<PAGE>
As filed with the Securities and Exchange Commission on March 18, 1998
Registration No. 333-________
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 [applied for]
- -------------------------------- ----------------- -------------------
(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organisation) 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
====================================================================================================================================
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
Participation interests 23,500 -- -- (2)
====================================================================================================================================
</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) 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.
<PAGE>
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 345,000 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
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <C> <C>
Summary................................ Business of the Holding Company........
Risk Factors........................... Business of the Association............
Selected Consolidated Management of the Holding Company......
Financial Information................. Management of the Association..........
Use of Proceeds........................ Regulation.............................
Dividend Policy........................ Taxation...............................
Market for Common Stock................ The Conversion.........................
Capitalization......................... Restrictions on Acquisition
Historical and Pro Forma of the Holding Company................
Regulatory Capital Compliance......... Description of Capital Stock
Pro Forma Data......................... of the Holding Company................
Shares to be Purchased by Management Registration Requirements..............
Pursuant to Subscription Rights....... Legal and Tax Opinions.................
Peoples Building and Loan Association Experts................................
Statements of Income.................. Additional Information.................
Management's Discussion and Index to Consolidated
Analysis of Financial................. Financial Statements...................
Condition and Results of Operations.... Glossary............................... G-1
</TABLE>
[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.
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:
. 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.
. 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 _______ __, 1998
and borrowers of the Association as of February 25, 1998 whose loans
continue to be outstanding as of _______ __, 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. 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. 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, see "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Management
Recognition Plan." See also "RISK FACTORS -- New Expenses Associated With MRDP"
and "PRO FORMA DATA."
4
<PAGE>
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. 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. 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
8
<PAGE>
control had occurred at December 31, 1997, the aggregate value of the severance
benefits available to these executive 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
</TABLE>
<TABLE>
<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
</TABLE>
<TABLE>
<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>
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. This will result in the Holding Company retaining approximately
$1.1 million to $1.6 million of net proceeds, or up to $1.8 million if the
Estimated Valuation Range is increased by 15%, and the Association receiving an
equal amount.
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.
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 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,
12
<PAGE>
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 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.
13
<PAGE>
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.
14
<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)
15
<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.
16
<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 Midpoint of Estimated Maximum of Estimated
Valuation Range Valuation Range Valuation Range
--------------------- --------------------- --------------------
255,000 shares 300,000 shares 345,000 shares
December 31, 1997 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
----------------- ---------------------- --------------------- --------------------
Percent of Percent of Percent of Percent of
Adjusted Adjusted Adjusted Adjusted
Total Total Total Total
Amount Assets (1) Amount Assets (1) Amount Assets (1) Amount Assets (1)
------ ---------- ------ ---------- ------ ---------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital(2)............ $2,092 9.51% $3,107 13.51% $3,314 14.28% $3,521 15.04%
Tangible capital(2)........ $2,110 9.59% $3,125 13.57% $3,332 14.34% $3,539 15.10%
Tangible capital
requirement............... 330 1.50 345 1.50 348 1.50 352 1.50
------ ----- ------ ----- ------ ----- ------ -----
Excess..................... $1,780 8.09% $2,780 12.07% $2,984 12.84% $3,187 13.60%
====== ===== ====== ===== ====== ===== ====== =====
Core capital(2)............ $2,110 9.59% $3,125 13.57% $3,332 14.34% $3,539 15.10%
Core capital requirement(3) 660 3.00 691 3.00 697 3.00 703 3.00
------ ----- ------ ----- ------ ----- ------ -----
Excess..................... $1,450 6.59% $2,434 10.57% $2,635 11.34% $2,836 12.10%
====== ===== ====== ===== ====== ===== ====== =====
Total capital(4)........... $2,161 20.14% $3,176 29.05% $3,383 30.83% $3,590 32.59%
Risk-based
capital requirement....... 858 8.00 876 8.00 878 8.00 881 8.00
------ ----- ------ ----- ------ ----- ------ -----
Excess..................... $1,303 12.14% $2,300 21.05% $2,505 22.83% $2,709 24.59%
====== ===== ====== ===== ====== ===== ====== =====
<CAPTION>
--------------------
15% above
Maximum of Estimate
Valuation Range
-------------------
396,750 shares
at $10.00 Per Share
-------------------
Percent of
Adjusted
Total
Amount Assets (1)
------ -----------
<S> <C> <C>
GAAP capital(2)............ $3,759 15.89%
Tangible capital(2)........ $3,777 15.95%
Tangible capital
requirement............... 355 1.50
------ ------
Excess..................... $3,422 14.45%
====== ======
Core capital(2)............ $3,777 15.95%
Core capital requirement(3) 710 3.00
------ ------
Excess..................... $3,067 12.95%
====== ======
Total capital(4)........... $3,828 34.60%
Risk-based
capital requirement....... 885 8.00
------ ------
Excess..................... $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.
17
<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.
18
<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
19
<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.
20
<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.
21
<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.
22
<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."
23
<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
24
<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.
25
<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.
26
<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
December 31, Years Ended 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>
27
<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.
28
<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.
29
<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.
30
<PAGE>
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. If the service bureau is
unable to do so, the Association is prepared to secure bids and change service
bureaus if necessary. 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 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
31
<PAGE>
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.
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.
32
<PAGE>
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 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.
33
<PAGE>
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>
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
34
<PAGE>
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.
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.
35
<PAGE>
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 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
36
<PAGE>
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.
<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>
37
<PAGE>
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 $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.
38
<PAGE>
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>
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.
39
<PAGE>
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.
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>
40
<PAGE>
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.
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 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
41
<PAGE>
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.
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."
42
<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. The Association's investment policy does not permit engaging
43
<PAGE>
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.
44
<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 After
One Year Five Years to Ten Years Ten Years Totals
-------------------- -------------------- -------------------- ------------------- --------------------
Weighted Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield
--------- --------- --------- --------- --------- --------- --------- -------- --------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Government agency
obligations............ $100 5.05% $450 6.70% $250 4.20% $199 7.57% $ 999 6.08%
Corporate notes.......... 250 5.95 100 5.71 -- -- -- -- 350 6.00
---- ---- ---- ---- ------
Total available for
sale................ $350 5.69 $550 6.52 $250 4.20 $199 7.57 $1,349 6.06
==== ==== ==== ==== ======
</TABLE>
45
<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>
46
<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>
47
<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,
48
<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.
49
<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.
DIRECTORS
<TABLE>
<CAPTION>
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
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Name Age (1) Position with Association
- ---- ------- -------------------------
Clark A. Blackford 50 Vice President, Secretary
and Treasurer
</TABLE>
___________________
(1) As of December 31, 1997.
50
<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.
51
<PAGE>
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
52
<PAGE>
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 beginning
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,
subject to shareholder approval. 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 to the first anniversary of the
conversion, vesting may not be accelerated upon a change in control of the
Holding Company or the Association.
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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 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
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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 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.
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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 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.
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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, 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
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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
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.
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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 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
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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 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
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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 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,
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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 ___________, 1998 and
borrowers of the Association with loans outstanding as of February 25, 1998
which continue to be outstanding as of __________, 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 (_____________, 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 (_______________, 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.
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 applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is
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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."
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
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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 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
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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.
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."
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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.
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.
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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 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."
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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 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.
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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.
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
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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.
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
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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."
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
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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.
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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-_____) 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.
84
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PEOPLES BUILDING AND LOAN ASSOCIATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
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................................................ 22
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997 and 1996................................................ F-4
Notes to Consolidated Financial Statements............................................. F-5
</TABLE>
* * *
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.
85
<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 - (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 - 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>
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). 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. 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>
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>
(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 345,000 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)
<TABLE>
<S> <C>
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
========
</TABLE>
_______________
(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:
1.1 - Form of proposed Agency Agreement among PCB Holding Company, Peoples
Building and Loan Association, F.A. and Capital Resoures, Inc. (a)
1.2 - Engagement Letter between Peoples Building and Loan Association and
Capital Resources, Inc.
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 - Article of Incorporation of PCB Holding Company
3.2 - Bylaws of PCB Holding Company
4 - Form of Certificate for Common Stock
5 - Opinion of Breyer & Aguggia regarding legality of securities registered
8.1 - Form of Federal Tax Opinion of Breyer & Aguggia
8.2 - Form of State Tax Opinion of Monroe Shine & Co., Inc.
8.3 - Opinion of Capital Resources Group, Inc. as to the value of
subscription rights
10.1 - Proposed Form of Employment Agreement for Senior Officers
10.2 - Peoples Building and Loan Association 401(k) Salary Reduction Plan and
Trust (a)
II-4
<PAGE>
16 - Letter of former accountants
21 - Subsidiaries of PCB Holding Company
23.1 - Consent of Monroe Shine & Co., Inc.
23.2 - Consent of Breyer & Aguggia (contained in opinion included as Exhibit
5)
23.3 - Consent of Breyer & Aguggia as to its Federal Tax Opinion
23.4 - Consent of Capital Resources Group, Inc.
24 - Power of Attorney (contained in signature page)
27 - Financial Data Schedule
99.1 - Order Form (a)
99.2 - Solicitation and Marketing Materials (a)
99.3 - Appraisal Agreement with Capital Resources Group, Inc.
99.4 - Appraisal Report of Capital Resources Group, Inc. (a)
99.5 - Proxy Statement for Special Meeting of Members of Peoples Building and
Loan Association, F.A.
__________________
(a) To be filed by amendment.
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
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Tell City, Indiana on
the 18th day of March, 1998.
PCB HOLDING COMPANY
By: /s/ Carl D. Smith
-------------------
Carl D. Smith
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of PCB Holding Company, do
hereby severally constitute and appoint Carl D. Smith and Clarke A. Blackford,
our true and lawful attorneys and agents, to do any and all things and acts in
our names in the capacities indicated below and to execute all instruments for
us and in our names in the capacities indicated below which said Carl D. Smith
and Clarke A. Blackford may deem necessary or advisable to enable PCB Holding
Company to comply with the Securities Act of 1933, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with the Registration Statement on Form SB-2 relating to the offering
of PCB Holding Company's Common Stock, including specifically but not limited
to, power and authority to sign for us or any of us in our names in the
capacities indicated below the Registration Statement and any and all amendments
(including post-effective amendments) thereto; and we hereby ratify and confirm
all that Carl D. Smith and Clarke A. Blackford shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this 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 March 18, 1998
- ----------------------------
Carl D. Smith (Principal Executive Officer)
/s/ Clarke A. Blackford Vice President, Treasurer and Secretary March 18, 1998
- ----------------------------
Clarke A. Blackford (Principal Financial
and Accounting Officer)
/s/ James L. Wittmer Director March 18, 1998
- ----------------------------
James L. Wittmer
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Marion L. Ress Director March 18, 1998
- ----------------------------
Marion L. Ress
/s/ Howard L. Traphagen Director March 18, 1998
- ----------------------------
Howard L. Traphagen
/s/ James G. Tyler Director March 18, 1998
- ----------------------------
James G. Tyler
s/ Daniel P. Lutgring Director March 18, 1998
- ----------------------------
Daniel P. Lutgring
</TABLE>
<PAGE>
INDEX TO EXHIBITS
1.1 - Form of proposed Agency Agreement among PCB Holding Company, Peoples
Building and Loan Association, F.A. and Capital Resources, Inc. (a)
1.2 - Engagement Letter between Peoples Building and Loan Association and
Capital Resources, Inc.
2 - Plan of Conversion of Peoples Building and Loan Association (attached
as and exhibit to the Proxy Statement included as Exhibit 99.5)
3.1 - Articles of Incorporation of PCB Holding Company
3.2 - Bylaws of PCB Holding Company
4 - Form of Certificate for Common Stock
5 - Opinion of Breyer & Aguggia regarding legality of securities
registered
8.1 - Form of Federal Tax Opinion of Breyer & Aguggia
8.2 - Form of State Tax Opinion of Monroe Shine & Co., Inc.
8.3 - Opinion of Capital Resources Group, Inc. as to the value of
subscription rights
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 (a)
16 - Letter of Former Accountants
21 - Subsidiaries of PCB Holding Company
23.1 - Consent of Monroe Shine & Co., Inc.
23.2 - Consent of Breyer & Aguggia (contained in opinion included as Exhibit
5)
23.3 - Consent of Breyer & Aguggia as to its Federal Tax Opinion
23.4 - Consent of Capital Resources Group, Inc.
24 - Power of Attorney (contained in signature page)
27 - Financial Data Schedule
99.1 - Order Form (a)
99.2 - Solicitation and Marketing Materials (a)
99.3 - Appraisal Agreement with Capital Resources Group, Inc.
99.4 - Appraisal Report of Capital Resources Group, Inc. (a)
99.5 - Proxy Statement for Special Meeting of Members of Peoples Building
and Loan Association, F.A.
___________
(a) To be filed by amendment.
<PAGE>
EXHIBIT 1.2
ENGAGEMENT LETTER BETWEEN PEOPLES BUILDING AND LOAN ASSOCIATION
AND CAPITAL RESOURCES, INC.
<PAGE>
[LOGO CAPITAL RESOURCES, INC.
OF 1211 Connecticut Ave., N.W. * Suite 200 * Washington, DC 20036 *
APPEARS Tel (202) 466-5685 * Fax (202) 466-5695
CAPITAL
RESOURCES
APPEARS
HERE]
November 18, 1997
Mr. Carl Smith
President and Chief Executive Officer
Peoples Building & Loan Association
819 Main Street
Tell City, Indiana 47586
Dear Mr. Smith:
We are pleased to submit this proposal to set forth the terms of the
proposed engagement between Capital Resources, Inc. and Peoples Building & Loan
Association ("Peoples Building" or the "Association") for your planned mutual-
to-stock conversion (the "Conversion") and the offering of your shares of common
stock (the "Offering").
BACKGROUND ON CAPITAL RESOURCES
Capital Resources is a National Association of Securities Dealers ("NASD")
member investment banking firm specializing in raising capital for financial
institutions. Members of our professional staff are licensed securities
representatives and have extensive experience in conducting local sales efforts
for thrift conversions. Our "hands-on" philosophy and direct sales involvement
have resulted in many successful conversions and a satisfied clientele. We
combine the critical and necessary operational and data processing support
within our package of marketing services to help ensure a smooth, professionally
conducted, successful Conversion.
As you are undoubtedly aware, there are substantial benefits to be derived
from a successful local offering of your stock. A successful local offering not
only results in stable, loyal stockholders, but also provides a rare opportunity
to capture many ancillary benefits to the Association, such as the opportunity
for enhancing local identity and increasing local exposure.
The conversion process involves an enormous amount of attention to detail
and requires extensive knowledge and expertise in conversion regulations and
securities regulations. Capital Resources' experience in managing thrift
conversions will help alleviate the burden on management and minimize disruption
to normal banking business while ensuring each detail is attended to in a timely
and accurate manner.
The following describes the scope of conversion marketing, operational and
staff training services Capital Resources proposes to provide Peoples Building.
<PAGE>
CAPITAL RESOURCES, INC.
Mr. Carl Smith
November 18, 1997
Page 2
PROPOSED SERVICES
Capital Resources proposes to act as placement agent and marketing
representative on behalf of Peoples Building with respect to the offering of
common stock pursuant to the Conversion. We will also serve as "Conversion
Manager" to assist you in numerous operational areas with respect to the
Conversion. In this regard, we combine four critical roles in the Conversion
process:
I. Sales and Marketing Assistance
II. Comprehensive Staff Training
III. Stock Center Management
IV. Proxy Solicitation
V. Additional Value-Added Services
Each area is discussed in the following sections.
I. SALES AND MARKETING ASSISTANCE
Capital Resources proposes to represent Peoples Building as placement agent
in the sale of the common stock in a Subscription and Community Offering. Our
marketing assistance program is designed to inform your true customer base of
this investment opportunity and to educate your customers on the conversion
process. Our main objective is to target sales to your local customers who will
have subscription rights (the "Subscription Offering"). Typically, the entire
issue will be bought by your customers. In the event shares remain available
after customer subscriptions, we will market remaining shares to achieve a wide
distribution to "friendly" local shareholders (the "Community Offering").
Our specific responsibilities as such will be as follows:
o Assign licensed professionals from our staff to work at Peoples Building's
offices as sales representatives on behalf of the Association. Our
professionals will be responsible for all customer contact and inquiries
regarding the Offering.
o Work with your conversion counsel regarding the prospectus and the
language in it from a marketing perspective.
<PAGE>
CAPITAL RESOURCES, INC.
Mr. Carl Smith
November 18, 1997
Page 3
o If desirable, conduct a series of community meetings to provide information
on the Offering. Capital Resources' representatives will take an active
role in these meetings. These meetings serve as a customer relations tool
as well as enhance local exposure of Peoples Building and set the stage for
favorable stockholder relations after Conversion.
o Design and prepare for the Association a marketing campaign, including
appropriate marketing literature and media advertisements.
o After the Subscription and Community Offerings if shares remain
unsubscribed, we will assemble a selected dealer's syndicate to distribute
remaining shares (the "Syndicated Community Offering"). We will meet with
local brokers to educate them on the particulars of thrift stocks, discuss
the salient terms of Peoples Building's Offering, create after-market
interest and stimulate local interest in Peoples Building's stock.
o We will make a market in the stock after Conversion and assist in arranging
other market-makers.
II. COMPREHENSIVE CONVERSION TRAINING
Capital Resources will conduct comprehensive training sessions before the
formal commencement date of the Offering. Our training sessions are designed to
ensure that members of the board, management and staff are knowledgeable of the
conversion process, aware of their roles and capable of dealing with problems,
inquiries and events. Each session is tailored to the audience involved and each
covers a different level of detail and area of the Conversion, as follows:
MANAGEMENT MEETING: A structured discussion pertaining to organization,
role assignments, facilities, marketing, accounting, reporting and timetables.
BOARD MEETING: A presentation regarding the conversion process and board
members' roles and responsibilities, with emphasis on insider behavior.
STAFF MEETING: A comprehensive presentation to the entire staff to discuss
the nature of the Conversion, roles and responsibilities, and the opportunity to
elaborate community involvement. A slide presentation and handouts are used.
STOCK CENTER TRAINING: We will train and supervise Bank personnel
specifically responsible for assisting us in the Stock Center with clerical
tasks (see section III below). Computer training, account balancing procedures
and stock recordkeeping are covered.
<PAGE>
CAPITAL RESOURCES, INC.
Mr. Carl Smith
November 18, 1997
Page 4
In addition to our personalized training meetings, Capital Resources
documents the many details and functions of the conversion process in easy-to-
read manuals. Our conversion study manuals are intended to be used in
conjunction with our training sessions and as a reference during the Conversion.
The manuals provide instruction, sample forms and general information vital to
understanding the conversion process. This information has been collected and
updated by Capital Resources over many years.
III. STOCK CENTER MANAGEMENT
A conversion requires accurate and timely recordkeeping and reporting.
Furthermore, customer inquiries must be handled professionally and accurately.
The Stock Center centralizes all data and work effort relating to the
Conversion. Capital Resources will establish the Stock Center, preferably on-
site at the Association's offices, from which we will supervise all activities
relating to the Conversion. Our professionals will be on-site throughout the
Offering to handle customer inquiries and special situations as they arise. In
addition, we will require two of the Association's employees to assist us on a
full time basis in the Stock Center with clerical tasks. We will train and
supervise these employees. Stock Center activities for which Capital Resources
will be responsible for include the following:
o Collect, respond to and record all mail regarding conversion.
o Meet with customers who wish to discuss the Offering.
o Tabulate stock orders.
o Tabulate proxies.
o Mail "Stock-Grams", "Proxy-Grams", and other literature as applicable.
o Prepare and mail order confirmations.
o Sort and track prospects.
o Coordinate and record community meetings and attendance.
o Coordinate mailings to customers and prospects.
o Balance daily totals.
o Respond to mail and telephone inquiries.
<PAGE>
CAPITAL RESOURCES, INC.
Mr. Carl Smith
November 18, 1997
Page 5
o Generate daily management reports.
o Coordinate with the printer for the initial sorting and mailing to
different categories of prospective subscribers.
CLOSING ASSISTANCE: The end of the Offering is a critical time that
requires coordination of many events. Capital Resources will be on-site to
coordinate tasks such as mailing interest checks, sending "welcome" letters to
shareholders, balancing accounts, tabulating final stock information, and
preparing stockholder records for the transfer agent, as well as answering post-
offering questions from subscribers.
In performing various Stock Center tasks outlined above, Capital Resources
will utilize its proprietary conversion programs, the "Back Office Stock System"
("BOSS"). BOSS is a menu-driven, user-friendly program which will help ensure
efficient, accurate recordkeeping and timely reporting during the Conversion. To
use BOSS, we would require a computer to be provided by Peoples Building for
Stock Center use during the conversion.
IV. PROXY SOLICITATION
Regulations require that over 50% of the outstanding members' votes must be
in favor of the Plan of Conversion. As part of our engagement, we will solicit
proxies to ensure this vote requirement is met.
V. ADDITIONAL VALUE-ADDED SERVICES
Capital Resources will provide, at no charge, general financial consulting
to the Association with respect to issues facing stock companies for a year
following Conversion. A representative from Capital Resources will attend Board
meetings semi-annually, as requested, to discuss such issues. The Bank will
reimburse Capital Resources for out-of-pocket expenses related to such meetings.
Capital Resources will also provide certain other post-conversion services
as part of this engagement at no charge, including stock research coverage and
stock benefit plan shares purchases at no commission.
<PAGE>
CAPITAL RESOURCES, INC.
Mr. Carl Smith
November 18, 1997
Page 6
PROPOSED FEE STRUCTURE
For our services as described herein, we propose a compensation structure
as follows:
A. A fixed marketing fee of $50,000 payable as follows: $15,000 upon execution
of this proposal and the commencement of our engagement, $5,000 upon filing
of the Application for Conversion, and the balance upon closing. This fee
covers all professional services for advisory services, due diligence,
training, proxy solicitation, and marketing services. Progress payments are
for consulting work performed prior to the Offering.
B. Reimbursement for out-of-pocket expenses incurred by us on behalf of the
Conversion. Such expenses shall include, but are not limited to, travel,
legal, communications and postage. We will provide you with a detailed
accounting of all reimbursable expenses and will bill you monthly.
Reimbursable out-of-pocket expenses shall not exceed $10,000 and our legal
expenses shall not exceed $22,000, without management's prior approval.
ADDITIONAL PROVISIONS
Furthermore, it is understood that:
o Prior to the commencement of the Offering, Peoples Building and Capital
Resources will enter into a mutually agreed upon formal agency agreement
for securities offerings which provides for mutual indemnities and
warranties. Our sales and marketing services are subject to the usual
warranties, indemnities and conditions contained in the agency agreement.
o Our role as your NASD agent is subject to our normal underwriting criteria
and examination of relevant books and records.
o The Association will pay all other expenses of the conversion, including
but not limited to attorney's fees, National Association of Securities
Dealers, Inc. filing fees, all fees and expenses relating to "blue sky"
research and filings, state licensing and securities registration fees, all
fees relating to auditing and accounting, all printing and advertising fees
and all costs associated with retaining temporary staffing, if any, in
connection with the Conversion.
o Capital Resources will conduct an examination of the relevant documents and
records of Peoples Building as appropriate. Peoples Building agrees to make
all documents and records deemed appropriate or necessary by Capital
Resources available upon request.
o Our obligations stated herein will be subject to there being no material
changes, in the opinion of our firm, in the Association's conditions or in
market conditions so as to significantly delay the Offering or to render
the Offering inadvisable.
<PAGE>
CAPITAL RESOURCES, INC.
Mr. Carl Smith
November 18, 1997
Page 7
o Our marketing obligations pursuant to this agreement will terminate upon
the completion or termination of the initial Offering, but in no event
later than 12 months from the date of this letter. All fees or expenses due
to Capital Resources but unpaid will be payable to Capital Resources at
that time. In the event the offering is extended beyond this term, the
Association and Capital Resources may mutually agree to renew this
engagement under mutually acceptable terms.
* * * * * * *
To engage our services, please sign in the space provided below and return
the signed letter to me. I have enclosed a signed copy for your files. This
proposal is open for your acceptance for thirty (30) days from the date of this
letter.
We look forward to working with Peoples Building on this most exciting and
challenging project.
Sincerely,
CAPITAL RESOURCES, INC.
/s/ David P. Rochester
David P. Rochester
Chairman and Chief
Executive Officer
DPR/ems
Agreed To and Accepted By:
PEOPLES BUILDING & LOAN ASSOCIATION
/s/ Carl Smith 12/9/97
- ----------------------------------------
signed date
/s/ Carl Smith President
- ----------------------------------------
print name and title
<PAGE>
EXHIBIT 3.1
Articles of Incorporation of PCB Holding Company
<PAGE>
ARTICLES OF INCORPORATION
OF
PCB HOLDING COMPANY
ARTICLE I
NAME
The name of this corporation is PCB Holding Company.
ARTICLE II
PURPOSE
The purpose of this corporation is the transaction of any and all lawful
business for which corporations may be incorporated under the Indiana Business
Corporation Law.
ARTICLE III
CAPITAL STOCK
SECTION 3.01. AMOUNT. The total number of shares of all classes of stock
which this corporation shall have authority to issue is five million
(5,000,000), of which four million (4,000,000) shall be common stock, par value
$.01 per share, and one million (1,000,000) shall be serial preferred stock, par
value $.01 per share.
SECTION 3.02. TERMS OF PREFERRED STOCK. The shares of preferred stock may
be issued from time to time in one or more series. The board of directors of
this corporation shall have authority to fix by resolution or resolutions the
designations and the powers, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions thereof,
including, without limitation, the voting rights, the dividend rate, conversion
rights, redemption price and liquidation preference, of any series of shares of
preferred stock, to fix the number of shares constituting any such series, and
to increase or decrease the number of shares of any such series (but not below
the number of shares thereof then outstanding). In case the number of shares of
any such series shall be so decreased, the shares constituting such decrease
shall resume the status which they had prior to the adoption of the resolution
or resolutions originally fixing the number of shares of such series.
SECTIONS 3.03. TERMS OF COMMON STOCK. The shares of common stock may be
issued from time to time. Each share of common stock shall have the same
relative rights as and be identical in
1
<PAGE>
all respects with all the other shares of common stock. Except as provided in
Section 3.04, every holder of common stock shall have the right, at every
stockholders' meeting, to one vote for each share standing in his or her name on
the books of the corporation.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and of sinking fund or retirement fund or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends, out of any
assets legally available for the payment of dividends, but only when and as
declared by the board of directors.
In the event of any liquidation, dissolution or winding up of this
corporation, after there shall have been paid to or set aside for the holders of
any class having preferences over the common stock in the event of liquidation,
dissolution or winding up the full preferential amounts to which they are
respectively entitled, the holders of the common stock, and any class or series
of stock entitled to participate therewith, in whole or in part, as to the
distribution of assets, shall be entitled after payment or provision for payment
of all debts and liabilities of this corporation, to receive the remaining
assets of this corporation available for distribution, in cash or in kind.
SECTION 3.04 LIMITATION ON VOTING RIGHTS. 1. Notwithstanding any other
provision of these Articles, in no event shall any record owner of any
outstanding common stock which is beneficially owned, directly or indirectly, by
a person who, as of any record date for the determination of stockholders
entitled to vote on any matter, 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 a majority
of the Whole Board (as hereinafter defined) shall have by resolution granted in
advance such entitlement or permission. The number of votes which may be cast
by any record owner by virtue of the provisions hereof in respect of common
stock beneficially owned by such person owning shares in excess of the Limit
shall be a number equal to the total number of votes which a single record owner
of all common stock owned by such person would be entitled to cast, multiplied
by a fraction, the numerator of which is the number of shares of such class or
series which are both beneficially owned by such person and owned of record by
such record owner and the denominator of which is the total number of shares of
common stock beneficially owned by such person owning shares in excess of the
Limit.
2. The following definitions shall apply to this Section 3.04 of
this Article III.
(a) "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on the date of filing of these Articles.
(b) "Beneficial ownership" shall be determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Securities Exchange Act of
1934 (or any successor
2
<PAGE>
rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and
there shall be no successor rule or provision thereto, pursuant to said Rule
13d-3 as in effect on the date of filing of these Articles; provided, however,
that a person shall, in any event, also be deemed the "beneficial owner" of any
common stock:
(i) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(ii) which such person or any of its affiliates has (A) the
right to acquire (whether such right is exercisable immediately or only after
the passage of time), pursuant to any agreement, arrangement or understanding
(but shall not be deemed to be the beneficial owner of any voting shares solely
by reason of an agreement, contract, or other arrangement with this corporation
to effect any transaction which is described in any one or more of subparagraphs
(1)(a) through (h) of Section 5.01 of Article V or upon the exercise of
conversion rights, exchange rights, warrants, or options or otherwise, or (B)
sole or shared voting or investment power with respect thereto pursuant to any
agreement, arrangement, understanding, relationship or otherwise (but shall not
be deemed to be the beneficial owner of any voting shares solely by reason of a
revocable proxy granted for a particular meeting of stockholders, pursuant to a
public solicitation of proxies for such meeting, with respect to shares of which
neither such person nor any such affiliate is otherwise deemed the beneficial
owner); or
(iii) which are beneficially owned, directly or indirectly,
by any other person with which such first mentioned person or any of its
affiliates acts as a partnership, limited partnership, syndicate or other group
pursuant to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of capital stock of this
corporation; and provided further, however, that (i) no director or officer of
-------------------------
this corporation (or any Affiliate of any such director or officer) shall,
solely by reason of any or all of such directors of officers acting in their
capacities as such, be deemed, for any purposes hereof, to beneficially own any
common stock beneficially owned by any other such director or officer (or any
Affiliate thereof), and (ii) neither any employee stock ownership or similar
plan of this corporation or any subsidiary of this corporation, nor any trustee
with respect thereto or any Affiliate of such trustee (solely by reason of such
capacity of such trustee), shall be deemed, for any purposes hereof, to
beneficially own any common stock held under any such plan. For purposes of
computing the percentage beneficial ownership of common stock of a person, the
outstanding common stock shall include shares deemed owned by such person
through application of this subsection but shall not include any other common
stock which may be issuable by this corporation pursuant to any agreement, or
upon exercise of conversion rights, warrants or options, or otherwise. For all
other purposes, the outstanding common stock shall include only common stock
then outstanding and shall not include any common stock which may be issuable by
this corporation pursuant to any agreement, or upon the exercise of conversion
rights, warrants or options, or otherwise.
(c) A "person" shall mean any individual, firm, corporation, or
other entity.
3
<PAGE>
(d) "Whole Board" shall mean the total number of directors which
the corporation would have if there were no vacancies on the board of directors.
3. The board of directors shall have the power to construe and apply
the provisions of this Section and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to (i) the number of shares of common stock beneficially owned by
any person, (ii) whether a person is an affiliate of another, (iii) whether a
person has an agreement, arrangement, or understanding with another as to the
matters referred to in the definition of beneficial ownership, (iv) the
application of any other definition or operative provision of this Section to
the given facts, or (v) any other matter relating to the applicability or effect
of this Section.
4. The board of directors shall have the right to demand that any
person who is reasonably believed to beneficially own common stock in excess of
the Limit (or holds of record common stock beneficially owned by any person in
excess of the Limit) supply the corporation with complete information as to (i)
the record owner(s) of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit, and (ii) any other
factual matter relating to the applicability or effect of this section as may
reasonably be required of such person.
5. Except as otherwise provided by law or expressly provided in this
Section 3.04, the presence, in person or by proxy, of the holders of record of
shares of capital stock of the corporation entitling the holders thereof to cast
a majority of the votes (after giving effect, if required, to the provisions of
this Section 3.04) entitled to be cast by the holders of shares of capital stock
of the corporation entitled to vote shall constitute a quorum at all meetings of
the stockholders, and every reference in these Articles to a majority or other
proportion of capital stock (or the holders thereof) for purposes of determining
any quorum requirement or any requirement for stockholder consent or approval
shall be deemed to refer to such majority or other proportion of the votes (or
the holders thereof) then entitled to be cast in respect of such capital stock.
6. Any constructions, applications, or determinations made by the
board of directors pursuant to this Section in good faith and on the basis of
such information and assistance as was then reasonably available for such
purpose shall be conclusive and binding upon the corporation and its
stockholders.
7. In the event any provision (or portion thereof) of this Section
3.04 shall be found to be invalid, prohibited or unenforceable for any reason,
the remaining provisions (or portions thereof) of this Section shall remain in
full force and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken here from or otherwise rendered
inapplicable, it being the intent of this corporation and its stockholders that
each such remaining provision (or portion thereof) of this Section 3.04 remain,
to the fullest extent permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
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ARTICLE IV
BOARD OF DIRECTORS
SECTION 4.01. GENERAL. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the corporation shall be
managed under the direction of, a board of directors except as may be otherwise
provided by law or these Articles of Incorporation.
SECTION 4.02. NUMBER AND TERMS. The authorized number of directors shall in
no case be fewer than five (5) nor more than fifteen (15). The exact number of
directors shall be fixed in or in accordance with the Bylaws. The directors
shall be divided into three classes, as nearly equal in number as reasonably
possible, with the term of office of the first class to expire at the conclusion
of the first annual meeting of the stockholders after their election, the term
of office of the second class to expire at the conclusion of the second annual
meeting of stockholders after their election, and the term of office of the
third class to expire at the conclusion of the third annual meeting of
stockholders after their election, with each director to hold office until his
or her successor shall have been duly elected and qualified. At each annual
meeting of stockholders following the initial classification and election,
directors elected to succeed those directors whose terms expire shall be elected
for a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until his
or her successor shall have been duly elected and qualified. Directors need not
be stockholders of the corporation. There shall be no cumulative voting by
stockholders of any class or series in the election of directors of the
corporation.
SECTION 4.03. INITIAL DIRECTORS. The names and addresses of the initial
board of directors of the corporation are as follows:
NAME ADDRESS
---- -------
Class 1 Directors (initial term to expire at the conclusion of the first annual
- -----------------
meeting of stockholders after their election)
James L. Wittmer 16 11th Street, Tell City, Indiana 47586
Howard L. Traphagen R.R. 2, Box 698, Tell City, Indiana 47586
Class 2 Directors (initial term to expire at the conclusion of the second annual
- -----------------
meeting of stockholders after their election)
James G. Tyler 17 Jonick Road, Tell City, Indiana 47586
Daniel P. Lutgring HC 64, Box 91, Tell City, Indiana 47586
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Class 3 Directors (initial term to expire at the conclusion of the third annual
- -----------------
meeting of stockholders after their election)
Carl D. Smith 2230 Franklin Street, Tell City, Indiana 47586
Marion L. Ress 814 11th Street, Tell City, Indiana 47586
SECTION 4.04. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Any vacancies on
the board of directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall be filled by the
affirmative vote of a majority of directors then in office, although less than a
quorum, or by the sole remaining director, or, in the event of the failure of
the directors or sole remaining director so to act, by the stockholders at the
next election of directors. Directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of the class to
which they have been elected expires. A director elected to fill a vacancy by
reason of an increase in the number of directorships shall be elected by a
majority vote of the directors then in office, although less than a quorum of
the board of directors, to serve until the next election of the class for which
such director shall have been chosen. If the number of directors is changed,
any increase or decrease shall be apportioned among the three (3) classes so as
to make all classes as nearly equal in number as possible. If, consistent with
the preceding requirement, the increase or decrease may be allocated to more
than one (1) class, the increase or decrease may be allocated to any such class
the board of directors selects in its discretion. No decrease in the number of
directors constituting the board of directors shall shorten the term of any
incumbent director.
SECTION 4.05. REMOVAL. A director, or the entire board of directors, may be
removed only for cause as determined by the affirmative vote of the holders of
at least a two-thirds (2/3) majority of the shares then entitled to vote in an
election of directors, which vote may only be taken at a meeting of stockholders
called expressly for that purpose. Cause for removal shall be deemed to exist
only if the director whose removal is proposed has been convicted of a felony by
a court of competent jurisdiction or has been adjudged by a court of competent
jurisdiction to be liable for gross negligence or misconduct in the performance
of such director's duty to the corporation, in a matter of substantial
importance to the corporation and such conviction or adjudication is no longer
subject to direct appeal.
SECTION 4.06. SPECIAL STOCKHOLDER MEETINGS. Special meetings of the
stockholders of the corporation may only be called by the chairman of the board
of directors or by the board of directors pursuant to a resolution adopted by a
majority of the total number of directors which the corporation would have if
there were no vacancies on the board of directors.
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ARTICLE V
APPROVAL OF CERTAIN BUSINESS COMBINATIONS
The stockholder vote required to approve Business Combinations (as
hereinafter defined) shall be as set forth in this section.
SECTION 5.01. TRANSACTIONS WITH RELATED PERSONS.
1. Except as otherwise expressly provided in this Article, the
affirmative vote of the holders of (i) at least 80% of the outstanding shares
entitled to vote thereon (and, if any class or series of shares is entitled to
vote thereon separately, the affirmative vote of the holders of at least 80% of
the outstanding shares of each such class or series), and (ii) at least a
majority of the outstanding shares entitled to vote thereon, not including
shares deemed beneficially owned by a Related Person (as hereinafter defined),
shall be required in order to authorize any of the following:
(a) any merger or consolidation of the corporation with or into
a Related Person (as hereinafter defined);
(b) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage, or any other security device, of all
or any Substantial Part (as hereinafter defined) of the assets of the
corporation (including without limitation any voting securities of a subsidiary)
or of a subsidiary, to a Related Person;
(c) any merger or consolidation of a Related Person with or into
the corporation or a subsidiary of the corporation;
(d) any sale, lease, exchange, transfer or other disposition of
all or any Substantial Part of the assets of a Related Person to the corporation
or a subsidiary of the corporation;
(e) the issuance of any securities of the corporation or a
subsidiary of the corporation to a Related Person;
(f) the acquisition by the corporation or a subsidiary of the
corporation of any securities of a Related Person;
(g) any reclassification of the common stock of the corporation,
or any recapitalization involving the common stock of the corporation; and
(h) any agreement, contract or other arrangement providing for
any of the transactions described in this Article.
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2. Such affirmative vote shall be required notwithstanding any other
provision of these Articles, any provision of law, or any agreement with any
regulatory agency or national securities exchange which might otherwise permit a
lesser vote or no vote.
3. The term "Business Combination" as used in this Article shall
mean any transaction which is referred to in any one or more of subparagraphs
(1)(a) through (h) above.
SECTION 5.02. EXCEPTION FOR PRIOR APPROVED TRANSACTIONS. The provisions of
Section 5.01 shall not be applicable to any particular Business Combination, and
such Business Combination shall require only such affirmative vote as is
required by any other provision of these Articles, any provision of law, or any
agreement with any regulatory agency or national securities exchange, if the
Business Combination shall have been approved by a two-thirds vote of the
Continuing Directors (as hereinafter defined); provided, however, that such
approval shall only be effective if obtained at a meeting at which a Continuing
Director Quorum (as hereinafter defined) is present.
SECTION 5.03. DEFINITIONS. For the purposes of this Article the following
definitions apply:
1. The term "Related Person" shall mean and include (a) any
individual, corporation, partnership or other person or entity which together
with its "affiliates" (as that term is defined in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended),
"beneficially owns" (as that term is defined in Rule 13d-3 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended) in the
aggregate 10% or more of the outstanding shares of the common stock of the
corporation; and (b) any "affiliate" (as that term is defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended) of any such individual,
corporation, partnership or other person or entity. Without limitation, any
shares of the common stock of the corporation which any Related Person has the
right to acquire pursuant to any agreement, or upon exercise or conversion
rights, warrants or options, or otherwise, shall be deemed "beneficially owned"
by such Related Person.
2. The term "Substantial Part" shall mean more than 25% of the total
assets of the corporation, as of the end of its most recent fiscal year ending
prior to the time the determination is made.
3. The term "Continuing Director" shall mean any member of the board
of directors of the corporation who is unaffiliated with the Related Person and
was a member of the board prior to the time that the Related Person became a
Related Person, and any successor of a Continuing Director who is unaffiliated
with the Related Person and is recommended to succeed a Continuing Director by a
majority of Continuing Directors then on the board.
4. The term "Continuing Director Quorum" shall mean two-thirds of
the Continuing Directors capable of exercising the powers conferred on them.
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ARTICLE VI
EVALUATION OF BUSINESS COMBINATIONS
In addition to any other considerations which the board of directors may
lawfully take into account in determining whether to take or to refrain from
taking any corporate action on any matter, including making or declining to make
any recommendation to the stockholders of the corporation, the board of
directors may in its discretion consider both the short-term and long-term best
interests of the corporation (including the possibility that these interests may
be best served by the continued independence of the corporation), taking into
account, and weighing as the directors deem appropriate, the social and economic
effects of such action on present and future employees, suppliers, customers of
the corporation and its subsidiaries (including account holders and borrowers of
any of the corporation's subsidiaries), the effect upon communities in which
offices or other facilities of the corporation are located and any other factors
the directors consider pertinent.
ARTICLE VII
STOCKHOLDER NOMINATIONS AND PROPOSALS
SECTION 7.01. NOTICE OF NOMINATIONS AND PROPOSALS. Nominations for the
election of directors and proposals for any new business to be taken up at any
annual or special meeting of stockholders may be made by the board of directors
of the corporation or by any stockholder of the corporation entitled to vote
generally in the election of directors. In order for a stockholder of the
corporation to make any such nominations and/or proposals, he or she shall give
notice thereof in writing, delivered or mailed by first class United States
mail, postage prepaid, to the Secretary of the corporation not less than thirty
(30) days nor more than sixty (60) days prior to any such meeting; provided,
however, that if less than thirty-one (31) days' notice of the meeting is given
to stockholders, such written notice shall be delivered or mailed, as
prescribed, to the Secretary of the corporation not later than the close of the
tenth day following the day on which notice of the meeting was mailed to
stockholders.
SECTION 7.02. ADDITIONAL INFORMATION. Each such notice given by a
stockholder with respect to nominations for election of directors shall set
forth (i) the name, age, business address and, if known, residence address of
each nominee proposed in such notice, (ii) the principal occupation or
employment of each such nominees, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, (iv) such other
information as would be required to be included in a proxy statement soliciting
proxies for the election of the proposed nominee pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended, including, without limitation,
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director, if elected, and (v) as to the stockholder giving
such notice (a) his name and address as they appear on the corporation's books
and (b) the class and number of shares of the corporation which are beneficially
owned by such stockholder. In addition, the stockholder making
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such nomination shall promptly provide any other information reasonably
requested by the corporation. Each such notice given by a stockholder to the
Secretary with respect to business proposals to bring before a meeting shall set
forth in writing as to each matter: (i) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting; (ii) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business; (iii) the class
and number of shares of the corporation which are beneficially owned by the
stockholder; and (iv) any material interest of the stockholder in such business.
Notwithstanding anything in these Articles to the contrary, no business shall be
conducted at the meeting except in accordance with the procedures set forth in
this Article.
SECTION 7.03. ACCEPTANCE OF NOMINATIONS AND PROPOSALS. The Chairman of the
annual or special meeting of stockholders may, if the facts warrant, determine
and declare to the meeting that a nomination or proposal was not made in
accordance with the foregoing procedure, and, if the Chairman should so
determine, the Chairman shall so declare to the meeting and the defective
nomination or proposal shall be disregarded and laid over for action at the next
succeeding adjourned, special or annual meeting of the stockholders taking place
thirty (30) days or more thereafter. This provision shall not require the
holding of any adjourned or special meeting of stockholders for the purpose of
considering such defective nomination or proposal.
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.
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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.
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
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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.
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
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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.
ARTICLE IX
REGISTERED AGENT
The address of this corporation's principal office in the State of Indiana
is 819 Main Street, Tell City, Indiana 47586. The name of its registered agent
at such address is Carl D. Smith.
ARTICLE X
CONDUCT OF AFFAIRS OF CORPORATION
SECTION 10.01. CONTROL SHARE ACQUISITIONS CHAPTER OF THE INDIANA BUSINESS
CORPORATIONS LAW. The provisions of the Control Share Acquisitions Chapter of
the Indiana Business Corporations Law, codified at Indiana Code (S)23-1-42, as
amended from time to time, shall not apply to Control Share Acquisitions of
shares of the corporation.
SECTION 10.02. BUSINESS COMBINATIONS CHAPTER OF THE INDIANA BUSINESS
CORPORATIONS LAW. The corporation elects not to be subject to or be governed by
the provisions of the Business Combinations Chapter of the Indiana Business
Corporations Law, codified at Indiana Code (S)23-1-43, as amended from time to
time.
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ARTICLE XI
AMENDMENT AND REPEAL OF ARTICLES OF INCORPORATION
This corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation in the manner now or
hereafter prescribed by statute. Notwithstanding the foregoing, (i) the approval
of at least a two-thirds (2/3) majority of the directors then in office (or such
greater proportion of directors and stockholders as may otherwise be required
pursuant to any specific provision of these Articles of Incorporation) shall be
required to amend, alter, repeal or change any provision of these Articles of
Incorporation and (ii) the provisions set forth in Section 3.04 of Article III,
Sections 4.02, 4.05 and 4.06 of Article IV, and in Articles V, VI, VII, VIII, X
and this Article XI may not be repealed, altered, amended or rescinded in any
respect unless the same is approved by the affirmative vote of the holders of
not less than two-thirds of the outstanding shares of capital stock of the
corporation entitled to vote generally in the election of directors (considered
for this purpose as a single class) cast at a meeting of the stockholders called
for that purpose (provided that notice of such proposed adoption, repeal,
alteration, amendment or rescission is included in the notice of such meeting).
ARTICLE XII
AMENDMENT AND REPEAL OF BYLAWS
Bylaws may be adopted, amended or repealed by a resolution adopted by a
two-thirds (2/3) majority of the directors then in office.
ARTICLE XIII
INCORPORATOR
The name and address of the incorporator of the corporation is as follows:
Carl D. Smith
819 Main Street
Tell City, Indiana 47586
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EXHIBIT 3.2
BYLAWS OF PCB HOLDING COMPANY
<PAGE>
BYLAWS
OF
PCB HOLDING COMPANY
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. PCB Holding Company (hereinafter referred to
as the "Corporation") shall at all times maintain a principal office in the
State of Indiana, which, except as otherwise determined by the Board of
Directors of the Corporation (hereinafter referred to as the "Board"), shall be
in the City of Tell City, County of Perry.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places within or without the State of Indiana as the Board shall from time
to time designate or the business of the Corporation shall require.
ARTICLE II
STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
stockholders shall be held at such places within or without the State of Indiana
as may from time to time be designated by the Board and specified in the notice
of meeting.
SECTION 2. ANNUAL MEETING. A meeting of the stockholders of the Corporation
for the election of directors and for the transaction of any other business of
the Corporation shall be held annually at 10:00 a.m. on the third Thursday of
April, if not a legal holiday, and if a legal holiday, then on the next day
following such day which is not a legal holiday, or at such other date and time
as the Board may determine and specify in the notice of the meeting.
SECTION 3. SPECIAL MEETINGS. A special meeting of the stockholders may only
be called by those persons authorized to do so in the Corporation's Articles of
Incorporation. Business transacted at any special meeting of the stockholders
shall be confined to the purpose or purposes stated in the notice of such
meeting.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings of the
stockholders shall be conducted in accordance with Indiana law unless otherwise
prescribed by these Bylaws. The Chairman, or in the absence of the Chairman,
the highest ranking officer of the Corporation who is
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present, or such other person as the Board shall have designated, shall call to
order any meeting of the stockholders and act as chairman of the meeting. The
Secretary of the Corporation, if present at the meeting, shall be the secretary
of the meeting. In the absence of the Secretary of the Corporation, the
secretary of the meeting shall be such person as the chairman of the meeting
shall appoint. The chairman of any meeting of the stockholders, unless otherwise
prescribed by law or regulation or unless the Chairman has otherwise determined,
shall determine the order of business and the procedure at the meeting.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the date, time and
place of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting of the stockholders is called shall be delivered
no fewer than ten (10) nor more than sixty (60) days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman,
the Secretary or the directors requesting the meeting to each stockholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
given when deposited in the United States mail, postage prepaid, addressed to
the stockholder at his address as it appears on the stock transfer books or
records of the Corporation as of the record date prescribed in Section 6 of this
Article II. When any meeting of the stockholders, either annual or special, is
adjourned for more than thirty (30) days or if, after adjournment, a new record
date is fixed for the adjourned meeting, notice of the adjourned meeting shall
be given as in the case of an original meeting. It shall not be necessary to
give any notice of the date, time and place of any other adjourned meeting of
the stockholders, other than an announcement at the meeting at which such
adjournment is taken.
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of the stockholders
or any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose under Indiana law, the Board may fix, in advance, a date as the
record date for any such determination of stockholders. Such date shall not be
less than ten (10) days and not more than the seventy (70) days before the
meeting or action requiring a determination of stockholders.
SECTION 7. VOTING LISTS. The Secretary of the Corporation, or other officer
or agent of the Corporation having charge of the stock transfer books for shares
of the capital stock of the Corporation, shall prepare and make, at least five
(5) business days before each meeting of the stockholders, a complete list of
the stockholders entitled to vote at such meeting, or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of shares
held by each stockholder. Such list shall be open to the examination of any
stockholder entitled to vote at the meeting, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least five (5)
business days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or at the Corporation's principal office. Such list shall also be
produced and kept open at the time and place of the meeting during the whole
time thereof and shall be subject to the inspection of any stockholder present
at the meeting. The stock transfer books shall be the only evidence as to who
are the stockholders entitled to examine the stock transfer books, or to vote in
person or by proxy at any meeting of stockholders.
2
<PAGE>
SECTION 8. QUORUM. A majority of the outstanding shares of the Corporation
entitled to vote at a meeting of the stockholders, represented in person or by
proxy, shall constitute a quorum at a meeting. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice
except as otherwise provided in Section 5 of this Article II. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted at the meeting as originally called. The stockholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
SECTION 9. PROXIES. At any meeting of the stockholders, every stockholder
having the right to vote shall be entitled to vote in person, or by proxy
appointed by an instrument in writing and complying with the requirements of
Indiana law.
SECTION 10. VOTING BY THE CORPORATION. Neither treasury shares of its own
capital stock held by the Corporation, nor shares held by another corporation, a
majority of the shares of which entitled to vote for the election of directors
are held by the Corporation, shall be entitled to vote or be counted for quorum
purposes at any meeting of the stockholders; provided, however, that the
Corporation may vote shares of its capital stock held by it, or by any such
other corporation, if such shares of capital stock are held by the Corporation
or such other corporation in a fiduciary capacity.
SECTION 11. INSPECTORS OF ELECTION. The Board shall, in advance of any
meeting of stockholders, appoint one or three persons as inspectors of election,
to act at the meeting or any adjournment thereof and make a written report
thereof.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board except as may be otherwise provided by
law or the Articles of Incorporation. The Board shall elect from among its
members a Chairman, and may elect one (1) or more Vice Chairmen of the Board.
The Chairman, or in his absence the Vice Chairman, shall preside at all meetings
of the Board.
SECTION 2. NUMBER. The number of directors of the Corporation shall be
fixed from time to time exclusively by the Board by resolution adopted by a
majority of the total number of the Corporation's directors.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board shall be held
without other notice than this Bylaw immediately after, and at the same place
as, the annual meeting of the stockholders or at such other place as may be
designated by the Board. Additional meetings shall
3
<PAGE>
be held at such time as the Board shall fix at such places within or without the
State of Indiana as shall be fixed by the Board. No call shall be required for
regular meetings for which the time and place has been fixed.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board may be called by
or at the request of the Chairman or the Vice Chairman, or in the absence or
disability of both of them, a majority of the remaining directors. The persons
authorized to call special meetings of the Board may fix any place as the place
for holding any special meeting of the Board called by such persons.
SECTION 5. PARTICIPATION IN MEETINGS. Members of the Board may participate
in regular or special meetings by means of conference telephone or similar
communications equipment by which all persons participating in the meeting can
communicate with each other. A director participating in a meeting by this
means is deemed to be present in person at the meeting.
SECTION 6. NOTICE. The persons authorized to call special meetings of the
Board shall cause the Secretary of the Corporation to give written or oral
notice of the meeting, specifying the time and place of the meeting, to each
director, either personally, by mailing, or by telegram, at least two (2) days
in advance of the meeting. Any director may waive notice of any meeting by a
writing filed with the Secretary. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except in the event a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the Board need be specified in the notice or waiver of notice of such
meeting.
SECTION 7. QUORUM. A majority of the number of directors fixed pursuant to
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the Board, but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time. Notice of any adjourned meeting shall be given in the same manner
as prescribed by Section 7 of this Article III.
SECTION 8. MANNER OF ACTING. Unless otherwise prescribed in the Articles of
Incorporation or these Bylaws, the act of the majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken by the Board at a meeting may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
directors.
SECTION 10. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the Corporation addressed to the Chairman
or the Vice Chairman. Unless otherwise specified therein, such resignation
shall take effect upon receipt thereof.
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SECTION 11. VACANCIES. Any vacancy occurring in the Board may be filled in
accordance with the Articles of Incorporation.
SECTION 12. COMPENSATION. Directors, as such, may receive pursuant to
resolution of the Board, fixed fees and other compensation for their services as
directors, including their services as members of committees of the Board.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. The Board, by resolution adopted by a majority of
the Board, may designate the Chairman, the President and one (1) or more of the
other directors to constitute an Executive Committee. The designation of any
committee pursuant to this Article IV and the delegation of authority thereto
shall not operate to relieve the Board, or any director, of any responsibility
imposed by law or regulation.
SECTION 2. AUTHORITY. The Executive Committee, when the Board is not in
session, shall have and may exercise all of the authority of the Board except to
the extent, if any, that such authority shall be limited by the resolution
appointing the Executive Committee, or as otherwise expressly provided by law,
the Articles of Incorporation or these Bylaws.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this Article
IV, each member of the Executive Committee shall hold office until the next
regular annual meeting of the Board following his designation and until a
successor is designated as a member of the Executive Committee.
SECTION 4. MEETINGS. Regular meetings of the Executive Committee may be
held without notice at such times and places as the Executive Committee may fix
from time to time. Special meetings of the Executive Committee may be called by
the Chairman or the President, or in the absence or disability of both of them,
by a majority of the remaining members of the Executive Committee upon not less
than one (1) day's notice stating the place, date and hour of the meeting, which
notice may be written or oral. Any member of the Executive Committee may waive
notice of any meeting and no notice of any meeting need be given to any member
thereof who attends in person. The notice of a meeting of the Executive
Committee need not state the business proposed to be transacted at the meetings.
Regular or special meetings may be held my means of conference telephone or
similar communications equipment by which all persons participating in the
meeting can communicate with each other.
5
<PAGE>
SECTION 5. QUORUM. A majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the Executive Committee must be authorized by the
affirmative vote of a majority of the members present as a meeting at which a
quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken by the Executive Committee at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the members of the Executive Committee.
SECTION 7. VACANCIES. Any vacancy in the Executive Committee may be filled
by a resolution adopted by a majority of the Board.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the Executive Committee
may be removed at any time with or without cause by resolution adopted by a
majority of the Board. Any member of the Executive Committee may resign from
the Executive Committee at any time by giving written notice to the Chairman or
the President. Unless otherwise specified thereon, such resignation shall take
effect upon receipt. The acceptance of such resignation shall not be necessary
to make it effective.
SECTION 9. PROCEDURE. The Chairman shall be presiding officer of the
Executive Committee, or, in his absence or disability, the President, or in the
absence or disability of both of them, such other persons as may be elected by a
majority of the members present. The Executive Committee may fix its own rules
of procedure which shall not be inconsistent with these bylaws. It shall keep
regular minutes of its proceedings and report the same to the Board for its
information at the meeting thereof held next after the proceedings shall have
been taken.
SECTION 10. OTHER COMMITTEES. The Board may by resolution establish an
audit committee or other committees composed of directors as they may determine
to be necessary or appropriate for the conduct of the business of the
Corporation and may prescribe the duties, constitution and procedures thereof.
ARTICLE V
OFFICERS
SECTION 1. POSITIONS. The officers of the Corporation shall consist of a
President, one (1) or more Vice Presidents, a Secretary and a Treasurer, each of
whom shall be elected by the Board. The same individual may simultaneously hold
more than one office in the corporation. The Board may designate one (1) or
more Vice Presidents as Executive Vice President or Senior Vice President. The
Board may also elect or authorize the appointment of such other officers as the
business of the Corporation may require. The officers shall have such authority
and perform such duties as the
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<PAGE>
Board may from time to time authorize or determine. In the absence of action by
the Board, the officers shall have such powers and duties as generally pertain
to their respective offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected annually at the first meeting of the Board held after each
annual meeting of the stockholders. If the election of officers is not held at
such meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until his successor shall have been duly elected and
qualified or until his death, resignation or removal in the manner hereinafter
provided. Election or appointment of an officer, employee or agent shall not by
itself create any contractual rights. The Board may authorize the Corporation
to enter into an employment contact with any officer, but no contract shall
impair the right of the Board to remove any officer at any time in accordance
with Section 8 of this Article V.
SECTION 3. PRESIDENT. The President shall have the authority and the duty
to manage the affairs of the Corporation and shall have such other powers and
perform such other duties as are delegated to him by the Board of Directors or
as are incidental to his office. The President shall be a director.
SECTION 4. VICE PRESIDENT. The Vice President or Vice Presidents, if any,
shall perform the duties of the President in his absence or during his
disability to act. In addition, the Vice Presidents shall perform the duties
and exercise the powers usually incident to their respective offices and/or such
other duties and powers as may be properly assigned to them from time to time by
the Board of Directors or the President.
SECTION 5. SECRETARY. The Secretary shall have custody of the minutes and
records of the Corporation. He shall keep the minutes of all meetings of the
stockholders and of the Board of Directors, shall give such notice as may be
required for all such meetings and shall have such other powers and perform such
other duties as are delegated to him by the Board of Directors or the President
or as are incidental to his office.
SECTION 6. TREASURER. The Treasurer shall keep correct and complete books
of account in accordance with the accounting methods adopted by the Board of
Directors, showing the financial condition of the Corporation and the results of
its operations. He shall have custody of all monies, securities, and other
certificates evidencing intangible personal property belonging to the
Corporation. He shall upon request furnish statements of the current financial
condition and the current results of operations of the Corporation and he shall
have such other powers and perform such other duties as are delegated to him by
the Board of Directors or the President or as are incidental to his office.
SECTION 7. OTHER OFFICES. All other officers shall have such powers and
perform such duties as are delegated to them by the Board of Directors or the
President.
7
<PAGE>
SECTION 8. REMOVAL. Any officer may be removed by the Board whenever in its
judgment the best interests of the Corporation will be served thereby.
SECTION 9. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by a majority
vote of the Board for the unexpired portion of the term.
SECTION 10. REMUNERATION. The remuneration of the officers shall be fixed
from time to time by the Board.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by applicable law, the
Articles of Incorporation or these Bylaws, the Board may authorize any officer,
employee or agent of the Corporation to enter into any contract or execute any
deliver any instrument in the name of and on behalf of the Corporation. Such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the Corporation
and no evidence of indebtedness shall be issued in its name unless authorized by
the Board. Such authority may be general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by one (1) or more officers, employees or agents
of the Corporation in such manner as shall from time to time be determined by
the Board.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in any
duty authorized depositories as the Board may select.
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the Corporation shall be in such form as shall be determined by
the Board. Such certificates shall be signed by the President or any other
officer of the Corporation authorized by the Board, attested by the Secretary or
an Assistant Secretary, and sealed with the corporate seal or a facsimile
thereof. The signatures of such officers upon a certificate may be facsimiles
if the certificate is manually signed
8
<PAGE>
on behalf of a transfer agent or a registrar other than the Corporation itself
or one of its employees. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the number of shares issued and date
of issue, shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except that in the
case of a lost, stolen or destroyed certificate, a new certificate may be issued
therefor upon such terms and indemnity to the Corporation as the Board may
prescribe as sufficient to indemnify the Corporation against any claim that may
be made against it on account of such loss, theft or destruction.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the
Corporation shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney thereunto duly authorized by power of attorney duly executed and filed
with the Corporation. Such transfer shall be made only on surrender for
cancellation of the certificate for such shares. The person in whose name
shares of capital stock stand on the books of the Corporation shall be deemed by
the Corporation to be the owner thereof for all purposes.
ARTICLE IX
DIVIDENDS
Subject to applicable law, the Articles of Incorporation or these Bylaws, the
Board may, from time to time, declare, and the Corporation may pay, dividends on
the outstanding shares of capital stock of the Corporation.
ARTICLE X
SECURITIES OF OTHER CORPORATIONS
Unless otherwise ordered by the Board, the President shall have full power
and authority on behalf of the Corporation to purchase, sell, transfer, encumber
or vote any and all securities of any other corporation owned by the
Corporation, and may execute and deliver such documents as may be necessary to
effectuate such purchase, sale, transfer, encumbrance or vote. The Board may,
from time to time, confer like powers upon any other person or persons.
9
<PAGE>
ARTICLE XI
FISCAL YEAR, ANNUAL AUDIT
The fiscal year of the Corporation shall end on the 31st day of December of
each year. The Corporation shall be subject to an annual audit as of the end of
its fiscal year by independent public accountants appointed by and responsible
to the Board.
ARTICLE XII
CORPORATE SEAL
The corporate seal of the Corporation, if any, shall be in such form as the
Board shall prescribe.
ARTICLE XIII
AMENDMENTS
These Bylaws may be adopted, amended or repealed by a resolution adopted by a
two-thirds (2/3) majority of the directors then in office.
10
<PAGE>
EXHIBIT 4
FORM OF CERTIFICATE FOR COMMON STOCK
<PAGE>
PCB HOLDING COMPANY
INCORPORATED UNDER THE LAWS OF THE STATE OF INDIANA
COMMON STOCK CUSIP
See Reverse For
Certain Definitions
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE,
OF
PCB Holding Company, a stock corporation incorporated under the laws of the
State of Indiana. The shares represented by this Certificate are transferable
only on the stock transfer books of the Corporation by the holder of record
hereof, or by his duly authorized attorney or legal representative, upon the
surrender of this Certificate properly endorsed. THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE NOT A DEPOSIT OR ACCOUNT AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. The Certificate
and shares represented hereby are issued and shall be held subject to all
provisions of the Articles of Incorporation and Bylaws of the Corporation and
any amendments thereto (copies of which are on file with the Transfer Agent), to
all of which provisions the holder by acceptance hereof, assents.
IN WITNESS WHEREOF, PCB Holding Company has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
CORPORATE SECRETARY PRESIDENT
TRANSFER AGENT
<PAGE>
PCB Holding Company
The shares represented by this Certificate are issued subject to all the
provisions of the Articles of Incorporation and Bylaws of PCB Holding Company
("Corporation") as from time to time amended (copies of which are on file with
the Transfer Agent and at the principal executive offices of the Corporation).
The shares represented by this Certificate are subject to a limitation
contained in the Articles of Incorporation to the effect 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 outstanding shares of common stock (the "Limit") be entitled or permitted to
vote in respect of the shares held in excess of the Limit, unless a majority of
the whole Board of Directors, as defined, shall have by resolution granted in
advance such entitlement or permission.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of preferred stock in
series and to fix and state the powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted on
any matter. The affirmative vote of the holders of at least 80% of the voting
stock of the Corporation, voting together as a single class, shall be required
to approve certain business combinations and other transactions, pursuant to the
Articles of Incorporation. The affirmative vote of the holders of at least two-
thirds of the voting stock of the Corporation, voting together as a single
class, shall be required to amend certain provisions of the Articles of
Incorporation.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as through they were written out in full
according to applicable laws or regulations.
TEN COM -as tenants in common
TEN ENT -as tenants by the entireties
JT TEN -as joint tenants with right of survivorship and
not as tenants in common
UNIF TRAN MIN ACT -_______Custodian_______ under Uniform Transfer
(Cust) (Minor)
to Minors Act _________
(State)
Additional abbreviations may also be used though not in the above list
For value received, ___________________________________________ hereby
sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
________________________________________________________________________________
________________________________________________________________________________
Please print or typewrite name and address, including postal zip code, of
assignee
________________________________________________________________________________
_________________________________________________________________________ shares
of the Common Stock evidenced by this Certificate, and do hereby irrevocably
constitute and appoint ________________________________________________
Attorney, to transfer the said shares on the books of the within named
Corporation, with full power of substitution.
Dated _________________
__________________________________
Signature
__________________________________
Signature
NOTICE: The signature to this assignment must
correspond with the name as written upon the face
of the Certificate in every particular, without
alteration or enlargement or any change whatever.
<PAGE>
EXHIBIT 5
OPINION OF BREYER & AGUGGIA REGARDING
LEGALITY OF SECURITIES REGISTERED
<PAGE>
March 18, 1998
Board of Directors
PCB Holding Company
819 Main Street
Tell City, Indiana 47586
RE: PCB Holding Company
Registration Statement on Form SB-2
Gentlemen:
You have requested our opinion as special counsel for PCB Holding Company,
an Indiana corporation, in connection with the above-referenced registration
statement filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended.
In rendering this opinion, we understand that the common stock of PCB
Holding Company will be offered and sold in the manner described in the
Prospectus, which is part of the Registration Statement. We have examined such
records and documents and made such examination as we have deemed relevant in
connection with this opinion.
Based upon the foregoing, it is our opinion that the shares of common stock
of PCB Holding Company will upon issuance be legally issued, fully paid and
nonassessable.
This opinion is furnished for use as an exhibit to the Registration
Statement. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal and
Tax Opinions."
Very truly yours,
/s/ Breyer & Aguggia
BREYER & AGUGGIA
Washington, D.C.
<PAGE>
EXHIBIT 8.1
FORM OF FERDERAL TAX OPINION OF BREYER & AGUGGIA
<PAGE>
___________, 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 __________, 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 __, 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
______________, 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 association. 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
______________, 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
______________, 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
______________, 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
______________, 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. (S)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
______________, 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 the opinion of Capital Resources Group, Inc. dated
March __, 1998 to the effect that the
<PAGE>
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
______________, 1998
Page 8
subscription rights have 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,
BREYER & AGUGGIA
<PAGE>
EXHIBIT 8.2
FORM OF STATE TAX OPINION
OF MONROE SHINE & CO., INC.
<PAGE>
_________,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 a parent Holding Company formed a 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; the affidavit of representations
dated ___________________, 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 on March __, 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 ________________, 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 know 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 share 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 Officer 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, 1997, 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,
Monroe Shine & Co., Inc.
<PAGE>
EXHIBIT 8.3
OPINION OF CAPITAL RESOURCES GROUP, INC.
AS TO THE VALUE OF SUBSCRIPTION RIGHTS
<PAGE>
EXHIBIT 8.3
Capital Resources Group, Inc.
1211 Connecticut Ave., N.W. * Suite 200 * Washington, DC 20036 * Tel (202) 466-
5685 * Fax (2020) 466-5695
March 18, 1998
Board of Directors
Peoples Building and Loan Association
819 Main Street
Tell City, IN 47586
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Conversion adopted by the Board of Directors of
Peoples Building and Loan Association ("Association") on January 14, 1998.
It is our understanding that, pursuant to Office of Thrift Supervision
regulations, subscription rights are non-transferable. Persons violating such
prohibition may lose their right to purchase stock in the Conversion and be
subject to other possible sanctions.
Because the Subscription Rights to purchase shares of common stock in the
Association to be issued to the depositors of the Association and to other
members of the Association will be acquired by such recipients without cost,
will be non-transferable and of short duration, and will afford the recipients
the right only to purchase shares of common stock at the same price as will be
paid by members of the general public in a Community Offering, we believe that:
(1) the Subscription Rights will have no ascertainable fair market value and,
(2) the price at which the Subscription Rights are exercisable will not be
more or less than the fair market value of the shares on the date of the
exercise.
Very truly yours,
CAPITAL RESOURCES GROUP, INC.
/s/ Capital Resources Group, Inc.
MBS/epw
<PAGE>
EXHIBIT 10.1
PROPOSED FORM OF EMPLOYMENT AGREEMENT
FOR SENIOR OFFICERS
<PAGE>
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
President and Chief Executive Officer 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.
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,
<PAGE>
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
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.
2
<PAGE>
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 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
3
<PAGE>
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.
(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 (S)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. In addition,
EXECUTIVE shall be entitled to receive the value of employer contributions
4
<PAGE>
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. Such coverage and payments shall cease upon the expiration
of thirty-six (36) months.
(e) Upon the occurrence of a Change in Control, EXECUTIVE shall be
entitled to receive benefits due him under, or contributed by the COMPANY or the
BANK on his behalf, pursuant to any retirement, incentive, profit sharing,
bonus, performance, disability or other employee benefit plan maintained by the
BANK or the COMPANY on EXECUTIVE's behalf to the extent that such benefits are
not otherwise paid to EXECUTIVE upon a Change in Control.
(f) 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 (S)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 (S)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 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
5
<PAGE>
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, 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.
6
<PAGE>
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 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.
(S)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
7
<PAGE>
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.
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
8
<PAGE>
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.
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.
9
<PAGE>
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.
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, the provisions of such law or regulation shall prevail.
10
<PAGE>
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.
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.
11
<PAGE>
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 16
Letter of Former Accountants
<PAGE>
Exhibit 16
March 17, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the statements made by Peoples Building and Loan Association (copy
attached), which we understand will be filed with the Commission as part of the
Company's Form SB-2. We agree with the statements concerning our Firm in such
Form SB-2.
Very truly yours,
/s/ Umbach & Associates
UMBACH & ASSOCIATES
Attachment
<PAGE>
EXHIBIT 21
Subsidiaries of PCB Holding Company
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
Parent
- ------
PCB Holding Company
<TABLE>
<CAPTION>
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
- ---------------- ------------ ----------------------
<S> <C> <C>
Peoples Building and Loan 100% United States
Association, F.A. (1)
Peoples Building and Loan Association 100% Indiana
Service Corporation (2)
</TABLE>
_____________
(1) Upon consummation of the Conversion, Peoples Building and Loan Association,
F.A. will become a wholly-owned subsidiary of the Registrant.
(2) Wholly owned by Peoples Building and Loan Association, F.A.
<PAGE>
EXHIBIT 23.1
Consent of Monroe Shine & Co., Inc.
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this 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 this Registration Statement.
We also consent to the filing of the form 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
March 18, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF BREYER & AGUGGIA AS TO ITS FEDERAL TAX OPINION
<PAGE>
March 18, 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 23.4
CONSENT OF CAPITAL RESOURCES GROUP, INC.
<PAGE>
EXHIBIT 23.4
Capital Resources Group, Inc.
1211 Connecticut Ave., N.W. * Suite 200 * Washington, DC 20036 * Tel (202) 466-
5685* Fax (202) 466-5695
March 18, 1998
Board of Directors
Peoples Building and Loan Association
819 Main Street
Tell City, IN 47586
Dear Board Members:
We hereby consent to the use of our firm's name, Capital Resources Group,
Inc. ("CRG") in the Application for Approval of Conversion filed by Peoples
Building and Loan Association for permission to convert to a capital stock
savings bank and references to the Conversion Valuation Appraisal Report
("Report") and the valuation of Peoples Building and Loan Association provided
by CRG. We also consent to the use of our firm's name and references to our
Report in the Form SB-2 Registration Statement filed by PCB Holding Company.
Very truly yours,
/s/ Michael B. Seiler
Michael B. Seiler
Senior Vice President
MBS/epw
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF PEOPLES BUILDING AND LOAN ASSOCIATION FOR THE YEARS ENDED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 18,028
<INT-BEARING-DEPOSITS> 733,720
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,318,817
<INVESTMENTS-CARRYING> 20,944
<INVESTMENTS-MARKET> 20,696
<LOANS> 19,346,326
<ALLOWANCE> 50,802
<TOTAL-ASSETS> 21,988,681
<DEPOSITS> 19,846,117
<SHORT-TERM> 0
<LIABILITIES-OTHER> 44,871
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 2,091,519
<TOTAL-LIABILITIES-AND-EQUITY> 21,988,681
<INTEREST-LOAN> 1,493,551
<INTEREST-INVEST> 100,907
<INTEREST-OTHER> 51,443
<INTEREST-TOTAL> 1,645,901
<INTEREST-DEPOSIT> 1,091,908
<INTEREST-EXPENSE> 1,106,619
<INTEREST-INCOME-NET> 539,282
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 447,953
<INCOME-PRETAX> 98,544
<INCOME-PRE-EXTRAORDINARY> 98,544
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,983
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.43
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 51,729
<CHARGE-OFFS> 927
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 50,802
<ALLOWANCE-DOMESTIC> 50,802
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99.3
APPRAISAL AGREEMENT WITH CAPITAL RESOURCES GROUP, INC.
<PAGE>
CAPITAL RESOURCES GROUP, INC.
1211 Connecticut Ave., N.W. * Suite 200 Washington, DC 20036 * Tel (202) 466-
5685 * Fax (202) 466-5695
November 18, 1997
Mr. Carl Smith
President and Chief Executive Officer
People's Building & Loan Association
819 Main Street
Tell City, Indiana 47586
Dear Mr. Smith:
This letter sets forth the agreement between Peoples Building & Loan
Association (the "Association") and Capital Resources Group, Inc. ("CRG"),
whereby the Association has engaged CRG to determine the estimated pro forma
market value of the shares of common stock that are to be issued and sold by the
Association in conjunction with its conversion into a stock savings institution
(the "Conversion") and to prepare the regulatory business plan for the formation
of the new holding company.
CRG agrees to deliver the valuation, in writing, to the Association at the
above address on or before a mutually-agreed upon date. Further, we agree to
discuss with the board of directors the valuation, the methodology employed and
other relevant factors of the appraisal. In addition, CRG agrees to undertake
all the necessary filing requirements with respect to the valuation appraisal
report with the Office of Thrift Supervision ("OTS") and Securities and Exchange
Commission ("SEC"). It is understood that the services of CRG under this
agreement shall be limited as described above. CRG is an affiliate of Capital
Resources, Inc. which is offering marketing agent services separately.
The Association agrees to pay CRG for its services to prepare the appraisal
and the regulatory business plan and to reimburse CRG for certain expenses
necessary and incident to the completion of the appraisal. Professional fees
for our services are $15,000 for the appraisal including any updates and $5,000
for the regulatory holding company business plan. Payment of the appraisal and
business plan fees shall be made according to the following schedule:
O $5,000 upon execution of this letter of agreement;
O $10,000 upon delivery of the completed appraisal report; and
O $5,000 upon delivery of the completed regulatory business plan.
Reimbursement of expenses for travel, communications, reproduction, data and
computer time shall be paid to CRG as incurred and billed. CRG will make every
attempt to hold these costs to a minimum, but in no event will they exceed
$2,000 without the prior approval of the Association.
<PAGE>
CAPITAL RESOURCES GROUP, INC.
Mr. Carl Smith
November 18, 1997
Page 2
In the event the Association shall, for any reason, discontinue its
conversion to a stock savings institution prior to the filing of the original
appraisal and business plan with the OTS, the Association agrees to compensate
CRG according to CRG's standard billing rates for consulting services based on
accumulated and verifiable time expenses, not to exceed $20,000 plus
reimbursable expenses.
If, during the course of the Association's Conversion, unforeseen events
occur so as to materially change the nature of the work content of the appraisal
services described in this contract, the terms of said contract shall be subject
to renegotiation by the Association and CRG. Such unforeseen events shall
include, but not be limited to, major changes in OTS' procedures as they relate
to conversion regulations, appraisal guidelines or processing procedures as they
relate to conversions, major changes in management, operating policies or
financial condition, and excessive delays in completing the transaction and/or
suspension of processing of conversions such that completion of the proposed
Conversion requires the preparation by CRG of a new appraisal report which
differs substantially from the appraisal prepared by CRG.
The Association and CRG hereby agree to the following:
1. The Association agrees to supply to CRG such information with respect
to its business and financial condition as CRG may reasonably request in order
to provide the aforesaid valuation. Such information heretofore or hereafter
supplied or made available to CRG shall include without limitation: annual
financial statements, periodic regulatory filings and material agreements, debt
instruments, commitments and contingencies, potential gains/losses and corporate
books and records.
2. The Association hereby represents and warrants to CRG that any
information provided to CRG does not and will not, to the best of the
Association's knowledge, at all relevant times, contain any untrue statement of
a material fact or fail to state a material fact necessary to make the
statements therein not false or misleading.
3. (a) The Association agrees that it will indemnify and hold harmless
CRG and any affiliates of CRG who act for or on behalf of CRG in connection with
the services called for under this agreement, from and against any and all
losses, claims, damages and liabilities (including, but not limited to, all
losses and expenses in connection with claims under the federal securities laws)
caused by or arising out of any untrue statement of a material fact contained in
the information supplied by the Association to CRG or by an omission to state a
material fact in the information so provided that is required to be stated
therein or necessary to make the statements not misleading.
(b) The Association will not be responsible for any such losses,
claims, damages and liabilities if CRG is determined to be negligent or
otherwise at fault.
<PAGE>
CAPITAL RESOURCES GROUP, INC.
Mr. Carl Smith
November 18, 1997
Page 3
(c) CRG will not be responsible for any such losses, claims, damages
and liabilities to the extent that it reasonably relied upon information
furnished by the Association whether or not the Association is determined to be
negligent or otherwise at fault.
(d) Should CRG incur legal expenses in defending any legal action
challenging the valuation where CRG is not negligent or otherwise at fault or is
found by a court of law to be not negligent or otherwise at fault, the
Association will indemnify CRG for all such expenses.
The Association and CRG are not affiliated, and neither the Association nor
CRG has an economic interest in, or is held in common with, the other and has
not derived a significant portion of its gross revenues, receipts or net income
for any period from transactions with the other.
Please acknowledge your agreement to the foregoing by signing as indicated
below and returning to CRG a signed copy of this letter.
Sincerely,
CAPITAL RESOURCES GROUP, INC.
/s/ David P. Rochester
David P. Rochester
Chairman and Chief
Executive Officer
Agreed To and Accepted By:
PEOPLES BUILDING & LOAN ASSOCIATION
/s/ Carl Smith 18/9/97
- ---------------------------------
signed date
/s/ Carl Smith President
- ---------------------------------
print name and title
<PAGE>
EXHIBIT 99.5
PROXY STATEMENT FOR SPECIAL MEETING OF MEMBERS OF
PEOPLES BUILDING AND LOAN ASSOCIATION, F.A.
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PEOPLES BUILDING AND LOAN ASSOCIATION, F.A.
819 MAIN STREET
TELL CITY, INDIANA 47586
(812) 547-7094
NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD ON _____________, 1998
Notice is hereby given that a special meeting ("Special Meeting") of
members of Peoples Building and Loan Association, F.A. ("Association") will be
held at the Association's main office at 819 Main Street, Tell City, Indiana, on
_____________, _____________, 1998, at 2:00 p.m., local time. Business to be
taken up at the Special Meeting shall be:
(1) To approve a Plan of Conversion adopted by the Board of Directors on
January 14, 1998, and amended on March 16, 1998, to convert the Association from
a mutual savings association to a federally chartered capital stock savings
bank, to be held as a wholly-owned subsidiary of a new holding company, PCB
Holding Company, including the adoption of a Federal Stock Charter and Bylaws
for the Association, pursuant to the laws of the United States and the rules and
regulations of the Office of Thrift Supervision; and
(2) To consider and vote upon any other matters that may lawfully come
before the Special Meeting.
Note: As of the date of mailing of this Notice, the Board of Directors is
not aware of any other matters that may come before the Special Meeting.
The members entitled to vote at the Special Meeting shall be those members
of the Association at the close of business on __________, 1998, who continue as
members until the Special Meeting, and should the Special Meeting be, from time
to time, adjourned to a later time, until the final adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
CLARKE A. BLACKFORD
SECRETARY
Tell City, Indiana
_____________, 1998
PLEASE SIGN AND RETURN PROMPTLY EACH PROXY CARD YOU RECEIVE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. THIS WILL ASSURE NECESSARY REPRESENTATION AT THE SPECIAL
MEETING, BUT WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU SO DESIRE. THE
PROXY IS SOLICITED ONLY FOR THIS SPECIAL MEETING (AND ANY ADJOURNMENTS THEREOF)
AND WILL NOT BE USED FOR ANY OTHER MEETING. YOU MAY REVOKE YOUR WRITTEN PROXY
BY WRITTEN INSTRUMENT DELIVERED TO CLARKE A. BLACKFORD, SECRETARY, PEOPLES
BUILDING AND LOAN ASSOCIATION, F.A., AT THE ABOVE ADDRESS AT ANY TIME PRIOR TO
OR AT THE SPECIAL MEETING.
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION, F.A.
819 MAIN STREET
TELL CITY, INDIANA 47586
(812) 547-7094
PROXY STATEMENT
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS OF
PEOPLES BUILDING AND LOAN ASSOCIATION, F.A. FOR USE AT A SPECIAL MEETING OF
MEMBERS TO BE HELD ON ____________, ___________, 1998, AND ANY ADJOURNMENT OF
THAT MEETING, FOR THE PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL
MEETING. YOUR BOARD OF DIRECTORS AND MANAGEMENT URGE YOU TO VOTE FOR THE PLAN
OF CONVERSION.
PURPOSE OF MEETING -- SUMMARY
A special meeting of members ("Special Meeting") of Peoples Building and
Loan Association, F.A. ("Association") will be held at the Association's main
office at 819 Main Street, Tell City, Indiana, on ____________, ___________,
1998, at 2:00 p.m., local time, for the purpose of considering and voting upon a
Plan of Conversion from Mutual Savings Association to Federal Stock Savings Bank
and Formation of a Holding Company ("Plan of Conversion"), which, if approved by
a majority of the total votes of the members eligible to be cast, will permit
the Association to convert from a federally chartered mutual savings and loan
association to a federally chartered capital stock savings bank to be held as a
subsidiary of PCB Holding Company ("Holding Company"), a newly organized Indiana
corporation formed by the Association. The conversion of the Association and
the acquisition of control of the Association by the Holding Company are
collectively referred to herein as the "Conversion."
Members entitled to vote on the Plan of Conversion are members of the
Association as of ____________, 1998 ("Voting Record Date") who continue as
members until the Special Meeting, and should the Special Meeting be, from time
to time, adjourned to a later time, until the final adjournment thereof. The
Conversion requires the approval of not less than a majority of the total votes
eligible to be cast at the Special Meeting.
The Plan of Conversion provides, among other things, that, after receiving
final authorization from the Office of Thrift Supervision ("OTS"), the
Association will offer for sale shares of common stock of the Holding Company
("Common Stock"), through the issuance of nontransferable subscription rights
("Subscription Rights"), first to depositors of the Association with $50.00 or
more on deposit as of December 31, 1996 ("Eligible Account Holders"), then to
depositors of the Association with $50.00 or more on deposit as of March 31,
1998 ("Supplemental Eligible Account Holders"), then to depositors of the
Association as the Voting Record Date and borrowers with loans outstanding as of
February 25, 1998, which continue to be outstanding as of the Voting Record Date
("Other Members"), in a subscription offering ("Subscription Offering"), and
then, if necessary, to certain members of the general public in a direct
community offering ("Direct Community Offering"). The Subscription and Direct
Community Offerings are referred to herein as the "Subscription and Direct
Community Offerings." It is anticipated that shares of Common Stock not
subscribed for in the Subscription and Direct Community Offerings will be
offered to the general public with the assistance of Capital Resources, Inc.
("Capital Resources") and, if necessary, a syndicate of registered broker-
dealers to be managed by Capital Resources pursuant to selected dealers'
agreements in a syndicated offering ("Syndicated Community Offering"). The
Subscription, Direct Community and Syndicated Community Offerings are referred
to herein as the "Offerings."
Adoption of a Federal Stock Charter and Bylaws of the Association is an
integral part of the Plan of Conversion. Copies of the Plan of Conversion and
the proposed Federal Stock Charter and Bylaws for the Association are attached
to this Proxy Statement as exhibits. They provide, among other things, for the
termination of voting rights of members and of their rights to receive any
surplus remaining after liquidation of the Association. These rights, except
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for the rights of Eligible Account Holders and Supplemental Eligible Account
Holders in the liquidation account, will vest exclusively in the holders of the
stock in the Holding Company and the Association. For further information, see
"THE CONVERSION -- Effects of Conversion to Stock Form on Depositors and
Borrowers of the Association."
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 Federal Deposit Insurance
Corporation ("FDIC"). The Association's deposits have been federally-insured by
the FDIC since 1936 and are currently insured by the FDIC under the Savings
Association Insurance Fund. The Association has been a member of the Federal
Home Loan Bank 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 March 31, 1998, 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
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
The Association's Board of Directors has fixed the close of business on
___________, 1998 as the record date for the determination of members entitled
to notice of and to vote at the Special Meeting. All holders of the
Association's savings or other authorized accounts and all borrowers with loans
outstanding on February 25, 1998 are members of the Association under its
current charter. All members of record as of the close of business on the
Voting Record Date who continue to be members on the date of the Special Meeting
or any adjournment thereof will be entitled to vote at the Special Meeting or
such adjournment.
Each eligible depositor member will be entitled at the Special Meeting to
cast one vote for each $100, or fraction thereof, of the aggregate withdrawal
value of all of the depositor's savings accounts in the Association as of the
Voting Record Date. Borrowers with loans outstanding as of February 25, 1998
which continue to be outstanding as of the Voting Record Date will be entitled
to cast one vote for the period of time such borrowings remain in existence. No
member is entitled to cast more than 1,000 votes. Any number of members present
and voting, represented in person or by proxy, at the Special Meeting will
constitute a quorum.
Approval of the Plan of Conversion will require the affirmative vote of a
majority of the total outstanding votes of the Association's members eligible to
be cast at the Special Meeting. As of the Voting Record Date for the Special
Meeting, there were approximately _________ votes eligible to be cast, of which
____________votes may be cast by depositor members and _________votes may be
cast by borrower members.
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PROXIES
Members may vote at the Special Meeting or any adjournment thereof in
person or by proxy. Enclosed is a proxy which may be used by any eligible
member to vote on the Plan of Conversion. All properly executed proxies
received by management will be voted in accordance with the instructions
indicated thereon by the members giving such proxies. If no instructions are
given, such proxies will be voted in favor of the Plan of Conversion. If any
other matters are properly presented at the Special Meeting and may properly be
voted on, all proxies will be voted on such matters in accordance with the best
judgment of the proxy holders named therein. If the enclosed proxy is returned,
it may be revoked at any time before it is voted by written notice to the
Secretary of the Association, by submitting a later dated proxy, or by attending
and voting in person at the Special Meeting. The proxies being solicited are
only for use at the Special Meeting and at any and all adjournments thereof and
will not be used for any other meeting. Management is not aware of any other
business to be presented at the Special Meeting.
The Association, as trustee for individual retirement accounts at the
Association, will vote in favor of the Plan of Conversion, unless the beneficial
owner executes and returns the enclosed proxy for the Special Meeting or attends
the Special Meeting and votes in person.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by representatives of Capital Resources and by
officers, directors or regular employees of the Association, in person, by
telephone or through other forms of communication. Such persons will be
reimbursed by the Association for their reasonable out-of-pocket expenses
incurred in connection with such solicitation. If necessary, the Special
Meeting may be adjourned to an alternative date.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE PLAN
OF CONVERSION. VOTING IN FAVOR OF THE PLAN OF CONVERSION WILL NOT OBLIGATE ANY
VOTER TO PURCHASE ANY STOCK.
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 HERETO.
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
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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 ____________, 1998 and
borrowers of the Association with loans outstanding as of February 25, 1998
which continue to be outstanding as of __________, 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.
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
$_____________ 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
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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
and loan 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. Savings members 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 savings 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.
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
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(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 Internal Revenue Service
("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. Capital Resources Group, Inc. 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 of 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 South Carolina
income tax liability to such entities or persons.
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
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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.
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with or
without conditions, or disapproves a plan of conversion pursuant to this part
may obtain review of such action by filing in the court of appeals of the United
States for the circuit in which the principal office or residence of such person
is located, or in the United States Court of Appeals for the District of
Columbia, a written petition praying that the final action of the OTS be
modified, terminated or set aside. Such petition must be filed within 30 days
after the publication of notice of such final action in the Federal Register, or
----------------
30 days after the mailing by the applicant of the notice to members as provided
for in 12 C.F.R. (S)563b.6(c), whichever is later. The further procedure for
review is as follows: A copy of the petition is forthwith transmitted to the
OTS by the clerk of the court and thereupon the OTS files in the court the
record in the proceeding, as provided in Section 2112 of Title 28 of the United
States Code. Upon the filing of the petition, the court has jurisdiction, which
upon the filing of the record is exclusive, to affirm, modify, terminate, or set
aside in whole or in part, the final action of the OTS. Review of such
proceedings is as provided in Chapter 7 of Title 5 of the United States Code.
The judgment and decree of the court is final, except that they are subject to
review by the United States Supreme Court upon certiorari as provided in Section
1254 of Title 28 of the United States Code.
ADDITIONAL INFORMATION
The Holding Company has filed with the Securities and Exchange Commission
("SEC") a Registration Statement on Form SB-2 (File No. 333-________) under the
Securities Act of 1933, as amended, 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
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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. The accompanying Prospectus omits certain information contained in
such Application. The Application, including 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 OTS Central Regional Office,
200 West Madison Street, Suite 1300, Chicago, Illinois 60606.
Copies of the Holding Company's Certificate of Incorporation and Bylaws may
be obtained by written request to the Association.
All persons eligible to vote at the Special Meeting should review both this
Proxy Statement and the accompanying Prospectus carefully. However, no person
is obligated to purchase any Common Stock. For additional information, you may
call the Stock Information Center at (812) __________.
BY ORDER OF THE BOARD OF DIRECTORS
CLARKE A. BLACKFORD
SECRETARY
Tell City, Indiana
_____________, 1998
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT AND THE PROSPECTUS AND, WHETHER OR NOT YOU
PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, TO FILL IN, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS POSSIBLE TO ASSURE THAT YOUR VOTES
WILL BE COUNTED. THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND
THE SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY BY WRITTEN INSTRUMENT DELIVERED
TO THE SECRETARY OF THE ASSOCIATION AT ANY TIME PRIOR TO OR AT THE SPECIAL
MEETING OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS IN THOSE
JURISDICTIONS IN WHICH IT IS LAWFUL TO MAKE SUCH OFFER.
8
<PAGE>
PEOPLES BUILDING AND LOAN ASSOCIATION
TELL CITY, INDIANA
AMENDED PLAN OF CONVERSION
FROM MUTUAL SAVINGS ASSOCIATION
TO FEDERAL STOCK SAVINGS ASSOCIATION
AND FORMATION OF A HOLDING COMPANY
INTRODUCTION
------------
I. General
-------
The Board of Directors of Peoples Building and Loan Association
("Association") desires to attract new capital to the Association to increase
its net worth, to support future growth, to increase the amount of funds
available for other lending and investment, to provide greater resources for the
expansion of customer services and to facilitate future expansion by the
Association. In addition, the Board of Directors intends to implement stock
option plans and other stock benefit plans as part of the Conversion in order to
attract and retain qualified directors and officers. It is the further desire
of the Board of Directors to reorganize the Association as the wholly owned
subsidiary of a holding company to enhance flexibility of operations,
diversification of business opportunities and financial capability for business
and regulatory purposes and to enable the Association to compete more
effectively with other financial service organizations. Accordingly, on January
14, 1998, the Board of Directors, after careful study and consideration, adopted
by unanimous vote this Plan of Conversion from Mutual Savings Association to
Federal Stock Savings Association and Formation of a Holding Company ("Plan"),
which was subsequently amended on March 16, 1998, which provides for the
conversion of the Association from a federally chartered mutual savings and loan
association to a federally chartered stock savings association and the
concurrent formation of a holding company for the Association ("Holding
Company"). Prior to adopting the original Plan, the Board of Directors of the
Association adopted a plan of conversion to convert the Association from an
Indiana-chartered mutual building and loan association to a federal mutual
savings and loan association. The Association's conversion to a federal mutual
savings and loan association became effective on February 25, 1998.
All capitalized terms contained in the Plan shall have the meanings
ascribed to them in Section II hereof.
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 Association's Supplemental
Eligible Account Holders, and third 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.
The Conversion is subject to the regulations of the Director of the OTS
(Part 563b of the Rules and Regulations Applicable to All Savings Associations)
as promulgated pursuant to Section 5(i) of the Home Owners' Loan Act.
Consummation of the Conversion is subject to the approval of this Plan and
the Conversion by the OTS and by the affirmative vote of Members of the
Association holding not less than a majority of the total votes eligible to be
cast at a special meeting of the Members to be called to consider the
Conversion.
No change will be made in the Board of Directors or management of the
Association as a result of the Conversion.
<PAGE>
II. Definitions
-----------
As used in this Plan, the terms set forth below have the following
meanings:
A. Acting in Concert: (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. A Person (as defined herein) who acts in concert
with another Person ("other party") shall also be deemed to be acting in concert
with any Person who is also acting in concert with that other party, except that
any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in
concert with its trustee or a Person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the Tax-Qualified Employee Benefit Plan will be aggregated.
B. Associate: When used to indicate a relationship with any Person,
---------
means (i) any corporation or organization (other than the Association or a
majority-owned subsidiary of the Association, or the Holding Company) of which
such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, except that it does not include a Tax-Qualified Employee Stock Benefit
Plan and (iii) any relative or spouse of such Person, or any relative of such
spouse, who has the same home as such Person or who is a director or officer of
the Association, any of its subsidiaries, or the Holding Company.
C. Association: Peoples Building and Loan Association, in the form of
-----------
an Indiana-chartered mutual building and loan association and in the form of a
federal mutual savings and loan association after its charter conversion, as
appropriate.
D. Capital Stock: Any and all authorized capital stock in the Converted
-------------
Association.
E. Common Stock: Any and all authorized common stock in the Holding
------------
Company subsequent to the Conversion.
F. Conversion: (i) Amendment of the Association's Charter and Bylaws to
----------
authorize issuance of shares of Capital Stock by the Converted Association and
to conform to the requirements of a Federal stock savings association under the
laws of the United States and rules and regulations of the OTS; (ii) issuance
and sale of Conversion Stock by the Holding Company in the Subscription
Offering, Direct Community Offering and Syndicated Community Offering; and (iii)
purchase by the Holding Company of all of the issued and outstanding shares of
Capital Stock of the Converted Association to be issued in the Conversion
immediately following or concurrently with the close of the sale of all
Conversion Stock.
G. Conversion Stock: Holding Company common stock to be issued and sold
----------------
by the Holding Company pursuant to the Plan.
H. Converted Association: Peoples Building and Loan Association, in its
---------------------
converted form as a federally chartered stock savings association.
I. Direct Community Offering: The offering for sale of Conversion Stock
-------------------------
to the public.
J. Eligibility Record Date: December 31, 1996.
-----------------------
K. Eligible Account Holder: Holder of a Qualifying Deposit in the
-----------------------
Association on the Eligibility Record Date.
2
<PAGE>
L. FDIC: Federal Deposit Insurance Corporation.
----
M. Form AC Application: The application submitted to the OTS on OTS
-------------------
Form AC for approval of the Conversion.
N. H-(e)1 Application: The application submitted to the OTS on OTS Form
------------------
H-(e)1 or, if applicable, Form H-(e)1-S for approval of the Holding Company's
acquisition of all of the Capital Stock of the Converted Association.
O. Holding Company: A corporation to be formed by the Association under
---------------
state law for the purpose of becoming a holding company through the issuance and
sale of its stock under the Plan, and concurrent acquisition of 100% of the
Capital Stock of the Converted Association to be issued pursuant to the Plan.
P. Holding Company Stock: Any and all authorized capital stock of the
---------------------
Holding Company.
Q. Local Community: Perry County, Indiana.
---------------
R. Market Maker: A dealer (i.e., any Person who engages directly or
------------
indirectly as agent, broker, or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system or furnishes bona fide competitive bid and offer quotations on request
and (ii) is ready, willing and able to effect transactions in reasonable
quantities at his or her quoted prices with other brokers or dealers.
S. Members: All Persons or entities who qualify as members of the
-------
Association pursuant to its Charter and Bylaws prior to the Conversion.
T. Officer: An executive officer of the Association, which includes the
-------
Chairman of the Board, President, Vice President, Secretary, Treasurer or
Principal Financial Officer, Comptroller or Principal Accounting Officer, as
well as any other person performing similar functions.
U. Order Forms: Forms to be used for the purchase of Conversion Stock
-----------
sent to Eligible Account Holders and other parties eligible to purchase
Conversion Stock in the Subscription Offering pursuant to the Plan.
V. Other Member: Holder of a Savings Account (other than Eligible
------------
Account Holders and Supplemental Eligible Account Holders) as of the Record
Date, and borrowers from the Association as provided in the Association's
Federal Mutual Charter who continue as borrowers from the Association as of the
Record Date.
W. OTS: Office of Thrift Supervision of the United States Department of
---
the Treasury.
X. Person: An individual, corporation, limited liability corporation,
------
partnership, association, joint stock company, trusts of natural Persons,
unincorporated organization or a government or any political subdivision
thereof.
Y. Qualifying Deposit: The deposit balance in any Savings Account, and
------------------
any certificate of deposit, any demand deposit account and any noninterest-
bearing deposit account, as of the close of business on the Eligibility Record
Date or the Supplemental Eligibility Record Date, as applicable; provided,
however, that no account with a deposit balance of less than $50.00 on such date
shall constitute a Qualifying Deposit.
Z. Record Date: Date which determines which Members are entitled to
-----------
vote at the Special Meeting.
3
<PAGE>
AA. Registration Statement: The registration statement on SEC Form S-1 or
----------------------
other applicable form filed by the Holding Company with the SEC for the purpose
of registering the Conversion Stock under the Securities Act of 1933, as
amended.
BB. Savings Account(s): Withdrawable deposit(s) in the Association or the
------------------
Converted Association.
CC. SEC: Securities and Exchange Commission.
---
DD. Special Meeting: The special meeting of Members called for the purpose
---------------
of considering the Plan for approval.
EE. Subscription Offering: The offering of Conversion Stock to Eligible
---------------------
Account Holders, Supplemental Eligible Account Holders and Other Members under
the Plan.
FF. Subscription Rights: Nontransferable, non-negotiable, personal
-------------------
rights of Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members to purchase Conversion Stock.
GG. Supplemental Eligibility Record Date: The last day of the calendar
------------------------------------
quarter preceding the approval of the Plan by the OTS.
HH. Supplemental Eligible Account Holder: Holder of a Qualifying Deposit
------------------------------------
in the Association (other than an Officer or director of the Association or
their Associates) on the Supplemental Eligibility Record Date.
II. Syndicated Community Offering: The offering for sale by a syndicate
-----------------------------
of broker-dealers to the general public of shares of Conversion Stock not
purchased in the Subscription Offering and the Direct Community Offering.
JJ. Tax-Qualified Employee Stock Benefit Plan: Any defined benefit plan
-----------------------------------------
or defined contribution plan of the Association or Holding Company, such as an
employee stock ownership plan, bonus plan, profit-sharing plan or other plan,
which, with its related trust, meets the requirements to be "qualified" under
section 401 of the Internal Revenue Code. A "non-tax-qualified employee stock
benefit plan" is any defined benefit plan or defined contribution plan that is
not so qualified.
III. Steps Prior to Submission of the Plan to the Members for Approval
-----------------------------------------------------------------
Prior to submission of the Plan to the Members for approval, the
Association must receive approval from the OTS of the Form AC Application.
Prior to such regulatory approval:
A. The Board of Directors shall adopt the Plan by a vote of not less
than two-thirds of its entire membership.
B. The Association shall notify the Members of the adoption of the Plan
by publishing legal notice in a newspaper having a general circulation in each
community in which the Association maintains an office.
C. A press release relating to the proposed Conversion may be submitted
to the local media.
D. Copies of the Plan as adopted by the Board of Directors shall be made
available for inspection at each office of the Association.
E. The Association shall cause the Holding Company to be incorporated
under state law and the Board of Directors of the Holding Company shall concur
in the Plan by at least a two-thirds vote.
4
<PAGE>
F. As soon as practicable following the adoption of this Plan, the
Association shall file the Form AC Application, and the Holding Company shall
file the Registration Statement and the H-(e)1 Application. Upon filing the
Form AC Application, the Association shall publish legal notice of the filing of
the Form AC Application in a newspaper having a general circulation in each
community in which the Association maintains an office and/or by mailing a
letter to each of its Members, and shall publish such other notices of the
Conversion as may be required in connection with the H-(e)1 Application and by
the regulations and policies of the OTS.
G. The Association shall obtain an opinion of its tax advisors or a
favorable ruling from the United States Internal Revenue Service which shall
state that the Conversion will not result in any gain or loss for Federal income
tax purposes to the Association or its Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members. Receipt of a favorable opinion or
ruling is a condition precedent to completion of the Conversion.
IV. Meeting of Members
------------------
Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the Association's Bylaws. Promptly after
receipt of approval and at least 20 days but not more than 45 days prior to the
Special Meeting, the Association shall distribute proxy solicitation materials
to all Members and beneficial owners of accounts held in fiduciary capacities
where the beneficial owners possess voting rights, as of the Record Date. The
proxy solicitation materials shall include a copy of the proxy statement to be
used in connection with such solicitation ("Proxy Statement") and other
documents authorized for use by the regulatory authorities and may also include
a copy of the Plan and/or a prospectus ("Prospectus") as provided in Paragraph V
below. The Association shall also advise each Eligible Account Holder and
Supplemental Eligible Account Holder not entitled to vote at the Special Meeting
of the proposed Conversion and the scheduled Special Meeting, and provide a
postage prepaid card on which to indicate whether he wishes to receive the
Prospectus, if the Subscription Offering is not held concurrently with the proxy
solicitation.
Pursuant to OTS regulations, an affirmative vote of not less than a
majority of the total outstanding votes of the Members is required for approval
of the Plan. Voting may be in person or by proxy. The OTS shall be notified
promptly of the actions of the Members.
V. Summary Proxy Statement
-----------------------
The Proxy Statement furnished to Members may be in summary form, provided
that a statement is made in bold-face type that a more detailed description of
the proposed transaction may be obtained by returning an enclosed postage
prepaid card or other written communication requesting supplemental information.
Without prior approval of the OTS, the Special Meeting shall not be held less
than 20 days after the last day on which the supplemental information statement
is mailed to requesting Members. The supplemental information statement may be
combined with the Prospectus if the Subscription Offering is commenced
concurrently with or during the proxy solicitation of Members for the Special
Meeting.
VI. Offering Documents
------------------
The Holding Company may commence the Subscription Offering and, provided
that the Subscription Offering has commenced, may commence the Direct Community
Offering concurrently with or during the proxy solicitation of Members. The
Holding Company may close the Subscription Offering before the Special Meeting,
provided that the offer and sale of the Conversion Stock shall be conditioned
upon approval of the Plan by the Members at the Special Meeting. The
Association's proxy solicitation materials may require Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members to return to the
Association by a reasonable certain date a postage prepaid card or other written
communication requesting receipt of a Prospectus with respect to the
Subscription Offering, provided that if the Prospectus is not mailed
concurrently with the proxy solicitation materials, the Subscription Offering
shall not be closed until the expiration of 30 days after the mailing of the
proxy solicitation materials. If the Subscription
5
<PAGE>
Offering is not commenced within 45 days after the Special Meeting, the
Association may transmit, not more than 30 days prior to the commencement of the
Subscription Offering, to each Eligible Account Holder, Supplemental Eligible
Account Holder and other eligible subscribers who had been furnished with proxy
solicitation materials a notice which shall state that the Association is not
required to furnish a Prospectus to them unless they return by a reasonable date
certain a postage prepaid card or other written communication requesting the
receipt of the Prospectus.
Prior to commencement of the Subscription Offering, the Direct Community
Offering and the Syndicated Community Offering, the Holding Company shall file
the Registration Statement. The Holding Company shall not distribute the final
Prospectus until the Registration Statement containing same has been declared
effective by the SEC and the Prospectus has been declared effective by the OTS.
VII. Combined Subscription and Direct Community Offering
---------------------------------------------------
Instead of a separate Subscription Offering, all Subscription Rights may
be exercised by delivery of properly completed and executed Order Forms to the
Association or selling group utilized in connection with the Direct Community
Offering and the Syndicated Community Offering. If a separate Subscription
Offering is not held, orders for Conversion Stock in the Direct Community
Offering shall first be filled pursuant to the priorities and limitations stated
in Paragraph IX.C., below.
VIII. Consummation of the Conversion
------------------------------
After receipt of all orders for Conversion Stock, the amendment of the
Association's Federal Mutual Charter and Bylaws to authorize the issuance of
shares of Capital Stock and to conform to the requirements of a federal stock
savings association, as approved by the Members at the Special Meeting will be
declared effective by the OTS. At such time, the Conversion Stock will be
issued and sold by the Holding Company, the Capital Stock to be issued in the
Conversion will be issued and sold to the Holding Company, and the Converted
Association will become a wholly owned subsidiary of the Holding Company. The
Converted Association will issue to the Holding Company 1,000 shares of its
common stock, representing all of the shares of Capital Stock to be issued by
the Converted Association, and the Holding Company will make payment to the
Converted Association of that portion of the aggregate net proceeds realized by
the Holding Company from the sale of the Conversion Stock under the Plan as may
be authorized or required by the OTS.
IX. Stock Offering
--------------
A. Number of Shares
----------------
The number of shares of Conversion Stock to be offered pursuant to the
Plan shall be determined initially by the Board of Directors of the Association
and the Board of Directors of the Holding Company in conjunction with the
determination of the Purchase Price (as that term is defined in Paragraph IX.B.
below). The number of shares to be offered may be subsequently adjusted by the
Board of Directors prior to completion of the offering.
B. Independent Evaluation and Purchase Price of Shares
---------------------------------------------------
All shares of Conversion Stock sold in the Conversion, including shares
sold in any Direct Community Offering, shall be sold at a uniform price per
share, referred to herein as the "Purchase Price." The Purchase Price shall be
determined by the Board of Directors of the Association and the Board of
Directors of the Holding Company immediately prior to the simultaneous
completion of all such sales contemplated by this Plan on the basis of the
estimated pro forma market value of the Converted Association and the Holding
Company at such time. The estimated pro forma market value of the Converted
Association and the Holding Company shall be determined for such purpose by an
independent appraiser on the basis of such appropriate factors not inconsistent
with the regulations of the OTS. Immediately prior to the Subscription Offering,
a subscription price range shall be established which shall vary from
6
<PAGE>
15% above to 15% below the average of the minimum and maximum of the estimated
price range. The maximum subscription price (i.e., the per share amount to be
remitted when subscribing for shares of Conversion Stock) shall then be
determined within the subscription price range by the Board of Directors of the
Association. The subscription price range and the number of shares to be
offered may be revised after the completion of the Subscription Offering with
OTS approval without a resolicitation of proxies or Order Forms or both.
C. Method of Offering Shares
-------------------------
Subscription Rights shall be issued at no cost to Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members pursuant to priorities
established by this Plan and the regulations of the OTS. In order to effect the
Conversion, all shares of Conversion Stock proposed to be issued in connection
with the Conversion must be sold and, to the extent that shares are available,
no subscriber shall be allowed to purchase less than 25 shares; provided,
however, that if the purchase price is greater than $20.00 per share, the
minimum number of shares which must be subscribed for shall be adjusted so that
the aggregate actual purchase price required to be paid for such minimum number
of shares does not exceed $500.00. The priorities established for the purchase
of shares are as follows:
1. Category 1: Eligible Account Holders
-------------------------------------
a. Each Eligible Account Holder shall receive, without payment,
Subscription Rights entitling such Eligible Account Holder to purchase
that number of shares of Conversion Stock which is equal to the
greater of the maximum purchase limitation established for the Direct
Community Offering, one-tenth of one percent of the total offering or
15 times the product (rounded down to the next whole number) obtained
by multiplying the total number of shares of Conversion Stock to be
issued by a fraction of which the numerator is the amount of the
Qualifying Deposit of the Eligible Account Holder and the denominator
is the total amount of Qualifying Deposits of all Eligible Account
Holders. If the allocation made in this paragraph results in an
oversubscription, shares of Conversion Stock shall be allocated among
subscribing Eligible Account Holders so as to permit each such account
holder, to the extent possible, to purchase a number of shares of
Conversion Stock sufficient to make his or her total allocation equal
to 100 shares of Conversion Stock or the total amount of his or her
subscription, whichever is less. Any shares of Conversion Stock not so
allocated shall be allocated among the subscribing Eligible Account
Holders on an equitable basis, related to the amounts of their
respective Qualifying Deposits as compared to the total Qualifying
Deposits of all subscribing Eligible Account Holders.
b. Subscription Rights received by Officers and directors of
the Association and their Associates, as Eligible Account Holders,
based on their increased deposits in the Association in the one-year
period preceding the Eligibility Record Date shall be subordinated to
all other subscriptions involving the exercise of Subscription Rights
pursuant to this Category.
2. Category 2: Supplemental Eligible Account Holders
--------------------------------------------------
a. In the event that the Eligibility Record Date is more than
15 months prior to the date of the latest amendment to the Form AC
Application filed prior to OTS approval, then, and only in that event,
each Supplemental Eligible Account Holder shall receive, without
payment, Subscription Rights entitling such Supplemental Eligible
Account Holder to purchase that number of shares of Conversion Stock
which is equal to the greater of the maximum purchase limitation
established for the Direct Community Offering, one-tenth of one
percent of the total offering or 15 times the product (rounded down to
the next whole number) obtained by multiplying the total number of
shares of Conversion Stock to be issued by a fraction of which the
numerator is the amount of the Qualifying Deposit of the Supplemental
Eligible Account Holder and the denominator is the total amount of the
Qualifying Deposits of all Subscribing Supplemental Eligible Account
Holders.
7
<PAGE>
b. Subscription Rights received pursuant to this category shall
be subordinated to Subscription Rights granted to Eligible Account
Holders.
c. Any Subscription Rights to purchase shares of Conversion
Stock received by an Eligible Account Holder in accordance with
Category Number 1 shall reduce to the extent thereof the Subscription
Rights to be distributed pursuant to this Category.
d. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, shares of Conversion Stock shall be
allocated among the subscribing Supplemental Eligible Account Holders
as follows:
(1) Shares of Conversion Stock shall be allocated so as to
permit each such Supplemental Eligible Account Holder, to the
extent possible, to purchase a number of shares of Conversion
Stock sufficient to make his or her total allocation (including
the number of shares of Conversion Stock, if any, allocated in
accordance with Category Number 1) equal to 100 shares of
Conversion Stock or the total amount of his or her subscription,
whichever is less.
(2) Any shares of Conversion Stock not allocated in
accordance with subparagraph (1) above shall be allocated among
the subscribing Supplemental Eligible Account Holders on an
equitable basis, related to the amounts of their respective
Qualifying Deposits as compared to the total Qualifying Deposits
of all subscribing Supplemental Eligible Account Holders.
3. Category 3: Other Members
--------------------------
a. Other Members shall receive, without payment, Subscription
Rights to purchase shares of Conversion Stock, after satisfying the
subscriptions of Eligible Account Holders and Supplemental Eligible
Account Holders pursuant to Category Nos. l and 2 above, subject to
the following conditions:
(1) Each such Other Member shall be entitled to subscribe
for the greater of the maximum purchase limitation established
for the Direct Community Offering or one-tenth of one percent of
the total offering.
(2) In the event of an oversubscription for shares of
Conversion Stock pursuant to Category No. 3, the shares of
Conversion Stock available shall be allocated among the
subscribing Other Members pro rata on the basis of the amounts of
their respective subscriptions.
D. Direct Community Offering and Syndicated Community Offering
-----------------------------------------------------------
1. Any shares of Conversion Stock not purchased through the exercise
of Subscription Rights set forth in Category Nos. 1 through 3 above may be
sold by the Holding Company to Persons under such terms and conditions as
may be established by the Association's Board of Directors with the
concurrence of the OTS. The Direct Community Offering may commence
concurrently with or as soon as possible after the completion of the
Subscription Offering and must be completed within 45 days after completion
of the Subscription Offering, unless extended with the approval of the OTS.
No Person may purchase shares of Conversion Stock in the Direct Community
Offering having an aggregate purchase price of more than $65,000. The right
to purchase shares of Conversion Stock under this Category is subject to
the right of the Association or the Holding Company to accept or reject
such subscriptions in whole or in part. In the event of an
8
<PAGE>
oversubscription for shares in this Category, the shares available shall be
allocated among prospective purchasers pro rata on the basis of the amounts
of their respective orders. The offering price for which such shares are
sold to the general public in the Direct Community Offering shall be the
Purchase Price.
2. Orders received in the Direct Community Offering first shall be
filled up to a maximum of 2% of the Conversion Stock and thereafter
remaining shares shall be allocated on an equal number of shares basis per
order until all orders have been filled.
3. The Conversion Stock offered in the Direct Community Offering
shall be offered and sold in a manner that will achieve the widest
distribution thereof. Preference shall be given in the Direct Community
Offering to natural Persons and trusts of natural Persons residing in the
Local Community.
4. Subject to such terms, conditions and procedures as may be
determined by the Association and the Holding Company, all shares of
Conversion Stock not subscribed for in the Subscription Offering or ordered
in the Direct Community Offering may be sold by a syndicate of broker-
dealers to the general public in a Syndicated Community Offering. No Person
may purchase shares of Conversion Stock in the Syndicated Community
Offering having an aggregate purchase price of more than $65,000. Each
order for Conversion Stock in the Syndicated Community Offering shall be
subject to the absolute right of the Association and the Holding Company to
accept or reject any such order in whole or in part either at the time of
receipt of an order or as soon as practicable after completion of the
Syndicated Community Offering. The Association and the Holding Company may
commence the Syndicated Community Offering concurrently with, at any time
during, or as soon as practicable after the end of the Subscription
Offering and/or Direct Community Offering, provided that the Syndicated
Community Offering must be completed within 45 days after the completion of
the Subscription Offering, unless extended by the Association and the
Holding Company with the approval of the OTS.
5. If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Direct
Community Offering cannot be effected, or in the event that any
insignificant residue of shares of Conversion Stock is not sold in the
Subscription Offering, Direct Community Offering or Syndicated Community
Offering, the Association and the Holding Company shall use their best
efforts to obtain other purchasers for such shares in such manner and upon
such conditions as may be satisfactory to the OTS.
6. In the event a Direct Community Offering or Syndicated Community
Offering do not appear feasible, the Association will immediately consult
with the OTS to determine the most viable alternative available to effect
the completion of the Conversion. Should no viable alternative exist, the
Association may terminate the Conversion with the concurrence of the OTS.
E. Limitations Upon Purchases
--------------------------
The following additional limitations and exceptions shall be imposed upon
purchases of shares of Conversion Stock:
1. No Person, together with Associates of or Persons Acting in
Concert with such Person, may purchase in the aggregate shares of
Conversion Stock having an aggregate purchase price of more than $65,000.
2. Officers and directors of the Association and Associates thereof
may not purchase in the aggregate more than 35% of the shares issued in the
Conversion.
9
<PAGE>
3. The Association's and Holding Company's Boards of Directors will
not be deemed to be Associates or a group of Persons Acting in Concert with
other directors or trustees solely as a result of membership on the Board
of Directors.
4. The Association's Board of Directors, with the approval of the
OTS and without further approval of Members, may, as a result of market
conditions and other factors, increase or decrease the purchase limitation
in paragraph 1 above or the number of shares of Conversion Stock to be sold
in the Conversion. If the Association or the Holding Company, as the case
may be, increases the maximum purchase limitations or the number of shares
of Conversion Stock to be sold in the Conversion, the Association or the
Holding Company, as the case may be, is only required to resolicit Persons
who subscribed for the maximum purchase amount and may, in the sole
discretion of the Association or the Holding Company, as the case may be,
resolicit certain other large subscribers. If the Association or the
Holding Company, as the case may be, decreases the maximum purchase
limitations or the number of shares of Conversion Stock to be sold in the
Conversion, the orders of any Person who subscribed for the maximum
purchase amount shall be decreased by the minimum amount necessary so that
such Person shall be in compliance with the then maximum number of shares
permitted to be subscribed for by such Person.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the purchase limitations
under the Plan or otherwise imposed by law, rule or regulation. In the event
that such purchase limitations are violated by any Person (including any
Associate or group of Persons affiliated or otherwise Acting in Concert with
such Person), the Holding Company shall have the right to purchase from such
Person at the actual Purchase Price per share all shares acquired by such Person
in excess of such purchase limitations or, if such excess shares have been sold
by such Person, to receive from such Person the difference between the actual
Purchase Price per share paid for such excess shares and the price at which such
excess shares were sold by such Person. This right of the Holding Company to
purchase such excess shares shall be assignable by the Holding Company.
F. Restrictions On and Other Characteristics of the Conversion Stock
-----------------------------------------------------------------
1. Transferability. Conversion Stock purchased by Officers and
---------------
directors of the Association and officers and directors of the Holding
Company shall not be sold or otherwise disposed of for value for a period
of one year from the date of Conversion, except for any disposition (i)
following the death of the original purchaser or (ii) resulting from an
exchange of securities in a merger or acquisition approved by the
regulatory authorities having jurisdiction.
The Conversion Stock issued by the Holding Company to such Officers
and directors shall bear a legend giving appropriate notice of the one-year
holding period restriction. Said legend shall state as follows:
"The shares evidenced by this certificate are restricted
as to transfer for a period of one year from the date of
this certificate pursuant to Part 563b of the Rules and
Regulations of the Office of Thrift Supervision. These
shares may not be transferred prior thereto without a
legal opinion of counsel that said transfer is permissible
under the provisions of applicable laws and regulations."
In addition, the Holding Company shall give appropriate instructions
to the transfer agent of the Holding Company Stock with respect to the
foregoing restrictions. Any shares of Holding Company Stock subsequently
issued as a stock dividend, stock split or otherwise, with respect to any
such restricted stock, shall be subject to the same holding period
restrictions for such Persons as may be then applicable to such restricted
stock.
2. Subsequent Purchases by Officers and Directors. Without prior
----------------------------------------------
approval of the OTS, if applicable, Officers and directors of the
Association and officers and directors of the Holding Company, and
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their Associates, shall be prohibited for a period of three years following
completion of the Conversion from purchasing outstanding shares of Holding
Company Stock, except from a broker or dealer registered with the SEC.
Notwithstanding this restriction, purchases involving more than 1% of the
total outstanding shares of Holding Company Stock and purchases made and
shares held by a Tax-Qualified or non-Tax-Qualified Employee Stock Benefit
Plan which may be attributable to such directors and Officers may be made
in negotiated transactions without OTS permission or the use of a broker or
dealer.
3. Repurchase and Dividend Rights. For a period of three years
------------------------------
following the consummation of the Conversion, any repurchases of Holding
Company Stock by the Holding Company from any Person shall be subject to
the then applicable rules and regulations and policies of the OTS. The
Converted Association may not declare or pay a cash dividend on or
repurchase any of its Capital Stock if the result thereof would be to
reduce the regulatory capital of the Converted Association below the amount
required for the liquidation account described in Paragraph XIII. Further,
any dividend declared or paid on the Capital Stock shall comply with the
then applicable rules and regulations of the OTS.
4. Voting Rights. After the Conversion, holders of Savings Accounts
-------------
in and obligors on loans of the Converted Association will not have voting
rights in the Converted Association. Exclusive voting rights with respect
to the Holding Company shall be vested in the holders of Holding Company
Stock; holders of Savings Accounts in and obligors on loans of the
Converted Association will not have any voting rights in the Holding
Company except and to the extent that such Persons become stockholders of
the Holding Company, and the Holding Company will have exclusive voting
rights with respect to the Converted Association's Capital Stock.
G. Mailing of Offering Materials and Collation of Subscriptions
------------------------------------------------------------
The sale of all shares of Conversion Stock offered pursuant to the Plan
must be completed within 24 months after approval of the Plan at the Special
Meeting. After approval of the Plan by the OTS and the declaration of the
effectiveness of the Prospectus, the Holding Company shall distribute
Prospectuses and Order Forms for the purchase of shares of Conversion Stock in
accordance with the terms of the Plan.
The recipient of an Order Form shall be provided not less than 20 days nor
more than 45 days from the date of mailing, unless extended, to complete
properly, execute and return the Order Form to the Holding Company or the
Association. Self-addressed, postage prepaid, return envelopes shall accompany
all Order Forms when they are mailed. Failure of any eligible subscriber to
return a properly completed and executed Order Form within the prescribed time
limits shall be deemed a waiver and a release by such eligible subscriber of any
rights to purchase shares of Conversion Stock under the Plan.
The sale of all shares of Conversion Stock proposed to be issued in
connection with the Conversion must be completed within 45 days after the last
day of the Subscription Offering, unless extended by the Holding Company with
the approval of the OTS.
H. Method of Payment
-----------------
Payment for all shares of Conversion Stock may be made in cash, by check or
by money order, or if a subscriber has a Savings Account(s) in the Association,
such subscriber may authorize the Association to charge the subscriber's Savings
Account(s). The Association shall pay interest at not less than the passbook
rate on all amounts paid in cash or by check or money order to purchase shares
of Conversion Stock in the Subscription Offering from the date payment is
received until the Conversion is completed or terminated. The Association is
not permitted knowingly to loan funds or otherwise extend any credit to any
Person for the purpose of purchasing Conversion Stock.
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If a subscriber authorizes the Association to charge the subscriber's
Savings Account(s), the funds shall remain in the subscriber's Savings
Account(s) and shall continue to earn interest, but may not be used by such
subscriber until the Conversion is completed or terminated, whichever is
earlier. The withdrawal shall be given effect only concurrently with the sale
of all shares of Conversion Stock proposed to be sold in the Conversion and only
to the extent necessary to satisfy the subscription at a price equal to the
aggregate Purchase Price. The Association shall allow subscribers to purchase
shares of Conversion Stock by withdrawing funds from certificate accounts held
with the Association without the assessment of early withdrawal penalties,
subject to the approval, if necessary, of the applicable regulatory authorities.
In the case of early withdrawal of only a portion of such account, the
certificate evidencing such account shall be canceled if the remaining balance
of the account is less than the applicable minimum balance requirement. In that
event, the remaining balance shall earn interest at the passbook rate. This
waiver of the early withdrawal penalty is applicable only to withdrawals made in
connection with the purchase of Conversion Stock under the Plan.
I. Undelivered, Defective or Late Order Forms; Insufficient Payment
----------------------------------------------------------------
If an Order Form (i) is not delivered and is returned to the Holding
Company or the Association by the United States Postal Service (or the Holding
Company or Association is unable to locate the addressee); (ii) is not returned
to the Holding Company or Association, or is returned to the Holding Company or
Association after expiration of the date specified thereon; (iii) is defectively
completed or executed; or (iv) is not accompanied by the total required payment
for the shares of Conversion Stock subscribed for (including cases in which the
subscribers' Savings Accounts are insufficient to cover the authorized
withdrawal for the required payment), the Subscription Rights of the Person to
whom such rights have been granted shall not be honored and shall be treated as
though such Person failed to return the completed Order Form within the time
period specified therein. Alternatively, the Holding Company or Association
may, but shall not be required to, waive any irregularity relating to any Order
Form or require the submission of a corrected Order Form or the remittance of
full payment for the shares of Conversion Stock subscribed for by such date as
the Holding Company or Association may specify. Subscription orders, once
tendered, shall not be revocable. The Holding Company's and Association's
interpretation of the terms and conditions of the Plan and of the Order Forms
shall be final.
J. Members in Non-Qualified States or in Foreign Countries
-------------------------------------------------------
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 reside. However,
the Holding Company and the Association are not required to offer stock in the
Subscription Offering to any person who resides in a foreign country or resides
in a state of the United States with respect to which (i) a small number of
persons otherwise eligible to subscribe for shares of Common Stock reside in
such state; or (ii) 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 relative to other states,
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.
X. Federal Stock Charter and Bylaws
--------------------------------
As part of the Conversion, a Federal Stock Charter and Bylaws will be
adopted to authorize the Converted Association to operate as a federal stock
savings association. By approving the Plan, the Members of the Association will
thereby approve the Federal Stock Charter and Bylaws. Prior to completion of
the Conversion, the Federal Stock
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Charter and Bylaws may be amended in accordance with the provisions and
limitations for amending the Plan under Paragraph XVII below. The effective
date of the adoption of the Federal Stock Charter and Bylaws shall be the date
of the issuance of the Conversion Stock, which shall be the date of consummation
of the Conversion.
XI. Post Conversion Filing and Market Making
----------------------------------------
In connection with the Conversion, the Holding Company shall register the
Conversion Stock with the SEC pursuant to the Securities Exchange Act of 1934,
as amended, and shall undertake not to deregister such Conversion Stock for a
period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the shares of its
stock. The Holding Company shall also use its best efforts to list its stock
through The Nasdaq Stock Market or on a national or regional securities
exchange.
XII. Status of Savings Accounts and Loans Subsequent to Conversion
-------------------------------------------------------------
All Savings Accounts shall retain the same status after Conversion as
these accounts had prior to Conversion. Each Savings Account holder shall
retain, without payment, a withdrawable Savings Account(s) after the Conversion,
equal in amount to the withdrawable value of such holder's Savings Account(s)
prior to Conversion. All Savings Accounts will continue to be insured by the
Savings Association Insurance Fund of the FDIC up to the applicable limits of
insurance coverage. All loans shall retain the same status after the Conversion
as they had prior to the Conversion. See Paragraph IX.F.4. with respect to the
termination of voting rights of Members.
XIII. Liquidation Account
-------------------
After the Conversion, holders of Savings Accounts shall not be entitled to
share in any residual assets in the event of liquidation of the Converted
Association. However, the Association shall, at the time of the Conversion,
establish a liquidation account in an amount equal to its total net worth as of
the date of the latest statement of financial condition contained in the final
Prospectus. The function of the liquidation account shall be to establish a
priority on liquidation and, except as provided in Paragraph IX.F.3 above, the
existence of the liquidation account shall not operate to restrict the use or
application of any of the net worth accounts of the Converted Association.
The liquidation account shall 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
("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and/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 Eligible Account Holders and Supplemental Eligible Account
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 date subsequent to the Eligibility Record Date 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 the Eligibility Record
Date or the Supplemental Eligibility Record Date or (ii) the amount of the
Qualifying Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
13
<PAGE>
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 Converted Association, 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 Converted 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.
XIV. Regulatory Restrictions on Acquisition of Holding Company
---------------------------------------------------------
A. OTS regulations provide that for a period of three years following
completion of the Conversion, no Person (i.e, individual, a group Acting in
Concert, a corporation, a partnership, an association, a joint stock company, a
trust, or any unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution or its holding company) shall directly, or
indirectly, offer to purchase or actually acquire the beneficial ownership of
more than 10% of any class of equity security of the Holding Company without the
prior approval of the OTS. However, approval is not required for purchases
directly from the Holding Company or the underwriters or selling group acting on
its behalf with a view towards public resale, or for purchases not exceeding 1%
per annum of the shares outstanding. Civil penalties may be imposed by the OTS
for willful violation or assistance of any violation. Where any Person,
directly or indirectly, acquires beneficial ownership of more than 10% of any
class of equity security of the Holding Company within such three-year period,
without the prior approval of the OTS, stock of the Holding Company beneficially
owned by such Person in excess of 10% shall not be counted as shares entitled to
vote and shall not be voted by any Person or counted as voting shares in
connection with any matter submitted to the stockholders for a vote. The
provisions of this regulation shall not apply to the acquisition of securities
by Tax-Qualified Employee Stock Benefit Plans provided that such plans do not
have beneficial ownership of more than 25% of any class of equity security of
the Holding Company.
B. The Holding Company may provide in its articles/certificate of
incorporation, or similar document, a provision that, for a specified period of
up to five years following the date of the completion of the Conversion, no
Person shall directly or indirectly offer to acquire or actually acquire the
beneficial ownership of more than 10% of any class of equity security of the
Holding Company. Such provisions would not apply to acquisition of securities
by Tax-Qualified Employee Stock Benefit Plans provided that such plans do not
have beneficial ownership of more than 25% of any class of equity security of
the Holding Company. The Holding Company may provide in its articles/certificate
of incorporation, or similar document, for such other provisions affecting the
acquisition of its stock as shall be determined by its Board of Directors.
XV. Directors and Officers of the Converted Association
---------------------------------------------------
The Conversion is not intended to result in any change in the directors or
Officers. Each Person serving as a director of the Association at the time of
Conversion shall continue to serve as a member of the Converted Association's
Board of Directors, subject to the Converted Association's Federal Stock Charter
and Bylaws. The Persons serving as Officers immediately prior to the Conversion
will continue to serve at the discretion of the Board of Directors in their
respective capacities as Officers of the Converted Association. In connection
with the Conversion, the Association and the Holding Company may enter into
employment agreements on such terms and with such officers as shall be
determined by the Boards of Directors of the Association and the Holding
Company.
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XVI. Executive Compensation
----------------------
The Association and the Holding Company may adopt, subject to any
required approvals, executive compensation or other benefit programs, including
but not limited to compensation plans involving stock options, stock
appreciation rights, restricted stock grants, employee recognition programs and
the like.
XVII. Amendment or Termination of Plan
--------------------------------
If necessary or desirable, the Plan may be amended by a two-thirds vote
of the Association's Board of Directors, at any time prior to submission of the
Plan and proxy materials to the Members. At any time after submission of the
Plan and proxy materials to the Members, the Plan may be amended by a two-thirds
vote of the Board of Directors only with the concurrence of the OTS. The Plan
may be terminated by a two-thirds vote of the Board of Directors at any time
prior to the Special Meeting, and at any time following such Special Meeting
with the concurrence of the OTS. In its discretion, the Board of Directors may
modify or terminate the Plan upon the order of the regulatory authorities
without a resolicitation of proxies or another meeting of the Members.
In the event that mandatory new regulations pertaining to conversions are
adopted by the OTS prior to the completion of the Conversion, the Plan shall be
amended to conform to the new mandatory regulations without a resolicitation of
proxies or another meeting of Members. In the event that new conversion
regulations adopted by the OTS prior to completion of the Conversion contain
optional provisions, the Plan may be amended to utilize such optional provisions
at the discretion of the Board of Directors without a resolicitation of proxies
or another meeting of Members.
By adoption of the Plan, the Members authorize the Board of Directors to
amend and/or terminate the Plan under the circumstances set forth above.
XVIII. Expenses of the Conversion
--------------------------
The Holding Company and the Association shall use their best efforts to
assure that expenses incurred in connection with the Conversion shall be
reasonable.
* * *
15
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EXHIBIT B
FEDERAL STOCK CHARTER
PEOPLES COMMUNITY BANK
SECTION 1. CORPORATE TITLE. The full corporate title of the association
is Peoples Community Bank ("Savings Bank").
SECTION 2. OFFICE. The home office shall be located in Tell City,
Indiana.
SECTION 3. DURATION. The duration of the Savings Bank is perpetual.
SECTION 4. PURPOSE AND POWERS. The purpose of the Savings Bank is to
pursue any or all of the lawful objectives of a Federal savings and loan
association chartered under section 5 of the Home Owners' Loan Act and to
exercise all of the express, implied, and incidental powers conferred thereby
and by all acts amendatory thereof and supplemental thereto, subject to the
Constitution and laws of the United States as they are now in effect, or as they
may hereafter be amended, and subject to all lawful and applicable rules,
regulations, and orders of the Office of Thrift Supervision ("Office").
SECTION 5. CAPITAL STOCK. The total number of shares of all classes of
capital stock that the Savings Bank has the authority to issue is 10,000, of
which 1,000 shares shall be common stock of par value of $1.00 per share and of
which 9,000 shares shall be serial preferred stock, having no par value. The
shares may be issued from time to time as authorized by the board of directors
without further approval of shareholders, except as otherwise provided in this
Section 5 or to the extent that such approval is required by governing law,
rule, or regulation. The consideration for the issuance of the shares shall be
paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the Savings Bank. The consideration for
the shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted), labor, or services actually
performed for the Savings Bank, or any combination of the foregoing. In the
absence of actual fraud in the transaction, the value of such property, labor,
or services, as determined by the board of directors of the Savings Bank, shall
be conclusive. In the case of a stock dividend, that part of the retained
earnings of the Savings Bank that is transferred to common stock or paid-in
capital accounts upon the issuance of shares as a stock dividend shall be deemed
to be the consideration for their issuance.
Except for shares issued in the initial organization of the Savings Bank or
in connection with the conversion of the Savings Bank from the mutual to stock
form of capitalization, no shares of capital stock (including shares issuable
upon conversion, exchange or exercise of other securities) shall be issued,
directly or indirectly, to officers, directors, or controlling persons of the
Savings Bank other than as part of a general public offering or as qualifying
shares to a director, unless their issuance or the plan under which they would
be issued has been approved by a majority of the total votes eligible to be cast
at a legal meeting.
Nothing contained in this section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
to the cumulation of votes for the election of directors, unless the charter
otherwise provides that there shall be no such cumulative voting: Provided,
that this restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the board of
directors, less than a majority thereof, in the event of default in the
payment of dividends on any class or series of preferred stock;
B-1
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(ii) To any provision which would require the holders of preferred
stock, voting as a class or series, to approve the merger or consolidation
of the Savings Bank with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or business in
exchange for securities of a corporation other than the Savings Bank if the
preferred stock is exchanged for securities of such other corporation:
Provided, that no provision may require such approval for transactions
undertaken with the assistance or pursuant to the direction of the Office
of the Federal Deposit Insurance Corporation;
(iii) To any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth in this Section
5 (or in any supplementary sections hereto), including any amendment which
would create or enlarge any class or series ranking prior thereto in rights
and preferences. An amendment which increases the number of authorized
shares of any class or series of capital stock, or substitutes the
surviving Savings Bank in a merger or consolidation for the Savings Bank,
shall not be considered to be such an adverse change.
A description of the different classes and series (if any) of the Savings
Bank's capital stock and a statement of the designations, and the relative
rights, preferences, and limitations of the shares of each class of and series
(if any) of capital stock are as follows:
A. COMMON STOCK. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by each holder, except as to the
cumulation of votes for the election of directors, unless the charter otherwise
provides that there shall be no such cumulative voting.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and of sinking fund, retirement fund, or other retirement payments, if
any, to which such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock and on any class or series
of stock entitled to participate therewith as to dividends out of any assets
legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the Savings
Bank, the holders of the common stock (and the holders of any class or series of
stock entitled to participate with the common stock in the distribution of
assets) shall be entitled to receive, in cash or in kind, the assets of the
Savings Bank available for distribution remaining after: (i) payment or
provision for payment of the Savings Bank's debts and liabilities; (ii)
distributions or provision for distributions in settlement of its liquidation
account; and (iii) distributions or provisions for distributions to holders of
any class or series of stock having preference over the common stock in the
liquidation, dissolution, or winding up of the Savings Bank. Each share of
common stock shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
B. PREFERRED STOCK. The Savings Bank may provide in supplementary
sections to its charter for one or more classes of preferred stock, which shall
be separately identified. The shares of any class may be divided into and
issued in series, with each series separately designated so as to distinguish
the shares thereof from the shares of all other series and classes. The terms
of each series shall be set forth in a supplementary section to the charter.
All shares of the same class shall be identical except as to the following
relative rights and preferences, as to which there may be variations between
different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
B-2
<PAGE>
(b) The dividend rate or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from which
date(s) the payment date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so, the
price(s) at which, and the terms and conditions on which such shares may be
redeemed;
(e) The amount(s) payable upon the shares of such series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of the Savings
Bank;
(f) Whether the shares of such series shall be entitled to the benefit of
a sinking or retirement fund to be applied to the purchase or redemption of such
shares, and if so entitled, the amount of such fund and the manner of its
application, including the price(s) at which such shares may be redeemed or
purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the Savings
Bank and, if so, the conversion price(s) or the rate(s) of exchange, and the
adjustments thereof, if any, at which such conversion or exchange may be made,
and any other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such series
shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or any other
series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the board of directors, the Savings
Bank shall file with the Secretary to the Office a dated copy of that
supplementary section of this charter establishing and designating the series
and fixing and determining the relative rights and preferences thereof.
SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the Savings
Bank shall not be entitled to preemptive rights with respect to any shares of
the Savings Bank which may be issued.
SECTION 7. LIQUIDATION ACCOUNT. Pursuant to the requirements of the
Office's Regulations (12 CFR Subchapter D), the Savings Bank shall establish and
maintain a liquidation account for the benefit of its savings account holders as
of December 31, 1996 and March 31, 1998. In the event of a complete liquidation
of the Savings Bank, it shall comply with such regulations with respect to the
amount and the priorities on liquidation of each of the Savings Bank's eligible
savers' inchoate interest in the liquidation account, to the extent it is still
in existence: Provided, that an eligible savers' inchoate interest in the
liquidation account shall not entitle such eligible saver to any voting rights
at meetings of the Savings Bank's stockholders.
B-3
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SECTION 8. DIRECTORS. The Savings Bank shall be under the direction of a
Board of Directors. The authorized number of directors, as stated in the
Savings Bank's bylaws, shall not be fewer than five nor more than fifteen except
when a greater or lesser number is approved by the Director of the Office, or
his or her delegate.
SECTION 9. AMENDMENT OF CHARTER. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is proposed by the Board of Directors of the Savings Bank,
approved by the shareholders by a majority of the votes eligible to be cast at a
legal meeting, unless a higher vote is otherwise required, and approved or
preapproved by the Office.
* * *
Attest: _____________________________ By: ______________________________
Clarke A. Blackford Carl D. Smith
Secretary of the Savings Bank President and Chief Executive
Officer
of the Savings Bank
By: _____________________________ By: ______________________________
Secretary of the Director of the
Office of Thrift Supervision Office of Thrift Supervision
Effective Date: _______________, 1998
B-4
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EXHIBIT C
BYLAWS
PEOPLES COMMUNITY BANK
ARTICLE I - HOME OFFICE
The home office of Peoples Community Bank ("Savings Bank") shall be
located at 819 Main Street, in the City of Tell City, in the County of Perry, in
the State of Indiana.
ARTICLE II - SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the Savings Bank or at such
other place as the Board of Directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the Savings
Bank for the election of directors and for the transaction of any other business
of the Savings Bank shall be held annually within 150 days after the end of the
Savings Bank's fiscal year on the third Wednesday of April, if not a legal
holiday, and if a legal holiday, then on the next day following which is not a
legal holiday, at 2:00 p.m., local time, or at such other date and time within
such 150-day period as the Board of Directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
Chairman of the Board, the President, or a majority of the Board of Directors,
and shall be called by the Chairman of the Board, the President, or the
Secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Savings Bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the
meeting and shall be delivered to the home office of the Savings Bank addressed
to the Chairman of the Board, the President, or the Secretary.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws or the
Board of Directors adopts another written procedure for conduct of meetings.
The Board of Directors shall designate, when present, either the Chairman of the
Board or President to preside at such meetings.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, day,
and hour of the meeting and the purpose(s) for which the meeting is called shall
be delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman of
the Board, the President, or the Secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the Savings Bank as of the record date prescribed in Section
6 of this Article II with postage prepaid. When any shareholders' meeting,
either annual or special, is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It
shall not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more
than 60 days and, in case of a meeting of shareholders, not fewer than 10 days
prior to the date on which the particular action
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requiring such determination of shareholders is to be taken. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall apply to any
adjournment.
SECTION 7. VOTING LISTS. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Savings Bank shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each.
This list of shareholders shall be kept on file at the home office of the
Savings Bank and shall be subject to inspection by any shareholder of record or
the shareholder's agent at any time during usual business hours for a period of
20 days prior to such meeting. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to inspection by any
shareholder of record or the shareholder's agent during the entire time of the
meeting. The original stock transfer book shall constitute prima facie evidence
of the shareholders entitled to examine such list or transfer books or to vote
at any meeting of shareholders. In lieu of making the shareholder list
available for inspection by shareholders as provided in the preceding paragraph,
the Board of Directors may elect to follow procedures prescribed in Section
552.6(d) of the Office's regulations as now or hereafter in effect.
SECTION 8. QUORUM. A majority of the outstanding shares of the Savings
Bank entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. If less than a majority of the outstanding
shares is represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders,
unless the vote of a greater number of shareholders voting together or voting by
classes is required by law or the charter. Directors, however, are elected by a
plurality of the votes cast at an election of directors.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies may be given telephonically or
electronically as long as the holder uses a procedure for verifying the identity
of the shareholder. Proxies solicited on behalf of the management shall be
voted as directed by the shareholder or, in the absence of such direction, as de
termined by a majority of the Board of Directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Savings Bank to the contrary, at any meeting of the
shareholders of the Savings Bank any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares held in trust in an IRA or Keogh Account, however, may be voted by the
Savings Bank if no other instructions are received. Shares standing in the name
of a receiver may be voted by such receiver, and shares held by or under the
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control of a receiver may be voted by such receiver without the transfer into
his or her name if authority to do so is contained in an appropriate order of
the court or other public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Savings Bank nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the Savings
Bank, shall be voted at any meeting or counted in determining the total number
of outstanding shares at any given time for purposes of any meeting.
SECTION 12. CUMULATIVE VOTING. Every shareholder entitled to vote at an
election for directors shall have the right to vote, in person or by proxy, the
number of shares owned by the shareholder for as many persons as there are
directors to be elected and for whose election the shareholder has a right to
vote, or to cumulate the votes by giving one candidate as many votes as the
number of such directors to be elected multiplied by the number of shares shall
equal or by distributing such votes on the same principle among any number of
candidates.
SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board of Directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the Chairman of the Board or the President may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the Board of
Directors in advance of the meeting or at the meeting by the Chairman of the
Board or the President.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
SECTION 14. NOMINATING COMMITTEE. The Board of Directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Savings Bank. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the Secretary of the Savings Bank at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the Savings Bank. Ballots bearing the
names of all persons nominated by the nominating committee and by shareholders
shall be provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.
SECTION 15. NEW BUSINESS. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the Secretary of the Savings
Bank at least five days before the date of the annual meeting, and all business
so stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed
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and considered, but unless stated in writing and filed with the Secretary at
least five days before the meeting, such proposal shall be laid over for action
at an adjourned, special, or annual meeting of the shareholders taking place 30
days or more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors,
and committees; but in connection with such reports, no new business shall be
acted upon at such annual meeting unless stated and filed as herein provided.
SECTION 16. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Savings Bank
shall be under the direction of its Board of Directors. The Board of Directors
shall annually elect a Chairman of the Board and a President from among its
members and shall designate, when present, either the Chairman of the Board or
the President to preside at its meetings.
SECTION 2. NUMBER AND TERM. The Board of Directors shall consist of
five members and shall be divided into three classes as nearly equal in number
as possible. The members of each class shall be elected for a term of three
years and until their successors are elected and qualified. One class shall be
elected by ballot annually.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this bylaw following the
annual meeting of shareholders. The Board of Directors may provide, by
resolution, the time and place for the holding of additional regular meetings
without other notice than such resolution. Directors may participate in a
meeting by means of a conference telephone or similar communications device
through which all persons participating can hear each other at the same time.
Participation by such means shall constitute presence in person for all
purposes.
SECTION 4. QUALIFICATION. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the Savings
Bank unless the Savings Bank is a wholly owned subsidiary of a holding company.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board, the President,
or one-third of the directors. The persons authorized to call special meetings
of the Board of Directors may fix any place, within the Savings Bank's normal
lending territory, as the place for holding any special meeting of the Board of
Directors called by such persons.
Members of the Board of Directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person for all purposes.
SECTION 6. NOTICE. Written notice of any special meeting shall be given
to each director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall
be deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, when delivered to the telegraph company if sent by telegram,
or when the Savings Bank receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing filed
with the Secretary. The attendance of a director at a meeting shall constitute
a waiver of notice of such meeting, except where a director attends a meeting
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice of waiver of notice of such meeting.
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SECTION 7. QUORUM. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of this Article III.
SECTION 8. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken by the Board of Directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
SECTION 10. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Savings Bank
addressed to the Chairman of the Board or the President. Unless otherwise
specified, such resignation shall take effect upon receipt by the Chairman of
the Board or the President. More than three consecutive absences from regular
meetings of the Board of Directors, unless excused by resolution of the Board of
Directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the Board of Directors.
SECTION 11. VACANCIES. Any vacancy occurring on the Board of Directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the Board of Directors. A director elected to
fill a vacancy shall be elected to serve only until the next election of
directors by the shareholders. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election by the Board of
Directors for a term of office continuing only until the next election of
directors by the shareholders.
SECTION 12. COMPENSATION. Directors, as such, may receive a stated salary
for their services. By resolution of the Board of Directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the Board of Directors. Members
of either standing or special committees may be allowed such compensation for
attendance at committee meetings as the Board of Directors may determine.
SECTION 13. PRESUMPTION OF ASSENT. A director of the Savings Bank who is
present at a meeting of the Board of Directors at which action on any Savings
Bank matter is taken shall be presumed to have assented to the action taken
unless his or her dissent or abstention shall be entered in the minutes of the
meeting or unless he or she shall file a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the Savings
Bank within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in favor
of such action.
SECTION 14. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, any director may be removed only for cause by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of
the shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
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ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. The Board of Directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the Board of Directors, or any director,
of any responsibility imposed by law or regulation.
SECTION 2. AUTHORITY. The executive committee, when the Board of
Directors is not in session, shall have and may exercise all of the authority of
the Board of Directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the Board of
Directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the Savings Bank, or recommending to the shareholders a
plan of merger, consolidation, or conversion; the sale, lease, or other
disposition of all or substantially all of the property and assets of the
Savings Bank otherwise than in the usual and regular course of its business; a
voluntary dissolution of the Savings Bank; a revocation of any of the foregoing;
or the approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the Board of Directors following his or her
designation and until a successor is designated as a member of the executive
committee.
SECTION 4. MEETINGS. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee
may be called by any member thereof upon not less than one day's notice stating
the place, date, and hour of the meeting, which notice may be written or oral.
Any member of the executive committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in person.
The notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
SECTION 5. QUORUM. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.
SECTION 7. VACANCIES. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full Board of Directors.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full Board of Directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the President or Secretary of the Savings Bank. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
SECTION 9. PROCEDURE. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information at
the meeting held next after the proceedings shall have occurred.
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SECTION 10. OTHER COMMITTEES. The Board of Directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Savings Bank and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - OFFICERS
SECTION 1. POSITIONS. The officers of the Savings Bank shall be a
President, one or more Vice Presidents, a Secretary, and a Treasurer or
Comptroller, each of whom shall be elected by the Board of Directors. The Board
of Directors may also designate the Chairman of the Board as an officer. The
offices of the Secretary and Treasurer or Comptroller may be held by the same
person and a Vice President may also be either the Secretary or the Treasurer or
Comptroller. The Board of Directors may designate one or more vice presidents
as Executive Vice President or Senior Vice President. The Board of Directors
may also elect or authorize the appointment of such other officers as the
business of the Savings Bank may require. The officers shall have such
authority and perform such duties as the Board of Directors may from time to
time authorize or determine. In the absence of action by the Board of
Directors, the officers shall have such powers and duties as generally pertain
to their respective offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Savings
Bank shall be elected annually at the first meeting of the Board of Directors
held after each annual meeting of the shareholders. If the election of officers
is not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly
elected and qualified or until the officer's death, resignation, or removal in
the manner hereinafter provided. Election or appointment of an officer,
employee, or agent shall not of itself create contractual rights. The Board of
Directors may authorize the Savings Bank to enter into an employment contract
with any officer in accordance with regulations of the Office; but no such
contract shall impair the right of the Board of Directors to remove any officer
at any time in accordance with Section 3 of this Article V.
SECTION 3. REMOVAL. Any officer may be removed by the Board of
Directors whenever in its judgment the best interests of the Savings Bank will
be served thereby, but such removal, other than for cause, shall be without
prejudice to any contractual rights, if any, of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall be
fixed from time to time by the Board of Directors.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by regulations of the
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the Board of Directors may authorize any officer,
employee, or agent of the Savings Bank to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Savings Bank. Such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the Savings
Bank and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Savings Bank shall be signed by one or more officers, employees, or
agents of the Savings Bank in such manner as shall from time to time be
determined by the Board of Directors.
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SECTION 4. DEPOSITS. All funds of the Savings Bank not otherwise
employed shall be deposited from time to time to the credit of the Savings Bank
in any duly authorized depositories as the Board of Directors may select.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the Savings Bank shall be in such form as shall be determined
by the Board of Directors and approved by the Office. Such certificates shall
be signed by the Chief Executive Officer or by any other officer of the Savings
Bank authorized by the Board of Directors, attested by the Secretary or an
Assistant Secretary, and sealed with the corporate seal or a facsimile thereof.
The signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the Savings Bank itself or one of its employees. Each certificate
for shares of capital stock shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares are issued,
with the number of shares and date of issue, shall be entered on the stock
transfer books of the Savings Bank. All certificates surrendered to the Savings
Bank for transfer shall be canceled and no new certificate shall be issued until
the former certificate for a like number of shares has been surrendered and
canceled, except that in the case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the Savings Bank as
the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of
the Savings Bank shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Savings Bank. Such transfer shall be made only on surrender for
cancellation of the certificate for such shares. The person in whose name
shares of capital stock stand on the books of the Savings Bank shall be deemed
by the Savings Bank to be the owner for all purposes.
ARTICLE VIII - FISCAL YEAR
The fiscal year of the Savings Bank shall end on the 31st day of December
of each year. The appointment of accountants shall be subject to annual
ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject to the terms of the Savings Bank's charter and the regulations
and orders of the Office, the Board of Directors may, from time to time,
declare, and the Savings Bank may pay, dividends on its outstanding shares of
capital stock.
ARTICLE X - CORPORATE SEAL
The Board of Directors shall provide an Savings Bank seal, which shall be
two concentric circles between which shall be the name of the Savings Bank. The
year of incorporation or an emblem may appear in the center.
ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of
the Office and shall be effective after: (i) approval of the amendment by a
majority vote of the authorized Board of Directors, or by a majority vote of the
votes cast by the shareholders of the Savings Bank at any legal meeting, and
(ii) receipt of any applicable regulatory approval. When an Savings Bank fails
to meet its quorum requirements, solely due to vacancies on the Board, then the
affirmative vote of a majority of the sitting Board will be required to amend
the bylaws.
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