<PAGE> 1
As filed with the Securities and Exchange Commission on December 30, 1998
Registration No. 333-67235
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO.1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
TOWER FINANCIAL CORPORATION
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
INDIANA 6712 35-2051170
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------------
116 EAST BERRY STREET
FORT WAYNE, INDIANA 46802
(219) 427-7000
(Address and telephone number of principal executive offices and principal place
of business)
------------------------------
DONALD F. SCHENKEL
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TOWER FINANCIAL CORPORATION
116 EAST BERRY STREET
FORT WAYNE, INDIANA 46802
(219) 427-7000
(Name, address and telephone number of agent for service)
------------------------------
Copies to:
<TABLE>
<S> <C>
DANIEL L. BOEGLIN DONALD J. KUNZ
LAWRENCE E. SHINE HONIGMAN MILLER SCHWARTZ AND COHN
BAKER & DANIELS 2290 FIRST NATIONAL BUILDING
SUITE 2700 DETROIT, MICHIGAN 48226-3583
300 NORTH MERIDIAN STREET (313) 465-7000
INDIANAPOLIS, INDIANA 46204-1782
(317) 237-0300
</TABLE>
------------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this registration statement becomes effective.
------------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE
SECURITIES TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
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<S> <C> <C>
Common Stock....................................... $23,000,000 $6,394(2)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
(2) Included in amount previously paid.
------------------------------
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.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
THIS PRELIMINARY PROSPECTUS IS NOT YET COMPLETED. JANUARY , 1999
INITIAL PUBLIC OFFERING
PROSPECTUS
[TOWER FINANCIAL CORPORATION LOGO]
2,000,000 SHARES OF COMMON STOCK
$10.00 PER SHARE
------------------------------------
Tower Financial Corporation
Lincoln Tower
116 East Berry Street
Fort Wayne, Indiana 46802
(219) 427-7000
The Offering:
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Price........... $10.00 $20,000,000
Underwriting
Discounts............ $ $
------ -----------
Proceeds to
Tower Financial...... $ $
====== ===========
</TABLE>
We are offering shares of common stock to fund the start-up of a new commercial
bank named Tower Bank & Trust Company. We will be the sole owner of Tower Bank,
which will have its headquarters in Fort Wayne, Indiana. Tower Bank will provide
a full range of commercial and consumer banking services for small- to
medium-sized businesses as well as individuals.
This is our initial public offering, and no public market currently exists for
our shares.
The underwriters have a 30-day option to purchase an additional 300,000 shares
to cover over-allotments.
Proposed Trading Symbol:
OTC Bulletin Board -- TOFC
------------------------------------
THIS IS A RISKY INVESTMENT. IT IS NOT A DEPOSIT OR AN ACCOUNT AND IS NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. YOU
SHOULD NOT INVEST IN THIS OFFERING UNLESS YOU CAN AFFORD TO LOSE YOUR ENTIRE
INVESTMENT. SOME OF THE RISKS OF THIS INVESTMENT ARE DESCRIBED UNDER THE CAPTION
"RISK FACTORS" BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION,
ANY BANK
REGULATORY AUTHORITY, NOR ANY OTHER GOVERNMENT AGENCY HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
MCDONALD INVESTMENTS INC.
RONEY CAPITAL MARKETS
A DIVISION OF FIRST CHICAGO CAPITAL MARKETS, INC.
JANUARY , 1999
<PAGE> 3
[MAP OF PROPOSED MARKET AREA]
-------------------------
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that reflect our views
about future events and financial performance. Actual results could differ
materially from those suggested by the forward-looking statements for various
reasons, including those discussed in the "Risk Factors" section beginning on
page 6. Therefore, you should not place undue reliance on these forward-looking
statements.
-------------------------
2
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It is not complete and does not contain all of the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully.
TOWER FINANCIAL AND TOWER BANK
We are not an operating company and have not engaged in any significant
business to date. We were formed to be a bank holding company owning all of the
common stock of Tower Bank. Tower Bank is being organized as an Indiana
chartered bank and member of the Federal Reserve System with depository accounts
to be insured by the Federal Deposit Insurance Corporation. Our initial primary
service area will be Allen County, Indiana, including Fort Wayne and its
suburbs. In order to complete the offering we must receive all necessary
regulatory approvals and satisfy certain conditions that are customary in
forming a bank. We expect to commence business in the first quarter of 1999.
Tower Bank's main office will be located in downtown Fort Wayne and will serve
as our corporate headquarters.
REASONS FOR STARTING TOWER BANK
The expansion of interstate banking has contributed to substantial
consolidation of the banking industry in Indiana, including our proposed market
area in Allen County. Many of Fort Wayne's locally owned or managed banks either
have been acquired by large regional bank holding companies or have been
consolidated into branches of other banks. We believe that, after consolidation,
these banks no longer offer the same level of personalized customer service.
Although the banking industry remains competitive, we believe that this
consolidation has created a favorable opportunity for a new locally owned and
managed commercial bank in our proposed market area. We want to take advantage
of this opportunity. We plan to do this by emphasizing our local ownership and
management and our strong ties and active commitment to the community. We
believe that a community bank can improve the economic development and overall
economy of its community. We believe that community residents will recognize
these benefits and that we will be successful in attracting individuals and
small- to medium-sized businesses as customers by taking an active interest in
their businesses and personal finances.
TOWER BANK'S MARKET AREA
Allen County includes the City of Fort Wayne, which is the second largest
city in Indiana based on population. As of July 1998, Allen County had
approximately 10,300 businesses and an unemployment rate of approximately 3.0%.
Allen County experienced significant growth in household income from 1990 to
1998. Allen County is also a significant banking market in the State of Indiana.
As of June 30, 1997, the latest date for which data are available, total
deposits in Allen County, including banks, thrifts and credit unions, were
approximately $4.7 billion.
MANAGEMENT
Donald F. Schenkel is the Chairman of the Board, President and Chief
Executive Officer of Tower Financial and Tower Bank. He has nearly 30 years of
banking experience. Most recently, Mr. Schenkel was with NBD Bank Indiana in
Northeast Indiana as First Vice President and, from 1993 to 1998, as the
Division Head of Retail Banking and Private Banking & Investment. From 1990 to
1993, Mr. Schenkel was Senior Vice President of INB National Bank, a regional
bank that was acquired by NBD Bank, N.A., in 1993. His positions at INB National
Bank included senior level responsibility for retail lending, commercial lending
and branch administration.
Kevin J. Himmelhaver is the Chief Financial Officer and Secretary of Tower
Financial and Tower Bank. He has nearly 20 years of banking experience in the
Fort Wayne area. Most recently, from 1993 until 1998,
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<PAGE> 5
Mr. Himmelhaver worked for Norwest Bank Indiana, N.A., and Norwest Bank Ohio,
N.A., as Senior Vice President and Chief Financial Officer. He also was a
director of these banks.
Curtis A. Brown is the Chief Lending Officer of Tower Financial and the
Chief Operating Officer and Chief Lending Officer of Tower Bank. He has over 21
years of banking experience, all with INB National Bank and its successor, NBD
Bank Indiana. From 1993 until 1998, Mr. Brown was responsible for managing
corporate banking groups for NBD Bank Indiana, recently holding the positions of
First Vice President and Group Head.
We are assembling an experienced professional staff and expect to have
approximately 18 full-time employees when Tower Bank opens for business. We have
formed a board of directors with diverse backgrounds and experiences. In
addition to Mr. Schenkel, the current directors of Tower Financial and Tower
Bank are Keith Busse (business), Peter Eshelman (insurance), Michael Gouloff
(architecture), Craig Hartman (business), Jerome Henry, Jr. (business), Michael
Mirro, M.D. (physician), Debra Niezer (business), William Niezer (insurance),
Maurice O'Daniel (business), Leonard Rifkin (business), Joseph Ruffolo
(business), Larry Smith (business), John Tippmann, Sr. (real estate), Richard
Tomkinson (business) and Irene Walters (education). We believe that our officers
and directors are a significant resource to us.
4
<PAGE> 6
THE OFFERING
Securities Offered for Sale... Shares of common stock of Tower Financial
Corporation. For a description of these shares,
see "Description of Capital Stock" on page 36.
Number of Shares being
Offered....................... 2,000,000. In addition, the underwriters have a
30-day option to purchase up to 300,000
additional shares to cover over-allotments. For
a description of this option, see
"Underwriting" on page 40.
Price to the Public........... $10.00 per share.
Number of Shares to be
Outstanding after the
Offering...................... 2,000,000 shares will be outstanding
immediately after the offering. This number
assumes that the underwriters do not exercise
their over-allotment option and does not
include the additional 310,000 shares that are
reserved for issuance under Tower Financial's
stock option plan. For a description of this
plan, see "Executive Compensation -- 1998 Stock
Option and Incentive Plan" on page 23.
Dividend Policy............... We do not intend to pay any cash dividends in
the foreseeable future.
Use of Proceeds............... We will use the majority of the net proceeds of
the offering to capitalize Tower Bank and repay
loans incurred in organizing Tower Bank and
preparing it to begin business. We will retain
all remaining net proceeds. For further
details, see "Use of Proceeds" on page 9.
Risk Factors.................. You should read the "Risk Factors" section
beginning on page 6 before deciding to invest
in the offering.
Proposed Trading Market
and Symbol.................... OTC Bulletin Board: TOFC.
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<PAGE> 7
RISK FACTORS
The common stock is a risky investment. It is not a deposit or an account
and is not insured by the FDIC or any other government agency. You should not
invest in the offering unless you can afford to lose your entire investment.
This section describes some, but not all, of the risks of purchasing the common
stock. The order in which these risks are listed does not necessarily indicate
their relative importance.
NO OPERATING HISTORY
We are a new business with no operating history. New businesses are
inherently risky investments. Because Tower Bank has not yet opened, you do not
have access to information which would be available regarding a financial
institution that has been operating for several years, such as historical
financial data.
SIGNIFICANT LOSSES EXPECTED
In order for us to be profitable, we will need to attract a large number of
customers to deposit and borrow money, among other things. This will take time.
We expect to lose money for at least two years. Based on our projections, we
expect these losses to accumulate to more than $1,750,000 before we are
profitable. Although we believe we will be profitable, it is possible that we
may never be profitable and that you will lose part or all of your investment in
the common stock.
POSSIBLE DELAY IN COMMENCING OPERATIONS
We will be unable to begin operations until we receive all required
regulatory approvals. Our receipt of the regulatory approvals is subject to
satisfying conditions customary in forming a bank, including the capitalization
of Tower Bank. We expect to satisfy these conditions and obtain all required
regulatory approvals during the first quarter of 1999, but a delay could occur.
We are presently incurring operating expenses for salaries, rent and other
items. Because we are not earning any operating revenue, we are currently
operating at a loss and will continue to do so during any period of delay.
REGULATORY LIMITATIONS ON OUR OPERATIONS
The banking industry is subject to extensive regulation by state and
federal banking authorities. Many of these regulations are intended to protect
depositors, the public or the FDIC, not shareholders. Regulatory requirements
will affect our lending practices, capital structure, investment practices,
dividend policy and many other aspects of our business. These requirements may
constrain our rate of growth. Regulations affecting financial institutions are
undergoing continuous change, and such changes could adversely affect us.
Sometimes, these changes are applied retroactively. In addition, the burden
imposed by these federal and state regulations may place banks in general, and
Tower Bank specifically, at a competitive disadvantage compared to less
regulated competitors. See "Supervision and Regulation" on page 27.
OPERATIONS AFFECTED BY FEDERAL POLICIES
Various aspects of the banking industry and our operations will be affected
by federal economic and monetary policies, which are outside our control.
Changes in federal economic and monetary policies may adversely affect Tower
Bank's ability to attract deposits, make loans and achieve satisfactory interest
spreads.
NO PLANS TO PAY DIVIDENDS
We expect to pay no dividends on the common stock in the foreseeable
future. At least initially, we will have no significant assets other than our
ownership of Tower Bank, and our only source of funds for paying dividends will
be dividends we receive from Tower Bank. Tower Bank may not generate sufficient
earnings to enable it to pay dividends to us. Even if it does, our board of
directors would not be required to pay dividends to our shareholders. Regulatory
requirements will limit our ability and Tower Bank's ability to pay dividends.
You should not buy shares in this offering if you need dividend income from this
investment. See "Dividend Policy" on page 10.
6
<PAGE> 8
COMPETITIVE ADVANTAGES AND DISADVANTAGES
The banking business is extremely competitive. Because we are a start-up,
most of our competitors will be larger and have greater resources than us. We
will have to overcome historical relationships to attract customers away from
our competition. We will compete with the following types of institutions:
- - other banks
- - savings banks
- - thrifts
- - credit unions
- - consumer finance companies
- - securities brokerage firms
- - mortgage brokers
- - insurance companies
- - mutual funds
- - trust companies
Some of our competitors are not regulated as extensively as we are and,
therefore, may have greater flexibility in competing for business. Some of these
competitors are subject to similar regulation but have the advantages of
established customer bases, higher lending limits, extensive branch networks,
numerous automated teller machines or other factors. While we intend to offer
competitive rates on our products, we expect to compete primarily by offering
our customers personal service and local decision-making. See "Business --
Competition" on page 15.
DEPENDENCE ON MR. SCHENKEL
Donald F. Schenkel is our Chairman of the Board, President and Chief
Executive Officer. Mr. Schenkel provides extremely valuable services to us, and
he would be difficult to replace if he were to leave. We have an employment
agreement with Mr. Schenkel and carry $1 million of key man life insurance on
his life. See "Executive Compensation" on page 22.
POTENTIAL DEFAULTS BY OUR BORROWERS
We will make various types of loans, including commercial, consumer,
residential mortgage and construction loans. We anticipate that approximately
80% of Tower Bank's loans will be commercial loans, although the actual
percentage may vary. We expect that approximately 20% of all commercial loans
will be commercial real estate loans. Commercial lending is more risky than
residential lending because loan balances are greater and the borrower's ability
to repay is contingent on the success of the borrower's operation. The risk of
loan defaults by borrowers is unavoidable in the banking industry. We will try
to limit our exposure to this risk by carefully monitoring the amount of loans
we make within specific industries and through prudent lending practices, but we
will not be able to eliminate this risk. Substantial credit losses could result
in our insolvency, which could cause you to lose your entire investment in the
common stock.
RELATIVELY LOW LENDING LIMIT
We expect that our initial lending limit will be approximately $2.25
million immediately following the offering, based upon the legal lending limit
of 15% of capital and surplus. Because this limit is based upon a percentage of
Tower Bank's capital and surplus, the limit will likely decrease until Tower
Bank is profitable. Our lending limit will be significantly less than most of
our competitors and may affect our ability to seek relationships with larger
businesses in our market area. We intend to accommodate loans in excess of our
lending limit through the sale of participations in those loans to other banks,
but we may not be able to do so.
DEPENDENCE ON LOCAL ECONOMY
We will operate in Northeast Indiana, principally the City of Fort Wayne
and Allen County. While the economy in this area generally has been good in
recent years, an economic downturn in the area would probably have a significant
negative impact on us.
PROFITABILITY AFFECTED BY INTEREST RATES GENERALLY
Our profitability will depend in substantial part on our "net interest
spread," which is the difference between the rates we receive on loans and
investments and the rates we pay for deposits and other sources of
7
<PAGE> 9
funds. Our net interest spread will depend on many factors that are partly or
entirely outside our control, including competition, federal economic, monetary
and fiscal policies, and economic conditions generally. Historically, net
interest spreads for other financial institutions have widened and narrowed in
response to these and other factors. Changes in interest rates will affect our
operating performance and financial condition in diverse ways. We intend to try
to minimize our exposure to interest rate risk, but we will be unable to
eliminate it.
NEED TO IMPLEMENT DEVELOPMENTS IN TECHNOLOGY
To become and remain competitive in today's banking environment, we will
need to purchase and use new technology-based products and services on an
ongoing basis. These products and services can reduce operating costs and
improve customer service. Many of our competitors will have greater resources
than us, which will give them an advantage in purchasing and using advances in
technology. Our success will depend, in part, on our ability to implement new
technologies.
POTENTIAL FLUCTUATIONS IN PRICE OF STOCK AFTER OFFERING
Because we are a start-up company and have no historic operations on which
to base the offering price, the post-offering market price of the stock is more
susceptible to fluctuations than it otherwise might be.
LIMITED TRADING MARKET EXPECTED
Presently, the common stock is not publicly traded. The underwriters have
told us that, after the offering, they intend to make a market in the common
stock and to initiate quotations on the OTC Bulletin Board. They are not
obligated to do this. As market makers on the OTC Bulletin Board, they are not
required to maintain a continuous two-sided market. While they are required to
honor firm quotations for a limited number of shares, they are free to withdraw
firm quotations at any time.
An active and liquid trading market for the common stock may not develop
even if the underwriters make a market in the stock. The trading volume of the
common stock will be limited, due to the relatively small size of the offering,
the fact that we are a start-up and have no intention to pay cash dividends in
the foreseeable future and other factors.
ANTI-TAKEOVER PROVISIONS REDUCE LIKELIHOOD THAT YOU WILL RECEIVE TAKEOVER
PREMIUM
Certain provisions of state and federal law and our Restated Articles of
Incorporation and By-Laws will make it more difficult for anyone to acquire
control of us without our board of directors' approval. See "Description of
Capital Stock -- Certain Provisions of Restated Articles of Incorporation and
By-Laws" and " -- Certain Provisions of Indiana Law" beginning on page 37 for a
discussion of some of these provisions. In many cases, shareholders receive a
premium for their shares in a change of control, and these provisions will make
it somewhat less likely that a change in control will occur or that you will
receive a premium for your shares if a change of control does occur.
RISKS RELATING TO YEAR 2000 READINESS
The "Year 2000 problem" arose because many existing computer systems use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20" instead of the familiar
"19." If not corrected, many computer applications and other technology-based
systems could fail or create erroneous results. The effects of this problem will
vary from system to system, and the extent of the potential impact of the Year
2000 problem is not yet known. The Year 2000 problem may adversely affect a
bank's operations and its ability to prepare financial statements. We could
experience interruptions in Tower Bank's business and significant losses if we,
or a supplier or vendor with whom we contract, are unable to achieve Year 2000
readiness before January 1, 2000. See "Business -- Year 2000 Readiness" on page
16.
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<PAGE> 10
USE OF PROCEEDS
The net proceeds to Tower Financial from the sale of the 2,000,000 shares
of common stock being offered by Tower Financial are estimated to be $
($ if the underwriters' over-allotment option is exercised in full),
after deduction of the underwriting discounts, but before deducting estimated
offering expenses of $226,500.
The anticipated sources and uses of the proceeds from the offering are as
follows:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
------ ----------
<S> <C> <C>
Sources:
Sale of 2,000,000 shares of common stock............. $20,000,000 100%
=========== ===
Uses:
Capital contribution to Tower Bank................... $15,000,000 75%
Underwriting discounts............................... $ %
Repayment of director loans.......................... $ 760,000 4%
Working capital(1)................................... $ %
----------- ---
Total uses...................................... $20,000,000 100%
=========== ===
</TABLE>
- -------------------------
(1) A portion of the working capital will be used to pay certain expenses of the
offering, and the balance will be used for general corporate purposes and to
pay operating expenses, as well as for possible future capital contributions
to Tower Bank.
Tower Financial expects to contribute $15,000,000 of the net proceeds of
the offering to Tower Bank by purchasing all of its common stock. The purchase
of Tower Bank's common stock is intended to provide it with the capital required
by regulators to commence operations.
The anticipated uses of the net proceeds to be received by Tower Bank are
as follows:
<TABLE>
<S> <C>
Investments in loans and securities
and payment of operating expenses......................... $14,535,000
Leasehold improvements and related
architectural and engineering services.................... $ 100,000
Purchase of furniture, equipment
and other assets necessary for operations................. $ 365,000
-----------
Total uses........................................ $15,000,000
===========
</TABLE>
Tower Financial expects to incur approximately $103,000 for expenses
relating to the formation of Tower Bank, which expenses will be paid primarily
out of working capital. A portion of these organizational expenses and other
preopening and certain offering expenses were financed on an interim basis from
loans of $760,000 made to Tower Financial by members of its board of directors.
It is anticipated that these loans, which are non-interest bearing and are due
on or before March 31, 1999, will be repaid by Tower Financial promptly
following the completion of the offering. Preopening income (consisting solely
of interest earned on temporary investments) will offset some of these expenses.
The estimated $ of net proceeds to be retained by Tower Financial
(plus any net proceeds received as a result of the exercise of the underwriters'
over-allotment option) will initially be invested by Tower Financial in
investment grade securities and held by Tower Financial as working capital for
general corporate purposes and to pay operating expenses, as well as for
possible future capital contributions to Tower Bank. These funds will also be
available to finance possible acquisitions of other branches or expansion into
other lines of business closely related to banking, although Tower Financial
presently has no plans to do so.
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<PAGE> 11
DIVIDEND POLICY
Tower Financial initially expects that its earnings and those of Tower
Bank, if any, will be retained to finance the growth of Tower Financial and
Tower Bank and that no cash dividends will be paid for the foreseeable future.
If and when Tower Bank becomes profitable, recovers its accumulated deficit and
adequately reserves for losses, Tower Financial may consider payment of
dividends. However, the declaration of dividends is at the discretion of the
board of directors, and there is no assurance that dividends will be declared at
any time. If and when dividends are declared, Tower Financial will be largely
dependent upon dividends received from Tower Bank for funds to pay dividends on
the common stock. It is also possible, however, that Tower Financial might, at
some time in the future, pay dividends generated from income or investments and
from other activities of Tower Financial.
As a banking corporation organized under Indiana law, Tower Bank will be
restricted as to the maximum amount of dividends it may pay to Tower Financial.
Indiana law prohibits Tower Bank from declaring or paying dividends that would
impair Tower Bank's capital or that would be greater than its undivided profits.
In addition, the prior approval of the Department of Financial Institutions of
the State of Indiana (the "Department") is required for the payment of any
dividend if the aggregate amount of all dividends paid by Tower Bank during such
calendar year, including the proposed dividend, would exceed the sum of the
retained net income of Tower Bank for the year to date and previous two years.
The Department, the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") and the Federal Deposit Insurance Corporation (the
"FDIC") are also authorized to prohibit the payment of dividends by Tower Bank
under certain circumstances. See "Supervision and Regulation -- Tower
Bank -- Dividends." Such requirements and policies may limit Tower Financial's
ability to obtain dividends from Tower Bank for its cash needs, including funds
for acquisitions, payment of dividends by Tower Financial and the payment of
operating expenses.
Tower Financial is organized under the Indiana Business Corporation Law,
which prohibits the payment of a dividend if, after giving it effect, the
corporation would not be able to pay its debts as they become due in the usual
course of business or the corporation's total assets would be less than the sum
of its total liabilities plus (unless the articles of incorporation of the
corporation permit otherwise) the amount that would be needed, if the
corporation were to be dissolved, to satisfy the preferential rights upon
dissolution of preferred shareholders. In addition, the Federal Reserve Board
may impose restrictions on dividends paid by Tower Financial. See "Supervision
and Regulation -- Tower Financial -- Dividends."
CAPITALIZATION
The following table shows the capitalization of Tower Financial as
projected immediately after the sale of the 2,000,000 shares of common stock
offered in this prospectus and the application of the estimated net proceeds.
See "Use of Proceeds."
<TABLE>
<S> <C>
Debt........................................................ $ 0
Shareholders' equity:
Preferred stock, no par value, 4,000,000 shares
authorized, none issued................................ 0
Common stock, no par value, 6,000,000 shares authorized,
2,000,000 shares issued and outstanding................ 2,000,000
Additional paid-in capital................................ (1)
Retained earnings......................................... ()
----------
Total shareholders' equity.................................. $
==========
Book value per share........................................ $
</TABLE>
- -------------------------
(1) Net of underwriting discounts and offering expenses expected to be paid by
Tower Financial of $ .
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BUSINESS
REASONS FOR STARTING TOWER BANK & TRUST COMPANY
The banking industry in Indiana, including Tower Bank's proposed primary
service area in Allen County, has been greatly affected by substantial
consolidation caused primarily by the expansion of interstate banking. Many of
Fort Wayne's locally owned or managed financial institutions have either been
acquired by large regional bank holding companies or have been consolidated into
branches of other financial institutions. In many cases, these acquisitions and
consolidations have been accompanied by fee changes, branch closings, the
dissolution of local boards of directors, management and personnel changes and,
in the perception of Tower Financial 's management, a decline in the level of
personalized customer service.
Management believes that the consolidation of the banking industry has
created an opportunity in Allen County for a new commercial bank to offer
services to customers who wish to conduct business with a bank that has
significant local ownership and is managed by senior personnel who are
well-known in the market and live in the local community. Although management
realizes that there is still substantial competition in Tower Financial's
proposed market area, Tower Financial seeks to take advantage of this
opportunity by emphasizing it's local management and strong ties and active
commitment to the community. Management believes that a community bank can help
foster the economic development of its community and create and retain wealth
within that community. Management believes that community residents will
recognize the benefits of a community bank and that Tower Bank will be
successful in attracting as customers individuals and small- to medium-sized
businesses by demonstrating an active interest in their businesses and personal
financial affairs.
STATUS OF ORGANIZATION
Tower Financial was incorporated as an Indiana corporation on July 8, 1998.
Tower Financial was formed to acquire all of Tower Bank's issued and outstanding
stock and to engage in the business of a bank holding company under the federal
Bank Holding Company Act of 1956, as amended. Tower Financial is organizing
Tower Bank as an Indiana chartered bank with depository accounts to be insured
by the FDIC and as a member of the Federal Reserve System. On December 15, 1998,
the Department issued an order approving the application to establish Tower
Bank. Tower Bank's application for FDIC deposit insurance has not yet been
approved by the FDIC. Additionally, Tower Financial's application to become a
bank holding company for Tower Bank and Tower Bank's application to become a
member of the Federal Reserve System have not yet been approved by the Federal
Reserve Board. Tower Financial expects to receive these approvals in January
1999. In each case, the approvals were or are expected to be issued subject to
the satisfaction of certain conditions that Tower Financial believes are
customary in transactions of this type, including conditions relating to
capitalization of Tower Bank and continuing capital adequacy. Tower Financial
and Tower Bank expect to satisfy such conditions and commence business in the
first quarter of 1999. See "Risk Factors -- Possible Delay in Commencing
Operations" and "Risk Factors -- Regulatory Limitations on Our Operations."
MARKET AREA
Tower Bank's primary service area will be Allen County, Indiana, including
Fort Wayne and its suburbs. According to available statistical data, Fort Wayne
is within a 250-mile radius of 17% of the total United States population. Allen
County covers 659 square miles and ranks second in population out of Indiana's
93 counties. As of July 1998, Allen County had approximately 10,300 businesses
and an unemployment rate of approximately 3.0%. Allen County experienced
significant growth in household income from 1990 to 1998.
Allen County is a significant banking market in Indiana. Total deposits in
Allen County, including banks, thrifts and credit unions, were approximately
$4.7 billion as of June 30, 1997, the latest date for which data are available.
Based on such data, from 1996 to 1997, total deposits in Allen County grew
approximately 7.3%, compared to approximately 2.5% for the State of Indiana.
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<PAGE> 13
PROPOSED LENDING PRACTICES
Tower Bank expects to make loans to individuals and businesses located
within its proposed market area. Tower Bank anticipates that its loan portfolio
will consist of commercial loans (80%), residential mortgage loans (10%) and
personal loans (10%), although these percentages are approximations and the
actual percentages may vary. Tower Bank anticipates that its legal lending limit
under applicable regulations will be approximately $2.25 million immediately
following the offering, based on the legal lending limit of 15% of capital and
surplus.
COMMERCIAL LOANS. Commercial loans will be made primarily to small- and
medium-sized businesses. These loans will be both secured and unsecured and are
expected to be made available for general operating purposes, acquisition of
fixed assets including real estate, purchases of equipment and machinery,
financing of inventory and accounts receivable, as well as any other purposes
considered appropriate. Tower Bank will generally look to a borrower's business
operations as the principal source of repayment, but will also receive, when
appropriate, mortgages on real estate, security interests in inventory, accounts
receivable and other personal property and/or personal guarantees. Approximately
20% of Tower Bank's commercial loans are expected to be commercial real estate
loans secured by a first lien on the commercial real estate. In addition, Tower
Financial expects that the majority of Tower Bank's commercial loans that are
not mortgage loans will be secured by a lien on equipment, inventory and/or
other assets of the commercial borrower.
Commercial lending involves more risk than residential lending because loan
balances are greater and repayment is dependent upon the borrower's operations.
Tower Bank will attempt to minimize the risks associated with these transactions
by generally limiting its exposure to owner-operated properties of customers
with an established profitable history. In many cases, risk will be further
reduced by (1) limiting the amount of credit to any one borrower to an amount
less than Tower Bank's legal lending limit and (2) avoiding certain types of
commercial real estate financings.
RESIDENTIAL MORTGAGE LOANS. Tower Bank expects to originate residential
mortgage loans, which are generally long-term, with either fixed or variable
interest rates. Tower Bank's anticipated general policy will be to retain all or
a portion of variable interest rate mortgage loans in Tower Bank's loan
portfolio and to sell all fixed rate loans in the secondary market. This policy
is subject to review by management and may be revised as a result of changing
market and economic conditions and other factors. Tower Bank also expects to
offer home equity loans. Tower Bank does not expect to retain servicing rights
with respect to the majority of the residential mortgage loans that it
originates. Tower Financial anticipates that all of Tower Bank's residential
real estate loans will be secured by a first lien on the real estate and that
the majority of Tower Bank's personal loans will be home equity loans secured by
a second lien on real estate.
PERSONAL LOANS AND LINES OF CREDIT. Tower Bank will make personal loans and
lines of credit available to consumers for various purposes, such as the
purchase of automobiles, boats and other recreational vehicles, and the making
of home improvements and personal investments. Tower Bank expects to retain
substantially all of such loans. Depending, in part, on the level of demand
among Tower Bank's customers and other considerations, Tower Bank may consider
offering credit card services.
Consumer loans generally have shorter terms and higher interest rates than
residential mortgage loans and, except for home equity lines of credit, usually
involve more credit risk than mortgage loans because of the type and nature of
the collateral. Consumer lending collections are dependent on a borrower's
continuing financial stability and are thus likely to be adversely affected by
job loss, illness or personal bankruptcy. In many cases, repossessed collateral
for a defaulted consumer loan will not provide an adequate source of repayment
of the outstanding loan balance because of depreciation of the underlying
collateral. Tower Bank intends to underwrite its loans carefully, with a strong
emphasis on the amount of the down payment, credit quality, employment stability
and monthly income. These loans are expected generally to be repaid on a monthly
repayment schedule with the payment amount tied to the borrower's periodic
income. Tower Bank believes that the generally higher yields earned on consumer
loans will help compensate for the increased credit risk associated with such
loans and that consumer loans will be important to its efforts to serve the
credit needs of its customer base.
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<PAGE> 14
LOAN POLICIES. Although Tower Bank intends to take a progressive and
competitive approach to lending, it will stress high quality in its loans.
Because of Tower Bank's local nature, management believes that quality control
should be achievable while still providing prompt and personal service. Tower
Bank will be subject to written loan policies that contain general lending
guidelines and will be subject to periodic review and revision by Tower Bank's
Loan and Investment Committee and its board of directors. These policies concern
loan administration, documentation, approval and reporting requirements for
various types of loans.
Tower Bank will seek to make sound loans while recognizing that lending
money involves a degree of business risk. Tower Bank's loan policies are
designed to assist Tower Bank in managing the business risk involved in making
loans. These policies provide a general framework for Tower Bank's loan
operations while recognizing that not all loan activities and procedures can be
anticipated. Tower Bank's loan policies instruct lending personnel to use care
and prudent decision-making and to seek the guidance of the Chief Lending
Officer or the President and Chief Executive Officer of Tower Bank where
appropriate.
Tower Bank's loan policies include procedures for oversight and monitoring
of Tower Bank's lending practices and loan portfolio. Tower Bank will have a
Loan and Investment Committee comprised initially of Mr. Schenkel, Mr. Brown and
other appropriate lending personnel. Initially, certain senior officers will
have signatory authority for loans up to $1 million, and Mr. Schenkel and Mr.
Brown will have joint authority to approve loans from $1 million to $1.5
million. These limits will be subject to review and revision by Tower Bank's
board of directors and its Loan and Investment Committee from time to time. The
Loan and Investment Committee will be responsible for approving all loans that
exceed the established limits for the senior officers.
Tower Bank's loan policies provide guidelines for loan-to-value ratios that
limit the size of certain types of loans to a maximum percentage of the value of
the collateral securing the loans, which percentage varies by the type of
collateral, including the following maximum loan-to-value ratios:
- - raw land (65%)
- - improved residential real estate lots (75%)
- - owner-occupied commercial real estate (80%)
- - non-owner-occupied commercial real estate (75%)
- - first mortgages on residences (80%)
- - junior mortgages on residences (90%)
Tower Bank expects to use credit risk insurance, principally for
residential real estate mortgages where the loan-to-value ratio exceeds 80%.
Regulatory and supervisory loan-to-value limits are established by the Federal
Deposit Insurance Corporation Improvement Act of 1991. Tower Bank's internal
loan-to-value limitations will follow those limits and, in certain cases, will
be more restrictive than those required by the regulators.
Tower Bank's loan policies also include other underwriting standards for
loans secured by liens on real estate. These underwriting standards are designed
to determine the maximum loan amount that a borrower has the capacity to repay
based upon the type of collateral securing the loan and the borrower's income.
For owner-occupied residential real estate mortgages, the monthly payments on
the loan are not to exceed 28% of the borrower's monthly income. For
owner-occupied commercial real estate mortgages, the annual payments, combined
with the borrower's other required debt payments, are not to exceed 80% of the
borrower's net annual projected cash flow. In addition, the loan policies
require that Tower Bank obtain a written appraisal by a state certified
appraiser for loans secured by real estate in excess of $250,000, subject to
certain limited exceptions. The appraiser must be selected by Tower Bank and
must be independent and licensed. For loans secured by real estate that are less
than $250,000, Tower Bank may elect to conduct an in-house real estate
evaluation. Tower Bank's loan policies also include maximum amortization
schedules and loan terms for each category of loans secured by liens on real
estate. Loans secured by commercial real estate will be subject to a maximum
term of 10 years and a maximum amortization schedule of 20 years. Loans secured
by residential real estate with variable interest rates will have a maximum term
and amortization schedule of 30 years. Tower Bank intends to sell to the
secondary market all loans secured by residential real estate with fixed
interest rates, thereby reducing the interest rate risk and credit risk to Tower
Bank. Loans secured by vacant land will be subject to a maximum term of 3 years
and a maximum amortization schedule of 10 years.
Tower Bank's loan policies also establish a limit on the aggregate amount
of loans to any one borrower. These loan policies provide that no loan shall be
granted where the aggregate liability of the borrower to Tower
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<PAGE> 15
Bank will exceed $1.5 million. This internal lending limit is subject to review
and revision by the board of directors from time to time.
In addition, Tower Bank's loan policies provide guidelines for
- - personal guarantees
- - environmental policy review
- - loans to employees, executive officers and directors
- - problem loan identification
- - maintenance of a loan loss reserve
- - other matters relating to Tower Bank's lending practices
DEPOSITS AND OTHER SERVICES
DEPOSITS. Tower Bank intends to offer a broad range of deposit products,
including checking, business checking, savings and money market accounts,
certificates of deposit and direct-deposit services. Transaction accounts and
certificates of deposit will be tailored to the primary market area at rates
competitive with those offered in Allen county. All deposit accounts will be
insured by the FDIC up to the maximum amount permitted by law. Tower Bank
intends to solicit these accounts from individuals, businesses, associations,
financial institutions and government entities.
OTHER SERVICES. Tower Bank intends to contract with a third-party vendor to
provide personal computer based at-home banking and telephonic banking within
its first quarter of operations. Tower Bank also may consider providing trust
services in the future. Management believes that Tower Bank's personalized
service approach will benefit from customer visits to Tower Bank. Tower Bank
will offer a courier service for customer convenience. In addition, Tower Bank
may establish relationships with correspondent banks and other independent
financial institutions to provide other services requested by its customers,
including loan participations where the requested loan amounts exceed Tower
Bank's policies or legal lending limits.
INVESTMENTS
The principal investment of Tower Financial will be its purchase of all of
the common stock of Tower Bank. Funds retained by Tower Financial from time to
time may be invested in various debt instruments, including but not limited to
obligations of or guaranteed by the United States, general obligations of a
state or political subdivision thereof, bankers' acceptances of deposit of
United States commercial banks, or commercial paper of United States issuers
rated in the highest category by a nationally recognized statistical rating
organization. Although Tower Financial is permitted to make limited portfolio
investments in equity securities and to make equity investments in subsidiary
corporations engaged in certain non-banking activities (which may include real
estate-related activities such as mortgage banking, community development, real
estate appraisals, arranging equity financing for commercial real estate, and
owning or operating real estate used substantially by Tower Bank or acquired for
future use), Tower Financial has no present plans to make any such equity
investment. See "Supervision and Regulation -- Tower Financial -- Investments
and Activities." Tower Financial's Board of Directors may alter Tower
Financial's investment policy without shareholder approval.
Tower Bank may invest its funds in a wide variety of debt instruments and
may participate in the federal funds market with other depository institutions.
Subject to certain exceptions, Tower Bank is prohibited from investing in equity
securities. Real estate acquired by Tower Bank in satisfaction of or foreclosure
upon loans may be held by Tower Bank for no longer than 10 years after the date
of acquisition without the written consent of the Department. Tower Bank is also
permitted to invest an aggregate amount not in excess of 50% of the "sound
capital" of Tower Bank in such real estate and buildings as is necessary for the
convenient transaction of its business. Tower Bank's Board of Directors may
alter Tower Bank's investment policy without shareholder approval.
FUNDING SOURCES
Tower Bank plans to fund its operations initially from the proceeds of this
offering and, on an ongoing basis, primarily with local deposits. However, Tower
Bank may also use alternative funding sources as needed,
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<PAGE> 16
including advances from a Federal Home Loan Bank, when eligible, and other forms
of wholesale financing. These alternative funding sources may be more costly
than local deposits.
COMPETITION
There are many thrift institutions, credit unions and bank offices located
within Tower Bank's proposed primary service area. Most are branches of larger
financial institutions which, in management's view, are managed with a
philosophy of strong centralization. Tower Bank will face competition from
thrift institutions, credit unions and other banks as well as finance companies,
insurance companies, mortgage companies, securities brokerage firms, money
market funds, trust companies and other providers of financial services. Most of
Tower Bank's competitors have been in business a number of years, have
established customer bases, are larger and have higher lending limits than Tower
Bank. Tower Bank will compete for loans principally through its ability to
communicate effectively with its customers and understand and meet their needs.
Management believes that its personal service philosophy will enhance its
ability to compete favorably in attracting individuals and small- and
medium-sized businesses. Tower Bank will actively solicit retail customers and
will compete for deposits by offering customers personal attention, professional
service, off-site ATM capability and competitive interest rates.
EMPLOYEES
Tower Bank is assembling a staff of experienced professionals and expects
to have approximately 18 full-time employees when it opens for business. In
addition to Messrs. Schenkel, Himmelhaver and Brown, these employees are
expected to include two experienced commercial lending officers, one or more
mortgage loan originators, a private banking officer, a retail banking
officer/marketing officer and additional customer service and support personnel.
OFFICE FACILITIES
Tower Bank is leasing the ground floor of the Lincoln Tower, a landmark
building located at 116 East Berry Street in downtown Fort Wayne, Indiana, for
use as Tower Bank's main office and Tower Financial's headquarters. The leased
space, which formerly was occupied by a large regional bank, consists of
approximately 13,900 usable square feet and includes drive-through banking
windows. Surface and garage parking will be available at no cost to Tower Bank's
customers. Tower Bank believes that this space will be adequate for its present
needs. The building has been leased on an arm's-length basis from one of Tower
Financial's and Tower Bank's directors. See "Related Party Transactions -- Lease
of Headquarters Building."
The lease for Tower Bank's office has an initial term of ten years
commencing on January 1, 1999, and Tower Bank has one renewal option for an
additional ten years. The lease payments are $9.75 per square foot annually for
the first two years. Rent will increase at the rate of $1.25 per square foot at
the commencement of the third, fifth and seventh years of the initial term. The
landlord will be responsible for the payment of taxes, insurance and utilities.
PLAN OF OPERATION
Tower Financial does not expect to need to raise additional funds during
the twelve months following the completion of the offering. Management has
concluded, based on current pre-opening growth projections, that Tower Bank is
likely to have adequate funds to meet its cash requirements for at least twelve
months assuming it receives the capital contribution from Tower Financial
described under "Use of Proceeds." Management expects to expend approximately
$100,000 for leasehold improvements and related architectural and engineering
services, and approximately $365,000 for furniture, fixtures, equipment and
other necessary assets, prior to commencing operations. During the first twelve
months of operation, Tower Financial does not anticipate requiring substantial
additional equipment. At this time, management expects to hire approximately ten
employees, in addition to the original 18, during the first twelve months of
operations.
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<PAGE> 17
YEAR 2000 READINESS
The approach of the year 2000 presents potential problems to businesses
that utilize computers. See "Risk Factors -- Risks Relating to Year 2000
Readiness." Tower Bank is in the process of being organized and expects that
most of its computer equipment will be acquired during the first half of 1999.
Tower Financial has contracted for information and account processing services
and reports with a reputable and experienced company that provides such services
for many financial institutions. This contract includes, and Tower Bank will
require all material contracts for equipment and services to include, assurances
that the provider's products and services will be Year 2000 ready or compliant.
"Year 2000 ready" means that the system has been reviewed and modified, if
necessary, so that it will be able to accurately process dates ending in the
Year 2000 and after. Tower Financial has appointed one of its senior officers to
oversee the Year 2000 process and to inform the board of directors on a regular
basis of the progress being made. Tower Financial intends to assess its Year
2000 readiness in the areas of processing services and reports, electronic
banking services, correspondent services and communication systems. Other
systems which could affect operations include security systems, heating,
ventilation, and air conditioning. Tower Financial intends to complete this
assessment by September 30, 1999.
Tower Bank expects to require general assurances from commercial borrowers
as to their Year 2000 readiness as part of the loan application and review
process. Additionally, Tower Bank plans to use the following steps to minimize
Year 2000 risks: (1) internal communications to keep employees knowledgable and
updated on Year 2000 readiness; (2) written communications to all loan
applicants to notify them of Tower Bank's Year 2000 readiness efforts; (3)
questionnaires to be completed by all material loan clients to make them aware
of possible Year 2000 issues applicable to them; and (4) continued dialogue with
loan clients during 1999 to review Year 2000 readiness.
Because it is starting with new equipment, Tower Financial does not expect
to incur large operating expenses to modify its systems to be Year 2000 ready.
Costs to Tower Financial related to Year 2000 readiness are estimated to be less
than $25,000. These costs may include testing of equipment and software
programs, equipment upgrades and customer education. It is difficult to predict
such costs and additional funds may be needed. The failure of Tower Financial,
its vendors or its customers to successfully address Year 2000 issues could
interfere with Tower Financial's ability to operate its business and could have
an adverse effect on its financial condition and results of operation. Tower
Financial intends to develop a contingency plan to address Year 2000 problems
that may occur after December 31, 1999, and expects to develop the plan prior to
September 30, 1999.
WHERE YOU CAN FIND MORE INFORMATION
As a result of this offering, Tower Financial will be subject to the
informational requirements of the Securities Exchange Act of 1934 (the "Exchange
Act") and will file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). You
may read and copy any reports, statements or other information that Tower
Financial files, including the Registration Statement with respect to the common
stock offered in this prospectus and all exhibits, financial statements and
schedules to the Registration Statement, at the SEC's Public Reference Room at
450 Fifth Street, N.W., Washington DC 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the Public Reference
Room. In addition, these materials may be inspected at the SEC's regional
offices located at Seven World Trade Center, Suite 1300, New York, NY 10048, and
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661. The SEC
also maintains an Internet site that contains reports, proxy and information
statements and other public filings. The address of that site is
http://www.sec.gov.
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MANAGEMENT
DIRECTORS AND OFFICERS
The directors and executive officers of Tower Financial as of the date of
this prospectus, and their contemplated positions with Tower Bank upon
completion of the offering, are as follows:
<TABLE>
<CAPTION>
POSITION(S) WITH POSITION(S)
NAME AGE TOWER FINANCIAL WITH TOWER BANK
---- --- ---------------- ---------------
<S> <C> <C> <C>
Curtis A. Brown...................... 43 Chief Lending Officer Chief Operating Officer
and Chief Lending Officer
Keith E. Busse....................... 55 Director Director
Peter T. Eshelman.................... 45 Director Director
Michael S. Gouloff................... 51 Director Director
Craig S. Hartman..................... 44 Director Director
Jerome F. Henry, Jr.................. 48 Director Director
Kevin J. Himmelhaver................. 42 Chief Financial Officer Chief Financial Officer
and Secretary and Secretary
Michael Mirro, M.D................... 49 Director Director
Debra A. Niezer...................... 43 Director Director
William G. Niezer.................... 48 Director Director
Maurice D. O'Daniel.................. 66 Director Director
Leonard Rifkin....................... 67 Director Director
Joseph D. Ruffolo.................... 57 Director Director
Donald F. Schenkel................... 57 Chairman of the Board, Chairman of the Board,
President, Chief Executive President, Chief Executive
Officer and Director Officer and Director
Larry L. Smith....................... 50 Director Director
John V. Tippmann, Sr................. 57 Director Director
J. Richard Tomkinson................. 51 Director Director
Irene A. Walters..................... 56 Director Director
</TABLE>
Curtis A. Brown is the Chief Lending Officer of Tower Financial and the
Chief Operating Officer and Chief Lending Officer of Tower Bank, positions he
has held since October 1998. He is a native of Fort Wayne and has over 21 years
of experience in the banking industry. Mr. Brown began his career as a retail
bank manager from 1977 to 1982 with INB National Bank. From 1982 until 1993, Mr.
Brown assumed increasing responsibilities in corporate banking as an Assistant
Vice President, Vice President, First Vice President and Senior Loan Officer
with INB National Bank. INB National Bank was acquired by NBD Bank, N.A. in
1993. From 1993 until 1998, Mr. Brown managed corporate banking groups for NBD
Bank Indiana in Fort Wayne, most recently holding the positions of First Vice
President and Group Head. Mr. Brown is involved in United Way of Allen County, a
board member of Anthony Wayne Services, Inc., and a member of the Workforce
Development Council of the Greater Fort Wayne Chamber of Commerce.
Keith E. Busse is a director of Tower Financial and Tower Bank. Since
September 1993, Mr. Busse has served as Chief Executive Officer of Steel
Dynamics, Inc., a primary steel-making company headquartered in Butler, Indiana,
and formed by Mr. Busse and others in 1993. Steel Dynamics, Inc., is a
publicly-held company and a significant supplier of flat-rolled steel in the
upper Midwest that had net sales of $420 million for 1997 and employed 455
persons as of March 2, 1998. In 1997, Mr. Busse and Steel Dynamics were listed
in Business Week as being among the country's top 10 "entrepreneurs" and
entrepreneurial corporations, and Mr. Busse was named the regional winner of the
Indiana Ernst & Young Emerging Entrepreneur of the Year award. Mr. Busse is also
a director of Steel Dynamics, Inc., and Qualitech Steel Corporation. Mr. Busse
is involved in area civic and charitable organizations, including Junior
Achievement, the Leukemia Society of America and local Little League and Senior
League Baseball. He is also a board member of Bridgewater Development Company,
Fort Wayne Fury and Fort Wayne Kustom.
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Peter T. Eshelman is a director of Tower Financial and Tower Bank. Mr.
Eshelman is President and Chief Executive Officer of American Specialty
Companies, Inc., a sports and entertainment risk management company based in
Roanoke, Indiana, of which he is the majority shareholder. He has held these
positions since 1989. Mr. Eshelman is also a founding trustee of American
Specialty Foundation, a charitable foundation for educational development of
youth through sports, the Chairman of the Roanoke, Indiana, Chamber of Commerce
Beautification Committee, and serves as an appointee of Governor O'Bannon on the
State of Indiana Regulated Amusement and Safety Device Board.
Michael S. Gouloff is a director of Tower Financial and Tower Bank. Mr.
Gouloff has served as President of Schenkel Schultz Architects, a national
architectural firm known for the design of educational and correctional
facilities, since 1985 and has been employed by the firm since 1973. He is
currently a registered architect in 18 states. A Fort Wayne native, Mr. Gouloff
is an active member of the community, currently serving on the boards of
Canterbury School, Fort Wayne Country Club, Fort Wayne Airport Authority and
Parkview Hospital. Mr. Gouloff is a current Commissioner for the Hoosier Lottery
and a past Commissioner for the Indiana State Office Building Commission.
Craig S. Hartman is a director of Tower Financial and Tower Bank. Mr.
Hartman is Chairman and Chief Executive Officer of Preferred, Inc., a commercial
and industrial painting, roofing and flooring company. Mr. Hartman founded
Preferred, Inc., in 1973 at the age of 18 and has served as its Chief Executive
Officer since that time. He also serves as Chief Executive Officer of Preferred
Environmental Services, Inc., an asbestos and lead abatement company founded in
January 1991. Mr. Hartman currently is a member of the Fort Wayne Junior
Achievement board of directors, the boards of the Indiana Chamber of Commerce
and the Greater Fort Wayne Chamber of Commerce Foundation and a member of the
Indiana Chapter of the Young President's Organization. Mr. Hartman is a native
of Fort Wayne and has been involved in numerous other community organizations.
He has been recognized in the Fort Wayne community and the state as an
entrepreneur and small business person and was a delegate to The White House
Conference on Small Business in 1995.
Jerome F. Henry, Jr., is a director of Tower Financial and Tower Bank. Mr.
Henry was the founder and is the President of Midwest Pipe & Steel, Inc., a
company specializing in steel service, industrial scrap and steel brokerage. Mr.
Henry has held this position since 1975. Mr. Henry is also President of Paragon
Tube Corporation, a manufacturer of steel tubing, and Paragon Steel Trading,
Inc., a distributor of steel coils, each of which is headquartered in Fort
Wayne. He has held these respective positions since 1990 and 1995. A native of
Bloomington, Indiana, Mr. Henry has lived in Fort Wayne for 40 years. He is
involved with Big Brothers, St. Joseph Community Health Foundation and St. Anne
Home and is a member of the Urban Enterprise Zone Board.
Kevin J. Himmelhaver is the Chief Financial Officer and Secretary of Tower
Financial and Tower Bank, positions he has held since October 1998 and November
1998, respectively. Mr. Himmelhaver has nearly 20 years of banking experience in
the Fort Wayne area. From 1979 to 1993, Mr. Himmelhaver worked for Lincoln
Financial Corporation and its principal subsidiary, Lincoln National Bank &
Trust Company, in various financial positions, most recently as First Vice
President and Controller with responsibility for accounting, tax, financial
controls and office services. Lincoln Financial Corporation was acquired by
Norwest Corporation in 1993. From 1993 to 1998, Mr. Himmelhaver worked for
Norwest Bank Indiana, N.A., and Norwest Bank Ohio, N.A., a banking region of
Norwest Corporation with $2 million in assets at September 30, 1998, as Senior
Vice President and Chief Financial Officer. His responsibilities included
managing regional finance, properties and various operations groups, as well as
strategic planning, acquisitions and asset and liability management. Mr.
Himmelhaver also served as a director of Norwest Bank Indiana, N.A., and Norwest
Bank Ohio, N.A. A native of Fort Wayne, Indiana, Mr. Himmelhaver is a board
member of the Summit Club, a director and the Treasurer of Fort Wayne Aquatics,
Inc., and a 1998 graduate of Leadership Fort Wayne.
Michael Mirro, M.D., is a director of Tower Financial and Tower Bank. Dr.
Mirro has been a partner of Fort Wayne Cardiology since 1982 and has previously
served on the group's governing board. Fort Wayne Cardiology recently merged
with a multi-specialty internal medicine group to form Indiana Medical
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<PAGE> 20
Associates, LLC. Dr. Mirro served as founding board chairman during the merger.
Indiana Medical Associates, LLC is a group of 46 physicians providing health
services to the entire Northeast Indiana Region. Dr. Mirro is a Fellow of the
American College of Physicians, American College of Cardiology and American
College of Chest Physicians. Recently, he served as President of the Fort
Wayne/Allen County Medical Society. Dr. Mirro is a past member of the Indiana
Medical Licensing Board. Dr. Mirro's civic interests include serving as the
Chairman of the Greater Fort Wayne Chamber of Commerce and as the past Chairman
of the Economic Development Council for that organization. His community
interests also have included serving on the Board of Trustees of the YMCA of
Greater Fort Wayne.
Debra A. Niezer is a director of Tower Financial and Tower Bank. Ms. Niezer
is the Vice President and Assistant Treasurer of AALCO Distributing Company, a
beer distributor in Fort Wayne. She has held these positions since April 1995.
From January 1989 to March 1995, Ms. Niezer served as Vice President and
Employee Benefits Officer for NBD Bank Indiana in Fort Wayne. Prior to that time
she served as Vice President and Trust Officer for First of America
Bank-LaPorte, N.A., from December 1983 to October 1988. A native of Fort Wayne,
Ms. Niezer is the past President of the Gamma Lambda Chapter of Kappa Kappa
Kappa and is the Co-Chair of Bishop Dwenger High School Saints Alive! for 1999.
William G. Niezer is a director of Tower Financial and Tower Bank. Mr.
Niezer is the President and Chief Executive Officer of Acordia of Indiana, Inc.,
an insurance broker, positions he has held since September 1997. Mr. Niezer
previously served as President and Chief Executive Officer of Acordia of
Northeast Indiana, Inc., an insurance broker and third-party administrator, from
February 1995 to September 1997 and the Director of Property & Casualty
Operations of Acordia of Northeast Indiana, Inc., from October 1994 to February
1995. Prior to that time, Mr. Niezer was the President of O'Rourke, Andrews &
Maroney, Inc., a regional insurance broker, from May 1988 to October 1994. Mr.
Niezer is the President of the Board of Trustees of the University of St.
Francis, a member of the Allen County Plan Commission, and a board member of St.
Joseph Community Health Foundation. Mr. Niezer is a native of Fort Wayne and has
previously served on the boards of the Fort Wayne Ballet and St. Anne Home.
Maurice D. O'Daniel is a director of Tower Financial and Tower Bank. Mr.
O'Daniel is the Chairman and Chief Executive Officer of O'Daniel Automotive,
Inc., an automobile dealership with four locations in the Fort Wayne area. Mr.
O'Daniel has served in these positions since July 1979. From 1975 to 1977, Mr.
O'Daniel served on the board and loan committee of First Federal Savings & Loan
Corporation in Evansville, Indiana, and in 1995 and 1996, he was Chairman of the
Board of Northern Indiana Trust Corporation in Fort Wayne. He currently serves
as a director of St. Joseph Community Health Foundation and is Chairman of the
Junior Achievement Foundation and a member of the Greater Fort Wayne Chamber of
Commerce Economic Development Council.
Leonard Rifkin is a director of Tower Financial and Tower Bank. Mr. Rifkin
served as the Chief Executive Officer and President of OmniSource, Inc., from
1970 until 1996, when he was appointed Chairman and Chief Executive Officer,
positions he currently holds. OmniSource is a scrap metal processing, trading
and brokerage company that specializes in scrap management programs throughout
the United States and Canada. OmniSource was originally incorporated in 1943 in
Fort Wayne, Indiana, as Superior Iron & Metal and today employs 1,250 persons
and operates from 25 locations throughout the Midwest. Mr. Rifkin is also a
director of Steel Dynamics, Inc., and Qualitech Steel Corporation. His civic
involvement includes the Greater Fort Wayne Chamber of Commerce and the Fort
Wayne Philharmonic.
Joseph D. Ruffolo is a director of Tower Financial and Tower Bank. Since
1993, Mr. Ruffolo has been a member of Ruffolo Richard, LLC, a business
investment firm located in Fort Wayne. Ruffolo Richard, LLC, specializes in
management buy-outs, capital sourcing and acquisitions. From 1988 to 1993, Mr.
Ruffolo served as Chief Executive Officer and President of North American Van
Lines, a moving company. Mr. Ruffolo has resided in Fort Wayne since 1974, is a
director of Parkview Health System, Inc., and is active with the Fort Wayne
Museum of Art and the Greater Fort Wayne Chamber of Commerce.
Donald F. Schenkel is the President and Chief Executive Officer and a
director of Tower Financial and of Tower Bank, positions he has held since July
1998, and was elected the Chairman of the Board of Tower Financial and Tower
Bank in October 1998. Mr. Schenkel is a native of Fort Wayne and has nearly 30
years of
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<PAGE> 21
experience in the banking industry. Most recently, Mr. Schenkel served as First
Vice President of NBD Bank Indiana, a banking corporation which had assets of
approximately $9.5 billion at June 30, 1998. NBD Bank Indiana was a subsidiary
of First Chicago NBD Corporation, a multi-bank holding company which had assets
at September 30, 1998, of approximately $117 billion. From 1993 to 1998, he
served in the capacities of Division Head of Retail Banking and Private Banking
& Investments, for NBD Bank Indiana. From 1990 to 1993, Mr. Schenkel served as
Senior Vice President of INB National Bank, a regional bank with assets of
approximately $5 billion at December 31, 1992, that was acquired by NBD Bank,
N.A., in 1993. His positions with INB National Bank included senior level
responsibility for commercial lending, retail lending and branch administration.
From 1985 to 1990, Mr. Schenkel was an executive with Northhill Corporation, a
company involved primarily in real estate development. From 1966 to 1985, Mr.
Schenkel was employed by Lincoln National Bank & Trust Company in Fort Wayne,
whose parent holding company, Lincoln Financial Corporation, was acquired by
Norwest Corporation in 1993. During this time, Mr. Schenkel held various
positions, including Senior Vice President and Secretary to the Board of
Directors. Mr. Schenkel serves as Chairman of the St. Joseph Community Health
Foundation and is a member of the Board of Trustees of the University of St.
Francis. He is also a board member of the Fort Wayne Zoological Society, Junior
Achievement and Leadership Fort Wayne.
Larry L. Smith is a director of Tower Financial and Tower Bank. Mr. Smith
has served since March 1993 as President and Chief Executive Officer of Q.C.
Onics, Inc., an automotive supplier based in Angola, Indiana. From 1988 to 1992,
Mr. Smith was employed by Navistar International Transportation Company as Vice
President of Truck Engineering. Prior to this time, Mr. Smith had a twenty-year
career with Chrysler Corporation, where he held numerous management positions in
product engineering, manufacturing and quality control. During his tenure as
Chief Engineer of Vehicle Safety Management with Chrysler Corporation, he was
appointed by the U.S. Secretary of Transportation to the National Highway
Traffic Safety Administration's Research Board on Highway Safety. Mr. Smith
previously served on the board and the Trust Committee of Summit Bank in Fort
Wayne. He has been active in numerous civic and charitable organizations in the
Fort Wayne area, such as the Greater Fort Wayne Chamber of Commerce, the Fort
Wayne Urban League, Junior Achievement, the Fort Wayne Philharmonic and the Fort
Wayne Corporate Council.
John V. Tippmann, Sr., is a director of Tower Financial and Tower Bank. Mr.
Tippmann is Chairman of the Tippmann Group, a position he has held since 1985.
The Tippmann Group, through its three subsidiaries, operates frozen/refrigerated
distribution warehouses, specializes in the design and construction of frozen
food process and cold storage facilities, and manages approximately 41 buildings
throughout the Midwest. The Tippmann Group is based in Fort Wayne, has annual
revenues of approximately $75 million, and employs approximately 400 people. Mr.
Tippmann is a native of Fort Wayne and board member of St. Joseph Community
Health Foundation, Board President of Vincent House, Inc., and the current
Chairman of Annual Bishops Appeal Fort Wayne/South Bend.
J. Richard Tomkinson is a director of Tower Financial and Tower Bank. Mr.
Tomkinson is the President and owner of Tomkinson Automotive Group. He has
served in this position since 1979. Tomkinson Automotive Group operates two Fort
Wayne area automobile dealerships. Mr. Tomkinson also is the President and
co-owner of Lincoln Graphics, Inc., a Fort Wayne graphics design and
reproduction company serving architects and construction companies in Northeast
Indiana, and Vice President and co-owner of Gallatin Highlands Corporation, a
Big Sky, Montana real estate development company. Mr. Tomkinson has been a
member of the National Auto Dealers Association since 1977.
Irene A. Walters is a director of Tower Financial and Tower Bank. Ms.
Walters is the Director of University Relations and Communications at Indiana
University-Purdue University Fort Wayne. Ms. Walters has held this position
since 1995. Prior to that time, from 1990 to 1995, Ms. Walters was the Executive
Director of the Fort Wayne Bicentennial Celebration Council. Ms. Walters has
served in leadership positions in many civic and charitable projects and has
served on numerous boards in the Fort Wayne area for over twenty-five years,
such as United Way of Allen County, the American Cancer Society, Three Rivers
Festival, Anthony Wayne Services, Inc., the McMillen Center for Health
Education, the Fort Wayne Civic Theatre, Fort Wayne Historical Society, WFWA
Channel 39, the Fort Wayne Jewish Federation, the YWCA and
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<PAGE> 22
Leadership Fort Wayne. In 1994, she received Indiana's highest civilian award,
the Sagamore of the Wabash, and in 1995 was named Fort Wayne's Citizen of the
Year by the Fort Wayne Journal-Gazette. She led Fort Wayne's award-winning
All-America City delegation in 1998 and most recently was appointed Co-Chair of
the City of Fort Wayne Millennium Celebration Commission.
Under federal law and regulations, and subject to certain exceptions, the
addition or replacement of any director or the employment, dismissal or
reassignment of a senior executive officer of Tower Bank or Tower Financial at
any time that Tower Bank is not in compliance with applicable minimum capital
requirements or is otherwise in a troubled condition, or when the Federal
Reserve Board has determined that such prior notice is appropriate, is subject
to prior notice to and disapproval by the Federal Reserve Board. In addition,
directors and officers of Tower Bank may be removed by order of the Department
under certain circumstances.
Tower Financial's By-Laws provide that the number of directors of Tower
Financial shall be eighteen. This number is subject to change from time to time
by a vote of 66 2/3% of the board of directors without shareholder approval.
There are currently two vacancies on the board. Directors of Tower Financial are
divided into three classes with staggered three-year terms. The term of the
first class will expire at the annual meeting of shareholders in 2000, and the
terms of the second and third classes will expire at the annual meetings of
shareholders in 2001 and 2002, respectively. The terms of Tower Financial's
current and proposed directors will expire as follows:
- 2000 -- Ms. Niezer and Messrs. Henry, Hartman, O'Daniel and Ruffolo;
- 2001 -- Messrs. Mirro, Niezer, Rifkin, Smith and Tippmann;
- 2002 -- Messrs. Busse, Eshelman, Gouloff, Schenkel and Tomkinson and Ms.
Walters.
It is anticipated that the entire board of directors of Tower Bank will be
elected annually by Tower Financial as its sole shareholder.
Executive officers of Tower Financial and of Tower Bank serve at the
discretion of their respective boards of directors.
Mr. Rifkin is the first cousin of Ms. Walters' spouse. Ms. Niezer is the
sister-in-law of Mr. Niezer. There are no other family relationships among any
of the directors or executive officers of Tower Financial.
COMMITTEES OF THE BOARD OF DIRECTORS
Tower Financial has an Executive Committee, an Audit Committee and a
Compensation Committee. The Executive Committee consists of Messrs. Busse,
Eshelman, Gouloff, Hartman, Ruffolo and Schenkel. The Audit Committee consists
of Messrs. Niezer and Tomkinson, Ms. Walters and Ms. Niezer, and the
Compensation Committee consists of Messrs. Busse, Eshelman, Gouloff, Hartman and
Ruffolo. The Executive Committee has authority to act on behalf of the board of
directors between meetings and, with certain exceptions, the authority to take
all actions that the full board could take. The Audit Committee is responsible
for recommending independent auditors, reviewing with the independent auditors
the scope and results of the audit engagement, establishing and monitoring Tower
Financial's financial policies and control procedures, reviewing and monitoring
the provision of non-audit services by Tower Financial's auditors and reviewing
all potential conflict of interest situations. See "Related Party Transactions."
The Compensation Committee is responsible for reviewing, determining and
establishing the salaries, bonuses and other compensation of the executive
officers of Tower Financial and for administering Tower Financial's 1998 Stock
Option Plan.
COMPENSATION OF DIRECTORS
Joseph Ruffolo and one of his affiliates have provided consulting services
to Tower Financial during 1998 relating to the establishment of Tower Financial
and Tower Bank. These services include market analysis, director sourcing, and
the development and generation of information disclosed in the applications to
the federal and state banking regulatory authorities. As compensation for these
services, on January , 1999, Tower Financial granted to Mr. Ruffolo options to
purchase 2,500 shares of common stock at an exercise price
21
<PAGE> 23
equal to the offering price per share shown on the cover page of this
prospectus. The options become exercisable upon the closing of the offering and
expire ten years from the date of grant.
Craig Hartman has provided services to Tower Financial to assist in its
formation. These services include the identification of potential investors and
directors and consulting services with respect to the viability of establishing
a locally-owned bank and with respect to the identity of professional advisors
to Tower Financial, including the engagement of the underwriters. As
compensation for these services, on January , 1999, Tower Financial granted
Mr. Hartman options to purchase 7,500 shares of common stock at an exercise
price equal to the offering price per share shown on the cover page of this
prospectus. The options become exercisable upon the closing of the offering and
expire ten years after the date of grant.
In the first year of operation, no other compensation is expected to be
paid to any directors of Tower Financial or Tower Bank for their services in
such capacities, except for options to purchase shares of common stock expected
to be granted by Tower Financial to each of the directors. See "Executive
Compensation -- 1998 Stock Option and Incentive Plan." Depending on the
structure and operation of Tower Financial, the operations of Tower Bank and
other factors, Tower Financial's and Tower Bank's Boards of Directors may
thereafter determine that reasonable fees or compensation are appropriate. In
that event, it is likely that directors of Tower Financial and Tower Bank would
receive compensation, such as meeting fees, which would be consistent with the
compensation paid to directors of financial institution holding companies and
banks of similar size.
EXECUTIVE COMPENSATION
The annual compensation (excluding benefits) for Mr. Schenkel, the Chairman
of the Board, President and Chief Executive Officer of Tower Financial and Tower
Bank, for the first year of his employment is expected to be $145,000. Tower
Financial also paid Mr. Schenkel a hiring bonus in 1998 in the amount of
$100,000 to compensate him for accrued benefits forfeited by him upon leaving
his previous employer to accept his positions with Tower Financial. Mr.
Himmelhaver, the Chief Financial Officer and Secretary of Tower Financial and
Tower Bank, is expected to be paid a salary of $105,000 for the first year of
his employment; and Mr. Brown, Chief Lending Officer of Tower Financial and
Chief Lending Officer and Chief Operating Officer of Tower Bank, is expected to
be paid a salary of $115,000 for that same period. These officers' compensation
in subsequent years will be determined by Tower Financial's and Tower Bank's
Boards of Directors. In making their determinations, it is expected that the
boards of directors will receive recommendations from their Compensation
Committees, which will be comprised of outside directors. Mr. Schenkel and the
other officers of Tower Financial and Tower Bank may participate in Tower
Financial's 1998 Stock Option and Incentive Plan. Officers of Tower Bank may
also participate in any benefit plans adopted for Tower Bank employees
generally. Pending the establishment of Tower Financial's and Tower Bank's
benefit plans for employees generally, Tower Financial has purchased life
insurance and disability insurance covering Messrs. Schenkel, Himmelhaver and
Brown. Tower Bank expects to adopt a 401(k) plan for its employees.
Tower Financial has entered into employment agreements with Messrs.
Schenkel, Himmelhaver and Brown, each for an initial term of three years with
automatic one year renewals. Each agreement provides that, if the executive's
employment is terminated by Tower Financial without cause, Tower Financial will
pay to the executive the aggregate amount of the salary he would be entitled to
receive under the agreement for the balance of the employment term, provided
that such payment will not be less than one year's salary at the then-effective
rate being paid to the executive. The agreements prohibit the officers from
competing with Tower Financial during the periods of their employment and for an
additional 24 months thereafter (twelve months if their employment is terminated
by Tower Financial without cause).
The agreements provide for initial annual salaries of $145,000, $105,000
and $115,000 for Messrs. Schenkel, Himmelhaver and Brown, respectively, each of
which may be increased from time to time by the board of directors. Mr.
Schenkel's agreement provides that he is eligible to qualify for an annual
performance bonus equal to a minimum of 30% (and up to a maximum of 100%) of his
annual salary upon compliance with goals set from time to time by the board of
directors in its sole discretion. Mr. Himmelhaver's
22
<PAGE> 24
agreement entitles him to (a) a signing bonus of $20,000, payable no later than
January 31, 1999, to compensate him from accrued benefits forfeited by him upon
leaving his previous employer to accept his positions with Tower Financial and
(b) an incentive bonus payment of $10,000 payable within 30 days after Tower
Bank commences business. Mr. Brown's agreement entitles him to an incentive
bonus payment of $25,000 payable within 30 days after Tower Bank commences
business. Tower Financial has not yet paid any such bonuses to these executives.
SUMMARY COMPENSATION TABLE
The following table shows compensation paid to Tower Financial's Chairman
of the Board, President and Chief Executive Officer for the period from
inception of Tower Financial to December 31, 1998. No other executive officer of
Tower Financial received compensation exceeding $100,000 for such period.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
OTHER ANNUAL
NAME AND POSITION SALARY BONUS COMPENSATION
----------------- ------ ----- ------------
<S> <C> <C> <C>
Donald F. Schenkel,......................................... $66,923 $100,000 $12,571(1)
Chairman of the Board,
President and Chief
Executive Officer
</TABLE>
- -------------------------
(1) Of this amount, $4,256 represents payment of a car allowance; $1,298
represents payment of health, dental and disability insurance premiums;
$1,792 represents payment of life insurance premiums; and $5,225 represents
payment of club dues.
1998 STOCK OPTION AND INCENTIVE PLAN
On December 14, 1998, the board of directors and the sole stockholder of
Tower Financial adopted the 1998 Stock Option and Incentive Plan (the "1998
Stock Option Plan"). Under the 1998 Stock Option Plan, Tower Financial may award
stock options and performance shares to employees and directors of Tower
Financial. The aggregate number of shares of common stock that may be awarded
under the 1998 Stock Option Plan is 310,000, subject to adjustment in certain
events. No individual participant may receive awards for more than 75,000 shares
in any calendar year.
The 1998 Stock Option Plan is administered by the Compensation Committee.
Subject to the terms of the 1998 Stock Option Plan, the Compensation Committee
has the sole discretion and authority to select those persons to whom awards
will be made, to designate the number of shares to be covered by each award, to
establish vesting schedules, to specify all other terms of the awards (subject
to certain restrictions) and to interpret the 1998 Stock Option Plan.
With respect to stock options under the 1998 Stock Option Plan that are
intended to qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code, the option price must be at least 100% (or, in the case
of a holder of more than 10% of the common stock, 110%) of the fair market value
of a share of common stock on the date of the grant of the stock option. The
Compensation Committee will establish, at the time the options are granted, the
exercise price of options that do not qualify as incentive stock options ("non-
qualified stock options"), which may not be less than 85% of the fair market
value of a share of common stock on the date of grant. No incentive stock option
granted under the 1998 Stock Option Plan may be exercised more than ten years
(or, in the case of a holder of more than 10% of the common stock, five years)
from the date of grant or such shorter period as the Compensation Committee may
determine at the time of the grant. Non-qualified stock options may be exercised
during such period as the Compensation Committee determines at the time of
grant, which period may not be more than ten years from the date of grant. Under
the 1998 Stock Option Plan, the Compensation Committee may also make awards of
performance shares, in which case the grantee would be granted shares of common
stock, subject to Tower Financial's satisfaction of performance goals determined
by the Compensation Committee.
23
<PAGE> 25
On January , 1999, Tower Financial's Compensation Committee granted
options to certain employees and directors under the 1998 Stock Option Plan for
an aggregate of 90,000 shares of common stock, effective at the closing date of
the offering. Each of these options has an exercise price equal to the initial
public offering price shown on the cover page of this prospectus and has a term
of ten years. Of these option grants, non-qualified stock options to purchase
2,500 shares were granted to Joseph Ruffolo, and non-qualified stock options to
purchase 7,500 shares were granted to Craig Hartman, as compensation for
services provided to Tower Financial as described under "Management --
Compensation of Directors." These non-qualified stock options vest on the
closing date of the offering. Incentive stock options to purchase 40,000, 20,000
and 20,000 shares were granted to Messrs. Schenkel, Himmelhaver and Brown,
respectively, as compensation for services rendered in their capacities as
officers of Tower Financial and Tower Bank. These incentive stock options vest
25% a year on each of the first four anniversaries of the closing date of the
offering.
Additionally, the Compensation Committee intends to grant non-qualified
stock options to purchase an aggregate of 150,000 shares to the directors of
Tower Financial after the closing date of the offering on a pro rata basis based
upon the number of shares of common stock purchased in the offering by the
directors. See "Principal Shareholders." The Compensation Committee intends for
one-third of the shares subject to each option to vest six months, one year and
two years after the closing date of the offering. Each of the options will have
an exercise price equal to the initial public offering price set forth on the
cover page of this prospectus and will have a term of ten years.
RELATED PARTY TRANSACTIONS
Since its inception, Tower Financial has engaged in transactions with
entities controlled by its directors and their affiliates. Management believes
that each of these transactions was on terms no less favorable to Tower
Financial than those that could be obtained from an unaffiliated third party.
Tower Financial anticipates that, subsequent to the offering, it will continue
to engage in certain of these transactions if economically advantageous to Tower
Financial. Future related party transactions will be subject to the review and
approval of Tower Financial's Audit Committee, which will be composed
exclusively of outside directors, and such transactions will be on terms no less
favorable to Tower Financial than those that could be obtained from an
unaffiliated third party.
LOANS FROM DIRECTORS
Over the past several months, each of the directors of Tower Financial has
made a loan to Tower Financial to fund start-up expenses. These loans total
$760,000. Each loan is evidenced by a promissory note payable to the director,
which is non-interest bearing and is due on or before March 31, 1999. Tower
Financial intends to repay the notes promptly following the completion of the
offering.
LEASE OF HEADQUARTERS BUILDING
Tower Financial leases its headquarters facility, which contains the only
location of Tower Bank, from Tippmann Properties, Inc., agent for Director John
V. Tippmann, Sr. The lease is a ten-year lease commencing on January 1, 1999,
with annual rental payments of $9.75 per square foot for the first two years of
the lease and fixed increases at the rate of $1.25 per square foot every two
years thereafter, ending at $14.75 per square foot for the last two years of the
lease. The lease provides for one renewal of ten years at then prevailing market
rates. In the event Tower Bank does not receive its charter, Tower Financial may
terminate the lease without further obligation. Tower Financial believes that
this lease is on terms at least as favorable as could be obtained from an
unaffiliated third party. Tower Financial has paid Tippmann Properties, Inc.,
$4,879 under an interim lease for temporary office space during fiscal year
1998.
CONSULTING SERVICES
Director Joseph Ruffolo and one of his affiliates have provided consulting
services to Tower Financial during fiscal year 1998 relating to the
establishment of Tower Financial and Tower Bank. Additionally,
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<PAGE> 26
Director Craig Hartman has provided services to Tower Financial to assist in its
formation. See "Management -- Compensation of Directors."
INSURANCE
Tower Financial has obtained key man life, director and officer liability,
property, liability, automobile and worker's compensation insurance through
Acordia of Indiana, Inc., an insurance broker whose President and Chief
Executive Officer is Director William Niezer. Tower Financial paid a commission
to Acordia of Indiana, Inc., of $1,390.
OTHER
During fiscal year 1998, Tower Financial paid $6,250 to GKG Designs, an
interior design firm owned by Gretchen Gouloff, spouse of Director Michael
Gouloff, for interior design services. Additionally, Tower Financial has leased
a car from O'Daniel Automotive, Inc., a car dealership owned by Director Maurice
O'Daniel, for two years with a lease payment of $605 per month and has paid
$4,256 on the car lease during fiscal year 1998. Tower Financial has also
purchased a computer from Preferred, Inc., an affiliate of Director Craig
Hartman, for $1,600. The purchase price was determined by the parties based on
the estimated value of the computer.
BANKING TRANSACTIONS
Tower Financial anticipates that the directors and officers of Tower
Financial and Tower Bank and the companies with which they are associated will
have banking and other transactions with Tower Financial and Tower Bank in the
ordinary course of business. Any loans and commitments to lend to such
affiliated persons or entities will be made in accordance with all applicable
laws and regulations and on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated parties of similar creditworthiness, and will not
involve more than normal risk or present other unfavorable features to Tower
Financial and Tower Bank. Transactions between Tower Financial or Tower Bank, on
one hand, and any officer, director, principal shareholder, or other affiliate
of Tower Financial or Tower Bank, on the other hand, will be on terms no less
favorable to Tower Financial or Tower Bank than could be obtained on an
arm's-length basis from unaffiliated third parties.
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<PAGE> 27
PRINCIPAL SHAREHOLDERS
Tower Financial has issued to date only one share of common stock. The
following table shows the anticipated beneficial ownership of the common stock
after the sale of the shares offered hereby by (1) each person expected by Tower
Financial to beneficially own more than 5% of the outstanding common stock, (2)
each director of Tower Financial, (3) each of Tower Financial's executive
officers and (4) all current directors and executive officers of Tower Financial
as a group. Under the Underwriting Agreement between Tower Financial and the
underwriters (the "Underwriting Agreement"), Tower Financial will direct the
underwriters to offer to sell the number of shares listed below to the directors
and executive officers listed below. All share numbers (other than shares that
may be acquired pursuant to options granted to Mr. Hartman and Mr. Ruffolo under
the 1998 Stock Option Plan) are provided based upon such directions from Tower
Financial and non-binding expressions of interest supplied by the directors and
executive officers. Depending upon their individual circumstances at the time,
each of such persons may purchase a greater or fewer number of shares than
indicated, and in fact may purchase no shares.
<TABLE>
<CAPTION>
AFTER OFFERING
------------------------------------
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS BENEFICIALLY OWNED(1) OF CLASS(2)
---------------- --------------------- -----------
<S> <C> <C>
Curtis A. Brown(3).......................................... 5,000 *
7626 Lissa Court
Fort Wayne, Indiana 46804
Keith E. Busse.............................................. 20,000 1.00%
4500 County Road 59
Butler, Indiana 46721
Peter T. Eshelman........................................... 5,000 *
142 North Main Street
Roanoke, Indiana 46783
Michael S. Gouloff.......................................... 5,000 *
111 East Wayne Street
Fort Wayne, Indiana 46802
Craig S. Hartman(4)......................................... 57,500 2.86%
4031 Transportation Drive
Fort Wayne, Indiana 46818
Jerome F. Henry, Jr......................................... 10,000 *
1702 Winter Street
Fort Wayne, Indiana 46803
Kevin J. Himmelhaver(3)..................................... 1,000 *
9119 Bradenton Road
Fort Wayne, Indiana 46835
Michael Mirro, M.D.......................................... 10,000 *
1819 Carew Street
Fort Wayne, Indiana 46805
Debra A. Niezer............................................. 1,500 *
12515 Chapelwood Place
Fort Wayne, Indiana 46845
William G. Niezer........................................... 10,000 *
1721 Magnavox Way
Fort Wayne, Indiana 46801
Maurice D. O'Daniel......................................... 15,000 *
5611 Illinois Road
Fort Wayne, Indiana 46801
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
AFTER OFFERING
------------------------------------
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS BENEFICIALLY OWNED(1) OF CLASS(2)
---------------- --------------------- -----------
<S> <C> <C>
Leonard Rifkin.............................................. 25,000 1.25%
1610 North Calhoun Street
Fort Wayne, Indiana 46802
Joseph D. Ruffolo(5)........................................ 12,500 *
200 East Main Street
Fort Wayne, Indiana 46802
Donald F. Schenkel(3)....................................... 10,000 *
10710 Country Wood Trail
Fort Wayne, Indiana 46845
Larry L. Smith.............................................. 5,000 *
1410 Wohlert Street
Angola, Indiana 46703
John V. Tippmann, Sr........................................ 20,000 1.00%
9009 Coldwater Road
Fort Wayne, Indiana 46825
J. Richard Tomkinson........................................ 10,000 *
4140 Coldwater Road
Fort Wayne, Indiana 46825
Irene A. Walters............................................ 10,000 *
2101 East Coliseum Boulevard
Fort Wayne, Indiana 46805
Directors and executive officers of Tower Financial as a
group (18 persons)........................................ 232,500 11.57%
</TABLE>
- -------------------------
* Less than one percent.
(1) Some or all of the common stock listed may be held jointly with, or for the
benefit of, spouses and children of, or various trusts established by, the
person indicated.
(2) The percentages shown are based on the 2,000,000 shares being offered
(assuming no exercise of the underwriters' over-allotment option) plus for
each person or group the number of shares that person or group has the right
to acquire within 60 days pursuant to options granted under the 1998 Stock
Option Plan.
(3) Does not include options to purchase shares that have been issued under the
1998 Stock Option Plan.
(4) The number of shares shown for Mr. Hartman includes 7,500 shares that he has
the option to acquire effective as of the completion of the offering under a
stock option granted to him under the 1998 Stock Option Plan.
(5) The number of shares shown for Mr. Ruffolo includes 2,500 shares that he has
the option to acquire effective as of the completion of the offering under a
stock option granted to him under the 1998 Stock Option Plan.
SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state law. Consequently, the growth and earnings
performance of Tower Financial and Tower Bank can be affected not only by
management decisions and general economic conditions, but also by the statutes
administered by, and the regulations and policies of, various governmental
regulatory authorities. Those authorities include, but are not limited to, the
Federal Reserve Board, the FDIC, the Department, the Internal Revenue Service
and state
27
<PAGE> 29
taxing authorities. The effect of such statutes, regulations and policies can be
significant and cannot be predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions and their holding companies regulate, among other things:
- - the scope of business
- - investments
- - reserves against deposits
- - capital levels relative to operations
- - lending activities and practices
- - the nature and amount of collateral for loans
- - the establishment of branches
- - mergers and consolidations
- - dividends
The system of supervision and regulation applicable to Tower Financial and Tower
Bank establishes a comprehensive framework for their respective operations and
is intended primarily for the protection of the FDIC's deposit insurance funds,
the depositors of Tower Bank and the public, rather than shareholders of Tower
Bank or Tower Financial.
Federal law and regulations, including provisions added by the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and regulations
promulgated thereunder, establish supervisory standards applicable to the
lending activities of Tower Bank, including internal controls, credit
underwriting, loan documentation and loan-to-value ratios for loans secured by
real property.
The following references to statutes and regulations are intended to
summarize certain government regulation of the business of Tower Financial and
Tower Bank and are qualified by reference to the text of such statutes and
regulations. Any change in government regulation may have a material adverse
effect on the business of Tower Financial and Tower Bank.
TOWER FINANCIAL
GENERAL. Tower Financial is organizing Tower Bank as an Indiana chartered
bank with depository accounts to be insured by the FDIC and as a member of the
Federal Reserve System. When Tower Financial becomes the sole shareholder of
Tower Bank, it will be a bank holding company and, as such, will be required to
register with, and will be subject to regulation by, the Federal Reserve Board
under the federal Bank Holding Company Act of 1956, as amended (the "BHCA").
Under the BHCA, Tower Financial will be subject to examination by the Federal
Reserve Board and will be required to file reports of its operations and such
additional information as the Federal Reserve Board may require.
Under Federal Reserve Board policy, Tower Financial will be expected to act
as a source of financial strength to Tower Bank and to commit resources to
support Tower Bank in circumstances where Tower Financial might not do so absent
such policy. In addition, in certain circumstances, an Indiana banking
corporation may be required by order of the Department to increase the sound
capital of Tower Bank or reduce the amount of its deposits.
Any loans by a bank holding company to a subsidiary bank are subordinate in
right of payment to deposits and to certain other indebtedness of such
subsidiary bank. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment. This priority would also apply to
guarantees of capital plans under FDICIA.
INVESTMENTS AND ACTIVITIES. Under the BHCA, bank holding companies are
prohibited, with certain limited exceptions, from engaging in activities other
than those of banking or of managing or controlling banks. They are also
prohibited from acquiring or retaining direct or indirect ownership or control
of voting shares or assets of any company which is not a bank or bank holding
company, other than subsidiary companies furnishing services to or performing
services for its subsidiaries, and other subsidiaries engaged in activities
which the Federal Reserve Board determines to be so closely related to banking
or managing or controlling banks as to be incidental to these operations. Since
September, 1995, the BHCA has permitted the Federal Reserve Board under
specified circumstances to approve the acquisition, by a bank holding company
located
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in one state, of a bank or bank holding company located in another state,
without regard to any prohibition contained in state law. See "Recent Regulatory
Developments."
In general, any direct or indirect acquisition by Tower Financial of any
voting shares of any bank which would result in Tower Financial's direct or
indirect ownership or control of more than 5% of any class of voting shares of
such bank, and any merger or consolidation of Tower Financial with another bank
holding company, will require the prior written approval of the Federal Reserve
Board under the BHCA. In acting on such applications, the Federal Reserve Board
must consider various statutory factors, including among others, the effect of
the proposed transaction on competition in relevant geographic and product
markets, the convenience and needs of the communities to be served and each
party's financial condition, managerial resources and record of performance
under the Community Reinvestment Act.
The merger or consolidation of Tower Bank with another bank, or the
acquisition by Tower Bank of assets of another bank, or the assumption of
liability by Tower Bank to pay any deposits in another bank, will require the
prior written approval of the primary federal bank regulatory agency of the
acquiring or surviving bank under the federal Bank Merger Act. The approval
decision is based upon a consideration of statutory factors similar to those
outlined above with respect to the BHCA. In addition, in certain such cases an
application to, and the prior approval of, the Federal Reserve Board under the
BHCA and/or the Department under the Indiana Financial Institutions Act, may be
required.
With certain limited exceptions, the BHCA prohibits bank holding companies
from acquiring direct or indirect ownership or control of voting shares or
assets of any company other than a bank, unless the company involved is engaged
solely in one or more activities which the Federal Reserve Board has determined
to be so closely related to banking or managing or controlling banks as to be
incidental to these operations. Under current Federal Reserve Board regulations,
such permissible non-bank activities include such things as mortgage banking,
equipment leasing, securities brokerage, and consumer and commercial finance
company operations. As a result of recent amendments to the BHCA, many of these
acquisitions may be effected by bank holding companies that satisfy certain
statutory criteria concerning management, capitalization, and regulatory
compliance if written notice is given to the Federal Reserve Board within 10
business days after the transaction. In other cases, prior written notice to the
Federal Reserve Board will be required.
In evaluating a written notice of such an acquisition, the Federal Reserve
Board will consider various factors, including among others the financial and
managerial resources of the notifying bank holding company and the relative
public benefits and adverse effects which may be expected to result from the
performance of the activity by an affiliate of such company. The Federal Reserve
Board may apply different standards to activities proposed to be commenced de
novo and activities commenced by acquisition, in whole or in part, of a going
concern. The required notice period may be extended by the Federal Reserve Board
under certain circumstances, including a notice for acquisition of a company
engaged in activities not previously approved by regulation of the Federal
Reserve Board. If such a proposed acquisition is not disapproved or subjected to
conditions by the Federal Reserve Board within the applicable notice period, it
is deemed approved by the Federal Reserve Board.
CAPITAL REQUIREMENTS. The Federal Reserve Board uses capital adequacy
guidelines in its examination and regulation of bank holding companies. If
capital falls below minimum guidelines, a bank holding company may, among other
things, be denied approval to acquire or establish additional banks or non-bank
businesses.
The Federal Reserve Board's capital guidelines establish the following
minimum regulatory capital requirements for bank holding companies:
- a leverage capital requirement expressed as a percentage of total assets,
- a risk-based requirement expressed as a percentage of total risk-weighted
assets, and
- a Tier 1 leverage requirement expressed as a percentage of total assets.
The leverage capital requirement consists of a minimum ratio of total capital to
total assets of 6%, with an expressed expectation that banking organizations
generally should operate above such minimum level. The risk-based requirement
consists of a minimum ratio of total capital to total risk-weighted assets of
8%, of which at least one-half must be Tier 1 capital (which consists
principally of shareholders' equity). The Tier 1
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leverage requirement consists of a minimum ratio of Tier 1 capital to total
assets of 3% for the most highly-rated companies, with minimum requirements of
4% to 5% for all others.
The risk-based and leverage standards presently used by the Federal Reserve
Board are minimum requirements, and higher capital levels will be required if
warranted by the particular circumstances or risk profiles of individual banking
organizations. Further, any banking organization experiencing or anticipating
significant growth would be expected to maintain capital ratios, including
tangible capital positions (i.e., Tier 1 capital less all intangible assets),
well above the minimum levels.
The Federal Reserve Board's regulations provide that the foregoing capital
requirements will generally be applied on a bank-only (rather than a
consolidated) basis in the case of a bank holding company with less than $150
million in total consolidated assets. On a pro forma basis, because Tower
Financial will not have any debt outstanding and assuming the issuance and sale
by Tower Financial of the 2,000,000 shares of common stock offered in this
prospectus at $10.00 per share, Tower Financial's leverage capital ratio,
risk-based capital ratio and Tier 1 leverage ratio immediately after the
offering, in each case as calculated on a consolidated basis and a bank-only
basis under the Federal Reserve Board's capital guidelines, would exceed the
minimum requirements.
FDICIA requires the federal bank regulatory agencies biennially to review
risk-based capital standards to ensure that they adequately address interest
rate risk, concentration of credit risk and risks from non-traditional
activities and, since adoption of the Riegle Community Development and
Regulatory Improvement Act of 1994 (the "Riegle Act"), to do so taking into
account the size and activities of depository institutions and the avoidance of
undue reporting burdens. See "Recent Regulatory Developments." In 1995, the
agencies adopted regulations requiring as part of the assessment of an
institution's capital adequacy the consideration of (a) identified
concentrations of credit risks, (b) the exposure of the institution to a decline
in the value of its capital due to changes in interest rates and (c) the
application of revised conversion factors and netting rules on the institution's
potential future exposure from derivative transactions.
In addition, the agencies in September 1996, adopted amendments to their
respective risk-based capital standards to require banks and bank holding
companies having significant exposure to market risk arising from, among other
things, trading of debt instruments, (1) to measure that risk using an internal
value-at-risk model conforming to the parameters established in the agencies'
standards and (2) to maintain a commensurate amount of additional capital to
reflect such risk. The new rules were adopted effective January 1, 1997, with
compliance mandatory from and after January 1, 1998.
DIVIDENDS. Tower Financial is a corporation separate and distinct from
Tower Bank. Most of Tower Financial's revenues will be received by it in the
form of dividends or interest paid by Tower Bank. Tower Bank is subject to
statutory restrictions on its ability to pay dividends. See "-- Tower
Bank -- Dividends." The Federal Reserve Board has issued a policy statement on
the payment of cash dividends by bank holding companies. In the policy
statement, the Federal Reserve Board expressed its view that a bank holding
company should not pay cash dividends exceeding its net income or which could
only be funded in ways that weakened the bank holding company's financial
health, such as by borrowing. Additionally, the Federal Reserve Board possesses
enforcement powers over bank holding companies and their non-bank subsidiaries
to prevent or remedy actions that represent unsafe or unsound practices or
violations of applicable statutes and regulations. Among these powers is the
ability in appropriate cases to proscribe the payment of dividends by banks and
bank holding companies. The Federal Reserve Board and the Department possess
similar enforcement powers over Tower Bank. It is also unlawful for any insured
depository institution to pay a dividend at a time when it is in default of
payment of any assessment to the FDIC. The "prompt corrective action" provisions
of FDICIA impose further restrictions on the payment of dividends by insured
banks which fail to meet specified capital levels and, in some cases, their
parent bank holding companies.
In addition to the restrictions on dividends imposed by the Federal Reserve
Board, the Indiana Business Corporation Law imposes certain restrictions on the
declaration and payment of dividends by Indiana corporations such as Tower
Financial. See "Dividend Policy."
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TOWER BANK
GENERAL. Upon completion of its organization, Tower Bank will be an Indiana
banking corporation, and a member of the Federal Reserve System. As a
state-chartered, member bank, Tower Bank will be subject to the examination,
supervision, reporting and enforcement jurisdiction of the Department, as the
chartering authority for Indiana banks, and the Federal Reserve Board, as the
primary federal bank regulatory agency for state-chartered, member banks. Tower
Bank's deposit accounts will be insured by Tower Bank Insurance Fund ("BIF") of
the FDIC, which has supervision, reporting and enforcement jurisdiction over BIF
insured banks. These agencies, and federal and state law, extensively regulate
various aspects of the banking business including, among other things:
- - permissible types and amounts of loans
- - investments and other activities
- - capital adequacy
- - branching
- - interest rates on loans and on deposits
- - the maintenance of non-interest bearing reserves on deposit accounts
- - the safety and soundness of banking practices
DEPOSIT INSURANCE. As an FDIC-insured institution, Tower Bank will be
required to pay deposit insurance premium assessments to the FDIC. Under FDICIA,
the FDIC adopted a risk-based assessment system under which all insured
depository institutions are placed into one of nine categories and assessed
insurance premiums based upon their level of capital and supervisory evaluation.
Institutions classified as well-capitalized (as defined by the FDIC) and not
exhibiting financial, operational or compliance weaknesses pay the lowest
premium. Institutions that are less than well-capitalized (as defined by the
FDIC) and exhibit such weaknesses in a moderately severe to unsatisfactory
degree pay the highest premium. Risk classification of all insured institutions
is made by the FDIC for each semi-annual assessment period.
The FDIC is required to establish semi-annual assessment rates so as to
maintain the ratio of each deposit insurance fund to total estimated insured
deposits at not less than 1.25%. Currently, the FDIC has established a schedule
of BIF insurance assessments ranging from 0% of deposits for institutions in the
highest category to .27% of deposits for institutions in the lowest category.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution or its
directors have engaged or are engaging in unsafe or unsound practices, or have
violated any applicable law, regulation, order or any condition imposed in
writing by, or written agreement with, the FDIC, or if the institution is in an
unsafe or unsound condition to continue operations. The FDIC may also suspend
deposit insurance temporarily during the hearing process for a permanent
termination of insurance if the institution has no tangible capital.
CAPITAL REQUIREMENTS. The Federal Reserve Board has established the
following minimum capital standards for state-chartered, member banks, such as
Tower Bank: a leverage requirement consisting of a minimum ratio of Tier 1
capital to total assets of 3% for the most highly-rated banks with minimum
requirements of 4% to 5% for all others, and a risk-based capital requirement
consisting of a minimum ratio of total capital to total risk-weighted assets of
8%, at least one-half of which must be Tier 1 capital. Tier 1 capital consists
principally of shareholders' equity. In addition, the Federal Reserve Board has
adopted requirements for each state-chartered, member bank whose "trading
activity" (the sum of "trading assets and liabilities") as shown on its most
recent Consolidated Report of Condition and Income ("Call Report") exceeds
either 10% or more of its total assets or $1 billion, (1) to measure its market
risk using an internal value-at-risk model conforming to the FDIC's capital
standards, and (2) to maintain a commensurate amount of additional capital to
reflect such risk.
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. As a condition to the regulatory
approvals of Tower Bank's formation, Tower Bank will be required to have an
initial capitalization sufficient to provide a ratio of Tier 1 capital to total
estimated assets of at least 8% at the end of the third year of operation.
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The Federal Deposit Insurance Act (the "FDIA") establishes five capital
categories, and the federal bank regulatory agencies, as directed by the FDIA,
have adopted, subject to certain exceptions, the following minimum requirements
for each of such categories:
<TABLE>
<CAPTION>
TOTAL RISK-BASED TIER 1 RISK-BASED
CAPITAL RATIO CAPITAL RATIO LEVERAGE RATIO
---------------- ----------------- --------------
<S> <C> <C> <C>
Well capitalized.......................... 10% or above 6% or above 5% or above
Adequately capitalized.................... 8% or above 4% or above 4% or above
Undercapitalized.......................... Less than 8% Less than 4% Less than 4%
Significantly undercapitalized............ Less than 6% Less than 3% Less than 3%
Critically undercapitalized............... -- -- A ratio of tangible
equity to total assets
of 2% or less
</TABLE>
Subject to certain exceptions, these capital ratios are generally
determined on the basis of Call Reports submitted by each depository institution
and the reports of examination of the appropriate federal bank regulatory
agency.
Among other things, the FDIA requires the federal bank regulatory agencies
to take prompt corrective action in respect of depository institutions that do
not meet minimum capital requirements. The scope and degree of regulatory
intervention is linked to the capital category to which a depository institution
is assigned. Depending upon the capital category to which an institution is
assigned, the regulators' corrective powers include:
- requiring the submission of a capital restoration plan
- placing limits on asset growth and restrictions on activities
- requiring the institution to issue additional capital stock (including
additional voting stock) or to be acquired
- restricting transactions with affiliates
- restricting the interest rate the institution may pay on deposits
- ordering a new election of directors of the institution
- requiring that senior executive officers or directors be dismissed
- prohibiting the institution from accepting deposits from correspondent
banks
- requiring the institution to divest certain subsidiaries
- prohibiting the payment of principal or interest on subordinated debt
- ultimately, appointing a receiver for the institution
In general, a depository institution may be reclassified to a lower
category than is indicated by its capital position if the appropriate federal
depository institution regulatory agency determines the institution to be
otherwise in an unsafe or unsound condition or to be engaged in an unsafe or
unsound practice. This could include a failure by the institution, following
receipt of a less-than-satisfactory rating on its most recent examination
report, to correct the deficiency.
DIVIDENDS. As a banking corporation organized under Indiana law, Tower Bank
will be restricted as to the maximum amount of dividends it may pay to Tower
Financial. Indiana law prohibits Tower Bank from declaring or paying dividends
that would impair Tower Bank's capital or that would be greater than its
undivided profits. In addition, the prior approval of the Department is required
for the payment of any dividend if the aggregate amount of all dividends paid by
Tower Bank during such calendar year, including the proposed dividend, would
exceed the sum of the retained net income of Tower Bank for the year to date and
previous two years.
The FDIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution
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would thereafter be undercapitalized. The FDIC may prevent an insured bank from
paying dividends if the bank is in default of payment of any assessment due to
the FDIC. In addition, payment of dividends by a bank may be prevented by the
applicable federal regulatory authority if such payment is determined, by reason
of the financial condition of such bank, to be an unsafe and unsound banking
practice. As described above, the Federal Reserve Board has issued a policy
statement providing that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings.
INSIDER TRANSACTIONS. Tower Bank is subject to certain federal and state
statutory and regulatory restrictions on any extensions of credit to Tower
Financial or its subsidiaries, on investments in the stock or other securities
of Tower Financial or its subsidiaries, and on the acceptance of the stock or
other securities of Tower Financial or its subsidiaries as collateral for loans
to any person. Certain limitations and reporting requirements are also placed on
extensions of credit by Tower Bank to its directors and officers, to directors
and officers of Tower Financial and its subsidiaries, to principal shareholders
of Tower Financial, and to "related interests" of such directors, officers and
principal shareholders. In addition, such legislation and regulations may affect
the terms upon which any person becoming a director or officer of Tower
Financial or one of its subsidiaries or a principal shareholder of Tower
Financial may obtain credit from banks with which Tower Bank maintains a
correspondent relationship.
SAFETY AND SOUNDNESS STANDARDS. On July 10, 1995, the FDIC, the Office of
Thrift Supervision, the Federal Reserve Board and the Office of the Comptroller
of the Currency published final guidelines implementing the FDICIA requirement
that the federal banking agencies establish operational and managerial standards
to promote the safety and soundness of federally insured depository
institutions. The guidelines, which took effect on August 9, 1995, establish
standards for internal controls, information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth,
and compensation, fees and benefits. In general, the guidelines prescribe the
goals to be achieved in each area, and each institution will be responsible for
establishing its own procedures to achieve those goals. If an institution fails
to comply with any of the standards included in the guidelines, the
institution's primary federal bank regulator may require the institution to
submit a plan for achieving and maintaining compliance. The preamble to the
guidelines states that the agencies expect to require a compliance plan from an
institution whose failure to meet one or more of the standards is of such
severity that it could threaten the safe and sound operation of the institution.
Failure to submit an acceptable compliance plan, or failure to adhere to a
compliance plan that has been accepted by the appropriate regulator, would
constitute grounds for further enforcement action. Effective October 1, 1996,
the agencies expanded the guidelines to establish asset quality and earnings
standards. As before, the expanded guidelines make each depository institution
responsible for establishing its own procedures to meet such goals.
STATE BANK ACTIVITIES. Under FDICIA, as implemented by final regulations
adopted by the FDIC, FDIC-insured state banks are prohibited, subject to certain
exceptions, from making or retaining equity investments of a type, or in an
amount, that are not permissible for a national bank. FDICIA, as implemented by
FDIC regulations, also prohibits FDIC-insured state banks and their
subsidiaries, subject to certain exceptions, from engaging as principal in any
activity that is not permitted for a national bank or its subsidiary,
respectively, unless the bank meets, and continues to meet its minimum
regulatory capital requirements and the FDIC determines the activity would not
pose a significant risk to the deposit insurance fund of which the bank is a
member. Impermissible investments and activities must be divested or
discontinued within certain time frames set by the FDIC in accordance with
FDICIA. These restrictions are not currently expected to have a material impact
on the operations of Tower Bank.
CONSUMER BANKING. Tower Bank's business will include making a variety of
types of loans to individuals. In making these loans, Tower Bank will be subject
to state usury and regulatory laws and to various federal statutes, such as the
Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in
Lending Act, the Real Estate Settlement Procedures Act and the Home Mortgage
Disclosure Act, and the regulations promulgated thereunder, which prohibit
discrimination, specify disclosures to be made to borrowers regarding credit and
settlement costs and regulate the mortgage loan servicing activities of Tower
Bank, including the maintenance and operation of escrow accounts and the
transfer of mortgage loan servicing. The Riegle Act imposed new escrow
requirements on depository and non-depository mortgage lenders and servicers
under the
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National Flood Insurance Program. See "Recent Regulatory Developments." In
receiving deposits, Tower Bank will be subject to extensive regulation under
state and federal law and regulations, including the Truth in Savings Act, the
Expedited Funds Availability Act, the Bank Secrecy Act, the Electronic Funds
Transfer Act, and the FDIA. Violation of these laws could result in the
imposition of significant damages and fines upon Tower Bank, its directors and
officers.
MONETARY POLICIES. The commercial banking business is affected not only by
general economic conditions but also by the monetary policies of the Federal
Reserve Board. The instruments of monetary policy employed by the Federal
Reserve Board include open market operations in United States Government
securities, changes in the discount rate on member bank borrowing and changes in
reserve requirements against deposits held by all federally insured banks.
Federal Reserve Board monetary policies have had a significant effect on the
operating results of commercial banks in the past and are expected to continue
to do so in the future. In view of changing conditions in the national economy
and in the money markets, as well as the effect of actions by monetary fiscal
authorities, including the Federal Reserve Board, no prediction can be made as
to possible future changes in interest rates, deposit levels, loan demand or the
business and earnings of Tower Bank.
COMMUNITY REINVESTMENT ACT. Under the Community Reinvestment Act (the
"CRA") and the implementing regulations, Tower Bank will have a continuing and
affirmative obligation to help meet the credit needs of its local community,
including low and moderate-income neighborhoods, consistent with the safe and
sound operation of the institution. The CRA requires the board of directors of
financial institutions, such as Tower Bank, to adopt a CRA statement for each
assessment area that, among other things, describes its efforts to help meet
community credit needs and the specific types of credit that the institution is
willing to extend. Tower Bank's service area initially was designated as Wayne
Township in Allen County, Indiana. Tower Bank's office will be located in Allen
County. Tower Bank's Board of Directors is required to review the
appropriateness of this delineation at least annually.
RECENT REGULATORY DEVELOPMENTS
In 1994, the Congress enacted two major pieces of banking legislation, the
Riegle Act and the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal Act"). The Riegle Act addressed such varied issues as
the promotion of economic revitalization of defined urban and rural "qualified
distressed communities" through special purpose "Community Development Financial
Institutions," the expansion of consumer protection with respect to certain
loans secured by a consumer's home and reverse mortgages, and reductions in
compliance burdens regarding Currency Transaction Reports, in addition to reform
of the National Flood Insurance Program, the promotion of a secondary market for
small business loans and leases, and mandating specific changes to reduce
regulatory impositions on depository institutions and holding companies.
The Riegle-Neal Act substantially changed the geographic constraints
applicable to the banking industry. Effective September 29, 1995, the
Riegle-Neal Act allows bank holding companies to acquire banks located in any
state in the United States without regard to geographic restrictions or
reciprocity requirements imposed by state law, but subject to certain
conditions, including limitations on the aggregate amount of deposits that may
be held by the acquiring holding company and all of its insured depository
institution affiliates. Effective June 1, 1997 (or earlier if expressly
authorized by applicable state law), the Riegle-Neal Act allows banks to
establish interstate branch networks through acquisitions of other banks,
subject to certain conditions, including certain limitations on the aggregate
amount of deposits that may be held by the surviving bank and all of its insured
depository institution affiliates. The establishment of de novo interstate
branches or the acquisition of individual branches of a bank in another state
(rather than the acquisition of an out-of-state bank in its entirety) is allowed
by the Riegle-Neal Act only if specifically authorized by state law. The
legislation allowed individual states to "opt-out" of certain provisions of the
Riegle-Neal Act by enacting appropriate legislation prior to June 1, 1997.
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<PAGE> 36
In 1996, Indiana authorized out-of-state banks to establish branch offices
in Indiana. The Indiana Financial Institutions Act now permits, in appropriate
circumstances,
(A) with the approval of the Department:
- the acquisition of all or substantially all of the assets of an
Indiana-chartered bank by an FDIC-insured bank, savings bank or
savings association located in another state,
- the acquisition by an Indiana-chartered bank of all or substantially
all of the assets of an FDIC-insured bank, savings bank or savings
association located in another state,
- the consolidation of one or more Indiana-chartered banks and
FDIC-insured banks, savings banks or savings associations located in
other states having laws permitting such consolidation, with the
resulting organization chartered by Indiana, and
- the organization of a branch in Indiana by FDIC-insured banks located
in other states, the District of Columbia or U.S. territories or
protectorates having laws permitting an Indiana-chartered bank to
establish a branch in such jurisdiction, and
(B) upon written notice to the Department:
- the acquisition by an Indiana-chartered bank of one or more branches
(not comprising all or substantially all of the assets) of an
FDIC-insured bank, savings bank or savings association located in
another state, the District of Columbia, or a U.S. territory or
protectorate,
- the establishment by Indiana-chartered banks of branches located in
other states, the District of Columbia, or U.S. territories or
protectorates, and
- the consolidation of one or more Indiana-chartered banks and
FDIC-insured banks, savings banks or savings associations located in
other states, with the resulting organization chartered by one of such
other states, and
(C) the sale by an Indiana-chartered bank of one or more of its branches
(not comprising all or substantially all of its assets) to an
FDIC-insured bank, savings bank or savings association located in a
state in which an Indiana-chartered bank could purchase one or more
branches of the purchasing entity.
FDIC regulations impose limitations (and in certain cases, prohibitions) on
(1) certain "golden parachute" severance payments by troubled depository
institutions and their affiliated holding companies to institution-affiliated
parties (primarily directors, officers, employees, or principal shareholders of
the institution), and (2) certain indemnification payments by a depository
institution or its affiliated holding company, regardless of financial
condition, to institution-affiliated parties. The FDIC regulations impose
limitations on indemnification payments which could restrict, in certain
circumstances, payments by Tower Financial or Tower Bank to their respective
directors or officers otherwise permitted under the Indiana Business Corporation
Law or the Indiana Financial Institutions Act, respectively. See "Description of
Capital Stock -- Indemnification of Directors and Officers."
The Omnibus Consolidated Appropriations Act, 1997 ("OCCA"), was enacted
September 30, 1996. It amended many of the principal federal laws regulating
banks and bank holding companies. As part of the projected conversion or closure
of all thrift institutions in the United States, OCCA modified existing laws (a)
to impose a special, one-time assessment on all deposits insured by the Savings
Association Insurance Fund ("SAIF") of the FDIC to bring the SAIF reserves to
the statutory minimum ratio of 1.25% of all SAIF-insured deposits, (b) to permit
the financing corporation to impose (in the same manner as regular FDIC
insurance assessments) assessments upon commercial banks to fund repayment of
its bonds which had been issued to pay for losses resulting from widespread
failures of thrift institutions during the 1980's, (c) to prohibit shifting
deposits from SAIF insurance to BIF insurance and (d) to merge, prospectively,
the BIF and SAIF into a single deposit insurance fund. There can be no assurance
whether or when the merger of the BIF and SAIF will in fact occur.
OCCA also amended the BHCA (a) to eliminate the requirement of prior
written notice to the Federal Reserve Board by well-capitalized and well-managed
bank holding companies meeting certain statutory
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<PAGE> 37
criteria wishing to engage de novo (or in certain cases through acquisition) in
a non-banking activity already permitted by order or regulation of the Federal
Reserve Board, (b) to shorten to 12 business days the prior written notice to
the Federal Reserve Board required from well-managed and well-capitalized bank
holding companies meeting such criteria for other acquisitions of non-banking
companies engaged in non-banking activities so permitted and (c) to eliminate
the opportunity for a hearing on applications to the Federal Reserve Board for
permission to engage in non-banking activities (other than the acquisition of a
savings association).
Among the other changes made by OCCA, the statute (a) increased the number
of banks exempted from compliance with the record-keeping and reporting
requirements of the Home Mortgage Disclosure Act and eligible for an 18-month
cycle of regulatory examinations by increasing the total assets cut-off in each
case, (b) simplified the disclosure requirements for residential mortgage loans
by harmonizing the requirements of the Truth-in-Lending Act and Real Estate
Settlement Procedures Act, (c) substantially re-wrote the Fair Credit Reporting
Act and (d) expanded the authority of the Federal Reserve Board under the
Consumer Leasing Act and directed the Board to issue model disclosure forms for
use in leasing personal property.
DESCRIPTION OF CAPITAL STOCK
All material provisions of the common stock are summarized in this
prospectus. However, the following description of Tower Financial's capital
stock does not purport to be complete and is subject in all respects to
applicable Indiana law and to the provisions of Tower Financial's Restated
Articles of Incorporation and By-Laws, copies of which have been filed as
exhibits to the Registration Statement of which this prospectus is a part.
The authorized capital stock of Tower Financial consists of 6,000,000
shares of common stock and 4,000,000 shares of preferred stock. Upon completion
of the offering, and assuming no exercise of the underwriters' over-allotment
option, there will be 2,000,000 shares of common stock issued and outstanding
and no shares of preferred stock issued and outstanding. An additional 90,000
shares of common stock will be issuable upon exercise of outstanding options
granted under the 1998 Stock Option Plan. See "Executive Compensation -- 1998
Stock Option and Incentive Plan." Immediately prior to the offering, only one
share of common stock is outstanding.
COMMON STOCK
Each holder of common stock will be entitled to one vote per share of
record on all matters to be voted upon by the stockholders. Holders will not
have cumulative voting rights in the election of directors or any other matter.
Subject to the preferential rights of the holders of any preferred stock that
may at the time be outstanding, each share of common stock will entitle the
holder thereof to an equal and ratable right to receive dividends when, if and
as declared from time to time by the board of directors out of legally available
funds. Tower Financial does not anticipate paying cash dividends in the
foreseeable future. See "Dividend Policy."
In the event of the liquidation, dissolution or winding up of Tower
Financial, the holders of common stock will be entitled to share ratably in all
assets remaining after payments to creditors and after satisfaction of the
liquidation preference, if any, of the holders of any preferred stock that may
at the time be outstanding. Holders of common stock will have no preemptive or
redemption rights and will not be subject to further calls or assessments by
Tower Financial. All of the shares of common stock to be issued and sold in the
offering will be, immediately upon consummation of the offering, validly issued,
fully paid and nonassessable.
PREFERRED STOCK
The authorized preferred stock is available for issuance from time to time
at the discretion of the board of directors without shareholder approval. The
board of directors has the authority to prescribe for each series of preferred
stock it establishes the number of shares in that series, the number of votes
(if any) to which the shares in that series are entitled, the consideration for
the shares in that series, and the designations, powers, preferences and other
rights, qualifications, limitations or restrictions of the shares in that
series. Depending
36
<PAGE> 38
upon the rights prescribed for a series of preferred stock, the issuance of
preferred stock could have an adverse effect on the voting power of the holders
of common stock and could adversely affect holders of common stock by delaying
or preventing a change in control of Tower Financial, making removal of the
present management of Tower Financial more difficult or imposing restrictions
upon the payment of dividends and other distributions to the holders of common
stock.
AUTHORIZED BUT UNISSUED SHARES
Indiana law does not require shareholder approval for any issuance of
authorized shares. Authorized but unissued shares may be used for a variety of
corporate purposes, including future public or private offerings to raise
additional capital or to facilitate corporate acquisitions. One of the effects
of the existence of authorized but unissued shares may be to enable the board of
directors to issue shares to persons friendly to current management, which
issuance could render more difficult or discourage an attempt to obtain control
of Tower Financial by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of Tower Financial's management
and possibly deprive the shareholders of opportunities to sell their shares of
common stock at prices higher than prevailing market prices.
CERTAIN PROVISIONS OF RESTATED ARTICLES OF INCORPORATION AND BY-LAWS
Certain provisions of Tower Financial's Restated Articles of Incorporation
and By-Laws may delay or make more difficult unsolicited acquisitions or changes
of control of Tower Financial. Such provisions could have the effect of
discouraging third parties from making proposals involving an unsolicited
acquisition or change in control of Tower Financial, although such proposals, if
made, might be considered desirable by a majority of Tower Financial's
shareholders. Such provisions may also have the effect of making it more
difficult for third parties to cause the replacement of the current management
of Tower Financial without the concurrence of the board of directors. These
provisions include:
- the division of the Board of Directors into three classes serving
"staggered" terms of office of three years (see "Management -- Directors
and Officers");
- the availability of authorized but unissued shares of stock for issuance
from time to time at the discretion of the board of directors (see "--
Authorized But Unissued Shares");
- provisions allowing the removal of directors only for cause and only upon
a 66 2/3% shareholder vote taken at a meeting called for that purpose;
- provisions requiring the participation of 80% of the voting power of the
outstanding common stock in order for the shareholders to demand the
calling of a special meeting of shareholders; and
- requirements for advance notice for raising business or making
nominations at shareholders' meetings.
Tower Financial's By-Laws establish an advance notice procedure with regard
to business to be brought before an annual or special meeting of shareholders of
Tower Financial and with regard to the nomination of candidates for election as
directors, other than by or at the direction of the board of directors. Although
Tower Financial's By-Laws do not give the board of directors any power to
approve or disapprove shareholder nominations for the election of directors or
proposals for action, they may have the effect of precluding a contest for the
election of directors or the consideration of shareholder proposals if the
established procedures are not followed, and of discouraging or deterring a
third party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its proposal without regard to whether consideration of
such nominees or proposals might be harmful or beneficial to Tower Financial and
its shareholders.
CERTAIN PROVISIONS OF INDIANA LAW
The Indiana Business Corporation Law (the "IBCL") applies to Tower
Financial as an Indiana corporation. Under certain circumstances, the following
provisions of the IBCL may delay, prevent or make more difficult unsolicited
acquisition or changes of control of Tower Financial. Such provisions also may
have the effect of preventing changes in the management of Tower Financial. It
is possible that such provisions could make it more difficult to accomplish
transactions which shareholders may otherwise deem to be in their best
interests.
37
<PAGE> 39
CONTROL SHARE ACQUISITIONS. Under Sections 23-1-42-1 to 23-1-42-11 of the
IBCL, an "acquiring person" who makes a "control share acquisition" in an
"issuing public corporation" may not exercise voting rights on any "control
shares" unless such voting rights are conferred by a majority vote of the
disinterested shareholders of the issuing corporation at a special meeting of
such shareholders held upon the request and at the expense of the acquiring
person. In the event that control shares acquired in a control share acquisition
are accorded full voting rights and the acquiring person acquires control shares
with a majority or more of all voting power, all shareholders of the issuing
corporation have dissenters' rights to receive the fair value of their shares.
Under the IBCL, "control shares" means shares acquired by a person that,
when added to all other shares of the issuing public corporation owned by that
person or in respect to which that person may exercise or direct the exercise of
voting power, would otherwise entitle that person to exercise voting power of
the issuing public corporation in the election of directors within any of the
following ranges (a) one-fifth or more but less than one-third; (b) one-third or
more but less than a majority; or (c) a majority or more. "Control share
acquisition" means, subject to certain exceptions, the acquisition, directly or
indirectly, by any person of ownership of, or the power to direct the exercise
of voting power with respect to, issued and outstanding control shares. Shares
acquired within 90 days or under a plan to make a control share acquisition are
considered to have been acquired in the same acquisition. "Issuing public
corporation" means a corporation which is organized in Indiana, has 100 or more
shareholders, its principal place of business, its principal office or
substantial assets within Indiana and either (a) more than 10% of its
shareholders resident in Indiana, (b) more than 10% of its shares owned by
Indiana residents or (c) 10,000 shareholders resident in Indiana.
The above provisions do not apply if, before a control share acquisition is
made, the corporation's articles of incorporation or by-laws (including a board
adopted by-law) provide that they do not apply. Tower Financial's Restated
Articles of Incorporation and By-Laws do not exclude Tower Financial from the
restrictions imposed by such provisions.
CERTAIN BUSINESS COMBINATIONS. Sections 23-1-43-1 to 23-1-43-23 of the IBCL
restrict the ability of a "resident domestic corporation" to engage in any
combinations with an "interested shareholder" for five years after the
interested shareholder's date of acquiring shares unless the combination or the
purchase of shares by the interested shareholder on the interested shareholder's
date of acquiring shares is approved by the board of directors of the resident
domestic corporation before that date. If the combination was not previously
approved, the interested shareholder may effect a combination after the
five-year period only if such shareholder receives approval from a majority of
the disinterested shares or the offer meets certain fair price criteria. For
purposes of the above provisions, "resident domestic corporation" means an
Indiana corporation that has 100 or more shareholders. "Interested shareholder"
means any person, other than the resident domestic corporation or its
subsidiaries, who is (1) the beneficial owner, directly or indirectly, of 10% or
more of the voting power of the outstanding voting shares of the resident
domestic corporation or (2) an affiliate or associate of the resident domestic
corporation and at any time within the five-year period immediately before the
date in question was the beneficial owner of 10% or more of the voting power of
the then outstanding shares of the resident domestic corporation. The above
provisions do not apply to corporations that so elect in an amendment to their
articles of incorporation approved by a majority of the disinterested shares.
Such an amendment, however, would not become effective until 18 months after its
passage and would apply only to stock acquisitions occurring after its effective
date. Tower Financial's Restated Articles of Incorporation do not exclude Tower
Financial from the restrictions imposed by such provisions.
DIRECTORS' DUTIES AND LIABILITY. Under Section 23-1-35-1 of the IBCL,
directors are required to discharge their duties: (a) in good faith; (b) with
the care an ordinarily prudent person in a like position would exercise under
similar circumstances; and (c) in a manner the directors reasonably believe to
be in the best interests of Tower Financial. However, the IBCL also provides
that a director is not liable for any action taken as a director, or any failure
to act, unless the director has breached or failed to perform the duties of the
director's office and the action or failure to act constitutes willful
misconduct or recklessness. The exoneration from liability under the IBCL does
not affect the liability of directors for violations of the federal securities
laws.
38
<PAGE> 40
Section 23-1-35-1 of the IBCL also provides that a board of directors, in
discharging its duties, may consider, in its discretion, both the long-term and
short-term best interests of the corporation, taking into account, and weighing
as the directors deem appropriate, the effects of an action on the corporation's
shareholders, employees, suppliers and customers and the communities in which
offices or other facilities of the corporation are located and any other factors
the directors consider pertinent. If a determination is made with the approval
of a majority of the disinterested directors of the board, that determination is
conclusively presumed to be valid unless it can be demonstrated that the
determination was not made in good faith after reasonable investigation. Once
the board has determined that the proposed action is not in the best interests
of the corporation, it has no duty to remove any barriers to the success of the
action, including a rights plan. Section 23-1-35-1 specifically provides that
certain judicial decisions in Delaware and other jurisdictions, which might be
looked upon for guidance in interpreting Indiana law, including decisions that
propose a higher or different degree of scrutiny in response to a proposed
acquisition of the corporation, are inconsistent with the proper application of
that section.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Tower Financial Restated Articles of Incorporation provide that, to the
extent not inconsistent with applicable law, Tower Financial shall indemnify
each of its directors, officers, employees and agents against all liability and
reasonable expense that may be incurred by him or her in connection with or
resulting from any claim in which he or she may become involved by reason of the
fact that he or she is or was a director, officer, employee or agent of Tower
Financial or by reason of any action taken or not taken by him or her in any
such capacity, if such person is wholly successful with respect to the claim or,
if not wholly successful, then if such person is determined to have acted in
good faith, in what he or she reasonably believed to be the best interests of
Tower Financial (or at least not opposed to its best interests) and, in
addition, with respect to a criminal claim, is determined to have had reasonable
cause to believe that his or her conduct was lawful or had no reasonable cause
to believe that his or her conduct was unlawful.
FDIC regulations impose limitations on indemnification payments which could
restrict, in certain circumstances, payments by Tower Financial or Tower Bank to
their respective directors or officers otherwise permitted or required under the
IBCL or Tower Financial Restated Articles of Incorporation.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of Tower Financial under the provisions
discussed above or otherwise, Tower Financial has been advised that, in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is State Street Bank
& Trust Company, Boston, Massachusetts.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to the offering, Tower Financial has one share of common
stock outstanding, which is held by a member of the board of directors. This
share of common stock shall be redeemed concurrently with the completion of the
offering. Upon completion of the offering, Tower Financial expects to have
2,000,000 shares of common stock outstanding (plus any additional shares sold
upon the underwriters' exercise of their over-allotment option), all of which
will have been registered with the SEC under the Securities Act and will be
eligible for resale without registration under the Securities Act unless they
were acquired by directors, executive officers or other affiliates of Tower
Financial (collectively, "Affiliates"). Affiliates of Tower Financial generally
will be able to sell shares of the common stock only in accordance with the
limitations of Rule 144 under the Securities Act.
39
<PAGE> 41
In general, under Rule 144 as currently in effect, an affiliate (as defined
in Rule 144) of Tower Financial may sell shares of common stock within any
three-month period in an amount limited to the greater of 1% of the outstanding
shares of Tower Financial's common stock or the average weekly trading volume in
Tower Financial's common stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain manner-of-sale
provisions, notice requirements and the availability of current public
information about Tower Financial.
Tower Financial and the directors and executive officers of Tower Financial
and Tower Bank (who are expected to hold an aggregate of approximately 222,500
shares after the offering, excluding the shares that they have the right to
acquire pursuant to options granted to them under Tower Financial's 1998 Stock
Option Plan) have agreed, or will agree, that they will not issue, offer for
sale, sell, transfer, grant options to purchase or otherwise dispose of or
register with the SEC any shares of common stock (or any securities convertible
into or exercisable for shares of common stock), without the prior written
consent of the underwriters, for a period of 180 days from the date of this
prospectus, except that (a) Tower Financial may issue shares upon the exercise
of options under Tower Financial's 1998 Stock Option Plan and (b) the directors
and officers may give common stock owned by them to others who have agreed in
writing to be bound by the same agreement.
As of January , 1999, Tower Financial had outstanding options to purchase
an aggregate of 90,000 shares of its common stock at an exercise price equal to
the initial public offering price of the common stock, as specified on the cover
page of this prospectus, under Tower Financial's 1998 Stock Option Plan. See
"Executive Compensation -- 1998 Stock Option and Incentive Plan."
Prior to the offering, there has been no public trading market for the
common stock, and no predictions can be made as to the effect, if any, that
sales of shares or the availability of shares for sale will have on the
prevailing market price of the common stock after completion of the offering.
Nevertheless, sales of substantial amounts of common stock in the public market
could have an adverse effect on prevailing market prices.
UNDERWRITING
Subject to the terms and conditions included in the Underwriting Agreement,
the form of which has been filed as an exhibit to the Registration Statement of
which this prospectus forms a part, Roney Capital Markets, a division of First
Chicago Capital Markets, Inc., and McDonald Investments Inc. (the
"Underwriters"), have severally agreed to purchase from Tower Financial, and
Tower Financial has agreed to sell to each of the Underwriters, the respective
number of shares of common stock as shown opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Roney Capital Markets, a division of First Chicago Capital
Markets, Inc..............................................
McDonald Investments Inc....................................
---------
Total.................................................. 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligations to
pay for and accept delivery of the common stock are subject to certain
conditions precedent and that the Underwriters are committed to purchase all of
those shares of common stock if any shares are purchased.
The Underwriting Agreement provides that, except in certain limited cases,
Tower Financial will reimburse the Underwriters for all accountable
out-of-pocket expenses incurred by them in the proposed purchase and sale of the
common stock, up to a maximum of $50,000. Tower Financial has advanced $20,000
to the Underwriters as part of this expense reimbursement. The Underwriting
Agreement provides that, upon completion of the offering, the Underwriters will
credit the out-of-pocket expenses reimbursed against the underwriting discount.
It also provides that, in the event the Underwriter Agreement is terminated and
the accountable out-of-pocket expenses to be reimbursed are less than $20,000,
the Underwriters will pay the difference to Tower Financial.
40
<PAGE> 42
Tower Financial and the Underwriters have agreed that the Underwriters will
purchase the 2,000,000 shares of Common Stock offered hereunder at a price to
the public of $10.00 per share less underwriting discounts of $ per share.
The Underwriters propose to offer the common stock to select dealers who are
members of the National Association of Securities Dealers, Inc., at a price of
$10.00 per share less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, concessions not in excess
of $ per share to certain other brokers and dealers. After the commencement
of the offering, the public offering price, the concession and the reallowance
may be changed.
Tower Financial and the executive officers and directors of Tower Financial
have agreed to be subject to certain lock-up restrictions as described above in
"Shares Eligible for Future Sale."
The Underwriters have informed Tower Financial that the Underwriters do not
intend to make sales to any accounts over which the Underwriters exercise
discretionary authority.
Tower Financial has granted the Underwriters an option, exercisable within
30 days after the date of the offering, to purchase up to 300,000 shares of
common stock from Tower Financial to cover over-allotments, if any, at the same
price per share as is to be paid by the Underwriters for the other shares
offered in this prospectus. The Underwriters may purchase the shares only to
cover over-allotments, if any, relating to the offering. If the Underwriters
exercise the over-allotment option in full, the total price to the public,
underwriting discounts and proceeds to Tower Financial will be approximately
$23,000,000, $ and $ , respectively.
The common stock being offered is a new issue of securities with no prior
established trading market. The Underwriters have advised Tower Financial that,
upon completion of the offering, they intend to make a market in the common
stock, although they are not obligated to do so. Making a market in securities
involves maintaining bid and ask quotations and being able, as principal, to
effect transactions in reasonable quantities at those quoted prices, subject to
various securities laws and other regulatory requirements. The development of a
public trading market depends, however, upon the existence of willing buyers and
sellers, the presence of which is not within the control of Tower Financial,
Tower Bank or any market-maker. The Underwriters may discontinue market-making
at any time without notice. No assurance can be given as to the liquidity of the
trading market for the common stock offered in this prospectus.
In offering the common stock, the Underwriters may engage in stabilizing
transactions and short covering transactions on the OTC Bulletin Board in
accordance with Regulation M of the Exchange Act. Stabilizing transactions
involve bids to purchase the common stock in the open market for the purpose of
pegging, fixing or maintaining the price of the common stock. Short-covering
transactions involve purchases of the common stock in the open market after the
distribution has been completed in order to cover short positions. Such
stabilizing transactions and short-covering transactions may cause the price of
the common stock to be higher than it would otherwise be in the absence of such
transactions. Such activities, if commenced by the Underwriters, may be
discontinued at any time.
The Underwriting Agreement contains indemnity provisions between the
Underwriters and Tower Financial and the controlling persons thereof against
certain liabilities, including liabilities arising under the Securities Act.
Tower Financial is generally obligated to indemnify the Underwriters and their
respective controlling persons in connection with losses or claims arising out
of any untrue statement of a material fact contained in this prospectus or in
related documents filed with the SEC or with any state securities administrator,
or out of any omission of certain material facts from such documents.
Prior to this offering, there has been no public market for the common
stock. Accordingly, the public offering price for the common stock was
determined by negotiations among Tower Financial and the Underwriters. This
price is not based upon earnings or any history of operations and should not be
construed as indicative of the present or anticipated future value of the common
stock. Several factors were considered in determining the initial offering price
of the common stock, among them the size of the offering, the initial public
offering prices of similar start-up bank holding companies, the Underwriters'
experience in dealing with initial public offerings for financial institutions
and the general condition of the equity securities market. There can be no
assurance, however, that the prices at which the common stock will sell in the
public market after
41
<PAGE> 43
this offering will not be lower than the price at which the shares of common
stock are sold by the Underwriters.
Mr. Craig Hartman, a director of Tower Financial, has provided consulting
services to Tower Financial that included identifying the Underwriters for this
offering. See "Management -- Compensation of Directors" and "Related Party
Transactions -- Consulting Services."
The following table shows the fees and expenses Tower Financial will incur
in the offering of the common stock, other than underwriting discounts and
commissions. Except for the SEC's registration fee and the NASD filing fee, all
amounts shown are estimates and assume the sale of 2,000,000 shares of common
stock.
<TABLE>
<S> <C>
Registration Fee............................................ $ 6,394
NASD Filing Fee............................................. 2,800
Printing and Mailing Expenses............................... 40,000
Legal Fees and Expenses..................................... 125,000
Accounting Fees and Expenses................................ 25,000
Blue Sky Fees and Expenses.................................. 12,050
Registrar and Transfer Agent Fees and Expenses.............. 3,000
Premium for Director and Officer Liability Insurance........ 9,300
Miscellaneous............................................... 2,956
--------
Total.................................................. $226,500
========
</TABLE>
LEGAL PROCEEDINGS
Neither Tower Bank nor Tower Financial is a party to any pending legal
proceeding or aware of any threatened legal proceeding where Tower Financial or
Tower Bank may be exposed to any material loss.
LEGAL MATTERS
The legality of the common stock offered in this prospectus will be passed
upon for Tower Financial by Baker & Daniels. Certain legal matters will be
passed upon for the Underwriters by Honigman Miller Schwartz and Cohn.
EXPERTS
The balance sheet as of October 31, 1998 and statements of operations,
stockholder's deficit, and cash flows for the period July 8, 1998 (date of
inception) through October 31, 1998, of Tower Financial included in this
prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
Tower Financial has filed a Registration Statement on Form SB-2 under the
Securities Act to register the common stock with the SEC. This prospectus is a
part of that Registration Statement. As allowed by SEC rules, this prospectus
does not contain all the information that interested persons can find in the
Registration Statement or the exhibits and schedules to the Registration
Statement. For further information about Tower Financial or the common stock
offered in this prospectus, interested persons should read the Registration
Statement and the exhibits, financial statements and schedules to the
Registration Statement.
42
<PAGE> 44
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Financial Statements:
Balance Sheet............................................. F-3
Statement of Operations................................... F-4
Statement of Changes in Stockholder's Deficit............. F-5
Statement of Cash Flows................................... F-6
Notes to Financial Statements............................. F-7
</TABLE>
F-1
<PAGE> 45
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Tower Financial Corporation:
In our opinion, the accompanying balance sheet and the related statements
of operations, changes in stockholder's deficit and cash flows present fairly,
in all material respects, the financial position of Tower Financial Corporation
(a development stage company) at October 31, 1998, and the results of its
operations and cash flows for the period from July 8, 1998 (date of inception)
to October 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management, our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Fort Wayne, Indiana
November 11, 1998, except for Note 6
for which the date is December 14, 1998
F-2
<PAGE> 46
TOWER FINANCIAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
As of October 31, 1998
<TABLE>
<S> <C>
ASSETS
Cash........................................................ $ 12,007
Interest bearing deposits in bank........................... 475,000
---------
Total cash and cash equivalents........................ 487,007
Equipment, at cost.......................................... 11,512
Deferred offering costs..................................... 73,850
---------
Total assets........................................... $ 572,369
=========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Liabilities:
Accounts payable and accrued expenses..................... $ 139,102
Accounts payable and accrued expenses -- related
parties................................................ 24,187
Related party notes payable............................... 750,000
---------
Total liabilities...................................... 913,289
Commitments and contingencies
Stockholder's deficit:
Preferred stock, no par value, 4,000,000 shares
authorized; no shares issued and outstanding...........
Common stock, no par value, 6,000,000 shares authorized; 1
share subscribed.......................................
Additional paid-in capital................................
Deficit accumulated during the development stage.......... (340,920)
---------
Total stockholder's deficit............................ (340,920)
---------
Total liabilities and stockholder's deficit............ $ 572,369
=========
</TABLE>
The following notes are an integral part of the financial statements.
F-3
<PAGE> 47
TOWER FINANCIAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
For the period from July 8, 1998 (date of inception) to October 31, 1998
<TABLE>
<S> <C>
Operating expenses:
Salaries and benefits expense............................. $ 199,660
Professional fees......................................... 114,857
Other expenses............................................ 26,403
---------
Total operating expenses............................... 340,920
---------
Net loss............................................... $(340,920)
=========
</TABLE>
The following notes are an integral part of the financial statements.
F-4
<PAGE> 48
TOWER FINANCIAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDER'S DEFICIT
For the period from July 8, 1998 (date of inception) to October 31, 1998
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
PREFERRED COMMON PAID-IN DEVELOPMENT
STOCK STOCK CAPITAL STAGE TOTAL
--------- ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at inception (July 8, 1998).... $ $ $ $ $
Issuance of common stock............... 10 10
Common stock subscription.............. (10) (10)
Net loss............................... (340,920) (340,920)
--------- ---- --------- --------- ---------
Balance, October 31, 1998.............. $ $ $ $(340,920) $(340,920)
========= ==== ========= ========= =========
</TABLE>
The following notes are an integral part of the financial statements.
F-5
<PAGE> 49
TOWER FINANCIAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
For the period from July 8, 1998 (date of inception) to October 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities
Net loss.................................................. $(340,920)
Adjustments to reconcile net loss to net cash used in
operating activities:
Increase in accounts payable and accrued expenses...... 163,289
---------
Net cash used in operating activities................ (177,631)
---------
Cash flows from investing activities
Equipment expenditures.................................... (11,512)
---------
Net cash used in investing activities................ (11,512)
---------
Cash flows from financing activities
Proceeds from related party notes payable................. 750,000
Deferred offering costs................................... (73,850)
---------
Net cash provided from financing activities.......... 676,150
---------
Net increase in cash and cash equivalents................... 487,007
Cash and cash equivalents, beginning of period..............
---------
Cash and cash equivalents, end of period.................... $ 487,007
=========
</TABLE>
The following notes are an integral part of the financial statements.
F-6
<PAGE> 50
TOWER FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. ORGANIZATION: Tower Financial Corporation ("Tower Financial") was
incorporated on July 8, 1998. Tower Financial's activities to date have
been limited to the organization of Tower Bank & Trust Company ("Tower
Bank"), as well as preparation for a common stock offering estimated to
be $20,000,000 (the "offering"). A substantial portion of the proceeds
of the offering will be used by Tower Financial to provide initial
capitalization of Tower Bank. The start-up of Tower Bank is contingent
upon receiving the approval of various banking regulatory authorities
and also a successful completion of the offering.
b. NATURE OF BUSINESS: Tower Bank intends to offer a full range of
commercial and consumer banking services primarily within Allen County,
Indiana.
c. USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
d. CASH AND CASH EQUIVALENTS: Tower Financial considers all highly liquid
investment instruments, including investments with maturities of three
months or less at acquisition, to be cash equivalents. At October 31,
1998 cash equivalents consisted of certificates of deposit aggregating
$400,000.
e. DEFERRED OFFERING COSTS: Deferred offering costs consist of professional
fees incurred in connection with the registration of Tower Financial's
common stock. These costs will be charged against the stock proceeds or,
if the offering is not successful, charged to operations at that time.
f. INCOME TAXES: Tower Financial utilizes the liability method of
accounting for deferred income taxes. Under this method, deferred tax
assets and liabilities are determined based on the difference between
the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse.
2. NOTES PAYABLE RELATED PARTIES:
Non-interest bearing notes payable in the amount of $750,000 are
outstanding to members of the Board of Directors of Tower Financial. The notes
are to be paid with proceeds received from the offering and are to be repaid on
or before March 31, 1999.
3. LEASE COMMITMENT:
Tower Financial has a lease commitment with a related party company owned
by a director for space to be used as Tower Financial's main office effective
January 1, 1999. The lease term is for ten years at rents ranging from
approximately $11,300 to $17,100 per month with an option to extend for one
successive ten year period. Tower Financial incurred rent expense of
approximately $3,900 to this related party for temporary space through October
31, 1998.
Future minimum commitments for the following calendar years are
approximately:
<TABLE>
<S> <C>
1999........................................................ $135,400
2000........................................................ 135,400
2001........................................................ 152,800
2002........................................................ 152,800
2003........................................................ 170,200
--------
Total.................................................. $746,600
========
</TABLE>
F-7
<PAGE> 51
TOWER FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES:
At October 31, 1998 Tower Financial had net operating loss carryforwards of
approximately $341,000. No deferred tax asset is recorded, as a valuation
allowance reduces the gross deferred tax asset of approximately $136,000 to
zero.
5. OTHER:
Tower Financial has entered into a letter of employment with its
president/chief executive officer whereby Tower Financial has deposited in
escrow a certificate of deposit in the amount of $200,000 which will be
disbursed to the president in the event that Tower Bank does not receive all
required regulatory approvals to commence business. In addition, certain members
of management are entitled to incentive bonuses aggregating $35,000 upon
commencement of Tower Bank's business operations.
Tower Financial has entered into a five year contract with a data
processing company to outsource Tower Financial's data processing effective
February 1, 1999. The contract contains automatic renewal options and fees are
primarily based on the volume of transactions subject to certain minimum monthly
amounts.
6. SUBSEQUENT EVENT:
On December 14, 1998, the stockholder and Board of Directors adopted the
1998 Stock Option and Incentive Plan (the "Plan") for officers, employees and
non-employee directors. The maximum number of shares which may be issued under
the Plan shall not exceed 310,000 and will include both incentive stock options
and non-qualified options. The exercise price for incentive stock options will
not be less than the fair market value of the shares at the time of grant,
except as granted to a 10% shareholder where the option price will not be less
than 110% of fair market price. The exercise price for non-qualified stock
options will not be less than 85% of the fair market value at the time of grant.
The duration of each option may not exceed ten years from the date of grant.
The Board intends to grant a total of 240,000 options to certain officers
and directors of Tower Financial effective upon successful completion of the
offering. The option price will be the initial public offering price.
F-8
<PAGE> 52
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE IN THIS
OFFERING SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION IN THIS
PROSPECTUS IS CORRECT AS OF ANY SUBSEQUENT DATE. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS OR AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES
IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements............ 2
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 9
Dividend Policy....................... 10
Capitalization........................ 10
Business.............................. 11
Management............................ 17
Executive Compensation................ 22
Related Party Transactions............ 24
Principal Shareholders................ 26
Supervision and Regulation............ 27
Description of Capital Stock.......... 36
Shares Eligible for Future Sale....... 39
Underwriting.......................... 40
Legal Proceedings..................... 42
Legal Matters......................... 42
Experts............................... 42
Additional Information................ 42
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1999 (90 DAYS AFTER THE EFFECTIVE DATE OF THE
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, 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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,000,000 SHARES
TOWER FINANCIAL LOGO
CORPORATION
COMMON STOCK
----------------------------
PROSPECTUS
----------------------------
RONEY CAPITAL MARKETS
A division of FIRST CHICAGO CAPITAL MARKETS, INC.
MCDONALD INVESTMENTS INC.
January , 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 53
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Indiana Business Corporation Law provides that a corporation, unless
limited by its articles of incorporation, is required to indemnify its directors
and officers against reasonable expenses incurred in the successful defense of
any proceeding arising out of their serving as a director or officer of the
corporation.
As permitted by the Indiana Business Corporation Law, Tower Financial's
Restated Articles of Incorporation provide for indemnification of directors,
officers, employees and agents of Tower Financial against any and all liability
and reasonable expense that may be incurred by them, arising out of any claim or
action, civil, criminal, administrative or investigative, in which they may
become involved by reason of being or having been a director, officer, employee
or agent. To be entitled to indemnification, those persons must have been wholly
successful in the claim or action or the board of directors must have
determined, based upon a written finding of legal counsel or another independent
referee, or a court of competent jurisdiction must have determined, that such
persons acted in good faith in what they reasonably believed to be the best
interest of Tower Financial (or at least not opposed to its best interests) and,
in addition, in any criminal action, had reasonable cause to believe their
conduct was lawful (or had no reasonable cause to believe that their conduct was
unlawful). The Restated Articles of Incorporation authorize Tower Financial to
advance funds for expenses to an indemnified person, but only upon receipt of an
undertaking that he or she will repay the same if it is ultimately determined
that such party is not entitled to indemnification.
The rights of indemnification provided by the Restated Articles of
Incorporation are not exhaustive and are in addition to any rights to which a
director or officer may otherwise be entitled by contract or as a matter of law.
Irrespective of the provisions of the Restated Articles of Incorporation, Tower
Financial may, at any time and from time to time, indemnify directors, officers,
employees and other persons to the full extent permitted by the provisions of
applicable law at the time in effect, whether on account of past or future
transactions.
Tower Financial has agreed to indemnify the Underwriters, and the
Underwriters have agreed to indemnify Tower Financial, against certain civil
liabilities, including liabilities under the Securities Act. See the Form of
Underwriting Agreement filed as Exhibit 1 herewith.
In addition, Tower Financial has obtained a directors' and officers'
liability and company reimbursement policy that insures against certain
liabilities under the Securities Act, subject to applicable retentions.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table shows the fees and expenses Tower Financial will incur
in the issuance and distribution of the securities being registered hereunder,
other than underwriting discounts and commissions. Except for the SEC
registration fee and the NASD filing fee, all amounts shown are estimates and
assume the sale of 2,000,000 shares in the offering.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee........................................ $ 6,394
NASD Filing Fee............................................. 2,800
Printing and Mailing Expenses............................... 40,000
Legal Fees and Expenses..................................... 125,000
Accounting Fees and Expenses................................ 25,000
Blue Sky Fees and Expenses.................................. 12,050
Registrar and Transfer Agent Fees and Expenses.............. 3,000
Premium for Director and Officer Liability Insurance........ 9,300
Miscellaneous............................................... 2,956
--------
Total.................................................. $226,500
========
</TABLE>
II-1
<PAGE> 54
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past several months, Tower Financial has borrowed $760,000 from
members of Tower Financial's board of directors to pay organizational and
related expenses. To the extent that such transactions would be deemed to
involve the offer or sale of a security, Tower Financial would claim an
exemption from registration under the Securities Act, in reliance on Section
4(2) of the Securities Act, for such transactions. In addition, Tower Financial
sold one share of its common stock to Donald F. Schenkel, Chairman of the Board,
President and Chief Executive Officer and a director of Tower Financial, for
$10.00. Tower Financial also claims an exemption for such sale pursuant to
Section 4(2) of the Securities Act.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
Exhibit 1* Form of Underwriting Agreement
Exhibit 3.1 Restated Articles of Incorporation of the Registrant
Exhibit 3.2 By-Laws of the Registrant
Exhibit 4* Specimen Stock Certificate of the Registrant
Exhibit 5 Opinion of Baker & Daniels with respect to the legality of
the securities being registered
Exhibit 10.1 Lease Agreement
Exhibit 10.2* Electronic Data Processing Services Contract
Exhibit 10.3* 1998 Stock Option and Incentive Plan
Exhibit 10.4* Employment Agreement with Donald F. Schenkel
Exhibit 10.5* Employment Agreement with Kevin J. Himmelhaver
Exhibit 10.6* Employment Agreement with Curtis A. Brown
Exhibit 21 Subsidiaries
Exhibit 23.1* Consent of PricewaterhouseCoopers LLP
Exhibit 23.2 Consent of Baker & Daniels (included in Exhibit 5)
Exhibit 24 Power of Attorney (included on page II-4 of this
Registration Statement)
Exhibit 27 Financial Data Schedule
</TABLE>
- -------------------------
* Filed with this amendment.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against 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 any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(2) For determining any liability under the Securities Act, treat the
information omitted from the form of the prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and
II-2
<PAGE> 55
contained in the form of prospectus filed by the Registrant under Rule
424(b)(1) or (4) or 497(h) under the Securities Act as part of this
Registration Statement as of the time the Commission declared it effective.
(3) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
(4) The Registrant will provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations
and registered in such names as required by the Underwriters to permit
prompt delivery to each purchaser.
II-3
<PAGE> 56
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Amendment to Registration Statement
to be signed on its behalf by the undersigned, in the City of Fort Wayne,
Indiana, on December 30, 1998.
TOWER FINANCIAL CORPORATION
By: /s/ DONALD F. SCHENKEL
------------------------------------
Donald F. Schenkel, Chairman of the
Board,
President and Chief Executive
Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this Amendment to Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DONALD F. SCHENKEL Chairman of the Board, President, Chief December 30, 1998
- ------------------------------------ Executive Officer and Director (principal
Donald F. Schenkel executive officer)
/s/ KEVIN J. HIMMELHAVER Chief Financial Officer (principal December 30, 1998
- ------------------------------------ financial and accounting officer)
Kevin J. Himmelhaver
Director
- ------------------------------------
Keith E. Busse
Director
- ------------------------------------
Peter T. Eshelman
/s/ MICHAEL S. GOULOFF* Director December 30, 1998
- ------------------------------------
Michael S. Gouloff
/s/ CRAIG S. HARTMAN* Director December 30, 1998
- ------------------------------------
Craig S. Hartman
/s/ JEROME F. HENRY, JR.* Director December 30, 1998
- ------------------------------------
Jerome F. Henry, Jr.
Director
- ------------------------------------
Michael Mirro, M.D.
/s/ DEBRA A. NIEZER* Director December 30, 1998
- ------------------------------------
Debra A. Niezer
/s/ WILLIAM G. NIEZER* Director December 30, 1998
- ------------------------------------
William G. Niezer
Director
- ------------------------------------
Maurice D. O'Daniel
Director
- ------------------------------------
Leonard Rifkin
</TABLE>
II-4
<PAGE> 57
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOSEPH D. RUFFOLO* Director December 30, 1998
- ------------------------------------
Joseph D. Ruffolo
/s/ LARRY L. SMITH* Director December 30, 1998
- ------------------------------------
Larry L. Smith
Director
- ------------------------------------
John V. Tippmann, Sr.
Director
- ------------------------------------
J. Richard Tomkinson
/s/ IRENE A. WALTERS* Director December 30, 1998
- ------------------------------------
Irene A. Walters
*By: /s/ DONALD F. SCHENKEL
------------------------------
Donald F. Schenkel, Attorney-in-fact
</TABLE>
II-5
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <S>
1* Form of Underwriting Agreement
3.1 Restated Articles of Incorporation of the Registrant
3.2 By-Laws of the Registrant
4* Specimen Stock Certificate of the Registrant
5 Opinion of Baker & Daniels with respect to the legality of
the securities being registered
10.1 Lease Agreement
10.2* Electronic Data Processing Services Contract
10.3* 1998 Stock Option and Incentive Plan
10.4* Employment Agreement with Donald F. Schenkel
10.5* Employment Agreement with Kevin J. Himmelhaver
10.6* Employment Agreement with Curtis A. Brown
21 Subsidiaries
23.1* Consent of PricewaterhouseCoopers LLP
23.2 Consent of Baker & Daniels (included in Exhibit 5)
24 Power of Attorney (included on page II-4 of this
Registration Statement)
27 Financial Data Schedule
</TABLE>
- -------------------------
* Filed with this amendment.
II-6
<PAGE> 1
EXHIBIT 1
Draft: 12/30/98
2,000,000 SHARES
TOWER FINANCIAL CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
__________, 1999
Roney Capital Markets,
a division of First Chicago Capital Markets, Inc.
McDonald Investments Inc.
c/o Roney Capital Markets
One Griswold
Detroit, Michigan 48226
Ladies and Gentlemen:
Tower Financial Corporation, an Indiana corporation (the "Company"),
proposes to issue and sell 2,000,000 shares (the "Firm Shares") of its
authorized but unissued Common Stock (the "Common Stock") to the Underwriters
named in Schedule I attached hereto (the "Underwriters"). In addition, the
Company proposes to grant to the Underwriters an option to purchase up to an
additional 300,000 shares (the "Optional Shares") to cover over-allotments. The
Firm Shares and the Optional Shares are called, collectively, the "Shares."
1. SALE AND PURCHASE OF THE SHARES.
(a) On the basis of the representations, warranties and
agreements of the Company contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to issue and sell to
the Underwriters, and the Underwriters agree to purchase, the Firm
Shares at a purchase price of $_____ per Share.
(b) On the basis of the representations, warranties and
agreements of the Company contained in, and subject to the terms and
conditions of, this Agreement, the policies of the National Association
of Securities Dealers, Inc. (the "NASD"), and pursuant to directions
from the Company, the Underwriters will offer to sell to each of the
persons listed on Exhibit A (who may purchase alone or with family
members to the extent permitted by the Free-Riding and Withholding
Interpretation (the "Interpretation") under the Conduct Rules of the
NASD) the number of Shares set forth opposite their respective names on
Exhibit
<PAGE> 2
A. The parties agree that the securities purchased and sold under this
subparagraph shall constitute "issuer directed securities" sold to the
issuer's employees or directors or other persons under the
Interpretation.
(c) On the basis of the representations, warranties and
agreements of the Company contained in, and subject to the terms and
conditions of, this Agreement, the Company grants to the Underwriters
an option to purchase all or any part of the Optional Shares at a price
per Share of $_____. The over-allotment option may be exercised only to
cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time or
times on or before 12:00 noon, Detroit time, on the day before the Firm
Shares Closing Date (as defined in Section 2 below), and only once at
any time after that date and within 30 days after the Effective Date
(as defined in Section 4 below), in each case upon written or
transmitted facsimile notice, or verbal notice confirmed by transmitted
facsimile, written or telegraphic notice, by the Underwriters to the
Company no later than 12:00 noon, Detroit time, on the day before the
Firm Shares Closing Date or at least three but not more than five full
business days before the Optional Shares Closing Date (as defined in
Section 2 below), as the case may be, setting forth the number of
Optional Shares to be purchased and the time and date (if other than
the Firm Shares Closing Date) of such purchase.
2. DELIVERY AND PAYMENT. Delivery by the Company of the Firm Shares to
the Underwriters and payment of the purchase price by certified or official bank
check payable in Detroit Clearing House (next day) funds to the Company, shall
take place at the offices of Honigman Miller Schwartz and Cohn, 2290 First
National Building, Detroit, Michigan 48226, at 10:00 a.m., Detroit time, on such
date, not later than the third (or, if the Firm Shares are priced, as
contemplated by Rule 15c6-1(c) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), after 4:30 p.m., Washington, D.C. time, the
fourth) full business day following the first date that any of the Shares are
released by the Underwriters for sale to the public, as the Underwriters shall
designate by at least 48 hours prior notice to the Company (the "Firm Shares
Closing Date"); provided, however, that if the Prospectus (as defined in Section
4 below) is at any time prior to the Firm Shares Closing Date recirculated to
the public, the Firm Shares Closing Date shall occur upon the later of the third
or fourth, as the case the may be, full business day following the first date
that any of the Shares are released by the Underwriters for sale to the public
or the date that is 48 hours after the date that the Prospectus has been so
recirculated.
To the extent the option with respect to the Optional Shares is
exercised, delivery by the Company of the Optional Shares, and payment of the
purchase price by certified or official bank check payable in Detroit Clearing
House (next day) funds to the Company, shall take place at the offices of
Honigman Miller Schwartz and Cohn specified above at the time and on the date
(which may be the Firm Shares Closing Date) specified in the notice referred to
in Section 1(c) (such time and date of delivery and payment are called the
"Optional Shares Closing
2
<PAGE> 3
Date"). The Firm Shares Closing Date and the Optional Shares Closing Date are
called, individually, a "Closing Date" and, collectively, the "Closing Dates."
Certificates representing the Firm Shares shall be registered in
such names and shall be in such denominations as the Underwriters shall request
at least two full business days before the Firm Shares Closing Date or, in the
case of the Optional Shares, on the day of notice of exercise of the option as
described in Section 1(c), and shall be made available to the Underwriters for
checking and packaging, at such place as is designated by the Underwriters, at
least one full business day before the Closing Date.
3. PUBLIC OFFERING. The Company understands that the Underwriters
propose to make a public offering of the Shares, as set forth in and pursuant to
the Prospectus, as soon after the Effective Date as the Underwriters deem
advisable. The Company hereby confirms that the Underwriters and dealers have
been authorized to distribute each preliminary prospectus (other than the
preliminary prospectus included in the initial filing of the Registration
Statement) and are authorized to distribute the Prospectus (as from time to time
amended or supplemented).
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Underwriters and agrees
with the Underwriters as follows:
(a) The Company has carefully prepared in conformity with the
requirements of the Securities Act of 1933, as amended (the "Securities
Act") and the rules and regulations adopted by the Securities and
Exchange Commission (the "Commission") thereunder (the "Rules"), a
registration statement on Form SB-2 (No. 333-67235), including a
preliminary prospectus, and has filed with the Commission the
registration statement and such amendments thereof as may have been
required to the date of this Agreement. Copies of such registration
statement (including all amendments thereof) and of the related
preliminary prospectus have heretofore been delivered by the Company to
you. The term "preliminary prospectus" means any preliminary prospectus
included as a part of the Registration Statement prior to the
effectiveness thereof or filed with the Commission pursuant to Rule
424(a) of the Rules. The registration statement as amended (including
any supplemental registration statement under Rule 462(b) or any
amendment under Rule 462(c) of the Rules) at the time and on the date
it becomes effective (the "Effective Date"), including the prospectus,
financial statements, schedules, exhibits, and all other documents
incorporated by reference therein or filed as a part thereof, is called
the "Registration Statement"; provided, however, that "Registration
Statement" shall also include all Rule 430A Information (as defined
below) deemed to be included in such Registration Statement at the time
such Registration Statement becomes effective as provided by Rule 430A
of the Rules. The term "Prospectus" means the Prospectus as filed with
the Commission pursuant to Rule 424(b) of the Rules or, if no filing
pursuant to Rule 424(b) of the Rules is required, means the form of
final prospectus
3
<PAGE> 4
included in the Registration Statement at the time such Registration
Statement becomes effective. The term "Rule 430A Information" means
information with respect to the Shares and the offering thereof
permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A of the Rules. Reference made herein to
any preliminary prospectus or to the Prospectus shall be deemed to
refer to and include any document attached as an exhibit thereto or
incorporated by reference therein, as of the date of such preliminary
prospectus or the Prospectus, as the case may be. The Company will not
file any amendment of the Registration Statement or supplement to the
Prospectus to which the Underwriters shall reasonably object in writing
after being furnished with a copy thereof.
(b) Each preliminary prospectus, at the time of filing
thereof, contained all material statements which were required to be
stated therein in accordance with the Securities Act and the Rules, and
conformed in all material respects with the requirements of the
Securities Act and the Rules, and did not include any untrue statement
of a material fact or omit to state any 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. The
Commission has not issued any order suspending or preventing the use of
any preliminary prospectus. When the Registration Statement shall
become effective, when the Prospectus is first filed pursuant to Rule
424(b) of the Rules, when any post-effective amendment of the
Registration Statement shall become effective, when any supplement to
or pre-effective amendment of the Prospectus is filed with the
Commission and at each Closing Date, the Registration Statement and the
Prospectus (and any amendment thereof or supplement thereto) will
comply in all material respects with the applicable provisions of the
Securities Act and the Rules, and neither the Registration Statement
nor the Prospectus, nor any amendment thereof or supplement thereto,
will contain any untrue statement of a material fact or will omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that the
Company makes no representation or warranty as to the information
contained in the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto in reliance upon and in
conformity with information furnished in writing to the Company by
Roney Capital Markets, specifically for use in connection with the
preparation thereof.
(c) All contracts and other documents required to be filed as
exhibits to the Registration Statement have been filed with the
Commission as exhibits to the Registration Statement.
(d) PricewaterhouseCoopers, LLP, whose report is filed with
the Commission as part of the Registration Statement, are, and during
the periods
4
<PAGE> 5
covered by their report were, independent public accountants as
required by the Securities Act and the Rules.
(e) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Indiana. The Company's subsidiary, Tower Bank & Trust Company, an
Indiana banking corporation (the "Bank"), has been duly organized and
is validly existing as a banking corporation in good standing under the
Indiana Financial Institutions Act (the "Banking Code") and is
currently limited to the transaction of only such business as is
incidental and necessarily preliminary to its organization. Neither the
Company nor the Bank has any properties or conducts any business
outside of the State of Indiana which would require either of them to
be qualified as a foreign corporation or bank, as the case may be, in
any jurisdiction outside of Indiana. The Bank has no directly or
indirectly held subsidiary, and the Bank is the sole subsidiary held
directly or indirectly by the Company. The Company has all power,
authority, authorizations, approvals, consents, orders, licenses,
certificates and permits needed to enter into, deliver and perform this
Agreement and to issue and sell the Shares, except for such
authorizations, approvals, consents, orders, licenses, certificates,
permits, registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters.
(f) The application for permission to organize the Bank (the
"DFI Application") was approved by the Department of Financial
Institutions of the State of Indiana (the "DFI") on ________, 1998,
pursuant to Order No._________, subject to certain conditions specified
in the Order and supplemental correspondence from the DFI dated the
same date. The Order and supplemental correspondence from the DFI are
collectively referred to in this Agreement as the "DFI Order." All
conditions contained in the DFI Order have been satisfied, except those
conditions relating to paid-in capital of the Bank, maintenance of
capital ratios and valuation reserves, completion of the DFI's
preopening investigation and the issuance by the DFI of a certificate
to commence business. The Bank's application to the Federal Deposit
Insurance Corporation (the "FDIC") to become an insured depository
institution (the "FDIC Application") under the provisions of the
Federal Deposit Insurance Act, as amended, was approved by order of the
FDIC dated ________, 1998 (the "FDIC Order"), subject to certain
conditions specified in the FDIC Order. All conditions contained in the
FDIC Order required to be satisfied before the date of this Agreement
have been satisfied. The Bank's application to the Board of Governors
of the Federal Reserve System (the "FRB") to become a member of the
Federal Reserve System (the "FRB Application") was approved by order of
the FRB dated ________, 1998 (the "FRB Order"), subject to certain
conditions specified in the FRB Order. All conditions contained in the
FRB Order required to be satisfied before the date of this Agreement
have been satisfied. The Company's application to the FRB to become a
bank holding company and
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<PAGE> 6
acquire all issued capital stock of the Bank (the "Holding Company
Application") under the Bank Holding Company Act of 1956, as amended,
was approved by order of the FRB, dated _________, 1999 (the "Holding
Company Approval"), subject to certain conditions specified in the
Holding Company Approval. All conditions in the Holding Company
Approval required to be satisfied before the date of this Agreement
have been satisfied. Each of the DFI Application, FDIC Application, FRB
Application and Holding Company Application, as amended at their
respective times of approval, contained all required information and
such information was complete and accurate in all material respects.
Other than the remaining conditions to be fulfilled under the DFI
Order, FDIC Order, FRB Order and Holding Company Approval specified
above, no authorization, approval, consent, order, license, certificate
or permit of and from any federal, state, or local governmental or
regulatory official, body, or tribunal, is required for the Company or
the Bank to commence and conduct their respective businesses and own
their respective properties as described in the Prospectus, except such
authorizations, approvals, consents, orders, licenses, certificates, or
permits as are not material to the commencement or conduct of their
respective businesses or to the ownership of their respective
properties.
(g) The financial statements of the Company and any related
notes thereto, included in the Registration Statement and the
Prospectus, present fairly the financial position of the Company as of
the date of such financial statements and for the period covered
thereby. Such statements and any related notes have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis and certified by the independent accountants named in
subsection 4(d) above. No other financial statements are required to be
included in the Prospectus or the Registration Statement.
(h) The Company owns adequate and enforceable rights to use
any patents, patent applications, trademarks, trademark applications,
service marks, copyrights, copyright applications and other similar
rights (collectively, "Intangibles") necessary for the conduct of the
material aspects of its business as described in the Prospectus.
The Company has not infringed, is not infringing, and has not received
any notice of infringement of, any Intangible of any other person.
(i) The Company has a valid and enforceable leasehold interest
in the real property located at 116 East Berry Street, Suite ____, Fort
Wayne, Indiana. Such leasehold interest is free and clear of all liens,
encumbrances, claims, security interests and defects.
(j) There are no litigation or governmental or other
proceedings or investigations pending before any court or before or by
any public body or board or threatened against the Company or the Bank,
and to the best of the Company's knowledge, there is no reasonable
basis for any such litigation, proceedings or
6
<PAGE> 7
investigations, which in any such case would have a material adverse
effect on commencement or conduct of the respective businesses of the
Company or the Bank or the ownership of their respective properties.
(k) The Company and Bank have filed all federal, state, and
local tax returns required to be filed by them and paid all taxes shown
due on such returns as well as all other material taxes, assessments
and governmental charges which have become due; no material deficiency
with respect to any such return has been assessed or proposed.
(l) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, there has
not been any material adverse change in the condition (financial or
other), business, properties or prospects of the Company.
(m) No default exists, and no event has occurred which with
notice or lapse of time, or both, would constitute a default, in the
due performance and observance of any material term, covenant or
condition, by the Company, the Bank or, to the best of the Company's
knowledge, any other party, of any lease, indenture, mortgage, note or
any other agreement or instrument to which the Company or the Bank is a
party or by which either of them or either of their businesses may be
bound or affected, except such defaults or events as are not material
to the commencement or conduct of their respective businesses or
ownership of their respective properties.
(n) Neither the Company nor the Bank is in violation of any
term or provision of the articles of incorporation or bylaws of the
Company or the Bank. Neither the Company nor the Bank is in violation
in any material respect of any franchise, license, permit, judgment,
decree, order, statute, rule or regulation.
(o) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby (including, without limitation, the
issuance and sale by the Company of the Shares) will (i) give rise to a
right to terminate or accelerate the due date of any payment due under,
or conflict with or result in the breach of any term or provision of,
or constitute a default (or an event which with notice or lapse of
time, or both, would constitute a default) under, or require any
consent under, or result in the execution or imposition of any lien,
charge or encumbrance upon any properties or assets of the Company or
the Bank pursuant to the terms of, (a) any lease, indenture, mortgage,
note or other agreement or instrument to which the Company or the Bank
is a party or by which either of them or either of their businesses is
bound or affected, or (b) any franchise, license, permit, judgment,
decree, order, statute, rule or regulation or (ii) violate any
provision of the articles of incorporation or bylaws of the Company or
the Bank, except, in any
7
<PAGE> 8
such case referred to in this paragraph (o), those which are immaterial
in amount or effect.
(p) The Company has authorized capital stock as set forth in
the Prospectus. One share of Common Stock is, and no shares of
preferred stock are, issued and outstanding. The issuance, sale and
delivery of the Shares have been duly authorized by all necessary
corporate action by the Company and, when issued, sold and delivered
against payment therefor pursuant to this Agreement, will be duly and
validly issued, fully paid and nonassessable and none of them will have
been issued in violation of any preemptive or other right. Upon
issuance, sale, and delivery thereof against payment therefor, all of
the capital stock of the Bank will be duly authorized and validly
issued, fully paid and nonassessable and will be owned by the Company,
free and clear of all liens, encumbrances and security interests
(subject to the provisions of the Banking Code). There is no
outstanding option, warrant or other right calling for the issuance of,
and no binding commitment to issue, any share of stock of the Company
or the Bank or any security convertible into or exchangeable for stock
of the Company or the Bank, except pursuant to this Agreement and
except for stock options described in the Registration Statement (the
"Stock Options") under the Company's 1998 Stock Option and Incentive
Plan (the "Stock Option Plan"). The Common Stock, the Shares and the
Stock Options conform to all statements in relation thereto contained
in the Registration Statement and the Prospectus.
(q) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, neither the
Company nor the Bank has (1) issued any securities or incurred any
material liability or obligation, direct or contingent, (2) entered
into any material transaction, or (3) declared or paid any dividend or
made any distribution on any of their stock, except liabilities,
obligations, and transactions reasonably expected based on the
disclosures in the Prospectus.
(r) This Agreement has been duly and validly authorized,
executed and delivered by the Company and is the legal, valid and
binding agreement and obligation of the Company, subject, as to
enforcement, to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(s) The Commission has not issued any order preventing or
suspending the use of any preliminary prospectus.
(t) Neither the Company, nor the Bank, nor, to the Company's
knowledge any director, officer, agent, employee or other person
associated with the Company or the Bank, acting on behalf of the
Company or the Bank, has used any corporate funds for any unlawful
contribution, gift, entertainment or other
8
<PAGE> 9
unlawful expense relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation
of any provision of the Foreign Corrupt Practices Act of 1977; or made
any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment.
(u) Neither the Company nor the Bank nor any affiliate of
either of them has taken, and they will not take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of the Common
Stock in order to facilitate the sale or resale of any of the Shares.
(v) No transaction has occurred between or among the Company
or the Bank and any of their officers, directors, organizers or the
Company's shareholder or any affiliate or affiliates of any such
officer, director, organizer, or shareholder, that is required to be
described in and is not described in the Prospectus.
(w) The Company is not and will not after the offering be an
"investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as
amended.
(x) The Company has obtained from all of its executive
officers and directors their written agreement that (i) for a period of
180 days from the date of the Effective Date, they will not offer to
sell, sell, transfer, contract to sell, or grant any option for the
sale of or otherwise dispose of, directly or indirectly, any shares of
Common Stock of the Company (or any securities convertible into or
exercisable for such shares of Common Stock), except for (1) the
exercise of Stock Options under the Stock Option Plan, (2) gifts of
Common Stock (or other securities) to a donee or donees who agree in
writing to be bound by this clause and (3) the redemption by the
Company of the share of Common Stock outstanding on the date hereof,
and (ii) for a period of three months from the date of the Effective
Date, they will not sell, transfer, assign, pledge, or hypothecate any
shares of Common Stock acquired under Paragraph l(b), above.
5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligation
of the Underwriters to purchase the Shares shall be subject to the accuracy of
the representations and warranties of the Company in this Agreement as of the
date of this Agreement and as of the Firm Shares Closing Date or Optional Shares
Closing Date, as the case may be, to the accuracy of the statements of Company
officers made pursuant to the provisions of this Agreement, to the performance
by the Company of its obligations under this Agreement, and to the following
additional terms and conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M., Detroit time, on the date of this Agreement or on
such later date and time as shall be consented to in writing by the
Underwriters; if the filing of
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<PAGE> 10
the Prospectus, or any supplement thereto, is required pursuant to Rule
424(b) of the Rules, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules; at
each Closing Date, if any, no stop order shall have been issued or
proceedings therefor initiated or threatened by the Commission; and any
request of the Commission for inclusion of additional information in
the Registration Statement, or otherwise, shall have been complied with
to the reasonable satisfaction of the Underwriters.
(b) At each Closing Date, the Underwriters shall have
received the favorable opinion of Baker & Daniels, counsel for the
Company, dated the Firm Shares Closing Date or the Optional Shares
Closing Date, as the case may be, addressed to the Underwriters and in
form and scope reasonably satisfactory to counsel for the Underwriters
to the effect that:
(i) The Company is existing as a corporation under
the laws of the State of Indiana. The Bank is existing as a
banking corporation under the Banking Code. Neither the
Company nor the Bank is required to be qualified to do
business in any jurisdiction outside Indiana where the failure
so to qualify would have a material adverse effect on the
business of the Company or the Bank.
(ii) Each of the Company and the Bank has full
corporate power, and all material authorizations, approvals,
orders, licenses, certificates and permits of and from all
governmental bank regulatory officials and bodies, necessary
to own its properties and to commence and conduct its business
as described in the Registration Statement and Prospectus,
including, without limitation, the DFI Order, FDIC Order, FRB
Order and the Holding Company Approval, subject to the
fulfillment of the conditions with respect to the DFI Order,
FDIC Order, FRB Order and the Holding Company Approval all as
described in Section 4(f) above, except for such
authorizations, approvals, orders, licenses, certificates and
permits as are not material to the ownership of its properties
or the commencement or conduct of its business.
(iii) The authorized capital stock of the Company is
as described in the Prospectus. Immediately prior to the Firm
Shares Closing Date, the Company had only one share of Common
Stock issued and outstanding. The Common Stock is not subject
to preemptive rights. The Shares have been duly and validly
authorized and, when the Shares have been issued and delivered
by the Company to the Underwriters against payment therefor in
accordance with the terms of this Agreement, (A) the Shares
will be fully paid and nonassessable and will not be subject
to preemptive rights, and (B) the Company will have conveyed
to the Underwriters good and valid title to the Shares. The
Shares, the other authorized capital stock of the Company, and
the Stock Options, in each
10
<PAGE> 11
case, conform as to legal matters in all material respects to
the descriptions thereof contained in the Registration
Statement and the Prospectus.
(iv) To the best of such counsel's knowledge, the
Company has no directly or indirectly held subsidiary other
than the Bank.
(v) The certificates evidencing the Shares (A) are in
the form approved by the Board of Directors of the Company,
(B) comply with the Restated Articles of Incorporation and
by-laws of the Company, and (C) comply as to form, and in all
other material respects, with applicable legal requirements.
(vi) This Agreement has been duly and validly
authorized, executed and delivered by the Company.
(vii) To the best of such counsel's knowledge, there
are no (A) contracts or other documents that are required to
be filed as exhibits to the Registration Statement other than
those filed as exhibits thereto, (B) legal or governmental
proceedings pending or threatened against the Company or the
Bank, and (C) statutes or regulations applicable to the
Company or the Bank, or certificates, permits, consents,
approvals, orders, licenses or authorizations from regulatory
officials or bodies that are required to be obtained or
maintained by the Company or the Bank, in any case that are of
a character required to be disclosed in the Registration
Statement and Prospectus that have not been so disclosed.
(viii) The statements in the Registration Statement
and the Prospectus, insofar as they are descriptions of
corporate documents, stock option plans, contracts,
agreements, laws, regulations or regulatory requirements, or
insofar as they constitute statements of law or legal
conclusions, are correct in all material respects.
(ix) To the best of such counsel's knowledge, neither
the execution, delivery and performance by the Company of this
Agreement nor the consummation by the Company of the
transactions herein contemplated will (A) give rise to a right
to terminate, or accelerate the due date of any payment due
under, or conflict with, or result in a breach of any of the
terms or provisions of, or constitute a default (or an event
which, with notice or lapse of time, or both, would constitute
a default) under, or require any consent under, or result in
the execution or imposition of any lien, charge or encumbrance
upon any properties or assets of the Company or the Bank
pursuant to the terms of, any lease, indenture, mortgage, note
or other agreement or instrument to which the Company or the
Bank is a party or by which either of them or either of
11
<PAGE> 12
their properties or assets is bound, or (B) result in any
violation of the provisions of the articles of incorporation
or by-laws of the Company or the Bank or of any statute,
order, rule or regulation applicable to the Company or the
Bank of any court or any federal, state, local or other
regulatory authority or governmental body, the effect of
which, in any such case referred to in this paragraph (ix),
would be expected to be materially adverse to the Company or
the Bank.
(x) To the best of such counsel's knowledge, no
consent, approval, authorization or order of any court or
governmental agency or body, domestic or foreign, is required
to be obtained by the Company in connection with the execution
and delivery by the Company of this Agreement or with the sale
of the Shares to the Underwriters as contemplated by this
Agreement, except those that have been obtained or those that
may be required under state "blue sky" laws.
(xi) To the best of such counsel's knowledge, neither
the Company nor the Bank is (A) in breach of, or in default
(and no event has occurred which, with notice or lapse of
time, or both, would constitute a default) under, any lease,
indenture, mortgage, note or other agreement or instrument to
which the Company or the Bank, as the case may be, is a party
or (B) in violation of any term or provision of either of
their articles of incorporation or by-laws or of any
franchise, license, grant, permit, judgment, decree or order
applicable to them.
(xii) The Registration Statement and the Prospectus
(other than the financial statements and other financial
information included therein, as to which no opinion or belief
need be expressed), as of the effective date of the
Registration Statement, appeared on their face to be
appropriately responsive in all material respects to the
applicable requirements of the Securities Act and the Rules.
(xiii) The Registration Statement has become
effective under the Securities Act and, to the best of such
counsel's knowledge, no proceedings for a stop order are
pending or threatened under the Securities Act.
In rendering the foregoing opinion, such counsel may rely upon
certificates of public officials (as to matters of fact and law) and
officers of the Company (as to matters of fact), and include
qualifications in its opinion as are reasonably acceptable to the
Underwriters. Copies of all such certificates shall be furnished to
counsel to the Underwriters on the Closing Date.
In addition, such counsel shall state that they have
participated in conferences with officers of the Company and a
representative of the Underwriters at
12
<PAGE> 13
which the contents of the Registration Statement and Prospectus and
related matters were discussed and although such counsel did not
independently verify the accuracy or completeness of the statements
made in the Registration Statement and Prospectus and does not assume
any responsibility for the accuracy or completeness of the statements
in the Registration Statement and Prospectus, on the basis of the
foregoing, nothing has come to the attention of such counsel that would
lead them to believe that the Registration Statement or Prospectus, as
amended or supplemented, if amended or supplemented, contains any
untrue statement of a material fact or omits a material fact required
to be stated therein or necessary to make the statements therein not
misleading; except that such statement may exclude financial
statements, financial data, and statistical information included in the
Registration Statement and Prospectus.
(c) On or prior to each Closing Date, the Underwriters shall
have been furnished such documents, certificates and opinions as they
may reasonably require for the purpose of enabling them to review the
matters referred to in subsection (b) of this Section 5, and in order
to evidence the accuracy, completeness or satisfaction of the
representations, warranties or conditions herein contained.
(d) Prior to each Closing Date, (i) there shall have been no
material adverse change in the condition or prospects, financial or
otherwise, of the Company or the Bank; (ii) there shall have been no
material transaction, not in the ordinary course of business, entered
into by the Company or the Bank except as set forth in the Registration
Statement and Prospectus, other than transactions referred to or
contemplated therein or to which the Underwriters have given their
written consent; (iii) neither the Company nor the Bank shall be 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 material agreement, understanding or instrument relating to any
outstanding indebtedness that is material in amount; (iv) no action,
suit or proceeding, at law or in equity, shall be pending or threatened
against the Company or the Bank before or by any court or Federal,
state or other commission, board or other administrative agency having
jurisdiction over the Company or the Bank, as the case may be, which is
expected to have a material adverse effect on the Company or the Bank;
and (v) no stop order shall have been issued under the Securities Act
with respect to the Registration Statement and no proceedings therefor
shall have been initiated or be threatened by the Commission.
(e) At each Closing Date, the Underwriters shall have received
a certificate signed by the President and another officer of the
Company dated the Firm Shares Closing Date or Optional Shares
Closing Date, as the case may be, to the effect that the conditions set
forth in subsection (d) above have been satisfied and as to the
accuracy, as of the Firm Shares Closing Date or the Optional Shares
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<PAGE> 14
Closing Date, as the case may be, of the representations and warranties
of the Company set forth in Section 4 hereof.
(f) At or prior to each Closing Date, the Underwriters shall
have received a "blue sky" memorandum of Honigman Miller Schwartz and
Cohn, counsel for the Underwriters, addressed to the Underwriters and
in form and scope reasonably satisfactory to the Underwriters,
concerning compliance with the blue sky or securities laws of the
states listed in Exhibit B attached to this Agreement.
(g) All proceedings taken in connection with the sale of the
Shares as herein contemplated shall be reasonably satisfactory in form
and substance to the Underwriters and to counsel for the Underwriters,
and the Underwriters shall have received from counsel for the
Underwriters a favorable opinion, dated as of each Closing Date, with
respect to such of the matters set forth under subsections (b) (i),
(iii), (vi), and (xiii) of this Section 5, and with respect to such
other related matters as the Underwriters may reasonably require, if
the failure to receive a favorable opinion with respect to such other
related matters would cause the Underwriters to deem it inadvisable to
proceed with the sale of the Shares.
(h) There shall have been duly tendered to the Underwriters
certificates representing all the Shares agreed to be sold by the
Company on the Firm Shares Closing Date or the Optional Shares Closing
Date, as the case may be.
(i) No order suspending the sale of the Shares prior to each
Closing Date, in any jurisdiction listed in Exhibit B, shall have been
issued on the Firm Shares Closing Date or the Optional Shares Closing
Date, as the case may be, and no proceedings for that purpose shall
have been instituted or, to the Underwriters' knowledge or that of the
Company, shall be contemplated.
(j) The NASD, upon review of the terms of the public offering
of the Shares, shall not have objected to the Underwriters'
participation in the same.
If any condition to the Underwriters' obligations hereunder to
be fulfilled prior to or at the Firm Shares Closing Date or the Optional Shares
Closing Date, as the case may be, is not so fulfilled, the Underwriters may
terminate this Agreement pursuant to Section 9(b) hereof or, if the Underwriters
so elect, waive any such conditions which have not been fulfilled or extend the
time of their fulfillment.
6. COVENANTS.
The Company covenants and agrees that it will:
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<PAGE> 15
(a) Use its best efforts to cause the Registration Statement
to become effective and will notify the Underwriters immediately, and
confirm the notice in writing, (i) when the Registration Statement and
any post-effective amendment thereto becomes effective, (ii) of the
issuance by the Commission of any stop order or of the initiation, or
the threatening, of any proceedings for that purpose and (iii) of the
receipt of any comments from the Commission. The Company will make
every reasonable effort to prevent the issuance of a stop order, and,
if the Commission shall enter a stop order at any time, the Company
will make every reasonable effort to obtain the lifting of such order
at the earliest possible moment.
(b) During the time when a prospectus is required to be
delivered under the Securities Act, comply so far as it is able with
all requirements imposed upon it by the Securities Act, as now and
hereafter amended, and by the Rules, as from time to time in force, so
far as necessary to permit the continuance of sales of or dealings in
the Shares. If at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act any event shall have
occurred as a result of which, in the reasonable opinion of counsel for
the Company or counsel for the Underwriters, the Registration Statement
or Prospectus as then amended or supplemented includes an untrue
statement of a material fact or omits to state any 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 misleading, or if it is necessary at any time to amend or
supplement the Registration Statement or Prospectus to comply with the
Securities Act, the Company will notify the Underwriters promptly and
prepare and file with the Commission an appropriate amendment or
supplement in form satisfactory to the Underwriters. The cost of
preparing, filing and delivering copies of such amendment or supplement
shall be paid by the Company.
(c) Deliver to the Underwriters such number of copies of each
preliminary prospectus as may reasonably be requested by the
Underwriters and, as soon as the Registration Statement, or any
amendment or supplement thereto, becomes effective, deliver to the
Underwriters three signed copies of the Registration Statement,
including exhibits, and all post-effective amendments thereto and
deliver to the Underwriters such number of copies of the Prospectus,
the Registration Statement and supplements and amendments thereto, if
any, without exhibits, as the Underwriters may reasonably request.
(d) Endeavor in good faith, in cooperation with the
Underwriters and their counsel, at or prior to the time the
Registration Statement becomes effective, to qualify the Shares for
offering and sale under the securities laws relating to the offering or
sale of the Shares of the states listed in Exhibit B. In each
jurisdiction where such qualification shall be effected, the Company
will, unless the Underwriters agree that such action is not at the time
necessary or advisable, file and make such statements or reports at
such times as are or may reasonably be
15
<PAGE> 16
required by the laws of such jurisdiction, provided that in connection
therewith, the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction. The Company will advise the Underwriters promptly of the
suspension of the qualification of the Shares for offering, sale or
trading in any jurisdiction, or any initiation or threat of any
proceeding for such purpose, and in the event of the issuance of any
order suspending such qualification, the Company, with the cooperation
of the Underwriters, will use all reasonable efforts to obtain the
withdrawal thereof.
(e) Furnish its security holders as soon as practicable an
earnings statement (which need not be certified by independent
certified public accountants unless required by the Securities Act or
the Rules) covering a period of at least twelve months beginning after
the effective date of the Registration Statement, which shall satisfy
the provisions of Section 11(a) of the Securities Act and the Rules
thereunder.
(f) For a period of three years from the Effective Date,
furnish to its shareholders annual audited consolidated financial
statements with respect to the Company including balance sheets and
income statements and make available to its shareholders upon request
quarterly unaudited consolidated financial statements with respect to
the Company including balance sheets and income statements.
(g) For a period of three years from the Effective Date,
furnish to the Underwriters the following:
(i) at the time they have been sent to shareholders
of the Company or filed with the Commission three copies of
each annual, quarterly, interim, or current financial and
other report or communication sent by the Company to its
shareholders or filed with the Commission;
(ii) as soon as practicable, three copies of every
press release and every material news item and article in
respect of the Company or the affairs of the Company which was
released by the Company;
(iii) all other information reasonably requested by
the Underwriters with respect to the Company to comply with
Rule 15c2-11 of the Rules; and
(iv) such additional documents and information with
respect to the Company and its affairs as the Underwriters may
from time to time reasonably request.
(h) Acquire all of the Bank's outstanding capital stock, free
and clear of all liens, encumbrances, or other claims or restrictions
whatsoever, for not less
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<PAGE> 17
than $15,000,000 from the proceeds of the offering and, in all other
material respects, apply the net proceeds from the offering in the
manner set forth under "Use of Proceeds" in the Prospectus.
(i) Not file any amendment or supplement to the Registration
Statement or Prospectus after the effective date of the Registration
Statement to which the Underwriters shall reasonably object in writing
after being furnished a copy thereof.
(j) Comply with all registration, filing and reporting
requirements of the Securities Act or the Exchange Act, which may from
time to time be applicable to the Company.
(k) Give advance written notice to the DFI of the Bank's
projected opening date, and in all other respects use reasonable
efforts to comply with the requirements of, and satisfy the conditions
of, the DFI Order, FDIC Order, FRB Order and the Holding Company
Approval, which are required to be complied with prior to the Bank
commencing the business of banking; provided, however, that it shall
not be a breach of this Section 6(k) for the Company or the Bank to
fail to maintain any specified level of capital, surplus, capital
ratio, valuation reserve or financial or operating performance after
the Bank has commenced the business of banking or to fail to satisfy
any such requirement or condition if such failure is waived or
performance of such requirement or condition is accepted as sufficient
by the DFI, the FDIC, and/or the FRB, as applicable.
(l) Pay, or reimburse if paid by the Underwriters, whether or
not the transactions contemplated hereby are consummated or this
Agreement is terminated, all costs and expenses incident to the
performance of the obligations of the Company under this Agreement,
including those relating to (1) the preparation, printing, filing and
delivery of the Registration Statement, including all exhibits thereto,
each preliminary prospectus, the Prospectus, all amendments of and
supplements to the Registration Statement and the Prospectus, and the
photocopying of the Underwriting Agreement and related agreements
including, without limitation, the Dealer Agreement; (2) the issuance
of the Shares and the preparation and delivery of certificates for the
Shares to the Underwriters; (3) the registration or qualification of
the Shares for offer and sale under the securities or "blue sky" laws
of the various jurisdictions referred to in Exhibit B, including the
fees and disbursements of counsel in connection with such registration
and qualification and the preparation and printing of preliminary,
supplemental, and final blue sky memoranda; (4) the furnishing
(including costs of shipping and mailing) to the Underwriters of copies
of each preliminary prospectus, the Prospectus and all amendments of or
supplements to the Prospectus, and of the several documents required by
this Section to be so furnished; (5) the filing requirements and fees
of the NASD in connection with its review of the terms of the public
offering and the underwriting; (6) the furnishing (including costs of
17
<PAGE> 18
shipping and mailing) of copies of all reports and information required
by Section 6(g); (7) all transfer taxes, if any, with respect to the
sale and delivery of the Shares by the Company to the Underwriters; (8)
the inclusion of the Shares on the OTC Bulletin Board; and (9) the
Underwriters' out-of-pocket expenses, including without limitation,
road show expenses and legal fees of counsel to the Underwriters (such
out-of-pocket expenses and legal fees payable by the Company shall not
exceed $50,000). Upon a successful completion of the offering, the
Underwriters will credit the out-of-pocket and legal fee reimbursement
described in Section 6(l)(9) against the underwriting discount.
(m) Not, without the prior written consent of the
Underwriters, sell, contract to sell or grant any option for the sale
of or otherwise dispose of, directly or indirectly, or register with
the Commission, any shares of Common Stock of the Company (or any
securities convertible into or exercisable for such shares of Common
Stock) within 180 days after the date of the Prospectus, except as
provided in this Agreement and except for grants and exercises of Stock
Options under the Stock Option Plan as described in the Prospectus.
(n) For not less than 3 fiscal years after the Effective Date,
unless the Underwriters shall otherwise consent in writing, (i) timely
file with the Commission all reports required by Section 15(d) of the
Exchange Act and not seek suspension of the duty to file such reports,
and (ii) not less frequently than annually prepare a proxy statement
and annual report which conform substantially to the requirements of
Commission Regulation 14A and distribute such proxy statement and
annual report to record and beneficial owners substantially in the
manner which would be required by Commission Regulation 14A if
applicable.
(o) Use its best efforts to cause itself and the Bank to
commence their businesses as described in the Prospectus not later than
__________, 1999.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the
Underwriters and each person, if any, who controls the Underwriters
within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act against any and all losses, claims, damages and
liabilities, joint or several (including any reasonable investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement (subject to the exception contained in the last
sentence of Section 7(c)) of, any action, suit or proceeding or any
claim asserted), to which they may become subject under the Securities
Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in
any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto, or arise out
of or are
18
<PAGE> 19
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that such indemnity shall
not inure to the benefit of the Underwriters (or any person controlling
the Underwriters) on account of any losses, claims, damages or
liabilities arising from the sale of the Shares in the public offering
to any person by the Underwriters if such untrue statement or omission
or alleged untrue statement or omission was made in such preliminary
prospectus, the Registration Statement or the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of the
Underwriters through Roney Capital Markets specifically for use
therein; and provided, further, that such indemnity shall not inure to
the benefit of any Underwriter (or any person controlling any
Underwriter) to the extent that any such loss, claim, damage or
liability of such Underwriter results from the fact that a copy of the
Prospectus as then amended or supplemented was not sent or given to any
person at or prior to the written confirmation of the sale of Shares to
such person in any case where such delivery is required by the
Securities Act if the Company previously had furnished copies thereof
to such Underwriter and the loss, claim, damage or liability of such
Underwriter results from an untrue statement or omission or alleged
untrue statement or omission of a material fact contained in the
preliminary prospectus which was corrected in the Prospectus as so
amended or supplemented. The Company shall not be liable hereunder to
the Underwriters (or any controlling person thereof) to the extent that
any loss, claim, damage or other liability incurred by the Underwriters
arises from the Underwriters' fraudulent act or omission.
(b) The Underwriters agree to indemnify and hold harmless the
Company, each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, each director of the Company and each officer of the
Company who signs the Registration Statement, to the same extent as the
foregoing indemnity from the Company to the Underwriters, but only
insofar as such losses, claims, damages or liabilities arise out of or
are based upon any untrue statement or omission or alleged untrue
statement or omission which was made in any preliminary prospectus, the
Registration Statement or the Prospectus, or any amendment thereof or
supplement thereto, in reliance upon and in conformity with information
furnished in writing to the Company by the Underwriters through Roney
Capital Markets specifically for use therein. The Underwriters shall
not be liable hereunder to the Company (including any controlling
person, director or officer thereof) to the extent that any loss,
claim, damage or other liability incurred by the Company arises from a
fraudulent act or omission by the Company.
(c) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made
19
<PAGE> 20
against an indemnifying party or parties under this Section, notify
each such indemnifying party of the commencement of such action, suit
or proceeding, enclosing a copy of all papers served, but the omission
so to notify such indemnifying party of any such action, suit or
proceeding shall not relieve it from any liability that it may have to
any indemnified party otherwise than under this Section. In case any
such action, suit or proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and the approval
by the indemnified party of such counsel, the indemnifying party shall
not be liable to such indemnified party for any legal or other
expenses, except as provided below and except for the reasonable costs
of investigation subsequently incurred by such indemnified party in
connection with the defense thereof. The indemnified party shall have
the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (1) the employment of counsel by such indemnified party
has been authorized in writing by the indemnifying parties, (2) the
indemnified party shall have reasonably concluded that, because of the
existence of different or additional defenses available to the
indemnified party or of other reasons, there may be a conflict of
interest between the indemnifying parties and the indemnified party in
the conduct of the defense of such action (in which case the
indemnifying parties shall not have the right to direct the defense of
such action on behalf of the indemnified party) or (3) the indemnifying
parties shall not have employed counsel to assume the defense of such
action within a reasonable time after notice of the commencement
thereof, in each of which cases the fees and expenses of counsel shall
be at the expense of the indemnifying parties. An indemnifying party
shall not be liable for any settlement of any action, suit, proceeding
or claims effected without its written consent.
8. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 7(a) or 7(b) is due in accordance with its terms but for any reason is
held to be unavailable, the Company and the Underwriters shall contribute to the
aggregate losses, claims, damages and liabilities (including any investigation,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement (subject to the exception contained below in this Section 8)
of, any action, suit or proceeding or any claims asserted, but after deducting
any contribution received from other persons) to which the Company and the
Underwriters may be subject, in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and the
Underwriters, on the other hand, from the offering of the Shares, as well as the
relative fault of the Company, on the one hand, and the Underwriters, on the
other hand, in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received
20
<PAGE> 21
by the Company, on the one hand, and the Underwriters, on the other hand, shall
be deemed to be in the same proportion as the total net proceeds from the
offering received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters. 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, on the one hand,
or the Underwriters, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, including, with respect to any Underwriter, the extent to
which such losses, claims, damages or liabilities result from the fact that a
copy of the Prospectus as then amended or supplemented was not sent or given to
any person at or prior to the written confirmation of the sale of Shares to such
person in any case where such delivery was required by the Securities Act, if
the Company previously had furnished copies thereof to such Underwriter and the
loss, claim, damage or liability resulted from an untrue statement or omission
or alleged untrue statement or omission of a material fact contained in the
preliminary prospectus which was corrected in the Prospectus as so amended or
supplemented. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities referred to above in this Section 8
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating, preparing for or
defending against any such action or claim. Notwithstanding the provisions of
this Section 8, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages that such Underwriter otherwise has been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission and no person found guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8 to contribute
are several in proportion to their respective underwriting obligations and not
joint. For purposes of this Section, each person, if any, who controls the
Underwriters within the meaning of the Securities Act or the Exchange Act shall
have the same rights to contribution as the Underwriters, and each person, if
any, who controls the Company within the meaning of the Securities Act or the
Exchange Act, each officer and each director of the Company shall have the same
rights to contribution as the Company. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section, notify such party
or parties from whom contribution may be sought, but the omission so to notify
such party or parties from whom contribution may be sought shall not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have hereunder or otherwise than under this Section. No party
shall be liable for contribution with respect to any action, suit, proceeding or
claim settled without its written consent.
9. TERMINATION. This Agreement may be terminated by the
Underwriters by notifying the Company at any time:
(a) at or before any Closing Date if, in the judgment of the
Underwriters, payment for and delivery of the Shares is rendered
impracticable or
21
<PAGE> 22
inadvisable because (1) additional material governmental restrictions,
not known to be in force and effect when this Agreement is signed,
shall have been imposed upon trading in securities generally or minimum
or maximum prices shall have been generally established on the New York
Stock Exchange, on the American Stock Exchange or on the
over-the-counter market, or trading in securities generally shall have
been suspended on either such Exchange or on the over-the-counter
market or a general banking moratorium shall have been established by
federal, New York, Michigan or Indiana authorities, (2) a war or other
calamity shall have occurred or shall have accelerated to such an
extent as to affect adversely the marketability of the Shares, (3) the
Company or the Bank shall have sustained a material loss by fire,
flood, accident, hurricane, earthquake, theft, sabotage or other
calamity or malicious act, which, whether or not said loss shall have
been insured, will in the Underwriters' opinion, make it inadvisable to
proceed with the offering of the Shares, (4) the DFI Order, FDIC Order,
FRB Order or Holding Company Approval shall have been withdrawn or
materially altered, or notice shall have been received to the effect
that any of such approvals will not be received, or, if received, will
be subject to conditions that the Company would not be able to fulfill
in a reasonable time in the Underwriters' reasonable opinion, (5) in
the Underwriters' reasonable opinion it is not probable that the
Company and Bank will be able to commence business before _________,
1999, for any reason, or (6) there shall have been such material change
in the condition, business operations or prospects of the Company or
the market for the Shares or similar securities as in the Underwriters'
judgment would make it inadvisable to proceed with the offering of the
Shares; or
(b) at or before any Closing Date, if any of the conditions
specified in Section 5 or any other agreements, representations or
warranties of the Company in this Agreement shall not have been
fulfilled when and as required by this Agreement.
If this Agreement is terminated pursuant to any of its provisions, except as
otherwise provided in this Agreement, the Company shall not be under any
liability to the Underwriters (other than for obligations assumed in Section
6(l) hereof), and the Underwriters shall not be under any liability to the
Company; provided, however, that if this Agreement is terminated by the
Underwriters because of any failure, refusal or inability on the part of the
Company to comply with the terms or to fulfill any of the conditions of this
Agreement, or for any reasons provided in subparagraphs (a) and (b) above, the
Company will reimburse the Underwriters for all accountable out-of-pocket
expenses (including, without limitation, road show expenses and fees and
disbursements of counsel to the Underwriters) up to a maximum of $50,000
(including the $20,000 advance below) incurred by them in connection with the
proposed purchase and sale of the Shares or in contemplation of performing their
obligations hereunder. The Underwriters acknowledge receipt of a $20,000 advance
from the Company. If this Agreement is terminated for any reason, the
Underwriters shall be entitled to retain such advance as reimbursement for its
accountable out-of-pocket expenses; provided, however, in the event that the
accountable out-of-pocket expenses to be reimbursed under this paragraph are
less than $20,000, the Underwriters
22
<PAGE> 23
shall pay such difference to the Company. If this Agreement is not terminated,
the $20,000 shall be credited at closing against the underwriting discount.
10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements contained in this Agreement shall be
deemed to be representations, warranties and agreements at the Closing Dates,
and the respective representations, warranties and agreements of the Company and
the Underwriters, including, without limitation, the payment and reimbursement
agreements contained in Section 6(l) hereof, the indemnity and contribution
agreements contained in Sections 7 and 8 hereof and the agreements contained in
this Section 10, shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of the Underwriters or any controlling
person of any Underwriter, or by or on behalf of the Company or any officer or
director or controlling person of the Company, and shall survive delivery of the
Shares to and payment for the Shares by the Underwriters pursuant to this
Agreement. In addition, the payment and reimbursement agreements contained in
Section 6(l) hereof, the indemnity and contribution agreements contained in
Sections 7 and 8 hereof and the agreements contained in this Section 10 shall
survive termination of this Agreement.
11. MISCELLANEOUS. This Agreement has been and is made for the benefit
of the Underwriters, the Company and their respective successors and assigns,
and, to the extent expressed herein, for the benefit of persons controlling the
Underwriters or the Company, and directors and certain officers of the Company,
and their respective successors and assigns, and no other person, partnership,
association or corporation shall acquire or have any right under or by virtue of
this Agreement. The term "successors and assigns" shall not include any
purchaser of Shares from the Underwriters merely because of such purchase.
All notices and communications hereunder shall be in writing and
mailed or delivered or by telephone or telegraph, if subsequently confirmed in
writing, to the Underwriters, care of Roney Capital Markets, at One Griswold,
Detroit, Michigan 48226 (facsimile No. (313) 963-2303) (with a copy to Donald J.
Kunz, Honigman Miller Schwartz and Cohn, 2290 First National Building, Detroit,
Michigan 48226 (facsimile No. (313) 465-7455)); and to the Company at 116 East
Berry Street, Suite ___, Fort Wayne, Indiana 46802, Attention: Donald F.
Schenkel, President and Chief Executive Officer (with a copy to Daniel L.
Boeglin, Baker & Daniels, 300 North Meridian Street, Suite 2700, Indianapolis,
Indiana 46204 (facsimile No. (317) 237-1000).
The laws of the State of Michigan shall govern this Agreement, its
construction, and the determination of any rights, duties or remedies of the
parties arising out of or relating to this Agreement.
23
<PAGE> 24
Please confirm that the foregoing correctly sets forth the agreement
between us.
Very truly yours,
TOWER FINANCIAL CORPORATION
By:
----------------------------------
Donald F. Schenkel
Its: Chief Executive Officer
Accepted as of the date hereof:
RONEY CAPITAL MARKETS,
a division of First Chicago Capital Markets, Inc.
By:
---------------------------
John C. Donnelly
Managing Director
MCDONALD INVESTMENTS INC.
By:
---------------------------
24
<PAGE> 25
SCHEDULE I
<TABLE>
<CAPTION>
TOTAL NUMBER OF NUMBER OF OPTION SHARES TO
SHARES TO BE BE PURCHASED IF MAXIMUM
UNDERWRITERS PURCHASED OPTION IS EXERCISED
---------------- ----------------------------
<S> <C> <C>
Roney Capital Markets.......................... 1,100,000 165,000
McDonald Investments Inc....................... 900,000 135,000
--------- -------
Total 2,000,000 300,000
</TABLE>
25
<PAGE> 26
EXHIBIT A
<TABLE>
<CAPTION>
Number Relationship
of of Person to
Name Shares to the Company
---- -------- -----------------
<S> <C> <C>
</TABLE>
<PAGE> 27
EXHIBIT B
States
Florida
Illinois
Indiana
Iowa
Kentucky
Michigan
Minnesota
Missouri
New York
Ohio
Pennsylvania
Wisconsin
<PAGE> 1
EXHIBIT 4
[TOWER FINANCIAL CORPORATION LOGO]
Fort Wayne, Indiana
<TABLE>
<S><C>
COMMON STOCK (WITHOUT PAR VALUE)
THIS CERTIFICATE IS TRANSFERABLE IN INCORPORATED UNDER THE LAWS OF THE STATE OF INDIANA CUSIP 891769 10 1
BOSTON, MA, OR NEW YORK, N.Y. SEE REVERSE FOR CERTAIN DEFINITIONS
</TABLE>
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, WITHOUT PAR VALUE, OF
TOWER FINANCIAL CORPORATION transferable only on the books of the Corporation in
person or by duly authorized Attorney upon the surrender of this Certificate
properly endorsed. This Certificate and the shares represented hereby are
issued and shall be held subject to all of the provisions of the Restated
Articles of Incorporation and By-Laws of said Corporation and all amendments
thereto, to all of which the holder by the acceptance hereof assents. THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT
FEDERALLY INSURED OR GUARANTEED. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
In Witness Whereof, the Corporation has caused this certificate to be
issued in its name and behalf by its duly authorized officers.
Dated:
/s/Kevin J. Himmelhaver [TOWER FINANCIAL CORPORATION /s/Donald F. Schenkel
SECRETARY CORPORATE SEAL INDIANA] CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
STATE STREET BANK AND TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER, UPON WRITTEN REQUEST AND
WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS,
PREFERENCES AND LIMITATIONS APPLICABLE TO EACH CLASS OF STOCK WHICH THE
CORPORATION IS AUTHORIZED TO ISSUE, THE VARIATIONS IN RIGHTS, PREFERENCES AND
LIMITATIONS OF THE SHARES OF EACH SERIES OF EACH SUCH CLASS OF STOCK INSOFAR AS
THE SAME MAY HAVE BEEN FIXED AND DETERMINED, AND THE AUTHORITY OF THE BOARD OF
DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES.
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:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ___________Custodian_____________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as tenants Act______________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,________________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
|___________________|
|___________________|
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated_______________________ Signature________________________________
NOTICE: THE SIGNATURE OF THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN
EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATSOEVER.
Signature(s) Guaranteed:
By______________________________________________
The Signature(s) must be guaranteed by an
eligible guarantor institution (banks,
stockbrokers, savings and loan associations and
credit unions with membership in an approved
medallion signature guarantee program) pursuant
to S.E.C. Rule 17Ad-15.
<PAGE> 1
[RDSI LOGO]
EXHIBIT 10.2
RURBANC DATA SERVICES
DATA PROCESSING AGREEMENT
This Agreement dated October 01, 1998 is entered between Rurbanc Data Services,
Inc., a wholly owned subsidiary of Rurban Financial Corporation, an Ohio
Corporation located at 401 Clinton Street, Defiance, Ohio 43512 (thereafter
referred to as "RDSI"), and
TOWER FINANCIAL CORPORATION
TOWER BANK & TRUST
116 East Berry Street, Suite 910
FORT WAYNE, INDIANA 46802
(hereinafter referred to as "Bank".)
This Agreement sets forth the basic contractual terms for providing an
electronic data processing service in accordance with the stipulations and rates
hereinafter set forth, and provided by RDSI to the Bank.
I. PURPOSE OF THE AGREEMENT
The Bank agrees that RDSI may perform certain services for the Bank in
the schedule(s) attached hereto, and RDSI agrees to performing such services
pursuant to the terms and conditions of this Agreement. RDSI shall receive data
from the Bank via data communication lines or ground courier for processing, and
shall process such data, producing reports and/or journals daily for the Bank.
It is agreed that if source documents are ever in transit, via ground courier,
between the Bank and RDSI, the responsible party should maintain adequate
insurance coverage and/or accept financial responsibility. The Bank agrees to
compensate RDSI for its services herein in accordance with the attached fee
schedules.
II. TERM OF THE AGREEMENT
This Agreement shall become effective February 01, 1999 and shall extend
for a period of Five (5) Years, continuous, day-to-day, which is the term of
this Agreement. However, at the request of the Bank, the term does not commence
until the "core" applications, (Demand Deposits, Savings, Certificates of
Deposit, Loans and Financial General Ledger Management Systems), have been
successfully converted and operational.
This Agreement shall automatically continue after the initial Term unless
terminated by either party upon at least 180 days prior written notice to the
other. The Bank's and RDSI's continuing obligations under the Agreement
including, without limitation, those relating to Ownership and Confidentiality
shall survive the termination of this Agreement. RDSI reserves the right to
reduce charges at any time, however, any increase will not become effective
until thirty (30) days after prior written notice has been given to the Bank.
RDSI and the Bank have agreed that during the first TWO (2) Years of this
Agreement, rates shall be fixed at such rate(s) as described in the attached fee
schedule(s).
III. RETURN OF BANK'S WORK
RDSI will process the Bank's items in connection with any service agreed
upon and will assure transmission or delivery to the Bank by 9:00 a.m. on the
next business day. The only exceptions granted for non-delivery on time, will be
those due to abnormal climatic conditions, equipment and software failures, or
other unforeseen contingencies not due to negligence. The Bank agrees to have
arrangements for disaster backup facilities and systems relating to the Bank's
own internal operation and equipment in effect throughout the period covered by
this Agreement.
IV. CONVERSION
Expenses of the conversion will be paid by the Bank, such as quoted
conversion and training fees, equipment purchases and modifications,
communication equipment and lines, ITI formal training classes, new forms and
supplies and other conversion cost items as detailed in the attached RDSI
proposal. The RDSI conversion charge has been established at $7,000.00 plus any
out of pocket expenses incurred by RDSI in direct relation to the conversion
(ie: lodging, meals, mileage, etc.) plus any expenses incurred due to
deconversion from the Bank's existing processing system, to be paid directly to
RDSI upon completion of the first application converted. RDSI assures the Bank
that conversion of the "core" application systems will be completed no later
than thirty (30) days after commencement of the first application. The Bank will
receive a 25% discount applied against the first three (3) months' processing
invoice from RDSI for each month the conversion is delayed by RDSI, with an
additional 25% discount for each additional month the conversion is delayed
thereafter. No discount penalty will be applied if the Bank delays the
conversion at the Bank's own request. Test conversion procedures will be
performed and provided prior to the actual conversion and will require the
Bank's approval to proceed.
V. COMPLIANCE WITH SECTION 5 OF THE BANK SERVICE CORPORATION ACT
RDSI hereby agrees it will be subject to regulations and examinations,
including auditing, to the same extent as if the services being provided by RDSI
were being performed by the Bank itself on its own premises.
<PAGE> 2
DATA PROCESSING AGREEMENT - TOWER FINANCIAL CORPORATION - PAGE TWO
VI. EXAMINATION OF RIGHTS
Each year RDSI will contract an outside accounting firm for the purposes
of performing a third party review. If the Bank wishes to participate in the
third party audit and review, cost will be divided equally among all RDSI bank
customers being processed according to asset size. The Bank still has the right
to perform an examination of RDSI independently at the Bank's own expense.
VII. CORRECTION OF ERRORS
RDSI shall have the right to reprocess the Bank's materials to correct
any errors for which RDSI may be responsible in full satisfaction of all Bank's
claims, provided the Bank has notified RDSI in writing of any claimed error
within thirty (30) days after receipt of service results and furnished
supporting documentation of such claim. All services furnished hereunder are
deemed acceptable to the Bank unless proper notice and proof of claim have been
made within the thirty (30) day period.
VIII. LIMITATION OF LIABILITY
A. RDSI shall be liable for loss, destruction or damage of Bank
supplied materials only if due to the negligence of RDSI, and then
only to the extent of restoring the loss, destroyed or damaged
materials; provided such restoration can be reasonably performed
by RDSI and the Bank furnishes RDSI with all source data necessary
for such restoration.
B. RDSI shall continue to maintain during the duration of this
Agreement an errors and omissions policy of insurance, in the
amount as set forth an contained in Section XII. Hereto.
C. RDSI shall not be liable for any incidental, special or
consequential damages of any nature whatsoever, such as, but not
limited to, loss of anticipated profits or other economic loss in
connection with, or arising out of the existence or services
provided for in this Agreement, or for specific performance.
D. RDSI shall not be liable for failure to provide, or delays in
providing, services hereunder, if due to any cause beyond RDSI's
reasonable control, including but not limited to the following:
(1) mechanical failures or breakdowns of electronic data
processing equipment due to power failures due to a declared
disaster; (2) shortages in supplies or materials from RDSI's
supplier, due to strike, riots, civil disturbances, flood, fire,
snow storms, acts of God, or any other act of occurrences not
under the controls of RDSI; (3) strikes, riots, civil
disturbances, war, law suits, or lockouts; (4) fire, epidemics or
other casualties; (5) windstorms, earthquakes, tornadoes, floods,
weather, or other acts of God; (6) unusual delay in transportation
beyond the control of RDSI; (7) destruction of data communication
lines; (8) governmental regulations or interference, except to the
extent agreed to herein.
E. RDSI's total liability arising out of or any way connected to its
performance under this Agreement, including malfunction of RDSI's
equipment, failure or negligent of RDSI's employees and agents,
and defective programs, shall be limited to the coverage as set
forth under RDSI's errors and omissions insurance policy. However,
RDSI may remedy future claims, with the Bank's agreement, in the
case where repetitive processing services are being provided, to
general money damages in the amount not excess of the total amount
paid by the Bank for services for services performed by RDSI under
this Agreement during the period of ninety (90) days immediately
preceding the occurrence giving rise to any claims by the Bank;
claims exceeding this remedy may be submitted to errors and
omissions insurance coverage. In the case where non-repetitive
processing services are being supplied, RDSI's total liability
shall be limited to the general money damages not to exceed the
total amount paid for such services by the Bank.
F. RDSI warrants that the services provided under this Agreement
comply with all existing applicable Federal, State and Local laws,
regulations and guidelines. If after the date hereof, any
modifications to those services shall be required by law or by any
governmental regulatory authority having authority over the Bank's
business, RDSI shall, upon ninety (90) days advance written notice
to the Bank and to RDSI, conform the services to be in compliance
with such modified laws or governmental regulations. Except as
otherwise provided in this Agreement, RDSI shall not be liable for
any other express or implied warranty, including any warranty of
merchantability or fitness.
G. RDSI agrees to (1) monitor for and detect service deficiencies,
(2) take prompt action to determine the cause of and to correct
the deficiencies, (3) shoulder the costs of correcting the
deficiencies and (4) provide substitute services until such time
as the deficiencies are corrected. Moreover, the fees due RDSI
under this Agreement may be adjusted for so long as the specific
deficiencies exist so that RDSI will have an economic incentive to
correct deficiencies promptly and to prevent deficiencies in the
first instance. The adjustment in fees due RDSI will be adjusted
for such deficiencies in accordance with Section VIII.
Limitation of Liability.
<PAGE> 3
DATA PROCESSING AGREEMENT - TOWER FINANCIAL CORPORATION - PAGE THREE
IX. OWNERSHIP AND CONFIDENTIALITY
A. It is understood that the Bank is the legal owner of all data and
records relative to itself, which may be in the possession of RDSI
and may be obtained by the Bank via machine readable form at a
reasonable charge determined by RDSI, as stated in Section XVII.
Deconversion Considerations, of this Agreement. RDSI is the owner
of all programs and documentation.
B. RDSI and the Bank each agree that all information including, but
not limited to business methods, internal operation data and
customer records, communicated to it by the other either before or
after the effective date of this Agreement, was and shall be
received in strict confidence, shall be used only for the purposes
of this Agreement, and that no such information shall be disclosed
by the recipient party without the prior written consent of the
other party, and each agrees that each party will prevent the
disclosure to outside parties of the terms and provisions hereof,
except as may be necessary by reasons of legal, accounting, or
regulatory requirements beyond the reasonable control of RDSI or
the Bank, as the case may be.
C. This Agreement absolutely prohibits either party from disclosing
confidential information of the other, with the usual exceptions
of disclosure required by law or court order or disclosure of
information already in the public domain through no fault of
either party to the Agreement. Both parties agree to notify the
other of any breach of confidentiality.
D. RDSI and the Bank agree to indemnify and hold harmless the other
from any direct loss, damage cost or expense which the other may
sustain or incur by reason of any wrongful use by RDSI or the
Bank, as the case may be, or confidential information of the other
obtained in the course of the performance of this Agreement. In no
event, shall such indemnification extend to claims by or
information communicated by third parties not subject to this
Agreement.
E. RDSI agrees that it will comply with all applicable Federal, State
and Local laws and regulations governing the use of disclosure of
information provided by the Bank.
F. RDSI shall establish and maintain reasonable safeguards against
the destruction or loss of the Bank's data in the possession of
RDSI.
G. RDSI will notify the Bank of any system changes that will effect
the Bank's procedures, reports, etc.
H. RDSI and the Bank each agree that all Bank information, including
hard copy report media as well as on-line data, and all Bank
customer data, shall be held in strict confidence, and shall be
used only for purposes of this Agreement, and that no such
information shall be disclosed by the recipient party without the
prior written consent of the Bank, and each agrees to take all
reasonable precautions to prevent the disclosure to outside
parties of the terms of this Agreement. However, disclosure
required by law may be excepted from the general prohibition
against disclosure and the Bank, the Bank's parent company and the
Bank's counsel may decide whether the Agreement or its terms must
be disclosed.
I. Upon the occurrence of any default under this Agreement, remedies
upon default as outlined in Section XI. Of this Agreement will
apply.
X. PAYMENTS AND BILLING
The Bank agrees to pay RDSI for services performed hereunder in
accordance with the charges set forth in this Agreement. RDSI shall invoice
during the first ten (10) days of each month for services performed during the
prior month. Payment by the Bank shall be net ten (10) days from the invoice
date. Any invoice aged thirty-one (31) days from the date is subject to a
service charge of one percent (1%) of the unpaid balance. No late charge will be
imposed by RDSI to the Bank in the case of amounts past due that are reasonably
in dispute.
XI. DEFAULT: REMEDIES UPON DEFAULT AND ARBITRATION
A. Any of the following events will constitute a default under this
Agreement: (1) nonpayment of any amounts due RDSI by the Bank; (2)
nonperformance of any of the Bank's or RDSI's other material
obligations; (3) if any representation or warranty of the Bank or
RDSI proves to be false in any material respect; (4) if the Bank
or RDSI commits an act of bankruptcy or becomes insolvent or the
subject of any proceeding under the Bankruptcy Act; (5) if any
substantial part of the Bank's property becomes subject to any
levy, seizure, assignment, application or sale for or by any
creditor or government agency; or (6) failure of the RDSI backup
disaster recovery contingency plan to be implemented as a result
of a service disrupting disaster, causing the inability of RDSI,
in accordance to this Agreement, to perform data processing
services for the Bank for an unreasonable length of time, in
excess of twenty-four (24) to forty-eight (48) hours.
<PAGE> 4
DATA PROCESSING AGREEMENT - TOWER FINANCIAL CORPORATION - PAGE FOUR
B. Upon the occurrence of any default under this Agreement, RDSI and
the Bank, at its option provided at least thirty (30) days (or
such longer period as may be required by the applicable regulatory
authorities) prior written notice has been given to the other and
such default has not been cured within such period, may terminate
this Agreement. In addition, RDSI or the Bank shall have all other
rights and remedies available to it under this Agreement or by
operation of law or otherwise.
C. Upon the occurrence of default under this Agreement as stated in
paragraph A. (6), of this section, if service provided by RDSI to
the Bank is disrupted for an extended period of time, exceeding
forty-eight (48) hours, resulting from the failure of the RDSI
disaster recovery contingency plan, being implemented in response
to an actual disaster, the Bank may terminate this Agreement and
take action to protect itself by seeking alternative data
processing services.
D. RDSI believes its systems and equipment to be Year 2000 compliant
and will make every effort to test all RDSI systems and equipment
to assure functionality. Failure of RDSI to be Year 2000 compliant
would be in violation of bank regulations and would constitute
immediate default under this Agreement, allowing the Bank to
exercise immediate departure from this agreement without the
thirty (30) day written notification period.
E. ARBITRATION. Any dispute, controversy or claim arising out of,
connected with, or relating to this Agreement, or the breach,
termination, validity or enforceability of any provision of this
Agreement, will be resolved by final and binding arbitration by a
panel of three arbitrators in accordance with and subject to the
Commercial Arbitration Rules of the American Arbitration
Association ("AAA") then in effect. Following notice of a party's
election to require arbitration, each party will within thirty
(30) days select one (1) arbitrator, and those two arbitrators
will within thirty (30) days thereafter select a third arbitrator.
If the two arbitrators are unable to agree on a third arbitrator
within thirty (30) days, the AAA will within thirty (30) days
thereafter select such arbitrator. Discovery as permitted by the
Federal Rules of Civil Procedure then in effect will be allowed in
connection with arbitration to the extent consistent with the
purpose of the arbitration and as allowed by the arbitrators.
Judgment upon the award rendered in any arbitration may be entered
in any court of competent jurisdiction, or application may be made
to such court for judicial acceptance of the award and an
enforcement, as the law of the state having jurisdiction may
require or allow. During any arbitration proceedings, RDSI shall
continue to provide services under this Agreement and the Bank
shall continue to make payments hereunder. The fact that
arbitration is or may be allowed will not impair the exercise of
any termination right under this Agreement.
F. This Agreement provides that RDSI and the Bank will use their best
efforts to resolve disputes expeditiously.
G. If material deficiencies are found in RDSI's operations by third
party audit review or by bank regulatory examination reports; or
if RDSI's external auditors issue a qualified going concern
opinion on the financial statements of RDSI; or if RDSI should be
declared insolvent, and RDSI has not taken action to remedy, these
should also be considered events of default.
XII. ERRORS AND OMISSIONS INSURANCE
RDSI will carry Errors and Omissions Insurance Coverage as follows:
Electronic Data Processing Errors and Omissions Declared Coverage:
Limit of Liability $1,000,000.00
Deductible of $1,000.00 per claim
Errors and Omissions Insurance Coverage is carried with:
Royal Insurance Company
9300 Arrowpoint Blvd.
Charlotte, NC 28217
RDSI agrees to provide the Bank notification in the event of a change in
insurance carriers or cancellation of the policy by the insurance carrier. RDSI
will provide the Bank with a fiscal year-end financial statement each year,
which is December 31st.
<PAGE> 5
DATA PROCESSING AGREEMENT - TOWER FINANCIAL CORPORATION - PAGE FIVE
XIII. GENERAL
A. Bank acknowledges that it has not been induced to enter this
Agreement by any representation or warranty not set forth in this
Agreement. The capabilities, functions and operational
requirements are described in the RDSI Proposal, dated August 18,
1998, supplied to the Bank by RDSI and contained in Appendix A,
which Appendix A is incorporated in the Agreement by reference
hereof. The services shall include, in addition to the description
contained in Appendix A, any improvements, additions or
modifications of the services which RDSI provides to the Bank and
materials related thereto and all materials, documentation and
technical information provided to the Bank in written form and
identified in Appendix A for use in connection with the services.
This Agreement contains the entire agreement of the parties with
respect to its subject matter and supersedes all existing
agreements and all other oral, written or other communications
between them concerning this matter. This Agreement shall not be
modified in any way except by a writing signed by both parties.
Any and all additional services not previously mentioned and made
part of this Agreement that shall be provided, shall become part
of this Agreement by an Addendum signed by both parties attached
hereto.
B. This Agreement may not be assigned by the Bank, in whole or in
part, without the prior written consent of RDSI. This Agreement
shall be binding upon and shall inure to the benefit of RDSI and
the Bank and their respective successors and permitted assigns.
C. If any provisions of the Agreement (or any portion thereof) shall
be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remainder of this Agreement
shall not in any way be affected or impaired thereby.
D. The Headings in this Agreement are intended for convenience of
reference and shall not affect its interpretation.
E. The individuals executing this Agreement on behalf of RDSI and the
Bank do each hereby represent and warrant that they are duly
authorized by all necessary action to execute this Agreement on
behalf of their respective principals.
F. In addition, it is agreed that an RDSI Customer Service
Representative shall be designated as the Bank's client relations
representative, and shall visit the Bank once every six weeks.
G. This Agreement shall be governed and construed in accordance with
the laws of the State of Ohio.
H. If either party commences an action against the other to enforce
any of the terms of this Agreement, the action must be brought in
the State of Ohio in a court of competent jurisdiction.
I. This Agreement provides that the Bank may request changes in
services, software and equipment as the Bank deems necessary, the
costs of which would presumably be borne by the Bank.
XIV. FILE BACK-UP AND DISASTER RECOVERY CONTINGENCY PLAN
A. This section of this Agreement is provided in summary form and
provides an attempt and best effort to inform the Bank of the main
points of RDSI's Disaster Recovery Contingency System and Plan.
RDSI's Disaster Recovery Contingency System and Plan is an ever
changing and growing plan and does not lend itself to inclusion
within this Agreement. RDSI will provide the Bank with periodic
updates and modifications to the plan as they occur and are
included within the plan and effect this Agreement. The Bank is
encouraged to review the RDSI Disaster Recovery Plan in detail and
at length at any time as deemed necessary.
B. RDSI agrees to provide MASTER and TRANSACTION FILE BACK-UP and
Disaster Recovery Contingency Plan, in order to secure and limit
any disruption to the Bank's data processing services as provided
by this Agreement.
C. All Master and Transaction Files (daily activity) are backed up on
a daily basis. The Transaction Files are backed up after the day
shift and after the nightly update. One copy of the Transaction
File is taken off-site, while a second copy is maintained in an
on-site vault. Master Files are backed up each Wednesday and taken
to off-site storage each Friday. Since RDSI processes the
Information Technology, Inc. (ITI) Premier II Software, source
code is no longer maintained at RDSI. All on-site files are stored
in the computer room in locked fireproof cabinets. There is a
manual operator log and the Tape Librarian is responsible for
logging, storing and pulling tapes. Computer operators then mount
and scratch tape files prior to the beginning of the nightly
operations.
D. A summary of the back-up tapes and files maintained in off-site
vault storage are as follows:
- UNISYS OPERATING SOFTWARE and UTILITIES
Backed up when changes occur - copy
maintained off-site.
- TRANSACTION FILE TAPES
Backed up daily - taken off-site daily.
<PAGE> 6
DATA PROCESSING AGREEMENT - TOWER FINANCIAL CORPORATION - PAGE SIX
- MASTER FILES
Backed up weekly - taken off-site weekly.
- SOURCE CODE PROGRAMS
Maintained by ITI, Lincoln, Nebraska
E. RDSI and its management have secured a Disaster Recovery Hotesite
contractual arrangement with SunGard Recovery Services, Inc. ,
1285 Drummers Lane, Wayne, PA 19087, 1-610/341-8700 or
1-800/247-7832. RDSI is licensed at the Warminster, PA Mega
Center. Complete testing at the Warminster Center facility,
including all applications, as well as capture testing is
conducted by RDSI personnel on an annual basis.
F. In addition, RDSI has developed and maintains a written
comprehensive Disaster Recovery Contingency Plan encompassing
RDSI's data processing operations, as well as communications and
imaging capture center and its service to the Bank. In the event
of a declared disaster emergency, the Bank's transaction items may
be picked up by RDSI personnel and ground courier or transmitted
directly to Warminster Mega Center where processing will be
completed.
G. Hard copy reports may be delivered to the Bank by ground courier
or transmitted via dial-up communications or dedicated data line
communications. This process would continue until service is
restored at the RDSI Data Processing Center or RDSI's Cold Site in
Okaloma, Ohio or Alternative Center or location. The actual RDSI
Disaster Recovery Contingency Plan may be reviewed in its
entirety, by Bank personnel or examiners, but the Plan must be
reviewed in RDSI's secured facilities. RDSI maintains power surge
protection and an Uninterrupted Power Supply (UPS) system on its
Enterprise Servers and computer equipment. If RDSI and the SunGard
Recovery System Plan fails for any reason, RDSI will provide the
Bank copies of necessary files in order to assure the Bank
alternative servicing options.
H. The Bank agrees to have arrangements for back-up facilities
relating to the Bank's own internal operation and equipment, in
effect throughout the period covered by this Agreement failure of
said equipment is not the responsibility of RDSI.
I. RDSI maintains insurance coverage intended to cover data
processing equipment and media, extra expenses for emergency
processing, data reconstruction and emergency daily usage of the
Hotsite.
J. SunGard invoices RDSI monthly for the cost of the RDSI and SunGard
Recovery Contingency Plan, Hotsite membership and testing
resources and time. RDSI passes this cost directly onto its
customers, including the Bank via monthly data processing invoice.
The Bank's portion of this cost is determined by asset size and
actual number of accounts processed, and is subject to change in
direct relation to the contractual agreement between RDSI and
SunGard. These terms may override the Line Item "Disaster Recovery
Contingency Plan Services" found on Addendum A - Fee Schedule of
this Agreement.
K. Declaration of Disaster. If RDSI center or equipment will be
operable within 48 hours of a loss, outage, disaster or emergency,
notification of the SunGard Recovery Center is not required,
however, RDSI reserves the right to declare a disaster if center
recovery is unsure. If outage or loss of equipment is expected to
last beyond twenty-four (24) to forty-eight (48) hours, the RDSI
Management Team will notify the SunGard Recovery Center and begin
recovery procedures in Warminster, PA.
L. RDSI assures the Bank that any individual service interruption
duration's be limited to a period of twenty-four (24) to
forty-eight (48) hours. Failure to comply by RDSI would constitute
default under the terms of this Agreement.
XV. INTERNAL REVENUE SERVICE
A. RDSI will process and provide, according to the Terms of this
Agreement, the required Internal Revenue Service magnetic media or
transmission reporting, as specified by the Internal Revenue
Service.
B. RDSI will make every reasonable effort to satisfy magnetic media
or transmission reporting requirements set forth by the Internal
Revenue Service and this Agreement. In an effort to satisfy and
verify all Internal Revenue Service requirements RDSI will produce
a magnetic media or transmission reporting test, to be forwarded
to the Internal Revenue Service in December of each year for
advance testing and verification by the Internal Revenue Service.
C. In addition, if the Bank is levied a penalty by the Internal
Revenue Service, based upon information provided the IRS by
magnetic media as filed by RDSI, and it is determined that the
penalty levied was not a result of erroneous input by the Bank,
but from a magnetic media of transmission reporting error, the
Bank shall be held harmless, and RDSI will assume responsibility
to resolve the penalty with the Internal Revenue Service. If the
penalty stands, Section VII. Limitation of Liability, shall be
applied.
<PAGE> 7
DATA PROCESSING AGREEMENT - TOWER FINANCIAL CORPORATION - PAGE SEVEN
XVI. ON-LINE AVAILABILITY
A. RDSI will make every reasonable effort to have the On-Line Inquiry
Services available during the hours as indicated in this Agreement
as follows:
<TABLE>
<CAPTION>
On-Line Availability Schedule
-------------------- --------
<S> <C>
8:00 am - 7:00 pm Monday
8:00 am - 7:00 pm Tuesday
8:00 am - 7:00 pm Wednesday
8:00 am - 7:00 pm Thursday
8:00 am - 7:00 pm Friday
8:00 am - 3:00 pm Saturday
Not Available Unless Previously Arranged Sunday
Not Available Unless Previously Arranged Scheduled Holidays
(Based on Federal Reserve Holiday Schedule)
</TABLE>
B. RDSI will provide system updates nightly for the Bank. Monday
through Friday, based on the Federal Reserve Schedule. Saturday's
work will be posted or updated during Monday's nightly update. In
addition, Friday's actual reports should not be expected to be
delivered to the Bank until the following Monday morning, delivery
either by ground courier or via the MACROFICHE Report Storage and
Retrieval System or the RECALL Optical Disk System. However, the
on-line system will be available to the Bank on Saturday, so that
regular business may be conducted.
C. RDSI assures on-line availability for balance verification and
transaction authorization to the RDSI Enterprise Server (host
computer) at least ninety-five (95%) of the processing time each
month (excluding scheduled down time for normal system
maintenance) provided the Bank's network and data communication
lines are available. The Bank shall be notified at least one week
in advance of any scheduled Enterprise Server (host computer)
downtime.
D. On a monthly basis, RDSI will ensure that its on-line computing
facilities are available for the processing of the Bank's on-line
transactions at a minimum of ninety-five (95%) of the time, as
prescribed by the Bank, measured over a calendar month at the
point of departure from the RDSI Enterprise Server (host
computer).
E. On-line response time is a direct function of the data
communication line speed and the Bank's internal network. RDSI
will assist the Bank in analyzing and maintaining an acceptable
and satisfactory response time and will assist the Bank in
improving the response time when necessary.
F. Customer Service is perceived as a significant benefit from RDSI.
RDSI will provide Bank responses to questions as follows: (1)
average response within two (2) hours of calling the RDSI Customer
Support Center; and (2) a resolution on average of forty-eight
(48) hours.
G. In the event of human error on the part of RDSI which could be
expected to create an impact on the Bank or the Bank's customers,
RDSI agrees to: (1) notify the Bank of the error within four (4)
hours during normal business hours; (2) develop and implement a
plan of action to be shared with the Bank within eight (8) hours
during normal business hours; (3) resolve the error to limit the
impact to the Bank, as soon as commercially reasonable.
H. RDSI shall notify the Bank of any errors in the RDSI software or
operating system procedures when detected by or reported to RDSI,
that appear to impact the Bank. Such notification shall include a
plan for correction of the error.
I. RDSI will provide the Bank two (2) weeks notice of any change in
routine operating procedures. Changes falling into this category
include but are not limited to: (1) persons to notify in the event
of a problem; (2) form of communications; (3) change in processing
or contact location; and (4) hours of service; etc.
J. RDSI will notify the Bank, in writing, of any enhancements or new
releases of the RDSI software not less than one (1) week prior to
implementation of such changes. RDSI shall make available to the
Bank, in accordance with the published curriculum, training
adequate on all such changes not less than one (1) week prior to
implementation. Training usually is only required should the
changes be system releases and upgrades requiring additional
training or should the Bank elect to use the new functionality.
RDSI will determine if training is necessary and notify the Bank
of the scheduling.
<PAGE> 8
DATA PROCESSING AGREEMENT - TOWER FINANCIAL CORPORATION - PAGE EIGHT
XVII. DECONVERSION CONSIDERATIONS
A. Upon termination of this Agreement, the Bank may obtain data files
and records relative to itself for the purposes of deconversion to
an alternative data processing solution via machine readable media
based on the following Pricing Agreement Schedule:
1. Magnetic Machine Readable Media - $ 150.00 per tape.
2. Bank agrees to purchase from RDSI all used
special form inventory previously purchased at
RDSI's expense, at cost.
3. All data processing line charges yet to be
invoiced, calculated to the estimated date of
deconversion and actual line disconnect order.
4. Programming and Software Deconversion Charges -
$ 1,500.00.
5. Additional charges, if any, directly relating to
the deconversion, as assessed by Information
Technology, Inc. (ITI), Lincoln, Nebraska. These
charges, if any, as determined by ITI will be
passed through directly to the Bank.
6. Reports, trials, listings, etc. - $ 50.00 per report.
B. All deconversion charges as stated above should be paid by the
Bank to RDSI prior to the release of the final deconversion
magnetic readable media, however, RDSI will waive lien rights in
relationship to the Bank's data and good will.
C. RDSI agrees to waive the deconversion fees as previously stated to
the Bank in the event the Bank terminates the Agreement due to
RDSI's inability to restore service following a declared disaster.
XVIII. PRICING POLICIES
A. As previously stated within the Agreement, RDSI reserves the right
to reduce charges at any time, however, any increase will not
become effective until thirty (30) days, after prior written
notice has been given to the Bank. RDSI and the Bank have agreed
that during the first (1st) two (2) years of this Agreement, rates
shall be fixed at such rates as described in the attached Addendum
A - Fee Schedule. Most favored nation provision exists and
provides that the Bank's fee schedule are no less favorable than
those to any client.
B. It is also agreed that RDSI will not increase its fee schedules in
excess of FIVE percent (5%) per year, in years three, four and
five of this Agreement.
C. The only exceptions to this Pricing Agreement will be those
related to increased account and transaction volumes of the Bank;
new applications and services not presently utilized by the Bank;
increased number of terminals or workstations supported; Saturday
processing; and services not presently covered by this Agreement.
The Bank agrees to buy its own paper supplies: ex: report paper,
statements, checks, notice paper, etc.
D. In addition, ground transportation (Courier Services) charges if
needed, are not covered in the pricing schedule and Terms of
Agreement contained within this Agreement. Transportation charges
will be calculated and invoiced based on allowable IRS mileage and
maintenance guidelines, plus salary considerations, and are
subject to change by RDSI. If ground transportation ever becomes
necessary RDSI will advise the Bank, and obtain the Bank's
approval before ground transportation is utilized.
E. Future price increases relating to Saturday Processing may
supersede the price ceilings as previously stated. However, if the
Bank does not utilize Saturday Processing, price ceilings referred
to in this Agreement shall govern the pricing policy. RDSI will
provide nightly updates for the Bank, Monday through Friday, based
on the Federal Reserve Schedule. However, On-Line Services will be
available to the Bank on Saturdays, based on the schedule as
outlined in Section XVI. Of this Agreement.
XIX. YEAR 2000 FUNCTIONALITY
RDSI represents and warrants that the services provided are, or will by
September 30, 1999, be, capable of supporting Year 2000 functionality and will
function in accordance with the specifications in a multi-century,
multi-millennium environment. For purposes of this section, "supporting Year
2000 functionality" shall mean that the services provided hereunder must provide
fault-free performance in the processing of dates and date-related data,
including but not limited to calculating, comparing and sorting individually and
in combination with other RDSI products and services. "Fault-free performance"
shall mean the correct manipulation of data containing dates prior to, through
and beyond January 1, 2000 (including leap year computations) without human
intervention. Any modifications required to conform the data processing services
provided by RDSI to Year 2000 functionality will be made by RDSI at their own
expense. However, associated cost for assistance and
<PAGE> 9
DATA PROCESSING AGREEMENT - TOWER FINANCIAL CORPORATION - PAGE NINE
testing of the Bank's own data and files and equipment that may be required by
the various regulatory authorities will be the responsibility of the Bank. Any
such charges will be reviewed and authorized by the Bank with prior written
notice.
XX. NONSOLICITATION OF EMPLOYEES
HIRING OF EMPLOYEES. During the term of this Agreement and for a period of
twelve (12) months thereafter, RDSI and the Bank will not, without prior written
consent of the other, offer employment to or employ any person employed by the
other if the person was involved in providing or receiving services under this
Agreement.
XXI. PATENT INDEMNITY
Each of RDSI and the Bank shall indemnify, defend and hold harmless the other
from any and all claims, actions, damages, liabilities, costs and expenses,
including without limitation reasonable attorney's fees and expenses, arising
out of any claims of infringement of any United States letters patent, any trade
secret, or any copyright, trademark, service mark, trade name or similar
proprietary rights conferred by common law or by any law of the United States or
any state alleged to have occurred because of systems provided or work
performed. However, this indemnity will not apply unless the party seeking
indemnity informs the party from whom indemnification is sought full opportunity
to control the defense thereof, including without limitation any agreement
relating to settlement.
XXII. ENTIRE AGREEMENT AND NOTICES
A. This Agreement, together with all addendum's, appendices or other
attachments referenced herein, is complete and exclusive statement
of the Agreement between the parties, the Bank and RDSI.
B. NOTICES. All notices and other communications hereunder will be in
writing and will be deemed to have been validly given or delivered
by hand or in the United States mail, first class (or in the case
of a breach, registered or certified, return receipt requested
with proper postage, registration and certification fees prepaid),
addressed to the party for whom intended at the respective
addresses set forth below, or such other address as may be
designated, pursuant hereto:
<TABLE>
<S> <C>
If to RDSI: If to the Bank:
401 Clinton Street 116 East Berry Street, Suite 910
Defiance, OH 43512 Fort Wayne, Indiana 46802
Attention: Mr. Jon A. Brenneman Attention: Donald F. Schenkel
Senior Vice President President & Chief Executive Officer
</TABLE>
Dated: October 1, 1998 RURBANC DATA SERVICES, Inc.
-----------------------
By: /s/ Jon A. Brenneman
--------------------------------------
Title: Senior Vice President
-----------------------------------
TOWER FINANCIAL CORPORATION
TOWER BANK & TRUST
FORT WAYNE, INDIANA
By: /s/ Donald F. Schenkel
--------------------------------------
Title: President
-----------------------------------
<PAGE> 10
DATA PROCESSING AGREEMENT - TOWER FINANCIAL CORPORATION - PAGE TEN
ADDENDUM A - FEE SCHEDULE
PREMIER II SYSTEM
DDA - $ .35/account per month ($100.00 monthly minimum) - All open
accounts on file
DDA - $ .20/account per month - All closed accounts on file
DDA - $ .05/account - statement printing @ RDSI
Savings - $ .18/account per month ($100.00 monthly minimum) - All open
accounts on file
Savings - $ .10/account per month - All closed accounts on file
Certificates of Deposits - $ .18/account per month ($100.00 monthly
minimum) - All open accounts on file
Certificates of Deposits - $ .10/account per month - All closed accounts
on file
Loans - $ .35/account per month ($100.00 monthly minimum) - All open
loans/accounts on file
Loans - $ .15/account per month - All closed loans/accounts on file
Central Information System - $.10/portfolio per month ($100.00 monthly
minimum)
Financial General Ledger Management System -
1 - 500 accounts 1.20/account per month
501 - 1000 accounts .50/account per month
1001 accounts and over .25/account per month
Addenda's - $ .05/addenda per month
Credit Bureau Reporting - $ 15.00/tape per credit bureau - reporting period
Automated Clearing House (ACH) - included
Recall Software Maintenance - $ 30.00/month - pass through from Data Works
- subject to change
Macrofiche Annual Maintenance - $ 2,700.00 per year invoiced annually
ATM Network Support - $.05/atm/debit card account per month ($150.00
monthly minimum)
Communication Device Support - (includes PC's, CRT's, Proof Machines,
Recall, Macrofiche, etc.)
1 - 20 Fee Per Device with Premier II 30.00/device per month
21 and over Fee per Device with Premier II 20.00/device per month
Teller Terminal System Interface & Support - $ .02/total number of
accounts (Deposits & Loans)($100.00 monthly minimum)
Year End Processing, reporting & IRS Forms - $.15/total number of accounts
- annually
Confirmations - $ .10/form - ON REQUEST ONLY
Report Printing @ RDSI - $ .01/total number of accounts - ON REQUEST ONLY
Mailing Labels - $ .10/label - ON REQUEST ONLY
Pull Files - $ .004/total number of accounts pulled ($50.00 pull file
minimum)
Disaster Recovery Contingency Plan Services:
RDSI passes monthly membership cost from Hotsite provider (SunGard)
directly onto its customers via monthly processing invoice. The
Bank's portion of this cost is determined by asset size and actual
number of accounts processed, and is subject to change in direct
relation to the contractual agreement between RDSI and the Hotsite
provider. RDSI carries insurance to cover actual use of the Hotsite
during an actual declared disaster.
Minimum Monthly Fee $70.00/month
Communications Equipment and Line Support and Maintenance - $75.00/data
line per month
Third Party Audit Review - RDSI passes cost of the review onto its customer
base. The Bank's portion is determined by asset size and actual
number of accounts processed, and is subject to change in direct
relation to the actual cost of the examination.
Documentation (Manuals) - RDSI provides On-Line Documentation System. All
manuals and related documentation are maintained through the on-line
system.
Dated: October 1, 1998 RURBANC DATA SERVICES, Inc.
-----------------------
By: /s/ Jon A. Brenneman
-------------------------------------
Title: Senior Vice President
----------------------------------
TOWER FINANCIAL CORPORATION
TOWER BANK & TRUST
FORT WAYNE, INDIANA
By: /s/ Donald F. Schenkel
-------------------------------------
Title: President
----------------------------------
<PAGE> 11
DATA PROCESSING AGREEMENT - TOWER FINANCIAL CORPORATION
ADDENDUM E - FEDERAL CALL REPORTING SYSTEM
THE FEDERAL CALL REPORTING SYSTEM GENERATES CALL REPORTS QUICKLY, SIMPLY AND
COMPLETELY. ONE PRIMARY CHARACTERISTIC THAT DISTINGUISHES THE RDSI FEDERAL CALL
REPORT SYSTEM IS ITS ABILITY TO GATHER AND EXTRACT INFORMATION FROM DEPOSIT,
LOAN, GENERAL LEDGER AND BOND APPLICATION DATE BASES.
<TABLE>
<CAPTION>
<S> <C>
RDSI Installation fee (one time charge) $ 250.00
RDSI Monthly Fee $ 50.00
RDSI Monthly Minimum $ 50.00
</TABLE>
EARLY TERMINATION AGREEMENT:
This Addendum for the Federal Call Report System has been licensed from ITI,
based on a Three (3) Year Term. This directly determines the price as quoted in
this Addendum. In the event that the Bank terminates this Addendum Agreement
prior to the expiration date of this Addendum Agreement (calculated from 36
months from the date of this Addendum Agreement found at the bottom of this
page), the following formula will be used to calculate the early termination
charge to be assessed to the Bank.
The Early Termination Charge will be determined by taking the Average Total
Accounts (Loans and Deposits) calculated over the previous three (3) processing
months, multiplied times the per account Monthly Fee, multiplied times the
Remaining Months of this Addendum Agreement. ACCEPTED________ DATE________/
WAIVED______ DATE_____________
Dated: October 1, 1998 RURBANC DATA SERVICES, Inc.
-------------------------------------
By: /s/ Jon A. Brenneman
---------------------------
Title: Senior Vice President
------------------------
Date Installed:
--------------------- TOWER FINANCIAL CORPORATION
FORT WAYNE, INDIANA
Date Invoiced:
----------------------
Date Installation Fee Invoiced: By: /s/ Donald F. Schenkel
------------ ----------------------------
Title: President
-------------------------
<PAGE> 12
DATA PROCESSING AGREEMENT-TOWER FINANCIAL CORPORATION
ADDENDUM M - ON-LINE TELLER INTERFACE SYSTEM
ON-LINE TELLER INTERFACE SYSTEM
RDSI Monthly Processing Fee $.02/Total Number of Accounts
(Deposits and Loans)
RDSI Monthly Minimum $100.00
Dated: October 1, 1998 RURBANC DATA SERVICES, Inc.
-------------------------------------
(Addendum Agreement Date)
By: /s/ Jon A. Brenneman
----------------------------
Title: Senior Vice President
-------------------------
Date Installed:
-----------------
TOWER FINANCIAL CORPORATION
Date Invoiced: FORT WAYNE, INDIANA
------------------
Date Installation Fee Invoiced: By: /s/ Donald F. Schenkel
----------- ----------------------------
Title: President
-------------------------
<PAGE> 1
EXHIBIT 10.3
TOWER FINANCIAL CORPORATION
1998 STOCK OPTION AND INCENTIVE PLAN
1. PLAN PURPOSE. The purpose of the Plan is to promote the
long-term interests of the Company and its stockholders by providing a means for
attracting and retaining Employees and Directors who provide services to the
Company and its Affiliates.
2. DEFINITIONS. The following definitions are applicable to
the Plan:
"Affiliate" means any "parent corporation" or "subsidiary
corporation" of the Company as such terms are defined in Code Sections 424(e)
and (f), respectively.
"Award" means the grant by the Committee of Incentive Stock
Options, Nonqualified Stock Options, Performance Shares or any combination of
the foregoing, pursuant to the terms of the Plan.
"Award Agreement" means the written agreement setting forth
the terms and provisions applicable to an Award granted under the Plan.
"Board" means the Board of Directors of the Company.
"Cause" means, in connection with a Participant's Termination
of Service, theft or embezzlement from the Company or any Affiliate, violation
of a material term or condition of employment, disclosure of confidential
information of the Company or any Affiliate, conviction of the Participant of a
crime of moral turpitude, stealing of trade secrets or intellectual property
owned by the Company or any Affiliate, any act by the Participant in competition
with the Company or any Affiliate, or any other act, activity or conduct of a
Participant which in the opinion of the Board is adverse to the best interests
of the Company or any Affiliate.
"Change in Control" means any one of the following events: (a)
any third person, including a "group" as defined in Section 13(d)(3) of the
Exchange Act after the date of the adoption of the Plan by the Board, first
becomes the beneficial owner of shares of capital stock of the Company with
respect to which 25% or more of the total number of votes for the election of
the Board of Directors of the Company may be cast, (b) as a result of, or in
connection with, any cash tender offer, exchange offer, merger or other business
combination, sale of assets or contested election, or combination of the
foregoing, the persons who were Directors of the Company shall cease to
constitute a majority of the Board of the Company or (c) the stockholders of the
Company shall approve an agreement providing either for a transaction in which
the Company will cease to be an independent publicly owned entity or for a sale
or other disposition of all or substantially all the assets of the Company;
provided, however, that the occurrence of any of the foregoing events shall not
be deemed a Change in Control if, prior to occurrence, a resolution specifically
approving the occurrence shall have been adopted by at least a majority of the
Board.
<PAGE> 2
"Change in Domicile" means a Reorganization of the Company
which is primarily for the purpose of changing the state of organization of the
Company from Indiana to another jurisdiction of the United States of America.
"Code" means the Internal Revenue Code of 1986, as amended,
and interpretive rules and regulations thereunder.
"Committee" means the Committee appointed by the Board to
administer the Plan.
"Company" means Tower Financial Corporation, an Indiana
corporation.
"Date of Grant" means the date on which an Award is granted,
as determined by the Committee; provided, however, that in the absence of a
Committee determination, the date on which the Committee adopts a resolution
granting the Award.
"Director" means any individual who is a member of the Board
regardless of whether the Director is an Employee of the Company or any
Affiliate.
"Disability" means total and permanent disability as
determined by the Committee pursuant to Code Section 22(e)(3).
"Employee" means any person employed by the Company or an
Affiliate, or expected to be employed by the Company or Affiliate, provided the
individual becomes actually so employed.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exercise Price" means the price per Share at which the Shares
subject to an Option may be purchased upon exercise of the Option.
"Incentive Stock Option" means an Option to purchase Shares
which is intended to qualify under Code Section 422.
"Market Value" means the last reported sale price on the date
in question (or, if there is no reported sale on such date, the last preceding
date on which any reported sale occurred) of one Share on the principal exchange
or the Nasdaq National Market (or any similar system then in use) on which the
Shares are then listed for trading or on the OTC Bulletin Board, as the case may
be, or if the Shares are not listed for trading on any exchange or on the Nasdaq
National Market (or any similar system then in use) and are not quoted on the
OTC Bulletin Board, the mean between the closing high bid and low asked
quotations of one Share on the date in question as reported by Nasdaq or any
similar quotation system then in use, or, if no such quotations are available,
the fair market value on such date of one Share as the Committee shall
determine.
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<PAGE> 3
"Nonqualified Stock Option" means an Option to purchase Shares
which is not intended to qualify under Code Section 422.
"Option" means an Incentive Stock Option or a Nonqualified
Stock Option.
"Participant" means an individual selected by the Committee to
receive an Award.
"Performance Cycle" means the period of time, designated by
the Committee, over which Performance Shares may be earned.
"Performance Shares" means Shares awarded to a Participant
pursuant to Section 11 of the Plan.
"Plan" means the Tower Financial Corporation 1998 Stock Option
and Incentive Plan.
"Reorganization" means the liquidation or dissolution of the
Company or any merger, consolidation or combination of the Company (other than a
merger, consolidation or combination in which the Company is the continuing
entity and which does not result in the outstanding Shares being converted into
or exchanged for different securities, cash or other property or any combination
thereof).
"Retirement" means, with respect to an Employee, Termination
of Service with the Company or any Affiliate in accordance with the Company's
retirement policy as then in effect.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of common stock, without par value,
of the Company.
"Termination of Service" means, in the case of an Employee,
the termination of the employment relationship between the Employee and the
Company and all Affiliates; and in the case of an individual that is not an
Employee, the termination of the service relationship between the individual and
the Company and all Affiliates.
3. ADMINISTRATION. The Plan shall be administered by a
Committee, which shall consist of two or more members of the Board. The members
of the Committee shall be appointed by the Board. A majority of the Committee
shall constitute a quorum, and the acts of a majority of the members present at
any meeting at which a quorum is present, or acts approved in writing by all
members of the Committee without a meeting, shall be acts of the Committee.
Except as expressly limited by the Plan, the Committee shall
have all powers and discretion necessary or appropriate to administer the Plan
and control its operation, including, but not limited to, the power to (a)
select Participants, grant Awards and provide the terms and
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<PAGE> 4
conditions of all Awards (which need not be identical among Participants); (b)
interpret the Plan and Awards; and, (c) adopt rules and procedures for the
administration, interpretation and operation of the Plan. All determinations and
decisions made by the Committee pursuant to the provisions of the Plan shall be
final, conclusive, and binding on all persons, and shall be given the maximum
deference permitted by law.
4. PARTICIPANTS. The Committee, in its sole discretion, may
select from time to time Participants in the Plan from those Employees and
Directors who, in the opinion of the Committee, have the capacity for
contributing in a substantial measure to the successful performance of the
Company or its Affiliates; provided, however, Incentive Stock Options may be
granted only to Employees of the Company or its Affiliates.
5. SUBSTITUTE OPTIONS. In the event the Company or an
Affiliate consummates a transaction described in Code Section 424(a), persons
who become Employees or Directors on account of such transaction may be granted
Options in substitution for Options granted by the former employer. The
Committee, in its sole discretion and consistent with Code Section 424(a) shall
determine the Exercise Price of the substitute Options.
6. AWARD AGREEMENT. Each Award shall be evidenced by an Award
Agreement containing the terms and the conditions of the Award, as determined by
the Committee, in its sole discretion. With respect to Awards of Options, in
addition to any other terms and conditions the Committee establishes, the Award
Agreement shall specify the Exercise Price, the time or times at which an Option
will vest or become exercisable, the term of the Option, the number of Shares to
which the Option pertains, any conditions to exercise of the Option, and whether
the Option is intended to be an Incentive Stock Option or a Nonqualified Stock
Option.
7. SHARES SUBJECT TO PLAN, LIMITATIONS ON GRANTS AND EXERCISE
PRICE. Subject to adjustment by the operation of Section 12 of the Plan:
(a) The maximum number of Shares which may be issued under
Awards under the Plan shall not exceed 310,000 Shares. The Shares may
be either authorized and unissued Shares or Shares acquired by the
Company and held as treasury Shares. Shares that are withheld to
satisfy payment of the Exercise Price or any tax withholding obligation
and any Shares subject to an Award which expires, terminates or is
surrendered for cancellation may be subject to new Awards under the
Plan.
(b) The number of Shares which may be issued hereunder to any
Employee during any calendar year under all forms of Awards shall not
exceed 75,000 Shares.
(c) The Exercise Price for Shares awarded under Incentive
Stock Options may not be less than the Market Value of the Shares on
the Date of Grant; provided, however, the Exercise Price may not be
less than 110% of Market Value with respect
-4-
<PAGE> 5
to Incentive Stock Options granted to any Employee who, together with
persons whose stock ownership is attributed to the Employee pursuant to
Code Section 424(d), owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any of
its Affiliates. The Exercise Price for Shares awarded under
Nonqualified Stock Options may not be less than 85% of the Market Value
of the Shares on the Date of Grant.
8. TERMINATION OF OPTIONS. Unless otherwise provided in the
Award Agreement, Incentive Stock Options shall expire on, and may not be
exercised after, the earliest to occur of the following events:
(a) the tenth anniversary of the Date of Grant;
(b) three (3) months after a Participant's Termination of
Service by reason of Retirement;
(c) one (1) year after a Participant's Termination of
Service by reason of Disability or a Participant's death;
(d) three (3) months after Termination of Service for reasons
other than Cause; and
(e) close of business on the business day immediately
following the date of involuntary Termination of Service for Cause.
Unless otherwise provided in the Award Agreement, Nonqualified
Stock Options shall expire on, and may not be exercised after, the earliest to
occur of (a) the tenth anniversary of the Date of Grant and (b) close of
business on the business day immediately following the date of involuntary
Termination of Service for Cause.
9. METHOD OF EXERCISE OF OPTIONS. To exercise an Option under
the Plan, the Participant must give written notice to the Company (which shall
specify the number of Shares with respect to which the Participant elects to
exercise the Option) together with full payment of the Exercise Price. The date
of exercise shall be the date on which the notice and payment are received by
the Company. Payment of the Exercise Price shall be made in cash (including
check, bank draft or money order), except that the Committee, in its sole
discretion, may permit a Participant to pay the Exercise Price as follows:
(a) by delivering previously-owned Shares acceptable to the
Committee and having a Market Value on the date of exercise equal to
the Exercise Price;
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<PAGE> 6
(b) by requesting that the Company withhold Shares issuable
upon exercise of the Option having a Market Value equal to the Exercise
Price; or
(c) by any other means which the Committee, in its sole
discretion, determines to be consistent with the purposes of the Plan.
10. INCENTIVE STOCK OPTIONS - ADDITIONAL PROVISIONS. Any
provisions of the Plan to the contrary notwithstanding, Incentive Stock Options
shall be subject to the following:
(a) The aggregate Market Value (determined on the Date of
Grant) of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by any Employee during any calendar year
(under all plans of the Company and its Affiliates) shall not exceed
$100,000.
(b) No Incentive Stock Option may be exercised more than three
(3) months after the Participant's Termination of Service for any
reason other than Disability or death, unless (a) the Participant dies
during such three-month period, and (b) the Award Agreement or the
Committee permits later exercise.
(c) No Incentive Stock Option may be exercised after the
expiration of ten (10) years from the Date of Grant; provided, however,
that if the Option is granted to an Employee who, together with persons
whose stock ownership is attributed to the Employee pursuant to Code
Section 424(d), owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any of
its Affiliates, the Option may not be exercised after the expiration of
five (5) years from the Date of Grant.
Unless otherwise provided by the Committee in the Award Agreement, to the extent
that an Option does not qualify as an Incentive Stock Option, because of its
provisions, the time and manner of its exercise or otherwise, the Option or
portion thereof which does not so qualify, shall constitute a separate
Nonqualified Stock Option.
11. PERFORMANCE SHARES. The Committee, in its sole discretion,
may from time to time authorize the grant of Performance Shares upon the
achievement of performance goals (which may be cumulative and/or alternative) as
may be established, in writing, by the Committee based on any one or any
combination of the following business criteria: (a) earnings per Share; (b)
return on equity; (c) return on assets; (d) operating income; or (e) Market
Value per Share. At the time as it is certified, in writing, by the Committee
that the performance goals established by the Committee have been attained or
otherwise satisfied within the Performance Cycle, the Committee shall authorize
the payment of cash in lieu of Performance Shares or the issuance of Performance
Shares registered in the name of the Participant, or a combination of cash and
Shares. The grant of an Award of Performance Shares shall be evidenced by an
Award Agreement containing the terms
-6-
<PAGE> 7
and conditions of the Award as determined by the Committee. To the extent
required under Code Section 162(m), the business criteria under which
performance goals are determined by the Committee shall be resubmitted to
stockholders for reapproval no later than the first stockholder meeting that
occurs in the fifth year following the year in which stockholders previously
approved the Plan.
In the case of a Participant's Termination of Service before
the end of a Performance Cycle for any reason other than Retirement, Disability,
or death, the Participant shall forfeit all rights with respect to any
Performance Shares that were being earned during the Performance Cycle. The
Committee, in its sole discretion, may establish guidelines providing that if a
Participant incurs a Termination of Service before the end of a Performance
Cycle by reason of Retirement, Disability, or death, the Participant shall be
entitled to a prorated payment with respect to any Performance Shares that were
being earned during the Performance Cycle.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event
of any change in the outstanding Shares subsequent to the effective date of the
Plan by reason of any reorganization, recapitalization, stock split, stock
dividend, combination or exchange of shares, merger, consolidation or any change
in the corporate structure or Shares of the Company, the maximum aggregate
number and class of shares as to which Awards may be granted under the Plan and
the number and class of shares and Exercise Price of Options with respect to
Awards previously granted under the Plan may be adjusted by the Committee, in
its sole discretion, and the Committee's determination shall be conclusive.
13. EFFECT OF REORGANIZATION. Except as otherwise specifically
provided in the Award Agreement, Awards will be affected by a Reorganization as
follows:
(a) If the Reorganization is a dissolution or liquidation of
the Company, then each outstanding Option shall terminate, but each
Participant to whom the Option was granted shall have the right,
immediately prior to such dissolution or liquidation to exercise his
Option in full, notwithstanding the provisions of Section 10, and the
Company shall notify each Participant of the Participant's right within
a reasonable period of time prior to any dissolution or liquidation.
(b) If the Reorganization is a merger or consolidation, other
than a Change in Domicile or a Change in Control subject to Section 14
of this Plan, upon the effective date of the Reorganization, each
Optionee shall be entitled, upon exercise of his Option in accordance
with all of the terms and conditions of the Plan, to receive in lieu of
Shares, shares of stock or other securities or consideration as the
holders of Shares shall be entitled to receive pursuant to the terms of
the Reorganization.
-7-
<PAGE> 8
(c) If the Reorganization is a Change of Domicile, then this
Plan and each outstanding option shall be assumed by and become the
liabilities of the entity succeeding to the Company in such Change of
Domicile. Any stock split or recapitalization effected as part of or in
connection with such Change of Domicile shall be treated as a change in
capitalization of the Company under Section 12.
The adjustments contained in this Section and the manner of
application of its provisions shall be determined solely by the Committee.
14. EFFECT OF CHANGE OF CONTROL. If a Participant incurs an
involuntary Termination of Service for any reason other than Cause at any time
within twelve (12) months after a Change in Control, unless the Committee shall
have otherwise provided in the Award Agreement, the Participant shall be
entitled to receive a prorata payment with respect to Performance Shares to the
same extent as the Participant's Termination of Service for reason of Retirement
under Section 11 of the Plan. If a tender offer or exchange offer for Shares
(other than such an offer by the Company) is commenced, or if the event
specified in clause (c) of the definition of a Change in Control contained in
Section 2 shall occur, unless the Committee shall have otherwise provided in the
Award Agreement, all Options theretofore granted and not fully exercisable shall
become exercisable in full upon the happening of the event and shall remain
exercisable in accordance with their terms; provided, however, that no Option
which has previously been terminated shall become exercisable.
15. ASSIGNMENTS AND TRANSFERS. Except as expressly authorized
by the Committee in the Award Agreement, Awards may not be assigned, encumbered
or transferred otherwise than by will or the laws of descent and distribution,
and during the Participant's lifetime, may be exercisable only by the
Participant.
16. PARTICIPANT RIGHTS LIMITED. No Employee, Director or other
person shall have a right to be selected as a Participant nor, having been so
selected, to be selected again as a Participant, and no Employee, Director or
other person shall have any claim or right to be granted an Award under the Plan
or under any other incentive or similar plan of the Company or any Affiliate.
Neither the Plan nor any action taken pursuant to the Plan shall be construed as
giving any person any right to be retained in the employ or service of the
Company or any Affiliate.
17. STOCKHOLDER RIGHTS. No Participant or other person shall
have any of the rights or privileges of a stockholder of the Company with
respect to any Shares issuable pursuant to an Award unless and until
certificates representing the Shares shall have been issued, recorded on the
records of the Company or its transfer agents or registrars, and delivered to
the Participant or other person entitled to the Shares.
18. WITHHOLDING TAX. Prior to the delivery of any Shares or
cash pursuant to an Award, the Company shall have the right and power to deduct
or withhold, or require the Participant to remit to the Company, an amount
sufficient to satisfy all applicable tax withholding requirements.
-8-
<PAGE> 9
The Committee, in its sole discretion and pursuant to such procedures as it may
establish from time to time, may permit or require a Participant to satisfy all
or part of the tax withholding obligations in connection with an Award by (a)
having the Company withhold otherwise deliverable Shares or (b) delivering to
the Company Shares already owned having a Market Value equal to the amount
required to be withheld. The amount of the withholding requirement shall be
deemed to include any amount which the Committee determines, not to exceed the
amount determined by using the maximum federal, state or local marginal income
tax rates applicable to the Participant with respect to the Award on the date
that the amount of tax to be withheld is to be determined for these purposes.
For these purposes, the value of the Shares to be withheld or delivered shall be
equal to the Market Value as of the date that the taxes are required to be
withheld.
19. SETTLEMENT OF AWARDS. The Company's obligation to deliver
Shares with respect to an Award shall be subject to such conditions,
restrictions and contingencies as the Company may establish, including but not
limited to, the receipt of a representation as to the investment intention of
the person to whom Shares are to be delivered, in such form as the Company shall
determine to be necessary or advisable to comply with the provisions of the
Securities Act or any other applicable federal or state securities legislation.
It may be provided that any representation requirement shall become inoperative
upon a registration of the Shares or other action eliminating the necessity of a
representation under the Securities Act or other securities legislation. The
Company shall not be required to deliver any Shares under the Plan prior to (a)
the admission of the Shares to listing on any stock exchange or system on which
the Shares may then be listed and (b) the completion of any registration or
other qualification of the Shares under any state or federal law, rule or
regulation, as the Company shall determine to be necessary or advisable.
20. LOANS.
(a) The Company may make loans to a Participant in connection
with the exercise of Options subject to the following terms and
conditions and such other terms and conditions not inconsistent with
the Plan, including the rate of interest, if any, as the Company shall
impose from time to time.
(b) No loan made under the Plan shall exceed (i) with respect
to Options, the sum of (A) the aggregate Exercise Price payable upon
exercise of the Option in relation to which the loan is made, plus (B)
the amount of the reasonably estimated income taxes payable by the
Participant. In no event may any loan exceed the Market Value of the
related Shares at the time of the loan.
(c) No loan shall have an initial term exceeding three (3)
years; provided, that loans under the Plan shall be renewable at the
discretion of the Company; provided, further, that the indebtedness
under each loan shall become due and payable on a date no later than
(i) one year after a Participant's Termination of
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<PAGE> 10
Service by reason of death, Retirement or Disability or (ii) the day of
the Participant's Termination of Service for any reason other than
death, Retirement or Disability.
(d) Loans under the Plan may be satisfied by the Participant,
as determined by the Company, in cash or, with the consent of the
Company, in whole or in part in Shares at Market Value on the date of
such payment.
(e) When a loan shall have been made, Shares having an
aggregate Market Value equal to the amount of the loan may, in the
discretion of the Company, be required to be pledged by the Participant
to the Company as security for payment of the unpaid balance of the
loan. Portions of such Shares may, in the discretion of the Company, be
released from time to time as it deems not to be needed as security.
(f) Every loan shall meet all applicable laws, regulations and
rules of the Federal Reserve Board and any other governmental agency
having jurisdiction.
21. TERMINATION, AMENDMENT AND MODIFICATION OF PLAN. The Board
may at any time terminate, and may at any time and from time to time and in any
respect amend or modify, the Plan; provided however, that to the extent
necessary and desirable to comply with Rule 16b-3 under the Exchange Act or Code
Section 422 (or any other applicable law or regulation, including requirements
of any stock exchange or quotation system on which the Shares are listed or
quoted) shareholder approval of any Plan amendment shall be obtained in such a
manner and to such a degree as is required by the applicable law or regulation;
and provided further, that no termination, amendment or modification of the Plan
shall in any manner affect any Award theretofore granted pursuant to the Plan
without the consent of the Participant to whom the Award was granted or
transferee of the Award.
22. REQUIRED EXERCISE OR FORFEITURE. Notwithstanding anything
to the contrary in this Plan or any Award Agreement, the primary federal bank
regulator of the Company, or any Affiliate that is a depository institution,
shall have the right, in its discretion, to direct the Company to require
Participants to exercise or forfeit their Options if the capital of any
Affiliate that is a depository institution falls below the minimum capital
required by applicable laws, rules and regulations, as determined by the primary
federal bank regulator of the Company or such Affiliate. In such an event, each
Participant shall be entitled to written notice of such direction from the
Company and a period no less than 90 days from the receipt of such notice to
exercise their affected Options.
23. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become
effective upon its adoption by the Board, subject to approval and ratification
by the stockholders of the Company. After approval by the Company's
stockholders, the Plan shall continue in effect for a term of ten (10) years
from the date of adoption by the Board of Directors unless sooner terminated
pursuant to Section 21 of the Plan.
-10-
<PAGE> 11
24. GOVERNING LAW. The Plan and Award Agreements shall be
construed in accordance with and governed by the laws of the state of the
Company's organization.
ADOPTED BY THE BOARD OF DIRECTORS OF
TOWER FINANCIAL CORPORATION
AS OF DECEMBER 14, 1998
ADOPTED BY THE STOCKHOLDERS OF
TOWER FINANCIAL CORPORATION
AS OF DECEMBER 14, 1998
-11-
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 1st day of
December, 1998 (the "Effective Date"), by and between TOWER FINANCIAL
CORPORATION, an Indiana corporation (the "Company"), and DONALD F. SCHENKEL (the
"Executive").
RECITALS
1. The Company is engaged in the business of operating a bank holding
company.
2. The Executive is experienced in banking related matters and is
suitable to the Company's Board of Directors to serve as President and Chief
Executive Officer of the Company.
3. The parties desire to set forth in writing the terms and conditions
upon which the Executive's employment with the Company will continue.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions set forth herein, the Company and the Executive agree
as follows:
ARTICLE I
EMPLOYMENT TERM
The term of this Agreement (the "Employment Term") shall be from the
Effective Date through November 30, 2001; provided, however, that such term
automatically shall be extended for an additional year on December 1, 2001 and
on December 1 of each year thereafter unless either party hereto gives written
notice to the other party not to so extend prior to June 1 of the year for which
notice is given, in which case no further automatic extension shall occur and
the term of this Agreement shall end on November 30 one (1) year subsequent to
the date of the latest preceding automatic extension; provided further, however,
that the Employment Term is subject to termination prior to the expiration
thereof under the terms and conditions set forth in Article VIII.
ARTICLE II
EMPLOYMENT
During the Employment Term, the Executive shall be employed by the
Company as its President and Chief Executive Officer or in such other capacity
as shall be approved by the Board of Directors of the Company and by the
Executive. In such capacity, the Executive shall have the duties, authority and
powers granted to the Executive by the Company's Board of Directors from time to
time. Such duties shall include, without limitation, acting as President and
Chief Executive Officer of Tower Bank & Trust Company, a subsidiary of the
Company to be formed for the purpose of operating a bank in Fort Wayne, Indiana.
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ARTICLE III
DEVOTION TO DUTIES
During the Employment Term, the Executive shall devote his full time,
attention, skill and effort to the operations of the Company and shall not
engage in any other business activity requiring any substantial amount of his
time (whether or not such business activity is pursued for gain, profit or
pecuniary advantage). Notwithstanding the above, the Executive may engage in
other business interests or investments which do not materially prevent the
Executive from performing his contemplated services hereunder on behalf of
Company.
ARTICLE IV
REGULAR COMPENSATION
During the first year of the Employment Term, the Company shall pay to
the Executive as compensation for his services and for his covenants and other
obligations hereunder a salary (the "Salary") in the amount of One Hundred
Forty-Five Thousand Dollars ($145,000.00), payable in accordance with the
regular and customary payroll practices of the Company. The Salary may be
increased from time to time by action of the Board of Directors of the Company.
ARTICLE V
BONUS COMPENSATION
The Board of Directors of the Company may authorize the payment to the
Executive of additional compensation by way of salary, bonus or otherwise, as it
deems appropriate, during the term of this Agreement or any extension hereof.
All compensation shall be subject to customary withholding and other employment
taxes required with respect to compensation paid by a corporation to an
employee. Notwithstanding the foregoing, upon the establishment by the Company
of its anticipated management bonus program, the Executive shall, upon
compliance with goals set from time to time by the Board of Directors of the
Company in its sole discretion, be eligible to qualify for an annual performance
bonus equal to a minimum of thirty percent (30%) of the Executive's annual
Salary. Such annual performance bonus may be increased up to a maximum of one
hundred percent (100%) of the Executive's annual salary in the event of
extraordinary performance by the Executive in any year as determined by the
Board of Directors of the Company.
ARTICLE VI
STOCK OPTIONS
The Executive shall be eligible to participate in such stock option or
incentive plans as may be adopted by the Company from time to time.
Notwithstanding the foregoing, the Executive will receive options sufficient to
allow the Executive to purchase at the initial offering price a minimum of forty
thousand (40,000) shares of Company stock upon (i) the successful completion of
the Company's initial public offering and (ii) the obtaining of all necessary
federal and state approvals allowing the Company to establish and operate Tower
Bank & Trust Company, which options shall
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<PAGE> 3
be subject to the terms and conditions of the 1998 Stock Option and Incentive
Plan adopted by the Board of Directors of the Company and the vesting provisions
promulgated thereunder.
ARTICLE VII
EXPENSES AND FRINGE BENEFITS
Section 7.01. Fringe Benefits Generally. The Company shall reimburse
the Executive for all ordinary and necessary business expenses incurred by him
while carrying out his employment responsibilities under this Agreement. The
Executive shall be entitled to participate in such vacation policies; medical,
dental, life and disability insurance programs; 401(k), profit sharing and any
other retirement plans; and other fringe benefit plans or programs as the
Company from time to time shall establish for its senior management and/or other
full time employees, provided he is otherwise qualified to participate in such
plans or programs. The Company retains the right to establish limits on the
types or amounts of business expenses that the Executive may incur and to
abolish or alter the terms of any fringe benefit plan or program that it may
establish.
Section 7.02. Additional Fringe Benefits. In addition to the fringe
benefits set forth in Section 7.01, the Executive shall be entitled to the
following during the term hereof:
(a) Payment by the Company of COBRA/health insurance premiums payable
by the Executive from the Effective Date hereof until such time as the Company
has established a health insurance coverage program, provided that such payment
shall not include any amounts allocable to the Executive for "employee and
spouse contribution"; and
(b) Payment by the Company of the Executive's annual dues at the Fort
Wayne Country Club, and expenses related to the Executive's use of such Country
Club for matters related to the business of the Company.
ARTICLE VIII
TERMINATION
Section 8.01. Reasons for Termination. The Employment Term of the
Executive shall be terminated upon the occurrence of any of the following
events:
(a) Immediately upon the death of the Executive.
(b) At the Company's option, upon the Executive's repeated violation of
a material Company policy or repeated failure to perform any of his material
duties or obligations under this Agreement, or upon any dishonesty of any kind
or willful misconduct of the Executive, including, but not limited to, theft of
or other unauthorized personal use of Company funds. The Executive may be
terminated under this paragraph 8.01(b) only following 10 days' written notice
to the Executive of the reason for termination and an opportunity to dispute
such reason.
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<PAGE> 4
(c) At the Company's option, if the Executive shall suffer a permanent
disability. For purposes of this Agreement, "permanent disability" shall be
defined as the Executive's inability through physical or mental illness or other
cause to perform the essential functions of Executive's position, with or
without reasonable accommodation, in the opinion of the Company, any substantial
duties assigned to him hereunder for the continuous period of six months during
the term of this Agreement.
(d) At the Company's option, without cause, upon thirty (30) days'
prior written notice.
(e) At the Executive's option, without cause, at any time.
(f) At the Executive's option, upon the Company's breach of any of its
material obligations under this Agreement; provided that Executive has given the
Company at least ten days' prior written notice of the nature of such breach and
the Company has failed to cure such breach within such ten-day period.
Section 8.02. Compensation Upon Termination.
(a) Should the employment of the Executive be terminated under
subsection (a) or (c) of Section 8.01 of this Agreement, the Company shall pay
to the Executive (or his personal representative), within ten business days
after the date of termination, a sum equal to the aggregate amount of Salary
that was paid to the Executive under this Agreement for the one-month period
preceding such date of termination.
(b) Should the employment of the Executive be terminated under
subsection (b) or (e) of Section 8.01 of this Agreement, the Executive shall be
paid his Salary up to the date of termination and any bonus compensation accrued
but unpaid for any prior Employment Year.
(c) Should the employment of the Executive be terminated under
subsection (d) or (f) of Section 8.01 of this Agreement, the Company shall pay
to the Executive, within ten business days after the date of termination, a sum
equal to the aggregate amount of Salary that the Executive would be entitled to
receive under this Agreement for the balance of the Employment Term; provided,
however, that in no event shall such payment be in an amount less than one (1)
year's Salary at the then-effective rate paid to Executive.
(d) Should the employment of the Executive be terminated under
subsection (a), (c), (d) or (f) of Section 8.01 of this Agreement, the Company
shall pay to the Executive (or his personal representative), in addition to the
Salary specified in subsection (a) or (c), as applicable, of this Section 8.02,
any bonus compensation accrued but unpaid for any prior Employment Year, as well
as a pro-rated portion of any bonus compensation for the current Employment Year
based on the ratio of the number of days elapsed in the current Employment Year
as of the effective date of the termination to the total number of days in such
period. Bonus compensation for the current Employment Year shall be paid within
sixty (60) days after the end of such Employment Year.
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<PAGE> 5
(e) Payments to the Executive under this Section 8.02 shall be
considered severance pay in consideration of the Executive's past service and in
consideration of his continued service from the date hereof. The Company may, at
its discretion, withhold from such payments any federal, state, city, county or
other taxes. In the event of the termination of the employment of the Executive
for any reason described in Section 8.01 of this Agreement, the severance pay
provided for by this Section 8.02 shall constitute the entire obligation of the
Company to the Executive and full settlement of any claim under law or in equity
that the Executive might otherwise assert against the Company or any of its
employees, officers or directors on account of such termination, except for any
compensation or other payments to which the Executive may be entitled under any
termination benefits or similar agreement then in effect between the Company and
the Executive.
Section 8.03. Reimbursement for Certain Litigation Expenses. In the
event of litigation to determine whether the Executive's employment was properly
terminated under subsection (b) or (f) of Section 8.01, the prevailing party
shall be entitled to recover all reasonable costs and expenses, including
reasonable attorneys' fees, incurred in connection with such litigation.
ARTICLE IX
CONFIDENTIAL BUSINESS INFORMATION
The Executive agrees and covenants that all confidential information
regarding the practices and procedures of the Company and its affiliates, their
methods of marketing, know-how, trade information, trade secrets, customer or
client lists, licensing arrangements, accounts and requirements, and other
information regarding the affairs of the Company and its affiliates
(collectively, the "Confidential Business Information") shall be received and
held in the strictest confidence. The Executive agrees not to divulge any such
Confidential Business Information to any person or entity except as authorized
in the normal execution of assigned duties on behalf of the Company, without the
prior consent of the Company. The Executive further agrees to surrender to the
Company any and all documents and records in whatever form that may be in his
possession or control containing Confidential Business Information upon the
expiration or termination of the Employment Term. The provisions of this Article
IX shall survive any termination or expiration of this Agreement.
ARTICLE X
NON-COMPETITION
Section 10.01. Non-Competition. During the Employment Term and for a
period of two (2) years immediately following any termination of the Employment
Term pursuant to subsection (b) or (e) of Section 8.01 of this Agreement (or a
period of one (1) year immediately following any termination of the Employment
Term pursuant to subsection (d) of Section 8.01 of this Agreement), the
Executive shall not, directly or indirectly, anywhere within a one hundred-mile
radius around the City of Fort Wayne, Indiana, have any material (defined for
purposes of this Section to include any investment representing one percent (1%)
or more of the equity interest of any entity described in this Section)
investment in, or engage, directly or indirectly, whether as an individual or
sole proprietor or as owner, partner, principal, shareholder, officer, director,
manager, agent, consultant,
<PAGE> 6
formal or informal advisor, or by or through the lending of any form of
assistance, in any business offering products or services the same as or
competitive with the products or services that, during the Employment Term, are
(or are planned to be) offered or supplied by the Company or its subsidiaries.
Section 10.02. Non-Solicitation. During the Employment Term and for a
period of two (2) year immediately following any termination of the Employment
Term pursuant to subsection (b) or (e) of Section 8.01 of this Agreement (or a
period of one (1) year immediately following any termination of the Employment
Term pursuant to subsection (d) of Section 8.01 of this Agreement), the
Executive shall not, directly or indirectly, (i) solicit, take away, hire,
employ or endeavor to employ any person employed by the Company, or (ii)
solicit, take away or attempt to take away any of the existing or prospective
customers or clients, vendors or licensors of the Company or any of its
affiliates as of the date of termination for the purpose of conducting any
business which directly or indirectly provides financial services similar in
nature to the financial services provided by Tower Bank & Trust Company. As used
herein, the term "prospective customers or clients" shall mean individuals or
entities whom the Company or its affiliates have contacted within the twelve
(12) months immediately preceding the termination of the Employment Term for the
purpose of conducting business with the Company or such affiliate.
Section 10.03. Specific Enforcement. The Executive acknowledges that
any violation of any provision of this Article X by him will cause irreparable
damage to the Company, that such damage will be incapable of precise
measurement, and that, as a result, the Company will not have an adequate remedy
at law to redress the harm which such violation will cause. Therefore, in the
event of any violation of any provision of this Article by the Executive, he
agrees that, in addition to all other remedies that the Company may have at law
or in equity, the Company shall be entitled to injunctive relief, including,
without limitation, temporary restraining orders and temporary injunctions to
restrain any violation of this Article. If a court of competent jurisdiction
finds that the Executive has violated any of the restrictions set forth in this
Article, then the period of all restrictions set forth in this Article
automatically shall be extended by the number of days that the court determines
the Executive to have been in violation of such restriction. In addition to
other relief to which it shall be entitled, the Company shall be entitled to
recover from the Executive the reasonable costs and reasonable attorneys' fees
incurred by the Company in seeking enforcement of this Article.
ARTICLE XI
GENERAL
Section 11.01. Severability. Should any clause, portion or section of
this Agreement be unenforceable or invalid for any reason, such unenforceability
or invalidity shall not affect the enforceability of validity of the remainder
of this Agreement. Should any particular covenant in this Agreement be held
unreasonable or unenforceable for any reason, including, without limitation, the
time period, geographical area, and scope of activity covered by such covenant,
then such covenant shall be given effect and enforced to whatever extent would
be reasonable and enforceable.
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Section 11.02. Assignment; Successors in Interest. This Agreement,
being personal to the Executive, may not be assigned by him. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company, and the heirs, executors and personal
representatives of the Executive.
Section 11.03. Governing Law. This Agreement and the performance of the
parties under this Agreement shall be construed in accordance with the laws of
Indiana, and any action or proceeding that may be brought, arising out of, in
connection with, or by reason of this Agreement shall be governed by the laws of
Indiana, to the exclusion of the law of any other forum, and regardless of the
jurisdiction in which the action or proceeding may be instituted.
Section 11.04. Waiver. Failure to insist upon strict compliance with
any of the terms, covenants or conditions of this Agreement shall not be deemed
a waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
Section 11.05. Modification and Entire Agreement. No modification,
amendments, extension or alleged waiver of this Agreement or any provision
thereof will be binding upon the Executive or the Company unless in writing and
signed by the Executive and a duly authorized officer of the Company. From and
after the Effective Date, this Agreement and any termination benefits agreement
or similar agreement between the Company and the Executive shall constitute the
entire employment arrangement between the Executive and the Company and shall
supersede and replace any and all prior agreements and understandings, written
or oral, relative to such employment.
Section 11.06. Notices. All notices and other communications required
or permitted under this Agreement shall be in writing and shall be deemed to
have been properly given if delivered by hand, sent by telecopy, or mailed,
certified or registered mail with postage and fees prepaid:
If to the Company, to: TOWER FINANCIAL CORPORATION
116 East Berry Street, Suite 100
Fort Wayne, Indiana 46802
If to the Executive, to: DONALD F. SCHENKEL
10710 Country Wood Trail
Fort Wayne, Indiana 46845
or to such other person or address as the party to whom such notice or
communication is to be given shall have notified the other party in accordance
with this Section 11.06. Any mailed communication shall be deemed to have been
given on the third "business day" (such term excluding, for purposes of this
Agreement, Saturdays, Sundays, and legal holidays) after the day of mailing. Any
communication sent by telecopy shall be deemed to have been given on the date
receipt of the telecopy transmission is confirmed.
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REMAINDER OF PAGE DELIBERATELY LEFT BLANK
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
TOWER FINANCIAL CORPORATION
By: /s/ Kevin J. Himmelhaver
---------------------------------
Kevin J. Himmelhaver,
Chief Financial Officer
/s/ Donald F. Schenkel
------------------------------------
Donald F. Schenkel
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 1st day of
December, 1998 (the "Effective Date"), by and between TOWER FINANCIAL
CORPORATION, an Indiana corporation (the "Company"), and KEVIN J. HIMMELHAVER
(the "Executive").
RECITALS
1. The Company is engaged in the business of operating a bank holding
company.
2. The Executive is experienced in banking related matters and is
suitable to the Company's Board of Directors to serve as Chief Financial Officer
of the Company.
3. The parties desire to set forth in writing the terms and conditions
upon which the Executive's employment with the Company will continue.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions set forth herein, the Company and the Executive agree
as follows:
ARTICLE I
EMPLOYMENT TERM
The term of this Agreement (the "Employment Term") shall be from the
Effective Date through November 30, 2001; provided, however, that such term
automatically shall be extended for an additional year on December 1, 2001 and
on December 1 of each year thereafter unless either party hereto gives written
notice to the other party not to so extend prior to June 1 of the year for which
notice is given, in which case no further automatic extension shall occur and
the term of this Agreement shall end on November 30 one (1) year subsequent to
the date of the latest preceding automatic extension; provided further, however,
that the Employment Term is subject to termination prior to the expiration
thereof under the terms and conditions set forth in Article VIII.
ARTICLE II
EMPLOYMENT
During the Employment Term, the Executive shall be employed by the
Company as its Chief Financial Officer or in such other capacity as shall be
approved by the Board of Directors of the Company and by the Executive. In such
capacity, the Executive shall have the duties, authority and powers granted to
the Executive by the Company's Board of Directors or its President from time to
time. Such duties shall include, without limitation, acting as Chief Financial
Officer of Tower Bank & Trust Company, a subsidiary of the Company to be formed
for the purpose of operating a bank in Fort Wayne, Indiana.
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ARTICLE III
DEVOTION TO DUTIES
During the Employment Term, the Executive shall devote his full time,
attention, skill and effort to the operations of the Company and shall not
engage in any other business activity requiring any substantial amount of his
time (whether or not such business activity is pursued for gain, profit or
pecuniary advantage). Notwithstanding the above, the Executive may engage in
other business interests or investments which do not materially prevent the
Executive from performing his contemplated services hereunder on behalf of
Company.
ARTICLE IV
REGULAR COMPENSATION
During the first year of the Employment Term, the Company shall pay to
the Executive as compensation for his services and for his covenants and other
obligations hereunder a salary (the "Salary") in the amount of One Hundred Five
Thousand Dollars ($105,000.00), payable in accordance with the regular and
customary payroll practices of the Company. The Salary may be increased from
time to time by action of the Board of Directors of the Company.
ARTICLE V
BONUS COMPENSATION
The Board of Directors of Company may authorize the payment to the
Executive of additional compensation by way of salary, bonus or otherwise, as it
deems appropriate, during the term of this Agreement or any extension hereof.
All compensation shall be subject to customary withholding and other employment
taxes required with respect to compensation paid by a corporation to an
employee. In addition to, and not in limitation of, the foregoing, the Executive
shall be entitled (i) upon execution hereof, to a "signing bonus" equal to
$20,000, payable no later than January 31, 1999, and (ii) upon the commencement
of business of Tower Bank & Trust Company, to an incentive bonus payment of Ten
Thousand Dollars ($10,000.00), payable no later than thirty (30) days after the
date on which Tower Bank & Trust Company commences business.
ARTICLE VI
STOCK OPTIONS
The Executive shall be eligible to participate in such stock option or
incentive plans as may be adopted by the Company from time to time.
Notwithstanding the foregoing, the Executive will receive options sufficient to
allow the Executive to purchase at the initial offering price a minimum of
twenty thousand (20,000) shares of Company stock upon (i) the successful
completion of the Company's initial public offering and (ii) the obtaining of
all necessary federal and state approvals allowing the Company to establish and
operate Tower Bank & Trust Company, which options shall be subject to the terms
and conditions of the 1998 Stock Option and Incentive Plan adopted by the Board
of Directors of the Company and the vesting provisions promulgated thereunder.
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ARTICLE VII
EXPENSES AND FRINGE BENEFITS
Section 7.01. Fringe Benefits Generally. The Company shall reimburse
the Executive for all ordinary and necessary business expenses incurred by him
while carrying out his employment responsibilities under this Agreement. The
Executive shall be entitled to participate in such vacation policies; medical,
dental, life and disability insurance programs; 401(k), profit sharing and any
other retirement plans; and other fringe benefit plans or programs as the
Company from time to time shall establish for its senior management and/or other
full time employees, provided he is otherwise qualified to participate in such
plans or programs. The Company retains the right to establish limits on the
types or amounts of business expenses that the Executive may incur and to
abolish or alter the terms of any fringe benefit plan or program that it may
establish.
Section 7.02. Additional Fringe Benefits. In addition to the fringe
benefits set forth in Section 7.01, the Executive shall be entitled to the
following during the term hereof:
(a) Payment by the Company of COBRA/health insurance premiums payable
by the Executive from the Effective Date hereof until such time as the Company
has established a health insurance coverage program, provided that such payment
shall not include any amounts allocable to the Executive for "employee and
spouse contribution"; and
(b) Payment by the Company of the Executive's annual dues at (i) Cherry
Hill Golf Club and (ii) the Summit Club in Fort Wayne, Indiana (collectively,
the "Clubs"), together with expenses related to the Executive's use of the Clubs
for matters related to the business of the Company.
ARTICLE VIII
TERMINATION
Section 8.01. Reasons for Termination. The Employment Term of the
Executive shall be terminated upon the occurrence of any of the following
events:
(a) Immediately upon the death of the Executive.
(b) At the Company's option, upon the Executive's repeated violation of
a material Company policy or repeated failure to perform any of his material
duties or obligations under this Agreement, or upon any dishonesty of any kind
or willful misconduct of the Executive, including, but not limited to, theft of
or other unauthorized personal use of Company funds. The Executive may be
terminated under this paragraph 8.01(b) only following 10 days' written notice
to the Executive of the reason for termination and an opportunity to dispute
such reason.
(c) At the Company's option, if the Executive shall suffer a permanent
disability. For purposes of this Agreement, "permanent disability" shall be
defined as the Executive's inability through physical or mental illness or other
cause to perform the essential functions of Executive's position, with or
without reasonable accommodation, in the opinion of the Company, any substantial
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duties assigned to him hereunder for the continuous period of six months during
the term of this Agreement.
(d) At the Company's option, without cause, upon thirty (30) days'
prior written notice.
(e) At the Executive's option, without cause, at any time.
(f) At the Executive's option, upon the Company's breach of any of its
material obligations under this Agreement; provided that Executive has given the
Company at least ten days' prior written notice of the nature of such breach and
the Company has failed to cure such breach within such ten-day period.
Section 8.02. Compensation Upon Termination.
(a) Should the employment of the Executive be terminated under
subsection (a) or (c) of Section 8.01 of this Agreement, the Company shall pay
to the Executive (or his personal representative), within ten business days
after the date of termination, a sum equal to the aggregate amount of Salary
that was paid to the Executive under this Agreement for the one-month period
preceding such date of termination.
(b) Should the employment of the Executive be terminated under
subsection (b) or (e) of Section 8.01 of this Agreement, the Executive shall be
paid his Salary up to the date of termination and any bonus compensation accrued
but unpaid for any prior Employment Year.
(c) Should the employment of the Executive be terminated under
subsection (d) or (f) of Section 8.01 of this Agreement, the Company shall pay
to the Executive, within ten business days after the date of termination, a sum
equal to the aggregate amount of Salary that the Executive would be entitled to
receive under this Agreement for the balance of the Employment Term; provided,
however, that in no event shall such payment be in an amount less than one (1)
year's Salary at the then-effective rate paid to Executive.
(d) Should the employment of the Executive be terminated under
subsection (a), (c), (d) or (f) of Section 8.01 of this Agreement, the Company
shall pay to the Executive (or his personal representative), in addition to the
Salary specified in subsection (a) or (c), as applicable, of this Section 8.02,
any bonus compensation accrued but unpaid for any prior Employment Year, as well
as a pro-rated portion of any bonus compensation for the current Employment Year
based on the ratio of the number of days elapsed in the current Employment Year
as of the effective date of the termination to the total number of days in such
period. Bonus compensation for the current Employment Year shall be paid within
sixty (60) days after the end of such Employment Year.
(e) Payments to the Executive under this Section 8.02 shall be
considered severance pay in consideration of the Executive's past service and in
consideration of his continued service from the date hereof. The Company may, at
its discretion, withhold from such payments any federal, state, city, county or
other taxes. In the event of the termination of the employment of the Executive
4
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for any reason described in Section 8.01 of this Agreement, the severance pay
provided for by this Section 8.02 shall constitute the entire obligation of the
Company to the Executive and full settlement of any claim under law or in equity
that the Executive might otherwise assert against the Company or any of its
employees, officers or directors on account of such termination, except for any
compensation or other payments to which the Executive may be entitled under any
termination benefits or similar agreement then in effect between the Company and
the Executive.
Section 8.03. Reimbursement for Certain Litigation Expenses. In the
event of litigation to determine whether the Executive's employment was properly
terminated under subsection (b) or (f) of Section 8.01, the prevailing party
shall be entitled to recover all reasonable costs and expenses, including
reasonable attorneys' fees, incurred in connection with such litigation.
ARTICLE IX
CONFIDENTIAL BUSINESS INFORMATION
The Executive agrees and covenants that all confidential information
regarding the practices and procedures of the Company and its affiliates, their
methods of marketing, know-how, trade information, trade secrets, customer or
client lists, licensing arrangements, accounts and requirements, and other
information regarding the affairs of the Company and its affiliates
(collectively, the "Confidential Business Information") shall be received and
held in the strictest confidence. The Executive agrees not to divulge any such
Confidential Business Information to any person or entity except as authorized
in the normal execution of assigned duties on behalf of the Company, without the
prior consent of the Company. The Executive further agrees to surrender to the
Company any and all documents and records in whatever form that may be in his
possession or control containing Confidential Business Information upon the
expiration or termination of the Employment Term. The provisions of this Article
IX shall survive any termination or expiration of this Agreement.
ARTICLE X
NON-COMPETITION
Section 10.01. Non-Competition. During the Employment Term and for a
period of two (2) year immediately following any termination of the Employment
Term pursuant to subsection (b) or (e) of Section 8.01 of this Agreement (or a
period of one (1) year immediately following any termination of the Employment
Term pursuant to subsection (d) of Section 8.01 of this Agreement), the
Executive shall not, directly or indirectly, anywhere within a one hundred-mile
radius around the City of Fort Wayne, Indiana, have any material (defined for
purposes of this Section to include any investment representing one percent (1%)
or more of the equity interest of any entity described in this Section)
investment in, or engage, directly or indirectly, whether as an individual or
sole proprietor or as owner, partner, principal, shareholder, officer, director,
manager, agent, consultant, formal or informal advisor, or by or through the
lending of any form of assistance, in any business offering products or services
the same as or competitive with the products or services that, during the
Employment Term, are (or are planned to be) offered or supplied by the Company
or its subsidiaries.
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Section 10.02. Non-Solicitation. During the Employment Term and for a
period of two (2) year immediately following any termination of the Employment
Term pursuant to subsection (b) or (e) of Section 8.01 of this Agreement (or a
period of one (1) year immediately following any termination of the Employment
Term pursuant to subsection (d) of Section 8.01 of this Agreement), the
Executive shall not, directly or indirectly, (i) solicit, take away, hire,
employ or endeavor to employ any person employed by the Company, or (ii)
solicit, take away or attempt to take away any of the existing or prospective
customers or clients, vendors or licensors of the Company or any of its
affiliates as of the date of termination for the purpose of conducting any
business which directly or indirectly provides financial services similar in
nature to the financial services provided by Tower Bank & Trust Company. As used
herein, the term "prospective customers or clients" shall mean individuals or
entities whom the Company or its affiliates have contacted within the twelve
(12) months immediately preceding the termination of the Employment Term for the
purpose of conducting business with the Company or such affiliate.
Section 10.03. Specific Enforcement. The Executive acknowledges that
any violation of any provision of this Article X by him will cause irreparable
damage to the Company, that such damage will be incapable of precise
measurement, and that, as a result, the Company will not have an adequate remedy
at law to redress the harm which such violation will cause. Therefore, in the
event of any violation of any provision of this Article by the Executive, he
agrees that, in addition to all other remedies that the Company may have at law
or in equity, the Company shall be entitled to injunctive relief, including,
without limitation, temporary restraining orders and temporary injunctions to
restrain any violation of this Article. If a court of competent jurisdiction
finds that the Executive has violated any of the restrictions set forth in this
Article, then the period of all restrictions set forth in this Article
automatically shall be extended by the number of days that the court determines
the Executive to have been in violation of such restriction. In addition to
other relief to which it shall be entitled, the Company shall be entitled to
recover from the Executive the reasonable costs and reasonable attorneys' fees
incurred by the Company in seeking enforcement of this Article.
ARTICLE XI
GENERAL
Section 11.01. Severability. Should any clause, portion or section of
this Agreement be unenforceable or invalid for any reason, such unenforceability
or invalidity shall not affect the enforceability of validity of the remainder
of this Agreement. Should any particular covenant in this Agreement be held
unreasonable or unenforceable for any reason, including, without limitation, the
time period, geographical area, and scope of activity covered by such covenant,
then such covenant shall be given effect and enforced to whatever extent would
be reasonable and enforceable.
Section 11.02. Assignment; Successors in Interest. This Agreement,
being personal to the Executive, may not be assigned by him. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company, and the heirs, executors and personal
representatives of the Executive.
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Section 11.03. Governing Law. This Agreement and the performance of the
parties under this Agreement shall be construed in accordance with the laws of
Indiana, and any action or proceeding that may be brought, arising out of, in
connection with, or by reason of this Agreement shall be governed by the laws of
Indiana, to the exclusion of the law of any other forum, and regardless of the
jurisdiction in which the action or proceeding may be instituted.
Section 11.04. Waiver. Failure to insist upon strict compliance with
any of the terms, covenants or conditions of this Agreement shall not be deemed
a waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
Section 11.05. Modification and Entire Agreement. No modification,
amendments, extension or alleged waiver of this Agreement or any provision
thereof will be binding upon the Executive or the Company unless in writing and
signed by the Executive and a duly authorized officer of the Company. From and
after the Effective Date, this Agreement and any termination benefits agreement
or similar agreement between the Company and the Executive shall constitute the
entire employment arrangement between the Executive and the Company and shall
supersede and replace any and all prior agreements and understandings, written
or oral, relative to such employment.
Section 11.06. Notices. All notices and other communications required
or permitted under this Agreement shall be in writing and shall be deemed to
have been properly given if delivered by hand, sent by telecopy, or mailed,
certified or registered mail with postage and fees prepaid:
If to the Company, to: TOWER FINANCIAL CORPORATION
116 East Berry Street, Suite 100
Fort Wayne, Indiana 46802
If to the Executive, to: KEVIN J. HIMMELHAVER
9119 Bradenton Road
Fort Wayne, Indiana 46835
or to such other person or address as the party to whom such notice or
communication is to be given shall have notified the other party in accordance
with this Section 11.06. Any mailed communication shall be deemed to have been
given on the third "business day" (such term excluding, for purposes of this
Agreement, Saturdays, Sundays, and legal holidays) after the day of mailing. Any
communication sent by telecopy shall be deemed to have been given on the date
receipt of the telecopy transmission is confirmed.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
TOWER FINANCIAL CORPORATION
By: /s/ Donald F. Schenkel
----------------------------------
Donald F. Schenkel, President
/s/ Kevin J. Himmelhaver
------------------------------------
Kevin J. Himmelhaver
8
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 1st day of
December, 1998 (the "Effective Date"), by and between TOWER FINANCIAL
CORPORATION, an Indiana corporation (the "Company"), and CURTIS A. BROWN (the
"Executive").
RECITALS
1. The Company is engaged in the business of operating a bank holding
company.
2. The Executive is experienced in banking related matters and is
suitable to the Company's Board of Directors to serve as Chief Lending Officer
of the Company.
3. The parties desire to set forth in writing the terms and conditions
upon which the Executive's employment with the Company will continue.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions set forth herein, the Company and the Executive agree
as follows:
ARTICLE I
EMPLOYMENT TERM
The term of this Agreement (the "Employment Term") shall be from the
Effective Date through November 30, 2001; provided, however, that such term
automatically shall be extended for an additional year on December 1, 2001 and
on December 1 of each year thereafter unless either party hereto gives written
notice to the other party not to so extend prior to June 1 of the year for which
notice is given, in which case no further automatic extension shall occur and
the term of this Agreement shall end on November 30 one (1) year subsequent to
the date of the latest preceding automatic extension; provided further, however,
that the Employment Term is subject to termination prior to the expiration
thereof under the terms and conditions set forth in Article VIII.
ARTICLE II
EMPLOYMENT
During the Employment Term, the Executive shall be employed by the
Company as its Chief Lending Officer or in such other capacity as shall be
approved by the Board of Directors of the Company and by the Executive. In such
capacity, the Executive shall have the duties, authority and powers granted to
the Executive by the Company's Board of Directors or its President from time to
time. Such duties shall include, without limitation, acting as Chief Operating
Officer and Chief Lending Officer of Tower Bank & Trust Company, a subsidiary of
the Company to be formed for the purpose of operating a bank in Fort Wayne,
Indiana.
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ARTICLE III
DEVOTION TO DUTIES
During the Employment Term, the Executive shall devote his full time,
attention, skill and effort to the operations of the Company and shall not
engage in any other business activity requiring any substantial amount of his
time (whether or not such business activity is pursued for gain, profit or
pecuniary advantage). Notwithstanding the above, the Executive may engage in
other business interests or investments which do not materially prevent the
Executive from performing his contemplated services hereunder on behalf of
Company.
ARTICLE IV
REGULAR COMPENSATION
During the first year of the Employment Term, the Company shall pay to
the Executive as compensation for his services and for his covenants and other
obligations hereunder a salary (the "Salary") in the amount of One Hundred
Fifteen Thousand Dollars ($115,000.00), payable in accordance with the regular
and customary payroll practices of the Company. The Salary may be increased from
time to time by action of the Board of Directors of the Company.
ARTICLE V
BONUS COMPENSATION
The Board of Directors of Company may authorize the payment to the
Executive of additional compensation by way of salary, bonus or otherwise, as it
deems appropriate, during the term of this Agreement or any extension hereof.
All compensation shall be subject to customary withholding and other employment
taxes required with respect to compensation paid by a corporation to an
employee. In addition to, and not in limitation of, the foregoing, the Executive
shall be entitled, upon the commencement of business of Tower Bank & Trust
Company, to an incentive bonus payment of Twenty-five Thousand Dollars
($25,000.00), payable no later than thirty (30) days after the date on which
Tower Bank & Trust Company commences business.
ARTICLE VI
STOCK OPTIONS
The Executive shall be eligible to participate in such stock option or
incentive plans as may be adopted by the Company from time to time.
Notwithstanding the foregoing, the Executive will receive options sufficient to
allow the Executive to purchase at the initial offering price a minimum of
twenty thousand (20,000) shares of Company stock upon (i) the successful
completion of the Company's initial public offering and (ii) the obtaining of
all necessary federal and state approvals allowing the Company to establish and
operate Tower Bank & Trust Company, which options shall be subject to the terms
and conditions of the 1998 Stock Option and Incentive Plan adopted by the Board
of Directors of the Company and the vesting provisions promulgated thereunder.
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ARTICLE VII
EXPENSES AND FRINGE BENEFITS
Section 7.01. Fringe Benefits Generally. The Company shall reimburse
the Executive for all ordinary and necessary business expenses incurred by him
while carrying out his employment responsibilities under this Agreement. The
Executive shall be entitled to participate in such vacation policies; medical,
dental, life and disability insurance programs; 401(k), profit sharing and any
other retirement plans; and other fringe benefit plans or programs as the
Company from time to time shall establish for its senior management and/or other
full time employees, provided he is otherwise qualified to participate in such
plans or programs. The Company retains the right to establish limits on the
types or amounts of business expenses that the Executive may incur and to
abolish or alter the terms of any fringe benefit plan or program that it may
establish.
Section 7.02. Additional Fringe Benefits. In addition to the fringe
benefits set forth in Section 7.01, the Executive shall be entitled to the
following during the term hereof:
(a) Payment by the Company of COBRA/health insurance premiums payable
by the Executive from the Effective Date hereof until such time as the Company
has established a health insurance coverage program, provided that such payment
shall not include any amounts allocable to the Executive for "employee and
spouse contribution";
(b) Payment by the Company of the Executive's annual dues at Orchard
Ridge Country Club, together with expenses related to the Executive's use of
such Country Club for matters related to the business of the Company; and
(c) After the commencement of operations of Tower Bank & Trust Company,
payment by the Company of up to Four Hundred Fifty Dollars ($450.00) per month
for the purpose of providing the Executive an automobile
ARTICLE VIII
TERMINATION
Section 8.01. Reasons for Termination. The Employment Term of the
Executive shall be terminated upon the occurrence of any of the following
events:
(a) Immediately upon the death of the Executive.
(b) At the Company's option, upon the Executive's repeated violation of
a material Company policy or repeated failure to perform any of his material
duties or obligations under this Agreement, or upon any dishonesty of any kind
or willful misconduct of the Executive, including, but not limited to, theft of
or other unauthorized personal use of Company funds. The Executive may be
terminated under this paragraph 8.01(b) only following 10 days' written notice
to the Executive of the reason for termination and an opportunity to dispute
such reason.
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(c) At the Company's option, if the Executive shall suffer a permanent
disability. For purposes of this Agreement, "permanent disability" shall be
defined as the Executive's inability through physical or mental illness or other
cause to perform the essential functions of Executive's position, with or
without reasonable accommodation, in the opinion of the Company, any substantial
duties assigned to him hereunder for the continuous period of six months during
the term of this Agreement.
(d) At the Company's option, without cause, upon thirty (30) days'
prior written notice.
(e) At the Executive's option, without cause, at any time.
(f) At the Executive's option, upon the Company's breach of any of its
material obligations under this Agreement; provided that Executive has given the
Company at least ten days' prior written notice of the nature of such breach and
the Company has failed to cure such breach within such ten-day period.
Section 8.02. Compensation Upon Termination.
(a) Should the employment of the Executive be terminated under
subsection (a) or (c) of Section 8.01 of this Agreement, the Company shall pay
to the Executive (or his personal representative), within ten business days
after the date of termination, a sum equal to the aggregate amount of Salary
that was paid to the Executive under this Agreement for the one-month period
preceding such date of termination.
(b) Should the employment of the Executive be terminated under
subsection (b) or (e) of Section 8.01 of this Agreement, the Executive shall be
paid his Salary up to the date of termination and any bonus compensation accrued
but unpaid for any prior Employment Year.
(c) Should the employment of the Executive be terminated under
subsection (d) or (f) of Section 8.01 of this Agreement, the Company shall pay
to the Executive, within ten business days after the date of termination, a sum
equal to the aggregate amount of Salary that the Executive would be entitled to
receive under this Agreement for the balance of the Employment Term; provided,
however, that in no event shall such payment be in an amount less than one (1)
year's Salary at the then-effective rate paid to Executive.
(d) Should the employment of the Executive be terminated under
subsection (a), (c), (d) or (f) of Section 8.01 of this Agreement, the Company
shall pay to the Executive (or his personal representative), in addition to the
Salary specified in subsection (a) or (c), as applicable, of this Section 8.02,
any bonus compensation accrued but unpaid for any prior Employment Year, as well
as a pro-rated portion of any bonus compensation for the current Employment Year
based on the ratio of the number of days elapsed in the current Employment Year
as of the effective date of the termination to the total number of days in such
period. Bonus compensation for the current Employment Year shall be paid within
sixty (60) days after the end of such Employment Year.
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(e) Payments to the Executive under this Section 8.02 shall be
considered severance pay in consideration of the Executive's past service and in
consideration of his continued service from the date hereof. The Company may, at
its discretion, withhold from such payments any federal, state, city, county or
other taxes. In the event of the termination of the employment of the Executive
for any reason described in Section 8.01 of this Agreement, the severance pay
provided for by this Section 8.02 shall constitute the entire obligation of the
Company to the Executive and full settlement of any claim under law or in equity
that the Executive might otherwise assert against the Company or any of its
employees, officers or directors on account of such termination, except for any
compensation or other payments to which the Executive may be entitled under any
termination benefits or similar agreement then in effect between the Company and
the Executive.
Section 8.03. Reimbursement for Certain Litigation Expenses. In the
event of litigation to determine whether the Executive's employment was properly
terminated under subsection (b) or (f) of Section 8.01, the prevailing party
shall be entitled to recover all reasonable costs and expenses, including
reasonable attorneys' fees, incurred in connection with such litigation.
ARTICLE IX
CONFIDENTIAL BUSINESS INFORMATION
The Executive agrees and covenants that all confidential information
regarding the practices and procedures of the Company and its affiliates, their
methods of marketing, know-how, trade information, trade secrets, customer or
client lists, licensing arrangements, accounts and requirements, and other
information regarding the affairs of the Company and its affiliates
(collectively, the "Confidential Business Information") shall be received and
held in the strictest confidence. The Executive agrees not to divulge any such
Confidential Business Information to any person or entity except as authorized
in the normal execution of assigned duties on behalf of the Company, without the
prior consent of the Company. The Executive further agrees to surrender to the
Company any and all documents and records in whatever form that may be in his
possession or control containing Confidential Business Information upon the
expiration or termination of the Employment Term. The provisions of this Article
IX shall survive any termination or expiration of this Agreement.
ARTICLE X
NON-COMPETITION
Section 10.01. Non-Competition. During the Employment Term and for a
period of two (2) year immediately following any termination of the Employment
Term pursuant to subsection (b) or (e) of Section 8.01 of this Agreement (or a
period of one (1) year immediately following any termination of the Employment
Term pursuant to subsection (d) of Section 8.01 of this Agreement), the
Executive shall not, directly or indirectly, anywhere within a one hundred-mile
radius around the City of Fort Wayne, Indiana, have any material (defined for
purposes of this Section to include any investment representing one percent (1%)
or more of the equity interest of any entity described in this Section)
investment in, or engage, directly or indirectly, whether as an individual or
sole proprietor or as owner, partner, principal, shareholder, officer, director,
manager, agent, consultant,
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formal or informal advisor, or by or through the lending of any form of
assistance, in any business offering products or services the same as or
competitive with the products or services that, during the Employment Term, are
(or are planned to be) offered or supplied by the Company or its subsidiaries.
Section 10.02. Non-Solicitation. During the Employment Term and for a
period of two (2) year immediately following any termination of the Employment
Term pursuant to subsection (b) or (e) of Section 8.01 of this Agreement (or a
period of one (1) year immediately following any termination of the Employment
Term pursuant to subsection (d) of Section 8.01 of this Agreement), the
Executive shall not, directly or indirectly, (i) solicit, take away, hire,
employ or endeavor to employ any person employed by the Company, or (ii)
solicit, take away or attempt to take away any of the existing or prospective
customers or clients, vendors or licensors of the Company or any of its
affiliates as of the date of termination for the purpose of conducting any
business which directly or indirectly provides financial services similar in
nature to the financial services provided by Tower Bank & Trust Company. As used
herein, the term "prospective customers or clients" shall mean individuals or
entities whom the Company or its affiliates have contacted within the twelve
(12) months immediately preceding the termination of the Employment Term for the
purpose of conducting business with the Company or such affiliate.
Section 10.03. Specific Enforcement. The Executive acknowledges that
any violation of any provision of this Article X by him will cause irreparable
damage to the Company, that such damage will be incapable of precise
measurement, and that, as a result, the Company will not have an adequate remedy
at law to redress the harm which such violation will cause. Therefore, in the
event of any violation of any provision of this Article by the Executive, he
agrees that, in addition to all other remedies that the Company may have at law
or in equity, the Company shall be entitled to injunctive relief, including,
without limitation, temporary restraining orders and temporary injunctions to
restrain any violation of this Article. If a court of competent jurisdiction
finds that the Executive has violated any of the restrictions set forth in this
Article, then the period of all restrictions set forth in this Article
automatically shall be extended by the number of days that the court determines
the Executive to have been in violation of such restriction. In addition to
other relief to which it shall be entitled, the Company shall be entitled to
recover from the Executive the reasonable costs and reasonable attorneys' fees
incurred by the Company in seeking enforcement of this Article.
ARTICLE XI
GENERAL
Section 11.01. Severability. Should any clause, portion or section of
this Agreement be unenforceable or invalid for any reason, such unenforceability
or invalidity shall not affect the enforceability of validity of the remainder
of this Agreement. Should any particular covenant in this Agreement be held
unreasonable or unenforceable for any reason, including, without limitation, the
time period, geographical area, and scope of activity covered by such covenant,
then such covenant shall be given effect and enforced to whatever extent would
be reasonable and enforceable.
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Section 11.02. Assignment; Successors in Interest. This Agreement,
being personal to the Executive, may not be assigned by him. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company, and the heirs, executors and personal
representatives of the Executive.
Section 11.03. Governing Law. This Agreement and the performance of the
parties under this Agreement shall be construed in accordance with the laws of
Indiana, and any action or proceeding that may be brought, arising out of, in
connection with, or by reason of this Agreement shall be governed by the laws of
Indiana, to the exclusion of the law of any other forum, and regardless of the
jurisdiction in which the action or proceeding may be instituted.
Section 11.04. Waiver. Failure to insist upon strict compliance with
any of the terms, covenants or conditions of this Agreement shall not be deemed
a waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
Section 11.05. Modification and Entire Agreement. No modification,
amendments, extension or alleged waiver of this Agreement or any provision
thereof will be binding upon the Executive or the Company unless in writing and
signed by the Executive and a duly authorized officer of the Company. From and
after the Effective Date, this Agreement and any termination benefits agreement
or similar agreement between the Company and the Executive shall constitute the
entire employment arrangement between the Executive and the Company and shall
supersede and replace any and all prior agreements and understandings, written
or oral, relative to such employment.
Section 11.06. Notices. All notices and other communications required
or permitted under this Agreement shall be in writing and shall be deemed to
have been properly given if delivered by hand, sent by telecopy, or mailed,
certified or registered mail with postage and fees prepaid:
If to the Company, to: TOWER FINANCIAL CORPORATION
116 East Berry Street, Suite 100
Fort Wayne, Indiana 46802
If to the Executive, to: CURTIS A. BROWN
7626 Lissa Court
Fort Wayne, Indiana 46804
or to such other person or address as the party to whom such notice or
communication is to be given shall have notified the other party in accordance
with this Section 11.06. Any mailed communication shall be deemed to have been
given on the third "business day" (such term excluding, for purposes of this
Agreement, Saturdays, Sundays, and legal holidays) after the day of mailing. Any
communication sent by telecopy shall be deemed to have been given on the date
receipt of the telecopy transmission is confirmed.
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REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
TOWER FINANCIAL CORPORATION
By: /s/ Donald F. Schenkel
----------------------------------
Donald F. Schenkel, President
/s/ Curtis A. Brown
------------------------------------
Curtis A. Brown
8
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 (File
No. 333-67235) of our report dated November 11, 1998, except for Note 6, for
which the date is December 14, 1998, on our audit of the financial statements
of Tower Financial Corporation. We also consent to the reference to our firm
under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
Fort Wayne, Indiana
December 30, 1998
