File No. 333-46913
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
GERMAN AMERICAN BANCORP
(Exact name of Registrant as specified in its charter)
INDIANA
(State or other jurisdiction of
incorporation or organization)
6711
(Primary Standard Industrial
Classification Code Number)
35-1547518
(I.R.S. Employer Identification No.)
711 MAIN STREET, BOX 810
JASPER, INDIANA 47546-3042; (812) 482-1314
(Address, including Zip Code, and telephone number,
including area code, of registrant's principal
executive offices)
GEORGE W. ASTRIKE, CHAIRMAN
GERMAN AMERICAN BANCORP
711 MAIN STREET, BOX 810
JASPER, INDIANA 47546-3042; (812) 482-1314
Telecopier (812) 482-0745
(Name, address, including Zip Code,
and telephone number, including
area code, of agent for service)
Copy to:
Mark B. Barnes, Esq. Nicholas J. Chulos, Esq.
Leagre Chandler & Millard Krieg, DeVault, Alexander
9100 Keystone Crossing & Capehart
Suite 800 One Indiana Square
Indianapolis, IN 46240-0609 Suite 2800
Telephone (317) 843-1655 Indianapolis, IN 46204
Telecopier (317) 846-7900 Telephone (317) 636-4341
Telecopier (317) 636-1507
R.J. McConnell, Esq.
Bose McKinney & Evans
2700 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, IN 46204
Telephone (317) 684-5000
Telecopier (317) 684-5773
-1-
<PAGE>
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
------------------------------------------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
------------------------------------------------------------
-2-
<PAGE>
CSB BANCORP
MAIN AND SEVENTH STREETS
PETERSBURG, INDIANA 47567
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ______________, 1998
Notice is hereby given that a Special Meeting of Shareholders of CSB
Bancorp ("CSB") will be held at the southside branch of The Citizens State Bank
of Petersburg located at Highway 61 and Illinois Street, Petersburg, Indiana, on
______________, 1998, at _____ [a.m./p.m.], Petersburg time (the "Special
Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve and adopt
an Agreement and Plan of Reorganization dated December 8, 1997, among
CSB; The Citizens State Bank of Petersburg, a wholly owned subsidiary
of CSB ("Citizens"); German American Bancorp ("German American");
German American Holdings Corporation, a wholly owned subsidiary of
German American ("GAHC"); and Community Trust Bank, a wholly owned
subsidiary of GAHC (the "CSB Agreement"), and a Plan of Merger between
CSB and GAHC, as joined in by German American, in the form attached to
the CSB Agreement as Appendix A, and to approve the transactions
contemplated thereby, including the merger of CSB with and into GAHC
(the CSB "Merger").
2. To transact such other business as may properly come before
the Special Meeting or any adjournment or adjournments thereof.
Holders of CSB Common Stock of record at the close of business on
___________, 1998, are entitled to notice of and to vote at the Special Meeting
or any adjournment or adjournments thereof.
SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. ALL
SHAREHOLDERS, EVEN IF THEY PLAN TO ATTEND THE MEETING, ARE REQUESTED TO
COMPLETE, SIGN, AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors
JERRY A. CHURCH, EXECUTIVE VICE PRESIDENT
___________, 1998
Petersburg, Indiana
-3-
<PAGE>
FSB FINANCIAL CORPORATION
102 MAIN STREET
FRANCISCO, INDIANA 47659
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ___________, 1998
Notice is hereby given that a Special Meeting of Shareholders of FSB
Financial Corporation ("FSB") will be held at
________________________________________, Indiana _____, on ______, __________,
1998, at _______ [a.m./p.m.], Francisco time (the "Special Meeting"), for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt
an Agreement and Plan of Reorganization dated January ___, 1998, among
FSB; FSB Bank, a wholly owned subsidiary of FSB ("FSB Bank"); German
American Bancorp ("German American"); German American Holdings
Corporation, a wholly owned subsidiary of German American ("GAHC"); and
Community Trust Bank, a wholly owned subsidiary of GAHC (the "FSB
Agreement"), and a Plan of Merger between FSB and GAHC, and joined in
by German American in the form attached to the FSB Agreement as
Appendix A, and to approve the transactions contemplated thereby,
including the merger of FSB with and into GAHC (the "Merger").
2. To transact such other business as may properly come before
the Special Meeting or any adjournment or adjournments thereof.
Holders of FSB Common Stock of record at the close of business on
___________, 1998, are entitled to notice of and to vote at the Special Meeting
or any adjournment or adjournments thereof.
SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. ALL
SHAREHOLDERS, EVEN IF THEY PLAN TO ATTEND THE MEETING, ARE REQUESTED TO
COMPLETE, SIGN, AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors
GLENN YOUNG, PRESIDENT
______________, 1998
Francisco, Indiana
-4-
<PAGE>
GERMAN AMERICAN BANCORP
PROSPECTUS
------------------------
CSB BANCORP
PROXY STATEMENT
------------------------
FSB FINANCIAL CORPORATION
PROXY STATEMENT
This Prospectus/Proxy Statement relates to the proposed merger of CSB
Bancorp, Petersburg, Indiana ("CSB") into German American Holdings Corporation
("GAHC"), a wholly owned subsidiary of German American Bancorp, Jasper, Indiana
("German American") (the "CSB Merger"), pursuant to and in accordance with an
Agreement and Plan of Reorganization, dated December 8, 1997 (the "CSB
Agreement"), among CSB, German American, GAHC, The Citizens State Bank of
Petersburg ("Citizens"), a wholly-owned subsidiary of CSB, and Community Trust
Bank ("Community") and a Plan of Merger between CSB and GAHC, as joined in by
German American and attached to the CSB Agreement as Appendix A. Simultaneously
with and as an integral part of the CSB Merger, Community will merge with and
into Citizens.
This Prospectus/Proxy Statement also relates to the proposed merger of
FSB Financial Corporation, Francisco, Indiana ("FSB"), into GAHC (the "FSB
Merger"), pursuant to and in accordance with an Agreement and Plan of
Reorganization, dated January 30, 1998 (the "FSB Agreement") among FSB, FSB
Bank ("FSB Bank"), German American, GAHC and Community. Simultaneously with and
as an integral part of the FSB Merger, FSB Bank will merge with and into
Community or, if the CSB Merger is first effected, Citizens. The CSB Merger and
the FSB Merger shall hereinafter be referred to collectively as the "Mergers".
The CSB Agreement and the FSB Agreement are separate and distinct from
each other, and neither the FSB Merger nor the CSB Merger is conditioned or
dependent upon the consummation of the other.
If the proposed CSB Merger is consummated, German American will issue not
fewer than 5.8036 nor more than 7.1094 shares of common stock of German American
("German American Common Stock") for each of the 160,000 issued and outstanding
shares of common stock of CSB ("CSB Common Stock"), subject to adjustment in the
event of any future stock dividends or splits and the like. The exact number of
shares to be issued by German American in the CSB Merger will be determined by
the average closing bid/asked quotations for German American's Common Stock
during a thirty day period ending on the second business day preceding the
closing date (the "CSB Valuation Period"). On __________, 1998 (the latest date
practicable prior to the printing of this Prospectus/Proxy Statement), the
average of the closing bid/asked quotations for German American Common Stock was
$_____ per share. Assuming that such average value remains not less than $24.50
during the CSB Valuation Period (as to which there is no assurance), then the
minimum number of shares specified by the CSB Agreement (5.8036 shares of German
American for each CSB common share and an aggregate of 928,572 shares of German
American Common Stock) will be issued in the CSB Merger. Assuming no change in
the number of shares of CSB Common Stock issued and outstanding and that the
average closing bid/asked quotations for German American Common Stock during the
CSB Valuation Period remain at least $20 per share. German American will issue a
number of shares of German American Common Stock with respect to each share of
CSB Common Stock that has an average value (as determined during the CSB
Valuation Period in accordance with the CSB Agreement) of at least $142.19. If
the CSB merger had closed on _______, 1998 (the latest date practicable prior to
the printing of this Prospectus/Proxy Statement), CSB shareholders would have
received 5.8036 shares of German American Common Stock for each share of CSB
Common Stock held by them, which would have had a value (based on German
American's closing price on that date) of $_______ per share of CSB Common
Stock. See "THE MERGERS -- The CSB Acquisition Agreements -- Terms of the Merger
- -- Conversion of CSB Common Stock."
-5-
<PAGE>
If the proposed FSB Merger Agreement is consummated, German American will
issue that number of shares that have a market value determined in accordance
with the FSB Agreement during the period of ten trading days that ends of the
second business day preceding the Closing Date (the "FSB Valuation Period")
equal to approximately 150% of FSB's shareholders equity plus or minus certain
adjustments. See "THE MERGERS -- The FSB Acquisition Agreements -- Terms of the
Merger--Conversion of FSB Common Stock" for a discussion of the exact factors
that will be considered in determining the value of the German American Common
Stock to be issued to FSB shareholders and the adjustments that will be
considered to shareholders' equity. German American's best estimate is that it
will issue between ___ and ___ shares for each FSB common share and that an
aggregate from ___ to ___ shares of German American Common Stock will be issued
in the FSB Merger. German American and FSB will not cause the FSB Merger to be
completed if the shares of German American Common Stock to be issued for each
share of FSB Common Stock would have a value (as determined in accordance with
the FSB Agreement during the FSB Valuation Period) of less than $40 per FSB
share. If the merger had closed on _____, 1998 (the latest date practicable
prior to the printing of this Prospectus/Proxy Statement), FSB shareholders
would have received an estimated _____ shares of German American Common Stock
for each share of FSB Common Stock held by them, which would have had a value
(based on German American's closing price on that date of $_________ per share)
of $______ per share of FSB Common Stock determined in accordance with the FSB
Agreement during the valuation period specified by the FSB Agreement. See "The
MERGERS - - The FSB Acquisition Agreements - - Terms of the Merger - -
Conversion of FSB Common Stock."
The Mergers are subject to the approval of the holders of a majority of the
outstanding shares of the common stock of each company eligible to vote thereon
and the satisfaction of certain other conditions, including obtaining regulatory
approvals. For a more complete description of the Mergers, see "THE MERGERS."
The Special Meeting of the shareholders of CSB will be held at the
southside branch of The Citizens State Bank of Petersburg located at Highway 61
and Illinois Street, Petersburg, Indiana, at ___ [a.m./p.m.], Petersburg time,
on __________________, ______________, 1998 to (a) consider the CSB Merger
proposal, and (b) transact such other business as may properly come before the
meeting. The Special Meeting of the shareholders of FSB will be held at
____________________________, Indiana, at _____ [a.m./p.m.] on _______,
__________, 1998, to (a) consider the FSB Merger proposal and (b) transact such
other business as may properly come before the meeting. This Prospectus/Proxy
Statement constitutes both a Prospectus of German American covering the German
American Common Stock to be issued by it pursuant to the Mergers and a Proxy
Statement in connection with the solicitation by the Boards of Directors of CSB
and FSB of proxies to be voted at their respective Special Meetings.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus/Proxy Statement is ____________, 1998.
-6-
<PAGE>
AVAILABLE INFORMATION
German American is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). Accordingly,
German American files proxy statements, annual and quarterly reports, and other
information with the Securities and Exchange Commission (the "Commission").
Those proxy statements, reports, and other information may be inspected and
copied at prescribed rates, at the public reference facilities maintained by the
Commission at the addresses set forth below.
German American has filed with the Commission a Registration Statement
under the Securities Act of 1933, as amended (the "1933 Act"), covering the
shares of German American Common Stock to be issued in connection with the
Mergers. This Proxy Statement also constitutes the Prospectus of German American
filed as part of that Registration Statement. This Proxy Statement does not
contain all of the information set forth in the Registration Statement. The
Registration Statement and the exhibits thereto can be inspected and copied at
prescribed rates at the Commission's public reference room, Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, as well as the
Commission's regional offices located at: Seven World Trade Center, Suite 1300,
New York, New York 10048; and Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661-2511. Copies of such materials may also be obtained at prescribed
rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. The Commission also maintains a site on
the World Wide Web at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants (including
German American) that file electronically with the SEC.
-------------------------------
SOURCES OF INFORMATION
The information in the above-described Registration Statement,
including this Prospectus/Proxy Statement, concerning German American and its
affiliates, CSB and its affiliates, and FSB and its affiliates, has been
supplied by management of the respective companies.
-------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OR OFFERING MADE HEREBY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY GERMAN AMERICAN OR CSB OR FSB. THIS PROSPECTUS/PROXY STATEMENT DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS/PROXY STATEMENT NOR ANY DISTRIBUTION OF THE
SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY INFERENCE
OR IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF GERMAN
AMERICAN, CSB OR FSB SINCE THE DATE HEREOF.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated by reference into this
Prospectus/Proxy Statement:
-7-
<PAGE>
1. German American's Current Report on Form 8-K, which was filed on
February 24, 1998;
2. The description of the common stock of German American included under
the heading "Description of German American Capital Stock" in the
Prospectus/Proxy Statement contained in German American's
Registration Statement on Form S-4 (File No. 333-16331) filed
January 31, 1997, as amended; and
3. German American's Annual Report on Form 10-K for the year ended
December 31, 1997, which was filed on March 31, 1998.
Except as set forth in this Prospectus/Proxy Statement, there have been no
material changes in the information set forth in such Reports.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus/Proxy Statement to the extent that a statement
contained herein or in any other subsequently filed document which also is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this Prospectus/Proxy
Statement.
All documents and reports filed by German American pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus/Proxy Statement and prior to the date(s) of the special meetings of
shareholders of CSB and FSB shall be deemed to be incorporated by reference in
this Prospectus/Proxy Statement and to be a part hereof from the dates of filing
of such documents or reports. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus/Proxy Statement to the extent that
a statement contained herein or in any other subsequently filed document which
also is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus/Proxy Statement.
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS
RELATING TO GERMAN AMERICAN WHICH ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. THESE DOCUMENTS (EXCLUDING UNINCORPORATED EXHIBITS) ARE AVAILABLE
WITHOUT CHARGE TO EACH PERSON (INCLUDING ANY BENEFICIAL OWNER) TO WHOM THIS
PROSPECTUS/PROXY STATEMENT IS DELIVERED UPON WRITTEN OR ORAL REQUEST TO JOHN M.
GUTGSELL, GERMAN AMERICAN BANCORP, 711 MAIN STREET, BOX 810, JASPER, INDIANA
47546-3042 (812) 482-1314. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY ______________, 1998.
-8-
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION......................................................... 7
SOURCES OF INFORMATION........................................................ 7
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................... 7
INTRODUCTION..................................................................13
SUMMARY OF PROSPECTUS/PROXY STATEMENT.........................................14
THE SPECIAL MEETINGS.....................................................14
CSB ................................................................14
FSB..................................................................14
PARTIES TO THE MERGERS...................................................14
GERMAN AMERICAN......................................................14
GAHC ................................................................14
CSB ................................................................15
FSB..................................................................15
THE MERGERS..............................................................15
GENERAL..............................................................15
THE CSB MERGER.......................................................15
MERGER CONSIDERATION............................................15
THE CITIZENS MERGER.............................................16
OPINION OF FINANCIAL ADVISOR....................................16
THE FSB MERGER.......................................................16
GENERAL.........................................................16
MERGER CONSIDERATION............................................16
THE FSB BANK MERGER.............................................17
OPINION OF FINANCIAL ADVISOR....................................17
PER SHARE MARKET VALUES AND EQUIVALENT PER SHARE MARKET VALUES.......17
SUMMARY SELECTED FINANCIAL INFORMATION...............................19
RIGHTS OF DISSENTING SHAREHOLDERS....................................25
INTERESTS OF CERTAIN PERSONS IN THE MERGERS..........................25
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS.......................25
REGULATORY APPROVAL..................................................26
VOTES REQUIRED FOR APPROVAL..........................................26
INFORMATION CONCERNING THE SPECIAL MEETINGS...................................27
THE CSB SPECIAL MEETING..................................................27
GENERAL..............................................................27
VOTES REQUIRED.......................................................28
THE FSB SPECIAL MEETING..................................................28
GENERAL..............................................................28
VOTES REQUIRED.......................................................28
PROXIES..................................................................28
SOLICITATION OF PROXIES..................................................29
THE MERGERS...................................................................29
-9-
<PAGE>
BACKGROUND AND REASONS FOR THE MERGERS...................................29
CSB ................................................................29
FSB..................................................................31
GERMAN AMERICAN......................................................32
THE CSB ACQUISITION AGREEMENTS...........................................32
EFFECT OF THE MERGER.................................................32
TERMS OF THE MERGER..................................................33
CONVERSION OF CSB COMMON STOCK..................................33
SURRENDER OF CERTIFICATES.......................................35
RIGHTS DETERMINED AT EFFECTIVE TIME.............................36
EXPENSES........................................................36
CONDITIONS...........................................................36
TERMINATION OF ACQUISITION AGREEMENTS................................37
THE FSB ACQUISITION AGREEMENTS...........................................38
EFFECT OF THE MERGER.................................................38
TERMS OF THE MERGER..................................................39
CONVERSION OF FSB COMMON STOCK..................................39
SURRENDER OF CERTIFICATES.......................................41
RIGHTS DETERMINED AT EFFECTIVE TIME.............................41
EXPENSES........................................................42
CONDITIONS...........................................................42
TERMINATION OF ACQUISITION AGREEMENTS................................43
ACCOUNTING TREATMENT.....................................................44
FEDERAL INCOME TAX CONSEQUENCES..........................................44
REGISTRATION STATEMENT...................................................45
TRANSFER RESTRICTIONS....................................................45
REGULATORY MATTERS.......................................................45
RIGHTS OF DISSENTING SHAREHOLDERS........................................46
INTERESTS OF CERTAIN PERSONS IN THE MERGERS..............................47
OPINION OF FINANCIAL ADVISOR TO CSB......................................48
OPINION OF FINANCIAL ADVISOR TO FSB......................................52
PRO FORMA FINANCIAL STATEMENTS OF GERMAN AMERICAN.............................56
INFORMATION ABOUT GERMAN AMERICAN.............................................63
INFORMATION ABOUT CSB.........................................................63
GENERAL..................................................................63
COMPETITION..............................................................63
REGULATION AND SUPERVISION...............................................64
PROPERTIES...............................................................64
MARKET PRICE AND DIVIDEND INFORMATION....................................64
STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS.................65
INFORMATION ABOUT FSB.........................................................67
GENERAL..................................................................67
EMPLOYEES................................................................67
COMPETITION..............................................................67
REGULATION AND SUPERVISION...............................................67
PROPERTIES...............................................................67
DESCRIPTION OF FSB CAPITAL STOCK.........................................68
GENERAL.............................................................68
MARKET PRICE........................................................68
DIVIDENDS...........................................................68
STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS.................69
CSB MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS....................................................................70
-10-
<PAGE>
FSB MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS....................................................................90
COMPARISON OF CSB COMMON STOCK AND GERMAN AMERICAN COMMON STOCK..............106
GENERAL.................................................................106
PREFERRED STOCK.........................................................106
DIVIDEND RIGHTS.........................................................107
VOTING RIGHTS...........................................................107
LIQUIDATION RIGHTS......................................................107
ABSENCE OF PREEMPTIVE RIGHTS............................................107
ANTI-TAKEOVER PROVISIONS................................................107
POSSIBLE ISSUANCE OF COMMON STOCK...................................107
SUPERMAJORITY VOTE AND MINIMUM PRICE REQUIRED FOR BUSINESS
COMBINATIONS...................................................108
CLASSIFIED BOARD....................................................108
REMOVAL OF DIRECTORS................................................109
AMENDMENT, CHANGE, OR REPEAL OF CERTAIN ARTICLES....................109
CONTROL SHARE RESTRICTIONS..........................................109
POTENTIAL DISADVANTAGES TO SHAREHOLDERS.............................109
COMPARISON OF FSB COMMON STOCK AND GERMAN AMERICAN COMMON STOCK..............110
GENERAL.................................................................110
NUMBER OF SHARES AUTHORIZED BUT UNISSUED................................110
PREFERRED STOCK.........................................................110
DIVIDEND RIGHTS.........................................................111
VOTING RIGHTS...........................................................111
LIQUIDATION RIGHTS......................................................111
ABSENCE OF PREEMPTIVE RIGHTS............................................111
ANTI-TAKEOVER PROVISIONS................................................111
LEGAL MATTERS................................................................111
EXPERTS......................................................................111
OTHER MATTERS................................................................112
INDEX TO CSB FINANCIAL STATEMENTS............................................F 1
INDEX TO FSB FINANCIAL STATEMENTS...........................................F 27
-11-
<PAGE>
APPENDICES:
APPENDIX A -- CSB Agreement and Plan of Reorganization
APPENDIX B -- FSB Agreement and Plan or Reorganization
APPENDIX C -- Provisions of Chapter 44 of the Indiana Business Corporation
Law Governing Dissenters' Rights
APPENDIX D -- Fairness Opinion of Olive Corporate Finance, LLC for CSB
APPENDIX E -- Fairness Opinion of Olive Corporate Finance, LLC for FSB
-12-
<PAGE>
MERGERS OF
CSB BANCORP AND FSB FINANCIAL CORPORATION
INTO
GERMAN AMERICAN HOLDINGS CORPORATION,
A SUBSIDIARY OF
GERMAN AMERICAN BANCORP
SPECIAL MEETINGS OF
SHAREHOLDERS OF
CSB BANCORP
AND OF FSB FINANCIAL CORPORATION
INTRODUCTION
This Prospectus/Proxy Statement is being furnished to shareholders of CSB
Bancorp ("CSB") and FSB Financial Corporation ("FSB") in connection with the
separate solicitations of proxies by the respective Boards of Directors of CSB
and of FSB to be voted at Special Meetings of their respective Shareholders. The
purpose of each of the Special Meetings is to consider and vote upon separate
proposals to merge CSB and FSB, respectively, into German American Holdings
Corporation ("GAHC"), a wholly owned subsidiary of German American Bancorp
("German American") (which transactions are hereafter referred to collectively
as the "Mergers" and individually as the "CSB Merger" and the "FSB Merger,"
respectively).
The CSB Merger proposal is in accordance with the Agreement and Plan of
Reorganization, dated December 8, 1997, among CSB, German American, GAHC, The
Citizens State Bank of Petersburg ("Citizens"), and Community Trust Bank
("Community") (the "CSB Agreement"), and the Plan of Merger between CSB and
GAHC, joined in by German American, in the form attached to the CSB Agreement as
Exhibit A (collectively, the "CSB Acquisition Agreements"). The FSB Merger
proposal is in accordance with the Agreement and Plan of Reorganization, dated
January 30, 1998, among FSB, FSB Bank ("FSB Bank"), German American, GAHC and
Community (the "FSB Agreement"), and the Plan of Merger between FSB and GAHC,
joined in by German American, in the form attached to the FSB Agreement as
Exhibit A (collectively the "FSB Acquisition Agreements").
If the enclosed proxy is executed and returned, it may nevertheless be
revoked at any time insofar as it has not been exercised. The proxy may be
revoked by (a) delivering to the Secretary of the corporation holding the
meeting (CSB or FSB, as the case may be), (i) a written instrument revoking the
proxy or (ii) a subsequently dated proxy, or (b) attending the appropriate
Special Meeting and voting in person. Unless revoked, the proxy will be voted at
the meeting in accordance with the instructions of the shareholder as indicated
on the proxy. If no instructions are given, the shares will be voted FOR the CSB
Merger or the FSB Merger, as the case may be, and on other matters that may come
before the respective meetings as recommended by the Directors of CSB and FSB,
respectively.
Consummation of the CSB Merger is subject to approval by the vote of
the holders of a majority of the outstanding shares of the common stock of CSB
("CSB Common Stock"). Consummation of the FSB Merger is subject to approval by
the vote of the holders of a majority of the outstanding shares of the common
stock of FSB ("FSB Common Stock").
THE BOARD OF DIRECTORS OF CSB BELIEVES THAT THE CSB MERGER TO BE CONSIDERED
AT THE SPECIAL MEETING OF SHAREHOLDERS OF CSB IS IN THE BEST INTEREST OF CSB AND
ITS RESPECTIVE SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT CSB SHAREHOLDERS
VOTE FOR APPROVAL OF THE CSB MERGER. For information concerning the reasons for
these recommendations, see "THE MERGERS."
THE BOARD OF DIRECTORS OF FSB BELIEVES THAT THE FSB MERGER TO BE CONSIDERED
AT THE SPECIAL MEETING OF SHAREHOLDERS OF FSB IS IN THE BEST INTEREST OF FSB AND
ITS RESPECTIVE SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT FSB SHAREHOLDERS
VOTE FOR APPROVAL OF THE FSB MERGER. For information concerning the reasons for
these recommendations, see "THE MERGERS."
-13-
<PAGE>
SUMMARY OF PROSPECTUS/PROXY STATEMENT
The following is a brief summary of certain information contained in
this Prospectus/Proxy Statement. This summary is not intended to be complete and
is qualified in all respects by the more detailed information appearing
elsewhere in this Prospectus/Proxy Statement. Shareholders are urged to review
carefully the entire Prospectus/Proxy Statement, including the Appendices and
other documents referred to herein.
THE SPECIAL MEETINGS
CSB The Special Meeting is scheduled to be held on __________,
1998, at the southside branch of Citizens located at Highway
61 and Illinois Street, Petersburg, Indiana, at ____
[a.m./p.m.], to consider and vote upon the approval and
adoption of the CSB Acquisition Agreements and the CSB
Merger contemplated thereby. Only shareholders of record at
the close of business on _________, 1998, will be entitled
to vote at the Special Meeting. On such date, there were
160,000 shares of CSB Common Stock outstanding. Approval of
the CSB Acquisition Agreements requires the affirmative vote
of the holders of a majority of the outstanding shares of
CSB Common Stock. See "INFORMATION CONCERNING THE SPECIAL
MEETINGS -- The CSB Special Meeting."
FSB The FSB Special Meeting is scheduled to be held on _______
__, 1998 at _________________________ Indiana at _____
[a.m./p.m.], to consider and vote upon the adoption of the
FSB Acquisition Agreements and the FSB Merger contemplated
thereby. Only shareholders of record at the close of
business on _________, 1998, will be entitled to vote at the
FSB Special Meeting. On such date, there were 48,916 shares
of FSB Common Stock outstanding. Approval of the FSB
Acquisition Agreements requires the affirmative vote of the
holders of a majority of the outstanding shares of FSB
Common Stock. See "INFORMATION CONCERNING THE SPECIAL
MEETING -- The FSB Special Meeting."
PARTIES TO THE MERGERS
GERMAN AMERICAN German American is a multibank holding company incorporated
under Indiana law in 1982 that owns all the outstanding
capital stock of The German American Bank, Jasper, Indiana;
First State Bank, Southwest Indiana, Tell City, Indiana; and
GAHC and GAHC's subsidiaries, Community and The Peoples
National Bank and Trust Company, Washington, Indiana
("Peoples"). The mailing address and telephone number of the
principal executive offices of German American are 711 Main
Street, Jasper, Indiana 47546-3042; 812/482-1314. See
"INFORMATION ABOUT GERMAN AMERICAN."
GAHC GAHC is an Indiana corporation and a wholly owned subsidiary
of German American, which owns all of the outstanding
capital stock of Community and Peoples.
-14-
<PAGE>
CSB CSB is an Indiana corporation that owns all of the issued
and outstanding shares of Citizens, an Indiana state banking
corporation that was originally chartered in 1873. CSB was
incorporated in 1983. CSB's principal executive offices are
located at Main and Seventh Streets, Petersburg, Indiana
47567, and its telephone number is 812/354-8471. See
"INFORMATION ABOUT CSB".
FSB FSB is an Indiana corporation that owns all of the issued
and outstanding shares of FSB Bank, a state banking
corporation that was originally chartered in 1908. FSB was
incorporated in 1994. FSB's principal executive offices are
located at 102 Main Street, Francisco, Indiana 47659 and its
telephone number is 812/782-3201. See "INFORMATION ABOUT
FSB".
THE MERGERS
GENERAL The CSB and FSB Acquisition Agreements, each of which have
been approved unanimously by the Boards of Directors of CSB
or FSB, respectively, and German American, provide that CSB
and FSB will be merged into GAHC, with GAHC being the
surviving corporation in each of the Mergers. As a result of
the Mergers, the separate corporate existences of CSB and
FSB will cease. The CSB Acquisition Agreements also provide
that simultaneously with the CSB Merger, Community will be
merged into Citizens with Citizens surviving the merger. The
FSB Acquisition Agreements also provide that simultaneously
with the FSB Merger, FSB Bank will be merged into Community
(or Citizens, in the event the CSB Merger is effected prior
to the FSB Merger) with Community (or Citizens, as the case
may be) surviving the merger. As a consequence of the
Mergers, Citizens will become a direct, wholly owned banking
subsidiary of GAHC and will in addition own and operate the
properties and businesses now owned and operated by
Community and FSB Bank. See "THE MERGERS -- The CSB
Acquisition Agreements." The CSB Acquisition Agreements and
the FSB Acquisition Agreements are separate and distinct
from each other, and neither the CSB Merger nor the FSB
Merger is conditioned or dependent upon the consummation of
the other. The CSB Acquisition Agreements and the FSB
Acquisition Agreements are hereby incorporated into this
Prospectus/Proxy Statement by reference.
THE CSB MERGER
MERGER
CONSIDERATION
On the effective date of the CSB Merger, German American
will issue not fewer than 5.8036 nor more than 7.1094 shares
of German American Common Stock for each of the 160,000
issued and outstanding shares of CSB Common Stock (subject
to adjustment in the event of any future stock dividends or
spilts and the like). The exact number of shares to be
issued by German American in the CSB Merger will be
determined by the average closing bid/asked quotations for
German American Common Stock during the 30 calendar day
period ending on the second business day preceding the
closing date. On ________, 1998 (the latest practicable date
prior to the printing of this Prospectus/Proxy Statement),
the average of the closing bid/asked quotations for German
American Common Stock was $_____ per share. Assuming that
such average value remains not less than $24.50 during the
CSB Valuation Period (as to which there is no assurance),
then the minimum number of shares specified by the CSB
Agreement (5.8036 shares of German American for each CSB
common share and an aggregate of 928,572 shares of German
American Common Stock) will be issued in the CSB Merger.
-15-
<PAGE>
Assuming no change in the number of shares of CSB Common
Stock issued and outstanding, and that the average of the
closing bid/asked quotation for German American Common Stock
during the CSB Valuation Period remains at least $20 per
share, German American will issue a number of shares of
German American Common Stock with respect to each share of
CSB Common Stock that has an average value (as determined
during the CSB Valuation Period of at least $142.19. If the
CSB Merger had closed on ______, 1998 (the latest date
practicable prior to the printing of this Prospectus/Proxy
Statement, CSB Shareholders would have received 5.8036
shares of German American Common Stock for each share of CSB
Common Stock held by them, which would have had a value
(based on German American's closing price on that date) of
$______ per share of CSB Common Stock. See "THE MERGERS
--The CSB Acquisition Agreements-- Terms of the
Merger--Conversion of CSB Common Stock."
THE CITIZENS MERGER
Simultaneously with the CSB Merger, Community, a wholly
owned banking subsidiary of German American and GAHC, will
be merged into Citizens (the "Citizens-Community Merger").
Citizens will survive the Citizens-Community Merger, will
retain the name "The Citizens State Bank of Petersburg" and
will operate as a state chartered bank under the Articles of
Incorporation and Bylaws of Citizens that are in effect
immediately prior to the Citizens-Community Merger. The main
office of Community will become a branch of Citizens. As a
consequence of the CSB Merger and the Citizens-Community
Merger, Citizens will become a wholly owned subsidiary of
GAHC, which in turn is a wholly owned subsidiary of German
American.
OPINION OF FINANCIAL
ADVISOR
CSB has received an opinion of Olive Corporate Finance, LLC,
that the consideration to be received by the shareholders of
CSB Common Stock in the CSB Merger is fair, from a financial
point of view, to the shareholders of CSB Common Stock. See
"THE MERGERS--Opinion of Financial Advisor to CSB" and the
opinion of Olive Corporate Finance, LLC attached hereto as
Appendix D.
THE FSB MERGER
MERGER
CONSIDERATION
On the effective date of the FSB Merger (the "FSB Effective
Time"), German American will issue that number of shares of
German American Common Stock for all of the 48,916 issued
and outstanding shares of FSB Common Stock having a value
(as valued at the average of the lowest closing asked prices
and highest closing bid prices of German American Common
Stock for each trading day within the the FSB Valuation
Period equal to 150% of the sum of the shareholders' equity
of FSB as of the end of the month immediately preceding the
FSB Closing Date, subject to certain adjustments described
in greater detail in "THE MERGERS -- The FSB Acquisition
Agreements -- Terms of the Merger -- Conversion of FSB
Common Stock". German American's best estimate as of the
date of this Prospectus is that 150% of FSB's shareholders'
equity as of the month end prior to the FSB Closing Date (as
adjusted in accordance with the FSB Acquisition Agreements)
will be approximately $_____, assuming that the FSB Closing
Date is on or before ________________, 1998. Purely for
purposes of illustration, if that estimate of FSB's future
adjusted shareholders' equity is accurate, and if the German
American Common Stock has an average value as determined
during the applicable valuation period in accordance with
the FSB Acquisition Agreements of $___, $___ or $___, per
share (representing the average of the closing bid/asked
quotations for German American Common Stock on
_____________, 1998 (the most recent practicable date prior
to the date of this Prospectus/Proxy Statement) and such
average varied by 10 percent), then under those alternative
assumptions, German American would issue an aggregate of
___, ___ and ___ shares, respectively, to FSB shareholders,
and each of the 48,916 FSB shares
-16-
<PAGE>
that are expected to be issued and outstanding at the
Effective Time will be converted into ___, ___ and ___
shares, respectively. See "THE MERGERS -- The FSB
Acquisition Agreements--Terms of the Merger--Conversion of
FSB Common Stock."
THE FSB BANK MERGER
Simultaneously with the FSB Merger, FSB Bank, a wholly owned
banking subsidiary of FSB, will be merged into Community or,
in the event that the Citizens Merger is first effected,
Citizens (the "FSB Bank Merger"). Unless the
Citizens-Community Merger is effected first, the bank
surviving the FSB Bank Merger will retain the name
"Community Trust Bank" and will operate as a state chartered
bank under the Articles of Incorporation and Bylaws of
Community that were in effect immediately prior to the FSB
Bank Merger until Community merges with and into Citizens.
At that time, the surviving bank will retain the name "The
Citizens State Bank of Petersburg" and will operate as a
state charted bank under the Articles of Incorporation and
Bylaws of Citizens that were in effect immediately prior to
the Citizens-Community Merger. The main office of FSB Bank
will become a branch of Citizens.
OPINION OF THE
FINANCIAL ADVISOR
FSB has received an opinion of Olive Corporate Finance, LLC
that the exchange ratio in the FSB Merger is fair, from a
financial point of view, to the holders of FSB Common Stock.
See "THE MERGERS -- Opinion of Financial Advisor to FSB" and
the opinion of Olive Corporate Finance, LLC attached hereto
as Appendix E.
PER SHARE MARKET
VALUES AND EQUIVALENT
PER SHARE MARKET
VALUES
The first table sets forth the market value of German
American Common Stock (as determined by the average of the
closing bid and asked quotations as reported by NASDAQ) and
of CSB Common Stock (as determined by the price of the most
recent trade known to CSB management) as of October 20,
1997, the date preceding the first public announcement of
the CSB Merger, and the equivalent per share market value as
of that date of the consideration to be received per CSB
share in the CSB Merger calculated at the maximum, mid-point
and minimum exchange ratios specified by the CSB Agreement.
If the CSB Merger had closed on _________, 1998, the latest
practicable date prior to the printing of this
Prospectus/Proxy Statement, the exchange ratio would have
been the minimum (5.8036), and (based on the average of the
closing bid and asked prices of the German American Common
Stock as of that date, which was $_____) the equivalent
value as of that date per CSB Common Share at the minimum
exchange ratio (calculated by multiplying $_____ by 5.8036)
would have been $_____.
The second table sets forth the market value of German
American Common Stock (as determined by the average of the
closing bid and asked quotations as reported by NASDAQ), and
of FSB Common Stock (as determined by the price of the most
recent trade known to FSB management) as of October 29,
1997, the date preceding the first public announcement of
the FSB Merger, and the equivalent per share market value as
of that date of the consideration to be received per FSB
share in the Merger at three selected possible exchange
ratios, representing the
-17-
<PAGE>
estimated exchange ratio if the FSB Merger had closed on
March 31, 1998, and such exchange ratio varied by ten
percent. If the FSB Merger had closed on or before March 31,
1998, and if the average of the closing bid/asked quotations
for German American Common Stock during the FSB Valuation
Period is the same as the average of such quotations on
March 31, 1998, German American estimates that the exchange
ratio would have been 1.3805, and (based on the average of
the closing bid and asked prices of the German American
Common Stock for the March 31, 1998 which was $31.99) the
equivalent value as of that date per FSB Common Share at the
exchange ratio (calculated by multiplying $31.99 by 1.3805)
would have been $44.16.
The use of these assumed exchange ratios is for illustrative
purposes only and is not intended to predict the actual
number of shares to be issued in the Mergers.
Equivalent Values as of
Actual Market October 20, 1997 Per CSB
Values as of Common Share at Selected
October 20, 1997 Exchange Ratios
Min. Midpoint Max.
5.8036 6.4565 7.1094
German American $27.96 N/A N/A N/A
CSB $87.50 $162.27 $180.52 $198.78
Equivalent Values as of
Actual Market October 29, 1997 Per FSB
Values as of Common Share at Selected
October 29, 1997 Exchange Ratios*
1.2425 1.3805 1.5186
German American $28.02 N/A N/A N/A
FSB $30.00 $34.81 $38.68 $42.55
*There is no minimum or maximum
exchange ratio in the FSB Merger.
-18-
<PAGE>
SUMMARY SELECTED
FINANCIAL
INFORMATION
The following tables set forth (a) pro forma consolidated
selected financial data for CSB, FSB and German American
combined as of and for the years ended December 31, 1997,
1996 and 1995, (b) historical, pro forma and equivalent pro
forma net income, cash dividends and book value of CSB and
FSB on a per share basis as of such dates and for such
periods, and (c) selected consolidated financial data for
CSB and FSB as of and for each of the five years ended
December 31, 1997. This information is derived from and
should be read in conjunction with the the historical
financial statements of German American, CSB and FSB that
appear elsewhere in this Prospectus or in the documents and
reports incorporated herein by reference, and with the pro
forma condensed consolidated financial statements of German
American, which give effect to the Mergers and which appear
in this Prospectus under the caption "PRO FORMA FINANCIAL
STATEMENTS OF GERMAN AMERICAN." The pro forma condensed
consolidated financial information has been prepared based
on the "pooling of interest" method of accounting and on the
assumption that no CSB or FSB shareholder will exercise
dissenters' rights. The historical financial information of
German American, CSB and FSB has been combined for each
period presented.
The equivalent pro forma per share information for CSB has
been determined by multiplying the German American pro forma
per share information by assumed exchange ratios
representing the maximum and minimum exchange ratios
specified by the CSB Agreement, as well as a mid-point
between the maximum and minimum exchange ratios. The
maximum, mid-point and minimum assumed exchange ratios are
7.1094, 6.4565 and 5.8036, respectively. If the Merger had
closed on March 31, 1998, the exchange ratio would have been
the minimum (5.8036).
The equivalent pro forma per share information for FSB has
been illustrated at three selected possible exchange ratios,
representing the estimated exchange ratio if the FSB Merger
had closed on March 31, 1998 (1.3805) and such exchange
ratio varied by 10 percent. There is no minimum or maximum
exchange ratio specified by the FSB Acquisition Agreements.
The use of these assumed exchange ratios is for illustrative
purposes only and is not intended to predict the actual
number of shares to be issued in either of the Mergers.
-19-
<PAGE>
GERMAN AMERICAN BANCORP,
FSB FINANCIAL CORPORATION, AND CSB BANCORP
PRO FORMA CONSOLIDATED SELECTED FINANCIAL DATA
(Dollar amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12/31/97 12/31/96 12/31/95
SUMMARY OF OPERATIONS (A)
Interest income $44,477 $42,091 $39,914
Interest expense 21,004 19,970 18,847
Net interest income 23,473 22,121 21,067
Provision for loan losses 430 434 109
Net interest income after provision f 23,043 21,687 20,958
Non-interest income 2,905 2,564 2,100
Non-interest expense 16,410 15,808 14,811
Income before income tax 9,538 8,443 8,247
Income tax 3,107 2,852 2,670
Income before change in accounting pr $6,431 $5,591 $5,577
PERIOD END BALANCES (A)
Total assets $591,604 $578,803 $538,825
Total loans, net 379,907 360,205 332,943
Total deposits 515,206 500,553 465,053
Long-term debt 1,000 1,000
Total shareholders' equity 63,554 59,179 55,940
Cash dividends declared 2,726 2,469 2,278
Common shares outstanding 6,346,262 6,335,153 6,327,260
PER SHARE DATA (A)
Income before change in accounting pr $1.01 $0.88 $0.88
Cash dividends declared (B) 0.43 0.39 0.36
Shareholders' equity, end of year 10.01 9.34 8.84
Weighted average shares outstanding 6,339,828 6,331,417 6,327,846
</TABLE>
(A) Pro forma information includes German American Bancorp, FSB Financial
Corporation and CSB Bancorp as if combined for all periods presented.
Assumes issuance of 67,529 common shares of German American Bancorp in
exchange for all shares of FSB Financial, and 928,572 common shares of
German American Bancorp in exchange for all shares of CSB Bancorp (see Pro
Forma Financial Statements regarding assumed shares issued). The actual
number of shares to be issued is not yet known. The assumed number of
shares issued is for illustrative purposes only and is not an attempt to
predict the actual number of shares to be issued in the Merger.
(B) Based upon GAB Bancorp cash dividends declared, without restatement for
poolings, because management believes acquisitions will have no significant
effect on GAB Bancorp dividend policy.
-20-
<PAGE>
GERMAN AMERICAN BANCORP AND CSB BANCORP
HISTORICAL AND PRO FORMA PER SHARE DATA
<TABLE>
<CAPTION>
GERMAN GERMAN AMERICAN CSB BANCORP
AMERICAN BANCORP EQUIVALENT
BANCORP PRO FORMA CSB BANCORP PRO FORMA
(C) (A) (D)
<S> <C> <C> <C> <C>
12/31/97
Assuming 7.1094 Exchange Ratio (maximum)
Net income $1.15 $0.98 $1.94 $6.97
Cash dividends declared (B) 0.43 0.43 2.75 3.06
Shareholders' equity, end of period 9.97 9.70 54.67 63.96
Assuming 6.4565 Exchange Ratio (mid-point)
Net income 1.15 1.00 1.94 6.46
Cash dividends declared (B) 0.43 0.43 2.75 2.78
Shareholders' equity, end of period 9.97 9.86 54.67 63.66
Assuming 5.8036 Exchange Ratio (minimum)
Net income 1.15 1.01 1.94 5.86
Cash dividends declared (B) 0.43 0.43 2.75 2.50
Shareholders' equity, end of period 9.97 10.02 54.67 58.15
12/31/96
Assuming 7.1094 Exchange Ratio (maximum)
Net income 0.92 0.85 4.54 6.04
Cash dividends declared (B) 0.39 0.39 2.75 2.77
Assuming 6.4565 Exchange Ratio (mid-point)
Net income 0.92 0.87 4.54 5.62
Cash dividends declared (B) 0.39 0.39 2.75 2.52
Assuming 5.8036 Exchange Ratio (minimum)
Net income 0.92 0.88 4.54 5.11
Cash dividends declared (B) 0.39 0.39 2.75 2.26
12/31/95
Assuming 7.1094 Exchange Ratio (maximum)
Net income 0.91 0.85 4.49 6.04
Cash dividends declared (B) 0.36 0.36 2.50 2.55
Assuming 6.4565 Exchange Ratio (mid-point)
Net income 0.91 0.87 4.49 5.62
Cash dividends declared (B) 0.36 0.36 2.50 2.32
Assuming 5.8036 Exchange Ratio (minimum)
Net income 0.91 0.88 4.49 5.11
Cash dividends declared (B) 0.36 0.36 2.50 2.09
(A) Pro forma information includes German American Bancorp, FSB Financial Corporation and CSB Bancorp
as if combined for all periods presented.
(B) Based upon German American Bancorp cash dividends declared, without restatement for poolings.
Management believes acquisitions will have no significant effect on German American Bancorp dividend policy.
(C) Retroactively restated for all stock splits and stock dividends through December 31, 1997.
(D) Computed by multiplying German American Bancorp pro forma per share information by the indicated Exchange Ratio.
</TABLE>
-21-
<PAGE>
GERMAN AMERICAN BANCORP AND FSB FINANCIAL CORPORATION
HISTORICAL AND PRO FORMA PER SHARE DATA
<TABLE>
<CAPTION>
FSB FINANCIAL
GERMAN GERMAN AMERICAN CORPORATION
AMERICAN BANCORP FSB FINANCIAL EQUIVALENT
BANCORP PRO FORMA CORPORATION PRO FORMA
(C) (A) (D)
<S> <C> <C> <C> <C>
12/31/97
Assuming 1.5186 Exchange Ratio (maximum)
Net income $1.15 $1.01 ($0.57) $1.53
Cash dividends declared (B) 0.43 0.43 .25 0.65
Shareholders' equity, end of period 9.97 10.00 30.15 15.19
Assuming 1.3805 Exchange Ratio (mid-point)
Net income 1.15 1.01 (0.57) 1.39
Cash dividends declared (B) 0.43 0.43 0.25 0.59
Shareholders' equity, end of period 9.97 10.01 30.15 13.82
Assuming 1.2425 Exchange Ratio (minimum)
Net income 1.15 1.02 (0.57) 1.27
Cash dividends declared (B) 0.43 0.43 0.25 0.53
Shareholders' equity, end of period 9.97 10.03 30.15 12.46
12/31/96
Assuming 1.5186 Exchange Ratio (maximum)
Net income 0.92 0.88 (0.67) 1.34
Cash dividends declared (B) 0.39 0.39 0.00 0.59
Assuming 1.3805 Exchange Ratio (mid-point)
Net income 0.92 0.88 (0.67) 1.21
Cash dividends declared (B) 0.39 0.39 0.00 0.54
Assuming 1.2425 Exchange Ratio (minimum)
Net income 0.92 0.88 (0.67) 1.09
Cash dividends declared (B) 0.39 0.39 0.00 0.48
12/31/95
Assuming 1.5186 Exchange Ratio (maximum)
Net income 0.91 0.88 0.22 1.34
Cash dividends declared (B) 0.36 0.36 0.25 0.55
Assuming 1.3805 Exchange Ratio (mid-point)
Net income 0.91 0.88 0.22 1.21
Cash dividends declared (B) 0.36 0.36 0.25 0.50
Assuming 1.2425 Exchange Ratio (minimum)
Net income 0.91 0.88 0.22 1.09
Cash dividends declared (B) 0.36 0.36 0.25 0.45
(A) Pro forma information includes German American Bancorp, FSB Financial Corporation and CSB Bancorp
as if combined for all periods presented.
(B) Based upon German American Bancorp cash dividends declared, without restatement for poolings.
Management believes acquisitions will have no significant effect on German American Bancorp dividend policy.
(C) Retroactively restated for all stock splits and stock dividends through December 31, 1997.
(D) Computed by multiplying German American Bancorp pro forma per share information by the indicated Exchange Ratio.
The FSB Acquisition Agreements do not specify a minimum or maximum exchange ratio. The mid-point exchange
ratio is based on FSB December 31, 1997 shareholders' equity and the average bid and asked prices of German
American stock for the last ten business days of March 1998 ($31.986). The maximum and minimum exchange
ratios are 10% more and 10% less, respectively, than the mid-point exchange ratio.
</TABLE>
-22-
<PAGE>
CSB Bancorp
Selected Consolidated Financial Data
(Dollar amounts in thousands, except share data)
The following table presents selected financial information for CSB Bancorp:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995 1994 1993
------------------------------------------------
FOR THE PERIOD
<S> <C> <C> <C> <C> <C>
Interest Income $5,854 $5,652 $5,222 $4,628 $4,526
Interest Expense 2,921 2,799 2,499 2,116 2,035
Net Interest Income 2,933 2,853 2,723 2,512 2,491
Provision for loan losses 308 135 48 25 155
Non-interest income 322 250 270 302 206
Non-interest expense 2,055 1,898 1,889 1,824 1,722
Income before income taxes 392 1,070 1,056 965 820
Net Income 310 727 718 660 611
PER COMMON SHARE
Net Income $1.94 $4.54 $4.49 $4.12 $3.82
Cash dividends 2.75 2.75 2.50 2.10 2.03
Weighted average shares (000) 160 160 160 160 160
AT PERIOD-END
Total loans $46,854 $43,245 $43,814 $42,531 $40,467
Earning assets 69,010 68,221 63,353 52,796 59,421
Total assets 77,004 74,346 67,874 63,660 63,549
Average total assets 75,988 72,437 66,386 65,664 65,230
Deposits 67,085 64,347 58,776 55,030 55,251
Common shareholders' equity 8,747 8,867 8,596 8,210 7,938
Total shareholders' equity 8,747 8,867 8,596 8,210 7,938
Average shareholders' equity 9,143 8,848 8,537 8,140 7,852
PERFORMANCE RATIOS
Return on average total assets 0.41 1.01 1.08 1.01 0.94
Return on average common equity 3.52 8.22 8.41 8.11 7.78
Net overhead expense to average assets 2.28 2.28 2.44 2.32 2.32
Net interest margin 4.31% 4.36% 4.50% 4.25% 4.27%
CAPITAL RATIOS AT PERIOD-END
Tangible equity to tangible assets 11.30% 12.00% 12.58% 12.79% 12.36%
Tier 1 risk-adjusted capital 19.40 21.50 21.22 21.25 20.34
Total risk-adjusted capital 20.70 22.75 22.50 22.51 21.60
Dividend payout ratio 141.90 60.53 55.71 51.03 53.16
ASSET QUALITY DATA
Nonperforming loans $798 $699 $862 $415 $740
Nonperforming assets 1,040 1,025 1,399 1,074 1,450
Allowance for loan losses 1,161 616 659 723 742
Nonperforming loans to period-end loans 1.70% 1.62% 1.97% 0.98% 1.83%
Allowance for loan losses to nonperforming loans 145.49% 88.13% 76.45% 174.22% 100.27%
Allowance for loan losses to period-end loans 2.48% 1.42% 1.50% 1.70% 1.83%
</TABLE>
-23-
<PAGE>
FSB FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollar References In Thousands Except Per Share Data)
The following selected data has been derived from the unaudited internal
financial statements of FSB Financial Corporation and FSB Bank. The Corporation
and Bank do not prepare internal financial statements on a fiscal year basis
consistent with the audited September 30, 1997 consolidated financial
statements. Accordingly, and to be consistent with the Selected Consolidated
Financial Data of German American Bancorp and CSB Bancorp, this selected data
has been presented on a calendar year basis. As the Corporation was formed in
1994, data prior to 1994 includes FSB Bank only. In the opinion of management,
all normal recurring adjustments which are necessary to present fairly the
selected consolidated financial date have been included.
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
SUMMARY OF OPERATIONS
Interest and Fees on Loans $934 $863 $528 $466 $425
Interest on Investments 221 215 348 380 468
Total Interest Income 1,155 1,078 876 846 893
Interest on Deposits 562 479 400 339 411
Interest on Short-term Borrowings - 9 - - -
Interest on Long-term Debt - - - - -
Total Interest Expense 562 488 400 339 411
Net Interest Income 593 590 476 507 482
Provision for Loan Losses 30 89 12 12 14
Net Interest Income after Provision
for Loan Losses 563 501 464 495 468
Service Charges on Deposit Accounts 76 74 55 54 50
Other Income 20 12 11 10 10
Total Non-Interest Income 96 86 66 64 60
Salaries and Benefits 360 320 245 216 207
Other Expenses 327 302 259 233 246
Total Non-Interest Expense 687 622 504 449 453
Income Before Income Taxes (28) (35) 26 110 75
Income Tax Expense - (2) 15 24 16
Net Income (28) (33) 11 86 59
PERIOD END BALANCES
Total Assets 15,762 15,014 12,364 12,605 13,078
Total Loans, Net 10,000 10,822 7,332 5,175 4,336
Total Long-term Debt - - - - -
Total Deposits 14,173 13,252 10,706 10,985 11,540
Total Shareholders' Equity 1,475 1,519 1,556 1,510 1,479
PER SHARE DATA
Net Income (0.57) (0.67) 0.22 1.76 1.20
Cash Dividends 0.25 - 0.25 0.25 0.25
Shareholders' Equity, End of Period 30.15 31.00 31.76 30.82 30.18
</TABLE>
-24-
<PAGE>
RIGHTS OF DISSENTING
SHAREHOLDERS
Subject to certain conditions, a shareholder of CSB or FSB
who (a) before the time the vote is taken on the CSB Merger
or the FSB Merger at the respective Special Meeting,
delivers to CSB or FSB, as the case may be, a written demand
for payment of his or her shares of CSB or FSB Common Stock,
and (b) does not vote in favor of the applicable Merger,
will have the right to receive in cash the fair value of his
or her shares of CSB or FSB Common Stock, as the case may
be, as determined pursuant to Chapter 44 of the Indiana
Business Corporation Law ("IBCL"). See "THE MERGERS --
Rights of Dissenting Shareholders" and Appendix C to this
Prospectus/Proxy Statement.
INTERESTS OF
CERTAIN PERSONS
IN THE MERGERS
Certain of the Directors and officers of CSB have interests
in the CSB Merger other than their interests as shareholders
of CSB. German American has agreed in the CSB Acquisition
Agreements (a) to place a designated member of the present
CSB Board of Directors on the German American Board; (b)
that the present Directors of Citizens will have the right
to designate nominees for one half of the Citizens Board for
a three-year period following the CSB Merger; and (c) not to
object to the payment of up to $3,000 per year to each
present Citizens Director for a period of three years
following the CSB Merger. Additionally, the CSB Board of
Directors approved the payment of a total of $16,718.30 in
fees to certain of its Directors who served on the special
merger negotiation committee of the Board of Directors. In
connection with the FSB Merger, FSB Bank intends to pay to
Glenn Young, current president of FSB Bank for whom a
position will no longer be available, a negotiated payment
of approximately [%75,000] (plus a cash settlement for other
accrued but unpaid benefits) in exchange for Mr. Young's
services in connection with the FSB Merger and his release
of claims.See "THE MERGERS -- Interests of Certain Persons
in the Mergers."
FEDERAL INCOME TAX
CONSEQUENCES OF
THE MERGER
The Mergers are each intended to constitute tax-free
reorganizations to CSB, FSB, German American, and GAHC.
Assuming each Merger qualifies as a tax-free reorganization,
(a) shareholders will recognize no gain or loss upon the
exchange of their shares for shares of German American
Common Stock, (b) shareholders who receive cash in exchange
for shares of either CSB or FSB Common Stock, either in lieu
of fractional shares or because they have perfected
dissenters' rights under the IBCL, will recognize gain or
loss upon the receipt of cash for their shares, and (c) cash
received by shareholders receiving cash in lieu of
fractional share interests and cash received by shareholders
perfecting dissenters' rights will be treated as a
distribution in full payment of such fractional share
interests, or shares surrendered in exercise of dissenters'
rights, resulting in capital gain or loss or ordinary income
or loss, as the case may be, depending upon each
shareholder's particular situation. Leagre Chandler &
Millard, counsel for German American, has rendered tax
opinions to CSB and FSB that the Mergers will qualify as
tax-free reorganizations under Section 368(a) of the
Internal Revenue Code. See "THE MERGERS--Federal Income Tax
Consequences." Each CSB and FSB shareholder is urged to
consult his or her own tax advisors regarding the specific
tax consequences of the Mergers to him or her.
-25-
<PAGE>
REGULATORY
APPROVAL
The CSB Merger will not become effective unless the
Citizens-Community Merger occurs simultaneously. Likewise,
the FSB Merger will not become effective unless the FSB Bank
Merger occurs simultaneously. The Citizens-Community Merger
and the FSB Bank Merger are both subject to the approval of
the Federal Insurance Deposit Corporation (the "FDIC") and
the Indiana Department of Financial Institutions ("DFI").
Applications seeking approvals of the Citizens-Community
Merger and the FSB Bank Merger were filed with the FDIC on
March 2, 1998 and are now pending. The DFI approved both of
the above-described mergers of April 9, 1998.
VOTES REQUIRED
FOR APPROVAL
The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock of each party to the
Mergers (CSB, FSB and GAHC) is required to approve each of
the Mergers. All of the Directors of CSB have agreed to vote
the shares of CSB Common Stock owned of record by them in
favor of approval of the CSB Merger. All of the Directors of
FSB have agreed to vote the shares of FSB Common Stock owned
of record by them in favor of approval of the FSB Merger. At
January 31, 1998, the 48,502 shares of CSB Common Stock
owned of record by Directors of CSB represented
approximately 30.31% of the shares entitled to vote at the
CSB Special Meeting. The Directors and executive officers of
CSB own beneficially (including not only shares owned of
record but also shares owned by spouses, minor children and
other close associates) an aggregate of 66,399 shares or
approximately 41.5% of the shares entitled to vote at the
CSB Special Meeting. At _____________, 1998, the ____ shares
of FSB Common Stock owned of record by Directors of FSB
represented approximately ___% of the shares entitled to
vote at the FSB Special Meeting. The Directors and executive
officers of FSB own beneficially (including not only shares
owned of record but also shares owned by spouses, minor
children and other close associates) an aggregate of 10,372
shares or approximately 20.9% of the shares entitled to vote
at the FSB Special Meeting. See "INFORMATION CONCERNING THE
SPECIAL MEETINGS." German American, as the sole shareholder
of GAHC, intends to vote all of GAHC's shares in favor of
the Mergers; no vote of German American's shareholders is
required to approve either of the Mergers.
-26-
<PAGE>
INFORMATION CONCERNING THE SPECIAL MEETINGS
THE CSB SPECIAL MEETING
GENERAL
Each copy of this Prospectus/Proxy Statement mailed to a CSB Shareholder is
accompanied by a proxy, which is solicited by the Board of Directors of CSB for
use at the CSB Special Meeting that will be held at the southside branch of The
Citizens State Bank of Petersburg located at Highway 61 and Illinois Street,
Petersburg, Indiana, at ____ [a.m./p.m.], Petersburg time, on _________,
__________, 1998, and at any adjournment or adjournments thereof. Shareholders
of CSB who are the owners of CSB Common Stock of record at the close of business
on _______ __, 1998, will be entitled to vote at the Special Meeting. On such
date, there were 160,000 shares of CSB Common Stock outstanding and entitled to
vote, with each such share entitled to one vote.
VOTES REQUIRED
The presence at the Special Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of CSB Common Stock will
constitute a quorum. Each share of CSB Common Stock is entitled to one vote on
any matter to come before the CSB Special Meeting.
The affirmative vote of the holders of a majority of the outstanding shares
of CSB Common Stock entitled to vote at the Special Meeting (at least 80,001 of
the 160,000 shares of CSB Common Stock outstanding) is required for approval and
adoption of the CSB Acquisition Agreements. Proxies marked as abstentions and
shares held in street name that are designated by brokers on proxy cards as not
voted will not be counted as votes cast and, as a result, will have the same
effect as a vote against approval of the CSB Acquisition Agreements. Proxies
marked as abstentions or as broker non-votes, however, will be treated as shares
present for the purpose of determining whether a quorum is present. All of the
members of the Board of Directors of CSB have agreed to vote all shares owned of
record by them in favor of approval and adoption of the CSB Acquisition
Agreements at the Special Meeting. At January 31, 1998 , the Directors of CSB
owned of record 48,502 shares or approximately 30.31 percent of the outstanding
shares thereof, and owned beneficially (including not only shares owned by
record but also shares owned by spouses, minor children, and other close
associates) an aggregate of 66,399 shares, or approximately 41.5 percent.
-27-
<PAGE>
THE FSB SPECIAL MEETING
GENERAL
Each copy of this Prospectus/Proxy Statement mailed to a FSB
Shareholder is accompanied by a proxy, which is solicited by the Board of
Directors of FSB for use at the Special Meeting that will be held
at_________________________________________, Indiana, at ____ [a.m./p.m.],
Petersburg time, on _________, __________, 1998, and at any adjournment or
adjournments thereof. Shareholders of FSB who are the owners of FSB Common Stock
of record at the close of business on _______ __, 1998, will be entitled to vote
at the Special Meeting. On such date, there were _______ shares of FSB Common
Stock outstanding and entitled to vote, with each such share entitled to one
vote.
VOTES REQUIRED
The presence at the Special Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of FSB Common Stock will
constitute a quorum. Each share of FSB Common Stock is entitled to one vote on
any matter to come before the Special Meeting.
The affirmative vote of the holders of a majority of the outstanding shares
of FSB Common Stock entitled to vote at the Special Meeting (at least 24,459 of
the 48,916 shares of FSB Common Stock outstanding) is required for approval and
adoption of the FSB Acquisition Agreements. Proxies marked as abstentions and
shares held in street name that are designated by brokers on proxy cards as not
voted will not be counted as votes cast and, as a result, will have the same
effect as a vote against approval of the FSB Acquisition Agreements. Proxies
marked as abstentions or as broker non-votes, however, will be treated as shares
present for the purpose of determining whether a quorum is present. All of the
members of the Board of Directors of FSB have agreed to vote all shares owned of
record by them in favor of approval and adoption of the FSB Acquisition
Agreements at the Special Meeting. At March 31, 1998, the Directors of FSB owned
of record 10,372 shares or approximately 20.9% of the outstanding shares
thereof, and owned beneficially (including not only shares owned by record but
also shares owned by spouses, minor children, and other close associates) an
aggregate of 10,372 shares, or approximately 20.9%. Accordingly, the vote of an
additional 14,087 shares would be required to approve the Merger in addition to
the 10,372 shares beneficially owned by the Directors of FSB.
PROXIES
If the enclosed proxy is executed and returned, it may nevertheless be
revoked at any time insofar as it has not been exercised. The proxy may be
revoked by (a) giving written notice of revocation to the Secretary of CSB or
FSB (as the case may be) at the principal executive offices of such corporation
set forth in the Summary, which written revocation notice is actually received
by the Secretary prior to the proxy being exercised, (b) executing a
subsequently dated proxy, or (c) attending the Special Meeting and voting in
person. Unless revoked, the proxy will be voted at the meeting in accordance
with the instructions of the shareholder as indicated on the proxy. If no
instructions are given, the shares will be voted FOR the CSB Merger or the FSB
Merger, respectively, and, on other matters that come before the respective
meetings, as recommended by the Directors of CSB and FSB, respectively;
-28-
<PAGE>
provided, that, in no event will a proxy that has been voted against the CSB
Merger or the FSB Merger, respectively, be voted in favor of any motion to
adjourn the respective CSB or FSB Special Meeting for the purpose of soliciting
additional votes in favor of the CSB Merger or the FSB Merger.
SOLICITATION OF PROXIES
In addition to the use of the mails, Directors, officers, and certain
employees of CSB, Citizens, FSB and FSB Bank may, without additional
compensation therefor, solicit proxies in person or by telephone or facsimile.
CSB, FSB and German American will bear the cost of soliciting proxies from
shareholders of CSB and FSB, respectively, and the expense of preparing and
printing this Prospectus/Proxy Statement. See "THE MERGERS --The CSB Acquisition
Agreements--Terms of the Merger--Expenses" and "THE MERGERS -- The FSB
Acquisition Agreements -- Terms of the Merger - Expenses." Brokers and other
custodians, nominees, and fiduciaries are requested to forward proxies and proxy
soliciting materials to the beneficial owners of shares held of record by such
persons and will be reimbursed for their reasonable expenses in so doing.
THE MERGERS
BACKGROUND AND REASONS FOR THE MERGERS
CSB
Because of various changes to the banking laws, acquisition activity
among financial institutions located in Indiana and in other states during the
last several years has increased. This acquisition activity has resulted in
regional and large financial institutions entering Indiana and other markets in
the midwestern United States. In addition, developments and deregulation in the
financial services industry generally have led to increases in competition for
bank services. Further, recent increases in bank regulatory burdens have
resulted in increased costs to most financial institutions. These increased
costs and competitive factors have created an environment in which it is
increasingly difficult for community banks such as Citizens to compete
effectively with other larger financial institutions and financial services
providers.
In light of the competitive and regulatory factors described above and
other financial, legal and market considerations, the Board of Directors of CSB
discussed from time to time whether to remain independent or whether to pursue
an affiliation with another financial institution. To assist it with this
decision, CSB engaged Olive to request and evaluate proposals from other
financial institutions which may be interested in acquiring CSB. Olive received
and analyzed acquisition proposals from several financial institutions,
performed other analyses and determined a range of values for a sale of CSB.
After reviewing the proposals from several financial institutions and the
analyses performed by Olive, the Board of Directors determined that it was in
the best interests of CSB and its shareholders to pursue a transaction with
German American.
Following discussions between certain executive officers of German American
and the Merger Committee of CSB and after Olive had given its verbal opinion
that the proposed consideration to be paid by German American for all of the
outstanding shares of CSB Common Stock was fair from a financial point of view
to the shareholders of CSB, German American and CSB executed an offer of merger
dated October 6, 1997. Thereafter, CSB and German American negotiated the terms
of the CSB Agreement, which was then executed on December 8, 1997. Other than
its solicitation and evaluation of acquisition proposals, Olive played no part
in the negotiation process, which was conducted entirely by the Merger
Committee.
-29-
<PAGE>
Among other items considered by the Board of Directors of CSB in making its
decision to approve the CSB Agreement were the price and form of consideration
proposed to be paid by German American; the financial condition, results of
operation, dividend payment records and prospects of CSB as an independent bank;
the financial condition, results of operation, dividend payment records and
prospects of German American; the compatibility of the markets of German
American's existing subsidiary banks to the market of Citizens; the anticipated
tax-free nature of the Merger to shareholders of CSB receiving solely German
American Common Stock in exchange for their shares of CSB Common Stock; the
possibility of increased liquidity by CSB shareholders through ownership of
German American Common Stock as compared to CSB Common Stock because German
American Common Stock are traded on the Nasdaq National Market System whereas
shares of CSB Common Stock are not traded on any market or exchange; price
information from Olive regarding other comparable bank acquisitions; and the
opinion of Olive that the consideration to be received by CSB shareholders under
the CSB Agreement was fair from a financial perspective.
The Board of Directors of CSB also considered, among other things, the
impact of the CSB Merger on CSB's customers and employees and the community
served by CSB. German American's historical practice of retaining employees of
the banks that it had previously acquired with competitive salary and benefit
programs and with career advancement opportunities was also considered. The
Board also examined German American's continuing commitment to the community
served by banks previously acquired by German American.
Further, the Board of Directors of CSB considered German American's
proposed commitment to the Petersburg community following the closing. German
American has committed to construct a new bank facility comprising of
approximately 15,000 to 18,000 square feet with an anticipated budget of $1.5 to
$2.0 million. The new building will be located on Main Street in Petersburg,
Indiana in the block between Third and Fourth Streets. In addition, German
American has committed to permit Citizens to make charitable and educational
contributions to meet certain needs of the Petersburg community.
Based upon the foregoing factors, the Board of Directors of CSB
concluded that it was in the best interests of CSB and its shareholders to
affiliate with German American and to enter into the CSB Agreement. The
importance of the various factors discussed above relative to one another cannot
be precisely determined or stated.
-30-
<PAGE>
THE BOARD OF DIRECTORS OF CSB HAS UNANIMOUSLY APPROVED THE CSB ACQUISITION
AGREEMENTS AND UNANIMOUSLY RECOMMENDS TO THE SHAREHOLDERS OF CSB THAT THEY
APPROVE AND ADOPT THE CSB ACQUISITION AGREEMENTS AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
FSB
In the fall of 1997, representatives of German American approached senior
management of FSB suggesting the possibility of having FSB becoming affiliated
with a larger financial institution. After preliminary negotiations and
discussions with senior management and the Board of Directors of FSB, FSB and
German American signed a letter of intent on October 9, 1997. After further
negotiations and discussions, the Agreement and Plan of Reorganization was
signed, effective as of January 30, 1998. That Agreement provides for the
consideration and other terms and conditions of the FSB Merger described herein.
When considering whether to approve the FSB Merger, the Board of
Directors of FSB assessed FSB Bank's future role in the changing banking
environment in light of its managerial resources, financial condition and
results of operations. It considered such things such as potential increased
competition from bank and non-bank sources; prospects for future growth through
mergers, acquisitions and branching in Southern Indiana; and its ability to
develop new commercial loan products on a cost-effective basis. In addition, it
considered (i) information concerning the relative financial condition, results
of operations, dividend records and growth potential of FSB and German American,
(ii) the relative strength and compatibility of the management of the two
organizations, (iii) the market price data of German American Common Stock and
FSB Common Stock, (iv) the anticipated tax-free nature of the FSB Merger to FSB
shareholders who receive German American Common Stock in exchange for their FSB
Common Stock, (v) financial terms of other recent business combinations in the
banking industry, particularly in Indiana, and (vi) offers believed to be
obtainable from other financial institutions.
After reviewing these factors, the Board of Directors of FSB concluded
that FSB's and FSB Bank's employees and customers will benefit from the
opportunities offered by affiliation with a larger financial institution
strategically located in an expanded market in Southern Indiana, and from a
financial base which will permit more rapid development of new products and
services. Shareholders of FSB receiving German American Common Stock may benefit
from ownership of shares of a larger financial institution and from ownership of
common stock which is traded in the NASDAQ National Market System. The FSB
Merger will also provide FSB Bank with access to the expertise of a larger
institution, improving its service capabilities.
The Board of Directors of FSB believes that the FSB Mergers will better
enable FSB and FSB Bank to meet the needs of the community which they serve, and
will permit more aggressive competition with other financial institutions
located in and around Gibson County, Indiana. For these reasons, the Board of
Directors of FSB believes that the proposed FSB Mergers are in FSB's and FSB
Bank's best interests and in the best interest of their shareholders, customers,
employees and community.
An Agreement between the parties fixing the general terms of the
transaction was entered into on January 30, 1998. German American and FSB, and
their respective representatives, negotiated the financial and other terms of
the Agreement on an arms-length basis. Although Olive was engaged by FSB during
the entire period of the negotiations of FSB's letter of intent with German
American and the FSB Agreement to standby to review financial issues on behalf
of FSB in connection therewith, Olive played no part in the negotiation process
which was conducted entirely by members of the Board of Directors of FSB.
-31-
<PAGE>
THE BOARD OF DIRECTORS OF FSB HAS UNANIMOUSLY APPROVED THE FSB
ACQUISITION AGREEMENT AND UNANIMOUSLY RECOMMENDS TO THE SHAREHOLDERS OF FSB THAT
THEY VOTE TO APPROVE SUCH AGREEMENT AND THE FSB MERGER PROPOSAL CONTEMPLATED
THEREBY.
For information regarding the terms of certain severance payments
proposed to be made to the President of FSB Bank, see "THE MERGERS -- Interests
of Certain Persons in The Mergers."
GERMAN AMERICAN
German American's Board of Directors considered a number of financial and
non-financial factors in connection with its approval of the Mergers, including
its respect for the ability and integrity of the respective Boards of Directors,
management, and staff of CSB, FSB and their affiliates and its belief that
expanding its operations in the areas served by FSB and through the Mergers
offers important long range strategic benefits to German American.
THE BOARD OF DIRECTORS OF GERMAN AMERICAN HAS UNANIMOUSLY APPROVED THE
CSB AND FSB ACQUISITION AGREEMENTS AND UNANIMOUSLY RECOMMENDS TO THE
SHAREHOLDERS OF GERMAN AMERICAN THAT THEY VOTE TO APPROVE SUCH AGREEMENTS AND
THE ISSUANCE OF ADDITIONAL GERMAN AMERICAN COMMON STOCK CONTEMPLATED THEREBY.
THE CSB ACQUISITION AGREEMENTS
The following summary of the terms of the CSB Acquisition Agreements
does not purport to be complete and is qualified in its entirety by reference to
the CSB Acquisition Agreements, which are incorporated herein by reference and
attached as Appendix A to this Prospectus/Proxy Statement.
If approved by the shareholders of CSB, and if all other conditions to the
consummation of the Merger specified by the CSB Acquisition Agreements are
satisfied or waived, and unless the CSB Acquisition Agreements are terminated as
provided therein, the CSB Merger will be consummated and become effective upon
the filing of the CSB Articles of Merger with the Office of the Indiana
Secretary of State (the "CSB Effective Time"). Although no assurances can be
given, it is anticipated that the CSB Effective Time will occur on or before
_________, 1998. Simultaneously with the CSB Merger, Community will be merged
into Citizens. Citizens will be the resulting bank and will continue operation
under the name "The Citizens State Bank of Petersburg."
EFFECT OF THE MERGER
At the CSB Effective Time, the separate corporate existence of CSB will
cease, and CSB will be merged into and become a part of GAHC, which will survive
the CSB Merger.
Following the CSB Merger, shareholders of CSB who did not perfect their
dissenters' rights under Chapter 44 of the IBCL (see "THE MERGERS -- Rights of
Dissenting Shareholders") will have the right, upon surrender of the
certificates for their shares of CSB Common Stock or other evidence of ownership
of such shares acceptable to German American, to receive the CSB Merger
Consideration as further discussed below.
-32-
<PAGE>
TERMS OF THE MERGER
CONVERSION OF CSB COMMON STOCK
Pursuant to the CSB Agreement, German American will acquire all 160,000
issued and outstanding shares of CSB Common Stock in exchange for shares of
German American Common Stock, $10 par value, $1 stated value, at an exchange
ratio calculated as set forth herein. German American Common Stock will be
valued solely for purposes of computing the exchange ratio at the average of the
lowest closing asked prices and highest closing bid prices of German American
Common Stock as reported by the NASDAQ National Market System for each trading
day within the period of the thirty calendar days that ends on the second
business day preceding the closing date (the "CSB Valuation Period"). This
valuation will be computed by averaging the asked prices separately from the bid
prices over the thirty days of the CSB Valuation Period and then averaging the
average bid price figure and the average asked price figure. Shareholders can
obtain the daily closing bid/asked information as reported by NASDAQ for German
American Common Stock by calling any member firm of the National Association of
Securities Dealers ("NASD") or by accessing NASDAQ's home page on the Internet
(http://www.nasdaq.com) and entering the NASDAQ quotation symbol for German
American Common Stock ("GABC"). Shareholders can also obtain this information by
calling the German American Investor Relations office at (812) 482-1314.
The value of the German American Common Stock during the CSB Valuation
Period (computed as indicated above) shall then be divided into the sum of
$22,750,000 to establish (to the nearest whole share) the aggregate number of
shares of German American Common Stock into which all of the then issued and
outstanding shares of CSB Common Stock (which shall be not more than 160,000
shares) shall be converted at the Effective Time. This number of shares of
German American Common Stock shall then be divided by 160,000, with the quotient
therefrom (carried to the fourth figure past the decimal point) being the number
of shares of German American Common Stock into which each share of CSB Common
Stock, except for shares as to which dissenters rights under the IBCL have been
perfected, shall be converted at the CSB Effective Time.
Notwithstanding the above, in no event shall the total number of shares of
German American Common Stock into which the 160,000 shares of CSB Common Stock
shall be converted be more than 1,137,500 shares or fewer than 928,572 shares;
and provided further, that in no event will the exchange ratio be more than
7.1094 or less than 5.8036 shares of German American Common Stock for each of
the 160,000 shares of CSB Common Stock. The maximum and minimum exchange ratios,
and the maximum and minimum numbers of shares, will be further adjusted in
accordance with the anti-dilution provisions of the CSB Agreement in connection
with any future stock dividends, stock splits and the like that German American
might declare. Therefore, CSB's shareholders are assured that their interests
under the CSB Agreement will not be diluted on account of any such future stock
dividends, stock splits and the like affecting German American Common Stock
prior to the CSB Effective Time. German American does not, however, anticipate
that it will declare or effect any such future stock splits or dividends or the
like prior to the Effective Time. At times herein the shares of German American
Common Stock to be received in exchange for the shares of CSB Common Stock
pursuant to the CSB Agreement will be referred to as the "CSB Merger
Consideration".
On _________, 1998 (the latest practicable date prior to the printing of
the Prospectus/Proxy Statement), the average of the closing bid/asked prices
("Bid/Asked Value") for German American Common Stock was $_____ per share.
Assuming that the Bid/Asked Value remains not less than $24.50 per share during
the CSB Valuation Period (as to which there is no assurance), then
-33-
<PAGE>
the minimum number of shares specified by the CSB Agreement (5.8036 shares of
German American for each share of CSB Common Stock and an aggregate of 928,572
shares of German American Common Stock) will be issued in the CSB Merger.
If the Bid/Asked Value falls between $20.00 and $24.50 per share during the
CSB Valuation Period, then CSB's shareholders will receive an aggregate number
of shares of German American Common Stock that have an aggregate Bid/Asked Value
as measured during the CSB Valuation Period of $22,750,000 (but not more than
1,137,500 shares in the aggregate or 7.1094 shares of German American Common
Stock for each share of CSB Common Stock).
The CSB Acquisition Agreements may be terminated by CSB if the Bid/Asked
Value of the German American Common Stock to be issued to the CSB shareholders,
as calculated pursuant to the CSB Acquisition Agreements, would be less than
$22,750,000. This termination right will become operative only if the average of
the closing bid/asked quotations for German American Common Stock during the CSB
Valuation Period is less than $20.00 per share, and the product obtained by
multiplying the maximum number of shares to be issued in the CSB Merger
(1,137,500 shares) by such average value therefore is less than $20.00. Although
there can be no such assurance, the CSB Board of Directors presently anticipates
that it would not waive any right that CSB may have to terminate the CSB Merger
by reason of the Bid/Asked Value of the German American Common Stock dropping
below $20.00 during the CSB Valuation Period unless it first submitted the
Merger to CSB's shareholders for reapproval. If CSB waives its right to
terminate the CSB Merger (with or without shareholder reapproval) on account of
the Bid/Asked Value dropping below $20.00 during the CSB Valuation Period, then
CSB shareholders would receive the maximum number of shares specified by the CSB
Acquisition Agreements, which maximum number of shares would have a Bid/Asked
Value as measured during the CSB Valuation Period of less than $22,750,000.
Assuming no change in the number of shares of CSB Common Stock issued and
outstanding, and that the average of the closing bid/asked quotations for German
American during the CSB Valuation Period remain at least $20 per share, German
American will issue a number of shares of German American Stock with respect to
each share of CSB Common Stock that has an average value (as determined during
the CSB Valuation Period) of at least $142.19. If the CSB Merger had closed on
_____, 1998 (the latest date practicable prior to the printing of this
Prospectus/Proxy Statement), CSB Shareholders would have received 5.8036 shares
of German American Common Stock for each share of CSB Common Stock held by them,
which would have had a value (based on German American's closing price on that
date) of $____ per share of CSB Common Stock.
The following table illustrates a range of possible values of the
German American Common Stock to be received by the CSB shareholders in the CSB
Merger:
<TABLE>
<CAPTION>
Aggregate Per CSB Share
Aggregate Bid/Asked
Hypothetical Average Value During
Average Bid/Asked The
Bid/Asked Value During Shares CSB Valuation
Value Aggregate The CSB Valuation To Be Period of
During the Shares Period of Issued Per Shares To Be
CSB Valuation To Be Shares To Be CSB Issued Per
Period Issued* Issued Share* CSB Share
- ------ ------- ------ ------ ----------
<S> <C> <C> <C> <C> <C>
$35.00 928,572 $32,500,020 5.8036 $203.13
32.50 928,572 30,178,590 5.8036 188.62
30.00 928,572 27,857,160 5.8036 174.11
27.50 928,572 25,535,730 5.8036 159.60
25.00 928,572 23,214,300 5.8036 145.09
24.50 928,572 22,750,014 5.8036 142.19
22.50 1,011,111 22,750,000 6.3194 142.19
20.00 1,137,500 22,750,000 7.1094 142.19
*Subject to possible adjustment on account of future stock dividends, stock splits, or the like.
</TABLE>
-34-
<PAGE>
No fractional shares of German American Common Stock will be issued
and, in lieu thereof, holders of shares of CSB Common Stock who would otherwise
be entitled to a fractional share interest (after taking into account all shares
of CSB Common Stock held by such holder) shall be paid an amount in cash equal
to the product of such fractional share interest and the average of the highest
bid and the lowest asked price of a share of German American Common Stock as
quoted on the NASDAQ National Market System on the last day of the CSB Valuation
Period.
Any CSB shareholders who perfect their dissenters' rights under the IBCL
would receive cash for their shares of CSB Common Stock in accordance with IBCL
rather than shares of German American Common Stock.
SURRENDER OF CERTIFICATES
As soon as reasonably practicable after the CSB Effective Time, German
American or its designated exchange agent (the "Exchange Agent") shall mail to
each record holder of CSB Common Stock at the CSB Effective Time a letter of
transmittal (which shall specify that delivery shall be effected, and the risk
of loss and title to the certificates of CSB Common Stock shall pass, only upon
proper delivery of the certificates to the Exchange Agent and shall be in such
form and have such other provisions as German American shall reasonably specify)
(each such letter, the "CSB Merger Letter of Transmittal") and instructions for
effecting the surrender of each CSB stock certificate (the "CSB Certificate") in
exchange for the CSB Merger Consideration. As soon as reasonably practicable but
in no event more than fifteen days after surrender to the Exchange Agent of a
CSB Certificate, together with a CSB Merger Letter of Transmittal duly executed
and any other required documents, the Exchange Agent shall transmit to the
holder of such CSB Certificate the CSB Merger Consideration.
No dividends that are otherwise payable on shares of German American
Common Stock constituting the CSB Merger Consideration shall be paid to persons
entitled to receive such shares of German American Common Stock until such
persons surrender their CSB Certificates. Upon such surrender, there shall be
paid to the person in whose name the shares of German American Common Stock
shall be issued any dividends which shall have become payable with respect to
such shares of German American Common Stock (without interest and less the
amount of taxes, if any, which may have been imposed thereon) between the CSB
Effective Time and the time of such surrender.
If the CSB Merger Consideration is to be issued to a person other than
a person in whose name a surrendered CSB Certificate is registered, it shall be
a condition of issuance that the surrendered CSB Certificate shall be properly
endorsed or otherwise in proper form for transfer and that the person requesting
such issuance shall pay to the Exchange Agent any required transfer or other
taxes or establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not applicable. German American reserves the right in all cases
to require that a surety bond on terms and in an amount satisfactory to German
American be provided to German American at the expense of the CSB Shareholder in
the event that such shareholder claims loss of a CSB Certificate for CSB Common
Stock and requests that German American waive the requirement for surrender of
such Certificate.
-35-
<PAGE>
RIGHTS DETERMINED AT EFFECTIVE TIME
CSB will provide to German American a certified list of the CSB
shareholders from CSB stock records at the CSB Effective Time. Persons who are
not identified as registered holders of CSB Common Stock on the records of CSB
as of the CSB Effective Time but who have acquired beneficial interests in such
shares of CSB Common Stock and desire to register the transfer of those rights
after the CSB Effective Time will not be entitled to do so on the books of CSB.
Instead, such persons must present to German American appropriate instruments of
transfer signed by the registered holder of such shares as of the CSB Effective
Time satisfactory to German American to obtain registration in their name of the
CSB Merger Consideration issuable by German American.
EXPENSES
All costs and expenses incurred in connection with the transactions
contemplated by the CSB Acquisition Agreements will be paid by the party
incurring the expenses. However, if the CSB Acquisition Agreements are
terminated because one party has knowingly materially breached any of that
party's representations and warranties made in the CSB Acquisition Agreements
and the breach is not cured within thirty (30) days of a written notice to cure
the breach, then the non-breaching party may recover appropriate damages from
the breaching party.
In the event that the CSB Acquisition Agreements are terminated (i) as
a result of the willful failure of CSB or Citizens to perform its obligations in
violation of the CSB Acquisition Agreements or (ii) due to the failure of the
CSB Merger to be approved by the shareholders of CSB as the result of the making
by any other person or entity not a party to the CSB Acquisition Agreements of a
proposal to CSB or Citizens contemplating a merger, consolidation, plan of stock
exchange, sale of all or substantially all assets, or other business combination
with CSB or Citizens and if CSB publicly announces within twelve months after
the CSB Acquisition Agreements have been terminated that CSB has accepted a
proposal for a business combination with any third party, then, in addition to
whatever other legal rights or remedies to which German American may be
entitled, CSB is obligated by Section 7.02 of the CSB Agreement, upon German
American's demand and not later than 90 days after the making of such demand,
(x) to pay to German American a termination fee of $455,000 and (y) to reimburse
German American for all its out-of-pocket costs and expenses in connection with
the CSB Merger incurred from and after October 1, 1997 (but not more than
$100,000), including its legal, accounting, environmental and other consulting
fees and expenses. If German American is entitled to collect the termination
fee, CSB shall, in addition thereto, pay to German American all costs, charges,
expenses (including without limitation the fees and expenses of counsel) and
other amounts expended by German American in connection with or arising out of
the obligations of CSB to pay all or a portion of the fee.
German American is obligated by Section 7.05 of the CSB Agreement to
pay CSB a termination fee of $455,000 within 90 days of the termination of the
CSB Acquisition Agreements if the termination is solely a result of certain
adverse regulatory determinations and to reimburse out-of-pocket costs and
expenses.
CONDITIONS
Consummation of the CSB Merger is subject to the satisfaction, at or
prior to the CSB closing, of each of the following conditions precedent:
-36-
<PAGE>
(a) The CSB Merger shall have been approved by the affirmative votes
of the holders of a majority of the outstanding shares of CSB Common
Stock entitled to vote on the CSB Merger and by German American as the
sole shareholder of GAHC;
(b) All required regulatory approvals shall have been obtained for the
CSB Merger and the Citizens-Community Merger;
(c) CSB shall have received from Olive Corporate Finance, LLC an
opinion dated the date of the mailing of this Prospectus/Proxy
Statement that the terms of the CSB Merger are fair to CSB stockholders
from a financial point of view (the opinion is attached as Appendix D
hereto);
(d) German American shall have received a letter, dated as of the
Effective Time, from its independent public accountants to the effect
that, in their opinion, the CSB Merger qualifies for "pooling of
interests" accounting treatment;
(e) German American and CSB shall have received an opinion from Leagre
Chandler & Millard, counsel for German American, concerning the
expected federal income tax consequences of the CSB Merger; and
(f) Other customary conditions and obligations of the parties set forth
in the CSB Acquisition Agreements shall have been satisfied.
Prior to the CSB Effective Time, the conditions to the consummation of
the CSB Acquisition Agreements may, to the extent not prohibited by law, be
waived in writing by the party entitled to the benefits thereof.
TERMINATION OF ACQUISITION AGREEMENTS
The CSB Acquisition Agreements may be terminated prior to the CSB Effective
Time as follows:
(a) By mutual agreement of all parties thereto;
(b) By German American or CSB in the event of a material breach by the
other party of any of its representations and warranties or covenants
under the CSB Acquisitions Agreements and such breach is not cured
within thirty (30) days after notice to cure such breach is given by
the non-breaching party;
(c) By German American or CSB, if the CSB Merger is not consummated by
November 1, 1998;
(d) By German American or CSB, if the conditions to its obligations set
forth in the CSB Acquisition Agreements are not satisfied or waived on
or prior to the CSB Effective Time;
(e) By German American or CSB, if the CSB Acquisition Agreements and
consummation of the CSB Merger are not approved by the affirmative vote
of the holders of at least a majority of the outstanding shares of CSB
Common Stock entitled to vote at the Special Meeting; and
-37-
<PAGE>
(f) By CSB if the value of the German American Common Stock to be
issued to the CSB Shareholders, as calculated during the CSB Valuation
Period solely for purposes of calculating the exchange ratio pursuant
to the CSB Acquisition Agreements, would be less than $22,750,000. See
"THE MERGERS -- The CSB Acquisition Agreements."
The CSB Acquisition Agreements also provide that either German American or
CSB may terminate the CSB Acquisition Agreements if the environmental inspection
reports on all real property owned or leased by CSB provided to German American
by CSB pursuant to the CSB Agreement disclose any contamination or presence of
hazardous wastes, the estimated remedial and corrective costs of which exceed
$1,000,000, as reasonably estimated by an environmental expert retained for such
purpose by German American and reasonably acceptable to CSB; provided, however,
that German American or CSB must exercise such termination right within ten
business days following receipt of such estimate. CSB has obtained the
environmental inspection reports that German American requested, which German
American has found to be acceptable.
In addition, if any regulatory application filed in connection with the CSB
Merger is finally denied or disapproved by the respective regulatory authority,
then either German American or CSB may terminate the CSB Acquisition Agreements.
German American may also terminate the CSB Merger in the event that any bank
regulatory agency takes action against CSB or Citizens seeking to enforce
banking laws or regulations.
THE FSB ACQUISITION AGREEMENTS
The following summary of the terms of the FSB Acquisition Agreements
does not purport to be complete and is qualified in its entirety by reference to
the FSB Acquisition Agreements, which are incorporated herein by reference and
attached as Appendix B to this Prospectus/Proxy Statement.
If approved by the shareholders of FSB, and if all other conditions to
the consummation of the FSB Merger specified by the FSB Acquisition Agreements
are satisfied or waived, and unless the FSB Acquisition Agreements are
terminated as provided therein, the FSB Merger will be consummated and become
effective upon the filing of the FSB Merger Agreement with the Office of the
Indiana Secretary of State (the "FSB Effective Time"). Although no assurances
can be given, it is anticipated that the FSB Effective Time will occur on or
before _________, 1998. Simultaneously with the FSB Merger, FSB Bank will be
merged into Community or, if the CSB Merger is completed first, Citizens. The
resulting bank will continue operation under the name of the resulting entity,
which will be "The Citizens State Bank of Petersburg," from and after the time
of the CSB Merger.
EFFECT OF THE MERGER
At the FSB Effective Time of the Merger, the separate corporate
existence of FSB will cease and FSB will be merged into and become a part of
GAHC, which will survive the FSB Merger.
Following the FSB Merger, shareholders of FSB who do not perfect their
dissenters' rights under Chapter 44 of the IBCL (see "THE MERGERS--Rights of
Dissenting Shareholders") will have the right, upon surrender of the
certificates for their shares of FSB Common Stock or other evidence of ownership
of such shares acceptable to German American, to receive the FSB Merger
Consideration as further discussed below.
-38-
<PAGE>
TERMS OF THE MERGER
CONVERSION OF FSB COMMON STOCK
Pursuant to the FSB Merger, German American will acquire all 48,916
issued and outstanding shares of FSB Common Stock in exchange for shares of
German American's Common Stock, $10 par value, $1 stated value, at an exchange
ratio calculated as follows. German American Common Stock will be valued at the
average of the lowest closing asked prices and highest closing bid prices of
German American Common Stock as reported by the NASDAQ National Market System
for each trading day within the period of ten trading days that ends on the
second business day preceding the closing date (such period being hereafter
referred to as the "FSB Valuation Period" and the value being hereafter referred
to as the "Closing Value"). Shareholders can obtain the daily closing bid/asked
information as reported by NASDAQ for German American Common Stock by calling
any member firm of the National Association of Securities Dealers (NASD) or by
accessing NASDAQ's home page on the Internet (http://www.nasdaq.com) and
entering the NASDAQ quotation symbol for German American Common Stock (GABC).
Shareholders can also obtain this information by calling the German American
Investor Relations office at (812)482-1314.
The value of the German American Common Stock during the FSB Valuation
Period (computed as indicated above) shall then be divided into the aggregate
FSB Merger Consideration (as determined below) to establish (to the nearest
whole share) the Exchange Ratio. FSB's shareholders of record at the time the
FSB Merger shall become effective, for the shares of FSB Common then held by
them, respectively, shall be allocated and entitled to receive (upon surrender
of certificates representing said shares for cancellation) shares of German
American Common Stock, which total number of shares of German American Common
Stock shall have a value (as hereinafter determined) equal to 150% of the sum of
(a) the shareholders' equity of FSB determined in accordance with generally
accepted accounting principles consistently applied at June 30, 1997 plus (or
minus) (b) the amount of net income (loss) retained after payment of dividends,
if any, but before securities transactions gains of FSB (as determined in
accordance with generally accepted accounting principles consistently applied to
the satisfaction of German American) from June 30, 1997, to the end of the month
immediately preceding the closing date, plus (c) if the Board of Directors of
FSB or its subsidiary FSB Bank shall establish the executive bonus pool
described in Section 4.01(a)(vi)(B) of the FSB Agreement (the "Bonus Pool"), and
if FSB and FSB Bank shall thereby obtain a release from the Chief Executive
Officer of all employment-related claims, the after-tax amount of any bonus
payment (not exceeding $75,000, plus an allowance in lieu of vacation time not
to exceed $4,060 pre-tax) that may be paid or payable to FSB Bank's present
Chief Executive Officer thereunder. Fees and expenses incurred by FSB in
connection with the transactions contemplated by this Agreement, regardless of
whether such fees and expenses have been paid or accrued as of the end of the
month preceding the Closing Date (but only to the extent that such fees and
expenses exceed $15,000), and any amounts paid or payable before or after the
FSB Effective Time pursuant to the Bonus Pool, shall be considered in
determining the net income (loss) of FSB for purposes of computing the
consideration payable to FSB shareholders hereunder ("FSB Merger
Consideration").
This number of shares of German American Common Stock shall then be
divided by 48,916, with the quotient therefrom (carried to the fourth figure
past the decimal point) being the number of
-39-
<PAGE>
shares of German American Common Stock into which each share of FSB Common
Stock, except for shares as to which dissenters rights under the IBCL have been
perfected, shall be converted at the Effective Time.
If the Closing Date of the FSB Merger had occurred in April 1998, and
assuming that a release had been obtained as of the Closing Date from FSB Bank's
Chief Executive Officer in exchange for a cash payment and the shareholders'
equity of FSB would have therefore been appropriately adjusted on account of
such payment in accordance with the terms of the FSB Acquisition Agreements,
then German American estimates that FSB's adjusted shareholders' equity (as
determined as of March 31, 1998, the end of the month immediately preceding the
hypothetical closing date) would have been approximately $1,440,000 and that the
market value of the consideration payable to FSB shareholders under the FSB
Acquisition Agreements (calculated at 150 percent of such base amount) would
have been approximately $2,160,000. On March 31, 1998 the average of the closing
bid/asked quotations ("Bid/Asked Value") for German American Common Stock was
$31.9861 per share. At that value, and under the preceding assumptions, German
American estimates that it would have issued an aggregate of 67,529 shares of
German American Common Stock to FSB shareholders (or 1.3805 shares of German
American Common Stock for each of the 48,916 shares outstanding of FSB Common)
had the FSB Merger closed as of the date of this Prospectus/Proxy Statement.
The following table illustrates a range of possible values of the
German American Common Stock to be received by the FSB shareholders in the FSB
Merger assuming that the aggregate value of the German American Common Stock to
be issued in the FSB Merger is approximately
$2,160,000:
<TABLE>
<CAPTION>
Aggregate Per FSB Share
<S> <C> <C> <C> <C>
Aggregate Bid/Asked
Hypothetical Average Value During
Average Bid/Asked The
Bid/Asked Value During Shares FSB Valuation
Value Aggregate The FSB Valuation To Be Period of
During the Shares Period of Issued Per Shares To Be
FSB Valuation To Be Shares To Be FSB Issued Per
Period Issued* Issued Share* FSB Share
- ------ ------- ------ ------ ----------
$35.00 61,714 $2,160,000 1.2616 $44.16
32.50 66,461 2,160,000 1.3587 $44.16
30.00 72,000 2,160,000 1.4719 $44.16
27.50 78,545 2,160,000 1.6057 $44.16
25.00 86,400 2,160,000 1.7663 $44.16
22.50 96,000 2,160,000 1.9625 $44.16
20.00 108,000 2,160,000 2.2079 $44.16
*Subject to possible adjustment on account of future stock dividends, stock
splits, or the like.
</TABLE>
No fractional shares of German American Common Stock will be issued
and, in lieu thereof, holders of shares of FSB Common Stock who would otherwise
be entitled to a fractional share interest (after taking into account all shares
of FSB Common Stock held by such holder) shall be paid an amount in cash equal
to the product of such fractional share interest and the Closing Values.
-40-
<PAGE>
Any FSB shareholders who perfect their dissenters' rights under the
IBCL would receive cash for their shares of FSB Common Stock rather than shares
of German American's Common Stock.
SURRENDER OF CERTIFICATES
As soon as reasonably practicable after the FSB Effective Time, German
American or its designated exchange agent (the "Exchange Agent") shall mail to
each record holder of FSB Common Stock a letter of transmittal (which shall
specify that delivery shall be effected, and the risk of loss and title to the
certificates of FSB Stock shall pass, only upon proper delivery of the
certificates to the Exchange Agent and shall be in such form and have such other
provisions as German American shall reasonably specify) (each such letter, the
"FSB Merger Letter of Transmittal") and instructions for use in effecting the
surrender of each FSB stock certificate (the "FSB Certificate") in exchange for
the FSB Merger Consideration. As soon as reasonably practicable after surrender
to the Exchange Agent of a FSB Certificate, together with a FSB Merger Letter of
Transmittal duly executed and any other required documents, the Exchange Agent
shall transmit to the holder of such FSB Certificate the FSB Merger
Consideration.
No dividends that are otherwise payable on shares of German American
Common Stock constituting the FSB Merger Consideration shall be paid to persons
entitled to receive such shares of German American Common Stock until such
persons surrender their FSB Certificates. Upon such surrender, there shall be
paid to the person in whose name the shares of German American Common Stock
shall be issued any dividends which shall have become payable with respect to
such shares of German American Common Stock (without interest and less the
amount of taxes, if any, which may have been imposed thereon) between the
Effective Time and the time of such surrender.
If the FSB Merger Consideration is to be issued to a person other than
a person in whose name a surrendered FSB Certificate is registered, it shall be
a condition of issuance that the surrendered FSB Certificate shall be properly
endorsed or otherwise in proper form for transfer and that the person requesting
such issuance shall pay to the Exchange Agent any required transfer or other
taxes or establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not applicable. German American reserves the right in all cases
to require that a surety bond on terms and in an amount satisfactory to German
American be provided to German American at the expense of the FSB Shareholder in
the event that such shareholder claims loss of a FSB Certificate for FSB Common
Stock and requests that German American waive the requirement for surrender of
such Certificate.
RIGHTS DETERMINED AT EFFECTIVE TIME
FSB will provide to German American a certified list of the FSB
shareholders from FSB stock records at the FSB Effective Time. Persons who are
not identified as registered holders of FSB Common Stock on the records of FSB
as of the FSB Effective Time but who have acquired beneficial interests in such
shares of FSB Common Stock and desire to register the transfer of those rights
after the FSB Effective Time will not be entitled to do so on the books of FSB.
Instead, such persons must present to German American appropriate instruments of
transfer signed by the registered holder of such shares as of the FSB Effective
Time satisfactory to German American to obtain registration in their name of the
FSB Merger Consideration issuable by German American.
-41-
<PAGE>
EXPENSES
All costs and expenses incurred in connection with the transactions
contemplated by the FSB Acquisition Agreements will be paid by the party
incurring the expenses, although the first $15,000 of expenses incurred by FSB
will not be charged against FSB solely for purposes of determining the amount of
the FSB Merger consideration. However, if the FSB Acquisition Agreements are
terminated because one party has knowingly materially breached any of that
party's representations and warranties made in the FSB Acquisition Agreements
and the breach is not cured within thirty (30) days of a written notice to cure
the breach, then the non-breaching party may recover appropriate damages from
the breaching party.
In the event that the FSB Acquisition Agreements are terminated due to
failure of the FSB shareholders to approve the FSB Acquisition Agreements
following the making by any other person or entity not a party to the FSB
Acquisition Agreements of a proposal to FSB or FSB Bank contemplating a merger,
consolidation, plan of stock exchange, sale of all or substantially all assets,
or other business combination with FSB or FSB Bank, then, in addition to
whatever other legal rights or remedies to which German American may be
entitled, FSB is obligated by Section 7.02 of the FSB Agreement, upon German
American's demand and within 90 days of such demand, (x) pay to German American
a termination fee of $40,000 and (y) reimburse German American for all its
out-of-pocket costs and expenses in connection with the FSB Merger incurred from
and after October 1, 1997 (but not more than $100,000), including its legal,
accounting, environmental and other consulting fees and expenses. If German
American is entitled to collect the termination fee, FSB shall, in addition
thereto, pay to German American all costs, charges, expense (including without
limitation the fees and expenses of counsel) and other amounts expended by
German American in connection with or arising out of the obligations of FSB to
pay all or a portion of the fee.
CONDITIONS
Consummation of the FSB Merger is subject to the satisfaction, at or
prior to the FSB Closing, of each of the following conditions precedent:
(a) The FSB Merger shall have been approved by a majority of the
outstanding shares of FSB and by German American as the sole
shareholder of GAHC;
(b) All required regulatory approvals shall have been obtained by the
FSB Merger and the FSB Bank Merger;
(c) German American shall have each received a letter, dated as of the
Effective Time, from their independent public accountants to the
effect that, in their opinion, the FSB Merger qualifies for "pooling
of interests" accounting treatment;
(d) German American and FSB shall have received an opinion from Leagre
Chandler & Millard, counsel for German American, concerning the
expected federal income tax consequences of the FSB Merger; and
(e) Other customary conditions and obligations of the parties set
forth in the FSB Acquisition Agreements shall have been satisfied.
-42-
<PAGE>
Prior to the Effective Time, the conditions to the consummation of the
FSB Acquisition Agreements may, to the extent not prohibited by law, be waived
in writing by the party entitled to the benefits thereof.
TERMINATION OF ACQUISITION AGREEMENTS
The FSB Acquisition Agreements may be terminated as follows:
(a) By mutual agreement of all parties thereto;
(b) By German American or FSB in the event of a material breach by the
other party of any of its representations and warranties or covenants
under the FSB Acquisitions Agreements and such breach is not cured
within thirty (30) days after notice to cure such breach is given by
the non-breaching party;
(c) By German American or FSB, if the FSB Merger is not consummated by
June 30, 1998;
(d) By German American or FSB, if the conditions to its obligations
set forth in the FSB Acquisition Agreements are not satisfied or
waived on or prior to the FSB Closing Date; and
(e) By German American or FSB, if the FSB Acquisition Agreements and
consummation of the FSB Merger are not approved by the affirmative vote
of the holders of at least a majority of the outstanding shares of FSB
Common Stock entitled to vote at the Special Meeting.
The FSB Acquisition Agreements also provide that German American may
terminate the FSB Acquisition Agreements if the environmental inspection reports
on all real property owned or leased by FSB provided to German American by FSB
pursuant to the Reorganization Agreement disclose any contamination or presence
of hazardous wastes, the estimated remedial and corrective costs of which exceed
$100,000, as reasonably estimated by an environmental expert retained for such
purpose by German American and reasonably acceptable to FSB, or if the cost of
such actions and measures cannot be so reasonably estimated by such expert with
any reasonable degree of certainty, or if the costs of undertaking additional
environmental investigations or procedures suggested by German American's expert
in its first report exceed $10,000 and FSB does not agree to pay such excess;
provided, however, that German American must exercise such termination right
within 15 business days following receipt of such estimate or indication that
the cost of such actions and measures cannot be so reasonably estimated. The
environmental inspection reports have not disclosed any basis for terminating
the FSB Acquisition Agreements pursuant to this environmental termination
provision.
In addition, if any regulatory application filed in connection with the
FSB Merger is finally denied or disapproved by the respective regulatory
authority, then either German American or FSB may terminate the FSB Acquisition
Agreements. German American may also terminate the FSB Merger in the event that
any bank regulatory agency takes action against FSB or FSB Bank seeking to
enforce banking laws or regulations.
-43-
<PAGE>
ACCOUNTING TREATMENT
The Mergers are expected to qualify as a "pooling of interests" for
accounting and financial reporting purposes. It is a condition of the Mergers
that German American shall have received a letter from its independent public
accountants to the effect that, in its opinion, the respective Merger will
qualify as a pooling of interests transaction under generally accepted
accounting principles. Crowe, Chizek and Company, LLP, are the independent
public accountants for German American.
FEDERAL INCOME TAX CONSEQUENCES
The CSB and FSB Mergers are expected to qualify as reorganizations under
Section 368(a) of the Internal Revenue Code of 1986, as amended ("Code"). Except
for cash received by any shareholders perfecting their dissenters' rights and
cash received by shareholders in lieu of a fractional share interest in German
American Common Stock, the holders of shares of CSB Common Stock and FSB Common
Stock will recognize no gain or loss on the receipt of German American Common
Stock in the Mergers, their aggregate basis in the shares of German American
Common Stock received in the Mergers will be the same as their aggregate basis
in their shares of CSB Common Stock or FSB Common Stock, as the case may be,
converted in the Mergers, and, provided the shares surrendered are held as a
capital asset, the holding period of the German American Common Stock received
by them will include the holding period of their shares of CSB Common Stock or
FSB Common Stock, as the case may be, converted in the Mergers. Cash received by
shareholders in lieu of fractional share interests and cash received by
shareholders exercising their dissenters' rights under Chapter 44 of the IBCL
will be treated as a distribution in full payment of such fractional share
interests, or shares surrendered in exercise of dissenters' rights, resulting in
capital gain or loss or ordinary income or loss, as the case may be, depending
upon each shareholder's particular situation.
Leagre Chandler & Millard, attorneys for German American, has delivered
opinions dated April 22, 1998 to German American upon which German American has
relied in preparing the above summary of the anticipated federal income tax
consequences of the Mergers. The Leagre Chandler & Millard opinions, and
Representation Certificates of German American, CSB and FSB upon which Leagre
Chandler & Millard has relied as to certain factual matters in rendering its
opinion, are filed as exhibits to the Registration Statement. The Leagre
Chandler & Millard opinions provide that the Mergers will qualify as tax-free
reorganizations under Section 368(a) of the Internal Revenue Code. Although the
obligations of German American, CSB and FSB to consummate the Mergers are
conditioned upon the receipt of the tax opinions of Leagre Chandler & Millard
regarding the intended federal income tax consequences of each of the Mergers,
those opinions are not binding upon the Internal Revenue Service and no ruling
has been sought from the Internal Revenue Service regarding the tax-free nature
of the Mergers. If the Mergers are consummated, and it is later determined that
one or both of the Mergers did not qualify as a tax-free reorganization under
the Code, CSB and/or FSB shareholders would recognize taxable gain or loss in
the Mergers equal to the difference between the fair market value of the German
American Common Stock such shareholder received and such shareholder's basis in
his or her CSB Common Stock or FSB Common Stock, as the case may be.
THE FOREGOING IS ONLY A GENERAL DESCRIPTION OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGERS AND DOES NOT CONSIDER THE FACTS AND CIRCUMSTANCES OF
ANY PARTICULAR CSB OR FSB SHAREHOLDER'S SITUATION. EACH CSB AND FSB SHAREHOLDER
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC LEGAL AND
TAX CONSEQUENCES OF
-44-
<PAGE>
THE MERGER TO HIM OR HER, INCLUDING THE APPLICABILITY AND EFFECT OF STATE,
LOCAL, FOREIGN, AND OTHER TAX LAWS.
REGISTRATION STATEMENT
German American has filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission registering under the 1933 Act the shares of
German American Common Stock to be issued pursuant to the Mergers. German
American intends to rely upon exemptions from the statutory registration
requirements of the several states in which shareholders of CSB and FSB reside
and has not taken any steps to register the German American Common Stock under
those state statutes.
TRANSFER RESTRICTIONS
The German American Common Stock received by CSB and FSB shareholders in
the Mergers will be freely transferable, except that "affiliates" of CSB and FSB
as of the date of their respective Special Meetings, as that term is defined in
the rules and regulations under the 1933 Act, may sell any German American
Common Stock held by them during the two year period following the respective
Merger (one year provided German American remains current in its reporting
obligations under the 1934 Act) only (a) in accordance with the provisions of
Rule 145(d) under the 1933 Act, (b) pursuant to an effective Registration
Statement under the 1933 Act, or (c) in transactions otherwise exempt from
registration thereunder. In addition, affiliates of CSB and/or FSB who may
become "affiliates" of German American will be subject to similar sale
restrictions for so long as they remain affiliates of German American.
Affiliates of CSB and/or FSB also will be subject to prohibitions on sales until
financial results covering at least 30 days of post-Merger combined operations
have been published. Generally, only persons who are officers, Directors, or
greater than ten percent shareholders of CSB and/or FSB will be considered
"affiliates" unless other factors indicating a control relationship exist.
REGULATORY MATTERS
The CSB Merger will not be made effective unless the Citizens-Community
Merger occurs simultaneously with the CSB Merger. The FSB Merger will not be
made effective unless the FSB Bank Merger occurs simultaneously. The
Citizens-Community Merger and the FSB Bank Merger are subject to the approval of
the FDIC and the DFI. Applications for such approvals were filed with the FDIC
on March 2, 1998 and the DFI on March 11, 1998. The DFI approved the
Citizens-Community Merger and the FSB Bank Merger on April 9, 1998.
-45-
<PAGE>
RIGHTS OF DISSENTING SHAREHOLDERS
Pursuant to Chapter 44 of the IBCL, shareholders of CSB and FSB have
dissenters' rights with respect to the Mergers. Chapter 44 of the IBCL provides
that shareholders of CSB and FSB have the right to demand payment in cash for
the fair value of his or her shares of CSB Common Stock and FSB Common Stock, as
the case may be, immediately before the applicable Effective Time, excluding any
appreciation or depreciation in value in anticipation of the Mergers unless a
court determines that such exclusion would be inequitable. To claim this right
the shareholder:
(a) must, before the vote is taken, deliver to CSB or FSB, as
the case may be, written notice of his intent to demand payment for his
or her shares if the respective Merger is effectuated, and
(b) must not vote in favor of the respective Merger in person
or by proxy at the Special Meeting of the shareholders.
Shareholders of CSB should deliver any such written notice of intent to
demand payment to: Corporate Secretary, CSB Bancorp, Main and Seventh Streets,
P.O. Box 98, Petersburg, Indiana 47567. Shareholders of FSB should deliver any
such written notice of intent to demand payment to: Corporate Secretary, FSB
Financial Corporation, 102 Main Street, Francisco, Indiana 47659.
If the respective Merger is approved by the shareholders, CSB or FSB,
as the case may be, will send a notice of dissenters' rights to those
shareholders satisfying the above conditions within ten days after the
shareholder approval. The notice will state the procedures the dissenting
shareholder thereafter must follow to exercise his or her dissenters' rights in
accordance with Chapter 44 of the IBCL.
A SHAREHOLDER WHO DOES NOT DELIVER WRITTEN NOTICE OF INTENT TO DEMAND
PAYMENT AND EITHER VOTES AGAINST THE RESPECTIVE MERGER OR REFRAINS FROM VOTING
WILL BE CONSIDERED NOT TO BE ENTITLED TO RIGHTS UNDER CHAPTER 44 OF THE IBCL.
Shareholders who execute and return the enclosed proxy
but do not specify a choice on the Merger proposals will be deemed to have voted
in favor of the respective Merger and accordingly to have waived their
dissenters' rights, unless they revoke the proxy prior to its being voted.
Upon consummation of the Mergers, CSB or FSB, as appropriate, will pay
each dissenting shareholder who has complied with all requirements of Chapter 44
of the IBCL and of the respective notice CSB's or FSB's, as the case may be,
estimate of the fair value of the shares as of the time immediately prior to the
respective Merger, EXCLUDING ANY APPRECIATION IN VALUE IN ANTICIPATION OF THE
MERGER. The determination of the estimate of "fair value" will be based on the
financial condition of CSB or FSB, as the case may be, the trading history of
CSB Common Stock or FSB Common Stock, as the case may be, and other factors
normally used to determine the value of bank holding company stock, and will
likely involve the engagement by CSB or FSB of a professional appraiser to
advise it on these matters.
Dissenters can object to the fair value by stating their estimate of
the fair value and demanding payment of the additional amount claimed as fair
value within 30 days after CSB or FSB, as the case may be, makes or offers
payments for the dissenters' shares. CSB or FSB, as the case may be, can elect
to agree to the dissenters' fair value demand or can commence an action in the
Circuit or Superior Court of Pike County or of Gibson County, as the case may
be, Indiana, within 60 days after receiving the demand for payment for a
judicial determination of the fair value. The Court can appoint appraisers to
determine the fair value. The costs of the proceeding, including compensation
and expenses of the appraisers, counsel for the parties, and experts, will be
assessed against all parties to the action in such amounts as the Court finds
equitable. Each dissenter made
-46-
<PAGE>
a party to the action will be entitled to receive the amount, if any, by which
the Court finds the fair value of the dissenters' shares, plus interest, exceeds
the amount paid by CSB or FSB, as the case may be.
See the full text of Chapter 44 set forth in Appendix C to this Prospectus/Proxy
Statement.
TO PERFECT RIGHTS OF DISSENT, A SHAREHOLDER MUST NOT VOTE IN FAVOR OF
THE RESPECTIVE MERGER AND MUST DELIVER A WRITTEN DEMAND FOR PAYMENT IN
ACCORDANCE WITH THE REQUIREMENTS OF CHAPTER 44 OF THE IBCL.
THIS SUMMARY OF THE DISSENTERS' RIGHTS OF CSB AND FSB SHAREHOLDERS DOES
NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY THE STATUTORY
PROVISIONS ATTACHED TO THIS PROSPECTUS/PROXY STATEMENT AS APPENDIX C. ANY
INDIVIDUAL CONSIDERING EXERCISING RIGHTS OF DISSENT SHOULD CAREFULLY READ AND
CONSIDER THE INFORMATION DISCLOSED IN APPENDIX C AND CONSULT WITH AN INDEPENDENT
INVESTMENT ADVISOR BEFORE EXERCISING RIGHTS OF DISSENT.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
Certain of the Directors and officers of CSB have interests in the CSB
Merger other than their interests as shareholders of CSB, pursuant to certain
agreements and understandings that are reflected in the CSB Acquisition
Agreements. German American has agreed in the CSB Acquisition Agreements that it
will cause a designated member of the present Board of Directors of CSB to be
added to the German American Board of Directors as of the Effective Time of the
CSB Merger. German American has also agreed that the present Directors of
Citizens will have the exclusive right to designate the nominees for half of the
seats on the Board of Directors of Citizens for three years following the Merger
(thereby in effect giving the present Citizens Directors the possibility of
continuing to serve on the Board of Citizens during such period) subject to
German American's reserved right to object to any such nominee in its
discretion. Further, German American has agreed not to object to the payment by
Citizens to its present Directors, during that three year period following the
CSB Merger, of up to $3,000 per year per Director in addition to customary
Director fees payable to all Directors for their services, in order to
compensate such Directors for the loss of certain health and life insurance
benefits currently provided by Citizens to its present directors under programs
which will be discontinued if the CSB Merger is consummated. German American has
also agreed to certain super-majority voting requirements that will be
applicable to removal of officers of Citizens during such three year period.
Finally, CSB's Board of Directors in November 1997, in connection with the
execution of the definitive CSB Acquisition Agreements, authorized the payment
of fees aggregating $16,718.30 to certain of its Directors who served on the
Merger Committee of the Board of Directors of Citizens for their services.
As a result of the FSB Merger, FSB's operations will be conducted at its
present locations as branches of Community (or Citizens as the case may be).
There was therefore no position available for Glenn Young, current President of
FSB Bank, as a chief executive officer. In connection with the FSB Acquisition
Agreements, German American agreed that up to $75,000 of payments that FSB may
make to Mr. Young in connection with a bonus pool arrangement may be added back
to the book value of FSB for purposes of computing the purchase price payable to
FSB shareholders, provided that Mr. Young executes and delivers to FSB and FSB
Bank a release of any potential employment-related claim. Accordingly, FSB Bank
intends to pay to Mr. Young the negotiated payment of $__________ (including
$_______ relating FSB to accrued vacation pay) in exchange for his services
in connection with the Merger and his release of claims.
-47-
<PAGE>
OPINION OF FINANCIAL ADVISOR TO CSB
Olive Corporate Finance, LLC has provided the following disclosures for
inclusion in this Prospectus/Proxy Statement:
Olive Corporate Finance LLC ("Olive") was engaged by CSB to advise the CSB
Board of Directors as to the fairness of the consideration, from a financial
perspective, to be paid by German American to CSB shareholders as set forth in
the CSB Acquisition Agreements.
As part of its investment banking business, Olive is regularly engaged
in reviewing the fairness of financial institution acquisition transactions from
a financial perspective and in the valuation of financial institutions and other
businesses and their securities in connection with mergers, acquisitions, and
other transactions. Neither Olive nor any of its affiliates has a material
financial interest in CSB or German American. Olive was selected to advise the
CSB Board of Directors based upon its familiarity with financial institutions
and its knowledge of the banking industry as a whole.
Except as described in this section, neither CSB nor German American
have had any material or compensable relationship with Olive, its affiliates,
and/or unaffiliated representatives during the past two years.
Olive performed certain analyses described below and discussed the
range of values for CSB resulting from such analyses with the Board of Directors
of CSB in connection with its advice as to the fairness of the consideration to
be paid by German American.
A Fairness Opinion ("Opinion") rendered by Olive was delivered to the Board
of Directors of CSB on ___________, the date of this Prospectus/Proxy Statement.
A copy of the Opinion, which includes a summary of the assumptions made and
information analyzed in deriving the Opinion, is attached as Appendix D to this
Prospectus/Proxy Statement and should be read in its entirety.
In arriving at its Opinion, Olive reviewed certain publicly available
business and financial information relating to CSB and German American. Olive
considered certain financial and stock market data of CSB and German American
and compared that data with similar data for certain other publicly-held bank
holding companies which own Midwest financial institutions, and considered the
financial terms of certain other comparable Midwest bank transactions that had
recently been effected. Olive also considered such other information, financial
studies, analyses and investigations and financial, economic and market criteria
that it deemed relevant. In connection with its review,
-48-
<PAGE>
Olive did not independently verify the foregoing information and relied on such
information as being complete and accurate in all material respects. Financial
forecasts prepared by Olive were based on assumptions believed by Olive to be
reasonable and to reflect currently available information. Olive did not make an
independent evaluation or appraisal of the assets of CSB or German American.
Olive solicited expressions of interest from financial institutions that might
be interested in acquiring CSB, reviewed the correspondence and information
regarding the financial institutions that had expressed an interest in acquiring
CSB and reviewed all preliminary offers received by CSB.
As part of preparing the Opinion, Olive performed a due diligence review of
German American. As part of the due diligence review, Olive reviewed minutes of
Board of Directors meetings beginning January 1, 1995 through December 31, 1997;
Annual Reports on Form 10-K for each of the three years ended December 31, 1995,
1996 and 1997; Quarterly Reports on Form 10-Q for the periods ended March, June
and September, 1997; Registration Statement on Form S-4 relating to the CSB
Merger; each filing on Form 8-K during the year ended December 31, 1997; report
of independent auditors for the years ending December 31, 1995, 1996 and 1997;
management letters from independent auditors for 1997 and management's responses
thereto; Uniform Bank Performance Reports dated December 31, 1994 through
September 30, 1997; investment security holdings; listing of pending litigation
provided by independent counsel; analysis and calculation of the Allowance for
Loan and Lease Losses as of December 31, 1997; and internally identified special
assets and related reports.
Olive reviewed and analyzed the historical performance of CSB contained in
Annual Reports of shareholders of CSB for each of the five years ended December
31, 1993 through December 31, 1997; and audited financial statements for the
five years ended December 31, 1993 through December 31, 1997; Consolidated
Reports of Condition and Income filed with the Federal Deposit Insurance
Corporation dated December 31, 1996, September 30, 1997 and December 31, 1997;
Uniform Bank Performance Report dated December 31, 1992 through December 31,
1996, and September 30, 1997; and certain other assets. Olive reviewed and
tabulated statistical data regarding the loan portfolio, securities portfolio
and other performance ratios and statistics. In review of the aforementioned
information, Olive took into account its assessment of general market and
financial conditions, its experience in other transactions and its knowledge of
the banking industry generally.
In connection with rendering the Opinion and preparing its written and
oral presentations to CSB's Board of Directors, Olive performed a variety of
financial analyses, including those summarized below. The summary set forth
below does not purport to be a complete description of the analyses performed by
Olive in this regard. The preparation of an Opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and therefore such an opinion is not readily susceptible to summary description.
Accordingly, notwithstanding the separate factors summarized below, Olive
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
evaluation process underlying its Opinion. In performing its analyses, Olive
made numerous assumptions with respect to industry performance, business and
economic conditions and other matters, many of which are beyond CSB's or German
American's control. The analyses performed by Olive are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses. In addition, analyses
relating to the values of businesses do not purport to be appraisals or to
reflect the process by which businesses actually may be sold.
-49-
<PAGE>
Acquisition Comparison Analysis: In performing this analysis, Olive
reviewed 195 Midwest bank acquisition transactions announced since January 1,
1996. The purpose of the analysis was to obtain an evaluation range based on
these Midwest acquisition transactions. Multiples of earnings and book values
implied by the comparable transactions were utilized in obtaining a range for
the acquisition value of CSB. In addition to reviewing recent Midwest bank
transactions, Olive performed separate comparable analyses for acquisitions of
Midwest banks which, like CSB, had a tangible equity-to-asset ratio between
11.5% and 13.5%; with assets between $70 and $90 million; with returns on
average equity between 7% and 10%; with returns on average assets between .80%
and 1.1%, and an efficiency ratio between 55% and 70%.
Median values for the 195 Midwest bank acquisitions, expressed as multiples
of both book value and earnings, were 1.79 and 17.20, respectively. The median
multiples of book value and earnings for all stock acquisitions of Midwest banks
with tangible equity-to-asset ratios between 11.5% and 13.5% were 1.64 and
18.00, respectively. Acquisitions of Midwest banks with assets between $70 and
$90 million had median multiples of book value and earnings of 2.15 and 18.27,
respectively. Acquisitions of Midwest banks with returns on average equity
between 7% and 10% had median multiples of book value and earnings of 1.64 and
20.15, respectively. Acquisitions of Midwest banks with returns on average
assets of between .80% and 1.10% had median multiples of book value and earnings
of 1.83 and 17.96, respectively. Acquisitions of Midwest banks with an
efficiency ratio between 55% and 70% had median multiples of book value and
earnings of 1.82 and 17.26, respectively.
Adjusted Net Asset Value Analysis: Olive reviewed CSB's balance sheet
data to determine the amount of material adjustments required to the
stockholder's equity of CSB based on differences between the market value of
CSB's assets and their value reflected on CSB's financial statements. Olive
determined that one adjustment was warranted. Olive reflected a value of the
noninterest bearing deposits of approximately $6,799,000. The adjusted net asset
value was determined to be $67.43 per share of CSB Common Stock.
Discounted Earnings Analysis: A dividend discount analysis was
performed by Olive pursuant to which a range of stand-alone values of CSB was
determined by adding (i) the present value of estimated future dividend streams
that CSB could generate over a five-year period beginning in 1998 and ending in
2002, and (ii) the present value of the "terminal value" of CSB's common equity
at the end of 2002. The "terminal value" of CSB's common equity at the end of
the five-year period was determined by applying a multiple of 1.79 times the
projected terminal year's book value. The 1.79 multiple represents the median
price paid as a multiple of book value for all Midwest bank transactions since
January 1, 1996.
Dividend streams and terminal values were discounted to present values
using a discount rate of 9%. This rate reflects assumptions regarding the
required rate of return of holders or buyers of CSB's common stock. The value of
CSB, determined by adding the present value of the total cash flows, was $93.01
per shareof CSB Common Stock. In addition, using the five-year projection as a
base, a twenty-year projection was prepared assuming an annual growth rate of
5%, return on assets of 1.0% for years one through five, 1.1% for years six
through ten, and 1.15% for years ten through twenty. Dividends also were assumed
to be 50.0% of income for all years. This long-term projection resulted in a
value of $83.83 per share of CSB Common Stock.
-50-
<PAGE>
Specific Acquisition Analysis: Olive valued CSB based on an acquisition
analysis assuming a "break-even" earnings scenario to an acquirer as to price,
current interest rates, and amortization of the premium paid. Based on this
analysis, an acquiring institution would pay $60.21 per share of CSB Common
Stock assuming they were willing to accept no impact to their net income in the
initial year. This analysis was based on a funding cost of 8.0% adjusted for
taxes, amortization of the acquisition premium over 15 years and earnings for
the last twelve months at September 30, 1997 of $537,000.
Pro Forma Merger Analysis: Olive compared the historical performance of
CSB to that of German American and other regional bank holding companies. This
included, among other things, a comparison of profitability, asset quality and
capital adequacy measures. In addition, the contribution of each of CSB and
German American to the income statement and balance sheet of the pro forma
combined company was analyzed.
The effect of the affiliation on the historical and pro forma financial
data of CSB, as well as the projected financial data prepared by Olive, was
analyzed. CSB's historical financial data was compared to pro forma combined
historical and projected earnings and book value per share as well as other
measures of profitability, capital adequacy and asset quality.
The Opinion is directed only to the question of whether the consideration
to be received by CSB's shareholders under the CSB Acquisition Agreements is
fair and equitable from a financial perspective and does not constitute a
recommendation to any CSB shareholder to vote in favor of the CSB Merger. CSB or
any of its affiliates imposed no limitations on Olive regarding the scope of its
investigation or otherwise.
Based on the results of the various analyses described above, Olive
concluded that the consideration to be received by CSB shareholders under the
CSB Acquisition Agreement is fair and equitable from a financial perspective to
the shareholders of CSB.
Olive will receive a fee of $26,000 and reimbursement for all reasonable
out-of-pocket expenses from CSB for its services. In addition, CSB has agreed to
indemnify Olive and its directors, officers and employees from liability in
connection with the CSB Merger, and to hold Olive harmless from any losses,
actions, claims, damages, expenses or liabilities related to any of Olive's acts
or decisions made in good faith and in the best interest of CSB.
-51-
<PAGE>
OPINION OF FINANCIAL ADVISOR TO FSB
Olive Corporate Finance LLC ("Olive") was engaged by FSB Financial
Corporation, an Indiana corporation ("FSB"), to advise the FSB Board of
Directors as to the fairness of the consideration, from a financial perspective,
to be paid by German American Bancorp, an Indiana corporation ("German
American"), to FSB shareholders as set forth in the Agreement and Plan of
Reorganization dated December 8, 1997 ("Master Agreement"), among FSB, FSB Bank
an Indiana banking corporation ("FSB Bank"), German American, German American
Holdings Corporation, an Indiana corporation ("GAHC"), and Community Trust Bank,
an Indiana banking corporation ("Community"); and the attached unexecuted forms
of the Plan of Merger between FSB and GAHC, and joined in by German American and
the Plan of Merger between Citizens and Community (the Agreement and Plan of
Reorganization and the Plans of Mergers are referred to collectively herein as
the "Agreements").
As part of its investment banking business, Olive is regularly engaged in
reviewing the fairness of financial institution acquisition transactions from a
financial perspective and in the valuation of financial institutions and other
businesses and their securities in connection with mergers, acquisitions, and
other transactions. Neither Olive nor any of its affiliates has a material
financial interest in FSB or German American. Olive was selected to advise the
FSB Board of Directors based upon its familiarity with financial institutions
and its knowledge of the banking industry as a whole.
Except as described in this section, neither FSB nor German American
have had any material or compensable relationship with Olive, its affiliates,
and/or unaffiliated representatives during the past two years.
Olive performed certain analyses described below and discussed the
range of values for FSB resulting from such analyses with the Board of Directors
of FSB in connection with its advice as to the fairness of the consideration to
be paid by German American.
A Fairness Opinion ("Opinion") rendered by Olive has been delivered to the
Board of Directors of FSB on ________, 1998, the date of this Prospectus/Proxy
Statement. A copy of the Opinion, which includes a summary of the assumptions
made and information analyzed in deriving the Opinion, is attached as Appendix E
to this Proxy Statement/Prospectus and should be read in its entirety.
In arriving at its Opinion, Olive reviewed certain publicly available
business and financial information relating to FSB and German American. Olive
considered certain financial and stock market data of FSB and German American
and compared that data with similar data for certain other publicly-held bank
holding companies which own Midwest financial institutions, and considered the
financial terms of certain other comparable Midwest bank transactions that had
recently been effected. Olive also considered such other information, financial
studies, analyses and investigations and financial, economic and market criteria
that it deemed relevant. In connection with its review, Olive did not
independently verify the foregoing information and relied on such information as
being complete and accurate in all material respects. Financial forecasts
prepared by Olive were based on assumptions believed by Olive to be reasonable
and to reflect currently available information. Olive did not make an
independent evaluation or appraisal of the assets of FSB or German American.
Olive reviewed the correspondence and information regarding the financial
institutions that had expressed an interest in acquiring FSB. Olive reviewed all
offers received by FSB.
-52-
<PAGE>
As part of preparing the Opinion, Olive performed a due diligence
review of German American. As part of the due diligence review, Olive reviewed
minutes of Board of Directors meetings beginning January 1, 1995 through
December 31, 1997; Annual Reports on Form 10-K for each of the three years ended
December 31, 1995, 1996, 1997; Quarterly Reports on Form 10-Q for the periods
ended March, June and September, 1997; Registration Statement on Form S-4
relating to this transaction; each filing on Form 8-K during the year ended
December 31, 1997; report of independent auditors for the years ending December
31, 1994, 1995 and 1996; management letters from independent auditors for 1997
and management's responses thereto; Uniform Bank Performance Reports dated
December 31, 1994 through September 30, 1997; investment security holdings;
listing of pending litigation provided by independent counsel; analysis and
calculation of the Allowance for Loan and Lease Losses as of December 31, 1997;
and internally identified special assets and related reports.
Olive reviewed and analyzed the historical performance of FSB Bank
contained in statements of condition for the five years ended September 30, 1992
through September 30, 1996, and a draft of audited financial statements of FSB
dated September 30, 1997; Consolidated Reports of Condition and Income filed
with the Federal Deposit Insurance Corporation dated December 31, 1996, June 30,
1997, September 30, 1997 and December 31, 1997; Uniform Bank Performance Reports
dated December 31, 1992 through December 31, 1996, and September 30, 1997; and
certain other assets. Olive reviewed and tabulated statistical data regarding
the loan portfolio, securities portfolio and other performance ratios and
statistics. In review of the aforementioned information, Olive took into account
its assessment of general market and financial conditions, its experience in
other transactions and its knowledge of the banking industry generally.
In connection with rendering the Opinion and preparing its written and
oral presentations to FSB's Board of Directors, Olive performed a variety of
financial analyses, including those summarized below. The summary set forth
below does not purport to be a complete description of the analyses performed by
Olive in this regard. The preparation of an Opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and therefore such an opinion is not readily susceptible to summary description.
Olive applied only certain methods of valuation, which were practical and
pertained to the specific financial conditions of FSB. Accordingly,
notwithstanding the separate factors summarized below, Olive believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, could create an incomplete view of the evaluation process
underlying its Opinion. In performing its analyses, Olive made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond FSB's or German
American's control. The analyses performed by Olive are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses. In addition, analyses
relating to the values of businesses do not purport to be appraisals or to
reflect the process by which businesses actually may be sold.
Acquisition Comparison Analysis: In performing this analysis, Olive
reviewed 195 Midwest bank acquisition transactions announced since January 1,
1996. The purpose of the analysis was to obtain an evaluation range based on
these Midwest acquisition transactions. Multiples of book values implied by the
comparable transactions were utilized in obtaining a range for the acquisition
value of FSB. Multiples of earnings would normally be applied to FSB, however,
considering FSB had earnings losses in years ended December 31, 1996 and
December 31, 1997,
-53-
<PAGE>
multiples of earnings obtained from the 195 Midwest bank acquisition
transactions were not included in obtaining a valuation range for FSB. In
addition to reviewing recent Midwest bank transactions, Olive performed separate
comparable analyses for acquisitions of Midwest banks which, like FSB, had a
tangible equity-to-asset ratio between 9.5% and 12.5%; with assets between $10
and $20 million; with return on average equity of less than 6%; with return on
average assets of less than .70%, and an efficiency ratio between 75% and 95%.
Median values for the 195 Midwest bank acquisitions, expressed as a
multiple of book value, was 1.79. The median multiple of book value for
acquisitions of Midwest banks with tangible equity-to-asset ratios between 9.5%
and 12.5% was 1.81. Acquisitions of Midwest banks with assets between $10 and
$20 million had a median multiple of 1.52. Acquisitions of Midwest banks with a
return on average equity less than 6% had a median multiple of 1.48.
Acquisitions of Midwest banks with a return on average assets less than .70% had
a median multiple of 1.50. Acquisitions of Midwest banks with an efficiency
ratio between 75% and 95% had a median multiple of 1.50.
Adjusted Net Asset Value Analysis: Olive reviewed FSB's balance sheet
data to determine the amount of material adjustments required to the
stockholder's equity of FSB based on differences between the market value of
FSB's assets and their value reflected on FSB's financial statements. Olive
determined that one adjustment was warranted. Olive reflected a value of the
noninterest bearing deposits of approximately $1,809,000. The adjusted net asset
value was determined to be $36.86 per share of FSB's common stock.
Discounted Earnings Analysis: A dividend discount analysis was
performed by Olive pursuant to which a range of stand-alone values of FSB was
determined by adding (i) the present value of estimated future dividend streams
that CSB could generate over a five-year period beginning in 1998 and ending in
2002, and (ii) the present value of the "terminal value" of FSB's common equity
at the end of 2002. The "terminal value" of FSB's common equity at the end of
the five-year period was determined by applying a multiple of 1.79 times the
projected terminal year's book value. The 1.79 multiple represents the median
price paid as a multiple of book value for all Midwest bank transactions since
January 1, 1996.
Dividend streams and terminal values were discounted to present values
using a discount rate of 7.5%. This rate reflects assumptions regarding the
required rate of return of holders or buyers of FSB's common stock. The value of
FSB, determined by adding the present value of the total cash flows, was $46.47
per FSB's common share. In addition, using the five-year projection as a base, a
twenty-year projection was prepared assuming that an annual growth rate of 5%,
return on assets of .50% for years one through ten, and .60% for years eleven
through twenty. Dividends also were assumed to be 45.0% of income for all years.
This long-term projection resulted in a value of $39.27 per FSB's common share.
Pro Forma Merger Analysis: Olive compared the historical performance of
FSB to that of German American and other regional bank holding companies. This
included, among other things, a comparison of profitability, asset quality and
capital adequacy measures. In addition, the contribution of each of FSB and
German American to the income statement and balance sheet of the pro forma
combined company was analyzed.
-54-
<PAGE>
The effect of the affiliation on the historical financial data of FSB, as
well as the projected financial data prepared by Olive, was analyzed. FSB's
historical financial data was compared to pro forma combined historical and
projected earnings and book value per share as well as other measures of
profitability, capital adequacy and asset quality.
The Opinion is directed only to the question of whether the
consideration to be received by FSB's shareholders under the Agreement is fair
and equitable from a financial perspective and does not constitute a
recommendation to any FSB shareholder to vote in favor of the Merger. FSB or any
of its affiliates imposed no limitations on Olive regarding the scope of its
investigation or otherwise.
Based on the results of the various analyses described above, Olive
concluded that the consideration to be received by FSB shareholders under the
Merger Agreement is fair and equitable from a financial perspective to the
shareholders of FSB.
Olive will receive a fee of $26,000 and reimbursement for all
reasonable out-of-pocket expenses from FSB for its services. In addition, FSB
has agreed to indemnify Olive and its directors, officers and employees from
liability in connection with the Merger, and to hold Olive harmless from any
losses, actions, claims, damages, expenses or liabilities related to any of
Olive's acts or decisions made in good faith and in the best interest of FSB.
-55-
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
OF GERMAN AMERICAN
The following unaudited pro forma condensed consolidated balance sheet as
of December 31, 1997, and the unaudited pro forma condensed consolidated
statements of income for each of the years in the three-year period ended
December 31, 1997, give effect to the Mergers based on the historical
consolidated financial statements of German American, CSB and FSB under the
assumptions and adjustments set forth below and in the accompanying notes to the
pro forma financial statements. The Mergers are expected to be accounted for as
poolings of interests and, therefore, are included in the pro forma condensed
consolidated balance sheet as of December 31, 1997, as if the transaction had
become effective on such date. The pro forma condensed consolidated statements
of income for each of the years in the three-year period ended December 31, 1997
also include the historical statements of income of CSB and FSB as if the
transactions had become effective at the beginning of the periods presented.
If the proposed CSB Merger is consummated, German American will issue not
fewer than 5.8036 shares of German American Common Stock for each of the 160,000
CSB Common Shares (an aggregate of 928,572 German American shares) or more than
7.1094 shares of German American Common Stock for each of the 160,000 CSB common
shares (an aggregate of 1,137,500 German American shares). (All such numbers are
subject to adjustment in the event of any future stock dividends and the like.)
The exact number of shares to be issued in the Merger will be determined within
the above range by the average of the closing bid/asked quotations for German
American Common Stock during a thirty calendar day period ending on the second
business day preceding the closing date of the CSB Merger. The pro forma
financial statements have been prepared assuming the issuance of 928,572 shares
of German American Common Stock, computed using the average bid/asked prices for
March, 1998 (the latest practicable date, resulting in a price of $31.9524 per
share). The use of such number of shares is for illustrative purposes only and
does not attempt to predict the actual number of shares to be issued in the CSB
Merger.
If the proposed FSB Merger Agreement is consummated, German American will
issue that number of shares that have a market value equal to approximately 150%
of FSB's shareholders equity plus or minus certain adjustments. See "THE MERGERS
- -- the FSB Acquisition Agreements -- Terms of the Merger -- Conversion of FSB
Common Stock" for a discussion of the exact factors that will be considered in
determining the value of the German American Common Stock to be issued to FSB
shareholders and the adjustments that will be considered to shareholders'
equity. The pro forma financial statements have been prepared assuming the
issuance of 67,529 shares of German American Common Stock, which is the number
of shares computed using adjusted FSB December 31, 1997 shareholders' equity and
the average bid/asked prices for German American Common Stock for the last ten
business days of March, 1998 (the latest practicable date, resulting in a price
of $31.9861 per share). The use of such number of shares is for illustrative
purposes only and does not attempt to predict the actual number of shares to be
issued in the FSB Merger.
-56-
<PAGE>
The pro forma financial statements have been prepared by the management of
German American based upon the historical consolidated financial statements of
German American, CSB and FSB. These pro forma statements may not be indicative
of the results that actually would have occurred if the Mergers had been in
effect on the dates indicated or which may be obtained in the future. The pro
forma financial statements should be read in conjunction with the historical
consolidated financial statements and notes thereto of German American, CSB and
FSB presented elsewhere in this Prospectus/Proxy Statement or that accompany
this Prospectus/Proxy Statement.
German American, CSB and FSB expect to incur total legal, accounting,
professional and regulatory costs of approximately $375,000 that are directly
attributable to the Mergers. $110,000 of these costs can reasonably be expected
to be included in the consolidated expenses of German American during the next
twelve months. $265,000 of these costs had been paid and expensed or accrued
and expensed by German American, CSB and FSB as of December 31, 1997. Those
costs not previously paid or accrued were NOT considered in the preparation of
the Pro Forma Financial Statements.
-57-
<PAGE>
GERMAN AMERICAN BANCORP
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1997
(Dollar amounts in thousands except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
German American FSB Financial Pro Forma Pro Forma CSB Pro Forma Pro Forma
ASSETS Bancorp Corporation Adjustments Consolidated Bancorp Adjustments Consolidated
Cash and cash equivalents $26,050 $2,910 $ 28,960 $14,340 $43,300
Short-term investments 200 - 200 2,598 2,798
Investment in subsidiary - - $ 1,475 (A) - $ 8,747 (D) -
(1,475)(B) (8,747)(B)
Securities available for sale 99,639 - 99,639 1,168 100,307
Securities held to maturity 24,223 2,208 26,431 10,801 37,232
Loans 330,469 10,079 340,548 46,854 387,402
Allowance for loan losses (6,255) (79) (6,334) (1,161) (7,495)
Premises and equipment 12,406 354 12,760 784 13,544
Intangibles 1,572 (C) - 1,572 - 1,572
Accrued interest receivable
and other assets 10,527 290 10,817 1,627 12,444
Total assets $498,831 $15,762 $ - $514,593 $77,011 $ - $591,604
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $433,948 $14,173 $448,121 $67,085 $515,206
Short-term borrowings 4,933 - 4,933 615 5,548
Long-term debt - - - - -
Other liabilities 6,618 114 6,732 564 7,296
Total liabilities 445,499 14,287 459,786 68,264 528,050
SHAREHOLDERS' EQUITY
Common stock 5,350 1 68 (A) 5,418 4,000 929 (D) 6,347
(1) (B) (4,000)(B)
Additional paid-in capital 35,018 819 750 (A) 35,768 - 3,071 (D) 38,839
(819)(B)
Retained earnings 12,208 657 657 (A) 12,865 4,736 4,736 (D) 17,601
(657)(B) (4,736)(B)
Treasury stock - (2) 2 (B) - - -
Net unrealized gain/(loss) on
securities available for sale 756 - 756 11 11 (D) 767
(11)(B)
Total shareholders' equity 53,332 1,475 - 54,807 8,747 - 63,554
Total liabilities and
shareholders' equity $498,831 $15,762 $ - $514,593 $77,011 $ - $591,604
</TABLE>
-58-
<PAGE>
ADJUSTMENTS:
(A) Assumed issuance of 67,529 common shares of German American Bancorp in
exchange for all 48,916 shares of FSB Financial Corporation. The actual
number of shares to be issued is not yet known. Assumed shares issued are
based on FSB December 31, 1997 shareholders' equity, resulting in an
approximate purchase price of $2,160, and a value of $31.9861 per share of
German American stock, which is the average of the bid and asked prices for
the last ten business days of March 1998. The assumed number of shares
issued is for illustrative purposes only and is not an attempt to predict
the actual number of shares to be issued in the Merger.
(B) To eliminate the investments in FSB Financial Corporation and CSB Bancorp.
(C) Includes goodwill of $1,325 being amortized over 15 years and core deposit
intangibles of $247 being being amortized over 10 years.
(D) Assumed issuance of 928,572 common shares of German American Bancorp in
exchange for all 160,000 shares of CSB Bancorp. The actual number of shares
to be issued is not yet known. Assumed shares issued are based on a
value of $31.9524 per share of German American stock, which is the
average of the bid and asked prices for March 1998, resulting in an
approximate purchase price of $29,670. The assumed number of shares
issued is for illustrative purposes only and is not an attempt to
predict the actual number of shares to be issued in the Merger.
(E) No adjustments to these pro forma financial statements were necessary to
conform accounting methods as contemplated by APB Opinion 16.
-59-
<PAGE>
GERMAN AMERICAN BANCORP
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the year ended December 31, 1997
(Dollar amounts in thousands except share and per share amounts)
(Unaudited)
1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
German American FSB Financial Pro Forma Pro Forma CSB Pro Forma
Bancorp Corporation Adjustments Consolidated Bancorp Consolidated
INTEREST INCOME
Interest and fees on loans $ 29,350 $ 934 $ 30,284 $ 4,454 $ 34,738
Interest on securities 7,510 165 7,675 791 8,466
Other interest income 608 56 664 609 1,273
Total interest income 37,468 1,155 38,623 5,854 44,477
INTEREST EXPENSE
Interest on deposits 17,221 562 17,783 2,905 20,688
Other interest expense 300 - 300 16 316
Total interest expense 17,521 562 18,083 2,921 21,004
NET INTEREST INCOME 19,947 593 20,540 2,933 23,473
Provision for loan losses (408) 30 (378) 808 430
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 20,355 563 20,918 2,125 23,043
NON-INTEREST INCOME 2,487 96 2,583 322 2,905
NON-INTEREST EXPENSE 13,668 687 14,355 2,055 16,410
INCOME (LOSS) BEFORE INCOME TAXES 9,174 (28) 9,146 392 9,538
Income taxes 3,035 - $ (10) (A) 3,025 82 3,107
----- --- ---- ----- ----- -----
NET INCOME (LOSS) $ 6,139 $(28) $ 10 $6,121 $ 310 6,431
===== === ==== ===== ===== =====
EARNINGS PER SHARE
Net income per share $ 1.15 $ 1.13 (B) $ 1.01 (C)
Weighted average number of
shares outstanding 5,343,727 5,411,256 (B) 6,339,828 (C)
</TABLE>
NOTES:
(A) To provide income tax (benefit) at full tax rate.
(B) Assumes issuance of 67,529 common shares of German American Bancorp in
exchange for all shares of FSB Financial Corporation at the beginning
of the period. The actual number of shares to be issued is not yet
known. The assumed number of shares issued is for illustrative
purposes only and is not an attempt to predict the actual number of
shares to be issued in the Merger.
(C) Assumes issuance of 928,572 common shares of German American Bancorp
in exchange for all shares of CSB Bancorp at the beginning of the
period. The actual number of shares to be issued is not yet known. The
assumed number of shares issued is for illustrative purposes only and
is not an attempt to predict the actual number of shares to be issued
in the Merger.
(D) No adjustments to these pro forma financial statements were necessary
to conform accounting methods as contemplated by APB Opinion 16.
-60-
<PAGE>
GERMAN AMERICAN BANCORP
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the year ended December 31, 1996 (Dollar amounts in
thousands except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
--------------------------------1996---------------------------------------------------
German American FSB Financial Pro Forma Pro Forma CSB Pro Forma
Bancorp Corporation Adjustments Consolidated Bancorp Consolidated
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $27,846 $863 $28,709 $4,434 $33,143
Interest on securities 6,737 204 6,941 714 7,655
Other interest income 778 11 789 504 1,293
Total interest income 35,361 1,078 36,439 5,652 42,091
INTEREST EXPENSE
Interest on deposits 16,179 479 16,658 2,785 19,443
Other interest expense 504 9 513 14 527
Total interest expense 16,683 488 17,171 2,799 19,970
NET INTEREST INCOME 18,678 590 19,268 2,853 22,121
Provision for loan losses 210 89 299 135 434
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 18,468 501 18,969 2,718 21,687
NON-INTEREST INCOME 2,227 86 2,313 251 2,564
NON-INTEREST EXPENSE 13,288 622 13,910 1,898 15,808
INCOME (LOSS) BEFORE INCOME TAXES 7,407 (35) 7,372 1,071 8,443
Income taxes 2,513 (2) $ (3) (B) 2,508 344 2,852
NET INCOME (LOSS) $4,894 $(33) $ 3 $4,864 $727 $5,591
EARNINGS PER SHARE
Net income per share $ 0.92 (A) $0.90 (C) $ 0.88 (D)
Weighted average number of
shares outstanding 5,335,316 (A) 5,402,845 (C) 6,331,417 (D)
</TABLE>
NOTES:
(A) Retroactively restated for 2 for 1 stock split in November 1997, and a
5% stock dividend in December 1997.
(B) To provide income tax (benefit) at full tax rate.
(C) Assumes issuance of 67,529 common shares of German American Bancorp in
exchange for all shares of FSB Financial Corporation at the beginning
of the period. The actual number of shares to be issued is not yet
known. The assumed number of shares issued is for illustrative
purposes only and is not an attempt to predict the actual number of
shares to be issued in the Merger.
(D) Assumes issuance of 928,572 common shares of German American Bancorp
in exchange for all shares of CSB Bancorp at the beginning of the
period. The actual number of shares to be issued is not yet known. The
assumed number of shares issued is for illustrative purposes only and
is not an attempt to predict the actual number of shares to be issued
in the Merger.
(E) No adjustments to these pro forma financial statements were necessary
to conform accounting methods as contemplated by APB Opinion 16.
-61-
<PAGE>
GERMAN AMERICAN BANCORP
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the year ended December 31, 1995
(Dollar amounts in thousands except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
--------------------------------1995---------------------------------------------------
German American FSB Financial Pro Forma Pro Forma CSB Pro Forma
Bancorp Corporation Adjustments Consolidated Bancorp Consolidated
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $26,197 $528 $26,725 $4,203 $30,928
Interest on securities 6,102 298 6,400 623 7,023
Other interest income 1,517 50 1,567 396 1,963
Total interest income 33,816 876 34,692 5,222 39,914
INTEREST EXPENSE
Interest on deposits 15,150 400 15,550 2,499 18,049
Other interest expense 798 - 798 - 798
Total interest expense 15,948 400 16,348 2,499 18,847
NET INTEREST INCOME 17,868 476 18,344 2,723 21,067
Provision for loan losses 49 12 61 48 109
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 17,819 464 18,283 2,675 20,958
NON-INTEREST INCOME 1,764 66 1,830 270 2,100
NON-INTEREST EXPENSE 12,418 504 12,922 1,889 14,811
INCOME BEFORE INCOME TAXES 7,165 26 7,191 1,056 8,247
Income taxes 2,323 15 $ (6) (B) 2,332 338 2,670
NET INCOME $4,842 $11 $ 6 $4,859 $718 $5,577
EARNINGS PER SHARE
Net income per share $0.91 (A) $0.90 (C) $0.88 (D)
Weighted average number of
shares outstanding 5,331,745 (A) 5,399,274 (C) 6,327,846 (D)
</TABLE>
NOTES:
(A) Retroactively restated for 2 for 1 stock split in November 1997, and a
5% stock dividend in December 1997.
(B) To provide income tax (benefit) at full tax rate.
(C) Assumes issuance of 67,529 common shares of German American Bancorp in
exchange for all shares of FSB Financial Corporation at the beginning
of the period. The actual number of shares to be issued is not yet
known. The assumed number of shares issued is for illustrative
purposes only and is not an attempt to predict the actual number of
shares to be issued in the Merger.
(D) Assumes issuance of 928,572 common shares of German American Bancorp
in exchange for all shares of CSB Bancorp at the beginning of the
period. The actual number of shares to be issued is not yet known. The
assumed number of shares issued is for illustrative purposes only and
is not an attempt to predict the actual number of shares to be issued
in the Merger.
(E) No adjustments to these pro forma financial statements were necessary
to conform accounting methods as contemplated by APB Opinion 16.
-62-
<PAGE>
INFORMATION ABOUT GERMAN AMERICAN
German American is a multi-bank holding company organized in Indiana in
1982. German American's principal subsidiaries are The German American Bank,
Jasper, Indiana; First State Bank, Southwest Indiana, Tell City, Indiana; and
GAHC, an Indiana corporation that owns all of the outstanding capital stock of
Community and The Peoples National Bank and Trust Company, Washington, Indiana.
German American's principal executive offices are located at 711 Main Street,
Jasper, Indiana 47546, and its telephone number is (812) 482-1314.
Information concerning German American is contained in the following
documents, which are incorporated in this Prospectus/Proxy Statement by
reference: German American's Current Report on Form 8-K which was filed on
February 24, 1998; the description of German American's capital stock included
in German American's Registration Statement on Form S-4 (File No. 333-16331)
filed January 31, 1997; and German American's Annual Report on Form 10-K for the
year ended December 31, 1997, as amended. These documents are available without
charge upon oral or written request to John M. Gutgsell, German American, 711
Main Street, Box 810, Jasper, Indiana 47546-3042 (812) 482-1314. In order to
assure timely delivery of these documents, any requests should be made by
_________, 1998.
INFORMATION ABOUT CSB
GENERAL
CSB was incorporated under Indiana laws in 1983, is a bank holding company
and owns 100% of the capital stock of Citizens. CSB engages in the business of
commercial banking and other permissible activities closely related to banking.
CSB relies primarily upon funds from Citizens to pay the expenses of its
operations and, to the extent applicable, any dividends on its outstanding
shares of stock.
Citizens has operated as a community bank since its founding in 1873. The
primary source of its income is generated by its lending activities. It offers
personal and business financial and trust services to individuals, corporations,
partnerships, municipalities and other public and governmental entities.
Citizens' lending focus has been strongly single family residential and 1-4
family multi-family residential but a significant portion of its loan portfolio
is also composed of other consumer, commercial and agricultural loans. Citizens
offers a full line of deposit products.
COMPETITION
Citizens is the largest financial institution headquartered in Pike County,
Indiana. The banking business in the area served by Citizens is highly
competitive. The bank competes for deposits with
-63-
<PAGE>
other commercial banks, savings associations, savings banks, and credit unions.
For loan business, Citizens competes with other commercial banks, savings
associations, savings banks, federal farm credit system, consumer finance
companies, and credit unions. Competition in both areas is affected by interest
rates, convenience of location, availability of lendable funds, and general and
local economic conditions.
REGULATION AND SUPERVISION
CSB, as a bank holding company, is subject to supervision and regular
examination by the Federal Reserve Board. Citizens has as its primary regulators
the Federal Deposit Insurance Corporation. These regulators specify the types of
activities in which bank holding companies and banks may engage and include
regulations governing the extension of credit, the quality of loans and assets,
maintenance of reserves against deposits, minimum capital requirements, and
restrictions on dividends, among others.
PROPERTIES
CSB operations require minimal space and it operates from Citizens'
main office. Citizens operates from two locations, located in Pike County,
Indiana. Its main office is located in downtown Petersburg, Indiana. An
additional branch office is also located in Petersburg, Indiana. The branch is
operated from a property owned by Citizens.
MARKET PRICE AND DIVIDEND INFORMATION
CSB Common Stock is not traded on any established market and most trades of
CSB Common Stock occur as a result of private negotiations in isolated
transactions. Accordingly, information regarding transactions is not published
or publicly available. However, shares are traded directly between shareholders
from time to time. On _____, 1998 (the latest date practicable prior to the
printing of this Prospectus/Proxy Statement), there were a total of 240 CSB
shareholders. Management does not have knowledge of the prices paid in all
transactions and has not verified the accuracy of those prices that have been
reported. [The range of reported prices is primarily based upon information
provided by the parties to privately-negotiated transactions.]
The following table sets forth, for the periods indicated, the number of
shares traded, the number of trades, and the high and low sales price per share
of CSB as reported to CSB Management, and the per share dividends declared by
CSB on its Common Stock. On _____, 1998 (the latest date practicable prior to
the printing of this Prospectus/Proxy Statement), there were a total of CSB
shareholders. All numbers are adjusted for stock splits.
No. of Shares No. of Dividends Declared
Traded Trades Prices (cents per share)
1995
First Quarter 0 0 N/A
Second Quarter 0 0 N/A 0.90
Third Quarter 0 0 N/A
Fourth Quarter 0 0 N/A 1.60
1996
First Quarter 0 0
Second Quarter 320 1 $87.50 per share 1.00
Third Quarter 0 0 N/A
Fourth Quarter 0 0 N/A 1.75
1997
First Quarter 0 0 N/A
-64-
<PAGE>
Second Quarter 0 0 N/A 1.00
Third Quarter 0 0 N/A
Fourth Quarter 0 0 N/A 1.75
N/A means not applicable because no shares of CSB Common Stock were
transferred on the shareholder records of CSB during the periods indicated.
The most recent trade of CSB Common Stock on or before October 20, 1997
(the last business day prior to the first public announcement of the CSB Merger
on October 21, 1997) known to CSB management occurred during the second quarter
of 1996 and involved 320 shares that CSB Management was advised were purchased
and sold at $87.50 per share.
The CSB Agreement provides that CSB may during 1998 declare a quarterly
dividend of $0.6875 per share if the CSB Merger has not become effective as of
the declaration date, and further stipulates that the declaration date for any
CSB dividend with respect to the first quarter of 1998 shall not be earlier than
May 15, 1998. The CSB Board of Directors intends to declare a dividend of $0.50
per share with respect to CSB's first quarter of 1998 on or after May 15, 1998,
which dividend (if, when, and as declared) will be payable to CSB Shareholders
of record as of the record date for such dividend regardless of whether or when
the CSB Merger is consummated. If the CSB Merger becomes effective on ________
__, 1998, as anticipated, CSB's shareholders will not be entitled to any further
dividends on their shares of CSB Common Stock in 1998 (other than the
contemplated dividend with respect to the first quarter described by the
preceding sentence) but will be entitled to receive dividends from German
American on their shares received in the CSB Merger that have a record date on
or after __________, 1998. It is anticipated that the first such German American
dividend will be considered by the Board of Directors of German American during
July, 1998, and will have a record date not earlier than August __, 1998.
Substantially all of CSB's cash income is derived from Citizens. As a state
bank, Citizens is subject to certain restrictions imposed by its primary federal
regulator, the FDIC, with respect to the payment of dividends to CSB. CSB must
obtain the prior approval of the FDIC if the total of all dividends declared in
any calendar year would exceed net income for the preceding two calendar years.
STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth the number of shares and percentage of CSB
Common Stock beneficially owned at January 31, 1998, by each person known to be
the beneficial owner of more than five percent of the outstanding shares of CSB
Common Stock, each Director and officer of CSB, and all Directors and executive
officers as a group.
NAME NUMBER PERCENTAGE
---- ------ ----------
Jerry A. Church 762(1) *
Robert D. Harris (2) 9,850(3) 6.2%
Marion R. Klipsch (4) 32,000(5) 20.0%
Robert C. Klipsch 800(6) *
Lester Nixon 5,066 3.2%
W. Wyatt Rauch (7) 15,330(8) 9.6%
Michael J. Voyles 1,868(9) 1.2%
Gregory K. Willis 723(10) *
-65-
<PAGE>
Directors and Officers 66,399 41.5%
as a Group (8 Individuals)
(1) Jerry Church beneficially owns 130 shares directly, and 632 shares are
beneficially owned by Jerry Church and Alycia Church, the wife of Mr. Church.
(2) The address of this shareholder is 702 Walnut Street, Petersburg,
Indiana 47567.
(3) Robert Harris beneficially owns 40 shares directly, and 3,715 shares are
beneficially owned by the Robert D. Harris Primary Trust, over which Mr. Harris
has sole voting and investment power. An additional 4,855 shares are
beneficially owned by the Sondra S. Harris Primary Trust, over which Sondra
Harris, the wife of Mr. Harris, has sole voting and investment power, and an
additional 1,280 shares are beneficially owned by Gretchen A. Harris, the
daughter of Mr. Harris.
(4) The address of this shareholder is P.O. Box 38, Eastwood Drive, Petersburg,
Indiana 47567.
(5) Marion Klipsch beneficially owns 13,600 directly and 4,000 shares are
jointly owned by Marion Klipsch and Martha Klipsch, the wife of Mr. Klipsch. An
additional 8,000 shares are beneficially owned by Martha Klipsch. Additionally,
3,200 shares are beneficially owned by Marion R. Klipsch and/or Mr. David
Klipsch, the son of Marion Klipsch, and 3,200 shares are beneficially owned by
Marion R. Klipsch or Marcia Nordham, the daughter of Mr. Klipsch.
(6) Robert Klipsch beneficially owns 40 shares directly and 760 shares are
beneficially owned by Robert Klipsch and Karen J. Klipsch, the wife of Robert
Klipsch. Robert Klipsch is the cousin of Marion R. Klipsch, who owns more than
5% of the CSB Common Stock.
(7) The address of this shareholder is 801 Goodlet Street, Petersburg, Indiana
47567.
(8) Wyatt Rauch beneficially owns 11,920 shares directly. Additionally, Betty J.
Rauch, the wife of Mr. Rauch, beneficially owns 2,110 shares directly, and
Deiadre L. Rauch, the daughter of Mr. Rauch, beneficially owns 1,300 shares
directly. Mr. Rauch disclaims any beneficial interest in the 2,110 shares owned
by his wife and the 1,300 shares owned by his daughter.
(9) Michael Voyles beneficially owns 1,176 shares directly, and 300 shares are
beneficially owned by Mr. Voyles and Margaret A. Voyles, the wife of Mr. Voyles.
An additional 196 shares are beneficially owned by Jennifer A. Voyles, the
daughter of Mr. Voyles, and 196 shares are beneficially owned by John M. Voyles,
the son of Mr. Voyles.
(10) Gregory Willis beneficially owns 270 shares directly, and 60 shares are
beneficially owned by Gregory Willis and Carla D. Willis, the wife of Mr.
Willis. An additional 393 shares are beneficially owned by Gregory K. Willis
and/or Norma L. Willis, the mother of Mr. Willis.
-66-
<PAGE>
INFORMATION ABOUT FSB
General
FSB Financial Corporation is a state-chartered institution organized in 1994,
which operates FSB Bank. FSB Bank was organized as an Indiana state banking
association on June 20, 1908. The principal executive offices of FSB Bank are
located at 102 Main Street, Francisco, Gibson County, Indiana 47659. FSB Bank
engages in a range of commercial and personal banking activities, including
accepting demand, time and savings account deposits; making loans to
corporations, individuals, and others, and offering safekeeping services. FSB
Bank's lending services include commercial, real estate, and installment loans.
The primary risk consideration associated with the lending activities conducted
by FSB Bank involves its concentration in various types of consumer lending.
These risks are mitigated by lending procedures, which include
collateralization. 36% of FSB Bank's loan portfolio is secured by 1 - 4 family
housing and a significant portion of the installment portion of the portfolio is
also collateralized. In addition, the balance of FSB Bank's non-performing loans
and historical loss percentage indicates acceptable credit risk in the
portfolio.
Employees
At December 31, 1997 FSB Bank employed 13 full-time employees. FSB Bank is not a
party to any collective bargaining agreement, and employee relations are
considered to be good.
Competition
The banking business is highly competitive. FSB Bank's market area principally
consists of eastern Gibson County. At December 31, 1997 FSB Bank was the sole
commercial bank headquartered in Gibson County, and had total assets of
$15,762,000 and total deposits of $14,172,000.
Regulation and Supervision
FSB Bank is supervised and regulated by the FDIC and DFI, and is examined
regularly by representatives of those agencies. Regulation and examination by
banking regulatory agencies are primarily for the benefit of depositors rather
than shareholders.
Properties
FSB Bank conducts its operations from its main office facility located at 102
Main Street in Francisco, Indiana 47659. The building which houses FSB Bank's
main office, which was completed in 1926, is owned by FSB Bank and is a
two-story brick facility containing approximately 2,700 square feet, all of
which is occupied by FSB Bank. The facility also houses a drive-up banking
facility, as well as a drive-up ATM.
FSB Bank also conducts operations from a branch office facility located at 231
W. Broadway in Princeton, Indiana. The building which houses this branch
facility was completed in 1967, was purchased by FSB Bank in 1997, and is a
two-story brick facility containing approximately 5,100
-67-
<PAGE>
square feet, all of which is occupied by FSB Bank. The facility also houses a
drive-up banking facility, as well as a drive-up ATM.
Description of FSB Capital Stock
General
FSB's authorized capital stock consists of: (a) 2,000,000 shares of no par value
FSB Preferred Stock, of which no shares are issued or outstanding; and, (b)
3,000,000 shares of FSB Common Stock ($0.01 stated value), 49,000 shares of
which are issued and 48,916 shares outstanding, with 84 shares held by the
Company as Treasury Stock, at cost. FSB Common Stock was held by approximately
146 shareholders of record at January 31, 1998.
Market Price
FSB Common Stock is not traded on any established market, and there are no
regularly published bid and asked quotations. To the best of the knowledge of
FSB management, there were 23 sale transactions in 1996 involving 15,685 shares
of FSB Common Stock, 3 sale transactions in 1997 involving 698 shares, and no
sales transactions in 1998 prior to the date of this Prospectus/Proxy Statement.
Included in the 1997 transactions was a re-purchase of 84 shares by FSB at
$30.00 per share, which was designated as Treasury Stock.
Management of FSB has limited knowledge as to the prices at which such sales
transactions occurred, but believes that most of such sales transactions
occurred at the book value of FSB's Common Stock. The book value of a share of
FSB Common Stock was $31.41 at September 30, 1995 (unaudited); $31.37 at
September 30, 1996 (unaudited); $30.28 at September 30, 1997; and $30.15 at
December 31, 1997.
Dividends
FSB historically has declared dividends on an annual basis in November. In
December 1995 and January 1997, FSB paid cash dividends in the amount of $0.25
per share. FSB has agreed in the Reorganization Agreement not to declare or pay
any other dividends without the prior written consent of GAB.
-68-
<PAGE>
Stock Ownership of Management and
Principal Shareholders of FSB
The following table sets forth the number of shares and percentage of FSB
Common Stock beneficially owned at December 31, 1997 by each person known to be
the beneficial owner of more than five percent of the outstanding FSB Common
Stock, each Director of FSB, and all Directors and executive officers of FSB as
a group. There are no beneficial owners of more than five percent of the
outstanding FSB Common Stock who are not also Directors or officers.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME NUMBER OF SHARES PERCENTAGE
Michael B. McConnell 808 (1) 2.0%
Glenn A. Young 615 (2) 1.2%
Bobby J. Hill 331 (3) *
John W. Wells 3,331 (4) 7.0%
R.J. McConnell 5,249 (5) 10.7%
Wynn W. Hopkins 35 *
Beverly A. Singleton 3 (6) *
------ -----
Directors and Officers
as a Group 10,372 20.9%
*Denotes stock ownership of less than 1%.
</TABLE>
(1) Michael B. McConnell beneficially owns 727 shares and beneficially owns 81
shares with his spouse.
(2) Glenn A. Young beneficially owns 615 shares with his spouse.
(3) Bobby J. Hill beneficially owns 331 shares with his spouse.
(4) John W. Wells beneficially owns 3,331 shares with his spouse.
(5) R.J. McConnell beneficially owns 4,107 shares and beneficially owns 1,142
with his spouse.
(6) Beverly A. Singleton beneficially owns 3 shares with her spouse.
-69-
<PAGE>
CSB BANCORP MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
This financial analysis should be read in conjunction with the consolidated
financial statements and accompanying notes. The information in this financial
analysis explains certain significant financial matters over the past several
years. The financial information included frequently compares current amounts to
historical amounts. Financial information is presented on a consolidated basis
including the subsidiary, Citizens State Bank of Petersburg (the "Bank"), and
the parent company, CSB Bancorp ("CSB"). This analysis should be read in
conjunction with the separate historical financial statements of CSB and notes
thereto included elsewhere in the Prospectus/Proxy Statement.
Business of CSB
CSB is a one-bank holding company which conducts no direct business activities.
All business activities are performed by the Bank.
The Bank provides a full range of banking services to individuals, agricultural
businesses, commercial businesses and light industries located in its service
area. It maintains a diversified loan portfolio, including loans to individuals
for home mortgages, automobiles and personal expenditures, and loans to business
enterprises for current operations and expansion. The Bank offers a variety of
deposit vehicles, including checking, savings, individual retirement accounts
and certificates of deposit.
The principal source of revenue for CSB and the Bank is interest and fees on
loans. The Bank's results of operations depend primarily on the level of its net
interest income and other operating income and operating expenses. Net interest
income depends upon the volume of interest-earning assets and interest-bearing
liabilities and the interest rate earned or paid on them, respectively. The
Bank's results of operations are also significantly affected by general economic
and competitive conditions, particularly changes in market interest rates, and
actions of regulatory authorities. On a consolidated basis, interest and fees on
loans accounted for 76.08% of CSB's total income (comprised of interest income
and other income) in 1997, 75.11% in 1996, and 76.52% in 1995. The principal
markets for the Bank's financial services are the Petersburg community and the
surrounding communities of Pike County. CSB and the Bank serve these markets
through two offices located in Petersburg.
CSB and the Bank employ approximately 25 persons on a full-time equivalent
basis.
-70-
<PAGE>
FINANCIAL CONDITION
Comparison of December 31, 1997 to December 31, 1996.
Total assets were $77,011,000 as of December 31, 1997 and $74,346,000 as of
December 31, 1996, an increase of $2,665,000, or 3.58%. Shareholders' equity
decreased approximately $120,000 or 1.25%, from $8,867,000 at December 31, 1996
to $8,747,000 at December 31, 1997. The decrease in shareholders' equity was the
result of earnings, less the impact of cash dividends paid on common shares.
Loans increased $3,609,000 or 8.35%, from $43,245,000 at December 31, 1996 to
$46,854,000 at December 31, 1997. Real estate loans for single family houses
increased by $1,609,000, primarily due to customer demand, while consumer loans
rose $2,667,000 due to increased financing needs relating to vehicle sales.
Total deposits increased $2,738,000 or 4.26%, from $64,347,000 at December 31,
1996 to $67,085,000 at December 31, 1997. The increase in deposits was primarily
the result of an increase in time deposits. Management attributes growth in time
deposits to customer preferences for higher yielding instruments of deposit as
opposed to the liquidity afforded lower yielding transactional accounts. The
Bank's pricing of time deposits is consistent with that of its competitors.
RESULTS OF OPERATIONS
Comparison of Twelve Months Ended December 31, 1997 to December 31, 1996.
General. CSB reported net income of $310,000 for 1997, a decrease of $417,000,
or 57.36%, from the $727,000 reported for the same period of 1996. Return on
average shareholders' equity for 1997 was 3.50% compared to 8.22% for 1996. For
the twelve months ended December 31, 1997, return on average assets was 0.63%
compared to 1.00% for the same period in 1996.
Net Interest Income. Net interest income is the difference between interest
earned on interest-earning assets and interest paid on interest-bearing
liabilities. Changes in the mix and volume of assets and liabilities, and the
yields and rates earned or paid, have a major impact on earnings. Table 1 shows
average balances and rates. The level of net interest income achieved is also
influenced by market rates of interest, the financial strength of loan customers
and the federal government's monetary policies. Interest income represented
94.78% and 95.76% of total income for 1997 and 1996, respectively.
For the twelve months ended December 31, 1997, total interest income was
$5,854,000, an increase of $202,000 from $5,652,000 for one year earlier. Total
interest expense increased from $2,799,000 for 1996 to $2,921,000 for 1997. As a
result, net interest income increased $80,000 from $2,853,000 for 1996 to
$2,933,000 for the twelve months ended December 31, 1997, as shown in Table 1.
Interest Income. On a fully taxable-equivalent basis (whereby tax-exempt income
is adjusted to be comparable to income from taxable investments), as shown in
Table 1, total interest income increased by $224,000 or 3.91% for 1997 compared
to 1996. The increase is primarily due to a $3,035,000 or 4.51%, increase in
average outstanding interest-earning assets ($70,400,000 for 1997 versus
$67,365,000 for 1996). This increase is partially offset by a 0.05% decrease in
average interest rates from 8.51% in 1996 to 8.46% in 1997. The average interest
rate for loans decreased from 9.97% in 1996 to 9.49% in 1997. The decrease in
the average interest rate for loans is a direct result of market rate
competition; the majority of the Bank's loan portfolio rates are tied to the
prime rate. This rate decrease was offset by average loan growth of residential,
nonfarm nonresidential and multi-family real estate and consumer loan portions
of the portfolio. Average interest rates for securities increased from 6.55% in
1996 to 6.94% in 1997, largely due to the purchase of higher-rate securities as
lower rate securities matured and were replaced. The effect of this rate
increase was supplemented by the effect of increased average outstanding
balances resulting in an increase in interest income on securities of 24.17%
from 1996 to 1997. The average balance outstanding for federal funds sold
decreased by 19.18% from $10,506,000 in 1996 to $8,491,000 in 1997. The average
interest rate increased from 4.66% in 1996 to 5.77% in 1997 as a result of the
increase in rates paid for federal funds sold.
-71-
<PAGE>
Interest Expense. As shown in Table 1, increases in total interest expense are
primarily attributable to the increases in the average outstanding balances of
interest-bearing liabilities and by the marginally higher average interest
rates. Interest expense on deposits increased as a result of changes in deposit
mix and greater reliance on higher priced time deposits to fund loan growth. The
average outstanding balance of time certificates of deposits increased
$2,479,000, or 5.81%, form $42,695,000 in 1996 to $45,174,000 in 1997.
Additionally, the rates paid on these deposits were essentially flat at 5.63%
and 5.64% in 1997 and 1996, respectively. Interest rates paid on
interest-bearing demand deposits and savings accounts decreased from 2.74% in
1996 to 2.50% for 1997. Interest expense on securities sold under agreements to
repurchase increased slightly. The increase in rates paid, from 3.57% for 1996
to 5.41% for the same period of 1997, was offset by a 24.49% decrease in the
average balance from $392,000 in 1996 to $296,000 for 1997.
The Bank is unable to predict the impact on future earnings of interest rates
changes due to uncertainties regarding economic conditions in 1998 and beyond.
The Bank expects rates on deposits to remain stable or fall due to market
interest rate changes. As discussed in the Asset/Liability Management section of
this financial review, the Bank attempts to manage the structure (i.e.,
categories and maturities) of the balance sheet to minimize the effects of
interest rate fluctuations. The Bank's net interest margin (net interest income
divided by total earning assets) decreased from 4.36% in 1996 to 4.31% in 1997,
and the interest spread (average rate earned minus average rate paid) also
decreased from 3.60% to 3.56% in the same period. While it is difficult to
predict 1998 interest rates, it is anticipated that rates will remain stable
through most of the year.
Provision and Allowance or Loan Losses. The provision for loan losses reflects
management's judgment of the cost associated with the credit risk inherent in
the loan portfolio. The provision is determined through management's assessment
of the quality of the loan portfolio, current as well as future economic
factors, and the volume of loans outstanding. Provision amounts from
year-to-year are also affected by the level of net charge-offs and management's
allowance for loan losses is shown in Table 8. The provision for loan losses at
December 31, 1997 was $808,000, an increase of $673,000 over the $135,000
provision for 1996. Net charge-offs for 1997 was $263,000 versus $178,000 for
1996. The increase in charge-offs was due to substantial loan growth in 1997 and
implementation of a more aggressive charge-off approach for loans past due.
At December 31, 1997, the allowance for loan losses amounted to $1,161,000, or
2.48%, of total loans outstanding, compared to $616,000, or 1.42% of total loans
at December 31, 1996. The allowance is maintained in consideration of the
perceived credit risk in the loan portfolio. Management's determination of the
adequacy of the allowance for loan losses is based upon a continuing review of
the loan portfolio which includes past loan loss experience, current economic
conditions, loan volume, composition of the loan portfolio and additional
factors. The $545,000 increase in the allowance for loan losses from 1996 to
1997 is primarily attributable to an additional $600,000 provision made to
reflect a more conservative management methodology in determining the amount of
the allowance for loan losses and review of classified loans during recent
examination which will result in losses of $383,000 during the second quarter of
1998. Although recoveries seem possible, the more conservative approach seems
acceptable.
Non-performing loans increased by $99,000 or 14.16% from $699,000 at December
31, 1996 to $799,000 at December 31, 1997, as shown in Table 7. Generally, the
accrual of interest income on a loan is suspended when the loan becomes 90 days
past due, unless the loan is fully secured and is in the process of collection.
A restructured loan is generally one that is accruing interest, but on which
concessions in terms have been granted as a result of deterioration in the
financial condition of the borrower. Management believes that the allowance for
loan losses is adequate at December 31, 1997 based upon its analysis of loss
potential. The Bank's policy is to maintain an allowance sufficient to cover
expected losses based on its analysis of the loan portfolio and at a reasonable
level considering historical net charge-offs for the Bank. However, the Bank
does expect the level of net charge-offs to increase in the future as a result
of planned loan growth and changes in the loan mix within the portfolio.
-72-
<PAGE>
At December 31, 1997 the Bank had one concentration greater than 10% of the
total loans outstanding. Outstanding loans to agricultural enterprises totaled
$7,311,000 or 15.60% of total loans.
Noninterest Income. Noninterest income primarily consists of fees for services
and products. Income related to service charges on deposit accounts consists of
fees for demand deposit accounts, overdraft and non-sufficient fund charges, and
other transaction fees. Total income from service charges on deposit accounts
was $162,000 for 1997 compared to $149,000 for the same period in 1996. The
increase is primarily due to an increase in the Bank's per item overdraft fee.
The remaining category of noninterest income is derived from services that
include fees for safe deposit box rentals, travelers check sales and other
miscellaneous categories. Other income was $161,000 for 1997, a $59,000 or
57.84% increase from $102,000 in the same period of 1996. The increase was
primarily due to income derived from Internet fees and coop comfort servicing.
Due to the variety of income sources included in noninterest income,
fluctuations in the level of income occur from year to year. No other individual
component of this category is significant during the years ended 1997 or 1996.
Noninterest Expense. Noninterest expense increased $157,000 or 8.27% from
$1,898,000 in 1996 to $2,055,000 in 1997. No change in any individual component
of this category was significant.
Income Taxes. The effective income tax rate for 1997 was 20.92% versus 32.12%
for the same period one year earlier. The decrease in income taxes for 1997 is
primarily attributable to decreased pre-tax earnings.
-73-
<PAGE>
FINANCIAL CONDITION
Comparison of December 31, 1996 to 1995
Total assets increased to $74,346,000 as of December 31, 1996 from $67,874,000
as of December 31, 1995, an increase of $6,472,000, or 9.54%. Shareholders'
equity increased approximately $271,000, or 3.15%, to $8,867,000 at December 31,
1996 from $8,596,000 at December 31, 1995. The increase in shareholders' equity
was the result of earnings, less the impact of cash dividends paid on common
shares.
Loans decreased $569,000, or 1.30%, from $43,814,000 at December 31, 1995 to
$43,245,000 at December 31, 1996. Real estate loans decreased by $828,000 and
commercial loans increased $55,000, primarily due to customer demand. Consumer
loans increased $204,000 primarily due to increased financing needs relating to
vehicle sales.
Total deposits increased $5,571,000, or 9.48%, from $58,776,000 at December 31,
1995 to $64,347,000 at December 31, 1996. The increase in deposits was primarily
the result of an increase in time deposits. Management attributes growth in time
deposits to customer preferences for higher yielding instruments of deposit as
opposed to the liquidity afforded lower yielding transactional accounts. The
Bank's pricing of time deposits is consistent with that of its competitors.
RESULTS OF OPERATIONS
Comparison of 1996 to 1995
General. CSB reported net income of $727,000 in 1996, an increase of $9,000, or
1.25%, from 1995 net income of $718,000. Return on average shareholders' equity
for 1996 was 8.22% compared to 8.41% for 1995. The 1996 return on average assets
was 1.00% compared to 1.08% for 1995.
Net Interest Income. For the year ended December 31, 1996, total interest income
was $5,652,000, an increase of $430,000, or 8.23%, from $5,222,000 for 1995.
Total interest expense increased $300,000 from $2,499,000 in 1995 to $2,799,000
in 1996. As a result, net interest income increased $130,000 from $2,723,000 in
1995 to $2,853,000 in 1996, as shown in Table 1.
-74-
<PAGE>
Interest Income. On a fully taxable-equivalent basis, total interest income
increased by $432,000 from 1996 to 1995. This increase was due to a $5,059,000
increase in average outstanding earning assets ($67,365,000 for 1996 and
$62,306,000 for 1995) and an increase in average interest rates (8.39% for 1996
and 8.38% for 1995), as depicted in Table 1 and Table 2. Average interest rates
for securities decreased from 6.68% in 1995 to 6.55% in 1996, largely due to the
maturity of higher-rate securities. The effect of this rate change was offset by
the effect of reduced average outstanding balances, resulting in a nominal
decrease in interest income on securities. The average balance outstanding for
short-term investments increased by 97.74% from $5,313,000 in 1995 to
$10,506,000 in 1996. The average interest rate for short-term investments
decreased from 4.99% in 1995 to 4.66% in 1996 as a result of the decrease in
rates paid for federal funds sold in 1996 over 1995.
Interest Expense. Table 1 depicts average balances and rates, and Table 2 shows
the dollar effect of volume and rate changes. Interest on deposits increased as
a result of changes in deposit mix and greater reliance on higher priced time
deposits to fund loan growth. The average outstanding balance of time
certificates of deposits increased $3,941,000, or 10.17%. Additionally, the
rates paid on these deposits increased as well from 5.50% in 1995 to 5.63% in
1996. Interest rates paid on interest-bearing demand deposits and savings
accounts also increased from 2.68% in 1995 to 2.74% in 1996. Consistent with
other institutions, the Bank was forced to increase the rates offered on deposit
products as increased yields on other investment vehicles drew customer funds
away from the Bank.
Provision and Allowance for Loan Losses. The provision for loan losses for 1996
was $135,000, an increase of $87,000 over the 1995 provision of $48,000. As
depicted in Table 8, the Bank experienced net charge-offs of $178,000 in 1996
and net charge-offs of $112,000 in 1995, a change of $66,000.
At December 31, 1996, the allowance for loan losses amounted to $616,000, or
1.42%, of total loans outstanding as compared to $659,000, or 1.50%, of total
loans at December 31, 1995. Since the level of non-accrual, past due and
restructured loans decreased from the prior year, the allowance for loan losses
was decreased in 1996 considering historical net charge-offs for the Bank and
the industry as a whole.
Noninterest Income. Total income from service charges on deposit accounts was
$149,000 for 1996 compared to $146,000 for 1995, changing only slightly. Other
income was $102,000 for 1996, a $22,000, or 17.74%, decrease from the 1995 level
of $124,000. The decrease was primarily due to a decline in trust fees from
1995. No other individual component of this category was significant during 1996
or 1995.
Noninterest Expense. Salaries and employee benefits, totaling $932,000 for 1996,
remained consistent with the 1995 amount of $936,000, changing only slightly due
to employee changes at different salary levels. The FDIC assessment decreased
$64,000 during 1996 to $2,000 compared to $66,000 in 1995. This is due primarily
to the Bank Insurance Fund ("BIF") of the FDIC meeting the legally mandated
reserve level.
Income Taxes. The effective income tax rate for 1996 was 32.12% which is
compared to 32.05% effective rate for 1995, changing only slightly.
-75-
<PAGE>
ASSET/LIABILITY MANAGEMENT
Asset/Liability management involves developing, implementing and monitoring
strategies to maintain sufficient liquidity, maximize net interest income and
minimize the impact significant fluctuations in market interest rates have on
earnings. The Asset/Liability Committee of the Bank is responsible for managing
this process. Much of this committee's efforts are focused on minimizing the
Bank's sensitivity to changes in interest rates. One method of gauging
sensitivity is by a static gap analysis.
As seen in Table 12, the Bank had a cumulative liability gap position of
$12,809,000 within the one-year time frame. This position suggests that if
market interest rates decline in the next 12 months, the Bank has the potential
to earn more net interest income. A limitation of the traditional static gap
analysis, however, is that it does not consider the timing or magnitude of
noncontractual repricing. In addition, the static gap analysis treats demand and
savings accounts as repriceable within 30 days, while experience suggests that
these categories of deposits are actually comparatively resistant to rate
sensitivity. Although the static gap sensitivity varies from time frame to time
frame, management has the ability to adjust rates on deposit accounts in an
effort to achieve a neutral interest sensitivity position within the
intermediate term.
LIQUIDITY
Liquidity is generally defined as the ability to meet cash flow requirements.
CSB manages liquidity at two levels, the parent company and its subsidiary, the
Bank. CSB's primary cash requirement is to pay dividends to CSB's shareholders.
Its primary source of funds is dividends received from the Bank.
The Bank's primary liquidity consideration is to meet the cash flow needs of its
customers, such as borrowings and deposit withdrawals. To meet cash flow
requirements, sufficient sources of liquid funds must be available. These
sources include short-term investments; repayments and maturities of loans and
securities; sales of assets; growth in deposits and other liabilities; and bank
profits. At December 31, 1997, the Bank had $8,500,000 in federal funds sold. In
addition, approximately $1,294,000 of securities were scheduled to mature within
one year. Principal reductions received on loans also provide a continual stream
of cash flows. Another source of liquid funds is net cash provided from
operating activities, which provided approximately $905,000 of cash in 1997.
Finally, as a member of the Federal Home Loan Bank of Indianapolis, the Bank can
access advances under a borrowing agreement. At December 31, 1997, the Bank had
no borrowings with the FHLB. Also, as a member of the Federal Reserve Bank of
St. Louis, the Bank can borrow from the federal discount window, as provided.
CAPITAL RESOURCES
Management believes a strong capital position is paramount to its continued
profitability and continued depositor and investor confidence. It also enables
the Bank flexibility to take advantage of expansion opportunities and to
accommodate larger commercial loan customers. Regulators have established "risk
based" capital guidelines for banks and bank holding companies. Under the
guidelines, minimum capital levels are based on the perceived risk in asset
categories and certain off-balance-sheet items, such as loan commitments and
standby letters of credit. Management
-76-
<PAGE>
monitors its capital levels to comply with regulatory requirements. The Bank's
capital ratios were well in excess of regulatory standards for classification as
"well capitalized" and approximated the capital ratios of CSB as depicted in
Table 11. Being considered "well capitalized" is one condition for assessing the
federal deposit insurance premium at the lowest available rate.
IMPACT OF INFLATION
The consolidated financial statements and notes thereto presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of CSB's operations. Nearly all the assets and liabilities
of CSB are financial, unlike most industrial companies. As a result, performance
is directly impacted by changes in interest rates, which are indirectly
influenced by inflationary expectations. CSB's ability to match the interest
sensitivity of its financial assets to the interest sensitivity of its financial
liabilities in its asset/liability management may tend to minimize the effect of
changes in interest rates on it's performance. Changes in interest rates do not
necessarily move to the same extent as do changes in the prices of goods and
services.
-77-
<PAGE>
CSB Bancorp
Rate Volume Analysis
Table 1
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------
1997 1996 1995
Average Average Average Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits $ 2,099 $ 119 5.67% $ 1,299 $ 80 6.16% $ 1,399 $ 79 5.65%
Federal funds sold 8,491 490 5.77% 10,506 490 4.66% 5,313 265 4.99%
Investment securities (taxable) 8,125 592 7.29% 7,351 481 6.54% 8,127 521 6.41%
Investment securities (tax-exempt) 4,749 199 4.19% 3,646 158 4.33% 3,157 154 4.88%
Loans (net of unearned income) (1) 46,936 4,454 9.49% 44,563 4,443 9.97% 44,310 4,203 9.49%
---------------- ------------------ ---------------
Total interest earning assets $70,400 $5,854 8.32% $67,365 $5,652 8.39% $62,306 $5,222 8.38%
================ ================ ===============
Non-earning assets:
Cash and due from banks $ 3,949 $ 3,457 $ 2,482
Other non-earning assets 2,235 2,243 2,290
Allowance for loan losses (613) (628) (692)
------- ------- -------
Total Assets $75,971 $72,437 $66,386
======= ======= =======
LIABILITIES
Interest-bearing liabilities:
Transaction accounts $ 9,900 $ 246 2.48% $ 9,490 $ 260 2.74% $ 9,361 $ 246 2.63%
Savings deposits 4,295 110 2.56% 4,431 121 2.73% 4,389 123 2.80%
Time deposits 45,174 2,549 5.64% 42,695 2,404 5.63% 38,754 2,130 5.50%
Repurchase agreements 296 16 5.41% 392 14 3.57% - - -
---------------- ------------------------- -------------------------
Total interest-bearing liabilities $59,665 $2,921 4.90% $57,008 $2,799 4.91% $52,504 $2,499 4.76%
================ =============== ===============
Non-interest bearing liabilities:
Demand deposits $ 6,576 $ 6,090 $ 4,939
Other liabilities 587 491 406
Stockholders' equity 9,143 8,848 8,537
------- ------- -------
Total Liabilities and
Stockholders' equity $75,971 $72,437 $66,386
======= ======= =======
Net interest income $2,933 $2,853 $2,723
====== ====== ======
Net interest spread 3.42% 3.48% 3.62%
===== ===== =====
Net interest margin 4.17% 4.24% 4.37%
===== ===== =====
Tax equivalent data: (2)
Tax equivalent adjustment 103 81 79
====== ====== ======
Adjusted net interest income $3,036 $2,934 $2,802
====== ====== ======
Net interest spread 3.56% 3.60% 3.75%
===== ===== =====
Net interest margin 4.31% 4.36% 4.50%
===== ===== =====
</TABLE>
(1) Average total loans include non-accrual loans and loan income
includes loan fee income on loans held in the portfolio.
(2) Tax-equivalent adjustment is computed using 34% statutory tax rate
for all periods presented.
-78-
<PAGE>
CSB Bancorp
Rate Volume Analysis
Table 2
The effect on CSB Bancorp's interest income (on a fully-taxable
equivalent basis) and interest expense due to the changes in volume and
average rates for the periods indicated are shown below (in thousands):
1997-1996
----------------------
Change Change
Total Due To Due To
Change Volume Rate
----------------------
ASSETS
Interest-earning assets:
Interest-earning deposits $ 39 $46 $ (7)
Federal Funds Sold 0 (104) 104
Investment Securities (taxable) 111 53 58
Investment Securities (tax-exempt) 63 70 (7)
Loans (net of unearned income) 11 231 (220)
----------------------
Total interest-earning assets $224 $296 $(72)
======================
Interest Bearing Liabilities:
Transaction accounts ($14) $11 $ 25
Savings deposits (11) (4) (7)
Time deposits 145 140 5
Repurchase agreements 2 (4) 6
----------------------
Total interest-bearing liabilities $122 $143 $ 21
======================
Net interest income $102 $153 $ 51
======================
1996-1995
----------------------
Change Change
Total Due To Due To
Change Volume Rate
----------------------
ASSETS
Interest-earning assets:
Interest-earning deposits $ 1 ($6) $ 7
Federal Funds Sold 225 259 (34)
Investment Securities (taxable) (40) (50) 10
Investment Securities (tax-exempt) 6 36 (30)
Loans (net of unearned income) 240 24 216
----------------------
Total interest-earning assets $432 $264 $168
======================
LIABILITIES
Interest Bearing Liabilities:
Transaction accounts $ 14 $ 3 $ 11
Savings deposits (2) 1 (3)
Time deposits 274 217 57
----------------------
Repurchase agreements 14 0 14
----------------------
Total interest-bearing liabilities $300 $221 $ 79
======================
Net interest income $132 $ 43 $ 89
======================
The change in interest due both to rate and volume has been allocated
proportionately to volume variances and rate variances based on the relationship
of the absolute dollar change in each.
-79-
<PAGE>
CSB Bancorp
INVESTMENT PORTFOLIO
(Dollars in thousands)
Book Value - Table 3
December 31,
------------------------------------
1997 1996 1995 1994 1993
U.S. Treasury and agencies $ 6,527 $7,215 $7,257 $8,213 $6,922
State and political subdivisions 4,884 4,064 3,512 3,456 3,018
Other securities 558 539 731 831 831
---------------------------------------
Total Investments $11,969 $11,818 $11,500 $12,500 $10,771
=======================================
Excluding those holdings in the investment security portfolio of U.S.
Treasury and U.S. Government agency and corporation securities and
various projects notes fully-guaranteed by the U.S. Government, there
were no investments in securities of any one issuer which exceeded 10%
of shareholders' equity at December 31, 1997.
Maturities - Table 4
Table 4 sets forth the schedule of maturities and weighted average
interest rates of securities as of December 31, 1997 (in thousands):
December 31, 1997
------------------------------------------
1 Year 1-5 5-10 After
or less Years Years 10 Years Total
------------------------------------------
U.S. Treasury and agencies $ 400 $3,597 $1,776 $ 754 $ 6,527
State and political
subdivisions(1) 694 1,193 1,972 1,025 4,884
Other securities 200 0 0 358 558
------------------------------------------
Total Investments $1,294 $4,790 $3,748 $2,137 $11,969
==========================================
Weighted average yield 6.91% 6.54% 7.24% 7.38%
==========================================
(1) The yields on tax-exempt obligations have computed on a
fully-taxable equivalent basis using a marginal federal tax rate of
34%.
-80-
<PAGE>
CSB Bancorp
Loan Portfolio Summary
Table 5
(Dollars in thousands)
December 31,
------------------------------------------------
1997 % 1996 % 1995 %
-------------------------------------------------
Commercial loans $11,406 24.34% $12,165 28.13% $12,110 27.64%
Real estate loans 21,890 46.72% 20,189 46.69% 21,017 47.97%
Installment loans 13,558 28.94% 10,891 25.18% 10,687 24.39%
-------------------------------------------------
Total Loans $46,854 100.00% $43,245 100.00% $43,814 100.00%
=================================================
December 31,
----------------------------------
1994 % 1993 %
----------------------------------
Commercial loans $12,277 28.87% $12,069 29.82%
Real estate loans 20,802 48.91% 20,079 49.62%
Installment loans 9,452 22.22% 8,319 20.56%
----------------------------------
Total Loans $42,531 100.00% $40,467 100.00%
==================================
As of December 31, 1997, the Bank had one concentration of credit greater than
10% of the total loans outstanding: Agricultural enterprises outstanding loans
totaled $7,311,000 or 15.60% of total loans.
Maturities and Sensitivities of Loans to Changes in Interest Rates
Table 6
(Dollars in thousands)
December 31, 1997
---------------------------------
1 Year 1-5 After
or less Years 5 Years Total
---------------------------------
Fixed rate loans $ 8,545 $11,857 $3,924 $24,326
Adjustable rate loans 14,168 8,148 212 22,528
---------------------------------
$22,713 $20,005 $4,136 $46,854
=================================
-81-
<PAGE>
CSB Bancorp
Non-Performing Loans
Table 7
(Dollars in thousands)
Nonperforming loans include loans on which interest is not being accrued
and accruing loans contractually past due ninety days or more as to
interest or principal payments.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 676 $ 633 $ 798 $ 390 $ 706
Accruing loans contractually past due 90 or more 122 66 64 25 34
-------------------------------------------------
Total non-performing loans $ 798 $ 699 $ 862 $ 415 $ 740
=================================================
Non-performing loans as a percent of total loans 1.70% 1.62% 1.97% 0.98% 1.83%
Non-performing loans as a percent of total assets 1.04% 0.94% 1.27% 0.65% 1.16%
Total Loans $46,854 $43,245 $43,814 $42,531 $40,467
Total Assets $77,011 $74,346 $67,874 $63,660 $63,549
</TABLE>
Loans are placed on non-accrual status when, in the opinion of
management, the collectibility of principal and interest is considered
doubtful or when the payment of interest and principal is 90 days past
due, unless the loans are both well secured and in the process of
collection. Additional interest that would have been earned in 1997 had
the loans classified as non-accrual remained at original terms is
immaterial.
As of December 31, 1997, there are no loans which are not included in
the above nonperforming loan total for which management had serious
doubt as to the ability of the borrowers to comply with the present
repayment terms.
-82-
<PAGE>
CSB Bancorp
Allowance for Loan Losses
Table 8
(Dollars in thousands)
A provision is credited monthly to an allowance for loan losses which is
maintained at a level considered by management to be adequate to absorb
possible future loan losses inherent in the current portfolio. During
each quarter, management determines the level of provision necessary for
an adequate allowance. Factors considered in assessing the adequacy of
the allowance for loan losses include changes in the volume of the loan
portfolio, past loan loss experience, existing and anticipated economic
conditions, and other factors which may deserve current recognition in
estimating possible future loan losses.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1997 1996 1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Balance $ 616 $ 659 $ 723 $ 742 $ 671
Loans charged off:
Commercial loans 86 108 55 48 31
Real estate loans - 26 - 12 35
Installment loans 262 64 127 110 65
-------------------------------------------------
Total Charge Offs 348 198 182 170 131
-------------------------------------------------
Recoveries of charged-off loans:
Commercial loans 16 7 5 103 22
Real estate loans 41 - 22 9 1
Installment loans 28 13 43 14 24
------- ------- ------- ------- -------
Total Recoveries 85 20 70 126 47
------- ------- ------- ------- -------
Net Charge offs (recoveries) 263 178 112 44 84
Provision charged to operations 808 135 48 25 155
------- ------- ------- ------- -------
Ending Balance $ 1,161 $ 616 $ 659 $ 723 $ 742
======= ======= ======= ======= =======
Allowance as a percent of total loans 2.48% 1.42% 1.50% 1.70% 1.83%
Net charged-off loans to average loans 0.56% 0.40% 0.25% 0.11% 0.21%
Allowance as a percent of
non-performing loans 145.49% 88.13% 76.45% 174.22% 100.27%
Total loans $46,854 $43,245 $43,814 $42,531 $40,467
Total non-performing loans $ 798 $ 699 $ 862 $ 415 $ 740
</TABLE>
-83-
<PAGE>
CSB Bancorp
Allocation of the Allowance for Loan Losses
Table 9
(Dollars in thousands)
The following schedule sets forth managements's allocation of the
allowance for loan losses by loan type. This allowance allocation is
neccessarily judgmental and is based upon current economic conditions
(in general and with respect to certain customers or industries), past
loss experience, the volume of each loan category and its respective
past due history and other factors. Since these factors are subject to
change, the following allocation is not necessarily indicative of the
breakdown of future loan losses. The amounts indicated for each loan
type include amounts allocated for specific loans as well as a general
allocation.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------
1997 % 1996 % 1995 % 1994 % 1993 %
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans $ 350 30.18% $178 28.90% $184 27.92% $204 28.22% $212 28.57%
Real estate loans 130 11.20% 66 10.71% 83 12.59% 86 11.89% 85 11.46%
Installment loans 681 58.62% 372 60.39% 392 59.48% 433 59.89% 445 59.97%
---------------------------------------------------------------------------------
Total ALL $1,161 100.00% $616 100.00% $659 100.00% $723 100.00% $742 100.00%
=================================================================================
</TABLE>
-84-
<PAGE>
CSB Bancorp
Deposit Summary
Table 10
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------------- -----------------------------
Avg bal Avg rate % Deposits Avg bal Avg rate % Deposits
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits $ 6,576 9.97% $ 6,090 9.71%
Interest bearing demand deposits 4,295 2.48% 15.02% 9,490 2.74% 15.13%
Savings deposits 45,174 2.56% 6.51% 4,431 2.73% 7.07%
Time deposits 65,945 5.64% 68.50% 42,695 5.63% 68.09%
------- ------ ------- ------
Average total deposits $66,001 100.00% $62,706 100.00%
============================================================
December 31, 1995 December 31, 1994
---------------------------- -----------------------------
Avg bal Avg rate % Deposits Avg bal Avg rate % Deposits
--------------------------------------------------------------
Non-interest bearing demand deposits $ 4,939 8.60% $ 5,296 9.26%
Interest bearing demand deposits 9,361 2.63% 16.30% 10,211 2.62% 17.86%
Savings deposits 4,389 2.80% 7.64% 5,119 2.81% 8.95%
Time deposits 38,754 5.50% 67.47% 36,554 4.66% 63.93%
------------------------------------------------------------
Average total deposits $57,443 100.00% $57,180 100.00%
============================================================
December 31, 1993
-----------------------------
Avg bal Avg rate % Deposits
-----------------------------
Non-interest bearing demand deposits $ 6,780 11.88%
Interest bearing demand deposits 10,260 2.89% 17.98%
Savings deposits 5,105 2.94% 8.95%
Time deposits 34,923 4.55% 61.20%
-----------------------------
Average total deposits $57,068 100.00%
=============================
</TABLE>
Time Certificates of Deposit of $100,000 or more
December 31,
1997
--------
1.) Time deposits >= $100,000 $11,786
2.) 3 months or less maturity 4,383
4-6 months maturity 958
7-12 months maturity 3,337
over 12 months 3,108
--------
11,786
========
-85-
<PAGE>
CSB Bancorp
Regulatory Capital
Table 11
(Dollars in thousands)
December 31,
1997 1996 1995
--------------------------------------
Total Assets $77,011 $74,346 $67,874
Risk-based Assets 44,803 41,125 40,501
Tier I Capital 8,725 8,867 8,596
Total Capital 9,292 9,359 9,114
Leverage Ratio 12.07 12.59 13.43
Tier I Risk-based Capital Ratio 19.47 21.56 21.22
Total Risk-based Capital Ratio 20.74 22.76 22.50
-86-
<PAGE>
CSB Bancorp
GAP Position
Table 12
The schedule that follows illustrates CSB Bancorp's asset/liability
(gap) position as of December 31, 1997 (in thousands):
Up to 3 4 to 12 1 to 2 After
Total Months Months Years 2 Years
---------------------------------------------
ASSETS
- ------
Loans $45,687 $10,140 $10,906 $ 1,752 $22,889
Securities 14,573 676 2,143 2,703 9,048
Federal funds sold 8,500 8,500 -
Other assets 8,251 8,251
----------------------------------------------
Total assets $77,011 $19,319 $13,049 $ 4,455 $40,188
==============================================
LIABILITIES
- -----------
Interest-bearing deposits $58,817 $29,312 $15,241 $11,513 $ 2,741
Securities sold under
agreements to repurchase 614 614
Other liabilities and
equity 17,580 - - - 17,580
----------------------------------------------
Total liabilities
and equity $77,011 $29,936 $15,241 $11,513 $20,321
==============================================
Gap ($10,617) ($2,192) ($7,058) $19,867
Cumulative gap ($10,617) ($12,809) ($19,867) $ -
Cumulative rate
sensitive ratio 0.65 0.72 0.65 1.00
==============================================
-87-
<PAGE>
CSB Bancorp
Return on Equity and Assets
Table 13
The following table sets forth, for the periods indicated, return on
assets, return on equity, dividend payout and average equity to average
asset ratio:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on assets 0.41% 1.00% 1.08% 1.01% 0.94%
Return on equity 3.52% 8.22% 8.41% 8.11% 7.78%
Dividend payout ratio 141.94% 60.52% 55.71% 50.91% 53.16%
Average equity to average assets 11.24% 12.21% 12.86% 12.40% 12.04%
</TABLE>
-88-
<PAGE>
CSB Bancorp
Selected Consolidated Financial Data
(Dollar amounts in thousands, except share data)
The following table presents selected financial information for CSB Bancorp:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE PERIOD
Interest Income $5,854 $5,652 $5,222 $4,628 $4,526
Interest Expense 2,921 2,799 2,499 2,116 2,035
Net Interest Income 2,933 2,853 2,723 2,512 2,491
Provision for loan losses 808 135 48 25 155
Non-interest income 322 250 270 302 206
Non-interest expense 2,055 1,898 1,889 1,824 1,722
Income before income taxes 392 1,070 1,056 965 820
Net Income 310 727 718 660 611
PER COMMON SHARE
Net Income $1.94 $4.54 $4.49 $4.12 $3.82
Cash dividends 2.75 2.75 2.50 2.10 2.03
Weighted average shares (000) 160 160 160 160 160
AT PERIOD-END
Total loans $46,854 $43,245 $43,814 $42,531 $40,467
Earning assets 68,760 68,221 63,353 52,796 59,421
Total assets 77,011 74,346 67,874 63,660 63,549
Average total assets 75,988 72,437 66,386 65,664 65,230
Deposits 67,085 64,347 58,776 55,030 55,251
Common shareholders' equity 8,747 8,867 8,596 8,210 7,938
Total shareholders' equity 8,747 8,867 8,596 8,210 7,938
Average shareholders' equity 9,143 8,848 8,537 8,140 7,852
PERFORMANCE RATIOS
Return on average total assets 0.41 1.00 1.08 1.01 0.94
Return on average common equity 3.52 8.22 8.41 8.11 7.78
Net overhead expense to average assets 2.70 2.28 2.44 2.32 2.32
Net interest margin 4.50% 4.36% 4.50% 4.25% 4.27%
CAPITAL RATIOS AT PERIOD-END
Tangible equity to tangible assets 11.24% 11.90% 12.58% 12.79% 12.36%
Tier 1 risk-adjusted capital 19.47 21.56 21.22 21.25 20.34
Total risk-adjusted capital 20.74 22.76 22.50 22.51 21.60
Dividend payout ratio 141.94 60.52 55.71 51.03 53.16
ASSET QUALITY DATA
Nonperforming loans $798 $699 $862 $415 $740
Nonperforming assets 1,040 1,025 1,399 1,074 1,450
Allowance for loan losses 1,161 616 659 723 742
Nonperforming loans to period-end loans 1.70% 1.62% 1.97% 0.98% 1.83%
Allowance for loan losses to nonperforming
loans 145.49% 88.13% 76.45% 174.22% 100.27%
Allowance for loan losses to period-end loans 2.48% 1.42% 1.50% 1.70% 1.83%
</TABLE>
-89-
<PAGE>
FSB FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
FSB Financial Corporation is a state-chartered institution organized in 1994,
which operates the FSB Bank (collectively referred to in this section as "FSB").
FSB operates a main office located in Francisco, Indiana and a branch
office located in Princeton, Indiana. FSB offers a range of banking and
financial services to individuals and businesses in Gibson County in
Southwestern Indiana.
The following management's discussion and analysis is presented to provide
information concerning FSB's financial condition and results of operations
as of and for the fiscal years ended September 30, 1997 and 1996. This
discussion and analysis should be read in conjunction with FSB's financial
statements and related footnotes, which are presented in this document. Note
that 1996 results are unaudited.
RESULTS OF OPERATIONS
COMPARISON OF 1997 TO 1996
NET LOSS
FSB incurred a $41,000 net loss for 1997, which represented a $25,000 or
60% decline from the $16,000 net loss incurred for 1996. The increased net loss
in 1997 as compared to 1996 was primarily attributable to a $100,000 increase in
non-interest expenses, which was somewhat offset by an increase of $62,000 in
net interest income. $10,000 of the increase in expenses was attributable to
merger related costs.
The table below presents the change in net income by major income statement
components for 1997, on a taxable equivalent basis (dollars in thousands):
Net Interest Income $ 62
Provision for Loan Losses (10)
Non-interest Income 16
Non-interest Expenses (100)
Income Taxes 7
------
Change in Net Income $ ( 25)
==
NET INTEREST INCOME
Net interest income is the difference between interest and fees earned on loans
and investments, and interest paid on interest bearing liabilities. It is the
bank's principal source of income. In this discussion, net interest income is
presented on a taxable equivalent basis -- that is, tax-exempt income earned on
securities of state and political subdivisions has been increased to an amount
that would have been earned on a taxable basis. This places taxable and
non-taxable income on a more comparable basis and makes their comparison more
meaningful.
-90-
<PAGE>
Change from Prior Period
Year Ended September 30,
(dollars in thousands)
Change
1997 1996 $ %
---- ---- - -
Interest Income
(taxable equivalent) $1,163 $1,021 $142 13.9%
Interest Expense 540 460 80 17.4
----- ----- ---
Net Interest Income $ 623 $ 561 $ 62 11.0%
===== ===== ===
In 1997, taxable equivalent net interest income of $623,000 increased by $62,000
or 11.0% from 1996. Net interest income, on a taxable equivalent basis, as a
percentage of average earning assets was 4.41% for 1997. Management reviews the
bank's Asset/Liability position on a regular basis in order to minimize inherent
balance sheet interest rate risk. See management's discussion in the section
entitled Liquidity, Interest Rate Risk Management and Inflation.
PROVISION FOR LOAN LOSSES
The provision for loan losses is a charge against income, to provide an
allowance against which future losses will be charged as those losses are
identified. FSB's management makes a quarterly evaluation of estimated
losses and the adequacy of the allowance for loan losses. Management considers
the allowance to be adequate to absorb estimated losses in the loan portfolio.
The provision for loan losses was $68,000 in 1997 versus $58,000 in 1996. The
increase in the provision was the result of management's determination that a
higher allowance for loan losses was prudent. There were no significant
write-offs in 1997 or 1996.
NON-INTEREST INCOME
Non-interest income increased by $16,000 to $96,000 in 1997, over the 1996 total
of $80,000. Non-interest income as a percentage of taxable equivalent net
interest income also increased, to 15.4% in 1997 compared to 14.2% in 1996.
The primary source of non-interest income is service charges on deposit
accounts, which increased by $9,000 to $78,000 in 1997, from $69,000 in 1996.
The remaining increase in non-interest income of $7,000 was due to increases in
commissions, ATM fees and dividends on FHLB stock. Non-interest income also
includes exchange fees, safe deposit rental, and other miscellaneous charges.
Securities gains were minimal in both years. FSB does not offer fiduciary
services.
NON-INTEREST EXPENSES
The principal components of non-interest expense are salaries and employee
benefits, occupancy and equipment, and data processing. The remaining components
of non-interest expense are classified as other operating expenses and consist
of supplies and telephone, directors' and professional fees, and other
miscellaneous expenses.
Non-interest expenses were $683,000 in 1997, compared to $583,000 in 1996, an
increase of $100,000. Salaries and Employee Benefits accounted for $61,000 of
this increase, and professional fees increased $10,000 from 1996. Merger related
expenses were $10,000 in 1997.
-91-
<PAGE>
FSB's efficiency ratio, consisting of non-interest expenses as a percentage
of the total of taxable equivalent net interest income and non-interest income
(net operating income), was 95% in 1997 and 91% in 1996.
The following tables provide an analysis of the components of non-interest
expense for 1997 and 1996:
Non-interest Expenses
(dollars in thousands)
% to $ to
1997 Total 1996 Total Change
---- ----- ---- ----- -------
Salaries and
Employee Benefits $359 52% $298 51% $61 20%
Occupancy
and Equipment 93 14 87 15 6 6
Data Processing 57 8 58 10 (1) (2)
Other Operating 174 26 140 24 34 25
--- -- --- --- -- --
Non-Interest Expense $683 100% $583 100% $100 17%
=== === === === === ==
Non-interest Expenses
Stated as a % of Taxable
Equivalent Net Operating Income
(dollars in thousands)
1997 1996
---- ----
Salaries and Employee Benefits 50% 46%
Occupancy and Equipment 13 14
Data Processing 8 9
Other Operating 24 22
-- --
Non-Interest Expense 95% 91%
== ==
INCOME TAX
The income tax benefit for 1997 was $10,000 compared to a $3,000 benefit for
1996. Income tax benefit as a percentage of net loss before taxes was 19% in
1997 and 18% in 1996.
FINANCIAL CONDITION
Comparison of September 30, 1997 to 1996
As of September 30, 1997 FSB's total assets increased $1,097,000 to
$15,699,000 compared to $14,603,000 at September 30, 1996. The increase was
primarily due to an increase in Federal Funds Sold and Premises and Equipment,
offset by a decline in the investment portfolio.
Loans totaled $10,520,000 at September 30, 1997. This represents an increase of
$126,000 over the September 30, 1996 balance of $10,394,000.
-92-
<PAGE>
Total deposits at September 30, 1997 of $14,104,000 increased 12%, or $1,506,000
over the total of $12,598,000 at September 30, 1996. $810,000 of this increase
occurred in certificates of deposits in denominations of $100,000 or more. At
September 30, 1997 FSB had no outstanding balance in Federal Funds
Purchased, a decrease of $375,000 from the previous year-end.
Shareholders' Equity totaled $1,481,000 or 9.4% of total assets at September 30,
1997. This represents a decrease of $56,000 from the September 30, 1996 balance
of $1,537,000 which was 10.5% of total assets. This decrease is the result
of:(a) a net loss for 1997 of $41,000; (b)payment of cash dividends of
approximately $12,000; and, (c)repurchase of common stock of approximately
$3,000.
USES OF FUNDS
MONEY MARKET INVESTMENTS
FSB's money market investments for the periods presented were comprised of
federal funds sold and interest bearing deposits in other banks, and are used by
FSB to meet lending requirements and normal liquidity needs. The balance of
money market investments was $1,325,000 at September 30, 1997. This increase of
$1,200,000 from the balance of $125,000 at September 30, 1996 was funded by a
net increase of $1,131,000 in total deposits and federal funds purchased.
INVESTMENT SECURITIES
The investment securities portfolio is used as a means of investing funds over
and above those needed for lending and liquidity requirements. Investment
securities are primarily purchased with the intent and ability to hold until
maturity. Approximately $300,000 in U.S. Treasury securities was held as
available-for-sale at September 30, 1997 and 1996.
Investment securities held-to-maturity declined $643,000 during 1997, to
$2,325,000 at September 30, 1997. This decline from the September 30, 1996
balance of $2,967,000 was primarily the result of scheduled maturities and calls
prior to maturity of U.S. Government Agency and Mortgage-backed securities.
$48,000 of these funds were re-invested in Federal Home Loan Bank stock.
Approximately $600,000 of FSB's U.S. Government Agency securities are
scheduled to mature in the fiscal year ending September 30, 1998.
The following tables present an analysis of investments and their maturity
schedule as of September 30, 1997:
<TABLE>
<CAPTION>
Total Investments
As of September 30, 1997
(dollars in thousands)
<S> <C> <C> <C> <C>
% to % to
1997 Total 1996 Total
---- ----- ---- -----
MONEY MARKET INVESTMENTS
Federal Funds Sold $1,275 32% $ 75 2%
Interest Bearing Deposits 50 2 50 2
----- ------ -----
1,325 34 125 4
----- -- ------ -----
INVESTMENT SECURITIES
U.S. Treasuries 300 7 300 9
U.S. Government Agencies 900 23 1,250 37
-93-
<PAGE>
State and political
sub-divisions 585 15 581 17
Mortgage-backed securities 840 21 1,136 33
----- ----- ----- --
2,625 66 3,267 96
===== ===== ===== =====
TOTAL INVESTMENTS
Investment Maturity Schedule
As of September 30, 1997
(dollars in thousands)
Within 1 - 5 > 5
1 Year Years Years Total
------ ----- ----- -----
Money Market Investments $1,325 $ -- $ -- $1,325
Investment Securities 880 460 1,285 2,625
------- ---- ----- -----
TOTAL INVESTMENTS $2,205 $460 $1,285 $3,950
===== === ===== =====
</TABLE>
LOANS
Total loans of $10,520,000 at September 30, 1997 represented an increase of
$126,000 compared to September 30, 1996 balances of $10,394,000. This net
increase resulted from an increase in real estate loans of $332,000 (8%), a
decline in commercial loans of $122,000 (7%), and a decline in consumer loans of
$86,000 (2%).
At September 30, 1997 the loan portfolio was comprised of real estate loans
(43%), consumer loans (41%), and commercial loans (16%). Deferred loan costs
were negligible. These relative percentages did not change significantly from
September 30, 1996 balances. The percentage of loans to total assets and loans
to deposits at September 30, 1997 declined from the prior year-end, due to an
increase in cash equivalents and total deposits.
<TABLE>
<CAPTION>
Total Loans
As of September 30,
(dollars in thousands)
<S> <C> <C> <C> <C>
% to % to
1997 Total 1996 Total
---- ----- ---- -----
Commercial $ 1,662 16 $ 1,784 17
Real Estate 4,554 43 4,222 41
Consumer 4,281 41 4,366 42
------ --- ----- --
10,497 100 10,372 100
Deferred Loan Costs 23 - 22 -
------- -- --
TOTAL LOANS $ 10,520 100 $10,394 100
====== === ====== ===
LOANS TO TOTAL ASSETS 67% 71%
=== ===
LOANS TO TOTAL DEPOSITS 75% 82%
=== ===
</TABLE>
-94-
<PAGE>
Approximately $3,800,000 of real estate loans were secured by 1-4 family housing
at September 30, 1997 and approximately $985,000 of outstanding commercial loans
were for agricultural purposes or secured by farmland. The majority of consumer
loans were collateralized at year-end. Unfunded lines of credit were not
significant.
SOURCES OF FUNDS
Comparison of September 30, 1997 to 1996
DEPOSITS
FSB's core deposits include demand deposits, regular savings accounts and
certificates of deposit of less than $100,000. FSB relies on core deposits
as the major source of funding for earning assets. Core deposits increased 6%,
or $696,000 to $11,616,000 at September 30, 1997 compared to $10,920,000 at
September 30, 1996. Non-interest bearing demand deposits, a component of core
deposits, increased 2% or $24,000 for the year ended September 30, 1997.
Certificates of deposits of $100,000 or more totaled $2,487,000 and $1,678,000
at September 30, 1997 and 1996, respectively; an increase of $810,000. Deposits
in this category are generally considered more subject to periodic withdrawals
than core deposits, and as such are generally not used as a permanent source of
funding for loans.
OTHER FUNDING SOURCES
FSB's remaining funding source consists of federal funds purchased from
other financial institutions, generally on an overnight basis. These borrowings
represent an important source of temporary short-term liquidity for FSB.
FSB had no borrowings at September 30, 1997.
CAPITAL RESOURCES
Shareholders' Equity at September 30, 1997 declined $56,000 from the previous
year-end, to $1,481,000. This decline resulted primarily from a net loss in 1997
of $41,000 following a net loss in 1996 of $16,000. Shareholders' Equity as a
percentage of total assets declined to 9.4% at September 30, 1997 from 10.5% at
September 30, 1996.
FSB paid cash dividends of approximately $12,000 in both 1997 and 1996. Due
to FSB's recent net losses and certain Indiana state banking regulations,
FSB is required to obtain prior regulatory approval before payment of
future dividends.
Federal banking regulations provide guidelines for determining the capital
adequacy of bank holding companies and banks. These guidelines provide a
definition of core capital (Tier 1 capital) and assign a measure of risk to
various categories of assets (risk-weighted assets). These guidelines require
minimum levels of capital to be maintained in proportion to total risk-weighted
assets and off-balance sheet exposures such as unfunded loan commitments.
The bank's Tier 1 capital consists solely of shareholders' equity. Tier 2
capital is defined as the allowance for loan losses up to 1.25% of gross
risk-weighted assets. Total capital is the sum of Tier 1 and Tier 2 capital.
In addition, the Federal Deposit Insurance Corporation Improvement Act of 1991
requires federal regulatory agencies to define capital tiers. These tiers are:
well-capitalized, adequately capitalized, under-capitalized, significantly
under-capitalized, and critically under-capitalized. To be considered
well-capitalized, an institution must achieve a Tier 2 Risk-based capital ratio
of at least 6.0%, a total capital ratio of at least 10.0%, a
-95-
<PAGE>
leverage ratio of at least 5.0%, and not be under a capital directive order.
Failure to meet various capital requirements can initiate regulatory action that
could have a direct material effect on the financial statements.
FSB's Tier 1, Total Capital and leverage ratios at September 30, 1997 were
15.5%, 14.4% and 9.3%, respectively. All ratios exceeded minimum regulatory
ratios for the definition of a well-capitalized institution.
At September 30, 1997 management is 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 impact on the Company's liquidity,
capital resources or operations.
RISK MANAGEMENT
LENDING AND LOAN ADMINISTRATION
Primary responsibility and accountability for day-to-day lending activities
rests with FSB's CEO and Vice President. These officers have the authority
to extend credit based on guidelines approved by FSB's Board of Directors.
In the opinion of the Board, these officers possess the knowledge, judgement and
experience necessary to administer lending activities of FSB.
FSB's Board of Directors holds regular meetings and special meetings, as
needed, to review and approve lending activities and to review credit
applications which, according to FSB's loan policy, require Board approval.
The Board reviews underperforming assets and watch list loans at quarterly
intervals in order to monitor credit quality. The Board approves all charge-offs
to the allowance for loan losses. Loans are charged-off when, in management's
opinion, they are deemed uncollectible.
Underperforming assets consist of: a) non-accrual loans; b) accruing loans past
due greater than 90 days; and c) restructured loans, which have been
renegotiated to provide a reduction or deferral in interest and/or principal due
to the impaired financial condition of the borrower. FSB's underperforming
assets totaled $117,000 and $54,000 or 1.11% and 0.51% of total loans, at
September 30, 1997 and 1996, respectively.
The Board of Directors formally evaluates the adequacy of the allowance for loan
losses on a quarterly basis. This evaluation is based upon reviews of specific
loans, loan categories, and historical loss experience, as well as current and
projected conditions. FSB's provision to the Allowance for Loan Losses was
$68,000 in 1997 and $58,000 in 1996. Net charge-offs reduced the Allowance for
Loan Losses by $48,000 in 1997 and $18,000 in 1996. The balance of the Allowance
for Loan Losses totaled $103,000 and $83,000 or 0.98% and 0.80% of total loans,
at September 30, 1997 and 1996, respectively.
LIQUIDITY, INTEREST RATE RISK MANAGEMENT AND INFLATION
Management monitors the bank's liquidity requirements on a daily basis.
Liquidity needs arise from loan demand and deposit withdrawals. The objective of
liquidity management is to match available funds with anticipated funding needs.
The investment portfolio is managed to help meet FSB's liquidity needs, as
well as mitigate interest rate risk in FSB's loan and deposit portfolios.
Interest rate risk management seeks to minimize the risks to net interest income
associated with the effect of potential changes in interest rates. These risks
are mitigated by the appropriate positioning of interest-earning assets to
interest-bearing liabilities, based on the periods in which they mature or
reprice. In general, a position wherein interest sensitive assets are greater
than interest sensitive liabilities in a given period is appropriate during
periods of rising interest rates. In general, the inverse is true during periods
of declining interest rates.
-96-
<PAGE>
Since virtually all of FSB's assets and liabilities are monetary in nature,
changes in interest rates may have a significant impact on the bank's
performance. However, interest rates do not necessarily move in concert with, or
in the same magnitude as, the general inflation rate or prices of other goods
and services.
Management and the Board of Directors monitor FSB's interest rate risk
position on a quarterly basis. An analysis of the bank's interest rate
sensitivity position at September 30, 1997 is provided in the table below:
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY
As of September 30, 1997
(dollars in thousands)
<S> <C> <C> <C> <C>
Under 1 - 5 Beyond
1 Year Years 5 Yrs Total
------ ------ ------ ------
INTEREST EARNING ASSETS:
Federal Funds Sold $ 1,275 -- $ -- $ 1,275
Interest Bearing Deposits 50 -- -- 50
Investment Securities 1,489 409 727 2,625
Loans (net of unearned) 2,071 5,710 2,739 10,520
----- ----- ----- ------
RATE SENSITIVE ASSETS (RSA) $ 4,885$ 6,119 $ 3,466 $ 14,470
----- ----- ----- ------
INTEREST BEARING LIABILITIES:
Interest Bearing Demand $ 1,149 -- $ -- $ 1,149
Savings and MMDA 200 1,961 -- 2,161
Time Deposits 4,732 4,276 -- 9,008
----- ----- ----- ------
RATE SENSITIVE LIABILITIES (RSL) $ 6,081$ 6,237 $ -- $ 12,318
----- ----- --- ------
INTEREST SENSITIVITY GAP:
Current $(1,196) $(118) $3,466 $ 2,152
===== ==== ===== =====
Cumulative $(1,196) $(1,314) $2,152
===== ===== =====
Cumulative RSA / RSL 80% 90% 117%
=== === ====
</TABLE>
-97-
<PAGE>
INTRODUCTION
The following management's discussion and analysis is presented to provide
information concerning FSB's financial condition and results of operations
as of December 31, 1997 and September 30, 1997 as well as for the three months
ended December 31, 1997 and 1996. The three months ended December 31, 1997 and
1996 represent the first fiscal quarter of the 1998 and 1997 fiscal years,
respectively. This discussion and analysis should be read in conjunction with
FSB's financial statements and related footnotes, which are presented in
this document. Note that all results are unaudited.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1997 TO DECEMBER 31, 1996
NET LOSS
FSB incurred a $5,000 net loss for the three months ended December 31, 1997
which represented an improvement of $12,000 from the $17,000 net loss incurred
for the same period in 1996. This improvement was primarily attributable to a
$38,000 decrease in the provision for loan loss, which was principally offset by
an increase in interest expense of $21,000. In addition, no income tax benefit
associated with the pre-tax loss was recorded in the first fiscal quarter of
1998. A tax benefit of $9,000 was recorded in the first fiscal quarter of 1997.
There were no merger-related expenses in the first fiscal quarter of 1998.
The table below presents the change in net income by major income statement
components for the three months ended December 31, 1997 in comparison to the
three months ended December 31, 1996 on a taxable equivalent basis (dollars in
thousands):
Net Interest Income $ (13)
Provision for Loan Losses 38
Non-interest Income 1
Non-interest Expenses (5)
Income Taxes (9)
-------
Change in Net Income $ 12
=======
NET INTEREST INCOME
Net interest income is the difference between interest and fees earned on loans
and investments, and interest paid on interest bearing liabilities. It is the
bank's principal source of income. In this discussion, net interest income is
presented on a taxable equivalent basis -- that is, tax-exempt income earned on
securities of state and political subdivisions has been increased to an amount
that would have been earned on a taxable basis. This places taxable and
non-taxable income on a more comparable basis and makes their comparison more
meaningful.
-98-
<PAGE>
<TABLE>
<CAPTION>
Change from Prior Period
Three Months Ended December 31,
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
% of Average
Change Earning Assets
1997 1996 $ % 1997 1996
---- ---- - - ---- ----
Interest Income
(taxable equivalent) $ 296 $288 $ 8 3 8.21 8.35
Interest Expense 149 128 21 16 4.13 3.71
--- ---- ---- ----
Net Interest Income $ 147 $160 $(13) 8 4.08 4.64
==== === === ==== ====
</TABLE>
For the first fiscal quarter of 1998, taxable equivalent net interest income of
$147,000 decreased by $13,000 or 8% from the first fiscal quarter of 1997. Net
interest income, on a taxable equivalent basis, as a percentage of average
earning assets (net interest margin) was 4.08% for the three months ended
December 31, 1997 compared to 4.64% for the same period in the prior year. The
reduction in net interest income and net interest margin was primarily due to an
increase in interest expense. This increase was due to higher average deposit
outstandings and average rate paid on deposits from period to period.
Management reviews FSB's Asset/Liability position on a regular basis in
order to minimize inherent balance sheet interest rate risk. See management's
discussion in the section entitled Liquidity, Interest Rate Risk Management and
Inflation.
PROVISION FOR LOAN LOSSES
The provision for loan losses is a charge against income, to provide an
allowance against which future losses will be charged as those losses are
identified. FSB's management makes a quarterly evaluation of estimated
losses and the adequacy of the allowance for loan losses. Management considers
the allowance to be adequate to absorb estimated losses in the loan portfolio.
The provision for loan losses was $4,000 in the first fiscal quarter of 1998,
compared to $42,000 in the same period for 1997. The decrease in the provision
from period to period was the result of management's determination that there
were no significant loan losses forecast for the first fiscal quarter of 1998,
and that $25,000 of the provision in the comparable period for 1997 was made as
a direct contribution to cover some year-end 1997 loan losses. There were no
significant write-offs in the first fiscal quarter of 1998 or 1997.
NON-INTEREST INCOME
The primary source of non-interest income is service charges on deposit
accounts. Non-interest income also includes commissions, ATM fees, dividends on
FHLB stock, exchange fees, safe deposit rental, and other miscellaneous charges.
Non-interest income increased by $1,000 to $26,000 in the first fiscal quarter
of 1998, over the 1997 amount of $25,000.
NON-INTEREST EXPENSES
The principal components of non-interest expense are salaries and employee
benefits, occupancy and equipment, and data processing. The remaining components
of non-interest expense are classified as other operating expenses and consist
of supplies and telephone, directors' and professional fees, and other
miscellaneous expenses.
-99-
<PAGE>
Non-interest expenses were $170,000 in the first fiscal quarter of 1998,
compared to $165,000 for the same period in 1997, an increase of $5,000.
Occupancy and Equipment expenses increased $13,000 due to the amortized cost of
two new ATMs, associated site preparation, and the subsequent purchase of
maintenance agreements to cover said machines. Data Processing and Other
Operating Expenses decreased $4,000 and $5,000 respectively. There were no
merger-related expenses in the first fiscal quarter of 1998.
FSB's efficiency ratio, consisting of non-interest expenses as a percentage
of the total of taxable equivalent net interest income and non-interest income
(net operating income), was 98% in the first fiscal quarter of 1998 compared to
89% in 1997.
The following tables provide an analysis of the components of non-interest
expense for the three months ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Non-interest Expenses
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
1st Qtr % to 1st Qtr % to
1998 Total 1997 Total Change
----- ---- ----- ------
Salaries and
Employee Benefits $ 90 53% $ 89 54% $ 1 1%
Occupancy and Equipment 28 16 15 9 13 87
Data Processing 14 8 18 11 (4)(22)
Other Operating 38 22 43 26 (5) 12
-- --- -- --- ---
Non-Interest Expense $170 100% $165 100% 5 3%
=== === === ===
</TABLE>
<TABLE>
<CAPTION>
Non-interest Expenses
Stated as a % of Taxable
Equivalent Net Operating Income
(dollars in thousands)
<S> <C> <C>
1st Qtr 1st Qtr
1998 1997
Salaries and Employee Benefits 52% 48%
Occupancy and Equipment 16 8
Data Processing 8 9
Other Operating 22 24
-- --
Non-Interest Expense
98% 89%
== ==
</TABLE>
The increase in the efficiency ratio is primarily due to lower net interest
income in the first fiscal quarter of 1998 compared to same period in the prior
year.
INCOME TAX
No income tax benefit was recorded for the first fiscal quarter of 1998. A
$9,000 tax benefit was recorded for the same period in the prior year.
-100-
<PAGE>
FINANCIAL CONDITION
Comparison of December 31, 1997 to September 30, 1997
As of December 31, 1997 FSB's total assets increased $63,000 to $15,762,000
compared to $15,699,000 at September 30, 1997. This net increase was primarily
the result of a $23,000 decrease in the Allowance for Loan Loss and a $35,000
increase in Other Assets. In addition, a $465,000 decline in investment
securities and a $441,000 decline in loans were reinvested in Federal Funds
Sold, funding the majority of the $967,000 increase in Cash and Cash
Equivalents.
Total deposits at December 31, 1997 of $14,172,000 were $68,000 over the total
of $14,104,000 at September 30, 1997. Non-interest bearing deposits declined
$73,000 while interest-bearing deposits increased by $141,000 during this
period.
Shareholders' Equity totaled $1,475,000 or 9.4% of total assets at December 31,
1997. This represents a decrease of $5,000 from the September 30, 1997 and no
change in the equity to assets ratio. This decline resulted from the net loss
for the three months ended December 31, 1997.
USES OF FUNDS
MONEY MARKET INVESTMENTS
FSB's money market investments for the periods presented were comprised of
federal funds sold and interest bearing deposits in other banks, and are used by
FSB to meet lending requirements and normal liquidity needs. The balance of
money market investments increased $890,000 in the first fiscal quarter of 1998,
to a total of $2,215,000. This increase from the total of $1,325,000 at
September 30, 1997 was funded by a decline in investment securities and loans.
Management's intent is to provide liquidity for seasonal loan growth and
expected maturities of time deposits; and, to reinvest excess liquidity in the
investment portfolio when sufficient yields can be obtained.
INVESTMENT SECURITIES
The investment securities portfolio is used as a means of investing funds over
and above those needed for lending and liquidity requirements. Investment
securities are primarily purchased with the intent and ability to hold until
maturity.
Investment securities declined $465,000 from September 30, 1997 to $2,160,000 at
December 31, 1997. This decline was primarily the result of scheduled maturities
of U.S. Treasury, U.S. Government Agency and Mortgage-backed securities. An
additional $500,000 of the bank's U.S. Government Agency securities are
scheduled to mature in the fiscal year ending September 30, 1998.
The following tables present an analysis of money market investments and
investment securities as of December 31, 1997 and September 30, 1996 and their
maturity schedules as of December 31, 1997:
-101-
<PAGE>
<TABLE>
<CAPTION>
Money Market Investments and
Investment Securities As of:
(dollars in thousands)
<S> <C> <C> <C> <C>
Dec 31, % to Sep 30, % to
1997 Total 1997 Total
---- ----- ---- -----
MONEY MARKET INVESTMENTS
Federal Funds Sold $2,215 51% $1,275 32%
Interest Bearing Deposits -- -- 50 2
--
2,215 51 1,325 34
------ --- ----- --
INVESTMENT SECURITIES
U.S. Treasuries -- -- 300 7
U.S. Government Agencies 800 18 900 23
State and political
sub-divisions 585 13 585 15
Mortgage-backed securities 775 18 840 21
------- --- ---
2,160 49 2,625 66
------ --- ----- ---
TOTAL INVESTMENTS $ 4,375 100% $3,950 100%
===== === ===== ===
</TABLE>
<TABLE>
<CAPTION>
Money Market Investments
and Investment Securities
Maturity Schedule
As of December 31, 1997
(dollars in thousands)
<S> <C> <C> <C> <C>
Within 1 - 5 > 5
1 Year Years Years Total
------ ------ ------ ------
Money Market Investments $2,215 $-- $ -- $2,215
Investment Securities 1,284 312 564 2,160
----- ------- -----
TOTAL INVESTMENTS $3,499 $ 312 564 $4,375
===== ===== =====
</TABLE>
LOANS
Total loans of $10,079,000 at December 31, 1997 represented a decline of
$441,000 compared to the September 30, 1997 balance of $10,520,000. This net
decline principally resulted from seasonal repayments of agricultural loans.
At December 31, 1997 the loan portfolio was comprised of real estate loans
(45%), consumer loans (42%), and commercial loans (13%). Deferred loan costs
were negligible. These relative percentages did not change significantly from
September 30, 1997 balances. The decline in commercial loans, percentage of
loans to total assets and loans to deposits at December 31, 1997 from the fiscal
year-end was due to seasonal repayments in the agricultural loan portfolio.
-102-
<PAGE>
<TABLE>
<CAPTION>
Total Loans as of:
(dollars in thousands)
<S> <C> <C> <C> <C>
Dec 31, % to Sep 30, % to
1997 Total 1997 Total
---- ----- ---- -----
Commercial $ 1,296 13% $ 1,662 16%
Real Estate 4,490 45 4,554 43
Consumer 4,271 42 4,281 41
------ --- ----- ---
10,057 100 10,497 100
Deferred Loan Costs 23 - 23 -
-- -- -- --
TOTAL LOANS $10,080 100% $ 10,520 100%
====== === ====== ===
LOANS TO TOTAL ASSETS 64% 67%
=== ===
LOANS TO TOTAL DEPOSITS 71% 75%
=== ===
</TABLE>
Approximately $3,800,000 of real estate loans were secured by 1-4 family housing
at December 31, 1997 and approximately $533,000 of outstanding commercial loans
were for agricultural purposes or secured by farmland. The majority of consumer
loans were collateralized at December 31, 1997. Unfunded lines of credit were
not significant.
SOURCES OF FUNDS
Comparison of December 31, 1997 to September 30, 1997
DEPOSITS
FSB's core deposits include demand deposits, regular savings accounts and
certificates of deposit of less than $100,000. FSB relies on core deposits
as the major source of funding for earning assets. Core deposits increased 3%,
or $370,000 to $11,986,000 at December 31, 1997 compared to $11,616,000 at
September 30, 1997. Non-interest bearing demand deposits, a component of core
deposits, decreased 4% or $72,000 for the three months ended December 31, 1997.
Certificates of deposits of $100,000 or more at December 31, 1997 and September
30, 1997 totaled $2,187,000 and $2,487,000 respectively; a decrease of $300,000.
Deposits in this category are generally considered more subject to periodic
withdrawals than core deposits, and as such are generally not used as a
permanent source of funding for loans.
OTHER FUNDING SOURCES
FSB's remaining funding source consists of federal funds purchased from
other financial institutions, generally on an overnight basis. These borrowings
represent an important source of temporary short-term liquidity for FSB.
FSB had no borrowings at December 31, 1997.
CAPITAL RESOURCES
Shareholders' Equity at December 31, 1997 declined $5,000 from year-end, to
$1,475,000. This decline resulted from a net loss in first fiscal quarter of
1998. The percentage of Shareholders' Equity to total assets was 9.4% at
December 31, 1997 and September 30, 1997.
-103-
<PAGE>
Federal banking regulations provide guidelines for determining the capital
adequacy of bank holding companies and banks. These guidelines provide a
definition of core capital (Tier 1 capital) and assign a measure of risk to
various categories of assets (risk-weighted assets). These guidelines require
minimum levels of capital to be maintained in proportion to total risk-weighted
assets and off-balance sheet exposures such as unfunded loan commitments.
The bank's Tier 1 capital consists solely of shareholders' equity. Tier 2
capital is defined as the allowance for loan losses up to 1.25% of gross
risk-weighted assets. Total capital is the sum of Tier 1 and Tier 2 capital.
In addition, the Federal Deposit Insurance Corporation Improvement Act of 1991
requires federal regulatory agencies to define capital tiers. These tiers are:
well-capitalized, adequately capitalized, under-capitalized, significantly
under-capitalized, and critically under-capitalized. To be considered
well-capitalized, an institution must achieve a Tier 2 Risk-based capital ratio
of at least 6.0%, a total capital ratio of at least 10.0%, a leverage ratio of
at least 5.0%, and not be under a capital directive order. Failure to meet
various capital requirements can initiate regulatory action that could have a
direct material effect on the financial statements.
FSB's Tier 1, Total Capital and leverage ratios at December 31, 1997 were
15.8%, 15.0% and 9.2%, respectively. All ratios exceeded minimum regulatory
ratios for the definition of a well-capitalized institution.
At December 31, 1997 management is 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 impact on the Company's liquidity,
capital resources or operations.
RISK MANAGEMENT
LENDING AND LOAN ADMINISTRATION
Primary responsibility and accountability for day-to-day lending activities
rests with FSB's CEO and Vice President. These officers have the authority
to extend credit based on guidelines approved by FSB's Board of Directors.
In the opinion of the Board, these officers possess the knowledge, judgement and
experience necessary to administer lending activities of FSB.
FSB's Board of Directors holds regular meetings and special meetings, as
needed, to review and approve lending activities and to review credit
applications which, according to FSB's loan policy, require Board approval.
The Board reviews underperforming assets and watch list loans at quarterly
intervals in order to monitor credit quality. The Board approves all charge-offs
to the allowance for loan losses. Loans are charged-off when, in management's
opinion, they are deemed uncollectible.
Underperforming assets consist of: a) non-accrual loans; b) accruing loans past
due greater than 90 days; and c) restructured loans, which have been
renegotiated to provide a reduction or deferral in interest and/or principal due
to the impaired financial condition of the borrower. FSB's underperforming
assets totaled $127,000 and $117,000 or 1.26% and 1.11% of total loans, at
December 31, 1997 and September 30, 1997, respectively.
The Board of Directors formally evaluates the adequacy of the allowance for loan
losses on a quarterly basis. This evaluation is based upon reviews of specific
loans, loan categories, and historical loss experience, as well as current and
projected conditions. FSB's provision to the Allowance for Loan Losses was
$4,000 in the first fiscal quarter of 1998. During this period, FSB
recorded net charge-offs against the Allowance for Loan Losses totaling $32,000.
The Allowance for Loan Losses totaled $80,000 and $103,000 or 0.80% and 0.98% of
total loans, at December 31, 1997 and September 30, 1997 respectively.
-104-
<PAGE>
LIQUIDITY, INTEREST RATE RISK MANAGEMENT AND INFLATION
Management monitors the bank's liquidity requirements on a daily basis.
Liquidity needs arise from loan demand and deposit withdrawals. The objective of
liquidity management is to match available funds with anticipated funding needs.
The investment portfolio is managed to help meet FSB's liquidity needs, as
well as mitigate interest rate risk in FSB's loan and deposit portfolios.
Interest rate risk management seeks to minimize the risks to net interest income
associated with the effect of potential changes in interest rates. These risks
are mitigated by the appropriate positioning of interest-earning assets to
interest-bearing liabilities, based on the periods in which they mature or
reprice. In general, a position wherein interest sensitive assets are greater
than interest sensitive liabilities in a given period is appropriate during
periods of rising interest rates. In general, the inverse is true during periods
of declining interest rates.
Since virtually all of FSB's assets and liabilities are monetary in nature,
changes in interest rates may have a significant impact on the bank's
performance. However, interest rates do not necessarily move in concert with, or
in the same magnitude as, the general inflation rate or prices of other goods
and services.
Management and the Board of Directors monitor FSB's interest rate risk
position on a quarterly basis. An analysis of the bank's interest rate
sensitivity position at December 31, 1997 is provided in the table below:
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY
As of December 31, 1997
(dollars in thousands)
<S> <C> <C> <C> <C>
Under 1 - 5 Beyond
1 Year Years 5 Yrs Total
------ ------ ------ ------
INTEREST EARNING ASSETS:
Federal Funds Sold $ 2,215 $ -- $ -- $ 2,215
Investment Securities 1,284 312 564 2,160
Loans (net of unearned) 1,898 6,269 1,913 10,080
----- ----- ----- ------
RATE SENSITIVE ASSETS (RSA) $ 5,397 $6,581 $ 2,477 $14,455
----- ----- ----- ------
INTEREST BEARING LIABILITIES:
Interest Bearing Demand 1,961 $ -- $ -- $ 1,961
Savings and MMDA 253 1,932 -- 2,185
Time Deposits 4,807 3,505 -- 8,312
----- ----- ----- -------
RATE SENSITIVE LIABILITIES (RSL) $ 7,021 $ 5,437 $ -- $12,458
----- ----- --- ------
INTEREST SENSITIVITY GAP:
Current $(1,624) $ 1,144 $ 2,477 $ 1,997
===== ===== ===== =======
Cumulative $(1,624) $( 480) $ 1,997
===== === =====
Cumulative RSA / RSL 77% 96% 116%
=== === ====
</TABLE>
-105-
<PAGE>
COMPARISON OF CSB COMMON STOCK
AND GERMAN AMERICAN COMMON STOCK
GENERAL
The CSB Common Stock is similar in many respects to the German American
Common Stock to be issued pursuant to the Merger. Certain differences exist,
however, because the Articles of Incorporation of CSB differ from the Articles
of Incorporation of German American. The following is a comparison of CSB Common
Stock with German American Common Stock and a description of certain material
differences between them.
NUMBER OF SHARES
AUTHORIZED BUT UNISSUED
The Articles of Incorporation of CSB authorize the issuance of 160,000
shares of CSB Common Stock, no par value per share, as of the date hereof, all
of such shares are issued and outstanding. The Articles of Incorporation of
German American authorize the issuance of 20,000,000 shares of Common Stock,
$10.00 par value, $1 stated value, of which, upon consummation of the CSB
Merger, _________ shares of German American Common Stock are expected to be
issued and outstanding (assuming no shareholders of CSB exercise dissenters'
rights and the minimum number of shares specified by the CSB Agreement is issued
in the CSB Merger). The remaining shares of German American Common Stock will
remain authorized but unissued and may be issued by the Board of Directors of
German American without further shareholder approval for any proper corporate
purpose, including possible issuance in connection with future mergers and
acquisitions. Such shares could be issued either to existing shareholders of
German American or to persons who are not then shareholders of German American.
The Board of Directors has no present plans to issue the shares of German
American Common Stock that will be authorized but unissued after the CSB Merger,
other than pursuant to the Company's established annual stock dividend program.
PREFERRED STOCK
Unlike the Articles of Incorporation of CSB, which provide only for the
issuance of common stock, the Articles of Incorporation of German American
authorize the Board of Directors to issue 500,000 shares of Preferred Stock,
$10.00 par value. The Articles give the German American Board of Directors the
authority to establish the relative rights, preferences, restrictions and
limitations of rights of the Preferred Stock. The German American Board of
Directors presently has no plans to issue any of the authorized shares of
Preferred Stock.
-106-
<PAGE>
DIVIDEND RIGHTS
Holders of CSB Common Stock and German American Common Stock each have the
right to receive, pro rata, such dividends as are declared by the respective
Boards of Directors of CSB And German American out of funds legally available.
CSB's and German American's ability to pay dividends is dependent upon their
receipt of dividends from their respective bank subsidiaries. Legal and
regulatory restrictions limit the amount of dividends that may be paid by banks
to their shareholders in order to assure that banks maintain adequate capital.
CSB's and German American's ability to pay dividends is also restricted by the
IBCL, to which CSB and German American are subject. The IBCL prohibits the
payment of dividends if, after giving effect to the payment, the corporation
would not be able to pay its debts as they come due in the usual course of
business or the corporation's total assets would be less than the sum of its
liabilities plus preferential rights of shareholders payable upon dissolution.
VOTING RIGHTS
Each holder of CSB Common Stock and German American Common Stock is
entitled to one vote per share on most matters submitted to a vote of
shareholders. The shareholders of German American and CSB do not have cumulative
voting rights in the election of Directors, which means that the Directors
standing for election at a particular meeting can be elected by a simple
plurality of the votes cast, assuming that a quorum is present at the meeting.
The affirmative vote of the holders of a majority of the shares entitled to
vote is sufficient to approve most matters submitted to a shareholder vote of
either corporation. Under the IBCL, a merger, consolidation, or sale of
substantially all of a corporation's assets must be approved by the holders of a
majority of the outstanding shares of CSB Common Stock.
The Articles of Incorporation of German American and CSB, in addition,
contain certain anti-takeover provisions which require a supermajority vote of
shareholders in certain circumstances.
LIQUIDATION RIGHTS
In the event of liquidation German American or CSB, the holders of the
common stock of each corporation will be entitled to receive, pro rata, all of
the assets remaining for distribution to shareholders.
ABSENCE OF PREEMPTIVE RIGHTS
The holders of German American Common Stock and CSB Common Stock have no
preemptive rights to purchase their proportionate share of any future offering
of common stock by German American or CSB, respectively.
ANTI-TAKEOVER PROVISIONS
German American's Articles of Incorporation and Bylaws contain certain
anti-takeover provisions described below. These provisions may discourage or
prevent tender or exchange offers by a corporation or group that intends to use
the acquisition of a substantial number of shares of German American to initiate
a takeover culminating in a merger or other business combination. In recent
years a number of other companies have adopted similar charter or bylaw
provisions for the same or similar reasons. These provisions may also have the
effect of making the removal of current management more difficult.
POSSIBLE ISSUANCE OF COMMON STOCK
As of the date hereof, there were 20,000,000 authorized shares of
German American Common Stock of which 5,350,161 shares were outstanding as of
March 31, 1998 (not including shares that are reserved for issuance pursuant to
the Mergers and German American's stock option plan). The Board could use the
authorized but unissued and unreserved shares at its discretion to resist the
consummation of certain takeover attempts by, for example, diluting the
ownership interest of a substantial shareholder or substantially increasing the
amount of consideration necessary for a shareholder to obtain control.
-107-
<PAGE>
POSSIBLE ISSUANCE OF PREFERRED STOCK
German American's Articles of Incorporation authorize the Board of
Directors to issue up to 500,000 shares of Preferred Stock in one or more
series. The Board will be authorized to fix the number of shares to be included
in the new series, the designation, powers, preferences, and voting and other
rights of each such series, and the qualifications, limitations, or restrictions
thereof. The Board could use the Preferred Stock at its discretion to resist the
consummation of certain takeover attempts.
SUPERMAJORITY VOTE AND MINIMUM PRICE REQUIRED FOR BUSINESS COMBINATIONS
The Articles of Incorporation of German American include a provision
imposing certain supermajority vote and minimum price requirements on any
"Business Combination" with a "Related Person" unless the combination has been
approved by the vote of two-thirds of certain members of the Board of Directors
of German American who are not associated with the Related Person. This
provision defines "Business Combination" very broadly to include, subject to
certain conditions, (i) any merger or consolidation of German American or any of
its subsidiaries into or with a Related Person, its affiliates or associates;
(ii) any sale, exchange, lease, transfer or other disposition by German American
or any of its subsidiaries of all or any substantial part of its or their assets
or businesses to or with a Related Person, its affiliates or associates; (iii)
the purchase, exchange, lease or acquisition by German American or any of its
subsidiaries of all or any substantial part of the assets or business of a
Related Person, its affiliates or associates; (iv) any reclassification of
securities, recapitalization or other transaction that has the effect of
increasing the proportionate amount of German American's Common Stock (or other
voting capital security) beneficially owned by a Related Person; (v) any partial
or complete liquidation, spinoff or splitup of German American or any of its
subsidiaries; and (vi) the acquisition by a Related Person of beneficial
ownership upon issuance of Common Stock (or other voting capital shares) of
German American or any of its subsidiaries or any securities convertible into,
or any rights, warrants or options to acquire, any such shares. "Related Person"
also is defined broadly to mean any person (which includes any individual,
corporation or entity other than German American or its subsidiaries) who (i)
beneficially owns ten percent or more of German American Common Stock (or other
voting capital security) (a "Ten Percent Shareholder"); (ii) any person who
within the preceding two-year period has been a Ten Percent Shareholder and who
directly or indirectly controls, is controlled by, or is under common control
with German American; or (iii) any person who has received, other than pursuant
to or in a series of transactions involving a public offering within the meaning
of the Securities Act of 1933, German American Common Stock (or other voting
capital security) that has been owned by a Related Person within the preceding
two-year period. In the absence of approval by the German American Directors who
are not associated with the Related Person or, in the alternative, the agreement
by the Related Person to pay all other stockholders a certain minimum price for
their shares, a Business Combination with a Related Person would require the
approval of 80 percent of the outstanding voting stock plus the approval of a
majority of the outstanding shares that are not controlled by the Related
Person. In general terms, the restrictions apply to mergers or consolidations of
German American or any subsidiary with any Related Person, transfers or
encumbrances of all or substantially all of the assets of German American to a
Related Person, the adoption of any plan of liquidation proposed by a Related
Person or any transaction which would have the effect, directly or indirectly,
of increasing the proportionate share of any class of equity securities of
German American or any stockholder (including affiliates and associates) who is
the beneficial owner of more than 10 percent of the voting power of the then
outstanding shares entitled to vote generally in the election of Directors of
German American. Absent the provision regulating Business Combinations, mergers,
consolidations, and sales of all or substantially all assets would require only
the approval of a majority of the Board of Directors and (subject to the rights
of any Preferred Stock issued in the future) the affirmative vote of a majority
of the total number of outstanding shares of German American entitled to vote on
the matter.
CLASSIFIED BOARD
The Bylaws of German American divide the Board of Directors into two
equal (or as nearly equal as possible) classes of Directors serving staggered
two-year terms. As a result, approximately one-half of the Board is elected each
year. The Bylaws provide that any vacancy shall be filled by a majority vote of
the remaining Directors. Any Director elected to fill such vacancy shall hold
office for an unexpired term of the class of which he is a member.
-108-
<PAGE>
REMOVAL OF DIRECTORS
The Articles provide that any Director may be removed only by an 80
percent affirmative vote of the outstanding voting power at a shareholders'
meeting called for that purpose, with or without good cause.
AMENDMENT, CHANGE, OR REPEAL OF CERTAIN ARTICLES
The Articles provide that any amendment, change, or repeal of certain
of the articles of the Articles of Incorporation described above would require
the approval of (a) at least 80 percent of the outstanding voting power, and (b)
in the case of an amendment, change, or repeal of any of the above-stated
provisions proposed by or on behalf of a Related Person, the approval by a
majority of the shares not controlled by the Related Person. However, in the
event that an amendment, change, or repeal of those provisions is approved by
two-thirds of the Board of Directors, and, if the amendment is proposed by or on
behalf of a Related Person, by the favorable vote of two-thirds of certain
Directors who are not associated with the Related Person, the affirmative vote
of a majority of the outstanding voting power would be sufficient to approve any
such amendment, change, or repeal.
CONTROL SHARE RESTRICTIONS
German American has elected to be governed by Chapter 42 of the Indiana
Business Corporation Law. Chapter 42, which deals with Control Share
Acquisitions, provides that shares acquired by a person or a group in excess of
certain percentages of the total outstanding shares (20%, 33-1/3%, and 50%) have
only such voting rights as are approved by certain disinterested shareholders.
In order to obtain shareholder approval of voting rights for the excess control
shares, the acquiring person or group must give written notice of the control
share acquisition and request a special shareholders' meeting.
POTENTIAL DISADVANTAGES TO SHAREHOLDERS
Although the purpose of these provisions is to insure fair treatment of
all shareholders in the event of certain mergers, tender offers, or other
attempts to acquire control of German American (a "takeover"), the provisions
regarding Business Combinations (as well as the voting requirements regarding
the removal of Directors) and the provisions of Chapter 42 may have certain
adverse effects in that they may make more difficult the accomplishment of
certain takeovers at prices or on terms that some shareholders may consider
beneficial, impede the assumption of control by principal shareholders in some
cases, or make more difficult the removal of current management even if favored
by a majority of the shareholders.
-109-
<PAGE>
COMPARISON OF FSB COMMON STOCK
AND GERMAN AMERICAN COMMON STOCK
GENERAL
The FSB Common Stock is similar in many respects to the German American
Common Stock to be issued pursuant to the Merger. Certain differences exist,
however, because the Articles of Incorporation of FSB differ from the Articles
of Incorporation of German American. The following is a comparison of FSB Common
Stock with German American Common Stock and a description of certain material
differences between them.
NUMBER OF SHARES
AUTHORIZED BUT UNISSUED
The Articles of Incorporation of FSB authorize the issuance of 3,000,000
shares of FSB Common Stock, without par value. As of the date hereof, 48,916 of
which are issued and outstanding. The Articles of Incorporation of German
American authorize the issuance of 20,000,000 shares of Common Stock, $10.00 par
value, $1 stated value, of which, upon consummation of the FSB Merger, _________
shares of German American Common Stock are expected to be issued and outstanding
(assuming no shareholders of FSB exercise dissenters' rights and the minimum
number of shares specified by the FSB Agreement is issued in the FSB Merger).
The remaining shares of German American Common Stock will remain authorized but
unissued and may be issued by the Board of Directors of German American without
further shareholder approval for any proper corporate purpose, including
possible issuance in connection with future mergers and acquisitions. Such
shares could be issued either to existing shareholders of German American or to
persons who are not then shareholders of German American. The Board of Directors
has no present plans to issue the shares of German American Common Stock that
will be authorized but unissued after the FSB Merger, other than pursuant to the
Company's established annual stock dividend program.
PREFERRED STOCK
The Articles of Incorporation of FSB and the Articles of Incorporation of
German American both provide for the issuance of preferred stock. The Articles
of Incorporation of FSB authorize the Board of Directors to issue 2,000,000
shares of Preferred Stock, without par value. The Articles of Incorporation of
German American authorize the Board of Directors to issue 500,000 shares of
Preferred Stock, $10.00 par value. The Articles of Incorporation of FSB and the
Articles of Incorporation of German American give the respective Boards of
Directors the authority to establish the relative rights, preferences,
restrictions and limitations of rights of the Preferred Stock. The German
American Board of Directors presently has no plans to issue any of the
authorized shares of Preferred Stock.
-110-
<PAGE>
DIVIDEND RIGHTS
Holders of FSB Common Stock and German American Common Stock each have the
right to receive, pro rata, such dividends as are declared by the Board of
Directors out of funds legally available. FSB's and German American's ability to
pay dividends is dependent upon their receipt of dividends from their respective
bank subsidiaries. Legal and regulatory restrictions limit the amount of
dividends that may be paid by banks to their shareholders in order to assure
that banks maintain adequate capital. FSB's and German American's ability to pay
dividends is also restricted by the IBCL, to which FSB and German American are
subject. The IBCL prohibits the payment of dividends if, after giving effect to
the payment, the corporation would not be able to pay its debts as they come due
in the usual course of business or the corporation's total assets would be less
than the sum of its liabilities plus preferential rights of shareholders payable
upon dissolution.
VOTING RIGHTS
Each holder of FSB Common Stock and German American Common Stock is
entitled to one vote per share on most matters submitted to a vote of
shareholders. The shareholders of German American and FSB do not have cumulative
voting rights on the election of Directors, which means that the Directors
standing for election at a particular meeting can be elected by a simple
plurality of the votes cast, assuming that a quorum is present at the meeting.
The affirmative vote of the holders of a majority of the shares entitled to
vote is sufficient to approve most matters submitted to a shareholder vote of
either corporation. Under the IBCL, a merger, consolidation, or sale of
substantially all of a corporation's assets must be approved by the holders of a
majority of the outstanding shares of FSB Common Stock.
The Articles of Incorporation of German American and FSB in addition contain
certain anti-takeover provisions which require a supermajority vote of
shareholders in certain circumstances.
LIQUIDATION RIGHTS
In the event of liquidation German American, the holders of common stock
will be entitled to receive, pro rata, all of the assets remaining for
distribution to shareholders.
ABSENCE OF PREEMPTIVE RIGHTS
Both the holders of FSB Common Stock and German American Common Stock have
no preemptive rights to purchase their proportionate share of any future
offering of common stock.
ANTI-TAKEOVER PROVISIONS
The Articles of Incorporation of German American contain provisions that
might deter the takeover or change-in-control of German American. See
"COMPARISON OF CSB COMMON STOCK AND GERMAN AMERICAN COMMON STOCK--Anti-Takeover
Provisions" for a description of the anti-takeover provisions in German
American's Articles of Incorporation.
LEGAL MATTERS
The due authorization and valid issuance of the shares of German American
Common Stock pursuant to the Mergers, and the intended federal income tax
consequences of the Mergers, will be passed upon by Leagre Chandler & Millard.
EXPERTS
The consolidated balance sheets of CSB as of December 31, 1997 and 1996 and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for the years ended December 31, 1997, 1996 and 1995 have been
audited by Gaither Rutherford & Co., LLP, independent certified public
accountants,
-111-
<PAGE>
and their reports thereon, which appear elsewhere herein, have been included
herein in reliance upon their reports given upon their authority as
experts in accounting and auditing.
The consolidated balance sheets of FSB as of September 30, 1997 and the
related consolidated statements of income, changes in shareholders equity and
cash flows for the year then ended, have been audited by Crowe, Chizek and
Company LLP, independent certified public accountants, and their report thereon,
which appears elsewhere herein has been included herein in reliance upon their
report given upon their authority as experts in accounting and auditing.
The historical consolidated balance sheets of German American as of
December 31, 1997 and 1996 and the related consolidated statements of income,
changes in shareholders' equity and cash flows for the years ended December 31,
1997, 1996, and 1995 have been audited by Crowe, Chizek and Company LLP,
independent certified public accountants, and their report thereon, which
appears in the report incorporated by reference herein, have been incorporated
by reference herein in reliance upon their report given upon their authority as
experts in accounting and auditing.
The opinions of Olive Corporate Finance, LLC, ("Olive"), and the information
provided by Olive under "THE MERGERS -- Opinion of Financial Adviser to CSB,"
and "THE MERGERS -- Opinion of Financial Advisor to FSB" have been included
herein in reliance upon its authority as experts in valuation of financial
institutions and their securities in connection with mergers and acquisitions.
OTHER MATTERS
The Board of Directors of CSB does not know of any other matters that may
come before the Special Meetings of Shareholders of CSB. However, the enclosed
proxy will confer discretionary authority on the persons named therein with
respect to any matters, none of which are known to the Boards of Directors of
CSB as of the date of this Prospectus/Proxy Statement, which may properly come
before the CSB Special Meetings. It is the intention of the persons named in the
proxies to vote pursuant thereto with respect to such matters, if any, in
accordance with the recommendations of the Board of Directors of CSB.
-112-
<PAGE>
INDEX TO CSB FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS: Page No.
Independent Auditors' Report F 2
Consolidated Balance Sheets
as of December 31, 1997 and 1996 F 3
Consolidated Statements of Income for the Years
Ended December 31, 1997, 1996 and 1995 F 4
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995 F 5
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997, 1996 and 1995 F 6
Summary of Significant Accounting Policies F 7
Notes to Consolidated Financial Statements F 9
-F 1-
<PAGE>
CSB Bancorp
Citizens State Bank of Petersburg
Independent Auditors' Report
Board of Directors
CSB Bancorp
We have audited the accompanying consolidated balance sheets of CSB Bancorp and
Subsidiary as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Corporation'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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CSB Bancorp and
Subsidiary as of December 31, 1997 and 1996, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Gaither Ruthford & Co., LLP
GAITHER RUTHERFORD & CO., LLP
Certified Public Accountants
February 16, 1998
-F 2-
<PAGE>
CSB Bancorp
Citizens State Bank of Petersburg
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1997 1996
- ------------------------------------------------------------------- ---------------------- ---------------------
<S> <C> <C>
Assets
Cash and Cash Equivalents
Cash and due from banks (Note 1) $ 5 840 190 $ 3 842 531
Federal funds sold 8 500 000 12 575 000
- ------------------------------------------------------------------- ---------------------- ---------------------
Total Cash and Cash Equivalents 14 340 190 16 417 531
Interest-Bearing Deposits 2 598 000 1 199 000
Securities Available for Sale (Note 2) 1 167 572 603 781
Securities Held to Maturity (Note 2) 10 801 165 11 214 277
Net Loans, net of allowance for loan losses of
$1,161,145 in 1997 and $616,081 in 1996 (Notes 3 and 4) 45 692 879 42 629 439
Premises and Equipment - Net (Note 5) 784 579 735 135
Accrued Interest Receivable 973 491 917 759
Other Assets 653 114 629 424
- ------------------------------------------------------------------- ---------------------- ---------------------
$ 77 010 990 $ 74 346 346
=================================================================== ====================== =====================
Liabilities and Stockholders' Equity
Deposits (Note 6)
Noninterest-bearing $ 8 267 972 $ 6 748 637
Interest-bearing 58 816 732 57 598 502
- ------------------------------------------------------------------- ---------------------- ---------------------
Total Deposits 67 084 704 64 347 139
Securities Sold under Agreements to Repurchase (Note 7) 614 546 560 414
Accrued Interest and Other Liabilities 564 372 572 041
- ------------------------------------------------------------------- ---------------------- ---------------------
Total Liabilities 68 263 622 65 479 594
- ------------------------------------------------------------------- ---------------------- ---------------------
Commitments, Contingencies and Credit Risk (Note 11)
Stockholders' Equity
Common stock, without par value (stated value $25.00
per share) authorized 160,000; issued 160,000 4 000 000 4 000 000
Retained earnings (Note 12) 4 736 612 4 866 533
Net unrealized appreciation on securities available for sale 10 756 219
- ------------------------------------------------------------------- ---------------------- --------------------
Total Stockholders' Equity 8 747 368 8 866 752
- ------------------------------------------------------------------- ---------------------- --------------------
$ 77 010 990 $ 74 346 346
=================================================================== ====================== ====================
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
-F 3-
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
<S> <C> <C> <C>
Interest Income
Interest and fees on loans $ 4 453 869 $ 4 433 907 $ 4 202 612
Interest on investment securities:
U.S. Treasury and agencies 517 990 441 824 437 827
State and municipal 260 583 192 368 185 284
Other securities 12 357 14 637 --
Interest on federal funds sold and
interest-bearing deposits 608 746 569 701 395 865
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
5 853 545 5 652 437 5 221 588
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
Interest Expense
Interest on deposits 2 904 230 2 785 328 2 498 937
Interest on borrowings 16 281 13 814 --
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
2 920 511 2 799 142 2 498 937
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
Net Interest Income 2 933 034 2 853 295 2 722 651
Provision for Loan Losses (Note 4) 808 000 135 000 48 000
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
Net interest income after provision for loan losses 2 125 034 2 718 295 2 674 651
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
Noninterest Income
Service fees 161 508 148 510 146 237
Other operating income 160 909 101 985 124 041
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
322 417 250 495 270 278
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
Noninterest Expenses
Salaries and employee benefits 934 080 931 681 935 824
Occupancy expense 258 404 248 148 243 281
Other operating expenses 862 888 718 015 709 542
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
2 055 372 1 897 844 1 888 647
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
Income Before Taxes on Income 392 079 1 070 946 1 056 282
Taxes on Income (Note 9) 82 000 344 000 338 500
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
Net Income $ 310 079 $ 726 946 $ 717 782
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
Earnings Per Common Share (Note 10) $ 1.94 $ 4.54 $ 4.49
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
Stockholders' Equity Per Common Share,
end of year $ 54.67 $ 55.42 $ 53.72
======================================================= === ================ === ================ === ================
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
-F 4-
<PAGE>
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)
on Securities
Common Stock Retained Available
Shares Amount Earnings for Sale
------------------------------------ ------------- --- ---------------- --- ---------------- --- ------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 160 000 $ 4 000 000 $ 4 261 805 $ --
Net income for the year -- -- 717 782 --
Dividends - $2.50 per share -- -- (400 000) --
Net changes in unrealized
appreciation on available
for sale securities -- -- -- 16 202
------------------------------------ ------------- --- ---------------- --- ---------------- --- ------------------
Balance, December 31, 1995 160 000 4 000 000 4 579 587 16 202
Net income for the year -- -- 726 946 --
Dividends - $2.75 per share -- -- (440 000) --
Net changes in unrealized
appreciation on available
for sale securities -- -- -- (15 983)
------------------------------------ ------------- --- ---------------- --- ---------------- --- ------------------
Balance, December 31, 1996 160 000 4 000 000 4 866 533 219
Net income for the year -- -- 310 079 --
Dividends - $2.75 per share -- -- (440 000) --
Net changes in unrealized
appreciation on available
for sale securities -- -- -- 10 537
------------------------------------ ------------- --- ---------------- --- ---------------- --- ------------------
Balance, December 31, 1997 160 000 $ 4 000 000 $ 4 736 612 $ 10 756
==================================== ============= === ================ === ================ === ==================
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements
-F 5-
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 310 079 $ 726 946 $ 717 782
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 808 000 135 000 48 000
Depreciation and amortization 111 283 99 360 89 500
Deferred income tax (163 812) (21 109) (15 900)
Amortization and accretion of security
premiums and discounts (6 532) 2 786 3 486
(Gain) loss on sale of assets (12 908) -- (2 135)
Decrease (increase) in:
Accrued interest receivable (55 732) 65 737 (71 281)
Other assets 61 310 (174 117) 7 168
Increase (decrease) in accrued interest payable
and other liabilities (7 669) 69 903 132 007
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
Net cash provided by operating activities 1 044 019 904 506 908 627
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
Cash Flows From Investing Activities
Proceeds from calls and maturities of investment
securities 6 804 468 7 924 594 3 224 477
Purchase of investment securities (6 886 879) (8 025 742) (2 212 363)
Proceeds from sales and maturities of
interest-bearing deposits 500 000 580 000 999 000
Purchase of interest-bearing deposits (1 899 000) (240 000) (899 000)
Net decrease (increase) in loans (3 871 440) 524 982 (1 207 080)
Purchases of premises and equipment (161 425) (169 222) (48 099)
Proceeds from sale of fixed assets 41 219 -- 3 975
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
Net cash provided (absorbed) by investing activities (5 473 057) 594 612 (139 090)
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
Cash Flows From Financing Activities
Net increase in deposits 2 737 565 5 570 839 3 708 194
Securities sold under agreements to repurchase 54 132 560 414 --
Cash dividends paid (440 000) (440 000) (400 000)
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
Net cash provided by financing activities 2 351 697 5 691 253 3 308 194
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
Net Increase (Decrease) in Cash and Cash
Equivalents (2 077 341) 7 190 371 4 077 731
Cash and Cash Equivalents, at beginning of year 16 417 531 9 227 160 5 149 429
- ------------------------------------------------------- --- ---------------- --- ---------------- --- ----------------
Cash and Cash Equivalents, at end of year $ 14 340 190 $ 16 417 531 $ 9 227 160
======================================================= === ================ === ================ === ================
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
-F 6-
<PAGE>
Summary of Accounting Policies
Nature of Operations and Customer Concentration
The Corporation is a one-bank holding company which conducts no direct business
activities. All business activities are performed by its wholly-owned
subsidiary, Citizens State Bank of Petersburg.
The Bank provides a full range of banking services to individuals, agricultural
businesses, commercial businesses and industries located in its service area. It
maintains a diversified loan portfolio, including loans to individuals for home
mortgages, automobiles and personal expenditures, and loans to business
enterprises for current operations and expansion. Outstanding loans to
agricultural enterprises approximated $7,311,000 at December 31, 1997. The Bank
offers a variety of deposit vehicles, including checking, savings, money market,
individual retirement accounts and certificates of deposit.
The principal markets for the Bank's financial services are the Indiana
community in which the Bank is located and the areas immediately surrounding
these communities. The Bank serves these markets through two offices located in
Petersburg.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Corporation
and its Subsidiary Bank. All significant intercompany accounts and transactions
are eliminated.
Cash and Cash Equivalents
Cash and cash equivalents include amounts due from banks and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods. Cash
payments of interest amounted to $2,912,003 and $2,819,750 for the years ended
December 31, 1997 and 1996, respectively. Income tax payments of $190,016 and
$344,800 were made in 1997 and 1996, respectively.
-F 7-
<PAGE>
Summary of Accounting Policies
Securities Held to Maturity
Securities for which management has the positive intent and ability to hold to
maturity are reported at cost, adjusted for premiums and discounts that are
recognized in interest income using the interest method over the period to
maturity.
Securities Available for Sale
Available for sale securities consist of securities not classified as held to
maturity securities. Premiums and discounts are recognized in interest income
using the interest method over the period to maturity.
Unrealized holding gains and losses on available for sale securities are
reported as a net amount in a separate component of stockholders' equity until
realized. Gains and losses on the sale of available for sale securities are
determined using the specific identification method.
Premises, Equipment and Depreciation
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is charged to operating expense over the useful lives of the
assets, principally by the straight-line method. Maintenance and repairs are
expensed as incurred while major additions and improvements are capitalized.
Foreclosed Properties
Real estate properties acquired as a result of foreclosure are to be sold and
are initially recorded at fair value at the date of the foreclosure establishing
a new cost basis. After foreclosure, valuations are periodically performed by
management and the real estate is carried at the lower of carrying amount or
fair value less costs to sell. Revenue and expenses from operations and changes
in the valuation allowance are included in loss on foreclosed real estate.
Interest Income on Loans
Interest on loans is accrued and credited to income based on the principal
amount outstanding. For impaired loans that are on non-accrual status, cash
payments received are generally applied to reduce the outstanding principal
balance. However, all or a portion of a cash payment received on a non-accrual
loan may be recognized as interest income to the extent allowed by the loan
contract, assuming management expects to fully collect the remaining principal
balance of the loan.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs amounted to
$55,294, $47,610 and $45,568, respectively, for the years ended December 31,
1997, 1996 and 1995.
-F 8-
<PAGE>
Summary of Accounting Policies
Allowance for Loan Losses
The allowance for loan losses is provided to absorb future loan losses, net of
recoveries. The allowance for loan losses is based on estimated losses. These
estimates are reviewed periodically and, as adjustments become necessary, they
are reported in earnings in the periods in which they become known. Additions to
the allowance are based upon past loan loss experience, the character of the
loan portfolio, current economic conditions and other factors which, in
management's judgment, should be considered in estimating possible loan losses.
A loan is considered to be impaired when it is probable that the Subsidiary Bank
will be unable to collect all principal and interest amounts according to the
contractual terms of the loan agreement. The allowance for loan losses related
to loans identified as impaired is primarily based on the excess of the loan's
current outstanding principal balance over the estimated fair market value of
the related collateral. For impaired loans that are not collateral dependent,
the allowance for loan losses is recorded at the amount by which the outstanding
recorded principal balance exceeds the current best estimate of the future cash
flows on the loan, discounted at the loan's effective interest rate.
Income Taxes
Income taxes are calculated using the liability method specified by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
CSB Bancorp
Citizens State Bank of Petersburg
Notes to Consolidated Financial Statements
1. Restrictions on Cash and Due From Banks
The Subsidiary Bank is required to maintain an average reserve balance on hand
and with the Federal Reserve Bank. The amount of the required reserve balance at
December 31, 1997, is approximately $339,000.
2. Debt and Equity Securities
Debt and equity securities have been classified in the consolidated balance
sheet according to management's intent. The carrying amount of securities and
their approximate fair values at December 31 were as follows:
-F 9-
<PAGE>
<TABLE>
<CAPTION>
1997 Securities available for sale
- ----------------------------------------------------------------------- ----------------------------------------------
U.S.
Treasury
and Agency State and
Equity Securities Municipal
Securities Securities
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
<S> <C> <C> <C>
Amortized cost 358 100 748 862 49 854
Gross unrealized gains -- 10 591 165
Gross unrealized losses -- -- --
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
Fair value 358 100 759 453 50 019
======================================================================= = ============= ============= = =============
</TABLE>
<TABLE>
<CAPTION>
1997 Securities held to maturity
- ---------------------------------------------------------------------------- -----------------------------------------
<S> <C> <C>
Municipal Other Securities
Securities
- ---------------------------------------------------------------------------- - ------------------ - ------------------
Amortized cost 4 828 781 5 972 384
Gross unrealized gains 154 357 21 812
Gross unrealized losses 4 750 7 733
- ---------------------------------------------------------------------------- - ------------------ - ------------------
Fair value 4 978 388 5 986 463
============================================================================ = ================== = ==================
1996 Securities available for sale
- ---------------------------------------------------------------------------- -----------------------------------------
U.S. Treasury
Equity Securities and Agency
Securities
- ---------------------------------------------------------------------------- - ------------------ - ------------------
Amortized cost 403 427 200 135
Gross unrealized gains -- 521
Gross unrealized losses 302 --
- ---------------------------------------------------------------------------- - ------------------ - ------------------
Fair value 403 125 200 656
============================================================================ = ================== = ==================
1996 Securities held to maturity
- ---------------------------------------------------------------------------- -----------------------------------------
State and
Municipal Other Securities
Securities
- ---------------------------------------------------------------------------- - ------------------ - ------------------
Amortized cost 4 064 422 7 149 855
Gross unrealized gains 52 861 15 232
Gross unrealized losses -- 4 451
- ---------------------------------------------------------------------------- - ------------------ - ------------------
Fair value 4 117 283 7 160 636
============================================================================ = ================== = ==================
</TABLE>
-F 10-
<PAGE>
Equity securities consist of a restricted security, Federal Home Loan Bank
stock.
The scheduled maturities of debt securities held to maturity and debt securities
available for sale at December 31, 1997, was as follows:
<TABLE>
<CAPTION>
1997 Securities available for sale
- ---------------------------------------------------------------------------- -----------------------------------------
<S> <C> <C>
Amortized Cost Fair
Value
- ---------------------------------------------------------------------------- - ------------------ - ------------------
Due from one year to five years 798 717 809 472
- ---------------------------------------------------------------------------- - ------------------ - ------------------
798 717 809 472
============================================================================ = ================== = ==================
1997 Securities held to maturity
- ---------------------------------------------------------------------------- -----------------------------------------
Amortized Cost Fair
Value
- ---------------------------------------------------------------------------- - ------------------ - ------------------
Due in one year or less 1 243 727 1 246 835
Due from one year to five years 4 037 775 4 068 449
Due from five to ten years 2 951 606 2 989 571
Due after ten years 2 568 057 2 659 996
- ---------------------------------------------------------------------------- - ------------------ - ------------------
10 801 165 10 964 851
============================================================================ = ================== = ==================
</TABLE>
Securities, carried at approximately $200,000 at December 31, 1997 and 1996,
were pledged to secure public deposits and for other purposes required or
permitted by law.
3. Loans
Loans consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------- --- -------------------- -- -------------------
<S> <C> <C>
Real estate $ 21 889 837 $ 20 189 200
Commercial 11 406 706 12 131 751
Installment 14 345 717 11 734 484
Unearned interest
income (788 236) (809 915)
- ---------------------------------------------------------------------- --- -------------------- -- -------------------
46 854 024 43 245 520
Less allowance for loan losses (1 161 145) (616 081)
- ---------------------------------------------------------------------- --- -------------------- -- -------------------
Total $ 45 692 879 $ 42 629 439
====================================================================== === ==================== == ===================
</TABLE>
-F 11-
<PAGE>
Non-accrual loans totaled $680,224 and $614,954 for the years ended December 31,
1997 and 1996, respectively.
Loans are placed on non-accrual status when, in the opinion of management, the
collectibility of principal and interest is considered doubtful. Additional
interest that would have been earned in 1997 had the loans classified as
non-accrual remained at original terms is immaterial.
4. Allowance for Loan Losses
The allowance for loan losses is based on estimated losses. In the opinion of
management, the allowance for loan losses at December 31, 1997, was adequate to
absorb anticipated loan losses that may be incurred in the collection of the
present loan portfolio. It is at least reasonably possible that ultimate losses
in the near term may vary materially from these estimates.
Activity in the allowance for loan losses account was as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------ ------------------ - -----------------
<S> <C> <C>
Balance, at January 1 616 081 659 186
Addition - provision charged to operations 808 000 135 000
- ------------------------------------------------------------------------------ ------------------ - -----------------
1 424 081 794 186
- ------------------------------------------------------------------------------ ------------------ - -----------------
Deduction
Charge-offs charged to allowance 347 940 198 546
Less recoveries 85 004 20 441
- ------------------------------------------------------------------------------ ------------------ - -----------------
Net charge-offs 262 936 178 105
- ------------------------------------------------------------------------------ ------------------ - -----------------
Balance, at December 31 1 161 145 616 081
============================================================================== ================== = =================
</TABLE>
-F 12-
<PAGE>
5. Premises and Equipment
Premises and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------- - ------------------ - -----------------
<S> <C> <C>
Land 137 992 137 992
Buildings and improvements 939 236 888 180
Furniture and equipment 1 029 974 961 522
- ----------------------------------------------------------------------------- - ------------------ - -----------------
2 107 202 1 987 694
Less accumulated depreciation (1 322 623) (1 252 559)
- ----------------------------------------------------------------------------- - ------------------ - -----------------
Net premises and equipment 784 579 735 135
============================================================================= = ================== = =================
</TABLE>
6. Deposits
Deposits consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------- - ------------------- -------------------
<S> <C> <C>
Demand 8 267 972 6 748 637
NOW accounts 9 386 010 9 126 112
Savings accounts 4 433 345 4 261 907
Certificates of deposit - $100,000 and over 10 791 324 10 243 477
Other certificates of deposit 34 206 053 33 967 006
- --------------------------------------------------------------------------- - ------------------- -------------------
Total deposits 67 084 704 64 347 139
=========================================================================== = =================== ===================
</TABLE>
7. Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase generally mature within one to
ten days from the transaction date.
-F 13-
<PAGE>
8. Profit-Sharing Plan
The Subsidiary Bank has a trusteed retirement profit-sharing plan covering
substantially all employees. Contributions are based upon a percentage of
salaries. Contributions to the plan for 1997, 1996 and 1995 were approximately
$37,600, $21,500 and $17,300, respectively.
9. Taxes on Income
Significant components of the provision for income taxes in the consolidated
statements of income are as follows:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------- -- ------------------ --- ------------------
<S> <C> <C>
Current
Federal $ 183 640 $ 264 209
State 62 172 100 900
- ------------------------------------------------------------------------- -- ------------------ --- ------------------
245 812 365 109
Deferred
Federal (163 812) (21 109)
- ------------------------------------------------------------------------- -- ------------------ --- ------------------
Total taxes on income $ 82 000 $ 344 000
========================================================================= == ================== === ==================
</TABLE>
-F 14-
<PAGE>
Significant components of deferred tax liabilities and assets consisted of the
following at December 31:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------- -- ------------------ --- ------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 119 629 $ 117 500
Investment security accretion 5 800 6 700
- ------------------------------------------------------------------------- -- ------------------ --- ------------------
Total deferred tax liabilities 125 429 124 200
- ------------------------------------------------------------------------- -- ------------------ --- ------------------
Deferred tax assets:
Allowance for loan losses (319 000) (137 100)
Employee benefit plans (66 500) (82 050)
Other -- (1 309)
- ------------------------------------------------------------------------- -- ------------------ --- ------------------
Total deferred tax assets (385 500) (220 459)
- ------------------------------------------------------------------------- -- ------------------ --- ------------------
Net deferred tax asset $ (260 071) $ (96 259)
========================================================================= == ================== === ==================
</TABLE>
-F 15-
<PAGE>
The reconciliation of income tax computed at the federal statutory rate (34
percent) to income tax expense is as follows:
<TABLE>
<CAPTION>
1997
Amount Percent
- ------------------------------------------------------------------------------ - ------------------ ------------------
<S> <C> <C>
Income tax at statutory rate 133 500 34.0
Increase (decrease) resulting from:
Tax exempt interest income
State taxes, net of federal income tax benefit 41 000 6.3
Other - net 11 800 1.8
- ------------------------------------------------------------------------------ - ------------------ ------------------
Total taxes on income 82 000 26.1
============================================================================== = ================== ==================
</TABLE>
<TABLE>
<CAPTION>
1996
Amount Percent
- ------------------------------------------------------------------------------ - ------------------ ------------------
<S> <C> <C>
Income tax at statutory rate 364 000 34.0
Increase (decrease) resulting from:
Tax exempt interest income (94 000) (8.8)
State taxes, net of federal
income tax benefit 66 600 6.2
Other - net 7 400 .7
- ------------------------------------------------------------------------------ - ------------------ ------------------
Total taxes on income 344 000 32.1
============================================================================== = ================== ==================
</TABLE>
-F 16-
<PAGE>
10. Earnings per Common Share
Earnings per common share was computed by dividing net income by the weighted
average number of common shares outstanding during the year (160,000 in each
year).
11. Commitments, Contingencies and Credit Risk
In the normal course of business, the Subsidiary Bank has outstanding
commitments and contingent liabilities, such as pending legal actions and
commitments to extend credit, which are not reflected in the financial
statements. Management does not expect any material losses to result from these
transactions.
Loan commitments and outstanding letters of credit aggregated approximately
$2,038,000 at December 31, 1997. Commitments to extend credit are agreements to
lend to a customer as long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or other
termination clauses and many require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Subsidiary Bank evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Subsidiary
Bank upon extension of credit, is based on management's credit evaluation.
Collateral held varies, but may include accounts receivable, inventory,
property, plant and equipment, and income producing commercial properties.
12. Restrictions on Transfer From Subsidiary
The Corporation's subsidiary, Citizens State Bank of Petersburg, is subject to
the provisions of the Indiana Financial Institutions Act. The Act provides that
the Subsidiary Bank, generally, may not pay cash dividends to the Corporation in
excess of its undivided profits, as defined.
13. Related Party Transactions
The Subsidiary Bank has had, and expects to have in the future, transactions in
the ordinary course of business with directors, officers, employees and their
associates, on the same terms, including interest rates and collateral on loans,
as those prevailing at the same time for comparable transactions with others,
and not involving more than the normal risk of collectibility or presenting
other unfavorable features.
At December 31, 1997 and 1996, certain employees, officers, directors and
affiliates were indebted to the Subsidiary Bank in the aggregate amount of
approximately $1,627,000 and $1,530,000, respectively.
-F 17-
<PAGE>
14. Employee Benefit Plans
The Subsidiary Bank maintains a qualified defined benefit pension plan covering
substantially all salaried and hourly employees. Benefits are based on years of
service and employee compensation during employment. The Subsidiary Bank s
funding policy is to contribute annually the amount that can be deducted for
federal income tax purposes. Contributions are intended to provide not only for
benefits attributed to service to date but also for those expected to be earned
in the future.
The following table sets forth the plan s funded status at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------- ----------------- - ----------------
<S> <C> <C>
Actuarial Present Value
of Benefit Obligations
Accumulated benefit obligations
Vested 534 422 484 144
Nonvested 5 502 1 079
- -------------------------------------------------------------------------------- ----------------- - ----------------
Accumulated benefit obligation 539 924 485 223
================================================================================ ================= = ================
Projected benefit obligation 596 837 598 185
Plan assets at fair value (primarily listed stock, bonds
and U.S. Government obligations) 436 199 432 656
- -------------------------------------------------------------------------------- ----------------- - ----------------
Projected benefit obligation over plan assets 160 638 165 529
Unrecognized net asset 29 182 31 674
Unrecognized prior service cost (3 105) (3 319)
Unrecognized net gain (loss) (58 457) (93 665)
- -------------------------------------------------------------------------------- ----------------- - ----------------
Accrued pension cost included
in other liabilities 128 258 100 219
================================================================================ ================= = ================
</TABLE>
-F 18-
<PAGE>
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------- ----------------- - ----------------
<S> <C> <C>
Service costs 22 152 22 878
Interest cost 40 534 40 627
Expected return on plan assets (35 697) (34 612)
Net amortization and deferral (2 492) (854)
- -------------------------------------------------------------------------------- ----------------- - ----------------
Net periodic pension cost 24 497 28 039
================================================================================ ================= = ================
</TABLE>
The weighted average discount rate of 7.0 percent for 1997 and 6.0 percent for
1996, and a rate of increase in future compensation levels of 5.0 percent for
1997 and 6.0 for 1996 were used in determining the actuarial present value of
the projected benefit obligation. The expected long-term rate of return on
assets was 8.0 percent for 1997 and 1996.
Citizens State Bank also provides certain medical, dental, life insurance and
Medicare Part B reimbursement benefits for retired employees. During 1997,
Citizens State Bank has eliminated active employees from its post-retirement
benefit plan. Retired employees will continue to receive future benefits from
the plan. Presented below is an actuarial calculation of future post-retirement
benefits:
<TABLE>
<CAPTION>
1997 Curtailment 1996
- --------------------------------------------------------------------- - ------------- - -------------- - -------------
<S> <C> <C> <C>
Accumulated post-retirement benefit obligation $ 145 145 $ (748 774) 893 919
Plan assets at fair value -- -- --
- --------------------------------------------------------------------- - ------------- - -------------- - -------------
Funded status 145 145 (748 774) 893 919
Unrecognized transition obligation -- 731 677 (731 677)
- --------------------------------------------------------------------- - ------------- - -------------- - -------------
(Accrued)/Prepaid Post Retirement Benefit Costs $ 145 145 $ (17 097) 162 242
===================================================================== = ============= = ============== = =============
</TABLE>
-F 19-
<PAGE>
15. Regulatory Matters
The Subsidiary Bank is subject to various regulatory capital requirements
administered by federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the consolidated financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Subsidiary Bank must meet specific capital guidelines that involve quantitative
measures of the Subsidiary Bank's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Subsidiary Bank's capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Subsidiary Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the
Subsidiary Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Subsidiary Bank as adequately capitalized
under the regulatory framework for prompt corrective action. To be categorized
as adequately capitalized the Subsidiary Bank must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the
table. There are no conditions or events since that notification that management
believes have changed the institution's category.
-F 20-
<PAGE>
The Subsidiary Bank's actual capital amounts and ratios are also presented in
the table.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
- ------------------------- - ------------------------- - -------------------------
As of December 31, 1997 Amount % Amount % Amount %
- --------------------------------- - --------------- --------- - --------------- --------- - --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk-Weighted Assets) $ 9 292 000 20.7 $ 3 584 000 8.0 $ 4 480 300 10.0
Tier I Capital
(to Risk-Weighted Assets) 8 725 000 19.4 1 792 000 4.0 2 688 000 6.0
Tier I Capital
(to Average Assets) 8 725 000 11.3 3 079 500 4.0 3 849 400 5.0
As of December 31, 1996
- --------------------------------- - --------------- --------- - --------------- --------- - --------------- ---------
Total Capital $ 9 359 500 22.75 $ 3 290 000 8.0 $ 4 112 500 10.0
(to Risk-Weighted Assets)
Tier I Capital 8 844 200 21.50 1 645 000 4.0 2 467 500 6.0
(to Risk-Weighted Assets)
Tier I Capital 8 844 200 12.0 2 957 000 4.0 3 695 800 5.0
(to Average Assets)
</TABLE>
16. Disclosures About Fair Value of Financial Instruments
The following tables reflect a comparison of the carrying amounts and fair
values of financial instruments of the Corporation and its Subsidiary Bank at
December 31, 1997 and 1996:
-F 21-
<PAGE>
<TABLE>
<CAPTION>
Carrying Fair
1997 Amount Value
- ---------------------------------------------------------------------------- --- ---------------- --- ----------------
<S> <C> <C>
Financial Assets
Cash and cash equivalents $ 14 340 190 $ 14 340 000
Interest bearing balances 2 598 000 2 598 000
Securities available for sale 1 167 572 1 167 572
Securities held to maturity 10 801 165 10 964 851
Loans - net 45 692 879 46 545 000
Accrued interest receivable 973 491 973 000
Financial Liabilities
Deposits (67 084 704) (66 766 000)
Securities sold under
repurchase agreements (614 546) (615 000)
Accrued interest payable (260 032) (260 000)
Carrying Fair
1996 Amount Value
- ---------------------------------------------------------------------------- --- ---------------- --- ----------------
Financial Assets
Cash and cash equivalents $ 16 417 531 $ 16 418 000
Interest bearing balances 1 199 000 1 199 000
Securities available for sale 603 781 603 781
Securities held to maturity 11 214 277 11 277 919
Loans - net 42 629 439 43 240 000
Accrued interest receivable 917 759 918 000
Financial Liabilities
Deposits (64 347 139) 63 792 000
Securities sold under
repurchase agreements (560 414) (560 000)
Accrued interest payable (251 523) (252 000)
</TABLE>
-F 22-
<PAGE>
For purposes of these fair value disclosures, the following assumptions were
used. The fair value for cash and cash equivalents, interest bearing balances,
and accrued interest receivable and payable is considered to approximate cost.
The fair value for securities is based on quoted market values for the
individual securities or for equivalent securities. The fair value for loans is
based on estimates of the interest rate that the Subsidiary Bank would charge
borrowers for such loans with similar maturities, applied for an estimated time
period until the loan is assumed to reprice or be paid. The fair value for
demand and savings deposits is based on their carrying value. The fair value for
time deposits is based on estimates of the rate that the Subsidiary Bank would
pay on such deposits, applied for the time period until maturity. The carrying
amounts of securities sold under agreements to repurchase is considered a
reasonable estimate of their fair value. The carrying value of off-balance sheet
items (zero) is considered to be a reasonable estimate of fair value as these
instruments are generally variable rate and short-term in nature, with minimal
fees charged. It should be noted the fair values disclosed in this table do not
represent market values of all assets and liabilities of the Corporation and,
thus, should not be interpreted to represent a market or liquidation value for
the Corporation.
-F 23-
<PAGE>
17. Merger Transaction
The Board of Directors of the Corporation signed a definitive agreement with
German American Bancorp effective December 8, 1997, under which German American
would acquire all of the outstanding stock of the Company in exchange for stock
of German American Bancorp. German American Bancorp is a $489 million multi-bank
holding company located in Jasper, Indiana. The proposed transaction requires
approval by regulatory authorities and shareholders of both companies. The
proposed transaction is expected to be consummated in 1998, and is expected to
be accounted for as a pooling-of-interests.
18. CSB Bancorp (Parent Company Only) Financial Statements
<TABLE>
<CAPTION>
Balance Sheets
December 31, 1997 1996
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
<S> <C> <C>
Assets
Cash and equivalents 11 888 11 551
Investment in Citizens State Bank of Petersburg 8 735 480 8 855 201
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
Total Assets 8 747 368 8 866 752
======================================================================= = ============= ============= = =============
Stockholders' Equity
Common stock 4 000 000 4 000 000
Retained earnings 4 736 612 4 866 533
Net unrealized appreciation on securities available for sale 10 756 219
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
Total Stockholders' Equity 8 747 368 8 866 752
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
Total Liabilities and Stockholders' Equity 8 747 368 8 866 752
======================================================================= = ============= ============= = =============
</TABLE>
-F 24-
<PAGE>
<TABLE>
<CAPTION>
Statements of Income
Years ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
<S> <C> <C> <C>
Income
Dividends from Citizens State Bank of Petersburg 440 000 440 000 400 000
Interest income -- -- 2 237
Expenses
Other (income) expenses (337) 31 619 11 286
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
Income before income taxes and equity in
undistributed net income of Citizens State Bank of Petersburg 440 337 408 381 390 951
Income tax benefit -- -- --
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
Income before equity in undistributed net income
of Citizens State Bank of Petersburg 440 337 408 381 390 951
Equity in undistributed net income of Citizens State
Bank of Petersburg (130 258) 318 565 326 831
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
Net Income 310 079 726 946 717 782
======================================================================= = ============= ============= = =============
Statements of Cash Flows
Years ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
Cash Flows From Operating Activities
Cash dividends received 440 000 440 000 400 000
Cash paid to suppliers and employees -- (31 619) (11 286)
Interest received 337 -- 2 237
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
Net cash provided by operating activities 440 337 408 381 390 951
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
Cash Flows From Financing Activities
Cash dividends paid (440 000) (440 000) (400 000)
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
Net cash absorbed by financing activities (440 000) (440 000) (400 000)
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
Net Decrease in Cash and Cash Equivalents 337 (31 619) (9 049)
Cash and Cash Equivalents, at beginning of year 11 551 43 170 52 219
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
Cash and Cash Equivalents, at end of year 11 888 11 551 43 170
======================================================================= = ============= ============= = =============
Reconciliation of Net Income to Net Cash Provided by Operating
Activities
Net income 310 079 726 947 717 782
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
Decrease (increase) in:
Investment in Citizens State Bank of Petersburg 130 258 (318 566) (326 831)
- ----------------------------------------------------------------------- - ------------- ------------- - -------------
Net Cash Provided by Operating Activities 440 337 408 381 390 951
======================================================================= = ============= ============= = =============
</TABLE>
-F 25-
<PAGE>
INDEX TO FSB FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS: Page No.
Independent Auditors' Report F 27
Consolidated Balance Sheets
as of September 30, 1997 and 1996 (unaudited) F 28
Consolidated Statements of Operations for the Years
Ended September 30, 1997 and 1996 (unaudited) F 29
Consolidated Statements of Cash Flows for the
Years Ended September 30, 1997 and 1996 (unaudited) F 30
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended September 30, 1997 and 1996 (unaudited) F 31
Notes to Consolidated Financial Statements F 32
UNAUDITED FINANCIAL STATEMENTS:
Consolidated Balance Sheets
as of December 31, 1997 and September 30, 1997 F 42
Consolidated Statements of Income for the
Three Months Ended December 31, 1997 and 1996 F 43
Consolidated Statements of Cash Flows for the
Three Months Ended December 31, 1997 and 1996 F 44
Note to Consolidated Financial Statements F 45
-F 26-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
FSB Financial Corporation
Francisco, Indiana
We have audited the accompanying consolidated balance sheet of FSB Financial
Corporation as of September 30, 1997, and the related consolidated statements of
operations, cash flows, and changes in shareholders' equity for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FSB Financial
Corporation as of September 30, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Indianapolis, Indiana
January 13, 1998, except for Note 12,
as to which the date is January 30, 1998
-F 27-
<PAGE>
FSB FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
<S> <C> <C>
ASSETS
Cash and due from banks $ 667,753 $ 519,618
Federal funds sold 1,275,000 75,000
------------ ------------
Cash and cash equivalents 1,942,753 594,618
Interest bearing balances with financial institutions 50,000 50,000
Securities available for sale, at fair value 300,179 300,328
Securities held to maturity, at cost (fair value $2,317,744
and $2,937,661 at September 30, 1997 and 1996) 2,324,673 2,967,494
Federal Home Loan Bank stock, at cost 48,000 --
Loans 10,519,754 10,394,275
Allowance for loan losses (102,962) (83,029)
------------ ------------
Net loans 10,416,792 10,311,246
Premises and equipment, net 362,276 157,939
Accrued interest receivable and other assets 254,766 221,062
$ 15,699,439 $ 14,602,687
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing deposits $ 1,786,268 $ 1,762,532
Interest bearing deposits 12,317,711 10,835,300
------------ ------------
Total deposits 14,103,979 12,597,832
Federal funds purchased -- 375,000
Accrued interest payable and other liabilities 114,356 92,836
------------ ------------
Total liabilities 14,218,335 13,065,668
------------ ------------
Shareholders' equity
Preferred stock, no par value; 2,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock, $.01 stated value: 3,000,000 shares
authorized, 49,000 shares issued, 48,916 and 49,000
shares outstanding in 1997 and 1996 490 490
Additional paid-in capital 819,510 819,510
Retained earnings 663,436 716,644
Unrealized gain on securities available for sale 188 375
Treasury stock, at cost: 84 shares in 1997 (2,520) --
------------ ------------
Total shareholders' equity 1,481,104 1,537,019
------------ ------------
$ 15,699,439 $ 14,602,687
============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
-F 28-
<PAGE>
FSB FINANCIAL COROPRATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
<S> <C> <C>
Interest income
Interest and fees on loans $ 939,283 $ 763,717
Interest on investment securities
Taxable 136,754 189,324
Non-taxable 35,821 35,615
Interest on federal funds sold 30,652 11,677
Interest on balances with financial institutions 2,156 2,601
---------------- ---------------
Total interest income 1,144,666 1,002,934
Interest expense
Interest on deposits 539,118 453,075
Interest on federal funds purchased 1,290 7,529
---------------- ---------------
Total interest expense 540,408 460,604
---------------- ---------------
Net interest income 604,258 542,330
Provision for loan losses 67,988 58,130
---------------- ---------------
Net interest income after provision for loan losses 536,270 484,200
Non-interest income
Service charges on deposit accounts 78,276 68,807
Securities gains 520 125
Other income 17,465 10,860
---------------- ---------------
Total non-interest income 96,261 79,792
Non-interest expenses
Salaries and employee benefits 359,186 297,838
Occupancy and equipment expense 92,508 87,259
Data processing expense 57,170 58,388
Other operating expenses 174,219 139,630
---------------- ---------------
Total non-interest expense 683,083 583,115
---------------- ---------------
Loss before income taxes (50,552) (19,123)
Provision for income taxes (9,594) (3,423)
---------------- ---------------
Net loss $ (40,958) $ (15,700)
=============== ================
Net loss per share $ (.84) $ (.32)
=============== ===============
Weighted average common shares outstanding 48,984 49,000
================ ===============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
-F 29-
<PAGE>
FSB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (40,958) $ (15,700)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation 35,340 21,285
Provision for loan losses 67,988 58,130
Securities gains (520) (125)
Net amortization/(accretion) on securities (3,666) (6,856)
Amortization of organization costs 6,072 6,070
Change in accrued interest receivable and other assets (39,776) (17,802)
Change in accrued interest payable and other liabilities 21,520 (565)
---------------- ---------------
Net cash from operating activities 46,000 44,437
Cash flows from investing activities:
Property and equipment expenditures (239,677) (80,528)
Loans made to customers and principal collections thereon (173,534) (4,456,206)
Proceeds from maturities of securities available for sale - 500,000
Proceeds from maturities and principal paydowns
of securities held to maturity 671,969 1,102,574
Purchases of securities held to maturity (25,000) (25,000)
Purchase of Federal Home Loan Bank stock (48,000) -
---------------- ---------------
Net cash from investing activities 185,758 (2,959,160)
Cash flows from financing activities:
Net change in deposit accounts 1,506,147 2,392,428
Net change in federal funds purchased (375,000) 375,000
Dividends paid (12,250) (12,250)
Purchase treasury stock (2,520) -
---------------- ---------------
Net cash from financing activities 1,116,377 2,755,178
---------------- ---------------
Net change in cash and cash equivalents 1,348,135 (159,545)
Cash and cash equivalents at beginning of year 594,618 754,163
---------------- ---------------
Cash and cash equivalents at end of year $ 1,942,753 $ 594,618
================ ===============
Cash paid during the period for:
Interest $ 527,995 $ 454,985
Income taxes paid (refunded) - (3,423)
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
-F 30-
<PAGE>
FSB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Unrealized
Gain
Additional on Securities Total
Common Paid-in Retained Treasury Available Shareholders'
Stock Capital Earnings Stock for Sale Equity
<S> <C> <C> <C> <C> <C> <C>
Balances at October 1, 1995 (unaudited) $ 490 $ 819,510 $ 744,594 $ - $ 324 $ 1,564,918
Net loss (15,700) (15,700)
Cash dividends ($.25 per share) (12,250) (12,250)
Change in unrealized gain
on securities 51 51
----------- ------------- ----------- ------- -------- -----------
Balances at September 30, 1996
(unaudited) 490 819,510 716,644 - 375 1,537,019
Net loss (40,958) (40,958)
Cash dividends ($.25 per share) (12,250) (12,250)
Purchase treasury shares (84 shares) (2,520) (2,520)
Change in unrealized gain
on securities (187) (187)
----------- ------------- ----------- ------- -------- -----------
Balance at September 30, 1997 $ 490 $ 819,510 $ 663,436 $(2,520) 188 $ 1,481,104
=========== ============ =========== ======== ========= ==========
</TABLE>
-F 31-
<PAGE>
FSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements include the
accounts of FSB Financial Corporation (Company) and its wholly-owned subsidiary,
FSB Bank (Bank). All significant intercompany transactions have been eliminated
in consolidation.
Description of Business: FSB Financial Corporation generates consumer, mortgage,
and commercial loans and receives deposits from customers located primarily in
Gibson county and surrounding Indiana counties. The majority of the Company's
loans are secured by specific items of collateral including consumer assets,
real property and business assets.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses. Actual results could
differ from those estimates. Estimates that are more susceptible to change in
the near term include the allowance for loan losses and fair values of financial
instruments.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand,
amounts due from banks and federal funds sold. Generally, federal funds are sold
for one-day periods. The Company reports net cash flows for customer loan
transactions, deposit transactions, and deposits made with other institutions.
Securities: Securities are classified by management at date of purchase as
available for sale or held to maturity. Securities classified as available for
sale are securities that might be sold in response to changes in interest rates,
changes in prepayment risk, or other similar factors, and which are carried at
fair value. The unrealized gain/(loss) on securities available for sale is
reflected as a separate component of shareholders= equity, net of tax.
Securities classified as held to maturity are securities that the Company has
both the ability and positive intent to hold to maturity and are carried at
amortized cost (cost adjusted for amortization of premium or accretion of
discounts). Interest income on securities is recognized using the level yield
basis. Gains and losses on sales of securities are computed on a specific
identification basis.
Loans: Loans are reported at the principal balance outstanding, net of deferred
loan fees and costs, the allowance for loan losses, and charge-offs. 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. Interest received on such loans is
recognized on the cash basis or reported as principal reductions.
-F 32-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 judgment, should be charged-off.
Loan impairment is reported 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 and consumer 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. Loans are evaluated for
impairment when payments are delayed, typically 90 days or more.
Premises and Equipment: Premises and equipment are stated at cost, net of
accumulated depreciation. Depreciation is charged to operating expense over the
useful lives of assets and is computed primarily on the straight-line method.
Maintenance and repairs are charged to operations as incurred. Improvements are
capitalized and disposals are recorded in the year sold or abandoned.
Income Taxes: Deferred tax liabilities and assets are determined at each balance
sheet date. They are measured by applying enacted tax laws to future amounts
that will result from differences in the financial statement and tax basis of
assets and liabilities. Recognition of deferred tax assets is limited by the
establishment of a valuation reserve unless management concludes that the assets
will more likely than not result in future tax benefits to the Company. Income
tax expense is the amount paid for the current year income tax liability plus or
minus the change in deferred taxes.
Earnings Per Share: Earnings per share is based on the weighted average common
shares outstanding.
Fair Values 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. The fair value estimates of existing on- and
off-balance sheet financial instruments do not include the value of anticipated
future business or the values of assets and liabilities not considered financial
instruments.
-F 33-
<PAGE>
NOTE 2 - SECURITIES
The amortized cost and fair values of securities available for sale are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities:
September 30, 1997 $ 299,991 $ 188 $ - $ 300,179
=============== =============== ================ ===============
September 30, 1996 (unaudited) $ 299,953 $ 375 $ - $ 300,328
=============== =============== ================ ===============
</TABLE>
The amortized cost and fair values of securities held to maturity are as follows
at September 30:
<TABLE>
<CAPTION>
1997
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. government agency $ 899,962 $ - $ (11,031) $ 888,931
State and political subdivisions 584,888 - - 584,888
Mortgage-backed securities 839,822 12,147 (8,045) 843,924
--------------- --------------- ----------------- ---------------
Totals $ 2,324,673 $ 12,147 $ (19,076) $ 2,317,744
=============== =============== ================= ===============
</TABLE>
<TABLE>
<CAPTION>
(Unaudited)
1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. government agency $ 1,249,882 $ 125 $ (28,802) $ 1,221,205
State and political subdivisions 581,487 - - 581,487
Mortgage-backed securities 1,136,125 15,443 (16,599) 1,134,969
--------------- --------------- ----------------- ---------------
Totals $ 2,967,494 $ 15,568 $ (45,401) $ 2,937,661
=============== =============== ================= ===============
</TABLE>
-F 34-
<PAGE>
NOTE 2 - SECURITIES (Continued)
The amortized cost and fair value of securities at September 30, 1997, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties. Mortgage-backed
securities are not due at a specific date and are shown separately.
<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 $ 299,991 $ 300,179 $ 580,043 $ 575,483
Due after one year through
five years - - 459,800 453,329
Due after five years through
ten years - - 238,966 238,966
Due after ten years - - 206,042 206,042
---------------- ---------------- --------------- ---------------
Total fixed maturity debt
securities 299,991 300,179 1,484,851 1,473,820
Mortgage-backed securities - - 839,822 843,924
---------------- ---------------- --------------- ---------------
$ 299,991 $ 300,179 $ 2,324,673 $ 2,317,744
================ ================ =============== ===============
</TABLE>
Securities gains in 1997 and 1996 (unaudited) were entirely attributable to call
premiums on called securities.
At September 30, 1997 and 1996 (unaudited), securities carried at $450,000 were
pledged to secure public deposits and for other purposes.
U.S. government agency securities include structured notes with a carrying value
of $799,962 and $1,149,882 (unaudited) at September 30, 1997 and 1996.
Seventy-five percent of the September 30, 1997 structured notes outstanding
mature in the year ended September 30, 1998.
-F 35-
<PAGE>
NOTE 3 - LOANS
Loans are comprised of the following classifications:
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
<S> <C> <C>
Commercial $ 1,662,309 $ 1,784,089
Real estate 4,553,992 4,221,551
Consumer 4,281,019 4,366,490
Deferred loan costs 22,434 22,145
----------------- -----------------
$ 10,519,754 $ 10,394,275
================= =================
</TABLE>
There were no impaired loans during the years ended September 30, 1997 or 1996
(unaudited).
Nonperforming loans were as follows at September 30:
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
<S> <C> <C>
Non-accrual loans $ 87,794 $ 48,792
Accruing loans past due greater than 90 days 29,390 4,731
Restructured loans - -
----------------- -----------------
$ 117,184 $ 53,523
================= =================
</TABLE>
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
<S> <C> <C>
Beginning balance $ 83,029 $ 43,021
Provision for loan losses 67,988 58,130
Losses charged to the allowance (59,754) (19,549)
Recoveries credited to the allowance 11,699 1,427
---------------- ---------------
Ending balance $ 102,962 $ 83,029
================ ===============
</TABLE>
-F 36-
<PAGE>
NOTE 5 - PREMISES AND EQUIPMENT
A summary of premises and equipment at September 30 follows:
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
<S> <C> <C>
Bank premises $ 428,647 $ 267,504
Equipment and furniture 316,516 237,982
------------------ ------------------
Total 745,163 505,486
Less accumulated depreciation (382,887) (347,547)
------------------ ------------------
Total premises and equipment, net $ 362,276 $ 157,939
================== ==================
</TABLE>
NOTE 6 - DEPOSITS
Certificates of deposit in denominations of $100,000 or more as of September 30,
1997 and 1996 were $2,487,445 and $1,677,688 (unaudited), respectively.
At year-end 1997, interest bearing deposits include time deposits with stated
maturities as follows:
1998 $ 4,732,022
1999 1,645,771
2000 656,717
2001 1,602,470
2002 371,267
------------------
$ 9,008,247
NOTE 7 - BENEFIT PLANS
The Bank maintains a simplified employee pension plan for all active employees.
Employees are eligible for participation in the plan after six months of
service. Contributions are made annually by the Bank at a minimum of 8% of
annual compensation. Contributions provided for the plan and charged to
operations totaled $20,266 and $18,003 (unaudited) in 1997 and 1996.
-F 37-
<PAGE>
NOTE 8 - INCOME TAXES
An analysis of the components of income taxes follows:
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
<S> <C> <C>
Current income taxes $ (9,594) $ (3,701)
Deferred income taxes - 278
---------------- ---------------
Total income taxes (benefit) $ (9,594) $ (3,423)
================ ===============
</TABLE>
The difference between the financial statement tax provision and amounts
computed by applying the federal income tax rate of 34% to pretax income is
reconciled as follows:
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
<S> <C> <C>
Computed expected provision $ (17,188) $ (6,502)
Tax effect of:
Tax-exempt interest income (12,179) (12,109)
Non-deductible interest expense 1,395 1,243
State income tax, net - 1,609
Effect of graduated rates and other items 18,378 12,336
---------------- ---------------
Applicable income tax $ (9,594) $ (3,423)
================ ===============
</TABLE>
The net deferred tax asset is comprised of the following components:
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 14,304 $ 9,874
Accrued expenses 18,750 13,982
Other 570 483
---------------- ---------------
33,624 24,339
Deferred tax liabilities:
Accrued income and prepaid expenses (47,460) (38,733)
Deferred loan costs (4,986) (4,922)
Other (992) (498)
---------------- ---------------
(53,438) (44,153)
Valuation allowance - -
---------------- ---------------
Net deferred tax liability $ (19,814) $ (19,814)
================ ===============
</TABLE>
The Company files tax returns on a calendar year basis. As a result of tax
returns filed through December 31, 1996, the Company had $46,064 of state tax
net operating loss carryforwards expiring in the year 2011.
-F 38-
<PAGE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company, in the ordinary course of business, has loans, commitments and
contingent liabilities, such as guarantees, commitments to extend credit, etc.,
which are not reflected in the accompanying consolidated balance sheets. The
Company's exposure to credit loss in the event of nonperformance by the other
party to the financial guarantees is represented by the contractual amounts of
those instruments. The Company uses the same credit policy to make such
commitments as it uses for on-balance-sheet items.
The contractual amount of these financial instruments are summarized as follows:
(Unaudited)
1997 1996
Commitments to extend credit $ 410,728 $ 238,979
The commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established under the contract.
Generally, such commitments are for no more than one year, and most are variable
rate contracts. These commitments are primarily overdraft protection, and
commercial lines of credit.
Since many commitments expire without being used, the amounts do 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.
NOTE 10 - RELATED PARTY TRANSACTIONS
Certain directors, officers and principal shareholders of the Company were also
customers of the Bank. The aggregate amount of loans to these persons totaled
$462,976 and $409,259 (unaudited) at September 30, 1997 and 1996.
Related party deposits totaled $255,427 and $186,734 (unaudited) at year-end
1997 and 1996.
-F 39-
<PAGE>
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.
Capital amounts and classifications are also subject to qualitative judgments by
regulators about components, risk weightings, and other factors, and the
regulators can lower classifications in certain cases. Failure to meet various
capital requirements can initiate regulatory action that could have a direct
material effect on the financial statements.
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 1997, actual Bank capital levels (in thousands) and minimum required
levels were:
<TABLE>
<CAPTION>
Minimum Required
Minimum Required To Be Well Capitalized
For Capital Under 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) $ 1,544 15.5% $ 798 8.0% $ 998 10.0%
Tier I Capital (to Risk
Weighted Assets) $ 1,441 14.4% $ 399 4.0% $ 599 6.0%
Tier 1 Capital (to
Average Assets) $ 1,441 9.3% $ 619 4.0% $ 774 5.0%
</TABLE>
At year-end 1997 the Bank was categorized as well capitalized.
The Company's primary source of funds with which to pay dividends is the
subsidiary bank. The Bank's ability to pay dividends is limited by Indiana state
banking regulations. Among other restrictions, the Bank may not pay dividends in
excess of the retained net income of the current and previous two calendar years
without prior regulatory approval. As of September 30, 1997, the Bank was
required to obtain prior regulatory approval before payment of dividends.
-F 40-
<PAGE>
FSB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
NOTE 12 -- FAIR VALUES OF FINCIAL INSTRUMENTS
The estimated year-end fair values of financial instruments were:
<TABLE>
<CAPTION>
(Unaudited)
1 9 9 7 1 9 9 6
------- -------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 1,943,000 $ 1,943,000 $ 595,000 $ 595,000
Interest bearing balances 50,000 50,000 50,000 50,000
Securities available-for-sale 300,000 300,000 300,000 300,000
Securities held-to-maturity 2,325,000 2,318,000 2,967,000 2,938,000
Loans, net 10,417,000 10,586,000 10,311,000 10,357,000
Accrued interest receivable 183,000 183,000 194,000 194,000
Financial liabilities
Deposits (14,104,000) (14,243,000) (12,598,000) (12,713,000)
Federal funds purchased - - (375,000) (375,000)
Accrued interest payable (78,000) (78,000) (65,000) (65,000)
Off-balance-sheet assets (liabilities) - - - -
</TABLE>
For purposes of these fair value disclosures, the following assumptions were
used. The fair value for cash and cash equivalents, interest bearing balances,
and accrued interest receivable and payable is considered to approximate cost.
The fair value for securities is based on quoted market values for the
individual securities or for equivalent securities. The fair value for loans is
based on estimates of the interest rate that the Company would charge borrowers
for such loans with similar maturities, applied for an estimated time period
until the loan is assumed to reprice or be paid. The fair value for demand and
savings deposits is based on their carrying value. The fair value for time
deposits is based on estimates of the rate that the Company would pay on such
deposits, applied for the time period until maturity. The carrying amounts of
federal funds purchased is a reasonable estimate of their fair value. The
carrying value of off-balance sheet items (zero) is considered to be a
reasonable estimate of fair value as these instruments are generally variable
rate and short-term in nature, with minimal fees charged.
NOTE 13 -- SUBSEQUENT EVENT
The Board of Directors of the Company signed a definitive agreement with German
American Bancorp effective January 30, 1998 under which German American would
acquire all of the outstanding stock of the Company. German American Bancorp is
a $489 million multi-bank holding company located in Jasper, Indiana. Under
terms of the agreement, all outstanding common shares of FSB Financial
Corporation will be exchanged for German American common shares valued at
approximately 1.5 times the book value of the Company plus or minus certain
adjustments. The proposed transaction requires approval by regulatory
authorities and shareholders of both companies. The proposed transaction is
expected to be consummated in early 1998 and is expected to be accounted for as
a pooling-of-interests.
-F 41-
<PAGE>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, 1997 and September 30, 1997
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
<S> <C> <C>
ASSETS
Cash and due from banks $ 695,159 $ 667,753
Federal funds sold 2,215,000 1,275,000
----------------- -----------------
Cash and cash equivalents 2,910,159 1,942,753
Interest bearing balances with financial institutions - 50,000
Securities available for sale, at fair value - 300,179
Securities held to maturity, at cost 2,160,427 2,324,673
Federal Home Loan Bank stock, at cost 48,000 48,000
Loans 10,079,461 10,519,754
Allowance for loan losses (79,742) (102,962)
----------------- -----------------
Net loans 9,999,719 10,416,792
Premises and equipment, net 353,807 362,276
Accrued interest receivable and other assets 290,149 254,766
---------------- -----------------
15,762,261 $ 15,699,439
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing deposits $ 1,713,973 $ 1,786,268
Interest bearing deposits 12,458,561 12,317,711
----------------- -----------------
Total deposits 14,172,534 14,103,979
Accrued interest payable and other liabilities 114,240 114,356
Total liabilities 14,286,774 14,218,335
----------------- -----------------
Shareholders' equity
Preferred stock, no par value; 2,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, $.01 stated value: 3,000,000 shares
authorized, 49,000 shares issued, 48,916
shares outstanding 490 490
Additional paid-in capital 819,510 819,510
Retained earnings 658,007 663,436
Unrealized gain on securities available for sale - 188
Treasury stock, at cost: 84 shares (2,520) (2,520)
----------------- -----------------
Total shareholders' equity 1,475,487 1,481,104
----------------- -----------------
15,762,261 $ 15,699,439
================= =================
</TABLE>
-F 42-
<PAGE>
FSB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Interest income
Interest and fees on loans $ 229,608 $ 235,503
Interest on investment securities
Taxable 28,217 36,537
Non-taxable 8,775 8,794
Interest on federal funds sold 24,324 1,654
Interest on balances with financial institutions 530 550
---------------- ---------------
Total interest income 291,454 283,038
Interest expense
Interest on deposits 148,718 126,586
Interest on federal funds purchased - 971
---------------- ---------------
Total interest expense 148,718 127,557
---------------- ---------------
Net interest income 142,736 155,481
Provision for loan losses 4,263 42,342
---------------- ---------------
Net interest income after provision for loan losses 138,473 113,139
Non-interest income
Service charges on deposit accounts 18,418 20,750
Securities losses (20) -
Other income 7,506 4,665
---------------- ---------------
Total non-interest income 25,904 25,415
Non-interest expenses
Salaries and employee benefits 90,427 89,045
Occupancy and equipment expense 27,994 15,183
Data processing expense 13,799 17,413
Other operating expenses 37,586 43,375
---------------- ---------------
Total non-interest expense 169,806 165,016
---------------- ---------------
Loss before income taxes (5,429) (26,462)
Provision for income taxes - (9,594)
---------------- ---------------
Net income (loss) $ (5,429) $ (16,868)
================ ===============
Net income (loss) per share $ (.11) $ (.34)
=============== ===============
Weighted average common shares outstanding 48,916 49,000
================ ===============
</TABLE>
-F 43-
<PAGE>
FSB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net gain/(loss) $ (5,429) $ (16,868)
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 9,532 9,110
Provision for loan losses 4,263 42,342
Securities (gains)/losses 20 -
Net amortization/(accretion) on securities (871) (1,199)
Amortization of organization costs 1,518 1,518
Change in accrued interest receivable and other assets (36,901) (52,383)
Change in accrued interest payable and other liabilities (116) 10,260
---------------- ---------------
Net cash from operating activities (27,984) (7,220)
Cash flows from investing activities:
Proceeds from maturities of interest bearing balances 50,000 -
Proceeds from maturities of securities available for sale 299,971 -
Proceeds from maturities and principal paydowns
of securities held to maturity 165,117 315,980
Loans made to customers and principal collections thereon 412,810 (579,021)
Property and equipment expenditures (1,063) (153,005)
---------------- ---------------
Net cash from investing activities 926,835 (416,046)
Cash flows from financing activities:
Net change in deposit accounts 68,555 654,372
Net change in federal funds purchased - (225,000)
---------------- ---------------
Net cash from financing activities 68,555 429,372
---------------- ---------------
Net change in cash and cash equivalents 967,406 6,106
Cash and cash equivalents at beginning of period 1,942,753 594,618
---------------- ---------------
Cash and cash equivalents at end of period $ 2,910,159 $ 600,724
================ ===============
Cash paid during the period for:
Interest $ 146,710 $ 134,441
Income taxes paid (refunded) - -
</TABLE>
-F 44-
<PAGE>
FSB FINANCIAL CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1997
NOTE 1 -- BASIS OF PRESENTATION
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with Generally Accepted Accounting Principles
have been condensed or omitted. All adjustments made by management to these
unaudited statements were of a normal recurring nature. It is suggested that
these consolidated financial statements and notes be read in conjunction with
the financial statements and notes thereto in the FSB Financial Corporation
September 30, 1997 Financial Statements.
-F 45-
<PAGE>
APPENDIX A
======================================================================
AGREEMENT AND PLAN OF REORGANIZATION
by and among
CSB BANCORP
an Indiana corporation,
THE CITIZENS STATE BANK OF PETERSBURG
an Indiana banking corporation,
GERMAN AMERICAN BANCORP,
an Indiana corporation,
GERMAN AMERICAN HOLDINGS CORPORATION,
an Indiana corporation,
and
COMMUNITY TRUST BANK
an Indiana banking corporation.
======================================================================
Dated: December 8, 1997
-A 1-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
December 8, 1997, by and among CSB BANCORP, an Indiana corporation ("CSB"), THE
CITIZENS STATE BANK OF PETERSBURG an Indiana banking corporation ("Citizens"),
GERMAN AMERICAN BANCORP, an Indiana corporation ("German American"), GERMAN
AMERICAN HOLDINGS CORPORATION, an Indiana corporation ("GAHC"), and COMMUNITY
TRUST BANK, an Indiana banking corporation ("Community").
Recitals
A. CSB is a corporation duly organized and existing under the Indiana
Business Corporation Law ("IBCL") that is duly registered with the Board of
Governors of the Federal Reserve System ("FRB") as a bank holding company under
the Bank Holding Company Act of 1956, as amended ("BHC Act"). CSB owns all of
the outstanding capital stock of Citizens. The principal place of business of
CSB is Petersburg, Pike County, Indiana.
B. Citizens is a banking corporation duly organized and existing under
the Indiana Financial Institutions Act ("IFIA"), chartered by the Indiana
Department of Financial Institutions ("DFI"), and a member of the Federal
Reserve System with both of its banking offices located in Petersburg, Pike
County, Indiana.
C. German American is a corporation duly organized and existing under
the IBCL and is duly registered as a bank holding company under the BHC Act.
German American owns all of the outstanding capital stock of GAHC. The principal
place of business of German American is Jasper, Dubois County, Indiana.
D. GAHC is a corporation duly organized and existing under the IBCL and
is duly registered as a bank holding company under the BHC Act with its
principal place of business in Jasper, Dubois County, Indiana. GAHC owns all of
the outstanding common stock of Community.
E. Community is a banking corporation duly organized and existing under
the IFIA, chartered by the DFI, which is not a member of the Federal Reserve
System with its principal banking office in Otwell, Pike County, Indiana.
F. The parties desire to effect a transaction whereby Community will be
merged with and into Citizens and simultaneously CSB will be merged with and
into GAHC in consideration of the issuance of German American Common Stock.
Agreements
In consideration of the premises and the mutual terms and provisions
set forth in this Agreement, the parties agree as follows.
ARTICLE ONE
TERMS OF THE MERGERS AND CLOSING
Section 1.01. The Holding Company Merger. Pursuant to the terms and
provisions of this Agreement, the IBCL and the Plan of Merger attached hereto as
Appendix A and incorporated herein by reference (the "Holding Company Plan of
Merger"), CSB shall merge with and into GAHC (the "Holding Company Merger")
simultaneously with the Bank Merger (as defined below). CSB shall be the
"Merging Holding Company" in the
-A 1-
<PAGE>
Holding Company Merger and its corporate identity and existence, separate and
apart from GAHC, shall cease on consummation of the Holding Company Merger. GAHC
shall be the "Surviving Holding Company" in the Holding Company Merger, and its
name shall not be changed pursuant to the Holding Company Merger.
Section 1.02. Effect of the Holding Company Merger. The Holding
Company Merger shall have all the effects provided by the IBCL.
Section 1.03. The Holding Company Merger - Conversion of Shares.
(a) At the time of filing with the Indiana Secretary of State of
appropriate Articles of Merger with respect to the Holding Company Merger or at
such later time as shall be specified by such Articles of Merger (the "Effective
Time"):
(i) Each of the not more than 160,000 shares of common stock,
no par value, of CSB ("CSB Common") that are issued and outstanding
immediately prior to the Effective Time shall thereupon and without
further action be converted into shares of common stock, $10 par value,
of German American ("German American Common") at the Exchange Ratio
which shall be calculated as set forth in this Section 1.03(a)(i).
CSB's shareholders of record at the Effective Time, for the shares of
CSB Common then held by them, respectively, shall be allocated and
entitled to receive (upon surrender of certificates representing said
shares for cancellation) shares of German American Common, which total
number of shares of German American Common shall have a value (as
hereinafter determined) of at least $22,750,000 subject, however, to
(A) the provisions of this Section 1.03(a) with respect to the minimum
and maximum number of shares to be exchanged, (B) the provisions of
Section 1.03(f) of this Agreement, and (C) the provisions of this
Section 1.03(b) with respect to fractional shares. The consideration
payable to CSB shareholders hereunder is sometimes hereafter referred
to as the "Merger Consideration."
For purposes of establishing the number of shares of German
American Common into which each share of CSB Common shall be converted
at the Effective Time (the "Exchange Ratio"), each share of German
American Common shall be valued at the average of the lowest closing
asked prices and highest closing bid prices of German American Common
as reported by the NASDAQ National Market System for each trading day
within the period of thirty consecutive calendar days that ends on the
second business day preceding the Closing Date (as defined by Section
1.09 hereof) (the "Valuation Period"). Such value shall then be divided
into the sum of $22,750,000 to establish (to the nearest whole share)
the aggregate number of shares of German American Common into which all
of the then issued and outstanding shares of CSB Common shall be
converted at the Effective Time; provided, however, that in no event
shall the total number of shares of German American Common into which
the shares of CSB Common shall be converted be more than 1,137,500
shares or fewer than 928,572 shares. Such number of shares of German
American Common shall then be divided by the number of shares of CSB
Common that are issued and outstanding as of the Effective Time, with
the quotient therefrom (carried to the fourth figure past the decimal
point) being the Exchange Ratio. The maximum and minimum number of
shares of German American Common for which the shares of CSB Common
shall be exchanged shall be subject to adjustment in accordance with
the provisions of Section 1.03(f) of this Agreement.
(ii) The shares of GAHC issued and outstanding immediately
prior to the Effective Time shall continue to be issued and outstanding
shares of GAHC.
(b) No fractional shares of German American Common shall be issued and,
in lieu thereof, holders of shares of CSB Common who would otherwise be entitled
to a fractional share interest (after taking into account all
-A 2-
<PAGE>
shares of CSB Common held by such holder) shall be paid an amount in cash equal
to the product of such fractional share and the average of the highest bid and
the lowest asked price of a share of German American Common as quoted on the
NASDAQ National Market System on the last day of the Valuation Period.
(c) At the Effective Time, all of the outstanding shares of CSB Common,
by virtue of the Holding Company Merger and without any action on the part of
the holders thereof, shall no longer be outstanding and shall be canceled and
retired and shall cease to exist, and each holder of any certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of CSB Common (the "Certificates") shall thereafter cease to
have any rights with respect to such shares, except the right of such holders to
receive, without interest, the Merger Consideration upon the surrender of such
Certificate or Certificates in accordance with Section 1.08.
(d) At the Effective Time, each share of CSB Common, if any, held in
the treasury of CSB or by any direct or indirect subsidiary of CSB (other than
shares held in trust accounts for the benefit of others or in other fiduciary,
nominee or similar capacities) immediately prior to the Effective Time shall be
cancelled.
(e) At the Effective Time, the shares of common stock of Citizens
outstanding immediately prior to the Effective Time shall be unchanged by the
Holding Company Merger and shall be deemed owned by the Surviving Holding
Company.
(f) If (i) German American shall hereafter declare a stock dividend or
other distribution of property or securities (other than a cash dividend and
other than the five percent stock dividend declared October 29, 1997, and
issuable on December 20, 1997, to shareholders of record on November 28, 1997)
upon its shares of common stock or shall subdivide, split up, reclassify or
combine its shares of common stock, and (ii) the record date for such
transaction is prior to the date on which the Effective Time occurs, appropriate
adjustment or adjustments will be made in the maximum and minimum total number
of shares of German American Common for which the shares of CSB Common are to be
exchanged.
(g) If any holders of CSB Common dissent from the Holding Company
Merger and demand dissenters' rights under the IBCL, any issued and outstanding
shares of CSB Common held by such dissenting holders shall not be converted as
described in this Section 1.03 but shall from and after the Effective Time
represent only the right to receive such consideration as may be determined to
be due to such dissenting holders pursuant to the IBCL; provided, however, that
each share of CSB Common outstanding immediately prior to the Effective Time and
held by a dissenting holder who shall, after the Effective Time, withdraw his
demand for dissenters' rights or lose his right to exercise dissenters' rights
shall have only such rights as provided under the IBCL.
Section 1.04. The Bank Merger. Pursuant to the terms and provisions of
this Agreement, the IFIA, and the Plan of Merger attached hereto as Appendix B
and incorporated herein by reference (the "Bank Plan of Merger"), and
simultaneously with the Holding Company Merger, Community shall merge with and
into Citizens (the "Bank Merger"). Community shall be the "Merging Bank" in the
Bank Merger and its corporate identity and existence, separate and apart from
Citizens, shall cease on consummation of the Bank Merger. Citizens shall be the
"Surviving Bank" and shall continue its corporate existence under its charter
under the provisions of the IFIA and the Bank Merger shall effect no change in
the corporate name of Citizens. The Board of Directors of the Surviving Bank
immediately after the Effective Time shall consist of the Board of Directors of
Citizens (as it is constituted immediately prior to the Effective Time), six
representatives of the Board of Directors of Community (as it is constituted
immediately prior to the Effective Time but provided that no officers of
Community will become members of the Board of Directors of the Surviving Bank),
and two representatives of German American (such two representatives are
hereinafter referred to as the "German American Representatives").
-A 3-
<PAGE>
Section 1.05. Effect of the Bank Merger. The Bank Merger shall have all
of the effects provided by the IFIA. Without limitation of the foregoing,
following the Bank Merger, Citizens shall be entitled under the IFIA to all of
the rights and benefits, and shall assume under the IFIA all the duties and
burdens, of Community under the agreement that is contemplated to be executed
between Community and FSB Bank, Francisco, Gibson County, Indiana ("FSB")
providing for the merger of FSB with and into Community; provided, however, that
the merger consideration to be paid by German American as the ultimate parent of
Community in connection with the acquisition of FSB and its parent corporation
shall be entirely borne by German American.
Section 1.06. The Bank Merger - No Conversion of Shares. At the
Effective Time, the shares of Citizens that were issued and outstanding
immediately prior to the Bank Merger shall continue to be issued and
outstanding, and the shares of Community shall be canceled.
Section 1.07. The Closing. The closing of the Mergers (the "Closing") shall
take place at the offices of Leagre Chandler & Millard (or at such other place
as the parties may agree) at 9:00 A.M. Eastern Standard Time on the Closing Date
described in Section 1.09 of this Agreement.
Section 1.08. Exchange Procedures; Surrender of Certificates.
(a) Fifth Third Bank, Cincinnati, Ohio, shall act as Exchange Agent in the
Holding Company Merger (the "Exchange Agent").
(b) As soon as reasonably practicable but in no event more than five
working days after the Effective Time, the Exchange Agent shall mail to each
record holder of any Certificate or Certificates whose shares were converted
into the right to receive the Merger Consideration, a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent and shall be in such form and have such other provisions as
German American may reasonably specify) (each such letter the "Merger Letter of
Transmittal") and instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. As soon as reasonably
practical but in no event more than fifteen days after surrender to the Exchange
Agent of a Certificate, together with a Merger Letter of Transmittal duly
executed and any other required documents, the Exchange Agent shall transmit to
the holder of such Certificate the Merger Consideration. No interest on the
Merger Consideration issuable upon the surrender of the Certificates shall be
paid or accrued for the benefit of holders of Certificates. If the Merger
Consideration is to be issued to a person other than a person in whose name a
surrendered Certificate is registered, it shall be a condition of issuance that
the surrendered Certificate shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such issuance shall pay to the
Exchange Agent any required transfer or other taxes or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. German American reserves the right in all cases to require that a
surety bond on terms and in an amount satisfactory to German American be
provided to German American at the expense of the CSB shareholder in the event
that such shareholder claims loss of a Certificate and requests that German
American waive the requirement for surrender of such Certificate.
(c) No dividends that are otherwise payable on shares of German
American Common constituting the Merger Consideration shall be paid to persons
entitled to receive such shares of German American Common until such persons
surrender their Certificates. Upon such surrender, there shall be paid to the
person in whose name the shares of German American Common shall be issued any
dividends which shall have become payable with respect to such shares of German
American Common (without interest and less the amount of taxes, if any, which
may have been imposed thereon), between the Effective Time and the time of such
surrender.
-A 4-
<PAGE>
Section 1.09. The Closing Date. The Closing shall take place on the
last business day of the month during which each of the conditions in Sections
6.01(d) and 6.02(d) is satisfied or waived by the appropriate party, or on such
later or earlier date as CSB and German American may agree (the "Closing Date").
The parties shall use their best efforts to cause the Effective Time of both
Mergers to be as of the first day of the calendar month that follows the month
in which the Closing occurs.
Section 1.10. Actions At Closing.
(a) At the Closing, CSB shall deliver to German American:
(i) a certified copy of the Articles of Incorporation and
Bylaws of CSB, as amended, and a certified copy of the Articles of
Incorporation and Bylaws of Citizens, as amended;
(ii) a certificate or certificates signed by the chief
executive officer of CSB and Citizens stating, to the best of his
knowledge and belief, after due inquiry, that (A) each of the
representations and warranties contained in Article Two hereof is true
and correct in all material respects at the time of the Closing with
the same force and effect as if such representations and warranties had
been made at Closing, and (B) CSB and Citizens have performed and
complied in all material respects, unless waived by German American,
with all of their obligations and agreements required to be performed
hereunder prior to the Closing Date;
(iii) certified copies of the resolutions of CSB's Board of
Directors and shareholders, approving and authorizing the execution of
this Agreement and the Plan of Merger and authorizing the consummation
of the Holding Company Merger;
(iv) a certified copy of the resolutions of Citizens' Board of
Directors and shareholder, as required for valid approval of the
execution of this Agreement and the consummation of the Bank Merger;
(v) a certificate of the Indiana Secretary of State, dated a
recent date, stating that CSB is duly organized and exists under the
IBCL;
(vi) a certificate of the Indiana Secretary of State, dated a
recent date, stating that Citizens is duly organized and exists under
the IFIA; and
(vii) the legal opinion of Krieg DeVault, Alexander &
Capehart, counsel for CSB to the effect set forth as Exhibit
1.10(a)(vii).
(b) At the Closing, German American shall deliver to CSB:
(i) a certificate signed by the Chief Executive Officer of
German American stating, to the best of his knowledge and belief, after
due inquiry, that (A) each of the representations and warranties
contained in Article Three is true and correct in all material respects
at the time of the Closing with the same force and effect as if such
representations and warranties had been made at Closing and (B) German
American and Community have performed and complied in all material
respects, unless waived by CSB with all of its obligations and
agreements required to be performed hereunder prior to the Closing
Date;
(ii) certified copies of the resolutions of German American's
and GAHC's Boards of Directors and of German American's (if required by
the NASDAQ NMS listing standards) and GAHC's shareholders
-A 5-
<PAGE>
authorizing the execution of this Agreement and the Holding Company
Plan of Merger and the consummation of the Holding Company Merger;
(iii) a certified copy of the resolutions of Community's Board
of Directors and shareholder, as required for valid approval of the
execution of this Agreement and the Bank Plan of Merger and the
consummation of the Bank Merger;
(iv) the legal opinion of Leagre Chandler & Millard, counsel
for German American, in the form attached hereto as Exhibit
1.10(b)(iv); and
(v) certificates of the Indiana Secretary of State, dated a
recent date, stating that German American is duly organized and exists
under the IBCL and that Community is duly organized and exists under
the IFIA.
(c) At the Closing, the parties shall insert the Exchange Ratio
determined in accordance with Section 1.03 of this Agreement into the Holding
Company Plan of Merger, and shall execute and/or deliver to one another such
Plan of Merger and such other documents and instruments and take such other
actions as shall be necessary or appropriate to consummate the Mergers.
ARTICLE TWO
REPRESENTATIONS AND WARRANTIES OF CSB AND CITIZENS
CSB and Citizens hereby severally make the following representations
and warranties, as applicable to each of them:
Section 2.01. Organization and Capital Stock.
(a) CSB is a corporation duly organized and validly existing under the
IBCL and has the corporate power to own all of its property and assets, to incur
all of its liabilities and to carry on its business as now being conducted.
(b) Citizens is a banking corporation duly incorporated and validly
existing under the IFIA and has the corporate power to own all of its property
and assets, to incur all of its liabilities and to carry on its business as now
being conducted.
(c) CSB has authorized capital stock of 160,000 shares of CSB Common,
all of which shares are duly and validly issued and outstanding, fully paid and
non-assessable. None of the outstanding shares of CSB Common has been issued in
violation of any preemptive rights of the current or past shareholders of CSB or
in violation of any applicable federal or state securities laws or regulations.
(d) Citizens has authorized capital stock of 40,000 shares of common
stock, $25 par value, all of which shares are issued and outstanding ("Citizens
Common"). All of such shares of Citizens Common are duly and validly issued and
outstanding and are fully paid and nonassessable. None of the outstanding shares
of Citizens Common has been issued in violation of any preemptive rights of the
current or past shareholders of Citizens or in violation of any applicable
federal or state securities laws or regulations.
(e) There are no shares of capital stock or other equity securities of
CSB or Citizens authorized, issued or outstanding (except as set forth in this
Section 2.01) and no outstanding options, warrants, rights to subscribe for,
calls, puts, or commitments of any character whatsoever relating to, or
securities or rights convertible into or
-A 6-
<PAGE>
exchangeable for, shares of the capital stock of CSB or Citizens, or contracts,
commitments, understandings or arrangements by which CSB or Citizens are or may
be obligated to issue additional shares of its capital stock or options,
warrants or rights to purchase or acquire any additional shares of its capital
stock.
Section 2.02. Authorization; No Defaults. The Boards of Directors of
CSB and Citizens have each, by all appropriate action, approved this Agreement,
the applicable Plan of Merger and the Merger contemplated thereby and have
authorized the execution of this Agreement and the applicable Plan of Merger on
their behalf by their duly authorized officers and the performance by CSB and
Citizens of its obligations hereunder. Nothing in the Articles of Incorporation
or Bylaws of CSB, as amended, or the Articles of Incorporation or Bylaws of
Citizens, as amended, or in any material agreement or instrument, or any decree,
proceeding, law or regulation (except as specifically referred to in or
contemplated by this Agreement) by or to which CSB or Citizens is bound or
subject, would prohibit CSB or Citizens from consummating, or would be violated
or breached by CSB's or Citizens' consummation of, this Agreement and the
Mergers and other transactions contemplated herein on the terms and conditions
herein contained. This Agreement has been duly and validly executed and
delivered by CSB and Citizens and constitutes a legal, valid and binding
obligation of CSB and Citizens, enforceable against CSB and Citizens in
accordance with its terms. Neither CSB nor Citizens is, nor will be by reason of
the consummation of the transactions contemplated herein, in material default
under or in material violation of any provision of, nor will the consummation of
the transactions contemplated herein afford any party a right to accelerate any
indebtedness under, CSB's or Citizens' articles of incorporation or bylaws, any
material promissory note, indenture or other evidence of indebtedness or
security therefor, or any material lease, contract, or other commitment or
agreement to which either CSB or Citizens is a party or by which it or its
property is bound.
Section 2.03. Subsidiaries. Except as otherwise disclosed in a
confidential writing delivered by CSB and Citizens to German American and
executed by all the parties concurrently with the execution of this Agreement
(the "Disclosure Schedule") and except for the ownership by CSB of all the
capital stock of Citizens, neither CSB nor Citizens has (or has had at any time
in the last ten years) any direct or indirect ownership interest in any
corporation, partnership, limited liability company, joint venture or other
business.
Section 2.04. Financial Information.
(a) CSB has furnished to German American the consolidated balance
sheets of CSB as of December 31, 1996 and 1995 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
years then ended. Such financial statements were prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as may be reflected in the notes thereto), and fairly present the consolidated
financial position and the consolidated results of operations, changes in
shareholders' equity and cash flows of CSB in all material respects as of the
date and for the period indicated.
(b) Citizens has furnished to German American its Consolidated Reports
of Condition and Income as filed with the FFIEC for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997 (the "Call Reports"). The Call
Reports were prepared in accordance with the applicable regulatory instructions
on a consistent basis with previous such reports, and fairly present the
financial position and results of operations of Citizens in all material
respects as of the dates and for the periods indicated, subject, however, to
normal recurring year-end adjustments, none of which will be material.
(c) Except as set forth in the Disclosure Schedule, neither CSB nor
Citizens has any material liability, fixed or contingent, except to the extent
set forth in the financial statements and the Call Reports described in
subsections (a) and (b) of this Section 2.04 (collectively, the "CSB Financial
Statements") or incurred in the ordinary
-A 7-
<PAGE>
course of business since the date of the most recent balance sheet of CSB or
Citizens included in the CSB Financial Statements.
(d) CSB does not engage in the lending business (except by and through
Citizens) or any other business or activity other than that which is incident to
its ownership of all the capital stock of Citizens, and does not own any
investment securities (except the capital stock of Citizens).
Section 2.05. Absence of Changes. Since December 31, 1996, and except
to the extent reflected in the Call Reports, and except for CSB's or Citizens'
costs and expenses related to the Holding Company Merger and the Bank Merger,
any increases in Citizens' allowance for loan losses (up to $350,000) effected
pursuant to Section 4.05 or other discretionary changes to any accruals or
balance sheet items of CSB or Citizens requested by German American and agreed
to by Citizens, there has not been any material adverse change in the financial
condition, the results of operations or the business of CSB or Citizens, taken
as a whole.
Section 2.06. Absence of Agreements with Banking Authorities. Neither
CSB nor Citizens is subject to any order (other than orders applicable to bank
holding companies or banks generally) and neither is a party to any agreement or
memorandum of understanding with any federal or state agency charged with the
supervision or regulation of banks or bank holding companies, including without
limitation, the Federal Deposit Insurance Corporation (the "FDIC"), the FRB, and
the DFI.
Section 2.07. Tax Matters. CSB and Citizens have filed all federal,
state and local tax returns due in respect of any of their respective business,
income and properties in a timely fashion and has paid or made provision for all
amounts shown due on such returns. All such returns fairly reflect the
information required to be presented therein in all material respects. All
provisions for accrued but unpaid taxes contained in the CSB Financial
Statements were made in accordance with generally accepted accounting
principles.
Section 2.08. Absence of Litigation. Except as set forth in the
Disclosure Schedule, there is no material litigation, claim or other proceeding
pending or, to the knowledge of CSB, threatened, before any judicial,
administrative or regulatory agency or tribunal, to which CSB or Citizens is a
party or to which any of their properties are subject.
Section 2.09. Employment Matters.
(a) Except as set forth in the Disclosure Schedule, neither CSB nor
Citizens is a party to or bound by any material contract arrangement or
understanding (written or otherwise) for the employment, retention or engagement
of any past or present officer, employee, agent, consultant or other person or
entity which, by its terms, is not terminable by CSB or Citizens, respectively,
on thirty (30) days' written notice or less without the payment of any amount by
reason of such termination.
(b) CSB and Citizens are and have been in material compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including, without limitation, any
such laws respecting employment discrimination and occupational safety and
health requirements, and (i) neither CSB nor Citizens is engaged in any unfair
labor practice; (ii) there is no unfair labor practice complaint against CSB or
Citizens pending or, to the knowledge of CSB, threatened before the National
Labor Relations Board; (iii) there is no labor dispute, strike, slowdown or
stoppage actually pending or, to the knowledge of CSB, threatened against or
directly affecting CSB or Citizens; and (iv) neither CSB nor Citizens has
experienced any material work stoppage or other material labor difficulty during
the past five years.
-A 8-
<PAGE>
(c) Except as set forth in the Disclosure Schedule, neither the
execution nor the delivery of this Agreement, nor the consummation of any of the
transactions contemplated hereby, will (i) result in any payment (including
without limitation severance, unemployment compensation or golden parachute
payment) becoming due to any director or employee of CSB or Citizens from either
of such entities, (ii) increase any benefit otherwise payable under any of their
employee plans or (iii) result in the acceleration of the time of payment of any
such benefit. No amounts paid or payable by CSB or Citizens to or with respect
to any employee or former employee of CSB of Citizens will fail to be deductible
for federal income tax purposes by reason of Section 280G of the Internal
Revenue Code of 1986, as amended ("Code") or otherwise.
Section 2.10. Reports. Since January 1, 1994 CSB and Citizens have
filed all reports, notices and other statements, together with any amendments
required to be made with respect thereto, if any, that they were required to
file with (i) the Securities and Exchange Commission ("SEC"), (ii) the FRB,
(iii) the FDIC, (iv) the DFI and (v) any other governmental authority with
jurisdiction over CSB or Citizens. As of their respective dates, each of such
reports and documents, including the financial statements, exhibits and
schedules thereto, complied in all material respects with the relevant statutes,
rules and regulations enforced or promulgated by the regulatory authority with
which they were filed.
Section 2.11. Investment Portfolio. All United States Treasury
securities, obligations of other United States Government agencies and
corporations, obligations of States and political subdivisions of the United
States and other investment securities held by Citizens, as reflected in the
Call Reports, are carried on the books of Citizens in accordance with generally
accepted accounting principles, consistently applied. Citizens does not engage
in activities that would require that it establish a trading account under
applicable regulatory guidelines and interpretations.
Section 2.12. Loan Portfolio. To the knowledge of CSB, all loans and
discounts shown in the Call Reports, or which were entered into after September
30, 1997, but before the Closing Date, were and will be made in all material
respects for good, valuable and adequate consideration in the ordinary course of
the business of Citizens, in accordance in all material respects with Citizens'
lending policies and practices unless otherwise approved by Citizens' Board of
Directors, and are not subject to any material defenses, set offs or
counterclaims, including without limitation any such as are afforded by usury or
truth in lending laws, except as may be provided by bankruptcy, insolvency or
similar laws or by general principles of equity. To the knowledge of CSB, the
notes or other evidences of indebtedness evidencing such loans and all forms of
pledges, mortgages and other collateral documents and security agreements are
and will be, in all material respects, enforceable, valid, true and genuine and
what they purport to be. To the knowledge of CSB, Citizens has complied and will
through the Closing Date continue to comply with all laws and regulations
relating to such loans, or to the extent there has not been such compliance,
such failure to comply will not materially interfere with the collection of any
such loan. Except as set forth in the Disclosure Schedule, Citizens has not
sold, purchased or entered into any loan participation arrangement except where
such participation is on a pro rata basis according to the respective
contributions of the participants to such loan amount. Except as set forth in
the Disclosure Schedule, CSB has no knowledge that any condition of property in
which Citizens has an interest as collateral to secure a loan or that is held as
an asset of any trust violates the Environmental Laws (defined in Section 2.15)
in any material respect or obligates CSB, or Citizens, or the owner or operator
of such property to remedy, stabilize, neutralize or otherwise alter the
environmental condition of such property.
Section 2.13. ERISA.
(a) Except as disclosed in the Disclosure Schedule, no person
participates in any "employee welfare benefit plan" or "employee pension benefit
plan" (as those terms are respectively defined in Sections 3(1) and 3(2)
-A 9-
<PAGE>
of the Employee Retirement Income Security Act of 1974 ("ERISA")), nor may any
person reasonably expect to participate in any such plan, in either case, on
account of his or her past or present employment with CSB or Citizens. CSB and
Citizens do not maintain any retirement or deferred compensation plan, savings,
incentive, stock option or stock purchase plan, unemployment compensation plan,
vacation pay, severance pay, bonus or benefit arrangement, insurance or
hospitalization program or any other fringe benefit arrangements (referred to
collectively hereinafter as "fringe benefit arrangements") for any past or
present employee, consultant or agent of CSB or Citizens, whether pursuant to
contract, arrangement, custom or informal understanding, which does not
constitute an "employee benefit plan" (as defined in Section 3(3) of ERISA),
except as listed in the Disclosure Schedule.
(b) During the past sixty months, CSB has not maintained any employee
welfare benefit plans or employee pension benefit plans except for plans listed
on the Disclosure Schedule. There have been no amendments to any of the employee
pension benefit plans, employee welfare benefit plans or fringe benefit
arrangements listed on the Disclosure Schedule since December 31, 1994, except
as set forth in the Disclosure Schedule.
(c) To the knowledge of CSB, all employee pension benefit plans,
employee welfare benefit plans and fringe benefit arrangements listed on the
Disclosure Schedule comply in form and in operation in all material respects
with all applicable requirements of law and regulation. To the knowledge of CSB,
all employee pension benefit plans maintained by CSB and Citizens comply in form
and in operation with all applicable requirements of Sections 401(a) and 401(k)
of the Code. To the knowledge of CSB, except as disclosed in the Disclosure
Schedule, neither CSB nor Citizens has (i) incurred any liability for tax under
Section 4971 of the Code on account of any accumulated funding deficiency and no
plan or arrangement listed in the Disclosure Schedule has incurred any
accumulated funding deficiency within the meaning of Section 412 or 418(B) of
the Code; (ii) applied for or obtained a waiver by the IRS of any minimum
funding requirement under Section 412 of the Code; (iii) become subject to any
disallowance of deductions under Sections 419 or 419(A) of the Code; (iv)
incurred any liability for excise tax under Sections 4972, 4975, or 4976 of the
Code or any liability under Section 406 of ERISA; (v) incurred any liability to
the Pension Benefit Guaranty Corporation; (vi) had a reportable event (within
the meaning of Section 4043 of ERISA); or (vii) breached any of the duties or
failed to perform any of the obligations imposed upon the fiduciaries or plan
administrators under Title I or ERISA.
(d) A true and correct copy of each of the plans and arrangements
listed on the Disclosure Schedule as in effect on the date hereof and each trust
agreement relating to each such plan and arrangement, has been supplied to
German American. A true and correct copy of the annual report (as described in
Section 103 of ERISA) most recently filed for each plan listed in the Disclosure
Schedule has been supplied to German American, and there have been no material
changes in the financial condition in the respective plans from that stated in
the annual reports supplied. In the case of any plan or arrangement which is not
in written form, the Disclosure Schedule includes an accurate description of
such plan or arrangement. CSB and Citizens have provided to German American a
description of any liability or contingent liability which may be incurred by
CSB or Citizens if any plan or arrangement listed on the Disclosure Schedule
(including without limitation the payment by Citizens of premiums for health
care coverage for active employees or retirees) were terminated or if CSB or
Citizens was to cease its participation therein. To the best of the knowledge of
the present non-employee members of the Board of Directors of CSB and of
Citizens (without any independent review of the books and records of CSB and
Citizens or the making of any other independent inquiry), and to the best of the
knowledge of the President of Citizens (after review of the books and records of
Citizens but without the obligation to make any further independent inquiry),
neither CSB nor Citizens nor any of their affiliates or persons acting on their
behalf have made any written or oral promises or statements to employees or
retirees who are now living which might reasonably have been construed by them
as promising "lifetime" or other vested rights to benefits under any plan or
arrangement (other than any employee pension plan disclosed in the Disclosure
Schedule) that cannot be unilaterally terminated or modified by Citizens or CSB
at their discretion at any time without further obligation.
-A 10-
<PAGE>
(e) Except as disclosed in the Disclosure Schedule, in the case of each
plan or arrangement listed in the Disclosure Schedule which is a defined benefit
plan (within the meaning of Section 3(35) of ERISA), the net fair market value
of the assets held to fund such plan or arrangement equals or exceeds the
present value of all accrued benefits thereunder, both vested and nonvested, on
a plan continuation basis and as determined in accordance with an actuarial
costs method acceptable under section 3(31) of ERISA.
(f) On a timely basis, CSB and Citizens have made all contributions or
payments to or under each plan or arrangement listed in the Disclosure Schedule
as required pursuant to each such plan or arrangement, any collective bargaining
agreements or other provision for reserves to meet contributions and payments
under such plans or arrangements which have not been made because they are not
yet due.
(g) None of the plans or arrangements listed in the Disclosure Schedule
owns (or has owned within the past 60 months) any CSB Common or other securities
of CSB, Citizens or a related entity.
Section 2.14. Title to Properties; Insurance. CSB and Citizens have
marketable title, insurable at standard rates, free and clear of all liens,
charges and encumbrances (except taxes which are a lien but not yet payable and
liens, charges or encumbrances reflected in the CSB Financial Statements and
easements, rights-of-way, and other restrictions which are not material and, in
the case of Other Real Estate Owned, as such real estate is internally
classified on the books of Citizens, rights of redemption under applicable law)
to all real properties reflected on the CSB Financial Statements as being owned
by CSB or Citizens, respectively. All material leasehold interests used by CSB
and Citizens in their respective operations are held pursuant to lease
agreements which are valid and enforceable in accordance with their terms.
Except as set forth in the Disclosure Schedule, all such properties comply in
all material respects with all applicable private agreements, zoning
requirements and other governmental laws and regulations relating thereto and
there are no condemnation proceedings pending or, to the knowledge of CSB,
threatened with respect to such properties. CSB and Citizens have valid title or
other ownership or use rights under licenses to all material intangible personal
or intellectual property used by CSB and Citizens in their respective business
free and clear of any claim, defense or right of any other person or entity
which is material to such property, subject only to rights of the licensor
pursuant to applicable license agreements, which rights do not materially
adversely interfere with the use or enjoyment of such property. All insurable
properties owned or held by CSB or Citizens are insured in such amounts, and
against fire and other risks insured against by extended coverage and public
liability insurance, as is customary with companies of the same size and in the
same business.
Section 2.15. Environmental Matters.
(a) As used in this Agreement, "Environmental Laws" means all local,
state and federal environmental, health and safety laws and regulations in all
jurisdictions in which CSB or Citizens has done business or owned property,
including, without limitation, the Federal Resource Conservation and Recovery
Act, the Federal Comprehensive Environmental Response, Compensation and
Liability Act, the Federal Clean Water Act, the Federal Clean Air Act, and the
Federal Occupational Safety and Health Act.
(b) Except as set forth in the Disclosure Schedule, to the knowledge of
CSB and Citizens, neither (i) the conduct by CSB and Citizens of operations at
any property, nor (ii) any condition of any property owned by CSB or Citizens
within the past ten (10) years and used in its business operations, nor (iii)
the condition of any property owned by them within the past ten (10) years but
not used in their business operations, nor (iv) the condition of any property
held by them as a trust asset within the past ten (10) years, violates or
violated Environmental Laws in any material respect, and to the knowledge of CSB
and Citizens, no condition or event has occurred with respect to any such
property that, with notice or the passage of time, or both, would constitute a
material violation of Environmental Laws or obligate (or potentially obligate)
CSB or Citizens to remedy, stabilize, neutralize or
-A 11-
<PAGE>
otherwise alter the environmental condition of any such property. Neither CSB
nor Citizens has received any notice from any person or entity that CSB or
Citizens or the operation of any facilities or any property owned by either of
them, or held as a trust asset, are or were in violation of any Environmental
Laws or that either of them is responsible (or potentially responsible) for the
cleanup of any pollutants, contaminants, or hazardous or toxic wastes,
substances or materials at, on or beneath any such property.
Section 2.16. Compliance with Law. CSB and Citizens each have all
material licenses, franchises, permits and other governmental authorizations
that are legally required to enable it to conduct their respective businesses as
presently conducted and to their knowledge, are in compliance in all material
respects with all applicable laws and regulations, the violation of which would
be material.
Section 2.17. Brokerage. Except as set forth in the Disclosure
Schedule, there are no claims, agreements, arrangements, or understandings
(written or otherwise) for brokerage commissions, finders' fees or similar
compensation in connection with the Mergers payable by CSB or Citizens.
Section 2.18. Material Contracts. Except as set forth in the Disclosure
Schedule, neither CSB nor Citizens is a party to or bound by any oral or written
(i) material agreement, contract or indenture under which it has borrowed or
will borrow money (not including federal funds and money deposited, including
without limitation, checking and savings accounts, certificates of deposit,
money market accounts and other deposit accounts and borrowings from the FHLB
and the FRB); (ii) material guaranty of any obligation for the borrowing of
money or otherwise, excluding endorsements made for collection and guarantees
made in the ordinary course of business and letters of credit issued in the
ordinary course of business; (iii) contract, arrangement or understanding with
any present or former officer, director or shareholder (except for deposit or
loan agreements entered into in the ordinary course of business); (iv) material
license, whether as licensor or licensee; (v) contract or commitment for the
purchase of materials, supplies or other real or personal property in an
individual amount in excess of $10,000 or for the performance of services over a
period of more than thirty days and involving an individual amount in excess of
$25,000; (vi) joint venture or partnership agreement or arrangement; (vii)
contract arrangement or understanding with any present or former consultant,
advisor, investment banker, broker, attorney or accountant; or (viii) contract,
agreement or other commitment not made in the ordinary course of business.
Section 2.19. Compliance with Americans with Disabilities Act. (a) To
the best of CSB's knowledge, CSB and Citizens and their respective properties
(including those held by either of them in a fiduciary capacity) are in material
compliance with all applicable provisions of the Americans with Disabilities Act
(the "ADA"), and (b) no action under the ADA against CSB, Citizens or any of its
properties has been initiated nor, to the best of CSB's knowledge, has been
threatened or contemplated.
Section 2.20. Statements True and Correct. None of the information
supplied or to be supplied by CSB or Citizens for inclusion in any documents to
be filed with the FRB, the SEC, the DFI, the FDIC, or any other regulatory
authority in connection with the Mergers will, to the best of the knowledge of
CSB or Citizens at the respective times such documents are filed, be false or
misleading with respect to any material fact or omit to state any material fact
necessary in order to make the statements therein not misleading.
Section 2.21. CSB's Knowledge. With respect to representations and
warranties herein that are made or qualified as being made "to the knowledge of
CSB" or words of similar import, it is understood and agreed that matters within
the knowledge of the directors and the Executive Vice President of CSB and the
President of Citizens shall be considered to be within the knowledge of CSB.
-A 12-
<PAGE>
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF
GERMAN AMERICAN, GAHC AND COMMUNITY
German American, GAHC and Community hereby severally make the following
representations and warranties:
Section 3.01. Organization and Capital Stock.
(a) German American is a corporation duly incorporated and validly
existing under the IBCL and has the corporate power to own all of its property
and assets, to incur all of its liabilities and to carry on its business as now
being conducted.
(b) GAHC is a corporation duly incorporated and validly existing under
the IBCL and has the corporate power to own all of its property and assets, to
incur all of its liabilities and to carry on its business as now being
conducted. All of the capital stock of GAHC is owned by German American.
(c) Community is a banking corporation duly incorporated and validly
existing under the IFIA and has the corporate power to own all of its property
and assets, to incur all of its liabilities and to carry on its business as now
being conducted. All of the capital stock of Community is owned by GAHC.
(d) German American has authorized capital stock of (i) 20,000,000
shares of German American Common, of which, as of the date of this Agreement,
5,096,209 shares are issued and outstanding (not including an additional
approximately 254,810 shares that will be issued and delivered on December 20,
1997, pursuant to German American's annual five percent stock dividend), and
(ii) 500,000 shares of preferred stock, $10.00 par value per share, of which no
shares are issued and outstanding. All of the issued and outstanding shares of
German American Common are duly and validly issued and outstanding, fully paid
and non-assessable.
(e) GAHC has authorized capital stock of 200,000 shares of common
stock, $1 par value, (the "GAHC Common") and 12,000 shares of preferred stock,
$1 par value. As of the date of this Agreement 9,999 of the issued and
outstanding shares of GAHC Common are duly and validly issued and outstanding,
fully paid and non-assessable, and none of the shares of GAHC preferred stock is
issued or outstanding.
(f) Community has authorized capital stock of 4,000 shares of common
stock, $25.00 par value per share (the "Community Common"). As of the date of
this Agreement, all of the shares of Community Common are duly and validly
issued and outstanding, fully paid, and owned by German American.
(g) The shares of German American Common that are to be issued to the
shareholders of CSB pursuant to the Holding Company Merger have been duly
authorized and, when issued in accordance with the terms of this Agreement, will
be validly issued and outstanding, fully paid and non-assessable.
Section 3.02. Authorization. The Boards of Directors of German
American, GAHC and Community have each, by all appropriate action, approved this
Agreement, the applicable Plan of Merger and the Mergers and authorized the
execution hereof on their behalf by their duly authorized officers and the
performance by each such
-A 13-
<PAGE>
entity of its obligations hereunder. Nothing in the Articles of Incorporation or
Bylaws of German American, GAHC or Community, as amended, or any other
agreement, instrument, decree, proceeding, law or regulation (except for the
possible need for approval of the issuance of additional shares pursuant to the
Holding Company Merger by the shareholders of German American under the National
Market System listing standards of NASDAQ, and except as specifically referred
to in or contemplated by this Agreement) by or to which either of them or any of
their subsidiaries is bound or subject would prohibit German American, GAHC or
Community from entering into and consummating this Agreement and the Mergers on
the terms and conditions herein contained. This Agreement has been duly and
validly executed and delivered by German American, GAHC and Community and
constitutes a legal, valid and binding obligation of German American, GAHC and
Community enforceable against German American, GAHC and Community in accordance
with its terms and no other corporate acts or proceedings are required by law to
be taken by German American, GAHC or Community to authorize the execution,
delivery and performance of this Agreement. Except for any requisite approvals
of the FRB, FDIC and DFI, and the SEC's order declaring effective German
American's registration statement under the Securities Act of 1933, as amended
("Securities Act") with respect to the Holding Company Merger, no notice to,
filing with, authorization by, or consent or approval of, any federal or state
regulatory authority is necessary for the execution and delivery of this
Agreement or the consummation of the Mergers by German American, GAHC or
Community. German American, GAHC and Community are not, nor will any of them by
reason of the consummation of the transactions contemplated herein be, in
material default under or material violation of any provision of, nor will the
consummation the transactions contemplated herein afford any party a right to
accelerate any indebtedness under, any of their respective articles of
incorporation or bylaws, any material promissory note, indenture or other
evidence of indebtedness of security thereof, or any material lease, contract or
other commitment or agreement to which any of them is a party or other
commitment or agreement to which any of them is a party or by which any of them
or their respective property is bound.
Section 3.03. Subsidiaries. Each of German American's subsidiaries is
duly organized and validly existing under the laws of the jurisdiction of its
incorporation and has the corporate power to own its respective properties and
assets, to incur its respective liabilities and to carry on its respective
business as now being conducted.
Section 3.04. Financial Information. The consolidated balance sheet of
German American and its subsidiaries as of December 31, 1996 and related
consolidated statements of income, changes in shareholders' equity and cash
flows for the year then ended together with the notes thereto, included in
German American's most recent Annual Report on Form 10-K, as filed with the SEC
(the "10-K"), and the unaudited consolidated balance sheets of German American
and its subsidiaries as of March 31 and June 30, 1997 and the related unaudited
consolidated statements of income, changes in shareholders' equity and cash
flows for the periods then ended included in German American's Quarterly Reports
on Form 10-Q for the quarters ended March 31, June 30, and September 30, 1997 as
filed with the SEC (the "10-Q Reports") (collectively the financial statements
and notes thereto included in the 10-Q Reports and the 10-K are sometimes
referred to as the "German American Financial Statements"), have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis (except as disclosed therein) and fairly present the
consolidated financial position and the consolidated results of operations,
changes in shareholders' equity and cash flows of German American and its
consolidated subsidiaries as of the dates and for the periods indicated
(subject, in the case of interim financial statements, to normal recurring
year-end adjustments, none of which will be material).
Section 3.05. Absence of Changes. Since December 31, 1996 (and except
to the extent reflected in the 10-Q Reports), there has not been any material
adverse change in the consolidated financial condition or the consolidated
results of operations or the business of German American and its subsidiaries,
taken as a whole.
-A 14-
<PAGE>
Section 3.06. Reports. Since January 1, 1994 (or, in the case of
subsidiaries of German American, the date of acquisition thereof by German
American, if later), German American and each of its subsidiaries have filed all
reports, notices and other statements, together with any amendments required to
be made with respect thereto, that it was required to file with (i) the SEC,
(ii) the FRB, (iii) the FDIC, (iv) the DFI, (v) any applicable state securities
or banking authorities, and (vi) any other governmental authority with
jurisdiction over German American or any of its subsidiaries. As of their
respective dates, each of such reports and documents, as amended, including the
financial statements, exhibits and schedules thereto, complied in all material
respects with the relevant statutes, rules and regulations enforced or
promulgated by the regulatory authority with which they were filed. None of the
information included in such reports or documents was, at their respective dates
of filing, false or misleading with respect to any material fact, or omitted to
state any material fact necessary in order to make the statements therein not
misleading, on a consolidated basis, taking into account the circumstances under
which such reports or documents were filed and considering the total mix of
information that was at the time publicly available concerning German American
and its subsidiaries.
Section 3.07. Absence of Litigation. There is no material litigation,
claim or other proceeding pending or, to the knowledge of German American,
threatened, before any judicial, administrative or regulatory agency or tribunal
against German American or any of its subsidiaries, or to which the property of
German American or any of its subsidiaries is subject, which is required to be
disclosed in SEC reports under Item 103 of Regulation S-K, and which has not
been so disclosed.
Section 3.08. Absence of Agreements with Banking Authorities. Neither
German American nor any of its subsidiaries is subject to any order (other than
orders applicable to bank holding companies or banks generally) or is a party to
any agreement or memorandum of understanding with any federal or state agency
charged with the supervision or regulation of banks or bank holding companies,
including without limitation the FDIC, the DFI and the FRB.
Section 3.09. Compliance with Law. German American and its subsidiaries
have all material licenses, franchises, permits and other governmental
authorizations that are legally required to enable them to conduct their
respective businesses as presently conducted and are, and all times while this
Agreement is in effect shall be, in compliance in all material respects with all
applicable laws and regulations, including, without limitation, all rules,
regulations and requirements of the SEC, the violation of which would be
material.
ARTICLE FOUR
COVENANTS OF CSB AND CITIZENS
The parties hereto agree that the covenants contained in this Article
Four shall be effective from the date hereof through the earlier of the
Effective Time or the termination of this Agreement.
Section 4.01. Conduct of Business.
(a) CSB and Citizens shall continue to carry on their respective
businesses, and shall discharge or incur obligations and liabilities, only in
the ordinary course of business as heretofore conducted and, by way of
amplification and not limitation with respect to such obligation, neither CSB
nor Citizens will, without the prior written consent of German American:
(i) declare or pay any dividend or make any other distribution
to shareholders, whether in cash, stock or other property, except as
provided in Section 4.09 of this Agreement; or
-A 15-
<PAGE>
(ii) issue (or agree to issue) any common or other capital
stock or any options, warrants or other rights to subscribe for or
purchase common or any other capital stock or any securities
convertible into or exchangeable for any capital stock; or
(iii) directly or indirectly redeem, purchase or otherwise
acquire (or agree to redeem, purchase or acquire) (except for shares
acquired in satisfaction of a debt previously contracted) any of their
own common or any other capital stock; or
(iv) effect a split, reverse split, reclassification, or other
similar change in, or of, any common or other capital stock or
otherwise reorganize or recapitalize; or
(v) change the Articles of Incorporation or Bylaws of CSB or the
Articles of Incorporation or Bylaws of Citizens; or
(vi) pay or agree to pay, conditionally or otherwise, any
bonus (other than bonuses for calendar year 1997 that, when aggregated
with other bonuses paid or payable with respect to 1997, would not
exceed the aggregate amount of bonuses paid for calendar year 1996),
additional compensation (other than ordinary and normal salary
increases consistent with past practices) or severance benefit or
otherwise make any changes out of the ordinary course of business with
respect to the fees or compensation payable or to become payable to
consultants, advisors, investment bankers, brokers, attorneys,
accountants, directors, officers or employees or, except as required by
law, adopt or make any change in any Employee Plan or other arrangement
or payment made to, for or with any of such consultants, advisors,
investment bankers, brokers, attorneys, accountants, directors,
officers or employees; provided, however, that CSB and Citizens may pay
the fees, expenses and other compensation of consultants, advisors,
investment bankers, brokers, attorneys and accountants disclosed on the
Disclosure Schedule when, if, and as earned by them;
(vii) borrow or agree to borrow any material amount of funds
except in the ordinary course of business, or directly or indirectly
guarantee or agree to guarantee any material obligations of others
except in the ordinary course of business or pursuant to outstanding
letters of credit; or
(viii) make or commit to make (or renew or commit to renew)
any new loan, or issue or commit to issue (or renew or commit to renew)
any new letter of credit or line of credit, or make (or commit to make)
any additional discretionary advance (not including any advance for the
purposes and in the amount already committed) under any existing letter
of credit or line of credit, or purchase or agree to purchase any
interest in a loan participation, in aggregate principal amounts (A) in
excess of $250,000 to any one borrower (or group of affiliated
borrowers) or (B) that would cause Citizens' credit extensions or
commitments to any one borrower (or group of affiliated borrowers) to
exceed $500,000 (German American's consent to credit extensions in the
ordinary course of business will not be unreasonably withheld); or
(ix) other than U.S. Treasury obligations or asset-backed
securities issued or guaranteed by United States governmental agencies
or financial institution certificates of deposit insured by the FDIC,
in either case having an average remaining life of five years or less
(except that maturities may extend to seven years on variable-rate
securities), purchase or otherwise acquire any investment security for
their own accounts, or sell any investment security owned by either of
them which is designated as held-to-maturity, or engage in any activity
that would require the establishment of a trading account for
investment securities; or
-A 16-
<PAGE>
(x) increase or decrease the rate of interest paid on time
deposits, or on certificates of deposit, except in a manner and
pursuant to policies consistent with past practices; or
(xi) enter into or amend any agreement, contract or commitment
out of the ordinary course of business; or
(xii) except in the ordinary course of business, place on any
of their assets or properties any mortgage, pledge, lien, charge, or
other encumbrance; or
(xiii) except in the ordinary course of business, cancel,
release, compromise or accelerate any material indebtedness owing to
CSB or Citizens, or any claims which either of them may possess, or
voluntarily waive any material rights with respect thereto; or
(xiv) sell or otherwise dispose of any real property or any
material amount of any personal property other than properties acquired
in foreclosure or otherwise in the ordinary course of collection of
indebtedness to CSB or Citizens; or
(xv) foreclose upon or otherwise take title to or possession
or control of any real property without first obtaining a phase one
environmental report thereon, prepared by a reliable and qualified
person or firm reasonably acceptable to German American, which
indicates that the property is free of pollutants, contaminants or
hazardous or toxic waste materials; provided, however, that neither CSB
nor Citizens shall be required to obtain such a report with respect to
single family, non-agricultural residential property of one acre or
less to be foreclosed upon unless it has reason to believe that such
property might contain such materials or otherwise might be
contaminated; or
(xvi) commit any act or fail to do any act which will cause a
material breach of any material agreement, contract or commitment; or
(xvii) violate any law, statute, rule, governmental regulation
or order, which violation might have a material adverse effect on its
business, financial condition, or earnings; or
(xviii) purchase any real or personal property or make any
other capital expenditure where the amount paid or committed therefor
is in excess of $50,000 other than purchases of property made in the
ordinary course of business or in connection with loan collection
activities or foreclosure sales in connection with any of CSB's or
Citizens' loans;
(xix) issue certificate(s) for shares of CSB Common to any CSB
shareholder in replacement of certificate(s) claimed to have been lost
or destroyed without first obtaining from such shareholder(s), at the
expense of such shareholder(s), a surety bond from a recognized
insurance company in an amount that would indemnify CSB (and its
successors) against lost certificate(s) but not less than $150 per
share of CSB Common, and obtaining a usual and customary affidavit of
loss and indemnity agreement from such shareholder(s); provided,
however, that CSB may waive the surety bond requirement in connection
with the issuance of replacement certificates to any shareholder if the
number of shares of CSB Common so reissued (together with the number of
shares previously reissued since October 1, 1997 to such shareholder
and all other shareholders who are affiliated or associated with such
shareholder) does not exceed an aggregate of 100 shares; or
-A 17-
<PAGE>
(xx) hold a special, regular or annual meeting (or take action
by consent in lieu thereof) of the Board of Directors or the sole shareholder of
Citizens for the purpose of appointing or electing any new member to the Board
of Directors of Citizens (whether to fill a vacancy or otherwise) unless such
new member is approved in advance in writing by German American.
(b) Neither CSB nor Citizens shall, without the prior written consent
of German American, engage in any transaction or take any other action that
would render untrue in any material respect any of the representations and
warranties of CSB or Citizens contained in Article Two hereof if such
representations and warranties were given as of the date of such transaction or
action.
(c) CSB shall promptly notify German American in writing of the
occurrence of any matter or event known to CSB or Citizens that is, or is likely
to become, materially adverse to the business, operations, properties, assets or
condition (financial or otherwise) of CSB or Citizens taken as a whole.
(d) Neither CSB nor Citizens shall (a) directly or indirectly solicit
or encourage (nor shall they permit any of their respective officers, directors,
employees or agents directly or indirectly to solicit or encourage), including
by way of furnishing information other than the terms of this Agreement, any
inquiries or proposals from third parties for a merger, consolidation, share
exchange or similar transaction involving CSB or Citizens or for the acquisition
of the stock or substantially all of the assets or business of CSB or Citizens,
or (b) subject to the fiduciary duties of the Directors of CSB as advised by
counsel in a written opinion, discuss with or enter into conversations with any
person concerning any such merger, consolidation, share exchange, acquisition or
other transaction. CSB shall promptly notify German American orally (to be
confirmed in writing as soon as practicable thereafter) of all of the relevant
details concerning any inquiries or proposals that it may receive relating to
any such matters, including actions it intends to take with respect to such
matters.
Section 4.02. Breaches. CSB shall, in the event it has knowledge of the
occurrence of any event or condition which would cause or constitute a breach
(or would have caused or constituted a breach had such event occurred or been
known prior to the date of this Agreement) of any of its or Citizens'
representations or agreements contained or referred to in this Agreement, give
prompt notice thereof to German American and use its best efforts to prevent or
promptly remedy the same.
Section 4.03. Submission to Shareholders. CSB shall cause to be duly
called and held, on a date mutually selected by German American and CSB, a
special meeting of its shareholders (the "CSB Shareholders' Meeting") for
submission of this Agreement and the Holding Company Merger for approval of CSB
shareholders as required by the IBCL. In connection with the CSB Shareholders'
Meeting, (i) CSB shall cooperate with and assist German American in preparing
and filing a registration statement containing a Proxy Statement/Prospectus (the
"Proxy Statement/Prospectus") with the SEC in accordance with SEC requirements
and CSB shall mail it to its shareholders, (ii) CSB shall furnish German
American all information concerning itself that German American may reasonably
request in connection with such Proxy Statement/Prospectus, and (iii) the Board
of Directors of CSB shall (unless in the written opinion of counsel for CSB the
fiduciary duties of the Board of Directors advises against such a
recommendation, in which event the individual members of the Board of Directors
shall nevertheless remain personally obligated to support the Agreement and the
Holding Company Merger pursuant to their personal undertakings on the signature
page of this Agreement) unanimously recommend to CSB's shareholders the approval
of this Agreement and the Holding Company Merger contemplated hereby.
Section 4.04. Consummation of Agreement. CSB shall use its best efforts
to perform and fulfill all conditions and obligations on its part to be
performed or fulfilled under this Agreement and to effect the Mergers in
accordance with the terms and provisions hereof. CSB shall furnish to German
American in a timely manner all
-A 18-
<PAGE>
information, data and documents in the possession of CSB or Citizens requested
by German American as may be required to obtain any necessary regulatory or
other approvals of the Mergers or to file with the SEC a registration statement
on Form S-4 (the "Registration Statement") relating to the shares of German
American Common to be issued to the shareholders of CSB pursuant to the Holding
Company Merger and this Agreement, and shall otherwise cooperate fully with
German American to carry out the purpose and intent of this Agreement.
Section 4.05. Financial Information. CSB will, at its expense, commence
preparation of financial statements, Guide 3 statistical data, selected
financial data, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" (Items 301, 302, and 303 of SEC Regulation S-K)
("MD&A") in compliance with SEC requirements for inclusion in the Registration
Statement, including unaudited financial statements and related Guide 3 and MD&A
as of and for the appropriate quarterly and year-to-date periods ending
September 30, 1997, and CSB shall use its best efforts to provide such financial
statements and data and MD&A to German American in EDGAR format as soon as
practicable but in no event later than January 8, 1998. CSB shall allow German
American's independent public accountants, Crowe, Chizek and Company LLP, to
make a special review of the assets of the Bank prior to December 19, 1997 with
a view to determining the consistency of the procedures and standards employed
by Citizens in determining its allowance for possible loan losses with the
procedures and standards employed by German American's present bank
subsidiaries. CSB shall make additional provisions as of September 30, 1997, to
its allowance for loan losses in order to increase such allowance as reflected
in the consolidated financial statements of CSB as of that date to be included
in the Registration Statement by up to $350,000 (or by such greater amount as
Citizens and German American may mutually agree based upon the results of such
review) compared to the amount of Citizens' allowance for loan losses at
September 30, 1997, in the Call Reports, if and to the extent that Crowe, Chizek
and Company, LLP recommends that such an increase in the allowance be made in
order to make the Citizens allowance equal to the amount that would result from
the consistent application of procedures and standards utilized by German
American's other bank subsidiaries. Any such additional provision and additional
allowance (up to $350,000) that Citizens may make pursuant to this Section 4.05
shall not (a) be construed as evidence that the Call Reports or other CSB
Financial Statements were not as represented and warranted pursuant to Section
2.04 hereof or as evidence of a material adverse change in Citizens' financial
condition or results of operations under Section 2.05 of this Agreement, (b) be
deducted from Citizens' income or otherwise considered when determining the
amount of donations that Citizens may make pursuant to Section 5.13 hereof, and
(c) give German American, GAHC or Community any right to refuse to consummate
the Mergers pursuant to Section 6.01 hereof or to terminate this Agreement or
the Mergers pursuant to Article Seven hereof.
Section 4.06. Environmental Reports.
(a) Except as German American shall otherwise consent with respect to
any residential real estate (which consent will not be unreasonably withheld by
German American), CSB shall, at German American's expense, cooperate with an
environmental consulting firm designated by German American in connection with
the conduct by such firm of a phase one environmental investigation on all real
property owned or leased by CSB or its subsidiaries as of the date of this
Agreement, and any real property acquired or leased by CSB or its subsidiaries
after the date of this Agreement, except as otherwise provided in Section
4.01(a)(xv).
(b) If further investigation procedures are required as to any property
by the report of the phase one investigation in German American's reasonable
opinion, CSB shall as soon as practicable, at CSB's expense, commission the
taking by German American's expert of such further procedures and provide a
report of the results of such further procedures ("Phase Two Report") to German
American. German American shall have ten (10) business days from German
American's receipt of any Phase Two Report to notify CSB in writing of German
American's determination (the "Determination Notice") that remedial and
corrective actions and measures identified
-A 19-
<PAGE>
in such report ("Remedial Actions") are (i) required by applicable law, or (ii)
prudent in light of the recommendations or suggestions in the Phase Two Report
findings. The Determination Notice shall also contain the German American's
expert's reasonable estimated cost, in the aggregate, of taking Remedial Actions
(the "German American Estimate").
(c) If CSB disputes that any Remedial Actions are required by law or
prudent in light of the recommendations or suggestions in the Phase Two Report
findings, or disputes the amount of the German American Estimate, CSB shall
notify German American in writing in reasonable detail of the basis for its
dispute (the "Dispute Notice") within ten (10) business days of its receipt of
the Determination Notice. The Dispute Notice shall also designate CSB's own
environmental expert, which shall be hired by CSB at CSB's expense. German
American and CSB shall each use their best efforts to cause their respective
experts to consult with one another and select, within five (5) business days of
German American's receipt of the Dispute Notice, a third environmental expert
(the "Neutral Expert") for the purpose of reviewing the Phase Two report and
resolving the dispute. The Neutral Expert shall perform all services pursuant to
a contract, subject to the reasonable approval of German American and CSB, that
requires the Neutral Expert to meet the deadlines specified in this Agreement.
Within a period of ten (10) business days from the date the Neutral Expert is
selected, the Neutral Expert, after consultation with CSB's and German
American's experts and review of the Phase Two Report findings, shall determine
the scope of Remedial Actions that are prudent in light of the findings or
required by law, and the estimated costs thereof, which determination shall be
final (the "Final Estimate"). CSB and German American shall split the fees and
expenses of the Neutral Expert, but the fees and expenses of CSB's expert shall
be borne solely by CSB. CSB's expert and the Neutral Expert shall provide
consulting services only and shall not perform any additional site tests or
examinations without the prior written consent of both German American and CSB.
(d) If (i) CSB fails to provide German American with the Dispute Notice
within the specified time period or (ii) the Neutral Expert fails to make the
Final Estimate within the specified time period, and such failure is not caused
by German American or its expert, the German American Estimate shall be the
Final Estimate for the purposes of this Agreement.
(e) If the Final Estimate exceeds the sum of $100,000, subject to
Section 4.06(f) hereof, then German American shall have the right to reduce the
aggregate number of shares of German American Common to be issued to CSB's
shareholders under Section 1.03(a)(i) hereof (even if such reduction causes the
number of shares to be issued to be fewer than the minimum number that would
otherwise be specified by such provision) by that number of shares of German
American Common, the value of which (as determined by the average of the highest
closing bid price, and the lowest closing asked price, quoted at the close of
trading on the NASDAQ National Market System on the date prior to the effective
date of the notice of such reduction contemplated below) is equal to the
after-tax effect of the sum of the excess of the Final Estimate over $100,000,
multiplied by 2.436. If German American desires to exercise its right under this
Section 4.06(e), German American shall, within ten (10) business days of the
date as of which the Final Estimate becomes determinable, provide CSB with
written notice of its determination to reduce the number of shares to be issued
to CSB's shareholders under Section 1.03(a)(i) hereof, including the manner and
basis by which such reduction has been determined.
(f) If the Final Estimate equals or exceeds the sum of $1,000,000, then
either CSB or German American shall have the right pursuant to Section 7.03
hereof, for a period of 10 business days following the date as of which the
Final Estimate is determinable, to terminate this Agreement without further
obligation to the other party, which shall be the terminating party's sole
remedy in such event.
-A 20-
<PAGE>
(g) If the Final Estimate is less than or equal to the sum of $100,000,
in the aggregate, then CSB, if requested by German American, shall promptly
direct the German American expert to commence the Remedial Actions, and no
adjustment to the Merger Consideration and no right to terminate this Agreement
shall occur.
Section 4.07. Restriction on Resales. CSB shall obtain and deliver to
German American, at least thirty (30) days prior to the Closing Date, signed
representations, in form reasonably acceptable to German American, of each
shareholder who may reasonably be deemed an "affiliate" of CSB as of the date of
the CSB Shareholders' Meeting within the meaning of such term as used in Rule
145 under the Securities Act regarding their prospective compliance with the
provisions of such Rule 145. CSB shall also obtain and deliver to German
American at least 30 days prior to the Closing Date, the signed agreements of
each shareholder who may reasonably be deemed an "affiliate" (as such term is
described in the preceding sentence) of CSB as of the date of the Shareholders'
Meeting agreeing not to sell any shares of German American Common or otherwise
reduce his or her risk relative to such shares, until such time as financial
results covering at least thirty (30) days of post-Merger combined operations
have been filed by German American with the SEC in a quarterly report on Form
10-Q or in an annual report on Form 10-K.
Section 4.08. Access to Information. CSB shall permit German American
reasonable access, in a manner which will avoid undue disruption or interference
with CSB's normal operations, to its and Citizens' properties and shall disclose
and make available to German American all books, documents, papers and records
relating to its and Citizens' assets, stock ownership, properties, operations,
obligations and liabilities, including, but not limited to, all books of account
(including general ledgers), tax records, minute books of directors' and
shareholders' meetings, organizational documents, material contracts and
agreements, loan files, filings with any regulatory authority, accountants'
workpapers, litigation files, plans affecting employees, and any other business
activities or prospects in which German American may have an interest in light
of the transactions contemplated by this Agreement. During the period from the
date of this Agreement to the Effective Time, CSB will cause one or more of it
or Citizens' designated representatives to confer on a regular basis with the
President of German American, or any other person designated in a written notice
given to CSB by German American pursuant to this Agreement, to report the
general status of the ongoing operations of CSB and Citizens. CSB will promptly
notify German American of any material change in the normal course of the
operation of its business or properties and of any regulatory complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or the institution or the threat of litigation involving CSB or
Citizens, and will keep German American fully informed of such events. German
American, GAHC and Community hereby understand and agree that all books,
documents, papers and records relating to CSB's and Citizens' assets, stock
ownership, properties, operations, obligations and liabilities which they
obtain, receive, review or have access to pursuant to this Section 4.08 shall be
subject to the Confidentiality Agreement between CSB and German American
("Confidentiality Agreement").
Section 4.09. Dividends. Notwithstanding Section 4.01(a) of this
Agreement, but subject to the restrictions of the second paragraph of this
Section 4.09, CSB may (in the absence of any material adverse change in its
consolidated financial condition, results of operations, or business other than
the increase to Citizens' allowance for loan losses (up to $350,000)
contemplated by Section 4.05 hereof and other than the adverse change that is
expected to result from the expenses associated with the Mergers), declare and
pay in arrears quarterly cash dividends to CSB shareholders, not to exceed the
following amounts: $1.75 per share of CSB Common (representing $0.50 per quarter
and an additional $0.75 special dividend) for the period of two quarters ended
December 31,1997, and $0.6875 per share of CSB Common for each calendar
quarterly period in 1998.
German American typically considers the declaration of cash dividends
on German American Common for each quarterly period at meetings of its Board of
Directors held the last week of the first month of the next
-A 21-
<PAGE>
calendar quarter (January, April, July, and October), and typically declares any
such dividends to be payable to holders of record of German American Common as
of a subsequent date that is within the calendar month that follows the month of
declaration (February, May, August and November). In order to assure that CSB
shareholders will be entitled to receive, for each quarterly period commencing
January 1, 1998, dividends with respect to his or her CSB Common, or dividends
with respect to the German American Common to be exchanged therefor pursuant to
the Holding Company Merger, but not both, CSB may (in each case if the Effective
Time has for any reason not then occurred and at the maximum quarterly rates
specified by this Section 4.09) declare, not earlier than May 15, 1998, a
dividend with respect to CSB's first calendar quarter; and, not earlier than
August 15, 1998, a dividend with respect to CSB's second quarter; and, not
earlier than November 15, 1998, a dividend with respect to CSB's third quarter.
Section 4.10. Modification or Termination of Retiree Health Care
Program. In accordance with the studies of the various alternative proposals for
such modification and termination that have been conducted by advisers to CSB
and Citizens, CSB and Citizens shall terminate any potential obligations to
provide post-retirement health insurance coverage to all active employees,
directors, consultants and other persons, and shall terminate or modify any
potential obligations to continue to provide health insurance coverage to all
present retirees, under the post-retirement health care insurance program of
Citizens and CSB in accordance with this Section 4.10. CSB and Citizens shall
give written notice of such termination and modification to all employees and
retirees potentially affected thereby as soon as practicable but in no event
later than December 31, 1997. The manner and amount of such modification and
termination shall be within the discretion of the Board of Directors of CSB and
Citizens, provided that (i) the aggregate accrued post-retirement benefit cost
recorded on CSB's books and previously expensed in the CSB Financial Statements
as of September 30, 1997, shall not be less than the projected total
post-retirement benefit obligation of CSB and Citizens to all of its retirees
and active employees after September 30, 1997 under the terms of the program so
modified, amended or terminated, as determined as of September 30, 1997 by the
program's actuary and (ii) any partial termination of retiree benefits and any
modification of the terms of the post-retirement health care insurance program
as applicable to retirees shall be made in such a manner as to clearly
communicate to the beneficiary that the right of Citizens and CSB to terminate
or make further modifications of such program without further obligation or
notice has been reserved by Citizens and CSB.
ARTICLE FIVE
COVENANTS OF GERMAN AMERICAN, GAHC AND COMMUNITY
Section 5.01. Regulatory Approvals and Registration Statement.
(a) German American shall file (and cause Community to file and
cooperate with CSB and Citizens in filing) all regulatory applications required
in order to consummate the Mergers, including all necessary applications for the
prior approvals of the FRB under the Bank Holding Company Act and the Bank
Merger Act (or of the FDIC under the Bank Merger Act if German American shall
request Citizens to withdraw its membership in the Federal Reserve System as
part of the Bank Merger as contemplated by Section 7.05), and the DFI. German
American shall use its best efforts to cause such banking agency regulatory
applications to be filed on or before December 22, 1997. German American shall
keep CSB reasonably informed as to the status of such applications and promptly
send or deliver copies of such applications, and of any supplementally filed
materials, to counsel for CSB.
(b) German American shall file with the SEC the Registration Statement
relating to the shares of German American Common to be issued to the
shareholders of CSB pursuant to this Agreement, and shall use its best efforts
to file such Registration Statement by January 22, 1998 and shall use its best
efforts to cause the
-A 22-
<PAGE>
Registration Statement to become effective as soon as practicable. At the time
the Registration Statement becomes effective, the form of the Registration
Statement shall comply in all material respects with the provisions of the
Securities Act and the published rules and regulations thereunder, and shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
false or misleading. At the time of the mailing thereof to the shareholders and
at the time of any Shareholders' Meeting, the Proxy Statement/Prospectus
included as part of the Registration Statement, as amended or supplemented by
any amendment or supplement, shall not contain any untrue statement of a
material fact or omit to state any material fact regarding German American, GAHC
or the Holding Company Merger necessary to make the statements therein not false
or misleading. German American shall timely file all documents required to
obtain all necessary Blue Sky permits and approvals, if any, required to carry
out the Merger, shall pay all expenses incident thereto and shall use its best
efforts to obtain such permits and approvals on a timely basis. German American
shall promptly and properly prepare and file any other filings required under
the Securities Exchange Act of 1934 (the "Exchange Act") relating to the
Mergers, or otherwise required of it under the Exchange Act prior to the
Effective Time, and shall deliver copies thereof to CSB's counsel promptly upon
the filing thereof with the SEC.
Section 5.02. Breaches. German American shall, in the event it has
knowledge of the occurrence of any event or condition which would cause or
constitute a breach (or would have caused or constituted a breach had such event
occurred or been known prior to the date of this Agreement) of any of its
representations or agreements contained or referred to in this Agreement, give
prompt notice thereof to CSB and use its best efforts to prevent or promptly
remedy the same.
Section 5.03. Consummation of Agreement. German American shall use its
best efforts to perform and fulfill all conditions and obligations to be
performed or fulfilled under this Agreement and to effect the Mergers in
accordance with the terms and conditions of this Agreement, and use its best
efforts to cause the Closing to occur on March 31, 1998 or as soon thereafter as
practicable.
Section 5.04. Directors' and Officers' Indemnification.
(a) Following the Effective Time, German American will provide the
directors and officers of CSB and Citizens from time to time with the same
directors' and officers' liability insurance coverage that German American
provides to directors and officers of its other banking subsidiaries. German
American will use its best efforts to cause such coverage with respect to the
CSB and Citizens directors and officers to specify an unlimited retroactive date
in order that all present and former directors and officers of CSB and Citizens
would be entitled to coverage thereunder in accordance with the policy terms
with respect to acts or omissions whether before or after the Effective Time. In
the event that German American is unsuccessful in obtaining such full
retroactive insurance coverage, German American will not object to the purchase
by CSB and Citizens of tail coverage with respect to prior acts or omissions of
present and prior directors and officers of CSB and Citizens.
(b) For six (6) years after the Effective Time, German American shall
(and shall cause the Surviving Bank to) indemnify, defend and hold harmless the
officers and directors of CSB and Citizens who are serving at the Effective Time
or who have served prior to the Effective Time (each, an "Indemnified Party")
against all losses, expenses, claims, damages and liabilities arising out of
actions or omissions (arising from their present or former status as officers or
directors) occurring on or prior to the Effective Time to the full extent then
permitted under the applicable provisions of the IBCL and the IFIA and under the
respective articles of incorporation and bylaws of CSB and Citizens.
-A 23-
<PAGE>
(c) If during the six (6) year period after the Effective Time German
American or the Surviving Bank or any of its or their successors or assigns (i)
shall consolidate with or merge into any other corporation or entity and shall
not be the continuing or surviving corporation or entity of such consolidation
or merger or (ii) shall transfer all or substantially all of its properties and
assets to any individual, corporation or other entity, then and in each such
case, proper provision shall be made so that the successors and assigns of
German American and/or the Surviving Bank shall assume the obligations set forth
in this Section 5.04.
Section 5.05. Board of Directors of German American and Citizens.
(a) German American shall cause a mutually acceptable representative of
the Board of CSB (as it is constituted immediately prior to the Effective Time)
to be appointed to the Board of Directors of German American as of the Effective
Time. While German American cannot commit to any future course of conduct by its
Board of Directors as to the election of directors because nominations of Board
nominees are subject to their fiduciary duties and because there can be no
assurance that the present members of the Board of Directors of German American
will remain members (in whole or in part) of the Board of Directors as of any
future time, German American represents that it is the general present practice
and intent of its present Board of Directors to nominate incumbent members of
the Board for re-election at the expiration of their respective terms, subject
to the Board's retirement age and other policies in effect from time to time.
(b) For a period of three years following the Closing Date (the
"Transition Period"), German American or GAHC shall cause the Board of Directors
of Citizens to be not larger than 16 members and shall grant the directors of
Citizens who were directors of Citizens immediately prior to the Effective Time
("Continuing Directors") the exclusive right to nominate individuals to German
American (as future sole shareholder) to fill any vacancies among the group of
Continuing Directors that may arise during the Transition Period; provided,
however, that German American retains the right to vote against any such nominee
should it find such nominee objectionable. During the Transition Period, and
subject to standard practices protecting Citizens as it relates to bonding and
regulatory issues, German American shall not remove any Continuing Director from
his position as a director of Citizens unless such removal is approved by three
fourths of the members of the Board of Directors of Citizens then in office.
During the Transition Period, German American shall use its best efforts to
assure that the Continuing Directors always represent 50 percent of the total
number of members of the Board of Directors of Citizens.
(c) For each year during the Transition Period, German American shall
direct the German American Representatives serving on the Board of Citizens not
to oppose any advance payment that may be authorized by the Citizens Board of
Directors of up to $3000 per year to each Continuing Director then on the Board
of Directors in addition to customary director fees, in lieu of certain health
and life insurance benefits currently provided by Citizens to its present
directors.
Section 5.06. Officers of Citizens. During the Transition Period, Jerry
A. Church shall not be removed as the President and Chief Executive Officer of
Citizens, unless such removal is approved by three fourths of the members of the
Board of Directors of Citizens then in office. In addition, neither (a) Jerry A.
Church, during the Transition Period, (b) nor any other officers of Citizens,
for a period of at least six months from the Effective Time, shall be terminated
(other than for willful misconduct) unless such termination is approved by three
fourths of the members of the Board of Directors of Citizens then in office.
Section 5.07. Construction of Banking Facility. Immediately following
the date of this Agreement, German American shall initiate detailed design work,
and as soon as practicable after the Effective Time shall commence the
construction, of a modern banking facility for Citizens incorporating the
existing one square block
-A 24-
<PAGE>
former Moose property located between Third and Fourth Streets on Main Street in
Petersburg, Indiana. The building shall comprise approximately 15,000 to 18,000
square feet and is anticipated to have an approximate budget of $1.5 to 2.0
million. Disposition and interim or permanent utilization of Citizens' existing
office facility and of Community's Petersburg branch shall be as determined by
the Citizens Board with a view to the best interests of the Petersburg community
and of Citizens.
Section 5.08. Preservation of Business. German American shall: (a)
conduct its business substantially in the manner as is presently being conducted
and in the ordinary course of business and not amend its articles of
incorporation in any manner that requires the approval of shareholders of German
American under the IBCL; (b) file, and cause its subsidiaries to file, all
required reports with applicable regulatory authorities; (c) comply with all
laws, statutes, ordinances, rules or regulations applicable to it and to the
conduct of its business, the noncompliance with which results or could result in
a material adverse effect on the financial condition, results of operations,
business, assets or capitalization of German American on a consolidated basis;
and (d) comply in all material respects with each contract, agreement,
commitment, obligation, understanding, arrangement, lease or license to which it
is a party by which it is or may be subject or bound, the breach of which could
result in a material adverse effect on the financial condition, results of
operations, business, assets or capitalization of German American on a
consolidated basis.
Section 5.09. Securities and Exchange Commission Filings. German
American will provide CSB with copies of all filings made by German American
with the SEC under the Exchange Act; and the Securities Act and the respective
rules and regulations of the SEC thereunder as soon as practicable after such
filings are made at any time prior to the Effective Time.
Section 5.10. Rule 144(c) Information. Following the Effective Time,
German American shall make available adequate current public information about
itself as that terminology is used in and as required by Rule 144(c) of the SEC
under the Securities Act.
Section 5.11. Authorization of Common Stock. At the Effective Time and
on such subsequent dates when the former shareholders of CSB surrender their CSB
share certificates for cancellation, the shares of German American Common to be
exchanged with former shareholders of CSB shall have been duly authorized and
validly issued by German American and shall be fully paid and non-assessable and
subject to no pre-emptive rights and listed for trading on the NASDAQ NMS.
Section 5.12. Past Service Credit. All employees of Citizens will be
eligible to participate in all German American's employee benefit plans (in
accordance with the terms of the German American plans) as soon as practicable
following the Effective Time. Following the Effective Time and until Citizens
employees become eligible to participate in German American's employee benefit
plans, German American shall continue the coverage of such employees under the
Citizens plans such that no gap in coverage shall occur. As has been its past
practice, German American shall give employees of Citizens full vesting, entry
eligibility, benefit eligibility and pre-existing condition service credit under
all of German American's employee benefit programs for their years and, if
applicable, months of service with Citizens, and German American shall use its
best efforts to cause these results to occur; provided, however, terms of
employee participation in any insured program are subject to the agreement of
German American's insurers with respect to pre-existing conditions. Copayments
and deductibles paid by a Citizens employee under any Citizens welfare benefit
plan shall be treated as if paid under the applicable German American welfare
benefit plan, subject to the agreement of German American's insurers.
Section 5.13. Charitable Giving; Community Foundation.
-A 25-
<PAGE>
(a) During the Transition Period, German American shall direct its
German American Representatives serving on the Board of Citizens not to oppose
any donations of Citizens in support of the charitable, fraternal, social,
educational, recreational and other needs of the communities served by Citizens
in an aggregate annual minimum amount not exceeding two percent of Citizens' net
income for the previous year (although German American may, of course, support
larger donations in its discretion). Following the Transition Period, the
donations by Citizens or its successors in support of such charitable,
fraternal, social, educational, recreational and other needs shall be based upon
the Citizens Board's annual independent determination of the level of donations
required to meet the needs of worthy projects within the communities served by
Citizens, after consideration of all relevant factors. In determining the net
income of Citizens, the following shall not be deducted or otherwise taken into
account: (i) all costs and expenses associated with the Mergers, and (ii) all
accounting and financial statement adjustments relating to the Mergers.
(b) If Citizens determines, in its discretion, following the Effective
Time to form a non-profit foundation, managed by its Board of Directors for the
benefit of the communities served by Citizens, German American will support the
funding by Citizens of such foundation at levels not less than Citizens' past
charitable contributions practices prior to the Merger; provided that any
donations approved by the Citizens Board of Directors pursuant to Section
5.13(a) shall be credited against the annual funding of the foundation.
ARTICLE SIX
CONDITIONS PRECEDENT TO THE MERGERS
Section 6.01. Conditions of German American's Obligations. The
obligations of German American, GAHC and Community to effect the Mergers shall
be subject to the satisfaction (or waiver by German American, GAHC and
Community) prior to or on the Closing Date of the following conditions:
(a) The representations and warranties made by CSB and Citizens in this
Agreement shall be true in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been made
or given on and as of the Closing Date.
(b) CSB and Citizens shall have performed and complied in all material
respects with all of their respective obligations and agreements required to be
performed on or prior to the Closing Date under this Agreement.
(c) No temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Mergers shall be in
effect, nor shall any proceeding by any bank regulatory authority or
governmental agency seeking any of the foregoing be pending. There shall not be
any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Mergers which makes the consummation of the
Mergers illegal.
(d) All necessary regulatory approvals, consents, authorizations and
other approvals required by law or stock market requirements for consummation of
the Mergers, including any approval of the Mergers by the shareholders of German
American in order to comply with the NASDAQ NMS listing standards, shall have
been obtained and all waiting periods required by law shall have expired.
(e) German American shall have received the environmental reports
required by Sections 4.06 and 4.01(a)(xv) hereof and shall not have elected,
pursuant to Section 4.06 hereof, to terminate and cancel this Agreement.
-A 26-
<PAGE>
(f) German American shall have received all documents required to be
received from CSB or Citizens on or prior to the Closing Date, all in form and
substance reasonably satisfactory to German American.
(g) German American shall have received a letter, dated as of the
Effective Time, from Crowe, Chizek and Company, LLP, its independent public
accountants, to the effect that the Holding Company Merger will qualify for
pooling of interests accounting treatment under Accounting Principles Board
Opinion No. 16 if closed and consummated in accordance with this Agreement.
(h) The Registration Statement shall be effective under the Securities
Act and no stop orders suspending the effectiveness of the Registration
Statement shall be in effect or proceedings for such purpose pending before or
threatened by the SEC.
(i) German American shall have received from its counsel, Leagre
Chandler & Millard, an opinion to the effect that if the Mergers are consummated
in accordance with the terms set forth in this Agreement, (i) the Holding
Company Merger will constitute a reorganization within the meaning of Section
368(a) of the Code; (ii) no gain or loss will be recognized by the holders of
shares of CSB Common upon receipt of the Merger consideration (except for cash
received in lieu of fractional shares); (iii) the basis of shares of German
American Common received by the shareholders of CSB will be the same as the
basis of shares of CSB Common exchanged therefor; and (iv) the holding period of
the shares of German American Common received by the shareholders of CSB will
include the holding period of the shares of CSB Common exchanged therefor,
provided such shares were held as capital assets as of the Effective Time.
Section 6.02. Conditions of CSB's and Citizens' Obligations. CSB's and
Citizens' obligations to effect the Mergers shall be subject to the satisfaction
(or waiver by CSB and Citizens) prior to or on the Closing Date of the following
conditions:
(a) The representations and warranties made by German American, GAHC
and Community in this Agreement shall be true in all material respects on and as
of the Closing Date with the same effect as though such representations and
warranties had been made or given on the Closing Date.
(b) German American, GAHC and Community shall each have performed and
complied in all material respects with all of its obligations and agreements
required to be performed prior to the Closing Date under this Agreement.
(c) No temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Mergers shall be in
effect, nor shall any proceeding by any bank regulatory authority or other
governmental agency seeking any of the foregoing be pending. There shall not be
any action taken, or any statute, rule, regulation or order enacted, enforced or
deemed applicable to the Mergers which makes the consummation of the Mergers
illegal.
(d) All necessary regulatory approvals, consents, authorizations and
other approvals required by law for consummation of the Mergers, including the
requisite approval of the Mergers by the shareholders of CSB, shall have been
obtained and all waiting periods required by law shall have expired.
(e) CSB shall have received all documents required to be received from
German American, GAHC and Community on or prior to the Closing Date, all in form
and substance reasonably satisfactory to CSB.
-A 27-
<PAGE>
(f) The Registration Statement shall be effective under the Securities
Act and no stop orders suspending the effectiveness of the Registration
Statement shall be in effect or proceedings for such purpose pending before or
threatened by the SEC, and German American shall have received all state
securities or "Blue Sky" approvals, authorizations, exemptions or permits
required to issue the shares of German American Common as the Merger
Consideration to the shareholders of CSB.
(g) CSB shall have received from counsel for German American, Leagre
Chandler & Millard, an opinion reasonably satisfactory to CSB to the effect that
if the Mergers are consummated in accordance with the terms set forth in this
Agreement, (i) the Holding Company Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code; (ii) no gain or loss will be
recognized by the holders of shares of CSB Common upon receipt of the Merger
Consideration (except for cash received in lieu of fractional shares); (iii) the
basis of German American Common received by the shareholders of CSB will be the
same as the basis of CSB Common exchanged therefor; and (iv) the holding period
of the shares of German American Common received by the shareholders of CSB will
include the holding period of the shares of CSB Common exchanged therefor,
provided such shares were held as capital assets as of the Effective Time.
(h) The German American Common to be exchanged for the CSB Common
pursuant to the Holding Company Merger shall have an aggregate value (as
measured by the per share average value of the German American Common during the
Valuation Period that is utilized to determine the Exchange Ratio pursuant to
Section 1.03(a)) of at least $22,750,000.
(i) CSB shall have received from Olive Corporate Finance, LLC or
another reputable financial advisor a written fairness opinion stating that the
terms of the Holding Company Merger are fair to the shareholders of CSB from a
financial point of view. Such written fairness opinion shall (i) be in form and
substance reasonably satisfactory to CSB, (ii) be dated as of the date not later
than the mailing date of the proxy statement - prospectus relating to the
Mergers to be mailed to the shareholders of CSB, and (iii) be included as an
exhibit to such proxy statement - prospectus.
ARTICLE SEVEN
TERMINATION OR ABANDONMENT
Section 7.01. Mutual Agreement. This Agreement may be terminated by the
mutual written agreement of the parties approved by their respective Boards of
Directors at any time prior to the Effective Time, regardless of whether
shareholder approval of this Agreement and the Mergers by the shareholders of
CSB or German American shall have been previously obtained.
Section 7.02. Breach of Representations, Warranties or Covenants.
(a) In the event that there is a material breach in any of the
representations and warranties or covenants of the parties, which breach is not
cured within thirty (30) days after notice to cure such breach is given by the
non-breaching party, then the Board of Directors of the non-breaching party,
regardless of whether approval by the shareholders of this Agreement and the
Mergers shall have been previously obtained, and in addition to any other
remedies to which the non-breaching party may be entitled, may terminate and
cancel this Agreement effective immediately by providing written notice thereof
to the other party hereto.
(b) In the event that this Agreement is terminated
-A 28-
<PAGE>
(i) as a result of the wilful failure of CSB or Citizens to
perform its obligations in violation of this Agreement or
(ii) due to the failure of the Holding Company Merger to be
approved by the requisite vote of shareholders of CSB following the
making by any other person or entity not a party to this Agreement of
a proposal to CSB or Citizens contemplating a merger, consolidation,
plan of stock exchange, sale of all or substantially all assets, or
other business combination with CSB or Citizens, and if, but only if,
CSB shall publicly announce within twelve months following a
termination described by this clause (ii) that CSB has accepted a
proposal for a business combination with any third party, then, in
lieu of specific performance but in addition to whatever other legal
rights or remedies to which German American may be entitled against
any third party, CSB shall, upon German American's demand and not
later than 90 days after the making of such demand, (x) pay to German
American a termination fee of $455,000 and (y) reimburse German
American for all its out-of-pocket costs and expenses in connection
with the Mergers incurred from and after October 1, 1997 (but not more
than $100,000), including its legal, accounting, environmental and
other consulting fees and expenses. If CSB should fail or refuse to
pay any amount demanded by German American pursuant to the preceding
sentence and German American recovers such disputed amount pursuant to
a legal proceeding, CSB shall, in addition thereto, pay to German
American all reasonable costs, charges, expenses (including without
limitation the reasonable fees and expenses of counsel) and other
amounts expended by German American in connection with or arising out
of such legal proceeding. The parties agree that the actual damages
and loss that would be caused to German American by reason of any such
termination cannot be determined with certainty due to German
American's "opportunity cost" in proceeding with the Mergers compared
to proceeding with other opportunities that are available to German
American and other factors. The parties therefore agree that the
amounts payable pursuant to this Section 7.02 represent a reasonable
estimate of German American's opportunity cost and other damages and
loss that may be awarded as either a termination fee or as liquidated
damages to German American if it chooses not to seek specific
performance of this Agreement, and that such amounts represent the
sole damages from CSB and Citizens to which German American would be
entitled.
Section 7.03. Adverse Environmental Reports. German American or CSB as
specifically provided by Section 4.06(f) may terminate this Agreement by giving
written notice thereof to the nonterminating party.
Section 7.04. Failure of Conditions. In the event any of the conditions to
the obligations of either party are not satisfied or waived on or prior to the
Closing Date, and if any applicable cure period provided in Section 7.02 (a)
hereof has lapsed, then the Board of Directors of such party may, regardless of
whether approval by its shareholders of this Agreement and the Mergers shall
have been previously obtained, terminate and cancel this Agreement on the
Closing Date by delivery of written notice thereof to the other party on such
date.
Section 7.05. Termination Upon Adverse Regulatory Determination. In
connection with the filings that the German American, Community, CSB and/or
Citizens may be required to make in connection with the Mergers with banking,
securities, and antitrust regulatory agencies ("Agencies"), each party shall use
their best efforts to obtain all necessary approvals of, or clearances from, the
Agencies, and shall cause their respective agents and advisors to cooperate and
use their best efforts in connection therewith. CSB consents to the
representation by its counsel, Krieg DeVault Alexander & Capehart, of German
American as German American's special antitrust counsel with respect to the
Mergers in connection with preparing the necessary economic briefs addressing
the potential anti-competitive consequences of the Mergers and acting as
advocate before the Agencies in connection with such matters (provided that
German American shall be solely responsible for all of such firm's fees and
expenses in connection with such briefing and such advocacy). Citizens
-A 29-
<PAGE>
shall, if requested by German American, withdraw from the Federal Reserve System
in time for the required application for approval of the Bank Merger under the
Bank Merger Act to be properly submitted for approval of the FDIC rather than
the FRB so that the regulatory requirements (if any) that might be imposed upon
Citizens in connection with approval of the Bank Merger Act application will be
consistent with the FDIC standards that are imposed upon German American's other
state bank subsidiaries. German American (or its subsidiaries) shall be
responsible for making the required Merger filings (except to the limited extent
that the applicable law, regulations, or forms specify that CSB (or Citizens) is
the appropriate filing party) with, and for paying all filing fees to, the
Agencies, and for discussing such filings with the Agencies and responding to
comments thereon. If any required filing is disapproved by any of the Agencies,
or any determination is made by any of the Agencies that either of the Mergers
cannot be consummated except on terms and conditions that are materially adverse
from a financial point of view to German American, or the U.S. Department of
Justice shall have sought and obtained an order from a court of appropriate
jurisdiction temporarily or permanently restraining or enjoining consummation of
the Mergers (an "Adverse Determination"), then German American shall promptly
advise CSB of such Adverse Determination and German American's intended course
of action with respect thereto. In the event that German American in its sole
discretion determines to seek a judicial or regulatory appeal or review (formal
or informal) of the Adverse Determination, CSB and Citizens (and their agents
and advisors) shall continue to cooperate with such appeal and review procedure
and use their best efforts to assist in connection with obtaining reversal or
modification of such Adverse Determination. In the event that (a) German
American in its sole discretion elects not to seek an appeal or review of the
Adverse Determination or elects in its sole discretion at any time after seeking
such an appeal or review to discontinue that effort, or (b) German American
seeks such an appeal or review but all avenues for such appeal or review are
exhausted without the Adverse Determination having been vacated or overruled or
modified in such a manner that the Adverse Determination is no longer materially
adverse ("Relief Determination"), then either German American or CSB may
terminate this Agreement without obligation to the other on account of the
Adverse Determination; provided, however, that German American shall (a) pay CSB
a termination fee of $455,000 within 90 days of any such termination (which is
agreed to be a reasonable estimate of CSB's opportunity cost in proceeding with
the Mergers compared to proceeding with other opportunities available to CSB)
and (b) reimburse CSB and Citizens for all their out-of-pocket costs and
expenses in connection with the Mergers incurred from October 1, 1997, (but not
more than $100,000) including its legal, accounting, environmental and other
consulting fees and expenses, if (x) the Agreement is terminated in accordance
with this sentence solely as a result of an Adverse Determination relating to
the potential effect of the Mergers upon competition, and (y) CSB and Citizens
and their respective agents and advisors have abided by their obligations of
cooperation and best efforts expressed in this Section 7.05. If German American
should fail or refuse to pay any amount demanded by CSB pursuant to the
preceding sentence and CSB should recover such disputed amount pursuant to a
legal proceeding, German American shall, in addition thereto, pay to CSB all
reasonable costs, charges, expenses (including without limitation the reasonable
fees and expenses of counsel) and other amounts reasonably expended by CSB in
connection with or arising out of such legal proceeding.
Section 7.06. Shareholder Approval Denial. If this Agreement and
consummation of the Holding Company Merger is not approved by the shareholders
of CSB, or if the issuance of the additional German American Common is required
to be approved by the shareholders of German American pursuant to the NASDAQ NMS
listing standards and is not so approved at the meeting of German American's
shareholders called to consider such issuance, then either party may terminate
this Agreement by giving written notice thereof to the other party, subject to
Section 7.02(b).
Section 7.07. Regulatory Enforcement Matters. In the event that CSB or
Citizens shall become a party or subject to any memorandum of understanding,
cease and desist order, or civil money penalties imposed by any federal or state
agency charged with the supervision or regulation of banks or bank holding
companies after the
-A 30-
<PAGE>
date of this Agreement, then German American may terminate this Agreement by
giving written notice thereof to CSB.
Section 7.08. Lapse of Time. If the Closing Date does not occur on or
prior to November 1, 1998 (regardless of whether an Adverse Determination
occurs), then this Agreement may be terminated by the Board of Directors of
either CSB or German American by giving written notice thereof to the other
party.
ARTICLE EIGHT
GENERAL PROVISIONS
Section 8.01. Liabilities. In the event that this Agreement is
terminated or the Mergers are abandoned pursuant to the provisions of Article
Seven hereof, no party hereto shall have any liability to any other party for
costs, expenses, damages, termination fees, or otherwise except to the extent
specifically set forth in Section 7.02(b) and in Section 7.05. Directors,
officers and employees of each party hereto shall have no personal liability
under this Agreement with respect to the representations and warranties of their
respective parties except for fraud or for their personal intentional and
knowing participation in the making of false or misleading statements in such
representation and warranties.
Section 8.02. Notices. Any notice or other communication hereunder
shall be in writing and shall be deemed to have been given or made (a) on the
date of delivery, in the case of hand delivery, or (b) three (3) business days
after deposit in the United States Registered or Certified Mail, with mailing
receipt postmarked by the Postal Service to show date of mailing, postage
prepaid, or (c) upon actual receipt if transmitted during business hours by
facsimile (but only if receipt of a legible copy of such transmission is
confirmed by the recipient); addressed (in any case) as follows:
(a) If to German American, GAHC or Community:
German American Bancorp
711 Main Street
Box 810
Jasper, Indiana 47546
Attn: George W. Astrike, Chairman of the Board
with a copy to:
Leagre Chandler & Millard
9100 Keystone Crossing
Suite 800
P. O. Box 40609
Indianapolis, Indiana 46240-0609
Attn: Mark B. Barnes
and
(b) If to CSB or Citizens:
CSB Bancorp
Main and 7th Streets
P.O. Box 98
Petersburg, IN 47567
Attn: Jerry A. Church, Chief Executive Officer
-A 31-
<PAGE>
with a copy to:
Krieg DeVault Alexander & Capehart
One Indiana Square
Suite 2800
Indianapolis, Indiana 46204-2017
Attn: Nicholas J. Chulos
or to such other address as any party may from time to time designate by notice
to the other.
Section 8.03. Non-survival of Representations and Agreements. No
representation, warranty or covenant contained in this Agreement shall survive
(and no claims for the breach or nonperformance thereof may be brought after)
the Effective Time except the covenants of German American in Sections 5.04,
5.05, 5.06, 5.07, 5.10, 5.11, 5.12 and 5.13 which shall survive the Effective
Time. No representation, warranty or covenant contained in this Agreement shall
survive (and, except for any intentional breach or nonperformance, no claims for
the breach or nonperformance, thereof may be brought after) the termination of
this Agreement pursuant to Article Seven hereof. The reliability and binding
effect of any representation or warranty made by any party in this Agreement
shall not be diminished or limited in any way by any review, or by the
opportunity to conduct any review, by or on behalf of the intended beneficiary
of the subject matter of the representation or warranty, whether before or after
the date of this Agreement, unless and to the extent that the reviewing party
and the other party expressly agree otherwise in writing.
Section 8.04. Entire Agreement. This Agreement and the Confidentiality
Agreement constitute the entire agreement between the parties and supersede and
cancel any and all prior discussions, negotiations, undertakings and agreements
between the parties relating to the subject matter hereof, including, without
limitation, the Second Amended and Restated Offer of Merger dated October 6,
1997 of German American accepted by CSB.
Section 8.05. Headings and Captions. The captions of Articles and
Sections hereof are for convenience only and shall not control or affect the
meaning or construction of any of the provisions of this Agreement.
Section 8.06. Waiver, Amendment or Modification. The conditions of this
Agreement which may be waived may only be waived by written notice specifically
waiving such condition addressed to the party claiming the benefit of the
waiver. The failure of any party at any time or times to require performance of
any provision hereof shall in no manner affect the right of such party at a
later time to enforce the same. This Agreement may not be amended or modified
except by a written document duly executed by the parties hereto.
Section 8.07. Rules of Construction. Unless the context otherwise
requires (a) a term used herein has the meaning assigned to it, and (b) an
accounting term not otherwise defined has the meaning assigned to it in
accordance with generally accepted accounting principles.
Section 8.08. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
be deemed one and the same instrument.
Section 8.09. Successors. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors. There shall
be no third party beneficiaries hereof.
-A 32-
<PAGE>
Section 8.10. Governing Law; Assignment. This Agreement shall be governed
by the laws of the State of Indiana. This Agreement may not be assigned by any
of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written, with the unanimous
approval of their respective Boards of Directors.
GERMAN AMERICAN BANCORP
By /s/ George W. Astrike
George W. Astrike
Chairman of the Board and
Chief Executive Officer
GERMAN AMERICAN HOLDINGS
CORPORATION
By /s/ George W. Astrike
George W. Astrike
Chief Executive Officer
COMMUNITY TRUST BANK
By /s/ Paul G. Cooper
Paul G. Cooper
President
-A 33-
<PAGE>
CSB BANCORP
By /s/ Marion R. Klipsch
Marion R. Klipsch
President
By /s/ Jerry A. Church
Jerry A. Church
Executive Vice President
THE CITIZENS STATE BANK OF
PETERSBURG
By /s/ Jerry A. Church
Jerry A. Church
President
APPROVED BY THE MEMBERS OF THE BOARD OF DIRECTORS OF CSB BANCORP:
The undersigned Directors of CSB Bancorp hereby (a) agree in their capacities as
Directors of CSB to recommend to CSB's shareholders the approval of this
Agreement and the Holding Company Merger in accordance with 4.03 hereof, and (b)
agree to vote their shares of CSB Common that are registered in their personal
names (and agree to use their best efforts to cause all additional shares of CSB
Common over which they have voting influence or control to be voted) in favor of
the Holding Company Merger at the CSB Shareholders Meeting. Notwithstanding the
foregoing, the execution of the Agreement by the undersigned Directors of CSB or
anything herein to the contrary, German American, GAHC and Community hereby
understand and agree, as evidenced by their execution of this Agreement above,
that none of the undersigned Directors of CSB and Citizens will have any
obligation or liability under this Agreement or otherwise to German American,
GAHC, Community or any other person or entity, except as provided in the
foregoing sentence and in Section 8.01 hereof.
/s/ Lester Nixon /s/ Marion R. Klipsch
Lester Nixon Marion R. Klipsch
/s/ Jerry A. Church /s/ Michael J. Voyles
Jerry A. Church Michael J. Voyles
/s/ Robert C. Klipsch /s/ W. Wyatt Rauch
Robert C. Klipsch W. Wyatt Rauch
/s/ Robert D. Harris /s/ Gregory K. Willis
Robert D. Harris Gregory K. Willis
-A 34-
<PAGE>
APPENDIX B
======================================================================
AGREEMENT AND PLAN OF REORGANIZATION
by and among
FSB FINANCIAL CORPORATION
an Indiana corporation,
FSB BANK
an Indiana banking corporation,
GERMAN AMERICAN BANCORP,
an Indiana corporation,
GERMAN AMERICAN HOLDINGS CORPORATION,
an Indiana corporation,
and
COMMUNITY TRUST BANK
an Indiana banking corporation.
======================================================================
January 30, 1998
-B 1-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
January 30, 1998, by and among FSB FINANCIAL CORPORATION, an Indiana corporation
("FSB"), FSB BANK, an Indiana banking corporation ("FSB Bank"), GERMAN AMERICAN
BANCORP, an Indiana corporation ("German American"), GERMAN AMERICAN HOLDINGS
CORPORATION, an Indiana corporation ("GAHC"), and COMMUNITY TRUST BANK, an
Indiana banking corporation ("Community").
Recitals
A. FSB is a corporation duly organized and existing under the Indiana
Business Corporation Law ("IBCL") that is duly registered with the Board of
Governors of the Federal Reserve System ("FRB") as a bank holding company under
the Bank Holding Company Act of 1956, as amended ("BHC Act"). FSB owns all of
the outstanding capital stock of FSB Bank. The principal place of business of
FSB is Francisco, Gibson County, Indiana.
B. FSB Bank is a banking corporation duly organized and existing under
the Indiana Financial Institutions Act ("IFIA"), chartered by the Indiana
Department of Financial Institutions ("DFI"), which is not a member of the
Federal Reserve System, with its principal banking offices located in Francisco,
Gibson County, Indiana, and a branch located in Princeton, Gibson County,
Indiana.
C. German American is a corporation duly organized and existing under
the IBCL that is duly registered as a bank holding company under the BHC Act.
German American owns all of the outstanding capital stock of GAHC. The principal
place of business of German American is Jasper, Dubois County, Indiana.
D. GAHC is a corporation duly organized and existing under the IBCL
that is duly registered as a bank holding company under the BHC Act with its
principal place of business in Jasper, Dubois County, Indiana. GAHC owns all of
the outstanding common stock of Community.
E. Community is a banking corporation duly organized and existing under
the IFIA, chartered by the DFI, which is not a member of the Federal Reserve
System, with its principal banking office in Otwell, Pike County, Indiana.
F. German American is also party to an agreement providing for the
merger of Community with and into the Citizens State Bank of Petersburg,
Petersburg, Pike County, Indiana ("Citizens").
G. The parties desire to effect a transaction whereby FSB Bank will be
merged with and into Community (or into Citizens if the planned merger of
Community into Citizens has first occurred) and simultaneously FSB will be
merged with and into GAHC in consideration of the issuance of German American
Common Stock.
Agreements
In consideration of the premises and the mutual terms and provisions
set forth in this Agreement, the parties agree as follows.
-B 2-
<PAGE>
ARTICLE ONE
TERMS OF THE MERGERS & CLOSING
Section 1.01. The Holding Company Merger. Pursuant to the terms and
provisions of this Agreement, the IBCL and the Plan of Merger attached hereto as
Appendix A and incorporated herein by reference (the "Holding Company Plan of
Merger"), FSB shall merge with and into GAHC (the "Holding Company Merger")
simultaneously with the Bank Merger (as defined below). FSB shall be the
"Merging Holding Company" in the Holding Company Merger and its corporate
identity and existence, separate and apart from GAHC, shall cease on
consummation of the Holding Company Merger. GAHC shall be the "Surviving Holding
Company" in the Holding Company Merger, and its name shall not be changed
pursuant to the Holding Company Merger.
Section 1.02. Effect of the Holding Company Merger. The Holding Company
Merger shall have all the effects provided by the IBCL.
Section 1.03. The Holding Company Merger - Conversion of Shares.
(a) At the time of filing with the Indiana Secretary of State of
appropriate Articles of Merger with respect to the Holding Company Merger or at
such later time as shall be specified by such Articles of Merger (the "Effective
Time"):
(i) Each of the not more than 48,916 shares of common stock,
no par value, of FSB ("FSB Common") that are issued and outstanding
immediately prior to the Effective Time shall thereupon and without
further action be converted into shares of common stock, $10 par value,
$1 stated value, of German American ("German American Common") at the
Exchange Ratio which shall be calculated as set forth in this Section
1.03(a)(i). FSB's shareholders of record at the time the Merger shall
become effective, for the shares of FSB Common then held by them,
respectively, shall be allocated and entitled to receive (upon
surrender of certificates representing said shares for cancellation)
shares of German American Common, which total number of shares of
German American Common shall have a value (as hereinafter determined)
equal to 150% of the sum of (A) the shareholders' equity of FSB
determined in accordance with generally accepted accounting principles
consistently applied at June 30,1997 plus (or minus) (B) the amount of
net income (loss) retained after payment of dividends, if any, but
before securities transactions gains of FSB (as determined in
accordance with generally accepted accounting principles consistently
applied to the satisfaction of German American) from June 30, 1997, to
the end of the month immediately preceding the Closing Date (as that
term is defined in Section 1.09), plus (C) if the Board of Directors of
FSB or its subsidiary FSB Bank shall establish the executive bonus pool
described in Section 4.01(a)(vi)(B) of this Agreement (the "Bonus
Pool"), and if FSB and FSB Bank shall thereby obtain a release from the
Chief Executive Officer of all employment-related claims, the after-tax
amount of any bonus payment (not exceeding $75,000, plus an allowance
in lieu of vacation time not to exceed $4,060 pre-tax) that may be paid
or payable to FSB Bank's present Chief Executive Officer thereunder.
Fees and expenses incurred by FSB in connection with the transactions
contemplated by this Agreement, regardless of whether such fees and
expenses have been paid or accrued as of the end of the month preceding
the Closing Date (but only to the extent that such fees and expenses
exceed $15,000), and any amounts paid or payable before or after the
Effective Time pursuant
-B 3-
<PAGE>
to the Bonus Pool, shall be considered in determining the net income
(loss) of FSB for purposes of computing the consideration payable to
FSB shareholders hereunder ("Merger Consideration").
For purposes of establishing the number of shares of German
American Common into which each share of FSB Common shall be converted
at the Effective Time (the "Exchange Ratio"), each share of German
American Common shall be valued at the average of the lowest closing
asked prices and highest closing bid prices of German American Common
as reported by the NASDAQ National Market System for each trading day
within the period of ten trading days that ends on the second business
day preceding the Closing Date (as defined by Section 1.09 hereof)
(such period being hereafter referred to as the "Valuation Period" and
the value being hereafter referred to as the "Closing Value"). Such
value shall then be divided into the aggregate Merger Consideration to
establish (to the nearest whole share) the Exchange Ratio.
(ii) The shares of GAHC issued and outstanding immediately
prior to the Effective Time shall continue to be issued and outstanding
shares of GAHC.
(b) No fractional shares of German American Common shall be issued and,
in lieu thereof, holders of shares of FSB Common who would otherwise be entitled
to a fractional share interest (after taking into account all shares of FSB
Common held by such holder) shall be paid an amount in cash equal to the product
of such fractional share and the Closing Value.
(c) At the Effective Time, all of the outstanding shares of FSB Common,
by virtue of the Holding Company Merger and without any action on the part of
the holders thereof, shall no longer be outstanding and shall be canceled and
retired and shall cease to exist, and each holder of any certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of FSB Common (the "Certificates") shall thereafter cease to
have any rights with respect to such shares, except the right of such holders to
receive, without interest, the Merger Consideration upon the surrender of such
Certificate or Certificates in accordance with Section 1.08.
(d) At the Effective Time, each share of FSB Common, if any, held in
the treasury of FSB or by any direct or indirect subsidiary of FSB (other than
shares held in trust accounts for the benefit of others or in other fiduciary,
nominee or similar capacities) immediately prior to the Effective Time shall be
canceled.
(e) At the Effective Time, the shares of common stock of Community
outstanding immediately prior to the Effective Time shall be unchanged by the
Holding Company Merger and shall be deemed owned by the Surviving Holding
Company.
(f) If any holders of FSB Common dissent from the Holding Company
Merger and demand dissenters' rights under the IBCL, any issued and outstanding
shares of FSB Common held by such dissenting holders shall not be converted as
described in this Section 1.03 but shall from and after the Effective Time
represent only the right to receive such consideration as may be determined to
be due to such dissenting holders pursuant to the IBCL; provided, however, that
each share of FSB Common outstanding immediately prior to the Effective Time and
held by a dissenting holder who shall, after the Effective Time, withdraw his
demand for dissenters' rights or lose his right to exercise dissenters' rights
shall have only such rights as provided under the IBCL.
-B 4-
<PAGE>
Section 1.04. The Bank Merger. Pursuant to the terms and provisions of
this Agreement, the IFIA, and the Plan of Merger attached hereto as Appendix B
and incorporated herein by reference (the "Bank Plan of Merger"), and
simultaneously with the Holding Company Merger, FSB Bank shall merge with and
into Community (or, if the merger of Community into Citizens has first occurred,
into Citizens) (the "Bank Merger"). FSB Bank shall be the "Merging Bank" in the
Bank Merger and its corporate identity and existence, separate and apart from
Community (or Citizens, as the case may be), shall cease on consummation of the
Bank Merger. Community (or Citizens as the case may be) shall be the "Surviving
Bank" and shall continue its corporate existence under its charter under the
provisions of the IFIA and the Bank Merger shall effect no change in the
corporate name of Community.
Section 1.05. Effect of the Bank Merger. The Bank Merger shall have all of
the effects provided by the IFIA.
Section 1.06. The Bank Merger - No Conversion of Shares. At the
Effective Time, the shares of Community (or Citizens as the case may be) that
were issued and outstanding immediately prior to the Bank Merger shall continue
to be issued and outstanding, and the shares of FSB Bank shall be canceled.
Section 1.07. The Closing. The closing of the Mergers (the "Closing") shall
take place at the offices of Leagre Chandler & Millard (or at such other place
as the parties may agree) at 9:00 A.M. Eastern Standard
Time on the Closing Date described in Section 1.09 of this Agreement.
Section 1.08. Exchange Procedures; Surrender of Certificates.
(a) Fifth Third Bank, Cincinnati, Ohio, shall act as Exchange Agent in the
Holding Company Merger (the "Exchange Agent").
(b) As soon as reasonably practicable but in no event more than five
working days after the Effective Time, the Exchange Agent shall mail to each
record holder of any Certificate or Certificates whose shares were converted
into the right to receive a pro rata portion of the Merger Consideration, a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Exchange Agent and shall be in such form and have
such other provisions as German American may reasonably specify) (each such
letter the "Merger Letter of Transmittal") and instructions for use in effecting
the surrender of the Certificates in exchange for the Merger Consolidation. As
soon as reasonably practical but in no event more than fifteen days after
surrender to the Exchange Agent of a Certificate, together with a Merger Letter
of Transmittal duly executed and any other required documents, the Exchange
Agent shall transmit to the holder of such Certificate certificate(s)
representing shares of German American Common in an aggregate amount computed at
the Exchange Ratio plus a check representing any cash payable in lieu of
issuance of a fractional share. No interest on the Merger Consideration issuable
upon the surrender of the Certificates shall be paid or accrued for the benefit
of holders of Certificates. If the Merger Consideration is to be issued to a
person other than a person in whose name a surrendered Certificate is
registered, it shall be a condition of issuance that the surrendered Certificate
shall be properly endorsed or otherwise in proper form for transfer and that the
person requesting such issuance shall pay to the Exchange Agent any required
transfer or other taxes or establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not applicable. German American reserves the
right in all cases to require that a surety bond on terms and in an amount
satisfactory to German American be provided to German American at the expense of
-B 5-
<PAGE>
the FSB shareholder in the event that such shareholder claims loss of a
Certificate and requests that German American waive the requirement for
surrender of such Certificate.
(c) No dividends that are otherwise payable on shares of German
American Common constituting the Merger Consideration shall be paid to persons
entitled to receive such shares of German American Common until such persons
surrender their Certificates. Upon such surrender, there shall be paid to the
person in whose name the shares of German American Common shall be issued any
dividends which shall have become payable with respect to such shares of German
American Common (without interest and less the amount of taxes, if any, which
may have been imposed thereon), between the Effective Time and the time of such
surrender.
Section 1.09. The Closing Date. The Closing shall take place on the
last business day of the month during which each of the conditions in Sections
6.01(d) and 6.02(d) is satisfied or waived by the appropriate party, or on such
later or earlier date as FSB and German American may agree (the "Closing Date").
The parties shall use their best efforts to cause the Effective Time of both
Mergers to be as of the first day of the calendar month that follows the month
in which the Closing occurs.
Section 1.10. Actions At Closing.
(a) At the Closing, FSB shall deliver to German American:
(i) a certified copy of the Articles of Incorporation and
Bylaws of FSB, as amended, and a certified copy of the Articles of
Incorporation and Bylaws of FSB Bank, as amended;
(ii) a certificate or certificates signed by the chief
executive officer of FSB and FSB Bank stating, to the best of his
knowledge and belief, after due inquiry, that (A) each of the
representations and warranties contained in Article Two hereof is true
and correct in all material respects at the time of the Closing with
the same force and effect as if such representations and warranties had
been made at Closing, and (B) FSB and FSB Bank have performed and
complied in all material respects, unless waived by German American,
with all of their obligations and agreements required to be performed
hereunder prior to the Closing Date;
(iii) certified copies of the resolutions of FSB's Board of
Directors and shareholders, approving and authorizing the execution of
this Agreement and the Plan of Merger and authorizing the consummation
of the Holding Company Merger;
(iv) a certified copy of the resolutions FSB Bank's Board of
Directors and shareholder, as required for valid approval of the
execution of this Agreement and the consummation of the Bank Merger;
(v) a certificate of the Indiana Secretary of State, dated a
recent date, stating that FSB is duly organized and exists under the
IBCL;
(vi) a certificate of the Indiana Secretary of State, dated a
recent date, stating that FSB Bank is duly organized and exists under
the IFIA; and
-B 6-
<PAGE>
(vii) the legal opinion of Bose McKinney & Evans, counsel for
FSB to the effect set forth as Exhibit 1.10(a)(vii).
(b) At the Closing, German American shall deliver to FSB:
(i) a certificate signed by the Chief Executive Officer of
German American stating, to the best of his knowledge and belief, after
due inquiry, that (A) each of the representations and warranties
contained in Article Three is true and correct in all material respects
at the time of the Closing with the same force and effect as if such
representations and warranties had been made at Closing and (B) German
American and Community have performed and complied in all material
respects, unless waived by FSB with all of its obligations and
agreements required to be performed hereunder prior to the Closing
Date;
(ii) a certified copy of the resolutions of German American's
Board of Directors authorizing the execution of this Agreement and the
Plan of Merger and the consummation of the Holding Company Merger;
(iii) a certified copy of the resolutions of Community's (or
Citizens', as the case may be) Board of Directors and shareholder, as
required for valid approval of the execution of this Agreement and the
consummation of the Bank Merger;
(iv) the legal opinion of Leagre Chandler & Millard, counsel for German
American, in the form attached hereto as Exhibit 1.10(b)(iv) ; and
(v) certificates of the Indiana Secretary of State, dated a
recent date, stating that German American exists under the IBCL and
that Community exists under the IFIA.
(c) At the Closing, the parties shall insert the Exchange Ratio
determined in accordance with Section 1.03 of this Agreement into the Plan of
Merger, and shall execute and/or deliver to one another such Plan of Merger and
such other documents and instruments and take such other actions as shall be
necessary or appropriate to consummate the Mergers.
ARTICLE TWO
REPRESENTATIONS AND WARRANTIES OF FSB AND FSB BANK
FSB and FSB Bank hereby severally make the following representations
and warranties:
Section 2.01. Organization and Capital Stock.
(a) FSB is a corporation duly organized and validly existing under the
IBCL and has the corporate power to own all of its property and assets, to incur
all of its liabilities and to carry on its business as now being conducted.
-B 7-
<PAGE>
(b) FSB Bank is a corporation duly incorporated and validly existing
under the IFIA and has the corporate power to own all of its property and
assets, to incur all of its liabilities and to carry on its business as now
being conducted.
(c) FSB has authorized capital stock of (i) 3,000,000 shares of FSB
Common, no par value, of which, as of the date of this Agreement, 48,916 shares
are issued and outstanding, and (ii) 2,000,000 shares of preferred stock, none
of which have been issued. All such shares of FSB Common are duly and validly
issued and outstanding, fully paid and non-assessable. None of the outstanding
shares of FSB Common has been issued in violation of any preemptive rights of
the current or past shareholders of FSB or in violation of any applicable
federal or state securities laws or regulations.
(d) FSB Bank has authorized capital stock of 49,000 shares of common
stock, $.01 stated value, all of which shares are issued and outstanding ("FSB
Bank Common"). All of such shares of FSB Bank Common are duly and validly issued
and outstanding and are fully paid and nonassessable. None of the outstanding
shares of FSB Bank Common has been issued in violation of any preemptive rights
of the current or past shareholders of FSB Bank or in violation of any
applicable federal or state securities laws or regulations.
(e) There are no shares of capital stock or other equity securities of
FSB or FSB Bank authorized, issued or outstanding (except as set forth in this
Section 2.01) and no outstanding options, warrants, rights to subscribe for,
calls, puts, or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of the capital
stock of FSB or FSB Bank, or contracts, commitments, understandings or
arrangements by which FSB or FSB Bank are or may be obligated to issue
additional shares of its capital stock or options, warrants or rights to
purchase or acquire any additional shares of its capital stock.
Section 2.02. Authorization; No Defaults. The Boards of Directors of
FSB and FSB Bank have each, by all appropriate action, approved this Agreement,
the applicable Plan of Merger and the Merger contemplated thereby and have
authorized the execution of this Agreement and the applicable Plan of Merger on
their behalf by their duly authorized officers and the performance by FSB and
FSB Bank of its obligations hereunder. Nothing in the Articles of Incorporation
or Bylaws of FSB, as amended, or the Articles of Incorporation or Bylaws of FSB
Bank, as amended, or in any material agreement or instrument, or any decree,
proceeding, law or regulation (except as specifically referred to in or
contemplated by this Agreement) by or to which FSB or FSB Bank is bound or
subject, would prohibit FSB or FSB Bank from consummating, or would be violated
or breached by FSB's or FSB Bank's consummation of, this Agreement and the
Mergers and other transactions contemplated herein on the terms and conditions
herein contained. This Agreement has been duly and validly executed and
delivered by FSB and FSB Bank and constitutes a legal, valid and binding
obligation of FSB and FSB Bank, enforceable against FSB and FSB Bank in
accordance with its terms. Neither FSB nor FSB Bank is, nor will be by reason of
the consummation of the transactions contemplated herein, in material default
under or in material violation of any provision of, nor will the consummation of
the transactions contemplated herein afford any party a right to accelerate any
indebtedness under, its articles of incorporation or bylaws, any material
promissory note, indenture or other evidence of indebtedness or security
therefor, or any material lease, contract, or other commitment or agreement to
which it is a party or by which it or its property is bound.
Section 2.03. Subsidiaries. Except as otherwise disclosed in a confidential
writing delivered by FSB and FSB Bank to German American and executed by all the
parties concurrently with the execution of this
-B 8-
<PAGE>
Agreement (the "Disclosure Schedule") and except for the ownership by FSB of all
the capital stock of FSB Bank, neither FSB nor FSB Bank has (or has had at any
time in the last ten years) any direct or indirect ownership interest in any
corporation, partnership, limited liability company, joint venture or other
business.
Section 2.04. Financial Information.
(a) FSB has furnished to German American the consolidated balance
sheets of FSB as of December 31, 1996 and 1995 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
years then ended. Such financial statements were prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as may be reflected in the notes thereto), and fairly present the consolidated
financial position and the consolidated results of operations, changes in
shareholders' equity and cash flows of FSB in all material respects as of the
date and for the period indicated.
(b) FSB Bank has furnished to German American its Consolidated Reports
of Condition and Income as filed with the FFIEC for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997 (the "Call Reports"). The Call
Reports were prepared in accordance with the applicable regulatory instructions
on a consistent basis with previous such reports, and fairly present the
financial position and results of operations of FSB Bank in all material
respects as of the dates and for the periods indicated, subject, however, to
normal recurring year-end adjustments, none of which will be material.
(c) Neither FSB nor FSB Bank has any material liability, fixed or
contingent, except to the extent set forth in the financial statements and the
Call Reports described in subsections (a) and (b) of this Section 2.04
(collectively, the "FSB Financial Statements") or incurred in the ordinary
course of business since the date of the most recent balance sheet of FSB or FSB
Bank included in the FSB Financial Statements.
(d) FSB does not engage in the lending business (except by and through
FSB Bank) or any other business or activity other than that which is incident to
its ownership of all the capital stock of FSB Bank, and does not own any
investment securities (except the capital stock of FSB Bank).
Section 2.05. Absence of Changes. Since December 31, 1996, and except
to the extent reflected in the Call Reports, there has not been any material
adverse change in the financial condition, the results of operations or the
business of FSB or FSB Bank, taken as a whole.
Section 2.06. Absence of Agreements with Banking Authorities. Except as
disclosed in the Disclosure Schedule, neither FSB nor FSB Bank is subject to any
order (other than orders applicable to bank holding companies or banks
generally) and neither is a party to any agreement or memorandum of
understanding with any federal or state agency charged with the supervision or
regulation of banks or bank holding companies, including without limitation, the
Federal Deposit Insurance Corporation (the "FDIC"), the FRB, and the DFI.
Section 2.07. Tax Matters. FSB and FSB Bank have filed all federal,
state and local tax returns due in respect of any of its business, income and
properties in a timely fashion and has paid or made provision for all amounts
shown due on such returns. All such returns fairly reflect the information
required to be presented therein in all material respects. All provisions for
accrued but unpaid taxes contained in the FSB Financial Statements were made in
accordance with generally accepted accounting principles.
-B 9-
<PAGE>
Section 2.08. Absence of Litigation. There is no material litigation,
claim or other proceeding pending or, to the knowledge of FSB, threatened,
before any judicial, administrative or regulatory agency or tribunal, to which
FSB or FSB Bank is a party or to which any of their properties are subject.
Section 2.09. Employment Matters.
(a) Except as disclosed in the Disclosure Schedule, neither FSB nor FSB
Bank is a party to or bound by any material contract arrangement or
understanding (written or otherwise) for the employment, retention or engagement
of any past or present officer, employee, agent, consultant or other person or
entity which, by its terms, is not terminable by FSB or FSB Bank, respectively,
on thirty (30) days' written notice or less without the payment of any amount by
reason of such termination.
(b) FSB and FSB Bank are and have been in material compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including, without limitation, any
such laws respecting employment discrimination and occupational safety and
health requirements, and (i) neither FSB nor FSB Bank is engaged in any unfair
labor practice; (ii) there is no unfair labor practice complaint against FSB or
FSB Bank pending or, to the knowledge of FSB, threatened before the National
Labor Relations Board; (iii) there is no labor dispute, strike, slowdown or
stoppage actually pending or, to the knowledge of FSB, threatened against or
directly affecting FSB or FSB Bank; and (iv) neither FSB nor FSB Bank has
experienced any material work stoppage or other material labor difficulty during
the past five years.
(c) Except as set forth in the Disclosure Schedule, neither the
execution nor the delivery of this Agreement, nor the consummation of any of the
transactions contemplated hereby other than the Bonus Pool, will (i) result in
any payment (including without limitation severance, unemployment compensation
or golden parachute payment) becoming due to any director or employee of FSB or
FSB Bank from either of such entities, (ii) increase any benefit otherwise
payable under any of their employee plans or (iii) result in the acceleration of
the time of payment of any such benefit. No amounts paid or payable by FSB or
FSB Bank to or with respect to any employee or former employee of FSB of FSB
Bank will fail to be deductible for federal income tax purposes by reason of
Section 280G of the Internal Revenue Code of 1986, as amended ("Code") or
otherwise.
Section 2.10. Reports. Since January 1, 1994, FSB and FSB Bank have
filed all reports, notices and other statements, together with any amendments
required to be made with respect thereto, if any, that they were required to
file with (i) the Securities and Exchange Commission ("SEC"), (ii) the FRB,
(iii) the FDIC, (iv) the DFI and (v) any other governmental authority with
jurisdiction over FSB or FSB Bank. As of their respective dates, each of such
reports and documents, including the financial statements, exhibits and
schedules thereto, complied in all material respects with the relevant statutes,
rules and regulations enforced or promulgated by the regulatory authority with
which they were filed.
Section 2.11. Investment Portfolio. All United States Treasury
securities, obligations of other United States Government agencies and
corporations, obligations of States and political subdivisions of the United
States and other investment securities held by FSB Bank, as reflected in the
Call Reports, are carried on the books of FSB Bank in accordance with generally
accepted accounting principles, consistently applied. FSB Bank does not engage
in activities that would require that it establish a trading account under
applicable regulatory guidelines and interpretations.
-B 10-
<PAGE>
Section 2.12. Loan Portfolio. All loans and discounts shown in the Call
Reports, or which were entered into after September 30, 1997, but before the
Closing Date, were and will be made in all material respects for good, valuable
and adequate consideration in the ordinary course of the business of FSB Bank,
in accordance in all material respects with FSB Bank's lending policies and
practices unless otherwise approved by FSB Bank's Board of Directors, and are
not, to FSB Bank's knowledge, subject to any material defenses, set offs or
counterclaims, including without limitation any such as are afforded by usury or
truth in lending laws, except as may be provided by bankruptcy, insolvency or
similar laws or by general principles of equity. The notes or other evidences of
indebtedness evidencing such loans and all forms of pledges, mortgages and other
collateral documents and security agreements are and will be, in all material
respects, enforceable, valid, true and genuine and what they purport to be. FSB
Bank has complied and will through the Closing Date continue to comply with all
laws and regulations relating to such loans, or to the extent there has not been
such compliance, such failure to comply will not materially interfere with the
collection of any such loan. FSB Bank has not sold, purchased or entered into
any loan participation arrangement except where such participation is on a pro
rata basis according to the respective contributions of the participants to such
loan amount. FSB has no knowledge that any condition of property in which FSB
Bank has an interest as collateral to secure a loan or that is held as an asset
of any trust violates the Environmental Laws (defined in Section 2.15) in any
material respect or obligates FSB, or FSB Bank, or the owner or operator of such
property to remedy, stabilize, neutralize or otherwise alter the environmental
condition of such property.
Section 2.13. ERISA.
(a) Except as disclosed in the Disclosure Schedule, no person
participates in any "employee welfare benefit plan" or "employee pension benefit
plan" (as those terms are respectively defined in Sections 3(1) and 3(2) of the
Employee Retirement Income Security Act of 1974 ("ERISA")), nor may any person
reasonably expect to participate in any such plan, in either case, on account of
his or her past or present employment with FSB or FSB Bank. FSB and FSB Bank do
not maintain any retirement or deferred compensation plan, savings, incentive,
stock option or stock purchase plan, unemployment compensation plan, vacation
pay, severance pay, bonus or benefit arrangement, insurance or hospitalization
program or any other fringe benefit arrangements (referred to collectively
hereinafter as "fringe benefit arrangements") for any past or present employee,
consultant or agent of FSB or FSB Bank, whether pursuant to contract,
arrangement, custom or informal understanding, which does not constitute an
"employee benefit plan" (as defined in Section 3(3) of ERISA), except as listed
in the Disclosure Schedule.
(b) During the past sixty months, FSB has not maintained any employee
welfare benefit plans or employee pension benefit plans except for plans listed
on the Disclosure Schedule. There have been no amendments to any of the employee
pension benefit plans, employee welfare benefit plans or fringe benefit
arrangements listed on the Disclosure Schedule since December 31, 1994.
(c) All employee pension benefit plans, employee welfare benefit plans
and fringe benefit arrangements listed on the Disclosure Schedule comply in form
and in operation in all material respects with all applicable requirements of
law and regulation. All employee pension benefit plans maintained by FSB and FSB
Bank comply in form and in operation with all applicable requirements of
Sections 401(a) and 401(k) of the Code. Except as disclosed in the Disclosure
Schedule, neither FSB nor FSB Bank has (i) incurred any liability for tax under
Section 4971 of the Code on account of any accumulated funding deficiency and no
plan or
-B 11-
<PAGE>
arrangement listed in the Disclosure Schedule has incurred any accumulated
funding deficiency within the meaning of Section 412 or 418(B) of the Code; (ii)
applied for or obtained a waiver by the IRS of any minimum funding requirement
under Section 412 of the Code; (iii) become subject to any disallowance of
deductions under Sections 419 or 419(A) of the Code; (iv) incurred any liability
for excise tax under Sections 4972, 4975, or 4976 of the Code or any liability
under Section 406 of ERISA; (v) incurred any liability to the Pension Benefit
Guaranty Corporation; (vi) had a reportable event (within the meaning of Section
4043 of ERISA); or (vii) breached any of the duties or failed to perform any of
the obligations imposed upon the fiduciaries or plan administrators under Title
I or ERISA.
(d) A true and correct copy of each of the plans and arrangements
listed on the Disclosure Schedule as in effect on the date hereof and each trust
agreement relating to each such plan and arrangement, has been supplied to
German American. A true and correct copy of the annual report (as described in
Section 103 of ERISA) most recently filed for each plan listed in the Disclosure
Schedule has been supplied to German American, and there have been no material
changes in the financial condition in the respective plans from that stated in
the annual reports supplied. In the case of any plan or arrangement which is not
in written form, the Disclosure Schedule includes an accurate description of
such plan or arrangement. Neither FSB nor FSB Bank would have any liability or
contingent liability if any plan or arrangement listed on the Disclosure
Schedule (including without limitation the payment by FSB Bank of premiums for
health care coverage for active employees or retirees) were terminated or if FSB
or FSB Bank were to cease its participation therein. Except as disclosed in the
Disclosure Schedule, and to the best of the knowledge of the present
non-employee members of the Board of Directors of FSB and of FSB Bank (without
any independent review of the books and records of FSB and FSB Bank or the
making of any other independent inquiry), and to the best of the knowledge of
the President of FSB Bank (after review of the books and records of FSB Bank but
without the obligation to make any further independent inquiry), neither FSB nor
FSB Bank nor any of their affiliates or persons acting on their behalf have made
any written or oral promises or statements to employees or retirees who are now
living which might reasonably have been construed by them as promising
"lifetime" or other vested rights to benefits under any plan or arrangement that
cannot be unilaterally terminated or modified by FSB Bank or FSB at their
discretion at any time without further obligation.
(e) Except as disclosed in the Disclosure Schedule, in the case of each
plan or arrangement listed in the Disclosure Schedule which is a defined benefit
plan (within the meaning of Section 3(35) of ERISA), the net fair market value
of the assets held to fund such plan or arrangement equals or exceeds the
present value of all accrued benefits thereunder, both vested and nonvested, as
determined in accordance with an actuarial costs method acceptable under section
3(31) of ERISA.
(f) On a timely basis, FSB and FSB Bank have made all contributions or
payments to or under each plan or arrangement listed in the Disclosure Schedule
as required pursuant to each such plan or arrangement, any collective bargaining
agreements or other provision for reserves to meet contributions and payments
under such plans or arrangements which have not been made because they are not
yet due.
(g) None of the plans or arrangements listed in the Disclosure Schedule
owns (or has owned within the past 60 months) any FSB Common or other securities
of FSB, FSB Bank or a related entity.
Section 2.14. Title to Properties; Insurance. FSB and FSB Bank have
marketable title, insurable at standard rates, free and clear of all liens,
charges and encumbrances (except taxes which are a lien but not yet
-B 12-
<PAGE>
payable and liens, charges or encumbrances reflected in the FSB Financial
Statements and easements, rights-of-way, and other restrictions which are not
material and, in the case of Other Real Estate Owned, as such real estate is
internally classified on the books of FSB Bank, rights of redemption under
applicable law) to all real properties reflected on the FSB Financial Statements
as being owned by FSB or FSB Bank, respectively. All material leasehold
interests used by FSB and FSB Bank in their respective operations are held
pursuant to lease agreements which are valid and enforceable in accordance with
their terms. All such properties comply in all material respects with all
applicable private agreements, zoning requirements and other governmental laws
and regulations relating thereto and there are no condemnation proceedings
pending or, to the knowledge of FSB, threatened with respect to such properties.
FSB and FSB Bank have valid title or other ownership or use rights under
licenses to all material intangible personal or intellectual property used by
FSB and FSB Bank in their respective business free and clear of any claim,
defense or right of any other person or entity which is material to such
property, subject only to rights of the licensor pursuant to applicable license
agreements, which rights do not materially adversely interfere with the use or
enjoyment of such property. All insurable properties owned or held by FSB or FSB
Bank are insured in such amounts, and against fire and other risks insured
against by extended coverage and public liability insurance, as is customary
with companies of the same size and in the same business.
Section 2.15. Environmental Matters.
(a) As used in this Agreement, "Environmental Laws" means all local,
state and federal environmental, health and safety laws and regulations in all
jurisdictions in which FSB or FSB Bank has done business or owned property,
including, without limitation, the Federal Resource Conservation and Recovery
Act, the Federal Comprehensive Environmental Response, Compensation and
Liability Act, the Federal Clean Water Act, the Federal Clean Air Act, and the
Federal Occupational Safety and Health Act.
(b) Except as disclosed the Disclosure Schedule, neither (i) the
conduct by FSB and FSB Bank of operations at any property, nor (ii) any
condition of any property owned by FSB or FSB Bank within the past ten (10)
years and used in their business operations, nor (iii) to the knowledge of FSB
the condition of any property owned by them within the past ten (10) years but
not used in their business operations, nor (iv) to the knowledge of FSB the
condition of any property held by them as a trust asset within the past ten (10)
years, violates or violated Environmental Laws in any material respect, and no
condition or event has occurred with respect to any such property that, with
notice or the passage of time, or both, would constitute a material violation of
Environmental Laws or obligate (or potentially obligate) FSB or FSB Bank to
remedy, stabilize, neutralize or otherwise alter the environmental condition of
any such property. Neither FSB nor FSB Bank has received any notice from any
person or entity that FSB or FSB Bank or the operation of any facilities or any
property owned by either of them, or held as a trust asset, are or were in
violation of any Environmental Laws or that either of them is responsible (or
potentially responsible) for the cleanup of any pollutants, contaminants, or
hazardous or toxic wastes, substances or materials at, on or beneath any such
property.
Section 2.16. Compliance with Law. FSB and FSB Bank each have all
material licenses, franchises, permits and other governmental authorizations
that are legally required to enable it to conduct their respective businesses as
presently conducted and are in compliance in all material respects with all
applicable laws and regulations, the violation of which would be material.
-B 13-
<PAGE>
Section 2.17. Brokerage. Except as set forth in the Disclosure
Schedule, there are no claims, agreements, arrangements, or understandings
(written or otherwise) for brokerage commissions, finders' fees or similar
compensation in connection with the Mergers payable by FSB or FSB Bank.
Section 2.18. Material Contracts. Except as set forth in the Disclosure
Schedule, neither FSB nor FSB Bank is a party to or bound by any oral or written
(i) material agreement, contract or indenture under which it has borrowed or
will borrow money (not including federal funds and money deposited, including
without limitation, checking and savings accounts and certificates of deposit
and borrowings from the FHLBB and the FRB); (ii) material guaranty of any
obligation for the borrowing of money or otherwise, excluding endorsements made
for collection and guarantees made in the ordinary course of business and
letters of credit issued in the ordinary course of business; (iii) contract,
arrangement or understanding with any present or former officer, director or
shareholder (except for deposit or loan agreements entered into in the ordinary
course of business); (iv) material license, whether as licensor or licensee; (v)
contract or commitment for the purchase of materials, supplies or other real or
personal property in an amount in excess of $10,000 or for the performance of
services over a period of more than thirty days and involving an amount in
excess of $10,000; (vi) joint venture or partnership agreement or arrangement;
(vii) contract arrangement or understanding with any present or former
consultant, advisor, investment banker, broker, attorney or accountant; or
(viii) contract, agreement or other commitment not made in the ordinary course
of business.
Section 2.19. Compliance with Americans with Disabilities Act. (a) To
the best of FSB's knowledge, FSB and FSB Bank and their respective properties
(including those held by either of them in a fiduciary capacity) are in
compliance with all applicable provisions of the Americans with Disabilities Act
(the "ADA"), and (b) no action under the ADA against FSB, FSB Bank or any of its
properties has been initiated nor, to the best of FSB's knowledge, has been
threatened or contemplated.
Section 2.20. Statements True and Correct. None of the information
supplied or to be supplied by FSB or FSB Bank for inclusion in any documents to
be filed with the FRB, the SEC, the DFI, the FDIC, or any other regulatory
authority in connection with the Mergers will, at the respective times such
documents are filed, be false or misleading with respect to any material fact or
omit to state any material fact necessary in order to make the statements
therein not misleading.
Section 2.21. FSB's Knowledge. With respect to representations and
warranties herein that are made or qualified as being made "to the knowledge of
FSB" or words of similar import, it is understood and agreed that matters within
the knowledge of the directors and the officers of FSB and FSB Bank shall be
considered to be within the knowledge of FSB.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF GERMAN AMERICAN, GAHC AND COMMUNITY
German American, GAHC and Community hereby severally make the following
representations and warranties:
Section 3.01. Organization and Capital Stock.
-B 14-
<PAGE>
(a) German American is a corporation duly incorporated and validly
existing under the IBCL and has the corporate power to own all of its property
and assets, to incur all of its liabilities and to carry on its business as now
being conducted.
(b) GAHC is a corporation duly incorporated and validly existing under
the IBCL and has the corporate power to own all of its property and assets, to
incur all of its liabilities and to carry on its business as now being
conducted. All of the capital stock of GAHC is owned by German American.
(c) Community is a corporation duly incorporated and validly existing
under the IFIA and has the corporate power to own all of its property and
assets, to incur all of its liabilities and to carry on its business as now
being conducted. All of the capital stock of Community is owned by GAHC.
(d) German American has authorized capital stock of (i) 20,000,000
shares of German American Common, $10 par value, $1 stated value, of which, as
of the date of this Agreement, 5,096,209 shares are issued and outstanding, and
approximately 254,810 shares are to be issued and delivered on December 20, 1997
pursuant to German American's 1997 five percent stock dividend, and (ii) 500,000
shares of preferred stock, $10.00 par value per share, of which no shares are
issued and outstanding. All of the issued and outstanding shares of German
American Common are duly and validly issued and outstanding, fully paid and
non-assessable.
(e) Community has authorized capital stock of 4,000 shares of common
stock, $25.00 par value per share (the "Community Common"). As of the date of
this Agreement, all of the shares of Community Common are duly and validly
issued and outstanding, fully paid, and owned by German American.
(f) The shares of German American Common that are to be issued to the
shareholders of FSB pursuant to the Holding Company Merger have been duly
authorized and, when issued in accordance with the terms of this Agreement, will
be validly issued and outstanding, fully paid and non-assessable.
Section 3.02. Authorization. The Boards of Directors of German
American, GAHC and Community have each, by all appropriate action, approved this
Agreement and the Mergers and authorized the execution hereof on their behalf by
their duly authorized officers and the performance by each such entity of its
obligations hereunder. Nothing in the Articles of Incorporation or Bylaws of
German American, GAHC or Community, as amended, or any other agreement,
instrument, decree, proceeding, law or regulation (except for the possible need
for approval of the issuance of additional shares pursuant to the Merger by the
shareholders of German American under the National Market System listing
standards of NASDAQ, and except as specifically referred to in or contemplated
by this Agreement) by or to which either of them or any of their subsidiaries is
bound or subject would prohibit German American, GAHC or Community from entering
into and consummating this Agreement and the Mergers on the terms and conditions
herein contained. This Agreement has been duly and validly executed and
delivered by German American, GAHC and Community and constitutes a legal, valid
and binding obligation of German American and Community enforceable against
German American and Community in accordance with its terms and no other
corporate acts or proceedings are required by law to be taken by German
American, GAHC or Community to authorize the execution, delivery and performance
of this Agreement. Except for any requisite approvals of the FRB, FDIC and DFI,
and the SEC's order declaring effective German American's registration statement
under the Securities Act of 1933 with
-B 15-
<PAGE>
respect to the Holding Company Merger, no notice to, filing with, authorization
by, or consent or approval of, any federal or state regulatory authority is
necessary for the execution and delivery of this Agreement or the consummation
of the Mergers by German American, GAHC or Community.
Section 3.03. Subsidiaries. Each of German American's subsidiaries is
duly organized and validly existing under the laws of the jurisdiction of its
incorporation and has the corporate power to own its respective properties and
assets, to incur its respective liabilities and to carry on its respective
business as now being conducted.
Section 3.04. Financial Information. The consolidated balance sheet of
German American and its subsidiaries as of December 31, 1996 and related
consolidated statements of income, changes in shareholders' equity and cash
flows for the year then ended together with the notes thereto, included in
German American's most recent Annual Report on Form 10-K, as filed with the SEC
(the "10-K"), and the unaudited consolidated balance sheets of German American
and its subsidiaries as of March 31, June 30, and September 30, 1997 and the
related unaudited consolidated statements of income, changes in shareholders'
equity and cash flows for the periods then ended included in German American's
Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30, and
September 30, 1997 as filed with the SEC (the "10-Q Reports") (collectively the
financial statements and notes thereto included in the 10-Q Reports and the 10-K
are sometimes referred to as the "German American Financial Statements"), have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as disclosed therein) and fairly present
the consolidated financial position and the consolidated results of operations,
changes in shareholders' equity and cash flows of German American and its
consolidated subsidiaries as of the dates and for the periods indicated
(subject, in the case of interim financial statements, to normal recurring
year-end adjustments, none of which will be material).
Section 3.05. Absence of Changes. Since December 31, 1996 (and except
to the extent reflected in the 10-Q Reports), there has not been any material
adverse change in the consolidated financial condition or the consolidated
results of operations or the business of German American and its subsidiaries,
taken as a whole.
Section 3.06. Reports. Since January 1, 1994 (or, in the case of
subsidiaries of German American, the date of acquisition thereof by German
American, if later), German American and each of its subsidiaries have filed all
reports, notices and other statements, together with any amendments required to
be made with respect thereto, that it was required to file with (i) the SEC,
(ii) the FRB, (iii) the FDIC, (iv) the DFI, (v) any applicable state securities
or banking authorities, and (vi) any other governmental authority with
jurisdiction over German American or any of its subsidiaries. As of their
respective dates, each of such reports and documents, as amended, including the
financial statements, exhibits and schedules thereto, complied in all material
respects with the relevant statutes, rules and regulations enforced or
promulgated by the regulatory authority with which they were filed. None of the
information included in such reports or documents was, at their respective dates
of filing, false or misleading with respect to any material fact, or omitted to
state any material fact necessary in order to make the statements therein not
misleading, on a consolidated basis, taking into account the circumstances under
which such reports or documents were filed and considering the total mix of
information that was at the time publicly available concerning German American
and its subsidiaries.
Section 3.07. Absence of Litigation. There is no material litigation, claim
or other proceeding pending or, to the knowledge of German American, threatened,
before any judicial, administrative or regulatory agency
-B 16-
<PAGE>
or tribunal against German American or any of its subsidiaries, or to which the
property of German American or any of its subsidiaries is subject, which is
required to be disclosed in SEC reports under Item 103 of Regulation S-K, and
which has not been so disclosed.
Section 3.08. Absence of Agreements with Banking Authorities. Neither
German American nor any of its subsidiaries is subject to any order (other than
orders applicable to bank holding companies or banks generally) or is a party to
any agreement or memorandum of understanding with any federal or state agency
charged with the supervision or regulation of banks or bank holding companies,
including without limitation the FDIC, the DFI and the FRB.
Section 3.09. Compliance with Law. German American and its subsidiaries
have all material licenses, franchises, permits and other governmental
authorizations that are legally required to enable them to conduct their
respective businesses as presently conducted and are in compliance in all
material respects with all applicable laws and regulations, the violation of
which would be material.
ARTICLE FOUR
COVENANTS OF FSB AND FSB BANK
Section 4.01. Conduct of Business.
(a) FSB and FSB Bank shall continue to carry on their respective
businesses, and shall discharge or incur obligations and liabilities, only in
the ordinary course of business as heretofore conducted and, by way of
amplification and not limitation with respect to such obligation, neither FSB
nor FSB Bank will, without the prior written consent of German American:
(i) declare or pay any dividend or make any other distribution to
shareholders, whether in cash, stock or other property; or
(ii) issue (or agree to issue) any common or other capital
stock or any options, warrants or other rights to subscribe for or
purchase common or any other capital stock or any securities
convertible into or exchangeable for any capital stock; or
(iii) directly or indirectly redeem, purchase or otherwise
acquire (or agree to redeem, purchase or acquire) (except for shares
acquired in satisfaction of a debt previously contracted) any of their
own common or any other capital stock; or
(iv) effect a split, reverse split, reclassification, or other
similar change in, or of, any common or other capital stock or
otherwise reorganize or recapitalize; or
(v) change the Articles of Incorporation or Bylaws of FSB or the
Articles of Incorporation or Bylaws of FSB Bank; or
(vi) pay or agree to pay, conditionally or otherwise, any
bonus (other than bonuses for calendar year 1997 that, when aggregated
with other bonuses paid or payable with respect to 1997,
-B 17-
<PAGE>
would not exceed the aggregate amount of bonuses paid for calendar year
1996), additional compensation (other than ordinary and normal salary
increases consistent with past practices) or severance benefit or
otherwise make any changes out of the ordinary course of business with
respect to the fees or compensation payable or to become payable to
consultants, advisors, investment bankers, brokers, attorneys,
accountants, directors, officers or employees or, except as required by
law, adopt or make any change in any Employee Plan or other arrangement
or payment made to, for or with any of such consultants, advisors,
investment bankers, brokers, attorneys, accountants, directors,
officers or employees; provided, however, that (A) FSB and FSB Bank may
pay the fees, expenses and other compensation of consultants, advisors,
investment bankers, brokers, attorneys and accountants when, if, and as
earned in accordance with the terms of the contracts, arrangements or
understandings of FSB or FSB Bank specifically disclosed on the
Disclosure Schedule, and (B) FSB Bank may establish an executive bonus
pool to secure the continued attention of the executive officers of FSB
Bank to its affairs through the Effective Time (the "Bonus Pool") which
Bonus Pool shall be funded entirely from net income (loss) of FSB Bank
for periods ended on or before the last day of the month preceding the
Closing Date;
(vii) borrow or agree to borrow any material amount of funds
except in the ordinary course of business, or directly or indirectly
guarantee or agree to guarantee any material obligations of others
except in the ordinary course of business or pursuant to outstanding
letters of credit; or
(viii) make or commit to make any new loan or issue or commit
to issue any new letter of credit or any new or additional
discretionary advance under any existing line of credit, or purchase or
agree to purchase any interest in a loan participation, in aggregate
principal amounts (A) in excess of $100,000 to any one borrower (or
group of affiliated borrowers) or (B) that would cause FSB Bank's
credit extensions or commitments to any one borrower (or group of
affiliated borrowers) to exceed $250,000 (German American's consent to
credit extensions in the ordinary course of business will not be
unreasonably withheld); or
(ix) other than U.S. Treasury obligations or asset-backed
securities issued or guaranteed by United States governmental agencies
or financial institution certificates of deposit insured by the FDIC,
in either case having an average remaining life of five years or less
(except that maturities may extend to seven years on variable-rate
securities), purchase or otherwise acquire any investment security for
their own accounts, or sell any investment security owned by either of
them which is designated as held-to-maturity, or engage in any activity
that would require the establishment of a trading account for
investment securities; or
(x) increase or decrease the rate of interest paid on time
deposits, or on certificates of deposit, except in a manner and
pursuant to policies consistent with past practices; or
(xi) enter into or amend any agreement, contract or commitment
out of the ordinary course of business; or
(xii) except in the ordinary course of business, place on any
of their assets or properties any mortgage, pledge, lien, charge, or
other encumbrance; or
-B 18-
<PAGE>
(xiii) except in the ordinary course of business, cancel,
release, compromise or accelerate any material indebtedness owing to
FSB or FSB Bank, or any claims which either of them may possess, or
voluntarily waive any material rights with respect thereto; or
(xiv) sell or otherwise dispose of any real property or any
material amount of any personal property other than properties acquired
in foreclosure or otherwise in the ordinary course of collection of
indebtedness to FSB or FSB Bank; or
(xv) foreclose upon or otherwise take title to or possession
or control of any real property without first obtaining a phase one
environmental report thereon, prepared by a reliable and qualified
person or firm acceptable to German American, which indicates that the
property is free of pollutants, contaminants or hazardous or toxic
waste materials; provided, however, that neither FSB nor FSB Bank shall
be required to obtain such a report with respect to single family,
non-agricultural residential property of one acre or less to be
foreclosed upon unless it has reason to believe that such property
might contain such materials or otherwise might be contaminated; or
(xvi) commit any act or fail to do any act which will cause a
material breach of any material agreement, contract or commitment; or
(xvii) violate any law, statute, rule, governmental regulation
or order, which violation might have a material adverse effect on its
business, financial condition, or earnings; or
(xviii) purchase any real or personal property or make any
other capital expenditure where the amount paid or committed therefor
is in excess of $100,000 other than purchases of property made in the
ordinary course of business in connection with loan collection
activities or foreclosure sales in connection with any of FSB's or FSB
Bank's loans;
(xix) issue certificate(s) for shares of FSB Common to any FSB
shareholder in replacement of certificate(s) claimed to have been lost
or destroyed without first obtaining from such shareholder(s), at the
expense of such shareholder(s), a surety bond from a recognized
insurance company in an amount that would indemnify FSB (and its
successors) against lost certificate(s) (but not less than 150% of the
estimated per share value of the Merger Consideration under this
Agreement) per share of FSB Common, and obtaining a usual and customary
affidavit of loss and indemnity agreement from such shareholder(s);
provided, however, that FSB may waive the surety bond requirement in
connection with the issuance of replacement certificates to any
shareholder if the number of shares of FSB Common so reissued (together
with the number of shares previously reissued since October 1, 1997 to
such shareholder and all other shareholders who are affiliated or
associated with such shareholder) does not exceed an aggregate of 150
shares; or
(xx) hold a special, regular or annual meeting (or take action
by consent in lieu thereof) of the Board of Directors or the sole shareholder of
FSB Bank for the purpose of appointing or electing any new member to the Board
of Directors of FSB Bank (whether to fill a vacancy or otherwise) unless such
new member is approved in advance in writing by German American.
-B 19-
<PAGE>
(b) Neither FSB nor FSB Bank shall, without the prior written consent
of German American, engage in any transaction or take any other action that
would render untrue in any material respect any of the representations and
warranties of FSB or FSB Bank contained in Article Two hereof if such
representations and warranties were given as of the date of such transaction or
action.
(c) FSB shall promptly notify German American in writing of the
occurrence of any matter or event known to FSB or FSB Bank that is, or is likely
to become, materially adverse to the business, operations, properties, assets or
condition (financial or otherwise) of FSB or FSB Bank taken as a whole.
(d) Neither FSB nor FSB Bank shall (a) directly or indirectly solicit,
encourage or facilitate (nor shall they permit any of their respective officers,
directors, employees or agents directly or indirectly to solicit, encourage or
facilitate), including by way of furnishing information other than the terms of
this Agreement, any inquiries or proposals from third parties for a merger,
consolidation, share exchange or similar transaction involving FSB or FSB Bank
or for the acquisition of the stock or substantially all of the assets or
business of FSB or FSB Bank, or (b) subject to the fiduciary duties of the
Directors of FSB as advised by counsel in a written opinion, discuss with or
enter into conversations with any person concerning any such merger,
consolidation, share exchange, acquisition or other transaction. FSB shall
promptly notify German American orally (to be confirmed in writing as soon as
practicable thereafter) of all of the relevant details concerning any inquiries
or proposals that it may receive relating to any such matters, including actions
it intends to take with respect to such matters.
Section 4.02. Breaches. FSB shall, in the event it has knowledge of the
occurrence of any event or condition which would cause or constitute a breach
(or would have caused or constituted a breach had such event occurred or been
known prior to the date of this Agreement) of any of its or FSB Bank's
representations or agreements contained or referred to in this Agreement, give
prompt notice thereof to German American and use its best efforts to prevent or
promptly remedy the same.
Section 4.03. Submission to Shareholders. FSB shall cause to be duly
called and held, on a date mutually selected by German American and FSB, a
special meeting of its shareholders (the "FSB Shareholders' Meeting") for
submission of this Agreement and the Holding Company Merger for approval of FSB
shareholders as required by the IBCL. In connection with the FSB Shareholders'
Meeting, (i) FSB shall cooperate with and assist German American in preparing
and filing a Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") with
the SEC in accordance with SEC requirements and FSB shall mail it to its
shareholders, (ii) FSB shall furnish German American all information concerning
itself that German American may reasonably request in connection with such Proxy
Statement/Prospectus, and (iii) the Board of Directors of FSB shall (unless in
the written opinion of counsel for FSB the fiduciary duties of the Board of
Directors prohibit such a recommendation, in which event the individual members
of the Board of Directors shall nevertheless remain personally obligated to
support the Agreement and the Holding Company Merger pursuant to their personal
undertakings on the signature page of this Agreement) unanimously recommend to
its shareholders the approval of this Agreement and the Holding Company Merger
contemplated hereby and use its best efforts to obtain such shareholder
approval.
Section 4.04. Consummation of Agreement. FSB shall use its best efforts
to perform and fulfill all conditions and obligations on its part to be
performed or fulfilled under this Agreement and to effect the Mergers in
accordance with the terms and provisions hereof. FSB shall furnish to German
American in a timely
-B 20-
<PAGE>
manner all information, data and documents in the possession of FSB or FSB Bank
requested by German American as may be required to obtain any necessary
regulatory or other approvals of the Mergers or to file with the SEC a
registration statement on Form S-4 (the "Registration Statement") relating to
the shares of German American Common to be issued to the shareholders of FSB
pursuant to the Mergers and this Agreement, and shall otherwise cooperate fully
with German American to carry out the purpose and intent of this Agreement.
Section 4.05. Financial Information. German American shall direct its
independent accounting firm, at German American's expense, to prepare financial
statements, Guide 3 statistical data, selected financial data, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" (Items
301, 302, and 303 of SEC Regulation S-K) ("MD&A") in compliance with SEC
requirements for inclusion in the Registration Statement, including unaudited
financial statements and related Guide 3 and MD&A as of and for the appropriate
quarterly and year-to-date periods ending September 30, 1997. FSB shall
cooperate with German American and its accounting firm in connection with the
preparation of all such information, and FSB shall use its best efforts to
provide such financial statements and data and MD&A to German American in EDGAR
format as soon as practicable.
Section 4.06. Environmental Reports. Except as German American shall
otherwise consent with respect to any residential real estate (which consent
will not be unreasonably withheld by German American), FSB shall, at German
American's expense, cooperate with an environmental consulting firm designated
by German American in connection with the conduct by such firm of a phase one
environmental investigation on all real property owned or leased by FSB or its
subsidiaries as of the date of this Agreement, and any real property acquired or
leased by FSB or its subsidiaries after the date of this Agreement, except as
otherwise provided in Section 4.01(a)(xv). If further investigation procedures
are required as to any property by the report of the phase one investigation in
German American's reasonable opinion, FSB shall as soon as practicable, at
German American's expense, commission the taking of such further procedures and
provide a report of the results of such further procedures to German American;
provided, however, that should the costs of taking such further procedures be
estimated to be greater than $10,000, and should FSB not agree to assume the
excess amount of such costs, then German American may terminate its obligations
under this Agreement by written notice to FSB. German American shall have
fifteen (15) business days from the receipt of any such investigation report to
notify FSB of any objection to the contents of any such report. Should the cost
of taking all remedial and corrective actions and measures (i) required by
applicable law, or (ii) recommended or suggested by such report or reports and
prudent in light of the findings of such report, in the aggregate, exceed the
sum of $100,000, as reasonably estimated by the environmental expert retained
for such purpose by German American and reasonably acceptable to FSB, or if the
cost of such actions and measures cannot be so reasonably estimated by such
expert with any reasonable degree of certainty, then German American shall have
the right pursuant to Section 7.03 hereof, for a period of 10 business days
following receipt of such estimate or indication that the cost of such actions
and measures cannot be so reasonably estimated, to terminate this Agreement
without further obligation to FSB, which shall be German American's sole remedy
in such event.
Section 4.07. Restriction on Resales. FSB shall obtain and deliver to
German American, at least thirty (30) days prior to the Closing Date, signed
representations, in form reasonably acceptable to German American, of each
shareholder who may reasonably be deemed an "affiliate" of FSB as of the date of
the Shareholders' Meeting within the meaning of such term as used in Rule 145
under the Securities Act of 1933, as amended (the "Securities Act"), regarding
their prospective compliance with the provisions of such Rule 145. FSB shall
also
-B 21-
<PAGE>
obtain and deliver to German American at least 30 days prior to the Closing
Date, the signed agreements of each shareholder who may reasonably be deemed an
"affiliate" (as such term is described in the preceding sentence) of FSB as of
the date of the Shareholders' Meeting agreeing not to sell any shares of German
American Common or otherwise reduce his or her risk relative to such shares,
until such time as financial results covering at least thirty (30) days of
post-Merger combined operations have been filed by German American with the SEC
in a quarterly report on Form 10-Q or in an annual report on Form 10-K.
Section 4.08. Access to Information. FSB shall permit German American
reasonable access, in a manner which will avoid undue disruption or interference
with FSB's normal operations, to its and FSB Bank's properties and shall
disclose and make available to German American all books, documents, papers and
records relating to its and FSB Bank's assets, stock, ownership, properties,
operations, obligations and liabilities, including, but not limited to, all
books of account (including general ledgers), tax records, minute books of
directors' and shareholders' meetings, organizational documents, material
contracts and agreements, loan files, filings with any regulatory authority,
accountants' workpapers, litigation files, plans affecting employees, and any
other business activities or prospects in which German American may have an
interest in light of the transactions contemplated by this Agreement. During the
period from the date of this Agreement to the Effective Time, FSB will cause one
or more of it or FSB Bank's designated representatives to confer on a regular
basis with the President of German American, or any other person designated in a
written notice given to FSB by German American pursuant to this Agreement, to
report the general status of the ongoing operations of FSB and FSB Bank. FSB
will promptly notify German American of any material change in the normal course
of the operation of its business or properties and of any regulatory complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or the institution or the threat of litigation involving FSB or
FSB Bank, and will keep German American fully informed of such events.
Section 4.09. Absence of Retiree Health Care Programs. As soon as
practicable but in no event later than January 31, 1998, FSB and FSB Bank shall
give to all employees, retirees and consultants, except for the single retiree
disclosed to German American to whom FSB Bank has previously committed to make
benefit payments on a special basis, written notice of the position of FSB and
FSB Bank that they are not obligated to provide any retiree health care benefits
to any active or inactive employee, retiree or consultant.
ARTICLE FIVE
COVENANTS OF GERMAN AMERICAN, GAHC AND COMMUNITY
Section 5.01. Regulatory Approvals and Registration Statement.
(a) German American shall file (or cause Community and/or Citizens as
the case may be to file or cooperate with FSB and FSB Bank in filing) all
regulatory applications required in order to consummate the Mergers, including
all necessary applications for the prior approvals of the FRB under the Bank
Holding Company Act and the FDIC under the Bank Merger Act, and (if deemed
appropriate or necessary) the DFI. German American shall use its best efforts to
cause such banking agency regulatory applications to be filed on or before
January 22, 1998. German American shall keep FSB reasonably informed as to the
status of such
-B 22-
<PAGE>
applications and promptly send or deliver copies of such applications, and of
any supplementally filed materials, to counsel for FSB.
(b) German American shall file with the SEC the Registration Statement
relating to the shares of German American Common to be issued to the
shareholders of FSB pursuant to this Agreement, and shall use its best efforts
to become effective as soon as practicable. At the time the Registration
Statement becomes effective, the form of the Registration Statement shall comply
in all material respects with the provisions of the Securities Act and the
published rules and regulations thereunder, and shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not false or
misleading. At the time of the mailing thereof to the shareholders and at the
time of any Shareholders' Meeting, the Proxy Statement/Prospectus included as
part of the Registration Statement, as amended or supplemented by any amendment
or supplement, shall not contain any untrue statement of a material fact or omit
to state any material fact regarding German American, GAHC or the Holding
Company Merger necessary to make the statements therein not false or misleading.
German American shall timely file all documents required to obtain all necessary
Blue Sky permits and approvals, if any, required to carry out the Merger, shall
pay all expenses incident thereto and shall use its best efforts to obtain such
permits and approvals on a timely basis. German American shall promptly and
properly prepare and file any other filings required under the Securities
Exchange Act of 1934 (the "Exchange Act") relating to the Mergers, or otherwise
required of it under the Exchange Act prior to the Effective Time, and shall
deliver copies thereof to FSB's counsel promptly upon the filing thereof with
the SEC.
Section 5.02. Breaches. German American shall, in the event it has
knowledge of the occurrence of any event or condition which would cause or
constitute a breach (or would have caused or constituted a breach had such event
occurred or been known prior to the date of this Agreement) of any of its
representations or agreements contained or referred to in this Agreement, give
prompt notice thereof to FSB and use its best efforts to prevent or promptly
remedy the same.
Section 5.03. Consummation of Agreement. German American shall use its
best efforts to perform and fulfill all conditions and obligations to be
performed or fulfilled under this Agreement and to effect the Mergers in
accordance with the terms and conditions of this Agreement, and use its best
efforts to cause the Closing to occur on March 31, 1998 or as soon thereafter as
practicable.
Section 5.04. Directors' and Officers' Indemnification.
(a) For six (6) years after the Effective Time, German American shall
(and shall cause the Surviving Bank to) indemnify, defend and hold harmless the
present and former officers and directors of FSB and FSB Bank (each, an
"Indemnified Party") against all losses, expenses, claims, damages or
liabilities arising out of actions or omissions (arising from their present or
former status as officers or directors) occurring on or prior to the Effective
Time to the full extent then permitted under the applicable provisions of the
IBCL and the IFIA, and public policy.
(b) If during the six (6) year period after the Effective Time German
American or the Surviving Bank or any of its or their successors or assigns (i)
shall consolidate with or merge into any other corporation or entity and shall
not be the continuing or surviving corporation or entity of such
-B 23-
<PAGE>
consolidation or merger or (ii) shall transfer all or substantially all of its
properties and assets to any individual, corporation or other entity, then and
in each such case, proper provision shall be made so that the successors and
assigns of German American and/or the Surviving Bank shall assume the
obligations set forth in this Section 5.04.
Section 5.05. Board of Directors of Community. German American shall
cause Michael B. McConnell to be appointed to the Board of Directors of
Community (or, as the case may be, Citizens) promptly after the Effective Time.
Section 5.06. Preservation of Business. German American shall: (a)
conduct its business substantially in the manner as is presently being conducted
and in the ordinary course of business and not amend its articles of
incorporation in any manner that requires the approval of shareholders of German
American under the IBCL; (b) file, and cause its subsidiaries to file, all
required reports with applicable regulatory authorities; (c) comply with all
laws, statutes, ordinances, rules or regulations applicable to it and to the
conduct of its business, the noncompliance with which results or could result in
a material adverse effect on the financial condition, results of operations,
business, assets or capitalization of German American on a consolidated basis;
and (d) comply in all material respects with each contract, agreement,
commitment, obligation, understanding, arrangement, lease or license to which it
is a party by which it is or may be subject or bound, the breach of which could
result in a material adverse effect on the financial condition, results of
operations, business, assets or capitalization of German American on a
consolidated basis.
Section 5.07. Securities and Exchange Commission Filings. German
American will provide FSB with copies of all filings made by German American
with the SEC under the Securities Exchange Act of 1934 ("1934 Act"), and the
Securities Act of 1933 ("1933 Act") and the respective rules and regulations of
the SEC thereunder as soon as practicable after such filings are made at any
time prior to the Effective Time.
Section 5.08. Rule 144(c) Information. For not less than the twelve
months immediately following the Effective Time, German American shall make
available adequate current public information about itself as that terminology
is used in and as required by Rule 144(c) of the SEC under the 1933 Act.
Section 5.09. Authorization of Common Stock. At the Effective Time and
on such subsequent dates when the former shareholders of FSB surrender their FSB
share certificates for cancellation, the shares of German American Common to be
exchanged with former shareholders of FSB shall have been duly authorized and
validly issued by German American and shall be fully paid and non-assessable and
subject to no pre-emptive rights.
Section 5.10. Past Service Credit. All employees of FSB Bank will be
eligible to participate in German American's employee benefit plans (in
accordance with the terms of the German American plans) as soon as practicable
following the Effective Time. Employees of FSB Bank shall receive full vesting
and eligibility credit under German American's defined contribution retirement
plans and other benefit programs for their years of service to FSB Bank.
-B 24-
<PAGE>
ARTICLE SIX
CONDITIONS PRECEDENT TO THE MERGERS
Section 6.01. Conditions of German American's Obligations. The
obligations of German American, GAHC and Community to effect the Mergers shall
be subject to the satisfaction (or waiver by German American, GAHC and
Community) prior to or on the Closing Date of the following conditions:
(a) The representations and warranties made by FSB and FSB Bank in this
Agreement shall be true in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been made
or given on and as of the Closing Date.
(b) FSB and FSB Bank shall have performed and complied in all material
respects with all of its obligations and agreements required to be performed on
or prior to the Closing Date under this Agreement.
(c) No temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Mergers shall be in
effect, nor shall any proceeding by any bank regulatory authority, governmental
agency or other person seeking any of the foregoing be pending. There shall not
be any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Mergers which makes the consummation of the
Mergers illegal.
(d) All necessary regulatory approvals, consents, authorizations and
other approvals required by law or stock market requirements for consummation of
the Mergers, including any approval of the Mergers by the shareholders of German
American in order to comply with the NASDAQ NMS listing standards, shall have
been obtained and all waiting periods required by law shall have expired.
(e) German American shall have received the environmental reports
required by Sections 4.06 and 4.01(a)(xv) hereof and shall not have elected,
pursuant to Section 4.06 hereof, to terminate and cancel this Agreement.
(f) German American shall have received all documents required to be
received from FSB or FSB Bank on or prior to the Closing Date, all in form and
substance reasonably satisfactory to German American.
(g) German American shall have received a letter, dated as of the
Effective Time, from Crowe, Chizek and Company LLP, its independent public
accountants, to the effect that the Mergers will qualify for pooling of
interests accounting treatment under Accounting Principles Board Opinion No. 16
if closed and consummated in accordance with this Agreement.
(h) The Registration Statement shall be effective under the Securities
Act and no stop orders suspending the effectiveness of the Registration
Statement shall be in effect or proceedings for such purpose pending before or
threatened by the SEC.
-B 25-
<PAGE>
(i) German American shall have received from its counsel, Leagre
Chandler & Millard, an opinion to the effect that if the Mergers are consummated
in accordance with the terms set forth in this Agreement, (i) the Holding
Company Merger will constitute a reorganization within the meaning of Section
368(a) of the Code; (ii) no gain or loss will be recognized by the holders of
shares of FSB Common upon receipt of the Merger consideration (except for cash
received in lieu of fractional shares); (iii) the basis of shares of German
American Common received by the shareholders of FSB will be the same as the
basis of shares of FSB Common exchanged therefor; and (iv) the holding period of
the shares of German American Common received by the shareholders of FSB will
include the holding period of the shares of FSB Common exchanged therefor,
provided such shares were held as capital assets as of the Effective Time.
Section 6.02. Conditions of FSB's and FSB Bank's Obligations. FSB's and
FSB Bank's obligations to effect the Mergers shall be subject to the
satisfaction (or waiver by FSB and FSB Bank) prior to or on the Closing Date of
the following conditions:
(a) The representations and warranties made by German American, GAHC
and Community in this Agreement shall be true in all material respects on and as
of the Closing Date with the same effect as though such representations and
warranties had been made or given on the Closing Date.
(b) German American, GAHC and Community shall each have performed and
complied in all material respects with all of its obligations and agreements
required to be performed prior to the Closing Date under this Agreement.
(c) No temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Mergers shall be in
effect, nor shall any proceeding by any bank regulatory authority, other
governmental agency or other person seeking any of the foregoing be pending.
There shall not be any action taken, or any statute, rule, regulation or order
enacted, enforced or deemed applicable to the Mergers which makes the
consummation of the Mergers illegal.
(d) All necessary regulatory approvals, consents, authorizations and
other approvals required by law for consummation of the Mergers, including the
requisite approval of the Mergers by the shareholders of FSB, shall have been
obtained and all waiting periods required by law shall have expired.
(e) FSB shall have received all documents required to be received from
German American, GAHC and Community on or prior to the Closing Date, all in form
and substance reasonably satisfactory to FSB.
(f) The Registration Statement shall be effective under the Securities
Act and no stop orders suspending the effectiveness of the Registration
Statement shall be in effect or proceedings for such purpose pending before or
threatened by the SEC.
(g) FSB shall have received from counsel for German American, Leagre
Chandler & Millard, an opinion reasonably satisfactory to FSB to the effect that
if the Mergers are consummated in accordance with the
-B 26-
<PAGE>
terms set forth in this Agreement, (i) the Holding Company Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code;
(ii) no gain or loss will be recognized by the holders of shares of FSB Common
upon receipt of the Merger Consideration (except for cash received in lieu of
fractional shares); (iii) the basis of German American Common received by the
shareholders of FSB will be the same as the basis of FSB Common exchanged
therefor; and (iv) the holding period of the shares of German American Common
received by the shareholders of FSB will include the holding period of the
shares of FSB Common exchanged therefor, provided such shares were held as
capital assets as of the Effective Time.
(h) FSB shall have received from Citizens representations, warranties
and covenants of Citizens substantially the same as those made by Community in
Articles Three and Five of this Agreement in a form reasonable satisfactory to
FSB.
ARTICLE SEVEN
TERMINATION OR ABANDONMENT
Section 7.01. Mutual Agreement. This Agreement may be terminated by the
mutual written agreement of the parties approved by their respective Boards of
Directors at any time prior to the Effective Time, regardless of whether
shareholder approval of this Agreement and the Mergers by the shareholders of
FSB or German American shall have been previously obtained.
Section 7.02. Breach of Representations, Warranties or Covenants.
(a) In the event that there is a material breach in any of the
representations and warranties or covenants of the parties, which breach is not
cured within thirty (30) days after notice to cure such breach is given by the
non-breaching party, then the Board of Directors of the non-breaching party,
regardless of whether approval by the shareholders of this Agreement and the
Mergers shall have been previously obtained, and in addition to any other
remedies to which the non-breaching party may be entitled, may terminate and
cancel this Agreement effective immediately by providing written notice thereof
to the other party hereto.
(b) In the event that this Agreement is terminated due to the failure
of the Holding Company Merger to be approved by the requisite vote of
shareholders of FSB or the failure of FSB to cause the Holding Company Merger to
be submitted to a vote of shareholders of FSB, following the making by any other
person or entity not a party to this Agreement of a proposal to FSB or FSB Bank
contemplating a merger, consolidation, plan of stock exchange, sale of all or
substantially all assets, or other business combination with FSB or FSB Bank,
if, but only if, FSB shall publicly announce within twelve months following a
termination described by this clause (b) that FSB has accepted a proposal for a
business combination with any third party, then, in lieu of specific performance
but in addition to whatever other legal rights or remedies to which German
American may be entitled against any third party, FSB shall, upon German
American's demand and not later than the second business day after the making of
such demand, (i) pay to German American a termination fee of $40,000 and (ii)
reimburse German American for all its out-of-pocket costs and expenses in
connection with the Mergers incurred from and after October 1, 1997 (but not
more than $100,000, including its legal, accounting, environmental and other
consulting fees and expenses. If FSB should fail or refuse to pay any amount
demanded by German American pursuant to the preceding sentence and German
American recovers such
-B 27-
<PAGE>
disputed amount pursuant to a legal proceeding, FSB shall, in addition thereto,
pay to German American all costs, charges, expenses (including without
limitation the fees and expenses of counsel) and other amounts expended by
German American in connection with or arising out of such legal proceeding. The
parties agree that the actual damages and loss that would be caused to German
American by reason of any such termination cannot be determined with certainty
due to German American's "opportunity cost" in proceeding with the Mergers
compared to proceeding with other opportunities that are available to German
American and other factors. The parties therefore agree that the amounts payable
pursuant to this Section 7.02 represent a reasonable estimate of German
American's opportunity cost and other damages and loss that may be awarded as
either a termination fee or as liquidated damages to German American if it
chooses not to seek specific performance of this Agreement, and that such
amounts represent the sole damages from FSB and FSB Bank to which German
American would be entitled.
Section 7.03. Adverse Environmental Reports. German American may terminate
this Agreement as provided by Section 4.06 by giving written notice thereof to
FSB.
Section 7.04. Failure of Conditions. In the event any of the conditions
to the obligations of either party are not satisfied or waived on or prior to
the Closing Date, and if any applicable cure period provided in Section 7.02 (a)
hereof has lapsed, then the Board of Directors of such party may, regardless of
whether approval by its shareholders of this Agreement and the Mergers shall
have been previously obtained, terminate and cancel this Agreement on the
Closing Date by delivery of written notice thereof to the other party on such
date.
Section 7.05. Termination Upon Adverse Regulatory Determination.
In connection with the filings that the German American, Community, FSB and/or
FSB Bank may be required to make in connection with the Mergers with banking,
securities, and antitrust regulatory agencies ("Agencies"), each party shall use
their best efforts to obtain all necessary approvals of, or clearances from, the
Agencies, and shall cause their respective agents and advisors to cooperate and
use their best efforts in connection therewith. German American (or its
subsidiaries) shall be responsible for making the required Merger filings
(except to the limited extent that the applicable law, regulations, or forms
specify that FSB (or FSB Bank) is the appropriate filing party) with the
Agencies, and for discussing such filings with the Agencies and responding to
comments thereon. If any required filing is disapproved by any of the Agencies,
or any determination is made by any of the Agencies that either of the Mergers
cannot be consummated except on terms and conditions that are materially adverse
from a financial point of view to German American (an "Adverse Determination"),
then German American shall promptly advise FSB of such Adverse Determination and
German American's intended course of action with respect thereto. In the event
that German American in its sole discretion determines to seek a judicial or
regulatory appeal or review (formal or informal) of the Adverse Determination,
FSB and FSB Bank (and their agents and advisors) shall continue to cooperate
with such appeal and review procedure and use its best efforts to assist in
connection with obtaining reversal or modification of such Adverse
Determination. In the event that (a) German American in its sole discretion
elects not to seek an appeal or review of the Adverse Determination or elects in
its sole discretion at any time after seeking such an appeal or review to
discontinue that effort, or (b) German American seeks such an appeal or review
but all avenues for such appeal or review are exhausted without the Adverse
Determination having been vacated or overruled or modified in such a manner that
the Adverse Determination is no longer materially adverse ("Relief
Determination"), then either German American or FSB may terminate this Agreement
without obligation to the other on account of the Adverse Determination.
-B 28-
<PAGE>
Section 7.06. Shareholder Approval Denial. If this Agreement and
consummation of the Holding Company Merger is not approved by the shareholders
of FSB, or if the issuance of the additional German American Common Stock is
required to be approved by the shareholders of German American pursuant to the
NASDAQ NMS listing standards and is not so approved at the meeting of German
American's shareholders called to consider such issuance, then either party may
terminate this Agreement by giving written notice thereof to the other party,
subject to Section 7.02(b).
Section 7.07. Regulatory Enforcement Matters. In the event that FSB or
FSB Bank shall become a party or subject to any memorandum of understanding,
cease and desist order, or civil money penalties imposed by any federal or state
agency charged with the supervision or regulation of banks or bank holding
companies after the date of this Agreement, then German American may terminate
this Agreement by giving written notice thereof to FSB.
Section 7.08. Lapse of Time. If the Closing Date does not occur on or
prior to June 30, 1998, then this Agreement may be terminated by the Board of
Directors of either FSB or German American by giving written notice thereof to
the other party.
ARTICLE EIGHT
GENERAL PROVISIONS
Section 8.01. Liabilities. In the event that this Agreement is
terminated or the Mergers are abandoned pursuant to the provisions of Article
Seven hereof, no party hereto shall have any liability to any other party for
costs, expenses, damages, termination fees, or otherwise except to the extent
specifically set forth in Section 7.02(b). Directors, officers and employees of
each party hereto shall have no personal liability under this Agreement with
respect to the representations and warranties of their respective parties except
for fraud or for their personal intentional and knowing participation in the
making of false or misleading statements in such representation and warranties.
Section 8.02. Notices. Any notice or other communication hereunder
shall be in writing and shall be deemed to have been given or made (a) on the
date of delivery, in the case of hand delivery, or (b) three (3) business days
after deposit in the United States Registered or Certified Mail, with mailing
receipt postmarked by the Postal Service to show date of mailing, postage
prepaid, or (c) upon actual receipt if transmitted during business hours by
facsimile (but only if receipt of a legible copy of such transmission is
confirmed by the recipient); addressed (in any case) as follows:
(a) If to German American or Community:
German American Bancorp
711 Main Street
Box 810
Jasper, Indiana 47546
Attn: George W. Astrike, Chairman of the Board
with a copy to:
Leagre Chandler & Millard
-B 29-
<PAGE>
9100 Keystone Crossing
Suite 800
P. O. Box 40609
Indianapolis, Indiana 46240-0609
Attn: Mark B. Barnes
and
(b) If to FSB or FSB Bank:
FSB Financial Corporation
102 Main Street
Francisco, Indiana 47659
Attn: __________________________
with a copy to:
Bose McKinney & Evans
2700 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, Indiana 46204
Attn: R.J. McConnell
or to such other address as any party may from time to time designate by notice
to the other.
Section 8.03. Non-survival of Representations and Agreements. No
representation, warranty or covenant contained in this Agreement shall survive
(and no claims for the breach or nonperformance thereof may be brought after)
the Effective Time except the covenants of German American in Sections 5.04,
5.05, 5.08, 5.09, and 5.10 which shall survive the Effective Time. No
representation, warranty or covenant contained in this Agreement shall survive
(and no claims for the breach or nonperformance thereof may be brought after)
the termination of this Agreement pursuant to Article Seven hereof. The
reliability and binding effect of any representation or warranty made by any
party in this Agreement shall not be diminished or limited in any way by any
review, or by the opportunity to conduct any review, by or on behalf of the
intended beneficiary of the subject matter of the representation or warranty,
whether before or after the date of this Agreement, unless and to the extent
that the reviewing party and the other party expressly agree otherwise in
writing.
Section 8.04. Entire Agreement. Except for that certain confidentiality
agreement previously executed among the parties hereto, this Agreement
constitutes the entire agreement between the parties and supersedes and cancels
any and all prior discussions, negotiations, undertakings and agreements between
the parties relating to the subject matter hereof, including, without
limitation, the letter of intent signed October 6, 1997 by German American and
accepted by FSB on October 9, 1997.
Section 8.05. Headings and Captions. The captions of Articles and
Sections hereof are for convenience only and shall not control or affect the
meaning or construction of any of the provisions of this Agreement.
-B 30-
<PAGE>
Section 8.06. Waiver, Amendment or Modification. The conditions of this
Agreement which may be waived may only be waived by written notice specifically
waiving such condition addressed to the party claiming the benefit of the
waiver. The failure of any party at any time or times to require performance of
any provision hereof shall in no manner affect the right of such party at a
later time to enforce the same. This Agreement may not be amended or modified
except by a written document duly executed by the parties hereto.
Section 8.07. Rules of Construction. Unless the context otherwise
requires (a) a term used herein has the meaning assigned to it, and (b) an
accounting term not otherwise defined has the meaning assigned to it in
accordance with generally accepted accounting principles.
Section 8.08. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
be deemed one and the same instrument.
Section 8.09. Successors. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
including, but not limited to Citizens if it should be the surviving bank in a
merger of Community into Citizens. There shall be no third party beneficiaries
hereof.
Section 8.10. Governing Law; Assignment. This Agreement shall be governed
by the laws of the State of Indiana. This Agreement may not be assigned by any
of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written, with the unanimous
approval of their respective Boards of Directors.
GERMAN AMERICAN BANCORP
By /s/ George W. Astrike
George W. Astrike
Chairman of the Board and
Chief Executive Officer
GERMAN AMERICAN HOLDINGS
CORPORATION
By /s/ George W. Astrike
George W. Astrike
Chief Executive Officer
-B 31-
<PAGE>
COMMUNITY TRUST BANK
By /s/ Paul G. Cooper
Paul G. Cooper
President
FSB FINANCIAL CORPORATION
By /s/ Glenn A. Young
Glenn A. Young
President
FSB BANK
By /s/ Glenn A. Young
Glenn A. Young
President
APPROVED BY THE MEMBERS OF THE BOARD OF DIRECTORS OF FSB FINANCIAL
CORPORATION:
The undersigned Directors of FSB Financial Corporation hereby (a) evidence their
approval of this Agreement and the Mergers contemplated thereby, and (b) agree
to vote their shares of FSB Common that are registered in their personal names
(and agree to use their best efforts to cause all additional shares of FSB
Common over which they have voting influence or control to be voted) in favor of
the Holding Company Merger at the FSB Shareholders Meeting.
/s/ Michael B. McConnell /s/ Wynn W. Hopkins
/s/ Bobby J. Hill /s/ Glenn A. Young
/s/ J.R. McConnell
/s/ John W. Wells
-B 32-
<PAGE>
APPENDIX C
INDIANA CODE 23-1-44 DISSENTERS RIGHTS
Ind. Code 23-1-44-1. "Corporation" defined
As used in this chapter, "corporation" means the issuer of the shares held by
a dissenter before the corporate action, or the surviving or acquiring
corporation by merger or share exchange of that issuer.
Ind. Code 23-1-44-2. "Dissenter" defined
As used in this chapter, "dissenter" means a shareholder who is entitled to
dissent from corporate action under section 8 [IC 23-1-44-8] of this chapter and
who exercises that right when and in the manner required by sections 10 through
18 [IC 23-1-44-10 through IC 23-1-44-18] of this chapter.
Ind. Code 23-1-44-3. "Fair value" defined
As used in this chapter, "fair value," with respect to a dissenter's shares,
means the value of the shares immediately before the effectuation of the
corporate action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would be
inequitable.
Ind. Code 23-1-44-4. "Interest" defined
As used in this chapter, "interest" means interest from the effective date of
the corporate action until the date of payment, at the average rate currently
paid by the corporation on its principal bank loans or, if none, at a rate that
is fair and equitable under all the circumstances.
Ind. Code 23-1-44-5. "Record shareholder" defined
As used in this chapter, "record shareholder" means the person in whose name
shares are registered in the records of a corporation or the beneficial owner of
shares to the extent that treatment as a record shareholder is provided under a
recognition procedure or a disclosure procedure established under IC 23-1-30-4.
Ind. Code 23-1-44-6. "Beneficial shareholder" defined
-C 1-
<PAGE>
As used in this chapter, "beneficial shareholder" means the person who is a
beneficial owner of shares held by a nominee as the record shareholder.
Ind. Code 23-1-44-7. "Shareholder" defined
As used in this chapter, "shareholder" means the record shareholder or the
beneficial shareholder.
Ind. Code 23-1-44-8. Shareholder dissent
(a) A shareholder is entitled to dissent from, and obtain payment of the fair
value of the shareholder's shares in the event of, any of the following
corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party
if:
(A) Shareholder approval is required for the merger by IC 23-1-40-3 or
the articles of incorporation; and
(B) The shareholder is entitled to vote on the merger.
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan.
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
(1) year after the date of sale.
(4) The approval of a control share acquisition under IC 23-1-42.
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
-C 2-
<PAGE>
(b) This section does not apply to the holders of shares of any class or
series if, on the date fixed to determine the shareholders entitled to receive
notice of and vote at the meeting of shareholders at which the merger, plan of
share exchange, or sale or exchange of property is to be acted on, the shares of
that class or series were:
(1) Registered on a United States securities exchange registered under
the Exchange Act (as defined in IC 23-1-43-9); or
(2) Traded on the National Association of Securities Dealers, Inc.
Automated Quotations System Over-the-Counter Markets ---- National Market Issues
or a similar market.
(c) A shareholder:
(1) Who is entitled to dissent and obtain payment for the shareholder's
shares under this chapter; or
(2) Who would be so entitled to dissent and obtain payment but for the
provisions of subsection (b);
may not challenge the corporate action creating (or that, but for the provisions
of subsection (b), would have created) the shareholder's entitlement.
Ind. Code 23-1-44-9. Beneficial shareholder dissent
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the shareholder's name only if the shareholder dissents
with respect to all shares beneficially owned by any one (1) person and notifies
the corporation in writing of the name and address of each person on whose
behalf the shareholder asserts dissenters' rights. The rights of a partial
dissenter under this subsection are determined as if the shares as to which the
shareholder dissents and the shareholder's other shares were registered in the
names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held
on the shareholder's behalf only if:
(1) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(2) The beneficial shareholder does so with respect to all the
beneficial shareholder's shares or those shares over which the beneficial
shareholder has power to direct the vote.
Ind. Code 23-1-44-10. Notice of dissenters' rights preceding shareholder vote
(a) If proposed corporate action creating dissenters' rights under section 8
[IC 23-1-44-8] of this chapter is submitted to a vote at a shareholders'
meeting, the meeting notice must state that shareholders are or may be entitled
to assert dissenters' rights under this chapter.
-C 3-
<PAGE>
(b) If corporate action creating dissenters' rights under section 8 of this
chapter is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in section 12 [IC
23-1-44-12] of this chapter.
Ind. Code 23-1-44-11. Notice of intent to dissent
(a) If proposed corporate action creating dissenters' rights under section 8
[IC 23-1-44-8] of this chapter is submitted to a vote at a shareholders'
meeting, a shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of the shareholder's intent to demand payment for the shareholder's
shares if the proposed action is effectuated; and
(2) Must not vote the shareholder's shares in favor of the proposed
action.
(b) A shareholder who does not satisfy the requirements of subsection (a) is
not entitled to payment for the shareholder's shares under this chapter.
Ind. Code 23-1-44-12. Notice of dissenters' rights following action creating
rights
(a) If proposed corporate action creating dissenters' rights under section 8
[IC 23-1-44-8] of this chapter is authorized at a shareholders' meeting, the
corporation shall deliver a written dissenters' notice to all shareholders who
satisfied the requirements of section 11 [IC 23-1-44-11] of this chapter.
(b) The dissenters' notice must be sent no later than ten (10) days after
approval by the shareholders, or if corporate action is taken without approval
by the shareholders, then ten (10) days after the corporate action was taken.
The dissenters' notice must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty (30) nor more than sixty (60)
days after the date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this chapter.
-C 4-
<PAGE>
Ind. Code 23-1-44-13. Demand for payment by dissenter
(a) A shareholder sent a dissenters' notice described in IC 23-1-42-11 or in
section 12 [IC 23-1-44-12] of this chapter must demand payment, certify whether
the shareholder acquired beneficial ownership of the shares before the date
required to be set forth in the dissenter's notice under section 12(b)(3) [IC
23-1-44-12(b)(3)] of this chapter, and deposit the shareholder's certificates in
accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits the shareholder's shares
under subsection (a) retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter and is considered, for purposes of this article, to have voted the
shareholder's shares in favor of the proposed corporate action.
Ind. Code 23-1-44-14. Transfer of shares restricted after demand for payment
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under section 16 [IC 23-1-44-16] of
this chapter.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action.
Ind. Code 23-1-44-15. Payment to dissenter
(a) Except as provided in section 17 [IC 23-1-44-17] of this chapter, as soon
as the proposed corporate action is taken, or, if the transaction did not need
shareholder approval and has been completed, upon receipt of a payment demand,
the corporation shall pay each dissenter who complied with section 13 [IC
23-1-44-13] of this chapter the amount the corporation estimates to be the fair
value of the dissenter's shares.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares; and
(3) A statement of the dissenter's right to demand payment under
section 18 [IC 23-1-44-18] of this chapter.
-C 5-
<PAGE>
Ind. Code 23-1-44-16. Return of shares and release of restrictions
(a) If the corporation does not take the proposed action within sixty (60)
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 12 [IC 23-1-44-12] of this chapter and repeat
the payment demand procedure.
Ind. Code 23-1-44-17. Offer of fair value for shares obtained after first
announcement
(a) A corporation may elect to withhold payment required by section 15 [IC
23-1-44-15] of this chapter from a dissenter unless the dissenter was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under subsection
(a), after taking the proposed corporate action, it shall estimate the fair
value of the shares and shall pay this amount to each dissenter who agrees to
accept it in full satisfaction of the dissenter's demand. The corporation shall
send with its offer a statement of its estimate of the fair value of the shares
and a statement of the dissenter's right to demand payment under section 18 [IC
23-1-44-18] of this chapter.
Ind. Code 23-1-44-18. Dissenter demand for fair value under certain conditions
(a) A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and demand payment of the
dissenter's estimate (less any payment under section 15 [IC 23-1-44-15] of this
chapter), or reject the corporation's offer under section 17 [IC 23-1-44-17] of
this chapter and demand payment of the fair value of the dissenter's shares, if:
(1) The dissenter believes that the amount paid under section 15 of
this chapter or offered under section 17 of this chapter is less than the fair
value of the dissenter's shares;
(2) The corporation fails to make payment under section 15 of this
chapter within sixty (60) days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty (60) days after the date set for
demanding payment.
(b) A dissenter waives the right to demand payment under this section unless
the dissenter notifies the corporation of the dissenter's demand in writing
under subsection (a) within thirty (30) days after the corporation made or
offered payment for the dissenter's shares.
-C 6-
<PAGE>
Ind. Code 23-1-44-19. Effect of failure to pay demand -- Commencement of
judicial appraisal proceeding
(a) If a demand for payment under IC 23-1-42-11 or under section 18 [IC
23-1-44-18] of this chapter remains unsettled, the corporation shall commence a
proceeding within sixty (60) days after receiving the payment demand and
petition the court to determine the fair value of the shares. If the corporation
does not commence the proceeding within the sixty (60) day period, it shall pay
each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit or superior
court of the county where a corporation's principal office (or, if none in
Indiana, its registered office) is located. If the corporation is a foreign
corporation without a registered office in Indiana, it shall commence the
proceeding in the county in Indiana where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign corporation
was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) is plenary and exclusive. The court may appoint one (1) or more
persons as appraisers to receive evidence and recommend decision on the question
of fair value. The appraisers have the powers described in the order appointing
them or in any amendment to it. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment:
(1) For the amount, if any, by which the court finds the fair value of
the dissenter's shares, plus interest, exceeds the amount paid by the
corporation; or
(2) For the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under section 17 [IC 23-1-44-17] of this chapter.
Ind. Code 23-1-44-20. Judicial determination and assessment of costs
(a) The court in an appraisal proceeding commenced under section 19 [IC
23-1-44-19] of this chapter shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers appointed by
the court. The court shall assess the costs against such parties and in such
amounts as the court finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
-C 7-
<PAGE>
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of sections 10 through 18 [IC 23-1-44-10 through IC 23-1-44-18] of
this chapter; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefitted.
-C 8-
<PAGE>
[OLIVE CORPORATE FINANCE, LLC LETTERHEAD]
_____________,1998
Board of Directors
CSB Bancorp
Main and Seventh Streets
Petersburg, IN 47567
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of CSB Bancorp ("CSB") of the merger ("Merger") of CSB
with a wholly owned interim subsidiary of German American Bancorp ("German
American"), as set forth in the Agreement and Plan of Reorganization
("Agreement") among CSB and German American dated December 8, 1997.
The terms of the Agreements provide, among other things, that subject to the
Merger receiving approvals from the shareholders of CSB; from the Federal
Reserve Board and the Indiana Department of Financial Institutions; approval of
the Registration Statement by the Securities and Exchange Commission relating to
the shares of German American Common Stock to be issued to the shareholders of
CSB pursuant to the Agreement; and subject to the satisfaction of certain other
conditions, each of the 160,000 issued and outstanding shares of CSB common
stock, no par value, shall be converted into shares of German American Common
Stock, $10 par value, which total number of shares of German American common
stock shall have a value of at least $22,750,000, or $142.1875 per CSB common
share, with cash payment in lieu of fractional shares, and after which each
share of CSB common stock shall be canceled and extinguished. The terms provide
further that German American will issue no more than 1,137,500 shares or fewer
than 928,572 shares (subject to adjustment, if any, as provided in the
Agreement, Section 1.03(f)).
In connection with our opinion, we have reviewed, among other things, the
Agreement; the Proxy Statement relating to the Special Meeting of Shareholders
of CSB to be held in connection with the merger; Annual Reports to shareholders
for CSB for each of the five years ended December 31, 1992 through December 31,
1996; Annual Reports on Form 10-K for German American for each of the three
years ended December 31, 1994, 1995, and 1996; Quarterly Reports on Form 10-Q
for the periods ended March, June, and September, 1997; Draft of the
Registration Statement on Form S-4 relating to this transaction; certain
communications in the form of press releases from German American to its
shareholders; each of German American's filings on Form 8-K during the year
ended December 31, 1997; audited financial statements of CSB for the five years
ended December 31, 1992 through December 31, 1996, and unaudited financial
statements of CSB dated September 30, 1997; Uniform Bank Performance Reports
dated December 31, 1992 through December 31, 1996, and September 30, 1997;
Consolidated Reports of Condition and Income filed with the Federal Deposit
-D 1-
<PAGE>
Board of Directors
CSB Bancorp
____________________, 1998
Page 2
Insurance Corporation dated December 31, 1996, September 30, 1997 and December
31 1997; various internal financial reports regarding the operations and the
financial condition of CSB; reported market prices, trading activity and yields
of the common stock of CSB for recent years, as well as the prices, trading
activity and yields of comparably-traded and/or sized companies and their
securities. In conducting our review and arriving at our opinion, we have relied
upon the accuracy and completeness of all financial and other information
provided to us without independent verification. We have not made any
independent valuation or appraisal of the assets or reserves against future
liabilities or losses of CSB or German American.
We have held discussions with members of the senior management of CSB regarding
past and current business operations, financial condition and future prospects
of the company. In addition, we have reviewed the reported price and trading
activity of the common stock of German American, reviewed the financial terms of
certain recent business combinations of Indiana commercial banking companies and
performed such other studies and analyses as we considered appropriate. We have
also taken into account our assessment of general economic, market, and
financial conditions and our experience in other transactions, as well as our
experience in securities valuation and our knowledge of the banking industry
generally.
Olive, as part of its investment banking business, is engaged in the valuation
of commercial banks and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for various purposes.
Olive has never acted as a market maker for the common stock of CSB or German
American. Except for this engagement, CSB has not had any material or
compensable relationship with Olive or its affiliates during the past two years.
Neither Olive nor any of its affiliates has a material financial interest in CSB
or German American.
Based upon and subject to the foregoing and such other matters we considered
relevant, it is our opinion that as of the date hereof, the terms and
consideration of the Transaction are fair to CSB's shareholders from a financial
point of view.
Sincerely,
OLIVE CORPORATE FINANCE LLC
-D 2-
<PAGE>
[OLIVE CORPORATE FINANCE, LLC LETTERHEAD]
_______________, 1998
Board of Directors
FSB Financial Corporation
102 Main Street
Francisco, IN 47659
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of FSB Financial Corporation ("FSB") of the merger
("Merger") of FSB with a wholly owned interim subsidiary of German American
Bancorp ("German American"), as set forth in the Agreement and Plan of
Reorganization ("Agreement") among FSB and German American dated December ___,
1998.
The terms of the Agreements provide, among other things, that subject to the
Merger receiving approvals from the shareholders of FSB; from the Federal
Reserve Board and the Indiana Department of Financial Institutions; approval of
the Registration Statement by the Securities and Exchange Commission relating to
the shares of German American to be issued to the shareholders of FSB pursuant
to the Agreement; and subject to the satisfaction of certain other conditions,
each of the 48,916 issued and outstanding shares of FSB common stock, no par
value, shall be converted into shares of German American Common Stock, $10 par
value, which total number of shares of German American common stock shall have a
value equal to 150% of the sum of June 30, 1997 shareholders equity plus (or
minus) the amount of net income (loss) retained after dividends, if any, but
before securities transaction gains of FSB from June 30, 1997, to the end of the
month immediately preceding the Closing Date, with cash payment in lieu of
fractional shares, and after which each share of FSB common stock shall be
canceled and extinguished.
In connection with our opinion, we have reviewed, among other things, the
Agreement; the Proxy Statement relating to the Special Meeting of Shareholders
of FSB to be held in connection with the merger; Annual Reports on Form 10-K for
German American for each of the three years ended December 31, 1994, 1995, and
1996, and the Quarterly Report on Form 10-Q for the periods ended March, June,
and September, 1997; Draft of the Registration Statement on Form S-4 relating to
this transaction; certain communications in the form of press releases from
German American to its shareholders; each of German American's filings on Form
8-K during the year ended December 31, 1997; audited financial statements of FSB
for the six years ended September 30, 1992 through September 30, 1996, and a
draft of audited financial statements of FSB dated September 30, 1997; Uniform
Bank Performance Reports dated December, 1992 through December 31, 1996, and
September 30, 1997; Call Reports dated December 31, 1996, September 30, 1997 and
December 31, 1997, and various internal financial and policy reports regarding
the operations and the financial condition of FSB; and prices, trading activity
and yields for comparably-traded and/or sized
-E 1-
<PAGE>
Board of Directors
FSB Financial Corp.
_____________, 1998
Page 2
companies and their securities. In conducting our review and arriving at our
opinion, we have relied upon the accuracy and completeness of all financial and
other information provided to us without independent verification. We have not
made any independent valuation or appraisal of the assets or reserves against
future liabilities or losses of FSB or German American.
We have held discussions with members of the senior management of FSB regarding
past and current business operations, financial condition including recent years
earnings losses, and future prospects of the company. In addition, we have
reviewed the reported price and trading activity of the common stock of German
American, reviewed the financial terms of certain recent business combinations
of Indiana commercial banking companies and performed such other studies and
analyses as we considered appropriate. We have also taken into account our
assessment of general economic, market, and financial conditions and our
experience in other transactions, as well as our experience in securities
valuation and our knowledge of the banking industry generally.
Olive, as part of its investment banking business, is engaged in the valuation
of commercial banks and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for various purposes.
Olive has never acted as a market maker for the common stock of FSB or German
American. Except for this engagement, FSB has not had any material or
compensable relationship with Olive or its affiliates during the past two years.
Neither Olive nor any of its affiliates has a material financial interest in FSB
or German American.
Based upon and subject to the foregoing and such other matters we considered
relevant, it is our opinion that as of the date hereof, the terms and
consideration of the Transaction are fair to FSB's shareholders from a financial
point of view.
Sincerely,
OLIVE CORPORATE FINANCE LLC
-E 2-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors.
Under the Indiana Business Corporation Law and Article IV of
German American's Restated Bylaws, German American's officers, Directors, and
employees are entitled to indemnification against all liability and expense with
respect to any civil or criminal claim, action, suit or proceeding in which they
are wholly successful. If they are not wholly successful and even if they are
adjudged liable or guilty, they are entitled to indemnification if it is
determined, with respect to a civil action, by disinterested Directors, a
special legal counsel, or a majority vote of the shares of German American's
voting stock held by disinterested shareholders, that they acted in good faith
in what they reasonably believed to be the best interests of German American.
With respect to any criminal action, it must also be determined that they had no
reasonable cause to believe their conduct unlawful.
Under the Indiana Business Corporation Law, a Director of
German American cannot be held liable for actions that do not constitute wilful
misconduct or recklessness. The Articles of Incorporation of German American
provide that Directors of German American shall be immune from personal
liability for any action taken as a Director, or any failure to take any action,
to the fullest extent permitted by the applicable provisions of the Indiana
Business Corporation Law from time to time in effect and by general principles
of corporate law. In addition, a Director of German American against whom a
shareholders' derivative suit has been filed cannot be held liable if a
committee of disinterested Directors of German American, after a good faith
investigation, determines either that the shareholder has no right or remedy or
that pursuit of that right or remedy will not serve the best interests of German
American.
At present, there are no claims, actions, suits or proceedings
pending where indemnification would be required under the above, and German
American does not know of any threatened claims, actions, suits or proceedings
which may result in a request for such indemnification.
In addition, officers and Directors of German American are
entitled to indemnification under an insurance policy of German American for
expenditures incurred by them in connection with certain acts in their
capacities as such, and providing reimbursement to German American for
expenditures in indemnifying such Directors and officers for such acts. The
maximum aggregate coverage for German American and insured individuals is
$2,000,000 for claims made during each policy year, with the policies subject to
self-retention and deductible provisions.
Item 21. Exhibits and Financial Statement.
The exhibits described in the Exhibit List immediately
following the "Signatures" page of this Registration Statement (which Exhibit
List is incorporated by reference) are hereby filed as part of this Registration
Statement.
Item 22. Undertakings.
-II 1-
<PAGE>
The undersigned registrant hereby undertakes that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The registrant undertakes that every prospectus (i) that is
filed pursuant to the paragraph immediately proceeding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a Director, officer, or controlling
person of the registrant in the successful defense of 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 supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, 13 or 18 of this form within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
-II 2-
<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement; and
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
-II 3-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Pre-Effective Amendment No.2 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Jasper, State of Indiana, on April 22, 1998.
GERMAN AMERICAN BANCORP
By /s/ George W. Astrike
George W. Astrike, Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No.2 to Registration Statement has been signed on April
22, 1998 by the following persons in the capacities indicated.
Principal Executive Officer:
/s/ George W. Astrike
George W. Astrike Chairman of the Board
and Chief Executive Officer
Principal Financial Officer:
/s/ Richard Trent
Richard Trent Chief Financial Officer
Principal Accounting Officer:
/s/ John M. Gutgsell
John M. Gutgsell Vice President and Controller
/s/ George W. Astrike
George W. Astrike Director
/s/ DAVID G. BUEHLER*
David G. Buehler Director
-II 4-
<PAGE>
/s/ DAVID B. GRAHAM*
David B. Graham Director
/s/ WILLIAM R. HOFFMAN*
William R. Hoffman Director
/s/ Michael B. Lett
Michael B. Lett Director
/s/ GENE C. MEHNE*
Gene C. Mehne Director
/s/ A. W. PLACE, JR.*
A. W. Place, Jr. Director
/s/ ROBERT L. RUCKRIEGEL*
Robert L. Ruckriegel Director
/s/ Mark A. Schroeder
Mark A. Schroeder Director
/s/ LARRY J. SEGER*
Larry J. Seger Director
/s/ JOSEPH F. STEURER*
Joseph F. Steurer Director
/s/ CHET L. THOMPSON*
Chet L. Thompson Director
*By /s/ George W. Astrike
George W. Astrike, as Attorney-in-Fact
-II 5-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
2.1 Agreement and Plan of Reorganization between German American and CSB
(included as Appendix A to the Prospectus/Proxy Statement).
2.2 Agreement and Plan of Reorganization between German American and FSB
(included as Appendix B to the Prospectus/Proxy Statement).
3.1 Restated Articles of Incorporation of German American Bancorp, as
amended April 24, 1995. The copy of this exhibit filed as Exhibit 3.1
to German American's Report on Form 10-K for the year ended December
31, 1995, is incorporated herein by reference.
3.2 Restated Bylaws of German American Bancorp, as amended August 14,
1990. The copy of this exhibit filed as Exhibit 3.2 to German
American's Report on Form 10-K for the year ended December 31, 1995,
is incorporated herein by reference.
5 * Opinion of Leagre Chandler & Millard regarding legality of securities
being offered, including consent.
8.1 Opinion of Leagre Chandler & Millard regarding federal income tax
consequences of CSB Merger, including consent.
8.2 Opinion of Leagre Chandler & Millard regarding federal income tax
consequences of FSB Merger, including consent.
10.1 German American Bancorp 1992 Stock Option Plan. The copy of this
exhibit filed as Exhibit 10.1 to Amendment No. 1 to German American's
Registration Statement on Form S-4 filed January 21, 1993 (No.
33-55170) is incorporated herein by reference.
10.2 Executive Deferred Compensation Agreement dated December 1, 1992
between The German American Bank and George W. Astrike. The copy of
this exhibit filed as Exhibit 10.3 to Amendment No. 1 to German
American's Registration Statement on Form S-4 filed January 21, 1993
(No. 33-55170) and is incorporated herein by reference.
10.3 Director Deferred Compensation Agreement between The German American
Bank and all but one of its Directors. The documents filed as Exhibit
10.4 to Amendment No. 1 to German American's Registration Statement on
Form S-4 filed January 21, 1993 (No. 33-55170) are incorporated herein
by reference. (The Agreement entered into by George W. Astrike, a copy
of which was filed as Exhibit 10.4 to the S-4, is substantially
identical to the Agreements entered into by the other Directors.) The
schedule following Exhibit 10.4 to the S-4 lists the Agreements with
the other
-II 6-
<PAGE>
Directors and sets forth the material detail in which such Agreements
differ from the Agreement filed as Exhibit 10.4 to the Unibancorp S-4.
10.4 Sublease entered by and between Buehler Foods, Inc. and The German
American Bank, dated January 2, 1987 (Huntingburg Banking Center
Branch). The copy of this exhibit filed as Exhibit 10.5 to the
Registrant's Registration Statement on Form S-4 filed February 28,
1994 (No. 33-75762) (the "Otwell S-4") is incorporated herein by
reference.
10.5 Sublease entered by and between Buehler Foods, Inc. and The German
American Bank dated August 1, 1990 (The Crossing Shopping Center
Branch). The copy of this exhibit filed as Exhibit 10.5 to the
Registrant's Registration Statement on Form S-4 filed November 19,
1996 (No. 333-16331) is incorporated herein by reference.
10.6 Letter dated January 5, 1995 from the German American Bank to Buehler
Foods, Inc. notifying Buehler Foods, Inc. of exercise of renewal
option on The Crossing Shopping Center Branch. The copy of this
exhibit filed as Exhibit 10.4 of the Registrant's Report on Form 10-K
for the year ended December 31, 1994 is incorporated herein by
reference.
10.7 Incentive stock option agreement between German American and George W.
Astrike dated April 20, 1993. The copy of this exhibit filed as
Exhibit 10.6 to the Otwell S-4 is incorporated herein by reference.
10.8 Form of Incentive Stock Option Agreement. The copy of this exhibit
filed as Exhibit 10.7 to the Otwell S-4 is incorporated herein by
reference. The Incentive Stock Option Agreement between German
American Bancorp and Mark A. Schroeder dated April 20, 1993, is
substantially identical to the Form of Incentive Stock Option
Agreements entered into by German American and the following other
executive officers of German American, all on April 20, 1993: James E.
Essany (1,500 shares); Urban R. Giesler (1,500 shares); Stan J. Ruhe
(3,000 shares) (all numbers and prices unadjusted for subsequent stock
splits).
13 Annual Report to Shareholders for the year ended December 31, 1997.
The copy of this exhibit filed as Exhibit 13 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997 (the
"1997 10-K") is incorporated herein by reference. This exhibit, except
to the extent specifically incorporated by reference into the 1997
10-K, is furnished for the information of the Commission only and is
not to be deemed "filed" as a part of the 1997 10-K or this
Registration Statement.
21 * Subsidiaries of German American.
23.1 Consent of Crowe, Chizek and Company, LLP.
23.2 Consent of Crowe, Chizek and Company, LLP.
23.3 Consent of Gaither Rutherford & Co., LLP.
23.4 Consents of counsel are filed as part of Exhibits 5 and 8 to this
Registration Statement.
-II 7-
<PAGE>
23.5 * Consent of Olive Corporate Finance, LLC.
23.6 * Consent of Olive Corporate Finance, LLC.
24 Power of Attorney.
27 Financial Data Schedule.
99.1 * Form of Proxy (CSB).
99.2 * Form of Proxy (FSB).
99.3 * Form of Cover Letter to Shareholders (CSB).
99.4 * Form of Cover Letter to Shareholders (FSB).
* Filed as part of original Registration Statement on February 26, 1998.
-II 8-
EXHIBIT 8.1
[LEAGRE CHANDLER & MILLARD LETTERHEAD]
April 21, 1998
German American Bancorp
711 Main Street
Box 810
Jasper, Indiana 47546
Subject: Agreement and Plan of Reorganization by and among CSB Bancorp,
The Citizens State Bank of Petersburg, German American Bancorp,
German American Holdings Corporation, and Community Trust Bank.
Gentlemen:
You have requested our opinion on certain of the federal income tax
consequences with respect to certain transactions set forth in the Agreement and
Plan of Reorganization by and among CSB Bancorp, an Indiana corporation ("CSB"),
The Citizens State Bank of Petersburg, an Indiana banking corporation,
("Citizens"), German American Holdings Corporation, an Indiana corporation
("GAHC"), German American Bancorp, an Indiana corporation ("German American"),
and Community Trust Bank, an Indiana banking corporation ("Community"), and
dated December 8, 1997 ("Agreement and Plan of Reorganization"). Subject to the
terms and conditions of the Agreement and Plan of Reorganization, CSB shall
merge with and into GAHC. This transaction is referred to herein as the "Holding
Company Merger." Simultaneously, Community shall be merged with and into
Citizens, subject to the terms and conditions of the Agreement and Plan of
Reorganization. This transaction is referred to herein as the "Bank Merger."
Collectively, the Holding Company Merger and the Bank Merger are referred to
herein as the "Mergers." Capitalized terms used herein that are not defined in
this opinion are defined in the Agreement and Plan of Reorganization.
Documents Reviewed. We have, for purposes of the opinion, reviewed the
following documents:
1. The Agreement and Plan of Reorganization.
<PAGE>
2. The Registration Statement on Form S-4 filed by German
American with the Securities and Exchange Commission on February 26,
1998, under the Securities Act of 1933, as amended (the "Registration
Statement").
3. Such other documents, records, and matters of law as we
have deemed necessary or appropriate in connection with rendering this
opinion.
We have relied upon the above documents as to matters of fact. We have not
independently checked or verified the accuracy or completeness of the
information set forth in such documents, but we know of no facts that indicate
to us that the information set forth in such documents is inaccurate or
incomplete.
Factual and Legal Assumptions. For purposes of this opinion, we have made
the following assumptions as to factual and legal matters:
1. The representations and warranties of the parties
contained in the Agreement and Plan of Reorganization that may be
deemed material to this opinion will be true in all material respects
as of the effective date of the Mergers, except as may be otherwise set
forth in or contemplated by the Agreement and Plan of Reorganization.
2. The representations of German American, Community, GAHC,
CSB and Citizens contained in the Representation Certificates attached
hereto will be true in all material respects as of the effective date
of the Mergers.
3. The Mergers and all transactions related thereto or
contemplated by the Agreement and Plan of Reorganization shall be
consummated in accordance with the terms and conditions of the
Agreement and Plan of Reorganization.
Limitations on Opinion. The following limitations apply with respect to
this opinion:
1. Our opinion is based upon the Internal Revenue Code (the
"Code"), Treasury Regulations, court decisions and Internal Revenue
Service policies and rulings as of this date. These fundamentals of our
opinion are subject to change at any time, and some of these changes
have been applied in the past, retroactively, to affect adversely
transactions that had occurred prior to the change.
2. We have not been asked to render an opinion with respect
to any federal income tax matters, except those set forth below, nor
have we been asked to render an opinion with respect to any state or
local tax consequences of the Mergers. Accordingly, this opinion should
not be construed as applying in any manner to any tax aspect of the
Mergers other than as set forth below.
3. All of the factual and legal assumptions set forth above
are material to the opinion herein rendered and have been relied upon
by us in rendering such opinion. Any material inaccuracy in any one or
more of the factual or legal assumptions may render all or part of our
opinion inapplicable to the Mergers.
Opinion. Based upon and subject to the foregoing, it is our opinion that:
<PAGE>
1. The Mergers will constitute a reorganization within the
meaning of Section 368(a) of the Code.
2. No gain or loss will be recognized by German American,
Community, GAHC, CSB, or Citizens as a result of the consummation of
the Mergers.
3. No gain or loss will be recognized by the CSB shareholders
upon exchange of their shares of CSB Common solely for shares of German
American Common.
4. The basis of the shares of German American Common received
by CSB shareholders will be the same, in each instance, as the basis of
the shares of CSB Common surrendered in exchange therefor.
5. The holding period of the shares of German American Common
received by each shareholder of shares of CSB Common will include the
period during which the shares of CSB Common surrendered in exchange
therefor were held, provided that the shares of CSB Common so exchanged
were held as a capital asset by such shareholder.
6. Cash payments in lieu of fractional share interests of
German American Common will be treated as having been received as
distributions in full payment in exchange for the stock converted as
provided in Section 302 of the Code.
We consent to the reference to this opinion and to our firm in the
Registration Statement.
Very truly yours,
/s/ Leagre Chandler & Millard
<PAGE>
REPRESENTATION CERTIFICATE
German American Bancorp ("German American"), German American Holdings
Corporation ("GAHC"), and Community Trust Bank ("Community") make the following
representations to Leagre Chandler & Millard to be used by Leagre Chandler &
Millard in rendering its opinion as to certain federal income tax consequences
with respect to certain transactions set forth in the Agreement and Plan of
Reorganization by and among CSB Bancorp ("CSB"), The Citizens State Bank of
Petersburg ("Citizens"), GAHC, German American, and Community and dated December
8, 1997 ("Agreement and Plan of Reorganization"). Subject to the terms and
conditions of the Agreement and Plan of Reorganization, CSB shall merge with and
into GAHC. This transaction is referred to herein as the "Holding Company
Merger." Simultaneously, Community shall be merged with and into Citizens,
subject to the terms and conditions of the Agreement and Plan of Reorganization.
This transaction is referred to herein as the "Bank Merger." Collectively, the
Bank Merger and the Holding Company Merger are referred to herein as the
"Mergers."
German American, Community and GAHC acknowledge and agree that each of
the following representations constitutes a material representation to be relied
upon by Leagre Chandler & Millard in rendering its opinion and that any material
inaccuracy in any of the following representations may render the conclusions
drawn in the opinion of Leagre Chandler & Millard inapplicable to the Mergers.
The representations of each party hereto are limited to the extent that each
specific representation is made solely with respect to information applicable to
itself.
"Control" for purposes of these representations means the ownership of
stock possessing at least 80 percent of the total combined voting power of all
classes of stock entitled to vote and at least 80 percent of the total number of
shares of all other classes of stock.
The specific representations made are as follows:
<PAGE>
1. The fair market value of the German American
Common Stock received by each CSB shareholder will be approximately
equal to the fair market value of the CSB Common Stock surrendered in
the exchange.
2. To the best of the knowledge of the managements of
German American, Community and GAHC there is no plan or intention on
the part of the shareholders of CSB, to sell, exchange, or otherwise
dispose of a number of shares of German American Common Stock received
in the Mergers that would reduce the CSB shareholders' ownership of
German American Common Stock to a number of shares having a value, at
the close of business on the effective date of the Mergers ("Effective
Time"), of less than 50 percent of the value of all the formerly
outstanding Common Stock of CSB as of the same date. For purposes of
this representation, shares of CSB Common Stock surrendered by
dissenters, or exchanged for cash in lieu of fractional shares of
German American Common Stock, will be treated as outstanding CSB Common
Stock as of the Effective Time. Moreover, shares of CSB Common Stock
and shares of German American Common Stock held by CSB shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the
Merger will be considered in making this representation.
3. Following the Mergers, Citizens will hold at least
90 percent of the fair market value of its net assets and at least 70
percent of the fair market value of its gross assets and at least 90
percent of the fair market value of Community net assets and at least
70 percent of the fair market value of Community gross assets, held
immediately prior to the Mergers. For purposes of this representation,
amounts used by Citizens or Community to pay reorganization expenses
and all redemptions and distributions (except for regular, normal
dividends) made by Citizens will be included as assets of Citizens or
Community, respectively, immediately prior to the Mergers.
4. Prior to the Mergers, German American will be in
control of Community and GAHC.
5. Neither GAHC nor Citizens has any plan or
intention to issue additional shares of its stock after the Mergers
that would result in German American losing control, respectively, of
GAHC or Citizens.
6. German American has no plan or intention to
reacquire any of its Common Stock issued in the Mergers.
7. German American and GAHC have no plan or intention
to sell or otherwise dispose of any of the assets of CSB acquired in
the Mergers, to liquidate Citizens, to sell or otherwise dispose of the
Citizens stock, or to cause Citizens to sell or otherwise dispose of
any of its assets or of any of the assets acquired from Community,
except for dispositions made in the ordinary course of business.
8. The liabilities of CSB to be assumed by GAHC, the
liabilities of Community to be assumed by Citizens, and the liabilities
to which the assets of CSB and Community are subject, were incurred in
the ordinary course of business of CSB and Community.
9. Following the Mergers, GAHC will continue the
historic business of CSB or use a significant portion of CSB's historic
business assets in a business, and Citizens will continue the historic
business of Community or use a significant portion of Community
historic business assets in a business.
10. German American, Community, GAHC, CSB, Citizens
and their respective shareholders will each pay their own expenses, if
any, incurred in connection with the Mergers.
<PAGE>
11. There is no intercorporate indebtedness existing
between (i) German American or GAHC and Citizens, (ii) Community and
Citizens, or (iii) German American or GAHC and CSB that was issued,
acquired, or will be settled at a discount.
12. In the Mergers, shares of CSB's Common Stock
representing control of CSB will be exchanged solely for voting stock
of German American. For purposes of this representation, shares of
CSB's Common Stock exchanged for cash or other property originating
with German American will be treated as outstanding CSB Common Stock as
of the Effective Time.
13. At the Effective Time, CSB and Citizens will not
have outstanding any warrants, options, convertible securities, or any
other type of right pursuant to which any person could acquire stock in
CSB and Citizens that, if exercised or converted, would affect German
American's acquisition or retention of control of CSB and Citizens,
respectively.
14. German American does not own, directly or
indirectly, nor has it owned during the past five years, directly or
indirectly, any Common Stock of CSB or Citizens.
15. No party to the Mergers is an investment company
regulated under the Investment Company Act of 1940, a real estate
investment trust, or a corporation 50 percent or more of the value of
whose total assets are stock and securities and 80 percent or more of
the value of whose total assets are held for investment.
16. On the date of the Mergers, the fair market value
of the assets of Citizens will exceed the sum of its liabilities, plus
the amount of liabilities, if any, to which the assets are subject.
17. Neither CSB nor Citizens is under the
jurisdiction of a court in a case under Title 11 of the United States
Code or a receivership, foreclosure, or similar proceeding.
18. The payment of cash in lieu of fractional shares
of German American's Common Stock is solely for the purpose of avoiding
the expense and inconvenience to German American of issuing fractional
shares and does not represent separately bargained-for consideration.
The total cash consideration that will be paid in the Mergers to the
CSB shareholders instead of issuing fractional shares of German
American Common Stock will not exceed one percent of the total
consideration that will be issued in the Mergers to the CSB
shareholders in exchange for their shares of CSB Common Stock. The
fractional share interests of each CSB shareholder will be aggregated,
and no CSB shareholder will receive cash in an amount equal to or
greater than the value of one full share of German American Common
Stock.
<PAGE>
19. None of the compensation received by any
shareholder-employees of CSB or Citizens will be separate consideration
for, or allocable to, any of their shares of CSB Common Stock; none of
the shares of German American Common Stock received by any
shareholder-employees of CSB or Citizens will be separate consideration
for, or allocable to, any employment agreement; and the compensation
paid to any shareholder-employees of CSB or Citizens will be for
services actually rendered and will be commensurate with amounts paid
to third parties bargaining at arm's-length for similar services.
20. The Bank Merger and Holding Company Merger will
occur on the same date.
21. GAHC will acquire at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair
market value of the gross assets, held by CSB immediately prior to the
Mergers. For purposes of this representation, amounts used by CSB to
pay its reorganization expenses, amounts paid by CSB to shareholders
who receive cash or other property, and all redemptions and
distribution (except for regular, normal dividends) made by CSB
immediately preceding the transfer will be included as assets of CSB
held immediately prior to the Mergers.
22. The adjusted basis and fair market value of the
assets of CSB transferred to GAHC will each equal or exceed the sum of
CSB's liabilities assumed by GAHC, plus any other liabilities to which
the transferred assets are subject.
IN WITNESS WHEREOF, German American, Community and GAHC, each acting by
an authorized officer with full corporate authority, have executed and delivered
this Representation Certificate to Leagre Chandler & Millard as of the date
written below.
GERMAN AMERICAN BANCORP
Date: April 20, 1998 By/s/George W. Astrike
George W. Astrike,
Chairman of the Board and Chief
Executive Officer
GERMAN AMERICAN HOLDINGS CORPORATION
Date: April 20, 1998 By/s/George W. Astrike
George W. Astrike,
Chief Executive Officer
THE COMMUNITY TRUST BANK
/s/Paul G. Cooper
Date: April 20, 1998 By Paul G. Cooper, President
<PAGE>
REPRESENTATION CERTIFICATE
CSB Bancorp ("CSB") and The Citizens State Bank of Petersburg
("Citizens") make the following representations to Leagre Chandler & Millard to
be used by Leagre Chandler & Millard in rendering its opinion as to certain
federal income tax consequences with respect to certain transactions set forth
in the Agreement and Plan of Reorganization by and among CSB, Citizens, German
American Holdings Corporation ("GAHC"), German American Bancorp ("German
American"), and Community Trust Bank ("Community") and dated December 8, 1997
("Agreement and Plan of Reorganization"). Subject to the terms and conditions of
the Agreement and Plan of Reorganization, CSB shall merge with and into GAHC.
This transaction is referred to herein as the "Holding Company Merger."
Simultaneously, Community shall be merged with and into Citizens, subject to the
terms and conditions of the Agreement and Plan of Reorganization. This
transaction is referred to herein as the "Bank Merger." Collectively, the Bank
Merger and the Holding Company Merger are referred to herein as the "Mergers."
CSB and Citizens acknowledge and agree that each of the following
representations constitutes a material representation to be relied upon by
Leagre Chandler & Millard in rendering its opinion and that any material
inaccuracy in any of the following representations may render the conclusions
drawn in the opinion of Leagre Chandler & Millard inapplicable to the Mergers.
The representations of each party hereto are limited to the extent that each
specific representation is made solely with respect to information applicable to
itself.
"Control" for purposes of these representations means the ownership of
stock possessing at least 80 percent of the total combined voting power of all
classes of stock entitled to vote and at least 80 percent of the total number of
shares of all other classes of stock.
The specific representations made are as follows:
<PAGE>
1. The fair market value of the German American Common Stock
received by each CSB shareholder will be approximately equal to the
fair market value of the CSB Common Stock surrendered in the exchange.
2. There is no plan or intention by the shareholders of CSB
who currently are directors and executive officers of CSB and Citizens
and to the best of the knowledge of the managements of CSB and Citizens
there is no plan or intention on the part of the remaining shareholders
of CSB, to sell, exchange, or otherwise dispose of a number of shares
of German American Common Stock received in the Mergers that would
reduce the CSB shareholders' ownership of German American Common Stock
to a number of shares having a value, at the close of business on the
effective date of the Mergers ("Effective Time"), of less than 50
percent of the value of all the formerly outstanding Common Stock of
CSB as of the same date. For purposes of this representation, shares of
CSB Common Stock surrendered by dissenters, or exchanged for cash in
lieu of fractional shares of German American Common Stock, will be
treated as outstanding CSB Common Stock as of the Effective Time.
Moreover, shares of CSB Common Stock and shares of German American
Common Stock held by CSB shareholders and otherwise sold, redeemed, or
disposed of prior or subsequent to the Merger will be considered in
making this representation.
3. Following the Mergers, Citizens will hold at least 90
percent of the fair market value of its net assets and at least 70
percent of the fair market value of its gross assets and at least 90
percent of the fair market value of Community net assets and at least
70 percent of the fair market value of Community gross assets, held
immediately prior to the Mergers. For purposes of this representation,
amounts used by Citizens or Community to pay reorganization expenses
and all redemptions and distributions (except for regular, normal
dividends) made by Citizens will be included as assets of Citizens or
Community, respectively, immediately prior to the Mergers.
4. Neither CSB nor Citizens has any plan or intention to issue
additional shares of its stock prior to the Mergers.
5. The liabilities of CSB to be assumed by GAHC and the
liabilities to which the assets of CSB and Community are subject, were
incurred in the ordinary course of business of CSB and Community,
respectively.
6. German American, Community, GAHC, CSB, Citizens and their
respective shareholders will each pay their own expenses, if any,
incurred in connection with the Mergers.
7. There is no intercorporate indebtedness existing between
(i) German American or GAHC and Citizens, (ii) Community and Citizens,
or (iii) German American or GAHC and CSB that was issued, acquired, or
will be settled at a discount.
8. In the Mergers, shares of CSB Common Stock representing
control of CSB will be exchanged solely for voting stock of German
American. For purposes of this representation, shares of CSB Common
Stock exchanged for cash or other property originating with German
American will be treated as outstanding CSB Common Stock as of the
Effective Time.
9. At the Effective Time, CSB and Citizens will not have
outstanding any warrants, options, convertible securities, or any other
type of right pursuant to which any person could acquire stock in CSB
and Citizens that, if exercised or converted, would affect German
American's acquisition or retention of control of CSB and Citizens,
respectively.
10. To the best of the knowledge of the managements of CSB and
Citizens, German American does not own, directly or indirectly, nor has
it owned during the past five years, directly or indirectly, any Common
Stock of CSB or Citizens.
<PAGE>
11. Neither CSB nor Citizens is an investment company
regulated under the Investment Company Act of 1940, a real estate
investment trust, or a corporation 50 percent or more of the value of
whose total assets are stock and securities and 80 percent or more of
the value of whose total assets are held for investment.
12. On the date of the Mergers, the fair market value of the
assets of Citizens will exceed the sum of its liabilities, plus the
amount of liabilities, if any, to which the assets are subject.
13. Neither CSB nor Citizens is under the jurisdiction of a
court in a case under Title 11 of the United States Code or a
receivership, foreclosure, or similar proceeding.
14. None of the compensation received by any
shareholder-employees of CSB or Citizens will be separate consideration
for, or allocable to, any of their shares of CSB Common Stock; none of
the shares of German American Common Stock received by any
shareholder-employees of CSB or Citizens will be separate consideration
for, or allocable to, any employment agreement; and the compensation
paid to any shareholder-employees of CSB or Citizens will be for
services actually rendered and will be commensurate with amounts paid
to third parties bargaining at arm's-length for similar services.
15. GAHC will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair market
value of the gross assets, held by CSB immediately prior to the
Mergers. For purposes of this representation, amounts used by CSB to
pay its reorganization expenses, amounts paid by CSB to shareholders
who receive cash or other property, and all redemptions and
distribution (except for regular, normal dividends) made by CSB
immediately preceding the transfer will be included as assets of CSB
held immediately prior to the Mergers.
16. The fair market value of the assets of CSB transferred to
GAHC will equal or exceed the sum of CSB's liabilities assumed by GAHC,
plus any other liabilities to which the transferred assets are subject.
<PAGE>
IN WITNESS WHEREOF, CSB and Citizens, each acting by an authorized
officer with full corporate authority, have executed and delivered this
Representation Certificate to Leagre Chandler & Millard as of the date written
below.
CSB BANCORP
/s/ Jerry A. Church
Date: April 20, 1998 By Jerry A. Church, Executive
Vice President
THE CITIZENS STATE BANK OF
PETERSBURG
/s/ Jerry A. Church
Date: April 20, 1998 By Jerry A. Church, President
EXHIBIT 8.2
[LEAGRE CHANDLER & MILLARD LETTERHEAD]
April 21, 1998
German American Bancorp
711 Main Street
Box 810
Jasper, Indiana 47546
Subject: Agreement and Plan of Reorganization by and among FSB
Financial Corporation, FSB Bank, German American Bancorp,
German American Holdings Corporation, and Community Trust
Bank.
Gentlemen:
You have requested our opinion on certain of the federal income tax
consequences with respect to certain transactions set forth in the Agreement and
Plan of Reorganization by and among FSB Financial Corporation, an Indiana
corporation ("FSB"), FSB Bank, an Indiana banking corporation, ("FSB Bank"),
German American Holdings Corporation, an Indiana corporation ("GAHC"), German
American Bancorp, an Indiana corporation ("German American"), and Community
Trust Bank, an Indiana banking corporation ("Community") and dated January 30,
1998 ("Agreement and Plan of Reorganization"). Subject to the terms and
conditions of the Agreement and Plan of Reorganization, FSB shall merge with and
into GAHC. This transaction is referred to herein as the "Holding Company
Merger." Simultaneously, FSB Bank shall be merged with and into Community,
subject to the terms and conditions of the Agreement and Plan of Reorganization.
This transaction is referred to herein as the "Bank Merger." Collectively, the
Holding Company Merger and the Bank Merger are referred to herein as the
"Mergers." Capitalized terms used herein that are not defined in this opinion
are defined in the Agreement and Plan of Reorganization.
Documents Reviewed. We have, for purposes of the opinion, reviewed the
following documents:
1. The Agreement and Plan of Reorganization.
2. The Registration Statement on Form S-4 filed by German
American with the Securities and Exchange Commission on February 26,
1998, under the Securities Act of 1933, as amended (the "Registration
Statement").
<PAGE>
3. Such other documents, records, and matters of law as we
have deemed necessary or appropriate in connection with rendering this
opinion.
We have relied upon the above documents as to matters of fact. We have not
independently checked or verified the accuracy or completeness of the
information set forth in such documents, but we know of no facts that indicate
to us that the information set forth in such documents is inaccurate or
incomplete.
Factual and Legal Assumptions. For purposes of this opinion, we have made
the following assumptions as to factual and legal matters:
1. The representations and warranties of the parties
contained in the Agreement and Plan of Reorganization that may be
deemed material to this opinion will be true in all material respects
as of the effective date of the Mergers, except as may be otherwise set
forth in or contemplated by the Agreement and Plan of Reorganization.
2. The representations of German American, Community, GAHC,
FSB and FSB Bank contained in the Representation Certificates attached
hereto will be true in all material respects as of the effective date
of the Mergers.
3. The Mergers and all transactions related thereto or
contemplated by the Agreement and Plan of Reorganization shall be
consummated in accordance with the terms and conditions of the
Agreement and Plan of Reorganization.
Limitations on Opinion. The following limitations apply with respect to
this opinion:
1. Our opinion is based upon the Internal Revenue Code (the
"Code"), Treasury Regulations, court decisions and Internal Revenue
Service policies and rulings as of this date. These fundamentals of our
opinion are subject to change at any time, and some of these changes
have been applied in the past, retroactively, to affect adversely
transactions that had occurred prior to the change.
2. We have not been asked to render an opinion with respect
to any federal income tax matters, except those set forth below, nor
have we been asked to render an opinion with respect to any state or
local tax consequences of the Mergers. Accordingly, this opinion should
not be construed as applying in any manner to any tax aspect of the
Mergers other than as set forth below.
3. All of the factual and legal assumptions set forth above
are material to the opinion herein rendered and have been relied upon
by us in rendering such opinion. Any material inaccuracy in any one or
more of the factual or legal assumptions may render all or part of our
opinion inapplicable to the Mergers.
Opinion. Based upon and subject to the foregoing, it is our opinion that:
<PAGE>
1. The Mergers will constitute a reorganization within the
meaning of Section 368(a) of the Code.
2. No gain or loss will be recognized by German American,
Community, GAHC, FSB, or FSB Bank as a result of the consummation of
the Mergers.
3. No gain or loss will be recognized by the FSB shareholders
upon exchange of their shares of FSB Common solely for shares of German
American Common.
4. The basis of the shares of German American Common received
by FSB shareholders will be the same, in each instance, as the basis of
the shares of FSB Common surrendered in exchange therefor.
5. The holding period of the shares of German American Common
received by each shareholder of shares of FSB Common will include the
period during which the shares of FSB Common surrendered in exchange
therefor were held, provided that the shares of FSB Common so exchanged
were held as a capital asset by such shareholder.
6. Cash payments in lieu of fractional share interests of
German American Common will be treated as having been received as
distributions in full payment in exchange for the stock converted as
provided in Section 302 of the Code.
We consent to the reference to this opinion and to our firm in the
Registration Statement.
Very truly yours,
/s/Leagre Chandler & Millard
<PAGE>
REPRESENTATION CERTIFICATE
German American Bancorp ("German American"), German American Holdings
Corporation ("GAHC"), and Community Trust Bank ("Community") make the following
representations to Leagre Chandler & Millard to be used by Leagre Chandler &
Millard in rendering its opinion as to certain federal income tax consequences
with respect to certain transactions set forth in the Agreement and Plan of
Reorganization by and among FSB Financial Corporation ("FSB"), FSB Bank ("FSB
Bank"), GAHC, German American, and Community and dated January 30, 1998
("Agreement and Plan of Reorganization"). Subject to the terms and conditions of
the Agreement and Plan of Reorganization, FSB shall merge with and into GAHC.
This transaction is referred to herein as the "Holding Company Merger."
Simultaneously, FSB Bank shall be merged with and into Community, subject to the
terms and conditions of the Agreement and Plan of Reorganization. This
transaction is referred to herein as the "Bank Merger." Collectively, the Bank
Merger and the Holding Company Merger are referred to herein as the "Mergers."
German American, Community and GAHC acknowledge and agree that each of
the following representations constitutes a material representation to be relied
upon by Leagre Chandler & Millard in rendering its opinion and that any material
inaccuracy in any of the following representations may render the conclusions
drawn in the opinion of Leagre Chandler & Millard inapplicable to the Mergers.
The representations of each party hereto are limited to the extent that each
specific representation is made solely with respect to information applicable to
itself.
"Control" for purposes of these representations means the ownership of
stock possessing at least 80 percent of the total combined voting power of all
classes of stock entitled to vote and at least 80 percent of the total number of
shares of all other classes of stock.
The specific representations made are as follows:
<PAGE>
1. The fair market value of the German American
Common Stock received by each FSB shareholder will be approximately
equal to the fair market value of the FSB Common Stock surrendered in
the exchange.
2. Following the Mergers, Community will hold at
least 90 percent of the fair market value of its net assets and at
least 70 percent of the fair market value of its gross assets and at
least 90 percent of the fair market value of FSB Bank net assets and at
least 70 percent of the fair market value of FSB Bank gross assets,
held immediately prior to the Mergers. For purposes of this
representation, amounts used by FSB Bank or Community to pay
reorganization expenses and all redemptions and distributions (except
for regular, normal dividends) made by Community will be included as
assets of FSB Bank or Community, respectively, immediately prior to the
Mergers.
3. Prior to the Mergers, German American will be in
control of Community and GAHC.
4. Neither GAHC nor Community has any plan or
intention to issue additional shares of its stock after the Mergers
that would result in German American losing control, respectively, of
GAHC or Community.
5. German American has no plan or intention to
reacquire any of its Common Stock issued in the Mergers.
6. German American and GAHC have no plan or intention
to sell or otherwise dispose of any of the assets of FSB acquired in
the Mergers, to liquidate Community, to sell or otherwise dispose of
the Community stock, or to cause Community to sell or otherwise dispose
of any of its assets or of any of the assets acquired from FSB Bank,
except for dispositions made in the ordinary course of business.
7. The liabilities of FSB to be assumed by GAHC, the
liabilities of FSB Bank to be assumed by Community, and the liabilities
to which the assets of FSB and FSB Bank are subject, were incurred in
the ordinary course of business of FSB and FSB Bank.
8. Following the Mergers, GAHC will continue the
historic business of FSB or use a significant portion of FSB's historic
business assets in a business, and Community will continue the historic
business of FSB Bank or use a significant portion of FSB Bank historic
business assets in a business.
9. German American, Community, GAHC, FSB, FSB Bank
and their respective shareholders will each pay their own expenses, if
any, incurred in connection with the Mergers.
10. There is no intercorporate indebtedness existing
between (i) German American or GAHC and FSB Bank, (ii) Community and
FSB Bank, or (iii) German American or GAHC and FSB that was issued,
acquired, or will be settled at a discount.
<PAGE>
11. In the Mergers, shares of FSB's Common Stock
representing control of FSB will be exchanged solely for voting stock
of German American. For purposes of this representation, shares of
FSB's Common Stock exchanged for cash or other property originating
with German American will be treated as outstanding FSB Common Stock as
of the Effective Time.
12. At the Effective Time, FSB and FSB Bank will not
have outstanding any warrants, options, convertible securities, or any
other type of right pursuant to which any person could acquire stock in
FSB and FSB Bank that, if exercised or converted, would affect German
American's acquisition or retention of control of FSB and FSB Bank,
respectively.
13. German American does not own, directly or
indirectly, nor has it owned during the past five years, directly or
indirectly, any Common Stock of FSB or FSB Bank.
14. No party to the Mergers is an investment company
regulated under the Investment Company Act of 1940, a real estate
investment trust, or a corporation 50 percent or more of the value of
whose total assets are stock and securities and 80 percent or more of
the value of whose total assets are held for investment.
15. On the date of the Mergers, the fair market value
of the assets of FSB Bank will exceed the sum of its liabilities, plus
the amount of liabilities, if any, to which the assets are subject.
16. Neither FSB nor FSB Bank is under the
jurisdiction of a court in a case under Title 11 of the United States
Code or a receivership, foreclosure, or similar proceeding.
17. The payment of cash in lieu of fractional shares
of German American's Common Stock is solely for the purpose of avoiding
the expense and inconvenience to German American of issuing fractional
shares and does not represent separately bargained-for consideration.
The total cash consideration that will be paid in the Mergers to the
FSB shareholders instead of issuing fractional shares of German
American Common Stock will not exceed one percent of the total
consideration that will be issued in the Mergers to the FSB
shareholders in exchange for their shares of FSB Common Stock. The
fractional share interests of each FSB shareholder will be aggregated,
and no FSB shareholder will receive cash in an amount equal to or
greater than the value of one full share of German American Common
Stock.
18. None of the compensation received by any
shareholder-employees of FSB or FSB Bank will be separate consideration
for, or allocable to, any of their shares of FSB Common Stock; none of
the shares of German American Common Stock received by any
shareholder-employees of FSB or FSB Bank will be separate consideration
for, or allocable to, any employment agreement; and the compensation
paid to any shareholder-employees of FSB or FSB Bank will be for
services actually rendered and will be commensurate with amounts paid
to third parties bargaining at arm's-length for similar services.
19. The Bank Merger and Holding Company Merger will
occur on the same date.
20. GAHC will acquire at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair
market value of the gross assets, held by FSB immediately prior to the
Mergers. For purposes of this representation, amounts used by FSB to
pay its reorganization expenses, amounts paid by FSB to shareholders
who receive cash or other property, and all redemptions and
distribution (except for regular, normal dividends) made by FSB
immediately preceding the transfer will be included as assets of FSB
held immediately prior to the Mergers.
<PAGE>
21. The adjusted basis and fair market value of the
assets of FSB transferred to GAHC will each equal or exceed the sum of
FSB's liabilities assumed by GAHC, plus any other liabilities to which
the transferred assets are subject.
22. FSB will distribute the stock, securities, and
other property it receives in the Mergers, and its other properties, in
pursuance of the Merger Agreements.
IN WITNESS WHEREOF, German American, Community and GAHC, each acting by
an authorized officer with full corporate authority, have executed and delivered
this Representation Certificate to Leagre Chandler & Millard as of the date
written below.
GERMAN AMERICAN BANCORP
Date: April 20, 1998 By /s/George W. Astrike
George W. Astrike,
Chairman of the Board and Chief Executive
Officer
GERMAN AMERICAN HOLDINGS CORPORATION
Date: April 20, 1998 By /s/George W. Astrike
George W. Astrike,
Chief Executive Officer
THE COMMUNITY TRUST BANK
/s/Paul G. Cooper
Date: April 20, 1998 By Paul G. Cooper, President
<PAGE>
REPRESENTATION CERTIFICATE
FSB Financial Corporation ("FSB") and FSB Bank ("FSB Bank") make the
following representations to Leagre Chandler & Millard to be used by Leagre
Chandler & Millard in rendering its opinion as to certain federal income tax
consequences with respect to certain transactions set forth in the Agreement and
Plan of Reorganization by and among FSB, FSB Bank, German American Holdings
Corporation ("GAHC"), German American Bancorp ("German American"), and Community
Trust Bank ("Community") and dated January 30, 1998 ("Agreement and Plan of
Reorganization"). Subject to the terms and conditions of the Agreement and Plan
of Reorganization, FSB shall merge with and into GAHC. This transaction is
referred to herein as the "Holding Company Merger." Simultaneously, FSB Bank
shall be merged with and into Community, subject to the terms and conditions of
the Agreement and Plan of Reorganization. This transaction is referred to herein
as the "Bank Merger." Collectively, the Bank Merger and the Holding Company
Merger are referred to herein as the "Mergers."
FSB and FSB Bank acknowledge and agree that each of the following
representations constitutes a material representation to be relied upon by
Leagre Chandler & Millard in rendering its opinion and that any material
inaccuracy in any of the following representations may render the conclusions
drawn in the opinion of Leagre Chandler & Millard inapplicable to the Mergers.
The representations of each party hereto are limited to the extent that each
specific representation is made solely with respect to information applicable to
itself.
"Control" for purposes of these representations means the ownership of
stock possessing at least 80 percent of the total combined voting power of all
classes of stock entitled to vote and at least 80 percent of the total number of
shares of all other classes of stock.
The specific representations made are as follows:
<PAGE>
1. The fair market value of the German American Common Stock
received by each FSB shareholder will be approximately equal to the
fair market value of the FSB Common Stock surrendered in the exchange.
2. Following the Mergers, Community will hold at least 90
percent of the fair market value of its net assets and at least 70
percent of the fair market value of its gross assets and at least 90
percent of the fair market value of FSB Bank net assets and at least 70
percent of the fair market value of FSB Bank gross assets, held
immediately prior to the Mergers. For purposes of this representation,
amounts used by FSB Bank or Community to pay reorganization expenses
and all redemptions and distributions (except for regular, normal
dividends) made by Community will be included as assets of FSB Bank or
Community, respectively, immediately prior to the Mergers.
3. Neither FSB nor FSB Bank has any plan or intention to issue
additional shares of its stock prior to the Mergers.
4. The liabilities of FSB to be assumed by GAHC, the
liabilities of FSB Bank to be assumed by Community, and the liabilities
to which the assets of FSB and FSB Bank are subject, were incurred in
the ordinary course of business of FSB and FSB Bank, respectively.
5. German American, Community, GAHC, FSB, FSB Bank and their
respective shareholders will each pay their own expenses, if any,
incurred in connection with the Mergers.
6. There is no intercorporate indebtedness existing between
(i) German American or GAHC and FSB Bank, (ii) Community and FSB Bank,
or (iii) German American or GAHC and FSB that was issued, acquired, or
will be settled at a discount.
7. In the Mergers, shares of FSB Common Stock representing
control of FSB will be exchanged solely for voting stock of German
American. For purposes of this representation, shares of FSB Common
Stock exchanged for cash or other property originating with German
American will be treated as outstanding FSB Common Stock as of the
Effective Time.
8. At the Effective Time, FSB and FSB Bank will not have
outstanding any warrants, options, convertible securities, or any other
type of right pursuant to which any person could acquire stock in FSB
and FSB Bank that, if exercised or converted, would affect German
American's acquisition or retention of control of FSB and FSB Bank,
respectively.
9. German American does not own, directly or indirectly, nor
has it owned during the past five years, directly or indirectly, any
Common Stock of FSB or FSB Bank.
10. No party to the Mergers is an investment company regulated
under the Investment Company Act of 1940, a real estate investment
trust, or a corporation 50 percent or more of the value of whose total
assets are stock and securities and 80 percent or more of the value of
whose total assets are held for investment.
11. On the date of the Mergers, the fair market value of the
assets of FSB Bank will exceed the sum of its liabilities, plus the
amount of liabilities, if any, to which the assets are subject.
<PAGE>
12. Neither FSB nor FSB Bank is under the jurisdiction of a
court in a case under Title 11 of the United States Code or a
receivership, foreclosure, or similar proceeding.
13. The payment of cash in lieu of fractional shares of German
American's Common Stock is solely for the purpose of avoiding the
expense and inconvenience to German American of issuing fractional
shares and does not represent separately bargained-for consideration.
The total cash consideration that will be paid in the Mergers to the
FSB shareholders instead of issuing fractional shares of German
American Common Stock will not exceed one percent of the total
consideration that will be issued in the Mergers to the FSB
shareholders in exchange for their shares of FSB Common Stock. The
fractional share interests of each FSB shareholder will be aggregated,
and no FSB shareholder will receive cash in an amount equal to or
greater than the value of one full share of German American Common
Stock.
14. None of the compensation received by any
shareholder-employees of FSB or FSB Bank will be separate consideration
for, or allocable to, any of their shares of FSB Common Stock; none of
the shares of German American Common Stock received by any
shareholder-employees of FSB or FSB Bank will be separate consideration
for, or allocable to, any employment agreement; and the compensation
paid to any shareholder-employees of FSB or FSB Bank will be for
services actually rendered and will be commensurate with amounts paid
to third parties bargaining at arm's-length for similar services.
15. GAHC will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair market
value of the gross assets, held by FSB immediately prior to the
Mergers. For purposes of this representation, amounts used by FSB to
pay its reorganization expenses, amounts paid by FSB to shareholders
who receive cash or other property, and all redemptions and
distribution (except for regular, normal dividends) made by FSB
immediately preceding the transfer will be included as assets of FSB
held immediately prior to the Mergers.
16. The fair market value of the assets of FSB transferred to
GAHC will equal or exceed the sum of FSB's liabilities assumed by GAHC,
plus any other liabilities to which the transferred assets are subject.
17. FSB will distribute the stock, securities, and other
property it receives in the Mergers, and its other properties, in
pursuance of the Merger Agreements.
<PAGE>
IN WITNESS WHEREOF, FSB and FSB Bank, each acting by an authorized
officer with full corporate authority, have executed and delivered this
Representation Certificate to Leagre Chandler & Millard as of the date written
below.
FSB FINANCIAL CORPORATION
/s/ Glenn A. Young
Date: April 16, 1998 By Glenn A. Young, President
FSB BANK
/s/ Glenn A. Young
Date: April 16, 1998 By Glenn A. Young, President
EXHIBIT 23.1
Consent of Independent Auditors
Board of Directors
German American Bancorp
Jasper, Indiana
We consent to the inclusion in the Registration Statement Form S-4 and
Prospectus of German American Bancorp, relating to the issuance of securities in
the proposed mergers of CSB Bancorp and FSB Financial Corporation into a wholly
owned subsidiary of German American Bancorp, of our Independent Auditor's
Report, dated February 5, 1998, on the consolidated financial statements of
German American Bancorp as of December 31, 1997 and 1996 and for each of the
three years in the period ended December 31, 1997, and we consent to the use of
our name and the statements with respect to us appearing under the heading
"Experts" in the Prospectus.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
April 20, 1998
Indianapolis, Indiana
EXHIBIT 23.2
Consent of Independent Auditors
Board of Directors
German American Bancorp
Jasper, Indiana
We consent to the inclusion in the Registration Statement Form S-4 and
Prospectus of German American Bancorp, relating to the issuance of securities in
the proposed mergers of CSB Bancorp and FSB Financial Corporation into a wholly
owned subsidiary of German American Bancorp, of our Independent Auditor's
Report, dated January 13, 1998, on the consolidated financial statements of FSB
Financial Corporation as of September 30, 1997 and for the year then ended, and
we consent to the use of our name and the statements with respect to us
appearing under the heading "Experts" in the Prospectus.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
April 20, 1998
Indianapolis, Indiana
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Prospectus/Proxy Statement forming a part of
the Registration Statement on Form S-4 filed by German American Bancorp, Inc. of
our report dated February 16, 1998, on our audit of the consolidated balance
sheets of Citizens State Bancorp and subsidiary, as of December 31, 1997 and
1996 and the related statements of income, shareholders' equity, and cash flows
for each of the three years in the period dated December 31, 1997. We also
consent to the reference to our firm under the caption "Experts" in the
Prospectus/Proxy Statement.
/s/ Gaither Rutherford & Co., LLP
GAITHER RUTHERFORD & CO., LLP
Evansville, Indiana
April 21, 1998
EXHIBIT 24
POWER OF ATTORNEY
Each person whose signatures appear below hereby constitutes and appoints
GEORGE W. ASTRIKE and MARK A. SCHROEDER, and each of them, the true and lawful
attorneys-in-fact and agents, with full power of substitution and re-
substitution, for him and in his name, place and stead, in any and all
capacities, to sign and file, or cause to be signed and filed, with the
Securities and Exchange Commission (the "Commission"), the Registration
Statement on Form S-4 for German American Bancorp in connection with the
acquisitions of FSB Bank and The Citizens State Bank and any and all amendments
(including post effective amendments) to the original Registration Statement
filed February 26, 1998, the Pre-Effective Amendment No. 1 to Registration
Statement, and any and all other documents required to be filed with the
Commission in connection therewith, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully and to all intents and purposes as
the undersigned might or could do in person, and ratifying and confirming all
that said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
Effective as of February 25, 1998.
/s/Richard Trent
Richard Trent
/s/John M. Gutgsell
John M. Gutgsell
/s/David G. Buehler
David G. Buehler
/s/David B. Graham
David B. Graham
/s/William R. Hoffman
William R. Hoffman
/s/Michael B. Lett
Michael B. Lett
/s/Gene C. Mehne
Gene C. Mehne
/s/A. Wayne ("Skip") Place, Jr.
A. Wayne ("Skip") Place, Jr.
/s/Robert L. Ruckriegel
Robert L. Ruckriegel
/s/Larry J. Seger
Larry J. Seger
/s/Joseph F. Steurer
Joseph F. Steurer
/s/Chet L. Thompson
Chet L. Thompson
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<CIK> 0000714395
<NAME> GERMAN AMERICAN BANCORP
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 17,134 20,051
<INT-BEARING-DEPOSITS> 597 997
<FED-FUNDS-SOLD> 20,600 12,550
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 98,557 92,887
<INVESTMENTS-CARRYING> 23,213 22,063
<INVESTMENTS-MARKET> 23,810 22,226
<LOANS> 313,282 289,350
<ALLOWANCE> 6,528 6,893
<TOTAL-ASSETS> 489,443 458,604
<DEPOSITS> 422,906 395,553
<SHORT-TERM> 12,527 12,404
<LIABILITIES-OTHER> 4,217 3,856
<LONG-TERM> 1,000 1,000
0 0
0 0
<COMMON> 2,539 2,440
<OTHER-SE> 46,254 43,348
<TOTAL-LIABILITIES-AND-EQUITY> 489,443 458,604
<INTEREST-LOAN> 27,846 26,197
<INTEREST-INVEST> 6,737 6,102
<INTEREST-OTHER> 778 1,537
<INTEREST-TOTAL> 35,361 33,816
<INTEREST-DEPOSIT> 16,179 15,150
<INTEREST-EXPENSE> 16,683 15,948
<INTEREST-INCOME-NET> 18,678 17,868
<LOAN-LOSSES> 210 49
<SECURITIES-GAINS> 73 19
<EXPENSE-OTHER> 13,288 12,418
<INCOME-PRETAX> 7,407 7,165
<INCOME-PRE-EXTRAORDINARY> 7,407 7,165
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,894 4,842
<EPS-PRIMARY> 0.92 0.91
<EPS-DILUTED> 0.92 0.91
<YIELD-ACTUAL> 4.54 4.53
<LOANS-NON> 1,370 1,093
<LOANS-PAST> 1,102 2,689
<LOANS-TROUBLED> 0 122
<LOANS-PROBLEM> 0 122
<ALLOWANCE-OPEN> 6,893 6,602
<CHARGE-OFFS> 874 395
<RECOVERIES> 299 637
<ALLOWANCE-CLOSE> 6,528 6,893
<ALLOWANCE-DOMESTIC> 6,528 6,893
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 2,295 1,745
</TABLE>
