[Home Federal Logo] HOME FEDERAL BANCORP
222 West Second Street
Seymour, Indiana 47274
(812) 522-1592
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On October 26, 1999
Notice is hereby given that the Annual Meeting of Shareholders of Home
Federal Bancorp (the "Corporation") will be held at the Hampton Inn, 247 N.
Sandy Creek Drive, Seymour, Indiana, on Tuesday, October 26, 1999, at 3:00 P.M.,
Eastern Standard Time.
The Annual Meeting will be held for the following purposes:
1. Election of Directors. Election of two directors of the Corporation for
terms expiring in 2002.
2. Approval of the 1999 Stock Option Plan. Approval and ratification of
the Home Federal Bancorp 1999 Stock Option Plan (the "1999 Option Plan")
3. Other Business. Such other matters as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on September 9, 1999, are
entitled to vote at the meeting or any adjournment thereof.
We urge you to read the enclosed Proxy Statement carefully so that you may
be informed about the business to come before the meeting, or any adjournment
thereof. At your earliest convenience, please sign and return the accompanying
proxy in the postage-paid envelope furnished for that purpose.
A copy of our Annual Report for the fiscal year ended June 30, 1999, is
enclosed. The Annual Report is not a part of the proxy soliciting material
enclosed with this letter.
By Order of the Board of Directors
/s/John K. Keach, Sr.
John K. Keach, Sr.
Chairman of the Board
Seymour, Indiana
September 24, 1999
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE SIGN, DATE AND
COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
HOME FEDERAL BANCORP
222 West Second Street
Seymour, Indiana 47274
(812) 522-1592
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 26, 1999
This Proxy Statement is being furnished to the holders of common stock,
without par value ("Common Stock"), of Home Federal Bancorp ("the Corporation"),
an Indiana corporation, in connection with the solicitation of proxies by the
Board of Directors of the Corporation for use at the Annual Meeting of
Shareholders of the Corporation to be held at 3:00 p.m., Eastern Standard Time,
at the Hampton Inn, 247 N. Sandy Creek Drive, Seymour, Indiana, on October 26,
1999, and at any and all adjournments of such meeting. The principal asset of
the Corporation consists of 100% of the issued and outstanding shares of Common
Stock, $.01 par value per share, of Home Federal Savings Bank (the "Bank"), a
federal savings bank based in Seymour, Indiana. This Proxy Statement is expected
to be mailed to Shareholders on or about September 24, 1999.
A Notice of Annual Meeting and form of proxy accompany this Proxy
Statement. Any Shareholder giving a proxy has the right to revoke it, by
delivering written notice to the Secretary of the Corporation, by filing a later
proxy, or in person at the meeting, at any time before such proxy is exercised.
All proxies will be voted in accordance with the directions of the Shareholder
and, to the extent no directions are given, will be voted "for" items 1 and 2.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only Shareholders of record at the close of business on September 9, 1999
(the "Voting Record Date"), will be eligible to vote at the Annual Meeting or at
any adjournment thereof. Such Shareholders are entitled to one vote for each
share then held. As of that date, the Corporation had 4,885,601 shares of the
Corporation's Common Stock issued and outstanding. A majority of the votes
entitled to be cast, in person or by proxy, at the Annual Meeting is necessary
for a quorum. In determining whether a quorum is present, Shareholders who
abstain, cast broker non-votes, or withhold authority to vote on one or more
director nominees will be deemed present at the Annual Meeting.
Management knows of no person who held more than 5% of the outstanding
shares of the Corporation's Common Stock on September 9, 1999, other than the
following:
Number of Shares
Name and Address of of Common Stock Percent of
Beneficial Owner Beneficially Owned Class
---------------- ------------------ -----
Heartland Advisors, Inc. 290,250(1) 5.9%
790 North Milwaukee Street
Milwaukee, WI 53202
Lawrence E. Hiler 286,537(2) 5.9%
P.O. Box 148
Walkerton, IN 46574
(1) The information is based on an amendment to a Schedule 13G Report filed by
the Shareholder with the Securities and Exchange Commission and dated
January 21, 1999, but otherwise does not reflect any changes in those
shareholdings which may have occurred since the date of such filing.
Heartland Advisors, Inc. is a registered investment advisor and the shares
shown above are held in its investment advisory accounts, including
Heartland Value Fund, a series of Heartland Group, Inc., a registered
investment company which holds more than 5% of the Corporation's
outstanding shares.
(2) The information is based on a Schedule 13D Report filed by the Shareholder
with the Office of Thrift Supervision on July 26, 1991, but otherwise does
not reflect any changes in those shareholdings which may have occurred
since the date of such filing, except for changes resulting from the
Corporation's stock splits.
- 1 -
<PAGE>
PROPOSAL I -- ELECTION OF DIRECTORS
The Corporation's Board of Directors currently consists of seven members.
The Corporation's By-laws provide that the directors shall be divided into three
classes as nearly equal in number as possible. Directors of the Corporation are
generally elected to serve for a three-year period or until their respective
successors are elected and qualified. The two nominees for election as a
director this year are John K. Keach, Jr. and David W. Laitinen, MD, each of
whom currently serves as a director. Mssrs. Keach, Jr. and Laitinen each have
been nominated to serve for a three-year term ending in 2002.
The following table sets forth certain information regarding the nominees
for election as a director and each director continuing in office after the
Annual Meeting. It is intended that the proxies solicited on behalf of the Board
of Directors (other than proxies as to which authorization is withheld) will be
voted at the Annual Meeting for the election of the nominees identified below.
If any nominee is unable or declines to serve (an event which the Board of
Directors does not anticipate), the proxies will have discretionary authority to
vote for a substitute nominee named by the Board of Directors if the Board
elects to fill such nominee's position. The table also sets forth the number of
shares of the Corporation's Common Stock beneficially owned by certain executive
officers of the Corporation and by all directors and executive officers of the
Corporation as a group. Mr. Keach, Jr. is the son of the Corporation's Chairman
of the Board.
<TABLE>
<CAPTION>
Shares of
Common
Positions DirectorDirector Stock
Held With of the of the Term Beneficially Percent
the Bank Corporation to Owned on of
Name Age Corporation Since Since Expire 9/9/99(1) Class
- ---- --- ---------------------- ----- ------ ---------- ------
Director Nominees
<S> <C> <C> <C> <C> <C> <C> <C>
John K. Keach, Jr. 47 President and 1990 1990 2002 174,922(2) 3.5%
Chief Executive Officer
David W. Laitinen, MD 47 Director 1990 1990 2002 61,985(3) 1.3%
Directors Continuing
In Office
John T. Beatty 49 Director 1991 1992 2001 25,378(4) *
Lewis W. Essex 67 Director 1972 1990 2000 129,656(5) 2.6%
Harold Force 48 Director 1991 1992 2001 25,602(6) *
John K. Keach, Sr. 72 Chairman of the Board 1954 1990 1999 ** 124,564(7) 2.5%
Harvard W. Nolting, Jr. 60 Director 1988 1990 2000 67,365(8) 1.4%
Executive Officers
Gerald L. Armstrong 59 Executive Vice 105,474(9) 2.1%
President and Chief
Operating Officer
Lawrence E. Welker 52 Executive Vice 149,553(10) 3.0%
President, Chief Financial
Officer, Treasurer and Secretary
S. Elaine Pollert 39 Executive Vice President, 61,907(11) 1.3%
Retail Banking
All executive officers and
directors as a group (10 persons) 926,406(12) 17.7%
<FN>
* Less than 1%.
** Mr. Keach, Sr. will retire from the Board as of December 31, 1999 due to
the age limitations applicable to Board members.
(1) Includes shares beneficially owned by members of the immediate families
of the directors or director nominees residing in their homes. Unless
otherwise indicated, each nominee, director or executive officer has sole
investment and/or voting power with respect to the shares shown as
beneficially owned by him or her.
(2) Includes 78,749 shares held jointly by Mr. Keach and his wife, 4,226
shares held by his wife and children, 78,256 shares subject to stock
options granted under the Home Federal Bancorp Stock Option Plan (the
"Option Plan"), the Home Federal Bancorp 1993 Stock Option Plan ("1993
Option Plan") and the Home Federal Bancorp 1995 Stock Option Plan (the
"1995 Option Plan") and 13,691 whole shares allocated as of June 30,
1999, to Mr. Keach's account under the Home Federal Bancorp Employees
Salary Savings Plan (the "401(k) Plan"). Does not include stock options
for 42,299 shares which are not exercisable within a period of 60 days
following the Voting Record Date.
Footnotes continued on following page
- 2 -
<PAGE>
(3) Includes 25,476 shares held jointly by Dr. Laitinen and his wife, 24,292
shares held by Mrs. Laitinen for their minor children, and 12,217 shares
subject to stock options granted under the Option Plan, 1993 Option Plan
or by the Corporation.
(4) Includes 8,961 shares held jointly by Mr. Beatty and his wife and
16,417 shares subject to stock options granted under the Option Plan,
the 1993 Option Plan or by the Corporation.
(5) Includes 33,745 shares held by a trust of which Mr. Essex is a trustee
and beneficiary, 12,217 shares subject to stock options granted under the
1993 Option Plan or by the Corporation, and 44,043 shares owned by Mr.
Essex's mother as to which Mr. Essex has a power of attorney.
(6) Includes 225 shares held jointly by Mr. Force and his wife, and 24,872
shares subject to stock options granted under the Option Plan, the 1993
Option Plan or by the Corporation.
(7) Includes 49,500 shares held jointly by Mr. Keach and his wife.
(8) Includes 10,530 shares subject to stock options granted under the 1993
Stock Option Plan or by the Corporation.
(9) Includes 66,861 shares subject to stock options granted under the Stock
Option Plan, the 1993 Option Plan and the 1995 Option Plan, and 10,091
whole shares allocated as of June 30, 1999, to Mr.Armstrong's account
under the 401(k) Plan. Does not include stock options for 22,794 shares
which are not exercisable within a period of 60 days following the
Voting Record Date.
(10) Includes 65,301 shares held jointly by Mr. Welker and his wife, 1,012
shares held by Mrs. Welker for their minor children, 73,611 shares
subject to stock options granted under the Stock Option Plan, the 1993
Option Plan and the 1995 Option Plan, and 9,629 whole shares allocated as
of June 30, 1999, to Mr. Welker's account under the 401(k) Plan. Does not
include stock options for 22,794 shares which are not exercisable within
a period of 60 days following the Voting Record Date.
(11) Includes 52,848 shares subject to stock options granted under the Stock
Option Plan, the 1993 Option Plan and the 1995 Option Plan, and 2,620
whole shares allocated as of June 30, 1999, to Ms. Pollert's account
under the 401(k) Plan. Does not include stock options for 14,041 shares
which are not exercisable within a period of 60 days following the Voting
Record Date.
(12) Includes 347,829 shares subject to stock options granted under the Stock
Option Plan, the 1993 Option Plan and the 1995 Option Plan, and outside
of those plans, and 36,031 whole shares allocated as of June 30, 1999, to
the accounts of participants in the 401(k) Plan. Does not include stock
options for 101,928 shares which are not exercisable within a period of
60 days following the Voting Record Date.
</FN>
</TABLE>
The business experience of each of the above directors and director
nominees for at least the past five years is as follows:
John T. Beatty is President and Treasurer of Beatty Insurance, Inc.
Lewis W. Essex retired from his position as Chief Executive Officer of
Essex Castings, Inc. in 1996.
Harold Force has been President of Force Construction Company, Inc.
since 1976.
John K. Keach, Sr. has been employed by the Bank since 1950. He served in
various positions until 1974, at which time be became President and Chief
Executive Officer. He was elected as Chairman of the Board in 1986. He
resigned as President, remaining Chief Executive Officer, in 1988. He
resigned as Chief Executive Officer as of July 1, 1994.
John K. Keach, Jr. has been employed by the Bank since 1974. In 1985, he
was elected Senior Vice President - Financial Services, in 1987 he became
Executive Vice President, and in 1988 he became President and Chief
Operating Officer. In 1994, he became President and Chief Executive
Officer.
David W. Laitinen, MD has been an orthopedic surgeon in Seymour, Indiana
since 1983.
Harvard W. Nolting, Jr. was a co-owner of Nolting Foods, Inc. (grocery
chain) for over 30 years before his retirement in 1994.
Directors will be elected upon receipt of a plurality of votes cast at the
Annual Meeting. Plurality means that individuals who receive the largest number
of votes cast are elected up to the maximum number of directors to be chosen at
the meeting. Abstentions, broker non-votes, and instructions on the accompanying
proxy to withhold authority to vote for one or more of the nominees will result
in the respective nominees receiving fewer votes. However, the number of votes
otherwise received by the nominee will not be reduced by such action.
- 3 -
<PAGE>
Meetings and Committees of the Board of Directors of the Corporation
The Board of Directors meetings are generally held on a monthly basis. The
Board of Directors held a total of 13 meetings during the fiscal year ended June
30, 1999. No incumbent director attended fewer than 75% of the sum of the
meetings of the Board of Directors held while he served as a director and the
meetings of committees on which he served.
The Audit Committee, comprised of Messrs. Essex (Chairman), Beatty, Force,
and Nolting, Jr., recommends the appointment of the Corporation's independent
accountants in connection with its annual audit, and meets with them to outline
the scope and review the results of such audit. That committee met four times
during the Corporation's fiscal year ended June 30, 1999.
The Board of Directors of the Corporation has a Compensation Committee, the
members of which are Messrs. Nolting, Jr. (Chairman), Keach, Sr., Laitinen and
Keach, Jr., which reviews payroll costs and salary recommendations and sets
salary guidelines. During the fiscal year ended June 30, 1999, the Compensation
Committee met two times.
The Corporation's Stock Option Committee administers the Stock Option Plan,
the 1993 Option Plan, and the 1995 Option Plan, and will administer the 1999
Option Plan if it is approved by the shareholders of the Corporation. It met one
time during the fiscal year ended June 30, 1999. Its members are all of the
directors except Messrs. Keach, Sr. and Keach, Jr.
The Corporation's Nominating Committee nominated the slate of directors set
forth in the Proxy Statement. The Nominating Committee held one meeting for the
fiscal year ended June 30, 1999. The members of the Nominating Committee for the
1999 Annual Meeting were Messrs. Nolting (Chairman), Force and Essex. The
Nominating Committee will consider the nomination of any Shareholder of the
Corporation entitled to vote for the election of directors at the meeting who
has given timely notice in writing to the Secretary of the Corporation as
provided in the Corporation's By-laws. To be timely, a Shareholder's notice must
be delivered to or mailed and received by the Secretary of the Corporation not
less than 60 days prior to the meeting, unless less than 70 days' notice or
prior public disclosure of the date of the meeting is given or made to
Shareholders (which notice or public disclosure shall include the date of the
Annual Meeting specified in publicly-available By-laws, if the Annual Meeting is
held on such date), in which case the notice by a Shareholder must be received
no later than the close of business on the 10th day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made.
Management Remuneration and Related Transactions
Joint Report of the Compensation Committee and the Stock Option Committee
--------------------------------------------------------------------------
The Compensation Committee of the Board of Directors was comprised during
fiscal 1999 of Messrs. Nolting, Jr. (Chairman), Keach, Sr., Laitinen and Keach,
Jr. The Committee reviews payroll costs, establishes policies and objectives
relating to compensation, and approves the salaries of all employees, including
executive officers. All decisions by the Compensation Committee relating to
salaries of the Corporation's executive officers are approved by the full Board
of Directors. In fiscal 1999, there were no modifications to Compensation
Committee actions and recommendations made by the full Board of Directors. In
approving the salaries of executive officers, the Committee has access to and
reviews compensation data for comparable financial institutions in the Midwest.
Moreover, from time to time the Compensation Committee reviews information
provided to it by independent compensation consultants in making its decisions.
The Corporation's Stock Option Committee administers the Stock Option Plan,
the 1993 Option Plan, and the 1995 Option Plan, and will administer the 1999
Option Plan if it is approved by the Corporaiton's shareholders. Its members are
all of the Corporation's outside directors.
The objectives of the Compensation Committee and the Stock Option
Committee with respect to executive compensation are the following:
(1) provide compensation opportunities comparable to those offered by other
similarly situated financial institutions in order to be able to attract and
retain talented executives who are critical to the Corporation's long-term
success;
- 4 -
<PAGE>
(2) reward executive officers based upon their ability to achieve
short-term and long-term strategic goals and objectives and to enhance
shareholder value; and
(3) align the interests of the executive officers with the long-term
interests of Shareholders by granting stock options which will become
more valuable to the executives as the value of the Corporation's
shares increases.
At present, the Corporation's executive compensation program is comprised
of base salary, annual incentive bonuses and long-term incentive bonuses in the
form of stock options. Reasonable base salaries are awarded based on salaries
paid by comparable financial institutions, particularly in the Midwest, and
individual performance. The annual incentive bonuses are tied to the
Corporation's performance in the areas of growth, profit, quality, and
productivity as they relate to earnings per share and return on equity for the
current fiscal year, and stock options have a direct relation to the long-term
enhancement of Shareholder value. In years in which the performance goals of the
Corporation are met or exceeded, executive compensation tends to be higher than
in years in which performance is below expectations.
Base Salary. Base salary levels of the Corporation's executive officers are
intended to be comparable to those offered by similar financial institutions in
the Midwest. In determining base salaries, the Compensation Committee also takes
into account individual experience and performance.
Mr. Keach, Jr. was the Corporation's Chief Executive Officer throughout
fiscal 1999. Mr. Keach, Jr.'s salary was increased from $225,629 in fiscal year
1998 to $249,831 in fiscal 1999. In recommending this increase, the Compensation
Committee considered the Corporation's financial performance for the prior
fiscal year.
Annual Incentive Bonuses. Under the Corporation's Annual Incentive Plan,
all employees of the Corporation receive a cash bonus for any fiscal year in
which the Corporation achieves certain goals, as established by the Board of
Directors, in the areas of growth, profit, quality and productivity as they
relate to earnings per share and return on equity. Individual bonuses are equal
to a percentage of the employee's base salary, which percentage varies with the
extent to which the Corporation exceeds these goals for the fiscal year.
The Corporation believes that this program provides an excellent link
between the value created for Shareholders and the incentives paid to
executives, since executives receive no bonuses unless the above-mentioned goals
are achieved and since the level of those bonuses will increase with greater
achievement of those goals.
Mr. Keach, Jr. received no bonus for fiscal 1999, compared to a bonus of
$56,738 paid to him for fiscal 1998.
Stock Options. The Stock Option Plan, the 1993 Option Plan, the 1995 Option
Plan, and the 1999 Option Plan are the Corporation's long-term incentive plans
for executive officers and other key employees. These plans align executive and
Shareholder long-term interests by creating a strong and direct link between
executive pay and Shareholder return, and enable executives to acquire a
significant ownership position in the Corporation's Common Stock. Stock options
are granted at the prevailing market price and will only have a value to the
executives if the stock price increases. The Stock Option Committee determines
the number of option grants to be made to executive officers based on the
practices of comparable financial institutions as well as the executive's level
of responsibility and contributions to the Corporation.
Mr. Keach, Jr. received a grant of stock options for 15,050 shares of
Common Stock during fiscal year 1999. See "Management Remuneration and Related
Transactions-- Stock Options."
Finally, the Committee notes that Section 162(m) of the Internal Revenue
Code, in certain circumstances, limits to $1 million the deductibility of
compensation, including stock-based compensation, paid to top executives by
public companies. None of the compensation paid to the executive officers named
in the compensation table below exceeded the threshold for deductibility under
section 162(m).
The Compensation Committee and the Stock Option Committee believe that
linking executive compensation to corporate performance results in a better
- 5 -
<PAGE>
alignment of compensation with corporate goals and the interests of the
Corporation's Shareholders. As performance goals are met or exceeded, most
probably resulting in increased value to Shareholders, executives are rewarded
commensurately. The Committee believes that compensation levels during fiscal
1999 for executives and for the chief executive officer adequately reflect the
Corporation's compensation goals and policies.
Compensation Committee Members Stock Option Committee Members
Harvard W. Nolting, Jr. John T. Beatty
John K. Keach, Sr. Lewis W. Essex
John K. Keach, Jr. Harold Force
David W. Laitinen David W. Laitinen
Harvard W. Nolting, Jr.
Remuneration of Named Executive Officers
----------------------------------------
During the last three fiscal years, no cash compensation was paid directly
by the Corporation to any of its executive officers. Each of such officers was
compensated by the Bank.
The following table sets forth information as to annual, long-term and
other compensation for services in all capabilities to the Corporation and its
subsidiaries for each of the Corporation's last three fiscal years of (i) the
individual who served as chief executive officer of the Corporation during the
fiscal year ended June 30, 1999, and (ii) each other executive officer of the
Corporation serving as such during the 1999 fiscal year, who earned over
$100,000 in salary and bonuses during that year (the "Named Executive
Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Long Term Compensation
Annual Compensation Awards
-------------------- ------
Name and Principal Other Annual Restricted Securities All Other
Position During Last Fiscal Compensation Stock Underlying Compensation
Fiscal Year Year Salary($)(1) Bonus($)(2) ($)(3) Awards($) Options(#) ($)(4)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John K. Keach, Jr. 1999 $249,831 $ 0 -- -- 15,050 $2,924
President and Chief 1998 $225,629 $56,738 -- -- 15,000 $2,935
Executive Officer 1997 $205,189 $42,525 -- -- 22,500 $2,714
and Director
Gerald L. Armstrong 1999 $142,724 $ 0 -- -- 11,650 $3,063
Executive Vice 1998 $133,019 $27,515 -- -- 10,000 $2,842
President and Chief 1997 $126,447 $21,525 -- -- 15,000 $2,745
Operating Officer
Lawrence E. Welker 1999 $133,520 $ 0 -- -- 11,650 $2,579
Executive Vice President 1998 $124,620 $26,482 -- -- 10,000 $2,297
Chief Financial Officer, 1997 $115,360 $20,188 -- -- 15,000 $2,122
Treasurer and Secretary
S. Elaine Pollert 1999 $115,030 $ 0 -- -- 11,650 $1,857
Executive Vice President, 1998 $100,015 $21,250 -- -- 10,000 $1,632
Retail Banking 1997 $ 82,366 $14,292 -- -- 15,000 $1,349
<FN>
(1) Includes amounts deferred by the Corporation's executive officers pursuant
to ss.401(k) of the Internal Revenue Code of 1986, as amended (the "Code"),
under the 401(k) Plan.
(2) The bonus amounts were paid under the Bank's Annual Incentive Plan.
(3) Each Named Executive Officer of the Corporation receives certain
perquisites, but the incremental cost of providing such perquisites does
not exceed the lesser of $50,000 or 10% of the officer's salary and bonus.
(4) Includes the Bank's contributions on behalf of the Named Executive Officers
to the 401(k) Plan.
</FN>
</TABLE>
6
<PAGE>
Stock Options
- -------------
The following table sets forth information related to options granted
during fiscal year 1999 to the Named Executive Officers.
<TABLE>
<CAPTION>
Option Grants - Last Fiscal Year
Individual Grants
% of Total
Options Granted Exercise or
Options to Employees Base Price Expiration Grant Date
Name Granted(#)(1) In Fiscal Year ($/Share)(2) Date(3) Value (4)
---- ------------ -------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
John K. Keach, Jr. 15,050 15.4% $23.00 12/21/08 $89,246.50
Gerald L. Armstrong 11,650 11.9% $23.00 12/21/08 $69,084.50
Lawrence E. Welker 11,650 11.9% $23.00 12/21/08 $69,084.50
S. Elaine Pollert 11,650 11.9% $23.00 12/21/08 $69,084.50
<FN>
(1) Options to acquire shares of the Corporation's Common Stock.
(2) The option exercise price may be paid in cash or with the approval of the
Stock Option Committee in shares of the Corporation's Common Stock or a
combination thereof. The option exercise price equaled the market value of
a share of the Corporation's Common Stock on the date of grant.
(3) These options became exercisable on June 22, 1999.
(4) This column sets forth the present value of the options on the date of
grant using the Black-Scholes option pricing model with the following
assumptions: dividend yield of 2.17%, risk-free rate of return of 4.66%,
expected volatility of 26.04% and expected life of options of 5.39 years.
</FN>
</TABLE>
The following table includes information relating to option exercises by
the Named Executive Officers during fiscal 1999 and the number of shares covered
by both exercisable and unexercisable stock options held by the Named Executive
Officers as of June 30, 1999. Also reported are the values for "in-the-money"
options (options whose exercise price is lower than the market value of the
shares at fiscal year end) which represent the spread between the exercise price
of any such existing stock options and the fiscal year-end market price of the
stock.
<TABLE>
<CAPTION>
Aggregate Option Exercises in Last Fiscal Year and
Outstanding Stock Option Grants And Value Realized As Of 6/30/99
Value of
Number of In-the-Money
Securities Underlying Options
Unexercised Options at Fiscal Year
at Fiscal Year End(#) End($)(1)
--------------------- -------------------------
Shares
Acquired on Value
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John K. Keach, Jr. 6,750 $ 113,805 78,256 42,299 $1,189,845 $413,584
Gerald L. Armstrong 19,800 $ 359,727 66,861 22,794 $1,049,911 $180,375
Lawrence E. Welker --- $ --- 73,611 22,794 $1,203,794 $180,375
S. Elaine Pollert 1,700 $ 28,883 52,848 14,041 $ 734,455 $ 71,510
<FN>
(1) Amounts reflecting gains on outstanding in-the-money options are based on
the June 30, 1999, average between the high and low prices for the stock,
which was $28.6875.
</FN>
</TABLE>
Employment Agreements
The Bank has three-year employment contracts with the following executive
officers: Lawrence E. Welker, John K. Keach, Jr., Gerald Armstrong and S. Elaine
Pollert (collectively, the "Employees"). The Corporation has guaranteed the
Bank's obligations under these contracts. The contracts can be extended annually
for additional one-year terms to maintain a three-year term unless notice is
properly given by either party to the contract, and have been so extended. The
Employees receive their current salary, which salary is subject to increases
- 7 -
<PAGE>
approved by the Board of Directors. The contract also provides, among other
things, for participation in other fringe benefits and benefit plans available
to Bank employees. The Employees may terminate their employment upon 30 days
written notice to the Bank. The Bank may discharge the Employees for "cause"
(generally, dishonesty, incompetence, forms of misconduct, or certain legal
violations) at any time or in certain events specified by Office of Thrift
Supervision regulations. Upon termination of an Employee's employment by the
Bank for other than cause or in the event of termination by an Employee for
"cause" (generally, material changes in duties or authority or breaches by the
Bank of the contract), that Employee will receive his or her base compensation
under the contract (a) for an additional three years if the termination follows
a change of control not approved in advance by the Board of Directors
(generally, material changes in the owners of shares of the Bank or in the
composition of its Board of Directors), or (b) for the remaining term of the
contract, if the termination does not follow a change of control. In addition,
during such period, the Employee will continue to participate in the Bank's
group insurance plans or receive comparable benefits. Moreover, within a period
of three months after such termination following a change of control, the
Employee will have the right to cause the Bank to purchase any stock options he
or she holds for a price equal to the fair market value (as defined in the
contract) of the shares subject to such options minus their option price. If the
payments provided for in the employment agreement together with any other
payments made to an Employee by the Bank are deemed to be payments in violation
of the "golden parachute" rules of the Code, such payments will be reduced to
the largest amount which would not cause the Bank to lose a tax deduction for
such payments under those rules. The cash compensation which would be paid under
these contracts to the four Named Executive Officers if the contracts were
terminated as of the date hereof after a change of control for other than cause
by the Bank or for cause by the Employees, would be the following:
Named Executive Officer Cash Compensation
----------------------- -----------------
John K. Keach, Jr. $774,000
Gerald L. Armstrong $435,000
Lawrence E. Welker $409,560
S. Elaine Pollert $360,000
The employment contracts provide the Bank protection of its confidential
business information and protection from competition by the Employees should any
of them voluntarily terminate his or her employment without cause or be
terminated by the Bank for cause.
The existence of these contracts may make a merger, other business
combination or change of control of the Bank more difficult or less likely. This
is because, unless the Employees are allowed to maintain their positions and
authority with the Bank, they will be entitled to payments which in the
aggregate may be deemed to be substantial. However, the employment contracts
provide security to the Employees, and the Board of Directors believes that it
will encourage their objective evaluation of opportunities for mergers, other
business combinations or other transactions involving a change of control of the
Corporation or the Bank since they will be in a position to evaluate such
transactions without significant concerns about the manner in which such
transactions will affect their financial security.
Compensation of Directors
-------------------------
Monthly Fee. Directors of the Corporation are not currently paid director's
fees. Each director of the Bank receives $600 per regular meeting attended, $200
per committee meeting attended, $300 per special meeting attended, and a $3,300
quarterly retainer. If a director misses more than three consecutive meetings,
he is removed from the Board.
Stock Options to Outside Directors. On October 27, 1998, the Corporation's
five outside directors received automatically under the 1993 Option Plan a
non-qualified stock option to purchase 1,431 shares of the Corporation's Common
Stock for $23.125 per share.
The options are exercisable in whole or in part at any time from and after
six months following their grant until ten years and one day following their
grant, except that such options will terminate, if not previously exercised, six
months after the optionholders cease to be directors of the Corporation for any
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<PAGE>
reason other than death. If the optionholder dies while a director of the
Corporation or within six months after he ceases to be a director, the option
may be exercised by his executor, administrator or estate beneficiaries within
one year following the date of his death but not later than the last day of the
option term.
The options are nontransferable other than by will or the laws of descent
and distribution and must be exercised by delivering a cash payment equal to the
exercise price to the Corporation.
Deferred Compensation for Outside Directors. The Bank entered into deferred
compensation agreements with the five outside directors. Under these agreements,
each outside director deferred all or part of his monthly fee during a period of
five years from June, 1992, to May, 1997, and will subsequently receive deferred
compensation after he reaches his normal retirement date (as outlined below) or
upon his death. The annual deferred compensation benefits payable to each of the
outside directors is as follows:
Amount of Annual
Name of Individual Deferred Compensation
------------------ ----------------------
David W. Laitinen $91,231
Harold Force $79,757
John T. Beatty $65,239
Harvard W. Nolting, Jr. $32,357
Lewis W. Essex $28,320
The normal retirement date for Messrs. Beatty, Force, and Laitinen is the
first day of the month following the date on which they reach 60, for Mr.
Nolting is the first day of the month following the date on which he reaches 65,
and for Mr. Essex is the first day of the month following the date on which he
reaches 70. The deferred compensation is payable to Messrs. Beatty, Force,
Laitinen and Nolting for a period of 15 years and is payable to Mr. Essex for a
period of 10 years.
Directors Emeritus Benefits
---------------------------
In consideration of a director serving as Director Emeritus, any Director
Emeritus is paid an amount equal to 3/4 of the monthly fee paid to directors at
the time of his retirement from the Board.
Pension Plan
------------
The Bank's employees are included in a pension plan administered by
Pentegra Group. Separate actuarial valuations are not made for individual
members of the plan. The Bank's employees are eligible to participate in the
plan once they have completed one year of service for the Bank and have attained
the age of 21 years.
The plan provides for monthly retirement benefits determined on the basis
of the employee's years of service and the employee's average base salary for
the five consecutive years of his or her employment producing the highest
average. Early retirement, disability, and death benefits are also payable under
the plan, depending upon the participant's age and years of service. During
fiscal 1999, the Bank did not make a contribution to the pension plan as the
pension plan was fully funded.
The following table indicates the annual retirement benefit that would be
payable under the plan upon retirement at age 65 to a participant electing to
receive his or her retirement benefit in the standard form of benefit, assuming
various specified levels of plan compensation and various specified years of
credited service.
Highest Five-Year
Average Annual Years of Benefit Service
Compensation 10 20 30 40 50
- -----------------------------------------------------------------------------
$100,000 $19,200 $ 38,300 $ 57,500 $ 77,100 $ 97,100
$120,000 $23,200 $ 46,300 $ 69,500 $ 93,100 $ 117,100
$140,000 $27,200 $ 54,300 $ 81,500 $ 109,100 $ 137,100
$160,000 $31,200 $ 62,300 $ 93,500 $ 125,100 $ 157,100
$180,000 $35,200 $ 70,300 $ 105,500 $ 141,100 $ 177,100
$200,000 $39,200 $ 78,300 $ 117,500 $ 157,100 $ 197,100
$220,000 $43,200 $ 86,300 $ 129,500 $ 173,100 $ 217,100
$240,000 $47,200 $ 94,300 $ 141,500 $ 189,100 $ 237,100
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Benefits are currently subject to maximum Code limitations of $130,000 per year.
The years of service credited under the pension plan as of June 30, 1999, to the
Named Executive Officers are as follows:
Name of Executive Officer Years of Service
------------------------- ----------------
John K. Keach, Jr. 25
Gerald L. Armstrong 6
Lawrence E. Welker 20
S. Elaine Pollert 12
The compensation covered by the pension plan for purposes of computing
their benefits is the equivalent of the compensation set forth in the salary
column in the chart on page 6.
Supplemental Retirement Income and Deferred Compensation Program
----------------------------------------------------------------
The Bank has entered into either supplemental retirement agreements or
deferred compensation agreements with its executive officers and with eight
other current or former employees deemed by the management of the Bank to be key
employees. These agreements provide the key employees of the Bank with
supplemental retirement benefits after the employee reaches his or her normal
retirement date, upon earlier termination of his or her employment, unless such
termination is for cause, or upon his or her death. The normal retirement date
for John Keach, Jr. and Lawrence E. Welker is the first day of the month
coincident with or next following his attainment of age 60, for Gerald Armstrong
is the first day of the month coincident with or next following his attainment
of age 65, and for Elaine Pollert is the first day of the month coincident with
or next following her attainment of age 65. The annual benefits are payable to
those persons for a period of 15 years.
The annual benefits for the Named Executive Officers are equal to the
amounts specified below:
Name of Executive Officer Amount of Annual Benefit
------------------------- ------------------------
John K. Keach, Jr. $82,664
Gerald L. Armstrong $67,343
Lawrence E. Welker $58,649
S. Elaine Pollert $44,664
The agreements provide reduced annual benefits for the executive officers
electing early retirement. If the executive officer leaves before early
retirement, the annual benefits are further reduced, and such reduction is
dependent on his or her years of service with the Bank, completed after the date
the agreements were executed. In the event of a change of control of the Bank,
the reductions described above are somewhat decreased. While the benefits are
paid from the general assets of the Bank, the Bank has secured key person life
insurance in order to provide the Bank with the funds necessary to provide the
benefits described above. Under the supplemental retirement agreements, if an
executive officer or employee is terminated for cause, all benefits under his or
her agreement are forfeited.
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<PAGE>
Performance Graph
The following graph shows the performance of the Corporation's Common Stock
since June 30, 1994, in comparison to the NASDAQ Stock Market - U.S. Index and
the NASDAQ Bank Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG HOME FEDERAL BANCORP, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ BANK INDEX
[graph omitted]
* $100 INVESTED ON 6/30/94 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.
Transactions With Certain Related Persons
-----------------------------------------
The Bank has followed the policy of offering to its directors, officers and
employees and their associates, real estate mortgage loans for the financing of
their principal residences; consumer loans; and, in certain cases, commercial
loans. These loans are made in the ordinary course of business on substantially
the same terms and collateral as those of comparable transactions prevailing at
the time and do not involve more than the normal risk of collectibility or
present other unfavorable features.
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
The members of the Corporation's Compensation Committee are Messrs.
Nolting, Jr. (Chairman), Keach, Sr., Laitinen and Keach, Jr. Messrs. Keach, Sr.
and Keach, Jr. are each officers of the Corporation. All of the outside
directors of the Corporation are members of the Stock Option Committee.
PROPOSAL II -- STOCK OPTION PLAN
The Board of Directors of the Corporation adopted the Home Federal Bancorp
1999 Stock Option Plan (the "1999 Option Plan") on August 24, 1999. The
essential features of the 1999 Option Plan are summarized below, but the 1999
Option Plan is set forth in full in Exhibit A to this Proxy Statement, and all
statements made in this summary are qualified by reference to the full text of
the 1999 Option Plan.
Purpose
The purpose of the 1999 Option Plan is to provide to certain directors,
officers and other key employees of the Corporation and its subsidiaries
(currently approximately ten persons) a favorable opportunity to acquire Common
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Stock of the Corporation and thereby increase the incentive of such persons to
work for the success of the Corporation and its subsidiaries and better enabling
such entities to attract or retain capable directors and executive personnel.
The 1999 Option Plan provides for the grant of both incentive stock options
(options that afford favorable tax treatment to recipients upon compliance with
certain restrictions and that do not normally result in tax deductions to the
Corporation) and options that do not so qualify (non-qualified stock options).
Administration
The 1999 Option Plan is administered, construed and interpreted by a
committee consisting of at least two members of the Corporation's Board of
Directors. The Corporation's Stock Option Committee will administer the 1999
Option Plan. The Stock Option Committee selects the individuals to whom options
or cash awards will be granted and determines the time of grant, the number of
shares of stock to be covered by each option, the amount of any cash awards, the
option price, the period within which the option may be exercised, whether the
option is an incentive stock option or non-qualified stock option, and any other
terms and conditions of the options or cash awards granted. Members of the Stock
Option Committee must be nonemployee directors of the Corporation. The current
members of that Committee are set forth on page 4 of this Proxy Statement.
Reservation of Shares
The Corporation has reserved 250,000 shares of its Common Stock for
issuance upon exercise of options to be granted under the 1999 Option Plan. No
stock options have been granted under the 1999 Option Plan as of yet. Shares
issued under the 1999 Option Plan may be authorized but unissued shares or
treasury shares of the Corporation. The Corporation's current intention is to
use shares it repurchases on the open market from and after the date hereof to
fund grants of stock options under the 1999 Option Plan. In the event of
corporate changes affecting the Corporation's Common Stock, such as
reorganizations, recapitalizations, stock splits, stock dividends, mergers,
consolidations, liquidations, and extraordinary distributions (consisting of
cash, securities, or other assets), the Stock Option Committee may make
appropriate adjustments in the number and kind of shares reserved under the 1999
Option Plan and in the option price under, and the number and kind of shares
covered by, outstanding options granted under the 1999 Option Plan. Any shares
subject to an option which expires or is terminated before exercise will again
be available for issuance under the 1999 Option Plan.
Options and cash awards may be granted to directors, officers (including
officers who are members of the Board of Directors) and other key employees of
the Corporation and its subsidiaries who are materially responsible for the
management or operation of the business of the Corporation or its subsidiaries
and have provided valuable services to the Corporation or its subsidiaries. Such
individuals may be granted more than one option under the 1999 Option Plan.
However, no employee may be granted options under the 1999 Option Plan for more
than 30,000 shares of Common Stock in any calendar year (subject to antidilution
adjustments).
Terms of the Options
Stock Option Price. The price to be paid for shares of Common Stock upon
the exercise of each stock option shall not be less than the fair market value
of such shares on the date on which the option is granted. Incentive stock
options granted to holders of more than 10% of the combined voting power of all
classes of stock of the Corporation may be granted at an option price no less
than 110% of the fair market value of the stock on the date of grant.
Option Term. No option may have a term longer than ten years and one day
from the date grant. However, under the Internal Revenue Code of 1986, as
amended (the "Code"), incentive stock options may not have terms in excess of
ten years. Incentive stock options granted to holders of more than 10% of the
combined voting power of all classes of stock of the Corporation may not have
terms in excess of five years.
Exercise of Option. The option price of each share of stock is to be paid
in full in cash at the time of exercise. Under certain circumstances, the 1999
Option Plan permits optionees to deliver a notice to their broker to deliver to
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<PAGE>
the Corporation the total option price in cash and the amount of any taxes to be
withheld from the optionee's compensation as a result of any withholding tax
obligation of the Corporation. With the approval of the Stock Option Committee,
payment of the option price may also be effected by tendering whole shares of
the Corporation's Common Stock owned by the Optionee and cash having a fair
market value equal to the cash exercise price of the shares with respect to
which the option is being exercised. Options may be exercisable in full at any
time during their term or in such installments, on a cumulative basis, as the
Stock Option Committee may determine, except that no option may be exercised at
any time as to fewer than 100 shares unless the exercise is with respect to an
entire residue of fewer than 100 shares, and no option may be exercised during
the first six months of its term.
Exercise of Options by Other than Outside Directors. Except as provided
below, upon termination of an optionholder's employment by the Corporation and
its subsidiaries, all rights under any options granted to him but not yet
exercised terminate. In the event that an optionee retires pursuant to any then
existing pension plan of the Corporation or its subsidiaries, his option may be
exercised by him in whole or in part within three years after his retirement
until the expiration of the option term fixed by the Committee, whether or not
the option was otherwise exercisable by him at his date of retirement; provided,
however, that if he remains a director or director emeritus of the Corporation
he may exercise such option until the later of (a) three years after his
retirement or (b) six months after he ceases to be a director or director
emeritus of the Corporation. If an optionee's employment by the Corporation and
its subsidiaries terminates by reason of permanent and total disability, his
option may be exercised by him in whole or in part within one year after such
termination of employment, whether or not the option was otherwise exercisable
by him at the time of such termination of employment. If the optionee dies while
employed by the Corporation or its subsidiaries, within three years after his
retirement (or, if later, six months following his termination of service as a
director or director emeritus of the Corporation), or within one year after his
termination of employment because of permanent and total disability, his option
may be exercised by his estate or by the person or persons entitled thereto by
will or by the applicable laws of descent or distribution at any time within one
year after the date of such death, whether or not the option was otherwise
exercisable by the optionee at the date of his death. Notwithstanding the
foregoing, in no event may any option be exercised after the expiration of the
option term set by the Stock Option Committee.
Exercise of Options by Outside Directors. Options granted to Outside
Directors terminate six months after the date such Outside Director ceases to be
a director and director emeritus of the Corporation for any reason. If an
optionee who is an Outside Director ceases to be a director and a director
emeritus by reason of disability, any option granted to him may be exercised in
whole or in part within one year of such termination of service, whether or not
the option was otherwise exercisable by him at the time of such termination of
service. In the event of the death of an Outside Director while serving as a
director or director emeritus of the Corporation, within six months after he
ceases to be a director and a director emeritus of the Corporation, or within
one year after he ceases to be a director and a director emeritus of the
Corporation by reason of disability, any option granted to him may be exercised
by his estate or by the person or persons entitled thereto by will or by the
applicable laws of descent or distribution at any time within one year after the
date of such death, whether or not the option was exercisable by the optionee at
the date of his death. Notwithstanding the foregoing, in no event may any option
be exercised after the expiration of the option term set by the Stock Option
Committee.
Nontransferability of Option. Options may not be transferred except by will
or the laws of descent and distribution. During the lifetime of an optionee,
they may be exercised only by him or his guardian or legal representative.
Maximum Incentive Stock Options. The aggregate fair market value of stock
with respect to which incentive stock options are exercisable for the first time
by an optionee during any calendar year under the 1999 Option Plan may not
exceed $100,000. For purposes of these computations, the fair market value of
the shares is to be determined as of the date the option is granted and computed
in the manner determined by the Stock Option Committee consistent with the
requirements of the Code. This limitation does not apply to non-qualified stock
options granted under the 1999 Option Plan.
- 13 -
<PAGE>
Cash Awards. The Stock Option Committee may grant to optionees who are
granted non-qualified stock options the right to receive a cash amount which is
intended to reimburse the optionee for all or a portion of the federal, state
and local income taxes imposed upon the optionee as a result of the exercise of
a non-qualified stock option and the receipt of a cash award.
Change of Control. In the event of a change of control of the Corporation,
outstanding options which are not otherwise exercisable will become immediately
exercisable. Change of control, for this purpose, means an acquisition of
control of the Corporation or of the Bank within the meaning of 12 C.F.R. ss.
574.4(a) (other than a change of control resulting from a trustee or other
fiduciary holding shares of Common Stock under an employee benefit plan of the
Corporation or any of its subsidiaries). This provision could result in adverse
tax consequences to the Corporation and to the optionee as a result of the
golden parachute provisions in the Code. Under the golden parachute provisions,
compensatory payments made by the Corporation to an employee following a change
in control which are contingent on a change in control and which exceed certain
limits based on the average annual compensation of the employee for the five
calendar years before the change in control are not deductible by the
Corporation and would subject the optionee to a 20% excise tax. The value of any
option which would become immediately exercisable following a change in control
(the spread between the then fair market value of the option shares and the
option price) could be deemed to be a compensatory payment contingent on a
change in control, and, thus, if such amount, when added to any other payments
made by the Corporation to the employee which are contingent on a change in
control, would exceed the limits described above, the excess amounts would be
non-deductible and subject to the excise tax.
The effect of this change of control provision which, under certain
circumstances, could accelerate benefits to optionholders may be to increase the
cost of a potential business combination or acquisition of control of the
Corporation. To the extent that this increased cost is significant, potential
acquirors may be deterred from pursuing a transaction involving the Corporation,
and its shareholders may be deprived of an opportunity to sell their shares at a
favorable price. However, the options which may be granted under the 1999 Option
Plan may be fully exercisable within six months following the date of the grant,
so the change of control provision described above may not have a significant
deterrent effect. Moreover, to the extent this provision could operate to
accelerate benefits under stock options awarded in the future, the Board of
Directors believes that the expected benefits of these provisions in attracting
and retaining qualified management personnel outweigh these possible
disadvantages.
Other Provisions
The Stock Option Committee may provide for such other terms, provisions and
conditions of an option as are not inconsistent with the 1999 Option Plan. The
Stock Option Committee may also prescribe, and amend, waive and rescind rules
and regulations relating to the 1999 Option Plan, may accelerate the vesting of
stock options or cash awards granted or made under the 1999 Option Plan, may
make amendments or modifications in the terms and conditions (including
exercisability) of the options relating to the effect of termination of
employment of the optionees, and may waive any restrictions or conditions
applicable to any option or the exercise thereof.
Amendment and Termination
The Board of Directors of the Corporation may amend the 1999 Option Plan
from time to time, and, with the consent of the optionee, the terms and
provisions of his option or cash award, provided, however, that (1) no amendment
may, without the consent of an optionee, make any changes in any outstanding
option or cash award which would adversely affect the rights of the optionee and
(2) without approval of the holders of at least a majority of the shares of the
Corporation voting in person or by proxy at a duly constituted meeting, or
adjournment thereof, the following changes in the 1999 Option Plan may not be
made: an increase in the number of shares reserved for issuance under the 1999
Option Plan (except as permitted by the antidilutive provisions in the 1999
Option Plan); an extension of the option terms to more than 10 years and one day
from the date of grant of the option; or a material modification of the class of
employees eligible to receive options or cash awards under the 1999 Option Plan.
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<PAGE>
The Board of Directors of the Corporation may terminate the 1999 Option Plan at
any time. In any event, no incentive stock options may be granted under the
Stock 1999 Option Plan after August 23, 2009.
Federal Income Tax Consequences
The grant of incentive and non-qualified stock options will have no federal
tax consequences to the Corporation or the optionee. Moreover, if an incentive
stock option is exercised (a) while the employee is employed by the Corporation
or its subsidiaries, (b) within three months after the optionee ceases to be an
employee of the Corporation or its subsidiaries, (c) after the optionee's death,
or (d) within one year after the optionee ceases to be an employee of the
Corporation or its subsidiaries if the optionee's employment is terminated
because of permanent and total disability (within the meaning of ss. 22(e)(3) of
the Code), the exercise of the incentive stock option will ordinarily have no
federal income tax consequences to the Corporation or the optionee. However, the
amount by which the fair market value of the shares at the time of exercise
exceeds the option price of the option will, along with other specified items,
be considered taxable income in the taxable year of the optionee in which the
option was exercised for purposes of determining the applicability of the
alternative minimum tax. As a result, the exercise of an incentive stock option
may subject an optionee to an alternative minimum tax depending on that
optionee's particular circumstances.
On the other hand, the recipient of a non-qualified stock option generally
will realize taxable ordinary income at the time of exercise of his option in an
amount equal to the excess of the fair market value of the shares acquired at
the time of such exercise over the option price. A like amount is generally
deductible by the Corporation for federal income tax purposes as of that date,
as long as the Corporation withholds federal income tax with respect to that
taxable amount, assuming the optionholder's income is subject to income tax
withholding by the Corporation. The 1999 Option Plan permits, under certain
circumstances, holders of non-qualified stock options to satisfy their
withholding obligation by having shares equal in value to the applicable
withholding taxes withheld from the shares which they would otherwise receive
upon the exercise of a non-qualified stock option.
Upon the sale of the shares acquired upon the exercise of an incentive
stock option no sooner than two years after the grant of the option and no
sooner than one year after receipt of the shares by the optionee, any capital
gain recognized would be taxed to the optionee at long-term rates. Upon the sale
of shares acquired upon the exercise of an incentive stock option prior to two
years after the grant of an option or prior to one year after receipt of the
shares by the optionee, the optionee will generally recognize, in the year of
disposition, ordinary income equal to the lesser of (a) the spread between the
fair market value of the shares on the date of exercise and the exercise price;
and (b) the gain realized upon the disposition of those shares. The Corporation
will be entitled to a deduction equal to the amount of income recognized as
ordinary income by the optionee, so long as the Corporation withholds federal
income tax with respect to that taxable amount (assuming the optionholder's
income is subject to income tax withholding by the Corporation). If the spread
is the basis for determining the amount of ordinary income realized by the
optionee, there will be additional long-term or short-term capital gain realized
if the proceeds of such sale exceed such spread.
Upon the subsequent sale of shares acquired upon exercise of a
non-qualified stock option, the optionholder will recognize long-term capital
gain or loss if the shares are deemed to have been held for 18 months or more,
and short-term capital gain or loss in all other cases. Currently, long-term
capital gains for noncorporate taxpayers are generally taxed at a maximum rate
of 20%.
Short-term capital gains are taxed at the same rates as ordinary income.
Financial Accounting Consequences
At this time, neither the grant of incentive or non-qualified stock options
nor the issuance of shares upon exercise of such options will result in a
compensation expense charge to the Corporation's earnings for financial
accounting purposes, except that for non-qualified stock options, earnings will
be charged with the excess, if any, of the fair market value on the date of
- 15 -
<PAGE>
grant over the exercise price of the option shares. Option proceeds from the
exercise of these options and tax savings from non-qualified stock options
(other than tax savings resulting from charges to earnings made when the
exercise price is less than fair market value of the option shares on the date
of grant) are credited to capital. The Financial Accounting Standards Board (the
"FASB") has adopted rules that require increased disclosure about the value of
stock options in financial statements for the Corporation, including their
impact on earnings.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE TO APPROVE AND
RATIFY THE 1999 OPTION PLAN. SUCH ACTION REQUIRES THE APPROVAL OF THE HOLDERS OF
AT LEAST A MAJORITY OF THE SHARES OF THE CORPORATION'S COMMON STOCK VOTING IN
PERSON OR BY PROXY AND ENTITLED TO VOTE AT THE ANNUAL MEETING, OR ANY
ADJOURNMENT THEREOF. ABSTENTIONS WILL BE INCLUDED IN THE NUMBER OF SHARES
PRESENT AND ENTITLED TO VOTE ON THE PROPOSAL AND ACCORDINGLY TREATED AS "NO"
VOTES, BUT BROKER NON-VOTES WILL BE EXCLUDED FROM THE NUMBER OF SHARES PRESENT
AND ENTITLED TO VOTE ON THE PROPOSAL AND WILL HAVE NO EFFECT ON THE VOTE.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 ("1934 Act") requires
that the Corporation's officers and directors and persons who own more than 10%
of the Corporation's Common Stock file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Officers,
directors and greater than 10% Shareholders are required by SEC regulations to
furnish the Corporation with copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it,
and/or written representations from certain reporting persons that no Forms 5
were required for those persons, the Corporation believes that during the fiscal
year ended June 30, 1999, all filing requirements applicable to its officers,
directors and greater than 10% beneficial owners with respect to Section 16(a)
of the 1934 Act were complied with.
ACCOUNTANTS
The firm of Deloitte & Touche LLP has been selected as the Corporation's
principal independent accountant for the current fiscal year. Deloitte & Touche
LLP has served as auditors for the Corporation since 1984. It is expected that
representatives of the firm will be present at the Annual Meeting to make any
statements they desire to make and to answer questions directed to them.
SHAREHOLDER PROPOSALS
Any proposal which a Shareholder wishes to have presented at the next
Annual Meeting to be held in October, 2000, and included in the Proxy Statement
and form of proxy relating to that meeting must be received by the Corporation
at its principal executive offices no later than 120 days in advance of
September 24, 2000. Any such proposals should be sent to the attention of the
Secretary of the Corporation, 222 West Second Street, P.O. Box 648, Seymour,
Indiana 47274-0648. A Shareholder proposal being submitted outside the processes
of Rule 14a-8 promulgated under the 1934 Act will be considered untimely if it
is received by the Corporation later than 45 days in advance of September 24,
2000.
GENERAL
The Board of Directors knows of no matters which are to be presented at the
Annual Meeting other than those stated in the Notice of Annual Meeting and
referred to in this Proxy Statement. If any other matters should properly come
before the meeting, it is intended that the proxies will be voted, with respect
to them, in accordance with the recommendations of the Board of Directors.
The cost of soliciting proxies in the accompanying form will be borne by
the Corporation. In addition to solicitations by mail, some of the officers and
regular employees of the Corporation, who will receive no special compensation
therefor, may solicit proxies by telephone, telegraph or personal visits, and
the cost of such additional solicitation, if any, will be borne by the
Corporation.
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<PAGE>
Each Shareholder is urged to complete, date and sign the proxy and return
it promptly in the enclosed return envelope.
Insofar as any of the information in this Proxy Statement may rest
peculiarly within the knowledge of persons other than the Corporation, the
Corporation relies upon information furnished by others for the accuracy and
completeness thereof.
By Order of the Board of Directors
/s/ John K. Keach, Sr.
John K. Keach, Sr.
Chairman of the Board
September 24, 1999
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Exhibit A
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HOME FEDERAL BANCORP
1999 STOCK OPTION PLAN
1. Purpose. The purpose of the Home Federal Bancorp 1999 Stock Option
Plan (the "Plan") is to provide to directors, officers and other key employees
of Home Federal Bancorp (the "Holding Company") and its majority-owned and
wholly-owned subsidiaries (individually a "Subsidiary" and collectively the
"Subsidiaries"), including, but not limited to, Home Federal Savings Bank (the
"Bank"), who are materially responsible for the management or operation of the
business of the Holding Company or a Subsidiary and have provided valuable
services to the Holding Company or a Subsidiary, a favorable opportunity to
acquire Common Stock, without par value ("Common Stock"), of the Holding
Company, thereby providing them with an increased incentive to work for the
success of the Holding Company and its Subsidiaries and better enabling each
such entity to attract and retain capable directors and executive personnel.
2. Administration of the Plan. The Plan shall be administered,
construed and interpreted by a committee (the "Committee") consisting of at
least two members of the Board of Directors of the Holding Company, each of whom
is a "Non-Employee Director" within the meaning of the definition of that term
contained in Reg. ss. 16b-3 promulgated under the Securities Exchange Act of
1934, as amended (the "1934 Act"). The members of the Committee shall be
designated from time to time by the Board of Directors of the Holding Company.
The decision of a majority of the members of the Committee shall constitute the
decision of the Committee, and the Committee may act either at a meeting at
which a majority of the members of the Committee is present or by a written
consent signed by all members of the Committee. The Committee shall have the
sole, final and conclusive authority to determine, consistent with and subject
to the provisions of the Plan:
(a) the individuals (the "Optionees") to whom options or
successive options or cash awards shall be granted under the Plan;
(b) the time when options or cash awards shall be granted
hereunder;
(c) the number of shares of Common Stock to be covered under each
option and the amount of any cash awards;
(d) the option price to be paid upon the exercise of each option;
(e) the period within which each such option may be exercised;
(f) the extent to which an option is an incentive stock option or
a non-qualified stock option; and
(g) the terms and conditions of the respective agreements by which
options granted or cash awards shall be evidenced.
The Committee shall also have authority to prescribe, amend, waive, and rescind
rules and regulations relating to the Plan, to accelerate the vesting of any
stock options or cash awards made hereunder, to make amendments or modifications
in the terms and conditions (including exercisability) of the options relating
to the effect of termination of employment of the optionee (subject to the last
sentence of Section 11 hereof), to waive any restrictions or conditions
applicable to any option or the exercise thereof, and to make all other
determinations necessary or advisable in the administration of the Plan.
3. Eligibility. The Committee may, consistent with the purposes of the
Plan, grant options and cash awards to officers and other key employees and
directors of the Holding Company or of a Subsidiary who in the opinion of the
Committee are from time to time materially responsible for the management or
operation of the business of the Holding Company or of a Subsidiary and have
provided valuable services to the Holding Company or a Subsidiary; provided,
however, that in no event may any employee who owns (after application of the
ownership rules in ss. 425(d) of the Internal Revenue Code of 1986, as amended
(the "Code")) shares of stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Holding Company or any of
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its Subsidiaries be granted an incentive stock option hereunder unless at the
time such option is granted the option price is at least 110% of the fair market
value of the stock subject to the option and such option by its terms is not
exercisable after the expiration of five (5) years from the date such option is
granted. No employee may be granted options under the Plan for more than 30,000
shares of Common Stock in any calendar year (subject to adjustments contemplated
by Section 7 hereof). Subject to the foregoing provisions, an individual who has
been granted an option under the Plan (an "Optionee"), if he is otherwise
eligible, may be granted an additional option or options if the Committee shall
so determine.
4. Stock Subject to the Plan. There shall be reserved for issuance upon
the exercise of options granted under the Plan, 250,000 shares of Common Stock
of the Holding Company, which may be authorized but unissued shares or treasury
shares of the Holding Company. Subject to Section 7 hereof, the shares for which
options may be granted under the Plan shall not exceed that number. If any
option shall expire or terminate or be surrendered for any reason without having
been exercised in full, the unpurchased shares subject thereto shall (unless the
Plan shall have terminated) become available for other options under the Plan.
5. Terms of Options. Each option granted under the Plan shall be
subject to the following terms and conditions and to such other terms and
conditions not inconsistent therewith as the Committee may deem appropriate in
each case:
(a) Option Price. The price to be paid for shares of stock upon
the exercise of each option shall be determined by the Committee at the
time such option is granted, but such price in no event shall be less
than the fair market value, as determined by the Committee consistent
with Treas. Reg. ss. 20.2031-2 and any requirements of ss. 422A of the
Code, of such stock on the date on which such option is granted.
(b) Period for Exercise of Option. An option shall not be
exercisable after the expiration of such period as shall be fixed by
the Committee at the time of the grant thereof, but such period in no
event shall exceed ten (10) years and one day from the date on which
such option is granted; provided, that incentive stock options granted
hereunder shall have terms not in excess of ten (10) years and
non-qualified stock options shall be for a period not in excess of ten
(10) years and one day from the date of grant thereof. Options shall be
subject to earlier termination as hereinafter provided.
(c) Exercise of Options. The option price of each share of stock
purchased upon exercise of an option shall be paid in full at the time
of such exercise. Payment may be in (i) cash, (ii) if the Optionee may
do so in conformity with Regulation T (12 C.F.R. ss. 220.3(e)(4))
without violating ss. 16(b) or ss. 16(c) of the 1934 Act, pursuant to a
broker's cashless exercise procedure, by delivering a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Holding Company the total option price in cash
and, if desired, the amount of any taxes to be withheld from the
Optionee's compensation as a result of any withholding tax obligation
of the Holding Company or any of its Subsidiaries, as specified in such
notice, or (iii) with the approval of the Committee, by tendering whole
shares of the Holding Company's Common Stock owned by the Optionee and
cash having a fair market value equal to the cash exercise price of the
shares with respect to which the option is being exercised. For this
purpose, any shares so tendered by an Optionee shall be deemed to have
a fair market value equal to the mean between the highest and lowest
quoted selling prices for the shares on the date of exercise of the
option (or if there were no sales on such date the weighted average of
the means between the highest and lowest quoted selling prices for the
shares on the nearest date before and the nearest date after the date
of exercise of the options as prescribed by Treas. Reg. ss. 20-2031-2),
as reported in The Wall Street Journal or a similar publication
selected by the Committee. The Committee shall have the authority to
grant options exercisable in full at any time during their term, or
exercisable in such installments at such times during their term as the
Committee may determine; provided, however, that options shall not be
exercisable during the first six (6) months of their term. Installments
not purchased in earlier periods shall be cumulated and be available
for purchase in later periods. Subject to the other provisions of this
Plan, an option may be exercised at any time or from time to time
during the term of the option as to any or all whole shares which have
become subject to purchase pursuant to the terms of the option or the
Plan, but not at any time as to fewer than one hundred (100) shares
unless the remaining shares which have become subject to purchase are
fewer than one hundred (100) shares. An option may be exercised only by
written notice to the Holding Company, mailed to the attention of its
Secretary, signed by the Optionee (or such other person or persons as
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shall demonstrate to the Holding Company his or their right to exercise
the option), specifying the number of shares in respect of which it is
being exercised, and accompanied by payment in full in either cash or
by check in the amount of the aggregate purchase price therefor, by
delivery of the irrevocable broker instructions referred to above, or,
if the Committee has approved the use of the stock swap feature
provided for above, followed as soon as practicable by the delivery of
the option price for such shares.
(d) Certificates. The certificate or certificates for the shares
issuable upon an exercise of an option shall be issued as promptly as
practicable after such exercise. An Optionee shall not have any rights
of a shareholder in respect to the shares of stock subject to an option
until the date of issuance of a stock certificate to him for such
shares. In no case may a fraction of a share be purchased or issued
under the Plan, but if, upon the exercise of an option, a fractional
share would otherwise be issuable, the Holding Company shall pay cash
in lieu thereof.
(e) Termination of Option. If an Optionee (other than a director
of the Holding Company or a Subsidiary who is not an employee of the
Holding Company or a Subsidiary (an "Outside Director")) ceases to be
an employee of the Holding Company and the Subsidiaries for any reason
other than retirement, permanent and total disability (within the
meaning of ss. 22(e)(3) of the Code), or death, any option granted to
him shall forthwith terminate. Leave of absence approved by the
Committee shall not constitute cessation of employment. If an Optionee
(other than an Outside Director) ceases to be an employee of the
Holding Company and the Subsidiaries by reason of retirement, any
option granted to him may be exercised by him in whole or in part
within three (3) years after the date of his retirement, whether or not
the option was otherwise exercisable at the date of his retirement;
provided, however, that if such employee remains a director or director
emeritus of the Holding Company, the option granted to him may be
exercised by him in whole or in part until the later of (a) three (3)
years after the date of his retirement, or (b) six months after his
service as a director or director emeritus of the Holding Company
terminates. (The term "retirement" as used herein means such
termination of employment as shall entitle such individual to early or
normal retirement benefits under any then existing pension plan of the
Holding Company or a Subsidiary.) If an Optionee (other than an Outside
Director) ceases to be an employee of the Holding Company and the
Subsidiaries by reason of permanent and total disability (within the
meaning of ss. 22(e)(3) of the Code), any option granted to him may be
exercised by him in whole or in part within one (1) year after the date
of his termination of employment by reason of such disability whether
or not the option was otherwise exercisable at the date of such
termination. Options granted to Outside Directors shall cease to be
exercisable six (6) months after the date such Outside Director is no
longer a director or director emeritus of the Holding Company or a
Subsidiary for any reason other than death or disability. If an
Optionee who is an Outside Director ceases to be a director and a
director emeritus by reason of disability, any option granted to him
may be exercised in whole or in part within one (1) year after the date
the Optionee ceases to be a director and a director emeritus by reason
of such disability, whether or not the option was otherwise exercisable
at such date. In the event of the death of an Optionee while in the
employ or service as a director or director emeritus of the Holding
Company or a Subsidiary, or, if the Optionee is not an Outside
Director, within three (3) years after the date of his retirement (or,
if later, six months following his termination of service as a director
or director emeritus of the Holding Company or a Subsidiary) or within
one (1) year after the termination of his employment by reason of
permanent and total disability (within the meaning of ss. 22(e)(3) of
the Code), or, if the Optionee is an Outside Director, within six (6)
months after he is no longer a director and a director emeritus of the
Holding Company or of Subsidiary for reasons other than disability or,
within one (1) year after the termination of his service by reason of
disability, any option granted to him may be exercised in whole or in
part at any time within one (1) year after the date of such death by
the executor or administrator of his estate or by the person or persons
entitled to the option by will or by applicable laws of descent and
distribution until the expiration of the option term as fixed by the
Committee, whether or not the option was otherwise exercisable at the
date of his death. Notwithstanding the foregoing provisions of this
subsection (e), no option shall in any event be exercisable after the
expiration of the period fixed by the Committee in accordance with
subsection (b) above.
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(f) Nontransferability of Option. No option may be transferred by
the Optionee otherwise than by will or the laws of descent and
distribution, and during the lifetime of the Optionee options shall be
exercisable only by the Optionee or his guardian or legal
representative.
(g) No Right to Continued Service. Nothing in this Plan or in any
agreement entered into pursuant hereto shall confer on any person any
right to continue in the employ or service of the Holding Company or
its Subsidiaries or affect any rights the Holding Company, a
Subsidiary, or the shareholders of the Holding Company may have to
terminate his service at any time.
(h) Maximum Incentive Stock Options. The aggregate fair market
value of stock with respect to which incentive stock options (within
the meaning of ss. 422A of the Code) are exercisable for the first time
by an Optionee during any calendar year under the Plan or any other
plan of the Holding Company or its Subsidiaries shall not exceed
$100,000. For this purpose, the fair market value of such shares shall
be determined as of the date the option is granted and shall be
computed in such manner as shall be determined by the Committee,
consistent with the requirements of ss. 422A of the Code.
(i) Agreement. Each option shall be evidenced by an agreement
between the Optionee and the Holding Company which shall provide, among
other things, that, with respect to incentive stock options, the
Optionee will advise the Holding Company immediately upon any sale or
transfer of the shares of Common Stock received upon exercise of the
option to the extent such sale or transfer takes place prior to the
later of (a) two (2) years from the date of grant or (b) one (1) year
from the date of exercise.
(j) Investment Representations. Unless the shares subject to an
option are registered under applicable federal and state securities
laws, each Optionee by accepting an option shall be deemed to agree for
himself and his legal representatives that any option granted to him
and any and all shares of Common Stock purchased upon the exercise of
the option shall be acquired for investment and not with a view to, or
for the sale in connection with, any distribution thereof, and each
notice of the exercise of any portion of an option shall be accompanied
by a representation in writing, signed by the Optionee or his legal
representatives, as the case may be, that the shares of Common Stock
are being acquired in good faith for investment and not with a view to,
or for sale in connection with, any distribution thereof (except in
case of the Optionee's legal representatives for distribution, but not
for sale, to his legal heirs, legatees and other testamentary
beneficiaries). Any shares issued pursuant to an exercise of an option
may bear a legend evidencing such representations and restrictions.
6. Incentive Stock Options and Non-Qualified Stock Options. Options
granted under the Plan may be incentive stock options under ss. 422A of the Code
or non-qualified stock options, provided, however, that Outside Directors shall
be granted only non-qualified stock options. All options granted hereunder will
be clearly identified as either incentive stock options or non-qualified stock
options. In no event will the exercise of an incentive stock option affect the
right to exercise any non-qualified stock option, nor shall the exercise of any
non-qualified stock option affect the right to exercise any incentive stock
option. Nothing in this Plan shall be construed to prohibit the grant of
incentive stock options and non-qualified stock options to the same person,
provided, further, that incentive stock options and non-qualified stock options
shall not be granted in a manner whereby the exercise of one non-qualified stock
option or incentive stock option affects the exercisability of the other.
7. Adjustment of Shares. In the event of any change after the effective
date of the Plan in the outstanding stock of the Holding Company by reason of
any reorganization, recapitalization, stock split, stock dividend, combination
of shares, exchange of shares, merger or consolidation, liquidation,
extraordinary distribution (consisting of cash, securities, or other assets), or
any other change after the effective date of the Plan in the nature of the
shares of stock of the Holding Company, the Committee shall determine what
changes, if any, are appropriate in the number and kind of shares reserved under
the Plan, and the Committee shall determine what changes, if any, are
appropriate in the option price under and the number and kind of shares covered
by outstanding options granted under the Plan. Any determination of the
Committee hereunder shall be conclusive.
8. Cash Awards. The Committee may, at any time and in its discretion,
grant to any Optionee who is granted a non-qualified stock option the right to
receive, at such times and in such amounts as determined by the Committee in its
discretion, a cash amount ("cash award") which is intended to reimburse the
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Optionee for all or a portion of the federal, state and local income taxes
imposed upon such Optionee as a consequence of the exercise of a non-qualified
stock option and the receipt of a cash award.
9. Change in Control. In the event of a Change in Control, all options
previously granted and still outstanding under the Plan regardless of their
terms, shall become exercisable. For this purpose, "Change in Control" shall
mean a change in control of the Holding Company or the Bank, within the meaning
of 12 C.F.R. ss. 574.4(a) (other than a change of control resulting from a
trustee or other fiduciary holding shares of Common Stock under an employee
benefit plan of the Holding Company or any of its Subsidiaries).
10. Tax Withholding. Whenever the Holding Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the Holding
Company shall have the right to require the Optionee or his or her legal
representative to remit to the Holding Company an amount sufficient to satisfy
any federal, state and/or local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares, and whenever under
the Plan payments are to be made in cash, such payments shall be net of an
amount sufficient to satisfy any federal, state and/or local withholding tax
requirements. If permitted by the Committee and pursuant to procedures
established by the Committee, an Optionee may make a written election to have
shares of Common Stock having an aggregate fair market value, as determined by
the Committee, consistent with the requirements of Treas. Reg. ss. 20.2031-2,
sufficient to satisfy the applicable withholding taxes, withheld from the shares
otherwise to be received upon the exercise of a non-qualified option.
11. Amendment. The Board of Directors of the Holding Company may amend
the Plan from time to time and, with the consent of the Optionee, the terms and
provisions of his option or cash award, except that without the approval of the
holders of at least a majority of the shares of the Holding Company voting in
person or by proxy at a duly constituted meeting or adjournment thereof:
(a) the number of shares of stock which may be reserved for
issuance under the Plan may not be increased, except as provided in
Section 7 hereof;
(b) the period during which an option may be exercised may not
be extended beyond ten (10) years and one day from the date on which
such option was granted; and
(c) the class of persons to whom options or cash awards may be
granted under the Plan shall not be modified materially.
No amendment of the Plan, however, may, without the consent of the
Optionees, make any changes in any outstanding options or cash awards
theretofore granted under the Plan which would adversely affect the rights of
such Optionees.
12. Termination. The Board of Directors of the Holding Company may
terminate the Plan at any time and no option or cash award shall be granted
thereafter. Such termination, however, shall not affect the validity of any
option or cash award theretofore granted under the Plan. In any event, no
incentive stock option may be granted under the Plan after the date which is ten
(10) years from the effective date of the Plan.
13. Successors. This Plan shall be binding upon the successors and
assigns of the Holding Company.
14. Governing Law. The terms of any options granted hereunder and the
rights and obligations hereunder of the Holding Company, the Optionees and their
successors in interest shall be governed by Indiana law.
15. Government and Other Regulations. The obligations of the Holding
Company to issue or transfer and deliver shares under options granted under the
Plan or make cash awards shall be subject to compliance with all applicable
laws, governmental rules and regulations, and administrative action.
16. Effective Date. The Plan shall become effective on the date the
Plan is approved by the holders of at least a majority of the shares of the
Holding Company voting in person or by proxy at a duly constituted meeting or
adjournment thereof and any options granted pursuant to the Plan may not be
exercised until the Board of Directors of the Holding Company has been advised
by counsel that such approval has been obtained and all other applicable legal
requirements have been met.
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