<PAGE> 1
REGISTRATION NO. 333-
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST SHARES BANCORP, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
INDIANA 6022 35-1948962
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation Classification Code Number) Identification No.)
or organization)
</TABLE>
996 SOUTH STATE ROAD 135
GREENWOOD, INDIANA 46143
(317) 882-4790
(Address and telephone number of principal executive offices)
996 SOUTH STATE ROAD 135
GREENWOOD, INDIANA 46143
(Address of principal place of business or intended principal place of business)
JERRY ENGLE
996 SOUTH STATE ROAD 135
GREENWOOD, INDIANA 46143
(317) 882-4790
(Name, address and telephone number of agent for service)
Copies to:
<TABLE>
<S> <C>
DAVID A. BUTCHER, ESQ. JOHN ZERKLE, ESQ.
BOSE MCKINNEY & EVANS LLP LEAGRE CHANDLER & MILLARD LLP
135 NORTH PENNSYLVANIA STREET, SUITE 2700 135 NORTH PENNSYLVANIA STREET, SUITE 1400
INDIANAPOLIS, INDIANA 46204 INDIANAPOLIS, INDIANA 46204
(317) 684-5000 (317) 808-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value...... 862,500 $11.00 $9,487,500 $2,504.70
- ------------------------------------------------------------------------------------------------------------------------------
Total................... $11.00 $9,487,500 $2,504.70
==============================================================================================================================
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 2, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 2000
[First Shares Bancorp, Inc.]
First Shares Bancorp, Inc.
750,000 shares of Common Stock
- --------------------------------------------------------------------------------
FIRST SHARES:
- - We are the holding company for one of the fastest-growing banks in Central
Indiana.
- - First Shares Bancorp, Inc.
996 South State Road 135
Greenwood, Indiana 46143
(812) 597-4790
- - Proposed Market: Nasdaq SmallCap Market
THE OFFERING:
- - First Shares is offering all 750,000 of the shares.
- - This is a firm commitment underwriting. The underwriters have an option to
purchase an additional 112,500 shares from First Shares to cover
over-allotments.
- - This is our initial public offering, and there is no existing active trading
market for these shares.
- - We expect the maximum offering price to be between $9 and $11 per share.
- - We plan to use the proceeds from the offering to fund our expansion plans,
including the purchase of an additional branch bank in Nashville, Indiana, and
for general corporate purposes.
- - Closing: , 2000.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
- --------------------------------------------------------------------------------
<S> <C> <C>
Public offering price: $ $
Underwriting discounts and commissions: $ $
Proceeds to First Shares: $ $
- --------------------------------------------------------------------------------
</TABLE>
THIS INVESTMENT INVOLVES RISK. IT IS NOT A DEPOSIT OR AN ACCOUNT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. SOME OF
THE RISKS OF THIS INVESTMENT ARE DESCRIBED UNDER THE CAPTION "RISK FACTORS"
BEGINNING ON PAGE 6.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
DAVID A. NOYES & COMPANY
<PAGE> 3
[LOGO]
[Graphic consisting of a map of the State of Indiana showing Marion, Johnson,
Morgan and Brown Counties, and an enlarged view of those counties showing the
approximate locations of Indianapolis and First Bank's Morgantown Office,
Greenwood Offices, Bargersville Office, Trafalgar Office and Nashville Office.]
GREENWOOD OFFICES:
996 South State Road 135
Greenwood, Indiana
1266 North Madison Avenue
Greenwood, Indiana
TRAFALGAR OFFICE:
110 North State Road 135
Trafalgar, Indiana
MORGANTOWN OFFICE:
180 West Washington Street
Morgantown, Indiana
BARGERSVILLE OFFICE:
250 North State Road 135
Bargersville, Indiana
NASHVILLE OFFICE (CURRENTLY):
160 East Main Street
Nashville, Indiana
NASHVILLE OFFICE (PENDING):
41 South Hawthorne Street
Nashville, Indiana
---------------------
INVESTOR RELATIONS:
Jerry R. Engle
(317) 882-4790
[email protected]
2
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
business information and the financial statements and related notes that appear
elsewhere in this prospectus. Market and industry data used in this prospectus
are based on independent industry publications, other publicly available
information or the good faith belief of our management. Although we believe that
these sources are reliable, the accuracy and completeness of the information is
not guaranteed and has not been independently verified. All references to "we"
or "us" or "our" in this prospectus mean First Shares Bancorp, Inc. and First
Bank collectively, except where it is clear we mean only the parent holding
company or only the bank. The information contained in this prospectus assumes
that the underwriters do not exercise the over-allotment option. All share and
per share amounts in this prospectus have been adjusted to account for a
six-for-one stock split completed by First Shares in January 2000.
FIRST SHARES BANCORP, INC. AND FIRST BANK
BUSINESS
First Shares is a bank holding company that owns all of the common stock of
First Bank, an Indiana-chartered bank with deposit accounts insured by the
Federal Deposit Insurance Corporation. After 100 years of slow, conservative
growth, we implemented an aggressive new growth strategy in March 1999 with the
goal of capturing a significant portion of the market for banking services in
South Central Indiana. During 1999 our loan portfolio and deposits increased by
73.2% and 65.3%, respectively.
FIRST BANK'S MARKET AREA
We operate in Central Indiana, principally in Johnson, Morgan and Brown
counties, south of Indianapolis. As of July 1998, the most recent date for which
figures were available, these three counties had a combined population of
approximately 191,000. Johnson County was the third fastest growing county in
Indiana based on population increase from 1997 to 1998. As of December 31, 1999,
the three-county area had an unemployment rate of less than 3%.
MANAGEMENT
Jerry R. Engle is our President and Chief Executive Officer. He has
approximately 30 years of banking experience. Until March 1999, when he joined
First Bank, Mr. Engle was the chief executive officer of Citizens Bank of
Central Indiana, a position he assumed in 1992 when Indiana Bancshares, Inc., of
which he was chief executive officer, merged into CNB Bancshares, Inc., the
holding company for Citizens. During his tenure at Citizens, Mr. Engle managed
the CNB affiliate bank based in Greenwood, Indiana. In 1998, this affiliate bank
had average assets of approximately $652.1 million and was one of the most
profitable affiliate banks owned by CNB, with a return on average assets of
1.43% and a return on average equity of 20.97%.
John Ditmars is our Executive Vice President, a position he has held since
March 1999. He has approximately 20 years of banking experience. Until March
1999, Mr. Ditmars was the Senior Lending Officer and head of the Commercial
Lending Department at Citizens Bank of Central Indiana, where he worked with Mr.
Engle.
Frank A. "Andy" Rogers is our Chairman of the Board of Directors, a
position he assumed in 1999. He has approximately 37 years of banking experience
and had served as the chief executive officer of three separate financial
institutions prior to his affiliation with us.
3
<PAGE> 5
RECENT DEVELOPMENTS
First Bank has entered into an agreement with Huntington National Bank and
its holding company to purchase a branch bank in Nashville, Indiana. In addition
to a permanent banking facility, the branch being purchased by First Bank had
deposits of approximately $14 million and loans of approximately $5.5 million as
of December 31, 1999.
THE OFFERING
Securities Offered for
Sale....................... Shares of common stock of First Shares Bancorp,
Inc.
Number of Shares being
Offered.................... 750,000. In addition, the underwriters have a
30-day option to purchase up to 112,500 additional
shares to cover over-allotments.
Price to the Public........ Estimated to be between $9.00 and $11.00 per share.
Number of Shares to be
Outstanding after the
Offering................. 1,414,512 shares, not including an additional
141,000 shares that are reserved for issuance under
First Shares' stock option plans.
Dividend Policy............ We do not intend to pay any cash dividends in the
foreseeable future.
Use of proceeds............ We intend to use the net proceeds from the offering
to fund our expansion plans, including the
acquisition of an additional branch bank in
Nashville, Indiana, and for general corporate
purposes.
Risk Factors............... You should read the "Risk Factors" section
beginning on page 6 before deciding to invest in
the offering.
Proposed Trading Market.... Nasdaq SmallCap Market.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The summary consolidated financial and other data presented below should be
read in conjunction with, and is qualified in its entirety by reference to, our
consolidated financial statements for the years ended December 31, 1999, 1998,
and 1997 and related notes, which can be found at the end of this prospectus,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
1999 1998 1997 1996 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA:
Net interest income (tax equivalent)(1)..... $ 3,951 $ 3,364 $ 3,333 $ 3,045 $ 2,376
Interest expense............................ 1,817 1,470 1,505 1,474 1,083
------- ------- ------- ------- -------
Net interest income (tax equivalent)(1)..... 2,134 1,894 1,828 1,571 1,293
Tax equivalent adjustment(1)................ (40) (43) (22) (14) (10)
------- ------- ------- ------- -------
Net interest income......................... 2,094 1,851 1,806 1,557 1,283
Provision for loan losses................... (280) (526) (15) -- --
Noninterest income.......................... 198 183 215 329 164
Noninterest expense......................... 2,694 1,599 1,536 1,406 995
------- ------- ------- ------- -------
Income (loss) before income taxes........... (682) (91) 470 480 452
Income tax expense (benefit)................ (73) (85) 182 188 179
------- ------- ------- ------- -------
Net income (loss)........................... $ (609) $ (6) $ 288 $ 292 $ 273
======= ======= ======= ======= =======
PER SHARE DATA:
Basic earnings (loss) per share............. $ (0.97) $ (0.01) $ 0.53 $ 0.53 $ 0.49
Diluted earnings (loss) per share........... (0.97) (0.01) 0.52 0.52 0.49
Cash dividends per share.................... 0.13 0.17 0.16 0.16 0.15
Book value per share........................ 6.92 8.22 8.37 7.93 7.56
CONSOLIDATED BALANCE SHEET DATA:
Total assets................................ $68,670 $42,865 $41,938 $41,369 $41,007
Earning assets.............................. 63,956 39,646 38,831 38,570 35,932
Securities available for sale............... 16,875 8,535 4,907 4,158 7,091
Securities held to maturity................. 617 1,334 2,874 6,043 8,571
Loans....................................... 46,146 26,651 28,921 25,695 18,970
Allowance for loan losses................... (549) (346) (396) (555) (564)
Total deposits.............................. 62,987 38,107 36,997 36,793 36,653
Noninterest-bearing deposits................ 6,990 5,946 5,793 4,815 5,003
Interest-bearing deposits................... 55,997 32,161 31,204 31,978 31,650
Shareholders' equity........................ 4,597 4,485 4,566 4,323 4,156
FINANCIAL RATIOS:
Loans to deposits........................... 73.26% 69.94% 78.17% 69.84% 51.76%
Return on average assets.................... (1.19) (0.01) 0.70 0.67 0.87
Return on average equity.................... (12.33) (0.13) 6.59 7.20 6.84
Dividend payout ratio....................... -- -- 30.90 29.79 30.77
Net interest margin......................... 4.56 4.87 4.74 3.86 4.36
Nonperforming loans to total loans.......... 0.31 0.97 1.50 0.70 0.49
Leverage capital ratio...................... 7.13 9.92 10.03 9.30 10.50
</TABLE>
- ------------------------------
(1) Net interest income has been presented on both a tax equivalent and non-tax
equivalent basis. The tax equivalent basis was calculated using a 34% tax
rate for all periods presented. The tax equivalent adjustment reverses the
tax equivalent basis in order to present net interest income in accordance
with generally accepted accounting principles as reflected in the
consolidated financial statements.
5
<PAGE> 7
RISK FACTORS
In connection with this offer, you should consider carefully all of the
information in this prospectus and, in particular, the following factors:
WE HAVE ONLY BEEN OPERATING UNDER OUR NEW STRATEGY FOR A SHORT PERIOD OF TIME.
We changed our senior management and first began to implement our new rapid
growth strategy in March 1999. Thus, we have operated under the new strategy for
only a short period of time, and in that respect we are similar to a new
business. As a result, our historical financial information for years prior to
1999 is not a good reflection of the level of risk inherent in our new strategy.
In addition, we have had net losses during our last two fiscal years. During
1998 we experienced a net loss due principally to charge-off of a loan, and
during 1999 we experienced a net loss due principally to the expenses of
implementing our growth strategy. If we were to continue to experience net
losses, the value of your interest could decrease and we might be forced to
curtail our growth strategy to remain within regulatory capital requirements.
IF OUR GROWTH STRATEGY IS LIMITED BY FACTORS BEYOND OUR CONTROL, IT COULD LIMIT
FUTURE EARNINGS INCREASES.
Our strategy is to grow internally and by branch acquisitions. This
strategy will be successful only if we can increase our level of loans and
deposits at acceptable risk levels and terms without increasing non-interest
expenses proportionately. Most of the net proceeds of this offering will be used
to support our future growth, including the acquisition of a new branch bank in
Nashville, Indiana. Competitive, economic and other factors could result in
slower growth or higher non-interest expenses than anticipated, and we cannot
assure you that our growth strategy will be successful.
WE DO NOT PLAN TO PAY CASH DIVIDENDS IN THE IMMEDIATE, FORESEEABLE FUTURE.
We do not expect to pay dividends on our common stock in the immediate,
foreseeable future. You should not buy shares in this offering if you need
dividend income from this investment. At least initially, First Shares will have
no significant assets other than its ownership of First Bank, and the only
source of funds for paying dividends to shareholders will be dividends First
Shares receives from First Bank. First Bank may not generate sufficient earnings
to enable it to pursue our growth strategy and also pay dividends to First
Shares. Even if it does, First Shares' board of directors would not be required
to pay dividends to shareholders. Regulatory requirements will also limit our
ability to pay dividends.
UNTIL NOW THERE HAS BEEN NO ACTIVE MARKET FOR OUR COMMON STOCK, AND WE CANNOT
ASSURE YOU THAT A MARKET WILL EXIST WHEN YOU WANT TO SELL YOUR SHARES.
Prior to this offering, there has been no public market for our common
stock. Although we will apply to list our common stock on the Nasdaq SmallCap
Market, we cannot assure you that the application will be approved, that a
market for our common stock will develop or, if it develops, that it will be
sustained. We and David A. Noyes & Company have had discussions with other
investment banking firms regarding market making activity and such firms, as
well as David A. Noyes & Company, have indicated a willingness to act as market
makers with respect to our common stock. Even with such market makers, however,
we believe it is likely that the trading volume on any given day will be low
compared to other, larger companies. Thus, you may have some difficulty in
buying or selling our shares.
IF FIRST BANK EXPERIENCES GREATER LOAN LOSSES THAN ANTICIPATED, IT WILL HAVE AN
ADVERSE EFFECT ON OUR NET INCOME AND OUR ABILITY TO FUND OUR GROWTH STRATEGY.
The risk of nonpayment of loans is inherent in banking. If we experience
greater nonpayment than anticipated, our earnings and overall financial
condition, as well as the value of our common stock, could be adversely
affected. Moreover, in order to achieve our growth targets, we may be required
to increase commercial, consumer and agricultural lending in proportion to
single-family residential real estate loans. As a result, we may assume greater
risks than we have experienced in the past. Commercial loans involve more credit
risk than residential real estate loans because they rely primarily on the
operations of the
6
<PAGE> 8
borrower for repayment and secondarily on the underlying collateral. Consumer
loans generally have shorter terms and higher interest rates than residential
mortgage loans and usually involve more credit risk than mortgage loans because
of the type and nature of the collateral and the potential adverse effects from
job loss, illness or personal bankruptcy of the borrower. Agricultural loans
generally have shorter terms and higher interest rates than residential mortgage
loans and usually involve more credit risk than mortgage loans because the
collateral generally consists largely of crops and livestock, which may be
adversely affected by weather, disease or commodity prices.
We attempt to manage our credit risk, and we also maintain an allowance for
loan losses to provide for loan defaults and nonperformance. However, we cannot
assure you that our monitoring, procedures and policies will reduce certain
lending risks or that our allowance for loan losses will be adequate to cover
actual losses. In addition, as a result of the recent and anticipated growth in
our loan portfolio, loan losses may be greater than in the past and management's
estimates of the appropriate level for the allowance may be in error. Loan
losses can cause insolvency and failure of a financial institution and, in such
an event, our shareholders could lose their entire investment. In addition,
future provisions for loan losses could materially and adversely affect our
results of operations.
OUR OPERATIONS AND PROFITABILITY WILL BE AFFECTED BY THE LOCAL ECONOMY.
We operate in Central Indiana, principally the City of Greenwood and
Johnson County, south of Indianapolis. While the economy in this area generally
has been good in recent years, an economic downturn in the area would probably
have a significant negative impact on us.
IN ORDER TO BE PROFITABLE, WE MUST COMPETE SUCCESSFULLY WITH OTHER FINANCIAL
INSTITUTIONS WHICH HAVE GREATER RESOURCES AND CAPABILITIES THAN WE DO.
The banking business is extremely competitive. Most of our competitors are
larger and have greater resources than we do. We will have to overcome
historical relationships to attract customers away from our competition. We
compete with the following types of institutions:
- other banks
- savings banks
- thrifts
- credit unions
- consumer finance companies
- securities brokerage firms
- mortgage brokers
- insurance companies
- mutual funds
- trust companies
Some of our competitors are not regulated as extensively as we are and,
therefore, may have greater flexibility in competing for business. Some of these
competitors are subject to similar regulation but have the advantages of larger
established customer bases, higher lending limits, extensive branch networks,
numerous automated teller machines or other factors.
Our legal lending limit is determined by applicable law. The size of the
loans which we offer to our customers may be less than the size of the loans
that most of our competitors are able to offer. This limit may affect to some
degree our ability to seek relationships with the larger businesses in our
market and in Indianapolis. We expect to satisfy loan requests in excess of our
lending limit through the sale of participations in such loans to other banks.
However, we cannot assure you that we will be successful in attracting or
maintaining customers seeking larger loans or that we will be able to engage in
the sale of participations in such loans on terms we consider favorable.
OUR NEED TO COMPLY WITH EXTENSIVE AND COMPLEX GOVERNMENTAL REGULATION COULD HAVE
AN ADVERSE EFFECT ON OUR BUSINESS, AND OUR OPERATIONS AND PROFITABILITY WILL BE
AFFECTED BY FEDERAL POLICIES OUTSIDE OF OUR CONTROL.
The banking industry is subject to extensive regulation by state and
federal banking authorities. Many of these regulations are intended to protect
depositors, the public or the FDIC, not shareholders. Regulatory requirements
will affect our lending practices, capital structure, investment practices,
dividend
7
<PAGE> 9
policy and many other aspects of our business. These requirements may constrain
our rate of growth. Regulations affecting financial institutions are undergoing
continuous change, and such changes could adversely affect us. Sometimes, these
changes are applied retroactively. In addition, the burden imposed by these
federal and state regulations may place banks in general, and us specifically,
at a competitive disadvantage compared to less regulated competitors.
In addition, various aspects of the banking industry and our operations
will be affected by federal economic and monetary policies, which are outside
our control. Changes in federal economic and monetary policies may adversely
affect our ability to attract deposits, make loans and achieve satisfactory
interest spreads.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION OF YOUR INVESTMENT.
If you purchase our common stock in this offering, you will realize an
immediate dilution of approximately $2.00 in net tangible book value per share
of common stock, based on our December 31, 1999 shareholders' equity and
assuming an offering price of $10 per share and the maximum underwriters'
commission.
THE LOSS OF ONE OR MORE KEY EXECUTIVES COULD SERIOUSLY IMPAIR OUR ABILITY TO
IMPLEMENT OUR STRATEGY.
For the foreseeable future, we will depend upon the services of Jerry R.
Engle, our President and Chief Executive Officer, as well as other senior
management we employ. The loss of services of Mr. Engle may have a material
adverse effect on our operations. To protect against such a loss, we have
applied for a key-man life insurance policy covering Mr. Engle in the amount of
$2 million. We cannot assure you that the policy will be issued or that we will
be able to maintain it on satisfactory terms. In an effort to maintain Mr.
Engle's employment, we entered into a three-year employment agreement with Mr.
Engle in March 1999. We also entered into a three-year employment agreement with
Mr. Ditmars at that time. If Mr. Engle, Mr. Ditmars or any other key employee
were no longer employed by us, it could impair our ability to implement our
growth strategy. In addition, if we are unable to hire qualified and experienced
personnel to adequately staff our anticipated growth, our operating results
would be adversely affected.
OUR MANAGEMENT OWNS A SUBSTANTIAL PORTION OF OUR COMMON STOCK, AND THEIR
INTERESTS MAY CONFLICT WITH YOURS.
As of December 31, 1999, our directors and executive officers beneficially
owned approximately 36.7% of our common stock. Upon completion of this offering,
we expect that our directors and executive officers will beneficially own
approximately 19.3% of our common stock. Accordingly, such persons will be in a
position to exercise substantial influence over our affairs and may impede the
acquisition of control by a third party. We cannot assure you that the interests
of our directors, executive officers and key employees will always align
precisely with your interest as a holder of our common stock.
CHANGES IN INTEREST RATES COULD HAVE AN ADVERSE EFFECT ON OUR NET INCOME.
Our profitability is based in part on the difference or "spread" between
the interest rates we earn on investments and loans and the interest rates we
pay on deposits and other interest-bearing liabilities. Like most banking
institutions, our net interest spread and margin is affected by general economic
conditions and other factors that influence market interest rates and by our
ability to respond to changes in interest rates. At any given time, our assets
and liabilities are affected differently by a given change in interest rates,
principally because we do not match the maturities of our loans and investments
precisely with our deposits and other funding sources. As a result, an increase
or decrease in interest rates could have a material adverse effect on our net
income, capital and liquidity. As of December 31, 1999, we had a negative
interest rate gap of 25.7% of earning assets in the one-year time frame. This
means our earnings would be adversely affected by periods of rising interest
rates because during such periods the interest expense paid on deposits and
borrowings will generally increase more rapidly than the interest income earned
on loans and investments. For information regarding our interest rate risk
sensitivity and our
8
<PAGE> 10
negative interest rate gap at December 31, 1999 as computed on various future
time horizons, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Financial Condition -- Liquidity and Rate
Sensitivity." While management intends to take measures to mitigate interest
rate risk, we cannot assure you that such measures will be effective in
minimizing our exposure to interest rate risk.
In addition to affecting interest income and expense, changes in interest
rates also can affect the value of a financial institution's interest-earning
assets, which consist of fixed- and adjustable-rate instruments (such as loans
and investments). Generally, the value of fixed-rate instruments fluctuates
inversely with changes in interest rates. Changes in interest rates also can
affect the average life of, and demand for, loans and mortgage-related
securities. In a declining interest rate environment, for example, a financial
institution is subject to reinvestment risk to the extent that it is not able to
reinvest such prepayments at rates which are comparable to the rates on the
paid-off loans.
IF WE ARE UNABLE TO MAKE TECHNOLOGICAL IMPROVEMENTS NECESSARY TO COMPETE FOR
CUSTOMERS, OUR ABILITY TO GROW AS ANTICIPATED WILL BE ADVERSELY AFFECTED.
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. Our future
success will depend in part on our ability to address the needs of our customers
by using technology to provide products and services that will satisfy customer
demands for convenience as well as to create additional efficiencies in our
operations. We are preparing to allow customers to perform certain banking
transactions over the Internet, but we have no operating history with Internet
banking. In addition, many of our competitors have substantially greater
resources to invest in technological improvements. Such technology may permit
competitors to perform certain functions at a lower cost than we can perform
them. We cannot assure you that we will be able to implement new
technology-driven products and services effectively or be successful in
marketing such products and services to our customers.
THE MARKET PRICE OF YOUR COMMON STOCK COULD BE ADVERSELY AFFECTED BY SALES OF
ADDITIONAL SHARES INTO THE MARKET.
Following completion of this offering, we will have 1,414,512 shares of our
common stock outstanding (1,527,012 if the underwriters' over-allotment option
is exercised in full), assuming no exercise of any outstanding options to
purchase shares of common stock. The 750,000 shares offered by this prospectus
(862,500 shares if the underwriters' over-allotment option is exercised in full)
will be freely tradeable without restriction under the Securities Act of 1933,
except for any shares which are purchased by our affiliates. Our directors,
executive officers and certain shareholders, whom we expect to hold an aggregate
of 231,692 shares upon completion of this offering (excluding shares that they
have the right to acquire pursuant to options granted to them under our stock
option plans), have agreed not to offer, sell, or contract to sell any common
stock for a period of one year after the date of this prospectus without the
prior written consent of David A. Noyes & Company. Upon expiration of this
one-year period, approximately 23,169 of these shares (representing
approximately 1.6% of the total number of shares which will be outstanding
following completion of this offering) could be resold by these and other
persons who are our affiliates during each of the next three years, and
thereafter the remaining shares owned by these persons could be resold, subject
to certain requirements of Rule 144 under the Securities Act. These requirements
include a limit on the number of shares that may be sold in any three-month
period equal to the greater of:
(1) 1% of the shares outstanding (approximately 14,145 shares
following completion of this offering or approximately 15,270 if the
over-allotment option is exercised in full); or
(2) the average weekly trading volume of shares of our common stock
for the four-week period prior to the time of such resale.
9
<PAGE> 11
Sales of a significant number of shares of common stock in the public market
following this offering, or the perception that such sales could occur, could
adversely affect the market price of our common stock. See "Shares Eligible for
Future Sale."
ANTI-TAKEOVER PROVISIONS IN OUR ARTICLES OF INCORPORATION COULD REDUCE THE
LIKELIHOOD THAT YOU WILL RECEIVE A TAKEOVER PREMIUM.
Certain provisions of state and federal law and our articles of
incorporation and by-laws will make it more difficult for anyone to acquire
control of us without our board of directors' approval. In many cases,
shareholders receive a premium for their shares in a change of control, and
these provisions could make it somewhat less likely that a change in control
will occur or that you will receive a premium for your shares if a change of
control does occur.
SOME OF OUR FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS MAY NOT TURN OUT TO BE
CORRECT.
Some of the statements contained in this prospectus are forward-looking.
All statements regarding our expected financial position, business and financing
plans are forward-looking statements. These statements can sometimes be
identified by our use of forward-looking words such as "may," "will," "should,"
"expect," "anticipate," "estimate" or "continue." Although we believe that our
expectations in such forward-looking statements are reasonable, we cannot
promise that our expectations will turn out to be correct. Actual results could
be materially different from and worse than our expectations for various
reasons, including those discussed in this section.
RECENT DEVELOPMENTS
We have entered into an agreement with Huntington National Bank and its
holding company to purchase a branch bank in Nashville, Indiana. Since November
1999, we have operated a branch in Nashville in temporary quarters. In addition
to a permanent banking facility, the branch we are purchasing had deposits of
approximately $14 million and loans of approximately $5.5 million as of December
31, 1999. The purchase is subject to state and federal regulatory approval. We
anticipate that the purchase will be closed in the second quarter.
USE OF PROCEEDS
We estimate the net proceeds from the sale of the 750,000 shares of common
stock we are offering will be about $6.7 million, assuming an offering price of
$10 per share and after deducting estimated underwriting discounts and
commissions and offering expenses (about $7.8 million if the underwriters'
over-allotment option is exercised in full).
First Shares expects to contribute $5.7 million ($6.8 million if the
underwriters' over-allotment option is exercised in full) of the net proceeds of
the offering to First Bank. We intend to use these net proceeds to fund our
expansion strategy, including the acquisition of a branch bank in Nashville,
Indiana, and for general corporate purposes. See "Recent Developments."
The estimated $1 million of net proceeds to be retained by First Shares
(plus any net proceeds received as a result of the exercise of the underwriters'
over-allotment option) will initially be invested in investment grade securities
and held by First Shares as working capital for general corporate purposes and
to pay operating expenses, as well as for possible future capital contributions
to First Bank. These funds will also be available to finance possible
acquisitions of other branches or expansion into other lines of business closely
related to banking, although we presently have no plans to do so.
10
<PAGE> 12
DIVIDEND POLICY
We initially expect that our earnings, if any, will be retained to finance
our growth and that we will pay no cash dividends for the foreseeable future. We
may consider payment of dividends at some point in the future. However, the
declaration of dividends is at the discretion of the board of directors, and we
cannot assure you that dividends will be declared at any time. If and when
dividends are declared, they will be largely dependent upon the earnings of
First Bank.
As a banking corporation organized under Indiana law, First Bank is
restricted as to the maximum amount of dividends it may pay to First Shares.
Indiana law prohibits First Bank from declaring or paying dividends that would
impair First Bank's capital or that would be greater than its undivided profits.
In addition, the prior approval of the Department of Financial Institutions of
the State of Indiana (the "DFI") is required for the payment of any dividend if
the aggregate amount of all dividends paid by First Bank during such calendar
year, including the proposed dividend, would exceed the sum of the retained net
income of First Bank for the year to date and previous two years. The DFI and
the Federal Deposit Insurance Corporation (the "FDIC") are also authorized to
prohibit the payment of dividends by First Bank under certain circumstances. See
"Supervision and Regulation -- First Bank -- Dividends." Such requirements and
policies may limit First Shares' ability to obtain dividends from First Bank for
its cash needs, including payment of dividends to our shareholders and the
payment of operating expenses.
First Shares is organized under the Indiana Business Corporation Law, which
prohibits the payment of a dividend if, after giving it effect, the corporation
would not be able to pay its debts as they become due in the usual course of
business or the corporation's total assets would be less than the sum of its
total liabilities plus (unless the articles of incorporation of the corporation
permit otherwise) the amount that would be needed, if the corporation were to be
dissolved, to satisfy the preferential rights upon dissolution of any preferred
shareholders. In addition, the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board") may impose restrictions on dividends paid by First
Shares. See "Supervision and Regulation -- First Shares -- Dividends."
11
<PAGE> 13
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999
on an actual basis and on a pro forma basis as adjusted to give effect to this
offering, assuming an offering price of $10 per share and that the underwriters'
overallotment option is not exercised. You should read this information together
with our consolidated financial statements and related notes, which are included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Total liabilities........................................... $64,073 $64,073
======= =======
Shareholders' equity:
Common Stock.............................................. 7 14
Additional paid-in capital................................ 1,988 8,706
Retained earnings......................................... 2,749 2,749
Accumulated other comprehensive income.................... (147) (147)
------- -------
Total shareholders' equity........................ $ 4,597 $11,322
======= =======
Book value per share.............................. $ 6.92 $ 8.00
======= =======
</TABLE>
12
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The selected consolidated financial and other data presented below should
be read in conjunction with, and is qualified in its entirety by reference to,
our consolidated financial statements for the years ended December 31, 1999,
1998, and 1997 and related notes, which can be found at the end of this
prospectus, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
1999 1998 1997 1996 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA:
Net interest income (tax equivalent)(1)...... $ 3,951 $ 3,364 $ 3,333 $ 3,045 $ 2,376
Interest expense............................. 1,817 1,470 1,505 1,474 1,083
------- ------- ------- ------- -------
Net interest income (tax equivalent)(1)...... 2,134 1,894 1,828 1,571 1,293
Tax equivalent adjustment(1)................. (40) (43) (22) (14) (10)
------- ------- ------- ------- -------
Net interest income.......................... 2,094 1,851 1,806 1,557 1,283
Provision for loan losses.................... (280) (526) (15) -- --
Noninterest income........................... 198 183 215 329 164
Noninterest expense.......................... 2,694 1,599 1,536 1,406 995
------- ------- ------- ------- -------
Income (loss) before income taxes............ (682) (91) 470 480 452
Income tax expense (benefit)................. (73) (85) 182 188 179
------- ------- ------- ------- -------
Net income (loss)............................ $ (609) $ (6) $ 288 $ 292 $ 273
======= ======= ======= ======= =======
PER SHARE DATA:
Basic earnings (loss) per share.............. $ (0.97) $ (0.01) $ 0.53 $ 0.53 $ 0.49
Diluted earnings (loss) per share............ (0.97) (0.01) 0.52 0.52 0.49
Cash dividends per share..................... 0.13 0.17 0.16 0.16 0.15
Book value per share......................... 6.92 8.22 8.37 7.93 7.56
CONSOLIDATED BALANCE SHEET DATA:
Total assets................................. $68,670 $42,865 $41,938 $41,369 $41,007
Earning assets............................... 63,956 39,645 38,831 38,570 35,932
Securities available for sale................ 16,875 8,535 4,907 4,158 7,091
Securities held to maturity.................. 617 1,334 2,874 6,043 8,571
Loans........................................ 46,146 26,651 28,921 25,695 18,970
Allowance for loan losses.................... (549) (346) (396) (555) (564)
Total deposits............................... 62,987 38,107 36,997 36,793 36,653
Noninterest-bearing deposits................. 6,990 5,946 5,793 4,815 5,003
Interest-bearing deposits.................... 55,997 32,161 31,204 31,978 31,650
Shareholders' equity......................... 4,597 4,485 4,566 4,323 4,156
FINANCIAL RATIOS:
Loans to deposits............................ 73.26% 69.94% 78.17% 69.84% 51.76%
Return on average assets..................... (1.19) (0.01) 0.70 0.67 0.87
Return on average equity..................... (12.33) (0.13) 6.59 7.20 6.84
Dividend payout ratio........................ -- -- 30.90 29.79 30.77
Net interest margin.......................... 4.56 4.87 4.74 3.86 4.36
Nonperforming loans to total loans........... 0.31 0.97 1.50 0.70 0.49
Leverage capital ratio....................... 7.13 9.92 10.03 9.30 10.50
</TABLE>
- ------------------------------
(1) Net interest income has been presented on both a tax equivalent and non-tax
equivalent basis. The tax equivalent basis was calculated using a 34% tax
rate for all periods presented. The tax equivalent adjustment reverses the
tax equivalent basis in order to present net interest income in accordance
with generally accepted accounting principles as reflected in the
consolidated financial statements.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our selected
financial statements and the related notes presented elsewhere in this
prospectus, as well as our historical financial statements which appear at the
end of this prospectus.
Certain statements in this section constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements of First Shares to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NET INCOME
During 1999, we implemented a new strategic plan, focused on growing total
loans and deposits and increasing market share. As part of this plan, three new
branch locations were opened, a mortgage banking division was added, and various
other new products and services were introduced. With this growth, total
employees doubled. These significant expenditures resulted in a net loss of
$609,000 or $.97 per share for 1999 compared to a net loss of $6,000 or $.01 per
share in 1998. A net profit of $288,000 was reported in 1997, or earnings of
$.53 per share.
Return on average assets (ROA) for 1999, 1998, and 1997 was (1.19)%, (.01)%
and .70%, while return on average equity (ROE) was (12.33)%, (.13)%, and 6.59%
for those same periods.
NET INTEREST INCOME
Net interest income is the most significant component of our earnings. Net
interest income is the difference between interest and fees realized on earning
assets, primarily loans, securities and short-term investments, and interest
paid on deposits and other borrowings. The net interest margin is this
difference expressed as a percentage of average earning assets. Net interest
income is determined by several factors, including the volume of earning assets
and liabilities, the mix of earning assets and liabilities, and interest rates.
For 1999, net interest income totaled $2.1 million compared to $1.9 million in
1998, an increase of $243,000 or 13.1%. This increase was driven primarily by
the increase in earning assets as we expanded our branch network into new
markets, as mentioned above. Net interest income was relatively stable from 1997
to 1998, increasing by $45,000 or 2.5%, as earning assets experienced modest
growth.
Interest income for 1999 totaled $3.9 million, compared to $3.3 million for
1998, an increase of $590,000 or 17.8%. The increase in 1999 can be attributed
to growth in both the investment and loan portfolios. Average investments,
including securities and federal funds sold, were $13.9 million in 1999, up by
$4.1 million from 1998's $9.9 million level, an increase of 41.1%. The average
loan balance showed similarly strong growth, increasing from $29 million in 1998
to $32.9 million in 1999, an increase of $3.9 million or 13.4%. The increased
volume of earning assets has driven the growth in interest income, as average
yields, on a fully tax-equivalent basis, experienced a slight decline, falling
from 8.66% for 1998 to 8.45% for 1999.
Interest expense for 1999 increased $347,000, or 18.3%, compared to 1998.
The increase was primarily attributable to increased volume, as average deposits
increased, in all categories, by a total of $7.1 million, or 22.5%, during 1999.
Time deposits increased the most, with the average balance rising by $4.8
million. Despite these increases, the average cost of interest bearing
liabilities declined slightly, to 4.57% in 1999 from 4.67% in 1998, as market
factors allowed us to reduce our rates on time and savings deposits and still
attract customers. Year end balances of interest bearing deposits were up $23.8
million or 74.1%, driven by a short-term certificate of deposit promotion
initiated in November 1999. That promotion generated approximately $11.0 million
of new funds. These time deposits had relatively higher interest rates and
14
<PAGE> 16
begin to mature in February 2000. Management anticipates retaining a significant
portion of these funds, but that cannot be assured.
Interest income totaled $3.3 million for 1998, an increase of $10,000 or
.30% compared to 1997. Average earning assets were relatively flat from 1997 to
1998. Average investments declined from 1997 to 1998 by $1.9 million (16.5%)
while average loans increased slightly, from $26.8 million in 1997 to $29.0
million in 1998, a change of $2.2 million or 8.3%. The yield on interest-earning
assets was virtually unchanged, 8.64% for 1997 compared to 8.66% for 1998.
15
<PAGE> 17
The following tables set forth an analysis of our net interest income (on a
tax-equivalent basis) for 1999, 1998 and 1997.
AVERAGE BALANCE SHEETS AND INTEREST RATES
ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------- ---------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets
Securities
Taxable.......................... $ 9,649 $ 570 5.91% $ 5,171 $ 305 5.90% $ 9,317 $ 550 5.90%
Non-taxable(1)................... 1,634 117 7.14 1,734 126 7.25 931 67 7.20
Federal funds sold............... 2,642 105 3.97 2,898 155 5.35 1,534 86 5.61
Interest-bearing balances with
banks.......................... 43 2 4.65 -- -- -- -- -- --
Unrealized gain/loss on AFS
securities..................... (76) -- -- 45 -- -- 6 -- --
------- ------ ------- ------ ------- ------
Total securities............. 13,892 794 5.71 9,848 586 5.95 11,788 703 5.96
Loans
Commercial....................... 10,077 996 9.88 11,475 1,091 9.51 10,910 1,056 9.68
Real estate...................... 17,864 1,619 9.06 14,513 1,354 9.33 13,455 1,298 9.65
Installment and other consumer... 4,940 542 10.97 3,013 333 11.05 2,422 276 11.40
------- ------ ------- ------ ------- ------
Total loans.................. 32,881 3,157 9.60 29,001 2,778 9.58 26,787 2,630 9.82
------- ------ ------- ------ ------- ------
Total earning assets......... 46,773 $3,951 8.45% 38,849 $3,364 8.66% 38,575 $3,333 8.64%
------- ====== ------- ====== ------- ======
Noninterest-earning assets
Allowance for loan losses.......... (411) (386) (488)
Premises and equipment............. 865 555 560
Cash and due from banks............ 2,600 1,711 1,745
Accrued interest and other
assets........................... 1,295 1,180 765
------- ------- -------
Total assets................. $51,122 $41,909 $41,157
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Deposits
Interest-bearing demand
deposits....................... $10,768 $ 406 3.77% $ 8,626 $ 322 3.73% $ 7,676 $ 275 3.58%
Savings deposits................. 5,615 153 2.72 5,460 163 2.99 5,475 166 3.03
Time deposits.................... 22,182 1,226 5.53 17,388 985 5.66 18,461 1,061 5.75
------- ------ ------- ------ ------- ------
Total interest-bearing
deposits................... 38,565 1,785 4.63 31,474 1,470 4.67 31,612 1,502 4.75
Borrowed funds
Short-term borrowings............ -- -- -- -- -- -- 64 3 4.69
Long-term debt................... 1,174 32 2.73 -- -- -- -- -- --
------- ------ ------- ------ ------- ------
Total borrowed funds......... 1,174 32 2.73 -- -- -- 64 3 4.69
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities................ 39,739 $1,817 4.57% 31,474 $1,470 4.67% 31,676 $1,505 4.75%
------- ====== ------- ====== ------- ======
Noninterest-bearing liabilities
Noninterest-bearing demand
deposits......................... 6,304 5,598 5,199
Accrued interest and other
liabilities...................... 141 294 (87)
Shareholders' equity............... 4,938 4,543 4,369
------- ------- -------
Total liabilities and
shareholders' equity....... $51,122 $41,909 $41,157
======= ======= =======
Interest margin recap
Net interest income and interest
rate spread...................... $2,134 3.87% $1,894 3.99% $1,828 3.89%
====== ====== ======
Net interest income margin......... 4.56% 4.87% 4.74%
</TABLE>
- ------------------------------
(1) Interest income on tax-exempt securities and loans has been adjusted to a
tax-equivalent basis using a marginal federal income tax rate of 34% for all
years.
16
<PAGE> 18
VOLUME/RATE ANALYSIS
<TABLE>
<CAPTION>
1999 -- 1998 1998 -- 1997
-------------------------------- --------------------------------
TOTAL CHANGE DUE CHANGE DUE TOTAL CHANGE DUE CHANGE DUE
CHANGE TO VOLUME TO RATE CHANGE TO VOLUME TO RATE
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans......................... $379 $373 $ 6 $148 $213 $(65)
Securities
Taxable..................... 265 265 -- (245) (245) --
Tax-exempt.................. (9) (7) (2) 59 58 1
Interest-bearing balances with
banks....................... 2 2 -- -- -- --
Federal funds sold............ (50) (13) (37) 69 73 (4)
---- ---- ---- ---- ---- ----
Total interest income......... $587 $620 $(33) $ 31 $ 99 $(68)
==== ==== ==== ==== ==== ====
INTEREST EXPENSE
Interest-bearing DDA.......... $ 84 $ 81 $ 3 $ 47 $ 35 $ 12
Savings deposits.............. (10) 5 (15) (3) -- (3)
Time deposits................. 241 266 (25) (76) (61) (15)
Short-term borrowings......... -- -- -- (3) (3) --
Long-term borrowings.......... 32 32 -- -- -- --
---- ---- ---- ---- ---- ----
Total interest expense........ $347 $384 $(37) $(35) $(29) $ (6)
==== ==== ==== ==== ==== ====
Net Interest Income........... $240 $236 $ 4 $ 66 $128 $(62)
==== ==== ==== ==== ==== ====
</TABLE>
Net interest income, on a tax-equivalent basis, for 1999 was $2.1 million,
12.7% higher than in 1998. The net interest margin, on a tax-equivalent basis
for 1999, 1998 and 1997 was 4.56%, 4.87%, and 4.74%. The net interest margin
declined from 1998 to 1999, as growth in the loan portfolio was centered in
mortgage loans, which have a lower yield than other loan products. The small
increase in net interest margin from 1997 to 1998 was the result of reducing
cost of funds, principally on time deposits.
PROVISION FOR LOAN LOSSES AND ASSET QUALITY
The provision for loan losses represents charges made to earnings to
maintain an adequate allowance for loan losses. The allowance is maintained at
an amount that we believe to be sufficient to absorb losses inherent in the loan
portfolio. We conduct, on a quarterly basis, a detailed evaluation of the
adequacy of the allowance.
17
<PAGE> 19
The tables below set forth a summary of the activity in and the composition
of the allowance for loan losses.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................................ $ 346 $ 396 $ 555
Loans charged off
Commercial................................................ (94) (603) (222)
Real estate -- residential................................ (14) (2) --
Consumer.................................................. (61) (23) (11)
------- ------- -------
Total charge-offs................................. (169) (628) (233)
------- ------- -------
Charge-offs recovered
Commercial................................................ 40 2 31
Real estate -- residential................................ 12 20 1
Consumer.................................................. 40 30 27
------- ------- -------
Total recoveries.................................. 92 52 59
------- ------- -------
Net loans charged off....................................... (77) (576) (174)
Current year provision...................................... 280 526 15
------- ------- -------
Balance at end of year...................................... $ 549 $ 346 $ 396
======= ======= =======
Loans at year end........................................... $46,146 $26,651 $28,921
Ratio of allowance to loans at year end..................... 1.19% 1.30% 1.37%
Average loans............................................... $32,881 $29,001 $26,787
Ratio of net loans charged-off to average loans............. 0.23% 1.99% 0.65%
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE
FOR LOAN LOSSES
DECEMBER 31,
------------------------
1999 1998 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial.................................................. $203 $ 65 $113
Real estate -- residential.................................. 47 39 42
Consumer.................................................... 262 25 18
Unallocated................................................. 37 217 223
---- ---- ----
Total....................................................... $549 $346 $396
==== ==== ====
</TABLE>
The provision for loan losses was $280,000, $526,000, and $15,000 for 1999,
1998, and 1997, respectively. Historically, we provided nominally for the
allowance, as is evident by the $15,000 expense in 1997. However, during 1998, a
large commercial relationship was charged-off as we discovered the borrower made
fraudulent representations at the time of the loan's origination. Approximately
$500,000 was charged-off for this one borrower, resulting in a provision of
$526,000 in order to ensure that the allowance for loan losses was adequate.
Total charge-offs in 1997 were $233,000, primarily attributable to two
developers who suffered difficulties during this time period and were unable to
repay their loans. Total charge-offs in 1999 were down considerably from the
1998 level. The 1999 provision and relative increase in the allowance reflect
primarily the strong loan growth realized during the year, rather than large
charge-offs as was the case in 1998. In fact, net charge-offs in 1999 declined
to $77,000 (.23% of loans). However, given the growth experienced and our
intention to continue to focus on loan growth, we deemed it necessary to record
a provision sufficient to maintain the allowance at approximately the same
level, relative to loans, as had been the case in the past. The allowance for
loan losses at year end 1999 was
18
<PAGE> 20
$549,000, or 1.19% of total loans, compared to $346,000, or 1.30% of total
loans, at year end 1998 and $396,000 or 1.37% at year end 1997.
We maintain the reserve at a level believed appropriate based on our
ongoing analysis of the risk in the portfolio. Individual loans identified as
possible problems are analyzed and portions of the allowance allocated to those
loans, if needed, and portions of the allowance are allocated to "good" loans
based upon industry averages, judgmentally adjusted by us in consideration of
growth, the local economy and other factors.
Nonperforming loans include nonaccrual loans, restructured loans, and loans
delinquent 90 days or more. Loans are classified as nonaccrual when we believe
the collection of interest is doubtful, typically when payments are past due 90
days, unless the loans are well secured and in the process of collection.
The table below sets forth a summary of nonperforming loans.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Principal balance
Nonaccrual................................................ $ 141 $ 258 $ 271
90 days or more past due.................................. -- -- 164
-------- -------- --------
Total nonperforming loans................................... $ 141 $ 258 $ 435
======== ======== ========
Nonperforming loans as a percent of loans................. 0.31% 0.97% 1.50%
Other real estate owned................................... $ -- $ 130 $ --
OREO as a percent of loans................................ -- 0.49% --
Allowance as a percent of nonperforming loans............. 389.36% 134.11% 91.03%
</TABLE>
Nonperforming loans reflect a declining trend over the past two years,
falling from a high of $435,000 at year end 1997 to $141,000 at December 31,
1999, or from 1.50% of total loans in 1997 to 0.31% of total loans in 1999. The
declines were the result of identified problem loans being liquidated or
charged-off.
Impaired loans are those loans for which full payment in accordance with
the contractual terms is not expected. The average balance for impaired loans
was $70,000, $189,000, and $326,000 for 1999, 1998, and 1997, respectively. The
impaired loan trend has followed the nonperforming loan trend, declining over
the three year period through liquidation and charge-off as several loans which
were nonperforming were also deemed impaired.
We designate certain loans for internal monitoring purposes on a watch
list. Loans may be placed on the watch list as a result of delinquent status,
concern about the borrower's financial condition or the value of the collateral
securing the loan, substandard classification during regulatory examinations, or
simply as a result of our desire to monitor more closely a borrower's financial
condition and performance. Watch category loans may include loans with loss
potential that are still performing and accruing interest and may be current
under the terms of the loan agreement; however, we may have a significant degree
of concern about the borrower's ability to continue performing according to the
terms of the loan. Loss exposure on these loans is typically evaluated based
primarily upon the estimated liquidation value of the collateral securing the
loan. Also, watch list loans may include credits which, although adequately
secured and performing, reflect a past delinquency problem or unfavorable
financial trends exhibited by the borrower.
At December 31, 1999, there were five loans totaling $584,000 that we
graded substandard and included on the watch list. The loans were not considered
impaired and were performing as agreed.
19
<PAGE> 21
NONINTEREST INCOME AND EXPENSE
The table below sets forth an analysis of changes in noninterest income and
expense.
NONINTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
PERCENT CHANGE PERCENT CHANGE
1999 FROM 1998 1998 FROM 1997 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Noninterest Income
Service charges on deposits........... $ 128 5.79% $ 121 (6.92)% $ 130
Other................................. 70 12.90 62 (27.91) 86
------ ------ ------
Total noninterest income...... $ 198 8.20 $ 183 (15.28)% $ 216
====== ====== ======
Noninterest Expense
Salaries and employee benefits........ $1,615 82.49% $ 885 (5.55)% $ 937
Premises and equipment................ 404 53.61 263 33.50 197
Advertising........................... 117 387.50 24 20.00 20
Telephone............................. 64 88.24 34 13.33 30
Other................................. 494 25.70 393 11.33 353
------ ------ ------
Total noninterest expense..... $2,694 68.48% $1,599 4.03% $1,537
====== ====== ======
</TABLE>
Noninterest income increased $15,000, or 8.2% to $198,000 for 1999 compared
to $183,000 in 1998. The increase is attributed to the larger number of deposit
accounts and a change in fee structure on those accounts, which increased
service charge income by 5.8%. Other noninterest income in 1999 includes a
$25,000 loss realized on the sale of other real estate owned. Noninterest income
fell 15.3% in 1998, compared to 1997, as both service charge and other
noninterest income declined slightly.
During 1999, we opened three new branch locations, two in Greenwood,
Indiana and one in Nashville, Indiana, joining the existing offices in
Morgantown and Trafalgar, Indiana. As a result, the number of employees on a
full-time equivalent basis increased from 26 in 1998 to 52 in 1999. Salary and
employee benefits expense followed suit, increasing from $885,000 in 1998 to
$1.6 million in 1999, an increase of 82.5%. Approximately $172,000 of this
increase (23.5%) was a one-time, non-recurring charge, the result of buying-out
the former president's employment contract.
In addition to the new branch locations, we entered the mortgage banking
business, and hired personnel to staff this function. With more branch
locations, premises and equipment expenses increased from $263,000 in 1998 to
$404,000 in 1999, an increase of $141,000. Approximately $48,000 of this
increase was attributable to rental expense, as we entered into operating leases
for the three new branch locations. Advertising expense increased four fold, to
$117,000, as we initiated an aggressive marketing program in our new and
existing markets.
In 1998, as compared to 1997, total noninterest expense was fairly stable,
increasing only 4.03%. Salary and employee benefit expense decreased by $52,000
or 5.6% from 1997, as one officer-level position was vacant for a portion of the
year and bonuses were truncated due to the anticipated loss for the year.
Premises and equipment expenses increased from $197,000 in 1997 to $263,000 in
1998, a change of 33.5% or $66,000. The majority of this increase resulted from
a software conversion which took place in November 1997. Because of the
conversion, maintenance and amortization expense for software increased $84,000.
INCOME TAXES
We reported a small amount of taxable income in 1998, but realized a
significant tax net operating loss in 1999. The recognition of a tax benefit for
1999 was limited to $73,000, the amount of tax paid that could be recovered by
carrying back the net operating loss. A valuation allowance was established to
reduce the carrying value of our net deferred tax asset to zero. We have a net
operating loss carryforward,
20
<PAGE> 22
for tax purposes, of approximately $450,000. This will serve to reduce tax
payable, and tax expense, in future periods, provided we are profitable. The net
operating loss carryforward expires in 2019. Further information regarding taxes
payable and tax expense can be found in Notes 1 and 9 to the consolidated
financial statements.
FINANCIAL CONDITION
Total assets were $68.7 million at year end 1999 compared to $42.8 million
at year end 1998, an increase of $25.8 million or 60.2%. Increased loan totals
were funded by increased deposits. Federal funds sold balances were also reduced
and placed into higher yielding securities.
In the first half of 2000, we expect to complete the acquisition of a
branch in Nashville, Indiana. With the purchase, we will acquire approximately
$14 million in deposits, $5.5 million in loans, and real property. The value of
intangibles is estimated to be $1.2 million, which will be amortized over a
period not to exceed 25 years. The increase in deposits will provide funding for
loan growth, with any excess invested in securities. Based on 1999 year end
numbers, the acquisition will increase deposits by approximately 22.2% and loans
by 11.9%. Additional expense will be recognized through the amortization of
goodwill, which will adversely impact earnings. However, total costs of
operating the branch, including such items as staffing costs, are not expected
to change significantly as this branch will replace the existing Nashville
branch location.
The information in the preceding paragraph contains forward-looking
statements. Although we believe that our expectations in such forward-looking
statements are reasonable, we cannot promise that our expectations will turn out
to be correct. Actual results could be materially different from and worse than
our expectations for various reasons, including a failure to complete the
purchase of the Nashville branch, unanticipated changes in the deposits or loans
at the branch or an unanticipated increase in the number of employees at the
branch.
21
<PAGE> 23
SECURITIES
Note 2 to the financial statements and the following table set forth
information about securities.
SECURITIES MATURITY SCHEDULE
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
---------------------------------------------------------------------------
1 YEAR OR LESS 1 TO 5 YEARS 5 TO 10 YEARS OVER 10 YEARS
-------------- -------------- -------------- -------------- TOTAL
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE BALANCE
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale
U.S. government and
agencies.......... $1,638 5.48% $3,933 6.01% $1,548 6.90% $ -- --% $ 7,119
States and political
subdivisions(1)... 10 9.09 194 6.53 168 7.42 336 6.75 708
Other securities..... 7,820 5.73 487 5.50 -- -- -- -- 8,307
Mortgage backed
securities........ -- -- -- -- -- -- 741 6.16 741
------ ------ ------ ------ -------
Total
available
for sale... $9,468 $4,614 $1,716 $1,077 $16,875
====== ====== ====== ====== =======
Held to maturity
U.S. government and
agencies.......... $ 251 4.42% $ -- --% $ -- --% $ -- --% $ 251
States and political
subdivisions(1)... 79 9.24 276 7.21 -- -- -- -- 355
Mortgage backed
securities........ -- -- -- -- -- -- 11 6.60 11
------ ------ ------ ------ -------
Total held to
maturity... $ 330 $ 276 $ -- $ 11 $ 617
====== ====== ====== ====== =======
</TABLE>
- ------------------------
(1) Average rates were calculated on a tax-equivalent basis using a marginal
federal income tax rate of 34%.
Securities are designated as either available for sale or as held to
maturity. To provide more flexibility and better support for our current
expansion strategy, held to maturity securities have been allowed to mature and
pay-off, with all security purchases in 1999 classified as available for sale.
During 1999, several available for sale municipal securities were sold and
reinvested in U.S. Treasury and government agency securities and other
securities, which includes commercial paper and corporate bonds. The commercial
paper portfolio had maturities typically of less than one month. Excess funds
from deposit growth were also invested in these categories of securities.
In addition to securities of the U.S. Government and its agencies, we had
concentrations in commercial paper and corporate securities that exceed 10% of
shareholders' equity at December 31, 1999 in the following obligors (table
amounts in thousands):
<TABLE>
<CAPTION>
OBLIGOR NAME AMORTIZED COST FAIR VALUE
<S> <C> <C>
Stellar Funding............................................. $2,419 $2,419
Bell Atlantic Net Funding................................... 530 529
Mont Blanc.................................................. 2,488 2,483
Wood Street Funding......................................... 996 996
Guardian Industries......................................... 994 994
Bear Stearns................................................ 510 485
</TABLE>
22
<PAGE> 24
During late 1999, we had a certificate of deposit promotion for a 100 day
certificate of deposit. Proceeds obtained from this promotion were invested in
commercial paper, with maturity dates that coincide with the maturity of the
certificates of deposit.
LOANS
Note 3 to the financial statements and the following table set forth
information about the loan portfolio.
LOAN LIQUIDITY
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- -----------------
BALANCE PERCENT BALANCE PERCENT BALANCE PERCENT
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loan Portfolio Composition
Commercial.............................. $10,917 23.7% $ 5,123 19.2% $ 7,270 25.1%
Commercial real estate.................. 5,566 12.1 4,952 18.6 2,292 7.9
Residential real estate................. 14,380 31.2 9,731 36.5 11,642 40.3
Construction............................ 4,921 10.7 3,883 14.6 4,657 16.1
Consumer................................ 10,362 22.5 2,962 11.1 3,054 10.6
------- ----- ------- ----- ------- -----
$46,146 100.0% $26,651 100.0% $28,915 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
LOAN MATURITIES AT DECEMBER 31, 1999
----------------------------------------------------
1 YEAR AND LESS 1-5 YEARS OVER 5 YEARS TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial..................................... $ 4,430 $ 3,106 $ 3,381 $10,917
Commercial real estate......................... 312 513 4,741 5,566
Residential real estate........................ 1,304 2,641 10,435 14,380
Construction................................... 3,585 632 704 4,921
Consumer....................................... 1,084 5,539 3,739 10,362
------- ------- ------- -------
Total loans.......................... $10,715 $12,431 $23,000 $46,146
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SENSITIVITY TO CHANGES IN INTEREST RATES AT
DECEMBER 31, 1999
---------------------------------------------
1 YEAR AND LESS OVER 1 YEAR TOTAL
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed rates............................................... $ 3,544 $23,284 $26,828
Variable rates............................................ 14,608 4,710 19,318
------- ------- -------
Total loans..................................... $18,152 $27,994 $46,146
======= ======= =======
</TABLE>
Total loans increased $19.5 million or 73.1% from year end 1998 to year end
1999, as we entered into new market areas. Loan growth occurred in all
categories.
Consumer loans experienced significant growth, increasing $7.4 million or
five fold from 1998 to 1999, as we entered the indirect lending arena. Total
consumer loans were $10.4 million and comprised 22.5% of the portfolio at year
end 1999. Several relationships were established with local auto and
recreational vehicle dealers, which spurred growth in this segment of the
portfolio. Underwriting standards for indirect loans are consistent with the
standards applied to direct loans in an effort to maintain strong asset quality.
Growth in the consumer segment also occurred with a new product offering for
home equity lines of credit.
Commercial loans grew by 113% or $5.8 million during 1999 and comprised
23.7% of our portfolio at December 31, 1999. Growth in this segment was
attributed to our focus in new markets, primarily the Greenwood area.
Residential mortgages increased $4.6 million or 47.8% to $14.4 million. Although
residential mortgage loans remain the largest segment of the portfolio, they
have declined as a percent of the total portfolio as growth in other segments
has been significant. Nonetheless, our portfolio is largely
23
<PAGE> 25
secured by real estate, with residential and commercial real estate loans
comprising 44.3% of the portfolio at year end 1999.
During 1999, we started a mortgage banking division, providing our
customers with a wider array of mortgage loan products. At year end, loans held
for sale, which are carried at the lower of cost or fair value, totaled
$601,000. All loans are sold service released. We intend to continue to grow
this line of business.
DEPOSITS
Note 6 to the financial statements and the following table set forth more
information about deposits.
MATURITY RANGES OF TIME DEPOSITS WITH BALANCES OF $100,000 OR MORE AT DECEMBER
31, 1999
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
3 months or less............................................ $ 6,606
3 through 6 months.......................................... 974
6 through 12 months......................................... 2,016
Over 12 months.............................................. 848
-------
Total............................................. $10,444
=======
</TABLE>
Year end total deposits increased $24.9 million or 65.3%, from 1998 to
1999, with growth again spurred by the entrance into new market areas and active
advertising campaigns. Noninterest-bearing deposits increased to $7.0 million
from $5.9 million. At December 31, 1999, $10.4 million or 26.9% of our time
deposits had balances of greater than $100,000. The average balance of time
deposits issued in amounts greater than $100,000 totaled $5.0 million in 1999
and $3.6 million in 1998, representing 22.6% and 20.4% of total average time
deposits in each period.
CAPITAL
We are subject to various regulatory capital guidelines as required by
federal banking agencies. These guidelines define the various components of core
capital and assign risk weights to various categories of assets.
Tier 1 capital consists of shareholders' equity net of intangible assets
and excluding unrealized gains and losses on securities available for sale, as
defined by bank regulators. The definition of Tier 2 capital includes the amount
of allowance for loan losses which does not exceed 1.25% of gross risk-weighted
assets. Total capital is the sum of Tier 1 and Tier 2 capital.
The minimum requirements under the capital guidelines are generally at
least a 4.00% leverage ratio (Tier 1 capital divided by average assets excluding
unrealized gains/losses), a 4.00% Tier 1 risk-based capital ratio (Tier 1
capital divided by risk-weighted assets), and an 8.00% total capital ratio (Tier
1 capital plus Tier 2 capital divided by risk-weighted assets).
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
requires federal regulatory agencies to define capital tiers. These are:
well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Under these regulations, a
"well-capitalized" institution must achieve a Tier 1 risk-based capital ratio of
at least 6.00%, and a total capital ratio of at least 10.00%, and a leverage
ratio of at least 5.00% and not be under a capital directive order. Failure to
meet capital requirements can initiate regulatory action that could have a
direct material effect on our financial statements. If only adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions, asset growth, and expansion is limited,
in addition to the institution being required to submit a capital restoration
plan.
Management believes we met all the capital requirements as of December 31,
1999, and we were categorized as adequately capitalized under the guidelines
established by the banking regulators.
24
<PAGE> 26
At December 31, 1999, we were not aware of any current recommendations by
banking regulatory authorities which, if they were to be implemented, would
have, or are reasonably likely to have, a material effect on our consolidated
liquidity, capital resources or operations.
Note 11 to the financial statements and the following table set forth our
actual capital amounts and ratios.
CAPITAL RATIOS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Tier 1 capital
Shareholders' equity...................................... $ 4,566 $ 4,414 $ 4,492
Add/less: unrealized loss/gain on securities.............. 147 (27) (21)
Less: intangible assets................................... (206) (257) (304)
------- ------- -------
Total Tier 1 capital...................................... $ 4,507 $ 4,130 $ 4,167
======= ======= =======
Total risk-based capital
Tier 1 capital............................................ $ 4,507 $ 4,130 $ 4,167
Allowable allowance for loan losses....................... 549 346 352
------- ------- -------
Total risk-based capital.................................. $ 5,056 $ 4,476 $ 4,519
======= ======= =======
Risk weighted assets........................................ $55,334 $28,454 $28,096
======= ======= =======
Average assets.............................................. $63,179 $41,652 $41,527
======= ======= =======
Risk-based ratios:
Tier 1.................................................... 8.15% 14.51% 14.83%
Total risk-based capital.................................. 9.14% 15.73% 16.08%
Leverage ratio.............................................. 7.13% 9.92% 10.03%
</TABLE>
LIQUIDITY AND RATE SENSITIVITY
Liquidity refers to the availability of funds to meet deposit withdrawals
and borrowing repayments, fund loan commitments and pay expenses. We have many
sources of liquid funds, including cash and cash equivalents, payments and
maturities of loans and securities, and growth in deposits. In addition, we have
the ability to sell securities available for sale, and may borrow from the
Federal Reserve and the Federal Home Loan Bank.
We believe we have sufficient liquidity to meet reasonable borrower,
depositor, and creditor needs in the present economic environment. We have not
received any recommendations from regulatory authorities which would materially
affect liquidity, capital resources or operations.
25
<PAGE> 27
Our interest rate sensitivity position is influenced by the timing of the
maturity or repricing of interest-earning assets and interest-bearing
liabilities. One method of gauging sensitivity is by a static gap analysis, as
presented in the table below.
LIQUIDITY AND INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
---------------------------------------------------------------------
1 TO 90 DAYS 91 TO 365 DAYS 1 TO 5 YEARS OVER 5 YEARS TOTAL
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest earning assets
Loans............................... $ 13,881 $ 4,271 $ 12,741 $15,253 $46,146
Federal funds sold and other........ 189 -- -- -- 189
Securities.......................... 8,320 1,478 4,890 2,804 17,492
Restricted stock.................... -- -- -- 129 129
-------- -------- -------- ------- -------
Total earning assets........ $ 22,390 $ 5,749 $ 17,631 $18,186 $63,956
======== ======== ======== ======= =======
Interest bearing liabilities
Interest-bearing demand deposits.... $ 5,736 $ -- $ -- $ -- $ 5,736
Savings deposits.................... 11,447 -- -- -- 11,447
Time deposits....................... 16,964 9,632 12,221 -- 38,814
Short-term borrowings............... -- -- -- -- --
Long-term borrowings................ -- 800 -- -- 800
-------- -------- -------- ------- -------
Total interest-bearing
liabilities............... $ 34,144 $ 10,432 $ 12,221 $ -- $56,797
======== ======== ======== ======= =======
Rate sensitive gap.................... $(11,754) $ (4,683) $ 5,410 $18,186 $ 7,159
Rate sensitive cumulative gap......... $(11,754) $(16,437) $(11,027) $ 7,159
Cumulative gap as a percentage of
earning assets...................... (18.38)% (25.70)% (17.24)% 11.19%
</TABLE>
Rate sensitivity gap is defined as the difference between the repricing of
interest-earning assets and the repricing of interest-bearing liabilities within
certain defined time frames. Rising interest rates are likely to increase net
interest income in a positive gap position, while declining rates are likely to
be beneficial in a negative gap position.
INFLATION
The effects of price changes and inflation on a financial institution vary
considerably from an industrial organization. Changes in interest rates, rather
than changes in the prices of goods and services, are the primary determinants
of profitability of a financial institution. Inflation affects the growth of
total assets, but it is difficult to assess its impact because neither the
timing nor the magnitude of the changes in the consumer price index directly
coincide with changes in interest rates. During periods of high inflation there
are normally corresponding increases in the money supply. During such times
financial institutions often experience above average growth in loans and
deposits. Also, general increases in the price of goods and services will result
in increased operating expenses. Over the past few years the rate of inflation
has been relatively low, and its impact on the growth in the balance sheets and
increased levels of income and expense has been nominal.
CONTINUING YEAR 2000 ISSUES
We experienced no problems with our computer systems as a result of the
change from 1999 to 2000. However, our board of directors and management are
aware of the possible continuing consequences the Year 2000 may pose with regard
to the computer systems we utilize to conduct business on a daily basis. A "Year
2000 Committee" prepared a detailed plan to address this issue. We have
communicated with customers to promote awareness of the Year 2000 issue, and a
risk assessment process was implemented to evaluate the Year 2000 preparedness
of certain of our significant commercial borrowers. We do not believe the
remaining necessary steps involved to resolve this issue will significantly
impair our ability to operate and conduct business in a normal fashion, and we
do not expect the total cost to address this issue to be significant to
operations.
26
<PAGE> 28
BUSINESS
GENERAL
First Shares Bancorp, Inc. is a bank holding company that owns all of the
common stock of First Bank, an Indiana-chartered bank with deposit accounts
insured by the FDIC. After 100 years of slow, conservative growth, we
implemented an aggressive new growth strategy in 1999 with the goal of capturing
a significant portion of the market for banking services in the Central Indiana
counties south of Indianapolis. During 1999 our loan portfolio and deposits
increased by 73.2% and 65.3%, respectively. We are one of the fastest-growing
banks in Central Indiana.
We offer a broad range of commercial banking products and services to small
and medium-sized businesses and retail customers from our six locations in
Central Indiana. Our products include commercial, consumer and real estate
loans, a broad range of deposit products and other non-deposit banking services.
STRATEGY
Bank Growth. Our goal is to continue our expansion and build a profitable,
customer-focused financial institution. Management believes that our capital
structure after this offering and our management and data and operational
systems are sufficient to achieve further growth in asset size, revenues and
capital. This growth should allow us to increase our lending limits, thereby
enabling us to more effectively serve the needs of our customers.
We expect to continue our expansion strategy primarily through internal
growth, through the acquisition of a bank branch in Nashville, Indiana and
potentially through other acquisitions. Management believes that our largest
source of growth is through referrals by existing customers, and that the
primary reason for referrals is positive customer feedback regarding our
customer service and response time. The Central Indiana banking market is
dominated by large national and regional financial institutions. This dominance
was achieved through the purchase of Indiana-based financial institutions and
holding companies over the past several years, which resulted in a significant
consolidation of the Indiana banking industry. Management believes that
small-and medium-size businesses often are not of sufficient size to be of
interest to these large banks, particularly with respect to residential land
development and construction lending. Management also believes potential
customers frequently have difficulty in finding personalized banking services
and seek a banking relationship with a smaller and more service-oriented
community banking organization such as us. Through our primary emphasis on
customer service, management's experience and our product lines, we will
continue to focus on attracting these customers in achieving internal growth.
Management also believes that the economic expansion which has occurred in
our market area contributes significantly to new opportunities for internal
growth. Our market area is the Central Indiana counties south of Indianapolis.
As of July 1998, the most recent date for which figures were available, the
three counties in which we conduct most of our activities had a combined
population of approximately 191,000. One of those counties, Johnson County, was
the third fastest growing county in Indiana based on population increase from
1997 to 1998. Employment in the area is in diversified sectors, including
manufacturing, construction, retail trade, services and government. As of
December 31, 1999, the three-county area had an unemployment rate of less than
3%.
In addition to internal growth, management believes there are opportunities
to grow through branch acquisitions. We currently have six branches (including
our main office) and have recently entered into an agreement to purchase another
branch in Nashville, Indiana to augment our activities in Brown County.
Management intends to pursue acquisitions of additional branches in appropriate
locations. Management believes that branch locations will continue to become
available from time to time for purchase as bank holding companies eliminate
certain overlapping branches resulting from bank consolidation. Management has
considered and intends to consider a variety of criteria when evaluating
potential branches. These
27
<PAGE> 29
include (i) the geographic location, (ii) the investment required for, and
opportunity costs of, the branch and (iii) economies of scale that may be
achieved.
Operations and Marketing. Our objective is to continue to build a
profitable, growing community banking franchise. Management believes that, in
meeting the needs of consumers and small- to medium-sized businesses in our
market area, our most important strategy is to provide excellent customer
service. This strategy is emphasized above all others, from top management down
to each bank teller. Our operational systems have been designed to complement
customer service. We are currently implementing an Internet banking capability,
which will allow customers to perform several banking functions on-line.
Management believes our banking locations are small enough to facilitate
personalized services and decision-making, yet of sufficient size to meet most
customers' needs in Central Indiana.
We seek to maximize operational and support efficiencies consistent with
maintaining high quality customer service. Various management and administrative
functions are consolidated, including consumer credit administration and
lending, investment management and accounting, enabling branch personnel to
focus better on customer service and sales.
In expanding our banking franchise, we have focused on identifying and
developing products and services that satisfy customer needs, particularly
customer service. We offer a wide range of consumer deposit products including
regular checking, checking with interest, money market accounts, regular
savings, certificates of deposit, and IRAs. We also offer additional access to
our customers with an ATM Card and offer a debit card. Our consumer loan
products include home mortgages, home equity loans, automobile loans and other
secured and unsecured loans originated directly by our branches and from
indirect sources. See "Loans" below for a discussion of commercial loan products
that we provide.
The information in this section contains forward-looking statements.
Although we believe that our expectations in such forward-looking statements are
reasonable, we cannot promise that our expectations will turn out to be correct.
Actual results could be materially different from and worse than our
expectations for various reasons, including competitive, economic and other
factors. See "Risk Factors."
LOANS
We have the ability to provide a broad range of commercial and retail
lending services. As of December 31, 1999, our loan portfolio consisted of
approximately 36% commercial loans, 31% residential mortgage loans (including
home equity loans), 11% residential construction loans and 22% automobile and
other consumer loans. We follow a uniform credit policy which sets forth
underwriting and loan administration criteria, including levels of loan
commitment, loan types, credit criteria, concentration limits, loan
administration, loan review and grading and related matters. At December 31,
1999, substantially all loans outstanding were to customers within our market
area.
Commercial Loans. Commercial loans are made primarily to small- and
medium-sized businesses. These loans are made on a secured and, to a limited
extent, on an unsecured basis and are made available for general operating
purposes, acquisition of fixed assets including real estate, purchases of
equipment and machinery, financing of inventory and accounts receivable, as well
as any other purposes considered appropriate. We generally look to a borrower's
business operations as the principal source of repayment, but also receive, when
appropriate, mortgages on real estate, security interests in inventory, accounts
receivable and other personal property and/or personal guarantees. Approximately
34% of our commercial loans are commercial real estate loans secured by a first
lien on the commercial real estate. In addition, virtually all of our commercial
loans that are not mortgage loans are secured by a lien on equipment, inventory
and/or other assets of the commercial borrower.
Commercial lending involves more risk than residential lending because loan
balances are greater and repayment is dependent upon the borrower's operations.
We attempt to minimize the risks associated with these transactions by generally
limiting our lending to owner-operated businesses with an established profitable
history. In many cases, risk is further reduced by requiring supporting letters
of credit, personal guarantees or additional collateral.
28
<PAGE> 30
Residential Mortgage Loans. We originate residential mortgage loans, which
are generally long-term, with either fixed or variable interest rates. Our
general policy is to retain all or a portion of variable interest rate mortgage
loans in our loan portfolio and to sell virtually all fixed rate loans in the
secondary market. This policy is subject to review by management and may be
revised as a result of changing market and economic conditions and other
factors. We also offer home equity loans. We do not retain servicing rights with
respect to the residential mortgage loans that we originate and sell into the
secondary market.
Personal Loans and Lines of Credit. We make personal loans and lines of
credit available to consumers for various purposes, such as the purchase of
automobiles, boats and other recreational vehicles, and the making of home
improvements and personal investments. We retain substantially all of such
loans.
Consumer loans generally have shorter terms and higher interest rates than
residential mortgage loans and, except for home equity lines of credit, usually
involve more credit risk than mortgage loans because of the type and nature of
the collateral. Consumer lending collections are dependent on a borrower's
continuing financial stability and are thus likely to be adversely affected by
job loss, illness or personal bankruptcy. In many cases, repossessed collateral
for a defaulted consumer loan will not provide an adequate source of repayment
of the outstanding loan balance because of depreciation of the underlying
collateral. We underwrite our loans carefully, with a strong emphasis on the
amount of the down payment, credit quality, employment stability and monthly
income. These loans are generally expected to be repaid on a monthly repayment
schedule with the payment amount tied to the borrower's periodic income. We
believe that the generally higher yields earned on consumer loans helps
compensate for the increased credit risk associated with such loans and that
consumer loans are important to our efforts to serve the credit needs of our
customer base.
Loan Policies. Although we take a progressive and competitive approach to
lending, we emphasize high quality in our loans. Management believes that
quality control is achievable while still providing prompt and personal service.
We are subject to written loan policies that contain general lending guidelines
and are subject to periodic review and revision by our Loan Committee and our
board of directors. These policies concern loan administration, documentation,
approval and reporting requirements for various types of loans.
We recognize that lending money involves a degree of business risk. Our
loan policies are designed to assist us in managing the business risk involved
in making loans. These policies provide a general framework for our loan
operations while recognizing that not all loan activities and procedures can be
anticipated.
Our loan policies include procedures for oversight and monitoring of our
lending practices and loan portfolio. We have a Loan Committee comprised
currently of our President, our Executive Vice President and other lending
officers and three outside directors. Our President has signatory authority for
secured loans up to $200,000 and unsecured loans up to $50,000, and our
Executive Vice President has signatory authority for secured loans up to
$150,000 and unsecured loans up to $50,000. Various other lending officers have
signatory authority for secured loans ranging from $20,000 to $100,000 and for
unsecured loans ranging from $5,000 to $25,000. These limits are cumulative for
commercial loans up to a maximum loan of $400,000, allowing up to three officers
to approve a loan higher than one officer's limit but less than the sum of their
limits, so long as one of the officers approving the loan is either the
President or the Executive Vice President. Residential mortgage loans meeting
Federal Home Loan Mortgage Corporation guidelines for credit quality and
documentation may be approved by our Vice President of Mortgage Loans up to
$240,000, and residential mortgage loans not meeting FHLMC guidelines may be
approved by our Vice President of Mortgage Loans up to $100,000. All loan limits
are subject to review and revision by our board of directors and the Loan
Committee from time to time. The Loan Committee is responsible for approving all
loans that exceed the established limits for our officers.
29
<PAGE> 31
Our loan policies provide guidelines for loan-to-value ratios that limit
the size of certain types of loans to a maximum percentage of the value of the
collateral securing the loans, which percentage varies by the type of
collateral, including the following maximum loan-to-value ratios:
- raw land (65%)
- land development (75%)
- commercial and multi-family real estate (75%)
- one- to four-family residential real estate (80%)
- improved property, including farmland (80%)
- junior liens on real estate (90%, or 100% if we hold the senior mortgage)
We use credit risk insurance, principally for owner-occupied residential
real estate mortgage loans where the loan-to-value ratio exceeds 80%. Regulatory
and supervisory loan-to-value limits are established by the Federal Deposit
Insurance Corporation Improvement Act of 1991. Our internal loan-to-value
limitations follow those limits.
Our loan policies also include other underwriting standards for loans
secured by liens on real estate. These underwriting standards are designed to
determine the maximum loan amount for which a borrower can qualify based upon
the type of collateral securing the loan and the borrower's income and ability
to repay the loan. Monthly payment obligations, including the proposed loan, any
residential mortgage loan payment or rent and child support or alimony payment
(if any) should not exceed 40% of the borrower's gross monthly income. Monthly
housing expense, including the residential mortgage loan payment, real estate
taxes and insurance on the property, or rent, should not exceed 30% of gross
monthly income. In addition, the loan policies require that we obtain a written
appraisal by a state certified appraiser for loans in excess of $250,000 secured
by real estate, subject to certain limited exceptions. The appraiser must be
selected by us and must be independent and licensed. For loans secured by real
estate that are less than $250,000, we may elect to conduct an in-house real
estate evaluation.
Our loan policies also include maximum loan terms for each category of
loans secured by liens on real estate. Loans secured by one- to four-family
residential real estate or multi-family residential real estate with variable
interest rates have a maximum term of 20 years. Loans secured by commercial real
estate or farmland with variable interest rates are generally offered with a
maximum term of 15 years, which may be increased to a maximum term of 20 years
where the credit is strong and the property is very durable and desirable. Home
equity loans with variable interest rates have a maximum term of 10 years. Loans
secured by vacant land or by mobile homes attached to real estate are subject to
a maximum term of 15 years. We generally sell to the secondary market all loans
secured by residential real estate with fixed interest rates, thereby reducing
our interest rate risk and credit risk.
In addition, our loan policies provide guidelines for:
- personal guarantees
- environmental policy review
- loans to employees, executive officers and directors
- problem loan identification
- maintenance of a loan loss reserve
- other matters relating to our lending practices
DEPOSITS AND OTHER SERVICES
Deposits. First Bank offers a broad range of deposit products, including
checking, business checking, savings and money market accounts, certificates of
deposit and direct-deposit services. Transaction
30
<PAGE> 32
accounts and certificates of deposit are tailored to the primary market area at
rates and with fee structures competitive with those offered in Central Indiana.
All deposit accounts are insured by the FDIC up to the maximum amount permitted
by law. We solicit these accounts from individuals, businesses, associations,
financial institutions and government entities.
Other Services. In addition to our basic deposit products, we offer our
customers certain other services, such as commercial sweep accounts, and we are
currently implementing bank-by-phone and Internet banking capabilities.
Management believes that our personalized service approach benefits from
customer visits to our bank. In addition, we maintain relationships with
correspondent banks and other independent financial institutions to provide
other services requested by our customers, including loan participations where
the requested loan amounts exceed our policies or legal lending limits.
COMPETITION
There are many thrift institutions, credit unions and commercial banks
located within our primary service area. Most are branches of larger financial
institutions which, in management's view, are managed with a philosophy of
strong centralization. We face competition from thrift institutions, credit
unions and other banks as well as finance companies, insurance companies,
mortgage companies, securities brokerage firms, money market funds, trust
companies and other providers of financial services. Most of our competitors are
larger and have higher lending limits than we do. In some of our newer markets
we are also competing against financial institutions with established customer
bases. We compete for loans principally through our ability to communicate
effectively with our customers and understand and meet their needs. Management
believes that our personal service philosophy enhances and will continue to
enhance our ability to compete favorably in attracting individuals and small-
and medium-sized businesses. We actively solicit retail customers and compete
for deposits by offering customers personal attention, professional service and
competitive interest rates.
PROPERTIES
We conduct our operations from six locations in Central Indiana:
- Approximately 5,000 square feet at 996 South State Road 135, Greenwood,
Indiana, which we occupy under a lease expiring in 2004;
- Approximately 2,150 square feet at 1266 North Madison Avenue, Greenwood,
Indiana, which we occupy under a lease expiring in 2002 with a renewal
option of three years following the expiration date;
- Approximately 1,100 square feet at 250 North State Road 135,
Bargersville, Indiana, which we occupy under a lease expiring in 2002
with a renewal option of three years following the expiration date;
- Approximately 4,000 square feet at 180 West Washington Street,
Morgantown, Indiana, which we own;
- Approximately 1,800 square feet at 110 North State Road 135, Trafalgar,
Indiana, which we own; and
- Approximately 1,152 square feet housed in a temporary structure at 160
East Main Street, Nashville, Indiana, which we occupy under a lease
expiring in September 2000. The structure is located on real estate owned
by Frank A. Rogers, one of our directors, but Mr. Rogers receives no
compensation for the use of the land. We anticipate replacing the
temporary facility in Nashville with the building we will acquire in
connection with our pending branch bank purchase. See "Recent
Developments."
We believe the condition of our facilities is adequate to support our current
operations.
31
<PAGE> 33
EMPLOYEES
As of December 31, 1999, we had approximately 50 full-time employees and
approximately three part-time employees. None of these employees is represented
by a union. We consider relations with our employees to be good.
LITIGATION
We currently and from time to time are involved in litigation incidental to
the conduct of our business. However, we are not a party to any lawsuit or
proceeding which, in the opinion of management, is likely to have a material
adverse effect on us.
32
<PAGE> 34
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information about our executive officers and
directors as of December 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Frank A. Rogers.......................... 68 Chairman of the Board of Directors
Jerry R. Engle........................... 55 President and Chief Executive Officer and Director
John Ditmars............................. 43 Executive Vice President
Kimberly B. Kling........................ 32 Secretary, Treasurer and Chief Financial Officer
Ralph M. Foley........................... 59 Director
H. Dean Hawkins.......................... 64 Director
Gary W. Lewis............................ 50 Director
R. J. McConnell.......................... 39 Director
William J. Meredith...................... 53 Director
Norman D. Stockton....................... 55 Director
</TABLE>
Frank A. "Andy" Rogers was elected a director in 1999 and currently serves
as Chairman of the Board of Directors. He owns and operates two restaurants and
two hotels, is the contract operator for a third hotel and is a partner in a
partnership owning a nursing home, all in Brown County, Indiana. Prior to his
service on our board of directors, Mr. Rogers had served as the chief executive
officer of three other financial institutions.
Jerry R. Engle is our President and Chief Executive Officer and a director,
positions he has held since March 1999. Previously, he was the chief executive
officer of Citizens Bank of Central Indiana, a position he assumed in 1992 when
Indiana Bancshares, Inc., of which he was chief executive officer, merged into
CNB Bancshares, Inc., the holding company for Citizens. During his tenure at
Citizens, Mr. Engle managed the CNB affiliate bank based in Greenwood, Indiana.
In 1998, this affiliate bank had average assets of approximately $652.1 million
and was one of the most profitable affiliate banks owned by CNB, with a return
on average assets of 1.43% and a return on average equity of 20.97%.
John Ditmars is our Executive Vice President, a position he has held since
March 1999. Previously, he was the Senior Lending Officer and head of the
Commercial Lending Department at Citizens Bank of Central Indiana.
Kimberly B. Kling is our Secretary, Treasurer and Chief Financial Officer,
duties she assumed in 1999. From 1994 to 1999, she was Controller, Secretary and
Treasurer for Kellie Plumbing, Inc. and Johnson County Distributors, Inc., and
from 1991 to 1994 she was a staff accountant for Alemite Corporation, Charlotte,
North Carolina.
Ralph M. Foley was elected a director of First Bank in 1985 and became a
director of First Shares when it was incorporated in 1991. He is a partner in
the law firm of Foley, Foley & Peden, Greenwood, Indiana.
H. Dean Hawkins was elected a director in 1992 and served from December
1991 to February 1999 as our President and Chief Executive Officer and from
March to November 1999 as our Chairman of the Board of Directors. He is
currently self-employed as a real estate appraiser.
Gary W. Lewis was elected a director in 1999. He is Vice President and
Manager of the Greenwood office of F. C. Tucker Realtors, where he has worked
since 1975.
R.J. McConnell was elected a director in 1998. He is a partner with the law
firm of Bose McKinney & Evans LLP, Indianapolis, Indiana.
33
<PAGE> 35
William J. Meredith was elected a director in 1992. He is the President and
Funeral Director at Meredith-Clark Funeral Home, Inc. and a partner in C & M
Monument Co., a cemetery monument company.
Norman D. Stockton was elected a director in 1993. He has been the
Superintendent of Schools for the Eminence Community School Corporation since
1997. From 1994 to 1997 he was the Director of Marketing for Construction
Control, Inc., a construction management firm.
Our directors are elected for staggered three-year terms. The board of
directors currently has standing audit, personnel, executive and asset-liability
committees. The audit committee evaluates audit performance, handles relations
with our independent auditors and evaluates policies and procedures relating to
internal audit functions and controls. The audit committee may also examine and
consider other matters relating to our financial affairs as it deems
appropriate. The audit committee currently consists of the entire board of
directors. The personnel committee provides a general review of our compensation
and benefit plans to ensure that they meet corporate objectives. The personnel
committee also has authority to administer and recommend the grant of options
under our stock option plans. The directors who are members of the personnel
committee are Messrs. Engle, Hawkins, Meredith and Stockton. The executive
committee acts on behalf of the board of directors between meetings of the
board. The directors who are members of the executive committee are Messrs.
Engle, Hawkins and McConnell. The asset-liability committee reviews the matching
of the rates and maturities of our loans, investments, deposits and other
borrowings and recommends adjustments to minimize our interest rate gap. The
directors who are members of the asset-liability committee are Messrs. Engle,
Foley, Hawkins and Stockton.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------ ------------
SECURITIES
UNDERLYING
NAME AND YEAR ENDED OTHER ANNUAL OPTIONS/ ALL OTHER
PRINCIPAL POSITION DECEMBER 31, SALARY BONUS COMPENSATION SARS(#) COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
JERRY R. ENGLE.......... 1999 $121,413 $ -- $-- 39,000 $ 1,871(1)
President and 1998 -- -- -- -- --
Chief Executive
Officer............ 1997 -- -- -- -- --
H. DEAN HAWKINS......... 1999 59,720 -- -- -- 172,630(2)
Director 1998 63,000 12,214 -- -- --
1997 61,000 28,389 -- -- --
</TABLE>
- ------------------------------
(1) Matching contribution to retirement plan account ($1,386) and life insurance
premium paid ($485).
(2) Severance payment ($172,038) and life insurance premium paid ($592).
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS EXERCISE
OPTIONS/ GRANTED TO OR BASE
SARS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SHARE) DATE
<S> <C> <C> <C> <C>
Jerry R. Engle................................... 39,000 65% $8.23 5/25/06
H. Dean Hawkins.................................. -- -- -- --
</TABLE>
34
<PAGE> 36
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SHARES AT FISCAL YEAR END AT FISCAL YEAR END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Jerry R. Engle............ -- $-- 9,750 29,250 $ 17,258 $51,773
H. Dean Hawkins........... -- -- 36,000 -- 119,880 --
</TABLE>
- ------------------------------
(1) Calculated assuming a fair market value per share of $10 at December 31,
1999.
BENEFIT PLANS AND ARRANGEMENTS
1996 Stock Option Plan. Under our 1996 Stock Option Plan, our executive
officers and key employees are eligible to receive stock options which do not
qualify as incentive stock options under the Internal Revenue Code. Directors
who are not our employees are not entitled to participate.
The grant of awards under the 1996 Stock Option Plan is made by the board
of directors, including the selection of appropriate grantees, the size and
exercise price of awards and other terms and conditions of awards. Options for a
total of 48,000 shares of common stock may be granted under the 1996 Stock
Option Plan, all of which have been granted. Options granted under the 1996
Stock Option Plan must be for a term of not more than seven years and, unless
otherwise provided in the particular option grant agreement, will be 25% vested
upon grant and become vested as to an additional 25% on each of the succeeding
three anniversaries of the date of grant. Options will become fully vested if
the grantee dies or a change of control occurs at any time during the first
three years after a grant. Options for 48,000 shares are currently outstanding
under the 1996 Stock Option Plan.
1999 Stock Option Plan. Under our 1999 Stock Option Plan, our directors,
executive officers and key employees are eligible to receive stock options which
either qualify as incentive stock options under the Internal Revenue Code or do
not so qualify. Options for a total of 93,000 shares of common stock may be
granted under the 1999 Stock Option Plan. If an award under the 1999 Stock
Option Plan expires or terminates without being exercised in full or is
forfeited, the shares of common stock subject to the award generally become
available for new awards.
Options granted under the 1999 Stock Option Plan must be for a term of not
more than 10 years. Options granted under the 1999 Stock Option Plan allow
participants to purchase shares of our common stock at an exercise price
determined by the board of directors which, after December 31, 1999 cannot be
less than the fair market value of our common stock on the date of the grant. As
determined by the board of directors, options will generally become exercisable
in one or more installments beginning on the first anniversary of the date of
the grant. The board of directors may accelerate the exercisability of any
option. Payment of the option exercise price may be made in cash or through the
exchange of shares of our common stock owned by the grantee. In the event of a
Change in Control, options become exercisable whether or not the vesting periods
have expired and whether or not the grantee has been employed for one year after
the applicable grant date. Options for 60,000 shares are currently outstanding
under the 1999 Stock Option Plan.
Employment Agreements. We have entered into a three-year employment
agreement with Jerry R. Engle pursuant to which we employ Mr. Engle as our chief
executive officer. Mr. Engle's base compensation during the term of the
agreement is $150,000 per year, which may be increased at our discretion and is
required to be increased to $160,000 if and when we achieve an annualized return
on average assets of at least 0.75% for six consecutive calendar months. In
addition, the agreement provides for annual bonuses to be set by the board of
directors. Mr. Engle also received options pursuant to the agreement to purchase
39,000 shares of common stock at a price equal to the book value per share of
the outstanding common stock on the last day of the fiscal quarter immediately
preceding the date of grant.
35
<PAGE> 37
Under the employment agreement, Mr. Engle retains the right to participate in
various other employee benefit plans we maintain for which he is otherwise
eligible.
The agreement with Mr. Engle is subject to termination at any time by Mr.
Engle upon notice and by us for cause (as defined in the agreement) or upon Mr.
Engle's death or disability (as defined in the agreement). In the event we
terminate Mr. Engle's employment without cause and other than upon Mr. Engle's
death or disability, or in the event Mr. Engle terminates his employment for
good reason (as defined in the agreement), Mr. Engle is entitled to receive his
annual base monthly salary (calculated at the highest rate during the year
preceding the termination of employment) through the end of the term of the
employment agreement.
Following a termination of Mr. Engle's employment other than a termination
by us without cause and other than upon Mr. Engle's death or disability or a
termination by Mr. Engle for other than good reason, Mr. Engle will be
prohibited from engaging in a business in competition with us or soliciting our
customers for a period of two years after the date of termination.
We have also entered into a three-year employment agreement with John
Ditmars pursuant to which we employ Mr. Ditmars as our executive vice president.
Mr. Ditmars' base compensation during the term of the agreement is $75,000 per
year, which may be increased at our discretion and is required to be increased
to $80,000 if and when we achieve an annualized return on average assets of at
least 0.75% for six consecutive calendar months. In addition, the agreement
provides for annual bonuses to be set by the board of directors. Mr. Ditmars
also received options pursuant to the agreement to purchase 21,000 shares of
common stock at a price equal to the book value per share of the outstanding
common stock on the last day of the fiscal quarter immediately preceding the
date of grant. Under the employment agreement, Mr. Ditmars retains the right to
participate in various other employee benefit plans we maintain for which he is
otherwise eligible.
The agreement with Mr. Ditmars is subject to termination, and Mr. Ditmars
is eligible for severance benefits and subject to a noncompetition and
nonsolicitation covenant, upon the same terms and conditions as in our
employment agreement with Mr. Engle.
Director Compensation. Directors are paid $500 for each regularly-scheduled
meeting of the board of directors attended and $175 for each special meeting of
the board of directors attended. Directors are entitled to be paid for one
regularly-scheduled board meeting missed each year. Directors who are not our
employees are paid $175 for each committee meeting attended or for which they
serve as an alternate (in the case of the loan committee). Four of the directors
(Messrs. Foley, Hawkins, Meredith and Stockton) have entered into a deferred fee
agreement with us pursuant to which payment of fees by us is deferred until the
earlier of the director's resignation as a director, disability or death or a
change in our control. In all cases except the death of the director, the amount
deferred bears interest at an interest rate established by us from time to time.
In the case of the death of the director, we have agreed to pay an annual death
benefit of $22,960 for 10 years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
Our personnel committee established compensation for the year ended
December 31, 1999 for employees other than Mr. Engle and Mr. Ditmars, who have
employment agreements with us which establish their base salary. Mr. Engle, who
is one of our executive officers, participated during 1999 in deliberations of
our personnel committee concerning compensation of other officers.
36
<PAGE> 38
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock (1) as of December 31, 1999 and (2)
immediately following this offering by:
- each person known to us to be the beneficial owner of more than five
percent of our issued and outstanding common stock;
- each of our directors and executive officers; and
- all executive officers and directors as a group.
Calculations of the percentage after offering assumes that the underwriters'
overallotment option is not exercised. Unless otherwise indicated below, the
persons and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS BENEFICIALLY OWNED OFFERING OFFERING
<S> <C> <C> <C>
Jerry R. Engle......................................... 54,396(1) 8.1% 4.2%
996 South State Road 135
Greenwood, Indiana 46143
Ralph M. Foley......................................... 35,166(2) 5.3 2.7
400 Byram Road
Martinsville, Indiana 46151
H. Dean Hawkins........................................ 76,230(3) 10.9 5.3
2127 Foxcliff North
Martinsville, Indiana 46151
Gary W. Lewis.......................................... 18,006(4) 2.7 1.4
2302 Woodsway Drive
Greenwood, Indiana 46143
R. J. McConnell........................................ 5,520(5) * *
2069 W. County Road 300S
Franklin, Indiana 46131
William J. Meredith.................................... 7,428(6) 1.1 *
P.O. Box 308
Morgantown, Indiana 46160
Frank A. Rogers........................................ 47,340(7) 7.1 3.7
P.O. Box 187
Nashville, Indiana
Norman D. Stockton..................................... 600(8) * *
3168 S.E. County Line Road
Morgantown, Indiana 46160
John Ditmars........................................... 18,006(9) 2.7 1.3
996 South State Road 135
Greenwood, Indiana 46143
Kimberly B. Kling...................................... -- -- *(10)
996 South State Road 135
Greenwood, Indiana 46143
</TABLE>
37
<PAGE> 39
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS BENEFICIALLY OWNED OFFERING OFFERING
<S> <C> <C> <C>
Directors and executive officers as a group (10 262,692 36.7 19.3
persons).............................................
Other principal shareholder:
Edith N. Tullis........................................ 180,480 27.2 12.8(11)
c/o Hershell M. Baker
433 Appleton Court
Indianapolis, Indiana 46234
</TABLE>
- ------------------------------
* Less than 1%
(1) Consists of 44,406 shares owned individually, 240 shares owned for the
benefit of Mr. Engle's children and 9,750 shares represented by stock
options exercisable within 60 days of December 31, 1999. Mr. Engle has
indicated that he intends to purchase 5,000 shares in this offering.
(2) Consists of 1,440 shares owned individually, 25,788 shares owned jointly by
Mr. Foley and his spouse, 3,810 shares owned by Mr. Foley's spouse and
4,128 shares owned by Mr. Foley as trustee. Mr. Foley has indicated that he
intends to purchase 3,000 shares in this offering.
(3) Consists of 1,536 shares owned individually, 38,694 shares owned jointly by
Mr. Hawkins and his spouse and 36,000 shares represented by stock options
exercisable within 60 days of December 31, 1999. Mr. Hawkins has indicated
that he does not intend to purchase shares in this offering.
(4) Mr. Lewis has indicated that he intends to purchase 1,994 shares in this
offering.
(5) All of these shares are beneficially owned through a retirement plan trust.
Mr. McConnell has indicated that he intends to purchase 2,500 shares in
this offering.
(6) Consists of 5,598 shares owned individually, 1,110 shares owned by Mr.
Meredith's spouse, 600 shares owned through a custodian and 120 shares
owned jointly with Mr. Meredith's grandchildren. Mr. Meredith has indicated
that he intends to purchase 500 shares in this offering.
(7) Mr. Rogers has indicated that he intends to purchase 5,606 shares in this
offering.
(8) Mr. Stockton has indicated that he intends to purchase 100 shares in this
offering.
(9) Consists of 12,216 shares owned individually, 600 shares owned jointly by
Mr. Ditmars and his spouse as custodian for the benefit of their minor
children and 5,250 shares represented by stock options exercisable within
60 days of December 31, 1999. Mr. Ditmars has indicated that he intends to
purchase 1,000 shares in this offering.
(10) Ms. Kling has indicated that she intends to purchase 300 shares in this
offering.
(11) The Percentage After Offering calculation assumes Ms. Tullis purchases no
shares in this offering.
38
<PAGE> 40
SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state law. Consequently, our growth and earnings
performance can be affected not only by management decisions and general
economic conditions, but also by the statutes administered by, and the
regulations and policies of, various governmental regulatory authorities. Those
authorities include, but are not limited to, the Federal Reserve Board, the
FDIC, the Indiana Department of Financial Institutions (the "DFI"), the Internal
Revenue Service and state taxing authorities. The effect of such statutes,
regulations and policies can be significant and cannot be predicted with a high
degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions and their holding companies regulate, among other things:
- the scope of business
- investments
- reserves against deposits
- capital levels relative to operations
- lending activities and practices
- the nature and amount of collateral for loans
- the establishment of branches
- mergers and consolidations
- dividends
The system of supervision and regulation applicable to us establishes a
comprehensive framework for our operations and is intended primarily for the
protection of the FDIC's deposit insurance funds, our depositors and the public,
rather than our shareholders.
Federal law and regulations, including provisions added by the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and regulations
promulgated thereunder, establish supervisory standards applicable to our
lending activities, including internal controls, credit underwriting, loan
documentation and loan-to-value ratios for loans secured by real property.
The following references to statutes and regulations are intended to
summarize certain government regulation of our business and are qualified by
reference to the text of such statutes and regulations. Any change in government
regulation may have a material adverse effect on our business.
FIRST SHARES
General. First Shares is a bank holding company and, as such, is subject to
regulation by the Federal Reserve Board under the federal Bank Holding Company
Act of 1956, as amended (the "BHCA"). Under the BHCA, First Shares is subject to
examination by the Federal Reserve Board and is required to file reports of its
operations and such additional information as the Federal Reserve Board may
require.
Under Federal Reserve Board policy, First Shares is expected to act as a
source of financial strength to First Bank and to commit resources to support
First Bank in circumstances where First Shares might not do so absent such a
policy. In addition, in certain circumstances, First Shares, as an Indiana
banking corporation, may be required by order of the DFI to increase the capital
of First Bank or reduce the amount of its deposits.
Any loans by a bank holding company to a subsidiary bank are subordinate in
right of payment to deposits and to certain other indebtedness of the subsidiary
bank. In the event of a bank holding company's bankruptcy, any commitment by the
bank holding company to a federal bank regulatory agency to maintain the capital
of a subsidiary bank would be assumed by the bankruptcy trustee and entitled to
a priority of payment. This priority would also apply to guarantees of capital
plans under FDICIA.
39
<PAGE> 41
Investments and Activities. Under current law, bank holding companies are
prohibited, with certain limited exceptions, from engaging in activities other
than those of banking or of managing or controlling banks. They are also
prohibited from acquiring or retaining direct or indirect ownership or control
of voting shares or assets of any company which is not a bank or bank holding
company, other than subsidiary companies furnishing services to or performing
services for their subsidiaries, and other subsidiaries engaged in activities
which the Federal Reserve Board determines to be so closely related to banking
or managing or controlling banks as to be incidental to these operations.
In general, any direct or indirect acquisition by First Shares of any
voting shares of any bank which would result in First Shares' direct or indirect
ownership or control of more than 5% of any class of voting shares of such bank,
and any merger or consolidation of First Shares with another bank holding
company, will require the prior written approval of the Federal Reserve Board
under the BHCA. In acting on such applications, the Federal Reserve Board must
consider various statutory factors, including among others, the effect of the
proposed transaction on competition in relevant geographic and product markets,
the convenience and needs of the communities to be served and each party's
financial condition, managerial resources and record of performance under the
Community Reinvestment Act.
The merger or consolidation of First Bank with another bank, or the
acquisition by First Bank of assets of another bank, or the assumption of
liability by First Bank to pay any deposits in another bank, will require the
prior written approval of the primary federal bank regulatory agency of the
acquiring or surviving bank under the federal Bank Merger Act. The approval
decision is based upon a consideration of statutory factors similar to those
outlined above with respect to the BHCA. In addition, in certain such cases an
application to, and the prior approval of, the Federal Reserve Board under the
BHCA and/or the DFI under the Indiana Financial Institutions Act may be
required.
With certain limited exceptions, the BHCA prohibits bank holding companies
from acquiring direct or indirect ownership or control of voting shares or
assets of any company other than a bank, unless the company involved is engaged
solely in one or more activities which the Federal Reserve Board has determined
to be so closely related to banking or managing or controlling banks as to be
incidental to these operations. Under current Federal Reserve Board regulations,
such permissible non-bank activities include such things as mortgage banking,
equipment leasing, securities brokerage, and consumer and commercial finance
company operations. As a result of recent amendments to the BHCA, many of these
acquisitions may be effected by bank holding companies that satisfy certain
statutory criteria concerning management, capitalization, and regulatory
compliance if written notice is given to the Federal Reserve Board within 10
business days after the transaction. In other cases, prior written notice to the
Federal Reserve Board will be required.
In evaluating a written notice of such an acquisition, the Federal Reserve
Board will consider various factors, including among others the financial and
managerial resources of the notifying bank holding company and the relative
public benefits and adverse effects which may be expected to result from the
performance of the activity by an affiliate of such company. The Federal Reserve
Board may apply different standards to activities proposed to be commenced de
novo and activities commenced by acquisition, in whole or in part, of a going
concern. The required notice period may be extended by the Federal Reserve Board
under certain circumstances, including a notice for acquisition of a company
engaged in activities not previously approved by regulation of the Federal
Reserve Board. If such a proposed acquisition is not disapproved or subjected to
conditions by the Federal Reserve Board within the applicable notice period, it
is deemed approved by the Federal Reserve Board.
Effective March 11, 2000, the Gramm-Leach-Bliley Act of 1999, which was
signed into law on November 12, 1999, will allow a bank holding company to
qualify as a "financial holding company" and, as a result, be permitted to
engage in a broader range of activities that are "financial in nature" and in
activities that are determined to be incidental or complementary to activities
that are financial in nature. The Gramm-Leach-Bliley Act amends the BHCA to
include a list of activities that are financial in nature, and the list includes
activities such as underwriting, dealing in and making a market in securities,
insurance underwriting and agency activities and merchant banking. The Federal
Reserve Board is
40
<PAGE> 42
authorized to determine other activities that are financial in nature or
incidental or complementary to such activities. The Gramm-Leach-Bliley Act also
authorizes banks to engage through financial subsidiaries in certain of the
activities permitted for financial holding companies. See "-- Recent Regulatory
Developments."
Capital Requirements. The Federal Reserve Board uses capital adequacy
guidelines in its examination and regulation of bank holding companies. If
capital falls below minimum guidelines, a bank holding company may, among other
things, be denied approval to acquire or establish additional banks or non-bank
businesses.
The Federal Reserve Board's capital guidelines establish the following
minimum regulatory capital requirements for bank holding companies:
- a leverage capital requirement expressed as a percentage of total assets;
- a risk-based requirement expressed as a percentage of total risk-weighted
assets; and
- a Tier 1 leverage requirement expressed as a percentage of total assets.
The leverage capital requirement consists of a minimum ratio of total capital to
total assets of 6%, with an expressed expectation that banking organizations
generally should operate above such minimum level. The risk-based requirement
consists of a minimum ratio of total capital to total risk-weighted assets of
8%, of which at least one-half must be Tier 1 capital (which consists
principally of shareholders' equity). The Tier 1 leverage requirement consists
of a minimum ratio of Tier 1 capital to total assets of 3% for the most
highly-rated companies, with minimum requirements of 4% to 5% for all others.
The risk-based and leverage standards presently used by the Federal Reserve
Board are minimum requirements, and higher capital levels will be required if
warranted by the particular circumstances or risk profiles of individual banking
organizations. Further, any banking organization experiencing or anticipating
significant growth would be expected to maintain capital ratios, including
tangible capital positions (i.e., Tier 1 capital less all intangible assets),
well above the minimum levels.
The Federal Reserve Board's regulations provide that the foregoing capital
requirements will generally be applied on a bank-only (rather than a
consolidated) basis in the case of a bank holding company with less than $150
million in total consolidated assets. On a pro forma basis, assuming the
issuance and sale of the 750,000 shares of common stock offered in this
prospectus at $10.00 per share, our leverage capital ratio, risk-based capital
ratio and Tier 1 leverage ratio immediately after the offering, in each case as
calculated on a consolidated basis and a bank-only basis under the Federal
Reserve Board's capital guidelines, would be 14.85%, 17.66% and 16.76%,
respectively, significantly exceeding the minimum requirements.
FDICIA requires the federal bank regulatory agencies biennially to review
risk-based capital standards to ensure that they adequately address interest
rate risk, concentration of credit risk and risks from non-traditional
activities and, since adoption of the Riegle Community Development and
Regulatory Improvement Act of 1994 (the "Riegle Act"), to do so taking into
account the size and activities of depository institutions and the avoidance of
undue reporting burdens. See "--Recent Regulatory Developments." In 1995, the
agencies adopted regulations requiring as part of the assessment of an
institution's capital adequacy the consideration of (a) identified
concentrations of credit risks, (b) the exposure of the institution to a decline
in the value of its capital due to changes in interest rates and (c) the
application of revised conversion factors and netting rules on the institution's
potential future exposure from derivative transactions.
In addition, the agencies in September 1996 adopted amendments to their
respective risk-based capital standards to require banks and bank holding
companies having significant exposure to market risk arising from, among other
things, trading of debt instruments, (1) to measure that risk using an internal
value-at-risk model conforming to the parameters established in the agencies'
standards and (2) to
41
<PAGE> 43
maintain a commensurate amount of additional capital to reflect such risk. The
new rules were adopted effective January 1, 1997, with compliance mandatory from
and after January 1, 1998.
Dividends. First Shares is a corporation separate and distinct from First
Bank. Most of First Shares' revenues will be received by it in the form of
dividends or interest paid by First Bank. First Bank is subject to statutory
restrictions on its ability to pay dividends. See "-- First Bank -- Dividends."
The Federal Reserve Board has issued a policy statement on the payment of cash
dividends by bank holding companies. In the policy statement, the Federal
Reserve Board expressed its view that a bank holding company should not pay cash
dividends exceeding its net income or which could only be funded in ways that
weakened the bank holding company's financial health, such as by borrowing.
Additionally, the Federal Reserve Board possesses enforcement powers over bank
holding companies and their non-bank subsidiaries to prevent or remedy actions
that represent unsafe or unsound practices or violations of applicable statutes
and regulations. Among these powers is the ability in appropriate cases to
proscribe the payment of dividends by banks and bank holding companies. The FDIC
and the DFI possess similar enforcement powers over First Bank. It is also
unlawful for any insured depository institution to pay a dividend at a time when
it is in default of payment of any assessment to the FDIC. The "prompt
corrective action" provisions of FDICIA impose further restrictions on the
payment of dividends by insured banks which fail to meet specified capital
levels and, in some cases, their parent bank holding companies.
In addition to the restrictions on dividends imposed by the Federal Reserve
Board, the Indiana Business Corporation Law imposes certain restrictions on the
declaration and payment of dividends by Indiana corporations such as First
Shares. See "Dividend Policy."
FIRST BANK
General. First Bank is an Indiana banking corporation which is not a member
of the Federal Reserve System. As a state-chartered, non-member bank, First Bank
is subject to the examination, supervision, reporting and enforcement
jurisdiction of the DFI, as the chartering authority for Indiana banks, and the
FDIC, as the primary federal bank regulatory agency for state-chartered,
non-member banks. First Bank's deposit accounts are insured by the Bank
Insurance Fund ("BIF") of the FDIC, which has supervision, reporting and
enforcement jurisdiction over BIF-insured banks. These agencies, and federal and
state law, extensively regulate various aspects of the banking business
including, among other things:
- permissible types and amounts of loans
- investments and other activities
- capital adequacy
- branching
- interest rates on loans and on deposits
- the maintenance of non-interest bearing reserves on deposit accounts
- the safety and soundness of banking practices
Deposit Insurance. As an FDIC-insured institution, First Bank is required
to pay deposit insurance premium assessments to the FDIC. Under FDICIA, the FDIC
adopted a risk-based assessment system under which all insured depository
institutions are placed into one of nine categories and assessed insurance
premiums based upon their level of capital and supervisory evaluation.
Institutions classified as well-capitalized (as defined by the FDIC) and not
exhibiting financial, operational or compliance weaknesses pay the lowest
premium. Institutions that are less than well-capitalized (as defined by the
FDIC) and exhibit such weaknesses in a moderately severe to unsatisfactory
degree pay the highest premium. Risk classification of all insured institutions
is made by the FDIC for each semi-annual assessment period. First Bank was
categorized as "adequately capitalized" at December 31, 1999.
42
<PAGE> 44
The FDIC is required to establish semi-annual assessment rates so as to
maintain the ratio of each deposit insurance fund to total estimated insured
deposits at not less than 1.25%. Currently, the FDIC has established a schedule
of BIF insurance assessments ranging from 0% of deposits for institutions in the
highest category to .27% of deposits for institutions in the lowest category.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution or its
directors have engaged or are engaging in unsafe or unsound practices, or have
violated any applicable law, regulation, order or any condition imposed in
writing by, or written agreement with, the FDIC, or if the institution is in an
unsafe or unsound condition to continue operations. The FDIC may also suspend
deposit insurance temporarily during the hearing process for a permanent
termination of insurance if the institution has no tangible capital.
Capital Requirements. The FDIC has established the following minimum
capital standards for state-chartered, non-member banks, such as First Bank: a
leverage requirement consisting of a minimum ratio of Tier 1 capital to total
assets of 3% for the most highly-rated banks with minimum requirements of 4% to
5% for all others, and a risk-based capital requirement consisting of a minimum
ratio of total capital to total risk-weighted assets of 8%, at least one-half of
which must be Tier 1 capital. Tier 1 capital consists principally of
shareholders' equity. In addition, the FDIC has adopted requirements for each
state-chartered, non-member bank whose "trading activity" (the sum of "trading
assets and liabilities") as shown on its most recent Consolidated Report of
Condition and Income ("Call Report") exceeds either 10% or more of its total
assets or $1 billion, (1) to measure its market risk using an internal
value-at-risk model conforming to the FDIC's capital standards, and (2) to
maintain a commensurate amount of additional capital to reflect such risk.
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions.
The Federal Deposit Insurance Act (the "FDIA") establishes five capital
categories, and the federal bank regulatory agencies, as directed by the FDIA,
have adopted, subject to certain exceptions, the following minimum requirements
for each of such categories:
<TABLE>
<CAPTION>
TOTAL RISK-BASED TIER 1 RISK-BASED
CAPITAL RATIO CAPITAL RATIO LEVERAGE RATIO
<S> <C> <C> <C>
Well capitalized........................... 10% or above 6% or above 5% or above
Adequately capitalized..................... 8% or above 4% or above 4% or above
Undercapitalized........................... Less than 8% Less than 4% Less than 4%
Significantly undercapitalized............. Less than 6% Less than 3% Less than 3%
Critically undercapitalized................ -- -- A ratio of tangible
equity to total
assets of 2% or less
</TABLE>
Subject to certain exceptions, these capital ratios are generally
determined on the basis of Call Reports submitted by each depository institution
and the reports of examination of the appropriate federal bank regulatory
agency.
Among other things, the FDIA requires the federal bank regulatory agencies
to take prompt corrective action in respect of depository institutions that do
not meet minimum capital requirements. The scope and degree of regulatory
intervention is linked to the capital category to which a depository institution
is assigned. Depending upon the capital category to which an institution is
assigned, the regulators' corrective powers include:
- requiring the submission of a capital restoration plan
- placing limits on asset growth and restrictions on activities
- requiring the institution to issue additional capital stock (including
additional voting stock) or to be acquired
43
<PAGE> 45
- restricting transactions with affiliates
- restricting the interest rate the institution may pay on deposits
- ordering a new election of directors of the institution
- requiring that senior executive officers or directors be dismissed
- prohibiting the institution from accepting deposits from correspondent
banks
- requiring the institution to divest certain subsidiaries
- prohibiting the payment of principal or interest on subordinated debt
- ultimately, appointing a receiver for the institution
In general, a depository institution may be reclassified to a lower
category than is indicated by its capital position if the appropriate federal
depository institution regulatory agency determines the institution to be
otherwise in an unsafe or unsound condition or to be engaged in an unsafe or
unsound practice. This could include a failure by the institution, following
receipt of a less-than-satisfactory rating on its most recent examination
report, to correct the deficiency.
As of December 31, 1999, First Bank had total Tier I Capital of $4.5
million, or 7.1% of total assets and a 9.1% ratio of total capital to total
risk-weighted assets and met the criteria to be classified by the FDIC as
"adequately capitalized."
Dividends. As a banking corporation organized under Indiana law, First Bank
is restricted as to the maximum amount of dividends it may pay to First Shares.
Indiana law prohibits First Bank from declaring or paying dividends that would
impair First Bank's capital or that would be greater than its undivided profits.
In addition, the prior approval of the DFI is required for the payment of any
dividend if the aggregate amount of all dividends paid by First Bank during a
calendar year, including the proposed dividend, would exceed the sum of the
retained net income of First Bank for the year to date and previous two years.
The FDIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. The FDIC may prevent an insured bank from paying dividends if
the bank is in default of payment of any assessment due to the FDIC. In
addition, payment of dividends by a bank may be prevented by the applicable
federal regulatory authority if the payment is determined, by reason of the
financial condition of the bank, to be an unsafe and unsound banking practice.
As described above, the Federal Reserve Board has issued a policy statement
providing that bank holding companies and insured banks should generally only
pay dividends out of current operating earnings.
Insider Transactions. First Bank is subject to certain federal and state
statutory and regulatory restrictions on any extensions of credit to First
Shares or any subsidiaries of First Shares, on investments in the stock or other
securities of First Shares or any subsidiaries of First Shares, and on the
acceptance of the stock or other securities of First Shares or any subsidiaries
of First Shares as collateral for loans to any person. Certain limitations and
reporting requirements are also placed on extensions of credit by First Bank to
its directors and officers, to directors and officers of First Shares and any
subsidiaries of First Shares, to principal shareholders of First Shares, and to
"related interests" of such directors, officers and principal shareholders. In
addition, this legislation and these regulations may affect the terms upon which
any person who is a director or officer of First Shares or any of its
subsidiaries or a principal shareholder of First Shares may obtain credit from
banks with which First Bank maintains a correspondent relationship.
Safety and Soundness Standards. On July 10, 1995, the FDIC, the Office of
Thrift Supervision, the Federal Reserve Board and the Office of the Comptroller
of the Currency published final guidelines implementing the FDICIA requirement
that the federal banking agencies establish operational and managerial standards
to promote the safety and soundness of federally insured depository
institutions. The guidelines, which took effect on August 9, 1995, establish
standards for internal controls, information
44
<PAGE> 46
systems, internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, and compensation, fees and benefits. In
general, the guidelines prescribe the goals to be achieved in each area, and
each institution will be responsible for establishing its own procedures to
achieve those goals. If an institution fails to comply with any of the standards
included in the guidelines, the institution's primary federal bank regulator may
require the institution to submit a plan for achieving and maintaining
compliance. The preamble to the guidelines states that the agencies expect to
require a compliance plan from an institution whose failure to meet one or more
of the standards is of such severity that it could threaten the safe and sound
operation of the institution. Failure to submit an acceptable compliance plan,
or failure to adhere to a compliance plan that has been accepted by the
appropriate regulator, would constitute grounds for further enforcement action.
Effective October 1, 1996, the agencies expanded the guidelines to establish
asset quality and earnings standards. As before, the expanded guidelines make
each depository institution responsible for establishing its own procedures to
meet such goals.
State Bank Activities. Under FDICIA, as implemented by final regulations
adopted by the FDIC, FDIC-insured state banks are prohibited, subject to certain
exceptions, from making or retaining equity investments of a type, or in an
amount, that are not permissible for a national bank. FDICIA, as implemented by
FDIC regulations, also prohibits FDIC-insured state banks and their
subsidiaries, subject to certain exceptions, from engaging as principal in any
activity that is not permitted for a national bank or its subsidiary,
respectively, unless the bank meets, and continues to meet its minimum
regulatory capital requirements and the FDIC determines the activity would not
pose a significant risk to the deposit insurance fund of which the bank is a
member. Impermissible investments and activities must be divested or
discontinued within certain time frames set by the FDIC in accordance with
FDICIA. These restrictions do not currently have a material impact on the
operations of First Bank.
Consumer Banking. Our business includes making a variety of types of loans
to individuals. In making these loans, we are subject to state usury and
regulatory laws and to various federal statutes, such as the Equal Credit
Opportunity Act, the Fair Credit Reporting Act, the Truth-in-Lending Act, the
Real Estate Settlement Procedures Act and the Home Mortgage Disclosure Act, and
the regulations promulgated thereunder, which prohibit discrimination, specify
disclosures to be made to borrowers regarding credit and settlement costs and
regulate our mortgage loan servicing activities, including the maintenance and
operation of escrow accounts and the transfer of mortgage loan servicing. The
Riegle Act imposed new escrow requirements on depository and non-depository
mortgage lenders and servicers under the National Flood Insurance Program. See
"-- Recent Regulatory Developments." In receiving deposits, we are subject to
extensive regulation under state and federal law and regulations, including the
Truth-in-Savings Act, the Expedited Funds Availability Act, the Bank Secrecy
Act, the Electronic Funds Transfer Act, and the FDIA. Violation of these laws
could result in the imposition of significant damages and fines upon us and our
directors and officers.
Monetary Policies. The commercial banking business is affected not only by
general economic conditions but also by the monetary policies of the Federal
Reserve Board. The instruments of monetary policy employed by the Federal
Reserve Board include open market operations in United States Government
securities, changes in the discount rate on member bank borrowing and changes in
reserve requirements against deposits held by all federally insured banks.
Federal Reserve Board monetary policies have had a significant effect on the
operating results of commercial banks in the past and are expected to continue
to do so in the future. In view of changing conditions in the national economy
and in the money markets, as well as the effect of actions by monetary fiscal
authorities, including the Federal Reserve Board, no prediction can be made as
to possible future changes in interest rates, deposit levels, loan demand or our
business and earnings.
Community Reinvestment Act. Under the Community Reinvestment Act (the
"CRA") and the implementing regulations, we have a continuing and affirmative
obligation to help meet the credit needs of our local community, including low
and moderate-income neighborhoods, consistent with the safe and sound operation
of the institution. The CRA requires the board of directors of financial
institutions, such as us, to adopt a CRA statement for each assessment area
that, among other things, describes its efforts to help meet community credit
needs and the specific types of credit that the institution is willing to
extend.
45
<PAGE> 47
Our service area is currently designated as certain portions of Brown, Morgan
and Johnson Counties in Indiana. Our board of directors is required to review
the appropriateness of this delineation at least annually.
RECENT REGULATORY DEVELOPMENTS
Riegle and Riegle-Neal Acts. In 1994, the Congress enacted two major pieces
of banking legislation, the Riegle Act and the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 (the "Riegle-Neal Act"). The Riegle Act
addressed such varied issues as the promotion of economic revitalization of
defined urban and rural "qualified distressed communities" through special
purpose "Community Development Financial Institutions," the expansion of
consumer protection with respect to certain loans secured by a consumer's home
and reverse mortgages, and reductions in compliance burdens regarding Currency
Transaction Reports, in addition to reform of the National Flood Insurance
Program, the promotion of a secondary market for small business loans and
leases, and mandating specific changes to reduce regulatory impositions on
depository institutions and holding companies.
The Riegle-Neal Act substantially changed the geographic constraints
applicable to the banking industry. Effective September 29, 1995, the
Riegle-Neal Act allows bank holding companies to acquire banks located in any
state in the United States without regard to geographic restrictions or
reciprocity requirements imposed by state law, but subject to certain
conditions, including limitations on the aggregate amount of deposits that may
be held by the acquiring holding company and all of its insured depository
institution affiliates. Effective June 1, 1997 (or earlier if expressly
authorized by applicable state law), the Riegle-Neal Act allows banks to
establish interstate branch networks through acquisitions of other banks,
subject to certain conditions, including certain limitations on the aggregate
amount of deposits that may be held by the surviving bank and all of its insured
depository institution affiliates. The establishment of de novo interstate
branches or the acquisition of individual branches of a bank in another state
(rather than the acquisition of an out-of-state bank in its entirety) is allowed
by the Riegle-Neal Act only if specifically authorized by state law. The
legislation allowed individual states to "opt-out" of certain provisions of the
Riegle-Neal Act by enacting appropriate legislation prior to June 1, 1997.
In 1996, Indiana authorized out-of-state banks to establish branch offices
in Indiana. The Indiana Financial Institutions Act now permits, in appropriate
circumstances,
(A) with the approval of the DFI:
- the acquisition of all or substantially all of the assets of an
Indiana-chartered bank by an FDIC-insured bank, savings bank or
savings association located in another state,
- the acquisition by an Indiana-chartered bank of all or substantially
all of the assets of an FDIC-insured bank, savings bank or savings
association located in another state,
- the consolidation of one or more Indiana-chartered banks and
FDIC-insured banks, savings banks or savings associations located in
other states having laws permitting such consolidation, with the
resulting organization chartered by Indiana, and
- the organization of a branch in Indiana by FDIC-insured banks located
in other states, the District of Columbia or U.S. territories or
protectorates having laws permitting an Indiana-chartered bank to
establish a branch in such jurisdiction, and
(B) upon written notice to the DFI:
- the acquisition by an Indiana-chartered bank of one or more branches
(not comprising all or substantially all of the assets) of an
FDIC-insured bank, savings bank or savings association located in
another state, the District of Columbia, or a U.S. territory or
protectorate,
- the establishment by Indiana-chartered banks of branches located in
other states, the District of Columbia, or U.S. territories or
protectorates, and
46
<PAGE> 48
- the consolidation of one or more Indiana-chartered banks and
FDIC-insured banks, savings banks or savings associations located in
other states, with the resulting organization chartered by one of such
other states, and
(C) the sale by an Indiana-chartered bank of one or more of its
branches (not comprising all or substantially all of its assets) to an
FDIC-insured bank, savings bank or savings association located in a state
in which an Indiana-chartered bank could purchase one or more branches of
the purchasing entity.
Omnibus Consolidated Appropriations Act. The Omnibus Consolidated
Appropriations Act, 1997 ("OCCA"), was enacted September 30, 1996. It amended
many of the principal federal laws regulating banks and bank holding companies.
As part of the projected conversion or closure of all thrift institutions in the
United States, OCCA modified existing laws (a) to impose a special, one-time
assessment on all deposits insured by the Savings Association Insurance Fund
("SAIF") of the FDIC to bring the SAIF reserves to the statutory minimum ratio
of 1.25% of all SAIF-insured deposits, (b) to permit the financing corporation
to impose (in the same manner as regular FDIC insurance assessments) assessments
upon commercial banks to fund repayment of its bonds which had been issued to
pay for losses resulting from widespread failures of thrift institutions during
the 1980's and (c) to merge, prospectively, the BIF and SAIF into a single
deposit insurance fund. There can be no assurance whether or when the merger of
the BIF and SAIF will in fact occur.
OCCA also amended the BHCA (a) to eliminate the requirement of prior
written notice to the Federal Reserve Board by well-capitalized and well-managed
bank holding companies meeting certain statutory criteria wishing to engage de
novo (or in certain cases through acquisition) in a non-banking activity already
permitted by order or regulation of the Federal Reserve Board, (b) to shorten to
12 business days the prior written notice to the Federal Reserve Board required
from well-managed and well-capitalized bank holding companies meeting such
criteria for other acquisitions of non-banking companies engaged in non-banking
activities so permitted and (c) to eliminate the opportunity for a hearing on
applications to the Federal Reserve Board for permission to engage in
non-banking activities (other than the acquisition of a savings association).
Among the other changes made by OCCA, the statute (a) increased the number
of banks exempted from compliance with the record-keeping and reporting
requirements of the Home Mortgage Disclosure Act and eligible for an 18-month
cycle of regulatory examinations by increasing the total assets threshold in
each case, (b) simplified the disclosure requirements for residential mortgage
loans by harmonizing the requirements of the Truth-in-Lending Act and Real
Estate Settlement Procedures Act, (c) substantially re-wrote the Fair Credit
Reporting Act and (d) expanded the authority of the Federal Reserve Board under
the Consumer Leasing Act and directed the Federal Reserve Board to issue model
disclosure forms for use in leasing personal property.
Gramm-Leach-Bliley Act. On November 12, 1999, President Clinton signed into
law the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. Among other things, the Gramm-Leach-Bliley Act
repeals the restrictions on banks affiliating with securities firms contained in
sections 20 and 32 of the Glass-Steagall Act. This act also creates a new
"financial holding company" under the Bank Holding Company Act, which will
permit holding companies to engage in a statutorily provided list of financial
activities, including insurance and securities underwriting and agency
activities, merchant banking, and insurance company portfolio investment
activities, and authorizes such other financial activities as may be determined
by rule or order of the Federal Reserve Board.
In addition, the Gramm-Leach-Bliley Act imposes significant new financial
privacy obligations and reporting requirements on all financial institutions,
including banks. Among other things, it will require financial institutions (a)
to establish privacy policies and disclose them to customers both at the
commencement of a customer relationship and on an annual basis and (b) to permit
customers to opt out of a financial institution's disclosure of financial
information to nonaffiliated third parties. The Gramm-Leach-Bliley Act requires
the federal financial regulators to promulgate regulations implementing these
47
<PAGE> 49
provisions within six months of enactment, and the statute's privacy
requirements will take effect one year after enactment.
The Gramm-Leach-Bliley Act is intended to grant to community banks certain
powers as a matter of right that larger institutions have accumulated on an ad
hoc basis. Nevertheless, this act may have the result of increasing the amount
of competition that First Shares and First Bank face from larger institutions
and other types of companies. In fact, it is not possible to predict the full
effect that the Gramm-Leach-Bliley Act will have on First Shares and First Bank.
48
<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
GENERAL
All material provisions of our common stock are summarized in this
prospectus. However, the following description of our capital stock is subject
in all respects to applicable Indiana law and to the provisions of our amended
articles of incorporation and amended bylaws, copies of which have been filed as
exhibits to the registration statement of which this prospectus is a part.
Our authorized capital stock consists of 10 million shares of common stock
and 2 million shares of preferred stock. Upon completion of the offering, and
assuming no exercise of the underwriters' over-allotment option, there will be
1,414,512 shares of common stock issued and outstanding and no shares of
preferred stock issued and outstanding. Up to an additional 108,000 shares of
common stock will be issuable upon exercise of outstanding options granted under
our stock option plans. See "Management -- Benefit Plans and Arrangements."
Immediately prior to the offering, 664,512 shares of common stock were
outstanding and we had approximately 120 shareholders of record.
COMMON STOCK
Each holder of common stock is entitled to one vote per share of record on
all matters to be voted upon by the shareholders. Holders do not have cumulative
voting rights in the election of directors or any other matter. Subject to the
preferential rights of the holders of any preferred stock that may at the time
be outstanding, each share of common stock entitles the holder thereof to an
equal and ratable right to receive dividends when, if and as declared from time
to time by the board of directors out of legally available funds. We do not
anticipate paying cash dividends in the foreseeable future. See "Dividend
Policy."
In the event of our liquidation, dissolution or winding up, the holders of
common stock will be entitled to share ratably in all assets remaining after
payments to creditors and after satisfaction of the liquidation preference, if
any, of the holders of any preferred stock that may at the time be outstanding.
Holders of common stock have no preemptive or redemption rights and are not
subject to further calls or assessments. All of the shares of common stock to be
issued and sold in the offering will be, immediately upon consummation of the
offering, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The authorized preferred stock is available for issuance from time to time
at the discretion of the board of directors without shareholder approval. The
board of directors has the authority to prescribe for each series of preferred
stock it establishes the number of shares in that series, the number of votes
(if any) to which the shares in that series are entitled, the consideration for
the shares in that series, and the designations, powers, preferences and other
rights, qualifications, limitations or restrictions of the shares in that
series. Depending upon the rights prescribed for a series of preferred stock,
the issuance of preferred stock could have an adverse effect on the voting power
of the holders of common stock and could adversely affect holders of common
stock by delaying or preventing a change in control, making removal of our
present management more difficult or imposing restrictions upon the payment of
dividends and other distributions to the holders of common stock.
AUTHORIZED BUT UNISSUED SHARES
Indiana law does not require shareholder approval for any issuance of
authorized shares. Authorized but unissued shares may be used for a variety of
corporate purposes, including future public or private offerings to raise
additional capital or to facilitate corporate acquisitions. One of the effects
of the existence of authorized but unissued shares may be to enable the board of
directors to issue shares to persons friendly to current management, which
issuance could render more difficult or discourage an attempt to obtain control
of us by means of a merger, tender offer, proxy contest or otherwise, and
thereby protect the
49
<PAGE> 51
continuity of our management and possibly deprive the shareholders of
opportunities to sell their shares of common stock at prices higher than
prevailing market prices.
CERTAIN PROVISIONS OF AMENDED ARTICLES OF INCORPORATION AND AMENDED BYLAWS
Certain provisions of our amended articles of incorporation and amended
bylaws may delay or make more difficult unsolicited acquisitions or changes of
control. Such provisions could have the effect of discouraging third parties
from making proposals involving an unsolicited acquisition or change in control,
although such proposals, if made, might be considered desirable by a majority of
our shareholders. Such provisions may also have the effect of making it more
difficult for third parties to cause the replacement of our current management
without the concurrence of the board of directors. These provisions include:
- the division of the Board of Directors into three classes serving
"staggered" terms of office of three years (see "Management -- Directors
and Officers");
- the availability of authorized but unissued shares of stock for issuance
from time to time at the discretion of the board of directors (see
"-- Authorized But Unissued Shares");
- provisions allowing the removal of directors only for cause and only upon
a 70% shareholder vote taken at a meeting called for that purpose;
- provisions requiring the participation of 25% of the voting power of the
outstanding common stock (or 70% if First Shares has more than 50
shareholders) in order for the shareholders to demand the calling of a
special meeting of shareholders; and
- requirements for advance notice for raising business or making
nominations at shareholders' meetings.
Our amended bylaws establish an advance notice procedure with regard to
business to be brought before an annual or special meeting of our shareholders
and with regard to the nomination of candidates for election as directors, other
than by or at the direction of the board of directors. Although our amended
bylaws do not give the board of directors any power to approve or disapprove
shareholder nominations for the election of directors or proposals for action,
they may have the effect of precluding a contest for the election of directors
or the consideration of shareholder proposals if the established procedures are
not followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
proposal without regard to whether consideration of such nominees or proposals
might be harmful or beneficial to us and our shareholders.
CERTAIN PROVISIONS OF INDIANA LAW
The Indiana Business Corporation Law (the "IBCL") applies to First Shares
as an Indiana corporation. Under certain circumstances, the following provisions
of the IBCL may delay, prevent or make more difficult unsolicited acquisitions
or changes of control. Such provisions also may have the effect of preventing
changes in our management. It is possible that such provisions could make it
more difficult to accomplish transactions which shareholders may otherwise deem
to be in their best interests.
Control Share Acquisitions. Under Sections 23-1-42-1 to 23-1-42-11 of the
IBCL, an "acquiring person" who makes a "control share acquisition" in an
"issuing public corporation" may not exercise voting rights on any "control
shares" unless such voting rights are conferred by a majority vote of the
disinterested shareholders of the issuing corporation at a special meeting of
such shareholders held upon the request and at the expense of the acquiring
person. In the event that control shares acquired in a control share acquisition
are accorded full voting rights and the acquiring person acquires control shares
with a majority or more of all voting power, all shareholders of the issuing
corporation have dissenters' rights to receive the fair value of their shares.
Under the IBCL, "control shares" means shares acquired by a person that,
when added to all other shares of the issuing public corporation owned by that
person or in respect to which that person may
50
<PAGE> 52
exercise or direct the exercise of voting power, would otherwise entitle that
person to exercise voting power of the issuing public corporation in the
election of directors within any of the following ranges (a) one-fifth or more
but less than one-third; (b) one-third or more but less than a majority; or (c)
a majority or more. "Control share acquisition" means, subject to certain
exceptions, the acquisition, directly or indirectly, by any person of ownership
of, or the power to direct the exercise of voting power with respect to, issued
and outstanding control shares. Shares acquired within 90 days or under a plan
to make a control share acquisition are considered to have been acquired in the
same acquisition. "Issuing public corporation" means a corporation which is
organized in Indiana, has 100 or more shareholders, its principal place of
business, its principal office or substantial assets within Indiana and either
(a) more than 10% of its shareholders resident in Indiana, (b) more than 10% of
its shares owned by Indiana residents or (c) 10,000 shareholders resident in
Indiana.
The above provisions do not apply if, before a control share acquisition is
made, the corporation's articles of incorporation or by-laws (including a board
adopted by-law) provide that they do not apply. First Shares' amended articles
of incorporation and amended bylaws do not exclude First Shares from the
restrictions imposed by such provisions.
Certain Business Combinations. Sections 23-1-43-1 to 23-1-43-23 of the IBCL
restrict the ability of a "resident domestic corporation" to engage in any
combinations with an "interested shareholder" for five years after the
interested shareholder's date of acquiring shares unless the combination or the
purchase of shares by the interested shareholder on the interested shareholder's
date of acquiring shares is approved by the board of directors of the resident
domestic corporation before that date. If the combination was not previously
approved, the interested shareholder may effect a combination after the
five-year period only if such shareholder receives approval from a majority of
the disinterested shares or the offer meets certain fair price criteria. For
purposes of the above provisions, "resident domestic corporation" means an
Indiana corporation that has 100 or more shareholders. "Interested shareholder"
means any person, other than the resident domestic corporation or its
subsidiaries, who is (1) the beneficial owner, directly or indirectly, of 10% or
more of the voting power of the outstanding voting shares of the resident
domestic corporation or (2) an affiliate or associate of the resident domestic
corporation and at any time within the five-year period immediately before the
date in question was the beneficial owner of 10% or more of the voting power of
the then outstanding shares of the resident domestic corporation. The above
provisions do not apply to corporations that so elect in an amendment to their
articles of incorporation approved by a majority of the disinterested shares.
Such an amendment, however, would not become effective until 18 months after its
passage and would apply only to stock acquisitions occurring after its effective
date. First Shares' amended articles of incorporation do not exclude First
Shares from the restrictions imposed by such provisions.
Directors' Duties And Liability. Under Section 23-1-35-1 of the IBCL, our
directors are required to discharge their duties: (a) in good faith; (b) with
the care an ordinarily prudent person in a like position would exercise under
similar circumstances; and (c) in a manner the directors reasonably believe to
be in the best interests of First Shares. However, the IBCL also provides that a
director is not liable for any action taken as a director, or any failure to
act, unless the director has breached or failed to perform the duties of the
director's office and the action or failure to act constitutes willful
misconduct or recklessness. The exoneration from liability under the IBCL does
not affect the liability of directors for violations of the federal securities
laws.
Section 23-1-35-1 of the IBCL also provides that a board of directors, in
discharging its duties, may consider, in its discretion, both the long-term and
short-term best interests of the corporation, taking into account, and weighing
as the directors deem appropriate, the effects of an action on the corporation's
shareholders, employees, suppliers and customers and the communities in which
offices or other facilities of the corporation are located and any other factors
the directors consider pertinent. If a determination is made with the approval
of a majority of the disinterested directors of the board, that determination is
conclusively presumed to be valid unless it can be demonstrated that the
determination was not made in good faith after reasonable investigation. Once
the board has determined that the proposed action is not in the best interests
of the corporation, it has no duty to remove any barriers to the success of the
action,
51
<PAGE> 53
including a rights plan. Section 23-1-35-1 specifically provides that certain
judicial decisions in Delaware and other jurisdictions, which might be looked
upon for guidance in interpreting Indiana law, including decisions that propose
a higher or different degree of scrutiny in response to a proposed acquisition
of the corporation, are inconsistent with the proper application of that
section.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
First Shares' amended articles of incorporation provide that, to the extent
not inconsistent with applicable law, First Shares shall indemnify each of its
directors, officers, employees and agents against all liability and reasonable
expense that may be incurred by him or her in connection with or resulting from
any claim in which he or she may become involved by reason of the fact that he
or she is or was a director, officer, employee or agent of First Shares or by
reason of any action taken or not taken by him or her in any such capacity, if
such person is wholly successful with respect to the claim or, if not wholly
successful, then if such person is determined to have acted in good faith, in
what he or she reasonably believed to be the best interests of First Shares (or
at least not opposed to its best interests) and, in addition, with respect to a
criminal claim, is determined to have had reasonable cause to believe that his
or her conduct was lawful or had no reasonable cause to believe that his or her
conduct was unlawful.
FDIC regulations impose limitations on indemnification payments which could
restrict, in certain circumstances, payments by First Shares or First Bank to
their respective directors or officers otherwise permitted or required under the
IBCL or First Shares' amended articles of incorporation.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons
under the provisions discussed above or otherwise, we have been advised that, in
the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for our common stock will be Registrar and
Transfer Company, Cranford, New Jersey.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we expect to have 1,414,512 shares of
common stock outstanding (plus any additional shares sold upon the underwriters'
exercise of their over-allotment option), all of which either will have been
registered with the SEC under the Securities Act or will have been outstanding
for a sufficient period of time so that they will be eligible for resale without
registration under the Securities Act unless they were acquired by our
directors, executive officers or other affiliates (collectively, "affiliates").
Our affiliates generally will be able to sell shares of the common stock only in
accordance with the limitations of Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, an affiliate (as defined
in Rule 144) may sell shares of common stock within any three-month period in an
amount limited to the greater of 1% of our outstanding shares of common stock or
the average weekly trading volume in our common stock during the four calendar
weeks preceding such sale. Sales under Rule 144 are also subject to certain
manner-of-sale provisions, notice requirements and the availability of current
public information about us.
We and our directors and executive officers (who are expected to hold an
aggregate of approximately 231,692 shares after the offering, excluding the
shares that they have the right to acquire pursuant to options granted to them
under our stock option plans) have agreed, or will agree, that we and they will
not issue, offer for sale, sell, transfer, grant options to purchase or
otherwise dispose of or register with the SEC any shares of common stock (or any
securities convertible into or exercisable for shares of common stock), without
the prior written consent of David A. Noyes & Company, for a period of one year
from the date of this prospectus, except that (a) we may issue shares upon the
exercise of options under our stock option plans and (b) the directors and
officers may give common stock owned by them to others
52
<PAGE> 54
who have agreed in writing to be bound by the same agreement. After the one-year
period, such directors and executive officers will be permitted to sell no more
than 10% of their common stock in each of the next three years.
As of December 31, 1999, we had outstanding options under our stock option
plans to purchase an aggregate of 108,000 shares of our common stock at an
exercise price equal to or less than the initial public offering price of the
common stock, as specified on the cover page of this prospectus. See
"Management -- Benefit Plans and Arrangements."
Prior to the offering, there has been no public trading market for the
common stock, and we cannot predict the effect, if any, that sales of shares or
the availability of shares for sale will have on the prevailing market price of
the common stock after completion of the offering. Nevertheless, sales of
substantial amounts of common stock in the public market could have an adverse
effect on prevailing market prices.
53
<PAGE> 55
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
dated , 2000, the underwriters named below, who are
represented by David A. Noyes & Company (the "Representative"), have severally
agreed to purchase from us the number of shares set forth opposite their names
below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
David A. Noyes & Company....................................
..................................................
..................................................
----------
Total.............................................
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of specific legal matters by their counsel and
to specific other conditions. Except for those shares covered by the
over-allotment option, the underwriters are obligated to purchase and accept
delivery of all the shares if they purchase any of the shares. The
over-allotment option is discussed below.
The underwriters propose to offer initially some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to some dealers at the public offering price
less a concession not in excess of $ per share. The underwriters may allow,
and these dealers may reallow, a concession not in excess of $ per share on
sales to some other dealers. After the initial offering of the shares to the
public, the underwriters may change the public offering price and these
concessions.
The proceeds we will receive as shown on the cover page of this prospectus
do not reflect estimated expenses of $250,000 payable by us. These expenses are
estimated to include printing expenses of $50,000, registration, NASD and
listing fees of $10,500, professional fees of $155,000, blue sky fees and
expenses of $20,000 and miscellaneous expenses of $14,500.
The underwriters have informed us that they do not intend to make sales to
any accounts over which they exercise discretionary authority.
We have granted the underwriters an option, exercisable for 30 days from
the date of the underwriting agreement, to purchase up to 112,500 additional
shares at the public offering price less the underwriting fees. The underwriters
may exercise this option solely to cover over-allotments, if any, made in
connection with this offering. To the extent that the underwriters exercise this
option, each underwriter will become obligated, subject to specific conditions,
to purchase a number of additional shares about proportionate to that
underwriter's initial purchase commitment.
We have agreed to indemnify the underwriters against some civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the underwriters may be required to make in respect of any of
those liabilities.
We and our executive officers and directors have agreed that, for a period
of one year from the date of this prospectus, we and they will not, subject to
some exceptions, without the prior written consent of David A. Noyes & Company
(1) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock; or (2) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any common stock (regardless of whether any of the transactions
described in clause (1) or (2) is to be settled by the delivery of common stock
or other securities, in cash or otherwise). After the one-year period, such
directors and executive officers will be permitted to sell no more than 10% of
their common stock in each of the next three years.
54
<PAGE> 56
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
included in this offering in any jurisdiction where action for that purpose is
required. The shares included in this offering may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisement in connection with the offer and sale of any of these shares be
distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and regulations of that
jurisdiction. Persons who receive this prospectus are advised to inform
themselves about and to observe any restrictions relating to the offering of the
common stock and the distribution of this prospectus. This prospectus is not an
offer to sell or a solicitation of an offer to buy any shares of common stock
included in this offering in any jurisdiction where that would not be permitted
or legal.
The common stock being offered is a new issue of securities with no prior
established trading market. The underwriters have advised us that, upon
completion of the offering, they intend to make a market in the common stock,
although they are not obligated to do so. Making a market in securities involves
maintaining bid and ask quotations and being able, as principal, to effect
transactions in reasonable quantities at those quoted prices, subject to various
securities laws and other regulatory requirements. The development of a public
trading market depends, however, upon the existence of willing buyers and
sellers, the presence of which is not within our control or the control of any
market-maker. The underwriters may discontinue market-making at any time without
notice. We cannot assure you that the trading market for the common stock
offered in this prospectus will be liquid.
In connection with this offering, some underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of common stock in the open market to cover syndicate short
positions or to stabilize the price of the common stock. These activities may
stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.
Prior to this offering, there has been no public market for our common
stock. Accordingly, the public offering price for the common stock was
determined by negotiations between us and the underwriters. This price should
not be construed as indicative of the present or anticipated future value of the
common stock. Several factors were considered in determining the initial
offering price of the common stock, among them the size of the offering, the
initial public offering prices of similar bank holding companies, the
underwriters' experience in dealing with initial public offerings for financial
institutions and the general condition of the equity securities market. We
cannot assure you, however, that the prices at which the common stock will sell
in the public market after this offering will not be lower than the price at
which the shares of common stock are sold by the underwriters.
David A. Noyes & Company from time to time provides investment banking and
financial advisory services to us, including in connection with our acquisition
of a branch in Nashville, Indiana, for which it receives customary fees.
LEGAL OPINIONS
Bose McKinney & Evans LLP, Indianapolis, Indiana, will pass upon the
legality of the securities offered by this prospectus for us. R.J. McConnell,
one of our directors, is a partner in Bose McKinney & Evans LLP. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Leagre Chandler & Millard LLP. Leagre Chandler & Millard LLP has
acted as counsel for us in the past and is currently acting as our counsel in
connection with the acquisition of a branch bank.
55
<PAGE> 57
EXPERTS
The audited consolidated financial statements of First Shares Bancorp, Inc.
and Subsidiaries as of December 31, 1999 and 1998 and for each of the three
years in the period ended December 31, 1999, included in this prospectus, have
been audited by Crowe, Chizek and Company LLP, independent public accountants,
as indicated in their report with respect thereto and included herein in
reliance upon the authority of said firm as experts in giving said report.
56
<PAGE> 58
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Three Years Ended December 31, 1999
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets, December 31, 1998 and December
31, 1999.................................................. F-3
Consolidated Statements of Operations for the three-year
period ended December 31, 1999............................ F-4
Consolidated Statements of Changes in Shareholders' Equity
for the three-year period ended December 31, 1999......... F-5
Consolidated Statements of Cash Flows for the three year
period ended December 31, 1999............................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 59
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
First Shares Bancorp, Inc.
Greenwood, Indiana
We have audited the accompanying consolidated balance sheets of First
Shares Bancorp, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Shares Bancorp, Inc.
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Indianapolis, Indiana
January 14, 2000, except for Note 1 with
respect to the equity transaction, as to which
the date is February 11, 2000
F-2
<PAGE> 60
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash and due from banks..................................... $ 2,460 $ 1,674
Interest-bearing deposits................................... 100 --
Federal funds sold.......................................... 89 3,000
------- -------
Cash and cash equivalents......................... 2,649 4,674
Securities available for sale (at market)................... 16,875 8,535
Securities held to maturity (market values of $616 and
$1,341 in 1999 and 1998).................................. 617 1,334
FHLB stock, at cost......................................... 129 126
Loans held for sale......................................... 601 --
Loans, net of allowance ($549 and $346)..................... 44,996 26,305
Premises and equipment, net................................. 1,696 634
Intangible assets, net...................................... 206 250
Accrued interest receivable and other assets................ 901 1,007
------- -------
$68,670 $42,865
======= =======
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Liabilities
Noninterest-bearing deposits.............................. $ 6,990 $ 5,946
Interest-bearing deposits................................. 55,997 32,161
------- -------
Total deposits.................................... 62,987 38,107
Federal Home Loan Bank advances........................... 800 --
Accrued interest payable and other liabilities............ 286 273
------- -------
64,073 38,380
Shareholders' equity
Common stock, $.01 par value: 10,000,000 shares
authorized, 664,512 (1999) and 557,760 (1998) shares
issued................................................. 7 6
Additional paid in capital................................ 1,988 1,089
Retained earnings......................................... 2,749 3,447
Accumulated other comprehensive income.................... (147) 27
Less: Treasury stock, at cost (0 and 12,180 shares)....... -- (84)
------- -------
4,597 4,485
------- -------
$68,670 $42,865
======= =======
</TABLE>
F-3
<PAGE> 61
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Interest income
Loans, including related fees............................. $3,157 $2,778 $2,630
Taxable securities........................................ 555 295 541
Nontaxable securities..................................... 77 83 45
Other..................................................... 122 165 95
------ ------ ------
3,911 3,321 3,311
Interest expense
Deposits.................................................. 1,785 1,470 1,502
Other..................................................... 32 -- 3
------ ------ ------
1,817 1,470 1,505
NET INTEREST INCOME......................................... 2,094 1,851 1,806
Provision for loan losses................................... 280 526 15
------ ------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 1,814 1,325 1,791
Noninterest income
Service charges on deposit accounts....................... 128 121 130
Gain (loss) on sale of other real estate.................. (25) 3 6
Other..................................................... 95 59 80
------ ------ ------
198 183 216
Noninterest expenses
Salaries and employee benefits............................ 1,615 885 937
Occupancy................................................. 151 67 62
Equipment and data processing............................. 253 196 135
Core deposit amortization................................. 44 44 42
Postage, freight and express.............................. 44 39 40
Advertising............................................... 117 24 20
Stationery and office supplies............................ 57 27 31
Telephone and telegraph................................... 64 34 30
Committee and director fees............................... 46 39 34
Other..................................................... 303 244 206
------ ------ ------
2,694 1,599 1,537
------ ------ ------
INCOME (LOSS) BEFORE INCOME TAXES........................... (682) (91) 470
Income tax expense (benefit)................................ (73) (85) 182
------ ------ ------
NET INCOME (LOSS)........................................... $ (609) $ (6) $ 288
====== ====== ======
Per share data
Earnings/(loss) per share................................. $ (.97) $ (.01) $ .53
Earnings/(loss) per share, assuming dilution.............. (.97) (.01) .52
</TABLE>
F-4
<PAGE> 62
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS INCOME STOCK EQUITY
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997.... $ 6 $1,061 $3,345 $ 1 $(90) $4,323
Comprehensive income:
Net income.................. -- -- 288 -- -- 288
Change in unrealized gain/
(loss)................... -- -- -- 20 -- 20
------
Total comprehensive
income............ 308
Cash dividends ($.16 per
share)................... -- -- (89) -- -- (89)
Reissue of treasury stock
(672 shares)............. -- -- -- -- 5 5
Stock options outstanding... -- 19 -- -- -- 19
------ ------ ------ ----- ---- ------
BALANCE AT DECEMBER 31,
1997........................ 6 1,080 3,544 21 (85) 4,566
Comprehensive loss:
Net loss.................... -- (6) -- -- (6)
Changes in unrealized
gain/(loss).............. -- -- -- 6 -- 6
------
Total comprehensive
loss.............. --
Cash dividends ($.17 per
share)................... -- -- (91) -- -- (91)
Reissue of treasury stock
(90 shares).............. -- -- -- -- 1 1
Stock options outstanding... -- 9 -- -- -- 9
------ ------ ------ ----- ---- ------
BALANCE AT DECEMBER 31,
1998........................ 6 1,089 3,447 27 (84) 4,485
Comprehensive loss:
Net loss.................... -- -- (609) -- -- (609)
Changes in unrealized gain/
(loss)................... -- -- -- (174) -- (174)
------
Total comprehensive
loss.............. (783)
Cash dividends ($.13 per
share)................... -- -- (89) -- -- (89)
Sale of 121,830 shares at
$8.19 per share.......... 1 996 -- -- -- 997
Purchase of treasury stock
(2,898 shares)........... -- -- -- -- (23) (23)
Retirement of treasury
stock.................... -- (107) -- -- 107 --
Stock options outstanding... -- 10 -- -- -- 10
------ ------ ------ ----- ---- ------
BALANCE AT DECEMBER 31,
1999........................ $1,957 $1,988 $2,749 $(147) $ -- $4,597
====== ====== ====== ===== ==== ======
</TABLE>
F-5
<PAGE> 63
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $ (609) $ (6) $ 288
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization.......................... 171 111 91
Provision for loan losses.............................. 280 526 15
Stock option compensation expense...................... 10 9 19
Discount (accretion) and premium amortization.......... 13 2 (4)
Amortization of intangible asset....................... 44 44 48
Changes in assets and liabilities:
Loans held for sale.................................. (601) -- --
Interest receivable and other assets................. 85 (271) 122
Interest payable and other liabilities............... 126 (105) 106
-------- ------- -------
Net cash from operating activities................ (481) 310 685
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of securities available
for sale............................................... 5,941 3,539 2,558
Proceeds from maturities of securities held to maturity... 715 1,541 3,174
Purchases of securities available for sale................ (14,579) (7,158) (3,277)
Purchase of Federal Home Loan Bank stock.................. (3) (2) (3)
Loans made to customers net of payments received.......... (18,971) 1,860 (3,627)
Premises and equipment purchases.......................... (1,212) (76) (151)
-------- ------- -------
Net cash from investing activities................ (28,109) (296) (1,326)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in deposit accounts................................ 24,880 1,109 206
Proceeds from Federal Home Loan Bank advances............. 2,300 -- --
Payments on Federal Home Loan Bank advance................ (1,500) -- --
Dividends paid............................................ (89) (91) (89)
Issuance of common stock.................................. 997 -- --
Net purchase/reissue of treasury stock.................... (23) 1 5
-------- ------- -------
Net cash from financing activities................ 26,565 1,019 122
-------- ------- -------
Net change in cash and cash equivalents..................... (2,025) 1,033 (519)
Cash and cash equivalents at beginning of year.............. 4,674 3,641 4,160
-------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 2,649 $ 4,674 $ 3,641
======== ======= =======
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest............................................... $ 1,724 $ 1,410 $ 1,520
Income taxes........................................... 34 39 127
</TABLE>
F-6
<PAGE> 64
FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Description of Consolidation: The accompanying
consolidated financial statements include the accounts of First Shares Bancorp,
Inc. (the Company) and its wholly-owned subsidiary, First Bank (the Bank).
Intercompany balances and transactions are eliminated in consolidation. The Bank
operates from five locations which generate commercial, mortgage and installment
loans, and receives deposits from customers located primarily in Johnson, Morgan
and Brown Counties of Indiana. The majority of the Company's income is derived
from commercial and retail lending activities and investments. The majority of
the Bank's loans are secured by specific items of collateral including business
assets, real property and consumer assets.
Use of Estimates: 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 the disclosures
provided, and future results could differ. Areas where management's estimates
and assumptions are more susceptible to change in the near term include the
allowance for loan losses and the fair values of financial instruments.
Securities: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported in other comprehensive income
(loss). Other securities such as Federal Home Loan Bank are carried at cost.
Securities are written down to fair value when a decline in fair value is not
temporary. Interest and dividend income, adjusted by amortization of purchase
premium or discount, is included in earnings.
Loans: Loans are reported at the principal balance outstanding, net of
unearned interest, deferred loan fees and costs, and an allowance for loan
losses. Loans held for sale are reported at the lower of cost or market, on an
aggregate basis. Interest income is reported on the interest method and includes
amortization of net deferred loan fees and costs over the loan term.
Interest income is not reported when full loan repayment is in doubt,
typically when payments are past due over 90 days. Payments received on such
loans are reported as principal reductions.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss experience, known and inherent risks in the portfolio,
information about specific borrower situations and estimated collateral values,
economic conditions, and other factors. Allocations of the allowance may be made
for specific loans, but the entire allowance is available for any loan that, in
management's judgement, should be charged-off.
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from collateral.
Premises and Equipment: Asset cost is reported net of accumulated
depreciation. Depreciation expense is calculated on the straight-line method
over asset useful lives.
Long-Term Assets: These assets are reviewed for impairment when events
indicate their carrying amount may not be recoverable from future undiscounted
cash flows. If impaired, the assets are recorded at discounted amounts.
F-7
<PAGE> 65
FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes: Income tax expense is the sum 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 consequences of
temporary differences between the 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.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
Intangible Assets: Intangibles consist primarily of a core deposit
intangible from a 1996 branch acquisition and is being amortized over 10 years
on an accelerated basis.
Concentration of Funds: At December 31, 1999 and 1998 the Bank's cash
balances with Bank One, Indianapolis NA totaled $778 and $3,821, respectively.
Cash Flows: Cash and cash equivalents include cash, deposits with other
financial institutions under 90 days, and federal funds sold. Net cash flows are
reported for customer loan and deposit transactions and interest bearing
deposits with other banks.
Stock Compensation: Expense for employee compensation under stock option
plans is reported when options are granted below market price at grant date. In
addition, pro forma disclosures of net income and earnings per share are shown
using the fair value method to measure expense for options granted, using an
option pricing method to estimate fair value.
Earnings Per Share: Earnings per share is based on weighted-average common
shares outstanding. Diluted earnings per share includes the dilutive effect of
additional potential shares issuable under outstanding options. Earnings,
dividends per share, and other financial information are restated for all stock
splits and dividends through the date of issue of the financial statements.
Equity Transaction: On January 21, 2000, the Company declared a 6:1 stock
split. On February 11, 2000, the shareholders approved a change in authorized
shares to 10,000,000 and set par value at $.01 per share.
Comprehensive Income/(Loss): Comprehensive income consists of net
income/(loss) and other comprehensive income/(loss). Other comprehensive
income/(loss) includes unrealized gains and losses on securities available for
sale which are also recognized as separate components of equity.
Fair Value of Financial Instruments: Fair values of financial instruments
are estimated using relevant market information and other assumptions, as more
fully disclosed in a separate note. Fair value estimates involve uncertainties
and matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Dividend Restriction: Banking regulations require the maintenance of
certain capital levels that may limit the amount of dividends which may be paid
by the Bank to the Company or by the Company to its shareholders.
Industry Segment: Internal financial information is reported and aggregated
in one line of business, banking.
New Accounting Pronouncements: Beginning January 1, 2001, a new accounting
standard will require all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
income statement. Fair value changes involving hedges will generally be recorded
by
F-8
<PAGE> 66
FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
offsetting gains and losses on the hedge and on the hedged item, even if the
fair value of the hedged item is not otherwise recorded. This is not expected to
have a material effect, but the effect will depend on derivative holdings when
this standard applies.
NOTE 2 -- SECURITIES
The amortized cost and fair values of securities at December 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
1999
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury and government agency securities...... $ 7,270 $-- $(151) $ 7,119
Obligations of states and political subdivisions.... 749 -- (41) 708
Other securities.................................... 8,336 3 (32) 8,307
Mortgage backed securities.......................... 763 -- (22) 741
------- --- ----- -------
$17,118 $ 3 $(246) $16,875
======= === ===== =======
HELD TO MATURITY
U.S. Treasury and government agency securities...... $ 251 $-- $ (3) $ 248
Obligations of states and political subdivisions.... 355 2 -- 357
Mortgage backed securities.......................... 11 -- -- 11
------- --- ----- -------
$ 617 $ 2 $ (3) $ 616
======= === ===== =======
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury and government agency securities...... $ 4,503 $19 $ (7) $ 4,515
Obligations of states and political subdivisions.... 1,949 44 (7) 1,986
Other securities.................................... 1,020 -- (7) 1,013
Mortgage backed securities.......................... 1,019 2 -- 1,021
------- --- ----- -------
$ 8,491 $65 $ (21) $ 8,535
======= === ===== =======
HELD TO MATURITY
U.S. Treasury and government agency securities...... $ 747 $ 3 $ (5) $ 745
Obligations of states and political subdivisions.... 355 9 -- 364
Mortgage backed securities.......................... 232 -- -- 232
------- --- ----- -------
$ 1,334 $12 $ (5) $ 1,341
======= === ===== =======
</TABLE>
F-9
<PAGE> 67
FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and fair value of debt securities at December 31, 1999,
by contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
------------------- -----------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Due in one year or less......................... $ 9,485 $ 9,468 $330 $328
Due after one year through five years........... 4,744 4,614 276 277
Due after five years through ten years.......... 1,761 1,716 -- --
Due after ten years............................. 365 336 -- --
Mortgage backed securities...................... 763 741 11 11
------- ------- ---- ----
$17,118 $16,875 $617 $616
======= ======= ==== ====
</TABLE>
Information about the sales of securities available for sale follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Proceeds.................................................... $1,192 $-- $956
Gross realized gains........................................ 7 -- 5
Gross realized losses....................................... 7 -- 5
</TABLE>
NOTE 3 -- LOANS
Total loans are comprised of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Commercial.................................................. $10,917 $ 5,123
Commercial Real Estate...................................... 5,566 4,952
Residential Real Estate..................................... 13,779 9,731
Construction................................................ 4,921 3,883
Consumer.................................................... 10,362 2,962
------- -------
$45,545 $26,651
======= =======
</TABLE>
NOTE 4 -- ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Balance, January 1.......................................... $ 346 $ 396 $ 555
Provision charged to operations............................. 280 526 15
Loans charged off........................................... (169) (628) (233)
Recoveries.................................................. 92 52 59
----- ----- -----
Balance, December 31........................................ $ 549 $ 346 $ 396
===== ===== =====
</TABLE>
F-10
<PAGE> 68
FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Impaired loans were as follows.
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Year-end loans with no allowance for loan losses
allocated................................................. $ -- $ 94
Year-end loans with allowance for loan losses allocated..... -- 106
Amount of the allowance allocated........................... -- 13
Average of impaired loans during the year................... 70 189
Interest income recognized during impairment................ -- --
Cash-basis interest income recognized....................... -- --
</TABLE>
NOTE 5 -- PREMISES AND EQUIPMENT
Premises and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Land........................................................ $ 26 $ 26
Buildings and improvements.................................. 540 508
Leasehold improvements...................................... 466 --
Furniture and equipment..................................... 1,507 821
------ ------
Total............................................. 2,539 1,355
Accumulated depreciation.................................... (843) (721)
------ ------
$1,696 $ 634
====== ======
</TABLE>
NOTE 6 -- DEPOSITS
Certificates of deposit in denominations of $100 or more totaled $10,444
and $3,168 at December 31, 1999 and 1998.
At year-end 1999, scheduled maturities of time deposits were as follows:
<TABLE>
<S> <C>
2000....................................................... $26,593
2001....................................................... 8,857
2002....................................................... 1,130
2003....................................................... 2,031
2004....................................................... 203
Thereafter................................................. --
-------
$38,814
=======
</TABLE>
NOTE 7 -- FEDERAL HOME LOAN BANK ADVANCES
At December 31, 1999, the Bank has an outstanding advance with the Federal
Home Loan Bank. The advance has a principal balance of $800 and is payable at
its maturity date of September 10, 2001, with a pre-payment penalty. The advance
has a variable interest rate which was 6.60% at December 31, 1999. The advance
is collateralized by eligible securities and first mortgage loans under a
blanket lien arrangement. At December 31, 1998, the Bank had no advances
outstanding.
NOTE 8 -- EMPLOYMENT BENEFIT PLANS
The Bank maintains a 401(k) retirement plan in which substantially all
employees may participate. Employee contributions are limited to a maximum of
15% of their salary. The Plan allows for employer matching contributions up to
6% of employee's compensation, and employer discretionary contributions. The
Bank's contributions to the Plan become 20% vested after each year of service,
and are fully vested
F-11
<PAGE> 69
FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
after 5 years. Total 401(k) contributions charged to expense were $18, $22 and
$40 in 1999, 1998 and 1997.
The Bank has a deferred compensation plan for the benefit of certain
directors. Under the plan, the Bank agrees, in return for the directors
deferring the receipt of a portion of their current compensation, to pay a
retirement benefit computed as the amount of the compensation deferred plus
accrued interest at a variable rate. Accrued benefits payable totaled $92 and
$70 at December 31, 1999 and 1998. The Bank purchased life insurance on the
directors. The cash surrender value of that insurance was $438 and $415 at
December 31, 1999 and 1998 and is carried as an other asset on the consolidated
balance sheet.
NOTE 9 -- INCOME TAXES
Income tax expense/(benefit) consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current payable/(receivable)................................ $(74) $(43) $125
Deferred income tax......................................... 1 (42) 57
---- ---- ----
Income tax expense/(benefit)...................... $(73) $(85) $182
==== ==== ====
</TABLE>
The following is a reconciliation of income taxes and the amount computed
by applying the statutory federal income tax rate of 34% to income/(loss) before
income taxes for December 31:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Statutory rate applied to income/(loss) before income
taxes..................................................... $(232) $(38) $160
Add (deduct)
State income tax, net..................................... -- (4) 29
Tax exempt interest income, net........................... (22) (24) (14)
Other..................................................... (13) (19) 7
Valuation Allowance......................................... 194 -- --
----- ---- ----
Total income tax expense/(benefit)................ $ (73) $(85) $182
===== ==== ====
</TABLE>
F-12
<PAGE> 70
FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities as of December 31, 1999 and 1998, are
comprised of the following components:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................. $ 142 $ 91
Stock options............................................. 15 11
Core deposit.............................................. 36 28
Net unrealized loss on securities available for sale...... 96 --
Net operating loss carryforward........................... 155 --
----- -----
Total deferred tax assets......................... 444 130
Deferred tax liabilities:
Depreciation.............................................. (86) (53)
Deferred loan fees........................................ (54) --
Accrual to cash........................................... (14) (57)
Net unrealized gain on securities available for sale...... -- (17)
Other..................................................... -- (19)
----- -----
Total deferred liabilities........................ (154) (146)
Valuation allowance......................................... (194) --
----- -----
Net deferred tax asset/(liability)........................ $ 96 $ (16)
===== =====
</TABLE>
A net operating loss of approximately $450 is being carried forward. It
expires, if not used, in 2019.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Bank has guarantees and commitments
to extend credit which are not reflected in the balance sheet. The Bank's
exposure to credit loss in the event of nonperformance by the other party to the
financial instrument is represented by the contractual amount of those
instruments. The Bank uses the same credit policy to make such commitments as it
does for on-balance sheet items. At December 31, 1999 and 1998, unused lines of
credit and standby letters of credit totaled $8,439 and $3,059, respectively.
Since many commitments to make loans expire without being used, the amount does
not necessarily represent future cash commitments. Collateral obtained upon
exercise of the commitment is determined using management's credit evaluation of
the borrower, and may include accounts receivable, inventory, property, land and
other items.
At year-end 1999 and 1998, reserves of $183 and $117 were required as
deposits with the Federal Reserve or as cash on hand. These reserves do not earn
interest.
The Bank leases branch facilities under operating leases expiring in
various years through 2004. Expense for leased premises was $48, $0, and $0 for
1999, and 1998 and 1997.
Future minimum lease payments are as follows:
<TABLE>
<S> <C>
2000........................................................ $111
2001........................................................ 78
2002........................................................ 78
2003........................................................ 47
2004........................................................ 47
----
Total............................................. $361
====
</TABLE>
F-13
<PAGE> 71
FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1999, the Company entered into employment contracts with certain
executive officers. The contracts have an initial term of three years, with the
expiration extended an additional year at each anniversary date. The contracts
provide for severance payments and other benefits, the amount of which depends
upon the nature of the separation. No amount is accrued at December 31, 1999
under these contracts.
NOTE 11 -- REGULATORY MATTERS
The Bank is subject to regulatory capital requirements administered by
federal banking agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and
certain off-balance sheet items calculated under regulatory accounting
practices.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
At year end 1999, the capital requirements were met and the Bank was
categorized as "adequately capitalized." Actual capital levels and minimum
required levels for the Bank were as follows:
<TABLE>
<CAPTION>
1998
--------------------------------------------------------
MINIMUM REQUIRED
TO BE WELL
MINIMUM REQUIRED CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION REGULATIONS
-------------- ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets).... $5,056 9.1% $4,427 8.0% $5,533 10.0%
Tier 1 capital (to risk weighted assets)... $4,507 8.1% $2,213 4.0% $3,320 6.0%
Tier 1 capital (to average assets)......... $4,507 7.1% $2,527 4.0% $3,159 5.0%
</TABLE>
<TABLE>
<CAPTION>
1998
--------------------------------------------------------
MINIMUM REQUIRED
TO BE WELL
MINIMUM REQUIRED CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION REGULATIONS
-------------- ----------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted
assets)................................ $4,476 15.7% $2,276 8.0% $2,845 10.0%
Tier 1 capital (to risk weighted
assets)................................ $4,130 14.5% $1,138 4.0% $1,707 6.0%
Tier 1 capital (to average assets)....... $4,130 9.9% $1,666 4.0% $2,083 5.0%
</TABLE>
NOTE 12 -- STOCK OPTIONS
The Company has established two separate stock option plans, the 1996 plan
and the 1999 plan. Under the 1996 plan, 48,000 shares of common stock were set
aside for option granting. In November 1996, 48,000 shares were granted at an
exercise price of $6.67, which was less than fair value at the date of grant. At
grant date 25% of the options granted were available for immediate exercise with
the balance vesting at 25% over the next three years. The options expire seven
years from the grant date. No options have been exercised, or forfeited.
Compensation cost recognized for stock options was $10, $9 and $19 for 1999,
1998 and 1997.
F-14
<PAGE> 72
FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, options outstanding under the 1996 plan were as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Number of options.......................................... 48,000 48,000
Exercise price............................................. $6.67 $6.67
Remaining option life...................................... 4 years 5 years
Options now exercisable.................................... 48,000 36,000
</TABLE>
Under the 1999 plan, 93,000 shares of common stock were set aside for
option granting. In May, 1999, 60,000 shares were granted at an exercise price
of $8.23, which was fair value at the date of grant. At grant date 25% of the
options granted were available for immediate exercise with the balance vesting
at 25% over the next three years. The options expire seven years from grant
date. No options were exercised or forfeited during the year. No compensation
cost was recognized for stock options granted in 1999.
At December 31, options outstanding for the 1999 plan were as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Number of options........................................... 60,000 --
Exercise price.............................................. $8.23 --
Remaining option life....................................... 6.5 years --
Options now exercisable..................................... 15,000 --
</TABLE>
Had compensation cost for stock options been measured using the fair value
method, net income and earnings per share would have been the pro forma amounts
indicated below. The pro forma effect may increase in the future if more options
are granted.
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net income as reported...................................... $(609) $ (6) $288
Pro forma net income........................................ (644) (12) 278
Basic earnings per share as reported........................ (.97) (.01) .53
Pro forma basic earnings per share.......................... (1.03) (.02) .51
Diluted earnings per share as reported...................... (.97) (.01) .52
Pro forma diluted earnings per share........................ (1.03) (.02) .50
</TABLE>
The pro forma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date.
<TABLE>
<CAPTION>
1999
<S> <C>
Risk-free interest rate..................................... 5.66%
Expected option life........................................ 7 years
Expected stock price volatility............................. 0
Dividend yield.............................................. 1.63%
Weighted average fair value per option granted.............. $1.75
</TABLE>
F-15
<PAGE> 73
FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- EARNINGS (LOSS) PER SHARE
A reconciliation of the numerators and denominators used to compute
earnings per share and earnings per share, assuming dilution, is presented
below:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
EARNINGS (LOSS) PER SHARE
Net income (loss).................................. $ (609) $ (6) $ 288
======== ======== ========
Weighted average shares outstanding................ 627,372 545,532 545,304
======== ======== ========
Earnings (loss) per share.................. $ (.97) $ (.01) $ .53
======== ======== ========
EARNINGS (LOSS) PER SHARE ASSUMING DILUTION
Net income (loss).................................. $ (609) $ (6) $ 288
======== ======== ========
Weighted average shares outstanding................ 627,372 545,532 545,304
Add: effect of assumed stock options exercised,
if dilutive..................................... -- -- 8,898
-------- -------- --------
Weighted average and dilutive potential shares
outstanding..................................... 627,372 545,532 554,202
======== ======== ========
Earnings (loss) per share assuming
dilution................................. $ (.97) $ (.01) $ .52
======== ======== ========
</TABLE>
NOTE 14 -- OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Unrealized holding gains (losses) on securities
available-for-sale........................................ $(287) $10 $ 32
Less reclassification adjustments for gains and losses later
recognized in income...................................... -- -- --
----- --- ----
Net unrealized gains.............................. (287) 10 32
Tax effect.................................................. 113 (4) (12)
----- --- ----
Other comprehensive income........................ $(174) $ 6 $ 20
===== === ====
</TABLE>
F-16
<PAGE> 74
FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
Carrying amount and estimated fair values of financial instruments were as
follows at year-end.
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents........................ $ 2,649 $ 2,649 $ 4,674 $ 4,674
Securities available for sale.................... 16,875 16,875 8,535 8,535
Securities held to maturity...................... 617 616 1,334 1,341
Loans held for sale.............................. 601 601 -- --
Loans, net....................................... 44,996 45,255 26,305 26,722
Federal Home Loan Bank stock..................... 129 129 126 126
Accrued interest receivable...................... 318 318 329 329
Financial liabilities
Deposits......................................... (62,987) (63,230) (38,107) (38,266)
Federal Home Loan Bank advances.................. (800) (800) -- --
Accrued interest payable......................... (187) (187) (94) (94)
</TABLE>
The methods and assumptions used to estimate fair value are described as
follows:
Carrying amount is the estimated fair value for cash and cash equivalents,
short-term borrowings, Federal Home Loan Bank stock, accrued interest receivable
and payable, demand deposits, short-term debt, and variable rate loans or
deposits that reprice frequently and fully. Security fair values are based on
market prices or dealer quotes, and if no such information is available, on the
rate and term of the security and information about the issuer. For fixed rate
loans or deposits and for variable rate loans or deposits with infrequent
repricing and repricing limits, fair value is based on discounted cash flows
using current market rates applied to the estimated life and credit risk. Fair
values for impaired loans are estimated using discounted cash flow analysis or
underlying collateral values. Fair value of loans held for sale is based on
market quotes. Fair value of debt is based on current rates for similar
financing. The fair value of off-balance-sheet is based on the current fees or
cost that would be charged to enter into or terminate such arrangements.
NOTE 16 -- BRANCH ACQUISITION
Effective February 2000, the Bank signed a definitive agreement to acquire
a branch located in Nashville, Indiana. Under the terms of the agreement, the
Bank will acquire the deposits totaling approximately $14,000, selected loans
totaling approximately $5,500 in addition to all physical facilities.
Intangibles associated with this purchase will be approximately $1,200. The
transaction is subject to regulatory approval and is expected to close in the
second quarter of 2000.
F-17
<PAGE> 75
FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of First Shares Bancorp, Inc. follows:
CONDENSED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash and cash equivalents................................... $ 37 $ 63
Investment in and advances to banking subsidiaries.......... 4,566 4,407
Other assets................................................ 58 46
------ ------
Total assets...................................... $4,661 $4,516
====== ======
LIABILITIES AND EQUITY
Accrued expenses and other liabilities...................... $ 64 $ 31
Shareholders' equity........................................ 4,597 4,485
------ ------
Total liabilities and shareholders' equity........ $4,661 $4,516
====== ======
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Dividends from banking subsidiaries......................... $ 89 $91 $ 89
Other income................................................ 2 -- --
Other expense............................................... 25 21 30
----- --- ----
Income before income tax and undistributed subsidiary
income.................................................... 66 70 59
Income tax expense (benefit)................................ -- (7) (5)
Equity in undistributed subsidiary income................... (675) (83) 224
----- --- ----
Net income........................................ $(609) $(6) $288
===== === ====
</TABLE>
F-18
<PAGE> 76
FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities
Net income/(loss)......................................... $ (609) $ (6) $ 288
Adjustments:
Stock option compensation expense...................... 9 10 19
Equity in undistributed subsidiary income.............. 675 83 (224)
Change in other assets................................. (19) 11 11
Change in other liabilities............................ 33 -- 9
------- ---- -----
Net cash from operating activities................ 89 98 103
Cash flows from financing activities
Contribution to subsidiary................................ (1,000) -- --
Issuance of common stock.................................. 997 -- --
Net purchase/reissue of treasury stock.................... (23) 1 5
Dividends paid............................................ (89) (91) (89)
------- ---- -----
Net cash from financing activities................ (115) (90) (84)
------- ---- -----
Net change in cash and cash equivalents..................... (26) 8 19
Beginning cash and cash equivalents......................... 63 55 36
------- ---- -----
Ending cash and cash equivalents............................ $ 37 $ 63 $ 55
======= ==== =====
</TABLE>
F-19
<PAGE> 77
------------------------------------------------------
------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THOSE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE THAT
WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY
SALES MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THE AFFAIRS OF THE COMPANY
HAVE NOT CHANGED SINCE THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 6
Recent Developments.................. 10
Use of Proceeds...................... 10
Dividend Policy...................... 11
Capitalization....................... 12
Selected Consolidated Financial and
Other Data......................... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 14
Business............................. 27
Management........................... 33
Principal Shareholders............... 37
Supervision and Regulation........... 39
Description of Capital Stock......... 49
Shares Eligible for Future Sale...... 52
Underwriting......................... 54
Legal Opinions....................... 55
Experts.............................. 56
Index to Financial Statements........ F-1
</TABLE>
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
750,000 SHARES
[FIRST SHARES BANCORP, INC. LOGO]
FIRST SHARES
BANCORP, INC.
COMMON STOCK
---------------------------------
PROSPECTUS
---------------------------------
DAVID A. NOYES
& COMPANY
, 2000
------------------------------------------------------
------------------------------------------------------
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
First Shares is an Indiana corporation. First Shares' officers and
directors are and will be indemnified under Indiana law and the amended articles
of incorporation of First Shares against certain liabilities. Chapter 37 of The
Indiana Business Corporation Law (the "IBCL") requires a corporation, unless its
articles of incorporation provide otherwise, to indemnify a director or an
officer of the corporation who is wholly successful, on the merits or otherwise,
in the defense of any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether
formal or informal, against reasonable expenses, including counsel fees,
incurred in connection with the proceeding. First Shares' amended articles of
incorporation do not contain any provision prohibiting such indemnification.
The IBCL also permits a corporation to indemnify a director, officer,
employee or agent who is made a party to a proceeding because the person was a
director, officer, employee or agent of the corporation against liability
incurred in the proceeding if (i) the individual's conduct was in good faith and
(ii) the individual reasonably believed (A) in the case of conduct in the
individual's official capacity with the corporation that the conduct was in the
corporation's best interests and (B) in all other cases that the individual's
conduct was at least not opposed to the corporation's best interests and (iii)
in the case of a criminal proceeding, the individual either (A) had reasonable
cause to believe the individual's conduct was lawful or (B) had no reasonable
cause to believe the individual's conduct was unlawful. The IBCL also permits a
corporation to pay for or reimburse reasonable expenses incurred before the
final disposition of the proceeding and permits a court of competent
jurisdiction to order a corporation to indemnify a director or officer if the
court determines that the person is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not the
person met the standards for indemnification otherwise provided in the IBCL.
First Shares' amended articles of incorporation provide for certain
additional limitations of liability and indemnification. The amended articles of
incorporation provide that a director shall not be personally liable to First
Shares or its shareholders for an action taken as a director, or any failure to
take any action, unless (1) the director has breached or failed to perform the
duties of the director's office in compliance with the Articles of Incorporation
and (2) the breach or failure to perform constitutes willful misconduct or
recklessness. Another section of the amended articles of incorporation generally
provides that any director or officer of First Shares or any person who is
serving at the request of First Shares as a director, officer, employee or agent
of another entity shall be indemnified and held harmless by First Shares to the
fullest extent authorized by the IBCL against all expense, liability and loss
(including attorneys' fees, judgments, fines certain employee benefits excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered in connection with a civil, criminal, administrative or
investigative action, suit or proceeding to which such person is a party by
reason of the person's service with or at the request of First Shares. This
section of the amended articles of incorporation also provides such persons with
certain rights to be paid by First Shares the expenses incurred in defending any
such proceeding in advance of the final disposition and the right to enforce
indemnification claims against First Shares by bringing suit against First
Shares.
First Shares' amended articles of incorporation authorize First Shares to
maintain insurance to protect itself and any director, officer, employee or
agent of First Shares or another corporation, partnership, joint venture, trust
or other entity against expense, liability or loss, whether or not First Shares
would have the power to indemnify such person against such expense, liability or
loss under the IBCL. First Shares currently maintains such insurance.
II-1
<PAGE> 79
ITEM 2. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration Fee............................................ $ 2,500
NASD Fee.................................................... 1,500
Listing Fee................................................. 6,500
Printing and Engraving Expenses............................. 50,000
Legal Fees and Expenses..................................... 125,000
Accounting Fees and Expenses................................ 30,000
Blue Sky Fees and Expenses.................................. 20,000
Miscellaneous............................................... 14,500
--------
Total............................................. $250,000
========
</TABLE>
ITEM 3. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described in Item 15 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 80
ITEM 4. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR.
On April 19, 1999, First Shares Bancorp, Inc. issued and sold the following
number of shares of its common stock (as adjusted for the subsequent 6 for 1
stock split) at their book value to the following persons for the following cash
consideration. These sales were made in reliance on the exemption from
registration in Section 4(2) of the Securities Act of 1933, as amended.
<TABLE>
<CAPTION>
NUMBER CASH
PURCHASER OF SHARES CONSIDERATION
<S> <C> <C>
Jerry R. Engle.............................................. 44,166 $361,646
President and Chief Executive Officer
John B. Ditmars............................................. 12,216 100,029
Executive Vice President, First Bank
Frank A. Rogers............................................. 47,340 387,636
Chairman of the Board of Directors
Gary Lewis.................................................. 18,006 147,439
Director
</TABLE>
ITEM 5. INDEX TO EXHIBITS.
The following exhibits are filed with this Registration Statement:
<TABLE>
<C> <S>
1 -- Form of Underwriting Agreement(1)
3.1 -- Articles of Incorporation of First Shares Bancorp, Inc.
and amendments
3.2 -- Bylaws of First Shares Bancorp, Inc.
4 -- Specimen Common Stock Certificate
5 -- Opinion and consent of Bose McKinney & Evans LLP
regarding legality of the securities being registered
10.1 -- 1996 Stock Option Plan
10.2 -- 1999 Amended and Restated Stock Option Plan
10.3 -- Employment Agreement of Jerry R. Engle
10.4 -- Form of Director Deferred Compensation Agreements
10.5 -- Deferred Compensation Agreement dated October 26, 1999
between First Bank and H. Dean Hawkins and Termination of
First Bank Deferred Compensation Agreement for H. Dean
Hawkins dated January 31, 2000
10.6 -- Purchase and Assumption Agreement between Huntington
Bancshares Incorporated, The Huntington National Bank and
First Bank
10.7 -- Lease Agreement dated March 29, 1999 between Greenwood
ICC Realty, LLC and First State Bank
10.8 -- Lease dated April 12, 1999 between M. Kenton and Linda S.
Franklin and First State Bank
10.9 -- Lease dated December 8, 1999 between G & P Real Estate,
LLC and First Bank
21 -- Subsidiaries of First Shares Bancorp, Inc.
23.1 -- Consent of Crowe, Chizek and Company LLP
23.2 -- Consent of Bose McKinney & Evans LLP (included in Exhibit
5)
24 -- Powers of Attorney
27 -- Financial Data Schedule
</TABLE>
- ------------------------------
(1) To be filed by amendment.
II-3
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Greenwood, State of
Indiana, on March 2, 2000.
FIRST SHARES BANCORP, INC.
By: /s/ JERRY R. ENGLE
----------------------------------
Jerry R. Engle
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on March 2, 2000 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<C> <S>
FRANK A. ROGERS* Chairman of the Board and Director
- -----------------------------------------------------
Frank A. Rogers
/s/ JERRY R. ENGLE Director and President and Chief Executive
- ----------------------------------------------------- Officer (Principal Executive Officer)
Jerry R. Engle
JOHN DITMARS* Executive Vice President and Chief Operating
- ----------------------------------------------------- Officer (Principal Operating Officer)
John Ditmars
KIMBERLY B. KLING* Secretary, Treasurer and Chief Financial
- ----------------------------------------------------- Officer (Principal Accounting Officer)
Kimberly B. Kling
RALPH M. FOLEY* Director
- -----------------------------------------------------
Ralph M. Foley
H. DEAN HAWKINS* Director
- -----------------------------------------------------
H. Dean Hawkins
GARY W. LEWIS* Director
- -----------------------------------------------------
Gary W. Lewis
R.J. MCCONNELL* Director
- -----------------------------------------------------
R.J. McConnell
WILLIAM J. MEREDITH* Director
- -----------------------------------------------------
William J. Meredith
NORMAN D. STOCKTON* Director
- -----------------------------------------------------
Norman D. Stockton
</TABLE>
*By: /s/ JERRY R. ENGLE
-------------------------------
Jerry R. Engle
Attorney-in-Fact
II-4
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
J B MORGAN BANCSHARES, INC.
The undersigned incorporator, desiring to form a corporation pursuant
to the provisions of the Indiana Business Corporation Law, as amended (the
"IBCL"), executes the following Articles of Incorporation.
ARTICLE I
Name
The name of the corporation is J B Morgan Bancshares, Inc. (the
"Corporation").
ARTICLE II
Purposes and Powers
Section 2.1. Purposes of the Corporation. The purposes for which the
Corporation is formed are to engage in the transaction of any or all lawful
business for which corporations may now or hereafter be incorporated under the
IBCL.
Section 2.2. Powers of the Corporation. The Corporation shall have (a)
all powers now or hereafter authorized by or vested in corporations pursuant to
the provisions of the IBCL, (b) all powers now or hereafter vested in
corporations by common law or any other statute or act, and (c) all powers
authorized by or vested in the Corporation by the provisions of these Articles
of Incorporation or by the provisions of its By-Laws as from time to time in
effect.
ARTICLE III
Term of Existence
The period during which the Corporation shall continue is perpetual.
ARTICLE IV
Registered Office and Agent
The street address of the Corporation's registered office at the time
of adoption of these Articles of Incorporation is 180 West Washington Street,
Morgantown, Indiana 46160 and the name of its resident agent at such office at
the time of adoption of these Articles of Incorporation is Esther R. Hamilton.
<PAGE> 2
ARTICLE V
Shares
Section 5.1. Authorized Classes and Number of Shares. The total number
of shares which the Corporation has authority to issue shall be 200,000 shares,
consisting of 100,000 shares of Common Stock (the "Common Stock"), and 100,000
special shares (the "Special Shares"). The Corporation's shares do not have any
par or stated value, except that, solely for the purpose of any statute or
regulation imposing any tax or fee based upon the capitalization of the
Corporation, each of the Corporation's shares shall be deemed to have a par
value of $1.00 per share.
Section 5.2. General Terms of All Shares. The Corporation shall have
the power to acquire (by purchase, redemption or otherwise), hold, own, pledge,
sell, transfer, assign, reissue, cancel or otherwise dispose of the shares of
the Corporation in the manner and to the extent now or hereafter permitted by
applicable law (but such power shall not imply an obligation on the part of the
owner or holder of any share to sell or otherwise transfer such share to the
Corporation), including the power to purchase, redeem or otherwise acquire the
Corporation's own shares, directly or indirectly, and without pro rata treatment
of the owners or holders of any class or series of shares, unless, after giving
effect thereto, the Corporation would not be able to pay its debts as they
become due in the usual course of business or the Corporation's total assets
would be less than its total liabilities (and without regard to any amounts that
would be needed, if the Corporation were to be dissolved at the time of the
purchase, redemption or other acquisition, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
of the holders of the shares of the Corporation being purchased, redeemed or
otherwise acquired, unless otherwise expressly provided with respect to a series
of Special Shares in the provisions of these Articles of Incorporation adopted
by the Board of Directors pursuant to Section 5.5 hereof describing the terms of
such series). Shares of the Corporation purchased, redeemed, or otherwise
acquired by it shall constitute authorized but unissued shares, unless prior to
any such purchase, redemption or other acquisition, or within 30 days
thereafter, the Board of Directors adopts a resolution providing that such
shares constitute authorized and issued but not outstanding shares.
The Board of Directors of the Corporation may dispose of, issue and
sell shares in accordance with, and in such amounts as may be permitted by,
applicable law and these Articles of Incorporation and for such consideration,
at such price or prices, at such time or times and upon such terms and
conditions (including the privilege of selectively repurchasing the same) as the
Board of Directors of the Corporation shall determine, without the authorization
or approval by any shareholders of the Corporation. Shares may be disposed of,
issued, and sold to such persons, firms or corporations as the Board of
Directors may determine, without any preemptive or other right on the part of
the owners or holders of other shares of the Corporation of any class or kind to
acquire such shares by reason of their ownership of such other shares.
2
<PAGE> 3
When the Corporation receives the consideration specified in a
subscription agreement entered into before incorporation, or for which the Board
of Directors authorized the issuance of shares, as the case may be, the shares
issued therefor shall be fully paid and nonassessable.
The Corporation shall have the power to declare and pay dividends or
other distributions upon the issued and outstanding shares of the Corporation,
subject to the limitation that a dividend or other distribution may not be made
if, after giving it effect, the Corporation would not be able to pay its debts
as they become due in the usual course of business or the Corporation's total
assets would be less than its total liabilities (and without regard to any
amounts that would be needed, if the Corporation were to be dissolved at the
time of the dividend or other distribution, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
of the holders of shares receiving the dividend or other distribution, unless
otherwise expressly provided with respect to a series of Special Shares in the
provisions of these Articles of Incorporation adopted by the Board of Directors
pursuant to Section 5.5 hereof describing the terms of such series). The
Corporation shall have the power to issue shares of one class or series as a
share dividend or other distribution in respect of that class or series or one
or more other classes or series.
Section 5.3. Voting Rights of Shares.
(a) Common Stock. Except as otherwise provided by the IBCL and subject
to such shareholder disclosure and recognition procedures (which may including
voting prohibition sanctions) as the Corporation may by action of its Board of
Directors establish, the shares of Common Stock have unlimited voting rights and
each outstanding share shall, when validly issued by the Corporation, entitle
the record holder thereof to one vote at all shareholders' meetings on all
matters submitted to a vote of the shareholders of the Corporation.
(b) Special Shares. Except as required by the IBCL or by the provisions
of these Articles of Incorporation adopted by the Board of Directors pursuant to
Section 5.5 hereof describing the terms of Special Shares or a series thereof,
the holders of Special Shares shall have no voting rights or powers. Special
Shares shall, when validly issued by the Corporation, entitle the record holder
thereof to vote as and on such matters, but only as and on such matters, as the
holders thereof are entitled to vote under the IBCL or under the provisions of
these Articles of Incorporation adopted by the Board of Directors pursuant to
Section 5.5 hereof describing the terms of Special Shares or a series thereof
(which provisions may provide for special, condition, limited, or unlimited
voting rights, including multiple or fractional votes per share, or for no right
to vote, except to the extent required by the IBCL) and subject to such
shareholder disclosure and recognition procedures (which may include voting
prohibition sanctions) as the Corporation may by action of the Board of
Directors establish.
Section 5.4. Other Terms of Common Stock. The shares of Common Stock
shall be equal in every respect insofar as their relationship to the Corporation
is concerned, but such equality of rights shall not imply equality of treatment
as to redemption or other acquisition of shares by the Corporation. Subject to
the rights of the holders of any outstanding Special Shares issued under
3
<PAGE> 4
Section 5.5 hereof, the holders of Common Stock shall be entitled to share
ratably in such dividends or other distributions (other than purchases,
redemptions or other acquisitions of shares by the Corporation), if any, as are
declared and paid from time to time on the Common Stock at the discretion of the
Board of Directors. In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, after payment shall have
been made to the holders of the Special Shares of the full amount to which they
shall be entitled under this Article V, the holders of Common Stock shall be
entitled, to the exclusion of the holders of the Special Shares of any and all
series, to share, ratably according to the number of shares of Common Stock held
by them, in all remaining assets of the Corporation available for distribution
to its shareholders.
Section 5.5. Other Terms of Special Shares.
(a) Special Shares may be issued from time to time in one or more
series, each such series to have such distinctive designation and such
preferences, limitations, and relative voting and other rights as shall be set
forth in these Articles of Incorporation. Subject to the requirements of the
IBCL and subject to all other provisions of these Articles of Incorporation, the
Board of Directors of the Corporation may create one or more series of Special
Shares and may determine the preferences, limitations, and relative voting and
other rights of one or more series of Special Shares before the issuance of any
shares of that series by the adoption of an amendment to these Articles of
Incorporation that specifies the terms of the series of Special Shares. All
shares of a series of Special Shares must have preferences, limitations and
relative voting and other rights identical with those of other shares of the
same series and, if the description of the series set forth in these Articles of
Incorporation so provides, no series of Special Shares need have preferences,
limitations or relative voting or other rights identical with those of any other
series of Special Shares.
Before issuing any shares of a series of Special Shares, the
Board of Directors shall adopt an amendment to these Articles of Incorporation,
which shall be effective without any shareholder approval or other action, that
sets forth the preferences, limitations and relative voting and other rights of
the series, and authority is hereby expressly vested in the Board of Directors,
by such amendment:
(1) To fix the distinctive designation of such series and the
number of shares which shall constitute such series, which number may
be increased or decreased (but not below the number of shares thereof
then outstanding) from time to time by action of the Board of
Directors;
(2) To fix the voting rights of such series, which may consist
of special, conditional, limited or unlimited voting rights, including
multiple or fractional votes per shares, or no right to vote (except to
the extent required by the IBCL);
(3) To fix the dividend or distribution rights of such series
and the manner of calculating the amount and time for payment of
dividends or distributions, including but not limited to:
4
<PAGE> 5
(A) the dividend rate, if any, of such series;
(B) any limitations, restrictions or conditions on
the payment of dividends or other distributions, including
whether dividends or other distributions shall be
noncumulative or cumulative or partially cumulative and, if
so, from which date or dates;
(C) the relative rights of priority, if any, of
payment of dividends or other distributions on shares of that
series in relation to the Common Stock and shares of any other
series of Special Shares; and
(D) the form of dividends or other distributions,
which may be payable at the option of the Corporation, the
shareholder or another person (and in such case to prescribe
the terms and condition of exercising such option), or upon
the occurrence of a designated event in cash, indebtedness,
stock or other securities or other property, or in any
combination thereof,
and to make provisions, in the case of dividends or other distributions
payable in stock or other securities, for adjustment of the dividend or
distribution rate in such events as the Board of Directors shall
determine;
(4) To fix the price or prices at which, and the terms and
conditions on which, the shares of such series may be redeemed or
converted, which may be
(A) at the option of the Corporation, the shareholder
or another person or upon the occurrence of a designated
event;
(B) for cash, indebtedness, securities or other
property or any combination thereof; and
(C) in a designated amount or in an amount determined
in accordance with a designated formula or by reference to
extrinsic date or events;
(5) Too fix the amount or amounts payable upon the shares of
such series in the event of any liquidation, dissolution or winding up
of the Corporation and the relative rights of priority, if any, of
payment upon shares of such series in relation to the Common Stock and
shares of any other series of Special Series; and to determine whether
or not any such preferential rights upon dissolution need be considered
in determining whether or not the Corporation may make dividends,
repurchases, or other distributions;
(6) To determine whether or not the shares of such series
shall be entitled to the benefit of a sinking fund to be applied to the
purchase or redemption of such series and, if so entitled, the amount
of such fund and the manner of its application;
5
<PAGE> 6
(7) To determine whether or not the issue of any additional
shares of such series or of any other series in addition to such series
shall be subject to restrictions in addition to restrictions, if any,
on the issue of additional shares imposed in the provisions of these
Articles of Incorporation fixing the terms of any outstanding series of
Special Shares theretofore issued pursuant to this Section 5.5 and, if
subject to additional restrictions, the extent of such additional
restrictions; and
(8) Generally to fix the other preferences or rights, and any
qualifications, limitations or restrictions of such preferences or
rights, of such series to the full extent permitted by the IBCL:
provided, however, that no such preferences, rights, qualifications,
limitations or restrictions shall be in conflict with these Articles of
Incorporation or any amendment thereof.
(b) Special Shares of any series that have been redeemed (whether
through the operation of a sinking fund or otherwise) or purchased by the
Corporation, or which, if convertible, have been converted into shares of the
Corporation of any other class or series, shall have the status of authorized
and unissued Special Shares and may be reissued as a part of such series or of
any other series of Special Shares, subject to such limitations (if any) as may
be fixed by the Board of Directors with respect to such series of Special Shares
in accordance with subsection (a) of this Section 5.5.
ARTICLE VI
Directors
Section 6.1. Number. The Board of Directors at the time of adoption of
these Articles of Incorporation is composed of seven members, and the number of
Directors shall be fixed by the By-Laws and may be changed from time to time by
amendment to the By-Laws. Whenever the By-Laws provide that the number of
Directors shall be two or more, the By-Laws may also provide for staggering the
terms of the members of the Board of Directors by dividing the total number of
Directors into two or three groups (with each group containing one-half or
one-third of the total, as near as may be) whose terms of office expire at
different times. Notwithstanding the first sentence of this Section 6.1, any
amendment to the By-Laws that would effect:
(a) any increase or reduction in the number of Directors over such
number as then in effect, or
(b) any elimination or modification of the groups or terms of office of
the Directors as the By-Laws then in effect may provide,
shall also be approved by the affirmative vote of a majority of the entire
number of directors of the Corporation who then qualify as Continuing Directors
with respect to all Related Persons (as such terms are defined for purposes of
Article III hereof).
6
<PAGE> 7
Section 6.2. Qualifications. Directors need not be shareholders of the
Corporation or residents of this or any other state in the United States.
Section 6.3. Vacancies. Vacancies occurring in the Board of Directors
shall be filled in the manner provided in the By-Laws or, if the By-Laws do not
provide for the filling of vacancies, in the manner provided by the IBCL. The
By-Laws may also provide that in certain circumstances specified therein,
vacancies occurring in the Board of Directors may be filled by vote of the
shareholders at a special meeting called for that purpose or at the next annual
meeting of shareholders.
Section 6.4. Liability of Directors. A Director's responsibility to the
Corporation shall be limited to discharging his duties as a Director, including
his duties as a member of any committee of the Board of Directors upon which he
may serve, in good faith, with the care an ordinarily prudent person in a like
position would exercise under similar circumstances, and in a manner the
Director reasonably believes to be in the best interests of the Corporation, all
based on the facts then known to the Director.
In discharging his duties, a Director is entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial date, if prepared or presented by:
(a) One or more officers or employees of the Corporation whom
the Director reasonably believes to be reliable and competent in the
matters presented;
(b) Legal counsel, public accountants or other persons as to
matters the Director reasonably believes are within such person's
professional or expert competence; or
(c) A committee of the Board of which the Director is not a
member if the Director reasonably believes the Committee merits
confidence;
but a Director is not acting in good faith if the Director has knowledge
concerning the matter in question that makes reliance otherwise permitted by
this Section 6.4 unwarranted. A director may, in considering the best interests
of the Corporation, consider the effects of any action on shareholders,
employees, suppliers and customers of the Corporation, and communities in which
offices or other facilities of the Corporation are located, and any other
factors the Director considers pertinent.
A Director shall not be liable for any action taken as a Director, or
any failure to take any action, unless (1) the Director has breached or failed
to perform the duties of the Director's office in compliance with this Section
6.4, and (2) the breach of failure to perform constitutes willful misconduct or
recklessness.
Section 6.5. Removal of Directors. Any or all of the members of the
Board of Directors may be removed, for good cause, only at a meeting of the
shareholders called expressly for that purpose,
7
<PAGE> 8
by the affirmative vote of the holders of outstanding shares representing at
least 70% of all the votes then entitled to be cast at an election of Directors.
Directors may not be removed in the absence of good cause.
Section 6.6. Election of Directors by Holders of Special Shares. The
holders of one or more series of Special Shares may be entitled to elect all or
a specified number of Directors, but only to the extent and subject to
limitations as may be set forth in the provisions of these Articles of
Incorporation adopted by the Board of Directors pursuant to Section 5.5 hereof
describing the terms of the series of Special Shares.
ARTICLE VII
Provisions for Regulation of Business
and Conduct of Affairs of Corporation
Section 7.1. Meetings of Shareholders. Meetings of the shareholders of
the Corporation shall be held at such time and at such place, either within or
without the State of Indiana, as may be stated in or fixed in accordance with
the By-Laws of the Corporation and specified in the respective notices or
waivers of notice of any such meetings.
Section 7.2. Special Meetings of Shareholders. Special meetings of the
shareholders, for any purpose of purposes, unless otherwise prescribed by the
IBCL, may be called at any time by the Board of Directors or the person or
persons authorized to do so by the By-Laws and shall be called by the Board of
Directors if the Secretary of the Corporation receives one or more written,
dated and signed demands for a special meeting, describing in reasonable detail
the purpose or purposes for which it is to be held, from the holders of shares
representing at least 25% of all the votes entitled to be case on any issue
proposed to be considered at the proposed special meeting; provided, however,
that any such demand(s) delivered to the Secretary at any time at which the
Corporation has more than 50 shareholders must be properly delivered by the
holders of shares representing at lest 70% of all the votes entitled to be case
on any issue proposed to be considered at the proposed special meeting. If the
Secretary receives one or more proper written demands for a special meeting of
shareholders, the Board of Directors may set a record date for determining
shareholders entitled to make such demand.
Section 7.3. Meetings of Directors. Meetings of the Board of Directors
of the Corporation shall be held at such place, either within or without the
State of Indiana, as may be authorized by the By-Laws and specified in the
respective notices or waivers of notice of any such meetings or otherwise
specified by the Board of Directors. Unless the By-Laws provide otherwise (a)
regular meetings of the Board of Directors may be held without notice of the
date, time, place or purpose of the meeting and (b) the notice for a special
meeting need not describe the purpose or purposes of the special meeting.
8
<PAGE> 9
Section 7.4. Action Without Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors or shareholders, or of any
committee of such Board, may be taken without a meeting if the action is taken
by all members of the Board or all shareholders entitled to vote on the action,
or by all members of such committee, as the case may be. The action must be
evidenced by one or more written consents describing the action taken, signed by
each Director, or all the shareholders entitled to vote on the action, or by
each member of such committee, as the case may be, and, in the case of action by
the Board of Directors or a committee thereof, included in the minutes or filed
with the corporate records reflecting the action taken or, in the case of action
by the shareholders, delivered to the Corporation for inclusion in the minutes
or filing with the corporate records. Action taken under this Section 7.4 is
effective when the last Director, shareholder, or committee member, as the case
may be, signs the consent, unless the consent specifies a different prior or
subsequent effective date, in which case the action is effective on or as of the
specified date. Such consent shall have the same effect as a unanimous vote of
all members of the Board, or all shareholders, or all members of the committee,
as the case may be, and may be described as such in any document.
Section 7.5. By-Laws. The Board of Directors shall have the exclusive
power to make, alter, amend or repeal, or to waive provisions of, the By-Laws of
the Corporation by the affirmative vote of a majority of the entire number of
Directors at the time, except as expressly provided in Section 6.1 hereof and as
provided by the IBCL. All provisions for the regulation of the business and
management of the affairs of the Corporation not stated in these Articles of
Incorporation shall be stated in the By-Laws. The Board of Directors may adopt
Emergency By-Laws of the Corporation and shall have the exclusive power (except
as may otherwise be provided therein) to make, alter, amend or repeal, or to
waive provisions of, the Emergency By-Laws by the affirmative vote of both (a) a
majority of the entire number of Directors at the time and (b) a majority of the
entire number of Directors who then qualify as Continuing Directors with respect
to all Related Persons (as such terms are defined for purposes of Article VIII
hereof).
Section 7.6. Interest of Directors. (a) A conflict of interest
transaction is a transaction with the Corporation in which a Director of the
Corporation has a direct or indirect interest. A conflict of interest
transaction is not voidable by the Corporation solely because of the Directors'
interest in the transaction if any one of the following is true:
(1) The material facts of the transaction and the Director's
interest were disclosed or known to the Board of Directors or a
Committee of the Board of Directors and the Board of Directors or
Committee authorized, approved or ratified the transaction;
(2) The material facts of the transaction and the Director's
interest were disclosed or known to the shareholders entitled to vote
and they authorized, approved or ratified the transaction; or
(3) The transaction was fair to the Corporation.
9
<PAGE> 10
(b) For purposes of this Section 7.6, a Director of the Corporation has
an indirect interest in a transaction if:
(1) Another entity in which the Director has a material
financial interest or in which the Director is a general partner is a
party to the transaction; or
(2) Another entity of which the Director is a director,
officer or trustee is a party to the transaction and the transaction
is, or is required to be, considered by the Board of Directors of the
Corporation.
(c) For purposes of Section 7.6(a)(1), a conflict of interest
transaction is authorized, approved or ratified if it receives the affirmative
vote of a majority of the Directors on the Board of Directors (or on the
Committee) who have no direct or indirect interest in the transaction, but a
transaction may not be authorized, approved or ratified under this section by a
single Director. If a majority of the Directors who have no direct or indirect
interest in the transaction vote to authorize, approve or ratify the
transaction, a quorum shall be deemed present for the purpose of taking action
under this Section 7.6. The presence of, or a vote cast by, a Director with a
direct or indirect interest in the transaction does not affect the validity of
any action taken under Section 7.6(a)(1), if the transaction is otherwise
authorized, approved or ratified as provided in such subsection.
(d) For purposes of Section 7.6(a)(2), a conflict of interest
transaction is authorized, approved or ratified if it receives the affirmative
vote of the holders of shares representing a majority of the votes entitled to
be cast. Shares owned by or voted under the control of a Director who has a
direct or indirect interest in the transaction, and shares owned by or voted
under the control of an entity described in Section 7.6(b), may be counted in
such a vote of shareholders.
Section 7.7. Nonliability of Shareholders. Shareholders of the
Corporation are not personally liable for the acts or debts of the Corporation,
nor is private property of shareholders subject to the payment of corporate
debts.
Section 7.8. Indemnification of Officers, Directors, and Other Eligible
Persons.
(a) To the extent not inconsistent with applicable law, every Eligible
Person shall be indemnified by the Corporation against all Liability and
reasonable Expense that may be incurred by him in connection with or resulting
from any Claim, (1) if such Eligible Person is Wholly Successful with respect to
the Claim, or (2) if not Wholly Successful, then if such Eligible Person is
determined, as provided in either Section 7.8(f) or 7.8(g), to have acted in
good faith, in what he reasonably believed to be the best interests of the
Corporation or at lest not opposed to its best interests and, in addition, with
respect to any criminal claim is determined to have had reasonable cause to
believe that his conduct was lawful or had no reasonable cause to believe that
his conduct was unlawful. The termination of any Claim, by judgment, order,
settlement (whether with or without court approval), or conviction or upon a
plea of guilty or of nolo contendere, or its equivalent, shall not create a
presumption that an Eligible Person did not meet the standards of
10
<PAGE> 11
conduct set forth in clause (2) of this subsection (a). The actions of an
Eligible Person with respect to an employee benefit plan subject to the Employee
Retirement Income Security Act of 1974 shall be deemed to have been taken in
what the Eligible Person reasonably believed to be the best interest of the
Corporation or at least not opposed to its best interests if the Eligible Person
reasonably believed he was acting in conformity with the requirements of such
Act or he reasonably believed his actions to be in the interests of the
participants in or beneficiaries of the plan.
(b) The term "Claim" as used in this Section 7.8 shall include every
pending, threatened, or completed claim, action, suit or proceeding and all
appeals thereof (whether brought by or in the right of this Corporation or any
other corporation or otherwise), civil, criminal, administrative or
investigative, formal or informal, in which an Eligible Person may become
involved, as a party or otherwise:
(1) by reason of his being or having been an Eligible Person,
or
(2) by reason of any action taken or not taken by him in his
capacity as an Eligible Person, whether or not he continued in such
capacity at the time such Liability or Expense shall have been
incurred.
(c) The term "Eligible Person" as used in this Section 7.8 shall mean
every person (and the estate, heirs and personal representatives of such person)
who is or was a Director, officer, employee or agent of the Corporation or is or
was serving at the request of the Corporation as a Director, officer, employee,
agent or fiduciary of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan or other organization or entity,
whether for profit or not. An Eligible Person shall also be considered to have
been serving an employee benefit plan at the request of the Corporation if his
duties to the Corporation also imposed duties on, or otherwise involved services
by, him to the plan or to participants in or beneficiaries of the plan.
(d) The terms "Liability" and "Expense" as used in this Section 7.8
shall include, but shall not be limited to, counsel fees and disbursements and
amounts of judgments, fines or penalties against (including excise taxes
assessed with respect to an employee benefit plan), and amounts paid in
settlement by or on behalf of, an Eligible Person.
(e) The term "Wholly Successful" as used in this Section 7.8 shall mean
(1) termination of any claim against the Eligible person in question without any
finding of liability or guilt against him, (2) approval by a court, with
knowledge of the indemnity herein provided, of a settlement of any Claim, or (3)
the expiration of a reasonable period of time after the making or threatened
making of any Claim without the institution of the same, without any payment or
promise made to induce a settlement.
(f) Every Eligible Person claiming indemnification hereunder (other
than one who has been Wholly Successful with respect to any Claim) shall be
entitled to indemnification (1) if special independent legal counsel, which may
be regular counsel of the Corporation or other disinterested
11
<PAGE> 12
person or persons, in either case selected by the Board of Directors, whether or
not a disinterested quorum exists (such counsel or person or persons being
hereinafter called the "Referee"), shall deliver to the Corporation a written
finding that such Eligible Person has met the standards of conduct set forth in
Section 7.8(a)(2), and (2) if the Board of Directors, acting upon such written
finding, so determines. The Board of Directors shall, if an Eligible Person is
found to be entitled to indemnification pursuant to the preceding sentence, also
determine the reasonableness of the Eligible Person's Expenses. The Eligible
Person claiming indemnification shall, if requested, appear before the Referee,
answer questions that the Referee deems relevant and shall be given ample
opportunity to present to the Referee evidence upon which he relies for
indemnification. The Corporation shall, at the request of the Referee, make
available facts, opinions or other evidence in any way relevant to the Referee's
findings that are within the possession or control of the Corporation.
(g) If an Eligible Person claiming indemnification pursuant to Section
7.8(f) is found not to be entitled thereto, or if the Board of Directors fails
to select a Referee under Section 7.8(f) within a reasonable amount of time
following a written request of an Eligible Person for the selection of a
Referee, or if the Referee or the Board of Directors fails to make a
determination under Section 7.8(f) within a reasonable amount of time following
the selection of a Referee, the Eligible Person may apply for indemnification
with respect to a Claim to a court of competent jurisdiction, including a court
in which the Claim is pending against the Eligible Person. On receipt of an
application, the court, after giving notice to the Corporation and giving the
Corporation ample opportunity to present to the court any information or
evidence relating to the Claim for indemnification that the Corporation deems
appropriate, may order indemnification if it determines that the Eligible Person
is entitled to indemnification with respect to the Claim because such Eligible
Person met the standards of conduct set forth in Section 7.8(a)(2). If the court
determines that the Eligible Person is entitled to indemnification, the court
shall also determine the reasonableness of the Eligible Person's Expenses.
(h) The rights of indemnification provided in this Section 7.8 shall be
in addition to any rights to which any Eligible Person may otherwise be
entitled. Irrespective of the provisions of this Section 7.8, the Board of
Directors may, at any time and from time to time, (1) approve indemnification of
any Eligible Person to the full extent permitted by the provisions of applicable
law at the time in effect, whether on account of past or future transactions,
and (2) authorize the Corporation to purchase and maintain insurance on behalf
of any Eligible Person against any Liability asserted against him and incurred
by him in any such capacity, or arising out of his status as such, whether or
not the Corporation would have the power to indemnify him against such
Liability.
(i) Expenses incurred by an Eligible Person with respect to any Claim,
may be advanced by the Corporation (by action of the Board of Directors, whether
or not a disinterested quorum exists) prior to the final disposition thereof
upon receipt of an undertaking by or on behalf of the Eligible Person to repay
such amount unless he is determined to be entitled to indemnification.
12
<PAGE> 13
(j) The provisions of this Section 7.8 shall be deemed to be a contract
between the Corporation and each Eligible Person, and an Eligible Person's
rights hereunder shall not be diminished or otherwise adversely affected by any
repeal, amendment or modification of this Section 7.8 that occurs subsequent to
such person becoming an Eligible Person.
(k) The provisions of this Section 7.8 shall be applicable to Claims
made or commenced after the adoption hereof, whether arising from acts or
omissions to act occurring before or after the adoption hereof.
ARTICLE VIII
Approval of Business Combinations
Section 8.1. Supermajority Vote. Except as provided in Sections 8.2 and
8.3 hereof, neither the Corporation nor any of its Subsidiaries shall become a
party to any Business Combination with a Related Person without the prior
affirmative vote at a meeting of the Corporation's shareholders:
(a) Of not less than 70% of all the votes entitled to be cast
by the holders of the outstanding shares of all classes of Voting Stock
of the Corporation considered for purposes of this Article VIII as a
single class, and
(b) Of an Independent Majority of Shareholders.
Such favorable votes shall be in addition to any shareholder vote which
would be required without reference to this Section 8.1 and shall be required
notwithstanding the fact that no vote may be required, or that some lesser
percentage may be specified by law or elsewhere in these Articles of
Incorporation or the By-Laws of the Corporation or otherwise.
Section 8.2. Fair Price Exception. The provisions of Section 8.1 of
this Article VIII shall not apply to a Business Combination if all of the
conditions set forth in subsections(a) through (d) are satisfied.
(a) The fair market value of the property, securities, or other
consideration to be received per share by holders of each class or series of
capital stock of the Corporation in the Business Combination is not less, as of
the date of the consummation of the Business Combination (the "Consummation
Date"), than the higher of the following: (1) the highest per share price (with
appropriate adjustments for recapitalizations and for stock splits, stock
dividends, and like distributions), including brokerage commissions and
solicitation fees, paid by the Related Person in acquiring any of its holdings
of such class or series of capital stock within the two-year period immediately
prior to the first public announcement of the proposed Business Combination
("Announcement Date"), plus interest compounded annually from the date that the
Related Person became a Related Person (the "Determination Date"), or if later
from a date two years before the Consummation Date, through the Consummation
Date, at the rate publicly announced as the "prime
13
<PAGE> 14
rate" of interest of Citibank, N.A. (or of such other major bank headquartered
in New York as may be selected by a majority of the Continuing Directors) from
time to time in effect, less that aggregate amount of any cash dividends paid
and the fair market value of any dividends paid in other than cash on each share
of such stock from the date from which interest accrues under the preceding
clause through the Consummation Date up to but not exceeding the amount of
interest so payable per share; OR (2) the fair market value per share of such
class or series on the Announcement Date as determined by the highest closing
sale price during the 30-day period immediately preceding the Announcement Date
if such stock is listed on a securities exchange registered under the Securities
Exchange Act of 1934 or, if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to such stock during the 30-day
period preceding the Announcement Date on the National Association of Securities
Dealers, Inc. Automated Quotation System or any similar system then in use, or
if no such quotations are available, the fair market value of such stock
immediately prior to the first public announcement of the proposed Business
Combination as determined by the Continuing Directors in good faith. In the
event of a Business Combination upon the consummation of which the Corporation
would be the surviving corporation or company or would continue to exist (unless
it is provided, contemplated, or intended that as part of such Business
Combination or within one year after consummation thereof a plan of liquidation
or dissolution of the Corporation will be effected), the term "other
consideration to be received" shall include (without limitation) Common Stock
and/or the shares of any other class of stock retained by shareholders of the
Corporation other than Related Persons who are parties to such Business
Combination;
(b) The consideration to be received in such Business Combination by
holders of each class or series of capital stock of the Corporation other than
the Related Person involved shall, except to the extent that a shareholder
agrees otherwise as to all or part of the shares which he or she owns, be the
same form and of the same kind as the consideration paid by the Related Person
in acquiring the majority of the shares of capital stock of such class or series
already Beneficially Owned by it;
(c) After such Related Person became a Related Person and prior to the
consummation of such Business Combination: (1) such Related Person shall have
taken steps to ensure that the Board of Directors of the Corporation included at
all times representation by Continuing Directors proportionate to the ratio that
the number of shares of Voting Stock of the Corporation from time to time owned
by shareholders who are not Related Persons bears to all shares of Voting Stock
of the Corporation outstanding at the time in question (with a Continuing
Director to occupy any resulting fractional position among the Directors); (2)
such Related Person shall not have acquired from the Corporation, directly or
indirectly, any shares of the Corporation (except upon conversion of convertible
securities acquired by it prior to becoming a Related Person or as a result of a
pro rata stock dividend, stock split, or division of shares or in a transaction
which satisfied all applicable requirements of this Article VIII); (3) such
Related Person shall not have acquired any additional shares of Voting Stock of
the Corporation or securities convertible into or exchangeable for shares of
Voting Stock except as a part of the transaction which resulted in such Related
Person's becoming a Related Person; and (4) such Related Person shall not have
received the benefit, directly or indirectly (except proportionately as a
shareholder), of any loans, advances, guarantees, pledges, or other financial
assistance or tax credits provided by the Corporation or any Subsidiary, or made
any
14
<PAGE> 15
major change in the Corporation's business or equity capital structure or
entered into any contract, arrangement, or understanding with the Corporation
except any such change, contract, arrangement, or understanding as may have been
approved by the favorable vote of not less than a majority of the Continuing
Directors of the Corporation; and
(d) A proxy or information statement complying with the requirements of
the Securities Exchange Act of 1934 and the rules and regulations of the
Securities and Exchange Commission thereunder, as then in force for corporations
subject to the requirements of Section 14 of such Act (even if the Corporation
not otherwise subject to Section 14 of such Act), shall have been mailed to all
holders of shares of the Corporation's capital stock entitled to vote with
respect to such Business Combination. Such proxy or information statement shall
contain on the face page thereof, in a prominent place, any recommendations as
to the advisability (or inadvisability) of the Business Combination which the
Continuing Directors, or any of them, may have furnished in writing and, if
deemed advisable by a majority of the Continuing Directors, a fair summary of an
opinion of a reputable investment banking firm addressed to the Corporation as
to the fairness (or lack of fairness) of the terms of such Business Combination
from the point of view of the holders of shares of Voting Stock other than any
Related Person (such investment banking firm to be selected by a majority of the
Continuing Directors, to be furnished with all information it reasonably
requests, and to be paid a reasonable fee for its services upon receipt by the
Corporation of such opinion).
Section 8.3. Director Approval Exception. The provisions of Section 8.1
hereof shall not apply to a Business Combination if:
(a) The Continuing Directors of the Corporation, by not less than a 70%
vote, (1) have expressly approved a memorandum of understanding with the Related
Person with respect to the Business Combination prior to the time that the
Related Person became a Related Person and the Business Combination is effected
on substantially the same terms and conditions as are provided by the memorandum
of understanding, or (2) have otherwise approved the Business Combination; or
(b) The Business Combination is solely between the Corporation and
another corporation, 100% of the Voting Stock of which is owned directly or
indirectly by the Corporation.
Section 8.4. Definitions. For purposes of this Article VIII:
(a) A "Business Combination" means:
(1) The sale, exchange, lease, transfer, or other disposition
to or with a Related Person or any Affiliate or Associate of such
Related Person by the Corporation or any Subsidiaries (in a single
transaction or a Series of Related Transactions) of all or
substantially all, or any Substantial Part, of its or their assets or
businesses (including, without limitation, securities issued by a
Subsidiary, if any);
15
<PAGE> 16
(2) The purchase, exchange, lease, or other acquisition by the
Corporation or any Subsidiaries (in a single transaction or a Series of
Related Transactions) of all or substantially all, or any Substantial
part, of the assets or business of a Related Person or any Affiliate or
Associate of such Related Person;
(3) Any merger or consolidation of the Corporation or any
Subsidiary thereof into or with a Related Person or any Affiliate or
Associate of such Related Person or into or with another Person which,
after such merger or consolidation, would be an Affiliate or an
Associate of a Related Person, in each case irrespective of which
Person is the surviving entity in such merger or consolidation;
(4) Any reclassification of securities, recapitalization, or
other transaction (other than a redemption in accordance with the terms
of the security redeemed) which has an effect, directly or indirectly,
of increasing the proportionate amount of shares of Voting Stock of the
Corporation or any Subsidiary thereof which are Beneficially Owned by a
Related Person, or any partial or complete liquidation, spinoff,
splitoff, or splitup of the Corporation or any Subsidiary thereof;
provided, however, that this Section 8.4(a)(4) shall not relate to any
transaction that has been approved by a majority of the Continuing
Directors; or
(5) The acquisition upon the issuance thereof of Beneficial
Ownership by a Related Person of shares of Voting Stock or securities
convertible into shares of Voting Stock or any voting securities or
securities convertible into voting securities of any Subsidiary of the
Corporation, or the acquisition upon the issuance thereof of
Beneficiary Ownership by a Related Person of any rights, warrants, or
options to acquire any of the foregoing or any combination of the
foregoing shares of Voting Stock or voting securities of a Subsidiary,
if any.
(b) A "Series of Related Transactions" shall be deemed to include not
only a series of transaction with the same Related Person, but also a series of
separate transactions with a Related Person or any Affiliate or Associate of
such Related Person.
(c) A "Person" shall mean any individual, firm, corporation, or other
entity and any partnership, syndicate, or other group.
(d) "Related Person" shall mean any Person (other than the Corporation
or any Subsidiary of the Corporation or the Continuing Directors, singly or as a
group) who or that at any time described in the last sentence of this first
paragraph of this subsection (d):
(1) is the Beneficial Owner, directly or indirectly, of more
than 10% of the voting power of the outstanding shares of Voting Stock
and who has not been the Beneficial Owner, directly or indirectly, of
more than 10% of the voting power of the outstanding shares of Voting
Stock for a continuous period of two years prior to the date in
question; or
16
<PAGE> 17
(2) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question (but not
continuously during such two-year period) was the Beneficial owner,
directly or indirectly, of 10% or more of the voting power of the then
outstanding shares of Voting Stock; or
(3) is an assignee of or has otherwise succeeded to any shares
of the Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Related Person, if such assignment or succession shall have occurred in
the course of a transaction or series of transactions not involving a
public offering within the meaning of the Securities Act of 1933, as
amended.
A Related Person shall be deemed to have acquired a share of the
Corporation at the time when such Related person became the Beneficial Owner
thereof. For the purposes of determining whether a Person is the Beneficial
owner of 10% or more of the voting power of the then outstanding Voting Stock,
the outstanding Voting Stock shall be deemed to include any Voting Stock that
may be issuable to such Person pursuant to a right to acquire such Voting Stock
and that is therefore deemed to be Beneficially Owned by such Person pursuant to
Section 8.4(e)(2)(A). A Person who is a Related Person at (1) the time any
definitive agreement relating to a Business Combination is entered into, (2) the
record date for the determination of shareholders entitled to notice of and to
vote on a Business Combination, or (3) the time immediately prior to the
consummation of a Business Combination shall be deemed a Related Person.
(e) A Person shall be a "Beneficial Owner" of any shares of Voting
Stock:
(1) which such Person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(2) which such Person or any of its Affiliates or Associates
has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement, or understanding or upon the exercise of
conversion rights, exchange rights, warrants, or options, or otherwise,
or (B) the right to vote pursuant to any agreement, arrangement, or
understanding; or
(3) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of its Affiliates or
Associates has any agreement, arrangement, or understanding for the
purpose of acquiring, holding, voting, or disposing of any shares of
Voting Stock.
(f) An "Affiliate" of, or a person Affiliated with, a specific Person
means a Person that directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified.
17
<PAGE> 18
(g) The term "Associate" used to indicate a relationship with any
Person, means (1) any corporation or organization (other than this Corporation
or a majority owned Subsidiary of this Corporation) of which such Person is an
officer or partner or is, directly or indirectly, the Beneficial Owner of 5% or
more of any class of equity securities, (2) any trust or other estate in which
such Person has a substantial beneficial interests or as to which such Person
serves as trustee or in a similar fiduciary capacity, (3) any relative or spouse
of such Person, or any relative of such spouse, who has the same home as such
Person, or (4) any investment company registered under the Investment Company
Act of 1940, as amended, for which such Person or any Affiliate of such Person
serves as investment adviser.
(h) "Subsidiary" means any corporation of which a majority of any class
of equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Related Person set
forth in Section 8.4(d) hereof, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is owned,
directly or indirectly, by the Corporation.
(i) "Continuing Director" means any member of the Board of Directors of
the Corporation (the "Board") who is not associated with the Related Person and
was a member of the Board prior to the time that the Related Person became a
Related Person, and any successor of a Continuing Director who is not associated
with the Related Person and is recommended to succeed a Continuing Director by
not less than two-thirds of the Continuing Directors then on the Board.
(j) "Independent Majority of Shareholders" shall mean the holders of
the outstanding shares of Voting Stock representing a majority of all the votes
entitled to be cast by all shares of Voting Stock other than shares Beneficially
Owned or controlled, directly or indirectly, by a Related Person.
(k) "Voting Stock" shall mean all outstanding shares of capital stock
of the Corporation or another corporation entitled to vote generally on the
election of Directors, and each reference to a proportion of shares of Voting
Stock shall refer to such proportion of the votes entitled to be cast by such
shares.
(l) "Substantial Part" means properties and assets involved in any
single transaction or a Series of Related Transactions having an aggregate fair
market value of more than ten percent (10%) of the total consolidated assets of
the Person in question as determined immediately prior to such transaction or
Series of Related Transactions.
Section 8.5. Director Determinations. A majority of the Continuing
Directors shall have the power to determine for the purposes of this Article
VIII, on the basis of information known to them: (a) the number of shares of
Voting Stock of which any Person is the Beneficial Owner, (b) whether a Person
is an Affiliate or Associate of another, (c) whether a Person has an agreement,
arrangement or understanding with another as to the matters referred to in the
definition of "Beneficial Owner," (d) whether the assets subject to any Business
Combination constitute a Substantial Part, (e) whether
18
<PAGE> 19
two or more transactions constitute a Series of Related Transactions, and (f)
such other matters with respect to which a determination is required under this
Article VIII.
Section 8.6. Nonmonetary Factors in Acquisition Proposals. In
connection with the exercise of its judgment in determining what is in the best
interests of the Corporation and its shareholders when evaluating a proposal by
another person or persons to acquire some material part or all of the business
or properties of the Corporation (whether by merger, consolidation, purchase of
assets, stock reclassification or recapitalization, spinoff, liquidation, or
otherwise) or to acquire some material part or all of the stock of the
Corporation (whether by a tender or exchange offer or some other means), the
Board of Directors of the Corporation shall, in addition to considering the
adequacy of the consideration to be paid in connection with any such
transaction, consider all of the following factors and any other factors that it
deems relevant: (a) the social and economic effects of the transaction on the
Corporation and its subsidiaries and their employees, customers, creditors and
communities in which the Corporation and its subsidiaries operate or are
located; (b) the business and financial condition and earnings prospects of the
acquiring person or persons, including but not limited to, debt service and
other existing or likely financial obligations of the acquiring person or
persons and their affiliates and associates, and the possible effect of such
conditions upon the Corporation and its subsidiaries and the communities in
which the Corporation and its subsidiaries operate or are located; and (c) the
competence, experience and integrity of the acquiring person or persons and its
or their management and affiliates and associates.
Section 8.7. Amendment of Article VIII or Certain Other Provisions. Any
amendment, change, or repeal of this Article VIII, or of Sections 6.1, 6.5, 72.,
10.2, or 10.3, or any other amendment of these Articles of Incorporation which
would have the effect of modifying or permitting circumvention of this Article
VIII or such other provisions of these Articles of Incorporation, shall require
the affirmative vote, at a meeting of shareholders of the Corporation:
(a) Of at least 70% of the votes entitled to be cast by the holders of
the outstanding shares of all classes of Voting Stock of the Corporation
considered for purposes of this Article VIII as a single class; and
(b) Of an Independent Majority of Shareholders;
provided, however, that this Section 8.7 shall not apply to, and such vote shall
not be required for, any such amendment, change or repeal recommended to
shareholders by the favorable vote of not less than 70% of the Directors who
then qualify as Continuing Directors with respect to all Related Persons and any
such amendment, change, or repeal so recommended shall require only the vote, if
any, required under the applicable provisions of the IBCL.
Section 8.8. Fiduciary Obligations Unaffected. Nothing in this Article
VIII shall be construed to relieve any Related Person from any fiduciary duty
imposed by law.
19
<PAGE> 20
Section 8.9. Article VIII Nonexclusive. The provisions of this Article
VIII are nonexclusive and are in addition to any other provisions of law or
these Articles of Incorporation or the By-Laws of the Corporation relating to
Business Combinations, Related Person, or similar matters.
ARTICLE IX
Incorporator
The name and address of the incorporator of the Corporation is J.
Jeffrey Brown, Baker & Daniels, 300 North Meridian Street, Suite 2700,
Indianapolis, Indiana 46204.
ARTICLE X
Miscellaneous Provisions
Section 10.1. Amendment or Repeal. Except as otherwise expressly
provided for in these Articles of Incorporation, the Corporation shall be
deemed, for all purposes, to have reserved the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation to the extent
and in the manner now or hereafter permitted or prescribed by statute, and all
rights herein conferred upon shareholders are granted subject to such
reservation.
Section 10.2. Redemption of shares Acquired in Control Share
Acquisitions. If and whenever the provisions of IC 23-1-42 apply to the
Corporation, it is authorized to redeem its securities pursuant
IC 23-1-42-10.
Section 10.3. Election To Be Subject To Five-Year Freeze Statute.
Unless the Corporation's By-Laws provide that it elects not to be governed by IC
23-1-43, the Corporation elects to have the provisions of IC 23-1-43 apply to it
if and whenever such provisions are permitted to apply to it, regardless of
whether or not it has a class of voting securities registered with the
Securities and Exchange Commission under Section 12 of the Securities Exchange
Act of 1934.
Section 10.4. Captions. The captions of the Articles and Sections of
these Articles of Incorporation have been inserted for convenience of reference
only and do not in any way define, limit, construe, or describe the scope or
intent of any Article or Section hereof.
IN WITNESS WHEREOF, the undersigned, being the incorporator designated
in Article IX, executes these Articles of Incorporation on May 7, 1991.
/s/ J. Jeffrey Brown
-----------------------------------
J. Jeffrey Brown, Incorporator
20
<PAGE> 21
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
J B MORGAN BANCSHARES, INC.
The undersigned officer of J B Morgan Bancshares, Inc. (hereinafter
referred to as the "Corporation") existing pursuant to Indiana Business
Corporation Law, as amended (hereinafter referred to as the "Act"), desiring to
give notice of corporate action effectuating amendment of certain provisions of
its Articles of Incorporation, certifies the following facts:
ARTICLE I
AMENDMENTS
Section 1. The date of incorporation of the Corporation is May 8, 1991.
Section 2. The name of the Corporation following this amendment to the
Articles of Incorporation is First Shares Bancorp, Inc.
Section 3. The exact text of Article I of the Articles of Incorporation
is now as follows:
Name
The name of the Corporation is First Shares Bancorp, Inc.
(the "Corporation").
Section 4. The exact text of Section 5.1 of the Articles of
Incorporation is now as follows:
Section 5.1. Authorized Classes and Number of Shares. The
total number of shares which the Corporation has authority to
issue shall be 12 million shares, consisting of 10 million
shares of common stock (the "Common Stock") and 2 million
preferred shares (the "Preferred Shares"). The Corporation's
shares each have a par value of $.01 per share.
ARTICLE II
MANNER OF ADOPTION AND VOTE
Section 1. Action by Directors. The Board of Directors of the
Corporation duly adopted a resolution proposing to amend the terms and
provisions of Article I of the Articles of Incorporation and directing a meeting
of the Shareholders to be held on February 11, 1999, allowing such Shareholders
to vote on the proposed amendment.
<PAGE> 22
Section 2. Action by Shareholders. The Shareholders of the Corporation
entitled to vote in respect of the Articles of Amendment adopted the proposed
Amendment by vote of such Shareholders during the meeting called by the Board of
Directors. The result of such vote was as follows:
<TABLE>
<CAPTION>
Amendment to Amendment to
Amendment to Section 5.1- Section 5.1-
Article I Common Preferred
------------ ------------ ------------
<S> <C> <C> <C>
NUMBER OF OUTSTANDING SHARES 110,752 110,752 110,752
SHARES ENTITLED TO VOTE: 110,752 110,752 110,752
SHARES REPRESENTED AT MEETING 91,915 91,915 91,915
SHARES VOTED IN FAVOR: 91,528 90,553 90,544
SHARES VOTED AGAINST: 387 1,362 1,371
ABSTENTIONS: 0 0 0
</TABLE>
Section 3. Compliance with Legal Requirements. The manner of adoption
of the Articles of Amendment and the vote by which they were adopted constitute
full legal compliance with the provisions of the Act, the Articles of
Incorporation, and the By-Laws of the Corporation.
Executed this 24th day of February, 2000.
These Articles of Amendment are to be effective upon filing.
/s/ Jerry R. Engle
-------------------------------------
Jerry R. Engle
President and Chief Executive Officer
-2-
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
B J MORGAN BANCSHARES, INC.
(As Amended Through 6/22/99)
ARTICLE I
Meetings of Shareholders
Section 1.1. Annual Meetings. Annual meetings of the shareholders of
the Corporation shall be held not later than six months following the close of
the Corporation's fiscal year, at such date, hour and place within or without
the State of Indiana as shall be designated by the Board of Directors. In the
absence of designation, the meeting shall be held at the principal office of the
Corporation at 11:00 a.m. (local time). The Board of Directors may, by
resolution, change the date or time of such annual meeting.
Section 1.2. Special Meetings. Special meetings of the shareholders of
the Corporation may be called at any time by the Board of Directors, the
Chairman or the President. A special meeting shall be called by the Board of
Directors if the Secretary receives written, dated and signed demands for a
special meeting, describing in reasonable detail the purpose or purposes for
which it is to be held, from the holders of shares representing at least 25% of
all votes entitled to be cast on any issue proposed to be considered at the
proposed special meeting; provided, however, that any such demand(s) delivered
to the Secretary at any time at which the Corporation has more than 50
shareholders must be properly delivered by the holders of shares representing at
least 70% of all votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting of shareholders, the Board of
Directors may set a record date for determining shareholders entitled to make
such demand. The Board of Directors, the Chairman or the President, as the case
may be, calling a special meeting of shareholders shall set the date, time and
place of such meeting, which may be held within or without the State of Indiana.
Section 1.3. Notices. A written notice, stating the date, time and
place of any meeting of the shareholders and, in the case of a special meeting,
the purpose or purposes for which such meeting is called, shall be delivered or
mailed by the Secretary of the Corporation, to each shareholder of record of the
Corporation entitled to notice of or to vote at such meeting no fewer than 10
nor more than 60 days before the date of the meeting. In the event of a special
meeting of shareholders required to be called as the result of a demand
therefore made by shareholders, such notice shall be given no later than the
60th day after the Corporation's receipt of the demand requiring the meeting to
be called.
Notice of shareholders' meetings, if mailed, shall be mailed, postage
prepaid, to each shareholder at his address shown in the Corporation's current
record of shareholders. Except as
<PAGE> 2
required by the Indiana Business Corporation Law, as amended (the "IBCL"), or
the Corporation's Articles of Incorporation, notice of a meeting of shareholders
is required to be given only to shareholders entitled to vote at the meeting.
A shareholder or a shareholder's proxy may at any time waive notice of
a meeting if the waiver is in writing and is delivered to the Corporation for
inclusion in the minutes or filing with the Corporation's records. A
shareholder's attendance at a meeting, whether in person or by proxy, (a) waives
objection to lack of notice or defective notice of the meeting, unless the
shareholder or the shareholder's proxy at the beginning of the meeting objects
to holding the meeting or transacting business at the meeting, and (b) waives
objection to consideration of a particular matter at the meeting that is not
within the purpose or purposes described in the meeting notice, unless the
shareholder or the shareholder's proxy objects to considering the matter when it
is presented. Each shareholder who has, in the manner above provided, waived
notice or objection to notice of a shareholders' meeting shall be conclusively
presumed to have been given due notice of such meeting, including the purpose or
purposes thereof.
If an annual or special shareholders' meeting is adjourned to a
different date, time or place, notice need not be given of the new date, time or
place if the new date, time or place is announced at the meeting before
adjournment, unless a new record date is or must be established for the
adjourned meeting.
Section 1.4. Voting. Except as otherwise provided by the IBCL or the
Corporation's Articles of Incorporation, each share of the capital stock of any
class of the Corporation that is outstanding at the record date established for
any annual or special meeting of shareholders and is outstanding at the time of
and represented in person or by proxy at the annual or special meeting shall
entitle the record holder thereof, or his proxy, to one vote on each matter
voted on at the meeting.
Section 1.5. Quorum. Unless the Corporation's Articles of Incorporation
or the IBCL provide otherwise, at all meetings of shareholders, a majority of
the votes entitled to be cast on a matter, represented in person or by proxy,
constitutes a quorum for action on the matter. Action may be taken at a
shareholders' meeting only on matters with respect to which a quorum exists;
provided, however, that any meeting of shareholders, including annual and
special meetings and any adjournments thereof, may be adjourned to a later date
although less than a quorum is present. Once a share is represented for any
purpose at a meeting, it is deemed present for quorum purposes for the remainder
of the meeting and for any adjournment of that meeting unless a new record date
is or must be set for that adjourned meeting.
Section 1.6. Vote Required To Take Action. If a quorum exists as to a
matter to be considered at a meeting of shareholders, action on such matter
(other than the election of Directors) is approved if the votes properly cast
favoring the action exceed the votes properly cast opposing the action, except
as the Corporation's Articles of Incorporation or the IBCL require a greater
number of affirmative votes. Directors shall be elected by plurality of the
votes properly cast.
-2-
<PAGE> 3
Section 1.7. Record Date. Only such persons shall be entitled to notice
of or to vote, in person or by proxy, at any shareholders' meeting as shall
appear as shareholders upon the books of the Corporation as of such record date
as the Board of Directors shall determine, which date may not be earlier than
the date 70 days immediately preceding the meeting. In the absence of such
determination, the record date shall be the 50th day immediately preceding the
date of such meeting. Unless otherwise provided by the Board of Directors,
shareholders shall be determined as of the close of business on the record date.
Section 1.8. Proxies. A shareholder may vote his shares either in
person or by proxy. A shareholder may appoint a proxy to vote or otherwise act
for the shareholder (including authorizing the proxy to receive, or to waive,
notice of any shareholders' meeting within the effective period of such proxy)
by signing an appointment form, either personally or by the shareholders'
attorney-in-fact. An appointment of a proxy is effective when received by the
Secretary or other officer or agent authorized to tabulate votes and is
effective for 11 months unless a longer period is expressly provided in the
appointment form. The proxy's authority may be limited to a particular meeting
or may be general and authorize the proxy to represent the shareholder at any
meeting of shareholders held within the time provided in the appointment form.
Subject to the IBCL and to any express limitation on the proxy's authority
appearing on the face of the appointment form, the Corporation is entitled to
accept the proxy's vote or other action as that of the shareholder making the
appointment.
Section 1.9. Removal of Directors. Any or all of the members of the
Board of Directors may be removed, for good cause, only at a meeting of the
shareholders called expressly for that purpose, by a vote of the holders of
outstanding shares representing at least 70% of the votes then entitled to be
cast at an election of Directors. Directors may not be removed in the absence of
good cause.
Section 1.10. Written Consents. Any action required or permitted to be
taken at a shareholders' meeting may be taken without a meeting if the action is
taken by all the shareholders entitled to vote on the action. The action must be
evidenced by one or more written consents describing the action taken, signed by
all the shareholders entitled to vote on the action and delivered to the
Corporation for inclusion in the minutes or filing with the corporate records.
Action taken under this Section 1.10 is effective when the last shareholder
signs the consent, unless the consent specifies a different date or subsequent
effective date, in which case the action is effective on or as of the specified
date.
Such consent shall have the same effect as a unanimous vote of all
shareholders and may be described as such in any document. If the IBCL or the
Corporation's Articles of Incorporation or these By-Laws require that notice of
proposed action be given to nonvoting shareholders and the action is to be taken
by unanimous consent of voting shareholders, the Corporation shall give its
nonvoting shareholders written notice of the proposed action at least 10 days
before the action is taken.
-3-
<PAGE> 4
Section 1.11. Participation by Conference Telephone. The Chairman, the
President or the Board of Directors may permit any or all shareholders to
participate in an annual or special meeting of shareholders by, or through the
use of, any means of communication, such as conference telephone, by which all
shareholders participating may simultaneously hear each other during the
meeting. A shareholder participating in a meeting by such means shall be deemed
to be present in person at the meeting.
ARTICLE II
DIRECTORS
Section 2.1. Number and Terms. The business and affairs of the Bank
shall be managed under the direction of a Board of Directors consisting of eight
(8) Directors. The term of office of a director shall be three (3) years,
expiring at the third succeeding annual meeting after election.
Despite the expiration of a Director's term, the Director shall
continue to serve until his successor is elected and qualified, or until the
earlier of his death, resignation, disqualification or removal, or until there
is a decrease in the number of Directors. Any vacancy occurring in the Board of
Directors, from whatever cause arising, shall be filled by selection of a
successor by a majority vote of the remaining members of the Board of Directors
(although less than a quorum); provided, however, that if such vacancy or
vacancies leave the Board of Directors with no members or if the remaining
members of the Board are unable to agree upon a successor or determine not to
select a successor, such vacancy may be filled by a vote of the shareholders at
a special meeting called for that purpose or at the next annual meeting of
shareholders. The term of a Director elected or selected to fill a vacancy shall
expire at the end of the term for which such Director's predecessor was elected.
The Directors and each of them shall have no authority to bind the
Corporation except when acting as a Board.
Section 2.1.1. Nomination of Directors. Beginning at the annual meeting
in 1998, nominations for director shall be as follows:
1. By nominating committee appointed by the Chairman of the Board
of Directors.
2. By the Board of Directors.
3. By any shareholder entitled to vote at the annual meeting by
timely notice in writing to the corporate secretary not less
than sixty (60) days prior to the annual meeting.
-4-
<PAGE> 5
The shareholder nomination shall provide the following information as
to each nominee:
1. The name, age, business and residential addresses and phone
numbers of the person.
2. The principal occupation or employment of the person.
3. The class and number of share beneficially owned by the
person.
4. Any other information that is required to be disclosed in
solicitations of proxies for election.
The shareholder offering the nomination shall provide the following
information as to the shareholder:
1. The name and address of the shareholder.
2. The class and number of shares beneficially owned by the
shareholder.
3. A description of any consideration or value or promise offered
the shareholder in exchange for the nomination.
Section 2.2. Quorum and Vote Required To Take Action. A majority of the
whole Board of Directors shall be necessary to constitute a quorum for the
transaction of any business, except the filling of vacancies. If a quorum is
present when a vote is taken, the affirmative vote of a majority of the
Directors present shall be the act of the Board of Directors, unless the act of
a greater number is required by the IBCL, the Corporation's Articles of
Incorporation or these By-Laws.
Section 2.3. Regular Meetings. Regular meetings of the Board of
Directors shall be held on such dates, at such times and at such places as shall
be fixed by resolution adopted by the Board of Directors and specified in a
notice of each such regular meeting, or otherwise communicated to the Directors.
The Board of Directors may at any time alter the date for the next regular
meeting of the Board of Directors.
Section 2.4. Special Meetings. Special meetings of the Board of
Directors may be called by any member of the Board of Directors upon not less
than 24 hours' notice given to each Director of the date, time, and place of the
meeting, which notice need not specify the purpose or purposes of the special
meeting. Such notice may be communicated in person (either in writing or
orally), by telephone, telegraph, teletype, or other form of wire or wireless
communication, or by mail, and shall be effective at the earlier of the time of
its receipt or, if mailed, five days after its mailing. Notice of any meeting of
the Board may be waived in writing at any time if the waiver is signed by the
Director entitled to the notice and is filed with the minutes or corporate
records. A Director's attendance at or participation in a meeting waives any
required notice to the director of the meeting, unless the Director at the
beginning of the meeting (or promptly upon the Director's arrival) objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
-5-
<PAGE> 6
Section 2.5. Written Consents. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
the action is taken by all members of the Board. The action must be evidenced by
one or more written consents describing the action taken, signed by each
Director, and included in the minutes or filed with the corporate records
reflecting the action taken. Action taken under this Section 2.5 is effective
when the last Director signs the consent, unless the consent specifies a
different prior or subsequent effective date, in which cases the action is
effective on or as of the specified date. A consent signed under this Section
2.5 shall have the same effect as a unanimous vote of all members of the Board
and may be described as such in any document.
Section 2.6. Committees. (a) The Board of Directors may create one or
more committees and appoint members of the Board of Directors to serve on them,
by resolution of the Board of Directors adopted by a majority of all the
Directors in office when the resolution is adopted. Each committee may have one
or more members, and all the members of a committee shall serve at the pleasure
of the Board of Directors.
(b) To the extent specified by the Board of Directors in the resolution
creating a committee, each committee may exercise all of the authority of the
Board of Directors; provided, however, that committee may not:
(1) authorize dividends or other distributions, except a committee
may authorize or approve a reacquisition of shares if done
according to a formula or method prescribed by the Board of
Directors;
(2) approve or propose to shareholders action that is required to
be approved by shareholders;
(3) fill vacancies on the Board of Directors or on any of its
committees;
(4) amend the Corporation's Articles of Incorporation under IC
23-1-38-2;
(5) adopt, amend, repeal, or waive provisions of these By-Laws;
(6) approve a plan of merger not requiring shareholder approval.
(c) Except to the extent inconsistent with the resolutions creating a
committee, Sections 2.1 through 2.6 of these By-Laws, which govern meetings,
action without meetings, notice and waiver of notice, quorum and voting
requirements and telephone participation in meetings of the Board of Directors,
apply to each committee and its members as well.
Section 2.7. Qualifications of Directors. Directors over the age of 70
shall not be eligible for re-election.
-6-
<PAGE> 7
ARTICLE III
OFFICERS
Section 3.1. Designation, Selection and Terms. The officers of the
Corporation shall consist of Chairman of the Board, the President, the Treasurer
and the Secretary. The Board of Directors may also elect such Vice Presidents,
Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers, and such
other officers or assistant officers as it may from time to time determine by
resolution creating the office and defining the duties thereof. In addition, the
Chairman of the Board or the President may, by a certificate of appointment
creating the office delivered to the Secretary for inclusion with the corporate
records, from time to time create and appoint such assistant officers as deems
desirable. The officers of the Corporation shall be elected by the Board of
Directors (or appointed by the Chairman of the Board or the President as
provided above) and need not be selected from among the members of the Board of
Directors, except for the Chairman of the Board and the President who shall be
members of the Board of Directors. Any two or more offices may be held by the
same person. All officers shall serve at the pleasure of the Board of Directors
and, with respect to officers appointed by the Chairman of the Board or the
President, also at the pleasure of such officers. The election or appointment of
an officer does not itself create contract rights.
Section 3.2. Removal. The Board of Directors may remove any officer at
any time with or without cause. An assistant officer appointed by the Chairman
of the Board or the President may also be removed at any time, with or without
cause, by either of such officers. Vacancies in such offices, however occurring,
may be filled by the Board of Directors at any meeting of the Board of Directors
(or by appointment by the Chairman of the Board or the President, to the extent
provided in Section 3.1 of these By-Laws).
Section 3.3. Chairman of the Board. The Chairman of the Board shall be
the principal policy-making officer of the Corporation, subject to the authority
of the Board of Directors, and shall formulate the major policies to be pursued
in the administration of the Corporation's affairs. The Chairman shall study and
make reports and recommendations to the Board of Directors with respect to major
problems and activities of the Corporation and shall see that the established
policies are placed into effect and carried out under the direction of the
President. The Chairman of the Board shall, if present, preside at all meetings
of the shareholders and of the Board of Directors.
Section 3.4. President. Subject to the provisions of Section 3.3, the
President shall be the chief executive officer of the Corporation, shall
exercise the powers and perform the duties which ordinarily pertain to that
office and shall manage and operate the business and affairs of the Corporation
in conformity with the policies established by the Board of Directors and by the
Chairman of the Board, or as may be provided for in these By-Laws. In the
absence of the Chairman of the Board, the President shall preside at meetings of
shareholders and of the Board of Directors.
-7-
<PAGE> 8
Section 3.5. Vice Presidents. Each Vice President, if any, shall have
such powers and perform such duties as the Board of Directors may, from time to
time, prescribe and as the Chairman of the Board or the President may, from time
to time, delegate to such Vice President.
Section 3.6. Treasurer. The Treasurer shall perform all of the duties
customary to that office, including the duty of supervising the keeping of the
records of the receipts and disbursements of the Corporation. The Treasurer
shall submit to the Board of Directors at such times as the Board may require
full statements showing in detail the financial condition and affairs of the
Corporation. The Treasurer shall also be responsible for causing the Corporation
to furnish financial statements to its shareholders pursuant to IC 23-1-53-1.
Section 3.7. Secretary. The Secretary shall be the custodian of the
books, papers and records of the Corporation and of its corporate seal, if any,
and shall be responsible for seeing that the Corporation maintains the records
required by IC 23-1-52-1 (other than accounting records) and that the
Corporation files with the Indiana Secretary of State the annual report required
by IC 23-1-53-3. The Secretary shall be responsible for preparing minutes of the
meetings of the shareholders and of the Board of Directors and for
authenticating records of the Corporation, and shall perform all of the other
duties usual in the office of Secretary of a corporation.
ARTICLE IV
STOCK
Section 4.1. Execution. Certificates for shares of the capital stock of
the Corporation shall be signed by the President and by the Secretary and the
seal of the Corporation (or a facsimile thereof), if any, may be thereto
affixed. Where any such certificate is also signed by a transfer agent or a
registrar, or both, the signatures of the officers of the Corporation may be
facsimiles. The Corporation may issue and deliver any such certificate
notwithstanding that any such officer who shall have signed, or whose facsimile
signature shall have been imprinted on, such certificate shall have ceased to be
such officer.
Section 4.2. Contents. Each certificate shall state on its face the
name of the Corporation and that it is organized under the laws of the State of
Indiana, the name of the person to whom it is issued, and the number and class
of shares and the designation of the series, if any, the certificate represents,
and shall state conspicuously on its front or back that the Corporation will
furnish the shareholder, upon his written request and without charge, a summary
of the designations, relative rights, preferences, and limitations applicable to
each class and the variations in rights, preferences, and limitations determined
for each series (and the authority of the Board of Directors to determine
variations for future series).
Section 4.3. Loss, Destruction, or Mutilation of Certificates. The
holder of any of the capital stock of the Corporation shall immediately notify
the Corporation of any loss, destruction, or
-8-
<PAGE> 9
mutilation of the certificate therefor, and the Board of Directors may, in its
discretion, cause to be issued to the holder a new certificate or certificates
of stock, upon the surrender of the mutilated certificate, or in the case of
loss or destruction, upon satisfactory proof of such loss or destruction. The
Board of Directors may, in its discretion, require the holder of the lost or
destroyed certificate or his legal representative to give the Corporation a bond
in such sum and in such form, and with such surety or sureties as it may direct,
to indemnify the Corporation, its transfer agents, and registrars, if any,
against any claim that may be made against them or any of them with respect to
the capital stock represented by the certificate or certificates alleged to have
been lost or destroyed, but the Board of Directors may, in its discretion,
refuse to issue a new certificate or certificates, save upon the order of a
court having jurisdiction in such matters.
ARTICLE V
MISCELLANEOUS
Section 5.1. IBCL. The provisions of the IBCL applicable to all matters
relevant to, but not specifically covered by, these By-Laws are hereby, by
reference, incorporated in and made a part of these By-Laws.
Section 5.2. Fiscal Year. The fiscal year of the Corporation shall end
on the 31st day of December of each year.
Section 5.3. Redemption of Shares Acquired in Control Share
Acquisitions. If and whenever the provisions of IC 23-1-42 apply to the
Corporation, any or all control shares acquired in a control share acquisition
shall be subject to redemption by the Corporation, if either:
(a) no acquiring person statement has been filed with the Corporation
with respect to such control share acquisition in accordance with IC
23-1-42-6; or
(b) the control shares are not accorded full voting rights by the
Corporation's shareholders as provided in IC 23-1-42-9.
A redemption pursuant to Section 5.3(a) may be made at any time during
the period ending 60 days after the last acquisition of control shares by the
acquiring person. A redemption pursuant to Section 5.3(b) may be made at any
time during the period ending two years after the shareholder vote with respect
to the granting of voting rights to such control shares. Any redemption pursuant
to this Section 5.3 shall be made at the fair value of the control shares and
pursuant to such procedures for such redemption as may be set forth in these
By-Laws or adopted by resolution of the Board of Directors.
-9-
<PAGE> 10
As used in this Section 5.3, the terms "control shares," "control share
acquisition," "acquiring person statement," and "acquiring person" shall have
the meanings ascribed to such terms in IC 23-1-42.
Section 5.4. Amendments. These By-Laws may be rescinded, changed, or
amended, and provisions hereof may be waived, at any meeting of the Board of
Directors by the affirmative vote of a majority of the entire number of
Directors at the time, except as otherwise required by the Corporation's
Articles of Incorporation or by the IBCL.
-10-
<PAGE> 1
EXHIBIT 4
COMMON STOCK COMMON STOCK
NUMBER SHARES
FIRST SHARES BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF INDIANA
CUSIP
--------------
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01
PER SHARE, OF
FIRST SHARES BANCORP, INC.,
transferable on the books of the Corporation in person or by duly-authorized
attorney upon surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are issued and shall be held subject to all of
the provisions of the Articles of Incorporation of the Corporation and all
amendments thereto, copies of which are on file with the Transfer Agent, to
which the holder by acceptance hereby hereby assents. This certificate is not
valid until countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile signatures of the duly authorized officers of the
Corporation.
Dated:
PRESIDENT
COUNTERSIGNED AND REGISTERED:
REGISTRAR AND TRANSFER COMPANY
SECRETARY TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
<PAGE> 2
The following abbreviations when used in the instructions on the face of
this Certificate shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C> <C>
TEN COM - as tenant in common UNIF GIFT MIN ACT - Custodian
------------ ------------
(Cust) (Minor)
TEN ENT - as tenants by the entireties Under Uniform Gifts to Minors Act
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common ---------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
ASSIGNMENT
For value received, ______________________________________ hereby sell(s),
assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE
OR ASSIGNEE)
________________________________________________________ Preferred Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint ____________________________________ Attorney to transfer the said
Preferred Shares on the books of the Company with full power of substitution in
the premises.
Dated:
---------------------------- ----------------------------------------
NOTICE: The signature to the assignment
must correspond with the name as
written upon the face of this
Certificate in every particular,
without alteration or
enlargement or any change
whatever.
<PAGE> 1
EXHIBIT 5
BOSE MCKINNEY & EVANS LLP
2700 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, Indiana 46240
(317) 684-5000
March 1, 2000
First Shares Bancorp, Inc.
996 South State Road 135
Greenwood, Indiana 46143
Dear Sirs:
We are acting as counsel to First Shares Bancorp, Inc., an Indiana corporation
(the "Company"), in connection with the registration by the Company of
approximately 750,000 shares of the Company's Common Stock, par value $.01 per
share (the "Common Stock"), to be sold by the Company (plus an underwriters'
overallotment option). The Common Stock is the subject of a Registration
Statement, as amended (the "Registration Statement") filed by the Company on
Form SB-2 under the Securities Act of 1933, as amended.
We have examined photostatic copies of the Company's Articles of Incorporation
and amendments thereto and Code of Bylaws and amendments thereto and such other
documents and instruments as we have deemed necessary to enable us to render the
opinion set forth below. We have assumed the conformity to the originals of all
documents submitted to us as photostatic copies, the authenticity of the
originals of such documents, and the genuineness of all signatures appearing
thereon.
Based upon and subject to the foregoing, it is our opinion that the Common Stock
has been duly authorized by all necessary corporate action of the Company and
when (a) the applicable provisions of the Securities Act of 1933 and such state
"blue sky" or securities laws as
<PAGE> 2
First Shares Bancorp, Inc.
March 1, 2000
Page 2
may be applicable have been complied with and (b) any shares of Common Stock to
be issued by the Company have been issued and delivered as described in the
Registration Statement, such shares of Common Stock will be legally issued,
fully paid, and nonassessable.
We do not hold ourselves out as being conversant with the laws of any
jurisdiction other than those of the United States and the State of Indiana and,
therefore, this opinion is limited to the laws of those jurisdictions.
We consent to the filing of this opinion as an exhibit to the Registration
Statement on Form SB-2 filed under the Securities Act of 1933 relating to the
Common Stock.
Very truly yours,
BOSE McKINNEY & EVANS LLP
<PAGE> 1
EXHIBIT 10.1
BJ MORGAN BANCSHARES, INC.
1996 STOCK OPTION PLAN
I. PURPOSE
The purpose of this 1996 Stock Option Plan (the "Plan") of BJ Morgan Bancshares,
Inc. (the "Corporation") is to encourage ownership in the Corporation by
executive officers and other employees of the Corporation's wholly-owned
subsidiary, First State Bank (the "Bank"), who are materially responsible for
the management or operation of the business of the Bank or provide valuable
services to the Bank, an opportunity to acquire the Corporation's Common Stock,
thereby providing them with an increased incentive to work for the success of
the Bank and better enabling the Bank to attract and retain capable executive
personnel. The effective date of this Plan is November 19, 1996 (the "Effective
Date"). This Plan will expire on December 31, 2001 and in no event will options
be granted under this Plan after such date.
II. ADMINISTRATION OF THE PLAN
The Plan will be administered, construed and interpreted by the Corporation's
Board of Directors (the "Board"). The decision of a majority of the members of
the Board will constitute the decision of the Board, and the Board may act
either at a meeting at which a majority of the members of the Board is present
or by a written consent signed by all members of the Board. The Board will have
the sole, final and conclusive authority to determine, consistent with and
subject to the provisions of the Plan, the following:
(a) to whom options will be granted under the Plan ("Optionees");
(b) the date of grant when options will be granted under the Plan;
(c) the number of shares of common stock of the Corporation be
covered under each option;
(d) the exercise price per share to be paid upon the exercise of
each option;
(e) the period within which each option may be exercised; and
(f) the terms and conditions of any and all Option Agreements (as
hereinafter defined).
The Board will also have authority to prescribe, amend, waive, and
rescind rules and regulations relating to the Plan, to accelerate the vesting of
any options made hereunder, and to make all other determinations necessary or
advisable in the administration of the Plan.
III. ELIGIBILITY
Each executive officer or other employee of the Bank who in the opinion of the
Board is from time to time materially responsible for the management or
operation of the business of the Bank and/or
<PAGE> 2
provides valuable services to the Bank is eligible to participate in the Plan
and shall receive the options (an "Optionee") provided for in his Option
Agreement.
IV. STOCK SUBJECT TO THE PLAN
A. Common Stock. The stock which is the subject of options
granted under the Plan shall be the Corporation's authorized but
unissued Common Stock ("Stock"). In connection with the issuance of
shares of Stock under the Plan, the Corporation may utilize shares
repurchased or otherwise.
B. Aggregate Amount. The total number of shares subject to
options granted under the Plan shall not exceed nine thousand (9,000)
shares of Stock (subject to adjustment under Article VII).
V. TERMS, CONDITIONS AND FORM OF OPTIONS
Each option granted under the Plan shall be evidenced by a written agreement in
substantially the form attached hereto as Exhibit A (an "Option Agreement"),
which agreement shall comply with and be subject to the following terms and
conditions:
A. Non-Statutory Stock Options. All options granted under the
Plan shall be non-statutory options not entitled to special tax
treatment under Section 422A of the Internal Revenue Code of 1986, as
amended to date and as may be further amended from time to time (the
"Code").
B. Number of Option Shares. The number of shares of Stock
subject to the Option Agreement shall be stated in the Option
Agreement.
C. Transferability. Each option granted under the Plan by its
terms shall not be transferable by the Optionee otherwise than by will
or by the laws of descent and distribution, and shall be exercised
during the lifetime of the Optionee only by such Optionee.
D. Term of Option. Unless otherwise provided in the Option
Agreement, options become exercisable with respect to twenty-five
(25.0%) of the shares granted in the Option Agreement immediately upon
the grant of the options and the remaining shares become exercisable
with respect to twenty-five percent (25.0%) of the shares granted in
the Option Agreement on each of the next three (3) anniversaries of the
date upon which they were granted; provided, however, that any option
granted pursuant to the Plan shall become exercisable in full upon the
death of the Optionee. Unless terminated earlier in accordance with the
terms of the Plan or the applicable Option Agreement, each option shall
terminate upon the expiration of seven (7) years after such option was
granted.
-2-
<PAGE> 3
E. Manner of Exercise. Options may be exercised only by
written notice to the Corporation, which notice must specify the date
of the stock option and the number of shares of Stock covered by the
exercise, accompanied by payment of the full consideration for the
shares as to which they are exercised in cash (including check, bank
draft or money order). An option may not be exercised for a fractional
share.
F. Termination of Employment. All rights of an Optionee in an
option, to the extent that such rights have not been exercised and have
not otherwise expired, shall terminate immediately upon the termination
of his services as a full-time employee of the Bank for any reason
other than the death of the Optionee. The foregoing notwithstanding,
any option granted to an Optionee under the Plan may be exercised (in
full and without regard to any vesting requirements) by the personal
representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution at any time prior
to the earlier of the one (1) year after the date of the Optionee's
death or the original expiration date of such option; upon the earlier
of such events the option shall terminate.
VI. NO RIGHT TO CONTINUE AS AN EMPLOYEE
Neither the Plan nor the granting of an option nor any other action taken
pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that the Bank (or the Corporation) will
retain an Optionee as an employee for any period of time or at any particular
rate of compensation.
VII. ADJUSTMENT TO STOCK
In the event any change is made to the Stock subject to the Plan or subject to
any outstanding option granted under the Plan (whether by reason of merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
combination of shares, exchange of shares, change in corporate structure or
otherwise), then appropriate adjustments shall be made to the maximum number of
shares that may be the subject of options granted under the Plan and the number
of shares and price per share of stock subject to outstanding options. The grant
of options under the Plan shall not affect the right of the Corporation to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
VIII. EFFECTS OF CHANGE OF CONTROL
Upon the occurrence of a Change in Control, all options granted under the Plan
will become fully exercisable (in full and without regard to any vesting
requirements). For these purposes, "Change in Control" means any one of the
events specified in the following clauses (i) through (iv) occurring after the
date of the grant of an option under the Plan:
-3-
<PAGE> 4
(i) Any third person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, will
become the beneficial owner of 45.0% or more of the total number of
shares of the Corporation's outstanding capital stock or the Bank's
outstanding capital stock;
(ii) As a result of, or in connection with, any cash business
combination, sale of assets or contested election, or combination of
the foregoing, the persons who were directors of the Corporation will
cease to constitute a majority of the Board;
(iii) The shareholders of the Corporation will approve an agreement
providing either for a transaction in which the Corporation will cease
to be an independent corporation or for the sale or other disposition
of all or substantially all the assets of the Corporation or the Bank;
or
(iv) With respect to any period of two consecutive years commencing
with or after the date of grant of an option, individuals, who at the
beginning of such period constitute the Board, cease for any reason to
constitute at least a majority thereof, unless the election of each
Director who was not a Director at the beginning of such period has
been approved in advance by Directors representing at least two-thirds
of the Directors at the beginning of such period.
IX. TAX WITHHOLDING
Where the Optionee or another person is entitled to receive Stock pursuant to
the exercise of an option, the Corporation will have the right to require the
Optionee or such other person to pay to the Corporation the amount of any taxes
which the Corporation or the Bank is required to withhold with respect to such
Stock.
X. AMENDMENT AND TERMINATION OF THE PLAN
The Board may suspend, discontinue or terminate the Plan or revise or amend it
in any respect whatsoever; provided that any such action shall not negatively
affect any of the rights under any then-outstanding option.
XI. USE OF PROCEEDS
The cash proceeds received by the Corporation from the issuance of shares
pursuant to options under the Plan shall be used for general corporate purposes.
XII. ADMINISTRATION
The Plan shall be self-administered. However, ministerial actions and duties
shall be performed by the President of the Corporation, who has authority to
execute and deliver options to Optionees and to execute and deliver all such
other instruments, and to take all other actions and to make all other
-4-
<PAGE> 5
determinations, not inconsistent with this Plan, that he may deem, in his sole
discretion, necessary or desirable.
XIII. DELIVERY AND REGISTRATION OF STOCK
The Corporation's obligation to deliver shares with respect to an option shall,
if the President so requests, be conditioned upon the receipt of a
representation as to the investment intention of the participant to whom such
shares are to be delivered, in such form as the President shall determine to be
necessary or advisable to comply with the provisions of the Securities Act of
1933, as amended, or any other federal, state or local securities legislation.
It may be provided that any representation requirement shall become inoperative
upon a registration of the shares or other action eliminating the necessity of
such representation under such Securities Act or other securities legislation.
The Corporation shall not be required to deliver any shares under the Plan prior
to the completion of such registration or other qualification of such shares
under any state or federal law, rule or regulation, as the President shall
determine to be necessary or advisable.
XIV. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto shall be
governed by the laws of the State of Indiana and construed accordingly.
-5-
<PAGE> 1
EXHIBIT 10.2
FIRST SHARES BANCORP, INC.
AMENDED AND RESTATED 1999 STOCK OPTION PLAN
1. PURPOSE. The primary purposes of the Plan are to promote and align
the interests of specified employees of First Shares Bancorp, Inc. (the
"Company") and its subsidiary, First Bank, with those of its shareholders, to
increase employee stock ownership and to improve the Company's ability to retain
a team of outstanding executives. This Amended and Restated 1999 Stock Option
Plan amends and restates the Company's 1999 Stock Option Plan which was
effective May 1, 1999.
2. DEFINITIONS.
As used in the Plan, terms defined parenthetically immediately
after their use have the respective meanings provided by such definitions and
the terms set forth below have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
"Administrator" means the Board or any committee of the Board
to whom the responsibilities under the Plan are delegated.
"Affiliate" means, with respect to a specified person, a
person that, directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the
person specified.
"Board" means the Board of Directors of the Company.
"Change in Control" means any of the following:
(i) any person or group (other than a Subsidiary or any
employee benefit plan (or any related trust) of the
Company or a Subsidiary) becomes after the Effective
Date the beneficial owner of more than 25% of either
the then outstanding Stock or the combined voting
power of the then outstanding voting securities of
the Company entitled to vote in the election of
directors, except that (A) no such person or group
shall be deemed to own beneficially any securities
acquired directly from the Company pursuant to a
written agreement with the Company unless such person
or group subsequently becomes the beneficial owner of
additional Stock or voting securities of the Company
other than pursuant to a written agreement with the
Company, and (B) no Change in Control shall be deemed
to have occurred solely by reason of any such
acquisition by a corporation with respect to which,
after such acquisition, more than 60% of both the
then outstanding common shares of such corporation
and the combined voting power of the then outstanding
voting securities of such corporation entitled to
vote in the election of directors are then
beneficially owned, directly or indirectly, by the
persons who were the beneficial owners of the Stock
and voting securities of the Company immediately
before such acquisition in substantially the same
proportion as their ownership, immediately before
such acquisition, of the outstanding Stock and the
combined voting power of the then outstanding voting
securities of the Company entitled to vote in the
election of directors; or
(ii) approval by the stockholders of the Company of (A) a
merger, reorganization or consolidation with respect
to which the individuals and entities who were the
respective beneficial owners of the Stock and voting
securities of the Company immediately before such
merger, reorganization or consolidation do not, after
such
<PAGE> 2
merger, reorganization or consolidation, beneficially
own, directly or indirectly, more than 60% of,
respectively, the then outstanding common shares and
the combined voting power of the then outstanding
voting securities entitled to vote in the election of
directors of the corporation resulting from such
merger, reorganization or consolidation, (B) a
liquidation or dissolution of the Company or (C) the
sale or other disposition of all or substantially all
of the assets of the Company;
Notwithstanding the foregoing provisions of this definition, a
Change in Control of the Company shall be deemed not to have occurred
with respect to any Grantee, if such Grantee is, by written agreement
executed prior to such Change in Control, a participant on such
Grantee's own behalf in a transaction in which the persons (or their
affiliates) with whom such Grantee has the written agreement Acquire
the Company (as defined below) and, pursuant to the written agreement,
the Grantee has an equity interest in the resulting entity or a right
to acquire such an equity interest.
For the purposes of this definition, "Acquire the Company"
means the acquisition of beneficial ownership by purchase, merger, or
otherwise, of either more than 50% of the Stock (such percentage to be
computed in accordance with Rule 13d-3(d)(1)(i) of the SEC under the
Exchange Act) or substantially all of the assets of the Company or its
successors; "person" means such term as used in Rule 13d-5 of the SEC
under the Exchange Act; "beneficial owner" means such term as defined
in Rule 13d-3 of the SEC under the Exchange Act; and "group" means such
term as defined in Section 13(d) of the Exchange Act.
"Common Stock" means the Common Stock of the Company.
"Company" means First Shares Bancorp, Inc., an Indiana
corporation.
"Disability" means, with respect to the exercise of an
incentive stock option after Termination of Employment, a disability
within the meaning of Section 22(e)(3) of the Internal Revenue Code,
and for all other purposes, a mental or physical condition which, in
the opinion of the Administrator, renders a Grantee unable or
incompetent to carry out the job responsibilities which such Grantee
held or the tasks to which such Grantee was assigned at the time
disability was incurred, and which is expected to be permanent or for
an indefinite duration.
"Effective Date" means May 1, 1999.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended. References to a particular section of, or rule under, the
Exchange Act shall include references to successor provisions.
"Fair Market Value" of any security of the Company or any
other issuer means, as of any applicable date:
(i) if the security is listed for trading on the New York
Stock Exchange, the closing price, regular way, of
the security as reported on the New York Stock
Exchange Composite Tape, or if no such reported sale
of the security shall have occurred on such date, on
the next preceding date on which there was such a
reported sale, or
(ii) if a security is not so listed, but is listed on
another national securities exchange or authorized
for quotation on the National Association of
Securities Dealers, Inc.'s
2
<PAGE> 3
NASDAQ National Market System ("NASDAQ/NMS"), the
closing price, regular way, of the security on such
exchange or NASDAQ/NMS, as the case may be, or if no
such reported sale of the security shall have
occurred on such date, on the next preceding date on
which there was such a reported sale, or
(iii) if a security is not listed for trading on a national
securities exchange or authorized for quotation on
NASDAQ/NMS, the average of the closing bid and asked
prices as reported by the National Association of
Securities Dealers Automated Quotation System
("NASDAQ"), or, if no such prices shall have been so
reported for such date, on the next preceding date
for which such prices were so reported, or
(iv) if the security is not listed for trading on a
national securities exchange or is not authorized for
quotation on NASDAQ/NMS or NASDAQ, the fair market
value of the security as determined in good faith by
the Administrator.
"Grant Agreement" has the meaning specified in Section
4(b)(v).
"Grant Date" means the date of grant of an Option determined
in accordance with Section 6.
"Grantee" means an individual who has been granted an Option.
"including" means "including, without limitation."
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, and regulations and rulings thereunder. References to
a particular section of the Internal Revenue Code shall include
references to successor provisions.
"IPO" means the closing of the first public offering of Common
Stock by the Company pursuant to an effective registration statement
under the Securities Act of 1933, as amended.
"Option" means a stock option granted under the Plan.
"Option Price" means the per share purchase price of Stock
subject to an option.
"Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if at the time
of the granting of an Option under the Plan, each of such corporations
other than the Company owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
"Plan" means the Amended and Restated First Shares Bancorp,
Inc. 1999 Stock Option Plan.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the
time of the granting of an Option under the Plan, each of the
corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
3
<PAGE> 4
"10% Owner" means a person who owns stock (including stock
treated as owned under Section 424(d) of the Internal Revenue Code)
possessing more than 10% of the total combined voting power of all
classes of stock of the Company.
"Termination of Employment" occurs the first day an individual
is for any reason entitled to severance payments under the Company's or
any Subsidiary's personnel policies or is no longer employed by the
Company or any of its Subsidiaries, or, with respect to an individual
who is an employee of a corporation constituting a Subsidiary, the
first day such corporation is no longer a Subsidiary.
3. SCOPE OF THE PLAN.
(a) An aggregate of Ninety-Three Thousand (93,000) shares of Common
Stock is hereby made available and is reserved for delivery on account of the
exercise of Options. Subject to the foregoing limit, shares of Common Stock held
as treasury shares may be used for or in connection with Options. Issuance of
Common Stock pursuant to an Option reduces the shares available for grant and
issuance under the Plan.
(b) If and to the extent an Option expires or terminates for any reason
without having been exercised in full or is forfeited, shares of Common Stock
associated with such Option shall become available for other Options.
4. ADMINISTRATION.
(a) The Plan shall be administered by the Administrator.
(b) The Administrator shall have full power and final authority, in its
discretion, but subject to the express provisions of the Plan, as follows:
(i) to grant Options,
(ii) to determine when Options may be granted,
(iii) to interpret the Plan and to make all determinations
necessary or advisable for the administration of the Plan,
(iv) to prescribe, amend, and rescind rules relating to the
Plan, including rules with respect to the exercisability of Options
upon the Termination of Employment of a Grantee,
(v) to determine the terms and provisions of the written
agreements by which all Options shall be granted ("Grant Agreements")
and, with the consent of the Grantee, to modify any such Grant
Agreement at any time,
(vi) to accelerate the exercisability of, and to accelerate or
waive any or all of the restrictions and conditions applicable to, any
Option,
(vii) to make such adjustments or modifications to Options to
Grantees working outside the United States as are necessary and
advisable to fulfill the purposes of the Plan, and
4
<PAGE> 5
(viii) to impose such additional conditions, restrictions, and
limitations upon the grant, exercise or retention of Options as the
Administrator may, before or concurrently with the grant thereof, deem
appropriate.
The determination of the Administrator on all matters relating to the
Plan or any Grant Agreement is conclusive and final. The Administrator is not
liable for any action or determination made in good faith with respect to the
Plan or any Option.
5. ELIGIBILITY. Options may be granted to any employee of the Company
or any of its Subsidiaries, including but not limited to First Bank.
6. CONDITIONS TO GRANTS.
(a) General Conditions.
(i) The Grant Date of an Option is the date on which the
Administrator grants the Option or such later date as specified in
advance by the Administrator.
(ii) The term of each Option (subject to Section 6(c) with
respect to incentive stock options) shall be a period of not more than
ten (10) years from the Grant Date, and shall be subject to earlier
termination as herein provided.
(b) Grant of Options and Option Price. No later than the Grant Date of
any option, the Administrator shall determine the Option Price of such option.
The Option Price of any option granted on or prior to December 31, 1999 shall be
such amount as is determined by the Administrator in its discretion, and the
Option Price of any option granted on or after January 1, 2000 shall be not less
than the Fair Market Value of the Common Stock on the Grant Date.
(c) Grant of Incentive Stock Options. If at the time of the grant of
any option the Option Price is (A) not less than 100% of the Fair Market Value
of the Stock on the Grant Date or (B) in the case of a 10% Owner, not less than
110% of the Fair Market Value of the Stock on the Grant Date, then the
Administrator may designate that such option shall be made subject to additional
restrictions to permit it to qualify as an "incentive stock option" under the
requirements of Section 422 of the Internal Revenue Code. Any option designated
as an incentive stock option:
(i) shall be for a period of not more than 10 years (five
years, in the case of a 10% Owner) from the Grant Date, and shall be
subject to earlier termination as provided herein or in the applicable
Grant Agreement;
(ii) shall not have an aggregate Fair Market Value of Stock
(determined for each incentive stock option on its Grant Date) with
respect to which incentive stock options are exercisable for the first
time by such Grantee during any calendar year (under the Plan and any
other employee stock option plan of the Grantee's employer or any
parent or subsidiary thereof ("Other Plans")), determined in accordance
with the provisions of Section 422 of the Internal Revenue Code, which
exceeds $100,000 (the "$100,000 Limit");
(iii) shall, if the aggregate Fair Market Value of Stock
(determined on the Grant Date) with respect to all incentive stock
options previously granted under the Plan and any Other Plans ("Prior
Grants") and any incentive stock options under such grant (the "Current
Grant") which are exercisable for the first time during any calendar
year would exceed the $100,000 Limit, be exercisable as follows:
5
<PAGE> 6
(A) the portion of the Current Grant exercisable for
the first time by the Grantee during any calendar year which
would, when added to any portions of any Prior Grants, be
exercisable for the first time by the Grantee during such
calendar year with respect to stock which would have an
aggregate Fair Market Value (determined as of the respective
Grant Date for such options) in excess of the $100,000 Limit
shall, notwithstanding the terms of the Current Grant, be
exercisable for the first time by the Grantee in the first
subsequent calendar year or years in which it could be
exercisable for the first time by the Grantee when added to
all Prior Grants without exceeding the $100,000 Limit; and
(B) if, viewed as of the date of the Current Grant,
any portion of a Current Grant could not be exercised under
the provisions of the immediately preceding sentence during
any calendar year commencing with the calendar year in which
it is first exercisable through and including the last
calendar year in which it may by its terms be exercised, such
portion of the Current Grant shall not be an incentive stock
option, but shall be exercisable as a separate option at such
date or dates as are provided in the Current Grant;
(iv) shall be granted within 10 years after the earlier of the
date the Plan is adopted or the date the Plan is approved by the
stockholders of the Company; and
(v) shall require the Grantee to notify the Administrator of
any disposition of any Stock issued pursuant to the exercise of the
incentive stock option under the circumstances described in Section
421(b) of the Internal Revenue Code (relating to certain disqualifying
dispositions), within 10 days of such disposition.
Notwithstanding the foregoing and Section 4(b)(v), the Administrator may,
without the consent of the Grantee, at any time before the exercise of an option
(whether or not an incentive stock option), take any action necessary to prevent
such option from being treated as an incentive stock option.
7. NON-TRANSFERABILITY. Each Option granted hereunder shall by its
terms not be assignable or transferable other than by will or the laws of
descent and distribution and may be exercised, during the Grantee's lifetime,
only by the Grantee. After the Grantee's death, an Option otherwise exercisable
may be exercised by the Grantee's personal representative prior to its transfer
or assignment by will or the laws of descent and distribution.
8. EXERCISE. Subject to Sections 4(b)(vi), 9 and 14 and such terms and
conditions as the Administrator may impose, each option shall be exercisable in
one or more installments commencing on the Grant Date of such option. Each
option shall be exercised by delivery to the Company of written notice of intent
to purchase a specific number of shares of Common Stock subject to the option.
The Option Price of any shares of Common Stock as to which an option shall be
exercised shall be paid in full at the time of the exercise. Payment may, at the
election of the Grantee, be made in any one or any combination of the following:
(i) cash;
(ii) Common Stock valued at its Fair Market Value on the
business day preceding the date of exercise (including through an
attestation procedure);
(iii) upon the occurrence of a Change in Control or an IPO, or
otherwise with the consent of the Administrator, by the surrender of
all or part of the Option being exercised;
(iv) by waiver of compensation due or accrued to the Grantee
for services rendered;
6
<PAGE> 7
(v) with the consent of the Administrator, by tender of
property;
(vi) consideration received by the Company under any form of
cashless exercise approved by the Administrator, including (provided
that a public market for the Common Stock exists):
(A) a "same day sale" commitment from the Grantee and
a broker-dealer that is a member of the National Association
of Securities Dealers (an "NASD Dealer") whereby the Grantee
irrevocably elects to exercise the option and to sell a
portion of the Stock so purchased in order to pay for the
Option, and whereby the NASD Dealer irrevocably commits upon
receipt of such Stock to forward the Option Price directly to
the Company; or
(B) a "margin" commitment from the Grantee and an
NASD Dealer whereby the Grantee irrevocably elects to exercise
the option and to pledge the Stock so purchased to the NASD
Dealer in a margin account as security for a loan from the
NASD Dealer in the amount of the Option Price, and whereby the
NASD Dealer irrevocably commits upon receipt of such Stock to
forward the Option Price directly to the Company.
(vii) in the discretion of the Administrator and to the extent
permitted by law, in accordance with Section 10.
9. EFFECTS OF A CHANGE IN CONTROL. After the occurrence of a Change in
Control, then subject to Section 14 but notwithstanding any other provisions of
the Plan, all options granted under the Plan shall immediately be fully
exercisable.
10. LOANS AND GUARANTEES. The Administrator may, in its discretion:
(a) allow a Grantee to defer payment to the Company of all or any
portion of (i) the Option Price of an option, or (ii) any taxes associated with
a benefit hereunder which is not a cash benefit at the time such benefit is so
taxable, or
(b) cause the Company to guarantee a loan from a third party to the
Grantee, in an amount equal to all or any portion of such Option Price or any
related taxes.
Any such payment deferral or guarantee by the Company pursuant to this Section
10 shall be on a secured or unsecured basis for such periods, at such interest
rates, and on such other terms and conditions as the Administrator may
determine. Notwithstanding the foregoing, a Grantee shall not be entitled to
defer the payment of such Option Price or any related taxes unless the Grantee
(i) enters into a binding obligation to pay the deferred amount and (ii) pays
upon exercise of an option, an amount equal to or greater than the aggregate par
value of all shares of Common Stock (other than treasury shares) to be then
delivered. If the Administrator has permitted a payment deferral or caused the
Company to guarantee a loan pursuant to this Section 10, then the Administrator
may, in its discretion, require the immediate payment of such deferred amount or
the immediate release of such guarantee upon the Grantee's Termination of
Employment or upon the Grantee's sale or other transfer of the Grantee's shares
of Common Stock purchased pursuant to such deferral or guarantee.
11. NOTIFICATION UNDER SECTION 83(b). If the Administrator has not, on
the Grant Date or any later date, prohibited such Grantee from making the
following election, and a Grantee shall, in connection with the exercise of any
option, make the election permitted under Section 83(b) of the Internal Revenue
Code (i.e., an election to include in such Grantee's gross income in the year of
transfer the amounts specified in Section 83(b) of the Internal Revenue Code),
such Grantee shall notify the Company of such election within 10 days of filing
notice of the election with the Internal
7
<PAGE> 8
Revenue Service, in addition to any filing and notification required pursuant to
regulations issued under the authority of Section 83(b) of the Internal Revenue
Code.
12. MANDATORY WITHHOLDING TAXES.
(a) Whenever under the Plan, shares of Stock are to be delivered upon
exercise or payment of an Option, or any other event with respect to rights and
benefits hereunder, the Company shall be entitled to require as a condition of
delivery (i) that the Grantee remit an amount sufficient to satisfy all federal,
state and local withholding tax requirements related thereto, (ii) the
withholding of such sums from compensation otherwise due to the Grantee or from
any shares of Common Stock due to the Grantee under the Plan, or (iii) any
combination of the foregoing.
(b) If any disqualifying disposition described in Section 6(c)(v) is
made with respect to shares of Common Stock acquired under an incentive stock
option granted pursuant to the Plan or any election described in Section 11 is
made, then the person making such disqualifying disposition or election shall
remit to the Company an amount sufficient to satisfy all federal, state, and
local withholding taxes thereby incurred; provided that, in lieu of or in
addition to the foregoing, the Company shall have the right to withhold such
sums from compensation otherwise due to the Grantee or from any shares of Common
Stock due to the Grantee under the Plan.
13. ELECTIVE SHARE WITHHOLDING.
(a) Subject to Section 13(b), a Grantee may elect the withholding
("Share Withholding") by the Company of a portion of the shares of Common Stock
otherwise deliverable to such Grantee upon the exercise or payment of an Option
(a "Taxable Event") having a Fair Market Value equal to:
(i) the minimum amount necessary to satisfy required federal,
state, or local withholding tax liability attributable to the Taxable
Event; or
(ii) with the Administrator's prior approval, a greater
amount, not to exceed the estimated total amount of such Grantee's tax
liability with respect to the Taxable Event.
(b) Each Share Withholding election by a Grantee shall be made in
writing in a form acceptable to the Administrator and shall be subject to the
following restrictions:
(i) a Grantee's right to make such an election shall be
subject to the Administrator's right to revoke such right at any time
before the Grantee's election if the Administrator has reserved the
right to do so in the Grant Agreement;
(ii) the Grantee's election must be made before the date (the
"Tax Date") on which the amount of tax to be withheld is determined;
(iii) the Grantee's election shall be irrevocable by the
Grantee;
(iv) in the event that the Tax Date is deferred until six
months after the delivery of Common Stock under Section 83(b) of the
Internal Revenue Code, the Grantee shall receive the full amount of
Common Stock with respect to which the exercise occurs, but such
Grantee shall be unconditionally obligated to tender back to the
Company the proper number of shares of Common Stock on the Tax Date.
14. TERMINATION OF EMPLOYMENT. If a Grantee has a Termination of
Employment for any reason other than the death of the Grantee, any unexercised
Option or part of an Option will terminate immediately. If the
8
<PAGE> 9
Termination of Employment is the result of the death of the Grantee, all Options
granted to the Grantee will be fully exercisable notwithstanding any vesting
period that may have been established and the personal representative of the
Grantee or any person to whom the Option is transferred by the Grantee's will or
in accordance with the laws of descent and distribution may exercise the
unexercised portion of the Option at any time prior to the earlier of one year
after the date of the Grantee's death or the original expiration date of the
Option.
15. SECURITIES LAW MATTERS.
(a) If the Administrator deems necessary to comply with the Securities
Act of 1933, or any rules, regulations or other requirements of the SEC or any
stock exchange or automated quotation system, the Administrator may require a
written investment intent representation by the Grantee and may require that a
restrictive legend be affixed to certificates for shares of Common Stock, or
that the Common Stock be subject to such stock transfer orders and other
restrictions as the Administrator may deem necessary or advisable.
(b) If based upon the opinion of counsel for the Company, the
Administrator determines that the exercise of, or delivery of benefits pursuant
to, any Option would violate any applicable provision of (i) federal or state
securities law or (ii) the listing requirements of any national securities
exchange on which are listed any of the Company's equity securities, then the
Administrator may postpone any such exercise or delivery, as the case may be,
but the Company shall use reasonable and good faith efforts to cause such
exercise or delivery to comply with all such provisions at the earliest
practicable date. The Administrator's authority under this Section 15(b) shall
expire on the date of the first Change in Control to which Section 9 applies.
(c) The Company shall be under no obligation to register the Common
Stock with the SEC or to effect compliance with the registration, qualification
or listing requirements of any state securities laws, stock exchange or
automated quotation system, and the Company shall have no liability for any
inability or failure to do so.
16. FUNDING. Benefits payable under the Plan to any person shall be
paid directly by the Company. The Company shall not be required to fund, or
otherwise segregate assets to be used for payment of, benefits under the Plan.
17. NO EMPLOYMENT RIGHTS. Neither the establishment of the Plan, nor
the granting of any Option shall be construed to (a) give any Grantee the right
to remain employed by the Company or any of its Subsidiaries or to any benefits
not specifically provided by the Plan, or (b) in any manner modify the right of
the Company or any of its Subsidiaries to modify, amend, or terminate any of its
employee benefit plans.
18. RIGHTS AS A STOCKHOLDER. A Grantee shall not, by reason of any
Option have any right as a stockholder of the Company with respect to the shares
of Common Stock which may be deliverable upon exercise or payment of such Option
until such shares have been delivered to such Grantee.
19. NATURE OF PAYMENTS. Any and all grants or deliveries of shares of
Stock hereunder shall constitute special incentive payments to the Grantee and
shall not be taken into account in computing the amount of salary or
compensation of the Grantee for the purposes of determining any pension,
retirement, death or other benefits under (a) any pension, retirement,
profit-sharing, bonus, life insurance or other employee benefit plan of the
Company or any of its Subsidiaries, or (b) any agreement between the Company or
any Subsidiary, on the one hand, and the Grantee, on the other hand, except as
such plan or agreement shall otherwise expressly provide.
20. NON-UNIFORM DETERMINATIONS. The Administrator's determinations
under the Plan need not be uniform and may be made by the Administrator
selectively among persons who receive, or are eligible to receive, Options
(whether or not such persons are similarly situated). Without limiting the
generality of the foregoing, the Administrator shall be entitled, among other
things, to make non-uniform and selective determinations and to enter into
9
<PAGE> 10
non-uniform and selective Grant Agreements as to (a) the identity of the
Grantees, (b) the terms and provisions of Options, and (c) the treatment, under
Section 14, of Terminations of Employment. Notwithstanding the foregoing, the
Administrator's interpretation of Plan provisions shall be uniform as to
similarly situated Grantees.
21. ADJUSTMENTS. The Administrator shall make equitable adjustment of:
(i) the aggregate numbers of shares of Common Stock available
under Section 3(a);
(ii) the number of shares of Common Stock covered by an
Option; and
(iii) the Option Price
to reflect a stock dividend, stock split, reverse stock split, share
combination, recapitalization, merger, consolidation, asset spin-off,
reorganization, or similar event of or by the Company.
22. ADOPTION AND SHAREHOLDER APPROVAL. The Plan shall be approved by
the shareholders of the Company (excluding holders of Common Stock issued
pursuant to this Plan), consistent with applicable laws, within 12 months before
or after the Effective Date. Upon the Effective Date, the Board may grant
Options pursuant to the Plan; provided, however, that: (a) no option may be
exercised prior to initial shareholder approval of the Plan; (b) no option
granted pursuant to an increase in the number of shares of Common Stock approved
by the Board shall be exercised prior to the time such increase has been
approved by the shareholders of the Company; and (c) in the event that
shareholder approval is not obtained within the time period provided herein, all
Options granted hereunder shall be canceled, any Common Stock issued pursuant to
any Option shall be canceled and any purchase of Common Stock hereunder shall be
rescinded.
23. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board, the submission of the Plan to the shareholders of the Company for
approval, nor any provision of the Plan shall be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including the granting of stock options
and bonuses otherwise than under the Plan, and such arrangements may be either
generally applicable or applicable only in specific cases.
24. AMENDMENT OF THE PLAN. The Board may from time to time in its
discretion amend or modify the Plan without the approval of the stockholders of
the Company.
25. TERMINATION OF THE PLAN. The Plan shall terminate on the tenth
anniversary of the Effective Date or at such earlier time as the Board may
determine. Any termination, whether in whole or in part, shall not affect any
Option then outstanding under the Plan.
26. BUYOUT PROVISIONS. The Administrator may at any time offer to buy
out for a payment in cash or shares of Common Stock an Option previously
granted, on such terms and conditions as the Administrator establishes and
communicates to the Optionee at the time the offer is made.
10
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
this 3rd day of March, 1999, by and between First State Bank of Morgantown, an
Indiana state-chartered commercial bank (the "Bank"), and Jerry Engle, a
resident of Greenwood, Indiana (the "Executive").
WITNESSETH THAT:
WHEREAS, the Bank desires to employ the Executive to serve as Chief
Executive Officer of the Bank; and
WHEREAS, the Executive desires to become employed by the Bank to
fulfill such duties;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Employment and Substitution of Employer.
(a) The Bank shall employ the Executive as Chief Executive
Officer of the Bank during the Period of Employment (as defined in
Section 1(b) below), on a full-time basis in accordance with the terms
and conditions set forth in this Agreement.
(b) The Period of Employment shall be deemed to have commenced
on the date of this Agreement and shall end three years from the date
of this Agreement, except as provided below. The Period of Employment
shall be automatically extended for one additional year on each
anniversary of the date of commencement, unless either party gives
written notice of termination of such automatic extension at least
thirty days prior thereto, in which event this Agreement shall
terminate at the end of the three-year period in effect at the time
such notice is given. Notwithstanding the immediately preceding
sentence, the Period of Employment shall terminate upon the Executive's
retirement at the age of 65, unless the Board of Directors of the Bank
provides for a later retirement date by resolutions duly authorized and
adopted.
2. Position, Duties, Responsibilities.
(a) The Executive shall serve, during the Period of
Employment, as the President and Chief Executive Officer of the Bank,
with such duties and responsibilities normally associated with such a
position and as further specified by the Bank's Board of Directors.
<PAGE> 2
(b) Throughout the Period of Employment, the Executive shall
devote his full time and attention during normal business hours to the
business and affairs of the Bank and shall be available to attend to
the Bank's matters as such needs may arise, except as otherwise
specified and directed by the Board of Directors of the Bank and except
for vacations and illness or incapacity, but nothing in this Agreement
shall preclude the Executive from engaging in charitable and community
activities and managing his personal investments.
3. Compensation and Related Matters.
(a) During the Period of Employment, for all services rendered
by the Executive in any capacity to or for the Bank or to BJ Morgan
Bancshares, Inc. (the "Holding Company"), the Bank shall pay to the
Executive an annual base salary of $150,000 (with any increases in such
base salary as the Bank, in its sole discretion, shall determine),
payable in installments according to the Bank's regular salary payment
schedule. Notwithstanding the above, on the first day following a
Qualifying Six Month Period, the Executive's annual base salary shall
be increased to $160,000; provided, however, that if the applicable six
months comprising such Qualifying Six Month Period shall fall entirely
in 1999, the increase in base salary to $160,000 shall be retroactive
to the date of this Agreement. For purposes of the immediately
preceding sentence, the term "Qualifying Six Month Period" shall mean
any consecutive six calender months in which the Bank, on an annualized
basis, achieves a return on average assets of at least 0.75 percent. If
the Period of Employment terminates prior to the completion of any
calendar year, the annual base salary shall be pro-rated, as deemed
appropriate by the Bank, in its sole discretion, to reflect the
percentage of such calendar year for which the Executive was employed
by the Bank.
(b) For each calendar year during the Period of Employment,
the Bank shall pay the Executive such bonuses or performance awards as
the Bank may determine, in accordance with a bonus program upon which
the Bank and the Executive shall mutually agree.
(c) During the Period of Employment, the Bank shall provide
the Executive the opportunity to participate in any employee welfare
benefit program, including any group hospitalization or medical plan,
health care plan, dental care plan, life or other insurance or death
benefit plan, disability or other similar plan or program as the Bank
makes available to its executive employees generally. However, the Bank
cannot guarantee participation, which is based on eligibility and
coverage rules of the insurance companies. The Bank further does not
guarantee payment of benefits.
(d) During the Period of Employment, the Bank shall provide
the Executive the opportunity to participate in such retirement plans,
including 401(k) and pension
2
<PAGE> 3
plans or other similar plan or program, as the Bank makes available to
its executive employees generally.
(e) During the Period of Employment, the Executive shall be
entitled to a minimum of twenty business days of compensated vacation
leave in each calendar year. The Executive may not carry forward
accrued but unused vacation days into the immediately subsequent
calendar year. The Executive is not entitled to any additional
compensation for vacation days earned but not taken in a calendar year.
The Executive shall be entitled to such holidays as the Bank makes
available to all of its employees generally.
(f) During the Period of Employment, the Executive shall be
entitled to the normal benefits attendant to his position, including
and office and secretarial and clerical staff.
(g) In addition to the items of compensation set forth above,
and as an inducement to the Executive to become employed by the Bank,
the Bank agrees to grant to the Executive options to purchase a total
of 6,500 shares of the Holding Company pursuant to the following terms
and conditions:
(i) The options will be granted at an exercise price equal to
the book value per share of the outstanding stock of the
Holding Company as at the last day of the fiscal quarter ended
immediately prior to the date of grant of the options, as
further set forth in the 1999 Stock Option Plan (the "Option
Plan") of the Holding Company, which is yet to be prepared but
which will be substantially similar to the currently existing
stock option plan of the Holding Company attached to this
Agreement as Exhibit A.
(ii) The options to purchase shares of the Holding Company
will be granted to the Executive in two, separate blocks of
3,250 each. The first grant of options to purchase 3,250
shares will be granted to the Executive immediately following
the receipt of shareholder approval of the Option Plan at the
1999 Annual Meeting of Shareholders. The second grant of
options to purchase 3,250 shares will be granted to the
Executive no later than the 15th day of the month immediately
following a Qualifying Six Month Period.
(iii) The grant of the options is also subject to the receipt
by the Executive and, if necessary, the Holding Company, of
all necessary regulatory approvals pertaining to a change in
control of the Holding Company. The options hereby granted to
the Executive are governed entirely by the Option Agreement
and Option Plan, and nothing contained in this Agreement, nor
any action of the Executive or the Bank, shall be deemed to
modify, amend, or otherwise affect the validity of such
options.
3
<PAGE> 4
4. Confidential Information.
(a) Except for necessary disclosures made in the ordinary
course of the Executive's employment with the Bank and except as is
otherwise expressly authorized by the Bank in writing, the Executive
agrees and promises that the Executive will not at any time, whether
during the Period of Employment or at any time thereafter, directly or
indirectly disclose or use, on the Executive's own behalf or on behalf
of any third party, whether as an agent, employee, employer, officer,
Director, shareholder, member, principal, consultant, independent
contractor, partner, creditor, or in any other capacity, any secret,
confidential or proprietary information obtained, received or learned
by the Executive during the Period of Employment (including information
conceived, originated, discovered or developed by the Executive)
including, but not limited to, the following types of information:
ideas, concepts, designs, specifications, technical data, prototypes,
documentation, media, codes, discoveries, programs, methods,
procedures, business plans, marketing strategies and plans, sales
techniques, forecasts, customer lists, customer information (including,
but not limited to, customer requirements, preferences, past activities
and other relevant data and information), customer pricing information,
employee lists and information, processes, formulae, research,
development, inventions, trademarks, trade names, trade secrets,
proposals, projections, and financial information, whether or not the
same are, or may be, patented, copyrighted, registered, or otherwise
publicly protected, and whether or not originated or generated by or
through the Bank or the Bank; provided, however, that this Section 4
shall not preclude the Executive from use or disclosure of information
known generally to the public (provided that the Executive was not,
without the Bank's consent, directly or indirectly responsible for such
information becoming known generally to the public) or from disclosure
required by law or court order.
(b) The Executive agrees and promises that all documents and
records and copies of documents and records pertaining to the financial
affairs, operations, customers, employees and business of the Bank or
the Bank, including, but not limited to, price lists, customer lists,
employee lists, marketing data, sales aids, notes (even if made by or
delivered to the Executive), and every other document or record
obtained by the Executive in the course and scope of the Executive's
employment with the Bank, shall be the exclusive property of the Bank,
shall be held by the Executive subject to the control of the Bank and
shall be delivered and surrendered by the Executive to the Bank on
demand and immediately, without demand, upon termination of the
Executive's employment with the Bank.
5. Termination by the Bank.
(a) During the Period of Employment, the Bank may terminate
the Executive's employment under this Agreement and the Period of
Employment without a breach by the Bank of this Agreement only (i) for
"Cause" (as defined in Section 5(b)) or (ii) upon the Executive's death
or "Disability" (as defined in Section 5(c)).
4
<PAGE> 5
(b) For purposes of this Agreement, the Bank shall have
"Cause" to terminate the Executive's employment under this Agreement
and the Period of Employment upon the happening of any of the
following:
(i) the continued failure of the Executive to perform
any of the Executive's duties or responsibilities in
connection with the Executive's employment to the reasonable
satisfaction of the Board of Directors (other than any such
failure resulting from the Executive's Disability (as defined
below)) if such failure is not corrected or cured within 15
days after demand for performance is made in writing upon the
Executive by the Bank specifically identifying the manner in
which the Bank believes the Executive has failed to perform
one or more of the Executive's duties or responsibilities
(repetition of the same failure as previously described in any
such written demand after the 15-day cure period following
such written demand shall be deemed to be "continued failure"
to perform by the Executive; or
(ii) any act that constitutes on the part of the
Executive common law fraud or dishonesty that resulted in, or
was intended to result in, a benefit to the Executive at the
expense of the Bank; or
(iii) the conviction of the Executive of, or the plea
by the Executive of, nolo contendere to, a felony or a crime
involving moral turpitude; or
(iv) any continuing material violation by the
Executive of any of the Bank's policies or of any term or
provision of this Agreement or other agreement between the
Executive and the Bank which, in any such case, is not
corrected or abated by the Executive within 15 days after
written notice of such violation is given by the Bank to the
Executive (repetition of the same violation as previously
described in any such written notice after the 15 day
correction period following such written notice shall be
deemed to be a "continuing violation" by the Executive); or
(v) the willful and material violation by the
Executive of any law, rule or regulation, other than traffic
violations or similar offenses, or of a final cease-and-desist
order;
(vi) the Executive's unexcused total abandonment or
neglect of the Executive's duties and responsibilities in
connection with the Executive's employment with the Bank
(other than absences due to illness, physical or mental
incapacity, vacations, or other excused absences) for a
continuous period of twenty working days.
For purposes of this Section 5(b), an act, or failure to act, on the
Executive's part shall be considered "willful" only if (i) the act or
omission was not in good faith and (ii) the
5
<PAGE> 6
Executive did not have a reasonable belief that the action or omission
was in the best interest of the Bank.
(c) The Bank may terminate the Executive's employment under
this Agreement and the Period of Employment if, during the Period of
Employment, the Executive shall die or suffer a "Disability" (as
hereinafter defined). The Executive shall be considered to have
suffered a "Disability" only upon the actual receipt by the Executive
of income continuation benefits pursuant to a disability insurance
policy as a result of a determination under such policy that the
Executive is disabled. Notwithstanding anything expressed or implied to
the contrary above, the Bank shall take no action to terminate the
Period of Employment, and this Section shall not be deemed to authorize
the Association to terminate the Period of Employment, if such action
would violate the Americans with Disabilities Act of 1990, as
subsequently amended, or any other applicable federal, state, or local
laws, regulations, or ordinances.
6. Termination by the Executive for Good Reason.
(a) In the event that the Executive should reasonably
determine in good faith that his status, functions, duties or
responsibilities with the Bank have diminished subsequent to the
execution of this Agreement, and shall resign for that reason from his
employment with the Bank during the Period of Employment, the Executive
shall be considered to have resigned for Good Reason and, subject to
the notice requirement of Section 6(b) hereof, shall be entitled to
receive all the Severance Benefits specified in Section 8 hereof. Good
Reason shall also include the breach by the Bank of any of the material
terms, provisions, duties, and responsibilities set forth in this
Agreement.
(b) The Executive shall be required to give a thirty (30) day
Notice to the Bank of his intent to resign for Good Reason. This Notice
shall include a statement of all reasons, including any breach of the
terms of this Agreement, for such resignation. The Bank shall have
thirty (30) days in which to cure any breach and remedy any reason for
such resignation. Failure by the Executive to provide the Notice
required by this section shall result in forfeiture by the Executive of
all rights, payments, and benefits granted under Section 8 hereof.
7. Termination by the Executive for Other Than Good Reason. After this
Agreement becomes effective, the Executive may terminate the Executive's
employment under this Agreement and the Period of Employment without a breach by
the Executive of this Agreement, at any time, for any reason, which reason need
not be disclosed to the Bank, by giving the Bank no fewer than sixty days'
advance notice in writing. Any longer notice shall be subject to the approval of
the Bank. The Executive shall receive full compensation during the notice
period. At its sole discretion, the Bank shall determine whether to require that
the Executive perform the Executive's duties for the Bank during the notice
period. Upon termination of the Executive's employment pursuant to this
6
<PAGE> 7
Section 7, and following the applicable notice period, the Bank shall have no
further obligations under Section 1 or Section 3 of this Agreement.
8. Severance Benefits.
(a) In the event of the termination of the Executive's
employment under this Agreement and the Period of Employment (i) by the
Bank for a reason other than (A) Cause, or (B) upon the Executive's
death or Disability or (ii) by the Executive pursuant to Section 6
above, the severance benefits provided for by this Section 8 shall
constitute the entire obligation of the Bank to the Executive and shall
constitute full settlement of any claim under law or in equity that he
might otherwise assert against the Bank or any of its employees or
Directors or agents on account of such termination. Such amounts are
liquidated damages for the failure of the Bank to perform its
obligations under this Agreement and severance pay and are not a
penalty.
(b) In the event of the termination of the Period of
Employment as set forth in Section 8(a) above:
(i) The Bank shall pay the Executive cash within ten
business days following the date the Executive's employment
with the Bank is terminated (the "Termination Date") and by
the fifth business day of each month following the month in
which the Termination Date falls through the last month of the
Period of Employment an amount equal to the sum of 1/12th of
the Executive's annual base salary at the highest rate during
the twelve months preceding the Termination Date. The Bank
shall withhold from this, and all other benefits payable under
this Agreement, all federal, state, city, county, or other
taxes as shall be required pursuant to any law or governmental
regulation or ruling; and
(ii) Until the expiration of the Period of
Employment, the Bank shall maintain in full force and effect
for the continued benefit of the Executive each employee
welfare benefit program described in Section 3(c) above. If
the terms of any such program of the Bank does not permit
continued participation by the Executive, then the Bank shall
arrange to provide to the Executive a benefit substantially
similar to, in no less favorable then, the benefit he was
entitled to receive under such program the end of the period
of coverage.
At the sole discretion of the Bank, such severance may be paid in a lump sum.
The Bank shall withhold from such severance benefit payment or payments all
federal, state, city, county or other taxes as shall be required pursuant to any
law or governmental regulation or ruling.
7
<PAGE> 8
9. Noncompetition and Nonsolicitation.
(a) For purposes of this Agreement, the following words and
phrases (including the plural form thereof), when used as capitalized
defined terms, shall have the following meanings:
(i) "Person" means and includes an individual or an
association or group of individuals, a proprietorship, a
partnership, a company, a corporation, a limited liability
company, an unincorporated association, a governmental or
other public agency or instrumentality, and any other firm,
association, venture, organization or entity of any type or
nature whatsoever.
(ii) "Customer" means all Persons who, as of the date
of the termination of the Period of Employment, have a deposit
account, loan, or any other product and/or service with or
from the Bank;
(iii) "Competitor" means any Person that provides or
that seeks to provide to any Customer products and/or services
identical or substantially similar to products and/or services
that the Bank provides or seeks to provide to any Customer as
of the date of the termination of the Period of Employment.
(b) The Executive promises and agrees that, for the 24 months
following the termination of the Period of Employment (i) by the Bank
for Cause or (ii) by the Executive for any reason other than Good
Reason pursuant to Section 7 above, the Executive will not directly or
indirectly, either on the Executive's own behalf or on behalf of any
Competitor, whether as an agent, employee, employer, officer, director,
shareholder, member, principal, independent contractor, partner, or
creditor, or in any other capacity, solicit or attempt to solicit any
Customer of the Bank for the purpose of providing or seeking to provide
products and/or services identical or substantially similar to the
products and/or services available to such Customer from the Bank as of
the date of the termination of the Period of Employment.
10. Breach Not a Defense. The breach or violation by the Bank of this
Agreement or of any oral or written employment or employment-related agreement
between the Bank and the Executive or of any provision hereof or thereof (a
"Bank Breach") shall not constitute a legal justification or other legal excuse
for the breach or noncompliance by the Executive of or with the covenants of the
Executive set forth in Section 4 above (the "Executive Covenants"). In any
action commenced by or on behalf of the Bank against the Executive to enforce
any of the Executive Covenants, no Bank Breach shall constitute or serve as a
factual basis for, and no Bank Breach may be asserted by the Executive as
constituting, a defense or other matter of avoidance (legal or equitable) with
respect to the Executive's alleged breach or violation of any of the Executive
Covenants
8
<PAGE> 9
11. Mitigation. The amount of any payment provided for in Section 8
shall be reduced by any compensation (but not including income from investments
or other sources that are not considered "wages" or "self-employment income" as
defined in the Internal Revenue Code) earned by the Executive from other sources
after the termination of Executive's employment with the Bank.
12. Legal Expenses. In the event that the Bank or the Executive
institutes any legal action to enforce its respective rights under this
Agreement or to recover damages for breach of this Agreement, the prevailing
party shall be entitled to recover from the non-prevailing party actual expenses
for attorneys' fees and disbursements incurred by it or him.
13. Specific Performance. The parties to this Agreement recognize and
acknowledge that an adequate remedy at law may not exist for the breach of
certain provisions of this Agreement and that irreparable damage may result in
the event that this Agreement is not specifically enforced. Accordingly, the
Executive and the Bank hereby agree and consent that the other shall be entitled
to a decree of specific performance, mandamus, or other appropriate remedy to
enforce performance of this Agreement. Such remedy shall, however, be cumulative
and not exclusive, and shall be in addition to any other remedy or right that
the Executive or the Bank may have pursuant to the terms of this Agreement.
14. Notices. Any notice, request, demand or other communication to be
given hereunder to any party by any other party shall be in writing and shall be
personally delivered or sent by prepaid same day or over night courier or
certified mail, return receipt requested, postage prepaid, addressed as follows
(or addressed to such other address as shall be given in writing by any party to
the others):
To the Bank: First State Bank of Morgantown
180 Washington Street
P.O. Box 255
Morgantown, Indiana 46160-0255
Attention: H. Dean Hawkins
Chairman of the Board of Directors
To the Executive: Jerry Engle
345 S. Oakwood
Greenwood, Indiana 46142
15. Entire Agreement; Modification; Waiver. This document contains the
entire agreement of the Bank and the Executive. No supplement, modification or
amendment to this Agreement shall be binding unless executed in writing by the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision, whether or not
similar, nor will any waiver constitute a continuing waiver. No waiver will be
binding unless executed in writing by the party making the waiver.
9
<PAGE> 10
16. Headings; Pronouns. Headings in this Agreement are for convenience
only and shall not be used to interpret or construe its provisions. All pronouns
and any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural as the identity of the person or persons may require.
17. Severability. Should any clause, portion or section of this
Agreement be unenforceable or invalid for any reason, such unenforceability or
invalidity shall not affect the enforceability or validity of the remainder of
this Agreement, and any court having jurisdiction is specifically authorized and
encouraged by the parties to hold inviolate all portions of this Agreement that
are valid and enforceable without consideration of any invalid or unenforceable
portions hereof.
18. Governing Law. This Agreement shall be construed, interpreted and
governed in all respects by the laws of the State of Indiana. The parties intend
the provisions of this Agreement to supplement, but not displace, their
respective rights and responsibilities under the Indiana Uniform Trade Secrets
Act, I.C. 24-2-3, as such statute may be amended from time to time.
19. Binding Effect. This Agreement is binding upon the Bank and the
Executive, their heirs, executors, administrators, successors, and assigns,
including without limitation any successor to the Bank by means of a merger or
consolidation. No right or interest to or in any benefits under this Agreement
shall be assignable by the Bank or the Executive without the prior written
consent of the nonassigning party; provided, however, that this provision shall
not preclude the Executive from designating one or more beneficiaries to receive
any amount that may be payable after the Executive's death.
20. Reasonableness of Terms. The Bank and the Executive stipulate and
agree that the covenants and the other terms contained in this Agreement are
reasonable in all respects.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written. By affixing his name hereto, the Executive
acknowledges that he has received and read a fully-executed copy of this
Agreement.
THE "BANK"
First State Bank of Morgantown
By: /s/ H. Dean Hawkins
--------------------------------------
Chairman of the Board of Directors
THE "EXECUTIVE"
/s/ Jerry R. Engle
-----------------------------------------
Jerry Engle
10
<PAGE> 1
EXHIBIT 10.4
FIRST STATE BANK
DEFERRED FEE AGREEMENT
THIS AGREEMENT is made this _____ day of _____________________, 199___,
by and between FIRST STATE BANK (the "Bank") and ______________ (the
"Director").
INTRODUCTION
To encourage the Director to )remain a member of the Bank's Board of
Directors, the Bank is willing to provide to the Director a deferred fee
opportunity. The Bank will pay the benefits from its general assets.
AGREEMENT
The Director and the Bank agree as follows:
Article 1
Definitions
1.1 Definitions. Whenever used in this Agreement, the following words
and phrases shall have the meanings specified:
1.1.1. "Change of Control" means the transfer of 51% or more
of the Bank's outstanding voting common stock followed within twelve
(12) months by termination of the Director's status as a member of the
Bank's Board of Directors.
<PAGE> 2
1.1.2. "Code" means the Internal Revenue Code of 1986, as
amended. References to a Code Section shall be deemed to be to that
section as it now exists and to any successor provision.
1.1.3. "Disability" means, if the Director is covered by a
Bank-sponsored disability insurance policy, total disability is defined
in such policy without regard to any waiting period. If the Director is
not covered by such a policy, Disability means the Director suffering a
sickness, accident or injury Which, in the judgment of a physician
satisfactory to the Bank, prevents the Director from performing
substantially all of the normal duties of a director. As a condition to
any benefits, the Bank may require the Director to submit to such
physical or mental evaluations and tests as the Bank's Board of
Directors deems appropriate.
1.1.4. "Election Form" means the Form attached as Exhibit 1.
1.1.5. "Fees" means the total directors fees payable to the
Director.
1.1.6. "Normal Termination Date" means the Director attaining
age 72.
1.1.7. "Termination of Service" means the Director's ceasing
to be a member of the Bank's Board of Directors for any reason
whatsoever.
-2-
<PAGE> 3
1.1.8. "Years of Service" means the total number of
twelve-month periods during which the Director serves as a member of
the Bank's Board of Directors.
Article 2
Deferral Election
2.1 Initial Election. The Director shall make an initial deferral
election under this Agreement by filing with the Bank a signed Election Form
within 30 days after the date of this Agreement. The Election Form shall set
forth the amount of Fees to be deferred and the form of benefit payment. The
Election Form shall be effective to defer only Fees earned after the date the
Election Form is received by the Bank.
2.2 Election Changes
2.2.1 Generally. The Director may modify the amount of Fees,
to be deferred by filing a subsequent signed Election Form with the
Bank. The modified deferral shall not be effective until the calendar
year following the year in which the subsequent Election Form is
received b- the Bank. The Director may not change the form of benefit
payment initially elected under Section 2.1.
2.2.2. Hardship. If an unforeseeable financial emergency
arising from the death of a family member, divorce, sickness, injury,
catastrophe or similar event outside the control of the Director
occurs, the Director, by written
-3-
<PAGE> 4
instructions to the Bank may reduce future deferrals under this
Agreement or may cease deferrals under this Agreement.
Article 3
Deferral Account
3.1 Establishing and Crediting. The Bank shall establish a Deferral
Account on its books for the Director and shall credit to the Deferral Account
the following amounts:
3.1.1. Deferrals. The Fees deferred by the Director as of the
time the Fees would have otherwise been paid to the Director.
3.1.2. Interest. On the firs. day of each month and
immediately prior to the payment of any benefits, interest on the
account balance since the preceding credit under this Section 3.1.2, if
any, at an annual rate; compounded monthly, equal to the rate
determined by the Bank's Board of Directors, in its sole discretion.
3.2 Statement of Accounts. The Bank shall provide to the Director,
within sixty (60) days after each anniversary of this Agreement, a statement
setting forth the Deferral Account balance.
3.3 Accountive Device Only. The Deferral Account is solely a device for
measuring amounts to be paid under this Agreement. The Deferral Account is not a
trust fund of" any kind. The Director is a general unsecured creditor of the
Bank for the payment of
-4-
<PAGE> 5
benefits. The benefits represent the mere Bank promise to pay such benefits. The
Director's rights are not subject in any manner to anticipation, alienation,
sale, transfer, assignment., pledge, encumbrance, attachment, or garnishment by
the Director's creditors.
Article 4
Lifetime Benefits
4.1 Normal Termination Benefit. Upon the Director's Termination of
Service, the Bank shall pay to the Director the benefit described in this
Section 4.1.
4.1.1. Amount of Benefit. The benefit under this Section 4.1
is the Deferral Account balance at the Director's Termination of
Service.
4.1.2. Payment of Benefit. The Bank shall pay the benefit to
the Director in the form elected by the Director in the Election Form.
The Bank shall continue to credit interest under Section 3.1.2.
4.2 Early Termination Benefit. If the Director terminates service as a
director before the Normal Termination Date, and for reasons other than death or
Disability, the Bank shall pay to the Director the benefit described in this
Section 4.2.
-5-
<PAGE> 6
4.2.1. Amount of Benefit. The benefit under this Section 4.2
is calculated by recomputing the Deferral Account balance from its
inception.
4.2.2. Payment of Benefit. The Bank shall pay the benefit to
the Director in the form elected by the Director on the Election Form.
The Bank shall continue to credit interest under Section 3.1.2.
4.3 Disability Benefit. If the Director terminates service as a
director for Disability prior to the Normal Retirement Date, the Bank shall pay
to the Director the benefit described in this Section 4.3.
4.3.1. Amount of Benefit. The benefit under this Section 4.3
is the Deferral Account balance at the Director's Termination of
Service.
4.3.2. Payment of Benefit. The Bank shall pay the benefit to
the Director in the form elected by the Director on the Election Form.
The Bank shall continue to credit interest under Section 3.1.2.
4.4 Change of Control Benefit. Upon a Change of Control while the
Director is in the active service of the Bank., the Bank shall pay to the
Director the benefit described in this Section 4.4 in lieu of any other benefit
under this Agreement.
-6-
<PAGE> 7
4.4.1. Amount of Benefit. The benefit under this Section 4.4
is the Deferral Account balance at the date of the Director's
Termination of Service.
4.4.2. Payment of Benefit. The Bank shall pay the benefit to
the Director in a lump sum within sixty (60) days after the Director's
Termination of Service.
4.5 Hardship Distribution. Upon the Bank's determination (following
petition by the Director) that the Director has suffered an unforeseeable
financial emergency as described in Section 2.2.2. the Bank shall distribute to
the Director all or a portion of the Deferral Account balance as determined by
the Bank, but in no event shall the distribution be greater than is necessary to
relieve the financial hardship.
Article 5
Death Benefits
5.1 Death During Active Service. If the Director dies while in the
active service of the Bank, the Bank shall pay to the Director's beneficiary,
the benefit described in this Section 5.1.
5.1.1. Amount of Benefit. The benefit under section 5.1 is
$22,960 per year for ten (10) years.
5.1.2. Payment of Benefit. The Bank shall pay the benefit to
the beneficiary within sixty (60) days following
-7-
<PAGE> 8
the Director's death. The Bank shall continue to credit interest under
Section 3.1.2.
5.2 Death During Benefit Period. If the Director dies after benefit
payments have commenced under this Agreement but before receiving all such
payments, the Bank shall pay the remaining benefits to the Director's
beneficiary at the same time and in the same amounts they would have been paid
to the Direct had the Director survived.
Article 6
Beneficiaries
6.1 Beneficiary Designations. The Director shall designate a
beneficiary by filing a written designation with the Bank. The Director may
revoke or modify the designation at any time by filing a new designation.
However, designations will only be effective if signed by the Director and
accepted by the Bank during the Director's lifetime. The Director's beneficiary
designation shall be deemed automatically revoked if the beneficiary predeceases
the Director, or if the Director names a spouse as beneficiary and the marriage
is subsequently dissolved. If the Director dies without a valid beneficiary
designation, all payments shall be made to the Director's surviving spouse, if
any, and if none, to the Director's surviving children and the descendants of
any deceased child by right of representation, and if no children or descendants
survive, to the Director's estate.
-8-
<PAGE> 9
6.2 Facility of Payment. If a benefit is payable to a minor, to a
person declared incompetent, or to a person incapable of handling the
disposition of his or her property, the Bank may pay such benefit to the
guardian, legal representative or person having the care or custody of such
minor, incompetent person or incapable person. The Bank may require proof of
incompetency, minority or guardianship as it may deem appropriate prior to
distribution of the benefit. Such distribution shall completely discharge the
Bank from all liability with respect to such benefit.
Article 7
General Limitations
Notwithstanding any provision of this Agreement to the contrary, the
Bank shall not pay any benefit under this Agreement that is attributable to the
Bank's matching contribution or the interest earned on such contributions.
7.1 Excess Parachute Payment. To the extent the benefit would be an
excess parachute payment under Section 280G of the Code.
7.2 Termination for Cause. If the Bank terminates the Director's
service as a director for:
7.2.1. Gross negligence or gross neglect of duties.
-9-
<PAGE> 10
7.2.2. Commission of a felony or of a gross misdemeanor
involving moral turpitude; or
7.2.3. Fraud, disloyalty, dishonesty or willful violation of
any law or significant Bank policy committed in connection with the
director's service and resulting in an adverse financial effect on the
Bank.
7.3 Suicide. If the Director commits suicide within two years after the
date of this Agreement, or if the Director has made any material misstatement of
fact on any application for life insurance purchased by the Bank.
Article 8
Claims and Review Procedures
8.1 Claims Procedure. The Bank shall notify the Director's beneficiary
in writing, within forty-five (45) days of his or her written application for
benefits, of his or her eligibility or noneligibility for benefits under the
Agreement. If the Bank determines that the beneficiary is not eligible for
benefits or full benefits, the notice shall set forth (1) the specific reasons
for such denial, (2) a specific reference to the provisions of the Agreement on
which the denial is based, (3) a description of any additional information or
material necessary for the claimant to perfect his or her claim, and a
description of why it is needed, and (4) an explanation of the Agreement's
claims review procedure and other appropriate information as to the steps to be
taken if the beneficiary wishes to have the claim reviewed. If the Bank
-10-
<PAGE> 11
determines that there are special circumstances requiring additional time to
make a decision, the Bank shall notify the beneficiary of the special
circumstances and the date by which a decision is expected to be made, and
may extend the time f or Lip to an additional forty-five (45) day period.
8.2 Review Procedure. If the beneficiary is determined by the Bank not
to be eligible for benefits, or if the beneficiary believes that he or she is
entitled to greater or different benefits, the beneficiary shall have the
opportunity to have such claim reviewed by the Bank by filing a petition for
review with the Bank within sixty (60) days after receipt of the notice issued
by the Bank. Said petition shall state the specific reasons which the
beneficiary believes entitle him or her to benefits or to greater or different
benefits. Within sixty, (60) days after receipt by the Bank of the petition, the
Bank shall afford the beneficiary (and counsel, if any) an opportunity to
present his or her position to the Bank orally or in writing, and the
beneficiary (or counsel) shall have the right to review th pertinent documents.
The Bank shall notify the beneficiary of its decision in writing within the
sixty-day period, stating specifically the basis of its decision, written in a
manner calculated to be understood by the beneficiary and the specific
provisions of the Agreement on which the decision is based. If, because of the
need for a hearing, the sixty-day period is not sufficient, the decision may be
deferred for up to another sixty day period at the election of the Bank, but
notice of this deferral shall be given to the beneficiary.
-11-
<PAGE> 12
Article 9
Amendments and Termination
The Bank may amend or terminate this Agreement at any time prior to the
Director's Termination of Service by written notice to the Director. In no event
shall this Agreement be terminated without payment to the Director of the
Deferral Account balance attributable to the Director's deferrals and interest
credited on such amounts.
Article 10
Miscellaneous
10.1 Binding Effect. This Agreement shall bind the Director and the
Bank, and their beneficiaries, survivors, executors, administrators and
transferees.
10.2 No Guaranty of Employment. This Agreement is not a contract for
services. It does not give the Director the right to remain a director of the
Bank, nor does it interfere with the shareholders' rights to replace the
Director. It also does not require the Director to remain a director nor
interfere with the Director's right to terminate services at any time.
10.3 Non-Transferability. Benefits under this Agreement cannot be
sold, transferred, assigned, pledged, attached or encumbered in any manner.
-12-
<PAGE> 13
10.4 Tax Withholding. The Bank shall withhold any taxes that are
required to be withheld from the benefits provided under this Agreement.
10.5 Applicable Law. The Agreement and all rights hereunder shall be
governed by the laws of Indiana, except to the extent preempted by the laws of
the United States of America.
10.6 Unfunded Arrangement. The Director and beneficiary are general
unsecured creditors of the Bank for the payment of benefits under this
Agreement. The benefits represent that mere promise by the Bank to pay such
benefits. The rights to benefits are not subject in any manner to antiCiPELtion,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors. Any insurance on the Director's life is a general
asset of the Bank to which the Director and beneficiary have no preferred or
secured claim.
IN WITNESS WHEREOF, the Director and a duly authorized Bank officer
have signed this Agreement.
DIRECTOR: BANK:
FIRST STATE BANK
By
- ----------------------------------- -------------------------------------
-13-
<PAGE> 14
EXHIBIT 1
TO
DEFERRED COMPENSATION AGREEMENT
FIRST STATE BANK
Deferral Election
I elect to defer compensation under my Deferred Compensation Agreement with the
Bank, as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
AMOUNT OF DEFERRAL FREQUENCY OF DEFERRAL DURATION
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
I elect to defer $ of fees Monthly For 10 years
--- ----- --- ---
- -----------------------------------------------------------------------------------------------------------
</TABLE>
I understand that I may change the amount, frequency and duration of my
deferrals by filing a new election form with the Bank; provided, however, that
any subsequent election will not be effective until the calendar year following
the year in which the new election is received by the Bank.
FORM OF BENEFIT
I elect to receive benefits under the Agreement in the following form:
(Initial One)
Lump Sam
- -----
Equal monthly installments for 120 months
- -----
-14-
<PAGE> 15
I understand that I may not change the form of benefit elected, even if I later
change the amount of my deferrals under the Agreement.
-15-
<PAGE> 16
Beneficiary Designation
I designate the following as beneficiary under the Deferred Compensation
Agreement payable following my death:
Primary:
----------------------------------------------------
Contingent:
-------------------------------------------------
Note: To name a trust as beneficiary, please provide the name of the
Trustee and the exact date of the trust agreement.
I understand that I may change these beneficiary designations by filing a new
written designation with the Bank. I further understand that the designations
will be automatically revoked if the beneficiary predeceases me, or, if I have
named my spouse as beneficiary, in the event of the dissolution of our marriage.
Signature:
------------------------------------
Date:
-----------------------------------------
Accepted by the Bank this _____ day of __________________, 19___.
By
-----------------------------------------
, President
-16-
<PAGE> 1
EXHIBIT 10.5
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT made this 26th day of October, 1999, by and between First Bank,
Morgantown, Indiana (the "Corporation") and H. Dean Hawkins (the "Employee").
WITNESSETH THAT:
1. The Corporation shall credit to a book reserve (the "Deferred Compensation
Account") established for this purpose, $172,038.44 on the last day of October
1999.
(a) Title to and beneficial ownership of any assets, whether cash or investments
which the Corporation may earmark to pay the deferred compensation hereunder,
shall at all times remain with the Corporation, and the Employee and his
designated beneficiary shall not have any property interest whatsoever in any
specific assets of the Corporation.
2. The benefits to be paid as deferred compensation are as follows: the
Corporation will pay the Employee $52,038.44 of his deferred compensation
account balance on November 10, 1999, and the remaining $120,000.00 of his
deferred compensation balance after December 31, 1999, but prior to January 31,
2000.
(a) If the Employment is terminated because of death before November 1, 1999,
and while he is in the employ of the Corporation, then the Corporation shall
make a compensation sum payment to his designated beneficiary in the same manner
and the same extent as provided in paragraph 2 above.
3. Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall be created or be construed to create a trust
of any kind, or a fiduciary relationship between the Corporation and the
Employee, his designated beneficiary or any other person. Any funds which may be
invested under the provisions of this Agreement shall continue for all purposes
to be a part of the general funds of the Corporation and no person other than
the Corporation shall by virtue of the provisions of this Agreement have any
interest in such funds. To the extent that any person acquires a right to
receive payments from the Corporation under this Agreement, such right shall be
no greater than the right of any unsecured general creditor of the Corporation.
4. The right of the Employee or any other person to the payment of deferred
compensation or other benefits under this Agreement shall not be assigned,
transferred, pledged or encumbered except by will, by designation of beneficiary
in the event of the Employee's death, or by the laws of descent and
distribution.
Page 1
<PAGE> 2
5. The Employee may contribute to the Corporation's 401k plan and deferred
compensation plan. The Corporation agrees to continue to provide the Employee
and his spouse medical insurance benefits on the same basis as other employees
under January 1, 2001.
6. Any deferred compensation payable under this Agreement shall not be deemed
salary or other compensation to the Employee for the purpose of computing any
benefits or other arrangements, other than those noted in Paragraph 5, of the
Corporation for the benefit of its employees.
7. This Agreement shall be binding upon and insure to the benefit of the
Corporation, its successors and assigns, and the Employee and his heirs,
executors, administrators, and legal representatives.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed by
its duly authorized officers, and Employee has hereunto set his hand and seal as
of the date first above written.
First Bank
By /s/ Jerry Engle
-----------------------------
Jerry Engle, President
By /s/ John Ditmars
-----------------------------
John Ditmars, Secretary
By /s/ H. Dean Hawkins
-----------------------------
H. Dean Hawkins
Page 2
<PAGE> 3
TERMINATION OF
FIRST BANK DEFERRED COMPENSATION AGREEMENT
FOR
H. DEAN HAWKINS
THIS AGREEMENT is made this 31st day of January, 2000, by and between FIRST
BANK (formerly FIRST STATE BANK), located in Morgantown, Indiana (the "Bank"),
and H. DEAN HAWKINS (the "Executive").
The Bank and the Executive entered into the FIRST STATE BANK DEFERRED
COMPENSATION AGREEMENT on January 1, 1997 (the "Agreement").
The Executive terminated employment (by retirement) with the Bank on November
1, 1999. Pursuant to the Deferred Compensation Agreement dated October 26,
1999, the balance of the deferred compensation account is the benefit payable
prior to January 31, 2000. In January, 2000, the Executive shall defer, pursuant
to the Agreement, $5,000.00 of compensation payable to the Executive in
January, 2000.
Pursuant to Exhibit 1 of the Agreement, the Executive elected to have said
benefit paid in 120 equal monthly installments beginning with the month
following the Executive's Normal Retirement Age of 72. The Bank shall credit
interest pursuant to Section 3.1.2. No other benefit shall be paid under this
Agreement.
The Executive is currently serving on the board of Directors of the Bank.
Accordingly, beginning January, 2001, the Executive contemplates resuming the
deferral of fees under the Deferred Director Fee Agreement dated September,
1995.
The Parties, by executing this Agreement, hereby agree to the terms stated
herein.
EXECUTIVE FIRST BANK
/s/ H. Dean Hawkins /s/ Jerry Engle
- ---------------------------- ------------------------------
H. DEAN HAWKINS JERRY ENGLE, PRESIDENT
<PAGE> 1
Exhibit 10.6
PURCHASE AND ASSUMPTION AGREEMENT
BETWEEN
HUNTINGTON BANCSHARES INCORPORATED,
THE HUNTINGTON NATIONAL BANK
AND
FIRST BANK
<PAGE> 2
PURCHASE AND ASSUMPTION AGREEMENT
ARTICLE I - THE ASSETS .................................................... 1
Section 1.1 Banking Center ........................................ 1
ARTICLE II - TRANSFER OF ASSETS AND LIABILITIES ........................... 1
Section 2.1 Transferred Assets .................................... 1
Section 2.2 Purchase Price ........................................ 3
Section 2.3 Deposit Liabilities ................................... 5
Section 2.4 Loans Transferred ..................................... 8
Section 2.5 Safe Deposit Business ................................. 9
Section 2.6 Employee Matters ...................................... 10
Section 2.7 Records and Data Processing, etc. ..................... 11
Section 2.8 Security .............................................. 11
Section 2.9 Taxes and Fees; Proration of Certain Expenses ......... 12
Section 2.10 Title to Real Property ................................ 12
Section 2.11 Environmental Matters ................................. 14
ARTICLE III - CLOSING AND EFFECTIVE TIME .................................. 15
Section 3.1 Effective Time ........................................ 15
Section 3.2 Closing ............................................... 16
Section 3.3 Post Closing Adjustments .............................. 18
ARTICLE IV - INDEMNIFICATION .............................................. 19
Section 4.1 Huntington's Indemnification of Purchaser.............. 19
Section 4.2 Purchaser's Indemnification of Sellers................. 20
Section 4.3 Claims for Indemnity .................................. 20
Section 4.4 Limitations on Indemnification ........................ 21
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF SELLERS ..................... 21
Section 5.1 Corporate Organization ................................ 21
Section 5.2 No Violation .......................................... 21
Section 5.3 Corporate Authority ................................... 22
Section 5.4 Enforceable Agreement ................................. 22
Section 5.5 No Brokers ............................................ 22
Section 5.6 Personal Property ..................................... 22
Section 5.7 Real Property ......................................... 21
Section 5.8 Condition of Property ................................. 23
Section 5.9 Employees ............................................. 23
Section 5.10 Assumed Contracts ..................................... 24
Section 5.11 Loans ................................................. 24
Section 5.12 Environmental Matters ................................. 25
-ii-
<PAGE> 3
Section 5.13 Deposit Liabilities ................................... 26
Section 5.14 Books, Records, Documentation, etc. ................... 26
Section 5.15 Litigation ............................................ 27
Section 5.16 Contracts and Agreements............................... 27
Section 5.17 Tax Matters............................................ 27
Section 5.18 Limitation and Survival of Representations and
Warranties ........................................ 27
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF PURCHASER .................. 28
Section 6.1 Corporate Organization ................................ 28
Section 6.2 No Violation .......................................... 28
Section 6.3 Corporate Authority ................................... 28
Section 6.4 Enforceable Agreement ................................. 28
Section 6.5 No Brokers ............................................ 28
Section 6.6 Survival of Representations and Warranties ............ 29
ARTICLE VII - OBLIGATIONS OF PARTIES PRIOR TO AND AFTER
EFFECTIVE TIME ................................................... 29
Section 7.1 Full Access ........................................... 29
Section 7.2 Delivery of Magnetic Media Records .................... 29
Section 7.3 Application for Approval .............................. 30
Section 7.4 Conduct of Business; Maintenance of Properties ........ 30
Section 7.5 No Solicitation by Sellers ............................ 30
Section 7.6 Further Actions ....................................... 31
Section 7.7 Fees and Expenses ..................................... 31
Section 7.8 Breaches with Third Parties ........................... 32
Section 7.9 Operations ............................................ 32
Section 7.10 Destruction and Condemnation .......................... 33
Section 7.11 Insurance ............................................. 34
Section 7.12 Public Announcements .................................. 34
Section 7.13 Tax Reporting ......................................... 34
Section 7.14 Transitional Matters .................................. 34
ARTICLE VIII - CONDITIONS TO PURCHASER'S OBLIGATIONS ...................... 34
Section 8.1 Representations and Warranties True ................... 35
Section 8.2 Obligations Performed ................................. 35
Section 8.3 No Adverse Litigation ................................. 35
Section 8.4 Regulatory Approval ................................... 35
ARTICLE IX - CONDITIONS TO SELLERS' OBLIGATIONS ........................... 35
Section 9.1 Representations and Warranties True ................... 36
Section 9.2 Obligations Performed ................................. 36
Section 9.3 No Adverse Litigation ................................. 36
Section 9.4 Regulatory Approval ................................... 36
-iii-
<PAGE> 4
ARTICLE X - TERMINATION ................................................... 36
Section 10.1 Methods of Termination ................................ 36
Section 10.2 Procedure Upon Termination ............................ 37
Section 10.3 Payment of Expenses ................................... 38
ARTICLE XI - MISCELLANEOUS PROVISIONS ..................................... 38
Section 11.1 Assignment to Subsidiaries ............................ 38
Section 11.2 Amendment and Modification ............................ 38
Section 11.3 Waiver or Extension ................................... 38
Section 11.4 Assignment ............................................ 38
Section 11.5 Confidentiality ....................................... 39
Section 11.6 Addresses for Notices, Etc. ........................... 39
Section 11.7 Counterparts .......................................... 40
Section 11.8 Headings .............................................. 40
Section 11.9 Governing Law ......................................... 40
Section 11.10 Sole Agreement ........................................ 40
Section 11.11 Parties In Interest ................................... 41
Section 11.12 Calculation of Dates and Deadlines .................... 41
-iv-
<PAGE> 5
PURCHASE AND ASSUMPTION AGREEMENT
THIS PURCHASE AND ASSUMPTION AGREEMENT (this "Agreement") is entered
into as of February 25, 1999, by and between HUNTINGTON BANCSHARES INCORPORATED,
a Maryland corporation having its principal offices in Columbus, Ohio
("Huntington"), THE HUNTINGTON NATIONAL BANK, a national banking association
having its principal offices in Columbus, Ohio ("HNB"), and FIRST BANK, an
Indiana state-chartered commercial bank having its principal offices in
Morgantown, Indiana ("Purchaser"):
W I T N E S S E T H:
WHEREAS, Huntington, by its own actions and through the actions of HNB
(Huntington and HNB being hereinafter referred to as "Sellers"), wishes to
divest itself of certain assets, deposits, and other liabilities; and
WHEREAS, Purchaser wishes to purchase such assets and assume such
liabilities upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, Sellers and Purchaser agree as follows:
ARTICLE I
THE ASSETS
Section 1.1. Banking Center.
- ----------- --------------
Purchaser shall purchase from Sellers the "Transferred Assets" (as defined in
Section 2.1 below), and assume certain liabilities assigned to the branch
banking offices of Sellers located at 41 South Hawthorne Street in Nashville,
Indiana (the "Banking Center").
ARTICLE II
TRANSFER OF ASSETS AND LIABILITIES
Section 2.1. Transferred Assets.
- ----------- ------------------
(a) As of the "Effective Time" (as defined in Section 3.1 below) and upon
the terms and conditions set forth herein, Sellers will sell, assign,
transfer, convey, and deliver to Purchaser, and Purchaser will purchase
from Sellers, the following assets located at or
-1-
<PAGE> 6
attributed to the Banking Center, except as otherwise excluded from
sale pursuant to the provisions of paragraph 2.1(b) below
(collectively, the "Transferred Assets"):
(1) subject to Section 2.10 hereof, all of Sellers' transferable
right, title, and interest in and to all real estate and
improvements thereon at the Banking Center, but not including
any leasehold estates covered by item (3) below, together with
all rights and appurtenances pertaining thereto (the "Real
Property");
(2) the furniture, fixtures, leasehold improvements, equipment, and
other tangible personal property located on or affixed to the
Real Property, any of such items on order at the Closing or
subject to the terms of any Equipment Leases but only to the
extent such items, if material, were reflected in the Offering
Memorandum (collectively, the "Personal Property");
(3) all assignable leases affecting the Banking Center, including
all leases for equipment (the "Equipment Leases"), and those
assignable, stand-alone software licenses and leases acceptable
to Purchaser (the "Software Licenses");
(4) all safe deposit contracts and leases for the safe deposit boxes
located at the Banking Center as of the Effective Time (the
"Safe Deposit Contracts");
(5) all "Loans" (as defined in Section 2.4 below); and
(6) all coins and currency located at the Banking Center as of the
Effective Time (the "Coins and Currency").
(b) The following items shall be excluded from the Transferred Assets:
(1) the proprietary merchandising equipment and other assets listed
on Exhibit 2.1(b) hereto;
(2) Sellers' rights in and to the names "Huntington" and any of
their predecessor banks' names and any of Sellers' or Sellers'
predecessors' corporate logos, trademarks, trade names, signs,
paper stock forms, and other supplies containing any such logos,
trademarks, or trade names;
(3) residential mortgage servicing rights for 1-4 family residential
mortgages loans at the Banking Center;
(4) any regulatory licenses or any other nonassignable licenses and
permits;
(5) trust, brokerage, mutual fund, and similar relationships; and
(6) proprietary Huntington software (collectively, the "Excluded
Assets").
-2-
<PAGE> 7
Sellers shall coordinate with Purchaser to remove the Excluded Assets from the
Banking Center on or prior to the Effective Time. Sellers shall remove the
Excluded Assets at their own cost and using their reasonable efforts to attempt
to minimize any damage as a result of such removal. Apart from making any
repairs necessitated by Sellers' negligence in removing the Excluded Assets,
Sellers shall be under no obligation to restore the premises to their original
condition, which shall be the responsibility of Purchaser.
Section 2.2. Purchase Price.
- ----------- --------------
(a) As consideration for the purchase of the Banking Center, Purchaser
shall pay Sellers a purchase price equal to the sum of the following:
(1) the "Net Book Value" (as defined in paragraph 2.2(d) hereof) of
the Personal Property and the Real Property at the Banking
Center on the Closing Date;
(2) a premium for the "Deposit Liabilities" (as defined in paragraph
2.3(a) hereof) and franchise value assigned to the Banking
Center equal to 10% of such Deposit Liabilities; provided,
however, that for purposes of calculating the premium pursuant
to this Section 2.2(a)(2) only (and not for determining which
liabilities are assumed by Purchaser), the term "Deposit
Liabilities" shall not include any amounts represented by the
aggregate of Jumbo CDs (certificates of deposit in amounts equal
to or greater than $100,000) and public funds in excess of the
lesser of (i) $971,581 or (ii) an amount that represents 6.654
percent of all Deposit Liabilities excluding all Jumbo CDs and
public funds. Notwithstanding the above, Purchaser shall pay a
Deposit Premium of not less than $1,425,133;
(3) the "Net Book Value" (as defined in paragraph 2.2(d) hereof) of
the Loans as set forth in Section 2.4 hereof as of the Effective
Time; and
(4) the face amount of the Coins and Currency.
(b) In addition, Purchaser shall assume, as of the Effective Time, all of
the duties, obligations, and liabilities of Sellers relating to the
Deposit Liabilities and all duties, obligations, and liabilities
related to any of the following accruing or arising on or after the
Effective Time: (i) the Real Property, (ii) the Equipment Leases, (iii)
the Software Licenses, (iv) the Safe Deposit Contracts, and (v) all
other assignable operating contracts of the Banking Center.
Specifically excluded from the above are:
(1) liabilities or obligations with respect to any litigation,
suits, claims, demands or governmental proceedings arising from
any fact, circumstance, or event occurring prior to the
Effective Time and related to the Banking Center; and
-3-
<PAGE> 8
(2) any and all obligations arising under any service agreements
entered into between Huntington and its subsidiaries or other
affiliates.
(c) Sellers shall prepare a balance sheet (the "Pre-Closing Balance Sheet")
in accordance with generally accepted accounting principles
consistently applied as of a date not earlier than 30 calendar days
prior to the Effective Time anticipated by the parties (the
"Pre-Closing Balance Sheet Date") reflecting the assets to be sold and
assigned hereunder and the liabilities to be transferred and assumed
hereunder; Sellers agree to pay to Purchaser at the Closing (as defined
in Section 3.1 hereof), in immediately available funds, the excess
amount, if any, of the amount of Deposit Liabilities assumed by
Purchaser pursuant to paragraph (b) above, as reflected by the
Pre-Closing Balance Sheet, over the aggregate purchase price computed
in accordance with paragraph (a) above, as reflected by the Pre-Closing
Balance Sheet. Purchaser agrees to pay Sellers at the Closing, in
immediately available funds, the excess, if any, of the aggregate
purchase price computed in accordance with paragraph (a) above, as
reflected by the Pre-Closing Balance Sheet, over the amount of Deposit
Liabilities assumed by Purchaser pursuant to paragraph (b) above, as
reflected by the Pre-Closing Balance Sheet. The purchase price, as well
as each of the items described in paragraphs (a)(1) through (4) above
and all amounts paid at the Closing shall be subject to subsequent
adjustment based on the Post-Closing Balance Sheet (as defined in
Section 3.3 hereof).
(d) The "Net Book Values" of the Personal Property and the Real Property
are the values that the relevant assets are carried on Sellers' general
ledger. The "Net Book Value" of the Loans is the aggregate principal
amount of the Loans, plus accrued and unpaid interest and late charges
thereon, but such value shall not include any loan loss reserves or
general reserve.
(e) Sellers and Purchaser agree to allocate the purchase price in
accordance with Section 1060 of the Internal Revenue Code (the "Code").
Within 120 days after the Closing Date, Purchaser shall provide to
Sellers Purchaser's proposed allocation of the purchase price as
finally determined and paid by Purchaser hereunder. Within 30 days
after the receipt of such allocation, Sellers shall propose to
Purchaser any changes to such allocation or otherwise shall be deemed
to have agreed with such allocation. Sellers and Purchaser shall reduce
such allocation to writing, including jointly and properly executing
completed Internal Revenue Service Form 8594, and any other forms or
statements required by the Code, Treasury Regulations or the Internal
Revenue Service, together with any and all attachments required to be
filed therewith. Sellers and Purchaser shall file timely any such forms
and statements with the Internal Revenue Service. To the extent
consistent with applicable law, Sellers and Purchaser shall not file
any tax return or other documents or otherwise take any position with
respect to taxes which is inconsistent with such allocation of the
final purchase price, provided, however, that neither Sellers nor
Purchaser shall be obligated to litigate any challenge to such
allocation of the final purchase price by a governmental authority.
Sellers and Purchaser shall promptly inform one another of any
challenge by any governmental authority to any
-4-
<PAGE> 9
allocation made pursuant to this paragraph and agree to consult with
and keep one another informed with respect to the state of, and any
discussion, proposal or submission with respect to, such challenge.
Section 2.3. Deposit Liabilities.
- ----------- -------------------
(a) "Deposit Liabilities" shall mean all of Sellers' duties, obligations
and liabilities relating to the deposit accounts assigned to the
Banking Center as of the Effective Time (including accrued but unpaid
or uncredited interest thereon).
(b) Except for those liabilities and obligations specifically assumed by
Purchaser under 2.2(b) above, Purchaser is not assuming any other
liabilities or obligations. Liabilities not assumed include, but are
not limited to, the following:
(1) Sellers' cashier checks, letters of credit, money orders,
traveler's checks, interest checks and expense checks issued
prior to the Effective Time, consignments of U.S. Government "E"
and "EE" bonds and any cash items paid by Sellers and not
cleared prior to the Effective Time;
(2) deposit accounts associated with or securing lines of credit
where the line of credit is excluded in accordance with
paragraph 2.4(b); and
(3) individual retirement accounts which, by their terms, are not
subject to assignment, it being understood that all other types
of IRA Deposit Liabilities are intended to be transferred.
(c) Sellers do not represent or warrant that any deposit customers whose
accounts are assumed by Purchaser will become or continue to be
customers of Purchaser after the Effective Time.
(d) Purchaser agrees to pay in accordance with law and customary banking
practices all properly drawn and presented checks, drafts and
withdrawal orders presented to Purchaser by mail, over the counter or
through the check clearing system of the banking industry, by
depositors of the accounts assumed, whether drawn on the checks,
withdrawal or draft forms provided by Sellers or by Purchaser, and in
all other respects to discharge, in the usual course of the banking
business, the duties and obligations of Sellers with respect to the
balances due and owing to the depositors whose accounts are assumed by
Purchaser; provided that Purchaser shall not be obligated to honor or
pay any item if there are insufficient funds in the customer's account
when presented.
(e) If, after the Effective Time, any depositor, instead of accepting the
obligation of Purchaser to pay the Deposit Liabilities assumed, shall
demand payment from Sellers for all or any part of any such assumed
Deposit Liabilities, Sellers shall not be liable or responsible for
making any such payment; provided, that if Sellers shall pay the same,
-5-
<PAGE> 10
Purchaser agrees to reimburse Sellers for any such payments, and
Sellers shall not be deemed to have made any representations or
warranties to Purchaser with respect to any such checks, drafts or
withdrawal orders and any such representations or warranties implied by
law are hereby expressly disclaimed. Sellers and Purchaser shall make
arrangements to provide for the daily settlement with immediately
available funds by Purchaser of checks, drafts, withdrawal orders,
returns and other items presented to and paid by Sellers within 90
calendar days after the Effective Time and drawn on or chargeable to
accounts that have been assumed by Purchaser; provided, however, that
Sellers shall be held harmless and indemnified by Purchaser for acting
in accordance with such arrangements.
(f) Purchaser agrees, at its cost and expense, (i) to notify such
depositors, on or before the Effective Time, in a form and on a date
mutually acceptable to Sellers and Purchaser, of Purchaser's assumption
of Deposit Liabilities, (ii) to furnish such depositors with checks on
the forms of Purchaser and with instructions to utilize Purchaser's
checks and to destroy unused check, draft and withdrawal order forms of
Sellers (if Purchaser so elects, Purchaser may offer to buy from such
depositors their unused Sellers' check, draft and withdrawal order
forms), (iii) to reissue all ATM and debit cards associated with the
depositors of assumed Deposit Liabilities, (iv) to replace all line of
credit checks with checks on the forms of Purchaser with instructions
to utilize Purchaser's checks and to destroy the unused checks and (v)
to disable and to notify customers of its disabling of all credit card
overdraft protection or notify the customers of alternative over-draft
protection through a different credit card or line of credit. At its
expense, Sellers will prepare and deliver to Purchaser two sets of its
normal customer mailing labels relating to the Deposit Liabilities. In
addition, subsequent to regulatory approval, Sellers will notify its
affected customers by letter of the pending assignment of Sellers'
Deposit Liabilities to Purchaser, which notice shall be at Sellers'
cost and expense and shall be in a form mutually agreeable to Sellers
and Purchaser.
(g) Purchaser agrees to pay promptly to Sellers an amount equivalent to the
amount of any checks, drafts or withdrawal orders credited to any
assumed Deposit Liabilities as of the Effective Time that are returned
to Sellers after the Effective Time.
(h) As of the Effective Time, Purchaser will assume and discharge Sellers'
duties and obligations in accordance with the terms and conditions and
laws, rules and regulations that apply to the certificates of deposit,
accounts and other Deposit Liabilities assumed under this Agreement.
(i) As of the Effective Time, Purchaser will maintain and safeguard in
accordance with applicable law and sound banking practices all account
documents, deposit contracts, signature cards, deposit slips, canceled
items and other records related to the Deposit Liabilities assumed
under this Agreement, subject to Sellers' right of access to such
records as provided in this Agreement.
-6-
<PAGE> 11
(j) Sellers will render a final statement to each depositor of an account
assumed under this Agreement as to transactions occurring through the
Effective Time and will comply with all laws, rules and regulations
regarding tax reporting of transactions of such accounts through the
Effective Time. Sellers will be entitled to impose normal fees and
service charges on a per-item basis, but Sellers will not impose
periodic fees or blanket charges in connection with such final
statements. Purchaser will comply with all laws, rules and regulations
regarding tax reporting of transactions of such accounts after the
Effective Time.
(k) Prior to the Closing Date, Purchaser, at its expense, will notify all
Automated Clearing House ("ACH") originators of the transfers and
assumptions made pursuant to the Agreement; provided, however, that
Sellers shall have provided Purchaser with all information necessary to
make such notifications and provided, further, that Sellers may, at
their option, notify all such originators (on behalf of Purchaser) also
at the expense of Purchaser. For a period of 90 calendar days beginning
on the Effective Time, Sellers will honor all ACH items related to
accounts assumed under this Agreement which are mistakenly routed or
presented to Sellers. Sellers will make no charge to Purchaser for
honoring such items, and will electronically transmit such ACH data to
Purchaser. If Purchaser cannot receive an electronic transmission,
Sellers will make available to Purchaser at Sellers' operations center
receiving items from the Automated Clearing House tapes containing such
ACH data. Items mistakenly routed or presented after the 90-day period
will be returned to the presenting party. Sellers and Purchaser shall
make arrangements to provide for the daily settlement with immediately
available funds by Purchaser of any ACH items honored by Sellers, and
Sellers shall be held harmless and indemnified by Purchaser for acting
in accordance with this arrangement to accept ACH items.
(l) Following the Effective Time, Purchaser agrees to use reasonable
efforts consistent with its normal business practices to collect from
Purchaser's customers amounts equal to any Visa or MasterCard charge
backs under the MasterCard and Visa Merchant Agreements between Sellers
and their customers or amounts equal to any deposit items returned to
Sellers after the Effective Time which were honored by Sellers prior to
the Effective Time and remit such amounts so collected to Sellers. To
the extent permitted under applicable law, Purchaser agrees promptly to
freeze and remit to Sellers any funds, up to the amount of the charged
back or returned item that had been previously credited by Sellers, if
such funds are available at the time of notification by Sellers to
Purchaser of the charged back or returned item. Notwithstanding the
foregoing, Purchaser shall have no duty to remit funds for any item or
charge that has been improperly returned or charged to Sellers. Solely
for the purposes of this paragraph (l), all references to Sellers shall
be deemed to include Sellers and its assignees.
(m) As of the Effective Time, Sellers shall transfer and assign all files,
documents and records related to the Deposit Liabilities to Purchaser,
including such information held in
-7-
<PAGE> 12
electronic form, and Purchaser will be responsible for maintaining and
safeguarding all such materials in accordance with applicable law and
sound banking practices.
Section 2.4. Loans Transferred.
- ----------- -----------------
(a) Sellers will transfer to Purchaser as of the Effective Time, subject to
the terms and conditions of this Agreement, all of Sellers' right,
title and interest in (including accrued but unpaid interest and late
charges and collateral relating thereto) loans maintained, serviced and
listed as loans assigned to the Banking Center (collectively, the
"Loans"); provided, however, the Loans shall not include any loans
described in paragraph (b) below. Such Loans (as well as any lien or
security interest related thereto) shall be transferred by means of a
blanket (collective) assignment and not individually (except as may be
otherwise required by law).
(b) Notwithstanding the provisions of paragraph (a) above, the Loans shall
not include:
(1) nonaccruals (which term shall include loans in which the
collateral securing same has been repossessed or in which
collection efforts have been instituted or claim and delivery or
foreclosure proceedings have been filed);
(2) loans 90 calendar days or more past due or otherwise in default
and consumer loans which have been 30 days or more past due
three or more times during the preceding 12-month period;
(3) loans upon which insurance has been force-placed;
(4) loans in connection with which the borrower has filed a petition
for relief under the United States Bankruptcy Code prior to the
Effective Time;
(5) servicing rights in connection with residential real estate
related loans; and
(6) loans lacking original loan documentation and any intervening
assignments required by law and required to enforce the loans.
(c) Sellers and Purchaser agree that Purchaser will become the beneficiary
of credit life insurance written on direct consumer installment loans
and coverage will continue to be the obligation of the current insurer
after the Effective Time and for the duration of such insurance as
provided under the terms of the policy or certificate. If Purchaser
becomes the beneficiary of credit life insurance written on direct
consumer installment loans, Sellers and Purchaser agree to cooperate in
good faith to develop a mutually satisfactory method by which the
current insurer will make rebate payments to and satisfy claims of the
holders of such certificates of insurance after the Effective Time.
After the Effective Time, Sellers will promptly deliver to Purchaser
the proceeds of any credit life insurance relating to Loans
inadvertently received by it. The parties' obligations in this
paragraph
-8-
<PAGE> 13
(c) are subject to any restrictions contained in existing insurance
contracts as well as applicable laws and regulations.
(d) In connection with the transfer of any loans requiring notice to the
borrower and the servicer, Purchaser and Sellers will comply with all
notice and reporting requirements of the loan documents or of any law
or regulation.
(e) All Loans will be transferred without recourse and without any
warranties or representations as to their collectibility or the
creditworthiness of any of the obligors of such Loans.
(f) Purchaser will at its expense issue new coupon books or other forms of
payment identification for payment of Loans for which Sellers provide
coupon books with instructions to utilize Purchaser's coupons or forms
and to destroy coupons furnished by Sellers.
(g) For a period of 90 calendar days after the Effective Time, Sellers will
forward to Purchaser loan payments received by Sellers. Purchaser shall
reimburse Sellers for checks returned on payments forwarded to
Purchaser.
(h) As of the Effective Time, Sellers shall transfer and assign all files,
documents and records related to the Loans to Purchaser, including such
information held in electronic form, and Purchaser will be responsible
for maintaining and safeguarding all such materials in accordance with
applicable law and sound banking practices.
(i) If the balance due on any Loan purchased pursuant to this Section 2.4
has been reduced by Sellers as a result of a payment by check received
prior to the Effective Time, which item is returned after the Effective
Time, the asset value represented by the Loan transferred shall be
correspondingly increased and an amount in cash equal to such increase
shall be paid by Purchaser to Sellers promptly upon demand.
(j) Sellers shall grant to Purchaser as of the Effective Time a limited
power of attorney, in substantially the form attached hereto as Exhibit
2.4(j) (the "Power of Attorney").
Section 2.5. Safe Deposit Business.
- ----------- ---------------------
(a) As of the Effective Time, Purchaser will assume and discharge Sellers'
obligations with respect to the safe deposit box business at the
Banking Center in accordance with the terms and conditions of contracts
or rental agreements related to such business, and Purchaser will
maintain all facilities necessary for the use of such safe deposit
boxes by persons entitled to use them.
(b) As of the Effective Time, Sellers shall transfer and assign the records
related to such safe deposit box business to Purchaser, and Purchaser
shall maintain and safeguard all such
-9-
<PAGE> 14
records and be responsible for granting access to and protecting the
contents of safe deposit boxes at the Banking Center.
(c) Safe deposit box rental payments collected by Sellers before the
Effective Time shall be prorated to the Closing Date.
Section 2.6. Employee Matters.
- ----------- ----------------
(a) Purchaser will offer employment to certain employees actively employed
by Sellers at the Banking Center as of the Effective Time (the
"Employees"), as provided on Exhibit 2.6(a), subject to Purchaser's
standard screening procedures, including, but not limited to, drug
testing. The responsibilities of Sellers and Purchaser with respect to
the Employees and the certain employees who will not be offered
employment by Purchaser are governed by Exhibit 2.6(a). The base salary
for each Employee hired by Purchaser shall not be less than the base
salary provided by Sellers immediately prior to the Effective Time,
subject to changes due to employment classification. With respect to
Purchaser's qualified plans, the Employees will be treated as new
hires; however, Employees who immediately become employees of Purchaser
will immediately participate in welfare benefit plans maintained by
Purchaser without regard to pre-existing conditions or waiting periods,
if and to the extent that such Employees are participating in Sellers'
welfare benefit plans immediately prior to the Closing Date. Employees
will be required to satisfy the deductible and employee payments (if
any) and all other terms and conditions required by Purchaser's plans.
Employees shall receive full credit for prior service with Sellers for
purposes of determining their participation and benefit accrual under
Purchaser's vacation and sick leave policies. Employees who immediately
become employees of Purchaser will be eligible for severance benefits
consistent with the Purchaser's severance policies or plans, provided
that all service with the Sellers shall be taken into account in
determining benefits under Purchaser's severance policies or plans.
Purchaser shall not be responsible or liable for any benefits accrued
under the pension or welfare plans of Sellers. Sellers will be
responsible for all accrued but not paid vacation pay for the Employees
through the Closing Date. Notwithstanding anything to the contrary set
forth above or implied therein, Purchaser does not intend and is not
entering into employment contracts with any of the Employees, and each
of the Employees, if any, who becomes employed by Purchaser, will
continue to be an "employee at will" of Purchaser as that term is
normally construed under the laws of the State of Indiana.
(b) After the execution of this Agreement, Sellers will continue their
normal employment practices in staffing the Banking Center; however,
Sellers make no representations or warranties about whether any of the
Employees who become employees of Purchaser will remain employed at the
Banking Center after the Effective Time. Sellers will use their best
efforts to: (i) maintain the Employees as employees of Sellers at the
Banking Center until the Effective Time, (ii) refrain from dissuading
any Employee from accepting an offer of employment with Purchaser or
(iii) refrain from recruiting employees for alternate positions with
Sellers. Sellers shall affirmatively advise Banking Center
-10-
<PAGE> 15
Employees that their current positions will terminate as of the
Effective Time. Any Employee whose employment shall be terminated for
any reason prior to the Effective Time shall be dealt with by Sellers
in their sole and absolute discretion. Any Employee who, for any
reason, elects not to accept Purchaser's offer of employment shall be
deemed to be part of Sellers' pool of unassigned employees and may,
after the Effective Time, be assigned to any openings in Sellers'
banking system or terminated. Sellers agree that, for a period of 24
months after the Closing Date, they will not solicit for employment any
Employee who remains employed by Purchaser.
(c) After the execution of this Agreement and subject to any legal
restrictions, Sellers shall permit Purchaser, at reasonable times and
upon reasonable notice, to examine and inspect Sellers, records
relating to Employees.
Section 2.7. Records and Data Processing, etc.
- ----------- --------------------------------
(a) As of the Effective Time, Purchaser shall become responsible for
maintaining the files, documents and records referred to in this
Agreement. Purchaser will preserve and hold them in safekeeping as
required by applicable law and sound banking practice for the joint
benefit of Sellers and Purchaser. After the Effective Time, Purchaser
will permit Sellers and their representatives, for reasonable cause, at
reasonable times and upon reasonable notice, to examine, inspect, copy
and reproduce any such files, documents or records as Sellers deem
reasonably necessary and to have similar access to such records and
Sellers' former employees for purposes of preparation of records and
reports (including regulatory and tax reports and returns) and as
Sellers require in connection with third party litigation.
(b) As of the Effective Time, Sellers will permit Purchaser and its
representatives, for reasonable cause, at reasonable times and upon
reasonable notice, to examine, inspect, copy and reproduce files,
documents or records retained by Sellers regarding the assets and
liabilities transferred under this Agreement as Purchaser deems
reasonably necessary.
(c) For a period of 180 days after the Effective Time, the party providing
copies of records shall do so without charge; thereafter it may charge
its customary rate for such copies.
(d) It is understood that certain of Sellers' records, including
certificates of deposit, may be available only in electronic form or in
the form of photocopies, film copies or other non-original and
non-paper media.
(e) After the execution of this Agreement, Sellers will work with Purchaser
to prepare mutually satisfactory schedules of Assets and contracts to
be sold hereunder.
Section 2.8. Security.
- ----------- --------
-11-
<PAGE> 16
As of the Effective Time, Purchaser shall be solely responsible for the security
of and insurance on all persons and property located in or about the Banking
Center.
Section 2.9. Taxes and Fees; Proration of Certain Expenses.
- ----------- ---------------------------------------------
(a) Purchaser shall not be responsible for, or have any liability with
respect to, taxes on any income to Sellers arising out of this
transaction. Purchaser shall not be responsible for any income tax
liability of Sellers arising from the business or operations of the
Banking Center before the Effective Time, and Sellers shall not be
responsible for any tax liabilities of Purchaser arising from the
business or operations of the Banking Center after the Effective Time.
Utility payments, telephone charges, real property taxes, personal
property taxes, rent, salaries, deposit insurance premiums or
assessments, maintenance items, other ordinary operating expenses of
the Banking Center and other expenses related to the liabilities
assumed or assets purchased hereunder shall be prorated between the
parties as of the Effective Time. To the extent any such item has been
prepaid by Sellers for a period extending beyond the Effective Time,
there shall be a proportionate monetary adjustment in favor of Sellers.
Purchaser shall be responsible for the payment of any non-delinquent
assessments. Real estate taxes shall be prorated on a calendar year
basis, based upon the maximum allowable discount and other applicable
exemptions. Sellers will remain responsible for all real property taxes
for any period prior to 1999.
(b) Sellers and Purchaser shall each be responsible for their own costs
with respect to the preparation and filing of any tax returns, as well
as the preparation, review and analysis of the allocation statements
and any forms or statements prepared in connection with the allocation
of the final purchase price.
Section 2.10. Title to Real Property.
- ------------ ----------------------
(a) Sellers agree to deliver to Purchaser as soon as reasonably possible
upon Purchaser's request copies of all title information in possession
of Sellers, including, but not limited to, title insurance policies,
attorneys' opinions on title, surveys, covenants, deeds and easements
relating to the Real Property. Such delivery shall constitute no
warranty by Sellers as to the accuracy or completeness thereof or that
Purchaser is entitled to rely thereon.
(b) Sellers will provide as soon as practicable, but not later than 60 days
after the date of this Agreement:
(1) a title insurance commitment, from a national title insurance
company selected by Sellers and reasonably satisfactory to
Purchaser, irrevocably undertaking to issue an owner's policy of
title insurance insuring Purchaser's title to the real estate
and related easements and rights appurtenant thereto for the Net
Book Value of the land and buildings (Purchaser may elect to
increase coverage, at Purchaser's expense), which commitment
shall provide that the owners title
-12-
<PAGE> 17
insurance policy to be issued pursuant thereto will be endorsed
to remove any binding arbitration provisions, and which
commitment will be accompanied by legible copies of all title
exception instruments identified in the commitment (Purchaser's
payment of its share of the title insurance premium will be
included in the settlement wire transfer). Seller agrees to
execute such affidavit regarding off-record title matters as may
be required by the title insurer to remove the so-called
"standard exceptions" to title, except for survey matters.
Sellers shall pay one-half the cost of said title insurance
commitment (including the title examination) and policy and
Purchaser shall pay the other one-half of such cost, except that
the Purchaser shall pay the entire cost of any increased amount
of coverage, as provided above, and the entire cost of any
endorsements or affirmative coverages desired by Purchaser.
(2) a survey as is required by the title insurer to remove the
survey exception in the title insurance policy, to be conducted
by a surveyor selected by Sellers and reasonably satisfactory to
Purchaser. Sellers shall pay one-half the cost of such survey
and Purchaser shall pay the other one-half of such cost. If
Purchaser desires information to be included on the survey which
is in addition to information that is required on the survey to
remove the survey exception in the title insurance policy,
Purchaser shall be responsible for obtaining such additional
survey work, at Purchaser's sole cost and expense.
(c) Purchaser agrees to notify Sellers, in writing within 30 calendar days
after the date of Purchaser's receipt of both the title insurance
commitment and survey obtained by Sellers described in paragraph (b)
above, of any mortgages, pledges, material liens, encumbrances,
reservations, tenancies, encroachments, overlaps or other title
exceptions, survey objections, or zoning or similar land use violations
(excluding legal but nonconforming uses) or material engineering or
structural problems related to the Real Property to which Purchaser
reasonably objects (the "Title Defects"). If Purchaser does not notify
Sellers of Title Defects within such time period, Purchaser shall be
deemed to have waived its rights under this Section 2.10. Purchaser
agrees that Title Defects shall not include real property taxes not yet
due and payable or easements, restrictions, tenancies, survey matters,
rights of way or other title matters which Purchaser deems acceptable
in Purchaser's reasonable discretion. During the 30-day period after
Sellers' receipt from Purchaser of said notice of any Title Defects,
Sellers shall have the right, but not the obligation, to attempt to
correct any such Title Defect to Purchaser's reasonable satisfaction.
If Sellers are unable or unwilling to cure any such Title Defects to
Purchaser's reasonable satisfaction, Purchaser shall have the option
either to terminate this Agreement (upon written notice to Sellers and
subject to Sellers' option to lease the Banking Center to Purchaser
pursuant to paragraph 2.10(e)) with respect to the Banking Center, at
which the Real Property having such Title Defects is located or to
receive title in its then existing condition. Upon termination of this
Agreement with respect to a particular tract of property pursuant to
this Section 2.10, no party shall have any further liability to the
other party under this Agreement except as set forth in Section 10.2.
-13-
<PAGE> 18
(d) Purchaser shall have the right to request that the title insurance
company update title matters up to 10 business days prior to the
Closing Date for any changes which may have arisen between the date of
the original title search and the Closing Date. If such update
indicates that any Title Defects have been placed of record since the
date of Purchaser's original title search, and Purchaser reasonably
objects thereto in writing, then Sellers shall make a good faith effort
to cure any such Title Defect to Purchaser's reasonable satisfaction.
If Sellers are unable or unwilling to cure any such Title Defect,
Purchaser shall have the option to receive title in the then existing
condition, to terminate this Agreement (upon written notice to Sellers
and subject to Sellers' option to lease the Banking Center to Purchaser
pursuant to paragraph 2.10(e)) with respect to the Banking Center, or
to enter into the lease of that Banking Center as described in
paragraph 2.10(e).
(e) In the event Purchaser notifies Sellers of its intent under this
Section 2.10 to terminate this Agreement with respect to the Banking
Center due to an unacceptable Title Defect, Sellers may elect to lease
the Banking Center to Purchaser at a reasonable rent, based on a
valuation of the Banking Center at its Net Book Value, for a term of 10
years, in which event Purchaser will have no right to terminate the
Agreement with respect to the Banking Center. The parties agree that if
they cannot agree upon the rent to be payable for the Banking Center to
be leased to Purchaser under this provision, the rent shall be
determined by an appraisal to be conducted by an appraiser acceptable
to both parties, with the cost of such appraisal to be shared equally
by both parties, based on a valuation of the Banking Center at its Net
Book Value. If Purchaser leases the Banking Center under this paragraph
2.10(e) and if, following the Closing and at any time during the term
of such lease, Sellers cure the unacceptable Title Defect, Sellers
shall promptly sell and convey the Banking Center to Purchaser, upon
the terms specified in this Agreement, whereupon such lease shall be
terminated. In the event of such sale, the purchase price of the
Banking Center shall be reduced (but not to less than zero) by the
amount of the rent paid by Purchaser to Sellers pursuant to such lease.
Section 2.11. Environmental Matters.
- ------------ ---------------------
(a) Sellers agree to deliver to Purchaser as soon as reasonably possible,
upon Purchaser's request copies of all environmental studies, reports
and audits in Sellers' possession related to the Banking Center.
(b) Purchaser shall have the right, but not the obligation, at their sole
cost and expense, to cause such investigations and tests to be made as
they deem necessary to determine whether there has been any soil,
surface water, groundwater, or building space contamination on or under
the Real Property. Sellers shall provide reasonable assistance to
Purchaser and/or their agents or contractors in their evaluation and
testing of the Real Property and Sellers shall provide Purchaser and/or
their agents or contractors access to pertinent records and documents.
Sellers authorize Purchaser and/or their agents or contractors to
contact governmental agencies regarding the environmental status of the
-14-
<PAGE> 19
Real Property. Purchaser shall report the results of any such
investigations or tests to Sellers no later than 30 days after the date
of this Agreement; provided, however, that without the prior written
consent of Sellers, which consent will not unreasonably be withheld,
and execution of a satisfactory property access agreement, Purchaser
shall not conduct subsurface testing, any ground water monitoring or
install any test well or undertake any other investigation which
requires a permit or license from, or the reporting of the
investigation or the results thereof to, a local or state environmental
regulatory authority or the United States Environmental Protection
Agency. If Purchaser object to any material adverse environmental
condition which impacts the Banking Center, Sellers shall have the
right, but not the obligation, to cure any such material adverse
environmental condition which is discovered by Purchaser's
investigation. If at the end of the applicable 30-day period, Sellers
are unable or unwilling to cure such problem, Purchaser shall have the
option to accept the premises in the then existing condition or to
terminate this Agreement with respect to that particular Banking Center
affected by the environmental problem (subject to Sellers' option to
lease the Banking Center to Purchaser pursuant to paragraph 2.11(c)),
in which event neither party shall have any liability to the other
party with respect to such Banking Center.
(c) In the event Purchaser notify Sellers of their intent under this
Section 2.11 to terminate this Agreement with respect to any Banking
Center due to an environmental problem, Sellers may elect to lease the
Banking Center to Purchaser at a reasonable rent, based on a valuation
of the Banking Center at its Net Book Value, for a term of 10 years, in
which event Purchaser will have no right to terminate the Agreement
with respect to that particular Banking Center. The parties agree that
if they cannot agree upon the rent to be payable for any such Banking
Center to be leased to Purchaser under this provision, the rent shall
be determined by an appraisal to be conducted by an appraiser
acceptable to both parties, with the cost of such appraisal to be
shared equally by both parties, based on a valuation of the Banking
Center at its Net Book Value. If Purchaser lease the Banking Center
under this paragraph 2.11(c) and if, following the Closing and at any
time during the term of such lease, Sellers cure the environmental
problem, Sellers shall promptly sell and convey the Banking Center to
Purchaser, upon the terms specified in this Agreement, whereupon such
lease shall be terminated.
-15-
<PAGE> 20
ARTICLE III
CLOSING AND EFFECTIVE TIME
Section 3.1. Effective Time.
- ----------- --------------
(a) The purchase of assets and assumption of liabilities provided for in
this Agreement shall occur at a closing (the "Closing") to be held at
the offices of Sellers in Columbus, Ohio, at 10:00 a.m., local time, or
at such other time, place, and manner as the parties shall mutually
agree, on a date to be mutually agreed upon between the parties, which
date shall be after the receipt of all necessary approvals by
regulatory agencies and after all statutory waiting periods have
expired and no later than September 30, 2000. The effective time (the
"Effective Time") shall be 5:00 p.m., local time, on the day on which
the Closing occurs (the "Closing Date").
(b) Sellers and Purchaser may agree to conduct the Closing by exchanging
executed and original documents by overnight courier service for
delivery on the Closing Date. In this case, all Closing documents shall
be held in escrow by the parties' counsel pending their receipt of
confirmation that all Closing documents have been received and are
satisfactory, respectively, and that the parties' wire transfer(s) of
funds required under this Agreement have been received and credited to
their designated account(s). Upon the parties' receipt of such
confirmation(s), respectively, such Closing documents shall be released
from escrow by such counsel and the Closing shall be deemed to have
been consummated.
Section 3.2. Closing.
- ----------- -------
(a) All actions taken and documents delivered at the Closing shall be
deemed to have been taken and executed simultaneously, and no action
shall be deemed taken nor any document delivered until all have been
taken and delivered.
(b) At the Closing, subject to all the terms and conditions of this
Agreement, Sellers shall execute and deliver to Purchaser or, in the
case of items (6), (7), (8), (10) and (11), make reasonably available
to Purchaser:
(1) warranty deeds in recordable form executed by the appropriate
Seller transferring good and marketable title to the Real
Property, free and clear of any and all liens, restrictions, or
encumbrances, except for Permitted Exceptions and any other such
matters that are shown on the title commitment to be provided to
Purchaser hereunder, in and to each parcel of Real Property to
Purchaser in substantially the form attached hereto as Exhibit
3.2(b)(1);
(2) a Bill of Sale, in substantially the form attached hereto as
Exhibit 3.2(b)(2) (the "Bill of Sale"), transferring to
Purchaser all of Sellers interest in the Personal Property and
in the Loans;
-16-
<PAGE> 21
(3) an Assignment and Assumption Agreement in substantially the form
attached hereto as Exhibit 3.2(b)(3) (the "Assignment and
Assumption Agreement"), assigning Sellers' interest in the
Equipment Leases, the Safe Deposit Contracts, and the Deposit
Liabilities;
(4) [reserved];
(5) consents from third persons that are required to effect the
assignments set forth in the Assignment and Assumption
Agreement;
(6) Sellers' keys to the safe deposit boxes and Sellers' records
related to the safe deposit box business at the Banking Center;
(7) Sellers' files and records related to the Loans;
(8) Sellers' records related to the Deposit Liabilities assumed by
Purchaser;
(9) immediately available funds in the net amount shown as owing to
Purchaser by Sellers on the Closing Statement, if any;
(10) the Coins and Currency;
(11) such of the other assets to be purchased as shall be capable of
physical delivery;
(12) a certificate of a proper officer of each Seller, dated as of
the Closing Date, certifying to the fulfillment of all
conditions which are the obligation of that Seller and that all
of the representations and warranties of such Seller set forth
in this Agreement remain true and correct in all material
respects as of Effective Time;
(13) copies of (A) the charters and bylaws of Sellers and (B) a
resolution of the Boards of Directors of Sellers, or the
Executive Committees of Sellers, approving the sales
contemplated herein;
(14) such certificates and other documents as Purchaser and its
counsel may reasonably require to evidence the receipt by
Sellers of all necessary regulatory authorizations and approvals
for the consummation of the transactions provided for in this
Agreement;
(15) a Closing Statement using amounts shown on the Pre-Closing
Balance Sheet, substantially in the form attached hereto as
Exhibit 3.2(b)(15) (the "Closing Statement");
-17-
<PAGE> 22
(16) an affidavit of Sellers certifying that Sellers are not "foreign
persons" as defined in the federal Foreign Investment in Real
Property Tax Act of 1980;
(17) the Power of Attorney;
(18) lease agreements for any Banking Center to be leased to the
Purchaser under the provisions of Section 2.10;
(19) such title insurance affidavits as may be required by the title
insurance company; and
(20) such certificates and other documents as the parties and their
respective counsel may reasonably require to evidence receipt of
all necessary regulatory authorizations and approvals for the
consummation of the transactions provided for in this Agreement.
It is understood that the items listed in items (6), (7), (8), (10) and
(11) shall be transferred at the Banking Center immediately after the
Banking Center have closed for business on the Closing Date.
(c) At the Closing, subject to all the terms and conditions of this
Agreement, Purchaser shall execute and deliver to Sellers:
(1) the Assignment and Assumption Agreement;
(2) [reserved];
(3) a certificate and receipt acknowledging the delivery and receipt
of possession of the Assets and records referred to in this
Agreement;
(4) immediately available funds in the net amount shown as owing to
Sellers by Purchaser on the Closing Statement, if any;
(5) a certificate of a proper officer of Purchaser, dated as of the
Closing Date, certifying to the fulfillment of all conditions
which are the obligation of Purchaser and that all of the
representations and warranties of Purchaser set forth in this
Agreement remain true and correct in all material respects as of
the Effective Time;
(6) copies of (A) the charters and bylaws of Purchaser and (B) a
resolution of the Boards of Directors, or the Executive
Committees, of Purchaser approving the purchases contemplated
herein; and
-18-
<PAGE> 23
(7) such certificates and other documents as Sellers and its counsel
may reasonably require to evidence the receipt by Purchaser of
all necessary regulatory authorizations and approvals for the
consummation of the transactions provided for in this Agreement.
(d) All instruments, agreements, and certificates described in this Section
3.2 shall be in form and substance reasonably satisfactory to the
parties' respective legal counsel.
Section 3.3. Post Closing Adjustments.
- ----------- ------------------------
(a) Not later than 30 days after the Effective Time (the "Post-Closing
Balance Sheet Delivery Date"), Huntington shall deliver to Purchaser a
balance sheet dated as of the Effective Time and prepared in accordance
with generally accepted accounting principles consistently applied
reflecting the assets sold and assigned and the liabilities transferred
and assumed hereunder (the "Post-Closing Balance Sheet"), including,
but not limited to, the specific items described in paragraph 2.2(a)(1)
through (4) above, as adjusted, together with a copy of Huntington's
calculation of the adjusted purchase price and amounts payable
thereunder. Additionally, Huntington shall deliver to Purchaser a final
list of Loans purchased, individually identified by account number.
Huntington shall afford Purchaser and its accountants and attorneys the
opportunity to review all work papers and documentation used by
Huntington in preparing the Post-Closing Balance Sheet. Within 15 days
following the Post-Closing Balance Sheet Delivery Date (the "Adjustment
Payment Date"), Huntington and Purchaser shall meet at the offices of
Huntington in Columbus, Ohio, or such other location as may be mutually
agreed, to effect the transfer of any funds as may be necessary to
reflect changes in such assets and liabilities between the Pre-Closing
Balance Sheet and the Post-Closing Balance Sheet and resulting changes
in the purchase price, together with interest thereon computed from the
Effective Time to the Adjustment Payment Date at the applicable Federal
Funds Rate (as hereinafter defined).
(b) In the event that a dispute arises as to the appropriate amounts to be
paid to either party on the Adjustment Payment Date, each party shall
pay to the other on such Adjustment Payment Date all amounts other than
those as to which a dispute exists. Any disputed amounts retained by a
party which are later found to be due to the other party shall be paid
to such other party promptly upon resolution with interest thereon from
the Effective Time to the date paid at the applicable Federal Funds
Rate.
(c) The Federal Funds Rate shall be the mean of the high and low rates
quoted for Federal Funds in the Money Rates column of The Wall Street
Journal adjusted as such mean may increase or decrease during the
period between the Effective Time and the date paid.
ARTICLE IV
INDEMNIFICATION
-19-
<PAGE> 24
Section 4.1. Huntington's Indemnification of Purchaser.
- ----------- -----------------------------------------
(a) Subject to any limitations in paragraphs 4.1(b) or otherwise contained
in this Agreement, Huntington shall indemnify, hold harmless, and
defend Purchaser from and against (i) any breach by Sellers of any
representation or warranty contained herein, (ii) claims or liabilities
relating to any Title Defect or environmental contamination existing
prior to the Effective Time in any Banking Center leased to the
Purchaser under the provisions of paragraph 2.10(e) or paragraph
2.11(c), and (iii) all claims, losses, liabilities, demands, and
obligations, including reasonable attorneys' fees and expenses, arising
out of any actions, suits, or proceedings commenced prior to the
Effective Time (other than proceedings to prevent or limit the
consummation of this transaction) relating to Sellers' operations at
the Banking Center; and, except as otherwise provided in this
Agreement, Huntington shall further indemnify, hold harmless, and
defend Purchaser from and against all claims, losses, liabilities,
demands, and obligations, including reasonable attorneys' fees and
expenses, real estate taxes, intangibles and franchise taxes, sales and
use taxes, social security and unemployment taxes, all accounts
payable, and operating expenses (including salaries, rents, and utility
charges) incurred by Sellers, prior to the Effective Time and which are
claimed or demanded on or after the Effective Time, or which arise out
of any actions, suits, or proceedings commenced on or after the
Effective Time and which relate to Sellers' operations or transactions
at the Banking Center prior to the Effective Time.
(b) The Purchaser's sole remedy for a breach of the representations and
warranties contained in Section 5.11 shall be to require the Sellers to
purchase any Loans which Purchaser in good faith deem to breach such
representation and warranty (a "Purchase Right"). The Purchase Right
can be exercised only for a period ending on the earlier of 60 days
after discovery of such breach or 12 months after the Closing Date.
Alternatively, the parties may agree to extend that exercise period
with respect to a particular Loan or group of Loans and permit
Purchaser to continue their customary processing and collection efforts
with respect to such Loans.
Section 4.2. Purchaser's Indemnification of Sellers.
- ----------- --------------------------------------
Purchaser shall indemnify, hold harmless, and defend Sellers from and against
any breach by Purchaser of any representation or warranty contained herein and
all claims, losses, liabilities, demands and obligations, including reasonable
attorneys' fees and expenses, real estate taxes, intangibles and franchise
taxes, sales and use taxes, social security and unemployment taxes, all accounts
payable, and operating expenses (including salaries, rents and utility charges),
which any of Sellers may receive, suffer, or incur in connection with operations
and transactions occurring after the Effective Time and which involve the
Banking Center, the Transferred Assets, or the liabilities assumed by Purchaser
pursuant to this Agreement.
-20-
<PAGE> 25
Section 4.3. Claims for Indemnity.
- ----------- --------------------
(a) A claim for indemnity under Sections 4.1 or 4.2 of this Agreement may
be made by the claiming party at any time prior to (i) 120 months after
the Effective Time in case of a claim under Section 4.1(a)(ii), and
(ii) 24 months after the Effective Time for all other items, by the
giving of written notice thereof to the other party. Such written
notice shall set forth in reasonable detail the basis upon which such
claim for indemnity is made. In the event that any such claim is made
within, the prescribed period, the indemnity relating to such claim
shall survive until such claim is resolved. Claims not made within such
period shall cease and no indemnity shall be made therefor.
(b) In the event that any person or entity not a party to this Agreement
shall make any demand or claim or file or threaten to file any lawsuit,
which demand, claim or lawsuit may result in any liability, damage or
loss to one party hereto of the kind for which such party is entitled
to indemnification pursuant to Section 4.1 or 4.2 hereof, then, after
written notice is provided by the indemnified party to the indemnifying
party of such demand, claim or lawsuit, the indemnifying party shall
have the option, at its cost and expense, to retain counsel for the
indemnified party to defend any such demand, claim or lawsuit. In the
event that the indemnifying party shall fail to respond within five
calendar days after receipt of such notice of any such demand, claim or
lawsuit, then the indemnified party shall retain counsel and conduct
the defense of such demand, claim or lawsuit as it may in its
discretion deem proper, at the cost and expense of the indemnifying
party. In effecting the settlement of any such demand, claim or
lawsuit, an indemnified party shall act in good faith, shall consult
with the indemnifying party and shall enter into only such settlement
as the indemnifying party shall approve (the indemnifying party's
approval will be implied if it does not respond within ten calendar
days of its receipt of the notice of such settlement offer).
Section 4.4. Limitations on Indemnification.
- ----------- ------------------------------
Notwithstanding anything to the contrary contained in this Article IV, no
indemnification shall be required to be made by either party until the aggregate
amount of all such claims by a party exceeds $50,000. Once such aggregate amount
exceeds $50,000, such party shall thereupon be entitled to indemnification for
all amounts in excess of such $50,000. IN ADDITION, THE PARTIES SHALL HAVE NO
OBLIGATIONS UNDER THIS ARTICLE IV FOR ANY CONSEQUENTIAL LIABILITY, DAMAGE OR
LOSS THE INDEMNIFIED PARTY MAY SUFFER AS THE RESULT OF ANY DEMAND, CLAIM OR
LAWSUIT.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as otherwise specifically herein provided, and except as specifically
disclosed to Purchaser in writing prior to the date hereof, or as otherwise
disclosed as described in the
-21
<PAGE> 26
particular Sections of this Article V, Huntington, on behalf of itself and its
subsidiaries, hereby represents and warrants to Purchaser as follows:
Section 5.1. Corporate Organization.
- ----------- ----------------------
Huntington is a bank holding company duly organized, validly existing, and in
good standing under the laws of the State of Maryland. HNB is a national banking
association duly organized, validly existing and in good standing under the laws
of the United States. Sellers have the corporate power and authority to carry on
their respective businesses as currently conducted and to effect the
transactions contemplated herein.
Section 5.2. No Violation.
- ----------- ------------
The Banking Center has been operated in all material respects in accordance with
applicable laws, rules and regulations. Neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated herein,
will violate or conflict with (i) Sellers' charters or bylaws; (ii) any material
provision of any material agreement or any other material restriction of any
kind to which Sellers are parties or by which Sellers are bound; (iii) any
material statute, law, decree, regulation, or order of any governmental
authority; or (iv) any material provision which will result in a default under,
or cause the acceleration of the maturity of, any material obligations or loans
to which Sellers are parties.
Section 5.3. Corporate Authority.
- ----------- -------------------
Prior to the Closing Date, the consummation of the transactions contemplated
herein will have been duly authorized by the Board of Directors or the Executive
Committee of each corporate entity conveying assets or liabilities to Purchaser
under this Agreement. No further corporate authorization is necessary for
Sellers to consummate the transactions contemplated hereunder.
Section 5.4. Enforceable Agreement.
- ----------- ---------------------
This Agreement has been duly executed and delivered by Huntington and HNB and is
the legal, valid, and binding agreement of Huntington and HNB, enforceable
against each of Huntington and HNB in accordance with its terms.
Section 5.5. No Brokers.
- ----------- ----------
All negotiations relative to this Agreement and the transactions contemplated
hereby have been carried on by Huntington, Purchaser, and David A. Noyes &
Company, and there has been no participation or intervention by any other
person, firm or corporation employed or engaged by or on behalf of Sellers in
such a manner as to give rise to any valid claim against Sellers or Purchaser
for a brokerage commission, finder's fee or like commission.
Section 5.6. Personal Property.
- ----------- -----------------
-22-
<PAGE> 27
Sellers own, and will convey to Purchaser at the Closing, all of Sellers' right,
title, and interest to all of the Personal Property free and clear of any
mortgages, liens, security interests or pledges. Such items are in generally
good working order other than items that are not material or items that do not,
in the aggregate, exceed $10,000 in value.
Section 5.7. Real Property.
- ----------- -------------
Sellers make the following additional representations regarding the Real
Property:
(a) Except as specifically set forth herein, there are no condemnation
proceedings pending against the Real Property locations.
(b) Except as specifically set forth herein, Sellers have not entered into
any agreement regarding the Real Property, and to Seller's knowledge
the Real Property is not subject to any claim, demand, suit, lien,
proceeding or litigation of any kind, pending or outstanding, or
threatened which would materially affect or limit Purchaser's use and
enjoyment of the Real Property or which would materially limit or
restrict Sellers' right or ability to enter into this Agreement and
consummate the sale and purchase contemplated hereby.
(c) To Sellers' knowledge, (i) no fact or condition exists which would
result in the permanent termination or material impairment of access to
the Real Property from adjoining public streets or highways or in the
permanent discontinuance of necessary utilities services to the Real
Property, and (ii) all sanitation, plumbing, refuse disposal, and
similar facilities servicing the Banking Center are in material
compliance with applicable governmental regulations.
(d) No complaints or other notice have been received by Sellers that
Sellers are in violation of applicable building, zoning, platting,
subdivision, use, safety, building or similar laws, ordinances,
regulations and restrictions with respect to the Banking Center. To
Sellers' knowledge, there are no special or general assessments pending
against or affecting the Real Property and, to Sellers' knowledge, no
public improvements have been recently made which would cause special
or general assessments to be assessed against the Real Property. Except
for any encroachment which does nonmaterially affect the use or value
of the premises: (i) to Sellers' knowledge, there is no encroachment
upon the Real Property from any buildings or improvements, if any,
located on the adjacent property; and (ii) to Sellers' knowledge, there
is no encroachment by the Real Property upon any adjacent property or
upon any easements with respect to the adjacent property. There are no
leases or other agreements by which any person possesses or has a right
to possess all or any portion of the Real Property other than those
described in this Agreement or exhibits to this Agreement. To Sellers'
knowledge, and except as disclosed by title insurance binder or by
survey, there is no violation of any applicable building restriction or
restrictive covenant. To Sellers' knowledge, the Real Property is
adequately serviced
-23-
<PAGE> 28
by all utilities necessary for effective operation as presently used
for a financial institution office.
Until the Closing Date, Purchaser's sole remedy for a breach of the
representations and warranties in this Section 5.7 shall be as provided in
Sections 2.10(e).
Section 5.8. Condition of Property.
- ----------- ---------------------
Except as may be otherwise specifically set forth in this Agreement, the Real
Property and Personal Property to be purchased by Purchaser hereunder are sold
"AS IS, WHERE IS," with no warranties or representations whatsoever, except as
may be expressly represented or warranted in this Agreement.
Section 5.9. Employees.
- ----------- ---------
No Employee located in the Banking Center is a party to any collective
bargaining, employment, severance, termination, or change of control agreement
or represented by a labor organization of any type other than Sellers'
established terms of employment and severance policies. Sellers are unaware of
any efforts during the past three years to unionize or organize the employees of
any of the Banking Center. Exhibit 5.9 sets forth a true and correct list of all
employees of the Banking Center as of the date hereof, and a list of any and all
bonus or incentive or other compensation arrangements or commitments, other than
benefits plans applicable to all Huntington employees, for each such employee or
for the employees as a group. Purchaser agree to keep such information in
strictest confidence and to confine knowledge of such information to those of
its officers and personnel who have a need to know such information in
connection with the performance of their duties. None of the employees of the
Banking Center is a party to any employment contract, formal or informal, oral
or written, or represented under any collective bargaining agreement relating to
employment with Sellers.
Section 5.10. Assumed Contracts.
- ------------ -----------------
Each of the Equipment Leases, and the Software Licenses is valid and subsisting,
in full force and effect, and Sellers have performed in all material respects
all obligations required to be performed by Sellers thereunder; and no condition
exists which constitutes or, with notice, or lapse of time, would constitute a
material default thereunder.
Section 5.11. Loans.
- ------------ -----
(a) Each Loan was made in the ordinary course of business, has been
properly executed by the parties thereto, represents the valid and
binding obligation of the obligor, enforceable by the holder thereof in
accordance with its terms, is free from any material defenses, contains
customary enforcement provisions such that the rights and remedies of
the holder thereof are adequate for enforcement of the Loans, and,
unless approved by Sellers and documented in their files, no material
provision of a Loan has been waived.
-24-
<PAGE> 29
(b) Each Loan (such term to include, for purposes of this paragraph, the
principal documents relating in any way to such Loans, including notes,
mortgages, security instruments, and guarantees) complies and has been
administered in all material respects with all requirements of
applicable Federal, state, and local laws and regulations.
(c) Each Loan that is secured by collateral is secured by a perfected
mortgage or security interest in the collateral in favor of Sellers as
mortgagee or secured party. No collateral has been released from the
lien granted to Sellers, unless approved by Sellers and documented in
their files.
(d) No selection procedures believed to be adverse to Purchaser have been
utilized by Sellers in selecting the Loans.
(e) Purchaser's sole remedy for a breach of the representations and
warranties in this Section 5.11 shall be as provided in paragraph
4.1(b).
Section 5.12. Environmental Matters.
- ------------ ---------------------
Except as previously disclosed to Purchaser in writing, to the actual knowledge
of the Executive Officers of Sellers or the senior property management officer
for the geographic region in which the Banking Center are located, and without
any investigation by such officers:
(a) Each Banking Center is, in all material respects, in compliance with
all applicable Federal, state, local, or municipal statutes, ordinance,
laws, and regulations and all orders, rulings, or other decisions of
any court, administrative agency, or any other governmental authority
relating to the protection of the environment.
(b) No Banking Center is constructed of, nor does it contain as a component
part, any material (either in its present form or as it may reasonably
be expected to change through aging or normal use) which reasonably can
be expected to release any substance, whether gaseous, liquid, or solid
or that is known to be (either by single exposure or by repeated or
prolonged exposure) injurious or hazardous to the health of persons
occupying the premises or is a Hazardous Substance (defined below).
Without limiting the generality of this Section, the Banking Center is,
and during all applicable limitation periods has been, to Sellers'
knowledge, free of asbestos except to the extent properly sealed or
encapsulated in compliance with all applicable Environmental Laws
(defined below) and all work-place safety, disability and health laws,
regulations, and guidelines so as to completely prevent the escape of
asbestos particles or fibers.
(c) During Sellers' ownership and operation, no part of any Banking Center
has been used for the manufacture, handling, storage, or disposal of
Hazardous Substances, except for conventional cleaning and maintenance
materials in quantities customary for commercial operations of the
nature conducted by Sellers at such Banking Center.
-25-
<PAGE> 30
(d) Except as disclosed in writing to Purchaser, no Banking Center
contains, nor has ever contained, an "underground storage tank" as that
term is defined in the Federal Hazardous and Solid Waste Amendments of
1984 to the Resource Conservation and Recovery Act. To Sellers'
knowledge, the Banking Center and any contiguous properties are not
contaminated by any Hazardous Substance in excess of applicable cleanup
criteria developed by the Indiana Department of Environmental
Management ("IDEM") pursuant to Title 13 of the Indiana Code and the
implementing rules and regulations thereunder.
(e) There is no action, suit, investigation, inquiry, or other proceeding,
ruling, order, or citation involving Sellers, pending, threatened, or
previously asserted as a result of any actual or alleged failure to
comply with any requirement of any Environmental Laws with respect to
any Banking Center, and there is no factual basis for any of the
foregoing.
(f) Sellers is not and may not be deemed to be an "owner or operator" of a
"facility" or "vessel," as those terms are defined in Section 9601 of
the Comprehensive Environmental Response Compensation and Liability Act
of 1980, 42 U.S.C.A. ss. 9601 ("CERCLA"), thereby owning, possessing,
transporting, generating, or disposing of any Hazardous Substances in
relation to any Banking Center.
For purposes of this Section 5.12, "Hazardous Substances" has the meaning
defined in Section 9601 of CERCLA, and includes any substance that is now or
hereafter regulated by or subject to any Environmental Laws and any other
pollutant, contaminant, or waste, including, without limitation, asbestos,
radon, and polychlorinated biphenyls; and "Environmental Laws" mean all laws
(civil or common), ordinances, rules, regulations, and orders that: (i) regulate
solid waste management, including the containment, storage, handling,
transportation, disposal, or management of Hazardous Substances; (ii) regulate
or prescribe requirements for air, water, or soil quality; (iii) are intended to
protect public health or the environment; or (iv) establish liability for the
investigation, removal, or cleanup of, or damage caused by, any Hazardous
Substances. Until the Closing Date, Purchaser's sole remedy for a breach of the
representations and warranties in this Section 5.12 shall be as provided in
Section 2.11(c). Notwithstanding anything to the contrary above, Seller is not
required to file a "Disclosure Document" pursuant to the Indiana Responsible
Property Transfer Act.
Section 5.13. Deposit Liabilities.
- ------------ -------------------
No selection procedures believed to be adverse to Purchaser have been utilized
by Sellers in selecting the Deposit Liabilities. The Deposit Liabilities are
insured by the FDIC to the fullest extent permitted by federal law and no action
is pending or has been threatened by the FDIC against Sellers with respect to
the termination of such insurance. Sellers are classified 1-A for purposes of
calculating FDIC Insurance premiums. To Sellers' knowledge, the Deposit
Liabilities (i) are in all respects genuine and enforceable obligations of
Sellers and have been acquired and maintained in full compliance with all
applicable Laws, including (but not limited to) the Truth in Savings Act and
regulations promulgated thereunder; (ii) were acquired in the ordinary course of
Sellers' business; and (iii) are not subject to any claims with respect to such
-26-
<PAGE> 31
Deposit Liabilities that are superior to the rights of persons shown on the
records delivered to Purchaser indicating the owners of the Deposit Liabilities
other than claims against such Deposit Liabilities owners, such as state and
federal tax liens, garnishments, and other judgment claims, which have matured
or may mature into claims against the respective Deposit Liabilities.
Section 5.14. Books, Records, Documentation, etc.
- ------------ -----------------------------------
The books and records of the Banking Center are correct, accurate, and complete,
in all material respects, have been maintained in a consistent and a customary
manner, and are in material compliance with all applicable federal and state
laws and regulations and customary banking practices. The deposit- and
lending-related forms, notices, statements, and related documentation, as well
as Sellers' policies, procedures, and practices with respect thereto, used at
the Banking Center comply in all material respects with applicable federal and
state laws and regulations and customary banking practices.
Section 5.15. Litigation.
- ------------ ----------
There are no actions, causes of action, claims, suits or proceedings, pending
or, to Sellers' knowledge, threatened, against Sellers relating to the Banking
Center or materially affecting the Banking Center, whether at law, in equity or
before or by a governmental department, commission, board, bureau, agency or
instrumentality. For purposes of this section, claims will be considered to
materially affect the Banking Center if the aggregate amount of such claims
exceeds $5,000.
Section 5.16. Contracts and Agreements.
- ------------ ------------------------
Sellers have delivered a true and complete copy of each contract or other
written agreement described in items 2.2(b)(ii), (iii), (iv) and (v) that is to
be assumed by Purchaser, all of which are listed on Exhibit 5.16 hereto. Each
such contract or other written agreement is valid and enforceable according to
its terms and Sellers are not in default thereunder and there has been no event
which, with notice or the lapse of time, or both, would constitute a default
under any such contract or other written agreement by Sellers.
Section 5.17. Tax Matters.
- ------------ -----------
Sellers have complied with the requirements of the Internal Revenue Service
regarding taxpayer identification number certification, interest information
reporting and backup withholding of interest payable in connection with Deposit
Liabilities. Sellers have filed all federal, state, county, local and foreign
tax returns, including information returns, required to be filed by them in
connection with Sellers' operation of the Banking Center, and paid all taxes
owed by them, including those with respect to withholding, social security,
unemployment, workers compensation, franchise, ad valorem, premium, excise and
sales taxes, and no taxes shown on such returns or assessments received by them
are delinquent. Sellers have paid all taxes which
-27-
<PAGE> 32
they are required to withhold from amounts owing to employees, creditors,
holders of Deposit Liabilities, or other third parties. For all completed years,
Sellers have duly and timely sent to each holder of Deposit Liabilities a Form
1099 (or a substitute form permitted by law) relating to interest, earning or
dividends paid on such accounts for those periods.
Section 5.18. Limitation and Survival of Representations and Warranties.
- ------------ ---------------------------------------------------------
Except as may be expressly represented or warranted in this Agreement, neither
Huntington nor any other Seller makes any representation or warranty whatsoever
with regard to any asset being transferred to Purchaser or any liability or
obligation being assumed by Purchaser or as to any other matter or thing. The
foregoing representations and warranties shall survive the Effective Time for a
period of 24 months, except Section 5.13, which shall survive the Effective Time
for a period of six months, and except as otherwise specifically herein
provided.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Except as otherwise specifically herein provided, Purchaser hereby represents
and warrants to Sellers as follows:
Section 6.1. Corporate Organization.
- ----------- ----------------------
Purchaser is a start chartered banking corporation, duly organized and validly
existing under the laws of the State of Indiana. Purchaser has the corporate
power and authority to carry on the business being acquired, to assume the
liabilities being transferred, and to effect the transactions contemplated
herein.
Section 6.2. No Violation.
- ----------- ------------
Neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated herein will violate or conflict with (i) the charter
or bylaws of Purchaser, (ii) any material provision of any material agreement or
any other material restriction of any kind to which Purchaser is a party or by
which Purchaser is bound, (iii) any material statute, law, decree, regulation or
order of any governmental authority, or (iv) any material provision which will
result in a default under, or cause the acceleration of the maturity of, any
material obligation or loan to which Purchaser is a party.
Section 6.3. Corporate Authority.
- ----------- -------------------
Prior to the Closing Date, the consummation of the transactions contemplated
herein will have been duly authorized by the Board of Directors (or Executive
Committee) of Purchaser. No further corporate authorization on the part of
Purchaser is necessary to consummate the transactions contemplated hereunder.
-28-
<PAGE> 33
Section 6.4. Enforceable Agreement.
- ----------- ---------------------
This Agreement has been duly executed and delivered by Purchaser and is the
legal, valid, and binding agreement of Purchaser, enforceable in accordance with
its terms.
Section 6.5. No Brokers.
- ----------- ----------
All negotiations relative to this Agreement and the transactions contemplated
hereby have been carried on by Purchaser, David A. Noyes & Company, and
Huntington and there has been no participation or intervention by any other
person, firm, or corporation employed or engaged by or on behalf of Purchaser in
such a manner as to give rise to any valid claim against Sellers or Purchaser
for a brokerage commission, finder's fee, or like commission, other than
compensation due David A. Noyes & Company by Purchaser.
Section 6.6. Survival of Representations and Warranties.
- ----------- ------------------------------------------
The foregoing representations and warranties shall survive the Effective Time
for a period of 24 months.
-29-
<PAGE> 34
ARTICLE VII
OBLIGATIONS OF PARTIES PRIOR TO AND AFTER EFFECTIVE TIME
Section 7.1. Full Access.
- ----------- -----------
Sellers shall afford to the officers and authorized representatives of
Purchaser, upon prior notice and subject to Huntington's normal security
requirements, access to the properties, books, and records pertaining to the
Banking Center, specifically including but not limited to all books and records
relating to the Deposit Liabilities, the Loans, the Real Property, and the
Personal Property, and copies of the Equipment Leases and the Software Leases in
order that Purchaser may have full opportunity to make reasonable investigations
and to engage in operational planning, at reasonable times, without interfering
with the normal business and operations of the Banking Center or the affairs of
Huntington relating to the Banking Center. Sellers will cooperate with Purchaser
to the extent reasonably requested and legally permissible to provide Purchaser
with information about Employees and a means to meet with Employees. The
officers of Sellers shall furnish Purchaser with two standard sets of such
additional financial and operating data and other information as to its business
and properties at the Banking Center, or where otherwise located, as Purchaser
may, from time to time, reasonably request and as shall be available, including,
without limitation, information required for inclusion in all governmental
applications necessary to effect this transaction. Any additional copies of such
information shall be produced and provided at Purchaser's expense. Nothing in
this Section 7.1 shall require Sellers to breach any obligation of
confidentiality or to reveal any proprietary information, trade secrets or
marketing or strategic plans. Records, including credit information relating to
the Loans, will be made available for review by Purchaser no later than 30
calendar days after the execution of this Agreement. It is understood that
certain of Sellers' records may be available only in the form of photocopies,
film copies, or other non-original and non-paper media.
Section 7.2. Delivery of Magnetic Media Records.
- ----------- ----------------------------------
Sellers shall prepare or cause to be prepared at its expense and make available
to Purchaser at Sellers' data processing center or other reasonably convenient
location magnetic media records in Sellers' field format as soon as possible and
in any event not later than 60 calendar days after the execution of this
Agreement and further shall make available to Purchaser such records updated
monthly and as of the Closing Date, which records shall contain the information
related to the items described in items 3.2(b)(6), (7), and (8) above. Such
updated records shall be made available at such time after the Closing Date as
agreed to by the parties. At its option, Sellers may provide such reports in
paper format instead of magnetic media format.
-30-
<PAGE> 35
Section 7.3. Application for Approval.
- ----------- ------------------------
Within 45 calendar days following the execution of this Agreement, Purchaser
shall prepare and file applications required by law with the appropriate
regulatory authorities for approval to purchase and assume the aforesaid assets
and liabilities, to establish a branch at the location of the Banking Center,
and to effect in all other respects the transactions contemplated herein.
Purchaser agrees to process such applications in a diligent manner and on a
priority basis and to provide Huntington promptly with a copy of such
applications as filed (except for any confidential portions thereof) and all
material notices, orders, opinions, correspondence, and other documents with
respect thereto, and to use its best efforts to obtain all necessary regulatory
approvals. On the date hereof, Purchaser knows of no reason why such
applications should not receive all such approvals. Purchaser shall promptly
notify Huntington upon receipt by Purchaser of notification that any application
provided for hereunder has been accepted or denied. Sellers shall provide such
assistance and information to Purchaser as shall be reasonably necessary for
Purchaser to comply with the requirements of the applicable regulatory
authorities.
Section 7.4. Conduct of Business; Maintenance of Properties.
- ----------- ----------------------------------------------
From the date hereof until the Effective Time, Huntington covenants that it will
cause Sellers to:
(1) carry on, or cause to be carried on, the business of the Banking
Center substantially in the same manner as on the date hereof,
use all reasonable efforts to preserve intact its current
business organization and preserve its business relationships
with depositors, customers and others having business
relationships with it and whose accounts will be retained at the
Banking Center; provided, however, that a Seller need not, in
its sole discretion, advertise or promote new or substantially
new customer services in the principal market area of the
Banking Center;
(2) cooperate with and assist Purchaser in assuring the orderly
transition of the business of the Banking Center to Purchaser
from Sellers; and
(3) Maintain the Real Property and the Personal Property in their
current condition, ordinary wear and tear excepted.
Section 7.5. No Solicitation by Sellers.
- ----------- --------------------------
(a) After the execution of this Agreement, Sellers will take reasonable
steps to avoid causing Banking Center customers to transfer all or part
of their Deposit or Loan business from the Banking Center. For a period
of 24 months after the Closing Date, Sellers will not establish any new
branch facility or install any automated teller machines at any
location within five miles of any Banking Center; provided, however,
that this restriction will not apply to any branch existing as of the
date of this Agreement nor prohibit Sellers from acquiring a branch
facility or automated teller machine as part of an acquisition of
-31-
<PAGE> 36
another bank or bank holding company that has at least 85% of its total
deposits attributed to branch offices located outside such five-mile
limit. In addition, for a period of 24 months after the Closing Date,
Sellers will not specifically target or solicit customers assigned to
the Banking Center; provided, however, that this restriction shall not
restrict general mass mailings, telemarketing calls, statement stuffers
and other similar communications directed to all the current customers
of Sellers or Sellers' affiliates, or to the public or newspaper, radio
or television advertisements of a general nature or otherwise prevent
Sellers from taking such actions as may be required to comply with any
applicable federal or state laws, rules or regulations. The foregoing
restriction shall not restrict the ability of Sellers to solicit
customers whose accounts are normally established or maintained in
offices other than the Banking Center or any customer which has an
agreement for merchant services with Sellers or Sellers' affiliates,
including their venture partners for merchant services. The obligations
of the parties hereunder shall specifically survive the Closing for a
period of 24 months.
(b) In order to facilitate Sellers' compliance with the restrictions in
this Section 7.5, Purchaser will give prompt notice to Sellers of any
mailing or other form of marketing that it determines is not consistent
with such restrictions; provided, however, that Purchaser's failure to
provide such notice shall not relieve Seller of any obligations it has
under this Section 7.5.
Section 7.6. Further Actions.
- ----------- ---------------
The parties hereto shall execute and deliver such instruments and take such
other actions as the other party may reasonably require in order to carry out
the intent of this Agreement. Included in such actions shall be the execution
and delivery of additional powers of attorney and such other documents and
instruments as shall be prepared and reasonably requested by Purchaser to
transfer the Loans and all collateral related thereto. Such assistance will be
provided to the Purchaser without costs for Sellers' personnel for a period of
at least 12 months after the Closing Date.
Section 7.7. Fees and Expenses.
- ----------- -----------------
Subject to the provisions of Section 10.3 and except as provided in this Section
7.7 and in Section 2.10, Purchaser shall be responsible for the costs of all
title examinations, surveys, environmental investigation costs, its own
attorneys' and accountants' fees and expenses, software license and transfer
fees, recording costs, transfer fees, sales and use and other transfer taxes,
regulatory applications and other expenses arising in connection therewith as
well as all costs and expenses associated with the transfer or perfection of any
security interests or liens securing Loans transferred hereunder. Except as
provided in Section 2.10, Purchaser shall pay the costs of title insurance
premiums, surveys, and documentary stamps and similar real estate transfer
charges. Sellers shall be responsible for their own attorneys' and accountants'
fees and expenses related to this transaction. Sellers shall make no charge to
the Purchaser for Sellers' personnel assigned to transition matters hereunder.
-32-
<PAGE> 37
Section 7.8. Breaches with Third Parties.
- ----------- ---------------------------
If the assignment of any material claim, contract, license, lease, commitment,
sales order or purchase order (or any material claim or right or any benefit
arising thereunder) without the consent of a third party would constitute a
breach thereof or materially affect the rights of Purchaser or Sellers
thereunder, then such assignment is hereby made subject to such consent or
approval being obtained.
Section 7.9. Operations.
- ----------- ----------
Notwithstanding the foregoing, between the date of this Agreement and the
Effective Time, and except as may be otherwise required by regulatory authority,
Sellers shall not without the prior consent of Purchaser, which consent shall
not be unreasonably withheld:
(1) cause the Banking Center to engage or participate in any
material transaction or incur or sustain any obligation which is
material to its business, condition or operation;
(2) cause the Banking Center to transfer to Sellers' other
operations any material amount of Transferred Assets, except for
(i) supplies, if any, which have unique function in Sellers'
business and ordinarily would not be useful to Purchaser, (ii)
cash and other normal intrabank transfers which may be
transferred in the ordinary course of business in accordance
with normal banking practices and (iii) signs, or those parts
thereof, bearing Sellers name and/or logo;
(3) except in the ordinary course of business at the unsolicited
request of depositors (i) cause the Banking Center to transfer
to Sellers' other operations any Deposit Liabilities or (ii)
cause any of Sellers' other operations to transfer to the
Banking Center any Deposit Liabilities;
(4) invest in any fixed assets on behalf of the Banking Center and
for replacements of furniture, furnishing and equipment except
for normal maintenance and refurbishing purchased or made in the
ordinary course of business;
(5) enter into or amend any continuing contract (other than Deposit
Liabilities and Loans) relating to the Banking Center, which
cannot be terminated without cause and without payment of any
amounts as a penalty, bonus, premium or other compensation for
termination, or which is not made in the ordinary course of
business;
(6) undertake any actions which are inconsistent with a program to
use all reasonable efforts to maintain good relations with
customers and with
-33-
<PAGE> 38
employees employed at the Banking Center, unless such actions
are required or permitted by this Agreement;
(7) hire any person into the Banking Center (other than to replace a
departing employee and/or to bring the number of employees at
the Banking Center to normal staffing levels), transfer or
reassign any employee of the Banking Center, increase the
compensation of any employee of the Banking Center, or promote
any of the employees, except where any such action is pursuant
to and consistent with customary Sellers' procedures and
policies;
(8) make any material change to its customary policies for setting
rates on deposits offered at the Banking Center;
(9) amend or modify any of its promotional, deposit account, or Loan
practices at the Banking Center other than amendments or
modifications in the ordinary course of business in accordance
with amendments or modifications undertaken at Sellers' branches
other than the Banking Center. Sellers shall underwrite and
administer the Loans at the Banking Center in accordance with
its past standards and practices and in accordance with
applicable laws and regulations;
(10) enter into any employment severance, termination, or change in
control contracts or understandings with any Banking Center
employees;
(11) reduce the service charges on any deposit product or fee-based
product (e.g. safe deposit boxes, money orders, cashier's
checks) unless such reduction is implemented generally in
Sellers' other branches;
(12) lease or sublease any space in the Banking Center,
(13) until the Effective Time fail to maintain and update its general
ledger on a basis consistent with its past accounting practices;
or
(14) undertake any actions which would result in a Title Defect or
fail to take any action to remove or cure a Title Defect caused
by the Sellers after the date hereof.
Section 7.10. Destruction and Condemnation.
- ------------ ----------------------------
If the Banking Center is damaged or destroyed or condemned between the date
hereof and the Closing Date, unless Sellers have repaired or replaced the damage
or destroyed property, Purchaser may elect, in its sole discretion, to either
(i) not acquire the Banking Center and the related assets and liabilities or,
(ii) acquire the Banking Center, in which event Sellers will deliver to
Purchaser any insurance proceeds, condemnation proceeds or other payment with
respect to the Banking Center.
-34-
<PAGE> 39
Section 7.11. Insurance.
- ------------ ---------
As of the Effective Time, Huntington will discontinue its insurance coverage
maintained in connection with the Banking Center and the activities conducted
thereon. Purchaser shall be responsible for all insurance protection for the
Banking Center's premises and the activities conducted thereon immediately
following the Effective Time. Huntington shall bear the risk of loss until the
Effective Time.
Section 7.12. Public Announcements.
- ------------ --------------------
Sellers and Purchaser agree that, from the date hereof, neither shall make any
public announcement or public comment, regarding this Agreement or the
transactions contemplated herein without first consulting with the other party
hereto and reaching an agreement upon the substance and timing of such
announcement or comment. Further, Sellers and Purchaser acknowledge the
sensitivity of this transaction to the Employees and no announcements or
communications with the public or the Employees shall be made without the prior
approval of Sellers until the Effective Time.
Section 7.13. Tax Reporting.
- ------------ -------------
Sellers shall comply with all tax reporting obligations in connection with
transferred assets and liabilities on or before the Effective Time, and
Purchaser shall comply with all tax reporting obligations with respect to the
transferred assets and liabilities after the Effective Time.
Section 7.14. Transitional Matters.
- ------------ --------------------
Sellers shall use their best efforts to cooperate with Purchaser to assure an
orderly transition of ownership of the Assets and Loans and responsibility for
the liabilities, including the Deposit Liabilities, assumed by Purchaser
hereunder. As soon as practicable following the date of this Agreement, but in
no event later than 30 days after the date of this Agreement, Purchaser shall
provide Sellers with a draft of a detailed transition plan covering operational
aspects of the transition, including methods for the transmission of data and
records. If Sellers do not accept any part or all of such plan, they must notify
Purchaser in writing within 15 days after receiving such draft transition plan
from Purchaser, whereupon the parties agree to use their best efforts to agree
upon a mutually acceptable transition plan as soon as possible, but in no event
later than 60 days after the date of this Agreement. Sellers shall use their
best efforts to cooperate fully with Purchaser in implementing such transition
plan.
-35-
<PAGE> 40
ARTICLE VIII
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligation of Purchaser to complete the transactions contemplated in this
Agreement is conditioned upon fulfillment, on or before the Closing Date, of
each of the following conditions:
Section 8.1. Representations and Warranties True.
- ----------- -----------------------------------
The representations and warranties made by Sellers in this Agreement shall be
true in all material respects on and as of the Effective Time as though such
representations and warranties were made at and as of such time, except for any
changes permitted by the terms hereof or consented to by Purchaser.
Section 8.2. Obligations Performed.
- ----------- ---------------------
Sellers shall have (i) delivered or made available to Purchaser those items
required by Section 3.2 hereof, and (ii) performed and complied in all material
respects with all obligations and agreements required by this Agreement to be
performed or complied with by it prior to or on the Effective Time.
Section 8.3. No Adverse Litigation.
- ----------- ---------------------
As of the Effective Time, no action, suit or proceeding shall be pending or
threatened against Sellers which is reasonably likely to (i) materially and
adversely affect the business, properties and assets of the Banking Center, or
(ii) materially and adversely affect the transactions contemplated herein.
Section 8.4. Regulatory Approval.
- ----------- -------------------
(a) Purchaser shall have received all necessary regulatory approvals of the
transactions provided in this Agreement, all notice and waiting periods
required by law to pass shall have passed, no proceeding to enjoin,
restrain, prohibit or invalidate such transactions shall have been
instituted or threatened, and any conditions of any regulatory approval
shall have been met.
(b) Such approvals shall not have imposed any condition which is materially
disadvantageous or burdensome to Purchaser.
-36-
<PAGE> 41
ARTICLE IX
CONDITIONS TO SELLERS' OBLIGATIONS
The obligation of Sellers to complete the transactions contemplated in this
Agreement is conditioned upon fulfillment, on or before the Closing Date, of
each of the following conditions:
Section 9.1. Representations and Warranties True.
- ----------- -----------------------------------
The representations and warranties made by Purchaser in this Agreement shall be
true in all material respects at and as of the Effective Time as though such
representations and warranties were made at and as of such time, except for any
changes permitted by the terms hereof or consented to by Sellers.
Section 9.2. Obligations Performed.
- ----------- ---------------------
Purchaser shall have (i) delivered to Sellers those items required by Section
3.2 hereof, and (ii) performed and complied in all material respects, with all
obligations and agreements required by this Agreement to be performed or
complied with by it prior to or on the Effective Time.
Section 9.3. No Adverse Litigation.
- ----------- ---------------------
As of the Effective Time, no action, suit, or proceeding shall be pending or
threatened against Purchaser or Sellers which might materially and adversely
affect the transactions contemplated hereunder.
Section 9.4. Regulatory Approval.
- ----------- -------------------
(a) Sellers shall have received from the appropriate regulatory authorities
approval of the transactions contemplated herein, waiting periods
required by law to pass shall have passed, no proceeding to enjoin,
restrain, prohibit or invalidate such transactions shall have been
instituted or threatened, and any conditions of any regulatory approval
shall have been met.
(b) Such approvals or Purchaser's corresponding regulatory approvals shall
not have imposed any condition which is materially disadvantageous or
burdensome to Sellers.
-37-
<PAGE> 42
ARTICLE X
TERMINATION
Section 10.1. Methods of Termination.
- ------------ ----------------------
This Agreement may be terminated in any of the following ways:
(1) by either Purchaser or Sellers, in writing five calendar days in
advance of such termination, if the Closing has not occurred by
September 30, 2000;
(2) at any time on or prior to the Effective Time by the mutual
consent in writing of Huntington and Purchaser;
(3) by Huntington in writing if the conditions set forth in Article
IX of this Agreement shall not have been met by Purchaser or
waived in writing by Huntington prior to the Closing Date;
(4) by Purchaser in writing if the conditions set forth in Article
VIII of this Agreement shall not have been met by Sellers or
waived in writing by Purchaser prior to the Closing Date;
(5) any time prior to the Effective Time, by Purchaser or Huntington
in writing if the other shall have been in breach of any
representation and warranty in any material respect (as if such
representation and warranty had been made on and as of the date
hereof and on the date of the notice of breach referred to
below), or in breach of any covenant, undertaking or obligation
contained herein, and such breach has not been cured by the
earlier of 30 calendar days after the giving of notice to the
breaching party of such breach or the Effective Time; provided,
however, that there shall be no cure period in connection with
any breach of Section 7.3 hereof, so long as such breach by
Purchaser was not caused by any action or inaction of Sellers,
and Huntington may terminate this Agreement immediately if
regulatory applications are not filed within 30 calendar days
after the date of this Agreement as provided in that section; or
(6) by Huntington in writing at any time after any applicable
regulatory authority has denied approval of any application of
Purchaser for approval of the transactions contemplated herein.
Section 10.2. Procedure Upon Termination.
- ------------ --------------------------
In the event of termination pursuant to Section 10.1 hereof, and except as
otherwise stated therein, written notice thereof shall be given to the other
party, and this Agreement shall terminate immediately upon receipt of such
notice unless an extension is consented to by the party having the right to
terminate. If this Agreement is terminated as provided herein:
-38-
<PAGE> 43
(1) each party will return all documents, work papers and other
materials of the other party, including photocopies or other
duplications thereof, relating to this transaction, whether
obtained before or after the execution hereof, to the party
furnishing the same;
(2) all information received by either party hereto with respect to
the business of the other party (other than information which is
a matter of public knowledge or which has heretofore been
published in any publication for public distribution or filed as
public information with any governmental authority) shall not at
any time be used for any business purpose by such party or
disclosed by such party to third persons; and
(3) each party will pay its own expenses.
Section 10.3. Payment of Expenses.
- ------------ -------------------
Should the transactions contemplated herein not be consummated because of a
party's breach of this Agreement, in addition to such damages as may be
recoverable in law or equity, the other party shall be entitled to recover from
the breaching party upon demand, itemization, and documentation, its reasonable
outside legal, accounting, consulting, and other out-of-pocket expenses.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.1. Assignment to Subsidiaries.
- ------------ --------------------------
At their discretion, Huntington may cause the obligations of Sellers under this
Agreement to be fulfilled by their respective banking and corporate
subsidiaries. Upon identification by Huntington of the subsidiaries to be
considered a Seller, Huntington shall cause those subsidiaries to enter into
such agreements as may be necessary to bind those subsidiaries as additional
parties to this Agreement.
Section 11.2. Amendment and Modification.
- ------------ --------------------------
The parties hereto, by mutual consent, my amend, modify and supplement this
Agreement in such manner as may be agreed upon by them in writing.
Section 11.3. Waiver or Extension.
- ------------ -------------------
Except with respect to required approvals of the applicable governmental
authorities, either party, by written instrument signed by a duly authorized
officer, may extend the time for the performance of any of the obligations or
other acts of the other party and may waive (i) any
-39-
<PAGE> 44
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto or (ii) compliance with any of the
undertakings, obligations, covenants or other acts contained herein.
Section 11.4. Assignment.
- ------------ ----------
This Agreement and all of the provisions hereof shall be binding upon, and shall
inure to the benefit of, the parties hereto and their permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by either of the parties hereto without the prior written
consent of the other.
Section 11.5. Confidentiality.
- ------------ ---------------
Purchaser and Sellers agree that any confidentiality agreements between
Purchaser and Sellers shall survive the execution hereof and the consummation of
the transactions contemplated herein.
Section 11.6. Addresses for Notices, Etc.
- ------------ ---------------------------
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (i) delivered
by hand (with written confirmation of receipt), (ii) deposited in the United
States Mail by registered or certified mail, return receipt requested, (iii)
sent by telecopier (with electronic confirmation of receipt), provided that a
copy is mailed by registered or certified mail, return receipt requested, or
(iv) when received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case to the appropriate
addresses or telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate by notice to the other parties):
If to Sellers, to: Huntington Bancshares Incorporated
41 South High Street
Columbus, Ohio 43287
Attn: Milton D. Baughman, Senior Vice President
Facsimile Number: (614) 480-5284
with a copy to: Richard A. Cheap, Esq.
General Counsel and Secretary
Huntington Bancshares Incorporated
41 South High Street
Columbus, Ohio 43287
Facsimile Number: (614) 480-5485
-40-
<PAGE> 45
If to Purchaser, to: First Bank
180 Washington Street
P.O. Box 225
Morgantown, Indiana 46160
Attn: Jerry Engle, President
Facsimile Number: (317) 882-5903
with a copies to: John R. Zerkle, Esq.
Leagre Chandler & Millard LLP
1400 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, Indiana 46204
Facsimile Number: (317) 808-3100
David A. Noyes & Company
111 Monument Circle, Suite 300
Indianapolis, Indiana 46204
Attn: John Reed
Facsimile Number: (317) 633-1739
Section 11.7. Counterparts.
- ------------ ------------
This Agreement may be executed simultaneously in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
Section 11.8. Headings.
- ------------ --------
The headings of the Articles and Sections of this Agreement are inserted for
convenience only and shall not constitute a part thereof.
Section 11.9. Governing Law.
- ------------ -------------
This Agreement shall be governed by, and construed in accordance with, the laws
of the State of Ohio.
Section 11.10. Sole Agreement.
- ------------- --------------
Except for the Confidentiality Agreement, this Agreement and the exhibits and
attachments hereto represent the sole agreement between the parties hereto
respecting the transactions contemplated hereby and all prior or contemporaneous
written or oral proposals, agreements in principle, representations, warranties
and understandings between the parties with respect to such matters are
superseded hereby and merged herein.
-41-
<PAGE> 46
Section 11.11. Parties In Interest.
- ------------- -------------------
Nothing in this Agreement, express or implied, expressly including, without
limiting the generality of the foregoing in any way, the provisions of paragraph
2.6(a) hereof, is intended or shall be construed to confer upon or give to any
person (other than the parties hereto, their successors and permitted assigns)
any rights or remedies under or by reason of this Agreement, or any term,
provision, condition, undertaking, warranty, representation, indemnity, covenant
or agreement contained herein.
Section 11.12 Calculation of Dates and Deadlines.
- ------------- ----------------------------------
Unless otherwise specified, any period of time to be determined under this
Agreement shall be deemed to commence at 12:01 a.m. on the first full day after
the specified starting date, event, or occurrence. Any deadline, due date,
expiration date, or period-end to be calculated under this Agreement shall be
deemed to end at 5 p.m. on the last day of the specified period. The time of day
shall be determined with reference to the then current local time in Columbus,
Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers as of the date first written
above.
HUNTINGTON BANCSHARES INCORPORATED
By: /s/ Milton D. Baughman
-----------------------------------------
Milton D. Baughman, Senior Vice President
THE HUNTINGTON NATIONAL BANK
By: /s/ Greg Sheridan
-----------------------------------------
Name: Greg Sheridan
-----------------------------------------
Title: _________________________________________
FIRST BANK
By: /s/ Jerry R. Engle
-----------------------------------------
Name: Jerry R. Engle
-----------------------------------------
Title: President and CEO
-----------------------------------------
-42-
<PAGE> 47
PURCHASE AND ASSUMPTION AGREEMENT
BETWEEN
HUNTINGTON BANCSHARES INCORPORATED
AND
FIRST BANK
LIST OF EXHIBITS
Exhibit No. Description
---------- -----------
2.1(b) List of Excluded Assets
2.4(j) Form of Power of Attorney
2.6(a) Agreement Regarding Employees of Banking Center
3.2(b)(1) Form of Warranty Deed
3.2(b)(2) Form of Bill of Sale
3.2(b)(3) Form of Assignment and Assumption Agreement
3.2(b)(4) Form of Assignment and Assumption of Leases
3.2(b)(15) Form of Closing Statement
5.9 List of Employees
5.16 List of Contracts to be Assumed
-43-
<PAGE> 1
EXHIBIT 10.7
LEASE AGREEMENT
This LEASE AGREEMENT ("Lease") is made and entered into effective the
29th day of March, 1999, by and between GREENWOOD ICC REALTY, LLC, an Indiana
limited liability company (hereinafter referred to as "Lessor"), with its
principal place of business at 1155 W. Third Street, Bloomington, Indiana, and
FIRST STATE BANK, an Indiana corporation (hereinafter referred to as "Lessee"),
with its principal place of business at 180 W. Washington, Morgantown, Indiana.
In consideration of the mutual covenants and agreements herein set
forth, and other good and valuable consideration, Lessor does hereby demise and
lease to Lessee, and Lessee does hereby lease from the Lessor, the premises
known as 1266 North Madison Avenue, Greenwood, Indiana, related common areas,
the parking spaces designated for Lessee's use, and certain trade fixtures and
leasehold improvements listed on Exhibit A attached hereto and made a part
hereof, all of which are hereinafter called the "Leased Premises." The Leased
Premises are a portion of a commercial building located on the real estate
described on Exhibit B attached hereto. The floor plan of the Leased Premises is
attached hereto and made a part hereof as Exhibit "C."
ARTICLE 1. TERM AND POSSESSION
Section 1.01. Term of Lease. The term of this lease shall be for a
period of three (3) years, beginning April 1, 1999, or on the date Lessee takes
possession of the Leased Premises, whichever is earlier, and ending March 31,
2002. Lessee shall be permitted to take possession prior to April 1, 1999 for
the purpose of making leasehold improvements. Lessee may renew this lease for an
additional three (3) year term (April 1, 2002 through March 31, 2005) upon the
same terms and conditions contained herein, except for the rent, which shall
increase in accordance with Article 2 of this Lease. In the event Lessee desires
to renew, Lessee shall give Lessor notice of its intention to renew no later
than December 31, 2001. The term "Lease Term" as used herein shall mean the
original term and any renewal term.
Section 1.02. Lease Year Defined. The term "Lease Year", as used
herein, shall mean a period of twelve (12) consecutive full calendar months
during the Lease Term commencing on a yearly anniversary date of the first Lease
Year, the first Lease Year commencing on the first day of the calendar month in
which the commencement of the term occurs.
ARTICLE 2. RENT
Section 2.01. Rent. Lessee agrees to pay to Lessor without any prior
demand therefor and without any deduction or setoff whatsoever, and as an annual
rent for the period commencing April 1, 1999, through March 31, 2000, the sum of
Thirty Thousand One Hundred Dollars ($30,100.00) per annum, payable at the rate
of Two Thousand Five Hundred eight and 33/100 Dollars ($2,508.33) per month, in
advance on the first day of each calendar month of each Lease Year. The first
payment shall be paid in advance, upon execution of this Lease. For the period
commencing April 1, 2000 through March 31, 2002, Lessee shall pay annual rent of
<PAGE> 2
Thirty-two Thousand Two Hundred Fifty Dollars ($32,250.00) and monthly rent of
Two Thousand Six Hundred Eighty-seven and 50/100 Dollars ($2,687.50). During the
renewal term, Lessee shall pay annual rent of Thirty-four Thousand Four Hundred
Dollars ($34,400.00) and monthly rent of Two Thousand Eight Hundred Sixty-six
and 66/100 Dollars ($2,866.66). Lessee shall pay a late charge of five percent
(5%) on each installment of rent which is more than five (5) days past due.
ARTICLE 3. REIMBURSEMENTS TO LESSOR
Section 3.01. Monthly Reimbursement of Expenses to Lessor. In addition
to the rental set out in Article 2, Lessee agrees for the original Term of this
Lease, and any Renewal Term to reimburse Lessor monthly along with rent payments
when due, 42% (hereinafter "Lessee's Percentage") of all common area expenses,
as provided below, without relief from valuation and appraisement laws.
(a) Insurance and Real Estate Tax Expenses. The Lessee's
Percentage of insurance and real estate tax expenses
to be reimbursed are those payable by Lessor during
the then current year with respect to the Leased
Premises. The term "Real Estate Tax", will include
all ad valorem real property tax, and current
installments of assessments levied upon or with
respect to the Leased Premises.
(b) Common Area Maintenance and Trash and Snow Removal
Expenses. In addition to general maintenance expenses
for the Leased Premises, common areas, and adjoining
sidewalks and alleys, (cleaning, repairs, etc.),
Lessee will reimburse Lessor for trash and snow
removal expenses paid for in the previous month. The
reimbursement to Lessor for Lessee's Percentage of
common area maintenance expenses is due and payable
in twelve (12) equal monthly installments.
(c) Monthly Statements. Lessor will deliver to Lessee, in
the monthly rent statement, a statement of
reimbursements due to Lessor for expenses under
Section 3.1, in reasonable detail. Lessor's statement
shall be conclusive subject to: correction of
mathematical errors; adjustment upon resolution of
any pending appeals relating to real estate tax; and
to the examination of Lessor's records under section
3.1(d) below.
(d) Examination of Lessor's Records. In the event Lessee
does not agree with Lessor's statement of
reimbursement due, Lessee shall have the right to
cause an examination by Lessee or representative of
Lessee and representative of Lessor of Lessor's
records concerning the amounts to be reimbursed.
Before examination of Lessor's records by Lessee,
written notice of the nature and extent of
disagreement must be given to Lessor
2
<PAGE> 3
not later than thirty (30) days following receipt of
such statement by Lessee. In the event no such notice
is received by Lessor within thirty (30) days
following the receipt of a statement for
reimbursement by Lessee, such statement shall be
conclusively deemed to have been approved and
accepted by Lessee. Pending resolution of any dispute
with respect to statements for reimbursement, Lessee
shall pay the sum shown as due on such statements,
and, if it shall be finally determined that any
portion of such sums were not properly due, Lessor
shall immediately refund that appropriate sum to
Lessee.
(e) Pro-rata Payments. In the event that Lessee's
occupancy commences on a day other than the first day
of the calendar month, Lessee shall pay a pro rata
share of the monthly reimbursement of expenses to
Lessor. Lessee's obligations hereunder shall survive
the termination of this Lease.
ARTICLE 4. MAINTENANCE, WASTE AND NUISANCE
Section 4.01. Maintenance. The Leased Premises are part of a
commercial building. Lessor shall be responsible for maintenance and repairs
necessary to maintain the heating system and air-conditioning equipment, the
roof, foundation, the exterior of the Premises, and the parking areas, including
snow and ice removal. Lessee shall be responsible for maintenance and repairs
necessary to maintain the interior of the building and any maintenance, repair
or replacement not performed by Lessor. All such maintenance expenses shall be
reimbursed, pro rata, by Lessee in the manner set forth in Article 3 above.
Section 4.02. Waste and Nuisance. Lessee shall through the lease term
maintain the buildings, and other improvements constituting the leased premises
and keep them free from waste or nuisance, and shall deliver up the premises in
a clean and sanitary condition at the termination of this lease in good repair
and condition, reasonable wear and tear and damage by fire, tornado, or other
casualty excepted. In the event Lessee should neglect reasonably to maintain the
leased premises, Lessor shall have the right, but not the obligation to cause
repairs or corrections to be made, and any reasonable costs therefor shall be
payable by Lessee to Lessor as additional rental on the next installment date.
ARTICLE 5. OBLIGATION OF LESSOR AND LESSEE
Section 5.01. Taxes and Assessments. Lessor shall pay and fully
discharge all taxes, special assessments, and governmental charges of every
character imposed during the term of this lease on or with respect to the leased
premises or any part thereof, and all improvements erected thereon. Lessee shall
pay and fully discharge all taxes, special assessments and governmental charges
imposed with respect to Lessee's personal property stored or located on the
Leased Premises.
3
<PAGE> 4
Section 5.02. Alterations, Additions, and Improvements. Lessee accepts
the Leased Premises "as is," in their current condition. Lessee shall not create
any openings in the roof or exterior walls, nor make any alterations, additions,
or improvements to the leased premises without the prior written consent of
Lessor. Consent for nonstructural alterations, additions, or improvements shall
not unreasonably be withheld by Lessor. Lessee shall have the right at all times
to erect or install shelves, bins, machinery, and trade fixtures, provided that
Lessee complies with all applicable laws, ordinances, and governmental
regulations. Lessee shall have the right to remove at the termination of this
lease such items so installed, provided that Lessee is not in default; however,
Lessee shall, prior to the termination of this lease, repair any damage caused
by such removal. Lessee acknowledges that the items listed on EXHIBIT "A"
attached hereto and made a part hereof are the property of Lessor and shall
remain with the Leased Premises upon termination of this Lease.
Section 5.03. Signs. Lessee shall have the right to use the top panel
of the existing exterior sign. Lessee may install an additional rooftop sign
with the prior written consent of Lessor. Lessee shall remove all signs at the
termination of this lease, and shall repair any damage and close any holes
caused by such removal.
Section 5.04. Utility Charges. Lessee shall pay all utility charges for
water, telephone, electricity, heat, gas, and power used in and about the leased
premises, all such charges to be paid by Lessee to the utility company or
municipality furnishing the same, before the same shall become delinquent.
ARTICLE 6. INDEMNITY AND INSURANCE
Section 6.01. Indemnification. Lessee agrees to indemnify and hold
Lessor and the property of Lessor, including the leased premises, free and
harmless from any and all claims, liability, loss, damage, or expenses resulting
from Lessee's occupation and use of said premises, specifically including,
without limitation, any claim, liability, loss, or damage arising by reason of
the following:
(a) The death or injury of any person or persons,
including Lessee or any person who is an employee or
agent of Lessee, or by reason of the damage to or
destruction of any property, including property owned
by lessee or any person who is an employee or agent
of Lessee, and caused or allegedly cause by either
the condition of said premises, or some act or
omission of Lessee or of some agent, contractor,
employee, servant, sublessee, or concessionaire of
Lessee on said premises.
(b) Any work performed on said premises or materials
furnished to said premises at the instance or request
of Lessee or any agent or employee of Lessee; and
4
<PAGE> 5
(c) Lessee's failure to perform any provision of this
lease to comply with any requirement of law or any
requirement imposed on Lessor or the leased premises
by any duly authorized governmental agency or
political subdivision.
Section 6.02. Liability Insurance. Lessee shall, at its own cost and
expense, secure and maintain during the entire term of this lease and any
renewals or extensions of such term a broad form comprehensive coverage policy
of public liability insurance with limits of $1,000,000.00 combined bodily
injury and property damage insuring Lessor against loss or liability caused by
or connected with Lessee's occupation and use of said premises under this lease.
Section 6.03. Contents Insurance. In order that the business of Lessee
may continue with as little interruption as possible, Lessee shall, during the
full term of this lease and any renewals or extension thereof, maintain at
Lessee's own cost and expense an insurance policy issued by a reputable company
authorized to conduct insurance business in the State of Indiana insuring for
their full insurable value all fixtures, equipment and leasehold improvements
and, to the extent possible, all merchandise that is, at any time during the
term of this lease or any renewal or extension thereof, in or on said premises
against damage or destruction by fire, theft, or the elements.
Section 6.04. Building Insurance. Lessor shall obtain and carry fire
and extended coverage insurance for loss or damage to the building and
improvements in an amount not less than one hundred percent (100%) of the full
replacement value at the time of loss, as such value may be determined by the
insurer periodically.
Section 6.05. Mutual Waiver of Subrogation. Lessor and Lessee hereby
expressly waive any and all claims and rights of subrogation against each other
for loss or damage due to fire or the perils, risks or hazards ordinarily
insured against in the State of Indiana standard form of Fire Insurance Policy
with Extended Coverage Endorsement and which are, in fact, covered by such
insurance, regardless of the cause of such loss or damage, including without
limitation, loss or damage resulting from the negligence of the respective
parties, their agents, servants, employees, or invitees.
Section 6.06. Acceptable Company. The policy or policies of insurance
shall be placed in such company or companies as may be acceptable to Lessor and
any mortgagee of Lessor, who agree not to arbitrarily object to such insurance
being placed with any reputable company.
Section 6.07. Obligation to Maintain Coverage. If Lessee shall refuse
or fail to procure, apply for, pay for, or keep in force the policies of
insurance above set forth, or to deliver the policies or certificates showing
the existence of the insurance hereinabove set forth, Lessor may, at its
election, procure, pay for, keep in force and/or from time to time renew such
insurance, and the amounts expended therefor shall be so much additional rent
due from Lessee the next
5
<PAGE> 6
monthly installment of rent accruing hereunder. Nothing contained in this
Section shall impose any obligation upon the Lessor to obtain or maintain
insurance on the Leased Premises.
ARTICLE 7. DEFAULTS AND REMEDIES
Section 7.01. Default by Lessee. Should Lessee default in the
performance of any of the covenants or conditions contained in this lease, or
abandon the leased premises, Lessee shall have breached the lease and Lessor
may, in addition to the remedies specified in subparagraph (b) of Section 7.03
of this lease, reenter and regain possession of said premises in the manner
provided by the laws of the State of Indiana then in effect.
Section 7.02. Insolvency of Lessee. The insolvency of Lessee, as
evidenced by a receiver being appointed to take possession of all or
substantially all of the property of Lessee, or the making of a general
assignment for the benefit of creditors by Lessee, shall terminate this lease
and entitle Lessor to reenter and regain possession of said premises.
Section 7.03. Remedies of Lessor. Should Lessee breach this lease or
abandon the leased premises prior to the stated expiration of the term of this
lease, Lessor may elect to:
(a) Continue this lease in effect by not terminating
Lessee's right to possession of said premises, in
which event Lessor shall be entitled to enforce all
its rights and remedies under this lease, including
the right to recover the rent specified in this lease
as it becomes due under this lease; or
(b) Terminate this lease and recover from Lessee:
(1) All unpaid rent accrued to the time of
termination of the lease;
(2) The amount at the time of such recover,
which the unpaid rent would have earned
between termination of the lease and the
time of such recovery;
(3) The amount at the time of such recovery, by
which the unpaid rent for the balance of the
term of this lease after the time of such
recovery exceeds and the amount of rental
loss that Lessee proves could be reasonably
avoided; and
(4) Any other amount necessary to compensate
Lessor for all losses or expenses
proximately caused by Lessee's failure to
perform his obligations under this lease
and/or which are due to Lessor's having to
re-let the Leased Premises, including
attorney's fees and court costs.
6
<PAGE> 7
Section 7.04. Cumulative Remedies. The remedies given to Lessor in this
article shall not be exclusive but shall be cumulative in addition to all
remedies now or hereafter allowed by law or elsewhere provided in this lease.
Section 7.05. Waiver of Breach. The waiver by Lessor of any breach by
Lessee of any of the provisions of this lease shall not constitute a continuing
waiver or a waiver of any subsequent breach by Lessee either or the same or
another provision of this lease.
ARTICLE 8. INSPECTION BY LESSOR
Section 8.01. Lessee shall permit Lessor and its agents to enter into
and upon the leased premises at all reasonable times for the purpose of
inspecting the same or for the purpose of maintaining or making repairs or
alterations to the building.
ARTICLE 9. ASSIGNMENT AND SUBLEASE
Section 9.01. Assignment and Subletting by Lessee. Lessee shall neither
assign this lease, nor any interest therein, nor sublet the Leased Premises, or
any part thereof, or any right or privilege pertinent thereto, without the prior
written consent of Lessor. Any approved assignment or subletting shall provide
that each assignee assumes in writing all of Lessee's obligations under this
lease, and Lessee shall remain liable for each and every obligation under this
lease.
Section 9.02. Assignment by Lessor. Lessor is expressly given the right
to assign any or all of its interest under the terms of this lease.
ARTICLE 10. DESTRUCTION
Section 10.01. Partial Destruction. Should said premises or the
building on said premises be partially destroyed by any cause not the fault of
Lessee or any person in or about said premises with the consent, express or
implied, of lessee, this lease shall continue in full force and effect and
Lessor, at Lessor's own cost and expense, shall promptly commence the work of
repairing and restoring said premises to their prior condition providing such
work can be accomplished under all applicable government laws and regulations
within ninety (90) working days at a cost not exceeding forty-five percent (45%)
of the total replacement cost of said premises.
Section 10.02. Should said premises or the building on said premises be
so far destroyed by any cause not the fault of Lessee or any person in or about
said premises with the consent, express or implied, of Lessee that they cannot
be repaired or restored to their former condition within ninety (90) working
days or at a cost not exceeding forty-five percent (45%) of the total
replacement cost of said premises, Lessor may at Lessor's option either:
7
<PAGE> 8
(a) Continue this lease in full force and effect by
repairing and restoring, at Lessor's own cost and
expense, said premises to their former condition; or
(b) Terminate this lease by giving Lessee written notice
of such termination.
Section 10.03. Insurance Proceeds. Any insurance proceeds received by
Lessor because of the total or partial destruction of said premises or the
building on said premises shall be the sole property of Lessor, free form any
claims of Lessee, and may be used by Lessor for whatever purpose Lessor may
desire.
Section 10.04. Abatement of Rent. Should Lessor elect under Section
10.02 to be required under Section 10.01 to repair and restore said premises to
their former condition following total or partial destruction of said premises
or the building on said premises:
(a) Lessee shall not be entitled to any damages for any
loss or inconvenience sustained by Lessee by reason
of the making of such repairs and restoration;
(b) Lessor shall have full right to enter said premises
and take possession of so much of said premises,
including the whole of said premises, as may be
reasonably necessary to enable Lessor promptly and
efficiently to carry out the work of repair and
restoration; and
(c) The rent payable by Lessee to Lessor pursuant to
Section 2.02 shall be abated prorate in the same
proportion that the square footage of the untenable
portion of the building comprising the leased
premises bears to the total square footage of the
building comprising the leased premises, to the
extent and for the time Lessee is prevented from
using the untenable portion of said premises.
ARTICLE 11. CONDEMNATION
Section 11.01. Total Condemnation. Should, during the term of this
lease or any renewal or extension thereof, title and possession of all said
premises be taken under the power of eminent domain by any public or
quasi-public agency or entity, this lease shall terminate as of 12:01 a.m. of
the date of actual physical possession of said premises is taken by the agency
or entity exercising the power of eminent domain and both Lessor and Lessee
shall thereafter be released from all obligations, except those specified in
Section 11.04 under this lease.
Section 11.02. Termination Option for Partial Condemnation. Should,
during the term of this lease or any renewal or extension thereof, title and
possession of only a portion of said premises be taken under the power of
eminent domain by any public or quasi-public agency or entity, Lessee may, at
Lessee's option, terminate this lease if more than forty-five percent (45%) of
the floor space
8
<PAGE> 9
or more than fifty-five percent (55%) of the value of said premises is taken
under the power of eminent domain. Lessee shall exercise his option by giving
written notice to Lessor within 30 days after actual physical possession of the
portion subject to the eminent domain power is taken by the agency or entity
exercising that power. This lease shall terminate as of 12:00 a.m. of the date
the notice is deemed given to Lessor but the rent specified in Section 2.01
shall be reduced in the manner specified in Section 11.03 from the date of
taking to the date of termination of the lease.
Section 11.03. Partial Condemnation Without Termination. Should Lessee
fail to exercise the option described in Section 11.02 or should the portion of
said premises taken under the power of eminent domain be insufficient to give
rise to the option described in Section 10.02, then, in that event:
(a) This lease shall terminate as to the portion of said
premises taken by eminent domain as of 12:01 a.m. of
the date, herein called the "date of taking", actual
physical possession of that portion of said premises
is taken by the agency or entity exercising the power
of eminent domain;
(b) The rent specified in Section 2.01 shall, after the
date of taking, be reduced by an amount that bears
the same ration to the rent specified in Section 2.01
that the square footage floor space of the portion of
said premises taken under the power of eminent domain
bears to the total square footage floor space of said
premises as of the date of this lease; and
(c) Lessor, at Lessor's own cost and expense, shall
remodel and reconstruct the building remaining on the
portion of said premises not taken by eminent domain
into a single efficient architectural unit as soon
after the date or taking, or before, as can be
reasonably done; provided, however, that the rent
specified in this lease shall be abated or reduced,
except as provided in subparagraph (b) of this
section, during such remodeling and reconstruction.
Section 11.04. Condemnation Award. Should, during the term of this
lease or any renewal or extension thereof, title and possession of all or any
portion of said premises be taken under the power of eminent domain by any
public or quasi-public agency or entity, the portion of the compensation or
damages for the taking awarded to each of the parties to this lease shall belong
to and be the sole property of the party to whom it is awarded. Lessee shall be
entitled to that portion of the compensation or damages awarded for the eminent
domain taking that represents: (1) the reasonable value of Lessee's rights under
this lease for the unexpired term of this lease and (2) the cost or loss
sustained by Lessee because of the removal of Lessee's merchandise, trade
fixtures, equipment, and furnishings from the portion of said premises taken by
eminent domain.
9
<PAGE> 10
ARTICLE 12. MISCELLANEOUS
Section 12.01. Notices and Addresses. All notices provided to be given
under this agreement shall be given by certified mail or registered mail,
addressed to the property party, at the following addresses:
Lessor: GREENWOOD ICC REALTY, LLC
1155 W. Third Street
Bloomington, Indiana 47403
Lessee: FIRST STATE BANK
1266 N. Madison
Greenwood, Indiana 46142
Section 12.02. Parties Bound. This agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, legal representatives, successors, and assigns when
permitted by this agreement.
Section 12.03. Applicable Law. This agreement shall be construed under
and in accordance with the laws of the State of Indiana.
Section 12.04. Legal Construction. In case any one or more of the
provisions contained in this lease shall for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof and this lease
shall be construed as if such invalid, illegal, or unenforceable provision had
never been contained herein.
Section 12.05. Sole Agreement of the Parties. This lease constitutes
the sold and only agreement of the parties hereto and supersedes any prior
understandings or written or oral agreements between the parties respecting the
subject matter within it.
Section 12.06. Amendment. No amendment, modification, or alteration of
the terms hereof shall be binding unless the same be in writing, dated
subsequent to the date hereof, and duly executed by the parties hereto.
Section 12.07. Rights and Remedies Cumulative. The rights and remedies
provided by this lease are cumulative and the use of any one right or remedy by
either party shall not preclude or waive its right to use any or all other
remedies. Said rights and remedies are given in addition to any other rights the
parties may have by law, statute, ordinance, or otherwise.
Section 12.08. Waiver of Default. No waiver by the parties hereto of
any default or breach of any term, condition, or covenant of this lease shall be
deemed to be a waiver of any other breach of the same or any other term,
condition, or covenant contained herein.
10
<PAGE> 11
Section 12.09. Attorney's Fees. In the event Lessor or Lessee breaches
any of the terms of this agreement whereby the party not in default employs
attorneys to protect or enforce its rights hereunder and prevails, then the
defaulting party agrees to pay the other party reasonable attorney's fees so
incurred by such other party.
Section 12.10. Excuse. Neither Lessor nor Lessee shall be required to
perform any term, condition, or covenant in this lease so long as such
performance is delayed or prevented by any acts of God, strikes, lockouts,
material or labor restrictions by any governmental authority, civil riot,
floods, and any other cause not reasonably within the control of the Lessor or
Lessee and which by the exercise of due diligence Lessor or Lessee is unable,
wholly or in part, to prevent or overcome.
Section 12.11. Exculpation of Lessor. If Lessor shall convey title to
the demised premises pursuant to a sale or exchange of property, the Lessor
shall be not liable to Lessee or any immediate or remove assignee or successor
of Lessee as to any act or omission from and after such conveyance.
IN WITNESS THEREOF, the undersigned Lessor and Lessee hereto execute
this agreement as of the date and year first written above.
"LESSOR" "LESSEE"
GREENWOOD ICC REALTY, LLC FIRST STATE BANK
By: /s/ M. D. Bishop By: /s/ Jerry R. Engle
----------------------------------- --------------------------------
Printed Name: M. D. Bishop Printed Name: Jerry R. Engle
------------------------- ----------------------
Title: Manager Title: President and CEO
-------------------------------- -----------------------------
This Instrument Prepared By:
Rebecca T. Robbins, Attorney at Law
BINGHAM SUMMERS WELSH & SPILMAN
320 W. 8th Street, Suite 121
Bloomington, Indiana 47404
(812) 332-4577
11
<PAGE> 12
EXHIBIT "A"
TRADE FIXTURES/LEASEHOLD IMPROVEMENTS
1 Diebold Sequential Switcher for security cameras
1 Diebold Time Lapse VCR for security cameras
1 Diebold Security Monitor
6 Diebold Security Cameras
2 Diebold Audio-Microphone Systems for Drive Thru's
2 Diebold Vacuum Cannister Chutes for Drive Thru's
3 Diebold Cash Guard Safes, measuring @ 3-1/2'W x 6'H x 2-1/2' Deep*
1 NCR (National Safe Corporation) ATM Machine**
Model #1783-0999-9090 Serial #85-17825979
1 Diebold Cabinet Safe #17423A, measuring @ 3'H x 1'12'W x 1'1/2' Deep
1 National Safe Corporation Safe, measuring @ 3'H x 3"W x 2" Deep
Model #17-432325, Type TL-15 Chest
Serial #N-10236-2-717
*Purchased two of these for $750.00.jrc
**Lessor grants permission for Lessee to dispose of this item at Lessee's
expense.mdb
<PAGE> 13
EXHIBIT "B"
LEGAL DESCRIPTION
Parcel 1:
A part of the Northwest Quarter of Section 29, Township 14 North, Range 4 East,
in Johnson County, Indiana, described as follows:
Starting at the Northwest corner of said Northwest Quarter, thence North 88
degrees 46 minutes East and along the North line of said Northwest Quarter
748.80 feet, thence South 14 degrees 40 minutes East 247.40 feet to the place of
beginning, thence North 75 degrees 20 minutes East 172.70 feet to the Westerly
right of way line of State Road 431, thence South 14 degrees 40 minutes East and
along said right of way 180.70 feet, thence South 75 degrees 20 minutes West
215.00 feet, thence North 14 degrees 40 minutes West 156.30 feet, thence North
45 degrees 20 minutes East 48.84 feet to the place of beginning, containing in
all 38,333 square feet or 0.88 acres, more or less.
Parcel 2:
Non-Exclusive easement for ingress and egress as set out in Declaration of
Greenwood Center and Wayne Enterprises Incorporated of Reciprocal Easements, by
instrument recorded July 24, 1974 in Deed Record 201, page 817.
<PAGE> 1
EXHIBIT 10.8
LEASE
[Commercial Lease]
THIS LEASE, made and entered into this 12th day of April, 19__, by and
between M. KENTON and LINDA S. FRANKLIN (hereinafter called "Landlord") and
FIRST STATE BANK (hereinafter called "Tenant");
WHEREAS, both Landlord and Tenant represent they each have full right,
power and authority to make and perform the agreements herein set forth.
NOW, THEREFORE, in consideration of the rents and agreements of the
parties hereinafter set forth, Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord certain premises hereinafter referred to, all on the
terms and conditions as follows:
SECTION 1. LEASED PREMISES
The Landlord is the owner of a tract of land commonly known as THE
PRESTIGE SHOPPES (hereinafter called "Building"), located at 996 S. St. Rd. 135,
Greenwood, Johnson County, Indiana, and being more particularly described in
Exhibit "A", attached hereto and made a part hereof. The Landlord hereby lets
and leases to the Tenant, and Tenant hereby leases from the Landlord, that
portion of Building as shown on the plot plan, marked Exhibit "B", attached
hereto and made a part hereof, such premises having a gross area of
approximately 5000 square feet. The gross area is measured from the outside of
the exterior walls and the center of interior walls. Building shall include the
entire building as shown on Exhibit "B" and the parking areas, walkways, lights
(if any), driveways and any other facilities located upon the Exhibit "A" real
estate.
The Landlord expressly reserves the right to change or modify the
facilities of the Building and any and all plans with respect to the location of
areas leased to other Tenants, but the general character of the Building shall
not be changed. The Tenant agreed that exercise of such reserved rights by the
Landlord shall not affect or change this Lease or invalidate the same so long as
the Leased Premises shall have the floor space contemplated by this agreement
and shall be the approximate location indicated by Exhibit "C" hereto. The
premises to be leased pursuant to this agreement are hereinafter referred to as
the "Leased Premises."
A. CONSTRUCTION
The Building and Leased Premises shall be constructed by Landlord in
substantial accordance with plans and specifications attached hereto and made a
part hereto and marked Exhibit "D". Landlord reserves the right to make changes
in Exhibit "D" or substitute comparable material and/or specifications so long
as Landlord does not materially reduce or affect its obligations to Tenant as
set forth in said Exhibit.
Tenant covenants and agrees to provide Landlord with finished plans and
specifications relative to Tenant's layout and design, ceiling height and
light(s) location, toilet location and size,
<PAGE> 2
color code, door(s) location, electrical and plumbing specifications and
location, and any applicable specification(s) within 30 days from the date of
this Lease. If, the Leased Premises are not ready for occupancy on or before
April 15, 1999 because of material non-performance of Landlord's obligations as
set forth in Exhibit "D" such that Tenant cannot do its own work and Landlord
has been given thirty (30) days advanced written notice stating precisely what
work needs to be completed and said claim by Tenant is valid and not corrected
within said thirty (30) days and Tenant is not in violation of the foregoing
covenants and agreement, Tenant shall have an option for a period of 15 days
thereafter to cancel and terminate this Lease by written notice to Landlord.
However, if the thirty (30) days, or any part thereof, following Tenant's Notice
to Landlord setting forth that act of material non-performance, go beyond April
15, 1999, then said date of cancellation shall be extended to coincide with that
portion of the thirty (30) days extending beyond the original date of
cancellation.
If, for any reason, Landlord is unable to deliver the Leased Premises
ready for occupancy on or before April 15, 1999 by reason of strikes, lockouts,
casualties, acts of God, shortages of labor or of materials, governmental
regulations or controls, or other similar or dissimilar causes beyond Landlord's
control, then for a period of 60 days thereafter, Landlord shall have an option
to cancel and terminate this Lease by written notice to Tenant. In the event
that either party shall have any liability in damage or otherwise to the other,
and any money deposited hereunder by Tenant shall be returned to Tenant. In the
even that neither Landlord nor Tenant shall cancel and terminate this Lease
within the respective time limit, the same shall continue in full force and
effect. Failure of the contractor or contractors to complete any buildings at
the time specified in such contract or contracts shall not give rise to any
claim by Tenant against such contractor.
Failure of Landlord to deliver possession of the Lease Premises at the
time and in the condition required by this Lease shall postpone the date of the
commencement of the term and extend the date of the expiration of the term. In
such event, for the purpose of computing the term of this Lease, the
commencement date shall be first day of the month following the first to occur
of (a) 60 days after delivery of possession, of (b) Tenant opens for business.
The parties shall affix to this lease the date reflected above which thereafter
shall be known as the Commencement Date.
B. CONDITION OF CONSTRUCTION FINANCING
This Lease and the obligation of the Landlord hereunder to construct
improvements on and to the N/A (of which the portion is the aforementioned
"Leased Premises") is conditional and dependent upon the Landlord's ability to
obtain a construction loan and mortgage commitment for the payment of the cost
of construction of said improvements. The terms and provisions of this Lease
must be approved by any such financial institution as may do such financing. If
any such financial institution should require as a condition of such financing
as Landlord may desire, any modification of the terms and provisions of this
Lease, and if Tenant should refuse to approve and execute any modifications that
are required, then the Landlord shall have the right by notice to the Tenant to
cancel this Lease. By that, such loan and mortgage commitment shall be in the
form and terms as are satisfactory to Landlord and Landlord shall have the
period of ninety (90) days from the
2
<PAGE> 3
date herein in which to secure such loan and mortgage commitment. However, upon
Landlord's failure to secure both of same, then and in that event, this Lease
shall become canceled and be of no force or effect and neither the Landlord nor
Tenant shall have any liability hereunder or to each other. Tenant agrees to
provide financial statements, or other information as required by Landlord's
Lender.
C. EARLY OCCUPANCY AND COMMENCEMENT DATE
1. Early Occupancy. Tenant may occupy the premises rent free for a
period of 90 days without payment of rent after Tenant is notified that the
premises are ready for occupancy for the sole purpose of performing Tenant's
work of making the installations of Tenant's trade fixtures provided that such
activities do not interfere with the completion of Landlord's construction work.
Landlord shall have no liability or responsibility for loss or damage to
Tenant's work, fixtures, equipment or other personal property installed or
placed on the premises by Tenant.
Occupancy by Tenant prior to the beginning date of the Lease term shall
be subject to the terms and conditions of this Lease during such period. By
occupying the Leased Premises and opening for business Tenant formally accepts
the same and acknowledges that they are in the condition called for hereunder.
2. Commencement Date. The Commencement Date of this Lease shall be (a)
the first day of the calendar month following thirty (30) days after the date
the premises are ready for occupancy or (b) the first day of the calendar month
following the day the Tenant shall open the Leased Premises for business,
whichever date shall occur first. The Landlord shall give a written notice to
the Tenant thirty (30) days or more prior to the date when the Leased Premises
will be ready for occupancy as hereinafter defined. During said thirty (30) days
or more prior to the Commencement Date, the Tenant shall commence and diligently
and expeditiously perform and complete the work to be performed by the Tenant as
set out and described in Exhibit "__" attached hereto. The Tenant shall open the
Leased Premises for business on or before the Commencement Date.
SECTION 2. TERM.
The Tenant shall have and hold the Leased Premises with the rights,
privileges, easements and appurtenances thereto attaching and belonging, for a
term of 5 (months)(years) beginning on the Commencement Date (hereinafter
defined) and extending for 5 (months)(years) from such date, unless sooner
terminated by the Landlord as herein provided.
SECTION 3. RENT.
Tenant shall pay to Landlord a minimum rental of Forty Seven Thousand
Five Hundred Dollars ($47,500) per year during the Term of this Lease, to be
paid in advance, in equal monthly
3
<PAGE> 4
installments of Three Thousand Nine Hundred Fifty Eight 33/100 Dollars
($3958.33) each, on the first day of each calendar month during the Term of this
Lease
The rental for any fraction of a month at the beginning or expiration
of this Lease shall be computed on a per diem basis, payable at the beginning of
such fractional period.
ADDITIONAL RENTAL. Beginning on the 1st anniversary date of the
commencement date of this Lease, and on each anniversary date thereafter during
the term hereof, the rental reserved in Section 3 hereof shall be increased by
an amount which reflects any increase in the "Consumer's Price Index, United
States Average - All Items and Food", published by the U.S. Department of Labor,
Bureau of Statistics,. The amount of the increased rental for such year shall be
arrived at by multiplying the rental set forth in Section 3 by a fraction, the
numerator of which shall be the Index number for the month which precedes the
applicable anniversary date, and the denominator of which shall be the Index
number for the month preceding the Commencement Date. The increased monthly
rental shall be paid in advance, in equal monthly installments on the first day
of each calendar month during the applicable year. Notwithstanding anything
herein contained which may be construed to the contrary, at no time shall the
minimum rental be less than the minimum rent set forth in Section 3 above.
ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord of
a lessor amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any endorsement
or statement on any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy in this Lease provided.
LATE RENT PENALTY FEE. In the event rent should not arrive at
Landlord's designated office address on the due date as specified herein, as
evidenced by the United States Mail cancellation notice on the envelope, or if
delivered by any other means according to the date received by Landlord, Tenant
shall pay an amount equivalent to five percent (5%) of the monthly Rent as a
Late Rent Penalty Fee. Said Late Rent Penalty Fee shall be sent along with late
Rent accrued in accordance with Covenants, or separately as invoiced by Landlord
within five (5) days from receipt for said invoice and shall be treated as Rent
and be subject to the provisions herein.
DISHONORED CHECK PENALTY FEE. If Tenant pays Rent due, penalties or any
other charges due herein by check, and the check is returned for "Insufficient
Funds", or otherwise dishonored Tenant shall:
(a) pay a fifty dollar ($50.00) Dishonored Check Penalty Fee, for
each and every occurrence of a dishonored check;
(b) pay the Late Rent Penalty Fee, in accordance with Paragraph 3
above; and
4
<PAGE> 5
(c) pay Rent, to be accepted by Landlord, only by cashier's check,
money order or cash for the balance of the Term.
All aforementioned payments shall be treated as Rent and be subject to
the provision herein.
SECTION 4. USE AND CARE OF LEASED PREMISES
USE OF LEASED PREMISES. The Leased Premises shall be used and occupied
by Tenant for Banking Business and with the written consent of Landlord for such
other lawful purposes as do not conflict with the business of other Tenants,
which consent shall not be unreasonably withheld.
USE OF COMMON AREAS, WASTE AND CONFORMANCE WITH LAWS
(a) USE OF COMMON AREAS. Tenant, its agents, employees, customers and
invitees shall enjoy full use of the common areas and parking lot
adjoining the Leased Premises. Tenant agrees to comply with
published rules of Landlord as to the use of these common areas
as may now exist or may from time to time exist.
(b) WASTE. Tenant shall commit no waste or damage upon or to the
Leased Premises nor perform any acts or carry on any practices
which may injure the Leased Premises or be a nuisance or danger
to others. Tenant shall retain control over the Leased Premises
and keep same in a neat, clean, and orderly condition and shall
conduct its business therefrom in a careful and safe manner.
DUMPSTER REQUIRED - Each Tenant to maintain an 8 cu.yd. dumpster
at the site designated by Landlord.
(c) CONFORMANCE WITH LAWS. Tenant covenants and agrees that it will
not, nor permit any person to use the Leased Premises or any part
thereof for any purpose in violation of the laws, rules,
regulations and ordinances of the Federal, State and local
governments and any agencies or subdivisions thereof as well as
of any other competent authority relating to the use of the
Leased Premises, including without limitation, matters relating
to the Environment.
SECTION 5. SURRENDER AND HOLDOVER
Upon the expiration or sooner termination of this Lease, Tenant shall
surrender to Landlord the Leased Premises, together with all other property
affixed to the Leased Premises (excepting trade fixtures) broom clean and in the
same order and condition in which Tenant received the, the effects of ordinary
wear, acts of God, casualty, insurrection, riot or public disorder excepted.
Unless an event of default as hereinafter defined has occurred and remained
uncured, Tenant shall prior to the expiration of the term remove all of Tenant's
trade fixtures and personal property from the Leased Premises. Any damage to the
Leased Premises caused by such removal shall be repaired by Tenant prior to the
expiration of the term. At Landlord's option, if Tenant fails to remove such
trade fixtures and personal property then the same shall be deemed the property
of Landlord. If Tenant
5
<PAGE> 6
shall remain in possession of all or any part of the Leased Premises after the
expiration of the term of this Lease, with the consent of the Landlord, then the
Tenant shall be a Tenant from month to month at the same rental and subject to
all of the other applicable covenants, terms and conditions hereof.
All alterations, additions, improvements, and fixtures, including
lighting fixtures, ducts, controls diffusers, filters, or other equipment for
distribution of hearing or cooling, other than trade fixtures, which may be made
or installed by either of the parties hereto upon the Leased Premises, and which
in any manner are attached to the floors, walls or ceilings, shall become the
property of the Landlord at the termination of this Lease and shall remain upon
and be surrendered with the Leased Premises as a part thereof, without
disturbance, molestation or injury. Any linoleum or floor covering of similar
character, which may be cemented or otherwise adhesively affixed to the floor of
the Leased Premises shall be and become the property of the Landlord absolutely
upon the termination of this Lease. During the term of this Lease the Tenant
shall not remove or damage the above-describe improvements and fixtures without
the written consent of the Landlord.
SECTION 6. ASSIGNMENT AND SUBLETTING
(a) Assignment by Landlord. The Landlord may, at any time without
Tenant's consent, assign its interest in this Lease.
(b) Assignment and Subletting by Tenant.
(i) Consent Required. Tenant will not assign this Lease in
whole or in part nor sublet all or any part of the
premises, nor license concessions or lease departments
therein, without the written consent of landlord first
obtained. Consent by Landlord to any assignment or
subletting shall not constitute a waiver of the necessity
for such consent to any subsequent assignment or
subletting. This prohibition against assigning or
subletting shall be construed to include a prohibition
against the Leased Premises or any part thereof by underlet
or occupied by anybody other than Tenant, Landlord may
collect rent from the assignee, under Tenant or occupant,
and apply the net amount collected to the rent herein
reserved, but no such assignment, underletting, occupancy
or collection shall be deemed a waiver of this covenant, or
the acceptance of the assignee, under Tenant or occupancy
as Tenant, or a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant
herein contained. Notwithstanding any assignment or
sublease, Tenant shall remain fully and primarily liable on
this Lease and shall not be released from performing any
part of the terms, covenants and conditions of this Lease.
(ii) Special Requirements When Tenant is a Corporation. If at
any time during the term of this Lease, Tenant is a
corporation (either as the named Tenant
6
<PAGE> 7
herein or by virtue of an assignment pursuant to the terms
and conditions of this Lease), no part or all of the
corporate shares of Tenant shall be transferred by sale,
assignment or operation of law so as to result in a change
of the existing effective voting control of Tenant by the
person or persons owning a majority of said corporate
shares without Landlord's consent.
SECTION 7. ALTERATIONS, SIGNS AND MAINTENANCE OF LEASED PREMISES
A. ALTERATIONS
No remodeling, additions, alterations, structural changes,
installations, nor any painting (hereinafter in this paragraph collectively
referred to as "WORK") shall be performed in or on Premises by Tenant without
Landlord's prior written consent. In the event said consent is given, all WORK
shall be performed in a workmanlike manner by licensed contractors or workmen.
Tenant shall carry and shall cause its contractors or workmen to carry such
worker's compensation, general liability, personal and property damage insurance
as Landlord amy reasonably require. Tenant is responsible for securing any
necessary permits, and certificates of final approval thereof, and shall see
that all WORK so that it does not unreasonably interfere with the rights of
other Tenants.
Tenant shall not permit any Statement of Intention to Hold Mechanic's
Lien, whether asserted under and pursuant to the Indiana Mechanic's Lien Laws or
otherwise, to become attached to or filed against the real estate or any part
hereof nor against any interest or estate therein by reason of any labor,
services, equipment or materials claims to have been performed or furnished to
or for Tenant in connection with any WORK whether with or without Landlord's
written approval. If such Statement of Intention to Hold Mechanic's Lien shall
be filed, Landlord shall:
(a) have the right to compel the prosecution of an action for the
foreclosure of such Mechanic's Lien by the lienor. If such
Statement of Intention to Hold a Mechanic's Lien shall be filed
and action commenced to foreclose the lien, Tenant upon demand by
Landlord, within ten (10) days of receiving notice, shall cause
the lien to be released by filing of a written undertaking with a
surety approved by the Court and by obtaining an Order from the
Court releasing the property from such a line; and/or
(b) have the right, but no obligation to pay the amount of such lien
to cause its release, and such amount shall be considered
additional Rent to be paid to it by Tenant on demand, and subject
to the provisions herein, with interest at eighteen percent (18%)
per year, or the maximum amount then allowed by any Indiana Usury
Laws, from the day of recording of lien.
Nothing in the Lease shall be deemed or construed to constitute a
consent to or request to any party for the performance of any labor or services
or the furnishing of any materials for WORK for
7
<PAGE> 8
Building or Premises nor to giving Tenant the right or authority to contract
for, authorize or permit the attaching of a valid Mechanic's Lien.
Tenant shall indemnify and hold Landlord harmless from ad against any
and all loss, damages, claims, liabilities, cost or expense, including without
limiting the generality of the foregoing, Legal Fees as described in Section
22(b) of the Lease, arising out of, or in connection with, Tenant's control or
use of the real estate, and resulting from any such liens which may be made or
filed, regardless of merit.
Any and all fixtures and equipment installed by Tenant may be removed
by it at the termination of Lease, or any extended Term thereof, provided that
Tenant shall repair any and all damage caused to Premises by the removal of any
such fixtures and equipment, restore the condition of Premises to the condition
in which it existed on Commencement Date, ordinary wear and tear excepted, and
provided that Tenant be no in default in the performance of any covenants
herein. All other improvements to Premises and all other fixtures attached
thereto shall be and become the property of Landlord, and remain on Premises
without compensation to Tenant.
B. MAINTENANCE AND REPAIRS
(a) Landlord's Responsibility. Landlord shall keep in good order,
condition and repair, the exterior foundations, exterior walls
(except the interior faces thereof), downspouts, gutters and roof
of the Premises, (but excluding the exterior and interior of all
windows, doors, and plate glass), excluding any damage thereto
caused by Tenant, its agents or invitees.
(b) Tenant's Responsibility. Tenant shall keep and maintain the
Premises and every part thereof, and the exterior and interior
portions of all doors, windows, and plate glass surrounding the
Premises and the store front in good order, condition and repair,
including, without limitation, all plumbing, and sewage
facilities, fixtures, interior walls, floors, ceilings, signs and
all interior building appliances and similar equipment, except
for reasonable use and wear and tear. Tenant shall also maintain,
repair, replace and be responsible for all fixtures, including
water, sewer, electrical, sprinkler (if any), heat and air
conditioning serving the Leased Premises. Tenant shall
immediately report to Landlord, in writing, any defective
condition known which the Landlord is required to repair and
failure to do so by Tenant shall make Tenant liable for the same.
C. COMMON AREA OF DEVELOPMENT
Landlord agrees to maintain parking areas, sidewalks, driveways and to
keep the common areas reasonably clear of snow and debris and to provide proper
supervision of such areas as necessary and adequately to illuminate the parking
and sidewalk areas during normal business hours. The manner in which such areas
and facilities shall be maintained and the expenditure therefor shall
8
<PAGE> 9
be at the sole discretion of the Landlord, and the use of such areas and
facilities shall be subject to such reasonable regulations as the Landlord shall
make from time to time.
Tenant shall not use the common area of the Development or walks
adjacent to the Leased Premises for any display or storage or merchandise or use
such common areas in any way that would interfere with the use of such areas by
the public or others without the express written consent of the Landlord.
Tenant agrees to pay upon demand, in addition to the rent set forth
herein, a proportionate share of the cost of the operation of the parking and
other common areas of the Development but excluding areas rented or occupied by
other Tenants. Such costs shall include, but not be limited to, costs for
lighting and other utilities, landscaping, cleaning, snow removal, insurance,
line painting, policing, supervision, maintenance, and repairs. Such costs of
operation and maintenance shall not include taxes, assessments or depreciation
of permanent improvements, but shall include payroll taxes of every nature paid
on account of payments made by Tenant pursuant to this Section. The
proportionate share to be paid by Tenant shall be computed on the basis of the
ratio that the gross area of the Leased Premises bears to the total gross area
of all buildings in Prestige Shoppes leased to Tenants. Tenant shall pay its
proportionate share monthly in advance (based upon a reasonable estimate of the
costs to be incurred subject to an annual adjustment when the exact costs of
Tenant's exact proportionate share are computed) but at a rate of not less than
$690.00 per month.
D. DESTRUCTION
If the Leased Premises should be damages or destroyed by fire or other
cause to such an extent that the cost of repair and restoration would exceed
thirty percent (30%) of the amount it would cost to replace the Leased Premises
in its entirety at the time such damage or destruction took place, then Landlord
shall have the right to cancel this Lease by giving Tenant notice of such
election within thirty (30) days after the occurrence of such damage or
destruction and this Lease shall terminate as of fifteen (15) days after the
date such notice is given. If Landlord fails to exercise this option to
terminate then Landlord shall at its expense promptly repair and restore the
Leased Premises to substantially the same condition they were in prior to the
damage or destruction.
If the Leased Premises should be damages or destroyed by fire or other
cause to such an extent that the costs of repair and restoration would be less
than thirty percent (30%) of the amount it would cost to replace the Leased
Premises in its entirety at the time such damage or destruction took place, then
this Lease shall not terminate and the Landlord shall at its expense promptly
repair and replace the Leased Premises to substantially the same condition they
were in prior to the damage or destruction.
If the Leased Premises are an integral part of a larger structure and
if the structure should be damaged or destroyed by fire or other cause to such
an extent that the cost of repair and restoration would exceed thirty percent
(30%) of the amount it would cost to replace the structure in its entirety at
the time such damage or destruction took place and notwithstanding that the
Leased Premises may
9
<PAGE> 10
be unaffected by such damage or destruction, then Landlord shall have the right
to cancel this Lease by giving Tenant notice of such election within thirty (30)
days after the occurrence of such damage or destruction and this Lease shall
terminate fifteen (15) days after the date such notice is given.
In the event the Leased Premises are damaged or destroyed the rents
herein provided, or a fair and equitable portion thereof, shall be abated until
such time as the Leased Premises are repaired and restored. The term of this
Lease shall be extended for a period equal to the period during which there has
been a complete abatement of rent. The opinion of an architect or registered
engineering appointed by Landlord as to the costs of repair, restoration or
replacement shall be controlling upon the parties. Landlord's obligation to
restore or repair does not include fixtures or improvements installed or owned
by Tenant. The provisions of this Section are not intended to limit, modify or
release Tenant from any liability it may have or for damage or destruction.
E. INDEMNIFICATION OF TENANT
In the event the Landlord elects not to rebuild under the conditions of
Sub-paragraph D(1) of this Section, then the Landlord shall indemnify the Tenant
for the unamortized cost of the Tenant's leasehold improvements by paying to the
Tenant a sum of money which shall be determined by either:
(i) The depreciated amount at which such leasehold improvements are
carried on the Tenant's books; or
(ii) The depreciated amount as determined by multiplying the original
capital cost by a fraction, the numerator of which shall be the
number of years of the Leased Term that shall not have been
expired at the time of such damage, and the denominator of which
shall be the number of years of the Leased Term of this Lease
which shall not have expired at the time of making such
expenditures:
whichever sum is the lesser, and further providing that from such sum of
indemnity shall deduct an amount equal to that which the Tenant shall have
received or be receivable from insurance carried by it on such leasehold
improvements.
SECTION 9. CONDEMNATION, DAMAGES AND COMPENSATION
(a) Condemnation. If the entire Leased Premises, or such portion
thereof as will make the remainder unsuitable for the use
permitted by this Lease, is condemned by any legally constituted
authority, or if a conveyance or other acquisition in lieu of
such condemnation is made, then this Lease shall terminate as of
the date possession is required by the condemnor. If a portion of
the Leased Premises is condemned but the remainder is still
suitable for the use permitted by this Lease, this Lease shall
not terminate but a portion of the rent for the rest of the term
shall be abated in proportion to the amount of the Leased
Premises taken.
10
<PAGE> 11
(b) Damages and Compensation. All compensation paid in connection
with the condemnation shall belong to and be the sole property of
Landlord, except Tenant shall be entitled to any compensation
awarded for Tenant's trade fixture, personal property, and for
moving expenses.
SECTION 10. LANDLORD'S LIEN
To secure the payment of rent and the other liabilities of Tenant
hereunder, Tenant hereby grants to Landlord a security interest in all of
Tenant's personal property and fixtures (including without limitation, Tenant's
inventory and equipment, whether now or hereinafter acquired) which is now or
hereinafter located at the Leased Premises and in the proceeds thereof,
including tort claims and insurance (all hereinafter collectively referred to as
"Collateral"). Tenant represents that the Collateral will be used primarily in
conducting a business at the Leased Premises. Tenant shall not permit the
removal of any collateral from the Leased Premises, except in the ordinary
course of Tenant's business. Tenant authorizes Landlord to file financing
statements relating to the Collateral signed only by the Landlord. Upon the
occurrence of an Event of Default, Landlord shall have all the remedies of a
secured party available under Indiana law. These remedies include, without
limitation, the right to take possession of the Collateral and for that purpose
Landlord may enter upon any premises on which the collateral, or any part of it,
may be situated and remove it and Tenant shall hold Landlord harmless from any
liability sustained thereby, except through wanton or willful misbehavior.
Landlord may require that Tenant make the Collateral available to Landlord at a
place to be designated by Landlord which is reasonably convenient to both
parties. Unless the Collateral threatens to decline speedily in value or is of a
type customarily sold on a recognized market, Landlord shall give Tenant at
least ten (10) days' prior written notice of the time and place of any public
sale thereof or of the time at which any private sale or any other intended
disposition thereof is to be made. Expenses of retaking, holding, preparing for
sale, selling and the like shall include Landlord's reasonably attorneys' fees
and legal expenses.
SECTION 11. MECHANIC'S LIEN
Tenant shall not permit any Statement of Intention to hold a Mechanic's
Lien to be filed against the Leased Premises or any part thereof nor against any
interest or estate therein by reason of labor, services or materials claimed to
have been performed or furnished to or for Tenant. If such Statement of
Intention to hold a Mechanic's Lien shall be filed, Landlord at its opinion, may
compel the prosecution of an action for the foreclosure of such Mechanic's Lien
by the lienor. If any Mechanic's Lien or notice of claim thereof is filed
against the premises with respect to work, labor, or material furnished or to be
furnished to Tenant or anyone claiming under Tenant, Tenant shall, within thirty
(30) days from the date of filing, cause the same to be withdrawn, discharged,
or removed by deposit, bonding proceedings or otherwise. If Tenant fails to do
so, Landlord may do so, and may pay any judgment received by any such lienor.
Tenant shall immediately reimburse Landlord for all amounts paid (including
expenses) pursuant to this paragraph, which amount shall be additional rent and
immediately due. Nothing in this Lease shall be deemed or construed to
constitute consent to or request to any party for the performance of any labor
or services or the
11
<PAGE> 12
furnishing of any materials for the improvement, alteration or repairing of the
Leased Premises; nor as giving Tenant the right or authority to contract for,
authorize or permit the performance of any labor or services or the furnishings
of any material that would permit the attaching of a valid Mechanic's Lien.
SECTION 12. INDEMNIFICATION AND RELEASE
Regardless of whether or not separate, several, joint or concurrent
liability may be imposed upon Landlord, Tenant shall indemnify and hold harmless
Landlord from and against all damages, claims and liability arising from or
connected with Tenant's control or use of the Leased Premises, including without
limitation, any damage or injury to person or property. This indemnification
shall not include any matter for which the Landlord is effectively protected
against by insurance. If Landlord shall, without fault, become a party to
litigation commenced by or against Tenant, then Tenant shall indemnify and hold
Landlord harmless. The indemnification provided by this Section shall include
Landlord's legal costs and fees in connection with any such claim, action or
proceeding. Tenant does hereby release Landlord from all liability for any
accident, damage or injury caused to person or property on or about the Leased
Premises, whether due to negligence on the part of Landlord and notwithstanding
whether such act or omissions be active or passive. Landlord and Tenant do each
hereby release the other from all liability for any accident, damage or injury
caused to person or property, provided, this release shall be effective only to
the extent that the injured or damaged party is insured against such injury or
damage and only if this release shall not adversely affect the right of the
injured or damaged party to recover under such insurance policy.
SECTION 13. INSURANCE
(a) Landlord's Improvements. Landlord, throughout the Leased Term and
any extensions thereof, shall keep the building in which the
Leased Premises are located insured against loss or damage by
fire and such other risks as are usually and customarily covered
by extended coverage endorsements for the reasonable insurable
value thereof. Landlord shall furnish to Tenant certificates
evidencing the existence of such insurance upon request. Landlord
agrees to keep in force during the term of this Lease, at its own
expense, insurance protecting against loss of building,
Landlord's rental income, sign light standards and comprehensive
general and automobile liability and personal injury coverage.
Such policy shall be a one (1) year policy commencing with the
Commencement Date. In the event the premiums are increased upon
expiration and renewal, through the original insuring company or
otherwise, for any reason whatsoever, including without
limitation, an increase in the insurable value of the
improvements, Tenant agrees to pay its pro-rata share of the
increase in such insurance. Such proration to be based on the
ratio of square footage of the Leased Premises in relation to the
total amount of leasable area.
(b) Landlord's Public Liability Insurance. Landlord agrees to procure
and maintain during the Leased Term, and any extension thereof, a
policy or policies of insurance
12
<PAGE> 13
written by a responsible insurance company or companies assuring
Landlord and Tenant from any and all losses, claims, demands or
actions for injury to or death of any one person to the limit of
not less that $250,000.00 and for injury to or death of more than
one person in any one accident or occurrence to the limit of not
less than $500,000.00 and for damage to property in the amount of
not less than $500,000.00, made by or on behalf of any person,
firm or corporation arising from, related to, or connected with
the conduct and operations of the Common Area, and to furnish to
Tenant, upon reasonable request, certificates evidencing the
existence thereof.
(c) Tenant's Insurance.
(i) General. This Tenant only will not do or suffer to be done,
or keep or suffer to be kept, anything in, upon or about
the Leased Premises which will contravene Landlord's
policies insuring against loss or damage by fire or other
hazards (including, but not limited to, public liability)
or which will prevent Landlord from procuring such policies
in companies acceptable to Landlord. If anything done,
omitted to be done, or suffered to be done by Tenant, or
kept or suffered by Tenant to be kept in, upon or about the
premises or other property of Landlord, in companies
acceptable to Landlord, to be increased beyond the minimum
rate from time to time applicable to the premises for the
use or uses made thereof. Tenant will pay the amount of
such increase promptly upon Landlord's demand. Tenant
agrees that nothing shall be done or suffered or any
substance kept on the premises which will operate to
increase the fire hazard or to cause insurance rates
thereon to be increased. This insurance policy shall
contain a provision requiring ten (10) days notice to
Landlord prior to cancellation.
(ii) Tenant's Contents. It is specifically understood and agreed
that Landlord shall not be liable to Tenant or to any other
person for damage, loss or injury to property resulting
from the condition of the building as existing from time to
time, fire, casualty, steam, gas, electricity, water
leakage, bursting pipes, or resulting from any and all
reasons and causes whatsoever; Landlord is hereby released
from any subrogation claims which might be asserted by
Tenant's insurance carrier with respect to loss, injury or
damage to Tenant's property or the property of other
persons, and contents on or about the Leased Premises.
(iii) Tenant's Public Liability. Tenant shall procure and
maintain during the Lease Term and any extension thereof a
policy or policies of insurance written by a responsible
insurance company or companies (which may be written to
include the Leased Premises in conjunction with other
premises owned or operated by Tenant), assuring Landlord
and Tenant from any and all losses, claims, demands or
actions for injury to or death of any one person
13
<PAGE> 14
to the limit of not less than $1,000,000.00, made by or on
behalf of any person, firm or corporation arising from
related to, or connected with the conduct and operation of
Tenant's business in the Leased Premises, and to furnish to
Landlord, upon reasonable request, certificates evidencing
the existence thereof. This insurance policy shall contain
a provision requiring ten (10) days written notice to
Landlord prior to cancellation.
SECTION 14. UTILITIES
(a) Utility Services to the Premises. Landlord will provide the
necessary mains and conduits to furnish water, gas, telephone,
electricity and sewer service to the premises, and Landlord shall
pay water service and sewer charges, and Tenant shall pay all
regular and ordinary charges for gas, telephone, electricity, and
other utility services used on the premises by Tenant.
The Landlord shall not be liable for damages or otherwise should
the furnishing of any service by it to the Leased Premises be
interrupted by fire, accident, riot, strike, acts of God or the
making of necessary repairs or improvements or other cause beyond
the control of the Landlord.
The Landlord shall further not be responsible or liable to the
Tenant for any loss or damage which may be occasioned by or
through the acts or admissions of persons occupying the adjoining
premises or any part of the premises adjacent to or connected
with the Leased Premises (if any) or any part of the building of
which the Leased Premises are a part or for any loss or damage
resulting to the Tenant or his property from surface water or
from burst, stopped or leaking water, gas sewer or steam pipes.
(b) Maintenance of Utility Equipment. All utility equipment including
heating plant, air conditioning, electric, gas, water and
plumbing equipment, whether installed by Landlord or Tenant,
shall be maintained and kept in proper working condition by
Tenant, except for defects in manufacture or installation of such
equipment as installed by Landlord, and also, excepting any
substantial replacement of any such equipment or units made
necessary or desirable because of deterioration, obsolescence or
inadequacy, such replacements being made by Landlord at the sole
cost and expense of Landlord. All new equipment installed by
Landlord shall be guaranteed for a period of at least one (1)
year from the commencement date of the Demised Term.
SECTION 15. TAXES
(a) Leased Premises. Landlord shall pay all real estate taxes and
special assessments levied against the building(s) and/or common
areas.
14
<PAGE> 15
(b) Leased Premises. Tenant agrees to pay ten (10) days before
delinquent, all taxes, general and special assessments and other
public charges levied upon or assessed against the Leased
Property and all buildings, structures, fixtures or improvements
thereon which become payable from and after April 15, 1999, until
the expiration of this Lease.
Tenant shall exhibit to Landlord from time to time, upon Landlord's
written request, official receipts evidencing payment of same prior to the
delinquent date. Any such taxes assessed against the Leased property for the tax
year in which this Lease terminated shall be equitably prorated between the
parties hereto if the end of the term of this Lease does not coincide with the
end of the tax year.
Tenant shall have the right to execute in the name of Landlords and as
their attorney-in-fact such agreement or agreements or other instrument which
may be required or permitted by law to permit the payment of such taxes or
assessments in installments. But Tenant shall not be liable to pay any
installments not due at the end of this original or any renewed term after
occupancy of the Tenant has closed.
If Tenant fails to pay any such taxes, assessments or other public
charges which it is obligated to pay as provided in this Article before the same
become delinquent, then and in such event, Landlord may pay the same, together
with any interest and penalties thereon, and the amount so paid shall be deemed
rent immediately due and payable by Tenant to Landlord on demand, together with
interest thereon at the rate of twelve percent (12%) per annum.
Anything in this Article to the contrary notwithstanding, Landlord
agrees that Tenant shall have the right, at Tenant's sole cost and expense, to
contest the legality or validity of any of the taxes, assessments or other
public charges provided to be paid by Tenant, but no such contest shall be
carried on or maintained by Tenant after such taxes, assessments or other public
charges become delinquent unless Tenant shall have duly paid the amount involved
under protest or shall procure and maintain a stay of all proceedings to enforce
any collection thereof and any forfeiture or sale of the Leased Property, and
shall also provide for payment thereof together with all penalties, interest,
costs and expenses by deposit of a sufficient sum of money or by a good and
sufficient undertaking as may be required by law to accomplish such stay.
Landlord agrees that it will, at the request of Tenant, execute or join in the
execution of any instrument or documents necessary in connection with any such
contest except bonds or undertakings.
In the event any such contest is made by Tenant, Tenant shall promptly,
upon final determination thereof adversely to Tenant, pay and discharge the
amount involved or affected by, any such contest, together with any penalties,
fines, interest, costs and expenses that may have accrued thereon.
(c) Tenant's Property. Tenant will pay before delinquent any and all
taxes, assessments, license fees and public charges levied,
assessed or imposed and which become
15
<PAGE> 16
payable during the term hereof, and any extension thereof, upon
Tenant's fixtures, furniture, appliances and personal property
installed or located in the Leased Premises.
(d) Other Taxes. Nothing contained in this Lease shall require Tenant
to pay any franchise, corporate, estate, inheritance, succession,
capital levy, or transfer tax of Landlord or any income, profits
or revenue tax, or any other tax, assessment, charge or levy upon
the rent payable by Tenant hereunder; provided however, that if
at any time during the term of this Lease, under the laws of the
State of Indiana or any political subdivision thereof, a tax on
rents is assessed against Landlord on the minimum rent as a
substitution in whole or in part for taxes assessed by such State
or political subdivision on land and buildings, such tax shall be
deemed to be included within the amount which Tenant is required
to pay under this Article.
(e) Taxes Escalator Clause. The parties recognize that it cannot
presently be stated or anticipated with certainty as to what tax
changes may be made in the future with respect to taxes on or
attributable to the real estate, rentals, use and occupancy, or
rights and liabilities in connection therewith, which taxes may
be payable by Landlord. It is further agreed by the parties that
it is their intention that such additional taxes shall be
Tenant's obligations to pay. It is therefore agreed that the real
estate taxes as referred to herein shall include taxes payable by
Landlord as presently imposed on real estate in Marion County,
Indiana, any addition to such taxes, any successor tax in whole
or in part on gross rental receipts or net rental receipts or any
tax attributable to rentals, or otherwise. This paragraph shall
be liberally construed in order to effectuate the intentions of
the parties hereunder.
Tenant shall reimburse Landlord for all of Tenant's proportionate share
of increased in real estate taxes on the aforesaid in the manner hereinafter set
forth. The basic tax on which no reimbursement shall be made shall be the tax
payable for the year 1998, which year shall hereinafter be referred to as the
"Base Year". Tenant's proportionate share of the increases in real estate taxes
shall be the same percentage of all such increases in real estate taxes over the
amount of taxes payable for the Base Year as the percentage of Tenant's Leased
Premises gross area bears to the total building gross area. In the event that
the increase in the amount of such tax payable is because of an increase in
assessed valuation, Tenant shall have the right to appeal or contest such
increased assessment if it should desire to do so. Landlord agrees to execute
any and all documents necessary to authorize lessee to take any such action to
appeal or contest the assessed valuation placed upon the Leased Premises in the
name of Landlord. Any cost or expense, or any penalties that may be incurred as
a result of any such appeal or contest of the amount of the assessed valuation
shall be borne by Tenant. Any reimbursement due shall be payable within thirty
(30) days after certification of Tenant by Landlord of the amount required with
sufficient date on the calculation thereof to permit verification of the amount
due by Tenant.
16
<PAGE> 17
SECTION 16. EVENTS OF DEFAULT BY TENANT
(a) Any of the following shall be deemed an Event of Default.
(1) Failure of Tenant to pay any rental due hereunder within
five (5) days after the same shall be due;
(2) Any failure to perform any other of the terms, conditions
or covenants of this Lease to be observed or performed by
Tenant for more than thirty (30) days after written notice
of such default shall have been given to Tenant;
(3) If Tenant or any agent of Tenant, shall falsify any report
required to be furnished to Landlord pursuant to the term
of this Lease;
(4) If Tenant or any guarantor of this Lease shall become
bankrupt or insolvent, or file any debtor proceedings or
take or have taken against Tenant or any guarantor of this
Lease in any court pursuant to any statute either of the
United States or of any State, a petition in bankruptcy or
insolvency or for reorganization or for the appointment of
a receiver or trustee of all or a portion of Tenant's or
any such guarantor's property.
(5) If Tenant or any such guarantor makes an assignment for the
benefit of creditors, or petitions for or entered into an
arrangement;
(6) If Tenant shall abandon said premises; and
(7) If Tenant suffer this Lease to be taken under any writ of
execution.
(b) Default by Landlord. If Landlord shall default in the performance
of any of the covenants, duties or services herein agrees to be
observed or performed by Landlord and fails to cure such default
within thirty (30) days of written notice thereof from Tenant to
Landlord specifying the nature of said default, Tenant may, but
shall not be obligated to, perform or engage other to perform
same and may deduct reasonable costs from the lease rentals,
including penalties imposed by law and paid by Tenant, incurred
by Tenant in curing Landlord's default.
Limitation of Landlord Liability. Anything to the contrary herein
contained notwithstanding, if Landlord, its successors and
assigns, is a mortgagee, an individual, a joint venture, a
tenancy in common, a firm or partnership, general or limited, it
is specifically understood and agreed that there shall be
absolutely no personal liability on the part of the members of
such firm, partnership or joint venture with respect to any of
the terms, covenants, conditions and provisions of this Lease,
and Tenant shall look solely to the equity of Landlord, its
successors and assigns in
17
<PAGE> 18
the Exhibit "A:" for the satisfaction of each and every remedy of
Tenant in the event of any breach of Landlord, its successors and
assigns, or any of the terms, covenants, conditions and
provisions of this Lease to be performed by Landlord, such
exculpation of personal liability to be absolute and without any
exception whatever.
(c) Landlord's Remedies - Tenant Defaults
(1) Upon the occurrence of any Event of Default Landlord may,
at its option, in addition to any other remedy or right it
has hereunder or by law:
(i) Re-enter the Leased Premises, without demand or
notice, and resume possession by action in law or
equity or by force or otherwise and without being
liable in trespass or for any damages and without
terminating this Lease. Landlord may remove all
persons and property from the Leased Premises and
such property may be removed and stored at the cost
of Tenant.
(ii) Terminate this Lease at any time upon the date
specified in a notice to Tenant. Tenant's liability
for damages shall survive such termination. Upon
termination such damages recoverable by Landlord from
Tenant shall, at Landlord's option, be either an
amount equal to "Liquidated Damages" or an amount
equal to "Indemnity Payments".
"Liquidated Damages" means an amount equal to the
excess of the rentals provided for in this Lease
which would have been payable hereunder by Tenant,
had this Lease not so terminated, for the period
commencing with such termination and ending with the
date set for the expiration of the original term
granted (hereinafter referred to as "Unexpired
Term"), over the reasonable rental value of the
Leased Premises for such Unexpired Term.
"Indemnity Payments" means an amount equal to the
rent and other payments provided for in this Lease
which would have become due and owing thereunder from
time to time during the Unexpired Term plus the cost
and expenses paid or incurred by Landlord from time
to time in connection with:
(a) Obtaining possession of the Leased Premises;
(b) Removal and storage of Tenant's or other
occupant's property;
18
<PAGE> 19
(c) Care, maintenance and repair of the Leased
Premises while vacant;
(d) Reletting the whole or any part of the Leased
Premises;
(e) Repairing, altering, renovating, partitioning,
enlarging, remodeling or otherwise putting the
Leased Premises, either separately or as part
of larger premises, into condition acceptable
to, and reasonably necessary to obtain new
lessees; and
(f) Making all repairs, alterations and
improvements required to be made by Tenant
hereunder and of performing all covenants of
the Tenant relating to the condition of the
Leased Premises, less the rent and other
payments, if any, actually collected and
allocable to the Leased Premises or to the
portion thereof relet by Landlord. Tenant shall
on demand make Indemnity Payments monthly and
Landlord can sue for all Indemnity Payments as
they accrue.
(iii) Without terminating this Lease, relet the Leased
Premises without the same being deemed an
acceptance of a surrender of this Lease or a waiver
of Landlord's rights or remedies and Landlord shall
be entitled to Indemnity Payments, as heretofore
defined, from Tenant. Any reletting by Landlord may
be for a period equal to or less than, or extending
beyond the remainder of the original term, or for
the whole or any part of the Leased Premises,
separately or with other premises or for any sum,
or to any lessee or for any use Landlord deems
appropriate.
(2) Upon the occurrence of any of the following:
(i) The filing of a voluntary petition in bankruptcy
Tenant.
(ii) The filing of a petition or answer by Tenant seeking
a reorganization, arrangement, composition,
readjustment, liquidation, dissolution or other
relief of the same or different kind under any
provision of the Bankruptcy Act.
(iii) An adjudication of Tenant as a bankrupt or insolvent.
19
<PAGE> 20
(iv) The appointment of a trustee, receiver, guardian,
conservator or liquidator of Tenant with respect to
all or substantially all of its property.
This Lease shall terminate ipso facto as of such occurrence and
the Leased Premises shall be surrendered as required by Section
5. Tenant's liability for damages shall survive such termination
and Landlord shall be entitled to recover an amount equal to
Liquidated Damages as defined above or an amount equal to the
maximum allowed by any statute or rule of law in effect at the
time when and governing the proceedings in which such amount is
sought, whichever is less.
(d) Cumulative Remedies. All remedies herein are cumulative, and
given without impairing any other rights or remedies of Landlord,
and Tenant shall pay and discharge all costs, expenses, and Legal
Fees as contained in Lease that shall arise from enforcing
Covenants by Landlord.
SECTION 17. WAIVER.
The waiver by either party of any term, covenant or condition herein
contained shall be in writing, and a waiver in one instance shall not be deemed
to be a waiver of such term, covenant or condition in the future, or any
subsequent breach of the same or any other term, covenant or condition herein
contained. The subsequent payment or acceptance of rent or other performance
hereunder by Landlord or Tenant, as the case may be, shall not be deemed to be a
waiver of any preceding breach at the time of such payment or acceptance of such
rent or other performance, unless the party against whom the waiver is sought to
be enforced shall have specifically so stated in writing. No payment by Tenant
or receipt by Landlord of a different amount than the actual rent due shall be
other than on account of the earliest payments actually due, nor shall any
endorsement or statement on any check or receipt or in any letter accompanying
any check or other payment or any receipt thereafter give rise to an accord and
satisfaction and Tenant may tender or pay, and Landlord may accept and deposit
such check or payment without prejudice to either party's right to recover any
overpayment or the balance of such rent, or any damages by way of offset,
counterclaim or otherwise, or to pursue any other remedy under this Lease.
SECTION 18. QUIET ENJOYMENT
Upon payment by the Tenant of the rents herein provided, and upon the
observance and performance of all the covenants, terms and conditions on
Tenant's part to be observed and performed, Tenant shall peaceably and quietly
hold and enjoy the Leased Premises for the term hereby leased without hindrance
or interruption of Landlord or any other person or persons lawfully or equitably
claiming by, through or under the Landlord, subject, nevertheless, to the terms
and conditions of this Lease.
20
<PAGE> 21
SECTION 19. SECURITY DEPOSIT
Tenant has deposited with Landlord the sum of One Thousand Dollars
($1,000.00), receipt of which is hereby acknowledged by Landlord. Said deposit
shall be held by Landlord, without liability for interest, as security and
conditions of this Lease to be kept and performed by Tenant during the Term. If
at any time during the Term of this Lease any of the rent shall be past due and
unpaid, or any other sum payable by Tenant to Landlord hereunder shall be past
due and unpaid, or in the event of the failure of Tenant to keep and perform any
of the other terms, covenants and conditions of this Lease to be kept and
performed by Tenant, then the Landlord at its option may appropriate and apply
the entire deposit, or so much thereof as may be necessary, to pay such past due
rent or other sums or to compensate the Landlord for loss or damage sustained or
suffered by Landlord due to such breach on the part of Tenant. Should the entire
deposit, or any portion thereof, be appropriated and applied by Landlord for the
payment of overdue rent or other sums due and payable to Landlord by Tenant
hereunder, then Tenant shall, upon the written demand of Landlord forthwith
remit to Landlord a sufficient amount in cash to restore said security to the
original sum deposited, and Tenant's failure to do so within five (5) days after
receipt of such demand shall constitute a breach of this Lease. Should Tenant
comply with all of said terms, covenants and conditions and promptly pay all of
the rent herein provided for as it falls due, and all other sums payable Tenant
to Landlord hereunder, the said deposit shall be returned in full to Tenant at
the end of the Term of this Lease, or upon the earlier termination hereof.
Landlord may deliver the funds deposited hereunder by Tenant to any purchaser of
Landlord's interest in the Leased Premises, in the event that such interest be
sold, and thereupon, Landlord shall be discharged from any further liability
with respect to such deposit.
SECTION 20. SUBORDINATION AND TENANT'S RIGHT OF NON-DISTURBANCE. RE:
MORTGAGES This Lease shall be subject and subordinate to all renewals,
modification, consolidations, replacements and extensions of any mortgages now
affecting, or any new mortgages hereafter placed upon the Demised Premises, or
any subsequent renewals, modifications, consolidations, replacements or
extensions of said mortgages; and to any purchase money mortgage which Landlord
may take back as part of the consideration for any bona fide sale by Landlord of
the Demised Premises, and to all renewals, modifications, replacements,
consolidations or extensions thereof; provided, however, all such mortgages
shall recognize this Lease and shall leave Tenant's right of possession, use and
occupancy undisturbed if Tenant is not then in default under this Lease. Subject
to Tenant's right of non-disturbance, no instrument or act on the part of Tenant
shall be necessary to effectuate the subordination herein provided for. Tenant
will, nevertheless, execute and deliver such further instruments subordinating
this Lease to the lien of any such mortgages as may be desired by the mortgagee,
subject to the foregoing right of non-disturbance. Notwithstanding Tenant's
obligation to execute appropriate instruments under this paragraph, Landlord is
hereby irrevocably appointed the attorney-in-fact for Tenant to execute such
instruments.
21
<PAGE> 22
SECTION 21. ACCESS TO LEASED PREMISES.
Landlord's Right to Entry. Landlord or Landlord's agents shall have the
right to enter the Leased Premises at all times to examine the same, and to show
them to prospective purchasers or Tenants of the building, and to make such
repairs, alterations, improvements or additions as Landlord may deem necessary
or desirable, and Landlord shall be allowed to take all material into and upon
said premises that may be required therefore without the same constituting an
eviction of Tenant in whole or in part and the rent reserved shall in no way
abate while said repairs, alterations, improvements or additions are being made,
by reason of loss of interruption of business of Tenant, or otherwise. During
the three (3) months prior to the expiration of the term of this Lease, or any
renewal thereof, Landlord may exhibit the premises to prospective Tenants or
purchasers, and place upon the premises the usual notices "To Let" or "For
Sale", which notices Tenant shall permit to remain thereon without molestation.
Nothing herein contained, however, shall be deemed or construed to impose upon
Landlord any obligation, responsibility or liability whatsoever, for the care,
maintenance or repair of the building or any part thereof, except as otherwise
herein specifically provided.
SECTION 22. GENERAL AGREEMENT OF PARTIES
1. Captions and Article Numbers. The captions and article numbers
appearing in this Lease are inserted only as a matter of convenience and are not
intended to define, limit, construe or describe the scope or intent of such
provisions. Whenever herein the singular number is used, the same shall include
the plural, and the masculine gender shall include the feminine and neuter
genders.
2. Relationship of Parties. Nothing contained herein shall be deemed or
construed by the parties hereto, nor by any third party, as creating the
relationship of principal and agent, or of partnership, or of joint venture,
between the parties hereto, it being agreed that neither the method of
computation of rents nor any other provisions named herein, nor any acts of the
parties herein, shall be deemed to create any relationship between the parties
hereto other than the relationship of Landlord and Tenant.
3. Time of Essence. It is understood and agreed between the parties
hereto, that time is of the essence in this contract and this applies to all
terms and conditions contained herein.
4. Fees and Commissions. The Tenant warrants that the Tenant has not
had any dealings with any realtor, broker or agent, in connection with the
negotiation of this Lease excepting only NONE and agrees to pay and hold the
Landlord harmless from any cost, expense or liability for any compensation,
commissions or charges claimed by any realtor, broker or agent (including, but
not limited to, those name above) with respect to this Lease and/or the
negotiation thereof.
5. Consents. Whenever provision is made in this Lease for either party
to secure the consent or approval of the other, such consent or approval shall
not be unreasonably withheld.
22
<PAGE> 23
6. Legal Fees and Expenses. If any legal action or proceeding is
brought for the enforcement of Lease or because of any alleged dispute,
negligence, breach, default or misrepresentation in connection with any
Covenants hereof, the successful or prevailing party shall be entitled to
recover all costs and expenses (hereinafter referred to as "Legal Fees")
incurred by it in such action or proceedings, including reasonable attorney's
fees, court costs and all expenses of investigation or otherwise, in addition to
any other relief to which such party may be entitled.
7. Advances and Interest. Upon the occurrence of any Event of Default,
Landlord may, if such default has not been cured, cure that default for the
account and at the expense of Tenant. If Landlord is curing such default is
compelled to pay or elects to pay any sum of money or do any acts which will
require the payment of any sum of money, the sum so paid or incurred shall be
reimbursed by Tenant upon demand by Landlord. All sums as to which Tenant is in
default of payment shall bear interest at the rate of Twelve percent (12%) per
annum until paid.
8. Law of Indiana Governs. The laws of the State of Indiana govern the
validity, performance and enforcement of this Lease. The invalidity or
unenforceability of any provisions of this Lease shall not affect or impair any
other provision.
9. Obligation to Execute Short Form Memorandum of Lease and other
Documents. Each party to Lease shall, from time to time, upon request by other
party, execute any additional documents within ten (10) days which may
reasonably be required to effectuate the purposes of Lease. This shall include,
but not be limited to:
(a) a recordable instrument in the form of a memorandum of Lease
which shall set forth the location or description of Premises,
Term, the Options, Commencement Date, Expiration Date and other
covenants hereof;
(b) an estoppel certificate wherein either party shall provide the
other with a signed statement indicating Lease is unmodified and
in full force and effect, or modified and in full force and
effect with modifications noted. Failure to provide this estoppel
certificate gives rise to a conclusive presumption that Lease is
in force and effect, and has or has not been modified only as
described by the party requesting the letter;
(c) any and all legal documents pertaining to transfer, assignment,
sublease, or other transfer of title or rights, in whole or part,
by Landlord to another party.
Cost of document preparation and recording, if required shall be borne
by party requesting such action.
10. Complete Agreement. This Lease represents the entire agreement
between Landlord and Tenant, unless expressly stated to the contrary in writing
and signed by both parties, and supersedes all prior negotiations,
representations or agreements, either written or oral. This Lease
23
<PAGE> 24
may be modified, amended or supplemented only by a written instrument signed and
dated by both Landlord and Tenant.
11. Notices. Any notices to be given hereunder shall be deemed
sufficiently given when in writing and (a) actually served on the party to be
notified or (b) placed in an envelope directed to the party to be notified at
the following addresses and deposited in the United States mail by certified or
registered mail, postage prepaid:
1. If to Landlord at: 4095 Mountbatton Drive, Greenwood, IN 46143
2. If to Tenant at:
----------------------------------------------
Such addresses may be changed by either party by written advise as to the new
address given as above provided. If there is more than one Tenant, their
obligation shall be joint and several.
12. Agreement Binding. The covenants, agreements and obligations herein
contained shall extend to, bind and inure to the benefit not only of the parties
hereto, but their respective personal representatives, heirs, successors and
assigns.
13. No Option. Submission of this Lease for examination or signature by
Tenant does not constitute a reservation or option for the Premises. This
instrument becomes effective as a Lease only upon execution and delivery by both
Landlord and Tenant.
14. Licenses, Easements. Tenant hereby grants Landlord the right to
exercise such licenses or easements in or over Premises or any portion or
portions thereof as shall be reasonably required for the installation of
maintenance of mains, conduits, pipers or other facilities to serve Building or
any part thereof, including, but not limited to, the premises of any other
Tenant thereof or to provide access to adjoining property(ies); provided,
however, that Landlord shall pay for the alteration required on Premises as a
result of any such exercise, and provided further that no such exercise shall
result in any unreasonable interference with Tenant's use, occupancy or
enjoyment of Premises as defined by Lease.
15. Keys and Locks. No additional locks shall be placed upon any door
of Premises, and Tenant shall not permit any duplicate keys to be made. If more
than two keys for any door are desired, the additional number must be procured
from Landlord and paid for by Tenant. Upon termination of Lease, Tenant shall
surrender all original and duplicate keys of the several doors and such other
things as pertain to Premises.
16. Force Majeure. If, after construction of the Premises, in the event
that either party hereto shall be delayed or hindered in or prevented from the
performance of any act required hereunder by reason of strikes, lock-outs, labor
troubles, inability to procure materials, failure of power, restrictive
governmental laws or regulations, riots, insurrection, war or other reason of a
like nature not the fault of the party delayed in performing work or doing acts
required under the terms
24
<PAGE> 25
of this Lease, then performance of such act shall be excused for the period of
the delay, and the period equivalent to the period of such delay. The provisions
of this paragraph shall not operate to excuse Tenant from prompt payment of
rent, percentage rent, additional rent or any other payments required by the
terms of this Lease, subject to rent abatement provisions of this Lease.
17. Title. Landlord warrants that they have a merchantable fee simple
title in and to the Demised Premises free and clear of all liens, easements,
restrictions and encumbrances and that they will provide Tenant, upon request,
the title proof to verify same.
18. Arbitration. In the event of difference or dispute arising between
Landlord and Tenant as to the construction of any portion of this lease, or as
to the rights or obligations of either of the parties, all such questions,
differences and disputes shall be determined by arbitration; and pending
arbitration between the parties, there shall be no cancellation or forfeiture of
this Lease.
In the event of such differences or disputes, either party may, by
written notice to the other, appoint an arbitrator. Within seven (7) days of the
sending of such notice, the other party must appoint its arbitrator. When the
two arbitrators have been appointed, they shall select a third arbitrator within
five (5) days, provided, however, that if no third arbitrator has been appointed
or agreed upon within a period of seven (7) days from the date of the
appointment of the second arbitrator, the third arbitrator may be appointed upon
application of either Landlord or Tenant by the presiding Judge of the Circuit
Court of Indiana and for the County of Johnson. Within ten (10) days after the
appointment of the third arbitrator, as provided herein, the arbitrators shall
meet and give each party hereto an opportunity to present their case, produce
witnesses and argument. The award of the majority of the arbitrators shall be
binding upon the parties hereto, and judgment may be entered thereon in any
Court having jurisdiction. Such award shall include the fixing of expense of the
arbitration and assessment of same against either or both of the parties.
19. Rules and Regulations. Attached hereto and by this reference
incorporated herein are Building Rules and Regulations which includes, but is
not limited to, exterior sign detail and limitations. Landlord shall have the
right, at any time or time hereafter, to adopt other or additional rules and
regulations as Landlord deems reasonably necessary for the safety and good order
of the Premises and in like manner Landlord shall give written notice to Tenant
of the adoption of any additional rules and regulations or amendments to any of
the Rules and Regulations attached. Tenant agrees that by the execution of this
lease to accept and agree to abide by the Building Rules and Regulations or
reasonable modifications or additions thereto during the Term of this Lease.
It is Landlord's desire to maintain within the property the highest
standard of dignity and good taste consistent with comfort and convenience for
Tenants. Any action or condition not meeting this high standard should be
reported directly to Landlord. Your cooperation will be mutually beneficial and
sincerely appreciated. The Landlord reserves the right to make such other and
further reasonable rules and regulations as in its judgment may from time to
time be needful, for the safety, care and cleanliness of the Leased Premises,
and for the preservation of good order therein.
25
<PAGE> 26
SECTION 23. OPTION TO RENEW. If Tenant shall comply with each of the
terms, provisions and conditions of the Lease, then Tenant shall have an option
to extend this Lease for two (2) additional consecutive terms of five years each
commencing at the expiration of the Leased Term or any extended term, subject to
the terms, covenants and conditions contained in this Lease, all of which shall
be applicable to such extension. Notice of intention to exercise any extension
above described shall be given by Tenant to Landlord in writing at least sixty
(60) days before expiration of the Leased Term or any extended term, and in
default thereof, all subsequent options to extend shall expire and shall be of
no effect.
The rent in the first year of the first year term shall be Forty-Seven
Thousand Five Hundred Dollars ($47,500) payable monthly in advance of the 1st of
each month at the rate of $3958.33 per month.
(Cost of Living Escalator)
Beginning on the 2nd anniversary date of the commencement date of this
Lease, and on each anniversary date thereafter during the renewal of the term
hereof, the rental reserved in this Lease shall be increased by an amount which
reflects any increase in the "Consumer's Price Index, United A/States Average -
All Items and Food", published by the U.S. Department of Labor, Bureau of
Statistics. The amount of the increased rental for such year shall be arrived at
by multiplying the rental set forth in introduction of this Lease by a fraction,
the numerator of which shall be the Index number for the month which precedes
the applicable anniversary date, and the denominator of which shall be the Index
number for the month preceding the Commencement Date. The increased monthly
rental shall be paid in advance, in equal monthly installments on the first day
of each calendar month during the applicable year. Notwithstanding anything
herein contained which may be construed to the contrary, at no time shall the
minimum rental be less than the minimum rent set forth in the introduction of
this Lease.
IN WITNESS WHEREOF, the parties have executed this Indenture of Lease
in several counterparts on the day and of the year first above written.
Landlord Tenant
/s/ M. Kenton Franklin FIRST STATE BANK
- --------------------------------------
M. Kenton Franklin
By: /s/ Jerry R. Engle
/s/ Linda Franklin ---------------------------------
- -------------------------------------- Jerry R. Engle, President and CEO
Linda Franklin
ATTEST:
----------------------------
26
<PAGE> 27
STATE OF INDIANA )
) SS:
COUNTY OF )
Before me a Notary Public in and for said County and State, personally
appeared _____________________________________, who acknowledged the execution
of the foregoing Lease.
Witness my hand and Notarial Seal this ____ day of ________________,
199__.
----------------------------------------------
Notary Public
My Commission Expires:
----------------------------------------------
- -------------------------- Printed
County of Residence:
--------------------------
Subject to Johnson Co. Planning Comm. Approval of site Plan.
Subject to State and F.D.I.C. Branch approval.
/s/ Jerry R. Engle, Pres. & C.E.O.
/s/ M. Kenton Franklin
This Instrument Prepared by:
Raymond Good, 7201-49
SCHNORR, GOOD & SCAHILL
144 North Delaware Street
Indianapolis, IN 46204-2551
317/264-3636
27
<PAGE> 28
Exhibit "B"
[Drawing of leased space]
28
<PAGE> 1
EXHIBIT 10.9
LEASE
THIS LEASE is executed on this 8th day of December, 1999, by and between
G & P REAL ESTATE, LLC, an Indiana limited liability company (hereinafter
referred to as "LANDLORD"), and FIRST BANK, (hereinafter referred to as
"TENANT").
R E C I T A L S :
WHEREAS, the Landlord is the owner of real estate and improvements located
at 250 N. State Road 135 in Bargersville, Indiana ("Real Estate"), and desires
to lease space in the Real Estate to a suitable Tenant for business purposes;
and
WHEREAS, the Tenant desires to lease space in the Real Estate for a banking
institution and related services; and
WHEREAS, the parties desire to enter into a Lease agreement defining their
respective rights, duties, and liabilities.
IN CONSIDERATION of the terms and conditions contained herein, the parties
mutually agree as follows:
ARTICLE 1
THE LEASED PREMISES
Section 1.1 The Description. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord, subject to the terms and conditions of this Lease,
lease space located in the office building ("Building") on the Real Estate
consisting of 1,100 square feet, (hereinafter referred to as the "LEASED
PREMISES"). The Tenant, under this Lease, and pursuant to the terms and
conditions contained herein, shall have the right to use, in common areas as
defined in Section 10.2 of this Lease. Landlord reserves the right to designate
specific parking spaces for use by the Tenant, its employees, agents,
representatives, customers, and visitors and the time during which those parking
spaces may be used by the Tenant, its employees, agents, representatives,
customers and visitors.
Section 1.2 Trash Disposal. Any dumpsters or trash receptacles used by
Tenant shall be kept at all times behind the Building. All dumpsters or trash
receptacles used by Tenant shall be covered, at all times, and shall be emptied
at least once every fifteen (15) days. All trash, garbage, refuse, and other
unwanted material shall be disposed of in the dumpster or trash receptacle, and
no such materials shall be stored on or around the dumpster or trash receptacle
at any time.
<PAGE> 2
Section 1.3 Acceptance of Leased Premises "As Is". Landlord shall provide
Tenant with the Leased Premises as improved at the time of execution of this
Lease. Tenant has inspected the Leased Premises and has accepted them in their
"as is" condition.
Section 1.4 Tenant's Improvements. The Tenant shall pay for all material
used and labor employed in making any improvements, additions, installations,
and alterations to the Leased Premises. Tenant shall not permit any materialmen
or mechanic's liens to attach to the Leased Premises. In the event that any
materialmen or mechanic's lien is filed against the Leased Premises, Tenant
shall cause said lien to be released, within thirty (30) days, pursuant to
Article 26 of this Lease.
Upon termination of this Lease by default or otherwise, all improvements
made and all fixtures installed in the Leased Premises, both at Landlord's and
Tenant's expense, shall remain in the Leased Premises and become the property of
the Landlord, with the exception of any trade fixtures belonging to the Tenant
as defined under Indiana law.
Tenant shall be solely responsible for compliance with all building, fire,
health, and sanitary codes and regulations, and any other codes and regulations
relative to the Leased Premises, except if it is determined that a violation
exists which is a result of the original construction of the building, or any
other action of the Landlord, and not as a result of the particular use by the
Tenant.
ARTICLE 2
TERM
The term of this Lease shall be for three (3) years commencing on the 1st
day of January, 2000, and continuing through the 31st day of December, 2002.
Landlord hereby grants to Tenant the option to renew this Lease for one
additional term of three (3) years. Tenant may exercise this option by notice to
the Landlord, in writing, at least ninety (90) days prior to the date of
expiration of the initial Lease term. The terms and conditions of any extended
term shall be the same as during the initial term except rent for the option
term shall be Eight Hundred Fifty Dollars ($850.00) per month.
ARTICLE 3
RENT
Section 3.1 Rental Amount; Manner of Payment. Tenant shall pay to the
Landlord throughout the initial term of this Lease, rent in the amount of Seven
Hundred Fifty Dollars ($750.00) per month for the first eighteen (18) months of
the lease term and rent in the amount of Eight Hundred Fifty Dollars ($850.00)
per month for the second eighteen (18) months of the lease term, payable in
advance on or before the first day of each month, without demand, throughout the
entire term of this Lease. Tenant shall pay to Landlord at the time of execution
of this Lease the installment of rent due for the first and last month of the
initial lease term.
2
<PAGE> 3
If any installment of rent due under this Lease, or any extensions thereof,
is due on any day other than the first day of the month, the amount of that
installment shall be prorated and determined by dividing the number of days of
that partial month that are included as a part of the Lease term, or any
extension thereof, by the total number of days in that month. The date on which
the installment is due shall be included.
Section 3.2 Late Payment Penalty. Tenant shall be assessed a penalty of ten
percent (10%) of the monthly rent payment for each day Tenant's rent payment is
unpaid, beyond the 5th day of any month.
ARTICLE 4
ALTERATIONS
Tenant may from time to time, at its expense, alter, renovate or improve
the Leased Premises, provided the same be performed in a good and workmanlike
manner, in accordance with accepted building practices and so as not to weaken
or impair the structure of the building. All major alterations, renovations or
improvements affecting the Leased Premises including any improvements to be done
as referred to in Section 1.4 of this Lease shall be submitted to Landlord for
advanced written approval before work is commenced, which approval shall not be
unreasonably withheld.
ARTICLE 5
FIXTURES
The Tenant shall be permitted to install fixtures in the Leased Premises
provided that Tenant shall repair all damage to the Leased Premises caused by
such installations and provided that such installations shall conform with all
relevant statutes, ordinances, and regulations. Any fixtures which the Tenant
may be permitted to remove from the Leased Premises, pursuant to other sections
of this Lease, shall be removed at the Tenant's expense, and all damages caused
to the Leased Premises by such removal shall be repaired immediately and at the
expense of the Tenant.
ARTICLE 6
SIGNS
Tenant shall submit proposed plans for any and all signs to be installed on
the Leased Premises or anywhere on the Real Estate for Landlord's written
approval before any such sign shall be installed. Tenant shall maintain all
signs on the Leased Premises or on the Real Estate at Tenant's sole expense.
Upon expiration or termination of this Lease, as provided herein, any signs
installed by Tenant shall remain on the Leased Premises and shall become the
sole property of the Landlord.
3
<PAGE> 4
ARTICLE 7
USE OF PREMISES
The Leased Premises shall be used for the sole purpose of a banking
institution and related services and for no other purpose without the advanced
written permission of the Landlord, which permission shall not be unreasonably
withheld.
ARTICLE 8
TAXES AND ASSESSMENTS
Section 8.1 Real Estate Taxes. Tenant shall be responsible for reimbursing
Landlord its proportionate share of any increases in real estate taxes or other
amounts assessed against the Leased Premises and the Real Estate, in excess of
the amount of taxes and other assessments in effect at the time of execution of
this Lease throughout the entire Lease term or any extensions thereof. The term
"real estate taxes" shall include all real estate taxes, assessments, recurring
water and sewer use charges, and all other charges imposed by any governmental
authority. The Tenant's proportionate share of the "real estate taxes" shall be
determined by dividing the total number of square feet in the Leased Premises by
the total number of square feet in the Real Estate. Tenant shall pay to Landlord
any taxes and assessments it may owe within thirty (30) days of the date on
which Landlord submits a request for payment to Tenant.
Section 8.2 Personal Property Taxes. Tenant shall be solely responsible for
paying all taxes assessed against its personal property located in the Leased
Premises.
ARTICLE 9
UTILITIES
The Landlord shall pay all charges for water consumed in, on, or about the
Leased Premises during the term of the Lease. Tenant shall pay all charges for
all other utilities consumed in, on, or about the Leased Premises during the
term of the Lease.
ARTICLE 10
MAINTENANCE; COMMON AREA MAINTENANCE
Section 10.1 Maintenance of Leased Premises. The Tenant, at Tenant's sole
expense, shall maintain and keep the Leased Premises in good repair at all
times. "Leased Premises", for purposes of this Article, shall include, without
limitation, everything located in the space defined by the four walls, floor,
and ceiling of the Leased Premises, including the interior surfaces of the
ceiling, floor, and all walls of the Leased Premises, including all HVAC
systems, appliances, and fixtures, all pipes, wires, conduit, lines, cables,
studs, joists, floor coverings, wall coverings, ceiling tiles, hardware,
controls, appliances, and equipment that are located anywhere within the Leased
Premises, as defined herein. The Leased Premises shall include the area and
everything contained within the area between any drop ceiling or other false
ceiling and the surface of the ceiling which is common
4
<PAGE> 5
to and shared by other Leased Premises with The Real Estate. It is the intent
and agreement of the parties hereto that the Leased Premises shall include
everything that is in any way related to the Leased Premises, except for the
land lying thereunder and the exterior walls and roof of the Real Estate in
which the Leased Premises are located.
Section 10.2 Common Area Maintenance. All areas of the Real Estate not
specifically defined as "Leased Premises" shall be considered common areas for
purposes of this Lease, which shall include, without limitation, the exterior
walls and roof of the Building itself, driveways, parking areas, sidewalks,
delivery lanes, loading areas, access and egress roads, utility mains, light
poles and fixtures, yards, and landscaped areas. Landlord shall maintain and
keep in good repair the common areas, and shall replace, when needed, the
equipment, appliances, and other appurtenances which are located within common
area, as defined herein.
Section 10.3 Common Area Maintenance Costs. Landlord shall pay for all
common area maintenance costs except for maintenance (including striping and
sealing), patching, repairing or replacement of parking areas or drives, and
snow removal, for which Tenant shall pay its proportionate share. Tenant's
proportionate share shall be determined by dividing the total number of square
feet in the Leased Premises by the total number of square feet in the Real
Estate. Landlord, at Landlord's option, may estimate Tenant's annual
proportionate share and require Tenant to pay one-twelfth (1/12) of its annual
proportionate share on the 1st day of each month, along with its monthly
installment of rent, throughout the Lease term or any extensions thereof.
ARTICLE 11
RIGHT OF LANDLORD TO ENTER PREMISES
The Landlord or the Landlord's agent may enter the Leased Premises at
reasonable times to inspect their condition. At any time within ninety (90) days
of expiration of the current term or any additional terms of this Lease, the
Landlord may advertise the premises for rent and may place "For Rent" signs on
or in front of the Leased Premises. Within ninety (90) days of expiration of the
current term of the Lease or any additional terms, the Landlord may show the
Leased Premises to prospective Tenants at times which are reasonable for the
Tenant. Landlord reserves the right to enter the Leased Premises at any time,
without notice, in an event of an emergency or if Landlord determines that
immediate repairs are needed.
ARTICLE 12
DAMAGE OR DESTRUCTION OF PREMISES; INSURANCE
Tenant shall, at its expense, keep all leasehold improvements, fixtures,
equipment, and personal property located within the Leased Premises, including
all alterations, replacements, and additions thereto, insured against loss by
fire, or other casualty, in an amount not less than the replacement cost of
those improvements, fixtures, equipment, and property. Tenant shall also provide
and maintain, at all times, plate glass coverage for the Leased Premises and
shall provide Landlord with proof of that coverage.
5
<PAGE> 6
In the event of damage to or the destruction of the improvements on the
Leased Premises or equipment by casualty, the Tenant agrees to repair the damage
or to rebuild the improvements, and to restore them to their former condition,
promptly, at the sole expense of the Tenant. Tenant's obligation to pay rent
during any period of repair or restoration shall continue, without relief or
adjustment. If the insurance proceeds shall be insufficient to pay the entire
costs of repairing, restoring or rehabilitating the Leased Premises, Tenant
shall pay any deficiency. If it is not necessary to apply all of said insurance
proceeds toward the cost of repair, restoration or rehabilitation, the surplus
proceeds shall be the property of Tenant.
ARTICLE 13
PUBLIC LIABILITY AND INSURANCE
Section 13.1 Indemnification. The Tenant shall save the Landlord harmless
from all loss and indemnify the Landlord against all claims for damage to the
person or property of all persons arising out of the Tenant's occupancy and use
of the Leased Premises, shall save the Landlord harmless from and indemnify the
Landlord against all litigation against the Landlord arising out of such claims,
and shall save the Landlord harmless from and indemnify the Landlord against all
costs and expenses incurred by the Landlord, including reasonable attorney's
fees, in the defense of all such claims arising, directly or indirectly, from
the acts or the omissions of the Tenant, its agents, assigns, or invitees in the
performance of any obligation under this Lease.
Section 13.2 Indemnification Relating to Hazardous Substance or Waste. In
the event that any hazardous substance or hazardous waste, as those terms are
defined and used under the various applicable federal and state environmental
laws, including without limitation petroleum and petroleum products, asbestos
and painting materials, and cleaning solvents and byproducts ("Hazardous
Substance") is discovered at any time during the term of this Lease or
extensions thereof, or at any time thereafter, under circumstances where it is
reasonably clear that such Hazardous Substance became present at any time after
the commencement of the Lease or the date on which any work is conducted on the
Leased Premises by the Tenant or at Tenant's direction, whichever is earlier, as
a result of any act or omission on the part of the Tenant, its sub-tenant,
agents, employees, customers, or invitees, Tenant shall indemnify, defend (with
counsel reasonably satisfactory to Landlord), and hold and save Landlord
harmless from and against any claims, liabilities, actions, judgments,
responsibilities, and damages of every kind and nature, including reasonable
attorney's fees, arising from or related to the presence of said Hazardous
Substance.
Section 13.3 Liability Insurance. Tenant further covenants and agrees to
provide on or before the commencement of the Lease term and to keep in force
during the lease term a comprehensive public liability policy of insurance
protecting Landlord and Tenant against any liability for injury to persons
and/or property occurring in, on or about the Leased Premises or any
appurtenances thereto. Tenant covenants to carry such insurance in a solvent
company or companies of recognized standing, licensed to do business in Indiana,
in an amount not less than $500,000.00 with respect to any one person;
$1,000,000.00 with respect to any one occurrence, and $300,000.00 with respect
to property damage.
6
<PAGE> 7
Tenant shall provide Landlord with a certificate of insurance identifying
Landlord as an additional named insured.
Section 13.4 Landlord's Insurance Costs. Tenant shall pay its proportionate
share of Landlord's costs of insurance, to the extent those costs exceed
Landlord's insurance costs as of the date of execution of this Lease, to insure
the Leased Premises and the common areas of the Real Estate against loss from
fire or other casualty, and to provide additional public liability insurance,
covering the Landlord, in amounts deemed appropriate by the Landlord, in its
sole discretion. Tenant's proportionate share of Landlord's insurance costs
shall be determined by dividing the total number of square feet in the Leased
Premises by the total number of square feet in the Real Estate.
ARTICLE 14
DEFAULT; REMEDIES
Section 14.1 Events of Default. If the rent set forth in the Lease or any
part thereof shall be unpaid after the same shall have become due, or if the
Tenant shall fail to pay any other sum which the Tenant is required to pay under
any provision of this Lease after it shall have become due, or if a petition in
bankruptcy shall be filed by the Tenant, or if the Tenant shall be adjudged
insolvent by any Court, or if a receiver or trustee in a Chapter 7 bankruptcy or
a receiver of the property of the Tenant shall be appointed, in any suit or
proceeding brought by or against the Tenant, or if the Tenant shall make an
assignment for the benefit of creditors, or if any execution shall be issued
against the Tenant, or if this Lease shall by operation of law pass to any
person other than the Tenant without the advance written consent of the
Landlord, then, and in each and every such event, this Lease shall be deemed to
be in default, and it shall be lawful for the Landlord to terminate this Lease
by ten (10) days' notice of such termination mailed to the Tenant, and if the
default shall not be corrected within said period, the term hereby granted shall
immediately cease and terminate at the option of the Landlord.
Such termination, however, shall not terminate or in any way reduce or
affect Tenant's obligations under this Lease.
If the Tenant shall violate any other terms or conditions of this Lease
other than specifically referred to in the preceding paragraph, and if the
violation shall continue and shall not be corrected within a period of thirty
(30) days after the Landlord shall have given the Tenant written notice to
correct such violation, the Landlord may then terminate this Lease by written
notice of termination delivered or mailed to the Tenant, and upon the delivery
or mailing of such notice, the term hereby granted shall immediately cease and
terminate at the option of the Landlord. Such termination, however, shall not
terminate or in any way reduce or affect Tenant's obligations under this Lease.
Section 14.2 Landlord's Remedies. Upon the termination of this Lease
because of the default of the Tenant, Landlord shall have the right to
accelerate Tenant's performance and demand immediate payment of all rent owed by
Tenant for the remainder of the Lease term, plus all other amounts which may be
owed by Tenant. The Landlord shall have the immediate right of re-entry
7
<PAGE> 8
onto the Leased Premises, and the right to relet the Leased Premises for the
remainder of the term then in effect, for the best rent obtainable, in which
event the Landlord shall have the right to recover from the Tenant the
deficiency between the amount of the rent received from other tenants during the
remainder of the term and the amount of the rent herein specified, if any. The
Landlord shall also be entitled to the recovery of all other provable damages,
costs, and reasonable attorney fees which are in any way related to Tenant's
default under this Lease. Any or all of these remedies may be elected by
Landlord, in its sole discretion, and this section in no way limits Landlord
from pursuing any and all remedies which may be available under applicable law.
ARTICLE 15
SURRENDER OF PREMISES
Upon the expiration of this Lease, or of any extension thereof, or upon
earlier termination of this Lease as herein provided, the Tenant shall peaceably
and quietly leave the Leased Premises in as good condition as they are in at the
time of commencement of this Lease, reasonable wear and tear, alterations,
improvements, and damage by casualty excepted.
ARTICLE 16
HOLDING OVER
Any holding over of possession by the Tenant after the term of this Lease
or after any renewals of the term of this lease shall be construed to be a
tenancy from month to month only, at the rental rate then in effect increased by
ten percent (10%), and upon all other terms and conditions as herein set forth.
ARTICLE 17
ASSIGNMENT AND SUBLETTING
The Tenant shall not assign this Lease or sublet the Leased Premises or any
portion thereof, except to an entity wholly owned by Tenant, without the
Landlord's advance written consent, which consent shall not be unreasonably
withheld. In the event of any assignment or sublease with the Landlord's
consent, the Tenant shall nevertheless remain liable to the Landlord for the
payment of the rent any all other amounts as imposed herein and for the
performance of all of the other obligations of the Tenant as set forth in this
Lease.
The Landlord shall have the right to assign this Lease to any entity wholly
owned by George and/or Paula Kopko.
ARTICLE 18
RIGHT OF LANDLORD TO CONVEY AND MORTGAGE
The Landlord shall have the right to voluntarily convey the Leased Premises
at any time, subject to the provisions of this Lease.
8
<PAGE> 9
The Landlord shall have the right to mortgage the Leased Premises at any
time during the term of this Lease, and any mortgage on the Leased Premises
shall have priority over this Lease. No act other than the execution of this
Lease by the Tenant shall be required as evidence of the right of the Landlord
to mortgage the Leased Premises or of the priority of the mortgage, provided
that the Landlord shall agree in writing that if the Landlord shall default in
making any of the payments required or in performing any of the other covenants
in the mortgage, the Tenant shall have the right to perform such covenants to
prevent foreclosure of the mortgage, and the Tenant shall have the privilege of
deducting all mortgage payments made and expenses incurred in performing the
other covenants of the mortgage from the rents to become due to the Landlord
under the Lease.
ARTICLE 19
APPROPRIATION BY EMINENT DOMAIN
If the entire Leased Premises shall be appropriated by any public or
quasi-public authority, at the option of the Landlord or of the Tenant, this
Lease shall terminate from the date possession shall be required by such public
or quasi-public authority and thenceforth both parties hereto shall be released
from all of the obligations hereof.
If only a portion of the Leased Premises shall be appropriated by any
public or quasi-public authority, the Lease shall nevertheless remain in full
force and effect, provided that the rent payable by the Tenant to the Landlord
shall be abated to the extent of interference with the possession of the Leased
Premises by the appropriation.
The Tenant shall not be entitled to share in any award made by any public
or quasi-public authority to the Landlord for the appropriation of any of the
Landlord's property, provided that the Tenant shall be entitled to pursue any
right of compensation against the appropriating authority which now does or
hereafter may exist independently of the Landlord's right of compensation for
the appropriation.
ARTICLE 20
NON-WAIVER
The failure of the Landlord to enforce any of the rights given to it under
this Lease by reason of the Tenant's default or non-compliance with of any of
the terms or conditions of this Lease shall not be construed as a waiver of the
rights of the Landlord to exercise any such rights as to any subsequent events
of default or non-compliance, or as a waiver of any of the rights given to the
Landlord herein.
9
<PAGE> 10
ARTICLE 21
QUIET ENJOYMENT
Provided that the Tenant shall pay rent, when due, and comply strictly with
all of the other terms and conditions of this Lease, the Tenant shall have the
right of quiet enjoyment of the Leased Premises throughout the term of the Lease
and any extensions thereof.
ARTICLE 22
NOTICES
All notices which may be necessary or proper for either party to serve upon
the other shall be effectively served only if sent by registered or certified
mail, return receipt requested, to the following addresses:
Landlord's Address: Dr. George Kopko, D.D.S.
4325 Fox Ridge Avenue
Greenwood, IN 46143
Tenant's Address: First Bank
Attn: Jerry Engle
996 S. State Road 135
Greenwood, IN 46143
Either party may from time to time specify, in writing, a new address to
which any such notices shall thereafter be sent.
ARTICLE 23
PRORATION
Any and all amounts owed by Tenant to Landlord, pursuant to this Lease,
shall be pro rated for any partial years during which Tenant occupies the Leased
Premises.
ARTICLE 24
MECHANIC'S LIENS
In the event any materialmen or mechanic's liens shall be filed against the
Leased Premises on account of nonpayment or alleged nonpayment by the Tenant,
Tenant shall cause such lien or liens to be released within thirty (30) days of
the date on which Tenant receives notice that any such liens have been filed. In
the event that Tenant fails to cause any such lien or liens to be released
within thirty (30) days, Landlord may, at Landlord's option, require Tenant to
post security in a form and amount acceptable to the Landlord until the lien is
released, or, alternatively, Landlord may pay all amounts claimed by the party
filing the lien and recover such amounts from the Tenant as additional rent.
10
<PAGE> 11
ARTICLE 25 CONTEST
OF LIENS OR TAXES
Notwithstanding anything to the contrary contained in this Lease and
provided that each party shall fully indemnify and save harmless the other party
from all cost, loss, damage, and expense incurred by or to be incurred or
suffered by the other party as to the following, each party shall have the
right, at its own expense, to initiate and prosecute any proceedings permitted
by law for the purpose of obtaining an abatement of or otherwise contesting the
validity or amount of taxes assessed against the Leased Premises and required to
be paid by such party hereunder and to defend any lien claims that may be
asserted against the Leased Premises. If required by law, each party may take
such action in the name of the other party so that such proceedings may be
brought to a successful conclusion. Each party shall cooperate with the other as
may reasonably be required in any such action.
ARTICLE 26
LANDLORD'S SECURITY
This Lease shall constitute a security agreement within the meaning of the
Uniform Commercial Code with respect to all leasehold improvements, fixtures,
equipment, signs, inventory, and other property which may be located, at any
time, in or on the Leased Premises, and in any way related to Tenant's business
or use of the Leased Premises (all of such property, collectively, shall be
referred to herein as the "COLLATERAL"). The Landlord shall have a security
interest in the Collateral to secure the payment and performance of all of
Tenant's obligations pursuant to this Lease. Landlord's security interest shall
attach to the Collateral and to all replacements thereof, substitutions
therefore, and additions thereto. Landlord's security interest, however, shall
be subject and subordinate to any purchase money security interest in favor of
any creditors of the Tenant from whom the Collateral, or any part thereof, was
acquired, or from whom any amounts were borrowed, for the purpose of purchasing
the Collateral or any part thereof.
Landlord is hereby authorized to file financing statements and all other
UCC forms and statements with respect to the Collateral to perfect its security
interest as created herein. In the event that this Lease shall be terminated by
reason of Tenant's default, Landlord may, in addition to all other rights or
remedies it may have, exercise all rights or remedies with respect to the
Collateral which it has or may have as a secured party pursuant to the
provisions of the Uniform Commercial Code.
ARTICLE 27
PARTIAL INVALIDITY
In the event that any of the provisions of this Lease shall by Court order
be held invalid or in contravention of any federal, state or local statutes,
laws, ordinances, rules or regulations, such invalidity shall not affect any
other provisions of this Lease.
11
<PAGE> 12
ARTICLE 28
BINDING CONTRACT
All of the covenants and agreements herein made shall extend to and be
binding upon the heirs, devisees, executors, administrators, legal
representatives, successors in interest, and/or assigns of Landlord and Tenant,
as the case may be. This provision, however, shall not create any rights in
Tenant to assign or sublet its interest in this Lease.
ARTICLE 29
GOVERNING LAW
This Lease shall be governed pursuant to the laws of the State of Indiana.
ARTICLE 30
ENTIRE AGREEMENT
This Lease constitutes the entire agreement of the parties with respect to
the subject matters hereof, and may not be modified or amended except by an
agreement in writing, duly executed by the parties.
IN WITNESS WHEREOF, the parties hereto have executed these presents the day
and year first above written.
LANDLORD TENANT
G&P REAL ESTATE, LLC FIRST BANK
/s/ George A. Kopko By: /s/ John Ditmars
- ------------------------------------ ------------------------------
Printed: George A. Kopko Printed: John Ditmars
---------------------------- -------------------------
Title: Title: Executive Vice President
------------------------------ ---------------------------
This document prepared by: Brian C. Hewitt, Attorney at Law, WILLIAMS HEWITT &
ROBBINS, LLP, 300 S. Madison Ave., Suite 400, P.O. Box 405, Greenwood, IN 46142,
(317) 888-1121
12
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF FIRST SHARES BANCORP, INC.
First Bank, a bank organized under the laws of the State of Indiana
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the inclusion of our report in this Registration
Statement/Prospectus of First Shares Bancorp, Inc. on Form SB-2 dated January
14, 2000 except for Note 1 with respect to the equity transaction, as to which
the date is February 11, 2000, on the consolidated balance sheets as of December
31, 1999 and 1998 of First Shares Bancorp, Inc. and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999, and to the
reference to us under the heading of "experts" in the Prospectus, which is
included in this Registration Statement.
Crowe, Chizek and Company LLP
March 1, 2000
Indianapolis, Indiana
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints Jerry E. Engle, John Ditmars and Kim
Kling, or any of them, his attorneys-in-fact and agents, with full power of
substitution and resubstitution for him in any and all capacities, to sign a
Registration Statement under the Securities Act of 1933, as amended (the
"Registration Statement"), for the registration of Common Stock, $.01 par value
of First Shares Bancorp, Inc. (the "Company"), any or all pre-effective
amendments or post-effective amendments to the Registration Statement (which
amendments may make such changes in and additions to the Registration Statement
as such attorneys-in-fact may deem necessary or appropriate), and any
registration statement for the offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his substitute or substitutes may do or cause to
be done by virtue hereof.
Dated: 2/11/00 /s/ Andy Rogers
---------------------- ------------------------------------
Andy Rogers
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints Andy Rogers, John Ditmars and Kim Kling,
or any of them, his attorneys-in-fact and agents, with full power of
substitution and resubstitution for him in any and all capacities, to sign a
Registration Statement under the Securities Act of 1933, as amended (the
"Registration Statement"), for the registration of Common Stock, $.01 par value
of First Shares Bancorp, Inc. (the "Company"), any or all pre-effective
amendments or post-effective amendments to the Registration Statement (which
amendments may make such changes in and additions to the Registration Statement
as such attorneys-in-fact may deem necessary or appropriate), and any
registration statement for the offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his substitute or substitutes may do or cause to
be done by virtue hereof.
Dated: 2/11/00 /s/ Jerry R. Engle
---------------------- ------------------------------------
Jerry R. Engle
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints Andy Rogers, Jerry E. Engle and John
Ditmars, or any of them, her attorneys-in-fact and agents, with full power of
substitution and resubstitution for her in any and all capacities, to sign a
Registration Statement under the Securities Act of 1933, as amended (the
"Registration Statement"), for the registration of Common Stock, $.01 par value
of First Shares Bancorp, Inc. (the "Company"), any or all pre-effective
amendments or post-effective amendments to the Registration Statement (which
amendments may make such changes in and additions to the Registration Statement
as such attorneys-in-fact may deem necessary or appropriate), and any
registration statement for the offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his substitute or substitutes may do or cause to
be done by virtue hereof.
Dated: 2-11-00 /s/ Kim Kling
---------------------- ------------------------------------
Kim Kling
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints Andy Rogers, Jerry E. Engle and Kim
Kling, or any of them, his attorneys-in-fact and agents, with full power of
substitution and resubstitution for him in any and all capacities, to sign a
Registration Statement under the Securities Act of 1933, as amended (the
"Registration Statement"), for the registration of Common Stock, $.01 par value
of First Shares Bancorp, Inc. (the "Company"), any or all pre-effective
amendments or post-effective amendments to the Registration Statement (which
amendments may make such changes in and additions to the Registration Statement
as such attorneys-in-fact may deem necessary or appropriate), and any
registration statement for the offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his substitute or substitutes may do or cause to
be done by virtue hereof.
Dated: February 11, 2000 /s/ John Ditmars
---------------------- ------------------------------------
John Ditmars
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints Andy Rogers, Jerry E. Engle, John Ditmars
and Kim Kling, or any of them, her attorneys-in-fact and agents, with full power
of substitution and resubstitution for her in any and all capacities, to sign a
Registration Statement under the Securities Act of 1933, as amended (the
"Registration Statement"), for the registration of Common Stock, $.01 par value
of First Shares Bancorp, Inc. (the "Company"), any or all pre-effective
amendments or post-effective amendments to the Registration Statement (which
amendments may make such changes in and additions to the Registration Statement
as such attorneys-in-fact may deem necessary or appropriate), and any
registration statement for the offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his substitute or substitutes may do or cause to
be done by virtue hereof.
Dated: Feb. 11, 2000 /s/ Ralph M. Foley
---------------------- ------------------------------------
Ralph M. Foley
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints Andy Rogers, Jerry E. Engle, John Ditmars
and Kim Kling, or any of them, his attorneys-in-fact and agents, with full power
of substitution and resubstitution for him in any and all capacities, to sign a
Registration Statement under the Securities Act of 1933, as amended (the
"Registration Statement"), for the registration of Common Stock, $.01 par value
of First Shares Bancorp, Inc. (the "Company"), any or all pre-effective
amendments or post-effective amendments to the Registration Statement (which
amendments may make such changes in and additions to the Registration Statement
as such attorneys-in-fact may deem necessary or appropriate), and any
registration statement for the offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his substitute or substitutes may do or cause to
be done by virtue hereof.
Dated: Feb. 11, 2000 /s/ H. Dean Hawkins
---------------------- ------------------------------------
H. Dean Hawkins
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints Andy Rogers, Jerry E. Engle, John Ditmars
and Kim Kling, or any of them, his attorneys-in-fact and agents, with full power
of substitution and resubstitution for him in any and all capacities, to sign a
Registration Statement under the Securities Act of 1933, as amended (the
"Registration Statement"), for the registration of Common Stock, $.01 par value
of First Shares Bancorp, Inc. (the "Company"), any or all pre-effective
amendments or post-effective amendments to the Registration Statement (which
amendments may make such changes in and additions to the Registration Statement
as such attorneys-in-fact may deem necessary or appropriate), and any
registration statement for the offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his substitute or substitutes may do or cause to
be done by virtue hereof.
Dated: 02-11-00 /s/ Gary W. Lewis
---------------------- ------------------------------------
Gary W. Lewis
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints Andy Rogers, Jerry E. Engle, John Ditmars
and Kim Kling, or any of them, his attorneys-in-fact and agents, with full power
of substitution and resubstitution for him in any and all capacities, to sign a
Registration Statement under the Securities Act of 1933, as amended (the
"Registration Statement"), for the registration of Common Stock, $.01 par value
of First Shares Bancorp, Inc. (the "Company"), any or all pre-effective
amendments or post-effective amendments to the Registration Statement (which
amendments may make such changes in and additions to the Registration Statement
as such attorneys-in-fact may deem necessary or appropriate), and any
registration statement for the offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his substitute or substitutes may do or cause to
be done by virtue hereof.
Dated: 2-22-00 /s/ R. J. McConnell
---------------------- ------------------------------------
R. J. McConnell
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints Andy Rogers, Jerry E. Engle, John Ditmars
and Kim Kling, or any of them, his attorneys-in-fact and agents, with full power
of substitution and resubstitution for him in any and all capacities, to sign a
Registration Statement under the Securities Act of 1933, as amended (the
"Registration Statement"), for the registration of Common Stock, $.01 par value
of First Shares Bancorp, Inc. (the "Company"), any or all pre-effective
amendments or post-effective amendments to the Registration Statement (which
amendments may make such changes in and additions to the Registration Statement
as such attorneys-in-fact may deem necessary or appropriate), and any
registration statement for the offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his substitute or substitutes may do or cause to
be done by virtue hereof.
Dated: Feb. 11, 2000 /s/ William J. Meredith
---------------------- ------------------------------------
William J. Meredith
<PAGE> 10
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints Andy Rogers, Jerry E. Engle, John Ditmars
and Kim Kling, or any of them, his attorneys-in-fact and agents, with full power
of substitution and resubstitution for him in any and all capacities, to sign a
Registration Statement under the Securities Act of 1933, as amended (the
"Registration Statement"), for the registration of Common Stock, $.01 par value
of First Shares Bancorp, Inc. (the "Company"), any or all pre-effective
amendments or post-effective amendments to the Registration Statement (which
amendments may make such changes in and additions to the Registration Statement
as such attorneys-in-fact may deem necessary or appropriate), and any
registration statement for the offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his substitute or substitutes may do or cause to
be done by virtue hereof.
Dated: 2/11/00 /s/ Norman D. Stockton
---------------------- ------------------------------------
Norman D. Stockton
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 2,460
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 89
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,875
<INVESTMENTS-CARRYING> 617
<INVESTMENTS-MARKET> 616
<LOANS> 46,146
<ALLOWANCE> 549
<TOTAL-ASSETS> 68,670
<DEPOSITS> 62,987
<SHORT-TERM> 800
<LIABILITIES-OTHER> 286
<LONG-TERM> 0
0
0
<COMMON> 7
<OTHER-SE> 4,590
<TOTAL-LIABILITIES-AND-EQUITY> 68,670
<INTEREST-LOAN> 3,157
<INTEREST-INVEST> 632
<INTEREST-OTHER> 122
<INTEREST-TOTAL> 3,911
<INTEREST-DEPOSIT> 1,785
<INTEREST-EXPENSE> 32
<INTEREST-INCOME-NET> 2,094
<LOAN-LOSSES> 280
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,694
<INCOME-PRETAX> (682)
<INCOME-PRE-EXTRAORDINARY> (682)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (609)
<EPS-BASIC> (.97)
<EPS-DILUTED> (.97)
<YIELD-ACTUAL> 4.56
<LOANS-NON> 141
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 584
<ALLOWANCE-OPEN> 346
<CHARGE-OFFS> (169)
<RECOVERIES> 92
<ALLOWANCE-CLOSE> 549
<ALLOWANCE-DOMESTIC> 512
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 37
</TABLE>
