but
have not been credited and any withdrawals which have not been
debited.
1.02 "ACTUAL DEFERRAL PERCENTAGE": For a specified group of Participants for a
Plan Year, the average of the ratios (calculated separately for each Participant
in such group) of:
(a) the amount of Employer contributions (Elective Deferrals and Qualified
Non-elective Contributions) actually paid over to the trust on behalf
of such Participant for the Plan Year, to
(b) the Participant's Compensation for such Plan Year (whether or not the
Employee was a Participant for the entire Plan Year).
4
<PAGE>
1.03 "ADOPTION AGREEMENT": The agreement executed by the Employer and the
Trustee(s) named therein adopting this Plan, a copy of which is attached and
made a part of this Plan.
1.04 "AGE": For the Plan Year during which this Plan is adopted and each
subsequent Plan Year "Age" shall mean actual attained age.
1.05 "AGGREGATE LIMIT": The greater of:
(a) the sum of 1.25 times the greater of the relevant Actual Deferral
Percentage or the relevant Average Contribution Percentage, and two
(2) percentage points plus the lesser of the relevant Actual Deferral
Percentage or the relevant Average Contribution Percentage In no
event, however, shall this last amount exceed twice the lesser of the
relevant Actual Deferral Percentage or the relevant Average
Contribution Percentage; or
(b) the sum of 1 25 times the lesser of the relevant Actual Deferral
Percentage or the relevant Average Contribution Percentage, and two
(2) percentage points plus the greater of the relevant Actual Deferral
Percentage or the relevant Average Contribution Percentage In no
event, however, shall this last amount exceed twice the greater of the
relevant Actual Deferral Percentage or the relevant Average
Contribution Percentage.
For the purposes of this Section, the term ''relevant Actual Deferral
Percentage" means the Actual Deferral Percentage of the group of non-highly
compensated employees eligible under the arrangement subject to Code Section
401(k) for the Plan Year, and the term "relevant Average Contribution
Percentage" means the Average Contribution Percentage of the group of non-highly
compensated employees eligible under the Plan subject to Code Section 401(m) for
the Plan Year beginning with or within the Plan Year of the arrangement subject
to Code Section 401(k).
1.06 "ALLOCATION PERIOD": The period of time between an allocation date and the
next following allocation date The allocation date shall be the last day of the
Plan Year and such other date or dates as may be determined by the Trustee.
1.07 "ANNUITANT": Any person to whom annuity payments are being made under the
terms of this Plan.
1.08 "ANNUITY STARTING DATE": The first day a payment is made pursuant to
Article VIII.
1.09 "APPLICABLE LIFE EXPECTANCY": The life expectancy (or joint and last
survivor expectancy) calculated using the attained age of the Participant (or
Designated Beneficiary) as of the Participant's (or Designated Beneficiary's)
birthday in the applicable calendar year reduced by one for each calendar year
which has elapsed since the date life expectancy was first calculated If life
expectancy is being recalculated, the Applicable Life Expectancy shall be the
life expectancy as so recalculated The applicable calendar year shall be the
first Distribution Calendar Year, and if life expectancy is being recalculated
such succeeding calendar year.
1.10 "AVERAGE CONTRIBUTION PERCENTAGE": The average of the Contribution
Percentages of the Eligible Participants in a group.
1.11 "BENEFICIARY": Any individual(s) or legal entity designated to receive any
benefit under this Plan upon the death of a Participant.
5
<PAGE>
1.12 "CODE": The Internal Revenue Code of 1986, as amended.
1.13 "COMPENSATION": Compensation means all of each Participant's wages [as
defined in Section 3401(a) of the Code for purposes of income tax withholding
but determined without regard to any rules that limit remuneration included in
wages based on the nature or location of the employment or the services
performed] received from a participating Employer. For any Self-employed
Individual covered under the Plan, Compensation shall mean Earned Income.
Compensation shall include only that compensation which is actually paid to the
Participant during the Plan Year.
Notwithstanding the above, Compensation shall include any amount which is
contributed by the Employer pursuant to a salary reduction agreement and which
is not includible in the gross income of the Employee under Sections 125,
402(a)(8), 402(h) or 403(b) of the Code.
For years beginning after December 31, 1988, the annual Compensation of each
Participant taken into account for determining all benefits provided under the
Plan for any determination period shall not exceed $200,000. This limitation
shall be adjusted by the Secretary at the same time and in the same manner as
under Section 415(d) of the Code, except that the dollar increase in effect on
January 1 of any calendar year is effective for years beginning in such calendar
year and the first adjustment to the $200,000 limitation is effected on January
1, 1990. If the period for determining Compensation used in calculating an
Employee's allocation for a determination period is a short Plan Year (i.e.
shorter than 12 months), the annual Compensation limit is an amount equal to the
otherwise applicable annual Compensation limit multiplied by a fraction, the
numerator of which is the number of months in the short Plan Year, and the
denominator of which is 12.
In determining the Compensation of a Participant for purposes of this
limitation, the rules of Section 414(q)(6) of the Code shall apply, except in
applying such rules, the term "family" shall include only the spouse of the
Participant and any lineal descendants of the Participant who have not attained
age 19 before the close of the year. If, as a result of the application of such
rules the adjusted $200,000 limitation is exceeded, then (except for purposes of
determining the portion of Compensation up to the integration level if this Plan
provides for permitted disparity), the limitation shall be prorated among the
affected individuals in proportion to each such individual's Compensation as
determined under this Section prior to the application of this limitation.
If Compensation for any prior determination period is taken into account in
determining an Employee's allocations or benefits for the current determination
period, the Compensation for such prior year is subject to the applicable annual
Compensation limit in effect for that prior year. For this purpose, for years
beginning before January 1, 1990, the applicable annual Compensation limit is
$200,000.
Unless specified otherwise, the preceding definition of Compensation shall be
effective for the Plan Year during which this Plan is adopted and for each
succeeding Plan Year.
1.14 "CONTRIBUTION PERCENTAGE": The ratio (expressed as a percentage) of the
Participant's Contribution Percentage Amounts to the Participant's Compensation
for the Plan Year (whether or not the Employee was a Participant for the entire
Plan Year).
1.15 "CONTRIBUTION PERCENTAGE AMOUNTS": The sum of the Employee Contributions
and Matching Contributions under the Plan on behalf of the Participant for the
Plan Year. Such Contribution Percentage Amounts shall not include Matching
6
<PAGE>
Contributions that are forfeited either to correct Excess Aggregate
Contributions or because the contributions to which they relate are Excess
Deferrals, Excess Contributions, or Excess Aggregate Contributions.
1.16 "DESIGNATED BENEFICIARY": The individual who is designated as the
Beneficiary under the Plan in accordance with Section 401(a)(9) and the
regulations thereunder.
1.17 "DETERMINATION DATE": For any Plan Year subsequent to the first Plan Year,
the last day of the preceding Plan Year For the first Plan Year of the Plan, the
last day of that year.
1.18 "DISTRIBUTION CALENDAR YEAR": A calendar year for which a minimum
distribution is required For distributions beginning before the Participant's
death, the first Distribution Calendar Year is the calendar year immediately
preceding the calendar year which contains the Participant's Required Beginning
Date For distributions beginning after the Participant's death, the first
Distribution Calendar Year is the calendar year in which distributions are
required to begin pursuant to Section 10.05.
1.19 "EARLIEST RETIREMENT AGE": The earliest date on which, under the Plan, the
Participant could elect to receive retirement benefits.
1.20 "EARLY RETIREMENT DATE": The date as selected in A-8 02 of the Adoption
Agreement.
1.21 "EARNED INCOME": The net earnings from self-employment in the trade or
business with respect to which the Plan is established, for which personal
services of the individual are a material income-producing factor Net earnings
shall be determined without regard to items not included in gross income and the
deductions allocable to such items Net earnings are reduced by contributions by
the Employer to a qualified plan to the extent deductible under Section 404 of
the Code.
Net earnings shall be determined with regard to the deduction allowed to the
Taxpayer by Section 164(f) of the Code for taxable years beginning after
December 31, 1989.
1.22 "EFFECTIVE DATE": The date designated by the Employer in the Adoption
Agreement.
1.23 "ELECTION PERIOD": The period which begins on the first day of the Plan
Year in which the Participant attains age 35 and ends on the date of the
Participant's death If a Participant separates from service prior to the first
day of the Plan Year in which age 35 is attained, with respect to the Account
balance as of the date of separation, the Election Period shall begin on the
date of separation.
Pre-age 35 waiver: A Participant who shall not yet attain age 35 as of the end
of any current Plan Year may make a special Qualified Election to waive the
Qualified Preretirement Survivor Annuity for the period beginning on the date of
such election and ending on the first day of the Plan Year in which the
Participant shall attain age 35 Such election shall not be valid unless the
Participant receives a written explanation of the Qualified Preretirement
Survivor Annuity in such terms as are comparable to the explanation required
under Section 9 04(a) Qualified Preretirement Survivor Annuity coverage shall be
automatically reinstated as of the first day of the Plan Year in which the
Participant attains age 35 Any new waiver on or after such date shall be subject
to the full requirements of Article IX.
7
<PAGE>
1.24 "ELECTIVE DEFERRALS": Any Employer contributions made to the Plan at the
election of the Participant, in lieu of cash compensation, including
contributions made pursuant to a salary reduction agreement or other deferral
mechanism. With respect to any taxable year, a Participant's Elective Deferral
is the sum of all Employer contributions made on behalf of such Participant
pursuant to an election to defer under any qualified cash or deferred
arrangement (CODA) as described in Section 401(k) of the Code, any simplified
employee pension cash or deferred arrangement as described in Section
402(h)(1)(B), any eligible deferred compensation plan under Section 457, any
plan as described under Section 501(c)(18), and any Employer contributions made
on behalf of a Participant for the purchase of an annuity contract under Section
403(b) pursuant to a salary reduction agreement. Elective Deferrals shall not
include any deferrals properly distributed as excess Annual Additions.
1.25 "ELIGIBILITY YEAR OF SERVICE": A 12 consecutive month period during which
the Employee completes at least 1,000 Hours of Service (as defined in A-1.38 of
the Adoption Agreement). The initial eligibility period shall be the 12
consecutive month period commencing on the date the Employee first performs an
Hour of Service for the Employer. The succeeding 12 consecutive month period
must commence with the first Plan Year which commences prior to the first
anniversary of the Employee's initial eligibility computation period regardless
of whether the Employee is entitled to be credited with 1,000 Hours of Service
during his initial eligibility computation period. An Employee who is credited
with 1,000 Hours of Service in both the initial eligibility computation period
and the first Plan Year which commences prior to the first anniversary of the
Employee's initial eligibility computation period must be credited with two
Years of Service for purposes of eligibility.
1.26 "ELIGIBLE PARTICIPANT": For the purpose of calculating the Average
Contribution Percentage, any Employee of the Employer who is eligible under the
terms of the Plan to make an Elective Deferral and to receive a corresponding
Matching Contribution.
1.27 "EMPLOYEE": Any employee of the Employer maintaining the Plan or of any
other employer required to be aggregated with such Employer under Sections
414(b), (c), (m) or (o) of the Code.
The term Employee shall also include any Leased Employee deemed to be an
Employee of any employer described in the previous paragraph as provided in
Sections 414(n) or (o) of the Code.
1.28 "EMPLOYEE CONTRIBUTION": Any contribution made to the plan by or on behalf
of a Participant that is included in the Participant's gross income in the year
in which made and that is maintained under a separate account to which earnings
and losses are allocated.
1.29 "EMPLOYER": The Employer(s) named in the Adoption Agreement which has
(have) adopted this Plan. In the case of a group of employers which constitutes
a Controlled Group of Corporations, or an Affiliated Service Group [as defined
in Sections 414(b) and 414(m), respectively, of the Code], or which constitutes
one or more trades or businesses whether or not incorporated which are under
common control [as defined in Section 414(c)], all such employers shall be
considered a single employer for purposes of determining minimum participation,
vesting standards. and limitations on benefits and contributions.
1.30 "ENTRY DATE": The date as designated in A-2.01 of the Adoption Agreement on
which an Employee may become an active Participant in the Plan after meeting the
eligibility requirements of Article II specified in the Adoption Agreement.
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1.31 "ERISA": Public Law No. 93-406, the Employee Retirement Income Security Act
of 1974, as amended from time to time.
1.32 "EXCESS AGGREGATE CONTRIBUTIONS": With respect to any Plan Year, the excess
of:
(a) the aggregate Contribution Percentage Amounts taken into account in
computing the numerator of the Contribution Percentage actually made
on behalf of Highly Compensated Employees for such Plan Year, over
(b) the maximum Contribution Percentage Amounts permitted by the Average
Contribution Percentage test (determined by reducing contributions
made on behalf of Highly Compensated Employees in order of their
Contribution Percentages beginning with the highest of such
percentages).
Such determination shall be made after first determining Excess Elective
Deferrals pursuant to Section 1.34 and then determining Excess Contributions
pursuant to Section 1.33.
1.33 "EXCESS CONTRIBUTIONS": With respect to any Plan Year, the excess of:
(a) the aggregate amount of Employer contributions actually taken into
account in computing the ADP of Highly Compensated Employees for such
Plan Year, over
(b) the maximum amount of such contributions permitted by the ADP test
(determined by reducing contributions made on behalf of Highly
Compensated Employees in order of the ADPs, beginning with the highest
of such percentages).
1.34 "EXCESS ELECTIVE DEFERRALS": Those Elective Deferrals that are includible
in a Participant's gross income under Section 402(g) of the Code to the extent
such Participant's Elective Deferrals for a taxable year exceed the dollar
limitation under such Code Section. Excess Elective Deferrals shall be treated
as Annual Additions under the Plan, unless such amounts are distributed no later
than the first April 15 following the close of the Participant's taxable year.
1.35 "FIDUCIARY": Any person or corporation who exercises any discretionary
authority or discretionary control with respect to the management or disposition
of plan assets, renders any investment advice for a fee or other compensation,
or exercises any discretionary authority or responsibility for plan
administration. The Employer, Plan Administrator and Trustee shall be considered
fiduciaries.
1.36 "FORFEITURE": That portion of a Participant's Account that is not Vested,
and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a Participant's
Account; or
(b) the last day of the Plan Year in which the Participant incurs five (5)
consecutive One-Year Breaks in Service.
Note: The above definition of "Forfeiture" shall be effective as of the
first day of the Plan Year during which this Plan is adopted.
1.37 "HIGHLY COMPENSATED EMPLOYEE": The term Highly Compensated Employee
includes highly compensated active employees and highly compensated former
employees.
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A highly compensated active employee includes any Employee who performs Service
for the Employer during the determination year and who, during the look-back
year:
(a) received Compensation from the Employer in excess of $75,000 (as
adjusted pursuant to Section 415(d) of the Code); or
(b) received Compensation from the Employer in excess of $50,000 [as
adjusted pursuant to Section 415(d) of the Code] and was a member of
the top-paid group for such year; or
(c) was an officer of the Employer and received Compensation during such
year that is greater than 50 percent of the dollar limitation in
effect under Section 415(b)(1)(A) of the Code.
The term Highly Compensated Employee also includes:
-Employees who are both described in the preceding sentence if the term
"determination year" is substituted for the term "look-back year" and the
Employee is one of the 100 Employees who received the most Compensation
from the Employer during the determination year; and
-Employees who are 5 percent owners at any time during the look-back year
or the determination veer
If no officer has satisfied the Compensation requirement of (c) above during 3
either a determination year or look-back year, the highest paid officer for such
year shall be treated as a Highly Compensated Employee.
For this purpose, the determination year shall be the Plan Year. The look back
year shall be the twelve-month period immediately preceding the determination
year.
A highly compensated former employee includes any Employee who separated from
Service (or was deemed to have separated) prior to the determination year,
performs no Service for the Employer during the determination year, and was a -
highly compensated active employee for either the separation year or any
determination year ending on or after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a family
member of either a 5 percent owner who is an active or former Employee or a
Highly Compensated Employee who is one of the 10 most highly compensated
employees ranked on the basis of Compensation paid by the Employer during such
year, then the family member and the 5 percent owner or top-ten Highly
Compensated Employee shall be aggregated. In such case, the family member and
percent owner or top-ten Highly Compensated Employee shall be treated as a
single Employee receiving Compensation and plan contributions or benefits equal
to the sum of such Compensation and contributions or benefits of the family
member and 5 percent owner or top-ten Highly Compensated Employee. For purposes
of this Section, family member includes the spouse, lineal ascendants and
descendants of the Employee or former Employee and the spouses of such lineal
ascendants and descendants.
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid group,
the top 100 Employees, the number of Employees treated as officers and the
Compensation that is considered, shall be made in accordance with Section 414(q)
of the Code and the regulations thereunder.
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1.38 "HOUR OF SERVICE":
(a) Hour of Service means:
(1) each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for the Employer. These hours shall
be credited to the Employee for the computation period in which
the duties are performed; and
(2) each hour for which an Employee is paid, or entitled to payment,
by the Employer on account of a period of time during which no
duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military
duty, or leave of absence. No more than 501 Hours of Service
shall be credited under this paragraph for any single continuous
period (whether or not such period occurs in a single computation
period). Hours under this paragraph shall be calculated and
credited pursuant to Section 2530.200b-2 of the Department of
Labor Regulations which is incorporated herein by this reference;
and
(3) each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The same
Hours of Service shall not be credited both under paragraph (1)
or paragraph (2), as the case may be, and under this paragraph
(3). These hours shall be credited to the Employee for the
computation period or periods in which the award or agreement
pertains rather than the computation period in which the award,
agreement, or payment is made.
(b) Hours of Service shall be credited for employment with other members
of an Affiliated Service Group [under Section 414(m)], a Controlled
Group of Corporations [under Section 414(b)], or a group of trades or
businesses under common control [under Section 414(c)], of which the
adopting Employer is a member, and any other entity required to be
aggregated with the Employer pursuant to Section 414(o) and
regulations thereunder.
(c) Hours of Service shall also be credited for any individual (Leased
Employee) considered an Employee for purposes of this Plan under
Section 414(n) or Section 414(o) and the regulations thereunder.
(d) Solely for purposes of determining whether a Break in Service, as
defined in Section 1.47, for participation and vesting purposes has
occurred in a computation period, an individual who is absent from
work for maternity or paternity reasons shall receive credit for the
Hours of Service which would otherwise have been credited to such
individual but for such absence, or in any case in which such hours
cannot be determined, eight (8) hours of service per day of such
absence. For purposes of this paragraph, an absence from work for
maternity or paternity reasons means an absence:
(1) by reason of the pregnancy of the individual; or
(2) by reason of a birth of a child of the individual; or
(3) by reason of the placement of a child with the individual in
connection with the adoption of such child by such individual; or
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(4) for purposes of caring for such child for a period beginning
immediately following such birth or placement.
The Hours of Service credited under this paragraph shall be credited:
(i) in the computation period in which the absence begins if the
crediting is necessary to prevent a Break in Service in that
period: or
(ii) in all other cases, in the following computation period.
(e) Hours of Service shall be determined on the basis of the method
selected in the Adoption Agreement.
1.39 "INSURANCE CONTRACT": A life insurance, annuity, or variable annuity
contract or any combination thereof, including both individual and group
contracts issued by an Insurer.
1.40 "INSURER": Any legal reserve life insurance company licensed to do business
in one or more States of the United States.
1.41 "KEY EMPLOYEE": Any Employee or former Employee (and the Beneficiaries of
such Employee) who at any time during the determination period was an officer of
the Employer if such individual's annual Compensation exceeds 50 percent of the
dollar limitation under Section 415(b)(1)(A) of the Code, an owner (or
considered an owner under Section 318 of the Code) of one of the ten largest
interests in the Employer if such individual's Compensation exceeds 100 percent
of the dollar limitation under Section 415(c)(1)(A) of the Code, a 5-percent
owner of the Employer, or a 1-percent owner of the Employer who has an annual
Compensation of more than $150,000. Annual compensation means compensation as ,
defined in Section 415(c)(3) of the Code, but including amounts contributed by
the Employer pursuant to a salary reduction agreement which are excludible from
the Employee's gross income under Section 125, Section 402(a)(8), Section 402(h)
or Section 403(b) of the Code. The determination period is the Plan Year
containing the Determination Date and the 4 preceding Plan Years.
The determination of who is a Key Employee shall be made in accordance with
Section 416(i)(1) of the Code and the regulations thereunder.
1.42 "LEASED EMPLOYEE": Any person (other than an employee of the recipient) who
pursuant to an agreement between the recipient and any other person (''leasing
organization") has performed services for the recipient (or for the recipient
and related persons determined in accordance with Section 414(n)(6) on the Code)
on a substantially full time basis for a period of at least one (1) year, and
such services are of a type historically performed by employees in the business
field of the recipient employer. Contributions or benefits provided a' Leased
Employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer.
A Leased employee shall not be considered an employee of the recipient if:
(a) such employee is covered by a money purchase pension plan providing:
(1) a nonintegrated employer contribution rate of at least 10 percent
of compensation, as defined in Section 415(c)(3) of the Code,
but including amounts contributed pursuant to a salary reduction
n agreement which are excludible from the employee's gross income
under Section 125, Section 402(a)(8), Section 402(h) or Section
403(b) of the Code, and
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(2) immediate participation, and
(3) full and immediate vesting; and
(b) Leased Employees do not constitute more than 20 percent of the
recipient's nonhighly compensated workforce.
1.43 "LIFE EXPECTANCY": Life expectancy and joint and last survivor expectancy
are computed by use of the expected return multiples in Tables V and VI of
Section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Participant [or Spouse, in the case of
distributions described in Section 10.05(b)(2)] by the time distributions are
required to begin, life expectancies shall be recalculated annually. Such
election shall be irrevocable as to the Participant (or Spouse) and shall apply
to all subsequent years. The life expectancy of a nonspouse Beneficiary may not
be recalculated.
1.44 "MATCHING CONTRIBUTION": An Employer contribution made to this or any other
defined contribution plan on behalf of a Participant on account of an Employee
Contribution made by such Participant, or on account of a Participant's Elective
Deferral, under a plan maintained by the Employer.
1.45 "NET PROFITS": Current and accumulated earnings of the Employer before
Federal and state taxes and contributions to this and any other Qualified Plan.
If the Employer is a nonprofit organization, for purposes of this Plan, Net
Profits means the excess of receipts over expenditures.
1.46 "NORMAL RETIREMENT AGE": The earlier of:
(a) the Normal Retirement Date as designated in A-8.01 of the Adoption
Agreement; or
(b) the ERISA Normal Retirement Age which is the later of:
(1) age 65, or
(2) the 5th anniversary of the date participation commenced.
Normal Retirement Age shall not exceed any mandatory retirement age imposed by
the adopting Employer.
1.47 "ONE-YEAR BREAK IN SERVICE": Shall be based on the Regular Method for
eligibility purposes and computed under one of the following methods as elected
in the Adoption Agreement for all other purposes under the Plan:
(a) Regular Method -- A 12 consecutive month period during which the
Employee has not completed more than 500 Hours of Service. The 12
consecutive month period shall be the same computation period as used
in computing Vesting and Eligibility Years of Service, as applicable.
For the purpose of determining the number of consecutive One-Year
Breaks in Service any Plan Year (computation period) of less than 12
months shall be disregarded.
(b) Elapsed Time Method -- A 12 month Period of Severance where an
Employee does not have one Hour of Service. For purposes of this
method, a One-Year Break in Service occurs if:
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(1) an Employee severs Service and does not return within 12 months
from the Date of Severance (e.g., quits, is discharged, or
retires); or
(2) an Employee is absent from Service (e.g., disability, vacation,
or leave of absence) and severs employment during such absence
(e.g., quits, is discharged, or retires) and does not return to
Service on or before the first anniversary of the date on which
the Employee was first absent.
A break in service shall occur whenever an Employee has one or more consecutive
One-Year Breaks in Service.
Any leave of absence authorized by the Employer shall be granted under uniform
rules so that all Participants under similar circumstances shall be treated
alike.
1.48 "OWNER-EMPLOYEE": An individual who is a sole proprietor, or who is a
partner owning more than 10 percent of either the capital or profits interest of
the partnership.
1.49 "PARTICIPANT": An Employee becomes a Participant after meeting the
requirements of Article II and retains such status until the Employee has either
terminated employment or incurred five consecutive One-Year Breaks in Service.
Any former Participant having deferred vested rights under this Plan shall also
be considered a "Participant".
Non-Participants making rollover contributions, if permitted in A-3.03(b)(2) of
the Adoption Agreement, shall not be considered Participants for any other
purposes of the Plan.
1.50 "PARTICIPANT'S BENEFIT":
(a) The Account balance as of the last Valuation Date in the calendar year
immediately preceding the Distribution Calendar Year (valuation
calendar year) increased by the amount of any contributions or
forfeitures allocated to the Account balance as of dates in the
valuation calendar year after the Valuation Date and decreased by
distributions made in the valuation calendar year after the Valuation
Date.
(b) Exception for second Distribution Calendar Year. For purposes of
paragraph (a) above, if any portion of the minimum distribution for
the first Distribution Calendar Year is made in the second
Distribution Calendar Year on or before the Required Beginning Date,
the amount of the minimum distribution made in the second Distribution
Calendar Year shall be treated as if it had been made in the
immediately preceding Distribution Calendar Year.
1.51 "PERMISSIVE AGGREGATION GROUP": The Required Aggregation Group of plans
plus any other plan or plans of the Employer which, when considered as a group
with the Required Aggregation Group, would continue to satisfy the requirements
of Sections 401(a)(4) and 410 of the Code.
1.52 "PLAN ADMINISTRATOR": The person(s) or corporation administering this Plan
as designated in the Adoption Agreement.
1.53 "PLAN ANNIVERSARY DATE": The first day of each Plan Year.
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1.54 "PLAN YEAR": The period as selected in A-1.54 of the Adoption Agreement.
1.55 "PRESENT VALUE": Present Value shall be based only on the interest and
mortality rates specified in A-1.55 of the Adoption Agreement.
1.56 "PROTOTYPE SPONSOR": The Lincoln National Life Insurance Company, 1300
South Clinton, P.O. Box 2248, Fort Wayne, IN 46801-2248 (219) 455-4940.
1.57 "QUALIFIED ELECTION": A waiver of a Qualified Joint and Survivor Annuity or
a Qualified Preretirement Survivor Annuity. Any waiver of a Qualified Joint and
Survivor Annuity or a Qualified Preretirement Survivor Annuity shall not be
effective unless:
(a) the Participant's Spouse consents in writing to the election; and
(b) the election designates a specific Beneficiary, including any class of
Beneficiaries or any contingent Beneficiaries, which may not be
changed without spousal consent (or the Spouse expressly permits
designations by the Participant without any further spousal consent);
and
(c) the Spouse's consent acknowledges the effect of the election; and
(d) the Spouse's consent is witnessed by a Plan representative or notary
public.
Additionally, a Participant's waiver of the Qualified Joint and Survivor Annuity
shall not be effective unless the election designates a form of benefit payment
which may not be changed without spousal consent (or the Spouse expressly
permits designations by the Participant without any further spousal consent). If
it is established to the satisfaction of a Plan representative that there is no
Spouse or that the Spouse cannot be located, a waiver shall be deemed a
Qualified Election.
Any consent by a Spouse obtained under this provision (or establishment that the
consent of a Spouse may not be obtained) shall be effective only with respect to
such Spouse. A consent that permits designations by the Participant without any
requirement of further consent by such Spouse must acknowledge that the Spouse
has the right to limit consent to a specific Beneficiary, and a specific form of
benefit where applicable, and that the Spouse voluntarily elects to relinquish
either or both of such rights. A revocation of a prior waiver may be made by a
Participant without the consent of the Spouse at any time before the
commencement of benefits. The number of revocations shall not be limited. No
consent obtained under this provision shall be valid unless the Participant has
received notice as provided in Section 9.04.
1.58 "QUALIFIED JOINT AND SURVIVOR ANNUITY": An immediate annuity for the life
of the Participant with a survivor annuity for the life of the Spouse which is
not less than 50 percent and not more than 100 percent of the amount of the
annuity which is payable during the joint lives of the Participant and the
Spouse and which is the amount of benefit which can be purchased with the
Participant's Vested Account Balance. The percentage of the survivor annuity
under the Plan shall be 50 percent unless a greater percentage is elected by the
Participant in writing during the Election Period.
1.59 "QUALIFIED NON-ELECTIVE CONTRIBUTIONS": Contributions (other than Matching
Contributions) made by the Employer and allocated to Participants' accounts that
the Participants may not elect to receive in cash until distributed from the
Plan; that are nonforfeitable when made; and that are distributable only in
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accordance with distribution provisions that are applicable to Elective
Deferrals.
1.60 "QUALIFIED PLAN": Any plan which meets the requirements of Section 401(a)
of the Code.
1.61 "REQUIRED AGGREGATION GROUP":
(a) Each Qualified Plan of the Employer in which at least one Key Employee
participates or participated at any time during the determination
period (regardless of whether the plan has terminated); and
(b) any other Qualified Plan of the Employer which enables a plan
described in (a) to meet the requirements of Section 401(a)(4) or 410
of the Code.
1.62 "REQUIRED BEGINNING DATE":
(a) General rule. The Required Beginning Date of a Participant is the
first day of April of the calendar year following the calendar year in
which the Participant attains age 70 1/2.
(b) Transitional rules. The Required Beginning Date of a Participant who
attains age 70 1/2 before January 1, 1988, shall be determined in
accordance with (1) or (2) below:
(1) Non-5-percent owners. The Required Beginning date of a
Participant who is not a 5-percent owner is the first day of
April of the calendar year following the calendar year in which
the later of retirement or attainment of age 70 1/2 occurs.
(2) 5-percent owners. The Required Beginning Date of a Participant
who is a 5-percent owner during any year beginning after December
31, 1979, is the first day of April following the later of:
(i) the calendar year in which the Participant attains age 70
1/2; or
(ii) the earlier of the calendar year with or within which ends
the Plan Year in which the Participant becomes a 5-percent
owner, or the calendar year in which the Participant
retires.
The Required Beginning date of a Participant who is not a 5-percent
owner who attains age 70 1/2 during 1988 and who has not retired as of
January 1, 1989, is April 1, 1990.
(c) 5-percent owner. A Participant is treated as a 5-percent owner for
purposes of this Section if such Participant is a 5-percent owner as
defined in Section 416(i) of the Code (determined in accordance with
Section 416 but without regard to whether the plan is top-heavy) at
any time during the Plan Year ending with or within the calendar year
in which such owner attains age 66 1/2 or any subsequent Plan Year.
(d) Once distributions have begun to a 5-percent owner under this Section,
they must continue to be distributed, even if the Participant ceases
to be a 5-percent owner in a subsequent year.
1.63 "SELF-EMPLOYED INDIVIDUAL": An individual who has Earned Income for the
taxable year from the trade or business for which the Plan is established; also,
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an individual who would have had Earned Income but for the fact that the trade
or business had no Net Profits for the taxable year.
1.64 "SERVICE": Employment of an Employee with the Employer(s) maintaining this
Plan.
Where the Employer maintains the plan of a predecessor employer, service for
such predecessor employer shall be treated as service for the Employer. Service
with a predecessor employer for whom this Employer does not maintain a
predecessor plan shall not be treated as service for the Employer unless elected
in the Adoption Agreement.
1.65 "SPOUSE": (SURVIVING SPOUSE): The Spouse or Surviving Spouse of the
Participant, provided that a former Spouse shall be treated as the Spouse or
Surviving Spouse and a current spouse shall not be treated as the Spouse or
Surviving Spouse to the extent provided under a qualified domestic relations
order as described in Section 414(p) of the code.
1.66 "SUPER TOP-HEAVY PLAN": For any Plan Year a Top-heavy plan is a Super Top-
heavy Plan if the Top-heavy Ratio exceeds 90 percent.
1.67 "TAXABLE WAGE BASE": The maximum amount of earnings which may be considered
wages for such year under Section 3121(a)(1) of the Code.
1.68 "TOP-HEAVY PLAN": For any Plan Year beginning after December 31, 1983, this
Plan is Top-heavy if any of the following conditions exists:
(a) the Top-heavy Ratio for this Plan exceeds 60 percent and this Plan is
not part of any Required Aggregation Group or Permissive Aggregation
Group of plans; or
(b) this Plan is a part of a Required Aggregation Group of plans but not
part of a Permissive Aggregation Group and the Top-heavy Ratio for the
group of plans exceeds 60 percent; or
(c) this plan is a part of a Required Aggregation Group and part of a
Permissive Aggregation Group of plans and the Top-heavy Ratio for the
Permissive Aggregation Group exceeds 60 percent.
1.69 "TOP-HEAVY RATIO":
(a) If the Employer maintains one or more Defined Contribution plans
(including any Simplified Employee Pension Plan) and the Employer has
not maintained any Defined Benefit plan which during the five (5) year
period ending on the Determination Date(s) has or has had accrued
benefits, the Top-heavy Ratio for this Plan alone or for the Required
or Permissive Aggregation Group as appropriate is a fraction, the
numerator of which is the sum of the Account balances of all Key
Employees as of the Determination Date(s) (including any part of any
Account balance distributed in the five (5) year period ending on the
Determination Date(s), and the denominator of which is the sum of all
Account balances (including any part of any Account balance
distributed in the five (5) year period ending on the Determination
Date(s), both computed in accordance with Section 416 of the Code and
the regulations thereunder. Both the numerator and denominator of the
Top-heavy Ratio are increased to reflect any contribution not actually
made as of the Determination Date, but which is required to be taken
into account on that date under Section 416 of the Code and the
regulations thereunder.
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(b) If the Employer maintains one or more Defined Contribution plans
(including any Simplified Employee Pension Plan) and the Employer
maintains or has maintained one or more Defined Benefit plans which
during the five (5) year period ending on the Determination Date(s)
has or had any accrued benefits, the Top-heavy Ratio for any Required
or Permissive Aggregation Group as appropriate is a fraction, the
numerator of which is the sum of Account balances under the aggregated
Defined Contribution plan or plans for all Key Employees, determined
in accordance with (a) above, and the Present Value of accrued
benefits under the aggregated Defined Benefit plan or plans for all
Key Employees as of the Determination Date(s), and the denominator of
which is the sum of the Account balances under the aggregated Defined
Contribution plan or plans for all Participants, determined in
accordance with (a) above, and the Present Value of accrued benefits
under the Defined Benefit plan or plans for all Participants as of the
Determination Date(s), all determined in accordance with Section 416
of the Code and the regulations thereunder. The accrued benefits under
a Defined Benefit plan in both the numerator and denominator of the
Top-heavy Ratio are increased for any distribution of an accrued
benefit made in the five (5) year period ending on the Determination
Date.
(c) For purposes of (a) and (b) above the values of Account balances and
the Present Value of accrued benefits shall be determined as of the
most recent Valuation Date that falls within or ends with the 12-month
period ending on the Determination Date, except as provided in Section
416 of the Code and the regulations thereunder for the first and
second Plan Years of a Defined Benefit plan. The Account balances and
accrued benefits of a Participant:
(1) who is not a Key Employee but who was a Key Employee in a prior
year; or
(2) who has not been credited with at least one hour of service with
any Employer maintaining the Plan at any time during the five (5)
year period ending on the Determination Date
shall be disregarded.
The calculation of the Top-heavy Ratio, and the extent to which
distributions, rollovers, and transfers are taken into account shall
be made in accordance with Section 416 of the Code and the regulations
thereunder. Deductible Employee Contributions shall not be taken into
account for purposes of computing the Top-heavy Ratio. When
aggregating plans the value of Account balances and accrued benefits
shall be calculated with reference to the Determination Dates that
fall within the same calendar year.
The accrued benefit of a Participant other than a Key Employee shall
be determined under:
-the method, if any, that uniformly applies for accrual purposes
under all Defined Benefit plans maintained by the Employer; or
-if there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the
fractional rule of Section 411(b)(1)(C) of the Code.
1.70 "TRUSTEE": The person(s) or corporation having trust powers designated as
Trustee in the Adoption Agreement and any designated successor Trustee.
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1.71 "VALUATION DATE": The date elected by the Employer in A-1.71 of the
Adoption Agreement as of which Account balances or accrued benefits are valued
for purposes of calculating the Top-heavy Ratio.
1.72 "VESTED ACCOUNT BALANCE": The aggregate value of the Participant's Vested
Account Balances derived from Employer and Employee contributions (including
rollovers), whether vested before or upon death, including the proceeds of
insurance contracts, if any, on the Participant's life. The provisions of
Article IX, Joint and Survivor Annuity Requirements, shall apply to a
Participant who is vested in amounts attributable to Employer contributions,
Employee contributions (or both) at the time of death or distribution.
1.73 "VESTING YEAR OF SERVICE": Shall be computed under one of the following
methods as elected in A-1.74 of the Adoption Agreement:
(a) Regular Method -- any 12 consecutive month period (which may include
periods prior to the Effective Date) corresponding to the Plan Year in
which the Employee has completed at least 1,000 Hours of Service
except for Years of Service excluded under A-1.73 in the Adoption
Agreement.
If there is a change in the Plan Year and Vesting Years of Service are
based on such Plan Year, a Participant shall be credited with a
Vesting Year of Service for both the Plan Year as it was prior to the
amendment (as if there was no change) and the first Plan Year after
the amendment if the Participant has at least 1,000 Hours of Service
in each of those Plan Years.
(b) Elapsed Time Method -- any completed 12 month Period of Service (which
may include periods prior to the Effective Date) except for Periods of
Service excluded under A-1.73 in the Adoption Agreement. Any period of
Service less than 12 months shall be disregarded.
In the case of a Participant who has five or more consecutive One-Year Breaks in
Service, all Service after such Breaks in Service shall be disregarded for the
purpose of vesting the Employer-derived Account balance that accrued before such
breaks in service. Such Participant's pre-break service will count in vesting
the post-break employer-derived Account balance only if either:
(c) such Participant has any nonforfeitable interest in the Account
balance attributable to Employer contributions at the time of
separation from service; or
(d) upon returning to Service the number of consecutive One-Year Breaks in
Service is less than the number of Years of Service.
Separate accounts shall be maintained for the Participant's pre-break and post-
break Employer-derived Account balance. Both Accounts shall share in the
earnings and losses of the fund.
1.74 "YEAR OF SERVICE": Shall be computed under one of the following methods as
defined below and as selected in the Adoption Agreement; however, Year of
Service for purposes of eligibility and vesting shall be further defined in
Sections 1.25 and 1.73, respectively.
(a) Regular Method -- A Year of Service shall mean any Plan Year during
which an Employee has completed at least 1,000 Hours of Service. Any
Year of Service where an Employee has less than 1,000 Hours of Service
shall not be counted as a Year of Service. If there is a change in the
Plan Year, a Participant shall be credited with a Year of Service
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for both the Plan Year as it was prior to the amendment (as if there
was no change) and the first Plan Year after the amendment if the
Participant has at least 1,000 Hours of Service in each of those Plan
Years.
(b) Elapsed Time Method -- A Year of Service shall mean a Period of
Service based on an Employee's actual period of employment
irrespective of the number of hours actually worked during such
period. All periods of employment, including Periods of Severance
shall be aggregated unless there is a One-Year Period of Severance as
defined below. A Year of Service shall be credited for each completed
12 months of Service (365 days), which need not be consecutive.
For purposes of determining Years of Service under the Elapsed Time
Method, the following terms shall apply:
*Date of Hire or Rehire -- shall mean the date an Employee first
performs one Hour of Service. An "adjusted" hire date may be used to
reflect Periods of Severance so that all Periods of Service can be
aggregated unless such periods can be disregarded under the One-Year
Break in Service rules.
*Date of Severance (Termination) -- shall mean the earlier of:
(1) the actual date an Employee quits, is discharged, dies, or
retires; or
(2) the first anniversary of the date an Employee is absent from
work (with or without pay) for any other reason, e.g.,
disability, vacation, leave of absence, layoff, etc.
*Elapsed Time -- shall mean the total Period of Service between a
Participant's Date of Hire and Date of Severance (Termination)
including Periods of Severance where a One-Year Period of Severance
does not occur.
*Period of Service -- shall mean the total elapsed time while an
Employee is employed regardless of the number of hours worked.
*Month of Service -- shall be credited for each 30 days of elapsed
time.
*Period of Severance -- shall mean the time between the actual date of
Severance (Termination) as defined above and the subsequent date, if
any, on which the Employee performs one Hour of Service.
*One-Year Period of Severance -- shall mean a One-Year Break in
Service as defined in Section 1.47(b) which is a 12 month period
following a Participant's Date of Severance (Termination) as defined
above in which an Employee does not have one Hour of Service.
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ARTICLE II
ELIGIBILITY
2.01 An Employee shall participate in this Plan on the first Entry Date on or
after the date on which the Employee meets all of the requirements designated in
the Adoption Agreement and this Article unless Service terminates before such
first Entry Date.
2.02 All Years of Service with the Employer are counted toward eligibility
except the following:
(a) In the case of a Participant who does not have any nonforfeitable
right to the Account balance derived from Employer contributions,
Years of Service before a period of consecutive One-Year Breaks in
Service shall not be taken into account in computing eligibility
Service if the number of consecutive One-Year Breaks in Service in
such period equals or exceeds the greater of five (5) or the aggregate
number of Years of Service. Such aggregate number of Years of Service
shall not include any Years of Service disregarded under the preceding
sentence by reason of prior Breaks in Service.
(b) If a Participant's Years of Service are disregarded pursuant to the
preceding paragraph, such Participant shall be treated as a new
Employee for eligibility purposes. If a Participant's Years of Service
may not be disregarded pursuant to the preceding paragraph, such
Participant shall continue to participate in the Plan, or, if
terminated, shall participate immediately upon reemployment.
2.03 In the event a Participant is no longer a member of an eligible class of
Employees and becomes ineligible to participate but has not incurred a Break in
Service, such Employee shall participate immediately upon returning to an
eligible class of Employees. If such Participant incurs a Break in Service,
eligibility shall be determined under the Break in Service rules of the Plan.
2.04 In the event an Employee who is not a member of an eligible class of
Employees becomes a member of an eligible class, such Employee shall participate
immediately if such Employee has satisfied the minimum age and service
requirements and would have otherwise previously become a Participant.
2.05 If the Employer is a member of a group of employers which constitutes a
Controlled Group of Corporations, or an Affiliated Service Group (as defined in
Sections 414(b) and 414(m), respectively, of the Code), or which constitutes one
or more trades or businesses (whether or not incorporated) which are under
common control (as defined in Section 414(c), but the other members of such
group are not participating employers under this Plan, the following transfer
provisions shall apply:
(a) A Participant shall receive credit for Service with any employer which
is a member of the group, provided that all such Service is determined
in accordance with Section 1.38.
(b) If a Participant transfers employment to an employer which is a non-
participating member of the group, his participation under this Plan
shall be suspended, and during that period of ineligible employment:
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(i) the Employer shall not make contributions on his behalf except as
may be required when the Plan is operating under a waiver of the
minimum funding standard; however, the Participant shall continue
to share in earnings; and
(ii) the provisions of Article VIII shall continue to apply with
respect to when a Participant is entitled to benefits. Such
transfer shall not be treated as a termination of Service under
Article XI.
2.06 If this Plan is a Non-Standardized Form Plan, an Employee who is eligible
--------------------------
to be an active Participant may refuse participation in the Plan during a Plan
Year. Such refusal to participate is subject to the approval of the Plan
Administrator upon receipt of a written request by the Employee. The Plan
Administrator in his sole discretion may approve or reject such request based on
a uniform and non-discriminatory policy as adopted by the Employer. The Plan
Administrator shall not approve such a request if it should cause the Plan to
fail to meet minimum participation standards. If this Plan is a Standardized
------------
Form Plan, an eligible Employee may not refuse participation in the Plan.
- ---------
If an Employee is granted the right not to participate in the Plan under this
Section, such Employee shall be permitted to enter this Plan on the first Entry
Date subsequent to the Plan Administrator's receipt of such Employee's written
request to participate in the Plan.
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ARTICLE III
CONTRIBUTIONS AND ALLOCATIONS
3.01 Except as otherwise provided in Article XII, and subject to the limitations
of this Article and Article V, the Employer shall make contributions for each
Plan Year as follows:
PROFIT SHARING PLANS
The Employer shall contribute, within the time prescribed by law for making
a deductible contribution, the amount designated in the Adoption agreement.
In no event, however, shall such contributions for the Fiscal Year exceed
the maximum deductible amount. Contributions shall be allocated as of the
last day of the Plan Year and as of such other date or dates as may be
determined by the Trustee.
MONEY PURCHASE PLANS
The Employer shall contribute the amount designated in the Adoption
Agreement.
TARGET BENEFIT PLANS
The Employer shall contribute an amount determined in accordance with
Section A-3.01 of the Adoption Agreement.
All amounts contributed by the Employer shall be made for the exclusive benefit
of the Participants, Beneficiaries or their estates and in no event shall any
contribution by the Employer or income therefrom revert to the Employer except
as provided in Section 3.09.
3.02 If in any Plan Year the amounts contributed by the Employer for a Money
Purchase or Target Benefit plan are not sufficient to satisfy the minimum
funding standard as defined in ERISA Section 302, a funding deficiency shall
exist for that Plan Year. The Employer, if unable to satisfy the minimum funding
standard for a given Plan Year, may apply to the Internal Revenue Service for a
waiver of the minimum funding standard. If the waiver is granted, the Employer
must amend the Plan to enable the Plan to operate under a waiver of the minimum
funding requirement. A plan which is so amended shall be considered an
individually designed plan.
3.03 If so designated in the Adoption Agreement, cash rollover contributions may
be made, consisting of:
(a) all or a portion of the amount received in a "qualified rollover
distribution" [as defined in Section 402(a)(5)(D)(i) of the Code],
reduced by the amount, if any, treated as a distribution of employee
contributions other than accumulated deductible employee contributions
within the meaning of Section 72(o)(5); or
(b) the amount received in a distribution described in Section
408(d)(3)(A)(ii) or Section 409(b)(3)(C) of the Code from an
individual retirement account, annuity or bond, the proceeds of which
are attributed solely to a rollover contribution from a qualified plan
described in Section 402(a)(5)(D)(iv)(IV) or (V) of the Code;
within 60 days following the date of such distribution. If a rollover includes
deductible voluntary contributions, the amount of the rollover attributable to
such contributions shall be added to the deductible voluntary contribution
23
<PAGE>
account under this Plan. The Plan shall not accept rollovers of accumulated
deductible contributions from a plan under which the Employee was covered as a
self-employed individual as described in Section 401(c)(1) of the Code.
A separate account shall be maintained for any such rollover under (a) and (b).
If such account is unallocated, each account shall share proportionately in all
earnings and losses of the separate rollover account in the ratio that each
rollover account bears to the total of all rollover accounts. Earnings and
losses shall be allocated as provided in the Adoption Agreement. Rollover monies
and the earnings and losses thereon shall be 100% Vested at all times.
A non-Participant shall not receive an allocation of Employer contributions
and/or forfeitures.
If a non-Participant terminates employment prior to meeting the minimum age and
service requirements in A-2.01, an immediate distribution of the rollover
account may be elected.
3.04 This plan shall not accept nondeductible Employee contributions for Plan
Years beginning after the Plan Year in which this Plan is adopted by the
Employer. Employee contributions for Plan Years beginning after December 31,
1986, together with any matching contributions as defined in Section 401(m) of
the Code, shall be limited so as to meet the nondiscrimination test of Section
401(m).
A separate account shall be maintained by the Trustee for the nondeductible
Employee contributions of each Participant.
Employee contributions and earnings thereon shall be nonforfeitable at all
times.
A Participant may withdraw nondeductible voluntary contributions by making a
written application to the Plan Administrator. Withdrawal of any nondeductible
mandatory contributions shall be governed by the election in A-3.04, if
applicable, of the Adoption Agreement. If a Participant withdraws mandatory
contributions, the withdrawal shall be in a single sum, and shall not exceed the
lesser of the current value of the Participant's Account which is attributable
solely to nondeductible contributions or the amount the Participant contributed
in the form of nondeductible contributions. Withdrawals may be made no more
frequently than once in any twelve month period. The preceding notwithstanding,
no withdrawal shall be made pursuant to this Section unless the Participant's
spouse, if any, consents in writing to such withdrawal. Spousal consent must be
obtained not more than 90 days before the distribution.
3.05 The Plan Administrator shall not accept deductible Employee contributions
which are made for a taxable year beginning after December 31, 1986.
Contributions made prior to that date shall be maintained in a separate account
which shall be nonforfeitable at all times. The account shall share in the gains
and losses of the trust in the same manner as described in Section 3.07 of the
plan. No part of the deductible voluntary contribution account shall be used to
purchase life insurance. Subject to Article IX, Joint and Survivor Annuity
Requirements (if applicable), the participant may withdraw any part of the
deductible voluntary contribution account by making a written application to the
Plan Administrator.
3.06 No forfeitures shall occur solely as a result of an Employee's withdrawal
of Employee contributions.
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<PAGE>
3.07 Allocation of earnings shall be handled as follows:
General Investment Account -- The net earnings, gains, losses and expenses as
well as appreciation and depreciation in market value shall be credited to the
General Investment Account and shall be allocated to Participants' Accounts at
the end of each Allocation Period on a pro-rata basis based on each
Participant's Account balance (exclusive of amounts invested in The Designated
Investment Accounts and/or Directed Group Accounts) as provided in Section A-
3.07 of the Adoption Agreement.
Designated Investment Account -- The Designated Investment Account shall not
share in the General Investment Account or Directed Group Account earnings, but
shall be charged or credited, as appropriate, with net earnings, gains, losses
and expenses as well as appreciations or depreciations in market value during
each Allocation Period attributable to such account. If a portion of a
Participant's Account is invested in insurance or annuity policies, the
Participant's interest in the policies shall always be equal to the vested
portion of the cash surrender value of such policies.
Directed Group Account -- The net earnings, gains, losses and expenses as well
as appreciation and depreciation in market value shall be credited to each
investment fund and shall be allocated to Participants' Accounts at the end of
each Allocation Period on a pro-rata basis based on each Participant's share of
the specific investment fund as provided in Section A-3.07 of the Adoption
Agreement.
3.08 Forfeitures shall be used as follows:
401(k) Salary Reduction Plans -- as designated in the Adoption Agreement
Profit Sharing Plans -- as designated in the Adoption Agreement
Money Purchase Plans -- as designated in the Adoption Agreement
Target Benefit Plans -- to reduce the Employer's contributions under
Section 3.01.
3.09 In no event shall any contribution by the Employer or income on such
contribution revert to the Employer except as provided below:
(a) Any contribution made because of a mistake of fact may be returned
within one year of such contribution.
(b) In the event that the Commissioner of Internal Revenue determines that
the plan is not initially qualified under the Internal Revenue Code,
any contribution made incident to that initial qualification by the
Employer must be returned to the Employer within one year after the
date the initial qualification is denied, but only if the application
for the qualification is made by the time prescribed by law for filing
the Employer's return for the taxable year in which the plan is
adopted, or such later date as the Secretary of the Treasury may
prescribe.
3.10 All contributions are conditional upon the deductibility of such
contributions, and will be refunded to the Employer to the extent the deduction
is disallowed within one (1) year after such disallowance.
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<PAGE>
ARTICLE IV
CASH OR DEFERRED ARRANGEMENT (CODA)
4.01 ELECTIVE DEFERRALS
(a) To the extent provided in the Adoption Agreement, a Participant may
elect to have Elective Deferrals made under this Plan. Elective
Deferrals shall be made prospectively, and shall be made pursuant to a
salary reduction agreement.
(b) A Participant shall be afforded a reasonable period at least once each
calendar year, as specified in Section A-4.01(b) of the Adoption
Agreement, to elect to commence, or to modify the amount of, Elective
Deferrals. Elections shall become effective as of the first day of the
pay period immediately following the Participant's election, or as
soon as administratively feasible thereafter. A Participant may
terminate his or her election to make Elective Deferrals at any time.
A Participant's election shall remain in effect until modified or
terminated.
(c) If a Participant receives a distribution on account of hardship
pursuant to Section 4.14:
(1) the Employee's Elective Deferrals shall be suspended for 12
months after the receipt of the hardship distribution; and
(2) the Employee may not make Elective Deferrals for the Employee's
taxable year immediately following the taxable year of the
hardship distribution in excess of the applicable limit under
Section 402(g) of the Code for such taxable year less the amount
of such Employee's Elective Deferrals for the taxable year of the
hardship distribution.
(d) Elective Deferrals shall be made without regard to current or
accumulated profits.
4.02 MATCHING CONTRIBUTIONS
If elected in A-4.02 of the Adoption Agreement, the Employer shall make
Matching Contributions.
(a) Matching Contributions shall be vested in accordance with Section A-
4.02(e) of the Adoption Agreement.
(b) Forfeitures of Matching Contributions, other than Excess Aggregate
Contributions, shall be disposed of in accordance with Section A-3.08
of the Adoption Agreement.
4.03 QUALIFIED NON-ELECTIVE CONTRIBUTIONS
(a) In lieu of distributing Excess Contributions as provided in Section
4.07 of the Plan the Employer may make Qualified Non-elective
contributions on behalf of Non-highly Compensated Employees that are
sufficient to satisfy the Actual Deferral Percentage test pursuant to
regulations under the Code.
(b) Qualified Non-elective Contributions shall be allocated to the
accounts of Non-highly Compensated Participants only as provided in
Section A-4.03 of the Adoption Agreement. The allocation shall be
26
<PAGE>
made in the ratio in which each Non-highly Compensated Participant's
Compensation for the Plan Year bears to the Total Compensation of all
Non-highly Compensated Participants for such year.
(c) If this is a Standardized Form Plan which includes a CODA, for any
Plan Year in which the Plan is a Top-heavy Plan the Employer shall,
unless the minimum contribution requirements of Code Section 416 have
been otherwise satisfied, make a Qualified Non-elective Contribution
equal to 3` of Compensation on behalf of each Participant who is not a
Key Employee.
4.04 ELECTIVE DEFERRAL LIMITATION
No Participant shall be permitted to have Elective Deferrals made under
this Plan, or any other Qualified Plan maintained by the Employer, during
any taxable year, in excess of the dollar limitation contained in Section
402(g) of the Code in effect at the beginning of such taxable year.
4.05 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS
(a) A Participant may assign to this Plan any Excess Elective Deferrals
made during a taxable year of the Participant by notifying the Plan
Administrator on or before March 15 of the amount of the Excess
Elective deferrals to be assigned to the Plan. A Participant is deemed
to notify the Plan Administrator of any Excess Elective Deferrals that
arise by taking into account only those Elective Deferrals made to
this Plan and any other plans of this Employer.
(b) Notwithstanding any other provision of the Plan, Excess Elective
Deferrals, plus any income and minus any loss allocable thereto, shall
be distributed no later than April 15 to any Participant to whose
account Excess Elective Deferrals were assigned for the preceding year
and who claims Excess Elective Deferrals for such taxable year.
(c) Excess Elective deferrals shall be adjusted for any income or loss up
to the date of distribution. The income or loss allocable to Excess
Elective Deferrals is the income or loss allocable to the
Participant's Elective Deferral account for the taxable year
multiplied by a fraction, the numerator of which is such Participant's
Excess Elective Deferrals for the year and the denominator is the
Participant's account balance attributable to Elective Deferrals
without regard to any income or loss occurring during such taxable
year. For Plan Years commencing after December 31, 1990, any income or
loss allocable to the period between the end of the taxable year and
the date of distribution shall be disregarded in determining income or
loss.
4.06 ACTUAL DEFERRAL PERCENTAGE TEST
(a) The Actual Deferral Percentage (ADP) for Participants who are Highly
Compensated Employees for each Plan Year and the ADP for Participants
who are Non-highly Compensated Employees for the same Plan Year must
satisfy one of the following tests:
(1) The ADP for Participants who are Highly Compensated Employees for
the Plan Year shall not exceed the ADP for Participants who are
Non-highly Compensated Employees for the same Plan Year
multiplied by 1.25; or
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<PAGE>
(2) The ADP for Participants who are Highly Compensated Employees for
the Plan Year shall not exceed the ADP for Participants who are
Non-highly Compensated Employees for the same Plan Year
multiplied by 2.0, provided that the ADP for Participants who are
Highly Compensated Employees does not exceed the ADP for
Participants who are Non-highly Compensated Employees by more
than two (2) percentage points.
(b) Special Rules:
(1) The ADP for any Participant who is a Highly Compensated Employee
for the Plan Year and who is eligible to have Elective Deferrals
and/or Qualified Non-elective Contributions allocated to his or
her account under Two (2) or more arrangements described in
Section 401(k) of the Code, that are maintained by the Employer,
shall be determined as if such Elective Deferrals and Qualified
Non-elective Contributions were made under a single arrangement.
If a Highly Compensated Employee participates in two (2) or more
CODAs that have different Plan Years, all CODAs ending with or
within the same calendar year shall be treated as a single
arrangement. Notwithstanding the foregoing, certain plans shall
be treated as separate if mandatorily disaggregated under
regulations under Section 401(k) of the Code.
(2) In the event that this Plan satisfies the requirements of Section
401(k), 401(a)(4), or 410(b) of the Code only is aggregated with
one (1) or more other plans, or if one (1) or more other plans
satisfy the requirements of such Sections of the Code only if
aggregated with this Plan, then this Section shall be applied by
determining the ADP of employees as if all such plans were a
single plan. For Plan Years beginning after December 31, 1989,
plans may be aggregated in order to satisfy Section 401(k) of the
Code only if they have the same Plan Year.
(3) For purposes of determining the ADP of a Participant who is a 5-
percent owner or one of the ten most highly-paid Highly-
Compensated Employees, the Elective Deferrals and/or Qualifies
Non-elective Contributions and Compensation of such Participant
shall include the Elective Deferrals and, if applicable,
Qualified Non-elective Contributions and Compensation for the
Plan Year of Family Members (as defined in Section 414(q)(6) of
the Code). Family Members, with respect to such Highly
Compensated Employees, shall be disregarded as separate employees
in determining the ADP for Participants who are Non-highly
Compensated Employees and for Participants who are Highly
Compensated Employees.
(4) For purposes of determining the ADP test, Elective Deferrals and
Qualified Non-elective Contributions must be made before the last
day of the 12 month period immediately following the Plan Year to
which contributions relate.
(5) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ADP test and the amount of Qualified
satisfaction of the ADP test and the amount of Qualified Non-
elective Contributions used in such test.
(6) The determination and treatment of the ADP amounts of any
Participant shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
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(c) For purposes of Calculating the Actual Deferral Percentage, Employer
contributions on behalf of any Participant shall include:
(1) an Elective Deferrals made pursuant to the Participant's deferral
election, (including Excess Elective Deferrals of Highly
Compensated Employees), but excluding Excess Elective Deferrals
of Non-highly Compensated Employees that arise solely from
Elective Deferrals made under the Plan or plans of this Employer;
and
(2) at the election of the Employer, Qualified Non-elective
contributions.
For purposes of computing Actual Deferral Percentages, an Employee who
would be a Participant but for the failure to make Elective Deferrals
shall be treated as a Participant on whose behalf no Elective
Deferrals are made.
4.07 DISTRIBUTION OF EXCESS CONTRIBUTIONS
(a) Notwithstanding any other provision of this Plan, Excess
Contributions, plus any income and minus any loss allocable thereto,
shall be distributed no later than the last day of each Plan year to
Participants whose accounts such Excess Contributions were allocated
for the preceding Plan Year. If such excess amounts are distributed
more than 2 1/2 months after the last day of the plan year in which
such excess amount arose, a 10 percent excise tax shall be imposed on
the Employer maintaining the Plan with respect to such amounts. Such
distributions shall be made to Highly Compensated Employees on the
basis of the respective portions of the Excess Contributions
attributable to each of such Employees. Excess Contributions of
Participants who are subject to the family member aggregation rules
shall be allocated among the family members in proportion to the
Elective Deferrals (and amounts treated as Elective Deferrals) of each
family members that is combined to determine the combined ADP.
(b) Excess Contributions shall be treated as annual additions under the
plan.
(c) Determination of Income or Loss: The Excess Contributions shall be
-------------------------------
adjusted for any income or loss up to the date of distribution. The
income or loss allocable to Excess Contributions is the income or loss
allocable to the Participant's Elective Deferral account (and, if
applicable, the Qualified Non-elective Contribution account) for the
Plan Year multiplied by a fraction, the numerator of which is such
Participant's Excess Contributions for the year and the denominator is
the Participant's account balance attributable to Elective Deferrals
(and Qualified Non-elective Contributions, if any of such
contributions are included in the ADP test) without regard to any
income or loss occurring during such year. For Plan Year commencing
after December 31, 1990, any income or loss allocable to the period
between the end of the Plan Year and the date of distribution shall
disregarded in determining income or loss.
(d) Accounting for Excess Contributions: Excess Contributions shall be
-----------------------------------
distributed from the Participant's Elective Deferral account. Excess
Contributions shall be distributed from the Participant's Qualified
Non-elective Contribution account only to the extent that such Excess
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Contributions exceed the balance in the Participant's Elective
Deferral account.
4.08 LIMITATIONS ON EMPLOYER CONTRIBUTIONS AND MATCHING CONTRIBUTIONS
(a) The Average Contribution Percentage (ACP) for Participants who are
Highly Compensated Employees for each Plan Year and the Average
Contribution Percentage for Participants who are Non-highly
Compensated Employees for the same Plan Year must satisfy one of the
following tests:
(1) The Average Contribution Percentage for Participants who are
Highly Compensated Employees for the Plan Year shall not exceed
the Average Contribution Percentage for Participants who are Non-
highly Compensated Employees for the same Plan Year multiplied by
1.25; or
(2) The Average Contribution Percentage for Participants who are
Highly Compensated Employees for the Plan Year shall not exceed
the Average Contribution Percentage for Participants who are Non-
highly Compensated Employees for the same Plan Year multiplied by
two (2), provided that the Average Contribution Percentage for
Participants who are Highly Compensated Employees does not exceed
the Average Contribution Percentage for Participants who are Non-
highly Compensated Employees by more than two (2) percentage
points.
(b) Special Rules:
(1) Multiple Use: If one or more Highly Compensated Employees
participate in both a CODA and a plan subject to the ACP test
maintained by the Employer and the sum of the ADP and ACP of
those Highly Compensated Employees subject to either or both
tests exceeds the Aggregate Limit, then the ACP of those Highly
Compensated Employees who also participate in a CODA shall be
reduced (beginning with such Highly Compensated Employee whose
ACP is the highest) so that the limit is not exceeded. The amount
by which each Highly Compensated Employee's Contribution
Percentage Amounts is reduced shall be treated as an Excess
Aggregate Contribution. The ADP and ACP of the Highly Compensated
Employees are determined after any corrections required to meet
the ADP and ACP tests. Multiple use does not occur if both the
ADP and ACP of the Highly Compensated Employees does not exceed
1.25 multiplied by the ADP and ACP of the Non-highly Compensated
Employees.
(2) For purposes of this Section, the Contribution Percentage for any
Participant who is a Highly Compensated Employee and who is
eligible to have Contribution Percentage Amounts allocated to his
or her account under two (2) or more plans described in Section
401(a) of the Code, or arrangements described in Section 401(k)
of the Code, that are maintained by the Employer, shall be
determined as if the total of such Contribution Percentage
Amounts was made under each plan. If a Highly Compensated
Employee participates in two or more CODAs that have different
Plan Years, all CODAs ending with or within the same calendar
year shall be treated as a single arrangement. Notwithstanding
the foregoing, certain plans shall be treated as separate if
mandatorily disaggregated under regulations under Section 401(m)
of the Code.
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(3) In the event that this Plan satisfies the requirements of
Sections 401(m), 401(a)(4) or 410(b) of the Code only if
aggregated with one or more other plans, or if one or more other
plans satisfy the requirements of such Sections of the Code only
if aggregated with this Plan, then this Section shall be applied
by determining the Contribution Percentage of Employees as if all
such plans were a single plan. For Plan Years beginning after
December 31, 1989, plans may be aggregated in order to satisfy
Section 401(m) of the Code only if they have the same Plan Year.
(4) For purposes of determining the Contribution Percentage of a
Participant who is a 5-percent owner or one of the ten (10) most
highly-paid Highly Compensated Employees, the Contribution
Percentage Amounts and Compensation of such Participant shall
include the Contribution Percentage Amounts and Compensation for
the Plan Year of Family Members (as defined in Section 414(q)(6)
of the Code). Family Members, with respect to Highly Compensated
Employees, shall be disregarded as separate Employees in
determining the Contribution Percentage both for Participants who
are Non-highly Compensated Employees and for Participants who are
Highly Compensated Employees.
(5) For purposes of determining the Contribution Percentage, Employee
Contributions are considered to have been made in the Plan Year
in which contributed to the trust. Matching Contributions shall
be considered made for a Plan Year if made no later than the end
of the twelve-month period beginning on the day after the close
of the Plan Year.
(6) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ACP test.
(7) The determination and treatment of the Contribution Percentage of
any Participant shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
4.09 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
(a) Notwithstanding any other provision of this Plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable thereto,
shall be forfeited, if forfeitable, or if not forfeitable, distributed
no later than the last day of each Plan Year to Participants to whose
accounts such Excess Aggregate Contributions were allocated for the
preceding Plan Year. Excess Aggregate Contributions of Participants
who are subject to the family member aggregation rules shall be
allocated among the family members in proportion to the Employee and
Matching Contributions (or amounts treated as Matching Contributions)
of each family member that is combined to determine the combined ACP.
If such Excess Aggregate Contributions are distributed more than 2 1/2
months after the last day of the Plan Year in which such excess
amounts arose, a 10 percent excise tax shall be imposed on the
Employer maintaining the Plan with respect to those amounts. Excess
Aggregate Contributions shall be treated as Annual Additions under the
Plan.
(b) Determination of Income or Loss: Excess Aggregate Contributions shall
be adjusted for any income or loss up to the date of distribution. The
income or loss allocable to Excess Aggregate Contributions is the
income or loss allocable to the Participant's Employee Contribution
account and Matching Contribution account for the Plan Year multiplied
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by a fraction, the numerator of which is such Participant's Excess
Aggregate Contributions for the year and the denominator is the
Participant's Account balance(s) attributable to Contribution Percentage
Amounts without regard to any income or loss occurring during such Plan
Year. For Plan Years commencing after December 31, 1990, income or loss
allocable to the period between the end of the Plan Year and the date of
distribution shall be disregarded in determining income and loss.
(c) Accounting for Excess Aggregate Contributions: Excess Aggregate
Contributions shall be forfeited, if forfeitable, or distributed on
pro-rata basis from the Participant's Employee Contribution account
and Matching Contribution account.
(d) Forfeitures of Excess Aggregate Contributions: Forfeitures of Excess
Aggregate Contributions shall be applied to reduce Employer
contributions.
4.10 NONFORFEITABILITY AND VESTING
The Participant's Account balance derived from Elective Deferrals,
Qualified Non-elective Contributions and Employee Contributions is
nonforfeitable. Separate accounts for Elective Deferrals, Qualified Non-
elective Contributions, Employee Contributions and Matching Contributions
shall be maintained for each Participant. Each account shall be credited
with the applicable contributions and earnings thereon.
4.11 ELIGIBILITY TO RECEIVE CONTRIBUTIONS
A Participant shall be eligible to make Elective Deferrals regardless of
the number of Hours of Service credited during the Plan Year and regardless
of whether or not employed on the last day of the Plan Year. A Participant
shall be eligible to receive Matching Contributions and Qualified
Nonelective contributions as elected in the Adoption Agreement.
4.12 ALLOCATION OF EARNINGS
Earnings attributable to Elective Deferrals, Matching Contributions and
Qualified Non-elective Contributions shall be allocated in accordance with
Section 3.07.
4.13 DISTRIBUTION REQUIREMENTS
(a) Elective Deferrals and Qualified Non-elective Contributions, and
income allocable to each, are not distributable to a Participant or
his or her Beneficiary or Beneficiaries, in accordance with such
Participant's or Beneficiary or Beneficiaries election, earlier than
upon separation from service, death, or disability.
(b) Such amounts may also be distributed, in accordance with the
Participant's election, upon:
(1) Termination of the Plan without the establishment of another
Defined Contribution plan, other than an employee stock ownership
plan [as defined in Section 4975(e) or Section 409 of the Code]
or a simplified employee pension plan as defined in Section
408(k).
(2) The disposition by a corporation to an unrelated corporation of
substantially all of the assets [within the meaning of Section
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409(d)(2) of the Code] used in a trade or business of such
corporation if such corporation continues to maintain this Plan
after the disposition, but only with respect to Employees who
continue employment with the corporation acquiring such assets.
(3) The disposition by a corporation to an unrelated entity of such
corporations interest in a subsidiary [within the meaning of
Section 409(d)(3) of the Code], if such corporation continues to
maintain this Plan, but only with respect to Employees who
continue employment with such subsidiary.
(4) The attainment of age 59 1/2 to the extent provided for in
Section A-4.13 of the Adoption Agreement.
(5) The hardship of the Participant as described in Section 4.14 and
to the extent provided in A-4.14 of the Adoption Agreement.
(c) All distributions that may be made pursuant to one or more of the
foregoing distributable events are subject to the spousal and
Participant consent requirements (if applicable) contained in Sections
401(a)(11) and 417 of the Code. In addition, distributions after March
31, 1988, that are triggered by any of the first three events
enumerated above must be made in a lump sum.
4.14 DISTRIBUTION ON ACCOUNT OF FINANCIAL HARDSHIP
If elected (and to the extent elected) by the Employer in Section A-4.14 of
the Adoption Agreement, a distribution may be made to a Participant in the
event of hardship. For the purposes of this Section, hardship is defined as
an immediate and heavy financial need of the Employee where such Employee
lacks other available resources. Hardship distributions are subject to the
spousal consent requirements contained in Sections 401(a)(11) and 417 of
the Code. Any Participant who is eligible to receive a distribution
pursuant to Section 11.09 (e) shall not be eligible to receive a hardship
distribution under this Section 4.14.
Special Rules:
(a) The following are the only financial needs considered immediate and
heavy:
(1) Expenses incurred or necessary for medical care, described in
Section 213(d) of the Code, of the Employee, the Employee's
spouse or dependents.
(2) The purchase (excluding mortgage payments) of a principal
residence for the Employee.
(3) Payment of tuition and related educational fees for the next 12
months of post-secondary education for the Employee, the
Employee's spouse, children or dependents.
(4) The need to prevent the eviction of the Employee from, or
foreclosure on the mortgage of, the Employee's principal
residence.
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(b) A distribution shall be considered as necessary to satisfy an
immediate and heavy financial need of the Employee only if:
(1) the Employee has obtained all distributions, other than hardship
distributions, and all nontaxable loans under all plans
maintained by the Employer; and
(2) all plans maintained by the Employer provide that the Employee's
Elective Deferrals (and Employee Contributions) shall be
suspended for twelve months after the receipt of the hardship -
distribution; and
(3) the distribution is not in excess of the amount of an immediate
and heavy financial need (including amounts necessary to pay any
federal, state or local income taxes or penalties reasonably
anticipated to result from the distribution); and
(4) all plans maintained by the Employer provide that the Employee
may not make Elective Deferrals for the Employee's taxable year
immediately following the taxable year of the hardship
distribution in excess of the applicable limit under Section
402(g) of the Code for such taxable year less the amount of such
Employee's Elective Deferrals for the taxable year of the
hardship distribution.
4.15 EFFECTIVE DATE
Any other provision of this Plan notwithstanding, the provisions of this
Article IV shall be effective as of the first day of the first Plan Year
commencing after December 31, 1986.
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ARTICLE V
LIMITATIONS ON ALLOCATIONS
TO PARTICIPANTS' ACCOUNTS
SECTIONS 5.01 THROUGH 5.04 APPLY TO EMPLOYERS WHO DO NOT MAINTAIN ANY QUALIFIED
PLAN IN ADDITION TO THIS PLAN.
5.01 If the Participant does not participate, and has never participated, in
another qualified Plan maintained by the Employer or a welfare benefit fund, a
defined in Section 419(e) of the Code, maintained by the Employer, or an
individual medical account, as defined in Section 415(1)(2) of the Code,
maintained by the Employer, which provides an Annual Addition as defined in
Section 5.13(a), the amount of Annual Additions which may be credited to the
Participant's Account for any Limitation Year shall not exceed the lesser of the
Maximum Permissible Amount or any other limitation contained in this Plan. If
the Employer contribution that would otherwise be contributed or allocated to
the Participant's Account would cause the Annual Additions for the Limitation
Year to exceed the Maximum Permissible Amount, the amount contributed or
allocated shall be reduced so that the Annual Additions for the Limitation Year
shall equal the Maximum Permissible Amount.
5.02 Prior to determining the Participant's actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible Amount for a
Participant on the basis of a reasonable estimation of the Participant's
Compensation for the Limitation Year, uniformly determined for all Participants
similarly situated.
5.03 As soon as is administratively feasible after the end of the Limitation
Year, the Maximum Permissible Amount for the Limitation Year shall be determined
on the basis of the Participant's actual Compensation for the Limitation Year.
5.04 If pursuant to Section 5.03 or as a result of the allocation of
Forfeitures, there is an Excess Amount the excess shall be disposed of as
follows:
(a) Any nondeductible voluntary Employee Contributions, to the extent they
would reduce the Excess Amount, shall be returned to the Participant.
(b) If after the application of paragraph (a) an Excess Amount still
exists, and the Participant is covered by the Plan at the end of the
Limitation Year, the Excess Amount in the Participant's Account shall
be used to reduce Employer contributions (including any allocation of
forfeitures) for such Participant in the next Limitation Year, and
each succeeding Limitation Year if necessary.
(c) If after the application of paragraph (a) an Excess Amount still
exists, and the Participant is not covered by the Plan at the end of a
Limitation Year, the Excess Amount shall be held unallocated in a
suspense account. The suspense account shall be applied to reduce
future Employer contributions (including allocation of any
forfeitures) for all remaining Participants in the next Limitation
Year, and each succeeding Limitation Year if necessary.
(d) If a suspense account is in existence at any time during a Limitation
Year pursuant to this Section, it shall not participate in the
allocation of the trust's investment gains and losses. If a suspense
account is in existence at any time during a particular Limitation
Year, all amounts in the suspense account must be allocated and
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reallocated to Participants' Accounts before any Employer
contributions or any Employee contributions may be made to the Plan
for that Limitation Year. Excess Amounts may not be distributed to
Participants or former Participants.
SECTIONS 5.05 THROUGH 5.10 APPLY TO EMPLOYERS WHO, IN ADDITION TO THIS PLAN,
MAINTAIN ONE OR MORE PLANS, ALL OF WHICH ARE QUALIFIED MASTER OR PROTOTYPE
DEFINED CONTRIBUTION PLANS, OR A WELFARE BENEFIT FUND, AS DEFINED IN SECTION
419(E) OF THE CODE.
5.05 If, in addition to this Plan, the Participant is covered under another
qualified Master or Prototype defined contribution plan maintained by the
Employer, a welfare benefit fund, as defined in Section 419(e) of the Code
maintained by the Employer, or an individual medical account, as defined in
Section 415(1)(2) of the Code, maintained by the Employer, which provides an
Annual Addition as defined in Section 5.13(a) during any Limitation Year, the
Annual Additions which may be credited to a Participant's Account under this
Plan for any such Limitation Year shall not exceed the Maximum Permissible
Amount reduced by the Annual Additions credited to a Participant's Account under
the other plans and welfare benefit funds for the same Limitation Year. If the
Annual Additions with respect to the Participant under other defined
contribution plans and welfare benefit funds maintained by the Employer are less
than the Maximum Permissible Amount and the Employer contribution that would
otherwise be contributed or allocated to the Participant's Account under this
Plan would cause the Annual Additions for the Limitation Year to exceed this
limitation, the amount contributed or allocated shall be reduced so that the
Annual Additions under all such plans and funds for the Limitation Year shall
equal the Maximum Permissible Amount. If the Annual Additions with respect to
the Participant-under such other defined contribution plans and welfare benefit
funds in the aggregate are equal to or greater than the Maximum Permissible
Amount, no amount shall be contributed or allocated to the Participant's Account
under this Plan for the Limitation Year.
5.06 Prior to determining the Participant's actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible Amount for a
Participant in the manner described in Section 5.02.
5.07 As soon as is administratively feasible after the end of the Limitation
Year, the Maximum Permissible Amount for the Limitation Year shall be determined
on the basis of the Participant's actual Compensation for the Limitation Year.
5.08 If, pursuant to Section 5.07, or as a result of the allocation of
Forfeitures, a Participant's Annual Additions under this Plan and such other
plans would result in an Excess Amount for a Limitation Year, the Excess Amount
shall be deemed to consist of the Annual Additions last allocated, except that
Annual Additions attributable to a welfare benefit fund or individual medical
account shall be deemed to have been allocated first regardless of the actual
allocation date.
5.09 If an Excess Amount was allocated to a Participant on an allocation date of
this Plan which coincides with an allocation date of another plan, the Excess
Amount attributed to this Plan shall be the product of,
(a) the total Excess Amount allocated as of such date, times
(b) the ratio of:
(1) the Annual Additions allocated to the Participant for the
Limitation Year as of such date under this Plan, to
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(2) the total Annual Additions allocated to the Participant for the
Limitation Year as of such date under this and all the other
qualified Master or Prototype defined contribution plans.
5.10 Any Excess Amount attributed to this Plan shall be disposed in the manner
described in Section 5.04.
5.11 If the Participant is covered under another qualified defined contribution
plan maintained by the Employer which is not a Master or Prototype Plan, Annual
Additions which may be credited to the Participant's Account under this Plan for
any Limitation Year shall be limited in accordance with Sections 5.05 through
5.10 as though the other plan were a Master or Prototype Plan unless the
Employer provides other limitations in Section A-5.11 of the Adoption Agreement.
5.12 If the Employer maintains, or at any time maintained, a qualified defined
benefit plan covering any Participant in this Plan, the sum of the Participant's
Defined Benefit Plan Fraction and Defined Contribution Plan Fraction shall not
exceed 1.0 in any Limitation Year. The Annual Additions which may be credited to
the Participant's Account under this Plan for any Limitation Year shall be
limited in accordance with Section A-5.12 of the Adoption Agreement.
5.13 For purposes of this Article, the following terms shall be defined as
follows:
(a) Annual Additions--The sum of the following amounts credited to a
Participant's Account for the Limitation Year:
(1) Employer contributions; and
(2) Employee contributions; and
(3) forfeitures; and
(4) amounts allocated, after March 31, 1984, to an individual medical
account, as defined in Section 415(1)(2) of the Code, which is
part of a pension or annuity plan maintained by the Employer, are
treated as Annual Additions to a defined contribution plan. Also,
amounts derived from contributions paid or accrued after December
31, 1985, in taxable years ending after such date, which are
attributable to post-retirement medical benefits, allocated to
the separate account of a Key Employee, as defined in Section
419A(d)(3), of the Code, under a welfare benefit fund, as defined
in Section 419(e), of the Code, maintained by the Employer, are
treated as Annual Additions to a defined contribution plan.
(b) Compensation: All of a Participant's wages as defined in Section
3401(a) for the purposes of income tax withholding at the source but
determined without regard to any rules that limit the remuneration
included in wages based on the nature or location of the employment or
the services performed [such as the exception for agricultural labor
in Section 3401(a)(2)].
For any Self-employed Individual Compensation will mean Earned Income.
For Limitation Years beginning after December 31, 1991, for purposes
of applying the limitations of this Article, Compensation for a
Limitation Year is the Compensation actually paid or includible in
gross income during such Limitation Year.
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Notwithstanding the preceding sentence, Compensation for a Participant
in a defined contribution plan who is permanently and totally disabled
[as defined in Section 22(e)(3) of the Code] is the Compensation such
Participant would have received for the Limitation Year if the
Participant had been paid at the rate of Compensation paid immediately
before becoming permanently and totally disabled; such imputed
Compensation for the disabled participant may be taken into account
only if the Participant is not a Highly Compensated Employee [as
defined in Section 414(q) of the Code] and contributions made on
behalf of such Participant are nonforfeitable when made.
(c) Defined Benefit Fraction: A fraction, the numerator of which is the
sum of the Participant's Projected Annual Benefits under all the
defined benefit plans (whether or not terminated) maintained by the
Employer, and the denominator of which is the lesser of 125 percent of
the dollar limitation determined for the Limitation Year under
Sections 415(b) and (d) of the Code or 140 percent of the Highest
Average Compensation, including any adjustments under Section 415(b)
of the Code.
Notwithstanding the above, if the Participant was a Participant as of
the first day of the first Limitation Year beginning after December
31, 1986, in one or more defined benefit plans maintained by the
Employer which were in existence on May 6, 1986, the denominator of
this fraction shall not be less than 125 percent of the sum of the
Annual Benefits under such plans which the Participant had accrued as
of the close of the last Limitation Year beginning before January 1,
1987, disregarding any changes in the terms and conditions of the Plan
after May 5, 1986. The preceding sentence applies only if the defined
benefit plans individually and in the aggregate satisfied the
requirements of Section 415 for all Limitation Years beginning before
January 1, 1987.
(d) Defined Contribution Dollar Limitation: $30,000 or if greater, one-
fourth of the defined benefit dollar limitation set forth in Section
415(b)(1) of the Code as in effect for the Limitation Year.
(e) Defined Contribution Fraction: A fraction, the numerator of which is
the sum of the Annual Additions to the Participant's Account under all
the defined contribution plans (whether or not terminated) maintained
by the Employer for the current and all prior Limitation Years
[including the Annual Additions attributable to the Participant's
nondeductible employee contributions to all defined benefit plans,
whether or not terminated, maintained by the Employer, and the annual
additions attributable to all welfare benefit funds, as defined in
Section 419(e) of the Code, and individual medical accounts, as
defined in Section 415(1)(2) of the Code, maintained by the employer],
and the denominator of which is the sum of the maximum aggregate
amounts for the current and all prior Limitation Years of service with
the Employer (regardless of whether a defined contribution plan was
maintained by the Employer). The maximum aggregate amount in any
Limitation Year is the lesser of 125 percent of the dollar limitation
determined under Sections 415(b) and (d) of the Code in effect under
Section 415(c)(1)(A) of the Code or 35 percent of the Participant's
Compensation for such year.
If the Employee was a Participant as of the end of the first day of
the first Limitation Year beginning after December 31, 1986, in one or
more defined contribution plans maintained by the Employer which were
in existence on May 6, 1986, the numerator of this fraction shall be
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adjusted if the sum of this fraction and the Defined Benefit Fraction
would otherwise exceed 1.0 under the terms of this Plan. Under the
adjustment, an amount equal to the product of:
(1) the excess of the sum of the fractions over 1.0, times
(2) the denominator of this fraction,
shall be permanently subtracted from the numerator of this fraction.
The adjustment is calculated using the fractions as they would be
computed as of the end of the last Limitation Year beginning before
January 1, 1987, and disregarding any changes in the terms and
conditions of the Plan made after May 5, 1986, but using the Section
415 limitation applicable to the first Limitation Year beginning on or
after January 1, 1987.
The annual addition for any Limitation Year beginning before January
1, 1987, shall not be recomputed to treat all Employee contributions
as Annual Additions.
(f) Employer: For purposes of this article, Employer shall mean the
Employer that adopts this Plan, and all members of a controlled group
of corporations [as defined in Section 414 (b) of the Code as modified
by Section 415 (h)], all commonly controlled trades or businesses [as
defined in Section 414 (c) as modified by Section 415 (h)] or
affiliated service groups [as defined in Section 414 (m)] of which the
adopting Employer is a part, and any other entity required to be
aggregated with the Employer pursuant to regulations under Section 414
(o) of the Code.
(g) Excess Amount: The excess of the participant's Annual Additions for
the Limitation Year over the Maximum Permissible Amount.
(h) Highest Average Compensation: The average Compensation for the three
consecutive years of service with the Employer that produces the
highest average. A year of service with the Employer is the 12
consecutive month period corresponding to the Plan Year as defined in
Section A-1. 54 of the Adoption Agreement.
(i) Limitation Year: The Plan Year (a 12 consecutive month period) as
elected by the Employer in the Adoption Agreement. All qualified plans
maintained by the Employer must use the same Limitation Year. If the
Limitation Year is amended to a different 12 consecutive month period,
the new Limitation Year must begin on a date within the Limitation
Year in which the amendment is made.
(j) Master or Prototype Plan: A plan the form of which is the subject of a
favorable opinion letter from the Internal Revenue Service.
(k) Maximum Permissible Amount: The maximum Annual Addition that may be
contributed or allocated to a Participant's Account under the Plan for
any Limitation Year shall not exceed the lesser of:
(1) the Defined Contribution Dollar Limitation; or
(2) 25 percent of the Participant's Compensation for the Limitation
Year.
The compensation limitation referred to in (b) shall not apply to any
contribution for medical benefits [within the meaning of Section
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401(h) or Section 419A(f)(2) of the Code] which is otherwise treated
as an Annual Addition under Section 415(1)(1) or 419A(d)(2) of the
Code.
If a short Limitation Year is created because of an amendment changing
the Limitation Year to a different 12 consecutive month period, the
Maximum Permissible Amount shall not exceed the Defined Contribution
Dollar Limitation multiplied by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
(1) Projected Annual Benefit: The annual retirement benefit (adjusted to
an actuarially equivalent straight life annuity if such benefit is
expressed in a form other than a straight life annuity or qualified
joint and survivor annuity) to which the Participant would be entitled
under the terms of the Plan assuming:
(1) the Participant shall continue employment until Normal Retirement
Age under the Plan (or current age, if later); and
(2) the Participant's Compensation for the current Limitation Year
and all other relevant factors used to determine benefits under
the Plan shall remain constant for all future Limitation Years.
5.14 If this Plan and another plan -- both of which are integrated with Social
Security -- cover some of the same employees, such plans shall be considered one
plan and shall be properly integrated only if the sum of the ratio of actual
benefits, benefit rate, offset rate, or employer contribution rate to the
applicable integration limit under each plan does not exceed 100 percent for any
Participant. Thus, an adjustment in the actual benefits, benefit rate, offset
rate, or employer contribution rate might be necessary under this Plan if the
sum of such ratios exceeds 100 percent.
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ARTICLE VI
INVESTMENT OF CONTRIBUTIONS
6.01 The Trustee shall receive, hold, invest, and reinvest all contributions and
monies of this trust in either the General Investment Account, the Designated
Investment Accounts, or the Directed Group Accounts or a combination thereof.
Investments shall be limited to property of a character which is consistent with
Section 503 of the Code for investments under Qualified Plans and which are not
in violation of the limitations on Employer securities or real property under
ERISA. The Trustee shall exercise the judgment and care under the circumstances
then prevailing, which individuals of prudence, discretion, and intelligence
familiar with such matters exercise in a like situation and shall diversify such
investments to minimize the risk of large losses.
6.02 If elected in A-6.02 of the Adoption Agreement, each Participant may direct
the Trustee to use a portion of each year's contribution to purchase life
insurance subject to the following:
(a) All life insurance contracts are to be as nearly alike as possible.
(b) If a portion of the Employer contributions is to be used as a premium
for life insurance, such premium shall be limited as follows:
(1) Ordinary Life--For purposes of these incidental insurance
provisions, ordinary life insurance contracts are contracts with
both nondecreasing death benefits and nonincreasing premiums. If
such contracts are purchased, less than 50 percent of the
aggregate Employer contributions allocated to any Participant
shall be used to pay the premiums attributable to them.
(2) Term and Universal Life--No more than 25 percent of the aggregate
Employer contributions allocated to any Participant shall be used
to pay the premiums on term life insurance contracts, universal
life insurance contracts, and all other life insurance contracts
which are not ordinary life.
(3) Combination--The sum of 50 percent of the ordinary life insurance
premiums and all other life insurance premiums shall not exceed
25 percent of the aggregate Employer contributions allocated to
any Participant.
(c) The minimum face amount of the life insurance contract to be purchased
on the life of a Participant shall be $5,000 or its equivalent if the
contract is issued in units of insurance.
(d) The Trustee shall convert the entire value, if any, of the life
insurance contract at or before retirement into either cash or an
annuity so that no portion of such value is used to continue life
insurance protection after retirement, or the Trustee shall, subject
to the requirements of Article IX, distribute the life insurance
contract to the Participant.
(e) Any dividend or refund payable under a life insurance contract shall
be applied for the benefit of the insured Participant.
(f) If the Participant is classified as uninsurable by the Insurer, no
insurance contract shall be purchased on the life of that Participant.
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(g) Life insurance contracts shall be purchased only with Elective
Deferrals if the Plan contains a CODA. If the Plan does not contain a
CODA, insurance contracts shall be purchased with Employer
contributions only.
(h) The Trustee may purchase or accept the transfer of any life insurance
contract owned by a Participant provided such transfer meets the
requirements of Class Exemptions 77-7 and 77-8 or any subsequent
rulings.
(i) The Trustee shall apply for and shall be the owner of any insurance
contract purchased under the terms of this Plan. The insurance
contract(s) must provide that proceeds shall be payable to the
Trustee, however the Trustee shall be required to pay over all
proceeds of the contract(s) to the Participant's designated
Beneficiary in accordance with the distribution provisions of this
Plan. A Participant's Spouse shall be the designated Beneficiary of
the proceeds in all circumstances unless a Qualified Election has been
made in accordance with Article IX, Joint and Survivor Annuity
Requirements. Under no circumstances shall the trust retain any part
of the proceeds. In the event of any conflict between the terms of
this Plan and the terms of any insurance contract purchased hereunder,
the Plan provisions shall control.
6.03 If elected in the Adoption Agreement, Participants may direct the Trustee
as to the investment of their individual Account balances in specific
investments permitted under this agreement, subject to any restrictions on
investment options that may be made in writing by the Employer. That portion the
Account of any Participant so directing shall thereupon be considered a
Designated Investment Account and/or a Directed Group Account.
6.04 Except to the extent a Participant has directed the Trustee as to the
investment of his individual Account balance in accordance with Section 6.03,
each Participant shall have a ratable interest in all assets of the trust.
6.05 If elected in the Adoption Agreement, the Trustee shall make loans to
Participants and Beneficiaries subject to the following conditions:
(a) Loans shall be made available to all Participants and Beneficiaries on
a reasonably equivalent basis. However, former Employees maintaining
an account balance under the Plan shall not be eligible for a loan
unless they are also a party-in-interest, as that term is defined by
ERISA Section 3(14).
(b) Loans shall not be made available to Highly Compensated Employees (as
defined in Section 414(q) of the Code) in an amount greater than the
amount made available to other Employees.
(c) Loans shall not be granted for amounts less than $1,000.
(d) Any administrative expense directly related to the loan may be paid by
the Participant, or paid by the Employer in a consistent and
nondiscriminatory manner.
(e) Loans must be adequately secured and bear a reasonable interest rate.
(f) No Participant loan shall exceed the Participant's Vested Account
Balance.
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(g) No Participant Loan shall take into account the value of the
Participant's Deductible Voluntary Contributions.
(h) No loans shall be made to any shareholder-employee or Owner-employee.
For purposes of this requirement, a shareholder-employee means an
employee or officer of an electing small business (Subchapter S)
corporation who owns [or is considered as owning within the meaning of
Section 318(a) (1) of the Code], on any day during the taxable year of
such corporation, more than 5 percent of the outstanding stock of the
corporation.
(i) Loans shall not be granted to any Participant that provide for a
repayment period extending beyond such Participant's Normal Retirement
Date.
(j) No loan to any Participant or Beneficiary can be made to the extent
that such loan when added to the outstanding balance of all other
loans to the P articipant or Beneficiary would exceed the lesser of:
(1) $50,000 reduced by the excess (if any) of the highest outstanding
balance of loans during the one year period ending on the day
before the loan is made, over the outstanding balance of loans
from the Plan on the date the loan is made; or
(2) one-half the present value of the nonforfeitable accrued benefit
of the Participant or, if greater, the total accrued benefit up
to $10,000.
For the purpose of the above limitation, all loans from all plans of
the Employer and other members of a group of employers described in
Sections 414 (b), 414 (c), and 414 (m) of the Code are aggregated.
Furthermore, any loan shall by its terms require that repayment
(principal and interest) be amortized in level payments, not less
frequently than quarterly, over a period not extending beyond five
years from the date of the loan, unless such loan is used to acquire a
dwelling unit which within a reasonable time (determined at the time
the loan is made) shall be used as the principal residence of the
Participant. An assignment or pledge of any portion of the
Participant's interest in the Plan and a loan, pledge, or assignment
with respect to any insurance contract purchased under the Plan, shall
be treated as a loan under this paragraph.
(k) In the event of default, foreclosure on the note and attachment of
security shall not occur until a distributable event occurs in the
Plan.
(l) A Participant must obtain the consent of his or her Spouse, if any, to
use the Vested Account Balance as security for the loan. (Spousal
consent is not required if the total Accrued Benefit subject to the
security is not in excess of $3,500.) Spousal consent shall be
obtained no earlier than the beginning of the 90-day period that ends
on the date on which the loan is to be so secured. The consent must be
in writing, must acknowledge the effect of the loan, and must be
witnessed by a Plan representative or notary public. Such consent
shall thereafter be binding with respect to the consenting Spouse or
any subsequent Spouse with respect to that loan. A new consent shall
be required if the Account balance is used for renegotiation,
extension, renewal, or other revision of the loan.
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If a valid spousal consent has been obtained in accordance with (1), then,
notwithstanding any other provision of this Plan, the portion of the
Participant's Vested Account Balance used as a security interest held by the
Plan by reason of a loan outstanding to the Participant shall be taken into
account for purposes of determining the amount of the Account balance payable at
the time of death or distribution, but only if the reduction is used as
repayment of the loan. If less than 100 percent of the Participant's Vested
Account Balance (determined without regard to the preceding sentence) is payable
to the surviving spouse, then the Account balance shall be adjusted by first
reducing the Vested Account Balance by the amount of the security used as
repayment of the loan, and then determining the benefit payable to the surviving
spouse.
6.06 The Trustee is authorized and empowered to invest and reinvest the
principal and income, in real or personal property, including, but not limited
to, any common or preferred stocks, bonds, notes, mortgages, trust certificates,
mutual funds, Insurance Contracts, and pooled accounts of a bank or trust
company maintained exclusively for Qualified Plans. In making such investments
or reinvestments, the Trustee has wide latitude in the selection of investments
and shall not be restricted to securities or other property of a character
authorized or required by applicable state law for trust investments. The
Trustee may keep whatever portion of the Investment Fund in cash or cash
equivalents as it may from time to time deem to be in the best interest of the
Participants.
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ARTICLE VII
VALUATION OF ASSETS
7.01 The Plan Administrator shall maintain for each Participant (including any
terminated Participant who received a distribution of less than his Vested
Account Balance) as many accounts and subaccounts as may be required under the
provisions of this Plan. The total value of a Participant's account(s) shall be
determined at the end of each Allocation Period and shall include the value of
the Participant's share in the General Investment Account, the values in the
Participant's Designated Investment Account, the values in the Participant's
Directed Group Account, and contributions accrued but not yet made on behalf of
the Participant for the Allocation Period.
7.02 The Trustee shall determine as of the last day of the Allocation Period the
net value of the General Investment Account and the net value of each investment
fund available under the Directed Group Account. The Trustee shall convey this
information to the Plan Administrator. In determining the net value, the Trustee
shall value all assets at fair market value as of the last day of the Allocation
Period.
7.03 The Trustee shall determine as of the last day of the Allocation Period the
value of insurance contracts, and such other investments as may be permitted
under Section 6.03, in each Participant's Designated Investment Account and
convey this information to the Plan Administrator. All assets shall be valued at
fair market value. Life insurance contracts shall be valued as of the last day
of the month coinciding with or immediately preceding the last day of the
Allocation Period.
7.04 As soon as practical after the end of each Allocation Period, the Plan
Administrator shall convey to each Participant the total value of such
Participant's account(s). However, neither the maintenance of accounts nor the
allocations of credits to accounts shall operate to vest in any Participant any
right to or interest in any assets of the trust except as the Plan specifically
provides.
7.05 The assets of the trust shall be valued at fair market value no less
frequently than annually. Valuations shall be performed as of the last day of
the Plan Year and such other times as may be determined by the Trustee. On such
dates the earnings and losses of the trust shall be allocated to each
Participant's Account in accordance with Section 3.07.
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ARTICLE VIII
BENEFITS
8.01 NORMAL RETIREMENT
The Account of each Participant who retires on the Normal Retirement Date
specified in A-8.01 of the Adoption Agreement shall be payable as provided
in Section 8.07. The Account of each Participant shall be fully vested upon
attainment of Normal Retirement Age.
8.02 EARLY RETIREMENT
A Participant may retire early if Early Retirement is permitted under A-
8.02 in the Adoption Agreement, and benefits shall be based on the election
made in the Adoption Agreement.
If a Participant separates from Service before satisfying the age
requirement for Early Retirement, but has satisfied the Service
requirement, the Participant shall be entitled to elect an Early Retirement
benefit upon satisfaction of such Age requirement.
8.03 LATE RETIREMENT
If a Participant continues employment beyond Normal Retirement Date, a
Participant may continue to participate in this Plan until actual
retirement. Upon attainment of Normal Retirement Age a Participant may
elect to receive a distribution of his entire Account balance prior to
actual retirement. In no event shall commencement of benefits be deferred
beyond the Required Beginning Date as defined in Section 1.62.
8.04 DISABILITY RETIREMENT
If a medical examiner selected by the Plan Administrator certifies that a
Participant is permanently disabled as defined in the Adoption Agreement,
such Participant shall then be entitled to the disability benefits in lieu
of any other benefits provided by this Plan in accordance with A-8.04 of
the Adoption Agreement. Disability shall at all times be determined on a
uniform and consistent basis for all Participants.
8.05 DEATH BENEFIT
If a Participant dies, the Participant's Account shall be fully vested and
the Beneficiary shall receive a death benefit equal to the value of such
Account.
8.06 BENEFICIARY DESIGNATION
Subject to the provisions of Article IX:
(a) Each Participant shall be given the opportunity in an original
election to designate a Beneficiary and from time to time the
Participant may file with the Plan Administrator a new or revised
designation in such form as the Plan Administrator shall provide. A
Participant may also designate any form of payment available under
Section 8.08 to such Beneficiary.
(b) Unless otherwise elected under (a) above, if a married Participant
dies, the surviving spouse shall be deemed the designated Beneficiary
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and the payment shall be in a form elected by the Participant or
Beneficiary.
(c) In the absence of a Beneficiary under either (a) or (b) above, the
estate of the Participant shall be deemed to be the designated
Beneficiary and in the absence of a designated form of payment, the
Beneficiary shall select any form of payment available under Section
8.08.
8.07 PAYMENT OF BENEFITS
The Plan Administrator shall direct the Trustee to make payment of any
benefits provided under this Plan upon the event giving rise to such
benefit within the time prescribed by Section 8.10.
8.08 OPTIONAL FORMS OF BENEFIT
Subject to the Joint and Survivor Annuity Requirements of Article IX and
the Distribution Requirements of Article X optional forms of benefit
distribution are available subject to a written request by the Participant
and the provisions of this Section.
The optional forms for benefits attributable to Service performed on and
after the date this Plan is adopted are as follows:
-One lump-sum payment in cash or in property.
-Life Annuity.
-Life Annuity with a period certain of 10, 15 or 20 years.
-Joint and 50%, 66 2/3% or 100% Survivor Annuity.
-Any combination of the above.
For benefits attributable to Service performed before the date this Plan is
adopted the optional forms available are those listed above plus any other
forms which were available immediately prior to the adoption date.
Any annuity contract purchased and distributed by the Plan to a Participant
or Spouse shall be nontransferrable, and its terms shall comply with the
requirements of this Plan.
8.09 [FOR PROFIT SHARING/401(K) SALARY REDUCTION PLANS ONLY]
The preceding Section 8.08 notwithstanding, if elected in Section A-8.09 of
the Adoption Agreement, distributions from this Plan shall be made only in
the form of a single lump-sum payment, in cash or in property, and a
Participant may not elect to receive payments in the form of a life
annuity. If a Participant dies, the Participant's Vested Account Balance
shall be paid to the Participant's Surviving Spouse, but if there is no
Surviving Spouse, or if the Surviving Spouse has consented in a manner
conforming to a Qualified Election, the Participant's Vested Account
Balance shall be paid to the Participant's Designated Beneficiary. This
Lump-sum only'' option may be elected by the Employer only if immediately
prior to the adoption date of this Plan no other form of distribution
(other than lump-sum) was available, i.e., this option may be elected only
if this is a new plan, or if this is an amendment to an existing plan which
permitted only lump-sum distributions. If this Section 8.09 is operative,
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Section 9.05 shall also be operative, and the spousal consent requirements
of Sections 3.04, 4.13(c), 4.14, 6.05(1) and 11.08 shall be inoperative.
8.10 COMMENCEMENT OF BENEFITS
Unless the Participant elects otherwise, distribution of benefits shall
begin no later than the 60th day after the latest of the close of the Plan
Year in which:
(a) the Participant attains age 65 (or Normal Retirement Age, if earlier);
or
(b) occurs the 10th anniversary of the year in which the Participant
commenced participation in the Plan; or
(c) the Participant terminates Service with the Employer.
If the amount of the payment required to commence on the date determined
above cannot be ascertained by such date, the time of the payment with
respect to such date may be delayed no later than 60 days after the
earliest date on which the amount could be ascertained. If a Participant
elects to defer any benefit payment beyond the dates specified in (a), (b),
or (c), above, such election must be in writing and must describe the
benefit and the date on which such benefit shall commence. Provided,
however, no such election violates the provisions of Article X.
Notwithstanding the foregoing, the failure of a Participant and Spouse to
consent to a distribution while a benefit is immediately distributable,
within the meaning of Section 11.08 of the Plan, shall be deemed to be an
election to defer commencement of payment of any benefit sufficient to
satisfy this Section.
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ARTICLE IX
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
9.01 The provisions of this Article shall take precedence over any conflicting
provision in this Plan.
The provisions of this Article shall apply to any Participant who is credited
with at least one Hour of Service with the Employer on or after August 23, 1984,
and such other Participants as provided in Section 9.06.
9.02 Qualified Joint and Survivor Annuity:
Unless an optional form of benefit is selected pursuant to a Qualified Election
within the 90-day period ending on the Annuity Starting Date, a married
Participant's Vested Account Balance shall be paid in the form of a Qualified
Joint and Survivor Annuity and an unmarried Participant's Vested Account Balance
shall be paid in the form of a life annuity. The Participant may elect to have
such annuity distributed upon attainment of the Earliest Retirement Age under
the Plan.
9.03 Qualified Preretirement Survivor Annuity:
Unless an optional form of benefit has been selected within the Election Period
pursuant to a Qualified Election, if a Participant dies before the Annuity
Starting Date then the Participant's Vested Account Balance shall be applied
toward the purchase of an annuity for the life of the Surviving Spouse. The
Surviving Spouse may elect to have such annuity distributed within a reasonable
period after the Participant's death.
9.04 Notice Requirements:
(a) In the case of a Qualified Joint and Survivor Annuity, the Plan
Administrator shall, no less than 30 days and no more than 90 days
prior to the Annuity Starting Date, provide each Participant a written
explanation of:
(1) the terms and conditions of a Qualified Joint and Survivor
Annuity; and
(2) the Participant's right to make, and the effect of, an election
to waive the Qualified Joint and Survivor Annuity form of
benefit; and
(3) the rights of a Participant's Spouse; and
(4) the right to make, and the effect of, a revocation of a previous
election to waive the Qualified Joint and Survivor Annuity.
(b) In the case of a Qualified Preretirement Survivor Annuity as described
in Section 9.03 of this Article, the Plan Administrator shall provide
each Participant within the applicable period for such Participant a
written explanation of the Qualified Preretirement Survivor Annuity in
such terms and in such manner as would be comparable to the
explanation provided for meeting the requirements of Section 9.04(a)
applicable to a Qualified Joint and Survivor Annuity.
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The applicable period for a Participant is whichever of the following
periods ends last:
(1) The period beginning with the first day of the Plan Year in which
the Participant attains age 32 and ending with the close of the
Plan Year preceding the Plan Year in which the Participant
attains age 35.
(2) A reasonable period ending after the individual becomes a
Participant.
(3) A reasonable period ending after Section 9.04(c) ceases to apply
to the Participant.
(4) A reasonable period ending after this Article first applies to
the Participant.
Notwithstanding the foregoing, notice must be provided within a
reasonable period ending after separation from Service in the case of
a Participant who separates from Service before attaining age 35.
For purposes of applying the preceding paragraph, a reasonable period
ending after the enumerated events described in (2), (3) and (4) is
the end of the two (2) year period beginning one (1) year prior to the
date the applicable event occurs, and ending one (1) year after that
date. In the case of a Participant who separates from Service before
the Plan Year in which age 35 is attained, notice shall be provided
within the two (2) year period beginning one (1) year prior to
separation and ending one (1) year after separation. If such a
Participant thereafter returns to employment with the Employer, the
applicable period for such Participant shall be redetermined.
(c) Notwithstanding the other requirements of this Section 9.04, the
respective notices prescribed by this Section need not be given to a
Participant if:
(1) the Plan "fully subsidizes" the costs of a Qualified Joint and
Survivor Annuity or Qualified Preretirement Survivor Annuity; and
(2) the Plan does not allow the Participant to waive the Qualified
Joint and Survivor Annuity or Qualified Preretirement Survivor
Annuity and does not allow a married Participant to designate a
nonspouse Beneficiary.
For purposes of this Section 9.04(c), a Plan fully subsidizes the
costs of a benefit if no increase in cost, or decrease in benefits to
the Participant may result from the Participant's failure to elect
another benefit.
9.05 Safe Harbor Rules:
(a) This Section shall apply to a Participant in a profit sharing plan,
and to any distribution, made on or after the first day of the first
Plan Year beginning after December 31, 1988, from or under a separate
account attributable solely to accumulated deductible Employee
contributions, as defined in Section 72(o)(5)(B) of the Code, and
maintained on behalf of a Participant in a money purchase pension
plan, (including a target benefit plan) if the following conditions
are satisfied:
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(1) the Participant does not or cannot elect payments in the form of
a life annuity; and
(2) on the death of a Participant, the Participant's Vested Account
Balance shall be paid to the Participant's Surviving Spouse, but
if there is no Surviving Spouse, or if the Surviving Spouse has
consented in a manner conforming to a Qualified Election, then to
the Participant's designated Beneficiary.
The Surviving Spouse may elect to have distribution of the Vested
Account Balance commence within the 90-day period following the date
of the Participant's death. The Account balance shall be adjusted for
gains or losses occurring after the Participant's death in accordance
with the provisions of the Plan governing the adjustment of Account
balances for other types of distributions. This Section 9.05 shall not
be operative with respect to a Participant in a profit sharing plan if
the Plan is a direct or indirect transferee of a defined benefit plan,
money purchase plan, a target benefit plan, stock bonus, or profit
sharing plan which is subject to the Survivor Annuity requirements of
Section 401(a)(11) and Section 417 of the Code. If this Section 9.05
is operative, then the provisions of this Article, other than Section
9.06, shall be inoperative.
(b) The Participant may waive the spousal death benefit described in this
Section at any time provided that no such waiver shall be effective
unless it satisfies the conditions of Section 1.57 (other than the
notification requirement referred to therein) that would apply to the
Participant's waiver of the Qualified Preretirement Survivor Annuity.
(c) For purposes of this Section 9.05, Vested Account Balance shall mean,
in the case of a money purchase pension plan or a target benefit plan,
the Participant's separate Account balance attributable solely to
accumulated deductible Employee contributions within the meaning of
Section 72(o)(5)(B) of the Code. In the case of a profit sharing plan,
Vested Account Balance shall have the same meaning as provided in
Section 1.72.
9.06 Transitional Rules:
(a) Any living Participant not receiving benefits on August 23, 1984, who
would otherwise not receive the benefits prescribed by the previous
Sections of this Article must be given the opportunity to elect to
have the prior Sections of this Article apply if such Participant is
credited with at least one Hour of Service under this Plan or a
predecessor Plan in a Plan Year beginning on or after January 1, 1976,
and such Participant had at least ten (10) years of Vesting Service
when he or she separated from Service.
(b) Any living Participant not receiving benefits on August 23, 1984, who
was credited with at least one Hour of Service under this Plan or a
predecessor Plan on or after September 2, 1974, and who is not
otherwise credited with any Service in a Plan Year beginning on or
after January 1, 1976, must be given the opportunity to have his or
her benefits paid in accordance with Section 9.06(d) of this Article.
(c) The respective opportunities to elect [as described in Sections
9.06(a) and (b) above] must be afforded to the appropriate
Participants during the period commencing on August 23, 1984, and
ending on the date benefits would otherwise commence to said
Participants.
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(d) Any Participant who has elected pursuant to Section 9.06(b) of this
Article and any Participant who does not elect under Section 9.06(a)
or who meets the requirements of Section 9.06(a) except that such
participant does not have at least 10 years of Vesting Service when or
she separates from Service, shall have his or her benefits distributed
in accordance with all of the following requirements if benefits would
have been payable in the form of a life annuity:
(1) Automatic Joint and Survivor Annuity: If benefits in the form of
a life annuity become payable to a married Participant who:
(i) begins to receive payments under the Plan on or after
Normal Retirement Age; or
(ii) dies on or after Normal Retirement Age while still working
for the Employer; or
(iii) begins to receive payments on or after the Qualified Early
Retirement Age; or
(iv) separates from Service on or after attaining Normal
Retirement Age (or the Qualified Early Retirement Age) and
after satisfying the eligibility requirements for the
payment of benefits under the Plan and thereafter dies
before beginning to receive such benefits,
then such benefits shall be received under this Plan in the form
of a Qualified Joint and Survivor Annuity, unless the Participant
has elected otherwise during the election period. The election
period must begin at least six (6) months before the Participant
attains Qualified Early Retirement Age and end not more than 90
days before the commencement of benefits. Any election hereunder
shall be in writing and may be changed by the Participant at any
time.
(2) Election of Early Survivor Annuity: A Participant who is employed
after attaining the Qualified Early Retirement Age shall be given
the opportunity to elect, during the election period, to have a
survivor annuity payable on death. If the Participant elects the
survivor annuity, payments under such annuity must not be less
than the payments which would have been made to the Spouse under
the Qualified Joint and Survivor Annuity if the Participant had
retired on the day before his or her death. Any election under
this provision shall be in writing and may be changed by the
Participant at any time. The election period begins on the later
of:
(i) the 90th day before the Participant attains the Qualified
Early Retirement Age; or
(ii) the date on which participation begins, and ends on the date
the Participant terminates employment.
(3) For purposes of this Section
(i) Qualified Early Retirement Age is the latest of:
-the earliest date, under the Plan, on which the participant
may elect to receive retirement benefits; or
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-the first day of the 120th month beginning before the
Participant reaches Normal Retirement Age; or
-the date the Participant begins Participation.
(ii) Qualified Joint and Survivor Annuity is an annuity for the
life of the Participant with a survivor annuity for the life
of the Spouse as described in Section 1.58.
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ARTICLE X
DISTRIBUTION REQUIREMENTS
10.01 General Rules
(a) Subject to Article IX, Joint and Survivor Annuity Requirements, the
requirements of this Article shall apply to any distribution of a
Participant's interest and shall take precedence over any inconsistent
provisions of this Plan. Unless otherwise specified, the provisions of
this Article apply to calendar years beginning after December 31,
1984.
(b) All distributions required under this Article shall be determined and
made in accordance with the proposed regulations under Section 401(a)
(9), including the minimum distribution incidental benefit requirement
of Section 1.401(a)(9)-2 of the proposed regulations.
10.02 Required Beginning Date
The entire interest of a Participant must be distributed or begin to be
distributed no later than the Participant's Required Beginning Date as defined
in Section 1.62.
10.03 Limits on Distribution Periods
As of the first Distribution Calendar Year, distributions, if not made in one
lump-sum payment, may only be made over one of the following periods (or a
combination thereof):
(a) the life of the Participant; or
(b) the life of the Participant and a Designated Beneficiary; or
(c) a period certain not extending beyond the Life Expectancy of the
Participant; or
(d) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a Designated Beneficiary.
10.04 Determination of Amount to be Distributed Each Year
If the Participant's interest is to be distributed in other than one lump-sum
payment, the following minimum distribution rules shall apply on or after the
Required Beginning Date:
(a) Individual Account
(1) If a Participant's Benefit is to be distributed over:
(i) a period not extending beyond the Life Expectancy of the
Participant or the joint life and last survivor expectancy
of the Participant and the Participant's Designated
Beneficiary; or
(ii) a period not extending beyond the Life Expectancy of the
Designated Beneficiary,
the amount required to be distributed for each calendar year,
beginning with distributions for the first Distribution Calendar
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Year, must at least equal the quotient obtained by dividing the
Participant's Benefit by the applicable Life Expectancy.
(2) For calendar years beginning before January 1, 1989, if the
Participant's Spouse is not the Designated Beneficiary, the
method of distribution selected must assure that at least 50
percent of the present value of the amount available for
distribution is paid within the Life Expectancy of the
Participant.
(3) For calendar years beginning after December 31, 1988, the amount
to be distributed each year, beginning with distributions for the
first Distribution Calendar Year shall not be less than the
quotient obtained by dividing the Participant's Benefit by the
lesser of:
(i) the applicable Life Expectancy; or
(ii) if the Participant's Spouse is not the Designated
Beneficiary, the applicable divisor determined from the
table set forth in Q&A-4 of Section 1.401(a)(9)-2 of the
proposed regulations.
Distributions after the death of the Participant shall be
distributed using the applicable Life Expectancy in Section
10.04(a)(1) above as the relevant divisor without regard to
proposed regulations Section 1.401(a)(9)-2.
(4) The minimum distribution required for the Participant's first
Distribution Calendar Year must be made on or before the
Participant's Required Beginning Date. The minimum distribution
for other calendar years, including the minimum distribution for
the Distribution Calendar Year in which the Employee's Required
Beginning Date occurs, must be made on or before December 31 of
that Distribution Calendar Year.
(b) Other Forms
If the Participant's Benefit is distributed in the form of an annuity
purchased from an insurance company, distributions thereunder shall be
made in accordance with the requirements of Section 401(a)(9) of the
Code and the proposed regulations thereunder.
10.05 Death Distribution Provisions
(a) Distribution beginning before death.
If the Participant dies after distribution of his or her interest has
begun, the remaining portion of such interest shall continue to be
distributed at least as rapidly as under the method of distribution
being used prior to the Participant's death.
(b) Distribution beginning after death.
If the Participant dies before distribution of his or her interest
begins, distribution of the Participant's entire interest shall be
completed by December 31 of the calendar year containing the fifth
anniversary of the Participant's death except to the extent that an
election is made to receive distributions in accordance with (1) or
(2) below:
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(1) If any portion of the Participant's interest is payable to a
Designated Beneficiary, distributions may be made over the life
or over a period certain not greater than the Life Expectancy of
the Designated Beneficiary commencing on or before December 31 of
the calendar year immediately following the calendar year in
which the Participant died.
(2) If the Designated Beneficiary is the Participant's surviving
Spouse, the date distributions are required to begin in
accordance with (1) above shall not be earlier than the later of:
(i) December 31 of the calendar year immediately following the
calendar year in which the Participant died; or
(ii) December 31 of the calendar year in which the Participant
would have attained age 70-1/2.
If the Participant has not made an election pursuant to this Section
10.05(b) by the time of his or her death, the Participant's Designated
Beneficiary must elect the method of distribution no later than the
earlier of:
-December 31 of the calendar year in which distributions would be
required to begin under this Section; or
-December 31 of the calendar year which contains the fifth
anniversary of the date of death of the Participant.
If the Participant has no Designated Beneficiary, or if the Designated
Beneficiary does not elect a method of distribution, distribution of
the Participant's entire interest must be completed by December 31 of
the calendar year containing the fifth anniversary of the
Participant's death.
(c) For purposes of Section 10.05(b) above, if the Surviving Spouse dies
after the Participant, but before payments to such Spouse begin, the
provisions of Section 10.05(b), with the exception of paragraph (2)
therein, shall be applied as if the Surviving Spouse were the
Participant.
(d) For purposes of this Section 10.05, any amount paid to a child of the
Participant shall be treated as if it had been paid to the Surviving
Spouse if the amount becomes payable to the Surviving Spouse when the
child reaches the age of majority.
(e) For purposes of this Section 10.05, distribution of a Participant's
interest is considered to begin on the Participant's Required
Beginning Date [or, if Section 10.05(c) above is applicable, the date
distribution is required to begin to the Surviving Spouse pursuant to
Section 10.05(b) above]. If distribution in the form of an annuity
irrevocably commences to the Participant before the Required Beginning
Date, the date distribution is considered to begin is the date
distribution actually commences.
10.06 Transitional Rule
(a) Notwithstanding the other requirements of this Article and subject to
the requirements of Article IX, Joint and Survivor Annuity
Requirements, distribution on behalf of any Employee, including a
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5-percent owner, may be made in accordance with all of the following
requirements (regardless of when such distribution commences):
(1) The distribution by the trust is one which would not have
disqualified such trust under Section 401(a)(9) of the Code as in
effect prior to amendment by the Deficit Reduction Act of 1984.
(2) The distribution is in accordance with a method of distribution
designated by the Employee whose interest in the trust is being
distributed or, if the Employee is deceased, by a Beneficiary of
such Employee.
(3) Such designation was in writing, was signed by the Employee or
the Beneficiary, and was made before January 1, 1984.
(4) The Employee had accrued a benefit under the Plan as of December
31, 1983.
(5) The method of distribution designated by the Employee or the
Beneficiary specifies the time at which distribution shall
commence, the period over which distributions shall be made, and
in the case of any distribution upon the Employee's death, the
Beneficiaries of the Employee listed in order of priority.
(b) A distribution upon death shall not be covered by this transitional
rule unless the information in the designation contains the required
information described above with respect to the distributions to be
made upon the death of the Employee.
(c) For any distribution which commences before January 1, 1984, but
continues after December 31, 1983, the Employee, or the Beneficiary,
to whom such distribution is being made, shall be presumed to have
designated the method of distribution under which the distribution is
being made if the method of distribution was specified in writing and
the distribution satisfies the requirements in subsections 10.06(a)(1)
and (5).
(d) If a designation is revoked any subsequent distribution must satisfy
the requirements of Section 401(a)(9) of the Code and the proposed
regulations thereunder. If a designation is revoked subsequent to the
date distributions are required to begin, the trust must distribute by
the end of the calendar year following the calendar year in which the
revocation occurs the total amount not yet distributed which would
have been required to have been distributed to satisfy Section
401(a)(9) of the Code and the proposed regulations thereunder, but for
the Section 242(b)(2) election. For calendar years beginning after
December 31, 1988, such distributions must meet the minimum
distribution incidental benefit requirements in Section 1.401(a)(9)-2
of the proposed regulations. Any changes in the designation shall be
considered to be a revocation of the designation. However, the mere
substitution or addition of another Beneficiary (one not named in the
designation) under the designation shall not be considered to be a
revocation of the designation, so long as such substitution or
addition does not alter the period over which distributions are to be
made under the designation, directly or indirectly (for example, by
altering the relevant measuring life). In the case in which an amount
is transferred or rolled over from one plan to another plan, the rules
in Q&A J-2 and Q&A J-3 of Section 1.401(a)(9)-1 of the proposed
regulations shall apply.
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ARTICLE XI
TERMINATION OF SERVICE
11.01 Termination of Service, except for death, normal or early retirement, or
disability retirement, qualifies the Participant for the vested portion of the
Account balance as of the date of termination. The portion of the Participant's
Account balance which is vested is determined by the vesting schedule and the
Vesting Years of Service with which the Participant has been credited as of the
termination date.
11.02 All Vesting Years of Service, as described in Section 1.73, of the
Participant with the Employer (or under a predecessor plan, if the obligations
of the predecessor plan have been assumed by the Employer) shall be taken into
account in determining the Participant's place on the vesting schedule
designated in the Adoption Agreement.
11.03 No amendment to the Plan shall have the effect of decreasing a
Participant's vested interest determined without regard to such amendment as of
the later of the date such amendment is adopted or the date it becomes
effective.
If the Plan's vesting schedule is amended, or the Plan is amended in any way
that directly or indirectly affects the computation of the Participant's
nonforfeitable percentage or if the Plan is deemed amended by an automatic
change to or from a Top-heavy vesting schedule, each Participant with at least
three (3) Years of Service with the Employer as of the later of the date of
adoption or the effective date of the amendment shall at all times receive a
vested interest calculated under whichever vesting schedule provides the
greatest vested interest. For Participants who do not have at least one (1) Hour
of Service in any Plan Year beginning after December 31, 1988, the preceding
sentence shall be applied by substituting "five (5) Years of Service" for "three
(3) Years of Service" where such language appears.
11.04 If there is a change in the Plan Year and Eligibility and/or Vesting Years
of Service are based on such Plan Year, a Participant shall be credited with an
Eligibility and/or a Vesting Year of Service for both the Plan Year as it was
prior to the amendment (as if there was no change) and the first Plan Year after
the amendment if the Participant has at least 1,000 Hours of Service in each of
those Plan Years.
11.05 A Participant's Vested Account Balance shall be available for distribution
in accordance with the selection in the Adoption Agreement.
(a) In the event of a deferred distribution, payment of the Vested Account
Balance shall commence no later than the time prescribed by Section
8.10. If the Participant should die after termination of employment,
but before receiving a distribution of the Vested Account Balance, the
Beneficiary shall receive the death benefit, if any, as provided in
Section 8.05. Payments shall be made under an arrangement provided for
in Article VIII and shall be subject to the requirements of Article X.
(b) In the event of an immediate distribution, the Vested Account Balance
shall be distributed under an arrangement provided for in Article VIII
and shall be subject to the requirements of Article X.
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11.06 Any forfeitures shall be a general asset of the Plan and shall be handled
in accordance with Section 3.08. A forfeiture shall occur on the earlier of:
(a) the distribution of the entire vested portion of a Participant's
account; or
(b) the last day of the Plan Year in which the Participant incurs five (5)
consecutive One-Year Breaks in Service.
The provisions of this Section 11.06 shall be effective no earlier than the
first day of the Plan Year during which this Plan is adopted.
11.07 If an Employee terminates Service, and the value of the Employee's Vested
Account Balance derived from Employer and Employee contributions is not greater
than $3,500, the Employee shall receive a distribution of the value of the
entire vested portion of such Account balance and the nonvested portion shall be
treated as a forfeiture. For purposes of this Section, if the value of an
Employee's Vested Account Balance is zero, the Employee shall be deemed to have
received a distribution of such Vested Account Balance. A Participant's Vested
Account Balance shall not include accumulated deductible Employee contributions
within the meaning of Section 72(o)(5)(B) of the Code for Plan Years beginning
prior to January 1, 1989.
If an Employee terminates Service, and elects, in accordance with the
requirements of Article IX, to receive the value of the Employee's Vested
Account Balance, the nonvested portion shall be treated as a forfeiture. If the
Employee elects to have distributed less than the entire vested portion of the
Account balance derived from Employer contributions, the part of the nonvested
portion that shall be treated as a forfeiture is the total nonvested portion
multiplied by a fraction, the numerator of which is the amount of the
distribution attributable to Employer contributions and the denominator of which
is the total value of the vested Employer derived Account balance.
If an Employee receives a distribution pursuant to this Section and the Employee
resumes employment covered under this Plan, the Employee's Employer-derived
Account balance shall be restored to the amount on the date of distribution if
the Employee repays to the Plan the full amount of the distribution attributable
to Employer contributions before the earlier of five (5) years after the first
date on which the Participant is subsequently reemployed by the Employer, or the
date the Participant incurs five (5) consecutive One-Year Breaks in Service
following the date of the distribution. If an Employee is deemed to receive a
distribution pursuant to this Section, and the Employee resumes employment
covered under this Plan before the date the Participant incurs five (5)
consecutive One-Year Breaks in Service, upon the reemployment of such Employee,
the Employer-derived Account balance of the Employee shall be restored to the
amount on the date of such deemed distribution.
The provisions of this Section 11.07 shall be effective no earlier than the
first day of the Plan Year during which this Plan is adopted.
11.08 If the value of a Participant's Vested Account Balance derived from
Employer and Employee contributions exceeds (or at the time of any prior
distribution exceeded) $3,500, and the Account balance is immediately
distributable, the Participant and the Participant's spouse (or where either the
Participant or the Spouse has died, the survivor) must consent to any
distribution of such Account balance. The consent of the Participant and the
Participant's Spouse shall be obtained in writing within the 90-day period
ending on the Annuity Starting Date. The Annuity Starting Date is the first day
of the first period for which an amount is paid as an annuity or any other form.
The Plan Administrator shall notify the Participant and the Participant's Spouse
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of the right to defer any distribution until the Participant's Account balance
is no longer immediately distributable. Such notification shall include a
general description of the material features, and an explanation of the relative
values of, the optional forms of benefit available under the Plan in a manner
that would satisfy the notice requirements of Section 417(a)(3), and shall be
provided no less than 30 days and no more than 90 days prior to the Annuity
Starting Date.
Notwithstanding the foregoing, only the Participant need consent to the
commencement of a distribution in the form of a Qualified Joint and Survivor
Annuity while the Account balance is immediately distributable. Furthermore, if
payment in the form of a Qualified Joint and Survivor Annuity is not required
with respect to the Participant pursuant to Section 8.09 of the Plan, only the
Participant need consent to the distribution of an Account balance that is
immediately distributable. Neither the consent of the Participant nor the
Participant's spouse shall be required to the extent that a distribution is
required to satisfy Section 401(a)(9) or Section 415 of the Code. In addition,
upon termination of this Plan if the Plan does not offer an annuity option
(purchased from a commercial provider) and if the Employer or any entity within
the same controlled group as the Employer does not maintain another defined
contribution plan [other than an employee stock ownership plan as defined in
Section 4975(e)(7) of the Code], the Participant's Account balance may, without
the Participant's consent, be distributed to the Participant. However, if any
entity within the same controlled group as the Employer maintains another
defined contribution plan [other than an employee stock ownership plan as
defined in Section 4975(e)(7) of the Code], then the Participant's Account
balance will be transferred, without the Participant's consent, to the other
plan if the Participant does not consent to an immediate distribution.
An Account balance is immediately distributable if any part of the Account
balance could be distributed to the Participant (or Surviving Spouse) before the
Participant attains (or would have attained if not deceased) the later of Normal
Retirement Age or age 62.
For purposes of determining the applicability of the foregoing consent
requirements to distributions made before the first day of the first Plan Year
beginning after December 31, 1988, the Participant's Vested Account Balance
shall not include amounts attributable to accumulated deductible Employee
contributions within the meaning of Section 72(o)(5)(B) of the Code.
11.09 If elected by the Employer in A-11.09 of the Adoption Agreement, and any
other provision of this Plan notwithstanding, no distribution of an amount in
excess of $3,500 shall be made without the expressed consent of the Participant,
or of the Beneficiary if the Participant is deceased, prior to the time required
by Article X. If a distribution is not made as soon as administratively feasible
following the event specified in A-11.05 of the Adoption Agreement, the
following provisions shall apply to the Account Balance of the terminated
Participant.
(a) Subject to the requirements of Article IX the Participant may at any
time withdraw all, or any part, of the Vested Account Balance by
making a written application to the Plan Administrator. Partial
withdrawals may be made no more frequently than once in any twelve
month period, though a Participant may withdraw 100% of the remaining
Vested Account Balance at any time. Any administrative expense
directly related to the withdrawal shall be paid by the Participant.
(b) The Account Balance of the terminated vested Participant shall be
charged with a ratable portion of any asset charge applied to Plan
assets. The asset charge to be applied to an Account Balance shall be
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determined by multiplying the total asset charge by a fraction, the
numerator of which is the Participant's Account Balance, and the
denominator of which is the total assets of the Plan.
(c) The Account Balance of the terminated vested Participant shall be
charged with the administrative expense reasonably related to the
maintenance of that account. The charge assessed each Participant
shall be identical.
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ARTICLE XII
AMENDMENT OR TERMINATION OF PLAN
12.01 The Prototype Sponsor may amend any part of this Prototype Plan. In such
event, the Plan adopted by the Employer shall be deemed likewise amended upon
receipt by the Employer and the Trustee of a copy of such amendment.
12.02 The Employer reserves the right to amend any provision of the Plan at any
time and to any extent that it may deem advisable without the consent of any
Participant or any Beneficiary provided, however, that no amendment shall
deprive any Participant of any vested interest. The corpus or income of the
trust may not be diverted to or used for purposes other than for the exclusive
benefit of the Participants or their Beneficiaries nor shall any amendment make
such possible.
The Employer may:
(a) change the choice of options in the Adoption Agreement; and
(b) add overriding language in the Adoption Agreement when such language
is necessary to satisfy Section 415 or Section 416 of the Code because
of the required aggregation of multiple plans; and
(c) add certain model amendments published by the Internal Revenue Service
which specifically provide that their adoption shall not cause the
plan to be treated as individually designed.
An Employer that amends the Plan for any other reason, including a waiver of the
minimum funding requirement under Section 412(d) of the Code, shall no longer
participate in this Master or Prototype plan and shall be considered to have an
individually designed plan.
12.03 Any amendment to this Plan by the Employer shall be set forth in writing
and executed by a duly authorized officer on behalf of the Employer. Any recital
in such an instrument that the action proposed was authorized by the Board of
Directors shall be accepted by the Trustee as proof of such action. After the
Trustee has signed the amendment, this Plan shall be deemed to have been amended
to the extent therein set forth.
12.04 This Plan is purely voluntary on the part of the Employer, and the
Employer reserves the right at any time and at its sole discretion, with proper
notification to the appropriate governmental agencies and Trustee, to reduce
benefits under this Plan or to terminate it, or both. However, no amendment to
the Plan shall be effective to the extent that it has the effect of decreasing a
Participant's accrued benefit. Notwithstanding the preceding sentence, a
Participant's Account balance may be reduced to the extent permitted under
Section 412(c)(8) of the Code. For purposes of this paragraph, a plan amendment
which has the effect of decreasing a Participant's Account balance or
eliminating an optional form of benefit, with respect to benefits attributable
to Service before the amendment shall be treated as reducing an accrued benefit.
Furthermore, if the vesting schedule of a Plan is amended, in the case of an
Employee who is a Participant as of the later of the date such amendment is
adopted or the date it becomes effective, the nonforfeitable percentage
(determined as of such date) of such Employee's Employer-derived accrued benefit
shall not be less than the percentage computed under the Plan without regard to
such amendment.
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For purposes of qualification, the Employer may retroactively amend this Plan
provided such amendment is adopted (executed) within the time prescribed by law
for filing the return of the Employer for the taxable year (including
extensions) within which the Plan Year ends or coincides, or within any other
time as permitted by law.
The Employer shall give 30 days prior notice of termination of this Plan to the
Administrator, Trustee and Insurer.
12.05 This Plan shall terminate if the Employer is dissolved, deemed bankrupt or
insolvent, merged with another company, or in the event of a sale by the
Employer of all or substantially all of its assets, except that any successor in
business may continue this Plan.
In the event of a dissolution, merger, consolidation, or sale of all or
substantially all of the assets of the Employer, provisions may be made by the
successor for the continuance of this Plan, and said successor in such event
shall be substituted in the place of the present Employer by an instrument
authorizing such substitution executed by the Employer and its successor, a copy
of which shall be delivered to the Trustee.
12.06 If the Employer's Plan fails to attain or retain qualification, such Plan
shall no longer participate in this Prototype Plan and shall be considered an
individually designed plan.
12.07 Upon termination or partial termination of this Plan, (or if a Profit
Sharing Plan, upon complete discontinuance of contributions under the Plan) the
accrued benefit of each Participant as of the date of termination shall become
fully vested and shall not thereafter be subject to forfeiture. As soon as
administratively feasible following Plan termination the Vested Account Balance
of each Participant shall be distributed as follows:
(a) If the amount to be distributed is not in excess of $3,500, the
distribution shall be in the form of a single sum payment.
(b) If Section 8.09 of this Plan is operative, the distribution shall be
in the form of a single sum payment.
(c) If the amount to be distributed is greater than $3,500, and Section
8.09 is not operative, each Participant shall, subject to the
requirements of Article IX, be afforded an opportunity to elect to
receive a distribution of his/her Vested Account Balance in any
optional form available under Section 8.08. If the Participant refuses
to make such election, a married Participant shall receive an
immediate distribution in the form of a Qualified Joint and Survivor
Annuity as defined in Section 1.58, and an unmarried Participant shall
receive a distribution in the form of an immediate life annuity.
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ARTICLE XIII
ADMINISTRATION AND FIDUCIARIES
13.01 The Fiduciaries shall have only those specific powers, duties,
responsibilities, and obligations as are given under this Plan. Each Fiduciary
warrants that any directions given, information furnished, or action taken by it
shall be in accordance with this Plan, as the case may be, authorizing or
providing for such direction, information, or action. Furthermore, each
Fiduciary may rely upon any such direction, information, or action of another
Fiduciary as being proper under this Plan. It is intended under this Plan that
each Fiduciary shall be responsible for the proper exercise of its powers,
duties, responsibilities, and obligations. No Fiduciary guarantees the Fund in
any manner against investment loss or depreciation in asset value. Allocation of
the specific responsibilities among Fiduciaries for this Plan shall be as
indicated in the following paragraphs of this Article.
13.02 The Employer shall have the sole authority to appoint and remove any Plan
Administrator or Trustee. The Employer may remove a Plan Administrator or
Trustee by delivering to such party a written notice of the removal. A Plan
Administrator or Trustee may resign upon giving written notice to the Employer.
Such removal or resignation shall become effective upon the date specified in
the written notice, which date shall not be less than 30 days subsequent to the
delivery of such notice. In the event of such removal or resignation, a
successor Plan Administrator or Trustee shall be appointed by the Employer. Such
successor Plan Administrator or Trustee, upon accepting the appointment by an
instrument in writing delivered to the Employer, shall be vested with all
rights, powers, duties, privileges, and immunities as the Plan Administrator or
Trustee as if originally designated under this Plan.
The Employer shall have the sole responsibility to make the contributions
provided for under this Plan, to amend or terminate this Plan, and to furnish
the Plan Administrator with the information necessary to administer this Plan.
13.03 The Plan Administrator shall have the authority to administer this Plan
pursuant to the terms and conditions of this Plan. Delegation of any ministerial
or discretionary duties by the Plan Administrator does not necessarily relieve
him/her of the responsibility for these duties.
The Plan Administrator shall keep accurate and detailed records of its
administration of this Plan, which records shall be open to inspection at all
reasonable times by the Employer or its designated representatives. A
Participant shall also have the right to inspect the records of such Participant
and, in addition, shall be given any reports required by ERISA or other laws.
13.04 The Plan Administrator shall receive such reasonable compensation as may
be agreed upon by the Plan Administrator and Employer unless prohibited by law.
All expenses of administration may be paid out of the trust fund unless paid by
the Employer. Such expenses shall include any expenses incident to the
functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists, and other costs of administering
the Plan. Until paid, the expenses shall constitute a liability of the trust
fund. However, the Employer may reimburse the trust for any administration
expense incurred pursuant to the above. Any administration expense paid to the
trust as a reimbursement shall not be considered as an Employer contribution.
13.05 Any Fiduciary who handles Plan contributions or assets shall be required
to give bond in accordance with the requirements of ERISA.
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13.06 If benefits under this Plan for any Participants or Beneficiaries are
denied, the Plan Administrator shall give written notice thereof to such
Participant or Beneficiary within 60 days of such denial setting forth the
specific reasons for the denial in a manner designed to be understood by such
Participant or Beneficiary. The notice shall also inform the Participant or
Beneficiary that a review of the decision is available within 60 days of receipt
of the notice.
If requested in writing by the Participant or Beneficiary, the Plan
Administrator shall make a full and fair review of the decision to deny benefits
and notify the Participant or Beneficiary of the decision within 60 days after
receipt of the request for review. Provided, however, that the Plan
Administrator may extend the time to render a decision to review and notify the
Participant or Beneficiary of the same an additional 60 days in the event of
special circumstances. In the event of such extension of time, the Plan
Administrator shall notify the Participant or Beneficiary of the extension and
the reasons therefore before such extension shall occur.
13.07 In addition to and not in limitation of other powers of the Trustee set
forth herein and in Article VI, the Trustee shall have the following specific
powers and authority in the administration of the funds of this Plan:
(a) To receive all contributions to this Plan and hold, invest, manage,
and control the whole or any part of the assets.
(b) To sell, exchange, convey, assign, or otherwise transfer any
securities or other property held in trust either by private contract
or public offering.
(c) To exercise all rights of ownership over any property held in trust,
including, but not limited to, all rights incident to stock ownership
and contracts issued by the Insurer.
(d) To register securities or other trust property in the name of the Plan
or of the Trustee and to hold instruments in bearer form and to incur
and pay all necessary custodial fees.
(e) To apply for, purchase, hold, and own any Insurance Contract(s) for
the benefit of Participants hereunder pursuant to Article VI.
(f) To retain such portion of the funds of this Plan in cash or cash
equivalents as the Trustee may deem advisable, without any liability
for interest thereon.
(g) To settle, compromise, or submit to arbitration all claims or damages
due from or to this Plan and to commence or defend any legal or
administrative proceeding brought in connection with this Plan,
provided, however, that the Trustee shall not be required to maintain
any litigation unless it has in its possession funds sufficient for
that purpose or has been indemnified to its satisfaction for counsel
fees, costs, and other liabilities to which it may, in the Trustee's
judgment, be subjected by such action on its part.
(h) To employ agents with respect to carrying out businesses and other
matters of this Plan, to employ legal counsel, and to pay reasonable
compensation and expenses for such services.
(i) To do all such acts as the Trustee may deem necessary to administer
the funds held and to carry out the purpose of this Plan.
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(j) Within 60 days following the close of each Plan Year, or such other
date as may be agreed upon, the Trustee shall file with the Employer
and Plan Administrator a written report of receipts and disbursements
and the balance on hand.
13.08 In selecting appropriate investments for assets held in trust, the Trustee
shall adhere to the following funding policy:
(a) The Plan is primarily intended to provide benefits upon the retirement
of Participants.
(b) The Plan may also provide benefits for Participants who are disabled
prior to retirement and to Beneficiaries of Participants who die while
employed by the Employer.
(c) Investment of Plan assets should be consistent with the objectives of
the Plan stated above.
13.09 To the extent that the Trustee invests Plan assets in accordance with the
written directions of either the Employer or any Participant as permitted under
the terms of the Plan, the Trustee shall be deemed to have acted in accordance
with the funding policy of the Plan described in Section 13.08.
13.10 Upon such appointment and acceptance, the replaced Trustee shall execute
any instruments necessary to transfer to the successor Trustee all assets held
under this Plan.
13.11 In the event of the death, resignation, incapacity, or removal of any
Trustee after the Employer shall have gone out of business or ceased to exist
(which for this purpose shall be deemed to include a situation where the sole
owner of an unincorporated business dies) or been dissolved, voluntarily or
involuntarily, a successor may be appointed by election by a majority in
interest of the Participants and Beneficiaries then having an interest in the
trust. Such successor Trustee, upon accepting such appointment in writing and
delivering same to the Employer, shall, without further act, become vested with
all the estate, rights, powers, discretions, and duties of his predecessor with
like respect as if he were originally named as a Trustee herein.
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ARTICLE XIV
INSURER
14.01 No Insurer, which may issue Insurance Contracts for the purpose of this
Plan, shall be required to take or permit any action contrary to the provision
of said Insurance Contracts nor shall the Insurer be required to look into the
terms of this Plan or question any action which is authorized by the Trustee or
Plan Administrator.
14.02 The Insurer is not a contracting party to this Plan for any purpose nor is
it responsible for the validity of this Plan.
14.03 All forms or other documents as required by the Insurer, may be executed
and signed by any one Trustee. When so executed, any such form or document shall
be accepted by the Insurer as conclusive evidence of any matters mentioned in
this Plan, and no such Insurer shall incur any liability or responsibility by
relying on such form or document.
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ARTICLE XV
TOP HEAVY
15.01 If the Plan is or becomes Top-heavy in any Plan Year beginning after
December 31, 1983, the provisions of this Article XV shall supersede any
conflicting provision in the Plan or Adoption Agreement.
15.02 Minimum Allocation Requirement
(a) Except as otherwise provided in (c) and (d) below, the Employer
contributions and forfeitures allocated on behalf of any Participant
who is not a Key Employee shall not be less than the lesser of: 3
percent of such Participant's Compensation; or in the case where the
Employer has no Defined Benefit plan which designates this Plan to
satisfy Section 401 of the Code, the largest percentage of Employer
contributions and forfeitures, as a percentage of the first $200,000
of the Key Employee's Compensation, allocated on behalf of any Key
Employee for that year. The minimum allocation is determined without
regard to any Social Security contribution. This minimum allocation
shall be made even though, under other Plan provisions, the
Participant would not otherwise be entitled to receive an allocation,
or would have received a lesser allocation for the year because of:
(1) the Participant's failure to complete 1,000 Hours of Service (or
any equivalent provided in the Plan); or
(2) the Participant's failure to make mandatory Employee
contributions to the Plan; or
(3) Compensation less than a stated amount.
(b) For purposes of computing the minimum allocation, Compensation shall
mean Compensation as defined in Section 1.13 of the Plan.
(c) The provision in (a) above shall not apply to any Participant who was
not employed by the Employer on the last day of the Plan Year.
(d) The provision in (a) above shall not apply to any Participant to the
extent the Participant is covered under any other plan or plans of the
Employer and the Employer has provided in A-15.02 of the Adoption
Agreement that the minimum allocation or benefit requirement
applicable to Top-heavy Plans shall be met in the other plan or plans.
15.03 For any Plan Year in which the Plan is a Top-heavy Plan, the denominators
of the Defined Benefit Fraction [as defined in Section 5.13(c) of the Plan] and
Defined Contribution Fraction [as defined in Section 5.13(e) of the Plan] shall
be computed using 100 percent of the dollar limitation instead of 125 percent.
15.04 Extra Minimum Allocation Permitted
Notwithstanding anything herein to the contrary, if a non-key Employee is a
Participant in both a defined contribution plan and a defined benefit plan that
are both part of a Permissive Aggregation Group or a Required Aggregation Group
and the Top-heavy Ratio exceeds 60 percent (but neither of such plans is a Super
Top-heavy Plan) the denominators of the Defined Benefit Fraction [as defined in
Section 5.13(c) of the Plan] and Defined Contribution Fraction [as defined in
Section 5.13(e) of the Plan] shall be computed using 125 percent of the dollar
limitation provided each non-key Employee receives an additional minimum
allocation (in addition to the minimum allocation set forth in 15.02 above)
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equal to not less than 1 percent of such non-key Employee's Compensation. For
any Plan Year in which the Plan is a Top-heavy Plan (but not a Super Top-heavy
plan), the minimum contribution on behalf of each non-key Employee shall be
provided as elected in A-15.02 of the Adoption Agreement.
15.05 The minimum allocation required [to the extent required to be
nonforfeitable under Code Section 416(b)] may not be forfeited under Code
Section 411(a)(3)(B) or 411(a)(3)(D).
15.06 For any Plan Year in which this Plan is top-heavy, one of the minimum
vesting schedules as elected by the Employer in the Adoption Agreement shall
automatically apply to the Plan. The minimum vesting schedule applies to all
benefits within the meaning of Section 411(a)(7) of the Code except those
attributable to Employee contributions, including benefits accrued before the
effective date of Code Section 416 and benefits accrued before the plan became
Top-heavy. Further, no decrease in a Participant's nonforfeitable percentage may
occur in the event the Plan's status as Top-heavy changes for any Plan Year.
However, this Section does not apply to the Account balances of any Employee who
does not have an Hour of Service after the Plan has initially become Top-heavy
and such Employee's Account balance attributable to Employer contributions and
forfeitures shall be determined without regard to this Section.
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ARTICLE XVI
PAIRED PLANS
16.01 The Provisions of this Article XVI apply only when the Employer adopts
both of the following paired plans:
<TABLE>
<CAPTION>
Plan Type Plan # IRS Serial #
--------- ------ ------------
<S> <C> <C>
Money Purchase Plan 00201 D259968a
Profit Sharing Plan 00401 D259970a
401(k) Salary Reduction Plan 00801 D259972a
</TABLE>
The provisions of this Article XVI do not apply if the Employer maintains any
plan other than one of the paired plans.
16.02 For each Plan Year in which the paired plans are Top-heavy, the Employer
will provide a minimum contribution equal to 3 percent of Compensation for each
non-key Employee who is entitled to a minimum contribution under any two (2) or
more paired defined contribution plans (#00201, #00401 or #00801).
16.03 Only one of the paired plans that an Employer adopts may provide for
disparity in contributions or benefits as permitted under Code Section 401(1).
16.04 For Plan Years beginning after December 31, 1991, two or more standardized
form plans shall not be paired plans unless the plans benefit, without
exception, the same Participants. A plan which is subject to Section 401(k)
benefits all Employees who are eligible to make Elective Deferrals under the
plan.
70
<PAGE>
ARTICLE XVII
MISCELLANEOUS
17.01 The headings of this Plan have been inserted for convenience of reference
only and are to be ignored in any construction of the provisions hereof.
17.02 Nothing herein contained shall be construed as giving any Participant the
right to be retained in the Service of the Employer, nor upon dismissal or upon
voluntary termination, to have any right or interest in this Plan other than as
provided herein.
17.03 Whenever under the terms of this Plan the Employer is permitted or
required to take some action, such action may be taken by any officer of the
Employer who has been duly authorized by the Board of Directors of the Employer.
17.04 No benefit or interest available hereunder shall be subject to assignment
or alienation, either voluntarily or involuntarily. The preceding sentence shall
also apply to the creation, assignment, or recognition of a right to any benefit
payable with respect to a participant pursuant to a domestic relations order,
unless such order is determined to be a qualified domestic relations order, as
defined in Section 414(p) of the Code, or any domestic relations order entered
before January 1, 1985.
17.05 The validity of this Plan or any of its provisions shall be determined
under and construed according to the law of the State in which this Plan is
executed. If any provisions of this Plan shall be held illegal or invalid for
any reason, such determination shall not affect the remaining provisions of this
Plan and it shall be construed as if said illegal or invalid provision had never
been included.
17.06 If a dispute arises as to the proper recipient of any payment or delivery
of any Insurance Contract, the appropriate Fiduciary or Fiduciaries, in its sole
discretion, may withhold or cause to be withheld such payment or delivery until
the dispute shall have been settled by the parties concerned or shall have been
determined by a court of competent jurisdiction.
17.07 If a benefit is forfeited because the Participant or Beneficiary cannot be
found, such benefit shall be reinstated if a claim is made by the Participant or
Beneficiary.
17.08 This Plan may be executed in any number of counterparts, each of which
shall be deemed to be an original and the counterparts shall constitute one and
the same instrument.
17.09 In the event of a merger or consolidation with, or transfer of assets to
any other plan, each participant shall receive a benefit immediately after such
merger, etc. (if the Plan then terminated) which is at least equal to the
benefit the participant was entitled to immediately before such merger, etc. (if
the Plan had terminated).
17.10 In the event of any conflict between provisions of this Plan and
provisions of any policies, purchases, or contracts entered into by the Trustee
or Plan Administrator, the provisions of the Plan shall control between the
contracting parties to this Plan and Participants.
17.11 If this Plan provides contributions or benefits for one or more Owner-
employees who control both the business for which this Plan is established and
one or more other trades or businesses, this Plan and the plan established
71
<PAGE>
for other trades or businesses must, when looked at as a single plan, satisfy
Sections 401(a) and (d) for the Employees of this and all other trades or
businesses.
If the Plan provides contributions or benefits for one or more Owner-employees
who control one or more other trades or businesses, the employees of the other
trades or businesses must be included in a plan which satisfies Sections 401(a)
and (d) and which provides contributions and benefits not less favorable than
provided for Owner-employees under this Plan.
If an individual is covered as an owner-employee under the plans of two or more
trades or businesses which are not controlled and the individual controls a
trade or business, then the contributions or benefits of the employees under the
plan of the trades or businesses which are controlled must be as favorable as
those provided for him under the most favorable plan of the trade or business
which is not controlled.
For purposes of the preceding paragraphs, an Owner-employee, or two or more
Owner-employees, shall be considered to control a trade or business if the
Owner-employee, or two or more Owner-employees together:
(a) own the entire interest in an unincorporated trade or business; or
(b) in the case of a partnership, own more than 50 percent of either the
capital interest or the profits interest in the partnership.
For purposes of the preceding sentence, an Owner-employee, or two or more Owner-
employees shall be treated as owning any interest in a partnership which is
owned, directly or indirectly, by a partnership which such Owner-employee, or
such two or more Owner-employees, are considered to control within the meaning
of the preceding sentence.
72
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in Amendment No. 1 to the Registration Statement of PCB
Holding Company on Form SB-2, of our report dated January 30, 1998, relating to
the consolidated financial statements of Peoples Building & Loan Association and
Subsidiary appearing in the Prospectus, which is a part of such Registration
Statement.
We also consent to the filing of our state tax opinion as an exhibit to the
Registration Statement and to the references to us under the headings "Legal and
Tax Opinions" and "Experts" contained in the Prospectus.
/s/ Monroe Shine & Co., Inc.
Monroe Shine & Co., Inc.
New Albany, Indiana 47150
May 1, 1998
<PAGE>
Exhibit 23.3
1300 I Street, N.W.
Suite 470 East
Washington, D.C. 20005
Telephone (202) 737-7900
Breyer & Aguggia Facsimile (202) 737-7979
================================================================================
ATTORNEYS AT LAW
May 1, 1998
Board of Directors
PCB Holding Company
819 Main Street
Tell City, Indiana 47586
RE: PCB Holding Company
Registration Statement on Form SB-2
To the Board of Directors:
We hereby consent to the filing of the form of our federal tax opinion as
an exhibit to the Registration Statement and to the reference to us in the
Prospectus included therein under the headings "THE CONVERSION -- Effects of
Conversion to Stock Form on Depositors and Borrowers of the Association" and
"LEGAL AND TAX OPINIONS."
Sincerely,
/s/ Breyer & Aguggia
BREYER & AGUGGIA
Washington, D.C.
<PAGE>
EXHIBIT 99.1
Stock Offering Expires
Time
_________, 1998
------------------------
Stock Center
PCB Holding Company
(Holding Company for Peoples Building and Loan Association, F.A.)
STOCK ORDER FORM
- --------------------------------------------------------------------------------
NUMBER OF SHARES
- --------------------------------------------------------------------------------
Number of Shares Purchase Price Total Payment Due
-------------------------- -------------------------
X $10.00
-------------------------- -------------------------
The minimum number of shares that may be subscribed for is 25 and the maximum
number for any person together with their associates or persons acting in
concert in the Conversion is 6,500 shares. Management has the discretion to
increase or decrease the purchase limit within regulations. ORDERS OF $25,000
OR MORE MUST BE PAID BY PEOPLES BUILDING AND LOAN ASSOCIATION, F.A. ACCOUNT
WITHDRAWALS, CERTIFIED FUNDS, CASHIER'S CHECK OR MONEY ORDER.
- --------------------------------------------------------------------------------
METHOD OF PAYMENT
- --------------------------------------------------------------------------------
[_] Enclosed is a check or money order made payable to PEOPLES BUILDING AND
LOAN ASSOCIATION F.A. for $____________.Do not
mail cash. Please take cash payment in person to
any Peoples Building and Loan Association, F.A
office.
[_] I authorize Peoples Building and Loan Association to withdraw the indicated
amounts from the following Peoples Building and Loan accounts, and
understand that the amounts will not otherwise be available for withdrawal.
<TABLE>
<CAPTION>
Account Number Amount
- -----------------------------------------------------
<S> <C>
$ To withdraw from an account with check
- ----------------------------------------------------- writing privileges, please write a check. Call
$ the Stock Center for IRA transactions).
- -----------------------------------------------------
$ There will be no penalty for early withdrawals
- ----------------------------------------------------- of funds used to order stock.
$
-------------------------
</TABLE>
- --------------------------------------------------------------------------------
PURCHASER INFORMATION
- --------------------------------------------------------------------------------
[_] Check here if you are a director, officer or employee of Peoples Building
and Loan Association, F.A.or a member of their immediate families.
[_] Check here if you were a depositor on December 31, 1996, March 31, 1998,
or Peoples Building and Loan F.A. If you check this box, please enter all
your account information for each of these dates on REVERSE SIDE: (If you
need additional space, please attach a separate sheet.)
[_] I am not acting in concert with any other persons purchasing stock in the
Conversion nor are any of my associates purchasing stock.
[_] I am acting in concert with the following purchasers and/or the following
purchasers are my associates: _______________, _______________,
_______________.
- --------------------------------------------------------------------------------
STOCK REGISTRATION
- --------------------------------------------------------------------------------
Please review the guidelines on the back of this form. Print the name(s) in
which you want the stock registered and the mailing address for the
registration. Names must appear exactly as on your account at Peoples Building
and Loan F. A. if you are subscribing as an Eligible Account Holder,
Supplemental Account Holder or Other Member. SUBSCRIPTION RIGHTS ARE NOT
---------------------------
TRANSFERABLE.
- -------------
Form of ownership: Please check one.
<TABLE>
<S> <C> <C>
[_] Individual [_] Tenants in common [_] Uniform Transfers to Minors Act
[_] Joint Tenants [_] Corporation or partnership [_] Uniform Gifts to Minors Act
[_] Other ______________________ [_] Fiduciary _______________________
please specify adoption date
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------
<S> <C>
Name Social Security or Tax I.D. No.
- ------------------------------------------------------------------------------------
Name Evening Telephone
- ------------------------------------------------------------------------------------
Street Address Daytime Telephone
- ------------------------------------------------------------------------------------
City State Zip County of Residence
- ------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NASD AFFILIATION
- --------------------------------------------------------------------------------
Please read the NASD Affiliation NASD member or person associated with
section on the reverse side of this an NASD member has a beneficial
form: Check if applicable and interest. In accordance with the
initial where indicated with *. conditions for an exception from the
[_] Check here if you are a member of interpretation, I agree (I) not to
the NASD or a person associated with sell, transfer or hypothecate this
an NASD member or a partner with a stock for a period of 90 days
securities brokerage firm or a following issuance and (ii) to report
member of the immediate family of this subscription in writing to the
any such person to whose support applicable NASD member I am
such person contributes directly or associated with within one day of
indirectly or if you have an account payment of the stock.
in which an *_____________________(Initial)
- --------------------------------------------------------------------------------
ACKNOWLEDGEMENTS
- --------------------------------------------------------------------------------
To purchase stock in the Subscription Offering, this fully completed Stock Order
Form must be actually received by People Building and Loan Association, F.A. no
later than_________, Central Time on _______, 1998 unless extended, otherwise
this Stock Order Form and all subscription rights will be void. Completed Stock
Order Forms, together with the required payment or withdrawal authorization and
signed Certification, may be delivered to Peoples Building and Loan Association,
F.A. or may be mailed to the address indicated on the enclosed business reply
envelope. All rights exercisable hereunder are not transferable and shares
purchased upon exercise of such rights must be purchased for the account of the
person exercising such rights. The undersigned certifies that this stock order
is for my account only and there is no agreement or understanding regarding the
transfer of my subscription rights or any further sales or transfer of these
shares.
It is understood that this Stock Order Form will be accepted in accordance with,
and subject to, the terms and conditions of the Plan of Conversion of Peoples
Building and Loan F.A. described in the accompanying Prospectus, receipt of
which is hereby acknowledged at least 48 hours prior to delivery of this Stock
Order Form to Peoples Building and Loan Association, F.A. If the minimum shares
cannot be sold, all orders will be canceled and funds received as payment will
be returned promptly.
The undersigned agrees that after receipt by Peoples Building and Loan
Association, F.A., this Stock Order Form may not be modified, withdrawn or
canceled (unless the Conversion is not completed by________, 1998) and if
Peoples Building and Loan Association F.A. has been given authorization to
withdraw a specified amount from deposit accounts at Peoples Building and Loan
as payment shares, the amount authorized for withdrawal shall not otherwise be
available for withdrawal by the undersigned.
I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT INSURED
OR GUARANTEED BY THE SAIF, THE FDIC OR THE FEDERAL GOVERNMENT.
Under penalty of perjury, I certify that the Social Security or Tax ID Number on
this Stock Order Form is true, correct and complete and that I am not subject to
back-up withholding.
- --------------------------------------------------------------------------------
SIGN BELOW (YOU MUST ALSO READ AND SIGN THE CERTIFICATION ON THE REVERSE SIDE TO
PURCHASE STOCK).
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Sign and date the form. When purchasing as a
custodian, corporate officer, etc., include _________________________________
your full title. An additional signature is _________________________________
required only when payment is by withdrawal
from an account that requires more than one
signature to withdraw funds. YOUR ORDER
WILL BE FILLED IN ACCORDANCE WITH THE x
PROVISIONS OF THE PROSPECTUS. THIS ORDER IS ----------------------------------------------------------------
NOT VALID OF NO SIGNED ON THE FRONT AND BACK. Authorized Signature Title (if applicable) Date
IF YOU NEED HELP COMPLETING THIS FORM, YOU MAY x
CALL THE STOCK CENTER AT ( ) ____________ ----------------------------------------------------------------
Authorized Signature Title (if applicable) Date
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Names(s) on Accounts Account Number Names(s) on Accounts Account Number
<S> <C> <C> <C>
- ----------------------------------------------------- -----------------------------------------------------
- ----------------------------------------------------- -----------------------------------------------------
- ---------------------------- ----------------------------
- ----------------------------------------------------- -----------------------------------------------------
- ----------------------------------------------------- -----------------------------------------------------
- ---------------------------- ----------------------------
- ----------------------------------------------------- -----------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
GUIDELINES FOR REGISTERING STOCK
- --------------------------------------------------------------------------------
For reasons of clarity and standardization, the stock transfer industry has
developed uniform stock ownership registrations which we will use in issuing
your stock certificate. Common ownership registrations are explained below. If
you have any questions about how your PCB Holding Company stock should be
registered, see your legal advisor.
To ensure correct registration, please follow the instructions for the
ownership you select:
- --------------------------------------------------------------------------------
GENERAL INSTRUCTIONS . Include the first name, middle initial, and last
name of each person listed. Avoid the use of an
initial in place of the first name.
. Do not use titles such as ("Mr.," "Mrs.," "Dr.,"
etc.)
. Omit words that do not affect ownership rights such
as "special account" "personal property," etc.
- --------------------------------------------------------------------------------
INDIVIDUAL: Instructions: Print the first name, middle initial, and
last name of the person in whose name the stock is to
be registered. You may not list beneficiaries for this
ownership.
- --------------------------------------------------------------------------------
JOINT TENANTS: Joint Tenancy with Right of Survivorship identifies two
or more persons as owners of the stock. Upon the death
of one of the owners, ownership automatically passes to
the surviving tenant(s).
Instructions: Print the first name, middle initial, and
last name of each joint tenant. You may not list
beneficiaries for this ownership.
- --------------------------------------------------------------------------------
TENANTS IN COMMON: Tenants in Common identifies two or more persons as
owners of the stock. Upon the death of one co-tenant,
ownership of the stock passes to the heirs of the
deceased co-tenant and the surviving co-tenant(s).
Instructions: Print the first name, middle initial, and
last name of each co-tenant. You may not list
beneficiaries for this ownership.
- --------------------------------------------------------------------------------
FIDUCIARIES: Generally, fiduciary relationships (such as
Conservatorship, Legal Trust, Guardianship, etc.) are
established under a form of trust agreement or are
pursuant to a court order. Without a legal document
establishing a fiduciary relationship, your stock may
not be registered in a fiduciary capacity.
Instructions: On the first "NAME" line, print the first
name, middle initial, and last name of the fiduciary if
the fiduciary is an individual. If the fiduciary is a
corporation, list the corporate title on the first
"NAME" line. Following the name, print the fiduciary
"title" such as conservator, personal representative,
etc.
On the second "NAME" line, print either the name of the
maker, donor or testator or the name of the
beneficiary. Following the name, indicate the type of
legal document establishing the fiduciary relationship
(agreement, court order, etc.)
In the blank above "Adoption Date," fill in the date of
the document governing the relationship. The date of
the document need not be provided for a trust created
by a will.
EXAMPLE OF A FIDUCIARY REGISTRATION:
John D. Smith Trustee for Tom A. Smith Under Agreement
Dated 6/6/74.
PLEASE NOTE THAT "TOTTEN TRUST" AND "PAYABLE ON DEATH"
OWNERSHIPS MAY NOT BE USED IN REGISTERING STOCK.
For example, stock cannot be registered as "John Doe
Trustee for Jane Doe" or "John Doe Payable on Death to
Jane Doe."
- --------------------------------------------------------------------------------
UNIFORM GIFTS TO For Indiana residents and residents of many states,
MINORS ACT/UNIFORM stock may be held in the name of a custodian for the
TRANSFERS TO MINORS: benefit of a minor under the Uniform Transfers to
Minors Act. For residents of some other states, stock
may be held in a similar type of ownership under the
Uniform Gifts to Minors Act of the individual states.
For either ownership, the minor is the actual owner of
the stock with the adult custodian being responsible
for the investment until the minor reaches legal age.
Instructions: If you are a Indiana resident and wish to
register stock in this ownership, check "Uniform
Transfers to Minors Act." For other states, see your
legal advisor if you are unsure about the correct
registration of your stock.
On the first "NAME" line, print the first name, middle
initial, and last name of the custodian with the
abbreviation "CUST" after the name.
Print the first name, middle initial, and last name of
the minor on the second "NAME" line.
Only one custodian and one minor may be designated.
- --------------------------------------------------------------------------------
NASD AFFILIATION: Please refer to the NASD AFFILIATION statement on the
face of this form. If applicable, initial where
indicated and check the box. The National Association
of Securities Dealers, Inc. Interpretation With Respect
to Free-Riding and Withholding (the "Interpretation")
restricts the sale of a "hot issue" (securities that
trade at a premium in the aftermarket) to NASD members,
persons associated with NASD members (i.e., an owner,
director, officer, partner, employee or agent of a NASD
member) and certain members of their families. Such
persons are requested to indicate that they will comply
with certain conditions required for an exemption from
the restrictions.
- --------------------------------------------------------------------------------
CERTIFICATION: I/WE ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR
AN ACCOUNT AND IS NOT FEDERALLY INSURED, AND IS NOT
GUARANTEED BY PCB HOLDING COMPANY OR BY THE FEDERAL
GOVERNMENT.
If anyone asserts that this security is federally
insured or guaranteed, or is as safe as an insured
deposit, I/we should call the Office of Thrift
Supervision Regional Director, Central Regional Office,
at (312 ) 917-5000
I/We further certify that before purchasing the common
stock, par value $0.01 per share, of PCB Holding
Company, I/we received a PROSPECTUS that contains
disclosure concerning the nature of the security being
offered and describes the risks involved in the
investment, including, among other (1) Reliance on
certificates of deposit; (2) Dependence on local
economy and limited growth prospects; (3) Competition;
(4) Dependence on Key Personnel; (5) Limited Market for
the Common Stock; (6) Interest Rate Risk; (7) Below
average return on equity after conversion; (8) New
expenses associated with MRDP; (9) Possible dilutive
effect of benefit programs; (10) Possible voting
control by management and employees; (11) Anti-Takeover
provisions and statutory provisions that could
discourage hostile acquisitions of control; (12)
Provisions of employment agreements; (13) Possible
increase in estimated valuation range and number of
shares issued; (14) Risk of year 2000 data processing
problems; and (15) financial institution regulation and
the future of the thrift industry. See "Risk Factors"
on pages 6 through 9 of the Prospectus.
SIGNATURE: ______________________ SIGNATURE: _____________________
PRINT NAME:______________________ PRINT NAME:_____________________
<PAGE>
Exhibit 99.2
1. Letter to Members and Friends (Closed Accounts)
Dear Members and Friends:
The Board of Directors of Peoples Building and Loan Association, F.A.
("Peoples Building and Loan") has adopted a plan to convert from a federally
chartered mutual savings and loan association to a federally chartered stock
savings bank (the "Conversion"). As a stock company, Peoples Building and Loan
will be structured under the same form of ownership used by most businesses and
banks. This Conversion to stock ownership means Peoples Building and Loan will
increase its capital and will enable Peoples Building and Loan to support future
banking activities. The Conversion will not affect your deposit accounts or
loans with Peoples Building and Loan or existing FDIC insurance coverage for
your deposit accounts.
As part of the Conversion, Peoples Building and Loan has formed a holding
company, PCB Holding Company, to will own all of the common stock of Peoples
Building and Loan. PCB Holding Company is offering up to 345,000 shares of its
common stock to customers of Peoples Building and Loan at a subscription price
of $10.00 per share. As a depositor on either December 31, 1996, March 31, 1998,
or April 30, 1998, or, as a borrower as of February 25, 1998 you have a
preferential right to subscribe to purchase the stock of PCB Holding Company
during the Subscription Offering without paying a fee or commission. For your
convenience this packet includes the following material:
. PROSPECTUS containing detailed information about Peoples Building and
Loan and the stock offering. Please read the Prospectus carefully
before making your investment decision.
. BROCHURE which answers frequently asked questions about the Conversion
and stock offering.
. STOCK ORDER FORM and CERTIFICATION to be completed in order to
purchase shares of PCB Holding Company stock. Payment by check or
written authorization to withdraw from a specified Peoples Building
and Loan account must accompany each order form and certification.
Orders of $25,000 or more must be paid by Peoples Building and Loan
account withdrawals, certified funds, cashier's check, or money order.
Order forms must be received by Peoples Building and Loan no later
than 12:00 noon, Tell City, Indiana time on _________, 1998.
If you would like to purchase PCB Holding Company stock in your IRA
account, using IRA funds, we may be able to accommodate you. Please contact the
Stock Center as soon as possible at ( ) _________.
<PAGE>
Letter to Members and Friends
Page 2
If you are a current member of Peoples Building and Loan, you will also
find enclosed a proxy statement and proxy card(s). On behalf of the Board, we
ask that you help Peoples Building and Loan take this important step by signing
the enclosed proxy card(s), casting your vote in favor of the Plan of
Conversion. Your vote is very important! Please mail your proxy card(s) today in
the enclosed postage paid return envelope.
We believe it is in the best interest of Peoples Building and Loan to have
our customers and members of the communities we serve as our stockholders. We
encourage you to review this investment opportunity carefully. If you have any
questions, please call the Stock Center at ( ) _____________.
Sincerely,
Carl D. Smith
President and Chief
Executive Officer
Enclosures
- --------------------------------------------------------------------------------
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
THESE SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY A
STOCK ORDER FORM AND CERTIFICATION, COPIES OF WHICH MAY BE OBTAINED BY
CONTACTING THE STOCK CENTER. THE COMMON STOCK OFFERED IN THE CONVERSION IS NOT A
DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED.
- --------------------------------------------------------------------------------
<PAGE>
2. Letter for branch packages, Stock Center, non-members.
Dear Prospective Investor:
Peoples Building and Loan Association, F.A. ("Peoples Building and Loan")
is converting from a federal mutual savings and loan association to a federal
stock savings bank (the "Conversion").
As part of the Conversion, Peoples Building and Loan has formed a holding
company, PCB Holding Company, to own all of the common stock of Peoples Building
and Loan. PCB Holding Company is offering to customers of Peoples Building and
Loan up to 345,000 shares of its common stock at a purchase price of $10.00 per
share. Even if you are not currently a member of Peoples Building and Loan, you
may have the opportunity to purchase shares without paying a fee or commission.
Members have priority rights to purchase shares in the Subscription Offering and
no assurance can be given that your order will be filled.
For your convenience, enclosed are the following materials:
o PROSPECTUS containing detailed information about Peoples Building and
Loan and the stock offering. Please read the prospectus carefully
before making your investment decision.
o STOCK ORDER FORM and CERTIFICATION to be completed in order to
purchase shares of PCB Holding Company stock. Payment by check or
written authorization to withdraw from a specified Peoples Building
and Loan account must accompany each order form and certification.
Orders of $25,000 or more must be paid by Peoples Building and Loan
account withdrawals, certified funds, cashier's check or money orders.
If you are interested in purchasing shares of PCB Holding Company
stock, your completed stock order form and certification along with
payment must be received by Peoples Building and Loan by no later than
12:00 noon, Tell City, Indiana time on ________, 1998.
We encourage you to review this investment opportunity carefully. If you
have any questions, please call our Stock Center at (___) ___________.
<PAGE>
Letter for Branch Packages, Stock Center, non-members
Page 2
We are pleased to offer you this opportunity to invest in PCB Holding
Company.
Sincerely,
Carl D. Smith
President and Chief
Executive Officer
Enclosures
- --------------------------------------------------------------------------------
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
THESE SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY A
STOCK ORDER FORM AND CERTIFICATION, COPIES OF WHICH MAY BE OBTAINED BY
CONTACTING THE STOCK CENTER. THE COMMON STOCK OFFERED IN THE CONVERSION IS NOT A
DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED
- --------------------------------------------------------------------------------
<PAGE>
3. Capital Resources Cover Letter to Blue Sky States
To Depositors and Friends of Peoples Building and Loan Association, F.A.:
Capital Resources, Inc. is an NASD member broker/dealer assisting Peoples
Building and Loan Association, F.A. ("Peoples Building and Loan") in its
conversion from a mutual to a stock organization.
At the request of Peoples Building and Loan and PCB Holding Company, the
proposed parent holding company of Peoples Building and Loan, we enclose certain
materials regarding the sale and issuance of common stock in connection with the
conversion of Peoples Building and Loan. These materials include a prospectus
which offers you the opportunity to subscribe to purchase shares of common stock
of PCB Holding Company
We have been asked to forward these documents to you in view of certain
requirements of the securities laws of your state. We should not be understood
as recommending or soliciting in any way any action by you with regard to the
enclosed materials. If you have any questions, please contact us at the Stock
Center at (_____) _________.
Very truly yours,
Capital Resources, Inc.
Enclosures
- --------------------------------------------------------------------------------
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
THESE SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY A
STOCK ORDER FORM AND CERTIFICATION, COPIES OF WHICH MAY BE OBTAINED BY
CONTACTING THE STOCK CENTER. THE COMMON STOCK OFFERED IN THE CONVERSION IS NOT A
DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED.
- --------------------------------------------------------------------------------
<PAGE>
4. Letter to Members in "Dark Blue-Sky" States and Foreign Accounts
Dear Member:
Peoples Building and Loan Association, F.A. ("Peoples Building and Loan")
is converting from a federal mutual savings and loan association to a federal
stock savings bank with the concurrent formation of a holding company, PCB
Holding Company.
Enclosed you will find a Proxy Statement and Prospectus describing the
conversion and proxy card(s). As a current member of Peoples Building and Loan,
we ask you to participate in the conversion by reviewing the information
provided and voting on the conversion by completing and mailing the enclosed
proxy card(s) in the enclosed postage-paid envelope as soon as possible. The
Board of Directors recommends that you vote in favor of the Plan of Conversion.
Although you may vote on Peoples Building and Loan's Plan of Conversion,
PCB Holding Company unfortunately is unable to either offer or sell its common
stock to you because the small number of eligible subscribers in your
jurisdiction makes registration or qualification of the common stock under the
securities laws of your jurisdiction impractical. Accordingly, neither this
letter nor the enclosed material should be considered an offer to sell or a
solicitation of an offer to buy the common stock of PCB Holding Company
If you have any questions about your voting rights or the conversion in
general, please call the Stock Center at (___) ___________.
Sincerely,
Carl D. Smith
President and Chief
Executive Officer
Enclosures
- --------------------------------------------------------------------------------
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY THESE SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS
ACCOMPANIED BY A STOCK ORDER FORM AND CERTIFICATION. THE COMMON STOCK
OFFERED IN THE CONVERSION IS NOT A DEPOSIT OF ACCOUNT AND IS NOT
FEDERALLY INSURED OR GUARANTEED.
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<PAGE>
QUESTIONS AND ANSWERS BROCHURE
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Answers to Frequently Asked Questions
About Our Stock Conversion and
Your Opportunity to Invest in
PCB Holding Company
the Proposed Holding Company of
Peoples Building and Loan Association, F.A.
<PAGE>
Questions and Answers Brochure
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Page 2
You can be one of the initial stockholders of PCB Holding Company, the
proposed holding company of Peoples Building and Loan Association, F.A. PCB
Holding Company is "going public" as part of Peoples Building and Loan's
conversion from a federally chartered mutual savings and loan association to a
federally chartered stock savings bank to be known as Peoples Community Bank.
Now you have the opportunity to invest in Peoples Building and Loan by
purchasing stock in the initial offering of the holding company. This brochure
answers some of the most frequently asked questions about the conversion to
stock ownership and about your opportunity to invest in PCB Holding Company
<PAGE>
Questions and Answers Brochure
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Page 3
ABOUT THE TRANSACTION
1. WHAT IS A CONVERSION?
Peoples Building and Loan is now a federally chartered mutual savings and
loan association with directors elected by our members. After the
Conversion, we will be a stock savings bank owned by a holding company. The
holding company, PCB Holding Company, will be owned by stockholders who
will have voting rights with respect to certain key business matters. The
holding company is offering shares of common stock to certain customers of
Peoples Building and Loan and, depending upon market conditions and the
availability of shares, may offer shares to selected persons in a public
offering.
2. WHAT IS PCB HOLDING COMPANY AND WHY WAS IT FORMED?
PCB Holding Company is a newly organized holding company created by Peoples
Building and Loan specifically to purchase 100% ownership in Peoples
Building and Loan. The holding company currently has no stockholders, but
is offering shares of its common stock to certain customers of Peoples
Building and Loan and, depending upon market conditions and the
availability of shares, may offer shares to selected persons in a public
offering. The additional capital provided through the offering of PCB
Holding Company stock will support future banking activities and local
expansion of the financial services currently offered through Peoples
Building and Loan.
3. WHAT ARE THE BENEFITS AND RISKS OF CONVERSION?
The Conversion and sale of stock will increase Peoples Building and Loan's
capital, enabling it to do many things, including possibly the following:
- support expansion of financial services
- facilitate future access to the capital markets
Please review "Use of Proceeds" in the Prospectus for Peoples Building and
Loan's and the holding company's initial plans with respect to the capital
to be raised in the Conversion.
There are certain risks in investing in PCB Holding Company common stock.
Please review the prospectus prior to making an investment decision,
particularly the section entitled "Risk Factors".
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Questions and Answers Brochure
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Page 4
4. WILL THE CONVERSION HAVE ANY EFFECT ON MY SAVINGS OR LOAN ACCOUNT?
No. The Conversion will not affect the general terms of your savings
account which will continue to be insured by the Federal Deposit Insurance
Corporation (FDIC) to the maximum legal limit. Your savings account is not
being converted to stock. The obligations of borrowers under their loan
agreements will not be affected.
5. HOW DO I BENEFIT FROM THE CONVERSION?
Eligible depositors and borrowers will be given the opportunity to
subscribe or place an order to purchase stock in PCB Holding Company and
thereby participate in any gain in the value of the shares and future
dividend payments, if any. Furthermore, the additional capital will enable
Peoples Building and Loan to provide expanded services to its customers and
the community.
ABOUT PURCHASING STOCK
6. WHO MAY PURCHASE STOCK?
PCB Holding Company is currently conducting a Subscription Offering.
Persons listed below may have the opportunity to subscribe to purchase PCB
Holding Company's common stock during the Subscription Offering.
- Eligible Account Holders. Persons who had a savings deposit of at
least $50 at Peoples Building and Loan on the Eligibility Record Date,
December 31, 1996.
- Supplemental Eligible Account Holders. Persons who had a savings
deposit of at least $50 on the Supplemental Eligibility Record Date,
March 31, 1998.
- Other Members. Depositors and certain borrowers as of the Voting
Record Date, April 30, 1998.
PCB Holding Company may, depending upon market conditions and the
availability of shares, offer stock to certain persons in a public
offering.
<PAGE>
Questions and Answers Brochure
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Page 5
7. WHAT IS THE PRICE PER SHARE AND HOW MANY SHARES ARE BEING OFFERED?
The aggregate value of PCB Holding Company stock has been determined by an
independent appraisal firm. The purchase price per share is $10.00. Up to
345,000 shares are being offered for sale (or up to 396,750 shares under
certain conditions such as a change in market and financial conditions
following commencement of the Offering).
8. WILL EVERYONE PAY THE SAME PRICE FOR THE STOCK?
Yes. All subscribers, including Peoples Building and Loan's Board of
Directors and management, will pay the same price during the offering.
9. ARE DEPOSITORS OBLIGATED TO BUY STOCK?
No. But our depositors have a priority subscription right.
10. HOW MUCH STOCK MAY I BUY IN THE SUBSCRIPTION OFFERING?
The maximum number of shares that you may purchase, either alone or
together with your associates or persons acting in concert with you, is
6,500.
11. WHAT IS THE MINIMUM AMOUNT OF STOCK I MAY BUY?
The minimum purchase limit is 25 shares.
12. IS THE STOCK INSURED BY THE FDIC?
No. Like any other common stock, PCB Holding Company stock will not be
insured by the FDIC or any governmental agency.
13. IN THE FUTURE, HOW MAY I PURCHASE MORE SHARES OR SELL MY SHARES?
PCB Holding Company intends to list the common stock over-the-counter on
the Pink Sheets or through the OTC-Bulletin Board. No assurance can be
given, however, that quotes for PCB Holding Company stock will be available
or that an investor will be able to resell the common stock at or above the
purchase price after Conversion. Because of the small size of the offering
it is unlikely that an active trading market for PCB Holding Company stock
will develop.
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Questions and Answers Brochure
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Page 6
14. WILL THERE BE ANY DIVIDENDS?
PCB Holding Company intends to adopt a policy of paying regular cash
dividends. The declaration and payment of dividends are subject to, among
other things, the financial conditions and results of operations of PCB
Holding Company, Peoples Building and Loan's compliance with its capital
requirements, tax considerations, industry standards and other factors.
15. HOW DO I ORDER STOCK AND WHAT METHODS CAN BE USED FOR PAYMENT OF MY STOCK
PURCHASES?
Complete the stock order form and certification as instructed. Be sure to
indicate the number of shares you wish to purchase and the total amount
remitted (multiply the number of shares subscribed for by $10.00 per
share.) Total payment for purchases in the Subscription Offering must
accompany the order form and be received by PCB Holding Company prior to
12:00 noon, local time, on _________, 1998. The payment options for stock
purchases are as follows:
- Check or money order sent or delivered to Peoples Building and Loan.
If payment is made by check or money order, interest will be earned at
the passbook rate until the Conversion is completed.
- Withdrawal of funds from any existing account of Peoples Building and
Loan in an amount equal to the purchase price (which is $10.00 per
share) times the number of shares ordered. Penalties for early
withdrawal from a Peoples Building and Loan account will be waived
when purchasing stock in the Subscription Offering. Once authorization
for withdrawal of funds has been made, the subscriber may not withdraw
the designated amount unless the Plan of Conversion is terminated or
as otherwise required by regulatory authorities. All funds maintained
in savings accounts are insured by the FDIC up to legally applicable
limits and will earn interest until completion of the Conversion.
- Orders of $25,000 or more must be paid by Peoples Building and Loan
account withdrawals, certified funds, cashier's check, or money
orders.
- IRA purchases. If you wish to purchase shares of PCB Holding Company
stock for an IRA account, either at Peoples Building and Loan or
elsewhere, we may be able to accommodate you. Please contact the Stock
Center as soon as possible at (812) ________ so that we may assist you
with the appropriate procedures for such a purchase. It is important
that you contact us soon because making the IRA arrangements takes
time.
<PAGE>
Questions and Answers Brochure
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Page 7
16. MAY I CHANGE MY MIND?
The stock order form you executed cannot be canceled or withdrawn. However,
you may order additional shares by completing another stock order form,
subject to the maximum purchase limitations.
17. ARE MY SUBSCRIPTION RIGHTS TRANSFERABLE?
No. No person may transfer or enter into any agreement to transfer his or
her subscription rights issued under the Plan of Conversion, or the shares
to be issued upon the exercise of such rights. Persons violating such
prohibition will lose their right to purchase stock in the Conversion and
may be subject to further government sanctions.
ABOUT MEMBERS' VOTING RIGHTS
18. WHO IS ELIGIBLE TO VOTE ON THE PLAN OF CONVERSION?
Depositors at the Voting Record Date of April 30, 1998 who continue to be
depositors at the date of the Special Meeting are eligible to vote.
Borrowers with loans outstanding on February 25, 1998 and through the
Voting Record Date are also eligible to vote.
19. HOW IS THE NUMBER OF VOTES DETERMINED?
Each deposit account holder is entitled to cast one vote for each $100, or
fraction thereof, of the aggregate withdrawal value of all such account
holder's deposit accounts on the Voting Record Date. The maximum number of
votes per person is 1,000. Each borrower who has voting rights is entitled
to cast one vote, in addition to any votes a borrower has as a depositor.
20. IF I VOTE FOR THE PLAN OF CONVERSION ON THE PROXY CARD, WILL I BE OBLIGATED
TO PURCHASE PCB HOLDING COMPANY STOCK?
No. Signing the proxy card and voting for the Conversion in no way
obligates you to purchase PCB Holding Company stock. All members are urged
to vote for the Conversion. THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE PLAN OF CONVERSION AND RECOMMENDS MEMBERS VOTE "FOR" APPROVAL OF THE
PLAN OF CONVERSION.
21. WHAT HAPPENS IF I DON'T VOTE?
Failing to vote could be equivalent to voting against the Plan of
Conversion. YOUR VOTE IS EXTREMELY IMPORTANT! Please sign and mail your
proxy card(s) now.
<PAGE>
Questions and Answers Brochure
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Page 7
22. MAY I COME TO THE SPECIAL MEETING AND VOTE?
Yes. However, every member is encouraged to send a proxy card(s) to Peoples
Building and Loan prior to the meeting even if the member plans to attend
the special meeting. The proxy is revocable and can be changed by
submitting a later dated proxy or by casting a ballot at the meeting.
23. I RECEIVED MORE THAN ONE PROXY CARD. CAN I VOTE THEM ALL?
Yes. Please vote ALL the proxy cards you receive. You may have more than
one account in different registrations. While some accounts have been
consolidated, it is not permissible to consolidate all accounts.
24. IF A SAVINGS ACCOUNT IS IN JOINT NAME, MUST BOTH NAMES BE SIGNED ON THE
PROXY CARD?
No. Two or more signatures are required only when two or more signatures
are needed to withdraw funds from the account.
25. IF I DON'T BUY STOCK WILL I HAVE A VOTE AT FUTURE ANNUAL MEETINGS?
No. After the Conversion, only stockholders will have voting rights.
However, the operations of Peoples Building and Loan and the general terms
and balances of your deposit accounts and loans will remain unchanged.
26. HOW MAY I GET MORE INFORMATION?
We hope that these questions and answers, combined with the Prospectus and
the Proxy Statement, will help you better understand the Conversion and the
stock offering. You are urged to carefully review the Prospectus and Proxy
Statement before making an investment or voting decision. If you desire
further information, please contact the Stock Center at:
Telephone: (812)_________
<PAGE>
I M P O R T A N T
P R O X Y R E M I N D E R
PCB Holding Company
YOUR VOTE ON PCB HOLDING COMPANY'S STOCK CONVERSION IS VERY IMPORTANT.
VOTING FOR THE CONVERSION WILL NOT AFFECT THE INSURANCE OF YOUR
DEPOSIT ACCOUNT. YOUR ACCOUNT WILL CONTINUE TO BE INSURED UP TO THE
MAXIMUM LEGAL LIMIT BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, AN
AGENCY OF THE U.S. GOVERNMENT.
REMEMBER, VOTING FOR THE CONVERSION DOES NOT OBLIGATE YOU TO BUY ANY STOCK.
PLEASE ACT PROMPTLY! SIGN YOUR PROXY CARD(S) AND MAIL OR DELIVER THEM TO PCB
HOLDING COMPANY TODAY. WE RECOMMEND THAT YOU VOTE FOR THE PLAN OF CONVERSION.
THE BOARD OF DIRECTORS
PEOPLES BUILDING AND LOAN
ASSOCIATION, F.A.
If you have already mailed your proxy card(s), please accept
our thanks and disregard this request.
For Further Information, Please Call
The Stock Center
at (812) -
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THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY THESE SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY A
STOCK ORDER FORM AND CERTIFICATION, COPIES OF WHICH MAY BE OBTAINED BY
CONTACTING THE STOCK CENTER. THE COMMON STOCK OFFERED IN THE CONVERSION IS NOT A
DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED.
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<PAGE>
PLACARD/LOBBY POSTER FOR EACH BRANCH OFFICE - Approx. 2 1/2' X 4'
PCB Holding Company is Going Public!
You may now own a part of Peoples Building and Loan Association, F.A.
by purchasing shares of stock
in its holding company, PCB Holding Company
Please take a prospectus, and
for further information about the stock offering
call the Stock Center at
( ) -
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THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY THESE SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY A
STOCK ORDER FORM AND CERTIFICATION, COPIES OF WHICH MAY BE OBTAINED BY
CONTACTING THE STOCK CENTER. THE COMMON STOCK OFFERED IN THE CONVERSION IS NOT A
DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED.
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<PAGE>
NEWSPAPER ADVERTISEMENT
NEW ISSUE
PCB Holding Company
the proposed holding company for
Peoples Building and Loan Association, F.A.
is going public!
Up to 345,000 shares of Common Stock are being offered
at a Subscription Price of $10.00 per share.
For Information Call:
Stock Center
Telephone (812) __________
or stop by the Stock Center located at
819 Main Street
Tell City, Indiana 47586
The Subscription Offering period deadline is 12:00 Noon, local time_________,
1998.
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THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY A STOCK
ORDER FORM AND CERTIFICATION, COPIES OF WHICH MAY BE OBTAINED BY CONTACTING THE
STOCK CENTER. THE COMMON STOCK OFFERED IN THE CONVERSION IS NOT A DEPOSIT OR
ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED.
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<PAGE>
YOU'RE INVITED
You are cordially invited to attend our Community Meeting where you will find
out more about Peoples Building and Loan and our stock offering including...
o A presentation by senior management discussing Peoples Building and
Loan strategy and performance.
o An explanation of Peoples Building and Loan's plan for converting to a
stock form of ownership.
o A question and answer period, followed by a reception where you can
personally meet and talk with the officers and directors of Peoples
Building and Loan.
There will be no sales pressure. You will receive PCB Holding Company stock
offering materials, including a prospectus. It is up to you to decide if a stock
purchase matches your investment objectives.
For more details PCB Holding Company stock offering, attend this informative and
convenient Community Meeting:
Location:
Date:
Time:
Seating is limited, so please call and reserve your seat. To make a reservation
or to receive a prospectus, call (812) ___________.
Share Our Future.
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THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY A STOCK
ORDER FORM AND CERTIFICATION, COPIES OF WHICH MAY BE OBTAINED BY CONTACTING THE
STOCK CENTER. THE COMMON STOCK OFFERED IN THE CONVERSION IS NOT A DEPOSIT OR
ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED.
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