<PAGE> 1
FORM 10-QSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________.
Commission File Number 0-25971
---------
INDIAN VILLAGE BANCORP, INC.
----------------------------
(Exact name of small business issuer as specified in its charter)
Pennsylvania 34-1891199
------------ ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 South Walnut Street, Gnadenhutten, Ohio 44629
-------------------------------------------------
(Address of principal executive offices)
(740) 254-4313
--------------
(Issuer's telephone number)
As of November 5, 1999, the latest practical date, 445,583 of the issuer's
common shares, $.01 par value, were issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
- --------------------------------------------------------------------------------
1.
<PAGE> 2
INDIAN VILLAGE BANCORP, INC.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited)
Consolidated Balance Sheets .................................. 3
Consolidated Statements of Income ............................ 4
Consolidated Statements of Comprehensive Income .............. 5
Consolidated Statements of Changes in Shareholders' Equity.... 6
Consolidated Statements of Cash Flows ........................ 7
Notes to Consolidated Financial Statements ................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................ 25
Item 2. Changes in Securities.................................... 25
Item 3. Defaults Upon Senior Securities.......................... 25
Item 4. Submission of Matters to a Vote of Security Holders...... 25
Item 5. Other Information........................................ 25
Item 6. Exhibits and Reports on Form 8-K......................... 26
SIGNATURES ............................................................. 27
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2.
<PAGE> 3
<TABLE>
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
- ----------------------------------------------------------------------------------------
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 473 $ 409
Interest-bearing deposits in other banks 556 388
------- -------
Total cash and cash equivalents 1,029 797
Time deposits 299 499
Securities available for sale at fair value 14,403 6,195
Loans, net of allowance for loan losses 36,140 31,274
Premises and equipment, net 1,055 447
Real estate owned 118 122
Federal Home Loan Bank stock 786 407
Accrued interest receivable 292 183
Other assets 118 100
------- -------
Total assets $54,240 $40,024
======= =======
LIABILITIES
Deposits $29,631 $30,866
Federal Home Loan Bank advances 15,500 4,000
Accrued interest payable 87 37
Other liabilities 60 19
------- -------
Total liabilities 45,278 34,922
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000 shares authorized,
none outstanding -- --
Common stock, $.01 par value, 5,000,000 shares authorized
445,583 shares issued and outstanding 4 --
Additional paid-in capital 4,090 --
Retained earnings - substantially restricted 5,383 5,105
Unearned employee stock ownership plan shares (350) --
Accumulated other comprehensive income (165) (3)
------- -------
Total shareholders' equity 8,962 5,102
------- -------
Total liabilities and shareholders' equity $54,240 $40,024
======= =======
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</TABLE>
See accompanying notes to financial statements.
3.
<PAGE> 4
<TABLE>
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
- ------------------------------------------------------------------------------
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 722 $616 $2,093 $1,817
Securities 193 136 396 411
Interest-bearing deposits and
Federal funds sold 24 8 51 33
----- ---- ------ ------
Total interest income 939 760 2,540 2,261
INTEREST EXPENSE
Deposits 337 384 1,073 1,145
Federal Home Loan Bank advances 152 42 305 92
----- ---- ------ ------
Total interest expense 489 426 1,378 1,237
----- ---- ------ ------
NET INTEREST INCOME 450 334 1,162 1,024
Provision for loan losses 5 23 11 24
----- ---- ------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 445 311 1,151 1,000
NONINTEREST INCOME
Service charges and other fees 7 2 15 8
Gain on sale of securities
available for sale, net 5 2 15 (9)
Other income (4) 1 5 14
----- ---- ------ ------
Total noninterest income 8 5 35 13
NONINTEREST EXPENSE
Salaries and employee benefits 128 108 340 310
Occupancy and equipment 22 17 57 52
Professional and consulting fees 15 11 42 39
FDIC deposit insurance 5 4 14 18
Franchise taxes 17 19 52 55
Date processing 17 14 58 42
Director and committee fees 19 23 57 56
Other expense 53 37 145 102
----- ---- ------ ------
Total noninterest expense 276 233 765 674
----- ---- ------ ------
INCOME BEFORE INCOME TAXES 177 83 421 339
Income tax expense 60 34 143 119
----- ---- ------ ------
NET INCOME $ 117 $ 49 $ 278 $ 220
===== ==== ====== ======
EARNINGS PER COMMON SHARE $0.29 $N/A $ 0.29 $ N/A
===== ==== ====== ======
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
4.
<PAGE> 5
<TABLE>
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
- --------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME $117 $49 $ 278 $220
Other comprehensive income, net of tax
Unrealized gains (losses) on securities
available for sale arising during period (47) 36 (152) 13
Reclassification adjustment for
accumulated (gains) losses included in
net income (3) (1) (10) 6
---- --- ----- ----
Net unrealized gains (losses)
on securities (50) 35 (162) 19
Additional minimum pension
liability adjustment -- -- -- --
---- --- ----- ----
Other comprehensive income (50) 35 (162) 19
COMPREHENSIVE INCOME $ 67 $84 $ 116 $239
==== === ===== ====
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
5.
<PAGE> 6
<TABLE>
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Unrealized
Additional Gain on
Additional Unearned Minimum Securities
Common Paid-In Retained ESOP Pension Available
Stock Capital Earnings Shares Liability for Sale Total
----- ------- -------- ------ --------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $-- $ -- $4,859 $ -- $(68) $ 61 $4,852
Net income for the period -- -- 220 -- -- -- 220
Change in fair value of securities
available for sale -- -- -- -- -- 19 19
--- ------ ------ ----- ---- ----- ------
Balance at September 30, 1998 $-- $ -- $5,079 $ -- $(68) $ 80 $5,091
=== ====== ====== ===== ==== ===== ======
Balance at January 1, 1999 $ -- $ -- $5,105 $ -- $(53) $ 50 $5,102
Net income for the period -- -- 278 -- -- -- 278
Sale of 445,583 shares of no
par common stock, net of
conversion costs 4 4,089 -- -- -- -- 4,093
Purchase of 35,637 shares
under ESOP plan -- -- -- (356) -- -- (356)
Release of 594 ESOP shares -- 1 -- 6 -- -- 7
Change in fair value of securities
available for sale -- -- -- -- -- (162) (162)
--- ------ ------ ----- ---- ----- ------
Balance at March 31, 1998 $ 4 $4,090 $5,383 $(350) $(53) $(112) $8,962
=== ====== ====== ===== ==== ===== ======
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</TABLE>
See accompanying notes to financial statements.
6.
<PAGE> 7
<TABLE>
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
- ----------------------------------------------------------------------------------------------
<CAPTION>
Nine Months Ended
September 30,
-------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 278 $ 220
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 37 26
Premium amortization, net of accretion 8 (6)
Provision for loan losses 11 24
Federal Home Loan Bank stock dividends (25) (21)
Gain/Loss on sale of securities available for sale (15) 9
Compensation expense on ESOP shares 7 --
Net change in accrued interest receivable and other assets (252) (93)
Net change in accrued expenses and other liabilities 216 (59)
-------- -------
Net cash from operating activities 265 100
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in time deposits 200 --
Purchases of securities available for sale (11,343) (2,438)
Proceeds from sales of securities available for sale 1,428 816
Proceeds from maturities of securities available for sale 1,545 1,136
Net change in loans (4,866) (2,231)
Premises and equipment expenditures, net (645) (22)
Purchases of Federal Home Loan Bank stock (354) --
-------- -------
Net cash from investing activities (14,035) (2,739)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits (1,235) 468
Net change in short-term Federal Home Loan Bank advances 3,500 --
Proceeds from long-term Federal Home Loan Bank advances 8,000 2,000
Proceeds from issuance of common stock, net of conversion costs 4,093 --
Cash provided to ESOP (356) --
-------- -------
Net cash from financing activities 14,002 2,468
-------- -------
Net change in cash and cash equivalents 232 (171)
Cash and cash equivalents at beginning of period 797 923
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,029 $ 752
======== =======
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 1,334 $ 1,225
Income taxes 35 124
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</TABLE>
See accompanying notes to financial statements.
7.
<PAGE> 8
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table dollar amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and reflect all
adjustments which, in the opinion of management, are necessary to present fairly
the financial position of Indian Village Bancorp, Inc. ("Corporation") at
September 30, 1999, and its results of operations and cash flows for the periods
presented. All such adjustments are normal and recurring in nature. The
accompanying consolidated financial statements have been prepared in accordance
with the instructions for Form 10-QSB and, therefore, do not purport to contain
all the necessary financial disclosures required by generally accepted
accounting principles that might otherwise be necessary in the circumstances,
and should be read in conjunction with the financial statements and notes
thereto of Indian Village Community Bank ("Bank") for the year ended December
31, 1998. The accounting policies of the Bank described in the notes to
financial statements contained in the Bank's December 31, 1998, financial
statements, filed as part of the Registration Statement on Form SB-2, as
amended, have been consistently followed in preparing this Form 10-QSB.
The consolidated financial statements include the accounts of Indian Village
Bancorp, Inc. and its wholly-owned subsidiary, Indian Village Community Bank.
All significant intercompany transactions and balances have been eliminated.
The Corporation's and Bank's revenues, operating income and assets are primarily
from the financial institution industry. The Bank is engaged in the business of
residential mortgage lending and consumer banking with operations conducted
through its main office located in Gnadenhutten, Ohio. This community and the
contiguous areas are the source of substantially all the Bank's loan and deposit
activities. The majority of the Bank's income is derived from residential and
consumer lending activities and investments.
To prepare financial statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the
financial statements and disclosures provided, and future results could differ.
The allowance for loan losses, fair values of financial instruments and pension
liabilities are particularly subject to change.
The provision for income taxes is based on the effective tax rate expected to be
applicable for the entire year. Income tax expense is the total of the
current-year income tax due or refundable and the change in deferred tax assets
and liabilities. Deferred tax assets and liabilities are the expected future tax
amounts for the temporary differences between carrying amounts and tax bases of
assets and liabilities, computed using enacted tax rates. A valuation allowance,
if needed, reduces deferred tax assets to the amount expected to be realized.
- --------------------------------------------------------------------------------
(Continued)
8.
<PAGE> 9
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table dollar amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
As more fully discussed in Note 2, the Bank converted from the mutual to stock
form of ownership with the concurrent formation of a holding company effective
July 1, 1999. Accordingly, earnings per share for the three and nine months
ended September 30, 1999 was computed based on the net income of the Corporation
since July 1, 1999. The weighted average number of shares outstanding during the
three and nine months ended September 30, 1999 was 410,243. Unreleased ESOP
shares are not considered to be outstanding shares for the purpose of
determining the weighted average number of shares used in the earnings per
common share calculation. Net income of the Corporation subsequent to July 1,
1999 was $117,000. No earnings per common share is shown for the three and nine
months ended September 30, 1998, as prior to July 1, 1999, the Bank was a mutual
company. The financial information for the three and nine months ended September
30, 1998 reflects the Bank prior to the conversion.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The key criterion
for hedge accounting is that the hedging relationship must be highly effective
in achieving offsetting changes in fair value or cash flows. SFAS No. 133 does
not allow hedging of a security which is classified as held to maturity. Upon
adoption of SFAS No. 133, companies may reclassify any security from held to
maturity to available for sale if they wish to be able to hedge the security in
the future. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999 with early adoption encouraged for any fiscal quarter beginning July 1,
1998 or later, with no retroactive application. Management does not expect the
adoption of SFAS No. 133 to have a significant impact on the Corporation's
financial statements.
NOTE 2 - CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS AND LOAN
ASSOCIATION WITH THE CONCURRENT FORMATION OF A HOLDING COMPANY
On January 20, 1999, the Board of Directors of the Bank, subject to regulatory
approval and approval by the members of the Bank, unanimously adopted a Plan of
Conversion under which the Bank would convert from a federally chartered mutual
bank to a federally chartered stock bank and concurrently form a holding company
to own 100% of the Bank's stock. The conversion was consummated on July 1, 1999,
and the Company sold its common stock in an amount equal to the pro forma market
value of the Bank after giving effect to the conversion. A total of 445,583
common shares of the Company were sold at $10.00 per share. The company received
net proceeds of $4,093,682, after deducting conversion costs of $362,147.
The Company retained 50% of the net proceeds from the sale of common shares. The
remainder of the net proceeds was invested in the capital stock issued by the
Bank to the Company.
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(Continued)
9.
<PAGE> 10
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table dollar amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 2 - CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS AND LOAN
ASSOCIATION WITH THE CONCURRENT FORMATION OF A HOLDING COMPANY
As part of the conversion, the Bank established a liquidation account in an
amount equal to its regulatory capital as of December 31, 1998. The liquidation
account will be maintained for the benefit of eligible depositors who continue
to maintain their accounts at the Bank after the conversion. The liquidation
account will be reduced annually to the extent that eligible depositors have
reduced their qualifying deposits. Subsequent increases will not restore an
eligible account holder's interest in the liquidation account. In the event of a
complete liquidation, each eligible depositor will be entitled to receive a
distribution from the liquidation account in an amount proportionate to the
current adjusted qualifying balances for accounts then held. The Bank may not
pay dividends that would reduce shareholders' equity below the required
liquidation account balance.
Under Office of Thrift Supervision ("OTS") regulations, limitations have been
imposed on all "capital distributions" by savings institutions, including cash
dividends. The regulation establishes a three-tiered system of restrictions,
with the greatest flexibility afforded to thrifts, like the Bank, that are both
well capitalized and well managed.
NOTE 3 - SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
--------------September 30, 1999---------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 249 $ 2 $ -- $ 251
U.S. Government agencies 7,931 -- (72) 7,859
Mortgage-backed securities 6,392 -- (99) 6,293
------- --- ----- -------
$14,572 $ 2 $(171) $14,403
======= === ===== =======
<CAPTION>
---------------December 31, 1998---------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 747 $13 $ -- $ 760
U.S. Government agencies 1,050 6 -- 1,056
Obligations of states and
political subdivisions 147 5 -- 152
Mortgage-backed securities 4,175 70 (18) 4,227
------- --- ----- -------
$ 6,119 $94 $ (18) $ 6,195
======= === ===== =======
</TABLE>
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(Continued)
10.
<PAGE> 11
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table dollar amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES AVAILABLE FOR SALE (Continued)
The amortized cost and estimated fair values of securities available for sale,
by contractual maturity, are shown below. Actual maturities could differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Securities not due at
a single maturity date, primarily mortgage-backed securities, are shown
separately.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due within one year $ 249 $ 251
Due after one year through five years 247 246
Due after five years through ten years 5,935 5,920
Due after ten years 1,749 1,693
Mortgage-backed securities 6,392 6,293
------- -------
$14,572 $14,403
======= =======
</TABLE>
Proceeds from sales of securities available for sale during the three and nine
months ended September 30, 1999 were $300,000 and $1,428,000. Gross gains of
$5,000 and $15,000 were realized on those sales. Proceeds from sales of
securities available for sale during the three and nine months ended September
30, 1998 were $275,000 and $816,000. Gross gains of $2,000 and $2,000 and gross
losses of $11,000 were realized on those sales.
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(Continued)
11.
<PAGE> 12
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table dollar amounts in thousands)
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NOTE 4 - LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Real estate loans:
One- to four-family residential $28,427 $26,080
Multi-family residential 1,635 1,736
Nonresidential 1,308 647
Construction 1,757 677
Land 155 135
------- -------
33,282 29,275
Consumer loans:
Home equity loans and lines of credit 1,333 887
Home improvement 44 301
Automobile 710 516
Loans on deposit accounts 213 294
Unsecured 71 12
Other 746 274
------- -------
3,117 2,284
Commercial business loans 96 27
------- -------
36,495 31,586
Less:
Net deferred loan fees and costs (65) (54)
Loans in process (61) (40)
Allowance for loan losses (229) (218)
------- -------
$36,140 $31,274
======= =======
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $224 $177 $218 $176
Provision for losses 5 23 11 24
Charge-offs -- (18) -- (18)
Recoveries -- -- -- --
---- ---- ---- ----
Balance at end of period $229 $182 $229 $182
==== ==== ==== ====
</TABLE>
As of and for the three and nine months ended September 30, 1999 and 1998, no
loans were considered impaired within the scope of SFAS No. 114.
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(Continued)
12.
<PAGE> 13
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table dollar amounts in thousands)
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NOTE 5 - COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES
There are various contingent liabilities that are not reflected in the financial
statements, including claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
effect on financial condition or results of operations.
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of customers. These
financial instruments include commitments to make loans. The Corporation's
exposure to credit loss in case of nonperformance by the other party to the
financial instrument for commitments to make loans is represented by the
contractual amount of those instruments. The Corporation follows the same credit
policy to make such commitments as is followed for those loans recorded in the
financial statements.
As of September 30, 1999, variable rate and fixed rate commitments to make loans
or fund outstanding lines of credit amounted to approximately $450,000 and
$612,000. As of December 31, 1998, variable rate and fixed rate commitments to
make loans or fund outstanding lines of credit amounted to approximately
$494,000 and $1,891,000. Since loan commitments may expire without being used,
the amounts do not necessarily represent future cash commitments.
NOTE 6 - EMPLOYEE STOCK OWNERSHIP PLAN
The Bank has established an employee stock ownership plan ("ESOP") for the
benefit of substantially all employees of the Corporation and the Bank. The
establishment of the ESOP and the purchase by the ESOP of the common shares of
the Corporation are subject to the receipt of a favorable determination letter
on the qualified status of the ESOP under applicable provisions of the Internal
Revenue Code. Although no assurances can be given, the Corporation expects that
the ESOP will receive a favorable determination letter.
The ESOP borrowed funds from the Corporation with which to acquire common shares
of the Corporation. The loan is secured by the shares purchased with the loan
proceeds and will be repaid by the ESOP with funds from the Bank's discretionary
contributions to the ESOP and earnings on ESOP assets. All dividends on
unallocated shares received by the ESOP are used to pay debt service. The shares
purchased with the loan proceeds are held in a suspense account for allocation
among participants as the loan is repaid. As payments are made and the shares
are released from the suspense account, such shares will be validly, issued
fully paid and nonassessable.
- --------------------------------------------------------------------------------
(Continued)
13.
<PAGE> 14
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table dollar amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 7 - EMPLOYEE STOCK OWNERSHIP PLAN (Continued)
The Corporation accounts for its ESOP in accordance with Statement of Position
93-6. Accordingly, the shares pledged as collateral are reported as unearned
ESOP shares in the Consolidated Balance Sheet. As shares are released from
collateral, the Corporation reports compensation expense equal to the current
market price of the shares, and the shares become outstanding for earnings per
share computations. Dividends on allocated ESOP shares are recorded as a
reduction of retained earnings; dividends on unallocated ESOP shares are
recorded as a reduction of debt and accrued interest. ESOP compensation expense
was $7,000 for the three and nine months ended September 30, 1999. The ESOP
shares as of September 30, 1999 were as follows:
<TABLE>
<S> <C>
Shares released for allocation 594
Unreleased shares 35,043
--------
Total ESOP shares 35,637
========
Fair value of unreleased shares at September 30, 1999 $411,755
========
</TABLE>
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14.
<PAGE> 15
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
INTRODUCTION
In the following pages, management presents an analysis of the financial
condition of Indian Village Bancorp, Inc. as of September 30, 1999 compared to
December 31, 1998, and results of operations for the three and nine months ended
September 30, 1999 compared with the same periods in 1998. This discussion is
designed to provide a more comprehensive review of the operating results and
financial position than could be obtained from an examination of the financial
statements alone. This analysis should be read in conjunction with the interim
financial statements and related footnotes included herein.
In addition to the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, the Corporation's operations and the
Corporation's actual results could differ significantly from those discussed in
the forward-looking statements. Some of the factors that could cause or
contribute to such differences are discussed herein but also include changes in
the economy and interest rates in the nation and the Bank's general market area.
FINANCIAL CONDITION
Total assets at September 30, 1999 were $54.2 million compared to $40.0 million
at December 31, 1998, an increase of $14.2 million, or 35.5%. The increase in
total assets was primarily due to an increase in securities available for sale
of $8.2 million and an increase in loans of $4.9 million. The increase in loans
consisted primarily of an increase in one- to four-family residential real
estate loans of $2.4 million, as well as increases in construction loans,
consumer loans and nonresidential real estate loans of $1.1 million, $833,000
and $661,000, respectively. These increases are reflective of a stable local
economy and the Bank's more aggressive promotion of consumer loans. The increase
in securities was funded primarily by the net proceeds of the conversion and
Federal Home Loan Bank ("FHLB") advances.
The $833,000, or 36.5%, increase in the consumer loan portfolio between December
31, 1998 and September 30, 1999 consisted primarily of increases in other
consumer loans of $472,000 and home equity loans and lines of credit of
$446,000. Consumer loans represented 8.5% and 7.2% of gross loans at September
30, 1999 and December 31, 1998, respectively.
Total deposits were $29.6 million on September 30, 1999 compared to $30.9
million at December 31, 1998, a decrease of $1.2 million, or 4.0%. The
Corporation experienced modest decreases in negotiable order of withdrawal
("NOW") accounts, and savings accounts aggregating $117,000. Decreases in
certificates of deposit, money market accounts and noninterest-bearing demand
deposit accounts totaled $1.1 million. Management attributes the decrease in
deposits to increased competition and the overall lack of growth in its local
market area. The certificate of deposit portfolio as a percent of total deposits
increased slightly from 73.8% at December 31, 1998 to 74.3% at September 30,
1999. Almost all certificates of deposit held by the Corporation mature in less
than three years with the majority maturing in the next year.
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15.
<PAGE> 16
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
As a secondary source of liquidity, the Corporation obtains borrowings from the
Federal Home Loan Bank of Cincinnati, from which it held advances totaling $15.5
million at September 30, 1999 and $4.0 million at December 31, 1998. Due to
continued loan demand and in order to better leverage the Corporation's capital,
the Corporation used these funds to originate mortgage loans and purchase
securities available for sale as well as provide for short-term liquidity needs.
FHLB advances at September 30, 1999 consisted of $3.5 million in short-term
advances, a $1.0 million advance due December 2003 with a fixed rate of interest
of 4.20%, a $1.0 million advance due April 2009 with a fixed rate of interest of
4.67%, a $1.0 million advance due April 2009 with a fixed rate of interest of
5.44%, a $2.0 million advance due April 2009 with a fixed rate of interest of
5.60%, a $5.0 million advance due August 2009 with a fixed rate of interest of
5.56%, and a $2.0 million advance due August 2008 with a fixed rate of interest
of 5.93%. Additional advances may be obtained from the Federal Home Loan Bank to
fund future loan growth and liquidity as needed.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AND SEPTEMBER 30, 1998
The general economic conditions, the monetary and fiscal policies of federal
agencies and the regulatory policies of agencies that regulate financial
institutions affect the operating results of the Corporation. Interest rates on
competing investments and general market rates of interest influence the
Corporation's cost of funds. Lending activities are influenced by the demand for
real estate loans and other types of loans, which in turn is affected by the
interest rates at which such loans are made, general economic conditions and the
availability of funds for lending activities.
The Corporation's net income primarily depends on its net interest income, which
is the difference between the interest income earned on interest-earning assets,
such as loans and securities, and interest expense incurred on interest-bearing
liabilities, such as deposits and borrowings. The level of net interest income
is dependent on the interest rate environment and the volume and composition of
interest-earning assets and interest-bearing liabilities. Provisions for loan
losses, service charges, gains on the sale of assets, other income, noninterest
expense and income taxes also affect net income.
Net income was $278,000 for the nine months ended September 30, 1999, compared
to $220,000 for the nine months ended September 30, 1998. The increase in net
income for the nine months ended September 30, 1999 was primarily the result of
an increase in net interest income, partially offset by an increase in
noninterest expense.
Net interest income totaled $1.2 million for the nine months ended September 30,
1999, as compared to $1.0 million for the nine months ended September 30, 1998,
representing an increase of $138,000, or 13.5%. The change in net interest
income is attributable to an increase in the ratio of average interest-earning
assets to average interest-bearing liabilities offset by a decrease in the
interest rate spread.
Interest and fees on loans increased approximately $276,000, or 15.2%, from $1.8
million for the nine months ended September 30, 1998 to $2.1 million for the
nine months ended September 30, 1999. The increase in interest income was due to
higher average loans, partially offset by a decrease in the yield earned.
- --------------------------------------------------------------------------------
16.
<PAGE> 17
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Interest earned on securities totaled $396,000 for the nine months ended
September 30, 1999, as compared to $411,000 for the nine months ended September
30, 1998. The decrease was a result of lower average balances of securities
combined with a decreased yield earned.
Interest on interest-bearing deposits and overnight deposits increased to
$51,000 for the nine months ended September 30, 1999, as compared to $33,000 for
the same period in 1998. This increase was the result of higher average balances
on interest-bearing deposits and overnight deposits combined with the yield
earned remaining relatively unchanged.
Interest paid on deposits decreased $72,000 for the nine months ended September
30, 1999, compared to the nine months ended September 30, 1998. The decrease in
interest expense was due to a decrease in the cost of funds combined with a
decrease in the average balances of deposits.
Interest on Federal Home Loan Bank advances totaled $305,000 for the nine months
ended September 30, 1999, compared to $92,000 for the nine months ended
September 30, 1998. The increase was the result of a higher average balance
partially offset by a lower cost of funds. The additional borrowings were used
to provide funding for loan demand and to better leverage the Corporation's
capital.
The Corporation maintains an allowance for loan losses in an amount that, in
management's judgment, is adequate to absorb reasonably foreseeable losses
inherent in the loan portfolio. While management utilizes its best judgment and
information available, the ultimate adequacy of the allowance is dependent on a
variety of factors, including the performance of the Corporation's loan
portfolio, the economy, changes in real estate values and interest rates and the
view of the regulatory authorities toward loan classifications. 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. The amount of the provision is based on management's monthly
review of the loan portfolio and consideration of such factors as historical
loss experience, general prevailing economic conditions, changes in the size and
composition of the loan portfolio and specific borrower considerations,
including the ability of the borrower to repay the loan and the estimated value
of the underlying collateral.
The provision for loan losses for the nine months ended September 30, 1999
totaled $11,000 compared to $24,000 for the nine months ended September 30,
1998. The Corporation did not experience any net charge-offs during the nine
months ended September 30, 1999 compared to net charge-offs of $18,000 for the
nine months ended September 30, 1998. The Corporation's low charge-off history
is the product of a variety of factors, including the Corporation's underwriting
guidelines, which generally require a loan-to-value or projected completed value
ratio of 80% for the purchase or construction of one- to four-family residential
properties and 75% for commercial real estate and land loans, established income
information and defined ratios of debt to income. Despite this history, the
Corporation cannot give any assurances as to the level of future charge-offs.
The allowance for loan losses totaled $229,000 or .63% of gross loans at
September 30, 1999, compared with $218,000, or .69% of gross loans at December
31, 1998.
- --------------------------------------------------------------------------------
17.
<PAGE> 18
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Noninterest income includes service charges and other fees, net gains on sales
of securities available for sale and other income. For the nine months ended
September 30, 1999, noninterest income totaled $35,000 compared to $13,000 for
the nine months ended September 30, 1998. During the 1999 period, the
Corporation experienced an increase in service charges and other fees and net
gains on sales of securities available for sale that was partially offset by a
slight decrease in other miscellaneous income.
Noninterest expense totaled $765,000 for the nine months ended September 30,
1999 compared to $674,000 for same period in 1998. The increase in noninterest
expense was primarily the result of a $43,000 increase in other expense due to
increases in stationary and printing expense and advertising expense. The
increase in stationary and printing expense was attributable to the Bank's name
change in January 1999 and the increase in advertising expense was due to
consumer loan and debit card advertising. Additionally, salaries and employee
benefits expense increased by $30,000 from period to period, due primarily to
increased staffing in anticipation of the opening of the new branch office,
normal annual merit increases and the establishment of the Corporation's ESOP.
The volatility of income tax expense is primarily attributable to the change in
net income before income taxes. The provision for income taxes totaled $143,000
for the nine months ended September 30, 1999 compared to $119,000 for the nine
months ended September 30, 1998.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1999 AND SEPTEMBER 30, 1998
Net income was $117,000 for the three months ended September 30, 1999, compared
to $49,000 for the three months ended September 30, 1998. The increase in net
income for the three months ended September 30, 1999 was primarily the result of
an increase in net interest income, partially offset by an increase in
noninterest expense.
Net interest income totaled $450,000 for the three months ended September 30,
1999, as compared to $334,000 for the three months ended September 30, 1998,
representing an increase of $116,000, or 34.7%. The change in net interest
income is attributable to an increase in the ratio of average interest-earning
assets to average interest-bearing liabilities offset by a decrease in the
interest rate spread.
Interest and fees on loans increased approximately $106,000, or 17.2%, from
$616,000 for the three months ended September 30, 1998 to $722,000 for the three
months ended September 30, 1999. The increase in interest income was due to
higher average loans, partially offset by a decrease in the yield earned.
Interest earned on securities totaled $193,000 for the three months ended
September 30, 1999, as compared to $136,000 for the three months ended September
30, 1998. The increase was a result of higher average balances of securities
partially offset by a decreased yield earned.
Interest on interest-bearing deposits and overnight deposits for the three
months ended September 30, 1999 totaled $24,000, compared to $8,000 in the same
quarter in 1998. This increase was the result of an increase in the average
balance of interest-bearing deposits and overnight funds. The yield earned on
interest-bearing deposits and overnight funds remained relatively unchanged.
- --------------------------------------------------------------------------------
18.
<PAGE> 19
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Interest paid on deposits decreased $47,000 for the three months ended September
30, 1999, compared to the three months ended September 30, 1998. The decrease in
interest expense was due to a decrease in the cost of funds combined with a
decrease in the average balances of deposits.
Interest on Federal Home Loan Bank advances totaled $152,000 for the three
months ended September 30, 1999, compared to $42,000 for the three months ended
September 30, 1998. The increase was the result of a higher average balance
combined with a higher cost of funds. The additional borrowings were used to
provide funding for loan demand and to better leverage the Corporation's
capital.
The provision for loan losses for the three months ended September 30, 1999
totaled $5,000 compared to $23,000 for the three months ended September 30,
1998. The Corporation did not experience any net charge-offs during the three
months ended September 30, 1999 while net charge-offs totaled $18,000 for the
three months ended September 30, 1998.
For the three months ended September 30, 1999, noninterest income totaled
$8,000, compared to $5,000 for the three months ended September 30, 1998. During
the 1999 period, the Corporation experienced a gain on the sale of a security
available for sale that was partially offset by a decrease in other
miscellaneous income.
Noninterest expense totaled $276,000 for the three months ended September 30,
1999 compared to $233,000 for same period in 1998. The increase in noninterest
expense was primarily the result of a $20,000 increase in salaries and employee
benefits expense and a $16,000 increase in other expense due to advertising
expense. The increase in salaries and employee benefits expense was the result
of increased staffing in anticipation of the opening of the new branch office,
normal annual merit increases and the establishment of the Corporation's ESOP.
The increase in advertising expense was due to consumer loan and debit card
advertising.
The volatility of income tax expense is primarily attributable to the change in
net income before income taxes. The provision for income taxes totaled $60,000
for the three months ended September 30, 1999 compared to $34,000 for the three
months ended September 31, 1998.
- --------------------------------------------------------------------------------
19.
<PAGE> 20
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's liquidity, primarily represented by cash and cash equivalents,
is a result of its operating, investing and financing activities. These
activities are summarized below for the nine months ended September 30, 1999 and
1998.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Net income $ 278 $ 220
Adjustments to reconcile net income to
net cash from operating activities (13) (143)
-------- -------
Net cash from operating activities 265 77
Net cash from investing activities (14,035) (2,716)
Net cash from financing activities 14,002 2,468
-------- -------
Net change in cash and cash equivalents 232 (171)
Cash and cash equivalents at beginning of period 797 923
-------- -------
Cash and cash equivalents at end of period $ 1,029 $ 752
======== =======
</TABLE>
The Corporation's principal sources of funds are deposits, loan repayments,
maturities of securities, Federal Home Loan Bank advances and other funds
provided by operations. While scheduled loan repayments and maturing securities
are relatively predictable, deposit flows and early loan prepayments are
influenced by interest rates, general economic conditions, and competition. The
Corporation maintains investments in liquid assets based on management's
assessment of (1) need for funds, (2) expected deposit flows, (3) yields
available on short-term liquid assets and (4) objectives of the asset/liability
management program.
OTS regulations presently require the Bank to maintain an average daily balance
of investments in United States Treasury, federal agency obligations and other
investments having maturities of five years or less in an amount equal to 4% of
the sum of the Bank's average daily balance of net withdrawable deposit accounts
and borrowings payable in one year or less. The liquidity requirement, which may
be changed from time to time by the OTS to reflect changing economic conditions,
is intended to provide a source of relatively liquid funds on which the Bank may
rely, if necessary, to fund deposit withdrawals or other short-term funding
needs. At September 30, 1999, the Bank's regulatory liquidity was 8.24%. The
Bank considers its liquidity and capital reserves sufficient to meet its
outstanding short- and long-term needs. See Note 5 of the Notes to Financial
Statements.
- --------------------------------------------------------------------------------
20.
<PAGE> 21
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The Bank is subject to various regulatory capital requirements administered by
federal regulatory agencies. Failure to meet minimum capital requirements can
initiate certain mandatory actions that, if undertaken, could have a direct
material affect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines involving quantitative measures of the
Bank's assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by regulators about
the Bank's components, risk weightings and other factors. At September 30, 1999,
and December 31, 1998, the Bank complied with all regulatory capital
requirements. Based on the Bank's computed regulatory capital ratios, the Bank
is considered well capitalized under the prompt corrective-action provisions of
the Federal Deposit Insurance Corporation Improvement Act at September 30, 1999
and December 31, 1998.
At September 30, 1999, and December 31, 1998 the Bank's actual capital levels
and minimum required levels were:
<TABLE>
<CAPTION>
Minimum
Required To Be
Minimum Required Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1999
Total capital (to risk-
weighted assets) $7,210 26.0% $2,215 8.0% $2,769 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 6,981 25.2 1,108 4.0 1,661 6.0
Tier 1 (core) capital (to
adjusted total assets) 6,981 12.9 1,630 3.0 2,717 5.0
Tangible capital (to
adjusted total assets) 6,981 12.9 815 1.5 N/A
DECEMBER 31, 1998
Total capital (to risk-
weighted assets) $5,226 25.8% $1,621 8.0% $2,026 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 5,008 24.7 810 4.0 1,215 6.0
Tier 1 (core) capital (to
adjusted total 5,008 12.5 1,202 3.0 1,997 5.0
Tangible capital (to
adjusted total assets) 5,008 12.5 599 1.5 N/A
</TABLE>
- --------------------------------------------------------------------------------
21.
<PAGE> 22
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
In February 1999, the Corporation received Office of Thrift Supervision approval
to establish a branch office in New Philadelphia, Ohio. The Corporation
purchased the land in December 1998 for $213,000. Based on preliminary
architectural estimates, the Corporation expects the total cost of the
construction and furniture, fixtures and equipment to be $1.0 million. At
September 30, 1999, the Corporation had paid costs related to this office
totaling $787,000 including the purchase of the land. The new branch is expected
to open for business during the fourth quarter of 1999.
YEAR 2000 ISSUE
Indian Village uses computers, computer software and equipment using 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 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.
Indian Village's Year 2000 committee consists of Cindy S. Knisely, Michael A.
Cochran, Marty R. Lindon and Lori S. Frantz. The committee reports monthly to
the Board of Directors. The committee has developed and is implementing a
comprehensive plan to make all information and noninformation technology assets
Year 2000 compliant. 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
Indian Village's Year 2000 preparedness.
2. Assessment - Inventory of all technology assets and identification of
third-party vendors and service providers. Indian Village has analyzed
the operation of all date-sensitive computer systems and identified, in
writing, all third-party vendors and service providers associated with
these systems. This phase was completed as of June 30, 1998.
3. Renovation - Review of vendor and service providers responses to Indian
Village's Year 2000 inquiries and development of a follow-up plan and
timeline. This phase was completed as of December 31, 1998.
4. Validation - Testing all systems and third-party vendors for Year 2000
compliance. Indian Village has replaced all in-house equipment, such as
teller station equipment, with Year 2000 compliant equipment. A
third-party service bureau processes all customer transactions and has
completed upgrades to its systems to be Year 2000 compliance. Indian
Village conducted in-house proxy testing in August 1998 and on-line
testing in February 1999. The results of both forms of testing were
satisfactory and without material exceptions. Other parties whose Year
2000 compliance may affect Indian Village include the Federal Home Loan
Bank of Cincinnati, brokerage firms, the operator of Indian Village's
automated teller machines network and Indian Village's pension plan
administrator. These third parties have indicated their compliance or
intended compliance. Where it is possible to do so, Indian Village has
scheduled testing with these third parties. Where testing is not
possible, Indian Village will rely on certifications from vendors and
service providers. Management believes this phase has been completed as
of September 30, 1999.
- --------------------------------------------------------------------------------
22.
<PAGE> 23
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
5. Implementation - Replacement or repair of noncompliant technology. As
Indian Village progresses through the validation phase, Indian Village
expects to determine necessary remedial actions and provide for their
implementation. Indian Village has already implemented a new Year 2000
compliant computerized teller system and has verified the Year 2000
compliance of its computer hardware and other equipment containing
embedded microprocessors. This phase was completed as of June 30, 1999.
Management of Indian Village has had discussions with a majority of its
commercial borrowers, including all of its large borrowers, regarding their Year
2000 readiness. These discussions have revealed that these borrowers are not
heavily dependent on computers. Accordingly, Indian Village does not believe
that its commercial borrowers will be adversely affected by the year 2000.
Indian Village has incurred costs of approximately $35,000 to replace computer
equipment, software programs or other equipment containing embedded
microprocessors that were not Year 2000 compliant. System maintenance or
modification costs are charged to expense as incurred, while the cost of new
hardware, software or other equipment is capitalized and amortized over their
estimated useful lives. Indian Village does not separately track the internal
costs and time that its own employees spend on Year 2000 issues, which are
principally payroll costs.
Because Indian Village depends substantially on its computer systems and those
of third parties, the failure of these systems to be Year 2000 compliant could
cause substantial disruption of Indian Village's business and could have a
material adverse financial impact on Indian Village. Failure to resolve Year
2000 issues presents the following risks to Indian Village, which it believes
reflects its most reasonably likely worst-case scenario:
1. Indian Village could lose customers to other financial institutions,
resulting in a loss of revenue, if Indian Village's third-party service
bureau is unable to properly process customer transactions;
2. Governmental agencies, such as the Federal Home Loan Bank of Cincinnati,
and corespondent institutions could fail to provide funds to Indian
Village, which could materially impair Indian Village's liquidity and
affect Indian Village'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 Indian Village
experiencing deposit outflows before December 31, 1999; and,
4. Indian Village 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 impossible 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 Indian Village's portfolio
consists of loans to individual rather than commercial enterprises, management
believes that Year 2000 issues will not impair materially the ability of Indian
Village's borrowers to repay their debt.
- --------------------------------------------------------------------------------
23.
<PAGE> 24
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
There can be no assurances that Indian Village's Year 2000 plan will effectively
address the Year 2000 issue, that Indian Village's estimates of the timing and
costs of completing the plan will ultimately be accurate or that the impact of
any failure of Indian Village or its third-party vendors and service providers
to be Year 2000 compliant will not have a material adverse effect on Indian
Village's business, financial condition or results of operations.
Indian Village has a business-resumption contingency plan for Year 2000
compliance that calls for Indian Village to resort to manual processing of
transactions until the computer systems resume operations.
PENDING LEGISLATION
Pending legislation designed to modernize the regulation of the financial
services industry expands the ability of bank holding companies to affiliate
with other types of financial services companies such as insurance companies and
investment banking companies. However, the legislation provides that companies
that acquire control of a single savings association after May 4, 1999 (or that
filed an application for that purpose after that date) are not entitled to the
unrestricted activities formerly allowed for a unitary savings and loan holding
company. Rather, these companies will have authority to engage in the activities
permitted "a financial holding company" under the new legislation, including
insurance and securities-related activities, and the activities currently
permitted for multiple savings and loan holding companies, but generally not in
commercial activities. The authority for unrestricted activities is
grandfathered for unitary savings and loan holding companies, such as the
Corporation, that existed prior to May 4, 1999. However, the authority for
unrestricted activities would not apply to any company that acquired the
Corporation.
- --------------------------------------------------------------------------------
24.
<PAGE> 25
INDIAN VILLAGE BANCORP, INC.
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
On July 1, 1999, the Corporation completed an initial offering of
securities registered pursuant to the Securities Act of 1933, as
amended. In connection therewith:
1. The effective date of the Registration Statement on Form SB-2, as
amended (File No. 333-74621) was May 14, 1999.
2. The offering of securities was not underwritten. Trident
Securities acted as marketing agent.
3. The class of securities registered was common stock, $0.01 par
value per share. The amount of such securities registered was
793,500 shares at an offering price of $10.00 per share. The
offering terminated on July 1, 1999 with the sale of 445,583
shares at a price of $10.00 per share.
4. The total offering expenses incurred by the Company were
approximately $362,147, none of which were paid directly or
indirectly to directors or officers of the Company or their
associates.
5. The net proceeds of the offering were $4.1 million of which
$356,370 was loaned to the Bank's employee stock ownership plan to
purchase stock in the offering. One-half of the net proceeds were
invested in the Bank and the remaining was invested in short-term
securities. These uses of proceeds do not represent a material
change in the use of proceeds described in the Corporation's
Prospectus dated May 14,1999.
Item 3. Defaults On Senior Securities
-----------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
- --------------------------------------------------------------------------------
25.
<PAGE> 26
INDIAN VILLAGE BANCORP, INC.
PART II - OTHER INFORMATION (Continued)
- --------------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
3.1 Articles of Incorporation of Indian Village Bancorp, Inc.*
3.2 Bylaws of Indian Village Bancorp, Inc.*
4.0 Specimen Stock Certificate of Indian Village Bancorp, Inc.*
10.1 Indian Village Community Bank Employee Stock Ownership Plan
Trust Agreement
10.2 ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Employment Agreement between Indian Village Community Bank,
Indian Village Bancorp, Inc. and Marty R. Lindon
10.4 Employment Agreement between Indian Village Community Bank,
Indian Village Bancorp, Inc. and Lori S. Frantz
10.5 Indian Village Community Bank Employee Severance Compensation
Plan
27.0 Financial Data Schedule
(b) No current reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1999.
* Incorporated herein by reference into this document from the
Exhibits on Form SB-2 Registration Statement and amendments thereto,
initially filed on March 18, 1999. Registration No. 333-74621
- --------------------------------------------------------------------------------
26.
<PAGE> 27
INDIAN VILLAGE BANCORP, INC.
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirement of the Securities Exchange Act of 1934, the small
business issuer has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 5, 1999 /s/ Marty R. Lindon
-------------------------- ---------------------------------------
Marty R. Lindon
President and Chief Executive Officer
Date: November 5, 1999 /s/ Lori S. Frantz
-------------------------- ---------------------------------------
Lori S. Frantz
Vice President, Treasurer and
Chief Financial Officer
- --------------------------------------------------------------------------------
27
<PAGE> 1
EXHIBIT 10.1
INDIAN VILLAGE COMMUNITY BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
EFFECTIVE JANUARY 1, 1999
<PAGE> 2
CONTENTS
--------
Page No.
--------
Section 1 Creation of Trust.....................................1
Section 2 Investment of Trust Fund and Administrative Powers
of the Trustee.......................................2
Section 3 Compensation and Indemnification of Trustee
and Payment of Expenses and Taxes....................7
Section 4 Records and Valuation.................................8
Section 5 Instructions from Committee...........................8
Section 6 Change of Trustees....................................9
Section 7 Miscellaneous.........................................9
<PAGE> 3
3
This TRUST AGREEMENT effective January 1, 1999, BETWEEN Indian Village
Community Bank, with its principal office at 100 South Walnut Street,
Gnadenhutten, Ohio 44629 (hereinafter called the "Bank"), AND Michael A. Cochran
and Cindy S. Knisely (hereinafter each referred to as the "Trustee"),
W I T N E S S E T H T H A T:
WHEREAS, effective January 1, 1999, the Bank approved and adopted an
employee stock ownership plan for the benefit of its employees, known as the
Indian Village Community Bank Employee Stock Ownership Plan (hereinafter called
the "Plan"); and
WHEREAS, the Bank has authorized the execution of this Trust Agreement and
has appointed Michael A. Cochran and Cindy S. Knisely each as Trustee of the
Trust Fund created pursuant to the Plan; and
WHEREAS, Michael A. Cochran and Cindy S. Knisely each has agreed to act as
Trustee and to hold and administer the assets of the Plan in accordance with the
terms of this Trust Agreement;
NOW, THEREFORE, the Bank and each of the Trustees agree as follows:
Section 1. Creation of Trust.
------------------
1.1 Trustees. Michael A. Cochran and Cindy S. Knisely shall each be a
trustee of the Trust Fund (as defined below) created in accordance with and in
furtherance of the Plan, and shall serve as Trustee until his/her removal or
resignation in accordance with Section 6 (unless otherwise noted, all Section
references contained herein are to this Trust Agreement).
1.2 Trust Fund. The Trustee hereby agrees to accept contributions from the
Employer (as such term is defined in the Plan) and amounts transferred from
other qualified retirement plans from time to time in accordance with the terms
of the Plan. All such property and contributions, together with income thereon
and increments thereto, shall constitute the "Trust Fund" to be held in
accordance with the terms of the Trust Agreement.
1.3 Incorporation of Plan. An instrument entitled "Indian Village Community
Bank Employee Stock Ownership Plan" is incorporated herein by reference, and
this Trust Agreement shall be interpreted consistently with that Plan. All words
and phrases defined in that Plan shall have the same meaning when used in this
Trust Agreement, unless otherwise specifically defined in this Trust Agreement.
1.4 Name. The name of this trust shall be "Indian Village Community Bank
Employee Stock Ownership Plan Trust."
1.5 Nondiversion of Assets. In no event shall any part of the corpus or
income of the Trust Fund be used for, or diverted to, purposes other than for
the exclusive benefit of the Participants and
1
<PAGE> 4
their Beneficiaries prior to the satisfaction of all liabilities under the Plan,
except to the extent that assets may be returned to the Employer in accordance
with the Plan where the Plan fails to qualify initially under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), or where they are
attributable to contributions made by mistake of fact or conditioned upon their
deductibility.
Section 2. Investment of Trust Fund and Administrative Powers of the
---------------------------------------------------------
Trustee.
- --------
2.1 Stock and Other Investments. The basic investment policy of the Plan
shall be to invest primarily in Stock of the Employer for the exclusive benefit
of the Participants and their Beneficiaries. The Committee shall have full and
complete investment authority and responsibility with respect to the purchase,
retention, sale, exchange, and pledge of Stock and the payment of Stock
Obligations, and the Trustee shall not deal in any way with Stock except in
accordance with the written instructions of the Committee. The Trustee shall
invest, or keep invested, all or a portion of the Trust Fund in Stock, and shall
pay Stock Obligations out of assets of the Trust Fund, as instructed from time
to time by the Committee. The Trustee shall invest any balance of the Trust Fund
(the "Investment Fund") in such other property as the Committee, in its sole
discretion, shall deem advisable, subject to any delegation of such investment
responsibility pursuant to Section 2.2. Nothing contained herein shall provide
investment discretion authority or any like kind responsibility in regard to the
assets of the Trust Fund.
In connection with instructions from the Committee to acquire Stock, the
Trustee may purchase newly issued or outstanding Stock from an Employer or any
other holders of Stock, including Participants, Beneficiaries, and Plan
fiduciaries. All purchases and sales of Stock shall be made by the Trustee at
fair market value as determined by the Committee in good faith and in accordance
with any applicable requirement under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). Such purchases may be made with assets of the
Trust Fund, with funds borrowed for this purpose (with or without guarantees of
repayment to the lender by an Employer), or by any combination of the foregoing.
Notwithstanding any other provision of this Trust Agreement or the Plan,
neither the Committee nor Trustee shall make any purchase, sale, exchange,
investment, pledge, valuation, or loan, or take any other action involving those
assets for which it is responsible which (i) is inconsistent with the policy of
the Plan and Trust Agreement, (ii) is inconsistent with the prudence and
diversification requirements set forth in Sections 404(a)(1)(B) and (C) of ERISA
(to the extent such requirements apply to an employee stock ownership plan and
related trust), (iii) is prohibited by Section 406 or 407 of ERISA or Section
4975 of the Code, or (iv) would impair the qualification of the Plan or the
exemption of the Trust under Sections 401 and 501 of the Code.
2.2 Delegation of Investment Responsibility. The Committee may, by written
notice, direct the Trustee to segregate any portion or all of the Investment
Fund into one or more separate accounts for each of which full investment
responsibility will be delegated to an investment manager, as defined in Section
3(38) of ERISA, appointed in such notice pursuant to Section 402(c)(3) of ERISA
(hereinafter a "Manager"). For any separate account where the Trustee is to
maintain custody of the
2
<PAGE> 5
assets, the Trustee and the Manager shall agree upon procedures for the
transmittal of investment instructions from the Manager to the Trustee, and the
Trustee may provide the Manager with such documents as may be necessary to
authorize the Manager to effect transactions directly on behalf of the
segregated account.
Further, the Committee may, by written notice, direct the Trustee to
segregate any portion or all of the Investment Fund into one or more separate
accounts for each of which full investment responsibility will be delegated to
an insurance company through one or more group annuity contracts, deposit
administration contracts, or similar contracts, which may provide for
investments in any commingled separate accounts established under such
contracts. An insurance company shall be a Manager with respect to any amounts
held under such a contract except to the extent the insurer's assets are not
deemed assets of the Plan and Trust Fund pursuant to Section 401(b)(2) of ERISA.
The allocation of amounts held under such a contract among the insurer's general
account and one or more individual or commingled separate accounts shall be
determined by the Bank except as otherwise agreed by the Bank and the insurer.
Any Manager shall have all of the powers given to the Trustee pursuant to
Section 2.3 with respect to the portion of the Trust Fund committed to its
investment discretion and control. The Trustee shall be responsible for the
safekeeping of any assets which remain in its custody, but in no event shall the
Trustee be under any duty to question or make any inquiry or suggestion
regarding the action or inaction of a Manager or an insurer or the advisability
of acquiring, retaining, or disposing of any asset of a segregated account. The
Employer shall indemnify and hold the Trustee harmless from any and all costs,
damages, expenses, and liabilities which the Trustee may incur by reason of any
action taken or omitted to be taken by the Trustee upon directions from the
Committee, a Manager, or an insurer pursuant to this Section 2.2.
2.3 Trustee Powers. In addition to and not by way of limitation upon the
fiduciary powers granted to it by law, the Trustee shall have the following
specific powers, subject to direction by the Committee and subject to the
limitations set forth in Section 2.1:
2.3-1 to receive, hold, manage, invest and reinvest the money or other
property which constitutes the Trust Fund, without distinction between principal
and income;
2.3-2 to hold funds uninvested temporarily without liability for interest
thereon, and to deposit funds in one or more savings or similar accounts with
any banks and savings and loan associations which are insured by an
instrumentality of the federal government, including the Trustee if it is such
an institution.
2.3-3 to invest or reinvest the whole or any portion of the money or other
property which constitutes the Trust Fund in such common or preferred stocks,
investment trust shares, mutual funds, commingled trust funds, partnership
interests, bonds, notes, or other evidences of indebtedness, and real and
personal property as the Committee in its absolute judgment and discretion may
deem to be for the best interests of the Trust Fund, regardless of
nondiversification to the extent that such nondiversification is clearly
prudent, and regardless of whether any such
3
<PAGE> 6
investment or property is authorized by law regarding the investment of trust
funds, of a wasting asset nature, temporarily non-income producing, or within or
without the United States;
2.3-4 to invest in common and preferred stocks, bonds, notes, or other
obligations of any corporation or business enterprise in which an Employer or
its owners may own an interest;
2.3-5 to exchange any investment or property, real or personal, for other
investments or properties at such time and upon such terms as the Trustee shall
deem proper;
2.3-6 to sell, transfer, convey or otherwise dispose of any investment or
property, real or personal, for cash or on credit, in such manner and upon such
terms and conditions as the Trustee shall deem advisable, and no person dealing
with the Trustee shall be under any duty to inquire as to the validity,
expediency, or propriety of any such sale or as to the application of the
purchase money paid to the Trustee;
2.3-7 to hold any investment or property in the name of the Trustee, with
or without the designation of any fiduciary capacity, or in name of a nominee,
or unregistered, or in such other form that title may pass by delivery;
provided, however, that the Trustee's records always show that such investment
or property belongs to the Trust Fund and the Trustee shall not be relieved
hereby of its responsibility to maintain safe custody of the Trust Fund;
2.3-8 to organize one or more corporations to hold, manage, or liquidate
any property, including real estate, owned or acquired by the Trust Fund if in
the sole discretion of the Trustee the organization of such corporation or
corporations is for the best interest of the Trust;
2.3-9 to extend the time for payment of, to modify, to renew, or to release
security from any mortgage, note or other evidence of indebtedness, or to take
advantage of or waive any default; to foreclose mortgages and bid in property
under foreclosure or to take title to property by conveyance in lieu of
foreclosure, either with or without the payment of additional consideration;
2.3-10 to vote in person or by proxy all stocks and other securities having
voting privileges; to exercise or refrain from exercising any option or
privilege with respect to stocks and other securities, including any right or
privilege to subscribe for or otherwise to acquire stocks and other securities;
or to sell any such right or privilege; to assent to and join in any plan of
refinance, merger, consolidation, reorganization or liquidation of any
corporation or other enterprise in which this Trust may have an interest, to
deposit stocks and other securities with any committee formed to effectuate the
same, to pay any expense incidental thereto, to exchange stocks and other
securities for those which may be issued pursuant to any such plan, and to
retain as an investment the stocks and other securities received by the Trustee;
and to deposit any investment in a voting trust; notwithstanding the preceding,
participants and beneficiaries shall be entitled to direct the manner in which
stock allocated to their respective accounts are to be voted on all matters. All
Stock which has been allocated to participants' accounts for which the Trustee
has received no written direction and all unallocated Employer securities will
be voted in accordance with Section 8.01 of the Plan. Whenever such voting
rights are to be exercised, the Employer, the Committee and the Trustee shall
4
<PAGE> 7
see that all Participants and Beneficiaries are provided with adequate
opportunity to deliver their instructions to the Trustee regarding voting of
Stock allocated to their accounts. The instructions of the Participants with
respect to the voting of allocated shares hereunder shall be confidential;
2.3-11 to abandon any property, real or personal, which the Trustee at the
direction of the Committee, shall consider to be worthless or not of sufficient
value to warrant its keeping or protecting; to abstain from the payment of
taxes, water rents, assessments, repairs, maintenance, and upkeep of any such
property; to permit any such property to be lost by tax sale or other
proceedings, and to convey any such property for a nominal consideration or
without consideration;
2.3-12 to borrow money from an Employer or from others (including the
Trustee), and to enter into installment contracts, for the purchase of Stock
upon such terms and conditions and at such reasonable rates of interest as the
Committee may deem to be advisable, to issue its promissory notes as Trustee to
evidence such debt, to secure the payment of such notes by pledging any property
of the Trust Fund, and to authorize the holders of any such notes to pledge them
to secure obligations of the holders and in connection therewith to repledge any
assets of the Trust as security therefor; provided that, with respect to any
extension of credit to the Trust involving, as a lender or guarantor, an
Employer or another "disqualified person" within the meaning of Section
4975(e)(2) of the Code --
(a) each loan or installment contract is primarily for the
benefit of Participants and Beneficiaries of the Plan;
(b) any interest on a loan or installment contract does not exceed a
reasonable rate;
(c) the proceeds of any loan shall be used only to acquire Stock, to repay
the loan, or to repay a previous loan meeting these conditions, and
the subject of any installment contract shall be only the Trust's
purchase of Stock;
(d) any collateral pledged to a creditor by the Trustee shall consist only
of the assets purchased with borrowed funds or received in accordance
with an installment contract and the creditor shall have no recourse
against the Trust Fund except with respect to the collateral (although
the creditor may have recourse against an Employer as guarantor);
(e) payments with respect to a loan or installment contract shall be made
only from those amounts contributed by the Employer to the Trust Fund,
from amounts earned on such contributions, and from cash dividends
received on unallocated Stock held by the Trust as collateral for such
an obligation; and
(f) upon the payment of any portion of balance due on a loan or upon any
installment payment, a proportionate part of any assets originally
pledged as collateral for such indebtedness shall be released from
encumbrance in accordance with Section 4.2 of the Plan and the
Committee shall at least annually advise the Trustee of the number of
shares of Stock so released and the proper allocation of such shares
under the terms of the Plan;
2.3-13 to manage and operate any real property which shall at any time
constitute an asset of the Trust Fund; to make repairs, alterations, and
improvements thereto; to insure such property
5
<PAGE> 8
against loss by fire or other casualty; to lease or grant options for the sale
of such property, which lease or option may be for a period of time which may
extend beyond the life of this Trust; and to take any other action or enter into
any other contract respecting such property which is consistent with the best
interests of the Trust;
2.3-14 to pay any and all reasonable and normal expenses incurred in
connection with the exercise of any power, right, authority or discretion
granted herein, and, upon prior notice to the Bank, to employ and compensate
agents, investment counsel, custodians, actuaries, attorneys, and accountants in
such connection;
2.3-15 to employ and consult with any legal counsel, who also may be
counsel to an Employer or the Committee, with respect to the meaning or
construction of this Trust Agreement, the extent of the Trustee's obligations
and duties hereunder, and whether the Trustee should take or decline to take a
particular action hereunder, and the Trustee shall be fully protected with
respect to any action taken or omitted by it in good faith pursuant to such
advice;
2.3-16 to defend any action or proceeding instituted against the Trust
Fund, to institute any action on behalf of the Trust Fund, and to compromise or
submit to arbitration any dispute concerning the Trust Fund;
2.3-17 to make, execute, acknowledge and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be necessary
or appropriate to carry out the powers herein granted;
2.3-18 to commingle the Trust Fund created pursuant hereto, in whole or in
part, in a single trust with all or any portion of any other trust fund,
assigning an undivided interest to each such commingled trust fund, provided
that such commingled trust is itself exempt from taxation pursuant to Section
501(a) of the Code, or its successor Section; and provided further that the
trust agreement governing such commingled trust shall be deemed incorporated by
reference in the Plan;
2.3-19 where two or more trusts governed by this Trust Agreement have an
undivided interest in any property, to credit the income from such property to
such trusts in proportion to their undivided interests, and when non pro rata
distributions of property or money are made from such trusts, to make
appropriate adjustments to the undivided fractional interests of such trusts;
2.3-20 to invest all or any portion of the Trust Fund in one or more group
annuity contracts, deposit administration contracts, and other such contracts
with insurance companies, including any commingled separate accounts established
under such contracts;
2.3-21 generally, with respect to all cash, stocks and other securities,
and property, both real and personal, received or held in the Trust Fund by the
Trustee, to exercise all the same rights and powers as are or may be lawfully
exercised by persons owning cash, or stocks and other securities, or such
property in their own right; and to do all other acts, whether or not expressly
authorized, which it may deem necessary or proper for the protection of the
Trust Fund; and
6
<PAGE> 9
2.3-22 whenever more than two persons shall qualify to act as co-trustees,
to exercise and perform every power (including discretionary powers), authority
or duty by the concurrence of a majority of them the same effect as if all had
joined therein, except that the unanimous vote of such persons shall be
necessary to determine the number (one or more) and identity of persons who may
sign checks, make withdrawals from financial institutions, have access to safe
deposit boxes, or direct the sale of trust assets and the disposition of the
proceeds.
Section 3. Compensation and Indemnification of Trustee and Payment of
----------------------------------------------------------
Expenses and Taxes.
- -------------------
3.1 Fees and Expenses from Fund. Compensation of Trustee. In consideration
for rendering services pursuant to this Trust Agreement the Trustee shall be
paid fees in accordance with the Trustee's fee schedule as in effect from time
to time; provided, however, that any individual serving as Trustee who already
receives full-time pay from the Employer shall not receive compensation from the
Plan. Fee changes resulting in fee increases shall be effective upon not less
than 30 days' notice to the Bank. In addition, the Trustee shall be reimbursed
for any reasonable expenses, including reasonable attorneys' fees, incurred in
the administration of the Trust created hereby. Fees and expenses shall be
allocated to Participant Accounts, if any, unless paid directly by the Employer.
All compensation and expenses of the Trustee shall be paid out of the Trust Fund
or by the Employer as specified in the Plan. If and to the extent the Trust Fund
shall not be sufficient, such compensation and expenses shall be paid by the
Employer upon demand. If payment is due but not paid by the Employer, such
amount shall be paid from the assets of the Trust Fund. The Trustee is hereby
empowered to withdraw all such compensation and expenses which are 60 days past
due from the Trust Fund, and, in furtherance thereof, liquidate any assets of
the Trust Fund, without further authorization or direction from or by any
person.
3.2 Indemnification. Notwithstanding any other provision of this Trust
Agreement, any individual designated as a trustee hereunder shall be indemnified
and held harmless by the Employer to the fullest extent permitted by law against
any and all costs, damages, expenses and liabilities including, but not limited
to attorneys' fees and disbursements reasonably incurred by or imposed upon such
individual in connection with any claim made against him or in which he may be
involved by reason of his being, or having been, a trustee hereunder, to the
extent such amounts are not satisfied by insurance maintained by the Employer,
except liability which is adjudicated to have resulted from the gross negligence
or willful misconduct of the Trustee by reason of any action so taken. Further,
any corporate trustee and its officers, directors and agents may be indemnified
and held harmless by the Employer to the fullest extent permitted by law against
any and all costs, damages, expenses and liabilities including, but not limited
to attorneys' fees and disbursements reasonably incurred by or imposed upon such
persons and/or corporation in connection with any claim made against it or them
or in which it or them may be involved by reason of its being, or having been, a
trustee hereunder as may be agreed between the Employer and such Trustee, except
liability which is adjudicated to have resulted from the gross negligence or
willful misconduct of the Trustee by reason of any action so taken.
7
<PAGE> 10
3.3 Expenses. All expenses of administering this Trust and the Plan,
whether incurred by the Trustee or the Committee, shall be paid by the Trustee
from the Trust Fund to the extent such expenses shall not have been assumed by
the Employer.
3.4 Taxes. All taxes of any kind that may be levied or assessed upon the
Trust Fund, its income or assets, shall be paid from the Trust Fund, but the
Trustee shall not be obliged to pay such tax so long as it shall contest the
validity of such levy or assessment upon the advice of counsel.
Section 4. Records and Valuation.
----------------------
4.1 Records. The Trustee, and any investment manager appointed pursuant to
Section 2.2, shall maintain accurate and detailed records and accounts of all
investments, receipts, disbursements and other transactions made by it with
respect to the Trust Fund, and all accounts, books and records relating thereto
shall be open at all reasonable time to inspection and audit by the Committee
and the Employer.
4.2 Valuation. From time to time upon the request of the Committee, but at
least annually as of the last day of each Plan Year, the Trustee shall prepare a
balance sheet of the Investment Fund in accordance with Section 5 of the Plan
and shall deliver copies of the balance sheet to the Committee and the Employer.
In the absence of any written objections to the balance sheet by the Committee
or an Employer within 90 days after its delivery to them, the Trustee shall be
entitled to presume and to rely upon its correctness for all purposes.
Section 5. Instructions from Committee.
----------------------------
5.1 Certification of Members and Employees. From time to time the Bank
shall certify to the Trustee in writing the names of the individuals comprising
the Committee and shall furnish to the Trustee specimens of their signatures and
the signatures of their agents, if any. The Trustee shall be entitled to presume
that the identities of such individuals and their agents are unchanged until it
receives a certification from the Bank notifying it of any changes.
5.2 Instructions to Trustee. The Trustee shall pay such sums to such
persons and shall take such other actions as shall be set forth in written
instructions from a single member of the Committee, whose name shall be
certified in writing to the Trustee by the Bank from time to time. The Trustee
shall be fully protected in taking any action based upon such written
instructions and shall have no power, authority, or duty to interpret the Plan
or to inquire into the decisions or determinations of the Committee, or to
question the instructions given to it by the Committee.
5.3 Plan Change. In the event of an amendment, merger, division, or
termination of the Plan, the Trustee shall continue to disburse funds and to
take other proper actions in accordance with the instructions of the Committee.
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<PAGE> 11
Section 6. Change of Trustees.
-------------------
The Bank may, at any time, remove any person or entity serving as a Trustee
hereunder by giving to such person or entity written notice of removal and, if
applicable, the name and address of the successor trustee. Any person or entity
serving as a Trustee hereunder may resign at any time by giving written notice
to the Bank. Any such removal or resignation shall take effect within 30 days
after notice has been given by the Trustee or by the Bank, as the case may be.
Within those 30 days, the removed or resigned Trustee shall transfer, pay over
and deliver any portion of the Trust Fund in its possession or control (less an
appropriate reserve for any unpaid fees, expenses, and liabilities) and all
pertinent records to the successor or remaining Trustee; provided, however, that
any assets which are invested in a collective fund or in some other manner which
prevents their immediate transfer shall be transferred and delivered to the
successor trustee as soon as may be practicable. Thereafter, the removed or
resigned Trustee shall have no liability for the Trust Fund or for its
administration by the successor or remaining trustee, but shall render an
accounting to the Committee of its administration of the Trust Fund to the date
on which its trusteeship shall have been terminated. The Bank may also, upon 30
days' notice to each person currently serving as a Trustee, appoint one or more
persons to serve as co-trustees hereunder.
Section 7. Miscellaneous.
--------------
7.1 Right to Amend. This Trust Agreement may be amended from time to time
by an instrument executed by the Bank; provided, however, that any amendment
affecting the powers, duties or liabilities of the Trustee must be approved by
the Trustee, and provided, further, that no amendment may 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 for
benefits. Any amendment shall apply to the Trust Fund as constituted at the time
of the amendment as well as to that portion of the Trust Fund which is
subsequently acquired.
7.2 Compliance with ERISA. In the exercise of its powers and the
performance of its duties, the Trustee shall act in good faith and in accordance
with the applicable requirements under ERISA. Except as may be otherwise
required by ERISA, the Trustee shall not be required to furnish any bond in any
jurisdiction for the performance of its duties and, if a bond is required
despite this provision, no surety shall be required on it.
7.3 Nonresponsibility for Funding. The Trustee shall be under no duty to
enforce the payment of any contributions and shall not be responsible for the
adequacy of the Trust Fund to satisfy any obligations for benefits, expenses,
and liabilities under the Plan.
7.4 Reports. The Trustee shall file any report which it is required by law
to file with any governmental authority with respect to this Trust, and the
Committee shall furnish to the Trustee whatever information is necessary to
prepare the report.
7.5 Dealings with Trustee. Persons dealing with the Trustee, including but
not limited to banks, brokers, dealers, and insurers, shall be under no
obligation to inquire concerning the validity
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<PAGE> 12
of anything which the Trustee purports to do, nor need any person see to the
proper application of any money paid or any property transferred upon the order
of the Trustee or to inquire into the Trustee's authority as to any transaction.
7.6 Limitation Upon Responsibilities. The Trustee shall have no
responsibilities with respect to the Plan or Trust other than those specifically
enumerated or explicitly allocated to it under this Trust Agreement or the
provisions of ERISA. All other responsibilities are retained and shall be
performed by one or more of the Employer, the Committee, and such advisors or
agents as they choose to engage.
The Trustee may execute any of the trusts or powers hereof and perform any
of its duties by or through attorneys, agents, receivers or employees and shall
not be answerable for the conduct of the same if chosen with reasonable care and
shall be entitled to advice of counsel concerning all matters of trust hereof
and the duties hereunder, and may in all cases pay such reasonable compensation
to all such attorneys, agents, receivers and employees as may reasonably be
employed in connection with the trusts hereof. The Trustee may act upon the
opinion or advice of any attorney (who may be the attorney for the trustee or
attorney for the Committee), approved by the Trustee in the exercise of
reasonable care. The Trustee shall not be responsible for any loss or damage
resulting from any action or non-action in good faith in reliance upon such
opinion or advice.
The Trustee shall be protected in acting upon any notice, request, consent,
certificate, order, affidavit, letter, telegram or other paper or document
believed to be genuine and correct and to have been signed or sent by the proper
person or persons.
As to the existence or non-existence of any fact or as to the sufficiency
or validity of any instrument, paper or proceedings, the Trustee shall be
entitled to rely upon a certificate signed on behalf of the Committee as
sufficient evidence of the facts therein contained but may at its discretion
secure such further evidence deemed necessary or advisable, but shall in no case
be bound to secure the same. The Trustee shall not be answerable for other than
its gross negligence or willful misconduct.
Before taking any action hereunder at the request or direction of the
Committee, the Trustee may require that indemnity in form and amount
satisfactory to the Trustee be furnished for the reimbursement of any and all
costs and expenses to which it may be put including, without limitation,
reasonable attorneys' fees and to protect it against all liability, except
liability which is adjudicated to have resulted from the gross negligence or
willful misconduct of the Trustee by reason of any action so taken.
No provision of this Agreement shall require the Trustee to expend or risk
its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers,
if it shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
to it.
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<PAGE> 13
7.7 Successor Trustees. This Trust Agreement shall apply to any person who
shall be appointed to succeed the person currently appointed as the Trustee; and
any reference herein to the Trustee shall be deemed to include any one or more
individuals or corporations or any combination thereof who or which hall at any
time act as a co-trustee or as the sole trustee.
7.8 Governing State Law. This Trust Agreement shall be interpreted in
accordance with the laws of the State of Ohio to the extent those laws may be
applicable under the provisions of ERISA.
IN WITNESS WHEREOF, the parties hereto have executed this Trust Agreement
as of the day and year first above written.
ATTEST: INDIAN VILLAGE COMMUNITY BANK
/s/ Brenda J. Thomas By: /s/ Marty R. Lindon
- ------------------------- -------------------------------------
Marty R. Lindon
For the Entire Board of Directors
ATTEST: INDIAN VILLAGE COMMUNITY BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
/s/ Kim L. Stull /s/ Michael A. Cochran
- ------------------------- -------------------------------------
Michael A. Cochran
Trustee
/s/ Cindy S. Knisely
-------------------------------------
Cindy S. Knisely
Trustee
11
<PAGE> 1
EXHIBIT 10.2
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT ("Loan Agreement") is made and entered in as of the 1st
day of July, 1999, by and between the INDIAN VILLAGE COMMUNITY BANK EMPLOYEE
STOCK OWNERSHIP PLAN TRUST ("Borrower"), a trust forming part of the Indian
Village Community Bank Employee Stock Ownership Plan ("ESOP"); and INDIAN
VILLAGE BANCORP, INC. ("Lender"), a corporation organized and existing under the
laws of the State of Pennsylvania.
W I T N E S S E T H
WHEREAS, the Borrower is authorized to purchase shares of common stock of
Indian Village Bancorp, Inc. ("Common Stock"), either directly from Indian
Village Bancorp, Inc. or in open market purchases in an amount not to exceed
35,637 shares of Common Stock.
WHEREAS, the Borrower is authorized to borrow funds from the Lender for the
purpose of financing authorized purchases of Common Stock; and
WHEREAS, the Lender is willing to make a loan to the Borrower for such
purpose:
NOW, THEREFORE, the parties agree hereto as follows:
ARTICLE I
---------
DEFINITIONS
-----------
The following definitions shall apply for purposes of this Loan Agreement,
except to the extent that a different meaning is plainly indicated by the
context:
Business Day means any day other than a Saturday, Sunday or other day on
which banks are authorized or required to close under federal or local law.
Code means the Internal Revenue Code of 1986 (including the corresponding
provisions of any succeeding law).
Default means an event or condition which would constitute an Event of
Default. The determination as to whether an event or condition would constitute
an Event of Default shall be determined without regard to any applicable
requirements of notice or lapse of time.
ERISA means the Employee Retirement Income Security Act of 1974, as amended
(including the corresponding provisions of any succeeding law).
Event of Default means an event or condition described in Article 5.
Loan means the loan described in section 2.1
<PAGE> 2
Loan Documents means, collectively, the Loan Agreement, the Promissory Note
and the Pledge Agreement and all other documents now or hereafter executed and
delivered in connection with such documents, including all amendments,
modifications and supplements of or to all such documents.
Pledge Agreement means the agreement described in section 2.8(a).
Principal Amount means the face amount of the Promissory Note, determined
as set forth in section 2.1(c).
Promissory Note means the promissory note described in section 2.3.
Register means the register described in section 2.9.
ARTICLE II
----------
THE LOAN; PRINCIPAL AMOUNT;
INTEREST; SECURITY; INDEMNIFICATION
-----------------------------------
Section 2.1 The Loan; Principal Amount.
---------------------------
(a) The Lender hereby agrees to lend to the Borrower such amount, and at
such time, as shall be determined under this Section 2.1; provided, however,
that in no event shall the aggregate amount lent under this Loan Agreement from
time to time exceed the greater of (i) $356,370 or (ii) the aggregate amount
paid by the Borrower to purchase up to 35,637 shares of Common Stock.
(b) Subject to the limitations of Section 2.1(a), the Borrower shall
determine the amounts borrowed under this Agreement, and the time at which such
borrowings are effected. Each such determination shall be evidenced in a writing
which shall set forth the amount to be borrowed and the date on which the Lender
shall disburse such amount, and such writing shall be furnished to the Lender by
notice from the Borrower. The Lender shall disburse to the Borrower the amount
specified in each such notice on the date specified therein or, if later, as
promptly as practicable following the Lender's receipt of such notice; provided,
however, that the Lender shall have no obligation to disburse funds pursuant to
this Agreement following the occurrence of a Default or an Event of Default
until such time as such Default or Event of Default shall have been cured.
(c) For all purposes of this Loan Agreement, the Principal Amount on any
date shall be equal to the excess, if any, of:
(i) the aggregate amount disbursed by the Lender pursuant to section 2.1(b)
on or before such date; over
2
<PAGE> 3
(ii) the aggregate amount of any repayments of such amounts made before
such date.
The Lender shall maintain on the Register a record of, and shall record in the
Promissory Note, the Principal Amount, any changes in the Principal Amount and
the effective date of any changes in the Principal Amount.
Section 2.2 Interest.
---------
(a) The Borrower shall pay to the Lender interest on the Principal Amount,
for the period commencing with the first disbursement of funds under this Loan
Agreement and continuing until the Principal Amount shall be paid in full, at
the rate of seven and three quarters percent (7.75%) per annum. Interest payable
under this Agreement shall be computed on the basis of a year of 365 days and
actual days elapsed (including the first day but excluding the last) occurring
during the period to which the computation relates.
(b) Accrued interest on the Principal Amount shall be payable by the
Borrower on the dates set forth in Schedule I to the Promissory Note. All
interest on the Principal Amount shall be paid by the Borrower in immediately
available funds.
(c) Anything in the Loan Agreement or the Promissory Note to the contrary
notwithstanding, the obligation of the Borrower to make payments of interest
shall be subject to the limitation that payments of interest shall not be
required to be made to the Lender to the extent that the Lender's receipt
thereof would not be permissible under the law or laws applicable to the Lender
limiting rates of interest which may be charged or collected by the Lender. Any
such payment referred to in the preceding sentence shall be made by the Borrower
to the Lender on the earliest interest payment date or dates on which the
receipt thereof would be permissible under the laws applicable to the Lender
limiting rates of interest which may be charged or collected by the Lender. Such
deferred interest shall not bear interest.
Section 2.3 Promissory Note.
----------------
The Loan shall be evidenced by the Promissory Note of the Borrower attached
hereto as an exhibit payable to the order of the lender in the Principal Amount
and otherwise duly completed.
Section 2.4 Payment of Trust Loan.
----------------------
The Principal Amount of the Loan shall be repaid in accordance with
Schedule I to the Promissory Note on the dates specified therein until fully
paid.
3
<PAGE> 4
Section 2.5 Prepayment.
-----------
The Borrower shall be entitled to prepay the Loan in whole or in part, at
any time and from time to time; provided, however, that the Borrower shall give
notice to the Lender of any such prepayment; and provided, further, that any
partial prepayment of the Loan shall be in an amount not less than $1,000. Any
such prepayment shall be: (a) permanent and irrevocable; (b) accompanied by all
accrued interest through the date of such prepayment; (c) made without premium
or penalty; and (d) applied on the inverse order of the maturity of the
installment thereof unless the Lender and the Borrower agree to apply such
prepayments in some other order.
Section 2.6 Method of Payments.
-------------------
(a) All payments of principal, interest, other charges (including
indemnities) and other amounts payable by the Borrower hereunder shall be made
in lawful money of the United States, in immediately available funds, to the
Lender at the address specified in or pursuant to this Loan Agreement for
notices to the Lender, on the date on which such payment shall become due. Any
such payment made on such date but after such time shall, if the amount paid
bears interest, and except as expressly provided to the contrary herein, be
deemed to have been made on, and interest shall continue to accrue and be
payable thereon until, the next succeeding Business Day. If any payment of
principal or interest becomes due on a day other than a Business Day, such
payment may be made on the next succeeding Business Day, and when paid, such
payment shall include interest to the day on which payment is in fact made.
(b) Notwithstanding anything to the contrary contained in this Loan
Agreement or the Promissory Note, the Borrower shall not be obligated to make
any payment, repayment or prepayment on the Promissory Note if doing so would
cause the ESOP to cease to be an employee stock ownership plan within the
meaning of section 4975(e)(7) of the Code or qualified under section 401(a) of
the Code or cause the Borrower to cease to be a tax exempt trust under section
501(a) of the Code or if such act or failure to act would cause the Borrower to
engage in any "prohibited transaction" as such term is defined in the section
4975(c) of the Code and the regulations promulgated thereunder which is not
exempted by section 4975(c)(2) or (d) of the Code and the regulations
promulgated thereunder or in section 406 of ERISA and the regulations
promulgated thereunder which is not exempted by section 408(b) of ERISA and the
regulations promulgated thereunder; provided, however, that in each case, the
Borrower, may act or refrain from acting pursuant to this section 2.6(b) on the
basis of an opinion of counsel, and any opinion of such counsel. The Borrower
may consult with counsel, and any opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken or suffered
or omitted by it hereunder in good faith and in accordance with such opinion of
counsel. Nothing contained in this section 2.6(b) shall be construed as imposing
a duty on the Borrower to consult with counsel. Any obligation of the Borrower
to make any payment, repayment or prepayment on the Promissory Note or refrain
from taking any other act hereunder or under the Promissory Note which is
excused pursuant to this section 2.6(b) shall be considered a binding obligation
of the Borrower, or both, as the case may be, for the purposes of determined
whether a Default or Event of Default has occurred hereunder or
4
<PAGE> 5
under the Promissory Note and nothing in this section 2.6(b) shall be construed
as providing a defense to any remedies otherwise available upon a Default or an
Event of Default hereunder (other than the remedy of specific performance).
Section 2.7 Use of Proceeds of Loan.
------------------------
The entire proceeds of the Loan shall be used solely for acquiring shares
of Common Stock, and for no other purpose whatsoever.
Section 2.8 Security.
---------
(a) In order to secure the due payment and performance by the Borrower of
all of its obligations under this Loan Agreement, simultaneously with the
execution and delivery of this Loan Agreement by the Borrower, the Borrower
shall:
(i) pledge to the Lender as Collateral (as defined in the Pledge
Agreement), and grant to the Lender a first priority lien on and security
interest in, the Common Stock purchased with the Principal Amount, by the
execution and delivery to the lender of the Pledge Agreement attached
hereto as an exhibit; and
(ii) execute and deliver, or cause to be executed and delivered, such other
agreement, instruments and documents as the Lender may reasonable require
in order to effect the purposes of the Pledge Agreement and this Loan
Agreement.
(b) The Lender shall release from encumbrance under the Pledge Agreement
and transfer to the Borrower, as of the date on which any payment or repayment
of the Principal Amount is made, a number of shares of Common Stock held as
Collateral determined pursuant to the applicable provisions of the ESOP.
Section 2.9 Registration of the Promissory Note.
------------------------------------
(a) The Lender shall maintain a Register providing for the registration of
the Principal Amount and any stated interest and of transfer and exchange of the
Promissory Note. Transfer of the Promissory Note may be effected only by the
surrender of the old instrument and either the reissuance by the Borrower of the
old instrument to the new holder or the issuance by the Borrower of a new
instrument to the new holder. The old Promissory Note so surrendered shall be
canceled by the Lender and returned to the Borrower after such cancellation.
(b) Any new Promissory Note issued pursuant to section 2.9(a) shall carry
the same rights to interest (unpaid and to accrue) carried by the Promissory
Note so transferred or exchanged so that there will not be any loss or gain of
interest on the note surrender. Such new Promissory Note shall be subject to all
of the provisions and entitled to all of the benefits of this Agreement. Prior
to due presentment for registration or transfer, the Borrower may deem and treat
the registered holder of any Promissory Note as the holder thereof for purposes
of payment and other purposes.
5
<PAGE> 6
A notation shall be made on each new Promissory Note of the amount of all
payments of principal and interest theretofore paid.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
----------------------------------------------
The Borrower hereby represents and warrants to the Lender as follows:
Section 3.1 Power, Authority, Consents.
---------------------------
The Borrower has the power to execute, deliver and perform this Loan
Agreement, the Promissory Note and Pledge Agreements, all of which have been
duly authorized by all necessary and proper corporate or other action.
Section 3.2 Due Execution, Validity, Enforceability.
----------------------------------------
Each of the Loan Documents, including, without limitation, this Loan
Agreement, the Promissory Note and the Pledge Agreement, have been duly executed
and delivered by the Borrower; and each constitutes the valid and legally
binding obligation of the Borrower, enforceable in accordance with its terms.
Section 3.3 Properties, Priority of Liens.
------------------------------
The liens which have been created and granted by the Pledge Agreement
constitute valid, first liens on the properties and assets covered by the Pledge
Agreement, subject to no prior or equal lien.
Section 3.4 No Defaults, Compliance with Laws.
----------------------------------
The Borrower is not in default in any material respect under any agreement,
ordinance, resolution, decree, bond, note, indenture, order or judgement to
which it is an party or by which it is bound, or any other agreement or other
instrument by which any of the properties or assets owned by it is materially
affected.
Section 3.5 Purchase of Common Stock.
-------------------------
Upon consummation of any purchase of Common Stock by the Borrower with the
proceeds of the Loan, the Borrower shall acquire valid, legal and marketable
title to all of the Common Stock so purchased, free and clear of any liens,
other than a pledge to the Lender of the Common Stock so purchased pursuant to
the Pledge Agreement. Neither the execution and delivery of the Loan Documents
nor the performance of any obligation thereunder violates any provisions of law
or conflicts with or results in a breach of or creates (with or without the
giving of notice of lapse of
6
<PAGE> 7
time, or both) a default under any agreement to which the Borrower is a party or
by which it is bound or any of its properties is affected. No consent of any
federal, state, or local governmental authority, agency, or other regulatory
body, the absence of which could have a materially adverse effect on the
Borrower or the Trustee, is or was required to be obtained in connection with
the execution, delivery, or performance of the Loan Documents and the
transaction contemplated therein or in connection therewith, including without
limitation, with respect to the transfer of the shares of Common Stock purchased
with the proceeds of the Loan pursuant thereto.
Section 3.6 ESOP; Contributions.
--------------------
As of the effective date of the ESOP sponsor's mutual-to-stock conversion,
the ESOP and the Borrower will be duly created, organized and maintained by the
ESOP sponsor in compliance with all applicable laws, regulations and rulings.
The ESOP will qualify as an "employee stock ownership plan" as defined in
section 4975(e)(7) of the Code. The ESOP provides that the ESOP sponsor may make
contributions to the ESOP in an amount necessary to enable the Trustee to
amortize the Loan in accordance with the terms of the Promissory Note; provided,
however, that no such contributions shall be required if they would adversely
affect the qualification of the ESOP under section 401(a) of the Code.
Section 3.7 Trustee.
--------
The trustees of the ESOP have been duly appointed by the ESOP sponsor.
Section 3.8 Compliance with Laws; Actions.
------------------------------
Neither the execution and delivery by the Borrower of this Loan Agreement
or any instruments required thereby, nor compliance with the terms and
provisions of any such documents by the lender, constitutes a violation of any
provision of any law or any regulation, order, writ, injunction or decree or any
court or governmental instrumentality, or an event of default under any
agreement, to which the Borrower is a party of which the Borrower is bound or to
which the Borrower is subject, which violation or event of default would have a
material adverse effect on the Borrower. There is no action or proceeding
pending or threatened against either the ESOP or the Borrower before any court
or administrative agency.
7
<PAGE> 8
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF THE LENDER
--------------------------------------------
The Lender hereby represents and warrants to the Borrower as follows:
Section 4.1 Power, Authority, Consents.
---------------------------
The Lender has the power to execute, deliver and perform this Loan
Agreement, the Pledge Agreement and all documents executed by the Lender in
connection with the Loan, all of which have been duly authorized by all
necessary and proper corporate or other action. No consent, authorization or
approval or other action by any governmental authority or regulatory body, and
no notice by the Lender to, or filing by the Lender with any governmental
authority or regulatory body is required for the due execution, delivery and
performance of this Loan Agreement.
Section 4.2 Due Execution, Validity, Enforceability.
----------------------------------------
This Loan Agreement and the Pledge Agreement have been duly executed and
delivered by the Lender, and each constitutes a valid and legally binding
obligation of the Lender, enforceable in accordance with its terms.
ARTICLE V
---------
EVENTS OF DEFAULT
-----------------
Section 5.1 Events of Default under Loan Agreement.
---------------------------------------
Each of the following events shall constitute an "Event of Default"
hereunder:
(a) Failure to make any payment or mandatory prepayment of principal of the
Promissory Note when due, or failure to make any payment of interest on the
Promissory Note not later than five (5) Business Days after the date when due.
(b) Failure by the Borrower to perform or observe any term, condition or
covenant of this Loan Agreement or of any of the other Loan Documents, including
without limitation, the Promissory Note and the Pledge Agreement.
(c) Any representation or warranty made in writing to the Lender in any of
the Loan Documents, or any certificate, statement or report made or delivered in
compliance with this Loan Agreement, shall have been false or misleading in any
material respect when made or delivered.
8
<PAGE> 9
Section 5.2 Lender's Rights upon Event of Default.
--------------------------------------
If an Event of Default under this Loan Agreement shall occur and be
continuing, the Lender shall have no rights to assets of the Borrower other than
: (a) contributions (other than contributions of Common Stock) that are made by
the ESOP sponsor to enable the Borrower to meet its obligations pursuant to this
Loan Agreement and earnings attributable to the investment of such contributions
and (b) "Eligible Collateral" (as defined in the Pledge Agreement); provided,
however, that; (i) the value of the Borrower's assets transferred to the Lender
following an Event of Default in satisfaction of the due and unpaid amount of
the Loan shall not exceed the amount in default (without regard to amounts owing
solely as a result of any acceleration of the Loan); (ii) the Borrower's assets
shall be transferred to the Lender following an Event of Default only to the
extent of the failure of the Borrower to meet the payment schedule of the Loan;
and (iii) all rights of the Lender to the Common Stock purchased with the
proceeds of the Loan covered by the Pledge Agreement following an Event of
Default shall be governed by the terms of the Pledge Agreement.
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
Section 6.1 Payments Due to the Lender.
---------------------------
If any amount is payable by the Borrower to the Lender pursuant to any
indemnity obligation contained herein, then the Borrower shall pay, at the time
or times provided therefor, any such amount and shall indemnify the Lender
against and hold it harmless from any loss of damage resulting from or arising
out of the nonpayment or delay in payment of any such amount. If any amounts as
to which the Borrower has so indemnified the Lender hereunder shall be assessed
or levied against the Lender, the Lender may notify the Borrower and make
immediate payment thereof, together with interest or penalties in connection
therewith, and shall thereupon be entitled to and shall receive immediate
reimbursement therefor from the Borrower together with interest on each such
amount as provided in section 2.2(c). Notwithstanding any other provision
contained in this Loan Agreement, the covenants and agreements of the Borrower
contained in this section 6.1 shall survive: (a) payment of the Promissory Note
and (b) termination of this Loan Agreement.
Section 6.2 Payments.
---------
All payments hereunder and under the Promissory Note shall be made without
set-off or counterclaim and in such amounts as may be necessary in order that
all such payments shall not be less than the amounts otherwise specified to be
paid under this Loan Agreement and the Promissory Note, subject to any
applicable tax withholding requirements. Upon payment in full of the Promissory
Note, the Lender shall mark such Promissory Note "Paid" and return it to the
Borrower.
9
<PAGE> 10
Section 6.3 Survival.
---------
All agreements, representations and warranties made herein shall
survive the delivery of this Loan Agreement and the Promissory Note.
Section 6.4 Modifications, Consents and Waivers; Entire Agreement.
------------------------------------------------------
No modification, amendment or waiver of or with respect to any provision of
this Loan Agreement, the Promissory Note, the Pledge Agreement, or any of the
other Loan Documents, nor consent to any departure from any of the terms or
conditions thereof, shall in any event be effective unless it shall be in
writing and signed by the party against whom enforcement thereof is sought. Any
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No consent to or demand on a party in any case
shall, of itself, entitle it to any other or further notice or demand in similar
or other circumstances. This Loan Agreement embodies the entire agreement and
understanding between the Lender and the Borrower and supersedes all prior
agreements and understandings relating to the subject matter hereof.
Section 6.5 Remedies Cumulative.
--------------------
Each and every right granted to the Lender hereunder or under any other
document delivered hereunder or in connection herewith, or allowed it by law or
equity, shall be cumulative and may be exercised from time to time. No failure
on the part of the Lender or the holder of the Promissory Note to exercise, and
no delay in exercising, any right shall operate as a waiver thereof, nor shall
any single or partial exercise of any right preclude any other or future
exercise thereof or the exercise of any other right. The due payment and
performance of the obligations under the Loan Documents shall be without regard
to any counterclaim, right of offset or any other claim whatsoever which the
Borrower may have against the Lender and without regard to any other obligation
of any nature whatsoever which the Lender may have to the Borrower, and no such
counterclaim or offset shall be asserted by the Borrower in any action, suit or
proceeding instituted by the Lender for payment or performance of such
obligations.
Section 6.6 Further Assurances; Compliance with Covenants.
----------------------------------------------
At any time and from time to time, upon the request of the Lender, the
Borrower shall execute, deliver and acknowledge or cause to be executed,
delivered and acknowledged, such further documents and instruments and do such
other acts and things as the Lender may reasonably request in order to fully
effect the terms of this Loan Agreement, the Promissory Note, the Pledge
Agreement, the other Loan Documents and any other agreements, instruments and
documents delivered pursuant hereto or in connection with the Loan.
10
<PAGE> 11
Section 6.7 Notices.
--------
Except as otherwise specifically provided for herein, all notice, requests,
reports and other communications pursuant to this Loan Agreement shall be in
writing, either by letter (delivered by hand or commercial messenger service or
sent by registered or certified mail, return receipt requested, except for
routine reports delivered in compliance with Article VI hereof which may be sent
by ordinary first-class mail) or telex or telecopier addressed as follows:
(a) If to the Borrower:
Indian Village Community Bank
100 South Walnut Street
Gnadenhutten, Ohio 44629-0830
Attention: Michael A. Cochran, Trustee
Cindy S. Knisely, Trustee
(b) If to the Lender:
Indian Village Bancorp, Inc.
100 South Walnut Street
Gnadenhutten, Ohio 44629-0830
Attention: Marty R. Lindon, President and Chief Executive Officer
Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is delivered by hand or by commercial messenger
service, or sent by telex or telecopier, to such party at its address specified
above, or, if sent by mail, on the third Business Day after the day deposited in
the mail, postage prepaid, addressed as aforesaid. Any party may change the
person or address to whom or which notices are to be given hereunder, by notice
duly given hereunder; provided, however, that any such notice shall be deemed to
have been given only when actually received by the party to whom it is
addressed.
Section 7.1 Counterparts.
-------------
This Loan Agreement may be signed in any number of counterparts which, when
taken together, shall constitute one and the same document.
Section 7.2 Construction; Governing Law.
----------------------------
The headings used in the table of contents and in this Loan Agreement are
for convenience only and shall not be deemed to constitute a part hereof. All
uses herein of any gender or of singular or plural terms shall be deemed to
include uses of the other genders or plural or singular terms, as the context
may require. All references in this Loan Agreement of an Article or section
shall be to an Article or section of this Loan Agreement, unless otherwise
specified. This Loan Agreement, the Promissory Note, the Pledge Agreement and
the other Loan Documents shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Ohio.
11
<PAGE> 12
Section 7.3 Severability.
-------------
Wherever possible, each provision of this Loan Agreement shall be
interpreted in such manner as to be effective and valid under applicable law;
however, the provisions of this Loan Agreement are severable, and if any clause
of provision hereof shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provisions in this Loan Agreement in and jurisdiction. Each of
the covenants, agreements and conditions contained in this Loan Agreement
independent, and compliance by a party with any of them shall not excuse
non-compliance by such party with any other. The Borrower shall not take any
action the effect of which shall constitute a breach or violation of any
provision of this Loan Agreement.
Section 7.4 Binding Effect: No Assignment or Delegation.
--------------------------------------------
This Loan Agreement shall be binding upon and inure to the benefit of the
Borrower and its successors and the Lender and its successors and assigns. The
rights and obligations of the Borrower under this Agreement shall not be
assigned or delegated without the prior written consent of the Lender, and any
purported assignment or delegation without such consent shall be void.
IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be
executed as of the date first written above.
INDIAN VILLAGE COMMUNITY BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
/s/ Michael A. Cochran
------------------------------------------
Michael A. Cochran
Trustee
/s/ Cindy S. Knisely
------------------------------------------
Cindy S. Knisely
Trustee
INDIAN VILLAGE BANCORP, INC.
By: /s/ Marty R. Lindon
--------------------------------------
Marty R. Lindon
President and Chief Executive Officer
12
<PAGE> 13
PROMISSORY NOTE
---------------
$356,370.00 July 1, 1999
PRINCIPAL
FOR VALUE RECEIVED, the undersigned, the INDIAN VILLAGE COMMUNITY BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST ("Borrower"), hereby promises to pay to the
order of INDIAN VILLAGE BANCORP, INC. ("Lender") three hundred and fifty-six
thousand, three hundred and seventy dollars ($356,370) payable in accordance
with the Loan Agreement made and entered into between the Borrower and the
Lender of even date herewith ("Loan Agreement") pursuant to which this
Promissory Note is issued.
The Principal Amount of this Promissory Note shall be payable in
accordance with the schedule attached hereto ("Schedule I").
This Promissory Note shall bear interest at the rate per annum set for
or established under the Loan Agreement, such interest to be payable in
accordance with Schedule I.
Anything herein to the contrary notwithstanding, the obligation of the
Borrower to make payments of interest shall be subject to the limitation that
payments of interest shall not be required to be made to the Lender to the
extent that the Lender's receipt thereof would not be permissible under the law
or laws applicable to the Lender limiting rates on interest which may be charged
or collected by the Lender. Any such payments on interest which are not made as
a result of the limitation referred to in the preceding sentence shall be made
by the Borrower to the Lender on the earliest interest payment date or dates on
which the receipt thereof would be permissible under the laws applicable to the
Lender limiting rates of interest which may be charges or collected by the
Lender. Such deferred interest shall not bear interest.
Payments of both principal and interest on this Promissory Note are to
be made at the principal office of the Lender or such other place as the holder
hereof shall designate to the Borrower in writing, in lawful money of the United
States of America in immediately available funds.
Failure to make any payments of principal on this Promissory Note when
due, or failure to make any payment of interest on this Promissory Note not
later than five (5) Business Days after the date when due, shall constitute a
default hereunder, whereupon the principal amount of accrued interest on this
Promissory Note shall immediately become due and payable in accordance with the
terms of the Loan Agreement.
<PAGE> 14
This Promissory Note is secured by a Pledge Agreement between the
Borrower and the Lender of even date herewith and is entitled to the benefits
thereof.
INDIAN VILLAGE COMMUNITY BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
/s/ Michael A. Cochran
------------------------------------
Michael A. Cochran
Trustee
------------------------------------
Cindy S. Knisely
Trustee
2
<PAGE> 15
PLEDGE AGREEMENT
----------------
THIS PLEDGE AGREEMENT ("Pledge Agreement") is made as of the 1st day of
July, 1999, by and between the INDIAN VILLAGE COMMUNITY BANK EMPLOYEE STOCK
OWNERSHIP PLAN TRUST ("Pledgor"), and INDIAN VILLAGE BANCORP, INC., a
corporation organized and existing under the laws of the State of Pennsylvania
("Pledgee").
W I T N E S S E T H
WHEREAS, this Pledge Agreement is being executed and delivered to the
Pledgee pursuant to the terms of a Loan Agreement ("Loan Agreement"), by and
between the Pledgor and the Pledgee;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and in the Loan Agreement, the parties hereto do hereby covenant and
agree as follows:
Section 1. Definitions. The following definitions shall apply for
purposes of this Pledge Agreement, except to the extent that a different meaning
is plainly indicated by the context; all capitalized terms used but not defined
herein shall have the respective meanings assigned to them in the Loan
Agreement:
Collateral shall mean the Pledged Shares and, subject to section 5
hereof, and to the extent permitted by applicable law, all rights with respect
thereto, and all proceeds of such Pledged Shares and rights.
ESOP shall mean the Indian Village Community Bank Employee Stock
Ownership Plan.
Event of Default shall mean an event so defined in the Loan Agreement.
Liabilities shall mean all the obligations of the Pledgor to the
Pledgee, howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing, or due or to become due,
under the Loan Agreement and the Promissory Note.
Pledged Shares shall mean all the Shares of Common Stock of the Pledgee
purchased by the Pledgor with the proceeds of the loan made by the Pledgee to
the Pledgor pursuant to the Loan Agreement, but excluding any such shares
previously released pursuant to section 4.
Section 2. Pledge. To secure the payment of and performance of all the
Liabilities, the Pledgor hereby pledges to the Pledgee, and the grants to the
Pledgee, a security interest in, and lien upon, the Collateral.
Section 3. Representations and Warranties of the Pledgor. The Pledgor
represents, warrants, and covenants to the Pledgee as follows:
<PAGE> 16
(a) the execution, delivery and performance of this Pledge Agreement and
the pledging of the Collateral hereunder do not and will not conflict with,
result in a violation of, or constitute a default under, any agreement binding
upon the Pledgor;
(b) the Pledged Shares are and will continue to be owned by the Pledgor
free and clear of any liens or rights of any other person except the lien
hereunder and under the Loan Agreement in favor of the Pledgee, and the security
interest of the Pledgee in the Pledged Shares and the proceeds thereof is and
will continue to be prior to and senior to the rights of all others;
(c) this Pledge Agreement is the legal, valid, binding and enforceable
obligation of the Pledgor in accordance with its terms;
(d) the Pledgor shall, from time to time, upon request of the Pledgee,
promptly deliver to the Pledgee such stock powers, proxies, and similar
documents, satisfactory in form and substance to the Pledgee, with respect to
the Collateral as the Pledgee may reasonable request; and
(e) subject to the first sentence of section 4(b), the Pledgor shall
not, so long as any Liabilities are outstanding, sell, assign, exchange, pledge
or otherwise transfer or encumber any of its rights in and to any of the
Collateral.
Section 4. Eligible Collateral.
(a) As used herein the term "Eligible Collateral" shall mean the amount
of Collateral which has an aggregate fair market value equal to the amount by
which the Pledgor is in default (without regard to any amounts owing solely as
the result of an acceleration of the Loan Agreement) or such lesser amount of
Collateral as may be required pursuant to section 13 of this Pledge Agreement.
(b) The Pledged Shares shall be released from this Pledge Agreement in a
manner conforming to the requirements of Treasury Regulations Section
54.4975-7(b)(8), as the same may be from time to time amended or supplemented,
and the applicable provisions of the ESOP. Subject to such Regulations, the
Pledgee may from time to time, after any Default or Event of Default, and
without prior notice to the Pledgor, transfer all or any part of the Eligible
Collateral in the name of the Pledgee or its nominee, without disclosing that
such Eligible Collateral is subject to any rights of the Pledgor and may from
time to time, whether before or after any of the Liabilities shall become due
and payable, without notice to the Pledgor, take all or any of the following
actions: (i) notify the parties obligated on any of the Eligible Collateral to
make payment to the Pledgee of any amounts due or due to become due thereunder,
(ii) release or exchange all or any part of the Eligible Collateral, or
compromise or extend or renew for any period (whether or not longer than the
original period) any obligations of any nature of any party with respect
thereto, and (iii) take control of any proceeds of the Eligible Collateral.
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<PAGE> 17
Section 5. Delivery.
(a) The Pledgor shall deliver to the Pledgee upon execution of this
Pledge Agreement (i) either (A) certificates for the Pledged Shares, each
certificate duly signed in blank by the Pledgor or accompanied by a stock
transfer power duly signed in blank by the Pledgor and each such certificate
accompanied by all required documentary or stock transfer tax stamps or (B) if
the Trustee does not yet have possession of the Pledged Shares, an assignment by
the Pledgor of all the Pledgor's rights to and interest in the Pledged Shares
and (ii) an irrevocable proxy, in form and substance satisfactory to the
Pledgee, signed by the Pledgor with respect to the Pledged Shares.
(b) So long as no Default or Event of Default shall have occurred and be
continuing, (i) the Pledgor shall be entitled to exercise any and all voting and
other rights pertaining to the Collateral or any part thereof for any purpose
not inconsistent with the terms of this Pledge Agreement, and (ii) the Pledgor
shall be entitled to receive any and all cash dividends or other distributions
paid in respect of the Collateral.
Section 6. Events of Default.
(a) If a Default or Event Default shall be existing, in addition to the
rights it may have under the Loan Agreement, the Promissory Note, and this
Pledge Agreement, or by virtue of any other instrument, (i) the Pledgee may
exercise, with respect to the Eligible Collateral, from time to time, any rights
and remedies available to it under the Uniform Commercial Code as in effect from
time to time in the State of Ohio or otherwise available to it and (ii) the
Pledgee shall have the right, for and in the name, place and stead of the
Pledgor, to execute endorsement, assignments, stock powers and other instruments
of conveyance or transfer with respect to all or any of the Eligible Collateral.
Written notification of intended disposition of any of the Eligible Collateral
shall be given by the Pledgee to the Pledgor at least three (3) Business Days
before such disposition. Subject to section 13 below, any proceeds of any
disposition of Eligible Collateral may be applied by the Pledgee to the payment
of expenses in connection with the Eligible Collateral, including, without
limitation, reasonable attorneys's fees and legal expenses, and any balance of
such proceeds may be applied by the Pledgee toward the payment of such of the
Liabilities as are in Default, and in such order of application, as the Pledgee
may from time to time elect. No action of the Pledgee permitted hereunder shall
impair or affect its rights in and to the Eligible Collateral. All rights and
remedies of the Pledgee expressed hereunder are in addition to all other rights
and remedies possessed by it, including, without limitation, those contained in
the documents referred to in the definition of Liability in section 1 hereof.
(b) In any sale of any of the Eligible Collateral after a Default or an
Event of Default shall have occurred, the Pledgee is hereby authorized to comply
with any limitation or restriction in connection with such sale as it may be
advised by counsel is necessary in order to avoid violation of applicable law
(including, without limitation, compliance with such procedures as may restrict
the number of prospective bidders and purchasers or further restrict such
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing for their own account
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for investment and not with a view to the distribution or resale of such
Eligible Collateral), or in order to obtain such required approval of the sale
or of the purchase by any governmental regulatory authority or official, and the
Pledgor further agrees that such compliance shall not result in such sale's
being considered or deemed not to have been made in a commercially reasonable
manner, nor shall the Pledgee be liable or accountable to the Pledgor for any
discount allowed by reason of the fact that such Eligible Collateral is sold in
compliance with any such limitation or restriction.
Section 7. Payment in Full. Upon the payment in full of all outstanding
Liabilities, this Pledge Agreement shall terminate and the Pledgee shall
forthwith assign, transfer and deliver to the Pledgor, against receipt and
without recourse to the Pledgee, all Collateral then held by the Pledgee
pursuant to the Pledge Agreement.
Section 8. No Waiver. No failure or delay in the part of the Pledgee in
exercising any right or remedy hereunder or under any other document which
confers or grants any rights in the Pledgee in respect of the Liabilities shall
operate as a waiver thereof nor shall any single or partial exercise of any such
rights or remedy preclude any other or further exercise thereof or the exercise
of any other right or remedy of the Pledgee.
Section 9. Binding Effect; No Assignment or Delegation. This Pledge
Agreement shall be binding upon and inure to the benefit of the Pledgor, the
Pledgee and their respective successors and assigns, except that the Pledgor may
not assign or transfer it rights hereunder without the prior written consent of
the Pledgee (which consent shall not unreasonably be withheld). Each duty or
obligation of the Pledgor to the Pledgee pursuant to the provisions of this
Pledge Agreement shall be performed in favor of any person or entity designated
by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be
performed by any other person or entity designated by the Pledgee.
Section 10. Governing Law. This Pledge Agreement shall be governed by
and construed in accordance with the laws of the State of Ohio applicable to
agreements to be performed wholly within the State of Ohio.
Section 11. Notices. All notices, requests, instructions or documents
hereunder shall be in writing and delivered personally or sent by United States
mail, registered or certified, return receipt requested, with proper postage
prepaid as follows:
(a) If to the Pledgee:
Indian Village Bancorp, Inc.
100 South Walnut Street
Gnadenhutten, Ohio 44629-0830
Attention: Marty R. Lindon, President and Chief
Executive Officer
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(b) If to the Pledgor:
Indian Village Community Bank
100 South Walnut Street
Gnadenhutten, Ohio 44629-0830
Attention: Michael A. Cochran, Trustee
Cindy S. Knisely, Trustee
or at such other address as either of the parties may designate by written
notice to the other party. If delivered personally, the date on which a notice,
request, instruction or document is delivered shall be the date on which such
delivery is made, and, if deliver by mail, the sate on which such notice,
request, instruction, or document is deposited in the mail shall be the date of
delivery. Each notice, request, instruction or document shall bear the date on
which it is delivered.
Section 12. Interpretation. Wherever possible each provision of this
Pledge Agreements shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision herein shall be prohibited by
or invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, with out invalidating the remainder of such
provision or the remaining provisions hereof.
Section 13. Construction. All provisions hereof shall be construed so as
to maintain (a) the ESOP as a qualified leveraged employee stock ownership plan
under section 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986 (the
"Code"), (b) the Trust as exempt from taxation under section 501(a) of the Code
and (c) the Trust Loan as an exempt loan under section 54.4975-7(b) of the
Treasury Regulations and as described in Department of Labor Regulation section
2550.408b-3.
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IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the
parties hereto as of the day and year first above written.
INDIAN VILLAGE COMMUNITY BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
/s/ Michael A. Cochran
---------------------------------------------
Michael A. Cochran
Trustee
/s/ Cindy S. Knisely
---------------------------------------------
Cindy S. Knisely
Trustee
INDIAN VILLAGE BANCORP, INC.
By: /s/ Marty R. Lindon
-----------------------------------------
Marty R. Lindon
President and Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of July 1, 1999, by and between INDIAN
VILLAGE COMMUNITY BANK (the "BANK"), INDIAN VILLAGE BANCORP, INC. (the
"COMPANY"), a Pennsylvania corporation; and Marty R. Lindon ("EXECUTIVE").
WHEREAS, EXECUTIVE serves in a position of substantial responsibility;
WHEREAS, the BANK wishes to assure itself of the services of EXECUTIVE for
the period provided in this Agreement; and
WHEREAS, EXECUTIVE is willing to serve in the employ of the BANK on a
full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, EXECUTIVE agrees to serve as
President and Chief Executive Officer of the Bank. 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> 2
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 $60,000 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> 3
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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<PAGE> 4
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) a merger, consolidation, sale or disposition of all
or substantially all of the COMPANY's or the BANK's assets, or a similar
transaction occurs in which the COMPANY or the BANK is not the resulting entity.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have 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 Section 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 Section 280G of
the Code, then, at the election of EXECUTIVE, (i) such payments or benefits
shall be payable or provided to EXECUTIVE over the minimum period necessary to
reduce the present value of such
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<PAGE> 5
payments or benefits to an amount which is one dollar ($1.00) less than three
(3) times EXECUTIVE's "base amount" under Section 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 with EXECUTIVE's consent with respect to him.
Upon termination of EXECUTIVE upon
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<PAGE> 6
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 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.
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<PAGE> 7
(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. Section
1828(k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the BANK or by EXECUTIVE shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of EXECUTIVE's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if EXECUTIVE's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, other than Termination for Cause,
the date specified in the Notice of Termination . In the event of EXECUTIVE's
Termination for Cause, the Date of Termination shall be the same as the date of
the Notice of Termination.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by
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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 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
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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.
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
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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 Pennsylvania
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 extent
permitted under Pennsylvania 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.
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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.
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 1st day of July, 1999.
ATTEST: INDIAN VILLAGE COMMUNITY BANK
/s/ Michael A. Cochran BY: /s/ Rebecca S. Mastin
- ------------------------- -------------------------------------
Rebecca S. Mastin
For the Entire Board of Directors
ATTEST: INDIAN VILLAGE BANCORP, INC.
/s/ Michael A. Cochran BY: /s/ Rebecca S. Mastin
- ------------------------- -------------------------------------
Rebecca S. Mastin
For the Entire Board of Directors
WITNESS: EXECUTIVE
John A. Beitzel /s/ Marty R. Lindon
- ------------------------- -----------------------------------------
Marty R. Lindon
11
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of July 1, 1999, by and between INDIAN
VILLAGE COMMUNITY BANK (the "BANK"), INDIAN VILLAGE BANCORP, INC. (the
"COMPANY"), a Pennsylvania corporation; and Lori S. Frantz ("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 her employment hereunder, EXECUTIVE agrees to serve as
Vice President, Treasurer and Chief Financial Officer 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 her employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, EXECUTIVE shall devote substantially all her business time,
attention, skill, and efforts to the faithful performance of her 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> 2
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 $48,000 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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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 her 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 her subsequent death, her beneficiary or
beneficiaries, or her 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 her
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) a merger, consolidation, sale or disposition of all
or substantially all of the COMPANY's or the BANK's assets, or a similar
transaction occurs in which the COMPANY or the BANK is not the resulting entity.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred, EXECUTIVE shall be entitled to the benefits
provided in paragraphs (c), (d) and (e) of this Section 5 upon her 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 her annual compensation or benefits
(other than a reduction affecting the BANK's personnel generally), or the
relocation of her 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 her 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 her
subsequent death, her beneficiary or beneficiaries, or her 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 Section 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 her 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 Section 280G of
the Code, then, at the election of EXECUTIVE, (i) such payments or benefits
shall be payable or provided to EXECUTIVE over the minimum period necessary to
reduce the present value of such
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payments or benefits to an amount which is one dollar ($1.00) less than three
(3) times EXECUTIVE's "base amount" under Section 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 she was employed prior to her 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 her 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 she was employed prior
to her 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 her duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE; RESIGNATION
Termination by the BANK of EXECUTIVE based on "Retirement" shall mean
retirement at or after attaining age sixty-five (65) or in accordance with any
retirement arrangement established with EXECUTIVE's consent with respect to him.
Upon termination of EXECUTIVE upon
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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 her 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 her 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 her a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths (3/4) of the members of the Board at a meeting of the Board called
and held for that purpose (after reasonable notice to EXECUTIVE and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, EXECUTIVE was guilty of
conduct justifying termination for Cause and specifying the reasons thereof.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after termination for Cause. Any stock options granted to EXECUTIVE
under any stock option plan or any unvested awards granted under any other stock
benefit plan of the BANK, the COMPANY, or any subsidiary or affiliate thereof,
shall become null and void effective upon EXECUTIVE's receipt of Notice of
Termination for Cause pursuant to Section 10 hereof, and shall not be
exercisable by EXECUTIVE at any time subsequent to such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not prejudice
EXECUTIVE's right to compensation or other benefits under this Agreement.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations that were suspended.
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(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 her 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 her 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. Section
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 she shall not have returned to the performance of her
duties on a full-time basis during such thirty (30) day period), and (B) if her
employment is terminated for any other reason, other than Termination for Cause,
the date specified in the Notice of Termination . In the event of EXECUTIVE's
Termination for Cause, the Date of Termination shall be the same as the date of
the Notice of Termination.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by EXECUTIVE in which case the Date
of Termination shall be the date specified in the Notice, the
7
<PAGE> 8
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 her 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 her employment, disclose any knowledge of the past, present, planned or
considered business activities of the BANK or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, EXECUTIVE may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the BANK. In the
event of a breach or threatened breach by EXECUTIVE of the provisions of this
Section, the BANK will be entitled to an injunction restraining EXECUTIVE from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the BANK or
8
<PAGE> 9
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 her without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the BANK, the COMPANY and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate
9
<PAGE> 10
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 Pennsylvania
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 her 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 her heirs, executors and administrators) to the fullest extent
permitted under Pennsylvania law against all expenses and liabilities reasonably
incurred by her in connection with or arising out of any action, suit or
proceeding in which she may be involved by reason of her having been a director
or officer of the BANK (whether or not she 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.
10
<PAGE> 11
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.
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 1st day of July, 1999.
ATTEST: INDIAN VILLAGE COMMUNITY BANK
/s/ Susan J. Paternoster BY: /s/ Marty R. Lindon
- ------------------------- --------------------------------------
Marty R. Lindon
For the Entire Board of Directors
ATTEST: INDIAN VILLAGE BANCORP, INC.
/s/ Susan J. Paternoster BY: /s/ Marty R. Lindon
- ------------------------- --------------------------------------
Marty R. Lindon
For the Entire Board of Directors
WITNESS: EXECUTIVE
/s/ Susan J. Paternoster /s/ Lori S. Frantz
- ------------------------- ------------------------------------------
Lori S. Frantz
11
<PAGE> 1
EXHIBIT 10.5
INDIAN VILLAGE COMMUNITY BANK
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of this Indian Village Community 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 "Indian
Village Community Bank Employee Severance Compensation Plan." The purposes of
the Plan are as set forth above.
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> 2
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 wages 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 Indian Village Community Bank or any successor as provided for
in Article VII hereof.
"Board" means the Board of Directors of the Bank.
"Change in Control" shall be deemed to occur (a) if there occurs a change
in control of the Bank or the Company within the meaning of the Home Owners Loan
Act of 1933 and 12 C.F.R. Part 574, (b) if 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) if 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 Plan) do not constitute a majority of the Board at the end
of such period, or (d) upon the consummation of a transaction approved by the
shareholders of the Company or the Bank involving a merger, consolidation, sale
or disposition of all or substantially all of the Company's or the Bank's
assets, or a similar transaction occurs in which the Company or the Bank is not
the resulting entity. 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 Indian Village Bancorp, Inc., a Pennsylvania 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> 3
"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 Indian Village Community Bank Employee Severance
Compensation Plan.
"Termination for Cause" shall means termination because of Participant's
personal dishonesty, incompetence, willful misconduct, any 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.
2.2 Applicable Law
--------------
The laws of the State of Ohio 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) year(s) 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 an officer or branch 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> 4
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 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> 5
(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 Termination for Cause.
4.3 Amount of Payment
-----------------
(a) Each Participant who was an officer 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 their
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
their 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
fifty percent (50%) 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> 6
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. Section 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> 7
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> 8
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 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
Sections 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Sections 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
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Sections 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. Section 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. Section 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. Section 1828(k) and any
regulations promulgated thereunder.
<PAGE> 9
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 June 4, 1999, this Plan is executed by
duly authorized officer of the Bank this 1st day of July, 1999.
Attest
/s/ Brenda J. Thomas /s/ Marty R. Lindon
- --------------------------- ---------------------------------
Marty R. Lindon
For the Entire Board of Directors
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 473
<INT-BEARING-DEPOSITS> 855
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,189
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 36,140
<ALLOWANCE> 229
<TOTAL-ASSETS> 54,240
<DEPOSITS> 29,631
<SHORT-TERM> 3,500
<LIABILITIES-OTHER> 60
<LONG-TERM> 12,000
0
0
<COMMON> 4
<OTHER-SE> 8,958
<TOTAL-LIABILITIES-AND-EQUITY> 8,962
<INTEREST-LOAN> 2,093
<INTEREST-INVEST> 396
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<EPS-BASIC> .29
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</TABLE>
