Filed with the Securities and Exchange Commission on September 14, 1998
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
LINCOLN BANCORP
(Exact name of registrant as specified in its charter)
Indiana 6712 35-2055553
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code No.) Identification No.)
incorporation
or organization)
1121 East Main Street T. Tim Unger
P.O. Box 510 Lincoln Federal
Plainfield, Indiana 46168-0510 Savings Bank
(317) 839-6539 1121 East Main Street
P.O. Box 510
Plainfield, Indiana 46168-0510
(317) 839-6539
Copy to:
Claudia V. Swhier, Esq.
Barnes & Thornburg
11 South Meridian Street
Indianapolis, Indiana 46204
Approximate date of commencement of proposed sale to the public: As
promptly as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box:
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
<TABLE>
<CAPTION>
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CALCULATION OF REGISTRATION FEE
Proposed Proposed Maximum Amount of
Title of each Class of Amount to be Maximum Offering Aggregate Offering Registration
Securities to be Registered Registered Price Per Unit Price (2) Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without par value (1) 8,926,875 $10.00 $89,268,750 $26,334.28
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</TABLE>
(1) Includes 250,000 shares fo Common Stock which may be issued to the Lincoln
Federal Charitable Foundation, Inc. for no cash consideration
(2) Estimated solely for the purpose of computing the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Item in Form S-1 Caption in Prospectus
---------------- ---------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside Forepart of Registration Statement and Outside
Front Cover Page of Prospectus Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover Pages of
Prospectus Prospectus
3. Summary Information, Risk Factors, and Ratio of "QUESTIONS AND ANSWERS ABOUT
Earnings to Fixed Charges THE STOCK OFFERING"; "SUMMARY"; "RISK
FACTORS"
4. Use of Proceeds "USE OF PROCEEDS"
5. Determination of Offering Price "THE CONVERSION - Stock Pricing"
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution "SUMMARY"; "THE CONVERSION - Subscription
Offering," "- Community Offering," "-Marketing
Arrangements," "- Selected Dealers"
9. Description of Securities to be Registered "DESCRIPTION OF CAPITAL STOCK"
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to Registrant
(a) Description of Business "LINCOLN BANCORP"; "LINCOLN FEDERAL
SAVINGS BANK", "BUSINESS OF LINCOLN FEDERAL
SAVINGS BANK"
(b) Description of Property "BUSINESS OF LINCOLN FEDERAL SAVINGS BANK
- Properties"
(c) Legal Proceedings "BUSINESS OF LINCOLN FEDERAL SAVINGS
BANK - Legal Proceedings"
(d) Market Price of and Dividends on the "MARKET FOR THE COMMON STOCK;"
Registrant's Common Equity and Related "DIVIDENDS;" "PROPOSED PURCHASES
Stockholder Matters BY DIRECTORS AND EXECUTIVE OFFICERS";
"DESCRIPTION OF CAPITAL STOCK"
(e) Financial Statements "CONSOLIDATED FINANCIAL STATEMENTS";
"PRO FORMA DATA"
(f) Selected Financial Data "SELECTED CONSOLIDATED FINANCIAL
DATA OF LINCOLN FEDERAL SAVINGS BANK
AND SUBSIDIARY"
(g) Supplementary Financial Information Not Applicable
(h) Management's Discussion and Analysis of "MANAGEMENT'S DISCUSSION AND
Financial Condition and Results of Operations ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF LINCOLN FEDERAL
SAVINGS BANK"
(i) Changes in and Disagreements with Accountants Not Applicable
on Accounting and Financial Disclosure
(j) Directors and Executive Officers "MANAGEMENT OF LINCOLN BANCORP";
"MANAGEMENT OF LINCOLN FEDERAL SAVINGS
BANK"
(k) Executive Compensation "EXECUTIVE COMPENSATION
AND RELATED TRANSACTIONS OF LINCOLN
FEDERAL"
(l) Security Ownership of Certain Beneficial "PROPOSED PURCHASES BY DIRECTORS AND
Owners and Management EXECUTIVE OFICERS"
(m) Certain Relationships and Related Transactions "EXECUTIVE COMPENSATION AND RELATED
TRANSACTIONS OF LINCOLN FEDERAL --
Transactions with Certain Related Persons"
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
</TABLE>
<PAGE>
PROSPECTUS
Up to 8,676,875 Shares of Common Stock
Lincoln Bancorp
1121 East Main Street
Plainfield, Indiana 46168
(317) 839-6539
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Lincoln Federal Savings Bank based in Plainfield, Indiana is converting
from the mutual form to the stock form of organization. Upon completion of the
conversion, Lincoln Federal Savings Bank will become a wholly-owned subsidiary
of Lincoln Bancorp, which was formed in September, 1998. The common stock of
Lincoln Bancorp is being offered to the public under the terms of a Plan of
Conversion which must be approved by the Office of Thrift Supervision and by a
majority of the votes eligible to be cast by members of Lincoln Federal Savings
Bank. The offering will not go forward if Lincoln Federal Savings Bank does not
receive these approvals. Lincoln Bancorp has received conditional approval to
have its common stock listed for quotation on the Nasdaq National Market System
under the symbol "_______."
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TERMS OF OFFERING
An independent appraiser has estimated the market value of the
converted Lincoln Federal Savings Bank to be between $54,875,000 and
$75,125,000, which establishes the number of shares to be offered based upon a
price of $10 per share. This estimate assumes a contribution by Lincoln Bancorp
of 250,000 shares of common stock to Lincoln Federal Charitable Foundation, Inc.
Subject to Office of Thrift Supervision approval, the maximum number of shares
to be offered may be increased to 8,676,875 shares. Based on these estimates, we
are making the following offering of shares of common stock.
<TABLE>
<CAPTION>
Minimum Maximum Supermaximum
<S> <C> <C> <C>
o Price Per Share: $10 $10 $10
o Number of Shares 5,487,500 7,512,500 8,676,875
o Conversion Expenses $1,304,175 $1,496,063 $1,606,400
o Net Proceeds to Lincoln Bancorp $53,570,825 $73,628,937 $85,162,350
o Net Proceeds per share to Lincoln Bancorp $9.76 $9.80 $9.81
(excluding the shares issued to Lincoln Federal
Charitable Foundation, Inc.)
</TABLE>
Please refer to Risk Factors beginning on page 11 of this document.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any state securities regulator has approved or disapproved
these securities or determined if this prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.
Charles Webb and Company will use its best efforts to help Lincoln Bancorp sell
at least the minimum number of shares but does not guarantee this number will be
sold. All funds received from subscribers will be held in an escrow savings
account at Lincoln Federal Savings Bank earning interest at the passbook rate of
2.97% until the completion or termination of the Conversion.
For information on how to subscribe, call the Stock Information Center at (317)
_____________.
CHARLES WEBB & COMPANY
A Division of Keefe, Bruyette & Woods, Inc.
Prospectus dated ________________, 1998
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q: What is the purpose of the offering?
A: The offering means that you will have the opportunity to share in our
future as a shareholder of the newly formed holding company named
Lincoln Bancorp which will own Lincoln Federal Savings Bank. The stock
offering will increase our capital and the amount of funds available to
us for lending and investment activities. This will give us greater
flexibility to diversify operations and expand into other geographic
markets if we choose to do so. As a stock savings association operating
through a holding company structure, we will have the ability to plan
and develop long-term growth and improve our future access to the
capital markets. In addition, our shareholders might also receive
dividends and benefit from any long-term appreciation of our stock
price if our earnings are sufficient in the future.
Q: How do I purchase the stock?
A: You must complete and return the Stock Order Form to us, together with
your payment, on or before ___________, 1998.
Q: How much stock may I purchase?
A: The minimum purchase is 25 shares (or $250). Each person with
subscription rights, in his capacity as such, may purchase up to 25,000
shares (or $250,000) in the Subscription Offering, subject to an
overall maximum of 86,768 shares ($867,680). Joint account holders
ordering through a single account may not collectively exceed these
purchase limitations. Joint account holders ordering through more than
one account may each purchase up to 25,000 shares, subject to the
overall maximum of 86,768 shares. For example, if you have more than
one account at Lincoln Federal Savings Bank, each in the same name, you
may purchase up to 25,000 shares in the Subscription Offering. If you
have only one account at Lincoln Federal Savings Bank held jointly with
your spouse, together you and your spouse may only purchase up to
25,000 shares in the Subscription Offering. If you and your spouse hold
two or more joint accounts, you may each purchase up to 25,000 shares,
subject to the overall maximum of 86,768 shares.
If we have a Community Offering, each purchaser may purchase up to
25,000 shares in that offering. However, your total purchases in the
Conversion may not exceed 86,768 shares (or $867,680). In certain
instances, your purchase may be grouped together with purchases by
other persons who are associated with you. We may increase or decrease
the maximum purchase limitation. If the offering is oversubscribed,
shares will be allocated based upon a formula.
Q: What happens if there are not enough shares to fill all orders?
A: You might not receive any or all of the shares you want to purchase. If
there is an oversubscription, the stock will be offered on a priority
basis to the following persons:
o Persons who had a deposit account with us on June 30, 1997.
(Lincoln Bancorp's employee stock ownership plan will have
priority over such persons if more than 7,512,500 shares are
sold, to the extent of any shares sold over 7,512,500 and up
to the number of shares subscribed for by such plan). Any
remaining shares will be offered to:
o The employee stock ownership plan of Lincoln Bancorp. Any
remaining shares will be offered to:
o Persons who had a deposit account with us on September 30,
1998. Any remaining shares will be offered to:
o Other depositors of ours, as of ______________, 1998, and our
borrowers as of June 19, 1984 who remain borrowers on
______________, 1998.
If the above persons do not subscribe for all of the shares, the
remaining shares will be offered to certain members of the general
public in a Community Offering, with preference given to people who
live in Hendricks, Montgomery and Clinton Counties, Indiana.
Q: What particular factors should I consider when deciding whether or not
to buy the stock?
A: Before you decide to purchase stock, you should read this Prospectus.
In particular, you should read and consider the Risk Factors section on
pages 11 to 15 of this document.
Q: As a depositor of Lincoln Federal Savings Bank, what will happen if I
do not purchase any stock?
A: You presently have voting rights while we are in the mutual form;
however, once we convert to the stock form you will lose your voting
rights unless you purchase stock. Even if you do purchase stock, your
voting rights will depend on the amount of stock that you own and not
on your deposit account at Lincoln Federal Savings Bank. You are not
required to purchase stock. Your deposit account, certificate accounts
and any loans you may have with us will not otherwise be affected by
the Conversion.
Q: Can I purchase stock on behalf of someone else who does not have an
account or is not a borrower at Lincoln Federal Savings Bank?
A: No. You may not transfer the subscription rights that you have as a
depositor or borrower at Lincoln Federal Savings Bank. You will be
required to certify that you are purchasing shares solely for your own
account and that you have no agreement or understanding with another
person involving the transfer of the shares that you purchase. We will
not honor orders for shares of the Common Stock by anyone known to us
to be a party to such an agreement and we will pursue all legal
remedies against any person who is a party to such an agreement.
Q: How may I pay for my shares of stock?
A: First, you may pay for stock by check, cash (only if presented in
person) or money order. Interest will be paid by Lincoln Federal
Savings Bank on these funds at its passbook rate, which is currently
2.97% per annum, from the day the funds are received until the
completion or termination of the Conversion. Second, you may authorize
us to withdraw funds from your savings account(s) or certificate(s) of
deposit at Lincoln Federal Savings Bank for the amount of funds you
specify for payment. You will not have access to these funds from the
day we receive your order until completion or termination of the
Conversion.
Q: Can I purchase shares using funds in any IRA accounts I hold?
A: Applicable regulations do not permit the purchase of common stock from
your existing Lincoln Federal Savings Bank IRA account. To accommodate
our depositors, however, we have made arrangements with an outside
trustee to allow such purchases. Please call our Stock Information
Center for additional information.
Q: Who can help answer any other questions I may have about the stock
offering?
A: In order to make an informed investment decision, you should read this
entire document. After reading this document, if you have questions or
need assistance, you should contact:
Stock Information Center
Lincoln Federal Savings Bank
P.O. Box 720
1121 East Main Street
Plainfield, Indiana 46168
(317) _______________
<PAGE>
SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read carefully this entire document, including
the consolidated financial statements and the notes to the consolidated
financial statements of Lincoln Federal Savings Bank. References in this
document to "we", "us", "our" and "Lincoln Federal" refer to Lincoln Federal
Savings Bank. In certain instances where appropriate, "us" or "our" refer
collectively to Lincoln Bancorp and Lincoln Federal Savings Bank. References in
this document to "the Holding Company" refer to Lincoln Bancorp.
The Companies
Lincoln Bancorp
1121 East Main Street
Plainfield, Indiana 46168
(317) 839-6539
Lincoln Bancorp is not currently an operating company and has not
engaged in any significant business to date. It was formed in September, 1998,
as an Indiana corporation to be the holding company for Lincoln Federal Savings
Bank. The holding company structure will provide greater flexibility in terms of
operations, expansion and diversification. See page 16.
Lincoln Federal Savings Bank
1121 East Main Street
Plainfield, Indiana 46168
(317) 839-6539
We are a community- and customer-oriented federal mutual savings bank.
We provide financial services to individuals, families and small business.
Historically, we have attracted deposits from the general public and have
emphasized residential mortgage lending, primarily one- to four-family mortgage
loans. We also offer commercial real estate loans, real estate construction
loans, land loans, multi-family residential loans, home equity loans and other
types of consumer loans, and commercial loans. On June 30, 1998, we had total
assets of $304.5 million, deposits of $211.2 million, and equity capital of
$42.8 million. See page 16.
The Stock Offering
Lincoln Bancorp is offering for sale between 5,487,500 and 7,512,500
shares of its Common Stock at $10 per share. This offering may be increased to
8,676,875 shares without further notice to you if market or financial conditions
change prior to the completion of this stock offering or if additional shares of
stock are needed to fill the order of our employee stock ownership plan.
Stock Purchases
Lincoln Bancorp will offer shares of its Common Stock to our depositors
who held deposit accounts as of certain dates and to our borrowers with
outstanding loans as of certain dates. The shares will be offered first in a
Subscription Offering and any remaining shares may be offered in a Community
Offering to members of the general public with preference given to residents of
Hendricks, Montgomery and Clinton Counties. See pages 37 to 40. We have engaged
Charles Webb & Company to assist in the marketing of the Common Stock.
Prohibition on Transfer of Subscription Rights
You may not sell or assign your subscription rights. Any transfer of
subscription rights is prohibited by law. If you exercise your subscription
rights, you will be required to certify that you are purchasing shares solely
for your own account and that you have no agreement or understanding regarding
the sale or transfer of shares. We intend to pursue any and all legal and
equitable remedies in the event we become aware of the transfer of subscription
rights and will not honor orders known by us to involve the transfer of such
rights. In addition, persons who violate the purchase limitations may be subject
to sanctions and penalties imposed by the Office of Thrift Supervision.
The Offering Range and Determination of the Price Per Share
The offering range is based on an independent appraisal of the pro
forma market value of the Common Stock by Keller & Company, Inc., an appraisal
firm experienced in appraisals of savings associations. Keller & Company, Inc.
has estimated that, in its opinion, as of August 14, 1998, the aggregate pro
forma market value of the Common Stock ranged between $54,875,000 and
$75,125,000 (with a mid-point of $65,000,000). This appraisal assumes that the
Holding Company issues 250,000 shares of Common Stock to Lincoln Federal
Charitable Foundation, Inc. The appraisal was based in part upon our financial
condition and operations and the effect of the additional capital raised by the
sale of Common Stock in this offering. The $10.00 price per share was determined
by our board of directors and is the price most commonly used in stock offerings
involving conversions of mutual savings associations. If the pro forma market
value of the Common Stock changes to either below $54,875,000 or above
$86,768,750, we will notify you and provide you with the opportunity to modify
or cancel your order. See pages 43 to 45.
Termination of the Offering
The Subscription Offering will terminate at 12:00 noon, Plainfield
time, on ___________, 1998. The Community Offering, if any, may terminate at any
time without notice but no later than ____________, without approval by the OTS.
Benefits to Management from the Offering
Our full-time employees will participate in our employee stock
ownership plan, which is a form of retirement plan that will purchase shares of
Lincoln Bancorp's Common Stock. We also intend to implement a management
recognition and retention plan and a stock option plan following completion of
the Conversion, which will benefit our officers and directors. If we adopt the
management recognition and retention plan, our executive officers and directors
will be awarded up to 357,075 shares of Common Stock at no cost to them,
assuming that we sell 8,676,875 shares of Common Stock in the Conversion and
issue an additional 250,000 shares to the Foundation. These shares would vest
over a five-year period. If we award shares under the recognition and retention
plan out of our authorized but unissued shares of Common Stock, your ownership
and voting interests would be diluted and net income per share and shareholders'
equity per share will decrease. However, the management recognition and
retention plan and stock option plan may not be adopted until at least six
months after the Conversion and are subject to shareholder approval and
compliance with OTS regulations. See page 13. We also have entered into a
three-year employment contract with T. Tim Unger, our President and Chief
Executive Officer, in connection with the Conversion. See pages 83 to 87.
Lincoln Federal Charitable Foundation, Inc.
Our Plan of Conversion provides for the establishment of Lincoln
Federal Charitable Foundation, Inc. to provide grants or donations for
charitable activities in our market area. Lincoln Federal Charitable Foundation,
Inc. is incorporated under Indiana law as a nonprofit corporation without
members and operates under the guidance of its Board of Directors. Upon the
completion of the Conversion, the Board will initially consist of four members
of the Board of Directors of Lincoln Bancorp. Lincoln Bancorp intends to issue
250,000 shares of Common Stock to Lincoln Federal Charitable Foundation, Inc.
immediately following the Conversion. This issuance of additional shares of
Common Stock to Lincoln Federal Charitable Foundation, Inc. will dilute the
ownership and voting interests of any shares you may purchase by 3.7%, assuming
the sale of 6,500,000 shares of Common Stock. See pages 17 to 19.
Use of the Proceeds Raised from the Sale of Common Stock
Lincoln Bancorp intends to use a portion of the proceeds from the stock
offering to make a loan to our employee stock ownership plan to fund its
purchase of 8% of the Common Stock sold in the Conversion and issued to the
Foundation. Lincoln Bancorp will use 50% of the proceeds that remain after it
pays expenses incurred in connection with the Conversion to purchase all of the
capital stock to be issued by Lincoln Federal Savings Bank. Lincoln Bancorp will
retain the balance of the proceeds as a possible source of funds for the payment
of dividends, if any, to shareholders, to repurchase shares of Common Stock in
the future, to acquire one or more other financial institutions or assets of
other financial institutions, or for other general corporate purposes. The
Holding Company has no present plans, agreements or understandings to acquire
another financial institution or the assets of another financial institution or
to repurchase shares of Common Stock. Lincoln Federal intends to use the
proceeds it receives in the Conversion to support its lending activities, to
repay advances from the Federal Home Loan Bank of Indianapolis and to purchase
mortgage-backed securities and, possibly, loan participations from other
financial institutions. On a short-term basis, both the Holding Company and
Lincoln Federal may invest the net proceeds that they retain in short- or
intermediate-term investments. See pages 19 to 20.
Dividends
Following consummation of the Conversion, the Board of Directors of the
Holding Company intends to implement a policy of paying quarterly cash dividends
on the Common Stock. However, there has been no determination made at this time
as to the initial rate of dividends, if any, to be paid on the Common Stock.
Declarations of dividends by the Holding Company's Board of Directors will
depend upon a number of factors, including the amount of the net proceeds
retained by the Holding Company in the Conversion, investment opportunities
available to the Holding Company or to Lincoln Federal, capital requirements,
the Holding Company's and Lincoln Federal's financial condition and results of
operations, tax considerations, statutory and regulatory limitations, and
general economic conditions. There can be no assurances that dividends will in
fact be paid on the Common Stock or that, if paid, such dividends will not be
reduced or eliminated in future periods. See pages 20 to 21.
Market for the Common Stock
Lincoln Bancorp has received conditional approval to have its Common
Stock listed for quotation on the Nasdaq National Market System under the symbol
"________." Even though we expect that the shares of Common Stock will be quoted
on the Nasdaq National Market System, there can be no guarantee that an active
and liquid trading market for the shares will develop and be maintained. The
Common Stock may not be appropriate as a short-term investment. If you purchase
shares, you may not be able to sell them when you want to at a price that is
equal to or more than the price you paid. See page 21.
Important Risks in Owning the Holding Company's Common Stock
Before you decide to purchase stock in the offering, you should read
the Risk Factors section on pages 11 to 15 of this document.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
The following selected consolidated financial data of Lincoln Federal and
its subsidiary is qualified in its entirety by, and should be read in
conjunction with, the consolidated financial statements, including notes
thereto, included elsewhere in this Prospectus. Information at June 30, 1998 and
for the six months ended June 30, 1998 and 1997 is unaudited but, in the opinion
of management, includes all adjustments (comprising only normal recurring
accruals) necessary for a fair presentation of the financial position and
results of operations as of and for such dates. The results of operations at and
for the six months ended June 30, 1998 are not necessarily indicative of the
results of operations for the entire year.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
(In thousands)
Summary of Financial Condition Data:
<S> <C> <C> <C> <C> <C> <C>
Total assets............................................ $304,500 $321,391 $345,552 $319,777 $309,010 $225,500
Cash and interest bearing deposits in other banks (1)... 23,765 18,958 10,394 8,882 21,488 5,937
Investment securities available for sale................ 58,940 29,399 118 116 114 115
Investment securities held to maturity.................. 3,500 9,635 15,185 11,600 12,748 9,748
Mortgage loans held for sale............................ 19,264(2) --- 24,200 15,534 16,141 8,779
Loans................................................... 184,850 249,996 282,813 270,933 245,159 190,131
Allowance for loan losses............................... (1,432) (1,361) (1,241) (1,121) (1,046) (1,056)
Net loans............................................... 183,418(3) 248,635 (3) 281,572 269,812 244,113 189,075
Investment in limited partnerships...................... 2,633 2,706 3,187 3,583 5,019 5,432
Deposits................................................ 211,160 203,852 210,823 196,117 185,219 177,498
Borrowings.............................................. 47,889 72,827 94,412 85,604 90,294 17,645
Equity capital - substantially restricted............... 42,795 41,978 37,919 34,930 31,546 28,165
</TABLE>
(1) Includes certificates of deposits in other financial institutions.
(2) Loans held for sale at June 30, 1998 consist of loans sold to a private
investor in a transaction that closed in July, 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Lincoln Federal Savings Bank and Subsidiary -- Asset/Liability Management."
(3) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Lincoln Federal Savings Bank and Subsidiary --
Asset/Liability Management" for a discussion of the decline in our net
loans.
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ---------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(In thousands)
Summary of Operating Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income................................ $11,413 $12,867 $25,297 $24,453 $22,065 $18,309 $15,713
Total interest expense............................... 6,855 7,745 15,652 15,119 14,486 9,418 7,512
-------- ------ ------ ------ ------ ------ ------
Net interest income............................... 4,558 5,122 9,645 9,334 7,579 8,891 8,201
Provision for loan losses............................ 410 50 298 120 100 (1) 369
-------- ------ ------ ------ ------ ------ ------
Net interest income after provision
for losses on loans............................. 4,148 5,072 9,347 9,214 7,479 8,892 7,832
-------- ------ ------ ------ ------ ------ ------
Other income (losses):
Net realized-and unrealized-gain (loss) on loans
held for sale................................... (114) (18) 299 (160) 1,463 (1,380) 643
Net realized- and unrealized-gains on securities
available for sale.............................. 105 --- 118 --- --- --- ---
Equity in losses of limited partnerships.......... (268) (327) (681) (596) (1,595) (663) (450)
Other............................................. 378 285 674 503 473 529 684
-------- ------ ------ ------ ------ ------ ------
Total other income (loss)....................... 101 (60) 410 (253) 341 (1,514) 877
-------- ------ ------ ------ ------ ------ ------
Other expenses:
Salaries and employee benefits.................... 1,318 1,022 2,247 1,719 1,529 1,360 1,156
Net occupancy expenses............................ 135 133 272 236 272 287 273
Equipment expenses................................ 300 249 526 361 176 174 156
Deposit insurance expense......................... 100 85 194 1,725 438 408 284
Data processing expense........................... 369 268 581 313 228 201 180
Professional fees................................. 177 140 238 69 48 41 54
Mortgage servicing rights amortization............ 126 5 67 12 9 54 267
Other............................................. 570 546 960 668 544 375 232
-------- ------ ------ ------ ------ ------ ------
Total other expenses........................... 3,095 2,448 5,085 5,103 3,244 2,900 2,602
-------- ------ ------ ------ ------ ------ ------
Income before income taxes, extraordinary item
and cumulative effect of change in
accounting principle............................ 1,154 2,564 4,672 3,858 4,576 4,478 6,107
Income taxes...................................... 187 701 1,159 870 1,193 1,095 2,287
-------- ------ ------ ------ ------ ------ ------
Income before extraordinary item and cumulative
effect of change in accounting principle.......... 967 1,863 3,513 2,988 3,383 3,383 3,820
Extraordinary item-early extinguishment of debt,
net of income taxes of $99........................ 150 --- --- --- --- --- ---
Cumulative effect of change
in accounting principle......................... --- --- --- --- --- --- 356
-------- ------ ------ ------ ------ ------ ------
Net income...................................... $ 817 $1,863 $3,513 $2,988 $3,383 $3,383 $4,176
======== ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
Supplemental Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Return on assets (1) (2)...................... .53 1.07 1.02 .90 1.09 1.32 2.06
Return on equity (1) (3)...................... 3.81 9.52 8.71 8.08 9.92 11.08 15.84
Equity to assets (4).......................... 14.05 11.25 13.06 10.97 10.92 10.21 12.49
Interest rate spread during period (1) (5).... 2.39% 2.53% 2.41% 2.36% 1.99% 3.24% 3.86%
Net yield on interest-earning assets (1) (6).. 3.06 3.05 2.92 2.91 2.55 3.67 4.34
Efficiency Ratio (7).......................... 66.43 48.36 50.57 56.19 40.96 39.31 28.66
Other expenses to average assets (1)(8)....... 2.15 1.40 1.47 1.54 1.05 1.13 1.29
Average interest-earning assets to average
interest-bearing liabilities............... 114.59 111.21 110.88 111.80 111.31 111.18 112.05
Non-performing assets to total assets (4)..... .57 .99 1.14 .73 .75 .04 .13
Allowance for loan losses to total loans
outstanding (4) (9)........................ .70 .40 .54 .40 .39 .40 .53
Allowance for loan losses to
non-performing loans (4)................... 87.16 36.91 37.56 50.80 46.81 780.60 350.08
Net charge-offs to average
total loans outstanding ................... .15 --- .06 --- .01 --- .01
Number of full service offices (4)............ 4 4 4 4 4 4 4
</TABLE>
- ---------------
(1) Information for six months ended June 30, 1998 and 1997, has been
annualized. Interim results are not necessarily indicative of the results
of operations for an entire year.
(2) Net income divided by average total assets.
(3) Net income divided by average total equity.
(4) At end of period.
(5) Interest rate spread is calculated by substracting combined average
interest cost from combined average interest rate earned for the period
indicated.
(6) Net interest income divided by average interest-earning assets.
(7) Other expenses (excluding federal income tax expense) divided by the sum of
net interest income and noninterest income. Excluding the effect of the
one-time SAIF assessment, the efficiency ratio would have been 42.28% for
the year ended December 31, 1996.
(8) Other expenses divided by average total assets.
(9) Total loans include loans held for sale.
<PAGE>
RISK FACTORS
In addition to the other information in this document, you should
consider carefully the following risk factors in evaluating an investment in the
Common Stock.
Commercial Real Estate and Multi-Family Lending
As of June 30, 1998, we had commercial real estate and multi-family
loans of $14.5 million and $1 million, or 7.0% and .5% of our total loan
portfolio. Although commercial real estate and multi-family loans provide higher
interest rates and shorter terms, these loans have higher credit risks than one-
to four-family residential loans. Commercial and multi-family real estate loans
often involve large loan balances to single borrowers or groups of related
borrowers. In addition, payment experience on loans secured by such properties
typically depends upon the successful operation of the properties and thus may
be subject to a greater extent to adverse conditions in the real estate market
or in the general economy. Accordingly, the nature of the loans makes them more
difficult for management to monitor and evaluate. We have no commercial or
multi-family real estate loans that were non-performing as of June 30, 1998.
Although we believe that our current level of reserves is adequate, if a
significant number of borrowers under these types of loans develop problems, we
may be required to increase by a significant amount our allowance for loan
losses because of the relatively large size of these loans. This, in turn, would
reduce our net income. See "Business of Lincoln Federal Savings Bank Lending
Activities," and "- Non-Performing and Problem Assets."
Risks Related to Construction Loans
As of June 30, 1998, we had 48 real estate construction loans in our
portfolio in an aggregate amount of $7.7 million, including loans in the
aggregate amount of $3.4 million to builders to acquire and develop residential
real estate projects, $4.0 million for the construction of one- to four-family
residential properties, a substantial portion of which were for the construction
of speculative projects, and $368,000 for the construction of commercial real
estate. Construction lending generally is considered riskier than one- to
four-family residential lending because construction loans may have larger loan
balances and, in the case of loans to developers, may depend upon the successful
completion of the project and the ability of the developer to sell the property.
In addition, risk of loss on a construction loan depends largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development and the estimated cost (including interest) of
construction. If our appraisal of the value of the completed project proves to
be overstated, we may have inadequate security for the repayment of the loan
upon completion of construction of the project. As of June 30, 1998, we had
$808,000 of non-performing construction loans, all of which were loans for the
acquisition and development of residential real estate projects. We generally
intend to increase the amounts of real estate construction loans in our
portfolio following the Conversion. See "Business of Lincoln Federal Savings
Bank and Subsidiary - Asset Quality - Non-Performing Assets."
Geographic Concentration of Loans
All of our real estate mortgage loans are secured by properties located
in Indiana, mostly in Hendricks, Montgomery and Clinton Counties. The economy in
those counties is based on a mixture of agriculture and industry, as well as a
variety of service, wholesale and retail businesses. A weakening in the local
real estate market or in the local or national economy, or a reduction in the
workforce at the manufacturing facilities in our market area could result in an
increase in the number of borrowers who default on their loans and a reduction
in the value of the collateral securing the loans, which could reduce our
earnings.
Allowance for Loan Losses
We have established our allowance for loan losses based upon historic
practice and in accordance with generally accepted accounting principles. We
determine the adequacy of our allowance for loan losses based upon estimates
that are particularly susceptible to significant changes in the economic
environment and changes in market conditions. Thus, a weakening in the local or
national economy would likely require us to increase our allowance for loan
losses to account for the increased likelihood that we would experience losses
from our loan portfolio. At June 30, 1998, our allowance for loan losses was
$1.4 million, or .7% of total loans outstanding. There can be no assurance that
our allowance for loan losses will be adequate in the event of a protracted
economic decline in our market area or that banking regulators, when reviewing
our loan portfolio in the future, will not require us to increase our allowance
for loan losses. In either event, any future increase in our allowance for loan
losses would adversely affect earnings.
Dependence on New Management
Our successful operations depend to a considerable degree upon our
management, including T. Tim Unger, who became our President and Chief Executive
Officer in January, 1996, and John M. Baer, who became our Chief Financial
Officer in June, 1997. We have established several other key positions in the
past two years which have been filled by persons hired from outside Lincoln
Federal. These positions include our Accounting Supervisor, Branch Coordinator,
Loan Customer Service Supervisor, Secondary Marketing Manager, Compliance
Officer, Marketing Director and Auditor. In addition, we are currently in the
process of seeking to hire a Vice President to oversee our lending function. We
believe that the addition of these key personnel will allow us to provide
quality service to our customers in the future and will address concerns raised
by regulators regarding inadequate staffing levels in light of our growth over
the past several years. There can be no assurance, however, that our new
management will be successful in operating Lincoln Federal or that staffing
levels will be adequate once all of these positions are filled.
We have entered into a three-year employment agreement with Mr. Unger,
who is 58 years of age. The employment agreement requires certain payments to
Mr. Unger if he is terminated without "just cause" by us or by an entity that
acquires us, or if Mr. Unger terminates the employment agreement "for cause."
The loss of Mr. Unger's services could adversely affect us. While the board of
directors is seeking to attract and retain additional management either as a
successor or supplement to Mr. Unger, there is no assurance that such
individuals will be attracted or retained. If such individuals are retained,
their participation in our management could result in changes to our operating
strategy which could affect our profitability. We do not carry key-man insurance
on Mr. Unger. See "Management of Lincoln Federal Savings Bank" and "Executive
Compensation and Related Transactions of Lincoln Federal-- Employment Contract."
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 which our management opposes. As a result,
shareholders who might desire to participate in such a transaction may not have
an opportunity to do so. Such provisions will also render the removal of the
current board of directors or management of the Holding Company, or the
appointment of new directors to the Board, more difficult. For example, the
Holding Company's Bylaws provide that directors must be residents of Hendricks,
Montgomery or Clinton County, Indiana, must have maintained a deposit or loan
relationship with us for at least nine months and, with respect to a
non-employee director, must have served as a member of a civic or community
organization in Hendricks, Montgomery or Clinton County for at least 12 months
in the five-year period prior to being nominated to the Board (or in the case of
existing directors, prior to September 10, 1998). The Holding Company's Board
may waive one or more of these requirements for new directors appointed in
connection with the acquisition of another financial institution or the
acquisition or opening of a new branch. Further restrictions include:
restrictions on the acquisition of the Holding Company's equity securities and
limitations on voting rights; the classification of the terms of the members of
the board of directors; certain provisions relating to meetings of shareholders;
denial of cumulative voting by shareholders in the election of directors; the
issuance of preferred stock and additional shares of Common Stock without
shareholder approval; and super majority provisions for the approval of certain
business combinations. These provisions may adversely affect the trading price
of our stock. See "Restrictions on Acquisition of the Holding Company."
Lack of Active Market for Common Stock
Even though we expect that the Common Stock will be listed for
quotation on the Nasdaq National Market System, there can be no guarantee that
an active trading market will develop and be maintained. If an active market
does not develop, you may not be able to sell your shares promptly or perhaps at
all, or sell your shares at a price equal to or above the price you paid for the
shares. The Common Stock may not be appropriate as a short-term investment. See
"Market for the Common Stock."
Decreased Return on Average Equity and Increased Expenses Immediately After
Conversion
Return on average equity (net income divided by average equity) is a
ratio commonly used to compare the performance of a savings association to its
peers. For the six-month periods ended June 30, 1998 and 1997, our returns on
average equity (on an annualized basis) were 3.81% and 9.52%, respectively. As a
result of the Conversion, our equity will increase substantially and our
expenses will likely increase because of the costs associated with our employee
stock ownership plan ("ESOP"), proposed management recognition and retention
plan ("RRP"), and the costs of being a public company. Because of the increases
in our equity and expenses, our return on equity is likely to decrease as
compared to our performance in previous years. A lower return on equity could
adversely affect the trading price of our shares.
Limited Growth Potential and Difficulty in Fully Leveraging Capital
We experience strong competition in our local market area in both
originating loans and attracting deposits, primarily from commercial banks,
thrifts and credit unions. We also face competition from other types of
financial service companies such as mortgage bankers and securities firms. See
"Competition." Management believes that we must grow in the future to leverage
the new capital raised in the Conversion. Due to strong competition in our
market area, we may be able to sustain future growth only at modest levels. As a
result, our ability to leverage quickly the net proceeds from the Conversion is
likely to be quite limited. Accordingly, for the near term, return on equity is
likely to be modest or could even decline from present levels due to the limited
growth prospects discussed above. In addition, we anticipate that the Conversion
proceeds will be invested initially in short- or intermediate-term investment
securities, which generally carry a lower yield than residential mortgage loans.
Any increase in the proportion of our assets consisting of these securities
would adversely affect our asset yield and interest rate spread.
Potential Impact of Changes in Interest Rates and the Current Interest Rate
Environment
Our ability to make a profit, like that of most financial institutions,
substantially depends upon our net interest income, which is the difference
between the interest income we earn on our interest-earning assets (such as
mortgage loans) and the interest expense we pay on our interest-bearing
liabilities (such as deposits). As of June 30, 1998, approximately 63.2% of our
mortgage loans have rates of interest which are fixed for the term of the loan
("fixed rate") and which we generally originate with terms of up to 30 years,
while deposit accounts have significantly shorter terms to maturity. Because our
interest-earning assets generally had fixed rates of interest and have longer
effective maturities than our interest-bearing liabilities, the yield on our
interest earning assets generally will adjust more slowly to changes in interest
rates than the cost of our interest-bearing liabilities. As a result, our net
interest income will be adversely affected by material and prolonged increases
in interest rates. In addition, rising interest rates may adversely affect our
earnings because there might be a lack of customer demand for loans. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Lincoln Federal Savings Bank and Subsidiary - Asset/Liability
Management."
Changes in interest rates also can affect the average life of loans and
mortgage-backed securities. Historically lower interest rates in recent periods
have resulted in increased prepayments of loans and mortgage-backed securities
as borrowers refinanced their mortgages in order to reduce their borrowing cost.
Under these circumstances, we are subject to reinvestment risk to the extent
that we are not able to reinvest such prepayments at rates which are comparable
to the rates on the prepaid loans or securities.
Possible Voting Control by Directors and Officers
Our directors and executive officers intend to subscribe for 367,000
shares of Common Stock which, at the midpoint of the Estimated Valuation Range,
would constitute 5.4% of the outstanding shares (including the shares to be
issued to the Foundation). When aggregated with the shares of Common Stock our
executive officers and directors expect to acquire through the Stock Option Plan
and RRP, subject to shareholder approval, our executive officers and directors
would own approximately 1,312,000 shares of Common Stock, or 17.7% of the
outstanding shares at the midpoint of the Estimated Valuation Range (including
the shares to be issued to the Foundation). This ownership of Common Stock by
our management could make it difficult to obtain majority support for
shareholder proposals which are opposed by management. See "Proposed Purchases
by Directors and Executive Officers," "Executive Compensation and Related
Transactions of Lincoln Federal," "Description of Capital Stock," "Restrictions
on Acquisition of the Holding Company," and "Lincoln Federal Charitable
Foundation, Inc. - Potential Anti-Takeover Effect."
Possible Dilutive Effect of RRP and Stock Options
If the Conversion is completed and shareholders approve the RRP and
Stock Option Plan, we intend to issue shares to our officers and directors
through these plans. If the shares for the RRP are issued from our authorized
but unissued stock, your voting control could be diluted by up to approximately
3.9% at the midpoint of the Estimated Valuation Range. If the shares for the
Stock Option Plan are issued from our authorized but unissued stock, your voting
control could be diluted by up to approximately 2.9% at the midpoint of the
Estimated Valuation Range. In either case, the trading price of our Common Stock
may be reduced. See "Pro Forma Data" and "Executive Compensation and Related
Transactions of Lincoln Federal."
Financial Institution Regulation and Future of the Thrift Industry
We are subject to extensive regulation, supervision, and examination by
the Office of Thrift Supervision ("OTS") and the Federal Deposit Insurance
Corporation (the "FDIC"). Several bills have been introduced in the Congress
that would consolidate the OTS with the Office of the Comptroller of the
Currency. If a version of one of these bills is approved, we may be required to
become a state or national commercial bank and become subject to regulation by a
different government agency. As a result of these bills, our investment
authority and the ability of the Holding Company to engage in diversified
activities may be limited or prohibited, which could affect our profitability.
It is impossible at this time to predict the impact of any such legislation on
our operations. See "Regulation."
Impact of Proposed Legislation on Holding Company Activities
Current law generally does not impose any restrictions on the
permissible business activities of a unitary savings and loan holding company.
See "Regulation - Savings and Loan Holding Company Regulation." The U.S. House
of Representatives recently approved a bill (H.R. 10) which includes a provision
that would generally prohibit a company that filed a holding company application
with the OTS after March 31, 1998 from engaging in diversified business
activities. If this provision were to become law, the Holding Company would not
be regulated as a unitary savings and loan holding company but, rather, would be
subject to the activities restrictions that apply to savings and loan holding
companies that control more than one savings association. Such restrictions, if
enacted, could adversely affect our ability to enter into new lines of business,
although we have no current intentions to do so.
Restrictions on Repurchase of Shares
During the first year following the Conversion, the Holding Company may
not generally repurchase its shares except in unusual circumstances as permitted
by the OTS. During each of the second and third years following the Conversion,
the Holding Company may repurchase up to 5% of its outstanding shares. During
those periods, if we decide that repurchases above those limits would be a good
use of funds, we would not be able to do so, without obtaining OTS approval.
There is no assurance that OTS approval would be given. See "The Conversion -
Restrictions on Repurchase of Stock by the Holding Company."
Risk of Delayed Offering
Although we expect to complete the Conversion within the time periods
indicated in this Prospectus, it is possible that adverse market, economic or
other factors could significantly delay the completion of the Conversion, which
could significantly increase our Conversion costs. In this case, however, you
would have the right to modify or rescind your subscription and to have your
subscription funds returned to you promptly, with interest. In the event that
the Conversion is not completed, we will remain a mutual savings bank, and all
subscription funds will be promptly returned to subscribers, with interest. See
"The Conversion."
Income Tax Consequences of Subscription Rights
If the Internal Revenue Service were to determine that the subscription
rights offered to you in connection with the Conversion have an ascertainable
value, your exercise of your subscription rights could result in the recognition
of taxable income. In the opinion of Keller & Company, Inc. ("Keller"), however,
the subscription rights do not have an ascertainable fair market value. See "The
Conversion - Principal Effects of Conversion - Tax Effects."
Year 2000 Compliance
As the year 2000 approaches, concerns have been raised that existing
computer software programs and operating systems may not be able to process data
containing dates after December 31, 1999. Many existing software products were
designed to accommodate only a two digit year (e.g., 1998 is reflected as "98").
Our operating, processing and accounting operations are maintained on computers
and could be affected by Year 2000 issues. We also rely on third-party vendors
for data processing. We are currently working with our third-party vendors to
assess their Year 2000 readiness. While no assurance can be given that our third
party vendors will be Year 2000 compliant, we have been advised that our vendors
are taking appropriate steps to address the issues on a timely basis. Based on
certain preliminary estimates, we believe that our expenses related to upgrading
our systems and software for Year 2000 issues will not exceed $300,000. We also
believe that our testing for Year 2000 compliance should be completed by the
second quarter of 1999. While we currently have no reason to believe that the
cost of addressing these issues will materially affect our products, services or
our ability to compete effectively, no assurance can be made that we or our
third-party vendors will successfully and timely become Year 2000 compliant. We
do not believe, however, that the cost of addressing Year 2000 issues presents a
material event or uncertainty reasonably likely to affect our future financial
results.
Establishment of the Foundation
Consistent with our commitment to the communities we serve, the Plan of
Conversion provides for the establishment of Lincoln Federal Charitable
Foundation, Inc. (the "Foundation"), which will be incorporated under Indiana
law as a nonprofit corporation. The Foundation will provide grants and donations
to support not-for-profit community groups and other types of organizations or
projects. We expect that these activities by the Foundation will enhance our
visibility and reputation in the communities we serve and will enhance the
long-term value of our community banking franchise. Immediately following the
Conversion, we intend to fund the Foundation with 250,000 authorized but
unissued shares of Common Stock. We will be unable to recover these shares of
Common Stock once they have been contributed to the Foundation. We have received
an opinion of our special counsel, Barnes & Thornburg, Indianapolis, Indiana
("Barnes & Thornburg") that the Holding Company may deduct this contribution of
Common Stock to the Foundation from its income. In the event, however, that the
Internal Revenue Service does not recognize the Foundation as a charitable
organization, the Holding Company would be required to expense its contribution
of Common Stock to the Foundation without receiving a tax benefit, which would
result in a reduction in the Holding Company's earnings in the year in which the
IRS makes such a determination. In addition, in the event that a challenge is
made to the establishment of the Foundation in connection with the Conversion,
no assurances can be made that such a challenge would not be successful or would
not cause a delay in the consummation of the Conversion.
Assuming the sale of shares at the midpoint of the Estimated Valuation
Range and the issuance of shares to the Foundation, the Holding Company will
have 6,750,000 shares issued and outstanding, of which the Foundation will own
250,000 shares, or 3.7%. The issuance of additional shares of Common Stock to
the Foundation will dilute the value of any shares of Common Stock that you
purchase in the Conversion by 3.7% and will adversely affect the reported
earnings of the Holding Company in 1998, the year in which we expect the
Foundation will be established. In addition, under certain circumstances the
establishment of the Foundation may have an anti-takeover effect. See "Lincoln
Federal Charitable Foundation, Inc.," "Pro Forma Data" and "The Conversion
Establishment of the Foundation."
PROPOSED PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the intended purchases of Common Stock
by each director and executive officer of Lincoln Federal and their Associates
in the Conversion. All directors and executive officers will pay the same
Purchase Price as all subscribers and will be subject to the same terms and
conditions. In addition, directors and executive officers may not re-sell the
shares of Common Stock that they purchase in the Conversion for at least one
year from the date of the Conversion. All shares will be purchased for
investment purposes and not for purposes of resale. The table assumes that
6,500,000 shares (the midpoint of the Estimated Value Range) of the Common Stock
will be sold at $10.00 per share, 250,000 shares will be issued to the
Foundation and that sufficient shares will be available to satisfy
subscriptions.
<TABLE>
<CAPTION>
Aggregate Total
Price of Shares Proposed
Intended to be Subscribed Percent
Name Position Purchases For (1) of Shares (2)
- ---- -------- --------- ------- -------------
<S> <C> <C> <C> <C>
Lester N. Bergum Director $ 220,000 22,000 .33
W. Thomas Harmon Director 500,000 50,000 .74
Jerry R. Holifield Director 200,000 20,000 .30
Wayne E. Kessler Director 100,000 10,000 .15
David E. Mansfield Director 200,000 20,000 .30
John C. Milholland Director 500,000 50,000 .74
T. Tim Unger Director, President and
Chief Executive Officer 500,000 50,000 .74
Edward E. Whalen Chairman 300,000 30,000 .44
John L. Wyatt Director 300,000 30,000 .44
Frank A. Beardsley Emeritus Director 350,000 35,000 .52
Charles Jones Emeritus Director 250,000 25,000 .37
All Other Executive
Officers 250,000 25,000 .37
---------- ------- ----
All Directors and
Executive Officers
as a group (12 persons)(3) $3,670,000 367,000 5.44%
========== ======= ====
</TABLE>
Footnotes on following page.
<PAGE>
(1) Does not include shares subject to stock options which may be granted
under the Stock Option Plan, or shares which may be awarded under the
RRP.
(2) Based upon the midpoint of the Estimated Valuation Range of 6,500,000
shares, plus the 250,000 shares expected to be issued to the
Foundation.
(3) Assuming that all shares awarded under the RRP are purchased on the
open market and all shares subject to stock options are issued from
authorized but unissued shares, and upon (i) the full vesting of the
restricted stock awards to directors and executive officers
contemplated under the RRP and (ii) the exercise in full of all options
expected to be granted to directors and executive officers under the
Stock Option Plan, all directors and executive officers as a group
would beneficially own 1,170,250 shares (18.5%), 1,312,000 shares
(17.7%), 1,453,750 shares (17.0%), and 1,616,763 shares (16.5%) upon
sales at the minimum, midpoint, maximum, and 15% above the maximum of
the Estimated Valuation Range, respectively. These percentages take
into account shares expected to be issued to the Foundation. See
"Executive Compensation and Related Transactions of Lincoln Federal -
RRP," "- Stock Option Plan."
LINCOLN BANCORP
The Holding Company was formed in September, 1998 as an Indiana
corporation to be the holding company for Lincoln Federal. The Holding Company
has not engaged in any significant business to date and, for that reason, its
financial statements are not included herein. The Holding Company has received
approval from the OTS to become a savings and loan holding company through the
acquisition of all of the capital stock of Lincoln Federal to be issued upon
completion of the Conversion.
The Holding Company will initially receive 50% of the net Conversion
proceeds after payment of expenses incurred in connection with the Conversion.
The holding company structure will provide the Holding Company with greater
flexibility than Lincoln Federal to diversify its business activities, either
through newly-formed subsidiaries or through acquisitions. The Holding Company
has no present plans regarding diversification, acquisitions or expansion,
however. The Holding Company initially will not conduct any active business and
does not intend to employ any persons other than its officers, although it may
utilize Lincoln Federal's support staff from time to time.
The office of the Holding Company is located at 1121 East Main Street,
P.O. Box 510, Plainfield, Indiana, 46168. The telephone number is (317)
839-6539.
LINCOLN FEDERAL SAVINGS BANK
We have operated for more than 110 years as an independent,
community-oriented savings association. We were originally organized in 1884 as
Ladoga Federal Savings and Loan Association, located in Ladoga, Indiana. In 1979
we merged with Plainfield First Federal Savings and Loan Association, a federal
savings and loan association located in Plainfield, Indiana which was originally
organized in 1896. Following the merger, we changed our name to Lincoln Federal
Savings and Loan Association and, in 1984, we changed our name to its current
form, Lincoln Federal Savings Bank. We currently conduct our business from four
full-service offices located in Hendricks, Montgomery and Clinton Counties,
Indiana, with our main office located in Plainfield. We expect to open a new
office in Avon, Indiana in January, 1999. We offer a variety of lending, deposit
and other financial services to our retail and commercial customers.
We attract deposits from the general public and originate mortgage
loans, most of which are secured by one- to four-family residential real
property in Hendricks, Montgomery and Clinton Counties. We also offer commercial
real estate loans, real estate construction loans, land loans, multi-family
residential loans, home equity loans and other consumer loans such as automobile
loans and commercial loans. We derive most of our funds for lending from
deposits of our customers, which consist primarily of certificates of deposit,
demand accounts and savings accounts.
We have attained our strong capital position by focusing primarily on
one- to four-family residential real estate mortgage lending in Hendricks,
Montgomery and Clinton Counties, Indiana and, to a limited extent, in other
nearby counties. At June 30, 1998, we had total assets of $304.5 million,
deposits of $211.2 million and equity capital of $42.8 million, or 14.1% of
assets. For the fiscal year ended December 31, 1997, we had net income of $3.5
million, a return on assets of 1.0% and a return on equity of 8.7%, and for the
six-month period ended June 30, 1998, we had net income of $817,000, a return on
assets of .5% and a return on equity of 3.8%, on an annualized basis.
MARKET AREA
Our primary market area is Hendricks, Montgomery and Clinton Counties,
Indiana. Our main office is located in Plainfield, which is located in Hendricks
County in central Indiana, approximately 15 miles west of Indianapolis. We also
have offices in Crawfordsville, the county seat of Montgomery County, which is
approximately 45 miles west of Indianapolis, in Frankfort, the county seat of
Clinton County, located approximately 50 miles northwest of Indianapolis, and in
Brownsburg, which is approximately 20 miles west of Indianapolis. In January,
1999, we intend to open our newest office in Avon, which is approximately 20
miles west of Indianapolis. Most of our deposits and lending activities come
from individuals residing in, and entities located in our three-county market
area.
Hendricks, Montgomery and Clinton counties had a combined population of
162,000 in 1997, representing growth of 15% from the 1990 population of 141,000.
The per capital income for those counties was $20,000 in 1997, compared to a per
capita income for all of Indiana of $17,700 and for the United States of
$18,100. The combined unemployment rate in the three counties was 2.4% in 1997,
compared to an unemployment rate in Indiana of 3.5% and a national unemployment
rate of 4.9%. The primary industries in our primary market area include
agriculture, manufacturing and services.
LINCOLN FEDERAL CHARITABLE FOUNDATION, INC.
Pursuant to the Plan, the Holding Company intends to establish a
charitable foundation in connection with the Conversion. The Plan provides that
Lincoln Federal and the Holding Company will establish the Foundation, which
will be incorporated under Indiana law as a nonprofit corporation without
members and will be funded with shares of Common Stock contributed by the
Holding Company. The contribution of Common Stock to the Foundation will dilute
the interests of shareholders and will have an adverse impact on the reported
earnings of the Holding Company in 1998, the year in which we anticipate the
Foundation will be established.
Dilution of Shareholders' Interests. The Holding Company proposes to
fund the Foundation with 250,000 shares of Common Stock. Assuming the sale of
Common Stock at the midpoint of the Estimated Valuation Range, upon completion
of the Conversion and establishment of the Foundation, the Holding Company will
have 6,750,000 shares issued and outstanding of which the Foundation will own
250,000 shares of Common Stock, or 3.7%. As a result, persons purchasing shares
of Common Stock in the Conversion will have their ownership and voting interests
in the Holding Company diluted by 3.7%. See "Pro Forma Data."
Impact on Earnings. The Holding Company will recognize as an expense
the full amount of its contribution of Common Stock to the Foundation during the
quarter in which the contribution is made. As a result, the Holding Company's
contribution of Common Stock to the Foundation will have an adverse impact on
its earnings for the quarter and the year in which the contribution is made. We
currently expect that the Holding Company will contribute 250,000 shares of
Common Stock to the Foundation in the fourth quarter of 1998. This $2.5 million
expense will be partially offset by the tax benefit related to the expense.
We have been advised by Barnes & Thornburg that the contribution to the
Foundation will be tax deductible, subject to an annual limitation based on 10%
of the Holding Company's annual taxable income. Assuming a contribution of $2.5
million in Common Stock, the Holding Company estimates a net tax effected
expense of $1.7 million (based on a 34% marginal tax rate). Management cannot
predict earnings for 1998, but expects that the establishment and funding of the
Foundation will have an adverse impact on the Holding Company's earnings for
that year. In addition, we do not currently anticipate making additional
contributions to the Foundation within the first five years following the
initial contribution.
Tax Considerations. We have been advised by Barnes & Thornburg that an
organization created for the above-described purposes would qualify as a Section
501(c)(3) exempt organization under the Internal Revenue Code of 1986, as
amended (the "Code"), and would be classified as a private foundation. The
Foundation has submitted a request to the Internal Revenue Service ("IRS") to be
recognized as an exempt organization. We have received the opinion of Barnes &
Thornburg that the Foundation would qualify as a Section 501(c)(3) exempt
organization under the Code, except that the opinion does not consider the
impact of the condition expected to be required by the OTS that the Common Stock
issued to the Foundation be voted in the same ratio as all other shares of the
Holding Company's Common Stock on all proposals considered by shareholders of
the Holding Company. See "The Conversion - Establishment of the Foundation -
Regulatory Conditions Imposed on the Foundation."
Barnes & Thornburg's opinion further provides that there is substantial
authority for the position that the Holding Company's contribution of its own
stock to the Foundation would not constitute an act of self-dealing, and that
the Holding Company would be entitled to a deduction in the amount of the fair
market value of the Common Stock at the time of the contribution, subject to an
annual limitation based on 10% of the Holding Company's annual taxable income.
The Holding Company, however, would be able to carry forward any unused portion
of the deduction for five years following the contribution. Thus, while the
Holding Company expects to receive a tax benefit of approximately $850,000 in
1998 and/or over the subsequent five-year period based upon a contribution of
$2.5 million of Common Stock.
Assuming the sale of Common Stock at the maximum of the Estimated
Valuation Range, the Holding Company estimates that for federal income tax
purposes, a substantial portion of the deduction should be deductible over the
six-year period. Although we have received the opinion of Barnes & Thornburg
that the Holding Company will be entitled to the deduction of the charitable
contribution, there can be no assurances that the IRS will recognize the
Foundation as a Section 501(c)(3) exempt organization or that the deduction will
be permitted. In such event, the Holding Company's tax benefit related to the
Foundation would have to be fully expensed, resulting in further reduction in
earnings in the year in which the IRS makes such a determination.
Comparison of Valuation and Other Factors Assuming the Foundation is
Not Established as Part of the Conversion. In making its independent appraisal
of the estimated pro forma market value of the Common Stock, Keller took into
account the establishment of the Foundation. The pro forma aggregate price of
the Common Stock being offered for sale in the Conversion, assuming the issuance
of 250,000 shares to the Foundation, is currently estimated to be between $54.9
million and $75.1 million, with a midpoint of $65 million. The pro forma price
to book ratio and the pro forma price to annualized earnings ratio, at and for
the six months ended June 30, 1998, are 68.1% and 18.5 x, respectively, at the
midpoint of the Estimated Valuation Range.
In the event that the Foundation were not included in the Conversion,
Keller has estimated that the estimated pro forma market value of the Common
Stock would be $70 million at the midpoint of the Estimated Valuation Range
based on a pro forma price to book ratio and the pro forma price to earnings
ratio at 68.07% and 18.5x, respectively. The amount of Common Stock that would
be offered in the Conversion at the midpoint of the Estimated Valuation Range is
$5.0 million less than the estimated amount of Common Stock that would be
offered in the Conversion without the Foundation based on the estimate provided
by Keller. Accordingly, certain of our account holders who subscribe to purchase
Common Stock in the Subscription Offering would receive fewer shares depending
on the size of the depositor's stock order and the amount of his or her
qualifying deposits with us and the overall level of subscriptions. See
"Comparison of Valuation and Pro Forma Information with No Foundation." This
estimate by Keller was prepared solely for purposes of providing Eligible
Account Holders and subscribers with information with which to make an informed
decision on the Conversion.
The decrease in the amount of Common Stock being offered as a result of
the issuance of Common Stock to the Foundation will not significantly affect our
capital position. Our regulatory capital currently exceeds applicable
requirements and will further exceed such requirements following the Conversion.
Our tangible, core and risk-based capital ratios at June 30, 1998 would be
20.3%, 20.3% and 37.2%, respectively, and our pro forma net earnings would be
$1.7 million at the midpoint of the Estimated Valuation Range, taking into
account the proceeds from the Conversion. On a consolidated basis, the Holding
Company's pro forma shareholders' equity would be $99.1 million, or
approximately 27.5% of pro forma consolidated assets, assuming the sale of
shares at the midpoint of the Estimated Valuation Range. Pro forma shareholders'
equity per share and pro forma net earnings per share would be $14.69 and $.27,
respectively. If the Foundation were not established in the Conversion, based on
the Keller estimate, the Holding Company's pro forma shareholders' equity would
be approximately $102.9 million, or approximately 28.2% of pro forma
consolidated assets at the midpoint of the Estimated Valuation Range, and pro
forma net earnings would be $1.7 million. Pro forma shareholders' equity per
share and pro forma net earnings per share would be substantially similar with
or without the establishment of the Foundation. See "Comparison of Valuation and
Pro Forma Information with No Foundation."
Potential Anti-Takeover Effect. Upon completion of the Conversion, the
Foundation will own 3.7% of the total shares of the Common Stock outstanding,
based upon the midpoint of the Estimated Valuation Range. We anticipate that the
OTS will require, as a condition to its approval of the Conversion, that the
shares of Common Stock held by the Foundation be voted in the same ratio as all
other shares of the Common Stock on all proposals considered by the shareholders
of the Holding Company. Because of this condition, we do not believe the
Foundation will have an anti-takeover effect on the Holding Company. However, in
the event that the OTS were to waive this voting restriction, the Foundation's
Board of Directors would exercise sole voting power over the shares of Common
Stock held by the Foundation and would no longer be subject to the restriction.
See "The Conversion--Establishment of the Foundation--Regulatory Conditions
Imposed on the Foundation."
As the Foundation's Board of Directors will initially consist of four
members of our Board of Directors, if the OTS were to waive this voting
restriction (although we do not currently anticipate that we will seek such a
waiver), our management may benefit to the extent that the Board of Directors of
the Foundation determines to vote the shares of Common Stock held by the
Foundation in favor of proposals supported by our management. In that case, the
shares held by the Foundation, when aggregated with shares purchased directly by
our officers and directors, shares expected to be held by the RRP and by the
ESOP, and shares subject to stock options assumed to be fully exercised by our
directors and officers, would exceed 20% of the outstanding Common Stock, which
could enable management to defeat shareholder proposals requiring 80% approval.
This potential voting control by management may preclude takeover
attempts that certain shareholders deem to be in their best interest and may
tend to perpetuate management. However, since the ESOP shares are allocated to
all of our eligible employees, and any unallocated shares will be voted by the
Trustee in the same proportions as allocated shares are voted, and because the
RRP and the Stock Option Plan must first be approved by shareholders no sooner
than six months following completion of the Conversion, management of the
Holding Company does not expect to have voting control of all shares covered by
the ESOP and other stock-based benefit plans. See "Executive Compensation and
Related Transactions of Lincoln Federal." Moreover, as the Foundation sells its
shares of Common Stock over time, its ownership interest and voting power in the
Holding Company is expected to decrease.
Potential Challenges. To date, there has been limited precedent with
respect to the establishment and funding of a charitable foundation as part of a
conversion of a mutual savings association to stock form. As such, the
Foundation and the OTS's non-objection to the Conversion may be subject to
potential challenges notwithstanding that the Boards of Directors of Lincoln
Federal and the Holding Company have carefully considered the various factors
involved in the establishment of the Foundation in reaching their determination
to establish the Foundation as part of the Conversion. See "The
Conversion--Establishment of the Charitable Foundation--Purpose of the
Foundation." If challenges were to be instituted seeking to require us to
eliminate establishment of the Foundation in connection with the Conversion, no
assurances can be made that the resolution of such challenges would not result
in a delay in the consummation of the Conversion or that any objecting persons
would not be ultimately successful in obtaining such removal or other relief
against Lincoln Federal and the Holding Company. In addition, if we are forced
to eliminate the Foundation, the Holding Company may be required to resolicit
subscribers in the offering of Common Stock.
Approval of Members. Establishment of the Foundation is subject to the
approval of a majority of the total outstanding votes of our members eligible to
be cast at the Special Meeting. The Foundation will be considered as a separate
matter from approval of the Plan of Conversion. If our members approve the Plan
of Conversion, but not the establishment of the Foundation, we intend to
complete the Conversion without the establishment of the Foundation. Failure to
approve the Foundation may materially increase the pro forma market value of the
Common Stock being offered for sale in the Offering since the Estimated
Valuation Range, as set forth herein, takes into account the proposed
contribution to the Foundation. If the pro forma market value of the Holding
Company without the Foundation is either greater than $86.8 million or less than
$54.9 million, or if the OTS otherwise requires a resolicitation of subscribers,
we will establish a new Estimated Valuation Range and commence a resolicitation
of subscribers (i.e., subscribers will be permitted to continue their orders, in
which case they will need to affirmatively reconfirm their subscriptions prior
to the expiration of the resolicitation offering or their subscription funds
will be promptly refunded with interest.) Any change in the Estimated Valuation
Range must be approved by the OTS. See "The Conversion - Stock Pricing" and "-
Number of Shares to be Issued."
USE OF PROCEEDS
The Holding Company will retain 50% of the net proceeds from the
offering, after payment of expenses incurred in connection with the Conversion,
and will use the balance of the proceeds to purchase all of the capital stock
issued by Lincoln Federal in connection with the Conversion. A portion of the
net proceeds to be retained by the Holding Company will be loaned to our ESOP to
fund its purchase of 8% of the shares of the Holding Company sold in the
Conversion and issued to the Foundation. On a short-term basis, the balance of
the net proceeds retained by the Holding Company initially may be invested in
cash and short-term investments. The Holding Company may also use the proceeds
as a source of funds to acquire one or more other financial institutions, to
acquire assets from other financial institutions, to pay dividends, if any, to
shareholders or to repurchase shares of Common Stock. The Holding Company does
not, however, have any present plans, negotiations or agreements to acquire
another financial institution or to acquire assets from another financial
institution. The Holding Company will not take any action in furtherance of an
extraordinary capital distribution during the year following the Conversion. In
the event the Foundation is approved by our members, the Holding Company
proposes to fund the Foundation with 250,000 shares of the Holding Company's
Common Stock.
Lincoln Federal intends to use a portion of the net proceeds that it
receives from the Holding Company to support its lending activities and possibly
to acquire loan participations from other financial institutions. Lincoln
Federal may also use a portion of the net proceeds to fund the purchase of up to
4% of the shares for the RRP which we anticipate will be adopted by our Board
following the Conversion, subject to shareholder approval, and to repay
approximately $17.0 million in FHLB advances that mature in December, 1998. We
anticipate that the balance of the proceeds may be used to purchase
mortgage-backed securities in the secondary market or loan participations from
other financial institutions. On an interim basis, we may use some of the net
proceeds to invest in U.S. government securities and other federal agency
securities. See "Business of Lincoln Federal Savings Bank - Investments."
The following table shows estimated gross and net proceeds based upon
shares of Common Stock being sold in the Conversion at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range.
<TABLE>
<CAPTION>
15% Above
Minimum, Midpoint, Maximum, Maximum,
5,487,500 6,500,000 7,512,500 8,676,875
Shares Shares Shares Shares
Sold at Price Sold at Price Sold at Price Sold at Price
of $10.00 of $10.00 of $10.00 of $10.00(2)
---------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Gross Proceeds.......................... $54,875 $65,000 $75,125 $86,769
Less:
Estimated Underwriting Commissions
and Other Expenses(1) (2)............ 1,304 1,400 1,496 1,606
------- ------- ------- -------
Estimated net Conversion
proceeds(1).......................... 53,571 63,600 73,629 85,163
Purchase by Holding Company of
100% of Capital Stock of
Lincoln Federal...................... 26,786 31,800 36,815 42,581
------- ------- ------- -------
Net proceeds retained by
Holding Company...................... $26,785 $31,800 $36,814 $42,582
======= ======= ======= =======
</TABLE>
(1) In calculating estimated net Conversion proceeds, it has been assumed that
no sales will be made through selected dealers, that all shares are sold in
the Subscription Offering, that 70% of the shares of Common Stock are
acquired by residents of Indiana and 30% are acquired by residents of other
states, that executive officers and directors of Lincoln Federal and their
Associates purchase 367,000 shares of Common Stock, that the ESOP acquires
8% of the shares of Common Stock sold in the Conversion and issued to the
Foundation, and that 250,000 shares of Common Stock are issued to the
Foundation.
(2) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Subscription Offering and the Community Offering, if
any.
The actual net proceeds may differ from the estimated net proceeds
calculated above for various reasons, including variances in the actual amount
of legal and accounting expenses incurred in connection with the Conversion,
commissions paid for sales made through other dealers, and the actual number of
shares of Common Stock sold in the Conversion. Any variance in the actual net
proceeds from the estimates provided in the table above is not expected to be
material.
DIVIDENDS
The Holding Company's management intends to implement a policy
regarding the payment of cash dividends on the Common Stock following the
Conversion. Dividends, when and if paid, will be subject to determination and
declaration by the Board of Directors in its discretion, which will take into
account the Holding Company's consolidated financial condition and results of
operations, tax considerations, industry standards, economic conditions, capital
levels, regulatory restrictions on dividend payments by us to the Holding
Company, general business practices and other factors. In addition, from time to
time in an effort to manage capital at a desirable level, the board may
determine to pay special cash dividends. Special cash dividends may be paid in
addition to, or in lieu of, regular cash dividends, but in no event will be paid
within one year of the Conversion. In any event, there can be no assurance that
regular or special dividends will be paid, or, if paid, will continue to be
paid. See "Regulation - Savings Association Regulatory Capital" and "- Dividend
Limitations."
The Holding Company is not subject to OTS regulatory restrictions on
the payment of dividends to its shareholders although the source of such
dividends depend in part upon the receipt of dividends from Lincoln Federal. The
Holding Company is subject, however, to the requirements of Indiana law, which
generally limit the payment of dividends to amounts that will not affect the
ability of the Holding Company, after the dividend has been distributed, to pay
its debts in the ordinary course of business and that will not exceed the
difference between the Holding Company's total assets and total liabilities plus
preferential amounts payable to shareholders with rights superior to those of
the holders of Common Stock.
In addition to the foregoing, the portion of Lincoln Federal's earnings
which has been appropriated for bad debt reserves and deducted for federal
income tax purposes cannot be used to pay cash dividends to the Holding Company
without the payment of federal income taxes by Lincoln Federal at the then
current income tax rate on the amount deemed distributed, which would include
the amount of any federal income taxes attributable to the distribution. See
"Taxation - Federal Taxation" and the Notes to the Consolidated Financial
Statements at page _____. The Holding Company does not contemplate any
distribution by us that would result in a recapture of our bad debt reserve or
otherwise create federal tax liabilities.
MARKET FOR THE COMMON STOCK
The Holding Company has never issued Common Stock to the public.
Consequently, there is no established market for the Common Stock. The Holding
Company has received conditional approval to have the Common Stock listed for
quotation on the Nasdaq National Market System under the symbol "_______" upon
the successful closing of the offering, subject to certain conditions which we
believe will be met. We have been advised that Keefe, Bruyette and Woods, Inc.
("Keefe, Bruyette") intends to act as a market maker for the Common Stock. In
order for the Common Stock to be traded on the Nasdaq National Market System,
there must be at least three market makers for the Common Stock. We anticipate
that we will be able to secure two other market makers to enable the stock to be
listed for quotation on the Nasdaq National Market System.
The existence of a public trading market will depend upon the presence
in the market of both willing buyers and willing sellers at any given time. The
presence of a sufficient number of buyers and sellers at any given time is a
factor over which neither the Holding Company nor any broker or dealer has
control. Although the shares issued in the Conversion are expected to be traded
on the Nasdaq National Market System, there can be no guarantee that an active
or liquid trading market for the Common Stock will be developed and be
maintained. Further, the absence of an active and liquid trading market may make
it difficult to sell the Common Stock and may have an adverse effect on the
price of the Common Stock. Purchasers should consider the potentially illiquid
and long-term nature of their investment in the shares offered hereby.
The aggregate price of the Common Stock is based upon an independent
appraisal of the pro forma market value of the Common Stock. However, there can
be no assurance that an investor will be able to sell the Common Stock purchased
in the Conversion at or above the Purchase Price.
COMPETITION
We originate most of our loans to and accept most of our deposits from
residents of Hendricks, Montgomery and Clinton Counties, Indiana. We are subject
to competition from various financial institutions, including state and national
banks, state and federal savings associations, credit unions, and certain
nonbanking consumer lenders that provide similar services in those counties with
significantly larger resources than are available to us. We also compete with
money market funds with respect to deposit accounts and with insurance companies
with respect to individual retirement accounts.
The primary factors influencing competition for deposits are interest
rates, service and convenience of office locations. We compete for loan
originations primarily through the efficiency and quality of the services that
we provide borrowers and through interest rates and loan fees charged.
Competition is affected by, among other things, the general availability of
lendable funds, general and local economic conditions, current interest rate
levels, and other factors that we cannot readily predict.
CAPITALIZATION
The following table presents our historical capitalization at June 30,
1998, and the pro forma consolidated capitalization of the Holding Company as of
that date, giving effect to the sale of Common Stock offered by this Prospectus
based on the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range and to the expected issuance to the Foundation of
250,000 shares of Common Stock, and subject to the other assumptions set forth
below. The pro forma data set forth below may change significantly at the time
the Holding Company completes the Conversion due to, among other factors, a
change in the Estimated Valuation Range or a change in the current estimated
expenses of the Conversion. If the Estimated Valuation Range changes so that
between 5,487,500 and 8,676,875 shares are not sold in the Conversion,
subscriptions will be returned to subscribers who do not affirmatively elect to
continue their subscriptions during the offering at the revised Estimated
Valuation Range.
<TABLE>
<CAPTION>
At June 30, 1998
----------------------------------------------------------------------------------
Pro Forma Holding Company
Capitalization Based on Sale of
----------------------------------------------------------------
5,487,500 6,500,000 7,512,500 8,676,875
Shares Shares Shares Shares
Sold at Sold at Sold at Sold at
Lincoln Federal Price of Price of Price of Price of
Historical $10.00 $10.00 $10.00 $10.00 (8)
---------- ------ ------ ------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits (1)..................................... $211,160 $211,160 $211,160 $211,160 $211,160
======== ======== ======== ======== ========
Federal Home Loan Bank advances.................. $ 45,686 $ 45,686 $ 45,686 $ 45,686 $ 45,686
======== ======== ======== ======== ========
Note payable..................................... $ 2,203 $ 2,203 $ 2,203 $ 2,203 $ 2,203
======== ======== ======== ======== ========
Equity Capital:
Preferred stock, without par
value, 2,000,000 shares
authorized, none issued.......................
Common Stock, without par
value, 20,000,000 shares
authorized: sold in the Conversion(2) ....... $ 53,571 $ 63,600 $ 73,629 $ 85,163
Shares issued to Foundation (3)............. 2,500 2,500 2,500 2,500
Equity capital and net unrealized gain on
securities available for sale (4)............ $ 42,795 42,795 42,795 42,795 42,795
Expense of contribution to Foundation (5)........ (1,650) (1,650) (1,650) (1,650)
Common Stock acquired by ESOP(6) .............. (4,590) (5,400) (6,210) (7,142)
Common Stock acquired by the RRP (7)........... (2,295) (2,700) (3,105) (3,571)
-------- -------- -------- -------- --------
Equity Capital................................... $ 42,795 $ 90,331 $ 99,145 $107,959 $118,095
======== ======== ======== ======== ========
</TABLE>
(1) Excludes accrued interest. Withdrawals from deposit accounts for the
purchase of Common Stock are not reflected. Such withdrawals will
reduce pro forma deposits by the amount thereof.
(2) The number of shares to be issued in the Conversion may be increased or
decreased based on market and financial conditions prior to the
completion of the Conversion. Assumes estimated expenses of $1,385,000,
$1,496,000, $1,608,000 and $1,737,000 at the minimum, midpoint, maximum
and adjusted maximum of the Estimated Valuation Range, respectively.
See "Use of Proceeds."
(3) Reflects 250,000 shares to be issued to the Foundation at an assumed
value of $10.00 per share.
(4) Equity capital is substantially restricted. See Notes to Lincoln
Federal's Consolidated Financial Statements. See also "The Conversion -
Principal Effects of Conversion - Effect on Liquidation Rights." Equity
capital does not reflect the federal income tax consequences of the
restoration to income of Lincoln Federal's special bad debt reserve for
income tax purposes which would be required in the unlikely event of a
liquidation or if a substantial portion of equity capital were
otherwise used for a purpose other than absorption of bad debt losses
and will be required as to post-1987 reserves under a recently enacted
law. See "Taxation - Federal Taxation."
(5) Net of the tax effect of the contribution of Common Stock based upon a
34% marginal tax rate. The realization of the deferred tax benefit is
limited annually to 10% of the Holding Company's annual taxable income,
subject to the ability of the Holding Company to carry forward any
unused portion of the deduction for five years following the year in
which the contribution is made.
(6) Assumes purchases by the ESOP of a number of shares equal to 8% of the
shares sold in the Conversion and issued to the Foundation. The funds
used to acquire the ESOP shares will be borrowed from the Holding
Company. See "Use of Proceeds." Lincoln Federal intends to make
contributions to the ESOP sufficient to service and ultimately retire
its debt. The Common Stock acquired by the ESOP is reflected as a
reduction of shareholders' equity. See "Executive Compensation and
Related Transactions of Lincoln Federal - Employee Stock Ownership Plan
and Trust."
(7) Assuming the receipt of shareholder approval, the Holding Company
intends to implement the RRP. Assuming such implementation, the RRP
will purchase an amount of shares equal to 4% of the Common Stock sold
in the Conversion and issued to the Foundation for issuance to
directors and officers of the Holding Company and Lincoln Federal. Such
shares may be purchased from authorized but unissued shares or on the
open market. The Holding Company currently intends that the RRP will
purchase the shares on the open market. Under the terms of the RRP,
assuming it is adopted within one year of the Conversion, shares will
vest at the rate of 20% per year. The Common Stock to be purchased by
the RRP represents unearned compensation and is, accordingly, reflected
as a reduction to pro forma shareholders' equity. As shares of the
Common Stock granted pursuant to the RRP vest, a corresponding
reduction in the charge against capital will occur. In the event that
authorized but unissued shares are acquired, the interests of existing
shareholders will be diluted. Assuming that 6,500,000 shares of Common
Stock, the midpoint of the Estimated Valuation Range, are issued in the
Conversion, 250,000 shares are issued to the Foundation and that all
awards under the RRP are from authorized but unissued shares, the
Holding Company estimates that the per share book value for the Common
Stock would be diluted $.57 per share, or 3.9% on a pro forma basis as
of June 30, 1998 at the midpoint of the Estimated Valuation Range. The
dilution would be $.61 per share (3.9%) and $.54 per share (3.9%) at
the minimum and maximum levels, respectively, of the Estimated
Valuation Range on a pro forma basis at June 30, 1998.
(8) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up
to 15% to reflect changes in market and financial conditions following
the commencement of the Subscription Offering and Community Offering,
if any.
PRO FORMA DATA
The following table sets forth the pro forma combined consolidated net
income of the Holding Company for the six months ended June 30, 1998 and for the
year ended December 31, 1997 as though the Conversion offering had been
consummated at the beginning of those periods, respectively, and the investable
net proceeds had been invested at 5.59% for the six months ended June 30, 1998
and 5.86% for the year ended December 31, 1997 (the yield on one-year U.S.
government securities). OTS regulations specify that the pro forma yield on net
proceeds be calculated as the arithmetic average of the average yield on Lincoln
Federal's interest-earning assets and the average cost of deposits. Lincoln
Federal did not use this methodology to calculate pro forma yield, however, and
instead assumed a yield based on one-year U.S. government securities. This
latter methodology more accurately reflects Lincoln Federal's and the Holding
Company's intent to invest the net proceeds initially in U.S. government
securities. The pro forma after-tax return for the Holding Company on a
consolidated basis is assumed to be 3.35% for the six months ended June 30, 1998
and 3.52% for the year ended December 31, 1997, after giving effect to (i) the
yield on investable net proceeds from the Conversion offering and (ii) adjusting
for taxes using a federal statutory tax rate of 34% and a net state statutory
income tax rate of 6%. Historical and per share amounts have been calculated by
dividing historical amounts and pro forma amounts by the indicated number of
shares of Common Stock, as adjusted to give effect to the shares purchased by
the ESOP and the effect of the issuance of shares to the Foundation, assuming
that such number of shares had been outstanding during each of the entire
periods.
Book value represents the difference between the stated amount of
consolidated assets and consolidated liabilities of the Holding Company computed
in accordance with generally accepted accounting principles. Book value does not
necessarily reflect current market value of assets and liabilities, or the
amounts, if any, that would be available for distribution to shareholders in the
event of liquidation. See "The Conversion - Principal Effects of Conversion -
Effect on Liquidation Rights." Book value also does not reflect the federal
income tax consequences of the restoration to income of our special bad debt
reserves for income tax purposes, which would be required in the unlikely event
of liquidation or if a substantial portion of retained earnings were otherwise
used for a purpose other than absorption of bad debt losses. See "Taxation -
Federal Taxation." Pro forma book value includes only net proceeds from the
Conversion offering as though it occurred as of the indicated dates and does not
include earnings on the proceeds for the periods then ended.
The following table gives effect to the issuance of authorized but
unissued shares of the Holding Company's Common Stock to the Foundation
concurrently with the completion of the Conversion. The pro forma book values at
the dates indicated should not be considered as reflecting the potential trading
value of the Holding Company's stock. There can be no assurance that an investor
will be able to sell the Common Stock purchased in the Conversion at prices
within the range of the pro forma book values of the Common Stock or at or above
the Purchase Price. The pro forma net income derived from the assumptions set
forth above should not be considered indicative of the actual results of
operations of the Holding Company that would have been attained for any period
if the Conversion had been actually consummated at the beginning of such periods
and the assumptions regarding investment yields should not be considered
indicative of the actual yield expected to be achieved during any future period.
<TABLE>
<CAPTION>
At or for the Six Months Ended June 30, 1998
5,487,500 Shares 6,500,000 Shares 7,512,500 Shares 8,676,875 Shares (1)
Sold at Sold at Sold at Sold at
$10.00 Per Share $10.00 Per Share $10.00 Per Share $10.00 Per Share
---------------- ---------------- ---------------- ----------------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Gross proceeds..................... $54,875 $65,000 $75,125 $86,769
Plus:
Shares acquired by Foundation
(250,000 shares)................ 2,500 2,500 2,500 2,500
--------- --------- --------- ---------
Pro forma market capitalization.. $57,375 $67,500 $77,625 $89,269
========= ========= ========= =========
Gross proceeds..................... $54,875 $65,000 $75,125 $86,769
Less offering expenses............. (1,304) (1,400) (1,496) (1,606)
--------- --------- --------- ---------
Estimated net conversion
proceeds (2).................. 53,571 63,600 73,629 85,163
Less:
Common Stock acquired
by ESOP (3)................... (4,590) (5,400) (6,210) (7,142)
Common Stock acquired
by the RRP (4)................ (2,295) (2,700) (3,105) (3,571)
--------- --------- --------- ---------
Investable net proceeds............ $46,686 $55,500 $64,314 $74,450
========= ========= ========= =========
Consolidated net income (5):
Historical ...................... $967 $967 $967 $967
Pro forma income on investable
net proceeds (6)................ 782 930 1,077 1,247
Pro forma ESOP adjustment (3).... (69) (81) (93) (107)
Pro forma RRP adjustment (4) .... (138) (162) (186) (214)
--------- --------- --------- ---------
Pro forma net income ............ $1,542 $1,654 $1,765 $1,893
========= ========= ========= =========
Consolidated earnings per share (8)(9):
Historical ..................... $0.18 $0.16 $0.13 $0.12
Pro forma income on investable
net proceeds.................... 0.15 0.15 0.15 0.15
Pro forma ESOP adjustment (3).... (0.01) (0.01) (0.01) (0.01)
Pro forma RRP adjustment (4)..... (0.03) (0.03) (0.03) (0.03)
--------- --------- --------- ---------
Pro forma earnings per share..... $0.29 $0.27 $0.24 $0.23
========= ========= ========= =========
Consolidated book value (7) :
Historical....................... $42,795 $42,795 $42,795 $42,795
Estimated net conversion
proceeds (2)................... 53,571 63,600 73,629 85,163
Plus: Shares issued
to Foundation................. 2,500 2,500 2,500 2,500
Less: Contribution
to Foundation................. (2,500) (2,500) (2,500) (2,500)
Plus: Tax benefit of the contribution
to Foundation................... 850 850 850 850
Less:
Common Stock acquired
by ESOP (3)................... (4,590) (5,400) (6,210) (7,142)
Common Stock acquired
by the RRP (4)................ (2,295) (2,700) (3,105) (3,571)
--------- --------- --------- ---------
Pro forma book value............. $90,331 $99,145 $107,959 $118,095
========= ========= ========= =========
Consolidated book value per share (7)(9):
Historical ...................... $7.46 $6.34 $5.51 $4.79
Estimated net conversion proceeds
per share ...................... 9.34 9.42 9.49 9.54
Plus: Shares issued
to Foundation................. 0.44 0.37 0.32 0.28
Less: Contribution
to Foundation................. (0.44) (0.37) (0.32) (0.28)
Plus: Tax benefit of the contribution
to Foundation................... 0.15 0.13 0.11 0.10
Less:
Common Stock acquired
by the ESOP (3)............... (0.80) (0.80) (0.80) (0.80)
Common Stock acquired
by the RRP (4)................ (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ---------
Pro forma book value per share... $15.75 $14.69 $13.91 $13.23
========= ========= ========= =========
Offering price as a percentage of pro
forma book value per share....... 63.49% 68.07% 71.89% 75.59%
========= ========= ========= =========
Ratio of offering price to pro forma
earnings per share (annualized).. 17.24x 18.52x 20.83x 21.74x
========= ========= ========= =========
Number of shares used in
calculating earnings
per share (8).................... 5,301,450 6,237,000 7,172,550 8,248,385
========= ========= ========= =========
Number of shares used in
calculating book value........... 5,737,500 6,750,000 7,762,500 8,926,875
========= ========= ========= =========
</TABLE>
(Footnotes on following page.)
<PAGE>
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following
commencement of the Subscription Offering and the Community Offering, if
any.
(2) See "Use of Proceeds" for assumptions utilized to determine the investable
net proceeds of the sale of Common Stock.
(3) It is assumed that 8% of the shares of Common Stock sold in the Conversion
and issued to the Foundation will be purchased by the ESOP. The funds used
to acquire the ESOP shares will be borrowed by the ESOP from the Holding
Company (see "Use of Proceeds"). Lincoln Federal intends to make annual
contributions to the ESOP in an amount at least equal to the principal and
interest requirements on the debt. Lincoln Federal's total annual expense
in payment of the ESOP debt is based upon 20 equal annual installments of
principal with an assumed tax benefit of 40%. The pro forma net income
assumes: (i) Lincoln Federal's total contributions are equivalent to the
debt service requirement for the year, and (ii) the effective tax rate
applicable to the debt was 40%. Expense for the ESOP will be based on the
number of shares committed to be released to participants for the year at
the average market value of the shares during the year. Accordingly,
Lincoln Federal's total annual expense in payment of the ESOP for such
years may be higher than that discussed above. The loan to the ESOP is
reflected as a reduction of shareholders' equity.
(4) Assuming the receipt of shareholder approval, the Holding Company intends
to implement the RRP. Assuming such implementation, the RRP will purchase
an amount of shares equal to 4% of the Common Stock sold in the Conversion
and issued to the Foundation for issuance to directors and officers of the
Holding Company and Lincoln Federal. Such shares may be purchased from
authorized but unissued shares or on the open market. The Holding Company
currently intends that the RRP will purchase the shares on the open market,
and the estimated net Conversion proceeds have been reduced for the
purchase of the shares in determining estimated proceeds available for
investment. Under the terms of the RRP, if it is adopted within one year of
the Conversion, shares will vest at the rate of 20% per year. A tax benefit
of 40% has been assumed. The Common Stock to be purchased by the RRP
represents unearned compensation and is, accordingly, reflected as a
reduction to pro forma shareholders' equity. As shares of the Common Stock
granted pursuant to the RRP vest, a corresponding reduction in the charge
against capital will occur. In the event that authorized but unissued
shares are acquired by the RRP, the interests of existing shareholders will
be diluted. Assuming that 6,500,000 shares of Common Stock are issued in
the Conversion, the midpoint of the Estimated Valuation Range, that 250,000
shares of Common Stock are issued to the Foundation, and that all awards
under the RRP are from authorized but unissued shares, the Holding Company
estimates that the per share book value for the Common Stock would be
diluted $.57 per share, or 3.9% on a pro forma basis as of June 30, 1998,
at the midpoint of the Estimated Valuation Range. The dilution would be
$.61 per share (3.9%) and $.54 per share (3.9%) at the minimum and maximum
levels, respectively, of the Estimated Valuation Range on a pro forma basis
as of June 30, 1998.
(5) Represents income from continuing operations before the extraordinary item
of $150,000 for early extinguishment of debt, net of tax. Does not give
effect to the non-recurring expense that will be recognized in 1998 as a
result of the establishment of the Foundation. The Holding Company will
recognize an after-tax expense for the amount of the contribution to the
Foundation which is expected to be $1.7 million at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range,
respectively. Assuming the issuance to the Foundation was expensed during
the six months ended June 30, 1998, pro forma net earnings (loss) per share
would be $(.02), $.00, $.02, and $.03, at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range, respectively.
(6) Assuming investable net proceeds had been invested since the beginning of
the period at 5.59% for the six months ended June 30, 1998 (the yield on
one-year U.S. government securities) and an assumed effective tax rate of
40%.
(7) Book value represents the excess of assets over liabilities. The effect of
the liquidation account is not reflected in these computations. (For
additional information regarding the liquidation account, see "The
Conversion - Principal Effects of Conversion - Effect on Liquidation
Rights.")
(8) The number of shares used in calculating earnings per share was calculated
using the indicated number of shares sold and the shares issued to the
Foundation reduced by the assumed number of ESOP shares that would be
unallocated at the end of the first allocation period. Allocation of ESOP
shares is assumed to occur on the first day of the fiscal year.
(9) Assuming the receipt of shareholder approval, the Holding Company intends
to implement the Stock Option Plan. Assuming such implementation, Common
Stock in an aggregate amount equal to 10% of the shares sold in the
Conversion and issued to the Foundation will be reserved for issuance by
the Holding Company upon the exercise of the stock options granted under
the Stock Option Plan. No effect has been given to the shares of Common
Stock reserved for issuance under the Stock Option Plan. Upon the exercise
of stock options granted under the Stock Option Plan, the interest of
existing shareholders will be diluted. The Holding Company estimates that
the per share book value for the Common Stock would be diluted $.43 per
share, or 2.9% on a pro forma basis as of June 30, 1998, assuming the sale
of 6.5 million shares in the Conversion, the midpoint of the Estimated
Valuation Range, the issuance of 250,000 shares to the Foundation and the
exercise of 675,000 options at an exercise price of $10.00 per share. This
dilution further assumes that the shares will be issued from authorized,
but unissued, shares. The dilution would be $.53 per share (3.4%) and $.36
per share (2.6%) at the minimum and maximum levels, respectively, of the
Estimated Valuation Range on a pro forma basis as of June 30, 1998.
<PAGE>
<TABLE>
<CAPTION>
At or for the Year Ended December 31, 1997
5,487,500 Shares 6,500,000 Shares 7,512,500 Shares 8,676,875 Shares(1)
Sold at Sold at Sold at Sold at
$10.00 Per Share $10.00 Per Share $10.00 Per Share $10.00 Per Share
---------------- ---------------- ---------------- ----------------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Gross proceeds..................... $54,875 $65,000 $75,125 $86,769
Plus:
Shares acquired by Foundation
(250,000 shares)................ 2,500 2,500 2,500 2,500
Pro forma market capitalization.. $57,375 $67,500 $77,625 $89,269
Gross proceeds..................... $54,875 65,000 75,125 86,769
Less offering expenses............. (1,304) (1,400) (1,496) (1,606)
Estimated net conversion
proceeds (2).................. 53,571 63,600 73,629 85,163
Less:
Common Stock acquired
by ESOP (3)................... (4,590) (5,400) (6,210) (7,142)
Common Stock acquired
by the RRP (4)................ (2,295) (2,700) (3,105) (3,571)
--------- --------- --------- ---------
Investable net proceeds............ $46,686 $55,500 $64,314 $74,450
========= ========= ========= =========
Consolidated net income (5):
Historical ...................... $3,513 $3,513 $3,513 $3,513
Pro forma income on investable
net proceeds (6)................ 1,643 1,954 2,264 2,621
Pro forma ESOP adjustment (3).... (138) (162) (186) (214)
Pro forma RRP adjustment (4) .... (275) (324) (373) (429)
--------- --------- --------- ---------
Pro forma net income ............ $4,743 $4,981 $5,218 $5,491
========= ========= ========= =========
Consolidated earnings per share (8)(9):
Historical ..................... $0.66 $0.56 $0.49 $0.43
Pro forma income on investable
net proceeds.................... 0.31 0.31 0.32 0.32
Pro forma ESOP adjustment (3).... (0.03) (0.03) (0.03) (0.03)
Pro forma RRP adjustment (4)..... (0.05) (0.05) (0.05) (0.05)
--------- --------- --------- ---------
Pro forma earnings per share..... $0.89 $0.79 $0.73 $0.67
========= ========= ========= =========
Consolidated book value (7) :
Historical....................... $41,978 $41,978 $41,978 $41,978
Estimated net conversion
proceeds (2)................... 53,571 63,600 73,629 85,163
Plus: Shares issued
to Foundation................. 2,500 2,500 2,500 2,500
Less: Contribution
to Foundation................. (2,500) (2,500) (2,500) (2,500)
Plus: Tax benefit of the contribution
to Foundation................... 850 850 850 850
Less:
Common Stock acquired
by ESOP (3)................... (4,590) (5,400) (6,210) (7,142)
Common Stock acquired
by the RRP (4)................ (2,295) (2,700) (3,105) (3,571)
--------- --------- --------- ---------
Pro forma book value............. $89,514 $98,328 $107,142 $117,278
========= ========= ========= =========
Consolidated book value per share (7)(9):
Historical ...................... $7.32 $6.22 $5.41 $4.70
Estimated net conversion proceeds
per share ...................... 9.34 9.42 9.49 9.54
Plus: Shares issued
to Foundation................. 0.44 0.37 0.32 0.28
Less: Contribution
to Foundation................. (0.44) (0.37) (0.32) (0.28)
Plus: Tax benefit of the contribution
to Foundation................... 0.15 0.13 0.11 0.10
Less:
Common Stock acquired
by the ESOP (3)............... (0.80) (0.80) (0.80) (0.80)
Common Stock acquired
by the RRP (4)................ (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ---------
Pro forma book value per share... $15.61 $14.57 $13.81 $13.14
========= ========= ========= =========
Offering price as a percentage of pro
forma book value per share....... 64.06% 68.63% 72.41% 76.10%
========= ========= ========= =========
Ratio of offering price to pro forma
earnings per share (annualized).. 11.24x 12.66x 13.70x 14.93x
========= ========= ========= =========
Number of shares used in
calculating earnings
per share (8).................... 5,301,450 6,237,000 7,172,550 8,248,385
========= ========= ========= =========
Number of shares used in
calculating book value........... 5,737,500 6,750,000 7,762,500 8,926,875
========= ========= ========= =========
</TABLE>
(Footnotes on following page.)
<PAGE>
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following
commencement of the Subscription Offering and the Community Offering, if
any.
(2) See "Use of Proceeds" for assumptions utilized to determine the investable
net proceeds of the sale of Common Stock.
(3) It is assumed that 8% of the shares of Common Stock sold in the Conversion
and issued to the Foundation will be purchased by the ESOP. The funds used
to acquire the ESOP shares will be borrowed by the ESOP from the Holding
Company (see "Use of Proceeds"). Lincoln Federal intends to make annual
contributions to the ESOP in an amount at least equal to the principal and
interest requirements on the debt. Lincoln Federal's total annual expense
in payment of the ESOP debt is based upon 20 equal annual installments of
principal with an assumed tax benefit of 40%. The pro forma net income
assumes: (i) Lincoln Federal's total contributions are equivalent to the
debt service requirement for the year, and (ii) the effective tax rate
applicable to the debt was 40%. Expense for the ESOP will be based on the
number of shares committed to be released to participants for the year at
the average market value of the shares during the year. Accordingly,
Lincoln Federal's total annual expense in payment of the ESOP for such
years may be higher than that discussed above. The loan to the ESOP is
reflected as a reduction of shareholders' equity.
(4) Assuming the receipt of shareholder approval, the Holding Company intends
to implement the RRP. Assuming such implementation, the RRP will purchase
an amount of shares equal to 4% of the Common Stock sold in the Conversion
and issued to the Foundation for issuance to directors and officers of the
Holding Company and Lincoln Federal. Such shares may be purchased from
authorized but unissued shares or on the open market. The Holding Company
currently intends that the RRP will purchase the shares on the open market,
and the estimated net Conversion proceeds have been reduced for the
purchase of the shares in determining estimated proceeds available for
investment. Under the terms of the RRP, if it is adopted within one year of
the Conversion, shares will vest at the rate of 20% per year. A tax benefit
of 40% has been assumed. The Common Stock to be purchased by the RRP
represents unearned compensation and is, accordingly, reflected as a
reduction to pro forma shareholders' equity. As shares of the Common Stock
granted pursuant to the RRP vest, a corresponding reduction in the charge
against capital will occur. In the event that authorized but unissued
shares are acquired by the RRP, the interests of existing shareholders will
be diluted. Assuming that 6,500,000 shares of Common Stock are issued in
the Conversion, the midpoint of the Estimated Valuation Range, that 250,000
shares of Common Stock are contributed to the Foundation, and that all
awards under the RRP are from authorized but unissued shares, the Holding
Company estimates that the per share book value for the Common Stock would
be diluted $.56 per share, or 3.8% on a pro forma basis as of June 30,
1998, at the midpoint of the Estimated Valuation Range. The dilution would
be $.61 per share (3.9%) and $.54 per share (3.9%) at the minimum and
maximum levels, respectively, of the Estimated Valuation Range on a pro
forma basis as of June 30, 1998.
(5) Does not give effect to the non-recurring expense that will be recognized
in 1998 as a result of the establishment of the Foundation. The Holding
Company will recognize an after-tax expense for the amount of the
contribution to the Foundation which is expected to be $1.7 million at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, respectively. Assuming the issuance to the Foundation was
expensed during the year ended December 31, 1997, pro forma net earnings
(loss) per share would be $.58, $.53, $.50, and $.47, at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, respectively.
(6) Assuming investable net proceeds had been invested since the beginning of
the period at 5.86% for the year ended December 31, 1997 (the yield on
one-year U.S. government securities) and an assumed effective tax rate of
40%.
(7) Book value represents the excess of assets over liabilities. The effect of
the liquidation account is not reflected in these computations. (For
additional information regarding the liquidation account, see "The
Conversion - Principal Effects of Conversion - Effect on Liquidation
Rights.")
(8) The number of shares used in calculating earnings per share was calculated
using the indicated number of shares sold and the shares issued to the
Foundation reduced by the assumed number of ESOP shares that would be
unallocated at the end of the first allocation period. Allocation of ESOP
shares is assumed to occur on the first day of the fiscal year.
(9) Assuming the receipt of shareholder approval, the Holding Company intends
to implement the Stock Option Plan. Assuming such implementation, Common
Stock in an aggregate amount equal to 10% of the shares sold in the
Conversion and issued to the Foundation will be reserved for issuance by
the Holding Company upon the exercise of the stock options granted under
the Stock Option Plan. No effect has been given to the shares of Common
Stock reserved for issuance under the Stock Option Plan. Upon the exercise
of stock options granted under the Stock Option Plan, the interest of
existing shareholders will be diluted. The Holding Company estimates that
the per share book value for the Common Stock would be diluted $.42 per
share, or 2.9% on a pro forma basis as of June 30, 1998, assuming the sale
of 6.5 million shares in the Conversion, the midpoint of the Estimated
Valuation Range, the issuance of 250,000 shares to the Foundation and the
exercise of 675,000 options at an exercise price of $10.00 per share. This
dilution further assumes that the shares will be issued from authorized,
but unissued, shares. The dilution would be $.52 per share (3.3%) and $.35
per share (2.5%) at the minimum and maximum levels, respectively, of the
Estimated Valuation Range on a pro forma basis as of June 30, 1998.
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO FOUNDATION
In the event that the Foundation were not established as part of the
Conversion, Keller has estimated that the pro forma aggregate market
capitalization of the Holding Company would be approximately $70 million at the
midpoint, which is approximately $2.5 million greater than the pro forma
aggregate market capitalization of the Holding Company if the Foundation is
included, and would result in an approximately $5 million increase in the amount
of Common Stock offered for sale in the Conversion. The pro forma price to book
ratio and pro forma price to earnings ratio would be approximately the same
under both the current appraisal and the estimate of the value of the Holding
Company without the Foundation. Further, assuming the midpoint of the Estimated
Valuation Range, pro forma stockholders' equity per share and pro forma earnings
per share would be $14.68 and $.27, respectively and $14.69 and $.27,
respectively, with the Foundation or without the Foundation. The pro forma price
to book ratio at the midpoint of the Estimated Valuation Range with and without
the Foundation would be 68.1% and 68.1%, respectively. The pro forma price to
earnings ratio at the midpoint of the Estimated Valuation Range with and without
the Foundation would be 18.52x and 18.52x, respectively. There is no assurance
that, in the event that the Foundation were not formed, the appraisal prepared
at the time would have concluded that the pro forma market value of the Holding
Company would be the same as the estimate herein. Any appraisals prepared at
that time would be based on the facts and circumstances existing at that time,
including, among other things, market and economic conditions.
For comparative purposes only, set forth below are certain pricing
ratios and financial data and ratios, at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range, assuming the Conversion was
completed at June 30, 1998.
<TABLE>
<CAPTION>
15% Above
At the Minimum At the Midpoint At the Maximum the Maximum,
-------------- --------------- -------------- ------------
With No With No With No With No
Foundation Foundation Foundation Foundation Foundation Foundation Foundation Foundation
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per shares amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated offering amount......$ 54,875 $ 59,500 $ 65,000 $ 70,000 $ 75,125 $ 80,500 $ 86,769 $ 92,575
Pro forma market
capitalization........... 57,375 59,500 67,500 70,000 77,625 80,500 89,269 92,575
Total assets................... 352,036 355,510 360,850 364,650 369,664 373,791 379,800 384,303
Total liabilities.............. 261,705 261,705 261,705 261,705 261,705 261,705 261,705 261,705
Pro forma book value........... 90,331 93,805 99,145 102,945 107,959 112,086 118,095 122,598
Pro forma consolidated
net income.................. 1,542 1,607 1,654 1,723 1,765 1,836 1,893 1,971
Pro forma book value per share.$ 15.75 $ 15.76 $ 14.69 $ 14.70 $ 13.91 $ 13.93 $ 13.23 $ 13.24
Pro forma consolidated net
income per share............$ 0.29 $ 0.30 $ 0.27 $ 0.27 $ 0.24 $ 0.25 $ 0.23 $ 0.23
Pro forma pricing ratios:
Offering price as a percentage
of pro forma book value
per share................ 63.49% 63.45% 68.07% 68.03% 71.89% 71.79% 75.59% 75.53%
Offering price to pro forma
earnings per share
(annualized) (1).......... 17.24x 16.67x 18.52x 18.52x 20.83x 20.00x 21.74x 21.74x
Pro forma market
capitalization to assets.. 16.30% 16.74% 18.71% 19.20% 21.00% 21.54% 23.50% 24.09%
Pro forma financial ratios:
Return on assets
(annualized) (2).......... 0.86% 0.89% 0.90% 0.93% 0.94% 0.97% 0.98% 1.01%
Return on equity
(annualized) (3).......... 3.41% 3.42% 3.33% 3.34% 3.27% 3.28% 3.20% 3.21%
Equity to assets............... 25.66% 26.39% 27.48% 28.23% 29.20% 29.99% 31.09% 31.90%
- ------------------
</TABLE>
(1) If the contribution to the Foundation had been expensed during the six
months ended June 30, 1998, the offering price to pro forma earnings per
share would have been 36.97x, 37.62x, 38.15x and 38.62x at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, respectively.
(2) If the contribution to the Foundation had been expensed during the six
months ended June 30, 1998, return on assets would have been .40%, .45%,
.50% and .55% at the minimum, midpoint, maximum and 15% above the maximum
of the Estimated Valuation Range, respectively.
(3) If the contribution to the Foundation had been expensed during the six
months ended June 30, 1998, return on equity would have been 1.59%, 1.67%,
1.74% and 1.81% at the minimum, midpoint, maximum and 15% above the maximum
of the Estimated Valuation Range, respectively.
REGULATORY CAPITAL COMPLIANCE
The following table compares our historical and pro forma regulatory
capital levels as of June 30, 1998 to our capital requirements historically and
after giving effect to the Conversion.
<TABLE>
<CAPTION>
At June 30, 1998
Pro Forma Capital Based on Sale of
5,487,500 Shares 6,500,000 Shares 7,512,000 Shares 8,676,875 Shares
Lincoln Federal Sold at Price of Sold at Price of Sold at Price of Sold at Price of
Historical $10.00 $10.00 $10.00 $10.00 (1)
---------- ------ ------ ------ ----------
Amount Ratio (2) Amount (4) Ratio (2) Amount (4)Ratio (2) Amount (4)Ratio (2) Amount (4) Ratio (2)
------ --------- -------------------- ------------------- ----------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity capital based upon
generally accepted
accounting principles. $42,795 14.1% $63,546 19.5% $67,345 20.5% $71,145 21.4% $75,513 22.4%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Tangible capital :
Historical or
pro forma........... $42,248 13.9% $62,999 19.4% $66,798 20.3% $70,598 21.2% $74,966 22.2%
Required.............. 4,569 1.5 4,880 1.5 4,937 1.5 4,994 1.5 5,060 1.5
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess.............. $37,679 12.4% $58,119 17.9% $61,861 18.8% $65,604 19.7% $69,906 20.7%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Core capital :
Historical or
pro forma .......... $42,248 13.9% $62,999 19.4% $66,798 20.3% $70,598 21.2% $74,966 22.2%
Required.............. 9,138 3.0 9,761 3.0 9,874 3.0 9,988 3.0 10,120 3.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess.............. $33,110 10.9% $53,238 16.4% $56,924 17.3% $60,610 18.2% $64,846 19.2%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Risk-based capital (3):
Historical or
pro forma .......... $43,680 24.6% $64,431 35.3% $68,230 37.2% $72,030 39.1% $76,398 41.3%
Required.............. 14,217 8.0 14,604 8.0 14,665 8.0 14,725 8.0 14,795 8.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess.............. $29,463 16.6% $49,827 27.3% $53,565 29.2% $57,305 31.1% $61,603 33.3%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15%, including 250,000 shares to be issued to the Foundation, to reflect
changes in market and financial conditions following commencement of the
Subscription Offering and the Community Offering, if any.
(2) Tangible and core capital levels are shown as a percentage of total assets;
risk-based capital levels are shown as a percentage of risk-weighted
assets.
(3) Pro forma risk-based capital amounts and percentages assume net proceeds
have been invested in 20% risk-weighted assets. Computations of ratios are
based on historical adjusted total assets of $304,599,000 and risk-weighted
assets of $177,718,000.
(4) Capital levels are increased for contribution of 50% of the net proceeds of
the Offering by the Holding Company and reduced for charges to capital
resulting from the ESOP and RRP. See notes (3) and (4) on page 27.
<PAGE>
THE CONVERSION
THE BOARDS OF DIRECTORS OF LINCOLN FEDERAL AND THE HOLDING COMPANY AND
THE OTS HAVE APPROVED THE PLAN SUBJECT TO THE PLAN'S APPROVAL BY OUR MEMBERS AT
A SPECIAL MEETING OF MEMBERS, AND SUBJECT TO THE SATISFACTION OF CERTAIN OTHER
CONDITIONS IMPOSED BY THE OTS IN ITS APPROVAL. OTS APPROVAL, HOWEVER, DOES NOT
CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY THE OTS.
General
On July 2, 1998, our Board of Directors adopted a Plan of Conversion
(the "Plan") pursuant to which we will convert from a federal mutual savings
bank to a federal stock savings bank, and become a wholly-owned subsidiary of
the Holding Company. The Conversion will include adoption of the proposed
Federal Stock Charter and Bylaws which will authorize the issuance of capital
stock by us. Under the Plan, our capital stock is being sold to the Holding
Company and the Common Stock of the Holding Company is being offered to our
customers and, if necessary, to the general public, with a preference given to
residents of Hendricks, Montgomery and Clinton Counties, Indiana. The Plan has
also been approved by the OTS, subject to approval of the Plan by our members. A
Special Meeting of Members (the "Special Meeting") has been scheduled for that
purpose on _____________, 1998. The approval of the Plan by the OTS does not
constitute a recommendation or endorsement of the Plan by the OTS.
We have mailed to each person eligible to vote at the Special Meeting a
proxy statement (the "Proxy Statement"). The Proxy Statement contains
information concerning the business purposes of the Conversion and the effects
of the Plan and the Conversion on voting rights, liquidation rights, the
continuation of our business and existing savings accounts, FDIC insurance and
loans. The Proxy Statement also describes the manner in which the Plan may be
amended or terminated.
In furtherance of our commitment to the communities we serve, the Plan
provides for the establishment of the Foundation as part of the Conversion. The
Foundation is intended to complement our existing community reinvestment
activities and to establish a common bond between us and the communities that we
serve, thereby enabling those communities to share in the growth and
profitability of the Holding Company over the long term. Consistent with our
goal, the Holding Company intends to donate to the Foundation immediately
following the Conversion 250,000 shares of its authorized but unissued Common
Stock. See "Establishment of the Foundation."
Reasons for Conversion
As a stock institution, we will be structured in the form used by
commercial banks, most business entities, and a growing number of savings
associations. Converting to the stock form is intended to have a positive effect
on our future growth and performance by: (i) affording our depositors and
employees the opportunity to become shareholders of the Holding Company and
thereby participate more directly in our future and the Holding Company's
future; (ii) providing the Holding Company with the flexibility to grow through
mergers and acquisitions by permitting the offering of the Holding Company's
stock to the shareholders of acquired companies; (iii) providing substantially
increased net worth and equity capital for investment in our business, thus
enabling management to pursue new and additional lending and investment
opportunities and to expand operations; and (iv) providing future access to
capital markets through the sale of stock of the Holding Company in order to
generate additional capital to accommodate or promote future growth. We believe
that the increased capital and operating flexibility will enhance our
competitiveness with other types of financial services organizations. Although
our current members will, upon Conversion, lose the voting and liquidation
rights they presently have as members (except to the limited extent of their
rights in the liquidation account established in the Conversion), they are being
offered a priority right to purchase shares in the Conversion and thereby obtain
voting and liquidation rights in the Holding Company.
The net proceeds to us from the sale of Common Stock offered hereby,
after retention by the Holding Company of 50% of the net proceeds after payment
of expenses incurred in connection with the Conversion, will increase our
existing net worth and thus provide an even stronger capital base to support our
lending and investment activities. This increase in our net worth, when combined
with the extra expenses we will incur as a publicy-traded company, will also,
however, likely cause our return on equity to decrease in comparison with our
performance in previous years. The net proceeds will also enable us to take
advantage of new opportunities that may arise, including the possible
acquisition of another financial institution or the acquisition of assets from
another financial institution, although we have no such present plans,
discussions or agreements with respect to any such acquisitions. In addition,
the Conversion will provide us with new opportunities to attract and retain
talented and experienced personnel by offering stock incentive programs.
Our Board of Directors believes that the Conversion to a holding
company structure is the best way to enable us to diversify our business
activities should we choose to do so. Currently, there are no plans, written or
oral, for the Holding Company to engage in any material activities apart from
holding our shares of stock that it acquires in connection with the Conversion,
although the Board may determine to further expand the Holding Company's
activities after the Conversion.
The additional Common Stock of the Holding Company being authorized in
the Conversion will be available for future acquisitions (although the Holding
Company has no current plans, discussions or agreements with respect to any
acquisition) and for issuance and sale to raise additional equity capital,
subject to market conditions and generally without shareholder approval. The
Holding Company's ability to raise additional funds through the sale of equity
or debt securities to the public or institutional investors should also be
enhanced by the increase in its equity capital base provided by the Conversion.
Although the Holding Company currently has no plans with respect to future
issuances of equity or debt securities, the more flexible operating structure
provided by the Holding Company and the stock form of ownership is expected to
assist us in competing aggressively with other financial institutions in our
market area.
The Conversion will also permit our members who subscribe for shares of
Common Stock to become shareholders of the Holding Company, thereby allowing
members to indirectly own stock in the financial institution in which they
maintain deposit accounts. Such ownership may encourage shareholders to promote
us to others, thereby further contributing to our growth.
Establishment of the Foundation
General. In furtherance of our commitment to the communities
we serve, the Plan provides that Lincoln Federal and the Holding Company will
establish the Foundation, which will be incorporated under Indiana law as a
nonprofit corporation without members, and will fund the Foundation with Common
Stock of the Holding Company. By further enhancing our visibility and reputation
in the communities that we serve, we believe that the Foundation will enhance
the long-term value of our community banking franchise. The Foundation will be
dedicated to charitable purposes, including community development activities
within the communities that we serve.
Purpose of the Foundation. We intend for the Foundation to provide
funding to support charitable causes and community development activities. In
recent years, we have emphasized community lending and community development
activities within the communities that we serve. The Foundation is being formed
as a complement to our existing community activities, not as a replacement for
those activities. While we intend to continue to emphasize community lending and
community development activities following the Conversion, those activities are
not our sole corporate purpose. The Foundation, on the other hand, will be
completely dedicated to engaging in community activities and promoting
charitable causes, and may be able to support such activities in ways that are
not currently available to us.
We believe that the Foundation will enable us to assist our local
communities in areas beyond community development and lending. We believe the
establishment of the Foundation will enhance our current activities under the
Community Reinvestment Act of 1977 (the "CRA"). In this regard, our Board of
Directors believes the establishment of a charitable foundation is consistent
with our commitment to community service. The Board further believes that the
funding of the Foundation with Common Stock of the Holding Company will enable
the communities that we serve to share in any future growth and success of the
Holding Company upon completion of the Conversion. The Foundation will
accomplish that goal by providing for continued ties between the Foundation and
us, thereby forming a partnership with our community. The establishment of the
Foundation will also enable the Holding Company and Lincoln Federal to develop a
unified charitable donation strategy and will centralize the responsibility for
administration and allocation of corporate charitable funds. Charitable
foundations have been formed by other financial institutions for this purpose,
among others. We do not expect, however, that the contribution to the Foundation
will take the place of our traditional community lending activities.
Structure of the Foundation. The Foundation has been incorporated under
Indiana law as a nonprofit corporation without members. The Foundation's Board
of Directors will initially consist of four members of the Holding Company's
Board of Directors: Wayne E. Kessler, John C. Milholland, Edward E. Whalen and
John L. Wyatt. Following the Conversion, the Foundation's Board may be increased
to include all members of the Holding Company's Board and may include outside
members as well. The members of the Foundation, consisting of its Board members,
will elect the directors at the annual meeting of the Foundation. Directors will
be divided into three classes with each class appointed for staggered three-year
terms. The articles of incorporation of the Foundation provide that the
Foundation is organized exclusively for charitable purposes, including community
development, as set forth in Section 501(c)(3) of the Code. The Foundation's
articles of incorporation further provide that no part of the net earnings of
the Foundation will inure to the benefit of, or be distributable to its
directors, officers or members.
The authority for the affairs of the Foundation will be vested in its
Board of Directors, which will be responsible for establishing the Foundation's
policies with respect to grants or donations, consistent with the purposes for
which the Foundation was established. Although no formal policy governing
Foundation grants exists at this time, the Foundation's Board of Directors will
adopt such a policy upon establishment of the Foundation. As directors of a
nonprofit corporation, directors of the Foundation will at all times be bound by
their fiduciary duty to advance the Foundation's charitable goals, to protect
the assets of the Foundation and to act in a manner consistent with the
charitable purpose for which the Foundation is established.
The Directors of the Foundation will also be responsible for directing
the activities of the Foundation, including the management of the Common Stock
of the Holding Company held by the Foundation. However, we expect that, as a
condition to receiving the approval of the OTS to the Conversion, the Foundation
will be required to commit to the OTS that all shares of Common Stock held by
the Foundation will be voted in the same ratio as all other shares of the
Holding Company's Common Stock on all proposals considered by shareholders of
the Holding Company; provided, however, that, consistent with this condition,
the OTS would waive this voting restriction under certain circumstances if
compliance with the voting restriction would: (i) cause a violation of the law
of the State of Indiana and the OTS determines that federal law would not
preempt the application of the laws of Indiana to the Foundation; (ii) would
cause the Foundation to lose its tax-exempt status, or cause the Internal
Revenue Service to deny the Foundation's request for a determination that it is
an exempt organization or otherwise have a material and adverse tax consequence
on the Foundation; or (iii) would cause the Foundation to be subject to an
excise tax under Section 4941 of the Code. In order for the OTS to waive such
voting restriction, the Holding Company's or the Foundation's legal counsel
would be required to render an opinion satisfactory to the OTS that compliance
with the voting requirement would have the effect described in clauses (i), (ii)
or (iii) above. Under those circumstances, the OTS would grant a waiver of the
voting restriction upon submission of such legal opinions(s) by the Holding
Company or the Foundation that are satisfactory to the OTS. In the event that
the OTS were to waive the voting requirement, the directors would direct the
voting of the Common Stock held by the Foundation.
The Foundation's place of business will be located at our
administrative offices. We expect that initially the Foundation will have no
employees but, rather, will utilize the members of our staff who, generally,
will not receive any additional compensation for work they perform on behalf of
the Foundation. The Board of Directors of the Foundation has appointed Edward E.
Whalen as president, and will appoint such other officers as may be necessary to
manage the operations of the Foundation. In this regard, it is expected that we
will be required to provide the OTS with a commitment that, to the extent
applicable, we will comply with the affiliate restrictions set forth in Sections
23A and 23B of the Federal Reserve Act with respect to any transactions between
us and the Foundation.
The Holding Company intends to capitalize the Foundation with 250,000
shares of Common Stock. We elected to fund the Foundation with Common Stock
rather than cash because we desired to form a bond with the communities we serve
in a manner that would allow them to share in any future growth and success of
the Holding Company and Lincoln Federal over the long term. The funding of the
Foundation with stock also provides the Foundation with a potentially larger
endowment than if the Holding Company contributed cash to the Foundation since,
as a shareholder, the Foundation will share in any future growth and success of
the Holding Company. As such, the contribution of Common Stock to the Foundation
has the potential to provide a self-sustaining funding mechanism which reduces
the amount of cash that the Holding Company, if it were not making the stock
donation, would have to contribute to the Foundation in future years in order to
maintain a level amount of charitable grants and donations.
The Foundation will receive working capital from any dividends that may
be paid on the Common Stock in the future and, subject to applicable federal and
state laws, loans collateralized by the Common Stock or from the proceeds of the
sale of any of the Common Stock in the open market from time to time as may be
permitted to provide the Foundation with additional liquidity. As a private
foundation under Section 501(c)(3) of the Code, the Foundation generally will be
required to distribute annually in grants or donations a minimum of 5% of the
average fair market value of its net investment assets. One of the conditions
imposed on the gift of Common Stock by the Holding Company is that the amount of
Common Stock that may be sold by the Foundation in any one year shall not exceed
5% of the average market value of the assets held by the Foundation, except
where the Board of Directors of the Foundation determines that the failure to
sell an amount of Common Stock greater than such amount would result in a
longer-term reduction of the value of the Foundation's assets and as such would
jeopardize the Foundation's capacity to carry out its charitable purposes. Upon
completion of the Conversion and the contribution of shares to the Foundation
immediately following the Conversion, the Holding Company would have 5,737,500,
6,750,000, 7,762,500 and 8,926,875 shares issued and outstanding at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation Range.
Because the Holding Company will have an increased number of shares outstanding,
the voting and ownership interests of shareholders in the Holding Company's
Common Stock would be diluted by 3.7% at the midpoint of the Estimated Valuation
Range, as compared to their interests in the Holding Company if the Foundation
were not established. For additional discussion of the dilutive effect, see "Pro
Forma Data" and "Comparison of Valuation and Pro Forma Information with No
Foundation."
Tax Considerations. We have been advised by Barnes & Thornburg that an
organization created and operated for the above charitable purposes would
generally qualify as a Section 501(c)(3) exempt organization under the Code, and
further that such an organization would likely be classified as a private
foundation. The Foundation has submitted a timely request to the IRS to be
recognized as an exempt organization. Provided the IRS approves the application,
the effective date of the Foundation's status as a Section 501(c)(3)
organization will be June 12, 1998, the date of its organization.
Barnes & Thornburg, however, has not rendered any advice on the
condition that we expect will be imposed by the OTS requiring that all shares of
Common Stock of the Holding Company held by the Foundation be voted in the same
ratio as all other outstanding shares of Common Stock of the Holding Company on
all proposals considered by shareholders of the Holding Company. Consistent with
the expected condition, in the event that the Holding Company or the Foundation
receives an opinion of its legal counsel that compliance with this voting
restriction would cause the Foundation to lose its tax-exempt status or
otherwise have a material and adverse tax consequence on the Foundation, or
subject the Foundation to an excise tax under Section 4941 of the Code, it is
expected that the OTS would waive such voting restriction upon submission of a
legal opinion(s) by the Holding Company or the Foundation satisfactory to the
FDIC. See "--Regulatory Conditions Imposed on the Foundation."
Under Indiana law, the Holding Company is authorized by statute to make
charitable contributions. Under the Code, the Holding Company is generally
allowed a deduction for federal income tax purposes for charitable contributions
made to qualifying donees within the taxable year of up to 10% of its taxable
income (with certain modifications) for such year. Charitable contributions made
by the Holding Company in excess of the annual deductible amount will be
deductible over each of the five succeeding taxable years, subject to certain
limitations.
We believe that the Conversion presents a unique opportunity to
establish and fund a charitable foundation given the substantial amount of
additional capital being raised in the Conversion. In making such a
determination, we considered the dilutive impact of the contribution of Common
Stock to the Foundation on the amount of Common Stock available to be offered
for sale in the Conversion. Based on such consideration, we believe that the
contribution to the Foundation in excess of the 10% annual deduction limitation
is justified given our capital position and earnings, the substantial additional
capital being raised in the Conversion and the potential benefits of the
Foundation to the communities that we serve. In this regard, assuming the sale
of the Common Stock at the midpoint of the Estimated Valuation Range, the
Holding Company would have pro forma shareholders' equity of $99.1 million, or
27.5% of pro forma consolidated assets, and Lincoln Federal's pro forma
tangible, core and total risk-based capital ratios would be 20.3%,20.3% and
37.2%, respectively. See "Regulatory Capital Compliance," "Capitalization," and
"Comparison of Valuation and Pro Forma Information with No Foundation." Thus,
the amount of the contribution will not adversely affect the financial condition
of the Holding Company and Lincoln Federal and we therefore believe that the
amount of the charitable contribution is reasonable given our pro forma capital
positions. As such, we believe that the contribution does not raise safety and
soundness concerns.
We have received the opinion of Barnes & Thornburg that the Holding
Company's contribution of its own stock to the Foundation would not constitute
an act of self-dealing, and that the Holding Company will be entitled to a
deduction in the amount of the fair market value of the stock at the time of the
contribution, subject to the annual deduction limitation described above. The
Holding Company, however, would be able to carry forward any unused portion of
the deduction for five years following the contribution, subject to certain
limitations. Barnes & Thornburg has not, however, rendered advice as to fair
market value for purposes of determining the amount of the tax deduction. If the
Foundation had been established in 1997, the Holding Company would have received
a tax benefit of approximately $850,000 in 1997 and/or over the subsequent
five-year period (based on our pre-tax income for 1997, an assumed marginal tax
rate of 34% and a deduction for the contribution of Common Stock equal to $2.5
million). The Holding Company is permitted under the Code to carry over the
excess contribution over the five-year period following the contribution to the
Foundation. Assuming the close of the Offering at the midpoint of the Estimated
Valuation Range, the Holding Company estimates that all of the deduction should
be deductible over the six-year period. We do not expect to make any further
contributions to the Foundation within the first five years following the
initial contribution. After that time, we may consider future contributions to
the Foundation. Any such decisions would be based on an assessment of, among
other factors, our financial condition at that time, the interests of our
shareholders and depositors, and the financial condition and operations of the
Foundation.
Although we have received the opinion of Barnes & Thornburg that the
Holding Company is entitled to a deduction for the charitable contribution,
there can be no assurances that the IRS will recognize the Foundation as a
Section 501(c)(3) exempt organization or that a deduction for the charitable
contribution will be allowed. In such event, the Holding Company's tax benefit
related to the contribution to the Foundation would be expensed without tax
benefit, resulting in a reduction in earnings in the year in which the IRS makes
such a determination. See "Risk Factors-Establishment of the Foundation."
As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are generally exempt from federal and state
corporate income taxation. However, investment income, such as interest,
dividends and capital gains, of a private foundation will generally be subject
to a federal excise tax of 2.0%. The Foundation will be required to make an
annual filing with the IRS within four and one-half months after the close of
the Foundation's fiscal year to maintain its tax-exempt status. The Foundation
will be required to publish a notice that the annual information return will be
available for public inspection for a period of 180 days after the date of such
public notice. The information return for a private foundation must include,
among other things, an itemized list of all grants made or approved, showing the
amount of each grant, the recipient, any relationship between a grant recipient
and the Foundation's managers and a concise statement of the purpose of each
grant. The Foundation will also be required to file a bi-annual report with the
Secretary of State of Indiana.
Regulatory Conditions Imposed on the Foundation. We expect that, before
the OTS will approve the Conversion, it will require the Foundation to agree to
the following conditions: (i) the Foundation will be subject to examination by
the OTS; (ii) the Foundation must comply with supervisory directives imposed by
the OTS; (iii) the Foundation will operate in accordance with written policies
adopted by the Board of Directors, including a conflict of interest policy; and
(iv) any shares of Common Stock held by the Foundation must be voted in the same
ratio as all other outstanding shares of Common Stock on all proposals
considered by shareholders of the Holding Company; provided, however, that the
OTS would waive this voting restriction under certain circumstances if
compliance with the voting restriction would: (a) cause a violation of the laws
of the State of Indiana and the OTS determines that federal law would not
preempt the application of the laws of Indiana to the Foundation; (b) would
cause the Foundation to lose its tax-exempt status or otherwise have a material
and adverse tax consequence on the Foundation; or (c) would cause the Foundation
to be subject to an excise tax under Section 4941 of the Code. In order for the
OTS to waive such voting restriction, the Holding Company's or the Foundation's
legal counsel would be required to render an opinion satisfactory to the OTS.
There can be no assurances that a legal opinion addressing these issues could be
rendered, or if rendered, that the OTS would grant an unconditional waiver of
the voting restriction. In no event would the voting restriction survive the
sale of shares of the Common Stock held by the Foundation.
Principal Effects of Conversion
General. Each savings depositor in a mutual savings bank such as
Lincoln Federal has both a savings account and a pro rata ownership in the net
worth of that institution, based upon the balance in his or her savings account.
This ownership interest has no tangible market value separate from the savings
account. Upon conversion to stock form, the ownership of our net worth will be
represented by the outstanding shares of stock to be owned by the Holding
Company. Certificates are issued to evidence ownership of the capital stock.
These stock certificates are transferable and, therefore, the shares may be
transferred with no effect on any account the seller may hold with us.
Continuity. While the Conversion is being accomplished, we will
continue without interruption our normal business of accepting deposits and
making loans. After the Conversion, we will continue to provide services for
account holders and borrowers under current policies carried on by our present
management and staff.
Our directors at the time of Conversion will continue to serve as our
directors after the Conversion until the expiration of their current terms, and
thereafter, if reelected. All of our executive officers at the time of
Conversion will retain their positions after the Conversion.
Effect on Deposit Accounts. Under the Plan, each of our depositors at
the time of the Conversion will automatically continue as a depositor after the
Conversion, and each deposit account will remain the same with respect to
deposit balance, interest rate and other terms. Each account will also continue
to be insured by the FDIC in exactly the same way as before. Depositors will
continue to hold their existing certificates, passbooks and other evidence of
their accounts.
Effect on Loans of Borrowers. None of our loans will be affected by the
Conversion. The amount, interest rate, maturity and security for each loan will
be unchanged.
Effect on Voting Rights of Members. Currently in our mutual form, our
depositor and certain borrower members have voting rights and may vote for the
election of directors. Following the Conversion, depositors and borrowers will
cease to have voting rights. All voting rights in Lincoln Federal will be vested
in the Holding Company as our sole shareholder. Voting rights in the Holding
Company will be vested exclusively in its shareholders, with one vote for each
share of Common Stock. Neither the Common Stock to be sold in the Conversion nor
the capital stock of Lincoln Federal will be insured by the FDIC or by any other
government entity.
Effect on Liquidation Rights. Current federal regulations and the Plan
of Conversion provide for the establishment of a "liquidation account" by us for
the benefit of our deposit account holders with balances of no less than $50.00
on June 30, 1997 ("Eligible Account Holders"), and our deposit account holders
with balances of no less than $50.00 on September 30, 1998 ("Supplemental
Eligible Account Holders"), who continue to maintain their accounts with us
after the Conversion. The liquidation account will be credited with our net
worth as reflected in the latest statement of financial condition in the final
prospectus used in the Conversion. Each Eligible Account Holder and Supplemental
Eligible Account Holder will, with respect to each deposit account held, have a
related inchoate interest in a portion of the balance of the liquidation
account. This inchoate interest is referred to in the Plan as a "subaccount
balance." In the event of a complete liquidation of us after the Conversion (and
only in such event), Eligible Account Holders and Supplemental Eligible Account
Holders would be entitled to a distribution from the liquidation account in an
amount equal to the then current adjusted subaccount balance then held, before
any liquidation distribution would be made to the Holding Company as our sole
shareholder. We believe that a liquidation of Lincoln Federal is unlikely.
Each Eligible Account Holder will have a subaccount balance in the
liquidation account for each deposit account held as of June 30, 1997 (the
"Eligibility Record Date"). Each Supplemental Eligible Account Holder will have
a subaccount balance in the liquidation account for each deposit account held as
of September 30, 1998 (the "Supplemental Eligibility Record Date"). Each initial
subaccount balance will be the amount determined by multiplying the total
opening balance in the liquidation account by a fraction, the numerator of which
is the amount of the qualifying deposit (a deposit of at least $50 as of June
30, 1997, or September 30, 1998, respectively) of such deposit account, and the
denominator of which is the total of all qualifying deposits on that date. If
the amount in the deposit account on any subsequent annual closing date of
Lincoln Federal is less than the balance in such deposit account on any other
annual closing date, or the balance in such account on the Eligibility Record
Date or the Supplemental Eligibility Record Date, as the case may be, this
interest in the liquidation account will be reduced by an amount proportionate
to any such reduction, and will not thereafter be increased despite any
subsequent increase in the related deposit account. An Eligible Account
Holder's, as well as a Supplemental Eligible Account Holder's, interest in the
liquidation account will cease to exist if the deposit account is closed. The
liquidation account will never increase and will be correspondingly reduced as
the interests in the liquidation account are reduced or cease to exist. In the
event of liquidation, any assets remaining after the above liquidation rights of
Eligible Account Holders and Supplemental Eligible Account Holders are satisfied
will be distributed to the Holding Company as our sole shareholder.
A merger, consolidation, sale of bulk assets, or similar combination or
transaction in which we are not the surviving entity would not be considered to
be a "liquidation" under which distribution of the liquidation account could be
made, provided the surviving institution is an FDIC-insured institution. In such
a transaction, the liquidation account would be assumed by the surviving
institution. The OTS has stated that the consummation of a transaction of the
type described in the preceding sentence in which the surviving entity is not an
FDIC-insured institution would be reviewed on a case-by-case basis to determine
whether the transaction should constitute a "complete liquidation" requiring
distribution of any then-remaining balance in the liquidation account.
The creation and maintenance of the liquidation account will not
restrict the use of or application of any of the net worth accounts, except that
we may not declare or pay a cash dividend on or repurchase our capital stock if
the effect of such dividend or repurchase would be to cause our net worth to be
reduced below the aggregate amount then required for the liquidation account.
Tax Effects. We intend to proceed with the Conversion on the basis of
an opinion from Barnes & Thornburg as to all tax matters that are material to
the Conversion. The opinion is based, among other things, on certain
representations made by us, including the representation that the exercise price
of the subscription rights to purchase the Common Stock will be approximately
equal to the fair market value of the stock at the time of the completion of the
Conversion. With respect to the subscription rights, we have received an opinion
of Keller which, based on certain assumptions, concludes that the subscription
rights to be received by Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members do not have any economic value at the time of
distribution or the time the subscription rights are exercised, whether or not a
Community Offering takes place, and Barnes & Thornburg's opinion is given in
reliance thereon. Barnes & Thornburg's opinion provides substantially as
follows:
1. Our change in form from a mutual savings bank to a stock savings and
bank will qualify as a reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended (the "Code"), and no gain or
loss will be recognized to us in either our mutual form or our stock
form by reason of the Conversion.
2. No gain or loss will be recognized by the converted savings bank upon
receipt of money from the Holding Company for the converted savings
bank's capital stock, and no gain or loss will be recognized by the
Holding Company upon the receipt of money for Common Stock of the
Holding Company.
3. The basis of the assets of the converted savings bank will be the same
as the basis in our hands prior to the Conversion.
4. The holding period of the assets of the converted savings bank will
include the period during which the assets were held by us in our
mutual form prior to Conversion.
5. No gain or loss will be realized by our deposit account holders or
borrowers, upon the constructive issuance to them of withdrawable
deposit accounts of the converted savings bank immediately after the
Conversion, interests in the liquidation account, and/or on the
distribution to them of nontransferable subscription rights to purchase
Common Stock.
6. The basis of an account holder's deposit accounts in the converted
savings bank after the Conversion will be the same as the basis of his
or her deposit accounts with us prior to the Conversion.
7. The basis of each account holder's interest in the liquidation account
will be zero. The basis of the non-transferable subscription rights
will be zero.
8. The basis of the Holding Company Common Stock to its shareholders will
be the actual purchase price ($10.00) thereof, and a shareholder's
holding period for Common Stock acquired through the exercise of
subscription rights will begin on the date on which the subscription
rights are exercised.
9. No taxable income will be realized by Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members as a result of
the exercise of the nontransferable subscription rights.
10. The converted savings bank in its stock form will succeed to and take
into account our earnings and profits or deficit in earnings and
profits, in our mutual form, as of the date of Conversion.
The opinion also concludes in effect that:
1. No taxable income will be realized by us on the issuance of
subscription rights to eligible subscribers to purchase shares of
Common Stock at fair market value.
2. The converted savings bank will succeed to and take into account the
dollar amounts of those accounts of Lincoln Federal in its mutual form
which represent bad debt reserves in respect of which Lincoln Federal
in its mutual form has taken a bad debt deduction for taxable years on
or before the date of the transfer.
3. The creation of the liquidation account will have no effect on our
taxable income, deductions, or additions to bad debt reserves or
distributions to shareholders under Section 593 of the Code.
Barnes & Thornburg has also issued an opinion stating in essence that
the Conversion will not be a taxable transaction to the Holding Company or to us
under any Indiana tax statute imposing a tax on income, and that our depositors
and borrowers will be treated under such laws in a manner similar to the manner
in which they will be treated under federal income tax law.
The opinions of Barnes & Thornburg and Keller, unlike a letter ruling
issued by the Internal Revenue Service, are not binding on the Service and the
conclusions expressed herein may be challenged at a future date. The Service has
issued favorable rulings for transactions substantially similar to the proposed
Conversion, but any such ruling may not be cited as precedent by any taxpayer
other than the taxpayer to whom the ruling is addressed. We do not plan to apply
for a letter ruling concerning the transactions described herein.
Offering of Common Stock
Under the Plan of Conversion, up to 7,512,500 shares of Common Stock
are being offered for sale, initially through the Subscription Offering (subject
to a possible increase to 8,676,875 shares). See "Subscription Offering." The
Plan of Conversion requires, with certain exceptions, that a number of shares
equal to at least 5,487,500 be sold in order for the Conversion to be completed.
Shares may also be offered to the public in a Community Offering which is
expected to commence after the Subscription Offering terminates, but may begin
at any time during the Subscription Offering. The Community Offering may expire
at any time when orders for at least 5,487,500 shares have been received in the
Subscription Offering and Community Offering, but no later than ____________,
1999, unless extended by us and the Holding Company. The offering may be
extended, subject to OTS approval, until 24 months following the members'
approval of the Plan of Conversion, or until _____________, 2000. The actual
number of shares to be sold in the Conversion will depend upon market and
financial conditions at the time of the Conversion, provided that no fewer than
5,487,500 shares or more than 8,676,875 shares will be sold in the Conversion.
The per share price to be paid by purchasers in the Community Offering, if any,
for any remaining shares will be $10.00, the same price paid by subscribers in
the Subscription Offering. See "- Stock Pricing."
The Subscription Offering expires at 12:00 noon, Plainfield time, on
____________, 1998. OTS regulations and the Plan of Conversion require that we
complete the sale of Common Stock within 45 days after the close of the
Subscription Offering. This 45-day period expires on ____________, 1999. In the
event we are unable to complete the sale of Common Stock within this 45-day
period, we may request an extension of this time period from the OTS. No single
extension granted by the OTS, however, may exceed 90 days. No assurance can be
given that an extension would be granted if requested. The OTS has, however,
granted extensions due to the inability of mutual financial institutions to
complete a stock offering as a result of the development of adverse conditions
in the stock market. If an extension is granted, we will promptly notify
subscribers of the granting of the extension of time and will promptly return
subscriptions unless subscribers affirmatively elect to continue their
subscriptions during the period of extension. Such extensions may not be made
beyond _____________, 2000.
As permitted by OTS regulations, the Plan of Conversion provides that
if, for any reason, purchasers cannot be found for an insignificant residue of
unsubscribed shares of the Common Stock, our Board of Directors will seek to
make other arrangements for the sale of the remaining shares. Such other
arrangements will be subject to the approval of the OTS. If such other purchase
arrangements cannot be made, the Plan of Conversion will terminate. In the event
that the Conversion is not completed, we will remain a mutual savings bank, all
subscription funds will be promptly returned to subscribers with interest earned
thereon at our passbook rate, which is currently 2.97% per annum (except for
payments to have been made through withdrawal authorizations which will have
continued to earn interest at the contractual account rates), and all withdrawal
authorizations will be canceled.
Subscription Offering
In accordance with OTS regulations, nontransferable rights to subscribe
for the purchase of the Holding Company's Common Stock have been granted under
the Plan of Conversion to the following persons in the following order of
priority: (1) our Eligible Account Holders; (2) the ESOP; (3) our Supplemental
Eligible Account Holders; and (4) our members other than Eligible Account
Holders and Supplemental Eligible Account Holders, at the close of business on
___________, 1998, the voting record date for the Special Meeting, including
holders of deposit accounts on ___________, 1998 and borrowers of Lincoln
Federal on June 19, 1984, who remain borrowers on ___________, 1998 ("Other
Members"). All subscriptions received will be subject to the availability of
Common Stock after satisfaction of all subscriptions of all persons having prior
rights in the Subscription Offering, and to the maximum and minimum purchase
limitations set forth in the Plan of Conversion (and described below). The June
30, 1997, date for determination of Eligible Account Holders and the September
30, 1998 date for determination of Supplemental Eligible Account Holders were
selected in accordance with federal regulations applicable to the Conversion.
Category I: Eligible Account Holders. Each Eligible Account Holder, in
his capacity as such (counting all persons on a single joint account as one
Eligible Account Holder), is permitted to subscribe for up to 25,000 shares of
the Holding Company's Common Stock, provided that each Eligible Account Holder
may not subscribe for more than 86,768 shares in the Conversion including shares
subscribed for by such person's Associates or persons acting in concert as a
group.
If sufficient shares are not available in this Category I, shares will
be allocated in a manner that will allow each Eligible Account Holder, to the
extent possible, to purchase a number of shares sufficient to make his or her
allocation consist of the lesser of 100 shares or the amount subscribed for.
Thereafter, unallocated shares will be allocated to subscribing Eligible Account
Holders in the proportion that the amounts of their respective qualifying
deposits bear to the total amount of qualifying deposits of all subscribing
Eligible Account Holders.
The "qualifying deposits" of an Eligible Account Holder is the amount
of the deposit balances (provided such aggregate balance is not less than
$50.00) in his or her deposit accounts, including demand deposit accounts, as of
the close of business on June 30, 1997. Subscription rights received by
directors and officers in this category based upon their increased deposits in
Lincoln Federal during the year preceding June 30, 1997, are subordinated to the
subscription rights of other Eligible Account Holders. Notwithstanding the
foregoing, shares of Common Stock with a value in excess of $75,125,000, the
maximum of the Estimated Valuation Range, may be sold to the ESOP before
satisfying the subscriptions of Eligible Account Holders.
Category II: The ESOP. The Holding Company's tax-qualified ESOP is
permitted to subscribe for up to 10% of the aggregate number of shares of the
Holding Company's Common Stock sold in the Conversion and issued to the
Foundation, provided that shares remain available after satisfying the
subscription rights of Eligible Account Holders for up to $75,125,000. The ESOP
intends to subscribe for a number of shares equal to 8% of the Holding Company's
Common Stock sold in the Conversion and issued to the Foundation. The ESOP's
right to purchase shares of Common Stock under this category shall be
subordinated to all rights received by the Eligible Account Holders to purchase
shares pursuant to Category I; provided, however, that notwithstanding any
provision of the Plan of Conversion to the contrary, the ESOP shall have a
priority right to purchase any such shares of Common Stock sold in the
Conversion exceeding the maximum of the Estimated Valuation Range. If the ESOP
is unable to purchase all or part of the shares of Common Stock for which it
subscribes, the ESOP may purchase such shares on the open market or may purchase
authorized but unissued shares of the Holding Company. Any purchase by the ESOP
of authorized but unissued shares could dilute the interests of the Holding
Company's shareholders.
Category III: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder, in his capacity as such (counting all persons on a
single joint account as one Supplemental Eligible Account Holder), is permitted
to subscribe for up to 25,000 shares of the Holding Company's Common Stock,
provided that each Supplemental Account Holder may not subscribe for more than
86,768 shares in the Conversion including shares subscribed for by such person's
Associates or person acting in concert as a group, to the extent that shares of
the Holding Company's Common Stock remain available for purchase after
satisfaction of the subscription rights of all Eligible Account Holders and the
ESOP. Any subscription rights received by a person as a result of his or her
status as an Eligible Account Holder will reduce to the extent thereof the
subscription rights granted to such person as a result of his or her status as a
Supplemental Eligible Account Holder.
If sufficient shares are not available in this Category III, shares
will be allocated in a manner that will allow each Supplemental Eligible Account
Holder, to the extent possible, to purchase a number of shares sufficient to
make his or her allocation consist of the lesser of 100 shares or the amount
subscribed for. Thereafter, unallocated shares will be allocated to subscribing
Supplemental Eligible Account Holders in the proportion that the amounts of
their respective qualifying deposits bear to the total amount of qualifying
deposits of all subscribing Supplemental Eligible Account Holders.
The "qualifying deposits" of a Supplemental Eligible Account Holder is
the amount of the deposit balances (provided such aggregate balance is not less
than $50) in his or her deposit accounts, including demand deposit accounts, as
of the close of business on September 30, 1998.
Category IV: Other Members. Each savings account holder, other than an
Eligible Account Holder or a Supplemental Eligible Account Holder, who is
entitled to vote at the Special Meeting due to the existence of a savings
account on ________, 1998, and our borrowers as of June 19, 1984 who remain
borrowers on _______, 1998 (an "Other Member"), in his capacity as such
(counting all persons on a single joint account as one Other Member), is
permitted to subscribe for up to 25,000 shares of the Holding Company's Common
Stock, provided that each Other Member may not subscribe for more than 86,768
shares in the Conversion, including shares subscribed for by such person's
Associates or persons acting in concert as a group, to the extent that shares
remain available for purchase after satisfaction of the subscription rights of
all Eligible Account Holders, the ESOP and all Supplemental Eligible Account
Holders.
If sufficient shares are not available in this Category IV, shares will
be allocated pro rata among subscribing Other Members in the same proportion
that the number of shares subscribed for by each Other Member bears to the total
number of shares subscribed for by all Other Members.
Timing of Offering and Method of Payment. The Subscription Offering
will expire at 12:00 noon, Plainfield time, on ______________, 1998 (the
"Expiration Date"). The Expiration Date may be extended by Lincoln Federal and
the Holding Company for successive 90-day periods, subject to OTS approval, to
____________, 2000.
Subscribers must, before the Expiration Date, or such date to which the
Expiration Date may be extended, return an original Order Form to us, properly
completed, together with checks or money orders in an amount equal to the
Purchase Price ($10.00 per share) multiplied by the number of shares for which
subscription is made. Payment for stock purchases can also be accomplished
through authorization on the original Order Form of withdrawals from accounts
with us (including a certificate of deposit, but excluding IRA accounts). Funds
must actually be in the account when an order for the purchase of Common Stock
is submitted. We have the right to reject any orders transmitted by facsimile or
on copies of Order Forms and any payments made by wire transfer. The
beneficiaries of IRA accounts are deemed to have the same subscription rights as
other depositors. However, the IRA accounts maintained with us 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 account.
Since we do not offer such accounts, we will allow such a depositor to make a
trustee-to-trustee transfer of the IRA funds on deposit with us that he wishes
to invest. 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 that we now hold the depositor's IRA funds. An annual
administrative fee would be payable to the new trustee.
Depositors interested in using funds in a Lincoln Federal IRA to
purchase Common Stock should contact us at (317)_______ as soon as possible so
that the necessary forms may be forwarded for execution and returned prior to
the Expiration Date of the Subscription Offering.
In the event an Order Form (i) is not delivered and is returned to us
by the United States Postal Service or we are unable to locate the addressee,
(ii) is not received or is received after the Expiration Date, (iii) is
defectively completed or executed, or (iv) is not accompanied by full payment
for the shares subscribed for (including instances where a savings account or
certificate balance from which withdrawal is authorized is insufficient to fund
the amount of such required payment), the subscription rights for the person to
whom such rights have been granted will lapse as though that person failed to
return the completed Order Form within the time period specified. We may, but
will not be required to, waive any irregularity on any Order Form within the
time period specified. We may, but will not be required to, waive any
irregularity on any Order Form or require the submission of corrected Order
Forms or the remittance of full payment for subscribed shares by such date as we
specify. The waiver of an irregularity on an Order Form in no way obligates us
to waive any other irregularity on that, or any irregularity on any other, Order
Form. Waivers will be considered on a case by case basis. Photocopies of Order
Forms, payments from private third parties, or electronic transfers of funds
will not be accepted. Our interpretation of the terms and conditions of the Plan
and of the acceptability of the Order Forms will be final. We have the right to
investigate any irregularity on any Order Form.
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), no prospectus will be mailed
any later than five days prior to such date or hand delivered any later than two
days prior to such date. Execution of the Order Form will confirm receipt or
delivery in accordance with Rule 15c2-8. Order Forms will only be distributed
with a prospectus.
Until completion or termination of the Conversion, subscribers who
elect to make payment through authorization of withdrawal from accounts with us
will not be permitted to reduce the deposit balance in any such accounts below
the amount required to purchase the shares for which they subscribed. In such
cases interest will continue to be credited on deposits authorized for
withdrawal until the completion of the Conversion. Interest at the passbook
rate, which is currently 2.97% per annum will be paid on amounts submitted by
check. Authorized withdrawals from certificate accounts for the purchase of
Common Stock will be permitted without the imposition of early withdrawal
penalties or loss of interest. However, withdrawals from certificate accounts
that reduce the balance of such accounts below the required minimum for specific
interest rate qualification will cause the cancellation of the certificate
accounts at the effective date of the Conversion, and the remaining balance will
earn interest at the passbook savings rate. Stock subscriptions received and
accepted by us are final and may not be revoked by the purchaser. Subscriptions
may be withdrawn only in the event that we extend the Expiration Date of the
Subscription Offering as described above.
Members in Non-Qualified States or Foreign Countries. We will make
reasonable efforts to comply with the securities laws of all states in the
United States in which persons entitled to subscribe for stock pursuant to the
Plan reside. However, no person will be offered or sold or receive any stock
pursuant to the Subscription Offering if such person resides in a foreign
country or resides in a state in the United States with respect to which all of
the following apply: (i) a small number of persons otherwise eligible to
subscribe for shares of Common Stock reside in such state; (ii) the granting of
subscription rights or the offer or sale of Common Stock to such persons would
require us or the Holding Company or our respective officers and directors,
under the securities laws of such state, to register as a broker, dealer,
salesman or selling agent, or to register or otherwise qualify the Common Stock
for sale in such state; and (iii) such registration, qualification or filing in
our judgment or in the judgment of the Holding Company would be impracticable or
unduly burdensome for reasons of cost or otherwise.
To assist in the Subscription Offering and the Community Offering, if
any, the Holding Company has established a Stock Information Center that you may
contact at (317) ______________. Callers to the Stock Information Center will be
able to request a Prospectus and other information relating to the offering.
Community Offering
To the extent shares remain available for purchase after filling all
orders received in the Subscription Offering, we may offer shares of the Common
Stock in a Community Offering to the general public, with preference given to
residents of Hendricks, Montgomery and Clinton Counties, Indiana, the counties
in which our banking offices are located. The right of any person to purchase
shares in the Community Offering is subject to our right to accept or reject
such purchase in whole or in part. We may terminate the Community Offering as
soon as we have received orders for at least the minimum number of shares
available for purchase in the Conversion.
The Community Offering may expire at any time when orders for at least
5,487,500 shares have been received in the Subscription Offering and Community
Offering (but no later than ______________, 1999, unless extended by us and the
Holding Company). Persons wishing to purchase stock in the Community Offering,
if conducted, should return the Order Form to us, properly completed, together
with a check or money order in the amount equal to the Purchase Price ($10.00
per share) multiplied by the number of shares which that person desires to
purchase. However, as noted above, we may terminate the Community Offering as
soon as we receive orders for at least the minimum number of shares available
for purchase in the Conversion.
The maximum number of shares of Common Stock which may be purchased in the
Community Offering by any person (including such person's Associates) or persons
acting in concert is 25,000 in the aggregate. A member who, together with his
Associates and persons acting in concert, has subscribed for shares in the
Subscription Offering may subscribe for a number of additional shares in the
Community Offering that does not exceed the lesser of (i) 25,000 shares or (ii)
the number of shares which, when added to the number of shares subscribed for by
the member (and his Associates and persons acting in concert) in the
Subscription Offering, would not exceed 86,768. We reserve the right to reject
any orders received in the Community Offering in whole or in part.
If all the Holding Company Common Stock offered in the Subscription
Offering is subscribed for, no Holding Company Common Stock will be available
for purchase in the Community Offering. Purchase orders received during the
Community Offering will be filled up to a maximum of 2% of the total number of
shares of Common Stock issued in the Conversion, with any remaining unfilled
purchase orders to be allocated on an equal number of shares basis. If the
Community Offering extends beyond 45 days following the expiration of the
Subscription Offering, subscribers will have the right to increase, decrease or
rescind subscriptions for stock previously submitted. All sales of Holding
Company Common Stock in the Community Offering will be at the same price per
share as the sales of Holding Company Common Stock in the Subscription Offering.
Cash and checks received in the Community Offering will be placed in a
special savings account with us, and will earn interest at the passbook rate,
which is currently 2.97% per annum from the date of deposit until completion or
termination of the Conversion. In the event that the Conversion is not
consummated for any reason, all funds submitted pursuant to the Community
Offering will be promptly refunded with interest as described above.
Delivery of Certificates
Certificates representing shares issued in the Subscription Offering
and in the Community Offering, if any, pursuant to Order Forms will be mailed to
the persons entitled to them at the addresses of such persons specified in
properly completed Order Forms as soon as practicable following consummation of
the Conversion. Any certificates returned as undeliverable will be held by the
Holding Company until claimed by the person legally entitled to them or
otherwise disposed of in accordance with applicable law.
Marketing Arrangements
To assist us and the Holding Company in marketing the Common Stock, we
have retained the services of Webb, which is a division of Keefe, Bruyette, as
our financial advisor. Keefe, Bruyette is a broker-dealer registered with the
Securities and Exchange Commission (the "SEC") and a member of the National
Association of Securities Dealers, Inc. (the "NASD"). Webb will assist us in the
Conversion as follows: (1) in training and educating our employees regarding the
mechanics and regulatory requirements of the conversion process; (2) in managing
the Stock Information Center by assisting stock subscribers and keeping records
of all stock subscriptions; (3) in preparing marketing materials; (4) in
obtaining proxies from our members with respect to the Special Meeting; and (5)
in assisting with the Community Offering. For providing these services, we have
agreed to pay Webb a management fee of $25,000 and a success fee based on the
aggregate dollar amount of shares of Common Stock sold in the Conversion other
than shares sold to executive officers, directors and employees (or members of
their immediate families) or to the ESOP or Foundation. The success fee will be
calculated based upon 1.15% of the Common Stock sold to residents of Indiana,
plus .75% of Common Stock sold to non-residents of Indiana. The management fee
will be applied against the success fee. Webb will not seek reimbursement for
out-of-pocket expenses, but will be reimbursed for legal expenses which are not
to exceed $40,000. Offers and sales in the Subscription Offering and the
Community Offering will be on a best efforts basis and, as a result, Webb is not
obligated to purchase any shares of the Common Stock. Keefe, Bruyette intends to
make a market in the Common Stock, although it is under no obligation to do so.
We have also agreed to indemnify Webb, under certain circumstances,
against liabilities and expenses (including legal fees) arising out of Webb's
engagement by us, including liabilities under the Securitities Act of 1933 (the
"1933 Act").
Selected Dealers
With the prior approval of Lincoln Federal, Webb may enter into an
agreement with certain dealers chosen by Lincoln Federal and Webb (together, the
"Selected Dealers") to assist in the sale of shares in the Community Offering.
Selected Dealers will receive commissions at an agreed upon rate, not to exceed
5.5%, for all shares sold by such Selected Dealers. During the Community
Offering, Selected Dealers may only solicit indications of interest from their
customers to place orders with us as of a certain date (the "Order Date") for
the purchase of shares of Common Stock. When and if the Holding Company, Lincoln
Federal and Webb believe that enough indications of interest and orders have
been received in the Subscription Offering and the Community Offering, if any,
to consummate the Conversion, Webb will request, as of the Order Date, Selected
Dealers to submit orders to purchase shares for which they have previously
received indications of interest from the customers. Selected Dealers will send
confirmations of the orders to such customers on the next business day after the
Order Date. Selected Dealers will debit the accounts of their customers on the
date which will be three business days from the Order Date (the "Settlement
Date"). On the Settlement Date, funds received by Selected Dealers will be
remitted to us. It is anticipated that the Conversion will be consummated on the
Settlement Date. However, if consummation is delayed after payment has been
received by us from Selected Dealers, funds will earn interest at the passbook
rate, which is currently 2.97% per annum, until the completion of the offering.
Funds will be returned promptly in the event the Conversion is not consummated.
Limitations on Common Stock Purchases
The Plan includes a number of limitations on the number of shares of
Common Stock which may be purchased during the Conversion. These are summarized
below:
(1) No fewer than 25 shares may be purchased by any person purchasing shares
of Common Stock in the Conversion (provided that sufficient shares are
available).
(2) No Eligible Account Holder, Supplemental Eligible Account Holder or Other
Member, in his capacity as such (including all persons on a single joint
account as one member), may subscribe for more than 25,000 shares.
Notwithstanding the foregoing, the maximum number of shares of Common Stock
which may be purchased in the Conversion by any Eligible Account Holder,
Supplemental Eligible Account Holder or Other Member (including such person's
Associates or group acting in concert and counting all persons on a joint
account as one member) shall be 86,768 shares in the aggregate, except that
the ESOP may purchase in the aggregate not more than 10% of the total number
of shares offered in the Conversion. The maximum number of shares of Common
Stock which may be purchased in the Community Offering, if any, by any person
(including such person's Associates or persons acting in concert) is 86,768
in the aggregate. A member who, together with his Associates and persons
acting in concert, has subscribed for shares in the Subscription Offering may
subscribe for a number of additional shares in the Community Offering that
does not exceed the lesser of (i) 25,000 shares or (ii) the number of shares
which, when added to the number of shares subscribed for by the member (and
his Associates and persons acting in concert) in the Subscription Offering
(including all persons on a joint account), would not exceed 86,768. The ESOP
expects to purchase a number of shares equal to 8% of the total number of
shares sold in the Conversion. Lincoln Federal's and the Holding Company's
Boards of Directors may, however, in their sole discretion, increase the
maximum purchase limitation set forth above up to 9.99% of the shares of
Common Stock sold in the Conversion, provided that orders for shares
exceeding 5% of the shares of Common Stock sold in the Conversion may not
exceed, in the aggregate, 10% of the shares sold in the Conversion. The
maximum purchase limitation likely would be increased only if an insufficient
number of subscriptions is received to sell the number of shares of Common
Stock at the minimum of the Estimated Valuation Range. If the Boards of
Directors decide to increase the purchase limitation, all persons who
subscribe for shares of Common Stock offered in the Conversion will be given
the opportunity to increase their subscriptions accordingly, subject to the
rights and preferences of any person who has priority subscription rights.
Subscribers will be notified in writing delivered to the address indicated on
their respective Stock Order Forms. The overall purchase limitation may be
reduced in the sole discretion of the Boards of Directors of the Holding
Company and Lincoln Federal.
(3) No more than 34.0% of the shares of Common Stock may be purchased in the
Conversion by directors and officers of Lincoln Federal and the Holding
Company and their Associates. This restriction does not apply to shares
purchased by the ESOP.
OTS regulations define "acting in concert" as (i) knowing participation
in a joint activity or interdependent conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (ii) a combination or
pooling of voting or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. The Holding Company and Lincoln
Federal may presume that certain persons are acting in concert based upon, among
other things, joint account relationships or the fact that such persons have
filed joint Schedules 13D with the SEC with respect to other companies.
The term "Associate" of a person is defined to mean (i) any corporation
or organization (other than Lincoln Federal or its subsidiary or the Holding
Company) of which such person is a director, officer, partner or 10%
shareholder; (ii) any trust or other estate in which such person has a
substantial beneficial interest or serves as trustee or in a similar fiduciary
capacity; provided, however that such term shall not include any employee stock
benefit plan of the Holding Company or Lincoln Federal in which such a person
has a substantial beneficial interest or serves as a trustee or in a similar
fiduciary capacity, and (iii) any relative or spouse of such person, or relative
of such spouse, who either has the same home as such person or who is a director
or officer of Lincoln Federal or its subsidiary or the Holding Company.
Directors are not treated as Associates of one another solely because of their
board membership. Compliance with the foregoing limitations does not necessarily
constitute compliance with other regulatory restrictions on acquisitions of the
Common Stock. For a further discussion of limitations on purchases of the Common
Stock during and subsequent to the Conversion, see "- Restrictions on Sale of
Stock by Directors and Officers," "- Restrictions on Purchase of Stock by
Directors and Officers Following Conversion," and "Restrictions on Acquisition
of the Holding Company."
Restrictions on Repurchase of Stock by the Holding Company
Repurchases of its shares by the Holding Company will be restricted for
a period of three years from the date of the Conversion. OTS regulations
currently prohibit the Holding Company from repurchasing any of its shares
within one (1) year following the Conversion except in exceptional
circumstances. So long as we continue to meet certain capitalization
requirements, the Holding Company may repurchase shares in an open-market
repurchase program (which cannot exceed 5% of its outstanding shares in a
twelve-month period except in exceptional circumstances) during the second and
third year following the Conversion by giving appropriate prior notice to the
OTS. The OTS has authority to waive these restrictions under certain
circumstances. Unless repurchases are permitted under the foregoing regulations,
the Holding Company may not, for a period of three years from the date of the
Conversion, repurchase any of its capital stock from any person, except in the
event of an offer to purchase by the Holding Company on a pro rata basis from
all of its shareholders which is approved in advance by the OTS, except in
exceptional circumstances established to the satisfaction of the OTS, or except
for purchases of shares required to fund the RRP. The Holding Company may use
some of the net proceeds received from the sale of the Common Stock offered by
this Prospectus to repurchase such Common Stock, subject to OTS requirements.
Under Indiana law, the Holding Company will be precluded from
repurchasing its equity securities if, after giving effect to such repurchase,
the Holding Company would be unable to pay its debts as they become due or the
Holding Company's assets would be less than its liabilities and obligations to
preferential shareholders.
Restrictions on Sale of Stock by Directors and Officers
All shares of the Common Stock purchased by directors and officers of
Lincoln Federal or the Holding Company in the Conversion will be subject to the
restriction that such shares may not be sold or otherwise disposed of for value
for a period of one year following the date of purchase, except for any
disposition of such shares (i) following the death of the original purchaser or
(ii) by reason of an exchange of securities in connection with a merger or
acquisition approved by the applicable regulatory authorities. Sales of shares
of the Common Stock by the Holding Company's directors and officers will also be
subject to certain insider trading and other transfer restrictions under the
federal securities laws. See "Regulation - Federal Securities Laws" and
"Description of Capital Stock."
Each certificate for such restricted shares will bear a legend
prominently stamped on its face giving notice of the restrictions on transfer,
and instructions will be issued to the Holding Company's transfer agent to the
effect that any transfer within such time period of any certificate or record
ownership of such shares other than as provided above is a violation of the
restriction. Any shares of Common Stock issued pursuant to a stock dividend,
stock split or otherwise with respect to restricted shares will be subject to
the same restrictions on sale.
Restrictions on Purchase of Stock by Directors and Officers Following Conversion
OTS regulations provide that for a period of three years following the
Conversion, without prior written approval of the OTS, neither directors nor
officers of Lincoln Federal or the Holding Company nor their Associates may
purchase shares of the Common Stock of the Holding Company, except from a dealer
registered with the SEC. This restriction does not, however, apply to negotiated
transactions involving more than one percent of the Holding Company's
outstanding Common Stock, to shares purchased pursuant to stock option or other
incentive stock plans approved by the Holding Company's shareholders, or to
shares purchased by employee benefit plans maintained by the Holding Company
which may be attributable to individual officers or directors.
Restrictions on Transfer of Subscription Rights and Common Stock
Prior to the completion of the Conversion, OTS regulations and the Plan
of Conversion prohibit any person with subscription rights, including our
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members, from transferring or entering into any agreement or understanding to
transfer the legal or beneficial ownership of the subscription rights issued
under the Plan or the shares of Common Stock to be issued upon their exercise.
Such rights may be exercised only by the person to whom they are granted and
only for his or her account. Each person exercising such subscription rights
will be required to certify that he or she is purchasing shares solely for his
or her own account and that he or she has no agreement or understanding
regarding the sale or transfer of such shares. The regulations also prohibit any
person from offering or making an announcement of an offer or intent to make an
offer to purchase such subscription rights or shares of Common Stock prior to
the completion of the Conversion. We intend to pursue any and all legal and
equitable remedies in the event we become aware of the transfer of subscription
rights and will not honor orders known by us to involve the transfer of such
rights. In addition, persons who violate the purchase limitations may be subject
to sanctions and penalties imposed by the OTS.
Stock Pricing
The aggregate purchase price of the Holding Company Common Stock being
sold in the Conversion will be based on the appraised aggregate pro forma market
value of the Common Stock, as determined by an independent valuation. We
retained Keller, which is experienced in the valuation and appraisal of
financial institutions, including savings associations involved in the
conversion process, to prepare an appraisal. Keller will receive a fee of
$25,000 for its appraisal, plus out-of-pocket expenses up to $1,000. Keller has
also prepared a business plan for us for a fee of $6,000, plus out-of-pocket
expenses. We have agreed to indemnify Keller, under certain circumstances,
against liabilities and expenses (including legal fees) arising out of Keller's
engagement by us.
Keller has prepared an appraisal that establishes the Estimated
Valuation Range of the estimated pro forma market value of the Common Stock, as
of August 14, 1998, from a minimum of $54,875,000 to a maximum of $75,125,000,
with a midpoint of $65,000,000. This appraisal assumes that the Holding Company
issues 250,000 shares of Common Stock to the Foundation. A copy of the appraisal
is on file and available for inspection at the offices of the OTS, 1700 G
Street, N.W., Washington, D.C. 20552 and the Central Regional Office of the OTS,
200 West Madison, Suite 1300, Chicago, Illinois 60606. The appraisal has also
been filed as an exhibit to the Holding Company's Registration Statement with
the SEC, and may be reviewed at the SEC's public reference facilities. See
"Additional Information." The appraisal involved a comparative evaluation of our
operating and financial statistics with those of other financial institutions.
The appraisal also took into account such other factors as the market for
savings associations generally, prevailing economic conditions, both nationally
and in Indiana, which affect the operations of savings associations, the
competitive environment within which we operate, and the effect of our becoming
a subsidiary of the Holding Company. No detailed individual analysis of the
separate components of Lincoln Federal's and the Holding Company's assets and
liabilities was performed in connection with the evaluation. The Board of
Directors reviewed with management Keller's methods and assumptions and accepted
Keller's appraisal as reasonable and adequate. The Holding Company, in
consultation with Webb, has determined to offer the Common Stock in the
Conversion at a price of $10.00 per share. The Holding Company's decision
regarding the Purchase Price was based solely on its determination that $10.00
per share is a customary purchase price in conversion transactions. The
Estimated Valuation Range may be increased or decreased to reflect market and
financial conditions prior to the completion of the Conversion.
Promptly after the completion of the Subscription Offering and the
Community Offering, if any, Keller will confirm to us that, to the best of
Keller's knowledge and judgment, nothing of a material nature has occurred which
would cause Keller to conclude that the amount of the aggregate proceeds
received from the sale of the Common Stock in the Conversion was incompatible
with its estimate of our total pro forma market value at the time of the sale.
If, however, the facts do not justify such a statement, a new Estimated
Valuation Range and price per share may be set. Under such circumstances, the
Holding Company will be required to resolicit subscriptions. In that event,
subscribers would have the right to modify or rescind their subscriptions and to
have their subscription funds returned promptly with interest and holds on funds
authorized for withdrawal from deposit accounts would be released or reduced;
provided that if our pro forma market value upon Conversion, excluding the
contribution of 250,000 shares to the Foundation, has increased to an amount
which does not exceed $86,768,750 (15% above the maximum of the Estimated
Valuation Range, excluding the contribution of 250,000 shares to the Foundation)
the Holding Company and Lincoln Federal do not intend to resolicit subscriptions
unless it is determined after consultation with the OTS that a resolicitation is
required.
Depending upon market and financial conditions, the number of shares
issued may be more or less than the range in number of shares shown above. A
change in the number of shares to be issued in the Conversion will not affect
subscription rights. In the event of an increase in the maximum number of shares
being offered, persons who exercise their maximum subscription rights will be
notified of such increase and of their right to purchase additional shares.
Conversely, in the event of a decrease in the maximum number of shares being
offered, persons who exercise their maximum subscription rights will be notified
of such decrease and of the accompanying reduction in the number of shares for
which subscriptions may be made. In the event of a resolicitation, subscribers
will be afforded the opportunity to increase, decrease or maintain their
previously submitted order. The Holding Company will be required to resolicit if
the price per share is changed such that the total aggregate purchase price is
not within the minimum and 15% above the maximum of the Estimated Valuation
Range.
THE INDEPENDENT VALUATION IS NOT INTENDED AND MUST NOT BE CONSTRUED AS
A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF VOTING TO APPROVE THE
CONVERSION OR OF PURCHASING THE SHARES OF THE COMMON STOCK. MOREOVER, BECAUSE
SUCH VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER
OF MATTERS (INCLUDING CERTAIN ASSUMPTIONS AS TO THE AMOUNT OF NET PROCEEDS AND
THE EARNINGS THEREON), ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO
ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING SHARES IN THE CONVERSION WILL
THEREAFTER BE ABLE TO SELL THE SHARES AT PRICES RELATED TO THE FOREGOING
VALUATION OF THE PRO FORMA MARKET VALUE.
Number of Shares to be Issued
It is anticipated that the total offering of Common Stock (the number
of shares of Common Stock issued in the Conversion multiplied by the Purchase
Price of $10.00 per share) will be within the current minimum and 15% above the
maximum of the Estimated Valuation Range. Unless otherwise required by the OTS,
no resolicitation of subscribers will be made and subscribers will not be
permitted to modify or cancel their subscriptions so long as the change in the
number of shares to be issued in the Conversion, in combination with the
Purchase Price, results in an offering within the minimum and 15% above the
maximum of the Estimated Valuation Range.
An increase in the total number of shares of Common Stock to be issued
in the Conversion would decrease both a subscriber's ownership interest and the
Holding Company's pro forma net worth and net income on a per share basis while
increasing (assuming no change in the per share price) pro forma net income and
net worth on an aggregate basis. A decrease in the number of shares to be issued
in the Conversion would increase both a subscriber's ownership interest and the
Holding Company's pro forma net worth and net income on a per share basis while
decreasing (assuming no change in the per share price) pro forma net income and
net worth on an aggregate basis. For a presentation of the effects of such
changes, see "Pro Forma Data."
Interpretation and Amendment of the Plan
To the extent permitted by law, all interpretations of the Plan by
Lincoln Federal and the Holding Company will be final. The Plan provides that,
if deemed necessary or desirable by the Boards of Directors of the Holding
Company and Lincoln Federal, the Plan may be substantively amended by the Boards
of Directors, as a result of comments from regulatory authorities or otherwise,
with the concurrence of the OTS. Moreover, if the Plan of Conversion is so
amended, subscriptions which have been received prior to such amendment will not
be refunded unless otherwise required by the OTS.
Conditions and Termination
Completion of the Conversion requires the approval of the Plan by the
affirmative vote of not less than a majority of the total number of votes of
members eligible to be cast at the Special Meeting and the sale of all shares of
the Common Stock within 24 months following approval of the Plan by the members.
If these conditions are not satisfied, the Plan will be terminated and we will
continue business in the mutual form of organization. The Plan may be terminated
by the Boards of Directors of Lincoln Federal and the Holding Company at any
time prior to the Special Meeting and, with the approval of the OTS, by such
Boards of Directors at any time thereafter. Furthermore, OTS regulations and the
Plan of Conversion require that the Holding Company complete the sale of Common
Stock within 45 days after the close of the Subscription Offering. The OTS may
grant an extension of this time period if necessary, but no assurance can be
given that an extension would be granted.
See "- Offering of Common Stock."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
General
Lincoln Bancorp was recently formed as an Indiana corporation on
September 10, 1998, for the purpose of issuing the Common Stock and owning all
of the capital stock of Lincoln Federal issued in the Conversion. As a newly
formed corporation, the Holding Company has no operating history. All
information in this section should be read in conjunction with the consolidated
financial statements and notes thereto included within this document.
Lincoln Federal's principal business has historically consisted of
attracting deposits from the general public and making loans secured by
residential real estate. Our earnings primarily depend upon net interest income,
which is the difference between our interest income and interest expense.
Interest income is a function of the balances of loans and investments
outstanding during a given period and the yield earned on such loans and
investments. Interest expense is a function of the amount of deposits and
borrowings outstanding during the same period and interest rates paid on such
deposits and borrowings. Our earnings are also affected by provisions for loan
losses, service charges, operating expenses and income taxes.
We are also affected by prevailing economic conditions, as well as
government policies and regulations concerning, among other things, monetary and
fiscal affairs, housing and financial institutions. See "Regulation." Deposit
flows are influenced by a number of factors, including interest rates paid on
competing investments, account maturities and levels of personal income and
savings within our market. In addition, deposit growth is affected by how
customers perceive the stability of the financial services industry amid various
current events such as regulatory changes, failures of other financial
institutions and financing of the deposit insurance fund. Lending activities are
influenced by the demand for and supply of housing lenders, the availability and
cost of funds and various other items. Sources of funds for our lending
activities include deposits, payments on loans, borrowings and income provided
from operations.
Current Business Strategy
Our business strategy is to continue to operate a well-capitalized,
profitable and independent community savings bank dedicated primarily to
residential lending with an emphasis on personal service, and to provide a full
range of financial services to our customers. We have sought to implement this
strategy by (i) emphasizing the origination of one- to four-family residential
mortgage loans in our market area, (ii) seeking to increase the percentage of
higher-yielding commercial and consumer loans; (iii) purchasing investment
securities and loan participations, and (iv) maintaining levels of capital well
in excess of regulatory requirements.
The highlights of our business strategy are as follows:
o Profitability. Although no assurance can be made regarding
future profitability, we have been profitable in each of the
past five fiscal years. We had net income of $3.5 million in
fiscal 1997, $3.0 million in fiscal 1996, and $3.4 million in
fiscal 1995. Our net income for the six months ended June 30,
1998, was $817,000. Our average return on average assets for
the five years ended December 31, 1997, was 1.28%. Our returns
on average assets for the year ended December 31, 1997, and
the six months ended June 30, 1998 (on an annualized basis)
were 1.02% and .53%, respectively. This reduction in income
during the six-month period ended June 30, 1998 is largely
attributable to measures we took to restructure our balance
sheet, including the securitization of certain adjustable-rate
and low-yielding fixed-rate residential loans, and the sale of
certain residential loans in our portfolio.
o Origination of One- to Four-Family Residential Loans. Our
primary lending activity is the origination of one- to four-
family residential loans secured by property in our primary
market area. As of June 30, 1998, approximately 85% of the
loans in this category in our portfolio were secured by
property located in Hendricks, Montgomery and Clinton
Counties.
o Commercial Real Estate and Consumer Loans. We intend to
continue our recent emphasis on making higher-yielding
commercial real estate and consumer loans. From December 31,
1995 to June 30, 1998, the percentage of consumer loans in our
portfolio has increased from 3.8% to 10.8% of our gross loans
receivable. The percentage of commercial real estate loans has
increased from 5.3% to 7.0% of gross loans receivable over the
same period as the result of the decrease of the size of our
overall loan portfolio. This increase in consumer loans is
largely attributable to a marketing campaign designed to
encourage our existing customers to apply for home equity
loans or lines of credit with us.
o Capital Position. At June 30, 1998, we exceeded all of our
regulatory capital requirements, and our equity capital was
$42.8 million, or 14.1% of total assets. Assuming net proceeds
at the midpoint of the Estimated Valuation Range, our pro
forma equity to assets ratio (excluding $31.8 million of net
proceeds to be retained by the Holding Company) at such date
would have been 20.5%. Assuming net proceeds at the minimum,
maximum and 15% above the maximum of the Estimated Valuation
Range, our pro forma equity to assets ratio (excluding the
proceeds to be retained by the Holding Company) at such date
would have been 19.5%, 21.4% and 22.4%, respectively.
Asset/Liability Management
An important component of our asset/liability management policy
includes examining the interest rate sensitivity of our assets and liabilities
and monitoring the expected effects of interest rate changes on our net
portfolio value. An asset or liability is interest rate sensitive within a
specific time period if it will mature or reprice within that time period. If
our assets mature or reprice more quickly or to a greater extent than our
liabilities, our net portfolio value and net interest income would tend to
increase during periods of rising interest rates but decrease during periods of
falling interest rates. Conversely, if our assets mature or reprice more slowly
or to a lesser extent than our liabilities, our net portfolio value and net
interest income would tend to decrease during periods of rising interest rates
but increase during periods of falling interest rates. Our policy has been to
mitigate the interest rate risk inherent in the historical business of savings
associations, the origination of long-term loans funded by short-term deposits,
by pursuing certain strategies designed to decrease the vulnerability of our
earnings to material and prolonged changes in interest rates.
ALCO Committee. Our board of directors has delegated responsibility for
the day-to-day management of interest rate risk to the Asset/Liability ("ALCO")
Committee, which consists of our President, T. Tim Unger, Chief Financial
Officer John M. Baer, Vice President-Lending Maxwell O. Magee, Branch
Coordinator Jim Standish, and Marketing Director Angela Coleman. The ALCO
Committee meets weekly to manage and review Lincoln Federal's assets and
liabilities. The ALCO Committee establishes daily interest rates for deposits
and approves the interest rates on one- to four-family residential loans, which
are based upon current rates established by the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). The ALCO Committee also approves interest rates for
other types of loans based upon the national prime rate and local market rates.
Loan Portfolio Restructuring. Our principal strategy to reduce exposure
to fluctuating market interest rates is to manage the interest-rate sensitivity
of our interest-earning assets and interest-bearing liabilities. In early 1997,
our new management concluded that our asset portfolio exposed us to significant
risks in the event of a material and prolonged increase or decrease in interest
rates. To address this problem, in 1997 we securitized and sold certain one- to
four-family residential loans in our portfolio in order to reduce our exposure
to interest rate risk. We presented to Freddie Mac pools of one- to four-family
residential mortgage loans with either fixed interest rates or variable interest
rates pegged to the 11th District Cost of Funds Index ("COFI"). COFI loans
increase our exposure to interest rate risk because the COFI index does not
follow, and usually lags behind, the U.S. Treasury yield curve, which is the
index we use to establish the interest rates for our deposits. In addition, many
of the COFI loans did not adjust quickly enough to changes in market interest
rates as the result of annual rate adjustment limitations in the loan
agreements.
Many of the loans we securitized did not include all of the
documentation required by Freddie Mac. We were able to securitize these loans by
representing to Freddie Mac that, other than the loans with the missing
documentation specifically identified in the Freddie Mac Master Commitment, the
loans that we securitized did not otherwise vary from Freddie Mac's standard
underwriting and mortgage eligibility requirements.
After grouping these loans into pools with similar loans that we
originated, we assigned the notes and mortgages to Freddie Mac in consideration
for several mortgage-backed securities representing the different loan pools. In
August, 1997, we securitized approximately $76.2 million of one- to four-family
residential mortgage loans in this manner, consisting of $26.9 million in COFI
loans and $49.3 million in fixed-rate loans. We immediately sold on the
secondary market all of the mortgage-backed securities representing the COFI
loans and $27.4 million of the securities backed by lower-yielding fixed-rate
loans for a gain of $118,000. We retained in our investment portfolios
mortgage-backed securities representing $21.9 million of higher-yielding
fixed-rate loans.
In April, 1998, we securitized an additional $39.9 million of our one-
to four-family residential mortgage loans, consisting of $14.2 million of COFI
loans and $25.7 million of fixed-rate loans for a gain of $105,000. We sold on
the secondary market the mortgage-backed security representing the COFI loans
and $6.9 million of lower-yielding fixed-rate loans. We retained in our
investment portfolio mortgage-backed securities representing $18.8 million of
higher-yielding fixed-rate loans.
We continue to service all of the loans that we originated that have
been securitized by Freddie Mac in consideration of a fee of .25% and .375% of
the outstanding loan balance for fixed-rated and variable-rate loans,
respectively. Investors who purchased the mortgage-backed securities are repaid
from the regular principal and interest payments made by the borrowers on the
underlying loans, which "pass through" to the investors. Freddie Mac acts as a
guarantor with respect to these regular payments to the investors in
consideration of a fee that varies up to .375% of the outstanding balance on
loans in the different loan pools.
Although the loans that we securitized were sold without recourse, we
agreed to indemnify Freddie Mac pursuant to the Master Commitment in the event
that Freddie Mac makes a payment to an investor pursuant to its guarantee on
certain loans noted in the Master Commitment as lacking the documentation
required by Freddie Mac's underwriting standards. Our indemnification to Freddie
Mac pursuant to this provision is limited, however, solely to losses that arise
as a result of the documentation exception or discrepancy noted in the Master
Commitment. Freddie Mac may also require us to repurchase a loan upon a
borrower's default if the due diligence information contained in the loan data
report that we provided to Freddie Mac was not accurate, true or complete, if we
fail to provide additional information or documentation to Freddie Mac upon
request, or if we breach any representation or warranty in the Master
Commitment. We have not experienced any significant losses on these loans in the
past and do not anticipate any significant losses as a result of this
indemnification.
In June, 1998, we sold an additional $19.3 million of our
adjustable-rate COFI loans in a whole-loan sale to a private investor that
closed in July, 1998. We recognized a loss of $218,000 from this transaction.
The securitization of certain of our loans and the whole loan sale reduced the
heavy concentration of fixed-rate and adjustable-rate COFI mortgages in our
portfolio while converting those assets to more liquid and marketable
mortgage-backed securities. In the aggregate, we have sold $75.4 million of the
securities generated from the securitization and have retained securities with a
face value of $40.7 million in our available-for-sale securities portfolio. We
used the proceeds from these sales of mortgage-backed securities to repay
outstanding FHLB advances from a balance of $106.9 million at June 30, 1997 to
$45.7 million at June 30, 1998. We also used some of the proceeds from these
sales to purchase interest rate-sensitive securities. We also restructured our
remaining FHLB debt by prepaying advances with higher interest rates and
extending the repayment terms of other debt, thereby reducing our exposure to
interest rate risk and reducing our cost of funds.
Because of the lack of customer demand for adjustable rate loans in our
market area, we primarily originate fixed-rate real estate loans which accounted
for approximately 63.2% of our loan portfolio at June 30, 1998. We continue to
offer and attempt to increase our volume of adjustable rate loans when market
interest rates make these type loans more attractive to customers. Following the
Conversion, we believe there will be sufficient demand in our market area to
continue our policy of emphasizing lending in the one- to four-family real
estate loan area. In addition, we hope to increase our commercial real estate,
consumer and commercial loan portfolios. There is no assurance, however, that we
will be able to do so. See "Business of Lincoln Federal Savings Bank--Lending
Activities."
Net Portfolio Value. We believe it is critical to manage the
relationship between interest rates and the effect on our net portfolio value
("NPV"). This approach calculates the difference between the present value of
expected cash flows from assets and the present value of expected cash flows
from liabilities, as well as cash flows from off-balance sheet contracts. We
manage assets and liabilities within the context of the marketplace, regulatory
limitations and within limits established by our Board of Directors on the
amount of change in NPV which is acceptable given certain interest rate changes.
The OTS issued a regulation, which uses a net market value methodology
to measure the interest rate risk exposure of savings associations. Under this
OTS regulation, an institution's "normal" level of interest rate risk in the
event of an assumed change in interest rates is a decrease in the institution's
NPV in an amount not exceeding 2% of the present value of its assets. Savings
associations with over $300 million in assets or less than a 12% risk-based
capital ratio are required to file OTS Schedule CMR. Data from Schedule CMR is
used by the OTS to calculate changes in NPV (and the related "normal" level of
interest rate risk) based upon certain interest rate changes (discussed below).
Because we have assets greater than $300 million, we are required to file
Schedule CMR. Under the regulation, associations which must file are required to
take a deduction (the interest rate risk capital component) from their total
capital available to calculate their risk based capital requirement if their
interest rate exposure is greater than "normal." The amount of that deduction is
one-half of the difference between (a) the institution's actual calculated
exposure to a 200 basis point interest rate increase or decrease (whichever
results in the greater pro forma decrease in NPV) and (b) its "normal" level of
exposure which is 2% of the present value of its assets.
Presented below, as of June 30, 1998, is an analysis performed by the
OTS of our interest rate risk as measured by changes in NPV for instantaneous
and sustained parallel shifts in the yield curve, in 200 basis point increments,
up and down 400 basis points and in accordance with the proposed regulations. At
June 30, 1998, 2% of the present value of our assets was approximately $6.2
million. Because the interest rate risk of a 200 basis point increase in market
rates (which was greater than the interest rate risk of a 200 basis point
decrease) was $9.6 million at June 30, 1998, we would have been required to
deduct $1.7 million from our capital if the OTS' NPV methodology had been in
effect. Our exposure to interest rate risk results primarily from the
concentration of fixed rate mortgage loans in our portfolio.
<TABLE>
<CAPTION>
Change Net Portfolio Value NPV as % of PV of Assets
In Rates $ Amount $ Change % Change NPV Ratio Change
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+400 bp* $27,926 ($21,585) -44% 9.89% (599) bp
+200 bp 39,959 (9,552) -19% 13.40% (248) bp
0 bp 49,511 --- --- 15.88% ---
-200 bp 52,047 2,536 5% 16.33% 44 bp
-400 bp 54,929 5,419 11% 16.81% 93 bp
</TABLE>
* Basis points.
In contrast, the following chart presents the calculation of our
exposure to interest rate risk as of June 30, 1997, as determined by the OTS.
<TABLE>
<CAPTION>
Change Net Portfolio Value NPV as % of PV of Assets
In Rates $ Amount $ Change % Change NPV Ratio Change
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+400 bp* $13,323 ($30,728) (70)% 4.19% (814) bp
+200 bp 29,054 (14,996) (34)% 8.60% (373) bp
0 bp 44,050 --- --- 12.33% ---
-200 bp 51,284 7,233 16% 13.89% 156 bp
-400 bp 53,944 9,894 22% 14.32% 199 bp
</TABLE>
* Basis points.
These charts indicate the extent to which our exposure to interest rate
risk declined during the one-year period beginning June 30, 1997. For example,
in the event of a 200 basis point (or 2%) increase in interest rates, the net
portfolio value of our assets would have declined by $15 million, or 34%, at
June 30, 1997, whereas a 200 basis point increase in interest rates at June 30,
1998 would have reduced the net portfolio value of our assets by $9.6 million,
or 19%. This reduction in our exposure to interest rate risk is largely
attributable to the securitization and sale of the adjustable-rate COFI loans
and certain fixed-rate loans in our portfolio, in the transactions described
above.
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the methods of analysis presented above. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as adjustable-rate loans, have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. Further, in the event of a change in interest rates, expected rates
of prepayments on loans and early withdrawals from certificates could likely
deviate significantly from those assumed in calculating the table.
Average Balances and Interest Rates and Yields
The following tables present at June 30, 1998 and for the six-month
periods ended June 30, 1998 and 1997, and the years ended December 31, 1997,
1996 and 1995, the average daily balances, of each category of our
interest-earning assets and interest-bearing liabilities, and the interest
earned or paid on such amounts.
<TABLE>
<CAPTION>
At June 30, Six Months Ended June 30,
1998 1998 1997
-------------------- ------------------------------ -------------------------------
Average Average Average Average
Balance Yield/Cost Balance Interest(6)Yield/Cost Balance Interest(6) Yield/Cost
------- ---------- ------- --------------------- ------- ----------- -----------
(Dollars in thousands)
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning deposits.......... $ 20,737 5.69% $19,094 $ 485 5.08% $ 2,570 $ 96 7.47%
Mortgage-backed securities
available for sale (1)........... 43,206 7.34 33,880 1,268 7.49
Other investment securities
available for sale (1)........... 14,828 6.41 382 13 6.81 117 4 6.84
Other investment securities
held to maturity ................ 3,500 5.94 6,177 187 6.05 14,508 433 5.97
Loans receivable (2) (5)........... 204,115 7.79 233,078 9,244 7.93 313,688 12,142 7.74
Stock in FHLB of Indianapolis...... 5,447 7.93 5,447 216 7.93 4,946 192 7.76
------- ------ ------
Total interest-earning assets.... 291,833 7.48 298,058 11,413 7.66 335,829 12,867 7.66
------- ------ ------
Non-interest earning assets, net of
allowance for loan losses and
unrealized gain/loss on securities
available for sale................. 12,667 12,713 12,779
-------- -------- --------
Total assets..................... $304,500 $310,771 $348,608
======== ======== ========
Liabilities and equity capital:
Interest-bearing liabilities:
Interest-bearing demand deposits... $ 7,487 2.06 $ 7,782 79 2.03 $ 7,506 77 2.05
Savings deposits................... 20,609 3.12 20,883 322 3.08 27,036 417 3.08
Money market savings deposits...... 28,631 4.89 28,074 687 4.89 18,968 459 4.84
Certificates of deposit............ 153,039 5.71 150,799 4,248 5.63 152,935 4,136 5.41
FHLB advances...................... 45,686 5.60 52,577 1,519 5.78 95,530 2,656 5.56
-------- -------- --------
Total interest-bearing
liabilities.................. 255,452 5.28 260,115 6,855 5.27 301,975 7,745 5.13
Other liabilities..................... 6,253 7,722 7,489
-------- -------- --------
Total liabilities.............. 261,705 267,837 309,464
Equity capital........................ 42,795 42,934 39,144
-------- -------- --------
Total liabilities and
equity capital............. $304,500 $310,771 $348,608
======== ======== ========
Net interest-earning assets........... $ 36,381 $ 37,943 $ 33,854
======== ========= =========
Net interest income................... $4,558 $5,122
Interest rate spread (3).............. 2.20% 2.39% 2.53%
==== ==== ====
Net yield on weighted average
interest-earning assets (4)........ 3.06% 3.05%
Average interest-earning assets to average
interest-bearing liabilities....... 114.59% 111.21%
====== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
----------------------------- ------------------------------ ------------------------------
Average Average Average Average Average Average
Balance Interest(6) Yield/Cost Balance Interest(6) Yield/Cost Balance Interest(6) Yield/Cost
------- ----------- ---------- ------------------------------ ------- ----------- ----------
(Dollars in thousands)
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits.........$11,853 $ 653 5.51% $ 3,969 $ 256 6.45% $ 4,710 $ 332 7.05%
Mortgage-backed securities
available for sale (1).......... 13,089 1,086 8.30 --- --- --- --- --- ---
Other investment securities
available for sale (1).......... 66 5 7.58 117 9 7.69 115 9 7.83
Other investment securities
held to maturity ............... 12,758 768 6.02 15,355 933 6.08 14,225 856 6.02
Loans receivable (2) (5)..........286,912 22,369 7.80 296,288 22,902 7.73 274,307 20,529 7.48
Stock in FHLB of Indianapolis..... 5,199 416 8.00 4,522 353 7.81 4,288 339 7.91
-------- -------- -------- -------- -------- -------
Total interest-earning assets...329,877 25,297 7.67 320,251 24,453 7.64 297,645 22,065 7.41
-------- -------- -------
Non-interest earning assets,
net of allowance for loan losses
and unrealized gain/loss
on securities available for sale.. 15,694 11,243 11,785
-------- -------- --------
Total assets...................$345,571 $331,494 $309,430
======== ======== ========
Liabilities and equity capital:
Interest-bearing liabilities:
Interest-bearing demand deposits.. 7,438 154 2.07 7,198 151 2.10 6,525 143 2.19
Savings deposits..................$25,159 781 3.10 $32,253 1,092 3.39 35,444 1,295 3.65
Money market savings deposits..... 21,278 1,044 4.91 7,003 320 4.57 3,233 108 3.34
Certificates of deposit...........151,507 8,425 5.56 152,381 8,675 5.69 148,786 8,456 5.68
FHLB advances..................... 92,121 5,248 5.70 87,621 4,881 5.57 73,403 4,484 6.11
-------- -------- --------
Total interest-bearing
liabilities................297,503 15,652 5.26 286,456 15,119 5.28 267,391 14,486 5.42
Other liabilities.................... 7,729 8,070 7,946
-------- -------- --------
Total liabilities.............305,232 294,526 275,337
Equity capital....................... 40,339 36,968 34,093
-------- -------- --------
Total liabilities and
equity capital...........$345,571 $331,494 $309,430
======== ======== ========
Net interest-earning assets......... $32,374 $33,795 $ 30,254
======== ======== ========
Net interest income.................. $9,645 $9,334 $7,579
====== ====== ======
Interest rate spread (3)............. 2.41% 2.36% 1.99%
==== ==== ====
Net yield on weighted average
interest-earning assets (4)....... 2.92% 2.91% 2.55%
==== ==== ====
Average interest-earning
assets to average
interest-bearing liabilities..... 110.88% 111.80% 111.31%
====== ====== ======
</TABLE>
(1) Mortgage-backed securities available for sale and other investment
securities available for sale are at amortized cost prior to SFAS No.
115 adjustments.
(2) Total loans, including loan held for sale, less loans in process.
(3) Interest rate spread is calculated by subtracting weighted average
interest rate cost from weighted average interest rate yield for the
period indicated.
(4) The net yield on weighted average interest-earning assets is calculated
by dividing net interest income by weighted average interest-earning
assets for the period indicated. No net yield amount is presented at
June 30, 1998, because the computation of net yield is applicable only
over a period rather than at a specific date.
(5) The balances include nonaccrual loans.
(6) Interest income on loans receivable includes loan fee income of
$264,000 and $287,000 for the six months ended June 30, 1998 and1997
and $554,000, $490,000, and $340,000 for the years ended December 31,
1997, 1996, and 1995.
Interest Rate Spread
Our results of operations have been determined primarily by net
interest income and, to a lesser extent, fee income, miscellaneous income and
general and administrative expenses. Net interest income is determined by the
interest rate spread between the yields earned on interest-earning assets and
the rates paid on interest-bearing liabilities and by the relative amounts of
interest-earning assets and interest-bearing liabilities.
The following table sets forth the weighted average effective interest
rate that we earned on our loan and investment portfolios, the weighted average
effective cost of our deposits and advances, our interest rate spread and the
net yield on weighted average interest-earning assets for the periods and as of
the dates shown. Average balances are based on average daily balances.
<TABLE>
<CAPTION>
Six Months Ended
At June 30, June 30, Year Ended December 31,
1998 1998 1997 1997 1996 1995
-------------------------------------------------------------------------
Weighted average interest rate earned on:
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits.................... 5.69% 5.08% 7.47% 5.51% 6.45% 7.05%
Mortgage-backed securities available for sale 7.34 7.49 --- 8.30 --- ---
Other investment securities available for sale 6.41 6.81 6.84 7.58 7.69 7.83
Other investment securities held to maturity. 5.94 6.05 5.97 6.02 6.08 6.02
Loans........................................ 7.79 7.93 7.74 7.80 7.73 7.48
FHLB stock................................... 7.93 7.93 7.76 8.00 7.81 7.91
Total interest-earning assets.............. 7.48 7.66 7.66 7.67 7.64 7.41
Weighted average interest rate cost of:
Interest-bearing demand deposits............. 2.06 2.03 2.05 2.07 2.10 2.19
Savings deposits............................. 3.12 3.08 3.08 3.10 3.39 3.65
Money market savings deposits................ 4.89 4.89 4.84 4.91 4.57 3.34
Certificates of deposit...................... 5.71 5.63 5.41 5.56 5.69 5.68
FHLB advances................................ 5.60 5.78 5.56 5.70 5.57 6.11
Total interest-bearing liabilities......... 5.28 5.27 5.13 5.26 5.28 5.42
Interest rate spread (1)........................ 2.20 2.39 2.53 2.41 2.36 1.99
Net yield on weighted average
interest-earning assets (2).................. N/A 3.06 3.05 2.92 2.91 2.55
</TABLE>
(1) Interest rate spread is calculated by subtracting combined weighted
average interest rate cost from combined weighted average interest rate
earned for the period indicated. Interest rate spread figures must be
considered in light of the relationship between the amounts of
interest-earning assets and interest-bearing liabilities.
(2) The net yield on weighted average interest-earning assets is calculated
by dividing net interest income by weighted average interest-earning
assets for the period indicated. No net yield figure is presented at June
30, 1998 because the computation of net yield is applicable only over a
period rather than at a specific date.
The following table describes the extent to which changes in interest rates
and changes in volume of interest-related assets and liabilities have affected
our interest income and expense during the periods indicated. For each category
of interest-earning asset and interest-bearing liability, information is
provided on changes attributable to (1) changes in rate (changes in rate
multiplied by old volume) and (2) changes in volume (changes in volume
multiplied by old rate). Changes attributable to both rate and volume which
cannot be segregated have been allocated proportionally to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
Increase (Decrease) in Net Interest Income
Total
Due to Due to Net
Rate Volume Change
---- ------ ------
(In thousands)
Six months ended June 30, 1998 compared
to six months ended June 30, 1997
Interest-earning assets:
<S> <C> <C> <C>
Interest-earning deposits.................................. $ (99) $ 488 $ 389
Mortgage-backed securities available for sale.............. --- 1,268 1,268
Other investment securities available for sale............. --- 9 9
Other investment securities held to maturity............... 18 (264) (246)
Loans receivable........................................... 838 (3,736) (2,898)
FHLB stock................................................. 4 20 24
------ ------ ------
Total.................................................... 761 (2,215) (1,454)
------ ------ ------
Interest-bearing liabilities:
Interest-bearing demand deposits........................... (2) 4 2
Savings deposits........................................... --- (95) (95)
Money market savings deposits.............................. 5 223 228
Certificates of deposit.................................... 257 (145) 112
FHLB advances.............................................. 291 (1,428) (1,137)
------ ------ ------
Total.................................................... 551 (1,441) (890)
------ ------ ------
Net change in net interest income............................ $ 210 $ (774) $ (564)
====== ====== ======
Year ended December 31, 1997 compared
to year ended December 31, 1996
Interest-earning assets:
Interest-earning deposits.................................. $(42) $439 $397
Mortgage-backed securities available for sale.............. --- 1,086 1,086
Other investment securities available for sale............. --- (4) (4)
Other investment securities held to maturity............... (9) (156) (165)
Loans receivable........................................... 197 (730) (533)
FHLB stock................................................. 9 54 63
------ ------ ------
Total.................................................... 155 689 844
------ ------ ------
Interest-bearing liabilities:
Interest-bearing demand deposits........................... (2) 5 3
Savings deposits........................................... (85) (226) (311)
Money market savings deposits.............................. 25 699 724
Certificates of deposit.................................... (200) (50) (250)
FHLB advances.............................................. 112 255 367
------ ------ ------
Total.................................................... (150) 683 533
------ ------ ------
Net change in net interest income............................ $305 $ 6 $311
====== ====== ======
Year ended December 31, 1996 compared
to year ended December 31, 1995
Interest-earning assets:
Interest-earning deposits.................................. $ (27) $ (49) $ (76)
Mortgage-backed securities available for sale.............. --- --- ---
Other investment securities available for sale............. --- --- ---
Other investment securities held to maturity............... 8 69 77
Loans receivable........................................... 690 1,683 2,373
FHLB stock................................................. (4) 18 14
------ ------ ------
Total.................................................... 667 1,721 2,388
------ ------ ------
Interest-bearing liabilities:
Interest-bearing demand deposits........................... (6) 14 8
Savings deposits........................................... (91) (112) (203)
Money market savings deposits.............................. 51 161 212
Certificates of deposit.................................... 14 205 219
FHLB advances.............................................. (419) 816 397
------ ------ ------
Total.................................................... (451) 1,084 633
------ ------ ------
Net change in net interest income............................ $1,118 $ 637 $1,755
====== ====== ======
</TABLE>
Financial Condition at June 30, 1998 Compared to Financial Condition at December
31, 1997
Total assets decreased $16.9 million, or 5.3%, at June 30, 1998,
compared to December 31, 1997. The decrease was primarily due to the
securitization of approximately $39.9 million of one- to four- family
residential loans and the subsequent sale of approximately $21.1 million of
these mortgage-backed securities. Cash and interest-bearing deposits in other
banks increased by $4.8 million and mortgage-backed securities available for
sale and other investment securities available for sale and held to maturity
increased by $23.4 million at June 30, 1998, compared to December 31, 1997.
These increases were primarily due to the loan securitization. A portion of the
proceeds received from the sales of mortgage-backed securities available for
sale was used to repay FHLB advances thus reducing both the asset and liability
sides of the balance sheet.
Loans, Loans Held for Sale and Allowance for Loan Losses. The decrease
in our net loans including loans held for sale of $50.0 million, or 18.5%, from
December 31, 1997 to June 30, 1998 was due to the securitization of $39.9
million of loans in the second quarter of 1998. The loans securitized were one-
to four-family residential loans. The strategy behind the securitization and
sale of mortgage-backed securities was to change the mix of assets on our
balance sheet to reduce interest rate risk and to improve the liquidity of our
assets. In addition, at June 30, 1998, we had committed to sell loans of $19.3
million that settled in July 1998. We have no plans to securitize or sell
additional portfolio loans. We continue to service all loans sold and
securitized. The allowance for loan losses as a percentage of total loans
including loans held for sale increased to .70% from .54%. The level of the
allowance has increased as a result of increased charge-offs, no significant
change in the level of risk profile of the loan portfolio and concern related to
current economic conditions. The allowance for loan losses as a percentage of
non-performing loans was 87.2% and 37.6% at June 30, 1998 and December 31, 1997,
respectively. Non-performing loans were $1.6 million and $3.6 million at each
date, respectively. The decline in non-performing loans was a result of a
combination of factors including improved collection efforts on one- to
four-family residential and consumer loans. During the six months ended June 30,
1998, we also charged-off $301,000 in non-performing loans, a non-performing
loan totaling $367,000 was paid off and we received additional collateral on
loans totaling $218,000 allowing us to remove these loans from non-accrual
status. Included in non-performing loans at June 30, 1998 were impaired loans of
approximately $808,000. Impaired loans at June 30, 1998 consisted of loans to
two borrowers collateralized by residential acquisition and development real
estate. A provision for losses of $121,000 had been recorded on impaired loans.
Deposits. Deposits increased $7.3 million, or 3.6%, at June 30, 1998,
compared to December 31, 1997. Certificates of deposit increased $7.0 million,
or 4.8%, while other deposits increased $266,000, or .5%. The increase in
deposits was primarily due to a certificate of deposit special in February of
1998 that produced $4.3 million of new money.
Borrowed Funds. FHLB advances decreased $24.4 million, or 34.9%, at
June 30, 1998 compared to December 31, 1997. Proceeds from the sales of
mortgage-backed securities available for sale were used to repay a portion of
FHLB advances.
Equity Capital. Equity capital increased $817,000, or 1.9%, from $42.0
million at December 31, 1997 to $42.8 million at June 30, 1998. The increase was
due primarily to net income of $817,000.
Financial Condition at December 31, 1997 Compared to Financial Condition at
December 31, 1996
Total assets decreased $24.2 million, or 7.0%, at December 31, 1997,
compared to December 31, 1996. The decrease was primarily due to the
securitization of approximately $76.2 million of one- to four- family
residential loans and loans held for sale and the subsequent sale of
approximately $54.3 million of these mortgage-backed securities. Cash and
interest-bearing deposits in other banks increased by $8.6 million and
mortgage-backed securities available for sale and other investment securities
available for sale and held to maturity increased by $23.7 million at December
31, 1997, compared to December 31, 1996. These increases were primarily due to
the loan securitization. In addition, a portion of the proceeds received from
the sales of mortgage-backed securities available for sale was used to repay
FHLB advances.
Loans, Loans Held for Sale and Allowance for Loan Losses. The decrease
in our net loans including loans held for sale of $57.0 million, or 18.6%, from
December 31, 1996 to December 31, 1997 was due to the securitization of loans in
the third quarter of 1997. The loans securitized were one- to four-family
residential loans. The strategy behind the securitization was to change the mix
of assets on our balance sheet to reduce interest rate risk and to improve the
liquidity of our assets. The loan to deposit ratio had grown as high as 156% in
recent years, and it was necessary to obtain Federal Home Loan Bank advances to
fund our loan growth. The allowance for loan losses as a percentage of total
loans including loans held for sale increased to .54% from .40% as a result of
the decrease in loans outstanding and minimal charge-offs. The allowance for
loan losses as a percentage of non-performing loans was 37.6% and 24.5% at
December 31, 1997 and 1996, respectively. Non-performing loans were $3.6 million
and $2.4 million at each date, respectively. Included in non-performing loans at
December 31, 1997 were impaired loans of $1.6 million. Impaired loans at
December 31, 1997 consisted of loans to three borrowers of which 77.8% of these
loans were collateralized by residential acquisition and development real
estate. A provision for losses of $237,000 had been recorded on impaired loans.
Deposits. Deposits decreased $7.0 million, or 3.3%, during the period
ended December 31, 1997. Certificates of deposit decreased $11.4 million, or
7.3%, while other deposits increased $4.4 million, or 8.3%. The decrease in
deposits was primarily due to a reduction in public funds of approximately $7.3
million at December 31, 1997 as compared to 1996. This decline was a result of
less aggressive bidding on public funds when other lower cost funding options
were available.
Borrowed Funds. FHLB advances decreased $21.1 million, or 23.1%, at
December 31, 1997 compared to December 31, 1996. Proceeds from the sales of
mortgage-backed securities available for sale were used to repay a portion of
these FHLB advances.
Equity Capital. Equity capital increased $4.1 million, or 10.7%, from
$37.9 million at December 31, 1996 to $42.0 million at December 31, 1997. The
increase was due to net income of $3.5 million and a net change in holding gains
on investments available for sale of $545,000.
Comparison of Operating Results For Six Months Ended June 30, 1998 and 1997
General. Net income for the six months ended June 30, 1998 decreased
$1.0 million to $817,000 compared to $1.9 million for the six months ended June
30, 1997. The decline in net income was primarily a result of a reduction in net
interest income, an increase in the provision for loan losses, an increase in
other expenses, an extraordinary item related to the prepayment of FHLB advances
offset by a reduction in tax expense. Annualized return on average assets for
the six months ended June 30, 1998 and 1997 was .53% and 1.07%, respectively.
Annualized return on average equity was 3.81% for the 1998 period and 9.52% for
the 1997 period.
Interest Income. Total interest income was $11.4 million for the 1998
period compared to $12.9 million for the 1997 period. The decrease in interest
income was due primarily to a decrease in our average earning assets. Average
earning assets decreased $37.8 million, or 11.2%, primarily due to a decrease in
average loans of $80.6 million offset by an increase in average mortgage-backed
securities available for sale of $33.9 million. Our average yield on
interest-earning assets was 7.66% for both six-month periods ended June 30, 1998
and 1997.
Interest Expense. Interest expense decreased $890,000, or 11.5%, during
the six-month period ended June 30, 1998 as compared to the same period in 1997.
The decrease in interest expense was primarily the result of a decrease in
average interest-bearing liabilities of $41.9 million, or 13.9%. The decline in
average interest-bearing liabilities was primarily attributable to the repayment
of FHLB advances. Our average balance of FHLB advances decreased $43.0 million.
Our average cost of interest-bearing liabilities increased from 5.13% for the
1997 period to 5.27% for the 1998 period resulting primarily from an increase of
22 basis points in the cost of both our certificates of deposit and FHLB
advances.
Net Interest Income. Net interest income decreased $564,000, or 11.0%,
during the six-month period ended June 30, 1998 as compared to the same period
in 1997. Net interest income declined $774,000 due to a decrease in our volume
of net interest earning assets and liabilities and increased $210,000 as a
result of an improvement in our net yield on interest earning assets. Our
interest rate spread was 2.39% and 2.53% for the 1998 and 1997 periods,
respectively. Our net yield on interest-earning assets was 3.06% and 3.05% for
the 1998 and 1997 periods respectively. Although our interest rate spread
decreased during the 1998 period, our yield on interest-earning assets improved
slightly because our average interest-earning asset as a percentage of
interest-bearing liabilities increased from 110.9% for the 1997 period to 114.6%
for the 1998 period.
Provision for Loan Losses. Our provision for loan losses for the six
months ended June 30, 1998 was $410,000 as compared to $50,000 for the same
period in 1997. During the six months ended June 30, 1998, we had net
charge-offs of $339,000 of which $301,000 was related to a residential
acquisition and development loan. The provision for loan losses was increased in
1998 due to increased charge-offs, no significant change in the risk profile of
the loan portfolio and concern related to current economic conditions. The 1998
provision and the allowance for loan losses were considered adequate based on
size, condition and components of the loan portfolio, our past history of loan
losses and peer comparisons. While management estimates loan losses using the
best available information, no assurance can be given that future additions to
the allowance will not be necessary based on changes in economic and real estate
market conditions, further information obtained regarding problem loans,
identification of additional problem loans and other factors, both within and
outside of management's control.
Net realized and unrealized gain (loss) on loans held for sale. Net
realized and unrealized losses on loans held for sale of $114,000 were recorded
during the six months ended June 30, 1998, an increase of $96,000 over the net
losses of $18,000 recorded during the same period in 1997. The increased losses
in 1998 relate primarily to unrealized losses on the $19.3 million of loans held
for sale at June 30, 1998 which were lower yielding loans as compared to the
loans remaining in the loan portfolio.
Net realized and unrealized gains on securities available for sale.
Proceeds from sales of securities available for sale during the six months ended
June 30, 1998 amounted to $21.1 million. Net gains of $105,000 were realized on
those sales. No realized or unrealized gains or losses on securities available
for sale were recorded during the six months ended June 30, 1997.
Equity in losses of limited partnerships. Equity in losses of limited
partnerships decreased $59,000, or 18.0%, from $327,000 for the six months ended
June 30, 1997 to $268,000 for the same period in 1998 due to the operating
results of our limited partnership investments. See "Business of Lincoln Federal
Savings Bank Investments - Investments in Multi-Family Low-and- Moderate-Income
Housing Projects."
Other Income. Other income increased $93,000, or 32.6%, from $285,000
for the six months ended June 30, 1997 to $378,000 for the same period in 1998.
This increase was due to increases in a variety of other income categories and
was not attributable to any one item.
Salaries and Employee Benefits. Salaries and employee benefits were
$1.3 million for the six months ended June 30, 1998 compared to $1.0 million for
the same period in 1997, an increase of 30.0%. These increases were primarily a
result of additional personnel. We had 74 full time equivalent employees at June
30, 1998 compared to 70 full time equivalent employees at June 30, 1997. We have
increased our number of employees and added personnel with the specialized
skills to more effectively service our existing customers and to position us for
future customer and product growth.
Net Occupancy and Equipment Expenses. Occupancy expenses increased
$2,000, or 1.5%, and equipment expenses increased $51,000, or 20.5%, from the
six months ended June 30, 1997 compared to the same period in 1998. The
increases in occupancy and equipment expenses were primarily attributable to
increased deprecation and amortization on computers, software and other
equipment and fees associated with computer equipment maintenance.
Data Processing Expense. Data processing expense increased $101,000, or
37.7%, from the six-month period ended June 30, 1997 to the same period in 1998.
This increase was primarily due to additional costs associated with Year 2000
compliance and testing.
Professional Fees. Professional fees increased $37,000, or 26.4%, from
the six-month period ended June 30, 1997 to the same period in 1998. This
increase was due to a variety of increased expenses and was not attributable to
any one item.
Mortgage Servicing Rights Amortization. Mortgage servicing rights
amortization increased $121,000 from $5,000 for the six-month period ended June
30, 1997 to $126,000 for the same period in 1998 due to increased servicing
activity and the adoption of Statement of Financial Accounting Standards
("SFAS") No. 122, "Accounting for Mortgage Serving Rights", and SFAS No. 125,
"Accounting for Transfers of Financial Assets, Servicing Rights and
Extinguishment of Liabilities". Average mortgage loans serviced for others were
approximately $89.6 million for the 1998 period as compared to $41.7 million for
the 1997 period.
Income Tax Expense. Income tax expense decreased $613,000, or 87.4%,
from the six months ended June 30, 1997 to the same period in 1998. These
variations in income tax expense are directly related to our taxable income and
the low income housing income tax credits earned during those periods. The
effective tax rate was 9.71% and 27.3% for 1998 and 1997, respectively. Our
effective rate declined in 1998 as compared to 1997 because our low-income
housing income tax credits remained relatively constant while our level of
income declined. We expect our effective tax rate to increase in future periods.
See "Business of Lincoln Federal Savings Bank Investments - Investments in
Multi-Family Low-and- Moderate-Income Housing Projects."
Extraordinary Item - Early Extinguishment of Debt, Net of Income Taxes.
Prepayment penalties of $249,000 on FHLB advances were recorded during the six
months ended June 30, 1998. Due to the securitization of loans and loans held
for sale and the subsequent sales of a portion of these mortgage-backed
securities, funds were available to prepay a portion of our FHLB advances.
Comparison of Operating Results For Years Ended December 31, 1997, 1996, and
1995
General. Net income for the years ended December 31, 1997, 1996 and
1995 was $3.5 million, $3.0 million and $3.4 million, respectively. Return on
average assets for the years ended December 31, 1997, 1996 and 1995 was 1.02%,
.90% and 1.09%, respectively. Return on average equity was 8.71% for 1997, 8.08%
for 1996 and 9.92% for 1995.
Interest Income. Total interest income increased from $24.5 million in
1996 to $25.3 million in 1997. Average earning assets increased $9.6 million, or
3.0%, from $320.2 million to $329.8 million from 1996 to 1997. Volume increases,
primarily from mortgage-backed securities available for sale and interest
earning deposits, accounted for $689,000 of the increase while higher interest
rates accounted for $155,000 of the increase. For the year ended December 31,
1996, total interest income totaled $24.5 million, an increase of $2.4 million,
or 10.9%, from the $22.1 million recorded in 1995. The increase was due to an
increase in the average earning assets accompanied by an increase in the average
yield. Average earning assets increased $22.6 million, or 7.6%, during this
period while the average yield on earning assets increased 23 basis points to
7.64% from 7.41%. The increase in average loans and the increased loan yield
were the primary factors contributing to these increases.
Interest Expense. Interest expense increased $533,000, or 3.5% from
1996 to 1997. The increase in interest expense was primarily the result of an
increase in average interest-bearing liabilities of $11.0 million, or 3.9%, from
$286.5 million to $297.5 million. The growth in average interest-bearing
liabilities was primarily attributable to the growth in money market savings
deposits and FHLB advances offset by the decline in saving deposits. The average
balance of money market saving deposits and FHLB advances increased $14.3
million, or 203.8%, and $4.5 million, or 5.1%, respectively, while savings
deposits decreased by $7.1 million, or 22.0%. We utilized the deposit growth and
increased borrowings from the FHLB to fund loan activity and the subsequent
increase in mortgage-backed securities available for sale. Interest expense
increased $633,000, or 4.4%, from 1995 to 1996. Volume increases in
interest-bearing liabilities resulted in a $1.1 million increase in interest
expense while lower interest rates reduced expense by $451,000. The average cost
of interest-bearing liabilities decreased from 5.42% in 1995 to 5.28% in 1996.
Net Interest Income. Net interest income increased $311,000, or 3.3%,
from $9.3 million in 1996 to $9.6 million in 1997. $305,000 of our $311,000
increase in net interest income in 1997 was due to an increase in our interest
rate spread. Net interest income increased $1.8 million, or 23.2%, from 1995 to
1996. Our net interest income increased $1.1 million due to an increase in our
volume of net interest earning assets and $637,000 due to an increase in our
interest rate spread. Our interest rate spread was 2.41%, 2.36% and 1.99% for
1997, 1996 and 1995, respectively.
Provision for Loan Losses. Our provision for loan losses for the year
ended December 31, 1997 was $298,000. The 1997 provision and the related
increase in the allowance for loan losses were considered adequate, based on
size, condition and components of the loan portfolio. Provisions for loan losses
of $120,000 and $100,000 were made in 1996 and 1995, respectively. The
allowances for loan losses at December 31, 1996 and 1995 were also considered
adequate, based on size, condition, and components of the loan portfolios. The
increase in the provision in 1997 was due to the adoption of a more conservative
methodology for determining the adequacy of the allowance for loan losses rather
than a deterioration of the loan portfolio. Our current methodology assigns risk
factors based on loan type in addition to providing for non-performing and other
classified loans. The methodology used prior to 1997 focused primarily on
non-performing and other classified loans and did not assign risk factors to the
remaining loan portfolio based on loan type. While management estimates loan
losses using the best available information, no assurance can be given that
future additions to the allowance will not be necessary based on changes in
economic and real estate market conditions, further information obtained
regarding problem loans, identification of additional problem loans and other
factors, both within and outside of management's control.
Net realized and unrealized gain (loss) on loans held for sale. Net
realized and unrealized gains on loans held for sale of $299,000 were recorded
in 1997, an increase of $459,000 over the net losses of $160,000 recorded in
1996. In 1995, net realized and unrealized gains on loans held for sale were
$1.5 million which consisted primarily of unrealized gains recorded as we
recovered from unrealized losses recorded in the previous year as a result of
changes in interest rates.
Net realized and unrealized gains on securities available for sale.
Proceeds from sales of securities available for sale during 1997 amounted to
$54.5 million. Net gains of $118,000 were realized on those sales. No realized
or unrealized gains or losses on securities available for sale were recorded in
1996 and 1995.
Equity in losses of limited partnerships. Equity in losses of limited
partnerships increased $85,000, or 14.3%, from $596,000 for 1996 to $681,000 for
1997 due to the operating results of our limited partnership investments. In
comparison, losses of $1.6 million were recorded in 1995. In 1995, an additional
loss estimate of approximately $800,000 was recorded on our investment in Pedcor
Investments - 1987-I, L.P. This additional loss estimate was recorded to reserve
for fees earned by the general partner but payable at a future date based on
cash flow of the partnership. Although it was not possible to determine the
exact amount of the fees that will eventually be paid and should therefore be
accrued, we believe that the additional expense recorded was adequate based on
all available information. See "Business of Lincoln Federal Savings Bank -
Investments Investments in Multi-Family Low-and- Moderate-Income Housing
Projects."
Other Income. Other income increased $171,000, or 34.0%, from $503,000
for 1996 to $674,000 for 1997. This increase was due to an increase in loan
servicing fee income of $104,000 and smaller increases in a variety of other
income categories. Other income increased $30,000 or 6.3%, from $473,000 for
1995 to $503,000 for 1996.
Salaries and Employee Benefits. Salaries and employee benefits were
$2.2 million for 1997 compared to $1.7 million for 1996 and $1.5 million for
1995, increases of 29.4% and 13.3%, respectively. These increases were primarily
a result of additional personnel. We had 72, 69 and 58 full time equivalent
employees at December 31, 1997, 1996 and 1995, respectively. We have increased
our number of employees and added personnel with the specialized skills to more
effectively service our existing customers and to position us for future
customer and product growth.
Net Occupancy and Equipment Expenses. Occupancy expenses increased
$36,000, or 15.3%, and equipment expenses increased $165,000, or 45.7%, from
1996 to 1997. The increases in occupancy and equipment expenses were primarily
attributable to increased deprecation and amortization on computers, software
and other equipment. Occupancy expenses for 1995 were at approximately the same
level as in 1997 and equipment expenses for 1995 were $185,000 less than the
1996 expenses. A significant portion of the equipment placed in service in 1995
was purchased in the fourth quarter of that year; therefore, a full year of
depreciation expense was not recorded until 1996.
Deposit Insurance Expense. Deposit insurance expense decreased $1.5
million, or 88.8%, from $1.7 million in 1996 to $194,000 in 1997. This decrease
was due to the recapitalization of the Savings Association Insurance Fund
(`SAIF") which ultimately resulted in a decline in our assessment. A one-time
SAIF special assessment of approximately $1.3 million was recorded in 1996.
Prior to the recapitalization of SAIF, we paid an assessment of $.23 per $100 of
deposits. Subsequent to the recapitalization, the assessment was reduced to
$.0644 per $100 of deposits. Deposit insurance expense for 1995 was $438,000.
Data Processing Expense. Data processing expense increased $268,000, or
85.6%, from 1996 to 1997 primarily due to expenses relating to the software
conversion of the general ledger and the loan and deposit subsidiary records.
Data processing expense increased $85,000, or 37.3%, from 1995 to 1996 primarily
due to the overall growth of our institution.
Professional Fees. Professional fees increased $169,000 from $69,000 in
1996 to $238,000 in 1997 primarily due to consulting fees paid in connection
with our loan securitization initiative. During 1997, we engaged an outside
consultant to review our loan portfolio and assist us with the securitization of
loans. We incurred $139,000 of expense in relation to this project. Professional
fees increased $21,000 from 1995 to 1996 primarily due to the overall growth of
our institution.
Mortgage Servicing Rights Amortization. Mortgage servicing rights
("MSR") amortization increased $55,000 from 1996 to 1997 due in part to
increased servicing activity. Average mortgage loans serviced for others were
approximately $68.1 million for 1997 compared to $35.2 million for 1996. In
1997, we adopted SFAS No. 122, "Accounting for Mortgage Serving Rights", and
SFAS No. 125, "Accounting for Transfers of Financial Assets, Servicing Rights
and Extinguishment of Liabilities". The adoption of these Statements also
contributed to the increase in amortization recorded in 1997. MSR amortization
increased $3,000 from 1995 to 1996.
Other Expense. Other expenses, consisting primarily of expenses related
to advertising, directors' fees, contributions, loan expenses, supplies, and
postage increased $292,000, or 43.7% from 1996 to 1997. The increase was in part
due to approximately $175,000 of additional expense in 1997 as compared to 1996
for directors' compensation and related plans. The remaining increase resulted
from increases in a variety of expense categories and was not attributable to
any one item. Other expenses increased $124,000, or 22.8%, from 1995 to 1996.
The increase resulted from increases in a variety of expense categories and was
not attributable to any one item.
Income Tax Expense. Income tax expense increased $289,000, or 33.2%,
from 1996 to 1997. Income tax expense decreased 323,000, or 27.1%, from 1995 to
1996. These variations in income tax expense are directly related to the taxable
income for those years. The effective tax rate was 24.8%, 22.6% and 26.1% for
1997, 1996 and 1995, respectively.
Liquidity and Capital Resources
The following is a summary of our cash flows, which are of three major
types. Cash flows from operating activities consist primarily of net income
generated by cash. Investing activities generate cash flows through the
origination and principal collection on loans as well as purchases and sales of
securities. Investing activities will generally result in negative cash flows
when we are experiencing loan growth. Cash flows from financing activities
include savings deposits, withdrawals and maturities and changes in borrowings.
The following table summarizes cash flows for each of the six-month periods
ended June 30, 1998 and 1997 and each of the three years in the three-year
period ended December 31, 1997.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
-------- -----------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities........................... $1,764 $4,393 $6,596 $(5,788) $6,116
------- ------ ------- ------ -----
Investing activities: ,116
Net change in interest-bearing deposits..... 595 100 495
Purchases of other investment
securities held to maturity............... (11,429) (9,250)
Purchases of mortgage-backed
securities available for sale............. (96) (7,799)
Purchases of other securities
available for sale........................ (14,828) (1) (1)
Proceeds from sales of mortgage-backed
securities available for sale............. 21,081 54,415
Proceeds from sales of other investment ....
securities available for sale............. 117
Proceeds from maturities of mortgage-
backed securities available for sale...... 4,138 1,237
Proceeds from maturities of other
investment securities held to maturity.... 6,135 1,800 5,550 7,850 10,400
Purchase of loans........................... (1,000) (1,000)
Other net change in loans................... 5,312 (14,690) (20,034) (11,426) (25,431)
Purchase of FHLB of
Indianapolis stock........................ (650) (650) (497)
Purchase of premises and equipment.......... (258) (217) (678) (190) (549)
Proceeds from disposal of property
and equipment............................. 7
Proceeds from sale of foreclosed
real estate............................... 145 74 158 40 87
Improvements to foreclosed
real estate............................... (10) (7)
Distribution from limited partnership....... 40
Contribution to limited partnership......... (195) (200) (200) (200) (200)
Other investing activities.................. (650) (379)
------- ----- ------- ------ -----
Net cash used by investing activities....... 20,784 (14,883) 31,332 (15,756) (24,416)
------- ----- ------- ------ -----
Financing activities:
Net change in:
Noninterest-bearing deposits and
interest-bearing demand, money
market and savings deposits............... 266 1,576 4,450 8,510 (9,409)
Certificates of deposits....................... 7,042 (11,124) (11,421) 6,197 20,307
Short-term borrowings....................... (2,137)
Proceeds from FHLB advances................. 10,000 38,700 73,400 94,700 178,000
Repayment of FHLB advances.................. (34,450) (23,000) (94,496) (85,404) (180,064)
Payment on note payable
to limited partnership.................... (489) (489) (489) (489) (489)
Net changes in advances by borrowers
for taxes and insurance................... (110) (94) (213) (358) (19)
------- ----- ------- ------ -----
Net cash provided by financing
activities................................ (17,741) 5,569 (28,769) 23,156 6,189
------- ----- ------- ------ -----
Net increase/(decrease) in cash
and cash equivalents..................... $4,807 $(4,921) $ 9,159 $ 1,612 $(12,111)
======= ===== ======= ====== =====
</TABLE>
Federal law requires that savings associations maintain an average
daily balance of liquid assets in a minimum amount not less than 4% or more than
10% of their withdrawable accounts plus short-term borrowings. Liquid assets
include cash, certain time deposits, certain bankers' acceptances, specified
U.S. government, state or federal agency obligations, certain corporate debt
securities, commercial paper, certain mutual funds, certain mortgage-related
securities, and certain first-lien residential mortgage loans. The OTS recently
amended its regulation that implements this statutory liquidity requirement to
reduce the amount of liquid assets a savings association must hold from 5% of
net withdrawable accounts and short-term borrowings to 4%. The OTS also
eliminated the requirement that savings associations maintain short-term liquid
assets constituting at least 1% of their average daily balance of net
withdrawable deposit accounts and current borrowings. The revised OTS rule also
permits savings associations to calculate compliance with the liquidity
requirement based upon their average daily balance of liquid assets during each
quarter rather than during each month, as was required under the prior rule. The
OTS may impose monetary penalties on savings associations that fail to meet
these liquidity requirements. As of June 30, 1998, we had liquid assets of $70.9
million, and a regulatory liquidity ratio of 36.0%. We also have available $2
million under a line of credit with the FHLB-Indianapolis. Our unfunded loan
commitments at June 30, 1998 were $14.2 million, and we had $237,000 in standby
letters of credit outstanding at that date. It is our belief that upon
completion of the Conversion our liquidity ratios will increase.
Pursuant to OTS capital regulations, savings associations must
currently meet a 1.5% tangible capital requirement, a 3% leverage ratio (or core
capital) requirement, and a total risk-based capital to risk-weighted assets
ratio of 8%. At June 30, 1998, our tangible capital ratio was 13.9%, our core
capital ratio was 13.9%, and our risk-based capital to risk-weighted assets
ratio was 24.6%. Therefore, at June 30, 1998, our capital levels exceeded all
applicable regulatory capital requirements currently in effect. The following
table provides the minimum regulatory capital requirements and our capital
ratios as of June 30, 1998:
<TABLE>
<CAPTION>
At June 30, 1998
OTS Requirement Lincoln Federal's Capital Level
% of % of Amount
Capital Standard Assets Amount Assets(1) Amount of Excess
- ---------------- ------ ------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible capital........... 1.5% $4,569 13.9% $42,248 $37,679
Core capital (2)........... 3.0 9,138 13.9 42,248 33,110
Risk-based capital......... 8.0 14,217 24.6 43,680 29,463
</TABLE>
(1) Tangible and core capital levels are shown as a percentage of total assets;
risk-based capital levels are shown as a percentage of risk-weighted
assets.
(2) The OTS has proposed and is expected to adopt a core capital requirement
for savings associations comparable to that recently adopted by the OCC for
national banks. The new regulation, as proposed, would require at least 3%
of total adjusted assets for savings associations that received the highest
supervisory rating for safety and soundness, and 4% to 5% for all other
savings associations. The final form of such new OTS core capital
requirement may differ from that which has been proposed. We expect to be
in compliance with such new requirements. See "Regulation - Regulatory
Capital."
For definitions of tangible capital, core capital and risk-based
capital, see "Regulation - Savings Association Regulatory Capital."
As of June 30, 1998, management is not aware of any current
recommendations by regulatory authorities which, if they were to be implemented,
would have, or are reasonably likely to have, a material adverse effect on our
liquidity, capital resources or results of operations.
Current Accounting Issues
In November 1993, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 93-6, "Employer's Accounting
for Employee Stock Ownership Plans." The SOP, among other things, changed the
measure of compensation expense recorded by employers from the cost of employee
stock ownership plan shares allocated to employees during the period to the fair
value of employee stock ownership plan shares allocated. Assuming the
acquisition of shares of stock by the ESOP, the application of SOP 93-6 is
likely to result in fluctuations in compensation expense due to changes in the
fair value of the stock.
In October, 1995, the FASB issued SFAS No. 123 entitled "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes a fair value based method of
accounting and disclosing the amount of stock-based compensation paid to
employees. Historically, Accounting Principles Board ("APB") Opinion No. 25
"Accounting for Stock Issued to Employees" has measured compensation cost using
the method based on the award's intrinsic value. Those electing to remain with
the accounting in APB Opinion No. 25 must make pro forma disclosures of net
income and, when presented, earnings per share, as if the fair value based
method of accounting defined in SFAS 123 had been applied. The disclosure
provisions of SFAS No. 123 will be adopted by management upon completion of the
Conversion. We do not believe that adoption of SFAS No. 123 disclosure
provisions will have a material adverse effect on our consolidated financial
position or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
of Financial Assets, Servicing Rights and Extinguishment of Liabilities," that
provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method provides that
the carrying amount of the financial assets transferred be allocated to
components of the transaction based on their relative fair values. Transactions
subject to the provisions of SFAS No. 125 include, among others, transfers
involving repurchase agreements, securitizations of financial assets, loan
participations and transfers of receivables with recourse. An entity that
undertakes an obligation to service financial assets recognizes either a
servicing asset or liability for the servicing contract. A servicing asset or
liability that is purchased or assumed is initially recognized at its fair
value. Servicing assets and liabilities are amortized in proportion to and over
the period of estimated net servicing income or net servicing loss and are
subject to subsequent assessments for impairment based on fair value. SFAS No.
125 provides that a liability is removed from the balance sheet only if the
debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor. SFAS No. 125 is
effective for applicable transactions occurring after December 31, 1996, and is
to be applied prospectively. Retroactive application is not permitted. The
adoption of SFAS No. 125 has not had a material adverse effect on our financial
position or results of operations.
In February 1997, the FASB issued SFAS No. 128, Earnings per Share,
establishing standards for computing and presenting earnings per share (EPS) and
applies to entities with publicly held common stock or potential common stock,
such as the shares issuable under our proposed stock option plan, as well as any
other entity that chooses to present EPS in its financial statements.
This Statement simplifies the current standards of APB Opinion No. 15,
Earnings per Share, and makes them comparable to international EPS standards. It
eliminates the presentation of primary EPS and requires presentation of basic
EPS (the principal difference being that common stock equivalents are not
considered in the computation of basic EPS). It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.
Basic EPS includes no dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if the potential common shares were exercised or converted into
common stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. Diluted EPS is computed similarly to that of fully
diluted EPS pursuant to Opinion No. 15. We do not expect the adoption of SFAS
No. 128 to have a material impact on our financial position or results of
operations.
The Statement is effective for our financial statements issued for
periods ending after December 15, 1997, including interim periods. Earlier
application is not permitted. The Statement requires restatement of all
prior-period EPS data presented.
In February 1997, the FASB issued SFAS No. 129, Disclosure of
Information about Capital Structure, continuing the current requirements to
disclose certain information about an entity's capital structure found in APB
Opinion No. 10, Omnibus Opinion--1966, Opinion No. 15, and SFAS No. 47,
Disclosure of Long-Term Obligations. It consolidates specific disclosure
requirements from those standards. SFAS No. 129 is effective for our financial
statements issued for periods ending after December 15, 1997, including interim
periods. We do not expect the adoption of SFAS No. 129 to have a material impact
on our financial position or results of operations.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income, establishing standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. It requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This Statement does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement.
SFAS No. 130 requires us to (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position.
The Statement is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information, establishing standards for the way
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. This Statement
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, but retains the requirement to report information about major
customers. It amends SFAS No. 94, Consolidation of All Majority-Owned
Subsidiaries, to remove the special disclosure requirements for previously
unconsolidated subsidiaries. This Statement does not apply to nonpublic business
enterprises or to not-for-profit organizations.
SFAS No. 131 requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.
This Statement requires that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. It requires reconciliations of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to corresponding amounts in the enterprise's general-purpose financial
statements. This Statement also requires that a public business enterprise
report descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period.
SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. This Statement need
not be applied to interim financial statements in the initial year of its
application, but comparative information for interim periods in the initial year
of application is to be reported in financial statements for interim periods in
the second year of application. We do not expect the adoption of SFAS No. 131 to
have a material impact on our financial condition or results of operations.
Impact of Inflation
The consolidated financial statements presented herein have been prepared
in accordance with generally accepted accounting principles. These principles
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation.
Our primary assets and liabilities are monetary in nature. As a result,
interest rates have a more significant impact on our performance than the
effects of general levels of inflation. Interest rates, however, do not
necessarily move in the same direction or with the same magnitude as the price
of goods and services, since such prices are affected by inflation. In a period
of rapidly rising interest rates, the liquidity and maturities structures of our
assets and liabilities are critical to the maintenance of acceptable performance
levels.
The principal effect of inflation, as distinct from levels of interest
rates, on earnings is in the area of noninterest expense. Such expense items as
employee compensation, employee benefits and occupancy and equipment costs may
be subject to increases as a result of inflation. An additional effect of
inflation is the possible increase in the dollar value of the collateral
securing loans that we have made. We are unable to determine the extent, if any,
to which properties securing our loans have appreciated in dollar value due to
inflation.
Year 2000 Compliance
We are aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The bulk of
our records are maintained by a third-party data center. Our management is
closely monitoring the data center's progress in making their programs Year 2000
compliant. The current status indicates that the reprogramming will be completed
with sufficient lead time to allow adequate testing to ensure that they will
function appropriately in the Year 2000. In addition, our management is
confirming that plans have been developed internally or by other primary vendors
that will facilitate systems functioning properly in the Year 2000. We currently
expect to complete testing for Year 2000 compliance by the second quarter of
1999. We believe that our expenses related to upgrading our systems and software
for Year 2000 compliance will not exceed $300,000. At June 30, 1998, we had
spent approximately $100,000 in connection with Year 2000 compliance. Our
management does not consider the additional cost of these efforts to be
significant.
BUSINESS OF LINCOLN FEDERAL SAVINGS BANK
General
We were originally organized in 1884 as Ladoga Federal Savings and Loan
Association, located in Ladoga, Indiana. In 1979 we merged with Plainfield First
Federal Savings and Loan Association, a federal savings and loan association
located in Plainfield, Indiana which was originally organized in 1896. Following
the merger, we changed our name to Lincoln Federal Savings and Loan Association
and, in 1984, we adopted our current name, Lincoln Federal Savings Bank. We
currently conduct our business from four full-service offices located in
Hendricks, Montgomery and Clinton Counties, Indiana, with our main office
located in Plainfield. We expect to open a new office in Avon, Indiana in
December, 1998. Our principal business consists of attracting deposits from the
general public and originating fixed-rate and adjustable-rate loans secured
primarily by first mortgage liens on one- to four-family residential real
estate. Our deposit accounts are insured up to applicable limits by the SAIF of
the FDIC.
We offer a number of financial services, including: (i) one- to
four-family residential real estate loans; (ii) commercial real estate loans;
(iii) real estate construction loans; (iv) land loans; (v) multi-family
residential loans; (vi) consumer loans, including home equity loans; (vii)
commercial loans; (viii) land loans; (ix) money market demand accounts
("MMDAs"); (x) savings accounts; (xi) checking accounts; (xii) NOW accounts; and
(xiii) certificates of deposit.
Lending Activities
We have historically concentrated our lending activities on the
origination of loans secured by first mortgage liens for the purchase,
construction or refinancing of one- to four-family residential real property.
One- to four-family residential mortgage loans continue to be the major focus of
our loan origination activities, representing 77.1% of our total loan portfolio
at June 30, 1998. We also offer commercial real estate loans, real estate
construction loans and consumer loans. To a limited extent, we also offer
multi-family loans, land loans and commercial loans. Mortgage loans secured by
commercial real estate totaled approximately 7.0% of our total loan portfolio at
June 30, 1998. Real estate construction loans totaled approximately 3.7% of our
total loans as of June 30, 1998. Consumer loans, which consist primarily of home
equity and second mortgage loans, have increased significantly in the past two
years from $7.9 million, or 2.7% of our loan portfolio at December 31, 1995, to
$18.5 million, or 8.9% of our loan portfolio at June 30, 1998.
<PAGE>
Loan Portfolio Data. The following table sets forth the composition of our
loan portfolio (including loans held for sale) by loan type and security type as
of the dates indicated, including a reconciliation of gross loans receivable
after consideration of the allowance for loan losses and loans in process.
<TABLE>
<CAPTION>
At June 30, At December 31,
1998 1997 1996 1995
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
(Dollars in thousands)
TYPE OF LOAN Real estate mortgage loans:
One-to-four-family
<S> <C> <C> <C> <C> <C> <C> <C> <C>
residential (1)................$159,887 77.12% $205,976 81.03% $269,618 84.84% $248,947 84.48%
Multi-family..................... 1,048 .51 1,133 .45 1,111 .35 1,012 .34
Commercial real estate........... 14,457 6.97 14,914 5.87 14,830 4.66 15,727 5.34
Construction..................... 7,722 3.72 9,912 3.90 13,159 4.14 7,838 2.66
Land............................. 1,699 .82 1,455 .57 2,725 .86 9,877 3.35
Commercial.......................... 141 .07 242 .10 --- --- --- ---
Consumer loans:
Home equity and
second mortgages............... 18,525 8.93 17,218 6.77 13,239 4.17 7,858 2.67
Other............................ 3,849 1.86 3,340 1.31 3,124 .98 3,409 1.16
-------- ------ -------- ------ -------- ------ -------- ------
Gross loans receivable.........$207,328 100.00% $254,190 100.00% $317,806 100.00% $294,668 100.00%
======== ====== ======== ====== ======== ====== ======== ======
TYPE OF SECURITY
One-to-four-family
residential real estate (1)....$185,766 89.60% $232,966 91.65% $290,956 91.55% $264,142 89.64%
Multi-family real estate......... 1,048 .51 1,133 .45 1,111 .35 1,012 .34
Commercial real estate........... 14,825 7.15 15,054 5.92 19,890 6.26 16,229 5.51
Land............................. 1,699 .82 1,455 .57 2,725 .86 9,877 3.35
Deposits......................... 1,114 .54 1,106 .44 1,155 .37 995 .34
Auto............................. 2,150 1.04 2,041 .80 1,502 .47 1,690 .57
Other security................... 341 .16 426 .17 356 .11 611 .21
Unsecured ....................... 385 .18 9 -- 111 .03 113 .04
-------- ------ -------- ------ -------- ------ -------- ------
Gross loans receivable......... 207,328 100.00 254,190 100.00% 317,806 100.00 294,668 100.00
Deduct:
Allowance for loan losses........... 1,432 .69 1,361 .54 1,241 .39 1,121 .38
Deferred loan fees (1).............. 1,143 .55 1,690 .66 2,707 .85 2,854 .97
Loans in process.................... 2,071 1.00 2,504 .99 8,086 2.55 5,347 1.81
-------- ------ -------- ------ -------- ------ -------- ------
Net loans receivable.............$202,682 97.76% $248,635 97.81% $305,772 96.21% $285,346 96.84%
======== ====== ======== ====== ======== ====== ======== ======
Mortgage Loans:
Adjustable-rate.................. $74,809 36.79% $95,106 37.95% $117,062 37.20% $112,193 38.52%
Fixed-rate....................... 128,529 63.21 155,502 62.05 197,620 62.80 179,066 61.48
-------- ------ -------- ------ -------- ------ -------- ------
Total..........................$203,338 100.00% $250,608 100.00% $314,682 100.00% $291,259 100.00%
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
At December 31,
1994 1993
------------------ -------------------
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
TYPE OF LOAN Real estate mortgage loans:
One-to-four-family
residential (1)................ $228,489 83.78% $176,115 83.77%
Multi-family..................... 559 .20 857 .41%
Commercial real estate........... 12,780 4.69 12,249 5.83%
Construction..................... 19,343 7.09 8,610 4.09%
Land............................. 1,435 .53 5,343 2.54%
Commercial.......................... --- --- --- ---%
Consumer loans:
Home equity and
second mortgages............... 7,018 2.57 5,355 2.55%
Other............................ 3,108 1.14 1,713 .81%
-------- ------ -------- ------
Gross loans receivable......... $272,732 100.00% $210,242 100.00%
======== ====== ======== ======
TYPE OF SECURITY
One-to-four-family
residential real estate (1).... $253,150 92.82% $190,080 90.41%
Multi-family real estate......... 559 .21 857 .41%
Commercial real estate........... 14,480 5.31 12,249 5.83%
Land............................. 1,435 .53 5,343 2.54%
Deposits......................... 959 .35 591 .28%
Auto............................. 1,635 .60 926 .44%
Other security................... 392 .14 72 .03%
Unsecured ....................... 122 .04 124 .06%
-------- ------ -------- ------
Gross loans receivable......... 272,732 100.00 210,242 100.00%
Deduct:
Allowance for loan losses........... 1,047 .39 1,056 .50%
Deferred loan fees (1).............. 2,703 .99 2,116 1.01%
Loans in process.................... 8,728 3.20 9,216 4.38%
-------- ------ -------- ------
Net loans receivable............. $260,254 95.42% $197,854 94.11%
======== ====== ======== ======
Mortgage Loans:
Adjustable-rate..................$ 84,365 31.29% $ 51,757 24.82%
Fixed-rate....................... 185,259 68.71 156,722 75.18%
-------- ------ -------- ------
Total.......................... $269,624 100.00% $208,479 100.00%
======== ====== ======== ======
(1) Net loans held for sale included in the above categories amounted to
$19,264,000, $24,201,000, $15,534,000, $16,141,000 and $8,779,000 at June
30, 1998 and December 31, 1996, 1995, 1994, and 1993, respectively. There
were no loans held for sale at December 31, 1997.
<PAGE>
The following table sets forth certain information at December 31,
1997, regarding the dollar amount of loans maturing in our loan portfolio based
on the contractual terms to maturity. Demand loans having no stated schedule of
repayments and no stated maturity and overdrafts are reported as due in one year
or less. This schedule does not reflect the effects of possible prepayments or
enforcement of due-on-sale clauses. Management expects prepayments will cause
actual maturities to be shorter.
<TABLE>
<CAPTION>
Balance Due During Years Ended December 31,
Outstanding at 2001 2003 2008 2013
December 31, to to to and
1997 1998 1999 2000 2002 2007 2012 following
(In thousands)
Real estate mortgage loans:
One- to four-family
<S> <C> <C> <C> <C> <C> <C> <C> <C>
residential loans................ $205,976 $ 180 $ 71 $ 304 $2,847 $16,336 $43,541 $142,697
Multi-family loans.................... 1,133 67 --- --- 76 131 687 172
Commercial real estate loans....... 14,914 4,796 253 415 195 2,952 3,917 2,386
Construction loans................. 9,912 7,137 2,666 109 --- --- --- ---
Land loans......................... 1,455 1,190 265 --- --- --- --- ---
Commercial......................... 242 87 16 56 83 --- --- ---
Consumer loans:
Installment loans................. 2,234 100 303 506 1,279 37 9 ---
Loans secured by deposits.......... 1,106 517 504 14 71 --- --- ---
Home equity loans and
and second mortgages............. 17,218 1,218 393 250 1,103 14,254 --- ---
Total consumer loans............. 20,558 1,835 1,200 770 2,453 14,291 9 ---
-------- ------- ------ ------ ------ ------- ------- --------
Total.......................... $254,190 $15,292 $4,471 $1,654 $5,654 $33,710 $48,154 $145,255
======== ======= ====== ====== ====== ======= ======= ========
</TABLE>
The following table sets forth, as of December 31, 1997, the dollar
amount of all loans due after one year that have fixed interest rates and
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Due After December 31, 1998
Fixed Rates Variable Rates Total
----------- -------------- -----
(In thousands)
Real estate mortgage loans:
<S> <C> <C> <C>
One- to four-family residential loans............. $132,186 $73,610 $205,796
Multi-family loans................................ 321 745 1,066
Commercial real estate loans...................... 6,626 3,492 10,118
Construction loans................................... 2,775 --- 2,775
Land loans........................................ 265 --- 265
Commercial........................................... 155 --- 155
Installment loans.................................... 2,134 --- 2,134
Loans secured by deposits............................ 589 --- 589
Home equity loans and second mortgages............... 5,080 10,920 16,000
-------- ------- --------
Total............................................. $150,131 $88,767 $238,898
======== ======= ========
</TABLE>
One- to Four-Family Residential Loans. Our primary lending activity
consists of the origination of one- to four-family residential mortgage loans
secured by property located in our primary market area. We generally do not
originate one- to four-family residential mortgage loans if the ratio of the
loan amount to the lesser of the current cost or appraised value of the property
(the "Loan-to-Value Ratio") exceeds 95%. We require private mortgage insurance
on loans with a Loan-to-Value Ratio in excess of 80%. The cost of such insurance
is factored into the annual percentage rate on such loans.
In the past, our underwriting criteria for one- to four-family
residential loans focused heavily on the value of the collateral securing the
loan and placed less emphasis on the borrower's debt servicing capacity and
other credit factors. We are currently revising our lending policies to
emphasize factors other than the value of the underlying collateral, such as the
income, debt-to-income ratio, stability of earnings and past credit history of a
potential borrower, in making credit decisions. We have also recently
established uniform underwriting criteria to be used by each of our branch
offices which are based on the Freddie Mac lending criteria. We originate
fixed-rate loans which provide for the payment of principal and interest over a
period of up to 30 years.
We also offer adjustable-rate mortgage ("ARM") loans pegged to the
one-year U.S. Treasury securities yield adjusted to a constant maturity. We no
longer offer adjustable rate COFI loans because that index adjusts less rapidly
to changes in interest rates compared to other indices. We may offer discounted
initial interest rates on ARM loans, but we require that the borrower qualify
for the loan at the fully-indexed rate (the index rate plus the margin). A
substantial portion of the ARM loans in our portfolio at June 30, 1998 provide
for maximum rate adjustments per year and over the life of the loan of 2% and
6%, respectively. Our residential ARMs are amortized for terms up to 30 years.
Although we would generally prefer to originate mortgage loans that have
adjustable rather than fixed interest rates, the current low-interest rate
environment has reduced borrower demand for ARM loans.
In two separate transactions in August, 1997 and April, 1998, we
securitized approximately $41.1 million of the COFI loans in our portfolio and
sold the resulting mortgage-backed securities on the secondary market. In June,
1998 we sold in a direct, whole-loan sale to a private investor an additional
$19.3 million of COFI loans. Because this loan sale did not close until the
third quarter of 1998, these loans are reflected as "Loans held for sale" in the
June 30, 1998 financial statements. Following the closing of this whole-loan
sale, the amount of COFI loans in our portfolio was reduced to $4.8 million. We
also pooled $75.0 million of fixed-rate one- to four-family residential loans
into Freddie Mac mortgage-backed securities. We sold on the secondary market
$34.3 million of these securities which were backed by lower-yielding,
fixed-rate loans. We continue to hold in our investment portfolio $40.7 million
of these securities that are backed by higher-yielding, fixed-rate mortgage
loans that we originated. See "Management Discussion and Analysis of Lincoln
Federal Savings Bank and Subsidiary - Asset/Liability Management."
With the exception of the loans that were securitized during 1997 and
1998 and in the whole-loan sale in 1998, we determine when we originate a one-
to four-family residential loan whether we intend to hold the loan until
maturity or sell it in the secondary market. We generally sell on the secondary
market all of the fixed-rate loans that we originate with terms of more than 15
years that are written to Freddie Mac standards and retain in our loan portfolio
any loans that we originate that are not written to Freddie Mac standards. We
retain the servicing rights on the loans that we sell.
ARM loans decrease the risk associated with changes in interest rates
by periodically repricing, but involve other risks because, as interest rates
increase, the underlying payments by the borrower also increase, thus increasing
the potential for default by the borrower. At the same time, the marketability
of the underlying collateral may be adversely affected by higher interest rates.
Upward adjustment of the contractual interest rate is also limited by the
maximum periodic and lifetime interest rate adjustment permitted by the loan
documents, and, therefore, is potentially limited in effectiveness during
periods of rapidly rising interest rates. At June 30, 1998, approximately 33.4%
of our one- to four-family residential loans had adjustable rates of interest.
All of the one- to four-family residential mortgage loans that we
originate include "due-on-sale" clauses, which give us the right to declare a
loan immediately due and payable in the event that, among other things, the
borrower sells or otherwise disposes of the real property subject to the
mortgage and the loan is not repaid. However, we occasionally permit assumptions
of existing residential mortgage loans on a case-by-case basis.
At June 30, 1998, approximately $159.9 million, or 77.1% of our
portfolio of loans, consisted of one- to four-family residential loans.
Approximately $808,000, or .5% of total residential loans, were included in
non-performing assets as of that date. See "--Non-Performing and Problem
Assets."
Commercial Real Estate and Multi-Family Loans. Our commercial real
estate loans are secured by churches, warehouses, office buildings, hotels and
other commercial properties. We generally originate commercial real estate loans
as five-year balloon loans amortized over a 10- or 15-year period, with an
adjustable interest rate indexed primarily to the prime rate. At June 30, 1998
we had $2.9 million in outstanding balloon loans secured by commercial and
multi-family real estate. We generally require a Loan-to-Value ratio of at least
75% on commercial real estate loans, although we may make loans with a
Loan-to-Value of up to 80% on loans secured by owner-occupied commercial real
estate or by multi-family residential properties.
Commercial real estate loans generally are larger than one- to
four-family residential loans and involve a greater degree of risk. Commercial
real estate loans often involve large loan balances to single borrowers or
groups of related borrowers. Payments on these loans depend to a large degree on
results of operations and management of the properties and may be affected to a
greater extent by adverse conditions in the real estate market or the economy in
general. Accordingly, the nature of the loans makes them more difficult for
management to monitor and evaluate. In addition, balloon loans may involve a
greater degree of risk to the extent the borrower is unable to obtain financing
or cannot repay the loan when the loan matures and the balloon payment is due.
At June 30, 1998 our largest commercial real estate borrower had loans
outstanding in the aggregate amount of $2.2 million which were secured by motels
located throughout Central Indiana. Also as of that date, our largest commercial
real estate loan had an outstanding balance of $1,357,000 and was secured by a
church located in Plainfield, Indiana. At June 30, 1998, approximately $14.5
million, or 7.0% of our total loan portfolio, consisted of commercial real
estate loans. On the same date, there were no commercial real estate loans
included in non-performing assets. Following the Conversion, we generally intend
to increase the amount of commercial real estate loans in our portfolio.
At June 30, 1998, approximately $1 million, or .5% of our total loan
portfolio, consisted of mortgage loans secured by multi-family dwellings (those
consisting of more than four units). We write multi-family loans on terms and
conditions similar to our commercial real estate loans. The largest multi-family
loan as of June 30, 1998 was $351,000 and was secured by an apartment building
in Clayton, Indiana. On the same date, there were no multi-family loans included
in non-performing assets.
Multi-family loans, like commercial real estate loans, involve greater
risk than do residential loans. Also, the loans-to-one-borrower limitation
limits our ability to make loans to developers of apartment complexes and other
multi-family units.
Construction Loans. We offer construction loans for the acquisition and
development of residential and nonresidential real estate and to builders of
one- to four-family residential properties. A significant portion of these loans
are made on a speculative basis (i.e., before the builder/developer obtains a
commitment from a buyer). At June 30, 1998, approximately $7.7 million, or 3.7%
of our total loan portfolio, consisted of construction loans. Of these loans,
approximately $3.4 million were for the acquisition and development of
residential housing developments and $4.0 million financed the construction of
one-to four-family residential properties. As of June 30, 1998, our largest
construction loan relationship and largest construction loan had a balance of
$1.2 million on June 30, 1998 and was secured by a residential housing
development located in Avon, Indiana. As of June 30, 1998, this loan was
peforming according to its terms. Also on that date, construction loans in the
amount of $808,000 were included in non-performing assets.
Construction loans on residential properties where the borrower has
entered into a verifiable sales contract to a non-related party to purchase the
completed home may be made with a maximum Loan-to-Value ratio of the lesser of
90% of the price stipulated in the sales contract or 80% of the appraised value
of the property. With respect to residential properties constructed on a
speculative basis, we generally require a Loan-to-Value ratio of 75% of the "as
completed" appraised value of the property. Although speculative loans make up a
significant percentage of our construction loan portfolio, we generally will
finance only one speculative construction project per builder. Residential
construction loans are generally written with a fixed rate of interest and for
an initial term of six months. We generally offer construction loans on
commercial land development projects with a maximum Loan-to-Value ratio of 75%
of the appraised value of the property or 80% of the property's cost plus 80% of
the cost of verifiable improvements to the property. Construction loans on
commercial real estate properties are generally written for a term not to exceed
30 months.
While providing a comparable, and in some cases higher, yield than a
conventional mortgage loan, construction loans involve a higher level of risk.
For example, if a project is not completed and the borrower defaults, we may
have to hire another contractor to complete the project at a higher cost. Also,
a project may be completed, but may not be salable, resulting in the borrower
defaulting and requiring that we take title to the project.
Land Loans. At June 30, 1998, approximately $1.7 million, or .8% of our
total loan portfolio, consisted of mortgage loans secured by undeveloped real
estate. We impose a maximum Loan-to-Value ratio of 65% of the appraised value of
the land or 90% of the cost of the undeveloped land for pre-development land
acquisition loans. We write these loans for a maximum term of 12 months. At June
30, 1998, our largest land loan totaled $416,000 and was secured by bare land
located in Plainfield, Indiana.
Land loans present greater risk than conventional loans since land
development borrowers who are over budget may divert the loan funds to cover
cost-overruns rather than direct them toward the purpose for which such loans
were made. In addition, land loans are more difficult to monitor than
conventional mortgage loans. As such, a defaulting borrower could cause us to
take title to partially improved land that is unmarketable without further
capital investment.
Consumer Loans. Our consumer loans consist of variable- and fixed-rate
home equity loans and lines of credit, automobile, recreational vehicle, boat
and motorcycle loans and loans secured by deposits. We do not make indirect
consumer loans. Consumer loans tend to have shorter terms and higher yields than
permanent residential mortgage loans. At June 30, 1998, our consumer loans
aggregated approximately $22.4 million, or 10.8% of our total loan portfolio.
Included in consumer loans at June 30, 1998 were $12.6 million of variable-rate
home equity lines of credit. These variable-rate loans improve our exposure to
interest rate risk.
Our home equity lines of credit and fixed-term loans are generally
written for up to 95% of the available equity (the appraised value of the
property less any first mortgage amount) if we hold the first mortgage, and up
to 90% of the available equity if we do not hold the first mortgage. Our home
equity loans increased significantly from $7.9 million at December 31, 1995 to
$18.5 million at June 30, 1998, primarily as the result of a marketing campaign
directed at our existing customers. We generally will write automobile loans for
up to 100% of the acquisition price for a new automobile and up to the NADA
retail value for a used automobile. New car loans are written for terms of up to
60 months and used car loans are written for terms up to 48 months, depending on
the age of the car. Loans for recreational vehicles and boats are written for no
more than 80% of the purchase price or "verified value," whichever is less, for
a maximum term of 120 months and 84 months, respectively. Motorcycles loans are
written for no more than 75% of the purchase price or "verified value" with a
term not to exceed 48 months. All of our consumer loans have a fixed rate of
interest except for home equity lines of credit, which are offered at a variable
rate. At June 30, 1998, consumer loans in the amount of $27,000 were included in
non-performing assets.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans that are unsecured or are secured by
rapidly depreciable assets, such as automobiles. Further, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance. In addition, consumer loan
collections depend on the borrower's continuing financial stability, and thus
are more likely to be affected by adverse personal circumstances. Furthermore,
the application of various federal and state laws, including bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans. See
"- Non-Performing and Problem Assets." There can be no assurances that
additional delinquencies will not occur in the future.
Commercial Loans. We offer commercial loans, which consist primarily of
loans to businesses that are secured by assets other than real estate. As of
June 30, 1998, commercial loans amounted to $141,000. Commercial loans tend to
bear somewhat greater risk than residential mortgage loans, depending on the
ability of the underlying enterprise to repay the loan. Although commercial
loans have not historically comprised a large portion of our loan portfolio, we
intend to increase the amount of loans we make to small businesses in the future
in order to increase our rate of return and diversify our portfolio. As of June
30, 1998, none of our commercial loans were included in nonperforming assets.
Origination, Purchase and Sale of Loans. Historically, we have confined
our loan origination activities primarily to Hendricks, Montgomery and Clinton
Counties. At June 30, 1998, we did not have any mortgage loans secured by
property located outside of Indiana. Our loan originations are generated from
referrals from existing customers, real estate brokers, and newspaper and
periodical advertising. Loan applications are currently underwritten and
processed at our offices in Hendricks, Montgomery and Clinton counties, although
we intend to centralize the underwriting function in our main office in
Plainfield in the near future.
Our loan approval process is intended to assess the borrower's ability
to repay the loan, the viability of the loan and the adequacy of the value of
the property that will secure the loan. To assess the borrower's ability to
repay, we study the employment and credit history and information on the
historical and projected income and expenses of our mortgagors.
We generally require appraisals on all real property securing our
first-mortgage loans and require an attorney's opinion and a valid lien on the
mortgaged real estate. Appraisals for all real property securing first-mortgage
loans are performed by independent appraisers who are state-licensed. We require
fire and extended coverage insurance in amounts at least equal to the principal
amount of the loan and also require flood insurance to protect the property
securing our interest if the property is in a flood plain. We also generally
require private mortgage insurance for all residential mortgage loans with
Loan-to-Value Ratios of greater than 80%. We generally require escrow accounts
for insurance premiums and taxes for residential mortgage loans that we
originate.
Our underwriting standards for consumer loans are intended to protect
against some of the risks inherent in making consumer loans. Borrower character,
paying habits and financial strengths are important considerations.
We occasionally purchase participation interests in loans originated by
other financial institutions in order to diversify our portfolio, supplement
local loan demand and to obtain more favorable yields. The participations that
we purchase normally represent a portion of residential or commercial real
estate loans originated by other Indiana financial institutions, most of which
are secured by property located in Indiana. As of June 30, 1998, however, we had
only $145,000 in loan participations in our asset portfolio.
The following table shows loan origination and repayment activity for
Lincoln Federal during the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands)
Gross loans receivable at
<S> <C> <C> <C> <C> <C>
beginning of period.............................$254,190 $317,806 $317,806 $294,668 $272,732
-------- -------- -------- -------- --------
Loans Originated:
Real estate mortgage loans:
One-to-four family loans (1)................ 24,491 24,354 44,472 54,396 46,754
Multi-family loans.......................... 68 140 259
Commercial real estate loans................ 2,472 1,734 6,608 3,033 5,650
Construction loans.......................... 3,347 3,738 10,411 15,640 19,515
Land loans.................................. 580 680 3,053 6,227 2,888
Commercial loans.............................. --- --- 242 --- ---
Consumer loans................................ 7,805 4,839 12,432 14,303 2,880
-------- -------- -------- -------- --------
Total originations........................ 38,695 35,345 77,286 93,739 77,946
Purchases (sales) of participation loans, net...... (47,666) (78,887) (4,681) (7,786)
Reductions:
Repayments and other deductions............... 37,694 22,783 61,904 65,818 48,157
Transfers from loans to real estate owned..... 197 --- 111 102 67
-------- -------- -------- -------- --------
Total reductions............................ 37,891 22,783 62,015 65,920 48,224
-------- -------- -------- -------- --------
Total gross loans receivable at
end of period...........................$207,328 $330,368 $254,190 $317,806 $294,668
======== ======== ======== ======== ========
</TABLE>
(1) Includes certain home equity loans.
Our total loan originations during the period ended June 30, 1998
totaled $38.7 million, compared to $35.3 million during the period ended June
30, 1997. For the year ended December 31, 1997, our loan originations totaled
$77.3 million, compared to $93.7 million and $77.9 million in the years ended
December 31, 1996 and 1995, respectively.
Origination and Other Fees. We realize income from late charges,
checking account service charges, loan servicing fees and fees for other
miscellaneous services. Late charges are generally assessed if a loan payment is
not received within a specified number of days after it is due. The grace period
depends on the individual loan documents. We also receive a loan servicing fee
of 1/4% on fixed-rate loans and 3/8% on ARM loans that we service for others.
Non-Performing and Problem Assets
After a mortgage loan becomes 10 days past due, we deliver a
delinquency notice to the borrower. When loans are 30 to 60 days in default, we
send additional delinquency notices and make personal contact by telephone with
the borrower to establish acceptable repayment schedules. When loans become 60
days in default, we again contact the borrower, this time in person, to
establish acceptable repayment schedules. When a mortgage loan is 90 days
delinquent, we will have either entered into a workout plan with the borrower or
referred the matter to our attorney for collection. Management is authorized to
commence foreclosure proceedings for any loan upon making a determination that
it is prudent to do so.
We review mortgage loans on a regular basis and place one- to
four-family residential loans on a non-accrual status when they become 120 days
delinquent. Other loans are placed on a non-accrual status when they become 90
days delinquent. Generally, when loans are placed on a non-accrual status,
unpaid accrued interest is written off.
Non-performing Assets. At June 30, 1998, $1,741,000, or .6% of our
total assets, were non-performing (non-performing loans and non-accruing loans)
compared to $3,669,000, or 1.1%, of our total assets at December 31, 1997. At
June 30, 1998, residential loans accounted for $808,000 of our non-performing
assets. We had real estate owned ("REO") properties in the amount of $98,000 as
of June 30, 1998.
The table below sets forth the amounts and categories of our
non-performing assets (non-performing loans, foreclosed real estate and troubled
debt restructurings) for the last three years. It is our policy that all earned
but uncollected interest on all loans be reviewed monthly to determine if any
portion thereof should be classified as uncollectible for any loan past due in
excess of 90 days. We deem any delinquent loan that is 90 days or more past due
to be a non-performing asset.
<TABLE>
<CAPTION>
At June 30, At December 31,
1998 1997 1996 1995
---- ---- ---- ----
(Unaudited) (Dollars in thousands)
Non-performing assets:
<S> <C> <C> <C> <C>
Non-performing loans................................ $1,601 $ 3,257 $ 2,397 $1,797
Troubled debt restructurings........................ 42 367 46 598
------ ------- ------ ------
Total non-performing loans........................ 1,643 3,624 2,443 2,395
Foreclosed real estate.............................. 98 45 75 ---
------ ------- ------ ------
Total non-performing assets....................... $1,741 $ 3,669 $2,518 $2,395
====== ======= ====== ======
Non-performing loans to total loans.................... .80% 1.45% .80% .83%
====== ======= ====== ======
Non-performing assets to total assets.................. .57% 1.14% .73% .75%
====== ======= ====== ======
</TABLE>
Interest income of $30,000 and $93,000 for the six months ended June
30, 1998 and the year ended December 31, 1997, respectively, was recognized on
the non-performing loans summarized above. Interest income of $80,000 and
$225,000 for the six months ended June 30, 1998 and the years ended December 31,
1997, respectively, would have been recognized under their original loan terms.
At June 30, 1998, we held loans delinquent from 30 to 89 days totalling
$5.1 million. As of that date, we were not aware of any other loans in which
borrowers were experiencing financial difficulties and were not aware of any
assets that would need to be disclosed as non-performing assets.
Our two largest non-performing loans at June 30, 1998 were made to
separate borrowers in connection with the development of residential
subdivisions in Plainfield and Danville. We have placed both loans on
non-accrual status. We originated the larger of the two loans in January, 1994
in the original amount of $1.2 million. The loan became delinquent in September,
1995, and as of June 30, 1998, the borrower owed $673,000. We have written this
amount down to $372,000 on our books, reflecting the market value of the
collateral less the estimated costs of foreclosing on the property. In addition,
we have established a reserve for this loan due to its classified status. We
have turned the collection of this loan over to our attorney and a foreclosure
action has been filed.
The other significant delinquent loan in our portfolio was originated
in September, 1993 in the original principal amount of $600,000. We extended an
additional loan for $295,000 to the same borrower in August, 1995. Both loans
became delinquent in September, 1996. As of June 30, 1998, the borrower owed an
aggregate amount of $435,000 on the two loans. We have continuously worked with
the borrower since the loans became delinquent to restructure the repayment
terms of the loans. We have not charged the loan off but have established a
reserve based on management's estimate of the value of the collateral. We have
not initiated foreclosure proceedings on this loan.
<PAGE>
Delinquent Loans. The following table sets forth certain information at
June 30, 1998, and at December 31, 1997, 1996, and 1995, relating to
delinquencies in our portfolio. Delinquent loans that are 90 days or more past
due are considered non-performing assets.
<TABLE>
<CAPTION>
At June 30, 1998 At December 31, 1997
--------------------------------------- --------------------------------------
30-89 Days 90 Days or More 30-89 Days 90 Days or More
------------------- ------------------- ------------------- ------------------
Principal Principal Principal Principal
Number Balance Number Balance Number Balance Number Balance
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
Residential
<S> <C> <C> <C> <C> <C> <C> <C> <C>
mortgage loans .. 99 4,707 19 766 140 6,040 26 1,228
Commercial
real estate loans 1 93 -- -- 1 100 1 367
Multi-family
mortgage loans .. -- -- -- -- -- -- -- --
Construction loans . -- -- 3 808 -- -- 3 1,214
Land loans ......... 1 6 -- -- -- -- -- --
Consumer loans ..... 20 258 2 27 29 379 20 448
--- ------ -- ------ --- ------ -- ------
Total ........... 121 $5,064 24 $1,601 170 $6,519 50 $3,257
=== ====== == ====== === ====== == ======
Delinquent loans to
total loans ..... 3.27% 3.91%
==== ====
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1995
-------------------------------------- -----------------------------------------
30-89 Days 90 Days or More 30-89 Days 90 Days or More
------------------ ------------------ ------------------ --------------------
Principal Principal Principal Principal
Number Balance Number Balance Number Balance Number Balance
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
-------- --------- -------- -------- -------- --------- -------- ---------
Residential
<S> <C> <C> <C> <C> <C> <C> <C> <C>
mortgage loans .. 143 6,613 11 797 156 6,598 12 452
Commercial
real estate loans 2 609 -- -- -- -- -- --
Multi-family
mortgage loans .. -- -- 4 1,594 -- -- -- --
Construction loans . -- -- -- -- -- -- 3 1,199
Land loans ......... 4 47 -- -- 1 152 -- --
Consumer loans ..... 7 39 1 6 10 188 8 146
--- ------ -- ----- --- ------ -- ------
Total ........... 156 $7,308 16 2,397 167 $6,938 23 $1,797
=== ====== == ===== === ====== == ======
Delinquent loans to
total loans ..... 3.16% 3.05%
==== ====
</TABLE>
Classified assets. Federal regulations and our Asset Classification
Policy provide for the classification of loans and other assets such as debt and
equity securities considered by the OTS to be of lesser quality as
"substandard," "doubtful" or "loss" assets. An asset is considered "substandard"
if it is inadequately protected by the current net worth and paying capacity of
the obligor or of the collateral pledged, if any. "Substandard" assets include
those characterized by the "distinct possibility" that the institution will
sustain "some loss" if the deficiencies are not corrected. Assets classified as
"doubtful" have all of the weaknesses inherent in those classified
"substandard," with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable." Assets classified
as "loss" are those considered "uncollectible" and of such little value that
their continuance as assets without the establishment of a specific loss reserve
is not warranted.
An insured institution is required to establish general allowances for
loan losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. General allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount. An institution's determination
as to the classification of its assets and the amount of its valuation
allowances is subject to review by the OTS which can order the establishment of
additional general or specific loss allowances.
We regularly review our loan portfolio to determine whether any loans
require classification in accordance with applicable regulations. Our classifed
assets are made up entirely of non-performing assets.
Allowance for Loan Losses
The allowance for loan losses is maintained through the provision for
loan losses, which is charged to earnings. The allowance for loan losses is
determined in conjunction with our review and evaluation of current economic
conditions (including those of our lending area), changes in the character and
size of the loan portfolio, loan delinquencies (current status as well as past
and anticipated trends) and adequacy of collateral securing loan delinquencies,
historical and estimated net charge-offs, and other pertinent information
derived from a review of the loan portfolio. In our opinion, our allowance for
loan losses is adequate to absorb probable losses inherent in the loan portfolio
at June 30, 1998. However, there can be no assurance that regulators, when
reviewing our loan portfolio in the future, will not require increases in our
allowances for loan losses or that changes in economic conditions will not
adversely affect our loan portfolio.
Summary of Loan Loss Experience. The following table analyzes changes
in the allowance during the past three fiscal years ended December 31, 1997, and
the six-month periods ended June 30, 1998, and June 30, 1997.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
1998 1997 1997 1996 1995
-------- --------- --------- ------- ------
(Unaudited) (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.............. $ 1,361 $ 1,241 $ 1,241 $ 1,121 $ 1,047
Charge-offs:
One- to four-family
residential mortgage loans........... (29) --- --- --- (15)
Commercial real estate mortgage loans.. --- --- (178) --- ---
Construction loans..................... (301) --- --- --- (12)
Consumer loans......................... (25) --- --- --- (2)
------ --------- --------- ------- ------
Total charge-offs.................... (355) --- (178) --- (29)
------ --------- --------- ------- ------
Recoveries.................................. --- --- --- --- ---
One- to four-family
residential mortgage loans........... 13 --- --- --- 3
Consumer loans......................... 3 --- --- --- ---
------ --------- --------- ------- ------
Total recoveries..................... 16 --- --- --- 3
------ --------- --------- ------- ------
Net charge-offs.......................... (339) --- (178) --- (26)
------ --------- --------- ------- ------
Provision for losses on loans............... 410 50 298 120 100
------ --------- --------- ------- ------
Balance end of period.................... $1,432 $ 1,291 $ 1,361 $ 1,241 $1,121
====== ========= ========= ======= ======
Allowance for loan losses as a percent of
total loans outstanding.................. 0.70% 0.40% 0.54% 0.40% 0.39%
Ratio of net charge-offs to average
loans outstanding........................ .15 --- .06 --- .01
</TABLE>
Allocation of Allowance for Loan Losses. The following table presents
an analysis of the allocation of our allowance for loan losses at the dates
indicated.
<TABLE>
<CAPTION>
At June 30, At December 31,
----------- ---------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category category category category
to total total to total to total total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Unaudited) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of
period applicable to:
Real estate mortgage loans:
One- to four-family
residential............. $605 77.12% $253 85.67% $401 81.78% $206 84.84% $ 77 84.48%
Multi-family.............. 10 .51 11 .33 11 .45 --- .35 --- .34
Commercial................ 217 6.97 517 3.63 221 5.88 468 4.66 214 5.34
Construction loans........ 195 3.72 219 3.17 249 3.14 367 4.14 402 2.66
Land loans................ 25 .82 39 1.17 15 .57 --- .86 --- 3.35
Commercial loans............ 2 .07 --- --- 11 .10 --- --- --- ---
Consumer loans.............. 339 10.79 252 6.03 268 8.08 98 5.15 72 3.83
Unallocated................. 39 --- --- --- 185 --- 102 --- 356
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total.......................$1,432 100.00% $1,291 100.00% $1,361 100.00% $1,241 100.00% $1,121 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Investments
Investments. During the third quarter of 1997, we adopted a revised
investment policy that authorizes us to invest in U.S. Treasury securities,
securities guaranteed by GNMA, securities issued by agencies of the U.S.
Government, mortgage-backed securities issued by Freddie Mac or FNMA and in
highly-rated mortgage-backed securities, collateralized mortgage obligations and
investment-grade corporate debt securities. This revised policy permits our
management to react quickly to market conditions. Most of the securities in our
portfolio are considered available-for-sale. At June 30, 1998, our investment
portfolio consisted of investments in Freddie Mac and FNMA mortgage-backed
securities, corporate securities, federal agency securities, FHLB stock, an
investment in Pedcor Investments - 1987 - I, L.P., an investment in Bloomington
Housing Associates, L.P., and an investment in an insurance company. See
"-Investments in Multi-Family, Low- and Moderate-Income Housing Projects" and
"Service Corporation Subsidiary." At June 30, 1998, approximately $70.3 million,
or 23.1%, of our total assets consisted of such investments. We also had $20.7
million in interest-earning deposits with the FHLB-Indianapolis as of that date.
As of that date, we also had pledged to the FHLB-Indianapolis as collateral
investment securities with a carrying value of $47.6 million, including $44.1
million in mortgage-backed securities and $3.5 million in other securities.
Investment Securities. The following table sets forth the amortized
cost and the market value of our investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
At June 30, At December 31,
1998 1997 1996 1995
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- ----- ---- -----
(Unaudited) (In thousands)
Investment securities available for sale:
Mortgage-backed securities......... $43,206 $44,112(1) $28,495 $29,399 --- --- --- ---
Corporates......................... 14,828 14,828 --- --- --- --- --- ---
Federated liquid cash fund......... --- --- --- --- $ 17 $ 17 $ 16 $ 16
Freddie Mac stock................... --- --- -- --- 100 101 100 100
------ ------ ------ ------ --- --- --- ---
Total investment securities
available for sale.............. 58,034 58,940 28,495 29,399 117 118 116 116
Investment securities
held to maturity--
Federal agency securities......... 3,500 3,509 9,635 9,615 15,185 14,997 11,600 11,591
------ ------ ------ ------ --- --- --- ---
Total investment securities......... 61,534 62,499 38,130 39,014 15,302 15,115 11,716 11,707
Investment in limited partnerships.. 2,633 (1) 2,706 (1) 3,187 (1) 3,583 (1)
Investment in insurance company..... 650 (1) --- --- --- --- --- ---
FHLB stock (2)...................... 5,447 5,447 5,447 5,447 4,797 4,797 4,300 4,300
------- ------- ------- -------
Total investments................... $70,264 $46,283 $23,286 $19,599
======= ======= ======= =======
(1) Market values are not available
(2) Market value is based on the price at which the stock may be resold to
the FHLB of Indianapolis.
The following table sets forth the amount of investment securities
excluding mortgage-backed securities which mature during each of the periods
indicated and the weighted average yields for each range of maturities at June
30, 1998.
Amount at June 30, 1998 which matures in
One Year One Year After
or Less to Five Years Ten Years
------- ------------- ---------
Amortized Average Amoritzed Average Amortized Average
Cost Yield Cost Yield Cost Yield
---- ----- ---- ----- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Corporates securities -- available for sale..... $ --- ---% $ --- ---% $14,828 6.41%
Federal agency securities -- held to maturity... 1,250 5.77 2,250 6.04 --- ---
------ ---- ------ ---- ------- ----
$1,250 5.77% $2,250 6.04% $14,828 6.41%
====== ==== ====== ==== ======= ====
</TABLE>
At June 30, 1998, our corporate investments included securities of two
issuers with an aggregate book value in excess of 10% of our equity capital as
follows:
Issuer Book Value Market Value
- ------ ---------- ------------
Huntington Bancshares, Inc. $4,969 $4,969
KeyCorp 4,972 4,972
Mortgage-backed Securities. The following table sets forth the
composition of our mortgage-backed securities portfolio at June 30, 1998 and
December 31, 1997. There were no mortgage-backed securities outstanding at
December 31, 1996 and 1995.
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
Amortized Percent Market Amortized Percent Market
Cost of Total Value Cost of Total Value
---- -------- ----- ---- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation $36,416 84.3% $37,264 $20,997 73.7% $21,859
Federal National
Mortgage Corporation 6,790 15.7 6,848 7,498 26.3 7,540
------- ----- ------- ------- ----- -------
Total mortgage-backed
securities $43,206 100.0% $44,112 $28,495 100.0% $29,399
======= ===== ======= ======= ===== =======
</TABLE>
All mortgage-backed securities outstanding at June 30, 1998 and
December 31, 1997 mature after ten years and have a weighted average yield of
7.34% and 7.72%, respectively.
The following table sets forth the changes in our mortgage-backed
securities portfolio for the six-month period ended June 30, 1998 and for the
year ended December 31, 1997. There were no mortgage-backed securities
outstanding during the six months ended June 30, 1997 or during the years ended
December 31, 1996 and 1995.
<TABLE>
<CAPTION>
For the Six Months Ended For the Year Ended
June 30, 1998 December 31, 1997
------------------------ ------------------
(Dollars in thousands)
<S> <C> <C>
Beginning balance $29,399 $ ---
Securitization of loans 39,729 76,455
Purchases 96 7,574
Monthly repayments (4,138) (1,237)
Proceeds from sales (21,081) (54,332)
Gains on sales 105 35
Change in unrealized gain on
securities available for sale 2 904
------- -------
Ending balance $44,112 $29,399
======= =======
</TABLE>
Investments in Multi-Family, Low- and Moderate-Income Housing Projects. We
have an investment in Pedcor Investments - 1987 - I, L.P. ("Pedcor"), an Indiana
limited partnership that was organized to construct, own and operate a 208-unit
apartment complex in Indianapolis, Indiana (the "Pedcor Project"). The Pedcor
Project, which is operated as a multi-family, low- and moderate-income housing
project, has been completed and is performing as planned. At the inception of
the Pedcor Project in August, 1988, we committed to invest $2.7 million in
Pedcor. In January, 1998, we made our final payment pursuant to this commitment
and are no longer liable to contribute additional funds for the Pedcor Project.
We hold a separate investment in a multi-family, low- and
moderate-income housing project through our wholly-owned subsidiary, LF Service
Corp. ("LF"). LF has invested in Bloomington Housing Associates, L.P. ("BHA"),
which is an Indiana limited partnership that was organized to construct, own and
operate a 130-unit apartment complex in Bloomington, Indiana (the "BHA
Project"). Development of the BHA Project has been completed and the project is
performing as planned. LF committed to invest approximately $4.9 million in BHA
at the inception of the Bloomington Project in August, 1992. Through June 30,
1998, LF had invested cash of approximately $2.7 million in BHA with five
additional annual capital contributions remaining to be paid in January of each
year through January, 2003, totaling $2.2 million.
A low- and moderate-income housing project qualifies for certain
federal income tax credits if (i) it is a residential rental property, (ii) the
units are used on a nontransient basis, and (iii) 20% or more of the units in
the project are occupied by tenants whose incomes are 50% or less of the area
median gross income, adjusted for family size, or alternatively, at least 40% of
the units in the project are occupied by tenants whose incomes are 60% or less
of the area median gross income. Qualified low income housing projects generally
must comply with these and other rules for fifteen years, beginning with the
first year the project qualified for the tax credit, or some or all of the tax
credit together with interest may be recaptured. The tax credit is subject to
the limitations on the use of general business credit, but no basis reduction is
required for any portion of the tax credit claimed. As of June 30, 1998, 77% of
the units in the Pedcor Project and 95% of the units in the Bloomington Project
were occupied, and all of the tenants met the income test required for the tax
credits.
We have received tax credits of $121,000 and $300,000 from the operation
of the Pedcor Project and $178,000 and $355,000 from the operation of the
Bloomington Project for the six months ended June 30, 1998 and for the year
ended December 31, 1997, respectively. The tax credits from the Pedcor Project
will be available to us through 1999 and the tax credits from the BHA project
will be available through 2012. Although we have reduced income tax expense by
the full amount of the tax credit available each year, we have not been able to
fully utilize available tax credits to reduce income taxes payable because we
may not use tax credits that would reduce our regular corporate tax liability
below our alternative minimum tax liability. We may carry forward unused tax
credits for a period of fifteen years and we believe that we will be able to
utilize available tax credits during the carry-forward period. Additionally,
Pedcor and BHA have incurred operating losses in the early years of their
operations primarily due to accelerated depreciation of assets. Lincoln Federal
has accounted for its investment in Pedcor, and LF has accounted for its
investment in BHA, on the equity method. Accordingly, Lincoln Federal and LF
have each recorded their share of these losses as reductions to their
investments in Pedcor and BHA, respectively. At June 30, 1998, our investment in
Pedcor was $77,000 and LF's investment in BHA was $2.6 million.
The following summarizes our equity in Pedcor's losses and tax credits and
LF's equity in BHA's losses and tax credits recognized in our consolidated
financial statements.
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
1998 1997 1996 1995
-------- ----- ------- -----
(In Thousands)
<S> <C> <C> <C> <C>
Investment in Pedcor........................ $ 77 $ 76 $ 153 $ 151
======== ===== ======= =====
Equity in losses, net
of income tax effect..................... $ (117) $(167) $ (120) $(598)
Tax credit.................................. 121 300 300 300
-------- ----- ------- -----
Increase in after-tax net income from
Pedcor investment........................ $ 4 $ 133 $ 180 $(298)
======== ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
1998 1997 1996 1995
(In Thousands)
<S> <C> <C> <C> <C>
Investment in BHA........................... $2,555 $2,630 $3,034 $3,433
====== ====== ====== ======
Equity in losses, net
of income tax effect..................... $ (45) $ (244) $ (240) $ (366)
Tax credit.................................. 178 355 355 355
------ ------- ------- -------
Increase in after-tax net income from
BHA investment........................... $ 133 $ 111 $ 115 $ (11)
====== ======= ======= =======
</TABLE>
Sources of Funds
General. Deposits have traditionally been our primary source of funds
for use in lending and investment activities. In addition to deposits, we derive
funds from scheduled loan payments, investment maturities, loan prepayments,
retained earnings, income on earning assets and borrowings. While scheduled loan
payments and income on earning assets are relatively stable sources of funds,
deposit inflows and outflows can vary widely and are influenced by prevailing
interest rates, market conditions and levels of competition. Borrowings from the
FHLB of Indianapolis have been used in the short-term to compensate for
reductions in deposits or deposit inflows at less than projected levels.
Deposits. We attract deposits principally from within Hendricks,
Montgomery and Clinton Counties through the offering of a broad selection of
deposit instruments, including fixed-rate passbook accounts, NOW accounts,
variable rate money market accounts, fixed-term certificates of deposit,
individual retirement accounts and savings accounts. We do not actively solicit
or advertise for deposits outside of Hendricks, Montgomery and Clinton Counties,
and substantially all of our depositors are residents of those counties. Deposit
account terms vary, with the principal differences being the minimum balance
required, the amount of time the funds remain on deposit and the interest rate.
We do not accept brokered deposits. Although we sometimes may bid for public
deposits, we held only $1.1 million of such funds, or .5% of our total deposits,
at June 30, 1998. We periodically run specials on certificates of deposit with
specific maturities.
We establish the interest rates paid, maturity terms, service fees and
withdrawal penalties on a periodic basis. Determination of rates and terms are
predicated on funds acquisition and liquidity requirements, rates paid by
competitors, growth goals, and applicable regulations. We rely, in part, on
customer service and long-standing relationships with customers to attract and
retain our deposits. We also closely price our deposits to the rates offered by
our competitors.
Approximately 72% of our deposits consist of certificates of deposit,
which generally have higher interest rates than other deposit products that we
offer. Certificates of deposit have increased 4.8% during the six-month period
ended June 30, 1998. Money market savings accounts represent nearly 14% of our
deposits and have grown 10.1% during the six-month period ended June 30, 1998.
We offer special rates on certificates of deposit with maturities that fit our
asset and liability strategies.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and other prevailing interest rates and
competition. The variety of deposit accounts that we offer has allowed us to
compete effectively in obtaining funds and to respond with flexibility to
changes in consumer demand. We have become more susceptible to short-term
fluctuations in deposit flows as customers have become more interest rate
conscious. We manage the pricing of our deposits in keeping with our
asset/liability management and profitability objectives. Based on our
experience, we believe that our savings accounts, NOW and MMDAs are relatively
stable sources of deposits. However, the ability to attract and maintain
certificates of deposit, and the rates we pay on these deposits, have been and
will continue to be significantly affected by market conditions.
An analysis of our deposit accounts by type, maturity, and rate at June
30, 1998, is as follows:
<TABLE>
<CAPTION>
Minimum Balance at Weighted
Opening June 30, % of Average
Type of Account Balance 1998 Deposits Rate
- --------------- ------- ---- -------- ----
(Unaudited)
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C>
Savings accounts........................................... $ 25 $20,609 9.76% 3.12%
Money market............................................... 1,000 28,631 13.56 4.89
NOW accounts............................................... 200 7,487 3.54 2.06
Non-interest bearing demand accounts....................... 200 1,394 .66 ---
Total withdrawable....................................... 58,121 27.52 3.78
Certificates (original terms):
3 months or less........................................... 1,000 407 .19 4.14
6 months................................................... 1,000 8,835 4.19 5.25
12 months.................................................. 1,000 27,605 13.07 5.34
18 months.................................................. 1,000 16,413 7.77 5.38
24 months.................................................. 1,000 9,375 4.44 5.84
30 months.................................................. 1,000 65,066 30.82 5.97
36 months ................................................. 1,000 11,124 5.27 5.76
60 months.................................................. 1,000 13,081 6.19 5.83
Public fund certificates...................................... 1,133 .54 5.46
Total certificates............................................ 153,039 72.48 5.71
-------- -----
Total deposits................................................ $211,160 100.0% 5.18
======== =====
</TABLE>
The following table sets forth by various interest rate categories the
composition of our time deposits at the dates indicated:
<TABLE>
<CAPTION>
At June 30, At December 31,
1998 1997 1996 1995
---------------------------------------------------------------------
(Unaudited) (In thousands)
<S> <C> <C> <C> <C>
4.00 to 4.99%............................... $15,013 $15,926 $14,672 $ 18,429
5.00 to 5.99%............................... 90,976 81,199 106,675 62,435
6.00 to 6.99%............................... 47,050 48,872 36,071 69,204
7.00 to 7.99%............................... --- --- --- 1,153
-------- -------- -------- --------
Total.................................... $153,039 $145,997 $157,418 $151,221
======== ======== ======== ========
</TABLE>
The following table represents, by various interest rate categories, the
amounts of time deposits maturing during each of the three years following June
30, 1998. Matured certificates, which have not been renewed as of June 30, 1998,
have been allocated based upon certain rollover assumptions.
<TABLE>
<CAPTION>
Amounts at June 30, 1998 Maturing In
One Year Two Three Greater Than
or Less Years Years Three Years
------- ----- ----- -----------
(In thousands)
<S> <C> <C>
4.00 to 4.99%......... $14,996 $ 6
5.00 to 5.99%......... 66,207 19,800 $3,674 $1,306
6.00 to 6.99%......... 30,365 10,854 3,916 1,915
-------- ------- ------ ------
Total.............. $111,568 $30,660 $7,590 $3,221
======== ======= ====== ======
</TABLE>
The following table indicates the amount of our other certificates of
deposit of $100,000 or more by time remaining until maturity as of June 30,
1998.
At June 30, 1998
Maturity Period (In thousands)
Three months or less.............................. $3,803
Greater than three months through six months...... 1,971
Greater than six months through twelve months..... 7,494
Over twelve months................................ 3,430
-------
Total........................................ $16,698
=======
<PAGE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposits that we offer at the dates indicated, and the
amount of increase or decrease in such deposits as compared to the previous
period.
<TABLE>
<CAPTION>
DEPOSIT ACTIVITY
Balance Increase Balance Increase
at (Decrease) at (Decrease)
June 30, % of from December 31, % of from
1998 Deposits 1997 1997 Deposits 1996
---- -------- ---- ---- -------- ----
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C> <C> <C>
Savings accounts.............................. $20,609 9.76% $(1,358) $21,967 10.78% $(7,747)
Money market accounts......................... 28,631 13.56 2,629 26,002 12.75 11,573
NOW accounts.................................. 7,487 3.54 (78) 7,565 3.71 (986)
Noninterest-bearing demand accounts........... 1,394 .66 (927) 2,321 1.14 1,610
-------- ------ ------ -------- ------ -------
Total withdrawable.......................... 58,121 27.52 266 57,855 28.38 4,450
Certificates (original terms):
91 days....................................... 407 .19 85 322 0.16 (212)
6 months...................................... 8,835 4.19 4,273 4,562 2.24 (1,657)
12 months..................................... 27,605 13.07 (2,108) 29,713 14.58 (26,010)
18 months..................................... 16,413 7.77 (1,473) 17,886 8.77 1,969
24 months..................................... 9,375 4.44 8,102 1,273 0.62 1,273
30 months..................................... 65,066 30.82 (624) 65,690 32.22 29,101
36 months .................................... 11,124 5.27 (126) 11,250 5.52 (11,192)
60 months..................................... 13,081 6.19 (1,090) 14,171 6.95 2,595
Public fund certificates......................... 1,133 .54 3 1,130 0.56 (7,288)
Other certificates............................... --- --- --- --- --- ---
-------- ------ ------ -------- ------ -------
Total certificates............................... 153,039 72.48 7,042 145,997 71.62 (11,421)
-------- ------ ------ -------- ------ -------
Total deposits................................... $211,160 100.00% $7,308 $203,852 100.00% $(6,971)
======== ====== ====== ======== ====== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Balance Increase Balance
at (Decrease) at
December 31, % of from December 31, % of
1996 Deposits 1995 1995 Deposits
---- -------- ---- ---- --------
Withdrawable:
<S> <C> <C> <C> <C> <C>
Savings accounts.............................. $29,714 14.09% $(3,593) $33,307 16.98%
Money market accounts......................... 14,429 6.84 11,244 3,185 1.62
NOW accounts.................................. 8,551 4.06 1,470 7,081 3.61
Noninterest-bearing demand accounts........... 711 0.34 (612) 1,323 0.68
-------- ------ ------- -------- ------
Total withdrawable.......................... 53,405 25.33 8,509 44,896 22.89
Certificates (original terms):
91 days....................................... 534 0.25 (2) 536 0.27
6 months...................................... 6,219 2.95 (58) 6,277 3.20
12 months..................................... 55,723 26.43 (6,791) 62,514 31.88
18 months..................................... 15,917 7.55 (1,517) 17,434 8.89
24 months..................................... --- --- --- --- ---
30 months..................................... 36,589 17.36 10,557 26,032 13.27
36 months .................................... 22,442 10.65 (1,202) 23,644 12.06
60 months..................................... 11,576 5.49 (795) 12,371 6.31
Public fund certificates......................... 8,418 3.99 6,046 2,372 1.21
Other certificates............................... --- --- (41) 41 0.02
-------- ------ ------- -------- ------
Total certificates............................... 157,418 74.67 6,197 151,221 77.11
-------- ------ ------- -------- ------
Total deposits................................... $210,823 100.00% $14,706 $196,117 100.00%
======== ====== ======= ======== ======
</TABLE>
<PAGE>
Total deposits at June 30, 1998 were approximately $211.2 million, compared to
approximately $196.1 million at December 31, 1995. Our deposit base depends
somewhat upon the manufacturing sector of Hendricks, Montgomery and Clinton
Counties. Although the manufacturing sector in these counties is relatively
diversified and does not significantly depend upon any industry, a loss of a
material portion of the manufacturing workforce could adversely affect our
ability to attract deposits due to the loss of personal income attributable to
the lost manufacturing jobs and the attendant loss in service industry jobs.
In the unlikely event of our liquidation after the Conversion, all
claims of creditors (including those of deposit account holders, to the extent
of their deposit balances) would be paid first followed by distribution of the
liquidation account to certain deposit account holders, with any assets
remaining thereafter distributed to the Holding Company as the sole shareholder
of Lincoln Federal. See "The Conversion - Principal Effects of Conversion -
Effect on Liquidation Rights."
Borrowings. We focus on generating high quality loans and then seeking
the best source of funding from deposits, investments or borrowings. At June 30,
1998, we had borrowings in the amount of $45.7 million from the FHLB of
Indianapolis which bear fixed and variable interest rates and which are due at
various dates through 2008. We are required to maintain eligible loans and
investment securities, including mortgage-backed securites, in our portfolio of
at least 160% of outstanding advances as collateral for advances from the FHLB
of Indianapolis. We also have available a $2 million line of credit with the
FHLB-Indianapolis. We do not anticipate any difficulty in obtaining advances
appropriate to meet our requirements in the future.
The following table presents certain information relating to our
borrowings at or for the six months ended June 30, 1998 and 1997 and at or for
the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
At or for the
Six Months At or for the Year
Ended June 30, Ended December 31,
1998 1997 1997 1996 1995
-----------------------------------------------------------------
(Dollars in thousands)
FHLB Advances:
<S> <C> <C> <C> <C> <C>
Outstanding at end of period......................... $45,686 $106,932 $70,136 $91,232 $81,936
Average balance outstanding for period............... 52,577 95,530 92,121 87,621 73,403
Maximum amount outstanding at any
month-end during the period..................... 70,136 106,932 106,932 93,932 81,936
Weighted average interest rate
during the period............................... 5.78% 5.56% 5.70% 5.57% 6.11%
Weighted average interest rate
at end of period................................ 5.60 5.65 5.71 5.49 5.85
Note payable to Bloomington.......................... 2,203 2,691 2,691 3,180 3,668
</TABLE>
Properties
The following table provides certain information with respect to
Lincoln Federal's offices as of June 30, 1998:
<TABLE>
<CAPTION>
Net Book
Value of
Property, Approximate
Description Owned or Year Total Furniture & Square
and Address leased Opened Deposits Fixtures (1) Footage
---------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<C> <C> <C> <C> <C>
1121 East Main Street Owned 1970 $90,200 $1,354 9,925
Plainfield, IN 46168
134 South Washington Street Owned 1962 56,100 474 9,340
Crawfordsville, IN 47933
1900 East Wabash Street Owned 1974 30,800 302 2,670
Frankfort, IN 46041
975 East Main Street Owned 1981 34,000 291 2,890
Brownsburg, IN 46112
</TABLE>
(1) Land and other capitalized costs associated with the future Avon,
Indiana branch totalled $417,000.
We own computer and data processing equipment which we use for
transaction processing, loan origination, and accounting. The net book value of
our electronic data processing equipment was approximately $123,000 at June 30,
1998.
We currently operate four automatic teller machines ("ATMs"), with one
ATM located at each of our branch offices. Our new branch in Avon will also
operate an ATM when it opens in January, 1999. Our ATMs participate in the
Cirrus(R) and MAC(R) networks.
We have also contracted for the data processing and reporting services
of On-Line Financial Services, Inc. in Oak Brook, Illinois. The cost of these
data processing services is approximately $38,000 per month.
We have also executed a Correspondent Services Agreement with the FHLB
of Indianapolis under which we receive item processing and other services for a
fee of approximately $3,400 per month.
Service Corporation Subsidiary
OTS regulations permit federal savings associations to invest in the
capital stock, obligations or other specified types of securities of
subsidiaries (referred to as "service corporations") and to make loans to such
subsidiaries and joint ventures in which such subsidiaries are participants in
an aggregate amount not exceeding 2% of the association's assets, plus an
additional 1% of assets if the amount over 2% is used for specified community or
inner-city development purposes. In addition, federal regulations permit
associations to make specified types of loans to such subsidiaries (other than
special purpose finance subsidiaries) in which the association owns more than
10% of the stock, in an aggregate amount not exceeding 50% of the association's
regulatory capital if the association's regulatory capital is in compliance with
applicable regulations. A savings association that acquires a non-savings
association subsidiary, or that elects to conduct a new activity within a
subsidiary, must give the FDIC and the OTS at least 30 days advance written
notice. The FDIC may, after consultation with the OTS, prohibit specified
activities if it determines such activities pose a serious threat to the SAIF.
Moreover, a savings association must deduct from capital, for purposes of
meeting the core capital, tangible capital and risk-based capital requirements,
its entire investment in and loans to a subsidiary engaged in activities not
permissible for a national bank (other than exclusively agency activities for
its customers or mortgage banking subsidiaries).
We currently own one subsidiary, LF, whose assets consist of an
investment in Family Financial Life Insurance Company ("Family Financial") and
in BHA. See "- Investments in Low- and Moderate-Income Housing Projects." LF
recently received regulatory approval to invest in Family Financial, an Indiana
stock insurance company. In May, 1998, LF acquired a 16.7% interest in Family
Financial for $650,000. The remaining interests are held in equal amounts by
service corporations of five other financial institutions, four of which are
located in Indiana and one in South Carolina. Fifty percent of the common stock
of Family Financial is held by Corporation Partners, a Louisiana general
partnership in which the six participating service corporations own equal
interests. The service corporations directly own, in equal amounts, the
remaining 50% of the common stock of Family Financial.
Family Financial primarily engages in retail sales of mortgage and
credit insurance products in connection with loans originated by its constituent
shareholder financial institutions. Products offered by Family Financial include
group and individual term mortgage life insurance, group mortgage disability
insurance, group accidental death insurance, group credit life insurance, and
group credit accident and disability insurance policies. Family Financial also
markets a variety of tax-deferred annuity contracts which are wholly reinsured
by other insurance companies. LF expects to receive (1) dividends paid on Family
Financial shares owned directly by it, (2) a pro rata allocation of dividends
received on shares held by Consortium Partners, which are divided among the
partners based on the actuarially determined value of Family Financial's various
lines of insurance generated by customers of these partners, and (3) commissions
on sales of insurance products made to customers. For the period ended June 30,
1998, Lincoln Federal did not receive any income from commissions and dividends
paid on Family Financial activities.
Employees
As of June 30, 1998, we employed 75 persons on a full-time basis and 3
on a part-time basis. None of our employees is represented by a collective
bargaining group and we consider our employee relations to be good.
Employee benefits for our full-time employees include, among other
things, a Pentegra Group (formerly known as Financial Institutions Retirement
Fund) defined benefit pension plan, which is a noncontributory,
multiple-employer comprehensive pension plan (the"Pension Plan"), and
hospitalization/major medical insurance, long-term disability insurance, life
insurance, and participation in the Lincoln Federal 401(k) Plan, which is
administered by Pentegra Group.
We consider our employee benefits to be competitive with those offered
by other financial institutions and major employers in our area. See "Executive
Compensation and Related Transactions of Lincoln Federal."
Legal Proceedings
Although we are involved, from time to time, in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which we presently are a party or to which any of our property is
subject.
MANAGEMENT OF LINCOLN BANCORP
Directors and Executive Officers of the Holding Company
The Board of Directors of the Holding Company consists of the same
individuals who serve as directors of Lincoln Federal. The Holding Company's
Articles of Incorporation and Bylaws require that directors be divided into
three classes, as nearly equal in number as possible. Each class of directors
serves for a three-year period, with approximately one-third of the directors
elected each year. The Holding Company's officers will be elected annually by
its Board of Directors and will serve at the Board's discretion. The terms of
the present directors expire at the Holding Company's first shareholders'
meeting, which is anticipated to be held in June, 1999. At that meeting, it is
anticipated that the directors will be nominated to serve for the following
terms: the terms of David E. Mansfield, John L. Wyatt and T. Tim Unger will
expire in 1999, the terms of Edward E. Whalen, Wayne E. Kessler and Lester N.
Bergum, Jr. will expire in 2000 and the terms of W. Thomas Harmon, John C.
Milholland and Jerry R. Holifield will expire in 2001. See "Management of
Lincoln Federal Savings Bank."
The Holding Company's Bylaws provide that directors must (1) be
residents of Hendricks, Montgomery or Clinton County, Indiana, (2) have had a
loan or deposit relationship with us which they have maintained for nine months
prior to their nomination to the Board, and (3) with respect to nonemployee
directors, must have served as a member of a civic or community organization
based in Hendricks, Clinton or Montgomery County for at least 12 months during
the five years prior to their nomination to the Board or, in the case of
existing directors, at least 12 months prior to September 10, 1998. The Holding
Company's Board may waive one or more of these requirements for new members
appointed to the Board in connection with the acquisition of another financial
institution by the Holding Company or the acquisition or opening of a new branch
by Lincoln Federal. See "Restrictions on Acquisition of the Holding Company -
Provisions of the Holding Company's Articles and Bylaws."
The executive officers of the Holding Company are identified below.
Name Position with Holding Company
---- -----------------------------
T. Tim Unger Chairman of the Board, President
and Chief Executive Officer
John M. Baer Secretary and Treasurer
<PAGE>
MANAGEMENT OF LINCOLN FEDERAL SAVINGS BANK
Directors of Lincoln Federal
Our Board of Directors currently consists of nine persons with two
additional persons who serve as directors emeritus. Our directors emeritus
attend the Board's regular meetings but do not vote on matters presented to the
Board. Each director holds office for a term of three years, and one-third of
the Board is elected at each annual meeting of our members.
Our Board of Directors met 18 times during the fiscal year ended
December 31, 1997. No director attended fewer than 75% of the aggregate number
of meetings of the Board of Directors and the Board's committees in the past 12
months.
Listed below are the current directors of Lincoln Federal:
Director of Position
Lincoln Federal Expiration with
Director Since of Term Lincoln Federal
- -------- ----- ------- ---------------
Lester N. Bergum, Jr. 1996 2000 Director
W. Thomas Harmon 1982 2001 Director
Jerry R. Holifield 1992 2001 Director
Wayne E. Kessler 1976 2000 Director
David E. Mansfield 1997 1999 Director
John C. Milholland 1988 2001 Director
T. Tim Unger 1996 1999 Director,
President and
Chief Executive Officer
Edward E. Whalen 1961 2000 Chairman
of the Board
John L. Wyatt 1992 1999 Director
Presented below is certain information concerning the directors of Lincoln
Federal:
Lester N. Bergum, Jr. (age 50) is an attorney and partner with the firm
of Robison, Robison, Bergum & Johnson in Frankfort, Indiana, where he has
practiced since 1974. He has also served since 1989 as president of Title
Insurance Services, Inc., a title agency located in Frankfort, Indiana.
W. Thomas Harmon (age 59) has served as the co-owner, Vice President,
Treasurer and Secretary of Crawfordsville Town & Country Homecenter, Inc. in
Crawfordsville, Indiana, since 1978. Mr Harmon is also a co-owner and officer of
RGW, Inc., in Crawfordsville, a company that develops real estate subdivisions
and manages apartment rental properties, a position he has held since 1965.
Jerry Holifield (age 57) has been the Superintendent of the Plainfield
Community School Corporation since 1991.
Wayne E. Kessler (age 68) has been a self-employed farmer in
Crawfordsville, Indiana since 1949. Mr. Kessler is currently semi-retired.
David E. Mansfield (age 56) is an Administrative Supervisor for
Marathon Oil Company where he has worked since 1973.
John C. Milholland (age 62) has been Principal of Frankfort Senior High
School in Frankfort, Indiana since 1989.
T. Tim Unger (age 58) has been President and Chief Executive Officer of
Lincoln Federal since January, 1996. Before then, Mr. Unger served as President
and Chief Executive Officer of Summit Bank of Clinton County from 1989 through
1995.
Edward E. Whalen (age 70) retired as President and Chief Executive
Officer of Lincoln Federal in 1996. Mr. Whalen was employed by Lincoln Federal
for 36 years and has served on the board of directors since 1961.
John L. Wyatt (age 62) is a District Agent for Northwestern Mutual Life
Insurance Company where he has been employed since 1960.
We also have a director emeritus program pursuant to which our former
directors may continue to serve as advisors to the Board of Directors upon their
retirement or resignation from the Board. Currently, Frank A. Beardsley and
Charles Jones serve as directors emeritus. See "Executive Compensation and
Related Transactions of Lincoln Federal - Compensation of Directors."
Executive Officers of Lincoln Federal Who Are Not Directors
Presented below is certain information regarding our executive officers
who are not directors:
Name Position
John M. Baer Chief Financial Officer, Secretary and Treasurer
John M. Baer (age 50) has served as Lincoln Federal's Chief Financial
Officer since June, 1997 and as its Secretary and Treasurer since January, 1998.
Before working for Lincoln Federal, Mr. Baer served as Vice President and Chief
Financial Officer of the Community Bank Group of Bank One in Indianapolis,
Indiana from June, 1996 through June, 1997. From October, 1989 through June,
1997 he served as Senior Vice Present and Chief Financial Officer of Bank One,
Merrillville, NA, in Merrillville, Indiana.
Committees of the Boards of Directors of Lincoln Federal and the Holding Company
Our Board of Directors has four committees. The Audit Committee, which
consists of W. Thomas Harmon, Wayne E. Kessler and Jerry R. Holifield, oversees
our internal and external auditors and monitors our compliance with OTS
compliance regulations. The Asset Quality Committee, which consists of Lester N.
Bergum, John L. Wyatt and David E. Mansfield, is responsible for establishing
standards for credit analysis, underwriting and credit management and for
general oversight of our lending policies. The ALCO/Investment Committee, which
consists of John C. Milholland, David E. Mansfield and Edward E. Whalen, reviews
the financial information provided by our Chief Financial Officer and oversees
our interest rate risk and liquidity management policies. Our Executive
Committee, which consists of Jerry R. Holifield, T. Tim Unger, Edward E. Whalen
and John L. Wyatt, establishes the job descriptions and compensation for our
employees and officers.
EXECUTIVE COMPENSATION AND RELATED TRANSACTIONS OF LINCOLN FEDERAL
Remuneration of Named Executive Officer
The following table sets forth information as to annual, long-term and
other compensation for services in all capacities to our President and Chief
Executive Officer for the fiscal year ended December 31, 1997. Other than Mr.
Unger, we had no other executive officers who earned over $100,000 in salary and
bonuses during that fiscal year.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
Name Other Securities All
and Annual Restricted Underlying LTIP Other
Principal Compen- Stock Options/ Payouts Compen-
Position Year Salary ($) Bonus ($) sation($)(1) Award(s)($) SARs (#) ($) sation($) (2)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
T. Tim Unger 1997 $135,000 (3)(4) $10,000 --- --- --- --- $3,330
</TABLE>
(1) Mr. Unger received certain perquisites, but the incremental cost of
providing such perquisites did not exceed the lesser of $50,000 or 10%
of his salary and bonus.
(2) Other Compensation includes Lincoln Federal's matching contributions
under its 401(k) Plan.
(3) Mr. Unger does not receive any directors fees.
(4) Includes amounts deferred pursuant to Section 401(k) of the Code under
Lincoln Federal's 401(k) Plan.
Employment Contract
We have entered into a three-year employment contract with Mr. Unger.
The contract with Mr. Unger, effective as of the effective date of the
Conversion, extends annually for an additional one-year term to maintain its
three-year term if our Board of Directors determines to so extend it, unless
notice not to extend is properly given by either party to the contract. Mr.
Unger receives an initial salary under the contract equal to his current salary
subject to increases approved by the Board of Directors. The contract also
provides, among other things, for participation in other fringe benefits and
benefit plans available to our employees. Mr. Unger may terminate his employment
upon 60 days' written notice to us. We may discharge Mr. Unger for cause (as
defined in the contract) at any time or in certain specified events. If we
terminate Mr. Unger's employment for other than cause or if Mr. Unger terminates
his own employment for cause (as defined in the contract), Mr. Unger will
receive his base compensation under the contract for an additional three years
if the termination follows a change of control in the Holding Company, and for
the balance of the contract if the termination does not follow a change in
control. In addition, during such period, Mr. Unger will continue to participate
in our group insurance plans and retirement plans, or receive comparable
benefits. Moreover, within a period of three months after such termination
following a change of control, Mr. Unger will have the right to cause us to
purchase any stock options he holds for a price equal to the fair market value
(as defined in the contract) of the shares subject to such options minus their
option price. If the payments provided for in the contract, together with any
other payments made to Mr. Unger by us, are deemed to be payments in violation
of the "golden parachute" rules of the Code, such payments will be reduced to
the largest amount which would not cause us to lose a tax deduction for such
payments under those rules. As of the date hereof, the cash compensation which
would be paid under the contract to Mr. Unger if the contract were terminated
either after a change of control of the Holding Company, without cause by us, or
for cause by Mr. Unger, would be $405,000. For purposes of this employment
contract, a change of control of the Holding Company is generally an acquisition
of control, as defined in regulations issued under the Change in Bank Control
Act and the Savings and Loan Holding Company Act.
The employment contract protects our confidential business information
and protects us from competition by Mr. Unger should he voluntarily terminate
his employment without cause or be terminated by us for cause.
Compensation of Directors
We pay our non-employee directors a monthly retainer of $850 plus $400
for each regular meeting attended and $200 for each committee meeting attended,
with a maximum of $1,200 in annual committee fees. Our directors emeritus
receive a $500 monthly retainer plus $100 for each meeting they attend. Total
fees paid to our directors and directors emeritus for the year ended December
31, 1997 were approximately $107,000.
Our directors and directors emeritus may, pursuant to a deferred
compensation agreement, defer payment of some or all of their directors fees,
bonuses or other compensation into a retirement account. Under this agreement,
deferred directors fees are to be distributed either in a lump-sum payment or in
equal annual or monthly installments over any period of from two to ten years.
The lump sum or first installment is payable to the director, at the director's
discretion, on the first day of the calendar year immediately following the year
in which he ceases to be a director, or in the year in which the director
attains that age specified by the retirement income test of the Social Security
Act. Any additional installments will be paid on the first day of each
succeeding year thereafter. At present, the following directors participate in
the deferred compensation plan: Lester N. Bergum, Jr., W. Thomas Harmon, Wayne
E. Kessler and Edward E. Whalen.
Directors of the Holding Company and LF are not currently paid
directors' fees. The Holding Company may, if it believes it is necessary to
attract qualified directors or is otherwise beneficial to the Holding Company,
adopt a policy of paying directors' fees.
We have also adopted a Deferred Director Supplemental Retirement Plan
(the "Supplemental Plan") which provides for the continuation of directors fees
to a director upon the later of a director's attainment of age 70 or the date on
which he ceases to be a director. A director's interest in the retirement plan
will vest gradually over a five-year period commencing upon the director's
completion of five years of service on our board. Upon completing nine years of
service, the director's interest in the Supplemental Plan will be fully vested.
The interests of directors who, as of December 1, 1997, had served at least one
year on the Board vested immediately upon the adoption of the Supplemental Plan.
The amount of benefits payable to a director under the Supplemental Plan are
calculated by multiplying the director's vested percentage times the rate of
directors fees paid to the director immediately prior to his attainment of age
70 or, if earlier, the date his status as a director terminated. In the event
that a director's death occurs prior to the commencement of payments under the
Supplemental Plan, the director's designated beneficiary shall receive a monthly
payment calculated by multiplying the director's vested percentage times the
rate of directors fees in effect immediately prior to the director's death or,
if earlier, the date on which his status as a director terminated. Payments
under the Supplemental Plan will continue for 120 months.
Benefits
Insurance Plans. Our officers and employees are covered by
non-contributory medical, life and accidental death and dismemberment and
long-term disability insurance plans. This coverage is provided pursuant to
group plans sponsored by the Indiana League of Savings Institutions Group
Insurance Trust.
401(k) Plan. Our full-time salaried employees who are over 21 years of
age with at least one year of service may participate in the Lincoln Federal
Savings Bank 401(k) Plan, which is administered by Pentegra Group (the "Thrift
Plan"), a contributory multiple employer tax-exempt trust and savings plan.
Participants may elect to make monthly contributions up to 15% of their salary.
We make a matching contribution of 50% of the employee's contribution that does
not exceed 5% of the employee's salary. Contributions may be invested in equity
funds which invests in widely traded stocks, or asset allocation funds, which
invest in a combination of equity and fixed income assets. Contributions may
also be invested in a Government Bond Fund which invests in long-term U.S.
Treasury Bonds, or in a money market fund that invests in a range of
high-quality, short-term instruments or in a stable value fund that invests in
Guaranteed Investment Contracts and Synthetic Guaranteed Investment Contracts
offered by insurance companies. The normal distribution is a lump sum upon
termination of employment, although other payment options may be selected.
During fiscal 1997, Mr. Unger received employer contributions of $______ under
the Thrift Plan.
Pension Plan. Our full-time employees are included in the Pension Plan.
Separate actuarial valuations are not made for individual employer members of
the Pension Plan. Our employees are eligible to participate in the plan once
they have attained the age of 21 and completed one year of service for us and
provided that the employee is expected to complete a mimimum of 1,000 hours of
service in the 12 consecutive months following his enrollment date. An
employee's pension benefits are 100% vested after five years of service.
The Pension Plan provides for monthly or lump sum retirement benefits
determined as a percentage of the employee's average salary (for the employee's
highest five consecutive years of salary) times his years of service. Salary
includes base annual salary as of each January 1, exclusive of overtime,
bonuses, fees and other special payments. Early retirement, disability, and
death benefits are also payable under the Pension Plan, depending upon the
participant's age and years of service. We recorded a benefit of approximately
$26,000 for the Pension Plan during the fiscal year ended December 31, 1997.
The estimated base annual retirement benefits presented on a
straight-line basis payable at normal retirement age (65) under the Pension Plan
to persons in specified salary and years of service classifications are as
follows (benefits noted in the table are not subject to any offset).
<TABLE>
<CAPTION>
Highest 5-Year Years of Service
Average ------------------------------------------------------------------
Compensation 15 20 25 30 35 40 45
------- ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 40,000 12,000 16,000 20,000 24,000 28,000 32,000 36,000
60,000 18,000 24,000 30,000 36,000 42,000 48,000 54,000
80,000 24,000 32,000 40,000 48,000 56,000 64,000 72,000
100,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000
120,000 36,000 48,000 60,000 72,000 84,000 96,000 108,000
</TABLE>
Benefits are currently subject to maximum Code limitations of $120,000
per year. The years of service credited to Mr. Unger under the Pension Plan as
of December 31, 1997 were two.
Transactions With Certain Related Persons
We have followed a policy of offering to our directors, officers, and
employees real estate mortgage loans secured by their principal residence as
well as other loans. Current law authorizes us to make loans or extensions of
credit to our executive officers, directors, and principal shareholders on the
same terms that are available with respect to loans made to all of our
employees. At present, our loans to executive officers, directors, principal
shareholders and employees are made with an interest rate that is .5% lower than
the rate generally available to the public, but otherwise are made on
substantially the same terms as those prevailing for comparable transactions.
All loans to directors and executive officers must be approved in advance by a
majority of the disinterested members of the Board of Directors. Our policy
regarding loans to directors and all employees meets the requirements of current
law. Loans to directors, executive officers and their associates totaled
approximately $816,000, or 1.9% of equity capital at June 30, 1998.
Employee Stock Ownership Plan and Trust
The Holding Company has established for our eligible employees an ESOP
effective July 1, 1998, subject to our conversion to stock form. Employees with
at least one year of employment with us and who have attained age 21 are
eligible to participate. As part of the Conversion, the ESOP intends to borrow
funds from the Holding Company and use those funds to purchase a number of
shares equal to 8% of the Common Stock to be sold in the Conversion and issued
to the Foundation. Collateral for the loan will be the Common Stock purchased by
the ESOP. The loan will be repaid principally from our discretionary
contributions to the ESOP over a period of 20 years. It is anticipated that the
initial interest rate for the loan will be approximately ____%. Shares purchased
by the ESOP will be held in a suspense account for allocation among participants
as the loan is repaid.
Contributions to the ESOP and shares released from the suspense
accounts in an amount proportional to the repayment of the ESOP loan will be
allocated among ESOP participants on the basis of compensation in the year of
allocation. Participants in the ESOP will receive credit for service prior to
the effective date of the ESOP. Benefits generally become 100% vested after five
years of credited service. Prior to the completion of five years of credited
service, a participant who terminates employment for reasons other than death,
retirement, or disability will not receive any benefits under the ESOP.
Forfeitures will be reallocated among remaining participating employees upon the
earlier of the forfeiting participant's death or after the expiration of at
least three years from the date on which such participant's employment was
terminated. Benefits will be payable in the form of Common Stock or cash for
fractional shares upon death, retirement, early retirement, disability or
separation from service. Our contributions to the ESOP are not fixed, so
benefits payable under the ESOP cannot be estimated. In November 1993, the
American Institute of Certified Public Accountants (the "AICPA") issued
Statement of Position ("SOP") 93-6, which requires us to record compensation
expense in an amount equal to the fair market value of the shares released from
the suspense account.
In connection with the establishment of the ESOP, the Holding Company
will establish a committee of our employees to administer the ESOP. Home Federal
Savings Bank will serve as corporate trustee of the ESOP. The ESOP committee may
instruct the trustee regarding investment of funds contributed to the ESOP. The
ESOP trustee, subject to its fiduciary duty, must vote all allocated shares held
in the ESOP in accordance with the instructions of participating employees.
Under the ESOP, nondirected shares, and shares held in the suspense account,
will be voted in a manner calculated to most accurately reflect the instructions
it has received from participants regarding the allocated stock so long as such
vote is in accordance with the provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
Stock Option Plan
At a meeting of the Holding Company's shareholders to be held at least
six months after the completion of the Conversion, the Board of Directors
intends to submit for shareholder approval the Stock Option Plan for directors
and officers of Lincoln Federal and of the Holding Company. If approved by the
shareholders, Common Stock in an aggregate amount equal to 10.0% of the shares
issued in the Conversion and contributed to the Foundation would be reserved for
issuance by the Holding Company upon the exercise of the stock options granted
under the Stock Option Plan. Assuming the sale of 6.5 million shares in the
Conversion and the issuance of 250,000 shares to the Foundation, an aggregate of
675,000 shares would be reserved for issuance under the Stock Option Plan. No
options would be granted under the Stock Option Plan until the date on which
shareholder approval is received. At that time, it is anticipated that options
for the following number of shares will be granted to the following directors,
executive officers and employees of Lincoln Federal and the Holding Company:
Percentage of Shares
Optionee Issued in Conversion
T. Tim Unger..................................... 2.0%
Other Directors ................................. 2.4
All other employees.............................. 1.6
Total........................................ 6.0%
It is anticipated that these options would be granted for terms of 10
years (in the case of incentive options) or 10 years and one day (in the case of
non-qualified options), and at an option price per share equal to the fair
market value of the shares on the date of the grant of the stock options. If the
Stock Option Plan is adopted within one year following the Conversion, options
will become exercisable at a rate of 20% at the end of each twelve (12) months
of service with us after the date of grant, subject to early vesting in the
event of death or disability. Options granted under the Stock Option Plan are
adjusted for capital changes such as stock splits and stock dividends. Unless
the Holding Company decides to call an earlier special meeting of shareholders,
the date of grant of these options is expected to be the date of the Holding
Company's annual meeting of shareholders to be held at least six months after
the Conversion.
The Stock Option Plan would be administered by a Committee of
non-employee members of the Holding Company's Board of Directors. Options
granted under the Stock Option Plan to employees could be "incentive" stock
options designed to result in a beneficial tax treatment to the employee but no
tax deduction to the Holding Company. Non-qualified stock options could also be
granted under the Stock Option Plan, and will be granted to the non-employee
directors to receive grants of stock options. In the event an option recipient
terminated his or her employment or service as an employee or director, the
options would terminate during certain specified periods.
RRP
At a meeting of the Holding Company's shareholders to be held at least
six months after the completion of the Conversion, the Board of Directors also
intends to submit the RRP for shareholder approval. The RRP will provide our
directors and officers with an ownership interest in the Holding Company in a
manner designed to encourage them to continue their service with us. Lincoln
Federal will contribute funds to the RRP from time to time to enable it to
acquire an aggregate amount of Common Stock equal to up to 4% of the shares of
Common Stock sold in the Conversion and issued to the Foundation, either
directly from the Holding Company or on the open market. Four percent of the
shares issued in the Conversion would amount to 229,500 shares, 270,000 shares,
310,500 shares or 357,075 shares at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Valuation Range, respectively. In the event that
additional authorized but unissued shares would be acquired by the RRP after the
Conversion, the interests of existing shareholders would be diluted. Our
executive officers and directors will be awarded Common Stock under the RRP
without having to pay cash for the shares.
No awards under the RRP would be made until the date the RRP is
approved by the Holding Company's shareholders. At that time, it is anticipated
that awards of the following number of shares would be made to the following
directors and executive officers of the Holding Company and Lincoln Federal:
Percentage of Shares
Recipient of Issued in Conversion to be
Awards Awarded Under RRP
T. Tim Unger.................................... 1.0%
Other Directors................................. 1.2
All other employees............................. .8
Total....................................... 3.0%
Awards would be nontransferable and nonassignable, and during the
lifetime of the recipient could only be earned by and made to him or her. If the
RRP is adopted within one year of the Conversion the shares which are subject to
an award would vest and be earned by the recipient at a rate of 20% of the
shares awarded at the end of each full twelve (12) months of service with us
after the date of grant of the award. Awards are adjusted for capital changes
such as stock dividends and stock splits. Notwithstanding the foregoing, awards
would be 100% vested upon termination of employment or service due to death or
disability. Assuming the RRP is adopted within one year of the Conversion, if an
executive officer's or director's employment or service were to terminate for
other reasons, the grantee would forfeit any nonvested award. If employment or
service is terminated for cause (as would be defined in the RRP), or if conduct
would have justified termination or removal for cause, shares not already
delivered under the RRP, whether or not vested, could be forfeited by resolution
of the Board of Directors of the Holding Company.
When shares become vested and could actually be distributed in
accordance with the RRP, the participants would also receive amounts equal to
accrued dividends and other earnings or distributions payable with respect
thereto. When shares become vested under the RRP, the participant will recognize
income equal to the fair market value of the Common Stock earned, determined as
of the date of vesting, unless the recipient makes an election under ss. 83(b)
of the Code to be taxed earlier. The amount of income recognized by the
participant would be a deductible expense for tax purposes for the Holding
Company. Shares not yet vested under the RRP will be voted by the Trustee of the
RRP, taking into account the best interests of the recipients of the RRP awards.
REGULATION
General
As a federally chartered, SAIF-insured savings association, we are
subject to extensive regulation by the OTS and the FDIC. For example, we must
obtain OTS approval before we may engage in certain activities and must file
reports with the OTS regarding our activities and financial condition. The OTS
periodically examines our books and records and, in conjunction with the FDIC in
certain situations, has examination and enforcement powers. This supervision and
regulation are intended primarily for the protection of depositors and federal
deposit insurance funds. Our semi- annual assessment owed to the OTS, which is
based upon a specified percentage of assets, is approximately $40,000.
We are also subject to federal and state regulation as to such matters
as loans to officers, directors, or principal shareholders, required reserves,
limitations as to the nature and amount of our loans and investments, regulatory
approval of any merger or consolidation, issuance or retirements of our
securities, and limitations upon other aspects of banking operations. In
addition, our activities and operations are subject to a number of additional
detailed, complex and sometimes overlapping federal and state laws and
regulations. These include state usury and consumer credit laws, state laws
relating to fiduciaries, the Federal Truth-In-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting
Act, the Community Reinvestment Act, anti-redlining legislation and antitrust
laws.
The United States Congress is considering legislation that would
require all federal savings associations, such as Lincoln Federal, to either
convert to a national bank or a state-chartered bank by a specified date to be
determined. In addition, under the legislation, the Holding Company likely would
not be regulated as a savings and loan holding company but rather as a bank
holding company. This proposed legislation would abolish the OTS and transfer
its functions among the other federal banking regulators. Certain aspects of the
legislation remain to be resolved and, therefore, no assurance can be given as
to whether or in what form the legislation will be enacted or its effect on the
Holding Company and Lincoln Federal.
Savings and Loan Holding Company Regulation
Under current law, the Holding Company will be regulated as a
"non-diversified savings and loan holding company" within the meaning of the
Home Owners' Loan Act, as amended (the "HOLA"), and subject to regulatory
oversight of the Director of the OTS. As such, the Holding Company is registered
with the OTS and thereby subject to OTS regulations, examinations, supervision
and reporting requirements. As a subsidiary of a savings and loan holding
company, Lincoln Federal is subject to certain restrictions in its dealings with
the Holding Company and with other companies affiliated with the Holding
Company.
In general, the HOLA prohibits a savings and loan holding company,
without prior approval of the Director of the OTS, from acquiring control of
another savings association or savings and loan holding company or retaining
more than 5% of the voting shares of a savings association or of another holding
company which is not a subsidiary. The HOLA also restricts the ability of a
director or officer of the Holding Company, or any person who owns more than 25%
of the Holding Company's stock, from acquiring control of another savings
association or savings and loan holding company without obtaining the prior
approval of the Director of the OTS.
The Holding Company's Board of Directors presently intends to operate
the Holding Company as a unitary savings and loan holding company. Under current
law, there are generally no restrictions on the permissible business activities
of a unitary savings and loan holding company. However, Congress is considering
a bill which includes a provision that would generally prohibit a company that
filed a holding company application with the OTS after March 31, 1998 from
engaging in diversified business activities. If this bill is enacted, our
ability to engage in diversified business activities would be restricted.
Notwithstanding the above rules as to permissible business activities
of unitary savings and loan holding companies, if the savings association
subsidiary of such a holding company fails to meet the Qualified Thrift Lender
("QTL") test, then such unitary holding company would become subject to the
activities restrictions applicable to multiple holding companies. (Additional
restrictions on securing advances from the FHLB also apply.) See "--Qualified
Thrift Lender." At June 30, 1998, our asset composition was in excess of that
required to qualify us as a Qualified Thrift Lender.
If the Holding Company were to acquire control of another savings
association other than through a merger or other business combination with
Lincoln Federal, the Holding Company would thereupon become a multiple savings
and loan holding company. Except where such acquisition is pursuant to the
authority to approve emergency thrift acquisitions and where each subsidiary
savings association meets the QTL test, the activities of the Holding Company
and any of its subsidiaries (other than Lincoln Federal or other subsidiary
savings associations) would thereafter be subject to further restrictions. The
HOLA provides that, among other things, no multiple savings and loan holding
company or subsidiary thereof which is not a savings association shall commence
or continue for a limited period of time after becoming a multiple savings and
loan holding company or subsidiary thereof, any business activity other than (i)
furnishing or performing management services for a subsidiary savings
association, (ii) conducting an insurance agency or escrow business, (iii)
holding, managing, or liquidating assets owned by or acquired from a subsidiary
savings association, (iv) holding or managing properties used or occupied by a
subsidiary savings association, (v) acting as trustee under deeds of trust, (vi)
those activities previously directly authorized by the FSLIC by regulation as of
March 5, 1987, to be engaged in by multiple holding companies, or (vii) those
activities authorized by the Federal Reserve Board (the "FRB") as permissible
for bank holding companies, unless the Director of the OTS by regulation
prohibits or limits such activities for savings and loan holding companies.
Those activities described in (vii) above must also be approved by the Director
of the OTS before a multiple holding company may engage in such activities.
The Director of the OTS may also approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state, if the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office in the state of the association to be acquired as of March 5, 1987, or if
the laws of the state in which the association to be acquired is located
specifically permit associations to be acquired by state-chartered associations
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings associations). Also, the Director of the OTS may approve an acquisition
resulting in a multiple savings and loan holding company controlling savings
associations in more than one state in the case of certain emergency thrift
acquisitions.
Indiana law permits federal and state savings association holding
companies with their home offices located outside of Indiana to acquire savings
associations whose home offices are located in Indiana and savings association
holding companies with their principal place of business in Indiana ("Indiana
Savings Association Holding Companies") upon receipt of approval by the Indiana
Department of Financial Institutions. Moreover, Indiana Savings Association
Holding Companies may acquire savings associations with their home offices
located outside of Indiana and savings association holding companies with their
principal place of business located outside of Indiana upon receipt of approval
by the Indiana Department of Financial Institutions.
No subsidiary savings association of a savings and loan holding company
may declare or pay a dividend on its permanent or nonwithdrawable stock unless
it first gives the Director of the OTS 30 days advance notice of such
declaration and payment. Any dividend declared during such period or without
giving notice shall be invalid.
Federal Home Loan Bank System
We are a member of the FHLB of Indianapolis, which is one of twelve
regional FHLBs. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from funds deposited by
savings associations and proceeds derived from the sale of consolidated
obligations of the FHLB system. It makes loans to members (i.e., advances) in
accordance with policies and procedures established by the Board of Directors of
the FHLB. All FHLB advances must be fully secured by sufficient collateral as
determined by the FHLB. The Federal Housing Finance Board ("FHFB"), an
independent agency, controls the FHLB System, including the FHLB of
Indianapolis.
As a member, we are required to purchase and maintain stock in the FHLB
of Indianapolis in an amount equal to at least 1% of our aggregate unpaid
residential mortgage loans, home purchase contracts, or similar obligations at
the beginning of each year. At June 30, 1998, our investment in stock of the
FHLB of Indianapolis was $5.4 million. The FHLB imposes various limitations on
advances such as limiting the amount of certain types of real estate-related
collateral to 30% of a member's capital and limiting total advances to a member.
Interest rates charged for advances vary depending upon maturity, the cost of
funds to the FHLB of Indianapolis and the purpose of the borrowing.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. For the fiscal year ended
December 31, 1997, dividends paid by the FHLB of Indianapolis to us totaled
approximately $416,000, for an annual rate of 8.0%. For the six-month period
ended June 30, 1998, we received dividends of $216,000, for an annual rate of
7.9%
Insurance of Deposits
Deposit Insurance. The FDIC is an independent federal agency that
insures the deposits, up to prescribed statutory limits, of banks and thrifts
and safeguards the safety and soundness of the banking and thrift industries.
The FDIC administers two separate insurance funds, the BIF for commercial banks
and state savings banks and the SAIF for savings associations such as Lincoln
Federal and banks that have acquired deposits from savings associations. The
FDIC is required to maintain designated levels of reserves in each fund. As of
September 30, 1996, the reserves of the SAIF were below the level required by
law, primarily because a significant portion of the assessments paid into the
SAIF have been used to pay the cost of prior thrift failures, while the reserves
of the BIF met the level required by law in May, 1995. However, on September 30,
1996, provisions designed to recapitalize the SAIF and eliminate the premium
disparity between the BIF and SAIF were signed into law. See "- Assessments"
below.
Assessments. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance for members of the BIF and members of the
SAIF. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to the target level
within a reasonable time and may decrease these rates if the target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments vary depending on the risk the
institution poses to its deposit insurance fund. An institution's risk level is
determined based on its capital level and the FDIC's level of supervisory
concern about the institution.
On September 30, 1996, President Clinton signed into law legislation
which included provisions designed to recapitalize the SAIF and eliminate the
significant premium disparity between the BIF and the SAIF. Under the new law,
we were charged a one-time special assessment equal to $.657 per $100 in
assessable deposits at March 31, 1995. We recognized this one-time assessment as
a non-recurring operating expense of approximately $1.3 million ($785,000 after
tax) during the three-month period ending September 30, 1996, and we paid this
assessment on November 27, 1996. The assessment was fully deductible for both
federal and state income tax purposes. Beginning January 1, 1997, our annual
deposit insurance premium was reduced from .23% to .0644% of total assessable
deposits. BIF institutions pay lower assessments than comparable SAIF
institutions because BIF institutions pay only 20% of the rate paid by SAIF
institutions on their deposits with respect to obligations issued by the
federally-chartered corporation which provided some of the financing to resolve
the thrift crisis in the 1980's ("FICO"). The 1996 law also provides for the
merger of the SAIF and the BIF by 1999, but not until such time as bank and
thrift charters are combined. Until the charters are combined, savings
associations with SAIF deposits may not transfer deposits into the BIF system
without paying various exit and entrance fees, and SAIF institutions will
continue to pay higher FICO assessments. Such exit and entrance fees need not be
paid if a SAIF institution converts to a bank charter or merges with a bank, as
long as the resulting bank continues to pay applicable insurance assessments to
the SAIF, and as long as certain other conditions are met.
Savings Association Regulatory Capital
Currently, savings associations are subject to three separate minimum
capital-to-assets requirements: (i) a leverage limit, (ii) a tangible capital
requirement, and (iii) a risk-based capital requirement. The leverage limit
requires that savings associations maintain "core capital" of at least 3% of
total assets. Core capital is generally defined as common shareholders' equity
(including retained income), noncumulative perpetual preferred stock and related
surplus, certain minority equity interests in subsidiaries, qualifying
supervisory goodwill, purchased mortgage servicing rights and purchased credit
card relationships (subject to certain limits) less nonqualifying intangibles.
Under the tangible capital requirement, a savings association must maintain
tangible capital (core capital less all intangible assets except purchased
mortgage servicing rights which may be included after making the above-noted
adjustment in an amount up to 100% of tangible capital) of at least 1.5% of
total assets. Under the risk-based capital requirements, a minimum amount of
capital must be maintained by a savings association to account for the relative
risks inherent in the type and amount of assets held by the savings association.
The risk-based capital requirement requires a savings association to maintain
capital (defined generally for these purposes as core capital plus general
valuation allowances and permanent or maturing capital instruments such as
preferred stock and subordinated debt less assets required to be deducted) equal
to 8.0% of risk-weighted assets. Assets are ranked as to risk in one of four
categories (0-100%). A credit risk-free asset, such as cash, requires no
risk-based capital, while an asset with a significant credit risk, such as a
non-accrual loan, requires a risk factor of 100%. Moreover, a savings
association must deduct from capital, for purposes of meeting the core capital,
tangible capital and risk-based capital requirements, its entire investment in
and loans to a subsidiary engaged in activities not permissible for a national
bank (other than exclusively agency activities for its customers or mortgage
banking subsidiaries). At June 30, 1998, we were in compliance with all capital
requirements imposed by law.
The OTS has promulgated a rule which sets forth the methodology for
calculating an interest rate risk component to be used by savings associations
in calculating regulatory capital. The OTS has delayed the implementation of
this rule, however. The rule requires savings associations with "above normal"
interest rate risk (institutions whose portfolio equity would decline in value
by more than 2% of assets in the event of a hypothetical 200-basis-point move in
interest rates) to maintain additional capital for interest rate risk under the
risk-based capital framework. Even though the OTS has delayed implementing this
rule, we nevertheless measure our interest rate risk in conformity with the OTS
regulation and, as of June 30, 1998, we would have been required to deduct $1.7
million from our total capital available to calculate our risk-based capital
requirement. The OTS recently updated its standards regarding the management of
interest rate risk to include summary guidelines to assist savings associations
in determining their exposures to interest rate risk. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Lincoln Federal Savings Bank - Asset/Liability Management."
If an association is not in compliance with the capital requirements,
the OTS is required to prohibit asset growth and to impose a capital directive
that may restrict, among other things, the payment of dividends and officers'
compensation. In addition, the OTS and the FDIC generally are authorized to take
enforcement actions against a savings association that fails to meet its capital
requirements. These actions may include restricting the operations activities of
the association, imposing a capital directive, cease and desist order, or civil
money penalties, or imposing harsher measures such as appointing a receiver or
conservator or forcing the association to merge into another institution.
Prompt Corrective Regulatory Action
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FedICIA") requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to institutions that do
not meet minimum capital requirements. For these purposes, FedICIA establishes
five capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. At June 30,
1998, we were categorized as "well capitalized," meaning that our total
risk-based capital ratio exceeded 10%, our Tier I risk-based capital ratio
exceeded 6%, our leverage ratio exceeded 5%, and we were not subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure.
The FDIC may order savings associations which have insufficient capital
to take corrective actions. For example, a savings association which is
categorized as "undercapitalized" would be subject to growth limitations and
would be required to submit a capital restoration plan, and a holding company
that controls such a savings association would be required to guarantee that the
savings association complies with the restoration plan. "Significantly
undercapitalized" savings associations would be subject to additional
restrictions. Savings associations deemed by the FDIC to be "critically
undercapitalized" would be subject to the appointment of a receiver or
conservator.
Dividend Limitations
An OTS regulation imposes limitations upon all "capital distributions"
by savings associations, including cash dividends, payments by an association to
repurchase or otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital. The regulation establishes a three-tiered system of regulation, with
the greatest flexibility being afforded to well-capitalized associations. A
savings association which has total capital (immediately prior to and after
giving effect to the capital distribution) that is at least equal to its fully
phased-in capital requirements would be a Tier 1 institution ("Tier 1
Institution"). An association that has total capital at least equal to its
minimum capital requirements, but less than its fully phased-in capital
requirements, would be a Tier 2 institution ("Tier 2 Institution"). An
institution having total capital that is less than its minimum capital
requirements would be a Tier 3 institution ("Tier 3 Institution"). However, an
institution which otherwise qualifies as a Tier 1 Institution may be designated
by the OTS as a Tier 2 or Tier 3 Institution if the OTS determines that the
institution is "in need of more than normal supervision." We are currently a
Tier 1 Institution.
A Tier 1 Institution may, after prior notice but without the approval
of the OTS, make capital distributions during a calendar year up to the greater
of (a) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" at the beginning of
the calendar year (the smallest excess over its capital requirements), or (b)
75% of its net income over the most recent four-quarter period. Any additional
amount of capital distributions would require prior regulatory approval.
Accordingly, at June 30, 1998, we had available approximately $15.5 million for
distribution, without consideration of any capital infusion from the Conversion
and without consideration of the restrictions on our capital distributions as a
result of the establishment of a liquidation account in connection with the
Conversion. See "The Conversion - Effect on Liquidation Rights."
The OTS has proposed revisions to these regulations which would permit
a savings association, without filing a prior notice or application with the
OTS, to make a capital distribution to its shareholders in a maximum amount that
does not exceed the association's undistributed net income for the prior two
years plus the amount of its undistributed income from the current year. This
proposed rule would require a savings association, such as Lincoln Federal, that
is a subsidiary of a savings and loan holding company to file a notice with the
OTS before making a capital distribution up to the "maximum amount" described
above. The proposed rule would also require all savings associations, whether
under a holding company or not, to file an application with the OTS prior to
making any capital distribution where the association is not eligible for
"expedited processing" under the OTS "Expedited Processing Regulation," or where
the proposed distribution, together with any other distributions made in the
same year, would exceed the "maximum amount" described above.
Pursuant to the Plan of Conversion, we will establish a liquidation
account for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders. See "The Conversion - Principal Effects of Conversion." We will
not be permitted to pay dividends to the Holding Company if our net worth would
be reduced below the amount required for the liquidation account. We must also
must file a notice with the OTS 30 days before declaring a dividend to the
Holding Company.
Limitations on Rates Paid for Deposits
Regulations promulgated by the FDIC pursuant to FedICIA place
limitations on the ability of insured depository institutions to accept, renew
or roll over deposits by offering rates of interest which are significantly
higher than the prevailing rates of interest on deposits offered by other
insured depository institutions having the same type of charter in the
institution's normal market area. Under these regulations, "well-capitalized"
depository institutions may accept, renew or roll such deposits over without
restriction, "adequately capitalized" depository institutions may accept, renew
or roll such deposits over with a waiver from the FDIC (subject to certain
restrictions on payments of rates) and "undercapitalized" depository
institutions may not accept, renew or roll such deposits over. The regulations
contemplate that the definitions of "well capitalized," "adequately capitalized"
and "undercapitalized" will be the same as the definition adopted by the
agencies to implement the corrective action provisions of FedICIA. We do not
believe that these regulations will have a materially adverse effect on our
current operations.
Safety and Soundness Standards
On February 2, 1995, the federal banking agencies adopted final safety
and soundness standards for all insured depository institutions. The standards,
which were issued in the form of guidelines rather than regulations, relate to
internal controls, information systems, internal audit systems, loan
underwriting and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking agencies in
identifying and addressing problems at insured depository institutions before
capital becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings. On August 27, 1996, the federal banking agencies added asset
quality and earning standards to the safety and soundness guidelines.
Real Estate Lending Standards
OTS regulations require savings associations to establish and maintain
written internal real estate lending policies. Each association's lending
policies must be consistent with safe and sound banking practices and
appropriate to the size of the association and the nature and scope of its
operations. The policies must establish loan portfolio diversification
standards; establish prudent underwriting standards, including loan-to-value
limits, that are clear and measurable; establish loan administration procedures
for the association's real estate portfolio; and establish documentation,
approval, and reporting requirements to monitor compliance with the
association's real estate lending policies. The association's written real
estate lending policies must be reviewed and approved by the association's Board
of Directors at least annually. Further, each association is expected to monitor
conditions in its real estate market to ensure that its lending policies
continue to be appropriate for current market conditions.
Loans to One Borrower
Under OTS regulations, we may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of our unimpaired capital
and surplus. Additional amounts may be lent, not in excess of 10% of unimpaired
capital and surplus, if such loans or extensions of credit are fully secured by
readily marketable collateral, including certain debt and equity securities but
not including real estate. In some cases, a savings association may lend up to
30% of unimpaired capital and surplus to one borrower for purposes of developing
domestic residential housing, provided that the association meets its regulatory
capital requirements and the OTS authorizes the association to use this expanded
lending authority. We have established an "in-house" lending limit of $2 million
to a single or related group of borrowers, which is significantly lower than the
regulatory lending limit described above. Any loan that exceeds this "in-house"
lending limit up to our regulatory lending limit must first be approved by our
board of directors. At June 30, 1998, we had two loan relationships that
exceeded our "in-house" lending limit, each of which was authorized by our board
of directors. Also on that date, we did not have any loans or extensions of
credit to a single or related group of borrowers in excess of our regulatory
lending limits. We do not believe that the loans-to-one-borrower limits will
have a significant impact on our business operations or earnings following the
Conversion.
Qualified Thrift Lender
Savings associations must meet a QTL test. If we maintain an
appropriate level of qualified thrift investments ("QTIs") (primarily
residential mortgages and related investments, including certain
mortgage-related securities) and otherwise qualify as a QTL, we will continue to
enjoy full borrowing privileges from the FHLB of Indianapolis. The required
percentage of QTIs is 65% of portfolio assets (defined as all assets minus
intangible assets, property used by the association in conducting its business
and liquid assets equal to 10% of total assets). Certain assets are subject to a
percentage limitation of 20% of portfolio assets. In addition, savings
associations may include shares of stock of the FHLBs, FNMA, and Freddie Mac as
QTIs. Compliance with the QTL test is determined on a monthly basis in nine out
of every twelve months. As of June 30, 1998, we were in compliance with our QTL
requirement, with approximately 79.0% of our assets invested in QTIs.
A savings association which fails to meet the QTL test must either
convert to a bank (but its deposit insurance assessments and payments will be
those of and paid to the SAIF) or be subject to the following penalties: (i) it
may not enter into any new activity except for those permissible for a national
bank and for a savings association; (ii) its branching activities shall be
limited to those of a national bank; (iii) it shall not be eligible for any new
FHLB advances; and (iv) it shall be bound by regulations applicable to national
banks respecting payment of dividends. Three years after failing the QTL test
the association must (i) dispose of any investment or activity not permissible
for a national bank and a savings association and (ii) repay all outstanding
FHLB advances. If such a savings association is controlled by a savings and loan
holding company, then such holding company must, within a prescribed time
period, become registered as a bank holding company and become subject to all
rules and regulations applicable to bank holding companies (including
restrictions as to the scope of permissible business activities).
Acquisitions or Dispositions and Branching
The Bank Holding Company Act specifically authorizes a bank holding
company, upon receipt of appropriate regulatory approvals, to acquire control of
any savings association or holding company thereof wherever located. Similarly,
a savings and loan holding company may acquire control of a bank. Moreover,
federal savings associations may acquire or be acquired by any insured
depository institution. Regulations promulgated by the FRB restrict the
branching authority of savings associations acquired by bank holding companies.
Savings associations acquired by bank holding companies may be converted to
banks if they continue to pay SAIF premiums, but as such they become subject to
branching and activity restrictions applicable to banks.
Subject to certain exceptions, commonly-controlled banks and savings
associations must reimburse the FDIC for any losses suffered in connection with
a failed bank or savings association affiliate. Institutions are commonly
controlled if one is owned by another or if both are owned by the same holding
company. Such claims by the FDIC under this provision are subordinate to claims
of depositors, secured creditors, and holders of subordinated debt, other than
affiliates.
The OTS has adopted regulations which permit nationwide branching to
the extent permitted by federal statute. Federal statutes permit federal savings
associations to branch outside of their home state if the association meets the
domestic building and loan test in ss.7701(a)(19) of the Code or the asset
composition test of ss.7701(c) of the Code. Branching that would result in the
formation of a multiple savings and loan holding company controlling savings
associations in more than one state is permitted if the law of the state in
which the savings association to be acquired is located specifically authorizes
acquisitions of its state-chartered associations by state-chartered associations
or their holding companies in the state where the acquiring association or
holding company is located. Moreover, Indiana banks and savings associations are
permitted to acquire other Indiana banks and savings associations and to
establish branches throughout Indiana.
Finally, The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act") permits bank holding companies to acquire
banks in other states and, with state consent and subject to certain
limitations, allows banks to acquire out-of-state branches either through merger
or de novo expansion. The State of Indiana enacted legislation establishing
interstate branching provisions for Indiana state-chartered banks consistent
with those established by the Riegle-Neal Act (the "Indiana Branching Law"). The
Indiana Branching Law authorizes Indiana banks to branch interstate by merger or
de novo expansion, provided that such transactions are not permitted to
out-of-state banks unless the laws of their home states permit Indiana banks to
merge or establish de novo banks on a reciprocial basis. The Indiana Branching
Law became effective March 15, 1996.
Transactions with Affiliates
We are subject to Sections 22(h), 23A and 23B of the Federal Reserve
Act, which restrict financial transactions between banks and affiliated
companies. The statute limits credit transactions between a bank or savings
association and its executive officers and its affiliates, prescribes terms and
conditions for bank affiliate transactions deemed to be consistent with safe and
sound banking practices, and restricts the types of collateral security
permitted in connection with a bank's extension of credit to an affiliate.
Federal Securities Law
The shares of Common Stock of the Holding Company will be registered
with the SEC under the 1934 Act. The Holding Company will be subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the 1934 Act and the rules of the SEC thereunder. After three
years following our conversion to stock form, if the Holding Company has fewer
than 300 shareholders, it may deregister its shares under the 1934 Act and cease
to be subject to the foregoing requirements.
Shares of Common Stock held by persons who are affiliates of the
Holding Company may not be resold without registration unless sold in accordance
with the resale restrictions of Rule 144 under the 1933 Act. If the Holding
Company meets the current public information requirements under Rule 144, each
affiliate of the Holding Company who complies with the other conditions of Rule
144 (including those that require the affiliate's sale to be aggregated with
those of certain other persons) would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of (i) 1% of the outstanding shares of the Holding Company
or (ii) the average weekly volume of trading in such shares during the preceding
four calendar weeks.
Community Reinvestment Act Matters
Federal law requires that ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes
both a four-unit descriptive rating -- outstanding, satisfactory, needs to
improve, and substantial noncompliance -- and a written evaluation of an
institution's performance. Each FHLB is required to establish standards of
community investment or service that its members must maintain for continued
access to long-term advances from the FHLBs. The standards take into account a
member's performance under the CRA and its record of lending to first-time home
buyers. The OTS has designated our record of meeting community credit needs as
satisfactory.
TAXATION
Federal Taxation
Historically, savings associations, such as Lincoln Federal, have been
permitted to compute bad debt deductions using either the bank experience method
or the percentage of taxable income method. However, for years beginning after
December 31, 1995, no savings association may use the percentage of taxable
income method of computing its allowable bad debt deduction for tax purposes.
Instead, all savings associations are required to compute their allowable
deduction using the experience method. As a result of the repeal of the
percentage of taxable income method, reserves taken after 1987 using the
percentage of taxable income method generally must be included in future taxable
income over a six-year period, although a two-year delay may be permitted for
associations meeting a residential mortgage loan origination test. We do not
have any reserves taken after 1987 that must be recaptured. In addition, the
pre-1988 reserve, for which no deferred taxes have been recorded, need not be
recaptured into income unless (i) the savings association no longer qualifies as
a bank under the Code, or (ii) the savings association pays out excess dividends
or distributions. Although we do have some reserves from before 1988, we are not
required to recapture these reserves.
Depending on the composition of its items of income and expense, a
savings association may be subject to the alternative minimum tax. A savings
association must pay an alternative minimum tax on the amount (if any) by which
20% of alternative minimum taxable income ("AMTI"), as reduced by an exemption
varying with AMTI, exceeds the regular tax due. AMTI equals regular taxable
income increased or decreased by certain tax preferences and adjustments,
including depreciation deductions in excess of that allowable for alternative
minimum tax purposes, tax-exempt interest on most private activity bonds issued
after August 7, 1986 (reduced by any related interest expense disallowed for
regular tax purposes), the amount of the bad debt reserve deduction claimed in
excess of the deduction based on the experience method and 75% of the excess of
adjusted current earnings over AMTI (before this adjustment and before any
alternative tax net operating loss). AMTI may be reduced only up to 90% by net
operating loss carryovers, but alternative minimum tax paid can be credited
against regular tax due in later years.
For federal income tax purposes, we have been reporting our income and
expenses on the accrual method of accounting. Our federal income tax returns
have not been audited in recent years.
State Taxation
We are subject to Indiana's Financial Institutions Tax ("FIT"), which
is imposed at a flat rate of 8.5% on "adjusted gross income." "Adjusted gross
income," for purposes of FIT, begins with taxable income as defined by Section
63 of the Code and, thus, incorporates federal tax law to the extent that it
affects the computation of taxable income. Federal taxable income is then
adjusted by several Indiana modifications. Other applicable state taxes include
generally applicable sales and use taxes plus real and personal property taxes.
Our state income tax returns have not been audited in recent years.
For further information relating to the tax consequences of the
Conversion, see "The Conversion Principal Effects of Conversion - Tax Effects."
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
General
Although the Boards of Directors of Lincoln Federal and the Holding
Company are not aware of any effort that might be made to obtain control of the
Holding Company after the Conversion, the Boards of Directors believe that it is
appropriate to include certain provisions in the Holding Company's Articles of
Incorporation (the "Articles") to protect the interests of the Holding Company
and its shareholders from unsolicited changes in the control of the Holding
Company in circumstances that the Board of Directors of the Holding Company
concludes will not be in the best interests of Lincoln Federal, the Holding
Company or the Holding Company's shareholders.
Although the Holding Company's Board of Directors believes that the
restrictions on acquisition described below are beneficial to shareholders, the
provisions may have the effect of rendering the Holding Company less attractive
to potential acquirors, thereby discouraging future takeover attempts which
would not be approved by the Board of Directors but which certain shareholders
might deem to be in their best interest or pursuant to which shareholders might
receive a substantial premium for their shares over then current market prices.
These provisions will also render the removal of the incumbent Board of
Directors and of management more difficult. The Board of Directors has, however,
concluded that the potential benefits of these restrictive provisions outweigh
the possible disadvantages.
The following general discussion contains a summary of the material
provisions of the Articles, the Holding Company's Code of By-Laws (the
"By-Laws"), and certain other regulatory provisions, that may be deemed to have
an effect of delaying, deferring or preventing a change in the control of the
Holding Company. The following description of certain of these provisions is
general and not necessarily complete, and with respect to provisions contained
in the Articles and By-Laws, reference should be made in each case to the
document in question, each of which is part of our application for approval of
the Conversion or the Holding Company's Registration Statement filed with the
SEC. See "Additional Information."
Provisions of the Holding Company's Articles and By-Laws
Directors. Certain provisions in the Articles and By-Laws will impede
changes in majority control of the Board of Directors of the Holding Company.
The Articles provide that the Board of Directors of the Holding Company will be
divided into three classes, with directors in each class elected for three-year
staggered terms. Therefore, it would take two annual elections to replace a
majority of the Holding Company's Board. Moreover, the Holding Company's By-laws
provide that directors of the Holding Company must be residents of Hendricks,
Clinton or Montgomery County, Indiana, must have had a loan or deposit
relationship with us which they have maintained for nine (9) months prior to
their nomination to the Board, and, if nonemployee directors, must have served
as a member of a civic or community organization based in Hendricks, Clinton or
Montgomery County, Indiana for at least nine (9) months during the five years
prior to their nomination to the Board (or in the case of existing directors,
prior to September, 1998). The Holding Company's Board may waive one or more of
these requirements for new members appointed to the Board in connection with the
acquisition of another financial institution by the Holding Company or the
acquisition or opening of a new branch by Lincoln Federal. Therefore, the
ability of a shareholder to attract qualified nominees to oppose persons
nominated by the Board of Directors may be limited.
The Articles also provide that the size of the Board of Directors shall
range between five and fifteen directors, with the exact number of directors to
be fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors of the Holding
Company.
The Articles provide that any vacancy occurring in the Board of
Directors, including a vacancy created by an increase in the number of
directors, shall be filled for the remainder of the unexpired term only by a
majority vote of the directors then in office. Finally, the By-Laws impose
certain notice and information requirements in connection with the nomination by
shareholders of candidates for election to the Board of Directors or the
proposal by shareholders of business to be acted upon at an annual meeting of
shareholders.
The Articles provide that a director or the entire Board of Directors
may be removed only for cause and only by the affirmative vote of at least 80%
of the shares eligible to vote generally in the election of directors. Removal
for "cause" is limited to the grounds for termination in the OTS regulation
relating to employment contracts of federally-insured savings associations.
Restrictions on Call of Special Meetings. The Articles provide that a
special meeting of shareholders may be called only by the Chairman of the Board
of the Holding Company or pursuant to a resolution adopted by a majority of the
total number of directors of the Holding Company. Shareholders are not
authorized to call a special meeting.
No Cumulative Voting. The Articles provide that there shall be no
cumulative voting rights in the election of directors.
Authorization of Preferred Stock. The Articles authorize 2,000,000
shares of preferred stock, without par value. The Holding Company is authorized
to issue preferred stock from time to time in one or more series subject to
applicable provisions of law, and the Board of Directors is authorized to fix
the designations, powers, preferences and relative participating, optional and
other special rights of such shares, including voting rights (if any and which
could be as a separate class) and conversion rights. In the event of a proposed
merger, tender offer or other attempt to gain control of the Holding Company not
approved by the Board of Directors, it might be possible for the Board of
Directors to authorize the issuance of a series of preferred stock with rights
and preferences that would impede the completion of such a transaction. An
effect of the possible issuance of preferred stock, therefore, may be to deter a
future takeover attempt. The Board of Directors has no present plans or
understandings for the issuance of any preferred stock and does not intend to
issue any preferred stock except on terms which the Board of Directors deems to
be in the best interests of the Holding Company and its shareholders.
Limitations on 10% Shareholders. The Articles provide that: (i) no
person shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of equity security of the Holding
Company (provided that such limitation shall not apply to the acquisition of
equity securities by any one or more tax-qualified employee stock benefit plans
maintained by the Holding Company, if the plan or plans beneficially own no more
than 25% of any class of such equity security of the Holding Company); and that
(ii) shares beneficially owned in violation of the stock ownership restriction
described above shall not be entitled to vote and shall not be voted by any
person or counted as voting stock in connection with any matter submitted to a
vote of shareholders. For these purposes, a person (including management) who
has obtained the right to vote shares of the Common Stock pursuant to revocable
proxies shall not be deemed to be the "beneficial owner" of those shares if that
person is not otherwise deemed to be a beneficial owner of those shares.
Evaluation of Offers. The Articles of the Holding Company provide that
the Board of Directors of the Holding Company, when determining to take or
refrain from taking corporate action on any matter, including making or
declining to make any recommendation to the Holding Company's shareholders, may,
in connection with the exercise of its judgment in determining what is in the
best interest of the Holding Company, Lincoln Federal and the shareholders of
the Holding Company, give due consideration to all relevant factors, including,
without limitation, the social and economic effects of acceptance of such offer
on the Holding Company's customers and Lincoln Federal's present and future
account holders, borrowers, employees and suppliers; the effect on the
communities in which the Holding Company and Lincoln Federal operate or are
located; and the effect on the ability of the Holding Company to fulfill the
objectives of a holding company and of us or future financial institution
subsidiaries to fulfill the objectives of a financial institution under
applicable statutes and regulations. The Articles of the Holding Company also
authorize the Board of Directors to take certain actions to encourage a person
to negotiate for a change of control of the Holding Company or to oppose such a
transaction deemed undesirable by the Board of Directors including the adoption
of so-called shareholder rights plans. By having these standards and provisions
in the Articles of the Holding Company, the Board of Directors may be in a
stronger position to oppose such a transaction if the Board concludes that the
transaction would not be in the best interest of the Holding Company, even if
the price offered is significantly greater than the then market price of any
equity security of the Holding Company.
Procedures for Certain Business Combinations. The Articles require that
certain business combinations between the Holding Company (or any majority-owned
subsidiary thereof) and a 10% or greater shareholder either be approved (i) by
at least 80% of the total number of outstanding voting shares of the Holding
Company or (ii) by a majority of certain directors unaffiliated with such 10% or
greater shareholder or involve consideration per share generally equal to the
higher of (A) the highest amount paid by such 10% shareholder or its affiliates
in acquiring any shares of the Common Stock or (B) the "Fair Market Value"
(generally, the highest closing bid paid for the Common Stock during the thirty
days preceding the date of the announcement of the proposed business combination
or on the date the 10% or greater shareholder became such, whichever is higher).
Amendments to Articles and Bylaws. Amendments to the Articles must be
approved by a majority vote of the Holding Company's Board of Directors and also
by a majority of the outstanding shares of the Holding Company's voting shares;
provided, however, that approval by at least 80% of the outstanding voting
shares is required for certain provisions (i.e., provisions relating to number,
classification, and removal of directors; provisions relating to the manner of
amending the By-Laws; call of special shareholder meetings; criteria for
evaluating certain offers; certain business combinations; and amendments to
provisions relating to the foregoing). The provisions concerning limitations on
the acquisition of shares may be amended only by an 80% vote of the Holding
Company's outstanding shares unless at least two-thirds of the Holding Company's
Continuing Directors (directors of the Holding Company on September 10, 1998, or
directors recommended for appointment or election by a majority of such
directors) approve such amendments in advance of their submission to a vote of
shareholders (in which case only a majority vote of shareholders is required).
The By-Laws may be amended only by a majority vote of the total number
of directors of the Holding Company.
Purpose and Effects of the Anti-Takeover Provisions of the Holding
Company Articles and By-Laws. The Holding Company's Board of Directors believes
that the provisions described above are prudent and will reduce the Holding
Company's vulnerability to takeover attempts and certain other transactions
which have not been negotiated with and approved by its Board of Directors.
These provisions will also assist in the orderly deployment of the Conversion
proceeds into productive assets during the initial period after the Conversion.
The Board of Directors believes these provisions are in the best interest of
Lincoln Federal and the Holding Company and its shareholders. In the judgment of
the Board of Directors, the Holding Company's Board of Directors will be in the
best position to determine the true value of the Holding Company and to
negotiate more effectively for what may be in the best interests of the Holding
Company and its shareholders. The Board of Directors believes that these
provisions will encourage potential acquirors to negotiate directly with the
Board of Directors of the Holding Company and discourage hostile takeover
attempts. It is also the view of the Board of Directors that these provisions
should not discourage persons from proposing a merger or other transaction at
prices reflecting the true value of the Holding Company and which is in the best
interests of all shareholders.
Attempts to take over financial institutions and their holding
companies have recently increased. Takeover attempts that have not been
negotiated with and approved by the Board of Directors present to shareholders
the risk of a takeover on terms that may be less favorable than might otherwise
be available. A transaction that is negotiated and approved by the Board of
Directors, on the other hand, can be carefully planned and undertaken at an
opportune time to obtain maximum value for the Holding Company and its
shareholders, with due consideration given to matters such as the management and
business of the acquiring corporation and maximum strategic development of the
Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it to undertake defensive measures at a
great expense. Although a tender offer or other takeover attempt may be made at
a price substantially above then current market prices, such offers are
sometimes made for less than all of the outstanding shares of a target company.
As a result, shareholders may be presented with the alternative of partially
liquidating their investment at a time that may be disadvantageous, or retaining
their investment in an enterprise which is under different management and whose
objective may not be similar to that of the remaining shareholders. The
concentration of control, which could result from a tender offer or other
takeover attempt, could also deprive the Holding Company's remaining
shareholders of the benefits of certain protective provisions of the 1934 Act if
the number of beneficial owners becomes less than 300 and the Holding Company
terminates its registration under the 1934 Act.
Despite the belief of the Holding Company's Board of Directors in the
benefits to shareholders of the foregoing provisions, the provisions may also
have the effect of discouraging future takeover attempts which would not be
approved by the Board of Directors, but which certain shareholders might deem to
be in their best interest or pursuant to which shareholders might receive a
substantial premium for their shares over then current market prices. As a
result, shareholders who might desire to participate in such a transaction may
not have an opportunity to do so. These provisions will also render the removal
of the incumbent Board of Directors and of management more difficult. The Board
of Directors has, however, concluded that the potential benefits of these
restrictive provisions outweigh the possible disadvantages.
Other Restrictions on Acquisition of the Holding Company and Lincoln Federal
State Law. Several provisions of the Indiana Business Corporation Law,
as amended (the "IBCL"), could affect the acquisition of shares of the Common
Stock or otherwise affect the control of the Holding Company. Chapter 43 of the
IBCL prohibits certain business combinations, including mergers, sales of
assets, recapitalizations, and reverse stock splits, between corporations such
as the Holding Company (assuming that it has over 100 shareholders) and an
interested shareholder, defined as the beneficial owner of 10% or more of the
voting power of the outstanding voting shares, for five years following the date
on which the shareholder obtained 10% ownership unless the acquisition was
approved in advance of that date by the board of directors. If prior approval is
not obtained, several price and procedural requirements must be met before the
business combination can be completed. These requirements are similar to those
contained in the Holding Company Articles and described in " - Provisions of the
Holding Company's Articles and By-Laws - Procedures for Certain Business
Combinations." In general, the price requirements contained in the IBCL may be
more stringent than those imposed in the Holding Company Articles. However, the
procedural restraints imposed by the Holding Company Articles are somewhat
broader than those imposed by the IBCL. Also, the provisions of the IBCL may
change at some future date, but the relevant provisions of the Holding Company
Articles may only be amended by an 80% vote of the shareholders of the Holding
Company.
In addition, the IBCL contains provisions designed to assure that
minority shareholders have some say in their future relationship with Indiana
corporations in the event that a person made a tender offer for, or otherwise
acquired, shares giving that person more than 20%, 33 1/3%, and 50% of the
outstanding voting securities of corporations having 100 or more shareholders
(the "Control Share Acquisitions Statute"). Under the Control Share Acquisitions
Statute, if an acquiror purchases those shares at a time that the corporation is
subject to the Control Share Acquisitions Statute, then until each class or
series of shares entitled to vote separately on the proposal, by a majority of
all votes entitled to be cast by that group (excluding shares held by officers
of the corporation, by employees of the corporation who are directors thereof
and by the acquiror), approves in a special or annual meeting the rights of the
acquiror to vote the shares which take the acquiror over each level of ownership
as stated in the statute, the acquiror cannot vote these shares. An Indiana
corporation otherwise subject to the Control Share Acquisitions Statute may
elect not to be covered by the statute by so providing in its Articles of
Incorporation or By-Laws. The Holding Company, however, will be subject to this
statute following the Conversion because of its desire to discourage
non-negotiated hostile takeovers by third parties.
The IBCL specifically authorizes Indiana corporations to issue options,
warrants or rights for the purchase of shares or other securities of the
corporation or any successor in interest of the corporation. These options,
warrants or rights may, but need not be, issued to shareholders on a pro rata
basis.
The IBCL specifically authorizes directors, in considering the best
interest of a corporation, to consider the effects of any action on
shareholders, employees, suppliers, and customers of the corporation, and
communities in which offices or other facilities of the corporation are located,
and any other factors the directors consider pertinent. As described above, the
Holding Company Articles contain a provision having a similar effect. Under the
IBCL, directors are not required to approve a proposed business combination or
other corporate action if the directors determine in good faith that such
approval is not in the best interest of the corporation. In addition, the IBCL
states that directors are not required to redeem any rights under or render
inapplicable a shareholder rights plan or to take or decline to take any other
action solely because of the effect such action might have on a proposed change
of control of the corporation or the amounts to be paid to shareholders upon
such a change of control. The IBCL explicitly provides that the different or
higher degree of scrutiny imposed in Delaware and certain other jurisdictions
upon director actions taken in response to potential changes in control will not
apply. The Delaware Supreme Court has held that defensive measures in response
to a potential takeover must be "reasonable in relation to the threat posed."
In taking or declining to take any action or in making any
recommendation to a corporation's shareholders with respect to any matter,
directors are authorized under the IBCL to consider both the short-term and
long-term interests of the corporation as well as interests of other
constituencies and other relevant factors. Any determination made with respect
to the foregoing by a majority of the disinterested directors shall conclusively
be presumed to be valid unless it can be demonstrated that such determination
was not made in good faith.
Because of the foregoing provisions of the IBCL, the Board will have
flexibility in responding to unsolicited proposals to acquire the Holding
Company, and accordingly it may be more difficult for an acquiror to gain
control of the Holding Company in a transaction not approved by the Board.
Federal Limitations. For three years following the Conversion, OTS
regulations prohibit any person (including entities), without the prior approval
of the OTS, from offering to acquire or acquiring more than 10% of any class of
equity security, directly or indirectly, of a converted savings association or
its holding company. This restriction does not apply to the acquisition by any
one or more tax-qualified employee stock benefit plans maintained by Lincoln
Federal or the Holding Company, provided that the plan or plans do not have
beneficial ownership in the aggregate of more than 25% of any class of equity
security of the Holding Company. For these purposes, a person (including
management) who has obtained the right to vote shares of the Common Stock
pursuant to revocable proxies shall not be deemed to be the "beneficial owner"
of those shares if that person is not otherwise deemed to be a beneficial owner
of those shares.
The Change in Bank Control Act provides that no "person," acting
directly or indirectly, or through or in concert with one or more persons, other
than a company, may acquire control of a savings association or a savings and
loan holding company unless at least 60 days prior written notice is given to
the OTS and the OTS has not objected to the proposed acquisition.
The Savings and Loan Holding Company Act also prohibits any "company,"
directly or indirectly or acting in concert with one or more other persons, or
through one or more subsidiaries or transactions, from acquiring control of an
insured savings institution without the prior approval of the OTS. In addition,
any company that acquires such control becomes a "savings and loan holding
company" subject to registration, examination and regulation as a savings and
loan holding company by the OTS.
The term "control" for purposes of the Change in Bank Control Act and
the Savings and Loan Holding Company Act includes the power, directly or
indirectly, to vote more than 25% of any class of voting stock of the savings
association or to control, in any manner, the election of a majority of the
directors of the savings association. It also includes a determination by the
OTS that such company or person has the power, directly or indirectly, to
exercise a controlling influence over or to direct the management or policies of
the savings association.
OTS regulations also set forth certain "rebuttable control
determinations" which arise (i) upon an acquisition of more than 10% of any
class of voting stock of a savings association; or (ii) upon an acquisition of
more than 25% of any class of voting or nonvoting stock of a savings
association; provided that, in either case, the acquiror is subject to any of
eight enumerated "control factors," which are: (1) the acquiror would be one of
the two largest holders of any class of voting stock of the association; (2) the
acquiror would hold more than 25% of the total shareholders' equity of the
association; (3) the acquiror would hold more than 35% of the combined debt
securities and shareholders' equity of the savings association; (4) the acquiror
is a party to any agreement pursuant to which the acquiror possesses a material
economic stake in the savings association or which enables the acquiror to
influence a material aspect of the management or policies of the association;
(5) the acquiror would have the ability, other than through the holding of
revocable proxies, to direct the votes of more than 25% of a class of the voting
stock or to vote in the future more than 25% of such voting stock upon the
occurrence of a future event; (6) the acquiror would have the power to direct
the disposition of more than 25% of the association's voting stock in a manner
other than a widely dispersed or public offering; (7) the acquiror and/or his
representative would constitute more than one member of the association's board
of directors; or (8) the acquiror would serve as an executive officer or in a
similar policy-making position with the association. For purposes of determining
percentage share ownership, a person is presumed to be acting in concert with
certain specified persons and entities, including members of the person's
immediate family, whether or not those family members share the same household
with the person.
The regulations also specify the criteria which the OTS uses to
evaluate control applications. The OTS is empowered to disapprove an acquisition
of control if it finds, among other things, that (i) the acquisition would
substantially lessen competition, (ii) the financial condition of the acquiring
person might jeopardize the institution or its depositors, or (iii) the
competency, experience, or integrity of the acquiring person indicates that it
would not be in the interest of the depositors, the institution, or the public
to permit the acquisition of control by such person.
DESCRIPTION OF CAPITAL STOCK
The Holding Company is authorized to issue 20,000,000 shares of Common
Stock, without par value, all of which have identical rights and preferences,
and 2,000,000 shares of preferred stock, without par value. The Holding Company
expects to issue up to 8,926,875 shares of Common Stock, including 250,000
shares expected to be issued to the Foundation, and no shares of preferred stock
in the Conversion. The Holding Company has received an opinion of its counsel
that the shares of Common Stock issued in the Conversion will be validly issued,
fully paid, and not liable for further call or assessment. This opinion was
filed with the SEC as an exhibit to the Holding Company's Registration Statement
under the 1933 Act.
Shareholders of the Holding Company will have no preemptive rights to
acquire additional shares of Common Stock which may be subsequently issued. The
Common Stock will represent nonwithdrawable capital, will not be of an insurable
type and will not be federally insured by the FDIC or any government entity.
Under Indiana law, the holders of the Common Stock will possess
exclusive voting power in the Holding Company, unless preferred stock is issued
and voting rights are granted to the holders thereof. Each shareholder will be
entitled to one vote for each share held on all matters voted upon by
shareholders, subject to the limitations discussed under the caption
"Restrictions on Acquisition of the Holding Company." Shareholders may not
cumulate their votes in the election of the Board of Directors. Holders of
Common Stock will be entitled to payment of dividends as may be declared from
time to time by the Holding Company's Board of Directors.
In the unlikely event of the liquidation or dissolution of the Holding
Company, the holders of the Common Stock will be entitled to receive after
payment or provision for payment of all debts and liabilities of the Holding
Company, all assets of the Holding Company available for distribution, in cash
or in kind. See "The Conversion - Principal Effects of Conversion - Effect on
Liquidation Rights." If preferred stock is issued subsequent to the Conversion,
the holders thereof may have a priority over the holders of Common Stock in the
event of liquidation or dissolution.
The Board of Directors of the Holding Company will be authorized to
issue preferred stock in series and to fix and state the voting powers,
designations, preferences and relative, participating, optional or other special
rights of the shares of each such series and the qualifications, limitations and
restrictions thereof. Preferred stock may rank prior to the Common Stock as to
dividend rights, liquidation preferences, or both, and may have full or limited
voting rights. The holders of preferred stock will be entitled to vote as a
separate class or series under certain circumstances, regardless of any other
voting rights which such holders may have.
Except as discussed elsewhere herein, the Holding Company has no
specific plans for the issuance of the additional authorized shares of Common
Stock or for the issuance of any shares of preferred stock. In the future, the
authorized but unissued and unreserved shares of Common Stock will be available
for general corporate purposes including, but not limited to, possible issuance
as stock dividends or stock splits, in future mergers or acquisitions, under a
cash dividend reinvestment and stock purchase plan, or in future underwritten or
other public or private offerings. The authorized but unissued shares of
preferred stock will similarly be available for issuance in future mergers or
acquisitions, in future underwritten public offerings or private placements or
for other general corporate purposes. Except as described above or as otherwise
required to approve the transaction in which the additional authorized shares of
Common Stock or authorized shares of preferred stock would be issued, no
shareholder approval will be required for the issuance of these shares.
Accordingly, the Holding Company's Board of Directors without shareholder
approval can issue preferred stock with voting and conversion rights which could
adversely affect the voting power of the holders of Common Stock.
The offering and sale of Common Stock in the Conversion will be
registered under the 1933 Act. The subsequent sale or transfer of Common Stock
is governed by the 1934 Act, which requires that sales or exchanges of subject
securities be made pursuant to an effective registration statement or qualified
for an exemption from registration requirements of the 1933 Act. Similarly, the
securities laws of the various states also require generally the registration of
shares offered for sale unless there is an applicable exemption from
registration.
The Holding Company, as a newly organized corporation, has never issued
capital stock, and, accordingly, there is no market for the Common Stock. See
"Market for the Common Stock." See "Restrictions on Acquisition of the Holding
Company - Provisions of the Holding Company's Articles and By-Laws" for a
description of certain provisions of the Holding Company's Articles and By-Laws
which may affect the ability of the Holding Company's shareholders to
participate in certain transactions relating to acquisitions of control of the
Holding Company. Also, see "Dividends" for a description of certain matters
relating to the possible future payment of dividends on the Common Stock.
TRANSFER AGENT
__________________ will act as transfer agent and registrar for the
Common Stock. _________________ phone number is (____) _______________.
REGISTRATION REQUIREMENTS
Upon the Conversion, the Holding Company's Common Stock will be
registered pursuant to Section 12(g) of the 1934 Act and may not be deregistered
for a period of at least three years following the Conversion. As a result of
the registration under the 1934 Act, certain holders of Common Stock will be
subject to certain reporting and other requirements imposed by the 1934 Act. For
example, beneficial owners of more than 5% of the outstanding Common Stock will
be required to file reports pursuant to Section 13(d) or Section 13(g) of the
1934 Act, and officers, directors and 10% shareholders of the Holding Company
will generally be subject to reporting requirements of Section 16(a) and to the
liability provisions for profits derived from purchases and sales of Holding
Company Common Stock occurring within a six-month period pursuant to Section
16(b) of the 1934 Act. In addition, certain transactions in Common Stock, such
as proxy solicitations and tender offers, will be subject to the disclosure and
filing requirements imposed by Section 14 of the 1934 Act and the regulations
promulgated thereunder.
LEGAL AND TAX MATTERS
Barnes & Thornburg, 11 South Meridian Street, Indianapolis, Indiana
46204, special counsel to Lincoln Federal, will pass upon the legality and
validity of the shares of Common Stock being issued in the Conversion. Barnes &
Thornburg has issued an opinion concerning certain federal and state income tax
aspects of the Conversion and that the Conversion, as proposed, constitutes a
tax-free reorganization under federal and Indiana law. Barnes & Thornburg has
also issued an opinion concerning the federal tax consequences of certain
matters relating to the establishment of the Foundation. Barnes & Thornburg has
consented to the references herein to its opinions. Certain legal matters
related to this offering will be passed upon for Webb by Silver, Freedman &
Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor-East Tower, Washington, D.C.
20005.
EXPERTS
Our consolidated financial statements at December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997 appearing in
this Prospectus and Registration Statement have been audited by Olive LLP
(formerly Geo. S. Olive & Co, LLC), independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
Keller has consented to the publication of the summary herein of its
appraisal report as to the estimated pro forma market value of the Common Stock
of the Holding Company to be issued in the Conversion, to the reference to its
opinion relating to the value of the subscription rights, and to the filing of
the appraisal report as an exhibit to the registration statement filed by the
Holding Company under the 1933 Act.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a registration statement
under the 1933 Act with respect to the Common Stock offered hereby. As permitted
by the rules and regulations of the SEC, this Prospectus does not contain all
the information set forth in the registration statement. Such information can be
inspected and copied at the SEC's public reference facilities located at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's Regional Offices in
New York (Seven World Trade Center, 13th Floor, New York, New York 00048) and
Chicago (Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511) and copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. This information can also be found on the SEC's
website, located at www.sec.gov.
Lincoln Federal has filed with the OTS an Application for Conversion
from a federal mutual savings bank to a federal stock savings bank, and the
Holding Company has filed with the OTS an Application to become a savings and
loan holding company. This Prospectus omits certain information contained in
such Applications. The Applications may be inspected at the offices of the OTS,
1700 G Street, N.W., Washington, D.C. 20552 and at the Central Regional Office
of the OTS, 200 West Madison, Suite 1300, Chicago, Illinois 60606.
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
PLAINFIELD, INDIANA
TABLE OF CONTENTS
Page
Report of Olive LLP................................................ F-2
Consolidated balance sheet--June 30, 1998 (unaudited)
and December 31, 1997 and 1996..................................... F-3
Consolidated statement of income--for the six months ended
June 30, 1998 and 1997 (unaudited) and the years ended
December 31, 1997, 1996 and 1995................................... F-4
Consolidated statement of comprehensive income
for the six months ended June 30, 1998 and 1997 (unaudited)
and the years ended December 31, 1997, 1996 and 1995............... F-5
Consolidated statement of changes in equity capital
for the six months ended June 30, 1998 (unaudited)
and for the years ended December 31, 1997, 1996 and 1995........... F-6
Consolidated statement of cash flows--for the six months ended
June 30, 1998 and 1997 (unaudited) and the years ended
December 31, 1997, 1996 and 1995................................... F-7
Notes to consolidated financial statements......................... F-9
All schedules are omitted because the required information is not
applicable or is included in the consolidated financial statements and related
notes.
Lincoln Bancorp ("Lincoln"), the Holding Company for Lincoln Federal
Savings Bank, has not commenced operations as of June 30, 1998 and will not
commence operations prior to the conversion of Lincoln Federal Savings Bank from
a federal savings bank to a federal stock savings bank. Accordingly, the
financial statements of Lincoln have been omitted and are not required.
<PAGE>
Independent Auditor's Report
Board of Directors
Lincoln Federal Savings Bank
Plainfield, Indiana
We have audited the accompanying consolidated balance sheet of Lincoln Federal
Savings Bank and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income, comprehensive income, changes in equity
capital and cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of Lincoln
Federal Savings Bank and subsidiary as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Olive LLP
Indianapolis, Indiana
March 19, 1998, except for note 16
as to which the date is July 2, 1998
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30, December 31
1998 1997 1996
------------ ------------------------------
(Unaudited)
Assets
<S> <C> <C> <C>
Cash and due from banks $ 3,027,595 $ 4,190,199 $ 4,589,797
Short-term interest-bearing deposits in other banks 20,736,947 14,767,482 5,209,087
-------------------------------------------------
Total cash and cash equivalents 23,764,542 18,957,681 9,798,884
Interest-bearing deposits in other banks 595,000
Investment securities
Available for sale 58,939,886 29,399,376 118,355
Held to maturity (market value $3,509,000, $9,615,000
and $14,997,000) 3,500,000 9,634,952 15,184,779
-------------------------------------------------
Total investment securities 62,439,886 39,034,328 15,303,134
Mortgage loans held for sale 19,264,354 24,200,178
Loans 184,850,414 249,995,935 282,812,340
Allowance for loan losses (1,432,204) (1,360,731) (1,240,731)
-------------------------------------------------
Net loans 183,418,210 248,635,204 281,571,609
Premises and equipment 2,837,993 2,825,090 2,589,073
Investment in limited partnerships 2,632,863 2,705,997 3,187,423
Federal Home Loan Bank of Indianapolis stock 5,446,700 5,446,700 4,796,700
Interest receivable
Loans 952,675 1,138,824 1,611,013
Mortgage-backed securities 278,037 197,664
Other investment securities and
interest-bearing deposits 197,156 196,477 280,791
Deferred income tax 1,124,282 974,446 1,284,173
Other assets 2,143,508 1,278,828 333,598
-------------------------------------------------
Total assets $ 304,500,206 $ 321,391,239 $ 345,551,576
=================================================
Liabilities
Deposits
Noninterest-bearing $ 1,394,393 $ 2,321,167 $ 711,146
Interest-bearing 209,765,833 201,530,657 210,112,203
-------------------------------------------------
Total deposits 211,160,226 203,851,824 210,823,349
Federal Home Loan Bank advances 45,686,148 70,136,148 91,232,485
Note payable 2,202,501 2,691,001 3,179,501
Interest payable 1,138,165 1,153,517 483,732
Other liabilities 1,517,855 1,581,077 1,913,043
-------------------------------------------------
Total liabilities 261,704,895 279,413,567 307,632,110
-------------------------------------------------
Commitments and Contingencies
Equity Capital
Retained earnings--substantially restricted 42,248,263 41,431,674 37,918,466
Accumulated other comprehensive income 547,048 545,998 1,000
-------------------------------------------------
Total equity capital 42,795,311 41,977,672 37,919,466
-------------------------------------------------
Total liabilities and equity capital $ 304,500,206 $ 321,391,239 $ 345,551,576
=================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Consolidated Statement of Income
<TABLE>
<CAPTION>
Six Months Ended
June 30 Year Ended December 31
1998 1997 1997 1996 1995
----------- ------------ ------------ ----------- -----------
(Unaudited)
Interest Income
<S> <C> <C> <C> <C> <C>
Loans receivable, including fees $9,244,231 $12,141,595 $22,369,033 $22,901,854 $20,529,408
Investment securities
Mortgage-backed securities 1,268,012 1,086,165
Other investment securities 199,601 436,964 773,033 941,860 864,715
Deposits with financial institutions 485,044 96,192 652,814 255,988 332,038
Dividend income 216,077 192,413 415,502 353,758 338,669
----------- ------------ ------------ ----------- -----------
Total interest income 11,412,965 12,867,164 25,296,547 24,453,460 22,064,830
----------- ------------ ------------ ----------- -----------
Interest Expense
Deposits 5,335,890 5,089,303 10,403,452 10,237,933 10,001,573
Federal Home Loan Bank advances 1,519,472 2,655,896 5,248,400 4,881,244 4,484,354
----------- ------------ ------------ ----------- -----------
Total interest expense 6,855,362 7,745,199 15,651,852 15,119,177 14,485,927
----------- ------------ ------------ ----------- -----------
Net Interest Income 4,557,603 5,121,965 9,644,695 9,334,283 7,578,903
Provision for losses on loans 409,937 50,000 297,555 120,000 100,000
Net Interest Income After
Provision for Losses on Loans 4,147,666 5,071,965 9,347,140 9,214,283 7,478,903
----------- ------------ ------------ ----------- -----------
Other Income
Net realized and unrealized gain (loss)
on loans held for sale (114,322) (17,741) 299,020 (159,727) 1,463,230
Net realized gains on sale of securities
available for sale 104,980 118,283
Equity in losses of limited partnerships (268,134) (327,333) (681,426) (596,009) (1,595,580)
Other income 378,663 285,767 674,139 502,506 473,129
----------- ------------ ------------ ----------- -----------
Total other income (loss) 101,187 (59,307) 410,016 (253,230) 340,779
----------- ------------ ------------ ----------- -----------
Other Expenses
Salaries and employee benefits 1,318,489 1,022,419 2,247,436 1,718,974 1,528,969
Net occupancy expenses 135,177 133,226 272,101 236,252 272,277
Equipment expenses 299,884 248,579 525,734 360,775 175,547
Deposit insurance expense 99,514 84,641 193,672 1,724,734 438,393
Data processing expense 369,173 268,128 581,087 312,794 227,690
Professional fees 177,481 140,186 237,819 68,745 48,300
Mortgage servicing rights amortization 126,374 5,061 66,784 12,478 9,382
Other expenses 569,481 545,915 960,755 668,543 543,516
----------- ------------ ------------ ----------- -----------
Total other expenses 3,095,573 2,448,155 5,085,388 5,103,295 3,244,074
----------- ------------ ------------ ----------- -----------
Income Before Income Tax and
Extraordinary Item 1,153,280 2,564,503 4,671,768 3,857,758 4,575,608
Income tax expense 186,388 701,364 1,158,560 869,539 1,193,042
----------- ------------ ------------ ----------- -----------
Income Before Extraordinary Item 966,892 1,863,139 3,513,208 2,988,219 3,382,566
Extraordinary item--early extinguishment
of debt, net of income taxes of $98,583 (150,303)
----------- ------------ ------------ ----------- -----------
Net Income $ 816,589 $ 1,863,139 $ 3,513,208 $ 2,988,219 $ 3,382,566
=========== ============ ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Consolidated Statement of Comprehensive Income
<TABLE>
<CAPTION>
Six Months Ended
June 30 Year Ended December 31
1998 1997 1997 1996 1995
-------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net income $816,589 $1,863,139 $3,513,208 $2,988,219 $3,382,566
-------- ---------- ---------- ---------- ----------
Other comprehensive income, net of tax
Unrealized gains (losses) on securities
available for sale
Unrealized holding gains (losses)
arising during the period
net of tax expense (benefit)
of $42,271, $(656), $404,318,
$656 and $1,312 64,447 (1,000) 616,429 1,000 2,000
Less: Reclassification
adjustment for gains included
in net income net of tax
expense (benefit) of
$41,582 and $46, 852 63,397 71,431
1,050 (1,000) 544,998 1,000 2,000
-------- ---------- ---------- ---------- ----------
Comprehensive income $817,639 $1,862,139 $4,058,219 $2,989,219 $3,384,566
======== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Lincoln Federal Savings Bank and Subsidiary
Plainfield, Indiana
Consolidated Statement of Changes in Equity Capital
<TABLE>
<CAPTION>
Accumulated
Other
Retained Comprehensive
Earnings Income Total
<S> <C> <C> <C>
Balances, January 1, 1995 $31,547,681 $ (2,000) $31,545,681
Net income for 1995 3,382,566 3,382,566
Net change in unrealized gain on securities
available for sale 2,000 2,000
-----------------------------------------------------------
Balances, December 31, 1995 34,930,247 34,930,247
Net income for 1996 2,988,219 2,988,219
Net change in unrealized gain on securities
available for sale 1,000 1,000
-----------------------------------------------------------
Balances, December 31, 1996 37,918,466 1,000 37,919,466
Net income for 1997 3,513,208 3,513,208
Net change in unrealized gain on securities
available for sale 544,998 544,998
-----------------------------------------------------------
Balances, December 31, 1997 41,431,674 545,998 41,977,672
Net income for the six months ended
June 30, 1998 (unaudited) 816,589 816,589
Net change in unrealized gain
on securities available for sale 1,050 1,050
-----------------------------------------------------------
Balances, June 30, 1998 (unaudited) $42,248,263 $547,048 $42,795,311
===========================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Lincoln Federal Savings Bank and Subsidiary
Plainfield, Indiana
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30 Year Ended December 31
1998 1997 1997 1996 1995
(Unaudited)
Operating Activities
<S> <C> <C> <C> <C> <C>
Net income $ 816,589 $1,863,139 $ 3,513,208 $2,988,219 $3,382,566
Adjustments to reconcile net income to
net cash provided (used) by
operating activities
Provision for loan losses 409,937 50,000 297,555 120,000 100,000
Gain on sale of foreclosed real estate (434) (7,394) (17,297) (2,724) (12,427)
(Gain) loss on disposal of premises
and equipment 7,456 (3,147) 1,736
Investment securities accretion, net (72) (100) (173) (5,764) (1,309)
Investment securities gains (104,981) (118,283)
Equity in losses of limited partnerships 268,134 327,333 681,426 596,009 1,595,580
Amortization of net loan
origination fees (216,970) (261,402) (318,087) (555,738) (435,717)
Depreciation and amortization 237,569 215,809 441,824 379,449 256,740
Deferred income tax benefit (150,524) 34,360 (48,394) (165,948) (434,124)
Change in
Loans held for sale 238,002 1,505,814 1,353,983 (8,666,247) 607,535
Interest receivable 105,097 68,044 358,839 (20,227) (208,290)
Interest payable (15,352) 696,141 669,785 192,646 30,652
Other liabilities (79,552) 186,827 242,329 (578,033) 816,023
Other assets 122,504 62,804 143,797 (80,935) (28,226)
Income taxes receivable payable 126,829 (347,994) (604,950) 14,400 445,056
--------------------------------------------------------------------------------
Net cash provided (used)
by operating activities 1,764,232 4,393,381 6,595,562 (5,788,040) 6,115,795
--------------------------------------------------------------------------------
Investing Activities
Net change in interest-bearing deposits 595,000 100,000 495,000
Purchases of securities
available for sale (14,924,502) (462) (7,798,838) (889) (926)
Proceeds from sales of securities
available for sale 21,080,952 54,532,285
Proceeds from maturities of securities
available for sale 4,137,734 1,236,765
Purchases of securities held to maturity (11,429,375) (9,250,000)
Proceeds from maturities of securities
held to maturity 6,135,000 1,800,000 5,550,000 7,850,000 10,400,000
Purchase of loans (999,737) (999,737)
Other net changes in loans 5,312,468 (14,689,689) (20,033,888) (11,425,829) (25,431,291)
Purchase of premises and equipment (257,928) (216,578) (677,841) (189,524) (549,218)
Proceeds from disposal of
property and equipment 6,500
Purchase of FHLB of Indianapolis stock (650,000) (650,000) (496,700)
Proceeds from sale of
foreclosed real estate 144,501 73,453 157,901 40,000 87,000
Improvements to foreclosed real estate (151) (10,294) (7,085)
Distribution from limited partnership 40,000
Contribution to limited partnership (195,000) (200,000) (200,000) (200,000) (200,000)
Other investing activities (650,000) (378,759)
---------------------------------------------------------------------------------
Net cash provided (used) by
investing activities 20,783,225 (14,883,013) 31,332,737 (15,756,111) (24,416,520)
---------------------------------------------------------------------------------
</TABLE>
<PAGE>
Lincoln Federal Savings Bank and Subsidiary
Plainfield, Indiana
Consolidated Statement of Cash Flows (continued)
<TABLE>
<CAPTION>
Six Months Ended
June 30 Year Ended December 31
--------------------------------------------------------------------------------
1998 1997 1997 1996 1995
(Unaudited)
<S> <C> <C> <C> <C> <C>
Financing Activities
Net change in
Noninterest-bearing, interest-bearing
demand, money market and
savings deposits 266,372 1,575,673 4,449,683 8,509,585 (9,409,620)
Certificates of deposit 7,042,030 (11,124,514) (11,421,208) 6,197,171 20,307,236
Short-term borrowings (2,137,058)
Proceeds from FHLB advances 10,000,000 38,700,000 73,400,000 94,700,000 178,000,000
Repayment of FHLB advances (34,450,000) (23,000,000) (94,496,337) (85,403,916) (180,063,599)
Payment on note payable to limited
partnership (488,500) (488,500) (488,500) (488,500) (488,500)
Net change in advances by
borrowers for taxes
and insurance (110,498) (94,051) (213,140) (358,426) (18,985)
----------------------------------------------------------------------------------
Net cash provided (used) by
financing activities (17,740,596) 5,568,608 (28,769,502) 23,155,914 6,189,474
----------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents 4,806,861 (4,921,024) 9,158,797 1,611,763 (12,111,251)
Cash and Cash Equivalents,
Beginning of Year 18,957,681 9,798,884 9,798,884 8,187,121 20,298,372
---------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $23,764,542 $4,877,860 $18,957,681 $9,798,884 $8,187,121
=================================================================================
Additional Cash Flows and
Supplementary Information
Interest paid $6,897,070 $7,049,058 $14,982,067 $14,944,236 $14,468,846
Income tax paid 111,500 1,014,998 1,814,998 994,087 1,182,110
Loan balances transferred to
foreclosed real estate 196,872 110,767 102,087 67,488
Securitization of loans and loans held
for sale 39,903,448 76,229,830
Transfer of loans held for sale to loans 19,611,239 3,137,084
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 1 -- Nature of Operations and Summary of Significant Accounting Policies
The accounting and reporting policies of Lincoln Federal Savings Bank ("Bank")
and its wholly owned subsidiary, L-F Service Corporation ("L-F Service"),
conform to generally accepted accounting principles and reporting practices
followed by the thrift industry. The more significant of the policies are
described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Bank operates under a federal thrift charter and provides full banking
services. As a federally chartered thrift, the Bank is subject to regulation by
the Office of Thrift Supervision.
The Bank generates mortgage and consumer loans and receives deposits from
customers located primarily in Central Indiana. The Bank's loans are generally
secured by specific items of collateral including real property and consumer
assets. L-F Service invests in low income housing partnerships.
Consolidation--The consolidated financial statements include the accounts of the
Bank and subsidiary after elimination of all material intercompany transactions
and accounts.
Investment Securities--Debt securities are classified as held to maturity when
the Bank has the positive intent and ability to hold the securities to maturity.
Securities held to maturity are carried at amortized cost.
Debt securities not classified as held to maturity are classified as available
for sale. Securities available for sale are carried at fair value with
unrealized gains and losses reported separately, net of tax, in equity capital.
Amortization of premiums and accretion of discounts are recorded using the
interest method as interest income from securities. Realized gains and losses
are recorded as net security gains (losses). Gains and losses on sales of
securities are determined on the specific-identification method.
Loan securitizations--The Bank securitized certain mortgage loans and created
mortgage-backed securities for sale in the secondary market. Because the
resulting securities were collateralized by the identical loans previously held,
no gain or loss was recognized at the time of the securitization transactions.
When securitized loans are sold to an outside party, the specific-identification
method is used to determine the cost of the security sold, and a gain or loss is
recognized in income.
Mortgage loans held for sale are carried at the lower of aggregate cost or
market. Net unrealized losses are recognized through a valuation allowance by
charges to income. Gains or losses on sales of loans as recorded in the
consolidated statement of income include the amounts as determined above as well
as principal gains or losses associated with the sales and the recognition of
unamortized loan origination fees and commitment fees paid to the purchasers.
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Loans are carried at the principal amount outstanding. A loan is impaired when,
based on current information or events, it is probable that the Bank will be
unable to collect all amounts due (principal and interest) according to the
contractual terms of the loan agreement. Payments with insignificant delays not
exceeding 90 days outstanding are not considered impaired. Certain nonaccrual
and substantially delinquent loans may be considered to be impaired. The Bank
considers its investment in one-to-four family residential loans and consumer
loans to be homogeneous and therefore excluded from separate identification for
evaluation of impairment. Interest income is accrued on the principal balances
of loans. The accrual of interest on impaired and nonaccrual loans is
discontinued when, in management's opinion, the borrower may be unable to meet
payments as they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed when considered uncollectible. Interest income is
subsequently recognized only to the extent cash payments are received. Certain
loan fees and direct costs are being deferred and amortized as an adjustment of
yield on the loans over the contractual lives of the loans. When a loan is paid
off or sold, any unamortized loan origination fee balance is credited to income.
Allowance for loan losses is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of June
30, 1998 (unaudited) and December 31, 1997 and 1996, the allowance for loan
losses is adequate based on information currently available. A worsening or
protracted economic decline in the area within which the Bank operates would
increase the likelihood of additional losses due to credit and market risks and
could create the need for additional loss reserves.
Foreclosed real estate is carried at the lower of cost or fair value less
estimated selling costs. When foreclosed real estate is acquired, any required
adjustment is charged to the allowance for loan losses. All subsequent activity
is included in current operations.
Mortgage servicing rights on originated loans are capitalized by allocating the
total cost of the mortgage loans between the mortgage servicing rights and the
loans based on their relative fair values. Capitalized servicing rights, which
include purchased servicing rights, are amortized in proportion to and over the
period of estimated servicing revenues.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based principally on the
estimated useful lives of the assets which range from 3 to 39 years. Maintenance
and repairs are expensed as incurred while major additions and improvements are
capitalized. Gains and losses on dispositions are included in current
operations.
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Federal Home Loan Bank stock is a required investment for institutions that are
members of the Federal Home Loan Bank (FHLB) system. The required investment in
the common stock is based on a predetermined formula.
Investment in limited partnerships is recorded using the equity method of
accounting. Losses due to impairment are recorded when it is determined that the
investment no longer has the ability to recover its carrying amount. The
benefits of low income housing tax credits associated with the investment are
accrued when earned.
Pension plan costs are based on actuarial computations and charged to current
operations. The funding policy is to pay at least the minimum amounts required
by ERISA.
Income tax in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Bank
files consolidated income tax returns with its subsidiary.
Reclassifications of certain amounts in the 1996 and 1995 consolidated financial
statements have been made to conform to the 1997 presentation.
Note 2 -- Restriction on Cash
The Bank is required to maintain reserve funds in cash and/or on deposit with
the Federal Reserve Bank. The reserve required at June 30, 1998 (unaudited) and
December 31, 1997, was $106,000.
Note 3 -- Investment Securities
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
June 30 Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Available for sale
Mortgage-backed securities
Federal Home Loan Mortgage Corporation $36,416 $851 $37,267
Federal National Mortgage Corporation 6,790 58 $3 6,845
Corporates 14,828 14,828
-----------------------------------------------------------
Total available for sale 58,034 909 3 58,940
-----------------------------------------------------------
Held to maturity
Federal agencies 3,500 9 3,509
-----------------------------------------------------------
Total held to maturity 3,500 9 3,509
-----------------------------------------------------------
Total investment securities $61,534 $918 $3 $62,449
===========================================================
</TABLE>
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
Mortgage-backed securities
Federal Home Loan Mortgage Corporation $20,997 $862 $21,859
Federal National Mortgage Corporation 7,498 42 7,540
-----------------------------------------------------------
Total available for sale 28,495 904 29,399
-----------------------------------------------------------
Held to maturity
Federal agencies 9,635 5 $25 9,615
-----------------------------------------------------------
Total held to maturity 9,635 5 25 9,615
-----------------------------------------------------------
Total investment securities $38,130 $909 $25 $39,014
===========================================================
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
Federated liquid cash fund $ 17 $ 17
FHLMC stock 100 $1 101
-----------------------------------------------------------
Total available for sale 117 1 118
-----------------------------------------------------------
Held to maturity
Federal agencies 15,185 3 $191 14,997
Total held to maturity 15,185 3 191 14,997
-----------------------------------------------------------
Total investment securities $15,302 $4 $191 $15,115
===========================================================
</TABLE>
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The amortized cost and fair value of securities at June 30, 1998 (unaudited) and
December 31, 1997, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
June 30, 1998
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
- ---------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Within one year $1,250 $1,251
One to five years 2,250 2,258
Over ten years $14,828 $14,828
-----------------------------------------------------------
14,828 14,828 3,500 3,509
Mortgage-backed securities 43,206 44,112
-----------------------------------------------------------
Totals $58,034 $58,940 $3,500 $3,509
===========================================================
December 31, 1997
-----------------------------------------------------------
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
-----------------------------------------------------------
Within one year $2,750 $2,742
One to five years 6,885 6,873
-----------------------------------------------------------
9,635 9,615
Mortgage-backed securities $28,495 $29,399
-----------------------------------------------------------
Totals $28,495 $29,399 $9,635 $9,615
</TABLE>
Securities with a carrying value of $47,612,000 and $38,957,000 were pledged at
June 30, 1998 (unaudited) and December 31, 1997 to secure FHLB advances.
Proceeds from sales of securities available for sale during the six months ended
June 30, 1998 (unaudited) and the year ended December 31, 1997 were $21,081,000
and $54,532,000. Gross gains of $105,000 for the six months ended June 30, 1998
(unaudited), and gross gains of $208,000 and gross losses of $90,000 for the
year ended December 31,1997 were realized on those sales.
The retained interest in loans securitized and included in securities available
for sale does not include a material amount of loans formerly classified as held
for sale.
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 4 -- Loans and Allowance
<TABLE>
<CAPTION>
June 30, December 31
1998 1997 1996
--------------------------------
(Unaudited)
Real estate mortgage loans
<S> <C> <C> <C>
One-to-four family $140,434 $205,976 $245,198
Multi-family 1,048 1,133 1,111
Real estate construction loans 7,722 9,912 13,159
Commercial, industrial and agricultural loans 16,297 16,611 17,555
Consumer loans 22,374 20,558 16,363
--------------------------------
Total loans 187,875 254,190 293,386
Less
Undisbursed portion of loans 2,071 2,504 8,086
Deferred loan fees 954 1,690 2,488
--------------------------------
$184,850 $249,996 $282,812
================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30 Year Ended December 31
--------------------------------------------------------------------------------
1998 1997 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Allowance for loan losses
<S> <C> <C> <C> <C> <C>
Balances, Beginning of Period $1,361 $1,241 $1,241 $1,121 $1,047
Provision for loan losses 410 50 298 120 100
Recoveries on loans 16 3
Loans charged off (355) (178) (29)
--------------------------------------------------------------------------------
Balances, End of Period $1,432 $1,291 $1,361 $1,241 $1,121
================================================================================
</TABLE>
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Information on impaired loans is summarized below.
June 30, December 31
1998 1997 1996
(Unaudited)
Impaired loans with an allowance $808 $1,582 $2,106
=======================================
Allowance for impaired loans
(included in the Bank's
allowance for loan losses) $121 $237 $523
=======================================
<TABLE>
<CAPTION>
Six Months Ended
June 30 Year Ended December 31
1998 1997 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Average balance of impaired loans $1,273 $2,063 $1,933 $2,177 $569
Interest income recognized on impaired loans 9 60 64 194 45
Cash-basis interest included above 9 60 64 194 49
</TABLE>
The Bank has no commitments to loan additional funds to the borrowers of
impaired loans.
Note 5 -- Premises and Equipment
June 30, December 31
1998 1997 1996
(Unaudited)
Land $ 881 $ 881 $ 493
Buildings and land improvements 2,716 2,734 2,695
Furniture and equipment 1,507 1,490 1,240
---------------------------------------
Total cost 5,104 5,105 4,428
Accumulated depreciation (2,266) (2,280) (1,839)
---------------------------------------
Net $2,838 $2,825 $2,589
=======================================
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 6 -- Investment In Limited Partnership
The Bank has an investment of $2,632,863, $2,705,997 and $3,187,423 at June 30,
1998 (unaudited) and December 31, 1997 and 1996 representing equity in certain
limited partnerships organized to build, own and operate apartment complexes.
The Bank records its equity in the net income or loss of the partnerships based
on the Bank's interest in the partnerships, which interests are 49.5 percent in
Pedcor Investments-1987-I (Pedcor) and 99 percent in Bloomington Housing
Associates L.P. (Bloomington Housing). In addition to recording its equity in
the losses of the partnership, the Bank has recorded the benefit of low income
housing tax credits of $299,000 and $327,000 for the six months ended June 30,
1998 and 1997 (unaudited) and $655,000 for the years ended December 31, 1997 and
1996. Condensed combined financial statements of the partnerships are as
follows:
June 30, December 31
1998 1997 1996
(Unaudited)
Assets
Cash $ 395 $ 363 $ 361
Note receivable--limited partner 2,203 2,691 3,180
Land and property 9,527 9,716 10,063
Other assets 1,452 1,499 1,419
-----------------------------
Total assets $13,577 $14,269 $15,023
=============================
Liabilities
Notes payable $ 9,075 $ 9,536 $ 9,738
Other liabilities 624 710 706
-----------------------------
Total liabilities 9,699 10,246 10,444
Partners' equity 3,878 4,023 4,579
-----------------------------
Total liabilities and partners' equity $13,577 $14,269 $15,023
=============================
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30 Year Ended December 31
1998 1997 1997 1996 1995
-----------------------------------------------------------------------
(Unaudited)
Condensed statement of operations
<S> <C> <C> <C> <C> <C>
Total revenue $ 760 $ 817 $ 1,677 $ 1,655 $ 1,579
Total expenses 1,296 1,245 2,633 2,438 2,398
-----------------------------------------------------------------------
Net loss $ (536) $ (428) $ (956) $ (783) $ (819)
=======================================================================
</TABLE>
At December 31, 1997, the Bank had committed to make a capital contribution of
$195,000 to Pedcor in January 1998.
Note 7 -- Deposits
<TABLE>
<CAPTION>
June 30, December 31
1998 1997 1996
(Unaudited)
<S> <C> <C> <C>
Noninterest-bearing demand deposits $ 1,394 $ 2,321 $ 711
Interest-bearing demand 7,487 7,565 8,551
Money market savings deposits 28,631 26,002 14,429
Savings deposits 20,609 21,967 29,714
Certificates and other time deposits of $100,000 or more 16,698 15,334 24,279
Other certificates and time deposits 136,341 130,663 133,139
-------------------------------------------
Total deposits $211,160 $203,852 $210,823
===========================================
</TABLE>
Certificates maturing in years ending :
June 30 December 31
(Unaudited)
1998 $111,568 $ 69,205
1999 30,660 65,038
2000 7,590 5,822
2001 2,464 5,120
2002 757 812
--------------------------------
$153,039 $145,997
==============================
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Deposits in excess of $100,000 are not federally insured.
<TABLE>
<CAPTION>
Six Months Ended
June 30 Year Ended December 31
1998 1997 1997 1996 1995
---------------------------------------------------------------
(Unaudited)
Interest expense on deposits
<S> <C> <C> <C> <C> <C>
Interest-bearing demand $ 79 $ 77 $ 154 $ 151 $ 143
Money market savings deposits 687 459 1,044 320 108
Savings deposits 322 417 781 1,092 1,295
Certificates 4,248 4,136 8,424 8,675 8,456
---------------------------------------------------------------
$ 5,336 $ 5,089 $10,403 $10,238 $10,002
===============================================================
</TABLE>
Note 8 -- Federal Home Loan Bank Advances
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
Weighted Weighted
Average Average
Amount Rate Amount Rate
(Unaudited)
Advances from FHLB
Maturities in years ending
<S> <C> <C>
1998 $35,000 5.47%
1999 $24,000 5.53% 7,000 5.21
2000 3,750 6.15
2002
12,700 5.81
2003 10,000 5.67
1,686 5.36
2004 1,686 5.36
2007 10,000 6.67
------- ----------
2008
10,000 5.73
$45,686 5.60% $ 70,136 5.71%
======= ==========
</TABLE>
The FHLB advances are secured by first mortgage loans and investment securities
totaling $203,631,000 and $238,781,000 at June 30, 1998 (unaudited) and December
31, 1997. Advances are subject to restrictions or penalties in the event of
prepayment.
During the six months ended June 30, 1998 (unaudited), the Bank prepaid FHLB
advances of $16,450,000. The early repayments resulted in prepayment penalties
of $150,000, net of income taxes of $98,600, which has been accounted for as an
extraordinary item as required by generally accepted accounting principles.
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The Bank has an available line of credit with the FHLB totaling $2,000,000. The
line of credit expires September 9, 1998 and bears interest at a rate equal to
the current variable advance rate. There were no drawings on this line of credit
at June 30, 1998 (unaudited) and December 31, 1997.
Note 9 -- Note Payable
The note payable to Bloomington Housing dated August 18, 1992 in the original
amount of $4,945,001 bears no interest so long as there exists no event of
default. In the instance where an event of default has occurred, interest shall
be calculated at a rate of five percent above the Indiana base rate as described
in the note. The following table summarizes the payment terms of the note.
June 30 December 31
(Unaudited)
Payments due in years ending:
1998 $ 489
1999 $ 489 489
2000 489 489
2001 489 489
2002 489 489
2003 2,467 246
----------------------------
$2,203 $2,691
============================
Note 10 -- Loan Servicing
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheet. The unpaid principal balances of these loans consist
of the following:
<TABLE>
<CAPTION>
June 30, December 31
1998 1997 1996
(Unaudited)
Mortgage loan portfolio serviced for
<S> <C> <C> <C>
FHLMC $101,922 $84,879 $36,660
Other investors 75 84 100
-------------------------------------------
$101,997 $84,963 $36,760
===========================================
</TABLE>
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
In 1996, the Bank adopted SFAS No. 122, Accounting for Mortgage Servicing
Rights. This Statement requires the capitalization of retained mortgage
servicing rights on originated or purchased loans by allocating the total cost
of the mortgage loans between the mortgage servicing rights and the loans
(without the servicing rights) based on their relative fair values. SFAS No. 122
was superseded during 1996 by SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities. SFAS No. 125
(as did SFAS No. 122) requires the assessment of impairment of capitalized
mortgage servicing rights and requires that impairment be recognized through a
valuation allowance based on the fair value of those rights. Prior to 1996, the
Bank had recognized loan servicing costs when participating interests in loans
sold had an average contractual interest rate, adjusted for normal servicing,
that differed from the agreed yield to the purchases. The aggregate fair value
of capitalized mortgage servicing rights at June 30, 1998 (unaudited) and
December 31, 1997 totaled $758,000 and $530,000. Comparable market values and a
valuation model that calculates the present value of future cash flows were used
to estimate fair value. For purposes of measuring impairment, risk
characteristics including product type, investor type, and interest rates, were
used to stratify the originated mortgage servicing rights.
June 30, December 31
1998 1997 1996 1995
- --------------------------------------------------------------------------------
(Unaudited)
Mortgage Servicing Rights
Balances, January 1 $530 $ 85 $49 $58
Servicing rights capitalized 354 512 48
Amortization of servicing rights (126) (67) (12) (9)
-----------------------------------
Balances, December 31 $758 $530 $85 $49
===================================
Note 11 -- Income Tax
<TABLE>
<CAPTION>
Six Months Ended
June 30 Year Ended December 31
1998 1997 1997 1996 1995
(Unaudited)
Income tax expense
Currently payable
<S> <C> <C> <C> <C> <C>
Federal $ 206 $ 449 $ 841 $ 695 $ 1,134
State 131 218 366 341 493
Deferred
Federal (164) 17 (58) (163) (351)
State 13 17 10 (3) (83)
------------------------------------------------------
Total income tax expense $ 186 $ 701 $ 1,159 $ 870 $ 1,193
======================================================
Reconciliation of federal
statutory to actual tax expense
Federal statutory income taxat34% $ 392 $ 872 $ 1,588 $ 1,312 $ 1,556
Effect of state income taxes 95 155 248 223 271
Tax credits (299) (327) (655) (655) (655)
Other (2) 1 (22) (10) 21
------------------------------------------------------
Actual tax expense $ 186 $ 701 $ 1,159 $ 870 $ 1,193
======================================================
Effective tax rate 16.16% 27.3% 24.8% 22.6% 26.1%
</TABLE>
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The components of the deferred tax asset are as follows at:
<TABLE>
<CAPTION>
June 30, December 31
1998 1997 1996
(Unaudited)
Assets
<S> <C> <C>
Depreciation $ 18 $ 18
Allowance for loan losses 609 578 $ 470
Loan fees 106 112 154
Deferred director fees 284 273 177
Loss on limited partnerships 416 411 402
Business tax credits 509 294 198
Loan interest 57
Other 2 13 21
------------------------------------------
Total assets 1,944 1,699 1,479
------------------------------------------
Liabilities
Depreciation 12
State income tax 71 76 79
FHLB stock dividends 78 78 78
Loans held for sale 6
Mortgage servicing rights 312 213 20
Securities available for sale 359 358
------------------------------------------
Total liabilities 820 725 195
------------------------------------------
$1,124 $974 $1,284
==========================================
</TABLE>
No valuation allowance was considered necessary at June 30, 1998 (unaudited) and
December 31, 1997 and 1996.
At June 30, 1998 (unaudited) and December 31, 1997, the Bank had an unused
business income tax credit carryforward of $509,000 and $294,000 expiring in
2012.
Income tax expense attributable to securities gains was $42,000 for the six
months ended June 30, 1998 (unaudited) and $47,000 for year ended December 31,
1997.
Retained earnings at June 30, 1998 (unaudited) and December 31, 1997 include
approximately $5,928,000 for which no deferred income tax liability has been
recognized. This amount represents an allocation of income to bad debt
deductions as of December 31, 1987 for tax purposes only. Reduction of amounts
so allocated for purposes other than tax bad debt losses including redemption of
bank stock or excess dividends, or loss of "bank" status, would create income
for tax purposes only, which income would be subject to the then-current
corporate income tax rate. The unrecorded deferred income tax liability on the
above amounts at June 30, 1998 (unaudited) and December 31, 1997 was
approximately $2,348,000.
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 12 -- Commitments and Contingent Liabilities
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements. The
Bank's exposure to credit loss in the event of nonperformance by the other party
to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual or notional amount of those
instruments. The Bank uses the same credit policies in making such commitments
as it does for instruments that are included in the consolidated statement of
financial condition.
Financial instruments whose contract amount represents credit risk were as
follows:
June 30, December 31
1998 1997 1996
- --------------------------------------------------------------------------------
(Unaudited)
Loan commitments
At variable rates $9,145 $7,255 $6,642
At fixed rates ranging from
6.125 to 10.50% 5,078
7.25 to 9.50% 9,263
6.0 to 9.75% 11,865
Commitment to sell loans 19,264
Standby letters of credit 237 715 878
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 Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies, but may include residential real estate,
income-producing commercial properties, or other assets of the borrower.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party.
The Bank and subsidiary are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate determination of such possible claims or
lawsuits will not have a material adverse effect on the consolidated financial
position of the Bank.
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 13 -- Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies and is assigned to a capital category. The assigned
capital category is largely determined by three ratios that are calculated
according to the regulations: total risk adjusted capital, Tier 1 capital, and
Tier 1 leverage ratios. The ratios are intended to measure capital relative to
assets and credit risk associated with those assets and off-balance sheet
exposures of the entity. The capital category assigned to an entity can also be
affected by qualitative judgments made by regulatory agencies about the risk
inherent in the entity's activities that are not part of the calculated ratios.
There are five capital categories defined in the regulations, ranging from well
capitalized to critically undercapitalized. Classification of a bank in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank's operations. At June 30, 1998 (unaudited) and
December 31, 1997 and 1996, the Bank is categorized as well capitalized and met
all subject capital adequacy requirements. There are no conditions or events
since June 30, 1998 (unaudited) and December 31, 1997 that management believes
have changed the Bank's classification.
The Bank's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
June 30, 1998
Required for To Be Well
Actual Adequate Capital 1 Capitalized 1
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital 1
(to risk-weighted assets) $43,680 24.6% $14,217 8.0% $17,772 10.0%
Core capital 1 (to adjusted tangible assets) 42,248 13.9% 9,138 3.0% 18,276 6.0%
Core capital 1 (to adjusted total assets) 42,248 13.9% 9,138 3.0% 15,230 5.0%
1 As defined by regulatory agencies
December 31, 1997
Required for To Be Well
Actual Adequate Capital 1 Capitalized 1
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------
Total risk-based capital 1
(to risk-weighted assets) $42,793 25.3% $13,547 8.0% $16,934 10.0%
Core capital 1 (to adjusted tangible assets) 41,432 12.9% 9,625 3.0% 19,250 6.0%
Core capital 1 (to adjusted total assets) 41,432 12.9% 9,625 3.0% 16,042 5.0%
</TABLE>
1 As defined by regulatory agencies
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
December 31, 1996
Required for To Be Well
Actual Adequate Capital 1 Capitalized 1
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------
Total risk-based capital 1
<S> <C> <C> <C> <C> <C> <C>
(to risk-weighted assets) $38,989 21.8% $14,342 8.0% $17,928 10.0%
Core capital 1 (to adjusted tangible assets) 37,918 11.0% 10,367 3.0% 20,733 6.0%
Core capital 1 (to adjusted total assets) 37,918 11.0% 10,367 3.0% 17,278 5.0%
</TABLE>
1 As defined by regulatory agencies
The Bank's tangible capital at June 30, 1998 (unaudited) and December 31, 1997
was $42,428,000 and $41,432,000, which amounts were 13.9 and 12.9 percent of
tangible assets and exceeded the required ratio of 1.5 percent.
Reconciliation of capital for financial statement purposes to regulatory capital
was as follows:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
Core Tangible Risk-Based Core Tangible Risk-Based
Capital Capital Capital Capital Capital Capital
- ----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Capital for financial
statement purposes $42,795 $42,795 $42,795 $41,978 $41,978 $41,978
Less
Net unrealized gain on securities
available for sale 547 547 547 546 546 546
Add
General loan valuation allowance 1,432 1,361
----------------------------------------------------------------------------------
Regulatory capital $42,248 $42,248 $43,680 $41,432 $41,432 $42,793
==================================================================================
</TABLE>
Note 14 -- Benefit Plans
The Bank is a participant in a pension fund known as the Financial Institutions
Retirement Fund ("FIRF"). This plan is a multi-employer plan: Pension expense
(benefit) was $0 for the six months ended June 30, 1998 and 1997 (unaudited) and
$(26,000), $70,000 and $88,000 for the years ended December 31, 1997, 1996 and
1995. This plan provides pension benefits for substantially all of the Bank's
employees.
The Bank has a retirement savings 401(k) plan in which substantially all
employees may participate. The Bank matches employees' contributions at the rate
of 50 percent for the first 5 percent of W-2 earnings contributed by
participants. The Bank's expense for the plan was $15,000 and $6,000 for the six
months ended June 30, 1998 and 1997 (unaudited) and $19,000, $20,000 and $12,000
for the years ended December 31, 1997, 1996 and 1995.
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 15 -- Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument.
Cash and Cash Equivalents--The fair value of cash and cash equivalents
approximates carrying value.
Interest-Bearing Deposits--The fair value of interest-bearing deposits
approximates carrying value.
Securities--Fair values are based on quoted market prices.
Loans and Loans Held for Sale--The fair value for loans is estimated using
discounted cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality.
FHLB Stock--Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
Interest Receivable/Payable--The fair value of accrued interest
receivable/payable approximates carrying values.
Deposits--Fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on such time deposits.
FHLB Advances--The fair value of these borrowings is estimated using a
discounted cash flow calculation, based on current rates for similar debt.
Note Payable--Limited Partnership--The fair value of the borrowing is estimated
using a discounted cash flow calculation based on the prime interest rate.
Advance Payments by Borrowers for Taxes and Insurance--The fair value
approximates carrying value.
Off-Balance Sheet Commitments--Commitments include commitments to originate
mortgage and consumer loans and standby letters of credit and are generally of a
short-term nature. The fair value of such commitments are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing. The
carrying amounts of these commitments, which are immaterial, are reasonable
estimates of the fair value of these financial instruments.
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The estimated fair values of the Bank's financial instruments are as follows:
<TABLE>
<CAPTION>
December 31
June 30, 1998 1997 1996
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
- -------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Assets
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $23,765 $23,765 $18,958 $18,958 $9,799 $9,799
Interest-bearing deposits 595 595
Securities available for sale 58,940 58,940 29,399 29,399 118 118
Securities held to maturity 3,500 3,509 9,635 9,615 15,185 14,997
Loans including loans held for sale, net 202,683 205,485 248,635 250,420 305,772 306,153
Stock in FHLB 5,447 5,447 5,447 5,447 4,797 4,797
Interest receivable 1,428 1,428 1,533 1,533 1,892 1,892
Liabilities
Deposits 211,160 211,459 203,852 204,270 210,823 211,287
Borrowings
FHLB advances 45,686 45,254 70,136 69,753 91,232 90,735
Note payable--limited partnership 2,203 1,835 2,691 2,198 3,180 2,514
Interest payable 1,138 1,138 1,154 1,154 484 484
Advances by borrowers for
taxes and insurance 613 613 723 723 937 937
</TABLE>
Note 16 -- Subsequent Event--Plan of Conversion
On July 2, 1998, the Board of Directors adopted a Plan of conversion ("Plan")
whereby the Bank will convert from a Federally chartered mutual institution to a
Federally chartered stock savings bank. The Plan is subject to approval of
regulatory authorities and members at a special meeting. The stock of the Bank
will be issued to Lincoln, a holding company formed in connection with the
conversion, and the Bank will become a wholly-owned subsidiary of Lincoln.
Pursuant to the Plan, shares of capital stock of Lincoln are expected to be
offered initially for subscription to eligible members of the Bank and certain
other persons as of specified dates subject to various subscription priorities
as provided in the Plan. The capital stock will be offered at a price to be
determined by the Board of Directors based upon an appraisal to be made by an
independent appraisal firm. The exact number of shares to be offered will be
determined by the Board of Directors in conjunction with the determination of
the subscription price. At least the minimum number of shares offered in the
conversion must be sold. Any stock not purchased in the subscription offering
will be sold in a community offering expected to be commenced following the
subscription offering.
<PAGE>
LINCOLN FEDERAL SAVINGS BANK AND SUBSIDIARY
Plainfield, Indiana
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The Plan provides that when the conversion is completed, a "liquidation account"
will be established in an amount equal to the retained income of the Bank as of
the date of the most recent financial statements contained in the final
conversion prospectus. The liquidation account is established to provide a
limited priority claim to the assets of the Bank to qualifying depositors
("eligible account holders") at June 30, 1997 and other depositors
("supplemental eligible account holders") as of September 30, 1998 who continue
to maintain deposits in the Bank after conversion. In the unlikely event of a
complete liquidation of the Bank, and only in such event, eligible account
holders would receive from the liquidation account a liquidation distribution
based on their proportionate share of the then total remaining qualifying
deposits.
Pursuant to the Plan, Lincoln intends to establish a Charitable Foundation (the
"Foundation") in connection with the conversion. The Plan provides that the Bank
and Lincoln will create the Foundation and donate an amount of Lincoln's common
stock equal to 5.0% of the common stock to be issued in the conversion. The
Foundation is being formed as a complement to the Bank's existing community
activities and will be dedicated to community activities and the promotion of
charitable causes.
The Foundation will submit a request to the Internal Revenue Service to be
recognized as a tax-exempt organization and would likely be classified as a
private foundation. A contribution of common stock to the Foundation by Lincoln
would be tax deductible, subject to an annual limitation based on 10% of
Lincoln's annual taxable income. Lincoln, however, would be able to carry
forward any unused portion of the deduction for five years following the
contribution. Upon funding the Foundation, Lincoln will recognize an expense in
the full amount of the contribution, offset in part by the corresponding tax
benefit, during the quarter in which the contribution is made.
Current regulations allow the Bank to pay dividends on its stock after the
conversion if its regulatory capital would not thereby be reduced below the
amount then required for the aforementioned liquidation account. Also, capital
distribution regulations limit the Bank's ability to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers,
interest payments on certain convertible debt and other transactions charged to
the capital account based on its capital level and supervisory condition. Under
regulations in effect at June 30, 1998, repurchase of bank or holding company
stock may only be made during the first year following conversion in exceptional
circumstances approved by the Office of Thrift Supervision. For the second and
third years following conversion, subject to the demonstration of a valid
business purpose and approval by the Office of Thrift Supervision, annual
repurchases of up to 5 percent of outstanding stock can be made.
Costs of conversion will be netted from proceeds of sale of common stock and
recorded as a reduction of additional paid-in capital or common stock. If the
conversion is not competed, such costs, totalling $26,000 at June 30, 1998
(unaudited), would be charged to expense.
Note 17 -- Unaudited Financial Statements
The accompanying consolidated balance sheet as of June 30, 1998, and the
consolidated statements of income, comprehensive income, changes in equity
capital and cash flows for the six months ended June 30, 1998 and 1997 are
unaudited, but management is of the opinion that all adjustments, consisting
only of normal recurring accruals, necessary for a fair presentation of the
results of the periods reported, have been included in the accompanying
financial statements. The results of operations for the six months ended June
30, 1998 are not necessarily indicative of those expected for the remainder of
the year.
<PAGE>
GLOSSARY
1933 Act Securities Act of 1933, as amended
1934 Act Securities Exchange Act of 1934, as amended
APY Annual Percentage Yield
Associate The term "Associate" of a person is defined
to mean (i) any corporation or organization
(other than Lincoln Federal or its
subsidiaries or the Holding Company) of
which such person is a director, officer,
partner or 10% shareholder; (ii) any trust
or other estate in which such person has a
substantial beneficial interest or serves as
trustee or in a similar fiduciary capacity;
provided, however that such term shall not
include any employee stock benefit plan of
the Holding Company or Lincoln Federal in
which such a person has a substantial
beneficial interest or serves as a trustee
or in a similar fiduciary capacity, and
(iii) any relative or spouse of such person,
or relative of such spouse, who either has
the same home as such person or who is a
director or officer of Lincoln Federal or
its subsidiaries or the Holding Company. ATM
Automated Teller Machine
Barnes & Thornburg Barnes & Thornburg, Indianapolis, Indiana
BIF Bank Insurance Fund of the FDIC
Code The Internal Revenue Code of 1986, as
amended
Community Offering Offering for sale to members of the general
public of any shares of Common Stock not
subscribed for in the Subscription Offering,
with preference given to residents of
Hendricks, Montgomery and Clinton Counties
Common Stock Up to 8,676,875 shares of Common Stock, with
no par value, offered by Lincoln Bancorp in
connection with the Conversion
Conversion Simultaneous conversion of Lincoln Federal
Savings Bank to stock form, the issuance of
Lincoln Federal's outstanding capital stock
to Lincoln Bancorp and Lincoln Bancorp's
offer and sale of Common Stock
<PAGE>
Eligible Account Holders Savings account holders of
Lincoln Federal with account balances of at
least $50 as of the close of business on
June 30, 1997
ERISA Employee Retirement Income Security Act of
1974, as amended
ESOP The Lincoln Bancorp Employee Stock Ownership
Plan and Trust
Estimated Valuation Range Estimated pro forma market value of the
Common Stock ranging from $54,875,000 to
$75,125,000
Expiration Date 12:00 noon, Plainfield Time, on
_____________, 1998
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
FedICIA Federal Deposit Insurance Corporation
Improvement Act of 1991, as amended
FHLB Federal Home Loan Bank
FNMA Federal National Mortgage Association
Foundation The Lincoln Federal Charitable Foundation,
Inc.
Freddie Mac Federal Home Loan Mortgage Corporation
Holding Company Lincoln Bancorp
IRA Individual retirement account or arrangement
IRS Internal Revenue Service
Keefe, Bruyette Keefe, Bruyette & Woods, Inc.
Keller Keller & Company, Inc.
LF LF Service Corp., a wholly-owned subsidiary
of Lincoln Federal Savings Bank
Lincoln Federal Lincoln Federal Savings Bank of Plainfield,
Indiana
MMDA Money Market Demand Account
NASD National Association of Securities Dealers,
Inc.
<PAGE>
Nasdaq National National Association of Securities Dealers
Market System Automated Quotation System--National Market
NOW account Negotiable Order of Withdrawal Account
NPV Net portfolio value
OCC Office of the Comptroller of the Currency
Order Form Form for ordering stock accompanied by a
certification concerning certain matters
Other Members Savings account holders (other than Eligible
Account Holders and Supplemental Eligible
Account Holders) who are entitled to vote at
the Special Meeting due to the existence of
a savings account on the Voting Record Date
for the Special Meeting, and borrowers of
Lincoln Federal as of June 19, 1984 who
remain borrowers on the Voting Record Date
OTS Office of Thrift Supervision
Pension Plan Multiple-employer, noncontributory defined
benefit retirement plan adopted by Lincoln
Federal for its full-time employees through
Pentegra Group (formerly known as Financial
Institutions Retirement Fund)
Plan or Plan of Conversion Plan of Lincoln Federal Savings Bank to
convert from a federally chartered mutual
savings bank to a federally chartered stock
savings bank and the issuance of all of
Lincoln Federal's outstanding capital stock
to Lincoln Bancorp and the issuance of
Lincoln Bancorp's Common Stock to the public
Purchase Price $10.00 per share price of the Common Stock
QTI Qualified thrift investment
QTL Qualified thrift lender
REO Real Estate Owned
RRP Management Recognition and Retention Plan to
be submitted for approval at a meeting of
the Holding Company's shareholders to be
held at least six months after the
completion of the Conversion
SAIF Savings Association Insurance Fund of the
FDIC
SFAS Statement of Financial Accounting Standard
SEC Securities and Exchange Commission
Special Meeting Special Meeting of members of Lincoln
Federal called for the purpose of approving
the Plan
<PAGE>
Stock Option Plan The Lincoln Bancorp Stock Option Plan for
directors and officers to be submitted for
approval at a meeting of the Holding
Company's shareholders to be held at least
six months after the completion of the
Conversion
Subscription Offering Offering of non-transferable rights to
subscribe for the Common Stock, in order of
priority, to Eligible Account Holders, the
ESOP, Supplemental Eligible Account Holders
and Other Members
Supplemental Eligible Depositors of Lincoln Federal Savings Bank
Account Holders who are notEligible Account Holders, with
account balances of at least $50 on
September 30, 1998
Voting Record Date The close of business on ________, 1998, the
date for determining members entitled to
vote at the Special Meeting
Webb Charles Webb & Company, a Division of Keefe,
Bruyette & Woods, Inc.
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representation other than as contained in this Prospectus and, if given or made,
such information or representation must not be relied upon as having been
authorized by the Holding Company or Lincoln Federal. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any security
other than the shares of Common Stock offered hereby to any person 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. Neither
the delivery of this Prospectus nor any sale hereunder shall, under any
circumstances, create any implication that information herein is correct as of
any time subsequent to the date hereof.
Lincoln Bancorp
(Proposed Holding Company for
Lincoln Federal Savings Bank)
Up to 8,676,875 Shares
Common Stock
(without par value)
SUBSCRIPTION AND
COMMUNITY OFFERING
PROSPECTUS
CHARLES WEBB & COMPANY
A Division of Keefe, Bruyette and Woods, Inc.
______________, 1998
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED
Until _____________, 1998, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution(1).
Blue Sky Legal Services and Registration Fees $ 5,000
OTS Filing Fees $ 14,400
NASD Filing Fee $ 8,964
Securities and Exchange Commission Registration Fee $ 26,334
NASDAQ National Market System Listing Fee $ 72,875
Legal Services and Disbursements - Issuer's counsel $ 150,000
Auditing and Accounting Services $ 100,000
Appraisal fees and expenses $ 26,000
Business plan fees and expenses $ 6,000
Conversion agent fees and expenses $ 20,000
Printing costs (including Desktop Publishing and EDGAR fees) $ 100,000
Postage and mailing $ 50,000
Commissions and other offering fees (2) $ 576,080
Computer and telephone equipment for conversion center $ 70,000
Expenses of Sales Agents
(Including Counsel Fees and Disbursements) $ 40,000
Advertising $ 2,000
Transfer agent fees $ 2,000
Other expenses $ 130,467
----------
TOTAL (3) $1,400,120
==========
(1) Costs represented by salaries and wages of regular employees and officers
of the Registrant are excluded.
(2) Assumes that the Common Stock is sold for $65,000,000, the midpoint of the
Estimated Valuation Range, that no shares of stock will be sold through
brokers, that 70% of shares sold are sold to Indiana residents, that all
shares are sold in the Subscription Offering, and that executive officers
and directors of the Registrant and of Lincoln Federal Savings Bank and
their Associates and the Lincoln Bancorp Employee Stock Ownership Plan
acquire 907,000 shares.
(3) All the above items, except the Registration, OTS and NASD Filing Fees, are
estimated.
Item 14. Indemnification of Directors and Officers.
Section 21 of the Indiana Business Corporation Law, as amended (the "BCL"),
grants to each corporation broad powers to indemnify directors, officers,
employees or agents against expenses incurred in certain proceedings if the
conduct in question was found to be in good faith and was reasonably believed to
be in the corporation's best interests. This statute provides, however, that
this indemnification should not be deemed exclusive of any other indemnification
rights provided by the articles of incorporation, by-laws, resolution or other
authorization adopted by a majority vote of the voting shares then issued and
outstanding. Section 10.05 and Article 13 of the Articles of Incorporation of
the Registrant state as follows:
Section 10.05. Limitation of Liability and Reliance on Corporate Records
and Other Information.
Clause 10.051. General Limitation. No Director, member of any committee
of the Board of Directors, or of another committee appointed by the Board,
Officer, employee or agent of the Corporation ("Corporate Person") shall be
liable for any loss or damage if, in taking or omitting to take any action
causing such loss or damage, either (1) such Corporate Person acted (A) in
good faith, (B) with the care an ordinarily prudent person in a like
position would have exercised under similar circumstances, and (C) in a
manner such Corporate Person reasonably believed was in the best interests
of the Corporation, or (2) such Corporate Person's breach of or failure to
act in accordance with the standards of conduct set forth in Clause
10.051(1) above (the "Standards of Conduct") did not constitute willful
misconduct or recklessness.
Clause 10.052. Reliance on Corporate Records and Other Information. Any
"Corporate Person" shall be fully protected, and shall be deemed to have
complied with the Standards of Conduct, in relying in good faith, with
respect to any information contained therein, upon (1) the Corporate
Records, or (2) information, opinions, reports or statements (including
financial statements and other financial data) prepared or presented by (A)
one or more other Corporate Persons whom such Corporate Person reasonably
believes to be competent in the matters presented, (B) legal counsel,
public accountants or other persons as to matters that such Corporate
Person reasonably believes are within such person's professional or expert
competence, (C) a committee of the Board of Directors or other committee
appointed by the Board of Directors, of which such Corporate Person is not
a member, if such Corporate Person reasonably believes such committee of
the Board of Directors or such appointed committee merits confidence, or
(D) the Board of Directors, if such Corporate Person is not a Director and
reasonably believes that the Board merits confidence.
ARTICLE 13
Indemnification
Section 13.01. General. The Corporation shall, to the fullest extent to
which it is empowered to do so by the Act, or any other applicable laws, as
from time to time in effect, indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, by reason of the fact that he
is or was a Director, Officer, employee or agent of the Corporation, or
who, while serving as such Director, Officer, employee or agent of the
Corporation, is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, whether for profit or not, against expenses (including
counsel fees), judgments, settlements, penalties and fines (including
excise taxes assessed with respect to employee benefit plans) actually or
reasonably incurred by him in accordance with such action, suit or
proceeding, if he acted in good faith and in a manner he reasonably
believed, in the case of conduct in his official capacity, was in the best
interest of the Corporation, and in all other cases, was not opposed to the
best interests of the Corporation, and, with respect to any criminal action
or proceeding, he either had reasonable cause to believe his conduct was
lawful or no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not meet the prescribed standard of conduct.
Section 13.02. Authorization of Indemnification. To the extent that a
Director, Officer, employee or agent of the Corporation has been
successful, on the merits or otherwise, in the defense of any action, suit
or proceeding referred to in Section 13.01 of this Article, or in the
defense of any claim, issue or matter therein, the Corporation shall
indemnify such person against expenses (including counsel fees) actually
and reasonably incurred by such person in connection therewith. Any other
indemnification under Section 13.01 of this Article (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific
case, upon a determination that indemnification of the Director, Officer,
employee or agent is permissible in the circumstances because he has met
the applicable standard of conduct. Such determination shall be made (1) by
the Board of Directors by a majority vote of a quorum consisting of
Directors who were not at the time parties to such action, suit or
proceeding; or (2) if a quorum cannot be obtained under subdivision (1), by
a majority vote of a committee duly designated by the Board of Directors
(in which designation Directors who are parties may participate),
consisting solely of two or more Directors not at the time parties to such
action, suit or proceeding; or (3) by special legal counsel: (A) selected
by the Board of Directors or its committee in the manner prescribed in
subdivision (1) or (2), or (B) if a quorum of the Board of Directors cannot
be obtained under subdivision (1) and a committee cannot be designated
under subdivision (2), selected by a majority vote of the full Board of
Directors (in which selection Directors who are parties may participate);
or (4) by the Shareholders, but shares owned by or voted under the control
of Directors who are at the time parties to such action, suit or proceeding
may not be voted on the determination.
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as
to reasonableness of expenses shall be made by those entitled under
subsection (3) to select counsel.
Section 13.03. Good Faith Defined. For purposes of any determination
under Section 13.01 of this Article 13, a person shall be deemed to have
acted in good faith and to have otherwise met the applicable standard of
conduct set forth in Section 13.01 if his action is based on information,
opinions, reports, or statements, including financial statements and other
financial data, if prepared or presented by (1) one or more Officers or
employees of the Corporation or another enterprise whom he reasonably
believes to be reliable and competent in the matters presented; (2) legal
counsel, public accountants, appraisers or other persons as to matters he
reasonably believes are within the person's professional or expert
competence; or (3) a committee of the Board of Directors of the Corporation
or another enterprise of which the person is not a member if he reasonably
believes the committee merits confidence. The term "another enterprise" as
used in this Section 13.03 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other
enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent.
The provisions of this Section 13.03 shall not be deemed to be exclusive or
to limit in any way the circumstances in which a person may be deemed to
have met the applicable standards of conduct set forth in Section 13.01 of
this Article 13.
Section 13.04. Payment of Expenses in Advance. Expenses incurred in
connection with any civil or criminal action, suit or proceeding may be
paid for or reimbursed by the Corporation in advance of the final
disposition of such action, suit or proceeding, as authorized in the
specific case in the same manner described in Section 13.02 of this
Article, upon receipt of a written affirmation of the Director, Officer,
employee or agent's good faith belief that he has met the standard of
conduct described in Section 13.01 of this Article and upon receipt of a
written undertaking by or on behalf of the Director, Officer, employee or
agent to repay such amount if it shall ultimately be determined that he did
not meet the standard of conduct set forth in this Article 13, and a
determination is made that the facts then known to those making the
determination would not preclude indemnification under this Article13.
Section 13.05. Provisions Not Exclusive. The indemnification provided
by this Article shall not be deemed exclusive of any other rights to which
a person seeking indemnification may be entitled under these Articles of
Incorporation, the Corporation's Code of By-Laws, any resolution of the
Board of Directors or Shareholders, any other authorization, whenever
adopted, after notice, by a majority vote of all Voting Stock then
outstanding, or any contract, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a Director, Officer, employee
or agent, and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 13.06. Vested Right to Indemnification. The right of any
individual to indemnification under this Article shall vest at the time of
occurrence or performance of any event, act or omission giving rise to any
action, suit or proceeding of the nature referred to in Section 13.01 of
this Article 13 and, once vested, shall not later be impaired as a result
of any amendment, repeal, alteration or other modification of any or all of
these provisions. Notwithstanding the foregoing, the indemnification
afforded under this Article shall be applicable to all alleged prior acts
or omissions of any individual seeking indemnification hereunder,
regardless of the fact that such alleged acts or omissions may have
occurred prior to the adoption of this Article. To the extent such prior
acts or omissions cannot be deemed to be covered by this Article 13, the
right of any individual to indemnification shall be governed by the
indemnification provisions in effect at the time of such prior acts or
omissions.
Section 13.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, Officer,
employee or agent of the Corporation, or who is or was serving at the
request of the Corporation as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against any liability
asserted against or incurred by the individual in that capacity or arising
from the individual's status as a Director, Officer, employee or agent,
whether or not the Corporation would have power to indemnify the individual
against the same liability under this Article.
Section 13.08. Additional Definitions. For purposes of this Article,
references to the "Corporation" shall include any domestic or foreign
predecessor entity of the Corporation in a merger or other transaction in
which the predecessor's existence ceased upon consummation of the
transaction.
For purposes of this Article, serving an employee benefit plan at the
request of the Corporation shall include any service as a Director,
Officer, employee or agent of the Corporation which imposes duties on, or
involves services by such Director, Officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries. A
person who acted in good faith and in a manner he reasonably believed to be
in the best interests of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the
best interest of the Corporation" referred to in this Article.
For purposes of this Article, "party" includes any individual who is or
was a plaintiff, defendant or respondent in any action, suit or proceeding,
or who is threatened to be made a named defendant or respondent in any
action, suit or proceeding.
For purposes of this Article, "official capacity," when used with
respect to a Director, shall mean the office of director of the
Corporation; and when used with respect to an individual other than a
Director, shall mean the office in the Corporation held by the Officer or
the employment or agency relationship undertaken by the employee or agent
on behalf of the Corporation. "Official capacity" does not include service
for any other foreign or domestic corporation or any partnership, joint
venture, trust, employee benefit plan, or other enterprise, whether for
profit or not.
Section 13.09. Payments a Business Expense. Any payments made to any
indemnified party under this Article under any other right to
indemnification shall be deemed to be an ordinary and necessary business
expense of the Corporation, and payment thereof shall not subject any
person responsible for the payment, or the Board of Directors, to any
action for corporate waste or to any similar action.
Under the Act, an Indiana corporation may purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
enterprise, against any liability asserted against him or incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the Act. The Registrant has purchased insurance designed to
protect and indemnify the Registrant and its officers and directors in case they
are required to pay any amounts arising from certain claims, including claims
under the Securities Act of 1933, which might be made against the officers and
directors by reason of any actual or alleged act, error, omission, misstatement,
misleading statement, neglect, or breach of duty while acting in their
respective capacities as officers or directors of the Registrant.
Item 15. Recent Sales of Unregistered Securities.
Because the Registrant was only recently incorporated to act as a holding
company upon the completion of the offering registered by means of this
Registration Statement, the Registrant has not yet issued any shares of its
capital stock or other securities.
Item 16. Exhibits and Financial Statement Schedules.
(a) The exhibits furnished with this Registration Statement are
listed beginning on page E-l.
(b) No financial statement schedules are required.
Item 17. Undertakings.
(1) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table on the effective
registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(2) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of an action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Plainfield, State of
Indiana, on September 11, 1998.
LINCOLN BANCORP
By /s/ T. Tim Unger
-------------------------------------
T. Tim Unger
President and Chief Executive Officer
Each person whose signature appears below hereby authorizes T. Tim Unger
and John M. Baer, and each of them, to file one or more amendments (including
post-effective amendments) to the registration statement, which amendments may
make such changes in the registration statement as either of them deem
appropriate, and each such person hereby appoints T. Tim Unger and John M. Baer,
and each of them, as attorney-in-fact to execute in the name and on the behalf
of each person individually, and in each capacity stated below, any such
amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
(1) Principal Executive
Officer and Director:
/s/ T. Tim Unger Director, )
------------------------ President and )
T. Tim Unger Chief Executive Officer )
)
)
)
(2) Principal Financial )
and Accounting Officer: )
)
)
/s/ John M. Baer Chief Financial Officer )
------------------------ and Secretary )
John M. Baer )
)
) September 11, 1998
)
(3) The Board of Directors: )
)
)
/s/ Lester N. Bergum Director )
------------------------ )
Lester N. Bergum )
)
)
/s/ W. Thomas Harmon Director )
------------------------ )
W. Thomas Harmon )
)
)
/s/ Jerry R. Holifield Director )
------------------------ )
Jerry R. Holifield )
)
)
<PAGE>
/s/ Wayne E. Kessler Director )
------------------------ )
Wayne E. Kessler )
)
)
/s/ David E. Mansfield Director )
------------------------ )
David E. Mansfield )
)
)
/s/ John C. Milholland Director ) September 11, 1998
------------------------ )
John C. Milholland )
)
)
/s/ T. Tim Unger Director )
------------------------ )
T. Tim Unger )
)
)
/s/ Edward E. Whalen Director )
------------------------ )
Edward E. Whalen )
)
)
/s/ John L. Wyatt Director )
------------------------ )
John L. Wyatt )
EXHIBIT INDEX
Exhibit No. Description Page
1 Form of Agency Agreement to be entered into among
Registrant, Lincoln Federal Savings Bank, and Charles
Webb & Company, a division of Keefe, Bruyette & Woods,
Inc.
2 Plan of Conversion
3(1) Registrant's Articles of Incorporation
(2) Registrant's Code of By-Laws
4 Form of Stock Certificate
5 Opinion of Barnes & Thornburg re legality of securities
being registered
8(1) Opinion of Barnes & Thornburg re tax matters
(2) Opinion of Keller and Company, Inc. re economic value of
Subscription Rights
10(1) Letter Agreements entered into between Registrant and
Keller & Company, Inc. relating to appraisal and business
plan
(2) Lincoln Bancorp Stock Option Plan
(3) Lincoln Federal Savings Bank Recognition and Retention
Plan and Trust
(4) Employment Agreement between Lincoln Federal Savings Bank
and T. Tim Unger
(5) Lincoln Bancorp Employee Stock Ownership Plan and Trust
Agreement
(6) ESOP Loan Commitment and Exempt Loan and Share Purchase
Agreement between Trust under Lincoln Bancorp Employee
Stock Ownership Plan and Trust Agreement and Lincoln
Bancorp
(7) Unfunded Deferred Compensation Plan for the Directors of
Lincoln Federal Savings Bank, as amended
(8) Lincoln Federal Saving Bank Deferred Director
Supplemental Retirement Plan (Effective December 1, 1997)
21 Subsidiaries of the Registrant
23(1) Consent of Keller & Company, Inc.
(2) Consent of Geo. S. Olive & Co. LLC
(3) Consent of Barnes & Thornburg (included in Exhibit 5)
24 Power of Attorney included on page S-6 of the
Registration Statement
27 Financial Data Schedule
99(1) Appraisal Report of Keller & Company, Inc.*
(2) Stock Order Form
(3) Appraisal update*
(4) Charitable Gift
- ------------------
*To be filed by amendment
Exhibit 1
LINCOLN BANCORP
8,676,875 Shares
COMMON SHARES
(No Par Value)
Subscription Price $10.00 Per Share
AGENCY AGREEMENT
[________ __], 1998
Charles Webb & Company, a Division of
Keefe, Bruyette & Woods, Inc.
211 Bradenton Drive
Dublin, Ohio 43017-5034
Ladies and Gentlemen:
Lincoln Bancorp, an Indiana corporation (the "Company"), and Lincoln
Federal Savings Bank, Plainfield, Indiana, a federally chartered mutual savings
and loan association (the "Bank") (references to the "Bank" include the Bank in
the mutual or stock form, as indicated by the context), with its deposit
accounts insured by the Savings Association Insurance Fund ("SAIF") administered
by the Federal Deposit Insurance Corporation ("FDIC"), hereby confirm their
agreement with Charles Webb & Company, a Division of Keefe, Bruyette & Woods,
Inc. ("Webb", "KBW" or "the Agent"), as follows:
Section 1. The Offering. The Bank, in accordance with its plan of
conversion adopted by its Board of Directors (the "Plan"), intends to convert
from a federally chartered mutual savings bank to a federally chartered stock
savings bank, and will issue all of its issued and outstanding capital stock to
the Company. In addition, pursuant to the Plan, the Company will offer and sell
up to 8,676,875 of its common shares, no par value per share (the "Shares" or
"Common Shares"), in a subscription offering (the "Subscription Offering") to
(1) depositors of the Bank with Qualifying Deposits (as defined in the Plan) as
of June 30, 1997 ("Eligible Account Holders"), (2) the Lincoln Bancorp Employee
Stock Ownership Plan (the "ESOP"), (3) depositors of the Bank with Qualifying
Deposits as of September 30, 1998 ("Supplemental Eligible Account Holders") and
(4) the Bank's Other Members as defined in the Plan. Subject to the prior
subscription rights of the above-listed parties, the Company is offering for
sale in a community offering (the "Community Offering" and when referred to
together with the Subscription Offering, the "Subscription and Community
Offering") conducted concurrently with the Subscription Offering, the Shares not
subscribed for or ordered in the Subscription Offering to members of the general
public to whom a copy of the Prospectus (as hereinafter defined) is delivered
with a preference given to residents of Hendricks, Montgomery and Clinton
Counties, Indiana. It is anticipated that shares not subscribed for in the
Subscription and Community Offering will be offered to certain members of the
general public on a
1
<PAGE>
best efforts basis through a selected dealers agreement (the "Syndicated
Community Offering") (the Subscription Offering, Community Offering and
Syndicated Community Offering are collectively referred to as the "Offering").
It is acknowledged that the purchase of Shares in the Offering is subject to the
maximum and minimum purchase limitations as described in the Plan and that the
Company and the Bank may reject, in whole or in part, any orders received in the
Community Offering or Syndicated Community Offering. Collectively, these
transactions are referred to herein as the "Conversion."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form [______] (File No. 333-[_______])
(the "Registration Statement") containing a prospectus relating to the Offering
for the registration of the Shares under the Securities Act of 1933 (the "1933
Act"), and has filed such amendments thereof and such amended prospectuses as
may have been required to the date hereof. The term "Registration Statement"
shall include any documents incorporated by reference therein and all financial
schedules and exhibits thereto, as amended, including post-effective amendments.
The prospectus, as amended, on file with the Commission at the time the
Registration Statement initially became effective is hereinafter called the
"Prospectus," except that if any Prospectus is filed by the Company pursuant to
Rule 424(b) or (c) of the rules and regulations of the Commission under the 1933
Act (the "1933 Act Regulations") differing from the prospectus on file at the
time the Registration Statement initially becomes effective, the term
"Prospectus" shall refer to the prospectus filed pursuant to Rule 424(b) or (c)
from and after the time said prospectus is filed with the Commission.
In accordance with Title 12, Part 563b of the Code of Federal
Regulations (the "Conversion Regulations") and the laws and regulations of the
State of Indiana, the Bank has filed with the Office of Thrift Supervision (the
"OTS") an Application for Conversion (the "Conversion Application"), including
the Prospectus and the Conversion Valuation Appraisal Report prepared by Keller
& Company, Inc. (the "Appraisal") and has filed such amendments thereto as may
have been required by the OTS. The Conversion Application has been approved by
the OTS and the related Prospectus has been authorized for use by the OTS. In
addition, the Company has filed with the OTS its application on Form H-(e)1-S
(the "Holding Company Application") to become a registered savings and loan
holding company under the Home Owners' Loan Act, as amended ("HOLA"); and it has
been approved.
Section 2. Retention of Agent; Compensation; Sale and Delivery of the
Shares. Subject to the terms and conditions herein set forth, the Company and
the Bank hereby appoint the Agent as their exclusive financial advisor and
marketing agent (i) to utilize its best efforts to solicit subscriptions for
Common Shares and to advise and assist the Company and the Bank with respect to
the Company's sale of the Shares in the Offering and (ii) to participate in the
Offering in the areas of market making, research coverage and in syndicate
formation (if necessary).
On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, the Agent
accepts such appointment and agrees to consult with and advise the Company and
the Bank as to the matters set forth in the letter agreement, dated December 4,
1997, between the Bank and Webb (a copy of which is attached hereto as Exhibit
A). It is acknowledged by the Company and the Bank that the Agent shall not be
required to
2
<PAGE>
purchase any Shares or be obligated to take any action which is inconsistent
with all applicable laws, regulations, decisions or orders.
The obligations of the Agent pursuant to this Agreement (other than
those set forth in Section 2(a) and (d) hereof) shall terminate upon the
completion or termination or abandonment of the Plan by the Company or upon
termination of the Offering, but in no event later than 45 days after the
completion of the Subscription Offering (the "End Date"). All fees or expenses
due to the Agent but unpaid will be payable to the Agent in next day funds at
the earlier of the Closing Date (as hereinafter defined) or the End Date. In the
event the Offering is extended beyond the End Date, the Company, the Bank and
the Agent may agree to renew this Agreement under mutually acceptable terms.
In the event the Company is unable to sell a minimum of 5,487,500
Shares within the period herein provided, this Agreement shall terminate and the
Company shall refund to any persons who have subscribed for any of the Shares
the full amount which it may have received from them plus accrued interest, as
set forth in the Prospectus; and none of the parties to this Agreement shall
have any obligation to the other parties hereunder, except as set forth in this
Section 2 and in Sections 6, 8 and 9 hereof.
In the event the Offering is terminated for any reason not attributable
to the action or inaction of the Agent, the Agent shall be paid the fees due to
the date of such termination pursuant to subparagraphs (a) and (d) below.
If all conditions precedent to the consummation of the Conversion,
including, without limitation, the sale of all Shares required by the Plan to be
sold, are satisfied, the Company agrees to issue, or have issued, the Shares
sold in the Offering and to release for delivery certificates for such Shares on
the Closing Date (as hereinafter defined) against payment to the Company by any
means authorized by the Plan; provided, however, that no funds shall be released
to the Company until the conditions specified in Section 7 hereof shall have
been complied with to the reasonable satisfaction of the Agent and their
counsel. The release of Shares against payment therefor shall be made on a date
and at a place acceptable to the Company, the Bank and the Agent. Certificates
for shares shall be delivered directly to the purchasers in accordance with
their directions. The date upon which the Company shall release or deliver the
Shares sold in the Offering, in accordance with the terms herein, is called the
"Closing Date."
The Agent shall receive the following compensation for its services
hereunder:
(a) A management fee of $25,000; payable in four consecutive
monthly installments of $6,250. Such fees shall be deemed to
have been earned when due. Should the Conversion be terminated
for any reason not attributable to the action or inaction of
the Agent, the Agent shall have earned and be entitled to be
paid fees accruing through the stage at which the termination
occurred, including any accrued legal fees expended by the
Agent.
(b) A Success Fee shall be charged based on the aggregate Purchase
Price of Common Shares sold in the Subscription Offering and
Community Offering, excluding shares purchased by the Bank's
officers, directors, or employees (or members of their
3
<PAGE>
immediate families) and their associates (as such term is
determined in the Plan of Conversion) plus any ESOP,
tax-qualified or stock-based compensation plan (except IRA's)
or similar plans created by the Bank or the Company for some
or all of its directors or employees. The Success Fee is
calculated as follows: (i) 1.15% of stock sold to residents of
the State of Indiana, (ii) .75% of stock sold to non-residents
of Indiana. The management fee described in subparagraph 2(a)
shall be applied against the Success Fee described in this
subparagraph 2(b).
(c) If any of the Common Shares remain available after the
Subscription Offering, at the request of the Bank, Webb will
seek to form a syndicate of registered broker-dealers
("Selected Dealers") to assist in the sale of such Common
Shares on a best efforts basis, subject to the terms and
conditions set forth in the selected dealers agreement. Webb
will endeavor to distribute the Common Shares among the
Selected Dealers in a fashion which best meets the
distribution objectives of the Bank and the Plan. Webb will be
paid a fee not to exceed 5.5% of the aggregate Purchase Price
of the Shares sold by the Selected Dealers. Webb will pass
onto the Selected Dealers who assist in the Syndicated
Community Offering an amount competitive with gross
underwriting discounts charged at such time for comparable
amounts of stock sold at a comparable price per share in a
similar market environment. Fees with respect to purchases
affected with the assistance of Selected Dealers other than
Webb shall be transmitted by Webb to such Selected Dealers.
The decision to utilize Selected Dealers will be made by the
Bank upon consultation with Webb. In any event, with respect
to any purchases of Shares, fees paid pursuant to this
subparagraph 2(c) such fees shall be in lieu of, and not in
addition to, payment pursuant to subparagraph 2(a) and 2(b).
(d) The Agent will not request reimbursement for any out-of-pocket
expenses relating to travel, lodging, photocopying and meal
expenses. The Bank and Company shall reimburse the Agent for
fees and expenses of counsel and the legal fees will not
exceed $40,000. The Bank will bear the expenses of the
Offering customarily borne by issuers including, without
limitation, regulatory filing fees, SEC, "Blue Sky," and NASD
filing and registration fees; the fees of the Bank's
accountants, attorneys, appraiser, transfer agent and
registrar, printing, mailing and marketing expenses associated
with the conversion; and the fees set forth under this Section
2; and fees for "Blue sky" legal work. If Webb incures
expenses on behalf of the Company or the bank, they will
reimburse Webb for such expenses.
Full payment of Agent's actual and accountable expenses, advisory fees
and compensation shall be made in next day funds on the earlier of the Closing
Date or a determination by the Bank to terminate or abandon the Plan.
Section 3. Prospectus; Offering. The Shares are to be initially offered
in the Offering at the Purchase Price as defined and set forth on the cover page
of the Prospectus.
Section 4. Representations and Warranties. The Company and the Bank
jointly and severally represent and warrant to and agree with the Agent as
follows:
4
<PAGE>
(a) The Registration Statement which was prepared by the Company
and the Bank and filed with the Commission was declared
effective by the Commission on [___________], 1998. At the
time the Registration Statement, including the Prospectus
contained therein (including any amendment or supplement),
became effective, the Registration Statement contained all
statements that were required to be stated therein in
accordance with the 1933 Act and the 1933 Act Regulations,
complied in all material respects with the requirements of the
1933 Act and the 1933 Act Regulations and the Registration
Statement, including the Prospectus contained therein
(including any amendment or supplement thereto), and any
information regarding the Company or the Bank contained in
Sales Information (as such term is defined in Section 8
hereof) authorized by the Company or the Bank for use in
connection with the Offering, did not contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading, and at the time any Rule
424(b) or (c) Prospectus was filed with the Commission and at
the Closing Date referred to in Section 2, the Registration
Statement, including the Prospectus contained therein
(including any amendment or supplement thereto), and any
information regarding the Company or the Bank contained in
Sales Information (as such term is defined in Section 8
hereof) authorized by the Company or the Bank for use in
connection with the Offering will contain all statements that
are required to be stated therein in accordance with the 1933
Act and the 1933 Act Regulations and will not contain an
untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the
representations and warranties in this Section 4(a) shall not
apply to statements or omissions made in reliance upon and in
conformity with written information furnished to the Company
or the Bank by the Agent or its counsel expressly regarding
the Agent for use in the Prospectus under the caption "The
Conversion-Plan of Distribution" or statements in or omissions
from any Sales Information or information filed pursuant to
state securities or blue sky laws or regulations regarding the
Agent.
(b) The Conversion Application which was prepared by the Company
and the Bank and filed with the OTS was approved on
[___________], 1998 and the related Prospectus has been
authorized for use by the OTS. At the time of the approval of
the Conversion Application, including the Prospectus
(including any amendment or supplement thereto), by the OTS
and at all times
5
<PAGE>
subsequent thereto until the Closing Date, the Conversion
Application, including the Prospectus (including any amendment
or supplement thereto), will comply in all material respects
with the Conversion Regulations, except to the extent waived
in writing by the OTS. The Conversion Application, including
the Prospectus (including any amendment or supplement
thereto), does not include any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not
misleading; provided, however, that the representations and
warranties in this Section 4(b) shall not apply to statements
or omissions made in reliance upon and in conformity with
written information furnished to the Company or the Bank by
the Agent or its counsel expressly regarding the Agent for use
in the Prospectus contained in the Conversion Application
under the caption "The Conversion-Marketing Arrangements" or
statements in or omissions from any sales information or
information filed pursuant to state securities or blue sky
laws or regulations regarding the Agent. The Holding Company
Application for approval pursuant to the HOLA and the
regulations promulgated thereunder (the "Control Act
Regulations") has been prepared by the Bank and the Company in
material conformity with the requirements of the Control Act
Regulations and has been filed with and approved by the OTS. A
conformed copy of the Holding Company Application has been
delivered to the Agent.
(c) The Company has filed with the OTS the Holding Company
Application, and such Application was deemed complete by the
OTS. As of the Closing Date, approval of the Company's
acquisition of the Bank will have been obtained from the OTS.
(d) No order has been issued by the OTS or the FDIC (hereinafter
any reference to the FDIC shall include the SAIF) preventing
or suspending the use of the Prospectus, and no action by or
before any such government entity to revoke any approval,
authorization or order of effectiveness related to the
Conversion is, to the best knowledge of the Company or the
Bank, pending or threatened.
(e) At the Closing Date, the Plan will have been adopted by the
Boards of Directors of both the Company and the Bank and
approved by the members of the Bank, and the offer and sale of
the Shares will have been conducted in all material respects
in accordance with the Plan, the Conversion Regulations, and
all other applicable laws, regulations, decisions and orders,
including all terms, conditions, requirements and provisions
precedent to the
6
<PAGE>
Conversion imposed upon the Company or the Bank by the OTS,
the Commission, or any other regulatory authority and in the
manner described in the Prospectus. No person has sought to
obtain review of the final action of the OTS in approving the
Plan or in approving the Conversion or the Holding Company
Application pursuant to the HOLA or any other statute or
regulation.
(f) The Bank has been organized and is a validly existing
federally chartered savings and loan association in mutual
form of organization and upon the Conversion will become a
duly organized and validly existing federally chartered
savings and loan association in permanent capital stock form
of organization, in both instances duly authorized to conduct
its business and own its property as described in the
Registration Statement and the Prospectus; the Bank has
obtained all material licenses, permits and other governmental
authorizations currently required for the conduct of its
business; all such licenses, permits and governmental
authorizations are in full force and effect, and the Bank is
in all material respects complying with all laws, rules,
regulations and orders applicable to the operation of its
business; the Bank is existing under federal law and is duly
qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which its ownership
of property or leasing of property or the conduct of its
business requires such qualification, unless the failure to be
so qualified in one or more of such jurisdictions would not
have a material adverse effect on the condition, financial or
otherwise, or the business, operations or income of the Bank.
The Bank does not own equity securities or any equity interest
in any other business enterprise except as described in the
Prospectus or as would not be material to the operations of
the Bank. Upon completion of the sale by the Company of the
Shares contemplated by the Prospectus, (i) all of the
authorized and outstanding capital stock of the Bank will be
owned by the Company and (ii) the Company will have no direct
subsidiaries other than the Bank. The Conversion will have
been effected in all material respects in accordance with all
applicable statutes, regulations, decisions and orders; and,
except with respect to the filing of certain post-sale,
post-Conversion reports, and documents in compliance with the
1933 Act Regulations, the OTS's resolutions or letters of
approval, all terms, conditions, requirements and provisions
with respect to the Conversion imposed by the Commission, the
OTS and the FDIC, if any, will have been complied with by the
Company and the Bank in all material respects or appropriate
waivers will have been obtained
7
<PAGE>
and all material notice and waiting periods will have been
satisfied, waived or elapsed.
(g) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State
of Indiana with corporate power and authority to own, lease
and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus,
and at the Closing Date the Company will be qualified to do
business as a foreign corporation in each jurisdiction in
which the conduct of its business requires such qualification,
except where the failure to so qualify would not have a
material adverse effect on the condition, financial or
otherwise, or the business, operations or income of the
Company. The Company has obtained all material licenses,
permits and other governmental authorizations currently
required for the conduct of its business; all such licenses,
permits and governmental authorizations are in full force and
effect, and the Company is in all material respects complying
with all laws, rules, regulations and orders applicable to the
operation of its business.
(h) The Bank is a member of the Federal Home Loan Bank of
Indianapolis ("FHLB-Indianapolis"). The deposit accounts of
the Bank are insured by the FDIC up to the applicable limits,
and no proceedings for the termination or revocation of such
insurance are pending or, to the best knowledge of the Company
or the Bank, threatened. Upon consummation of the Conversion,
the liquidation account for the benefit of Eligible Account
Holders will be duly established in accordance with the
requirements of the Conversion Regulations.
(i) The Company and the Bank have good and marketable title to all
real property and good title to all other assets material to
the business of the Company and the Bank, taken as a whole,
and to those properties and assets described in the
Registration Statement and Prospectus as owned by them, free
and clear of all liens, charges, encumbrances or restrictions,
except such as are described in the Registration Statement and
Prospectus, or are not material to the business of the Company
and the Bank, taken as a whole; and all of the leases and
subleases material to the business of the Company and the
Bank, taken as a whole, under which the Company or the Bank
hold properties, including those described in the Registration
Statement and Prospectus, are in full force and effect.
(j) The Company and the Bank have received an opinion of their
special counsel, Barnes & Thornburg, with respect to the
federal
8
<PAGE>
and Indiana income tax consequences of the Conversion; all
material aspects of the opinion of Barnes & Thornburg are
accurately summarized in the Registration Statement and will
be accurately summarized in the Prospectus; and further
represent and warrant that the facts upon which such opinion
is based are truthful, accurate and complete.
(k) The Company and the Bank have all such power, authority,
authorizations, approvals and orders as may be required to
enter into this Agreement, to carry out the provisions and
conditions hereof and to issue and sell the Shares to be sold
by the Company as provided herein and as described in the
Prospectus, except approval or confirmation by the OTS of the
final appraisal of the Bank. The consummation of the
Conversion, the execution, delivery and performance of this
Agreement and the consummation of the transactions herein
contemplated have been duly and validly authorized by all
necessary corporate action on the part of the Company and the
Bank and this Agreement has been validly executed and
delivered by the Company and the Bank and is the valid, legal
and binding agreement of the Company and the Bank enforceable
in accordance with its terms (except as the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the
enforcement of creditors' rights generally or the rights of
creditors of savings and loan holding companies, the accounts
of whose subsidiaries are insured by the FDIC, or by general
equity principles, regardless of whether such enforceability
is considered in a proceeding in equity or at law, and except
to the extent, if any, that the provisions of Sections 8 and 9
hereof may be unenforceable as against public policy).
(l) Neither the Company nor the Bank are in violation of any
directive received from the OTS, the FDIC, or any other agency
to make any material change in the method of conducting their
businesses so as to comply in all material respects with all
applicable statutes and regulations (including, without
limitation, regulations, decisions, directives and orders of
the OTS and the FDIC) and, except as may be set forth in the
Registration Statement and the Prospectus, there is no suit or
proceeding or charge or action before or by any court,
regulatory authority or governmental agency or body, pending
or, to the knowledge of the Company or the Bank, threatened,
which might materially and adversely affect the Conversion,
the performance of this Agreement or the consummation of the
transactions contemplated in the Plan and as described in the
Registration Statement and the Prospectus or which might
result in any material adverse change
9
<PAGE>
in the condition (financial or otherwise), earnings, capital
or properties of the Company or the Bank, or which would
materially affect their properties and assets.
(m) The financial statements, schedules and notes related thereto
which are included in the Prospectus fairly present the
balance sheet, income statement, statement of members' equity
and statement of cash flows of the Bank at the respective
dates indicated and for the respective periods covered thereby
and comply as to form in all material respects with the
applicable accounting requirements of Title 12 of the Code of
Federal Regulations and generally accepted accounting
principles (including those requiring the recording of certain
assets at their current market value). Such financial
statements, schedules and notes related thereto have been
prepared in accordance with generally accepted accounting
principles consistently applied through the periods involved,
present fairly in all material respects the information
required to be stated therein and are consistent with the most
recent financial statements and other reports filed by the
Bank with the OTS. The other financial, statistical and pro
forma information and related notes included in the Prospectus
present fairly the information shown therein on a basis
consistent with the audited and unaudited financial statements
of the Bank included in the Prospectus, and as to the pro
forma adjustments, the adjustments made therein have been
properly applied on the basis described therein.
(n) Since the respective dates as of which information is given in
the Registration Statement including the Prospectus: (i) there
has not been any material adverse change, financial or
otherwise, in the condition of the Company or the Bank and its
subsidiaries, considered as one enterprise, or in the
earnings, capital or properties of the Company or the Bank,
whether or not arising in the ordinary course of business;
(ii) there has not been any material increase in the long-term
debt of the Bank or in the principal amount of the Bank's
assets which are classified by the Bank as substandard,
doubtful or loss or in loans past due 90 days or more or real
estate acquired by foreclosure, by deed-in-lieu of foreclosure
or deemed in-substance foreclosure or any material decrease in
retained earnings or total assets of the Bank, nor has the
Company or the Bank issued any securities (other than in
connection with the incorporation of the Company) or incurred
any liability or obligation for borrowing other than in the
ordinary course of business; (iii) there have not been any
material transactions entered into by the Company or the Bank;
(iv) there has not been any material adverse change in the
aggregate dollar
10
<PAGE>
amount of the Bank's deposits or its consolidated net worth or
spread; (v) there has been no material adverse change in the
Company's or the Bank's relationship with its insurance
carriers, including, without limitation, cancellation or other
termination of the Company's or the Bank's fidelity bond or
any other type of insurance coverage; (vi) except as disclosed
in the Prospectus, there has been no material change in
management of the Company or the Bank, neither of which has
any material undisclosed liability of any kind, contingent or
otherwise; (vii) neither the Company nor the Bank has
sustained any material loss or interference with its
respective business or properties from fire, flood, windstorm,
earthquake, accident or other calamity, whether or not covered
by insurance; (viii) neither the Company nor the Bank is in
default in the payment of principal or interest on any
outstanding debt obligations; (ix) the capitalization,
liabilities, assets, properties and business of the Company
and the Bank conform in all material respects to the
descriptions thereof contained in the Prospectus; and (x)
neither the Company nor the Bank has any material contingent
liabilities, except as set forth in the Prospectus. All
documents made available to or delivered or to be made
available to or delivered by the Bank or the Company or their
representatives in connection with the issuance and sale of
the Shares, including records of account holders, depositors,
borrowers and other members of the Bank, or in connection with
the Agent's exercise of due diligence, except for those
documents which were prepared by parties other than the Bank,
the Company or their representatives, to the best knowledge of
the Bank and the Company, were on the dates on which they were
delivered, or will be on the dates on which they are to be
delivered, true, complete and correct in all material
respects.
(o) As of the date hereof and as of the Closing Date, neither the
Company nor the Bank is (i) in violation of its articles of
incorporation or code of regulations or charter or bylaws,
respectively (and the Bank will not be in violation of its
charter or bylaws in capital stock form upon consummation of
the Conversion), or (ii) in default in the performance or
observance of any material obligation, agreement, covenant, or
condition contained in any material contract, lease, loan
agreement, indenture or other instrument to which it is a
party or by which it or any of its property may be bound. The
consummation of the transactions herein contemplated will not:
(i) conflict with or constitute a breach of, or default under,
or result in the creation of any material lien, charge or
encumbrance (with the exception of the liquidation account
established in the Conversion) upon any of the assets of the
Company or the Bank pursuant to the Articles of
11
<PAGE>
Incorporation and Bylaws of the Company or the Articles of
Incorporation and Bylaws of the Bank (in either mutual or
capital stock form) or any material contract, lease or other
instrument in which the Company or the Bank has a beneficial
interest, or any applicable law, rule, regulation or order;
(ii) violate any authorization, approval, judgement, decree,
order, statute, rule or regulation applicable to the Company
or the Bank, except for such violations which would not have a
material adverse effect on the financial condition and results
of operations of the Company and the Bank on a consolidated
basis; or (iii) with the exception of the liquidation account
established in the Conversion, result in the creation of any
material lien, charge or encumbrance upon any property of the
Company or the Bank.
(p) No default exists, and no event has occurred which with notice
or lapse of time, or both, would constitute a default on the
part of the Company or the Bank in the due performance and
observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, note, bank loan or credit
agreement or any other instrument or agreement to which the
Company or the Bank is a party or by which any of them or any
of their property is bound or affected, except such defaults
which would not have a material adverse affect on the
financial condition or results of operations of the Company
and the Bank on a consolidated basis; such agreements are in
full force and effect; and no other party to any such
agreements has instituted or, to the best knowledge of the
Company and the Bank, threatened any action or proceeding
wherein the Company or the Bank would or might be alleged to
be in default thereunder.
(q) Upon consummation of the Conversion, the authorized, issued
and outstanding equity capital of the Company will be within
the range set forth in the Prospectus under the caption
"Capitalization," and no Shares have been or will be issued
and outstanding prior to the Closing Date (other than in
connection with the incorporation of the Company); the Shares
will have been duly and validly authorized for issuance and,
when issued and delivered by the Company pursuant to the Plan
against payment of the consideration calculated as set forth
in the Plan and in the Prospectus, will be duly and validly
issued, fully paid and non-assessable, except for shares
purchased by the ESOP with funds borrowed from the Company to
the extent payment therefor in cash has not been received by
the Company; except to the extent that subscription rights and
priorities pursuant thereto exist pursuant to the Plan, no
preemptive rights exist with respect to the Shares; and the
terms and provisions of the Shares will conform
12
<PAGE>
in all material respects to the description thereof contained
in the Registration Statement and the Prospectus. To the best
knowledge of the Company and the Bank, upon the issuance of
the Shares, good title to the Shares will be transferred from
the Company to the purchasers thereof against payment
therefor, subject to such claims as may be asserted against
the purchasers thereof by third-party claimants.
(r) No approval of any regulatory or supervisory or other public
authority is required in connection with the execution and
delivery of this Agreement or the issuance of the Shares,
except for the approval of the Commission and the OTS, and any
necessary qualification, notification, registration or
exemption under the securities or blue sky laws of the various
states in which the Shares are to be offered, and except as
may be required under the rules and regulations of the
National Association of Securities Dealers, Inc. ("NASD")
and/or The Nasdaq Stock Market.
(s) Olive LLP, which has certified the audited financial
statements and schedules of the Bank included in the
Prospectus, has advised the Company and the Bank in writing
that they are, with respect to the Company and the Bank,
independent public accountants within the meaning of the Code
of Professional Ethics of the American Institute of Certified
Public Accountants and Title 12 of the Code of Federal
Regulations and Section 571.2(c)(3).
(t) Keller & Company, Inc., which has prepared the Bank's
Conversion Valuation Appraisal Report as of August 14, 1998
(as amended or supplemented, if so amended or supplemented)
(the "Appraisal"), has advised the Company in writing that it
is independent of the Company and the Bank within the meaning
of the Conversion Regulations.
(u) The Company and the Bank have timely filed all required
federal, state and local tax returns; the Company and the Bank
have paid all taxes that have become due and payable in
respect of such returns, except where permitted to be
extended, have made adequate reserves for similar future tax
liabilities and no deficiency has been asserted with respect
thereto by any taxing authority.
(v) The Bank is in compliance in all material respects with the
applicable financial record-keeping and reporting requirements
of the Currency and Foreign Transactions Reporting Act of
1970, as amended, and the regulations and rules thereunder.
13
<PAGE>
(w) To the knowledge of the Company and the Bank, neither the
Company, the Bank nor employees of the Company or the Bank has
made any payment of funds of the Company or the Bank as a loan
for the purchase of the Shares or made any other payment of
funds prohibited by law, and no funds have been set aside to
be used for any payment prohibited by law.
(x) Prior to the Conversion, neither the Company nor the Bank has:
(i) issued any securities within the last 18 months (except
for notes to evidence other bank loans and reverse repurchase
agreements or other liabilities in the ordinary course of
business or as described in the Prospectus, and except for any
shares issued in connection with the incorporation of the
Company); (ii) had any material dealings within the 12 months
prior to the date hereof with any member of the NASD, or any
person related to or associated with such member, other than
discussions and meetings relating to the proposed Offering and
routine purchases and sales of United States government and
agency securities; (iii) entered into a financial or
management consulting agreement except as contemplated
hereunder; and (iv) engaged any intermediary between the Agent
and the Company and the Bank in connection with the offering
of the Shares, and no person is being compensated in any
manner for such service. Appropriate arrangements have been
made for placing the funds received from subscriptions for
Shares in a special interest-bearing account with the Bank
until all Shares are sold and paid for, with provision for
refund to the purchasers in the event that the Conversion is
not completed for whatever reason or for delivery to the
Company if all Shares are sold.
(y) The Company and the Bank have not relied upon the Agent or its
legal counsel or other advisors for any legal, tax or
accounting advice in connection with the Conversion.
(z) The Company is not required to be registered under the
Investment Company Act of 1940, as amended.
(aa) Any certificates signed by an officer of the Company or the
Bank pursuant to the conditions of this Agreement and
delivered to the Agent or their counsel that refers to this
Agreement shall be deemed to be a representation and warranty
by the Company or the Bank to the Agent as to the matters
covered thereby with the same effect as if such representation
and warranty were set forth herein.
Section 5. Representations and Warranties.
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<PAGE>
KBW represents and warrants to the Company and the Bank that:
(i) it is a corporation and is validly existing in good
standing under the laws of the State of New York and licensed to
conduct business in the State of Indiana and that Webb is an
unincorporated division thereof with full power and authority to
provide the services to be furnished to the Bank and the Company
hereunder.
(ii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary action on the part of the Agent,
and this Agreement has been duly and validly executed and delivered by
the Agent and is a legal, valid and binding agreement of the Agent,
enforceable in accordance with its terms.
(iii) Each of the Agent and its employees, agents and
representatives who shall perform any of the services hereunder shall
be duly authorized and empowered, and shall have all licenses,
approvals and permits necessary to perform such services.
(iv) The execution and delivery of this Agreement by the
Agent, the consummation of the transactions contemplated hereby and
compliance with the terms and provisions hereof will not conflict with,
or result in a breach of, any of the terms, provisions or conditions
of, or constitute a default (or an event which with notice or lapse of
time or both would constitute a default) under, the Articles of
Incorporation of the Agent or any agreement, indenture or other
instrument to which the Agent is a party or by which it or its property
is bound.
(v) No approval of any regulatory or supervisory or other
public authority is required in connection with the Agent's execution
and delivery of this Agreement, except as may have been received.
(vi) There is no suit or proceeding or charge or action before
or by any court, regulatory authority or government agency or body or,
to the knowledge of the Agent, pending or threatened, which might
materially adversely affect the Agent's performance of this Agreement.
Section 5.l Covenants of the Company and the Bank. The Company and the
Bank hereby jointly and severally covenant with KBW as follows:
(a) The Company will not, at any time after the date the
Registration Statement is declared effective, file any
amendment or supplement to the Registration Statement without
providing the Agent and its counsel an opportunity to review
such amendment or supplement
15
<PAGE>
or file any amendment or supplement to which amendment or
supplement the Agent or its counsel shall reasonably object.
(b) The Bank will not, at any time after the Conversion
Application is approved by the OTS, file any amendment or
supplement to such Conversion Application without providing
the Agent and its counsel an opportunity to review such
amendment or supplement or file any amendment or supplement to
which amendment or supplement the Agent or its counsel shall
reasonably object.
(c) The Company will not, at any time before the Holding Company
Application is approved by the OTS, file any amendment or
supplement to such Holding Company Application without
providing the Agent and its counsel an opportunity to review
the nonconfidential portions of such amendment or supplement
or file any amendment or supplement to which amendment or
supplement the Agent or its counsel shall reasonably object.
(d) The Company and the Bank will use their best efforts to cause
any post-effective amendment to the Registration Statement to
be declared effective by the Commission and any post-effective
amendment to the Conversion Application to be approved by the
OTS and will immediately upon receipt of any information
concerning the events listed below notify the Agent: (i) when
the Registration Statement, as amended, has become effective;
(ii) when the Conversion Application, as amended, has been
approved by the OTS; (iii) any comments from the Commission,
the OTS, or any other governmental entity with respect to the
Conversion or the transactions contemplated by this Agreement;
(iv) of the request by the Commission, the OTS, or any other
governmental entity for any amendment or supplement to the
Registration Statement, the Conversion Application or for
additional information; (v) of the issuance by the Commission,
the OTS, or any other governmental entity of any order or
other action suspending the Offering or the use of the
Registration Statement or the Prospectus or any other filing
of the Company or the Bank under the Conversion Regulations,
or other applicable law, or the threat of any such action;
(vi) the issuance by the Commission, the OTS, or any authority
of any stop order suspending the effectiveness of the
Registration Statement or of the initiation or threat of
initiation or threat of any proceedings for that purpose; or
(vii) of the occurrence of any event mentioned in paragraph
(h) below. The Company and the Bank will make every reasonable
effort (i) to prevent the issuance by the Commission, the OTS,
or any other state authority of any such order and, if any
such order
16
<PAGE>
shall at any time be issued, (ii) to obtain the lifting
thereof at the earliest possible time.
(e) The Company and the Bank will deliver to the Agent and to its
counsel two conformed copies of the Registration Statement,
the Conversion Application and the Holding Company
Application, as originally filed and of each amendment or
supplement thereto, including all exhibits. Further, the
Company and the Bank will deliver such additional copies of
the foregoing documents to counsel to the Agent as may be
required for any NASD and "blue sky" filings.
(f) The Company and the Bank will furnish to the Agent, from time
to time during the period when the Prospectus (or any later
prospectus related to this offering) is required to be
delivered under the 1933 Act or the Securities Exchange Act of
1934 (the "1934 Act"), such number of copies of such
Prospectus (as amended or supplemented) as the Agent may
reasonably request for the purposes contemplated by the 1933
Act, the 1933 Act Regulations, the 1934 Act or the rules and
regulations promulgated under the 1934 Act (the "1934 Act
Regulations"). The Company authorizes the Agent to use the
Prospectus (as amended or supplemented, if amended or
supplemented) in any lawful manner contemplated by the Plan in
connection with the sale of the Shares by the Agent.
(g) The Company and the Bank will comply with any and all material
terms, conditions, requirements and provisions with respect to
the Conversion and the transactions contemplated thereby
imposed by the Commission, the OTS or the Conversion
Regulations, and by the 1933 Act, the 1933 Act Regulations,
the 1934 Act and the 1934 Act Regulations to be complied with
prior to or subsequent to the Closing Date and when the
Prospectus is required to be delivered, and during such time
period the Company and the Bank will comply, at their own
expense, with all material requirements imposed upon them by
the Commission, the OTS or the Conversion Regulations, and by
the 1933 Act, the 1933 Act Regulations, the 1934 Act and the
1934 Act Regulations, including, without limitation, Rule
10b-5 under the 1934 Act, in each case as from time to time in
force, so far as necessary to permit the continuance of sales
or dealing in the Common Shares during such period in
accordance with the provisions hereof and the Prospectus.
(h) If, at any time during the period when the Prospectus relating
to the Shares is required to be delivered, any event relating
to or
17
<PAGE>
affecting the Company or the Bank shall occur, as a result of
which it is necessary or appropriate, in the opinion of
counsel for the Company and the Bank or in the reasonable
opinion of the Agent's counsel, to amend or supplement the
Registration Statement or Prospectus in order to make the
Registration Statement or Prospectus not misleading in light
of the circumstances existing at the time the Prospectus is
delivered to a purchaser, the Company and the Bank will
immediately so inform the Agent and prepare and file, at their
own expense, with the Commission, and the OTS and furnish to
the Agent a reasonable number of copies of an amendment or
amendments of, or a supplement or supplements to, the
Registration Statement or Prospectus (in form and substance
reasonably satisfactory to the Agent and its counsel after a
reasonable time for review) which will amend or supplement the
Registration Statement or Prospectus so that as amended or
supplemented it will not contain an untrue statement of a
material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered
to a purchaser, not misleading. For the purpose of this
Agreement, the Company and the Bank each will timely furnish
to the Agent such information with respect to itself as the
Agent may from time to time reasonably request.
(i) The Company and the Bank will take all necessary actions in
cooperating with the Agent and furnish to whomever the Agent
may direct such information as may be required to qualify or
register the Shares for offering and sale by the Company or to
exempt such Shares from registration, or to exempt the Company
as a broker-dealer and its officers, directors and employees
as broker-dealers or agents under the applicable securities or
blue sky laws of such jurisdictions in which the Shares are
required under the Conversion Regulations to be sold or as the
Agent and the Company and the Bank may reasonably agree upon;
provided, however, that the Company shall not be obligated to
file any general consent to service of process, to qualify to
do business in any jurisdiction in which it is not so
qualified, or to register its directors or officers as
brokers, dealers, salesmen or agents in any jurisdiction. In
each jurisdiction where any of the Shares shall have been
qualified or registered as above provided, the Company will
make and file such statements and reports in each fiscal
period as are or may be required by the laws of such
jurisdiction.
(j) The liquidation account for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders will be duly
established and maintained in accordance with the requirements
of
18
<PAGE>
the OTS, and such Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their
savings accounts in the Bank will have an inchoate interest in
their pro rata portion of the liquidation account, which shall
have a priority superior to that of the holders of the Common
Shares in the event of a complete liquidation of the Bank.
(k) The Company and the Bank will not sell or issue, contract to
sell or otherwise dispose of, for a period of 90 days after
the Closing Date, without the Agent's prior written consent,
any of their common shares, other than the Shares or other
than in connection with any plan or arrangement described in
the Prospectus, including existing stock benefit plans.
(l) The Company shall register its Common Shares under Section
12(g) of the 1934 Act concurrently with the Offering and shall
request that such registration be effective prior to or upon
completion of the Conversion. The Company shall maintain the
effectiveness of such registration for not less than three
years or such shorter period as may be required by the OTS.
(m) During the period during which the Common Shares are
registered under the 1934 Act or for three (3) years from the
date hereof, whichever period is greater, the Company will
furnish to its shareholders as soon as practicable after the
end of each fiscal year an annual report of the Company
(including a consolidated balance sheet and statements of
consolidated income, shareholders' equity and cash flows of
the Company and its subsidiaries as at the end of and for such
year, certified by independent public accountants in
accordance with Regulation S-X under the 1933 Act and the 1934
Act).
(n) During the period of three years from the date hereof, the
Company will furnish to the Agent: (i) as soon as practicable
after such information is publicly available, a copy of each
report of the Company furnished to or filed with the
Commission under the 1934 Act or any national securities
exchange or system on which any class of securities of the
Company is listed or quoted (including, but not limited to,
reports on Forms 10-K, 10-Q and 8-K and all proxy statements
and annual reports to stockholders), (ii) a copy of each other
non-confidential report of the Company mailed to its
shareholders or filed with the Commission, the OTS or any
other supervisory or regulatory authority or any national
securities exchange or system on which any class of securities
of the Company is listed or quoted, each press release and
material news items and additional documents and information
with respect
19
<PAGE>
to the Company or the Bank as the Agent may reasonably
request; and (iii) from time to time, such other
nonconfidential information concerning the Company or the Bank
as the Agent may reasonably request.
(o) The Company and the Bank will use the net proceeds from the
sale of the Shares in the manner set forth in the Prospectus
under the caption "Use of Proceeds."
(p) Other than as permitted by the Conversion Regulations, the
HOLA, the 1933 Act, the 1933 Act Regulations and its rules and
regulations and the laws of any state in which the Shares are
registered or qualified for sale or exempt from registration,
neither the Company nor the Bank will distribute any
prospectus, offering circular or other offering material in
connection with the offer and sale of the Shares.
(q) The Company will use its best efforts to (i) encourage and
assist a market maker to establish and maintain a market for
the Shares and (ii) list and maintain quotation of the Shares
on a national or regional securities exchange or on The NASDAQ
Stock Market effective on or prior to the Closing Date.
(r) The Bank will maintain appropriate arrangements for depositing
all funds received from persons mailing subscriptions for or
orders to purchase Shares in the Offering on an
interest-bearing basis at the rate described in the Prospectus
until the Closing Date and satisfaction of all conditions
precedent to the release of the Bank's obligation to refund
payments received from persons subscribing for or ordering
Shares in the Offering in accordance with the Plan and as
described in the Prospectus or until refunds of such funds
have been made to the persons entitled thereto or withdrawal
authorizations canceled in accordance with the Plan and as
described in the Prospectus. The Bank will maintain such
records of all funds received to permit the funds of each
subscriber to be separately insured by the FDIC (to the
maximum extent allowable) and to enable the Bank to make the
appropriate refunds of such funds in the event that such
refunds are required to be made in accordance with the Plan
and as described in the Prospectus.
(s) The Company will promptly take all necessary action to
register as a savings and loan holding company under the HOLA.
(t) The Company and the Bank will take such actions and furnish
such information as are reasonably requested by the Agent in
20
<PAGE>
order for the Agent to ensure compliance with the NASD's
"Interpretation Relating to Free Riding and Withholding."
(u) Neither the Company nor the Bank will amend the Plan of
Conversion without notifying the Agent prior thereto.
(v) The Company shall assist the Agent, if necessary, in
connection with the allocation of the Shares in the event of
an oversubscription and shall provide the Agent with any
information necessary to assist the Company in allocating the
Shares in such event and such information shall be accurate
and reliable.
(w) Prior to the Closing Date, the Company and the Bank will
inform the Agent of any event or circumstances of which it is
aware as a result of which the Registration Statement and/or
Prospectus, as then amended or supplemented, would contain an
untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein not misleading.
(x) Subsequent to the date the Registration Statement is declared
effective by the Commission and prior to the Closing Date,
except as otherwise may be indicated or contemplated therein
or set forth in an amendment or supplement thereto, neither
the Company nor the Bank will have: (i) issued any securities
or incurred any liability or obligation, direct or contingent,
for borrowed money, except borrowings from the same or similar
sources indicated in the Prospectus in the ordinary course of
its business, or (ii) entered into any transaction which is
material in light of the business and properties of the
Company and the Bank, taken as a whole.
(y) The facts and representations provided to Barnes & Thornburg
by the Bank and the Company and upon which Barnes & Thornburg
will base its opinion under Section 7(c)(1) are and will be
truthful, accurate and complete.
Section 6. Payment of Expenses. Whether or not the Conversion is
completed or the sale of the Shares by the Company is consummated, the Company
and the Bank jointly and severally agree to pay or reimburse the Agent for: (a)
all filing fees in connection with all filings related to the Offering with the
NASD; (b) any stock issue or transfer taxes which may be payable with respect to
the sale of the Shares; (c) all reasonable expenses of the Conversion, including
but not limited to the Company's and the Bank's, and the Agent's attorneys' fees
(not to exceed $40,000 without the Bank's consent) and expenses, blue sky fees,
transfer agent, registrar and other agent charges, fees relating to auditing and
accounting or other advisors and costs of printing all documents necessary in
connection with the Conversion; provided, however, there will be no
out-of-pocket expenses charged by the Agent for expenses such as travel,
photocopying lodging and meals. In the event the Company
21
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is unable to sell a minimum of 5,487,500 Shares or the Conversion is terminated
or otherwise abandoned, the Company and the Bank shall promptly reimburse the
Agent in accordance with Section 2(d) hereof.
Section 7. Conditions to the Agent's Obligations. The obligations of
the Agent hereunder, as to the Shares to be delivered at the Closing Date, are
subject, to the extent not waived in writing by the Agent, to the condition that
all representations and warranties of the Company and the Bank herein are, at
and as of the commencement of the Offering and at and as of the Closing Date,
true and correct in all material respects, the condition that the Company and
the Bank shall have performed all of their obligations hereunder to be performed
on or before such dates, and to the following further conditions:
(a) At the Closing Date, the Company and the Bank shall have
conducted the Conversion in all material respects in
accordance with the Plan, the Conversion Regulations, all
requirements of Indiana law, and all other applicable laws,
regulations, decisions and orders, including all terms,
conditions, requirements and provisions precedent to the
Conversion imposed upon them by the OTS.
(b) The Registration Statement shall have been declared effective
by the Commission and the Conversion Application approved by
the OTS not later than 5:30 p.m. on the date of this
Agreement, or with the Agent's consent at a later time and
date; and at the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefore initiated
or threatened by the Commission or any state authority, and no
order or other action suspending the authorization of the
Prospectus or the consummation of the Conversion shall have
been issued or proceedings therefore initiated or, to the
Company's or the Bank's knowledge, threatened by the
Commission, the OTS, the FDIC, or any other state authority.
(c) At the Closing Date, the Agent shall have received:
(1) The favorable opinion, dated as of the Closing Date and
addressed to the Agent and for its benefit, of Barnes &
Thornburg, special counsel for the Company and the Bank, in
form and substance to the effect that:
(i) The Company has been duly incorporated
and is validly existing as a corporation under the
laws of the State of Indiana.
(ii) The Company has corporate power and
authority to own, lease and operate its properties
and to conduct its business as described in the
Registration Statement and the Prospectus.
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<PAGE>
(iii) The Bank is a validly existing
federally chartered savings and loan association in
mutual form and immediately following the completion
of the Conversion will be a validly existing
federally chartered savings and loan association in
permanent capital stock form of organization, in both
instances duly authorized to conduct its business and
own its property as described in the Registration
Statement and the Prospectus. All of the outstanding
capital stock of the Bank upon completion of the
Conversion will be duly authorized and, upon payment
therefor, will be validly issued, fully paid and
non-assessable and will be owned by the Company, to
such counsel's Actual Knowledge, free and clear of
any liens, encumbrances, claims or other
restrictions.
(iv) The Bank is a member of the
FHLB-Indianapolis. The deposit accounts of the Bank
are insured by the FDIC up to the maximum amount
allowed under law and no proceedings for the
termination or revocation of such insurance are
pending or, to such counsel's Actual Knowledge,
threatened; the description of the liquidation
account as set forth in the Prospectus under the
captions "The Conversion-Principal Effects of
Conversion-Effect on Liquidation Rights," to the
extent that such information constitutes matters of
law and legal conclusions, has been reviewed by such
counsel and is accurately described in all material
respects.
(v) Immediately following the consummation
of the Conversion, the authorized, issued and
outstanding Common Shares of the Company will be
within the range set forth in the Prospectus under
the caption "Capitalization," and, except for shares
issued upon incorporation of the Company, no Common
Shares have been issued prior to the Closing Date; at
the time of the Conversion, the Shares subscribed for
pursuant to the Offering will have been duly and
validly authorized for issuance, and when issued and
delivered by the Company pursuant to the Plan against
payment of the consideration calculated as set forth
in the Plan and Prospectus, will be duly and validly
issued and fully paid and non-assessable, except for
shares purchased by the ESOP with funds borrowed from
the Company to the extent payment therefor in cash
has not been received by the Company; except to the
extent that subscription rights and priorities
pursuant thereto exist pursuant to the Plan, the
issuance of the Shares is not subject to preemptive
rights and the terms and provisions of the Shares
conform in all material respects to the description
thereof contained in the Prospectus. To such
counsel's Actual Knowledge, upon the issuance of the
Shares, good title to the Shares will be transferred
from the Company to the purchasers thereof against
payment therefor, subject to such claims as may be
asserted against the purchasers thereof by
third-party claimants.
(vi) The Bank and the Company have full
corporate power and authority to enter into the
Agreement and to consummate the transactions
contemplated thereby and by the Plan. The execution
and delivery of this
23
<PAGE>
Agreement and the consummation of the transactions
contemplated hereby have been duly and validly
authorized by all necessary action on the part of the
Company and the Bank; and this Agreement is a valid
and binding obligation of the Company and the Bank,
enforceable against the Company and the Bank in
accordance with its terms, except as the
enforceability thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium,
conservatorship, receivership or other similar laws
now or hereafter in effect relating to or affecting
the enforcement of creditors' rights generally or the
rights of creditors of federally chartered savings
institutions, (ii) general equitable principles,
(iii) laws relating to the safety and soundness of
insured depository institutions, and (iv) applicable
law or public policy with respect to the
indemnification and/or contribution provisions
contained herein, including without limitations the
provisions of Sections 23A and 23B of the Federal
Reserve Act and except that no opinion need be
expressed as to the effect or availability of
equitable remedies or injunctive relief (regardless
of whether such enforceability is considered in a
proceeding in equity or at law).
(vii) The Conversion Application has been
approved by the OTS and the Prospectus has been
authorized for use by the OTS. The OTS has approved
the Holding Company Application and the purchase by
the Company of all of the issued and outstanding
capital stock of the Bank and no action has been
taken, and to such counsel's Actual Knowledge, none
is pending or threatened, to revoke any such
authorization or approval.
(viii) The Plan has been duly adopted by the
required vote of the directors of the Company and the
Bank, and based upon the certificate of the
inspectors of election, by the members of the Bank.
(ix) Subject to the satisfaction of the
conditions to the OTS's approval of the Conversion,
no further approval, registration, authorization,
consent or other order of any federal regulatory
agency is required in connection with the execution
and delivery of this Agreement, the issuance of the
Shares and the consummation of the Conversion, except
as may be required under the securities or blue sky
laws of various jurisdictions (as to which no opinion
need be rendered) and except as may be required under
the rules and regulations of the NASD and/or The
Nasdaq Stock Market (as to which no opinion need by
rendered).
(x) The Registration Statement is effective
under the 1933 Act and no stop order suspending the
effectiveness has been issued under the 1933 Act or
proceedings therefor initiated or, to such counsel's
Actual Knowledge, threatened by the Commission.
(xi) At the time the Conversion Application,
including the Prospectus contained therein, was
approved by the OTS, the Conversion Application,
including the Prospectus contained therein, complied
as to form
24
<PAGE>
in all material respects with the requirements of the
Conversion Regulations, federal and state law and all
applicable rules and regulations promulgated
thereunder (other than the financial statements, the
notes thereto, and other tabular, financial,
statistical and appraisal data included therein, as
to which no opinion need be rendered).
(xii) At the time that the Registration
Statement became effective, (i) the Registration
Statement (as amended or supplemented, if so amended
or supplemented) (other than the financial
statements, the notes thereto, and other tabular,
financial, statistical and appraisal data included
therein, as to which no opinion need be rendered),
complied as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act
Regulations, and (ii) the Prospectus (other than the
financial statements, the notes thereto, and other
tabular, financial, statistical and appraisal data
included therein, as to which no opinion need be
rendered) complied as to form in all material
respects with the requirements of the 1933 Act, the
1933 Act Regulations, the Conversion Regulations and
federal law.
(xiii) The terms and provisions of the
Shares of the Company conform, in all material
respects, to the description thereof contained in the
Registration Statement and Prospectus, and the form
of certificate used to evidence the Shares is in due
and proper form.
(xiv) There are no legal or governmental
proceedings pending, or to such counsel's Actual
Knowledge, threatened which are required to be
disclosed in the Registration Statement and
Prospectus, other than those disclosed therein.
(xv) To such counsel's Actual Knowledge,
there are no material contracts, indentures,
mortgages, loan agreements, notes, leases or other
instruments required to be described or referred to
in the Conversion Application, the Registration
Statement or the Prospectus or required to be filed
as exhibits thereto other than those described or
referred to therein or filed as exhibits thereto in
the Conversion Application, the Registration
Statement or the Prospectus. The description in the
Conversion Application, the Registration Statement
and the Prospectus of such documents and exhibits is
accurate in all material respects and fairly presents
the information required to be shown.
(xvi) The Plan complies in all material
respects with all applicable federal and Indiana
laws, rules, regulations, decisions and orders
including, but not limited to, the Conversion
Regulations; no order has been issued by the OTS, the
Commission, the FDIC, or any state authority to
suspend the Offering or the use of the Prospectus,
and no action for such purposes has been instituted
or, to such counsel's Actual Knowledge, threatened by
the OTS, the Commission, the FDIC, or any other state
authority and, to such
25
<PAGE>
counsel's Actual Knowledge, no person has sought to
obtain regulatory or judicial review of the final
action of the OTS approving the Plan, the Conversion
Application, the Holding Company Application or the
Prospectus.
(xvii) To such counsel's Actual Knowledge, the
Company and the Bank have obtained all material
licenses, permits and other governmental
authorizations currently required for the conduct of
their businesses and all such licenses, permits and
other governmental authorizations are in full force
and effect, and the Company and the Bank are in all
material respects complying therewith.
(xviii) To such counsel's Actual Knowledge,
neither the Company nor the Bank is in violation of
its Articles of Incorporation and Bylaws or its
Articles of Incorporation and Bylaws, as appropriate
or, to such counsel's Actual Knowledge, in default or
violation of any obligation, agreement, covenant or
condition contained in any contract, indenture,
mortgage, loan agreement, note, lease or other
instrument to which it is a party or by which it or
its property may be bound, except for such defaults
or violations which would not have a material adverse
impact on the financial condition or results of
operations of the Company and the Bank on a
consolidated basis; to such counsel's Actual
Knowledge, the execution and delivery of this
Agreement, the incurrence of the obligations herein
set forth and the consummation of the transactions
contemplated herein will not conflict with or
constitute a breach of, or default under, or result
in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the
Company or the Bank pursuant to any material
contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which the Company or the
Bank is a party or by which any of them may be bound,
or to which any of the property or assets of the
Company or the Bank are subject (other than the
establishment of the liquidation account); and, such
action will not result in any violation of the
provisions of the Articles of Incorporation or Bylaws
of the Company or the Articles of Incorporation or
the Bylaws of the Bank or, to such counsel's Actual
Knowledge, result in any violation of any applicable
federal or state law, act, regulation (except that no
opinion with respect to the securities and blue sky
laws of various jurisdictions or the rules or
regulations of the NASD and/or The NASDAQ Stock
Market) or order or court order, writ, injunction or
decree.
(xix) The Company's Articles of
Incorporation and Bylaws comply in all materials
respects with the laws of the State of Indiana. The
Bank's Articles of Incorporation or the Bylaws comply
in all material respects with federal law.
(xx) To such counsel's Actual Knowledge,
neither the Company nor the Bank is in violation of
any directive from the OTS or the FDIC to make any
material change in the method of conducting its
respective business.
26
<PAGE>
(xxi) The information in the Prospectus
under the captions "Regulation," "The Conversion,"
"Restrictions on Acquisition of the Holding Company"
and "Description of Capital Stock," to the extent
that such information constitutes matters of law,
summaries of legal matters, documents or proceedings,
or legal conclusions, has been reviewed by such
counsel and is correct in all material respects. The
description of the Conversion process in the
Prospectus under the caption "The Conversion" to the
extent that such information constitutes matters of
law, summaries of legal matters, documents or
proceedings, or legal conclusions, has been reviewed
by such counsel and fairly describes such process in
all material respects. The descriptions in the
Prospectus of statutes or regulations are accurate
summaries and fairly present the information required
to be shown. The information under the caption "The
Conversion-Principal Effects of the Conversion--Tax
Effects" has been reviewed by such counsel and fairly
describes the opinions rendered by them to the
Company and the Bank with respect to such matters.
In addition, such counsel shall state that
during the preparation of the Conversion Application,
the Registration Statement and the Prospectus, they
participated in conferences with certain officers of,
the independent public and internal accountants for,
and other representatives of, the Company and the
Bank, at which conferences the contents of the
Conversion Application, the Registration Statement
and the Prospectus and related matters were discussed
and, while such counsel have not confirmed the
accuracy or completeness of or otherwise verified the
information contained in the Conversion Application,
the Registration Statement or the Prospectus and do
not assume any responsibility for such information,
based upon such conferences and a review of documents
deemed relevant for the purpose of rendering their
opinion (relying as to materiality as to factual
matters on certificates of officers and other factual
representations by the Company and the Bank), nothing
has come to their attention that would lead them to
believe that the Conversion Application, the
Registration Statement, the Prospectus, or any
amendment or supplement thereto (other than the
financial statements, the notes thereto, and other
tabular, financial, statistical and appraisal data
included therein as to which no view need be
rendered) contained an untrue statement of a material
fact or omitted to state a material fact required to
be stated therein or necessary to make the statements
therein, in light of the circumstances under which
they were made, not misleading.
In giving such opinion, such counsel may
rely as to all matters of fact on certificates of
officers or directors of the Company and the Bank and
certificates of public officials. Such counsel's
opinion shall be limited to matters governed by
federal laws and by the laws of the State of Indiana.
The term "Actual Knowledge" as used herein shall have
the meaning set forth in the Legal Opinion Accord of
the American Bar Association Section of Business Law.
For purposes of such opinion, no proceedings shall be
deemed to be pending, no order or stop order shall be
deemed to be issued, and no
27
<PAGE>
action shall be deemed to be instituted unless, in
each case, a director or executive officer of the
Company or the Bank shall have received a copy of
such proceedings, order, stop order or action. In
addition, such opinion may be limited to present
statutes, regulations and judicial interpretations
and to facts as they presently exist; in rendering
such opinion, such counsel need assume no obligation
to revise or supplement it should the present laws be
changed by legislative or regulatory action, judicial
decision or otherwise; and such counsel need express
no view, opinion or belief with respect to whether
any proposed or pending legislation, if enacted, or
any proposed or pending regulations or policy
statements issued by any regulatory agency, whether
or not promulgated pursuant to any such legislation,
would affect the validity of the Conversion or any
aspect thereof. Such counsel may assume that any
agreement is the valid and binding obligation of any
parties to such agreement other than the Company or
the Bank.
(d) At the Closing Date, the Agent shall receive a
certificate of the Chief Executive Officer and the
Principal Accounting Officer of the Company and the
Bank in form and substance reasonably satisfactory to
the Agent's Counsel, dated as of such Closing Date,
to the effect that: (i) they have carefully examined
the Prospectus and, in their opinion, at the time the
Prospectus became authorized for final use, the
Prospectus did not contain any untrue statement of a
material fact or omit to state a material fact
necessary in order to make the statements therein, in
light of the circumstances under which they were
made, not misleading; (ii) since the date the
Prospectus became authorized for final use, no event
has occurred which should have been set forth in an
amendment or supplement to the Prospectus which has
not been so set forth, including specifically, but
without limitation, any material adverse change in
the condition, financial or otherwise, or in the
earnings, capital, properties or business of the
Company or the Bank and the conditions set forth in
this Section 7 have been satisfied; (iii) since the
respective dates as of which information is given in
the Registration Statement and the Prospectus, there
has been no material adverse change in the condition,
financial or otherwise, or in the earnings, capital
or properties of the Company or the Bank
independently, or of the Company and the Bank
considered as one enterprise, whether or not arising
in the ordinary course of business; (iv) the
representations and warranties in Section 4 are true
and correct with the same force and effect as though
expressly made at and as of the Closing Date; (v) the
Company and the Bank have complied in all material
respects with all agreements and satisfied all
conditions on their part to be performed or satisfied
at or prior to the Closing Date and will comply in
all material respects with all obligations to be
satisfied by them after the Conversion; (vi) no stop
order suspending the effectiveness of the
Registration Statement has been initiated or, to the
best knowledge of the Company or the Bank, threatened
by the Commission or any state authority; (vii) no
order suspending the Offering, the Conversion, the
acquisition of all of the shares of the Bank by the
Company or the effectiveness of the
28
<PAGE>
Prospectus has been issued and no proceedings for
that purpose are pending or, to the best knowledge of
the Company or the Bank, threatened by the OTS, the
Commission, the FDIC, or any state authority; and
(viii) to the best knowledge of the Company or the
Bank, no person has sought to obtain review of the
final action of the OTS approving the Plan.
(e) Prior to and at the Closing Date: (i) in the
reasonable opinion of the Agent, there shall have
been no material adverse change in the condition,
financial or otherwise, or in the earnings or
business of the Company or the Bank independently, or
of the Company and the Bank considered as one
enterprise, from that as of the latest dates as of
which such condition is set forth in the Prospectus,
other than transactions referred to or contemplated
therein; (iii) the Company or the Bank shall not have
received from the OTS or the FDIC any direction (oral
or written) to make any material change in the method
of conducting their business with which it has not
complied (which direction, if any, shall have been
disclosed to the Agent) or which materially and
adversely would affect the business, operations or
financial condition or income of the Company and the
Bank taken as a whole; (iv) neither the Company nor
the Bank shall have been in default (nor shall an
event have occurred which, with notice or lapse of
time or both, would constitute a default) under any
provision of any agreement or instrument relating to
any outstanding indebtedness; (v) no action, suit or
proceeding, at law or in equity or before or by any
federal or state commission, board or other
administrative agency, shall be pending or, to the
knowledge of the Company or the Bank, threatened
against the Company or the Bank or affecting any of
their properties wherein an unfavorable decision,
ruling or finding would materially and adversely
affect the business, operations, financial condition
or income of the Company or the Bank taken as a
whole; and (vi) the Shares shall have been qualified
or registered for offering and sale or exempted
therefrom under the securities or blue sky laws of
the jurisdictions as the Agent shall have reasonably
requested and as agreed to by the Company and the
Bank.
(f) Concurrently with the execution of this Agreement,
the Agent shall receive a letter from Olive LLP dated
as of the date of the Prospectus and addressed to the
Agent: (i) confirming that Olive LLP is a firm of
independent public accounts within the meaning of
Rule 101 of the Code of Professional Ethics of the
American Institute of Certified Public Accountants
and applicable regulations of the OTS and stating in
effect that in its opinion the financial statements,
schedules and related notes of the Bank as of
December 31, 1997 and 1996, and for each of the three
years in the period ended December 31, 1997, included
in the Prospectus and covered by their opinion
included therein, comply as to form in all material
respects with the applicable accounting requirements
and related published rules and regulations of the
OTS and the 1933 Act; (ii) stating in effect that, on
the basis of certain agreed upon procedures (but not
an audit in accordance with generally accepted
auditing standards) consisting of a reading of the
latest available unaudited
29
<PAGE>
interim financial statements of the Bank prepared by
the Bank, a reading of the minutes of the meetings of
the Board of Directors and members of the Bank and
consultations with officers of the Bank responsible
for financial and accounting matters, nothing came to
their attention which caused them to believe that:
(A) the unaudited financial statements included in
the Prospectus are not in conformity with the 1933
Act, applicable accounting requirements of the OTS
and generally accepted accounting principles applied
on a basis substantially consistent with that of the
audited financial statements included in the
Prospectus; or (B) during the period from the date of
the latest unaudited financial statements included in
the Prospectus to a specified date not more than
three business days prior to the date of the
Prospectus, except as has been described in the
Prospectus, there was any increase in borrowings,
other than normal deposit fluctuations, by the Bank;
or (C) there was any decrease in the net assets of
the Bank at the date of such letter as compared with
amounts shown in the latest unaudited balance sheets
included in the Prospectus; and (iii) stating that,
in addition to the audit referred to in their opinion
included in the Prospectus and the performance of the
procedures referred to in clause (ii) of this
subsection (g), they have compared with the general
accounting records of the Bank, which are subject to
the internal controls of the Bank, the accounting
system and other data prepared by the Bank, directly
from such accounting records, to the extent specified
in such letter, such amounts and/or percentages set
forth in the Prospectus as the Agent may reasonably
request; and they have reported on the results of
such comparisons.
(g) At the Closing Date, the Agent shall receive a letter
dated the Closing Date, addressed to the Agent,
confirming the statements made by Olive LLP in the
letter delivered by it pursuant to subsection (g) of
this Section 7, the "specified date" referred to in
clause (ii) of subsection (g) to be a date specified
in the letter required by this subsection (h) which
for purposes of such letter shall not be more than
three business days prior to the Closing Date.
(h) At the Closing Date, the Agent shall receive a letter
from Keller & Company, Inc., dated the Closing Date
thereof and addressed to counsel for the Agent (i)
confirming that said firm is independent of the
Company and the Bank and is experienced and expert in
the area of corporate appraisals within the meaning
of Title 12 of the Code of Federal Regulations,
Section 563b.7(f)(1)(i), (ii) stating in effect that
the Appraisal prepared by such firm complies in all
material respects with the applicable requirements of
Title 12 of the Code of Federal Regulations, and
(iii) further stating that its opinion of the
aggregate pro forma market value of the Company and
the Bank expressed in its Appraisal dated as of
August 14, 1998, and most recently updated, remains
in effect.
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<PAGE>
(i) The Company and the Bank shall not have sustained
since the date of the latest financial statements
included in the Prospectus any material loss or
interference with its business from fire, explosion,
flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than
as set forth or contemplated in the Registration
Statement and Prospectus and since the respective
dates as of which information is given in the
Registration Statement and Prospectus, there shall
not have been any change in the long-term debt of the
Company or the Bank other than debt incurred in
relation to the purchase of Shares by the Bank's
eligible plans, or any change, or any development
involving a prospective change, in or affecting the
general affairs, management, financial position,
shareholders' equity or results of operations of the
Company or the Bank, otherwise than as set forth or
contemplated in the Registration Statement and
Prospectus, the effect of which, in any such case
described above, is in Webb's reasonable judgment
sufficiently material and adverse as to make it
impracticable or inadvisable to proceed with the
Subscription Offering or the delivery of the Shares
on the terms and in the manner contemplated in the
Prospectus.
(j) At or prior to the Closing Date, the Agent shall
receive: (i) a copy of the letters from the OTS
approving the Conversion Application and authorizing
the use of the Prospectus; (ii) a copy of the order
from the Commission declaring the Registration
Statement effective; (iii) a certificate from the OTS
evidencing the good standing of the Bank; (iv) a
certificate of good standing from the State of
Indiana evidencing the good standing of the Company;
(v) a certificate from the FDIC evidencing the Bank's
insurance of accounts; (vi) a certificate from the
OTS evidencing the Bank's membership thereof; (vii) a
copy of the letter from the OTS approving the
Company's Holding Company Application; and (viii) a
certified copy of the Bank's Articles of
Incorporation and Bylaws.
(k) Subsequent to the date hereof, there shall not have
occurred any of the following: (i) a suspension or
limitation in trading in securities generally on the
New York Stock Exchange or in the over-the-counter
market, or quotations halted generally on The Nasdaq
Stock Market, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices
for securities have been required by either of such
exchanges or the NASD or by order of the Commission
or any other governmental authority; (ii) a general
moratorium on the operations of commercial banks, or
federal savings and loan associations or a general
moratorium on the withdrawal of deposits from
commercial banks or federal savings and loan
associations declared by federal or state
authorities; (iii) the engagement by the United
States in hostilities which have resulted in the
declaration, on or after the date hereof, of a
national emergency or war; or (iv) a material decline
in the price of equity or debt securities if the
effect of such a declaration or decline, in the
Agent's reasonable judgement, makes it impracticable
or inadvisable to proceed with
31
<PAGE>
the Offering or the delivery of the Shares on the
terms and in the manner contemplated in the
Registration Statement and the Prospectus.
(l) At or prior to the Closing Date, counsel to the Agent
shall have been furnished with such documents and
opinions as they may reasonably require for the
purpose of enabling them to pass upon the sale of the
Shares as herein contemplated and related proceedings
or in order to evidence the occurrence or
completeness of any of the representations or
warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings
taken by the Company or the Bank in connection with
the Conversion and the sale of the Shares as herein
contemplated shall be satisfactory in form and
substance to Webb and its counsel.
Section 8. Indemnification.
(a) The Company and the Bank jointly and severally agree
to indemnify and hold harmless the Agent, its
respective officers and directors, employees and
agents, and each person, if any, who controls the
Agent within the meaning of Section 15 of the 1933
Act or Section 20(a) of the 1934 Act, against any and
all loss, liability, claim, damage or expense
whatsoever (including, but not limited to, settlement
expenses), joint or several, that the Agent or any of
them may suffer or to which the Agent and any such
persons may become subject under all applicable
federal or state laws or otherwise, and to promptly
reimburse the Agent and any such persons upon written
demand for any expense (including reasonable fees and
disbursements of counsel) incurred by the Agent or
any of them in connection with investigating,
preparing or defending any actions, proceedings or
claims (whether commenced or threatened) to the
extent such losses, claims, damages, liabilities or
actions: (i) arise out of or are based upon any
untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement
(or any amendment or supplement thereto), preliminary
or final Prospectus (or any amendment or supplement
thereto), the Conversion Application (or any
amendment or supplement thereto), the Holding Company
Application or any instrument or document executed by
the Company or the Bank or based upon written
information supplied by the Company or the Bank filed
in any state or jurisdiction to register or qualify
any or all of the Shares or to claim an exemption
therefrom or provided to any state or jurisdiction to
exempt the Company as a broker-dealer or its
officers, directors and employees as broker-dealers
or agent, under the securities laws thereof
(collectively, the "Blue Sky Application"), or any
document, advertisement, oral statement or
communication ("Sales Information") prepared, made or
executed by or on behalf of the Company or the Bank
with their consent or based upon written or oral
information furnished by or on behalf of the Company
or the Bank, whether or not filed in any
jurisdiction, in order to qualify or register the
Shares or to claim an exemption therefrom under the
securities laws thereof; (ii) arise out of or are
based upon the omission or alleged omission to state
in
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any of the foregoing documents or information a
material fact required to be stated therein or
necessary to make the statements therein, in light of
the circumstances under which they were made, not
misleading; or (iii) arise from any theory of
liability whatsoever relating to or arising from or
based upon the Registration Statement (or any
amendment or supplement thereto), preliminary or
final Prospectus (or any amendment or supplement
thereto), the Conversion Application (or any
amendment or supplement thereto), any Blue Sky
Application or Sales Information or other
documentation distributed in connection with the
Conversion; provided, however, that no
indemnification is required under this paragraph (a)
to the extent such losses, claims, damages,
liabilities or actions arise out of or are based upon
any untrue material statement or alleged untrue
material statement in, or material omission or
alleged material omission from, the Registration
Statement (or any amendment or supplement thereto),
preliminary or final Prospectus (or any amendment or
supplement thereto), the Conversion Application, any
Blue Sky Application or Sales Information made in
reliance upon and in conformity with information
furnished in writing to the Company or the Bank by
the Agent or its counsel regarding the Agent,
provided, that it is agreed and understood that the
only information furnished in writing to the Company
or the Bank by the Agent regarding the Agent is set
forth in the Prospectus under the caption "The
Conversion-Offering of Common Stock"; and, provided
further, that such indemnification shall be to the
extent not prohibited by the Commission, the OTS, the
FDIC and the Board of Governors of the Federal
Reserve.
(b) The Agent agrees to indemnify and hold harmless the
Company and the Bank, their directors and officers
and each person, if any, who controls the Company or
the Bank within the meaning of Section 15 of the 1933
Act or Section 20(a) of the 1934 Act against any and
all loss, liability, claim, damage or expense
whatsoever (including but not limited to settlement
expenses), joint or several, which they, or any of
them, may suffer or to which they, or any of them may
become subject under all applicable federal and state
laws or otherwise, and to promptly reimburse the
Company, the Bank, and any such persons upon written
demand for any expenses (including reasonable fees
and disbursements of counsel) incurred by them, or
any of them, in connection with investigating,
preparing or defending any actions, proceedings or
claims (whether commenced or threatened) to the
extent such losses, claims, damages, liabilities or
actions: (i) arise out of or are based upon any
untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement
(or any amendment or supplement thereto), the
Conversion Application (or any amendment or
supplement thereto), the preliminary or final
Prospectus (or any amendment or supplement thereto),
any Blue Sky Application or Sales Information, (ii)
are based upon the omission or alleged omission to
state in any of the foregoing documents a material
fact required to be stated therein or necessary to
make the statements therein, in the light of the
circumstances under which they were made, not
33
<PAGE>
misleading, or (iii) arise from any theory of
liability whatsoever relating to or arising from or
based upon the Registration Statement (or any
amendment or supplement thereto), preliminary or
final Prospectus (or any amendment or supplement
thereto), the Conversion Application (or any
amendment or supplement thereto), or any Blue Sky
Application or Sales Information or other
documentation distributed in connection with the
Conversion; provided, however, that the Agent's
obligations under this Section 8(b) shall exist only
if and only to the extent that such untrue statement
or alleged untrue statement was made in, or such
material fact or alleged material fact was omitted
from, the Registration Statement (or any amendment or
supplement thereto), the preliminary or final
Prospectus (or any amendment or supplement thereto),
the Conversion Application (or any amendment or
supplement thereto), any Blue Sky Application or
Sales Information in reliance upon and in conformity
with information furnished in writing to the Company
or the Bank by the Agent or its counsel regarding the
Agent, provided, that it is agreed and understood
that the only information furnished in writing to the
Company or the Bank by the Agent regarding the Agent
is set forth in the Prospectus under the caption "The
Conversion-Offering of Common Stock."
(c) Each indemnified party shall give prompt written
notice to each indemnifying party of any action,
proceeding, claim (whether commenced or threatened),
or suit instituted against it in respect of which
indemnity may be sought hereunder, but failure to so
notify an indemnifying party shall not relieve it
from any liability which it may have on account of
this Section 8 or otherwise. An indemnifying party
may participate at its own expense in the defense of
such action. In addition, if it so elects within a
reasonable time after receipt of such notice, an
indemnifying party, jointly with any other
indemnifying parties receiving such notice, may
assume defense of such action with counsel chosen by
it and approved by the indemnified parties that are
defendants in such action, unless such indemnified
parties reasonably object to such assumption on the
ground that there may be legal defenses available to
them that are different from or in addition to those
available to such indemnifying party. If an
indemnifying party assumes the defense of such
action, the indemnifying parties shall not be liable
for any fees and expenses of counsel for the
indemnified parties incurred thereafter in connection
with such action, proceeding or claim, other than
reasonable costs of investigation. In no event shall
the indemnifying parties be liable for the fees and
expenses of more than one separate firm of attorneys
(and any special counsel that said firm may retain)
for each indemnified party in connection with any one
action, proceeding or claim or separate but similar
or related actions, proceedings or claims in the same
jurisdiction arising out of the same general
allegations or circumstances.
(d) The agreements contained in this Section 8 and in
Section 9 hereof and the representations and
warranties of the Company and the Bank set forth in
this Agreement shall remain operative and in full
force and effect regardless of: (i)
34
<PAGE>
any investigation made by or on behalf of the Agent
or its officers, directors or controlling persons,
agent or employees or by or on behalf of the Company
or the Bank or any officers, directors or controlling
persons, agent or employees of the Company or the
Bank; (ii) delivery of and payment hereunder for the
Shares; or (iii) any termination of this Agreement.
Section 9. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 8 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Company, the Bank or the Agent, the Company,
the Bank and the Agent shall contribute to the aggregate losses, claims, damages
and liabilities (including any investigation, legal and other expenses incurred
in connection with, and any amount paid in settlement of, any action, suit or
proceeding, but after deducting any contribution received by the Company, the
Bank or the Agent from persons other than the other parties thereto, who may
also be liable for contribution) in such proportion so that the Agent is
responsible for that portion represented by the percentage that the fees paid to
the Agent pursuant to Section 2 of this Agreement (not including expenses) bears
to the gross proceeds received by the Company from the sale of the Shares in the
Offering, and the Company and the Bank shall be responsible for the balance. If,
however, the allocation provided above is not permitted by applicable law, then
each indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative fault of the Company and the Bank on the one hand and the Agent on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions, proceedings or claims in
respect thereto), but also the relative benefits received by the Company and the
Bank on the one hand and the Agent on the other from the Offering (before
deducting expenses). The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company and/or the Bank on the one hand or the Agent
on the other and the parties' relative intent, good faith, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Bank and the Agent agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro-rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to above in this Section 9. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions, proceedings or claims in respect thereof)
referred to above in this Section 9 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action, proceeding or claim. It is expressly
agreed that the Agent shall not be liable for any loss, liability, claim, damage
or expense or be required to contribute any amount pursuant to Section 8(b) or
this Section 9 which in the aggregate exceeds the amount paid (excluding
reimbursable expenses) to the Agent under this Agreement. It is understood that
the above stated limitation on the Agent's liability is essential to the Agent
and that the Agent would not have entered into this Agreement if such limitation
had not been agreed to by the parties to this Agreement. No person found guilty
of any fraudulent misrepresentation (within the meaning of Section 11(f) of the
1933 Act) shall be entitled to contribution from any person who was not found
guilty of such fraudulent misrepresentation. The obligations of the Company, the
Bank and the Agent under this Section 9 and under Section 8 shall be in addition
to any liability which the Company, the Bank and the Agent may otherwise have.
For purposes of this Section 9, each of the Agent's, the Company's or the Bank's
officers and directors
35
<PAGE>
and each person, if any, who controls the Agent or the Company or the Bank
within the meaning of the 1933 Act and the 1934 Act shall have the same rights
to contribution as the Agent, the Company or the Bank. Any party entitled to
contribution, promptly after receipt of notice of commencement of any action,
suit, claim or proceeding against such party in respect of which a claim for
contribution may be made against another party under this Section 9, will notify
such party from whom contribution may be sought, but the omission to so notify
such party shall not relieve the party from whom contribution may be sought from
any other obligation it may have hereunder or otherwise than under this Section
9.
Section 10. Survival of Agreements, Representations and Indemnities.
The respective indemnities of the Company, the Bank and the Agent and the
representations and warranties and other statements of the Company, the Bank and
the Agent set forth in or made pursuant to this Agreement shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of the Agent, the Company,
the Bank or any controlling person referred to in Section 8 hereof, and shall
survive the issuance of the Shares, and any successor or assign of the Agent,
the Company, the Bank, and any such controlling person shall be entitled to the
benefit of the respective agreements, indemnities, warranties and
representations.
Section 11. Termination. The Agent may terminate this Agreement by
giving the notice indicated below in this Section 11 at any time after this
Agreement becomes effective as follows:
(a) In the event the Company fails to sell the required
minimum number of the Shares by [________ __, ____],
and in accordance with the provisions of the Plan or
as required by the Conversion Regulations, and
applicable law, this Agreement shall terminate upon
refund by the Company to each person who has
subscribed for or ordered any of the Shares the full
amount which it may have received from such person,
together with interest as provided in the Prospectus,
and no party to this Agreement shall have any
obligation to the other hereunder, except as set
forth in Sections 2(a), 6, 8 and 9 hereof.
(b) If any of the conditions specified in Section 7 shall
not have been fulfilled when and as required by this
Agreement, unless waived in writing, or by the
Closing Date, this Agreement and all of the Agent's
obligations hereunder may be cancelled by the Agent
by notifying the Company and the Bank of such
cancellation in writing or by telegram at any time at
or prior to the Closing Date, and any such
cancellation shall be without liability of any party
to any other party except as otherwise provided in
Sections 2(a), 6, 8 and 9 hereof.
36
<PAGE>
(c) If the Agent elects to terminate this Agreement as
provided in this Section, the Company and the Bank
shall be notified promptly by telephone or telegram,
confirmed by letter.
The Company and the Bank may terminate this Agreement in the event the
Agent is in material breach of the representations and warranties or covenants
contained in Section 5 and such breach has not been cured after the Company and
the Bank have provided the Agent with notice of such breach.
This Agreement may also be terminated by mutual written consent of the
parties hereto.
Section 12. Notices. All communications hereunder, except as herein
otherwise specifically provided, shall be mailed in writing and if sent to the
Agent shall be mailed, delivered or telegraphed and confirmed to Charles Webb &
Company, 211 Bradenton Drive, Dublin, Ohio 43017-5034, Attention: Harold T.
Hanley III (with a copy to Silver, Freedman & Taff, L.L.P., Attention: Martin L.
Meyrowitz, P.C. and, if sent to the Company and the Bank, shall be mailed,
delivered or telegraphed and confirmed to the Company and the Bank at 1121 E.
Main Street, Plainfield, Indiana 46168-1760, Attention: T. Tim Unger, President
(with a copy to Barnes & Thornburg, Attention: Thomas M. Maxwell).
Section 13. Parties. The Company and the Bank shall be entitled to act
and rely on any request, notice, consent, waiver or agreement purportedly given
on behalf of the Agent when the same shall have been given by the undersigned.
The Agent shall be entitled to act and rely on any request, notice, consent,
waiver or agreement purportedly given on behalf of the Company or the Bank, when
the same shall have been given by the undersigned or any other officer of the
Company or the Bank. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Agent, the Company, the Bank, and their respective
successors and assigns, and no other person shall have or be construed to have
any legal or equitable right, remedy or claim under or in respect of or by
virtue of this Agreement or any provision herein contained. It is understood and
agreed that this Agreement is the exclusive agreement among the parties hereto,
and supersedes any prior agreement among the parties and may not be varied
except in writing signed by all the parties.
Section 14. Closing. The closing for the sale of the Shares shall take
place on the Closing Date at such location as mutually agreed upon by the Agent
and the Company and the Bank. At the closing, the Company and the Bank shall
deliver to the Agent in next day funds the commissions, fees and expenses due
and owing to the Agent as set forth in Sections 2 and 6 hereof and the opinions
and certificates required hereby and other documents deemed reasonably necessary
by the Agent shall be executed and delivered to effect the sale of the Shares as
contemplated hereby and pursuant to the terms of the Prospectus.
Section 15. Partial Invalidity. In the event that any term, provision
or covenant herein or the application thereof to any circumstance or situation
shall be invalid or unenforceable, in whole or in part, the remainder hereof and
the application of said term, provision or covenant to any other circumstances
or situation shall not be affected thereby, and each term, provision or covenant
herein shall be valid and enforceable to the full extent permitted by law.
37
<PAGE>
Section 16. Construction. This Agreement shall be construed in
accordance with the laws of the State of Indiana.
Section 17. Counterparts. This Agreement may be executed in separate
counterparts, each of which so executed and delivered shall be an original, but
all of which together shall constitute but one and the same instrument.
If the foregoing correctly sets forth the arrangement among the
Company, the Bank and the Agent, please indicate acceptance thereof in the space
provided below for that purpose, whereupon this letter and the Agent's
acceptance shall constitute a binding agreement.
38
<PAGE>
Section 18. Entire Agreement. This Agreement, including schedules and
exhibits hereto, which are integral parts hereof and incorporated as though set
forth in full, constitutes the entire agreement between the parties pertaining
to the subject matter hereof superseding any and all prior or contemporaneous
oral or prior written agreements, proposals, letters of intent and
understandings, and cannot be modified, changed, waived or terminated except by
a writing which expressly states that it is an amendment, modification or
waiver, refers to this Agreement and is signed by the party to be charged. No
course of conduct or dealing shall be construed to modify, amend or otherwise
affect any of the provisions hereof.
Very truly yours,
LINCOLN BANCORP LINCOLN FEDERAL SAVINGS BANK
By Its Authorized By Its Authorized
Representative: Representative:
- --------------------------- ----------------------------
T. Tim Unger T. Tim Unger
President President
Accepted as of the date first above written
Charles Webb & Company, A Division of
Keefe, Bruyette & Woods, Inc.
By Its Authorized
Representative:
Harold T. Hanley III
Senior Vice President
39
Exhibit 2
LINCOLN FEDERAL SAVINGS BANK
PLAN OF CONVERSION
From Mutual to Stock Form of Organization
I. GENERAL
On July 2, 1998, the Board of Directors of Lincoln Federal Savings Bank
(the "Bank") adopted a Plan of Conversion whereby the Bank will convert from a
federal mutual savings bank to a federal stock savings bank and, upon
conversion, will become a wholly-owned subsidiary of a Holding Company to be
formed by the Bank, all pursuant to the Rules and Regulations of the Office of
Thrift Supervision. The Plan provides that non-transferable subscription rights
to purchase Conversion Stock will be offered first to the Bank's Eligible
Account Holders of record as of June 30, 1997, and then, to the extent that
stock is available, to a Tax-Qualified Employee Stock Benefit Plan, if any, and
then, to the extent that stock is available, to Supplemental Eligible Account
Holders, and then, to the extent that stock is available, to Other Members of
the Bank. Concurrently with, during or promptly after the Subscription Offering,
any shares of Conversion Stock not sold in the Subscription Offering may also be
offered to the general public in a Direct Community Offering. The price of the
Conversion Stock will be based upon an independent appraisal of the Bank and the
Holding Company and will reflect the Bank's estimated pro forma market value, as
converted. The Holding Company will use the net proceeds it derives from the
offering of Conversion Stock to purchase shares of the Capital Stock of the Bank
authorized upon its conversion; provided, however, that the Holding Company may
retain, for general business purposes, from the net proceeds of the Conversion
up to the maximum amount permitted to be retained by the Holding Company
pursuant to applicable regulations and policy guidelines. It is the desire of
the Board of Directors of the Bank to attract new capital to the Bank in order
to increase its net worth, repay certain outstanding indebtedness, support
future deposit growth, increase the amount of funds available for residential
mortgage and other lending, and to provide greater resources for possible
branching and acquisitions and for the expansion of customer services. The
Converted Bank is also expected to benefit from its management and other
personnel having a stock ownership in its business since stock ownership is
viewed as an effective performance incentive and a means of attracting,
retaining and compensating management and other personnel. In addition, the
stock form of organization will permit Members of the Bank and others the
opportunity to become shareholders of the Holding Company and thereby
participate more directly in earnings and growth. The Holding Company structure
has been adopted as a part of the Conversion to provide the Bank with greater
organizational flexibility to respond to the increasingly competitive
environment in which it operates. In furtherance of the Bank's long term
commitment to its community, the Plan provides for the establishment of a
charitable foundation as part of the Conversion. The charitable foundation is
intended to complement the Bank's existing community reinvestment activities in
a manner that will allow the communities in which the Bank operates to share in
the potential growth and profitability of the Holding Company and the Bank over
the long term. Consistent with the Bank's goal, the Holding Company intends to
donate to the charitable foundation from its authorized but unissued common
stock of up to 8% of the number of shares sold in the Conversion. The
establishment of the charitable foundation is subject to the approval of the
Members of the Bank. In the event the charitable foundation is not approved, the
Bank may determine to complete the Conversion without the charitable foundation.
No change will be made in the Board of Directors or management of the Bank as a
result of the Conversion. The Board of Directors and management of the Holding
Company will be selected from members of the Board and management of the Bank.
II. DEFINITIONS
Affiliate: An "affiliate" of, or a person "affiliated" with, a specified
Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified.
Associate: The term "associate," when used to indicate relationship with
any Person, means (i) any corporation or organization (other than the Bank or a
majority-owned subsidiary of the Bank or the Holding Company) of which such
Person is a director, officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, except that for purposes of Sections VI.B., VI.D.1, .4 and .5, and
VI.E. 1, it does not include any Tax-Qualified Employee Stock Benefit Plan or
Non-Tax-Qualified Employee Stock Benefit Plan in which a Person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity, and that for purposes of Section VI.D.2 it does not include any
Tax-Qualified Employee Stock Benefit Plan, and (iii) any relative or spouse of
such Person, or any relative of such spouse, who has the same home as such
Person or who is a director or officer of the Bank or any of its parents or
subsidiaries.
Bank: Lincoln Federal Savings Bank, whose principal office is located in
Plainfield, Indiana, a federal mutual savings bank and including the Converted
Bank, as the context requires.
Capital Stock: Shares of common stock, par value $.01 per share, to be
issued by the Converted Bank to the Holding Company in the Conversion.
Conversion: Change of the Bank's articles and bylaws from a federal mutual
savings bank charter and bylaws to a federal savings bank charter and bylaws
authorizing issuance of shares of common stock by the Bank pursuant to and
otherwise conforming to the requirements of a federal stock savings bank. Such
term includes the issuance of Conversion Stock as provided for in the Plan, and
the purchase by the Holding Company of all of the shares of Capital Stock to be
issued by the Bank in connection with its Conversion from mutual to stock form.
Conversion Stock: Shares of common stock, without par value, to be issued
by the Holding Company in the Conversion.
Converted Bank: The federally chartered stock savings bank resulting from
the Conversion of the Bank in accordance with the Plan.
Dealer: Any Person who engages directly or indirectly as agent, broker or
principal in the business of offering, buying, selling, or otherwise dealing or
trading in securities issued by another Person.
Deposit Account: Any withdrawable or repurchasable shares, investment
certificates or deposits or other savings accounts, including money market
deposit accounts and negotiable order of withdrawal accounts held by Members of
the Bank.
Direct Community Offering: The offering for sale to the general public,
with preference given to residents of Clinton, Hendricks and Montgomery Counties
in Indiana, of any shares of Conversion Stock not subscribed for in the
Subscription Offering.
Eligibility Record Date: The close of business on June 30, 1997.
Eligible Account Holder: Holder of a Qualifying Deposit in the Bank on the
Eligibility Record Date for purposes of determining Subscription Rights and
establishing subaccount balances in the liquidation account to be established
pursuant to Section XI hereof.
Estimated Price Range: The range of the estimated aggregate pro forma
market value of the total number of shares of Conversion Stock to be issued in
the Conversion, as determined by the independent appraiser in accordance with
Section VI.A hereof.
FDIC: Federal Deposit Insurance Corporation.
Holding Company: The corporation organized under Indiana law to own and
hold 100% of the outstanding Capital Stock of the Converted Bank.
Internal Revenue Code: The Internal Revenue Code of 1986, as amended.
Market Maker: A Dealer who, with respect to a particular security, (i)
regularly publishes bona fide, competitive bid and offer quotations in a
recognized inter-dealer quotation system; or (ii) furnishes bona fide
competitive bid and offer quotations on request; and (iii) is ready, willing,
and able to effect transactions in reasonable quantities at his quoted prices
with other brokers or dealers.
Members: All Persons or entities who qualify as members of the Bank
pursuant to its mutual charter and bylaws.
Non-Tax-Qualified Employee Stock Benefit Plan: Any defined benefit plan or
defined contribution plan maintained by the Bank which is not a Tax-Qualified
Employee Stock Benefit Plan.
Officer: The Chairman of the Board, Vice-Chairman of the Board, President,
Vice-President, Secretary, Treasurer or principal financial officer, comptroller
or principal accounting officer, and any other person performing similar
functions with respect to any organization, whether incorporated or
unincorporated.
Order Forms: Forms to be used in the Subscription Offering to exercise
Subscription Rights.
Other Members: Members of the Bank, other than Eligible Account Holders or
Supplemental Eligible Account Holders, as of the Voting Record Date.
OTS: Office of Thrift Supervision.
Person: An individual, a corporation, a partnership, a bank, a joint-stock
company, a trust, any unincorporated organization, or a government or political
subdivision thereof.
Plan: The Plan of Conversion of the Bank, including any amendment approved
as provided in the Plan.
Purchase Price: The price per share, determined as provided in Section VI.A
of the Plan, at which Conversion Stock will be sold by the Holding Company in
the Conversion.
Qualifying Deposit: The aggregate balance as of the Eligibility Record Date
or Supplemental Eligibility Record Date of all Deposit Accounts of an Eligible
Account Holder or Supplemental Eligible Account Holder, as applicable, provided
such aggregate balance is not less than $50.00. Multiple deposit accounts which
are separate accounts for purposes of FDIC insurance shall be deemed to be
separate Qualifying Deposits for purposes of determining whether a holder is an
Eligible Account Holder, Supplemental Eligible Account Holder, or Other Member.
Sales Agents: The Dealer or Dealers or investment banking firm or firms
agreeing to offer and sell Conversion Stock for the Bank and the Holding Company
in the Direct Community Offering.
SEC: Securities and Exchange Commission.
Special Meeting: The Special Meeting of Members called for the purpose of
considering and voting upon the Plan.
Subscription Offering: The offering of shares of Conversion Stock for
subscription and purchase pursuant to Section VI.B of the Plan.
Subscription Rights: Non-transferable, non-negotiable personal rights of
Eligible Account Holders, any Tax-Qualified Employee Stock Benefit Plan,
Supplemental Eligible Account Holders, and Other Members to subscribe for shares
of Conversion Stock in the Subscription Offering.
Supplemental Eligibility Record Date: The last day of the calendar quarter
preceding OTS approval of the Application for Approval of Conversion of the
Bank.
Supplemental Eligible Account Holder: Any Person holding a Qualifying
Deposit, except officers, directors, and their Associates, as of the
Supplemental Eligibility Record Date for purposes of determining Subscription
Rights and establishing subaccount balances in the liquidation account to be
established pursuant to Section XI hereof.
Tax-Qualified Employee Stock Benefit Plan: Any defined benefit plan or
defined contribution plan maintained by the Bank or the Holding Company such as
an employee stock ownership plan, stock bonus plan, profit-sharing plan or other
plan, which, with its related trust, meets the requirements to be "qualified"
under Section 401 of the Internal Revenue Code.
Voting Record Date: The close of business on the date set by the Board of
Directors in accordance with applicable law for determining Members eligible to
vote at the Special Meeting.
III. PROCEDURE FOR CONVERSION
A. The Board of Directors of the Bank shall adopt the Plan by not less than
a two-thirds vote.
B. The Bank shall notify its Members of the adoption of the Plan by
publishing a statement in a newspaper having a general circulation in the
communities in which the Bank maintains its offices and/or by mailing a letter
to each of its members.
C. Copies of the Plan adopted by the Board of Directors shall be made
available for inspection at the office of the Bank.
D. The Bank shall submit an Application for Approval of Conversion to
convert to a stock form of organization to the OTS. Upon filing that Application
in the prescribed form, the Bank shall publish a "Notice of Filing of an
Application for Conversion to Convert to a Stock Savings Bank" in a newspaper of
general circulation, as referred to in Paragraph III.C. above. The Bank also
shall prominently display a copy of such notice in its offices.
E. The Bank shall cause the Holding Company to be incorporated under the
laws of Indiana. Upon its organization, the Holding Company shall adopt and
approve the Plan.
F. An Application shall be filed with the OTS on behalf of the Holding
Company for permission to acquire control of the Bank and become a duly
registered savings and loan holding company ("Savings and Loan Holding Company
Application").
G. As soon as practicable after the adoption of the Plan by the Board of
Directors of the Bank, a registration statement relating to the Conversion Stock
will be filed with the SEC under the Securities Act of 1933, as amended, and
appropriate filings will be made under applicable state securities laws.
H. The Bank and the Holding Company shall obtain an opinion of counsel or a
favorable ruling from the Internal Revenue Service which shall state that the
Conversion of the Bank to a stock savings and loan association and the adoption
of the holding company structure will not result in any gain or loss for federal
income tax purposes to the Holding Company or the Bank or to the Bank's Eligible
Account Holders, Supplemental Eligible Account Holders, or Other Members.
Receipt of a favorable opinion or ruling is a condition precedent to completion
of the Conversion.
I. After approval by the OTS of the Application for Approval of Conversion
and registration of the Conversion Stock with the SEC and applicable blue sky
authorities, the Plan will be submitted to the Members at a Special Meeting for
their approval and the Conversion Stock may be offered as hereinafter provided.
J. The Board of Directors of the Bank also intends to take all necessary
steps to establish a charitable foundation and to fund such charitable
foundation in the manner set forth in Section IX hereof, subject to the approval
of the Bank's Members.
IV. CONVERSION PROCEDURE
Upon registration with the SEC and receipt of other required regulatory
approvals, the Holding Company will offer the Conversion Stock for sale in the
Subscription Offering at the Purchase Price to Eligible Account Holders, any
Tax-Qualified Employee Stock Benefit Plan, Supplemental Eligible Account Holders
and Other Members of the Bank prior to or within 45 days after the date of the
Special Meeting. However, the Holding Company may delay commencing the
Subscription Offering beyond such 45 day period in the event that the Board of
Directors of the Bank determines that there exist unforeseen material adverse
market or financial conditions. The Bank and the Holding Company may,
concurrently with or promptly after the Subscription Offering, also offer the
Conversion Stock to and accept subscriptions from other persons in a Direct
Community Offering; provided that Eligible Account Holders, any Tax-Qualified
Employee Stock Benefit Plan, Supplemental Eligible Account Holders, and Other
Members shall have the priority rights to subscribe for Conversion Stock set
forth in Section VI.B of this Plan. If the Subscription Offering commences prior
to the Special Meeting, subscriptions will be accepted subject to the approval
of the Plan at the Special Meeting.
The period for the Subscription Offering will be not less than 20 days nor
more than 45 days unless extended by the Bank. If shares of Conversion Stock
falling within the Estimated Price Range are not sold in the Subscription
Offering, completion of the sale of shares of Conversion Stock at least
sufficient to fall within the Estimated Price Range is required within 45 days
after termination of the Subscription Offering, subject to the extension of such
45 day period by the Bank and the Holding Company. The Bank and the Holding
Company may seek one or more extensions of such 45 day period if necessary to
complete the sale of shares at least sufficient to fall within the Estimated
Price Range. In connection with such extensions, subscribers and other
purchasers will be permitted to increase, decrease or rescind their
subscriptions or purchase orders. If for any reason the minimum amount of common
stock cannot be sold in the Subscription Offering and Direct Community Offering,
the Bank and the Holding Company will use their best efforts to obtain other
purchasers. Completion of the sale of the minimum amount of Conversion Stock is
required within 24 months after the date of the Special Meeting. The Holding
Company will purchase all of the Capital Stock of the Bank with the net proceeds
received by the Holding Company from the sale of Conversion Stock, provided that
the Holding Company may retain up to the maximum amount permitted to be retained
by the Holding Company pursuant to applicable regulations and policy guidelines,
subject to the approval of the Boards of Directors of the Holding Company and
the Bank.
V. SUBMISSION TO MEMBERS FOR APPROVAL
After the approval of the Plan and the Savings and Loan Holding Company
Application by the OTS, a Special Meeting of Members to vote on the Plan and on
the charitable foundation to be established pursuant to Section IX hereof shall
be held in accordance with the Bank's mutual bylaws. The Bank will distribute
proxy solicitation materials to all Members as of the Voting Record Date, which
Voting Record Date shall be not less than ten (10) nor more than sixty (60) days
prior to the Special Meeting. Notice of the Special Meeting shall be given to
each Member by means of the approved proxy statement not less than twenty (20)
nor more than forty-five (45) days prior to the date of the Special Meeting. The
Bank shall use reasonable efforts to see that such notice is sent to each
beneficial holder of an account held in a fiduciary capacity.
The proxy materials will include such documents authorized for use by the
regulatory authorities and may also include a prospectus as provided below. The
Bank may also use a summary form of proxy statement, in which case the Bank will
provide Members with an attached postage-paid postcard on which to indicate
whether the Member wishes to receive the prospectus and the Subscription
Offering will not be closed prior to the expiration of 30 days after the mailing
of the postage-paid postcard. The Bank will also advise each Eligible Account
Holder and Supplemental Eligible Account Holder not entitled to vote at the
Special Meeting of the proposed Conversion and the scheduled Special Meeting,
and provide a postage-paid postcard on which to indicate whether such Person
wishes to receive the prospectus, if the Subscription Offering is not held
concurrently with the proxy solicitation, provided that the Subscription
Offering will not be closed prior to the expiration of 30 days after the mailing
of the postage-paid postcard.
Pursuant to OTS regulations, the affirmative vote of not less than a
majority of the total outstanding votes of the Bank's Members will be required
for approval. Voting may be in person or by proxy. The OTS shall be notified
promptly of the action of the Bank's Members.
VI. STOCK OFFERING
A. Number of Shares and Purchase Price of Conversion Stock
The aggregate price for which all shares of Conversion Stock will be sold
will be based on an independent appraisal of the estimated total pro forma
market value of the Converted Bank and the Holding Company. The appraisal shall
be stated in terms of an Estimated Price Range, the maximum of which shall be no
more than 15% above the average of the minimum and maximum of such price range
and the minimum of which shall be no more than 15% below such average. Such
appraisal shall be performed in accordance with OTS guidelines and will be
updated as appropriate under or required by applicable law.
The appraisal will be made by an independent investment banking or
financial consulting firm experienced in the area of financial institution
appraisals. The appraisal will include, among other things, an analysis of the
historical and pro forma operating results and net worth of the Converted Bank
and the Holding Company and a comparison of the Converted Bank and the Holding
Company and the Conversion Stock with comparable stock financial institutions
and holding companies and their respective outstanding capital stocks.
All shares of Conversion Stock sold in the Conversion will be sold at the
same price per share referred to in the Plan as the Purchase Price. The Purchase
Price will be determined by the Boards of Directors of the Holding Company and
of the Bank prior to the filing of the Application for Approval of Conversion
with the OTS.
The number of shares of Conversion Stock to be issued and sold by the
Holding Company in the Conversion will be determined by the Boards of Directors
of the Bank and the Holding Company prior to the commencement of the
Subscription Offering and will fall within a range of shares based on the
Estimated Price Range divided by the Purchase Price, subject to adjustment if
necessitated by market or financial conditions prior to consummation of the
Conversion. The total number of shares of Conversion Stock may also be subject
to increase in connection with any right granted to the Bank and the Holding
Company to issue additional shares to cover over-allotments or
over-subscriptions in the Subscription Offering and Direct Community Offering;
provided that this option may not cover more than 15% of the maximum number of
shares offered in the Subscription Offering and Direct Community Offering. No
resolicitation of subscribers need be made and subscribers need not be permitted
to modify or cancel their subscriptions unless the changes in the number of
shares to be issued in the Conversion, in combination with the Purchase Price,
result in an offering which is below the low end of the Estimated Price Range or
more than 15% above the maximum of such range.
B. Subscription Rights
Non-transferable Subscription Rights to purchase shares will be issued
without payment therefor to Eligible Account Holders, any Tax-Qualified Employee
Stock Benefit Plan, Supplemental Eligible Account Holders, and Other Members as
set forth below. The Bank and the Holding Company may retain and pay for the
services of financial and other advisors and investment bankers to assist in
connection with any or all aspects of the Subscription Offering. All such fees,
expenses, commissions and retainers shall be reasonable.
1. Preference Category No. 1: Eligible Account Holders
Each Eligible Account Holder shall receive non-transferable Subscription
Rights to subscribe for a number of shares of Conversion Stock which shall be
determined by the Boards of Directors of the Holding Company and of the Bank
before the Subscription Offering commences and shall be no greater than 1.0% of
the number of shares of the Conversion Stock determined by dividing the
super-maximum of the Estimated Price Range as of the date the Conversion Stock
is offered by the Purchase Price, except that any one or more Tax-Qualified
Employee Stock Benefit Plans may purchase in the aggregate not more than ten
percent (10%) of the shares of Conversion Stock offered in the Conversion, and
that shares held by one or more Tax-Qualified or Non-Tax-Qualified Employee
Stock Benefit Plans and attributed to a Person shall not be aggregated with
other shares purchased directly by or otherwise attributable to that Person. If
sufficient shares are not available in this Preference Category No. 1, shares
may be allocated first to permit each subscribing Eligible Account Holder to
purchase the lesser of 100 shares or the number of shares subscribed for, and
thereafter pro rata in the same proportion that his Qualifying Deposit bears to
the sum of all Qualifying Deposits of all subscribing Eligible Account Holders.
The foregoing subscription rights are subject to the rights of Tax-Qualified
Employee Stock Benefit Plans in the event that shares of Conversion Stock in
excess of the maximum of the Estimated Price Range are sold, as provided in
section VI.B.2.
Subscription Rights to purchase Conversion Stock received by directors and
Officers of the Bank and their Associates, based on their increased deposits in
the Bank in the one year period preceding the Eligibility Record Date, shall be
subordinated to all other subscriptions involving the exercise of Subscription
Rights of Eligible Account Holders.
2. Preference Category No. 2: Tax-Qualified Employee Stock Benefit
Plans
Each Tax-Qualified Employee Stock Benefit Plan shall receive Subscription
Rights to subscribe for the number of shares of Conversion Stock in the
Subscription Offering remaining after satisfying the subscriptions of Eligible
Account Holders provided for under Preference Category No. 1 above, requested by
any such Plan, subject to the purchase limitations set forth in Section VI. D.
of this Plan, provided, however, that if the shares of Conversion Stock sold in
the Conversion exceed the maximum of the Estimated Price Range, up to 10% of the
total offering of Conversion Stock may be sold to Tax-Qualified Employee Stock
Benefit Plans.
3. Preference Category No. 3: Supplemental Eligible Account Holders.
In the event that the Eligibility Record Date is more than 15 months prior
to the date of the latest amendment to the Application for Approval of
Conversion filed prior to OTS approval, and if there are any shares of
Conversion Stock remaining after satisfying the subscriptions of Eligible
Account Holders provided for under Preference Category No. 1 above and the
subscriptions of any Tax-Qualified Employee Stock Benefit Plans provided for
under Preference Category No. 2 above, then and only in that event each
Supplemental Eligible Account Holder of the Bank shall receive, without payment,
Subscription Rights to purchase a number of shares of Conversion Stock which
shall be determined by the Boards of Directors of the Holding Company and of the
Bank before the Subscription Offering commences and shall be no greater than
1.0% of the number of shares of the Conversion Stock determined by dividing the
super-maximum of the Estimated Price Range as of the date the Conversion Stock
is offered by the Purchase Price, except that any one or more Tax-Qualified
Employee Stock Benefit Plans may purchase in the aggregate not more than ten
percent (10%) of the shares of Conversion Stock offered in the Conversion, and
that shares held by one or more Tax-Qualified or Non-Tax-Qualified Employee
Stock Benefit Plans and attributed to a person shall not be aggregated with
other shares purchased directly by or otherwise attributable to that Person. Any
Subscription Rights received by Eligible Account Holders in accordance with
Preference Category No. 1 shall reduce to the extent thereof the Subscription
Rights granted pursuant to this Preference Category No. 3. If sufficient shares
are not available in this Preference Category No. 3, shares may be allocated
first to permit each subscribing Supplemental Eligible Account Holder to
purchase the lesser of 100 shares or the number of shares subscribed for, and
thereafter pro rata in the same proportion that the Qualifying Deposit of the
Supplemental Eligible Account Holder bears to the total Qualifying Deposits of
all subscribing Supplemental Eligible Account Holders.
4. Preference Category No. 4: Other Members
Each Other Member shall receive non-transferable Subscription Rights to
subscribe for shares of Conversion Stock remaining after satisfying the
subscriptions of Eligible Account Holders provided for under Category No. 1
above, the subscriptions of any Tax-Qualified Employee Stock Benefit Plans
provided for under Category No. 2 above, and the subscriptions of Supplemental
Eligible Account Holders provided for under Category No. 3 above, subject to the
following conditions:
a. Each Other Member shall be entitled to subscribe for a number
of shares which shall be determined by the Boards of Directors of the
Holding Company and the Bank before the Subscription Offering commences
and shall not exceed 1.0% of the number of shares of Conversion Stock
determined by dividing the super-maximum of the Estimated Price Range
as of the date the Conversion Stock is offered by the Purchase Price,
to the extent that stock is available, except that any one or more
Tax-Qualified Employee Stock Benefit Plans may purchase in the
aggregate not more than ten percent (10%) of the shares offered in the
Conversion, and that shares held by one or more Tax-Qualified or
Non-Tax-Qualified Employee Stock Benefit Plans and attributed to a
Person shall not be aggregated with other shares purchased directly by
or otherwise attributable to that Person.
b. If sufficient shares are not available in this Preference
Category No. 4, shares may be allocated among subscribing Other Members
pro rata in the same proportion that the number of shares subscribed
for by each Other Member bears to the total number of shares subscribed
for by all Other Members.
If the total number of shares subscribed for in the Subscription Offering
falls within the Estimated Price Range, the Conversion may be consummated.
C. Direct Community Offering
1. If the total number of shares of Conversion Stock subscribed for in
the Subscription Offering does not fall within the Estimated Price Range,
additional shares representing up to the difference between the shares
subscribed for in the Subscription Offering and the number of shares equal
to the maximum of the Estimated Price Range may be offered for sale in a
Direct Community Offering. This will involve an offering of all
unsubscribed shares directly to the general public, giving preference to
residents of Clinton, Hendricks and Montgomery Counties in Indiana. The
Direct Community Offering, if any, shall be for a period of not less than
20 days nor more than 90 days unless extended by the Bank and the Holding
Company, and shall commence concurrently with, during or promptly after the
Subscription Offering. The purchase price per share to the general public
in a Direct Community Offering shall be equal to the Purchase Price.
Purchase orders received during the Direct Community Offering shall be
filled up to a maximum of two percent of the total number of shares of
Conversion Stock, with any remaining unfilled purchase orders to be
allocated on an equal number of shares basis. The Bank and the Holding
Company may use an investment banking firm or firms on a best efforts basis
to sell the unsubscribed shares in the Direct Community Offering. The Bank
and the Holding Company may pay a commission or other fee to the Sales
Agents as to the unsubscribed shares sold by such firm or firms in the
Direct Community Offering and may also reimburse such firm or firms for
expenses incurred in connection with the sale. Such Sales Agents may also
be paid a management fee based on shares of Conversion Stock sold in the
Conversion to compensate them for any advisory assistance they provide
during the Conversion. The Conversion Stock will be offered and sold in the
Direct Community Offering so as to achieve the widest distribution of the
Conversion Stock. The Bank reserves the right to reject any orders received
in the Direct Community Offering in whole or in part.
2. If for any reason any shares remain unsold after the Subscription
Offering and Direct Community Offering, if any, the Board of Directors will
seek to make other arrangements for the sale of the remaining shares,
pursuant to procedures approved by the OTS. If such other arrangements
cannot be made, the Plan will terminate.
D. Additional Limitations Upon Purchases of Shares of Conversion Stock
The following additional limitations shall be imposed on all purchases of
Conversion Stock in the Conversion:
1. No person, by himself or herself, or with an Associate or group of
Persons acting in concert, may subscribe for or purchase more than a number
of shares of the Conversion Stock which shall be determined by the Boards
of Directors of the Holding Company and the Bank before the Subscription
Offering commences and shall not exceed 1.0% of the number of shares
determined by dividing the super-maximum of the Estimated Price Range as of
the date the Conversion Stock is offered by the Purchase Price, except that
any one or more Tax-Qualified Employee Stock Benefit Plans may purchase in
the aggregate not more than ten percent (10%) of the shares offered in the
Conversion, and shall be entitled to purchase this quantity regardless of
the number of shares to be purchased by other parties, and that shares held
by one or more Tax-Qualified or Non-Tax-Qualified Employee Stock Benefit
Plans and attributed to a Person shall not be aggregated with shares
purchased directly by or otherwise attributable to that Person.
2. Directors and Officers and their Associates may not purchase in all
categories in the Conversion an aggregate of more than 28% of the
Conversion Stock offered in the Conversion. In calculating the number of
shares which may be purchased, any shares attributable to the Officers and
directors and their Associates but held by one or more Tax-Qualified
Employee Stock Benefit Plans shall not be included.
3. The minimum number of shares of Conversion Stock that may be
purchased by any Person in the Conversion is 25 shares, provided sufficient
shares are available; provided, however, that if the Purchase Price is
greater than $20.00 per share, such minimum number of shares shall be
adjusted so that the aggregate Purchase Price will not exceed $500.00.
4. The Boards of Directors of the Bank and the Holding Company may, in
their sole discretion, and without further approval of Members, increase
the maximum purchase limitation set forth in subparagraph (1) above up to
9.99% of the Conversion Stock offered in the Conversion, provided that
orders for shares exceeding 5% of the shares of Conversion Stock shall not
exceed, in the aggregate, 10% of the shares of Conversion Stock, except
that Tax-Qualified Employee Stock Benefit Plans may purchase in the
aggregate up to ten percent (10%) of the Conversion Stock offered in the
Conversion and not be included in the order limit.
5. In determining the maximum percentage limitation under subparagraph
(1) above and in Sections VI.B.1, 3, and 4 the Boards of Directors of the
Bank and the Holding Company may set separate limitations for each Person
together with Associates and Persons acting in concert. Such separate
limitations shall not, however, apply to any Tax-Qualified Employee Stock
Benefit Plan. The Boards of Directors of the Bank and the Holding Company
may, in their sole discretion decrease the maximum purchase limitation set
forth in subparagraph (1) above, without further approval of Members.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, the Holding Company and the Bank may increase
or decrease any of the purchase limitations set forth herein at any time. In the
event that either the individual purchase limitation or the number of shares of
Conversion Stock to be sold in the Conversion, is increased after commencement
of the Subscription Offering, the Holding Company and the Bank shall permit any
Person who subscribed for shares of Conversion Stock to purchase an additional
number of shares such that such Person shall be permitted to subscribe for the
then maximum number of shares permitted to be subscribed for by such Person,
subject to the rights and preferences of any person who has priority
Subscription Rights. In the event that either the individual purchase limitation
or the number of shares of Conversion Stock to be sold in the Conversion is
decreased after commencement of the Subscription Offering, the orders of any
Person who subscribed for the maximum number of shares of Conversion Stock shall
be decreased by the minimum amount necessary so that such Person shall be in
compliance with the then maximum number of shares permitted to be subscribed for
by such Person.
For purposes of this Section VI, the directors of the Bank and the Holding
Company shall not be deemed to be Associates or a group acting in concert solely
as a result of their being directors of the Bank or of the Holding Company.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the above purchase
limitations.
E. Restrictions and Other Characteristics of Conversion Stock Being Sold
1. Transferability. Conversion Stock purchased by Persons other than
directors and Officers of the Bank or the Holding Company will be
transferable without restriction. Shares purchased by directors or Officers
of the Bank or of the Holding Company shall not be sold or otherwise
disposed of for value for a period of one year from the date of Conversion,
except for any disposition of such shares (i) following the death of the
original purchaser or (ii) resulting from an exchange of securities in a
merger or acquisition approved by the applicable regulatory authorities.
Transfers that could result in a change of control of the Bank or the
Holding Company or result in the ownership by any person of more than 10%
of any class of the Bank's or of the Holding Company's equity securities
may be subject to the prior approval of the OTS. Moreover, transfers of
Holding Company common stock are also subject to restrictions in the
Holding Company's Articles of Incorporation.
The certificates representing shares of Conversion Stock issued by
Holding Company to directors and Officers shall bear a legend giving
appropriate notice of the one year holding period restriction. The Holding
Company shall give appropriate instructions to the transfer agent for such
stock with respect to the applicable restrictions relating to the transfer
of restricted stock. Any shares subsequently issued as a stock dividend,
stock split, or otherwise with respect to any such restricted stock shall
be subject to the same holding period restrictions for directors and
Officers of the Bank and of the Holding Company as may be then applicable
to such restricted stock.
No director or Officer of the Bank or the Holding Company, or Associate
of such a director or Officer, shall purchase any outstanding shares of
common stock of the Holding Company for a period of three years following
the Conversion without the prior written approval of the OTS, except from a
broker or dealer registered with the SEC, in a negotiated transaction
involving more than one percent of the then outstanding shares of common
stock, pursuant to any one or more Tax-Qualified or Non-Tax-Qualified
Employee Stock Benefit Plans which may be attributable to individual
Officers or directors, or pursuant to stock option and other incentive
stock plans approved by Holding Company's shareholders. As used herein, the
term negotiated transaction means a transaction in which the securities are
offered and the terms and arrangements relating to any sale are arrived at
through direct communications between the seller or any Person acting on
its behalf and the purchaser or his investment representative. The term
investment representative shall mean a professional investment advisor
acting as agent for the purchaser and independent of the seller and not
acting on behalf of the seller in connection with the transaction.
2. Repurchase and Dividend Rights. Except as set forth below, for a
period of three years following Conversion, the Holding Company shall not
repurchase any shares of its capital stock, except in the case of an offer
approved by the OTS to repurchase on a pro rata basis made to all holders
of common stock of the Holding Company, the repurchase of qualifying shares
of a director, or a purchase on the open market by a Tax-Qualified or
Non-Tax-Qualified Employee Stock Benefit Plan in an amount reasonable and
appropriate to fund the plan. Notwithstanding anything to the contrary in
the foregoing, the Holding Company may repurchase its common stock to the
extent and subject to the requirements set forth in 12 C.F.R. 563b.3(g)(3),
as it may be amended from time to time.
Present regulations also provide that the Converted Bank may not
declare or pay a cash dividend on or repurchase any of its Capital Stock if
the result thereof would be to reduce the net worth of the Converted Bank
below the amount required for the liquidation account to be established
pursuant to Section XII hereof. Any dividend declared or paid on, or
repurchase of, the Converted Bank's Capital Stock must also comply with
regulations adopted by the OTS setting standards for payment of dividends
and other "capital distributions" by federal stock savings savings and loan
associations insured by the FDIC set forth in 12 C.F.R. ss. 563.134, as it
may be amended from time to time.
The above limitations shall not preclude payments of dividends or
repurchases of stock by the Converted Bank or by the Holding Company in the
event applicable federal regulatory limitations are liberalized subsequent
to OTS approval of the Plan.
3. Voting Rights. Upon Conversion, holders of deposit accounts and
borrowers will not have voting rights in the Converted Bank or the Holding
Company. Exclusive voting rights with respect to the Converted Bank will be
held and exercised by the Holding Company as holder of the Bank's Capital
Stock. Voting rights with respect to the Holding Company shall be held and
exercised by the holders of the Holding Company's common stock. Each
shareholder of the Holding Company will upon Conversion be entitled to vote
on any matters coming before the shareholders of the Holding Company for
consideration and will be entitled to one vote for each share of Holding
Company common stock owned by said shareholder, except as otherwise
prescribed by law and except insofar as the Holding Company's Articles of
Incorporation may provide with respect to the cumulation of votes for the
election of directors or may limit voting rights as set forth in Section
XIII hereof.
F. Exercise of Subscription Rights; Order Forms
1. The Bank may commence the Subscription Offering concurrently with
the proxy solicitation for the Special Meeting. If the Subscription
Offering occurs concurrently with the solicitation of proxies for the
Special Meeting, the prospectus and Order Form may be sent to each Eligible
Account Holder, Supplemental Eligible Account Holder and Other Member at
their last known address as shown on the records of the Bank. However, the
Bank may furnish a prospectus and Order Form only to Eligible Account
Holders, Supplemental Eligible Account Holders and Other Members who have
returned to the Bank by a specified date a postcard or other written
communication requesting a prospectus and Order Form, provided that the
Subscription Offering shall not be closed prior to the expiration of 30
days after the mailing of the proxy solicitation material and/or letter
sent in lieu of the proxy statement to those Eligible Account Holders and
Supplemental Eligible Account Holders who are not Members on the Voting
Record Date. In such event, the Bank shall provide a postage-paid postcard
for this purpose and make appropriate disclosure in its proxy statement for
the solicitation of proxies to be voted at the Special Meeting and/or
letter sent in lieu of the proxy statement to those Eligible Account
Holders and Supplemental Eligible Account Holders who are not Members on
the Voting Record Date. If the Subscription Offering is not commenced
within 45 days after the Special Meeting, the Bank may transmit, no more
than 30 days prior to the commencement of the Subscription Offering, to
each Eligible Account Holder, Supplemental Eligible Account Holder and
Other Member who had been furnished with proxy solicitation materials a
notice which shall state that the Bank is not required to furnish a
prospectus or Order Form to them unless they return by a reasonable date a
certain postage-paid postcard or other written communication requesting a
prospectus and Order Form.
2. Each Order Form will be preceded or accompanied by a prospectus
describing the Bank and the shares of Conversion Stock being offered for
subscription and containing all other information required under the
Securities Act of 1933 and by the OTS or necessary to enable Persons to
make informed investment decisions regarding the purchase of Conversion
Stock.
3. The Order Forms (or accompanying instructions) used for the
Subscription Offering will contain, among other things, the following:
(i) A clear and intelligible explanation of the Subscription
Rights granted under the Plan to Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible
Account Holders and Other Members;
(ii) A specified expiration date by which Order Forms must be
returned to and actually received by the Bank or the Holding Company
or their representative for purposes of exercising Subscription
Rights, which date will be not less than 20 days after the Order Forms
are mailed;
(iii) The Purchase Price to be paid for each share subscribed for
when the Order Form is returned;
(iv) Except as otherwise provided in Section VI.D.3 hereof, a
statement that 25 shares is the minimum number of shares of Conversion
Stock that may be subscribed for under the Plan;
(v) A specifically designated blank space for indicating the
number of shares being subscribed for;
(vi) A set of detailed instructions as to how to complete the
Order Form;
(vii) Specifically designated blank spaces for dating and signing
the Order Form;
(viii) An acknowledgment that the subscriber has received the
prospectus;
(ix) A statement of the consequences of failure to properly
complete and return the Order Form, including a statement that the
Subscription Rights will expire on the expiration date specified on
the Order Form unless such expiration date is extended by the Bank and
the Holding Company, and that the Subscription Rights may be exercised
only by delivering the Order Form, properly completed and executed, to
the Bank or the Holding Company or their representative by the
expiration date, together with required payment of the Purchase Price
for all shares of Conversion Stock subscribed for;
(x) A statement that the Subscription Rights are non-transferable
and that all shares of Conversion Stock subscribed for upon exercise
of Subscription Rights must be purchased on behalf of the Person
exercising the Subscription Rights for his own account; and
(xi) A statement that, after receipt by the Bank or the Holding
Company or their representative, a subscription may not be modified,
withdrawn or canceled without the consent of the Bank and the Holding
Company.
G. Method of Payment
Payment for all shares of Conversion Stock subscribed for, computed on the
basis of the Purchase Price, must accompany all completed Order Forms. Payment
may be made in cash (if presented in person), by check, or, if the subscriber
has a deposit in the Bank (including a certificate of deposit), the subscriber
may authorize the Bank to charge the subscriber's account.
Payment for shares of Conversion Stock subscribed for by Tax-Qualified
Employee Stock Benefit Plans may be made with funds contributed by the Bank or
the Holding Company and/or funds obtained pursuant to a loan from an unrelated
financial institution or the Holding Company pursuant to a loan commitment which
is in force from the time that any such plan submits an order form until the
closing of the Conversion.
If a subscriber authorizes the Bank to charge his or her account, the funds
will continue to earn interest, but may not be used by the subscriber until all
Conversion Stock has been sold or the Plan of Conversion is terminated,
whichever is earlier. The Bank will allow subscribers to purchase shares by
withdrawing funds from certificate accounts, without the assessment of early
withdrawal penalties. In the case of early withdrawal of only a portion of such
account, the certificate evidencing such account shall be canceled if the
remaining balance of the account is less than the applicable minimum balance
requirement, in which event the remaining balance will earn interest at the
then-current passbook rate. This waiver of early withdrawal penalty is
applicable only to withdrawals made in connection with the purchase of
Conversion Stock under the Plan of Conversion. Interest will also be paid, at
not less than the then current passbook rate, on all orders paid in cash or by
check or money order, from the date payment is received until consummation of
the Conversion. Payments made in cash or by check or money order will be placed
by the Bank or the Holding Company in an escrow or other account established
specifically for this purpose.
In the event of an unfilled amount of any subscription order, the Converted
Bank will make an appropriate refund, or cancel an appropriate portion of the
related withdrawal authorization, after consummation of the Conversion. If for
any reason the Conversion is not consummated, purchasers will have refunded to
them all payments made and all withdrawal authorizations will be canceled in the
case of subscription payments authorized from accounts at the Bank.
H. Undelivered, Defective or Late Order Forms; Insufficient Payment
The Boards of Directors of the Bank and the Holding Company shall have the
absolute right, in their sole discretion, to reject any Order Form, including
but not limited to, any Order Forms which (i) are not delivered or are returned
by the United States Postal Service (or the addressee cannot be located); (ii)
are not received back by the Bank or the Holding Company or their
representative, or are received after termination of the date specified thereon;
(iii) are defectively completed or executed; (iv) are not accompanied by the
total required payment for the shares of Conversion Stock subscribed for
(including cases in which the subscribers' accounts in the Bank are insufficient
to cover the authorized withdrawal for the required payment); (v) are submitted
by or on behalf of a person whose representations the Boards of Directors
believe to be false or who they otherwise believe, either alone or acting in
concert with others, is violating, evading or circumventing, or intends to
violate, evade or circumvent, the terms and conditions of this Plan; or (vi) are
transmitted by facsimile or accompanied by payments made by wire transfer. In
such event, the Subscription Rights of the person to whom such rights have been
granted will not be honored and will be treated as though such Person failed to
return the completed Order Form within the time period specified therein. The
Bank and the Holding Company may, but will not be required to, waive any
irregularity relating to any Order Form or require submission of corrected Order
Forms or the remittance of full payment for subscribed shares by such date as
the Bank or the Holding Company may specify. The Bank and the Holding Company's
interpretation of the terms and conditions of this Plan and of the proper
completion of the Order Form will be final, subject to the authority of the OTS.
I. Members in Non-Qualified States or in Foreign Countries
The Bank and the Holding Company will make reasonable efforts to comply
with the securities laws of all states in the United States in which Persons
entitled to subscribe for Conversion Stock pursuant to the Plan reside. However,
the Bank or the Holding Company will not be required to offer Subscription
Rights to any Person who resides in a foreign country or who resides in a state
of the United States with respect to which all of the following apply: (i) a
small number of Persons otherwise eligible to subscribe for shares under this
Plan reside in such state and (ii) the granting of Subscription Rights or offer
or sale of shares of Conversion Stock to such Persons would require the Bank or
the Holding Company or their respective Officers or directors to register, under
the securities laws of such state, as a broker, dealer, salesman or agent or to
register or otherwise qualify the Conversion Stock for sale in such state; and
(iii) such registration, qualification or filing in the judgment of the Holding
Company and the Bank would be impracticable or unduly burdensome for reasons of
cost or otherwise.
VII. FEDERAL STOCK CHARTER AND BYLAWS
A. As part of the Conversion, the Bank take all appropriate steps to amend
its charter to read in the form of a federal stock charter as prescribed by the
OTS for a federal stock savings bank. By their approval of the Plan, the Members
of the Bank will thereby approve and adopt such federal stock charter.
B. The Bank will also take appropriate steps to amend its bylaws to read in
the form prescribed by the OTS for a federal stock savings bank.
C. The effective date of the adoption of the Converted Bank's federal stock
charter and bylaws shall be the date of the issuance and sale of the Conversion
Stock as specified by the OTS.
D. Copies of the amended charter and bylaws will be mailed to all Members
as part of the proxy materials for the Special Meeting.
VIII. STOCK INCENTIVE PLANS AND EMPLOYMENT CONTRACTS
In order to provide an incentive for directors, Officers and employees of
the Holding Company and the Bank, the Board of Directors of the Holding Company
or of the Bank is authorized to adopt a stock option plan or plans, a management
recognition plan and trust, a restricted stock bonus plan, an employee stock
ownership plan and trust, and similar stock incentive plans. Such plans (other
than an employee stock ownership plan) shall be subject to approval at an annual
or special meeting of shareholders of the Holding Company, and in the case of
any such plans other than an employee stock ownership plan, will be implemented
no earlier than the date of such shareholder meeting to be held no earlier than
six (6) months following completion of the Conversion. Moreover, the Boards of
Directors of the Bank and Holding Company are authorized to enter into
employment contracts with key employees.
IX. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION
As part of the Conversion, the Holding Company and the Bank intend to
establish a charitable foundation that will qualify as an exempt organization
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the
"Foundation"), and to donate to the Foundation up to 8% of the number of shares
of common stock sold in the Conversion. The Foundation is being formed in
connection with the Conversion in order to complement the Bank's existing
community reinvestment activities and to share with the communities in which the
Bank operates a part of the Bank's financial success as a locally headquartered,
community-minded, financial services institution. The funding of the Foundation
with common stock of the Holding Company accomplishes this goal as it enables
such communities to share in the potential growth and profitability of the
Holding Company and the Bank over the long-term.
The Foundation will be dedicated to the promotion of charitable purposes
within the communities in which the Bank operates, including, but not limited
to, grants or donations to support housing assistance, scholarships, local
education, not-for-profit medical facilities, not-for-profit community groups
and other types of organizations or civic-minded projects. The Foundation will
annually distribute total grants to assist charitable organizations or to fund
projects within its local community of not less than 5% of the average fair
value of Foundation assets each year. In order to serve the purposes for which
it was formed and maintain its 501(c)(3) qualification, the Foundation may sell,
on an annual basis, a limited portion of the common stock contributed to it by
the Holding Company.
An initial board of directors of the Foundation will be comprised of
individuals who are officers and/or directors of the Bank. After the
establishment of the Foundation, the directors may be selected only by the
Foundation's Board of Directors. The board of directors of the Foundation will
be responsible for establishing the policies of the Foundation with respect to
grants or donations, consistent with the stated purposes of the Foundation.
The establishment and funding of the Foundation as part of the Conversion
is subject to the approval of the Members by an affirmative vote of a majority
of the votes eligible to be cast by Members in person or by proxy at the Special
Meeting. In the event that the Bank's Members approve the Plan, but not the
charitable foundation, the Bank may determine to complete the Conversion without
the establishment of the Foundation and may do so without amending this Plan or
obtaining any further vote of the Bank's Members. Failure of the Members to
approve the Foundation may materially affect the pro forma market value of the
Bank. In such an event, the Bank may establish a new Estimated Price Range and
commence a resolicitation of subscribers, if required by the OTS or applicable
law or if deemed appropriate by the Bank. For comparison purposes, Members will
be provided with a projection of the pro forma market value of the Conversion
Stock, an Estimated Price Range and certain selected pro forma financial data
that would result if the Conversion were consummated without establishment of
the charitable foundation.
X. SECURITIES REGISTRATION AND MARKET MAKING
In connection with the Conversion, the Holding Company will register its
common stock with the SEC, pursuant to the Securities Exchange Act of 1934, as
amended. In connection with the registration, the Holding Company will under
take not to deregister such stock, without the approval of the OTS, for a period
of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist two
or more Market Makers to establish and maintain a market for its common stock
promptly following Conversion. The Holding Company will also use its best
efforts to cause its common stock to be quoted on the National Association of
Securities Dealers Automated Quotations System or to be listed on a national or
regional securities exchange.
XI. STATUS OF DEPOSIT ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION
All Deposit Accounts of the Converted Bank will retain the same status
after the Conversion as such Accounts had prior to the Conversion. Each Deposit
Account holder shall retain, without payment, a withdrawable Deposit Account or
Accounts in the Converted Bank, equal in amount to the withdrawable value of
such account holder's Deposit Account or Accounts immediately prior to
Conversion. All Deposit Accounts will continue to be insured by the FDIC up to
the applicable limits of insurance coverage, and shall be subject to the same
terms and conditions (except as to voting and liquidation rights) to which such
Deposit Accounts were subject at the time of the Conversion. All loans shall
retain the same status after Conversion as those loans had prior to Conversion.
Notwithstanding the foregoing, as provided in Section VI.E.3, voting rights of
Deposit Account holders and borrowers will not survive the Conversion.
XII. LIQUIDATION ACCOUNT
For purposes of granting to Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain Deposit Accounts at the
Converted Bank a priority in the event of a complete liquidation of the
Converted Bank, the Converted Bank will, at the time of Conversion, establish a
liquidation account in an amount equal to the net worth of the Bank as shown on
its latest statement of financial condition contained in the final prospectus
used in connection with the Conversion. The operation and maintenance of the
liquidation account will not operate to restrict the use or application of any
of the net worth accounts of the Converted Bank; provided, however, that such
net worth accounts will not be voluntarily reduced below the required dollar
amount of the liquidation account. Each Eligible Account Holder and Supplemental
Eligible Account Holder shall, with respect to each Deposit Account held, have a
related inchoate interest in a portion of the liquidation account balance
("subaccount balance").
The initial subaccount balance of a Deposit Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of the Qualifying Deposit in the Deposit
Account on the Eligibility Record Date and/or the Supplemental Eligibility
Record Date of such Eligible Account Holder or Supplemental Eligible Account
Holder and the denominator is the total amount of the Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders on such
date(s). For savings accounts in existence at both dates, separate subaccounts
shall be determined on the basis of the Qualifying Deposits in such savings
accounts on such record dates. Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.
If the deposit balance in any Deposit Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing date subsequent to the respective record dates is less than the lesser
of (i) the deposit balance in such Deposit Account at the close of business on
any other annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date or (ii) the amount of the Qualifying
Deposit in such Deposit Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, the subaccount balance shall be reduced in
an amount proportionate to the reduction in such deposit balance. In the event
of a downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Deposit Account. If all funds in such Deposit Account are withdrawn, the related
subaccount balance shall be reduced to zero.
In the event of a complete liquidation of Converted Bank (and only in such
event), each Eligible Account Holder and/or Supplemental Eligible Account Holder
shall be entitled to receive a liquidation distribution from the liquidation
account in the amount of the then-current adjusted subaccount balances for
Deposit Accounts then held before any liquidation distribution may be made to
shareholders. No merger, consolidation, bulk purchase of assets with assumptions
of Deposit Accounts and other liabilities, or similar transactions in which the
Converted Bank is not the surviving institution, shall be considered to be a
complete liquidation if the surviving institution is a qualifying institution
insured by the FDIC. In such transactions, the liquidation account shall be
assumed by the surviving institution.
The Converted Bank shall not be required to recompute the liquidation
account and subaccount balances provided the Converted Bank maintains records
sufficient to make necessary computations in the event of a complete liquidation
or such other events as may require a computation of the balance of the
liquidation account. The liquidation subaccount of an account holder shall be
maintained for as long as the account holder maintains an account with the same
Social Security number.
XIII. RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
A. Present regulations provide that for a period of three years following
completion of the Conversion, no person (i.e., individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, or any unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution) shall directly or indirectly offer to
purchase or actually acquire the beneficial ownership of more than ten percent
of any class of equity security of the Holding Company without the prior
approval of the OTS. However, approval is not required for purchases directly
from the Holding Company or from underwriters or a selling group acting on its
behalf with a view toward public resale, or for purchases not exceeding one
percent per annum of the shares outstanding. Civil penalties may be imposed by
the OTS for willful violation or assistance of any violation. Where any person
directly or indirectly acquires beneficial ownership of more than ten percent of
Holding Company common stock outstanding within such three year period without
the prior approval of the OTS, the Holding Company stock beneficially owned by
such person in excess of ten percent shall not be counted as shares entitled to
vote and shall not be voted by any person or counted as voting shares in
connection with any matter submitted to the shareholders of the Holding Company
for a vote.
B. The Holding Company may provide in its Articles of Incorporation that,
for a specified period of up to five years or for an unspecified period of time
following the date of the completion of the Conversion, no person shall directly
or indirectly offer to acquire or acquire the beneficial ownership of more than
ten percent of the outstanding Holding Company common stock. Furthermore, the
Articles of Incorporation may provide that, for a specified period of up to five
years or for an unspecified period of time following the date of the completion
of the Conversion, shares of Holding Company common stock beneficially owned in
violation of such percentage limitation shall not be entitled to vote and shall
not be voted by any person or counted as voting shares in connection with any
matter submitted to the shareholders of the Holding Company for a vote. The
Holding Company may provide in its Articles of Incorporation such other
provisions affecting acquisition of Holding Company common stock or possible
changes of control of the Holding Company as shall be determined by the Holding
Company's Board of Directors.
XIV. AMENDMENT OR TERMINATION OF PLAN
If necessary or desirable, the Plan may be amended at any time prior to
submission of the Plan and proxy materials to the Members by a two-thirds vote
of the Boards of Directors of the Bank and the Holding Company. After submission
of the Plan and proxy materials to the Members, the Plan may be amended by a
two-thirds vote of the Boards of Directors of the Bank and the Holding Company
only with the concurrence of the OTS or resubmission to the Members.
The Plan may be terminated by a two-thirds vote of the Boards of Directors
of the Bank and the Holding Company at any time prior to the Special Meeting of
Members, and at any time following such Special Meeting with the concurrence of
the OTS. In its discretion, the respective Boards of Directors may modify or
terminate the Plan upon the order or with the approval of the OTS, and without a
resolicitation of proxies or another meeting of Members. The Plan shall
terminate if the sale of shares of Conversion Stock falling within the Estimated
Price Range is not completed within 24 months of the date of the Special
Meeting. A specific resolution approved by a majority of the Boards of Directors
of the Bank and the Holding Company is required in order for the Bank and the
Holding Company to terminate the Plan prior to the end of such 24 month period.
XV. EXPENSES OF THE CONVERSION
The Holding Company and the Bank shall use their best efforts to assure
that expenses incurred by the Bank and the Holding Company in connection with
the Conversion shall be reasonable.
XVI. EXTENSION OF CREDIT FOR PURCHASE OF STOCK
Neither the Bank nor the Holding Company shall knowingly loan funds or
otherwise extend credit to any Person to purchase shares of Conversion Stock,
provided, however that, with the approval of the OTS, the Holding Company may be
permitted to loan funds to a Tax-Qualified Employee Stock Benefit Plan for
purposes of acquiring shares of Conversion Stock in the Conversion.
XVII. EFFECTIVE DATE
The effective date of the Conversion shall be the date of the closing of
the sale of all shares of Conversion Stock. The closing (which shall be within
45 days after the completion of the Subscription Offering, unless the Holding
Company and the Bank extend such period as provided herein) for all shares of
Conversion Stock sold in the Subscription Offering and any Direct Community
Offering shall occur simultaneously, and the closing is conditioned upon the
prior receipt of all requisite regulatory and other approvals.
ARTICLES OF INCORPORATION
OF
LINCOLN BANCORP
ARTICLE 1
Name
The name of the Corporation is Lincoln Bancorp.
ARTICLE 2
Purposes and Powers
Section 2.01. Purposes. The purposes for which the Corporation is formed
are the transaction of any or all lawful business for which corporations may be
incorporated under the Indiana Business Corporation Law, as the same may, from
time to time, be amended (the "Act").
Section 2.02. Powers. The Corporation shall have the same powers as an
individual to do all things necessary or convenient to carry out its business
and affairs, including without limitation, all the powers specifically
enumerated in the Act.
ARTICLE 3
Term of Existence
The period during which the Corporation shall continue is perpetual.
ARTICLE 4
Registered Office and Resident Agent
The street address of the registered office of the Corporation is:
1121 East Main Street
Plainfield, Indiana 46168-0510
and the name and business office address of its registered agent in charge
of such office are:
T. Tim Unger
1121 East Main Street
P.O. Box 510
Plainfield, Indiana 46168-0510
ARTICLE 5
Number of Shares
The total number of shares which the Corporation shall have authority to
issue is Twenty-Two Million (22,000,000) shares, all of which are without par
value.
ARTICLE 6
Terms of Shares
Section 6.01. Designation of Classes, Number and Par Value of Shares. The
shares of authorized capital shall be divided into Two Million (2,000,000)
shares of Preferred Stock, without par value, as hereinafter provided
("Preferred Stock"), and Twenty Million (20,000,000) shares of Common Stock,
without par value ("Common Stock"), as hereinafter provided.
Section 6.02. Rights, Privileges, Limitations and Restrictions of Preferred
Stock. The Board of Directors of the Corporation is vested with authority to
determine and state the designations and the relative preferences, limitations,
voting rights, if any, and other rights of the Preferred Stock and of each
series of Preferred Stock by the adoption and filing in accordance with the Act,
before the issuance of any shares of such Preferred Stock or series of Preferred
Stock, of an amendment or amendments to these Articles of Incorporation as the
same may, from time to time, be amended, determining the terms of such Preferred
Stock or series of Preferred Stock ("Preferred Stock Designation"). All shares
of Preferred Stock of the same series shall be identical with each other in all
respects. The number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the voting power of all of the
then outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of Directors, after giving effect to the provisions in
Article 11 hereof ("Voting Stock"), voting as a single class, without a separate
vote of the holders of the Preferred Stock or any series thereof, unless a vote
of any such holders is required pursuant to the Preferred Stock Designation.
Section 6.03. Rights, Privileges, Limitations and Restrictions of Common
Stock.
Clause 6.031. Single Class. The shares of Common Stock shall
constitute a separate and single class and shall not be issued in series.
All shares of Common Stock shall be identical with each other in all
respects.
Clause 6.032. Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, the holders of
the shares of Common Stock shall be entitled, after payment or provision
for payment of the debts and other liabilities of the Corporation and of
all shares of stock having priority over the Common Stock, in the event of
voluntary or involuntary liquidation, dissolution or winding up, to share
ratably in the remaining net assets of the Corporation.
Clause 6.033. Voting Rights. Every holder of shares of Common Stock
shall have the right, at every Shareholders' meeting, to one vote for each
share of Common Stock standing in his name on the books of the Corporation,
except as otherwise provided in the Act.
Section 6.04. Issuance of Shares. The Board of Directors has authority to
authorize and direct the issuance by the Corporation of shares of Preferred
Stock and Common Stock at such times, in such amounts, to such persons, for such
considerations and upon such terms and conditions as it may, from time to time,
determine upon, subject only to the restrictions, limitations, conditions and
requirements imposed by the Act, other applicable laws and these Articles of
Incorporation, as the same may, from time to time, be amended.
Section 6.05. Distributions Upon Shares. The Board of Directors has
authority to authorize and direct the payment of dividends and the making of
other distributions by the Corporation in respect of the issued and outstanding
shares of Preferred Stock and Common Stock (i) at such times, in such amount and
forms, from such sources and upon such terms and conditions as it may, from time
to time, determine upon, subject only to the restrictions, limitations,
conditions and requirements imposed by the Act, other applicable laws and these
Articles of Incorporation, as the same may, from time to time, be amended, and
(ii) in shares of the same class or series or in shares of any other class or
series without obtaining the affirmative vote or the written consent of the
holders of the shares of the class or series in which the payment or
distribution is to be made.
Section 6.06. Acquisition of Shares. The Board of Directors has authority
to authorize and direct the acquisition by the Corporation of the issued and
outstanding shares of Preferred Stock and Common Stock at such times, in such
amounts, from such persons, for such considerations, from such sources and upon
such terms and conditions as it may, from time to time, determine upon, subject
only to the restrictions, limitations, conditions and requirements imposed by
the Act, other applicable laws and these Articles of Incorporation, as the same
may, from time to time, be amended.
Section 6.07. Recognition Procedure for Beneficial Ownership of Shares or
Rights. The Board of Directors may establish in the Code of By-Laws of the
Corporation a recognition procedure by which the beneficial owner of any share
or right of the Corporation that is registered on the books of the Corporation
in the name of a nominee is recognized by the Corporation, to the extent
provided in any such recognition procedure, as the owner thereof.
Section 6.08. Disclosure Procedure for Beneficial Ownership of Shares or
Rights. The Board of Directors may establish in the Corporation's Code of
By-Laws a disclosure procedure by which the name of the beneficial owner of any
share or right of the Corporation that is registered on the books of the
Corporation in the name of a nominee shall, to the extent not prohibited by the
Act or other applicable laws, be disclosed to the Corporation. Any disclosure
procedure established by the Board of Directors may include reasonable sanctions
to ensure compliance therewith, including without limitation (i) prohibiting the
voting of, (ii) providing for mandatory or optional reacquisition by the
Corporation of, and (iii) the withholding or payment into escrow of any dividend
or other distribution in respect of, any share or right of the Corporation as to
which the name of the beneficial owner is not disclosed to the Corporation as
required by such disclosure procedure.
Section 6.09. No Pre-emptive Rights. The holders of the Common Stock and
the holders of the Preferred Stock or any series of the Preferred Stock shall
have no pre-emptive rights to subscribe to or purchase any shares of Common
Stock, Preferred Stock or other securities of the Corporation.
Section 6.10. Record Ownership of Shares or Rights. The Corporation, to the
extent permitted by law, shall be entitled to treat the person in whose name any
share or right of the Corporation is registered on the books of the Corporation
as the owner thereof for all purposes, and shall not be bound to recognize any
equitable or any other claim to, or interest in, such share or right on the part
of any other person, whether or not the Corporation shall have notice thereof.
ARTICLE 7
Directors
Section 7.01. Number. The number of Directors of the Corporation shall not
be less than five (5) nor more than fifteen (15), as may be specified from time
to time by resolution adopted by a majority of the total number of the
Corporation's Directors. If and whenever the Board of Directors has not
specified the number of Directors, the number shall be nine (9). The terms of
the initial directors of the Corporation shall expire at the first Annual
Meeting of Shareholders of the Corporation. At that meeting, the directors
elected by the Shareholders shall be divided into three (3) classes, as nearly
equal in number as possible, with the term of office of the first class to
expire at the Annual Meeting of Shareholders held following the fiscal year
ended December 31, 1999, the term of office of the second class to expire at the
Annual Meeting of Shareholders held following the fiscal year ended December 31,
2000, and the term of office of the third class to expire at the Annual Meeting
of Shareholders held following the fiscal year ended December 31, 2001. At each
Annual Meeting of Shareholders following such initial classification, Directors
elected by the Shareholders to succeed those Directors whose term expires shall
be elected for a term of office to expire at the third succeeding Annual Meeting
of Shareholders after their election. Each Director shall hold office until his
successor is chosen and qualified. There shall be no cumulative voting by
Shareholders of any class or series in the election of Directors of the
Corporation.
Section 7.02. Vacancies. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, newly-created directorships resulting from
any increase in the authorized number of Directors or any vacancies in the Board
of Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause shall be filled only by a majority vote of
the Continuing Directors, as defined in Section 11.02 of Article 11 hereof,
although less than a quorum of the Board of Directors. Directors so chosen shall
hold office for a term expiring at the Annual Meeting of Shareholders at which
the term of the class to which they have been elected expires. No decrease in
the number of authorized Directors constituting the entire Board of Directors
shall shorten the term of any incumbent Director.
Section 7.03. Removal. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, any Director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least 80% of the voting power of
all of the shares of the Corporation entitled to vote generally in the election
of Directors, voting together as a single class. For purposes of this section,
removal for cause shall be limited to the grounds then specifically enumerated
in 12 C.F.R. ss. 563.39 (or any successor provision) with respect to termination
for cause.
Section 7.04. Shareholder Nomination of Director Candidates and
Introduction of Business. Advance notice of Shareholder nominations for the
election of Directors and of business to be brought by Shareholders before any
meeting of the Shareholders of the Corporation shall be given in the manner
provided in the Corporation's Code of By-Laws.
Section 7.05. Calling of Special Shareholder Meetings. Special meetings of
the Shareholders of the Corporation may only be called by the Chairman of the
Board of Directors or by the Board of Directors pursuant to a resolution adopted
by a majority of the total number of Directors of the Corporation.
Section 7.06. Code of By-Laws. The Board of Directors of the Corporation
shall have power, without the assent or vote of the Shareholders, to make,
alter, amend or repeal the Code of By-Laws of the Corporation by the affirmative
vote of a number of Directors equal to a majority of the number who constitute a
full Board of Directors at the time of such action. Shareholders shall not have
any power to make, alter, amend or repeal the Corporation's Code of By-Laws.
Section 7.07. Factors to be Considered by Board. In addition to any other
considerations which the Board of Directors may lawfully take into account, in
determining whether to take or to refrain from taking corporate action on any
matter, including making or declining to make any recommendation to the
Shareholders of the Corporation, the Board of Directors may in its discretion
consider the long-term as well as short-term best interests of the Corporation
(including the possibility that these interests may be best served by the
continued independence of the Corporation), taking into account, and weighing as
the Directors deem appropriate, the social and economic effects of such action
on present and future employees, suppliers, customers of the Corporation and its
subsidiaries (including account holders and borrowers of any of the
Corporation's subsidiaries), the effect upon communities in which offices or
other facilities of the Corporation are located, and the effect on the
Corporation's ability to fulfill its corporate obligations as a savings and loan
holding company or a bank holding company and on the ability of any of its
subsidiary financial institutions to fulfill the objectives of a financial
institution under applicable statutes and regulations, and any other factors the
Directors consider pertinent.
Section 7.08. Authorized Board Actions. In furtherance and not in
limitation of the powers conferred by law or in these Articles of Incorporation,
as the same may, from time to time, be amended, the Board of Directors (and any
committee of the Board of Directors) is expressly authorized, to the extent
permitted by law, to take such action or actions as the Board or such committee
may determine to be reasonably necessary or desirable to (A) encourage any
person (as defined in Section 12.03, Clause 12.031 hereof) to enter into
negotiations with the Board of Directors and management of the Corporation with
respect to any transaction which may result in a change in control of the
Corporation which is proposed or initiated by such person or (B) contest or
oppose any such transaction which the Board of Directors or such committee
determines to be unfair, abusive or otherwise undesirable with respect to the
Corporation and its business, assets or properties or the Shareholders of the
Corporation, including, without limitation, the adoption of such plans or the
issuance of such rights, options, capital stock, notes, debentures or other
evidences of indebtedness or other securities of the Corporation (which issuance
may be with or without consideration, and may (but need not) be issued pro
rata), which rights, options, capital stock, notes, evidences of indebtedness
and other securities (i) may be exchangeable for or convertible into cash or
other securities on such terms and conditions as may be determined by the Board
or such committee and (ii) may provide for the treatment of any holder or class
of holders thereof designated by the Board of Directors or any such committee in
respect of the terms, conditions, provisions and rights of such securities which
is different from, and unequal to, the terms, conditions, provisions and rights
applicable to all other holders thereof.
Section 7.09. Amendment, Repeal. Notwithstanding anything contained in the
Articles of Incorporation or the Code of By-Laws of the Corporation to the
contrary and notwithstanding that a lesser percentage or no vote may be
specified by law, but in addition to any affirmative vote of the holders of any
particular class or series of capital stock of the Corporation required by law
or any Preferred Stock Designation, the affirmative vote of the holders of at
least 80% of the voting power of all of the then-outstanding shares of Voting
Stock, voting together as a single class, shall be required to alter, amend,
change or repeal this Article 7.
ARTICLE 8
Initial Directors
The names and post office addresses of the initial Board of Directors of
the Corporation are as follows:
Name Post Office Address
T. Tim Unger 1121 East Main Street
P.O. Box 510
Plainfield, Indiana 46168-0510
Lester N. Bergum 1121 East Main Street
P.O. Box 510
Plainfield, Indiana 46168-0510
W.Thomas Harmon 1121 East Main Street
P.O. Box 510
Plainfield, Indiana 46168-0510
Jerry R. Holifield 1121 East Main Street
P.O. Box 510
Plainfield, Indiana 46168-0510
Wayne E. Kessler 1121 East Main Street
P.O. Box 510
Plainfield, Indiana 46168-0510
David E. Mansfield 1121 East Main Street
P.O. Box 510
Plainfield, Indiana 46168-0510
John C. Milholland 1121 East Main Street
P.O. Box 510
Plainfield, Indiana 46168-0510
Edward E. Whalen 1121 East Main Street
P.O. Box 510
Plainfield, Indiana 46168-0510
John L. Wyatt 1121 East Main Street
P.O. Box 510
Plainfield, Indiana 46168-0510
ARTICLE 9
Incorporator
The name and post office address of the Incorporator of the Corporation are
as follows:
Claudia V. Swhier, Esq.
Barnes & Thornburg
11 South Meridian Street
Indianapolis, Indiana 46204
ARTICLE 10
Provisions for Regulation of Business and Conduct
of Affairs of Corporation
Section 10.01. Amendments of Articles of Incorporation. Except as otherwise
provided in Articles 7, 11, and 12 hereof, the Corporation reserves the right to
increase or decrease the number of its authorized shares, or any class or series
thereof, and to reclassify the same, and to amend, alter, change or repeal any
provision contained in these Articles of Incorporation, or any amendment hereto,
or to add any provision to these Articles of Incorporation or to any amendment
hereto, in any manner now or hereafter prescribed or permitted by the Act or any
other applicable laws, and all rights and powers conferred upon Shareholders,
Directors and/or Officers in these Articles of Incorporation, or any amendment
hereto, are granted subject to this reserve power. No Shareholder has a vested
property right resulting from any provision in these Articles of Incorporation,
or any amendment hereto, or authorized to be in the Code of By-Laws of the
Corporation or these Articles of Incorporation by the Act, including, without
limitation, provisions relating to management, control, capital structure,
dividend entitlement, or purpose or duration of the Corporation.
Section 10.02. Action by Shareholders. Meetings of the Shareholders of the
Corporation shall be held at such place, within or without the State of Indiana,
as may be specified in the Code of By-Laws of the Corporation or in the
respective notices, or waivers of notice, thereof. Any action required or
permitted to be taken at any meeting of the Shareholders may be taken without a
meeting if a consent in writing setting forth the action so taken is signed by
all the Shareholders entitled to vote with respect thereto, and such written
consent is filed with the minutes of the proceedings of the Shareholders.
Section 10.03. Action by Directors. Meetings of the Board of Directors of
the Corporation or any committee thereof shall be held at such place, within or
without the State of Indiana, as may be specified in the Code of By-Laws of the
Corporation or in the respective notices, or waivers of notice, thereof. Any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if a
consent in writing setting forth the action so taken is signed by all members of
the Board of Directors or of such committee, as the case may be, and such
written consent is filed with the minutes of the proceedings of such Board or
committee.
Section 10.04. Places of Keeping of Corporate Records. The Corporation
shall keep at its principal office a copy of (1) its Articles of Incorporation,
and all amendments thereto currently in effect; (2) its Code of By-Laws, and all
amendments thereto currently in effect; (3) minutes of all meetings of the
Shareholders and records of all actions taken by the Shareholders without a
meeting (collectively, "Shareholders Minutes") for the prior three years; (4)
all written communications by the Corporation to the Shareholders including the
financial statements furnished by the Corporation to the Shareholders
("Shareholder Communications") for the prior three years; (5) a list of the
names and business addresses of the current Directors and the current Officers
of the Corporation; and (6) the most recent Annual Report of the Corporation as
filed with the Secretary of State of Indiana. The Corporation shall also keep
and maintain at its principal office, or at such other place or places within or
without the State of Indiana as may be provided, from time to time, in the Code
of By-Laws, (1) minutes of all meetings of the Board of Directors and of each
committee of such Board, and records of all actions taken by the Board of
Directors and by each committee without a meeting; (2) appropriate accounting
records of the Corporation; (3) a record of the Shareholders in a form that
permits preparation of a list of the names and addresses of all the
Shareholders, in alphabetical order, stating the number of shares held by each
Shareholder; and (4) Shareholders Minutes for periods preceding the prior three
years. All of the records of the Corporation described in this Section 10.04
(collectively, the "Corporate Records") shall be maintained in written form or
in another form capable of conversion into written form within a reasonable
time.
Section 10.05. Limitation of Liability and Reliance on Corporate Records
and Other Information.
Clause 10.051. General Limitation. No Director, member of any committee
of the Board of Directors, or of another committee appointed by the Board,
Officer, employee or agent of the Corporation ("Corporate Person") shall be
liable for any loss or damage if, in taking or omitting to take any action
causing such loss or damage, either (1) such Corporate Person acted (A) in
good faith, (B) with the care an ordinarily prudent person in a like
position would have exercised under similar circumstances, and (C) in a
manner such Corporate Person reasonably believed was in the best interests
of the Corporation, or (2) such Corporate Person's breach of or failure to
act in accordance with the standards of conduct set forth in Clause
10.051(1) above (the "Standards of Conduct") did not constitute willful
misconduct or recklessness.
Clause 10.052. Reliance on Corporate Records and Other Information.
Any "Corporate Person" shall be fully protected, and shall be deemed to
have complied with the Standards of Conduct, in relying in good faith, with
respect to any information contained therein, upon (1) the Corporate
Records, or (2) information, opinions, reports or statements (including
financial statements and other financial data) prepared or presented by (A)
one or more other Corporate Persons whom such Corporate Person reasonably
believes to be competent in the matters presented, (B) legal counsel,
public accountants or other persons as to matters that such Corporate
Person reasonably believes are within such person's professional or expert
competence, (C) a committee of the Board of Directors or other committee
appointed by the Board of Directors, of which such Corporate Person is not
a member, if such Corporate Person reasonably believes such committee of
the Board of Directors or such appointed committee merits confidence, or
(D) the Board of Directors, if such Corporate Person is not a Director and
reasonably believes that the Board merits confidence.
Section 10.06. Interest of Directors in Contracts. Any contract or other
transaction between the Corporation and (i) any Director, or (ii) any
corporation, unincorporated association, business trust, estate, partnership,
trust, joint venture, individual or other legal entity ("Legal Entity") (A) in
which any Director has a material financial interest or is a general partner, or
(B) of which any Director is a director, officer, or trustee (collectively, a
"Conflict Transaction"), shall be valid for all purposes, if the material facts
of the Conflict Transaction and the Director's interest were disclosed or known
to the Board of Directors, a committee of the Board of Directors with authority
to act thereon, or the Shareholders entitled to vote thereon, and the Board of
Directors, such committee or such Shareholders authorized, approved or ratified
the Conflict Transaction. A Conflict Transaction is authorized, approved or
ratified:
(1) By the Board of Directors or such committee, if it receives the
affirmative vote of a majority of the Directors who have no interest in the
Conflict Transaction, notwithstanding the fact that such majority may not
constitute a quorum or a majority of the Board of Directors or such
committee or a majority of the Directors present at the meeting, and
notwithstanding the presence or vote of any Director who does have such an
interest; provided, however, that no Conflict Transaction may be
authorized, approved or ratified by a single Director; and
(2) By such Shareholders, if it receives the vote of a majority of the
shares entitled to be counted, in which vote shares owned or voted under
the control of any Director who, or of any Legal Entity that, has an
interest in the Conflict Transaction may be counted; provided, however,
that a majority of such shares, whether or not present, shall constitute a
quorum for the purpose of authorizing, approving or ratifying a Conflict
Transaction.
This Section 10.06 shall not be construed to require authorization,
ratification or approval by the Shareholders of any Conflict Transaction, or to
invalidate any Conflict Transaction, that would otherwise be valid under the
common and statutory law applicable thereto.
Section 10.07. Compensation of Directors. The Board of Directors is hereby
specifically authorized, in and by the Code of By-Laws of the Corporation, or by
resolution duly adopted by such Board, to make provision for reasonable
compensation to its members for their services as Directors, and to fix the
basis and conditions upon which such compensation shall be paid. Any Director of
the Corporation may also serve the Corporation in any other capacity and receive
compensation therefor in any form.
Section 10.08. Direction of Purposes and Exercise of Powers by Directors.
The Board of Directors, subject to any specific limitations or restrictions
imposed by the Act or these Articles of Incorporation, as the same may, from
time to time, be amended, shall direct the carrying out of the purposes and
exercise the powers of the Corporation, without previous authorization or
subsequent approval by the Shareholders of the Corporation.
ARTICLE 11
Certain Limitations
Section 11.01. Certain Limitations. Notwithstanding anything contained in
these Articles of Incorporation or the Corporation's Code of By-Laws to the
contrary, the following provisions shall apply:
No person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than ten percent (10%) of any class of equity
security of the Corporation. This limitation shall not apply to the purchase of
shares by underwriters in connection with a public offering or to the purchase
of shares by a defined benefit or defined contribution employee benefit plan
such as an employee stock ownership plan, stock bonus plan, profit-sharing plan
or other plan, which, with its related trust, meets the requirements to be
"qualified" under Section 401 of the Internal Revenue Code of 1986, as amended.
In the event shares are acquired in violation of this Section 11.01, all
shares beneficially owned by any person in excess of 10% shall be considered
"excess shares" and shall not be counted as shares entitled to vote and shall
not be voted by any person or counted as voting shares in connection with any
matters submitted to the Shareholders for a vote.
For purposes of this Section 11.01, the term "person" shall have the
meaning set forth in Section 12.03, Clause 12.031 hereof. The term "offer"
includes every offer to buy or otherwise acquire, solicitation of an offer to
sell, tender offer for, or request or invitation for tenders of, a security or
interest in a security for value. The term "acquire" includes every type of
acquisition, whether effected by purchase, exchange, operation of law or
otherwise. The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise.
For purposes of determining the beneficial ownership limitation imposed by
this Section 11.01, warrants, options, obligations or securities convertible
into such equity securities of the Corporation and other similar interests shall
be treated as having been exercised or converted into such equity securities.
Section 11.02. Amendment of Article 11. Notwithstanding anything elsewhere
in these Articles of Incorporation or in the Corporation's Code of By-Laws to
the contrary and notwithstanding that a lesser percentage or no vote may be
specified by law, but in addition to any affirmative vote of the holders of any
particular class or series of capital stock of the Corporation required by law
or any Preferred Stock Designation, the affirmative vote of the holders of at
least 80% of the total voting power of all of the then-outstanding shares of
Voting Stock, voting as a single class, shall be required to alter, amend or
repeal this Article 11, unless at least two-thirds of the Continuing Directors
(as defined below in this Section 11.02) shall have approved the proposed
changes prior to their submission to Shareholders for their vote (in which case
a favorable vote of the percentage of the total votes eligible to be cast
required by the Act or other applicable law shall be required). For purposes of
this Section 11.02, a "Continuing Director" shall mean any Director then serving
as such who was a member of the Corporation's Board of Directors on September
10, 1998, or was recommended for appointment or election (before such person's
initial assumption of office as a Director) by a majority of the Continuing
Directors then on the Board.
ARTICLE 12
Provisions for Certain Business Combinations
Section 12.01. Vote Required.
Clause 12.011. Higher Vote for Certain Business Combinations. In
addition to any affirmative vote required by law or these Articles of
Incorporation, and except as otherwise expressly provided in Section 12.02
of this Article 12:
1. any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with (A) any Interested Shareholder (as
hereinafter defined), or (B) any other corporation (whether or not
itself an Interested Shareholder) which is, or after such merger
or consolidation would be, an Affiliate (as hereinafter defined)
of an Interested Shareholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or
with any Interested Shareholder or any Affiliate of any Interested
Shareholder, of any assets of the Corporation or any Subsidiary
having an aggregate Fair Market Value equaling or exceeding 25% or
more of the combined assets of the Corporation and its
Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Shareholder or
any Affiliate of any Interested Shareholder in exchange for cash,
securities or other property (or a combination thereof) having an
aggregate Fair Market Value equaling or exceeding 25% of the
combined assets of the Corporation and its Subsidiaries except
pursuant to an employee benefit plan of the Corporation or any
Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Shareholder or any Affiliate of any Interested
Shareholder; or
5. any reclassification of securities (including any reverse stock
split) or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or
any other transaction (whether or not with or into or otherwise
involving any Interested Shareholder) which has the effect,
directly or indirectly, of increasing the proportionate share of
the outstanding shares of any class or series of equity or
convertible securities of the Corporation or any Subsidiary which
is Beneficially Owned (as hereinafter defined) directly or
indirectly by any Interested Shareholder or any Affiliate of any
Interested Shareholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of all of the then-outstanding shares of Voting Stock, voting
together as a single class. Such affirmative vote shall be required
notwithstanding that any other provisions of these Articles of
Incorporation, or any provision of law, or any Preferred Stock Designation,
or any agreement with any national securities exchange or otherwise might
otherwise permit a lesser vote or no vote.
Clause 12.012. Definition of "Business Combination." The term "Business
Combination" as used in this Article 12 shall mean any transaction which is
referred to in any one or more of paragraphs (1) through (5) of Clause
12.011 of this Section 12.01.
Section 12.02. When Higher Vote is Not Required. The provisions of Section
12.01 of this Article 12 shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote as is required by law, and any other provision of these Articles of
Incorporation, and any Preferred Stock Designation, if, in the case of a
Business Combination that does not involve any cash or other consideration being
received by the Shareholders of the Corporation, solely in their capacity as
Shareholders of the Corporation, the condition specified in the following Clause
12.021 is met or, in the case of any other Business Combination, the conditions
specified in either of the following Clause 12.021 or 12.022 are met:
Clause 12.021. Approval by Continuing Directors. The Business
Combination shall have been approved by a majority of the Continuing
Directors (as hereinafter defined); provided, however, that this condition
shall not be capable of satisfaction unless there are at least three
Continuing Directors.
Clause 12.022. Price and Procedure Requirements. All of the following
conditions shall have been met:
1. The consideration to be received by holders of shares of a
particular class (or series) of outstanding capital stock
(including Common Stock) shall be in cash or in the same form as
the Interested Shareholder or any of its Affiliates has previously
paid for shares of such class (or series) of capital stock. If the
Interested Shareholder or any of its Affiliates has paid for
shares of any class (or series) of capital stock with varying
forms of consideration, the form of consideration to be received
per share by holders of shares of such class (or series) of
capital stock shall be either cash or the form used to acquire the
largest number of shares of such class (or series) of capital
stock previously acquired by the Interested Shareholder.
2. The aggregate amount of (x) the cash and (y) the Fair Market Value
as of the date (the "Consummation Date") of the consummation of
the Business Combination, of the consideration other than cash to
be received per share by holders of Common Stock in such Business
Combination shall be at least equal to the higher of the following
(in each case appropriately adjusted in the event of any stock
dividend, stock split, combination of shares or similar event):
A. (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder or any of its
Affiliates for any shares of Common Stock acquired by them
within the two-year period immediately prior to the date of
the first public announcement of the proposal of the Business
Combination (the "Announcement Date") or in any transaction in
which the Interested Shareholder became an Interested
Shareholder, whichever is higher; and
B. The Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Shareholder became an Interested Shareholder (the
"Determination Date"), whichever is higher.
3. The aggregate amount of (x) the cash and (y) the Fair Market
Value, as of the Consummation Date, of the consideration other
than cash to be received per share by holders of shares of any
class (or series), other than Common Stock, of outstanding capital
stock of the Corporation shall be at least equal to the highest of
the following (in each case appropriately adjusted in the event of
any stock dividend, stock split, combination of shares or similar
event), it being intended that the requirements of this
subparagraph (3) shall be required to be met with respect to every
such class (or series) of outstanding capital stock whether or not
the Interested Shareholder or any of its Affiliates has previously
acquired any shares of a particular class (or series) of capital
stock:
A. (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder or any of its
Affiliates for any shares of such class (or series) of capital
stock acquired by them within the two-year period immediately
prior to the Announcement Date or in any transaction in which
it became an Interested Shareholder, whichever is higher;
B. the Fair Market Value per share of such class (or series) of
capital stock on the Announcement Date or on the
Determination Date, whichever is higher; and
C. (if applicable) the highest preferential amount per share, if
any, to which the holders of shares of such class (or series)
of capital stock would be entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding
up of the Corporation.
4. After such Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business
Combination: (a) except as approved by a majority of the
Continuing Directors, there shall have been no failure to declare
and pay at the regular date therefor any full quarterly dividends
(whether or not cumulative) on any outstanding Preferred Stock;
(b) there shall have been (I) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect
any subdivision of the Common Stock), except as approved by a
majority of the Continuing Directors, and (II) an increase in such
annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of the
Common Stock, unless the failure so to increase such annual rate
is approved by a majority of the Continuing Directors; and (c)
neither such Interested Shareholder nor any of its Affiliates
shall have become the beneficial owner of any additional shares of
Voting Stock except as part of the transaction which results in
such Interested Shareholder becoming an Interested Shareholder;
provided, however, that no approval by Continuing Directors shall
satisfy the requirements of this subparagraph (4) unless at the
time of such approval there are at least three Continuing
Directors.
5. After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder and any of its Affiliates
shall not have received the benefit, directly or indirectly
(except proportionately, solely in such Interested Shareholder's
or Affiliate's capacity as a Shareholder of the Corporation), of
any loans, advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantages provided by
the Corporation, whether in anticipation of or in connection with
such Business Combination or otherwise.
6. A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules
or regulations) shall be mailed to all Shareholders of the
Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or
subsequent provisions).
7. Such Interested Shareholder shall have provided the Corporation
with such information as shall have been requested pursuant to
Section 12.05 of this Article 12 within the time period set forth
therein.
Section 12.03. Certain Definitions. For the purposes of this Article 12:
Clause 12.031. A "person" shall include an individual, a group acting
in concert, a corporation, a partnership, an association, a joint venture,
a pool, a joint stock company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities.
Clause 12.032. "Interested Shareholder" means any person (other than
the Corporation or any Subsidiary) who or which:
1. is the beneficial owner (as hereinafter defined), directly or
indirectly, of ten percent or more of the voting power of the
outstanding Voting Stock; or
2. is an Affiliate or an Associate of the Corporation and at any time
within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of ten
percent or more of the voting power of the then outstanding Voting
Stock; or
3. is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by
any Interested Shareholder, if such assignment or succession shall
have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of
the Securities Act of 1933, as amended.
Clause 12.033. A person shall be a "beneficial owner" of, or shall
"Beneficially Own," any Voting Stock:
1. which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly
within the meaning of Rule 13d-3 under the Securities Exchange Act
of 1934, as in effect on September 10, 1998; or
2. which such person or any of its Affiliates or Associates has (a)
the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise, or (b) the right to vote pursuant to any agreement,
arrangement or understanding (but neither such person nor any such
Affiliate or Associate shall be deemed to be the beneficial owner
of any shares of Voting Stock solely by reason of a revocable
proxy granted for a particular meeting of Shareholders, pursuant
to a public solicitation of proxies for such meeting, and with
respect to which shares neither such person nor any such Affiliate
or Associate is otherwise deemed the beneficial owner); or
3. which are beneficially owned, directly or indirectly, within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934,
as in effect on September 10, 1998, by any other person with which
such person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of
acquiring, holding, voting (other than solely by reason of a
revocable proxy as described in subparagraph (2) of this Clause
12.033) or disposing of any shares of Voting Stock; provided,
however, that in the case of any employee stock ownership or
similar plan of the Corporation or of any Subsidiary in which the
beneficiaries thereof possess the right to vote any shares of
Voting Stock held by such plan, no such plan nor any trustee with
respect thereto (nor any Affiliate of such trustee), solely by
reason of such capacity of such trustee, shall be deemed, for any
purpose hereof, to beneficially own any shares of Voting Stock
held under any such plan.
Clause 12.034. For the purposes of determining whether a person is an
Interested Shareholder pursuant to Clause 12.032 of this Section 12.03, the
number of shares of Voting Stock deemed to be outstanding shall include
shares deemed owned through application of Clause 12.033 of this Section
12.03 but shall not include any other unissued shares of Voting Stock which
may be issuable pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or otherwise.
Clause 12.035. "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
September 10, 1998.
Clause 12.036. "Subsidiary" means any corporation of which a majority
of any class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Interested Shareholder set forth in Clause 12.032 of this Section 12.03,
the term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the
Corporation.
Clause 12.037. "Continuing Director" for purposes of this Article 12
means any member of the Board of Directors of the Corporation who is
unaffiliated with the Interested Shareholder and was a member of the Board
prior to the time that the Interested Shareholder became an Interested
Shareholder, and any director who is thereafter chosen to fill any vacancy
on the Board of Directors or who is elected and who, in either event, is
unaffiliated with the Interested Shareholder and in connection with his or
her initial assumption of office is recommended for appointment or election
by a majority of Continuing Directors then on the Board.
Clause 12.038. "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding
the date in question of a share of such stock on the Composite Tape for New
York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such stock is not
listed on such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934, as amended, on which
such stock is listed, or, if such stock is not listed on any such exchange,
the highest closing bid quotation with respect to a share of such stock
during the 30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations System or any
system then in use, or if no such quotations are available, the fair market
value on the date in question of a share of such stock as determined by the
Board in accordance with Section 12.04 of this Article 12, in each case
with respect to any class of stock, appropriately adjusted for any dividend
or distribution in shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller number
of shares of such stock; and (ii) in the case of property other than cash
or stock, the fair market value of such property on the date in question as
determined by the Board in accordance with Section 12.04 of this Article
12.
Clause 12.039. Reference to "highest per share price" shall in each
case with respect to any class of stock reflect an appropriate adjustment
for any dividend or distribution in shares of such stock or any stock split
or reclassification of outstanding shares of such stock into a greater
number of shares of such stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of shares of such
stock.
Clause 12.310. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in Clauses 12.022(2) and 12.022(3) of Section 12.02 of
this Article 12 shall include the shares of Common Stock and/or the shares
of any other class (or series) of outstanding capital stock retained by the
holders of such shares.
Section 12.04. Powers of the Board of Directors. A majority of the total
number of Directors of the Corporation, but only if a majority of such Directors
shall then consist of Continuing Directors or, if a majority of the total number
of Directors shall not then consist of Continuing Directors, a majority of the
then Continuing Directors, shall have the power and duty to determine, on the
basis of information known to them after reasonable inquiry, all facts necessary
to determine compliance with this Article 12, including, without limitation, (a)
whether a person is an Interested Shareholder, (b) the number of shares of
Voting Stock beneficially owned by any person, (c) whether a person is an
Affiliate or Associate of another, (d) whether the applicable conditions set
forth in Clause 12.022 of Section 12.02 have been met with respect to any
Business Combination, (e) the Fair Market Value of stock or other property in
accordance with Clause 12.038 of Section 12.03 of this Article 12, and (f)
whether the assets which are the subject of any Business Combination referred to
in Clause 12.011(2) of Section 12.01 have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any Subsidiary
in any Business Combination referred to in Clause 12.011(3) of Section 12.01
has, an aggregate Fair Market Value equaling or exceeding 25% of the combined
assets of the Corporation and its Subsidiaries.
Section 12.05. Information to be Supplied to the Corporation. A majority of
the total number of Directors of the Corporation, but only if a majority of such
Directors shall then consist of Continuing Directors or, if a majority of the
total number of Directors shall not then consist of Continuing Directors, a
majority of the then Continuing Directors, shall have the right to demand that
any person who it is reasonably believed is an Interested Shareholder (or holds
of record shares of Voting Stock Beneficially Owned by any Interested
Shareholder) supply the Corporation with complete information as to (i) the
record owner(s) of all shares Beneficially Owned by such person who it is
reasonably believed is an Interested Shareholder, (ii) the number of, and class
or series of, shares Beneficially Owned by such person who it is reasonably
believed is an Interested Shareholder and held of record by each such record
owner and the number(s) of the stock certificate(s) evidencing such shares, and
(iii) any other factual matter relating to the applicability or effect of this
Article 12, as may be reasonably requested of such person, and such person shall
furnish such information within 10 days after receipt of such demand.
Section 12.06. No Effect on Fiduciary Obligations of Interested
Shareholders. Nothing contained in this Article 12 shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
Section 12.07. Amendment, Repeal, Etc. Notwithstanding any other provisions
of these Articles of Incorporation or the Code of By-Laws of the Corporation to
the contrary and notwithstanding that a lesser vote or no vote may be specified
by law, but in addition to any affirmative vote of the holders of any particular
class or series of the Corporation's capital stock required by law or any
Preferred Stock Designation, the affirmative vote of the holders of at least 80
percent of the voting power of all of the then-outstanding shares of Voting
Stock, voting together as a single class, shall be required to alter, amend or
repeal this Article 12.
ARTICLE 13
Indemnification
Section 13.01. General. The Corporation shall, to the fullest extent to
which it is empowered to do so by the Act, or any other applicable laws, as from
time to time in effect, indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal, by reason of the fact that he is or was a Director,
Officer, employee or agent of the Corporation, or who, while serving as such
Director, Officer, employee or agent of the Corporation, is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, whether for profit or not, against
expenses (including counsel fees), judgments, settlements, penalties and fines
(including excise taxes assessed with respect to employee benefit plans)
actually or reasonably incurred by him in accordance with such action, suit or
proceeding, if he acted in good faith and in a manner he reasonably believed, in
the case of conduct in his official capacity, was in the best interests of the
Corporation, and in all other cases, was not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, he
either had reasonable cause to believe his conduct was lawful or no reasonable
cause to believe his conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not meet the prescribed standard of conduct.
Section 13.02. Authorization of Indemnification. To the extent that a
Director, Officer, employee or agent of the Corporation has been successful, on
the merits or otherwise, in the defense of any action, suit or proceeding
referred to in Section 13.01 of this Article, or in the defense of any claim,
issue or matter therein, the Corporation shall indemnify such person against
expenses (including counsel fees) actually and reasonably incurred by such
person in connection therewith. Any other indemnification under Section 13.01 of
this Article (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case, upon a determination that indemnification of
the Director, Officer, employee or agent is permissible in the circumstances
because he has met the applicable standard of conduct. Such determination shall
be made (1) by the Board of Directors by a majority vote of a quorum consisting
of Directors who were not at the time parties to such action, suit or
proceeding; or (2) if a quorum cannot be obtained under subdivision (1), by a
majority vote of a committee duly designated by the Board of Directors (in which
designation Directors who are parties may participate), consisting solely of two
or more Directors not at the time parties to such action, suit or proceeding; or
(3) by special legal counsel: (A) selected by the Board of Directors or its
committee in the manner prescribed in subdivision (1) or (2), or (B) if a quorum
of the Board of Directors cannot be obtained under subdivision (1) and a
committee cannot be designated under subdivision (2), selected by a majority
vote of the full Board of Directors (in which selection Directors who are
parties may participate); or (4) by the Shareholders, but shares owned by or
voted under the control of Directors who are at the time parties to such action,
suit or proceeding may not be voted on the determination.
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (3)
to select counsel.
Section 13.03. Good Faith Defined. For purposes of any determination under
Section 13.01 of this Article 13, a person shall be deemed to have acted in good
faith and to have otherwise met the applicable standard of conduct set forth in
Section 13.01 if his action is based on information, opinions, reports, or
statements, including financial statements and other financial data, if prepared
or presented by (1) one or more Officers or employees of the Corporation or
another enterprise whom he reasonably believes to be reliable and competent in
the matters presented; (2) legal counsel, public accountants, appraisers or
other persons as to matters he reasonably believes are within the person's
professional or expert competence; or (3) a committee of the Board of Directors
of the Corporation or another enterprise of which the person is not a member if
he reasonably believes the committee merits confidence. The term "another
enterprise" as used in this Section 13.03 shall mean any other corporation or
any partnership, joint venture, trust, employee benefit plan or other enterprise
of which such person is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent. The provisions of this
Section 13.03 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standards of conduct set forth in Section 13.01 of this Article 13.
Section 13.04. Payment of Expenses in Advance. Expenses incurred in
connection with any civil or criminal action, suit or proceeding may be paid for
or reimbursed by the Corporation in advance of the final disposition of such
action, suit or proceeding, as authorized in the specific case in the same
manner described in Section 13.02 of this Article, upon receipt of a written
affirmation of the Director, Officer, employee or agent's good faith belief that
he has met the standard of conduct described in Section 13.01 of this Article
and upon receipt of a written undertaking by or on behalf of the Director,
Officer, employee or agent to repay such amount if it shall ultimately be
determined that he did not meet the standard of conduct set forth in this
Article 13, and a determination is made that the facts then known to those
making the determination would not preclude indemnification under this Article
13.
Section 13.05. Provisions Not Exclusive. The indemnification provided by
this Article shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under these Articles of Incorporation,
the Corporation's Code of By-Laws, any resolution of the Board of Directors or
Shareholders, any other authorization, whenever adopted, after notice, by a
majority vote of all Voting Stock then outstanding, or any contract, both as to
action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
Director, Officer, employee or agent, and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 13.06. Vested Right to Indemnification. The right of any individual
to indemnification under this Article shall vest at the time of occurrence or
performance of any event, act or omission giving rise to any action, suit or
proceeding of the nature referred to in Section 13.01 of this Article 13 and,
once vested, shall not later be impaired as a result of any amendment, repeal,
alteration or other modification of any or all of these provisions.
Notwithstanding the foregoing, the indemnification afforded under this Article
shall be applicable to all alleged prior acts or omissions of any individual
seeking indemnification hereunder, regardless of the fact that such alleged acts
or omissions may have occurred prior to the adoption of this Article. To the
extent such prior acts or omissions cannot be deemed to be covered by this
Article 13, the right of any individual to indemnification shall be governed by
the indemnification provisions in effect at the time of such prior acts or
omissions.
Section 13.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, Officer, employee or
agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against any liability asserted against or incurred by the
individual in that capacity or arising from the individual's status as a
Director, Officer, employee or agent, whether or not the Corporation would have
power to indemnify the individual against the same liability under this Article.
Section 13.08. Additional Definitions. For purposes of this Article,
references to the "Corporation" shall include any domestic or foreign
predecessor entity of the Corporation in a merger or other transaction in which
the predecessor's existence ceased upon consummation of the transaction.
For purposes of this Article, serving an employee benefit plan at the
request of the Corporation shall include any service as a Director, Officer,
employee or agent of the Corporation which imposes duties on, or involves
services by such Director, Officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries. A person who acted in
good faith and in a manner he reasonably believed to be in the best interests of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the Corporation"
referred to in this Article.
For purposes of this Article, "party" includes any individual who is or was
a plaintiff, defendant or respondent in any action, suit or proceeding, or who
is threatened to be made a named defendant or respondent in any action, suit or
proceeding.
For purposes of this Article, "official capacity," when used with respect
to a Director, shall mean the office of director of the Corporation; and when
used with respect to an individual other than a Director, shall mean the office
in the Corporation held by the Officer or the employment or agency relationship
undertaken by the employee or agent on behalf of the Corporation. "Official
capacity" does not include service for any other foreign or domestic corporation
or any partnership, joint venture, trust, employee benefit plan, or other
enterprise, whether for profit or not.
Section 13.09. Payments a Business Expense. Any payments made to any
indemnified party under this Article under any other right to indemnification
shall be deemed to be an ordinary and necessary business expense of the
Corporation, and payment thereof shall not subject any person responsible for
the payment, or the Board of Directors, to any action for corporate waste or to
any similar action.
CODE OF BY-LAWS
OF
LINCOLN BANCORP
ARTICLE I
Offices
Section 1. Principal Office. The principal office (the "Principal Office")
of Lincoln Bancorp (the "Corporation") shall be at 1121 East Main Street,
Plainfield, Indiana 46168-0510, or such other place as shall be determined by
resolution of the Board of Directors of the Corporation (the "Board").
Section 2. Other Offices. The Corporation may have such other offices at
such other places within or without the State of Indiana as the Board may from
time to time designate, or as the business of the Corporation may require.
ARTICLE II
Seal
Section 1. Corporate Seal. The corporate seal of the Corporation (the
"Seal") shall be circular in form and shall have inscribed thereon the words
"Lincoln Bancorp" and "INDIANA." In the center of the seal shall appear the word
"Seal." Use of the Seal or an impression thereof shall not be required, and
shall not affect the validity of any instrument whatsoever.
ARTICLE III
Shareholder Meetings
Section 1. Place of Meeting. Every meeting of the shareholders of the
Corporation (the "Shareholders") shall be held at the Principal Office, unless a
different place is specified in the notice or waiver of notice of such meeting
or by resolution of the Board or the Shareholders, in which event such meeting
may be held at the place so specified, either within or without the State of
Indiana.
Section 2. Annual Meeting. The annual meeting of the Shareholders (the
"Annual Meeting") shall be held each year at 1:30 P.M. on the third Tuesday in
April (or, if such day is a legal holiday, on the next succeeding day not a
legal holiday), for the purpose of electing directors of the Corporation
("Directors") and for the transaction of such other business as may legally come
before the Annual Meeting. If for any reason the Annual Meeting shall not be
held at the date and time herein provided, the same may be held at any time
thereafter, or the business to be transacted at such Annual Meeting may be
transacted at any special meeting of the Shareholders (a "Special Meeting")
called for that purpose.
Section 3. Notice of Annual Meeting. Written or printed notice of the
Annual Meeting, stating the date, time and place thereof, shall be delivered or
mailed by the Secretary or an Assistant Secretary to each Shareholder of record
entitled to notice of such Meeting, at such address as appears on the records of
the Corporation, at least ten and not more than sixty days before the date of
such Meeting.
Section 4. Special Meetings. Special Meetings, for any purpose or purposes
(unless otherwise prescribed by law), may be called by only the Chairman of the
Board of Directors (the "Chairman"), if any, or by the Board, pursuant to a
resolution adopted by a majority of the total number of Directors of the
Corporation, to vote on the business proposed to be transacted thereat. All
requests for Special Meetings shall state the purpose or purposes thereof, and
the business transacted at such Meeting shall be confined to the purposes stated
in the call and matters germane thereto.
Section 5. Notice of Special Meetings. Written or printed notice of all
Special Meetings, stating the date, time, place and purpose or purposes thereof,
shall be delivered or mailed by the Secretary or the President or any Vice
President calling the Meeting to each Shareholder of record entitled to notice
of such Meeting, at such address as appears on the records of the Corporation,
at least ten and not more than sixty days before the date of such Meeting.
Section 6. Waiver of Notice of Meetings. Notice of any Annual or Special
Meeting (a "Meeting") may be waived in writing by any Shareholder, before or
after the date and time of the Meeting specified in the notice thereof, by a
written waiver delivered to the Corporation for inclusion in the minutes or
filing with the corporate records. A Shareholder's attendance at any Meeting in
person or by proxy shall constitute a waiver of (a) notice of such Meeting,
unless the Shareholder at the beginning of the Meeting objects to the holding of
or the transaction of business at the Meeting, and (b) consideration at such
Meeting of any business that is not within the purpose or purposes described in
the Meeting notice, unless the Shareholder objects to considering the matter
when it is presented.
Section 7. Quorum. At any Meeting, the holders of a majority of the voting
power of all shares of the Corporation (the "Shares") issued and outstanding and
entitled to vote at such Meeting (after giving effect to the provisions in
Article 11 of the Articles of Incorporation of the Corporation, as the same may,
from time to time, be amended (the "Articles")), represented in person or by
proxy, shall constitute a quorum for the election of Directors or for the
transaction of other business, unless otherwise provided by law, the Articles or
this Code of By-Laws, as the same may, from time to time, be amended (these
"By-Laws"). If, however, a quorum shall not be present or represented at any
Meeting, the Shareholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the Meeting from time to time,
without notice other than announcement at the Meeting of the date, time and
place of the adjourned Meeting, unless the date of the adjourned Meeting
requires that the Board fix a new record date (the "Record Date") therefor, in
which case notice of the adjourned Meeting shall be given. At such adjourned
Meeting, if a quorum shall be present or represented, any business may be
transacted that might have been transacted at the Meeting as originally
scheduled.
Section 8. Voting. At each Meeting, every Shareholder entitled to vote
shall have one vote for each Share standing in his name on the books of the
Corporation as of the Record Date fixed by the Board for such Meeting, except as
otherwise provided by law or the Articles, and except that no Share shall be
voted at any Meeting upon which any installment is due and unpaid and no share
which is not entitled to vote pursuant to Article 11 of the Articles shall be
voted at any Meeting. Voting for Directors and, upon the demand of any
Shareholder, voting upon any question properly before a Meeting, shall be by
ballot. A plurality vote shall be necessary to elect any Director, and on all
other matters, the action or a question shall be approved if the number of votes
cast thereon in favor of the action or question exceeds the number of votes cast
opposing the action or question, except as otherwise provided by law or the
Articles.
Section 9. Shareholder List. The Secretary shall prepare before each
Meeting a complete list of the Shareholders entitled to notice of such Meeting,
arranged in alphabetical order by class of Shares (and each series within a
class), and showing the address of, and the number of Shares entitled to vote
held by, each Shareholder (the "Shareholder List"). Beginning five business days
before the Meeting and continuing throughout the Meeting, the Shareholder List
shall be on file at the Principal Office or at a place identified in the Meeting
notice in the city where the Meeting will be held, and shall be available for
inspection by any Shareholder entitled to vote at the Meeting. On written
demand, made in good faith and for a proper purpose and describing with
reasonable particularity the Shareholder's purpose, and if the Shareholder List
is directly connected with the Shareholder's purpose, a Shareholder (or such
Shareholder's agent or attorney authorized in writing) shall be entitled to
inspect and to copy the Shareholder List, during regular business hours and at
the Shareholder's expense, during the period the Shareholder List is available
for inspection. The original stock register or transfer book (the "Stock Book"),
or a duplicate thereof kept in the State of Indiana, shall be the only evidence
as to who are the Shareholders entitled to examine the Shareholder List, or to
notice of or to vote at any Meeting.
Section 10. Proxies. A Shareholder may vote either in person or by proxy
executed in writing by the Shareholder or a duly authorized attorney-in-fact. No
proxy shall be valid after eleven months from the date of its execution, unless
a shorter or longer time is expressly provided therein.
Section 11. Notice of Shareholder Business. At an Annual Meeting of the
Shareholders, only such business shall be conducted as shall have been properly
brought before the Meeting. To be properly brought before an Annual Meeting,
business must be (a) specified in the notice of Meeting (or any supplement
thereto) given by or at the direction of the Board, (b) otherwise properly
brought before the Meeting by or at the direction of the Board, or (c) otherwise
properly brought before the Meeting by a Shareholder. For business to be
properly brought before an Annual Meeting by a Shareholder, the Shareholder must
have the legal right and authority to make the Proposal for consideration at the
Meeting and the Shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a Shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, not less than 120 days prior to the Meeting; provided, however,
that in the event that less than 130 days' notice or prior public disclosure of
the date of the Meeting is given or made to Shareholders (which notice or public
disclosure shall include the date of the Annual Meeting specified in these
By-Laws, if such By-Laws have been filed with the Securities and Exchange
Commission and if the Annual Meeting is held on such date), notice by the
Shareholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the Annual Meeting was mailed or such public disclosure was made. A
Shareholder's notice to the Secretary shall set forth as to each matter the
Shareholder proposes to bring before the Annual Meeting (a) a brief description
of the business desired to be brought before the Annual Meeting and the reasons
for conducting such business at the Annual Meeting, (b) the name and record
address of the Shareholders proposing such business, (c) the class and number of
shares of the Corporation which are beneficially owned by the Shareholder, and
(d) any material interest of the Shareholder in such business. Notwithstanding
anything in these By-Laws to the contrary, no business shall be conducted at an
Annual Meeting except in accordance with the procedures set forth in this
Section 11. The Chairman of an Annual Meeting shall, if the facts warrant,
determine and declare to the Meeting that business was not properly brought
before the Meeting and in accordance with the provisions of this Section 11, and
if he should so determine, he shall so declare to the Meeting and any such
business not properly brought before the Meeting shall not be transacted. At any
Special Meeting of the Shareholders, only such business shall be conducted as
shall have been brought before the Meeting by or at the direction of the Board
of Directors.
Section 12. Notice of Shareholder Nominees. Only persons who are nominated
in accordance with the procedures set forth in this Section 12 shall be eligible
for election as Directors. Nominations of persons for election to the Board may
be made at a Meeting of Shareholders by or at the direction of the Board of
Directors, by any nominating committee or person appointed by the Board of
Directors or by any Shareholder of the Corporation entitled to vote for the
election of Directors at the Meeting who complies with the notice procedures set
forth in this Section 12. Such nominations, other than those made by or at the
direction of the Board, shall be made pursuant to timely notice in writing to
the Secretary of the Corporation. To be timely, a Shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 120 days prior to the Meeting; provided, however, that
in the event that less than 130 days' notice or prior public disclosure of the
date of the Meeting is given or made to Shareholders (which notice or public
disclosure shall include the date of the Annual Meeting specified in these
By-Laws, if such By-Laws have been filed with the Securities and Exchange
Commission and if the Annual Meeting is held on such date), notice by the
Shareholders to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the Meeting was mailed or such public disclosure was made. Such Shareholder's
notice shall set forth (a) as to each person whom the Shareholder proposes to
nominate for election or re-election as a Director, (i) the name, age, business
address and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
Corporation which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including without limitation such person's written consent to being
named in the proxy statement as a nominee and to serving as a Director if
elected); and (b) as to the Shareholder giving the notice (i) the name and
record address of such Shareholder and (ii) the class and number of shares of
the Corporation which are beneficially owned by such Shareholder. No person
shall be eligible for election as a Director of the Corporation unless nominated
in accordance with the procedures set forth in this Section 12. The Chairman of
the Meeting shall, if the facts warrant, determine and declare to the Meeting
that a nomination was not made in accordance with the procedures prescribed by
these By-Laws, and if he should so determine, he shall so declare to the Meeting
and the defective nomination shall be disregarded.
ARTICLE IV
Board of Directors
Section 1. Number. The business and affairs of the Corporation shall be
managed by a Board of not less than five (5) nor more than fifteen (15)
Directors, as may be specified from time to time by resolution adopted by a
majority of the total number of the Corporation's Directors, divided into three
classes as provided in the Articles. If and whenever the Board of Directors has
not specified the number of Directors, the number shall be nine. Directors (a)
must have their primary domicile in Clinton, Hendricks or Montgomery Counties,
Indiana, and (b) must have a loan or deposit relationship with Lincoln Federal
Savings Bank which they have maintained for at least a continuous period of nine
(9) months immediately prior to their nomination to the Board (or in case of
directors of the Corporation on September 10, 1998, prior to the filing of the
Corporation's Articles). In addition, each Director who is not an employee of
the Corporation or any of its subsidiaries must have served as a member of a
civic or community organization based in Clinton, Hendricks or Montgomery
Counties, Indiana for at least a continuous period of twelve (12) months during
the five (5) years prior to his or her nomination to the Board. The Board may
waive one or more of the requirements set forth in the two previous sentences
for one or more representatives it determines to appoint or nominate to the
Board in connection with an acquisition of another financial institution by the
Corporation or in connection with the acquisition or opening of a new branch by
its subsidiary, Lincoln Federal Savings Bank. The Board may elect or appoint,
from among its members, a Chairman of the Board (the "Chairman"), who need not
be an officer (an "Officer") or employee of the Corporation. The Chairman, if
elected or appointed, shall preside at all Shareholder Meetings and Board
Meetings and shall have such other powers and perform such other duties as are
incident to such position and as may be assigned by the Board.
Section 2. Vacancies and Removal. Any vacancy occurring in the Board shall
be filled as provided in the Articles. Shareholders shall be notified of any
increase in the number of Directors and the name, principal occupation and other
pertinent information about any Director elected by the Board to fill any
vacancy. Any Director, or the entire Board, may be removed from office only as
provided in the Articles.
Section 3. Powers and Duties. In addition to the powers and duties
expressly conferred upon it by law, the Articles or these By-Laws, the Board may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not inconsistent with the law, the Articles or these By-Laws.
Section 4. Annual Board Meeting. Unless otherwise determined by the Board,
the Board shall meet each year immediately after the Annual Meeting, at the
place where such Meeting has been held, for the purpose of organization,
election of Officers of the Corporation (the "Officers") and consideration of
any other business that may properly be brought before such annual meeting of
the Board (the "Annual Board Meeting"). No notice shall be necessary for the
holding of the Annual Board Meeting. If the Annual Board Meeting is not held as
above provided, the election of Officers may be held at any subsequent duly
constituted meeting of the Board (a "Board Meeting").
Section 5. Regular Board Meetings. Regular meetings of the Board ("Regular
Board Meetings") may be held at stated times or from time to time, and at such
place, either within or without the State of Indiana, as the Board may
determine, without call and without notice.
Section 6. Special Board Meetings. Special meetings of the Board ("Special
Board Meetings") may be called at any time or from time to time, and shall be
called on the written request of at least two Directors, by the Chairman or the
President, by causing the Secretary or any Assistant Secretary to give to each
Director, either personally or by mail, telephone, telegraph, teletype or other
form of wire or wireless communication at least two days' notice of the date,
time and place of such Meeting. Special Board Meetings shall be held at the
Principal Office or at such other place, within or without the State of Indiana,
as shall be specified in the respective notices or waivers of notice thereof.
Section 7. Waiver of Notice and Assent. A Director may waive notice of any
Board Meeting before or after the date and time of the Board Meeting stated in
the notice by a written waiver signed by the Director and filed with the minutes
or corporate records. A Director's attendance at or participation in a Board
Meeting shall constitute a waiver of notice of such Meeting and assent to any
corporate action taken at such Meeting, unless (a) the Director at the beginning
of such Meeting (or promptly upon his arrival) objects to holding of or
transacting business at the Meeting and does not thereafter vote for or assent
to action taken at the Meeting; (b) the Director's dissent or abstention from
the action taken is entered in the minutes of such Meeting; or (c) the Director
delivers written notice of his dissent or abstention to the presiding Director
at such Meeting before its adjournment, or to the Secretary immediately after
its adjournment. The right of dissent or abstention is not available to a
Director who votes in favor of the action taken.
Section 8. Quorum. At all Board Meetings, a majority of the number of
Directors designated for the full Board (the "Full Board") shall be necessary to
constitute a quorum for the transaction of any business, except (a) that for the
purpose of filling of vacancies a majority of Directors then in office shall
constitute a quorum, and (b) that a lesser number may adjourn the Meeting from
time to time until a quorum is present. The act of a majority of the Board
present at a Meeting at which a quorum is present shall be the act of the Board,
unless the act of a greater number is required by law, the Articles or these
By-Laws.
Section 9. Audit and Other Committees of the Board. The Board may, by
resolution adopted by a majority of the Full Board, designate an Audit Committee
comprised of two or more Directors, which shall have such authority and exercise
such duties as shall be provided by resolution of the Board. The Board may, by
resolution adopted by such majority, also designate other regular or special
committees of the Board ("Committees"), in each case comprised of two or more
Directors and to have such powers and exercise such duties as shall be provided
by resolution of the Board.
Section 10. Resignations. Any Director may resign at any time by giving
written notice to the Board, The Chairman, the President or the Secretary. Any
such resignation shall take effect when delivered unless the notice specifies a
later effective date. Unless otherwise specified in the notice, the acceptance
of such resignation shall not be necessary to make it effective.
ARTICLE V
Officers
Section 1. Officers. The Officers shall be the President, the Secretary and
the Treasurer, and may include one or more Assistant Secretaries, one or more
Vice Presidents, one or more Assistant Treasurers, a Comptroller and one or more
Assistant Comptrollers. Any two or more offices may be held by the same person.
The Board may from time to time elect or appoint such other Officers as it shall
deem necessary, who shall exercise such powers and perform such duties as may be
prescribed from time to time by these By-Laws or, in the absence of a provision
in these By-Laws in respect thereto, as may be prescribed from time to time by
the Board.
Section 2. Election of Officers. The Officers shall be elected by the Board
at the Annual Board Meeting and shall hold office for one year or until their
respective successors shall have been duly elected and shall have qualified;
provided, however, that the Board may at any time elect one or more persons to
new or different offices and/or change the title, designation and duties and
responsibilities of any of the Officers consistent with the law, the Articles
and these By-Laws.
Section 3. Vacancies; Removal. Any vacancy among the Officers may be filled
for the unexpired term by the Board. Any Officer may be removed at any time by
the affirmative vote of a majority of the Full Board.
Section 4. Delegation of Duties. In the case of the absence, disability,
death, resignation or removal from office of any Officer, or for any other
reason that the Board shall deem sufficient, the Board may delegate, for the
time being, any or all of the powers or duties of such Officer to any other
Officer or to any Director.
Section 5. President. The President shall be a Director and, subject to the
control of the Board, shall have general charge of and supervision and authority
over the business and affairs of the Corporation, and shall have such other
powers and perform such other duties as are incident to this office and as may
be assigned to him by the Board. In the case of the absence or disability of the
Chairman or if no Chairman shall be elected or appointed by the Board, the
President shall preside at all Shareholder Meetings and Board Meetings.
Section 6. Vice Presidents. Each of the Vice Presidents, if any, shall have
such powers and perform such duties as may be prescribed for him by the Board or
delegated to him by the President. In the case of the absence, disability,
death, resignation or removal from office of the President, the powers and
duties of the President shall, for the time being, devolve upon and be exercised
by the Executive Vice President, if there be one, and if not, then by such one
of the Vice Presidents as the Board or the President may designate, or, if there
be but one Vice President, then upon such Vice President; and he shall
thereupon, during such period, exercise and perform all of the powers and duties
of the President, except as may be otherwise provided by the Board.
Section 7. Secretary. The Secretary shall have the custody and care of the
Seal, records, minutes and the Stock Book of the Corporation; shall attend all
Shareholder Meetings and Board Meetings, and duly record and keep the minutes of
their proceedings in a book or books to be kept for that purpose; shall give or
cause to be given notice of all Shareholder Meetings and Board Meetings when
such notice shall be required; shall file and take charge of all papers and
documents belonging to the Corporation; and shall have such other powers and
perform such other duties as are incident to the office of secretary of a
business corporation, subject at all times to the direction and control of the
Board and the President.
Section 8. Assistant Secretaries. Each of the Assistant Secretaries, if
any, shall assist the Secretary in his duties and shall have such other powers
and perform such other duties as may be prescribed for him by the Board or
delegated to him by the President. In case of the absence, disability, death,
resignation or removal from office of the Secretary, his powers and duties
shall, for the time being, devolve upon such one of the Assistant Secretaries as
the Board, the President or the Secretary may designate, or, if there be but one
Assistant Secretary, then upon such Assistant Secretary; and he shall thereupon,
during such period, exercise and perform all of the powers and duties of the
Secretary, except as may be otherwise provided by the Board.
Section 9. Treasurer. The Treasurer shall have control over all records of
the Corporation pertaining to moneys and securities belonging to the
Corporation; shall have charge of, and be responsible for, the collection,
receipt, custody and disbursements of funds of the Corporation; shall have the
custody of all securities belonging to the Corporation; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation; and shall disburse the funds of the Corporation as may be ordered
by the Board, taking proper receipts or making proper vouchers for such
disbursements and preserving the same at all times during his term of office.
When necessary or proper, he shall endorse on behalf of the Corporation all
checks, notes or other obligations payable to the Corporation or coming into his
possession for or on behalf of the Corporation, and shall deposit the funds
arising therefrom, together with all other funds and valuable effects of the
Corporation coming into his possession, in the name and the credit of the
Corporation in such depositories as the Board from time to time shall direct, or
in the absence of such action by the Board, as may be determined by the
President or any Vice President. If the Board has not elected a Comptroller or
an Assistant Comptroller, or in the absence or disability of the Comptroller and
each Assistant Comptroller or if, for any reason, a vacancy shall occur in such
offices, then during such period the Treasurer shall have, exercise and perform
all of the powers and duties of the Comptroller. The Treasurer shall also have
such other powers and perform such other duties as are incident to the office of
treasurer of a business corporation, subject at all times to the direction and
control of the Board and the President.
If required by the Board, the Treasurer shall give the Corporation a bond,
in such an amount and with such surety or sureties as may be ordered by the
Board, for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
Section 10. Assistant Treasurers. Each of the Assistant Treasurers, if any,
shall assist the Treasurer in his duties, and shall have such other powers and
perform such other duties as may be prescribed for him by the Board or delegated
to him by the President. In case of the absence, disability, death, resignation
or removal from office of the Treasurer, his powers and duties shall, for the
time being, devolve upon such one of the Assistant Treasurers as the Board, the
President or the Treasurer may designate, or, if there be but one Assistant
Treasurer, then upon such Assistant Treasurer; and he shall thereupon, during
such period, exercise and perform all the powers and duties of the Treasurer
except as may be otherwise provided by the Board. If required by the Board, each
Assistant Treasurer shall likewise give the Corporation a bond, in such amount
and with such surety or sureties as may be ordered by the Board, for the same
purposes as the bond that may be required to be given by the Treasurer.
Section 11. Comptroller. The Comptroller, if any, shall have direct control
over all accounting records of the Corporation pertaining to moneys, properties,
materials and supplies, including the bookkeeping and accounting departments;
shall have direct supervision over the accounting records in all other
departments pertaining to moneys, properties, materials and supplies; shall
render to the President and the Board, at Regular Board Meetings or whenever the
same shall be required, an account of all his transactions as Comptroller and of
the financial condition of the Corporation; and shall have such other powers and
perform such other duties as are incident to the office of comptroller of a
business corporation, subject at all times to the direction and control of the
Board and the President.
Section 12. Assistant Comptrollers. Each of the Assistant Comptrollers, if
any, shall assist the Comptroller in his duties, and shall have such other
powers and perform such other duties as may be prescribed for him by the Board
or delegated to him by the President. In case of the absence, disability, death,
resignation or removal from office of the Comptroller, his powers and duties
shall, for the time being, devolve upon such one of the Assistant Comptrollers
as the Board, the President or the Comptroller may designate, or, if there be
but one Assistant Comptroller, then upon such Assistant Comptroller; and he
shall thereupon, during such period, exercise and perform all the powers and
duties of the Comptroller, except as may be otherwise provided by the Board.
ARTICLE VI
Certificates for Shares
Section 1. Certificates. Certificates for Shares ("Certificates") shall be
in such form, consistent with law and the Articles, as shall be approved by the
Board. Certificates for each class, or series within a class, of Shares, shall
be numbered consecutively as issued. Each Certificate shall state the name of
the Corporation and that it is organized under the laws of the State of Indiana;
the name of the registered holder; the number and class and the designation of
the series, if any, of the Shares represented thereby; and a summary of the
designations, relative rights, preferences and limitations applicable to such
class and, if applicable, the variations in rights, preferences and limitations
determined for each series and the authority of the Board to determine such
variations for future series; provided, however, that such summary may be
omitted if the Certificate states conspicuously on its front or back that the
Corporation will furnish the Shareholder such information upon written request
and without charge. Each Certificate shall be signed (either manually or in
facsimile) by (i) the President or a Vice President and (ii) the Secretary or an
Assistant Secretary, or by any two or more Officers that may be designated by
the Board, and may have affixed thereto the Seal, which may be a facsimile,
engraved or printed.
Section 2. Record of Certificates. Shares shall be entered in the Stock
Book as they are issued, and shall be transferable on the Stock Book by the
holder thereof in person, or by his attorney duly authorized thereto in writing,
upon the surrender of the outstanding Certificate therefor properly endorsed.
Section 3. Lost or Destroyed Certificates. Any person claiming a
Certificate to be lost or destroyed shall make affidavit or affirmation of that
fact and, if the Board or the President shall so require, shall give the
Corporation and/or the transfer agents and registrars, if they shall so require,
a bond of indemnity, in form and with one or more sureties satisfactory to the
Board or the President and/or the transfer agents and registrars, in such amount
as the Board or the President may direct and/or the transfer agents and
registrars may require, whereupon a new Certificate may be issued of the same
tenor and for the same number of Shares as the one alleged to be lost or
destroyed.
Section 4. Shareholder Addresses. Every Shareholder shall furnish the
Secretary with an address to which notices of Meetings and all other notices may
be served upon him or mailed to him, and in default thereof notices may be
addressed to him at his last known address or at the Principal Office.
ARTICLE VII
Corporate Books and Records
Section 1. Places of Keeping. Except as otherwise provided by law, the
Articles or these By-Laws, the books and records of the Corporation (including
the "Corporate Records," as defined in the Articles) may be kept at such place
or places, within or without the State of Indiana, as the Board may from time to
time by resolution determine or, in the absence of such determination by the
Board, as shall be determined by the President.
Section 2. Stock Book. The Corporation shall keep at the Principal Office
the original Stock Book or a duplicate thereof, or, in case the Corporation
employs a stock registrar or transfer agent within or without the State of
Indiana, another record of the Shareholders in a form that permits preparation
of a list of the names and addresses of all the Shareholders, in alphabetical
order by class of Shares, stating the number and class of Shares held by each
Shareholder (the "Record of Shareholders").
Section 3. Inspection of Corporate Records. Any Shareholder (or the
Shareholder's agent or attorney authorized in writing) shall be entitled to
inspect and copy at his expense, after giving the Corporation at least five
business days' written notice of his demand to do so, the following Corporate
Records: (1) the Articles; (2) these By-Laws; (3) minutes of all Shareholder
Meetings and records of all actions taken by the Shareholders without a meeting
(collectively, "Shareholders Minutes") for the prior three years; (4) all
written communications by the Corporation to the Shareholders including the
financial statements furnished by the Corporation to the Shareholders for the
prior three years; (5) a list of the names and business addresses of the current
Directors and the current Officers; and (6) the most recent Annual Report of the
Corporation as filed with the Secretary of State of Indiana. Any Shareholder (or
the Shareholder's agent or attorney authorized in writing) shall also be
entitled to inspect and copy at his expense, after giving the Corporation at
least five business days' written notice of his demand to do so, the following
Corporate Records, if his demand is made in good faith and for a proper purpose
and describes with reasonable particularity his purpose and the records he
desires to inspect, and the records are directly connected with his purpose: (1)
to the extent not subject to inspection under the previous sentence,
Shareholders Minutes, excerpts from minutes of Board Meetings and of Committee
meetings, and records of any actions taken by the Board or any Committee without
a meeting; (2) appropriate accounting records of the Corporation; and (3) the
Record of Shareholders.
Section 4. Record Date. The Board may, in its discretion, fix in advance a
Record Date not more than seventy days before the date (a) of any Shareholder
Meeting, (b) for the payment of any dividend or the making of any other
distribution, (c) for the allotment of rights, or (d) when any change or
conversion or exchange of Shares shall go into effect. If the Board fixes a
Record Date, then only Shareholders who are Shareholders of record on such
Record Date shall be entitled (a) to notice of and/or to vote at any such
Meeting, (b) to receive any such dividend or other distribution, (c) to receive
any such allotment of rights, or (d) to exercise the rights in respect of any
such change, conversion or exchange of Shares, as the case may be,
notwithstanding any transfer of Shares on the Stock Book after such Record Date.
Section 5. Transfer Agents; Registrars. The Board may appoint one or more
transfer agents and registrars for its Shares and may require all Certificates
to bear the signature either of a transfer agent or of a registrar, or both.
ARTICLE VIII
Checks, Drafts, Deeds and Shares of Stock
Section 1. Checks, Drafts, Notes, Etc. All checks, drafts, notes or orders
for the payment of money of the Corporation shall, unless otherwise directed by
the Board or otherwise required by law, be signed by one or more Officers as
authorized in writing by the President. In addition, the President may authorize
any one or more employees of the Corporation ("Employees") to sign checks,
drafts and orders for the payment of money not to exceed specific maximum
amounts as designated in writing by the President for any one check, draft or
order. When so authorized by the President, the signature of any such Officer or
Employee may be a facsimile signature.
Section 2. Deeds, Notes, Bonds, Mortgages, Contracts, Etc. All deeds,
notes, bonds and mortgages made by the Corporation, and all other written
contracts and agreements, other than those executed in the ordinary course of
corporate business, to which the Corporation shall be a party, shall be executed
in its name by the President, a Vice President or any other Officer so
authorized by the Board and, when necessary or required, the Secretary or an
Assistant Secretary shall attest the execution thereof. All written contracts
and agreements into which the Corporation enters in the ordinary course of
corporate business shall be executed by any Officer or by any other Employee
designated by the President or a Vice President to execute such contracts and
agreements.
Section 3. Sale or Transfer of Stock. Subject always to the further orders
and directions of the Board, any share of stock issued by any corporation and
owned by the Corporation (including reacquired Shares of the Corporation) may,
for sale or transfer, be endorsed in the name of the Corporation by the
President or a Vice President, and said endorsement shall be duly attested by
the Secretary or an Assistant Secretary either with or without affixing thereto
the Seal.
Section 4. Voting of Stock of Other Corporations. Subject always to the
further orders and directions of the Board, any share of stock issued by any
other corporation and owned or controlled by the Corporation (an "Investment
Share") may be voted at any shareholders' meeting of such other corporation by
the President or by a Vice President. Whenever, in the judgment of the
President, it is desirable for the Corporation to execute a proxy or give a
shareholder's consent in respect of any Investment Share, such proxy or consent
shall be executed in the name of the Corporation by the President or a Vice
President, and, when necessary or required, shall be attested by the Secretary
or an Assistant Secretary either with or without affixing thereto the Seal. Any
person or persons designated in the manner above stated as the proxy or proxies
of the Corporation shall have full right, power and authority to vote an
Investment Share the same as such Investment Share might be voted by the
Corporation.
ARTICLE IX
Fiscal Year
Section 1. Fiscal Year. The Corporation's fiscal year shall begin on
January 1 of each year and end on December 31 of the same year.
ARTICLE X
Amendments
Section 1. Amendments. These By-Laws may be altered, amended or repealed,
in whole or in part, and new By-Laws may be adopted, at any Board Meeting by the
affirmative vote of a majority of the Full Board.
EXHIBIT 4
STOCK CERTIFICATE
Organized Under Indiana Law
LINCOLN BANCORP
NUMBER SHARES
THIS CERTIFIES that is the owner of See Reverse
Side for Certain
Definitions
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, WITHOUT PAR VALUE, OF
LINCOLN BANCORP
This Certificate is transferable only on the books of the Corporation upon the
surrender of the same properly endorsed.
The interest in said Corporation represented by this Certificate may not be
retired or withdrawn except as provided in the Articles of Incorporation and
Code of By-Laws of the Corporation. This security is not a deposit or account
and is not federally insured or guaranteed. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
The interest in said Corporation represented by this Certificate shall be
subject to all provisions in effect as provided in the Articles of Incorporation
and Code of By-Laws of the Corporation, including any amendments thereto which
may restrict the rights of the holder of this Certificate and may be adopted by
the Corporation at a date later than the date this Certificate is issued. Any
transferee of this Certificate should consult the Corporation's Articles of
Incorporation and Code of By-Laws with respect to any such restrictions.
Witness the facsimile seal of the Corporation and the duly authorized facsimile
signatures of its duly authorized officers.
Dated:
- ---------------------------- ----------------------------
John M. Baer, Secretary T. Tim Unger, President and
Chief Executive Officer
<PAGE>
[STATEMENT FOR BACK OF CERTIFICATE]
LINCOLN BANCORP
THE ARTICLES OF INCORPORATION OF THE CORPORATION PROHIBIT CERTAIN
PERSONS FROM ACQUIRING THE BENEFICIAL OWNERSHIP OF MORE THAN 10% OF ANY
CLASS OF SECURITY OF THE CORPORATION. A COPY OF THESE ARTICLES OF
INCORPORATION WILL BE FURNISHED, WITHOUT CHARGE, TO ANY SHAREHOLDER
UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.
A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES, AND
LIMITATIONS APPLICABLE TO EACH CLASS OF SHARES AND THE VARIATIONS IN
RIGHTS, PREFERENCES, AND LIMITATIONS DETERMINED FOR EACH SERIES (AND
THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS OF
FUTURE SERIES) OF SHARES THAT THE CORPORATION IS AUTHORIZED TO ISSUE
WILL BE FURNISHED, WITHOUT CHARGE, TO ANY SHAREHOLDER UPON WRITTEN
REQUEST TO THE SECRETARY OF THE CORPORATION.
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship
not as tenants in common
UNIF TRAN MIN ACT -- Custodian
(Cust.) (Minor)
under Uniform Transfers to Minors Act
(State)
Additional abbreviations may also be used
although not included in the above list.
FOR VALUE RECEIVED, ____________ HEREBY
SELL, ASSIGN AND TRANSFER UNTO
Please insert Social Security or other
identifying number of Assignee
- ----------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
______________________ shares of the capital stock represented by the within
Certificate, and do hereby irrevocably constitute and appoint
__________________________________ Attorney to transfer the said stock on the
books of the within named Corporation with full power of substitution in the
premises.
Dated___________________
In Presence of
NOTICE: The signature to this assignment must correspond
with the name as written upon the face of this Certificate
in every particular, without alteration or enlargement or
any change whatever.
EXHIBIT 5
September 11, 1998
Board of Directors
Lincoln Bancorp
1121 E. Main Street
P.O. Box 510
Plainfield, Indiana 46168-0510
Gentlemen:
You have requested our opinion in connection with the Form S-1
Registration Statement (the "Registration Statement") to be filed by Lincoln
Bancorp, an Indiana corporation (the "Corporation"), with respect to the offer
and sale by the Corporation of up to 8,676,875 shares of Common Stock, without
par value, of the Corporation (the "Shares"), and the gift of up to 250,000
shares of Common Stock, without par value (the "Foundation Shares"), of the
Corporation to the Lincoln Federal Charitable Foundation, Inc. (the "
Foundation"), an Indiana not-for-profit organization, pursuant to the charitable
gift to the Foundation by the Corporation (the "Gift Instrument"). We have
examined such records and documents and have made such investigation of law as
we have deemed necessary in the circumstances.
Based on that examination and investigation, it is our opinion that the
Shares and the Foundation Shares are duly authorized and will be, when sold in
the manner described in the Registration Statement and the Foundation Shares
(including all Exhibits thereto) and in compliance with the Securities Act of
1933, as amended, and applicable state blue sky laws, validly issued, fully paid
and non-assessable.
The foregoing opinion is limited to the application of the internal
laws of the State of Indiana and applicable federal law, and no opinion is
expressed herein as to any matter governed by the laws of any other
jurisdiction.
We consent to the use of our name under the caption "The Conversion -
Principal Effects of Conversion - Tax Effects" and "Legal and Tax Matters" in
the Prospectus included in the Registration Statement, to the filing of this
opinion as Exhibit 5 to the Registration Statement, and to the filing of our tax
opinion as Exhibit 8(1) to the Registration Statement.
Very truly yours,
BARNES & THORNBURG
Board of Directors
Lincoln Federal Savings Bank
September 11, 1998
EXHIBIT 8(1)
September 11, 1998
Board of Directors
Lincoln Federal Savings Bank
1121 East Main Street
Plainfield, Indiana 46168-0510
Re: Federal Income Tax Opinion Relating to Conversion of Lincoln
Federal Savings Bank ("Lincoln") from a Federally-Chartered Mutual
to a Federally-Chartered Stock Organization
Gentlemen:
In accordance with your request, set forth hereinbelow is the opinion
of this firm relating to the Federal income tax consequences of the proposed
conversion (the "Conversion") of Lincoln from a federally-chartered mutual
savings bank to a federally-chartered stock savings bank.
Lincoln is a federally-chartered mutual savings bank. As a mutual
savings bank, Lincoln has no authorized capital stock. Instead, Lincoln, in
mutual form, has a unique equity structure. A depositor of Lincoln is entitled
to interest on his account balance as declared and paid by Lincoln. A depositor
has no right to a distribution of any earnings of Lincoln, but rather these
amounts become retained earnings of Lincoln. A depositor, however, has a right
to share pro rata, with respect to the withdrawal value of his respective
account, in any liquidation proceeds distributed in the event Lincoln is ever
liquidated. Voting rights in Lincoln are held by its members, i.e., depositors
and certain borrowers. Each depositor is entitled to cast one vote for each $100
or a fraction thereof deposited in a deposit account. Each eligible borrower
member may cast one vote for each loan held. No member may cast more than 1,000
votes. All of the interests held by a depositor in Lincoln cease when such
depositor closes his accounts with Lincoln.
The Board of Directors of Lincoln has decided that in order to
stimulate the growth and expansion of Lincoln through the raising of additional
capital, it would be advantageous for Lincoln to convert from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank and to form an Indiana corporation ("Holding Company") to own all of
Lincoln's issued and outstanding capital stock. It is proposed pursuant to a
plan of Conversion (the "Plan") that Lincoln's
<PAGE>
Board of Directors
Lincoln Federal Savings Bank
September 11, 1998
Page 2
charter to operate as a mutual savings bank be amended and a new charter be
acquired to allow it to continue its operations in the form of a stock savings
bank ("Converted Bank"). Under the Plan, Lincoln will issue shares of its
capital stock to Holding Company in exchange for all but 50% of the net proceeds
derived from the sale of Holding Company's common stock, without par value
("Common Stock"), to members of Lincoln and certain members of the public
through a subscription and community offering, if necessary. The Plan must be
approved by the Office of Thrift Supervision ("OTS") and by an affirmative vote
of at least a majority of the total votes eligible to be cast at a meeting of
Lincoln's members called to vote on the Plan.
Following authorization, the Plan provides for the issuance of shares
of Common Stock. The aggregate purchase price at which all shares of Common
Stock will be offered and sold pursuant to the Plan will be equal to the
estimated pro forma market value of Lincoln at the time of conversion. The
estimated pro forma market value will be determined by an independent appraiser.
Pursuant to the Plan, all such shares will be issued and sold at a uniform price
per share.
As required by OTS regulations, shares of Common Stock will be offered
pursuant to non-transferable subscription rights on the basis of preference
categories. No subscriber will be allowed to purchase fewer than 25 shares of
Common Stock. Lincoln has established four preference categories under which
shares of Common Stock may be purchased and a direct community offering category
for the sale of shares not purchased under the preference categories.
The first category of preference is reserved for Lincoln's eligible
account holders. The Plan defines "eligible account holders" as any person
holding a qualifying deposit. The Plan defines "qualifying deposit" as the
aggregate balance of all savings and deposit accounts of an eligible account
holder in Lincoln at the close of business on June 30, 1997, provided such
aggregate balance is not less than $50.00. Once a Lincoln savings account holder
qualifies as an eligible account holder, he will receive, without payment,
non-transferable subscription rights to purchase Common Stock. Subject to
certain limited exceptions, the maximum number of shares that each eligible
account holder may subscribe for in his capacity as such is 25,000, subject to a
86,768 maximum for each such account holder and his Associates (as defined in
the Plan) or group of persons acting in concert. If there is an
oversubscription, shares will be allocated among subscribing eligible account
holders so as to permit each such account holder, to the extent possible, to
purchase a number of shares sufficient to make his total allocation equal to 100
shares. Any shares not then allocated shall be allocated among the subscribing
eligible account holders in the proportion that their qualifying deposits bear
to the total qualifying deposits of eligible account holders on the eligibility
record date. Non-transferable subscription rights to purchase Common Stock
received by officers and directors of Lincoln and their Associates based on
their increased deposits in Lincoln in the one-year period
<PAGE>
Board of Directors
Lincoln Federal Savings Bank
September 11, 1998
Page 3
preceding the eligibility record date shall be subordinated to all other
subscriptions involving the exercise of nontransferable subscription rights to
purchase shares of Common Stock under the first preference category.
Notwithstanding the foregoing, shares of Common Stock in excess of the maximum
of the valuation range of shares offered in the Conversion may be sold to the
second category of preference before fully satisfying the subscriptions of
eligible account holders.
The second category of preference is reserved for the Holding Company's
employee stock ownership plan (the "ESOP") to be established at the time of the
Conversion. This category may subscribe for up to 10% of the shares sold in the
Conversion; provided that shares remain available after satisfying the
subscription rights of eligible account holders up to the maximum of the
valuation range of shares offered in the Conversion. It is anticipated that the
ESOP will subscribe for 8% of the shares issued in the Conversion (including
250,000 shares issued to a charitable foundatin described below) pursuant to
this category of preference.
The third category of preference is reserved for Lincoln's supplemental
eligible account holders. These are persons holding savings and deposit accounts
at Lincoln at the close of business on September 30, 1998, with an aggregate
balance of not less than $50.00. If there is not subscription for all of the
Common Stock in the first and second preference categories, supplemental
eligible account holders will receive, without payment, non-transferable
subscription rights to purchase Common Stock. Subject to certain limited
exceptions, the maximum number of shares that each supplemental eligible account
holder may subscribe for in his capacity as such is 25,000, subject to a 86,768
maximum for each such account holder and his Associates or group of persons
acting in concert. Any subscription rights received by eligible account holders
in accordance with the first category of preference will reduce to the extent
thereof the subscription rights granted in this third category of preference. If
there is an oversubscription, shares will be allocated among subscribing
supplemental eligible account holders so as to permit each such account holder,
to the extent possible, to purchase a number of shares sufficient to make his
total allocation equal to 100 shares. Any shares not then allocated shall be
allocated to supplemental eligible account holders in the proportion that their
qualifying deposits bear to the qualifying deposits of all subscribing
supplemental eligible account holders.
If there is not subscription for all of the Common Stock in the first,
second and third preference categories, the fourth preference category,
consisting of members of Lincoln as of the record date for the special meeting
of members at which the Plan will be submitted for approval who are not eligible
account holders or supplemental eligible account holders ("Other Members"), will
receive, without payment, non-transferable subscription rights entitling them to
purchase Common Stock. Subject to certain limited exceptions, each Other Member
shall receive subscription rights to
<PAGE>
Board of Directors
Lincoln Federal Savings Bank
September 11, 1998
Page 4
purchase up to 25,000 shares of Common Stock in his capacity as such, subject to
a 86,768 maximum for each such member and his Associates or group of persons
acting in concert, to the extent that such stock is available after satisfaction
of the first, second and third preference categories. In the event of an
oversubscription by Other Members, shares will be allocated pro rata in the same
proportion that the number of shares subscribed for by each Other Member bears
to the total number of shares subscribed for by all Other Members.
If there are shares of Common Stock available after the first, second,
third and fourth preference categories have been exhausted, it is anticipated
that they will be sold to members of the general public in a best efforts
community offering, giving preference to residents of Clinton, Hendricks, and
Montgomery Counties. The maximum number of shares which may be purchased in this
Community Offering by any person (including his Associates) or persons acting in
concert is 25,000 shares of Common Stock. A person with subscription rights who,
together with his Associates and persons acting in concert, has subscribed for
shares in the Subscription Offering, may subscribe for additional shares in the
Community Offering that do not exceed the lesser of (i) 25,000 shares or (iii)
the number of shares which, when added to the number of shares subscribed for by
such person and his Associates and persons acting in concert would not exceed
86,768 shares.
Lincoln's Board of Directors may increase the maximum purchase
limitations in the Plan up to 9.99% of the shares of Common Stock offered in the
Conversion, provided that orders for Common Stock exceeding 5% of the total
offering may not exceed, in the aggregate, 10% of the total offering. Officers
and directors of Lincoln and their Associates may not purchase in the aggregate
more than 34% of the shares offered pursuant to the Plan. Directors of Lincoln
will not be deemed Associates or a group acting in concert solely as a result of
their membership on the Board of Directors of Lincoln. All of the shares of
Common Stock purchased by officers and directors will be subject to certain
restrictions on sale for a period of one year. In order to achieve the widest
distribution of the stock in the Community Offering, orders for stock shall be
filled up to a maximum of 2% of the Common Stock and thereafter remaining shares
shall be allocated on an equal number of shares basis per order until all orders
have been filled. The overall purchase limitation may be reduced to any number
to a minimum of 1% of the shares sold in the Conversion, in the sole discretion
of the Board of Directors of Lincoln.
The Plan provides that no person will be issued any subscription rights
or be permitted to purchase any Common Stock if such person resides in a foreign
country or in a state of the United States with respect to which all of the
following apply: (a) a small number of persons otherwise eligible to subscribe
for shares under this Plan reside in such state; (b) the issuance of
subscription rights or the offer or sale of the Common Stock to such persons
would require Lincoln or the Holding
<PAGE>
Board of Directors
Lincoln Federal Savings Bank
September 11, 1998
Page 5
Company or their respective officers or directors under the securities law of
such state to register as a broker or dealer or to register or otherwise qualify
its securities for sale in such state; and (c) such registration or
qualification would be impracticable for reasons of cost or otherwise.
The Plan also provides for the establishment of a liquidation account
by Lincoln. The liquidation account will be equal in amount to the net worth of
Lincoln near the time of conversion. The establishment of the liquidation
account will not operate to restrict the use or application of any of the net
worth accounts of Converted Bank, except that Converted Bank will not
voluntarily reduce the net worth accounts if the result thereof would be to
reduce its net worth below the amount required to maintain the liquidation
account. The liquidation account will be for the benefit of Lincoln's eligible
account holders and supplemental eligible account holders who maintain accounts
in Lincoln at the time of conversion. All such account holders, including those
account holders not entitled to subscription rights for reasons of foreign or
out-of-state residency (as described above), will have an interest in the
liquidation account. The interest such account holder will have is a right to
receive, in the event of a complete liquidation of Converted Bank, a liquidating
distribution from the liquidation account in the amount of the then current
adjusted subaccount balances for deposit accounts then held, prior to any
liquidation distribution being made with respect to capital stock.
The initial subaccount balance for a deposit account held by an
eligible account holder and supplemental eligible account holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of the qualifying deposit in the
deposit account and the denominator is the total amount of qualifying deposits
of all eligible account holders and supplemental eligible account holders in
Lincoln. The initial subaccount balance will never be increased, but may be
decreased if the deposit balance in any qualifying savings account of any
eligible account holder or supplemental eligible account holder on any annual
closing date subsequent to the eligibility record date or supplemental
eligibility record date is less than the lesser of (1) the deposit balance in
the savings account at the close of business on any other annual closing date
subsequent to the eligibility record date or supplemental eligibility record
date, or (2) the amount of the qualifying deposit in such deposit account. In
such event, the subaccount balance for the deposit account will be adjusted by
reducing each subaccount balance in an amount proportionate to the reduction in
the deposit balance. Once decreased, the Plan provides that the subaccount
balance may never be subsequently increased, and if the deposit account of an
eligible account holder or supplemental eligible account holder is closed, the
related subaccount balance in the liquidation account will be reduced to zero.
Following the Conversion, voting rights with respect to Converted Bank
will rest with Holding Company, and with respect to Holding Company will rest
exclusively with the holders of
<PAGE>
Board of Directors
Lincoln Federal Savings Bank
September 11, 1998
Page 6
Common Stock. The Conversion will not interrupt the business of Lincoln, and its
business will continue as usual by Converted Bank. Each depositor will retain a
withdrawable savings or deposit account or accounts equal in amount to the
withdrawable account at the time of conversion. Mortgage loans of Lincoln will
remain unchanged and retain their same characteristics in Converted Association
after the conversion. The Converted Bank will continue the membership of Lincoln
in the Savings Association Insurance Fund of the Federal Deposit Insurance
Corporation (the "FDIC") and the Federal Home Loan Bank System, and will remain
subject to the regulatory authority of the OTS and the FDIC.
As part of the Conversion, the Bank has provided for the establishment
of a charitable foundation that will qualify as an exempt organization under
Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the
"Foundation"). The Foundation is intended to further the Converted Bank's long
term commitment to its community. The Plan provides that the Foundation is
intended to complement the Bank's existing community reinvestment activities so
as to allow the local community to share in the growth and profitability of the
Holding Company and the Converted Bank over the long term. The Plan of
Conversion provides that the Holding Company intends to donate to the Foundation
250,000 shares of its authorized but unissued common stock. In the event that
the Foundation does not receive the requisite approval from regulatory agencies
and Bank members, the Bank may determine to complete the Conversion without the
Foundation.
The Foundation will be dedicated to the promotion of charitable and
educational purposes within Hendricks County, Montgomery County and Clinton
County, Indiana and its neighboring communities, including, but not limited to,
grants or donations to support housing assistance, scholarships, local
education, not-for-profit medical facilities, not-for-profit community groups
and other types of organizations or civic minded projects. The Foundation will
annually distribute total grants and donations to assist charitable
organizations or to fund projects within its local community of not less than 5%
of the average fair value of the Foundation assets each year. In order to serve
the purposes for which it is found and to maintain its Section 501(c)(3)
qualification, the Foundation may sell, on an annual basis, a limited portion of
the Common Stock contributed to it by the Holding Company.
It is anticipated that on a date which is at least six months following
the Conversion, Holding Company and/or the Bank will adopt a stock option plan
and a "recognition and retention" plan and trust ("RRP"). A number of shares of
Common Stock equal to four percent (4.0%) of the shares of Common Stock issued
in the Conversion (including the shares issued to the Foundation) will be
reserved to fund the RRP and a number of shares of Common Stock equal to 10% of
the shares of
<PAGE>
Board of Directors
Lincoln Federal Savings Bank
September 11, 1998
Page 7
Common Stock issued in the Conversion (including the shares issued to the
Foundation) will be reserved for stock option grants under the stock option
plan. In addition, the Converted Bank will establish an employee stock ownership
plan and trust for the benefit of its employees at the time of the Conversion.
The stock option plan, RRP and employee stock ownership plan are referred to
collectively herein as the "Employee Plans." Additionally, Holding Company will
adopt certain "anti-takeover provisions" in its proposed Articles of
Incorporation and Code of By-Laws.
We have received, and are relying upon, certificates of certain
officers of Lincoln to the effect that:
a. Converted Bank has no plan or intention to redeem or otherwise
acquire any of its capital stock issued to Holding Company in
connection with the Conversion.
b. Immediately following consummation of the Conversion, Converted
Bank will possess the same assets and liabilities as Lincoln held
immediately prior to the proposed transaction, plus all but 50%
of the net proceeds from the sale of Common Stock.
c. Converted Bank has no plan or intention to sell or otherwise
dispose of any of the assets of Lincoln acquired in the
Conversion, except for dispositions in the ordinary course of
business.
d. Following the Conversion, Converted Bank will continue to engage
in the same business in substantially the same manner as engaged
in by Lincoln before the Conversion.
e. The aggregate fair market value of the qualifying deposits (as
defined in the Plan) held by eligible account holders as of the
close of business on June 30, 1997, and by supplemental eligible
account holders on September 30, 1998, equaled or exceeded or
will equal or exceed 99% of the aggregate fair market value of
all savings accounts in Lincoln (including accounts of less than
$50) at the close of business on such respective dates.
f. No shares of Common Stock will be issued to or be purchased by
depositor-employees at a discount or as compensation in the
Conversion, although shares may be purchased at fair market value
by the RRP and the ESOP established in connection with the
Conversion.
<PAGE>
Board of Directors
Lincoln Federal Savings Bank
September 11, 1998
Page 8
g. No cash or property will be given to eligible account holders,
supplemental eligible account holders or Other Members in lieu of
(a) non-transferable subscription rights or (b) an interest in
the liquidation account of Converted Bank.
h. Lincoln is not under the jurisdiction of a court in any Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
i. At the time of the Conversion the fair market value of the assets
of Lincoln on a going concern basis will exceed the amount of its
liabilities plus the amount of liabilities to which the assets
are subject. All such liabilities were incurred in the ordinary
course of business and are associated with the assets
transferred. Immediately before the Conversion, Lincoln will have
a positive net worth.
j. Lincoln has received or will receive an opinion from Keller &
Company, Inc., which concludes that the subscription rights to be
received by eligible subscribers have no economic value at the
date of distribution or the time of exercise whether or not a
public offering takes place (the "Keller Financial Opinion"). The
exercise price of the subscription rights will be approximately
equal to the fair market value of the Common Stock at the time of
the Conversion.
k. Holding Company has no plan or intention to sell or otherwise
dispose of the capital stock of Converted Bank received by it in
the proposed transaction, and there is no plan or intention for
Converted Bank to be liquidated or merged with another
corporation following the transaction.
l. The fair market value of the withdrawable deposit accounts in
Converted Bank (plus the related interest in the Converted Bank
liquidation account) to be constructively received under the Plan
by the eligible account holders and supplemental eligible account
holders of Lincoln will, in each instance, be approximately equal
to the fair market value of Lincoln's deposit accounts (plus the
related interest in the Lincoln liquidation account) surrendered
in constructive exchange by them. All proprietary rights in
Lincoln form an integral part of the withdrawable savings
accounts being surrendered in the exchange.
<PAGE>
Board of Directors
Lincoln Federal Savings Bank
September 11, 1998
Page 9
m. Lincoln utilizes a reserve for bad debts in accordance with
Section 593 of the Code, and following the Conversion, Converted
Bank shall likewise continue to utilize a reserve for bad debts
in accordance with Section 593 of the Code.
n. Holding Company, Lincoln and Converted Bank are corporations
within the meaning of Section 7701(a)(3) of the Code. Lincoln and
Converted Bank are domestic building and loan associations within
the meaning of Section 7701(a)(19)(C) of the Code.
o. Lincoln deposit account holders and Other Members will pay
expenses of the Conversion solely attributable to them, if any.
Lincoln and Holding Company will each pay its own expenses of the
Conversion and will not pay any expenses solely attributable to
the deposit account holders, Other Members or the holders of
Common Stock.
p. Immediately following the Conversion, the former depositors of
Lincoln will own all of the outstanding interests in the
Converted Bank liquidation account and will own such interests
solely by reason of their ownership of deposits at Lincoln
(including the attendant rights to liquidation proceeds)
immediately before the Conversion.
q. Assets of Lincoln used to pay expenses of the Conversion (without
reference to expenses of the offering or sale of the Common
Stock) and to make distributions (other than regular, normal
interest payments) will, in the aggregate, constitute less than
1% of the net assets of Lincoln. Any such expenses or
distributions will be paid or reimbursed from proceeds of the
sale of the Common Stock.
r. At the time of the Conversion, Lincoln will not have outstanding
any warrants, options, convertible securities, or any other type
of right pursuant to which any person could acquire stock in
Converted Bank.
s. No account holder of Lincoln who is eligible to receive an
interest in the Converted Bank liquidation account will be
excluded from participation in the Converted Bank liquidation
account.
t. Holding Company has no plan or intention to redeem or otherwise
reacquire any of the Common Stock issued in the proposed
transaction.
<PAGE>
Board of Directors
Lincoln Federal Savings Bank
September 11, 1998
Page 10
u. Neither the Common Stock nor the stock of Converted Bank issued
pursuant to the proposed transactions will be callable or subject
to a put option (except as required under any Employee Plan).
v. None of the compensation received by a Lincoln employee who is
also an eligible account holder, supplemental eligible account
holder, or Other Member will be separate consideration for, or
allocable to, his or her status as eligible account holder,
supplemental eligible account holder, or Other Member; none of
the Common Stock or interests in the liquidation account of
Converted Bank received by any such employee will be separate
consideration for, or allocable to, any employment agreement or
arrangement (other than an Employee Plan); and the compensation
paid to the employee will be for services actually rendered and
will be commensurate with the compensation that would be paid to
third parties bargaining at arm's length for similar services.
w. There is no intercorporate indebtedness existing between Holding
Company and Lincoln that was issued or acquired, or will be
settled, at a discount.
x. Holding Company is not an investment company as described in
Section 351(e) of the Code.
y. The principal amount, interest rate and maturity date of each
deposit account in Converted Bank received by a Lincoln eligible
account holder or supplemental eligible account holder are
identical to those of the corresponding Lincoln deposit account
that was held by the account holder immediately prior to the
Conversion.
OPINION OF COUNSEL
Based solely upon the foregoing information, including the Keller
Financial Opinion, the provisions of the Code, the regulations thereunder and
such other authorities as we have deemed appropriate to consider, all as in
effect on the date hereof, our opinion is as follows:
(1) The change in the form of Lincoln from a federally-chartered
mutual savings bank to a federally-chartered stock savings bank,
as described above, will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Code and no gain or loss
will be recognized to either Lincoln or to Converted Bank as a
result of such
<PAGE>
Board of Directors
Lincoln Federal Savings Bank
September 11, 1998
Page 11
Conversion (see Rev. Rul. 80-105, 1980-1 C.B. 78). Lincoln and
Converted Bank will each be a party to a reorganization within
the meaning of Section 368(b) of the Code (Rev. Rul. 72-206,
1972-1 C.B. 105).
(2) No gain or loss will be recognized by Converted Bank on the
receipt of money and other property, if any, from Holding Company
in exchange for shares of Converted Bank's capital stock (Section
1032(a) of the Code).
(3) No gain or loss will be recognized by Holding Company upon the
receipt of money for Common Stock (Section 1032(a) of the Code).
(4) The assets of Lincoln will have the same basis in the hands of
Converted Bank as in the hands of Lincoln immediately prior to
the Conversion (Section 362(b) of the Code).
(5) The holding period of the assets of Lincoln to be received by
Converted Bank will include the period during which the assets
were held by Lincoln prior to the Conversion (Section 1223(2) of
the Code).
(6) Depositors will realize gain, if any, upon the constructive
issuance to them of withdrawable deposit accounts of Converted
Bank, non-transferable subscription rights to purchase Common
Stock, and/or interests in the liquidation account of Converted
Bank. Any gain resulting therefrom will be recognized, but only
in an amount not in excess of the fair market value of the
subscription rights and interests in the liquidation accounts
received. The liquidation accounts will have nominal, if any,
fair market value. See Paulsen v. Commissioner, 469 U.S. 131, 139
(1985), quoting Society for Savings v. Bowers, 349 U.S. 143
(1955); but see Rev. Rul. 69-3, 1969-1 C.B. 103 and Rev. Rul.
69-646, 1969-2 C.B. 54 (the interest received rises to the level
of "stock" and thus, in some circumstances, Section 354 of the
Code applies). Based solely on the accuracy of the conclusion
reached in the Keller Financial Opinion, and our reliance on such
opinion, that the subscription rights have no economic value at
the time of distribution or exercise, no gain or loss will be
required to be recognized by eligible account holders or
supplemental eligible account holders upon receipt or
distribution of subscription rights. (Section 1001 of the Code.)
Similarly, based solely on the accuracy of the aforesaid
conclusion reached in the Keller Financial Opinion and our
reliance thereon, we give the following opinions: (a) no taxable
income will be recognized by the Other Members of Lincoln
<PAGE>
Board of Directors
Lincoln Federal Savings Bank
September 11, 1998
Page 12
upon the distribution to them of subscription rights or upon the
exercise of the subscription rights to acquire Common Stock at
fair market value; (b) no taxable income will be realized by the
depositors or borrowers of Lincoln as a result of the exercise of
the non-transferable subscription rights to purchase Common Stock
at fair market value, Rev. Rul. 56-572, 1956-2 C.B. 182; and (c)
no taxable income will be realized by Converted Bank, Lincoln or
Holding Company on the issuance or distribution of subscription
rights to depositors and borrowers of Lincoln to purchase shares
of Common Stock at fair market value. Section 311 of the Code.
(7) A depositor's basis in the deposits of Converted Bank will be the
same as the basis of such depositor's deposits in Lincoln.
Section 1012 of the Code. The basis of the non-transferable
subscription rights will be zero increased by the amount of gain,
if any, recognized on their receipt. The basis of the interest in
the liquidation account of Converted Bank received by eligible
account holders and supplemental eligible account holders will be
equal to the cost of such property, i.e., the fair market value
of the proprietary interest in Converted Bank received in
exchange for the proprietary interest in Lincoln, which in this
transaction we assume to be zero.
(8) The basis of the Holding Company Common Stock to its shareholders
will be the purchase price thereof, plus, in the case of stock
acquired by the exercise of subscription rights, the basis, if
any, in the subscription rights exercised. Section 1012 of the
Code.
(9) A shareholder's holding period for Common Stock acquired through
the exercise of the non-transferable subscription rights shall
begin on the date on which the subscription rights are exercised.
Section 1223(6) of the Code. The holding period of the Common
Stock purchased pursuant to the Community Offering will commence
on the date following the date on which the stock is purchased.
Rev. Rul. 70-598, 1970-2 C.B. 168; Rev. Rul. 66-97, 1966-1 C.B.
190.
(10) The part of the taxable year of Lincoln before the Conversion and
the part of the taxable year of Converted Bank after the
Conversion will constitute a single taxable year of Converted
Bank. (See Rev. Rul. 57-276, 1957-1 C.B. 126). Consequently,
Lincoln will not be required to file a federal income tax return
for any short portion of such taxable year (Section
1.381(b)-1(a)(2) of the Income Tax Regulations).
<PAGE>
Board of Directors
Lincoln Federal Savings Bank
September 11, 1998
Page 13
(11) Converted Bank will succeed to and take into account the earnings
and profits or deficit in earnings and profits of Lincoln as of
the date or dates of Conversion. (Section 381(c)(2) of the Code
and Section 1.381(c)(2)-1 of the Income Tax Regulations.)
(12) Regardless of book entries made for the creation of the
liquidation account, the Conversion will not diminish the
accumulated earnings and profits of the Converted Bank available
for the subsequent distribution of dividends within the meaning
of Section 316 of the Code (Sections 1.312-11(b) and (c) of the
Income Tax Regulations). The creation of the liquidation account
on the records of Converted Bank will have no effect on its
taxable income, deductions for addition to reserve for bad debts
under Section 593 of the Code, or distributions to shareholders
under Section 593(e) of the Code (Rev. Rul. 68-475, 1968-2 C.B.
259).
(13) Converted Bank will succeed to and take into account, immediately
after the Conversion, those accounts of Lincoln which represent
bad debt reserves in respect of which Lincoln has taken a bad
debt deduction for taxable years ending on or before the date of
the Conversion. The bad debt reserves will not be required to be
restored to the gross income of either Lincoln or Converted Bank
solely as a result of the Conversion, and such bad debt reserves
will have the same character in the hands of the Converted Bank
as they would have had in the hands of Lincoln if no distribution
or Conversion had occurred. (Section 381(c)(4) of the Code and
Section 1.381(c)(4)-1(a)(1)(ii) of the Income Tax Regulations.)
No opinion is being expressed as to whether the bad debt reserves
will be required to be restored to the gross income of either
Lincoln or Converted Bank for the taxable year of the transfer as
a result of the requirements of Section 593(g) of the Code.
(14) Inasmuch as the Conversion constitutes a tax-free reorganization
for federal income tax purposes, Lincoln will not incur any
liability for Indiana adjusted gross income tax, financial
institutions tax, supplemental net income tax, county adjusted
gross income tax or county option income tax as a result of the
Conversion. Lincoln will not incur any Indiana gross income tax
liability as a result of the Conversion. Amounts received by
Holding Company in exchange for the issuance of Common Stock and
amounts received by Converted Bank in exchange for the issuance
of its capital stock will constitute contributions to capital
which are exempt from the gross income tax.
<PAGE>
Board of Directors
Lincoln Federal Savings Bank
September 11, 1998
Page 14
(15) Assuming that the interests in the liquidation account and the
subscription rights that will be constructively issued to them as
a part of the Plan have nominal, if any, fair market value,
depositors will incur no liability for Indiana gross income tax,
adjusted gross income tax, financial institutions tax, county
adjusted gross income tax or county option income tax as a result
of the Conversion.
(16) Following the Conversion, the Converted Bank will continue to be
subject to the Indiana financial institutions tax.
Our opinion on the above issues is based on information and
representations provided by officers of Lincoln on behalf of Lincoln and its
members. Neither the Internal Revenue Service nor the Indiana Department of
Revenue has ruled on these issues and our opinion is not binding on either
agency. The Internal Revenue Service or the Indiana Department of Revenue could
take a position contrary to that expressed in this opinion on some or all of the
above issues, and such a position if ultimately sustained could result in
adverse tax consequences to Lincoln or its members.
No opinion is provided as to possible tax consequences of the
Conversion under any federal, state, local or foreign tax laws except as
specifically provided above.
Very truly yours,
BARNES & THORNBURG
Exhibit 8(2)
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
September 11, 1998
The Board of Directors
Lincoln Federal Savings Bank
1121 E. Main Street
Plainfield, Indiana 46168
Re: Subscription Rights - Conversion of Lincoln Federal Savings Bank
Gentlemen:
The purpose of this letter is to provide an opinion of the value of the
subscription rights of the "to be issued" common stock of Lincoln Bancorp (the
"Corporation"), Plainfield, Indiana, in regard to the conversion of Lincoln
Federal Savings Bank ("Lincoln Federal" or the "Bank") from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank.
Because the Subscription Rights to purchase shares of Common Stock in the
Corporation, which are to be issued to the depositors of Lincoln Federal, and
the other members of the Bank and will be acquired by such recipients without
cost, will be nontransferable 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 Direct Community Offering,
we are of the opinion 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.
Further, it is our opinion that the Subscription Rights will have no economic
value on the date of distribution or at the time of exercise, whether or not a
community offering takes place.
Sincerely,
KELLER & COMPANY, INC.
/s/ John A. Shaffer
John A. Shaffer
Vice President
Board of Directors
March 18, 1998
Page 1
Exhibit 10(1)
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
March 18, 1998
The Board of Directors
Lincoln Federal Savings Bank
1121 E. Main Street
Plainfield, Indiana 46168
Re: Business Plan Proposal
Attention: Tim Unger, President and Chief Executive Officer
This letter represents our proposal to prepare a complete Business Plan for
Lincoln Federal Savings Bank ("Lincoln Federal" or the "Bank") to fulfill the
requirements of the Office of Thrift Supervision ("OTS") relating to the Bank's
stock conversion. The Plan will focus on Lincoln Federal's new three-year pro
formas, the conversion impact on the Bank and the planned use of proceeds.
Keller & Company is experienced in preparing business plans for filing with and
approval by all regulatory agencies. We prepared thirty-two business plans in
1995, thirty in 1996 and thirty-four in 1997, and all have been approved. Your
Plan will be based on the format provided in the attached Exhibit A. We will
prepare the three-year pro formas and each discussion section in accordance with
regulatory requirements and based on your input. Our objective is to ensure that
your Business Plan is in compliance with all applicable requirements, and that
management and directorate are knowledgeable of and comfortable with the
assumptions, commitments and projections contained in the Plan, making the Plan
useful for the future.
Exhibit B provides a sample set of typical pro formas. Your pro formas will
incorporate the most current interest rate projections provided by OTS. Our
procedure is to request key financial information, including TFR Reports,
investment portfolio mix, recent lending activity, savings activity, costs and
yields and other data from Lincoln Federal. Based on a review of this
information, I will then meet with management to discuss your plans and
expectations for the years 1998, 1999 and 2000, focusing on items such as use of
proceeds, deposit growth expectations, loan origination projections, secondary
market activity, new products and services, increases in general valuation
allowance, new branches, capital improvements, increases in fixed assets,
investment strategy, increases in board fees and total compensation, etc. We
will then prepare financial projections tying the beginning figures to your
December 31, 1997, balances, incorporating your current yields on
interest-bearing assets and your current costs of interest-bearing liabilities.
Assets and liabilities will
<PAGE>
Board of Directors
March 18, 1998
Page 2
be repriced based on their maturity period, with such items tied to rate indices
and their yields and costs adjusting based on interest rate trends. The
projections will be based on your actual performance in 1997, in conjunction
with the input from our discussions. We can introduce numerous scenarios for
internal use as part of the preparation of the business plan to show the impact
of alternative strategies.
With each set of pro formas, we will send you a discussion summary of the
assumptions for easy review and comments (Exhibit C). After your review of the
pro formas, we will make any adjustments that are required. When the pro formas
are complete, we will provide you with the final pro forma financial statements,
as well as pro formas for the holding company (Exhibit D).
With regard to the Business Plan text, we will complete each section in draft
form for your review, and revise each section based on your comments and
requests. We will also send a copy to your counsel for their input and comments.
The Plan will be in full compliance with all regulatory requirements. We also
prepare a quarterly comparison chart each quarter after the conversion for
presentation to the board, showing the quarterly variance in actual performance
relative to projections and provide comments on the variance.
Our fee for the preparation of the Business Plan text and pro formas is $6,000,
including out-of-pocket expenses for travel, copying and binding.
I look forward to working with you.
Sincerely,
KELLER & COMPANY, INC.
/s/ Michael R. Keller
Michael R. Keller
President
MRK:jmm
enclosure
Accepted this 7 day of April , 1998.
LINCOLN FEDERAL SAVINGS BANK
/s/ Tim Unger
Tim Unger
President and Chief Executive Officer
INDS01 CVS 276209
<PAGE>
Mr. T. Tim Unger
March 18, 1998
Page 1
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
March 18, 1998
The Board of Directors
Lincoln Federal Savings Bank
1121 E. Main Street
Plainfield, Indiana 46168
Re: Conversion Valuation Agreement
Attn: Tim Unger, President
Keller & Company, Inc. (hereinafter referred to as KELLER) hereby
proposes to prepare an independent conversion appraisal of Lincoln Federal
Savings Bank, Plainfield, Indiana (hereinafter referred to as LINCOLN FEDERAL),
relating to the conversion of LINCOLN FEDERAL from a mutual to a stock
institution. KELLER will provide a pro forma valuation of the market value of
the shares to be sold in the proposed conversion of LINCOLN FEDERAL.
KELLER is a financial consulting firm that primarily serves the
financial institution industry. KELLER is experienced in evaluating and
appraising thrift institutions and thrift institution holding companies. KELLER
is an experienced conversion appraiser for filings with the Office of Thrift
Supervision ("OTS") and the Federal Deposit Insurance Corporation ("FDIC"), and
is also approved by the Internal Revenue Service as an expert in bank and thrift
stock valuations.
KELLER agrees to prepare the conversion appraisal in the format
required by the OTS in a timely manner for prompt filing with the OTS and the
Securities and Exchange Commission and also agrees to prepare an analysis of the
effect of the establishment of a charitable foundation in connection with the
conversion in the conversion appraisal. KELLER will provide any additional
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Mr. T. Tim Unger
March 18, 1998
Page 2
information as requested and will complete appraisal updates in accordance with
regulatory requirements.
The appraisal report will provide a detailed description of LINCOLN
FEDERAL, including its financial condition, operating performance, asset
quality, rate sensitivity position, liquidity level and management
qualifications. The appraisal will include a description of LINCOLN FEDERAL's
market area, including both economic and demographic characteristics and trends.
An analysis of other publicly-traded thrift institutions will be performed to
determine a comparable group, and adjustments to the appraised value will be
made based on a comparison of LINCOLN FEDERAL with the comparable group.
In making its appraisal, KELLER will rely upon the information in the
Subscription and Community Offering Circular (Prospectus), including the
financial statements. Among other factors, KELLER will also consider the
following: the present and projected operating results and financial condition
of LINCOLN FEDERAL; the economic and demographic conditions in LINCOLN FEDERAL's
existing marketing area; pertinent historical financial and other information
relating to LINCOLN FEDERAL; a comparative evaluation of the operating and
financial statistics of LINCOLN FEDERAL with those of other thrift institutions;
the proposed price per share; the aggregate size of the offering of common
stock; the impact of the conversion on LINCOLN FEDERAL's capital position and
earnings potential; LINCOLN FEDERAL's proposed dividend policy; and the trading
market for securities of comparable institutions and general conditions in the
market for such securities. In preparing the appraisal, KELLER will rely solely
upon, and assume the accuracy and completeness of, financial and statistical
information provided by LINCOLN FEDERAL, and will not independently value the
assets or liabilities of LINCOLN FEDERAL in order to prepare the appraisal.
Upon completion of the conversion appraisal, KELLER will make a
presentation to the board of directors of LINCOLN FEDERAL to review the content
of the appraisal, the format and the
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Mr. T. Tim Unger
March 18, 1998
Page 3
assumptions. A written presentation will be provided to each board member as a
part of the overall presentation.
For its services in making this appraisal, KELLER's fee will be
$25,000, including out-of-pocket expenses not to exceed $1,000. The appraisal
fee will include the preparation of one valuation update and any requested
analysis regarding the financial impact of a charitable foundation in the
conversion appraisal. All additional valuation updates will be subject to an
additional fee of $1,000 each. Upon the acceptance of this proposal, KELLER
shall be paid a retainer of $3,000 to be applied to the total appraisal fee of
$25,000, the balance of which will be payable at the time of the completion of
the appraisal.
LINCOLN FEDERAL agrees, by the acceptance of this proposal, to
indemnify KELLER and its employees and affiliates for certain costs and
expenses, including reasonable legal fees, in connection with claims or
litigation relating to the appraisal and arising out of any misstatement or
untrue statement of a material fact in information supplied to KELLER by LINCOLN
FEDERAL or by an intentional omission by LINCOLN FEDERAL to state a material
fact in the information so provided, except where KELLER or its employees and
affiliates have been negligent or at fault.
KELLER agrees to indemnify LINCOLN FEDERAL and its employees and
affiliates for certain cost and expenses, including reasonable legal fees, in
connection with claims or litigation relating to or based upon the negligence or
willful misconduct of KELLER or its employees or affiliates.
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Mr. T. Tim Unger
March 18, 1998
Page 4
This proposal will be considered accepted upon the execution of the two
enclosed copies of this agreement and the return of one executed copy to KELLER,
accompanied by the specified retainer.
KELLER & COMPANY, INC.
By: /s/ Michael R. Keller
Michael R. Keller
President
LINCOLN FEDERAL SAVINGS BANK
By: /s/ Tim Unger
Tim Unger
President
Date: April 7, 1998
LINCOLN BANCORP
STOCK OPTION PLAN
1. Purpose. The purpose of the Lincoln Bancorp Stock Option Plan (the
"Plan") is to provide to directors, officers and other key employees of Lincoln
Bancorp (the "Holding Company") and its majority-owned and wholly-owned
subsidiaries (individually a "Subsidiary" and collectively the "Subsidiaries"),
including, but not limited to, Lincoln Federal Savings Bank upon its conversion
to stock form ("Lincoln"), who are materially responsible for the management or
operation of the business of the Holding Company or a Subsidiary and have
provided valuable services to the Holding Company or a Subsidiary, a favorable
opportunity to acquire Common Stock, without par value ("Common Stock"), of the
Holding Company, thereby providing them with an increased incentive to work for
the success of the Holding Company and its Subsidiaries and better enabling each
such entity to attract and retain capable directors and executive personnel.
2. Administration of the Plan. The Plan shall be administered,
construed and interpreted by a committee (the "Committee") consisting of at
least two members of the Board of Directors of the Holding Company, each of whom
is a "Non-Employee Director" within the meaning of the definition of that term
contained in Reg. ss. 16b-3 promulgated under the Securities Exchange Act of
1934, as amended (the "1934 Act"). The members of the Committee shall be
designated from time to time by the Board of Directors of the Holding Company.
The decision of a majority of the members of the Committee shall constitute the
decision of the Committee, and the Committee may act either at a meeting at
which a majority of the members of the Committee is present or by a written
consent signed by all members of the Committee. The Committee shall have the
sole, final and conclusive authority to determine, consistent with and subject
to the provisions of the Plan:
(a) the individuals (the "Optionees") to whom options or
successive options shall be granted under the Plan;
(b) the time when options shall be granted hereunder;
(c) the number of shares of Common Stock to be covered under each
option;
(d) the option price to be paid upon the exercise of each option;
(e) the period within which each such option may be exercised;
(f) the extent to which an option is an incentive stock option or
a non-qualified stock option; and
(g) the terms and conditions of the respective agreements by
which options granted shall be evidenced.
The Committee shall also have authority to prescribe, amend, waive, and rescind
rules and regulations relating to the Plan, to accelerate the vesting of any
stock options made hereunder (subject to Office of Thrift and Supervision
regulations), to make amendments or modifications in the terms and conditions
(including exercisability) of the options relating to the effect of termination
of employment of the optionee (subject to the last sentence of Section 9
hereof), to waive any restrictions or conditions applicable to any option or the
exercise thereof, and to make all other determinations necessary or advisable in
the administration of the Plan.
3. Eligibility. The Committee may, consistent with the purposes of the
Plan, grant options to officers and other key employees and directors or
directors emeritus (whether or not also employees) of the Holding Company or of
a Subsidiary who in the opinion of the Committee are from time to time
materially responsible for the management or operation of the business of the
Holding Company or of a Subsidiary and have provided valuable services to the
Holding Company or a Subsidiary; provided, however, that in no event may any
employee who owns (after application of the ownership rules in ss. 425(d) of the
Internal Revenue Code of 1986, as amended (the "Code")) shares of stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Holding Company or any of its Subsidiaries be granted an
incentive stock option hereunder unless at the time such option is granted the
option price is at least 110% of the fair market value of the stock subject to
the option and such option by its terms is not exercisable after the expiration
of five (5) years from the date such option is granted. No employee may be
granted options under the Plan for more than ______ shares of Common Stock in
any calendar year. Subject to the foregoing provisions, an individual who has
been granted an option under the Plan (an "Optionee"), if he is otherwise
eligible, may be granted an additional option or options if the Committee shall
so determine.
4. Stock Subject to the Plan. There shall be reserved for issuance upon
the exercise of options granted under the Plan, shares of Common Stock of the
Holding Company equal to 10% of the total number of shares of Common Stock
issued by the Holding Company upon the conversion of Lincoln from mutual to
stock form (including any such shares issued at the time of the Conversion to
the private foundation being created as part of the Conversion), which may be
authorized but unissued shares or treasury shares of the Holding Company.
Subject to Section 7 hereof, the shares for which options may be granted under
the Plan shall not exceed that number. If any option shall expire or terminate
or be surrendered for any reason without having been exercised in full, the
unpurchased shares subject thereto shall (unless the Plan shall have terminated)
become available for other options under the Plan.
5. Terms of Options. Each option granted under the Plan shall be
subject to the following terms and conditions and to such other terms and
conditions not inconsistent therewith as the Committee may deem appropriate in
each case:
(a) Option Price. The price to be paid for shares of stock upon
the exercise of each option shall be determined by the Committee at
the time such option is granted, but such price in no event shall be
less than the fair market value, as determined by the Committee
consistent with Treas. Reg. ss. 20.2031-2 and any requirements of ss.
422A of the Code, of such stock on the date on which such option is
granted.
(b) Period for Exercise of Option. An option shall not be
exercisable after the expiration of such period as shall be fixed by
the Committee at the time of the grant thereof, but such period in no
event shall exceed ten (10) years and one day from the date on which
such option is granted; provided, that incentive stock options granted
hereunder shall have terms not in excess of ten (10) years and
non-qualified options shall be for a period of not in excess of ten
(10) years and one day from the date of grant thereof. Options shall
be subject to earlier termination as hereinafter provided.
(c) Exercise of Options. The option price of each share of stock
purchased upon exercise of an option shall be paid in full at the time
of such exercise. Payment may be in (i) cash, (ii) if the Optionee may
do so in conformity with Regulation T (12 C.F.R. ss. 220.3(e)(4))
without violating ss. 16(b) or ss. 16(c) of the 1934 Act, pursuant to
a broker's cashless exercise procedure, by delivering a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Holding Company the total option
price in cash and, if desired, the amount of any taxes to be withheld
from the Optionee's compensation as a result of any withholding tax
obligation of the Holding Company or any of its Subsidiaries, as
specified in such notice, or (iii) beginning on a date which is three
years following Lincoln's conversion from mutual to stock form and
with the approval of the Committee, by tendering whole shares of the
Holding Company's Common Stock owned by the Optionee and cash having a
fair market value equal to the cash exercise price of the shares with
respect to which the option is being exercised. For this purpose, any
shares so tendered by an Optionee shall be deemed to have a fair
market value equal to the mean between the highest and lowest quoted
selling prices for the shares on the date of exercise of the option
(or if there were no sales on such date the weighted average of the
means between the highest and lowest quoted selling prices for the
shares on the nearest date before and the nearest after the date of
exercise of the option as prescribed by Treas. Reg. ss. 20-2031-2), as
reported in The Wall Street Journal or a similar publication selected
by the Committee. The Committee shall have the authority to grant
options exercisable in full at any time during their term, or
exercisable in such installments at such times during their term as
the Committee may determine; provided, however, that options shall not
be exercisable during the first six (6) months of their term, and
provided further that options shall become exercisable no earlier than
at the rate of 20% per year beginning on the anniversary of the date
of grant of such options, subject to earlier vesting in the event of
death or disability. Installments not purchased in earlier periods
shall be cumulated and be available for purchase in later periods.
Subject to the other provisions of this Plan, an option may be
exercised at any time or from time to time during the term of the
option as to any or all whole shares which have become subject to
purchase pursuant to the terms of the option or the Plan, but not at
any time as to fewer than one hundred (100) shares unless the
remaining shares which have become subject to purchase are fewer than
one hundred (100) shares. An option may be exercised only by written
notice to the Holding Company, mailed to the attention of its
Secretary, signed by the Optionee (or such other person or persons as
shall demonstrate to the Holding Company his or their right to
exercise the option), specifying the number of shares in respect of
which it is being exercised, and accompanied by payment in full in
either cash or by check in the amount of the aggregate purchase price
therefor, by delivery of the irrevocable broker instructions referred
to above, or, if the Committee has approved the use of the stock swap
feature provided for above, followed as soon as practicable by the
delivery of the option price for such shares.
(d) Certificates. The certificate or certificates for the shares
issuable upon an exercise of an option shall be issued as promptly as
practicable after such exercise. An Optionee shall not have any rights
of a shareholder in respect to the shares of stock subject to an
option until the date of issuance of a stock certificate to him for
such shares. In no case may a fraction of a share be purchased or
issued under the Plan, but if, upon the exercise of an option, a
fractional share would otherwise be issuable, the Holding Company
shall pay cash in lieu thereof.
(e) Termination of Option. If an Optionee (other than a director
or director emeritus of the Holding Company or its Subsidiaries who is
not an employee of the Holding Company or its Subsidiaries ("Outside
Director")) ceases to be an employee of the Holding Company and the
Subsidiaries for any reason other than retirement, permanent and total
disability (within the meaning of ss. 22(e)(3) of the Code), or death,
any option granted to him shall forthwith terminate. Leave of absence
approved by the Committee shall not constitute cessation of
employment. If an Optionee (other than an Outside Director) ceases to
be an employee of the Holding Company and the Subsidiaries by reason
of retirement, any option granted to him may be exercised by him in
whole or in part within three (3) years after the date of his
retirement, to the extent the option was otherwise exercisable at the
date of his retirement; provided, however, that if such employee
remains a director or director emeritus of the Holding Company, the
option granted to him shall continue to vest while he serves as a
director or director emeritus and may be exercised by him in whole or
in part until the later of (a) three (3) years after the date of his
retirement, or (b) six months after his service as a director or
director emeritus of the Holding Company terminates. (The term
"retirement" as used herein means such termination of employment as
shall entitle such individual to early or normal retirement benefits
under any then existing pension plan of the Holding Company or a
Subsidiary.) If an Optionee (other than an Outside Director) ceases to
be an employee of the Holding Company and the Subsidiaries by reason
of permanent and total disability (within the meaning of ss. 22(e)(3)
of the Code), any option granted to him may be exercised by him in
whole or in part within one (1) year after the date of his termination
of employment by reason of such disability whether or not the option
was otherwise exercisable at the date of such termination. Options
granted to Outside Directors shall cease to be exercisable six (6)
months after the date such Outside Director is no longer a director or
director emeritus of the Holding Company or its Subsidiaries for any
reason other than death or disability. If an Optionee who is an
Outside Director ceases to be a director or a director emeritus of the
Holding Company or its Subsidiaries by reason of disability, any
option granted to him may be exercised in whole or in part within one
(1) year after the date the Optionee ceases to be a director or a
director emeritus by reason of such disability, whether or not the
option was otherwise exercisable at such date. In the event of the
death of an Optionee while in the employ or service as a director or
director emeritus of the Holding Company or a Subsidiary, or, if the
Optionee is not an Outside Director, within three (3) years after the
date of his retirement (or, if later, six months following his
termination of service as a director or director emeritus of the
Holding Company or its Subsidiaries) or within one (1) year after the
termination of his employment by reason of permanent and total
disability (within the meaning of ss. 22(e)(3) of the Code), or, if
the Optionee is an Outside Director, within six (6) months after he is
no longer a director or director emeritus of the Holding Company or
its Subsidiaries for reasons other than disability or, within one (1)
year after the termination of his service by reason of disability, any
option granted to him may be exercised in whole or in part at any time
within one (1) year after the date of such death by the executor or
administrator of his estate or by the person or persons entitled to
the option by will or by applicable laws of descent and distribution
until the expiration of the option term as fixed by the Committee,
whether or not the option was otherwise exercisable at the date of his
death. Notwithstanding the foregoing provisions of this subsection
(e), no option shall in any event be exercisable after the expiration
of the period fixed by the Committee in accordance with subsection (b)
above.
(f) Nontransferability of Option. No option may be transferred by
the Optionee otherwise than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder, and during the lifetime of the
Optionee options shall be exercisable only by the Optionee or his
guardian or legal representative.
(g) No Right to Continued Service. Nothing in this Plan or in any
agreement entered into pursuant hereto shall confer on any person any
right to continue in the employ or service of the Holding Company or
its Subsidiaries or affect any rights the Holding Company, a
Subsidiary, or the shareholders of the Holding Company may have to
terminate his service at any time.
(h) Maximum Incentive Stock Options. The aggregate fair market
value of stock with respect to which incentive stock options (within
the meaning of ss. 422A of the Code) are exercisable for the first
time by an Optionee during any calendar year under the Plan or any
other plan of the Holding Company or its Subsidiaries shall not exceed
$100,000. For this purpose, the fair market value of such shares shall
be determined as of the date the option is granted and shall be
computed in such manner as shall be determined by the Committee,
consistent with the requirements of ss. 422A of the Code.
(i) Agreement. Each option shall be evidenced by an agreement
between the Optionee and the Holding Company which shall provide,
among other things, that, with respect to incentive stock options, the
Optionee will advise the Holding Company immediately upon any sale or
transfer of the shares of Common Stock received upon exercise of the
option to the extent such sale or transfer takes place prior to the
later of (a) two (2) years from the date of grant or (b) one (1) year
from the date of exercise.
(j) Investment Representations. Unless the shares subject to an
option are registered under applicable federal and state securities
laws, each Optionee by accepting an option shall be deemed to agree
for himself and his legal representatives that any option granted to
him and any and all shares of Common Stock purchased upon the exercise
of the option shall be acquired for investment and not with a view to,
or for the sale in connection with, any distribution thereof, and each
notice of the exercise of any portion of an option shall be
accompanied by a representation in writing, signed by the Optionee or
his legal representatives, as the case may be, that the shares of
Common Stock are being acquired in good faith for investment and not
with a view to, or for sale in connection with, any distribution
thereof (except in case of the Optionee's legal representatives for
distribution, but not for sale, to his legal heirs, legatees and other
testamentary beneficiaries). Any shares issued pursuant to an exercise
of an option may bear a legend evidencing such representations and
restrictions.
6. Incentive Stock Options and Non-Qualified Stock Options. Options
granted under the Plan may be incentive stock options under ss. 422A of the Code
or non-qualified stock options, provided, however, that Outside Directors shall
be granted only non-qualified stock options. All options granted hereunder will
be clearly identified as either incentive stock options or non-qualified stock
options. In no event will the exercise of an incentive stock option affect the
right to exercise any non-qualified stock option, nor shall the exercise of any
non-qualified stock option affect the right to exercise any incentive stock
option. Nothing in this Plan shall be construed to prohibit the grant of
incentive stock options and non-qualified stock options to the same person,
provided, further, that incentive stock options and non-qualified stock options
shall not be granted in a manner whereby the exercise of one non-qualified stock
option or incentive stock option affects the exercisability of the other.
7. Adjustment of Shares. In the event of any change after the effective
date of the Plan in the outstanding stock of the Holding Company by reason of
any reorganization, recapitalization, stock split, stock dividend, combination
of shares, exchange of shares, merger or consolidation, liquidation,
extraordinary distribution (consisting of cash, securities, or other assets), or
any other change after the effective date of the Plan in the nature of the
shares of stock of the Holding Company, the Committee shall determine what
changes, if any, are appropriate in the number and kind of shares reserved under
the Plan, and the Committee shall determine what changes, if any, are
appropriate in the option price under and the number and kind of shares covered
by outstanding options granted under the Plan. Any determination of the
Committee hereunder shall be conclusive.
8. Tax Withholding. Whenever the Holding Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the Holding
Company shall have the right to require the Optionee or his or her legal
representative to remit to the Holding Company an amount sufficient to satisfy
any federal, state and/or local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares, and whenever under
the Plan payments are to be made in cash, such payments shall be net of an
amount sufficient to satisfy any federal, state and/or local withholding tax
requirements. If permitted by the Committee and pursuant to procedures
established by the Committee, an Optionee may make a written election to have
shares of Common Stock having an aggregate fair market value, as determined by
the Committee, consistent with the requirements of Treas. Reg. ss. 20.2031-2,
sufficient to satisfy the applicable withholding taxes, withheld from the shares
otherwise to be received upon the exercise of a non-qualified option.
9. Amendment. Subject to Section 13, the Board of Directors of the
Holding Company may amend the Plan from time to time and, with the consent of
the Optionee, the terms and provisions of his option, except that without the
approval of the holders of at least a majority of the shares of the Holding
Company voting in person or by proxy at a duly constituted meeting or
adjournment thereof:
(a) the number of shares of stock which may be reserved for
issuance under the Plan may not be increased except as provided in
Section 7 hereof;
(b) the period during which an option may be exercised may not be
extended beyond ten (10) years and one day from the date on which such
option was granted; and
(c) the class of persons to whom options may be granted under the
Plan shall not be modified materially.
No amendment of the Plan, however, may, without the consent of the
Optionees, make any changes in any outstanding options theretofore granted under
the Plan which would adversely affect the rights of such Optionees.
10. Termination. The Board of Directors of the Holding Company may
terminate the Plan at any time and no option shall be granted thereafter. Such
termination, however, shall not affect the validity of any option theretofore
granted under the Plan. In any event, no incentive stock option may be granted
under the Plan after the date which is ten (10) years from the effective date of
the Plan.
11. Successors. This Plan shall be binding upon the successors and
assigns of the Holding Company.
12. Governing Law. The terms of any options granted hereunder and the
rights and obligations hereunder of the Holding Company, the Optionees and their
successors in interest shall, except to the extent governed by federal law, be
governed by Indiana law.
13. Government and Other Regulations. The obligations of the Holding
Company to issue or transfer and deliver shares under options granted under the
Plan shall be subject to compliance with all applicable laws, governmental rules
and regulations (including Office of Thrift and Supervision regulations), and
administrative action. In particular, grants of stock options under the Plan
shall comply with the requirements of 12. C.F.R. ss. 563b.3(g)(4)(vi), to the
extent applicable to such grants.
14. Effective Date. The Plan shall become effective on the date it is
approved by the holders of at least a majority of the shares of the Holding
Company entitled to vote at a duly constituted meeting or adjournment thereof.
The options granted pursuant to the Plan may not be exercised until the Board of
Directors of the Holding Company has been advised by counsel that such approval
has been obtained and all other applicable legal requirements have been met.
LINCOLN FEDERAL SAVINGS BANK
RECOGNITION AND RETENTION PLAN AND TRUST
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Lincoln Federal Savings Bank hereby establishes the Recognition and
Retention Plan (the "Plan") and Trust (the "Trust") upon the terms and
conditions hereinafter stated in this Recognition and Retention Plan and Trust
Agreement (the "Agreement").
1.02 The Trustee, which initially shall be _______________________________,
hereby accepts this Trust and agrees to hold the Trust assets existing on the
date of this Agreement and all additions and accretions thereto upon the terms
and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to retain directors and executive officers
in key positions by providing such persons with a proprietary interest in the
Holding Company (as hereinafter defined) as compensation for their contributions
to the Holding Company and to the Bank and its Affiliates (as hereinafter
defined) and as an incentive to make such contributions and to promote the
Holding Company's and the Bank's growth and profitability in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01 "Affiliate" means the Holding Company and those subsidiaries or
affiliates of the Holding Company or the Bank which, with the consent of the
Board, agree to participate in this Plan.
3.02 "Bank" means Lincoln Federal Savings Bank and its successors, whether
in mutual or stock form.
3.03 "Beneficiary" means the person or persons designated by a Recipient to
receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or, if none, his estate.
3.04 "Board" means the Board of Directors of the Bank.
3.05 "Committee" means the Stock Compensation Committee of the Board of
Directors of the Holding Company. At all times during its administration of this
Plan, the Committee shall consist of two or more directors of the Holding
Company, each of whom shall be a "Non-Employee Director" within the meaning of
the definition of that term contained in Regulation 16b-3 ("Rule 16b-3")
promulgated under the Securities Exchange Act of 1934, as amended (the "1934
Act").
3.06 "Common Stock" means shares of the common stock, without par value, of
the Holding Company.
3.07 "Conversion" shall mean the conversion of the Bank from the mutual to
stock form of organization and the simultaneous acquisition of the Bank by the
Holding Company.
3.08 "Director" means a member of the Board of Directors of the Bank or the
Holding Company.
3.09 "Director Emeritus" shall mean an honorary, non-voting member of the
Board of Directors of the Bank or the Holding Company.
3.10 "Disability" means any physical or mental impairment which qualifies
an Employee, Director or Director Emeritus for disability benefits under the
applicable long-term disability plan maintained by the Bank or an Affiliate, or,
if no such plan applies, which would qualify such Employee, Director or Director
Emeritus for disability benefits under the long-term disability plan maintained
by the Bank, if such Employee, Director or Director Emeritus were covered by
that Plan.
3.11 "Employee" means any person who is currently employed by the Bank or
an Affiliate, including officers.
3.12 "Holding Company" shall mean Lincoln Bancorp.
3.13 "Outside Director" means a member of the Board of Directors of the
Bank or the Holding Company, who is not also an Employee and who may be a
Director or Director Emeritus.
3.14 "Plan Shares" means shares of Common Stock held in the Trust and
issued or issuable to a Recipient pursuant to the Plan.
3.15 "Plan Share Award" or "Award" means a right granted under this Plan to
earn Plan Shares.
3.16 "Plan Share Reserve" means the shares of Common Stock held by the
Trustee pursuant to Sections 5.03 and 5.04.
3.17 "Recipient" means an Employee or Outside Director who receives a Plan
Share Award under the Plan.
3.18 "Trustee" means that person(s) or entity nominated by the Committee
and approved by the Board pursuant to Sections 4.01 and 4.02 to hold legal title
to the Plan assets for the purposes set forth herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and interpreted
by the Committee, which shall have all of the powers allocated to it in this and
other Sections of the Plan. The interpretation and construction by the Committee
of any provisions of the Plan or of any Plan Share Award granted hereunder shall
be final and binding. The Committee shall act by vote or written consent of a
majority of its members. Subject to the express provisions and limitations of
the Plan, the Committee may adopt such rules, regulations and procedures as it
deems appropriate for the conduct of its affairs. If permitted by applicable
law, the Committee, with the consent of Recipients, may change the vesting
schedule for Awards after the date of grant thereof. The Committee shall
recommend to the Board one or more persons or entities to act as Trustee in
accordance with the provisions of this Plan and Trust and the terms of Article
VIII hereof.
4.02 Role of the Board. The members of the Committee and the Trustee shall
be appointed or approved by, and will serve at the pleasure of, the Board of
Directors of the Holding Company. The Board of Directors of the Holding Company
may in its discretion from time to time remove members from, or add members to,
the Committee, and may remove, replace or add Trustees.
4.03 Limitation on Liability. Neither a Director nor the Committee nor the
Trustee shall be liable for any determination made in good faith with respect to
the Plan or any Plan Shares or Plan Share Awards granted under it. If a Director
or the Committee or any Trustee is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of anything done or
not done by him in such capacity under or with respect to the Plan, the Bank
shall indemnify such person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in the best interests of the
Bank and its Affiliates and, with respect to any criminal action or proceeding,
if he had no reasonable cause to believe his conduct was unlawful. The
indemnification of officers and directors of the Bank pursuant to this Section
4.03 shall be subject to 12 C.F.R. ss. 545.121.
ARTICLE V
CONTRIBUTION; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Bank shall be permitted to
contribute to the Trust an amount sufficient to purchase up to 4% of the shares
of Common Stock issued by the Holding Company in connection with the Conversion
(including any shares isued at the time of the Conversion to the private
foundation being created in connection with the Conversion). Such amounts shall
be paid to the Trustee no later than the date required to purchase shares of
Common Stock for Awards made under this Plan. No contributions by Employees or
Outside Directors shall be permitted.
5.02 Initial Investment. Any amounts held by the Trust until such amounts
are invested in accordance with Section 5.03, shall be invested by the Trustee
in such interest-bearing account or accounts at the Bank as the Trustee shall
determine to be appropriate.
5.03 Investment of Trust Assets; Creation of Plan Share Reserve. As soon as
practicable following the first shareholder meeting of the Holding Company
following the Conversion ("First Shareholder Meeting Date"), the Trustee shall
invest all of the Trust's assets exclusively in the number of shares of Common
Stock, designated by the Bank as subject to Awards made under the Plan, which
may be purchased directly from the Holding Company, on the open market, or from
any other source; provided, however that the Trust shall not invest in an amount
of Common Stock greater than 4.0% of the shares of the Common Stock sold in the
Conversion (including any shares issued at the time of the Conversion to the
private foundation being created in connection with the Conversion), which shall
constitute the "Plan Share Reserve" and provided, further that if the Trustee is
required to purchase such shares on the open market or from the Holding Company
for an amount per share greater than the price per share at which shares were
trading on the date the contributions therefor were made to the Trust, the Bank
shall have the discretion to reduce the number of shares to be awarded and
purchased. The Trust may hold cash in interest-bearing accounts pending
investment in Common Stock for periods of not more than one year after deposit.
The Trustee, in accordance with applicable rules and regulations and Section
5.01 hereof, shall purchase shares of Common Stock in the open market and/or
shall purchase authorized but unissued shares of the Common Stock from the
Holding Company sufficient to acquire the requisite percentage of shares. Any
earnings received or distributions paid with respect to Common Stock held in the
Plan Share Reserve shall be held in an interest-bearing account. Any earnings
received or distributions paid with respect to Common Stock subject to a Plan
Share Award shall be held in an interest-bearing account on behalf of the
individual Recipient.
5.04 Effect of Allocations, Returns and Forfeitures Upon Plan Share
Reserves. Upon the allocation of Plan Share Awards under Sections 6.02 and 6.03
after acquisition by the Trustee of such shares, or the decision of the
Committee to return Plan Shares to the Holding Company, the Plan Share Reserve
shall be reduced by the number of Plan Shares so allocated or returned. Any
shares subject to an Award which may not be earned because of a forfeiture by
the Recipient pursuant to Section 7.01 shall be returned (added) to the Plan
Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Employees and Outside Directors are eligible to receive
Plan Share Awards provided in Section 6.02.
6.02 Allocations. The Committee may determine which of the Employees and
Outside Directors referenced in Section 6.01 above will be granted Plan Share
Awards and the number of Plan Shares covered by each Award, including grants
effective upon the First Shareholder Meeting Date, provided, however, that the
number of Plan Shares covered by such Awards may not exceed the number of Plan
Shares in the Plan Share Reserve immediately prior to the grant of such Awards,
and provided further, that in no event shall any Awards be made which will
violate the Charter, Articles of Incorporation, Bylaws or Plan of Conversion of
the Holding Company or the Bank or any applicable federal or state law or
regulation and provided further that Awards may not be granted at any time in
which the Bank fails to meet its applicable minimum capital requirements. In the
event Plan Shares are forfeited for any reason and unless the Committee decides
to return the Plan Shares to the Holding Company, the Committee may, from time
to time, determine which of the Employees or Outside Directors referenced in
Section 6.01 above will be granted additional Plan Share Awards to be awarded
from forfeited Plan Shares. In selecting those Employees or Outside Directors to
whom Plan Share Awards will be granted and the number of Plan Shares covered by
such Awards, the Committee shall consider the position and responsibilities of
the eligible Employees or Outside Directors, the length and value of their
services to the Bank and its Affiliates, the compensation paid to such Employees
or Outside Directors, and any other factors the Committee may deem relevant.
6.03 Form of Allocation. As promptly as practicable after a determination
is made pursuant to Section 6.02 that a Plan Share Award is to be made, the
Committee shall notify the Recipient in writing of the grant of the Award, the
number of Plan Shares covered by the Award, and the terms upon which the Plan
Shares subject to the Award may be earned. The stock certificates for Plan Share
Awards shall be registered in the name of the Recipient until forfeited or
transferred to the Recipient after such Award has been earned. The Committee
shall maintain records as to all grants of Plan Share Awards under the Plan.
6.04 Allocations Not Required. Notwithstanding anything to the contrary in
Sections 6.01 and 6.02, no Employee or Outside Director shall have any right or
entitlement to receive a Plan Share Award hereunder, such Awards being at the
total discretion of the Committee, nor shall the Employees or Outside Directors
as a group have such a right. The Committee may, with the approval of the Board
(or, if so directed by the Board, shall) return all Common Stock in the Plan
Share Reserve not yet allocated to the Holding Company at any time, and cease
issuing Plan Share Awards.
6.05. Distribution Election Before Plan Shares Are Earned. Notwithstanding
anything contained in the Plan to the contrary, an Employee or an Outside
Director who has received an allocation of Plan Shares in accordance with
Article VI may request in writing that the Committee authorize the distribution
to him or her of all or a portion of the Plan Shares awarded before the date on
which the Plan Shares become earned in accordance with Article VII. The decision
as to whether to distribute to any Employee or Outside Director who requests
distribution shall be made by the Committee, in its sole discretion. In
addition, the distribution shall be subject to the following parameters:
(a) The Committee shall be required to make a separate determination
for each request received by an Employee or Outside Director for
distribution.
(b) Any Plan Shares awarded shall be required to have a legend on the
Plan Shares confirming that the Plan Shares are subject to
restriction and transfer in accordance with the terms set forth
in the Plan. This legend may not be removed until the date that
the Plan Shares become earned in accordance with Article VII.
(c) The Plan Shares distributed shall be voted by the Trustee in
accordance with Section 7.04.
(d) Any cash dividends or other cash distributions paid with respect
to the Plan Shares before the date that the Plan Shares are
earned shall be paid to the Trustee to be held for the Employee
or Outside Director, whichever is applicable, until the date that
the Plan Shares are earned.
(e) At the date on which the Plan Shares are earned, the Trustee may
withhold from any cash dividends or other cash distributions held
on behalf of such Employee or Outside Director the amount needed
to cover any applicable withholding and employment taxes arising
at the time that the Plan Shares are earned. If the amount of
such cash dividends or distributions is insufficient, the Trustee
may require the Employee or Outside Director to pay to the
Trustee the amount required to be withheld as a condition of
removing the legend on the Plan Shares.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earning Plan Shares; Forfeitures.
(a) General Rules. Plan Shares subject to an Award shall be earned by
a Recipient at the rate of twenty percent (20%) of the aggregate
number of Shares covered by the Award at the end of each full
twelve months of consecutive service with the Bank or an
Affiliate after the date of grant of the Award. If the term of
service of a Recipient terminates as an Employee, as a Director
and as a Director Emeritus prior to the fifth anniversary (or
such later date as the Committee shall determine) of the date of
grant of an Award for any reason (except as specifically provided
in Subsection (b) below or in Section 4.01 hereof), the Recipient
shall forfeit the right to earn any Shares subject to the Award
which have not theretofore been earned.
In determining the number of Plan Shares which are earned,
fractional shares shall be rounded down to the nearest whole
number, provided that such fractional shares shall be aggregated
and earned, on the fifth anniversary of the date of grant.
(b) Exception for Terminations due to Death and Disability.
Notwithstanding the general rule contained in Section 7.01(a)
above, all Plan Shares subject to a Plan Share Award held by a
Recipient whose term of service as an Employee and as a Director
or Director Emeritus with the Holding Company, Bank or an
Affiliate terminates due to death or Disability shall be deemed
earned as of the Recipient's last day of service with the Holding
Company, Bank or an Affiliate as a result of such death or
Disability.
(c) Revocation for Misconduct. Notwithstanding anything hereinafter
to the contrary, the Board may by resolution immediately revoke,
rescind and terminate any Plan Share Award, or portion thereof,
previously awarded under this Plan, to the extent Plan Shares
have not been delivered thereunder to the Recipient, whether or
not yet earned, in the case of an Employee who is discharged from
the employ of the Holding Company, Bank or an Affiliate for cause
(as hereinafter defined), or who is discovered after termination
of employment to have engaged in conduct that would have
justified termination for cause or, in the case of an Outside
Director who is removed from the Board of Directors of the Bank
and the Holding Company or an Affiliate for cause (as hereinafter
defined), or who is discovered after termination of service as an
Outside Director to have engaged in conduct which would have
justified removal for cause. "Cause" is defined as personal
dishonesty, willful misconduct, any breach of fiduciary duty
involving personal profit, intentional failure to perform stated
duties, or the willful violation of any law, rule, regulation
(other than traffic violations or similar offenses) or order
which results in a loss to the Holding Company, Bank or any
Affiliate or in a final cease and desist order.
7.02 Accrual of Dividends. Whenever Plan Shares are paid to a Recipient or
Beneficiary under Section 7.03, such Recipient or Beneficiary shall also be
entitled to receive, with respect to each Plan Share paid, an amount equal to
any cash dividends or cash distributions and a number of shares of Common Stock
or other assets equal to any stock dividends and any other assets distributions
declared and paid with respect to a share of Common Stock between the date the
Plan Shares are being distributed and the date the Plan Shares were granted.
There shall also be distributed an appropriate amount of net earnings, if any,
of the Trust with respect to any cash dividends or cash distributions so paid
out. Until the Plan Shares are vested and distributed to any such Recipient or
Beneficiary, such dividends, distributions and net earnings thereon, if any,
shall be retained by the Trust.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Plan Shares shall be
distributed to the Recipient or his Beneficiary, as the case may
be, as soon as practicable after they have been earned.
(b) Form of Distribution. All Plan Shares, together with any shares
representing stock dividends, shall be distributed in the form of
Common Stock. One share of Common Stock shall be given for each
Plan Share earned and payable. Payments representing accumulated
cash dividends and cash or other distributions (and earnings
thereon) shall be made in cash or in the form of such non-cash
distributions.
(c) Withholding. The Trustee may withhold from any payment or
distribution made under this Plan sufficient amounts of cash or
shares of Common Stock to cover any applicable withholding and
employment taxes, and if the amount of such payment is
insufficient, the Trustee may require the Recipient or
Beneficiary to pay to the Trustee the amount required to be
withheld as a condition of delivering the Plan Shares.
Alternatively, a Recipient may pay to the Trustee that amount of
cash necessary to be withheld in taxes in lieu of any withholding
of payments or distribution under the Plan. The Trustee shall pay
over to the Holding Company, the Bank or Affiliate which employs
or employed such Recipient any such amount withheld from or paid
by the Recipient or Beneficiary.
(d) Cessation of Payment. The Trustee shall cease payment of benefits
to Recipients or, if applicable, their Beneficiaries in the event
of the Bank's insolvency. The Bank shall be considered insolvent
for purposes of this RRP if the Bank is unable to pay its debts as
they become due or if a receiver is appointed for the Bank under
applicable law. If payments cease by reason of this subsection,
payments will be resumed, with appropriate make-up payments, once
the Bank ceases to be insolvent but only to the extent the
payments were not made directly by the Bank or its Affiliates.
7.04 Voting of Plan Shares. All shares of Common Stock held by the Trust
shall be voted by the Trustee, taking into account the best interests of the
Plan Share Award recipients.
ARTICLE VIII
TRUST
8.01 Trust. The Trustee shall receive, hold, administer, invest and make
distributions and disbursements from the Trust in accordance with the provisions
of the Plan and Trust and the applicable directions, rules, regulations,
procedures and policies established by the Committee pursuant to the Plan.
8.02 Management of Trust. It is the intent of this Plan and Trust that,
subject to the provisions of this Plan, the Trustee shall have complete
authority and discretion with respect to the management, control and investment
of the Trust, and that the Trustee shall invest all assets of the Trust, except
those attributable to cash dividends paid with respect to Plan Shares, in Common
Stock to the fullest extent practicable, and except to the extent that the
Trustee determines that the holding of monies in cash or cash equivalents is
necessary to meet the obligation of the Trust. Neither the Holding Company, the
Bank, nor any Affiliate shall exercise any direct or indirect control or
influence over the time when, or the prices at which, the Trustee may purchase
such shares, the number of shares to be purchased, the manner in which the
shares are to be purchased, or the broker (if any) through whom the purchases
may be executed. In performing its duties, the Trustee shall have the power to
do all things and execute such instruments as may be deemed necessary or proper,
including the following powers:
(a) To invest up to one hundred percent (100%) of all Trust assets in
Common Stock without regard to any law now or hereafter in force
limiting investments for Trustees or other fiduciaries. The
investment authorized herein and in paragraph (b) constitutes the
only investment of the Trust, and in making such investment, the
Trustee is authorized to purchase Common Stock from the Holding
Company or an Affiliate or from any other source and such Common
Stock so purchased may be outstanding, newly issued, or treasury
shares.
(b) To invest any Trust assets not otherwise invested in accordance
with (a) above in such deposit accounts, and certificates of
deposit (including those issued by the Bank), securities of any
open-end or closed-end management investment company or investment
trust registered under the Investment Company Act of 1940, whether
or not the Trustee or any affiliate of the Trustee is being
compensated for providing services to the investment company or
trust as investment advisor or otherwise, obligations of the
United States government or its agencies or such other investments
as shall be considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any time
held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that
such security is an asset of the Trust (but accurate records shall
be maintained showing that such security is an asset of the
Trust).
(e) To hold cash without interest in such amounts as may be in the
opinion of the Trustee reasonable for the proper operation of the
Plan and Trust and to hold cash pending investment.
(f) To employ brokers, agents, custodians, consultants and
accountants.
(g) To hire counsel to render advice with respect to their rights,
duties and obligations hereunder, and such other legal services
or representation as they may deem desirable.
(h) To hold funds and securities representing the amounts to be
distributed to a Recipient or his or her Beneficiary as a
consequence of a dispute as to the disposition thereof, whether
in a segregated account or held in common with other assets of
the Trust.
Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.
8.03 Records and Accounts. The Trustee shall maintain accurate and detailed
records and accounts of all transactions of the Trust, which shall be available
at all reasonable times for inspection by any legally entitled person or entity
to the extent required by applicable law, or any other person determined by the
Committee.
8.04 Earnings. All earnings, gains and losses with respect to Trust assets
shall be allocated, in accordance with a reasonable procedure adopted by the
Committee, to bookkeeping accounts for Recipients or to the general account of
the Trust, depending on the nature and allocation of the assets generating such
earnings, gains and losses. In particular, any earnings on cash dividends or
distributions received with respect to shares of Common Stock shall be allocated
to accounts for Recipients, if such shares are the subject of outstanding Plan
Share Awards, or otherwise to the Plan Share Reserve. Recipients (or their
Beneficiaries) shall not be entitled to any such allocations until the Plan
Share Awards to which they relate are vested and distributed to those Recipients
(or their Beneficiaries).
8.05 Expenses. All costs and expenses incurred in the operation and
administration of this Plan, including those incurred by the Trustee, shall be
borne by the Bank or the Holding Company.
8.06 Indemnification. The Bank shall indemnify, defend and hold the Trustee
harmless against all claims, expenses and liabilities arising out of or related
to the exercise of the Trustee's powers and the discharge of its duties
hereunder, unless the same shall be due to its negligence or willful misconduct.
ARTICLE IX
MISCELLANEOUS
9.01 Adjustments for Capital Changes. The aggregate number of Plan Shares
available for issuance pursuant to the Plan Share Awards (which, as of the
effective date of this Plan, shall not exceed 4% of the shares of the Holding
Company's Common Stock issued in the Conversion, including any shares issued at
the time of the Conversion to the private foundation being created in connection
with the Conversion), and the number of shares to which any Plan Share Award
relates shall be proportionately adjusted for any increase or decrease in the
total number of outstanding shares of Common Stock issued subsequent to the
effective date of the Plan resulting from any stock dividend or split,
recapitalization, merger, consolidation, spin-off, reorganization, combination
or exchange of shares, extraordinary cash or non-cash distribution, or other
similar capital adjustment, or other increase or decrease in such shares
effected without receipt or payment of consideration, by the Committee.
9.02 Amendment and Termination of Plan. The Board may, by resolution, at
any time amend or terminate the Plan. The power to amend or terminate shall
include the power to direct the Trustee to return to the Holding Company all or
any part of the assets of the Trust, including shares of Common Stock held in
the Plan Share Reserve, as well as shares of Common Stock and other assets
subject to Plan Share Awards but not yet earned by the Employees or Outside
Directors to whom they are allocated. However, the termination of the Trust
shall not affect a Recipient's right to the distribution of Common Stock
relating to Plan Share Awards already earned, including earnings thereon, in
accordance with the terms of this Plan and the grant by the Committee.
9.03 Nontransferable. Plan Share Awards and rights to Plan Shares shall not
be transferable by a Recipient other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Internal Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder, and
during the lifetime of the Recipient, Plan Shares may only be earned by and paid
to the Recipient who was notified in writing of the Award by the Committee
pursuant to Section 6.03. The assets of the RRP, prior to the distribution of
Plan Shares to a Recipient or his or her Beneficiary, shall be subject to the
claims of creditors of the Bank. Unless Plan Shares are distributed in
accordance with Section 6.05 or 7.03 to a Recipient or his or her Beneficiary,
such Recipient or, if applicable, Beneficiary shall not have any right in or
claim to any specific assets of the RRP or Trust and shall only be an unsecured
creditor of the Bank, nor shall the Holding Company or the Bank be subject to
any claim for benefits hereunder.
9.04 Employment Rights. Neither the Plan nor any grant of a Plan Share
Award or Plan Shares hereunder nor any action taken by the Trustee, the
Committee or the Board in connection with the Plan shall create any right on the
part of any Employee to continue in the employ of, or of any Outside Director to
continue in the service of, the Bank, the Holding Company or any Affiliate
thereof.
9.05 Voting and Dividend Rights. No Recipient shall have any voting or
dividend rights or other rights of a shareholder in respect of any Plan Shares
covered by a Plan Share Award, except as expressly provided in Sections 7.02 and
7.04 above, prior to the time said Plan Shares are actually distributed to him.
9.06 Governing Laws. The Plan and Trust shall be governed by the laws of
the State of Indiana, except to the extent governed by federal law, including
regulations of the Office of Thrift Supervision. In particular, grants of Plan
Share Awards under the Plan shall comply with the requirements of 12 C.F.R. ss.
563b.3(g)(4)(vi) to the extent applicable thereto.
9.07 Effective Date. This Plan shall be effective as of the date of its
approval by the shareholders of the Holding Company.
9.08 Term of Plan. This Plan shall remain in effect until the earlier of
(1) 21 years from the effective date of its adoption, (2) termination by the
Board, or (3) the distribution of all assets of the Trust. Termination of the
Plan shall not affect any Plan Share Awards previously granted, and such Awards
shall remain valid and in effect until they have been earned and paid, or by
their terms expire or are forfeited.
9.09 Tax Status of Trust. It is intended that the trust established hereby
be treated as a grantor trust of the Bank under the provisions of Section 671,
et seq., of the Internal Revenue Code of 1986, as amended.
9.10. Compensation. The Trustee shall be entitled to receive fair and
reasonable compensation for its services hereunder, as agreed to by the Trustee
and the Bank, and shall also be entitled to be reimbursed for all reasonable
out-of-pocket expenses, including, but not by way of limitation, legal,
actuarial and accounting expenses and all costs and expenses incurred in
prosecuting or defending any action concerning the Plan or the Trust or the
rights or responsibilities of any person hereunder, brought by or against the
Trustee. Such reasonable compensation and expenses shall be paid by the Bank or
the Holding Company.
9.11. Resignation of Trustee. The Trustee may resign at any time by giving
sixty (60) calendar days' prior written notice to the Bank, and the Trustee may
be removed, with or without cause, by the Bank on sixty (60) calendar days'
prior written notice to the Trustee. Such prior written notice may be waived by
the party entitled to receive it. Upon any such resignation or removal becoming
effective, the Trustee shall render to the Bank a written account of its
administration of the Plan and the Trust for the period since the last written
accounting and shall do all necessary acts to transfer the assets of the Trust
to the successor Trustee or Trustees.
EMPLOYMENT AGREEMENT
This Agreement, made and dated as of December , 1998, by and between
Lincoln Federal Savings Bank, a federal savings bank ("Employer"), and T. Tim
Unger, a resident of Hendricks County, Indiana ("Employee").
W I T N E S S E T H
WHEREAS, Employee is employed by Employer as its President and has made
valuable contributions to the profitability and financial strength of Employer;
WHEREAS, Employer desires to encourage Employee to continue to make
valuable contributions to Employer's business operations and not to seek or
accept employment elsewhere;
WHEREAS, Employee desires to be assured of a secure minimum
compensation from Employer for his services over a defined term;
WHEREAS, Employer desires to assure the continued services of Employee
on behalf of Employer on an objective and impartial basis and without
distraction or conflict of interest in the event of an attempt by any person to
obtain control of Employer or Lincoln Bancorp (the "Holding Company"), the
Indiana corporation which owns all of the issued and outstanding capital stock
of Employer;
WHEREAS, Employer recognizes that when faced with a proposal for a
change of control of Employer or the Holding Company, Employee will have a
significant role in helping the Boards of Directors assess the options and
advising the Boards of Directors on what is in the best interests of Employer,
the Holding Company, and its shareholders, and it is necessary for Employee to
be able to provide this advice and counsel without being influenced by the
uncertainties of his own situation;
WHEREAS, Employer desires to provide fair and reasonable benefits to
Employee on the terms and subject to the conditions set forth in this Agreement;
WHEREAS, Employer desires reasonable protection of its confidential
business and customer information which it has developed over the years at
substantial expense and assurance that Employee will not compete with Employer
for a reasonable period of time after termination of his employment with
Employer, except as otherwise provided herein.
NOW, THEREFORE, in consideration of these premises, the mutual
covenants and undertakings herein contained and the continued employment of
Employee by Employer as its President, Employer and Employee, each intending to
be legally bound, covenant and agree as follows:
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1. Upon the terms and subject to the conditions set forth in this
Agreement, Employer employs Employee as Employer's President, and Employee
accepts such employment.
2. Employee agrees to serve as Employer's President and to perform
such duties in that office as may reasonably be assigned to him by Employer's
Board of Directors; provided, however, that such duties shall be performed in or
from the offices of Employer currently located at Plainfield, Indiana, and shall
be of the same character as those previously performed by Employee and generally
associated with the office held by Employee. Employee shall not be required to
be absent from the location of the principal executive offices of Employer on
travel status or otherwise more than 45 days in any calendar year. Employer
shall not, without the written consent of Employee, relocate or transfer
Employee to a location more than 30 miles from Employer's primary office.
Employee shall render services to Employer as President in substantially the
same manner and to substantially the same extent as Employee rendered his
services to Employer before the date hereof. While employed by Employer,
Employee shall devote substantially all his business time and efforts to
Employer's business during regular business hours and shall not engage in any
other related business. Employer shall nominate the Employee to successive terms
as a member of Employer's Board of Directors and shall use its best efforts to
elect and re-elect Employee as a member of such Board.
3. The term of this Agreement shall begin on the date of completion of
the conversion of Employer from mutual to stock form (the "Effective Date") and
shall end on the date which is three years following such date; provided,
however, that such term shall be extended automatically for an additional year
on each anniversary of the Effective Date if Employer's Board of Directors
determines by resolution that the performance of the Employee has met the
Board's requirements and standards and that this Agreement should be extended
prior to such anniversary of the Effective Date, unless either party hereto
gives written notice to the other party not to so extend within ninety (90) days
prior to such anniversary, in which case no further automatic extension shall
occur and the term of this Agreement shall end two years subsequent to the
anniversary as of which the notice not to extend for an additional year is given
(such term, including any extension thereof shall herein be referred to as the
"Term").
4. Employee shall receive an annual salary of ("Base Compensation")
payable at regular intervals in accordance with Employer's normal payroll
practices now or hereafter in effect. Employer may consider and declare from
time to time increases in the salary it pays Employee and thereby increases in
his Base Compensation. Prior to a Change of Control, Employer may also declare
decreases in the salary it pays Employee if the operating results of Employer
are significantly less favorable than those for the fiscal year ending December
31, 1997, and Employer makes similar decreases in the salary it pays to other
executive officers of Employer. After a Change in Control, Employer shall
consider and declare salary increases based upon the following standards:
Inflation;
Adjustments to the salaries of other senior management personnel; and
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Past performance of Employee and the contribution which Employee makes
to the business and profits of Employer during the Term.
Any and all increases or decreases in Employee's salary pursuant to this section
shall cause the level of Base Compensation to be increased or decreased by the
amount of each such increase or decrease for purposes of this Agreement. The
increased or decreased level of Base Compensation as provided in this section
shall become the level of Base Compensation for the remainder of the Term of
this Agreement until there is a further increase or decrease in Base
Compensation as provided herein.
5. So long as Employee is employed by Employer pursuant to this
Agreement, he shall be included as a participant in all present and future
employee benefit, retirement, and compensation plans generally available to
employees of Employer, consistent with his Base Compensation and his position as
President of Employer, including, without limitation, Employer's or the Holding
Company's pension plan, 401(k) plan, Stock Option Plan, Recognition and
Retention Plan and Trust, Employee Stock Ownership Plan, and hospitalization,
disability and group life insurance plans, each of which Employer agrees to
continue in effect on terms no less favorable than those currently in effect as
of the date hereof (as permitted by law) during the Term of this Agreement
unless prior to a Change of Control the operating results of Employer are
significantly less favorable than those for the fiscal year ending December 31,
1997, and unless (either before or after a Change of Control) changes in the
accounting, legal, or tax treatment of such plans would adversely affect
Employer's operating results or financial condition in a material way, and the
Board of Directors of Employer or the Holding Company concludes that
modifications to such plans need to be made to avoid such adverse effects.
6. So long as Employee is employed by Employer pursuant to this
Agreement, Employee shall receive reimbursement from Employer for all reasonable
business expenses incurred in the course of his employment by Employer, upon
submission to Employer of written vouchers and statements for reimbursement.
Employee shall attend, upon the prior approval of Employer's Board of Directors,
those professional meetings, conventions, and/or similar functions that he deems
appropriate and useful for purposes of keeping abreast of current developments
in the industry and/or promoting the interests of Employer. So long as Employee
is employed by Employer pursuant to the terms of this Agreement, Employer shall
continue in effect vacation policies applicable to Employee no less favorable
from his point of view than those written vacation policies in effect on the
date hereof. So long as Employee is employed by Employer pursuant to this
Agreement, Employee shall be entitled to office space and working conditions no
less favorable than were in effect for him on the date hereof.
7. Subject to the respective continuing obligations of the parties,
including but not limited to those set forth in subsections 9(A), 9(B), 9(C) and
9(D) hereof, Employee's employment by Employer may be terminated prior to the
expiration of the Term of this Agreement as follows:
(A) Employer, by action of its Board of Directors and upon written
notice to Employee, may terminate Employee's employment with
Employer immediately for cause. For purposes of this
subsection 7(A), "cause" shall be defined as (i) personal
dishonesty, (ii) incompetence, (iii) willful misconduct, (iv)
breach of fiduciary duty involving
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<PAGE>
personal profit, (v) intentional failure to perform stated
duties, (vi) willful violation of any law, rule, or regulation
(other than traffic violations or similar offenses) or final
cease-and-desist order, or (vii) any material breach of any
provision of this Agreement.
(B) Employer, by action of its Board of Directors may terminate
Employee's employment with Employer without cause at any time;
provided, however, that the "date of termination" for purposes of
determining benefits payable to Employee under subsection 8(B)
hereof shall be the date which is 60 days after Employee receives
written notice of such termination.
(C) Employee, by written notice to Employer, may terminate his
employment with Employer immediately for cause. For purposes of
this subsection 7(C), "cause" shall be defined as (i) any action
by Employer's Board of Directors to remove the Employee as
President of Employer, except where the Employer's Board of
Directors properly acts to remove Employee from such office for
"cause" as defined in subsection 7(A) hereof, (ii) any action by
Employer's Board of Directors to materially limit, increase, or
modify Employee's duties and/or authority as President of
Employer, (iii) any failure of Employer to obtain the assumption
of the obligation to perform this Agreement by any successor or
the reaffirmation of such obligation by Employer, as contemplated
in section 20 hereof; or (iv) any material breach by Employer of
a term, condition or covenant of this Agreement.
(D) Employee, upon sixty (60) days written notice to Employer, may
terminate his employment with Employer without cause.
(E) Employee's employment with Employer shall terminate in the event
of Employee's death or disability. For purposes hereof,
"disability" shall be defined as Employee's inability by reason
of illness or other physical or mental incapacity to perform the
duties required by his employment for any consecutive One Hundred
Eighty (180) day period, provided that notice of any termination
by Employer because of Employee's "disability" shall have been
given to Employee prior to the full resumption by him of the
performance of such duties.
8. In the event of termination of Employee's employment with Employer
pursuant to section 7 hereof, compensation shall continue to be paid by Employer
to Employee as follows:
(A) In the event of termination pursuant to subsection 7(A) or 7(D),
compensation provided for herein (including Base Compensation)
shall continue to be paid, and Employee shall continue to
participate in the employee benefit, retirement, and compensation
plans and other perquisites as provided in sections 5 and 6
hereof, through the date of termination specified in the notice
of termination. Any benefits payable under insurance, health,
retirement and bonus plans as a result of Employee's
participation in such plans through such date shall be paid when
due under those plans. The date of termination specified in any
notice of termination pursuant to
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<PAGE>
subsection 7(A) shall be no later than the last business day of
the month in which such notice is provided to Employee.
(B) In the event of termination pursuant to subsection 7(B) or 7(C),
compensation provided for herein (including Base Compensation)
shall continue to be paid, and Employee shall continue to
participate in the employee benefit, retirement, and compensation
plans and other perquisites as provided in sections 5 and 6
hereof, through the date of termination specified in the notice
of termination. Any benefits payable under insurance, health,
retirement and bonus plans as a result of Employee's
participation in such plans through such date shall be paid when
due under those plans. In addition, Employee shall be entitled to
continue to receive from Employer his Base Compensation at the
rates in effect at the time of termination (1) for three
additional l2-month periods if the termination follows a Change
of Control or (2) for the remaining Term of the Agreement if the
termination does not follow a Change of Control. In addition,
during such periods, Employer will maintain in full force and
effect for the continued benefit of Employee each employee
welfare benefit plan and each employee pension benefit plan (as
such terms are defined in the Employee Retirement Income Security
Act of 1974, as amended) in which Employee was entitled to
participate immediately prior to the date of his termination,
unless an essentially equivalent and no less favorable benefit is
provided by a subsequent employer of Employee. If the terms of
any employee welfare benefit plan or employee pension benefit
plan of Employer do not permit continued participation by
Employee, Employer will arrange to provide to Employee a benefit
substantially similar to, and no less favorable than, the benefit
he was entitled to receive under such plan at the end of the
period of coverage. For purposes of this Agreement, a "Change of
Control" shall mean an acquisition of "control" of the Holding
Company or of Employer within the meaning of 12 C.F.R.ss.574.4(a)
(other than a change of control resulting from a trustee or other
fiduciary holding shares of Common Stock under an employee
benefit plan of the Holding Company or any of its subsidiaries).
Notwithstanding anything to the contrary in the foregoing, any
benefits payable under this subsection 8(B) shall be subject to
the limitations on severance benefits set forth in Regulatory
Bulletin 27a of the Office of Thrift Supervision, as in effect on
the Effective Date.
(C) In the event of termination pursuant to subsection 7(E),
compensation provided for herein (including Base Compensation)
shall continue to be paid, and Employee shall continue to
participate in the employee benefit, retirement, and compensation
plans and other perquisites as provided in sections 5 and 6
hereof, (i) in the event of Employee's death, through the date of
death, or (ii) in the event of Employee's disability, through the
date of proper notice of disability as required by subsection
7(E). Any benefits payable under insurance, health, retirement
and bonus plans as a result of Employer's participation in such
plans through such date shall be paid when due under those plans.
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<PAGE>
(D) Employer will permit Employee or his personal representative(s)
or heirs, during a period of three months following Employee's
termination of employment by Employer for the reasons set forth
in subsections 7(B) or (C), if such termination follows a Change
of Control, to require Employer, upon written request, to
purchase all outstanding stock options previously granted to
Employee under any Holding Company stock option plan then in
effect whether or not such options are then exercisable at a cash
purchase price equal to the amount by which the aggregate "fair
market value" of the shares subject to such options exceeds the
aggregate option price for such shares. For purposes of this
Agreement, the term "fair market value" shall mean the higher of
(1) the average of the highest asked prices for Holding Company
shares in the over-the-counter market as reported on the NASDAQ
system if the shares are traded on such system for the 30
business days preceding such termination, or (2) the average per
share price actually paid for the most highly priced 1% of the
Holding Company shares acquired in connection with the Change of
Control of the Holding Company by any person or group acquiring
such control.
9. In order to induce Employer to enter into this Agreement, Employee
hereby agrees as follows:
(A) While Employee is employed by Employer and for a period of three
years after termination of such employment for reasons other than
those set forth in subsections 7(B) or (C) of this Agreement,
Employee shall not divulge or furnish any trade secrets (as
defined in IND. CODEss. 24-2-3-2) of Employer or any confidential
information acquired by him while employed by Employer concerning
the policies, plans, procedures or customers of Employer to any
person, firm or corporation, other than Employer or upon its
written request, or use any such trade secret or confidential
information directly or indirectly for Employee's own benefit or
for the benefit of any person, firm or corporation other than
Employer, since such trade secrets and confidential information
are confidential and shall at all times remain the property of
Employer.
(B) For a period of three years after termination of Employee's
employment by Employer for reasons other than those set forth in
subsections 7(B) or (C) of this Agreement, Employee shall not
directly or indirectly provide banking or bank-related services
to or solicit the banking or bank-related business of any
customer of Employer at the time of such provision of services or
solicitation which Employee served either alone or with others
while employed by Employer in any city, town, borough, township,
village or other place in which Employee performed services for
Employer while employed by it, or assist any actual or potential
competitor of Employer to provide banking or bank-related
services to or solicit any such customer's banking or
bank-related business in any such place.
(C) While Employee is employed by Employer and for a period of one
year after termination of Employee's employment by Employer for
reasons other than those set forth in subsections 7(B) or (C) of
this Agreement, Employee shall not, directly or
-6-
<PAGE>
indirectly, as principal, agent, or trustee, or through the
agency of any corporation, partnership, trade association,
agent or agency, engage in any banking or bank-related
business which competes with the business of Employer as
conducted during Employee's employment by Employer within a
radius of twenty-five (25) miles of Employer's main office.
(D) If Employee's employment by Employer is terminated for reasons
other than those set forth in subsections 7(B) or (C) of this
Agreement, Employee will turn over immediately thereafter to
Employer all business correspondence, letters, papers,
reports, customers' lists, financial statements, credit
reports or other confidential information or documents of
Employer or its affiliates in the possession or control of
Employee, all of which writings are and will continue to be
the sole and exclusive property of Employer or its affiliates.
If Employee's employment by Employer is terminated during the Term of this
Agreement for reasons set forth in subsections 7(B) or (C) of this Agreement,
Employee shall have no obligations to Employer with respect to trade secrets,
confidential information or noncompetition under this section 9.
10. Any termination of Employee's employment with Employer as
contemplated by section 7 hereof, except in the circumstances of Employee's
death, shall be communicated by written "Notice of Termination" by the
terminating party to the other party hereto. Any "Notice of Termination"
pursuant to subsections 7(A), 7(C) or 7(E) shall indicate the specific
provisions of this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for such
termination.
11. If Employee is suspended and/or temporarily prohibited from
participating in the conduct of Employer's affairs by a notice served under
section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. ss.
1818(e)(3) or (g)(1)), Employer's obligations under this Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, Employer shall (i) pay Employee all
or part of the compensation withheld while its obligations under this Agreement
were suspended and (ii) reinstate (in whole or in part) any of its obligations
which were suspended.
12. If Employee is removed and/or permanently prohibited from
participating in the conduct of Employer's affairs by an order issued under
section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. ss.
1818(e)(4) or (g)(1)), all obligations of Employer under this Agreement shall
terminate as of the effective date of the order, but vested rights of the
parties to the Agreement shall not be affected.
13. If Employer is in default (as defined in section 3(x)(1) of the
Federal Deposit Insurance Act), all obligations under this Agreement shall
terminate as of the date of default, but this provision shall not affect any
vested rights of Employer or Employee.
-7-
<PAGE>
14. All obligations under this Agreement shall be terminated except to
the extent determined that the continuation of the Agreement is necessary for
the continued operation of Employer: (i) by the Director of the Office of Thrift
Supervision or his or her designee (the "Director"), at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of Employer under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act; or (ii) by the Director at the time the Director
approves a supervisory merger to resolve problems related to operation of
Employer or when Employer is determined by the Director to be in an unsafe and
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
15. Anything in this Agreement to the contrary notwithstanding, in the
event that the Employer's independent public accountants determine that any
payment by the Employer to or for the benefit of the Employee, whether paid or
payable pursuant to the terms of this Agreement, would be non-deductible by the
Employer for federal income tax purposes because of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), then the amount payable to or for
the benefit of the Employee pursuant to this Agreement shall be reduced (but not
below zero) to the Reduced Amount. For purposes of this section 15, the "Reduced
Amount" shall be the amount which maximizes the amount payable without causing
the payment to be non-deductible by the Employer because of Section 280G of the
Code. Any payments made to Employee pursuant to this Agreement or otherwise, are
subject to and conditional upon their compliance with 12 U.S.C. ss.1828(k) and
any regulations promulgated thereunder, to the extent applicable to such
parties.
16. If a dispute arises regarding the termination of Employee pursuant
to section 7 hereof or as to the interpretation or enforcement of this Agreement
and Employee obtains a final judgment in his favor in a court of competent
jurisdiction or his claim is settled by Employer prior to the rendering of a
judgment by such a court, all reasonable legal fees and expenses incurred by
Employee in contesting or disputing any such termination or seeking to obtain or
enforce any right or benefit provided for in this Agreement or otherwise
pursuing his claim shall be paid by Employer, to the extent permitted by law.
17. Should Employee die after termination of his employment with
Employer while any amounts are payable to him hereunder, this Agreement shall
inure to the benefit of and be enforceable by Employee's executors,
administrators, heirs, distributees, devisees and legatees and all amounts
payable hereunder shall be paid in accordance with the terms of this Agreement
to Employee's devisee, legatee or other designee or, if there is no such
designee, to his estate.
18. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Employee: T. Tim Unger
2028 Aspen Drive
Plainfield, Indiana 46168
If to Employer: Lincoln Federal Savings Bank
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<PAGE>
1121 E. Main Street
P.O. Box 510
Plainfield, Indiana 46168-0510
or to such address as either party hereto may have furnished to the other party
in writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
19. The validity, interpretation, and performance of this Agreement
shall be governed by the laws of the State of Indiana, except as otherwise
required by mandatory operation of federal law.
20. Employer shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business or assets of Employer, by agreement in form and substance
satisfactory to Employee to expressly assume and agree to perform this Agreement
in the same manner and same extent that Employer would be required to perform it
if no such succession had taken place. Failure of Employer to obtain such
agreement prior to the effectiveness of any such succession shall be a material
intentional breach of this Agreement and shall entitle Employee to terminate his
employment with Employer pursuant to subsection 7(C) hereof. As used in this
Agreement, "Employer" shall mean Employer as hereinbefore defined and any
successor to its business or assets as aforesaid.
21. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by Employee and Employer. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of dissimilar provisions or conditions at the same or any prior
subsequent time. No agreements or representation, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement.
22. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement which shall remain in full force and effect.
23. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same agreement.
24. This Agreement is personal in nature and neither party hereto
shall, without consent of the other, assign or transfer this Agreement or any
rights or obligations hereunder except as provided in section 17 and section 20
above. Without limiting the foregoing, Employee's right to receive compensation
hereunder shall not be assignable or transferable, whether by pledge, creation
of a security interest or otherwise, other than a transfer by his will or by the
laws of descent or distribution as set forth in section 17 hereof, and in the
event of any attempted assignment or transfer contrary to this paragraph,
Employer shall have no liability to pay any amounts so attempted to be assigned
or transferred.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused the Agreement to be
executed and delivered as of the day and year first above set forth.
LINCOLN FEDERAL SAVINGS BANK
By:
----------------------------------
John M. Baer
Chief Financial Officer
"Employer"
T. Tim Unger
"Employee"
The undersigned, Lincoln Bancorp, sole shareholder of Employer, agrees
that if it shall be determined for any reason that any obligations on the part
of Employer to continue to make any payments due under this Agreement to
Employee is unenforceable for any reason, Lincoln Bancorp, agrees to honor the
terms of this Agreement and continue to make any such payments due hereunder to
Employee pursuant to the terms of this Agreement.
LINCOLN BANCORP
By:
--------------------------------
John M. Baer
Chief Financial Officer
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LINCOLN FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST AGREEMENT
(EFFECTIVE JULY 1, 1998)
<PAGE>
LINCOLN FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST AGREEMENT
(EFFECTIVE JULY 1, 1998)
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS..............................................1
Section 1.1. Accrued Company Contributions Benefit.........1
Section 1.2. Act...........................................1
Section 1.3. Anniversary Date..............................1
Section 1.4. Annual Addition...............................1
Section 1.5. Bank..........................................1
Section 1.6. Beneficiary...................................2
Section 1.7. Change in Control.............................2
Section 1.8. Code..........................................2
Section 1.9. Committee.....................................2
Section 1.10. Company.......................................2
Section 1.11. Company Contributions Account.................2
Section 1.12. Compensation..................................2
Section 1.13. Date of Employment............................3
Section 1.14. Date of Separation............................3
Section 1.15. Deferred Retirement...........................3
Section 1.16. Deferred Retirement Date......................3
Section 1.17. Defined Benefit Fraction......................3
Section 1.18. Defined Contribution Fraction.................3
Section 1.19. Effective Date................................4
Section 1.20. Employee......................................4
Section 1.21. Exempt Loan...................................4
Section 1.22. Fund..........................................5
Section 1.23. Highly Compensated Employee...................5
Section 1.24. Holding Company...............................5
Section 1.25. Hour of Service...............................5
Section 1.26. Leave of Absence..............................6
Section 1.27. Normal Retirement.............................6
Section 1.28. Normal Retirement Date........................6
Section 1.29. One Year Service Break........................6
Section 1.30. Participant...................................6
Section 1.31. Period of Separation..........................6
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<PAGE>
Section 1.32. Period of Service.............................6
Section 1.33. Period of Severance...........................7
Section 1.34. Plan..........................................7
Section 1.35. Plan Year.....................................8
Section 1.36. Reemployed Individual.........................8
Section 1.37. Section 415 Compensation......................8
Section 1.38. Stock.........................................9
Section 1.39. Top Paid Group................................9
Section 1.40. Total Disability.............................10
Section 1.41. Trust........................................10
Section 1.42. Trustee......................................10
Section 1.43. Valuation Date...............................10
Section 1.44. Year of Service..............................10
ARTICLE II ELIGIBILITY AND PARTICIPATION...........................11
Section 2.1. Eligibility..................................11
Section 2.2. Entry Dates..................................11
Section 2.3. Certification by Company.....................11
Section 2.4. Deferred Retirement..........................11
ARTICLE III COMPANY CONTRIBUTIONS...................................12
Section 3.1. Company Contributions........................12
Section 3.2. Form of Contributions........................12
Section 3.3. Holding by Trustee...........................12
Section 3.4. Expenses.....................................12
Section 3.5. No Company Liability for Benefits. ..........12
Section 3.6. No Rollover Contributions....................12
ARTICLE IV ALLOCATION TO PARTICIPANTS' ACCOUNTS....................13
Section 4.1. Company Contributions Accounts...............13
Section 4.2. Allocation of Company Contributions..........13
Section 4.3. Limitations on Annual Additions..............13
Clause (a). Basic Limitations......................13
Clause (b). Participation in Other Plans...........14
Section 4.4. Effective Date of Allocations................14
Section 4.5. Cash Dividends...............................14
Section 4.6. Allocation of Forfeitures....................14
Section 4.7. Special Allocation Rules.....................15
Section 4.8. Rehire after Military Service................16
ARTICLE V VALUATIONS AND ADJUSTMENTS..............................16
Section 5.1. Valuation of Fund............................16
Clause (a). Valuations.............................16
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<PAGE>
Clause (b). Frequency..............................16
Clause (c). Records................................17
Section 5.2. Adjustments..................................17
Section 5.3. Amount of Adjustments........................17
Section 5.4. Effective Date of Adjustments................17
Section 5.5. Notice to Participants.......................18
ARTICLE VI BENEFITS...........................................18
Part A. Retirement Benefits................................18
Section 6.1. Retirement..............................18
Part B. Termination Benefits...............................18
Section 6.2. Effect of Termination...................18
Section 6.3. Vesting.................................18
Section 6.4. Payment.................................19
Part C. Death Benefits.....................................20
Section 6.5. Benefits upon Death.....................20
Section 6.6. Beneficiaries...........................20
Section 6.7. Lack of Beneficiaries...................20
Section 6.8. Termination or Retirement prior to Death20
Part D. General............................................20
Section 6.9. Date of Distribution....................20
Section 6.10. Form of Distribution....................21
Section 6.11. Liability...............................21
Section 6.12. Right of First Refusal..................22
Section 6.13. Put Options.............................22
Section 6.14. Eligible Rollover Distributions.........23
ARTICLE VII ADMINISTRATIVE COMMITTEE................24
Section 7.1. Establishment...........................24
Section 7.2. Duties..................................24
Section 7.3. Actions.................................24
Section 7.4. Disqualification........................24
Section 7.5. Powers..................................24
Section 7.6. Discrimination Prohibited...............25
Section 7.7. Statements and Forms....................25
Section 7.8. Liability...............................25
Section 7.9. Determination of Right to Benefits......25
Section 7.10. Investment Directions...................26
Section 7.11. Voting Power............................26
ARTICLE VIII THE TRUSTEE.............................26
Section 8.1. Assets Held in Trust....................26
Section 8.2. Investments.............................26
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<PAGE>
Section 8.3. Directions of Committee....................26
Section 8.4. Receipt of Additional Shares...............27
Section 8.5. Delivery of Materials to Committee.........27
Section 8.6. Powers.....................................27
Section 8.7. Loans to the Trust.........................28
Clause (a). Interest.............................28
Clause (b). Use of Proceeds......................28
Clause (c). Terms of Exempt Loan.................28
Clause (d). Collateral...........................29
Clause (e). Limited Recourse.....................29
Clause (f). Repayment............................29
Clause (g). Agreement by Companies...............29
Clause (h). Release of Collateral................29
Clause (i). Default..............................30
Clause (j). Termination of Plan..................30
Section 8.8. Annual Accounting..........................30
Section 8.9. Audit......................................30
Section 8.10. Uncertainty Concerning Payment of Benefits.30
Section 8.11. Compensation...............................31
Section 8.12. Standard of Care...........................31
Section 8.13. Request for Instructions...................31
Section 8.14. Resignation of Trustee.....................31
Section 8.15. Vacancies in Trusteeship...................32
Section 8.16. Information to Be Furnished................32
Section 8.17. Voting Rights of Participants..............32
Section 8.18. Delegation of Authority....................33
Section 8.19. Diversification of Company Contributions
Account................................33
Section 8.20. Tender Offer...............................33
ARTICLE IX AMENDMENT, TERMINATION AND MERGER...................34
Section 9.1. Amendment..................................34
Section 9.2. Termination or Complete
Discontinuance of Contributions.......34
Section 9.3. Determination by Internal Revenue Service..35
Section 9.4. Nonreversion...............................35
Section 9.5. Merger.....................................35
ARTICLE X MISCELLANEOUS.........................................36
Section 10.1. Creation of Plan Voluntary.................36
Section 10.2. No Employment Contract.....................36
Section 10.3. Limitation on Rights Created...............36
Section 10.4. Waiver of Claims...........................36
Section 10.5. Spendthrift Provision......................36
Section 10.6. Payment of Benefits to Others..............37
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<PAGE>
Section 10.7. Payments to Missing Persons................37
Section 10.8. Severability...............................37
Section 10.9. Captions...................................37
Section 10.10. Construction...............................37
Section 10.11. Counterparts...............................37
Section 10.12. Indemnification............................37
Section 10.13. Standards of Interpretation
and Administration....................38
Section 10.14. Governing Law..............................38
Section 10.15. Successors and Assigns.....................38
Section 10.16. Adoption of Plan...........................38
Section 10.17. Withdrawal from Plan.......................38
ARTICLE XI TEFRA TOP-HEAVY RULES.................................38
Section 11.1. Application................................38
Section 11.2. Determination..............................38
Section 11.3. Accrued Benefits...........................40
Section 11.4. Vesting Provisions.........................40
Section 11.5. Minimum Contribution.......................41
Section 11.6. Code Section 415 Limitations...............42
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<PAGE>
LINCOLN FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST AGREEMENT
(EFFECTIVE JULY 1, 1998)
ARTICLE I
DEFINITIONS
Section 1.1. "Accrued Company Contributions Benefit" shall mean the
balance of a Participant's Company Contributions Account as of the last
preceding Valuation Date.
Section 1.2. "Act" shall mean the Employee Retirement Income Security
Act of 1974, as now in effect or hereafter amended, and shall also include all
regulations promulgated thereunder.
Section 1.3. "Anniversary Date" shall mean the last calendar day of any
Plan Year.
Section 1.4. "Annual Addition" shall mean, with respect to any
Participant for any Plan Year and with respect to this Plan and to all other
qualified defined contribution plans maintained by a Company, the sum of:
(a) Company contributions credited to his Company Contributions
Account for that Plan Year under this Plan;
(b) that Participant's non-deductible contributions;
(c) forfeitures; and
(d) amounts allocated to an individual medical account as defined
in Section 415(1)(2) of the Code which is part of a qualified
defined benefit plan maintained by a Company shall be treated
as Annual Additions to a qualified defined contribution plan,
and amounts derived from Company contributions paid or accrued
in taxable years ending after such date which are attributable
to post-retirement medical benefits allocated to the separate
account of a key employee as defined in Section 416 of the
Code under a welfare benefit fund as defined in Section 419(e)
of the Code maintained by a Company shall also be treated as
Annual Additions to a qualified defined contribution plan.
Annual Additions shall not include any amounts allocated as income to a
Participant's Company Contributions Account in accordance with Section 8.7(j).
Section 1.5. "Bank" means the Lincoln Federal Savings Bank and any
successor thereto.
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Section 1.6. "Beneficiary" shall mean the person(s) entitled under the
provisions of Section 6.5 to receive benefits after the death of a Participant.
Section 1.7. "Change in Control" shall mean an acquisition of "control"
of the Holding Company or of the Bank within the meaning of 12 C.F.R. ss.
574.4(a) (other than a change of control resulting from a trustee or other
fiduciary holding shares of Stock under an employee benefit plan of the Holding
Company or any of its subsidiaries).
Section 1.8. "Code" shall mean the Internal Revenue Code of 1986, as
now in effect or hereafter amended, and shall also include all regulations
promulgated thereunder.
Section 1.9. "Committee" shall mean the administrative committee
appointed and acting in accordance with the provisions of Article VII. The
Committee shall be deemed to be the Plan Administrator for purposes of the Act.
Section 1.10. "Company" shall mean the Holding Company, the Bank, any
Company which becomes a participating employer pursuant to Section 10.16, and
any successors thereto. Solely for the purpose of:
(a) computing an Employee's Years of Service and Period of Service
to determine his eligibility to participate in and the vesting
of his benefits under this Plan;
(b) applying the limitations contained in Section 4.3;
(c) determining whether this Plan is a Top Heavy Plan under
Section 11.2 and, thus, subject to the provisions of Article
XI; and
(d) determining whether an Employee terminated his employment with
the Companies,
"Company" shall also include any entity which, together with a participating
Company, constitutes a member of a controlled group of corporations, a member of
a commonly controlled group of trades or businesses or a member of an affiliated
service group within the meaning of Section 414(b), Section 414(c) or Section
414(m) of the Code or any entity which is required to be aggregated with a
participating Company under Section 414(o) of the Code.
Section 1.11. "Company Contributions Account" shall mean the account
maintained for each Participant to which contributions made by the Companies
shall be allocated.
Section 1.12. "Compensation" shall mean the total of all amounts paid
or payable in cash by the Companies by reason of services performed by an
Employee during any period, including bonuses, overtime, any other cash payments
included on an Employee's W-2, amounts deferred by the Employee under any cash
or deferred arrangement maintained by a Company under Section 401(k) of the Code
and any salary reductions elected by the Employee pursuant to a salary reduction
plan
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maintained by a Company under Section 125 of the Code but excluding, with
respect to any Employee, any other amounts contributed by a Company for or on
account of that Employee under this Plan or under any other employee benefit
plan; provided, however, that Compensation in a Plan Year in excess of one
hundred and fifty thousand ($150,000), as adjusted pursuant to Section
401(a)(17) of the Code, shall be disregarded.
Section 1.13. "Date of Employment" means any date on which an Employee
first completes an Hour of Service.
Section 1.14. "Date of Separation" means the earlier of:
(a) the date an Employee's employment with the Companies
terminates by reason of a quit, discharge, retirement
(including disability retirement) or death; or
(b) the first anniversary of the first date of a period in which
the Employee remains absent from active employment with the
Companies for some reason other than a quit, discharge,
retirement, death, approved leave of absence or military
service.
Section 1.15. "Deferred Retirement" shall mean retirement after a
Participant's Normal Retirement Date in accordance with Section 2.4.
Section 1.16. "Deferred Retirement Date" shall mean the first (1st)
calendar day of the month after a Participant's Normal Retirement Date as of
which he retires or his employment with the Companies is terminated for any
reason other than his death.
Section 1.17. "Defined Benefit Fraction" shall mean for a given Plan
Year a fraction:
(a) the numerator of which is the projected annual benefit of a
Participant under all qualified defined benefit plans
maintained by a Company (determined as of the Anniversary Date
of that Plan Year), and
(b) the denominator of which is the lesser of:
(i) the product of one and twenty-five one hundredths
(1.25) multiplied by ninety thousand dollars
($90,000), as adjusted pursuant to Section
415(b)(1)(A) and (d)(1) of the Code, or
(ii) the product of one and four tenths (1.4) multiplied
by one hundred percent (100%) of that Participant's
average Section 415 Compensation for his three (3)
consecutive highest paid Years of Service with the
Companies.
Section 1.18. "Defined Contribution Fraction" shall mean for a given
Plan Year a fraction:
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(a) the numerator of which is the sum of the Annual Additions to a
Participant's accounts under all qualified defined
contribution plans maintained by a Company as of the
Anniversary Date of that Plan Year, and
(b) the denominator of which is the sum of the lesser of the
following amounts determined for that Plan Year and for each
prior year of service with the Companies:
(i) the product of one and twenty-five one hundredths
(1.25) multiplied by the dollar limit in effect for
that Plan Year pursuant to Section 415(c)(1)(A) of
the Code, or
(ii) the product of one and four tenths (1.4) multiplied
by twenty-five percent (25%) of that Participant's
Section 415 Compensation for that Plan Year.
Section 1.19. "Effective Date" shall mean July 1, 1998; provided,
however, that if prior to March 31, 1999, the Bank shall not have completed its
conversion from mutual to stock form, this Plan shall be null and void and any
shares of Stock and other assets held hereunder shall be returned to the
Companies.
Section 1.20. "Employee" shall mean any person employed by a Company,
and shall also include any individual deemed to be a leased employee (as defined
below) of the Companies but only to the extent required by the Code. For
purposes of this Plan, the term "leased employee" means any person (other than
an employee of the recipient) who pursuant to an agreement between the recipient
and any other person ("leasing organization") has performed services for the
recipient (or for the recipient and related persons determined in accordance
with Section 414(n)(6) of the Code) on a substantially full-time basis for a
period of at least one (1) year, and such services are performed under the
primary direction or control of the recipient employer; provided, however, that
a leased employee shall not be considered an employee of the recipient if (a)
such employee is covered by a money purchase pension plan providing a
nonintegrated employer contribution rate of at least ten percent (10%) of
Compensation, immediate participation and full and immediate vesting and (b)
leased employees do not constitute more than twenty percent (20%) of the
recipient's non-highly compensated workforce. A leased employee within the
meaning of Section 414(n)(2) of the Code shall become a Participant in the Plan
based on service as a leased employee only as provided in provisions of the Plan
other than this Section. Contributions or benefits provided a leased employee by
the leasing organization which are attributable to services performed for the
recipient employer shall be treated as provided by the recipient employer.
Section 1.21. "Exempt Loan" shall mean a loan made to this Plan by a
party in interest or disqualified person or a loan to this Plan which is
guaranteed by a party in interest or disqualified person, including a direct
loan of cash, a purchase-money transaction and an assumption of any obligation
of this Plan. For purposes of this definition, a guarantee shall include an
unsecured guarantee and the use of assets of a party in interest or disqualified
person as collateral for a loan even though the use of assets may not constitute
a guarantee under any applicable State laws.
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Section 1.22. "Fund" shall mean all cash, investments and other
properties held by the Trustee hereunder.
Section 1.23. "Highly Compensated Employee" shall include any Employee
described in Section 414(q) of the Code who:
(a) is a five percent (5%) or more owner (as then defined in
Section 416(i)(1) of the Code) of the Company at any time
during that Plan Year or the immediately preceding Plan Year;
or
(b) received more than eighty thousand dollars ($80,000), as
automatically adjusted pursuant to Sections 414(q)(1) and
415(d) of the Code without the necessity of any amendment to
the Plan, of Section 415 Compensation from the Company in the
immediately preceding Plan Year and was in the Top Paid Group
for that immediately preceding Plan Year.
For purposes of determining whether an Employee is a Highly
Compensated Employee and notwithstanding anything else
contained in this Section, the following rules shall apply:
(c) A former Employee shall be treated as a Highly Compensated
Employee if he was a Highly Compensated Employee in the Plan
Year during which his employment with the Company terminated
or in any Plan Year during which occurs or commencing after
his fifty-fifth (55th) birthday.
(d) Section 415 Compensation shall include any amount which is
contributed by the Company pursuant to a salary reduction
agreement and which is not includible in the gross income of
an Employee under Sections 125, 401(k), 402(a)(8),
402(h)(1)(B) and 403(b) of the Code.
(e) An Employee shall only be deemed to be a Highly Compensated
Employee to the extent required by the Code.
Section 1.24. "Holding Company" shall mean Lincoln Bancorp.
Section 1.25. "Hour of Service" shall mean:
(a) each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for a Company; these
hours shall be credited to the Employee for the computation
period or periods in which the duties are performed; and
(b) each hour for which an Employee is paid, or entitled to
payment, by a Company on account of a period of time during
which no duties are performed (irrespective of
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whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity (including disability
but excluding payments made because of Total Disability under
Section 6.3), layoff, jury duty, military duty or leave of
absence; no more than five hundred and one (501) Hours of
Service shall be credited under this Subsection (b) for any
single continuous period (whether or not such period occurs in
a single computation period); hours under this Subsection (b)
shall be calculated and credited pursuant to Section
2530.200b-2 of the Department of Labor Regulations which are
incorporated herein by this reference; and
(c) each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by a Company; the same
Hours of Service shall not be credited both under Subsection
1.25(a) or Subsection 1.25(b), as the case may be, and under
this Subsection 1.25(c); these hours shall be credited to the
Employee for the computation period or periods to which the
award or agreement pertains, rather than to the computation
period in which the award, agreement or payment is made.
Section 1.26. "Leave of Absence" shall mean a leave granted by a
Company, in accordance with rules uniformly applied to all Employees in a
non-discriminatory manner, for reasons of health, public service or other
satisfactory reasons.
Section 1.27. "Normal Retirement" shall mean retirement on a
Participant's Normal Retirement Date.
Section 1.28. "Normal Retirement Date" shall mean the first (1st)
calendar day of the month immediately following a Participant's sixty-fifth
(65th) birthday. A Participant's benefits under this Plan shall be fully vested
and non-forfeitable on and after the date he attains age sixty-five (65), which
is deemed to be the normal retirement age under this Plan, regardless of his
Period of Service and regardless of the vesting schedules in Section 6.3 and in
Section 11.4.
Section 1.29. "One Year Service Break" shall mean a consecutive twelve
(12) month Period of Severance.
Section 1.30. "Participant" shall mean any Employee who has commenced
participation in this Plan pursuant to Section 2.2. Participation in this Plan
shall continue until such time as the Participant has received all of the
benefits to which he is entitled under the terms of this Plan.
Section 1.31. "Period of Separation" means, for an Employee, the period
of time commencing with the date such Employee separates from service with the
Companies and ending with the date such Employee resumes his employment with the
Companies.
Section 1.32. "Period of Service" means, for an Employee, the period
commencing on the later of the following dates:
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(a) such Employee's Date of Employment; or
(b) the date on which such Employee's Employer is required to be
aggregated with the Company under Code Section 414(b), (c),
(m) or (o), whichever is applicable,
and ending on the date a Period of Severance begins, including any Period of
Separation of less than twelve (12) consecutive months; provided, however, that
in the case of any person who terminates his employment with the Employers but
later resumes his employment with the Companies, the Period of Service before
such resumption of employment shall be aggregated only if that person is a
Re-employed Individual.
Section 1.33. "Period of Severance" means, for an Employee, the period
of time commencing with the earlier of:
(a) the date on which such Employee terminates his employment with
the Companies by reason of quitting, retirement, death or
discharge, or
(b) the date twelve (12) consecutive months after the date a
person remains absent from service with the Companies (with or
without pay) for any reason other than quitting, retirement,
death or discharge,
and ending, in the case of an Employee who terminates his employment with the
Companies by reason other than death, with the date such Employee resumes his
employment with the Companies. Solely for purposes of determining whether a One
Year Service Break has occurred for participation and vesting purposes has
occurred, an Employee who is absent from work for maternity or paternity reasons
shall receive credit at least one (1) year. For purposes of this Section 1.32,
an absence from work for maternity and paternity reasons means an absence:
(c) by reason of the pregnancy of the Employee,
(d) by reason of the birth of a child of the Employee,
(e) by reason of the placement of a child with the Employee in
connection with the adoption of that child by the Employee, or
(f) for purposes of caring for such a child for the period
beginning immediately following such birth or placement.
Section 1.34. "Plan" shall mean the employee stock ownership plan and
trust established pursuant to the provisions of this Agreement, as amended from
time to time, which shall be known as the "Lincoln Federal Savings Bank Savings
Employee Stock Ownership Plan." This Plan is intended to be an employee stock
ownership plan under Section 4975(e)(7) of the Code and under Section 407(d)(6)
of the Act.
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Section 1.35. "Plan Year" shall mean the calendar year; provided,
however, that the initial Plan Year shall be a short Plan Year beginning on the
Effective Date and ending on December 31, 1998. The Plan Year shall also be the
limitation year for purposes of Section 415 of the Code for this Plan and for
all other qualified retirement plans maintained by a Company.
Section 1.36. "Re-employed Individual" shall mean a person who, after
having terminated his employment with the Companies, resumes his employment with
the Companies:
(a) with any vested interest in his Company Contributions Account
as provided in Section 6.3 or 11.4, or
(b) with no such vested interest but who resumes his employment
with the Companies either:
(i) before a One Year Service Break,
(ii) after a One Year Service Break but before his latest
Period of Severance equals or exceeds his Period of
Service, or
(iii) after a One Year Service Break but before the number
of his consecutive One Year Service Breaks equals or
exceeds the greater of five (5) or his Period of
Service.
Section 1.37. "Section 415 Compensation" shall mean with respect to any
Plan Year and shall:
(a) include amounts accrued to a Participant (regardless of
whether he was a Participant during the entire Plan Year and
regardless of whether in cash):
(i) as wages, salaries, fees for professional services
and other amounts received for personal services
actually rendered in the course of his employment
with the Companies including but not limited to
commissions, compensation for services on the basis
of a percentage of profits and bonuses;
(ii) for purposes of Subsection (a)(i) above, earned
income from sources outside the United States (as
defined in Section 911(b) of the Code), whether or
not excludible from gross income under Section 911 of
the Code or deductible under Section 913 of the Code;
(iii) amounts described in Sections 104(a)(3), 105(a) and
115(h) of the Code but only to the extent that these
amounts are includible in the gross income of that
Participant; and
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(iv) amounts paid or reimbursed by the Companies for
moving expenses incurred by that Participant, but
only to the extent that these amounts are not
deductible by that Participant under Section 217 of
the Code;
(v) amount not includible into income by reason of
Section 125 of 401(k) of the Code;
(b) not include:
(i) other contributions made by a Company to any plan of
deferred compensation to the extent that, before the
application of the Section 415 of the Code
limitations to that plan, the contributions are not
includible in the gross income of that Participant
for the taxable year in which contributed; in
addition, Company contributions made on behalf of
that Participant to a simplified employee pension
plan described in Section 408(k) of the Code shall
not be considered as Section 415 Compensation for the
Plan Year in which contributed; additionally, any
distributions from a plan of deferred compensation
shall not be considered as Section 415 Compensation,
regardless of whether such amounts are includible in
the gross income of that Participant when
distributed; however, any amounts received by that
Participant pursuant to an unfunded nonqualified plan
shall be considered as Section 415 Compensation in
the Plan Year in which such amounts are includible in
the gross income of that Participant; and
(ii) other amounts which receive special federal income
tax benefits, such as premiums for group term life
insurance (but only to the extent that the premiums
are not includible in the gross income of that
Participant);
provided, however, that Section 415 Compensation in a Plan Year in excess of one
hundred and fifty thousand ($150,000), as adjusted pursuant to Section
401(a)(17) of the Code, shall be disregarded. Notwithstanding anything in this
Section 1.37 to the contrary, for Plan Years beginning on or after January 1,
1998.
Section 1.38. "Stock" shall mean any duly-issued shares of common stock
of the Holding Company, without par value, which shares constitute employer
securities under Section 409(1) and Section 4975(e)(8) of the Code.
Section 1.39. "Top Paid Group" shall mean the Employees who are in the
top twenty percent (20%) of the Employees of the Company in terms of Section 415
Compensation for such Plan Year; provided, however, that for purposes of
determining the number of Employees to be included in the Top Paid Group, the
following Employees shall be excluded to the extent permitted by Section
414(q)(4) of the Code:
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(a) Employees who have not completed six (6) months of service
with the Group;
(b) Employees who normally work less than seventeen and one-half
(17 1/2) hours per week or less than six (6) months during a
Plan Year;
(c) Employees who have not attained age twenty-one (21);
(d) except as provided by regulations promulgated under the Code,
Employees who are covered by a collectively bargained
agreement; and
(e) Employees who are non-resident aliens and who receive no
earned income (within the meaning of Section 911(d)(2) of the
Code) from the Company which constitutes income from sources
in the United States (within the meaning of Section 861(a)(3)
of the Code).
Section 1.40. "Total Disability" shall mean a mental or physical
condition which, in the judgment of the Committee based upon medical reports and
other evidence satisfactory to the Committee, presumably permanently prevents a
Participant from satisfactorily performing his usual duties for his employing
Company or the duties of such other position or job which his employing Company
makes available to that Participant and for which that Participant is qualified
by reason of training, education or experience.
Section 1.41. "Trust" shall mean the employee stock ownership trust
established pursuant to the provisions of this Agreement, as amended from time
to time, which shall be known as the "Lincoln Federal Savings Bank Employee
Stock Ownership Trust."
Section 1.42. "Trustee" shall mean ____________________, and any
successors thereto.
Section 1.43. "Valuation Date" shall mean each December 31 and each
other date as of which the Committee shall cause the Trustee to determine the
value of the Trust assets as prescribed in Section 5.1.
Section 1.44. "Year of Service" shall mean for purposes of
participation the consecutive twelve (12) month period computed with reference
to the date on which the Employee first (1st) completes an Hour of Service and
any Plan Year beginning after such date during which twelve (12) month period an
Employee has completed at least one thousand (1,000) Hours of Service.
Notwithstanding the foregoing, periods of time during which an Employee or
Participant:
(a) is on an approved Leave of Absence continuing for a period of
not more than two (2) consecutive years; or
(b) is on military leave for training or service, or both, with
the Armed Forces of the United States under any form of law
requiring military service; provided, however,
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that he shall make application for re-employment by a Company
within ninety (90) calendar days after discharge or release
from such Armed Forces or from hospitalization continuing
after such discharge for a period of not more than one (1)
year;
shall also be credited towards his Years of Service and shall not constitute a
Break in Service for purposes of this Plan. A Participant's Years of Service
shall be calculated taking into account employment before the Effective Date.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
Section 2.1. Eligibility. Each Employee in the employ of a Company
shall become eligible to participate in this Plan on the date on which he
completes one (1) Year of Service or, if later, on the date on which he attains
age twenty-one (21).
Section 2.2. Entry Dates. Each Employee who was eligible to participate
under Section 2.1 on the Effective Date automatically became a Participant in
this Plan as of the Effective Date. Each other Employee shall become a
Participant in this Plan on the first day of January or July coincident with or
next following the first (1st) date on which he meets the eligibility
requirements of Section 2.1. A re-employed Employee who has once met the one (1)
Year of Service requirement for eligibility shall become (or, if formerly a
Participant, be reinstated as) a Participant in this Plan on his re-employment
date or, if later, on the first day of January or July coincident with or next
following the date he attains age twenty-one (21).
Section 2.3. Certification by Company. Not later than thirty (30)
calendar days after an Employee shall become a Participant in this Plan, his
employing Company shall certify such fact in writing to the Committee, together
with such additional facts regarding such Participant as the Committee may
request. Except as otherwise provided by the Act, each such certification shall
be final and conclusive and the Committee shall be entitled to rely thereon
without any investigation, but it may correct any errors discovered in any such
certificate.
Section 2.4. Deferred Retirement. A Participant who continues in the
employment of a Company after his Normal Retirement Date shall continue to
participate in this Plan, and contributions shall be allocated to his Company
Contributions Account as otherwise provided in this Plan. Any such Participant
who elects Deferred Retirement shall be entitled to benefits under this Plan
payable at his Deferred Retirement Date in the same manner as if he had retired
on his Normal Retirement Date; provided, however, that the deferral of benefit
payments after a Participant's Normal Retirement Date shall be permitted only to
the extent authorized by and in compliance with all requirements imposed under
Section 2530.203-3 of the Department of Labor Regulations which are incorporated
herein by reference.
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ARTICLE III
COMPANY CONTRIBUTIONS
Section 3.1. Company Contributions. For the initial Plan Year and for
each Plan Year thereafter, the Companies shall make contributions to the Trust
in one (1) or more installments in such amounts as the Board of Directors of the
Bank may determine.
If Company contributions are paid to the Trust by reason of a mistake
in fact made in good faith or a mistake made in good faith in determining the
deductibility of such Company contributions for federal income tax purposes
under Section 404 of the Code, such Company contributions may, except as
otherwise provided in Section 8.7, be returned to the Companies by the Trustee
(upon the written direction of the Committee) within one (1) year after the
payment to the Trust or after the date the federal income tax deduction is
denied, whichever is applicable.
Section 3.2. Form of Contributions. The Companies' contributions, if
any, for each Plan Year shall be paid to the Trustee either in cash or in Stock
valued at the fair market value thereof as of the date of the contribution (as
determined consistent with Section 5.1(a)) and within such period as is provided
for in Section 404 of the Code or any other statute of similar import or any
rule or regulations thereunder.
Section 3.3. Holding by Trustee. All contributions made by the
Companies under Section 3.1 shall be a part of the Fund and shall be held in
trust by the Trustee until distributed as provided in this Plan.
Section 3.4. Expenses. In addition to the contributions to be made
under Section 3.1, the Companies shall pay all reasonable expenses incident to
the operation of this Plan; in the event of any failure by the Companies to make
such payment, the same shall be a charge against and paid from the Fund but only
to the extent permitted under the Code and under the Act.
Section 3.5. No Company Liability for Benefits. The benefits under this
Plan shall be only such as can be provided by the Fund, and there shall be no
liability or obligation on the part of the Company to make any further
contributions or payments. Except as otherwise provided by the Act, no liability
for the payment of benefits under this Plan shall be imposed upon the Companies
or upon the officers, directors or shareholders of the Companies.
Section 3.6. No Rollover Contributions. Rollover contributions (within
the meaning of Section 402(a)(5) of the Code) shall not be permitted nor
accepted.
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ARTICLE IV
ALLOCATION TO PARTICIPANTS' ACCOUNTS
Section 4.1. Company Contributions Accounts. For purposes of allocating
the Company contributions, the Committee shall establish and maintain a separate
Company Contributions Account in the name of each Participant.
Section 4.2. Allocation of Company Contributions. Except as provided in
Section 4.7, the Company contributions for each Plan Year shall be allocated
among the Company Contributions Accounts of all Employees who were Participants
on the Anniversary Date of that Plan Year or whose employment with the Companies
terminated during that Plan Year on or after reaching age sixty (60) or because
of death or Total Disability or proportionately in the ratio that the
Compensation paid to such Participant, if any, for that Plan Year or since
becoming a Participant in this Plan if he became a Participant within that Plan
Year bears to the aggregate Compensation paid to all Participants for that Plan
Year or since becoming Participants in this Plan if they became Participants
within that Plan Year. To the extent cash dividends are applied to pay of an
Exempt Loan under Section 4.5 and notwithstanding anything contained herein to
the contrary, Company contributions shall first be applied towards crediting the
Participant's Company Contributions Account to which the cash dividends would
have been allocated before they are allocated under the preceding provisions of
this Section.
Section 4.3. Limitations on Annual Additions.
Clause (a). Basic Limitations. Notwithstanding any other
provision of this Plan, the maximum Annual Addition during any Plan Year for any
Participant under this Plan and under any other qualified defined contribution
plans maintained by the Companies shall in no event exceed the lesser of:
(i) twenty-five percent (25%) of that Participant's
Section 415 Compensation for that Plan Year, or
(ii) thirty thousand dollars ($30,000), as adjusted
pursuant to Section 415(c).
Any Company contributions which are applied by the Trustee (not later
than the due date, including extensions, for filing a Company's federal income
tax return for that Plan Year) to pay interest on an Exempt Loan shall not be
included as Annual Additions under this Section 4.3; provided, however, that the
provisions of this Section shall be applicable only in Plan Years for which not
more than one-third (1/3) of the Company contributions applied to pay principal
and interest on an Exempt Loan are allocated among Highly Compensated Employees.
The Committee may reallocate Company contributions in order to satisfy this
special limitation.
If due to a reasonable error in estimation of a Participant's
Compensation or due to the allocation of forfeitures these maximum Annual
Additions would be exceeded as to any Participant,
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any excess amount shall be used to reduce Company Contributions for that
Participant in the next, and succeeding, Plan Years. If that Participant was not
covered by this Plan at the Anniversary Date of that Plan Year, such excess
shall be reallocated among the Company Contributions Accounts of the other
Participants under Section 4.2 to the fullest extent possible without exceeding
the limitations with respect to any other Participant for that Plan Year. Any
excess amount which cannot be so allocated to any Participant's Company
Contributions Account by reason of these limitations shall be allocated under
this Section 4.3(a) for the next succeeding Plan Years (prior to the allocation
of Company Contributions for such succeeding Plan Years).
Clause (b). Participation in Other Plans. In any case in which
an Employee is a participant in one (1) or more qualified defined contribution
plans and in one (1) or more qualified defined benefit plans (as these terms are
defined in Section 415(k) of the Code) maintained by a Company and for Plan
Year, beginning before January 1, 2000, the sum of the Defined Benefit Fraction
and of the Defined Contribution Fraction, computed as of the Anniversary Date of
that Plan Year, shall not in any Plan Year beginning before January 1, 2000
exceed one (1.0).
Section 4.4. Effective Date of Allocations. For all purposes of this
Plan, allocations to the Participants' Company Contributions Accounts under this
Article shall be deemed to have been made on the Anniversary Date to which they
relate although they may actually be determined at some later date. The fact
that such allocations are made, however, shall not vest in any Participant or in
his spouse or other Beneficiary any right, title or interest in or to any part
of the Fund except at the times, to the extent and on the terms and conditions
specified in this Plan.
Section 4.5. Cash Dividends. Any cash dividends received by the Trustee
on Stock allocated to the Company Contributions Accounts of Participants shall
be credited to the applicable Participants' Company Contributions Accounts
unless the Bank, in its sole discretion, elects to pay the cash dividends
directly to the applicable Participants or directs the Trustee to pay the cash
dividends to the Participants (or, if applicable, their Beneficiaries) within
ninety (90) calendar days of the close of the Plan Year in which the cash
dividends were paid by the Holding Company to the Fund. Notwithstanding anything
contained in this Section to the contrary, the Bank may direct cash dividends,
including dividends on non-allocated shares, be applied to repay an Exempt Loan,
but only to the extent shares of Stock with an aggregate fair market value equal
to the amount of dividends so applied are allocated to the Company Contributions
Accounts of the applicable Participants and to the extent the cash dividends are
deductible under Section 404(k) of the Code.
Section 4.6. Allocation of Forfeitures. The Trustee, shall, as soon as
practicable following the Anniversary Date marking the close of each Plan Year,
allocate the forfeitures which have occurred in that Plan Year first to
reinstate any forfeitures of any reemployed Participant under Section 6.2 and
second, if any forfeitures are remaining after the reinstatements described
above are completed, among the Company Contributions Accounts of all Employees
who were or became Participants on the Anniversary Date of that Plan Year or
whose Years of Service terminated during that Plan Year on or after reaching age
sixty (60) or because of death or Total Disability on or after
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Normal Retirement. The forfeitures shall be allocated among such Accounts in the
same manner provided for under Section 4.2.
Section 4.7. Special Allocation Rules. Notwithstanding any other
provision in this Plan to the contrary, no Stock acquired by this Plan in a sale
to which Section 1042 of the Code applies may be allocated directly or
indirectly under this Plan:
(a) during the non-allocation period (as such term is defined
below), for the benefit of:
(i) any Participant who makes an election under Section
1042(a) of the Code with respect to Stock sold to
this Plan, or
(ii) any Participant who is related to the Participant
making the election under Section 1042(a) of the Code
or to the deceased Participant (within the meaning of
Section 267(b) of the Code); provided, however, that
this Subsection (a)(ii) shall not apply to any
Participant who is a lineal descendent of a
Participant as long as the aggregate amount allocated
to the benefit of all such lineal descendants during
the non-allocation period (as such term is defined
below) does not exceed more than five percent (5%) of
the Stock (or amounts allocated in lieu thereof) held
by this Plan which are attributable to the sale to
this Plan by any person related to such descendants
(within the meaning of Section 267(c)(4)) in a
transaction to which Section 1042 of the Code
applies,
or
(b) for the benefit of any Participant who owns (after the
application of the attribution rules contained in Section
318(a) of the Code, but disregarding Section 318(a)(2)(B)(i)
of the Code) more than twenty-five percent (25%) of:
(i) any class of the outstanding stock of the Holding
Company or of any other corporation which is a member
of a controlled group of corporations (within the
meaning of Section 409(1)(4) of the Code) which
includes the Holding Company, or
(ii) the total value of any class of outstanding stock of
the Holding Company or of any other corporation which
is a member of the controlled group of corporations
(within the meaning of Section 409(1)(4) of the Code)
which includes the Holding Company.
For purposes of this Section 4.7, the "non-allocation period" shall mean a
period beginning on the date of the sale of the stock to the Plan and ending on
the later of:
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(c) the date which is ten (10) years after the sale of the Stock
to this Plan to which Section 1042 of the Code applies, or
(d) the date of the Plan allocation of Stock attributable to the
final payment of any acquisition indebtedness incurred in
connection with a sale of such Stock to this Plan to which
Section 1042 of the Code applies.
For purposes of this Section 4.7 a Participant shall be deemed to be a
twenty-five percent (25%) or greater shareholder if such Participant owns more
than twenty-five percent (25%) of the shares at any time during a one (1) year
period ending:
(e) on the date of a sale of the Stock to this Plan to which
Section 1042 of the Code applies, or
(f) on the date as of which the Stock sold to this Plan through a
sale to which Section 1042 of the Code applies is allocated to
Participants.
The provisions contained in this Section 4.7 shall be interpreted consistent
with and in accordance with Section 409(n) of the Code.
Section 4.8. Rehire after Military Service. The provisions relating to
qualified retirement plans which are set forth in the Uniformed Services
Employment and Reemployment Rights Act of 1994 ("USERRA") are hereby
incorporated into, and made a part of, this Plan by reference. The Committee
shall apply the provisions of the USERRA with respect to any Participant who is
reemployed after completing covered military service in a manner consistent with
the USERRA and all other applicable law and regulations.
ARTICLE V
VALUATIONS AND ADJUSTMENTS
Section 5.1. Valuation of Fund.
Clause (a). Valuations. The Committee shall provide the
Trustee with a written valuation showing the fair market value of the Stock,
upon which valuation the Trustee may fully rely. For all purposes of this Plan,
fair market value shall be determined by an independent appraiser (as such term
is defined in Treasury Regulations promulgated under Section 170(a)(1) of the
Code) unless the Stock is readily tradeable on an established securities market
at the date of valuation. The Committee shall also direct the Trustee to
determine the fair market value of all other assets of the Fund on each
Valuation Date.
Clause (b). Frequency. The Fund shall be valued as soon as
practical after the Anniversary Date of each Plan Year and as soon as practical
after the removal or resignation of the Trustee on the basis of fair market
values determined as of the Anniversary Date of the Plan Year or
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as of the effective date of the resignation or removal of the Trustee,
respectively. The Committee may require valuation of the Fund on such other
dates as it may prescribe.
Clause (c). Records. Records of valuation of the Fund shall be
prepared by the Trustee in such manner and within such time after each Valuation
Date as may be prescribed in this Section 5.1, and such records shall be filed
with the Committee, including a written statement reflecting the value of the
assets and liabilities of the Fund and the receipts and disbursements of the
Fund since the last previous statement filed with the Committee. As to the fair
market value of Stock, the Trustee shall rely solely upon the most recent
valuation furnished by the Committee as provided in Section 5.1(a). If
information necessary to ascertain the fair market value of the Fund assets
other than Stock is not readily available to the Trustee or if the Trustee is
unable in its sole discretion fairly to determine the fair market value of the
other Fund assets, the Trustee may request the Committee in writing to instruct
the Trustee as to such values to be used for all purposes under this Plan; in
such event, the values as determined by the Committee shall be binding and
conclusive, except as otherwise provided by the Act. If the Committee shall fail
or refuse to instruct the Trustee as to such values within a reasonable time
after receipt of the Trustee's written request therefor, the Trustee may take
such action as it deems necessary or advisable to ascertain such values. Except
for the Trustee's negligence, willful misconduct or lack of good faith, upon the
expiration of ninety (90) calendar days from the filing of such records and
except as otherwise provided by the Act, the Trustee shall be forever released
and discharged from all liability and accountability to anyone with respect to
the propriety of its acts or transactions as set forth in such records unless
written objection is filed with the Trustee within the said ninety (90) calendar
day period by the Committee or by the Bank.
Section 5.2. Adjustments. As of each Valuation Date the Committee shall
cause the Trustee to allocate to each Participant's Company Contributions
Account, by credit thereto or deduction therefrom as the case may be, a
proportion of the increase or decrease in the fair market value of the Fund
since the last preceding Effective Date or Valuation Date. Such allocation shall
be made in the proportion that each Participant's Company Contributions Account
on such date bears to the total of all such Company Contributions Accounts on
such date.
Section 5.3. Amount of Adjustments. The increase or decrease in the
Fund to be allocated shall be the difference between:
(a) the fair market value of the Fund on the last preceding
Effective Date or Valuation Date (excluding any amounts
withdrawn from the Fund as of such Date for the payment of
benefits hereunder), and
(b) the fair market value of the Fund on the current Valuation
Date (including any amounts to be withdrawn from the Fund as
of such Date for the payment of benefits hereunder).
Section 5.4. Effective Date of Adjustments. For all purposes of this
Plan, allocations to the Participants' Company Contributions Accounts under this
Article shall be deemed to have been made
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on the Effective Date or Valuation Date to which they relate although they may
actually be determined at some later date. The fact that such allocations are
made, however, shall not vest in any Participant or in his spouse or other
Beneficiary any right, title or interest in or to any part of the Fund except at
the times, to the extent and on the terms and conditions specified in this Plan.
Section 5.5. Notice to Participants. Promptly after the allocations
herein described shall be completed, the Committee shall advise each Participant
in writing of the fair market value of the Stock and other Fund assets then
credited to his Company Contributions Account.
ARTICLE VI
BENEFITS
Part A. Retirement Benefits.
Section 6.1. Retirement. Each Participant who retires on his Normal
Retirement Date or Deferred Retirement Date by reason of his Total Disability or
whose employment is terminated on or after a Change in Control shall be entitled
to receive the entire balance credited to his Company Contributions Account as
of the Valuation Date coincidental with or immediately following such Retirement
Date plus any Company contributions to which he is entitled pursuant to Section
4.2 for the Plan Year in which his Normal Retirement or Deferred Retirement
occurs. Payment of such benefits shall be made in accordance with the provisions
of Section 6.10.
Part B. Termination Benefits.
Section 6.2. Effect of Termination. If a Participant's employment with
the Companies is terminated before his Normal Retirement Date for any reason
other than his death, Total Disability or before a Change in Control, that
Participant shall cease to be a Participant in this Plan and shall not be
entitled to any benefits under this Plan except as expressly provided in this
Part B.
Section 6.3. Vesting. Any Participant whose employment with the
Companies is terminated as set forth in Section 6.2 shall be entitled to a
percentage (as determined below) of the entire balance credited to his Company
Contributions Account as of the Valuation Date coincidental with or immediately
following the date of termination of his employment. The percentage of his
Company Contributions Account to which a terminated Participant is entitled
shall be determined on the basis of his Period of Service on such date of
termination of employment, as follows:
Period of Service Vested Percentage
Less than five (5) years 0
Five (5) years or more 100%
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Any portion of the terminated Participant's Company Contributions Account which
is not vested shall be treated as a forfeiture; provided, however, that such
forfeiture shall not be allocated to the other Plan Participants until the first
(1st) to occur of the following:
(a) that Participant's Period of Severance is at least five (5)
years; or
(b) that Participant's death;
provided, further, that if that Participant is reemployed prior to his
completion of a five (5) year Period of Severance, the forfeited amount shall be
reinstated as the beginning balance of that Participant's Company Contribution
Account. A Participant whose vested percentage of his Company Contributions
Account is zero (0) at the date of his termination of employment shall be deemed
to have received a distribution upon his termination of employment.
In the case of any Participant whose Period of Severance is at least
five (5) years, that Participant's pre-break service shall count in vesting of
his post-break Company Contributions Account balance only if either:
(a) that Participant has any nonforfeitable interest in his
Company Contributions Account balance at the time of his
separation from service with the Companies; or
(b) upon returning to service with a Company his Period of
Severance is less than five (5) or, if greater, less than his
Period of Service completed prior to his Period of Severance.
In the case of any Participant whose Period of Separation is at least
five (5) years, all service after such Period of Severance shall be disregarded
for the purpose of vesting the Company Contributions Account balance that
accrued before such Period of Severance.
Separate sub-accounts shall be maintained for that Participant's
pre-break and post-break Company Contributions Account. Both sub-accounts shall
share in the earnings and losses of the Fund.
Any Participant whose employment with the Companies is terminated
because of his Total Disability or on or after the date of a Change in Control
shall be entitled to his entire Company Contributions Account balance and shall
also be entitled to receive any Company contributions to which he is entitled
pursuant to Section 4.2 for the Plan Year in which his employment is so
terminated.
Section 6.4. Payment. All benefits payable under Part B shall be paid
in accordance with the provisions of Section 6.10.
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Part C. Death Benefits.
Section 6.5. Benefits upon Death. If the death of any Employee occurs
while he is still a Participant in this Plan and prior to his actual retirement
or other termination of employment with the Companies, the entire balance
credited to his Company Contributions Account as of the Valuation Date
coincidental with or immediately preceding the date of his death plus any
Company contributions to which he is entitled pursuant to Section 4.2 for the
Plan Year in which his death occurs shall be paid to the Beneficiary of that
deceased Participant in accordance with the provisions of Section 6.10.
Section 6.6. Beneficiaries. Each Participant shall notify the Committee
in writing of one (1) or more primary and contingent Beneficiaries to receive on
his death any benefits payable under this Part C. Each such Beneficiary
designation may be revoked, amended or changed by a Participant by like notice
in writing delivered to the Committee prior to his death. The Beneficiary
designation of any Participant who is married at the date such a designation is
made or changed shall be signed by that Participant's spouse and witnessed by
the Committee or by a Notary Public if it results in a designation of a
Beneficiary other than that Participant's spouse. Notwithstanding anything
contained in this Section to the contrary, the Beneficiary of a married
Participant shall be his spouse unless his spouse consents to the designation of
a non-spouse Beneficiary in a writing witnessed by the Committee or by a Notary
Public.
Section 6.7. Lack of Beneficiaries. Any portion of the amounts payable
under Section 6.5 which is undisposed of because all or some of the designated
Beneficiaries have predeceased a Participant or because of a Participant's
failure to designate a Beneficiary in writing prior to his death shall be paid
to the deceased Participant's surviving spouse, if any, and, if none, to the
deceased Participant's estate.
Section 6.8. Termination or Retirement prior to Death. On and after the
actual retirement of a Participant from the employ of the Companies or other
termination of his employment, the rights of such Participant and his spouse or
other Beneficiary to any benefits under this Part C shall cease and the benefits
payable to such Participant or to any person claiming through or under him shall
be limited to the benefits provided in Parts A or B of this Article.
Part D. General.
Section 6.9. Date of Distribution. Unless the Participant or, if
deceased, his Beneficiary, surviving spouse or estate, as the case may be,
otherwise elects, the payment of benefits to which any such person is entitled
shall begin not later than sixty (60) calendar days after the latest of the
Anniversary Date of the Plan Year in which:
(a) the Participant attains age sixty-five (65),
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(b) occurs the tenth (10th) anniversary of the date on which the
Participant initially became eligible to participate in this
Plan, or
(c) the Participant terminates his employment with the Companies;
provided, however, that the distribution of benefits to a Participant shall
commence on or before April 1 of the calendar year following the calendar year
during which that Participant attains age seventy and one-half (70 1/2) or, if
the Participant is not a five percent (5%) owner of a Company (within the
meaning of Section 416 of the Code) and if later, of the calendar year during
which his employment with the Company is terminated.
Section 6.10. Form of Distribution. The distributions provided under
this Article VI shall be made by the Trustee, as directed by the Participant or,
if deceased, his Beneficiary, in a single lump sum distribution of the amount to
be paid to the Participant or, if deceased, to his Beneficiary; provided,
however, that except as otherwise provided in Section 6.9, payment shall be made
as soon as practicable after the Plan Year during which the employment of the
Participant from the Companies terminated; provided, further, that in no event
shall payments to a deceased Participant's estate or to any Beneficiary other
than the surviving spouse of a deceased Participant extend more than five (5)
years after the date of the Participant's death. Notwithstanding the above, a
Participant whose Company Contributions Account at the initial distribution date
or at any subsequent distribution date (when aggregated with other
distributions) is greater than five thousand dollars ($5,000) effective on or
after January, may elect to defer the commencement of the distribution of his
Company Contributions Account to the date on which he attains age sixty-five
(65). Distributions under this Section 6.10 shall be distributed in Stock with
fractional share interests distributed in cash. If shares of Stock are
distributed and the shares of Stock available for distribution consist of more
than one (1) class of security, a distributee shall receive substantially the
same proportion of each such class.
If the Trust purchases shares of Stock from a Company shareholder who
is eligible to elect and so elects nonrecognition of gain under Section 1042 of
the Code in connection with such purchase and notwithstanding anything contained
herein to the contrary, no distribution that would be made within three (3)
years after the date of such purchase shall be made to a Participant before he
incurs a One Year Service Break, unless his employment with the Companies
terminates as a result of his Normal Retirement, Total Disability or death or
unless the distribution is made pursuant to Section 8.19.
Section 6.11. Liability. Any payment to a Participant or to that
Participant's legal representative, Beneficiary, surviving spouse or estate, in
accordance with the provisions of this Plan, shall to the extent thereof be in
full satisfaction of all claims hereunder against the Trustee, the Committee and
the Companies, any of whom may require such Participant, legal representative,
Beneficiary, surviving spouse or estate, as a condition precedent to such
payment, to execute a receipt and release therefor in such form as shall be
determined by the Trustee, the Committee or the Companies. The Companies do not
guarantee the Trust, the Participants or, if deceased, their
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Beneficiaries, surviving spouses or estates, as the case may be, against the
loss of or depreciation in value of any right or benefit that any of them may
acquire under the terms of this Plan.
Section 6.12. Right of First Refusal. If any recipient of shares of
Stock from this Plan elects at any time to sell all or any part of such shares,
the Trustee shall have a right of first refusal to purchase all or any part of
such shares of Stock for the Fund. The price to be paid by the Trustee for
shares of Stock purchased pursuant to this Section 6.12 shall be no less than
the greater of:
(a) the fair market value of such shares of Stock at the date of
their purchase, or
(b) the price offered to the recipient by another potential buyer
(other than a Company) making a good faith, bona fide offer to
buy such shares of Stock,
and the terms of the purchase may not be less favorable to the recipient than
the terms offered in the bona fide offer. This right of first refusal shall
lapse no later than fourteen (14) calendar days after the recipient gives
written notice to the Trustee that an offer by a third party to purchase his
shares of Stock has been received. The right of first refusal granted by this
Section 6.12 shall only exist if the Stock is not publicly traded within the
meaning of Treasury Regulations ss. 54.4975-7(b)(1)(iv).
Section 6.13. Put Options. The Holding Company shall issue a put option
to any Participant, Beneficiary, surviving spouse or estate of a deceased
Participant, or any other person (including distributees of an estate) to whom
shares of Stock distributed under this Plan may pass by reason of a
Participant's death (herein collectively referred to as the "Recipient"). This
put option shall permit the Recipient to sell such Stock to the Holding Company,
at any time during two (2) option periods, at the then fair market value. The
first put option period shall be a period of at least sixty (60) calendar days
beginning on the actual date of distribution of such Stock to the Recipient. The
second put option period shall be a period of at least sixty (60) calendar days
beginning after the determination of the fair market value of such Stock is made
by the Committee (and notice of same is given in writing to the Recipient) for
the next succeeding Plan Year. Such Recipient shall be deemed to have a put
option as herein provided with respect to the shares of Stock and may exercise
this put option by delivering to the Holding Company a written notice of his
election to sell such shares of Stock, or any portion thereof, together with the
certificates representing the shares of Stock to be sold duly endorsed for
transfer. The Holding Company shall be obligated to purchase the shares of
Stock, or the designated portion thereof, at their fair market value at the date
the put option is exercised; provided, however, that the Holding Company may
grant the Trustee an option to assume on behalf of this Plan and Trust the
Holding Company's rights and obligations with respect to the put option at the
date the put option is actually exercised by the Recipient. Except as
hereinafter provided, the Holding Company (or the Trustee, if it assumes the
Holding Company's obligation) shall pay for the shares of Stock so sold to it by
check within thirty (30) calendar days following the date of sale.
Notwithstanding anything contained herein to the contrary, the Holding Company
(or, if applicable, the Trustee) may pay the purchase price in substantially
equal periodic payments (not less frequently than annually) over a period
beginning not later than thirty (30) calendar days after the exercise of the put
option and not exceeding five (5) years as long as reasonable interest is paid
on
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the unpaid amounts and adequate security is provided to the Recipient. If the
Stock is readily tradeable on an established market on the date of distribution,
the put option granted by this Section 6.13 shall not exist; provided, however,
that if the Stock ceases to be publicly traded within either of the sixty (60)
day calendar periods as provided herein, the Holding Company shall notify the
Recipient in writing within a reasonable time after the Stock ceases to be so
publicly traded that the Stock shall be subject to the put option for the
remainder of the applicable sixty (60) day calendar period. If the date of
actual written notice to the Recipient by the Holding Company is later than ten
(10) calendar days after the Stock ceases to be so publicly traded, the put
option shall automatically be extended to the extent that the date on which
written notice is actually given to the Recipient is more than ten (10) calendar
days later.
Section 6.14. Eligible Rollover Distributions. Notwithstanding any
provision of the Plan to the contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect, at the time and in the
manner prescribed by the Committee, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover. For purposes of this Section, the following
terms shall have the meanings set forth below:
(a) Eligible rollover distribution: An eligible rollover distribution
is any distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include: (1)
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten (10) years or more; (2) any distribution to the extent
such distribution is required under Section 401(a)(9) of the Code; and (3) the
portion of any distribution that is not includible in gross income.
(b) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an eligible rollover distribution
to the surviving spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity.
(c) Distributee: A distributee includes an Employee or former Employee.
In addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is an alternate
payee under a qualified domestic relations order, as defined in Section 414(p)
of the Code, are distributees with regard to the interest of the spouse or
former spouse.
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ARTICLE VII
ADMINISTRATIVE COMMITTEE
Section 7.1. Establishment. The Committee shall consist of at least
three (3) members to be appointed by the Board of Directors of the Bank, and the
members shall hold office at the pleasure of such Board of Directors. The
members of the Committee shall be individuals and may, but need not, be
officers, shareholders or Directors of the Holding Company or the Bank,
Participants or Beneficiaries. The Bank may, at its sole discretion, designate
to serve as the Committee its Board of Directors as duly-constituted from time
to time.
Section 7.2. Duties. The Committee shall discharge its duties and
powers in conformance with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims. It shall have complete control of the
administration of this Plan and shall have all powers necessary or convenient to
enable it to exercise such control. In connection therewith, it may provide
rules and regulations, not inconsistent with the provisions hereof or with
requirements imposed under the Code or under the Act, for the administration of
this Plan and may from time to time amend or rescind such rules and regulations.
In addition, it may employ or appoint a secretary and such advisors, agents or
representatives as it may deem desirable and may consult with and employ counsel
(who may, but need not, be counsel to a Company or to the Trustee) or actuaries
with regard to any questions arising in connection with this Plan. All
reasonable expenses incurred by the Committee in connection with this Plan shall
be paid as provided in Section 3.4.
Section 7.3. Actions. The Committee may decide any questions hereunder
and may take or authorize or direct the taking of any action hereunder with the
approval of a majority of the members of the Committee. The approval of such
members, expressed from time to time by a vote at a meeting or in writing
without a meeting, shall constitute the action of the Committee and shall be
valid and effective for all purposes of this Plan. The fact that any member of
the Committee shall be a Participant, former Participant or Beneficiary shall
not disqualify or debar him from participating in any action or decision
affecting any class of Participants, former Participants or Beneficiaries, but
he shall not participate in any action or decision affecting his own separate
interest as a Participant, former Participant or Beneficiary.
Section 7.4. Disqualification. The fact that any member of the
Committee is a Director, shareholder or officer of a Company or a Participant or
Beneficiary shall not disqualify him from doing any act or thing which this Plan
authorizes or requires him to do as a member of the Committee (except as
otherwise provided in Section 7.3) or render him accountable for any allowance
or distribution or other pecuniary or material profit or advantage received by
him.
Section 7.5. Powers. The Committee shall have the power to construe
this Plan and to determine all questions of fact or law arising under it. It may
correct any defect, supply any omission or reconcile any inconsistency in this
Plan in such manner and to such extent as it may deem expedient and, except as
otherwise provided by the Act, it shall be the sole and final judge of such
expediency.
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Except as otherwise provided in Section 7.9, all acts and determinations of the
Committee made in good faith within the scope of its authority shall be final
and conclusive on all the parties hereto and on all Employees, Participants and
their Beneficiaries, surviving spouses or estates hereunder and shall not be
subject to appeal or review.
Section 7.6. Discrimination Prohibited. The Committee shall not take
any action or direct the Trustee to take any action with respect to any of the
benefits provided hereunder or otherwise in pursuance of the powers conferred
herein upon the Committee which would be discriminatory in favor of Employees
who are officers, Directors, shareholders, persons whose principal duties
consist of supervising the work of other Employees or Highly Compensated
Employees or which would result in benefiting one (1) Participant or group of
Participants at the expense of another or in discrimination as between
Participants similarly situated or in the application of different rules to
substantially-similar sets of facts.
Section 7.7. Statements and Forms. The Committee shall be authorized to
require of a Company and of any person claiming any rights hereunder a written
statement of any information or the execution of any forms or instruments it may
deem necessary or desirable for the administration of this Plan.
Section 7.8. Liability. Except as otherwise provided by the Act, no
member of the Committee shall be directly or indirectly responsible or under any
liability by reason of any action or default by him as a member of the Committee
or the exercise of or failure to exercise any power or discretion as such member
except for his own fraud or bad faith shown in the exercise of or failure to
exercise such power or discretion, and no member of the Committee shall be
liable in any way for the acts or defaults of any other member. The Committee
may consult with counsel (who may, but need not, be counsel to a Company or to
the Trustee) or accountants selected by it and, except as otherwise provided by
the Act, the opinion of such counsel or the recommendations of such accountants
shall be full and complete authority and protection for any action or conduct
pursued by the Committee in good faith and in accordance with such opinion or
recommendations.
Section 7.9. Determination of Right to Benefits. The Committee shall
make all determinations as to the right of any person to a benefit under the
provisions of this Plan. Any denial by the Committee of a claim for benefits
under this Plan by an Employee or, if deceased, by such Employee's spouse or
other Beneficiary, shall be stated in writing by the Committee and delivered or
mailed to the Employee, spouse or other Beneficiary, as the case may be, within
ninety (90) calendar days after receipt of such benefit claim by the Committee.
Such notice shall set forth the specific reasons for the denial and such
additional information as is required under Section 503 of the Act, written to
the best of the Committee's ability in a manner that may be understood without
legal or actuarial counsel. In addition, the Committee shall afford a reasonable
opportunity to any Employee, spouse or other Beneficiary, as the case may be,
whose claim for benefits has been denied, for a review of the decision denying
the claim in accordance with Section 503 of the Act.
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Section 7.10. Investment Directions. The Committee may direct the
investment of the Fund, by written directions to the Trustee, but such direction
shall not be inconsistent with the provisions of this Plan, of the Act or of the
Code.
Section 7.11. Voting Power. Except as otherwise provided in Section
8.17, the Committee shall be authorized to vote, either in person or by proxy,
the Stock or other securities which are held by the Trustee as part of the Fund.
ARTICLE VIII
THE TRUSTEE
Section 8.1. Assets Held in Trust. The Trustee shall hold the Fund and
shall accept and hold all contributions thereto and all investments and
reinvestments thereof in trust for the persons ultimately entitled thereto under
the terms of this Plan.
Section 8.2. Investments. This Plan is designed to invest primarily in
shares of Stock. Except as otherwise provided in this Plan, the Trustee shall
invest the cash contributed or accruing to the Fund in Stock and shall not make
any other investment for the Fund. There shall be no limit on the permissible
investment in shares of Stock. The Trustee may purchase such shares of Stock
from the Holding Company or from any other source, and such shares of Stock may
be outstanding, newly-issued or treasury shares. All such purchases shall be
made at fair market value (as determined consistent with Section 5.1(a)). If no
shares of Stock are available for purchase, the Trustee may retain cash
uninvested or may invest all or any part thereof in any other investment if such
retention or investment is prudent under all the facts and circumstances then
prevailing. The Trustee shall have the power at any time to enter into
legally-binding agreements to purchase shares of Stock from any person or
entity, whether or not such person or entity shall own such shares of Stock at
the date such purchase agreement is entered into, including but not limited to
Participants in and Beneficiaries of this Plan, except as otherwise provided in
the Act and in Treasury Regulations ss. 54.4975-11(a)(7). Except as otherwise
required by Section 6.12, the purchase price set forth in any such purchase
agreement shall be determined by the fair market value of such shares of Stock
at the date of purchase (as determined consistent with Section 5.1(a)).
Section 8.3. Directions of Committee. The powers granted to the Trustee
under this Plan shall be exercised by the Trustee in its sole discretion. Except
as provided in Section 8.20, the Committee may at any time and from time to time
by written direction to the Trustee require the Trustee to invest in, to retain
or to dispose of any security or other form of investment as may be specified in
such direction, limited, however, to investments permitted under this Plan,
under the Act and under the Code. Neither the Trustee nor any other person shall
be under any duty to question any such written direction of the Committee, and
the Trustee shall as promptly as possible comply with any such written
direction. Any such direction may be of a continuing nature or otherwise and may
be revoked in writing by the Committee at any time. The Trustee shall not be
liable in any manner or for any reason for the making, retention or disposition
of any investment pursuant to the lawful written direction of the Committee.
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Section 8.4. Receipt of Additional Shares. Any securities received by
the Trustee as a stock split or a stock dividend or as a result of a
reorganization or other recapitalization shall be allocated as of each Valuation
Date in the same manner as the Stock to which it is attributable is then
allocated. If any rights, warrants or options are issued on common shares or
other securities held in the Fund, the Trustee shall exercise them for the
acquisition of additional common shares or other securities to the extent that
cash is then available. Any common shares or other securities acquired in this
fashion shall be treated as common shares or other securities bought by the
Trustee for the net price paid. Any rights, warrants or options on common shares
or other securities which cannot be exercised for lack of cash may be sold by
the Trustee with the proceeds thereof treated as a current cash dividend
received on such common shares or other securities.
Section 8.5. Delivery of Materials to Committee. Except as otherwise
provided in Section 8.17 and Section 8.20, the Trustee shall deliver or cause to
be delivered to the Committee copies of all notices, prospectuses and financial
statements relating to investments held in the Fund.
Section 8.6. Powers. The Trustee shall have power with regard to all
property in the Fund at any time and from time to time:
(a) to sell, convey, transfer, mortgage, pledge, lease, exchange
or otherwise dispose of the same, without the necessity of
approval of any court therefor or notice to any person,
natural or legal, thereof and without obligation on the part
of any person dealing with the Trustee to see to the
application of any money or property delivered to it;
(b) except as otherwise provided in Section 7.11, Section 8.17 and
Section 8.20, to exercise any and all rights or options
pertaining to any share of Stock held as part of the assets of
the Fund and to enter into agreements and consent to or oppose
the reorganization, consolidation, merger, readjustment of
financial structure or sale of assets of any corporation or
organization, the securities of which are held in the Fund;
(c) except as otherwise provided in Section 4.5, to collect the
principal and income of such property as the same shall become
due and payable and to give binding receipt therefor;
(d) to take such action, whether by legal proceedings, compromise,
abandonment or otherwise, as the Trustee, in its sole
discretion, shall deem to be in the best interest of the Fund,
but the Trustee shall be under no obligation to take any legal
action unless it shall have been first indemnified by the
Companies with respect to any expenses or losses to which it
may be subjected through taking such action;
(e) to register any securities and to hold any other property in
the Fund in its own name or in the name of a nominee with or
without the addition of words indicating that such securities
or other property are held in a fiduciary capacity;
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(f) pending the selection or the purchase of suitable investments
or the payment of expenses or the making of any other payment
required or permitted under this Plan, to retain in or to
convert to cash, without liability for interest or any other
return thereon, such portion of the Fund as it shall deem
reasonable under the circumstances, including, but not by way
of limitation, the power to retain sufficient cash to permit
the acquisition of large blocks of shares of Stock as the same
may from time to time become available for purchase;
(g) to borrow from banks or similar lending institutions
reasonable sums of money for the purchase of shares of Stock
for the Company Contributions Accounts of Participants in
accordance with the provisions of Section 8.7; provided,
however, that the Trustee may not borrow from itself or from
an affiliated institution even if the Trustee is a bank or
similar lending institution except to the extent specifically
permitted by the Act and by the Code; and
(h) to do all other acts in its judgment necessary or desirable
for the proper administration of the Trust and permissible
under the Act and under the Code although the power to do such
acts is not specifically set forth herein.
Section 8.7. Loans to the Trust. The following conditions shall be met
with respect to any Exempt Loan to the Trust:
Clause (a). Interest. The rate of interest on any Exempt Loan
shall not be in excess of a reasonable rate of interest. At the date an
Exempt Loan is made, the interest rate for the Exempt Loan and the
price of any shares of Stock to be purchased with the Exempt Loan
proceeds shall not be such that the Plan assets might be drained off.
Clause (b). Use of Proceeds. The proceeds of an Exempt Loan
shall be used within a reasonable time after receipt by the Trustee for
any or all of the following purposes:
(i) to acquire Stock;
(ii) to repay that Exempt Loan; or
(iii) to repay a prior Exempt Loan.
Except as otherwise provided in Section 6.12 and Section 6.13, no Stock acquired
with Exempt Loan proceeds shall be subject to a put, call or other option or a
buy-sell or similar arrangement while held by the Trustee and when distributed
from this Plan.
Clause (c). Terms of Exempt Loan. The terms of each Exempt
Loan shall be, at the time that Exempt Loan is made, as favorable to
this Plan as the terms of a comparable loan resulting
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from arm's-length negotiations between independent parties. Each Exempt
Loan shall be for a specific term and shall not be payable at the
demand of any person, except in the case of default.
Clause (d). Collateral. Any collateral pledged to the lender
by the Trustee shall consist only of Stock purchased with the borrowed
funds or Stock that was used as collateral for a prior Exempt Loan
repaid with the proceeds of the current Exempt Loan; provided, however,
that in addition to such collateral, the Companies may guarantee the
repayment of an Exempt Loan.
Clause (e). Limited Recourse. Under the terms of each Exempt
Loan, the lender shall not have any recourse against the Fund or the
Trust except with respect to the collateral.
Clause (f). Repayment. No person entitled to payment under any
Exempt Loan shall have any right to assets of the Fund or the Trust
other than:
(i) collateral given for that Exempt Loan;
(ii) contributions (other than contributions of
Stock) that are made by the Companies under
this Plan to meet this Plan's obligations
under that Exempt Loan;
(iii) earnings attributable to such collateral and
the investment of such contributions; and
(iv) to the extent directed by the Holding
Company under Section 4.5, cash dividends on
allocated shares of Stock.
Payments made with respect to an Exempt Loan by the Trustee during any Plan Year
shall not exceed an amount equal to the sum of such contributions and earnings
received during or prior to that Plan Year less such payments in prior Plan
Years. Such contributions and earnings shall be accounted for separately in the
books of account of this Plan and Trust until that Exempt Loan is repaid.
Clause (g). Agreement by Companies. The Companies shall agree
in writing with the Trustee to contribute to the Fund amounts sufficient to
enable the Trustee to pay each installment of principal and interest on each
Exempt Loan on or before the date such installment is due, even if no tax
benefit to the Companies results from such contribution.
Clause (h). Release of Collateral. All assets of the Fund
acquired by this Plan and Trust with Exempt Loan proceeds and all collateral
pledged to secure an Exempt Loan shall be held in a suspense account and
considered encumbered by the Exempt Loan. For each Plan Year during the duration
of an Exempt Loan, the number of assets to be released from encumbrance and
withdrawn from the suspense account shall be based upon the ratio that the
payment of principal and interest on that Exempt Loan for that Plan Year bears
to the total projected payments of principal and interest over the duration of
the Exempt Loan period. Assets released from encumbrance and
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withdrawn from the suspense account shall be allocated to the various Company
Contributions Accounts in the Plan Year during which such portion is paid off
and in the same manner as if the assets had been obtained by the Trustee when no
Exempt Loan was involved. Income with respect to shares of Stock acquired with
Exempt Loan proceeds and held in the suspense account shall be allocated to
Company Contributions Accounts along with other income earned by the Fund,
except to the extent that such income is to be used to repay an Exempt Loan.
Clause (i). Default. In the event of any default upon an
Exempt Loan, the value of Trust assets transferred in satisfaction of that
Exempt Loan shall not exceed the amount of the default. If the lender is a
disqualified person within the meaning of Section 4975(e)(2) of the Code, the
Exempt Loan shall provide for a transfer of Trust assets upon default only upon
and to the extent of the failure of the Trustee to meet the payment schedule of
that Exempt Loan; provided, however, that the making of a guarantee shall not
make a person a lender within the meaning of this Clause (i).
Clause (j). Termination of Plan. Upon a complete termination
of the Plan but only to the extent permitted by the Code and the Act, any
unallocated Stock shall be sold to the Corporation at a price no less than fair
market value or on the open market. To the extent permitted by Code and the Act,
the proceeds of such sale shall be used to satisfy any outstanding Exempt Loan
and the balance of any funds remaining shall be allocated as income to each
Participant's Company Contributions Account based on the proportion that the
Participant's Company Contributions Account balance as of the immediately
preceding Valuation Date bears to the aggregate Company Contributions Account
balances of all Participants as of the immediately preceding Valuation Date.
Section 8.8. Annual Accounting. At least annually the Trustee shall
render to the Committee a written account of its administration of the Fund
during the period since the establishment of this Plan or the last accounting
thereafter. Pursuant to this requirement, Stock acquired by the Trustee shall be
accounted for as provided in Treasury Regulations ss. 1.402(a)-1(b)(2)(ii).
Unless written notice of disapproval is furnished to the Trustee by the
Committee within ninety (90) calendar days after receipt of such account, such
account shall be deemed to have been approved.
Section 8.9. Audit. In the case of any disapproval as provided in
Section 8.8 and unless a satisfactory corrected written account is furnished to
the Committee, an audit of the Trustee's account shall be made by a certified
public accountant selected jointly by the Holding Company and the Trustee, but
at the expense of the Companies. Upon completion of any such audit, the
inaccuracies in the Trustee's account, if any, shall be corrected to conform to
such audit and a corrected written account shall be delivered to the Committee
by the Trustee. Except as otherwise provided by the Act, an approved account or
an account corrected pursuant to such an audit shall be final and binding upon
the Companies and upon all other persons who shall then or thereafter have any
interest under this Plan.
Section 8.10. Uncertainty Concerning Payment of Benefits. In the event
of any dispute or uncertainty as to the person to whom payment of any funds or
other property shall be made under this Plan, the Trustee may, in its sole
discretion, withhold such payment or delivery until such dispute
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or uncertainty shall have been determined or resolved by a court of competent
jurisdiction or otherwise settled by the parties concerned.
Section 8.11. Compensation. The Trustee shall be entitled to receive
fair and reasonable compensation for its services hereunder, taking into account
the amount and nature of its services and the responsibilities involved, and
shall also be entitled to be reimbursed for all reasonable out-of-pocket
expenses, including, but not by way of limitation, legal, actuarial and
accounting expenses and all costs and expenses incurred in prosecuting or
defending any action concerning this Plan or the Trust or the rights or
responsibilities of any person hereunder, brought by or against the Trustee.
Such reasonable compensation and expenses shall be paid by the Companies as
provided in Section 3.4.
Section 8.12. Standard of Care. The Trustee shall use its best judgment
in exercising any duties or powers or in taking any action hereunder and shall
be bound at all times to act in good faith and in accordance with all
requirements imposed under the Act and under the Code. Except as otherwise
provided by the Act, the Trustee shall not incur any liability by reason of any
error of judgment, mistake of law or fact or any act or omission hereunder of
itself or of any agent, proxy or attorney so long as it has acted in good faith.
The Trustee may act on any paper or document believed by it to be genuine and to
have been signed and presented by the proper person. The Trustee may consult
with counsel (who may, but need not, be counsel to a Company), accountants or
actuaries selected by it and, except as otherwise provided by the Act, the
written opinion of such counsel or the written recommendations of such
accountants or actuaries shall be full and complete authority and protection for
any action or conduct pursued by the Trustee in good faith and in accordance
with such written opinion or recommendations. Except as otherwise provided by
the Act, the Trustee shall not be liable for any action taken by it pursuant to
the written direction of the Committee.
Section 8.13. Request for Instructions. In addition to written
instructions relating to valuation and except as otherwise provided in Section
8.20, at any time the Trustee may, by written request, seek written instructions
from the Committee on any matter and may await such written instructions from
the Committee without incurring any liability whatsoever. If at any time the
Committee should fail to give written directions to the Trustee, the Trustee may
act, and shall be protected in acting, without such written directions, in such
manner as in its sole discretion seems appropriate and advisable under the
circumstances for carrying out the purposes of the Trust.
Section 8.14. Resignation of Trustee. The Trustee may resign at any
time by giving sixty (60) calendar days' prior written notice to the Bank, and
the Trustee may be removed, with or without cause, by the Bank on sixty (60)
calendar days' prior written notice to the Trustee. Such prior written notice
may be waived by the party entitled to receive it. Upon any such resignation or
removal becoming effective, the Trustee shall render to the Committee a written
account of its administration of the Fund for the period since the last written
accounting and shall do all necessary acts to transfer the assets of the Fund to
the successor Trustee or Trustees.
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Section 8.15. Vacancies in Trusteeship. In the event of any vacancy in
the trusteeship of the Trust hereby created, the Bank may designate and appoint
a qualified successor Trustee or Trustees. Any such successor Trustee or
Trustees shall have all the powers herein conferred upon the original Trustee.
Section 8.16. Information to Be Furnished. The Companies shall furnish
to the Trustee, and the Trustee shall furnish to the Companies, such information
relevant to this Plan and Trust as may be required under the Code and under the
Act. The Trustee shall keep such records, make such identification and file with
the Internal Revenue Service and with the U.S. Department of Labor such returns
and other information concerning this Plan and Trust as may be required of it
under the Code and under the Act. The Companies shall fulfill any reporting and
disclosure obligations imposed on it by the Act, and each Participant shall be
given any reports required by the Act. To the extent that the Trustee assumes
any such Company obligations, it may charge a reasonable fee for its services
apart from its normal fee and its expenses as provided in Section 8.11.
Section 8.17. Voting Rights of Participants. Each Participant (or, if
applicable, his Beneficiary) shall have the right to direct the Trustee as to
the manner in which voting rights of shares of Stock which are allocated to his
Company Contributions Account are to be exercised with respect to any corporate
matter which involves the voting of such shares with respect to the approval or
disapproval of any corporate merger or consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of substantially all assets of
a trade or business, or such similar transactions which may be prescribed by the
Secretary of Treasury in regulations. Each Participant (or, if applicable, his
Beneficiary) shall also have the right to direct the Trustee as to the manner in
which voting rights of shares of Stock which are allocated to his Company
Contributions Account are to be exercised at any time the Holding Company has a
class of securities that are required to be registered under Section 12 of the
Securities Exchange Act of 1934 or that would be required to be so registered
except for the exemption from registration provided by Section 12(g)(2)(H) of
the Securities Exchange Act of 1934. In all other cases, the Committee shall be
authorized to vote the Stock held by the Trustee as part of the Fund as provided
in Section 7.11. Not less than thirty (30) calendar days prior to each annual or
special meeting of shareholders of the Holding Company at which one (1) or more
Participants are entitled to vote shares of Stock allocated to their Company
Contributions Accounts under this Section 8.17, the Trustee shall cause to be
prepared and delivered to each such Participant who has a Company Contributions
Account as of the record date established by the Holding Company a copy of the
notice of the meeting and form of proxy directing the Trustee as to how it shall
vote at such meeting or at any adjournment thereof with respect to each issue.
Upon receipt of such proxies, the Trustee shall vote or may grant the Committee
a proxy to vote the shares of Stock in accordance with the proxies received by
the Participants. To the extent permitted by applicable law, the shares of Stock
for which no direction is received by the Participant (or, if applicable, his
Beneficiary) or held by the Trustee in any unallocated account shall be tendered
in proportion to the tendering directions received by the Trustee with respect
to the allocated shares of Stock. The Trustee shall take steps to keep a
Participant's voting directions confidential and shall not provide them to the
Companies.
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Section 8.18. Delegation of Authority. The Trustee may delegate any of
its ministerial powers or duties under this Plan, including the signing of any
checks drawn on the Fund, to any of its agents or employees.
Section 8.19. Diversification of Company Contributions Account.
Notwithstanding anything contained in Article VI to the contrary, a Participant
who has attained age fifty-five (55) and who has completed at least ten (10)
years of participation in this Plan shall be permitted to elect that during a
six (6) year period beginning with the Plan Year during which he had obtained
age fifty-five (55) or, if later, during which he completed his tenth (10th)
year of participation in this Plan a portion of his vested Company Contribution
Account be distributed. In the first (1st) Plan Year for which the Participant
has an election under this Section 8.19, the Participant may elect a
distribution of up to twenty-five percent (25%) of his vested Company
Contribution Account as of the end of such Plan Year. In the second (2nd), third
(3rd), fourth (4th) and fifth (5th) Plan Year for which the Participant has an
election under this Section 8.19, the Participant may elect a distribution
which, when aggregated to any earlier distributions made by reason of this
Section 8.19, does not exceed twenty-five percent (25%) of the vested balance
held in his Company Contribution Account as of the end of the Plan Year for
which the election is made. In the final Plan Year for which a Participant has
an election under this Section 8.19, the Participant may elect a distribution of
an amount which, when aggregated with any other distribution made by reason of
this Section 8.19, does not exceed fifty percent (50%) of his vested Company
Contribution Account balance as of the end of such Plan Year. The Trustee shall
provide Participants eligible for an election under this Section 8.19 with
information relating to the election before the end of the first (1st) Plan Year
for which the election relates. A Participant electing a distribution under this
Section 8.19 shall have until the ninetieth (90th) calendar day immediately
following the end of the Plan Year for which the election is made to make his
election. Any distribution made by reason of this Section 8.19 shall be in cash
and shall be made within one hundred and eighty (180) calendar days after the
end of the Plan Year for which the election is made.
Section 8.20. Tender Offer. Each Participant (or, if applicable, his
Beneficiary) shall have the right to direct the Trustee as to whether the shares
of Stock which are allocated to his Company Contributions Account are to be
tendered pursuant to any tender offer made for the Stock of the Holding Company.
The Trustee shall as soon as practical (and in no event later than five (5)
calendar days) after its receipt of the tender offer documents shall cause to be
prepared and delivered to each Participant (and, if applicable, his Beneficiary)
who has a Company Contributions Account as of the date of the tender offer a
copy of all relevant information as to the tender offer and a written election
form which will direct the Trustee as to whether it should tender the shares of
Stock held in such Participant's Company Contributions Account. The shares of
Stock for which no direction is received by the Participant (or, if applicable,
his Beneficiary) or held by the Trustee in any unallocated account shall be
tendered in proportion to the tendering directions received by the Trustee with
respect to the allocated shares of Stock. The Trustee shall take steps to keep a
Participant's decision whether or not to tender shares of Stock confidential and
shall not provide the information to the Companies.
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ARTICLE IX
AMENDMENT, TERMINATION AND MERGER
Section 9.1. Amendment. Except for such amendments as are permitted
under this Section 9.1 and as otherwise provided in Section 1.19 and Section
9.3, the Trust is irrevocable. The Bank reserves the right to amend this Plan,
at any time and from time to time, in whole or in part, including without
limitation, retroactive amendments necessary or advisable to qualify this Plan
and the Trust under the provisions of Sections 401(a) and 501(a) of the Code or
the corresponding provisions of any similar statute hereafter enacted. However,
the Bank's right to amend this Plan shall remain at all times subject to the
provisions of Section 9.4. Further, no amendment of this Plan shall:
(a) alter, change or modify the duties, powers, or liabilities of
the Trustee hereunder without their written consent;
(b) permit any part of the Fund to be used to pay premiums or
contributions of the Companies under any other employee
benefit plan maintained by the Companies for the benefit of
its Employees;
(c) effect any discrimination among the Participants;
(d) change the vesting schedule in Section 6.3 or, if applicable,
in Section 11.4 unless each Participant who has completed
three (3) or more Years of Service as of the effective date of
the amendment is permitted to elect, within sixty (60)
calendar days after he is notified by the Committee of his
rights under this Subsection (d), to have his vested interest
determined without regard to such amendment;
(e) decrease the accrued benefit of any Participant unless the
amendment is approved by the Department of Labor because of
substantial business hardship; or
(f) decrease a Participant's Company Contributions Account balance
or eliminate an optional form of distribution for the accrued
benefits of a Participant determined as of the date of the
amendment.
Section 9.2. Termination or Complete Discontinuance of Contributions.
The Companies are not and shall not be under any obligation or liability
whatsoever to continue their contributions pursuant to this Plan or to maintain
this Plan for any given length of time, except as otherwise provided in Section
8.7. A Company may, in its sole discretion, discontinue Company contributions to
this Plan completely, except as otherwise provided in Section 8.7, with or
without notice, or partially or totally terminate this Plan in accordance with
its provisions at any time without any liability whatsoever for such
discontinuance or termination. If this Plan shall be partially or totally
terminated or if contributions of a Company shall be completely discontinued,
the rights of all Participants directly affected by the partial or total
termination or the complete discontinuance of contributions in their Company
Contributions Accounts shall thereupon become fully vested and
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non-forfeitable notwithstanding any other provisions of this Plan. However, the
Trust shall continue until all Participants' Company Contributions Accounts have
been completely distributed to, or for the benefit of, the Participants in
accordance with this Plan.
Section 9.3. Determination by Internal Revenue Service. Notwithstanding
any other provisions of this Plan, if the Internal Revenue Service shall fail or
refuse to issue a favorable written determination or ruling with respect to the
initial qualification of this Plan and the initial exemption of the Trust from
tax under Sections 401(a) and 501(a) of the Code, the Trustee shall, within a
reasonable time after receiving a written direction from the Committee to do so,
return to the Companies the current value of all Company contributions
theretofore made. As a condition to such repayment, the Companies shall execute,
acknowledge and deliver to the Trustee its written undertaking, in form
satisfactory to the Trustee, to indemnify, defend and hold the Trustee harmless
from all claims, actions, demands, or liabilities arising in connection with
such repayment. If for any reason the Key District Director of the Internal
Revenue Service should at any time after initial qualification fail to approve
any of the terms, conditions or amendments contained in or implied from this
Plan and Trust for continuing qualification and tax exemption under Sections
401(a) and 501(a) of the Code, then the Holding Company shall make such
modifications, alterations and amendments of this Plan as are necessary to
retain such approval and such modifications, alterations and amendments shall be
effective retroactively to the Effective Date or to such later date as is
required to retain such approval.
Section 9.4. Nonreversion. Except as otherwise provided in Section 3.1
and Section 9.3:
(a) The Bank shall have no power to amend or to terminate this
Plan in such a manner which would cause or permit any part of
the Fund to be diverted to purposes other than for the
exclusive benefit of Participants or, if deceased, of their
spouse or other Beneficiaries or as would cause or permit any
portion of the Fund to revert to or to become the property of
the Companies, and
(b) The Bank shall have no right to modify or to amend this Plan
retroactively in such a manner as to deprive any Participants,
or if deceased, their spouses or other Beneficiaries of any
benefits to which they are entitled under this Plan by reason
of contributions made by the Companies prior to the
modification or amendment, unless such modification or
amendment is necessary to meet the qualification requirements
of Sections 401(a) and 501(a) of the Code.
Section 9.5. Merger. The Bank shall have the right, by action of its
Board of Directors, to merge or to consolidate this Plan with, or to transfer
the assets or liabilities of the Fund to, any other qualified retirement plan
and trust at any time, except that no such merger, consolidation or transfer
shall be authorized unless each Participant in this Plan would receive a benefit
immediately after the merger, consolidation or transfer (if the merged,
consolidated or transferred plan and trust then terminated) equal to or greater
than the benefit to which he would have been entitled immediately before the
merger, consolidation or transfer (if this Plan then terminated).
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ARTICLE X
MISCELLANEOUS
Section 10.1. Creation of Plan Voluntary. The Plan hereby created is
purely voluntary on the part of the Companies and, except as otherwise provided
in Section 8.7, any Company may suspend or discontinue payments hereunder at any
time or from time to time as it may decide in accordance with Section 10.17, but
no suspension or discontinuance shall operate retroactively with respect to the
rights of any Participant hereunder or his spouse or other Beneficiary.
Section 10.2. No Employment Contract. Except as may be required by the
Act, no contributions or other payments under this Plan shall constitute any
contract on the part of the Company to continue such contributions or other
payments hereunder. Participation hereunder shall not give any Participant the
right to be retained in the service of the Companies or any right or claim to
any benefits hereunder unless the right to such benefits has accrued under this
Plan. All Participants shall remain subject to assignment, reassignment,
promotion, transfer, layoff, reduction, suspension and discharge by the
Companies to the same extent as if this Plan had never been established.
Section 10.3. Limitation on Rights Created. Nothing contained in this
Plan or any modification of the same or act done in pursuance hereof shall be
construed as giving any person whomsoever any legal or equitable right against
the Companies, the Committee, the Trustee or the Fund, unless specifically
provided herein or granted by the Act.
Section 10.4. Waiver of Claims. Except as otherwise provided by the
Act, no liability whatsoever shall attach to or be incurred by any shareholder,
officer or Director, as such, of the Companies under or by reason of any
provision of this Plan or any act with reference to this Plan, and any and all
rights and claims thereof, as such, whether arising at common law or in equity
or created by statute, constitution or otherwise, are hereby expressly waived
and released to the fullest extent permitted by law by every Participant and by
his spouse or other Beneficiary as a condition of and as part of the
consideration for the payments by the Companies under this Plan and for the
receipt of benefits hereunder.
Section 10.5. Spendthrift Provision. To the fullest extent permitted by
law, none of the benefits, payments, accounts, funds or proceeds of any contract
held hereunder shall be subject, voluntarily or involuntarily, to any claim of
any creditor of any Participant or of his spouse or other Beneficiary, nor shall
the same be subject to attachment, garnishment or other legal or equitable
process by any creditor of a Participant or of his spouse or other Beneficiary,
nor shall any Participant or his spouse or other Beneficiary have any right to
alienate, anticipate, commute, pledge, encumber or assign any such benefits,
payments, accounts, funds or proceeds of any such contract. The preceding
sentence shall also apply to the creation, assignment or recognition of a right
to any benefit payable with respect to a Participant pursuant to a domestic
relations order, unless such order is determined to be a qualified domestic
relations order as defined in Section 414(p) of the Code. It is the intention of
the Companies that benefit payments hereunder shall be made only at the times,
in
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the amounts and to the distributees as specified in this Plan regardless of any
marital dissolution, bankruptcy or other legal proceedings to which such
distributees may be a party to the fullest extent permitted by law.
Section 10.6. Payment of Benefits to Others. If any person to whom
benefit payments are due or payable under this Plan shall be unable to care for
his affairs because of illness or accident, any such payment may be made (unless
prior claim thereto shall have been made by a duly-qualified guardian or other
legal representative) to the spouse, parent, brother, sister or other person
deemed by the Committee, in its sole discretion, to have incurred expense for
such person and on such terms as the Committee, in its sole discretion, may
impose. Any such payment and any payment to a Participant or to his legal
representative or, if deceased, to his spouse or other Beneficiary made pursuant
to the provisions of this Plan shall to the extent thereof be in full
satisfaction of all claims arising hereunder against this Plan, the Fund, the
Committee, the Trustee and the Companies.
Section 10.7. Payments to Missing Persons. If the Trustee is unable to
effect delivery of any amounts payable under this Plan to the person entitled
thereto or, upon such person's death, to such person's personal representative,
they shall so advise the Committee in writing, and the Committee shall give
written notice by certified mail to said person at the last known address of
such person as shown in the Companies' records. If such person or the personal
representative thereof shall not have responded to the Committee within three
(3) years from the date of mailing such certified notice, the Committee shall
direct the Trustee to distribute such amount, including any amount thereafter
becoming due to such person or the personal representative thereof, in the
manner provided in Section 6.7 with respect to the death of a Participant when
there is no valid designation of Beneficiary on file.
Section 10.8. Severability. If any provisions of this Plan shall be
held illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining part of this Plan and it shall be construed and enforced as
if such illegal or invalid provisions had never been inserted herein.
Section 10.9. Captions. Titles of Articles, Sections and Clauses herein
are for general information only and shall be ignored in any construction of the
provisions hereof.
Section 10.10. Construction. Words in the masculine gender shall be
construed to include the feminine gender in all cases where appropriate, and
words in the singular or plural shall be construed as being in the plural or
singular where appropriate.
Section 10.11. Counterparts. This Plan may be executed in any number of
counterparts, each of which shall be deemed to be an original. All the
counterparts shall constitute but one (1) and the same instrument and may be
sufficiently evidenced by any one (1) counterpart.
Section 10.12. Indemnification. The Companies shall indemnify and hold
harmless each member of the Committee and any individual Trustee who is also an
Employee of the Company from any and all claims, loss, damage, expense and
liability arising from any act or omission of such
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member or Trustee, as the case may be, except when the same is judicially
determined to be due to the fraud or bad faith of such member or Trustee, as the
case may be, if possible.
Section 10.13. Standards of Interpretation and Administration. This
Plan and the Fund held hereunder shall be for the exclusive benefit of Employees
of the Companies and their spouses or other Beneficiaries and defraying
reasonable costs of administration. This Plan shall be interpreted and
administered in a manner consistent with the requirements of the Code relating
to qualified stock bonus plans and trusts and the requirements imposed by the
Act. Wherever in this Plan discretionary powers are given to any party or
wherever any interpretation may be necessary, such powers shall be exercised and
such interpretation shall be made in a non-discriminatory manner and in
conformity with the fiduciary duties imposed under Section 404 of the Act.
Section 10.14. Governing Law. Except as otherwise provided by the Act,
this Plan shall be administered and construed and its validity determined under
the laws of the State of Indiana.
Section 10.15. Successors and Assigns. This Plan shall be binding upon
the successors and assigns of the Companies and of the Trustee.
Section 10.16. Adoption of Plan. Any corporation, who together with the
Holding Company, constitutes a member of a controlled group of corporations
under Section 414(b) of the Code, with the approval of the Board of Directors of
the Holding Company may adopt this Plan and participate as a Company in this
Plan by the execution of an instrument of adoption of this Plan which shall
specify the Effective Date as to such party. A listing of the subsidiaries and
affiliates who have adopted this Plan is shown as Appendix A.
Section 10.17. Withdrawal from Plan. Any Company in this Plan may, by
resolution of its Board of Directors or other governing body, withdraw from
participation as a Company in this Plan.
ARTICLE XI
TEFRA TOP-HEAVY RULES
Section 11.1. Application. The rules set forth in this Article XI shall
be applicable with respect to any Plan Year beginning on or after the Effective
Date in which this Plan is determined to be a Top-Heavy Plan. The provisions of
this Article XI shall be applied only to the extent necessary to comply with
Section 416 of the Code and in a manner consistent with all requirements imposed
under Section 416 of the Code.
Section 11.2. Determination. This Plan shall be considered a Top-Heavy
Plan with respect to any Plan Year if as of the Anniversary Date of the
immediately preceding Plan Year or, if the determination is to be made for this
Plan's first (1st) Plan Year, the last calendar day of the first (1st) Plan Year
(the "determination date"):
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(a) the present value of the Accrued Benefits (as such term is
defined in Section 11.3) of Key Employees (as such term is
defined below) exceeds sixty percent (60%) of the present
value of the Accrued Benefits of all Employees and former
Employees (other than former Key Employees (as such term is
defined below)); provided, however, that the Accrued Benefits
of any Participant who has not completed an Hour of Service
for the Company during a five (5) year period ending on the
determination date (as such term is defined above) shall be
disregarded, or
(b) this Plan is part of a required aggregation group (as such
term is defined below) and the required aggregation group is
top-heavy;
provided, however, that this Plan shall not be considered a Top-Heavy Plan with
respect to any Plan Year in which this Plan is part of a required or permissive
aggregation group (as such terms are defined below) which is not top-heavy. For
purposes of this Article XI, the term "Key Employee" shall include for any Plan
Year any Employee or former Employee who at any time during that Plan Year or
any of the four (4) preceding Plan Years is:
(c) an officer of a Company whose Section 415 Compensation from
the Companies is greater than fifty percent (50%) of the
maximum dollar limitation under Section 415(b)(1)(A) of the
Code in effect for the calendar year in which the
determination date (as such term is defined above) falls,
(d) one (1) of the ten (10) Employees owning (or considered as
owning within the meaning of Section 318 of the Code) the
largest interest in a Company whose ownership interest in that
Company is at least one-half of one percent (0.5%) and whose
Section 415 Compensation from the Companies is equal to or
greater than the maximum dollar limitation under Section
415(c)(1)(A) of the Code in effect for the calendar year in
which the determination date (as such term is defined above)
falls; provided, however, that if two (2) Employees have the
same interest in a Company, the Employee whose annual Section
415 Compensation from the Companies is greater shall be
treated as having a larger interest in the Company,
(e) a five percent (5%) owner (determined without regard to
Sections 414(b),(c) and (n) of the Code) of a Company,
(f) a one percent (1%) owner (determined without regard to
Sections 414(b),(c) and (n) of the Code) of a Company whose
Section 415 Compensation from the Companies is in excess of
one hundred and fifty thousand dollars ($150,000);
provided, however, that the Beneficiary of any deceased Employee or of any
deceased former Employee who was included as a Key Employee by reason of this
Section 11.2 shall also be included as a Key Employee; provided, further, that
an individual shall only be included as a Key Employee to the extent required by
Section 416(i) of the Code. For purposes of this Article XI, "Non-Key
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Employee" is any Employee or former Employee who is not a Key Employee. For
purposes of determining who is a key employee, Section 415 Compensation shall
include amounts deferred or redirected by an Employee pursuant to Sections
401(k) and 125 of the Code. For purposes of this Section 11.2, the term
"required aggregation group" shall include:
(g) all qualified retirement plans maintained by a Company in
which a Key Employee (as such term is defined above) is a
participant; provided, however, that the term "required
aggregation group" shall also include all qualified retirement
plans previously maintained by a Company but terminated within
the five (5) year period ending on the determination date (as
such term is defined above) in which a key employee (as such
term is defined above) was a participant; and
(h) any other qualified retirement plans maintained by a Company
which enable any qualified retirement plan described in
Subsection (g) above to meet the requirements of Section
401(a)(4) or of Section 410 of the Code.
For purposes of this Section 11.2, the term "permissive aggregation group" shall
include all qualified retirement plans that are part of a required aggregation
group (as such term is defined above) and any other qualified retirement plans
maintained by a Company if such group will continue to meet the requirements of
Section 401(a)(4) and of Section 410 of the Code.
Section 11.3. Accrued Benefits. For purposes of this Article XI,
Accrued Benefits with respect to any Plan Year shall be determined as of the
determination date (as such term is defined in Section 11.2) for that Plan Year
based on the Company Contributions Account balances as of the most recent
Valuation Date within a consecutive twelve (12) month period ending on such
determination date; provided, however, that such Company Contributions Account
balances shall be adjusted to the extent required by Section 416 of the Code to
increase the Company Contributions Accounts balances by the amount of any
Company Contributions made and allocated after the Valuation Date but on or
before such determination date and by any distributions made to Participants
prior to the Valuation Date during any of the five (5) consecutive Plan Years
immediately preceding the Plan Year for which the determination as to whether
this Plan is a Top-Heavy Plan is being made (including distributions from a
terminated plan which if not terminated would have been part of a required
aggregation group (as such term is defined in Section 11.7)) and to reduce the
Company Contributions Account balances by any rollovers or plan to plan
transfers made to this Plan before the Valuation Date which are initiated by a
Participant from any qualified retirement plan maintained by an unrelated
employer and by any deductible employee contributions.
Section 11.4. Vesting Provisions. Notwithstanding the provisions of
Section 6.3, with respect to any Plan Year in which this Plan is determined to
be a Top-Heavy Plan, a Participant's Accrued Benefit which is derived from
Company Contributions shall vest in accordance with the following vesting
schedule if it would result in a larger vested percentage than the percentage
determined under Section 6.3:
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Period of Service Vested Percentage
Less than two (2) years 0
Two (2) years or more but
less than three (3) years 20%
Three (3) years or more but
less than four (4) years 40%
Four (4) years or more but
less than five (5) years 60%
Five (5) years or more but
less than six (6) years 80%
Six (6) years or more 100%
provided, however, that if this Plan becomes a Top-Heavy Plan and subsequently
ceases to be such:
(a) the vesting schedule shown above shall continue to apply but
only with respect to Participants whose Period of Service is
as least three (3) years as of the Anniversary Date of the
final Top-Heavy Plan Year,
(b) the vesting schedule shown above shall continue to apply but
only with respect to the Accrued Benefits of all other
Participants as of the Anniversary Date of the final Top-Heavy
Plan Year, and
(c) the vesting schedule in Section 6.3 shall apply to any
additional Accrued Benefits of the Participants described in
Subsection (b) above which accrue after the Anniversary Date
of the final Top-Heavy Plan Year.
Section 11.5. Minimum Contribution. Notwithstanding the provisions of
Section 4.2, with respect to any Plan Year in which this Plan is a Top-Heavy
Plan, the Company contributions for such Plan Year shall be allocated in the
following order of priority:
(a) first, among the Company Contributions Accounts of all
eligible Participants who had not separated from service with
the Companies as of the Anniversary Date of that Plan Year
regardless of the number of Hours of Service completed by each
such Participant during that Plan Year according to the ratio
that each Participant's Compensation for that Plan Year bears
to the total Compensation of all eligible Participants;
provided, however, that the portion of the Company
contributions to be
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allocated pursuant to this Subsection (a) shall not exceed
three percent (3%) of the total Compensation of all eligible
Participants for that Plan Year;
(b) next, the remaining portion, if any, of the Company
contributions for such Plan Year shall be allocated in
accordance with Section 4.2;
provided, however, that if a Participant also participates in a top-heavy
defined benefit plan, he shall receive the minimum benefit for such Plan Year
under the defined benefit plan.
Section 11.6. Code Section 415 Limitations. With respect to any Plan
Year beginning before January 1, 2000, in which this Plan is a Top-Heavy Plan,
Section 4.3 shall be read by substituting the number one (1.00) for the number
one and twenty-five one hundredths (1.25) wherever it appears therein; provided,
however, that such substitution shall not have the effect of reducing a
Participant's Accrued Benefit under any qualified defined benefit plan
maintained by a Company prior to the first (1st) calendar day of the Plan Year
in which this Article XI initially becomes applicable.
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This Plan has been adopted on this day of , 1998, but is to be
effective as of July 1, 1998.
LINCOLN FEDERAL SAVINGS BANK
By:
Its:
Attest:
By:
Its:
By:
Its:
Attest:
By:
Its:
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Exhibit 10(6)
December ___, 1998
Home Federal Savings Bank, as Trustee
of the Lincoln Bancorp Employee Ownership Plan and Trust
501 Washington Street
Columbus, Indiana 47201
Dear Sir:
This letter confirms Lincoln Bancorp's commitment to fund a leveraged
ESOP in an amount up to $7,141,500. The commitment is subject to the following
terms and conditions:
1) Lender: Lincoln Bancorp.
2) Borrower: Lincoln Bancorp Employee Stock Ownership Plan.
3) Trustee: Home Federal Savings Bank.
4) Security: Unallocated shares of stock of the Company held in
the Lincoln Bancorp Employee Stock Ownership Plan.
5) Maturity: Up to 20 years from takedown.
6) Amortization: Equal annual principal payments, plus accrued
interest.
7) Pricing:
a. The Prime Rate as published in the Wall Street
Journal on the date of the loan transaction.
8) Interest Payments:
a. Annual on a 360 day basis.
9) Funding: In full by the date of closing of the conversion of
Lincoln Federal Savings Bank to stock form (the "Closing
Date").
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10) Prepayment: Voluntary prepayments are permitted at any time.
11) Conditions Precedent to Closing: Receipt by the Company of all
supporting loan documents in a form and with terms and
conditions satisfactory to the Company and its counsel.
Consummation of the transaction will also be contingent upon
no material adverse change occurring in the condition of
Lincoln Federal Savings Bank or the Company.
12) Closing Date: Not later than the Closing Date, unless such
date is waived by the Company.
If the terms and conditions are agreeable to you, please indicate your
acceptance by signing the enclosed copy and returning it to my attention.
Sincerely,
LINCOLN BANCORP
By:
John M. Baer
Accepted on behalf of Lincoln Bancorp
Employee Stock Ownership Plan and Trust
By: Home Federal Savings Bank, as Trustee
Trust Officer
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<PAGE>
Exhibit 10(6)
EXEMPT LOAN AND SHARE PURCHASE AGREEMENT
between
TRUST UNDER
LINCOLN BANCORP
EXEMPT STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
(EFFECTIVE AS OF JULY 1, 1998)
and
LINCOLN BANCORP
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<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION...........................2
Section 1.1. General Interpretation...................................2
Section 1.2. Certain Definitions......................................2
ARTICLE II TRUST LOAN; TRUST NOTE; PAYMENTS.........................2
Section 2.1. Trust Loan...............................................2
Section 2.2. Use of Trust Loan Proceeds...............................3
Section 2.3. Trust Note...............................................3
Section 2.4. Interest.................................................3
Section 2.5. Payments.................................................3
Section 2.6. Optional Prepayment......................................4
Section 2.7. Place and Time of Payment................................4
Section 2.8. Application of Certain Payments..........................4
Section 2.9. Due Date Extension.......................................4
Section 2.10. Computations........................................5
Section 2.11. Interest on Overdue Amounts.........................5
ARTICLE III SECURITY.................................................5
Section 3.1. Security.................................................5
Section 3.2. Release of Shares........................................5
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS................5
Section 4.1. Representations and Warranties of Trustee................5
Section 4.2. Representations and Warranties of Company................6
Section 4.3. Covenants of Company.....................................8
ARTICLE V CONDITIONS PRECEDENT.....................................8
Section 5.1. Documentation Satisfactory to Company....................8
Section 5.2. Other Conditions Precedent to Company Obligations........9
Section 5.3. Documentation Satisfactory to Trustee....................9
Section 5.4. Other Conditions Precedent to Trustee's Obligation.......9
ARTICLE VI EVENTS OF DEFAULT AND THEIR EFFECT.......................9
Section 6.1. Events of Default; Effect................................9
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ARTICLE VII SHARE PURCHASES.........................................10
Section 7.1. Purchase of Shares......................................10
Section 7.2. Manner of Purchase......................................10
Section 7.3. Readily Tradeable.......................................10
Section 7.4. No Prohibited Transactions..............................10
Section 7.5. Maximum Number of Shares................................10
ARTICLE VIII GENERAL.................................................11
Section 8.1. Waivers; Amendments.....................................11
Section 8.2. Confirmations; Information..............................11
Section 8.3. Captions................................................11
Section 8.4. Governing Law...........................................11
Section 8.5. Notices.................................................11
Section 8.6. Expenses................................................11
Section 8.7. Reimbursement...........................................11
Section 8.8. Entire Agreement........................................12
Section 8.9. Severability............................................12
Section 8.10. No Assignment......................................12
Section 8.11. Counterparts.......................................12
ARTICLE IX LIMITED RECOURSE........................................12
Section 9.1. Limited Recourse........................................12
Section 9.2. No Personal Recourse Against Trustee....................12
Exhibit A TRUST NOTE..............................................14
Exhibit B SHARE PLEDGE AGREEMENT...................................1
Exhibit C CERTIFICATE OF TRUSTEE..................................10
Exhibit D CERTIFICATE OF THE COMPANY..............................11
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<PAGE>
EXEMPT LOAN AND SHARE PURCHASE AGREEMENT
THIS EXEMPT LOAN AND SHARE PURCHASE AGREEMENT (this "Agreement" or
"Loan Agreement"), dated December ___, 1998, between the Trust (the "Trust")
established pursuant to the provisions of the LINCOLN BANCORP EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST AGREEMENT (EFFECTIVE AS OF JULY 1, 1998) (the "ESOP")
by Home Federal Savings Bank, as Trustee (the "Trustee"), and LINCOLN BANCORP,
an Indiana corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company has duly established the ESOP in connection with
which the Trust has been created;
WHEREAS, pursuant to the ESOP and direction of the Company pursuant to
Section 8.7 of the ESOP, the Trust desires to borrow from the Company, and the
Company desires to lend to the Trust, an aggregate principal amount equal to up
to Seven Million One Hundred Forty-One Thousand Five Hundred Dollars
($7,141,500) (the "Trust Loan"), representing the cost of 8% of the shares of
Common Stock, without par value, of the Company (the "Common Stock"), offered in
the Subscription Offering and the Community Offering of the Company's Common
Stock being made in connection with the Company's acquisition of the common
stock of Lincoln Federal Savings Bank (the "Bank") upon conversion of the Bank
from a federal mutual savings bank to a federal stock savings bank (the
"Conversion"), plus 8% of 250,000 shares issued by the Company to a charitable
foundation valued at $10.00 per share;
WHEREAS, the parties hereto intend that the Trust Loan constitute an
"exempt loan" within the meaning of Section 4975(d)(3) of the Code, Treasury
Regulation ss. 54.4975-7(b), Section 408(b)(3) of ERISA, and Department of Labor
Regulation ss. 2550.408b-3 (collectively, the "Exempt Loan Rules") and an
"Exempt Loan" within the meaning of Sections 1.20 and 8.7 of the ESOP;
WHEREAS, the parties intend that the Trustee will utilize the Trust
Loan for the purpose of effecting purchases in the Subscription Offering and
Community Offering (collectively, the "Offering") or otherwise of shares of
Company Common Stock, without par value ("Shares"), to be held in the Trust for
participants in the ESOP.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained and other good and valuable
consideration (the receipt, adequacy and sufficiency of which each party hereto
respectively acknowledges by its execution hereof), the parties hereto intending
legally to be bound do hereby agree as follows:
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ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1. General Interpretation. This Agreement shall be construed
and interpreted so as to maintain the status of the ESOP as a qualified
leveraged employee stock ownership plan under Sections 401(a) and 4975(e)(7) of
the Code, the Trust as exempt from taxation under Section 501(a) of the Code,
and the Trust Loan as an "exempt loan" under the Exempt Loan Rules, and as an
"Exempt Loan" under Section 8.7 of the ESOP (collectively, the "Required
Status").
Section 1.2. Certain Definitions. In this Agreement, unless a clear
contrary intention appears, the terms set forth below have the following
meanings when used herein. Other terms are defined elsewhere herein.
(a) "Business Day" means a day, other than a Saturday, Sunday or public
holiday, on which commercial banks are open in Plainfield, Indiana for the
purpose of conducting commercial banking business.
(b) "Code" means the Internal Revenue Code of 1986, as amended, and
regulations promulgated thereunder.
(c) "Default" means an event or circumstance which, with notice or
lapse of time or both, would constitute an Event of Default as defined in
Section 6.1.
(d) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and regulations promulgated thereunder.
(e) "Loan Documents" shall mean, collectively, this Agreement, the
Trust Note, the Share Pledge Agreement and any other instruments or documents
required to be delivered pursuant hereto or thereto, in each case as amended and
in effect from time to time.
ARTICLE II
TRUST LOAN; TRUST NOTE; PAYMENTS
Section 2.1. Trust Loan. Subject to the terms and conditions of this
Agreement, the Company agrees to make available to the Trust, and the Trust may
borrow from the Company, on the Closing Date (hereinafter defined), the Trust
Loan under this Agreement in an amount up to Seven Million One Hundred Forty-One
Thousand Five Hundred Dollars ($7,141,500), representing the cost of 8% of the
Shares offered in the Offering and 8% of 250,000 shares issued by the Company to
a charitable foundation, valued at $10.00 per share. The Company shall, upon
fulfillment of the applicable conditions set forth in Article V, on the Closing
Date make the Trust Loan up to such amount available to the Trustee in
immediately available funds, at its principal office.
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Notwithstanding the foregoing, the Company shall not be obligated to make any
portion of the Trust Loan available to the Trust if the Conversion is not
consummated, or if the ESOP is not permitted to purchase any shares because of
an oversubscription in the first category of eligible subscribers. The Closing
of the Trust Loan (the "Closing") will occur at the offices of Barnes &
Thornburg, 1313 Merchants Bank Building, 11 South Meridian Street, Indianapolis,
Indiana 46204, on the same date that the Conversion closes, or such later date
as the parties shall agree upon (the "Closing Date").
Section 2.2. Use of Trust Loan Proceeds. The Trust will use the
proceeds of the Trust Loan to purchase Shares in the Offering, in accordance
with Article VII hereof.
Section 2.3. Trust Note. The Trust Loan will be represented by a
promissory note of the Trust (the "Trust Note"), substantially in the form of
Exhibit A hereto, appropriately completed, dated the Closing Date, payable to
the order of the Company in the original principal amount of the Trust Loan, or
so much thereof as may at any time have been advanced hereunder and thereunder,
on the maturity date thereof.
Section 2.4. Interest. The portion of the Trust Loan principal
outstanding at any time shall accrue and bear daily interest at a fixed rate per
annum equal to the prime rate as published in "The Wall Street Journal" on the
Closing Date (the "Interest Rate"), payable annually in accordance with Section
2.5. On any stated or accelerated maturity of the Trust Loan all accrued and
unpaid interest thereon shall be forthwith due and payable.
Section 2.5. Payments. The Trust shall pay the principal amount of the
Trust Loan together with accrued interest as follows:
(a) an initial principal installment of one twentieth (1/20)
of the initial principal amount of the Trust Loan, shall be due and
payable on December 31, 1999, together with all interest accrued on the
Trust Loan from the Closing Date through and including December 31,
1999; and
(b) thereafter, payments of principal and interest shall be
made in annual installments due and payable on the last business day of
December of each year, commencing on December 31, 2000, through and
including December 31, 2018, which annual installments shall include a
principal payment in the amount of one twentieth of the initial
principal amount of the Trust Loan, plus all interest accrued on the
Trust Loan through and including the date of such payment.
The outstanding principal of the Trust Loan, together with all accrued and
unpaid interest and any other obligations then outstanding, will in any event be
due and payable in full on December 31, 2018.
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Section 2.6. Optional Prepayment.
(a) Upon compliance with this Section 2.6, the Trust, at its
option, may prepay the Trust Note at any time and from time to time,
either in whole or in part, by payment of the principal amount of the
Trust Note or portion thereof to be prepaid and accrued interest
thereon to the date of such prepayment.
(b) The Trustee will give notice of any prepayment of the
Trust Note pursuant to this Section 2.6 to the Company not less than 3
days nor more than 60 days before the date fixed for such optional
prepayment specifying (i) such date, (ii) that prepayment is to be made
under Section 2.6 of this Agreement, (iii) the principal amount of the
Trust Note to be prepaid on such date, and (iv) accrued interest
applicable to the prepayment. Such notice of prepayment shall be signed
by the Trustee. Notice of prepayment having been so given, the
aggregate principal amount of the Trust Note specified in such notice,
together with accrued interest thereon shall become due and payable on
the prepayment date.
(c) Partial prepayments of the Trust Note made pursuant to
this Section 2.6 shall be credited in each case against remaining
scheduled payments on the Trust Note in the inverse order of the due
dates of such payments.
(d) No such prepayment shall, however, be permitted if such
prepayment would adversely affect the Required Status.
Section 2.7. Place and Time of Payment. All payments of principal of,
or interest on, the Trust Note shall be made by the Trust to the Company in same
day funds at Plainfield, Indiana, not later than 11:00 a.m. on the date due.
Funds received after that hour shall be deemed to have been received on the next
following Business Day.
Section 2.8. Application of Certain Payments. If, and to the extent,
Shares acquired with proceeds of the Trust Loan, held in the Trust and not yet
allocated to participant accounts are sold, then, to the extent allowable by the
Exempt Loan Rules and applicable law, the Trustee, at the direction of the ESOP
Committee administering the ESOP (the "Committee"), may apply the proceeds
thereof toward the repayment of the Trust Loan. Dividends or other cash
distributions paid on the Shares purchased with the proceeds of the Trust Loan
(whether or not allocated to the accounts of Participants) shall be used by the
Trustee, at the discretion of the Committee, to the extent permissible to repay
the Trust Loan in accordance with the provisions of Section 4.5 of the ESOP.
Section 2.9. Due Date Extension. If any payment of principal of, or
interest on, the Trust Note falls due on a day that is not a Business Day, then
such due date shall be extended to the next following Business Day, and
additional interest shall accrue and be payable for the period of such
extension.
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Section 2.10. Computations. All computations of interest on the Trust
Loan and other amounts due hereunder shall be based on a year of 360 days,
comprising twelve 30-day months.
Section 2.11. Interest on Overdue Amounts. If any payment of principal
of, or interest on, the Trust Note is not made when due, interest shall accrue
on the amount thereof, commencing on such due date through the date on which
such amount is paid in full, at a rate per annum equal to the Interest Rate plus
two percent (2%).
ARTICLE III
SECURITY
Section 3.1. Security. Payment of the Trust Note and performance by the
Trust of its obligations under this Agreement and the Trust Note will be secured
by a pledge of, and the grant of a security interest in, the Shares by the
Trustee on behalf of the Trust to and in favor of the Company under a Share
Pledge Agreement, substantially in the form of Exhibit B hereto (the "Share
Pledge Agreement").
Section 3.2. Release of Shares. Notwithstanding any provision of this
Agreement or the Share Pledge Agreement to the contrary contained or implied,
the Company will release from the pledge and security interest under the Share
Pledge Agreement, such Shares as must be allocated to ESOP participants under
the ESOP pursuant to Section 8.7(h) of the ESOP and otherwise under the Code,
the Exempt Loan Rules or other applicable law, provided that Section 8.7(h) of
the ESOP shall not be amended without the Trustee's prior consent.
ARTICLE IV
REPRESENTATIONS, WARRANTIES
AND COVENANTS
Section 4.1. Representations and Warranties of Trustee. To induce the
Company to enter this Agreement and to make the Trust Loan, the Trustee
represents and warrants to the Company as follows:
(a) The Trustee has determined that the Trust Loan is
primarily for the benefit of ESOP participants and their beneficiaries
and bears interest at a rate not in excess of a reasonable rate and
that the terms of the loan are at least as favorable to the Trust and
the ESOP participants as the terms of a comparable loan resulting from
arm's-length negotiations between completely independent parties;
(b) The Trustee is a federal savings bank, legally existing
and in good standing under federal law, has corporate power and
authority and is duly authorized to enter into and perform the Trust;
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(c) The Trustee has full right, power and authority to
execute, deliver and perform on behalf of the Trust under the Trust
Agreement, the ESOP and otherwise the obligations set forth in the Loan
Documents, and the execution and performance of such obligations will
not conflict with or result in a breach of the terms of the ESOP or the
Trust or result in a breach or violation of the Trustee's Articles of
Association or By-Laws or of any law or regulation, order, writ,
injunction or decree of any court or governmental authority binding on
the Trust or Trustee;
(d) The ESOP (and related Trust) has been duly authorized by
all necessary corporate action on the part of the Trustee, if any, has
been duly executed by an authorized officer of the Trustee and
delivered and constitutes a legal, valid and binding obligation of the
Trustee and declaration of trust enforceable in accordance with its
terms;
(e) The Loan Documents have been duly authorized, executed and
delivered by the Trustee and constitute legal, valid and binding
obligations, contracts and agreements of the Trustee on behalf of the
Trust, enforceable in accordance with their respective terms;
(f) The execution, delivery and performance of the Loan
Documents do not conflict with, or result in the creation or imposition
of any lien or encumbrance upon any of the property of the Trustee
(other than the Collateral, as defined in the Share Pledge Agreement)
pursuant to the provisions of the ESOP (and related Trust) or any other
agreement or other instrument to which the Trustee is a party or may be
bound; and
(g) No approval, consent or withholding of objection on the
part of, or filing, registration or qualification with, any
governmental body, Federal, state or local, is necessary in connection
with the execution, delivery and performance by the Trustee of the Loan
Documents.
Section 4.2. Representations and Warranties of Company. To induce the
Trust to enter this Agreement and undertake the obligations hereunder, the
Company represents and warrants to the Trust as follows:
(a) The Company is a corporation duly organized and validly
existing under the laws of the State of Indiana, has corporate power
and authority and is duly authorized to enter into and perform its
obligations under this Agreement;
(b) Neither the execution and delivery of this Agreement, nor
the performance of the terms hereof nor the establishment of the ESOP
or the Trust violates, conflicts with or constitutes a default under
Company's Articles of Incorporation or By-Laws or any material
agreement to which the Company is a party or by which the Company or
any of its assets is bound, or violates any law, regulation, order or
decree of any court, arbitration or governmental authority applicable
to the Company, in any manner that would have a material adverse effect
on the Trust, the ESOP, the Required Status or the Company;
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(c) The Company and the Bank have taken all actions required
to be taken by it to establish the ESOP and the related Trust. The ESOP
and related Trust are intended to, and the terms thereof have been
drafted with the purpose to, comply with the requirements of Sections
401(a) and 501(a) of the Code, as applicable, with the requirements for
treatment as a leveraged employee stock ownership plan, as that term is
defined in Section 4975(e)(7) of the Code, and with other applicable
laws;
(d) The Bank has duly appointed the Trustee as trustee of the
Trust and the Committee under the ESOP;
(e) The Company has delivered to Trustee copies of its
Articles of Incorporation and its By-Laws, the ESOP, and resolutions of
its Board of Directors with respect to approval of this Agreement and
entering into of the transactions and execution of all documents
contemplated by this Agreement, in each case certified by the Secretary
of the Company, which copies are true, correct and complete. None of
such documents or resolutions has been amended or modified in any
respect and such documents and resolutions remain in full force and in
effect, in the form previously delivered to the Trustee;
(f) Other than the Common Stock, the Company has no other
classes of shares outstanding or treasury shares.
(g) The Company's ability to honor put options (the "Put
Options"), which would obligate the Company to repurchase shares of
Common Stock distributed from time to time to ESOP participants and
beneficiaries under Section 6.13 of the ESOP, is not presently
restricted by the provisions of any law, rule or regulation in effect
on the date hereof (except for capital, liquidation account,
requirements to obtain regulatory approval of repurchase transactions,
and similar constraints imposed by regulatory authorities on savings
associations) or by the terms of any loan, financing or other agreement
or instrument to which the Company is a party or by which the Company
is or may be bound.
(h) There are no actions, proceedings, or investigations
pending or, to the Company's knowledge, threatened against or affecting
the Company or any of its property or rights at law or in equity or
before or by any court or tribunal that have not been disclosed to the
Trustee and may have a material adverse effect on the value of the
Common Stock.
(i) All employee plans of the Bank and the Company are in
compliance, in all material respects, with all applicable reporting,
disclosure and filing requirements pertaining to employee benefit plans
set forth in the Code and ERISA.
(j) No consent, approval or other authorization or notice to
any governmental authority or expiration of any government-imposed
waiting period is required in connection with the execution or delivery
of this Agreement, except such as has been obtained, given or expired.
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(k) The shares of Common Stock constitute "qualifying employer
securities" within the meaning of Section 409(l) of the Code.
Section 4.3. Covenants of Company. The Company covenants that:
(a) The Company shall submit or cause to be submitted to the
Internal Revenue Service within ninety (90) days following the Closing
Date an application for a determination letter confirming that the
ESOP, effective as of January 1, 1998, and the related Trust are
qualified and exempt from taxation under Sections 401(a) and 501(a),
respectively, of the Code and that the ESOP meets the requirements of
Section 4975(e)(7) of the Code.
(b) The Company and the Bank shall make all changes reasonably
requested by the Internal Revenue Service as a condition of obtaining a
determination letter from the Internal Revenue Service with respect to
the ESOP, effective January 1, 1997. The Company and the Bank shall
continue to do all things necessary to cause the ESOP and the Trust at
all times to be operated and administered such that the ESOP remains
qualified under Section 401(a) and remains an employee stock ownership
plan under Section 4975(e)(7) of the Code and the Trust remains
tax-exempt under Section 501(a) of the Code.
(c) If at any time the ESOP is required, by applicable law,
court order, or otherwise, to make distributions of Shares that
otherwise would be in violation of Federal or state securities laws,
the Company shall take all actions necessary to permit such required
distributions to be made in full compliance with such laws.
(d) The Company shall honor the Put Options if, and to the
extent, required by Section 409(h) of the Code and regulations
thereunder, and shall not permit its ability to honor such Options to
be materially restricted in any way.
(e) The Company or the Bank shall provide to the Trustee all
governmental filings relating to the ESOP and all ESOP amendments
within sixty days of the date on which such filing or amendment is
effected, and, on an annual basis, shall provide complete financial
statements of the ESOP and the Company.
ARTICLE V
CONDITIONS PRECEDENT
Section 5.1. Documentation Satisfactory to Company. The obligation of
the Company to make the Trust Loan is, in addition to the conditions precedent
contained in Section 5.2, subject to the condition precedent that the Company
shall have received each of the following, duly executed and dated as of the
Closing Date (or such earlier date as shall be satisfactory to the Company) and
in form and substance satisfactory to the Company:
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(a) the Trust Note;
(b) the Share Pledge Agreement; and
(c) a certificate of the Trustee, substantially in the form of
Exhibit C hereto, with such changes thereto as shall be acceptable to
the Company and its counsel, and with respect to such other matters as
the Company may reasonably request.
Section 5.2. Other Conditions Precedent to Company Obligations. In
addition to the condition precedent contained in Section 5.1, the obligation of
the Company to make the Trust Loan available is subject to the conditions
precedent that (i) the Conversion is consummated, (ii) the representations and
warranties made by the Trustee herein shall be true and correct in all material
respects on the Closing Date as if made on and as of the Closing Date; and (iii)
the ESOP shall be permitted to purchase Shares in the Conversion.
Section 5.3. Documentation Satisfactory to Trustee. The obligation of
the Trust to enter into the Trust Loan is subject to the condition precedent
that the Trustee shall have received each of the following, duly executed and
dated as of the Closing Date (or such earlier date as shall be satisfactory to
Trustee) and in form and substance satisfactory to Trustee:
(a) The Share Pledge Agreement; and
(b) A certificate of the Company, substantially in the form of
Exhibit D hereto, with such changes thereto as shall be acceptable to
the Trustee and its counsel, and with respect to such other matters as
the Trustee may reasonably request.
Section 5.4. Other Conditions Precedent to Trustee's Obligation. The
obligation of the Trustee to enter into the Trust Loan is subject to the
conditions precedent that (i) the Conversion is consummated, (ii) the
representations and warranties made by the Company herein shall be true and
correct in all material respects on the Closing Date as if made on and as of the
Closing Date, and (iii) no injunction or restraining order shall be in effect or
litigation pending or threatened to forbid or enjoin the consummation of the
transaction contemplated by this Agreement.
ARTICLE VI
EVENTS OF DEFAULT AND THEIR EFFECT
Section 6.1. Events of Default; Effect. If default in the payment when
due of any principal of, or default (and continuance thereof for 5 days) in the
payment when due of interest on, the Trust Note (an "Event of Default") occurs,
unless the effect thereof as an Event of Default has been waived in writing by
the Company, then the Company may declare the Trust Note to be due and payable,
whereupon the Trust Note shall become immediately due and payable, without
presentment, demand,
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protest or notice to the Trust or other action by the Company of any kind
whatsoever, all of which actions the Trust hereby waives to the maximum extent
permitted by law.
The Company shall promptly advise the Trust of any declaration of
default, but failure to do so or delay in doing so shall not impair the effect
of such declaration. Notwithstanding anything to the contrary herein or in the
Trust Note or the Share Pledge Agreement contained or implied, if a Default or
Event of Default occurs with respect to the Trust Loan by the Trust, the value
of Trust assets transferred in satisfaction thereof shall not exceed the amount
of such default. In addition, such a transfer of such Trust assets shall only
occur upon and to the extent of the failure of the Trust to meet the payment
schedule of the Trust Loan provided in Article II.
ARTICLE VII
SHARE PURCHASES
Section 7.1. Purchase of Shares. The Company is making the Trust Loan
available to the Trustee for the purpose of allowing the Trustee to purchase
Shares in the Conversion. To the extent the ESOP is permitted to purchase up to
714,150 Shares in the Conversion, the Trustee agrees to use all of the proceeds
of the Trust Loan to purchase Shares in accordance with this Article VII.
Section 7.2. Manner of Purchase. The Trustee shall timely subscribe to
purchase the Shares the ESOP is permitted to purchase in the Conversion pursuant
to the Association's Plan of Conversion. The Trustee shall draw upon the Trust
Loan and use the proceeds thereof to purchase the number of Shares the ESOP may
purchase in the Offering, simultaneously with consummation of the Conversion.
Section 7.3. Readily Tradeable. The Company agrees to use reasonable
efforts to cause the Shares to be, and to maintain the Shares' status as,
"readily tradeable on an established securities market" within the meaning of
Section 409(l)(1) of the Code.
Section 7.4. No Prohibited Transactions. The Trustee in the performance
of its obligations under this Agreement, shall observe its fiduciary obligations
under Section 404 of ERISA, shall not engage in any transaction prohibited by
ERISA or contrary to such fiduciary obligations, and, in acquiring Shares, shall
not (and shall not be deemed obligated to) pay more than "adequate
consideration", as defined in Section 3(18) of ERISA.
Section 7.5. Maximum Number of Shares. The Trust shall not purchase
Shares with proceeds of the Trust Loan in excess of 714,150 Shares.
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ARTICLE VIII
GENERAL
Section 8.1. Waivers; Amendments. No delay on the part of the Company,
or the holder of the Trust Note in the exercise of any right, power or remedy
shall operate as a waiver thereof, nor shall any single or partial exercise by
any of them of any right, power or remedy preclude other or further exercise
thereof, or the exercise of any other right, power or remedy. No amendment,
modification or waiver of, or consent with respect to, any provision of this
Agreement, the Trust Note or the Share Pledge Agreement shall in any event be
effective unless the same shall be in writing and signed and delivered by the
Company and then any such amendment, modification, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
Section 8.2. Confirmations; Information. The Company and the Trust (or
holder of the Trust Note) agree from time to time, upon written request received
by it from the other, to confirm to the other in writing the aggregate unpaid
principal balance then outstanding under the Trust Note and such other matters
relating to the Trust Loan, the Trust, the ESOP or the purchase of Shares as may
reasonably be the subject of inquiry.
Section 8.3. Captions. Section captions used in this Agreement are for
convenience only, and shall not affect the construction of this Agreement.
Section 8.4. Governing Law. To the extent not preempted by ERISA, this
Agreement and the Trust Note shall be a contract made under and governed by the
laws of the State of Indiana, without regard to conflict of laws principles. All
obligations of the Trust and rights of the Company and other holder of the Trust
Note expressed herein or in such Trust Note shall be in addition to and not in
limitation of those provided by law.
Section 8.5. Notices. All communications and notices hereunder shall be
in writing and shall be deemed to be given when sent by registered or certified
mail, postage prepaid, return receipt requested, or by telecopier, duly
confirmed, and addressed to such party at the address indicated below or to such
other address as such party may designate in writing pursuant to this Section
8.5.
Lincoln Bancorp
1121 East Main Street
Plainfield, Indiana 46168-0510
Attention: T. Tim Unger, President
Home Federal Savings Bank
501 Washington Street
Columbus, Indiana 47201
Attention: David L. Fisher
Section 8.6. Expenses. All expenses of the transaction contemplated by
this Agreement shall be paid by the Company.
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Section 8.7. Reimbursement. If the Trustee uses proceeds from the Trust
Loan to purchase Common Stock directly from the Company and it is subsequently
determined by a court of competent jurisdiction that the Trustee paid in excess
of "adequate consideration" within the meaning of ERISA for such shares, the
Company shall, as soon as practicable following such judgment, reimburse the
Trustee for the amount of the excess payment.
Section 8.8. Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings between the parties.
Section 8.9. Severability. Should any clause, paragraph or part of this
Agreement be held or declared to be void or illegal for any reason, all other
clauses, paragraphs or parts of this Agreement which can be affected without
such illegal clause, paragraph or part shall nevertheless remain in full force
and effect.
Section 8.10. No Assignment. This Agreement and the obligations of the
parties herein may not be assigned or assumed by any other parties.
Section 8.11. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
put together shall constitute one and the same instrument.
ARTICLE IX
LIMITED RECOURSE
Section 9.1. Limited Recourse. Notwithstanding anything to the contrary
herein or in the Trust Note, the Share Pledge Agreement or any other instrument,
agreement or document contained or implied, the obligations of the Trust under
this Agreement, the Trust Note and the Share Pledge Agreement (collectively, the
"Trust Loan Obligations") shall be enforceable to the extent permitted under
law, including (without limitation) the Exempt Loan Rules, only against the
Trust to the extent of the Collateral (as defined in the Share Pledge Agreement)
not theretofore released from the pledge and security interest under the Share
Pledge Agreement as provided in Section 3.2 and contributions and other payments
(other than contributions of employer securities) made to the Trust in
accordance with the ESOP to enable the Trust to pay and satisfy the Trust Loan
Obligations and from earnings attributable to the Shares purchased with Trust
Loan proceeds and the investment of such contributions and payments
(collectively, the "Trust Loan Collateral"). No recourse shall be had to or
against the Trust or the assets thereof (other than the Trust Loan Collateral)
for any deficiency judgment against the Trust for the purpose of obtaining
payment or other satisfaction of the Trust Loan Obligations.
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Section 9.2. No Personal Recourse Against Trustee. Without limiting the
provisions of Section 9.1, the Trustee of the Trust shall have no personal
liability for any of the Trust Loan Obligations.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their respective representatives thereunto duly
authorized as of the date first above written.
TRUST UNDER LINCOLN BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
By: Home Federal Savings Bank, Trustee
By:
Printed: David L. Fisher
Its: Senior Vice President & Trust Officer
LINCOLN BANCORP
By:
Printed: T. Tim Unger
Its: President and Chief Executive Officer
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Exhibit A
TRUST NOTE
$___________ December ___, 1998
Due: December 31, 2018
FOR VALUE RECEIVED, the undersigned, the Trust (the "Trust")
established pursuant to the provisions of the LINCOLN BANCORP EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST AGREEMENT, DATED AND EFFECTIVE AS OF JULY 1, 1998 (the
"Plan") by HOME FEDERAL SAVINGS BANK, as Trustee (the "Trustee"), promises to
pay to the order of LINCOLN BANCORP, an Indiana corporation (together with its
successors, endorsees and assigns, the "Company"), at such place and in such
other manner as the Company may direct in writing, and when required pursuant to
the provisions of that certain Exempt Loan and Share Purchase Agreement, dated
December ___, 1998 (the "Loan Agreement"), by and among the Trustee and the
Company, the principal amount of ____________________________ Dollars
($__________) or so much thereof as may be advanced by the Company to the Trust
hereunder and under the Loan Agreement, said amount being due and payable
together with accrued interest in such installments and at such times as
provided in the Loan Agreement, with the entire unpaid principal balance due and
payable with accrued interest in full on December 31, 2018, as provided in the
Loan Agreement.
The principal balance hereof from time to time outstanding shall bear
interest from the date of each disbursement of the Trust Loan evidenced by this
Trust Note through and including the date on which such principal amount is paid
in full, at the times provided in the Loan Agreement, at the Interest Rate, as
defined in the Loan Agreement which is _____________ percent (_____%) per annum
(or, in the case of overdue principal and, to the extent legally enforceable,
overdue interest, at the Interest Rate plus two percent (2%) per annum).
This Trust Note has been issued by the Trust in accordance with the
terms of the Loan Agreement to evidence the Trust Loan made by the Company to
the Trust under the Loan Agreement, to which reference is hereby made for the
statement of the terms thereof. This Trust Note and the Company are entitled to
the benefits of the Loan Agreement and the Company may enforce the agreements of
the Trust contained therein and in the Loan Documents, and may exercise the
respective remedies provided for thereby or otherwise available in respect
thereof, all in accordance with the respective terms thereof. All capitalized
terms used in this Trust Note which are not otherwise defined herein have the
respective meanings assigned to them in the Loan Agreement.
The Trust has the right to prepay the principal amount of this Trust
Note without penalty on the terms and conditions specified in the Loan
Agreement.
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If any Event of Default shall occur, the entire unpaid principal amount
of this Trust Note and all of the accrued but unpaid interest thereon may become
or be due and payable in the manner and with the effect provided in the Loan
Agreement. The collection and enforcement of this Trust Note are subject to the
provisions and limitations of Section 9.1 of the Loan Agreement.
To the extent not preempted by ERISA, this Trust Note and the
obligations of the Trust hereunder shall be governed by the laws of the State of
Indiana without regard to principles of conflict of laws.
All parties to this Trust Note, including endorsers, sureties and
guarantors, if any, hereby waive presentment, demand, protest, notice, relief
from valuation and appraisement laws and any and all other notices and demands
in connection with the delivery, acceptance, performance and enforcement of this
Trust Note and also hereby assent to extensions of the time of payment or
forbearance or other indulgences without notice, and agree to remain bound until
the principal, premium, if any, and interest are paid in full, notwithstanding
any extensions of time for payment which may be granted, even though the period
or periods of extension may be indefinite, and notwithstanding any inaction by,
or failure to assert any legal rights available to, the holder of this Trust
Note.
IN WITNESS WHEREOF, the Trust has caused this instrument to be executed
by the Trustee, the day and year first above written.
TRUST UNDER LINCOLN BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
By: Home Federal Savings Bank, Trustee
By:
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Exhibit B
SHARE PLEDGE AGREEMENT
between
TRUST UNDER
LINCOLN BANCORP
STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
and
LINCOLN BANCORP
Dated: December ___, 1998
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SHARE PLEDGE AGREEMENT
THIS SHARE PLEDGE AGREEMENT (this "Agreement" or "Share Pledge
Agreement"), dated as of December ___, 1998, between the Trust (the "Trust")
established pursuant to the provisions of LINCOLN BANCORP EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST AGREEMENT (EFFECTIVE AS OF JULY 1, 1998) (the "Plan")
by HOME FEDERAL SAVINGS BANK, as Trustee ("Trustee"), and LINCOLN BANCORP, an
Indiana corporation (the "Company").
WITNESSETH:
WHEREAS, contemporaneously herewith, the Trust and the Company have
entered into that certain Exempt Loan and Share Purchase Agreement (the "Loan
Agreement"; definitions of terms appearing in which have the same meanings
herein, unless a clear contrary intention appears), dated December ___, 1998,
pursuant to which the Company has agreed to lend to the Trust, and the Trust has
agreed to borrow from the Company, the Trust Loan, and the Trust, to evidence
its indebtedness to the Company with respect to the Trust Loan, has executed and
delivered the Trust Note to the Company; and
WHEREAS, it is a condition precedent to the obligation of the Company
to make the Trust Loan that, among other things, the Trust execute and deliver
this Agreement to the Company,
NOW, THEREFORE, in consideration of the Loan Agreement and the Trust
Loan and other good and valuable consideration (the receipt, adequacy and
sufficiency of which the Trust acknowledges by its execution hereof, the Trust
intending to be legally bound does hereby covenant and agree with the Company as
follows:
Section 1. Pledge. To secure the due and punctual payment and
performance of the obligations of the Trust hereunder and under the Loan
Agreement and the Trust Note (collectively, the "Liabilities"), the Trustee on
behalf of the Trust hereby pledges, hypothecates, assigns, transfers, sets over
and delivers unto the Company, its successors and assigns and hereby grants to
the Company, its successors and assigns a security interest in:
(a) all Shares of Company Common Stock purchased or to be
purchased with the proceeds of the Trust Loan (collectively, the
"Pledged Shares") and the certificates representing or evidencing the
Pledged Shares, and, to the extent permitted by Section 4975(e)(7) of
the Internal Revenue Code of 1986, as amended, and Reg. ss.
54.4975-7(b)(5) promulgated thereunder, all cash, securities, interest,
dividends, rights and other property at any time and from time to time
received in respect of or in exchange for any or all of the Pledged
Shares; and
(b) all proceeds of all of the foregoing
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(all such Pledged Shares, certificates, cash, securities, interest, dividends,
rights and other property, and proceeds thereof, other than as released, sold or
otherwise applied by the Company pursuant to the' terms hereof, being herein
collectively called the "Collateral"), TO HAVE AND TO HOLD such Collateral,
together with all rights, titles, interests, privileges and preferences
appertaining or incidental thereto, forever, subject, however, to the terms,
covenants and conditions hereafter set forth.
Section 2. Warranties and Covenants.
(a) The Trust represents and warrants to the Company that the
Trust is, or at the time of any future delivery, pledge, assignment or
transfer will be, the lawful owner of the Collateral, free of all
claims and liens other than the security interest hereunder, with full
right to deliver, pledge, assign and transfer the Collateral to the
Company as Collateral hereunder.
(b) So long as any of the Liabilities remain outstanding, the
Trust will, unless the Company shall otherwise consent in writing:
(i) promptly deliver to the Company from time to time
certificates representing Pledged Shares as the Trustee
acquires them and, upon request of the Company, such stock
powers and other documents, satisfactory in form and substance
to the Company, with respect to the Collateral as the Company
may reasonably request to preserve and protect, and to enable
the Company to enforce, its rights and remedies hereunder;
(ii) not create or suffer to exist any lien, security
interest or other charge or encumbrance against, in or with
respect to any of the Collateral except for the pledge
hereunder and the security interest created hereby;
(iii) not make or consent to any amendment or other
modification or waiver with respect to any of the Collateral
or enter into any agreement or permit to exist any restriction
with respect to any of the Collateral other than pursuant
hereto; and
(iv) not take or fail to take any action which would
in any manner impair the value or enforceability of the
Company's security interest in any of the Collateral.
Section 3. Care of Collateral. The Company shall be deemed to have
exercised reasonable care with respect to the interest of the Trust in the
custody and preservation of the Collateral if it takes such action for that
purpose as the Trust shall request in writing or as it would with respect to
similar assets of its own, but failure of the Company to comply with any such
request shall not of itself be deemed a failure to exercise reasonable care.
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Section 4. Certain Rights Regarding Collateral and Liabilities.
(a) The Company may from time to time, whether before or after any of
the Liabilities shall become due and payable, without notice to the Trust, to
the extent otherwise permitted (i) retain or obtain a security interest in the
Collateral, to secure payment and performance of any of the Liabilities, (ii)
retain or obtain the primary or secondary liability of any party or parties, in
addition to the Trust, with respect to any of the Liabilities, (iii) extend or
renew for any period (whether or not longer than the original period) or
exchange any of the Liabilities or release or compromise any obligation of any
nature of any party with respect thereto, and (iv) surrender, release or
exchange all or any part of any property, in addition to the Collateral,
securing payment and performance of any of the Liabilities, or compromise or
extend or renew for any period (whether or not longer than the original period)
any obligations of any nature of any party with respect to any such property.
(b) The Company shall have no right to vote the Pledged Shares prior to
the occurrence of an Event of Default (hereinafter in Section 6(a) hereof
defined). After the occurrence of an Event of Default, the Trust shall have the
right to vote any and all of the Pledged Shares in accordance with the Plan
unless and until it receives notice from the Company that such right has been
terminated with respect to shares subject to execution as a result of the
Default.
Section 5. Dividends, etc.
(a) So long as no Default or Event of Default, shall have occurred and
be continuing, the Trust shall be entitled to receive any and all cash dividends
on the Pledged Shares which it is otherwise entitled to receive, and to vote the
Pledged Shares in accordance with the terms of the Plan and to give consents,
waivers and ratifications in respect of the Pledged Shares, but any and all
stock and/or liquidating dividends, distributions in property, returns of
capital or other distributions made on or in respect of the Pledged Shares,
whether resulting from a subdivision, combination or reclassification of the
outstanding capital stock of any issuer thereof or received in exchange for the
Pledged Shares or any part thereof or as a result of any merger, consolidation,
acquisition or other exchange of assets to which any issuer may be a party or
otherwise, and any and all cash and other property received in exchange for any
Collateral shall be, and become part of the Collateral pledged hereunder and, if
received by the Trust, shall forthwith be delivered to the Company or its
designated nominee (accompanied, if appropriate, by proper instruments of
assignment and/or stock powers executed by the Trust in accordance with the
Company's instructions) to be held subject to the terms of this Agreement and
the Plan.
(b) Upon the occurrence and during the continuance of an Event of
Default, subject to the terms of Section 4(b) hereof, all rights of the Trust
pursuant to Section 5(a) hereof shall cease and the Company shall have the sole
and exclusive right and authority to receive and retain the dividends which the
Trust would otherwise be authorized to retain and, to the extent permitted by
law, to vote and give consents, waivers and ratifications pursuant to Section
5(a) hereof. Any and all money and other property paid over to or received by
the Company pursuant to the provisions of this paragraph
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(b) shall be retained by the Company as additional Collateral hereunder and be
applied in accordance with the provisions hereof.
Section 6. Event of Default.
(a) The occurrence of any of the following shall constitute an Event
of Default hereunder nonpayment, when due, whether by acceleration or otherwise,
of any amount payable on any of the Liabilities; an Event of Default as defined
in the Loan Agreement; any representation or warranty of the Trust contained
herein or given pursuant hereto being untrue in any material respect; or the
Trust's failure to perform any covenant or agreement contained herein.
(b) Upon the occurrence of an Event of Default, (i) the Company may
exercise from time to time any rights and remedies available to it under the
Uniform Commercial Code as in effect from time to time in Indiana or otherwise
available to it, including, but not limited to, sale, assignment, or other
disposal of the Pledged Shares in exchange for cash or credit, and (ii) the
Company may, without demand or notice of any kind, but subject to Section 7,
appropriate and apply toward the payment of such of the Liabilities, and in such
order of application, as the Company may from time to time elect, any balances,
credits, deposits, accounts or moneys of the Trust. If any notification of
intended disposition of any of the Collateral is required by law, such
notification, if mailed, shall be deemed reasonably and properly given if mailed
at least five (5) days before such disposition, postage prepaid, addressed to
the Trust, either at the address of the Trust shown below, or at any other
address of the Trust appearing on the records of the Company. Any proceeds of
any disposition of Collateral shall be applied as provided in Section 7 hereof.
All rights and remedies of the Company expressed hereunder are in addition to
all other rights and remedies possessed by it, including those under any other
agreement or instrument relating to any of the Liabilities or security therefor.
No delay on the part of the Company in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by the Company of
any right or remedy shall preclude other or further exercise thereof or the
exercise of any other right or remedy. No action of the Company permitted
hereunder shall impair or affect the rights of the Company in and to the
Collateral.
(c) The Trust agrees that in any sale of any of the Collateral
whenever an Event of Default hereunder shall have occurred and be continuing,
the Company is hereby authorized to comply with any limitation or restriction in
connection with such sale as it may be advised by counsel is necessary in order
to avoid any violation of law (including, without limitation, compliance with
such procedures as may restrict the number of prospective bidders and
purchasers, require that such prospective bidders and purchasers have certain
qualification, and restrict such prospective bidders and purchasers to persons
who will represent and agree that they are purchasing for their own account for
investment and not with a view to the distribution or resale of such
Collateral), or in order to obtain any required approval of the sale or of the
purchaser by any governmental regulatory authority or official, and the Trust
further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall the Company be liable nor accountable to the Trust for any discount
allowed by the reason of the fact that such Collateral is sold in compliance
with any such limitation or restriction.
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<PAGE>
(d) Notwithstanding anything to the contrary herein or in the Trust
Note or the Loan Agreement contained or implied, if an Event of Default occurs
with respect to the Trust Loan by the Trust, the value of Trust assets
transferred in satisfaction thereof shall not exceed the amount of such default.
In addition, such a transfer of such Trust assets shall only occur upon, and to
the extent of the failure of, the Trust to meet the payment schedule of the
Trust Loan provided in Article II of the Loan Agreement.
Section 7. Application of Proceeds of Sale or Cash Held as
Collateral. The proceeds of sale of Collateral sold pursuant to the terms of
Section 6 hereof and/or, after an Event of Default, the cash held as Collateral
hereunder, shall be applied by the Company, to the extent permitted by
applicable law, as follows:
First: to payment of the costs and expenses of such sale,
including the out-of-pocket costs and expenses of the Company and the
reasonable fees and out-of-pocket costs and expenses of counsel
employed in connection therewith, and to the payment of all advances
made by the Company for the account of the Trust hereunder and the
payment of all costs and expenses incurred by the Company in connection
with the administration and enforcement of this Agreement, to the
extent that such advances, costs and expenses shall not have been
reimbursed to the Company;
Second: to the payment in full of the Liabilities; and
Third: the balance, if any, of such proceeds shall be paid to
the Trust, its successors and assigns, or as a court of competent
jurisdiction may direct.
Section 8. Authority of Company. The Company shall have and be
entitled to exercise all such powers hereunder as are specifically delegated to
the Company by the terms hereof, together with such powers as are incidental
thereto. The Company may execute any of its duties hereunder by or through
agents or employees and shall be entitled to retain counsel and to act in
reliance upon the advice of such counsel concerning all matters pertaining to
its duties hereunder. Neither the Company, nor any director, officer or employee
of the Company, shall be liable for any action taken or omitted to be taken by
it or them hereunder or in connection herewith, except for its or their own
gross negligence or wilful misconduct. The Trust hereby agrees, to the extent
permitted by applicable law, to reimburse the Company, on demand, for all costs
and expenses incurred by the Company in connection with the enforcement of this
Agreement (including costs and expenses incurred by any agent employed by the
Company).
Section 9. Termination. This Agreement shall terminate when all the
Liabilities have been fully paid and performed, at which time the Company shall
reassign and redeliver (or cause to be reassigned and redelivered) to the Trust,
or to such person or persons as the Trust shall designate, against receipt, such
of the Collateral (if any) as shall not have been theretofore released, sold or
otherwise applied by the Company pursuant to the terms hereof and shall still be
held by it hereunder,
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<PAGE>
together with any appropriate instruments of reassignment and release. Any such
reassignment shall be without recourse upon, or representation or warranty by,
the Company.
Section 10. Required Release of Collateral. Notwithstanding any
provision of this Agreement or the Loan Agreement to the contrary, the Company
from time to time will release from the pledge and security interest under the
Loan Agreement, such Collateral as must be allocated to participants under the
Plan pursuant to Section 8.7(h) of the Plan and otherwise under the Code, the
Exempt Loan Rules or other applicable law.
Section 11. Limited Recourse. Notwithstanding anything to the
contrary herein or in the Trust Note, the Loan Agreement or any other
instrument, agreement or document contained or implied, the Liabilities shall be
enforceable to the extent permitted under applicable law, including, without
limitation, the Exempt Loan Rules, only against the Trust to the extent of the
Collateral not theretofore released from the pledge and security interest under
this Agreement as provided herein and contributions (other than contributions of
employer securities) made to the Trust in accordance with the Plan to enable the
Trust to pay and satisfy the Liabilities and from earnings attributable to the
Shares and the investment of such contributions (collectively, the "'Trust Loan
Collateral"). No recourse shall be had to or against the Trust or the assets
thereof (other than the Trust Loan Collateral) for any deficiency judgment
against the Trust for the purpose of obtaining payment or other satisfaction of
the Liabilities. Without limiting the foregoing, the Trustee of the Trust shall
have no personal liability for any of the Liabilities, other than as required by
or arising under applicable law.
Section 12. Notices. All communications and notices hereunder shall
be in writing and, if mailed, shall be deemed to be given when sent by
registered or certified mail, postage prepaid, return receipt requested, or by
telecopier, duly confirmed, and addressed to such party at the address indicated
below or to such other address as such party may designate in writing pursuant
to this Section 12.
LINCOLN BANCORP
1121 East Main Street
P.O. Box 510
Plainfield, Indiana 46168-0510
Attention: T. Tim Unger, President
HOME FEDERAL SAVINGS BANK
501 Washington Street
Columbus, Indiana 47201
Attention: David L. Fisher
Section 13. Binding Agreement Assignment. This Agreement, and the
terms, covenants and conditions hereof, shall be binding upon and inure to the
benefit of the parties hereto, and their respective successors and assigns,
except the Trust shall not be permitted to assign this Agreement
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or any interest herein or in the Collateral, or any part thereof, or otherwise
grant any option with respect to the Collateral, or any part thereof and the
Company shall not assign any interest herein or in the Collateral unless such
assignment is expressly made subject to the terms of the Loan Documents.
Section 14. Miscellaneous Provisions. Neither this Agreement nor any
provision hereof may be amended, modified, waived, discharged or terminated nor
may any of the Collateral be released or the pledge or the security interest
created hereby extended, except by an instrument in writing duly signed by or on
behalf of the Company hereunder. The section headings used herein are for
convenience of reference only and shall not define or limit the provisions of
this Agreement. This Agreement may be executed in any number of counterparts and
by the different parties on separate counterparts and each such counterpart
shall be deemed to be an original, but all such counterparts shall together
constitute but one and the same Agreement.
Section 15. Governing Law; Interpretation. This Agreement has been
made and delivered at Spencer, Indiana, and, except to the extent preempted by
ERISA, shall be governed by the internal laws of the State of Indiana, without
regard to principles of conflict of laws. Wherever possible each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under such law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
Section 16. Filing as a Financing Statement. At the option of the
Company, this Agreement, or a carbon, photographic or other reproduction of this
Agreement or of any Uniform Commercial Code financing statement covering the
Collateral or any portion thereof shall be sufficient as a Uniform Commercial
Code financing statement and may be filed as such.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective representatives thereunto duly authorized
as of the date first above written.
TRUST UNDER LINCOLN BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
By: Home Federal Savings Bank, Trustee
By:
Printed:
Its:
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LINCOLN BANCORP
By:
Printed: T. Tim Unger
Its: President and Chief Executive Officer
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<PAGE>
Exhibit C
CERTIFICATE OF TRUSTEE
The undersigned, Home Federal Savings Bank, a federal savings bank,
in its capacity as Trustee ("Trustee") of the Trust under Lincoln Bancorp
Employee Stock Ownership Plan and Trust Agreement (Effective as of July 1, 1998)
(the "Trust") hereby certifies, pursuant to Section 5.1(c) of that certain
Exempt Loan and Share Purchase Agreement between the Trust and Lincoln Bancorp
of even date herewith (the "Loan Agreement") that:
(i) it has determined that the Trust Loan, as defined in the
Loan Agreement, is primarily for the benefit of ESOP participants and
their beneficiaries and bears interest at a rate not in excess of a
reasonable rate and that the terms of the loan are at least as
favorable to the Trust and the ESOP participants as the terms of a
comparable loan resulting from arm's-length negotiations between
completely independent parties;
(ii) the other representations and warranties of the Trust
contained in the Loan Agreement are true in all material respects as of
the date of this Certificate; and
(iii) the conditions set forth in Article V of the Loan
Agreement, to the extent their satisfaction depends upon action on
the part of the Trust or the Trustee, have been satisfied as of the
date of this Certificate.
EXECUTED this ____ day of December, 1998.
HOME FEDERAL SAVINGS BANK,
as Trustee of the Trust
under the Lincoln Bancorp
Employee Stock Ownership
Plan and Trust Agreement
(Effective as of July 1,
1998)
By:
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Exhibit D
CERTIFICATE OF THE COMPANY
The undersigned, Lincoln Bancorp, an Indiana corporation (the
"Company"), pursuant to Section 5.3(b) of that certain Exempt Loan and Share
Purchase Agreement between Home Federal Savings Bank, a federal savings bank, in
its capacity as Trustee of the Trust under the Lincoln Bancorp Employee Stock
Ownership Plan and Trust Agreement (Effective as of July 1, 1998) and the
Company of even date herewith (the "Loan Agreement"), hereby certifies that the
representations and warranties of the Company contained in the Loan Agreement
are true and correct in all material respects, and the Company is in compliance
with its covenants set forth in the Loan Agreement in all material respects, as
of the date of this Certificate.
EXECUTED as of this ___ day of December, 1998.
LINCOLN BANCORP
By:
T. Tim Unger, President and
Chief Executive Officer
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Exhibit 10(7)
LINCOLN FEDERAL
SAVINGS BANK
UNFUNDED DEFERRED COMPENSATION
PLAN FOR THE DIRECTORS OF
LINCOLN FEDERAL SAVINGS BANK
(HEREINAFTER "ASSOCIATION")
1. This Plan shall be unfunded so that the Association is under a mere
contractual duty to make payments when due under the Plan. The promise to pay
shall not be represented by notes and shall not be secured by a pledge of assets
or in any other way. This plan and action taken pursuant to it shall not be
deemed or construed to establish a trust or fiduciary relationship of any kind
between or among the Association, any director, or any other person. Neither a
director nor any beneficiary of a director shall have the power to transfer,
assign, anticipate, or otherwise encumber in advance any of the payments that
may become due hereunder, nor shall any of such payments be subject to
attachment, garnishment, or execution or be transferable by operation of law in
the event of bankruptcy, insolvency, or otherwise.
2. Prior to performing services for which the fees are to be deferred a
director may elect, by written notice to the Secretary of the Association, to
defer receipt of all or a specified part of his or her fees. A person elected to
fill a vacancy on the Board and who was not a director on the preceding December
31st, or whose term of office did not begin until after such date, may elect,
before his term begins, to defer all or a specified part of his fees for the
balance of the calendar year and for succeeding calendar years.
3. A director's election to defer fees shall continue from year to year
unless the director terminates it in writing. A director shall be permitted to
terminate his deferral election only with respect to fees for services to be
performed after the date on which he terminates his election. No amount deferred
shall be paid to a director until he (a) ceases to be a director, or (b) attains
that age specified by the retirement income test of the Social Security Act
(Section 203(f)(3)) as amended, or its equivalent then in effect, or the year so
elected in the "agreement to participate", as he or she may elect, and then only
at the times and in the manner specified below.
4. The Association shall maintain a memorandum account for each
director participating in the Plan with respect to deferred fees and shall
credit such account with interest quarterly at a rate equivalent to the
Association's average cost of funds for the current quarter. Interest which is
credited to the account will bear interest, at the same rate.
5. Amounts which are deferred under the Plan, together with accumulated
interest, shall at the director's election, be distributed either in a one lump
sum payment or in equal annual installments over any period of from two to ten
years, with the lump sum or first installment being payable the first day of the
calendar year immediately following the year in which the director
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(a) ceases to be a director, or (b) attains that age specified by the retirement
income test of the Social Security Act above referred to, or the year so elected
in the "agreement to participate", whichever he elects, and any additional
installments being payable on the first day of each succeeding year thereafter.
Amounts which are held pending distribution pursuant to this item shall continue
to accrue interest at the stated interest rate.
6. The elections referred to in paragraph 3 above and as to the form of
payment of deferred fees permitted by paragraph 5 above shall be made by the
director at the time the director first elects to defer receipt of all or a
portion of his fees pursuant to paragraph 2 above. The elections provided for in
paragraph 3 and the form of payment of the deferred fees permitted by paragraph
5 may be changed by the director at any time during his term as a director of
the Association; provided, however, that no change in such elections will be
permitted after the December 31st preceding the first year in which the deferred
amounts would, but for the change in the election, be payable. Any elections
made by a director after such December 31st will not be given effect by the
Association.
7. If a director (excluding any present director) or a former director
becomes a director, proprietor, officer, partner, or employee of, or otherwise
becomes affiliated with any savings and loan association in the State of Indiana
that competes with the Association, or if a former director shall refuse a
reasonable request of the Association to perform consulting services for it
after he retires from the Association's Board of Directors, any deferred fees
and interest remaining payable to such person under the plan shall be payable
immediately at the option of the Association.
8. Upon the death of a director or a person who has ceased to be a
director, the balance of deferred fees and interest in his account shall be
payable to his estate in one lump sum within ninety (90) days following his or
her death.
9. This agreement shall not be deemed to constitute a contract of
employment between the parties hereto, nor shall any provisions hereof restrict
the right of the Association to discharge the Recipient, or restrict the right
of the Recipient to terminate his employment.
10. The President of the Association shall be empowered to place the
Plan in effect under such additional conditions and terms as shall not be
inconsistent with the terms stated above and as shall not jeopardize the status
of the Plan as a Deferred Compensation Plan allowing a director of the
Association not to include deferred amounts (including interest) in gross income
under the Federal Income Tax laws until the taxable year or years such amounts
are actually paid.
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AMENDMENT TO UNFUNDED DEFERRED COMPENSATION PLAN OF
LINCOLN FEDERAL SAVINGS BANK
At a regular Board of Directors meeting of Lincoln Federal Savings
Bank, held December 17, 1985, the following action was taken: Upon motion made,
duly seconded and unanimously approved by the directors, the Unfunded Deferred
Compensation Plan, adopted March 20, 1984, was amended as follows:
"Said Plan shall be amended to include not only members of the Board of
Directors, but also the Chief Executive Officer. Contributions to the
Plan, made by any participant, shall include not only fees but any
bonus or other compensation so designated by the participant. All other
provisions of the Plan shall remain intact as originally approved."
-3-
Exhibit 10(8)
LINCOLN FEDERAL SAVINGS BANK DEFERRED
DIRECTOR SUPPLEMENTAL RETIREMENT PLAN
(EFFECTIVE DECEMBER 1, 1997)
ARTICLE I
DEFINITIONS
Section 1.01. Administrator. The term "Administrator" means the Bank,
which shall have the authority to manage and control the operation of this Plan.
Section 1.02. Bank. The term "Bank" means the Lincoln Federal Savings
Bank.
Section 1.03. Beneficiary. The term "Beneficiary" means for a Director
the individual or individuals designated by that Director to receive benefits in
the event of his death.
Section 1.04. Director. The term "Director" means any member of the
Board of Directors of the Bank.
Section 1.05. Director Fees. The term "Director Fees" means for each
Director the monthly remuneration for services as a director paid to that
Director by the Bank at the date of determination.
Section 1.06. Effective Date. The term "Effective Date" means December
1, 1997.
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Section 1.07. Plan. The term "Plan" means the plan embodied by this
instrument as now in effect or hereafter amended.
Section 1.08. Total Disability. The term "Total Disability" means a
physical or mental condition which, in the opinion of a physician acceptable to
the Bank, precludes a Director from continuing to serve as a Director.
Section 1.09. Vested Percentage. The term "Vested Percentage" means the
percentage of Director Fees paid to a Director at the date benefits became
payable under Article II and shall be determined in accordance with the
following schedule:
Completed Years as a Director Vested Percentage
less than 5 0%
5 20%
6 40%
7 60%
8 80%
9 or more 100%
provided, however, that a Director who has completed at least one (1) year as a
Director as of the Effective Date or whose status as a Director terminates by
reason of death or Total Disability shall have a Vested Percentage equal to one
hundred percent (100%).
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ARTICLE II
BENEFITS
Section 2.01. Director Benefits. Upon a Director's attainment of age
seventy (70), the Director shall be entitled to receive an amount equal to the
product of:
(1) the Director's Vested Percentage and
(2) the rate of Directors Fees payable to such Director
immediately prior to his attainment of age seventy (70) or, if
the individual's status as a Director terminates earlier, the
rate of Directors Fees in effect at the date on which the
Director terminated his status as a Director of the Bank
for the one hundred and twenty (120) consecutive months immediately following
the month during which he attains age seventy (70) or, if later, the month
immediately following the month during which he ceases to be a Director. In the
event the Director's death occurs after the commencement of the one hundred and
twenty (120) monthly installments, the remaining installments shall be paid to
the Director's designated beneficiary (as determined in accordance with Section
3.05) beginning in the month immediately following the date of his death.
Section 2.02. Death Benefits. If a Director's death occurs before
commencement of the monthly payments described in Section 2.01 of this Plan, the
designated beneficiary (as determined
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in accordance with Section 3.05) of the Director shall be entitled to a monthly
amount equal to the product of:
(1) the Director's Vested Percentage and
(2) the rate of Directors Fees in effect immediately prior to the
Director's death or, if the individual's status as a Director
terminates earlier, the date on which the Director terminated
his status as a Director of the Bank
for the one hundred and twenty (120) consecutive months immediately following
his death. The first monthly death benefit shall commence in the month
immediately following the date of the Director's death.
ARTICLE III
ADMINISTRATION
Section 3.01. Administration of Plan. The Bank shall have the complete
responsibility for the administration of this Plan. The Bank shall have full
power and authority to adopt rules and regulations for the administration of
this Plan; provided, however, that such rules and regulations are not
inconsistent with the provisions of this Plan.
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<PAGE>
Section 3.02. Delegation of Responsibility. The Bank may delegate
duties involved in the administration of this Plan to such person or persons
whose services are deemed by it to be necessary or convenient.
Section 3.03. Payment of Benefits. The amounts payable as benefits
under this Plan shall be paid solely from the general assets of the Bank. No
Director shall have any interest in any specific assets of the Bank under the
terms of this Plan. This Plan shall not be considered to create an escrow
account, trust fund or other funding arrangement of any kind or a fiduciary
relationship between any Director and the Bank. The Bank's obligations under
this Plan are purely contractual and shall not be funded or secured in any way.
Section 3.04. Construction of Plan. The Bank shall have the power to
construe this Plan and to determine all questions of fact or law arising under
it. It may correct any defect, supply any omission or reconcile any
inconsistency in this Plan in such manner and to such extent as it may deem
appropriate.
Section 3.05. Designation of Beneficiaries. Each Director shall
designate his Beneficiary and his contingent Beneficiary to whom death benefits
due hereunder at the date of his death shall be paid. If any Director fails to
designate a Beneficiary or if the designated Beneficiary predeceases any
Director, death benefits due hereunder at that Director's death shall be paid to
his contingent Beneficiary or, if none, to the deceased Director surviving
spouse, if any, and if none to the deceased Director's estate.
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ARTICLE IV
AMENDMENT OR TERMINATION OF PLAN
Section 4.01. Termination. The Bank may at any time terminate this
Plan. The Bank shall treat all Directors as if they had ceased being a Director
on the effective date of the termination of this Plan and shall pay to each such
Director monthly amounts determined in accordance with Article II and based on
their Vested Percentages and the rate of Director Fees in effect on the date on
which this Plan is terminated.
Section 4.02. Amendment. The Bank may amend the provisions of this Plan
at any time; provided, however, that no amendment shall adversely affect the
rights of Directors or their Beneficiaries with respect to the amounts payable
had this Plan terminated immediately prior to the amendment.
ARTICLE V
MISCELLANEOUS
Section 5.01. Successors. This Plan shall be binding upon the
successors of the Bank.
Section 5.02. Duration of Plan. Subject to Section 4.01 of this Plan,
this Plan shall terminate on the date on which each Director's benefits have
been distributed in full pursuant to the terms of this Plan.
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Section 5.03. Choice of Law. This Plan shall be construed and
interpreted pursuant to, and in accordance with, the laws of the State of
Indiana.
Section 5.04. Non-Alienation. No Director or his Beneficiary shall have
any right to anticipate, pledge, alienate or assign any of his rights under this
Plan, and any effort to do so shall be null and void. The benefits payable under
this Plan shall be exempt from the claims of creditors or other claimants and
from all orders, decrees, levies and executions and any other legal process to
the fullest extent that may be permitted by law.
Section 5.05. Gender and Number. Words in one (1) gender shall be
construed to include the other genders where appropriate; words in the singular
or plural shall be construed as being in the plural or singular where
appropriate.
Section 5.06. Headings. The headings in this Plan are solely for
convenience of reference and shall not affect its interpretation.
Section 5.07. Disclaimer. The Bank makes no representations or
assurances and assumes no responsibility as to the performance by any parties,
solvency, compliance with state and federal securities regulation or state and
federal tax consequences of this Plan or participation therein. It shall be the
responsibility of the respective Directors to determine such issues or any other
pertinent issues to their own satisfaction.
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This Plan has been executed on this 16 day of December, 1997, but shall be
effective as of December 1, 1997.
LINCOLN FEDERAL SAVINGS BANK
By: /s/ T. Tim Unger
Its: President/CEO
-8-
Exhibit 21
Subsidiaries of Lincoln Bancorp following the Stock Conversion of
Lincoln Federal Savings Bank:
Name Jurisdiction of Incorporation
---------------------------- -----------------------------
Lincoln Federal Savings Bank Federal
LF Service Corporation Indiana
Exhibit 23(1)
KELLER & COMPANY, INC.
555 Metro Place North
Suite 524
Dublin, Ohio 43017
(614)766-1246
(614)766-1459 FAX
September 11, 1998
RE: Valuation Appraisal of Lincoln Bancorp
Lincoln Federal Savings Bank
Plainfield, Indiana
We hereby consent to the use of our firm's name, Keller & Company, Inc.
("Keller"), and the reference to our firm as experts in the Application for
Conversion on Form AC to be filed by Lincoln Federal Savings Bank, and any
amendments thereto and references to our opinion regarding subscription rights
filed as an exhibit to the applications referred to hereafter. We also consent
to the use of our firm's name in the Form S-1 to be filed by Lincoln Bancorp
with the Securities and Exchange Commission and any amendments thereto, and to
the statements with respect to us and the references to our Valuation Appraisal
Report and in the said Form AC and any amendments thereto and in the notice and
Application for Conversion filed by Lincoln Federal Savings Bank.
Very truly yours,
KELLER & COMPANY, INC.
by: /s/ John A. Shaffer
-------------------------
John A. Shaffer
Vice President
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Exhibit 23(2)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report dated March 19, 1998 on the financial
statements of Lincoln Federal Savings Bank (the "Bank") and to the reference
made to us under the caption "Experts" in the Application of Conversion filed by
the Bank with the Office of Thrift Supervision and in the Registration Statement
on Form S-1 filed by Lincoln Bancorp with the United States Securities and
Exchange Commission.
/s/ Olive LLP
Indianapolis, Indiana
September 10, 1998
-1-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's unaudited consolidated financial statements for the six months
ended June 30, 1998 and is qualified in its entirety by reference to such
statements.
</LEGEND>
<CIK> 0001070259
<NAME> Lincoln Bancorp
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-1-1998
<PERIOD-END> Jun-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 23,765
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 58,940
<INVESTMENTS-CARRYING> 3,500
<INVESTMENTS-MARKET> 3,509
<LOANS> 204,115
<ALLOWANCE> 1,432
<TOTAL-ASSETS> 304,500
<DEPOSITS> 211,160
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,656
<LONG-TERM> 47,889
<COMMON> 0
0
0
<OTHER-SE> 42,795
<TOTAL-LIABILITIES-AND-EQUITY> 304,500
<INTEREST-LOAN> 9,244
<INTEREST-INVEST> 1,468
<INTEREST-OTHER> 701
<INTEREST-TOTAL> 11,413
<INTEREST-DEPOSIT> 5,336
<INTEREST-EXPENSE> 6,855
<INTEREST-INCOME-NET> 4,558
<LOAN-LOSSES> 410
<SECURITIES-GAINS> 105
<EXPENSE-OTHER> 3,096
<INCOME-PRETAX> 1,153
<INCOME-PRE-EXTRAORDINARY> 967
<EXTRAORDINARY> 150
<CHANGES> 0
<NET-INCOME> 817
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.06
<LOANS-NON> 1,232
<LOANS-PAST> 369
<LOANS-TROUBLED> 42
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,361
<CHARGE-OFFS> 355
<RECOVERIES> 16
<ALLOWANCE-CLOSE> 1,432
<ALLOWANCE-DOMESTIC> 1,432
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
Exhibit 99(2)
Proxy Card
Please Detach, Sign, & Return ALL Proxies in the enclosed white envelope
- --------------------------------------------------------------------------------
LINCOLN BANCORP
Stock Conversion Center
P.O. Box ______
1121 East Main Street
Plainfield, Indiana 46168-0510
(317) ___-____
Stock Order Form
Deadline: The Subscription Offering ends at _____ p.m., Plainfield, Indiana
time, on December ___, 1998. Your original Stock Order Form and Certification
Form, properly executed and with the correct payment, must be received (not
postmarked) at the address on the top of this form, or at any Lincoln Federal
Savings Bank office, by the deadline, or it will be considered void. Faxes or
copies of this form will not be accepted.
- --------------------------------------------------------------------------------
The minimum number of shares that may be subscribed for is 25. Each Eligible
Account Holder, Supplemental Eligible Account Holder and Voting Member, in his
or her capacity as such, may subscribe for no more than 25,000 shares. No
person, together with associates of and persons acting in concert with such
person (and including all persons on a single joint account as one member) may
subscribe for more than 86,768 shares of the Common Stock in the Subscription
Offering. There are additional purchase limitations for the Community Offering.
See Instructions for Items 1 and 2.
(1) Number of Shares Price Per Share (2) Total Amount Due
x $10.00 =
- --------------------- ------------------- --------------------------
Method of Payment
(3) |_| Enclosed is a check, bank draft or money order payable to
Lincoln Federal Savings Bank for $___________.
(4) |_| I authorize Lincoln Federal Savings Bank to make withdrawals
from my Lincoln Federal Savings Bank certificate or savings
account(s) shown below, and understand that the amounts will not
otherwise be available for withdrawal:
Account Number(s) Amount(s)
- ---------------------------- ----------------
- ---------------------------- ----------------
- ---------------------------- ----------------
Total Withdrawal
There is NO penalty for early withdrawal
<PAGE>
(5) |_| Check here if you are a director, officer or employee of
Lincoln Federal Savings Bank or a member of such person's
immediate family (same household).
(6) |_| Associate - Acting in Concert
Check here, and complete the reverse side of this form, if you
or any associates or person acting in concert with you have
submitted other orders for shares in the Subscription Offering.
(7) Purchaser Information (check one)
a. |_| Eligible Account Holder Check here if you were a depositor
with $50.00 or more on deposit with Lincoln Federal Savings Bank
as of June 30, 1997. Enter information below for all deposit
accounts that you had at Lincoln Federal Savings Bank on June
30, 1997.
b. |_| Supplemental Eligible Account Holder - Check here if you were a
depositor with $50.00 or more on deposit with Lincoln Federal
Savings Bank as of September 30, 1998, but are not an Eligible
Account Holder. Enter information below for all deposit accounts
that you had at Lincoln Federal Savings Bank on September 30,
1998.
c. |_| Voting Member - Check here if you were a depositor of Lincoln
Federal Savings Bank as of November ___, 1998, but are not an
Eligible Account Holder or a Supplemental Eligible Account
Holder or were a borrower of Lincoln Federal Savings Bank as of
June 19, 1984, whose loan was in existence on November __, 1998,
but are not an Eligible Account Holder or a Supplemental
Eligible Account Holder. Enter information below for all deposit
accounts and/or loan accounts that you had at Lincoln Federal
Savings Bank on November ___, 1998.
Account Title (Names on Accounts) Account Number
- ------------------------------ -----------------------------
- ------------------------------ -----------------------------
- ------------------------------ -----------------------------
Please Note: Failure to list all of your accounts may result in the loss of part
or all of your subscription rights. (additional space on back of form)
<PAGE>
(8) Stock Registration - Please Print Legibly and Fill Out
Completely (Note: The Stock Certificate and all correspondence
related to this stock order will be mailed to the address
provided below.)
<TABLE>
<CAPTION>
<S> <C> <C>
|_| Individual |_| Uniform Transfer to Minors |_| Partnership
|_| Joint Tenants |_| Uniform Gift to Minors |_| Individual Retirement Account
|_| Tenants in Common |_| Corporation |_| Fiduciary/Trust (Under Agreement Dated ___________)
</TABLE>
Name Social Security or Tax I.D.
- --------------------------------------------------------------------------------
Name Social Security or Tax I.D.
- --------------------------------------------------------------------------------
Mailing Daytime
Address Telephone
- --------------------------------------------------------------------------------
City State County Evening
Telephone
- --------------------------------------------------------------------------------
================================================================================
|_| NASD Affiliation (This section only applies to those individuals who meet
the delineated criteria)
Check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of the
immediate family of any such person to whose support such person contributes,
directly or indirectly, or the holder of an account in which an NASD member or
person associated with an NASD member has a beneficial interest. To comply with
conditions under which an exemption from the NASD's Interpretation With Respect
to Free-Riding and Withholding is available, you agree, if you have checked the
NASD affiliation box: (1) not to sell, transfer or hypothecate the stock for a
period of three months following the issuance and (2) to report this
subscription in writing to the applicable NASD member within one day of the
payment therefor.
Acknowledgement By signing below, I acknowledge receipt of the Prospectus dated
November ___, 1998, and understand I may not change or revoke my order once it
is received by Lincoln Bancorp . I also certify that this stock is for my
account and there is no agreement or understanding regarding my further sale or
transfer of these shares. Applicable regulations prohibit any persons from
transferring or entering into any agreement directly or indirectly to transfer
the legal or beneficial ownership of subscription rights or the underlying
securities to the account of another person. Lincoln Bancorp will pursue any and
all legal and equitable remedies in the event it becomes aware of the transfer
of subscription rights and will not honor orders known by it to involve such
transfer. Under penalties of perjury, I further certify that: (1) the social
security number or taxpayer identification number given above is correct; and
(2) I am not subject to backup withholding. You must cross out this item, (2)
above, if you have been notified by the Internal Revenue Service that you are
subject to backup withholding because of under-reporting interest or dividends
on your tax return. By signing below, I also acknowledge that I have not waived
any rights under the Securities Act of 1933 and the Securities Exchange Act of
1934.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
Signature THIS FORM MUST BE SIGNED AND DATED TWICE: Here and on the
Certification Form. THIS ORDER IS NOT VALID IF THE STOCK ORDER FORM AND
CERTIFICATION FORM ARE NOT BOTH SIGNED. YOUR ORDER WILL BE FILLED IN ACCORDANCE
WITH THE PROVISIONS OF THE PROSPECTUS. An additional signature is required only
if payment is by withdrawal from an account that requires more than one
signature to withdraw funds.
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
TURN PAGE OVER --
- --------------------------------------------------------------------------------
FOR OFFICE USE Date Red'd___/___/____ Check #_______________
USE Amount $____________ Category ______________
<PAGE>
Proxy Card
Please Detach, Sign, & Return ALL Proxies in the enclosed white envelope
- --------------------------------------------------------------------------------
LINCOLN BANCORP
Item (6) continued; Associate - Acting in Concert
Associated Listed on Number of
other stock orders shares ordered
- ------------------------------ -----------------------------
- ------------------------------ -----------------------------
- ------------------------------ -----------------------------
- ------------------------------ -----------------------------
- ------------------------------ -----------------------------
- ------------------------------ -----------------------------
Item (7) continued; Purchaser Information
Account Title (Names on Accounts) Account Number
- ------------------------------ -----------------------------
- ------------------------------ -----------------------------
- ------------------------------ -----------------------------
- ------------------------------ -----------------------------
- ------------------------------ -----------------------------
<PAGE>
CERTIFICATION FORM
(This Certification Must Be Signed in Addition to the Stock Order Form on
Reverse Hereof)
I ACKNOWLEDGE THAT THE COMMON SHARES, NO PAR VALUE PER SHARE, OF LINCOLN
BANCORP, ARE NOT A DEPOSIT OR AN ACCOUNT AND ARE NOT FEDERALLY INSURED OR
GUARANTEED BY LINCOLN FEDERAL SAVINGS BANK OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that the common shares are federally insured or guaranteed, or
are as safe as an insured deposit, I should call the Office of Thrift
Supervision Central Regional Director, Ronald N. Karr, at (312) 917-5000.
I further certify that, before purchasing the common shares of Lincoln Bancorp,
I received a copy of the Prospectus dated November ___, 1998, which discloses
the nature of the common shares being offered thereby and describes the
following risks involved in an investment in the common shares under the heading
"Risk Factors" beginning on page 11 of the Prospectus:
1. Commercial Real Estate and Multi-Family Lending
2. Risks Related to Construction Loans
3. Geographic Concentration of Loans
4. Allowance for Loan Losses
5. Dependence on President and New Management
6. Anti-Takeover Provisions and Statutory Provisions that Could Discourage
Hostile Acquisitions of Control
7. Lack of Active Market for Common Stock
8. Decreased Return on Average Equity and Increased Expenses Immediately
After Conversion
9. Limited Growth Potential and Difficulty in Fully Leveraging Capital
10. Potential Impact of Changes in Interest Rates and the Current Interest
Rate Environment
11. Possible Voting Control by Directors and Officers
12. Possible Dilutive Effect of RRP and Stock Options
13. Financial Institution Regulation and Future of the Thrift Industry
14. Impact of Proposed Legislation in Holding Company Activities
15. Restrictions on Repurchase of Shares
16. Risk of Delayed Offering
17. Income Tax Consequences of Subscription Rights
18. Year 2000 Compliance
19. Establishment of the Foundation
Signature Date Signature Date
- ---------------------------------- -----------------------------------
(NOTE: If shares are to be held jointly, both parties must sign.)
-2-
<PAGE>
LINCOLN BANCORP
Stock Ownership Guide and Stock Order Form Instructions
Stock Order Form Instructions
Item 1 and 2 - Fill in the number of shares that you wish to purchase and the
total payment due. The amount due is determined by multiplying the number of
shares ordered by the subscription price of $10.00 per share. The minimum number
of shares that may be subscribed for is 25. Each Eligible Account Holder,
Supplemental Eligible Account Holder and Voting Member, in his or her capacity
as such, may subscribe in the Subscription Offering for not more than 25,000
Common Shares. Notwithstanding the foregoing, the maximum number of shares which
may be purchased in the Subscription Offering by any subscribing member
(including such person's Associates or group acting in concert and counting all
persons on a single joint account as one member) is 86,768 shares. The maximum
number of shares which may be purchased in the Community Offering by any person
(including such person's Associates or persons acting in concert) is 25,000
shares. A member who, together with his/her Associates and persons acting in
concert, has subscribed for shares in the Subscription Offering, may subscribe
for a number of additional shares in the Community Offering that does not exceed
the lesser of (i) 25,000 shares, or (ii) the number of shares which, when added
to the number of shares subscribed for by the member in the Subscription
Offering (including all persons on a joint account) would not exceed 86,768
shares. Lincoln Bancorp reserves the right to reject any order received in the
Community Offering, if any, in whole or in part.
Item 3 - Payment for shares may be made by check, bank draft or money order
payable to Lincoln Federal Savings Bank. DO NOT MAIL CASH. Your funds will earn
interest at Lincoln Federal Savings Bank's passbook rate, which is currently
2.97%.
Item 4 - To pay by withdrawal from a savings account or certificate of deposit
at Lincoln Federal Savings Bank, insert the account number(s) and the amount(s)
you wish to withdraw from each account. If more than one signature is required
to withdraw, each must sign in the signature box on the front of this form. To
withdraw from an account with checking privileges, please write a check. No
early withdrawal penalty will be charged on funds used to purchase stock. A hold
will be placed on the account(s) for the amount(s) you show. Payments will
remain in the account(s) until the stock offering closes. If a partial
withdrawal reduces the balance of a certificate account to less than the
applicable minimum, the remaining balance will be refunded.
Item 5 - Please check this box to indicate whether you are a director, officer
or employee of Lincoln Federal Savings Bank or a member of such person's
immediate family living in the same household.
Item 6 - Please check this box and provide the information on the back of the
Stock Order Form regarding orders submitted by your associates or persons acting
in concert with you.
<PAGE>
Item 7 - Please check the appropriate box if you were:
a) A depositor with $50.00 or more on deposit at Lincoln Federal Savings
Bank as of June 30, 1997. Enter information below for all deposit
accounts that you had at Lincoln Federal Savings Bank on June 30,
1997.
b) A depositor at Lincoln Federal Savings Bank as of September 30, 1998,
who is not an Eligible Account Holder. Enter information below for all
deposit accounts that you had at Lincoln Federal Savings Bank on
September 30, 1998.
c) A member of Lincoln Federal Savings Bank as of September 30, 1998, who
is not an Eligible Account Holder or a Supplemental Eligible Account
Holder. Members are depositors of Lincoln Federal Savings Bank on
November __, 1998, or borrowers on June 19, 1984, who remained
borrowers on November __, 1998. Enter information for all deposit
and/or loan accounts that you had at Lincoln Federal Savings Bank on
November __, 1998.
Item 8 - The stock transfer industry has developed a uniform system of
shareholder registrations that we will use in the issuance of Lincoln Bancorp
common stock. Please complete this section as fully and accurately as possible,
and be certain to supply your social security or Tax I.D. number(s) and your
daytime and evening phone numbers. We will need to call you if we cannot execute
your order as given. If you have any questions regarding the registration of
your stock, please consult your legal advisor. Subscription rights are not
transferable. If you are a qualified member, to protect your priority over other
purchasers as described in the Prospectus, you must take ownership in at least
one of the account holder's names.
Stock Ownership Guide
Individual - The Stock is to be registered in an individual's name only. You may
not list beneficiaries for this ownership.
Joint Tenants - Joint tenants with rights of survivorship identifies two or more
owners. When stock is held by joint tenants with rights of survivorship,
ownership automatically passes to the surviving joint tenant(s) upon the death
of any joint tenant. You may not list beneficiaries for this ownership.
Tenants in Common - Tenants in common may also identify two or more owners. When
stock is to be held by tenants in common, upon the death of one co-tenant,
ownership of the stock will be held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant. All parties must agree to the transfer or sale
of shares held by tenants in common. You may not list beneficiaries for this
ownership.
Uniform Transfer to Minors - For residents of many states, stock may by held in
the name of a custodian for the benefit of a minor under the Uniform Transfer to
Minors Act. For residents in other states, stock may be held in a similar type
of ownership under the Uniform Gift to Minors Act of the individual state. For
either ownership, the minor is the actual owner of the stock with the adult
custodian being responsible for the investment until the child reaches legal
age. FOR PURCHASES IN THE SUBSCRIPTION OFFERING, THE MINOR MUST BE THE ACCOUNT
HOLDER, NOT THE CUSTODIAN. Only one custodian and one minor may be designated.
<PAGE>
Instructions: On the first name line, print the first name, middle initial and
last name of the custodian, with the abbreviation "CUST" after the name. Print
the first name, middle initial and last name of the minor on the second name
line. Use the minor's social security number.
Corporation/Partnership - Corporations and Partnerships may purchase stock.
Please provide the Corporation/Partnership's legal name and Tax I.D. To have
depositor rights, the Corporation/Partnership must have an account in the legal
name. Please contact the Stock Information Center to verify depositor rights and
purchase limitations.
Individual Retirement Account - Individual Retirement Account "IRA") holders may
make stock purchases from their deposits through a prearranged
"trustee-to-trustee" transfer. Stock may only be held in a self-directed IRA.
Lincoln Federal Savings Bank does not offer a self-directed IRA. Please contact
the Stock Information Center if you have any questions about your IRA account.
Fiduciary/Trust - Generally, fiduciary relationships (such as Trusts, Estates,
Guardianships, etc.) are established under a form of trust agreement or pursuant
to a court order. Without a legal document establishing a fiduciary
relationship, your stock may not be registered in a fiduciary capacity.
Instructions: On the first name line, print the first name, middle initial and
last name of the fiduciary if the fiduciary is an individual. If the fiduciary
is a corporation, list the corporate title on the first name line. Following the
name, print the fiduciary title such as trustee, executor, personal
representative, etc. On the second name line, print the name of the maker, donor
or testator or the name of the beneficiary. Following the name, indicate the
type of legal document establishing the fiduciary relationship (agreement, court
order, etc.). In the blank after "Under Agreement Dated", fill in the date of
the document governing the relationship. The date of the document need not be
provided for a trust created by a will.
-3-
Exhibit 99(4)
GIFT INSTRUMENT
CHARITABLE GIFT TO THE LINCOLN BANCORP FOUNDATION
Lincoln Bancorp, 1121 E. Main Street, P.O. Box 510, Plainfield, Indiana
(the "Company"), desires to make a gift of its common stock, without par value
(the "Common Stock"), to the Lincoln Bancorp Foundation (the "Foundation"), a
non-stock corporation organized under the laws of the State of Indiana. The
purpose of the donation is to establish a bond between Lincoln Bancorp and the
community in which it and its affiliates operate to enable the community to
share in the potential growth and success of the Company and its affiliates over
the long term. To that end, the Company now gives, transfers, and delivers to
the Foundation 250,000 shares of its Common Stock, subject to the following
conditions:
1. The Foundation shall use the donation solely for charitable
purposes as provided by Section 503(c)(3) of the Internal Revenue Code
of 1986, as amended (the "Code"), including, but not limited to,
community development, in the communities in which the Company and its
affiliates operate in accordance with the provisions of the
Foundation's Articles of Incorporation.
2. Consistent with the Company's intent to form a long-term
bond between the Company and the community, the amount of Common Stock
that may be sold by the Foundation in any one year shall not exceed 5%
of the market value (measured as of the first business day of each
year), of the assets held by the Foundation or such amount as may be
necessary to maintain the Foundation's designation as a tax-exempt
organization under Section 501(c)(3) of the Code, except that this
restriction shall not prohibit the Board of Directors of the Foundation
from selling a greater amount of Common Stock in any one year if the
Board of Directors of the Foundation determines that the failure to
sell a greater amount of the Common Stock held by the Foundation would
result in the long-term reduction in the value of the Foundation's
assets relative to their then current value that would jeopardize the
Foundation's capacity to carry out its charitable purposes.
3. The Common Stock contributed to the Foundation by the Company shall,
for so long as such shares are held by the Foundation, be considered by
the Company to be voted in the same ratio as all other shares of Common
Stock of the Company which are voted on each and every proposal
considered by shareholders of the Company, provided, however, that if
this Condition No. 3 is waived by the Office of Thrift Supervision
pursuant to Office of Thrift Supervision Order No. ____, dated
_________, 1998 (a copy of which is attached hereto), then this
Condition No. 3 shall become void and of no effect.
Dated: _________________________, 1998 LINCOLN BANCORP
By:
T. Tim Unger, President and
Chief Executive Officer
-1-
