<PAGE>
As filed with the Securities and Exchange Commission on December 11, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FIRST BANCORP OF INDIANA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS ARTICLES OF INCORPORATION)
<TABLE>
<S> <C> <C>
INDIANA 6035 35-2061832
(state or other jurisdiction (Primary Standard (IRS Employer Identification No.)
of incorporation or organization) Classification Code Number)
</TABLE>
2200 WEST FRANKLIN STREET
EVANSVILLE, INDIANA 47712
(812) 423-3196
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
HAROLD DUNCAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FIRST FEDERAL SAVINGS BANK
2200 WEST FRANKLIN STREET
EVANSVILLE, INDIANA 47712
(812) 423-3196
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
PAUL M. AGUGGIA, ESQUIRE
AARON M. KASLOW, ESQUIRE
BRIAN K. LEE, ESQUIRE
MULDOON, MURPHY & FAUCETTE
5101 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 362-0840
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / X /
----
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<CAPTION>
=======================================================================================================
Title of each Class of Amount to Purchase Price Aggregate Offering Registration
Securities to be Registered be Registered Per Share Price (1) Fee
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<S> <C> <C> <C> <C>
Common Stock 2,512,750 $10.00 $25,127,500 $6,986
$.01 par Value Shares
=======================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
===============================================================================
<PAGE>
[TO BE USED IN CONNECTION WITH SYNDICATED COMMUNITY OFFERING ONLY]
PROSPECTUS SUPPLEMENT FOR SYNDICATED COMMUNITY OFFERING
[LOGO] FIRST BANCORP OF INDIANA, INC.
(Proposed Holding Company for First Federal Savings Bank)
2200 W. FRANKLIN STREET
EVANSVILLE, INDIANA 47712
(812) 423-3196
================================================================================
_____________ shares of common stock are offered for sale in this Syndicated
Community Offering, in connection with First Federal Savings Bank's conversion
from the mutual to stock form of organization. As part of such conversion,
First Federal Savings Bank will become a wholly owned subsidiary of First
Bancorp of Indiana, Inc. The remaining _________ shares to be sold in the
conversion have been subscribed for in Subscription and Community Offerings. No
common stock will be sold if subscriptions are not received for at least the
minimum number of shares.
There is currently no public market for the common stock. The common stock is
expected to be quoted on the Nasdaq National Market, under the symbol "FBEI",
upon completion of the conversion.
================================================================================
TERMS OF THE OFFERING
THIS SYNDICATED COMMUNITY OFFERING WILL EXPIRE NO LATER THAN 12:00 NOON,
EASTERN TIME, ON ____________, 1999, UNLESS EXTENDED.
. Price Per Share $10.00
. Number of Shares
Minimum/Maximum
. Underwriting Commissions and Other Expenses
Minimum/Maximum
. Net Proceeds to First Bancorp of Indiana, Inc.
in Syndicated Community Offering
Minimum/Maximum
. Net Proceeds per Share to First Bancorp of
Indiana, Inc. in Subscription, Community
and Syndicated Community Offerings
Minimum/Maximum
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE __ OF THIS DOCUMENT.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any other state securities regulator has approved or
disapproved these securities or determined if this prospectus is accurate or
complete. Any representations to the contrary is a criminal offense.
CAPITAL RESOURCES, INC.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS _______________, 1999
<PAGE>
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THE SYNDICATED COMMUNITY OFFERING
First Bancorp of Indiana, Inc. is offering for sale in a Syndicated
Community Offering a minimum of ___________ shares and up to __________ shares
of common stock, at a per share price of $10.00. These share are to be sold upon
the conversion of First Federal Savings Bank, Evansville, Indiana from a mutual
to a stock association and the issuance of the Bank's outstanding capital stock
to the Company. The remaining __________ shares of common stock to be sold in
connection with such conversion have been subscribed for in Subscription and
Direct Community Offerings by holders of deposit accounts with the Bank with a
balance of $50 or more as of June 30, 1997, by the First Federal Savings Bank
Employee Stock Ownership Plan, a tax-qualified employee benefit plan, and
related trust, by holders of deposit accounts with the Bank with a balance of
$50 or more as of December 31, 1998, by certain other account holders and
borrowers of the Bank and, by members of the general public. Following this
Prospectus Supplement is the Prospectus in the form used in the Subscription and
Direct Community Offerings. The purchase price for all shares sold in the
Syndicated Community Offering will be the same as the price paid by subscribers
in the Subscription and Direct Community Offerings.
Funds submitted to the Bank with purchase orders will earn interest at the
Bank's passbook rate of interest from the date of receipt until completion or
termination of the conversion. THIS SYNDICATED COMMUNITY OFFERING WILL EXPIRE
NO LATER THAN _______________, 1999, UNLESS EXTENDED BY THE BANK AND THE COMPANY
WITH THE APPROVAL OF THE OFFICE OF THRIFT SUPERVISION. Such extensions may not
go beyond _______________, 2001. If the Syndicated Community Offering is
extended, all subscribers will be notified of such extension, and of their
rights to confirm their subscriptions, or to modify or rescind their
subscriptions and have their funds returned promptly with interest, and of the
time period within which the subscriber must notify the Bank of his intention to
confirm, modify or rescind his subscription. If an affirmative response to any
resolicitation is not received by the Bank and the Company from subscribers,
such orders will be rescinded and all funds will be returned promptly with
interest. The minimum number of shares which may be purchased is 25 shares.
Except for the ESOP, which may purchase up to 10% of the total number of shares
of Common Stock issued in the conversion, no person, together with associates of
and persons acting in concert with such person, may purchase in the Direct
Community Offering or Syndicated Community Offering more than the total number
of shares offered that could be purchased for $150,000 at the Purchase Price;
provided however, that shares of common stock purchased in the Direct Community
Offering by any persons, together with associates of and persons acting in
concert with such persons, will be aggregated with purchases in the Syndicated
Community Offering and be subject to an overall maximum purchase limitation of
1.0% of the shares offered. The Company reserves the right, in its absolute
discretion, to accept or reject, in whole or in part, any or all subscriptions
in the Syndicated Community Offering.
The Company and the Bank have engaged Capital Resources, Inc. as financial
advisors to assist them in the sale of the common stock in the Syndicated
Community Offering. It is anticipated that Capital Resources, Inc. will use the
services of other registered broker-dealers and that fees to Capital Resources,
Inc. and such selected dealers will not exceed ___% of the aggregate purchase
price of the shares sold in the Syndicated Community Offering. Neither Capital
Resources, Inc. nor any selected dealer shall have any obligation to take or
purchase any shares of common stock in the Syndicated Community Offering.
The Company has received conditional approval to have its common stock
quoted on the Nasdaq National Market under the symbol "FBEI." Prior to this
offering, there has not been a public market for the common stock, and there can
be no assurance that an active and liquid trading market for the common stock
will develop. The absence or discontinuance of a market may have an adverse
impact on both the price and liquidity of the stock.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS" ON PAGES __ TO __ OF THE PROSPECTUS.
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<PAGE>
PROSPECTUS
FIRST BANCORP OF INDIANA, INC.
(HOLDING COMPANY FOR FIRST FEDERAL SAVINGS BANK)
BETWEEN 1,615,000 AND 2,512,750 SHARES OF COMMON STOCK
First Federal Savings Bank of Evansville, Indiana is converting from the mutual
form to the stock form of organization. As part of the conversion, First Federal
Savings Bank will become a wholly-owned subsidiary of First Bancorp of Indiana,
Inc., which was formed in November 1998. First Bancorp is offering its common
stock to the public under the terms of a Plan of Conversion which must be
approved by a majority of the votes eligible to be cast by the members of First
Federal. The conversion will not go forward if First Federal does not receive
this approval or First Bancorp does not sell at least the minimum number of
shares.
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OFFERING SUMMARY
Price Per Share: $10.00
Proposed trading symbol: Nasdaq - FBEI
<TABLE>
<CAPTION>
Minimum Midpoint Maximum Maximum, as adjusted
----------- ----------- ----------- --------------------
<S> <C> <C> <C> <C>
Number of shares: 1,615,000 1,900,000 2,185,000 2,512,750
Gross offering proceeds: $16,150,000 $19,000,000 $21,850,000 $25,127,500
Estimated offering expenses: $ 671,000 $ 703,000 $ 736,000 $ 774,000
Estimated net proceeds: $15,479,000 $18,297,000 $21,114,000 $24,353,500
Estimated net proceeds per share: $ 9.58 $ 9.63 $ 9.66 $ 9.69
</TABLE>
The amount of common stock being offered in the conversion is based on an
independent appraisal of the market value of First Federal Savings Bank, after
giving effect to the conversion and the formation of First Bancorp of Indiana,
Inc. The independent appraiser, Capital Resources Group, Inc., has stated that
as of December 4, 1998, the market value of First Bancorp and the converted
First Federal Savings Bank ranged from $16,150,000 to $21,850,000. Subject to
approval of the Office of Thrift Supervision, an additional 15% above the
maximum number of shares may be sold.
Capital Resources, Inc., a subsidiary of Capital Resources Group, Inc., will use
its best efforts to assist First Bancorp in selling at least the minimum number
of shares but does not guarantee that this number will be sold. All funds
received from subscribers will be held in an interest-bearing savings account at
First Federal Savings Bank until the completion or termination of the
conversion.
The subscription offering will terminate at 12:00 Noon, local time, on
______________, 1999. Funds will be returned promptly if the conversion is
terminated. If the conversion is not completed by ___________, 1999 and the
Office of Thrift Supervision consents to an extension of time to complete the
conversion, subscribers will be given the right to increase, decrease or rescind
their orders. No single extension may exceed 90 days and such extensions may
not go beyond ____________, 2001.
- --------------------------------------------------------------------------------
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
FOR A DISCUSSION OF CERTAIN RISKS THAT YOU SHOULD CONSIDER, SEE "RISK FACTORS"
BEGINNING ON PAGE __.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
For additional information about the conversion and the stock offering, please
refer to the more detailed information in this prospectus. For assistance,
please contact First Federal's stock information center at (___)___________.
CAPITAL RESOURCES, INC.
The date of this prospectus is ___________, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page Page
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<S> <C> <C> <C>
Summary................................... Business of the Holding Company....................
Risk Factors.............................. Business of the Bank...............................
Selected Financial Information........... Management of the Holding Company..................
Recent Developments....................... Management of the Bank.............................
Use of Proceeds........................... Regulation.........................................
Dividend Policy........................... Taxation...........................................
Market for Common Stock................... The Conversion.....................................
Capitalization............................ Restrictions on Acquisition
Historical and Pro Forma of the Holding Company............................
Regulatory Capital Compliance............ Description of Capital Stock
Pro Forma Data............................ of the Holding Company............................
Subscriptions by Executive Officers and Registration Requirements..........................
Directors................................ Legal and Tax Opinions.............................
First Federal Savings Bank and Experts............................................
Subsidiary Consolidated Statements Where You Can Find More Information................
of Income................................ Index to Consolidated
Management's Discussion and Financial Statements..............................
Analysis of Financial Condition
and Results of Operations................
</TABLE>
<PAGE>
SUMMARY
The following summary explains the significant aspects of the conversion.
Because this is a summary, it does not contain all the information that may be
important to you. You should read the entire prospectus carefully before you
decide to invest. For assistance, please contact the stock information center
at (812) ____________. Throughout this prospectus, First Federal Savings Bank
in its current and converted form is referred to as the "Bank" and First Bancorp
of Indiana, Inc. is referred to as the "Holding Company."
FIRST BANCORP OF INDIANA, INC.
2200 West Franklin Street
Evansville, Indiana 47712
(812) 423-3196
The Bank formed the Holding Company under Indiana law in November 1998 for the
purpose of owning all of the Bank's capital stock following completion of the
conversion. Before the completion of the conversion, the Holding Company will
not have any material assets or liabilities and it will not conduct any business
other than business related to the conversion. Initially after the conversion,
the primary activity of the Holding Company will be to direct, plan and
coordinate the Bank's business activities. In the future, the Holding Company
might become an operating company or acquire or organize other operating
subsidiaries, including other financial institutions, although it currently has
no specific plans or agreements to do so.
FIRST FEDERAL SAVINGS BANK
2200 West Franklin Street
Evansville, Indiana 47712
(812) 423-3196
The Bank is a community oriented financial institution that operates out of four
offices in Evansville, Indiana. The Bank's principal business is attracting
deposits from the general public and using those funds to originate residential
mortgage loans. The Bank also maintains a significant portfolio of investment
and mortgage-backed securities. At September 30, 1998, the Bank had total
assets of $111.6 million, deposits of $91.0 million and equity capital of $15.1
million. For a discussion of the Bank's business strategy and recent results of
operations, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS." For a discussion of the Bank's business activities, see
"BUSINESS OF THE BANK."
THE CONVERSION (PAGE ___)
The conversion is a change in the Bank's legal form of organization. The Bank
currently operates as a federally chartered mutual savings bank with no
stockholders. Through the conversion, the Bank will become a federally
chartered stock savings bank and will issue shares of its common stock to the
Holding Company. As part of the conversion, the Holding Company will issue
shares of its common stock to the public and to the Bank's employee stock
ownership plan ("ESOP"). Currently, the Bank's depositor and borrower members
have voting rights in the Bank and are entitled to elect directors of the Bank
and to vote on other important matters. After the conversion, the Holding
Company will exercise all voting rights with respect to the Bank's common stock,
and the Holding Company's stockholders will elect its directors and exercise all
other voting rights with respect to the Holding Company's common stock. The
Bank is undertaking the conversion pursuant to its Plan of Conversion. The OTS
has approved the conversion, subject to approval of the Plan of Conversion by
the Bank's members at a special meeting to be held on _________, 1999.
REASONS FOR THE CONVERSION (PAGE ___)
As a federal mutual savings bank, the Bank does not have stockholders or the
authority to issue capital stock. By converting to the stock form of
organization, the Bank will be structured in the form used by commercial banks,
most business entities and a large number of savings institutions. The
conversion will be important to the Bank's future growth and performance by (1)
providing a larger capital base from which it can operate, (2) enhancing its
ability to attract and retain qualified management through stock-based
compensation plans, (3) enhancing its ability to diversify into other financial
services related activities and (4) expanding its ability to provide services to
the public. At this time, the Bank does not have any specific plans or
arrangements for diversification or expansion.
1
<PAGE>
USE OF PROCEEDS (PAGE ___)
The Holding Company will use 50% of the net proceeds of the offering to buy all
of the common stock of the Bank. The Bank will use these funds to expand its
residential and consumer loan portfolios and to purchase investments similar to
the kinds it currently holds. The Holding Company will loan an amount equal to
8% of the gross proceeds of the offering to the Bank's ESOP to fund its purchase
of common stock and will keep the remainder of the net proceeds for general
corporate purposes. These purposes may include, for example, paying dividends
or buying back shares of common stock. The Holding Company and the Bank may
also use the proceeds of the offering for expansion and diversification of its
business, although they have no specific plans for such activity at this time.
THE SUBSCRIPTION AND DIRECT COMMUNITY OFFERINGS (PAGE ___)
The Holding Company is offering shares of its common stock in a Subscription
Offering to certain current and former depositor and borrower customers of the
Bank and to the Bank's ESOP. Pursuant to its Plan of Conversion and in
accordance with applicable regulatory requirements, the Bank has granted
subscription rights in the following order of priority to:
1. "Eligible Account Holders" -- the Bank's depositors with $50 or more on
deposit as of June 30, 1997.
2. The Bank's ESOP.
3. "Supplemental Eligible Account Holders" --the Bank's depositors with $50 or
more on deposit as of December 31, 1998.
4. "Other Members" -- the Bank's depositors as of __________, 1999 and
borrowers of the Bank as of March 16, 1988 whose loans continue to be
outstanding as of __________, 1999.
Subscription rights are not transferable, and persons with subscription rights
may not subscribe for shares for the benefit of any other person. If you
violate this prohibition you may lose your right to purchase shares in the
conversion and may be subject to criminal prosecution and/or other sanctions.
The Subscription Offering will expire at 12:00 Noon, local time, on ________,
1999. In the event of an oversubscription, shares will be allocated in
accordance with the Plan of Conversion.
The Holding Company may offer shares not sold in the Subscription Offering to
the general public in a Direct Community Offering. Natural persons and trusts
of natural persons who are residents of the Bank's local community, as defined
in the Plan of Conversion, will have first preference in the Direct Community
Offering. The Direct Community Offering, if one is held, is expected to begin
immediately after the conclusion of the Subscription Offering, but may begin at
any time during the Subscription Offering. Capital Resources, Inc., which is a
registered broker-dealer and a member of the NASD, is managing the Subscription
Offering and the Direct Community Offering. Capital Resources is not obligated
to purchase any shares of common stock in this offering. Shares not sold in the
Subscription Offering or Direct Community Offering may be offered for sale in a
Syndicated Community Offering, which would be an offering to the general public
on a best efforts basis by a selling group of broker-dealers managed by Capital
Resources.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION (PAGE ___)
Between 1,615,000 and 2,185,000 shares of the common stock will be sold in this
offering, all at a price of $10.00 per share. The $10.00 per share purchase
price was determined by the Boards of Directors of the Holding Company and the
Bank in consultation with Capital Resources. With the approval of the OTS, the
number of shares may be increased to 2,512,750. You will not pay a commission
to buy any shares in the conversion.
The amount of common stock being offered in the conversion is based on an
independent appraisal of the estimated pro forma market value of the Holding
Company and the Bank. Capital Resources Group, Inc., the independent appraiser,
has estimated that, in its opinion, as of December 4, 1998, the aggregate pro
forma market value of the Holding Company and the Bank ranged between
$16,150,000 and $21,850,000 (with a midpoint of $19,000,000)
2
<PAGE>
("Estimated Valuation Range"). Capital Resources Group is the parent company of
Capital Resources. The pro forma market value is the estimated market value of
the Holding Company and the Bank after taking into account the sale of shares in
this offering. The appraisal was based in part on the Bank's financial condition
and operations and the effect of the additional capital raised by the sale of
common stock in this offering. The independent appraisal will be updated prior
to the completion of the conversion. If the pro forma market value of the
Holding Company and the Bank changes to either below $16,150,000 or above
$25,127,500 (the adjusted maximum of the offering), subscribers will be notified
and provided with the opportunity to modify or cancel their orders.
PURCHASE LIMITATIONS (PAGE __)
The minimum number of shares that you may purchase is 25. The Bank has
established the following additional purchase limitations:
. No eligible subscriber (including all persons on a joint account) may
purchase more than $150,000 of common stock (or 15,000 shares) in the
Subscription Offering.
. No person may purchase more than $150,000 of common stock (or 15,000
shares) in the Direct Community Offering or Syndicated Community Offering.
. No person, either alone or together with associates of, or persons acting
in concert with, such person may purchase more than the overall maximum
purchase limitation of 1% of the total number of shares of common stock
issued in the conversion (not taking into account an increase in the number
of shares as a result of the increase of the appraisal to the adjusted
maximum).
For further discussion of the purchase limits and definitions of "associate" and
"acting in concert," see "THE CONVERSION -- Limitations on Purchases of Shares."
PROCEDURE FOR PURCHASING COMMON STOCK (PAGE ___)
If you want to subscribe for shares of common stock in the Subscription
Offering, complete an original stock order form and send it together with full
payment to the Bank in the postage-paid envelope provided. You must sign the
certification that is part of the stock order form. The Bank must receive your
stock order form before the end of the Subscription Offering. You may pay for
shares in cash (if paid in person) or by check or money order. Payment for
subscriptions of $25,000 or more must be by certified or cashier's check, money
order or account withdrawal. The Bank will pay interest on subscription funds
at the rate it pays on passbook accounts from the date funds are received until
completion or termination of the conversion. If you have a deposit account with
the Bank you may include instructions on the stock order form to pay for your
shares by withdrawal from your account. Withdrawals from certificates of deposit
may be made without incurring an early withdrawal penalty. All funds authorized
for withdrawal from deposit accounts with the Bank will earn interest at the
applicable account rate until completion of the conversion. After the Bank
receives your order, your order cannot be withdrawn or changed, except with the
consent of the Bank.
To ensure that your subscription rights are properly identified, you must list
all qualifying savings accounts and loans, as of the respective qualifying
dates, on the stock order form. Persons who do not list all qualifying savings
accounts and loans may be subject to reduction or rejection of their
subscriptions.
The Holding Company and the Bank have the discretion to accept or reject orders
received either through the Direct Community Offering or the Syndicated
Community Offering. If your order is rejected in part, you will not have the
right to cancel the remainder of the order.
If you want to use funds in a self-directed IRA maintained by the Bank to
purchase shares of common stock, you must transfer your account to an
unaffiliated institution or broker. If you are interested in doing so, you
should contact the Bank's stock information center at least one week before the
expiration of the Subscription Offering.
3
<PAGE>
PURCHASES BY OFFICERS AND DIRECTORS (PAGE ___)
The Bank's directors and executive officers (together with their associates)
have indicated their intent to subscribe for 91,100 shares, which equals 4.2% of
the shares issued at the maximum of the offering range. Directors and executive
officers will pay the same $10.00 per share price as all other persons who
purchase shares in the conversion.
BENEFITS OF THE CONVERSION TO MANAGEMENT
ESOP (page __). The Bank will adopt the ESOP in connection with the conversion
and, in accordance with OTS regulations, has provided that it will have the
second priority in the Subscription Offering. The ESOP intends to purchase 8%
of the shares of common stock issued in the conversion. If the number of shares
sold in the conversion is increased above the maximum of the offering range, the
ESOP will have a first priority to purchase any such shares over the maximum of
the offering range, up to a total of 8% of the common stock. The Holding
Company will recognize additional compensation expense as a result of the
adoption of the ESOP. See "RISK FACTORS -- New Expenses Associated with ESOP
and MRDP" and "PRO FORMA DATA."
Management Recognition and Development Plan (page __). After the conversion,
the Holding Company expects to adopt the First Bancorp of Indiana, Inc.
Management Recognition and Development Plan ("MRDP"). The MRDP will reserve a
number of shares equal to 4% of the number of shares issued in the conversion.
Pursuant to the MRDP, the Holding Company would be able to make awards of shares
of common stock to key employees and directors of the Holding Company and the
Bank at no cost to the recipient. All awards would be subject to vesting over a
period of years. If the Holding Company implements the MRDP within one year
after the conversion, under current OTS regulations the plan will be subject to
approval by a majority of the outstanding shares at a meeting which may be held
no earlier than six months after completion of the conversion. The Holding
Company will recognize additional compensation expense as a result of the
adoption of the MRDP. See "RISK FACTORS -- New Expenses Associated with ESOP and
MRDP" and "PRO FORMA DATA."
Stock Option Plan (page __). After the conversion, the Holding Company expects
to adopt the First Bancorp of Indiana, Inc. 1999 Stock Option Plan. The Stock
Option Plan will reserve a number of shares equal to 10% of the number of shares
issued in the conversion. Pursuant to the Stock Option Plan, the Holding
Company would be able to award options to acquire shares of common stock to key
employees and directors of the Holding Company and the Bank at no cost to the
recipient. The exercise price of such options would be 100% of the fair market
value of the common stock on the date the option is granted. All awards would
be subject to vesting over a period of years. If the Holding Company implements
the Stock Option Plan within one year after conversion, under current OTS
regulations the plan will be subject to approval by a majority of the
outstanding shares at a meeting which may be held no earlier than six months
after completion of the conversion.
Employment Agreements (page __). The Holding Company and the Bank plan to enter
into employment agreements with the Bank's President and Executive Vice
President. The employment agreements will provide that if the executive is
terminated following a change in control of the Holding Company or the Bank he
will be entitled to a package of cash and/or benefits with a maximum value equal
to 2.99 times his average annual compensation during the five-year period
preceding the change in control. If a change in control had occurred as of
September 30, 1998, the total value of the severance benefits payable to the
executives under the proposed employment agreements would have been
approximately $486,000. See "RISK FACTORS -- Possible Anti-Takeover Effect of
Employment Agreements and Severance Plan."
Employee Severance Compensation Plan (page __). In connection with the
conversion, the Board of Directors of the Bank intends to adopt a severance plan
to provide benefits to eligible employees in the event of a change in control of
the Holding Company or the Bank. Officers who enter into separate employment or
severance agreements with the Holding Company and the Bank will not be eligible
to participate in the severance plan. The severance plan will provide that, in
the event of a change in control of the Holding Company or the Bank, eligible
employees who are terminated or who terminate employment (but only upon the
occurrence of events
4
<PAGE>
specified in the severance plan) within 12 months of the effective date of a
change in control will be entitled to a payment based on years of service and/or
position with the Bank, subject to certain limits. If a change in control had
occurred at September 30, 1998 and all eligible employees had been terminated,
the total payment due under the severance plan would be approximately $381,000.
See "RISK FACTORS -- Possible Anti-Takeover Effect of Employment Agreements and
Severance Plan."
MARKET FOR COMMON STOCK (PAGE ___)
The Holding Company has obtained preliminary approval for the common stock to be
quoted on the Nasdaq National Market under the symbol FBEI. After shares of the
common stock commence trading, interested investors may contact a stock broker
to buy or sell shares. The Holding Company cannot assure you that there will be
an active trading market for the common stock. See "RISK FACTORS -- Absence of
Prior Market for the Common Stock."
DIVIDEND POLICY (PAGE ___)
The Holding Company intends to adopt a policy of paying regular cash dividends.
However, the Board of Directors has not made a decision as to the amount or
timing of such dividends. Dividends will be subject to determination and
declaration by the Board of Directors, which will take into account a number of
factors, including the Holding Company's consolidated operating results and
financial condition, net worth and capital requirements, as well as regulatory
restrictions on the payment of dividends from the Bank to the Holding Company
(which would be a primary source of funds for the Holding Company). The Holding
Company cannot assure you that dividends will in fact be paid or that if paid
such dividends will not be reduced or eliminated in the future.
5
<PAGE>
RISK FACTORS
Before investing in the common stock please carefully consider the matters
discussed below. The common stock is not a savings account or deposit and is
not insured by the FDIC or any other government agency.
COMPETITION
The Bank faces intense competition both in making loans and attracting
deposits. Competition for loans principally comes from commercial banks,
savings associations, credit unions, mortgage banking companies and insurance
companies. Historically, commercial banks, savings associations and credit
unions have been the Bank's most direct competition for deposits. The Bank also
competes with short-term money market funds and with other financial
institutions, such as brokerage firms and insurance companies, for deposits.
Competition has limited loan originations and has led the Bank to maintain a
significant investment in debt and mortgage-backed securities, which generally
have lower yields than loans. In recent years, in order to compete for deposits
with larger financial institutions that provide a wider range of products and
services, the Bank has offered amongst the highest deposit rates in its market
area. This competition for loans and deposits has contributed to a narrow
interest rate spread, which adversely affects net interest income. See
"BUSINESS OF THE BANK -- Market Area" and "-- Competition."
INTEREST RATE RISK
Changes in interest rates can significantly effect the Bank's
profitability. The Bank's ability to make a profit, like that of most financial
institutions, depends largely on its net interest income, which is the
difference between the interest income received from its interest-earning assets
(such as loans and investment securities) and the interest expense incurred in
connection with its interest-bearing liabilities (such as deposits and
borrowings). The Bank's net interest income and the market value of its assets
and liabilities could be significantly affected by changes in interest rates.
In a rising interest rate environment, the Bank anticipates that its net
interest income could be adversely affected as liabilities could reprice to
higher market rates more quickly than assets. In addition, rising interest
rates may adversely affect the Bank's earnings because they may cause a decrease
in customer demand for loans. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Asset and Liability
Management."
Changes in interest rates also can affect the average life of loans and
mortgage-backed securities. During periods of declining interest rates, loans
and mortgage-backed securities prepay faster as loans are prepaid and refinanced
at lower interest rates. During such periods, the Bank generally will not be
able to reinvest the proceeds of any such prepayments at comparable yields.
Conversely, during periods of rising interest rates, the rate of prepayments
generally slows. Moreover, volatility in interest rates also can result in
disintermediation, or the flow of funds away from savings institutions into
direct investments, such as U.S. Government and corporate securities and other
investment vehicles which, because of the absence of federal insurance premiums
and reserve requirements, generally pay higher rates of return than savings
institutions.
BELOW AVERAGE RETURN ON EQUITY AFTER CONVERSION
Return on equity (net income divided by average equity) is a ratio used by
many investors to compare the performance of a particular company with other
companies. In recent years, the Bank's return on equity has been below the
average return on equity for publicly held savings associations and banks of
comparable size. As a result of the additional capital to be raised in this
offering, the Holding Company expects that after the conversion its return on
equity will continue to be below average. In addition, the expenses associated
with the ESOP and MRDP, along with other post-conversion expenses, are expected
to contribute to increased expense levels. Over time, the Holding Company
intends to deploy the net proceeds from the conversion to increase earnings per
share and book value per share, without assuming undue risk, with the goal of
achieving a return on equity competitive with other publicly traded financial
institutions. This goal could take a number of years to achieve, and the
Holding Company cannot assure you that this
6
<PAGE>
goal can be attained. Consequently, you should not expect a competitive return
on equity in the near future. See "SELECTED FINANCIAL INFORMATION,"
"CAPITALIZATION" and "PRO FORMA DATA."
NEW EXPENSES ASSOCIATED WITH ESOP AND MRDP
The Bank will recognize additional material employee compensation and
benefit expenses that stem from the shares purchased or granted to employees and
executives under the ESOP and MRDP. The Bank cannot predict the actual amount
of these new expenses because applicable accounting practices require that they
be based on the fair market value of the shares of common stock when the
expenses are recognized, in the case of the ESOP, or when the shares are
awarded, in the case of the MRDP. The Bank would recognize expenses for the
ESOP when shares are committed to be released to participants' accounts and
would recognize expenses for the MRDP over the vesting period of awards made to
recipients. These expenses have been reflected in the pro forma financial
information under "PRO FORMA DATA" assuming the $10.00 per share purchase price
as fair market value. Actual expenses, however, may be higher or lower. For
further discussion of these plans, see "MANAGEMENT OF THE BANK -- Benefits --
Employee Stock Ownership Plan" and "-- Benefits -- Management Recognition and
Development Plan."
POSSIBLE DILUTIVE EFFECT OF BENEFIT PROGRAMS
If the conversion is completed and stockholders approve the MRDP and Stock
Option Plan, the Holding Company intends to issue shares to its officers and
directors through these plans. If the shares for the MRDP are issued from
authorized but unissued stock, your ownership interest could be diluted by up to
approximately 3.85%. If the shares for the Stock Option Plan are issued from
authorized but unissued stock, your ownership interest could be diluted by up to
approximately 9.09%. See "PRO FORMA DATA."
POSSIBLE VOTING CONTROL BY MANAGEMENT AND EMPLOYEES
The 91,100 shares of common stock expected to be purchased by the Bank's
directors and executive officers and their associates in the conversion,
combined with the shares expected to be awarded or sold to plan participants
under the ESOP, the MRDP and the Stock Option Plan, could ultimately result in
management and employees and their associates controlling up to approximately
26.2% of the outstanding shares of the common stock (assuming the sale of
2,185,000 shares in the conversion and that the shares issued under the MRDP and
the Stock Option Plan are repurchased treasury shares). Such level of ownership
could permit management to benefit from certain statutory and regulatory
provisions, as well as certain provisions in the Holding Company's Articles of
Incorporation and Bylaws, that may tend to promote the continuity of existing
management. If these individuals were to act as a group or in concert with each
other, they could have significant influence over the outcome of any stockholder
vote requiring a majority vote and in the election of directors and could
effectively exercise veto power in matters requiring the approval of
stockholders, such as certain business combinations. Management might thus have
the power to authorize actions that may be viewed as contrary to the best
interests of non-affiliated holders of the common stock and might have veto
power over actions that such holders may deem to be in their best interests.
See "SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS," "MANAGEMENT OF THE BANK
- -- Executive Compensation" and "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY."
ANTI-TAKEOVER PROVISIONS AND STATUTORY PROVISIONS THAT COULD DISCOURAGE HOSTILE
ACQUISITIONS OF CONTROL
Provisions in the Holding Company's Articles of Incorporation and Bylaws,
the corporation law of the state of Indiana, and certain federal regulations may
make it difficult and expensive to pursue a tender offer, change in control or
takeover attempt that management opposes. As a result, stockholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions will also make the removal of the current board of
directors or management of the Holding Company, or the appointment of new
directors, more difficult. These provisions include: limitations on voting
rights of beneficial owners of more than 10% of the Holding Company's common
stock; supermajority voting requirements for certain business combinations; the
election of directors to staggered terms of three years; the elimination of
cumulative voting for directors; the removal of directors without cause
7
<PAGE>
only upon the vote of holders of two thirds of the outstanding voting shares;
and limitations on calling special meetings of shareholders. The Bylaws of the
Holding Company also contains provisions regarding the timing and content of
stockholder proposals. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY."
POSSIBLE ANTI-TAKEOVER EFFECT OF EMPLOYMENT AGREEMENTS AND SEVERANCE PLAN
The employment agreements of senior officers of the Holding Company and the
Bank provide for cash severance payments and/or the continuation of health, life
and disability benefits in the event of their termination of employment
following a change in control of the Holding Company or the Bank. If a change
in control had occurred at September 30, 1998 the aggregate value of the
severance benefits available to these executive officers under the agreements
would have been approximately $486,000. In addition, if a change in control had
occurred at September 30, 1998 and all eligible employees had been terminated,
the aggregate payment due under the Bank's severance plan would have been
approximately $381,000. These arrangements may have the effect of increasing
the costs of acquiring the Holding Company, thereby discouraging future attempts
to take over the Holding Company or the Bank. For information about the
proposed employment agreements and the severance plan, see "MANAGEMENT OF THE
BANK -- Executive Compensation."
RISK OF YEAR 2000 DATA PROCESSING PROBLEMS
The Bank is a user of computers, computer software and equipment utilizing
embedded microprocessors that will be affected by the year 2000 issue. As the
century date change occurs, date-sensitive systems that use a two-digit date
field to designate a year may recognize the year 2000 as 1900, or not at all.
This inability to recognize or properly treat the year 2000 may cause erroneous
results, ranging from system malfunctions to incorrect or incomplete processing.
Because the Bank is substantially dependent on its computer systems and the
computer systems of third parties, the failure of these systems to be year 2000
compliant could cause substantial disruption of the Bank's business and could
have a material adverse financial impact on the Bank. Failure to resolve year
2000 issues presents the following risks to the Bank: (1) the Bank could lose
customers to other financial institutions, resulting in a loss of revenue, if
the Bank's third party service bureau is unable to process properly customer
transactions; (2) governmental agencies, such as the Federal Home Loan Bank, and
correspondent banks could fail to provide funds to the Bank, which could
materially impair the Bank's liquidity and affect the Bank's ability to fund
loans and deposit withdrawals; (3) concern on the part of depositors that year
2000 issues could impair access to their deposit account balances could result
in the Bank experiencing deposit outflows prior to December 31, 1999; and (4)
the Bank could incur increased personnel costs if additional staff is required
to perform functions that inoperative systems would have otherwise performed.
The Bank has developed a plan and created a committee to analyze how the year
2000 will impact its operations and to monitor the status of its vendors. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Year 2000 Issues."
ABSENCE OF PRIOR MARKET FOR THE COMMON STOCK
The Holding Company has never issued capital stock and, consequently, there
is no existing market for the common stock. Although the Holding Company has
received preliminary approval to list its common stock on the Nasdaq National
Market under the symbol FBEI, the Holding Company cannot guarantee that an
active and liquid trading market for its common stock will develop, or if it
does develop, that it will continue. Furthermore, the Holding Company cannot
guarantee that if you purchase shares in the conversion you will be able to sell
your shares at or above the $10.00 purchase price. See "MARKET FOR COMMON
STOCK."
POSSIBLE INCREASE IN ESTIMATED VALUATION RANGE AND NUMBER OF SHARES ISSUED
Capital Resources Group may increase the Estimated Valuation Range up to
15% to reflect changes in the financial condition or results of operations of
the Bank or changes in market conditions or general financial, economic or
regulatory conditions following the commencement of the offering. If the
Estimated Valuation Range is increased, the Holding Company anticipates that it
would issue, without any additional notice, up to 2,512,750 shares of common
8
<PAGE>
stock for an aggregate price of up to $25,127,500. This increase in the number
of shares would decrease pro forma net earnings per share and stockholders'
equity per share, increase the Holding Company's pro forma consolidated
stockholders' equity and net earnings, and increase the purchase price as a
percentage of pro forma stockholders' equity per share and net earnings per
share. See "PRO FORMA DATA."
RISK OF DELAY IN CONSUMMATING THE CONVERSION
Once tendered, subscription orders cannot be revoked without the consent of
the Holding Company and the Bank, unless the conversion is terminated or there
is a resolicitation offering. If the conversion is not completed by __________,
1999 as a result of changes that lead to a material revision in the Estimated
Valuation Range and the OTS consents to an extension of time to complete the
conversion, there would be a resolicitation offering. OTS regulations permit
the OTS to grant one or more time extensions, none of which may exceed 90 days.
Such extensions may not go beyond __________, 2001. In the resolicitation
offering, all subscribers would be mailed a supplement to this prospectus and
given the opportunity to confirm, modify or cancel their subscriptions. Failure
to confirm affirmatively or modify would be deemed a cancellation and all
subscription funds, together with accrued interest, would be returned to the
subscriber, or if the subscriber authorized payment by withdrawal of funds on
deposit at the Bank, that authorization would terminate. If a subscriber
affirmatively confirms his subscription order during the resolicitation
offering, the Holding Company and the Bank would continue to hold the
subscriber's subscription funds until the expiration of the resolicitation
offering. All subscriptions held by the Holding Company and the Bank when the
resolicitation offering expires would be irrevocable without the consent of the
Holding Company and the Bank until the completion or termination of the
conversion.
FINANCIAL INSTITUTION REGULATION AND THE UNCERTAIN FUTURE OF THE THRIFT INDUSTRY
The Bank is subject to extensive regulation, supervision and examination by
the OTS and the FDIC. In 1998 the U.S. Congress considered legislation that was
intended to modernize the financial services industry. Pursuant to the proposed
legislation, newly formed unitary savings and loan holding companies would not
be permitted to exercise the expanded powers otherwise available to such
companies. Previous proposals would have eliminated the federal savings
association charter by requiring that all federal savings associations convert
to national banks or other banking charters, but such provision was not included
in the final legislation that was considered. The Bank is a federal savings
association and the Holding Company, upon completion of the conversion, will be
a unitary savings and loan holding company. No assurance can be given whether
federal legislation will be enacted that affects the federal savings association
charter or unitary savings and loan holding companies, or if such legislation is
enacted, what form this legislation might take. Accordingly, management of the
Bank and the Holding Company cannot predict what effect, if any, such
legislation would have on the activities and operations of the Bank and the
Holding Company.
9
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables set forth certain information concerning the financial
position and results of operations of the Bank at the dates and for the periods
indicated. This information should be read in conjunction with the Consolidated
Financial Statements and Notes thereto presented elsewhere in this prospectus.
Information at September 30, 1998 and for the three months ended September 30,
1998 and 1997 is unaudited, but, in the opinion of management, reflects all
adjustments (none of which are other than normal recurring entries) necessary
for a fair presentation. Results for the three months ended September 30, 1998
are not necessarily indicative of the results that may be expected for the year
ending June 30, 1999.
<TABLE>
<CAPTION>
AT AT JUNE 30,
SEPTEMBER 30, -----------------------------------------------
1998 1998 1997 1996 1995 1994
---------------- ------- --------- --------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets........................ $111,627 $108,964 $110,747 $110,905 $105,846 $105,803
Other investment securities......... 15,168 18,195 18,940 17,246 8,788 6,455
Mortgage-backed securities.......... 36,835 35,545 41,394 41,607 47,936 51,118
Loans receivable, net............... 38,183 35,655 32,164 32,441 32,492 32,396
Deposits accounts................... 90,961 89,229 88,560 88,844 86,886 87,615
Borrowings.......................... 3,645 3,645 7,050 7,500 5,000 5,000
Equity capital...................... 15,117 14,949 14,053 13,575 13,002 12,363
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR
THE THREE MONTHS
ENDED SEPTEMBER 30, AT OR FOR THE YEAR ENDED JUNE 30,
------------------- ------------------------------------------
1998 1997 1998 1997 1996 1995 1994
------------------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income..................... $1,831 $1,887 $7,715 $7,474 $7,295 $6,658 $6,069
Interest expense.................... 1,185 1,192 4,977 4,763 4,645 4,062 3,656
------ ------ ------ ------ ------ ------ ------
Net interest income................. 646 695 2,738 2,711 2,650 2,596 2,413
Provision for loan losses........... -- -- -- -- 100 -- --
------ ------ ------ ------ ------ ------ ------
Net interest income after
provision for loan losses.......... 646 695 2,738 2,711 2,550 2,596 2,413
Other income........................ 76 43 601(1) 179 169 219 214
Other expense....................... 506 415 2,044 2,391(2) 1,900 1,901 1,863
------ ------ ------ ------ ------ ------ ------
Income before income taxes
and cumulative effect of a
change in accounting principle..... 216 323 1,295 499 819 914 764
Income taxes........................ 61 108 415 112 199 264 301
Cumulative effect of change
in accounting principle(3)......... -- -- -- -- -- -- 11
------ ------ ------ ------ ------ ------ ------
Net income......................... $ 155 $ 215 $ 880 $ 387 $ 620 $ 650 $ 474
====== ====== ====== ====== ====== ====== ======
</TABLE>
________________________________
(1) Includes gains of $400,000 on the sale of a branch office and related
deposits.
(2) Includes one-time assessment of $561,000 to recapitalize the Savings
Association Insurance Fund ("SAIF").
(3) Reflects adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
10
<PAGE>
<TABLE>
<CAPTION>
AT AT JUNE 30,
SEPTEMBER 30, -----------------------------------------------
1998 1998 1997 1996 1995 1994
---------------- ------- --------- --------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED OTHER DATA:
Number of:
Real estate loans outstanding... 773 747 759 789 811 855
Deposit accounts................ 8,799 8,852 9,226 9,515 9,890 9,716
Full-service offices............ 4 4 4 4 4 4
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR
THE THREE MONTHS
ENDED SEPTEMBER 30, AT OR FOR THE YEAR ENDED JUNE 30,
------------------- ------------------------------------------
1998 1997 1998 1997 1996 1995 1994
--------- -------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS:
PERFORMANCE RATIOS(1):
Return on average assets(2)............. 0.56% 0.78% 0.77% 0.35% 0.57% 0.62% 0.47%
Return on average equity(3)............. 4.13 6.08 6.04 2.83 4.66 5.14 3.91
Average equity as a percent of
average total assets................... 13.58 12.82 12.79 12.35 12.33 12.01 11.91
Interest rate spread(4)................. 1.97 2.15 2.03 2.08 2.09 2.01 1.98
Net interest margin(5).................. 2.47 2.64 2.53 2.56 2.57 2.53 2.44
Average interest-earning assets to
average interest-bearing liabilities... 110.98 110.88 110.75 110.71 110.68 113.18 112.51
Other expenses as a percent of
average total assets................... 1.83 1.50 1.79 2.16 1.76 1.80 1.83
CAPITAL RATIOS:
Tangible................................ 13.47 12.96 13.60 12.62 12.28 12.29 11.69
Core.................................... 13.47 12.96 13.60 12.62 12.28 12.29 11.69
Risk-based.............................. 34.88 39.01 34.75 37.35 36.95 36.42 35.13
ASSET QUALITY RATIOS:
Nonperforming loans as a percent
of total loans(6)...................... 0.00 0.09 0.00 0.08 0.00 0.12 0.22
Nonperforming assets as a percent
of total assets(7)..................... 0.00 0.02 0.00 0.02 0.00 0.04 0.07
Allowance for loan losses as a
percent of total loans................. 0.65 0.79 0.70 0.77 0.76 0.46 0.46
Allowance for loan losses as a
percent of nonperforming loans......... N/A 925.93 N/A 925.93 N/A 263.16 138.89
Net charge-offs as a percent of
average outstanding loans............ N/A N/A N/A N/A N/A N/A N/A
</TABLE>
________________________________
(1) Ratios for the three-month periods are annualized where appropriate.
(2) Net income divided by average total assets.
(3) Net income divided by average total equity.
(4) Difference between weighted average yield on interest-earning assets
and weighted average cost of interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Nonperforming loans consist of loans accounted for on a nonaccrual
basis and accruing loans 90 days or more past due.
(7) Nonperforming assets consist of nonperforming loans, real estate
acquired in settlement of loans, and restructured loans. See
"BUSINESS OF THE BANK -- Lending Activities -- Nonperforming Assets
and Delinquencies."
11
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the common stock in this offering will
range from approximately $15.5 million to $21.1 million (or up to $24.4 million
if the Estimated Valuation Range is increased by 15%). See "PRO FORMA DATA" for
the assumptions used to arrive at such amounts. The Holding Company will
purchase all of the capital stock of the Bank to be issued in the conversion in
exchange for 50% of the net proceeds of the offering. This will result in the
Holding Company retaining approximately $7.7 million to $10.6 million of net
proceeds (or up to $12.2 million if the Estimated Valuation Range is increased
by 15%) and the Bank receiving an equal amount.
Receipt of 50% of the net proceeds of the sale of the common stock will
increase the Bank's capital and will support the expansion of the Bank's
existing business activities. The Bank will use the funds contributed to it for
general corporate purposes, including, initially, lending and investment in
short-term U.S. Government and agency obligations. The Bank intends to increase
its residential loan portfolio and, to a lesser extent, its consumer loan
portfolio. Depending on loan demand, the Bank may consider using a portion of
the conversion proceeds for additional investment in mortgage-backed securities.
In connection with the conversion and the establishment of the ESOP, the
Holding Company intends to loan the ESOP the amount necessary to purchase 8% of
the shares of common stock sold in the conversion. The Holding Company's loan
to fund the ESOP may range from $1,292,000 to $1,748,000 based on the sale of
129,200 shares to the ESOP (at the minimum of the Estimated Valuation Range) and
174,800 shares (at the maximum of the Estimated Valuation Range), respectively,
at $10.00 per share. If 15% above the maximum of the Estimated Valuation Range,
or 2,512,750 shares, are sold in the conversion, the Holding Company's loan to
the ESOP would be $2,010,200 (based on the sale of 201,020 shares to the ESOP).
It is anticipated that the ESOP loan will have a 12-year term with interest
payable at the prime rate as published in The Wall Street Journal on the closing
date of the conversion. The loan will be repaid principally from the Bank's
contributions to the ESOP and from any dividends paid on shares of common stock
held by the ESOP.
The remaining net proceeds retained by the Holding Company initially will
be invested primarily in short-term U.S. Government and agency obligations.
Such proceeds will be available for additional contributions to the Bank in the
form of debt or equity, to support future diversification or acquisition
activities, as a source of dividends to the stockholders of the Holding Company
and for future repurchases of common stock to the extent permitted under Indiana
law and federal regulations. The Holding Company will consider exploring
opportunities to use such funds to expand operations through acquiring or
establishing additional branch offices or acquiring other financial
institutions. Currently, there are no specific plans, arrangements, agreements
or understandings, written or oral, regarding any expansion activities.
Following consummation of the conversion, the Board of Directors will have
the authority to adopt plans for repurchases of common stock, subject to
statutory and regulatory requirements. Since the Holding Company has not yet
issued stock, there currently is insufficient information upon which an
intention to repurchase stock could be based. The facts and circumstances upon
which the Board of Directors may determine to repurchase stock in the future
would include but are not limited to: (i) market and economic factors such as
the price at which the stock is trading in the market, the volume of trading,
the attractiveness of other investment alternatives in terms of the rate of
return and risk involved in the investment, the ability to increase the book
value and/or earnings per share of the remaining outstanding shares, and the
ability to improve the Holding Company's return on equity; (ii) the avoidance of
dilution to stockholders by not having to issue additional shares to cover the
exercise of stock options or to fund employee stock benefit plans; and (iii) any
other circumstances in which repurchases would be in the best interests of the
Holding Company and its stockholders. Any stock repurchases will be subject to
a determination by the Board of Directors that both the Holding Company and the
Bank will be capitalized in excess of all applicable regulatory requirements
after any such repurchases and that capital will be adequate, taking into
account, among other things, the Bank's level of nonperforming and classified
assets, the Holding Company's and the Bank's current and projected results of
operations and asset/liability structure, the economic environment and tax and
other regulatory considerations. For a discussion of the regulatory limitations
applicable to stock repurchases, see "THE CONVERSION -- Restrictions on
Repurchase of Stock."
12
<PAGE>
DIVIDEND POLICY
GENERAL
The Holding Company's Board of Directors anticipates declaring and paying
cash dividends on the common stock. However, the Board of Directors has not
made a decision as to the amount or timing of such dividends. In addition, the
Board of Directors may determine to pay periodic special cash dividends in
addition to, or in lieu of, regular cash dividends. Declarations or payments of
any dividends (regular and special) will be subject to determination by the
Holding Company's Board of Directors, which will take into account the amount of
the net proceeds retained by the Holding Company, the Holding Company's
financial condition, results of operations, tax considerations, capital
requirements, industry standards, economic conditions and other factors,
including the regulatory restrictions that affect the payment of dividends by
the Bank to the Holding Company discussed below. Under Indiana law, the Holding
Company will be permitted to pay cash dividends after the conversion so long as
the Holding Company is able to pay its debts as they come due in the usual
course of business and the Holding Company's assets are greater than the sum of
its total liabilities plus the amount that would be needed, if the Holding
Company were to be dissolved at the time of the dividend, to satisfy any rights
that are preferential to those of the persons receiving the dividend. In order
to pay such cash dividends, however, the Holding Company must have available
cash either from the net proceeds raised in the conversion and retained by the
Holding Company, borrowings by the Holding Company, dividends received from the
Bank or earnings on Holding Company assets. No assurances can be given that any
dividends, either regular or special, will be declared or, if declared, what the
amount of dividends will be or whether such dividends, if commenced, will
continue.
CURRENT RESTRICTIONS
Dividends from the Holding Company may depend, in part, upon receipt of
dividends from the Bank because the Holding Company initially will have no
source of income other than dividends from the Bank and earnings from the
investment of the net proceeds from the offering retained by the Holding
Company. OTS regulations require the Bank to give the OTS 30 days' advance
notice of any proposed declaration of dividends to the Holding Company, and the
OTS has the authority under its supervisory powers to prohibit the payment of
dividends to the Holding Company. The OTS imposes certain limitations on the
payment of dividends from the Bank to the Holding Company which utilize a three-
tiered approach that permits various levels of distributions based primarily
upon a savings association's capital level. Based on its current capital
levels, the Bank could at its option (after prior notice to and no objection
made by the OTS) distribute up to 100% of its net income during the calendar
year plus 50% of its surplus capital ratio at the beginning of the calendar year
less any distributions previously paid during the year. In addition, the Bank
may not declare or pay a cash dividend on its capital stock if the effect
required for the liquidation account to be established pursuant to the Bank's
Plan of Conversion. See "REGULATION -- Federal Regulation of Savings
Associations -- Limitations on Capital Distributions," "THE CONVERSION --
Effects of Conversion on Depositors and Borrowers of the Bank -- Liquidation
Account" and Note 10 of the Notes to Consolidated Financial Statements included
Additionally, in connection with the conversion, the Holding Company and
the Bank have committed to the OTS that during the one-year period following
consummation of the conversion, the Holding Company will not take any action to
declare an extraordinary dividend to stockholders that would be treated by
recipients as a tax-free return of capital for federal income tax purposes.
TAX CONSIDERATIONS
In addition to the foregoing, retained earnings of the Bank appropriated to
bad debt reserves and deducted for federal income tax purposes cannot be used by
the Bank to pay cash dividends to the Holding Company without the payment of
federal income taxes by the Bank at the then current income tax rate on the
amount deemed distributed, which would include the amounts of any federal income
taxes attributable to the distribution. See "TAXATION -- Federal Taxation" and
Note 8 of the Notes to Consolidated Financial Statements included elsewhere
herein. The
13
<PAGE>
Holding Company does not contemplate any distribution by the Bank that would
result in a recapture of the Bank's bad debt reserve or create the above-
mentioned federal tax liabilities.
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock and, consequently, there
is no existing market for the common stock. Although the Holding Company has
received preliminary approval to list the common stock on the Nasdaq National
Market under the symbol FBEI, there can be no assurance that the Holding Company
will meet the Nasdaq National Market listing requirements, which include a
minimum market capitalization, at least three market makers and a minimum number
of shareholders. Capital Resources has agreed to make a market for the common
stock following consummation of the conversion, although it has no obligation to
do so, and will assist the Holding Company in seeking to encourage at least two
additional market makers to establish and maintain a market in the common stock.
Making a market 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 Holding Company anticipates that prior to the completion of the conversion
it will be able to obtain the commitment from at least two additional broker-
dealers to act as market maker for the common stock. Additionally, the
development of a liquid public market depends on the existence of willing buyers
and sellers, the presence of which is not within the control of the Holding
Company, the Bank or any market maker.
There can be no assurance that an active and liquid trading market for the
common stock will develop or that, if developed, it will continue. The number
of active buyers and sellers of the common stock at any particular time may be
limited. Under such circumstances, investors in the common stock could have
difficulty disposing of their shares on short notice and should not view the
common stock as a short-term investment. Furthermore, there can be no assurance
that purchasers will be able to sell their shares at or above the $10.00
purchase price or that quotations will be available on the Nasdaq National
Market as contemplated.
14
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank at
September 30, 1998, and the pro forma consolidated capitalization of the Holding
Company after giving effect to the assumptions set forth under "PRO FORMA DATA,"
based on the sale of the number of shares of common stock at the minimum,
midpoint, maximum and maximum, as adjusted, of the Estimated Valuation Range.
The shares that would be issued at the maximum, as adjusted, of the Estimated
Valuation Range would be subject to receipt of OTS approval of an updated
appraisal confirming such valuation. A CHANGE IN THE NUMBER OF SHARES TO BE
ISSUED IN THE CONVERSION MAY MATERIALLY AFFECT PRO FORMA CONSOLIDATED
CAPITALIZATION.
<TABLE>
<CAPTION>
HOLDING COMPANY
PRO FORMA CONSOLIDATED CAPITALIZATION
BASED UPON THE SALE OF
----------------------------------------------------------
BANK 1,615,000 1,900,000 2,185,000 2,512,750
CAPITALIZATION SHARES AT SHARES AT SHARES AT SHARES AT
AS OF $10.00 $10.00 $10.00 $10.00
SEPTEMBER 30, 1998 PER SHARE(1) PER SHARE(1) PER SHARE(1) PER SHARE(1)
-------------------- ------------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Deposits(3)............................ $90,961 $ 90,961 $ 90,961 $ 90,961 $ 90,961
Borrowings............................. 3,645 3,645 3,645 3,645 3,645
------- ---------- ---------- ---------- ----------
Total deposits and
borrowed funds...................... $94,606 $ 94,606 $ 94,606 $ 94,606 $ 94,606
======= ========== ========== ========== ==========
Stockholders' equity:
Preferred stock:
1,000,000 shares, $.01 par value
per share, authorized; none issued
or outstanding..................... $ -- $ -- $ -- $ -- $ --
Common stock:
9,000,000 shares, $.01 par value
per share, authorized; specified
number of shares assumed to be
issued and outstanding(4)........... -- 16 19 22 25
Additional paid-in capital............. -- 15,463 18,278 21,092 24,329
Retained earnings(5)................... 15,055 15,055 15,055 15,055 15,055
Accumulated other
comprehensive income................ 62 62 62 62 62
Less:
Common stock acquired
by ESOP(6)......................... -- (1,292) (1,520) (1,748) (2,010)
Common stock to be acquired
by MRDP(7)......................... -- (646) (760) (874) (1,005)
------- ---------- ---------- ---------- ----------
Total stockholders' equity............. $15,117 $ 28,658 $ 31,134 $ 33,609 $ 36,456
======= ========== ========== ========== ==========
</TABLE>
- --------------------------
(1) Does not reflect the possible increase or decrease in the Estimated
Valuation Range to reflect material changes in the financial condition or
results of operations of the Bank or changes in market conditions or general
financial, economic and regulatory conditions, or the issuance of additional
shares under the Stock Option Plan.
(2) This column represents the pro forma capitalization of the Holding Company
in the event the aggregate number of shares of common stock issued in the
conversion is 15% above the maximum of the Estimated Valuation Range. See
"PRO FORMA DATA" and Footnote 1 thereto.
(3) Withdrawals from deposit accounts for the purchase of common stock are not
reflected. Such withdrawals will reduce pro forma deposits by the amounts
thereof.
(4) The Bank's authorized capital consists solely of 1,000 shares of common
stock, par value $1.00 per share, 1,000 shares of which will be issued to
the Holding Company, and 9,000 shares of preferred stock, no par value per
share, none of which will be issued in connection with the conversion.
(5) Retained earnings are substantially restricted by applicable regulatory
capital requirements. Additionally, the Bank will be prohibited from paying
any dividend that would reduce its regulatory capital below the amount in
the liquidation account, which will be established for the benefit of the
Bank's Eligible Account Holders and Supplemental Eligible Account Holders at
the time of the conversion and adjusted downward thereafter as such account
holders reduce their balances or cease to be depositors. See "THE
CONVERSION -- Effects of Conversion on Depositors and Borrowers of the Bank
-- Liquidation Account."
15
<PAGE>
(6) Assumes that 8% of the common stock sold in the conversion will be acquired
by the ESOP in the conversion with funds borrowed from the Holding Company.
Under generally accepted accounting principles, the amount of common stock
to be purchased by the ESOP represents unearned compensation and is,
accordingly, reflected as a reduction of capital. As shares are released to
ESOP participants' accounts, a corresponding reduction in the charge against
capital will occur. Since the funds are borrowed from the Holding Company,
the borrowing will be eliminated in consolidation and no liability or
interest expense will be reflected in the consolidated financial statements
of the Holding Company. See "MANAGEMENT OF THE BANK -- Benefits -- Employee
Stock Ownership Plan."
(7) Assumes the purchase in the open market at $10.00 per share, pursuant to the
proposed MRDP, of a number of shares equal to 4% of the shares of common
stock issued in the conversion at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range. The shares are
reflected as a reduction of stockholders' equity. See "RISK FACTORS --
Possible Dilutive Effect of Benefit Programs," "PRO FORMA DATA" and
"MANAGEMENT OF THE BANK -- Benefits -- Management Recognition and
Development Plan." The MRDP is subject to stockholder approval at a meeting
following consummation of the conversion.
16
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table presents the Bank's historical and pro forma capital
position relative to its capital requirements at September 30, 1998. The amount
of capital infused into the Bank for purposes of the following table is 50% of
the net proceeds of the offering. For purpose of the table below, the amount
expected to be borrowed by the ESOP and the cost of the shares expected to be
acquired by the MRDP are deducted from pro forma regulatory capital. For a
discussion of the assumptions underlying the pro forma capital calculations
presented below, see "USE OF PROCEEDS," "CAPITALIZATION" and "PRO FORMA DATA."
The definitions of the terms used in the table are those provided in the capital
regulations issued by the OTS. For a discussion of the capital standards
applicable to the Bank, see "REGULATION -- Federal Regulation of Savings
Associations -- Capital Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT SEPTEMBER 30, 1998
-----------------------------------------------------------------------
MINIMUM OF ESTIMATED MIDPOINT OF ESTIMATED
VALUATION RANGE VALUATION RANGE
------------------------------- ---------------------------------
1,615,000 SHARES 1,900,000 SHARES
SEPTEMBER 30, 1998 AT $10.00 PER SHARE AT $10.00 PER SHARE
------------------------- ------------------------------- --------------------------------
PERCENT OF PERCENT OF PERCENT OF
ADJUSTED ADJUSTED ADJUSTED
TOTAL TOTAL TOTAL
AMOUNT ASSETS(1) AMOUNT ASSETS(1) AMOUNT ASSETS(1)
--------- ------------ ------------ --------------- -------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
GAAP Equity(2)............... $15,117 13.54% $20,918 17.62% $21,985 18.32%
======= ===== ======= ===== ======= =====
Tangible capital(2).......... $15,056 13.47% $20,857 17.55% $21,924 18.25%
Tangible capital
requirement............... 1,676 1.50 1,783 1.50 1,802 1.50
------- ----- ------- ----- ------- -----
Excess....................... $13,380 11.97% $19,074 16.05% $20,122 16.75%
======= ===== ======= ===== ======= =====
Core capital(2).............. $15,056 13.47% $20,857 17.55% $21,924 18.25%
Core capital requirement..... 3,353 3.00 3,565 3.00 3,604 3.00
------- ----- ------- ----- ------- -----
Excess....................... $11,703 10.47% $17,292 14.55% $18,320 15.25%
======= ===== ======= ===== ======= =====
Total risk-based capital(3).. $15,306 34.88% $21,107 46.59% $22,174 48.66%
Total risk-based capital
requirement............... 3,511 8.00 3,625 8.00 3,645 8.00
------- ----- ------- ----- ------- -----
Excess....................... $11,795 26.88% $17,482 38.59% $18,529 40.66%
======= ===== ======= ===== ======= =====
<CAPTION>
PRO FORMA AT SEPTEMBER 30, 1998
-----------------------------------------------------
15% ABOVE
MAXIMUM OF ESTIMATED MAXIMUM OF ESTIMATED
VALUATION RANGE VALUATION RANGE
------------------------ -----------------------
2,185,000 SHARES 2,185,000 SHARES
AT $10.00 PER SHARE AT $10.00 PER SHARE
------------------------ -----------------------
PERCENT OF PERCENT OF
ADJUSTED ADJUSTED
TOTAL TOTAL
AMOUNT ASSETS(1) AMOUNT ASSETS(1)
--------- ------------ -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GAAP Equity................. $23,052 19.00% $24,279 19.77%
======= ===== ======= =====
Tangible capital(2)......... $22,991 18.93% $24,218 19.70%
Tangible capital
requirement.............. 1,822 1.50 1,844 1.50
------- ----- ------- -----
Excess...................... $21,169 17.43% $22,374 18.20%
======= ===== ======= =====
Core capital(2)............. $22,991 18.93% $24,218 19.70%
Core capital requirement.... 3,643 3.00 3,688 3.00
------- ----- ------- -----
Excess...................... $19,348 15.93% $20,530 16.70%
======= ===== ======= =====
Total risk-based capital(3).. $23,241 50.72% $24,468 53.05%
Total risk-based capital
requirement............... 3,666 8.00 3,690 8.00
------- ----- ------- -----
Excess....................... $19,575 42.72% $20,778 45.05%
======= ===== ======= =====
</TABLE>
- -------------------------------------------
(1) Tangible capital levels and core capital levels are shown as a percentage of
adjusted total assets. Risk-based capital levels are shown as a percentage
of risk-weighted assets.
(2) Unrealized gains on investment securities account for the difference between
GAAP capital and each of tangible capital and core capital.
(3) Percentage represents total core and supplementary capital divided by total
risk-weighted assets. Assumes net proceeds are invested in assets that carry
a 20% risk-weighting.
17
<PAGE>
PRO FORMA DATA
Under the Plan of Conversion, the common stock must be sold at a price
equal to the estimated pro forma market value of the Holding Company and the
Bank as converted, based upon an independent valuation. The Estimated Valuation
Range as of December 4, 1998 is from a minimum of $16,150,000 to a maximum of
$21,850,000 with a midpoint of $19,000,000. At a price per share of $10.00,
this results in a minimum number of shares of 1,615,000, a maximum number of
shares of 2,185,000 and a midpoint number of shares of 1,900,000. The actual
net proceeds from the sale of the common stock cannot be determined until the
conversion is completed. However, net proceeds set forth on the following table
are based upon the following assumptions: (i) Capital Resources will receive
fees of approximately $175,000, $207,000, $240,000 and $278,000 at the minimum,
midpoint, maximum and 15% above the Estimated Valuation Range, respectively (see
"THE CONVERSION -- Plan of Distribution for the Subscription, Direct Community
and Syndicated Community Offerings); (ii) all of the common stock will be sold
in the Subscription and Direct Community Offerings; and (iii) conversion
expenses, excluding the fees paid to Capital Resources, will total approximately
$496,000 at each of the minimum, midpoint, maximum and 15% above the Estimated
Valuation Range. Actual expenses may vary from this estimate, and the fees paid
will depend upon the percentages and total number of shares sold in the
Subscription Offering, Direct Community Offering and Syndicated Community
Offering and other factors.
The following table summarizes the historical net income and retained
income of the Bank and the pro forma consolidated net income and stockholders'
equity of the Holding Company at and for the dates indicated based on the
minimum, midpoint and maximum of the Estimated Valuation Range and based on a
15% increase in the maximum of the Estimated Valuation Range. The pro forma
consolidated net income of the Bank for the three months ended September 30,
1998 and the year ended June 30, 1998 has been calculated as if the conversion
had been consummated at the beginning of each period and the estimated net
proceeds received by the Holding Company and the Bank had been invested at 4.41%
at the beginning of each period, which represents the one-year U.S. Treasury
Bill yield as of September 30, 1998. While OTS regulations provide for the use
of a yield representing the arithmetic average of the weighted average yield
earned by the Bank on its interest-earning assets and the rates paid on its
deposits, the Holding Company believes that the U.S. Treasury Bill yield
represents a more realistic yield on the investment of the conversion proceeds.
As discussed under "USE OF PROCEEDS," the Holding Company expects to retain 50%
of the net proceeds of the offering from which it will fund the ESOP loan. A
pro forma after-tax return of 2.65% is used for both the Holding Company and the
Bank for the three months ended September 30, 1998 and the year ended June 30,
1998, respectively, after giving effect to an incremental combined federal and
state income tax rate of 40.0%. Historical and pro forma per share amounts have
been calculated by dividing historical and pro forma amounts by the number of
shares of common stock indicated in the footnotes to the table. Per share
amounts have been computed as if the common stock had been outstanding at the
beginning of the respective periods, but without any adjustment of per share
historical or pro forma stockholders' equity to reflect the earnings on the
estimated net proceeds.
No effect has been given to: (i) the shares to be reserved for issuance
under the Holding Company's Stock Option Plan, which is subject to stockholder
approval at a meeting following consummation of the conversion; (ii) withdrawals
from deposit accounts for the purpose of purchasing common stock in the
conversion; (iii) the issuance of shares from authorized but unissued shares to
the MRDP, which is subject to stockholder approval at a meeting following
consummation of the conversion; or (iv) the establishment of a liquidation
account for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders. See "MANAGEMENT OF THE BANK -- Benefits -- Stock Option Plan"
and "THE CONVERSION -- Stock Pricing and Number of Shares to be Issued."
THE FOLLOWING PRO FORMA INFORMATION MAY NOT BE REPRESENTATIVE OF THE
FINANCIAL EFFECTS OF THE CONVERSION AT THE DATE ON WHICH THE CONVERSION ACTUALLY
OCCURS AND SHOULD NOT BE TAKEN AS INDICATIVE OF FUTURE RESULTS OF OPERATIONS.
STOCKHOLDERS' EQUITY REPRESENTS THE DIFFERENCE BETWEEN THE STATED AMOUNTS OF
CONSOLIDATED ASSETS AND LIABILITIES OF THE HOLDING COMPANY COMPUTED IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. STOCKHOLDERS' EQUITY
HAS NOT BEEN INCREASED OR DECREASED TO REFLECT THE DIFFERENCE BETWEEN THE
CARRYING VALUE OF LOANS AND OTHER ASSETS AND MARKET VALUE. STOCKHOLDERS' EQUITY
IS NOT INTENDED TO REPRESENT FAIR MARKET VALUE NOR DOES IT REPRESENT AMOUNTS
THAT WOULD BE AVAILABLE FOR DISTRIBUTION TO STOCKHOLDERS IN THE EVENT OF
LIQUIDATION.
18
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
----------------------------------------------------------
15% ABOVE
MINIMUM OF MIDPOINT OF MAXIMUM OF MAXIMUM OF
ESTIMATED ESTIMATED ESTIMATED ESTIMATED
VALUATION VALUATION VALUATION VALUATION
PRICE PRICE PRICE PRICE
---------- ----------- ---------- ------------
1,615,000 1,900,000 2,185,000 2,512,750(1)
SHARES SHARES SHARES SHARES
AT $10.00 AT $10.00 AT $10.00 AT $10.00
PER SHARE PER SHARE PER SHARE PER SHARE
---------- ----------- ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds..................................... $ 16,150 $ 19,000 $ 21,850 $ 25,128
Less: estimated expenses.......................... (671) (703) (736) (774)
---------- ---------- ---------- ----------
Estimated net proceeds............................. 15,479 18,297 21,114 24,354
Less: common stock acquired by ESOP............... (1,292) (1,520) (1,748) (2,010)
Less: common stock to be acquired by MRDP......... (646) (760) (874) (1,005)
---------- ---------- ---------- ----------
Net investable proceeds.......................... $ 13,541 $ 16,017 $ 18,492 $ 21,339
========== ========== ========== ==========
Consolidated net income:
Historical....................................... $ 155 $ 155 $ 155 $ 155
Pro forma income on net proceeds(2).............. 90 106 123 141
Pro forma ESOP adjustments(3).................... (16) (19) (22) (25)
Pro forma MRDP adjustments(4).................... (19) (23) (26) (30)
---------- ---------- ---------- ----------
Pro forma net income........................... $ 210 $ 219 $ 230 $ 241
========== ========== ========== ==========
Consolidated net income per share(5)(6):
Historical....................................... $ 0.10 $ 0.09 $ 0.07 $ 0.06
Pro forma income on net proceeds(2).............. 0.06 0.06 0.06 0.06
Pro forma ESOP adjustments(3).................... (0.01) (0.01) (0.01) (0.01)
Pro forma MRDP adjustments(4).................... (0.01) (0.01) (0.01) (0.01)
---------- ---------- ---------- ----------
Pro forma net income per share................. $ 0.14 $ 0.13 $ 0.11 $ 0.10
Consolidated stockholders' equity (book value):
Historical....................................... $ 15,117 $ 15,117 $ 15,117 $ 15,117
Estimated net proceeds........................... 15,479 18,297 21,114 24,354
Less: common stock acquired by ESOP............. (1,292) (1,520) (1,748) (2,010)
Less: common stock to be acquired by MRDP(4).... (646) (760) (874) (1,005)
---------- ---------- ---------- ----------
Pro forma stockholders' equity(7).............. $ 28,658 $ 31,134 $ 33,609 $ 36,456
========== ========== ========== ==========
Consolidated stockholders' equity per share(6)(8):
Historical(6).................................... $ 9.36 $ 7.96 $ 6.92 $ 6.02
Estimated net proceeds........................... 9.58 9.63 9.66 9.69
Less: common stock acquired by ESOP............. (0.80) (0.80) (0.80) (0.80)
Less: common stock to be acquired by MRDP(4).... (0.40) (0.40) (0.40) (0.40)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share(7).... $ 17.74 $ 16.39 $ 15.38 $ 14.51
========== ========== ========== ==========
Purchase price as a percentage of pro forma
stockholders' equity per share................... 56.37% 61.01% 65.02% 68.92%
Purchase price as a multiple of pro forma
net income per share(10)......................... 17.86x 19.23x 22.73x 25.00x
</TABLE>
(Footnotes on page __ )
19
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
----------------------------------------------------------
15% ABOVE
MINIMUM OF MIDPOINT OF MAXIMUM OF MAXIMUM OF
ESTIMATED ESTIMATED ESTIMATED ESTIMATED
VALUATION VALUATION VALUATION VALUATION
PRICE PRICE PRICE PRICE
---------- ----------- ---------- ------------
1,615,000 1,900,000 2,185,000 2,512,750(1)
SHARES SHARES SHARES SHARES
AT $10.00 AT $10.00 AT $10.00 AT $10.00
PER SHARE PER SHARE PER SHARE PER SHARE
---------- ----------- ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds..................................... $ 16,150 $ 19,000 $ 21,850 $ 25,128
Less: estimated expenses.......................... (671) (703) (736) (774)
---------- ---------- ---------- ----------
Estimated net proceeds............................. 15,479 18,297 21,114 24,354
Less: common stock acquired by ESOP............... (1,292) (1,520) (1,748) (2,010)
Less: common stock to be acquired by MRDP......... (646) (760) (874) (1,005)
---------- ---------- ---------- ----------
Net investable proceeds........................... $ 13,541 $ 16,017 $ 18,492 $ 21,339
========== ========== ========== ==========
Consolidated net income:
Historical........................................ $ 880 $ 880 $ 880 $ 880
Pro forma income on net proceeds(2)............... 359 424 490 565
Pro forma ESOP adjustments(3)..................... (65) (76) (87) (101)
Pro forma MRDP adjustments(4)..................... (78) (91) (105) (121)
---------- ---------- ---------- ----------
Pro forma net income............................ $ 1,096 $ 1,137 $ 1,178 $ 1,223
========== ========== ========== ==========
Consolidated net income per share(5)(6):
Historical........................................ $ 0.58 $ 0.50 $ 0.43 $ 0.38
Pro forma income on net proceeds(2)............... 0.24 0.24 0.24 0.24
Pro forma ESOP adjustments(3)..................... (0.04) (0.04) (0.04) (0.04)
Pro forma MRDP adjustments(4)..................... (0.05) (0.05) (0.05) (0.05)
---------- ---------- ---------- ----------
Pro forma net income per share.................. $ 0.73 $ 0.65 $ 0.58 $ 0.53
========== ========== ========== ==========
Consolidated stockholders' equity (book value):
Historical........................................ $ 14,949 $ 14,949 $ 14,949 $ 14,949
Estimated net proceeds............................ 15,479 18,297 21,114 24,354
Less: common stock acquired by ESOP.............. (1,292) (1,520) (1,748) (2,010)
Less: common stock to be acquired by MRDP(4)..... (646) (760) (874) (1,005)
---------- ---------- ---------- ----------
Pro forma stockholders' equity(7)............... $ 28,490 $ 30,966 $ 33,441 $ 36,288
========== ========== ========== ==========
Consolidated stockholders' equity per share(6)(8):
Historical(6)..................................... $ 9.26 $ 7.87 $ 6.84 $ 5.95
Estimated net proceeds............................ 9.58 9.63 9.66 9.69
Less: common stock acquired by ESOP.............. (0.80) (0.80) (0.80) (0.80)
Less: common stock to be acquired by MRDP(4)..... (0.40) (0.40) (0.40) (0.40)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share(7)..... $ 17.64 $ 16.30 $ 15.30 $ 14.44
========== ========== ========== ==========
Purchase price as a percentage of pro forma
stockholders' equity per share.................. 56.69% 61.35% 65.36% 69.25%
Purchase price as a multiple of pro forma
net income per share(10)........................ 13.70x 15.38x 17.24x 18.87x
</TABLE>
(Footnotes on following page)
20
<PAGE>
- --------------------
(1) Gives effect to the sale of an additional 327,750 shares in the conversion,
which may be issued to cover an increase in the pro forma market value of
the Holding Company and the Bank as converted, without the resolicitation
of subscribers or any right of cancellation. The issuance of such
additional shares will be conditioned on a determination by Capital
Resources Group that such issuance is compatible with its determination of
the estimated pro forma market value of the Holding Company and the Bank as
converted. See "THE CONVERSION -- Stock Pricing and Number of Shares to be
Issued."
(2) No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing common stock in the conversion. Since funds on
deposit at the Bank may be withdrawn to purchase shares of common stock
(which will reduce deposits by the amount of such purchases), the net
amount of funds available to the Bank for investment following receipt of
the net proceeds of the conversion will be reduced by the amount of such
withdrawals.
(3) Assumes that the ESOP will purchase 8% of the shares of common stock
offered in the conversion. The funds used to acquire such shares will be
borrowed by the ESOP (at an interest rate equal to the prime rate as
published in The Wall Street Journal on the closing date of the conversion,
which rate is currently 7.75%) from the net proceeds from the conversion
retained by the Holding Company. The amount of this borrowing has been
reflected as a reduction from gross proceeds to determine estimated net
investable proceeds. The Bank intends to make contributions to the ESOP in
amounts at least equal to the principal and interest requirement of the
debt. As the debt is paid down, stockholders' equity will be increased.
The Bank's payment of the ESOP debt is based upon equal installments of
principal over a 12-year period, assuming a combined federal and state
income tax rate of 40.0%. Interest income earned by the Holding Company on
the ESOP debt offsets the interest paid by the Bank on the ESOP loan. No
reinvestment is assumed on proceeds contributed to fund the ESOP.
Applicable accounting practices require that compensation expense for the
ESOP be based upon shares committed to be released and that unallocated
shares be excluded from earnings per share computations. The valuation of
shares committed to be released would be based upon the average market
value of the shares during the year, which, for purposes of this
calculation, was assumed to be equal to the $10.00 per share purchase
price. See "MANAGEMENT OF THE BANK -- Benefits -- Employee Stock Ownership
Plan."
(4) In calculating the pro forma effect of the MRDP, it is assumed that the
required stockholder approval has been received, that the shares were
acquired by the MRDP at the beginning of the period presented in open
market purchases at the $10.00 per share purchase price, that 20% of the
amount contributed was an amortized expense during such period, and that
the combined federal and state income tax rate is 40.0%. The issuance of
authorized but unissued shares of the common stock instead of open market
purchases would dilute the voting interests of existing stockholders by
approximately 3.85% and pro forma net income per share would be $0.14,
$0.12, $0.11 and $0.10 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range for the three months ended
September 30, 1998, respectively, and $0.72, $0.63, $0.57 and $0.52 at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range for the year ended June 30, 1998, respectively, and pro
forma stockholders' equity per share would be $17.45, $16.14, $15.17 and
$14.33 at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range at September 30, 1998, respectively $17.35,
$16.06, $15.10 and $14.27 at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Valuation Range at June 30, 1998,
respectively. For purposes of this table, shares issued under the MRDP
vest 20% per year and compensation expense is recognized on a straight-line
basis over each vesting period. In the event the fair market value per
share is greater than $10.00 per share on the date shares are awarded under
the MRDP, total MRDP expense would increase. The total estimated MRDP
expense was multiplied by 20% (the total percent of shares for which
expense is recognized in the first year) resulting in pre-tax MRDP expense
of $32,300, $38,000, $43,700 and $50,300 at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range for the three
months ended September 30, 1998, respectively and $129,200, $152,000,
$175,000 and $201,000 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range for the year ended June 30, 1998,
respectively. No effect has been given to the shares reserved for issuance
under the proposed Stock Option Plan.
(5) Per share amounts are based upon shares outstanding of 1,487,146,
1,749,583, 2,012,021 and 2,313,824 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range for the three months
ended September 30, 1998, respectively 1,491,183, 1,754,333, 2,017,483 and
2,320,106 at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range for the year ended June 30, 1998,
respectively, which includes the shares of common stock sold in the
conversion less the number of shares assumed to be held by the ESOP not
committed to be released within the first year following the conversion.
(6) Historical per share amounts have been computed as if the shares of common
stock expected to be issued in the conversion had been outstanding at the
beginning of the period or on the date shown, but without any adjustment of
historical net income or historical retained earnings to reflect the
investment of the estimated net proceeds of the sale of shares in the
conversion, the additional ESOP expense or the proposed MRDP expense, as
described above.
(7) "Book value" represents the difference between the stated amounts of the
Bank's assets and liabilities. The amounts shown do not reflect the
liquidation account, which will be established for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in the
conversion, or the federal income tax consequences of the restoration to
income of the Bank's special bad debt reserves for income tax purposes
which would be required in the unlikely event of liquidation. See "THE
CONVERSION -- Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank" and "TAXATION." The amounts shown for book value do
not represent fair market values or amounts distributable to stockholders
in the unlikely event of liquidation.
(8) Per share amounts are based upon shares outstanding of 1,615,000,
1,900,000, 2,185,000 and 2,512,750 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively.
(9) Does not represent possible future price appreciation or depreciation of
the common stock.
(10) Annualized
21
<PAGE>
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as to the approximate
purchases of common stock by each director and executive officer of the Bank,
including their associates, as defined by applicable regulations. No individual
has entered into a binding agreement with respect to such intended purchases,
and, therefore, actual purchases could be more or less than indicated below.
Directors and officers of the Bank and their associates may not purchase in
excess of 33% of the shares sold in the conversion. For purposes of the
following table, it has been assumed that sufficient shares will be available to
satisfy subscriptions in all categories. Directors, officers, their associates
and employees will pay the same price as all other subscribers for the shares
for which they subscribe.
<TABLE>
<CAPTION>
PERCENT OF
SHARES AT
MAXIMUM OF
ANTICIPATED NUMBER OF ANTICIPATED DOLLAR ESTIMATED
NAME AND POSITION SHARES PURCHASED(1) AMOUNT PURCHASED VALUATION RANGE
- ----------------- --------------------- ------------------ ---------------
<S> <C> <C> <C>
Robert L. Clayton, Sr. 5,000 $ 50,000 0.2%
Director
Herbert V. Dassel 20,000 200,000 0.9%
Director
Frank E. Kern 4,000 40,000 0.2%
Director
James L. Will, Jr. 10,000 100,000 0.5%
Director
Jerry Ziemer 15,000 150,000 0.7%
Director
Harold Duncan 15,000 150,000 0.7%
President, Chief Executive
Officer and Director
Michael H. Head 20,000 200,000 0.9%
Executive Vice President and
Chief Operating Officer
Monica L. Stinchfield 1,000 10,000 0.0%
Senior Vice President
Christopher A. Bengert 600 6,000 0.0%
Senior Vice President and
Treasurer
Richard L. Witte 500 5,000 0.0%
Vice President ------ -------- ---
91,000 $911,000 4.2%
====== ======== ===
</TABLE>
_____________________________
(1) Does not include any shares to be awarded pursuant to the ESOP and MRDP or
options to acquire shares awarded pursuant to the Stock Option Plan.
22
<PAGE>
FIRST FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
The following Consolidated Statement of Income of First Federal Savings
Bank for the fiscal years ended June 30, 1998, 1997 and 1996 has been audited by
Olive LLP, independent auditors, whose report thereon appears elsewhere in this
prospectus. The Consolidated Statement of Income for the three months ended
September 30, 1998 and 1997 was not audited by Olive LLP, but, in the opinion of
management, reflect all adjustments (none of which are other than normal
recurring entries) necessary for a fair presentation. The results of operations
for the three months ended September 30, 1998 are not necessarily indicative of
the results of operations that may be expected for the entire fiscal year. This
statement should be read in conjunction with the Consolidated Financial
Statements and related Notes included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED JUNE 30,
----------------------- -----------------------------------
1998 1997 1998 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest income:
Loans receivable, including fees..................... $ 744,657 $ 660,287 $2,694,771 $2,580,620 $2,602,248
Investment securities:
Mortgage-backed securities.......................... 579,840 687,485 2,664,326 2,771,610 2,974,734
Other investment securities......................... 249,833 350,283 1,443,477 1,313,347 873,474
Deposits with financial institutions................. 231,809 164,250 818,200 719,044 713,306
Federal funds sold................................... 10,302 9,436 35,277 30,592 32,532
Other interest and dividend income................... 14,722 15,126 58,650 58,550 98,658
---------- ---------- ---------- ---------- ----------
Total interest income.............................. 1,831,163 1,886,867 7,714,701 7,473,763 7,294,952
---------- ---------- ---------- ---------- ----------
Interest expense:
Deposits............................................. 1,119,852 1,078,314 4,584,001 4,301,758 4,292,375
Borrowings........................................... 52,865 105,027 354,630 432,896 334,477
Other................................................ 11,892 8,315 37,993 27,893 17,717
---------- ---------- ---------- ---------- ----------
Total interest expense............................. 1,184,609 1,191,656 4,976,624 4,762,547 4,644,569
---------- ---------- ---------- ---------- ----------
Net interest income................................... 646,554 695,211 2,738,077 2,711,216 2,650,383
Provision for loan losses............................. -- -- -- -- 100,000
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan losses... 646,554 695,211 2,738,077 2,711,216 2,550,383
---------- ---------- ---------- ---------- ----------
Other income:
Gain on disposal of branch office.................... -- -- 261,024 -- --
Gain on disposal of deposits......................... -- -- 138,528 -- --
Increase in cash surrender values of life insurance.. 23,334 19,704 87,234 81,975 83,364
Other income......................................... 51,398 22,898 114,601 97,971 85,808
---------- ---------- ---------- ---------- ----------
Total other income................................. 74,732 42,602 601,387 179,946 169,172
---------- ---------- ---------- ---------- ----------
Other expense:
Salaries and employee benefits...................... 280,869 225,658 1,134,397 972,717 947,422
Net occupancy expense............................... 43,627 30,836 181,065 141,808 161,937
Equipment expense................................... 28,233 17,623 103,749 65,660 62,273
Deposit insurance expense........................... 14,699 14,103 56,468 118,678 199,162
SAIF special assessment............................. -- -- -- 561,290 --
Data processing fees................................ 25,672 21,622 99,478 86,588 88,621
Other expenses...................................... 112,843 104,912 469,117 444,622 441,242
---------- ---------- ---------- ---------- ----------
Total other expense............................... 505,943 414,754 2,044,274 2,391,363 1,900,657
---------- ---------- ---------- ---------- ----------
Income before income tax............................. 215,343 323,059 1,295,190 499,799 818,898
Income tax expense.................................. 60,776 107,729 415,486 112,439 198,852
---------- ---------- ---------- ---------- ----------
Net income........................................... $ 154,567 $ 215,330 $ 879,704 $ 387,360 $ 620,046
========== ========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Bank. The information contained in this section
should be read in conjunction with the consolidated financial statements and
accompanying notes thereto contained in this prospectus.
OPERATING STRATEGY
The principal business activity of the bank consists of attracting deposits
from the general public and originating loans secured by one-to-four family
residential real estate properties located in its market area. The Bank also
maintains a substantial investment portfolio of mortgage-backed and other
securities. Earnings depend primarily upon net interest income, which is the
difference between the interest income the Bank receives on its loan and
investment portfolios and the interest it pays on deposits and borrowings. The
Bank's profitability is also affected by the level of other income and expenses.
Other income includes service charges, fees and gains on sales of loans. Other
expenses include compensation and benefits, occupancy and equipment expenses,
deposit insurance premiums, and data processing. The Bank's profitability is
also significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government legislation and
regulation, and monetary and fiscal policies.
The Bank's strategy is to operate as an independent, retail financial
institution dedicated to financing home ownership and other consumer needs in
Evansville, Indiana. The Bank's operating philosophy has been to be
conservative with respect to its underwriting standards and maintain a high
level of asset quality, while generating profits, remaining well capitalized and
providing a high level of customer service. The Bank's current business
strategy includes an emphasis on increasing its mortgage loan, consumer loan and
loan servicing portfolios. It also includes continued maintenance of a
substantial investment portfolio of U.S. government and agency securities and
investment grade mortgage-backed securities and deposit growth to support the
growth in loans and investments.
The conversion will increase the consolidated capital of the Holding
Company by the amount of the net proceeds, after deduction for the shares to be
sold to the ESOP. Funds withdrawn from deposit accounts to purchase shares will
decrease interest-bearing liabilities, and new funds used to purchase shares
will increase interest-earning assets. While the Holding Company expects these
changes to increase its net interest income, the Holding Company also expects
that the adoption of the ESOP and the 1999 MRDP will increase its non-interest
expenses. See "RISK FACTORS -- Expenses Associated with ESOP and 1999 MRDP."
For additional information regarding the effects of this offering, see "PRO
FORMA DATA."
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1998 AND JUNE 30, 1998
Total assets increased $2.7 million, or 2.4%, to $111.6 million at
September 30, 1998 compared to June 30, 1998. The largest increase was in
loans, which increased $2.5 million, or 7.09%. The increase in loans was
principally in real estate mortgage loans, and was a result of the Bank's
competitive mortgage interest rates in its target market, favorable nationwide
mortgage rates which spurred an increase in home purchases and refinancing, and
the results of hiring of a new loan originator in fiscal 1998. The growth in
loans was primarily funded by an increase in deposits of $1.7 million, or 1.9%.
The deposit increase can be attributed primarily to competitive interest rates
offered on certificates of deposit and money market accounts. Borrowings were
unchanged.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND 1997
Total assets at June 30, 1998 were $109.0 million compared to $110.7
million at June 30, 1997. The decrease of $1.7 million, or 1.6%, was a result
of management's decision to use funds from maturing securities to fund loan
growth and debt maturities. In order to cover the liquidity needs of expected
loan growth, as investments matured, cash in excess of that needed for immediate
loans was maintained in cash and cash equivalents. Investment securities
24
<PAGE>
decreased by $6.6 million. This was offset by a $3.5 million increase in loans.
The growth in loans was primarily in mortgage loans, which increased 12.2%, or
$3.8 million. The growth in mortgage loans was in part due to the Bank's
competitive mortgage rates, nationally decreasing rates, and the hiring of a
loan originator. The Bank reduced its borrowings from the Federal Home Loan
Bank by $3.4 million. The majority of this decrease was the payoff of $3.0
million in fixed rate advances from the FHLB in February 1998.
Equity capital increased $895,000 because of $880,000 in net income and a
$15,000 increase in the unrealized gain on securities available for sale due to
decreases in market rates of interest and a corresponding increase in the market
value of the Bank's investments.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
AND 1997
GENERAL. Net income decreased by $60,000 to $155,000 for the three months
ended September 30, 1998 from $215,000 for the same period in 1997. The
decrease was primarily related to a decrease in net interest income caused by
the narrowing of the Bank's interest rate spread to 1.97% compared to 2.15% for
the first quarter last year and to increased other expenses. The decrease in
the interest rate spread is due to management's decision to offer competitive
mortgage interest rates in an effort to increase the Bank's loan portfolio, and
to offer certificates of deposit and money market accounts at rates slightly
higher than that of its competition to attract the funds to support loan growth.
NET INTEREST INCOME. Net interest income decreased $49,000, or 7.1%, to
$646,000 in the first quarter of fiscal 1999 compared to the first quarter last
year primarily as a result of the narrowing of the Bank's interest rate spread.
Total interest income decreased by 3.0% to $1.8 million for the three months
ended September 30, 1998, from $1.9 million for the same period ending in 1997.
This decrease was caused by both a reduced yield on investment securities and a
reallocation of the portfolio of interest earning assets from securities to
lower yielding deposits with financial institutions. Interest income on loans
increased as the result of the growth of the portfolio, while interest income on
investment securities decreased as a result of the reduction of the portfolio
and lower yield. The average yield on interest-earning assets decreased to
6.99% for the three months ended September 30, 1998 from 7.16% for the three
months ended September 30, 1997 primarily as a result of the maturity, repricing
and repayment of higher yielding securities.
Interest expense decreased by $7,000 for the three months ended September
30, 1998 in comparison to the same period in 1997. The average cost of total
interest bearing liabilities remained unchanged at 5.02%. The decrease in
interest expense resulted from a net decrease in average total interest bearing
liabilities of $659,000. The increase in average deposits included increases in
demand and savings accounts of $1.3 million and certificates of deposit of $1.3
million. These increases were offset by reduced borrowings.
The following table sets forth for the three months ended September 30,
1998 and 1997 information regarding average balances of assets and liabilities
as well as the total dollar amounts of interest income from average interest-
earning assets and interest expense on average interest-bearing liabilities and
average yields and costs. Such yields and costs for the periods indicated are
derived by dividing income or expense by the average balances of assets or
liabilities, respectively, for the periods presented.
25
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------
1998 1997
--------------------------------- ----------------------------------
INTEREST INTEREST
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS COST(1) BALANCE DIVIDENDS COST(1)
------- --------- ------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans receivable, net(2)................. $ 36,169 $ 744 8.23% $ 32,052 $ 660 8.24%
Investment securities.................... 51,728 830 6.42 60,590 1,039 6.86
Deposits with financial institutions..... 15,377 232 6.03 11,339 164 5.79
Federal funds sold....................... 737 10 5.43 671 9 5.37
Other.................................... 727 15 8.25 727 15 8.25
-------- ------ -------- ------
Total interest-earning assets......... 104,738 1,831 6.99 105,379 1,887 7.16
Non-interest-earning assets................. 5,869 5,031
-------- --------
Total assets.......................... $110,607 $110,410
======== ========
Interest-bearing liabilities:
Demand and savings deposits.............. $ 21,738 160 2.94 $ 20,376 135 2.65
Certificates of deposit.................. 68,520 960 5.60 67,254 944 5.61
-------- ------ -------- ------
Total deposits........................ 90,258 1,120 4.96 87,630 1,079 4.93
Borrowings............................... 3,645 53 5.82 7,050 105 5.96
Other.................................... 475 12 10.11 357 8 8.96
-------- ------ -------- ------
Total interest-bearing liabilities.... 94,378 1,185 5.02 95,037 1,192 5.02
------ ------
Noninterest-bearing liabilities............. 1,209 1,220
Stockholders' equity........................ 15,020 14,153
-------- --------
Total liabilities and stockholders'
equity............................ $110,607 $110,410
======== ========
Net interest income......................... $ 646 $ 695
====== ======
Interest rate spread(3)..................... 1.97% 2.14%
Net interest margin(4)...................... 2.47% 2.64%
Ratio of average interest-earning assets 110.98% 110.88%
to average interest-bearing liabilities..
</TABLE>
____________________________
(1) Amounts are annualized.
(2) Average loans receivable includes nonperforming loans. Interest income
includes interest and fees on loans, but does not include interest on loans
90 days or more past due.
(3) Yield on interest-earning assets less cost of interest-bearing liabilities.
(4) Net interest income as a percentage of average interest-earning assets.
26
<PAGE>
The following table sets forth the effects of changing rates and volumes on
net interest income of the Bank. Information is provided with respect to (i)
effects on interest income attributable to changes in volume (changes in volume
multiplied by prior rate) and (ii) effects on interest income attributable to
changes in rate (changes in rate multiplied by prior volume). Changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1998 COMPARED TO 1997
--------------------------------
INCREASE (DECREASE)
DUE TO
-------------------
RATE VOLUME NET
------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest earning assets:
Loans receivable, net(2) $ (1) $ 85 $ 84
Investment securities (64) (145) (209)
Deposits with financial institutions 7 61 68
Federal funds sold -- 1 1
Other -- -- --
---- ----- -----
Total net change in income on interest-earning assets (58) 2 (56)
Interest-bearing liabilities:
Demand and savings deposits 15 10 25
Certificates of deposit -- 16 16
---- ----- -----
Total deposits 15 26 41
Borrowings (3) (49) (52)
Other 1 3 4
---- ----- -----
Total net change in expense on interest-bearing liabilities 13 (20) (7)
---- ----- -----
Net change in net interest income $(71) $ 22 $ (49)
==== ===== =====
</TABLE>
PROVISION FOR LOAN LOSSES. The provision for loan losses is determined by
management as the amount to be added to the allowance for loan losses after net
charge-offs have been deducted to bring the allowance to a level which is
considered adequate to absorb losses inherent in the loan portfolio. As a
result of the Bank's focus on residential mortgage loans and adherence to strict
underwriting and collection guidelines, the Bank's historical loan loss
experience has been low. No assurances, however, can be given as to future loss
experience. For the three months ended September 30, 1998 and 1997, the Bank
took no provision for loan losses.
OTHER INCOME. Other income increased $32,000 to $75,000 for the three
months ended September 30, 1998. This increase was primarily due to an increase
in ATM fees and increased gains on the sale of mortgage loans. Interest rates
declined during the three months ended September 30, 1998, which increased the
market value of loans originated by the Bank and then later sold.
OTHER EXPENSE. Other expenses increased 22% to $506,000 for the three
months ended September 30, 1998 from $415,000 for the same period in 1997. The
majority of this increase is attributable to a 24.5% increase in salaries and
employee benefits. At September 30, 1998 the Bank had 40 employees compared to
33 employees at September 30, 1997. With the Bank's increased focus on the
origination of mortgage loans, additional personnel were necessary in the
mortgage loan department in order to originate and service new loans.
Additional employees were also hired in the areas of technology and branch
administration.
INCOME TAX EXPENSE. Total income tax expense was $61,000 for the three
months ended September 30, 1998, compared to $108,000 for the three months ended
September 30, 1997. This decrease is associated with the decrease
27
<PAGE>
in income before tax expense of $108,000. The effective tax rate was 28.2% for
the three months ending September 30, 1998, as compared to 33.3% for the same
period in 1997.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
GENERAL. Net income increased by $493,000 to $880,000 for the year ended
June 30, 1998, from $387,000 for the fiscal year ended June 30, 1997. The
majority of the increase was due to a branch sale in fiscal 1998 and the one-
time SAIF assessment in fiscal 1997. Net interest income increased $27,000 or
less than 1%.
Net income decreased by 38%, to $387,000 for the year ended June 30, 1997,
compared to $620,000 for the year ended June 30, 1996. Net interest income
increased by $61,000 from fiscal 1996 to fiscal 1997, but the one-time SAIF
assessment negatively impacted June 30, 1997 pre-tax income by $561,000.
NET INTEREST INCOME. Net interest income increased less than 1% to $2.7
million in fiscal 1998. Interest income increased $241,000 to $7.7 million for
fiscal 1998 from $7.5 million for fiscal 1997. The increase was the result of
the Bank's increased focus on the origination of loans, which generated a
slightly higher rate of interest than investments, and to larger average
balances of investment securities and deposits with financial institutions. The
average yield on interest-earning assets increased to 7.12% for fiscal 1998 from
7.05% for fiscal 1997.
Interest expense increased by $214,000 to $5.0 million for fiscal 1998 from
$4.8 million for fiscal 1997. The increase in interest expense was due to an
increase in interest bearing deposits, primarily certificates of deposit, and a
12 basis point increase in the average cost of interest bearing liabilities.
Certificates of deposit were the Bank's largest type of interest-bearing
liability, comprising, on average, 73% of the total. The average balance of
certificates of deposit outstanding during the year increased $5.2 million, to
$71.8 million from $66.6 million for fiscal 1997. Additionally, the average
yield on certificates of deposit increased 8 basis points, to 5.68% from 5.60%
for fiscal 1997. Following the sale of a branch office and the opening of a new
office in October 1997 the Bank offered a short-term certificate of deposit at
an above-market rate in order to attract customers to its new branch. There was
also an increase in the average cost of borrowings, which was partially offset
by decreases in the average cost of demand and savings deposits and in other
interest bearing liabilities.
Net interest income increased $61,000, or 2.3%, from fiscal 1996 to fiscal
1997. Total interest income for fiscal 1997 increased by $179,000, or 2.5%,
over the prior year to $7.5 million. While the average yield on interest
earning assets decreased slightly to 7.05% for fiscal 1997 compared to 7.07% for
fiscal 1996, the average balance outstanding of interest-earning assets
increased by $2.9 million, to $106.1 million for fiscal 1997 from $103.2 million
for fiscal 1996. The largest increase was in investment securities.
Interest expense for fiscal 1997 increased $118,000, or 2.5%, over fiscal
1996 to $4.8 million. The average cost of interest-bearing liabilities was
essentially unchanged. However, the average balance of interest-bearing
liabilities increased 2.8% to $95.8 million for fiscal 1997 from $93.2 million
for fiscal 1996 as a result of increases in the average balances of
certificates of deposit and borrowings.
The following table sets forth for the years ended June 30, 1998, 1997 and
1996 information regarding average balances of assets and liabilities as well as
the total dollar amounts of interest income from average interest-earning assets
and interest expense on average interest-bearing liabilities and average yields
and costs. Such yields and costs for the periods indicated are derived by
dividing income or expense by the average balances of assets or liabilities,
respectively, for the periods presented.
28
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ----------------------------- -----------------------------
INTEREST INTEREST INTEREST
AVERAGE AND YIELD/ AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ------ ------- --------- ------ ------- --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)............ $ 32,675 $2,695 8.25% $ 32,000 $2,581 8.07% $ 31,916 $2,602 8.15%
Investment securities.......... 60,379 4,108 6.80 60,034 4,085 6.80 57,782 3,848 6.66
Deposits with financial
institutions.................. 13,909 818 5.88 12,729 719 5.65 12,134 713 5.88
Federal funds sold............. 637 35 5.49 572 31 5.42 587 33 5.62
Other.......................... 727 59 8.12 727 58 7.98 762 99 12.99
-------- ------ -------- ------ -------- ------
Total interest-earning
assets....................... 108,327 7,715 7.12 106,062 7,474 7.05 103,181 7,295 7.07
Non-interest-earning assets..... 5,589 4,822 4,691
-------- -------- --------
Total assets.................. $113,916 $110,884 $107,872
======== ======== ========
Interest-bearing liabilities:
Demand and savings accounts... $ 19,573 500 2.55 $ 21,379 571 2.67 $ 22,821 648 2.84
Certificates of deposit....... 71,847 4,084 5.68 66,636 3,731 5.60 64,565 3,644 5.64
-------- ------ -------- ------ -------- ------
Total deposits............... 91,420 4,584 5.01 88,015 4,302 4.89 87,386 4,292 4.91
Borrowings.................... 5,991 355 5.93 7,498 433 5.77 5,655 335 5.92
Other......................... 400 38 9.50 288 28 9.72 184 18 9.78
-------- ------ -------- ------ -------- ------
Total interest-bearing
liabilities................. 97,811 4,977 5.09 95,801 4,763 4.97 93,225 4,645 4.98
Non-interest-bearing
liabilities................... 1,536 1,386 1,341
Stockholders' equity........... 14,569 13,697 13,306
-------- -------- --------
Total liabilities and
stockholders' equity........ $113,916 $110,884 $107,872
======== ======== ========
Net interest income............ $2,738 $2,711 $2,650
====== ====== ======
Interest rate spread(2)........ 2.03% 2.08% 2.09%
Net interest margin(3)......... 2.53% 2.56% 2.57%
Ratio of average
interest-earning assets
to average interest-bearing
liabilities................... 110.75% 110.71% 110.68%
</TABLE>
- ----------------------
(1) Average loans receivable includes nonperforming loans. Interest income
includes interest and fees on loans, but does not include interest on loans
90 days or more past due.
(2) Yield on interest-earning assets less cost of interest-bearing liabilities.
(3) Net interest income as a percentage of average interest-earning assets.
29
<PAGE>
The following table sets forth the effects of changing rates and volumes on
net interest income of the Bank for the years ended June 30, 1998, 1997 and
1996. Information is provided with respect to (i) effects on interest income
attributable to changes in volume (changes in volume multiplied by prior rate)
and (ii) effects on interest income attributable to changes in rate (changes in
rate multiplied by prior volume). Changes attributable to the combined input of
volume and rate have allocated proportionately to the changes due to volume and
the changes due to rate.
<TABLE>
<CAPTION>
1998 VS. 1997 1997 VS. 1996
-------------------------------- --------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
-------------------------------- --------------------------------
RATE VOLUME NET RATE VOLUME NET
---------- ---------- -------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Interest-earning assets:
Loans receivable, net........... $ 59 $ 55 $114 $(28) $ 7 $(21)
Investment securities........... (1) 24 23 84 153 237
Deposits with financial
institutions.................. 31 68 99 (24) 30 6
Federal funds sold.............. 1 3 4 (1) (1) (2)
Other........................... 1 -- 1 (37) (4) (41)
---- ---- ---- ---- ---- ----
Total net change in income on
interest-earning assets..... 91 150 241 (6) 185 179
Interest-bearing liabilities:
Demand and savings accounts..... (24) (47) (71) (38) (39) (77)
Certificates of deposit......... 57 296 353 (28) 115 87
---- ---- ---- ---- ---- ----
Total deposits................ 33 249 282 (66) 76 10
Borrowings...................... 11 (89) (78) (8) 106 98
Other........................... (1) 11 10 -- 10 10
---- ---- ---- ---- ---- ----
Total net change in expense
on interest-bearing
liabilities................. 43 171 214 (74) 192 118
---- ---- ---- ---- ---- ----
Net change in net interest
income $ 48 $(21) $ 27 $ 68 $ (7) $ 61
==== ==== ==== ==== ==== ====
</TABLE>
PROVISION FOR LOAN LOSSES. The Bank took no provision for loan losses in
fiscal 1998 or fiscal 1997. The provision for loan losses was $100,000 in fiscal
1996. The provision reflected management's concerns about possible downturns in
the economy.
OTHER INCOME. Other income increased by $422,000, to $601,000 for fiscal
1998 from $179,000 for fiscal 1997. Included in other income for fiscal 1998 are
gains on the sale of real estate, equipment and deposit accounts from the Bank's
sale of its Mt. Vernon, Indiana branch in October 1997. The Bank recognized
gains on the sale of real estate and equipment of $261,000 and gains on the sale
of deposits of $139,000. The primary components of other income are loan
servicing, deposit, ATM and other customer fees, increases in cash surrender
value of life insurance, and gains on sales of loans.
Other income increased by 6.4% to $179,000 for fiscal 1997 from $169,000
for fiscal 1996.
OTHER EXPENSE. Other expenses decreased by 14.5%, to $2.0 million during
fiscal 1998 from $2.4 million for fiscal 1997. This decrease was principally
associated with the $561,000 one time SAIF assessment that was paid and expensed
during fiscal 1997. Pursuant to legislation enacted on September 30, 1996, the
FDIC imposed a one-time special assessment on deposits held by financial
institutions that are insured through the SAIF. The special assessment was equal
to $.657 per $100 of insured deposits and was required to be applied against
SAIF assessable deposits held as of March 31, 1995. The assessment had the
effect of reducing the Bank's assessment per $1,000 of insured deposits, from
$.23 to $0.648. Salaries and employee benefits increased $162,000, or 16.6%,
from fiscal 1997. The Bank, in addition to normal increases, added personnel to
the mortgage loan department, technology, and branch administration.
30
<PAGE>
In addition to selling the Mt. Vernon, Indiana branch, as discussed above, the
Bank also purchased a new branch location from another financial institution and
opened this location for business. Additional personnel were added to operate
this full-service branch. Net occupancy and equipment expense also combined to
reflect an increase of $77,000 for fiscal 1998 over fiscal 1997. Reasons for
this increase included depreciation and related costs for the new branch, as
well as for significant improvements in the area of technology.
Other expense for fiscal 1997 increased by $491,000, or 26%, over fiscal
1996. The biggest increase in other expense was the one-time SAIF assessment.
This was partially offset by a related decrease in federal deposit insurance
expense of $80,000. Without this one-time expense, other expenses would have
increased by less than 1% from fiscal 1996.
INCOME TAX EXPENSE. Income tax expense increased $303,000 to $415,000 for
fiscal 1998 from $112,000 for fiscal 1997 as a result of the increase in taxable
income. The effective tax rate increased to 32% for fiscal 1998 from 22% for
fiscal 1997 due principally to an increased amount of earnings relative to a
consistent amount of tax credits from the Bank's investment in a low-income
apartment complex. The Bank receives approximately $73,000 per year in low-
income housing tax credits through this investment. Such credits are expected to
be available through February 2004.
Income tax expense decreased in fiscal 1997 from fiscal 1996 due to the
decrease in net income. The effective tax rate decreased to 22% for fiscal 1997
from 24% for fiscal 1996.
ASSET AND LIABILITY MANAGEMENT
QUANTITATIVE ASPECTS OF MARKET RISK. The Bank does not maintain a trading
account for any class of financial instrument nor does the Bank engage in
hedging activities or purchase high-risk derivative instruments. Furthermore,
the Bank is not subject to foreign currency exchange rate risk or commodity
price risk. For information regarding the sensitivity to interest rate risk of
the Bank's interest-earning assets and interest-bearing liabilities, see the
tables under "BUSINESS OF THE BANK -- Lending Activities -- Loan Portfolio
Analysis," "-- Investment Activities" and "-- Deposit Activities and Other
Sources of Funds -- Deposit Accounts."
QUALITATIVE ASPECTS OF MARKET RISK. The Bank's principal financial
objective is to achieve long-term profitability while reducing its exposure to
fluctuating market interest rates. The Bank has sought to reduce the exposure of
its earnings to changes in market interest rates by attempting to manage the
mismatch between asset and liability maturities and interest rates. In order to
reduce the exposure to interest rate fluctuations, the Bank has developed
strategies to manage its liquidity and shorten its effective maturities of
certain interest-earning assets. Management has sought to decrease the average
maturity of its assets by (1) offering a variety of adjustable-rate residential
mortgage loans and consumer loans, all of which are retained by the Bank for its
portfolio, (2) purchasing mortgage-backed and related securities with adjustable
rates or estimated lives of five to ten years or less, and (3) purchasing short-
to intermediate-term investment securities. In addition, the Bank sells a
portion of its long-term, fixed-rate single-family residential mortgage loans
for cash in the secondary market. The retention of ARM loans and adjustable-rate
mortgage-backed securities, which reprice at regular intervals, helps to ensure
that the yield on the Bank's loan portfolio will be sufficient to offset
increases in the Bank's cost of funds. However, periodic and lifetime interest
rate adjustment limits may prevent ARM loans from repricing to market interest
rates during periods of rapidly rising interest rates. The Bank does not use any
hedging techniques to manage the exposure of its assets to fluctuating market
interest rates. The Bank relies on retail deposits as its primary source of
funds and maintains a moderate proportion of lower-costing passbook, NOW and
money market accounts. The Bank has attempted to lengthen the term of deposits
by offering certificates of deposit with terms of up to ten years. Management
believes retail deposits, compared to brokered deposits, reduce the effects of
interest rate fluctuations because they generally represent a more stable source
of funds.
The Bank uses interest rate sensitivity analysis to measure its interest
rate risk by computing changes in NPV (net portfolio value) of its cash flows
from assets, liabilities and off-balance sheet items in the event of a range of
assumed changes in market interest rates. NPV represents the market value of
portfolio equity and is equal to the market
31
<PAGE>
value of assets minus the market value of liabilities, with adjustments made for
off-balance sheet items. This analysis assesses the risk of loss in market risk
sensitive instruments in the event of a sudden and sustained 100 to 400 basis
point increase or decrease in market interest rates with no effect given to any
steps that management might take to counter the effect of that interest rate
movement. Using data compiled by the OTS, the Bank receives a report that
measures interest rate risk by modeling the change in NPV (net portfolio value)
over a variety of interest rate scenarios. This procedure for measuring interest
rate risk was developed by the OTS to replace the "gap" analysis (the difference
between interest-earning assets and interest-bearing liabilities that mature or
reprice within a specific time period).
The following table is provided by the OTS and sets forth the change in the
Bank's NPV at September 30, 1998, based on OTS assumptions, that would occur in
the event of an immediate change in interest rates, with no effect given to any
steps that management might take to counteract that change.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE
-------------------------------------------------------------------------
NET PORTFOLIO VALUE PORTFOLIO VALUE OF ASSETS
------------------------------------------ -----------------------------
BASIS POINT ("BP")
CHANGE IN RATES $ AMOUNT $ CHANGE (1) % CHANGE NPV RATIO CHANGE
- ------------------ -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
400bp 11,980 (5,057) (30.0)% 11.23% (364)bp
300 13,536 (3,502) (21.0) 12.43 (245)
200 15,030 (2,007) (12.0) 13.53 (135)
100 16,171 (867) (5.0) 14.32 (56)
0 17,037 14.87
(100) 17,564 526 3.0 15.16 29
(200) 18,133 1,095 6.0 15.47 60
(300) 18,862 1,825 11.0 15.89 101
(400) 19,625 2,588 15.0 16.31 144
</TABLE>
The above table indicates that in the event of a sudden and sustained
increase in prevailing market interest rates, the Bank's NPV would be expected
to decrease.
Certain assumptions utilized by the OTS in assessing the interest rate risk
of savings associations within the Bank's region were utilized in preparing the
preceding table. These assumptions relate to interest rates, loan prepayment
rates, deposit decay rates, and the market values of certain assets under
differing interest rate scenarios, among others.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates could deviate
significantly from those assumed in calculating the table.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's principal sources of funds are proceeds from maturities of
investment securities, principal payments received on mortgage-backed and
related securities, loan repayments and deposits. While scheduled payments from
the amortization of loans, investment securities and interest-bearing time
deposits are relatively predictable sources of
32
<PAGE>
funds, deposit flows and loan or investment security prepayments are greatly
influenced by general interest rates, economic conditions, and competition. The
Bank has been able to generate sufficient cash through its deposits and has been
able to maintain its borrowings from the FHLB at a relatively low level. Funds
borrowed from the FHLB are generally matched against higher yielding assets of
like amounts with similar maturities to provide a built in margin of interest to
the Bank.
The Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. The Bank invests excess funds in overnight deposits
and other short-term interest-earning assets to provide liquidity to meet these
needs. At September 30, 1998, cash and cash equivalents totaled $14.0 million,
or 12.5% of total assets. At September 30, 1998, the Bank had outstanding
commitments to originate loans of $3.1 million. At the same time, certificates
of deposit which are scheduled to mature in one year or less totaled $37.5
million. Based upon historical experience, management believes the majority of
maturing certificates of deposit will remain with the Bank. In addition,
management of the Bank believes that it can adjust the offering rates of
certificates of deposit to retain deposits in changing interest rate
environments. In the event that a significant portion of these deposits are not
retained by the Bank, the Bank would be able to utilize FHLB advances to fund
deposit withdrawals, which would result in an increase in interest expense to
the extent that the average rate paid on such advances exceeds the average rate
paid on deposits of similar duration.
Federal regulations require the Bank to maintain minimum levels of liquid
assets (i.e., cash and eligible investments). The required percentage has varied
from time to time based upon economic conditions and savings flows and is
currently 4% of the average daily balance of its net withdrawable savings
deposits and short-term borrowings. At September 30, 1998, the Bank's liquidity
ratio (liquid assets as a percentage of net withdrawable savings deposits and
short-term borrowings) was 24.1%.
The primary investing activities of the Bank are originating loans and
purchasing investments and mortgage-backed securities. Proceeds from maturities
of investment securities and principal payments received on mortgage-backed and
related securities, net of purchases, totaled $6.8 million for the year ended
June 30, 1998, while loan originations in excess of repayments totaled $3.4
million. For the three months ended September 30, 1998, proceeds from maturities
of investment securities and principal payments received on mortgage-backed and
related securities, net of purchases totaled $1.8 million and loan originations
in excess of repayments totaled $2.5 million.
The Bank's most significant financing activities are deposit accounts and
FHLB borrowings. The repayment of FHLB borrowings of $3.4 million was the
primary use of cash during 1998. This cash outflow was offset by net increases
in deposits totaling $3.4 million during 1998. During the three months ended
September 30, 1998, the Bank had no change in FHLB advances while the net
increase in deposits was $1.7 million.
Management believes its ability to generate funds internally will satisfy
its liquidity requirements. If the Bank requires funds beyond its ability to
generate them internally, it has the ability to borrow funds from the FHLB. At
September 30, 1998, the Bank had approximately $11.4 million available to it
under its borrowing arrangement with the FHLB. At September 30, 1998, the Bank
had $3.6 million in advances from the FHLB.
The Bank is required to maintain specific amounts of capital pursuant to
OTS regulations on minimal capital standards. As of September 30, 1998, the Bank
complied with all regulatory capital requirements as of that date with tangible,
core and risk-based capital ratios of 13.5%, 13.5% and 34.9%, respectively. For
a detailed discussion of regulatory capital requirements, see "REGULATION --
Federal Regulation of Savings Associations -- Capital Requirements." See also
"HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE."
YEAR 2000 ISSUES
The Bank is a user of computers, computer software and equipment utilizing
embedded microprocessors that will be affected by the year 2000 issue. The year
2000 issue exists because many computer systems and applications use two-digit
date fields to designate a year. As the century date change occurs, date-
sensitive systems may recognize
33
<PAGE>
the year 2000 as 1900, or not at all. This inability to recognize or properly
treat the year 2000 may cause erroneous results, ranging from system
malfunctions to incorrect or incomplete processing.
The Bank established a year 2000 committee in 1997 which is headed by the
Chief Operating Officer and includes all department heads. The committee has
developed and is currently implementing a comprehensive plan to make all
information and non-information technology assets year 2000 compliant. The
committee provides periodic reports to the Board of Directors in order to assist
the directors in their year 2000 readiness oversight role. The plan is comprised
of the following phases:
1. Awareness - Educational initiatives on year 2000 issues and concerns.
This phase is ongoing, especially as it relates to informing customers
of the Bank's year 2000 preparedness.
2. Assessment - Inventory of all technology assets and identification of
third-party vendors and service providers. This phase has been
completed.
3. Renovation - Review of vendor and service providers responses to the
Bank's year 2000 inquiries and development of a follow-up plan and
timeline. This phase has been completed.
4. Validation - Testing all systems and third-party vendors for year 2000
compliance. The Bank is currently in this phase of its plan. A third-
party service bureau processes all customer transactions and has
indicated to the Bank that it has completed upgrades to its systems to
be year 2000 compliant. The Bank will test the third party systems by
reviewing the results of transactions at six different test dates
before and after the year 2000 date change covering all of the
applications used by the Bank. Testing is scheduled to be completed by
March 31, 1999. In the event that testing reveals that the third party
systems are not year 2000 compliant, the Bank's service bureau intends
to either transfer the Bank to other systems that are year 2000
compliant or provide additional resources to resolve the year 2000
issues. Other parties whose year 2000 compliance may effect the Bank
include Fannie Mae, the FHLB-Indianapolis, brokerage firms, the
operator of the Bank's ATM network and the Bank's pension plan
administrator. These third parties have indicated their compliance or
intended compliance. Where it is possible to do so, the Bank has
scheduled testing with these third parties. Where testing is not
possible, the Bank will rely on certifications from vendors and service
providers.
5. Implementation - Replacement or repair of non-compliant technology. As
the Bank progresses through the validation phase, the Bank expects to
determine necessary remedial actions and provide for their
implementation. The Bank has already implemented a new year 2000
compliant computerized teller system and mortgage loan processing
system and has verified the year 2000 compliance of its computer
hardware and other equipment containing embedded microprocessors. The
Bank's plan provides for year 2000 readiness to be completed by mid-
1999.
The Bank estimates its total cost to replace computer equipment, software
programs or other equipment containing embedded microprocessors that were not
year 2000 compliant to be approximately $161,500. As of September 30, 1998,
approximately $155,000 of this amount has been incurred. System maintenance or
modification costs are being expensed as incurred, while the cost of new
hardware, software or other equipment is capitalized and amortized over their
estimated useful lives. The Bank does not separately track the internal costs
and time that its own employees spend on year 2000 issues. Such costs are
principally payroll costs.
Because the Bank is substantially dependent on its computer systems and the
computer systems of third parties, the failure of these systems to be year 2000
compliant could cause substantial disruption of the Bank's business and could
have a material adverse financial impact on the Bank. Failure to resolve year
2000 issues presents the following risks to the Bank: (1) the Bank could lose
customers to other financial institutions, resulting in a loss of revenue, if
the Bank's third party service bureau is unable to properly process customer
transactions; (2) governmental agencies, such as the Federal Home Loan Bank, and
correspondent banks could fail to provide funds to the Bank, which could
materially impair the Bank's liquidity and affect the Bank's ability to fund
loans and deposit withdrawals; (3) concern on the part of depositors that year
2000 issues could impair access to their deposit account balances could result
in the
34
<PAGE>
Bank experiencing deposit outflows prior to December 31, 1999; and (4) the Bank
could incur increased personnel costs if additional staff is required to perform
functions that inoperative systems would have otherwise performed. Management
believes that it is not possible to estimate the potential lost revenue due to
the year 2000 issue, as the extent and longevity of any potential problem cannot
be predicted. Because substantially all of the Bank's loan portfolio consists of
residential mortgage and consumer loans, management believes that year 2000
issues will not impair the ability of the Bank's borrowers to repay their debt.
There can be no assurances that the Bank's year 2000 plan will effectively
address the year 2000 issue, that the Bank's estimates of the timing and costs
of completing the plan will ultimately be accurate or that the impact of any
failure of the Bank or its third-party vendors and service providers to be year
2000 compliant will not have a material adverse effect on the Bank's business,
financial condition or results of operations.
IMPACT OF ACCOUNTING PRONOUNCEMENTS AND REGULATORY POLICIES
COMPREHENSIVE INCOME. SFAS No. 130, "Reporting Comprehensive Income,"
issued in July 1997, establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. It requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
presented with the same prominence as other financial statements. SFAS No. 130
requires that companies (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial condition.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Comparative financial statements are required to be reclassified to reflect the
provisions of this statement. The Bank adopted SFAS No. 130 in the quarter ended
September 30, 1998.
SEGMENT INFORMATION. SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," establishes standards for the way public
business enterprises report information about operating segments and establishes
standards for related disclosures about products and services, geographic areas
and major customers. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. Information required to be disclosed includes segment
profit or loss, certain specific revenue and expense items, segment assets and
certain other information. This statement is effective for the Holding Company
for financial statements issued for the fiscal year ending June 30, 1999.
Adoption of SFAS No. 131 is not anticipated to have a significant effect upon
the presentation of the Holding Company's financial statements.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," issued in February 1998, standardizes disclosure requirements for
pensions and other postretirement benefits and requires additional disclosure on
changes in benefit obligations and fair values of plan assets in order to
facilitate financial analysis. This statement is effective for the Holding
Company for financial statements issued for the fiscal year ending June 30,
1999. Adoption of SFAS No. 132 is not anticipated to have a significant effect
upon the presentation of the Holding Company's financial statements.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June
1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments and requires that all derivatives be
recognized as either assets or liabilities in the statement of financial
position. Under this standard, all derivative instruments should be measured at
fair value. At the date of initial application, an entity may transfer any held-
to-maturity securities into the available-for-sale category or the trading
category, although the Holding Company has no intention of doing so. An entity
will then be able in the future to designate a security transferred into the
available-for-sale category as a hedged item. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The Holding
Company intends to adopt this standard effective July 1, 1999, although early
adoption is permitted. Because the Bank does not hold off-balance sheet
derivative instruments or enter into hedging transactions, adoption of this
statement is not anticipated to have a significant effect on the Holding
Company's financial position or results of operations.
35
<PAGE>
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars, without considering the change in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Bank's operations. Unlike
most industrial companies, virtually all the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates
generally have a more significant impact on a financial institution's
performance than do general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services.
BUSINESS OF THE HOLDING COMPANY
GENERAL
The Holding Company was organized as an Indiana business corporation at the
direction of the Bank in November 1998 for the purpose of becoming the holding
company for the Bank upon completion of the conversion. As a result of the
conversion, the Bank will be a wholly-owned subsidiary of the Holding Company
and all of the issued and outstanding capital stock of the Bank will be owned by
the Holding Company.
BUSINESS
Prior to the conversion, the Holding Company has not and will not engage in
any significant activities other than of an organizational nature. Upon
completion of the conversion, the Holding Company's sole business activity will
be the ownership of the outstanding capital stock of the Bank. The Holding
Company also will hold a note receivable from the ESOP. In the future, the
Holding Company may acquire or organize other operating subsidiaries, although
there are no current plans, arrangements, agreements or understandings, written
or oral, to do so.
Initially, the Holding Company will neither own nor lease any property but
will instead use the premises, equipment and furniture of the Bank with the
payment of appropriate rental fees, as required by applicable law and
regulations.
Since the Holding Company will only hold the outstanding capital stock of
the Bank upon consummation of the conversion, the competitive conditions
applicable to the Holding Company will be the same as those confronting the
Bank. See "BUSINESS OF THE BANK -- Competition."
BUSINESS OF THE BANK
GENERAL
The Bank was chartered in 1904 as an Indiana building and loan association
named "West Side Building, Loan and Savings Association." In 1934, the Bank
became a federal savings and loan association and adopted the name "First
Federal Savings and Loan Association of Evansville." In 1988, the Bank became a
federal savings bank and changed its name to "First Federal Savings Bank."
The Bank is regulated by the OTS and the FDIC. The Bank's deposits have
been federally-insured by the FDIC since 1934 and are currently insured by the
FDIC under the Savings Association Insurance Fund. The Bank has been a member of
the Federal Home Loan Bank System since 1934.
36
<PAGE>
MARKET AREA
The Bank conducts its operations through four offices located in
Evansville, Indiana. Most of the Bank's depositors live in the areas surrounding
its branches and most of the Bank's loans are made to persons in Evansville and
the surrounding counties.
Evansville, which is in the southwest corner of Indiana, had a population
of approximately 168,000 persons as of 1997. At May 1998, unemployment in
Vanderburgh County was 3.1%, compared with 2.8% for the State of Indiana and
4.3% for the United States. The service sector (primarily medical services) is
the largest source of employment. However, manufacturing has played an
increasingly larger role in recent years with the addition or reopening of
several plants. The area's largest manufacturers produce pharmaceuticals, home
appliances, aluminum and plastic products, and automobiles. Employers include
Whirlpool Corporation, Bristol-Myers Squibb, Alcoa, AK Steel, General Electric
and Toyota Motor Corp. Unemployment is currently low and the Bank believes the
outlook for the area's economy is positive.
The Bank faces intense competition for deposits and loan originations from
the many financial institutions conducting business within its market area. Four
commercial banks and three other savings banks have retail banking offices in
Vanderburgh County. Most of these financial institutions are larger than the
Bank. See "-- Competition" and "RISK FACTORS -- Competition."
LENDING ACTIVITIES
GENERAL. At September 30, 1998, loans receivable totaled $38.2 million,
which was 34.2% of total assets. The principal lending activity of the Bank is
the origination of mortgage loans for the purpose of purchasing or refinancing
one- to four-family residential property. To a significantly lesser extent, the
Bank also originates construction loans, mortgage loans secured by commercial
and multi-family real estate and consumer loans. Most of the Bank's borrowers
and the properties securing its loans are located in Evansville, Indiana and the
surrounding counties.
LOAN PORTFOLIO ANALYSIS. The following table sets forth the composition of
the Bank's loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT JUNE 30,
------------------- -----------------------------------------------------------
1998 1998 1997 1996
------------------- ------------------- ------------------- -------------------
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- ---------- -------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family $36,745 92.73% $33,493 90.95% $31,106 94.44% $31,240 93.70%
Construction 1,090 2.75 1,551 4.21 77 0.23 372 1.12
Commercial and multi-family 107 0.27 117 0.32 153 0.46 193 0.58
------- ------ ------- ------ ------- ------ ------- ------
Total mortgage loans 37,942 95.75 35,161 95.48 31,336 95.13 31,805 95.40
Credit line equity 997 2.52 937 2.55 1,047 3.18 997 2.99
Savings account loans 146 0.37 226 0.61 131 0.40 156 0.47
Consumer loans 542 1.36 501 1.36 424 1.29 381 1.14
------- ------ ------- ------ ------- ------ ------- ------
Total loans 39,627 100.00% 36,825 100.00% 32,938 100.00% 33,339 100.00%
------- ====== ------- ====== ------- ====== ------- ======
Less:
Undisbursed loan funds 958 700 349 463
Deferred loan fees 236 220 175 185
Allowance for loan losses 250 250 250 250
------- ------- ------- -------
Net loans $38,183 $35,655 $32,164 $32,441
======= ======= ======= =======
</TABLE>
37
<PAGE>
The following table sets forth certain information at September 30, 1998
regarding the dollar amount of loans maturing in the Bank's portfolio based on
their scheduled contractual principal repayments. Demand loans, loans having no
stated schedule of repayments and no stated maturity, and overdrafts are
reported as due in one year or less. Loan balances do not include undisbursed
loan funds, deferred loan fees and allowance for loan losses.
<TABLE>
<CAPTION>
After After After
One Year 3 Years 5 Years
Within Through Through Through Beyond
One Year 3 Years 5 Years 10 Years 10 Years Total
-------- ------- ------- -------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family.......... $2,252 $4,061 $4,130 $10,290 $16,012 $36,745
Construction................. 20 43 50 158 819 1,090
Commercial and multi-family.. 19 34 31 23 -- 107
Credit line equity loans...... 207 484 306 -- -- 997
Savings account loans......... 146 -- -- -- -- 146
Consumer loans................ 156 268 118 -- -- 542
------ ------ ------ ------- -------- -------
Total....................... $2,800 $4,890 $4,635 $10,471 $16,831 $39,627
====== ====== ====== ======= ======== =======
</TABLE>
The following table sets forth, as of September 30, 1998, the dollar amount
of all loans due or repricing after September 30, 1999, based on their scheduled
contractual principal payments, which have fixed interest rates and have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Fixed- Floating- or
Rates Adjustable-Rates
------- ----------------
(in thousands)
<S> <C> <C>
Mortgage loans:
One- to four-family.......... $30,630 $3,863
Construction................. 1,070 --
Commercial and multi-family.. 7 81
Credit line equity loans....... -- 790
Savings account loans.......... -- --
Consumer loans................. 386 --
------- ------
Total......................... $32,093 $4,734
======= ======
</TABLE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of loans is substantially less than
their contractual terms because of prepayments. In addition, due-on-sale clauses
on loans generally give the Bank the right to declare loans immediately due and
payable in the event, among other things, that the borrower sells the real
property subject to the mortgage and the loan is not repaid. The average life of
mortgage loans tends to increase, however, when current mortgage loan market
rates are substantially higher than rates on existing mortgage loans and,
conversely, decreases when rates on existing mortgage loans are substantially
higher than current mortgage loan market rates.
RESIDENTIAL REAL ESTATE LOANS. The primary lending activity of the Bank is
the origination of mortgage loans to enable borrowers to purchase existing homes
or to refinance existing mortgage loans. At September 30, 1998, $36.7 million,
or 92.7%, of the Bank's total loan portfolio consisted of loans secured by
residential real estate. At September 30, 1998, 10.7% of the Bank's residential
real estate loans were subject to periodic interest rate adjustments and 89.3%
were fixed-rate loans.
38
<PAGE>
The Bank offers a variety of fixed and adjustable-rate mortgage loan
products. The loan fees charged, interest rates and other provisions of the
Bank's mortgage loans are determined by the Bank on the basis of its own pricing
criteria and market conditions. Generally, all loans originated by the Bank
conform to Fannie Mae underwriting standards. The Bank's fixed-rate loans
typically have maturities of 15 to 30 years, although 30-year loans constitute
the largest percentage of originations. The Bank also offers five and seven year
balloon mortgages based on a 30-year amortization schedule. The Bank's ARM loans
are typically based on a 30-year amortization schedule. Interest rates and
payments on the Bank's ARM loans generally are adjusted annually after a
specified period ranging from one to ten years to a rate typically equal to
2.75% above the one-year constant maturity U.S. Treasury index. The Bank
currently offers ARM loans with initial rates below those which would prevail
under the foregoing computation, determined by the Bank based on market factors
and competitive rates for loans having similar features offered by other lenders
for such initial periods. The periodic interest rate cap (the maximum amount by
which the interest rate may be increased or decreased in a given period) on the
Bank's ARM loans is generally 2% per adjustment period and the lifetime interest
rate cap is generally 6% over the initial interest rate of the loan. The Bank
qualifies the borrower based on the borrower's ability to repay the ARM loan
based on the maximum interest rate at the first adjustment, in the case of one-
year ARM loans, and based on the initial interest rate in the case of ARM loans
that adjust after three or more years. The Bank does not originate negative
amortization loans. The terms and conditions of the ARM loans offered by the
Bank, including the index for interest rates, may vary from time to time. The
Bank believes that the annual adjustment feature of its ARM loans also provides
flexibility to meet competitive conditions as to initial rate concessions while
preserving the Bank's return on equity objectives by limiting the duration of
the initial rate concession.
Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of interest rates, the expectations of changes in the
level of interest rates and the difference between the initial interest rates
and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment. As a result of
the low interest rate environment in recent years, the Bank has experienced a
strong customer preference for fixed-rate loans.
The retention of ARM loans in the Bank's loan portfolio helps reduce the
Bank's exposure to changes in the interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs due
to changed rates to be paid by the customer. It is possible that, during periods
of rising interest rates, the risk of default on ARM loans may increase as a
result of repricing and the increased costs to the borrower. Furthermore,
because the ARM loans originated by the Bank generally provide, as a marketing
incentive, for initial rates of interest below the rates which would apply were
the adjustment index used for pricing initially (discounting), these loans are
subject to increased risks of default or delinquency. Another consideration is
that although ARM loans allow the Bank to increase the sensitivity of its asset
base to changes in interest rates, the extent of this interest sensitivity is
limited by the periodic and lifetime interest rate adjustment limits. Because of
these considerations, the Bank has no assurance that yields on ARM loans will be
sufficient to offset increases in the Bank's cost of funds.
While fixed-rate single-family residential real estate loans are normally
originated with 15- to 30-year terms, and the Bank permits its ARM loans to be
assumed by qualified borrowers, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all mortgage loans in the Bank's
loan portfolio contain due-on-sale clauses providing that the Bank may declare
the unpaid amount due and payable upon the sale of the property securing the
loan. The Bank enforces these due-on-sale clauses to the extent permitted by law
and as business judgment dictates. Thus, average loan maturity is a function of,
among other factors, the level of purchase and sale activity in the real estate
market, prevailing interest rates and the interest rates payable on outstanding
loans.
The Bank requires title insurance insuring the status of its first lien on
real estate secured loans and also requires that the fire and extended coverage
casualty insurance (and, if appropriate, flood insurance) be maintained in an
amount at least equal to the outstanding loan balance.
The Bank's residential mortgage loans typically do not exceed 80% of the
appraised value of the property. Pursuant to the Bank's lending policies, the
Bank can lend up to 97% of the appraised value of the property; however, the
Bank generally requires private mortgage insurance on the portion of the
principal amount that exceeds 80% of the
39
<PAGE>
appraised value of the property. The Bank obtains appraisals on all first
mortgage real estate loans from outside appraisers.
CONSTRUCTION LOANS. The Bank originates loans to individuals for the
construction of their personal residence. Recently, the Bank began originating
loans to local home builders. Construction loans to individuals are made on the
same terms as the Bank's residential mortgage loans, but provide for the payment
of interest only during the construction phase, which is usually six months. At
the end of the construction phase, the loan converts to a permanent mortgage
loan. The Bank's construction loans to builders generally have fixed interest
rates and are for a term of up to 18 months. Loans to builders are usually made
on a speculative basis, which means that the builder has not identified a
purchaser for the home at the time the loan is made. Builders are evaluated on a
case-by-case basis to establish a maximum credit limit, however the maximum
amount that the Bank will loan to any one builder is $750,000. At September 30,
1998, the Bank had no outstanding construction loans to builders. The Bank
occasionally originates loans for the purchase of residential building lots.
Most of these loans have terms of five years or less and may have fixed or
adjustable rates. At September 30, 1998, the Bank did not have any land loans
outstanding.
Construction lending is generally considered to involve a higher degree of
risk than single-family permanent mortgage lending because of the inherent
difficulty in estimating both a property's value at completion of the project
and the estimated cost of the project. The nature of these loans is such that
they are generally more difficult to evaluate and monitor. If the estimate of
construction cost proves to be inaccurate, the Bank may be required to advance
funds beyond the amount originally committed to permit completion of the
project. If the estimate of value upon completion proves to be inaccurate, the
Company may be confronted with a project whose value is insufficient to assure
full repayment. Projects may also be jeopardized by disagreements between
borrowers and builders and by the failure of builders to pay subcontractors.
Loans to builders to construct homes for which no purchaser has been identified
carry more risk because the payoff for the loan is dependent on the builder's
ability to sell the property prior to the time that the construction loan is
due.
The Bank has attempted to minimize the foregoing risks by, among other
things, monitoring the project and controlling the disbursement of funds. Prior
to making a commitment to fund a construction loan, the Bank requires an
appraisal of the property. The Bank also reviews and inspects each project prior
to disbursement of funds during the term of the construction loan. In most
cases, loan proceeds are disbursed after inspection of the project based on
percentage of completion.
COMMERCIAL AND MULTI-FAMILY REAL ESTATE LOANS. The Bank engages in a
limited amount of commercial and multi-family real estate lending. At September
30, 1998, commercial and multi-family real estate loans in the Bank's portfolio
totaled $107,000 and consisted of three loans. The maximum loan-to-value ratio
for a commercial or multi-family real estate loan is 75%. The maximum term for a
commercial or multi-family real estate loan is 15 years and the maximum loan
amount is $1,000,000. The majority of the Bank's commercial real estate loans
have been secured by small office buildings, motels and retail establishments in
Indiana.
Loans secured by commercial and multi-family real estate generally are
larger and involve greater risks than one- to four-family residential mortgage
loans. Payments on loans secured by such properties are often dependent on
successful operation or management of the properties. Repayment of such loans
may be subject to a greater extent to adverse conditions in the real estate
market or the economy. The Bank seeks to minimize these risks in a variety of
ways, including limiting the size of such loans and strictly scrutinizing the
financial condition of the borrower, the quality of the collateral and the
management of the property securing the loan. The properties securing the Bank's
commercial and multi-family real estate loans are inspected by the Bank's
lending personnel before the loan is made. The Bank also obtains appraisals on
each property in accordance with applicable regulations.
CONSUMER AND OTHER LOANS. At September 30, 1998, the Bank's consumer and
other loans totaled approximately $1.7 million, or 4.3% of the Bank's total
loans. The Bank's consumer and other loans consist primarily of credit line
equity loans, savings account loans and automobile loans. The Bank is currently
exploring the possibility of hiring additional personnel with expertise in
consumer lending in order to increase its consumer loan portfolio.
40
<PAGE>
The Bank originates home equity loans in the form of lines of credit. At
September 30, 1998, the Bank had $997,000 of credit line equity loans and unused
commitments to extend credit under credit line equity loans of $2.2 million.
Most of these loans are made to existing customers. The Bank's home equity loans
have variable interest rates tied to the prime lending rate. The Bank imposes a
maximum loan-to-value ratio of 80% after considering both the first and second
mortgage loans. The Bank's home equity loans may have greater credit risk than
one- to four-family residential mortgage loans because they are secured by
mortgages subordinated to an existing first mortgage on the property, which, in
most cases, is held by the Bank.
The Bank makes savings account loans for up to 90% of the depositor's
account balance. The interest rate is normally 2.0% or 3.0% above the rate paid
on the deposit account, depending on the type of account, and the account must
be pledged as collateral to secure the loan. Savings account loans are payable
on demand, although interest must be paid every six months.
The Bank originates consumer loans secured by automobiles and,
occasionally, boats and other recreational vehicles. Automobile loans are
secured by both new and used cars and light trucks. Both new and used cars are
financed for a period of up to 60 months and the rate on such loans is fixed for
the term of the loan.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various Federal and state laws, including
Federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered on such loans. Such loans may also give rise to claims and defenses
by a consumer loan borrower against an assignee of such loans such as the Bank,
and a borrower may be able to assert against such assignee claims and defenses
that it has against the seller of the underlying collateral.
LOAN SOLICITATION AND PROCESSING. Loan applicants come through direct
solicitation by the Bank's branch managers and commissioned loan originators, as
well as through referrals by realtors and past and present customers. The Bank
does not advertise extensively. All types of loans may be originated and closed
in any of the Bank's offices. Loans are serviced from the Bank's main office.
Upon receipt of a loan application from a prospective borrower, a credit
report and other data are obtained to verify specific information relating to
the loan applicant's employment, income and credit standing. An appraisal of the
real estate offered as collateral generally is undertaken by a fee appraiser
approved by the Bank and licensed or certified by the State of Indiana.
Loans in the amount of less than $200,000 must be approved by two members
of the Bank's Executive Committee, one of which must be the Bank's President.
The Executive Committee consists of the Bank's President, Executive Vice
President and members of the Board of Directors. Loans of $200,000 or more must
be approved by a majority of the Bank's Executive Committee.
Loan applicants are promptly notified of the decision of the Bank.
Interest rates are subject to change if the approved loan is not closed within
the time of the commitment, which usually is 45 days.
LOAN ORIGINATIONS, SALES AND PURCHASES. In an effort to manage its
interest rate risk position, the Bank generally sells the fixed-rate mortgage
loans with terms in excess of 15 years that it originates. However, since the
beginning of 1998, the Bank has retained selected 30-year, fixed-rate loans in
order to build its loan portfolio and increase the yield on its interest-earning
assets. The sale of loans in the secondary mortgage market reduces the Bank's
risk that the interest rates paid to depositors will increase while the Bank
holds long-term, fixed-rate loans in its portfolio. It also allows the Bank to
continue to fund loans when savings flows decline or funds are not otherwise
41
<PAGE>
available. The Bank generally sells loans without recourse to Fannie Mae with
servicing retained. Gains, net of origination expense, from the sale of such
loans are recorded at the time of sale. Generally a loan is committed to be sold
and a price for the loan is fixed after the loan is approved by the Executive
Committee and the interest rate is approved by the customer. This eliminates the
risk to the Bank that a rise in market interest rates will reduce the value of a
mortgage before it can be sold.
In the past the Bank has supplemented its loan originations through the
purchase of whole loans and loan participations. However, the Bank has not
purchased any loans or loan participations in many years.
At September 30, 1998, the Bank was servicing loans for others (Fannie Mae)
amounting to approximately $9.1 million. Servicing loans for others generally
consists of collecting mortgage payments, maintaining escrow accounts,
disbursing payments to investors and foreclosure processing. Loan servicing
income is recorded on the accrual basis and includes servicing fees from
investors.
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
Three Months
Ended September 30, Years Ended June 30,
------------------- ----------------------------
1998 1997 1998 1997 1996
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Loans originated:
Mortgage loans:
One- to four-family........................ $5,471 $ 971 $11,557 $3,974 $ 6,057
Construction............................... 406 433 1,767 571 850
Commercial and multi-family................ -- -- -- -- --
Credit line equity loans..................... 277 185 848 818 907
Savings account loans........................ 32 33 249 85 242
Consumer loans............................... 87 44 398 290 151
-------- -------- -------- -------- --------
Total loans originated................... 6,273 1,666 14,819 5,738 8,207
Loans purchased.............................. -- -- -- -- --
Loans sold................................... 1,361 203 1,844 627 543
Mortgage loan principal repayments........... 1,998 2,069 8,379 5,289 6,633
Increase (decrease) in other items, net...... (386) (174) (1,105) (99) (1,082)
-------- -------- -------- -------- --------
Net increase (decrease) in loans receivable.. $2,528 $ (780) $ 3,491 $ (277) $ (51)
-------- -------- -------- -------- --------
</TABLE>
LOAN COMMITMENTS. The Bank issues commitments for fixed- and adjustable-
rate one- to four-family residential mortgage loans conditioned upon the
occurrence of certain events. Such commitments are made on specified terms and
conditions and are honored for up to 45 days from the date of loan approval.
The Bank had outstanding loan commitments of approximately $876,000 at September
30, 1998, $793,000 and $83,000 of which were at fixed and adjustable rates,
respectively. At September 30, 1998, the Bank also had commitments to fund $2.2
million of credit line equity loans. See Note 9 of Notes to Consolidated
Financial Statements.
LOAN ORIGINATION AND OTHER FEES. The Bank, in most instances, receives
loan origination fees and discount "points." Loan fees and points are a
percentage of the principal amount of the mortgage loan which are charged to the
borrower for funding the loan. The amount of points charged by the Bank
generally is 1%. Current accounting standards require fees received (net of
certain loan origination costs) for originating loans to be deferred and
amortized into interest income over the contractual life of the loan. Net
deferred fees or charges associated with loans that are
42
<PAGE>
prepaid are recognized as income adjustments at the time of prepayment. The Bank
had $236,000 of net deferred mortgage loan fees at September 30, 1998.
NONPERFORMING ASSETS AND DELINQUENCIES. The Bank generates reports
regarding delinquent loans at regular intervals each month to enable management
to track their status. The Bank also generates a series of notices at regular
intervals to inform mortgage loan borrowers when a required payment is past due.
When a payment becomes 30 days past due, the Bank contacts the borrower by
letter. If a satisfactory response is not obtained, continuous follow-up
contacts, including contact by telephone, are attempted until the loan has been
brought current. Before the 90th day of delinquency, attempts to interview the
borrower, preferably in person, are made to establish (i) the cause of the
delinquency, (ii) whether the cause is temporary, (iii) the attitude of the
borrower toward the debt, and (iv) a mutually satisfactory arrangement for
curing the default. In most cases, delinquencies are cured promptly; however,
if by the 91st day of delinquency, or sooner if the borrower is chronically
delinquent and all reasonable means of obtaining payment on time have been
exhausted, foreclosure, according to the terms of the security instrument and
applicable law, is approved by the Board of Directors.
When a consumer loan borrower fails to make a required payment on a
consumer loan by the payment due date, the Bank institutes collection
procedures. The first notice is mailed to the borrower 15 days following the
payment due date. A computer-generated collection report is received by the Bank
daily. The customer is contacted by telephone to ascertain the nature of the
delinquency. In most cases, delinquencies are cured promptly; however, if, by
the 45th day following the grace period of delinquency no progress has been
made, a written notice is mailed informing the borrowers of their right to cure
the delinquency within 20 days and of the Bank's intent to begin legal action if
the delinquency is not corrected. Depending on the type of property held as
collateral, the Bank either obtains a judgment in small claims court or takes
action to repossess the collateral.
Loans are placed on nonaccrual status when they become 90 days past due.
Nonaccrual loans are returned to accrual status when they become less than 90
days past due.
The Bank's Board of Directors is informed on a monthly basis as to the
status of all mortgage and consumer loans that are delinquent 60 days or more,
the status on all loans currently in foreclosure, and the status of all
foreclosed and repossessed property owned by the Bank.
43
<PAGE>
The following table sets forth information with respect to the Bank's
nonperforming assets and restructured loans within the meaning of SFAS No. 15 at
the dates indicated.
<TABLE>
<CAPTION>
At June 30,
At September 30, ----------------
1998 1998 1997 1996
---------------- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Loans accounted for on
a nonaccrual basis............... $ -- $ -- $ 27 $ --
Accruing loans past due
90 days or more.................. -- -- -- --
---- ---- ---- ----
Nonperforming loans................ -- -- 27 --
Real estate owned (net)............ -- -- -- --
---- ---- ---- ----
Total nonperforming assets...... $ -- $ -- $ 27 $ --
===== ==== ==== ====
Restructured loans................. -- -- -- --
Total loans delinquent 90 days or
more to net loans................ N/A N/A 0.08% N/A
Total loans delinquent 90 days or
more to total assets............. N/A N/A 0.02% N/A
Total nonperforming assets to
total assets..................... N/A N/A 0.02% N/A
</TABLE>
REAL ESTATE OWNED. Real estate acquired by the Bank as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until it is sold. When property is acquired it is recorded at the lower of its
cost, which is the unpaid principal balance of the related loan plus foreclosure
costs, or fair market value. Subsequent to foreclosure, the property is carried
at the lower of the foreclosed amount or fair value. Upon receipt of a new
appraisal and market analysis, the carrying value is written down through a
charge to income, if appropriate. At September 30, 1998, the Bank had no real
estate owned.
ASSET CLASSIFICATION. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets must have one or more defined weaknesses
and are characterized by the distinct possibility that the insured institution
will sustain some loss if the deficiencies are not corrected. Doubtful assets
have the weaknesses of substandard assets with the additional characteristic
that the weaknesses make collection or liquidation in full on the basis of
currently existing facts, conditions and values questionable, and there is a
high possibility of loss. An asset classified loss is considered uncollectible
and of such little value that continuance as an asset of the institution without
establishment of a specific reserve is not warranted. If an asset or portion
thereof is classified loss, the insured institution establishes specific
allowances for loan losses for the full amount of the portion of the asset
classified loss. A portion of general loan loss allowances established to cover
possible losses related to assets classified substandard or doubtful may be
included in determining an institution's regulatory capital, while specific
valuation allowances for loan losses generally do not qualify as regulatory
capital. OTS regulations also require that assets that do not currently expose
an institution to a sufficient degree of risk to warrant classification as loss,
doubtful or substandard but do possess credit deficiencies or potential weakness
deserving management's close attention shall be designated "special mention" by
either the institution or its examiners.
The Bank reviews and classifies its assets on a monthly basis. At September
30, 1998 the Bank had no loans classified as loss, doubtful or substandard. At
such date the Bank had two one- to four-family mortgage loans aggregating
$153,000 classified as special mention. The Bank had no impaired loans at
September 30, 1998 or at June 30, 1998, 1997 and 1996.
44
<PAGE>
ALLOWANCE FOR LOAN LOSSES. In originating loans, the Bank recognizes that
losses will be experienced and that the risk of loss will vary with, among other
things, the type of loan being made, the creditworthiness of the borrower over
the term of the loan, general economic conditions and, in the case of a secured
loan, the quality of the security for the loan. The allowance method is used in
providing for loan losses: all loan losses are charged to the allowance and all
recoveries are credited to it. The allowance for loan losses is established
through a provision for loan losses charged to the Bank's income. The provision
for loan losses is based on management's periodic evaluation of the Bank's past
loan loss experience, changes in the composition of the portfolio, the current
condition and amount of loans outstanding and the probability of collecting all
amounts due.
At September 30, 1998, the Bank had an allowance for loan losses of
$250,000, which represented 0.65% of total loans. Management believes that the
amount maintained in the allowances will be adequate to absorb losses inherent
in the portfolio. Although management believes that it uses the best information
available to make such determinations, future adjustments to the allowance for
loan losses may be necessary and results of operations could be significantly
and adversely affected if circumstances differ substantially from the
assumptions used in making the determinations. While the Bank believes it has
established its existing allowance for loan losses in accordance with generally
accepted accounting principles, there can be no assurance that the Bank's
regulators, in reviewing the Bank's loan portfolio, will not request the Bank to
increase significantly its allowance for loan losses. In addition, because
future events affecting borrowers and collateral cannot be predicted with
certainty, there can be no assurance that the existing allowance for loan losses
is adequate or that substantial increases will not be necessary should the
quality of any loans deteriorate as a result of the factors discussed above. Any
material increase in the allowance for loan losses may adversely affect the
Bank's financial condition and results of operations.
The following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
September 30, Years Ended June 30,
-------------------------- ----------------------------
1998 1997 1998 1997 1996
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period....... $ 250 $ 250 $ 250 $ 250 $ 150
Provision for loan losses.............. -- -- -- -- 100
Charge-offs............................ -- -- -- -- --
Recoveries............................. -- -- -- -- --
-------- -------- -------- -------- --------
Net charge-offs........................ -- -- -- -- --
-------- -------- -------- -------- --------
Allowance at end of period........... $ 250 $ 250 $ 250 $ 250 $ 250
======== ======== ======== ======== ========
Ratio of allowance to total loans
outstanding at the
end of the period.................... 0.65% 0.79% 0.70% 0.77% 0.76%
Ratio of net charge-offs to
average loans outstanding
during the period..................... N/A N/A N/A N/A N/A
Allowance for loan losses to
nonperforming loans................... N/A 925.93% N/A 925.93% N/A
</TABLE>
45
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
At September 30, ----------------------------------------------------------
1998 1998 1997 1996
------------------ ----------------- ------------------ ------------------
% of % of % of % of
Loans Loans Loans Loans
in Each in Each in Each in Each
Category Category Category Category
to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans
-------- -------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans............ $ 225 95.75% $ 225 95.48% $250 95.13% $250 95.40%
Consumer and other loans.. 25 4.25 25 4.52 -- 4.87 -- 4.60
Unallocated............... -- N/A -- N/A -- N/A -- N/A
----- ------ ----- ------ ------ ----- ---- ------
Total allowance for
loan losses.......... $ 250 100.00% $ 250 100.00% $250 100.00% $250 100.00%
===== ====== ===== ====== ====== ====== ==== ======
</TABLE>
INVESTMENT ACTIVITIES
The Bank is permitted under applicable law to invest in various types of
liquid assets, including U.S. Treasury obligations, securities of various
federal agencies and of state and municipal governments, deposits at the FHLB-
Indianapolis, certificates of deposit of federally insured institutions, certain
bankers' acceptances and federal funds. Subject to various restrictions,
savings institutions may also invest a portion of their assets in commercial
paper, corporate debt securities and mutual funds. Savings institutions like
the Bank are also required to maintain an investment in FHLB stock and a minimum
level of liquid assets. See "REGULATION" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and
Capital Resources."
The Bank must categorize its investments as "held to maturity," "trading"
or "available for sale," based on management's intent as to the ultimate
disposition of each security. Debt securities may be classified as "held to
maturity" and reported in financial statements at amortized cost only if the
Bank has the positive intent and ability to hold those securities to maturity.
Securities that might be sold in response to changes in market interest rates,
changes in the security's prepayment risk, increases in loan demand, or other
similar factors cannot be classified as "held to maturity." Debt and equity
securities held for current resale are classified as "trading." Such securities
are reported at fair value, and unrealized gains and losses on such securities
would be included in earnings. The Bank does not currently use or maintain a
trading account. Debt and equity securities not classified as either "held to
maturity" or "trading" are classified as "available for sale." Such securities
are reported at fair value, and unrealized gains and losses on such securities
are excluded from earnings and reported as a net amount in a separate component
of equity.
The Bank's President determines appropriate investments in accordance with
the Board of Directors' approved investment policies and procedures.
Investments are made following certain considerations, which include the Bank's
liquidity position and anticipated cash needs and sources (which in turn include
outstanding commitments, upcoming maturities, estimated deposits and anticipated
loan amortization and repayments). Further, the effect that the proposed
investment would have on the Bank's credit and interest rate risk, and risk-
based capital is given consideration during the evaluation. The interest rate,
yield, settlement date and maturity are also reviewed. The Board of Directors
must ratify all investments up to $3 million and must provide its prior approval
for any investments above such amount.
46
<PAGE>
The Bank purchases investments to provide necessary liquidity for day-to-
day operations and to manage the Bank's interest rate risk and overall credit
risk profile. In recent years the Bank has purchased mortgage-backed and
related securities when investable funds exceed loan demand.
The Bank maintains a significant portfolio of mortgage-backed and related
securities. Almost all of these securities were issued by Fannie Mae, Freddie
Mac or Ginnie Mae. Mortgage-backed securities generally entitle the Bank to
receive a pro rata portion of the cash flows from an identified pool of
mortgages. Ginnie Mae certificates are guaranteed as to principal and interest
by the full faith and credit of the United States, while Fannie Mae and Freddie
Mac certificates are guaranteed by Fannie Mae and Freddie Mac. Approximately
41.7% of the Bank's mortgage-backed securities are real estate mortgage
investment conduits ("REMICs"), which are created by redirecting the cash flows
from a pool of mortgages or mortgage-backed securities to create two or more
classes (or tranches) with different maturity or risk characteristics designed
to meet a variety of investor needs and preferences. Management believes these
securities represent attractive alternatives relative to other investments due
to the wide variety of maturity, repayment and interest rate options available.
Current investment practices of the Bank prohibit the purchase of high risk
REMICs. At September 30, 1998, 53.2% of the Bank's mortgage-backed securities
were adjustable rate and 46.8% were fixed rate.
Of the Bank's $36.8 million mortgage-backed securities portfolio at
September 30, 1998, $6.5 million had contractual maturities within ten years and
$30.3 million had contractual maturities over ten years. However, the actual
maturity of a mortgage-backed security may be less than its stated maturity due
to prepayments of the underlying mortgages. Prepayments that are faster than
anticipated may shorten the life of the security and may result in a loss of any
premiums paid and thereby reduce the net yield on such securities. Although
prepayments of underlying mortgages depend on many factors, including the type
of mortgages, the coupon rate, the age of mortgages, the geographical location
of the underlying real estate collateralizing the mortgages and general levels
of market interest rates, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
declining mortgage interest rates, if the coupon rate of the underlying
mortgages exceeds the prevailing market interest rates offered for mortgage
loans, refinancing generally increases and accelerates the prepayment of the
underlying mortgages and the related security. Under such circumstances, the
Bank may be subject to reinvestment risk because, to the extent that the Bank's
mortgage-backed securities amortize or prepay faster than anticipated, the Bank
may not be able to reinvest the proceeds of such repayments and prepayments at a
comparable rate. In contrast to mortgage-backed securities in which cash flow
is received (and hence, prepayment risk is shared) pro rata by all securities
holders, the cash flow from the mortgages or mortgage-backed securities
underlying REMICs are segmented and paid in accordance with a predetermined
priority to investors holding various tranches of such securities or
obligations. A particular tranche of REMICs may therefore carry prepayment risk
that differs from that of both the underlying collateral and other tranches.
A portion of the Bank's investment portfolio consists of corporate
securities and commercial paper. The Bank's investment policy requires that
such investments have one of the two highest ratings by a nationally recognized
rating agency such as Standard & Poor's or Moody's. A high credit rating
indicates only that the rating agency believes there is a low risk of default.
However, all of the Bank's investment securities, including those that have high
credit ratings, are subject to market risk insofar as increases in market rates
of interest may cause a decrease in their market value. Corporate securities
are also subject to credit risk insofar as the payment obligations on such
securities are dependent on the successful operation of issuer's business.
The Bank also maintains a small investment in collateralized auto
obligations. These asset-backed securities are similar to mortgage-backed
securities in that they generally entitle the Bank to receive a pro rata portion
of the cash flows from an identified pool of auto loans. As with corporate
securities, the Bank's investment policy requires that such investments have one
of the two highest ratings by a nationally recognized rating agency.
47
<PAGE>
The following table sets forth the Bank's investment securities portfolio
at carrying value at the dates indicated.
At At June 30,
September 30, -----------------------------
1998 1998 1997 1996
------------ ------- ----------- -------
(dollars in thousands)
AVAILABLE FOR SALE:
Mortgage-backed securities....... $ 4,016 $ 4,376 $ 7,864 $11,862
HELD TO MATURITY:
U.S. Government Agency
obligations.................... 8,235 10,232 16,201 15,688
Collateralized auto obligations.. 1,008 1,009 249 570
Corporate obligations............ 2,944 2,956 -- --
Mortgage-backed securities....... 32,819 31,169 33,530 29,745
Commercial paper................. 2,981 3,998 2,490 988
------- ------- ------- -------
Total held to maturity..... 47,987 49,364 52,470 46,991
------- ------- ------- -------
Total..................... $52,003 $53,740 $60,334 $58,853
======= ======= ======= =======
At September 30, 1998, the Bank held a mortgage-backed security issued by
First Alliance Mortgage Loan Trust that had a book value of $2.0 million and a
market value of $2.0 million. The security has been rated AAA by Standard &
Poor's and Aaa by Moody's and is insured by MBIA Insurance Corporation. The
Bank held no other securities by an issuer where the aggregate book value of the
securities exceeded 10% of the equity capital of the Bank at September 30, 1998,
except for securities issued by the U.S. Government or U.S. Government agencies
and corporations.
48
<PAGE>
The following table sets forth the maturities and weighted average yields
of the securities in the Bank's investment securities portfolio at September 30,
1998. Expected maturities of mortgage-backed securities will differ from
contractual maturities due to scheduled repayments and because borrowers may
have the right to call or prepay obligations with or without prepayment
penalties.
<TABLE>
<CAPTION>
Less Than One to Five to Over Ten
One Year Five Years Ten Years Years
--------------------- ------------------ ------------- -----------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ----------- --------- ------- ------ ----- ------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities....... $ -- --% $ 704 7.72% $ 546 7.70 $ 2,766 7.32
HELD TO MATURITY:
U.S. Government Agency
obligations.................... 1,197 7.16 3,000 6.09 3,040 7.11 998 7.00
Collateralized auto obligations.. -- -- 1,008 5.65 -- -- -- --
Corporate obligations............ 1,001 5.55 1,943 5.99 -- -- -- --
Mortgage-backed securities....... -- -- 1,183 7.43 4,087 6.61 27,549 6.60
Commercial paper................. 2,981 5.61 -- -- -- -- -- --
------ ------ ------ -------
Total held to maturity........ 5,179 5.95 7,134 6.22 7,127 6.82 28,547 6.61
------ ------ ------ -------
Total........................ $5,179 5.95 $7,838 6.36 $7,673 6.89 $31,313 6.68
====== ====== ====== =======
</TABLE>
The following table sets forth the carrying value of investment securities
which have fixed interest rates and have floating or adjustable interest rates.
AT SEPTEMBER 30,
1998
---------------------
FIXED FLOATING OR
RATES ADJUSTABLE
RATES
-------- -----------
(IN THOUSANDS)
AVAILABLE FOR SALE
Mortgage-backed securities $ 2,086 $ 1,930
HELD TO MATURITY
Federal Agencies 8,235 --
Collateralized auto obligations 1,008 --
Corporate obligations 2,944 --
Mortgage-backed securities 15,165 17,654
Commercial paper 2,981 --
------- -------
Total held to maturity 30,333 17,654
------- -------
Total investment securities $32,419 $19,584
======= =======
49
<PAGE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
GENERAL. Deposits and loan repayments are the major sources of the Bank's
funds for lending and other investment purposes. Scheduled loan repayments are
a relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are influenced significantly by general interest rates and money
market conditions. Borrowings from FHLB-Indianapolis may be used to compensate
for reductions in the availability of funds from other sources. The Bank had no
other borrowing arrangements at September 30, 1998.
DEPOSIT ACCOUNTS. Substantially all of the Bank's depositors are residents
of the State of Indiana. Deposits are attracted from within the Bank's market
area through the offering of a broad selection of deposit instruments, including
NOW checking accounts, money market deposit accounts, regular savings accounts,
certificates of deposit and retirement savings plans. Deposit account terms
vary according to the minimum balance required, the time periods the funds must
remain on deposit and the interest rate, among other factors. In determining
the terms of its deposit accounts, the Bank considers current market interest
rates, profitability to the Bank, matching deposit and loan products and its
customer preferences and concerns. The Bank generally reviews its deposit mix
and pricing weekly. In recent years the Bank has offered amongst the highest
deposit rates in its market area in order to complete with larger financial
institutions that provide a wider range of products and services. The Bank is
evaluating the possibility of expanding its checking account program as a means
of attracting lower cost funding.
In the unlikely event the Bank is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to the Holding Company as the sole stockholder of the Bank.
The following table indicates the amount of the Bank's jumbo certificates
of deposit by time remaining until maturity as of September 30, 1998. Jumbo
certificates of deposit represent minimum deposits of $100,000.
Maturity Period Amount
- --------------- --------------
(in thousands)
Three months or less............ $ 447
Over three through six months... 1,164
Over six through twelve months.. 2,304
Over twelve months.............. 3,363
------
Total...................... $7,278
======
The following table sets forth the certificates of deposits in the Bank
classified by rates at the dates indicated.
At At June 30,
September 30, -----------------------------
1998 1998 1997 1996
------------ ------- ------- -----------
(in thousands)
4.00 - 4.99%.. $ 8,220 $ 7,771 $11,657 $14,555
5.00 - 5.99... 36,753 35,999 36,503 31,104
6.00 - 6.99... 22,174 22,803 17,482 17,028
7.00 - 7.99... 1,286 1,299 1,506 2,814
8.00 - 8.99... 120 144 464 484
9.00 - 9.99... 183 183 307 285
------- ------- ------- -------
Total.. $68,736 $68,199 $67,919 $66,270
======= ======= ======= =======
50
<PAGE>
The following table sets forth the amount and maturities of time deposits
at September 30, 1998.
Amount Due
-----------------------------------------------
Less Than 1-2 2-3 3-4 After
One Year Years Years Years 4 Years
---------- ------- ------- ------ -------
(in thousands)
4.00 - 4.99%.. $ 7,985 $ 235 $ -- $ -- $ --
5.00 - 5.99... 21,842 9,985 3,615 781 530
6.00 - 6.99... 7,468 14,010 59 237 400
7.00 - 7.99... -- 690 48 435 113
8.00 - 8.99... 69 19 32 -- --
9.00 - 9.99... 183 -- -- -- --
------- ------- ------ ------ ------
Total........ $37,547 $24,939 $3,754 $1,453 $1,043
======= ======= ====== ====== ======
51
<PAGE>
The following table sets forth the balances (inclusive of interest
credited) of deposits in the various types of accounts offered by the Bank at
the dates indicated.
<TABLE>
<CAPTION>
At June 30,
At September 30, --------------------------------------------------------------------------
1998 1998 1997 1996
---------------------------- --------------------------- --------------------------- ----------------
Percent Percent Percent Percent
of Increase of Increase of Increase of
Amount Total (Decrease) Amount Total (Decrease) Amount Total (Decrease) Amount Total
------- ------- ---------- ------ ------ ---------- ------- ------ ---------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits............ $11,866 13.04% $1,242 $10,624 11.91% $ 1,714 $ 8,910 10.06% $(1,131) $10,041 11.30%
Savings deposits........... 10,359 11.39 (47) 10,406 11.66 (1,325) 11,731 13.25 (802) 12,533 14.11
Certificates which mature:
Within 1 year............ 37,547 41.28 1,845 35,702 40.01 (7,287) 42,989 48.54 7,388 35,601 40.07
After 1 year, but within
2 years................. 24,939 27.42 (430) 25,369 28.43 8,771 16,598 18.74 (3,580) 20,178 22.71
After 2 years, but
within 5 years.......... 5,790 6.36 (785) 6,575 7.37 (836) 7,411 8.37 (1,449) 8,860 9.97
Certificates maturing
thereafter.............. 460 0.51 (93) 553 0.62 (368) 921 1.04 (710) 1,631 1.84
------- ------ ------ ------- ------ ------- ------- ------ ------- ------- ------
Total................. $90,961 100.00% $1,732 $89,229 100.00% $ 669 $88,560 100.00% $ (284) $88,844 100.00%
======= ====== ====== ======= ====== ======= ======= ====== ======= ======= ======
</TABLE>
The following table sets forth the deposit activities of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
September 30, Years Ended June 30,
----------------- ----------------------------
1998 1997 1998 1997 1996
------- -------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance.................... $89,229 $88,560 $88,560 $88,844 $86,886
Net increase (decrease) before
interest credited................. 1,410 (2,279) (2,582) (3,140) (836)
Interest credited.................... 322 404 3,251 2,856 2,794
------- ------- ------- ------- -------
Net increase (decrease) in deposits.. 1,732 (1,875) 669 (284) 1,958
------- ------- ------- ------- -------
Ending balance....................... $90,961 $86,685 $89,229 $88,560 $88,844
======= ======= ======= ======= =======
</TABLE>
52
<PAGE>
BORROWINGS. The Bank has the ability to use advances from the FHLB-
Indianapolis to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. The FHLB-Indianapolis functions as a central reserve
bank providing credit for savings and loan associations and certain other member
financial institutions. As a member, the Bank is required to own capital stock
in the FHLB-Indianapolis and is authorized to apply for advances on the security
of such stock and certain of its mortgage loans and other assets (principally
securities which are obligations of, or guaranteed by, the U.S. Government)
provided certain creditworthiness standards have been met. Advances are made
pursuant to several different credit programs. Each credit program has its own
interest rate and range of maturities. Depending on the program, limitations on
the amount of advances are based on the financial condition of the member
institution and the adequacy of collateral pledged to secure the credit. At
September 30, 1998, the Bank had a borrowing capacity of $33.4 million based on
available collateral.
The following table sets forth certain information regarding the Bank's use
of FHLB advances during the periods indicated.
Three Months Ended
September 30, Years Ended June 30,
---------------- -------------------------
1998 1997 1998 1997 1996
------- ------- ------- ------ -------
(dollars in thousands)
Maximum balance at any month end.. $3,645 $7,050 $7,050 $7,500 $8,000
Average balance................... 3,645 7,050 5,991 7,498 5,655
Period end balance................ 3,645 7,050 3,645 7,050 7,500
Weighted average interest rate:
At end of period................ 5.58% 5.88% 5.77% 5.91% 5.78%
During the period............... 5.75 5.91 5.93 5.77 5.92
COMPETITION
The Bank faces intense competition in the attraction of savings deposits
(its primary source of lendable funds) and in the origination of loans. Its
most direct competition for savings deposits has historically come from other
thrift institutions, credit unions and from commercial banks located in its
market area. The Bank has faced additional significant competition for
investors' funds from short-term money market securities and other corporate and
government securities. The Bank's competition for loans comes principally from
other thrift institutions, commercial banks, mortgage banking companies and
mortgage brokers.
PERSONNEL
As of September 30, 1998, the Bank had 39 full-time employees and 1 part-
time employee. The employees are not represented by a collective bargaining
unit and the Bank believes its relationship with its employees is good.
SUBSIDIARY ACTIVITIES
The Bank has one subsidiary, FFSL Service Corporation, Inc. Federal
savings associations generally may invest up to 3% of their assets in service
corporations, provided that any amount in excess of 2% is used primarily for
community, inner-city and community development projects. At September 30, 1998,
the Bank's equity investment in its subsidiary was $268,000, or 0.2% of total
assets. The Bank used the service corporation in 1994 to purchase a $500,000
equity interest in a limited partnership organized to build, own and operate a
44-unit low-income apartment complex. The limited partnership generates low-
income housing credits of approximately $73,000 per year.
53
<PAGE>
PROPERTIES
The following table sets forth the Bank's offices, as well as certain
additional information relating to these offices, as of September 30, 1998. The
Bank owns all of its offices.
Year Approximate
Location Opened Net Book Value (1) Square Footage
- -------- ------ ------------------ --------------
(in thousands)
Main Office
- -----------
2200 West Franklin Street 1904 $313 17,507
Evansville, Indiana
Branch Offices
- --------------
2028 Division Street 1956 95 5,276
Evansville, Indiana
1001 N. Green River Road 1981 514 2,603
Evansville, Indiana
4451 N. First Avenue 1997 581 7,300
Evansville, Indiana
- ----------------------------------
(1) Represents the net book value of land, buildings, furniture, fixtures and
equipment owned by the Bank.
LEGAL PROCEEDINGS
Periodically, there have been various claims and lawsuits involving the Bank,
such as claims to enforce liens, condemnation proceedings on properties in which
the Bank holds security interests, claims involving the making and servicing of
real property loans and other issues incident to the Bank's business. In the
opinion of management, after consultation with the Bank's legal counsel, no
significant loss is expected from any of such pending claims or lawsuits. Aside
from such pending claims and lawsuits which are incident to the conduct of the
Bank's ordinary business, the Bank is not a party to any material pending legal
proceedings.
54
<PAGE>
MANAGEMENT OF THE HOLDING COMPANY
Directors shall be elected by the stockholders of the Holding Company for
staggered three-year terms, or until their successors are elected and qualified.
The Holding Company's Board of Directors consists of six persons divided into
three classes, each of which contains one third of the Board. One class,
consisting of Messrs. Robert L. Clayton, Sr. and James L. Will, Jr., has a term
of office expiring at the first annual meeting of stockholders after their
initial election by stockholders; a second class, consisting of Messrs. Herbert
V. Dassel and Jerry Ziemer, has a term of office expiring at the second annual
meeting of stockholders after their initial election by stockholders; and a
third class, consisting of Messrs. Frank E. Kern and Harold Duncan, has a term
of office expiring at the third annual meeting of stockholders after their
initial election by stockholders. The Holding Company anticipates that its
first annual meeting of stockholders will be held in October 1999.
The Board of Directors has established an Audit Committee consisting of
Directors Kern, Dassel and Ziemer and a Compensation Committee consisting of
Directors Dassel, Kern and Will.
The executive officers of the Holding Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The executive
officers of the Holding Company are:
Name Position
---- --------
Harold Duncan President, Chief Executive Officer and Chairman of
the Board
Michael H. Head Vice President
Christopher A. Bengert Treasurer
Since the formation of the Holding Company, none of the executive officers,
directors or other personnel has received remuneration from the Holding Company.
Initially, no separate compensation will be paid for service as an executive
officer of the Holding Company. For information concerning the principal
occupations, employment and compensation of the directors and executive officers
of the Holding Company during the past five years, see "MANAGEMENT OF THE BANK--
Biographical Information."
MANAGEMENT OF THE BANK
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Bank is presently composed of six members who
are elected for terms of three years, one-third of whom are elected annually in
accordance with the Bylaws of the Bank. The executive officers of the Bank are
elected annually by the Board of Directors and serve at the Board's discretion.
The following table sets forth information with respect to the directors and
executive officers of the Bank, all of whom will continue to serve as directors
and executive officers of the Bank and the Holding Company.
DIRECTORS
<TABLE>
<CAPTION>
Current
Director Term
Name Age (1) Position Since Expires
- ---- ------- -------- ------- -------
<S> <C> <C> <C> <C>
Robert L. Clayton, Sr. 69 Chairman of the Board 1974 2000
Herbert V. Dassel 67 Director 1988 2001
Frank E. Kern 69 Director 1979 1999
James L. Will, Jr. 40 Director 1987 2000
Jerry Ziemer 60 Director 1979 2001
Harold Duncan 57 President, Chief Executive Officer 1978 1999
and Director
</TABLE>
55
<PAGE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
<TABLE>
<CAPTION>
Name Age (1) Position
- ---- ------- --------
<S> <C> <C>
Michael H. Head 40 Executive Vice President and Chief Operating Officer
Monica L. Stinchfield 42 Senior Vice President
Christopher A. Bengert 41 Senior Vice President and Treasurer
Richard L. Witte 45 Vice President
</TABLE>
_________
(1) As of September 30, 1998
BIOGRAPHICAL INFORMATION
Set forth below is certain information regarding the directors and
executive officers of the Bank. Unless otherwise stated, each director and
executive officer has held his or her current occupation for the last five
years. There are no family relationships among the directors or executive
officers.
Robert L. Clayton, Sr. was employed by the Bank from 1952 until his
retirement in 1992. From 1974 to 1990 he served as President of the Bank. Mr.
Clayton has been Chairman of the Board since 1976.
Herbert V. Dassel is a retired businessman. Prior to his retirement, he
was the President and co-owner of Adroit Mold & Tool Corp., a tooling
manufacturer located in Evansville, Indiana.
Frank E. Kern is the Executive Director of the Evansville Association for
the Blind, a not-for-profit enterprise engaged in rehabilitation and
manufacturing.
James L. Will, Jr. is the owner of an insurance agency in Evansville,
Indiana.
Jerry Ziemer is the President and majority shareholder of Ziemer Funeral
Homes in Evansville, Indiana.
Harold Duncan joined the Bank in 1964 and served as a loan officer,
Assistant Vice President, Vice President, and Executive Vice President before
becoming President in 1990. Mr. Duncan added the title of Chief Executive
Officer in 1991.
Michael H. Head joined the Bank in 1980. From 1984 to 1994, he served as
Vice President and manager of the loan department. In 1994, he became Senior
Vice President. In 1996, Mr. Head became Executive Vice President and in
September 1998 added the title of Chief Operating Officer.
Monica L. Stinchfield joined the Bank in 1980. From 1985 to 1993 she
served as Assistant Vice President and from 1993 to September 1998, she served
as Vice President. In 1996, Ms. Stinchfield became the manager of the loan
department and secondary market activity. In September 1998, Ms. Stinchfield
became Senior Vice President.
Christopher A. Bengert joined the Bank in 1986. From 1991 to 1994, Mr.
Bengert served as Vice President and Treasurer. In 1994, he became Senior Vice
President.
Richard L. Witte joined the Bank in 1997 and in October 1998 became Vice
President. Mr. Witte is responsible for the savings department and deposit
services. Prior to joining the Bank, Mr. Witte was employed by Evansville
Federal Savings Bank for 21 years.
56
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Bank is conducted through meetings and activities of
its Board of Directors and its committees. During the fiscal year ended June
30, 1998, the Board of Directors held 12 regular meetings and no director
attended fewer than 75% of the total meetings of the Board of Directors of the
Bank and committees on which such director served.
The Audit Committee, consisting of Frank E. Kern, Herbert V. Dassel and
Jerry Ziemer, receives and reviews all reports prepared by the Bank's
independent auditors. The Audit Committee met one time during the fiscal year
ended June 30, 1998.
The Salary Committee, consisting of Herbert V. Dassel, Frank E. Kern and
James L. Will, Jr., is responsible for setting the salaries of all employees.
The Salary Committee met once during the fiscal year ended June 30, 1998.
DIRECTORS' COMPENSATION
Directors receive a fee of $900 per month. Following consummation of the
conversion, directors' fees will continue to be paid by the Bank and, initially,
no separate fees are expected to be paid for service on the Holding Company's
Board of Directors.
The Bank maintains a deferred compensation arrangement for directors who
may elect on an annual basis to defer up to 100 percent of their monthly Board
and committee meeting fees and retainers. Upon the director's attainment of an
age specified in his individual deferral agreement, the Bank will pay the
balance of the director's deferral account in monthly installments over a period
set forth in the director's individual agreement. Over the deferral period, a
director's account is credited with 10 percent annual interest with monthly
compounding. In the event of a change in control of the Bank (as defined in the
program) followed by a director's termination of service, each director will be
entitled to receive a benefit increased to reflect three additional years of
deferrals. The Bank has acquired life insurance on members of the Board to
provide informal funding for its obligations under the program. During the
fiscal year ended June 30, 1998, all directors participated in the director
deferral program. As of September 30, 1998, the Bank had accrued a liability of
$370,000 with respect to its obligations under the director deferral program.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following information is furnished for Mr.
Duncan for the year ended June 30, 1998. No other executive officer of the Bank
received salary and bonus of $100,000 or more during the year ended June 30,
1998.
<TABLE>
<CAPTION>
Annual Compensation(1)
---------------------------------------
Name and Other Annual All Other
Position Year Salary Bonus Compensation(2) Compensation(3)
- -------- ---- -------- ------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
Harold Duncan 1998 $125,086 $8,642 $10,800 $4,150
President and Chief
Executive Officer
</TABLE>
- ---------------------------------
(1) Compensation information for the years ended June 30, 1997 and 1996
has been omitted as the Bank was not a public company nor a subsidiary
thereof at such time.
(2) Consists of directors fees. Does not include the aggregate amount of
perquisites and other personal benefits, which was less than 10% of
the total annual salary and bonus reported.
(3) Consists of employer contributions to the Bank's 401(k) plan.
57
<PAGE>
EMPLOYMENT AGREEMENTS. In connection with the conversion, the Holding
Company and the Bank (collectively, the "Employers") plan to enter into three-
year employment agreements with Messrs. Duncan and Head. Under the employment
agreements, the initial salary levels for Mr. Duncan and Mr. Head will be
$136,000 and $72,000, respectively, which amount will be paid by the Bank and
may be increased at the discretion of the Board of Directors or an authorized
committee of the Board. On each anniversary of the commencement date of the
employment agreement, the term of each agreement may be extended for an
additional year at the discretion of the Board. The agreements are terminable
by the Employers at any time, by the executive if he is assigned duties
inconsistent with his initial position, duties, responsibilities and status, or
upon the occurrence of certain events specified by federal regulations. In the
event that the executive's employment is terminated without cause or upon the
executive's voluntary termination following the occurrence of an event described
in the preceding sentence, the Bank would be required to honor the terms of the
agreement through the expiration of the current term, including payment of
current cash compensation and continuation of employee benefits.
The employment agreements also provide for a severance payment and other
benefits in the event of involuntary termination of employment in connection
with any change in control of the Employers. A severance payment also will be
provided on a similar basis in connection with a voluntary termination of
employment where, subsequent to a change in control, the executive is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to such change in control. The term "change in control" is
defined in the agreement as having occurred when, among other things, (a) a
person or entity other than the Holding Company purchases shares of the Holding
Company's common stock pursuant to a tender or exchange offer for such shares,
(b) any person or entity is or becomes the beneficial owner, directly or
indirectly, of securities of the Holding Company representing 25% or more of the
combined voting power of the Holding Company's then outstanding securities, (c)
the membership of the Board of Directors changes as the result of a contested
election, or (d) shareholders of the Holding Company approve a merger,
consolidation, sale or disposition of all or substantially all of the Holding
Company's assets, or a plan of partial or complete liquidation.
The maximum present value of the severance benefits under the employment
agreements is 2.99 times the executive's average annual compensation during the
five-year period preceding the effective date of the change in control (the
"base amount"). The employment agreements provide that the value of the maximum
benefit may be distributed, at the executive's election, (i) in the form of a
lump sum cash payment equal to 2.99 times the executive's base amount or (ii) a
combination of a cash payment and continued coverage under the Employers'
health, life and disability programs for a 36-month period following the change
in control, the total value of which does not exceed 2.99 times the executive's
base amount. Assuming that a change in control had occurred at September 30,
1998 and that Mr. Duncan and Mr. Head elected to receive a lump sum cash
payment, they would have been entitled to payments of approximately $332,000 and
$154,000, respectively. Section 280G of the Internal Revenue Code provides that
severance payments that equal or exceed three times the individual's base amount
are deemed to be "excess parachute payments" if they are contingent upon a
change in control. Individuals receiving excess parachute payments are subject
to a 20% excise tax on the amount of such excess payments, and the Employers
would not be entitled to deduct the amount of such excess payments.
The employment agreements restrict the executive's right to compete against
the Employers for a period of one year from the date of termination of the
agreement if he voluntarily terminates employment, except in the event of a
change in control.
SUPPLEMENTAL RETIREMENT AGREEMENT. The Bank maintains a supplemental
executive retirement program for key personnel in order to encourage continued
employment and to provide an additional source of retirement income. The
program provides that, upon the attainment of a specified retirement age, a
participating officer will receive a benefit equal to the product of the
officer's highest annual base compensation and the officer's "wage replacement
percentage" reduced by the annual benefits derived by the officer from any other
tax-qualified or non-qualified retirement arrangements sponsored by the Bank.
The officer's retirement age and "wage replacement factor" are set forth in
individual agreements entered into between the Bank and the officer. If the
officer dies prior to attaining the normal retirement age, a survivor benefit is
payable to the officer's surviving spouse or other designated beneficiary. In
the event of an officer's termination without cause prior to attaining the
normal retirement age, payment of the
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officer's accrued benefit as of the date of termination is deferred until the
officer attains normal retirement age. In the event of disability, the officer
may elect to begin receipt of his accrued benefit immediately in lieu of a
deferred retirement benefit. In the event of a change in control of the Bank (as
defined in the program) followed by the officer's termination of employment, the
officer would be entitled to receive his full normal retirement benefit upon
attaining his specified retirement age. All benefits are payable in the form of
a monthly annuity over a period set forth in the officer's individual agreement.
As a condition of Mr. Duncan's receipt of benefits, he must, during the five-
year period after benefits commence, provide certain consulting and advisory
services to the Bank at the request of the Board of Directors. At present, Mr.
Duncan, four other officers and one former employee participate in the
supplemental retirement program. As of September 30, 1998, the Bank had accrued
$140,000 as a liability with respect to its obligations under the supplemental
retirement program.
EMPLOYEE SEVERANCE COMPENSATION PLAN. In connection with the Conversion,
the Board of Directors of the Bank intends to adopt the First Federal Savings
Bank Employee Severance Compensation Plan to provide benefits to eligible
employees in the event of a change in control of the Holding Company or the
Bank. Eligible employees are employees with a minimum of two years of service
with the Bank. In general, all employees with at least two years of service
(except for officers who enter into separate employment or severance agreements
with the Holding Company and the Bank) will be eligible to participate in the
severance plan. Under the severance plan, in the event of a change in control
of the Holding Company or the Bank, eligible employees, other than officers of
the Bank, who are terminated or who terminate employment (but only upon the
occurrence of events specified in the severance plan) within 12 months of the
effective date of a change in control will be entitled to a payment based on
years of service with the Bank with a maximum payment equal to 26 weeks of
compensation. In addition, officers of the Bank (four persons) and branch
managers (three persons) would be eligible to receive a severance payment equal
to 24 and 12 months, respectively, of their current compensation. Assuming that
a change in control had occurred at September 30, 1998 and the termination of
all eligible employees, the maximum aggregate payment due under the severance
plan would be approximately $381,000.
BENEFITS
INSURANCE. The Bank provides full-time employees, with minimal
contribution or expense to them, with group plan insurance that covers
hospitalization, dependent coverage, long-term disability and accidental death
and dismemberment. This insurance is available generally and on the same basis
to all full-time employees.
RETIREMENT PLAN. The Bank is a participant in the Financial Institutions
Retirement Fund, a multi-employer, non-contributory defined benefit retirement
plan ("Plan"). The following table indicates the annual retirement benefits
that would be payable under the Plan upon retirement at age 65 to a participant
electing to receive his retirement benefit in the standard form of benefit,
assuming various specified levels of plan compensation and various specified
years of credited service. Under the Internal Revenue Code, maximum annual
benefits under the Plan are limited to $130,000 per year for the 1999 calendar
year.
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<TABLE>
<CAPTION>
Highest Five-Year Years of Service
Average Annual --------------------------------------------------------------------
Compensation 5 10 15 25 35 40 45
- ----------------- ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 10,000........ 1,000 2,000 3,000 5,000 7,000 8,000 9,000
20,000........ 2,000 4,000 6,000 10,000 14,000 16,000 18,000
30,000........ 3,000 6,000 9,000 15,000 21,000 24,000 27,000
40,000........ 4,000 8,000 12,000 20,000 28,000 32,000 36,000
60,000........ 6,000 12,000 18,000 30,000 42,000 48,000 54,000
80,000........ 8,000 16,000 24,000 40,000 56,000 64,000 72,000
100,000........ 10,000 20,000 30,000 50,000 70,000 80,000 90,000
120,000........ 12,000 24,000 36,000 60,000 84,000 96,000 99,000
130,000........ 13,000 26,000 38,000 65,000 91,000 104,000 117,000
</TABLE>
The Plan is a non-contributory, defined benefit plan which provides for
monthly payments to, or on behalf of, each covered employee. All full-time
employees are eligible to participate in the Plan after completion of one year
of service to the Bank (at least 1,000 hours of service in 12 consecutive
months) and the attainment of age 21. Benefits are based upon years of service
and salary excluding bonuses, fees, etc. Employees become vested following five
years of service. As of June 30, 1998, Mr. Duncan had 33 years of credited
service under the Plan.
The normal retirement age is 65 and the early retirement age is before age
65, but after age 45. Normal retirement benefits are equal to 2% multiplied by
the years of service to the Bank and by the employees's average base salary
above the covered compensation level for the five highest consecutive years
preceding retirement. If an employee elects early retirement, but defers the
receipt of benefits until age 65, the formula for computation of early
retirement benefits is the same as if the employee had retired at the normal
retirement age. However, if the employee elects early retirement benefits
payable under the Plan the benefits are equal to the benefits payable assuming
retirement at age 65 reduced by applying an early retirement factor based on age
and vesting service when payments begin. Payment may also be deferred to any
time up to age 70, in which case the retirement allowance payable at age 65 will
be increased by .8% for each month of deferment after age 65 (to a maximum
increase of 48%). Under the Plan, the Bank makes annual contributions to fund
the benefits computed on an actuarial basis.
Upon retirement, the regular form of benefit under the Plan is an annuity
payable in equal monthly installments for the life of the employee. Optional
annuity or lump sum benefit forms may also be elected by the employee. Benefits
under the Plan are not integrated with social security.
At June 30, 1998 (the date of the most recent Plan statement), the Plan's
assets exceeded current liabilities by approximately $160,000.
401(K) PLAN. The Bank maintains a 401(k) Plan for the benefit of eligible
employees of the Bank. The 401(k) Plan is intended to be a tax-qualified plan
under Sections 401(a) and 401(k) of the Internal Revenue Code. Employees of the
Bank who have completed 1,000 hours of service during 12 consecutive months and
who have attained age 21 are eligible to participate in the 401(k) Plan.
Participants may contribute up to 15% of their annual compensation to the 401(k)
Plan through a salary reduction election. The Bank matches 50% of participant
contributions to a maximum of 6% of the participant's salary. In addition to
employer matching contributions, the Bank may contribute a discretionary amount
to the 401(k) Plan in any plan year which is allocated to individual
participants in the proportion that their annual compensation bears to the total
compensation of all participants during the plan year. To be eligible to
receive a discretionary employer contribution, the participant must complete
1,000 hours of service during the plan year and remain employed by the Bank on
the last day of the plan year. Participants are at all times 100% vested in
their 401(k) Plan accounts. For the year ended June 30, 1998, the Bank incurred
total contribution-related expenses of approximately $22,000 in connection with
the 401(k) Plan.
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EMPLOYEE STOCK OWNERSHIP PLAN. The Board of Directors has authorized the
adoption by the Bank of an ESOP for employees of the Bank to become effective
upon the completion of the conversion. The ESOP is intended to satisfy the
requirements for an employee stock ownership plan under the Internal Revenue
Code and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Full-time employees of the Holding Company and the Bank who have
been credited with at least 1,000 hours of service during a 12-month period and
who have attained age 21 will be eligible to participate in the ESOP.
In order to fund the purchase of up to 8% of the common stock to be sold in
the conversion, it is anticipated that the ESOP will borrow funds from the
Holding Company. Such loan will equal 100% of the aggregate purchase price of
the common stock. The loan to the ESOP will be repaid principally from the
Bank's contributions to the ESOP and dividends payable on common stock held by
the ESOP over the anticipated 12-year term of the loan. The interest rate for
the ESOP loan is expected to be the prime rate as published in The Wall Street
Journal on the closing date of the conversion. See "PRO FORMA DATA." To the
extent that the ESOP is unable to acquire 8% of the common stock sold in the
offering, it is anticipated that such additional shares may be acquired
following the conversion through open market purchases.
In any plan year, the Bank may make additional discretionary contributions
to the ESOP for the benefit of plan participants in either cash or shares of
common stock, which may be acquired through the purchase of outstanding shares
in the market or from individual stockholders or which constitute authorized but
unissued shares or shares held in treasury by Holding Company. The timing,
amount, and manner of such discretionary contributions will be affected by
several factors, including applicable regulatory policies, the requirements of
applicable laws and regulations, and market conditions.
Shares purchased by the ESOP with the proceeds of the loan will be held in
a suspense account and released on a pro rata basis as the loan is repaid.
Discretionary contributions to the ESOP and shares released from the suspense
account will be allocated among participants on the basis of each participant's
proportional share of total compensation. Forfeitures will be reallocated among
the remaining plan participants.
Participants will vest in their accrued benefits under the ESOP at the rate
of 20% per year, beginning upon the completion of two years of service. A
participant is fully vested at retirement, in the event of disability or upon
termination of the ESOP. Benefits are distributable upon a participant's
retirement, early retirement, death, disability, or termination of employment.
The Bank's contributions to the ESOP are not fixed, so benefits payable under
the ESOP cannot be estimated.
It is anticipated that members of the Bank's Board of Directors will serve
as trustees of the ESOP. Under the ESOP, the trustees must vote all allocated
shares held in the ESOP in accordance with the instructions of plan participants
and unallocated shares and allocated shares for which no instructions are
received must be voted in the same ratio on any matter as those shares for which
instructions are given.
Pursuant to Statement of Position 93-6, compensation expense for a
leveraged ESOP is recorded at the fair market value of the ESOP shares when
committed to be released to participants' accounts. See "PRO FORMA DATA."
The ESOP will be subject to the requirements of ERISA and the regulations
of the Internal Revenue Service and the Department of Labor issued thereunder.
The Bank intends to request a determination letter from the IRS regarding the
tax-qualified status of the ESOP. Although no assurance can be given that a
favorable determination letter will be issued, the Bank expects that a favorable
determination letter will be received by the ESOP.
STOCK OPTION PLAN. The Board of Directors of the Holding Company intends
to adopt the Stock Option Plan and to submit the Stock Option Plan to
stockholders for approval at a meeting held no earlier than six months following
consummation of the conversion. Under current OTS regulations, the approval of
a majority vote of the Holding Company's outstanding shares is required for
implementation of the Stock Option Plan within one year of the
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consummation of the conversion. The Stock Option Plan will comply with all
applicable regulatory requirements. However, the Stock Option Plan will not be
approved or endorsed by the OTS.
The Stock Option Plan will be designed to attract and retain qualified
management personnel and nonemployee directors, to provide such officers, key
employees and nonemployee directors with a proprietary interest in the Holding
Company as an incentive to contribute to the success of the Holding Company and
the Bank, and to reward officers and key employees for outstanding performance.
The Stock Option Plan will provide for the grant of incentive stock options
("ISOs") intended to comply with the requirements of Section 422 of the Internal
Revenue Code and for nonqualified stock options ("NQOs"). Under the Stock
Option Plan, stock options may be granted to key employees of the Holding
Company and its subsidiaries, including the Bank. Unless sooner terminated, the
Stock Option Plan will continue in effect for a period of ten years from the
date the Stock Option Plan is approved by stockholders.
The Holding Company will reserve a number of authorized shares of common
stock equal to 10% of the number of shares of common stock issued in connection
with the conversion for future issuance under the Stock Option Plan (218,500
shares based on the issuance of 2,185,000 shares at the maximum of the Estimated
Valuation Range). Shares acquired upon exercise of options will be authorized
but unissued shares or treasury shares. In the event of a stock split, reverse
stock split, stock dividend, or similar event, the number of shares of common
stock under the Stock Option Plan, the number of shares to which any award
relates and the exercise price per share under any option may be adjusted to
reflect the increase or decrease in the total number of shares of common stock
outstanding.
A committee of the Board of Directors will administer and interpret the
Stock Option Plan. Subject to applicable OTS regulations, the committee will
determine which nonemployee directors, officers and key employees will be
granted options, whether, in the case of officers and employees, such options
will be ISOs or NQOs, the number of shares subject to each option, and the
exercisability of such options. All options granted to nonemployee directors
will be NQOs. The per share exercise price of all options will equal at least
100% of the fair market value of a share of common stock on the date the option
is granted.
It is anticipated that all options granted under the Stock Option Plan will
be granted subject to a vesting schedule whereby the options become exercisable
over a specified period following the date of grant. Under OTS regulations, if
the Stock Option Plan is implemented within the first year following
consummation of the conversion the minimum vesting period will be five years.
All unvested options will be immediately exercisable in the event of the
recipient's death or disability. Unvested options also will be exercisable
following a change in control (as defined in the Stock Option Plan) of the
Holding Company or the Bank to the extent authorized or not prohibited by
applicable law or regulations. OTS regulations currently provide that if the
Stock Option Plan is implemented prior to the first anniversary of the
conversion, vesting may not be accelerated upon a change in control of the
Holding Company or the Bank.
Each stock option that is awarded to an officer or key employee will remain
exercisable at any time on or after the date it vests through the earlier to
occur of the tenth anniversary of the date of grant or three months after the
date on which the optionee terminates employment (one year in the event of the
optionee's termination by reason of death or disability), unless such period is
extended. Each stock option that is awarded to a nonemployee director will
remain exercisable through the earlier to occur of the tenth anniversary of the
date of grant or one year (two years in the event of a nonemployee director's
death or disability) following the termination of a nonemployee director's
service on the Board. All stock options are nontransferable except by will or
the laws of descent or distribution.
Under current provisions of the Internal Revenue Code, the federal tax
treatment of ISOs and NQOs is different. With respect to ISOs, an optionee who
satisfies certain holding period requirements will not recognize income at the
time the option is granted or at the time the option is exercised. If the
holding period requirements are satisfied, the optionee will generally recognize
capital gain or loss upon a subsequent disposition of the shares of common stock
received upon the exercise of a stock option. If the holding period
requirements are not satisfied, the difference between the fair market value of
the common stock on the date of grant and the option exercise price, if any,
will be taxable to the optionee at ordinary income tax rates. A federal income
tax deduction generally will not be available to the Holding
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Company as a result of the grant or exercise of an ISO, unless the optionee
fails to satisfy the holding period requirements. With respect to NQOs, the
grant of an NQO generally is not a taxable event for the optionee and no tax
deduction will be available to the Holding Company. However, upon the exercise
of an NQO, the difference between the fair market value of the common stock on
the date of exercise and the option exercise price generally will be treated as
compensation to the optionee upon exercise, and the Holding Company will be
entitled to a compensation expense deduction in the amount of income realized by
the optionee.
Although no specific award determinations have been made at this time, the
Holding Company and the Bank anticipate that if stockholder approval is obtained
it would provide awards to its directors, officers and employees to the extent
and under terms and conditions permitted by applicable regulations. Under
current OTS regulations, if the Stock Option Plan is implemented within one year
of the consummation of the conversion, (i) no officer or employees could receive
an award of options covering in excess of 25% of the number of shares reserved
for issuance under the Stock Option Plan, (ii) no nonemployee director could
receive in excess of 5% of the number of shares reserved for issuance under the
Stock Option Plan and (iii) nonemployee directors, as a group, could not receive
in excess of 30% of the number of shares reserved for issuance under the Stock
Option Plan.
MANAGEMENT RECOGNITION AND DEVELOPMENT PLAN. Following the conversion, the
Board of Directors of the Holding Company intends to adopt an MRDP for officers,
employees, and nonemployee directors of the Holding Company and the Bank, and to
submit the MRDP to stockholders for approval at a meeting held no earlier than
six months following consummation of the conversion. The MRDP will enable the
Holding Company and the Bank to provide participants with a proprietary interest
in the Holding Company as an incentive to contribute to the success of the
Holding Company and the Bank. The MRDP will comply with all applicable
regulatory requirements. However, the MRDP will not be approved or endorsed by
the OTS. Under current OTS regulations, the approval of a majority vote of the
Holding Company's outstanding shares is required for implementation of the MRDP
within one year of the consummation of the conversion.
The MRDP expects to acquire a number of shares of the Holding Company's
common stock equal to 4% of the common stock issued in connection with the
conversion (87,400 shares based on the issuance of 2,185,000 shares in the
conversion at the maximum of the Estimated Valuation Range). Such shares will
be acquired on the open market, if available, with funds contributed by the
Holding Company or the Bank to a trust which the Holding Company may establish
in conjunction with the MRDP ("MRDP Trust") or from authorized but unissued
shares or treasury shares of the Holding Company.
A committee of the Board of Directors of the Holding Company will
administer the MRDP, the members of which will also serve as trustees of the
MRDP Trust, if formed. The trustees will be responsible for the investment of
all funds contributed by the Holding Company or the Bank to the MRDP Trust. The
Board of Directors of the Holding Company may terminate the MRDP at any time
and, upon termination, all unallocated shares of common stock will revert to the
Holding Company.
Shares of common stock granted pursuant to the MRDP will be in the form of
restricted stock payable ratably over a specified vesting period following the
date of grant. During the period of restriction, all shares will be held in
escrow by the Holding Company or by the MRDP Trust. Under OTS regulations, if
the MRDP is implemented within the first year following consummation of the
conversion, the minimum vesting period will be five years. All unvested MRDP
awards will vest in the event of the recipient's death or disability. Unvested
MRDP awards will also vest following a change in control (as defined in the
MRDP) of the Holding Company or the Bank to the extent authorized or not
prohibited by applicable law or regulations. OTS regulations currently provide
that, if the MRDP is implemented prior to the first anniversary of the
conversion, vesting may not be accelerated upon a change in control of the
Holding Company or the Bank.
A recipient of an MRDP award in the form of restricted stock generally will
not recognize income upon an award of shares of common stock, and the Holding
Company will not be entitled to a federal income tax deduction, until the
termination of the restrictions. Upon such termination, the recipient will
recognize ordinary income in an amount
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equal to the fair market value of the common stock at the time and the Holding
Company will be entitled to a deduction in the same amount after satisfying
federal income tax withholding requirements. However, the recipient may elect to
recognize ordinary income in the year the restricted stock is granted in an
amount equal to the fair market value of the shares at that time, determined
without regard to the restrictions. In that event, the Holding Company will be
entitled to a deduction in such year and in the same amount. Any gain or loss
recognized by the recipient upon subsequent disposition of the stock will be
either a capital gain or capital loss.
Although no specific award determinations have been made at this time, the
Holding Company and the Bank anticipate that if stockholder approval is obtained
it would provide awards to its directors, officers and employees to the extent
and under terms and conditions permitted by applicable regulations. Under
current OTS regulations, if the MRDP is implemented within one year of the
consummation of the conversion, (i) no officer or employees could receive an
award covering in excess of 25% of the number of shares reserved for issuance
under the MRDP, (ii) no nonemployee director could receive in excess of 5% of
the number of shares reserved for issuance under the MRDP and (iii) nonemployee
directors, as a group, could not receive in excess of 30% of the number of
shares reserved for issuance under the MRDP.
TRANSACTIONS WITH THE BANK
Federal regulations require that all loans or extensions of credit by the
Bank to executive officers and directors must generally be made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons (unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee) and must not involve more than the normal risk of repayment or present
other unfavorable features. The Bank's policy is to offer consumer loans,
savings account loans and fixed-rate mortgage loans to directors, officers and
employees at rates lower than those offered to the general public. In addition,
loans made to a director or executive officer in an amount that, when aggregated
with the amount of all other loans to such person and his or her related
interests, are in excess of the greater of $25,000, or 5% of the Bank's capital
and surplus (up to a maximum of $500,000) must be approved in advance by a
majority of the disinterested members of the Board of Directors. See
"REGULATION -- Federal Regulation of Savings Associations -- Transactions with
Affiliates." The aggregate amount of loans by the Bank to its executive
officers and directors and their associates was $302,000 at September 30, 1998,
or approximately 1.0% of the Holding Company's pro forma stockholders' equity
(based on the issuance of shares at the midpoint of the Estimated Valuation
Range).
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REGULATION
GENERAL
The Bank is subject to extensive regulation, examination and supervision by
the OTS as its chartering agency, and the FDIC, as the insurer of its deposits.
The activities of federal savings institutions are governed by the Home Owners'
Loan Act, as amended (the "HOLA") and, in certain respects, the Federal Deposit
Insurance Act ("FDIA") and the regulations issued by the OTS and the FDIC to
implement these statutes. These laws and regulations delineate the nature and
extent of the activities in which federal savings associations may engage.
Lending activities and other investments must comply with various statutory and
regulatory capital requirements. In addition, the Bank's relationship with its
depositors and borrowers is also regulated to a great extent, especially in such
matters as the ownership of deposit accounts and the form and content of the
Bank's mortgage documents. The Bank must file reports with the OTS and the FDIC
concerning its activities and financial condition in addition to obtaining
regulatory approvals prior to entering into certain transactions such as mergers
with, or acquisitions of, other financial institutions. There are periodic
examinations by the OTS and the FDIC to review the Bank's compliance with
various regulatory requirements. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such policies, whether by
the OTS, the FDIC or Congress, could have a material adverse impact on the Bank
and its operations.
FEDERAL REGULATION OF SAVINGS ASSOCIATIONS
OFFICE OF THRIFT SUPERVISION. The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the Treasury.
The OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
FEDERAL HOME LOAN BANK SYSTEM. The FHLB System, consisting of 12 FHLBs, is
under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner. The Bank, as a member
of the FHLB-Indianapolis, is required to acquire and hold shares of capital
stock in the FHLB-Indianapolis in an amount equal to the greater of (i) 1.0% of
the aggregate outstanding principal amount of residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or
(ii) 1/20 of its advances (i.e., borrowings) from the FHLB-Indianapolis. The
Bank is in compliance with this requirement with an investment in FHLB-
Indianapolis stock of $727,000 at September 30, 1998. Among other benefits, the
FHLB-Indianapolis provides a central credit facility primarily for member
institutions. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes advances to members in
accordance with policies and procedures established by the FHFB and the Board of
Directors of the FHLB-Indianapolis.
FEDERAL DEPOSIT INSURANCE CORPORATION. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
depository institutions. The FDIC currently maintains two separate insurance
funds: the BIF and the SAIF. As insurer of the Bank's deposits, the FDIC has
examination, supervisory and enforcement authority over the Bank.
The Bank's accounts are insured by the SAIF to the maximum extent permitted
by law. The Bank pays deposit insurance premiums based on a risk-based
assessment system established by the FDIC. Under applicable regulations,
institutions are assigned to one of three capital groups that are based solely
on the level of an institution's capital -- "well capitalized," "adequately
capitalized," and "undercapitalized" -- which are defined in the same manner as
the regulations establishing the prompt corrective action system, as discussed
below. These three groups are then divided into three subgroups which reflect
varying levels of supervisory concern, from those which are considered to be
healthy to those which are considered to be of substantial supervisory concern.
The matrix so created results in nine assessment risk
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classifications, with rates that until September 30, 1996 ranged from 0.23% for
well capitalized, financially sound institutions with only a few minor
weaknesses to 0.31% for undercapitalized institutions that pose a substantial
risk of loss to the SAIF unless effective corrective action is taken.
Pursuant to the Deposit Insurance Funds Act ("DIF Act"), which was enacted
on September 30, 1996, the FDIC imposed a special assessment on each depository
institution with SAIF-assessable deposits which resulted in the SAIF achieving
its designated reserve ratio. In connection therewith, the FDIC reduced the
assessment schedule for SAIF members, effective January 1, 1997, to a range of
0% to 0.27%, with most institutions, including the Bank, paying 0%. This
assessment schedule is the same as that for the BIF, which reached its
designated reserve ratio in 1995. In addition, since January 1, 1997, SAIF
members are charged an assessment of .065% of SAIF-assessable deposits for the
purpose of paying interest on the obligations issued by the Financing
Corporation ("FICO") in the 1980s to help fund the thrift industry cleanup.
BIF-assessable deposits will be charged an assessment to help pay interest on
the FICO bonds at a rate of approximately .013% until the earlier of December
31, 1999 or the date upon which the last savings association ceases to exist,
after which time the assessment will be the same for all insured deposits.
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF Act contemplates the
development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter may
take and what effect, if any, the adoption of a new charter would have on the
operation of the Bank.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend
deposit insurance temporarily during the hearing process for the permanent
termination of insurance, if the institution has no tangible capital. If
insurance of accounts is terminated, the accounts at the institution at the time
of termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of the Bank.
LIQUIDITY REQUIREMENTS. Under OTS regulations, each savings institution is
required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
4.0%) of its net withdrawable accounts plus short-term borrowings. Monetary
penalties may be imposed for failure to meet liquidity requirements. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
PROMPT CORRECTIVE ACTION. Under the FDIA, each federal banking agency is
required to implement a system of prompt corrective action for institutions that
it regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action. Under
the regulations, an institution shall be deemed to be (i) "well capitalized" if
it has a total risk-based capital ratio of 10.0% or more, has a Tier I risk-
based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is
not subject to specified requirements to meet and maintain a specific capital
level for any capital measure; (ii) "adequately capitalized" if it has a total
risk-based capital ratio of 8.0% or more, has a Tier I risk-based capital ratio
of 4.0% or more, has a leverage ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than
8.0%, has a Tier I risk-based capital ratio that is less than 4.0% or has a
leverage ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, has a Tier I risk-based capital ratio that is less than 3.0%
or has a leverage ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.
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A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. (The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.)
An institution generally must file a written capital restoration plan that
meets specified requirements, as well as a performance guaranty by each company
that controls the institution, with the appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. Immediately upon becoming undercapitalized, an
institution shall become subject to various mandatory and discretionary
restrictions on its operations.
At September 30, 1998, the Bank was categorized as "well capitalized" under
the prompt corrective action regulations of the OTS.
STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking regulatory
agencies have prescribed, by regulation, standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii)
earnings; and (viii) compensation, fees and benefits ("Guidelines"). The
Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. If the OTS determines that the Bank fails to
meet any standard prescribed by the Guidelines, the agency may require the Bank
to submit to the agency an acceptable plan to achieve compliance with the
standard. OTS regulations establish deadlines for the submission and review of
such safety and soundness compliance plans.
QUALIFIED THRIFT LENDER TEST. All savings associations are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. A savings institution that fails to become or remain a QTL
shall either convert to a national bank charter or be subject to the following
restrictions on its operations: (i) the Bank may not make any new investment or
engage in activities that would not be permissible for national banks; (ii) the
Bank may not establish any new branch office where a national bank located in
the savings institution's home state would not be able to establish a branch
office; (iii) the Bank shall be ineligible to obtain new advances from any FHLB;
and (iv) the payment of dividends by the Bank shall be subject to the rules
regarding the statutory and regulatory dividend restrictions applicable to
national banks. Also, beginning three years after the date on which the savings
institution ceases to be a QTL, the savings institution would be prohibited from
retaining any investment or engaging in any activity not permissible for a
national bank and would be required to repay any outstanding advances to any
FHLB. In addition, within one year of the date on which a savings association
controlled by a company ceases to be a QTL, the company must register as a bank
holding company and become subject to the rules applicable to such companies. A
savings institution may requalify as a QTL if it thereafter complies with the
QTL test.
Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Internal Revenue Code or that
65% of an institution's "portfolio assets" (as defined) consist of certain
housing and consumer-related assets on a monthly average basis in nine out of
every 12 months. Assets that qualify without limit for inclusion as part of the
65% requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity loans;
mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct or indirect
obligations of the FDIC; and loans for educational purposes, loans to small
businesses and loans made through credit cards. In addition, the following
assets, among others, may be included in meeting the test subject to an overall
limit of 20% of the savings institution's portfolio assets: 50% of residential
mortgage loans originated and sold within 90 days of origination; 100% of
consumer loans; and stock issued by Freddie Mac or Fannie Mae. Portfolio assets
consist of total assets minus the sum of (i) goodwill and other intangible
assets, (ii) property used by the savings institution to
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conduct its business, and (iii) liquid assets up to 20% of the institution's
total assets. At September 30, 1998, the Bank was in compliance with the QTL
test.
CAPITAL REQUIREMENTS. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in
order to comply with the capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities. In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion of
certain assets from capital and to account appropriately for the investments in
and assets of both includable and non-includable subsidiaries. Institutions
that fail to meet the core capital requirement would be required to file with
the OTS a capital plan that details the steps they will take to reach
compliance. In addition, the OTS's prompt corrective action regulation provides
that a savings institution that has a leverage ratio of less than 4% (3% for
institutions receiving the highest CAMEL examination rating) will be deemed to
be "undercapitalized" and may be subject to certain restrictions. See "--
Federal Regulation of Savings Associations -- Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not less than
1.5% of adjusted total assets. "Tangible capital" is defined, generally, as core
capital minus any "intangible assets" other than purchased mortgage servicing
rights.
Savings associations must maintain total risk-based capital equal to at
least 8% of risk-weighted assets. Total risk-based capital consists of the sum
of core and supplementary capital, provided that supplementary capital cannot
exceed core capital, as previously defined. Supplementary capital includes (i)
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt, (ii)
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, subject to an
amortization schedule, and (iii) general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held by
a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not
included for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities that
are backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans (including multi-family mortgage loans) are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans
are assigned a 100% risk weight, as are nonqualifying residential mortgage loans
and that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totaled to arrive at total risk-weighted assets. Off-
balance sheet items are included in risk-weighted assets by converting them to
an approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
----
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point
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increase or decrease in market interest rates divided by the estimated economic
value of the Bank's assets, as calculated in accordance with guidelines set
forth by the OTS. A savings association whose measured interest rate risk
exposure exceeds 2% must deduct an interest rate risk component in calculating
its total capital under the risk-based capital rule. The interest rate risk
component is an amount equal to one-half of the difference between the
institution's measured interest rate risk and 2%, multiplied by the estimated
economic value of the Bank's assets. That dollar amount is deducted from an
association's total capital in calculating compliance with its risk-based
capital requirement. Under the rule, there is a two quarter lag between the
reporting date of an institution's financial data and the effective date for the
new capital requirement based on that data. A savings association with assets of
less than $300 million and risk-based capital ratios in excess of 12% is not
subject to the interest rate risk component, unless the OTS determines
otherwise. The rule also provides that the Director of the OTS may waive or
defer an association's interest rate risk component on a case-by-case basis.
Under certain circumstances, a savings association may request an adjustment to
its interest rate risk component if it believes that the OTS-calculated interest
rate risk component overstates its interest rate risk exposure. In addition,
certain "well-capitalized" institutions may obtain authorization to use their
own interest rate risk model to calculate their interest rate risk component in
lieu of the OTS-calculated amount. The OTS has postponed the date that the
component will first be deducted from an institution's total capital.
See "HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE" for a table
that sets forth in terms of dollars and percentages the OTS tangible, core and
risk-based capital requirements, the Bank's historical amounts and percentages
at September 30, 1998 and pro forma amounts and percentages based upon the
assumptions stated therein.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Bank to give the OTS 30 days'
advance notice of any proposed declaration of dividends, and the OTS has the
authority under its supervisory powers to prohibit the payment of dividends.
The regulation utilizes a three-tiered approach which permits various levels of
distributions based primarily upon a savings association's capital level.
A Tier 1 savings association has capital in excess of its capital
requirement (both before and after the proposed capital distribution). A Tier 1
savings association may make (without application but upon prior notice to, and
no objection made by, the OTS) capital distributions during a calendar year up
to 100% of its net income to date during the calendar year plus one-half its
surplus capital ratio (i.e., the amount of capital in excess of its requirement)
----
at the beginning of the calendar year or the amount authorized for a Tier 2
association. Capital distributions in excess of such amount require advance
notice to the OTS. A Tier 2 savings association has capital equal to or in
excess of its minimum capital requirement but below its requirement (both before
and after the proposed capital distribution). Such an association may make
(without application) capital distributions up to an amount equal to 75% of its
net income during the previous four quarters depending on how close the Bank is
to meeting its capital requirement. Capital distributions exceeding this amount
require prior OTS approval. Tier 3 associations are savings associations with
capital below the minimum capital requirement (either before or after the
proposed capital distribution). Tier 3 associations may not make any capital
distributions without prior approval from the OTS.
The Bank currently meets the criteria to be designated a Tier 1 association
and, consequently, could at its option (after prior notice to, and no objection
made by, the OTS) distribute up to 100% of its net income during the calendar
year plus 50% of its surplus capital ratio at the beginning of the calendar year
less any distributions previously paid during the year.
LOANS TO ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans to one borrower. Generally, this
limit is 15% of the Bank's unimpaired capital and surplus, plus an additional
10% of unimpaired capital and surplus, if such loan is secured by readily-
marketable collateral, which is defined to include certain financial instruments
and bullion. The OTS by regulation has amended the loans to one borrower rule
to permit savings associations meeting certain requirements, including capital
requirements, to extend loans to one borrower in additional amounts under
circumstances limited essentially to loans to develop or complete residential
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housing units. At September 30, 1998, the Bank's regulatory limit on loans to
one borrower was $2.3 million. At September 30, 1998, the Bank's largest
aggregate amount of loans to one borrower was $649,000.
ACTIVITIES OF ASSOCIATIONS AND THEIR SUBSIDIARIES. A savings association
may establish operating subsidiaries to engage in any activity that the savings
association may conduct directly and may establish service corporation
subsidiaries to engage in certain preapproved activities or, with approval of
the OTS, other activities reasonably related to the activities of financial
institutions. When a savings association establishes or acquires a subsidiary
or elects to conduct any new activity through a subsidiary that the Bank
controls, the savings association must notify the FDIC and the OTS 30 days in
advance and provide the information each agency may, by regulation, require.
Savings associations also must conduct the activities of subsidiaries in
accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the Bank or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the SAIF. If so, it may require that no SAIF member engage in
that activity directly.
TRANSACTIONS WITH AFFILIATES. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act relative to transactions with
affiliates in the same manner and to the same extent as if the savings
association were a Federal Reserve member bank. A savings and loan holding
company, its subsidiaries and any other company under common control are
considered affiliates of the subsidiary savings association under the HOLA.
Generally, Sections 23A and 23B: (i) limit the extent to which the insured
association or its subsidiaries may engage in certain covered transactions with
an affiliate to an amount equal to 10% of such institution's capital and surplus
and place an aggregate limit on all such transactions with affiliates to an
amount equal to 20% of such capital and surplus, and (ii) require that all such
transactions be on terms substantially the same, or at least as favorable to the
institution or subsidiary, as those provided to a non-affiliate. The term
"covered transaction" includes the making of loans, the purchase of assets, the
issuance of a guarantee and similar types of transactions. Any loan or
extension of credit by the Bank to an affiliate must be secured by collateral in
accordance with Section 23A.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve, as is currently the case with respect to all FDIC-
insured banks.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders, as well as entities controlled by such persons, is currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act, and Regulation
O thereunder. Among other things, these regulations require that such loans be
made on terms and conditions substantially the same as those offered to
unaffiliated individuals and not involve more than the normal risk of repayment.
Regulation O also places individual and aggregate limits on the amount of loans
the Bank may make to such persons based, in part, on the Bank's capital
position, and requires certain board approval procedures to be followed. The
OTS regulations, with certain minor variances, apply Regulation O to savings
institutions.
COMMUNITY REINVESTMENT ACT. Savings associations are also subject to the
provisions of the Community Reinvestment Act of 1977, which requires the
appropriate federal bank regulatory agency, in connection with its regular
examination of a savings association, to assess the saving association's record
in meeting the credit needs of the community serviced by the savings
association, including low and moderate income neighborhoods. The regulatory
agency's assessment of the savings association's record is made available to the
public. Further, such assessment is required of any savings association which
has applied, among other things, to establish a new branch office that will
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accept deposits, relocate an existing office or merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally regulated financial
institution.
SAVINGS AND LOAN HOLDING COMPANY REGULATIONS
HOLDING COMPANY ACQUISITIONS. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof. They also prohibit, among other things, any director or officer
of a savings and loan holding company, or any individual who owns or controls
more than 25% of the voting shares of such holding company, from acquiring
control of any savings association not a subsidiary of such savings and loan
holding company, unless the acquisition is approved by the OTS.
HOLDING COMPANY ACTIVITIES. As a unitary savings and loan holding company,
the Holding Company generally is not subject to activity restrictions under the
HOLA. If the Holding Company acquires control of another savings association as
a separate subsidiary other than in a supervisory acquisition, it would become a
multiple savings and loan holding company. There generally are more
restrictions on the activities of a multiple savings and loan holding company
than on those of a unitary savings and loan holding company. The HOLA provides
that, among other things, no multiple savings and loan holding company or
subsidiary thereof which is not an insured association shall commence or
continue for more than two years after becoming a multiple savings and loan
association holding company or subsidiary thereof, any business activity other
than: (i) furnishing or performing management services for a subsidiary insured
institution, (ii) conducting an insurance agency or escrow business, (iii)
holding, managing, or liquidating assets owned by or acquired from a subsidiary
insured institution, (iv) holding or managing properties used or occupied by a
subsidiary insured institution, (v) acting as trustee under deeds of trust, (vi)
those activities previously directly authorized by regulation as of March 5,
1987 to be engaged in by multiple holding companies or (vii) those activities
authorized by the Federal Reserve Board as permissible for bank holding
companies, unless the OTS by regulation, prohibits or limits such activities for
savings and loan holding companies. Those activities described in (vii) above
also must be approved by the OTS prior to being engaged in by a multiple savings
and loan holding company.
QUALIFIED THRIFT LENDER TEST. The HOLA provides that any savings and loan
holding company that controls a savings association that fails the QTL test, as
explained under "-- Federal Regulation of Savings Associations --Qualified
Thrift Lender Test," must, within one year after the date on which the Bank
ceases to be a QTL, register as and be deemed a bank holding company subject to
all applicable laws and regulations.
TAXATION
FEDERAL TAXATION
GENERAL. Upon consummation of the conversion, the Holding Company and the
Bank will report their income on a calendar year basis using the accrual method
of accounting and will be subject to federal income taxation in the same manner
as other corporations with some exceptions, including particularly the Bank's
reserve for bad debts discussed below. The following discussion of tax matters
is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to the Bank or the Holding Company. For
additional information regarding income taxes, see Note 8 of Notes to
Consolidated Financial Statements.
BAD DEBT RESERVE. Historically, savings institutions such as the Bank
which met certain definitional tests primarily related to their assets and the
nature of their business ("qualifying thrift") were permitted to establish a
reserve for bad debts and to make annual additions thereto, which may have been
deducted in arriving at their taxable income. The Bank's deductions with respect
to "qualifying real property loans," which are generally loans secured by
certain interest in real property, were computed using an amount based on the
Bank's actual loss experience, or a percentage equal to 8% of the Bank's taxable
income, computed with certain modifications and reduced by the amount of any
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permitted additions to the non-qualifying reserve. Due to the Bank's high
equity in relation to deposits, the Bank generally recognized a bad debt
deduction equal to net charge-offs.
The thrift bad debt rules were revised by Congress in 1996. The new rules
eliminated the percentage of taxable income method for deducting additions to
the tax bad debt reserves for all thrifts for tax years beginning after December
31, 1995. These rules also required that all institutions recapture all or a
portion of their bad debt reserves added since the base year (last taxable year
beginning before January 1, 1988). For taxable years beginning after December
31, 1995, the Bank's bad debt deduction must be determined under the experience
method using a formula based on actual bad debt experience over a period of
years or, if the Bank is a "large" association (assets in excess of $500
million) on the basis of net charge-offs during the taxable year. The new rules
allowed an institution to suspend bad debt reserve recapture for the 1996 and
1997 tax years if the institution's lending activity for those years is equal to
or greater than the institutions average mortgage lending activity for the six
taxable years preceding 1996 adjusted for inflation. For this purpose, only
home purchase or home improvement loans are included and the institution can
elect to have the tax years with the highest and lowest lending activity removed
from the average calculation. If an institution is permitted to postpone the
reserve recapture, it must begin its six year recapture no later than the 1998
tax year. The unrecaptured base year reserves will not be subject to recapture
as long as the institution continues to carry on the business of banking. In
addition, the balance of the pre-1988 bad debt reserves continues to be subject
to provisions of present law referred to below that require recapture of the
pre-1988 bad debt reserve in the case of certain excess distributions to
shareholders.
DISTRIBUTIONS. To the extent that the Bank makes "nondividend
distributions" to the Holding Company, such distributions will be considered to
result in distributions from the balance of its bad debt reserve as of December
31, 1987 (or a lesser amount if the Bank's loan portfolio decreased since
December 31, 1987) and then from the supplemental reserve for losses on loans
("Excess Distributions"), and an amount based on the Excess Distributions will
be included in the Bank's taxable income. Nondividend distributions include
distributions in excess of the Bank's current and accumulated earnings and
profits, distributions in redemption of stock and distributions in partial or
complete liquidation. However, dividends paid out of the Bank's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in a distribution from the Bank's bad debt
reserve. The amount of additional taxable income created from an Excess
Distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after the
conversion, the Bank makes a "nondividend distribution," then approximately one
and one-half times the Excess Distribution would be includable in gross income
for federal income tax purposes, assuming a 34% corporate income tax rate
(exclusive of state and local taxes). See "REGULATION" and "DIVIDEND POLICY"
for limits on the payment of dividends by the Bank. The Bank does not intend to
pay dividends that would result in a recapture of any portion of its tax bad
debt reserve.
CORPORATE ALTERNATIVE MINIMUM TAX. The Internal Revenue Code imposes a tax
on alternative minimum taxable income ("AMTI") at a rate of 20%. The excess of
the tax bad debt reserve deduction using the percentage of taxable income method
over the deduction that would have been allowable under the experience method is
treated as a preference item for purposes of computing the AMTI. In addition,
only 90% of AMTI can be offset by net operating loss carryovers. AMTI is
increased by an amount equal to 75% of the amount by which the Bank's adjusted
current earnings exceeds its AMTI (determined without regard to this preference
and prior to reduction for net operating losses). For taxable years beginning
after December 31, 1986, and before January 1, 1996, an environmental tax of
0.12% of the excess of AMTI (with certain modification) over $2.0 million is
imposed on corporations, including the Bank, whether or not an Alternative
Minimum Tax is paid.
DIVIDENDS-RECEIVED DEDUCTION. The Holding Company may exclude from its
income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends-received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Holding Company and the Bank will not file a consolidated tax
return, except that if the Holding Company or the Bank owns more than 20% of the
stock of a corporation distributing a dividend, then 80% of any dividends
received may be deducted.
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AUDITS. The Bank's federal income tax returns have not been audited for
the last five years.
STATE TAXATION
Indiana imposes an 8.5% franchise tax based on a financial institution's
adjusted gross income as defined by statute. In computing adjusted gross
income, deductions for municipal interest, U.S. Government interest, the bad
debt deduction computed using the reserve method and pre-1990 net operating
losses are disallowed. The Bank's state franchise tax returns have not been
audited for the past five tax years.
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THE CONVERSION
THE OTS HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO ITS APPROVAL BY THE
MEMBERS OF THE BANK ENTITLED TO VOTE THEREON AND TO THE SATISFACTION OF CERTAIN
OTHER CONDITIONS IMPOSED BY THE OTS IN ITS APPROVAL. OTS APPROVAL DOES NOT
CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION.
GENERAL
On September 16, 1998, the Board of Directors of the Bank unanimously
adopted the Plan of Conversion, pursuant to which the Bank will be converted
from a federally chartered mutual savings bank to a federally chartered stock
savings bank to be held as a wholly-owned subsidiary of the Holding Company, a
newly formed Indiana corporation. THE FOLLOWING DISCUSSION OF THE PLAN OF
CONVERSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN OF CONVERSION,
WHICH IS ATTACHED AS EXHIBIT A TO THE BANK'S PROXY STATEMENT AND IS AVAILABLE TO
MEMBERS OF THE BANK UPON REQUEST. The Plan of Conversion is also filed as an
exhibit to the Registration Statement. See "WHERE YOU CAN FIND MORE
INFORMATION." The OTS has approved the Plan of Conversion subject to its
approval by the members of the Bank entitled to vote on the matter at a Special
Meeting called for that purpose to be held on ___________, 1999, and subject to
the satisfaction of certain other conditions imposed by the OTS in its approval.
The conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by the Bank. As
part of the conversion, the Bank will issue all of its newly issued common stock
(1,000 shares) to the Holding Company in exchange for 50% of the net proceeds
from the sale of common stock by the Holding Company.
The Plan of Conversion provides generally that: (i) the Bank will convert
from a federally chartered mutual savings bank to a federally chartered stock
savings bank; (ii) the Holding Company will offer its common stock in the
Subscription Offering to persons having subscription rights; (iii) if necessary,
shares of common stock not subscribed for in the Subscription Offering will be
offered in a Direct Community Offering to certain members of the general public,
with preference given to natural persons and trusts of natural persons residing
in Vanderburgh, Warrick, Posey, Gibson and Spencer Counties, Indiana, and then
to certain members of the general public in a Syndicated Community Offering
through a syndicate of registered broker-dealers pursuant to selected dealers
agreements; and (iv) the Holding Company will purchase all of the capital stock
of the Bank to be issued in connection with the conversion.
As part of the conversion, the Holding Company is making a Subscription
Offering of its common stock to holders of subscription rights in the following
order of priority: (i) Eligible Account Holders (depositors with $50.00 or more
on deposit as of June 30, 1997); (ii) the Bank's ESOP; (iii) Supplemental
Eligible Account Holders (depositors with $50.00 or more on deposit as of
December 31, 1998); and (iv) Other Members (depositors of the Bank as of ______,
1999 and borrowers of the Bank with loans outstanding as of March 16, 1988 which
continue to be outstanding as of _______, 1999).
Shares of common stock not subscribed for in the Subscription Offering may
be offered for sale in the Direct Community Offering. The Direct Community
Offering, if one is held, is expected to begin immediately after the expiration
of the Subscription Offering, but may begin at any time during the Subscription
Offering. Shares of common stock not sold in the Subscription Offering and the
Direct Community Offering may be offered in the Syndicated Community Offering.
Regulations require that the Direct Community Offering and the Syndicated
Community Offering be completed within 45 days after completion of the
Subscription Offering unless extended by the Bank or the Holding Company with
the approval of the regulatory authorities. If the Syndicated Community
Offering is determined not to be feasible, the Board of Directors of the Bank
will consult with the regulatory authorities to determine an appropriate
alternative method for selling the unsubscribed shares of common stock. The
Plan of Conversion provides that the conversion must be completed within 24
months after the date of the approval of the Plan of Conversion by the members
of the Bank.
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No sales of common stock may be completed, either in the Subscription
Offering, Direct Community Offering or Syndicated Community Offering unless the
Plan of Conversion is approved by the members of the Bank.
The completion of the offering, however, is subject to market conditions
and other factors beyond the Bank's control. No assurance can be given as to
the length of time after approval of the Plan of Conversion at the Special
Meeting that will be required to complete the Direct Community Offering or the
Syndicated Community Offering or other sale of the common stock. If delays are
experienced, significant changes may occur in the estimated pro forma market
value of the Holding Company and the Bank as converted, together with
corresponding changes in the net proceeds realized by the Holding Company from
the sale of the common stock. In the event the conversion is terminated, the
Bank would be required to charge all conversion expenses against current income.
Orders for shares of common stock will not be filled until at least
$16,150,000 of common stock has been subscribed for or sold and the OTS approves
the final valuation and the conversion closes. If the conversion is not
completed within 45 days after the last day of the Subscription Offering and the
OTS consents to an extension of time to complete the conversion, subscribers
will be given the right to increase, decrease or rescind their subscriptions.
Unless an affirmative indication is received from subscribers that they wish to
continue to subscribe for shares, the funds will be returned promptly, together
with accrued interest at the Bank's passbook rate from the date payment is
received until the funds are returned to the subscriber. If such period is not
extended, or, in any event, if the conversion is not completed, all withdrawal
authorizations will be terminated and all funds held will be promptly returned
together with accrued interest at the Bank's passbook rate from the date payment
is received until the conversion is terminated.
REASONS FOR THE CONVERSION
The Board of Directors and management believe that the conversion is in the
best interests of the Bank, its members and the communities it serves. The
Bank's Board of Directors has formed the Holding Company to serve as a holding
company, with the Bank as its subsidiary, upon the consummation of the
conversion. By converting to the stock form of organization, the Holding
Company and the Bank will be structured in the form used by holding companies of
commercial banks, most business entities and by a large number of savings
institutions. Management of the Bank believes that the conversion offers a
number of advantages which will be important to the future growth and
performance of the Bank. The capital raised in the conversion is intended to
support the Bank's current lending and investment activities and may also
support possible future expansion and diversification of operations, although
there are no current specific plans, arrangements or understandings, written or
oral, regarding any such expansion or diversification. The conversion is also
expected to afford the Bank's management, members and others the opportunity to
become stockholders of the Holding Company and participate more directly in, and
contribute to, any future growth of the Holding Company and the Bank. The
conversion will also enable the Holding Company and the Bank to raise additional
capital in the public equity or debt markets should the need arise, although
there are no current specific plans, arrangements or understandings, written or
oral, regarding any such financing activities. The Bank, as a mutual savings
bank, does not have the authority to issue capital stock or debt instruments,
other than by accepting deposits.
EFFECTS OF CONVERSION TO STOCK FORM ON DEPOSITORS AND BORROWERS OF THE BANK
VOTING RIGHTS. Depositors and borrowers will have no voting rights in the
converted Bank or the Holding Company and therefore will not be able to elect
directors of the Bank or the Holding Company or to control their affairs.
Currently, these rights are accorded to members of the Bank. Subsequent to the
conversion, voting rights will be vested exclusively in the Holding Company with
respect to the Bank and the holders of the common stock as to matters pertaining
to the Holding Company. Each holder of common stock shall be entitled to vote
on any matter to be considered by the stockholders of the Holding Company. A
stockholder will be entitled to one vote for each share of common stock owned.
SAVINGS ACCOUNTS AND LOANS. The Bank's savings accounts, account balances
and existing FDIC insurance coverage of savings accounts will not be affected by
the conversion. Furthermore, the conversion will not affect the loan accounts,
loan balances or obligations of borrowers under their individual contractual
arrangements with the Bank.
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TAX EFFECTS. The Bank has received an opinion from Muldoon, Murphy &
Faucette, Washington, D.C., that the conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Internal Revenue Code. Among
other things, the opinion states that:
(1) no gain or loss will be recognized to the Bank in its mutual or stock
form by reason of the conversion;
(2) no gain or loss will be recognized to its account holders upon the
issuance to them of accounts in the Bank immediately after the conversion,
in the same dollar amounts and on the same terms and conditions as their
accounts at the Bank in its mutual form plus interest in the liquidation
account;
(3) the tax basis of account holders' accounts in the Bank immediately
after the conversion will be the same as the tax basis of their accounts
immediately prior to conversion;
(4) the tax basis of each account holder's interest in the liquidation
account will be equal to the value, if any, of that interest;
(5) the tax basis of the common stock purchased in the conversion will be
the amount paid and the holding period for such stock will commence at the
date of purchase; and
(6) no gain or loss will be recognized to account holders upon the receipt
or exercise of subscription rights in the conversion, except to the extent
subscription rights are deemed to have value as discussed below.
Unlike a private letter ruling issued by the IRS, an opinion of counsel is
not binding on the IRS and the IRS could disagree with the conclusions reached
therein. In the event of such disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of subscription rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan of Conversion will be
taxable to the extent, if any, that the subscription rights are deemed to have a
fair market value. Capital Resources Group, a financial consulting firm
retained by the Bank, whose findings are not binding on the IRS, has issued a
letter indicating that the subscription rights do not have any value, based on
the fact that such rights are acquired by the recipients without cost, are
nontransferable and of short duration and afford the recipients the right only
to purchase shares of the common stock at the same price paid by purchasers in
the Direct Community Offering for unsubscribed shares of common stock. If the
subscription rights are deemed to have a fair market value, the receipt of such
rights may only be taxable to those Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members who exercise their subscription
rights. The Bank could also recognize a gain on the distribution of such
subscription rights. Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members are encouraged to consult with their own tax advisors
as to the tax consequences in the event the subscription rights are deemed to
have a fair market value.
The Bank has also received an opinion from Olive LLP that, assuming the
conversion does not result in any federal income tax liability to the Bank, its
account holders, or the Holding Company, implementation of the Plan of
Conversion will not result in any Indiana income tax liability to such entities
or persons.
The opinions of Muldoon, Murphy & Faucette and Olive LLP and the letter
from Capital Resources Group are filed as exhibits to the Registration
Statement. See "WHERE YOU CAN FIND MORE INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the Bank in its present mutual form, each depositor in the Bank would receive a
pro rata share of any assets of the Bank remaining after payment of claims
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of all creditors (including the claims of all depositors up to the withdrawal
value of their accounts). Each depositor's pro rata share of such remaining
assets would be in the same proportion as the value of his or her deposit
account to the total value of all deposit accounts in the Bank at the time of
liquidation.
After the conversion, holders of withdrawable deposit(s) in the Bank,
including certificates of deposit ("Savings Account(s)"), shall not be entitled
to share in any residual assets in the event of liquidation of the Bank.
However, pursuant to OTS regulations, the Bank shall, at the time of the
conversion, establish a liquidation account in an amount equal to its total
equity as of the date of the latest statement of financial condition contained
herein.
The liquidation account shall be maintained by the Bank subsequent to the
conversion for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders who retain their Savings Accounts in the Bank. Each Eligible
Account Holder and Supplemental Eligible Account Holder shall, with respect to
each Savings Account held, have a related inchoate interest in a portion of the
liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's "qualifying deposit" in the
Savings Account and the denominator is the total amount of the "qualifying
deposits" of all such holders. Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing day of the Bank subsequent to June 30, 1997, or December 31, 1998 is
less than the lesser of (i) the deposit balance in such Savings Account at the
close of business on any other annual closing date subsequent to June 30, 1997
or December 31, 1998 or (ii) the amount of the "qualifying deposit" in such
Savings Account on June 30, 1997 or December 31, 1998, then the subaccount
balance for such Savings Account shall be adjusted by reducing such subaccount
balance in an amount proportionate to the reduction in such deposit balance. In
the event of a downward adjustment, such subaccount balance shall not be
subsequently increased, notwithstanding any increase in the deposit balance of
the related Savings Account. If any such Savings Account is closed, the related
subaccount balance shall be reduced to zero.
In the event of a complete liquidation of the Bank (and only in such event)
each Eligible Account Holder and Supplemental Eligible Account Holder shall be
entitled to receive a liquidation distribution from the liquidation account in
the amount of the then current adjusted subaccount balance(s) for Savings
Account(s) then held by such holder before any liquidation distribution may be
made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Savings Accounts and other liabilities or similar transactions
with another federally insured institution in which the Bank is not the
surviving institution shall be considered to be a complete liquidation. In any
such transaction the liquidation account shall be assumed by the surviving
institution.
In the unlikely event the Bank is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to the Holding Company as the sole stockholder of the Bank.
THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS
SUBSCRIPTION OFFERING. In accordance with the Plan of Conversion,
nontransferable subscription rights to purchase the common stock have been
issued to persons and entities entitled to purchase the common stock in the
Subscription Offering. The amount of the common stock which these parties may
purchase will be subject to the availability of the common stock for purchase
under the categories set forth in the Plan of Conversion. Subscription
priorities have been established for the allocation of stock to the extent that
the common stock is available. These priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or more
on deposit at the Bank as of June 30, 1997 will receive nontransferable
subscription rights to subscribe for up to the greater of $150,000 of common
stock,
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one-tenth of one percent of the total offering of common stock or 15 times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of common stock to be issued by a fraction of which the
numerator is the amount of qualifying deposit of the Eligible Account Holder and
the denominator is the total amount of qualifying deposits of all Eligible
Account Holders. If the exercise of subscription rights in this category results
in an oversubscription, shares of common stock will be allocated among
subscribing Eligible Account Holders so as to permit each Eligible Account
Holder, to the extent possible, to purchase a number of shares sufficient to
make such person's total allocation equal 100 shares or the number of shares
actually subscribed for, whichever is less. Thereafter, unallocated shares will
be allocated among subscribing Eligible Account Holders proportionately, based
on the amount of their respective qualifying deposits as compared to total
qualifying deposits of all subscribing Eligible Account Holders whose
subscriptions remain unsatisfied. Subscription rights received by officers and
directors in this category based on their increased deposits in the Bank in the
one year period preceding June 30, 1997 are subordinated to the subscription
rights of other Eligible Account Holders.
Category 2: ESOP. The Plan of Conversion provides that the ESOP shall
receive nontransferable subscription rights to purchase up to 8% of the shares
of common stock sold in the conversion. The ESOP intends to purchase 8% of the
shares of common stock sold in the conversion. In the event the number of
shares offered in the conversion is increased above the maximum of the Estimated
Valuation Range, the ESOP shall have a priority right to purchase any such
shares exceeding the maximum of the Estimated Valuation Range up to an aggregate
of 8% of the common stock sold in the conversion. If the ESOP's subscription is
not filled in its entirety, the ESOP may purchase shares in the open market.
Category 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of December 31, 1998 will receive nontransferable
subscription rights to subscribe for up to the greater of $150,000 of common
stock, one-tenth of one percent of the total offering of common stock or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposits of the
Supplemental Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders. If the
exercise of subscription rights in this category results in an oversubscription,
shares of common stock will be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each Supplemental Eligible Account Holder, to
the extent possible, to purchase a number of shares sufficient to make his or
her total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less. Thereafter, unallocated shares will be
allocated among subscribing Supplemental Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all subscribing Supplemental Eligible
Account Holders whose subscriptions remain unsatisfied.
Category 4: Other Members. Each depositor of the Bank as of the Voting
Record Date (_______, 1999) and each borrower with a loan outstanding on March
16, 1988 which continues to be outstanding as of the Voting Record Date will
receive nontransferable subscription rights to purchase up to $150,000 of common
stock in the conversion to the extent shares are available following
subscriptions by Eligible Account Holders and Supplemental Eligible Account
Holders. In the event of an oversubscription in this category, the available
shares will be allocated proportionately based on the amount of the respective
subscriptions.
SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE. PERSONS SELLING OR OTHERWISE
TRANSFERRING THEIR RIGHTS TO SUBSCRIBE FOR COMMON STOCK IN THE SUBSCRIPTION
OFFERING OR SUBSCRIBING FOR COMMON STOCK ON BEHALF OF ANOTHER PERSON WILL BE
SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OTS OR ANOTHER AGENCY OF THE U.S. GOVERNMENT. EACH
PERSON EXERCISING SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT HE OR SHE
IS PURCHASING SUCH SHARES SOLELY FOR HIS OR HER OWN ACCOUNT AND THAT HE OR SHE
HAS NO AGREEMENT OR UNDERSTANDING WITH ANY OTHER PERSON FOR THE SALE OR TRANSFER
OF SUCH SHARES. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED WITHOUT
THE CONSENT OF THE BANK AND THE HOLDING COMPANY.
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The Holding Company and the Bank will make reasonable attempts to provide a
prospectus and related offering materials to holders of subscription rights.
However, the Subscription Offering and all subscription rights under the Plan of
Conversion will expire at 12:00 Noon, local time, on ____________, 1999, whether
or not the Bank has been able to locate each person entitled to such
subscription rights. ORDERS FOR COMMON STOCK IN THE SUBSCRIPTION OFFERING
RECEIVED IN HAND BY THE BANK AFTER THE EXPIRATION DATE WILL NOT BE ACCEPTED.
DIRECT COMMUNITY OFFERING. Any shares of common stock which remain
unsubscribed for in the Subscription Offering may be offered by the Holding
Company to certain members of the general public in a Direct Community Offering,
with preference given to natural persons and trusts of natural persons residing
in Vanderburgh, Warrick, Posey, Gibson and Spencer Counties, Indiana.
Purchasers in the Direct Community Offering are eligible to purchase up to
$150,000 of common stock. In the event an insufficient number of shares are
available to fill orders in the Direct Community Offering, the available shares
will be allocated on a pro rata basis determined by the amount of the respective
orders. The Direct Community Offering, if one is held, is expected to begin
immediately after the expiration of the Subscription Offering, but may begin at
any time during the Subscription Offering. The Direct Community Offering may
terminate at the same time as the Subscription Offering or at any time
subsequent thereto, but no later than 45 days after the close of the
Subscription Offering, unless extended by the Holding Company and the Bank, with
approval of the OTS.
THE RIGHT OF ANY PERSON TO PURCHASE SHARES IN THE DIRECT COMMUNITY OFFERING
IS SUBJECT TO THE ABSOLUTE RIGHT OF THE HOLDING COMPANY AND THE BANK TO ACCEPT
OR REJECT SUCH PURCHASES IN WHOLE OR IN PART. IF AN ORDER IS REJECTED IN PART,
THE PURCHASER DOES NOT HAVE THE RIGHT TO CANCEL THE REMAINDER OF THE ORDER. THE
HOLDING COMPANY PRESENTLY INTENDS TO TERMINATE THE DIRECT COMMUNITY OFFERING AS
SOON AS IT HAS RECEIVED ORDERS FOR ALL SHARES AVAILABLE FOR PURCHASE IN THE
CONVERSION.
If all of the common stock offered in the Subscription Offering is
subscribed for, no common stock will be available for purchase in the Direct
Community Offering.
SYNDICATED COMMUNITY OFFERING. The Plan of Conversion provides that, if
necessary, all shares of common stock not purchased in the Subscription Offering
and Direct Community Offering, if any, may be offered for sale to certain
members of the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers to be formed and managed by Capital
Resources acting as agent of the Holding Company. THE HOLDING COMPANY AND THE
BANK HAVE THE RIGHT TO REJECT ORDERS, IN WHOLE OR IN PART, IN THEIR SOLE
DISCRETION IN THE SYNDICATED COMMUNITY OFFERING. Neither Capital Resources nor
any registered broker-dealer shall have any obligation to take or purchase any
shares of the common stock in the Syndicated Community Offering; however,
Capital Resources has agreed to use its best efforts in the sale of shares in
the Syndicated Community Offering.
Stock sold in the Syndicated Community Offering also will be sold at the
$10.00 purchase price. See "-- Stock Pricing and Number of Shares to be
Issued." No person will be permitted to subscribe in the Syndicated Community
Offering for shares of common stock with an aggregate purchase price of more
than $150,000. See "-- Plan of Distribution for the Subscription, Direct
Community and Syndicated Community Offerings" for a description of the
commission to be paid to the selected dealers and to Capital Resources.
Capital Resources may enter into agreements with selected dealers to assist
in the sale of shares in the Syndicated Community Offering. If a syndicate of
broker-dealers ("selected dealers") is formed to assist in the Syndicated
Community Offering, a purchaser may pay for his or her shares with funds held by
or deposited with a selected dealer. If an order form is executed and forwarded
to the selected dealer or if the selected dealer is authorized to execute the
order form on behalf of a purchaser, the selected dealer is required to forward
the order form and funds to the Bank for deposit in a segregated account on or
before noon of the business day following receipt of the order form or execution
of the order form by the selected dealer. Alternatively, selected dealers may
solicit indications of interest from their customers to place orders for shares.
Such selected dealers shall subsequently contact their customers who indicated
an interest and seek their confirmation as to their intent to purchase. Those
indicating an intent to purchase shall execute order forms and forward them to
their selected dealer or authorize the selected dealer to execute such
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forms. The selected dealer will acknowledge receipt of the order to its customer
in writing on the following business day and will debit such customer's account
on the third business day after the customer has confirmed his intent to
purchase (the "debit date") and on or before noon of the next business day
following the debit date will send order forms and funds to the Bank for deposit
in a segregated account. Although purchasers' funds are not required to be in
their accounts with selected dealers until the debit date in the event that such
alternative procedure is employed, once a confirmation of an intent to purchase
has been received by the selected dealer, the purchaser has no right to rescind
his or her order.
The Syndicated Community Offering may terminate no more than 45 days after
the expiration of the Subscription Offering, unless extended by the Holding
Company and the Bank, with approval of the OTS. In the event the Bank is unable
to find purchasers from the general public for all unsubscribed shares, other
purchase arrangements will be made by the Board of Directors of the Bank, if
feasible. Such other arrangements will be subject to the approval of the OTS.
TIME TO COMPLETE THE OFFERING. OTS regulations require that the Holding
Company complete the sale of common stock within 45 days after the close of the
Subscription Offering. If the offering is not completed within such period all
funds received will be promptly returned with interest at the Bank's passbook
rate and all withdrawal authorizations will be canceled. The OTS may grant one
or more extensions of the offering period, provided that (i) no single extension
exceeds 90 days, (ii) subscribers are given the right to increase, decrease or
rescind their subscriptions during the extension period, and (iii) the
extensions do not go more than two years beyond the date on which the members
approved the Plan of Conversion. If the OTS grants approval of an extension
offering period, all subscribers will be notified of such extension and of the
duration of any extension that has been granted, and will be given the right to
increase, decrease or rescind their orders. If an affirmative response to any
resolicitation is not received by the Holding Company from a subscriber, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest (or withdrawal authorizations will be canceled).
PERSONS IN NON-QUALIFIED STATES. The Holding Company and the Bank will
make reasonable efforts to comply with the securities laws of all states in the
United States in which persons entitled to subscribe for stock pursuant to the
Plan of Conversion reside. However, the Holding Company and the Bank are not
required to offer stock in the Subscription Offering to any person (i) who
resides in a foreign country or in a state of the United States in which a small
number of persons otherwise eligible to subscribe for shares of common stock
reside in such state or (ii) who resides in a state with respect to which the
Holding Company or the Bank determines that compliance with the securities laws
of such state would be impracticable for reasons of cost or otherwise, including
but not limited to a request or requirement that the Holding Company and the
Bank or their officers, directors or trustees register as a broker, dealer,
salesman or selling agent, under the securities laws of such state, or a request
or requirement to register or otherwise qualify the subscription rights or
common stock for sale or submit any filing with respect thereto in such state.
Where the number of persons eligible to subscribe for shares in one state is
small, the Holding Company and the Bank will base their decision as to whether
or not to offer the common stock in such state on a number of factors, including
the size of accounts held by account holders in the state, the cost of reviewing
the registration and qualification requirements of the state (and of actually
registering or qualifying the shares) or the need to register the Holding
Company, its officers, directors or employees as brokers, dealers or salesmen.
PLAN OF DISTRIBUTION FOR THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED
COMMUNITY OFFERINGS
The Holding Company and the Bank have retained Capital Resources, a broker-
dealer registered with the SEC and a member of the NASD, to consult with and
advise the Holding Company and the Bank and to assist, on a best efforts basis,
in the distribution of the common stock in the conversion. The services Capital
Resources will perform include: (i) training and educating the Company's and
the Bank's employees regarding the mechanics and regulatory requirements of the
stock conversion process; (ii) conducting information meetings for potential
subscribers, if necessary; (iii) managing the sales efforts in the offering;
(iv) assisting in the collection of proxies from depositors for use at the
Special Meeting; and (v) keeping records of subscriptions and orders for common
stock. Capital Resources will receive for its services a fee equal to 1.25% of
the total dollar amount of stock sold, excluding shares purchased
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by the ESOP and by officers, directors and employees and their immediate
household family members. If selected dealers are utilized in connection with
the offering, the Holding Company will pay a fee (negotiated at such time) to
such selected dealers and a management fee to Capital Resources pursuant to a
selected dealer's agreement. The fee to be negotiated with the selected dealers
is expected to be up to 4.0% of the total dollar amount sold through selected
dealers. Capital Resources will also be reimbursed for its legal fees and for
reasonable out-of-pocket expenses in an amount not to exceed $40,000. Capital
Resources has received fees totaling $60,000 for consulting and advisory
services relating to the conversion, which fees will be credited against
marketing fees payable to Capital Resources. Capital Resources is affiliated
with Capital Resources Group.
Subject to certain limitations, the Holding Company and the Bank have also
agreed to indemnify Capital Resources against liabilities and expenses
(including legal fees) incurred in connection with certain claims or litigation,
including claims or litigation arising out of or based upon untrue statements or
omissions contained in the offering material for the common stock.
DESCRIPTION OF SALES ACTIVITIES
The common stock will be offered in the Subscription Offering and Direct
Community Offering principally by the distribution of this prospectus and
through activities conducted at the Bank's stock center at its main office
facility. The stock center is expected to operate during normal business hours
throughout the Subscription Offering and Direct Community Offering. It is
expected that at any particular time one or more Capital Resources employees
will be working at the stock center. Such employees of Capital Resources will
be responsible for mailing materials relating to the offering, responding to
questions regarding the conversion and the offering and processing stock orders.
Sales of common stock will be made by registered representatives affiliated
with Capital Resources or by the selected dealers managed by Capital Resources.
The management and employees of the Bank may participate in the offering in
clerical capacities, providing administrative support in effecting sales
transactions or, when permitted by state securities laws, answering questions of
a mechanical nature relating to the proper execution of the order form.
Management of the Bank may answer questions regarding the business of the Bank
when permitted by state securities laws. Other questions of prospective
purchasers, including questions as to the advisability or nature of the
investment, will be directed to registered representatives. The management and
employees of the Holding Company and the Bank have been instructed not to
solicit offers to purchase common stock or provide advice regarding the purchase
of common stock.
No officer, director or employee of the Bank or the Holding Company will be
compensated, directly or indirectly, for any activities in connection with the
offer or sale of securities issued in the conversion.
None of the Bank's personnel participating in the offering is registered or
licensed as a broker or dealer or an agent of a broker or dealer. The Bank's
personnel will assist in the above-described sales activities pursuant to an
exemption from registration as a broker or dealer provided by Rule 3a4-1
promulgated under the Exchange Act. Rule 3a4-1 generally provides that an
"associated person of an issuer" of securities shall not be deemed a broker
solely by reason of participation in the sale of securities of such issuer if
the associated person meets certain conditions. Such conditions include, but
are not limited to, that the associated person participating in the sale of an
issuer's securities not be compensated in connection therewith at the time of
participation, that such person not be associated with a broker or dealer and
that such person observe certain limitations on his or her participation in the
sale of securities. For purposes of this exemption, "associated person of an
issuer" is defined to include any person who is a director, officer or employee
of the issuer or a company that controls, is controlled by or is under common
control with the issuer.
PROCEDURE FOR PURCHASING SHARES IN THE SUBSCRIPTION AND DIRECT COMMUNITY
OFFERINGS
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the expiration of the Subscription Offering in accordance with Rule 15c2-8
under the Exchange Act, no prospectus will be mailed any later than five days
prior to such date or hand delivered any later than two days prior to such date.
Execution of the order form will confirm
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receipt or delivery in accordance with Rule 15c2-8. Order forms will only be
distributed with a prospectus. The Bank will accept for processing only orders
submitted on original order forms. The Bank is not obligated to accept orders
submitted on photocopied or telecopied order forms. ORDERS CANNOT AND WILL NOT
BE ACCEPTED WITHOUT THE EXECUTION OF THE CERTIFICATION APPEARING ON THE ORDER
FORM.
To purchase shares in the Subscription Offering, an executed order form
with the required full payment for each share subscribed for, or with
appropriate authorization for withdrawal of full payment from the subscriber's
deposit account with the Bank (which may be given by completing the appropriate
blanks in the order form), must be received by the Bank by 12:00 Noon, local
time, on ___________, 1999. Order forms that are not received by such time or
are executed defectively or are received without full payment (or without
appropriate withdrawal instructions) are not required to be accepted. The
Holding Company and the Bank have the right to waive or permit the correction of
incomplete or improperly executed order forms, but do not represent that they
will do so. Pursuant to the Plan of Conversion, the interpretation by the
Holding Company and the Bank of the terms and conditions of the Plan of
Conversion and of the order form will be final. In order to purchase shares in
the Direct Community Offering, the order form, accompanied by the required
payment for each share subscribed for, must be received by the Bank prior to the
time the Direct Community Offering terminates, which may be at the same time as
or subsequent to the expiration of the Subscription Offering. Once received, an
executed order form may not be modified, amended or rescinded without the
consent of the Bank unless the conversion has not been completed within 45 days
after the end of the Subscription Offering, unless such period has been
extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (June 30,
1997) and/or the Supplemental Eligibility Record Date (December 31, 1998) and/or
the Voting Record Date (________) must list all accounts on the order form
giving all names in each account, the account number and the approximate account
balance as of such date. Failure to list an account could result in fewer
shares being allocated in the event of an oversubscription than if all accounts
had been disclosed.
Full payment for subscriptions may be made (i) in cash if delivered in
person at the Bank's stock center, (ii) by check, bank draft, or money order, or
(iii) by authorization of withdrawal from deposit accounts maintained with the
Bank. Appropriate means by which such withdrawals may be authorized are
provided on the order form. No wire transfers will be accepted. Payment for
subscriptions of $25,000 or more must be by account withdrawal or by certified
or cashier's check or money order. Interest will be paid on payments made by
cash, check, bank draft or money order at the Bank's passbook rate from the date
payment is received until the completion or termination of the conversion. If
payment is made by authorization of withdrawal from deposit accounts, the funds
authorized to be withdrawn from a deposit account will continue to accrue
interest at the contractual rates until completion or termination of the
conversion (unless the certificate matures after the date of receipt of the
order form but prior to closing, in which case funds will earn interest at the
passbook rate from the date of maturity until consummation of the conversion),
but a hold will be placed on such funds, thereby making them unavailable to the
depositor until completion or termination of the conversion. At the completion
of the conversion, the funds received in the offering will be used to purchase
the shares of common stock ordered. THE SHARES OF COMMON STOCK ISSUED IN THE
CONVERSION CANNOT AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENT
AGENCY. In the event that the conversion is not consummated for any reason, all
funds submitted will be promptly refunded with interest as described above.
If a subscriber authorizes the Bank to withdraw the amount of the aggregate
purchase price from his or her deposit account, the Bank will do so as of the
effective date of conversion, though the account must contain the full amount
necessary for payment at the time the subscription order is received. The Bank
will waive any applicable penalties for early withdrawal from certificate
accounts. If the remaining balance in a certificate account is reduced below
the applicable minimum balance requirement at the time that the funds actually
are transferred under the authorization the certificate will be canceled at the
time of the withdrawal, without penalty, and the remaining balance will earn
interest at the Bank's passbook rate.
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IRAs maintained in the Bank do not permit investment in the common stock.
A depositor interested in using his or her IRA funds to purchase common stock
must do so through a self-directed IRA. Since the Bank does not offer such
accounts, it will allow such a depositor to make a trustee-to-trustee transfer
of the IRA funds to a trustee offering a self-directed IRA program with the
agreement that such funds will be used to purchase the Holding Company's common
stock in the offering. There will be no early withdrawal or IRS interest
penalties for such transfers. The new trustee would hold the common stock in a
self-directed account in the same manner as the Bank now holds the depositor's
IRA funds. An annual administrative fee may be payable to the new trustee.
Depositors interested in using IRA funds at the Bank to purchase common stock
should contact the stock information center as soon as possible so that the
necessary forms may be forwarded for execution and returned prior to the
expiration of the Subscription Offering. In addition, the provisions of the
Employee Retirement Income Security Act and IRS regulations require that
officers, directors and 10% shareholders who use self-directed IRA funds to
purchase shares of common stock in the Subscription Offering, make such
purchases for the exclusive benefit of IRAs.
The ESOP will not be required to pay for the shares subscribed for at the
time it subscribes, but rather may pay for such shares of common stock
subscribed for at the $10.00 purchase price upon consummation of the conversion,
provided that there is in force from the time of its subscription until such
time, a loan commitment from an unrelated financial institution or the Holding
Company to lend to the ESOP, at such time, the aggregate purchase price of the
shares for which it subscribed.
Certificates representing shares of common stock purchased, and any refund
due, will be mailed to purchasers at such address as may be specified in
properly completed order forms or to the last address of such persons appearing
on the records of the Bank as soon as practicable following consummation of the
sale of all shares of common stock. Any certificates returned as undeliverable
will be disposed of in accordance with applicable law. PURCHASERS MAY NOT BE
ABLE TO SELL THE SHARES OF COMMON STOCK WHICH THEY PURCHASED UNTIL CERTIFICATES
FOR THE COMMON STOCK ARE AVAILABLE AND DELIVERED TO THEM, EVEN THOUGH TRADING OF
THE COMMON STOCK MAY HAVE COMMENCED.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
Federal regulations promulgated by the OTS require that a converting
savings association issue and sell its capital stock at a total price equal to
the estimated pro forma market value of such stock in the converted savings
association, based on an independent valuation. These regulations require the
Holding Company and the Bank to retain an appraiser who is independent of the
Holding Company and the Bank, experienced and expert in the area of corporate
appraisal and acceptable to OTS. The term independent appraiser is defined by
the federal regulations. The Bank has retained Capital Resources Group to
prepare an appraisal of the pro forma market value of the Holding Company and
the Bank as converted and to assist in preparing a business plan. Capital
Resources Group is the parent company of and affiliated with Capital Resources,
the marketing agent for the Holding Company's conversion stock. Capital
Resources Group will receive a fee expected to total $35,000 for its appraisal
services and assistance in the preparation of a business plan, plus reasonable
out-of-pocket expenses incurred in connection with the appraisal and preparation
of the business plan, not to exceed $5,000 without prior approval by the Bank.
If an updated appraisal is required in connection with the conversion process,
Capital Resources Group will receive a fixed fee of $5,000 for preparation of an
updated appraisal. The Bank has agreed to indemnify Capital Resources Group
under certain circumstances against liabilities and expenses (including legal
fees) arising out of, related to, or based upon the conversion. Capital
Resources Group will also receive a fee of $20,000 for records management
services in connection with the conversion plus reimbursement of reasonable out-
of-pocket expenses incurred in connection with the records management services
not to exceed $5,000 without prior approval by the Bank.
OTS has issued Guidelines to appraisers in connection with the appraisal of
converting savings institutions which describe the methodology that OTS expects
the appraiser to utilize. OTS reviews the appraisal and any appraisal update
submitted to them, and the methodology employed therein. In the past, OTS has
required converting savings institutions to adjust their appraisals or appraisal
updates which has resulted in a change in the number of shares issued. Although
OTS has not objected to the appraisal of the Holding Company and the Bank in
connection with the conversion, there can be no assurance that the OTS may not
require the Bank to sell additional stock to consummate
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the conversion. There also can be no assurance that the common stock will
exhibit the post-conversion price and trading patterns experienced by other
converting mutual associations, or that the common stock will sell in the
aftermarket at $10.00 per share or in the aggregate at or above the estimated
pro form market value.
The appraisal contains an analysis of a number of factors including, but
not limited to, the Bank's financial condition and operating trends, the
competitive environment within which the Bank operates, operating trends of
certain thrift institutions and savings and loan holding companies, relevant
economic conditions both nationally and in the State of Indiana which affect the
operations of thrift institutions, stock market values of certain institutions,
and stock market conditions for publicly traded savings institutions and savings
and loan holding companies. In addition, Capital Resources Group has advised
the Bank that it has considered and will consider the effect of the additional
capital raised by the sale of the common stock on the estimated aggregate pro
forma market value of such shares. The Board of Directors has reviewed the
appraisal, including the stated methodology of Capital Resources Group and the
assumptions used in the preparation of the appraisal. The Board of Directors is
relying upon the expertise, experience and independence of Capital Resources
Group and is not qualified to determine the appropriateness of the assumptions
or the methodology. The appraisal has been filed as an exhibit to the
registration statement of which this prospectus is a part. See "WHERE YOU CAN
FIND MORE INFORMATION."
OTS regulations require that the appraiser establish an estimated valuation
range for the Holding Company's common stock to allow for fluctuations in the
aggregate value of the stock due to changing market conditions and other
factors. On the basis of the foregoing, Capital Resources Group has advised the
Holding Company and the Bank that, in its opinion, as of December 4, 1998, the
aggregate estimated pro forma market value of the Holding Company and the Bank
as converted and, therefore, the common stock, was within the valuation range of
$16,150,000 to $21,850,000 with a midpoint of $19,000,000. After reviewing the
methodology and the assumptions used by Capital Resources Group in the
preparation of the appraisal, the Board of Directors accepted the Estimated
Valuation Range. Assuming that the shares are sold at $10.00 per share in the
conversion, the estimated number of shares would be between 1,615,000 and
2,185,000 with a midpoint of 1,900,000. The purchase price of $10.00 was
determined by discussion among the Boards of Directors of the Bank and the
Holding Company and Capital Resources, taking into account, among other factors
(i) the requirement under OTS regulations that the common stock be offered in a
manner that will achieve the widest distribution of the stock and (ii) desired
liquidity in the common stock subsequent to the conversion. Since the outcome of
the offering relates in large measure to market conditions at the time of sale,
it is not possible to determine the exact number of shares that will be issued
by the Holding Company at this time. The Estimated Valuation Range may be
amended, with the approval of the OTS, if necessitated by developments following
the date of such appraisal in, among other things, the Bank's financial
condition and operating trends, the competitive environment within which the
Bank operates, operating trends of certain thrift institutions and savings and
loan holding companies, relevant economic conditions both nationally and in the
State of Indiana which affect the operations of thrift institutions, stock
market values of certain institutions, and stock market conditions for publicly
traded savings institutions and savings and loan holding companies.
If, upon completion of the Subscription Offering, at least the minimum
number of shares are subscribed for, Capital Resources Group, after taking into
account factors similar to those involved in its prior appraisal as well as the
results of the Subscription Offering, will determine its estimate of the pro
forma market value of the Holding Company and the Bank as converted based on
information available to Capital Resources Group at that time. This may result
in an increase or decrease of the Estimated Valuation Range. An increase or
decrease in the Estimated Valuation Range will result in a change in the number
of shares to be issued in the conversion.
No sale of the shares will take place unless prior thereto Capital
Resources Group confirms to the OTS that, to the best of Capital Resources
Group's knowledge and judgment, nothing of a material nature has occurred that
would cause it to conclude that the actual total purchase price on an aggregate
basis was incompatible with its estimate of the total pro forma market value of
the Holding Company and the Bank as converted at the time of the sale. If,
however, the facts do not justify such a statement, the offering or other sale
may be canceled, a new Estimated Valuation Range and price per share set and new
Subscription, Direct Community and Syndicated Community Offerings held. Under
such circumstances, subscribers would have the right to modify or rescind their
subscriptions and to have their
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subscription funds returned promptly with interest and holds on funds authorized
for withdrawal from deposit accounts would be released or reduced.
Depending upon market and financial conditions, the number of shares issued
may be more or less than the range in number of shares discussed herein.
Persons ordering shares will not be permitted to modify or cancel their orders
unless the change in the number of shares to be issued in the conversion results
in an offering which is either less than 1,615,000 shares or more than 2,512,750
shares. In the event the total amount of shares issued is less than 1,615,000 or
more than 2,512,750 (15% above the maximum of the Estimated Valuation Range),
for aggregate gross proceeds of less than $16,150,000 or more than $25,127,500,
subscription funds will be returned promptly with interest to each subscriber
unless he indicates otherwise. In the event a new valuation range is established
by Capital Resources Group, such new range will be subject to approval by the
OTS. In the event of an increase in the valuation, the Holding Company may
increase the total number of shares to be issued in the conversion. An increase
in the total number of shares to be issued in the conversion would decrease a
subscriber's percentage ownership interest and pro forma net worth (book value)
per share and increase the pro forma net income and net worth (book value) on an
aggregate basis. In the event of a reduction in the valuation, the Holding
Company may decrease the number of shares to be issued to reflect the reduced
valuation. A decrease in the number of shares to be issued in the conversion
would increase a subscriber's percentage ownership interest and the pro forma
net worth (book value) per share and decrease the pro forma net income and net
worth on an aggregate basis. For a presentation of the possible effects of an
increase or decrease in the number of shares to be issued, see "PRO FORMA DATA."
If purchasers cannot be found for an insignificant residue of unsubscribed
shares from the general public, other purchase arrangements will be made by the
Boards of Directors of the Bank and the Holding Company, if possible. Such other
purchase arrangements will be subject to the approval of the OTS and may provide
for purchases for investment purposes by directors, officers, their associates
and other persons in excess of the limitations provided in the Plan of
Conversion and in excess of the proposed director purchases set forth herein,
although no such purchases are currently intended. If such other purchase
arrangements cannot be made, the Plan of Conversion will terminate.
In formulating its appraisal, Capital Resources Group relied upon the
truthfulness, accuracy and completeness of all documents the Bank furnished to
it. Capital Resources Group also considered financial and other information
from regulatory agencies, other financial institutions, and other public
sources, as appropriate. While Capital Resources Group believes this
information to be reliable, Capital Resources Group does not guarantee the
accuracy or completeness of such information and did not independently verify
the financial statements and other data provided by the Bank and the Holding
Company or independently value the assets or liabilities of the Holding Company
and the Bank. The appraisal considers the Holding Company and the Bank only as
a going concern and should not be considered to be a liquidation value. THE
APPRAISAL BY CAPITAL RESOURCES GROUP IS NOT INTENDED TO BE, AND MUST NOT BE
INTERPRETED AS, A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF VOTING TO
APPROVE THE PLAN OF CONVERSION OR OF PURCHASING SHARES OF COMMON STOCK.
MOREOVER, BECAUSE THE APPRAISAL IS NECESSARILY BASED ON MANY FACTORS WHICH
CHANGE FROM TIME TO TIME, THERE IS NO ASSURANCE THAT PERSONS WHO PURCHASE SUCH
SHARES IN THE CONVERSION WILL LATER BE ABLE TO SELL SHARES THEREAFTER AT PRICES
AT OR ABOVE THE PURCHASE PRICE IN THE OFFERING.
LIMITATIONS ON PURCHASES OF SHARES
The Plan of Conversion provides for certain limitations to be placed upon
the purchase of common stock by eligible subscribers and others in the
conversion. Each subscriber must subscribe for a minimum of 25 shares. The
Plan of Conversion provides the following purchase limitations: (1) no eligible
subscriber (including all persons on a joint account) may purchase more than
$150,000 of common stock in the Subscription Offering; (2) no person may
purchase more than $150,000 of common stock in the Direct Community Offering;
(3) no person may purchase more than $150,000 of common stock in the Syndicated
Community Offering; and (4) no person, either alone or together with associates
of or persons acting in concert with such person, may purchase in the aggregate
more than the overall maximum purchase limitation of 1% of the total number of
shares of common stock issued in the conversion (exclusive of any increase in
the number of shares as a result of the increase in the appraisal to the
adjusted maximum). For purposes of the Plan of Conversion, the directors are
not deemed to be acting in concert solely by reason of their Board
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membership. Pro rata reductions within each subscription rights category will be
made in allocating shares to the extent that the maximum purchase limitations
are exceeded.
The Bank's and the Holding Company's Boards of Directors may, in their sole
discretion, increase the maximum purchase limitation set forth above up to 9.99%
of the shares of common stock sold in the conversion, provided that if the
maximum purchase limitation is increased to more than 5% of the shares sold in
the conversion, orders for shares which exceed 5% of the shares of common stock
sold in the conversion may not exceed, in the aggregate, 10% of the shares sold
in the conversion. The Bank and the Holding Company do not intend to increase
the maximum purchase limitation unless market conditions are such that an
increase in the maximum purchase limitation is necessary to sell a number of
shares in excess of the minimum of the Estimated Valuation Range. If the Boards
of Directors decide to increase the purchase limitation above, persons who
subscribed for the maximum number of shares of common stock will be, and other
large subscribers in the discretion of the Holding Company and the Bank may be,
given the opportunity to increase their subscriptions accordingly, subject to
the rights and preferences of any person who has priority subscription rights.
The term "acting in concert" is defined in the Plan of Conversion to mean
(i) knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not pursuant to an express
agreement; or (ii) a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise. In general, a person who acts in concert with another party shall
also be deemed to be acting in concert with any person who is also acting in
concert with that other party. The Holding Company and the Bank may presume
that certain persons are acting in concert based upon, among other things, joint
account relationships and the fact that such persons have filed joint Schedules
13D with the SEC with respect to other companies.
The term "associate" of a person is defined in the Plan of Conversion to
mean (i) any corporation or organization (other than the Bank or a majority-
owned subsidiary of the Bank) of which such person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities; (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity (excluding tax-qualified employee plans); and
(iii) any relative or spouse of such person, or any relative of such spouse, who
either has the same home as such person or who is a director or officer of the
Bank or any of its parents or subsidiaries. For example, a corporation of which
a person serves as an officer would be an associate of such person and,
therefore, all shares purchased by such corporation would be included with the
number of shares which such person could purchase individually under the above
limitations.
The term "officer" is defined in the Plan of Conversion to mean an
executive officer of the Bank, including its Chairman of the Board, President,
Vice Presidents, Secretary and Treasurer.
Common stock purchased pursuant to the conversion will be freely
transferable, except for shares purchased by directors and officers of the Bank
and the Holding Company and by NASD members. See "-- Restrictions on
Transferability by Directors and Officers and NASD Members."
RESTRICTIONS ON REPURCHASE OF STOCK
Pursuant to OTS regulations, OTS-regulated savings associations (and their
holding companies) may not for a period of three years from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except in the event of (i) an offer made to all of its stockholders
to repurchase the common stock on a pro rata basis, approved by the OTS; or (ii)
the repurchase of qualifying shares of a director. Furthermore, repurchases of
any common stock are prohibited if the effect thereof would cause the Bank's
regulatory capital to be reduced below (a) the amount required for the
liquidation account or (b) the regulatory capital requirements imposed by the
OTS. Repurchases are generally prohibited during the first year following
conversion. Upon ten days' written notice to the OTS, and if the OTS does not
object, an institution may make open market repurchases of its outstanding
common stock during years two and three following the conversion, provided that
certain regulatory conditions are met and that the
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repurchase would not adversely affect the financial condition of the
institution. Any repurchases of common stock by the Holding Company would be
subject to these regulatory restrictions unless the OTS would provide otherwise.
RESTRICTIONS ON TRANSFERABILITY BY DIRECTORS AND OFFICERS AND NASD MEMBERS
Shares of common stock purchased in the offering by directors and officers
of the Holding Company may not be sold for a period of one year following
consummation of the conversion, except in the event of the death of the
stockholder or in any exchange of the common stock in connection with a merger
or acquisition of the Holding Company. Shares of common stock received by
directors or officers through the ESOP or the MRDP or upon exercise of options
issued pursuant to the Stock Option Plan or purchased subsequent to the
conversion are not subject to this restriction. Accordingly, shares of common
stock issued by the Holding Company to directors and officers shall bear a
legend giving appropriate notice of the restriction and, in addition, the
Holding Company will give appropriate instructions to the transfer agent for the
Holding Company's common stock with respect to the restriction on transfers. Any
shares issued to directors and officers as a stock dividend, stock split or
otherwise with respect to restricted common stock shall be subject to the same
restrictions.
Purchases of outstanding shares of common stock of the Holding Company by
directors, executive officers (or any person who was an executive officer or
director of the Bank after adoption of the Plan of Conversion) and their
associates during the three-year period following the conversion may be made
only through a broker or dealer registered with the SEC, except with the prior
written approval of the OTS. This restriction does not apply, however, to
negotiated transactions involving more than 1% of the Holding Company's
outstanding common stock or to the purchase of stock pursuant to the Stock
Option Plan.
The Holding Company has filed with the SEC a registration statement under
the Securities Act of 1933 for the registration of the common stock to be issued
pursuant to the conversion. The registration of shares of the common stock to
be issued in the conversion does not cover the resale of such shares. Shares of
common stock purchased by persons who are not affiliates of the Holding Company
may be resold without registration. Shares purchased by an affiliate of the
Holding Company will be subject to the resale restrictions of Rule 144 under the
Securities Act. If the Holding Company meets the current public information
requirements of Rule 144 under the Securities Act, each affiliate of the Holding
Company who complies with the other conditions of Rule 144 (including those that
require the affiliate's sale to be aggregated with those of certain other
persons) would be able to sell in the public market, without registration, a
number of shares not to exceed, in any three-month period, the greater of (i) 1%
of the outstanding shares of the Holding Company or (ii) the average weekly
volume of trading in such shares during the preceding four calendar weeks.
Provision may be made in the future by the Holding Company to permit affiliates
to have their shares registered for sale under the Securities Act under certain
circumstances.
Under guidelines of the NASD, members of the NASD and their associates are
subject to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements upon
purchase of such securities.
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
The following discussion is a summary of certain provisions of federal law
and regulations and Indiana corporate law, as well as the Articles of
Incorporation and Bylaws of the Holding Company, relating to stock ownership and
transfers, the Board of Directors and business combinations, all of which may be
deemed to have "anti-takeover" effects. The description of these provisions is
necessarily general and reference should be made to the actual law and
regulations and to the Articles of Incorporation and Bylaws of the Holding
Company contained in the Registration Statement filed with the SEC. See "WHERE
YOU CAN FIND MORE INFORMATION" as to how to obtain a copy of these documents.
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CONVERSION REGULATIONS
OTS regulations prohibit any person from making an offer, announcing an
intent to make an offer or participating in any other arrangement to purchase
stock or acquiring stock or subscription rights in a converting institution (or
its holding company) from another person prior to completion of its conversion.
Further, without the prior written approval of the OTS, no person may make such
an offer or announcement of an offer to purchase shares or actually acquire
shares in the converting institution (or its holding company) for a period of
three years from the date of the completion of the conversion if, upon the
completion of such offer, announcement or acquisition, that person would become
the beneficial owner of more than 10% of the outstanding stock of the
institution (or its holding company). The OTS has defined "person" to include
any individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution. However, offers made
exclusively to an association (or its holding company) or an underwriter or
member of a selling group acting on the converting institution's (or its holding
company's) behalf for resale to the general public are excepted. The regulation
also provides civil penalties for willful violation or assistance in any such
violation of the regulation by any person connected with the management of the
converting institution (or its holding company) or who controls more than 10% of
the outstanding shares or voting rights of a converting or converted institution
(or its holding company).
CHANGE OF CONTROL REGULATIONS
Under the Change in Bank Control Act, no person may acquire control of an
insured federal savings and loan association or its parent holding company
unless the OTS has been given 60 days' prior written notice and has not issued a
notice disapproving the proposed acquisition. In addition, OTS regulations
provide that no company may acquire control of a savings association without the
prior approval of the OTS. Any company that acquires such control becomes a
"savings and loan holding company" subject to registration, examination and
regulation by the OTS.
Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings
association's directors, or a determination by the OTS that the acquirer has the
power to direct, or directly or indirectly to exercise a controlling influence
over, the management or policies of the institution. Acquisition of more than
10% of any class of a savings association's voting stock, if the acquirer also
is subject to any one of specified "control factors," constitutes a rebuttal
determination of control under the regulations. Such control factors include
the acquirer being one of the two largest stockholders. The determination of
control may be rebutted by submission to the OTS, prior to the acquisition of
stock or the occurrence of any other circumstances giving rise to such
determination, of a statement setting forth facts and circumstances which would
support a finding that no control relationship will exist and containing certain
undertakings. The regulations provide that persons or companies which acquire
beneficial ownership exceeding 10% or more of any class of a savings
association's stock must file with the OTS a certification form that the holder
is not in control of such institution, is not subject to a rebuttal
determination of control and will take no action which would result in a
determination or rebuttal determination of control without prior notice to or
approval of the OTS, as applicable. There are also rebuttal presumptions in the
regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family."
The OTS may prohibit an acquisition of control if it finds, among other
things, that (i) the acquisition would result in a monopoly or substantially
lessen competition, (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the institution, or (iii) the competence,
experience or integrity of the acquiring person indicates that it would not be
in the interest of the depositors or the public to permit the acquisition of
control by such person.
ANTI-TAKEOVER PROVISIONS IN THE HOLDING COMPANY'S ARTICLES OF INCORPORATION AND
BYLAWS AND IN INDIANA LAW
A number of provisions of the Holding Company's Articles of Incorporation
and Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
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provisions of the Holding Company's Articles of Incorporation and Bylaws and
regulatory provisions relating to stock ownership and transfers, the Board of
Directors and business combinations, which might be deemed to have a potential
"anti-takeover" effect. These provisions may have the effect of discouraging a
future takeover attempt which is not approved by the Board of Directors but
which individual Holding Company stockholders may deem to be in their best
interests or in which stockholders may receive a substantial premium for their
shares over then current market prices. As a result, stockholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions will also render the removal of the incumbent Board of
Directors or management of the Holding Company more difficult. The following
description of certain of the provisions of the Articles of Incorporation and
Bylaws of the Holding Company is necessarily general and reference should be
made in each case to such Articles of Incorporation and Bylaws, which are
incorporated herein by reference. See "WHERE YOU CAN FIND MORE INFORMATION" as
to where to obtain a copy of these documents.
LIMITATION ON VOTING RIGHTS. The Articles of Incorporation of the Holding
Company provide that in no event shall any record owner of any outstanding
common stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of common
stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit, unless permitted by a resolution adopted by
a majority of the board of directors. Beneficial ownership is determined
pursuant to the federal securities laws and includes shares beneficially owned
by such person or any of his or her affiliates (as defined in the Articles of
Incorporation), shares which such person or his or her affiliates have the right
to acquire upon the exercise of conversion rights or options and shares as to
which such person and his or her affiliates have or share investment or voting
power, but shall not include shares beneficially owned by the ESOP or directors,
officers and employees of the Bank or Holding Company or shares that are subject
to a revocable proxy and that are not otherwise beneficially, or deemed by the
Holding Company to be beneficially, owned by such person and his or her
affiliates.
BOARD OF DIRECTORS. The Board of Directors of the Holding Company is
divided into three classes, each of which shall contain approximately one-third
of the whole number of the members of the Board. The members of each class
shall be elected for a term of three years, with the terms of office of all
members of one class expiring each year so that approximately one-third of the
total number of directors are elected each year. The Articles of Incorporation
provide that any vacancy occurring in the Board, including a vacancy created by
an increase in the number of directors, may be filled by a vote of a majority of
the directors then in office and any director so chosen shall hold office for a
term expiring at the annual meeting of stockholders at which the term of the
class to which the director has been chosen expires. The classified Board is
intended to provide for continuity of the Board of Directors and to make it more
difficult and time consuming for a stockholder group to fully use its voting
power to gain control of the Board of Directors without the consent of the
incumbent Board of Directors of the Holding Company. The Articles of
Incorporation of the Holding Company provide that a director may be removed from
the Board of Directors prior to the expiration of his or her term only for cause
and only upon the vote of two-thirds of the outstanding shares of voting stock.
In the absence of this provision, the vote of the holders of a majority of the
shares could remove one or more directors with or without cause. The Bylaws of
the Holding Company provide that each director must at all times be the
beneficial owner of not less than 100 shares of the Holding Company's common
stock. The Bylaws also provide that no person seventy years of age shall be
eligible for election to the Board of Directors and that any director who
becomes seventy years of age may serve until the completion of his term.
Finally, the Bylaws provide that to be eligible for election to the Board of
Directors a person must reside within 50 miles of an office of the Holding
Company or the Bank.
CUMULATIVE VOTING, SPECIAL MEETINGS AND ACTION BY WRITTEN CONSENT. The
Articles of Incorporation do not provide for cumulative voting for any purpose.
Moreover, the Articles of Incorporation provide that special meetings of
stockholders of the Holding Company may be called only by the Board of Directors
of the Holding Company. Under Indiana law, action may be taken by shareholders
without a meeting only if evidenced by a written consent signed by all
shareholders entitled to vote.
AUTHORIZED SHARES. The Articles of Incorporation authorizes the issuance
of 9,000,000 shares of common stock and 1,000,000 shares of preferred stock.
The shares of common stock and preferred stock were authorized in an
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amount greater than that to be issued in the conversion to provide the Holding
Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financing, acquisitions, stock dividends, stock
splits, restricted stock grants and the exercise of stock options. However,
these additional authorized shares may also be used by the Board of Directors,
consistent with fiduciary duties, to deter future attempts to gain control of
the Holding Company. The Board of Directors also has sole authority to determine
the terms of any one or more series of preferred stock, including voting rights,
conversion rates, and liquidation preferences. As a result of the ability to fix
voting rights for a series of preferred stock, the Board has the power, to the
extent consistent with its fiduciary duties, to issue a series of preferred
stock to persons friendly to management in order to attempt to block a tender
offer, merger or other transaction by which a third party seeks control of the
Holding Company, and thereby assist members of management to retain their
positions. The Holding Company's Board currently has no plans for the issuance
of additional shares, other than the issuance of shares of common stock upon
exercise of stock options and in connection with the MRDP.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS WITH PRINCIPAL
STOCKHOLDERS. The Articles of Incorporation require the approval of the holders
of at least 80% of the Holding Company's outstanding shares of voting stock to
approve certain "Business Combinations" (as defined therein) involving a
"Related Person" (as defined therein) except in cases where the proposed
transaction has been approved in advance by a majority of those members of the
Holding Company's Board of Directors who are unaffiliated with the Related
Person and were directors prior to the time when the Related Person became a
Related Person. The term "Related Person" is defined to include any individual,
corporation, partnership or other entity (other than the Holding Company or its
subsidiary) which owns beneficially or controls, directly or indirectly, 10% or
more of the outstanding shares of voting stock of the Holding Company or an
affiliate of such person or entity. This provision of the Articles of
Incorporation applies to any "Business Combination," which is defined to
include: (i) any merger or consolidation of the Holding Company with or into
any Related Person; (ii) any sale, lease, exchange, mortgage, transfer, or other
disposition of 25% or more of the assets of the Holding Company or combined
assets of the Holding Company and its subsidiaries to a Related Person; (iii)
any merger or consolidation of a Related Person with or into the Holding Company
or a subsidiary of the Holding Company; (iv) any sale, lease, exchange,
transfer, or other disposition of 25% or more of the assets of a Related Person
to the Holding Company or a subsidiary of the Holding Company; (v) the issuance
of any securities of the Holding Company or a subsidiary of the Holding Company
to a Related Person; (vi) the acquisition by the Holding Company or a subsidiary
of the Holding Company of any securities of a Related Person; (vii) any
reclassification of common stock of the Holding Company or any recapitalization
involving the common stock of the Holding Company; or (viii) any agreement or
other arrangement providing for any of the foregoing.
Under Indiana law, absent this provision, business combinations, including
mergers, share exchanges and sales of substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of a majority of the outstanding shares of common stock of the Holding
Company and any other affected class of stock. The increased stockholder vote
required to approve a business combination may have the effect of foreclosing
mergers and other business combinations which a majority of stockholders deem
desirable and placing the power to prevent such a merger or combination in the
hands of a minority of stockholders.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS. Amendments to the
Holding Company's Articles of Incorporation must be approved by a two-thirds
vote of its Board of Directors and also by a majority of the outstanding shares
of its voting stock, provided, however, that an affirmative vote of at least
two-thirds of the outstanding voting stock entitled to vote (after giving effect
to the provision limiting voting rights) is required to amend or repeal certain
provisions of the Articles of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by the Holding Company and
amendment of the Holding Company's Bylaws and Articles of Incorporation. The
Holding Company's Bylaws may be amended by its Board of Directors.
STOCKHOLDER NOMINATIONS AND PROPOSALS. The Bylaws of the Holding Company
require a stockholder who intends to nominate a candidate for election to the
Board of Directors, or to raise new business at a stockholder meeting to give
not less than 60 nor more than 90 days' advance notice to the Secretary of the
Holding Company. The notice provision requires a stockholder who desires to
raise new business to provide certain information to the Holding
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<PAGE>
Company concerning the nature of the new business, the stockholder and the
stockholder's interest in the business matter. Similarly, a stockholder wishing
to nominate any person for election as a director must provide the Holding
Company with certain information concerning the nominee and the proposing
stockholder.
PURPOSE AND TAKEOVER DEFENSIVE EFFECTS OF THE HOLDING COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS. The Board of Directors of the Bank believes that the
provisions described above are prudent and will reduce the Holding Company's
vulnerability to takeover attempts and certain other transactions that have not
been negotiated with and approved by its Board of Directors. These provisions
will also assist the Holding Company and the Bank in the orderly deployment of
the conversion proceeds into productive assets during the initial period after
the conversion. The Board of Directors believes these provisions are in the
best interest of the Bank and Holding Company and its stockholders. In the
judgment of the Board of Directors, the Holding Company's Board will be in the
best position to determine the true value of the Holding Company and to
negotiate more effectively for what may be in the best interests of its
stockholders. Accordingly, the Board of Directors believes that it is in the
best interest of the Holding Company and its stockholders to encourage potential
acquirors to negotiate directly with the Board of Directors of the Holding
Company and that these provisions will encourage such negotiations and
discourage hostile takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at a price reflective of the true value of the
Holding Company and that is in the best interest of all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available. A transaction that is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value of the Holding
Company for its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of the Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
that is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners became less
than 300, thereby allowing for deregistration under the Exchange Act.
Despite the belief of the Bank and the Holding Company as to the benefits
to stockholders of these provisions of the Holding Company's Articles of
Incorporation and Bylaws, these provisions may also have the effect of
discouraging a future takeover attempt that would not be approved by the Holding
Company's Board, but pursuant to which stockholders may receive a substantial
premium for their shares over then current market prices. As a result,
stockholders who might desire to participate in such a transaction may not have
any opportunity to do so. Such provisions will also render the removal of the
Holding Company's Board of Directors and of management more difficult. The Board
of Directors of the Bank and the Holding Company, however, have concluded that
the potential benefits outweigh the possible disadvantages.
Following the conversion, pursuant to applicable law and, if required,
following the approval by stockholders, the Holding Company may adopt additional
anti-takeover charter provisions or other devices regarding the acquisition of
its equity securities that would be permitted for an Indiana business
corporation.
The cumulative effect of the restriction on acquisition of the Holding
Company contained in the Articles of Incorporation and Bylaws of the Holding
Company and in Federal and Indiana law may be to discourage potential
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takeover attempts and perpetuate incumbent management, even though certain
stockholders of the Holding Company may deem a potential acquisition to be in
their best interests, or deem existing management not to be acting in their best
interests.
DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY
GENERAL
The Holding Company is authorized to issue 9,000,000 shares of common stock
having a par value of $.01 per share and 1,000,000 shares of preferred stock
having a par value of $.01 per share. Each share of the Holding Company's
common stock will have the same relative rights as, and will be identical in all
respects with, each other share of common stock. Upon payment of the purchase
price for the common stock, in accordance with the Plan of Conversion, all such
stock will be duly authorized, fully paid and nonassessable.
THE COMMON STOCK OF THE HOLDING COMPANY WILL REPRESENT NON WITHDRAWABLE
CAPITAL, WILL NOT BE AN ACCOUNT OF ANY TYPE, AND WILL NOT BE INSURED BY THE FDIC
OR ANY OTHER GOVERNMENT AGENCY.
COMMON STOCK
DIVIDENDS. The payment of dividends by the Holding Company is subject to
limitations which are imposed by law and applicable regulation. See "DIVIDEND
POLICY" and "REGULATION." The holders of common stock of the Holding Company
will be entitled to receive and share equally in such dividends as may be
declared by the Board of Directors of the Holding Company out of funds legally
available therefor. If the Holding Company issues preferred stock, the holders
thereof may have a priority over the holders of the common stock with respect to
dividends.
VOTING RIGHTS. Upon conversion, the holders of common stock of the Holding
Company will possess exclusive voting rights in the Holding Company. They will
elect the Holding Company's Board of Directors and act on such other matters as
are required to be presented to them under Indiana law or as are otherwise
presented to them by the Board of Directors. Except as discussed in
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY," each holder of common
stock will be entitled to one vote per share and will not have any right to
cumulate votes in the election of directors. If the Holding Company issues
preferred stock, holders of the Holding Company preferred stock may also possess
voting rights. Certain matters require a vote of more than 50% of the
outstanding shares entitled to vote thereon. See "RESTRICTIONS ON ACQUISITION
OF THE HOLDING COMPANY."
As a federal mutual savings bank, corporate powers and control of the Bank
are vested in its Board of Directors, who elect the officers of the Bank and who
fill any vacancies on the Board of Directors as it exists upon conversion.
Subsequent to conversion, voting rights will be vested exclusively in the owners
of the shares of capital stock of the Bank, all of which will be owned by the
Holding Company, and voted at the direction of the Holding Company's Board of
Directors. Consequently, the holders of the common stock will not have direct
control of the Bank.
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
the Bank, the Holding Company, as holder of the Bank's capital stock would be
entitled to receive, after payment or provision for payment of all debts and
liabilities of the Bank (including all deposit accounts and accrued interest
thereon) and after distribution of the balance in the special liquidation
account to Eligible Account Holders and Supplemental Eligible Account Holders
(see "THE CONVERSION"), all assets of the Bank available for distribution. In
the event of liquidation, dissolution or winding up of the Holding Company, the
holders of its common stock would be entitled to receive, after payment or
provision for payment of all its debts and liabilities, all of the assets of the
Holding Company available for distribution. If the Holding Company issues
preferred stock, the holders thereof may have a priority over the holders of the
common stock in the event of liquidation or dissolution.
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PREEMPTIVE RIGHTS. Holders of the common stock of the Holding Company will
not be entitled to preemptive rights with respect to any shares that may be
issued. The common stock is not subject to redemption.
PREFERRED STOCK
None of the shares of the authorized Holding Company preferred stock will
be issued in the conversion and there are no plans to issue the preferred stock.
Such stock may be issued with such designations, powers, preferences and rights
as the Board of Directors may from time to time determine. The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
RESTRICTIONS ON ACQUISITION
Acquisitions of the Holding Company are restricted by provisions in its
Articles of Incorporation and Bylaws and by the rules and regulations of various
regulatory agencies. See "REGULATION" and "RESTRICTIONS ON ACQUISITION OF THE
HOLDING COMPANY."
REGISTRATION REQUIREMENTS
The Holding Company has registered the common stock with the SEC pursuant
to Section 12(g) of the Exchange Act and will not deregister its common stock
for a period of at least three years following the completion of the conversion.
As result of such registration, the proxy and tender offer rules, insider
trading reporting and restrictions, annual and periodic reporting and other
requirements of the Exchange Act will be applicable.
LEGAL AND TAX OPINIONS
The legality of the common stock has been passed upon for the Holding
Company by Muldoon, Murphy & Faucette, Washington, D.C. The federal tax
consequences of the offering have been opined upon by Muldoon, Murphy & Faucette
and the Indiana tax consequences of the offering have been opined upon by Olive
LLP. Muldoon, Murphy & Faucette and Olive LLP have consented to the references
herein to their opinions. Certain legal matters will be passed upon for Capital
Resources, Inc. by Steele, Silcox & Browning, P.C., Washington, D.C.
EXPERTS
The financial statements of the Bank as of June 30, 1998 and 1997 and for
the years ended June 30, 1998, 1997 and 1996 included in this prospectus have
been audited by Olive LLP independent auditors, as stated in its report
appearing herein, and have been so included in reliance upon the report of such
firm given upon its authority as experts in accounting and auditing.
Capital Resources Group has consented to the publication herein of the
summary of its report to the Bank setting forth its opinion as to the estimated
pro forma market value of the Holding Company and the Bank as converted and its
letter with respect to subscription rights and to the use of its name and
statements with respect to it appearing herein.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
The Holding Company has filed with the SEC a Registration Statement on Form
S-1 (File No. 333-________) under the Securities Act of 1933 with respect to the
common stock offered in the conversion. This prospectus does not contain all
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the SEC. You may
read and copy such information at the SEC's public reference room in Washington,
D.C. You can request copies of those documents, upon payment of a duplicating
fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The Registration
Statement, including this prospectus and the exhibits, also is available through
the SEC's World Wide Web site on the Internet (http://www.sec.gov).
The Bank has filed with the OTS an Application for Approval of Conversion,
which includes proxy materials for the Bank's Special Meeting and certain other
information. This prospectus omits certain information contained in such
Application. The Application, including the proxy materials, exhibits and
certain other information that are a part thereof, may be inspected, without
charge, at the offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552
and at the office of the Regional Director of the OTS at the Central Regional
Office of the OTS, 200 West Madison Street, Suite 1300, Chicago, IL 60606.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST FEDERAL SAVINGS BANK AND SUBSIDIARY
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report........................................................................ F-1
Consolidated Balance Sheet as of September 30, 1998 (unaudited)
and June 30, 1998 and 1997.......................................................................... F-
Consolidated Statement of Income for the
Three Months Ended September 30, 1998 and 1997 (unaudited) and
the Years Ended June 30, 1998, 1997 and 1996........................................................ 24
Consolidated Statement of Equity Capital for the
Three Months Ended September 30, 1998 (unaudited) and
the Years Ended June 30, 1998, 1997 and 1996........................................................ F-
Consolidated Statement of Cash Flows for the
Three Months Ended September 30, 1998 and 1997 (unaudited) and
the Years Ended June 30, 1998, 1997 and 1996........................................................ F-
Notes to Consolidated Financial Statements.......................................................... F-
</TABLE>
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.
Separate financial statements for the Holding Company have not been
included herein because the Holding Company, which has engaged in only
organizational activities to date, has no significant assets, liabilities
(contingent or otherwise), revenues or expenses.
95
<PAGE>
INDEX TO FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Independent auditor's report--June 30, 1998 F-1
Consolidated balance sheet as of September 30, 1998 (unaudited)
and June 30, 1998 and 1997 F-2
Consolidated statement of income for the three-month periods ended
September 30, 1998 and 1997 (unaudited) and the years ended June 30,
1998, 1997 and 1996 24
Consolidated statement of equity capital for the three-month
period ended September 30, 1998 (unaudited) and the three years ended
June 30, 1998, 1997 and 1996 F-3
Consolidated statement of cash flows for the three-month periods ended
September 30, 1998 and 1997 (unaudited) and the years ended
June 30, 1998, 1997 and 1996 F-4
Notes to consolidated financial statements F-5
</TABLE>
All schedules are omitted because the required information is not applicable or
is included in the consolidated financial statements and related notes.
The Holding Company has not commenced operations as of September 30, 1998 and
will not commence operations prior to the conversion of First Federal Savings
Bank from a federal savings bank to a federal stock savings bank. Accordingly,
the financial statements of the Holding Company have been omitted and are not
required.
95
<PAGE>
[LOGO OF OLIVE APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
First Federal Savings Bank
Evansville, Indiana
We have audited the consolidated balance sheet of First Federal Savings Bank and
subsidiary as of June 30, 1998 and 1997, and the related consolidated statements
of income, changes in equity capital and cash flows for each of the three years
in the period ended June 30, 1998. These consolidated financial statements are
the responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of First
Federal Savings Bank and subsidiary as of June 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1998, in conformity with generally accepted accounting
principles.
/s/ Olive LLP
Evansville, Indiana
August 12, 1998, except for note 16,
as to which the date is September 16,
1998
(F-1)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30
-----------------------------
1998 1998 1997
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 888,262 $ 926,974 $ 940,736
Interest-bearing demand deposits 12,665,601 10,442,095 6,797,436
Federal funds sold 420,000 320,000 25,000
------------------------------------------
Total cash and cash equivalents 13,973,863 11,689,069 7,763,172
Interest-bearing deposits 1,882,000 2,279,000 5,546,000
Investment securities
Available for sale 4,015,967 4,375,672 7,864,682
Held to maturity (fair value of
$48,304,000 (unaudited), $49,463,000
and $52,118,000) 47,987,499 49,363,642 52,469,675
------------------------------------------
Total investment securities 52,003,466 53,739,314 60,334,357
Loans, net of allowance for loan
losses of $250,000 38,183,162 35,655,003 32,164,336
Premises and equipment 1,513,210 1,520,311 888,861
Federal Home Loan Bank stock 727,400 727,400 727,400
Other assets 3,344,239 3,353,715 3,322,798
------------------------------------------
Total assets $111,627,340 $108,963,812 $110,746,924
==========================================
LIABILITIES
Deposits
Non-interest bearing $ 216,530 $ 197,161 $ 205,586
Interest bearing 90,744,364 89,031,871 88,354,630
------------------------------------------
Total deposits 90,960,894 89,229,032 88,560,216
Borrowings 3,645,000 3,645,000 7,050,000
Advances by borrowers for taxes and
insurance 560,660 355,841 333,770
Other liabilities 1,344,144 785,282 749,565
------------------------------------------
Total liabilities 96,510,698 94,015,155 96,693,551
------------------------------------------
EQUITY CAPITAL
Retained earnings--substantially
restricted 15,055,306 14,900,739 14,021,035
Accumulated other comprehensive
income 61,336 47,918 32,338
------------------------------------------
Total equity capital 15,116,642 14,948,657 14,053,373
------------------------------------------
Total liabilities and equity
capital $111,627,340 $108,963,812 $110,746,924
==========================================
</TABLE>
See notes to consolidated financial statements.
(F-2)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EQUITY CAPITAL
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE
EARNINGS INCOME TOTAL
--------------------------------------------------------
<S> <C> <C> <C>
BALANCES, JULY 1, 1995 $13,013,629 $(11,425) $13,002,204
Comprehensive income
Net income 620,046 620,046
Other comprehensive income, net of tax--
unrealized losses on securities (47,707) (47,707)
--------------------------------------------------------
Comprehensive income 620,046 (47,707) 572,339
--------------------------------------------------------
BALANCES, JUNE 30, 1996 13,633,675 (59,132) 13,574,543
Comprehensive income
Net income 387,360 387,360
Other comprehensive income, net of tax--
unrealized gains on securities 91,470 91,470
--------------------------------------------------------
Comprehensive income 387,360 91,470 478,830
--------------------------------------------------------
BALANCES, JUNE 30, 1997 14,021,035 32,338 14,053,373
Comprehensive income
Net income 879,704 879,704
Other comprehensive income, net of tax--
unrealized gains on securities 15,580 15,580
--------------------------------------------------------
Comprehensive income 879,704 15,580 895,284
--------------------------------------------------------
BALANCES, JUNE 30, 1998 14,900,739 47,918 14,948,657
Comprehensive income
Net income (unaudited) 154,567 154,567
Other comprehensive income, net of tax--
unrealized gains on securities (unaudited) 13,418 13,418
--------------------------------------------------------
Comprehensive income (unaudited) 154,567 13,418 167,985
--------------------------------------------------------
BALANCES, SEPTEMBER 30, 1998 (UNAUDITED) $15,055,306 $ 61,336 $15,116,642
========================================================
</TABLE>
See notes to consolidated financial statements.
(F-3)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED JUNE 30
-------------------------------------------------------------------
1998 1997 1998 1997 1996
-------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 154,567 $ 215,330 $ 879,704 $ 387,360 $ 620,046
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 100,000
Depreciation and amortization 27,319 10,260 96,349 51,180 67,188
Amortization of net loan origination fees (14,836) (11,985) (47,940) (28,412) 34,612
Deferred income tax (5,487) (9,780) (41,607) (54,752) (80,561)
Increase in cash surrender value of life insurance
in excess of premiums paid (23,548) (19,782) (87,234) (81,975) (83,364)
Investment securities amortization (accretion), net 1,057 (30,365) (146,994) (164,730) (341,136)
Gain on disposal of branch office and deposits (399,552)
Net change in
Interest receivable 12,295 81,850 84,555 (5,750) (227,246)
Interest payable and other liabilities 558,862 402,554 35,717 234,808 154,469
Prepaid expense and other assets 15,634 74,352 1,853 1,500 86,850
-------------------------------------------------------------------
Net cash provided by operating activities 725,863 712,434 374,851 339,229 330,858
-------------------------------------------------------------------
INVESTING ACTIVITIES
Net change in interest-bearing deposits 397,000 (395,000) 3,267,000 2,477,000 (894,000)
Proceeds from maturities of securities available for sale 383,705 1,027,645 3,528,075 4,177,517 3,240,899
Purchases of securities held to maturity (8,000,000) (8,230,000) (38,641,921) (14,317,656) (21,987,259)
Proceeds from maturities of securities held to maturity 9,375,086 12,389,295 41,882,979 8,982,598 16,875,685
Net change in loans (2,513,323) 791,942 (3,442,727) 305,532 (84,413)
Purchases of premises and equipment (20,218) (608,260) (779,275) (4,066) (14,768)
Disposal of branch office and deposits (2,319,522)
-------------------------------------------------------------------
Net cash provided (used) by investing activities (377,750) 4,975,622 3,494,609 1,620,925 (2,863,856)
-------------------------------------------------------------------
FINANCING ACTIVITIES
Net change in
Non-interest bearing, interest-bearing demand
and savings deposits 1,195,282 (687,698) 1,091,502 (1,932,818) (625,457)
Certificates of deposit 536,580 (1,187,852) 2,347,864 1,648,781 2,584,129
Advances by borrowers for taxes and insurance 204,819 189,128 22,071 (83,229) (8,652)
Repayment of long-term debt (3,405,000) (450,000) (500,000)
Proceeds from long-term debt 3,000,000
-------------------------------------------------------------------
Net cash provided (used) by financing activities 1,936,681 (1,686,422) 56,437 (817,266) 4,450,020
-------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,284,794 4,001,634 3,925,897 1,142,888 1,917,022
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 11,689,069 7,763,172 7,763,172 6,620.284 4,703,262
-------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $13,973,863 $11,764,806 $11,689,069 $ 7,763,172 $ 6,620,284
===================================================================
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 704,609 $ 841,656 $ 5,041,792 $ 4,586,705 $ 4,629,667
Income tax paid 16,298 85,200 492,900 247,200 234,574
</TABLE>
See notes to consolidated financial statements.
(F-4)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 1 -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Federal Savings Bank (Bank) and
its wholly-owned subsidiary, FFSL Service Corporation, conform to generally
accepted accounting principles and reporting practices followed by the thrift
industry. The more significant of these policies are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Bank operates under a federal thrift charter and provides full banking
services. As a federally-chartered thrift, the Bank is subject to regulation by
the Office of Thrift Supervision and the Federal Deposit Insurance Corporation.
The Bank generates mortgage and consumer loans and receives deposits from
customers located primarily in Vanderburgh County, Indiana, and surrounding
counties. The Bank's loans are generally secured by specific items of
collateral, including real property and consumer assets.
The accompanying consolidated balance sheet as of September 30, 1998 and the
consolidated statements of income, changes in equity capital and cash flows for
the three months ended September 30, 1998 and 1997 are unaudited and include the
accounts of the Bank and its subsidiary after elimination of all material
intercompany transactions. Management is of the opinion that all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the results of the periods reported, have been included in the accompanying
financial statements. The results of operations for the three months ended
September 30, 1998 are not necessarily indicative of those expected for the
remainder of the year.
CONSOLIDATION -- The consolidated financial statements include the accounts of
the Bank and subsidiary after elimination of all material intercompany
transactions and accounts.
INVESTMENT SECURITIES-- Debt securities are classified as held to maturity when
the Bank has the positive intent and ability to hold the securities to maturity.
Securities held to maturity are carried at amortized cost. Debt securities not
classified as held to maturity are classified as available for sale. Securities
available for sale are carried at fair value with unrealized gains and losses
reported separately in equity capital, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
(F-5)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
LOANS are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. The accrual of interest on impaired
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. This is generally ninety days after the
loan becomes past due. When interest accrual is discontinued, all unpaid accrued
interest is reversed when considered uncollectible. Interest income is
subsequently recognized only to the extent cash payments are received. Certain
loan fees and direct costs are being deferred and amortized as an adjustment of
yield on the loans over the contractual life of those loans.
ALLOWANCE FOR LOAN LOSSES is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that, as of
September 30, 1998 (unaudited), the allowance for loan losses is adequate based
on information currently available. A worsening or protracted economic decline
in the area within which the Bank operates would increase the likelihood of
additional losses due to credit and market risks and could create the need for
additional loss reserves.
PREMISES AND EQUIPMENT are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based on the estimated
useful lives of the assets, which range from 5 to 50 years. Maintenance and
repairs are expensed as incurred while major additions and improvements are
capitalized. Gains and losses on dispositions are included in current
operations.
FEDERAL HOME LOAN BANK (FHLB) STOCK is a required investment for institutions
that are members of the FHLB system. The required investment in the common stock
is based on a predetermined formula.
INVESTMENT IN LIMITED PARTNERSHIP is included in other assets and is recorded
using the equity method of accounting. Losses due to impairment are recorded
when it is determined that the investment no longer has the ability to recover
its carrying amount. The benefits of low-income housing tax credits associated
with the investment are accrued when earned.
INCOME TAX in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Bank
files consolidated income tax returns with its subsidiary.
(F-6)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 2 -- INVESTMENT SECURITIES
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------------
<S> <C> <C> <C> <C>
AT SEPTEMBER 30, 1998 (UNAUDITED)
Available for sale
Mortgage-backed securities $ 3,908 $108 $ 4,016
--------------------------- ---------
Held to maturity
Federal agencies 8,235 66 8,301
Collateralized auto obligations 1,008 1 1,009
Corporate obligations 2,944 24 $ 1 2,967
Mortgage-backed securities 32,819 289 63 33,045
Commercial paper 2,981 1 2,982
------------------------------------------------------
Total held to maturity 47,987 381 64 48,304
------------------------------------------------------
Total investment securities $51,895 $489 $ 64 $52,320
======================================================
AT JUNE 30, 1998
Available for sale
Mortgage-backed securities $ 4,292 $ 84 $ 4,376
--------------------------- ---------
Held to maturity
Federal agencies 10,232 32 10,264
Collateralized auto obligations 1,009 $ 2 1,007
Corporate obligations 2,956 3 2 2,957
Mortgage-backed securities 31,169 220 151 31,238
Commercial paper 3,998 1 3,997
------------------------------------------------------
Total held to maturity 49,364 255 156 49,463
------------------------------------------------------
Total investment securities $53,656 $339 $156 $53,839
======================================================
AT JUNE 30, 1997
Available for sale
Mortgage-backed securities $ 7,808 $ 76 $ 20 $ 7,864
------------------------------------------------------
Held to maturity
Federal agencies 16,201 22 219 16,004
Collateralized auto obligations 249 249
Mortgage-backed securities 33,530 189 345 33,374
Commercial paper 2,490 1 2,491
------------------------------------------------------
Total held to maturity 52,470 212 564 52,118
------------------------------------------------------
Total investment securities $60,278 $288 $584 $59,982
======================================================
</TABLE>
(F-7)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The amortized cost and fair market value of securities held to maturity and
available for sale at September 30, 1998 (unaudited) and June 30, 1998, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
----------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1998 (UNAUDITED)
Within one year $ 5,179 $ 5,186
One to five years 5,951 5,988
Five to ten years 3,040 3,078
After ten years 998 1,007
-------------------
15,168 15,259
Mortgage-backed securities 32,819 33,045 $3,908 $4,016
---------------------------------------------
Totals $47,987 $48,304 $3,908 $4,016
=============================================
JUNE 30,1998
Within one year $ 6,194 $ 6,203
One to five years 5,963 5,964
Five to ten years 4,040 4,059
After ten years 1,998 1,999
-------------------
18,195 18,225
Mortgage-backed securities 31,169 31,238 $4,292 $4,376
---------------------------------------------
Totals $49,364 $49,463 $4,292 $4,376
=============================================
</TABLE>
Securities with a carrying value of $6,787,000 and $7,322,000 were pledged at
September 30, 1998 (unaudited) and June 30, 1998 to secure FHLB advances and
certain other funds advanced to the Bank as part of the Community Reinvestment
Act.
In December 1995, the Bank transferred certain securities from held to maturity
to available for sale in accordance with a transition reclassification allowed
by the Financial Accounting Standards Board. Such securities had a carrying
value of $10,422,468 and a fair value of $10,469,217.
(F-8)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 3 -- LOANS AND ALLOWANCE
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30
---------------------
1998 1998 1997
-------------------------------------
(Unaudited)
<S> <C> <C> <C>
Real estate loans $37,942 $35,161 $31,336
Credit line equity loans 997 937 1,047
Loans to depositors secured by savings 146 226 131
Consumer loans 542 501 424
-------------------------------------
39,627 36,825 32,938
-------------------------------------
Undisbursed portion of loans (958) (700) (349)
Deferred loan fees (236) (220) (175)
Allowance for loan losses (250) (250) (250)
-------------------------------------
(1,444) (1,170) (774)
-------------------------------------
$38,183 $35,655 $32,164
=====================================
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED JUNE 30
---------------------------------------------------------------------
1998 1997 1998 1997 1996
---------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses
Balances, beginning of period $250 $250 $250 $250 $150
Provision for losses 100
---------------------------------------------------------------------
Balances, end of period $250 $250 $250 $250 $250
=====================================================================
</TABLE>
The Bank has not had any impaired loans during the three years ended June 30,
1998, 1997 and 1996 or the three months ended September 30, 1998 (unaudited).
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheet. The unpaid balances of these loans were $9,055,000
and $7,198,000 at September 30, 1998 and 1997 (unaudited) and $7,994,000,
$7,276,000 and $7,712,000 at June 30, 1998, 1997 and 1996.
(F-9)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 4 -- PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30
-----------------------
1998 1998 1997
---------------------------------------
(Unaudited)
<S> <C> <C> <C>
Land $ 639 $ 639 $ 515
Buildings 1,840 1,840 1,669
Equipment 858 838 787
---------------------------------------
Total cost 3,337 3,317 2,971
Accumulated depreciation (1,824) (1,797) (2,082)
---------------------------------------
Net $ 1,513 $ 1,520 $ 889
=======================================
</TABLE>
In October 1997, the Bank sold the real estate, equipment and deposit accounts
of its Mr. Vernon, Indiana branch in exchange for cash. Gains on the disposal of
real estate and equipment of $261,000 and on the disposal of deposits of
$139,000 are included in other income for 1998. Approximately $2,800,000 of
deposits were sold at a 5% premium.
(F-10)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 5 -- OTHER ASSETS AND OTHER LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30
----------------------
1998 1998 1997
-------------------------------------
(Unaudited)
<S> <C> <C> <C>
Other assets
Interest receivable
Investment securities $ 490 $ 502 $ 620
Loans 181 181 148
Cash value of insurance 2,084 2,061 1,973
Investment in limited partnership 268 277 330
Net deferred tax asset 142 148 117
Prepaid expenses and other 179 185 135
-------------------------------------
Total $3,344 $3,354 $3,323
=====================================
Other liabilities
Interest payable
Deposits $ 613 $ 144 $ 239
Other borrowings 114 103 73
Deferred directors' fees and officer compensation 405 382 296
Accrued expenses 212 156 142
-------------------------------------
Total $1,344 $ 785 $ 750
=====================================
</TABLE>
The investment in limited partnership of $268,000, $277,000 and $330,000 at
September 30, 1998 (unaudited) and June 30, 1998 and 1997 represents a 40
percent equity interest in Vann Park II, L.P., a limited partnership organized
to build, own and operate a 44-unit apartment complex. In addition to recording
its equity in the losses of $53,000, $32,000 and $82,000, the Bank has recorded
the benefit of low-income housing tax credits of $73,000 for each of the years
ended June 30, 1998, 1997 and 1996. For each of the three-month periods ended
September 30, 1998 and 1997 (unaudited), the Bank recorded equity in the losses
of the partnership of $9,000, as well as the benefit of low-income housing tax
credits of $18,250.
(F-11)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 6 -- DEPOSITS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30
-----------------------
1998 1998 1997
--------------------------------------
(Unaudited)
<S> <C> <C> <C>
Demand deposits $11,866 $10,624 $ 8,910
Savings deposits 10,359 10,406 11,731
Certificates and other time deposits of $100,000 or more 7,278 6,782 6,865
Other certificates and time deposits 61,458 61,417 61,054
--------------------------------------
Total deposits $90,961 $89,229 $88,560
======================================
</TABLE>
Certificates maturing in years ending:
<TABLE>
<CAPTION>
SEPTEMBER 30 JUNE 30
- -------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
1999 $37,547 $35,702
2000 24,939 25,369
2001 3,754 4,423
2002 1,453 1,141
2003 583 1,011
Thereafter 460 553
--------------------------
$68,736 $68,199
==========================
</TABLE>
Interest expense on deposits:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED JUNE 30
------------------------------------------------------
1998 1997 1998 1997 1996
------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Interest-bearing demand $ 19 $ 23 $ 85 $ 103 $ 113
Money market savings deposits 71 27 115 117 138
Savings deposits 70 84 295 352 398
Certificates 960 944 4,089 3,730 3,643
------------------------------------------------------
$ 1,120 $ 1,078 $ 4,584 $ 4,302 $ 4,292
======================================================
</TABLE>
Deposits in excess of $100,000 are not federally insured.
(F-12)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 7 -- BORROWINGS
<TABLE>
<CAPTION>
SEPTEMBER 30 JUNE 30
---------------------------
1998 1998 1997
-----------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Federal Home Loan Bank advances
Variable rate, 5.5% at September 30, 1998
(unaudited), due in March 1999 $3,645 $3,645 $4,050
Fixed rate, 5.9%, paid February 1998 3,000
-----------------------------------------------
$3,645 $3,645 $7,050
===============================================
</TABLE>
NOTE 8 -- INCOME TAX
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED JUNE 30
-------------------------------------------------------------
1998 1997 1998 1997 1996
-------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Income tax
Currently payable
Federal $45 $ 87 $ 332 $ 141 $ 179
State 21 31 125 25 101
Deferred
Federal (4) (7) (32) (45) (68)
State (1) (3) (10) (9) (13)
-------------------------------------------------------------
Total income tax expense $61 $108 $ 415 $ 112 $ 199
=============================================================
Reconciliation of federal statutory
to actual tax expense
Federal statutory income tax at 34% $73 $110 $ 440 $ 170 $ 278
State income taxes, net of federal benefit 13 19 76 11 58
Cash surrender value of life insurance (7) (7) (30) (28) (28)
Tax credits (18) (18) (73) (73) (73)
Other 4 2 32 (36)
-------------------------------------------------------------
Actual tax expense $61 $108 $ 415 $ 112 $ 199
=============================================================
</TABLE>
(F-13)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
A cumulative net deferred tax asset is included in other assets. The components
of the asset are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30
----------------------------
1998 1998 1997
-------------------------------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Differences in accounting for loan losses $ 90 $ 91 $ 90
Differences in accounting for loan fees 35 37 48
Deferred compensation and directors fees 198 188 139
Other 5 5 2
-------------------------------------------
Total assets 328 321 279
-------------------------------------------
LIABILITIES
Differences in depreciation methods (83) (83) (79)
Federal Home Loan Bank dividends (55) (55) (55)
Accretion of investment discounts (4)
Other (2)
Accretion of investment discounts (4)
Unrealized gain on securities available for sale (46) (35) (24)
-------------------------------------------
Total liabilities (186) (173) (162)
-------------------------------------------
$ 142 $ 148 $ 117
-------------------------------------------
</TABLE>
A valuation allowance was not considered necessary at September 30, 1998
(unaudited) and June 30, 1998 and 1997.
Retained earnings at September 30, 1998 (unaudited) and June 30, 1998 include
approximately $4,102,000, for which no deferred income tax liability has been
recognized. This amount represents an allocation of income to bad debt
deductions for tax purposes only. Reduction of amounts so allocated for purposes
other than tax bad debt losses or adjustments arising from carryback of net
operating losses would create income for tax purposes only, which income would
be subject to the then-current corporate income tax rate. The unrecorded
deferred income tax liability on the above amount at September 30, 1998
(unaudited) and June 30, 1998 was approximately $1,395,000.
NOTE 9 -- COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are outstanding commitments and
contingent liabilities, such as guarantees and commitments to extend credit
which are not included in the accompanying consolidated financial statements.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit is
represented by the contractual or notional amount of those instruments. The Bank
uses the same credit policies in making such commitments as it does for
instruments that are included in the consolidated balance sheet.
(F-14)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Commitments to extend credit, which represent financial instruments whose
contract amount represents credit risk, were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30
---------------------------------------
1998 1998 1997
--------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Loan commitments
At variable rates $2,308 $2,108 $1,855
At fixed rates ranging from
6.75% to 7.25% 793
6.75% to 7.25% 710
8.25% to 9.25% 176
--------------------------------------------------------
$3,101 $2,818 $2,031
========================================================
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies, but may include residential real estate,
income-producing commercial properties or other assets of the borrower.
The Bank and subsidiary are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate determination of such possible claims or
lawsuits will not have a material adverse effect on the consolidated financial
position of the Bank.
NOTE 10 -- REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies and is assigned to a capital category. The assigned
capital category is largely determined by three ratios that are calculated
according to the regulations: total risk adjusted capital, Tier 1 capital, and
Tier 1 leverage ratios. The ratios are intended to measure capital relative to
assets and credit risk associated with those assets and off-balance sheet
exposures of the entity. The capital category assigned to an entity can also be
affected by qualitative judgments made by regulatory agencies about the risk
inherent in the entity's activities that are not part of the calculated ratios.
(F-15)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
There are five capital categories defined in the regulations, ranging from well
capitalized to critically undercapitalized. Classification of a bank in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank's operations. At September 30, 1998 (unaudited)
and June 30, 1998 and 1997, the Bank is categorized as well capitalized and met
all subject capital adequacy requirements. There are no conditions or events
since September 30, 1998 (unaudited) that management believes have changed the
Bank's classification.
The Bank's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
REQUIRED FOR TO BE WELL
ACTUAL ADEQUATE CAPITAL* CAPITALIZED*
---------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
Total risk-based capital* (to risk-
weighted assets) $15,306 34.88% $3,511 8.00% $4,389 10.00%
Core capital* (to adjusted tangible
assets) 15,056 13.47 4,470 4.00 6,705 6.00
Core capital* (to adjusted total assets) 15,056 13.47 4,472 4.00 5,591 5.00
AS OF JUNE 30, 1998
Total risk-based capital* (to risk-
weighted assets) $15,151 34.7% $3,488 8.00% $4,361 10.00%
Core capital* (to adjusted tangible
assets) 14,901 13.6 4,383 4.00 6,575 6.00
Core capital* (to adjusted total assets) 14,901 13.6 4,385 4.00 5,482 5.00
AS OF JUNE 30, 1997
Total risk-based capital* (to risk-
weighted assets) $14,271 37.3% $3,057 8.00% $3,821 10.00%
Core capital* (to adjusted tangible
assets) 14,021 12.6 4,443 4.00 6,664 6.00
Core capital* (to adjusted total assets) 14,021 12.6 4,444 4.00 5,555 5.00
</TABLE>
*As defined by regulatory agencies
The Bank's tangible capital at September 30, 1998 (unaudited) and June 30, 1998
was $15,056,000 and $14,901,000, which amount was 13.5% and 13.6% of tangible
assets and exceeded the required ratio of 1.5%.
(F-16)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Reconciliation of capital for financial statement purposes to regulatory capital
was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 (UNAUDITED)
-----------------------------------------------------
CORE TANGIBLE RISK-BASED
CAPITAL CAPITAL CAPITAL
-----------------------------------------------------
<S> <C> <C> <C>
Capital for financial statement purposes $15,117 $15,117 $15,117
Unrealized gain on securities available for sale (61) (61) (61)
General loan valuation allowance 250
-----------------------------------------------------
Regulatory capital $15,056 $15,056 $15,306
=====================================================
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
--------------------------------------------------------------------------------
RISK- RISK-
CORE TANGIBLE BASED CORE TANGIBLE BASED
CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital for financial statement purposes $14,949 $14,949 $14,949 $14,053 $14,053 $14,053
Unrealized gain on securities available
for sale (48) (48) (48) (32) (32) (32)
General loan valuation allowance 250 250
--------------------------------------------------------------------------------
Regulatory capital $14,901 $14,901 $15,151 $14,021 $14,021 $14,271
================================================================================
</TABLE>
NOTE 11 -- PENSION AND EMPLOYEE BENEFIT PLANS
The Bank is a participant in a pension fund known as the Financial Institutions
Retirement Fund (FIRF). This plan is a multi-employer plan; separate actuarial
valuations are not made with respect to each participating employer. According
to FIRF administrators, the market value of the fund's assets exceeded the value
of vested benefits in the aggregate as of June 30, 1998, the date of the latest
actuarial valuation. Pension expense was $200 and $1,400 for the three months
ended September 30, 1998 and 1997 (unaudited) and $1,700, $8,500 and $35,300 for
the years ended June 30, 1998, 1997 and 1996. This plan provides pension
benefits for substantially all of the Bank's employees.
The Bank has a retirement savings Section 401(k) plan in which substantially all
employees may participate. The Bank matches employees' contributions at the rate
of 50% of the first 6% of base salary contributed by participants. The Bank's
expense for the plan was $4,900 for each of the quarters ended September 30,
1998 and 1997 (unaudited) and $30,000, $23,700 and $23,300 for the years ended
June 30, 1998, 1997 and 1996.
(F-17)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The Bank also has a supplemental retirement plan and deferred compensation
arrangements for the benefit of certain officers. These arrangements are funded
by life insurance contracts which have been purchased by the Bank. The Bank's
expense for the plan was $9,700 and $8,600 for each of the quarters ended
September 30, 1998 and 1997 (unaudited) and $36,300, $32,100 and $27,700 for the
years ended June 30, 1998, 1997 and 1996. The Bank also established deferred
compensation arrangements with certain directors whereby, in lieu of currently
receiving fees, the directors or their beneficiaries will be paid benefits for
an established period following the director's retirement or death. These
arrangements are also funded by life insurance contracts which have been
purchased by the Bank.
NOTE 12 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS--The fair value of cash and cash equivalents
approximates carrying value.
INTEREST-BEARING DEPOSITS--The fair value of interest-bearing time deposits
approximates carrying value.
INVESTMENT SECURITIES--Fair values are based on quoted market prices.
LOANS--For both short-term loans and variable-rate loans that reprice frequently
and with no significant change in credit risk, fair values are based on carrying
values. The fair values for certain mortgage loans, including one-to-four family
residential, are based on quoted market prices of similar loans sold in
conjunction with securitization transactions, adjusted for differences in loan
characteristics. The fair value for other loans, are estimated using discounted
cash flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
INTEREST RECEIVABLE/PAYABLE--The fair values of interest receivable/payable
approximate carrying values.
FHLB STOCK--Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
CASH SURRENDER VALUE OF LIFE INSURANCE--The fair values of cash surrender values
of life insurance approximate carrying values.
DEPOSITS--The fair values of noninterest-bearing, interest-bearing demand and
savings accounts are equal to the amount payable on demand at the balance sheet
date. The carrying amounts for variable rate, fixed-term certificates of deposit
approximate their fair values at the balance sheet date. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on such time deposits.
LONG-TERM DEBT--The fair value of these borrowings are estimated using a
discounted cash flow calculation, based on current rates for similar debt. Fair
value approximates carrying value.
(F-18)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
OFF-BALANCE SHEET COMMITMENTS--Commitments include commitments to purchase and
originate mortgage loans and commitments to sell mortgage loans and are
generally of a short-term nature. The fair value of such commitments are based
on fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the counterparties' credit standing.
The carrying amounts of these commitments, which are immaterial, are reasonable
estimates of the fair value of these financial instruments.
The estimated fair values of the Bank's financial instruments are as follows;
<TABLE>
<CAPTION>
JUNE 30
---------------------------------------------------
SEPTEMBER 30, 1998 1998 1997
-------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
--------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $13,974 $13,974 $11,689 $11,689 $ 7,763 $ 7,763
Interest-bearing deposits 1,882 1,882 2,279 2,279 5,546 5,546
Investment securities available for sale 4,016 4,016 4,376 4,376 7,864 7,864
Investment securities held to maturity 47,987 48,304 49,364 49,463 52,470 52,118
Loans, net 38,183 39,909 35,655 35,931 32,164 31,269
Interest receivable 671 671 683 683 768 768
FHLB stock 727 727 727 727 727 727
Cash surrender value of life insurance 2,084 2,084 2,061 2,061 1,973 1,973
LIABILITIES
Deposits 90,961 92,102 89,229 89,556 88,560 88,424
Long-term debt 3,645 3,645 3,645 3,645 7,050 7,050
Interest payable 727 727 247 247 312 312
</TABLE>
Note 13 -- OTHER COMPREHENSIVE INCOME--UNREALIZED GAINS (LOSSES) ON SECURITIES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30
---------------------------------------------------------
1998 1998 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Before tax amount $24 $27 $158 $(83)
Tax (expense) benefit (11) (11) (67) 35
-------------------------------------------------------------------------
Net-of-tax amount--other
comprehensive income $13 $16 $91 $(48)
=========================================================================
</TABLE>
(F-19)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 14--RELATED PARTY TRANSACTIONS
Deposits from related parties held by the Bank at September 30, 1998 (unaudited)
and June 30, 1998 and 1997, totaled $756,000, $855,900 and $767,500.
NOTE 15--YEAR 2000
Like all entities, the Bank and its subsidiary are exposed to risks associated
with the Year 2000 issue, which affects computer software and hardware;
transactions with customers, vendors and other entities, and equipment dependent
upon microchips. The Bank has begun, but has not yet completed, the process of
identifying and remediating potential Year 2000 problems. It is not possible for
any entity to guarantee the results of its own remediation efforts or to
accurately predict the impact of the Year 2000 issue on third parties with which
the Bank and its subsidiary do business. If remediation efforts of the Bank or
third parties with which the Bank and its subsidiary do business are not
successful, the Year 2000 issue could have negative effects on the Bank's
financial condition and results of operations in the near term.
NOTE 16--SUBSEQUENT EVENT--PLAN OF CONVERSION
On September 16, 1998, the Board of Directors adopted a plan of conversion
(Plan) whereby the Bank will convert from a federally chartered mutual
institution to a federally chartered stock savings bank. The Plan is subject to
approval of regulatory authorities and members at a special meeting. The stock
of the Bank will be issued to First Bancorp of Indiana, Inc. (First), a holding
company formed in connection with the conversion, and the Bank will become a
wholly-owned subsidiary of First. Pursuant to the Plan, shares of capital stock
of First are expected to be offered initially for subscription to eligible
members of the Bank and certain other persons as of specified dates subject to
various subscription priorities as provided in the Plan. The capital stock will
be offered at a price to be determined by the Board of Directors based upon an
appraisal to be made by an independent appraisal firm. The exact number of
shares to be offered will be determined by the Board of Directors in conjunction
with the determination of the subscription price. At least the minimum number of
shares offered in the conversion must be sold. Any stock not purchased in the
subscription offering may be sold in a community offering expected to be held
concurrently with the subscription offering.
(F-20)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The Plan provides that when the conversion is completed, a "liquidation account"
will be established in an amount equal to the retained income of the Bank as of
the date of the most recent financial statements contained in the final
conversion prospectus. The liquidation account is established to provide a
limited priority claim to the assets of the Bank to qualifying depositors
(eligible account holders) at September 30, 1998 and other depositors
(supplemental eligible account holders) as of December 31, 1998 who continue to
maintain deposits in the Bank after conversion. In the unlikely event of a
complete liquidation of the Bank, and only in such event, eligible account
holders would receive from the liquidation account a liquidation distribution
based on their proportionate share of the then total remaining qualifying
deposits.
Certain regulations allow the Bank to pay dividends on its stock after the
conversion if its regulatory capital would not thereby be reduced below the
amount then required for the aforementioned liquidation account. Also, capital
distribution regulations limit the Bank's ability to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers,
interest payments on certain convertible debt and other transactions charged to
the capital account based on its capital level and supervisory condition.
Costs of conversion will be netted from proceeds of sale of common stock and
recorded as a reduction of additional paid-in capital or common stock. If the
conversion is not completed, such costs, totaling $48,000 at September 30, 1998
(unaudited), would be charged to expense.
(F-21)
<PAGE>
You should rely only on the information contained in this document. Neither
First Bancorp of Indiana, Inc. nor First Federal Savings Bank have authorized
anyone to provide you with information that is different. This prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person or in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this prospectus nor any sale hereunder shall under any circumstances
create any implication that there has been no change in the affairs of First
Bancorp of Indiana, Inc. or First Federal Savings Bank since any of the dates as
of which information is furnished herein or since the date hereof.
[Logo for First Bancorp of Indiana, Inc.]
(Proposed Holding Company for
First Federal Savings Bank)
__________to __________ Shares of
Common Stock
---------------
PROSPECTUS
---------------
Capital Resources, Inc.
______ __, 1999
UNTIL THE LATER OF _______, 1999, OR 25 DAYS AFTER COMMENCEMENT OF THE
SYNDICATED COMMUNITY OFFERING OF COMMON STOCK, IF ANY, ALL DEALERS THAT BUY,
SELL OR TRADE THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS'
OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)
<TABLE>
<CAPTION>
<S> <C>
Legal fees and expenses................... $160,000
Underwriter's legal fees.................. 35,000
EDGAR, printing, postage and mailing...... 95,000
Appraisal and business plan fees.......... 35,000
Accounting fees and expenses.............. 70,000
Securities marketing expenses............. 30,000
Data processing fees...................... 20,000
SEC fee................................... 7,500
Blue Sky fees and expenses................ 15,000
OTS fee................................... 8,400
Other..................................... 20,100
--------
TOTAL..................................... $496,000
========
</TABLE>
______________________
(1) In addition to the above expenses, Capital Resources, Inc. will receive a
fee of 1.25% of the aggregate purchase price of the shares of common stock
sold in the Subscription Offering and Direct Community Offering, excluding
shares purchased by the ESOP and by officers and directors of the Bank and
their associates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the Indiana Business Corporation Law of the State of Indiana
(being Section 7 of the Indiana Code), Article 7 of First Bancorp of Indiana,
Inc.'s Articles of Incorporation provides as follows:
SECTION 7.01. GENERAL PROVISIONS. The corporation shall, to the fullest
extent to which it is empowered to do so by the Indiana Business Corporation Act
or any other applicable laws, as from time to time in effect, indemnify any
person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal, by
reason of the fact that he is or was a director, officer or employee of the
corporation, or who, while serving as such director, officer or employee of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
whether for profit or not, against expenses (including attorneys' fees),
judgments, settlements, penalties and fines (including excise taxes assessed
with respect to employee benefit plans) actually or reasonably incurred by him
in accordance with such action, suit or proceeding, if he acted in good faith
and in a manner he reasonably believed, in the case of conduct in his official
capacity, was in the best interest of the corporation, and in all other cases,
was not opposed to the best interests of the corporation, and with respect to
any criminal action or proceeding, he either had reasonable cause to believe his
conduct was lawful or no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not meet the prescribed
standard of conduct.
SECTION 7.02. INDEMNIFICATION AUTHORIZED. To the extent that a director,
officer or employee of the corporation has been successful, on the merits or
otherwise, in the defense of any action, suit or proceeding referred to in
Section 7.01 of this Article, or in the defense of any claim, issue or matter
therein, the corporation shall indemnify such person against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith. Any other indemnification under Section 7.01 of this Article (unless
ordered by a court) shall be made by
II-1
<PAGE>
the corporation only as authorized in the specific case, upon a determination
that indemnification of the director, officer or employee is permissible in the
circumstances because he has met the applicable standard of conduct. Such
determination shall be made (a) by the board of directors by a majority vote of
a quorum consisting of directors who were not at the time parties to such
action, suit or proceeding; or (b) if a quorum cannot be obtained under
subdivision (a), by a majority vote of a committee duly designated by the board
of directors (in which designation directors who are parties may participate),
consisting solely of two or more directors not at the time parties to such
action, suit or proceeding; or (c) by special legal counsel: (i) selected by the
board of directors or its committee in the manner prescribed in subdivision (a)
or (b), or (ii) if a quorum of the board of directors cannot be obtained under
subdivision (a) and a committee cannot be designated under subdivision (b),
selected by a majority vote of the full board of directors (in which selection
directors who are parties may participate); or (d) by stockholders, but shares
owned by or voted under the control of directors who are at the time parties to
such action, suit or proceeding may not be voted on the determination.
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (c)
to select counsel.
SECTION 7.03. DEFINITION OF GOOD FAITH. For purposes of any determination
under Section 7.01 of this Article, a person shall be deemed to have acted in
good faith and to have otherwise met the applicable standard of conduct set
forth in Section 7.01 if his action is based on information, opinions, reports,
or statements, including financial statements and other financial data, if
prepared or presented by (a) one or more officers or employees of the
corporation or other enterprise whom he reasonably believes to be reliable and
competent in the matters presented; (b) legal counsel, public accountants,
appraisers or other persons as to matters he reasonably believes are within the
person's professional or expert competence; or (c) a committee of the board of
directors of the corporation or another enterprise of which the person is not a
member if he reasonably believes the committee merits confidence. The term
"another enterprise" as used in this Section 7.03 shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise of which such person is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent. The
provisions of this Section 7.03 shall not be deemed to be exclusive or to limit
in any way the circumstances in which a person may be deemed to have met the
applicable standards of conduct set forth in Section 7.01 of this Article.
SECTION 7.04. ADVANCEMENT OF EXPENSES. Expenses incurred in connection
with any civil or criminal action, suit or proceeding may be paid for or
reimbursed by the corporation in advance of the final disposition of such
action, suit or proceeding, as authorized in the specific case in the same
manner described in Section 7.02 of this Article, upon receipt of a written
affirmation of the director, officer or employee's good faith belief that he has
met the standard of conduct described in Section 7.01 of this Article and upon
receipt of a written undertaking on behalf of the director, officer or employee
to repay such amount if it shall ultimately be determined that he did not meet
the standard of conduct set forth in this Article, and a determination is made
that the facts then known to those making the determination would not preclude
indemnification under this Article.
SECTION 7.05. NON-EXCLUSIVITY. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under these Articles of Incorporation,
the corporation's Bylaws, any resolution of the board of directors or
stockholders, any other authorization, whenever adopted, after notice, by a
majority vote of all voting stock then outstanding, or any contract, both as to
action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer or employee, and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 7.06. VESTMENT OF RIGHTS. The right of any individual to
indemnification under this Article shall vest at the time of occurrence or
performance of any event, act or omission giving rise to any action, suit or
proceeding of the nature referred to in Section 7.01 of this Article and, once
vested, shall not later be impaired as a result of any
II-2
<PAGE>
amendment, repeal, alteration or other modification of any or all of these
provisions. Notwithstanding the foregoing, the indemnification afforded under
this Article shall be applicable to all alleged prior acts or omissions of any
individual seeking indemnification hereunder, regardless of the fact that such
alleged acts or omissions may have occurred prior to the adoption of this
Article. To the extent such prior acts or omissions cannot be deemed to be
covered by this Article, the right of any individual to indemnification shall be
governed by the indemnification provisions in effect at the time of such prior
acts or omissions.
SECTION 7.07. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or who is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against any liability asserted against or incurred by the
individual in that capacity or arising from the individual's status as a
director, officer, employee or agent, whether or not the corporation would have
power to indemnify the individual against the same liability under this Article.
SECTION 7.08. OTHER DEFINITIONS.
For purposes of this Article, serving an employee benefit plan at the
request of the corporation shall include any service as a director, officer or
employee of the corporation which imposes duties on, or involves services by
such director, officer or employee with respect to an employee benefit plan, its
participants, or beneficiaries. A person who acted in good faith and in a
manner he reasonably believed to be in the best interests of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interest of the corporation" referred to in this
Article.
For purposes of this Article, "party" includes any individual who is or was
a plaintiff, defendant or respondent in any action, suit or proceeding.
For purposes of this Article, "official capacity," when used with respect
to a director, shall mean the office of director of the corporation; and when
used with respect to an individual other than a director, shall mean the office
in the corporation held by the officer or the employment or agency relationship
undertaking by the employee or agent on behalf of the corporation. "Official
capacity" does not include service for any other foreign or domestic corporation
or any partnership, joint venture, trust, employee benefit plan, or other
enterprise, whether for profit or not, except as set forth in Section 1 of this
Article.
SECTION 7.09. BUSINESS EXPENSES. Any payments made to any indemnified
party under this Article under any other right of indemnification shall be
deemed to be an ordinary and necessary business expense of the corporation, and
payment thereof shall not subject any person responsible for the payment, or the
board of directors, to any action for corporate waste or to any similar action.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
<TABLE>
<CAPTION>
<S> <C>
1.1 Engagement Letter between First Federal Savings Bank and Capital Resources, Inc.
1.2 Draft Form of Agency Agreement *
2.1 Plan of Conversion of First Federal Savings Bank
3.1 Articles of Incorporation of First Bancorp of Indiana, Inc.
3.2 Bylaws of First Bancorp of Indiana, Inc.
4.1 Form of Stock Certificate of First Bancorp of Indiana, Inc.
5.1 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.2 Draft Opinion of Johnson, Carroll & Griffith re: legality *
8.1 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.2 Draft Opinion of Olive LLP re: State Tax Matters *
8.3 Opinion of Capital Resources Group, Inc. as to the value of subscription rights
10.1 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.2 Form of Proposed Employment Agreement between First Federal Savings Bank, First Bancorp of Indiana, Inc. and
certain executive officers
10.3 Form of ESOP
10.4 Form of Proposed First Federal Savings Bank Employee Severance Compensation Plan
10.5 Restated and Amended Executive Supplemental Retirement Income Master Agreement
10.6 Restated and Amended Director Deferred Compensation Master Agreement
21.1 Subsidiaries of First Bancorp of Indiana, Inc.
23.1 Consent of Olive LLP as independent auditors
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Olive LLP *
23.4 Consent of Capital Resources Group, Inc.
23.5 Consent of Johnson, Carroll & Griffith *
24.1 Power of Attorney *
27.1 Financial Data Schedule
99.1 Appraisal Report of Capital Resources Group, Inc. *
99.2 Additional solicitation materials
99.3 Proxy Statement for Special Meeting of Members of First Federal Savings Bank
99.4 Agreement with Capital Resources Group, Inc.
99.5 Stock Order Form
</TABLE>
- --------------------------------------
* To be filed by amendment
II-4
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the Offering.
The undersigned Registrant hereby undertakes to furnish stock
certificates to or in accordance with the instructions of the respective
purchasers of the Common Stock, so as to make delivery to each purchaser
promptly following the closing under the Plan of Conversion.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
CONFORMED
- ---------
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Evansville,
State of Indiana, on December 11, 1998.
First Bancorp of Indiana, Inc.
By: /s/ Harold Duncan
----------------------------------
Harold Duncan
President, Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Harold Duncan President, Chief Executive December 11, 1998
- ----------------- Officer and Chairman of the Board
Harold Duncan (principal executive officer)
/s/ Christopher A. Bengert Treasurer December 11, 1998
- -------------------------- (principle financial and
Christopher A. Bengert accounting officer)
/s/ Robert L. Clayton, Sr. Director December 11, 1998
- --------------------------
Robert L. Clayton, Sr.
/s/ Herbert V. Dassel Director December 11, 1998
- ---------------------
Herbert V. Dassel
/s/ Frank E. Kern Director December 11, 1998
- -----------------
Frank E. Kern
/s/ James E. Will, Jr. Director December 11, 1998
- ----------------------
James E. Will, Jr.
/s/ Jerry Ziemer Director December 11, 1998
- ----------------
Jerry Ziemer
</TABLE>
II-6
<PAGE>
[LETTERHEAD OF CAPITAL RESOURCES, INC. APPEARS HERE]
August 24, 1998
Mr. Harold Duncan
President and Chief Executive Officer
First Federal Savings Bank
2200 W. Franklin Street
Evansville, Indiana 47712
Dear Mr. Duncan:
At your request, we are pleased to submit this proposal to set forth the
terms of the proposed engagement between Capital Resources, Inc. and First
Federal Savings Bank ("First Federal" or the "Bank") for your planned mutual-to-
stock conversion (the "Conversion") and the offering of your shares of common
stock (the "Offering").
Capital Resources provides comprehensive investment banking services to
thrifts undergoing a stock conversion. I believe you will find that our team
presents a UNIQUE concept that combines the features that best suit your
objectives. To briefly summarize, our approach accomplishes the following
objectives on your behalf:
1. CONVERSION MANAGEMENT EXPERTISE. Capital Resources has over 15 years of
conversion expertise with over 200 successful conversions and MHCs to our
credit.
2. LOCAL RETAIL AFTER-MARKET SUPPORT. While most of our competitors will
claim local emphasis DURING the conversion, the Capital Resources EXTENDS
our local marketing approach to ALSO emphasize LOCAL RETAIL AFTER-MARKET
trading.
3. AFTER-MARKET SERVICES. Capital Resources has extensive research and
market-making capabilities that will be dedicated to covering First
Federal.
BACKGROUND ON CAPITAL RESOURCES
Capital Resources' outstanding track record stems from over fifteen years
experience with thrift conversions and over 200 standard conversions and MHCs to
our credit. Furthermore, we have been very successful in Indiana, having worked
with many of your colleagues. I am
<PAGE>
CAPITAL RESOURCES, INC.
Mr. Harold Duncan
August 24, 1998
Page 2
confident that any or all of these clients will attest to the quality of our
service and the level of expertise we bring to your conversion team.
Members of our professional staff have served as high ranking officials in
bank regulatory agencies. Our extensive regulatory backgrounds and contacts
with conversion regulators will be invaluable in not only securing your
conversion approvals but also in providing advice on current regulatory matters
as they relate to your conversion.
PROPOSED SERVICES
Capital Resources proposes to act as placement agent and offering manager on
behalf of First Federal with respect to the Offering of common stock pursuant to
the Conversion. Our goals are straightforward: to maximize service to your
customers while minimizing disruption of your daily banking business. In this
regard, we combine five critical roles of the Offering process:
I. SALES AND MARKETING ASSISTANCE - To ensure a wide distribution of shares
to local residents.
II. COMPREHENSIVE STAFF TRAINING - To familiarize your staff with the
conversion process.
III. STOCK CENTER MANAGEMENT - To handle all back-office and administrative
details.
IV. PROXY SOLICITATION - To successfully secure the required depositor vote.
V. VALUE-ADDED SERVICES - To provide comprehensive after-market services and
support.
Each area is discussed in the following sections.
I. SALES AND MARKETING ASSISTANCE
Our marketing assistance program is designed to professionally service your
true customer base by providing accurate information on the Offering. We are
quite confident that the entire public stock issue will be bought by your
customers. However, in the event shares remain available after customer
subscriptions, we will market remaining shares to achieve a wide distribution to
"friendly" local shareholders.
<PAGE>
CAPITAL RESOURCES, INC.
Mr. Harold Duncan
August 24, 1998
Page 3
It is a common experience that smaller, retail stockholders are less
demanding on management's time and contact management less frequently than
professional stockholders.
Other specific responsibilities include:
> Assigning a minimum of two licensed professionals from our staff to work
at First Federal's offices as representatives of the Bank. Our staff will
be responsible for all customer contact and inquiries regarding the
Offering.
> Working with your securities counsel regarding the prospectus and the
language in it from a marketing and "user friendly" perspective.
> If desirable, conducting a series of community meetings to provide
information on the Offering. Under the current environment, community
meetings are not necessary as a marketing tool but, rather, serve as a
customer relations tool to address uncertainties of your depositors and
promote local excitement. The meeting(s) are optional but if held, we
would prepare the presentation, coach selected speakers and also speak on
behalf of the Bank.
> Designing a marketing campaign, marketing literature and media
advertisements. Included are items such as letters to depositors,
questions and answers brochure, and press releases.
II. COMPREHENSIVE STAFF TRAINING
Capital Resources' comprehensive training sessions are designed to ensure
that members of the board, management and staff are knowledgeable of the
offering process, aware of their roles and capable of dealing with problems,
inquiries and events. Each session is tailored to the audience involved and
each covers a different level of detail and area of the Conversion and Offering,
as follows:
MANAGEMENT MEETING: A structured discussion pertaining to organization, role
assignments, facilities, marketing, accounting, reporting and timetables.
BOARD MEETING: A presentation regarding the offering process and board
members' roles and responsibilities, with emphasis on insider behavior.
<PAGE>
CAPITAL RESOURCES, INC.
Mr. Harold Duncan
August 24, 1998
Page 4
STAFF MEETING: A comprehensive presentation to the entire staff to discuss
the nature of the Conversion and Offering, roles and responsibilities, and
the opportunity to elaborate community involvement. A slide presentation and
handouts are used.
In addition to our personalized training meetings, Capital Resources
documents the many details and functions of the offering process in easy-to-read
study manuals. Our study manuals are intended to be used in conjunction with
our training sessions and as a reference during the Offering. The manuals
provide instruction, sample forms and general information vital to understanding
the offering process. This information has been collected and refined by
Capital Resources over many years.
III. STOCK CENTER MANAGEMENT
Accurate and timely recordkeeping and reporting are crucial to a successful
closing of the Offering. Capital Resources will establish a Stock Center,
preferably on-site at the Bank's offices, from which we will supervise all
activities and manage all data relating to the Offering. While all customer
contact and most of the administrative and operational work is performed by our
staff, we will require one of the Bank's employees to assist us on a full-time
basis in the Stock Center with clerical tasks. Stock Center activities for
which Capital Resources will be responsible include the following:
> Coordinate with the printer for the initial sorting and mailing to
different categories of prospective subscribers.
> Coordinate mailings to customers and prospects.
> Mail "Stock-Grams", "Proxy-Grams", and other literature as applicable.
> Collect, respond to and record all inquiries regarding the Offering.
> Meet with customers who wish to discuss the Offering.
> Tabulate stock orders.
> Tabulate proxies.
> Prepare and mail order confirmations.
<PAGE>
CAPITAL RESOURCES, INC.
Mr. Harold Duncan
August 24, 1998
Page 5
> Assist the Bank in identifying and resolving problematic subscriptions.
> Coordinate and record community meetings and attendance, if applicable.
> Balance accounts daily.
> Generate daily management reports.
> Coordinate mailing of interest checks.
> Prepare and mail "welcome" letters from First Federal to the new
stockholders.
> Tabulate and prepare final stockholder records for the transfer agent.
> Answer post-offering questions from subscribers subsequent to the closing.
In performing the various Stock Center tasks outlined above, Capital
Resources will utilize its proprietary software program, the "Back Office Stock
System" ("BOSS"). BOSS is a menu-driven, user-friendly program which will help
ensure efficient, accurate recordkeeping and timely reporting during the
Offering. To use BOSS, we would require a computer to be provided by First
Federal for Stock Center use during the Offering.
IV. PROXY SOLICITATION
Regulations require that over 50% of the outstanding members' votes must be
in favor of the Plan of Conversion. As part of our engagement, we will solicit
proxies to ensure this vote requirement is met. Our professional staff at the
Stock Center will perform most of the solicitation. However, we have found in
our past experience that it is beneficial and helpful to utilize relationships
between customers and certain Bank personnel, such as senior management and
branch managers, to help contact key depositors to secure their votes.
V. VALUE-ADDED SERVICES
. MARKET MAKING. Capital Resources will make a market on NASDAQ for your
stock following conversion. We have a strong reputation for after-market
trading in thrift stocks and are typically ranked in the top three in
trading volume for our clients.
<PAGE>
CAPITAL RESOURCES, INC.
Mr. Harold Duncan
August 24, 1998
Page 6
. SPECIALIZED FINANCIAL CONSULTING. Our firm will be available for unlimited
consultation with respect to issues facing stock companies for a year
following the Conversion. Applicable topics include dividend payments,
stock repurchases, stock benefit plans, general growth and leverage
strategies and stockholder communications. A representative from Capital
Resources will attend Board meetings semi-annually, as requested, to
discuss such issues. The Bank will reimburse Capital Resources for out-of-
pocket expenses incurred.
. STOCK RESEARCH COVERAGE. Our firm's extensive research capabilities will
be devoted to following First Federal stock and publishing research
reports on the Bank. Our equity research reputations are widely respected
by the thrift investment community.
. STOCK TRANSACTIONS. We will quantify and analyze the financial impact of
stock repurchases and execute stock transactions for your stock benefit
plans and for your board and management at no commission.
PROPOSED FEE STRUCTURE
As we are quite confident that your public shares will be fully subscribed by
your eligible depositors, we prefer to keep our fee structure simple rather than
introduce complicated formulas that make it difficult to determine actual
offering costs. For our services as proposed herein, our fee will be as
follows:
A. One and one-quarter percent (1.25%) of the total dollar amount of stock sold,
excluding shares purchased by officers, directors, employees, their immediate
household family members and benefit plan ("ESOP") purchases. This fee will
be payable as follows: $30,000 upon execution of this proposal and the
commencement of our engagement, $30,000 upon filing of the Plan of Conversion
and the balance upon closing. Progress payments are for consulting work
performed prior to the Offering.
B. Reimbursement for out-of-pocket expenses incurred by us in rendering our
services. Such expenses shall include, but are not limited to, travel,
legal, communications and postage. We will provide you with a detailed
accounting of all reimbursable expenses and will bill you monthly.
Reimbursable out-of-pocket expenses, including our legal expenses, shall not
exceed $40,000 without management's prior approval.
<PAGE>
CAPITAL RESOURCES, INC.
Mr. Harold Duncan
August 24, 1998
Page 7
ADDITIONAL PROVISIONS
Furthermore, it is understood that:
. Prior to the commencement of the Offering, First Federal and Capital
Resources will enter into a formal agency agreement generally used by
Capital Resources for securities offerings which provides for mutual
indemnities and warranties. Our sales and marketing services are subject
to the usual warranties, indemnities and conditions contained in the
agency agreement.
. Our role as your NASD agent is subject to our normal underwriting criteria
and examination of relevant books and records.
. The Bank will pay all other expenses of the Conversion and Offering,
including but not limited to attorney's fees, National Association of
Securities Dealers, Inc. filing fees, all fees and expenses relating to
"blue sky" research and filings, state licensing and securities
registration fees, all fees relating to auditing and accounting and all
printing and advertising fees.
. Capital Resources will conduct an examination of the relevant documents
and records of First Federal as appropriate. First Federal agrees to make
all documents and records deemed appropriate or necessary by Capital
Resources available upon request.
. Our obligations stated herein will be subject to there being no material
changes, in the opinion of our firm, in the Bank's condition or in market
conditions so as to significantly delay the Offering or to render the
Offering inadvisable.
. Our marketing obligations pursuant to this agreement will terminate upon
the completion or termination of the initial Offering, but in no event
later than 12 months from the date of this letter. All fees or expenses
due to Capital Resources but unpaid will be payable to Capital Resources
at that time. In the event the offering is extended beyond this term, the
Bank and Capital Resources may mutually agree to renew this engagement
under mutually acceptable terms.
* * * * * * *
<PAGE>
CAPITAL RESOURCES, INC.
Mr. Harold Duncan
August 24, 1998
Page 8
To engage our services, please sign in the space provided below and return
the signed letter to me. I have enclosed a signed copy for your files. This
proposal is open for your acceptance for thirty (30) days from the date of this
letter.
We look forward to working with First Federal on this most exciting and
challenging project. Please give me a call if you have any questions on our
proposal.
Sincerely,
CAPITAL RESOURCES, INC.
/s/ David P. Rochester
David P. Rochester
Chairman and Chief
Executive Officer
DPR/emc
Agreed To and Accepted By:
FIRST FEDERAL SAVINGS BANK
/s/ Harold Duncan 8/28/98
- ----------------------------------------------------
signature date
Harold Duncan, President and Chief Executive Officer
<PAGE>
FIRST FEDERAL SAVINGS BANK
EVANSVILLE, INDIANA
PLAN OF CONVERSION
FROM FEDERAL MUTUAL SAVINGS BANK
TO FEDERAL STOCK SAVINGS BANK
AND FORMATION OF A HOLDING COMPANY
INTRODUCTION
------------
I. General
-------
The Board of Directors of First Federal Savings Bank ("Savings Bank")
desires to attract new capital to the Savings Bank to increase its net worth, to
support future growth, to increase the amount of funds available for other
lending and investment, to provide greater resources for the expansion of
customer services and to facilitate future expansion by the Savings Bank. In
addition, the Board of Directors intends to implement stock option plans and
other stock benefit plans as part of the Conversion in order to attract and
retain qualified directors and officers. It is the further desire of the Board
of Directors to reorganize the Savings Bank as the wholly owned subsidiary of a
holding company to enhance flexibility of operations, diversification of
business opportunities and financial capability for business and regulatory
purposes and to enable the Savings Bank to compete more effectively with other
financial service organizations. Accordingly, on September 16, 1998, the Board
of Directors, after careful study and consideration, adopted by unanimous vote
this Plan of Conversion From Federal Mutual Savings Bank To Federal
Stock Savings Bank And Formation Of A Holding Company ("Plan"), which provides
for the conversion of the Savings Bank from a federally chartered mutual savings
bank to a federally chartered stock savings bank and the concurrent formation of
a holding company for the Savings Bank ("Holding Company").
All capitalized terms contained in the Plan shall have the meanings
ascribed to them in Section II hereof.
Pursuant to this Plan, shares of Conversion Stock will be offered as part
of the Conversion in a Subscription Offering pursuant to nontransferable
Subscription Rights at a predetermined and uniform price first to the Savings
Bank's Eligible Account Holders, second to the Tax-Qualified Employee Stock
Benefit Plans, third to the Savings Bank's Supplemental Eligible Account
Holders, and fourth to Other Members of the Savings Bank. Shares not subscribed
for in the Subscription Offering will be offered as part of the Conversion to
the general public in a Direct Community Offering. Shares still remaining may
then be offered to the general public in a Syndicated Community Offering, an
underwritten public offering, or otherwise. The aggregate Purchase Price of the
Conversion Stock will be based upon an independent appraisal of the Savings Bank
and will reflect the estimated pro forma market value of the Savings Bank as a
subsidiary of the Holding Company.
The Conversion is subject to the regulations of the Director of the OTS
(Part 563b of the Rules and Regulations Applicable to All Savings Banks) as
promulgated pursuant to Section 5(i) of the Home Owners' Loan Act.
Consummation of the Conversion is subject to the approval of this Plan and
the Conversion by the OTS and by the affirmative vote of Members of the Savings
Bank holding not less than a majority of the total votes eligible to be cast at
a special meeting of the Members to be called to consider the Conversion.
No change will be made in the Board of Directors or management of the
Savings Bank as a result of the Conversion.
<PAGE>
II. Definitions
-----------
As used in this Plan, the terms set forth below have the following
meanings:
A. Acting in Concert: (i) Knowing participation in a joint activity or
-----------------
interdependent conscious parallel action towards a common goal whether or not
pursuant to an express agreement; or (ii) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise. A Person (as defined herein) who acts in concert
with another Person ("other party") shall also be deemed to be acting in concert
with any Person who is also acting in concert with that other party, except that
any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in
concert with its trustee or a Person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the Tax-Qualified Employee Benefit Plan will be aggregated.
B. Associate: When used to indicate a relationship with any Person,
---------
means (i) any corporation or organization (other than the Savings Bank or a
majority-owned subsidiary of the Savings Bank, or the Holding Company) of which
such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, except that it does not include a Tax-Qualified Employee Stock Benefit
Plan and (iii) any relative or spouse of such Person, or any relative of such
spouse, who has the same home as such Person or who is a director or officer of
the Savings Bank, any of its subsidiaries, or the Holding Company.
C. Capital Stock: Any and all authorized capital stock in the Converted
-------------
Savings Bank.
D. Common Stock: Any and all authorized common stock in the Holding
------------
Company subsequent to the Conversion.
E. Conversion: (i) Amendment of the Savings Bank's Charter and Bylaws to
----------
authorize issuance of shares of Capital Stock by the Converted Savings Bank and
to conform to the requirements of a Federal stock savings bank under the laws of
the United States and rules and regulations of the OTS; (ii) issuance and sale
of Conversion Stock by the Holding Company in the Subscription Offering and
Direct Community Offering; and (iii) purchase by the Holding Company of all of
the issued and outstanding shares of Capital Stock of the Converted Savings Bank
to be issued in the Conversion immediately following or concurrently with the
close of the sale of all Conversion Stock.
F. Conversion Stock: Holding Company common stock to be issued and sold
----------------
by the Holding Company pursuant to the Plan.
G. Converted Savings Bank: First Federal Savings Bank, in its converted
----------------------
form as a federally chartered stock savings bank.
H. Direct Community Offering: The offering for sale of Conversion Stock
-------------------------
to the public.
I. Eligibility Record Date: June 30, 1997.
-----------------------
J. Eligible Account Holder: Holder of a Qualifying Deposit in the
-----------------------
Savings Bank on the Eligibility Record Date.
K. FDIC: Federal Deposit Insurance Corporation.
----
L. Form AC Application: The application submitted to the OTS on OTS Form
-------------------
AC for approval of the Conversion.
2
<PAGE>
M. H-(e)1 Application: The application submitted to the OTS on OTS Form
------------------
H-(e)1 or, if applicable, Form H-(e)1-S for approval of the Holding Company's
acquisition of all of the Capital Stock of the Converted Savings Bank.
N. Holding Company: A corporation to be formed by the Savings Bank under
---------------
state law for the purpose of becoming a holding company through the issuance and
sale of its stock under the Plan, and concurrent acquisition of 100% of the
Capital Stock of the Converted Savings Bank to be issued pursuant to the Plan.
O. Holding Company Stock: Any and all authorized capital stock of the
---------------------
Holding Company.
P. Local Community: Vanderburgh, Warrick, Posey, Gibson and Spencer
---------------
Counties, Indiana.
Q. Market Maker: A dealer (i.e., any Person who engages directly or
------------
indirectly as agent, broker, or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system or furnishes bona fide competitive bid and offer quotations on request
and (ii) is ready, willing and able to effect transactions in reasonable
quantities at his quoted prices with other brokers or dealers.
R. Members: All Persons or entities who qualify as members of the
-------
Savings Bank pursuant to its Charter and Bylaws prior to the Conversion.
S. Officer: An executive officer of the Savings Bank, which includes the
-------
Chairman of the Board, President, Vice President, Secretary, Treasurer or
Principal Financial Officer, Comptroller or Principal Accounting Officer, and
Senior Vice Presidents, Vice Presidents in charge of principal business
functions, the Secretary and the Treasurer as well as any other person
performing similar functions.
T. Order Forms: Forms to be used for the purchase of Conversion Stock
-----------
sent to Eligible Account Holders and other parties eligible to purchase
Conversion Stock in the Subscription Offering pursuant to the Plan.
U. Other Member: Holder of a Savings Account (other than Eligible
------------
Account Holders and Supplemental Eligible Account Holders) as of the Record
Date, and borrowers from the Savings Bank as provided in the Savings Bank's
Federal Mutual Charter who continue as borrowers from the Savings Bank as of the
Record Date.
V. OTS: Office of Thrift Supervision of the United States Department of
---
the Treasury.
W. Person: An individual, corporation, partnership, association, joint
------
stock company, trusts of natural Persons, unincorporated organization or a
government or any political subdivision thereof.
X. Plan: This Plan of Conversion, which provides for the conversion of
----
the Savings Bank from a federally chartered mutual savings bank to a federally
chartered capital stock savings bank as a wholly owned subsidiary of the Holding
Company, as originally adopted by the Board of Directors or as amended in
accordance with the terms hereof.
Y. Qualifying Deposit: The deposit balance in any Savings Account, and
------------------
any certificate of deposit, any demand deposit account and any noninterest-
bearing deposit account, as of the close of business on the Eligibility Record
Date or the Supplemental Eligibility Record Date, as applicable; provided,
however, that no account with a deposit balance of less than $50.00 on such date
shall constitute a Qualifying Deposit.
Z. Record Date: Date which determines which Members are entitled to vote
-----------
at the Special Meeting.
3
<PAGE>
AA. Registration Statement: The registration statement on SEC Form S-1 or
----------------------
other applicable form filed by the Holding Company with the SEC for the purpose
of registering the Conversion Stock under the Securities Act of 1933, as
amended.
BB. Savings Account(s): Withdrawable deposit(s) in the Savings Bank or
------------------
the Converted Savings Bank.
CC. Savings Bank: First Federal Savings Bank, in its present form as a
------------
federally chartered mutual savings bank.
DD. SEC: Securities and Exchange Commission.
---
EE. Special Meeting: The special meeting of Members called for the
---------------
purpose of considering the Plan for approval.
FF. Subscription Offering: The offering of Conversion Stock to Eligible
---------------------
Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders and Other Members under the Plan.
GG. Subscription Rights: Nontransferable, non-negotiable, personal rights
-------------------
of Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders and Other Members to purchase Conversion
Stock.
HH. Supplemental Eligibility Record Date: The last day of the calendar
------------------------------------
quarter preceding the approval of the Plan by the OTS.
II. Supplemental Eligible Account Holder: Holder of a Qualifying Deposit
------------------------------------
in the Savings Bank (other than an Officer or director of the Savings Bank or
their Associates) on the Supplemental Eligibility Record Date.
JJ. Syndicated Community Offering: The offering for sale by a syndicate
-----------------------------
of broker-dealers to the general public of shares of Conversion Stock not
purchased in the Subscription Offering and the Direct Community Offering.
KK. Tax-Qualified Employee Stock Benefit Plan: Any defined benefit plan or
-----------------------------------------
defined contribution plan of the Savings Bank or Holding Company, such as an
employee stock ownership plan, bonus plan, profit-sharing plan or other plan,
which, with its related trust, meets the requirements to be "qualified" under
section 401 of the Internal Revenue Code. A "non-tax-qualified employee stock
benefit plan" is any defined benefit plan or defined contribution plan that is
not so qualified.
III. Steps Prior to Submission of the Plan to the Members for Approval
-----------------------------------------------------------------
Prior to submission of the Plan to the Members for approval, the Savings
Bank must receive approval from the OTS of the Form AC Application. Prior to
such regulatory approval:
A. The Board of Directors shall adopt the Plan by a vote of not less than
two-thirds of its entire membership.
B. The Savings Bank shall notify the Members of the adoption of the Plan
by publishing legal notice in a newspaper having a general circulation in each
community in which the Savings Bank maintains an office.
C. A press release relating to the proposed Conversion may be submitted
to the local media.
D. Copies of the Plan as adopted by the Board of Directors shall be made
available for inspection at each office of the Savings Bank.
4
<PAGE>
E. The Savings Bank shall cause the Holding Company to be incorporated
under state law and the Board of Directors of the Holding Company shall concur
in the Plan by at least a two-thirds vote.
F. As soon as practicable following the adoption of this Plan, the
Savings Bank shall file the Form AC Application, and the Holding Company shall
file the Registration Statement and the H-(e)1 Application. Upon filing the
Form AC Application, the Savings Bank shall publish legal notice of the filing
of the Form AC Application in a newspaper having a general circulation in each
community in which the Savings Bank maintains an office and/or by mailing a
letter to each of its Members, and shall publish such other notices of the
Conversion as may be required in connection with the H-(e)1 Application and by
the regulations and policies of the OTS.
G. The Savings Bank shall obtain an opinion of its tax advisors or a
favorable ruling from the United States Internal Revenue Service which shall
state that the Conversion will not result in any gain or loss for Federal income
tax purposes to the Savings Bank or its Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members. Receipt of a favorable opinion or
ruling is a condition precedent to completion of the Conversion.
IV. Meeting of Members
------------------
Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the Savings Bank's Bylaws. Promptly after
receipt of approval and at least 20 days but not more than 45 days prior to the
Special Meeting, the Savings Bank shall distribute proxy solicitation materials
to all Members and beneficial owners of accounts held in fiduciary capacities
where the beneficial owners possess voting rights, as of the Record Date. The
proxy solicitation materials shall include a copy of the proxy statement to be
used in connection with such solicitation ("Proxy Statement") and other
documents authorized for use by the regulatory authorities and may also include
a copy of the Plan and/or a prospectus ("Prospectus") as provided in Paragraph V
below. The Savings Bank shall also advise each Eligible Account Holder and
Supplemental Eligible Account Holder not entitled to vote at the Special Meeting
of the proposed Conversion and the scheduled Special Meeting, and provide a
postage prepaid card on which to indicate whether he wishes to receive the
Prospectus, if the Subscription Offering is not held concurrently with the proxy
solicitation.
Pursuant to OTS regulations, an affirmative vote of not less than a
majority of the total outstanding votes of the Members is required for approval
of the Plan. Voting may be in person or by proxy. The OTS shall be notified
promptly of the actions of the Members.
V. Summary Proxy Statement
-----------------------
The Proxy Statement furnished to Members may be in summary form, provided
that a statement is made in bold-face type that a more detailed description of
the proposed transaction may be obtained by returning an enclosed postage
prepaid card or other written communication requesting supplemental information.
Without prior approval of the OTS, the Special Meeting shall not be held less
than 20 days after the last day on which the supplemental information statement
is mailed to requesting Members. The supplemental information statement may be
combined with the Prospectus if the Subscription Offering is commenced
concurrently with or during the proxy solicitation of Members for the Special
Meeting.
VI. Offering Documents
------------------
The Holding Company may commence the Subscription Offering and, provided
that the Subscription Offering has commenced, may commence the Direct Community
Offering concurrently with or during the proxy solicitation of Members. The
Holding Company may close the Subscription Offering before the Special Meeting,
provided that the offer and sale of the Conversion Stock shall be conditioned
upon approval of the Plan by the Members at the Special Meeting. The Savings
Bank's proxy solicitation materials may require Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members to return to the Savings
Bank by a reasonable certain date a postage prepaid card
5
<PAGE>
or other written communication requesting receipt of a Prospectus with respect
to the Subscription Offering, provided that if the Prospectus is not mailed
concurrently with the proxy solicitation materials, the Subscription Offering
shall not be closed until the expiration of 30 days after the mailing of the
proxy solicitation materials. If the Subscription Offering is not commenced
within 45 days after the Special Meeting, the Savings Bank may transmit, not
more than 30 days prior to the commencement of the Subscription Offering, to
each Eligible Account Holder, Supplemental Eligible Account Holder and other
eligible subscribers who had been furnished with proxy solicitation materials a
notice which shall state that the Savings Bank is not required to furnish a
Prospectus to them unless they return by a reasonable date certain a postage
prepaid card or other written communication requesting the receipt of the
Prospectus.
Prior to commencement of the Subscription Offering, the Direct Community
Offering and the Syndicated Community Offering, the Holding Company shall file
the Registration Statement. The Holding Company shall not distribute the final
Prospectus until the Registration Statement containing same has been declared
effective by the SEC and the Prospectus has been declared effective by the OTS.
VII. Combined Subscription and Direct Community Offering
---------------------------------------------------
Instead of a separate Subscription Offering, all Subscription Rights may be
exercised by delivery of properly completed and executed Order Forms to the
Savings Bank or selling group utilized in connection with the Direct Community
Offering and the Syndicated Community Offering. If a separate Subscription
Offering is not held, orders for Conversion Stock in the Direct Community
Offering shall first be filled pursuant to the priorities and limitations stated
in Paragraph IX.C., below.
VIII. Consummation of the Conversion
------------------------------
After receipt of all orders for Conversion Stock, the amendment of the
Savings Bank's Federal Mutual Charter and Bylaws to authorize the issuance of
shares of Capital Stock and to conform to the requirements of a federal stock
savings bank, as approved by the Members at the Special Meeting will be declared
effective by the OTS. At such time, the Conversion Stock will be issued and
sold by the Holding Company, the Capital Stock to be issued in the Conversion
will be issued and sold to the Holding Company, and the Converted Savings Bank
will become a wholly owned subsidiary of the Holding Company. The Converted
Savings Bank will issue to the Holding Company 1,000 shares of its common stock,
representing all of the shares of Capital Stock to be issued by the Converted
Savings Bank, and the Holding Company will make payment to the Converted Savings
Bank of that portion of the aggregate net proceeds realized by the Holding
Company from the sale of the Conversion Stock under the Plan as may be
authorized or required by the OTS.
IX. Stock Offering
--------------
A. Number of Shares
----------------
The number of shares of Conversion Stock to be offered pursuant to the Plan
shall be determined initially by the Board of Directors of the Savings Bank and
the Board of Directors of the Holding Company in conjunction with the
determination of the Purchase Price (as that term is defined in Paragraph IX.B.
below). The number of shares to be offered may be subsequently adjusted by the
Board of Directors prior to completion of the offering.
B. Independent Evaluation and Purchase Price of Shares
---------------------------------------------------
All shares of Conversion Stock sold in the Conversion, including shares
sold in any Direct Community Offering, shall be sold at a uniform price per
share, referred to herein as the "Purchase Price." The Purchase Price shall be
determined by the Board of Directors of the Savings Bank and the Board of
Directors of the Holding Company immediately prior to the simultaneous
completion of all such sales contemplated by this Plan on the basis of the
estimated pro forma market value of the Converted Savings Bank and the Holding
Company at such time. The
6
<PAGE>
estimated pro forma market value of the Converted Savings Bank and the Holding
Company shall be determined for such purpose by an independent appraiser on the
basis of such appropriate factors not inconsistent with the regulations of the
OTS. Immediately prior to the Subscription Offering, a subscription price range
shall be established which shall vary from 15% above to 15% below the average of
the minimum and maximum of the estimated price range. The maximum subscription
price (i.e., the per share amount to be remitted when subscribing for shares of
Conversion Stock) shall then be determined within the subscription price range
by the Board of Directors of the Savings Bank. The subscription price range and
the number of shares to be offered may be revised after the completion of the
Subscription Offering with OTS approval without a resolicitation of proxies or
Order Forms or both.
C. Method of Offering Shares
-------------------------
Subscription Rights shall be issued at no cost to Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account
Holders and Other Members pursuant to priorities established by this Plan and
the regulations of the OTS. In order to effect the Conversion, all shares of
Conversion Stock proposed to be issued in connection with the Conversion must be
sold and, to the extent that shares are available, no subscriber shall be
allowed to purchase less than 25 shares; provided, however, that if the purchase
price is greater than $20.00 per share, the minimum number of shares which must
be subscribed for shall be adjusted so that the aggregate actual purchase price
required to be paid for such minimum number of shares does not exceed $500.00.
The priorities established for the purchase of shares are as follows:
1. Category 1: Eligible Account Holders
-------------------------------------
a. Each Eligible Account Holder shall receive, without payment,
Subscription Rights entitling such Eligible Account Holder to purchase that
number of shares of Conversion Stock which is equal to the greater of the
maximum purchase limitation established for the Direct Community Offering,
one-tenth of one percent of the total offering or 15 times the product
(rounded down to the next whole number) obtained by multiplying the total
number of shares of Conversion Stock to be issued by a fraction of which
the numerator is the amount of the Qualifying Deposit of the Eligible
Account Holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders. If the allocation made in this
paragraph results in an oversubscription, shares of Conversion Stock shall
be allocated among subscribing Eligible Account Holders so as to permit
each such account holder, to the extent possible, to purchase a number of
shares of Conversion Stock sufficient to make his total allocation equal to
100 shares of Conversion Stock or the total amount of his subscription,
whichever is less. Any shares of Conversion Stock not so allocated shall
be allocated among the subscribing Eligible Account Holders on an equitable
basis, related to the amounts of their respective Qualifying Deposits as
compared to the total Qualifying Deposits of all subscribing Eligible
Account Holders.
b. Subscription Rights received by Officers and directors of the
Savings Bank and their Associates, as Eligible Account Holders, based on
their increased deposits in the Savings Bank in the one-year period
preceding the Eligibility Record Date shall be subordinated to all other
subscriptions involving the exercise of Subscription Rights pursuant to
this Category.
2. Category 2: Tax-Qualified Employee Stock Benefit Plans
------------------------------------------------------
a. Tax-Qualified Employee Stock Benefit Plans shall receive,
without payment, nontransferable Subscription Rights to purchase in the
aggregate up to 8% of the Conversion Stock, including shares of Conversion
Stock to be issued in the Conversion as result of an increase in the
estimated price range after commencement of the Subscription Offering and
prior to the completion of the Conversion. The Subscription Rights granted
to Tax-Qualified Stock Benefit Plans shall be subject to the availability
of shares of Conversion Stock after taking into account the shares of
7
<PAGE>
Conversion Stock purchased by Eligible Account Holders; provided, however,
that in the event the number of shares offered in the Conversion is
increased to an amount greater than the maximum of the estimated price
range as set forth in the Prospectus ("Maximum Shares"), the Tax-Qualified
Employee Stock Benefit Plans shall have a priority right to purchase any
such shares exceeding the Maximum Shares up to an aggregate of 8% of the
Conversion Stock. Tax-Qualified Employee Stock Benefit Plans may use funds
contributed or borrowed by the Holding Company or the Savings Bank and/or
borrowed from an independent financial institution to exercise such
Subscription Rights, and the Holding Company and the Savings Bank may make
scheduled discretionary contributions thereto, provided that such
contributions do not cause the Holding Company or the Savings Bank to fail
to meet any applicable capital requirements.
3. Category 3: Supplemental Eligible Account Holders
--------------------------------------------------
a. In the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment to the Form AC Application
filed prior to OTS approval, then, and only in that event, each
Supplemental Eligible Account Holder shall receive, without payment,
Subscription Rights entitling such Supplemental Eligible Account Holder to
purchase that number of shares of Conversion Stock which is equal to the
greater of the maximum purchase limitation established for the Direct
Community Offering, one-tenth of one percent of the total offering or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock to be issued by
a fraction of which the numerator is the amount of the Qualifying Deposit
of the Supplemental Eligible Account Holder and the denominator is the
total amount of the Qualifying Deposits of all subscribing Supplemental
Eligible Account Holders.
b. Subscription Rights received pursuant to this category shall
be subordinated to Subscription Rights granted to Eligible Account Holders
and Tax-Qualified Employee Stock Benefit Plans.
c. Any Subscription Rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Category Number 1
shall reduce to the extent thereof the Subscription Rights to be
distributed pursuant to this Category.
d. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, shares of Conversion Stock shall be
allocated among the subscribing Supplemental Eligible Account Holders as
follows:
(1) Shares of Conversion Stock shall be allocated so as to
permit each such Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares of Conversion Stock
sufficient to make his total allocation (including the number of
shares of Conversion Stock, if any, allocated in accordance with
Category Number 1) equal to 100 shares of Conversion Stock or the
total amount of his subscription, whichever is less.
(2) Any shares of Conversion Stock not allocated in
accordance with subparagraph (1) above shall be allocated among the
subscribing Supplemental Eligible Account Holders on an equitable
basis, related to the amounts of their respective Qualifying Deposits
as compared to the total Qualifying Deposits of all subscribing
Supplemental Eligible Account Holders.
8
<PAGE>
4. Category 4: Other Members
--------------------------
a. Other Members shall receive, without payment, Subscription
Rights to purchase shares of Conversion Stock, after satisfying the
subscriptions of Eligible Account Holders, Tax-Qualified Employee Stock
Benefit Plans and Supplemental Eligible Account Holders pursuant to
Category Nos. l, 2 and 3 above, subject to the following conditions:
(1) Each such Other Member shall be entitled to subscribe
for the greater of the maximum purchase limitation established for the
Direct Community Offering or one-tenth of one percent of the total
offering.
(2) In the event of an oversubscription for shares of
Conversion Stock pursuant to Category No. 4, the shares of Conversion Stock
available shall be allocated among the subscribing Other Members pro rata
on the basis of the amounts of their respective subscriptions.
D. Direct Community Offering and Syndicated Community Offering
-----------------------------------------------------------
1. Any shares of Conversion Stock not purchased through the exercise
of Subscription Rights set forth in Category Nos. 1 through 4 above may be
sold by the Holding Company to Persons under such terms and conditions as
may be established by the Savings Bank's Board of Directors with the
concurrence of the OTS. The Direct Community Offering may commence
concurrently with or as soon as possible after the completion of the
Subscription Offering and must be completed within 45 days after completion
of the Subscription Offering, unless extended with the approval of the OTS.
No Person, including Persons on a joint account, may purchase shares of
Conversion Stock in the Direct Community Offering having an aggregate
purchase price of more than $150,000. The right to purchase shares of
Conversion Stock under this Category is subject to the right of the Savings
Bank or the Holding Company to accept or reject such subscriptions in whole
or in part. In the event of an oversubscription for shares in this
Category, the shares available shall be allocated among prospective
purchasers pro rata on the basis of the amounts of their respective orders.
The offering price for which such shares are sold to the general public in
the Direct Community Offering shall be the Purchase Price.
2. Orders received in the Direct Community Offering first shall be
filled up to a maximum of 2% of the Conversion Stock and thereafter
remaining shares shall be allocated on an equal number of shares basis per
order until all orders have been filled.
3. The Conversion Stock offered in the Direct Community Offering
shall be offered and sold in a manner that will achieve the widest
distribution thereof. Preference shall be given in the Direct Community
Offering to natural Persons and trusts of natural Persons residing in the
Local Community.
4. Subject to such terms, conditions and procedures as may be
determined by the Savings Bank and the Holding Company, all shares of
Conversion Stock not subscribed for in the Subscription Offering or ordered
in the Direct Community Offering may be sold by a syndicate of broker-
dealers to the general public in a Syndicated Community Offering. No
Person, including Persons on a joint account, may purchase shares of
Conversion Stock in the Syndicated Community Offering having an aggregate
purchase price of more than $150,000. Each order for Conversion Stock in
the Syndicated Community Offering shall be subject to the absolute right of
the Savings Bank and the Holding Company to accept or reject any such order
in whole or in part either at the time of receipt of an order or as soon as
practicable after completion of the Syndicated Community Offering. The
Savings Bank and the Holding Company may commence the Syndicated Community
Offering concurrently with, at any time during, or as soon as practicable
after the end of the Subscription Offering and/or Direct Community
Offering, provided that the Syndicated Community Offering
9
<PAGE>
must be completed within 45 days after the completion of the Subscription
Offering, unless extended by the Savings Bank and the Holding Company with
the approval of the OTS.
5. If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Direct
Community Offering cannot be effected, or in the event that any
insignificant residue of shares of Conversion Stock is not sold in the
Subscription Offering, Direct Community Offering or Syndicated Community
Offering, the Savings Bank and the Holding Company shall use their best
efforts to obtain other purchasers for such shares in such manner and upon
such conditions as may be satisfactory to the OTS.
6. In the event a Direct Community Offering or Syndicated Community
Offering do not appear feasible, the Savings Bank will immediately consult
with the OTS to determine the most viable alternative available to effect
the completion of the Conversion. Should no viable alternative exist, the
Savings Bank may terminate the Conversion with the concurrence of the OTS.
E. Limitations Upon Purchases
--------------------------
The following additional limitations and exceptions shall be imposed upon
purchases of shares of Conversion Stock:
1. No Person, together with Associates of or Persons Acting in
Concert with such Person, may purchase in the aggregate more than the
overall maximum purchase limitation of 1% of the total number of shares of
Conversion Stock issued in the Conversion (exclusive of any shares issued
pursuant to an increase in the range of minimum and maximum aggregate
values within which the aggregate amount of Conversion Stock issued in the
Conversion will fall), except that Tax-Qualified Employee Stock Benefit
Plans may purchase up to 8% of the total Conversion Stock issued and shares
held or to be held by the Tax-Qualified Employee Stock Benefit Plans and
attributable to a Person shall not be aggregated with other shares
purchased directly by or otherwise attributable to such Person.
2. Officers and directors of the Savings Bank and Associates thereof
may not purchase in the aggregate more than 33% of the shares issued in the
Conversion.
3. The Savings Bank's and Holding Company's Boards of Directors will
not be deemed to be Associates or a group of Persons Acting in Concert with
other directors or trustees solely as a result of membership on the Board
of Directors.
4. The Savings Bank's Board of Directors, with the approval of the
OTS and without further approval of Members, may, as a result of market
conditions and other factors, increase or decrease the purchase limitation
in paragraphs 1 and 4 above or the number of shares of Conversion Stock to
be sold in the Conversion. If the Savings Bank or the Holding Company, as
the case may be, increases the maximum purchase limitations or the number
of shares of Conversion Stock to be sold in the Conversion, the Savings
Bank or the Holding Company, as the case may be, is only required to
resolicit Persons who subscribed for the maximum purchase amount and may,
in the sole discretion of the Savings Bank or the Holding Company, as the
case may be, resolicit certain other large subscribers. If the Savings
Bank or the Holding Company, as the case may be, decreases the maximum
purchase limitations or the number of shares of Conversion Stock to be sold
in the Conversion, the orders of any Person who subscribed for the maximum
purchase amount shall be decreased by the minimum amount necessary so that
such Person shall be in compliance with the then maximum number of shares
permitted to be subscribed for by such Person.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the purchase limitations
under the Plan or otherwise imposed by law, rule or regulation. In the
10
<PAGE>
event that such purchase limitations are violated by any Person (including any
Associate or group of Persons affiliated or otherwise Acting in Concert with
such Person), the Holding Company shall have the right to purchase from such
Person at the actual Purchase Price per share all shares acquired by such Person
in excess of such purchase limitations or, if such excess shares have been sold
by such Person, to receive from such Person the difference between the actual
Purchase Price per share paid for such excess shares and the price at which such
excess shares were sold by such Person. This right of the Holding Company to
purchase such excess shares shall be assignable by the Holding Company.
F. Restrictions On and Other Characteristics of the Conversion Stock
-----------------------------------------------------------------
1. Transferability. Conversion Stock purchased by Officers and
---------------
directors of the Savings Bank and officers and directors of the Holding
Company shall not be sold or otherwise disposed of for value for a period
of one year from the date of Conversion, except for any disposition (i)
following the death of the original purchaser or (ii) resulting from an
exchange of securities in a merger or acquisition approved by the
regulatory authorities having jurisdiction.
The Conversion Stock issued by the Holding Company to such Officers
and directors shall bear a legend giving appropriate notice of the one-year
holding period restriction. Said legend shall state as follows:
"The shares evidenced by this certificate are restricted as to
transfer for a period of one year from the date of this certificate
pursuant to Part 563b of the Rules and Regulations of the Office of
Thrift Supervision. These shares may not be transferred prior thereto
without a legal opinion of counsel that said transfer is permissible
under the provisions of applicable laws and regulations."
In addition, the Holding Company shall give appropriate instructions
to the transfer agent of the Holding Company Stock with respect to the
foregoing restrictions. Any shares of Holding Company Stock subsequently
issued as a stock dividend, stock split or otherwise, with respect to any
such restricted stock, shall be subject to the same holding period
restrictions for such Persons as may be then applicable to such restricted
stock.
2. Subsequent Purchases by Officers and Directors. Without prior
----------------------------------------------
approval of the OTS, if applicable, officers and directors of the Savings
Bank and officers and directors of the Holding Company, and their
Associates, shall be prohibited for a period of three years following
completion of the Conversion from purchasing outstanding shares of Holding
Company Stock, except from a broker or dealer registered with the SEC.
Notwithstanding this restriction, purchases involving more than 1% of the
total outstanding shares of Holding Company Stock and purchases made and
shares held by a Tax-Qualified or non-Tax-Qualified Employee Stock Benefit
Plan which may be attributable to such directors and Officers may be made
in negotiated transactions without OTS permission or the use of a broker or
dealer.
3. Repurchase and Dividend Rights. For a period of three years
------------------------------
following the consummation of the Conversion, any repurchases of Holding
Company Stock by the Holding Company from any Person shall be subject to
the then applicable rules and regulations and policies of the OTS. The
Converted Savings Bank may not declare or pay a cash dividend on or
repurchase any of its Capital Stock if the result thereof would be to
reduce the regulatory capital of the Converted Savings Bank below the
amount required for the liquidation account described in Paragraph XIII.
Further, any dividend declared or paid on the Capital Stock shall comply
with the then applicable rules and regulations of the OTS.
4. Voting Rights. After the Conversion, holders of Savings Accounts
-------------
in and obligors on loans of the Converted Savings Bank will not have voting
rights in the Converted Savings Bank. Exclusive voting rights with respect
to the Holding Company shall be vested in the holders of Holding Company
Stock; holders of Savings Accounts in and obligors on loans of the
Converted Savings Bank will not have any voting rights
11
<PAGE>
in the Holding Company except and to the extent that such Persons become
stockholders of the Holding Company, and the Holding Company will have
exclusive voting rights with respect to the Converted Savings Bank's
Capital Stock.
G. Mailing of Offering Materials and Collation of Subscriptions
------------------------------------------------------------
The sale of all shares of Conversion Stock offered pursuant to the Plan
must be completed within 24 months after approval of the Plan at the Special
Meeting. After approval of the Plan by the OTS and the declaration of the
effectiveness of the Prospectus, the Holding Company shall distribute
Prospectuses and Order Forms for the purchase of shares of Conversion Stock in
accordance with the terms of the Plan.
The recipient of an Order Form shall be provided not less than 20 days nor
more than 45 days from the date of mailing, unless extended, properly to
complete, execute and return the Order Form to the Holding Company or the
Savings Bank. Self-addressed, postage prepaid, return envelopes shall accompany
all Order Forms when they are mailed. Failure of any eligible subscriber to
return a properly completed and executed Order Form within the prescribed time
limits shall be deemed a waiver and a release by such eligible subscriber of any
rights to purchase shares of Conversion Stock under the Plan.
The sale of all shares of Conversion Stock proposed to be issued in
connection with the Conversion must be completed within 45 days after the last
day of the Subscription Offering, unless extended by the Holding Company with
the approval of the OTS.
H. Method of Payment
-----------------
Payment for all shares of Conversion Stock may be made in cash, by check or
by money order, or if a subscriber has a Savings Account(s) in the Savings Bank,
such subscriber may authorize the Savings Bank to charge the subscriber's
Savings Account(s). The Savings Bank shall pay interest at not less than the
passbook rate on all amounts paid in cash or by check or money order to purchase
shares of Conversion Stock in the Subscription Offering from the date payment is
received until the Conversion is completed or terminated. The Savings Bank is
not permitted knowingly to loan funds or otherwise extend any credit to any
Person for the purpose of purchasing Conversion Stock.
If a subscriber authorizes the Savings Bank to charge the subscriber's
Savings Account(s), the funds shall remain in the subscriber's Savings
Account(s) and shall continue to earn interest, but may not be used by such
subscriber until the Conversion is completed or terminated, whichever is
earlier. The withdrawal shall be given effect only concurrently with the sale
of all shares of Conversion Stock proposed to be sold in the Conversion and only
to the extent necessary to satisfy the subscription at a price equal to the
aggregate Purchase Price. The Savings Bank shall allow subscribers to purchase
shares of Conversion Stock by withdrawing funds from certificate accounts held
with the Savings Bank without the assessment of early withdrawal penalties,
subject to the approval, if necessary, of the applicable regulatory authorities.
In the case of early withdrawal of only a portion of such account, the
certificate evidencing such account shall be canceled if the remaining balance
of the account is less than the applicable minimum balance requirement. In that
event, the remaining balance shall earn interest at the passbook rate. This
waiver of the early withdrawal penalty is applicable only to withdrawals made in
connection with the purchase of Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by
submitting an Order Form, along with evidence of a loan commitment from a
financial institution for the purchase of shares, if applicable, during the
Subscription Offering and by making payment for the shares on the date of the
closing of the Conversion.
12
<PAGE>
I. Undelivered, Defective or Late Order Forms; Insufficient Payment
----------------------------------------------------------------
If an Order Form (i) is not delivered and is returned to the Holding
Company or the Savings Bank by the United States Postal Service (or the Holding
Company or Savings Bank is unable to locate the addressee); (ii) is not returned
to the Holding Company or Savings Bank, or is returned to the Holding Company or
Savings Bank after expiration of the date specified thereon; (iii) is
defectively completed or executed; or (iv) is not accompanied by the total
required payment for the shares of Conversion Stock subscribed for (including
cases in which the subscribers' Savings Accounts are insufficient to cover the
authorized withdrawal for the required payment), the Subscription Rights of the
Person to whom such rights have been granted shall not be honored and shall be
treated as though such Person failed to return the completed Order Form within
the time period specified therein. Alternatively, the Holding Company or
Savings Bank may, but shall not be required to, waive any irregularity relating
to any Order Form or require the submission of a corrected Order Form or the
remittance of full payment for the shares of Conversion Stock subscribed for by
such date as the Holding Company or Savings Bank may specify. Subscription
orders, once tendered, shall not be revocable. The Holding Company's and
Savings Bank's interpretation of the terms and conditions of the Plan and of the
Order Forms shall be final.
J. Members in Non-Qualified States or in Foreign Countries
-------------------------------------------------------
The Holding Company and the Savings Bank will make reasonable efforts to
comply with the securities laws of all states in the United States in which
persons entitled to subscribe for stock pursuant to the Plan reside. However,
the Holding Company and the Savings Bank are not required to offer stock in the
Subscription Offering to any person who resides in a foreign country or resides
in a state of the United States with respect to which (i) a small number of
persons otherwise eligible to subscribe for shares of Common Stock reside in
such state; or (ii) the Holding Company or the Savings Bank determines that
compliance with the securities laws of such state would be impracticable for
reasons of cost or otherwise, including but not limited to a request or
requirement that the Holding Company and the Savings Bank or their officers,
directors or trustees register as a broker, dealer, salesman or selling agent,
under the securities laws of such state, or a request or requirement to register
or otherwise qualify the Subscription Rights or Common Stock for sale or submit
any filing with respect thereto in such state. Where the number of persons
eligible to subscribe for shares in one state is small relative to other states,
the Holding Company and the Savings Bank will base their decision as to whether
or not to offer the Common Stock in such state on a number of factors, including
the size of accounts held by account holders in the state, the cost of reviewing
the registration and qualification requirements of the state (and of actually
registering or qualifying the shares) or the need to register the Holding
Company, its officers, directors or employees as brokers, dealers or salesmen.
X. Federal Stock Charter and Bylaws
--------------------------------
As part of the Conversion, a Federal Stock Charter and Bylaws will be
adopted to authorize the Converted Savings Bank to operate as a federal stock
savings bank. By approving the Plan, the Members of the Savings Bank will
thereby approve the Federal Stock Charter and Bylaws. Prior to completion of
the Conversion, the Federal Stock Charter and Bylaws may be amended in
accordance with the provisions and limitations for amending the Plan under
Paragraph XVII below. The effective date of the adoption of the Federal Stock
Charter and Bylaws shall be the date of the issuance of the Conversion Stock,
which shall be the date of consummation of the Conversion.
XI. Post Conversion Filing and Market Making
----------------------------------------
In connection with the Conversion, the Holding Company shall register the
Conversion Stock with the SEC pursuant to the Securities Exchange Act of 1934,
as amended, and shall undertake not to deregister such Conversion Stock for a
period of three years thereafter.
13
<PAGE>
The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the shares of its
stock. The Holding Company shall also use its best efforts to list its stock
through The Nasdaq Stock Market or on a national or regional securities
exchange.
XII. Status of Savings Accounts and Loans Subsequent to Conversion
-------------------------------------------------------------
All Savings Accounts shall retain the same status after Conversion as these
accounts had prior to Conversion. Each Savings Account holder shall retain,
without payment, a withdrawable Savings Account(s) after the Conversion, equal
in amount to the withdrawable value of such holder's Savings Account(s) prior to
Conversion. All Savings Accounts will continue to be insured by the Savings
Association Insurance Fund of the FDIC up to the applicable limits of insurance
coverage. All loans shall retain the same status after the Conversion as they
had prior to the Conversion. See Paragraph IX.F.4. with respect to the
termination of voting rights of Members.
XIII. Liquidation Account
-------------------
After the Conversion, holders of Savings Accounts shall not be entitled to
share in any residual assets in the event of liquidation of the Converted
Savings Bank. However, the Savings Bank shall, at the time of the Conversion,
establish a liquidation account in an amount equal to its total net worth as of
the date of the latest statement of financial condition contained in the final
Prospectus. The function of the liquidation account shall be to establish a
priority on liquidation and, except as provided in Paragraph IX.F.3 above, the
existence of the liquidation account shall not operate to restrict the use or
application of any of the net worth accounts of the Converted Savings Bank.
The liquidation account shall be maintained by the Converted Savings Bank
subsequent to the Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who retain their Savings Accounts in the
Converted Savings Bank. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to each Savings Account held, have a related
inchoate interest in a portion of the liquidation account balance
("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and/or a Supplemental Eligible Account Holder shall be determined
by multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's Qualifying Deposit in the
Savings Account and the denominator is the total amount of the Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders. Such initial subaccount balance shall not be increased, and it shall
be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing date subsequent to the Eligibility Record Date is less than the lesser
of (i) the deposit balance in such Savings Account at the close of business on
any other annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date or (ii) the amount of the Qualifying
Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
a downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
In the event of a complete liquidation of the Converted Savings Bank, each
Eligible Account Holder and Supplemental Eligible Account Holder shall be
entitled to receive a liquidation distribution from the liquidation account in
the amount of the then current adjusted subaccount balance(s) for Savings
Account(s) then held by such holder before any liquidation distribution may be
made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Savings Accounts and other liabilities or similar transactions
with another Federally-insured institution
14
<PAGE>
in which the Converted Savings Bank is not the surviving institution shall be
considered to be a complete liquidation. In any such transaction, the
liquidation account shall be assumed by the surviving institution.
XIV. Regulatory Restrictions on Acquisition of Holding Company
---------------------------------------------------------
A. OTS regulations provide that for a period of three years following
completion of the Conversion, no Person (i.e, individual, a group Acting in
Concert, a corporation, a partnership, a Savings Bank, a joint stock company, a
trust, or any unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution or its holding company) shall directly, or
indirectly, offer to purchase or actually acquire the beneficial ownership of
more than 10% of any class of equity security of the Holding Company without the
prior approval of the OTS. However, approval is not required for purchases
directly from the Holding Company or the underwriters or selling group acting on
its behalf with a view towards public resale, or for purchases not exceeding 1%
per annum of the shares outstanding. Civil penalties may be imposed by the OTS
for willful violation or assistance of any violation. Where any Person,
directly or indirectly, acquires beneficial ownership of more than 10% of any
class of equity security of the Holding Company within such three-year period,
without the prior approval of the OTS, stock of the Holding Company beneficially
owned by such Person in excess of 10% shall not be counted as shares entitled to
vote and shall not be voted by any Person or counted as voting shares in
connection with any matter submitted to the stockholders for a vote. The
provisions of this regulation shall not apply to the acquisition of securities
by Tax-Qualified Employee Stock Benefit Plans provided that such plans do not
have beneficial ownership of more than 25% of any class of equity security of
the Holding Company.
B. The Holding Company may provide in its articles/certificate of
incorporation, or similar document, a provision that, for a specified period of
up to five years following the date of the completion of the Conversion, no
Person shall directly or indirectly offer to acquire or actually acquire the
beneficial ownership of more than 10% of any class of equity security of the
Holding Company. Such provisions would not apply to acquisition of securities
by Tax-Qualified Employee Stock Benefit Plans provided that such plans do not
have beneficial ownership of more than 25% of any class of equity security of
the Holding Company. The Holding Company may provide in its articles/certificate
of incorporation, or similar document, for such other provisions affecting the
acquisition of its stock as shall be determined by its Board of Directors.
XV. Directors and Officers of the Converted Savings Bank
----------------------------------------------------
The Conversion is not intended to result in any change in the directors or
Officers. Each Person serving as a director of the Savings Bank at the time of
Conversion shall continue to serve as a member of the Converted Savings Bank's
Board of Directors, subject to the Converted Savings Bank's Federal Stock
Charter and Bylaws. The Persons serving as Officers immediately prior to the
Conversion will continue to serve at the discretion of the Board of Directors in
their respective capacities as Officers of the Converted Savings Bank. In
connection with the Conversion, the Savings Bank and the Holding Company may
enter into employment agreements on such terms and with such officers as shall
be determined by the Boards of Directors of the Savings Bank and the Holding
Company.
XVI. Executive Compensation
----------------------
The Savings Bank and the Holding Company may adopt, subject to any required
approvals, executive compensation or other benefit programs, including but not
limited to compensation plans involving stock options, stock appreciation
rights, restricted stock grants, employee recognition programs and the like.
XVII. Amendment or Termination of Plan
--------------------------------
If necessary or desirable, the Plan may be amended by a two-thirds vote
of the Savings Bank's Board of Directors, at any time prior to submission of the
Plan and proxy materials to the Members. At any time after submission of the
Plan and proxy materials to the Members, the Plan may be amended by a two-thirds
vote of the Board of Directors
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only with the concurrence of the OTS. The Plan may be terminated by a two-thirds
vote of the Board of Directors at any time prior to the Special Meeting, and at
any time following such Special Meeting with the concurrence of the OTS. In its
discretion, the Board of Directors may modify or terminate the Plan upon the
order of the regulatory authorities without a resolicitation of proxies or
another meeting of the Members.
In the event that mandatory new regulations pertaining to conversions are
adopted by the OTS prior to the completion of the Conversion, the Plan shall be
amended to conform to the new mandatory regulations without a resolicitation of
proxies or another meeting of Members. In the event that new conversion
regulations adopted by the OTS prior to completion of the Conversion contain
optional provisions, the Plan may be amended to utilize such optional provisions
at the discretion of the Board of Directors without a resolicitation of proxies
or another meeting of Members.
By adoption of the Plan, the Members authorize the Board of Directors to
amend and/or terminate the Plan under the circumstances set forth above.
XVIII. Expenses of the Conversion
--------------------------
The Holding Company and the Savings Bank shall use their best efforts to
assure that expenses incurred in connection with the Conversion shall be
reasonable.
XIX. Contributions to Tax-Qualified Plans
------------------------------------
The Holding Company and/or the Savings Bank may make discretionary
contributions to the Tax-Qualified Employee Stock Benefit Plans, provided such
contributions do not cause the Savings Bank to fail to meet its regulatory
capital requirements.
* * *
16
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ARTICLES OF INCORPORATION
OF
FIRST BANCORP OF INDIANA, INC.
ARTICLE I
NAME
The name of this corporation is First Bancorp of Indiana, Inc.
ARTICLE II
PURPOSE
The purpose of this corporation is the transaction of any and all lawful
business for which corporations may be incorporated under the Indiana Business
Corporation Law.
ARTICLE III
CAPITAL STOCK
SECTION 3.01. AMOUNT. The total number of shares of all classes of stock
which this corporation shall have authority to issue is ten million
(10,000,000), of which nine million (9,000,000) shall be common stock, par value
$.01 per share, and one million (1,000,000) shall be serial preferred stock, par
value $.01 per share.
SECTION 3.02. TERMS OF PREFERRED STOCK. The shares of preferred stock may
be issued from time to time in one or more series. The board of directors of
this corporation shall have authority to fix by resolution or resolutions the
designations and the powers, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions thereof,
including, without limitation, the voting rights, the dividend rate, conversion
rights, redemption price and liquidation preference, of any series of shares of
preferred stock, to fix the number of shares constituting any such series, and
to increase or decrease the number of shares of any such series (but not below
the number of shares thereof then outstanding). In case the number of shares of
any such series shall be so decreased, the shares constituting such decrease
shall resume the status which they had prior to the adoption of the resolution
or resolutions originally fixing the number of shares of such series.
SECTIONS 3.03. TERMS OF COMMON STOCK. The shares of common stock may be
issued from time to time. Each share of common stock shall have the same
relative rights as and be identical in
<PAGE>
all respects with all the other shares of common stock. Except as provided in
Section 3.04, every holder of common stock shall have the right, at every
stockholders' meeting, to one vote for each share standing in his or her name on
the books of the corporation.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and of sinking fund or retirement fund or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends, out of any
assets legally available for the payment of dividends, but only when and as
declared by the board of directors.
In the event of any liquidation, dissolution or winding up of this
corporation, after there shall have been paid to or set aside for the holders of
any class having preferences over the common stock in the event of liquidation,
dissolution or winding up the full preferential amounts to which they are
respectively entitled, the holders of the common stock, and any class or series
of stock entitled to participate therewith, in whole or in part, as to the
distribution of assets, shall be entitled after payment or provision for payment
of all debts and liabilities of this corporation, to receive the remaining
assets of this corporation available for distribution, in cash or in kind.
SECTION 3.04 LIMITATION ON VOTING RIGHTS.
1. Notwithstanding any other provision of these Articles, in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who, as of any record date for the
determination of stockholders entitled to vote on any matter, beneficially owns
in excess of 10% of the then-outstanding shares of common stock (the "Limit"),
be entitled, or permitted to any vote in respect of the shares held in excess of
the Limit, unless a majority of the Whole Board (as hereinafter defined) shall
have by resolution granted in advance such entitlement or permission. The
number of votes which may be cast by any record owner by virtue of the
provisions hereof in respect of common stock beneficially owned by such person
owning shares in excess of the Limit shall be a number equal to the total number
of votes which a single record owner of all common stock owned by such person
would be entitled to cast, multiplied by a fraction, the numerator of which is
the number of shares of such class or series which are both beneficially owned
by such person and owned of record by such record owner and the denominator of
which is the total number of shares of common stock beneficially owned by such
person owning shares in excess of the Limit.
2. The following definitions shall apply to this Section 3.04 of this
Article III.
(a) "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
in effect on the date of filing of these Articles.
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(b) "Beneficial ownership" shall be determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Securities Exchange Act of 1934
(or any successor rule or statutory provision), or, if said Rule 13d-3 shall be
rescinded and there shall be no successor rule or provision thereto, pursuant to
said Rule 13d-3 as in effect on the date of filing of these Articles; provided,
---------
however, that a person shall, in any event, also be deemed the "beneficial
- -------
owner" of any common stock:
(i) which such person or any of its affiliates beneficially owns,
directly or indirectly; or
(ii) which such person or any of its affiliates has (A) the right
to acquire (whether such right is exercisable immediately or only after the
passage of time), pursuant to any agreement, arrangement or understanding (but
shall not be deemed to be the beneficial owner of any voting shares solely by
reason of an agreement, contract, or other arrangement with this corporation to
effect any transaction which is described in any one or more of subparagraphs
(1)(a) through (h) of Section 5.01 of Article V or upon the exercise of
conversion rights, exchange rights, warrants, or options or otherwise, or (B)
sole or shared voting or investment power with respect thereto pursuant to any
agreement, arrangement, understanding, relationship or otherwise (but shall not
be deemed to be the beneficial owner of any voting shares solely by reason of a
revocable proxy granted for a particular meeting of stockholders, pursuant to a
public solicitation of proxies for such meeting, with respect to shares of which
neither such person nor any such affiliate is otherwise deemed the beneficial
owner); or
(iii) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or any of its affiliates
acts as a partnership, limited partnership, syndicate or other group pursuant to
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock of this corporation;
and provided further, however, that (i) no director or officer of this
--------------------------
corporation (or any Affiliate of any such director or officer) shall, solely by
reason of any or all of such directors or officers acting in their capacities as
such, be deemed, for any purposes hereof, to beneficially own any common stock
beneficially owned by any other such director or officer (or any Affiliate
thereof), and (ii) neither any employee stock ownership or similar plan of this
corporation or any subsidiary of this corporation, nor any trustee with respect
thereto or any Affiliate of such trustee (solely by reason of such capacity of
such trustee), shall be deemed, for any purposes hereof, to beneficially own any
common stock held under any such plan. For purposes of computing the percentage
beneficial ownership of common stock of a person, the outstanding common stock
shall include shares deemed owned by such person through application of this
subsection but shall not include any other common stock which may be issuable by
this corporation pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise. For all other purposes, the
outstanding common stock shall include only common stock then outstanding and
shall not include any common stock which may be issuable by this corporation
pursuant to any agreement, or upon the exercise of conversion rights, warrants
or options, or otherwise.
3
<PAGE>
(c) A "person" shall mean any individual, firm, corporation, or other
entity.
(d) "Whole Board" shall mean the total number of directors which the
corporation would have if there were no vacancies on the board of directors.
3. The board of directors shall have the power to construe and apply the
provisions of this Section and to make all determinations necessary or desirable
to implement such provisions, including but not limited to matters with respect
to (i) the number of shares of common stock beneficially owned by any person,
(ii) whether a person is an affiliate of another, (iii) whether a person has an
agreement, arrangement, or understanding with another as to the matters referred
to in the definition of beneficial ownership, (iv) the application of any other
definition or operative provision of this Section to the given facts, or (v) any
other matter relating to the applicability or effect of this Section.
4. The board of directors shall have the right to demand that any person
who is reasonably believed to beneficially own common stock in excess of the
Limit (or holds of record common stock beneficially owned by any person in
excess of the Limit) supply the corporation with complete information as to (i)
the record owner(s) of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit, and (ii) any other
factual matter relating to the applicability or effect of this section as may
reasonably be required of such person.
5. Except as otherwise provided by law or expressly provided in this
Section 3.04, the presence, in person or by proxy, of the holders of record of
shares of capital stock of the corporation entitling the holders thereof to cast
a majority of the votes (after giving effect, if required, to the provisions of
this Section 3.04) entitled to be cast by the holders of shares of capital stock
of the corporation entitled to vote shall constitute a quorum at all meetings of
the stockholders, and every reference in these Articles to a majority or other
proportion of capital stock (or the holders thereof) for purposes of determining
any quorum requirement or any requirement for stockholder consent or approval
shall be deemed to refer to such majority or other proportion of the votes (or
the holders thereof) then entitled to be cast in respect of such capital stock.
6. Any constructions, applications, or determinations made by the board
of directors pursuant to this Section in good faith and on the basis of such
information and assistance as was then reasonably available for such purpose
shall be conclusive and binding upon the corporation and its stockholders.
7. In the event any provision (or portion thereof) of this Section 3.04
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Section shall remain in full
force and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken here from or otherwise rendered
inapplicable, it being the intent of this corporation and its stockholders that
each such remaining provision (or portion thereof) of this Section 3.04 remain,
to the fullest extent permitted by law,
4
<PAGE>
applicable and enforceable as to all stockholders, including stockholders owning
an amount of stock over the Limit, notwithstanding any such finding.
ARTICLE IV
BOARD OF DIRECTORS
SECTION 4.01. GENERAL. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the corporation shall be
managed under the direction of, a board of directors except as may be otherwise
provided by law or these Articles of Incorporation.
SECTION 4.02. NUMBER AND TERMS. The authorized number of directors shall
in no case be fewer than five (5) nor more than fifteen (15). The exact number
of directors shall be fixed in or in accordance with the Bylaws. The directors
shall be divided into three classes, as nearly equal in number as reasonably
possible, with the term of office of the first class to expire at the conclusion
of the first annual meeting of the stockholders after their election, the term
of office of the second class to expire at the conclusion of the second annual
meeting of stockholders after their election, and the term of office of the
third class to expire at the conclusion of the third annual meeting of
stockholders after their election, with each director to hold office until his
or her successor shall have been duly elected and qualified. At each annual
meeting of stockholders following the initial classification and election,
directors elected to succeed those directors whose terms expire shall be elected
for a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until his
or her successor shall have been duly elected and qualified. There shall be no
cumulative voting by stockholders of any class or series in the election of
directors of the corporation.
SECTION 4.03. INITIAL DIRECTORS. The names and addresses of the initial
board of directors of the corporation are as follows:
NAME ADDRESS
---- -------
Class 1 Directors (initial term to expire at the conclusion of the first annual
- -----------------
meeting of stockholders after their election)
Robert L. Clayton, Sr. 349 West Evergreen Plaza, Santa Claus, IN 47579
James L. Will, Jr. 5751 Choice Cut Ct., Evansville, IN 47720
Class 2 Directors (initial term to expire at the conclusion of the second annual
- -----------------
meeting of stockholders after their election)
Herbert V. Dassel 6401 Echo Hill Dr., Evansville, IN 47720
Jerry Ziemer 1351 E. Chandler Avenue, Evansville, IN 47714
5
<PAGE>
Class 3 Directors (initial term to expire at the conclusion of the third annual
- -----------------
meeting of stockholders after their election)
Frank E. Kern 1509 McDowell Road, Evansville, IN 47712
Harold Duncan 6901 Briar Ct., Evansville, IN 47711
SECTION 4.04. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Any vacancies on
the board of directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall be filled by the
affirmative vote of a majority of directors then in office, although less than a
quorum, or by the sole remaining director, or, in the event of the failure of
the directors or sole remaining director so to act, by the stockholders at the
next election of directors. Directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of the class to
which they have been elected expires. A director elected to fill a vacancy by
reason of an increase in the number of directorships shall be elected by a
majority vote of the directors then in office, although less than a quorum of
the board of directors, to serve until the next election of the class for which
such director shall have been chosen. If the number of directors is changed,
any increase or decrease shall be apportioned among the three (3) classes so as
to make all classes as nearly equal in number as possible. If, consistent with
the preceding requirement, the increase or decrease may be allocated to more
than one (1) class, the increase or decrease may be allocated to any such class
the board of directors selects in its discretion. No decrease in the number of
directors constituting the board of directors shall shorten the term of any
incumbent director.
SECTION 4.05. REMOVAL. A director, or the entire board of directors, may
be removed only for cause as determined by the affirmative vote of the holders
of at least a two-thirds (2/3) majority of the shares then entitled to vote in
an election of directors, which vote may only be taken at a meeting of
stockholders called expressly for that purpose. Cause for removal shall be
deemed to exist only if the director whose removal is proposed has been
convicted of a felony by a court of competent jurisdiction or has been adjudged
by a court of competent jurisdiction to be liable for gross negligence or
misconduct in the performance of such director's duty to the corporation, in a
matter of substantial importance to the corporation and such conviction or
adjudication is no longer subject to direct appeal.
SECTION 4.06. SPECIAL STOCKHOLDER MEETINGS. Special meetings of the
stockholders of the corporation may only be called by the chairman of the board
of directors or by the board of directors pursuant to a resolution adopted by a
majority of the total number of directors which the corporation would have if
there were no vacancies on the board of directors.
6
<PAGE>
ARTICLE V
APPROVAL OF CERTAIN BUSINESS COMBINATIONS
The stockholder vote required to approve Business Combinations (as
hereinafter defined) shall be as set forth in this section.
SECTION 5.01. TRANSACTIONS WITH RELATED PERSONS.
1. Except as otherwise expressly provided in this Article, the
affirmative vote of the holders of (i) at least 80% of the outstanding shares
entitled to vote thereon (and, if any class or series of shares is entitled to
vote thereon separately, the affirmative vote of the holders of at least 80% of
the outstanding shares of each such class or series), and (ii) at least a
majority of the outstanding shares entitled to vote thereon, not including
shares deemed beneficially owned by a Related Person (as hereinafter defined),
shall be required in order to authorize any of the following:
(a) any merger or consolidation of the corporation with or into a
Related Person (as hereinafter defined);
(b) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage, or any other security device, of all
or any Substantial Part (as hereinafter defined) of the assets of the
corporation (including without limitation any voting securities of a subsidiary)
or of a subsidiary, to a Related Person;
(c) any merger or consolidation of a Related Person with or into the
corporation or a subsidiary of the corporation;
(d) any sale, lease, exchange, transfer or other disposition of all or
any Substantial Part of the assets of a Related Person to the corporation or a
subsidiary of the corporation;
(e) the issuance of any securities of the corporation or a subsidiary
of the corporation to a Related Person;
(f) the acquisition by the corporation or a subsidiary of the
corporation of any securities of a Related Person;
(g) any reclassification of the common stock of the corporation, or
any recapitalization involving the common stock of the corporation; and
(h) any agreement, contract or other arrangement providing for any of
the transactions described in this Article.
7
<PAGE>
2. Such affirmative vote shall be required notwithstanding any other
provision of these Articles, any provision of law, or any agreement with any
regulatory agency or national securities exchange which might otherwise permit a
lesser vote or no vote.
3. The term "Business Combination" as used in this Article shall mean any
transaction which is referred to in any one or more of subparagraphs (1)(a)
through (h) above.
SECTION 5.02. EXCEPTION FOR PRIOR APPROVED TRANSACTIONS. The provisions
of Section 5.01 shall not be applicable to any particular Business Combination,
and such Business Combination shall require only such affirmative vote as is
required by any other provision of these Articles, any provision of law, or any
agreement with any regulatory agency or national securities exchange, if the
Business Combination shall have been approved by a two-thirds vote of the
Continuing Directors (as hereinafter defined); provided, however, that such
approval shall only be effective if obtained at a meeting at which a Continuing
Director Quorum (as hereinafter defined) is present.
SECTION 5.03. DEFINITIONS. For the purposes of this Article the following
definitions apply:
1. The term "Related Person" shall mean and include (a) any individual,
corporation, partnership or other person or entity which together with its
"affiliates" (as that term is defined in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended),
"beneficially owns" (as that term is defined in Rule 13d-3 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended) in the
aggregate 10% or more of the outstanding shares of the common stock of the
corporation; and (b) any "affiliate" (as that term is defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended) of any such individual,
corporation, partnership or other person or entity. Without limitation, any
shares of the common stock of the corporation which any Related Person has the
right to acquire pursuant to any agreement, or upon exercise or conversion
rights, warrants or options, or otherwise, shall be deemed "beneficially owned"
by such Related Person.
2. The term "Substantial Part" shall mean more than 25% of the total
assets of the corporation, as of the end of its most recent fiscal year ending
prior to the time the determination is made.
3. The term "Continuing Director" shall mean any member of the board of
directors of the corporation who is unaffiliated with the Related Person and was
a member of the board prior to the time that the Related Person became a Related
Person, and any successor of a Continuing Director who is unaffiliated with the
Related Person and is recommended to succeed a Continuing Director by a majority
of Continuing Directors then on the board.
4. The term "Continuing Director Quorum" shall mean two-thirds of the
Continuing Directors capable of exercising the powers conferred on them.
8
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ARTICLE VI
EVALUATION OF BUSINESS COMBINATIONS
In addition to any other considerations which the board of directors may
lawfully take into account in determining whether to take or to refrain from
taking any corporate action on any matter, including making or declining to make
any recommendation to the stockholders of the corporation, the board of
directors may in its discretion consider both the short-term and long-term best
interests of the corporation (including the possibility that these interests may
be best served by the continued independence of the corporation), taking into
account, and weighing as the directors deem appropriate, the social and economic
effects of such action on present and future employees, suppliers, customers of
the corporation and its subsidiaries (including account holders and borrowers of
any of the corporation's subsidiaries), the effect upon communities in which
offices or other facilities of the corporation are located and any other factors
the directors consider pertinent.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. GENERAL PROVISIONS. The corporation shall, to the fullest
extent to which it is empowered to do so by the Indiana Business Corporation Act
or any other applicable laws, as from time to time in effect, indemnify any
person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal, by
reason of the fact that he is or was a director, officer or employee of the
corporation, or who, while serving as such director, officer or employee of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
whether for profit or not, against expenses (including attorneys' fees),
judgments, settlements, penalties and fines (including excise taxes assessed
with respect to employee benefit plans) actually or reasonably incurred by him
in accordance with such action, suit or proceeding, if he acted in good faith
and in a manner he reasonably believed, in the case of conduct in his official
capacity, was in the best interest of the corporation, and in all other cases,
was not opposed to the best interests of the corporation, and with respect to
any criminal action or proceeding, he either had reasonable cause to believe his
conduct was lawful or no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not meet the prescribed
standard of conduct.
SECTION 7.02. INDEMNIFICATION AUTHORIZED. To the extent that a director,
officer or employee of the corporation has been successful, on the merits or
otherwise, in the defense of any action, suit or proceeding referred to in
Section 7.01 of this Article, or in the defense of any claim, issue or matter
therein, the corporation shall indemnify such person against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith. Any other
9
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indemnification under Section 7.01 of this Article (unless ordered by a court)
shall be made by the corporation only as authorized in the specific case, upon a
determination that indemnification of the director, officer or employee is
permissible in the circumstances because he has met the applicable standard of
conduct. Such determination shall be made (a) by the board of directors by a
majority vote of a quorum consisting of directors who were not at the time
parties to such action, suit or proceeding; or (b) if a quorum cannot be
obtained under subdivision (a), by a majority vote of a committee duly
designated by the board of directors (in which designation directors who are
parties may participate), consisting solely of two or more directors not at the
time parties to such action, suit or proceeding; or (c) by special legal
counsel: (i) selected by the board of directors or its committee in the manner
prescribed in subdivision (a) or (b), or (ii) if a quorum of the board of
directors cannot be obtained under subdivision (a) and a committee cannot be
designated under subdivision (b), selected by a majority vote of the full board
of directors (in which selection directors who are parties may participate); or
(d) by stockholders, but shares owned by or voted under the control of directors
who are at the time parties to such action, suit or proceeding may not be voted
on the determination.
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (c)
to select counsel.
SECTION 7.03. DEFINITION OF GOOD FAITH. For purposes of any determination
under Section 7.01 of this Article, a person shall be deemed to have acted in
good faith and to have otherwise met the applicable standard of conduct set
forth in Section 7.01 if his action is based on information, opinions, reports,
or statements, including financial statements and other financial data, if
prepared or presented by (a) one or more officers or employees of the
corporation or other enterprise whom he reasonably believes to be reliable and
competent in the matters presented; (b) legal counsel, public accountants,
appraisers or other persons as to matters he reasonably believes are within the
person's professional or expert competence; or (c) a committee of the board of
directors of the corporation or another enterprise of which the person is not a
member if he reasonably believes the committee merits confidence. The term
"another enterprise" as used in this Section 7.03 shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise of which such person is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent. The
provisions of this Section 7.03 shall not be deemed to be exclusive or to limit
in any way the circumstances in which a person may be deemed to have met the
applicable standards of conduct set forth in Section 7.01 of this Article.
SECTION 7.04. ADVANCEMENT OF EXPENSES. Expenses incurred in connection
with any civil or criminal action, suit or proceeding may be paid for or
reimbursed by the corporation in advance of the final disposition of such
action, suit or proceeding, as authorized in the specific case in the same
manner described in Section 7.02 of this Article, upon receipt of a written
affirmation of the director, officer or employee's good faith belief that he has
met the standard of conduct described in Section 7.01 of this Article and upon
receipt of a written undertaking on behalf of the director, officer or employee
to repay such amount if it shall ultimately be determined that he did not meet
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the standard of conduct set forth in this Article, and a determination is made
that the facts then known to those making the determination would not preclude
indemnification under this Article.
SECTION 7.05. NON-EXCLUSIVITY. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under these Articles of Incorporation,
the corporation's Bylaws, any resolution of the board of directors or
stockholders, any other authorization, whenever adopted, after notice, by a
majority vote of all voting stock then outstanding, or any contract, both as to
action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer or employee, and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 7.06. VESTMENT OF RIGHTS. The right of any individual to
indemnification under this Article shall vest at the time of occurrence or
performance of any event, act or omission giving rise to any action, suit or
proceeding of the nature referred to in Section 7.01 of this Article and, once
vested, shall not later be impaired as a result of any amendment, repeal,
alteration or other modification of any or all of these provisions.
Notwithstanding the foregoing, the indemnification afforded under this Article
shall be applicable to all alleged prior acts or omissions of any individual
seeking indemnification hereunder, regardless of the fact that such alleged acts
or omissions may have occurred prior to the adoption of this Article. To the
extent such prior acts or omissions cannot be deemed to be covered by this
Article, the right of any individual to indemnification shall be governed by the
indemnification provisions in effect at the time of such prior acts or
omissions.
SECTION 7.07. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or who is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against any liability asserted against or incurred by the
individual in that capacity or arising from the individual's status as a
director, officer, employee or agent, whether or not the corporation would have
power to indemnify the individual against the same liability under this Article.
SECTION 7.08. OTHER DEFINITIONS.
For purposes of this Article, serving an employee benefit plan at the
request of the corporation shall include any service as a director, officer or
employee of the corporation which imposes duties on, or involves services by
such director, officer or employee with respect to an employee benefit plan, its
participants, or beneficiaries. A person who acted in good faith and in a
manner he reasonably believed to be in the best interests of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interest of the corporation" referred to in this
Article.
For purposes of this Article, "party" includes any individual who is or was
a plaintiff, defendant or respondent in any action, suit or proceeding.
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For purposes of this Article, "official capacity," when used with respect
to a director, shall mean the office of director of the corporation; and when
used with respect to an individual other than a director, shall mean the office
in the corporation held by the officer or the employment or agency relationship
undertaking by the employee or agent on behalf of the corporation. "Official
capacity" does not include service for any other foreign or domestic corporation
or any partnership, joint venture, trust, employee benefit plan, or other
enterprise, whether for profit or not, except as set forth in Section 1 of this
Article.
SECTION 7.09. BUSINESS EXPENSES. Any payments made to any indemnified
party under this Article under any other right of indemnification shall be
deemed to be an ordinary and necessary business expense of the corporation, and
payment thereof shall not subject any person responsible for the payment, or the
board of directors, to any action for corporate waste or to any similar action.
ARTICLE VIII
REGISTERED AGENT
The address of this corporation's principal office in the State of Indiana
is 2200 West Franklin Street, Evansville, Indiana 47712. The name of its
registered agent at such address is Harold Duncan.
ARTICLE IX
CONDUCT OF AFFAIRS OF CORPORATION
SECTION 9.01. CONTROL SHARE ACQUISITIONS CHAPTER OF THE INDIANA BUSINESS
CORPORATIONS LAW. The provisions of the Control Share Acquisitions Chapter of
the Indiana Business Corporations Law, codified at Indiana Code (S)23-1-42, as
amended from time to time, shall not apply to Control Share Acquisitions of
shares of the corporation.
SECTION 9.02. BUSINESS COMBINATIONS CHAPTER OF THE INDIANA BUSINESS
CORPORATIONS LAW. The corporation elects not to be subject to or be governed by
the provisions of the Business Combinations Chapter of the Indiana Business
Corporations Law, codified at Indiana Code (S)23-1-43, as amended from time to
time.
ARTICLE X
AMENDMENT AND REPEAL OF ARTICLES OF INCORPORATION
This corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation in the manner now or
hereafter prescribed by statute. Notwithstanding the foregoing, (i) the approval
of at least a two-thirds (2/3) majority of the directors then in office (or such
greater proportion of directors and stockholders as may otherwise be required
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pursuant to any specific provision of these Articles of Incorporation) shall be
required to amend, alter, repeal or change any provision of these Articles of
Incorporation and (ii) the provisions set forth in Section 3.04 of Article III,
Sections 4.02, 4.05 and 4.06 of Article IV, and in Articles V, VI, VII, IX and
this Article X may not be repealed, altered, amended or rescinded in any respect
unless the same is approved by the affirmative vote of the holders of not less
than two-thirds of the outstanding shares of capital stock of the corporation
entitled to vote generally in the election of directors (considered for this
purpose as a single class) cast at a meeting of the stockholders called for that
purpose (provided that notice of such proposed adoption, repeal, alteration,
amendment or rescission is included in the notice of such meeting).
ARTICLE XI
AMENDMENT AND REPEAL OF BYLAWS
Bylaws may be adopted, amended or repealed by a resolution adopted by a
two-thirds (2/3) majority of the directors then in office.
ARTICLE XII
INCORPORATOR
The name and address of the incorporator of the corporation is as follows:
Harold Duncan
2200 West Franklin Street
Evansville, Indiana 47712
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IN WITNESS WHEREOF, the undersigned, being the incorporator named above,
executes these Articles of Incorporation and affirms under penalties of perjury
that the statements contained herein are true, this 19th day of November,
1998.
/s/ Harold Duncan
---------------------------
Harold Duncan, Incorporator
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BYLAWS
OF
FIRST BANCORP OF INDIANA, INC.
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. First Bancorp of Indiana, Inc. (hereinafter
referred to as the "Corporation") shall at all times maintain a principal office
in the State of Indiana, which, except as otherwise determined by the Board of
Directors of the Corporation (hereinafter referred to as the "Board"), shall be
in the City of Evansville, County of Vanderburgh.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places within or without the State of Indiana as the Board shall from time
to time designate or the business of the Corporation shall require.
ARTICLE II
STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
stockholders shall be held at such places within or without the State of Indiana
as may from time to time be designated by the Board and specified in the notice
of meeting.
SECTION 2. ANNUAL MEETING. A meeting of the stockholders of the
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually at 10:00 a.m. on the third
Thursday of October, if not a legal holiday, and if a legal holiday, then on the
next day following such day which is not a legal holiday, or at such other date
and time as the Board may determine and specify in the notice of the meeting.
SECTION 3. SPECIAL MEETINGS. A special meeting of the stockholders may
only be called by those persons authorized to do so in the Corporation's
Articles of Incorporation. Business transacted at any special meeting of the
stockholders shall be confined to the purpose or purposes stated in the notice
of such meeting.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings of the
stockholders shall be conducted in accordance with Indiana law unless otherwise
prescribed by these Bylaws. The Chairman, or in the absence of the Chairman,
the highest ranking officer of the Corporation who is present, or such other
person as the Board shall have designated, shall call to order any meeting of
the stockholders and act as chairman of the meeting. The Secretary of the
Corporation, if present
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at the meeting, shall be the secretary of the meeting. In the absence of the
Secretary of the Corporation, the secretary of the meeting shall be such person
as the chairman of the meeting shall appoint. The chairman of any meeting of the
stockholders, unless otherwise prescribed by law or regulation or unless the
Chairman has otherwise determined, shall determine the order of business and the
procedure at the meeting.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the date, time and
place of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting of the stockholders is called shall be delivered
no fewer than ten (10) nor more than sixty (60) days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman,
the Secretary or the directors requesting the meeting to each stockholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
given when deposited in the United States mail, postage prepaid, addressed to
the stockholder at his address as it appears on the stock transfer books or
records of the Corporation as of the record date prescribed in Section 6 of this
Article II. When any meeting of the stockholders, either annual or special, is
adjourned for more than thirty (30) days or if, after adjournment, a new record
date is fixed for the adjourned meeting, notice of the adjourned meeting shall
be given as in the case of an original meeting. It shall not be necessary to
give any notice of the date, time and place of any other adjourned meeting of
the stockholders, other than an announcement at the meeting at which such
adjournment is taken.
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of the stockholders
or any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose under Indiana law, the Board may fix, in advance, a date as the
record date for any such determination of stockholders. Such date shall not be
less than ten (10) days and not more than the seventy (70) days before the
meeting or action requiring a determination of stockholders.
SECTION 7. VOTING LISTS. The Secretary of the Corporation, or other
officer or agent of the Corporation having charge of the stock transfer books
for shares of the capital stock of the Corporation, shall prepare and make, at
least five (5) business days before each meeting of the stockholders, a complete
list of the stockholders entitled to vote at such meeting, or any adjournment
thereof, arranged in alphabetical order, with the address of and the number of
shares held by each stockholder. Such list shall be open to the examination of
any stockholder entitled to vote at the meeting, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least five (5)
business days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or at the Corporation's principal office. Such list shall also be
produced and kept open at the time and place of the meeting during the whole
time thereof and shall be subject to the inspection of any stockholder present
at the meeting. The stock transfer books shall be the only evidence as to who
are the stockholders entitled to examine the stock transfer books, or to vote in
person or by proxy at any meeting of stockholders.
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SECTION 8. QUORUM. A majority of the outstanding shares of the
Corporation entitled to vote at a meeting of the stockholders, represented in
person or by proxy, shall constitute a quorum at a meeting. If less than a
majority of the outstanding shares are represented at a meeting, a majority of
the shares so represented may adjourn the meeting from time to time without
further notice except as otherwise provided in Section 5 of this Article II. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted at the meeting as originally called. The stockholders
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
SECTION 9. PROXIES. At any meeting of the stockholders, every
stockholder having the right to vote shall be entitled to vote in person, or by
proxy appointed by an instrument in writing and complying with the requirements
of Indiana law.
SECTION 10. VOTING BY THE CORPORATION. Neither treasury shares of its own
capital stock held by the Corporation, nor shares held by another corporation,
if a majority of the shares entitled to vote for the election of directors of
such other corporation are held by the Corporation, shall be entitled to vote or
be counted for quorum purposes at any meeting of the stockholders; provided,
however, that the Corporation may vote shares of its capital stock held by it,
or by any such other corporation, if such shares of capital stock are held by
the Corporation or such other corporation in a fiduciary capacity.
SECTION 11. INSPECTORS OF ELECTION. The Board shall, in advance of any
meeting of stockholders, appoint one or three persons as inspectors of election,
to act at the meeting or any adjournment thereof and make a written report
thereof.
SECTION 12. NOTICE FOR NOMINATIONS AND PROPOSALS
A. Nominations for the election of directors and proposals for any new
business to be taken up at any annual or special meeting of stockholders may be
made by the Board of Directors of the Corporation or by any stockholder of the
Corporation entitled to vote generally in the election of directors. In order
for a stockholder of the Corporation to make any such nominations and/or
proposals, he or she shall give notice thereof in writing, delivered or mailed
by first class United States mail, postage prepaid, to the Secretary of the
Corporation not less than sixty days nor more than ninety days prior to any such
meeting; provided, however, that if less than seventy-one days' notice or prior
public disclosure of the date of the meeting is given to stockholders, such
written notice shall be delivered or mailed, as prescribed, to the Secretary of
the Corporation not later than the close of the tenth day following the day on
which notice of the meeting was mailed to stockholders or such public disclosure
was made. Each such notice given by a stockholder with respect to nominations
for election of directors shall set forth (i) the name, age, business address
and, if known, residence address of each nominee proposed in such notice, (ii)
the principal occupation or employment of each such nominees, (iii) the number
of shares of stock of the Corporation which are beneficially owned by each such
nominee, (iv) such other information as would be required to be included in a
proxy statement soliciting proxies for the election of the proposed nominee
pursuant
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to Regulation 14A of the Securities Exchange Act of 1934, as amended, including,
without limitation, such person's written consent to being named in the proxy
statement as a nominee and to serving as a director, if elected, and (v) as to
the stockholder giving such notice (a) his name and address as they appear on
the Corporation's books and (b) the class and number of shares of the
Corporation which are beneficially owned by such stockholder. In addition, the
stockholder making such nomination shall promptly provide any other information
reasonably requested by the Corporation.
B. Each such notice given by a stockholder to the Secretary with respect
to business proposals to bring before a meeting shall set forth in writing as to
each matter: (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting;
(ii) the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business; (iii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder; and (iv) any
material interest of the stockholder in such business. Notwithstanding anything
in this Certificate to the contrary, no business shall be conducted at the
meeting except in accordance with the procedures set forth in this Article.
C. The Chairman of the annual or special meeting of stockholders may, if
the facts warrant, determine and declare to the meeting that a nomination or
proposal was not made in accordance with the foregoing procedure, and, if the
Chairman should so determine, the Chairman shall so declare to the meeting and
the defective nomination or proposal shall be disregarded and laid over for
action at the next succeeding adjourned, special or annual meeting of the
stockholders taking place thirty days or more thereafter. This provision shall
not require the holding of any adjourned or special meeting of stockholders for
the purpose of considering such defective nomination or proposal.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board except as may be otherwise provided by
law or the Articles of Incorporation. The Board shall elect from among its
members a Chairman, and may elect one (1) or more Vice Chairmen of the Board.
The Chairman, or in his absence the Vice Chairman, shall preside at all meetings
of the Board.
SECTION 2. NUMBER. The number of directors of the Corporation shall be
fixed from time to time exclusively by the Board by resolution adopted by a
majority of the total number of the Corporation's directors.
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SECTION 3. REGULAR MEETINGS. A regular meeting of the Board shall be held
without other notice than this Bylaw immediately after, and at the same place
as, the annual meeting of the stockholders or at such other place as may be
designated by the Board. Additional meetings shall be held at such time as the
Board shall fix at such places within or without the State of Indiana as shall
be fixed by the Board. No call shall be required for regular meetings for which
the time and place has been fixed.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board may be called
by or at the request of the Chairman or the Vice Chairman, or in the absence or
disability of both of them, a majority of the remaining directors. The persons
authorized to call special meetings of the Board may fix any place as the place
for holding any special meeting of the Board called by such persons.
SECTION 5. PARTICIPATION IN MEETINGS. Members of the Board may
participate in regular or special meetings by means of conference telephone or
similar communications equipment by which all persons participating in the
meeting can communicate with each other. A director participating in a meeting
by this means is deemed to be present in person at the meeting.
SECTION 6. NOTICE. The persons authorized to call special meetings of the
Board shall cause the Secretary of the Corporation to give written or oral
notice of the meeting, specifying the time and place of the meeting, to each
director, either personally, by mailing, or by telegram, at least two (2) days
in advance of the meeting. Any director may waive notice of any meeting by a
writing filed with the Secretary. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except in the event a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the Board need be specified in the notice or waiver of notice of such
meeting.
SECTION 7. QUORUM. A majority of the number of directors fixed pursuant
to Section 2 of this Article III shall constitute a quorum for the transaction
of business at any meeting of the Board, but if less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting shall be given in
the same manner as prescribed by Section 7 of this Article III.
SECTION 8. MANNER OF ACTING. Unless otherwise prescribed in the Articles
of Incorporation or these Bylaws, the act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Board at a meeting may be taken without a meeting if a consent
in writing, setting forth the action so taken, shall be signed by all of the
directors.
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SECTION 10. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the Corporation addressed to the Chairman
or the Vice Chairman. Unless otherwise specified therein, such resignation
shall take effect upon receipt thereof.
SECTION 11. VACANCIES. Any vacancy occurring in the Board may be filled
in accordance with the Articles of Incorporation.
SECTION 12. COMPENSATION. Directors, as such, may receive pursuant to
resolution of the Board, fixed fees and other compensation for their services as
directors, including their services as members of committees of the Board.
SECTION 13. QUALIFICATION. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the
Corporation. No person seventy years of age shall be eligible for election,
reelection, appointment or reappointment to the Board of Directors. A director
who becomes seventy years of age may serve as such until the completion of the
term to which the director was elected or appointed. To be eligible for
election, reelection, appointment or reappointment to the Board of Directors, a
person must reside within 50 miles of an office of the Corporation or one of its
depository institution subsidiaries.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. The Board, by resolution adopted by a majority of
the Board, may designate the Chairman, the President and one (1) or more of the
other directors to constitute an Executive Committee. The designation of any
committee pursuant to this Article IV and the delegation of authority thereto
shall not operate to relieve the Board, or any director, of any responsibility
imposed by law or regulation.
SECTION 2. AUTHORITY. The Executive Committee, when the Board is not in
session, shall have and may exercise all of the authority of the Board except to
the extent, if any, that such authority shall be limited by the resolution
appointing the Executive Committee, or as otherwise expressly provided by law,
the Articles of Incorporation or these Bylaws.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this Article
IV, each member of the Executive Committee shall hold office until the next
regular annual meeting of the Board following his designation and until a
successor is designated as a member of the Executive Committee.
SECTION 4. MEETINGS. Regular meetings of the Executive Committee may be
held without notice at such times and places as the Executive Committee may fix
from time to time. Special meetings of the Executive Committee may be called by
the Chairman or the President, or in the absence or disability of both of them,
by a majority of the remaining members of the Executive
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Committee upon not less than one (1) day's notice stating the place, date and
hour of the meeting, which notice may be written or oral. Any member of the
Executive Committee may waive notice of any meeting and no notice of any meeting
need be given to any member thereof who attends in person. The notice of a
meeting of the Executive Committee need not state the business proposed to be
transacted at the meetings.
Regular or special meetings may be held my means of conference telephone or
similar communications equipment by which all persons participating in the
meeting can communicate with each other.
SECTION 5. QUORUM. A majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the Executive Committee must be authorized by the
affirmative vote of a majority of the members present as a meeting at which a
quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Executive Committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the Executive Committee.
SECTION 7. VACANCIES. Any vacancy in the Executive Committee may be
filled by a resolution adopted by a majority of the Board.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the Executive
Committee may be removed at any time with or without cause by resolution adopted
by a majority of the Board. Any member of the Executive Committee may resign
from the Executive Committee at any time by giving written notice to the
Chairman or the President. Unless otherwise specified thereon, such resignation
shall take effect upon receipt. The acceptance of such resignation shall not be
necessary to make it effective.
SECTION 9. PROCEDURE. The Chairman shall be presiding officer of the
Executive Committee, or, in his absence or disability, the President, or in the
absence or disability of both of them, such other persons as may be elected by a
majority of the members present. The Executive Committee may fix its own rules
of procedure which shall not be inconsistent with these bylaws. It shall keep
regular minutes of its proceedings and report the same to the Board for its
information at the meeting thereof held next after the proceedings shall have
been taken.
SECTION 10. OTHER COMMITTEES. The Board may by resolution establish an
audit committee or other committees composed of directors as they may determine
to be necessary or appropriate for the conduct of the business of the
Corporation and may prescribe the duties, constitution and procedures thereof.
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ARTICLE V
OFFICERS
SECTION 1. POSITIONS. The officers of the Corporation shall consist of a
President, one (1) or more Vice Presidents, a Secretary and a Treasurer, each of
whom shall be elected by the Board. The same individual may simultaneously hold
more than one office in the corporation. The Board may designate one (1) or
more Vice Presidents as Executive Vice President or Senior Vice President. The
Board may also elect or authorize the appointment of such other officers as the
business of the Corporation may require. The officers shall have such authority
and perform such duties as the Board may from time to time authorize or
determine. In the absence of action by the Board, the officers shall have such
powers and duties as generally pertain to their respective offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected annually at the first meeting of the Board held after each
annual meeting of the stockholders. If the election of officers is not held at
such meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until his successor shall have been duly elected and
qualified or until his death, resignation or removal in the manner hereinafter
provided. Election or appointment of an officer, employee or agent shall not by
itself create any contractual rights. The Board may authorize the Corporation
to enter into an employment contact with any officer, but no contract shall
impair the right of the Board to remove any officer at any time in accordance
with Section 8 of this Article V.
SECTION 3. PRESIDENT. The President shall have the authority and the duty
to manage the affairs of the Corporation and shall have such other powers and
perform such other duties as are delegated to him by the Board of Directors or
as are incidental to his office. The President shall be a director.
SECTION 4. VICE PRESIDENT. The Vice President or Vice Presidents, if any,
shall perform the duties of the President in his absence or during his
disability to act. In addition, the Vice Presidents shall perform the duties
and exercise the powers usually incident to their respective offices and/or such
other duties and powers as may be properly assigned to them from time to time by
the Board of Directors or the President.
SECTION 5. SECRETARY. The Secretary shall have custody of the minutes and
records of the Corporation. He shall keep the minutes of all meetings of the
stockholders and of the Board of Directors, shall give such notice as may be
required for all such meetings and shall have such other powers and perform such
other duties as are delegated to him by the Board of Directors or the President
or as are incidental to his office.
SECTION 6. TREASURER. The Treasurer shall keep correct and complete books
of account in accordance with the accounting methods adopted by the Board of
Directors, showing the financial condition of the Corporation and the results of
its operations. He shall have custody of all monies,
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securities, and other certificates evidencing intangible personal property
belonging to the Corporation. He shall upon request furnish statements of the
current financial condition and the current results of operations of the
Corporation and he shall have such other powers and perform such other duties as
are delegated to him by the Board of Directors or the President or as are
incidental to his office.
SECTION 7. OTHER OFFICES. All other officers shall have such powers and
perform such duties as are delegated to them by the Board of Directors or the
President.
SECTION 8. REMOVAL. Any officer may be removed by the Board whenever in
its judgment the best interests of the Corporation will be served thereby.
SECTION 9. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by a majority
vote of the Board for the unexpired portion of the term.
SECTION 10. REMUNERATION. The remuneration of the officers shall be fixed
from time to time by the Board.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by applicable law, the
Articles of Incorporation or these Bylaws, the Board may authorize any officer,
employee or agent of the Corporation to enter into any contract or execute any
deliver any instrument in the name of and on behalf of the Corporation. Such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board. Such authority may be general or confined to specific
instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one (1) or more officers, employees
or agents of the Corporation in such manner as shall from time to time be
determined by the Board.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in any
duty authorized depositories as the Board may select.
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ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the Corporation shall be in such form as shall be determined by
the Board. Such certificates shall be signed by the President or any other
officer of the Corporation authorized by the Board, attested by the Secretary or
an Assistant Secretary, and sealed with the corporate seal or a facsimile
thereof. The signatures of such officers upon a certificate may be facsimiles
if the certificate is manually signed on behalf of a transfer agent or a
registrar other than the Corporation itself or one of its employees. Each
certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares are
issued, with the number of shares issued and date of issue, shall be entered on
the stock transfer books of the Corporation. All certificates surrendered to
the Corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except that in the case of a lost, stolen or
destroyed certificate, a new certificate may be issued therefor upon such terms
and indemnity to the Corporation as the Board may prescribe as sufficient to
indemnify the Corporation against any claim that may be made against it on
account of such loss, theft or destruction.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the
Corporation shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney thereunto duly authorized by power of attorney duly executed and filed
with the Corporation. Such transfer shall be made only on surrender for
cancellation of the certificate for such shares. The person in whose name
shares of capital stock stand on the books of the Corporation shall be deemed by
the Corporation to be the owner thereof for all purposes.
ARTICLE IX
DIVIDENDS
Subject to applicable law, the Articles of Incorporation or these Bylaws,
the Board may, from time to time, declare, and the Corporation may pay,
dividends on the outstanding shares of capital stock of the Corporation.
ARTICLE X
SECURITIES OF OTHER CORPORATIONS
Unless otherwise ordered by the Board, the President shall have full power
and authority on behalf of the Corporation to purchase, sell, transfer, encumber
or vote any and all securities of any other corporation owned by the
Corporation, and may execute and deliver such documents as may
10
<PAGE>
be necessary to effectuate such purchase, sale, transfer, encumbrance or vote.
The Board may, from time to time, confer like powers upon any other person or
persons.
ARTICLE XI
FISCAL YEAR, ANNUAL AUDIT
The fiscal year of the Corporation shall end on the 30th day of June of
each year. The Corporation shall be subject to an annual audit as of the end of
its fiscal year by independent public accountants appointed by and responsible
to the Board.
ARTICLE XII
CORPORATE SEAL
The corporate seal of the Corporation, if any, shall be in such form as the
Board shall prescribe.
ARTICLE XIII
AMENDMENTS
These Bylaws may be adopted, amended or repealed by a resolution adopted by
a two-thirds (2/3) majority of the directors then in office.
11
<PAGE>
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP __________
FIRST BANCORP OF INDIANA, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF INDIANA
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $.01 PAR VALUE PER SHARE OF
FIRST BANCORP OF INDIANA, INC.
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Articles of Incorporation of the Corporation and any amendments thereto (copies
of which are on file with the Transfer Agent), to all of which provisions the
holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. The shares represented by this Certificate are
not insured by the Federal Deposit Insurance Corporation or any other government
agency.
IN WITNESS THEREOF, First Bancorp of Indiana, Inc. has caused this
certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
Dated: [SEAL]
President and Secretary
Chief Executive Officer
<PAGE>
FIRST BANCORP OF INDIANA, INC.
The shares represented by this certificate are subject to a limitation
contained in the Articles of Incorporation to the effect that in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of common stock (the "Limit") be entitled or
permitted to any vote in respect of shares held in excess of the Limit.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of serial preferred stock
in series and to fix and state the voting powers, designations, preferences and
relative, participating, optional, or other special rights of the shares of each
such series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this certificate may not be cumulatively voted on
any matter. The affirmative vote of the holders of at least 80% of the voting
stock of the Corporation, voting together as a single class, shall be required
to approve certain business combinations and other transactions, pursuant to the
Articles of Incorporation and the affirmative vote of the holders of at least
two-thirds of the voting stock of the Corporation, voting together as a single
class, shall be required to amend certain provisions of the Articles of
Incorporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFTS MIN ACT - _____ custodian _______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
____________________
(State)
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
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
IDENTIFICATION NUMBER OF ASSIGNEE
________________________________________________________________________________
Please print or typewrite name and address including postal 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 stock on the books of the within-named Corporation with full
power of substitution in the premises.
DATED ________________________ ___________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED:__________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15
<PAGE>
_____________, 1998
Board of Directors
First Bancorp of Indiana, Inc.
2200 W. Franklin Street
Evansville, Indiana 47712
Re: The offering of up to 2,512,750 shares of
First Bancorp of Indiana, Inc. Common Stock
-------------------------------------------
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Indiana law in
connection with the conversion of First Federal Savings Bank (the "Bank"), a
federally-chartered savings bank, from the mutual form of ownership to a
federally-chartered capital stock savings bank (the "Conversion"), and the
related subscription offering, community offering and syndicated community
offering (the "Offerings") by First Bancorp of Indiana, Inc., an Indiana
corporation (the "Company"), of up to 2,185,000 shares of its common stock, par
value $.01 per share ("Common Stock") (2,512,750 shares if the Estimated
Valuation Range is increased up to 15% to reflect changes in market and
financial conditions following commencement of the Offerings).
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's articles of incorporation filed with the
Secretary of State of Indiana on November 19, 1998 (the "Articles of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission initially on
December 11, 1998 (the "Registration Statement"); the ESOP trust agreement and
the ESOP loan agreement; resolutions of the Board of Directors of the Company
(the "Board") concerning the organization of the Company, the Offerings and
designation of a Pricing Committee of the Board, and the form of stock
certificate approved by the Board to represent shares of Common Stock. We have
also been furnished a certificate of the Indiana Secretary of State certifying
the Company's good standing as an Indiana corporation. Capitalized terms used
but not defined herein shall have the meaning given them in the Articles of
Incorporation.
<PAGE>
Board of Directors
First Bancorp of Indiana, Inc.
_________ 11, 1998
Page 2
In rendering this opinion, we have relied upon the opinion of
_______________________ as to matters of Indiana law, upon which opinion we
believe you are justified in relying. We have examined the opinion of
___________________, which opinion is in form satisfactory to us.
We understand that the Company will loan to the trust for the Bank's
Employee Stock Ownership Plan (the "ESOP") the funds the ESOP Trust will use to
purchase shares of Common Stock for which the ESOP Trust subscribes pursuant to
the Offerings and for purposes of rendering the opinion set forth in paragraph 2
below, we assume that: (a) the Board of Directors of the Company has duly
authorized the loan to the ESOP Trust (the "Loan"); (b) the ESOP serves a valid
corporate purpose for the Company; (c) the Loan will be made at an interest rate
and on other terms that are fair to the Company; (d) the terms of the Loan will
be set forth in customary and appropriate documents including, without
limitation, a promissory note representing the indebtedness of the ESOP Trust to
the Company as a result of the Loan; and (e) the closing for the Loan and for
the sale of Common Stock to the ESOP Trust will be held after the closing for
the sale of the other shares of Common Stock sold in the Offerings and the
receipt by the Company of the proceeds thereof.
Based upon and subject to the foregoing, and limited in all respects to
matters of Indiana law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Indiana.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common Stock to be sold in the Offerings, the Common
Stock to be issued in the Offerings (including the shares to be issued to the
ESOP Trust) will be duly authorized and, when such shares are sold and paid for
or granted in accordance with the terms set forth in the Prospectus and such
resolution of the Pricing Committee, will be validly issued, fully paid and
nonassessable.
The following provisions of the Articles of Incorporation may not be given
effect by a court applying Indiana law, but in our opinion the failure to give
effect to such provisions will not affect the duly authorized, validly issued,
fully paid and nonassessable status of the Common Stock:
1. (a) Sections 3.04(3) and 3.04(6) of Article Three, which grant
the Board the authority to construe and apply the provisions of
those Articles, and Section 3.04(4) of Article Three, to the
extent that subsection obligates any person to provide to the
Board the information such subsection authorizes the Board to
demand, in each case to the extent, if any, that a court applying
Indiana law were to impose equitable limitations upon such
authority; and
<PAGE>
Board of Directors
First Bancorp of Indiana, Inc.
___________, 1998
Page 3
(b) Article Six, which authorizes the Board to consider the effect of
any offer to acquire the Company on constituencies other than
stockholders in evaluating any such offer.
We consent to the filing of this opinion as an exhibit to the Registration
Statement on Form S-1 and the Form AC and to the use of the name of our firm
where it appears in the Registration Statement, Form AC and Prospectus.
Very truly yours,
MULDOON, MURPHY & FAUCETTE
<PAGE>
________________, 1998
Board of Directors
First Bancorp of Indiana, Inc.
2200 West Franklin Street
Evansville, Indiana 47712
Board of Directors
First Federal Savings Bank
2200 West Franklin Street
Evansville, Indiana 47712
Re: Federal Tax Consequences of the Conversion of First Federal Savings
Bank of Evansville, Indiana from a Federal-chartered Mutual Savings
Bank to a Federal-chartered Stock Savings Bank and the Offer and Sale
of Common Stock of First Bancorp of Indiana, Inc. (the "Conversion")
To the Members of the Board of Directors:
You have requested an opinion regarding the federal income tax consequences
of the proposed conversion of First Federal Savings Bank (the "Bank") from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank and the acquisition of the Converted Bank's capital stock by First Bancorp
of Indiana, Inc., an Indiana corporation (the "Holding Company"), pursuant to
the plan of conversion adopted by the Board of Directors on September 16, 1998
(the "Plan of Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as set
forth in the section of this letter entitled "FEDERAL TAX OPINION."
<PAGE>
Board of Directors
_______________, 1998 DRAFT
Page 2
We have made such inquiries and have examined such documents and records as
we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received certain standard factual representations of the
Holding Company and the Bank concerning the Holding Company and the Bank as well
as the transaction ("Representations"). These Representations are required to
be furnished prior to the execution of this letter and again prior to the
closing of the Conversion. We will rely upon the accuracy of the
Representations of the Holding Company and the Bank and the statements of facts
contained in the examined documents, particularly the Plan of Conversion. We
have also assumed the authenticity of all signatures, the legal capacity of all
natural persons and the conformity to the originals of all documents submitted
to us as copies. Each capitalized term used herein, unless otherwise defined,
has the meaning set forth in the Plan of Conversion. We have assumed that the
Conversion will be consummated strictly in accordance with the terms of the Plan
of Conversion.
The Plan of Conversion and the Prospectus contain a detailed description of
the Conversion. These documents as well as the Representations to be provided
by the Holding Company and the Bank are incorporated in this letter as part of
the statement of the facts.
First Federal Savings Bank, with its headquarters in Evansville, Indiana,
is a federally-chartered mutual savings bank. As a mutual savings bank, the Bank
has never been authorized to issue stock. Instead, the proprietary interest in
the reserves and undivided profits of the Bank belong to the deposit account
holders of the Bank, hereinafter sometimes referred to as "shareholders." A
shareholder of the Bank has a right to share, pro rata, with respect to the
withdrawal value of his respective deposit account in any liquidation proceeds
distributed in the event the Bank is ever liquidated. In addition, a shareholder
of the Bank is entitled to interest on his account balance as fixed and paid by
the Bank.
In order to provide organizational and economic strength to the Bank, the
Board of Directors has adopted the Plan of Conversion whereby the Bank will
convert itself into a federally-chartered stock savings bank (the "Converted
Bank"), the stock of which will be held entirely by the Holding Company.
Assuming that the Holding Company form of organization is utilized, the Holding
Company will acquire the stock of the Bank by purchase, in exchange for the
Conversion proceeds that are not permitted to be retained by the Holding
Company. The Holding Company will apply to the Office of Thrift Supervision
("OTS") to retain up to 50% of the proceeds received from the Conversion. The
aggregate sales price of the Common Stock issued in the Conversion will be based
on an independent appraiser's valuation of the estimated pro forma market value
of the Holding Company and the Converted Bank. The Conversion and sale of the
Common Stock will be subject to applicable regulatory approval and the approval
by the affirmative vote of a majority of the Members.
<PAGE>
Board of Directors
_______________, 1998 DRAFT
Page 3
The Bank shall establish at the time of Conversion a liquidation account in
an amount equal to its net worth as of the latest practicable date prior to
Conversion. The liquidation account will be maintained by the Bank for the
benefit of the Eligible Account Holders and Supplemental Eligible Account
Holders who continue to maintain their deposit accounts at the Bank. Each
Eligible Account Holder and Supplemental Eligible Account Holder shall hold,
with respect to his Savings Account, a related inchoate interest in a portion of
the liquidation account balance, in relation to his deposit account balance on
the Eligibility Record Date and/or Supplemental Eligibility Record Date or to
such balance as it may be subsequently reduced, as provided in the Plan of
Conversion.
In the unlikely event of a complete liquidation of the Bank (and only in
such event), following all liquidation payments to creditors (including those to
Account Holders to the extent of their deposit accounts), each Eligible Account
Holder and Supplemental Eligible Account Holder shall be entitled to receive a
liquidating distribution from the liquidation account, in the amount of the then
adjusted subaccount balance for his deposit accounts then held, before any
liquidation distribution may be made to any holders of the Bank's capital stock.
No merger, consolidation, purchase of bulk assets with assumption of Savings
Accounts and other liabilities, or similar transaction with a Federal Deposit
Insurance Corporation ("FDIC") institution, in which the Bank is not the
surviving institution, shall be deemed to be a complete liquidation for this
purpose. In such transactions, the liquidation account shall be assumed by the
surviving institution.
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), including applicable
regulations thereunder and current judicial and administrative authority. Any
future amendments to the Code or applicable regulations, or new judicial
decisions or administrative interpretations, any of which could be retroactive
in effect, could cause us to modify our opinion. No opinion is expressed herein
with regard to the federal, state, or city tax consequences of the Conversion
under any section of the Code except if and to the extent specifically
addressed.
FEDERAL TAX OPINION
-------------------
Based upon the Representations and the other factual information referred
to in this letter, and assuming the transaction occurs in accordance with the
Plan of Conversion, and taking into consideration the limitations noted
throughout this opinion, it is our opinion that under current federal income tax
law:
<PAGE>
Board of Directors
_______________, 1998 DRAFT
Page 4
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based
upon that fact and the fact that the equity interest of a shareholder
in a mutual savings bank is more nominal than real, unlike that of a
shareholder of a corporation, the Conversion of the Bank from a mutual
savings bank to a stock savings bank is a tax-free reorganization
since it is a mere change in identity, form or place of organization
within the meaning of section 368(a)(1)(F) of the Code (see Rev. Rul.
80-105, 1980-1 C.B. 78). Neither the Bank nor the Converted Bank shall
recognize gain or loss as a result of the Conversion. The Bank and the
Converted Bank shall each be "a party to a reorganization" within the
meaning of section 368(b) of the Code.
(2) No gain or loss shall be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank's capital
stock or by the Holding Company upon the receipt of money from the
sale of its Common Stock (Section 1032(a) of the Code).
(3) The basis of the assets of the Bank in the hands of the Converted Bank
shall be the same as the basis of such assets in the hands of the Bank
immediately prior to the Conversion (Section 362(b) of the Code).
(4) The holding period of the assets of the Bank in the hands of the
Converted Bank shall include the period during which the Bank held the
assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Bank on the
issuance to them of withdrawable deposit accounts in the Converted
Bank plus interests in the liquidation account of the Converted Bank
in exchange for their deposit accounts in the Bank or to the other
depositors on the issuance to them of withdrawable deposit accounts
(Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them of
the nontransferable subscription rights to purchase shares of stock in
the Holding Company (Section 356(a)). Gain realized, if any, by the
Eligible Account Holders and Supplemental Eligible Account Holders on
the distribution to them of nontransferable subscription rights to
<PAGE>
Board of Directors
_______________, 1998 DRAFT
Page 5
purchase shares of Common Stock will be recognized but only in an
amount not in excess of the fair market value of such subscription
rights (Section 356(a)). Eligible Account Holders and Supplemental
Eligible Account Holders will not realize any taxable income as a
result of the exercise by them of the nontransferable subscription
rights (Rev. Rul. 56-572, 1956-2 C.B. 182).
(7) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
and other shareholders of the Bank will be the same as the basis of
their deposit accounts in the Bank surrendered in exchange therefor
(Section 358(a)(1) of the Code). The basis of the interests in the
liquidation account of the Converted Bank to be received by the
Eligible Account Holders of the Bank shall be zero (Rev. Rul. 71-233,
1971-1 C.B. 113). The basis of the Holding Company Common Stock to its
stockholders will be the purchase price thereof plus the basis, if
any, of nontransferable subscription rights (Section 1012 of the
Code). Accordingly, assuming the nontransferable subscription rights
have no value, the basis of the Common Stock to the Eligible Account
Holders and Supplemental Eligible Account Holders will be the amount
paid therefor. The holding period of the Common Stock purchased
pursuant to the exercise of subscription rights shall commence on the
date on which the right to acquire such stock was exercised (Section
1223(6) of the Code).
Our opinion under paragraph (6) above is predicated on the Representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs (6) and (7)
above assumes that the subscription rights to purchase shares of Common Stock
received by Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members have a fair market value of zero. We understand that you have
received a letter from Capital Resources Group, Inc. that the subscription
rights do not have any value. We express no view regarding the valuation of the
subscription rights.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Bank may be taxable on the distribution of the subscription
rights.
* * *
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as
<PAGE>
Board of Directors
_______________, 1998 DRAFT
Page 6
all the information and Representations referred to herein. Any change in the
transaction could cause us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form AC
Application for Conversion of the Bank and the references to and summary of this
opinion in such Application for Conversion. We also consent to the inclusion of
this opinion as an exhibit to the Form H-(e)1-S Application of First Bancorp of
Indiana, Inc. and the references to and summary of this opinion in that Form H-
(e)1-S.
Sincerely,
MULDOON, MURPHY & FAUCETTE
<PAGE>
[LETTERHEAD OF CAPITAL RESOURCES GROUP, INC.]
December 11, 1998
Board of Directors
First Federal Savings Bank
2200 W. Franklin Street
Evansville, Indiana 47712
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion adopted by the Board of
Directors of First Federal Savings Bank ("Bank") on September 16, 1998.
It is our understanding that, pursuant to Office of Thrift Supervision
regulations, subscription rights are non-transferable. Persons violating such
prohibition may lose their right to purchase stock in the Conversion and be
subject to other possible sanctions.
Because the Subscription Rights to purchase shares of common stock in the
Bank to be issued to the depositors of the Bank and to other members of the Bank
will be acquired by such recipients without cost, will be non-transferable and
of short duration, and will afford the recipients the right only to purchase
shares of common stock at the same price as will be paid by members of the
general public in a Community Offering, we believe that:
(1) the Subscription Rights will have no ascertainable fair market value
and,
(2) the price at which the Subscription Rights are exercisable will not
be more or less than the fair market value of the shares on the date
of the exercise.
Very truly yours,
CAPITAL RESOURCES GROUP, INC.
/s/ CAPITAL RESOURCES GROUP, INC.
<PAGE>
[FIRST BANCORP OF INDIANA, INC. LETTERHEAD]
______________, 199__
First Bancorp of Indiana, Inc.
2200 W. Franklin Street
Evansville, Indiana 47712
Dear Mr. _____________:
This letter confirms First Bancorp of Indiana, Inc.'s commitment to fund a
leveraged ESOP in an amount sufficient to purchase 8% of the shares offered in
the First Federal Saving Bank's conversion from mutual to stock form (the
"Conversion"). The commitment is subject to the following terms and conditions:
1. Lender: First Bancorp of Indiana, Inc. (the "Company").
------
2. Borrower: First Federal Savings Bank Employee Stock Ownership Plan.
--------
3. Trustee: ______________
-------
4. Security: Unallocated shares of stock of the Company held in the
--------
First Federal Savings Bank Employee Stock Ownership Plan Trust.
5. Maturity: Up to 12 years from takedown.
--------
6. Amortization: Equal quarterly principal and interest payments
------------
7. Pricing:
-------
a. Lowest "prime rate" as published in the Wall Street Journal on
the date of the loan transaction.
<PAGE>
8. Interest Payments:
-----------------
a. Annual on a 365 day basis.
9. Prepayment: Voluntary prepayments are permitted at any time.
----------
10. Conditions Precedent to Closing: Receipt by the Company of all
-------------------------------
supporting loan documents in a form and with terms and conditions
satisfactory to the Company and its counsel. Consummation of the
transaction will also be contingent upon no material adverse change
occurring in the condition of First Federal Savings Bank or the
Company.
If the terms and conditions are agreeable to you, please indicate your
acceptance by signing the enclosed copy and returning it to my attention.
Sincerely,
Accepted on Behalf of
First Federal Savings Bank
By: _________________________________ Date: _____________________
<PAGE>
FORM OF
FIRST FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
LOAN AND SECURITY AGREEMENT
First Bancorp of Indiana, Inc. ___________, 199_
2200 W. Franklin Street
Evansville, Indiana 47712
Gentlemen:
The undersigned Trustee, ________________ ("Borrower"), not individually
but solely as Trustee under the First Federal Savings Bank Employee Stock
Ownership Plan Trust (the "Trust") effective __________, 199_, applies to you,
First Bancorp of Indiana, Inc., (hereinafter referred to as the "Lender"), for
your commitment, subject to all of the terms and conditions hereof and on the
basis of the representations hereinafter set forth, to make a loan available to
the Borrower as hereinafter set forth. The term "Bank" as used herein refers to
First Federal Savings Bank, the sponsoring employer of the First Federal Savings
Bank Employee Stock Ownership Plan (the "ESOP").
SECTION ONE. THE TERM LOAN.
1.1 AMOUNT AND TERMS. Subject to and upon the terms and conditions herein
----------------
set forth, the Lender agrees to lend amounts to the Borrower, (the "Loan"), from
time to time during the period of this agreement up to but not including the
maturity date of ____________, 20__ in an aggregate principal amount ("Loan
Amount") sufficient to permit the Borrower to acquire a number of shares
("Shares") of common stock, par value $0.01 ("Common Stock") of First Bancorp of
Indiana, Inc., an Indiana corporation, and the Holding Company of the Bank,
equal to 8% of the Shares issued in connection with the conversion of the Bank
from the mutual to stock form (the "Conversion").
The Loan is intended to be an "exempt loan" as described in Section
4975(d)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), as
defined in Section 54.4975-7(b) of the Treasury Regulations (the "Regulations"),
as described in Section 408(b)(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") and as described in Department of Labor
Regulations Section 2550.408b-3 (collectively, the "Exempt Loan Rules").
<PAGE>
1.2 THE NOTE. The disbursement of the Loan pursuant to Section 1.1 hereof
--------
shall be made against and evidenced by a promissory note of the Borrower in the
form annexed hereto as Exhibit A (the "Note"), such Note is to bear interest as
hereinafter provided, and to mature in forty-eight (48) equal quarterly
installments consisting of both principal and interest amortized over a forty-
eight (48) month period in an amount sufficient to repay all borrowed amounts
plus interest, commencing on ___________ 31, 1999 and on the last day of each
and every March, June, September and December of each year thereafter, except
that the final installment in the amount of all principal and interest not
sooner paid shall be due on ___________ 31, 20__, the final maturity thereof.
Without regard to the principal amount of the Note stated on its face, the
actual principal amount at any time outstanding and owed by the Borrower on
account of the Note shall be the amount of the disbursement of the Loan made by
the Lender under Section 1.1 hereof less all payments of principal actually
received by the Lender. The amount of such disbursement made by the Lender and
any repayments of principal thereof shall be recorded by the Lender on its books
or records or, at its option, endorsed on the reverse side of the Note by the
Lender and the unpaid principal balance at any time so recorded or endorsed by
the Lender shall be prima facie evidence in any court or other proceedings
brought to enforce the Note of the principal amount remaining unpaid thereon.
1.3 EXEMPT LOAN RULES. Notwithstanding anything to the contrary contained
-----------------
in this Loan and Security Agreement (the "Agreement") or in the Note, the
Borrower shall be obligated to make repayments of the Loan only to the extent
that such repayments when added to the repayments theretofore made during the
applicable plan year would not exceed an amount which would cause the
limitations of Section 415 of the Code to be exceeded for any ESOP participant.
Except as set forth in the next succeeding sentence and to the extent
permitted by applicable law, including, without limitation, the Exempt Loan
Rules, the principal amount of the Loan and any interest thereon shall be
payable solely from contributions (other than contributions of employer
securities) made to the Trust in accordance with the ESOP, and cash dividends
received on the Shares, to enable the Borrower to pay its obligations under the
Loan and from earnings attributable to the Shares and the investment of such
contributions and dividends.
The Lender acknowledges and agrees that it shall have no other recourse
against the Borrower for repayment of the Loan and that it shall have no
recourse against assets of the ESOP included in the Trust other than pursuant to
Sections 3 and 8 hereof.
SECTION TWO. INTEREST AND FEES.
2.1 INTEREST RATE. The Loan shall bear interest (which the Borrower
-------------
hereby promises to pay) prior to maturity (whether by lapse of time,
acceleration or otherwise) at a rate per annum
2
<PAGE>
equal at all times to the "Interest Rate," defined for purposes of this
Agreement to mean the lowest prime rate reported in the Wall Street Journal on
the date of the Conversion.
2.2 BASIS AND PAYMENT DATES. All interest accruing on the Note prior to
-----------------------
maturity shall be due and payable on a quarterly basis on the last day of each
March, June, September and December in each year (commencing __________ 31,
1999) and at maturity (unless prepaid in whole prior to such date, then on the
date of such prepayment in whole) and interest accruing after maturity shall be
due and payable upon demand. All interest on the Note shall be computed on the
basis of a year of 365 days.
SECTION THREE. COLLATERAL.
3.1 GRANT OF SECURITY INTEREST-PLEDGED SHARES. The Borrower hereby
-----------------------------------------
grants, pledges and assigns to the Lender all Shares of the issued and
outstanding common stock, par value $.01 per share all of which were either
(i) purchased by the Borrower from the proceeds of the disbursement of the Loan;
(ii) acquired by the Borrower with the proceeds of a prior exempt loan within
the meaning of Section 54.4975-7(b) of the Regulations, and pledged as
collateral for such prior exempt loan, where the balance of such prior exempt
loan has been repaid with the proceeds of the disbursement of the Loan (the
"Pledged Shares" being hereinafter referred to as the "Collateral"). The
Pledged Shares shall be evidenced by a stock certificate. The assignment and
pledge herein granted and provided for is made and given to secure and shall
secure the prompt payment of principal of and interest on the Note as and when
the same becomes due and payable and the payment, observance and performance of
any and all obligations and liabilities arising under or provided for in this
Agreement or the Note or any of them in each instance as the same may be amended
or modified and whether now existing or hereafter arising.
3.2 FURTHER ASSURANCES. The Borrower covenants and agrees that it will at
------------------
any time and from time to time as requested by the Lender execute and deliver
such further instruments and perform such other acts as the Lender may
reasonably deem necessary or desirable to provide for or perfect the lien of the
Lender in the Collateral hereunder.
3.3 VOTING. Upon the occurrence of a Default, as defined in Section Nine
------
hereunder, the Lender shall have the right to transfer the Collateral or any
part thereof into its name or into the name of its nominee. The Lender shall
not be entitled to vote the Pledged Shares unless and until a Default has
occurred and so long as the same shall not have been waived by the Lender.
3.4 PARTIAL RELEASES. The Lender agrees, provided always that no Default
----------------
shall have occurred and be continuing, as promptly as is practicable after
December 31 in each year (the period commencing the date hereof and ending
December 31 and each subsequent 12-month period ending on December 31 being
hereinafter referred to as a "Plan Year"), to release that number of Pledged
Shares then being held to secure the Loan which is equal to the number of such
Pledged Shares held as of the last day of the Plan Year multiplied by a
fraction, the
3
<PAGE>
numerator of which is the aggregate amount of all principal and interest
payments made on the Note during the Plan Year and the denominator of which is
the sum of the numerator plus the unpaid principal and interest of the Note as
of the last day of such Plan Year.
SECTION FOUR. PAYMENTS.
4.1 PLACE AND APPLICATION. All payments of principal, interest, fees and
---------------------
all other amounts payable hereunder shall be made to the Lender at
2200 W. Franklin Street, Evansville, Indiana 47712, for the account of the
Lender (or at such other place for the account of the Lender as the Lender may
from time to time in writing specify to the Borrower) in immediately available
and freely transferable funds. All payments shall be paid in full without setoff
or counterclaim and without reduction for and free from any and all taxes,
levies, duties, fees, charges, deductions, withholdings, restrictions or
conditions of any nature imposed by any government or any political subdivision
or taxing authority thereof.
4.2 PREPAYMENTS. The Borrower shall have the privilege of prepaying in
-----------
whole or in part the Note at any time upon giving three (3) Business Days'
prior notice to the Lender, each such prepayment to be made by the payment of
the principal amount to be prepaid and accrued interest thereon to the date
fixed for prepayment. The term "Business Day" shall mean any day on which
savings institutions are generally open for business in Indiana, other than
Saturday and Sunday. All such prepayments shall be made without premium or
penalty. Prepayments shall first be applied to the several installments of the
Note in the inverse order of their respective maturities.
SECTION FIVE. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants, to the best of its knowledge, to the
Lender as follows:
5.1 The Trust is a duly organized, validly existing employee stock
ownership trust.
5.2 The proceeds of the disbursement of the Loan shall be applied in their
entirety to the payment of the purchase price for the Pledged Shares.
5.3 The Borrower has full right, power and authority to enter into this
Agreement, to make the borrowings hereunder provided for, to issue the Note in
evidence thereof and to perform each and all of the matters and things herein
and therein provided for and this Agreement does not, and the Note when issued
will not, nor will the performance or observance by the Borrower of any of the
matters or things herein or therein provided, contravene any provision of law or
the Trust or any other covenant or agreement affecting the Trust or any of its
assets. As of the date of the disbursement of the Loan, the Pledged Shares will
be fully paid and non-assessable and the Pledged Shares will be owned by the
Borrower free and clear of all liens, charges and encumbrances whatsoever,
except for any lien of Lender provided for herein.
4
<PAGE>
5.4 Except as disclosed to the Lender in writing, there is no litigation
or governmental proceeding pending, nor to the knowledge of the Borrower
threatened, against the ESOP and Trust.
5.5 The ESOP and Trust have no material liabilities, whether absolute or
contingent, except for those heretofore disclosed to the Lender.
SECTION SIX. REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender represents and warrants that:
6.1 The Lender is a corporation duly organized under the laws of the State
of Indiana, and is validly existing and in good standing under the laws of the
State of Indiana. The Lender has full power and authority and legal right to
make and perform this Agreement.
6.2 The execution, delivery and performance by the Lender of this
Agreement have been duly authorized by all necessary action by the Lender and is
not and will not violate any provisions of law applicable to the Lender, any
rules, regulations or orders applicable to the Lender or any judgments or
decrees binding upon the Lender. This Agreement is a valid and legally binding
obligation of the Lender enforceable against the Lender in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting credits' rights generally
and the general principles of equity (regardless of whether considered in a
proceeding at law or in equity).
6.3 No authorizations, approvals or consents of, and no filings or
registrations with, any governmental regulatory authority or agency are
required for the execution, delivery or performance by the Lender of this
Agreement, or any transaction contemplated hereby, or for the validity or
enforceability against the Lender hereof except as have already been received
or accomplished.
6.4 The execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated hereby will not violate,
conflict with or constitute a default under (i) any of the provisions of the
Lender's Certificate of Incorporation or Bylaws, (ii) any provision of any
agreement, instrument, order, arbitration award, judgment or decree to which
the Lender is a party or by which it is or its assets are bound (iii) any
statute, rule or regulation of any federal, state or local government or
agency applicable to the Lender, except in any such case (i), (ii), (iii)
above, for any such conflicts, violations, defaults which either individually
or in the aggregate do not have a material adverse effect on the business
properties of the Lender and its subsidiaries, taken as a whole.
6.5 The Bank has taken such actions as are required by applicable law to
be taken by it to establish the ESOP and the Trust.
5
<PAGE>
6.6 There is no action, suit, investigation or proceeding pending, or to
the best knowledge of the Bank, threatened against or affecting the ESOP before
any court or governmental department, agency or instrumentality.
6.7 The Loan will be an "exempt loan" as that term is defined under
Section 54.4975-7(b)(1)(iii) of the Regulations, provided the ESOP Committee
determines that the interest rate is not more than reasonable; and the
transactions contemplated by this Agreement are "prohibited transactions" within
the meaning of Section 4975 of the Code or Section 406(a) of ERISA are subject
to exemption pursuant to Section 4975(d)(3) of the Code and Section 408 of
ERISA.
6.8 Except as otherwise provided in this Agreement, the Shares are not
subject to any restriction on transfer under applicable Federal securities law
and may be freely traded over-the-counter.
6.9 DETERMINATION LETTER. The Bank shall apply for a determination
--------------------
letter from the Internal Revenue Service that the Plan and the Trust, taken
together, qualify as an employee stock ownership plan for purposes of Section
4975(e)(7) of the Code and the rules and regulations thereunder.
SECTION SEVEN. CONDITIONS PRECEDENT.
The obligation of the Lender to make the Loan shall be subject to
satisfaction of the following conditions precedent:
7.1 The Lender shall have received executed originals of this Agreement
and the Note duly signed and properly completed.
7.2 The Lender shall have received either (i) the certificate evidencing
all the Pledged Shares together with duly executed blank stock power therefore
or (ii) if such Pledged Shares are not yet available, a duly executed agreement
to pledge such stock in the form attached hereto as Exhibit B (in which event
such certificate and stock power will be delivered within 6 days of the date of
the Lender makes the Loan).
7.3 The Lender shall have received copies (executed or certified, as may
be appropriate) of all legal documents or proceedings taken in connection with
the execution and delivery of this Agreement and the Note.
SECTION EIGHT. COVENANTS.
Borrower covenants and agrees that so long as any amount remains unpaid on
the Note or the Commitment is outstanding, except to the extent compliance in
any case or cases is waived in writing by the Lender:
6
<PAGE>
8.1 COMPLIANCE. The Borrower will comply with all requirements of the
----------
Code, ERISA and any other law, rule or regulation applicable to it as such laws,
rules or regulations affect the ESOP or the Trust.
8.2 REPORTS.
-------
(a) The Borrower will maintain a system of accounting for the ESOP
and the Trust in accordance with sound accounting practice and will, from
time to time, furnish to the Lender and its duly authorized
representatives, such information and data with respect to the financial
condition of the ESOP and the Trust as the Lender may reasonably request.
(b) Without any request the Borrower will furnish to the Lender
promptly after knowledge thereof shall have come to the attention of the
Borrower, written notice of the occurrence of any Default hereunder or of
any threatened or pending litigation or governmental proceeding against the
Plan or the Trust.
SECTION NINE. DEFAULT AND REMEDIES.
9.1 DEFAULT. Any one or more of the following events shall constitute a
-------
Default hereunder:
(a) As of the date when due, the Borrower fails to make payment of
principal and/or interest with respect to the Note or any other amounts
payable under this Agreement within five (5) business days of the date when
due;
(b) As of the date proven false, the Borrower makes any
representation, warranty or statement herein or in connection with the
making of the Loan which proves to be incorrect in any material respect;
(c) As of the date the Borrower fails to perform or observe any term,
covenant or agreement (other than those referred to in subparts (a) and
(b), inclusive, of this Section 9.1) contained in this Agreement and such
failure continues unremedied for a period of 30 days after notice to the
Borrower by the Lender or any other holder of the Note;
(d) As of the date of termination of the ESOP if such termination is
prior to the expiration of the term of this Agreement.
9.2 LIMITATIONS ON USE OF TRUST ASSETS. When any Default described in
----------------------------------
subsections (a) to (c), of Section 9.1 has occurred and is continuing, the
Lender or the holder of the Note shall have no rights to assets of the Trust
other than (i) contributions (other than contributions of employer securities)
that are made by the Lender to enable the Borrower to meet its obligations
pursuant to the Loan, cash dividends received by the Borrower on the Pledged
Shares and
7
<PAGE>
earnings attributable to the investment of such contributions and dividends and
(ii) the Pledged Shares; provided further, however, that the value of Trust
assets transferred to the Lender as a result of a Default shall not exceed the
amount of the repayment then in default, and, provided further, that so long as
the Lender is a "party in interest" within the meaning of ERISA Section 3(14) or
a "disqualified person" within the meaning of Section 4975(e)(2) of the Code, a
transfer of Trust assets upon Default shall be made only if, and to the extent
of, the Borrower's failure to meet the loan's payment schedule.
9.3 RIGHTS UPON DEFAULT. When any Default has occurred and is continuing
-------------------
the Lender may, in addition to such other rights or remedies as it may have,
then or at any time or times thereafter exercise with respect to the Collateral
any and all of the rights, options and remedies of a secured party under the
Uniform Commercial Code of Indiana (the "UCC") including without limitation the
sale of all or any part of the Collateral at any brokers' board or any public or
private sale, provided, however that the Lender shall only be able to exercise
such rights and remedies to the extent of all interest and principal payments
which are due and payable as of the date of the Default and provided further
that prior to such exercise the Lender shall release from the Collateral so much
thereof as it would have been required to release under Section 3.4 hereof if
the period from the previous December 31 to the date of such release constituted
a Plan Year and no Default had occurred. The net proceeds of any such sale,
after deducting all costs and expenses incurred in the collection, protection,
sale and delivery of the Collateral (which expenses Borrower promises to pay)
shall be applied first to the payment of any costs and expenses incurred by the
Lender in selling or otherwise disposing of the Collateral, second, to the
payment of the principal of and the interest on the Note, and, third, ratably as
among any other items of the indebtedness hereby secured. Any surplus remaining
after the full payment and satisfaction of the foregoing shall be returned to
the Borrower or to whomsoever a court of competent jurisdiction shall determine
to be entitled thereto. Any requirement of said UCC as to reasonable notice
shall be met by the Lender personally delivering or mailing notice (by certified
mail - return receipt requested) to the Borrower at its address as provided in
Section 10.6 hereof at least ten (10) days prior to the event giving rise to the
requirement of such notice. In connection with any offer, solicitation or sale
of the Collateral, the Lender may restrict bidders and otherwise proceed in
whatever manner it reasonably believes appropriate in order to comply or assure
compliance with applicable legal requirements pertaining to the offer and sale
of securities of the same type as the Collateral.
9.4 ERISA RESTRICTIONS. The number of Pledged Shares as to which the
------------------
Lender may exercise the rights set forth in this Section 9 may not exceed that
number of shares (then remaining subject to pledge hereunder) which is then
equal in current value to the amount in default under the Note. The remedies
set forth in this Section 9 may only be exercised to the extent consistent with
the restrictions on remedies set forth in Section 408(b)(3) of ERISA and the
regulations thereunder and Section 4975(d)(3) of the Code and the regulations
thereunder.
8
<PAGE>
SECTION TEN. MISCELLANEOUS.
10.1 HOLIDAYS. If any principal of the Note shall fall due on Saturday,
--------
Sunday or on another day which is a legal holiday for savings institutions in
the State of Indiana interest at the rate the Note bears for the period prior to
maturity shall continue to accrue on such principal from the stated due date
thereof to and including the next succeeding Business Day on which the same is
payable.
10.2 NO WAIVER, CUMULATIVE REMEDIES. No delay or failure on the part of
------------------------------
the Lender or the part of the holder of the Note in the exercise of any power or
right shall preclude any other or further exercise thereof, or the exercise of
any other power or right, and the rights and remedies hereunder of the Lender
and of any holder of the Note are cumulative to, and not exclusive of, any
rights or remedies which any of them would otherwise have.
10.3 AMENDMENTS, ETC. No amendment, modification, termination or waiver of
----------------
any provision of this Agreement or of the Note nor consent to any departure by
the Borrower therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Lender, and then such consent, modification or
waiver shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other further notice or demand in similar or
other circumstances.
10.4 SURVIVAL OF REPRESENTATIONS. All representations and warranties
---------------------------
made herein or in certificates given in connection with the Loan shall survive
the execution and delivery of this Agreement and of the Note, and shall continue
in full force and effect with respect to the date as of which they were made as
long as any credit is in use or available hereunder.
10.5 PAYMENTS. So long as the Lender is the holder of the Note, the
--------
Borrower will promptly and punctually pay the principal of and interest on the
Note without presentment of the Note.
10.6 ADDRESSES FOR NOTICES. All communications provided for herein shall
---------------------
be in writing and shall be deemed to have been given or made when served
personally or when deposited in the United States mail addressed, if to the
Borrower at __________________________, Attn: _________________; if to the
Lender at First Bancorp of Indiana, Inc., _____________________, Attn: Harold
Duncan with copy to Muldoon, Murphy & Faucette, 5101 Wisconsin Avenue, N.W.,
Washington, D.C. 20016, Attn: Eric Kracov, Esq., or at such other address as
shall be designated by any party hereto in a written notice to each other party
pursuant to this Section 10.6.
10.7 HEADINGS. Article and Section headings used in this Agreement are for
--------
convenience or reference only and are not a part of this Agreement for any other
purpose.
9
<PAGE>
10.8 SEVERABILITY OF PROVISIONS. Any provision of this Agreement which is
--------------------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such unenforceability without impairing the enforceability of
the remaining provisions hereof affecting the enforceability of such provision
in any other jurisdiction.
10.9 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, and by different parties hereto on separate counterparts, and all
such counterparts taken together shall be deemed to constitute one and the same
instrument.
10.10 BINDING NATURE, GOVERNING LAW, ETC. This Agreement shall be
----------------------------------
binding upon the Borrower and its successors and assigns and shall inure to the
benefit of the Lender and the benefit of its successors and assigns, including
any subsequent holder of the Note. To the extent not preempted by Federal law,
this Agreement and the rights and duties of the parties hereto shall be
construed and determined in accordance with the laws of the State of Indiana
without regard to principles of conflicts of laws. This Agreement constitutes
the entire understanding of the parties with respect to the subject matter
hereof and any prior agreements, whether written or oral, with respect thereto
are superseded hereby.
10.11 CONCERNING THE BORROWER. The term "Borrower" as used herein
-----------------------
shall mean and include the undersigned as Trustee of the Trust and its
successors in trust not individually but solely as Trustee under that certain
First Federal Savings Bank Employee Stock Ownership Plan Trust effective
__________, 199_, by and between the undersigned and First Federal Savings Bank
and this Agreement shall be binding upon the undersigned and its successors and
assigns and upon the trust estate. The undersigned assumes no personal or
individual liability or responsibility for payment of the indebtedness evidenced
by the Note or for observance or performance of the covenants and agreements
herein contained or for the truthfulness of the representations and warranties
herein contained, the undersigned having executed this Agreement and the Note
solely in its capacity as Trustee as aforesaid to bind the undersigned, its
successors in trust and the trust estates.
10.12 LIMITED LIABILITY. Anything contained herein or in the Note to
-----------------
the contrary notwithstanding, the sole and only recourse of the Lender and any
other holder of the Note for payment of the obligations hereunder and under the
Note, as against the Borrower for the payment of the obligations hereunder and
under the Note shall be to (i) the Collateral, (ii) contributions, other than
employer securities not constituting Collateral hereunder, made to the ESOP and
the Trust by sponsoring employers to enable the Borrower to meet its obligations
hereunder and under the Note, and (iii) earnings attributable to the Pledged
Shares and to the investment of such employer contributions, but only to the
extent of the failure of the Borrower to meet the payment schedule of the Loan
provided for herein. The Trust assets may be transferred to Lender upon the
occurrence of a Default only upon and to the extent of the failure of the Plan
to meet the payment schedule of the Loan. In no event may the value of the
Trust assets so transferred exceed the amount of the default.
10
<PAGE>
10.13 LENDER'S DUTY OF CARE. It is agreed and understood that the
---------------------
Lender's duty with respect to the Collateral shall be solely to use reasonable
care in the custody and preservation of the Collateral in the Lender's
possession, which shall not include any steps necessary to preserve rights
against prior parties.
All provisions in this Agreement shall be construed so as to maintain
(i) the ESOP as a qualified leveraged employee stock ownership plan under
Sections 401(a) and 4975(e)(7) of the Code, (ii) the Trust as exempt from
taxation under Section 501(a) of the Code, and (iii) the Loan as an "exempt
loan" under the Exempt Loan Rules.
[Remainder of this page intentionally left blank]
11
<PAGE>
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this ___ day of _________, 199_
_____________, and its successors in trust, as Trustee
under that certain First Federal Savings Bank Employee
Stock Ownership Plan Trust effective ___________, 199_
by and between the undersigned and First Federal
Savings Bank .
By___________________________________
Accepted and agreed to at Evansville, Indiana as of the date last above
written.
First Bancorp of Indiana, Inc.
By___________________________________
12
<PAGE>
EXHIBIT A
PROMISSORY NOTE
Amount sufficient to satisfy the Loan Amount ___________, 199_
Evansville, Indiana
For VALUE RECEIVED, the undersigned, ______________, not individually but
solely as Trustee under that certain First Federal Savings Bank Employee Stock
Ownership Plan Trust effective ____________, 199_ by and between the undersigned
("Borrower") and First Federal Savings Bank promises to pay to the order of
First Bancorp of Indiana, Inc. (the "Lender") at its office at 2200 W. Franklin
Street, Evansville, Indiana 47712, the aggregate unpaid principal amount of all
loan amounts or advances under the loan made to the Borrower under Section 1.1
of the Loan and Security Agreement hereinafter referred to in forty-eight (48)
consecutive quarterly equal installments, consisting of both principal and
interest, amortized over a forty-eight (48) month period in an amount sufficient
to repay all borrowed amounts plus interest, payable annually on the last
business day of __________ __, 1999, and continuing on the last business day of
each and every March, June, September and December in each year thereafter,
except that the final installment of principal and interest not sooner paid
shall be due on __________, 20__, the final maturity hereof.
The Borrower promises to pay interest (computed on the basis of a year of
365 days) at said office on the balance of principal from time to time remaining
outstanding and unpaid hereon at the rate per annum equal at all times to the
Interest Rate as defined in Section 2.1 of the Loan and Security Agreement (as
defined below) on the last business day of each and every March, June, September
and December, commencing _________ __, 1999, and in each year thereafter and on
the final maturity date of this Note. On demand, the Borrower promises to pay
interest on any overdue principal hereof (whether by lapse of time,
acceleration, or otherwise) until paid at the stated rate.
This Note is issued under the terms and provisions of that certain First
Federal Savings Bank Employee Stock Ownership Trust Loan and Security Agreement
bearing even date herewith by and between the Borrower and the Lender (the "Loan
and Security Agreement") and this Note and the holder hereof are entitled to all
the benefits and security provided for by or referred to in such Loan and
Security Agreement.
This Note may be declared due prior to its express maturity and voluntary
prepayments may be made hereon, all in the events, on the terms and in the
manner as provided in such Loan and Security Agreement.
Recourse for the payment of this Note has been limited by the provisions of
the Loan and Security Agreement and this Note is expressly made subject to such
provisions notwithstanding
<PAGE>
anything contained herein to the contrary. This Note shall be governed by and
construed in accordance with the laws of Indiana without regard to principles of
conflicts of laws. The Borrower hereby waives presentment for payment and
demand.
Upon the occurrence of a Default as such term is defined in the Loan and
Security Agreement at the option of the Lender, all amounts payable by the
Borrower to the Lender under the terms of this Note may immediately become due
and payable by the Borrower to the Lender pursuant to the provisions of
Section 9.3 of the Loan and Security Agreement, and the Lender shall have all of
the rights, powers, and remedies available under the terms of this Note, any of
the other documents evidencing and securing this Loan and all applicable laws.
The Borrower and all endorsers, guarantors, and other parties who may now or in
the future be primarily or secondarily liable for the payment of the
indebtedness evidenced by this Note hereby severally waive presentment, protest
and demand, notice of protest, notice of demand and of dishonor and non-payment
of this Note and expressly agree that this Note and any payment hereunder may be
extended from time to time without in any way affecting the liability of the
Borrower, guarantors and endorsers.
______________ its successors in trust, as
Trustee under that certain First Federal
Savings Bank Employee Stock Ownership Plan
Trust effective _________, 199_ by and
between the undersigned and First Federal
Savings Bank
By:_______________________________
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by First Bancorp of Indiana, Inc.,
("Lender") to the undersigned ("Borrower"), the receipt whereof is hereby
acknowledged and subject to the terms and provisions of the Loan and Security
Agreement described below, the Borrower does hereby grant a security interest to
said Lender in the instruments or negotiable documents hereafter described
("Collateral"), in all of which Collateral the Borrower warrants that the
Borrower has good, valid and effective rights to the ownership and possession
thereof and to the grant the security interest hereby made:
All Shares of the common stock, par value $.01 per share, of First Bancorp
of Indiana, Inc., an Indiana corporation, acquired with the proceeds of the
Loan Amount.
Borrower agrees to deliver said collateral to said Lender as soon as
practicable after Borrower's receipt of one or more certificates therefore.
Said security interest secures the payment of all indebtedness and
liabilities as undertaken in the Loan and Security Agreement to which this is a
part, now existing or hereafter arising, and the Lender has all the rights with
respect to said Collateral and said security interest as more fully set forth in
the form of secured note or notes executed and delivered by the undersigned to
said Lender prior hereto or contemporaneously herewith.
This agreement, including matters of interpretation and construction, and
the rights of the Lender and the duties and obligations of the debt hereunder
are to be determined in accordance with the laws of the State of Indiana,
particularly the Uniform Commercial Code, except where preempted by federal law.
Dated at ______________, the ____ day of ________, 199_.
_______________, and its successors in trust, as
Trustee under that certain First Federal Savings
Bank Employee Stock Ownership Plan Trust
effective __________, 199_ by and between the
undersigned and First Federal Savings Bank.
By:_________________________________
<PAGE>
FORM OF EMPLOYMENT AGREEMENT
FOR SENIOR OFFICERS
THIS AGREEMENT is made effective as of ________________, 1998, by and
between FIRST FEDERAL SAVINGS BANK (the "BANK"), FIRST BANCORP OF INDIANA, INC.,
(the "COMPANY"), an Indiana corporation; and _____________________
("EXECUTIVE").
WHEREAS, EXECUTIVE serves in a position of substantial responsibility;
WHEREAS, the BANK wishes to assure itself of the services of EXECUTIVE for
the period provided in this Agreement; and
WHEREAS, EXECUTIVE is willing to serve in the employ of the BANK on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, EXECUTIVE agrees to serve as
President of the Bank. EXECUTIVE also agrees to serve, if elected, as an officer
and director of the COMPANY or any subsidiary or affiliate of the COMPANY or the
BANK. Executive shall render administrative and management duties to the BANK
such as are customarily performed by persons situated in a similar executive
capacity.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for thirty six (36) months
thereafter. Commencing on the first anniversary date, and continuing at each
anniversary date thereafter, the Board of Directors of the BANK (the "Board")
may extend the Agreement for an additional year. Prior to the extension of the
Agreement as provided herein, the Board of Directors of the BANK will conduct a
formal performance evaluation of EXECUTIVE for purposes of determining whether
to extend the Agreement, and the results thereof shall be included in the
minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, EXECUTIVE shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the BANK; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
EXECUTIVE may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
such Board's judgment, will not present any conflict of interest with the BANK,
or materially affect the performance of EXECUTIVE's duties pursuant to this
Agreement.
<PAGE>
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The BANK
shall pay EXECUTIVE as compensation a salary of $(INSERT CURRENT BASE SALARY)
per year ("Base Salary"). Such Base Salary shall be payable in accordance with
the customary payroll practices of the BANK. During the period of this
Agreement, EXECUTIVE's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by a Committee designated by the
Board, and the Board may increase EXECUTIVE's Base Salary. In addition to the
Base Salary provided in this Section 3(a), the BANK shall provide EXECUTIVE at
no cost to EXECUTIVE with all such other benefits as are provided uniformly to
permanent full-time employees of the BANK.
(b) The BANK will provide EXECUTIVE with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
EXECUTIVE was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the BANK will not, without
EXECUTIVE's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect EXECUTIVE's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), EXECUTIVE will be entitled to participate in or receive benefits
under any employee benefit plans including, but not limited to, retirement
plans, supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the BANK in the future to its senior executives
and key management employees, subject to, and on a basis consistent with, the
terms, conditions and overall administration of such plans and arrangements.
EXECUTIVE will be entitled to incentive compensation and bonuses as provided in
any plan, or pursuant to any arrangement of the BANK, in which EXECUTIVE is
eligible to participate. Nothing paid to EXECUTIVE under any such plan or
arrangement will be deemed to be in lieu of other compensation to which
EXECUTIVE is entitled under this Agreement, except as provided under Section
5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the BANK shall pay or reimburse EXECUTIVE for all reasonable travel
and other obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during EXECUTIVE's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the BANK of EXECUTIVE's full-time employment hereunder for any reason other than
a Change in Control, as defined in Section 5(a) hereof; disability, as defined
in Section 6(a) hereof; death; retirement, as defined in Section 7 hereof; or
Termination for
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<PAGE>
Cause, as defined in Section 8 hereof; (ii) EXECUTIVE's resignation from the
BANK's employ, upon (A) unless consented to by EXECUTIVE, a material change in
EXECUTIVE's function, duties, or responsibilities, which change would cause
EXECUTIVE's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Sections 1 and 2,
above (any such material change shall be deemed a continuing breach of this
Agreement), (B) a relocation of EXECUTIVE's principal place of employment by
more than 35 miles from its location at the effective date of this Agreement, or
a material reduction in the benefits and perquisites to EXECUTIVE from those
being provided as of the effective date of this Agreement, (C) the liquidation
or dissolution of the BANK, or (D) any material breach of this Agreement by the
BANK. Upon the occurrence of any event described in clauses (A), (B), (C) or
(D), above, EXECUTIVE shall have the right to elect to terminate his employment
under this Agreement by resignation upon not less than sixty (60) days prior
written notice given within a reasonable period of time not to exceed, except in
case of a continuing breach, four (4) calendar months after the event giving
rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the BANK shall pay
EXECUTIVE, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to EXECUTIVE for the remaining
term of the Agreement, including Base Salary, bonuses, and any other cash or
deferred compensation paid or to be paid (including the value of employer
contributions that would have been made on EXECUTIVE's behalf over the remaining
term of the agreement to any tax-qualified retirement plan sponsored by the BANK
as of the Date of Termination), to EXECUTIVE for the term of the Agreement
provided, however, that if the BANK is not in compliance with its minimum
capital requirements or if such payments would cause the BANK's capital to be
reduced below its minimum capital requirements, such payments shall be deferred
until such time as the BANK is in capital compliance. All payments made
pursuant to this Section 4(b) shall be paid in substantially equal monthly
installments over the remaining term of this Agreement following EXECUTIVE's
termination; provided, however, that if the remaining term of the Agreement is
less than one (1) year (determined as of EXECUTIVE's Date of Termination), such
payments and benefits shall be paid to EXECUTIVE in a lump sum within thirty
(30) days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination, the BANK will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
termination. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall have
occurred a Change in Control of the COMPANY or the BANK. For purposes of this
Agreement, a "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan
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Act of 1933 and 12 C.F.R. Part 574, (b) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial
owner, directly or indirectly, of securities of the COMPANY or the BANK
representing twenty-five percent (25%) or more of the combined voting power of
the COMPANY's or the BANK's then outstanding securities, (c) the membership of
the board of directors of the COMPANY or the BANK changes as the result of a
contested election, such that individuals who were directors at the beginning of
any twenty-four (24) month period (whether commencing before or after the date
of adoption of this Agreement) do not constitute a majority of the Board at the
end of such period, or (d) shareholders of the COMPANY or the BANK approve a
merger, consolidation, sale or disposition of all or substantially all of the
COMPANY's or the BANK's assets, or a plan of partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the BANK or the COMPANY has
reasonably determined that a Change in Control (as defined herein) has occurred,
EXECUTIVE shall be entitled to the benefits provided in paragraphs (c), (d) and
(e) of this Section 5 upon his subsequent involuntary termination following the
effective date of a Change in Control (or voluntary termination within twelve
(12) months of the effective date of a Change in Control following any material
demotion, loss of title, office or significant authority, material reduction in
his annual compensation or benefits (other than a reduction affecting the BANK's
personnel generally), or the relocation of his principal place of employment by
more than 35 miles from its location immediately prior to the Change in
Control), unless such termination is because of his death, retirement as
provided in Section 7, termination for Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK shall pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to 2.99
times EXECUTIVE's "base amount," within the meaning of (S)280G(b)(3) of the
Internal Revenue Code of 1986 ("Code"), as amended. Such payment shall be made
in a lump sum paid within ten (10) days of EXECUTIVE's Date of Termination.
(d) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK will cause to be continued life, medical,
dental and disability coverage substantially identical to the coverage
maintained by the BANK for EXECUTIVE prior to his severance. Such coverage
shall cease upon the expiration of thirty-six (36) months. In addition,
EXECUTIVE shall be entitled to receive the value of employer contributions that
would have been made on EXECUTIVE's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the BANK as of the
Date of Termination.
(e) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under (S)280G of the
Code, then, at the election of EXECUTIVE, (i) such payments or benefits shall be
payable or
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<PAGE>
provided to EXECUTIVE over the minimum period necessary to reduce the present
value of such payments or benefits to an amount which is one dollar ($1.00) less
than three (3) times EXECUTIVE's "base amount" under (S)280G(b)(3) of the Code
or (ii) the payments or benefits to be provided under this Section 5 shall be
reduced to the extent necessary to avoid treatment as an excess parachute
payment with the allocation of the reduction among such payments and benefits to
be determined by EXECUTIVE.
6. TERMINATION FOR DISABILITY.
(a) If EXECUTIVE shall become disabled as defined in the BANK's then
current disability plan (or, if no such plan is then in effect, if EXECUTIVE is
permanently and totally disabled within the meaning of Section 22(e)(3) of the
Code as determined by a physician designated by the Board), the BANK may
terminate EXECUTIVE's employment for "Disability."
(b) Upon EXECUTIVE's termination of employment for Disability, the BANK
will pay EXECUTIVE, as disability pay, a bi-weekly payment equal to three-
quarters (3/4) of EXECUTIVE's bi-weekly rate of Base Salary on the effective
date of such termination. These disability payments shall commence on the
effective date of EXECUTIVE's termination and will end on the earlier of (i) the
date EXECUTIVE returns to the full-time employment of the BANK in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between EXECUTIVE and the BANK; (ii) EXECUTIVE's
full-time employment by another employer; (iii) EXECUTIVE attaining the age of
sixty-five (65); or (iv) EXECUTIVE's death; or (v) the expiration of the term of
this Agreement. The disability pay shall be reduced by the amount, if any, paid
to EXECUTIVE under any plan of the BANK providing disability benefits to
EXECUTIVE.
(c) The BANK will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
BANK for EXECUTIVE prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date EXECUTIVE returns to the
full-time employment of the BANK, in the same capacity as he was employed prior
to his termination for Disability and pursuant to an employment agreement
between EXECUTIVE and the BANK; (ii) EXECUTIVE's full-time employment by another
employer; (iii) EXECUTIVE's attaining the age of sixty-five (65); (iv)
EXECUTIVE's death; or (v) the expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to EXECUTIVE during any period during which
EXECUTIVE is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE; RESIGNATION
Termination by the BANK of EXECUTIVE based on "Retirement" shall mean
retirement at or after attaining age sixty-five (65) or in accordance with any
retirement arrangement established
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<PAGE>
with EXECUTIVE's consent with respect to him. Upon termination of EXECUTIVE upon
Retirement, EXECUTIVE shall be entitled to all benefits under any retirement
plan of the BANK or the COMPANY and other plans to which EXECUTIVE is a party.
Upon the death of EXECUTIVE during the term of this Agreement, the BANK shall
pay to EXECUTIVE's estate the compensation due to EXECUTIVE through the last day
of the calendar month in which his death occurred. Upon the voluntary
resignation of EXECUTIVE during the term of this Agreement, other than in
connection with an Event of Termination, the BANK shall pay to EXECUTIVE the
compensation due to EXECUTIVE through his Date of Termination.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of EXECUTIVE's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar infractions) or final
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths (3/4) of the members of the Board at a meeting of the Board called
and held for that purpose (after reasonable notice to EXECUTIVE and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, EXECUTIVE was guilty of
conduct justifying termination for Cause and specifying the reasons thereof.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after termination for Cause. Any stock options granted to EXECUTIVE
under any stock option plan or any unvested awards granted under any other stock
benefit plan of the BANK, the COMPANY, or any subsidiary or affiliate thereof,
shall become null and void effective upon EXECUTIVE's receipt of Notice of
Termination for Cause pursuant to Section 10 hereof, and shall not be
exercisable by EXECUTIVE at any time subsequent to such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not prejudice
EXECUTIVE's right to compensation or other benefits under this Agreement.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all
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or part of the compensation withheld while its contract obligations were
suspended and (ii) reinstate (in whole or in part) any of its obligations that
were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement shall be terminated (except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his designee at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the BANK under the authority contained in Section 13(c) of the FDIA or
(ii) by the Director, or his designee at the time the Director or such designee
approves a supervisory merger to resolve problems related to operation of the
BANK or when the BANK is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(f) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the BANK or by EXECUTIVE shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of EXECUTIVE's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if EXECUTIVE's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, other than Termination for
Cause, the date specified in the Notice of Termination . In the event of
EXECUTIVE's Termination for Cause, the Date of Termination shall be the same as
the date of the Notice of Termination.
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(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by EXECUTIVE in which case the Date
of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
11. NON-COMPETITION.
(a) Upon any termination of EXECUTIVE's employment hereunder pursuant to an
Event of Termination as provided in Section 4 hereof, EXECUTIVE agrees not to
compete with the BANK and/or the COMPANY for a period of one (1) year following
such termination in any city, town or county in which the BANK and/or the
COMPANY has an office or has filed an application for regulatory approval to
establish an office, determined as of the effective date of such termination.
EXECUTIVE agrees that during such period and within said cities, towns and
counties, EXECUTIVE shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the BANK and/or the
COMPANY. The parties hereto, recognizing that irreparable injury will result to
the BANK and/or the COMPANY, its business and property in the event of
EXECUTIVE's breach of this Subsection 11(a) agree that in the event of any such
breach by EXECUTIVE, the BANK and/or the COMPANY will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by EXECUTIVE, EXECUTIVE's partners, agents, servants,
employers, employees and all persons acting for or with EXECUTIVE. EXECUTIVE
represents and admits that in the event of the termination of his employment
pursuant to Section 4 hereof, EXECUTIVE's experience and capabilities are such
that EXECUTIVE can obtain employment in a business engaged in other lines and/or
of a different nature than the BANK and/or the COMPANY, and that the enforcement
of a remedy by way of injunction will not prevent EXECUTIVE from earning a
livelihood. Nothing herein will be construed as prohibiting the BANK and/or the
COMPANY from pursuing any other remedies available to the BANK and/or the
COMPANY for such breach or threatened breach, including the recovery of damages
from EXECUTIVE.
(b) EXECUTIVE recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the BANK and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the BANK. EXECUTIVE will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the BANK or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, EXECUTIVE may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas
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which are not solely and exclusively derived from the business plans and
activities of the BANK. In the event of a breach or threatened breach by
EXECUTIVE of the provisions of this Section, the BANK will be entitled to an
injunction restraining EXECUTIVE from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
BANK or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the BANK from pursuing any other remedies available to the BANK for
such breach or threatened breach, including the recovery of damages from
EXECUTIVE.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the BANK or any
predecessor of the BANK and EXECUTIVE, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to EXECUTIVE of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that EXECUTIVE is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the BANK, the COMPANY and their respective successors and assigns.
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15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Indiana,
unless otherwise specified herein; provided, however, that in the event of a
conflict between the terms of this Agreement and any applicable federal or state
law or regulation, including , specifically, 12 C.F.R. Section 563.39(b), the
provisions of such law or regulation shall prevail.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK, if EXECUTIVE is successful pursuant to a legal
judgment, arbitration or settlement.
20. INDEMNIFICATION.
The BANK shall provide EXECUTIVE (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
EXECUTIVE (and his heirs, executors and administrators) to the fullest
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extent permitted under Indiana law against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action, suit
or proceeding in which he may be involved by reason of his having been a
director or officer of the BANK (whether or not he continues to be a directors
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgment, court costs and
attorneys' fees and the cost of reasonable settlements. The provisions of 12
C.F.R. 545.121 shall apply to the BANK's obligations under this Section 20.
21. SUCCESSOR TO THE BANK OR THE COMPANY.
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent that
the BANK or the COMPANY would be required to perform if no such succession or
assignment had taken place.
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IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement to
be executed and their seal to be affixed hereunto by a duly authorized officer,
and EXECUTIVE has signed this Agreement, all on the ____ day of _____________,
1998.
ATTEST: FIRST FEDERAL SAVINGS BANK
_______________________________ BY:_________________________________
ATTEST: FIRST BANCORP OF INDIANA, INC.
_______________________________ BY:_________________________________
WITNESS:
_______________________________ ____________________________________
EXECUTIVE
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FORM OF
FIRST FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
EFFECTIVE [JANUARY 1, 1999]
<PAGE>
FORM OF
FIRST FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
CERTIFICATION
I, Harold Duncan, President and Chief Executive Officer of First Federal
Savings Bank, a federal savings bank, hereby certify that the attached First
Federal Savings Bank Employee Stock Ownership Plan, effective [JANUARY 1, 1999],
was adopted at a duly held meeting of the Board of Directors of the Bank.
ATTEST: First Federal Savings Bank
- -------------------- By:
-------------------------------------
Harold Duncan
President and Chief Executive Officer
- --------------------
Date
<PAGE>
FORM OF
FIRST FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
Section 1 - Introduction
Section 2 - Definitions
Section 3 - Eligibility and Participation
Section 4 - Contributions
Section 5 - Allocation and Valuation
Section 6 - Vesting and Forfeitures
Section 7 - Distributions
Section 8 - Voting of Company Stock and Tender Offers
Section 9 - The Committee and Plan Administration
Section 10 - Rules Governing Benefit Claims
Section 11 - The Trust
Section 12 - Adoption, Amendment and Termination
Section 13 - General Provisions
Section 14 - Top-Heavy Provisions
<PAGE>
FORM OF
FIRST FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
SECTION 1
INTRODUCTION
SECTION 1.01 NATURE OF THE PLAN.
------------------
Effective as of JANUARY 1, 1999, (the "Effective Date"), First Federal Savings
Bank, a federal savings bank (the "Bank"), hereby establishes the First Federal
Savings Bank Employee Stock Ownership Plan (the "Plan") to enable Eligible
Employees (as defined in Section 2.01(q) of the Plan) to acquire stock ownership
interests in First Bancorp of Indiana, Inc., the holding company of the Bank
(the "Company"). The Bank intends this Plan to be a tax-qualified stock bonus
plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code") and an employee stock ownership plan within the meaning of Section
407(d)(6) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and Sections 409 and 4975(e)(7) of the Code. The Plan is designed to
invest primarily in the common stock of the Company, which stock constitutes
"qualifying employer securities" within the meaning of Section 407(d)(5) of
ERISA and Sections 409(l) and 4975(e)(8) of the Code. Accordingly, the Plan and
Trust Agreement (as defined in Section 2.01(oo) of the Plan) shall be
interpreted and applied in a manner consistent with the Bank's intent for it to
be a tax-qualified plan designed to invest primarily in qualifying employer
securities.
SECTION 1.02 EMPLOYERS AND AFFILIATES.
------------------------
The Bank and each of its Affiliates (as defined in Section 2.01(c) of the Plan)
which, with the consent of the Bank, adopt the Plan pursuant to the provisions
of Section 12.01 of the Plan are collectively referred to as the "Employers" and
individually as an "Employer." The Plan shall be treated as a single plan with
respect to all participating Employers.
<PAGE>
SECTION 2
DEFINITIONS
SECTION 2.01 DEFINITIONS.
-----------
In this Plan, whenever the context so indicates, the singular or the plural
number and the masculine or feminine gender shall be deemed to include the
other, the terms "he," "his," and "him," shall refer to a Participant or
Beneficiary, as the case may be, and, except as otherwise provided, or unless
the context otherwise requires, the capitalized terms shall have the following
meanings:
(a) "ACCOUNT" or "ACCOUNTS" mean a Participant's or Beneficiary's Company Stock
Account and/or his Other Investments Account, as the context so requires.
(b) "ACQUISITION LOAN" means a loan (or other extension of credit, including an
installment obligation to a "party in interest" (as defined in Section 3(14) of
ERISA)) incurred by the Trustee in connection with the purchase of Company
Stock.
(c) "AFFILIATE" means any corporation, trade or business, which, at the time of
reference, is together with the Bank, a member of a controlled group of
corporations, a group of trades or businesses (whether or not incorporated)
under common control, or an affiliated service group, as described in Sections
414(b), 414(c), and 414(m) of the Code, respectively, or any other organization
treated as a single employer with the Bank under Section 414(o) of the Code;
provided, however, that, where the context so requires, the term "Affiliate"
shall be construed to give full effect to the provisions of Sections 409(l)(4)
and 415(h) of the Code.
(d) "BANK" means First Federal Savings Bank, Evansville, Indiana and any entity
which succeeds to the business of First Federal Savings Bank and which adopts
this Plan in accordance with the provisions of Section 12.02 of the Plan or by
written agreement assuming the obligations under the Plan.
(e) "BENEFICIARY" means the person(s) entitled to receive benefits under the
Plan following a Participant's death, pursuant to Section 7.03 of the Plan.
(f) "CHANGE IN CONTROL" shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act or
the Rules and Regulations promulgated by the Office of Thrift Supervision
("OTS") (or its predecessor agency) as in effect on the date hereof (provided
that in applying the definition of change in control as set forth under the
rules and regulations of the OTS, the Board shall substitute its judgment for
that of the OTS); or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act)
2
<PAGE>
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Bank or the Holding
Company representing 20% or more of the Bank's or the Holding Company's
outstanding securities except for any securities of the Bank purchased by the
Holding Company in connection with the conversion of the Bank to the stock form
and any securities purchased by any tax qualified employee benefit plan of the
Bank; or (B) individuals who constitute the Board of Directors on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board; or (C)
a plan of reorganization, merger, consolidation, sale of all or substantially
all the assets of the Bank or the Holding Company or similar transaction occurs
in which the Bank or Holding Company is not the resulting entity.
(g) "CODE" means the Internal Revenue Code of 1986, as amended.
(h) "COMMITTEE" means the individual(s) responsible for the administration of
the Plan in accordance with Section 9 of the Plan.
(i) "COMPANY" means First Bancorp of Indiana, Inc. and any entity which succeeds
to the business of First Bancorp of Indiana, Inc.
(j) "COMPANY STOCK" means shares of the voting common stock or preferred stock,
meeting the requirements of Section 409 of the Code and Section 407(d)(5) of
ERISA, issued by the Bank or its Affiliates.
(k) "COMPANY STOCK ACCOUNT" means the account established and maintained in the
name of each Participant or Beneficiary to reflect his share of the Trust Fund
invested in Company Stock.
(l) "COMPENSATION" means a Participant's total compensation paid during the Plan
Year as reported on Form W-2, exclusive of any compensation deferred from a
prior year, plus elective deferrals under a plan meeting the requirements of
Section 401(k) or 125 of the Code for such Plan Year.
A Participant's Compensation shall not exceed $150,000 (as periodically adjusted
pursuant to Section 401(a)(17) of the Code (the "Compensation Limit")). If a
Participant's Compensation is determined on a basis of a period of less than
twelve (12) calendar months, then the Compensation Limit for such Participant
shall be the Compensation Limit in effect for the Plan Year in which the period
begins multiplied by a ratio obtained by dividing the number of full months in
the period by twelve (12).
(m) "CONVERSION DATE" means the date the Company first issues common stock
pursuant to its initial public offering.
3
<PAGE>
(n) "DISABILITY" means a physical or mental impairment, certified by one or more
physician(s) designated by the Committee, which prevents him from doing any
substantial gainful activity for which he is fitted by education, training or
experience, and which is expected to last at least 12 months or to result in
death.
(o) "EFFECTIVE DATE" means [JANUARY 1, 1999].
(p) "ELIGIBILITY COMPUTATION PERIOD" means a twelve (12) consecutive month
period. An Employee's first Eligibility Computation Period shall begin on date
he first performs an Hour of Service for the Employer ("employment commencement
date"). Subsequent Eligibility Computation Periods shall be the Plan Year,
commencing with the first Plan Year that includes the first anniversary date of
the Employee's employment commencement date. To determine an Eligibility
Computation Period after a One Year Break in Service, the Plan shall use the
twelve (12) consecutive month period beginning on the date the Employee again
performs an Hour of Service for the Employer.
(q) "ELIGIBLE EMPLOYEE" means any Employee who is not precluded from
participating in the Plan by reason of the provisions of Section 3.02 of the
Plan.
(r) "EMPLOYEE" means any person who is employed by the Bank or an Affiliate in
any capacity, any portion of whose income is subject to withholding of income
tax and/or for whom Social Security contributions are made by the Bank or an
Affiliate, as well as any other person qualifying as a common-law employee of
the Bank or an Affiliate, except that such term shall not include:
(i) Any individual who performs services for the Bank or an Affiliate and
who is classified and paid as an independent contractor (regardless of his
classification for federal tax or other legal purpose) by the Bank or
Affiliate and
(ii) Any individual, whether a "leased employee" (within the meaning of
Section 414(n) of the Code) or otherwise, who performs services for the
Bank or an Affiliate pursuant to an agreement between the Bank or Affiliate
and any other person, including a leasing organization.
(s) "EMPLOYER" or "EMPLOYERS" means the Bank and its Affiliates, which adopt the
Plan in accordance with the provisions of Section 12.01 of the Plan, and any
entity which succeeds to the business of the Bank or its Affiliates and which
adopts the Plan in accordance with the provisions of Section 12.02 of the Plan
or by written agreement assumes the obligations under the Plan.
(t) "ENTRY DATE" means the first day of the month following the date the
Employee satisfies the eligibility requirements under Section 3.01 of the Plan.
(u) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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<PAGE>
(v) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(w) "FINANCED SHARES" means shares of Company Stock acquired by the Trustee with
the proceeds of an Acquisition Loan, which shall constitute "qualifying employer
securities" under Section 409(l) of the Code and any shares of Company Stock
received upon conversion or exchange of such shares.
(x) "HIGHLY COMPENSATED EMPLOYEE" means an Employee who, for a particular Plan
Year, satisfies one of the following conditions:
(i) was a "5-percent owner" (as defined in Section 414(q)(2) of the Code)
during the year or the preceding year, or
(ii) for the preceding year,
(A) had "compensation" (as defined in Section 414(q)(4) of the Code)
from the Bank and its Affiliates exceeding $80,000 (as periodically
adjusted pursuant to Section 414(q)(1) of the Code), and
(B) if the Employer elects, was in the "top-paid group" (as defined in
Section 414(q)(3) of the Code) of Employees for such preceding year.
(y) "HOURS OF SERVICE" means:
(i) Each hour for which an Employee is paid, or entitled to payment, for
performing duties for the Employer during the applicable computation
period.
(ii) Each hour for which an Employee is paid, or entitled to payment, for
a period during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military duty or
leave of absence. Notwithstanding the preceding sentence, no credit shall
be given to the Employee for:
(A) more than 501 hours under this clause (ii) because of any single
continuous period in which the Employee performs no duties (whether
or not such period occurs in a single computation period);
(B) an hour for which the Employee is directly or indirectly paid, or
entitled to payment, because of a period in which no duties are
performed if such payment is made or due under a plan maintained
solely for the purpose of complying with applicable worker's or
workmen's compensation, or unemployment, or disability insurance
laws; or
5
<PAGE>
(C) an hour or a payment which solely reimburses the Employee for
medical or medically-related expenses incurred by the Employee.
(iii) Each hour for which back pay, irrespective of mitigation of damages,
is either awarded or agreed to by the Employer; provided, however, that
hours credited under either clause (i) or (ii) above shall not also be
credited under this clause (iii). Crediting of hours for back pay awarded
or agreed to with respect to periods described in clause (ii) above will be
subject to the limitations set forth in that clause.
The crediting of Hours of Service shall be determined by the Committee in
accordance with the rules set forth in Section 2530.200b-3 of the regulations
prescribed by the Department of Labor, which rules shall be consistently applied
with respect to all Employees within the same job classification. Hours of
Service will be credited for employment with an Affiliate.
For purposes of determining whether an Employee has incurred a One Year Break in
Service and for vesting and participation purposes, if an Employee begins a
maternity/paternity leave of absence described in Section 411(a)(6)(E)(i) of the
Code, his Hours of Service shall include the Hours of Service that would have
been credited to him if he had not been so absent (or eight (8) Hours of Service
for each day of such absence if the actual Hours of Service cannot be
determined). An Employee shall be credited for such Hours of Service (up to a
maximum of 501 Hours of Service) in the Plan Year in which his absence begins
(if such crediting will prevent him from incurring a One Year Break in Service
in such Plan Year) or, in all other cases, in the following Plan Year. An
absence from employment for maternity or paternity reasons means an absence:
(i) by reason of pregnancy of the Employee,
(ii) by reason of a birth of a child of the Employee,
(iii) by reason of the placement of a child with the Employee in connection
with the adoption of such child by such Employee, or
(iv) for purposes of caring for such child for a period beginning
immediately following such birth or placement.
(z) "LOAN SUSPENSE ACCOUNT" means that portion Trust Fund consisting of Company
Stock acquired with an Acquisition Loan which has not yet been allocated to the
Participants' Accounts.
(aa) "NORMAL RETIREMENT AGE" means the date the Employee attains age sixty-five
(65).
(bb) "NORMAL RETIREMENT DATE" means the first day of the month coincident with
or next following the Participant's attainment of Normal Retirement Age.
6
<PAGE>
(cc) "ONE YEAR BREAK IN SERVICE" means a twelve (12) consecutive month period
during which the Participant does not complete more than 500 Hours of Service.
(dd) "OTHER INVESTMENTS ACCOUNT" means the account established and maintained in
the name of each Participant or Beneficiary to reflect his share of the Trust
Fund, other than Company Stock.
(ee) "PARTICIPANT" means any active Employee who has become a participant in
accordance with Section 3.01 of the Plan or any other person with an Account
balance under the Plan.
(ff) "PLAN" means this First Federal Savings Bank Employee Stock Ownership Plan,
as amended from time to time.
(gg) "PLAN YEAR" means the calendar year.
(hh) "POSTPONED RETIREMENT DATE" means the first day of the month coincident
with or next following a Participant's date of actual retirement which occurs
after his Normal Retirement Date.
(ii) "RECOGNIZED ABSENCE" means a period for which:
(i) an Employer grants an Employee a leave of absence for a limited period
of time, but only if an Employer grants such leaves of absence on a
nondiscriminatory basis to all Eligible Employees; or
(ii) an Employee is temporarily laid off by an Employer because of a change
in the business conditions of the Employer; or
(iii) an Employee is on active military duty, but only to the extent that
his employment rights are protected by the Military Selective Service Act
of 1967 (38 U.S.C. sec. 2021).
(jj) "RETIREMENT DATE" means a Participant's Normal Retirement Date or Postponed
Retirement Date, whichever is applicable.
(kk) "SERVICE" means employment with the Bank or an Affiliate.
(ll) "TREASURY REGULATIONS" means the regulations promulgated by the Department
of Treasury under the Code.
(mm) "TRUST" means the First Federal Savings Bank Employee Stock Ownership Plan
Trust created in connection with the establishment of the Plan.
(nn) "TRUST AGREEMENT" means the trust agreement establishing the Trust.
7
<PAGE>
(oo) "TRUST FUND" means the assets held in the Trust for the benefit of
Participants and their Beneficiaries.
(pp) "TRUSTEE" means the trustee or trustees from time to time in office under
the Trust Agreement.
(qq) "VALUATION DATE" means the last day of the Plan Year and each other date as
of which the Committee shall determine the investment experience of the Trust
Fund and adjust the Participants' Accounts accordingly.
(rr) "VALUATION PERIOD" means the period following a Valuation Date and ending
with the next Valuation Date.
(ss) "YEAR OF SERVICE" means an Eligibility Computation Period (for eligibility
purposes) or any other 12-consecutive month period (for other purposes) in
which an Employee completes at least 1,000 Hours of Service.
8
<PAGE>
SECTION 3
ELIGIBILITY AND PARTICIPATION
SECTION 3.01 INITIAL PARTICIPATION.
---------------------
(a) Employees Employed at the Conversion Date. Any Eligible Employee who is
-----------------------------------------
employed by an Employer at the Conversion Date shall enter the Plan and become a
Participant immediately as of the later of the Effective Date or the date he
first performs an Hour of Service for the Employer.
(b) Employees Employed After the Conversion Date. An Eligible Employee who
--------------------------------------------
becomes employed by an Employer subsequent to the Conversion Date shall become
eligible to enter the Plan upon satisfying the following requirements:
(i) He has completed one (1) Year of Service; and
(ii) He has attained 21 years of age.
(c) An Eligible Employee who has satisfied the eligibility requirements of
paragraph (b) of this Section 3.01 shall enter the Plan and become a Participant
on the Entry Date coincident with or next following the date he satisfies such
requirements.
SECTION 3.02 CERTAIN EMPLOYEES INELIGIBLE.
----------------------------
Except as provided for in Section 3.01(a) of the Plan, the following Employees
are ineligible to participate in the Plan:
(a) Employees covered by a collective bargaining agreement between the Employer
and the Employee's collective bargaining representative if:
(i) retirement benefits have been the subject of good faith bargaining
between the Employer and the representative, and
(ii) the collective bargaining agreement does not expressly provide that
Employees of such unit be covered under the Plan;
(b) Employees who are nonresident aliens and who receive no earned income from
an Employer which constitutes income from sources within the United States; and
(c) Employees of an Affiliate that has not adopted the Plan pursuant to Sections
12.01 or 12.02 of the Plan.
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<PAGE>
SECTION 3.03 TRANSFER TO AND FROM ELIGIBLE EMPLOYMENT.
----------------------------------------
(a) If an Employee ineligible to participate in the Plan by reason of Section
3.02 of the Plan transfers to employment as an Eligible Employee, he shall enter
the Plan as of the later of:
(i) the first Entry Date after the date of transfer, or
(ii) the first Entry Date on which he could have become a Participant
pursuant to Section 3.01 of the Plan if his prior employment with the Bank
or Affiliate had been as an Eligible Employee.
(b) If a Participant transfers to a position of employment that is not eligible
to participate in the Plan by reason of Section 3.02 of the Plan, he shall cease
active participation in the Plan as of the date of such transfer and his
transfer shall be treated for all purposes of the Plan as any other termination
of Service.
SECTION 3.04 PARTICIPATION AFTER REEMPLOYMENT.
--------------------------------
(a) Any Employee re-entering Service with an Employer after a One Year Break in
Service who has never satisfied the eligibility requirements of Section 3.01(b)
of the Plan shall not receive credit for prior Service with an Employer and
shall be required to meet the eligibility requirements of Section 3.01(b) of the
Plan before becoming a Participant.
(b) An Employee who has satisfied the eligibility requirements of Section
3.01(b) of the Plan but who terminates Service prior to entering the Plan and
becoming a Participant in accordance with Section 3.01(c) of the Plan will
become a Participant on the later of:
(i) the first Entry Date on which he would have entered the Plan had he
not terminated Service, or
(ii) the date he re-commences Service.
(c) A Participant whose Service terminates will re-enter the Plan as a
Participant on the date he re-commences Service.
SECTION 3.05 PARTICIPATION NOT GUARANTEE OF EMPLOYMENT.
-----------------------------------------
Participation in the Plan does not constitute a guarantee or contract of
employment and will not give any Employee the right to be retained in the employ
of the Bank or any of its Affiliates nor any right or claim to any benefit under
the terms of the Plan unless such right or claim has specifically accrued under
the Plan.
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<PAGE>
SECTION 4
CONTRIBUTIONS
SECTION 4.01 EMPLOYER CONTRIBUTIONS.
----------------------
(a) DISCRETIONARY CONTRIBUTIONS. Each Plan Year, each Employer, in its
discretion, may make a contribution to the Trust. Each Employer making a
contribution for any Plan Year under this Section 4.01(a) will contribute to the
Trustee cash equal to, or Company Stock or other property having an aggregate
fair market value equal to, such amount as the Board of Directors of the
Employer shall determine by resolution. Notwithstanding the Employer's
discretion with respect to the medium of contribution, an Employer shall not
make a contribution in any medium which would make such contribution a
prohibited transaction (for which no exemption is provided) under Section 406 of
ERISA or Section 4975 of the Code.
(b) EMPLOYER CONTRIBUTIONS FOR ACQUISITION LOANS. Each Plan Year, the
Employers shall, subject to the provisions of the Bank's "Plan of Conversion"
(as filed with the appropriate governmental agencies in connection with the
Bank's conversion from a mutual to stock form of organization) and any related
regulatory prohibitions, contribute an amount of cash sufficient to enable to
the Trustee to discharge any indebtedness incurred with respect to an
Acquisition Loan pursuant to the terms of the Acquisition Loan. The Employers'
obligation to make contributions under this Section 4.01(b) shall be reduced to
the extent of any investment earnings attributable to such contributions and any
cash dividends paid with respect to Company Stock held by the Trustee in the
Loan Suspense Account. If there is more than one Acquisition Loan, the
Employers shall designate the one to which any contribution pursuant to this
Section 4.01(b) is to be applied.
SECTION 4.02 LIMITATIONS ON CONTRIBUTIONS.
----------------------------
In no event shall an Employer's contribution(s) made under Section 4.01 of the
Plan for any Plan Year exceed the lesser of:
(a) The maximum amount deductible under Section 404 of the Code by that Employer
as an expense for Federal income tax purposes; and
(b) The maximum amount which can be credited for that Plan Year in accordance
with the allocation limitation provisions of Section 5.05 of the Plan.
SECTION 4.03 ACQUISITION LOANS.
-----------------
The Trustee may incur Acquisition Loans from time to time to finance the
acquisition of Company Stock for the Trust or to repay a prior Acquisition Loan.
An Acquisition Loan shall be for a specific term, shall bear a reasonable rate
of interest, and shall not be payable on demand except in the event of default,
and shall be primarily for the benefit of Participants and Beneficiaries of the
Plan. An Acquisition Loan may be secured by a collateral pledge of the Financed
Shares so acquired and any
11
<PAGE>
other Plan assets which are permissible security within the provisions of
Section 54.4975-7(b) of the Treasury Regulations. No other assets of the Plan or
Trust may be pledged as collateral for an Acquisition Loan, and no lender shall
have recourse against any other Trust assets. Any pledge of Financed Shares must
provide for the release of shares so pledged on a basis equal to the principal
and interest (or if the requirements of Section 54.4975-7(b)(8)(ii) of the
Treasury Regulations are met and the Employer so elects, principal payments
only), paid by the Trustee on the Acquisition Loan. The released Financed Shares
shall be allocated by Participants' Accounts in accordance with the provisions
of Sections 5.04 or 5.08 of the Plan, whichever is applicable. Payment of
principal and interest on any Acquisition Loan shall be made by the Trustee only
from the Employer contributions paid in cash to enable the Trustee to repay such
loan in accordance with Section 4.01(b) of the Plan, from earnings attributable
to such contributions, and any cash dividends received by the Trustee on
Financed Shares acquired with the proceeds of the Acquisition Loan (including
contributions, earnings and dividends received during or prior to the year of
repayment less such payments in prior years), whether or not allocated. Financed
Shares shall initially be credited to the Loan Suspense Account and shall be
transferred for allocation to the Company Stock Account of Participants only as
payments of principal and interest (or, if the requirements of Section 54.4975-
7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects,
principal payments only), on the Acquisition Loan are made by the Trustee. The
number of Financed Shares to be released from the Loan Suspense Account for
allocation to Participants' Company Stock Account for each Plan Year shall be
based on the ratio that the payments of principal and interest (or, if the
requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met
and the Employer so elects, principal payments only), on the Acquisition Loan
for that Plan Year bears to the sum of the payments of principal and interest on
the Acquisition Loan for that Plan Year plus the total remaining payment of
principal and interest projected (or, if the requirements of Section 54.4975-
7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects,
principal payments only), on the Acquisition Loan over the duration of the
Acquisition Loan repayment period, subject to the provisions of Section 5.05 of
the Plan.
SECTION 4.04 CONDITIONS AS TO CONTRIBUTIONS.
------------------------------
In addition to the provisions of Section 12.03 of the Plan for the return of an
Employer's contributions in connection with a failure of the Plan to qualify
initially under the Code, any amount contributed by an Employer due to a good
faith mistake of fact, or based upon a good faith but erroneous determination of
its deductibility under Section 404 of the Code, shall be returned to the
Employer within one year after the date on which the Employer originally made
such contribution, or within one year after its nondeductibility has been
finally determined. However, the amount to be returned shall be reduced to take
account for any adverse investment experience within the Trust in order that the
balance credited to each Participant's Accounts is not less that it would have
been if the contribution had never been made by the Employer.
SECTION 4.05 EMPLOYEE CONTRIBUTIONS.
----------------------
Employee contributions are neither required nor permitted under the Plan.
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<PAGE>
SECTION 4.06 ROLLOVER CONTRIBUTIONS.
----------------------
Rollover contributions of assets from other tax-qualified retirement plans are
not permitted under the Plan.
SECTION 4.07 TRUSTEE-TO-TRUSTEE TRANSFERS.
----------------------------
Trustee-to-trustee transfer of assets from other tax-qualified retirement plans
are not permitted under the Plan.
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<PAGE>
SECTION 5
PLAN ACCOUNTING
SECTION 5.01 ACCOUNTING FOR ALLOCATIONS.
--------------------------
The Committee shall establish the Accounts (and sub-accounts, if deemed
necessary) for each Participant, and the accounting procedures for the purpose
of making the allocations to the Participants' Accounts provided for in this
Section 5. The Committee shall maintain adequate records of the cost basis of
shares of Company Stock allocated to each Participant's Company Stock Account.
The Committee also shall keep separate records of Financed Shares attributable
to each Acquisition Loan and of contributions made by the Employers (and any
earnings thereon) made for the purpose of enabling the Trustee to repay any
Acquisition Loan. From time to time, the Committee may modify its accounting
procedures for the purpose of achieving equitable and nondiscriminatory
allocations among the Accounts of Participants, in accordance with the
provisions of this Section 5 and the applicable requirements of the Code and
ERISA. In accordance with Section 9 of the Plan, the Committee may delegate the
responsibility for maintaining Accounts and records.
SECTION 5.02 MAINTENANCE OF PARTICIPANTS' COMPANY STOCK ACCOUNTS.
---------------------------------------------------
As of each Valuation Date, the Committee shall adjust the Company Stock Account
of each Participant to reflect activity during the Valuation Period as follows:
(a) First, charge to each Participant's Company Stock Account all distributions
and payments made to him that have not been previously charged;
(b) Next, credit to each Participant's Company Stock Account the shares of
Company Stock, if any, that have been purchased with amounts from his Other
Investments Account, and adjust such Other Investments Account in accordance
with the provisions of Section 5.03 of the Plan; and
(c) Finally, credit to each Participant's Company Stock Account the shares of
Company Stock representing contributions made by the Employers in the form of
Company Stock and the number of Financed Shares released from the Loan Suspense
Account under Section 4.03 of the Plan that are to be allocated and credited as
of that date in accordance with the provisions of Section 5.04 of the Plan.
SECTION 5.03 MAINTENANCE OF PARTICIPANTS' OTHER INVESTMENTS ACCOUNTS.
-------------------------------------------------------
As of each Valuation Date, the Committee shall adjust the Other Investments
Account of each Participant to reflect activity during the Valuation Period as
follows:
(a) First, charge to each Participant's Other Investments Account all
distributions and payments made to him that have not previously been charged;
14
<PAGE>
(b) Next, if Company Stock is purchased with assets from a Participant's Other
Investments Account, the Participant's Other Investments Account shall be
charged accordingly;
(c) Next, subject to the dividend provisions of Section 5.08 of the Plan, credit
to the Other Investments Account of each Participant any cash dividends paid to
the Trustee on shares of Company Stock held in that Participant's Company Stock
Account (as of the record date for such cash dividends) and dividends paid on
shares of Company Stock held in the Loan Suspense Account that have not been
used to repay any Acquisition Loan. Cash dividends that have not been used to
repay an Acquisition Loan and have been credited to a Participant's Other
Investments Account shall be applied by the Trustee to purchase shares of
Company Stock, which shares shall then be credited to the Company Stock Account
of such Participant. The Participant's Other Investments Account shall then be
charged by the amount of cash used to purchase such Company Stock or used to
repay any Acquisition Loan. In addition, any earnings on:
(i) Other Investments Accounts, including cash proceeds from the sale or
disposition o f Company Stock pursuant to Section 5.09 of the Plan, will be
allocated to Participants' Other Investments Account, pro rata, based on
such Other Investment Accounts balances as of the first day of the
Valuation Period, and
(ii) the Loan Suspense Account, other than dividends used to repay the
Acquisition Loan, will be allocated to Participants' Other Investments
Accounts, pro rata, based on their Other Investment Account Balances as of
the first day of the Valuation Period; provided, however, that shares of
Company Stock allocated pursuant to Section 5.09 of the Plan shall be
allocated to the Participants' Company Stock Account in accordance with the
provisions of the Section 5.09 of the Plan.
(d) Next, allocate and credit the Employer contributions made pursuant to
Section 4.01(b) of the Plan for the purpose of repaying any Acquisition Loan in
accordance with Section 5.04 of the Plan. Such amount shall then be used to
repay any Acquisition Loan and such Participant's Other Investments Account
shall be charged accordingly; and
(e) Finally, allocate and credit the Employer contributions (other than amounts
contributed to repay an Acquisition Loan) that are made in cash (or property
other than Company Stock) for the Plan Year to the Other Investments Account of
each Participant in accordance with Section 5.04 of the Plan.
15
<PAGE>
SECTION 5.04 ALLOCATION AND CREDITING OF EMPLOYER CONTRIBUTIONS.
--------------------------------------------------
(a) Except as otherwise provided for in Section 5.08 of the Plan, as of the
Valuation Date for each Plan Year:
(i) Company Stock released from the Loan Suspense Account for that year
and shares of Company Stock contributed directly to the Plan by an Employer
shall be allocated and credited to each Active Participant's (as defined in
paragraph (c) of this Section 5.04) Company Stock Account based on the
ratio that each Active Participant's Compensation bears to the aggregate
Compensation of all Active Participants for the Plan Year, and then
(ii) The cash contributions not used to repay an Acquisition Loan and any
other property (other than shares of Company Stock) contributed for that
year shall be allocated and credited to each Active Participant's Other
Investments Account based on the ratio determined by comparing each Active
Participant's Compensation to the aggregate Compensation of all Active
Participants for the Plan Year.
.
(b) For purposes of this Section 5.04, the term "Active Participant" means those
Employees who:
(i) were employed by that Employer, including Employees on a Recognized
Absence, on the last day of the Plan Year and completed 1,000 Hours of
Service during the Plan Year, or
(ii) who terminated employment during the Plan Year by reason of death,
Disability, or attainment of their Retirement Date.
SECTION 5.05 LIMITATIONS ON ALLOCATIONS.
--------------------------
(a) IN GENERAL. Subject to the provisions of this Section 5.05, Section 415 of
the Code shall be incorporated by reference into the terms of the Plan. No
allocation shall be made under Section 5.04 of the Plan that would result in a
violation of Section 415 of the Code.
(b) CODE SECTION 415 COMPENSATION. For purposes of this Section 5.05,
Compensation shall be adjusted to reflect the general rule of Section 1.415-2(d)
of the Treasury Regulations.
(c) LIMITATION YEAR. The "limitation year" (within the meaning of Section 415
of the Code) shall be the calendar year.
(d) MULTIPLE DEFINED CONTRIBUTION PLANS. In any case where a Participant also
participates in another defined contribution plan of the Bank or its Affiliates,
the appropriate committee of such other plan shall first reduce the after-tax
contributions under any such plan, shall then reduce any elective deferrals
under any such plan subject to Section 401(k) of the Code, shall then reduce all
other contributions under any other such plan and, if necessary, shall then
reduce contributions under this Plan, subject to the provisions of paragraph (f)
of this Section 5.05.
16
<PAGE>
(e) COMBINED PLAN LIMITATIONS. To the extent necessary to comply with the
requirements of Section 415(e) of the Code, the plan administration or
appropriate committee shall first reduce the annual benefit payable under any
defined benefit plan in which the Participant participates and, if necessary,
the Committee shall thereafter reduce the contributions under the defined
contribution plans in which such Participant participates in accordance with
paragraph (d) of this Section 5.05.
(f) EXCESS ALLOCATIONS. If, after applying the allocation provisions under
Section 5.04 of the Plan, allocations under Section 5.04 of the Plan would
otherwise result in a Participant's account being in violation of Section 415 of
the Code, the Committee shall reduce the Employer contributions for the next
limitation year (and succeeding limitation years, as necessary) for that
Participant if that Participant is covered by the Plan as of the end of the
limitation year. However, if that Participant is not covered by the Plan as of
the end of the limitation year, then the excess amounts shall be held
unallocated in a suspense account for the limitation year and allocated and
reallocated in the next limitation year to all the remaining Participants in the
Plan; furthermore, the excess amounts shall be used to reduce Employer
contributions for the next limitation year (and succeeding limitation years, as
necessary) for all the remaining Participants in the Plan.
(g) ALLOCATIONS PURSUANT TO SECTION 5.09. Reserved.
SECTION 5.06 OTHER LIMITATIONS.
-----------------
Aside from the limitations set forth in Sections 5.05 of the Plan, in no event
shall more than one-third of the Employer contributions to the Plan be allocated
to the Accounts of Highly Compensated Employees. In order to ensure such
allocations are not made, the Committee shall, beginning with the Participants
whose Compensation exceeds the limit then in effect under Section 401(a)(17) of
the Code, reduce the amount of Compensation of such Highly Compensated Employees
on a pro-rata basis per individual that would otherwise be taken into account
for purposes of allocating benefits under Section 5.04 of the Plan. If, in
order to satisfy this Section 5.06, any such Participant's Compensation must be
reduced to an amount that is lower than the Compensation amount of the next
highest paid (based on such Participant's Compensation) Highly Compensated
Employee (the "breakpoint amount"), then, for purposes of allocating benefits
under Section 5.04 of the Plan, the Compensation of all concerned Participants
shall be reduced to an amount not to exceed such breakpoint amount.
SECTION 5.07 LIMITATIONS AS TO CERTAIN SECTION 1042 TRANSACTIONS.
---------------------------------------------------
To the extent that a shareholder of Company Stock sell qualifying Company Stock
to the Plan and elects (with the consent of the Bank) nonrecognition of gain
under Section 1042 of the Code, no portion of the Company Stock purchased in
such nonrecognition transaction (or dividends or other income attributable
thereto) may accrue or be allocated during the nonallocation period (the ten
(10) year period beginning on the later of the date of the sale of the qualified
Company Stock or the date of the Plan allocation attributable to the final
payment of an Acquisition Loan incurred in connection with such sale) for the
benefit of:
17
<PAGE>
(a) The selling shareholder;
(b) the spouse, brothers or sisters (whether by the whole or half blood),
ancestors or lineal descendants of the selling shareholder or descendant
referred to in (a) above; or
(c) any other person who owns, after application of Section 318(a) of the Code,
more than twenty-five percent (25%) of:
(i) any class of outstanding stock of the Bank or any Affiliate, or
(ii) the total value of any class of outstanding stock of the Bank or any
Affiliate.
For purposes of this Section 5.07, Section 318(a) of the Code shall be applied
without regard to the employee trust exception of Section 318(a)(2)(B)(i) of the
Code.
SECTION 5.08 DIVIDENDS.
---------
(a) STOCK DIVIDENDS. Dividends on Company Stock which are received by the
Trustee in the form of additional Company Stock shall be retained in the portion
of the Trust Fund consisting of Company Stock, and shall be allocated among the
Participant's Accounts and the Loan Suspense Account in accordance with their
holdings of the Company Stock on which the dividends have been paid.
(b) CASH DIVIDENDS ON ALLOCATED SHARES. Dividends on Company Stock credited to
Participants' Accounts which are received by the Trustee in the form of cash
shall, at the direction of the Bank, either:
(i) be credited to Participants' Accounts in accordance with Section
5.03 of the Plan and invested as part of the Trust Fund;
(ii) be distributed immediately to the Participants;
(iii) be distributed to the Participants within ninety (90) days of the
close of the Plan Year in which paid; or
(iv) be used to repay first principal and then, if available, interest
on the Acquisition Loan used to acquire Company Stock on which the
dividends were paid.
(c) CASH DIVIDENDS ON UNALLOCATED SHARES. Dividends on Company Stock held in
the Loan Suspense Account which are received by the Trustee in the form of cash
shall be applied as soon as practicable to payments of first principal and then,
if available, interest under the Acquisition Loan incurred with the purchase of
the Company Stock.
18
<PAGE>
(d) FINANCED SHARES. Financed Shares released from the Loan Suspense Account
by reason of dividends paid with respect to such Company Stock shall be
allocated under Sections 5.03 and 5.04 of the Plan as follows:
(i) First, Financed Shares with a fair market value at least equal to the
dividends paid with respect the Company Stock allocated to Participants'
Accounts shall be allocated among and credited to the Accounts of such
Participants, pro rata, according to the number of shares of Company Stock
held in such accounts on the date such dividend is declared by the Company;
(ii) Then, any remaining Financed Shares released from the Loan Suspense
Account by reason of dividends paid with respect to Company Stock held in
the Loan Suspense Account shall be allocated among and credited to the
Accounts of all Participants, pro rata, according to each Participant's
Compensation.
SECTION 5.09 CHANGE IN CONTROL PROVISIONS.
----------------------------
RESERVED
19
<PAGE>
SECTION 6
VESTING
SECTION 6.01 DEFERRED VESTING IN ACCOUNTS.
----------------------------
(a) A Participant shall become vested in his Accounts in accordance with the
following schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 2 Years of Service 0%
2 Years of Service 20%
3 Years of Service 40%
4 Years of Service 60%
5 Years of Service 80%
6 or more Years of Service 100%
For purposes of vesting, a Participant's Year of Service shall be determined
using the Plan Year as the computation period.
(b) For purposes of determining a Participant's Years of Service under this
Section 6.01, employment with the Bank or an Affiliate shall be deemed
employment with the Employer. With respect to Employees who enter the Plan
pursuant to Section 3.01(a) of the Plan, for purposes of determining a
Participant's vested percentage, all Years of Service shall be included. With
respect to Employees who enter the Plan pursuant to Section 3.01(b) of the Plan,
for purposes of determining a Participant's vested percentage, all Years of
Service shall be included, subject to the provisions of Section 6.05 of the
Plan.
SECTION 6.02 IMMEDIATE VESTING IN CERTAIN SITUATIONS.
---------------------------------------
(a) Notwithstanding Section 6.01(a) of the Plan, a Participant shall become
fully vested in his Accounts upon the earlier of:
(i) termination of the Plan or upon the permanent and complete
discontinuance of contributions by his Employer to the Plan; provided,
however, that in the event of a partial termination, the interest of each
Participant shall fully vest only with respect to that part of the Plan
which is terminated;
(ii) The Participant's Normal Retirement Age;
(iii) A "Change in Control" (as defined herein); or
(iv) Termination of employment by reason of death or Disability.
20
<PAGE>
SECTION 6.03 TREATMENT OF FORFEITURES.
------------------------
(a) If a Participant who is not fully vested in his Accounts terminates
employment, that portion of his Accounts in which he is not vested shall be
forfeited upon the earlier of:
(i) The date the Participant receives a distribution of his entire vested
benefits under the Plan, or
(ii) The date at which the Participant incurs five (5) consecutive One Year
Breaks in Service.
(b) If a Participant who has terminated employment and has received a
distribution of his entire vested benefits under the Plan is subsequently
reemployed by an Employer prior to incurring five (5) consecutive One Year
Breaks in Service, he shall have the portion of his Accounts which was
previously forfeited restored to his Accounts, provided he repays to the Trustee
within five (5) years of his subsequent employment date an amount equal to the
distribution. The amount restored to the Participant's Account shall be
credited to his Account as of the last day of the Plan Year in which the
Participant repays the distributed amount to the Trustee and the restored amount
shall come from other Employees' forfeitures and, if such forfeitures are
insufficient, from a special contribution by his Employer for that year. If a
Participant's employment terminates prior to his Account having become vested,
such Participant shall be deemed to have received a distribution of his entire
vested interest as of the Valuation Date next following his termination of
employment.
(c) If a Participant who has terminated employment but has not received a
distribution of his entire vested benefits under the Plan is subsequently
reemployed by an Employer subsequent to incurring five (5) consecutive One Year
Breaks in Service, any undistributed balance of his Accounts from his prior
participation which was not forfeited shall be maintained as a fully vested
subaccount with his Account.
(d) If a portion of a Participant's Account is forfeited, assets other than
Company Stock must be forfeited before any Company Stock may be forfeited.
(e) Forfeitures shall be reallocated among the other Participants in the Plan.
SECTION 6.04 ACCOUNTING FOR FORFEITURES.
--------------------------
A forfeiture shall be charged to the Participant's Account as of the first day
of the first Valuation Period in which the forfeiture becomes certain pursuant
to Section 6.03 of the Plan. Except as otherwise provided in Section 6.03 of the
Plan, a forfeiture shall be added to the contributions of the terminated
Participant's Employer which are to be credited to other Participants pursuant
to Section 4 as of the last day of the Plan Year in which the forfeiture becomes
certain.
21
<PAGE>
SECTION 6.05 VESTING UPON REEMPLOYMENT.
-------------------------
(a) If an Employee is not vested in his Accounts, incurs a One Year Break in
Service and again performs an Hour of Service, such Employee shall receive
credit for his Years of Service prior to his One Year Break in Service only if
the number of consecutive One Year Breaks in Service is less than the greater
of: (i) five (5) years or (ii) the aggregate number of his Years of Service
credited before his One Year Break in Service.
(b) If a Participant is partially vested in his Accounts, incurs a One Year
Break in Service and again performs an Hour of Service, such Participant shall
receive credit for his Years of Service prior to his One Year Break in Service;
provided, however, that after five (5) consecutive One Year Breaks in Service, a
former Participant's vested interest in his Accounts attributable to Years of
Service prior to his One Year Break in Service shall not be increased as a
result of his Years of Service following his reemployment date.
(c) If a Participant is fully vested in his Accounts, incurs a One Year Break in
Service and again performs an Hour of Service, such Participant shall receive
credit for all his Years of Service prior to his One Year Breaks in Service.
22
<PAGE>
SECTION 7
DISTRIBUTIONS
SECTION 7.01 DISTRIBUTION OF BENEFIT UPON A TERMINATION OF EMPLOYMENT.
--------------------------------------------------------
(a) A Participant whose employment terminates for any reason shall receive the
entire vested portion of his Accounts in a single payment on a date selected by
the Committee; provided, however, that such date shall be on or before the 60th
day after the end of the Plan Year in which the Participant's employment
terminated. The benefits from that portion of the Participant's Other
Investments Account shall be calculated on the basis of the most recent
Valuation Date before the date of payment. Subject to the provisions of Section
7.05 of the Plan, if the Committee so provides, a Participant may elect that his
benefits be distributed to him in the form of either Company Stock, cash, or
some combination thereof.
(b) Notwithstanding paragraph (a) of this Section 7.01, if the balance credited
to a Participant's Accounts exceeds, or has ever exceeded at the time such
benefit was distributable, $5,000, his benefits shall not be paid before the
latest of his 65th birthday or the tenth anniversary of the year in which he
commenced participation in the Plan, unless he elects an early payment date in a
written election filed with the Committee. Such an election is not valid unless
it is made after the Participant has received the required notice under Section
1.411(a)-11(c) of the Treasury Regulations that provides a general description
of the material features of a lump sum distribution and the Participant's right
to defer receipt of his benefits under the Plan. The notice shall be provided
no less than 30 days and no more than 90 days before the first day on which all
events have occurred which entitle the Participant to such benefit. Written
consent of the Participant to the distribution generally may not be made within
30 days of the date the Participant receives the notice and shall not be made
more than 90 days from the date the Participant receives the notice. However, a
distribution may be made less than 30 days after the notice provided under
Section 1.411(a)-11(c) of the Treasury Regulations is given, if:
(i) the Committee clearly informs the Participant that he has a right to
period of at least 30 days after receiving the notice to consider the
decision of whether or not to elect a distribution (and if applicable, a
particular distribution option), and
(ii) the Participant, after receiving the notice, affirmatively elects a
distribution.
A Participant may modify such an election at any time, provided any new benefit
payment date is at least 30 days after a modified election is delivered to the
Committee.
SECTION 7.02 MINIMUM DISTRIBUTION REQUIREMENTS.
---------------------------------
With respect to all Participants, other than those who are "5% owners" (as
defined in Section 416 of the Code), benefits shall be paid no later than the
April 1st of the later of:
(i) the calendar year following the calendar year in which the Participant
attains age 70-1/2, or
23
<PAGE>
(ii) the calendar year in which the Participant retires.
With respect to all Participants who are 5% owners within the meaning of Section
416 of the Code, such Participants benefits shall be paid no later than the
April 1st of the calendar year following the calendar year in which the
Participant attains age 70-1/2.
SECTION 7.03 BENEFITS ON A PARTICIPANT'S DEATH.
---------------------------------
(a) If a Participant dies before his benefits are paid pursuant to Section 7.01
of the Plan, the balance credited to his Accounts shall be paid to his
Beneficiary in a single distribution on or before the 60th day after the end of
the Plan Year in which the Participant died. If the Participant has not named a
Beneficiary or if his named Beneficiary should not survive him, then the balance
in his Account shall be paid to his estate. The benefits from that portion of
the Participant's Other Investments Account shall be calculated on the basis of
the most recent Valuation Date before the date of payment.
(b) If a married Participant dies before his benefit payments begin, then,
unless he has specifically elected otherwise, the Committee shall cause the
balance in his Accounts to be paid to his spouse, as Beneficiary. A married
Participant may name an individual other than his spouse as his Beneficiary,
provided that such election is accompanied by the spouse's written consent,
which must:
(i) acknowledge the effect of the election;
(ii) explicitly provide either that the designated Beneficiary may not
subsequently be changed by the Participant without the spouse's further
consent or that it may be changed without such consent; and
(iii) must be witnessed by the Committee, its representative, or a notary
public.
This requirement shall not apply if the Participant establishes to the
Committee's satisfaction that the spouse may not be located.
(c) The Committee shall from time to time take whatever steps it deems
appropriate to keep informed of each Participant's marital status. Each
Employer shall provide the Committee with the most reliable information in the
Employer's possession regarding its Participants' marital status, and the
Committee may, in its discretion, require a notarized affidavit from any
Participant as to his marital status. The Committee, the Plan, the Trustee, and
the Employers shall be fully protected and discharged from any liability to the
extent of any benefit payments made as a result of the Committee's good faith
and reasonable reliance upon information obtained from a Participant as to the
Participant's marital status.
24
<PAGE>
SECTION 7.04 DELAY IN BENEFIT DETERMINATION.
------------------------------
If the Committee is unable to determine the benefits payable to a Participant or
Beneficiary on or before the latest date prescribed for payment pursuant to this
Section 7, the benefits shall in any event be paid within 60 days after they can
first be determined, with whatever makeup payments may be appropriate in view of
the delay.
SECTION 7.05 OPTIONS TO RECEIVE AND SELL STOCK.
---------------------------------
(a) Unless ownership of virtually all Company Stock is restricted to active
Employees and qualified retirement plans for the benefit of Employees pursuant
to the certificates of incorporation or by-laws of the Employers issuing Company
Stock, a terminated Participant or the Beneficiary of a deceased Participant may
instruct the Committee to distribute the Participant's entire vested interest in
his Accounts in the form of Company Stock. In that event, the Committee shall
apply the Participant's vested interest in his Other Investments Account to
purchase sufficient Company Stock to make the required distribution.
(b) Any Participant who receives Company Stock pursuant to this Section, and any
person who has received Company Stock from the Plan or from such a Participant
by reason of the Participant's death or incompetency, by reason of divorce or
separation from the Participant, or by reason of a rollover distribution
described in Section 402(c) of the Code, shall have the right to require the
Employer which issued the Company Stock to purchase the Company Stock for its
current fair market value (hereinafter referred to as the "put right"). The put
right shall be exercisable by written notice to the Committee during the first
60 days after the Company Stock is distributed by the Plan, and, if not
exercised in that period, during the first 60 days in the following Plan Year
after the Committee has communicated to the Participant its determination as to
the Company Stock's current fair market value. If the put right is exercised,
the Trustee may, if so directed by the Committee in its sole discretion, assume
the Employer's rights and obligations with respect to purchasing the Stock.
However, the put right shall not apply to the extent that the Company Stock, at
the time the put right would otherwise be exercisable, may be sold on an
established market in accordance with federal and state securities laws and
regulations.
(c) With respect to a put right, the Employer or the Trustee, as the case may
be, may elect to pay for the Company Stock in equal periodic installments, not
less frequently than annually, over a period not longer than five (5) years from
the 30th day after the put right is exercised pursuant to paragraph (b) of this
Section 7.05, with adequate security and interest at a reasonable rate on the
unpaid balance, all such terms to be set forth in a promissory note delivered to
the seller with normal terms as to acceleration upon any uncured default.
(d) Nothing contained in this Section 7.05 shall be deemed to obligate any
Employer to register any Company Stock under any federal or state securities law
or to create or maintain a public market to facilitate the transfer or
disposition of any Company Stock. The put right described in this Section 7.05
may only be exercised by a person described in the paragraph (b) of this Section
7.05, and may
25
<PAGE>
not be transferred with any Company Stock to any other person. As to all Company
Stock purchased by the Plan in exchange for any Acquisition Loan, the put right
be nonterminable. The put right for Company Stock acquired through a Acquisition
Loan shall continue with respect to such Company Stock after the Acquisition
Loan is repaid or the Plan ceases to be an employee stock ownership plan. Except
as provided above, in accordance with the provisions of Sections 54.4975-7(b)(4)
of the Treasury Regulations, no Company Stock acquired with the proceeds of an
Acquisition Loan may be subject to any put, call or other option or buy-sell or
similar arrangement while held by, and when distributed from, the Plan, whether
the Plan is then an employee stock ownership plan.
SECTION 7.06 RESTRICTIONS ON DISPOSITION OF STOCK.
------------------------------------
Except in the case of Company Stock which is traded on an established market, a
Participant who receives Company Stock pursuant to this Section 7, and any
person who has received Company Stock from the Plan or from such a Participant
by reason of the Participant's death or incompetency, by reason of divorce or
separation from the Participant, or by reason of a rollover distribution
described in Section 402(c) of the Code, shall, prior to any sale or other
transfer of the Company Stock to any other person, first offer the Company Stock
to the issuing Employer and to the Plan at its current fair market value. This
restriction shall apply to any transfer, whether voluntary, involuntary, or by
operation of law, and whether for consideration or gratuitous. Either the
Employer or the Trustee may accept the offer within 14 days after it is
delivered. Any Company Stock distributed by the Plan shall bear a conspicuous
legend describing the right of first refusal under this Section 7.06, as
applicable, as well as any other restrictions upon the transfer of the Company
Stock imposed by federal and state securities laws and regulations.
SECTION 7.07 DIRECT TRANSFER OF ELIGIBLE PLAN DISTRIBUTIONS.
----------------------------------------------
(a) A Participant or Beneficiary may direct that an "eligible rollover
distribution" (as defined below) included in a payment made pursuant to this
Section 7 be paid directly to an "eligible retirement plan" (as defined below).
(b) To effect such a direct transfer, the Participant or Beneficiary must notify
the Committee that a direct transfer is desired and provide to the Committee the
eligible retirement plan to which the payment is to be made. Such notice shall
be made in such form and at such time as the Committee may prescribe. Upon
receipt of such notice, the Committee shall direct the Trustee to make a
trustee-to-trustee transfer of the eligible rollover distribution to the
eligible retirement plan so specified.
(c) For purposes of this Section 7.07, an "eligible rollover distribution" shall
have the meaning set forth in Section 402(c)(4) of the Code and any Treasury
Regulations promulgated thereunder. To the extent such meaning is not
inconsistent with the above references, an eligible rollover distribution shall
mean any distribution of all or any portion of the Participant's Account, except
that such term shall not include any distribution which is one of a series of
substantially equal periodic payments (not less frequently than annually) made
(i) for the life (or life expectancy) of the
26
<PAGE>
Participant or the joint lives (or joint life expectancies) of the Participant
and a designated Beneficiary, or (ii) for a period of ten years or more.
Further, the term "eligible rollover distribution" shall not include any
distribution required to be made under Section 401(a)(9) of the Code.
(d) For purposes of this Section 7.07, an "eligible retirement plan" shall have
the meaning set forth in Section 402(c)(8) of the Code and any Treasury
Regulations promulgated thereunder. To the extent such meaning is not
inconsistent with the above references, an eligible retirement plan shall mean:
(i) an individual retirement account described in Section 408(a) of the Code;
(ii) an individual retirement annuity described in Section 408(b) of the Code
(other than an endowment contract), (iii) a qualified trust described in Section
401(a) of the Code and exempt under Section 501(a) of the Code, and (iv) an
annuity plan described in Section 403(a) of the Code.
27
<PAGE>
SECTION 8
VOTING OF COMPANY STOCK AND TENDER OFFERS
SECTION 8.01 VOTING OF COMPANY STOCK.
-----------------------
(a) IN GENERAL. The Trustee shall generally vote all shares of Company Stock
held in the Trust in accordance with the provisions of this Section 8.01.
(b) ALLOCATED SHARES. Shares of Company Stock which have been allocated to
Participants' Accounts shall be voted by the Trustee in accordance with the
Participants' written instructions.
(c) UNINSTRUCTED AND UNALLOCATED SHARES. Shares of Company Stock which have
been allocated to Participants' Accounts but for which no written instructions
have been received by the Trustee regarding voting shall be voted by the Trustee
in a manner calculated to most accurately reflect the instructions the Trustee
has received from Participants regarding voting shares of allocated Company
Stock. Shares of unallocated Company Stock shall also be voted by the Trustee
in a manner calculated to most accurately reflect the instructions the Trustee
has received from Participants regarding voting shares of allocated Company
Stock. Notwithstanding the preceding two sentences, all shares of Company Stock
which have been allocated to Participants' Accounts and for which the Trustee
has not timely received written instructions regarding voting and all
unallocated shares of Company Stock must be voted by the Trustee in a manner
determined by the Trustee to be solely in the best interests of the Participants
and Beneficiaries.
(d) VOTING PRIOR TO ALLOCATION. In the event no shares of Company Stock have
been allocated to Participants' Accounts at the time Company Stock is to be
voted, each Participant shall be deemed to have one share of Company Stock
allocated to his Accounts for the sole purpose of providing the Trustee with
voting instructions.
(e) PROCEDURE AND CONFIDENTIALITY. Whenever such voting rights are to be
exercised, the Employers, the Committee, and the Trustee shall see that all
Participants and Beneficiaries are provided with the same notices and other
materials as are provided to other holders of the Company Stock, and are
provided with adequate opportunity to deliver their instructions to the Trustee
regarding the voting of Company Stock allocated to their Accounts or deemed
allocated to their Accounts for purposes of voting. The instructions of the
Participants with respect to the voting of shares of Company Stock shall be
confidential.
SECTION 8.02 TENDER OFFERS.
-------------
In the event of a tender offer, Company Stock shall be tendered by the Trustee
in the same manner set forth in Section 8.01 of the Plan regarding the voting of
Company Stock.
28
<PAGE>
SECTION 9
THE COMMITTEE AND PLAN ADMINISTRATION
SECTION 9.01 IDENTITY OF THE COMMITTEE.
-------------------------
The Committee shall consist of three or more individuals selected by the Bank.
Any individual, including a director, trustee, shareholder, officer, or Employee
of an Employer, shall be eligible to serve as a member of the Committee. The
Bank shall have the power to remove any individual serving on the Committee at
any time without cause upon ten (10) days written notice to such individual and
any individual may resign from the Committee at any time without reason upon ten
(10) days written notice to the Bank. The Bank shall notify the Trustee of any
change in membership of the Committee.
SECTION 9.02 AUTHORITY OF COMMITTEE.
----------------------
(a) The Committee shall be the "plan administrator" within the meaning of ERISA
and shall have exclusive responsibility and authority to control and manage the
operation and administration of the Plan, including the interpretation and
application of its provisions, except to the extent such responsibility and
authority are otherwise specifically:
(i) allocated to the Bank, the Employers, or the Trustee under the Plan
and Trust Agreement;
(ii) delegated in writing to other persons by the Bank, the Employers, the
Committee, or the Trustee; or
(iii) allocated to other parties by operation of law.
(b) The Committee shall have exclusive responsibility regarding decisions
concerning the payment of benefits under the Plan.
(c) The Committee shall have full investment responsibility with respect to the
Investment Fund except to the extent, if any, specifically provided in the Trust
Agreement.
(d) In the discharge of its duties, the Committee may employ accountants,
actuaries, legal counsel, and other agents (who also may be employed by an
Employer or the Trustee in the same or some other capacity) and may pay such
individuals reasonable compensation and expenses for their services rendered
with respect to the operation or administration of the Plan to the extent such
payments are not otherwise prohibited by law.
29
<PAGE>
SECTION 9.03 DUTIES OF COMMITTEE.
-------------------
(a) The Committee shall keep whatever records may be necessary in connection
with the maintenance of the Plan and shall furnish to the Employers whatever
reports may be required from time to time by the Employers. The Committee shall
furnish to the Trustee whatever information may be necessary to properly
administer the Trust. The Committee shall see to the filing with the
appropriate government agencies of all reports and returns required with respect
to the Plan under ERISA and the Code and other applicable laws.
(b) The Committee shall have exclusive responsibility and authority with respect
to the Plan's holdings of Company Stock and shall direct the Trustee in all
respects regarding the purchase, retention, sale, exchange, and pledge of
Company Stock and the creation and satisfaction of any Acquisition Loan to the
extent such responsibilities are not set forth in the Trust Agreement.
(c) The Committee shall at all times act consistently with the Bank's long-term
intention that the Plan, as an employee stock ownership plan, be invested
primarily in Company Stock. Subject to the direction of the Committee with
respect to any Acquisition Loan pursuant to the provisions of Section 4.03 of
the Plan, and subject to the provisions of Sections 7.05 and 11.04 of the Plan
as to Participants' rights under certain circumstances to have their Accounts
invested in Company Stock or in assets other than Company Stock, the Committee
shall determine, in its sole discretion, the extent to which assets of the Trust
shall be used to repay any Acquisition Loan, to purchase Company Stock, or to
invest in other assets selected by the Committee or an investment manager. No
provision of the Plan relating to the allocation or vesting of any interests in
the Company Stock or investments other than Company Stock shall restrict the
Committee from changing any holdings of the Trust Fund, whether the changes
involve an increase or a decrease in the Company Stock or other assets credited
to Participants' Accounts. In determining the proper extent of the Trust Fund's
investment in Company Stock, the Committee shall be authorized to employ
investment counsel, legal counsel, appraisers, and other agents and to pay their
reasonable compensation and expenses to the extent such payments are not
prohibited by law.
(d) If the valuation of any Company Stock is not established by reported
trading on a generally recognized public market, then the Committee shall have
the exclusive authority and responsibility to determine value of the Company
Stock for all purposes under the Plan. Such value shall be determined as of
each Valuation Date and on any other date as of which the Trustee purchases or
sells Company Stock in a manner consistent with Section 4975 of the Code and the
Treasury Regulations thereunder. The Committee shall use generally accepted
methods of valuing stock of similar corporations for purposes of arm's length
business and investment transactions, and in this connection the Committee shall
obtain, and shall be protected in relying upon, the valuation of Company Stock
as determined by an independent appraiser experienced in preparing valuations of
similar businesses.
30
<PAGE>
SECTION 9.04 COMPLIANCE WITH ERISA AND THE CODE.
----------------------------------
The Committee shall perform all acts necessary to ensure the Plan's compliance
with ERISA and the Code. Each individual member of the Committee shall
discharge his duties in good faith and in accordance with the applicable
requirements of ERISA and the Code.
SECTION 9.05 ACTION BY COMMITTEE.
-------------------
All actions of the Committee shall be governed by the affirmative vote of a
number of the members of the Committee which is a majority of the total number
of the members of the Committee. The members of the Committee may meet
informally and may take any action without meeting as a group.
SECTION 9.06 EXECUTION OF DOCUMENTS.
----------------------
Any instrument executed by the Committee may be signed by any member of the
Committee.
SECTION 9.07 ADOPTION OF RULES.
-----------------
The Committee shall adopt such rules and regulations of uniform applicability as
it deems necessary or appropriate for the proper operation, administration and
interpretation of the Plan.
SECTION 9.08 RESPONSIBILITIES TO PARTICIPANTS.
--------------------------------
The Committee shall determine which Employees qualify to participate in the
Plan. The Committee shall furnish to each Eligible Employee whatever summary
plan descriptions, summary annual reports, and other notices and information may
be required under ERISA. The Committee also shall determine when a Participant
or his Beneficiary qualifies for the payment of benefits under the Plan. The
Committee shall furnish to each such Participant or Beneficiary whatever
information is required under ERISA or the Code (or is otherwise appropriate) to
enable the Participant or Beneficiary to make whatever elections may be
available pursuant to Section 7, and the Committee shall provide for the payment
of benefits in the proper form and amount from the Trust. The Committee may
decide in its sole discretion to permit modifications of elections and to defer
or accelerate benefits to the extent consistent with the terms of the Plan,
applicable law, and the best interests of the individuals concerned.
SECTION 9.09 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY.
-----------------------------------------
If the Committee finds at any time that an individual qualifying for benefits
under this Plan is a minor or is incompetent, the Committee may direct the
benefits to be paid, in the case of a minor, to his parents, his legal guardian,
a custodian for him under the Uniform Transfers to Minors Act, or the person
having actual custody of him, or, in the case of an incompetent, to his spouse,
his legal
31
<PAGE>
guardian, or the person having actual custody of him. The Committee and the
Trustee shall not be obligated to inquire as to the actual use of the funds by
the person receiving them under this Section 9.09, and any such payment shall
completely discharge the obligations of the Plan, the Trustee, the Committee,
and the Employers to the extent of the payment.
SECTION 9.10 INDEMNIFICATION BY EMPLOYERS.
----------------------------
Except as separately agreed in writing, the Committee, and any member or
employee of the Committee, shall be indemnified and held harmless by the
Employers, jointly and severally, to the fullest extent permitted by law against
any and all costs, damages, expenses, and liabilities reasonably incurred by or
imposed upon the Committee or such individual in connection with any claim made
against the Committee or such individual or in which the Committee or such
individual may be involved by reason of being, or having been, the Committee, or
a member or employee of the Committee, to the extent such amounts are not paid
by insurance.
SECTION 9.11 ABSTENTION BY INTERESTED MEMBER.
-------------------------------
Any member of the Committee who also is a Participant in the Plan shall take no
part in any determination specifically relating to his own participation or
benefits under the Plan, unless his abstention would render the Committee
incapable of acting on the matter.
32
<PAGE>
SECTION 10
RULES GOVERNING BENEFIT CLAIMS
SECTION 10.01 CLAIM FOR BENEFITS.
------------------
Any Participant or Beneficiary who qualifies for the payment of benefits shall
file a claim for his benefits with the Committee on a form provided by the
Committee. The claim, including any election of an alternative benefit form,
shall be filed at least 30 days before the date on which the benefits are to
begin. If a Participant or Beneficiary fails to file a claim by the 30th day
before the date on which benefits become payable, he shall be presumed to have
filed a claim for payment for the Participant's benefits in the standard form
prescribed by Section 7 of the Plan.
SECTION 10.02 NOTIFICATION BY COMMITTEE.
-------------------------
Within 90 days after receiving a claim for benefits (or within 180 days, if
special circumstances require an extension of time and written notice of the
extension is given to the Participant or Beneficiary within 90 days after
receiving the claim for benefits), the Committee shall notify the Participant or
Beneficiary whether the claim has been approved or denied. If the Committee
denies a claim in any respect, the Committee shall set forth in a written notice
to the Participant or Beneficiary:
(a) each specific reason for the denial;
(b) specific references to the pertinent Plan provisions on which the denial is
based;
(c) a description of any additional material or information which could be
submitted by the Participant or Beneficiary to support his claim, with an
explanation of the relevance of such information; and
(d) an explanation of the claims review procedures set forth in Section 10.03 of
the Plan.
SECTION 10.03 CLAIMS REVIEW PROCEDURE.
-----------------------
Within 60 days after a Participant or Beneficiary receives notice from the
Committee that his claim for benefits has been denied in any respect, he may
file with the Committee a written notice of appeal setting forth his reasons for
disputing the Committee's determination. In connection with his appeal the
Participant or Beneficiary or his representative may inspect or purchase copies
of pertinent documents and records to the extent not inconsistent with other
Participants' and Beneficiaries' rights of privacy. Within 60 days after
receiving a notice of appeal from a prior determination (or within 120 days, if
special circumstances require an extension of time and written notice of the
extension is given to the Participant or Beneficiary and his representative
within 60 days after receiving the notice of appeal), the Committee shall
furnish to the Participant or Beneficiary and his representative, if any, a
written statement of the Committee's final decision with
33
<PAGE>
respect to his claim, including the reasons for such decision and the
particular Plan provisions upon which it is based.
34
<PAGE>
SECTION 11
THE TRUST
SECTION 11.01 CREATION OF TRUST FUND.
----------------------
All amounts received under the Plan from an Employer and investments shall be
held in a Trust Fund pursuant to the terms of this Plan and the Trust Agreement.
The benefits described in this Plan shall be payable only from the assets of the
Trust Fund. Neither the Bank, any other Employer, its board of directors or
trustees, its stockholders, its officers, its employees, the Committee, nor the
Trustee shall be liable for payment of any benefit under this Plan except from
the Trust Fund.
SECTION 11.02 COMPANY STOCK AND OTHER INVESTMENTS.
-----------------------------------
Trust Fund held by the Trustee shall be divided into Company Stock and
investments other than Company Stock. The Trustee shall have no investment
responsibility for the portion of the Trust Fund consisting of Company Stock,
but shall accept any Employer contributions made in the form of Company Stock,
and shall acquire, sell, exchange, distribute, and otherwise deal with and
dispose of Company Stock in accordance with the instructions of the Committee.
SECTION 11.03 ACQUISITION OF COMPANY STOCK.
----------------------------
From time to time the Committee may, in its sole discretion, direct the Trustee
to acquire Company Stock from the issuing Employer or from shareholders,
including shareholders who are or have been Employees, Participants, or
fiduciaries with respect to the Plan. The Trustee shall pay for such Company
Stock no more than its fair market value, which shall be determined conclusively
by the Committee pursuant to Section 9.03(d) of the Plan. The Committee may
direct the Trustee to finance the acquisition of Company Stock through an
Acquisition Loan subject to the provisions of Section 4.03 of the Plan.
SECTION 11.04 PARTICIPANTS' OPTION TO DIVERSIFY.
---------------------------------
The Committee shall provide for a procedure under which each Participant may,
during the first five years of a certain six-year period, elect to have up to 25
percent of the value of his Accounts committed to alternative investment options
within an "Investment Fund." For the sixth year in this period, the Participant
may elect to have up to 50 percent of the value of his Accounts committed to
other investments. The six-year period shall begin with the Plan Year following
the first Plan Year in which the Participant has both reached aged 55 and
completed 10 years of participation in the Plan; a Participant's election to
diversify his Accounts must be made within the 90-day period immediately
following the last day of each of the six Plan Years. The Committee shall see
that the Investment Fund includes a sufficient number of investment options to
comply with Section 401(a)(28)(B) of the Code. The Committee may, in its
discretion, permit a transfer of a portion of the Participant's Accounts to the
Savings Plan in order to satisfy this Section 11.04, provided such investments
comply with Section 401(a)(28)(B) and such transfer is not otherwise prohibited
under
35
<PAGE>
the Code or ERISA. The Trustee shall comply with any investment directions
received from Participants in accordance with the procedures adopted from time
to time by the Committee under this Section 11.04.
36
<PAGE>
SECTION 12
ADOPTION, AMENDMENT AND TERMINATION
SECTION 12.01 ADOPTION OF PLAN BY OTHER EMPLOYERS.
-----------------------------------
With the consent of the Bank, any entity may become a participating Employer
under the Plan by:
(a) taking such action as shall be necessary to adopt the Plan;
(b) becoming a party to the Trust Agreement establishing the Trust Fund; and
(c) executing and delivering such instruments and taking such other action as
may be necessary or desirable to put the Plan into effect with respect to the
entity's Employees.
SECTION 12.02 ADOPTION OF PLAN BY SUCCESSOR.
-----------------------------
In the event that any Employer shall be reorganized by way of merger,
consolidation, transfer of assets or otherwise, so that an entity other than an
Employer shall succeed to all or substantially all of the Employer's business,
the successor entity may be substituted for the Employer under the Plan by
adopting the Plan and becoming a party to the Trust Agreement. Contributions by
the Employer shall be automatically suspended from the effective date of any
such reorganization until the date upon which the substitution of the successor
entity for the Employer under the Plan becomes effective. If, within 90 days
following the effective date of any such reorganization, the successor entity
shall not have elected to become a party to the Plan, or if the Employer shall
adopt a plan of complete liquidation other than in connection with a
reorganization, the Plan shall be automatically terminated with respect to
Employees of the Employer as of the close of business on the 90th day following
the effective date of the reorganization, or as of the close of business on the
date of adoption of a plan of complete liquidation, as the case may be.
SECTION 12.03 PLAN ADOPTION SUBJECT TO QUALIFICATION.
--------------------------------------
Notwithstanding any other provision of the Plan, the adoption of the Plan and
the execution of the Trust Agreement are conditioned upon their being determined
initially by the Internal Revenue Service to meet the qualification requirements
of Section 401(a) of the Code, so that the Employers may deduct currently for
federal income tax purposes their contributions to the Trust and so that the
Participants may exclude the contributions from their gross income and recognize
income only when they receive benefits. In the event that this Plan is held by
the Internal Revenue Service not to qualify initially under Section 401(a) of
the Code, the Plan may be amended retroactively to the earliest date permitted
by the Code and the applicable Treasury Regulations in order to secure
qualification under Section 401(a) of the Code. If this Plan is held by the
Internal Revenue Service not to qualify initially under Section 401(a) of the
Code either as originally adopted or as amended, each Employer's contributions
to the Trust under this Plan (including any earnings thereon) shall be returned
to it and this Plan shall be terminated. In the event that this Plan is amended
after its initial
37
<PAGE>
qualification and the Plan as amended is held by the Internal Revenue Service
not to qualify under Section 401(a) of the Code, the amendment may be modified
retroactively to the earliest date permitted by the Code and the applicable
Treasury Regulations in order to secure approval of the amendment under Section
401(a) of the Code.
SECTION 12.04 RIGHT TO AMEND OR TERMINATE.
---------------------------
The Bank intends to continue this Plan as a permanent program. However, each
participating Employer separately reserves the right to suspend, supersede, or
terminate the Plan at any time and for any reason, as it applies to that
Employer's Employees, and the Bank reserves the right to amend, suspend,
supersede, merge, consolidate, or terminate the Plan at any time and for any
reason, as it applies to the Employees of all Employers. No amendment,
suspension, supersession, merger, consolidation, or termination of the Plan
shall reduce any Participant's or Beneficiary's proportionate interest in the
Trust Fund, or shall divert any portion of the Trust Fund to purposes other than
the exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan. Except as is required for
purposes of compliance with the Code or ERISA, the provisions of Section 4.04
relating to the crediting of contributions, forfeitures and shares of Company
Stock released from the Loan Suspense Account, nor any other provision of the
Plan relating to the allocation of benefits to Participants, may be amended more
frequently than once every six months. Moreover, there shall not be any
transfer of assets to a successor plan or merger or consolidation with another
plan unless, in the event of the termination of the successor plan or the
surviving plan immediately following such transfer, merger, or consolidation,
each participant or beneficiary would be entitled to a benefit equal to or
greater than the benefit he would have been entitled to if the plan in which he
was previously a participant or beneficiary had terminated immediately prior to
such transfer, merger, or consolidation. Following a termination of this Plan
by the Bank, the Trustee shall continue to administer the Trust and pay benefits
in accordance with the Plan and the Committee's instructions.
38
<PAGE>
SECTION 13
GENERAL PROVISIONS
SECTION 13.01 NONASSIGNABILITY OF BENEFITS.
----------------------------
The interests of Participants and other persons entitled to benefits under the
Plan shall not be subject to the claims of their creditors and may not be
voluntarily or involuntarily assigned, alienated, pledged, encumbered, sold, or
transferred. The prohibitions set forth in this Section 13.01 shall also apply
any judgement, decree, or order (including approval of a property or settlement
agreement) which relates to the provision of child support, alimony, or property
rights to a present or former spouse, child, or other dependent of a Participant
pursuant to a domestic relations order, unless such judgement, decree or order
is determined to be a "qualified domestic relations order" as defined in Section
414(p) of the Code.
SECTION 13.02 LIMIT OF EMPLOYER LIABILITY.
---------------------------
The liability of the Employers with respect to Participants and other persons
entitled to benefits under the Plan shall be limited to making contributions to
the Trust from time to time, in accordance with Section 4 of the Plan.
SECTION 13.03 PLAN EXPENSES.
-------------
All expenses incurred by the Committee or the Trustee in connection with
administering the Plan and Trust shall be paid by the Trustee from the Trust
Fund to the extent the expenses have not been paid or assumed by the Employers
or by the Trustee.
SECTION 13.04 NONDIVERSION OF ASSETS.
----------------------
Except as provided in Sections 5.05 and 12.03 of the Plan, under no
circumstances shall any portion of the Trust Fund be diverted to or used for any
purpose other than the exclusive benefit of the Participants and their
Beneficiaries prior to the satisfaction of all liabilities under the Plan.
SECTION 13.05 SEPARABILITY OF PROVISIONS.
--------------------------
If any provision of the Plan is held to be invalid or unenforceable, the other
provisions of the Plan shall not be affected but shall be applied as if the
invalid or unenforceable provision had not been included in the Plan.
SECTION 13.06 SERVICE OF PROCESS.
------------------
The agent for the service of process upon the Plan shall be the president of the
Bank and the Trustee, or such other person as may be designated from time to
time by the Bank.
39
<PAGE>
SECTION 13.07 GOVERNING LAW.
-------------
The Plan is established under, and its validity, construction and effect shall
be governed by the laws of the State of Indiana to the extent those laws are not
preempted by federal law, including the provisions of ERISA.
SECTION 13.08 SPECIAL RULES FOR PERSONS SUBJECT TO SECTION 16(b)
--------------------------------------------------
REQUIREMENTS.
------------
Notwithstanding anything herein to the contrary, any former Participant who is
subject to the provisions of Section 16(b) of the Securities Exchange Act of
1934, who becomes eligible to again participate in the Plan, may not become a
Participant prior to the date that is six months from the date such former
Participant terminated participation in the Plan. In addition, any person
subject to the provisions of Section 16(b) of the 1934 Act receiving a
distribution of Company Stock from the Plan must hold such Company Stock for a
period of six months commencing with the date of distribution. However, this
restriction will not apply to Company Stock distributions made in connection
with death, retirement, disability or termination of employment, or made
pursuant to the terms of a qualified domestic relations order.
40
<PAGE>
SECTION 14
TOP-HEAVY PROVISIONS
SECTION 14.01 TOP-HEAVY PROVISIONS.
--------------------
If, as of the last day of the first Plan Year, or thereafter, if as of the day
next preceding the beginning of any Plan Year (the "Determination Date"), the
Plan is a "top-heavy plan" (determined in accordance with the provisions of
Section 416(g) of the Code); that is, the aggregate present value of the accrued
benefits and account balances of all "Key Employees" (within the meaning of
Section 416(i) of the Code and for this purpose using the definition of
Compensation, as modified under Section 5.5(b) of the Plan) and their
Beneficiaries, the provision specified in this Section 14 will automatically
become effective as of the first day of the Plan Year. For purposes of the
above sentence, the aggregate present value of the accrued benefits and account
balances of a Participant who has not performed any services for the Bank or any
of its Affiliates during the five-year period ending on the Determination Date
shall not be taken into account. This calculation shall be made in accordance
with Section 416(g) of the Code, taking into consideration plans which are
considered part of the Aggregation Group. The term "Aggregation Group" shall
include each plan of the Bank or any of its Affiliates that includes a Key
Employee and each plan of the Bank or any of its Affiliates that allows the Plan
to meet the requirements of Section 401(a)(4) of the Code or Section 410 of the
Code and may include any other plan of the Bank or any of its Affiliates, if the
Aggregation Group would continue to meet the requirements of Sections 401(a)(4)
and 410 of the Code.
SECTION 14.02 PLAN MODIFICATIONS UPON BECOMING TOP-HEAVY.
------------------------------------------
(a) MINIMUM ACCRUALS. Section 5.04 of the Plan will be modified to provide that
the aggregate amount of Employer contributions allocated in each Plan Year to
the Accounts of each Participant who is a Non-Key Employee (within the meaning
of Section 416(i)(1) of the Code), and who is employed by an Employer as of the
last day of the Plan Year, may not be less than the lesser of:
(i) three percent of his Compensation for the Plan Year; and
(ii) a percentage of his Compensation equal to the largest percentage
obtained by dividing the sum of the amount credited to the Accounts of any
key Employee by that key Employee's Compensation; and
(b) SECTION 415(E) OF THE CODE. Section 5.05 of the Plan will be modified to
provide that the dollar limitations in the denominators of the "defined benefit
plan fraction" and "defined contribution plan fraction" (as such terms are
defined in Section 415(e) of the Code) will be multiplied by 1.0 instead of
1.25. However, the above sentence shall not apply if "four percent" is
substituted for "three percent" in paragraph (a) of this Section 14.02.
41
<PAGE>
The preceding provisions will remain in effect for the period in which the Plan
is top-heavy. If, for any particular year thereafter, the Plan is no longer
top-heavy, the provisions contained in this Section 14 shall cease to apply,
except that any previously vested portion of any Account balance shall remain
nonforfeitable.
SECTION 14.03 SUPER TOP-HEAVY PROVISIONS.
--------------------------
If, as of a Determination Date, the aggregate present value of the accrued
benefits and Account balances of all "Key Employees" (within the meaning of
Section 416(i) of the Code) and their Beneficiaries exceed 90% of the aggregate
present value of the accrued benefits and Account balances of all Participants
and Beneficiaries, paragraph (a) of Section 14.02 will automatically become
effective as of the first day of such Plan Year, except that Section 14.02(b) of
the Plan will be modified to provide that the dollar limitations in the
denominators of the defined benefit plan fraction and defined contribution plan
fraction in Section 5.05 of the Plan shall be multiplied by 1.0 instead of 1.25,
whether or not the minimum benefit is increased under Section 14.02(a) of the
Plan.
42
<PAGE>
FORM OF
FIRST FEDERAL SAVINGS BANK
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of this First Federal Savings Bank Employee Severance
Compensation Plan is to assure the services of employees of the Bank in the
event of a Change in Control. The benefits contemplated by the Plan recognize
the value to the Bank of the services and contributions of the employees of the
Bank and the effect upon the Bank resulting from the uncertainties of continued
employment, reduced employee benefits, management changes and relocations that
may arise in the event of a Change in Control. The Board believes that the Plan
will also aid the Bank in attracting and retaining the highly qualified
individuals who are essential to its success and that the Plan's assurance of
fair treatment of the Bank's employees will reduce the distractions and other
adverse effects on employees' performance in the event of a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
---------------------
As of the Effective Date of the Plan as defined herein, the Bank hereby
establishes an employee severance compensation plan to be known as the "First
Federal Savings Bank Employee Severance Compensation Plan."
1.2 Application of Plan
-------------------
The benefits provided by this Plan shall be available to all employees of
the Bank, who, at or after the Effective Date, meet the eligibility requirements
of Article III, except for those officers of the Bank who have entered into, or
who enter into in the future, and continue to be subject to, an employment or
change in control agreement with the Employer.
1.3 Contractual Right to Benefits
-----------------------------
This plan establishes and vests in each Participant a contractual right to
the benefits to which each Participant is entitled hereunder in the event of a
Change in Control, enforceable by the Participant against the Employer, the
Bank, or both. The Plan does not provide, and should not be construed as
providing, benefits of any kind to any employee except in the event of a Change
in Control and, in the event of a Change in Control, only upon the involuntary
or voluntary termination of an employee in the manner contemplated herein.
<PAGE>
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings set
forth below.
"Annual Compensation" of a Participant means and includes all wage and
salary paid (including accrued amounts) by an Employer as consideration for the
Participant's service during the 12-month period ending on the last day of the
month preceding the date of a Participant's termination pursuant to Section 4.2.
For purposes of this Plan, a Participant's "Monthly Compensation" shall equal
one-twelfth of a Participant's Annual Compensation as determined in accordance
with this paragraph.
"Bank" means First Federal Savings Bank or any successor as provided for in
Article VII hereof.
"Board" means the Board of Directors of the Bank.
"Change in Control" shall mean an event deemed to occur if and when (a) an
offeror other than the Corporation purchases shares of the stock of the
Corporation or the Bank pursuant to a tender or exchange offer for such shares,
(b) any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act) is or becomes the beneficial owner, directly or indirectly, of
securities of the Corporation or the Bank representing twenty-five percent (25%)
or more of the combined voting power of the Corporation's or the Bank's then
outstanding securities, (c) the membership of the board of directors of the
Corporation or the Bank changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four (24) month
period (whether commencing before or after the date of adoption of this Plan) do
not constitute a majority of the Board at the end of such period, or (d)
shareholders of the Corporation or the Bank approve a merger, consolidation,
sale or disposition of all or substantially all of the Corporation's or the
Bank's assets, or a plan of partial or complete liquidation. If any of the
events enumerated in clauses (a) -(d) occur, the Board shall determine the
effective date of the change in control resulting therefrom, for purposes of the
Plan.
"Company" means First Bancorp of Indiana, Inc., an Indiana corporation, the
holding company of the Bank.
"Disability" means the permanent and total inability by reason of mental or
physical infirmity, or both, of an employee to perform the work customarily
assigned to him. Additionally, a medical doctor selected or approved by the
Board must advise the Board that it is either not possible to determine if or
when such Disability will terminate or that it appears probable that such
Disability will be permanent during the remainder of said employees lifetime.
"Effective Date" means the date the Plan is approved by the Board of the
Bank, or such other date as the Board shall designate in its resolution
approving the Plan.
<PAGE>
"Employer" means (i) the Bank or (ii) a subsidiary of the Bank or a parent
company of the Bank which has adopted the plan pursuant to Article VI hereof.
"Expiration Date" means a date ten (10) years from the Effective Date
unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
"Payment" means the payment of severance compensation as provided in
Article IV hereof.
"Participant" means an employee of an Employer who meets the eligibility
requirements of Article III.
"Plan" means this First Federal Savings Bank Employee Severance
Compensation Plan.
"Termination for Cause" shall include termination because of Participant's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or other
similar offenses) or any final cease-and-desist order or material breach of any
provision of the Plan.
2.2 Applicable Law
--------------
The laws of the State of Indiana shall be controlling law in all matters
relating to the Plan to the extent not preempted by Federal law.
2.3 Severability
------------
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
The term "Participant" shall include all employees of an Employer who have
completed at least two (2) years of service with the Employer at the time of any
termination pursuant to Section 4.2 herein. For purposes of this Plan, "years
of service" shall include all years of employment with Bank in which an employee
was credited with at least 500 actual hours of service and "years of service"
shall be determined without regard to any break in service. In addition, the
term "Participant" shall, without regard to years of service, include each
employee who is a vice president or manager of the Bank. Notwithstanding the
foregoing, an employee who has entered into and continues to be covered by an
individual employment contract or change in control agreement with an Employer
shall not be entitled to participate in this Plan.
<PAGE>
3.2 Duration of Participation
-------------------------
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an employee of an Employer, unless such Participant is
entitled to a Payment as provided in the Plan. A Participant entitled to receipt
of a Payment shall remain a Participant in this Plan until the full amount of
such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
A Participant shall be entitled to receive from his or her Employer a
Payment in the amount provided in Section 4.3 if a Change in Control occurs and
if, within one (1) year thereafter, the Participant's employment by an Employer
shall terminate for any reason specified in Section 4.2. A Participant shall
not be entitled to a Payment if termination occurs by reason of death, voluntary
retirement, voluntary termination other than for the reasons specified in
Section 4.2, Disability or for Termination for Cause.
4.2 Reasons for Termination
-----------------------
Following a Change in Control, a Participant shall be entitled to a Payment
in accordance with Section 4.3 if employment by an Employer is terminated,
voluntarily or involuntary, for any one or more of the following reasons:
(a) The Employer reduces the Participant's base salary or rate of
compensation as in effect immediately prior to the Change in Control, or as the
same may have been increased thereafter.
(b) The Employer materially changes Participant's function, duties or
responsibilities which would cause the Participant's position to be one of
lesser responsibility, importance or scope with the Employer than immediately
prior to the Change in Control.
(c) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at a
location more than thirty-five (35) miles from the location of the Participant's
job or office immediately prior to the Change in Control provided that such new
location is not closer to Participant's home.
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control;
provided, however, that a material reduction in benefits and perquisites
generally provided to all employees of the Bank on a nondiscriminatory basis
shall not trigger a Payment pursuant to this Plan.
(e) A successor to the Employer fails or refuses to assume the
Employer's obligations under this Plan, as required by Article VII.
<PAGE>
(f) The Employer, or any successor to the Employer, breaches any other
provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Termination for Cause.
4.3 Amount of Payment
-----------------
(a) Each Participant who was a vice president of the Bank immediately
prior to the effective date of the Change in Control and entitled to a Payment
under this Plan shall receive from the Bank a lump sum cash payment equal to two
(2) times the Participant's Annual Compensation.
(b) Each Participant who was a branch manager of the Bank immediately
prior to the effective date of the Change in Control and entitled to a Payment
under this Plan shall receive from the Bank a lump sum cash payment equal to the
Participant's Annual Compensation.
(c) Each Participant (other than a Participant entitled to a benefit
under Sections 4.3(a) and (b) of the Plan) entitled to a Payment under this Plan
shall receive from the Employer a lump sum cash payment equal to the product of
the Participant's Monthly Compensation and the Participant's years of service
(including partial years rounded up to the nearest full month) from the
Participant's date of hire through the date of termination. Notwithstanding
anything herein to the contrary, (i) the maximum payment under this Section
4.3(c) to a Participant shall not exceed fifty percent (50%) of the
Participant's Annual Compensation and the (ii) minimum payment under this
Section 4.3(c) shall be the Participant's Monthly Compensation (determined
without regard to the Participant's period of service).
(d) The Participant shall not be required to mitigate damages on the
amount of the Payment by seeking other employment or otherwise, nor shall the
amount of such Payment be reduced by any compensation earned by the Participant
as a result of employment after termination of employment hereunder.
4.4 Time of Payment
---------------
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than thirty (30) business days after the termination of the
Participant's employment. If any Participant should die after termination of
the employment but before all amounts have been paid, such unpaid amounts shall
be paid to the Participant's named beneficiary, if living, otherwise to the
personal representative of behalf of or for the benefit of the Participant's
estate.
<PAGE>
4.5 Suspension of Payment
---------------------
Notwithstanding the foregoing, no payments or portions thereof shall be
made under this Plan, if such payment or portion would result in the Bank
failing to meet its minimum regulatory capital requirements as required by 12
C.F.R. (S)567.2. Any payments or portions thereof not paid shall be suspended
until such time as their payment would not result in a failure to meet the
Bank's minimum regulatory capital requirements. Any portion of benefit payments
which have not been suspended will be paid on an equitable basis, pro rata based
upon amounts due each Participant, among all eligible Participants.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
--------------
Neither the provisions of this Plan nor the Payment provided for hereunder
shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an employee of an Employer, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock ownership or any employment agreement or other plan or arrangement.
5.2 Employment Status
-----------------
This Plan does not constitute a contract of employment or impose on the
Participant's Employer any obligation to retain the Participant, to maintain the
status of the Participant's employment, or to change the Employer's policies
regarding termination of employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of the Bank, this Plan may be adopted by
any subsidiary of the Bank or by the Company. Upon such adoption, the
subsidiary or the Company shall become an Employer hereunder and the provisions
of the Plan shall be fully applicable to the employees of that subsidiary or the
Company. The term "subsidiary" means any corporation in which the Bank,
directly or indirectly, holds a majority of the voting power of its outstanding
shares of capital stock.
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
plan, in the same manner and to the same extent that the Bank would be required
to perform if no such succession or assignment had taken place.
<PAGE>
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
--------
If a Change in Control has not occurred, this Plan shall expire as of the
Expiration Date, unless sooner terminated as provided in Section 8.2, or unless
extended for an additional period or periods by resolution adopted by the Board
of the Bank.
Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
-------------------------
The Plan may be terminated or amended in any respect by resolution adopted
by a majority of the Board of the Bank, unless a Change in Control has
previously occurred. If a Change in Control occurs, the Plan no longer shall be
subject to amendment, change, substitution, deletion, revocation or termination
in any respect whatsoever.
8.3 Form of Amendment
-----------------
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the Bank,
certifying that the amendment or termination has been approved by the Board. A
proper termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
8.4 No Attachment
-------------
(a) Except as required by law, no right to receive payments under this Plan
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation, or to execution, attachment,
levy, or similar process or assignment by operation of law, and any attempt,
voluntary or involuntary, to affect such action shall be null, void, and of no
effect.
(b) This Plan shall be binding upon, and inure to the benefit of, each
employee, the Employer and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by a
party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the prevailing party in any legal
judgment, arbitration or settlement.
<PAGE>
ARTICLE X
REQUIRED PROVISIONS
10.1 The Bank may terminate the employee's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
employee's right to compensation or other benefits under this Agreement if the
employee is otherwise entitled to a benefit. The employee shall not have the
right to receive compensation or other benefits for any period after termination
for Termination for Cause as defined in Section 2.1 hereinabove.
10.2 If the employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1), the Bank's obligations under this Plan to such employee
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the employee all or part of the compensation withheld while
their contract obligations were suspended and (ii) reinstate (in whole or in
part) any of the obligation which were suspended.
10.3 If the employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this Plan to the
employee shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
10.4 If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1818(x)(1), all obligations of the Bank
under this Plan shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
10.5 All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution, (i) by the Director or his or
her designee or (ii) the Federal Deposit Insurance Corporation ("FDIC") or the
Resolution Trust Corporation, at the time the FDIC enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. (S)1823(c); or
(ii) by the Director or his or her designee at the time the Director or his or
her designee approves a supervisory merger to resolve problems related to the
operations of the Bank or when the Bank is determined by the Director to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
10.6 Any payments made to an employee pursuant to this Plan or otherwise
shall be conditioned upon compliance under 12 U.S.C. (S)1828(k) and 12 C.F.R.
Section 545.121 and any regulations promulgated thereunder.
<PAGE>
ARTICLE XI
ADMINISTRATION OF THE PLAN
11.1 The Plan shall be administered by the Board (or, by a committee of
non-employee directors designated by the Board). Subject to the other
provisions of the Plan, the Board shall have authority to adopt, amend, alter
and repeal such administrative rules, guidelines and practices governing the
operation of the Plan as it shall from time to time consider advisable, to
interpret the provisions of the Plan and to decide all disputes arising in
connection with the Plan. The Board may correct any defect or supply any
omission or reconcile any inconsistency in the Plan in the manner and to the
extent it shall deem appropriate to carry the Plan into effect, in its sole and
absolute discretion. The Board's decisions and interpretations shall be final
and binding. Any action of the Board with respect to the administration of the
Plan shall be taken pursuant to a majority vote or by the unanimous written
consent of its members.
Having been adopted by its Board on ______________, 1998, this Plan is
executed by duly authorized officer of the Bank this ___ day of _______________,
199_.
Attest
________________________ _____________________________________
Secretary For the Entire Board of Directors
<PAGE>
RESTATED AND AMENDED EXECUTIVE DEFERRED
COMPENSATION AGREEMENT
This Restated and Amended Executive Supplemental Retirement Income Master
Agreement (the "Agreement"), effective as of the 17th day of December, 1997,
amends and restated the Agreement originally effective as of January 1, 1994, by
and between FIRST FEDERAL SAVINGS BANK (the "Bank"), a federally chartered
mutual savings bank, and certain key employees, hereinafter referred to as
"Executive," who shall be approved by the Bank to participate and who shall
execute an Executive Supplemental Retirement Income Joinder Agreement ("Joinder
Agreement") in a form provided by the Bank.
W I T N E S S E T H :
WHEREAS, the Executives are employed by the Bank; and
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by such Executives and wishes to encourage continued employment; and
WHEREAS, the Executives wish to be assured that they will be entitled to a
certain amount of additional compensation for some definite period of time from
and after retirement from active service with the Bank or other termination of
employment and wish to provide their beneficiaries with benefits from and after
death; and
WHEREAS, the Bank and the Executives wish to provide the terms and
conditions upon which the Bank shall pay such additional compensation to the
Executives after retirement or other termination of employment and/or death
benefits to their beneficiaries after death; and
WHEREAS, the Bank and the Executives intend this Agreement to be considered
an unfunded arrangement, maintained primarily to provide supplemental retirement
income for such
<PAGE>
Executives, members of a select group of management or highly compensated
employees of the Bank, for purposes of the Employee Retirement Income Security
Act of 1974, as amended; and
WHEREAS, the Bank has adopted this Restated and Amended Executive
Supplemental Retirement Income Master Agreement which controls all issues
relating to Supplemental Retirement Income Benefits as described herein;
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the Bank and the Executive agree as follows:
SECTION I
DEFINITIONS
-----------
When used herein, the following words and phrases shall have the meanings
below unless the context clearly indicates otherwise:
1.1 "Accrued Benefit" means that portion of the Supplemental Retirement Income
Benefit which is required to be expensed and accrued under generally
accepted accounting principles (GAAP) by any appropriate method which the
Bank's Board of Directors may require in the exercise of its sole
discretion.
1.2 "Act" means the Employee Retirement Income Security Act of 1974, as amended
from time to time.
1.3 "Bank" means First Federal Savings Bank and any successor thereto.
2
<PAGE>
1.4 "Beneficiary" means the person or persons (and their heirs) designated as
Beneficiary in the Executive's Joinder Agreement to whom the deceased
Executive's benefits are payable. If no Beneficiary is so designated, then
the Executive's Spouse, if living, will be deemed the Beneficiary. If the
Executive's Spouse is not living, then the Children of the Executive will
be deemed the Beneficiaries and will take on a per stirpes basis. If there
are no living Children, then the Estate of the Executive will be deemed the
Beneficiary.
1.5 "Benefit Age" shall be the birthday on which the Executive becomes eligible
to receive benefits under the Plan. Such birthday shall be designated in
the Executive's Joinder Agreement.
1.6 "Benefit Eligibility Date" shall be the date on which an Executive is
entitled to receive his Supplemental Retirement Income Benefit. It shall
be the 1st day of the month coincident with or next following the month in
which the Executive attains the Benefit Age designated in his Joinder
Agreement.
1.7 "Cause" means personal dishonesty, willful misconduct, willful malfeasance,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule, regulation
(other than traffic violations or similar offenses), or final cease-and-
desist order, material breach of any provision of this Agreement, or gross
negligence in matters of material importance to the Bank.
1.8 "Change in Control" of the Bank shall mean:
(1) a change of control of a nature that would be required to be reported
in response to Item 1 of the current report on Form 8-K, as in effect
on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (hereinafter the "Exchange Act"); or
(2) a change in control of the Bank within the meaning of 12 C.F.R.
(S)574.4; or
(3) a Change in Control shall occur at such time as
3
<PAGE>
(i) any "person" (as the term is used in Sections 13(d) and 14(d) of
the Exchange Act) who is not now presently but becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Bank
representing Twenty Percent (20%) or more of the Bank's
outstanding securities ordinarily having the right to vote at
the elections of Directors except for (i) any stock of the Bank
purchased by the Holding Company in connection with the
conversion of the Bank to stock form, and (ii) any stock
purchased by any Employee Stock Ownership Plan and/or trust
sponsored by the Bank; or
(ii) individuals who constitute the Board of Directors on date hereof
(hereinafter the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person
becoming a Director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the
Directors comprising the Incumbent Board, or whose nomination
for election by the Bank's members (or stockholders) was
approved by the Bank's Nominating Committee, which is comprised
of member of the Incumbent Board, shall be, for purposes of this
clause (ii), considered as though he were a member of the
Incumbent Board; or
(iii) merger, consolidation, or sale of all or substantially all
of the assets of the Bank occurs; or
(iv) a proxy statement is issued soliciting proxies from member (or
stockholders) of the Bank by someone other than the current
management of the Bank, seeking member (or stockholder) approval
of a plan of reorganization, merger, or consolidation of the
Bank with one or more corporations as a result of which the
outstanding shares of the class of the Bank's securities are
exchanged for or converted into cash or property or securities
not issued by the Bank.
For these purposes, the terms "stockholder(s)" and "member(s)" shall be
considered one and the same.
4
<PAGE>
1.9 "Children" means the Executive's children, both natural and adopted, then
living at the time payments are due the Children under this Agreement.
1.10 "Disability Benefit" means the benefit annuity payable to the Executive
following a determination, in accordance with Subsection 3.6, that he is no
longer able, properly and satisfactorily, to perform his duties as
Executive.
1.11 "Effective Date" of this Agreement shall be December 17, 1997.
1.12 "Estate" means the estate of the Executive.
1.13 "Interest Factor" means monthly compounding at Ten (10%) Percent per annum.
1.14 "Payout Period" means the time frame during which certain benefits payable
hereunder shall be distributed. Payments shall be made in equal monthly
installments commencing on the first day of the month coincident with or
next following the occurrence of the event which triggers distribution and
continuing for a period of months, as designated in the Executive's Joinder
Agreement.
1.15 "Spouse" means the individual to whom the Executive is legally married at
the time of the Executive's death.
1.16 "Supplemental Retirement Income Benefit" means an annual amount equal to:
(a) the highest base compensation received by the Executive during any
twelve (12) month period, while employed by the Bank; multiplied by
(b) the Wage Replacement Percentage; less
(c) the actual annual amount available to the Executive, on or after his
Benefit Age, from Bank funding of any other tax-qualified or non-
qualified plans.
5
<PAGE>
If the Executive elects a payment option from any other tax-qualified or
non-qualified plan which provides an actual annual benefit which is less
than the annual benefit available to the Executive under a one hundred
(100%) percent joint and survivor, fifteen (15) year certain payment
option, the Executive shall be deemed to receive an amount equal to the
------
annual amount available under such one hundred (100%) percent joint and
survivor, fifteen (15) year certain payment option, in the computation
above.
1.17 "Survivor's Benefit" means an annuity stream payable to the Beneficiary in
monthly installments throughout the Payout Period, equal to the amount
shown in the Executive's Joinder Agreement, and subject to Subsection 3.2.
1.18 "Vested" means the non-forfeitable portion of the Accrued Benefit to which
the Executive is entitled in the event of termination for any reason other
than for Cause. The Executive shall be Vested in One Hundred (100%)
Percent of his Accrued Benefit beginning upon the later of: (i) the
Effective date of this Agreement, or (ii) the execution date of the
Executive's Joinder Agreement.
1.19 "Wage Replacement Percentage" means the percentage of base compensation
which shall be used to compute the Executive's Supplemental Retirement
Income Benefit. Such percentage shall be designated in the Executive's
Joinder Agreement.
1.20 "Year of Service" shall be earned upon completing twelve (12) months of
continuous service (including authorized leaves of absence), at anytime
after the later of (i) the Effective Date of this Agreement or (ii) the
execution date of the Executive's Joinder Agreement.
6
<PAGE>
SECTION II
ESTABLISHMENT OF RABBI TRUST
----------------------------
The Bank intends to establish a rabbi trust into which the Bank shall
contribute assets which shall be held therein, subject to the claims of the
Bank's creditors in the event of the Bank's "Insolvency" as defined in the
agreement which establishes such rabbi trust, until the trust assets are paid to
the Executive and his Beneficiary(ies) in such manner and at such times as
specified in this Agreement. It is the intention of the Bank to make
contributions to the rabbi trust to provide the Bank with a source of funds to
assist it in meeting liabilities of this Agreement. The rabbi trust and any
assets held therein shall conform to the terms of the rabbi trust agreement
which has been established in conjunction with this Agreement. To the extent
the language in this Agreement is modified by the language in the rabbi trust
agreement, the rabbi trust agreement shall supersede this Agreement. Any
contributions to the rabbi trust shall be made during each Plan Year in
acordance with the rabbi trust agreement. The amount of such contribution(s)
shall be equal to the full present value of all benefit accruals under this
Plan, if any, less: (i) previous contributions made on behalf of the Executive
to the rabbi trust, and (ii) earnings to date on all such previous
contributions.
SECTION III
BENEFITS
--------
3.1 Retirement Benefit. If the Executive is in service with the Bank until
------------------
reaching his Benefit Age, the Executive shall be entitled to the
Supplemental Retirement Income Benefit. Such benefit shall commence on the
Executive's Benefit Eligibility Date and shall be payable in installments
throughout the Payout Period. In the event the Executive dies at any time
after attaining his Benefit Age, but prior to completion of all such
payments due and owing hereunder, the Bank shall pay to the Executive's
Beneficiary a continuation of the annuity for the remainder of the Payout
Period.
3.2 Death Prior to Benefit Age. If the Executive dies prior to attaining his
--------------------------
Benefit Age but while employed at the Bank, the Executive's Beneficiary
shall be entitled to the Survivor's
7
<PAGE>
Benefit. The Survivor's Benefit shall commence on the first day of the
month following the Executive's death and shall be payable in monthly
installments throughout the Payout Period.
3.3 Termination Other Than for Cause. If the Executive voluntarily or
--------------------------------
involuntarily terminates employment at the Bank before reaching his Benefit
Age, for any reason other than for Cause, the Executive's death,
disability, or following a Change in Control, the Executive (or his
Beneficiary) shall be entitled an annuity based on the Executive's Vested
Accrued Benefit. If the Executive dies prior to attaining his Benefit Age,
an annuity payable to the Beneficiary shall commence within thirty (30)
days of the Executive's death. The Vested Accrued Benefit, measured as of
the date of termination, shall be increased monthly (using the Interest
Factor) from the date of termination until the Executive's death. The
Vested Accrued Benefit, measured as of the date of the Executive's death,
shall be annuitized into monthly installments using the Interest Factor and
shall be payable for the Payout Period.
If the Executive lives until attaining his Benefit Age, an annuity payable
to the Executive shall commence on the Executive's Benefit Eligibility
Date. The Vested Accrued Benefit, measured as of the date of termination,
shall be increased monthly (using the Interest Factor) from the date of
termination until the Executive's Benefit Age. The Vested Accrued Benefit
measured as of the Executive's Benefit Age shall be annuitized into monthly
installments using the Interest Factor and shall be payable for the Payout
Period. In the event the Executive dies prior to completion of all such
annuity payments, the Bank shall pay to the Executive's Beneficiary annuity
payments for the remainder of the Payout Period.
3.4 Termination of Service Related to a Change in Control. If a Change in
-----------------------------------------------------
Control occurs at the Bank, and thereafter the Executive's employment is
terminated (either voluntarily or involuntarily), the Executive shall be
entitled to the benefit set forth in the Executive's Joinder Agreement.
Such benefit shall be payable at the Executive's Benefit Age in monthly
installments throughout the Payout Period. In the event that the Executive
dies at any time after termination of employment but prior to attaining his
Benefit Age, the Executive's Beneficiary shall be entitled to the
Survivor's Benefit as specified in Section 3.2. In the event that the
Executive dies
8
<PAGE>
at any time after termination of employment, after commencement but before
completion of all such payments due and owing hereunder, the Bank, or its
successor, shall pay to the Executive's Beneficiary a continuation of the
monthly installments for the remainder of the Payout Period.
3.5 Termination for Cause. If the Executive is terminated for Cause, all
---------------------
benefits under this Agreement shall be forfeited and this Agreement shall
become null and void.
3.6 Disability Benefit. Notwithstanding any other provision hereof, if
------------------
requested by the Executive and approved by the Board, the Executive shall
be entitled to receive the Disability Benefit hereunder, in any case in
which it is determined by a duly licensed physician selected by the Bank,
that the Executive is no longer able, properly and satisfactorily, to
perform his regular duties as an Executive, because of ill health,
accident, disability or general inability due to age. If the Executive's
service is terminated pursuant to this paragraph and Board approval is
obtained, the Executive may elect to begin receiving the Disability Benefit
annuity in lieu of his Supplemental Retirement Income Benefit, which is not
available prior to the Executive's Benefit Eligibility Date. The annuity
shall not begin more than thirty (30) days following the above-mentioned
disability determination. The amount of the monthly benefit shall be the
annuitized value of the Executive's Vested Accrued Benefit measured as of
the date of such determination. The Vested Accrued Benefit shall be
annuitized using the Interest Factor and shall be payable over the Payout
Period. In the event the Executive dies while receiving payments pursuant
to this Subsection, or after becoming eligible for such payments but before
the actual commencement of such payments, his Beneficiary shall be entitled
to receive the full Survivor's Benefit for the Payout Period, reduced by
the number of months disability payments were made to the Executive.
9
<PAGE>
If the total dollar amount of disability payments received by the Executive
under the provisions of this Subsection is less than the total dollar
amount of payments that would have been received had the Survivor's Benefit
been paid in lieu of the Disability Benefit during the Executive's life,
the Bank shall pay the Executive's Beneficiary a lump sum payment for the
difference. This lump sum payment shall be made within thirty (30) days of
the Executive's death.
3.7 Breach. In the event of any breach by the Executive of the agreements and
------
covenants contained herein, the Board of Directors of the Bank shall direct
that any unpaid balance of any payments to the Executive under this
Agreement be suspended, and shall thereupon notify the Executive of such
suspensions, in writing. Thereupon, if the Board of Directors of the Bank
shall determine that said breach by the Executive has continued for a
period of one (1) month following notification of such suspension, all
rights of the Executive and his Beneficiaries under this Agreement,
including rights to further payments hereunder, shall thereupon terminate.
3.8 Additional Death Benefit - Burial Expense. In addition to the above-
-----------------------------------------
described death benefits, upon the Executive's death, the Executive's
Beneficiary shall be entitled to receive a one-time lump sum death benefit
in the amount of Ten Thousand ($10,000.00) Dollars. This benefit shall be
provided specifically for the purpose of providing payment for burial
and/or funeral expenses of the Executive and shall be payable within thirty
(30) days of the Executive's death. The Executive's Beneficiary shall not
be entitled to such benefit if the Executive is terminated for Cause prior
to death.
3.9 Service. Payment of the Supplemental Retirement Income Benefit shall be
-------
paid if the Executive meets the requirements of Subsections 3.1 and 3.7.
However, payment of the annuity to the Executive during the first five (5)
years immediately following Executive's attainment of his Benefit
Eligibility Date is further conditioned upon the Executive rendering such
reasonable business consulting, advisory and public relations services as
10
<PAGE>
the Bank's Board of Directors may call upon the Executive to provide. Such
service shall be for the number of Service Days, designated in the
Executive's Joinder Agreement, for each year during the five (5) year
----
period immediately following the Executive's attainment of his Benefit
Eligibility Date. However, if the Executive continues to work after
attaining his Benefit Eligibility Date, the number of Service Days shall be
reduced on a pro-rata basis. For example, if the Executive continues to
work for five (5) full years following attainment of his Benefit
Eligibility Date, this Subsection shall be deemed to be fulfilled. If the
Executive continues to work for six (6) months following attainment of his
Benefit Eligibility Date, one-half (1/2) of the Service Days required
during the first year following the Executive's Benefit Eligibility Date
shall be deemed to be fulfilled. The Bank shall provide the Executive with
advance notice, sufficient to Executive, of its desire to have such service
provided. In rendering these services, the Executive shall not be
considered an employee of the Bank but shall act in the capacity of an
independent contractor. The Executive shall not be required to perform
these services during reasonable vacation periods or any periods of illness
or disability. Furthermore, the Executive shall be reimbursed for all
expenses incurred in performing such services.
SECTION IV
BENEFICIARY DESIGNATION
-----------------------
The Executive shall make an initial designation of primary and secondary
Beneficiaries upon execution of his Joinder Agreement and shall have the right
to change such designation, at any subsequent time, by submitting to the
Administrator in substantially the form attached as Exhibit A to the Joinder
Agreement, a written designation of primary and secondary Beneficiaries. Any
Beneficiary designation made subsequent to execution of the Joinder Agreement
shall become effective only when receipt thereof is acknowledged in writing by
the Administrator.
11
<PAGE>
SECTION V
EXECUTIVE'S RIGHT TO ASSETS
---------------------------
The rights of the Executive, any Beneficiary, or any other person claiming
through the Executive under this Agreement, shall be solely those of an
unsecured general creditor of the Bank. The Executive, the Beneficiary, or any
other person claiming through the Executive, shall only have the right to
receive from the Bank those payments so specified under this Agreement. The
Executive agrees that he, his Beneficiary, or any other person claiming through
him shall have no rights or interests whatsoever in any asset of the Bank,
including any insurance policies or contracts which the Bank may possess or
obtain to informally fund this Agreement. Any asset used or acquired by the
Bank in connection with the liabilities it has assumed under this Agreement,
unless expressly provided herein, shall not be deemed to be held under any trust
for the benefit of the Executive or his Beneficiaries, nor shall any asset be
considered security for the performance of the obligations of the Bank. Any
such asset shall be and remain, a general, unpledged, and unrestricted asset of
the Bank.
SECTION VI
RESTRICTIONS UPON FUNDING
-------------------------
The Bank shall have no obligation to set aside, earmark or entrust any fund
or money with which to pay its obligations under this Agreement. The Executive,
his Beneficiaries or any successor in interest to him shall be and remain simply
a general unsecured creditor of the Bank in the same manner as any other
creditor having a general claim for matured and unpaid compensation. The Bank
reserves the absolute right in its sole discretion to either purchase assets to
meet its obligations undertaken by this Agreement or to refrain from the same
and to determine the extent, nature, and method of such asset purchases. Should
the Bank decide to purchase assets such as life insurance, mutual funds,
disability policies or annuities, the Bank reserves the absolute right, in its
sole discretion, to terminate such assets at any time, in whole or in part. At
no time shall the Executive be deemed to have any lien, right, title or interest
in or to any specific
12
<PAGE>
investment or to any assets of the Bank. If the Bank elects to invest in a life
insurance, disability or annuity policy upon the life of the Executive, then the
Executive shall assist the Bank by freely submitting to a physical examination
and by supplying such additional information necessary to obtain such insurance
or annuities.
SECTION VII
ALIENABILITY AND ASSIGNMENT PROHIBITION
---------------------------------------
Neither the Executive nor any Beneficiary under this Agreement shall have
any power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits payable
hereunder, nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the Executive
or his Beneficiary, nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the Executive or any
Beneficiary attempts assignment, communication, hypothecation, transfer or
disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease
and terminate.
SECTION VIII
ACT PROVISIONS
--------------
8.1 Named Fiduciary and Administrator. Financial Institution Consulting
---------------------------------
Corporation, a Tennessee Corporation ("FICC") shall be the Named Fiduciary
and Administrator (the "Administrator") of this Agreement. As
Administrator, FICC shall be responsible for the management, control and
administration of the Agreement as established herein. The Administrator
may delegate to others certain aspects of the management and operational
responsibilities of the Agreement, including the employment of advisors and
the delegation of ministerial duties to qualified individuals.
13
<PAGE>
8.2 Claims Procedure and Arbitration. In the event that benefits under this
--------------------------------
Agreement are not paid to the Executive (or to his Beneficiary in the case
of the Executive's death) and such claimants feel they are entitled to
receive such benefits, then a written claim must be made to the
Administrator within sixty (60) days from the date payments are refused.
The Bank and its Board shall review the written claim and, if the claim is
denied, in whole or in part, they shall provide in writing, within ninety
(90) days of receipt of such claim, their specific reasons for such denial,
reference to the provisions of this Agreement or the Joinder Agreement upon
which the denial is based, and any additional material or information
necessary to perfect the claim. Such writing by the Bank and its Board
shall further indicate the additional steps which must be undertaken by
claimants if an additional review of the claim denial is desired.
If claimants desire a second review, they shall notify the Administrator in
writing within sixty (60) days of the first claim denial. Claimants may
review this Agreement, the Joinder Agreement or any documents relating
thereto and submit any issues and comments, in writing, they may feel
appropriate. In its sole discretion, the Administrator shall then review
the second claim and provide a written decision within sixty (60) days of
receipt of such claim. This decision shall state the specific reasons for
the decision and shall include reference to specific provisions of this
Agreement or the Joinder Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon completed
performance of this Agreement and the Joinder Agreement or the meaning and
effect of the terms and conditions thereof, then claimants may submit the
dispute to a Board of Arbitration for final arbitration. Said Board shall
consist of one member selected by the claimant, one member selected by the
Bank, and the third member selected by the first two members. The Board
shall operate under any generally recognized set of arbitration rules. The
parties hereto agree that they, their heirs, personal representatives,
successors and assigns
14
<PAGE>
shall be bound by the decision of such Board with respect to any
controversy properly submitted to it for determination.
SECTION IX
MISCELLANEOUS
-------------
9.1 No Effect on Employment Rights. Nothing contained herein will confer upon
------------------------------
the Executive the right to be retained in the service of the Bank nor limit
the right of the Bank to discharge or otherwise deal with the Executive
without regard to the existence of the Agreement. Pursuant to 12 C.F.R.
(S) 563.39(b), the following conditions shall apply to this Agreement:
(1) The Bank's Board of Directors may terminate the Executive at any time,
but any termination by the Bank's Board of Directors other than
termination for Cause shall not prejudice the Executive's vested right
to compensation or other benefits under the contract. As provided in
Section 2.4, the Executive shall forfeit his right to all benefits
provided for in the Agreement in the event he is terminated for Cause.
He shall have no right to receive additional compensation or other
benefits for any period after termination for Cause.
(2) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(3) and (g)(1)) the Bank's obligations under the
contract shall be suspended (except vested rights) as of the date of
termination of service unless stayed by appropriate proceedings. If
the charges in the notice are
15
<PAGE>
dismissed, the Bank may in its discretion (i) pay the Executive all or
part of the compensation withheld while its contract obligations were
suspended and (ii) reinstate (in whole or in part) any of its
obligations which were suspended.
(3) If the Executive is terminated and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued
under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(4) or (g)(1)), all non-vested obligations of the
Bank under the contract shall terminate as of the effective date of
the order.
(4) If the Bank is in default (as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act), all non-vested obligations under the
contract shall terminate as of the date of default.
(5) All non-vested obligations under the contract shall be terminated,
except to the extent determined that continuation of the contract is
necessary for the continued operation of the Bank:
(i) by the Executive or his designee at the time the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation enters
into an agreement to provide assistance to or on behalf of the
Bank under the authority contained in (S) 13(c) of the Federal
Deposit Insurance Act; or
16
<PAGE>
(ii) by the Executive or his designee, at the time the Executive or
his designee approves a supervisory merger to resolve problems
related to operation of the Bank or when the Bank is determined
by the Executive to be in an unsafe or unsound condition.
Any rights of the parties that have already vested, (i.e., the
Executive's Vested Accrued Benefit), however, shall not be affected by
such action.
9.2 State Law. The Agreement is established under, and will be construed
---------
according to, the laws of the State of Indiana, to the extent such laws are
not preempted by the Act and valid regulations published thereunder.
9.3 Severability. In the event that any of the provisions of this Agreement or
------------
portion thereof, are held to be inoperative or invalid by any court of
competent jurisdiction, then: (1) insofar as is reasonable, effect will be
given to the intent manifested in the provisions held invalid or
inoperative, and (2) the validity and enforceability of the remaining
provisions will not be affected thereby.
9.4 Incapacity of Recipient. In the event the Executive is declared
-----------------------
incompetent and a conservator or other person legally charged with the care
of his person or Estate is appointed, any benefits under the Agreement to
which such Executive is entitled shall be paid to such conservator or other
person legally charged with the care of his person or Estate. Except as
provided above in this paragraph, when the Bank's Board of Directors, in
its sole discretion, determines that the Executive is unable to manage his
financial affairs, the Board may direct the Bank to make distributions to
any person for the benefit of the Executive.
9.5 Unclaimed Benefit. The Executive shall keep the Bank informed of his
-----------------
current address and the current address of his Beneficiaries. If the
location of the Executive is not made known
17
<PAGE>
to the Bank within three (3) years after the date on which any payment of
the Supplemental Retirement Income Benefit may first be made, payment may
be made as though the Executive had died at the end of the three (3) year
period. If, within one (1) additional year after such three (3) year period
has elapsed, or, within three (3) years after the actual death of the
Executive, whichever comes first, the Bank is unable to locate any
Beneficiary of the Executive, the Bank may fully discharge its obligation
by payment to the Estate.
9.6 Limitations on Liability. Notwithstanding any of the preceding provisions
------------------------
of the Agreement, neither the Bank, nor any individual acting as an
employee or agent of the Bank, or as a member of the Board of Directors
shall be liable to the Executive or any other person for any claim, loss,
liability or expense incurred in connection with the Agreement.
9.7 Gender. Whenever in this Agreement words are used in the masculine or
------
neuter gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
9.8 Effect on Other Corporate Benefit Agreements. Nothing contained in this
--------------------------------------------
Agreement shall affect the right of the Executive to participate in or be
covered by any qualified or non-qualified pension, profit sharing, group,
bonus or other supplemental compensation or fringe benefit agreement
constituting a part of the Bank's existing or future compensation
structure.
9.9 Suicide. Notwithstanding anything to the contrary in this Agreement, the
-------
benefits otherwise provided herein shall not be payable if the Executive's
death results from suicide, whether sane or insane, within twenty-six (26)
months after the execution of this Agreement. If the Executive dies during
this twenty-six (26) month period due to suicide, all benefits under this
Agreement shall be forfeited and this Agreement shall become null and void.
18
<PAGE>
9.10 Inurement. This Agreement shall be binding upon and shall inure to the
---------
benefit of the Bank, its successors and assigns, and the Executive, his
successors, heirs, executors, administrators, and Beneficiaries.
9.11 Tax Withholding. The Bank may withhold from any benefits payable under
---------------
this Agreement all federal, state, city, or other taxes as shall be
required pursuant to any law or governmental regulation then in effect.
9.12 Headings. Headings and sub-headings in this Agreement are inserted for
--------
reference and convenience only and shall not be deemed a part of this
Agreement.
SECTION X
AMENDMENT/REVOCATION
--------------------
This Agreement shall not be amended, modified or revoked at any time, in
whole or part, without the mutual written consent of the Executive and the Bank,
and such mutual consent shall be required even if the Executive is no longer
employed by the Bank.
SECTION XI
EXECUTION
---------
11.1 This Agreement, together with the Joinder Agreements and the Rabbi Trust,
sets forth the entire understanding of the parties hereto with respect to
the transactions contemplated hereby, and any previous agreements or
understandings between the parties hereto regarding the subject matter
hereof are merged into and superseded by this Agreement.
11.2 This Agreement shall be executed in triplicate, each copy of which, when so
executed and delivered, shall be an original, but all three copies shall
together constitute one and the same instrument.
19
<PAGE>
RESTATED AND AMENDED DIRECTOR DEFERRED
COMPENSATION AGREEMENT
This Restated and Amended Director Deferred Compensation Master Agreement
(the "Agreement"), effective as of the 17th day of December, 1997, amends and
restates the individual Director Deferred Compensation Agreements entered into
effective January 1, 1994, and formalizes the understanding by and between FIRST
FEDERAL SAVINGS BANK (the "Bank"), a federally chartered mutual savings bank,
and certain eligible Directors, hereinafter referred to as "Director," who shall
execute a Director Deferred Compensation Joinder Agreement ("Joinder Agreement")
in a form provided by the Bank.
W I T N E S S E T H :
WHEREAS, the Directors serve the Bank as members of the Board; and
WHEREAS, the Bank recognizes the valuable services heretofore performed by
such Directors and wishes to encourage continued service of the Directors; and
WHEREAS, the Bank recognizes that the Directors' services will
substantially contribute to its continued growth and profits in the future; and
WHEREAS, these Directors wish to continue to defer a certain portion of
their fees to be earned in the future; and
WHEREAS, the Directors and the Bank desire to formalize the terms and
conditions upon which the Bank shall pay such deferred compensation to the
Directors or their designated beneficiaries; and
<PAGE>
WHEREAS, the Bank and the Directors intend this Agreement to be considered
an unfunded arrangement, maintained primarily to provide retirement income for
such Directors, for tax purposes and for purposes of the Employee Retirement
Income Security Act of 1974, as amended; and
WHEREAS, the Bank has adopted this Restated and Amended Director Deferred
Compensation Master Agreement which controls all issues relating to the Deferred
Compensation Benefits as described herein;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto agree to the following terms and conditions:
SECTION I
DEFINITIONS
-----------
When used herein, the following words and phrases shall have the meanings
below unless the context clearly indicates otherwise:
1.1 "Bank" means First Federal Savings Bank and any successor thereto.
1.2 "Beneficiary" means the person or persons (and their heirs) designated as
Beneficiary in the Director's Joinder Agreement to whom the deceased
Director's benefits are payable. If no Beneficiary is so designated, then
the Director's Spouse, if living, will be deemed the Beneficiary. If the
Director's Spouse is not living, then the Children of the Director will be
deemed the Beneficiaries and will take on a per stirpes basis. If there
are no Children, then the Estate of the Director will be deemed the
Beneficiary.
1.3 "Benefit Age" shall be the birthday on which the Director becomes eligible
to receive benefits under the plan. Such birthday shall be designated in
the Director's Joinder Agreement.
2
<PAGE>
1.4 "Benefit Eligibility Date" shall be the date on which a Director is
entitled to receive his Deferred Compensation Benefit. It shall be the
first day of the month following the month in which the Director attains
the Benefit Age designated in his Joinder Agreement.
1.5 "Cause" means personal dishonesty, willful misconduct, willful malfeasance,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule, regulation
(other than traffic violations or similar offenses), or final cease-and-
desist order, material breach of any provision of this Agreement, or gross
negligence in matters of material importance to the Bank.
1.6 "Change in Control" of the Bank shall mean:
(1) a change of control of a nature that would be required to be reported
in response to Item 1 of the current report on Form 8-K, as in effect
on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (hereinafter the "Exchange Act"); or
(2) a change in control of the Bank within the meaning of 12 C.F.R.
(S)574.4; or
(3) a Change in Control shall occur at such time as
(i) any "person" (as the term is used in Sections 13(d) and 14(d) of
the Exchange Act) who is not now presently but becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Bank
representing Twenty Percent (20%) or more of the Bank's
outstanding securities ordinarily having the right to vote at the
elections of Directors except for (i) any stock of the Bank
purchased by the Holding Company in connection with the
conversion of the Bank to stock form, and (ii) any stock
purchased by any Employee Stock Ownership Plan and/or trust
sponsored by the Bank; or
(ii) individuals who constitute the Board of Directors on date hereof
(hereinafter the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person
becoming a Director subsequent to the date hereof whose election
was approved by a vote of at
3
<PAGE>
least three-quarters of the Directors comprising the Incumbent
Board, or whose nomination for election by the Bank's members (or
stockholders) was approved by the Bank's Nominating Committee,
which is comprised of members of the Incumbent Board, shall be,
for purposes of this clause (ii), considered as though he were a
member of the Incumbent Board; or
(iii) merger, consolidation, or sale of all or substantially all
of the assets of the Bank occurs; or
(iv) a proxy statement is issued soliciting proxies from member (or
stockholder) of the Bank by someone other than the current
management of the Bank, seeking member (or stockholder) approval
of a plan of reorganization, merger, or consolidation of the Bank
with one or more corporations as a result of which the
outstanding shares of the class of the Bank's securities are
exchanged for or converted into cash or property or securities
not issued by the Bank.
For these purposes, the terms "stockholder(s)" and "member(s)" shall be
considered one and the same.
1.7 "Children" means the Director's children, both natural and adopted,
determined at the time payments are due the Children under this Agreement.
1.8 "Deferral Period" means the period of months designated in the Director's
Joinder Agreement during which the Director shall defer current Board or
Committee fees and/or retainer. The Deferral Period shall commence on the
date designated in the Director's Joinder Agreement.
1.9 "Deferred Compensation Benefit" means the annuitized value (using the
Interest Factor) of the Director's Elective Contribution Account, measured
as of the Director's Benefit Age, payable in monthly installments
throughout the Payout Period and commencing on the Director's Benefit
Eligibility Date.
4
<PAGE>
1.10 "Disability Benefit" means the monthly benefit payable to the Director
following a determination, in accordance with Subsection 5.2, that he is no
longer able, properly and satisfactorily, to perform his duties as a
Director.
1.11 "Effective Date" of this Agreement shall be December 17, 1997.
1.12 "Elective Contribution" shall refer to any bookkeeping entry required to
record a Director's voluntary monthly pre-tax deferral of Board or
Committee fees and/or retainer which shall be made in accordance with the
Director's Joinder Agreement.
1.13 "Elective Contribution Account" shall be represented by the bookkeeping
-----------
entries required to record a Director's Elective Contributions plus accrued
interest, equal to the Interest Factor, earned to date on such amounts.
However, neither the existence of such bookkeeping entries nor the Elective
Contribution Account itself shall be deemed to create either a trust of any
kind, or a fiduciary relationship between the Bank and the Director or any
Beneficiary.
1.14 "Estate" means the estate of the Director.
1.15 "Interest Factor" means monthly compounding or discounting, as applicable,
at Ten Percent (10%) per annum.
1.16 "Payout Period" means the time frame during which certain benefits payable
hereunder shall be distributed. Payments shall be made in equal monthly
installments commencing on the first day of the month following the
occurrence of the event which triggers distribution and continuing for a
period of months, as designated in the Director's Joinder Agreement.
5
<PAGE>
1.17 "Projected Deferral" means an estimate, determined upon execution of a
Joinder Agreement, of the total amount of compensation to be deferred by
the Director during his Deferral Period (excluding any interest accrued on
such deferrals), and so designated in the Director's Joinder Agreement.
1.21 "Spouse" means the individual to whom the Director is legally married at
the time of the Director's death.
1.22 "Survivor's Benefit" means a stream of monthly installments payable to the
Beneficiary throughout the Payout Period, equal to the amount designated in
the Joinder Agreement, and subject to 6.1.
SECTION II
ESTABLISHMENT OF RABBI TRUST
----------------------------
The Bank shall establish a rabbi trust into which the Bank shall contribute
assets which shall be held therein, pursuant to the agreement which establishes
such rabbi trust (the "rabbi trust agreement"). The Bank intends to make a
contribution or contributions to the rabbi trust to provide the Bank with a
source of funds to assist it in meeting its obligations under this Agreement.
The trust assets shall be subject to the claims of the Bank's creditors in the
event of the Bank's "Insolvency" as defined in the agreement which establishes
such rabbi trust, until the trust assets are paid to the Director and his
Beneficiary(ies) in such manner and at such times as specified in this
Agreement. Contribution(s) to the rabbi trust shall be made in accordance with
the rabbi trust agreement.
6
<PAGE>
SECTION III
DEFERRED COMPENSATION
---------------------
Commencing on the Effective Date and continuing through the end of the
Deferral Period, the Director and the Bank agree that the Director shall defer
into his Elective Contribution Account up to One Hundred Percent (100%) of the
monthly Board fees and/or retainer which the Director would otherwise be
entitled to receive from the Bank for each month of the Deferral Period. The
total deferral during the term of the Deferral Period shall not exceed the
Director's Projected Deferral without Board of Director approval. The specific
amount of the Director's monthly deferred compensation shall be designated in
the Director's Joinder Agreement and shall apply only to compensation
attributable to services not yet performed.
SECTION IV
ADJUSTMENT OF DEFERRAL AMOUNT
-----------------------------
Deferral of the specific amount of fees and/or retainer designated in the
Director's Joinder Agreement shall continue in effect pursuant to the terms of
this Agreement unless and until the Director amends his Joinder Agreement by
filing with the Administrator a Notice of Adjustment of Deferral Amount (Exhibit
B of the Joinder Agreement). If the Bank increases the amount of fees and/or
retainer earned by the Director, the Director can include such additional
amounts in his monthly deferral, provided approval from the Board of Directors
is obtained, by filing a Notice of Adjustment of Deferral Amount. A Notice of
Adjustment of Deferral Amount shall be effective if filed with the Administrator
at least ten (10) days prior to any January 1st during the Director's Deferral
Period. Such Notice of Adjustment of Deferral Amount shall be effective
commencing with the January 1st following its filing and shall be applicable
only to compensation attributable to services not yet performed by the Director.
7
<PAGE>
SECTION V
RETIREMENT BENEFIT
------------------
5.1 Retirement Benefit. Subject to Subsection 6.1 of this Agreement, the Bank
------------------
agrees to pay the Director the Deferred Compensation Benefit commencing on
the Director's Benefit Eligibility Date. Such payments will be made over
the term of the Payout Period. In the event of the Director's death after
commencement of the Deferred Compensation Benefit, but prior to completion
of all such payments due and owing hereunder, the Bank shall pay to the
Director's Beneficiary a continuation of the monthly installments for the
number of months remaining in the Payout Period.
5.2 Disability Benefit. Notwithstanding any other provision hereof, if
-------------------
requested by the Director and approved by the Board of Directors, the
Director shall be entitled to receive the Disability Benefit hereunder, in
any case in which it is determined by a duly licensed independent physician
selected by the Bank, that the Director is no longer able, properly and
satisfactorily, to perform his regular duties as a Director because of ill
health, accident, disability or general inability due to age. If the
Director's service is terminated pursuant to this Subsection and Board of
Director approval is obtained, the Director may elect to begin receiving
the Disability Benefit in lieu of the Deferred Compensation Benefit, which
is not available prior to the Director's Benefit Eligibility Date. Payment
of the Disability benefit shall begin within thirty (30) days of Board of
Director approval of such benefit. The amount of the monthly benefit shall
be the annuitized value (using the Interest Factor) of the Director's
Elective Contribution Account, measured as of the date of the disability
determination and payable over the Payout Period. In the event the Director
dies while receiving Disability Benefit payments pursuant to this
Subsection, or after becoming eligible for such payments but before the
actual commencement of such payments, his Beneficiary shall be entitled to
receive those benefits provided for in Subsection 6.1(a) and the Disability
Benefits provided for in this Subsection shall terminate upon the
Director's death.
8
<PAGE>
5.3 Removal For Cause. In the event the Director is removed for Cause at any
-----------------
time prior to reaching his Benefit Age, he shall be entitled to receive the
balance of his Elective Contribution Account, measured as of the date of
removal. Such amount shall be paid in a lump sum within thirty (30) days
of the Director's date of removal. All other benefits provided for the
Director or his Beneficiary under this Agreement shall be forfeited and the
Agreement shall become null and void with respect to such Director.
5.4 Termination After Change in Control. If a Director is terminated after a
-----------------------------------
Change in Control, such Director shall be entitled to receive the
annuitized value (using the Interest Factor) of the sum of (a) the
Director's Effective Contribution Account, measured as of the Director's
termination date, plus (b) the lesser of (i) three (3) additional years of
deferral (without the necessity of the Director making any deferrals) or
(ii) the amount of deferral needed to complete his Deferral Period, plus
(c) interest accrued on such amounts from the date of termination until the
Benefit Age, payable in monthly installments throughout the Payment Period
and commencing on the Director's Benefit Eligibility Date.
SECTION VI
DEATH BENEFITS
--------------
6.1 Death Benefit Prior to Commencement of Deferred Compensation Benefit. In
--------------------------------------------------------------------
the event of the Director's death prior to commencement of the Deferred
Compensation Benefit, the Bank shall pay the Director's Beneficiary the
Survivor's Benefit commencing within thirty (30) days of the Director's
death. The amount of the Survivor's Benefit shall be determined as
follows:
(a) (1) In the event death occurs (i) while the Director is receiving the
Disability Benefit provided for in Subsection 5.2, or (ii) after the
Director has become eligible for such Disability Benefit payments but
before such payments have commenced, the Director's Beneficiary shall
be entitled to receive the Survivor's Benefit for the
9
<PAGE>
number of months in the Payout Period, reduced by the number of months
Disability Benefit payments were made to the Director. In the event
death occurs after the Director has received the Disability Benefit
provided for in Subsection 5.2 for the entire Payout Period, the
------
Director's Beneficiary shall not be entitled to the Survivor's Benefit
---
for any length of time. However, the lump sum payment described in
paragraph two (2) of this Subsection 6.1(a) shall still be applicable
to such Beneficiary.
(2) Furthermore, if (i) the total dollar amount of Disability Benefit
payments received by the Director under Subsection 5.2 is less than
the total dollar amount of payments which would have been received had
the Survivor's Benefit been paid in lieu of the Disability Benefit
which was paid during the Director's life, and (ii) Board of Director
approval is obtained, the Bank shall pay the Director's Beneficiary a
lump sum payment for the difference. This lump sum payment shall be
made within thirty (30) days of the Director's death.
(b) In the event death occurs while the Director is (i) in the service of
the Bank, (ii) deferring fees pursuant to Section III and (iii) prior
-----
to any reduction or discontinuance via an effective filing of a Notice
of Adjustment of Deferral Amount, in the level of deferrals reflected
in the Director's Joinder Agreement, for any period during the Deferral
Period, the Director's Beneficiary shall be paid the greater of: (i)
the Survivor's Benefit, or (ii) the annuitized value (using the
Interest Factor) of the Director's Elective Contribution Account,
measured as of the date of the Director's death.
(c) In the event death occurs while the Director is (i) in the service of
the Bank, (ii) deferring fees and/or retainer pursuant to Section III,
and (iii) after any reduction or discontinuance, via an effective
-----
filing of a Notice of Adjustment of Deferral Amount, in the level of
deferrals reflected in the Director's Joinder Agreement, for any period
during the Deferral Period, the Director's Beneficiary shall be paid
10
<PAGE>
the greater of: (i) a reduced Survivor's Benefit, such amount being
determined by multiplying the monthly payment available as a Survivor's
Benefit by a fraction, the numerator of which is equal to the total
Board fees actually deferred by the Director as of his death, and the
denominator of which is equal to the total amount of Board fees which
would have been deferred as of his death, if no reduction or
discontinuance in the level of deferrals had occurred at any time
following execution of the Joinder Agreement and during the Deferral
Period, or (ii) the annuitized value (using the Interest Factor) of the
Director's Elective Contribution Account, measured as of the date of
the Director's death.
(d) In the event the Director completes less than one hunded percent (100%)
of his Projected Deferrals due to any voluntary or involuntary
termination other than removal for Cause, the Director's Beneficiary
shall be paid the greater of : (i) a reduced Survivor's Benefit, such
amount being determined by multiplying the monthly payment available as
a Survivor's Benefit by a fraction, the numerator of which is equal to
the total Board fees actually deferred by the Director and the
denominator of which is equal to the Director's Projected Deferral, or
(ii) the annuitized value (using the Interest Factor) of the Director's
Elective Contribution Account, measured as of the date of termination
of the Director's service.
(e) In the event the Director completes One Hundred Percent (100%) of his
Projected Deferrals of his Projected Deferral due to termination on
account of a Change in Control, the Director's Beneficiary shall be
paid, in addition to the amount provided in Subsection 6.1(d), a
benefit in an amount equal to the annuitized value (using the Interest
Factor) of the lesser of three (3) additional years of deferrals needed
to complete his Deferral Period.
(f) In the event death occurs and the Director has completed One Hundred
Percent (100%) of his Projected Deferral prior to any voluntary or
-----
involuntary termination other than removal for Cause, and provided no
payments have been made
11
<PAGE>
pursuant to Subsection 5.2, the Director's Beneficiary shall be paid
the Survivor's Benefit.
6.2 Death Benefit After Commencement of Deferred Compensation Benefit. In the
-----------------------------------------------------------------
event of the Director's death after payment of his Deferred Compensation
Benefit has commenced, the Beneficiary shall be entitled to receive the
Survivor's Benefit for the balance of the Payout Period, as provided in the
Joinder Agreement.
6.3 Additional Death Benefit - Funeral Expense. In addition to the above-
------------------------------------------
described death benefits, upon the Director's death, the Director's
Beneficiary shall be entitled to receive a one-time lump sum death benefit
in the amount of Ten Thousand Dollars ($10,000.00). This benefit shall be
provided specifically for the purpose of providing payment for funeral
expenses of the Director. Such benefit shall be payable within thirty (30)
days of the Director's death. The Director's Beneficiary shall not be
entitled to such benefit if the Director is removed for Cause prior to
death.
SECTION VII
BENEFICIARY DESIGNATION
-----------------------
The Director shall make an initial designation of primary and secondary
Beneficiaries upon execution of his Joinder Agreement by completing the
Beneficiary Designation portion thereof. A Director may subsequently change such
designation by submitting a new written designation of primary and secondary
Beneficiaries in substantially the same form attached as Exhibit A to the
Joinder Agreement. Any Beneficiary designation made subsequent to execution of
the Joinder Agreement shall become effective only when acknowledged in writing
by the Administrator.
12
<PAGE>
SECTION VIII
DIRECTOR'S RIGHT TO ASSETS
--------------------------
The rights of the Director, any Beneficiary, or any other person claiming
through the Director under this Agreement, shall be solely those of an unsecured
general creditor of the Bank. The Director, the Beneficiary, or any other person
claiming through the Director, shall only have the right to receive from the
Bank those payments so specified under this Agreement. The Director agrees that
he, his Beneficiary, or any other person claiming through him shall have no
rights or interests whatsoever in any asset of the Bank, including any insurance
policies or contracts which the Bank may possess or obtain to informally fund
this Agreement. Any asset used or acquired by the Bank in connection with the
liabilities it has assumed under this Agreement, unless expressly provided
herein, shall not be deemed to be held under any trust for the benefit of the
Director or his Beneficiaries, nor shall any asset be considered security for
the performance of the obligations of the Bank. Any such asset shall be and
remain, a general, unpledged, and unrestricted asset of the Bank.
SECTION IX
RESTRICTIONS UPON FUNDING
-------------------------
The Bank shall have no obligation to set aside, earmark or entrust any fund
or money with which to pay its obligations under this Agreement. The Bank
reserves the absolute right in its sole discretion to either purchase assets to
meet its obligations undertaken by this Agreement or to refrain from the same
and to determine the extent, nature, and method of any such asset purchases.
Should the Bank decide to purchase assets such as life insurance, mutual funds,
disability policies or annuities, the Bank reserves the absolute right, in its
sole discretion, to terminate such assets at any time, in whole or in part. If
the Bank elects to invest in a life insurance, disability or annuity policy upon
the life of the Director, then the Director shall assist the Bank by freely
submitting to a physical examination and by supplying such additional
information necessary to obtain such insurance or annuities.
13
<PAGE>
SECTION X
ALIENABILITY AND ASSIGNMENT PROHIBITION
---------------------------------------
Neither the Director nor any Beneficiary under this Agreement shall have
any power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits payable
hereunder, nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the Director or
his Beneficiary, nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the Director or any
Beneficiary attempts assignment, communication, hypothecation, transfer or
disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease
and terminate.
SECTION XI
ACT PROVISIONS
--------------
11.1 Named Fiduciary and Administrator. The Bank shall be the Named Fiduciary
---------------------------------
and Administrator (the "Administrator") of this Agreement. As
Administrator, the Bank shall be responsible for the management, control
and administration of the Agreement as established herein. The
Administrator may delegate to others certain aspects of the management and
operational responsibilities of the Agreement, including the employment of
advisors and the delegation of ministerial duties to qualified individuals.
11.2 Claims Procedure and Arbitration. In the event that benefits under this
--------------------------------
Agreement are not paid to the Director (or to his Beneficiary in the case
of the Director's death) and such claimants feel they are entitled to
receive such benefits, then a written claim must be made to the
Administrator within sixty (60) days from the date payments are refused.
The Administrator shall review the written claim and, if the claim is
denied, in whole or in part, they shall provide in writing, within ninety
(90) days of receipt of such claim, their specific reasons for such denial,
reference to the provisions of this Agreement or the Joinder Agreement upon
which the denial is based, and any additional material or
14
<PAGE>
information necessary to perfect the claim. Such writing by the
Administrator shall further indicate the additional steps which must be
undertaken by claimants if an additional review of the claim denial is
desired.
If claimants desire a Restated and Amended review, they shall notify the
Administrator in writing within sixty (60) days of the first claim denial.
Claimants may review this Agreement, the Joinder Agreement or any documents
relating thereto and submit any issues and comments, in writing, they may
feel appropriate. In its sole discretion, the Administrator shall then
review the Restated and Amended claim and provide a written decision within
sixty (60) days of receipt of such claim. This decision shall state the
specific reasons for the decision and shall include reference to specific
provisions of this Agreement or the Joinder Agreement upon which the
decision is based.
If claimants continue to dispute the benefit denial based upon completed
performance of this Agreement and the Joinder Agreement or the meaning and
effect of the terms and conditions thereof, then claimants may submit the
dispute to Board of Arbitration for final arbitration. Such Board of
Arbitration shall consist of one member selected by the claimant, one
member selected by the Bank, and the third member selected by the first two
members. The Board of Arbitration shall operate under any generally
recognized set of arbitration rules. The parties hereto agree that they,
their heirs, personal representatives, successors and assigns shall be
bound by the decision of such Board with respect to any controversy
properly submitted to it for determination.
SECTION XII
MISCELLANEOUS
-------------
12.1 No Effect on Directorship Rights. Nothing contained herein will confer upon
--------------------------------
the Director the right to be retained in the service of the Bank nor limit
the right of the Bank to discharge or otherwise deal with Director without
regard to the existence of the
15
<PAGE>
Agreement. Pursuant to 12 C.F.R. (S) 563.39(b), the following conditions
shall apply to this Agreement:
(1) The Bank's Board of Directors may remove the Director at any time, but
any removal by the Bank's Board of Directors other than removal for
Cause, shall not prejudice the Director's vested right to compensation
or other benefits under the contract. The Director shall be paid the
balance of his Elective Contribution Account in a lump sum within
thirty (30) days of his removal in the event he is removed for Cause.
He shall have no right to receive additional compensation or other
benefits for any period after removal for Cause.
(2) If the Director is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(3) and (g)(1)) the Bank's obligations under the
contract shall be suspended as of the date of termination of service
unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Bank may in its discretion (i) pay the
Director all or part of the compensation withheld while its contract
obligations were suspended and (ii) reinstate (in whole or in part)
any of its obligations which were suspended.
(3) If the Director is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued
under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(4) or (g)(1)), all non-vested obligations of the
Bank under the contract shall terminate as of the effective date of
the order. The Director shall be paid the balance of his Elective
Contribution Account in a lump sum within
16
<PAGE>
thirty (30) days of his removal in the event he is removed pursuant to
such order.
(4) If the Bank is in default (as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act), all non-vested obligations under the
contract shall terminate as of the date of default.
(5) All non-vested obligations under the contract shall be terminated,
except to the extent determined that continuation of the contract is
necessary for the continued operation of the Bank:
(i) by the Director [of the Federal Deposit Insurance Corporation or
the Resolution Trust Corporation] or his designee at the time the
Federal Deposit Insurance Bank or the Resolution Trust Bank
enters into an agreement to provide assistance to or on behalf of
the Bank under the authority contained in (S) 13(c) of the
Federal Deposit Insurance Act; or
(ii) by the Director [of the Federal Deposit Insurance Corporation or
the Resolution Trust Corporation] or his designee, at the time
the Director or his designee approves a supervisory merger to
resolve problems related to operation of the Bank or when the
Bank is determined by the Director to be in an unsafe or unsound
condition.
Any rights of the parties that have already vested (i.e., the balance
of the Director's Elective Contribution Account), however, shall not be
affected by such action.
12.2 State Law. The Agreement is established under, and will be construed
---------
according to, the laws of the state of Indiana.
17
<PAGE>
12.3 Severability. In the event that any of the provisions of this Agreement or
------------
portion thereof, are held to be inoperative or invalid by any court of
competent jurisdiction, then: (1) insofar as is reasonable, effect will be
given to the intent manifested in the provisions held invalid or
inoperative, and (2) the validity and enforceability of the remaining
provisions will not be affected thereby.
12.4 Incapacity of Recipient. In the event the Director is declared incompetent
-----------------------
and a conservator or other person legally charged with the care of his
person or Estate is appointed, any benefits under the Agreement to which
such Director is entitled shall be paid to such conservator or other person
legally charged with the care of his person or Estate. Except as provided
above, if the Bank's Board of Directors, in its sole discretion, determines
that the Director is unable to manage his financial affairs, the Board may
direct the Bank to make distributions to any person for the benefit of the
Director.
12.5 Unclaimed Benefit. The Director shall keep the Bank informed of his
-----------------
current address and the current address of his Beneficiaries. If the
location of the Director is not made known to the Bank within three (3)
years after the date on which any payment of the Deferred Compensation
Benefit may first be made, the Bank shall delay payment of the Director's
benefit payments until the location of the Director is made known to the
Bank: however, the Bank shall be obligated to hold such benefit payments
for the Director until the expiration of three (3) years. Upon expiration
of the three (3) year period, the Bank may discharge its obligation by
payment to the Director's Beneficiary. If the location of the Director's
Beneficiary is not made known to the Bank by the end of an additional two
(2) month period following expiration of the three (3) year period, then
the Bank may fully discharge its obligation by payment to the Director's
Estate.
18
<PAGE>
12.6 Limitations on Liability. Notwithstanding any of the preceding provisions
------------------------
of the Agreement, no individual acting as an employee or agent
of the Bank, or as a member of the Board of Directors shall be personally
liable to the Director or any other person for any claim, loss, liability
or expense incurred in connection with this Agreement.
12.7 Gender. Whenever in this Agreement words are used in the masculine or
------
neuter gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
12.8 Effect on Other Corporate Benefit Agreements. Nothing contained in this
--------------------------------------------
Agreement shall affect the right of the Director to participate in or be
covered by any qualified or non-qualified pension, profit sharing, group,
bonus or other supplemental compensation or fringe benefit agreement
constituting a part of the Bank's existing or future compensation
structure.
12.9 Suicide. Notwithstanding anything to the contrary in this Agreement, the
-------
benefits otherwise provided herein shall not be payable if the Director's
death results from suicide, whether sane or insane, within twenty-six (26)
months after the execution of his Joinder Agreement. If the Director dies
during this twenty-six (26) month period due to suicide, the balance of
his Elective Contribution Account will be paid to the Director's
Beneficiary in a single payment. Payment is to be made within thirty (30)
days after the Director's death is declared a suicide by competent legal
authority. Credit shall be given to the Bank for payments made prior to
determination of suicide.
12.10 Inurement. This Agreement shall be binding upon and shall inure to the
---------
benefit of the Bank, its successors and assigns, and the Director, his
successors, heirs, executors, administrators, and Beneficiaries.
19
<PAGE>
12.11 Tax Withholding. The Bank may withhold from any benefits payable under
---------------
this Agreement all federal, state, city, or other taxes as shall be
required pursuant to any law or governmental regulation then in effect.
12.12 Headings. Headings and sub-headings in this Agreement are inserted for
--------
reference and convenience only and shall not be deemed a part of this
Agreement.
SECTION XIII
AMENDMENT/REVOCATION
--------------------
This Agreement shall not be amended, modified or revoked at any time, in
whole or part, without the mutual written consent of the Director and the Bank,
and such mutual consent shall be required even if the Director is no longer
serving the Bank as a member of the Board.
SECTION XIV
EXECUTION
---------
14.1 This Agreement sets forth the entire understanding of the parties hereto
with respect to the transactions contemplated hereby, and any previous
agreements or understanding between the parties hereto regarding the
subject matter hereof are merged into and superseded by this Agreement.
14.2 This Agreement shall be executed in triplicate, each copy of which, when so
executed and delivered, shall be an original, but all three copies shall
together constitute one and the same instrument.
20
<PAGE>
Subsidiaries of the Registrant
Parent
- ------
First Bancorp of Indiana, Inc.
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
- --------------------------------- ------------ ----------------------
First Federal Savings Bank(1) 100% United States
FFSL Service Corporation, Inc.(2) 100% Indiana
__________
(1) Upon consummation of the conversion, First Federal Savings Bank will become
a wholly-owned subsidiary of the Registrant.
(2) Wholly owned by First Federal Savings Bank.
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
We consent to the inclusion of our report dated August 12, 1998, except for
note 16 as to which the date is September 16, 1998, on the consolidated
financial statements of First Federal Savings Bank and Subsidiary (Bank) as of
June 30, 1998 and for the three years then ended, and to the reference made to
us under the heading "Experts" in the Application of Conversion filed by the
Bank with the Office of Thrift Supervisor and in the Registration Statement on
Form S-1 filed by First Bancorp of Indiana, Inc. with the United States
Securities and Exchange Commission.
/s/ OLIVE LLP
Evansville, Indiana
December 11, 1998
<PAGE>
MULDOON, MURPHY & FAUCETTE
CONSENT
We hereby consent to the references to this firm and our opinions in: the
Registration Statement on Form S-1 filed by First Bancorp of Indiana, Inc.
(the "Company"), Evansville, Indiana, and all amendments thereto; in the Form
H-(e)1 for the Company, and all amendments thereto; and in the Application for
Conversion on Form AC filed by First Federal Savings Bank (the "Bank"), and all
amendments thereto, relating to the conversion of the Bank from a federally-
chartered mutual savings bank to a federally-chartered stock savings bank, the
concurrent issuance of the Bank's outstanding capital stock to the Company, a
holding company formed for such purpose, and the offering of the Company's
common stock.
/s/ MULDOON, MURPHY & FAUCETTE
MULDOON, MURPHY & FAUCETTE
Dated this 11th day of
December, 1998
<PAGE>
[LETTERHEAD OF CAPITAL RESOURCES GROUP, INC.]
December 11, 1998
Board of Directors
First Federal Savings Bank
2200 W. Franklin Street
Evansville, Indiana 47712
Dear Board Members:
We hereby consent to the use of our firm's name, Capital Resources Group,
Inc. ("CRG") in the Application for Approval of Conversion filed by First
Federal Savings Bank for permission to convert to a capital stock savings bank
and references to the Conversion Valuation Appraisal Report ("Report") and the
valuation of First Federal Savings Bank provided by CRG. We also consent to the
use of our firm's name and references to our Report in the Form S-1 Registration
Statement filed by First Bancorp of Indiana, Inc. We also consent to the filing
of our Report and our opinion regarding the value of subscription rights as
exhibits to such Registration Statement.
Very truly yours,
/s/ Michael B. Seiler
---------------------
Michael B. Seiler
Senior Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1999
<PERIOD-START> JUL-01-1997 JUL-01-1998
<PERIOD-END> JUN-30-1998 SEP-30-1998
<CASH> 926,974 888,262
<INT-BEARING-DEPOSITS> 12,721,095 14,547,601
<FED-FUNDS-SOLD> 320,000 420,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 4,375,672 4,015,967
<INVESTMENTS-CARRYING> 49,363,642 47,987,499
<INVESTMENTS-MARKET> 49,463,000 48,304,000
<LOANS> 35,905,003 38,433,162
<ALLOWANCE> 250,000 250,000
<TOTAL-ASSETS> 108,963,812 111,627,340
<DEPOSITS> 89,229,032 90,960,894
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 1,141,123 1,904,804
<LONG-TERM> 3,645,000 3,645,000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 14,948,657 15,116,642
<TOTAL-LIABILITIES-AND-EQUITY> 108,963,812 111,627,340
<INTEREST-LOAN> 2,694,771 744,657
<INTEREST-INVEST> 4,961,280 1,071,784
<INTEREST-OTHER> 58,650 14,722
<INTEREST-TOTAL> 7,714,701 1,831,163
<INTEREST-DEPOSIT> 4,584,001 1,119,852
<INTEREST-EXPENSE> 4,976,624 1,184,609
<INTEREST-INCOME-NET> 2,738,077 646,554
<LOAN-LOSSES> 0 0
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 2,044,274 505,943
<INCOME-PRETAX> 1,295,190 215,343
<INCOME-PRE-EXTRAORDINARY> 1,295,190 215,343
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 879,704 154,567
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 2.53 2.47
<LOANS-NON> 0 0
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 250,000 250,000
<CHARGE-OFFS> 0 0
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 250,000 250,000
<ALLOWANCE-DOMESTIC> 250,000 250,000
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS BROCHURE
[LOGO OF FIRST FEDERAL SAVINGS BANK APPEARS HERE]
Answers to Frequently Asked Questions
About Our Stock Conversion and
Your Opportunity to Invest in
FIRST BANCORP OF INDIANA, INC.
the Proposed Holding Company of
First Federal Savings Bank
<PAGE>
QUESTIONS AND ANSWERS BROCHURE
Page 2
You can be one of the initial stockholders of First Bancorp of Indiana,
Inc., the proposed holding company of First Federal Savings Bank. First Bancorp
of Indiana, Inc. is "going public" as part of First Federal Savings Bank's
conversion from a federally chartered mutual savings bank to a federally
chartered stock savings bank to be known as First Federal Savings Bank. Now you
have the opportunity to invest in First Federal Savings Bank by purchasing stock
in the initial offering of the holding company. This brochure answers some of
the most frequently asked questions about the conversion to stock ownership and
about your opportunity to invest in First Bancorp of Indiana, Inc..
<PAGE>
QUESTIONS AND ANSWERS BROCHURE
Page 3
ABOUT THE TRANSACTION
1. WHAT IS A CONVERSION?
First Federal Savings Bank is now a federally chartered mutual savings
bank with directors elected by our members. After the Conversion, we
will be a stock savings bank owned by a holding company. The holding
company, First Bancorp of Indiana, Inc., will be owned by stockholders
who will have voting rights with respect to certain key business
matters. The holding company is offering shares of common stock to
certain customers of First Federal Savings Bank and, depending upon
market conditions and the availability of shares, may offer shares to
selected persons in a public offering.
2. WHAT IS FIRST BANCORP OF INDIANA, INC. AND WHY WAS IT FORMED?
First Bancorp of Indiana, Inc. is a newly organized holding company
created by First Federal Savings Bank specifically to purchase 100%
ownership in First Federal Savings Bank. The holding company currently
has no stockholders, but is offering shares of its common stock to
certain customers of First Federal Savings Bank and, depending upon
market conditions and the availability of shares, may offer shares to
selected persons in a public offering. The additional capital provided
through the offering of First Bancorp of Indiana, Inc. stock will
support future banking activities of First Federal Savings Bank.
3. WHAT ARE THE BENEFITS AND RISKS OF CONVERSION?
The Conversion and sale of stock will increase First Federal Savings
Bank's capital, enabling it to do many things, including possibly the
following:
- support expansion of financial services
- facilitate future access to the capital markets
Please review "Use of Proceeds" in the Prospectus for First Federal
Savings Bank's and the holding company's initial plans with respect to
the capital to be raised in the Conversion.
There are certain risks in investing in First Bancorp of Indiana, Inc.
common stock. Please review the prospectus prior to making an
investment decision, particularly the section entitled "Risk Factors".
<PAGE>
QUESTIONS AND ANSWERS BROCHURE
Page 4
4. WILL THE CONVERSION HAVE ANY EFFECT ON MY SAVINGS BANK
ACCOUNT?
No. The Conversion will not affect the general terms of your savings
account which will continue to be insured by the Federal Deposit
Insurance Corporation (FDIC) to the maximum legal limit. Your savings
account is not being converted to stock. The obligations of borrowers
under their loan agreements will not be affected.
5. HOW DO I BENEFIT FROM THE CONVERSION?
Eligible depositors and borrowers will be given the opportunity to
subscribe or place an order to purchase stock in First Bancorp of
Indiana, Inc. and thereby participate in any gain in the value of the
shares and future dividend payments, if any. Furthermore, the
additional capital will enable First Federal Savings Bank to provide
expanded services to its customers and the community.
ABOUT PURCHASING STOCK
6. WHO MAY PURCHASE STOCK?
First Bancorp of Indiana, Inc. is currently conducting a Subscription
Offering. Persons listed below may have the opportunity to subscribe to
purchase First Bancorp of Indiana, Inc.'s common stock during the
Subscription Offering.
- ELIGIBLE ACCOUNT HOLDERS. Persons who had a savings deposit of at
least $50 at First Federal Savings Bank on the Eligibility Record
Date, June 30, 1997.
- SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. Persons who had a savings
deposit of at least $50 on the Supplemental Eligibility Record
Date, December 31, 1998.
- OTHER MEMBERS. Depositors and certain borrowers as of the Voting
Record Date, ______ , 1999.
First Bancorp of Indiana, Inc. may, depending upon market conditions
and the availability of shares, offer stock to certain persons in a
public offering.
<PAGE>
QUESTIONS AND ANSWERS BROCHURE
Page 5
7. WHAT IS THE PRICE PER SHARE AND HOW MANY SHARES ARE BEING
OFFERED?
The aggregate value of First Bancorp of Indiana, Inc. stock has been
determined by an independent appraisal firm. The purchase price per
share is $10.00. Up to 2,185,000 shares are being offered for sale (or
up to 2,512,750 shares under certain conditions such as a change in
market and financial conditions following commencement of the
offering).
8. WILL EVERYONE PAY THE SAME PRICE FOR THE STOCK?
Yes. All subscribers, including First Federal Savings Bank's Board of
Directors and management, will pay the same price during the offering.
9. ARE DEPOSITORS OBLIGATED TO BUY STOCK?
No. But our depositors have a priority subscription right.
10. HOW MUCH STOCK MAY I BUY IN THE SUBSCRIPTION OFFERING?
The maximum number of shares that you may purchase as an eligible
subscriber (including all persons on a joint account) is 15,000. For
eligible subscribers working in concert, the maximum number of shares
that may be purchased together is 22,000.
11. WHAT IS THE MINIMUM AMOUNT OF STOCK I MAY BUY?
The minimum purchase limit is 25 shares.
12. IS THE STOCK INSURED BY THE FDIC?
No. Like any other common stock, First Bancorp of Indiana, Inc. stock
will not be insured by the FDIC or any governmental agency.
13. IN THE FUTURE, HOW MAY I PURCHASE MORE SHARES OR SELL MY SHARES?
First Bancorp of Indiana, Inc. anticipates that its common stock will
be quoted on the NASDAQ National Market System. No assurance can be
given, however, that quotes for First Bancorp of Indiana, Inc. stock
will be available or that an investor will be able to resell the common
stock at or above the purchase price after Conversion. There can be no
guarantee that an active trading market for First Bancorp of Indiana,
Inc. stock will develop.
<PAGE>
QUESTIONS AND ANSWERS BROCHURE
Page 6
14. WILL THERE BE ANY DIVIDENDS?
First Bancorp of Indiana, Inc. intends to adopt a policy of paying
regular cash dividends. The declaration and payment of dividends are
subject to, among other things, the financial conditions and results of
operations of First Bancorp of Indiana, Inc., First Federal Savings
Bank's compliance with its capital requirements, tax considerations,
industry standards and other factors.
15. HOW DO I ORDER STOCK AND WHAT METHODS CAN BE USED FOR PAYMENT OF MY
STOCK PURCHASES?
Complete the stock order form and certification as instructed. Be sure
to indicate the number of shares you wish to purchase and the total
amount remitted (multiply the number of shares subscribed for by $10.00
per share.) Total payment for purchases in the Subscription Offering
must accompany the order form and be received by First Bancorp of
Indiana, Inc. prior to 12:00 noon, local time, on _________, 1999. The
payment options for stock purchases are as follows:
- CHECK OR MONEY ORDER sent or delivered to First Federal Savings
Bank. If payment is made by check or money order, interest will be
earned at the passbook rate until the Conversion is completed.
- WITHDRAWAL OF FUNDS from any existing account of First Federal
Savings Bank in an amount equal to the purchase price (which is
$10.00 per share) times the number of shares ordered. Penalties
for early withdrawal from a First Federal Savings Bank account
will be waived when purchasing stock in the Subscription Offering.
Once authorization for withdrawal of funds has been made, the
subscriber may not withdraw the designated amount unless the Plan
of Conversion is terminated or as otherwise required by regulatory
authorities. All funds maintained in savings accounts are insured
by the FDIC up to legally applicable limits and will earn interest
until completion of the Conversion.
- ORDERS OF $25,000 or more must be paid by First Federal Savings
Bank account withdrawals, certified funds, cashier's check, or
money orders.
- IRA PURCHASES. If you wish to purchase shares of First Bancorp of
Indiana, Inc. stock for an IRA account, either at First Federal
Savings Bank or elsewhere, we may be able to accommodate you.
Please contact the Stock Center as soon as possible at (812)
_______ so that we may assist you with the appropriate procedures
for such a purchase. It is important that you contact us soon
because making the IRA arrangements takes time.
<PAGE>
QUESTIONS AND ANSWERS BROCHURE
Page 7
16. MAY I CHANGE MY MIND?
The stock order form you executed cannot be canceled or withdrawn.
However, you may order additional shares by completing another stock
order form, subject to the maximum purchase limitations.
17. ARE MY SUBSCRIPTION RIGHTS TRANSFERABLE?
NO. No person may transfer or enter into any agreement to transfer his
--
or her subscription rights issued under the Plan of Conversion, or the
shares to be issued upon the exercise of such rights. Persons violating
such prohibition will lose their right to purchase stock in the
Conversion and may be subject to further government sanctions.
ABOUT MEMBERS' VOTING RIGHTS
18. WHO IS ELIGIBLE TO VOTE ON THE PLAN OF CONVERSION?
Depositors at the Voting Record Date of __________, 1999 who continue
to be depositors at the date of the Special Meeting are eligible to
vote. Borrowers with loans outstanding on March 16, 1998 and through
the Voting Record Date are also eligible to vote.
19. HOW IS THE NUMBER OF VOTES DETERMINED?
Each deposit account holder is entitled to cast one vote for each $100,
or fraction thereof, of the aggregate withdrawal value of all such
account holder's deposit accounts on the Voting Record Date. The
maximum number of votes per person is 1,000. Each borrower who has
voting rights is entitled to cast one vote, in addition to any votes a
borrower has as a depositor.
20. IF I VOTE FOR THE PLAN OF CONVERSION ON THE PROXY CARD, WILL I
BE OBLIGATED TO PURCHASE FIRST BANCORP OF INDIANA, INC. STOCK?
No. Signing the proxy card and voting for the Conversion in no way
obligates you to purchase First Bancorp of Indiana, Inc. stock. All
members are urged to vote for the Conversion. THE BOARD OF DIRECTORS
HAS UNANIMOUSLY APPROVED THE PLAN OF CONVERSION AND RECOMMENDS MEMBERS
VOTE "FOR" APPROVAL OF THE PLAN OF CONVERSION.
21. WHAT HAPPENS IF I DON'T VOTE?
Failing to vote could be equivalent to voting against the Plan of
Conversion. YOUR VOTE IS EXTREMELY IMPORTANT! PLEASE SIGN AND MAIL YOUR
PROXY CARD(S) NOW.
<PAGE>
QUESTIONS AND ANSWERS BROCHURE
Page 8
22. MAY I COME TO THE SPECIAL MEETING AND VOTE?
Yes. However, every member is encouraged to send a proxy card(s) to
First Federal Savings Bank prior to the meeting even if the member
plans to attend the special meeting. The proxy is revocable and can be
changed by submitting a later dated proxy or by casting a ballot at the
meeting.
23. I RECEIVED MORE THAN ONE PROXY CARD. CAN I VOTE THEM ALL?
Yes. Please vote ALL the proxy cards you receive. You may have more
than one account in different registrations. While some accounts have
been consolidated, it is not permissible to consolidate all accounts.
24. IF A SAVINGS ACCOUNT IS IN JOINT NAME, MUST BOTH NAMES BE SIGNED
ON THE PROXY CARD?
No. Two or more signatures are required only when two or more
signatures are needed to withdraw funds from the account.
25. IF I DON'T BUY STOCK WILL I HAVE A VOTE AT FUTURE ANNUAL
MEETINGS?
No. After the Conversion, only stockholders will have voting rights.
However, the operations of First Federal Savings Bank and the general
terms and balances of your deposit accounts and loans will remain
unchanged.
26. HOW MAY I GET MORE INFORMATION?
We hope that these questions and answers, combined with the Prospectus
and the Proxy Statement, will help you better understand the Conversion
and the stock offering. You are urged to carefully review the
Prospectus and Proxy Statement before making an investment or voting
decision. If you desire further information, please contact the Stock
Center at:
Telephone: (812)___________
<PAGE>
I M P O R T A N T
P R O X Y R E M I N D E R
[LOGO OF FIRST FEDERAL SAVINGS BANK APPEARS HERE]
FIRST FEDERAL SAVINGS BANK
YOUR VOTE ON FIRST FEDERAL SAVINGS BANK'S STOCK CONVERSION IS VERY
IMPORTANT.
VOTING FOR THE CONVERSION WILL NOT AFFECT THE INSURANCE OF YOUR DEPOSIT ACCOUNT.
YOUR ACCOUNT WILL CONTINUE TO BE INSURED UP TO THE MAXIMUM LEGAL LIMIT BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, AN AGENCY OF THE U.S. GOVERNMENT.
REMEMBER, VOTING FOR THE CONVERSION DOES NOT OBLIGATE YOU TO BUY ANY STOCK.
---
PLEASE ACT PROMPTLY! SIGN YOUR PROXY CARD(S) AND MAIL OR DELIVER THEM TO FIRST
-----------------------
FEDERAL SAVINGS BANK TODAY. WE RECOMMEND THAT YOU VOTE FOR THE PLAN OF
---
CONVERSION.
THE BOARD OF DIRECTORS
FIRST FEDERAL SAVINGS BANK
================================================================================
If you have already mailed your proxy card(s), please
accept our thanks and disregard this request.
For Further Information, Please Call
The Stock Center
at (812) ___-____
- --------------------------------------------------------------------------------
THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY THESE SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY A
STOCK ORDER FORM AND CERTIFICATION, COPIES OF WHICH MAY BE OBTAINED BY
CONTACTING THE STOCK CENTER. THE COMMON STOCK OFFERED IN THE CONVERSION IS NOT A
DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED.
- --------------------------------------------------------------------------------
<PAGE>
PLACARD/LOBBY POSTER FOR EACH BRANCH OFFICE - APPROX. 2 1/2' X 4'
-----------------------------------------------------------------
[LOGO OF FIRST FEDERAL SAVINGS BANK APPEARS HERE]
FIRST BANCORP OF INDIANA, INC. IS GOING PUBLIC!
You may now own a part of First Federal Savings Bank
by purchasing shares of stock
in its holding company, First Bancorp of Indiana, Inc.
Please take a prospectus, and
for further information about the stock offering
call the Stock Center at
(812) ___-____
- --------------------------------------------------------------------------------
THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY THESE SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY A
STOCK ORDER FORM AND CERTIFICATION, COPIES OF WHICH MAY BE OBTAINED BY
CONTACTING THE STOCK CENTER. THE COMMON STOCK OFFERED IN THE CONVERSION IS NOT A
DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED.
- --------------------------------------------------------------------------------
<PAGE>
YOU'RE INVITED
You are cordially invited to attend our Community Meeting where you will find
out more about First Bancorp of Indiana, Inc. and our stock offering
including...
. A presentation by senior management discussing First Federal Savings
Bank strategy and performance.
. An explanation of First Federal Savings Bank's plan for converting to a
stock form of ownership.
. A question and answer period, followed by a reception where you can
personally meet and talk with the officers and directors of First
Federal Savings Bank.
There will be no sales pressure. You will receive First Bancorp of Indiana, Inc.
stock offering materials, including a prospectus. It is up to you to decide if a
stock purchase matches your investment objectives.
For more details on First Bancorp of Indiana, Inc. stock offering, attend this
informative and convenient Community Meeting:
LOCATION:
DATE:
TIME:
Seating is limited, so please call and reserve your seat. To make a reservation
or to receive a prospectus, call (812) ___-____.
SHARE OUR FUTURE.
- --------------------------------------------------------------------------------
THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY A STOCK
ORDER FORM AND CERTIFICATION, COPIES OF WHICH MAY BE OBTAINED BY CONTACTING THE
STOCK CENTER. THE COMMON STOCK OFFERED IN THE CONVERSION IS NOT A DEPOSIT OR
ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED.
- --------------------------------------------------------------------------------
<PAGE>
NEWSPAPER ADVERTISEMENT
NEW ISSUE
[LOGO OF FIRST FEDERAL SAVINGS BANK APPEARS HERE]
First Bancorp of Indiana, Inc.
the proposed holding company for
First Federal Savings Bank
is going public!
Up to _____shares of Common Stock are being offered
at a Subscription Price of $10.00 per share.
FOR INFORMATION CALL:
STOCK CENTER
Telephone
(812) ___-____
or stop by the Stock Center located at
, Indiana
The Subscription Offering period deadline is 12:00 Noon, local time_________,
1999.
- --------------------------------------------------------------------------------
THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY A STOCK
ORDER FORM AND CERTIFICATION, COPIES OF WHICH MAY BE OBTAINED BY CONTACTING THE
STOCK CENTER. THE COMMON STOCK OFFERED IN THE CONVERSION IS NOT A DEPOSIT OR
ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED.
- --------------------------------------------------------------------------------
<PAGE>
FIRST FEDERAL SAVINGS BANK
2200 WEST FRANKLIN STREET
EVANSVILLE, INDIANA 47712
(812) 423-3196
NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD ON _____________, 1999
NOTICE IS HEREBY GIVEN that a Special Meeting of Members ("Special Meeting")
of First Federal Savings Bank, Evansville, Indiana, will be held at the
______________________________________ at __:00 a.m.[p.m.], local time, on
_______________, 1999, to consider and vote upon:
1. The Plan of Conversion (the "Plan") pursuant to which First Federal
Savings Bank (the "Bank") will be converted from a federally chartered
mutual savings bank into a federally chartered capital stock savings
bank, with the concurrent sale of all of the Bank's capital stock to
First Bancorp of Indiana, Inc. (the "Company"), an Indiana corporation,
and the sale of the Company's common stock to the public; and the other
transactions provided for in the Plan, including the adoption of a new
Federal Stock Charter and Bylaws of the Bank in their entirety;
2. Such other business as may properly come before the Special Meeting or
any adjournment thereof.
Note: Management is not aware of any such other business at this
----
time.
The Board of Directors has fixed ______________, 1999 as the record date
("Voting Record Date") for the determination of members of the Bank entitled to
notice of and to vote at the Special Meeting and at any adjournment thereof. All
of the Bank's depositors and borrowers of the Bank as of March 16, 1988 whose
loans continue to be outstanding are members of the Bank. Only those members of
the Bank of record as of the close of business on the Voting Record Date who
continue to be members on the date of the Special Meeting or any postponement or
adjournment thereof will be entitled to vote at the Special Meeting or any
postponement or adjournment thereof. The Plan must be approved by the
affirmative vote of at least a majority of the amount of votes entitled to be
cast at the Special Meeting. If there are not sufficient votes for approval of
the Plan at the time of the Special Meeting, the Special Meeting may be
postponed or adjourned to permit further solicitation of proxies. THE FOLLOWING
PROXY STATEMENT AND PROSPECTUS ATTACHED HERETO AND THE ACCOMPANYING PLAN,
FEDERAL STOCK CHARTER AND BYLAWS OF THE BANK, CONTAIN A MORE DETAILED
DESCRIPTION OF THE BANK AND THE PROPOSED CONVERSION.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD(S) WITHOUT DELAY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TO ASSURE THAT YOUR VOTE WILL BE COUNTED. FOR A DISCUSSION OF HOW TO
REVOKE A PREVIOUSLY GRANTED PROXY, SEE "REVOCABILITY OF PROXIES" IN THE ATTACHED
PROXY STATEMENT.
By Order of the Board of Directors
Harold Duncan
President and Chief Executive Officer
Evansville, Indiana
______________, 1999
<PAGE>
FIRST FEDERAL SAVINGS BANK
2200 WEST FRANKLIN STREET
EVANSVILLE, INDIANA 47712
(812) 423-3196
PROXY STATEMENT
FOR THE
SPECIAL MEETING OF MEMBERS
TO BE HELD ON ______________, 1999
PURPOSE OF THE SPECIAL MEETING AND SUMMARY OF TRANSACTION
This Proxy Statement, together with the Prospectus of First Bancorp of
Indiana, Inc. (the "Company") attached hereto, constitutes the Proxy Statement
for, and is being furnished to eligible members of, First Federal Savings Bank
(the "Bank") in connection with the solicitation by the Board of Directors of
proxies to be voted at the Special Meeting of Members of First Federal Savings
Bank (the "Special Meeting") to be held on ___________________, 1999, at the
________________________________________________ at __:00 a.m.[p.m.], local
time, and at any postponement or adjournment thereof.
The Special Meeting is being held for the purpose of considering and voting
upon a plan of conversion (the "Plan" or the "Plan of Conversion") under which
the Bank would be converted from its present federally chartered mutual form of
organization into a federally chartered stock savings bank, with the concurrent
sale of the Bank's common stock to the Company, and the sale by the Company of
shares of its common stock ("Common Stock") to the public. The simultaneous
conversion of the Bank to stock form, issuance of the Bank's common stock to the
Company, and the offer and sale of the Common Stock by the Company, all pursuant
to the Plan, are referred to herein as the "Conversion."
VOTING FOR OR AGAINST THE PLAN OF CONVERSION INCLUDES A VOTE FOR OR AGAINST
THE ADOPTION OF THE FEDERAL STOCK CHARTER AND BYLAWS OF THE BANK.
VOTING FOR THE PLAN OF CONVERSION WILL NOT OBLIGATE YOU TO PURCHASE ANY
COMMON STOCK.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE PLAN
OF CONVERSION.
VOTING RIGHTS AND VOTES REQUIRED FOR APPROVAL
The Board of Directors has fixed ______________, 1999 as the record date
("Voting Record Date") for the determination of members entitled to notice of
and to vote at the Special Meeting and at any postponement or adjournment
thereof. All of the Bank's depositors and borrowers of the Bank as of March 16,
1988 whose loans continue to be outstanding are members of the Bank. Only those
members of the Bank of record as of the Voting Record Date who continue to be
members as of the date of the Special Meeting or any postponement or adjournment
thereof will be entitled to vote at the Special Meeting or any postponement or
adjournment thereof. The Plan must be approved by the affirmative vote of at
least a majority of the amount of votes entitled to be cast at such Special
Meeting. If there are not sufficient votes for approval of the Plan at the time
of the Special Meeting, the Special Meeting may be adjourned to permit further
solicitation of proxies.
P-1
<PAGE>
Each depositor member as of the Voting Record Date will be entitled at the
Special Meeting to cast one vote per $100, or fraction thereof, of the aggregate
withdrawal value of all of such member's deposit accounts in the Bank as of the
Voting Record Date. Each borrower member as of the Voting Record Date will be
entitled to cast one vote. No member may cast more than 1,000 votes at such
Special Meeting. In general, accounts held in different ownership capacities
will be treated as separate accounts for purposes of applying the 1,000 vote
limitation. For example, if two persons hold a $100,000 account in their joint
names and each of the persons also holds a separate account for $100,000 in
their own name, each person would be entitled to 1,000 votes for the separate
account and they would together be entitled to cast 1,000 votes on the basis of
the joint account. The Bank's records indicate that as of the Voting Record
Date, there were approximately _______ members entitled to cast a total of
____________ votes at the Special Meeting.
Deposits held in trust or other fiduciary capacity may be voted by the
trustee or other fiduciary to whom voting rights are delegated under the trust
instrument or other governing document or applicable law. In the case of IRA
and Qualified Plan accounts established at the Bank, the beneficiary may direct
the trustee's vote on the Plan by returning a completed proxy card to the Bank.
If no proxy card is returned, the Bank, as trustee, will vote FOR the adoption
of the Plan on behalf of such beneficiary.
PROXIES
The Bank's members as of the Voting Record Date who continue to be members as
of the date of the Special Meeting may vote at the Special Meeting or at any
postponement or adjournment thereof in person or by proxy. Enclosed is a proxy
card which you may use to vote on the Plan of Conversion. All properly executed
proxies received by the Bank will be voted in accordance with the instruction
indicated thereon by the member giving such proxies. IF NO INSTRUCTIONS ARE
GIVEN, EXECUTED PROXIES THAT ARE RETURNED WILL BE VOTED FOR ADOPTION OF THE PLAN
OF CONVERSION. While the Bank has in the past, from time-to-time, utilized pre-
existing proxies of its members, which proxies are on file with the Bank, pre-
existing proxies cannot be utilized in connection with the proposed Plan and
related transactions contemplated herein.
REVOCABILITY OF PROXIES
A proxy may be revoked at any time before it is voted by filing written
revocation of the proxy with the Secretary of the Bank, by submitting a duly
executed proxy bearing a later date or by attending and voting in person at the
Special Meeting or any postponement or adjournment thereof. The presence of a
member at the Special Meeting shall not revoke a proxy unless a written
revocation is filed with the Secretary of the Bank prior to the voting of such
Proxy. The proxies being solicited by the Board of Directors of the Bank are
only for use at the Special Meeting and at any adjournment thereof and will not
be used for any other meeting.
SOLICITATION OF PROXIES AND TABULATION OF THE VOTE
To the extent necessary to permit approval of the Plan, proxies may be
solicited by officers, directors or employees of the Bank, by telephone or
through other forms of communication and, if necessary, the Special Meeting may
be adjourned to a later date. Such persons will be reimbursed by the Bank for
their reasonable out-of-pocket expenses incurred in connection with such
solicitation. The Bank will bear all costs associated with proxy solicitation
and vote tabulation.
P-2
<PAGE>
REASONS FOR CONVERSION
See "Summary" and "The Conversion" in the Prospectus for discussions of the
basis upon which the Board of Directors determined to undertake the proposed
Conversion. As more fully discussed in those sections and in other sections of
the Prospectus, the Board of Directors believes that the Plan of Conversion is
in the best interest of the Bank, its members and the communities it serves.
DIRECTORS AND EXECUTIVE OFFICERS
See "Management of the Bank" in the Prospectus for a discussion of the
directors and executive officers of the Bank.
MANAGEMENT REMUNERATION
See "Summary--Benefits of the Conversion to Management" in the Prospectus
for a discussion of the interests of management in the Conversion. See also
"Management of the Bank" in the Prospectus.
BUSINESS OF THE BANK
See "Business of the Bank" in the Prospectus for a discussion of the business
of the Bank. See also "Selected Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Regulation" and "Taxation."
DESCRIPTION OF THE PLAN OF CONVERSION
The Office of Thrift Supervision has given approval to the Plan of
Conversion, subject to its approval by the Bank's members and the satisfaction
of certain other conditions. However, such approval by the Office does not
constitute a recommendation or endorsement of the Plan by the Office.
See "The Conversion" in the Prospectus for a description of the Plan. See
also "Management of the Bank," "Federal and State Taxation," "Summary" and "Pro
Forma Data."
DESCRIPTION OF CAPITAL STOCK
See "Description of Capital Stock of the Company" in the Prospectus for a
description of the Capital Stock to be offered. See also "Market for the Common
Stock." The Bank will, where practicable, use its best efforts to encourage and
assist professional market makers in establishing and maintaining a market for
the common stock of the Company.
CAPITALIZATION
See "Capitalization" in the Prospectus for a description of the
capitalization of the Bank.
USE OF NEW CAPITAL
See "Use of Proceeds" in the Prospectus for a description of the purposes for
which the net proceeds from the common stock to be sold are intended to be
invested or otherwise used.
P-3
<PAGE>
NEW CHARTER, BYLAWS OR OTHER DOCUMENTS
For purposes of this discussion, references to the Stock Savings Bank refer
to the Bank in its post-Conversion stock form. References to the Mutual Savings
Bank refer to the Bank in its pre-Conversion mutual form.
Upon completion of the Conversion, the Mutual Savings Bank's charter will
be extinguished and the Bank will be governed by the federal stock savings bank
charter and bylaws. See "The Conversion--Effects of Conversion to Stock Form
on Depositors and Borrowers of the Bank" and "Restrictions on Acquisition of the
Holding Company."
OTHER MATTERS
The Company will register its capital stock under Section 12(g) of the
Securities Exchange Act, as amended, and it will not deregister such stock for
three years.
FINANCIAL STATEMENTS
See "Financial Statements" attached to the Prospectus.
CONSENTS OF EXPERTS AND REPORTS
See "Experts" in the Prospectus for a description of the consents of
experts. See also, "Financial Statements" attached to the Prospectus.
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with or
without conditions, or disapproves a plan of conversion pursuant to this part
may obtain review of such action by filing in the court of appeals of the United
States for the circuit in which the principal office or residence of such person
is located, or in the United States Court of Appeals for the District of
Columbia, a written petition praying that the final action of the OTS be
modified, terminated or set aside. Such petition must be filed within 30 days
after the publication of notice of such final action in the Federal Register, or
----------------
30 days after the mailing by the applicant of the notice to members as provided
for in 12 C.F.R. (S)563b.6(c), whichever is later. The further procedure for
review is as follows: A copy of the petition is forthwith transmitted to the
OTS by the clerk of the court and thereupon the OTS files in the court the
record in the proceeding, as provided in Section 2112 of Title 28 of the United
States Code. Upon the filing of the petition, the court has jurisdiction, which
upon the filing of the record is exclusive, to affirm, modify, terminate, or set
aside in whole or in part, the final action of the OTS. Review of such
proceedings is as provided in Chapter 7 of Title 5 of the United States Code.
The judgment and decree of the court is final, except that they are subject to
review by the United States Supreme Court upon certiorari as provided in Section
1254 of Title 28 of the United States Code.
THE ATTACHED PROSPECTUS IS AN INTEGRAL PART OF THIS PROXY STATEMENT AND
CONTAINS DETAILED INFORMATION ABOUT THE BANK, THE COMPANY AND THE CONVERSION,
INCLUDING THE RIGHTS OF ELIGIBLE ACCOUNT HOLDERS, SUPPLEMENTAL ELIGIBLE
ACCOUNT HOLDERS AND OTHER MEMBERS TO SUBSCRIBE FOR SHARES OF THE COMPANY'S
COMMON STOCK. MEMBERS AS OF THE VOTING RECORD DATE ARE URGED TO CONSIDER SUCH
INFORMATION CAREFULLY PRIOR TO SUBMITTING THEIR PROXIES.
P-4
<PAGE>
[LETTERHEAD OF CAPITAL RESOURCES GROUP, INC.]
August 4, 1998
Mr. Harold Duncan
President and Chief Executive Officer
First Federal Savings Bank
2200 W. Franklin Street
Evansville, Indiana 47712
Dear Mr. Duncan:
This letter sets forth the agreement between First Federal Savings Bank
(the "Bank") and Capital Resources Group, Inc. ("CRG"), whereby First Federal
has engaged CRG to determine the estimated pro forma market value of the shares
of common stock that are to be issued and sold by the Bank in conjunction with
its conversion into a stock savings institution (the "Conversion") and to
prepare the regulatory business plan for the formation of the new holding
company.
CRG agrees to deliver the valuation, in writing, to the Bank at the above
address on or before a mutually-agreed upon date. Further, we agree to discuss
with the board of directors the valuation, the methodology employed and other
relevant factors of the appraisal. In addition, CRG agrees to undertake all the
necessary filing requirements with respect to the valuation appraisal report
with the Office of Thrift Supervision ("OTS") and Securities and Exchange
Commission ("SEC"). It is understood that the services of CRG under this
agreement shall be limited as described above. CRG is an affiliate of Capital
Resources, Inc. which is offering marketing agent services separately.
First Federal agrees to pay CRG for its services to prepare the appraisal
and the regulatory business plan and to reimburse CRG for certain expenses
necessary and incident to the completion of the appraisal. Professional fees
for our services are $20,000 for the appraisal and $15,000 for the regulatory
holding company business plan. Payment of the appraisal and business plan fees
shall be made according to the following schedule:
o $10,000 upon execution of this letter of agreement;
o $10,000 upon delivery of the completed appraisal report; and
o $15,000 upon delivery of the completed regulatory business plan.
Any updated appraisal reports necessary in the conversion process will be
produced for a fixed fee of $5,000. Typically, no updates are required for the
business plan.
<PAGE>
CAPITAL RESOURCES GROUP, INC.
Mr. Harold Duncan
August 4, 1998
Page 2
Reimbursement of expenses for travel, communications, reproduction, data
and computer time shall be paid to CRG as incurred and billed. CRG will make
every attempt to hold these costs to a minimum, but in no event will they exceed
$5,000 without the prior approval of the Bank.
In the event the Bank shall, for any reason, discontinue its conversion to
a stock savings institution prior to the filing of the original appraisal and
business plan with the OTS, the Bank agrees to compensate CRG according to CRG's
standard billing rates for consulting services based on accumulated and
verifiable time expenses, not to exceed $35,000 plus reimbursable expenses.
If, during the course of the Bank's Conversion, unforeseen events occur so
as to materially change the nature of the work content of the appraisal services
described in this contract, the terms of said contract shall be subject to
renegotiation by the Bank and CRG. Such unforeseen events shall include, but
not be limited to, major changes in OTS' procedures as they relate to conversion
regulations, appraisal guidelines or processing procedures as they relate to
conversions, major changes in management, operating policies or financial
condition, and excessive delays in completing the transaction and/or suspension
of processing of conversions such that completion of the proposed Conversion
requires the preparation by CRG of a new appraisal report which differs
substantially from the appraisal report prepared by CRG.
The Bank and CRG hereby agree to the following:
1. The Bank agrees to supply to CRG such information with respect to its
business and financial condition as CRG may reasonably request in order to
provide the aforesaid valuation. Such information heretofore or hereafter
supplied or made available to CRG shall include without limitation: annual
financial statements, periodic regulatory filings and material agreements, debt
instruments, commitments and contingencies, potential gains/losses and corporate
books and records.
2. The Bank hereby represents and warrants to CRG that any information
provided to CRG does not and will not, to the best of the Bank's knowledge, at
all relevant times, contain any untrue statement of a material fact or fail to
state a material fact necessary to make the statements therein not false or
misleading.
3. (a) The Bank agrees that it will indemnify and hold harmless CRG and
any affiliates of CRG who act for or on behalf of CRG in connection with the
services called for under this agreement, from and against any and all losses,
claims, damages and liabilities (including, but not limited to, all losses and
expenses in connection with claims under the federal securities laws) caused by
or arising out of any untrue statement of a material fact contained in the
information supplied by the Bank to CRG or by an omission to state a material
fact in the information so provided that is required to be stated therein or
necessary to make the statements not misleading.
<PAGE>
CAPITAL RESOURCES GROUP, INC.
Mr. Harold Duncan
August 4, 1998
Page 3
(b) The Bank will not be responsible for any such losses, claims,
damages and liabilities if CRG is determined to be negligent or otherwise at
fault.
(c) CRG will not be responsible for any such losses, claims, damages
and liabilities to the extent that it reasonably relied upon information
furnished by the Bank whether or not the Bank is determined to be negligent or
otherwise at fault.
(d) Should CRG incur legal expenses in defending any legal action
challenging the valuation where CRG is not negligent or otherwise at fault or is
found by a court of law to be not negligent or otherwise at fault, the Bank will
indemnify CRG for all such expenses.
The Bank and CRG are not affiliated, and neither the Bank nor CRG has an
economic interest in, or is held in common with, the other and has not derived a
significant portion of its gross revenues, receipts or net income for any period
from transactions with the other.
Please acknowledge your agreement to the foregoing by signing as indicated
below and returning to CRG a signed copy of this letter.
Sincerely,
CAPITAL RESOURCES GROUP, INC.
/s/ David P. Rochester
David P. Rochester
Chairman and Chief
Executive Officer
Agreed To and Accepted By:
FIRST FEDERAL SAVINGS BANK
/s/ Harold Duncan 8/28/98
- ----------------------------------------------------
signed date
Harold Duncan, President and Chief Executive Officer
<PAGE>
----------------------
Stock Offering Expires
12:00 noon
________________, 1999
----------------------
Stock Center
First Bancorp of Indiana, Inc.
(Holding Company for First Federal Savings Bank)
STOCK ORDER FORM
- --------------------------------------------------------------------------------
NUMBER OF SHARES
- --------------------------------------------------------------------------------
Number of Shares Purchase Price Total Payment Due
------------------------- -------------------------
X $10.00
------------------------- -------------------------
The minimum number of shares that may be subscribed for is 25 and the maximum
number for any person together with their associates or persons acting in
concert in the Conversion is 22,000 shares. Management has the discretion to
increase or decrease the purchase limit within regulations. ORDERS OF $25,000 OR
MORE MUST BE PAID BY FIRST FEDERAL SAVINGS BANK ACCOUNT WITHDRAWALS, CERTIFIED
FUNDS, CASHIER'S CHECK OR MONEY ORDER.
- --------------------------------------------------------------------------------
METHOD OF PAYMENT
- --------------------------------------------------------------------------------
[_] Enclosed is a check or money order made payable to FIRST FEDERAL SAVINGS
BANK for $____________.Do not mail cash. Please take cash payment in person
to First Federal Savings Bank.
[_] I authorize First Federal Savings Bank to withdraw the indicated amounts
from the following First Federal Savings Bank accounts, and understand that
the amounts will not otherwise be available for withdrawal.
<TABLE>
<CAPTION>
Account Number Amount
- ----------------------------------------------------------
<S> <C>
$ (Call the Stock Center for IRA transactions.)
- ----------------------------------------------------------
$ There will be no penalty for early withdrawals of
- ---------------------------------------------------------- funds used to order stock.
$
- ----------------------------------------------------------
$
-----------------------------
</TABLE>
- --------------------------------------------------------------------------------
PURCHASER INFORMATION
- --------------------------------------------------------------------------------
[_] Check here if you are a director, officer or employee of First Federal
Savings Bank or a member of their immediate families.
[_] Check here if you were a depositor on June 30, 1997, December 31, 1998 , or
March __, 1999 or had a loan from First Federal Savings Bank on March 16,
1998 that continued to be outstanding on March __, 1999. If you check this
box, please enter all your account information for each of these dates on
REVERSE SIDE: (If you need additional space, please attach a separate
sheet.)
[_] I am not acting in concert with any other persons purchasing stock in the
Conversion nor are any of my associates purchasing stock.
[_] I am acting in concert with the following purchasers and/or the following
purchasers are my associates:_______________, _______________,
_______________.
- --------------------------------------------------------------------------------
STOCK REGISTRATION
- --------------------------------------------------------------------------------
Please review the guidelines on the back of this form. Print the name(s) in
which you want the stock registered and the mailing address for the
registration. Names must appear exactly as on your account at First Federal
Savings Bank if you are subscribing as an Eligible Account Holder, Supplemental
Account Holder or Other Member.
SUBSCRIPTION RIGHTS ARE NOT TRANSFERABLE.
- ----------------------------------------
<TABLE>
Form of ownership: Please check one.
<S> <C> <C>
[_] Individual [_] Tenants in common [_] Uniform Transfers to Minors Act
[_] Joint Tenants [_] Corporation or partnership [_] Uniform Gifts to Minors Act
[_] Other ________________ [_] Fiduciary _______________________
please specify adoption date
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Name Evening Telephone
- ------------------------------------------------------------------------------------------------------------------
Name Daytime Telephone
- ------------------------------------------------------------------------------------------------------------------
Street Address County of Residence
- ------------------------------------------------------------------------------------------------------------------
City State Zip Social Security or Tax I.D. No.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NASD AFFILIATION
- --------------------------------------------------------------------------------
Please read the NASD Affiliation section on the reverse side of this form: Check
if applicable and initial where indicated with *.
[_] Check here if you are a member of the NASD or a person associated with an
NASD member or a partner with a securities brokerage firm or a member of the
immediate family of any such person to whose support such person contributes
directly or indirectly or if you have an account in which an NASD member or
person associated with an NASD member has a beneficial interest. In
accordance with the conditions for an exception from the interpretation, I
agree (i) not to sell, transfer or hypothecate this stock for a period of 90
days following issuance and (ii) to report this subscription in writing to
the applicable NASD member I am associated with within one day of payment of
the stock.
*_____________________(INITIAL)
- --------------------------------------------------------------------------------
ACKNOWLEDGEMENTS
- --------------------------------------------------------------------------------
To purchase stock in the Subscription Offering, this fully completed Stock Order
Form must be actually received by First Federal Savings Bank no later than 12:00
noon , Local Time on _______, 1999 unless extended, otherwise this Stock Order
Form and all subscription rights will be void. Completed Stock Order Forms,
together with the required payment or withdrawal authorization and signed
Certification, may be delivered to First Federal Savings Bank or may be mailed
to the address indicated on the enclosed business reply envelope. All rights
exercisable hereunder are not transferable and shares purchased upon exercise of
such rights must be purchased for the account of the person exercising such
rights. The undersigned certifies that this stock order is for my account only
and there is no agreement or understanding regarding the transfer of my
subscription rights or any further sales or transfer of these shares.
It is understood that this Stock Order Form will be accepted in accordance with,
and subject to, the terms and conditions of the Plan of Conversion of First
Federal Savings Bank described in the accompanying Prospectus, receipt of which
is hereby acknowledged at least 48 hours prior to delivery of this Stock Order
Form to First Federal Savings Bank. If the minimum number shares cannot be sold,
all orders will be canceled and funds received as payment will be returned
promptly.
The undersigned agrees that after receipt by First Federal Savings Bank, this
Stock Order Form may not be modified, withdrawn or canceled (unless the
conversion is not completed by________, 1999) and if First Federal Savings Bank
has been given authorization to withdraw a specified amount from deposit
accounts at First Federal Savings Bank as payment for the shares, the amount
authorized for withdrawal shall not otherwise be available for withdrawal by the
undersigned. I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS
NOT INSURED OR GUARANTEED BY THE SAIF, THE FDIC OR THE FEDERAL GOVERNMENT.
Under penalty of perjury, I certify that the Social Security or Tax ID Number on
this Stock Order Form is true, correct and complete and that I am not subject to
back-up withholding.
- --------------------------------------------------------------------------------
SIGN BELOW (YOU MUST ALSO READ AND SIGN THE CERTIFICATION ON THE REVERSE SIDE TO
PURCHASE STOCK).
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Sign and date the form. When purchasing as
a custodian, corporate officer, etc., include
your full title. An additional signature is
required only when payment is by withdrawal
from an account that requires more than one
signature to withdraw funds. YOUR ORDER WILL
BE FILLED IN ACCORDANCE WITH THE PROVISIONS
OF THE PROSPECTUS. THIS ORDER IS NOT VALID
IF NOT SIGNED ON THE FRONT AND BACK. x
-----------------------------------------------------------------------
Authorized Signature Title (if applicable) Date
IF YOU NEED HELP COMPLETING THIS FORM, YOU
MAY CALL THE STOCK CENTER AT (812)_________. x
-----------------------------------------------------------------------
Authorized Signature Title (if applicable) Date
-----------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Name(s) on Accounts Account Number Name(s) on Accounts Account Number
- ------------------------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------- -------------------------------------------------------------
- ------------------------------------------------------------- -------------------------------------------------------------
- ------------------------------------------------------------- -------------------------------------------------------------
- ------------------------------------------------------------- -------------------------------------------------------------
- ------------------------------------------------------------- -------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
GUIDELINES FOR REGISTERING STOCK
- --------------------------------------------------------------------------------
For reasons of clarity and standardization, the stock transfer industry
has developed uniform stock ownership registrations which we will use in issuing
your stock certificate. Common ownership registrations are explained below. If
you have any questions about how your First Bancorp of Indiana, Inc. stock
should be registered, see your legal advisor.
To ensure correct registration, please follow the instructions for the
ownership you select:
- --------------------------------------------------------------------------------
GENERAL INSTRUCTIONS: . Include the first name, middle initial, and last
name of each person listed. Avoid the use of an
initial in place of the first name.
. Do not use titles such as ("Mr.," "Mrs.," "Dr.,"
etc.)
. Omit words that do not affect ownership rights
such as "special account" "personal property,"
etc.
- --------------------------------------------------------------------------------
INDIVIDUAL: INSTRUCTIONS: Print the first name, middle
initial, and last name of the person in whose name
the stock is to be registered. You may not list
beneficiaries for this ownership.
- --------------------------------------------------------------------------------
JOINT TENANTS: Joint Tenancy with Right of Survivorship
identifies two or more persons as owners of the
stock. Upon the death of one of the owners,
ownership automatically passes to the surviving
tenant(s).
INSTRUCTIONS: Print the first name, middle
initial, and last name of each joint tenant. You
may not list beneficiaries for this ownership.
- --------------------------------------------------------------------------------
TENANTS IN COMMON: Tenants in Common identifies two or more persons
as owners of the stock. Upon the death of one co-
tenant, ownership of the stock passes to the heirs
of the deceased co-tenant and the surviving co-
tenant(s).
INSTRUCTIONS: Print the first name, middle
initial, and last name of each co-tenant. You may
not list beneficiaries for this ownership.
- --------------------------------------------------------------------------------
FIDUCIARIES: Generally, fiduciary relationships (such as
Conservatorship, Legal Trust, Guardianship, etc.)
are established under a form of trust agreement or
are pursuant to a court order. Without a legal
document establishing a fiduciary relationship,
your stock may not be registered in a fiduciary
capacity.
INSTRUCTIONS: On the first "NAME" line, print the
first name, middle initial, and last name of the
fiduciary if the fiduciary is an individual. If
the fiduciary is a corporation, list the corporate
title on the first "NAME" line. Following the
name, print the fiduciary "title" such as
conservator, personal representative, etc.
On the second "NAME" line, print either the name
of the maker, donor or testator or the name of the
beneficiary. Following the name, indicate the type
of legal document establishing the fiduciary
relationship (agreement, court order, etc.)
In the blank above "Adoption Date," fill in the
date of the document governing the relationship.
The date of the document need not be provided for
a trust created by a will. EXAMPLE OF A FIDUCIARY
REGISTRATION: John D. Smith Trustee for Tom A.
Smith Under Agreement Dated 6/6/74.
PLEASE NOTE THAT "TOTTEN TRUST" AND "PAYABLE ON
DEATH" OWNERSHIPS MAY NOT BE USED IN REGISTERING
STOCK. For example, stock cannot be registered as
"John Doe Trustee for Jane Doe" or "John Doe
Payable on Death to Jane Doe."
- --------------------------------------------------------------------------------
UNIFORM GIFTS TO For Indiana residents and residents of many
MINORS ACT/UNIFORM states, stock may be held in the name of a
TRANSFERS TO MINORS: custodian for the benefit of a minor under the
Uniform Transfers to Minors Act. For residents of
some other states, stock may be held in a similar
type of ownership under the Uniform Gifts to
Minors Act of the individual states. For either
ownership, the minor is the actual owner of the
stock with the adult custodian being responsible
for the investment until the minor reaches legal
age.
INSTRUCTIONS: If you are a Indiana resident and
wish to register stock in this ownership, check
"Uniform to Minors Act." For other states, see
your legal advisor if you are unsure about the
correct registration of your stock.
On the first "NAME" line, print the first name,
middle initial, and last name of the custodian
with the abbreviation "CUST" after the name.
Print the first name, middle initial, and last
name of the minor on the second "NAME" line.
Only one custodian and one minor may be
designated.
- --------------------------------------------------------------------------------
NASD AFFILIATION: Please refer to the NASD AFFILIATION statement on
the face of this form. If applicable, initial
where indicated and check the box. The National
Association of Securities Dealers, Inc.
Interpretation With Respect to Free-Riding and
Withholding (the "Interpretation") restricts the
sale of a "hot issue" (securities that trade at a
premium in the aftermarket) to NASD members,
persons associated with NASD members (i.e., an
owner, director, officer, partner, employee or
agent of a NASD member) and certain members of
their families. Such persons are requested to
indicate that they will comply with certain
conditions required for an exemption from the
restrictions.
- --------------------------------------------------------------------------------
CERTIFICATION: I/WE ACKNOWLEDGE THAT THIS SECURITY IS NOT A
DEPOSIT OR AN ACCOUNT AND IS NOT FEDERALLY
INSURED, AND IS NOT GUARANTEED BY FIRST BANCORP OR
BY THE FEDERAL GOVERNMENT.
If anyone asserts that this security is federally
insured or guaranteed, or is as safe as an insured
deposit, I/we should call the Office of Thrift
Supervision Regional Director, Central Regional
Office, at (312) 917-5000
I/We further certify that before purchasing the
common stock, par value $0.01 per share, of First
Bancorp of Indiana, Inc., I/we received a
PROSPECTUS that contains disclosure concerning the
nature of the security being offered and describes
the risks involved in the investment, including,
among others (1)____________; (2)____________;
(3)____________; (4)____________; (5)____________;
(6) ____________; (7)____________;
(8)____________; (9)____________;
(10)____________; (11)____________;
(12)____________;
See "Risk Factors" on pages __ through __ of the
Prospectus.
<TABLE>
<S> <C>
SIGNATURE:________________________________ SIGNATURE:________________________________
PRINT NAME:_______________________________ PRINT NAME:________________________________
</TABLE>
