<PAGE>
As filed with the Securities and Exchange Commission on February 20, 1998
Registration No. 333- ________
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COMMUNITY BANK SHARES OF INDIANA, INC.
--------------------------------------------------
(Exact name of Registrant as specified in its charter)
Indiana 6711 35-1938254
----------- -------- ---------------
(State or other juris- (Primary Standard (I.R.S. Employer
diction of incorporation Industrial Classification Identification No.)
or organization) Code No.)
202 East Spring Street
New Albany, Indiana 47150
(812) 944-2224
---------------
(Address, including zip code and telephone number, including area code,
of Registrant's principal executive offices)
Robert E. Yates
President and Chief Executive Officer
Community Bank Shares of Indiana, Inc.
202 East Spring Street
New Albany, Indiana 47150
(812) 944-2224
--------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
with a copy to:
Raymond A. Tiernan, Esq
John P. Soukenik, Esq.
Kenneth B. Tabach, Esq.
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
Washington, D.C. 20005
(202) 347-0300
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this registration statement becomes effective.
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. / /
Calculation of Registration Fee
<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Offering Price Per Aggregate Offering Amount of
Registered Amount to be Registered(1) Share or Unit(2) Price(2) Registration Fee(2)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Common Shares, par
value $.10 per share 792,609 shares $17.50 $13,870,657 $4,091.84
</TABLE>
(1) This Registration Statement covers the maximum number of common shares of
the Registrant issuable upon consummation of the acquisition of NCF
Financial Corporation ("NCF) by the Registrant.
(2) Estimated solely for the purpose of calculation of the registration fee.
Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act of 1933,
the registration fee is based on the closing price of the Registrant's
Common Stock as reported on The Nasdaq Stock Market's Small-Cap Market on
February 12, 1998 ($17.50), and computed based on the maximum number of
shares (792,609) that may be exchanged for the securities being
registered.
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.
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- -----------------------------------------------------------------------------
<PAGE>
COMMUNITY BANK SHARES OF INDIANA, INC.
202 EAST SPRING STREET
NEW ALBANY, INDIANA 47150
(812) 944-2224
March_____, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
(the "Annual Meeting") of Community Bank Shares of Indiana, Inc.
("Community"), which will be held at the Robert E. Lee Retirement Inn located
at 201 E. Elm, New Albany, Indiana, on April ___, 1998 at ______.m., Eastern
Time.
At the Annual Meeting, stockholders will be asked to approve the
Agreement and Plan of Reorganization and a related Agreement of Merger, both
dated as of December 17, 1997 (together, the "Merger Agreement"), whereby NCF
Financial Corporation ("NCF") will be merged into Community (the "Merger"),
with Community as the surviving corporation. If the Merger is consummated,
each share of common stock of NCF, par value $.10 per share ("NCF Common
Stock"), outstanding immediately prior to consummation of the Merger (other
than shares as to which dissenters' rights have been asserted and duly
perfected in accordance with Delaware law and shares held by NCF, Community
or any of their respective subsidiaries) shall be converted into and
represent the right to receive .935 of a share of Community common stock, par
value $.10 per share ("Community Common Stock"), subject to possible
adjustment under certain circumstances. At the meeting, stockholders will
also be asked to consider the election of directors and the ratification of
the appointment of Monroe, Shine & Co., Inc. as Community's independent auditors
for the fiscal year ending December 31, 1998.
As a result of the Merger, NCF Bank & Trust Co., (the "Bank"), a
wholly-owned subsidiary of NCF, will become a wholly-owned subsidiary of
Community. Approval by Community's stockholders of the Merger Agreement,
which involves the issuance of new shares of Community Common Stock in
connection with the Merger, is a condition to consummation of the Merger. The
terms of the proposed Merger are explained in detail in the accompanying
Joint Proxy Statement/Prospectus, which we urge you to read carefully.
Each stockholder entitled to vote at the Community Annual Meeting will
have the right to dissent from the Merger and to obtain payment for the fair
value of his shares upon compliance with the applicable provisions of Indiana
law. For a summary of the rights of stockholders of Community to dissent, see
"The Merger--Dissenters' Rights" in the attached Joint Proxy
Statement/Prospectus and Appendix E thereto.
THE BOARD OF DIRECTORS OF COMMUNITY HAS UNANIMOUSLY APPROVED THE MERGER
AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER.
Enclosed is a Notice of Annual Meeting of Stockholders, the Joint Proxy
Statement/Prospectus, a proxy card and Community's 1997 Annual Report to
Stockholders. Your vote is important, regardless of the number of shares you
own. Please complete, sign and date the enclosed proxy card and return it as
soon as possible in the envelope provided. If you decide to attend the
meeting, you may vote your shares in person whether or not you have
previously submitted a proxy. On behalf of the Board, I thank you for your
attention to this important matter.
SINCERELY,
Robert E. Yates
President and Chief Executive
Officer
<PAGE>
COMMUNITY BANK SHARES OF INDIANA, INC.
202 East Spring Street
New Albany, Indiana 47150
(812) 944-2224
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL _____, 1998
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders of
Community Bank Shares of Indiana ("Community") will be held at the Robert E.
Lee Retirement Inn located at 201 E. Elm, New Albany, Indiana, on _____,
April _____, 1998 at _____.m., Eastern Time., for the following purposes, all
of which are more completely set forth in the accompanying Joint Proxy
Statement/ Prospectus:
1. To consider and vote upon the Agreement and Plan of Reorganization
dated as of December 17, 1997, by and between Community and NCF Financial
Corporation ("NCF"), and a related Agreement of Merger (together, the
"Merger Agreement"), pursuant to which (i) NCF will be merged into Community
(the "Merger"), with Community as the surviving corporation of the Merger;
and (ii) each share of common stock of NCF, par value $.10 per share ("NCF
Common Stock"), outstanding immediately prior to consummation of the Merger
(other than shares as to which dissenters' rights have been asserted and
duly perfected in accordance with Delaware law and shares held by Community,
NCF or any of their respective subsidiaries) shall be converted into and
represent the right to receive .935 of a share of Community common stock,
par value $.10 per share ("Community Common Stock") (the "Exchange Ratio"),
provided however, if the average market price of a share of community common
stock over the 20 consecutive trading day preceding the receipt of all
requisite regulatory approvals related to the Merger (the "Community Market
Value") is less than $15.00, then the Exchange Ratio shall be one share of
Community Common Stock and if the Community Market Value is greater than
$25.00, then the Exchange Ratio shall be .88 of a share of Community Common
Stock, as described in the Joint Proxy Statement/Prospectus and the Merger
Agreement which is attached as Appendix A thereto; and
2. To elect four directors for a three-year term, one director for a
two-year term and two directors for a one-year term and, in each case, until
their successors are elected and qualified;
3. To ratify the appointment by the Board of Directors of Monroe Shine
& Co., Inc. as Community's independent auditors for the fiscal year ending
December 31, 1998; and
4. To transact such other business, if any, as may properly come before
the Annual Meeting or any adjournment thereof.
Any stockholder entitled to vote at the Community Annual Meeting will have
the right to dissent from the Merger and to obtain payment for the fair value of
his shares upon compliance with the applicable provisions of Indiana law. For a
summary of the rights of stockholders of Community to dissent, see "The
Merger--Dissenters' Rights" in the attached Joint Proxy Statement/Prospectus and
Appendix E thereto.
Only holders of record of the Community Common Stock at the close of
business on March ___, 1998 are entitled to notice of and to vote at the
Annual Meeting or any adjournments thereof.
BY ORDER OF THE BOARD OF DIRECTORS
M. Diane Murphy
Secretary
New Albany, Indiana
March ___, 1998
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT
THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU
PLAN TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING,
YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY. ANY PROXY GIVEN MAY BE
REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE
THEREOF.
<PAGE>
NCF FINANCIAL CORPORATION
106 A West John Rowan Boulevard
Bardstown, Kentucky
(502) 348-9278
March ___, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
NCF Financial Corporation ("NCF") on_____________, April ___, 1998 at
_____.m., Eastern Time, which will be held at the Hampton Inn located at 985
Chambers Boulevard, Bardstown, Kentucky.
At the Special Meeting, stockholders will be asked to approve the
Agreement and Plan of Reorganization and a related Agreement of Merger, both
dated as of December 17, 1997 (together, the "Merger Agreement"), whereby NCF
will be merged (the "Merger") into Community Bancorp, Inc. ("Community"),
with Community as the surviving corporation. If the Merger is consummated,
each share of common stock of NCF, par value $.10 per share ("NCF Common
Stock"), outstanding immediately prior to consummation of the Merger (other
than shares as to which dissenters' rights have been asserted and duly
perfected in accordance with Delaware law and shares held by Community, NCF
or any of their respective subsidiaries) shall be converted into and
represent the right to receive .935 of a share of Community common stock, par
value $.10 per share ("Community Common Stock"), subject to possible
adjustment under certain circumstances.
As a result of the Merger, NCF Bank & Trust Co., (the "Bank"), a
wholly-owned subsidiary of NCF, will become a wholly-owned subsidiary of
Community. Approval by NCF's stockholders of the Merger Agreement is a
condition to consummation of the Merger. The terms of the proposed Merger are
explained in detail in the accompanying Joint Proxy Statement/Prospectus,
which we urge you to read carefully.
Each stockholder entitled to vote at the NCF Special Meeting will have
the right to dissent from the Merger and to obtain payment for the fair value
of his shares upon compliance with the applicable provisions of Delaware law.
For a summary of the rights of stockholders of NCF to dissent, see "The
Merger -Dissenters' Rights" in the attached Joint Proxy Statement/Prospectus
and Appendix D thereto.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE PROPOSAL TO APPROVE THE MERGER, WHICH THE BOARD BELIEVES IS IN THE BEST
INTERESTS OF NCF'S STOCKHOLDERS.
Enclosed is a Notice of Special Meeting of Stockholders, the Joint Proxy
Statement/Prospectus, a proxy card and Community's 1997 Annual Report to
Stockholders. Your vote is important, regardless of the number of shares you
own. Please complete, sign and date the enclosed proxy card and return it as
soon as possible in the envelope provided. If you decide to attend the
meeting, you may vote your shares in person whether or not you have
previously submitted a proxy. On behalf of the Board, I thank you for your
attention to this important matter.
VERY TRULY YOURS,
Guthrie M. Wilson, III
Chairman of the Board
<PAGE>
NCF FINANCIAL CORPORATION
106 A West John Rowan Boulevard
Bardstown, Kentucky
(502) 348-9278
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL ___, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of NCF
Financial Corporation ("NCF") will be held at the Hampton Inn located at 985
Chambers Boulevard, Bardstown, Kentucky, on _________, April ___, 1998 at
_____.m., Eastern Time, for the following purposes, all of which are more
completely set forth in the accompanying Joint Proxy Statement/Prospectus:
1. To consider and vote upon the Agreement and Plan of Reorganization
dated as of December 17, 1997, by and between Community Bancorp, Inc.
("Community") and NCF, and a related Agreement of Merger (together, the
"Merger Agreement"), pursuant to which (i) NCF will be merged into Community
(the "Merger"), with Community as the surviving corporation of the Merger;
and (ii) each share of common stock of NCF, par value $.10 per share ("NCF
Common Stock"), outstanding immediately prior to consummation of the Merger
(other than shares as to which dissenters' rights have been asserted and
duly perfected in accordance with Delaware law and shares held by Community,
NCF or any of their respective subsidiaries) shall be converted into and
represent the right to receive .935 of a share of Community common stock,
par value $.10 per share ("Community Common Stock") (the "Exchange Ratio"),
provided however, if the average market price of a share of community common
stock over the 20 consecutive trading day preceding the receipt of all
requisite regulatory approvals related to the Merger (the "Community Market
Value") is less than $15.00, then the Exchange Ratio shall be one share of
Community Common Stock and if the Community Market Value is greater than
$25.00, then the Exchange Ratio shall be .88 of a share of Community Common
Stock, as described in the Joint Proxy Statement/Prospectus and the Merger
Agreement which is attached as Appendix A thereto; and
2. To transact such other business as may properly come before the NCF
Special Meeting or any adjournment thereof.
Only holders of record of the NCF Common Stock at the close of business on
March ___, 1998 are entitled to notice of and to vote at the Special Meeting
and any adjournments thereof.
Any stockholder entitled to vote at the NCF Special Meeting will have the
right to dissent from the Merger and to obtain payment for the fair value of his
shares upon compliance with the applicable provisions of Delaware law. For a
summary of the rights of stockholders of NCF to dissent, see "The Merger
- -Dissenters' Rights" in the attached Joint Proxy Statement/Prospectus and
Appendix D thereto.
BY ORDER OF THE BOARD OF DIRECTORS
Patricia H. Thomas
Secretary
Bardstown, Kentucky
March ___, 1998
YOU ARE CORDIALLY INVITED TO ATTEND THE NCF SPECIAL MEETING. IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN.
EVEN IF YOU PLAN TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND
THE MEETING, YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY. ANY PROXY GIVEN
MAY BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE
EXERCISE THEREOF.
<PAGE>
JOINT PROXY STATEMENT
for
Annual Meeting of Stockholders of Community Bank Shares of Indiana, Inc.
to be held on April ___, 1998
and
Special Meeting of Stockholders of NCF Financial Corporation
to be held on April ____, 1998
----------------------------------
COMMUNITY BANK SHARES OF INDIANA, INC.
PROSPECTUS
for
up to 792,609 shares of Common Stock of
Community Bank Shares of Indiana, Inc. to be issued in connection with the
acquisition of NCF Financial Corporation
by Community Bank Shares of Indiana, Inc.
----------------------------------------
This Joint Proxy Statement/Prospectus is being furnished in connection
with the solicitation of proxies by the Board of Directors of Community Bank
Shares of Indiana, Inc. ("Community") to be used at an annual meeting of its
stockholders to be held on ___________, April ___, 1998 (the "Community
Annual Meeting"), and the solicitation of proxies by the Board of Directors
of NCF Financial Corporation ("NCF") to be used at a special meeting of its
stockholders to be held on _____________, April ____ ,1998 (the "NCF Special
Meeting"). The Community Annual Meeting and the NCF Special Meeting are
collectively referred to as the "Stockholder Meetings." The purpose of the
Stockholder Meetings is to consider and vote upon an Agreement and Plan of
Reorganization, dated as of December 17, 1997, by and between Community and
NCF, and a related Agreement of Merger (together, the "Merger Agreement"). A
copy of the Merger Agreement is attached as Appendix A to this Joint Proxy
Statement/Prospectus. At the Community Annual Meetings stockholders are also
being asked to consider the election of directors and the ratification of the
independent auditors for fiscal 1998.
In accordance with the terms of the Merger Agreement, upon approval of the
Merger Agreement by the stockholders of Community and NCF and receipt of all
requisite regulatory approvals and the satisfaction or waiver of all conditions,
NCF shall be merged into Community (the "Merger"), with Community as the
surviving corporation of the Merger. In connection with the Merger, each share
of common stock of NCF, par value $.10 per share ("NCF Common Stock"),
outstanding immediately prior to consummation of the Merger (other than shares
as to which dissenters' rights have been asserted and duly perfected in
accordance with Delaware law and shares held by Community, NCF or any of their
respective subsidiaries) shall be converted into and represent the right to
receive .935 of a share of Community common stock, par value $.10 per share
("Community Common Stock") (the "Exchange Ratio"), provided however, if the
average market price of a share of the Community Common Stock over the 20
consecutive trading day preceding the receipt of all requisite regulatory
approvals related to the Merger (the "Community Market Value") is less than
$15.00, then the Exchange Ratio shall be one share of Community Common Stock and
if the Community Market Value is greater than $25.00, then the Exchange Ratio
shall be .88 of a share of Community Common Stock (the "Merger Consideration").
As a result of the Merger, NCF Bank & Trust Co. (the "Bank"), a wholly-owned
subsidiary of NCF, will become a wholly-owned subsidiary of Community.
<PAGE>
The outstanding shares of Community Common Stock are, and the shares offered
hereby will be, included for quotation on the National Association of Securities
Dealers Automated Quotations ("Nasdaq") Small Cap Market. The closing price of
Community Common Stock on March ___, 1998 was $_____ per share.
Community has filed a Registration Statement on Form S-4 pursuant to the
Securities Act of 1933, as amended, covering up to 792,609 shares of
Community Common Stock. In addition to being the Joint Proxy Statement for
the Stockholder Meetings, this document constitutes a prospectus of Community
with respect to the shares of Community Common Stock to be issued in
connection with the Merger.
NCF stock certificates should not be returned to NCF with the enclosed proxy
and should not be forwarded until after receipt of a letter of transmittal,
which will be provided to NCF stockholders promptly following consummation of
the Merger.
This Joint Proxy Statement/Prospectus does not cover resales of shares of
Community Common Stock following consummation of the Merger, and no person may
make use of this Joint Proxy Statement/ Prospectus in connection with any such
resale.
This Joint Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to stockholders of Community and NCF on or about March
___, 1998.
All information contained in this Joint Proxy Statement/Prospectus relating
to Community and its subsidiaries has been supplied by Community, and all
information contained in this Joint Proxy Statement/ Prospectus relating to NCF
and its subsidiaries has been supplied by NCF.
----------------------------------
THE SHARES OF COMMUNITY COMMON STOCK TO BE ISSUED IN THE MERGER HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE SHARES OF COMMUNITY COMMON STOCK OFFERED HEREBY ARE NOT DEPOSITS,
SAVINGS ACCOUNTS OR OTHER OBLIGATIONS OF ANY DEPOSITORY INSTITUTION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
----------------------------------
The date of this Joint Proxy Statement/Prospectus is March ___, 1998.
-2-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION......................................................................................
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................
SUMMARY....................................................................................................
COMPARATIVE PER SHARE DATA.................................................................................
COMPARATIVE MARKET PRICES..................................................................................
COMMUNITY SELECTED CONSOLIDATED FINANCIAL INFORMATION......................................................
NCF SELECTED CONSOLIDATED FINANCIAL INFORMATION............................................................
STOCKHOLDER MEETINGS.......................................................................................
Annual Meeting of Community Stockholders.................................................................
Special Meeting of NCF Stockholders......................................................................
Costs....................................................................................................
THE MERGER.................................................................................................
General..................................................................................................
Background of and Reasons for the Merger.................................................................
Opinion of NCF's Financial Advisor.......................................................................
The Merger Consideration.................................................................................
Conditions to the Merger.................................................................................
Regulatory Approvals.....................................................................................
Business Pending the Merger..............................................................................
Acquisition Proposals....................................................................................
Representations and Warranties...........................................................................
Effective Time of the Merger; Termination and Amendment..................................................
Interests of Certain Persons in the Merger...............................................................
Resale Considerations With Respect to the Community Common Stock.........................................
Certain Federal Income Tax Consequences..................................................................
Accounting Treatment of the Merger.......................................................................
Dissenters' Rights.......................................................................................
Expenses of the Merger...................................................................................
Option Agreement.........................................................................................
Letter Agreement.........................................................................................
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION...............................................
INFORMATION WITH RESPECT TO COMMUNITY'S NOMINEES FOR DIRECTOR, CONTINUING DIRECTORS AND EXECUTIVE
OFFICERS.................................................................................................
BENEFICIAL OWNERSHIP OF COMMUNITY COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND COMMUNITY MANAGEMENT.......
COMMUNITY EXECUTIVE COMPENSATION...........................................................................
PROPOSAL TO RATIFY THE APPOINTMENT OF COMMUNITY'S AUDITORS.................................................
BENEFICIAL OWNERSHIP OF NCF COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF NCF................
NCF MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................
BUSINESS OF NCF............................................................................................
REGULATION AND SUPERVISION OF NCF..........................................................................
DESCRIPTION OF COMMUNITY CAPITAL STOCK.....................................................................
General..................................................................................................
Community Common Stock...................................................................................
Community Preferred Stock................................................................................
COMPARISON OF THE RIGHTS OF STOCKHOLDERS...................................................................
Authorized Capital Stock.................................................................................
Amendment of Governing Instruments.......................................................................
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Removal of Directors and Vacancies.......................................................................
Director Indemnification and Liability...................................................................
Special Meetings of Stockholders.........................................................................
Actions by Stockholders Without a Meeting................................................................
Stockholder Nominations and Proposals....................................................................
Provisions Affecting Business Combinations and Control Share Acquisitions................................
LEGAL OPINIONS.............................................................................................
EXPERTS....................................................................................................
STOCKHOLDER PROPOSALS......................................................................................
Community................................................................................................
NCF......................................................................................................
ANNUAL REPORTS.............................................................................................
OTHER MATTERS..............................................................................................
INDEX TO NCF CONSOLIDATED FINANCIAL STATEMENTS.............................................................
</TABLE>
<TABLE>
<S> <C> <C>
APPENDIX A: Agreement and Plan of Reorganization, dated
as of December 17, 1997, between Community Bank
Shares of Indiana, Inc. and NCF Financial Corporation,
including a related Agreement of Merger.................. A-1
APPENDIX B: Stock Option Agreement, dated as of December 17, 1997
between Community Bank Shares of Indiana, Inc. and NCF
Financial Corporation.................................... B-1
APPENDIX C: Opinion of Ferguson & Company............................ C-1
APPENDIX D: Delaware General Corporation Law provisions regarding
dissenters' rights of appraisal.......................... D-1
APPENDIX E: Indiana Business Corporation Law provisions regarding
dissenters' rights of appraisal.......................... E-1
</TABLE>
Accompanying Documents
1. Community's 1997 Annual Report to Stockholders
---------------------------------
No person is authorized to give any information or to make any
representation not contained in this Joint Proxy Statement/Prospectus in
connection with the solicitation of proxies or the offering of securities
made hereby, and, if given or made, any such information or representation
should not be relied upon as having been authorized by Community or NCF or
any other person. This Joint Proxy Statement/Prospectus does not constitute
an offer to sell, or a solicitation of an offer to purchase, the securities
offered by this Joint Proxy Statement/Prospectus, or the solicitation of a
proxy, in any jurisdiction in which it is unlawful to make such an offer,
solicitation of an offer or proxy solicitation. Neither the delivery of this
Joint Proxy Statement/Prospectus nor any distribution of the securities
offered pursuant to this Joint Proxy Statement/ Prospectus shall, under any
circumstances, create any implication that there has been no change in the
information set forth herein or in the affairs of Community or NCF or any of
their respective subsidiaries since the date of this Joint Proxy
Statement/Prospectus.
---------------------------------
-4-
<PAGE>
AVAILABLE INFORMATION
Community and NCF are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). The reports,
proxy statements and other information filed by Community and NCF with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 2120, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the Commission's Regional Offices at 7
World Trade Center, Suite 1300, New York, New York 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
or from the Web Site maintained by the Commission at "http:\\www.sec.gov."
Copies of such material also can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of prescribed rates. Copies of such reports, proxy statements
and other information may also be inspected at the National Association of
Securities Dealers, Inc., located at 1735 K Street, N.W., Washington, D.C.
20006.
Community has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Community Common Stock to be issued pursuant to
the Merger. As permitted by the rules and regulations of the Commission, this
Joint Proxy Statement/ Prospectus does not contain all the information set
forth in the Registration Statement and the exhibits thereto. Such additional
information may be obtained from the Commission's principal office in
Washington, D.C. by either of the means described above for obtaining
reports, proxy statements and other information filed pursuant to the
Exchange Act. Statements contained in this Joint Proxy Statement/ Prospectus
or in any document incorporated in this Joint Proxy Statement/Prospectus by
reference or supplied herewith as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other
document, each such statement being qualified in all respects by such
reference.
---------------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Community (File No.
0-25766) pursuant to the Exchange Act are incorporated by reference in this
Joint Proxy Statement/Prospectus:
1. Community's Annual Report on Form 10-K for the year ended December
31, 1997; and
2. The following portions of Community's Annual Report to Stockholders
for the year ended December 31, 1997: selected consolidated financial and
other data (page ___); management's discussion and analysis of financial
condition and results of operations (pages ___ through ____); and
audited consolidated financial statements and notes thereto (pages
through ____).
Accompanying this Joint Proxy Statement/Prospectus is Community's 1997
Annual Report to Stockholders.
Financial and other information included in the reports incorporated by
reference herein do not reflect stock splits or stock dividends declared
subsequent to the respective issuance dates of such reports.
The Merger Agreement and the Stock Option Agreement between Community and
NCF dated as of December 17, 1997 ("Option Agreement") are included herewith as
Appendices A and B, respectively, and are incorporated by reference herein.
Discussions of the terms and conditions of the Merger Agreement and the Option
Agreement are summary in nature, and holders of Community Common Stock and NCF
Common Stock are referred to the Merger Agreement and the Option Agreement for a
more complete discussion of the terms and conditions of the Merger, the Merger
Agreement, the Option Agreement and related transactions.
-5-
<PAGE>
Any statement contained herein, in any supplement hereto or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Joint Proxy Statement/Prospectus
to the extent that a statement contained herein, in any supplement hereto or in
any subsequently filed document which also is or 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 Joint Proxy Statement/Prospectus or any supplement
hereto.
Also incorporated herein by reference are the documents attached hereto as
Appendices C, D and E to this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus incorporates by reference documents
filed by Community with the Commission which are not presented herein or
delivered herewith. All of such documents with respect to Community are
available, upon written or oral request, from Ms. M. Diane Murphy, Secretary,
Community Bank Shares of Indiana, Inc., 202 East Spring Street, New Albany,
Indiana 47150; telephone number (812) 944-2224. Copies will be furnished
(without exhibits unless the exhibits have been specifically incorporated by
reference) free of charge. In order to ensure timely delivery of such documents,
any request should be made by April __, 1998.
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/ Prospectus and is not intended to be a complete
statement of the matters described herein. Reference is made to, and this
Summary is qualified in its entirety by, the more detailed information
contained, or incorporated by reference, in this Joint Proxy
Statement/Prospectus and in the Appendices attached hereto. Stockholders are
urged to read this Joint Proxy Statement/Prospectus and the Appendices hereto in
their entirety.
The Parties to the Merger
COMMUNITY. Community is an Indiana corporation and a bank holding company
registered under the Bank Holding Company Act, as amended (the "BHCA").
Community is the parent holding company of Community Bank of Southern Indiana
("Community Bank") and Heritage Bank of Southern Indiana ("Heritage Bank")
(collectively, the "Community Banks"). The Community Banks currently conduct
business through eight offices located in southern Indiana. The deposits of
Community Bank are insured to the maximum extent provided by law by the
Savings Association Insurance Fund ("SAIF") and the deposits of Heritage Bank
are insured to the maximum extent provided by law by the Bank Insurance Fund
("BIF"). Both the SAIF and the BIF are administered by the Federal Deposit
Insurance Corporation ("FDIC"). The principal business of the Community Banks
consist of attracting retail deposits from the general public and using such
deposits to originate loans secured by first mortgage liens on existing
single-family (one-to-four units) residential and commercial real estate and
consumer loans and to purchase mortgage-backed securities. Community's
executive offices are located at 202 East Spring Street, New Albany, Indiana
47150, and its telephone number is (812) 944-2224. At December 31, 1997,
Community had total consolidated assets of $254.1 million, total liabilities
of $226.4 million, including deposits of $186.0 million, and stockholders'
equity of $27.7 million.
For additional information concerning Community, its business, financial
condition and results of operations, see "Available Information," "Incorporation
Of Certain Documents By Reference," and "Community Selected Consolidated
Financial Information."
NCF. NCF is a Delaware corporation and a bank holding company registered
under the BHCA. NCF is the parent holding company of the Bank, a
Kentucky-chartered commercial bank. The Bank conducts business from one
full-service office located in Bardstown, Kentucky. The deposits of the Bank
are insured to the maximum extent
-6-
<PAGE>
provided by law by the SAIF. The Bank's principal business consists of
attracting savings deposits from the general public and using such deposits
to originate and purchase first mortgage loans secured by residential
properties and, to a lesser extent, to originate residential construction
loans, multi-family residential real estate loans and consumer loans. NCF's
executive offices are located at 106 A West John Rowan Boulevard, Bardstown,
Kentucky, and its telephone number is (502) 348-9278. At December 31, 1997,
NCF had total consolidated assets of $35.6 million, total liabilities of
$23.3 million, including deposits of $23.0 million, and stockholders' equity
of $12.3 million.
For additional information concerning NCF, see "Available Information," "NCF
Selected Consolidated Financial Information," "NCF Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business of NCF,"
"Regulation and Supervision of NCF" and the NCF Consolidated Financial
Statements contained elsewhere herein.
The Stockholder Meetings
COMMUNITY. The Community Annual Meeting will be held at the Robert E. Lee
Retirement Inn located at 201 E. Elm, New Albany, Indiana, on _________,
April __, 1998 at _______.m., Eastern Time. Only the holders of record of the
outstanding shares of Community Common Stock at the close of business on
March __, 1998 (the "Community Record Date") are entitled to notice of and to
vote at the Community Annual Meeting. At the Community Record Date, _______
shares of Community Common Stock were outstanding and entitled to vote. A
majority of the outstanding shares of Community Common Stock must be
represented in person or by proxy at the Community Annual Meeting in order
for a quorum to be present. Each share of Community Common Stock entitles the
holder thereof to one vote on each matter to be submitted to Community's
stockholders at the Community Annual Meeting.
At the Community Annual Meeting, Community's stockholders will be asked to
consider and vote upon (a) a proposal to approve the Merger Agreement, (b) a
proposal to elect four directors for a three-year term, one director for a
two-year term and two directors for a one-year term, (c) a proposal to ratify
the appointment of the independent auditors for 1998, and (d) the transaction of
such other business as may properly come before the Community Annual Meeting and
any adjournment or adjournments thereof. The affirmative vote of a majority of
the votes held by all stockholders entitled to vote thereon at the Community
Annual Meeting is required to adopt and approve the Merger Agreement. Directors
are elected by a plurality of the votes cast at the Community Annual Meeting.
The affirmative vote of the holders of a majority of the total votes cast at the
Community Annual Meeting is required to approve the proposal to ratify the
appointment of the independent auditors. Shares as to which the "ABSTAIN" box
has been marked on the proxy and shares held by brokers in street name for
customers for which voting instructions have not been received ("broker
non-votes") will be counted as present for determining if a quorum is present;
however, such abstentions and broker non-votes are not considered votes cast or
for a proposal and thus will have the same effect as a vote against the proposal
to adopt the Merger Agreement but will not effect the votes for the election of
directors or the proposal to ratify the approval of the auditors. See
"Stockholder Meetings--Annual Meeting of Community Stockholders."
As of the Community Record Date, the directors and executive officers of
Community and their affiliates in the aggregate beneficially owned ________
shares, or ____%, of the outstanding Community Common Stock, excluding shares
subject to options.
REVOCABILITY OF PROXIES. Holders of Community Common Stock may revoke a
proxy at any time prior to its exercise by filing with the Secretary of
Community (M. Diane Murphy, Secretary, 202 East Spring Street, New Albany,
Indiana 47150) a written notice of revocation or a proxy bearing a later
date, or by voting in person at the Community Annual Meeting. Attendance at
the Community Annual Meeting will not of itself constitute revocation of a
proxy. If your shares are not registered in your own name, you will need
additional documentation from your recordholder in order to vote personally
at the Community Annual Meeting.
-7-
<PAGE>
HOLDERS OF COMMUNITY COMMON STOCK ARE URGED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE COMMUNITY ANNUAL MEETING. ALL
PROPERLY EXECUTED PROXIES RECEIVED PRIOR TO OR AT THE COMMUNITY ANNUAL MEETING
WILL BE VOTED WITH RESPECT TO THE MATTERS IDENTIFIED ON THE PROXY CARDS IN
ACCORDANCE WITH ANY INSTRUCTIONS THEREON AND, IF NO INSTRUCTIONS ARE GIVEN, WILL
BE VOTED FOR ADOPTION AND APPROVAL OF THE MERGER AGREEMENT.
NCF. The NCF Special Meeting will be held at the Hampton Inn located at 985
Chambers Boulevard, Bardstown, Kentucky on April , 1998 at
.m., Eastern Time. Only the holders of record of the outstanding shares of
NCF Common Stock at the close of business on March , 1998 (the "NCF Record
Date") are entitled to notice of and to vote at the NCF Special Meeting. At the
NCF Record Date, shares of NCF Common Stock were outstanding and entitled
to vote. A majority of the outstanding shares of NCF Common Stock must be
represented in person or by proxy at the NCF Special Meeting in order for a
quorum to be present. Each share of NCF Common Stock entitles the holder thereof
to one vote on each matter to be submitted to NCF's stockholders at the NCF
Special Meeting.
At the NCF Special Meeting, NCF's stockholders will be asked to consider and
vote upon (a) a proposal to approve the Merger Agreement and (b) the transaction
of such other business as may properly come before the NCF Special Meeting and
any adjournment or adjournments thereof. The proposal to approve the Merger
Agreement will require the affirmative vote of a majority of the votes held by
all stockholders of NCF entitled to vote thereon at the NCF Special Meeting.
Shares as to which the "ABSTAIN" box have been marked on the proxy and broker
non-votes will be counted as present for determining if a quorum is present;
however, such abstentions and broker non-votes are not considered votes for and
thus will have the same effect as a vote against the Merger Agreement. See
"Stockholder Meetings--Special Meeting of NCF Stockholders."
The directors and certain officers of NCF have agreed and intend to vote or
cause to be voted all shares of NCF Common Stock in which they have the right to
vote for approval and adoption of the Merger Agreement. At the NCF Record Date,
directors and executive officers of NCF and their affiliates in the aggregate
beneficially owned shares, or %, of the outstanding NCF Common Stock,
excluding shares subject to options.
REVOCABILITY OF PROXIES. Holders of NCF Common Stock may revoke a proxy at
any time prior to its exercise by filing with the Secretary of NCF (Patricia H.
Thomas, Secretary, 106 A West John Rowan Boulevard, Bardstown, Kentucky) a
written notice of revocation or a proxy bearing a later date, or by voting in
person at the NCF Special Meeting. Attendance at the NCF Special Meeting will
not of itself constitute revocation of a proxy. If your shares are not
registered in your own name, you will need additional documentation from your
recordholder in order to vote personally at the NCF Special Meeting.
HOLDERS OF NCF COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE NCF SPECIAL MEETING. ALL
PROPERLY EXECUTED PROXIES RECEIVED PRIOR TO OR AT THE NCF SPECIAL MEETING WILL
BE VOTED WITH RESPECT TO THE MATTERS IDENTIFIED ON THE PROXY CARDS IN ACCORDANCE
WITH ANY INSTRUCTIONS THEREON AND, IF NO INSTRUCTIONS ARE GIVEN, WILL BE VOTED
FOR ADOPTION AND APPROVAL OF THE MERGER AGREEMENT.
-8-
<PAGE>
Terms of the Merger
In accordance with the terms of the Merger Agreement, NCF will be merged
with and into Community, with Community as the surviving corporation of the
Merger. The Merger Agreement contemplates that, upon consummation of the Merger,
the Bank will be operated as a direct, wholly-owned subsidiary of Community.
The Merger Agreement provides that at the effective time of the Merger, each
share of NCF Common Stock outstanding immediately prior to consummation of the
Merger (other than shares as to which dissenters' rights have been asserted and
duly perfected in accordance with Delaware law and shares held by Community, NCF
or any of their respective subsidiaries) shall be converted into and represent
the right to receive .935 of a share of Community Common Stock, provided
however, if the Community Market Value is less than $15.00, then the Exchange
Ratio shall be one share of Community Common Stock and if the Community Market
Value is greater than $25.00, then the Exchange Ratio shall be .88 of a share of
Community Common Stock. See "The Merger--The Merger Consideration."
No fractional shares of Community Common Stock will be issued in the Merger
to holders of NCF Common Stock. Each holder of NCF Common Stock who otherwise
would have been entitled to a fraction of a share of Community Common Stock
shall receive in lieu thereof, at the time of surrender of the certificate or
certificates representing such holder's shares of NCF Common Stock, an amount of
cash (without interest) determined by multiplying the fractional share interest
to which such holder would otherwise be entitled by the market value of a
share of Community Common Stock on Tuesday prior to the Effective Time.
Opinion of NCF'S Financial Advisor
The Board of Directors of NCF has received a written opinion from Ferguson &
Company ("Ferguson"), dated as of the date of this Joint Proxy
Statement/Prospectus to the effect that, based on the factors stated therein,
the consideration to be received by NCF's stockholders pursuant to the Merger
Agreement is fair to the stockholders of NCF from a financial point of view. A
copy of the fairness opinion of Ferguson is attached hereto as Appendix C and
should be read in its entirety.
Recommendation of the Boards of Directors of Community and NCF
The Boards of Directors of Community and NCF have determined that the Merger
is in the best interests of their respective stockholders and, accordingly, have
unanimously approved the Merger. THE BOARDS OF DIRECTORS OF COMMUNITY AND NCF
UNANIMOUSLY RECOMMEND THAT THEIR RESPECTIVE STOCKHOLDERS VOTE FOR THE MERGER
AGREEMENT. SEE "THE MERGER--BACKGROUND OF AND REASONS FOR THE MERGER."
Option Agreement
In fulfillment of a condition to NCF's obligation under the Merger
Agreement, Community and NCF entered into an Option Agreement, a copy of which
is attached to this Joint Proxy Statement/Prospectus as Appendix B. Pursuant to
the Option Agreement, NCF granted to Community an option (the "Option"),
exercisable in whole or in part only under certain circumstances, to purchase up
to 150,000 authorized but unissued shares of NCF Common Stock at a price of
$14.75 per share. The per share exercise price of the Option was determined by
arm's length negotiations and was based on the historical market price of the
NCF Common Stock prior to the announcement of the Merger. The purpose of the
Option is to increase the likelihood that the Merger will occur by making it
more difficult and expensive for another party to acquire NCF. See "The
Merger--Option Agreement."
-9-
<PAGE>
Letter Agreement
In conjunction with the Merger Agreement and the Option Agreement, Community
has entered into a Letter Agreement, dated as of December 17, 1997, with each of
the directors and certain officers of NCF ("Letter Agreement"). Pursuant to such
Letter Agreement, each such director and officer of NCF has agreed, among other
things, not to sell, pledge, transfer or otherwise dispose of his or her shares
of NCF Common Stock and to vote such shares of NCF Common Stock in favor of the
Merger Agreement. See "The Merger--Letter Agreement."
Effective Time of the Merger; Termination of the Merger Agreement
The Merger shall become effective at the time and on the date specified in
the Articles of Merger to be filed with the Secretary of State of the State of
Indiana (the "Effective Time"). Such filing will occur only after the receipt of
all requisite regulatory approvals, approval of the Merger Agreement by the
requisite vote of Community's and NCF's respective stockholders, the expiration
of all applicable regulatory waiting periods and the satisfaction or waiver of
all other conditions to the Merger. See "The Merger--Effective Time of the
Merger; Termination and Amendment."
The Merger Agreement may be terminated by mutual consent of Community and
NCF and by Community or NCF if either (i) the Merger has not been consummated on
or prior to September 30, 1998; (ii) the stockholders of either Community or NCF
do not approve the Merger Agreement; (iii) any of the required regulatory
applications are denied or are approved contingent upon the satisfaction of any
condition or requirement which materially impairs the value of NCF to Community;
or (iv) there is a material breach of any representation, warranty, covenant or
undertaking by the other party which is not cured within the specified time
period. See "The Merger--Effective Time of the Merger; Termination and
Amendment."
Conditions to the Merger
Consummation of the Merger is subject to various conditions, including,
without limitation, obtaining the requisite approval of the Merger Agreement by
the stockholders of Community and NCF; receipt of all necessary regulatory
approvals pertaining to the Merger, including those from the Board of Governors
of the Federal Reserve System (the "Federal Reserve"); and certain other closing
conditions. A holding company application has been filed by Community with the
Federal Reserve with respect to the Merger. There can be no assurance that all
requisite regulatory approvals will be obtained by Community promptly or at all.
See "The Merger--Conditions to the Merger" and "The Merger--Regulatory
Approvals." Substantially all of the conditions to consummation of the Merger
(except for required stockholder and regulatory approvals) may be waived at any
time by the party for whose benefit they were created, and the Merger Agreement
may be amended at any time by written agreement of the parties, except that no
waiver or amendment occurring after approval of the Merger Agreement by
Community's and NCF's respective stockholders shall modify either the amount or
the form of the Merger Consideration.
Dissenters' Rights
Holders of shares of NCF Common Stock who object to the Merger and comply
with the prescribed statutory procedures are entitled to have the fair value of
their shares determined in accordance with the Delaware General Corporation Law
("Delaware GCL") and paid to them in cash in lieu of the shares of Community
Common Stock and/or cash they would otherwise be entitled to receive in the
Merger. A copy of the pertinent statutory provisions of the Delaware GCL is
attached to this Joint Proxy Statement/ Prospectus as Appendix D. Failure to
follow such provisions precisely may result in a loss of dissenters' rights. See
"The Merger--Dissenters' Rights."
Holders of shares of Community Common Stock who object to the Merger and
comply with the prescribed statutory procedures are entitled to have the fair
value of their shares determined in accordance with the Indiana Business
Corporation Law ("Indiana BCL") and paid to them in cash in lieu of their
shares of Community Common Stock. A copy of the pertinent statutory
provisions of the Indiana BCL is attached to this Joint Proxy
-10-
<PAGE>
Statement/Prospectus as Appendix E. Failure to follow such provisions
precisely may result in a loss of dissenters' rights. See "The
Merger--Dissenters' Rights."
Certain Federal Income Tax Consequences
Consummation of the Merger is conditioned upon an opinion of counsel
delivered to both Community and NCF to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code") and that no taxable gain will be
recognized by Community or NCF in connection with the Merger. The opinion of
counsel is summarized under "The Merger--Certain Federal Income Tax
Consequences" and is filed as an exhibit to the Registration Statement of which
this Joint Proxy Statement/Prospectus is a part. No gain or loss will be
recognized by the stockholders of NCF upon the exchange of their shares of NCF
Common Stock for shares of Community Common Stock, except for cash received in
lieu of fractional shares. See "The Merger--Certain Federal Income Tax
Consequences."
Accounting Treatment of the Merger
It is a condition to consummation of the Merger that the Merger be accounted
for as a pooling of interests for accounting purposes. See "The
Merger--Conditions to the Merger " and "The Merger-- Accounting Treatment of the
Merger."
Interests of Certain Persons in the Merger
The Merger Agreement provides that the Boards of Directors of Community and
the Community Banks shall continue to consist of their current members following
the Merger. The Board of Directors of the Bank shall also remain unchanged
following the Merger, except that A.E. Bowling, the President of the Bank will
retire as of the Effective Date. Pursuant to a retirement agreement, Mr. Bowling
is entitled to receive $250,000 payable in 36 equal monthly payments upon his
retirement. See "The Merger -Interests of Certain Person in the Merger."
Unaudited Pro Forma Condensed Combined Summary Financial Information
The unaudited pro forma condensed combined summary financial information
set forth below gives effect to the Merger under the pooling of interests
accounting method. Community's fiscal year end is December 31 while NCF's
fiscal year end is June 30. The pro forma condensed combined summary
statements of income treat the Merger as if it had been consummated at the
beginning of the respective periods, and the pro forma condensed combined
summary balance sheet treats the Merger as if it had been consummated on
December 31, 1997. The pro forma combined per share data gives effect to the
assumed issuance of 741,080 shares of Community Common Stock based on an
Exchange Ratio of .935. For a description of the bases for the pro forma
adjustments, including the basis for the number of shares of Community Common
Stock which are assumed to be issued, in the Merger, see "Unaudited Pro Forma
Condensed Combined Financial Information."
-11-
<PAGE>
This pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the Merger had been
consummated at the dates assumed for purposes hereof, nor is it necessarily
indicative of future operating results or financial position. See "Unaudited
Pro Forma Condensed Combined Financial Information."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (Unaudited)
---------------------------------------------------
<S> <C> <C> <C> <C>
PRO FORMA PRO FORMA
COMMUNITY NCF ADJUSTMENTS COMBINED
----------- --------- --------------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income................................................ $ 18,102 $ 2,680 $ -- $ 20,782
Interest expense............................................... 10,617 1,045 -- 11,662
Net interest income............................................ 7,485 1,635 -- 9,120
Income before income taxes..................................... 3,899 703 (629) 3,792
Net income..................................................... 2,386 455 (420) 2,420
Net income per share:
Basic.......................................................... 1.21 0.61 (0.92) 0.90
Fully diluted.................................................. 1.21 0.60 (0.91) 0.90
Weighted average shares and share equivalents outstanding:
Basic.......................................................... 1,977,697 751,657 (48,858) 2,680,496
Fully diluted.................................................. 1,977,697 753,069 (48,949) 2,681,817
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------------------------------------
<S> <C> <C> <C> <C>
PRO FORMA PRO FORMA
COMMUNITY NCF ADJUSTMENTS (1) COMBINED
----------- --------- ------------------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment securities held to maturity........................ $ 90,041 $ 111 $ -- $ 90,152
Investment securities available for sale...................... 883 -- -- 883
Loans receivable, net......................................... 143,819 28,010 -- 171,829
Total assets.................................................. 254,083 35,627 (50) 289,660
Deposits...................................................... 186,021 22,984 -- 209,005
Borrowed funds................................................ 39,142 -- -- 39,142
Total liabilities............................................. 226,432 23,347 183 249,962
Retained earnings............................................. 15,721 5,181 (420) 20,481
Total stockholders' equity.................................... 27,651 12,280 (233) 39,698
</TABLE>
- ------------------------
(1) For a description of the basis for the pro forma adjustments, including the
basis for the number of Community shares of Common Stock which are assumed
to be issued in the Merger, see "Pro Forma Condensed Consolidated Financial
Statements (Unaudited)."
-12-
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share, pro forma
combined per share and pro forma equivalent per share information with respect
to the Community Common Stock and the NCF Common Stock at the dates and for the
periods indicated, giving effect to the Merger using the pooling of interests
method of accounting, based on an Exchange Ratio of .935 (assuming that 741,080
shares of Community Common Stock are issued in the Merger based upon the
assumptions described in the Notes to Community's Pro Forma Consolidated Balance
Sheet included elsewhere herein) and assuming that none of the options to
purchase NCF Common Stock outstanding as of the date of the Agreement are
exercised. See "The Merger--Accounting Treatment of the Merger" and "Unaudited
Pro Forma Condensed Combined Financial Information."
The selected per share data set forth below should be read in conjunction
with, and is qualified in its entirety by, the historical consolidated financial
statements of Community, including the related notes, incorporated herein by
reference and the historical consolidated financial statements of NCF and the
unaudited pro forma combined consolidated financial information appearing
elsewhere herein. See "Available Information," "Incorporation of Certain
Documents by Reference," the historical consolidated financial statements of NCF
included elsewhere herein and "Unaudited Pro Forma Condensed Combined Financial
Information." The data set forth below is not necessarily indicative of the
results of the future operations of Community upon consummation of the Merger or
the actual results that would have been achieved had the Merger been consummated
prior to the periods indicated.
<TABLE>
<CAPTION>
COMMUNITY COMMON STOCK NCF COMMON STOCK
-------------------------- ------------------------------
<S> <C> <C> <C> <C>
PRO FORMA PRO FORMA
HISTORICAL COMBINED(1) HISTORICAL(2) EQUIVALENT(3)
----------- ------------- ------------- ---------------
Net income per share: Year ended December 31, 1997......... $ 1.21 $ 0.90 $ 0.61 $ 0.84
Dividends declared per share:
Year ended December 31, 1997............................... 0.42 0.39 0.30 0.36
Book value per share:
December 31, 1997.......................................... 13.94 14.81 15.49 13.85
Tangible book value per share:
December 31, 1997.......................................... 13.91 14.79 15.49 13.83
</TABLE>
- ------------------------
(1) Reflects (i) estimated pooling of interests accounting adjustments to be
recorded in connection with the Merger, and (ii) the assumed issuance of
741,080 shares of Community Common Stock in the Merger.
(2) Community's fiscal year is December 31 while NCF's fiscal year is June 30.
For purposes of the table above, NCF financial data is presented consistent
with the fiscal year end of Community.
(3) Represents the Community pro forma combined amounts multiplied by 0.935,
which is the assumed number of shares of Community Common Stock to be issued
for each share of NCF Common Stock.
-13-
<PAGE>
COMPARATIVE MARKET PRICES
The Community Common Stock and the NCF Common Stock are included for
quotation on the NASDAQ Small-Cap Market under the symbols "CBIN" and "NCFD,"
respectively. The table below sets forth, for the calendar quarters indicated,
the reported high and low closing sales prices of Community Common Stock and
NCF Common Stock based on published financial sources and cash dividends paid
or declared per share by Community and NCF.
<TABLE>
<CAPTION>
COMMUNITY COMMON STOCK NCF COMMON STOCK
--------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH CASH
DIVIDENDS DIVIDENDS
PAID PER DECLARED PER
1996 HIGH LOW SHARE HIGH LOW SHARE
- -------------------------------------------------------- --------- --------- ----------- --------- --------- ---------------
First Quarter........................................... $ 14.75 $ 13.25 $ 0.085 $ 13.500 $ 12.000 $ --
Second Quarter.......................................... 14.75 12.25 0.085 13.750 13.000 0.15
Third Quarter........................................... 13.75 11.75 0.085 14.500 13.375 --
Fourth Quarter.......................................... 13.25 11.75 0.085 13.375 13.375 0.15
1997
- --------------------------------------------------------
First Quarter........................................... 15.00 12.25 0.105 14.500 13.500 $ --
Second Quarter.......................................... 15.25 14.25 0.105 14.500 14.000 0.15
Third Quarter........................................... 23.50 14.25 0.105 14.500 14.000 --
Fourth Quarter.......................................... 23.50 19.00 0.105 18.750 14.000 0.15
1998
- --------------------------------------------------------
First Quarter
(through March __, 1998)
</TABLE>
Since the market price of the Community Common Stock is subject to
fluctuation, the market value of the shares of Community Common Stock that
holders of shares of NCF Common Stock may receive in the Merger may increase or
decrease prior to and after the Merger.
On December 16, 1997, the last full trading day prior to the execution and
delivery of the Merger Agreement and the public announcement thereof, the last
reported sales prices per share of Community Common Stock and NCF Common Stock
on the NASDAQ Small-Cap Market as reported in The Wall Street Journal were
$22.00 and $14.50, respectively. On March , 1998, the most recent
practicable date prior to the printing of this Joint Proxy Statement/Prospectus,
the closing sales prices per share of Community Common Stock and NCF Common
Stock on the NASDAQ Small-Cap Market were $ and $ ,
respectively. As of December 16, 1997, the last trading date preceding public
announcement of the Merger, the equivalent market value per share of NCF, based
upon an Exchange Ratio of .935, was $20.57.
Stockholders are urged to obtain current market quotations for the Community
Common Stock and NCF Common Stock, to the extent possible, prior to the
Stockholder Meetings.
-14-
<PAGE>
COMMUNITY SELECTED CONSOLIDATED FINANCIAL INFORMATION (Dollars in Thousands,
Except Per Share Data)
The following tables set forth certain consolidated financial and other data
of Community at the dates and for the periods indicated. For additional
financial information about Community, reference is made to "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of Community and related notes included in
Community's 1997 Annual Report to Stockholders.
Financial Condition Data
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total amount of:
Assets.............................................. $ 254,083 $ 237,571 $ 215,726 $ 204,862 $ 178,152
Loans receivable, net (1)........................... 143,819 136,835 118,451 108,392 93,273
Securities held to maturity:
Mortgage-backed securities.......................... 23,387 24,724 27,522 39,188 45,514
Other debt securities............................... 66,654 55,346 38,442 29,384 25,513
Securities available for sale....................... 883 2,532 7,739 5,450 0
Interest earning deposits with banks................ 6,504 7,321 14,354 13,415 6,004
Deposits............................................ 186,021 176,624 168,091 173,929 153,806
Repurchase agreements............................... 12,142 10,702 -- -- --
FHLB advances....................................... 27,000 23,000 21,099 15,601 9,618
Stockholders' equity (substantially restricted)
(2)............................................... 27,651 26,073 25,351 14,319 12,951
</TABLE>
- ------------------------
(1) Includes mortgage loans held for sale.
(2) Consists of capital stock, additional paid in capital retained earnings,
unappropriated retained earnings, and unrealized gain or loss on securities
available for sale.
-15-
<PAGE>
Key Operating Ratios
The table below sets forth certain performance ratios of Community for the
periods indicated.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
Return on average assets (net icncome divided by average total
assets)........................................................ 0.96% .71% .92% .88% 1.09%
Return on average equity (net income divided by average
equity)........................................................ 8.80 6.30 7.63 11.96 15.73
Equity to average assets ratio (average equity divided by average
total assets).................................................. 10.88 11.21 12.01 7.38 7.31
Equity to assets at period end................................... 10.88 10.97 11.75 6.99 7.26
Net interest rate spread......................................... 2.77 2.63 2.49 2.84 3.02
Net yield on average interest-earning assets..................... 3.14 3.05 2.94 3.03 3.14
Non-performing loans to total loans.............................. .50 .30 .10 .53 .82
Non-performing assets to total assets............................ .28 .22 .06 .28 .43
Average interest-earning assets to average interest-bearing
liabilities.................................................... 108.31 109.98 110.88 105.09 103.15
Net interest income after provision for loan losses, to total
other expenses................................................. 150.84 116.96 159.07 142.33 131.79
Dividend Payout Ratio............................................ 34.92 50.86 22.24 16.28 11.78
Number of full-service offices................................... 8 7 6 6 6
</TABLE>
-16-
<PAGE>
NCF SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in Thousands, Except Per Share Data)
The following selected financial and other data of NCF does not purport to
be complete and is qualified in its entirety by reference to the more detailed
financial information contained elsewhere herein. See "Index to NCF Consolidated
Financial Statements."
Financial Condition Data:
The following table sets forth certain information concerning the financial
position of NCF at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
DECEMBER 31, ------------------------------------------------------
1997 1997 1996 1995 1994 1993
------------ --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Total amount of:
Assets.............................................. $ 35,626 $ 34,403 $ 34,905 $ 28,722 $ 27,555 $ 26,638
Loans receivable, net............................... 28,010 27,046 28,861 26,574 22,582 23,241
Cash and interest-bearing deposits.................. 5,866 5,195 5,163 1,201 4,160 2,457
Mortgage-backed securities.......................... 111 132 143 182 274 434
Savings deposits.................................... 22,984 21,969 22,741 23,172 23,080 22,475
FHLB advances....................................... -- -- -- 700 -- --
Total stockholders equity-substantially restricted.. 12,280 12,050 11,803(1) 4,636 4,320 3,996
Number of:
Real estate loans outstanding....................... 804 830 849 838 824 861
Savings deposit accounts............................ 2,451 2,286 2,352 2,473 2,341 2,429
Full service offices................................ 1 1 1 1 1 1
</TABLE>
------------------------
(1) Includes net proceeds from stock issuance on October 12, 1995 of $6.8
million.
Operating Data:
The following table summaries NCF's results of operations for each of the
periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income........................................ $ 1,413 $ 1,305 $ 2,573 $ 2,523 $ 2,030 $ 1,891 $ 1,981
Interest expense....................................... 535 533 1,043 1,122 1,008 848 985
--------- --------- --------- --------- --------- --------- ---------
Net interest income before provision for loan losses... 878 772 1,530 1,401 1,022 1,043 996
Provision for loan losses.............................. 8 8 16 61 20 50 19
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision for loan losses.... 870 764 1,514 1,340 1,002 993 977
Other income........................................... 19 11 20 23 18 24 21
Other expense.......................................... 469 553 1,028(3) 762 533 482 464
--------- --------- --------- --------- --------- --------- ---------
Income before federal income tax and cumulative effect
adjustment........................................... 420 222 506 601 487 535 534
--------- --------- --------- --------- --------- --------- ---------
Federal income tax expense............................. 144 74 178 203 171 184 181
Net income before cumulative effect adjustment......... 276 148 328 398 316 351 353
--------- --------- --------- --------- --------- --------- ---------
Cumulative effect accounting change.................... -- -- -- -- (27 (2) --
--------- --------- --------- --------- --------- --------- ---------
Net income............................................. $ 276 $ 148 $ 328 $ 398 $ 316 $ 324 $ 353
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(2) Accounting change under Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes."
(3) Includes one-time FDIC insurance premium assessment of $153,000.
-17-
<PAGE>
<TABLE>
<CAPTION>
Other Data:
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
-------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Dividends per share.............................................. $ .14 $ .14 $ .30 .15 n/a n/a
Dividend payout ratio............................................ 37.84% 74.42% 68.18% 41.67% n/a n/a
Return on assets (net income divided by average total assets).... 1.69% .85% .93% 1.16% 1.12% 1.19%
Return on equity (net income divided by average equity).......... 4.53% 2.48% 2.74% 4.20% 6.97% 7.73%
Equity to assets (average equity divided by average total
assets)........................................................ 37.26% 34.15% 33.77% 27.55% 16.05% 15.37%
Book value per share............................................. $ 15.49 $ 15.41 $ 15.22 15.32 n/a n/a
<CAPTION>
<S> <C>
1993
---------
<S> <C>
Dividends per share.............................................. n/a
Dividend payout ratio............................................ n/a
Return on assets (net income divided by average total assets).... 1.30%
Return on equity (net income divided by average equity).......... 9.22%
Equity to assets (average equity divided by average total
assets)........................................................ 14.13%
Book value per share............................................. n/a
</TABLE>
-18-
<PAGE>
STOCKHOLDER MEETINGS
This Joint Proxy Statement/Prospectus is being furnished to Community
stockholders in connection with the solicitation of proxies by the Board of
Directors of Community for use at the Community Annual Meeting to be held on
April_____, 1998 and at any adjournment or adjournments thereof. This Joint
Proxy Statement/Prospectus also serves as a prospectus of Community in
connection with the issuance of Community Common Stock to holders of NCF Common
Stock upon consummation of the Merger.
This Joint Proxy Statement/Prospectus is being furnished to NCF stockholders
in connection with the solicitation of proxies by the Board of Directors of NCF
for use at the NCF Special Meeting to be held on April____, 1998, and at any
adjournment or adjournments thereof.
NCF STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES
WITH THEIR PROXY CARDS.
This Joint Proxy Statement/Prospectus, the Notice of Annual Meeting of
Stockholders of Community and the Notice of Special Meeting of Stockholders of
NCF and the accompanying proxies solicited by the Boards of Directors of
Community and NCF, respectively, are first being mailed to the stockholders of
Community and NCF on or about March____, 1998.
The principal executive offices of Community are located at 202 East Spring
Street, New Albany, Indiana 47150, and its telephone number is (812) 944-2224.
The principal executive offices of NCF are located at 106 A West John Rowan
Boulevard, Bardstown, Kentucky, and its telephone number is (502) 348-9278.
Annual Meeting of Community Stockholders
The Community Annual Meeting will be held on April____, 1998, commencing
at_____ .m., Eastern Time, at the Robert E. Lee Retirement Inn located at
201 E. Elm, New Albany, Indiana.
Purpose of Meeting. The purpose of the Community Annual Meeting is to
consider and vote upon a proposal to approve the Merger Agreement and the
issuance of Community Common Stock provided for in connection therewith, the
election of four directors for a three-year term, one director for a two-year
term and two directors for a one-year term, the ratification of the appointment
of Monroe, Shine & Co. as Community's independent auditors for the fiscal year
ending December 31, 1998, and the transaction of such other business as may
properly come before the Community Annual Meeting and any adjournment or
adjournments thereof. It is not anticipated that any other matter will be
brought before the Community Annual Meeting. If any other matter is properly
presented at the Community Annual Meeting for consideration, the persons named
in the enclosed form of proxy card and acting thereunder will have discretion to
vote on such matter in accordance with their best judgment.
Shares Outstanding and Entitled to Vote; Record Date. The close of business
on March , 1998 has been fixed by the Board of Directors of Community as
the Community Record Date for the determination of holders of Community Common
Stock entitled to notice of and to vote at the Community Annual Meeting and any
adjournment or adjournments thereof. At the close of business on the Community
Record Date, there were _____ shares of Community Common Stock outstanding and
entitled to vote, held by approximately _____ holders of record. Each share of
Community Common Stock entitles the holder thereof to one vote on each matter to
be submitted to Community stockholders at the Community Annual Meeting.
Vote Required. A quorum, consisting of a majority of the voting power of
the issued and outstanding stock of Community entitled to vote at the
Community Annual Meeting, must be present in person or by proxy before any
action may be taken at the Community Annual Meeting. The affirmative vote of
the holders of a majority of the outstanding shares of Community Common Stock
is required to approve the Merger Agreement. Directors are
-19-
<PAGE>
elected by a plurality of the votes cast at the Community Annual Meeting. The
affirmative vote of the holders of a majority of the total votes cast at the
Community Annual Meeting is required to approve the proposal to ratify the
appointment of the independent auditors. The votes may be made in person or
by proxy. Shares as to which the "ABSTAIN" box has been marked on the proxy
and broker non-votes will be counted as present for determining if a quorum
is present; however, an abstention or a broker non-vote is not a vote cast
and will have the same effect as a vote cast against the Merger. Broker
non-votes will have no affect on the election of directors or the
ratification of independent auditors. Community is also seeking stockholder
approval of the Merger pursuant to the regulations of the National
Association of Securities Dealers, Inc. ("NASD") because the Merger may
result in more than a 20% increase in the number of shares outstanding of
Community Common Stock. The vote required under the NASD regulations is a
majority of the total votes cast on the proposal in person or by proxy, and
thus abstentions and broker non-votes will not affect the number of votes
required for this approval.
As of the Community Record Date, the directors and executive officers of
Community and their affiliates in the aggregate beneficially owned and are
entitled to vote _____ shares or _____ % of the outstanding shares of Community
Common Stock (exclusive of shares of Community Common Stock which may be
acquired upon the exercise of outstanding stock options and stock appreciation
rights).
Voting; Solicitation and Revocation of Proxies. A proxy for use at the
Community Annual Meeting is being furnished to each Community stockholder
together with this Joint Proxy Statement/Prospectus and is solicited by the
Board of Directors of Community. Any Community stockholder executing a proxy may
revoke it at any time before it is voted by filing with the Secretary of
Community, at the address of Community set forth on the Notice of Annual Meeting
of Stockholders, written notice of such revocation; by executing a later-dated
proxy; or by attending the Community Annual Meeting and giving notice of such
revocation in person. Attendance at the Community Annual Meeting will not, in
and of itself, constitute revocation of a proxy. Each proxy returned to
Community (and not revoked) will be voted in accordance with the instructions
indicated thereon. IF NO INSTRUCTIONS ARE INDICATED, THE PROXY WILL BE VOTED FOR
APPROVAL OF THE MERGER AGREEMENT, WHICH INVOLVES THE ISSUANCE OF COMMUNITY
COMMON STOCK IN CONNECTION WITH THE MERGER, COMMUNITY'S NOMINEES FOR DIRECTORS
AND THE RATIFICATION OF THE INDEPENDENT AUDITORS.
Special Meeting of NCF Stockholders
The NCF Special Meeting will be held on April___, 1998, commencing at
______ .m., Eastern Time, at the Hampton Inn located at 985 Chambers
Boulevard, Bardstown, Kentucky.
Purpose of Meeting. The purpose of the NCF Special Meeting is to consider
and vote upon a proposal to approve the Merger Agreement and the transaction of
such other business as may properly come before the NCF Special Meeting and any
adjournment or adjournments thereof. It is not anticipated that any matter other
than the proposal to adopt and approve the Merger Agreement will be brought
before the NCF Special Meeting. If any other matter is properly presented at the
NCF Special Meeting for consideration, the persons named in the enclosed form of
proxy card and acting thereunder will have discretion to vote on such matter in
accordance with their best judgment.
Shares Outstanding and Entitled to Vote; Record Date. The close of business
on March____, 1998 has been fixed by the Board of Directors of NCF as the NCF
Record Date for the determination of holders of NCF Common Stock entitled to
notice of and to vote at the NCF Special Meeting and any adjournment or
adjournments thereof. At the close of business on the NCF Record Date, there
were______ shares outstanding and entitled to vote, held by approximately _____
holders of record. Each share of NCF Common Stock entitles the holder thereof to
one vote on each matter to be submitted to NCF stockholders at the NCF Special
Meeting.
-20-
<PAGE>
Vote Required. A quorum, consisting of a majority of the voting power of the
issued and outstanding stock of NCF entitled to vote at the NCF Special Meeting,
must be present in person or by proxy before any action may be taken at the NCF
Special Meeting. The affirmative vote of a majority of the votes cast by all
stockholders of NCF entitled to vote thereon is required to approve the Merger
Agreement. The votes may be made in person or by proxy. Shares as to which the
"ABSTAIN" box has been marked on the proxy and broker non-votes will be counted
as present for determining if a quorum is present; however, an abstention or a
broker non-vote is not a vote cast and thus will not affect the number of votes
required for approval.
As of the NCF Record Date, the directors and executive officers of NCF
and their affiliates in the aggregate beneficially owned and are entitled to
vote _____ shares or _____ % of the outstanding NCF Common Stock (exclusive
of shares of NCF Common Stock which may be acquired upon the exercise of
outstanding stock options). The directors and certain officers of NCF and the
Bank have signed a Letter Agreement which provides, among other things, that
they will vote any shares of NCF Common Stock over which they have voting
power in favor of the Merger Agreement. The directors and officers of NCF and
the Bank who signed the Letter Agreement beneficially owned _____ shares or
_____ % of the NCF Common Stock outstanding on the NCF Record Date (exclusive
of shares of NCF Common Stock which may be acquired upon the exercise of
outstanding stock options).
Voting; Solicitation and Revocation of Proxies. A proxy for use at the NCF
Special Meeting is being furnished to each NCF stockholder together with this
Joint Proxy Statement/Prospectus and is solicited by the Board of Directors of
NCF. Any NCF stockholder executing a proxy may revoke it at any time before it
is voted by filing with the Secretary of NCF, at the address of NCF set forth on
the Notice of Special Meeting of Stockholders, written notice of such
revocation; by executing a later-dated proxy; or by attending the NCF Special
Meeting and giving notice of such revocation in person. Attendance at the NCF
Special Meeting will not, in and of itself, constitute revocation of a proxy.
Each proxy returned to NCF (and not revoked) will be voted in accordance with
the instructions thereon. IF NO INSTRUCTIONS ARE INDICATED, THE PROXY WILL BE
VOTED FOR APPROVAL OF THE MERGER AGREEMENT.
Costs
Community will bear the costs of printing and mailing this Joint Proxy
Statement/Prospectus, the accompanying proxy and the additional reports filed
pursuant to the Exchange Act which accompany this Joint Proxy
Statement/Prospectus. Proxies will be solicited by mail and may be further
solicited, for no additional compensation by officers, directors or employees of
Community and NCF, by further mailing, by telephone or by personal contact.
Community will also pay the standard charges and expenses of brokerage houses,
voting trustees, banks, associations and other custodians, nominees and
fiduciaries, who are record holders of Community Common Stock and NCF Common
Stock, respectively, not beneficially owned by them, for forwarding such
materials to and obtaining proxies from the beneficial owners of Community
Common Stock and NCF Common Stock entitled to vote at the Community Annual
Meeting and the NCF Special Meeting, respectively. All other costs incurred in
connection with the solicitation of proxies from Community stockholders and NCF
stockholders will be borne by the party incurring such costs.
-21-
<PAGE>
THE MERGER
The following description of the material terms of the Merger does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement, a copy of which is attached to this Joint Proxy
Statement/Prospectus as Appendix A. All stockholders of Community and NCF are
urged to read such document carefully.
General
The Boards of Directors of Community and NCF have determined that the
acquisition of NCF by Community is desirable and in the best interests of
Community's and NCF's respective stockholders and have unanimously approved the
Merger. The Merger will be accomplished through the Merger of NCF with and into
Community pursuant to the Merger Agreement, with Community being the surviving
corporation. THE BOARDS OF DIRECTORS OF COMMUNITY AND NCF UNANIMOUSLY RECOMMEND
A VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT. Upon consummation of the
Merger, each share of NCF Common Stock outstanding at the Effective Time will be
converted into and represent the right to receive shares of Community Common
Stock, as described under "The Merger--The Merger Consideration."
Background of and Reasons for the Merger
Background of the Merger. In July of 1997, NCF management contacted
Community Bank, a banking subsidiary of Community, concerning NCF's idea to
originate fixed-term fixed-rate one-to-four family mortgages into the
secondary market for sale through Community Bank. Succeeding these initial
discussions, Robert Yates, President and Chief Executive Officer of Community
Bank and Community telephoned NCF in early October requesting a meeting with
NCF's Senior Management to discuss Community and its concept of a multi-bank
holding company.
Mr. A. E. Bowling, then the Chairman of NCF, and Mr. Dan Biggs, NCF Vice
President, met with Mr. Yates at NCF's Bardstown office and at other locations
in Bardstown. The group discussed their respective companies, the competitive
challenges currently faced and expected to be faced as the 21st Century
approaches, the rapid consolidation of the banking industry, mutual needs to
expand technology, funding sources, and other business issues commonly
confronted by both companies. These discussions grew into a dialogue about the
possible strategic benefits, to both companies, from a merger of NCF with
Community.
Resultant from these meetings, Mr. Yates reviewed his discussions with NCF
at a Board meeting of Community on October 28, 1997. Mr. Bowling reviewed NCF's
meetings with Community at a Board meeting of NCF on October 30, 1997.
On November 6, 1997, C. Thomas Young, Chairman of Community, Mr. Yates, and
Community Board Members Dale Orem and Gary Libs, met with the Board of Directors
of NCF to familiarize them with Community, its business strategies, operating
philosophy, long range goals, and objectives. After the November 6, 1997
meeting, Mr. Young and Mr. Yates met with Mr. Bowling and Mr. Biggs several
times during November to discuss various aspects, including timing, and general
regulatory procedural matters concerning a possible merger agreement.
On November 11, 1997, at a Board meeting of Community, the Board authorized
Mr. Yates to continue to meet with NCF to develop the framework of a definitive
merger agreement. In mid November, NCF's Board met to discuss the reasons for
and the potential benefits of, the proposed Merger, and approved the retention
of Ferguson & Company, an investment banking firm, to formally undertake a
fairness review on behalf of NCF. After a review of the financial terms of the
Merger, Ferguson completed its review prior to the end of November and reported
that, in its opinion, the Merger Consideration was fair.
-22-
<PAGE>
On November 26, 1997, NCF's Board of Directors authorized Mr. Bowling to
move forward with Community to prepare a draft of the Merger Agreement. An
agreement was drafted by Community's counsel and presented to NCF and Community
for their review.
On December 2, 1997, a letter of confidentiality was signed by both
companies and NCF and Community proceeded with due diligence reviews.
On December 16, 1997, Community Board of Directors met and Mr. Yates
reviewed the reasons for, and the potential benefits of, the Merger. After a
thorough discussion and consideration, the Board of Directors approved the
definitive Merger Agreement between Community and NCF and the transaction
contemplated thereby, and authorized Mr. Yates to execute the agreement on
behalf of the Board of Directors of Community.
On December 17, 1997, the Board of Directors of NCF met. Mr. Bowling
reviewed the proposed merger transaction, in detail, including the reasons for
and the potential benefits to NCF shareholders, employees, and customers. After
thorough discussion and careful consideration, the Board authorized Mr. Bowling
to execute the definitive Merger Agreement between NCF and Community. Mr. C.
Thomas Young, Chairman, and Mr. Robert E. Yates, President and Chief Executive
Officer of Community, were then admitted to the meeting and the definitive
Merger Agreement was executed by Mr. Bowling, on behalf of the Board of
Directors of NCF, and by Mr. Robert Yates, on behalf of the Board of Directors
of Community, as of December 17, 1997.
Reasons for the Merger. The terms of the Merger Agreement, including the
Merger Consideration to be paid to NCF's stockholders, were the result of arm's
length negotiations between the representatives of Community and NCF. Among the
factors considered by the Boards of Directors of Community or NCF, as
appropriate, in deciding to approve and recommend the terms of the Merger were
(i) the Merger Consideration to be paid to NCF's stockholders in relation to the
market value, book value, earnings per share, and dividend rates of the
Community Common Stock and the NCF Common Stock; (ii) the ability of Community
to aid NCF in enhancing the services available to its customers; (iii)
information concerning the financial condition, results of operations, capital
levels, asset quality and prospects of Community and NCF; (iv) the short-term
and long-term impact the Merger will have on Community's consolidated results of
operations, including anticipated cost savings resulting form consolidations in
certain areas and expanded commercial, real estate, consumer lending, and retail
banking products and services; (v) the general structure of the transaction and
the compatibility of management and business philosophy; (vi) the improvement of
the franchise value of Community to its stockholders as a result of the enhanced
network and products and services; (vii) the likelihood of receiving the
requisite regulatory approvals in a timely manner; (viii) the tax-free nature of
the stock exchange to the stockholders of NCF; (ix) the ability of the combined
enterprises to compete in relevant banking and non-banking markets; (x) industry
and economic conditions; (xi) the existing impact of the Merger on the
depositors, employees, customers and communities served by Community's
affiliates and NCF through expanded consumer lending and retail banking products
and services; and (xii) the opinion of NCF's financial advisor as to the
fairness of the Merger Consideration from a financial point of view to the
holders of the NCF Common Stock. In making their determination, the Boards of
Directors of Community and NCF did not ascribe relative weights to the factors
which they considered.
The Boards of Directors of Community and NCF believe that the Merger is in
the best interest of their respective organizations and their respective
stockholders. THE COMMUNITY AND NCF DIRECTORS UNANIMOUSLY RECOMMEND THAT
COMMUNITY AND NCF STOCKHOLDERS, RESPECTIVELY, VOTE FOR THE APPROVAL OF THE
MERGER.
Opinion of NCF'S Financial Advisor
NCF has retained Ferguson to act as its financial advisor in connection with
rendering a fairness opinion with respect to the Merger. Ferguson delivered its
written opinion to the Board of Directors February 14, 1998, which opinion was
additionally confirmed in writing as of the date of this Proxy
Statement/Prospectus, that, as of
-23-
<PAGE>
such dates and subject to the assumptions described in such opinion, the
consideration to be received by the holders of NCF Common Stock in the Merger
is fair to such shareholders from a financial point of view. No limitations
were imposed on Ferguson by NCF's Board of Directors with respect to the
investigations made or the procedures followed by it in rendering its
opinion. The full text of the Ferguson's opinion is attached hereto as
Appendix C.
NCF has agreed to pay Ferguson a general advisory fee of $7,500 for delivery
of its fairness opinion and other services rendered in connection with the
Merger, plus all reasonable out-of-pocket expenses incurred in connection with
the services provided by Ferguson, and to indemnify and hold harmless Ferguson
to the full extent lawful from and against certain liabilities, including
certain liabilities under the federal securities laws, in connection with this
engagement.
The summary below is not a complete description of the methodology used in
the analyses performed by Ferguson. It is, however, a summary of the salient
factors taken into consideration, from the perspective of evaluating the worth
of NCF and analyzing the offer received in the valuation process. The
preparation of a fairness opinion is not necessarily susceptible to partial
analysis or summary descriptions. Ferguson believes that its analysis and the
summary set forth below must be considered as a whole and that selecting
portions of its analysis without considering all analyses, or selecting part of
the summary without considering all factors and analyses, would create an
incomplete view of the process underlying the analysis set forth in Ferguson's
presentations and opinion. The ranges of valuation resulting from any particular
analysis described below should not be taken to be Ferguson's view of the actual
value of NCF. The fact that any specific analysis has been referred to in the
summary below is not meant to indicate that such analysis was given greater
weight than any other analysis. For the purpose of specific analysis, $23.00 per
share has been used as the Community Market Value.
Inherent in and essential to the opinion is the method of sale, notably,
private treaty. Competitive bids have not been received, thereby requiring an
interpretation as to the "value" being offered. The price offered can then be
evaluated in light of other methods of valuing the offer. Other consideration
(giving no greater weight to any consideration), were: (1) financial performance
and factors impacting earnings; (2) dividend payment history, capacity and
earnings potential; (3) pricing of similar transactions; (4) investment
characteristics of the acquirer; (5) liquidity of the stock of the acquirer; and
(6) review of the Merger Agreement and its terms.
Financial Performance and Factors Impacting Earnings. In connection with
rendering its opinion, Ferguson reviewed publicly available information and
information provided by management regarding NCF and Community. Ferguson's
analysis of such methodology began with the historic measurement of at least
four analytic modules that help develop a projective risk/opportunity profile
for each institution. Each module is potentially (but not always) complex:
liquidity, capital adequacy, asset quality, earnings power and in the case of a
holding company, the cash flow sources available for debt service and
shareholder dividends. In reviewing each area Ferguson was attentive to peer
comparisons as well as to regulatory guidelines and standards. However, the two
institutions in the transaction were viewed as situationally and strategically
unique.
Dividend Payment History, Capacity and Earnings Potential. In connection
with its opinion, Ferguson prepared an earnings estimate on Community and for
NCF, using publicly available information with respect to the acquirer. Ferguson
also reviewed the "marginal dilution" ((net income acquired divided by shares
issued to acquire) divided by pre-deal earnings per share of the acquirer) which
would result from each of the proposed mergers. The results were that there was
a dilution of Community's earnings in the proposed mergers. However, the price
that is being offered likely takes into account the effect of dilution on
post-merger earnings. Both the acquirer and the acquiree have a history of
dividends and the post-merger entity will likely have the capacity to continue a
dividend policy.
Pricing of Similar Transactions. In preparing its opinion, Ferguson
analyzed fourteen completed and announced merger and acquisition transactions in
Kentucky and Indiana where thrift and banking institutions were purchased from
January 1, 1997 to December 31, 1997. The fourteen transactions that have been
announced or
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concluded in these two states resulted in an average price that was 189.71%
of tangible book value. In that group, the median sales price was 203.37% of
tangible book. The transaction between Community and NCF is likely to be
concluded at approximately 140.0% of tangible book value. Notably, the
information revealed that in all the transactions reviewed for all sales in
Kentucky and Indiana, the average price times the last twelve months EPS was
24.09 and the median was 21.25 times. The purchase of NCF by Community is
likely to close at approximately 37.0 times last twelve months EPS. This
transaction is closing at a price to book multiple that is less than the area
average, but at a price to earnings multiple that exceeds the area average.
However, this is indicative of the large amount of redundant capital embedded
in NCF and the resultant low earnings per share potential that results from
having significant excess capital.
Investment Characteristics and Stock Valuation Comparatives. In connection
with preparing its opinion, Ferguson compared (1) the effects of the proposed
merger on the EPS of each of the institutions; (2) post-merger EPS enhancement
of NCF Common Stock, from the standpoint of a NCF shareholder; (3) post-merger
dividend per share enhancement of NCF Common Stock, from the same standpoint;
(4) post-merger book value enhancement of NCF Common Stock, also from the same
standpoint; (5) likely share price enhancement of NCF Common Stock; (6) return
on equity; (7) return on assets; and (8) likely post-merger dividend yield. This
method, gives the advantage to the shareholders of NCF in the exchange with
Community, due to higher earnings per share, potentially higher earnings growth,
higher market value of stock and likely higher stock value appreciation.
Ferguson, as a customary part of its consulting business, is engaged in the
valuation of banks, thrifts and holding companies and their securities in
connection with mergers and acquisitions, stock purchase offers and other
purposes.
The Merger Consideration
The Merger Agreement provides that at the Effective Time of the Merger, each
share of NCF Common Stock outstanding immediately prior to consummation of the
Merger (other than shares as to which dissenters' rights have been asserted and
duly perfected in accordance with Delaware law and shares held by Community, NCF
or any of their respective subsidiaries) shall be converted into and represent
the right to receive a .935 of a share of Community Common Stock, provided
however, if the Community Market Value is less than $15.00, then the Exchange
Ratio shall be one share of Community Common Stock and if the Community Market
Value is greater than $25.00, then the Exchange Ratio shall be .88 of a share of
Community Common Stock.
If, between the date of this Joint Proxy Statement/Prospectus and the
Effective Time, the shares of Community Common Stock are changed into a
different number or class of shares by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment, or
a stock dividend thereon is declared with a record date within said period, the
Merger Consideration as specified above shall be adjusted accordingly.
Exchange Procedures. As promptly as practicable after the Effective
Time, Community shall cause a to-be-designated exchange agent ("Exchange
Agent") to mail to each holder of record of a certificate or certificates
which immediately prior the Effective Time represented issued and outstanding
shares of NCF Common Stock a notice and letter of transmittal (which shall
specify that delivery shall be effected and risk of loss and title to the
certificates theretofore representing shares of NCF Common Stock shall pass
only upon proper delivery of such certificates to the Exchange Agent)
advising such holder of the effectiveness of the Merger and the procedure for
surrendering to the Exchange Agent such certificate or certificates in
exchange for that Merger Consideration, each holder of an outstanding
certificate or certificates which prior thereto represented shares of NCF
Common Stock who surrenders such certificate or certificates to the Exchange
Agent will, upon acceptance thereof by the Exchange Agent, be entitled to a
certificate or certificates representing the number of full shares of
Community Common stock into which the aggregate number of shares of NCF
Common stock previously represented by such certificate or certificates
surrendered shall have been converted pursuant to the Merger Agreement and,
if such holder's shares of NCF Common Stock have been converted into
Community Common Stock, any other distribution theretofore paid with
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respect to Community Common Stock issuable in the Merger, in each case
without interest. The Exchange Agent shall accept such certificates upon
compliance with such reasonable terms and conditions as the Exchange Agent
may impose to effect an orderly exchange thereof in accordance with normal
exchange practices. Each outstanding certificate which prior to the Effective
Time represented NCF Common Stock and which is not surrendered to the
Exchange Agent in accordance with the procedures provided for in the Merger
Agreement shall, except as otherwise provided in the Merger Agreement, until
duly surrendered to the Exchange Agent be deemed to evidence ownership of the
number of shares of Community Common Stock. After the Effective Time, there
shall be no further transfer on the records of NCF of certificates
representing shares of NCF Common Stock and if such certificates are
presented to Community for transfer, they shall be cancelled against delivery
of certificates for Community Common Stock as provided in the Merger
Agreement. No dividends which have been declared will be remitted to any
person entitled to receive shares of Community Common Stock until such person
surrenders the certificate or certificates representing NCF Common stock, at
which time such dividends shall be remitted to such person, without interest.
No Fractional Shares of Community Common Stock to be Issued. No fractional
shares of Community Common Stock shall be issued in the Merger to holders of
shares of NCF Common Stock. Each holder of shares of NCF Common Stock who
otherwise would have been entitled to a fraction of a share of Community Common
Stock shall receive in lieu thereof, at the time of surrender of the certificate
or certificates representing such holder's shares of NCF Common Stock, an amount
of cash (without interest) determined by multiplying the fractional share
interest to which such holder would otherwise be entitled by the market value
of shares of Community Common Stock on the day prior to the Effective Time.
Treatment of Outstanding Stock Options for NCF Common Stock. The Merger
Agreement provides that upon consummation of the Merger, each outstanding option
to acquire NCF Common Stock, other than the Option granted to Community under
the Option Agreement, whether or not otherwise exercisable or vested, shall
become fully exercisable and vested immediately prior to the Effective Time at
which time each holder of an option shall receive an option to acquire shares of
Community Common Stock, on the same terms and conditions as were applicable
under such option immediately prior to the Effective Time. The number of shares
of Community Common Stock which may be acquired upon exercise of any such new
option shall be equal to the product of the number of shares of NCF Common Stock
subject to the original option multiplied by the Exchange Ratio, rounded down to
the nearest whole number of shares, and the exercise price of any such new
option shall be equal to the exercise price of the original option divided by
the Exchange Ratio, rounded up to the nearest cent.
Conditions to the Merger
The Merger Agreement provides that consummation of the proposed
transaction is subject to the satisfaction of certain conditions, or the
waiver of such conditions by the party entitled to do so, at or before the
Effective Time. Each of the parties' obligations under the Merger Agreement
is subject to the following conditions, among others: (a) the receipt of all
necessary regulatory or governmental approvals and consents required to
consummate the transactions contemplated by the Merger Agreement without any
term or condition which would materially impair the value of NCF and its
subsidiaries to Community, the satisfaction of all conditions required to be
satisfied prior to the Effective Time by the terms of such approvals and
consents, and the expiration of all waiting periods with respect thereto; (b)
all corporate action (including stockholder approvals) necessary to authorize
the execution and delivery of the Merger Agreement and consummation of the
transactions contemplated thereby shall have been duly and validly taken; (c)
the absence of any order, judgment or decree that would have the effect of
preventing completion of the Merger and the absence of any pending or
threatened suit, action or other proceeding to restrain or prohibit the
Merger or seeking to obtain substantial monetary or other relief which either
party determines, based upon the advice of counsel, has a significant
potential to result in the deprivation of material benefits of the Merger;
(d) the Registration Statement shall have become effective under the
Securities Act, Community shall have received all permits, authorizations or
exemptions necessary under all state securities laws to issue the Community
Common Stock in connection with the Merger, and neither the Registration
Statement nor any such permit, authorization or exemption shall be subject to
a stop order or threatened stop order by the Commission or any state
securities authority; and (e) Community and NCF shall have received an
opinion from Elias, Matz, Tiernan & Herrick L.L.P.
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to the effect that, among other things, the Merger will qualify as a
"reorganization" under Section 368(a) of the Code and no taxable gain will be
recognized by Community or NCF (i) upon the transfer of NCF's assets to
Community in exchange for Community Common Stock, cash and the assumption of
NCF's liabilities or (ii) upon the distribution of Community Common Stock and
cash to NCF's stockholders. See "The Merger--Certain Federal Income Tax
Consequences."
In addition to the foregoing conditions, Community's obligations under the
Merger Agreement are conditioned upon, among others: (a) the performance in all
material respects by NCF of all obligations to be performed by it and the
accuracy as of December 17, 1997 and as of the Effective Time (as though made at
and as of the Effective Time) of the representations and warranties of NCF set
forth in the Merger Agreement, except as to any representation or warranty which
specifically relates to an earlier date and except as otherwise provided in the
Merger Agreement; (b) the receipt of all permits, consents, waivers, clearances,
approvals and authorizations from regulatory or governmental authorities or
third parties which are necessary in connection with the consummation of the
Merger, and none of such permits, consents, waivers, clearances, approvals and
authorizations shall contain any term or condition which would materially impair
the value of NCF and its subsidiaries to Community; (c) the receipt by Community
of a letter from Monroe, Shine & Co., Inc. to the effect that the Merger will
qualify for pooling-of-interest accounting treatment; (d) the amount of NCF
Common Stock held by stockholders of NCF who dissent from the Merger pursuant to
the applicable provisions of the Delaware GCL shall not exceed 15% of the NCF
Common Stock immediately prior to the Effective Time; (e) the execution by
certain stockholders of NCF of an agreement regarding compliance with Rule 145
under the Securities Act; and (f) the receipt from NCF of such certificates of
its officers or others and such other documents to evidence fulfillment of the
conditions as Community may reasonably request.
In addition to the conditions set forth above as applicable to both parties,
NCF's obligations under the Merger Agreement are conditioned upon, among others:
(a) the performance in all material respects by Community of all obligations to
be performed by it and the accuracy as of December 17, 1997 and as of the
Effective Time (as though made at and as of the Effective Time) of the
representations and warranties of Community set forth in the Merger Agreement,
except as to any representation or warranty which specifically relates to an
earlier date and except as otherwise provided in the Merger Agreement; and (b)
the receipt from Community of such certificates of its officers or others and
such other documents to evidence fulfillment of the conditions as NCF may
reasonably request.
Regulatory Approvals
Consummation of the Merger is subject to, among other things, prior receipt
of all requisite approvals from the Federal Reserve and any other regulatory
agency of competent jurisdiction necessary to consummate the Merger and
expiration of all regulatory waiting periods applicable to the Merger. Community
has applied to the Federal Reserve pursuant to Section 3 of the BHCA to merge
NCF with and into Community and to acquire the Bank. Other applications required
under state securities laws have been filed with the appropriate regulatory
authorities.
The period for the Federal Reserve' review of any proposed acquisition, such
as the acquisition of NCF, commences upon submission to the Federal Reserve of
the completed record on the application. The Federal Reserve generally has a
91-day period for review of the application.
In its review of an acquisition of a bank, the Federal Reserve will consider
the financial and managerial resources and future prospects of the acquiror and
the bank. The Federal Reserve will also consider the convenience and needs of
the community to be served, and it will examine the impact of the acquisition
under the relevant antitrust laws. The Federal Reserve will not approve an
application if the acquiror fails or refuses to furnish information requested by
the Federal Reserve.
The regulations provide that an acquiror must publish a notification, no
earlier than 15 calendar days before and no later than 7 calendar days after
filing a notice or application, in the community in which the home office of the
bank to be acquired is located. In addition, the Federal Reserve also
publishes notice of the
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proposed acquisition in the Federal Register upon receipt of the notice.
Pursuant to each of the notices, anyone may file during a period of 30
calendar days comments in favor of or in protest of the proposed acquisition
and may also submit such information as he or she deems relevant.
There can be no assurance that the necessary regulatory authorities will
approve the Merger, and if the Merger is approved, there can be no assurance as
to the dates of such approvals. There can also be no assurance that any such
approval will not contain a condition or requirement which would cause such
approval to fail to satisfy one of the conditions to consummation of the Merger
set forth in the Merger Agreement. There can likewise be no assurance that the
Department of Justice will not challenge the Merger, or if such a challenge is
made, as to the results thereof. In the event the Merger is not consummated on
or before September 30, 1998, the Merger Agreement may be terminated by either
Community or NCF.
Business Pending the Merger
Under the terms of the Merger Agreement, NCF has agreed not to take
certain actions, nor permit its subsidiaries to take certain actions, prior
to consummation of the Merger without the prior written consent of Community,
including, among other things, the following: (1) change any provision of the
Certificate of Incorporation or other governing instrument or Bylaws of it or
its subsidiaries; (2) change the number of its authorized or issued capital
stock or issue or grant any option, warrant, call, commitment, subscription,
right to purchase or agreement of any character relating to the authorized or
issued capital stock of it or its subsidiaries, except for issuance of NCF
Common Stock pursuant to any outstanding Option and in compliance with the
terms of the Option Agreement; (3) declare, set aside, make or pay any
dividend or other distribution other than its regular quarterly cash
dividends not in excess of $.10 per share; (4) grant any severance or
termination pay (other than pursuant to binding contracts disclosed pursuant
to the Merger Agreement) to, or enter into or amend any employment,
consulting or compensation agreement with, any of its directors, officers or
employees, or award any increase in compensation or benefits to such
individuals, except, in the case of employees, such as may be granted in the
ordinary course of business consistent with past practices and policies; (5)
subject to certain exceptions, enter into or modify any employee benefit plan
or any trust agreement related thereto with respect to any of its directors,
officers or employees or make any contributions to its Employee Stock
Ownership Plan or any other defined contribution plan or similar plan other
than in the ordinary course of business consistent with past practice; (6)
sell or dispose of any significant assets or incur any significant
liabilities other than in the ordinary course of business consistent with
past practices and policies, or acquire in any manner whatsoever (other than
to realize upon collateral for a defaulted loan) any business or entity; (7)
make any capital expenditures in excess of $25,000 in the aggregate, other
than pursuant to binding commitments existing on September 16, 1996, other
than expenditures necessary to maintain existing assets in good repair and
other than as disclosed pursuant to the Merger Agreement; (8) file any
applications or make any contract with respect to branching or site location
or relocation, except as disclosed pursuant to the Merger Agreement; (9) make
any material change in its accounting methods or practices, other than
changes required by generally accepted accounting principles, or change any
of its methods of reporting income and deductions for federal income tax
purposes, except as required by changes in laws or regulations; (10) change
its lending, investment, deposit or asset and liability management or other
banking policies in any material respect except as may be required by
applicable law; (11) engage in any transaction with an "affiliated person" or
"affiliate," in each case as defined in the Merger Agreement; (12) enter into
any futures contract, option or other agreement or take any other action for
purposes of hedging the exposure of its interest-earning assets and
interest-bearing liabilities to changes in market rates of interest; (13)
take any action that would result in any of the representations and
warranties of NCF contained in the Merger Agreement not to be true and
correct in any material respect at the Effective Time; or (14) agree to do
any of the foregoing.
Furthermore, each party has agreed to provide the other party and its
representatives with such financial data and other information with respect to
its business and properties as such party shall from time to time reasonably
request. Each party will cause all non-public financial and business information
obtained by it from the other to be treated confidentially. If the Merger is not
consummated, each party will either return to the other all non-public financial
statements, documents and other materials previously furnished by such party or
destroy such information.
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Acquisition Proposals
Until the Effective Time of the Merger or the earlier termination of the
Merger Agreement, neither NCF nor its subsidiaries shall, nor shall NCF or its
subsidiaries authorize or permit any of its directors, officers or employees or
any investment banker, financial advisor, attorney, accountant or other
representative of NCF or its subsidiaries to, directly or indirectly, encourage
or solicit or hold discussions or negotiations with, or provide any information
to, any person, entity or group (other than Community) concerning any merger,
sale of substantial assets or liabilities not in the ordinary course of
business, sale of shares of capital stock or similar transactions involving NCF
or its subsidiaries (an "Acquisition Transaction"); provided, however, that NCF
may provide information in connection with an unsolicited possible Acquisition
Transaction if the Board of Directors of NCF, after consulting with counsel,
determines in the exercise of its fiduciary responsibilities that such
information should be furnished. Under the Merger Agreement, NCF is required to
promptly communicate to Community the terms of any proposal which it may receive
in respect of any such Acquisition Transaction and to provide Community with
copies of (i) any written legal advice provided to the Board of Directors of
NCF, (ii) all such written inquiries or proposals and (iii) an accurate and
complete written synopsis of all such oral inquiries or proposals.
Representations and Warranties
The Merger Agreement contains representations and warranties of Community
and NCF which are customary in transactions of this type, including, but not
limited to, representations and warranties concerning: (a) the organization and
capitalization of Community and its subsidiaries and NCF and its subsidiaries;
(b) the due authorization, execution, delivery and enforceability of the Merger
Agreement; (c) consents or approvals required, and the lack of conflicts or
violations under applicable articles of incorporation, bylaws, instruments and
laws, with respect to the transactions contemplated by the Merger Agreement; (d)
the documents to be filed by Community and NCF with the Commission and other
regulatory agencies; (e) the conduct of business in the ordinary course and
absence of certain changes; (f) financial statements; (g) compliance with laws;
and (h) the allowance for loan losses and real estate owned.
Effective Time of the Merger; Termination and Amendment
The Effective Time of the Merger shall be the date specified in the Articles
of Merger to be filed with the Secretary of State of State of Indiana, unless a
later date and time is specified as the effective time in such Articles of
Merger. Such filing will occur only after the receipt of all requisite
regulatory approvals, approval of the Merger Agreement by the requisite vote of
Community's and NCF's stockholders and the satisfaction or waiver of all other
conditions to the Merger.
A closing (the "Closing") shall take place immediately prior to the
Effective Time at 10:00 a.m. on the fifth business day following the receipt of
all necessary regulatory or governmental approvals and consents and the
expiration of all statutory waiting periods in respect thereof and the
satisfaction or waiver (to the extent permitted) of all the conditions to
consummation of the Merger, or on such later date as the parties may mutually
agree upon.
The Merger Agreement may be terminated, either before or after approval
by the stockholders of Community and NCF, as follows: (a) at any time on or
prior to the Effective Time by the mutual consent of the parties; (b) by
Community or NCF (i) if the Effective Time shall not have occurred on or
prior to September 30, 1998 or (ii) if a vote of the stockholders of
Community or NCF is taken and either of such stockholders fails to approve
the Merger Agreement, unless in each case the failure of such occurrence
shall be due to the failure of the party seeking to terminate the Merger
Agreement to perform or observe its agreements set forth therein to be
performed or observed by such party at or before the Effective Time; (c) by
Community or NCF upon written notice to the other 30 or more days after the
date upon which any application for a regulatory or governmental approval
necessary to consummate the Merger and the other transactions contemplated
thereby shall have been denied or withdrawn at the request or recommendation
of the applicable regulatory agency or governmental authority, unless within
such 30-day period a petition for rehearing or an amended application is
filed or noticed, or 30 or more days after any petition for
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rehearing or amended application is denied; (d) by Community in writing if
NCF has, or by NCF in writing if Community has, breached (i) any covenant or
undertaking contained in the Merger Agreement, or (ii) any representation or
warranty contained therein, which breach would have a material adverse effect
on the business, operations, assets or financial condition of NCF and its
subsidiaries or Community and its subsidiaries, as applicable, in each case
taken as a whole, or upon the consummation of the transactions contemplated
thereby, in any case if such breach has not been cured by the earlier of 30
days after the date on which written notice of such breach is given to the
party committing such breach or the Effective Time; provided that either
party may terminate the Merger Agreement on the basis of any such material
breach of any representation or warranty contained therein, notwithstanding
any qualification therein relating to the knowledge of the other party; and
(e) by Community or NCF in writing, if any of the applications for prior
regulatory approval referred to in the Merger Agreement are denied or are
approved contingent upon the satisfaction of any condition or requirement
which, in the reasonable opinion of the Board of Directors of Community,
would materially impair the value of NCF and its subsidiaries to Community,
and the time period for appeals and requests for reconsideration has run.
To the extent permitted under applicable law, at any time prior to the
consummation of the Merger, whether before or after approval thereof by the
stockholders of Community and/or NCF, the parties may by written agreement (a)
amend the Merger Agreement, (b) extend the time for the performance of any of
the obligations or other acts of the other parties thereto, (c) waive any
inaccuracies in the representations and warranties contained therein or in any
document delivered pursuant thereto, or (d) waive compliance with any of the
agreements or conditions contained therein. However, after any approval of the
Merger by the stockholders of Community and/or NCF, there may not be, without
further approval of such stockholders, any amendment or waiver of the Merger
Agreement which modifies either the amount or the form of the Merger
Consideration to be delivered to the stockholders of NCF.
Interests of Certain Persons in the Merger
In considering the recommendation of the NCF Board of Directors,
stockholders should be aware that members of NCF's management and the NCF Board
of Directors have interests in the Merger that are in addition to the interests
of stockholders generally. The NCF Board of Directors was aware of these
interests and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby.
Operations of the Bank. It is the intention of Community to maintain the
Bank as a separate subsidiary of Community following the Effective Time.
Boards of Directors of Community and the Community Banks. Pursuant to the
Merger Agreement and effective as of the Effective Time, the Board of Directors
of Community and the Community Banks shall continue to consist of its current
members.
Board of Directors of the Bank. Pursuant to the Merger Agreement and
effective as of the Effective Time, the Board of Directors of the Bank shall
continue to consist of its current members except for A.E. Bowling who shall
resign effective as of the Effective Time.
Officers and Employees of the Bank. A.E. Bowling, the president of the Bank,
shall retire effective as of the Effective Date. In connection with his
retirement, Mr. Bowling shall receive thirty-six equal monthly payments under a
retirement agreement, dated December 17, 1997, totaling $250,000. After the
Effective Time, the Bank shall not hire any additional employees without the
prior consent of Community.
Transferred Employees. All employees of NCF or the Bank immediately prior
to the Effective Time who are employed by Community, or the Bank (the
"Employees") immediately following the Effective Time ("Transferred Employees")
will be covered by Employers' employee benefit plans on substantially the same
basis as any employee of the Employers in a comparable position. Notwithstanding
the foregoing, Community may determine to continue any of the NCF benefit plans
for Transferred Employees in lieu of offering participation in Employers'
benefit plans
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providing similar benefits (e.g., medical and hospitalization
benefits), to terminate any of the NCF benefit plans, or to merge any such
benefit plans with Employers' benefit plans, provided the result is the
provision of the benefits to Transferred Employees that are substantially
similar to the benefits provides to Employers' employees generally. Except as
specially provided in the Merger Agreement and as otherwise prohibited by law,
Transferred Employees' service with the NCF or the Bank shall be recognized as
service with the Employers for purposes of eligibility to participate and
vesting, if applicable (but not for purposes of benefit accrual) under the
Employers benefit plans, subject to applicable break-in-service rules.
Directors Consultation and Retirement Plan. Upon consummation of the
Merger, all directors of the Bank prior to the Effective Time who continue as
directors of the Bank immediately following the Effective Time will be covered
by the Directors Consultation and Retirement Plan.
Health Plans. Community has agreed that any pre-existing condition,
limitation or exclusion in its medical, long-term disability and life insurance
plans shall not apply to Transferred Employees or their covered dependents who
are covered under a medical or hospitalization indemnity plan maintained by the
Bank on the Effective Time and who then change coverage to Community's medical
or hospitalization indemnity health plan at the time such Transferred Employees
are first given the option to enroll.
NCF ESOP. On or after the Effective Time, the NCF employee stock ownership
plan (the "NCF ESOP") may, at Community's discretion, be combined with the
Community employee stock ownership plan (the "Community ESOP") terminated,
frozen or held separately. However, prior to any such combination of the NCF
ESOP and the Community ESOP, the parties have agreed to take all necessary
action in order to amend the NCF ESOP in order to ensure that any such
combination does not accelerate (other than as required by law or regulation) or
materially increase the benefits available to any participant in the NCF ESOP.
Notwithstanding anything in the Merger Agreement to the contrary, the parties
hereto will take all necessary action to amend the NCF ESOP in order to provide
that the Merger will not accelerate (other than as required by law or
regulation) or materially increase the benefits available to any participant in
the NCF ESOP.
Other than as set forth above, no director or executive officer of NCF or
Community has any direct or indirect material interest in the Merger, except in
the case of NCF insofar as ownership of NCF Common Stock and existing options
might be deemed such an interest.
Resale Considerations With Respect to the Community Common Stock
The shares of Community Common Stock that will be issued if the Merger is
consummated have been registered under the Securities Act and listed on the
NASDAQ Small Cap Market and will be freely transferable, except for shares of
Community Common Stock received by persons, including directors and executive
officers of NCF, who may be deemed to be "affiliates" of NCF under Rule 145
promulgated under the Securities Act. Affiliates may not sell their shares of
Community Common Stock acquired pursuant to the Merger, except pursuant to an
effective registration statement under the Securities Act covering such shares
of Community Common Stock or in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities Act. Persons who
may be deemed to be affiliates of NCF generally include individuals or entities
that control, are controlled by, or are under common control with, NCF and may
include certain officers and directors of NCF as well as any stockholders who
own more than 10% of the NCF Common Stock.
Certain Federal Income Tax Consequences
Elias, Matz, Tiernan & Herrick L.L.P., Washington, D. C., special counsel to
Community, has rendered an opinion to Community and NCF as to the principal
federal income tax consequences expected to result from the Merger. Such opinion
is included as an exhibit to the Registration Statement. Neither the opinion nor
this summary addresses any tax considerations under foreign, state or local
laws, or the tax considerations to certain stockholders
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in light of their particular circumstances, including persons who are not
United States citizens, or who are resident aliens, life insurance companies,
dealers in securities, tax exempt entities, stockholders who received their
shares through the exercise of employee stock options or through other
compensation arrangements, and stockholders who do not hold their shares as
"capital assets" within the meaning of Section 1221 of the Code.
No rulings have been requested from the Internal Revenue Service ("IRS") as
to the federal income tax consequences of the Merger. Stockholders should be
aware that the opinion of Elias, Matz, Tiernan & Herrick L.L.P. is not binding
on the IRS. Stockholders should also be aware that some of the tax consequences
of the Merger are governed by provisions of the Code as to which there are no
final regulations and little or no judicial or administrative guidance. The
opinion of Elias, Matz, Tiernan & Herrick L.L.P. is based upon the federal
income tax laws as in effect on the date of such opinion and as those laws are
currently interpreted. There can be no assurance that future legislation,
regulations, administrative rulings or court decisions will not adversely affect
the accuracy of the statements contained herein.
The federal income tax consequences discussed below are conditioned upon,
and the opinion of Elias, Matz, Tiernan & Herrick L.L.P. is based upon, the
accuracy as of the date hereof and at, as of and after the Effective Time of the
Merger of certain assumptions, including, but not limited to, the following
(taking into account for purposes hereof all of the events which are
contemplated under the Merger Agreement): (A) that following the Merger,
Community will continue the historic business of NCF or use a significant
portion of NCF's historic business assets in a business; and (B) that a bona
fide corporate business purpose exists for the Merger.
Community and NCF believe that all of the foregoing assumptions are accurate
as of the date hereof, and will be accurate at, as of and after the Effective
Time of the Merger. If either Community or NCF learns before the Effective Time
of the Merger that such assumptions are false and that its counsel therefore
believes that the Merger is unlikely to be treated as a tax-free reorganization,
then additional stockholder approval will be obtained before consummation of the
Merger.
Elias, Matz, Tiernan & Herrick L.L.P. has rendered an opinion to
Community and NCF, based upon the assumptions set forth herein, that the
Merger will qualify as a "reorganization" under Section 368(a) of the Code
and will have the following federal income tax consequences: (i) no gain or
loss will be recognized by Community or NCF as a result of the Merger; (ii)
no gain or loss will be recognized by any stockholder of NCF upon the
exchange of that holder's shares of NCF Common Stock solely for shares of
Community Common Stock pursuant to the Merger; (iii) the basis of the shares
of Community Common Stock received by a stockholder of NCF (including any
fractional shares) will be the same as the basis of the shares of NCF Common
Stock surrendered in exchange therefor (a) decreased by the amount of the
Cash Consideration, if any, and (b) increased by (1) the amount, if any, of
the Cash Consideration that was treated as a dividend, and (2) the amount of
gain recognized by that stockholder on the exchange (not including any
portion of such gain that is treated as a dividend); (iv) if shares of NCF
Common Stock were capital assets in the hands of the NCF stockholder
immediately prior to the Merger, the holding period of the shares of
Community Common Stock received by that stockholder in the Merger will
include the holding period of the shares of NCF Common Stock surrendered in
exchange therefor; (v) a stockholder of NCF who dissents from the proposed
Merger and receives solely cash in exchange for that stockholder's shares of
NCF Common Stock will be treated as having received that cash as a
distribution in redemption of those shares subject to the provisions and
limitations of Section 302 of the Code. If the distribution is eligible for
treatment as a distribution in redemption of that stockholder's shares, that
stockholder will have gain to the extent of the consideration received less
that stockholder's adjusted basis in those shares; and (vi) the receipt by a
stockholder of NCF of cash in lieu of a fractional share of Community Common
Stock will be treated as if that fractional share was issued to that holder
in the Merger and thereafter redeemed by Community for cash. That receipt of
cash by a stockholder will be treated as a distribution by Community in full
payment in exchange for the fractional share as provided in Section 302(a) of
the Code. If the distribution is eligible for treatment as a distribution in
redemption of a stockholder's fractional share, that stockholder will have
gain to the extent of the consideration received less that stockholder's
allocable adjusted basis in that fractional share.
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<PAGE>
Unless an exception is available under applicable law or regulations, 31% of
the cash portion of the Merger Consideration payable to a stockholder will be
withheld unless that payee provides a tax identification number (social security
number or employer number) and certifies that such number is correct on a Form
W-9 which will be provided with the letter of transmittal that will be used to
exchange shares of NCF Common Stock for the Merger Consideration.
Accounting Treatment of the Merger
It is expected that the Merger will be accounted for as a pooling of
interests under generally accepted accounting principles. As required by
generally accepted accounting principles, under pooling of interests accounting,
as of the Effective Time, the assets and liabilities of NCF would be added to
those of Community at their recorded book values and the shareholders' equity
accounts of Community and NCF would be combined on Community's consolidated
balance sheet. On a pooling of interests accounting basis, income and other
financial statements of Community issued after consummation of the Merger would
be restated retroactively to reflect the consolidated combined financial
position and results of operations of Community and NCF as if the Merger had
taken place prior to the periods covered by such financial statements. The
unaudited pro forma financial information contained in this Prospectus/Joint
Proxy Statement has been prepared using the pooling of interests accounting
method to account for the Merger. See "Unaudited Pro Forma Condensed Combined
Financial Information."
Dissenters' Rights
NCF. Any owner of shares of NCF Common Stock has the right under the
Delaware GCL to object to the Merger and demand to be paid in cash the fair
value of such shares upon complying in full with the provisions of Section
262 of the Delaware GCL ("Section 262").
Dissenting stockholders of NCF who follow the procedures specified in
Section 262 will be entitled to have their shares of NCF Common Stock
appraised by the Delaware Court of Chancery and to receive payment of the
"fair value" of such shares, exclusive of any element of value arising from
the accomplishment or expectation of the Merger, as determined by such Court.
A dissenting stockholder should assume that neither NCF nor Community will
take any action to perfect his or her appraisal rights. Therefore, a
stockholder desiring to exercise appraisal rights should strictly comply with
the procedures set forth in Section 262 and is urged to consult his or her
legal advisor before electing or attempting to exercise such rights. Failure
to follow any of such procedures may result in a termination or waiver of
appraisal rights under Section 262.
The following discussion of the provisions of Section 262 is not intended to
be a complete statement of its provisions and is qualified in its entirety by
reference to the full text of that section, a copy of which is included herein
as Appendix D.
Under Section 262 a dissenting stockholder electing to exercise appraisal
rights must satisfy both of the requirements set forth in paragraphs (1) and (2)
below:
(1) Deliver to NCF, before the taking of the vote on the proposal to
adopt the Merger Agreement, a written demand for appraisal of his or her NCF
Common Stock which reasonably informs NCF of the identity of the stockholder
of record and that such stockholder intends thereby to demand the appraisal
of his or her NCF Common Stock. This written demand is in addition to and
separate from any proxy or vote against the proposal to approve the Merger.
Neither a vote against such proposal nor a proxy directing such vote shall
satisfy the requirement for such written demand. The written demand for
appraisal should be delivered either in person or by mail to the Secretary
of NCF (certified mail, return receipt requested, being the recommended form
of transmittal) to: Secretary, NCF Financial Corporation, 106A West John
Rowan Boulevard, Bardstown, Kentucky before the vote on the proposal to
approve the Merger; and
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(2) Not vote in favor of the Merger Agreement. A failure to vote against
such proposal will not constitute a waiver of appraisal rights. However, any
stockholder who executes a proxy and who desires to perfect his or her
appraisal rights must mark the proxy "Against" the proposal to approve the
Merger Agreement or must abstain because if the proxy is left blank, it will
be voted for such proposal.
The written demand for appraisal must be made by or for the holder of record
of the NCF Common Stock as of the NCF Record Date. Accordingly, such demand
should be executed by or for such stockholder of record, fully and correctly, as
such stockholder's name appears on his or her stock certificates. If the NCF
Common Stock is owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of the demand should be made in such capacity
and if the stock is owned of record by more than one person, as in a joint
tenancy or tenancy in common, such demand should be executed by or for all joint
owners. An authorized agent, including one of two or more joint owners, may
execute the demand for appraisal for a stockholder of record. However, the agent
must identify the record owner or owners and expressly disclose the fact that in
executing the demand he or she is acting as agent for such record owner or
owners.
Dissenting stockholders who are not the owners of record of their shares
should consult their legal counsel regarding the right of appraisal with respect
to the NCF Common Stock.
Within ten days after the Effective Date, Community will notify each
former stockholder of NCF who has satisfied the foregoing conditions of the
date on which the Merger became effective. Within 120 days after the
Effective Date, Community or any such stockholder who has satisfied the
foregoing conditions and is otherwise entitled to appraisal rights under
Section 262 may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the NCF Common Stock formerly held by all
stockholders entitled to appraisal rights. If no such petition is filed,
appraisal rights will be lost for all stockholders who had previously
demanded appraisal of their NCF Common Stock. Dissenting stockholders seeking
to exercise appraisal rights should assume that Community will not file a
petition with respect to the appraised value of NCF Common Stock and that
Community will not initiate any negotiations with respect to the "fair value"
of NCF Common Stock. Accordingly, stockholders of NCF who wish to exercise
their appraisal rights should regard it as their obligation to take all steps
necessary to perfect their appraisal rights in the manner prescribed in
Section 262.
Within 120 days after the Effective Date, any dissenting stockholder who has
complied with the provisions of Section 262 is entitled, upon written request,
to receive from Community a statement setting forth the aggregate number of
shares of NCF Common Stock not voted in favor of the Merger Agreement and, with
respect to which demands for appraisal were received by NCF, the number of
holders of such NCF Common Stock. Such statement must be mailed by Community
within ten days after the written request therefor has been received by
Community or within ten days after expiration of the time for delivery of
demands for appraisal under Section 262, whichever is later.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the former stockholders
of NCF entitled to appraisal rights and will appraise the value of the NCF
Common Stock formerly owned by such stockholders, determining the "fair value"
exclusive of any element of value arising from the accomplishment or expectation
of the Merger.
Although NCF and Community believe that the terms of the Merger are fair,
neither can make any representation as to the outcome of any appraisal of "fair
value" as determined by the Delaware Court of Chancery, and stockholders should
recognize that such an appraisal could result in a determination of a lower,
higher or equivalent value. Moreover, Community may or may not argue in an
appraisal proceeding for a determination of "fair value" by the Delaware Court
of Chancery which is lower than the value of the consideration received by
stockholders of NCF pursuant to the Merger Agreement. In determining the "fair
value" of the NCF Common Stock, the Court is required to take into account all
relevant factors. Therefore, such determination could be based upon
considerations in addition to the price paid in the Merger, such as the market
value of the NCF Common Stock, asset values, dividends, earnings, prospects, the
nature of the enterprise and other facts which could be ascertained as of
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the Effective Date of the Merger. The Delaware Supreme Court has stated with
respect to Section 262 that, among other things, "proof of value by any
techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered
in an appraisal proceeding. In addition, Delaware courts have decided that
the statutory appraisal remedy, depending on the relevant facts and
circumstances, may or may not be a stockholder's exclusive remedy in
connection with mergers similar to the Merger.
The Court of Chancery may also, on application, (i) determine a fair rate of
interest, simple or compound, if any, to be paid to dissenting stockholders in
addition to the value of the capital stock for the period from the Effective
Date of the Merger to the date of payment, (ii) assess costs among the parties
as the Court deems equitable and (iii) order all or a portion of the expenses
incurred by any dissenting stockholder in connection with the appraisal
proceeding including, without limitation, reasonable attorney's fees and fees
and expenses of experts to be charged pro rata against the value of all shares
entitled to appraisal. Determinations by the Court are subject to appellate
review by the Delaware Supreme Court.
Any dissenting stockholder of NCF who has duly demanded an appraisal in
compliance with Section 262 will not, after the Effective Date of the Merger, be
entitled to vote the capital stock of NCF for any purpose nor be entitled to the
payment of dividends or other distributions on his or her NCF Common Stock.
If no petition for an appraisal is filed within the time provided, or if
a former stockholder of NCF delivers to Community a written withdrawal of his
or her demand for an appraisal and an acceptance of the merger consideration,
either within 60 days after the Effective Date or with the written approval
of Community, then the right of such stockholder to an appraisal will cease
and such stockholder shall be entitled to receive the merger consideration,
without interest, as if he or she had not demanded appraisal of his or her
NCF Common Stock. No pending appraisal proceeding in the Court of Chancery
will be dismissed as to any stockholder without the approval of the Court,
which approval may be conditioned on such terms as the Court deems just.
It is a condition to Community's obligation to consummate the Merger that
the number of Dissenters' shares be less than 15% of the NCF Common Stock
immediately prior to the Effective Time. See "The Merger--Conditions to the
Merger." Community has reserved the right to waive this condition at any time.
Community. Any owner of shares of Community Common Stock has the right
under the Indiana BCL to object to the Merger and demand to be paid in cash the
fair value of such shares under the Indiana BCL provisions relating to
dissenters' rights (Ind. Code Sections 23-1-44-1 to 20). The following does not
purport to be a complete statement of the provisions of the Indiana BCL and is
qualified in its entirety by reference to those provisions, a copy of which is
attached hereto as Appendix E. Such provisions must be strictly complied with or
a stockholder's dissenters' rights will be lost.
Any Community stockholder who wishes to assert dissenters' rights must
deliver to Community a written notice indicting that stockholder's intent to
demand payment for his or her shares of Community Common Stock. This notice
should be addressed to the Secretary, Community Bank Shares of Indiana, Inc.,
202 East Spring Street, New Albany, Indiana 47150. The stockholder's notice must
be delivered to Community before the vote is taken at the Community Annual
Meeting and the stockholder must not vote in favor of the Merger. Stockholders
who wish to exercise dissenters' rights must exercise them as to all shares they
own. Stockholders who own shares beneficially but not of record must, in
addition to the other requirements described herein, submit to Community the
consent of the record holder of such shares no later than the time dissenters'
rights are asserted. Any stockholder who fails to deliver the stockholder's
notice or votes in favor of the Merger will not be entitled to payment for his
shares under dissenters' rights according to the Indiana BCL.
If the Merger is approved at the Community Annual Meeting, Community will
deliver a written dissenters' notice to all stockholders who notified Community
that they intended to demand payment for their shares and who did not vote in
favor of the Merger. This dissenters' notice must be sent no later than 10 days
after approval of the Merger by stockholders and must (i) state where demand for
payment should be sent and where and when certificates for
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<PAGE>
certificates shares should be deposited; (ii) inform holders of
uncertificated shares of the extent of transfer restrictions imposed upon
such shares after the demand for payment is received; (iii) supply a form for
demanding payment for shares that includes the date of the first announcement
to the news media or to stockholders of the terms of the Merger, which in the
case of the Merger was December 17, 1997, and requires that the person
asserting dissenters' rights certify whether or not the person acquired
beneficial ownership of the shares before that date; (iv) establish a date by
which Community must receive a demand for payment, which date shall be no
less than 30 nor more than 60 days after the dissenters' notice is delivered;
and (v) be accompanied by a copy of the provisions of the Indiana BCL
pertaining to dissenters' rights. A dissenting stockholder must demand
payment, certify whether beneficial ownership of his shares was acquired
before the date set forth in the dissenters' notice and deposit his
certificates in accordance with the terms of such notice. Any stockholder who
demands payment and deposits shares in accordance with the terms of the
dissenters' notice shall retain all other rights as a stockholder until the
rights are modified by consummation of the Merger. Any stockholder who fails
to demand payment or deposit shares as required by the dissenters' notice by
the respective dates set forth therein will not be entitled to payment for
his shares and shall be considered to have voted in favor of the Merger.
If a dissenting stockholder was the beneficial owner of his shares on or
before the date of the first announcement to news media or to stockholders of
the terms of the Merger (a "pre-announcement stockholder"), which in this
case was December 17, 1997, the Indiana BCL requires Community to pay such
stockholder the amount Community estimates to be the fair value of his
shares. Payment shall be made as soon as the Merger is consummated and must
be accompanied by year-end and interim financial statements of Community, a
statement of Community's estimate of the fair value of the shares, a
statement of the dissenting stockholder's right to demand payment, and a copy
of the provisions of the Indiana BCL pertaining to dissenters' rights. If a
dissenting stockholder was not the beneficial owner of his shares prior to
the date of the first announcement to the news media or to stockholders of
the Merger (a "post-announcement stockholder"), Community may elect to
withhold payment of the fair value of the dissenting stockholder's shares. To
the extent such payment is withheld, Community is required to estimate the
fair value of the dissenting stockholder's rights and offer to pay this
amount to each post-announcement stockholder who agrees to accept it in full
satisfaction of his demand. The offer must be accompanied by a statement of
Community's estimate of value and a statement of the dissenting stockholder's
right to demand payment under the Indiana BCL.
The Indiana BCL provides that a dissenting stockholder may notify Community
in writing of his estimate of the fair value of his shares and demand payment of
the amount of such estimate (less any payment already made by Community), or
reject Community's offer (if a post-announcement stockholder) and demand payment
of the fair value of his shares if (i) the dissenter believes the amount paid or
offered is less than the fair value of his shares, (ii) Community fails to pay
pre-announcement stockholders within 60 days after the date set for demanding
payment, or (iii) if the Merger is not consummated, Community fails to return
the deposited certificates or release transfer restrictions imposed on
uncertificated shares within 60 days after the date set for demanding payment.
In order to exercise these rights, a dissenter must notify Community in writing
within 30 days after Community made or offered payment for the dissenter's
shares.
If a demand for payment by a dissenting stockholder remains unsettled within
60 days after Community's receipt of the demand for payment, Community must
commence a proceeding in the circuit or superior court of Floyd County, Indiana
and petition the court to determine the fair value of the shares. If such a
proceeding is not commenced within the 60-day period, Community must pay each
dissenting stockholder whose demand remains unsettled the amount demanded. All
dissenting stockholders whose demands remain unsettled must be made parties to
the proceeding and must be served with a copy of the petition. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. In any such proceeding, each dissenting
stockholder made a party is entitled to a judgment in the amount of the
difference between the fair value found by the court and the amount paid by
Community plus interest on such difference, in the case of a pre-announcement
stockholder; or the fair value, plus accrued interest, of the dissenting
stockholder's shares for which Community elected to withhold payment in the case
of a post-announcement stockholder. The court in an appraisal proceeding has the
authority to determine and assess the costs of the proceeding, including the
compensation and expenses of court-appointed appraisers, in such amounts and
against such parties as it deems equitable. The court
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<PAGE>
may also assess fees and expenses of attorneys and experts for the parties
against Community if the court finds that Community did not substantially
comply with the requirements of the Indiana BCL regarding dissenters' rights,
or against any party if the court finds that such party acted arbitrarily,
vexatiously or not in good faith. The Indiana BCL also makes provision for
compensation of attorneys for any dissenting stockholder whose services
benefitted other dissenting shareholders similarly situated to be paid out of
the amounts awarded the dissenting shareholders who were benefitted, if not
assessed against Community.
Expenses of the Merger
The Merger Agreement provides that Community and NCF shall each bear and pay
all costs and expenses incurred by it in connection with the transactions
contemplated by the Merger Agreement, including, without limitation, legal,
accounting, investment banking and printing expenses, provided, however, that
Community shall bear all costs of printing, mailing and filing, as applicable,
the Registration Statement, this Joint Proxy Statement/Prospectus and all other
registration and filing fees relating to the Merger.
Option Agreement
In fulfillment of a condition to Community's execution of the Merger
Agreement, Community and NCF entered into an Option Agreement, a copy of which
is attached to this Joint Proxy Statement/ Prospectus as Appendix B and is
incorporated by reference herein. The following summary is qualified in its
entirety by reference to the full text of the Option Agreement.
Pursuant to the Option Agreement, NCF granted to Community an option (the
"Option") to purchase up to an aggregate of 150,000 shares of authorized but
unissued NCF Common Stock (representing 18.9% of the outstanding NCF Common
Stock as of the date of the Option Agreement) at a price of $14.75 per share
upon the occurrence of certain triggering events, subject to the receipt of any
required approvals of applicable regulatory authorities. The exercise price of
the Option and the number of shares subject to the Option are subject to
anti-dilution provisions. The Option Agreement is intended to increase the
likelihood that the Merger will be consummated in accordance with its terms by
making it more difficult and more expensive for a third party to acquire control
of NCF.
Under the Option Agreement, the Option will become exercisable if a Purchase
Event (as defined) shall have occurred and be continuing, provided that to the
extent the Option shall not have been exercised, it shall terminate and be of no
further effect, except as to notices of exercise given prior thereto, on the
termination date, which shall be the date on which occurs the earliest of (i)
immediately prior to the Effective Time, (ii) twelve months after the first
occurrence of a Purchase Event, (iii) twelve months following a termination of
the Merger Agreement by Community pursuant to a breach of the Merger Agreement
by NCF prior to the occurrence of a Purchase Event; and (iv) twelve months
following a termination of the Merger Agreement in accordance with its terms
(other than by Community pursuant to a breach of the Merger Agreement by NCF)
prior to the occurrence of a Purchase Event, provided, however, that any
purchase of shares upon exercise of the Option shall be subject to compliance
with applicable laws and regulations.
A "Purchase Event" means any of the following events or transactions
occurring: (i) NCF or any of its subsidiaries shall have entered into an
agreement with any person (other than Community or any subsidiary thereof) (A)
to merge, consolidate or enter into any similar transaction with such person,
(B) for the disposition, by sale, lease, exchange or otherwise, of all or
substantially all of the consolidated assets or deposits of NCF or any of its
subsidiaries or (C) for the issuance, sale or other disposition (including by
way of merger, consolidation, share exchange or any similar transaction) of
securities (or an option or right to acquire such securities) representing 15%
or more of the voting power of NCF or any of its subsidiaries; (ii) any person
(other than Community or any subsidiary thereof) shall have acquired beneficial
ownership of, or any group of persons shall have been formed which beneficially
owns, 15% or more of the then outstanding NCF Common Stock (any of the foregoing
in (i) or
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(ii) is hereinafter referred to as an "Acquisition Transaction"); (iii) any
person (other than Community or any subsidiary thereof) shall have (A)
commenced a tender offer or filed a registration statement under the
Securities Act with respect to an exchange offer to purchase or otherwise
acquire control of 15% or more of the then outstanding shares of NCF Common
Stock; or (iv) the holders of the outstanding NCF Common Stock shall not have
approved the Merger Agreement at the meeting of such holders called for such
purpose pursuant to the Merger Agreement, such meeting shall not have been
held or shall have been cancelled prior to the termination of the Merger
Agreement in accordance with its terms, or NCF's Board of Directors shall
have withdrawn or modified in a manner which is adverse to Community the
recommendation of NCF's Board of Directors with respect to the Merger
Agreement, in each case after it shall have been publicly announced that any
person (other than Community or any subsidiary thereof) shall have (A)
commenced a tender offer or filed a registration statement under the
Securities Act with respect to an exchange offer, (B) made, or disclosed an
intention to make, a proposal to engage in an Acquisition Transaction, (C)
filed an application (or given notice), whether in draft or final form, under
the Bank Holding Company Act of 1956, the Bank Merger Act or the Change in
Bank Control Act of 1978, for approval to engage in an Acquisition
Transaction or (D) any person shall have solicited proxies in a proxy
solicitation subject to Regulation 14A under the Exchange Act in opposition
to approval of the Merger Agreement by NCF's stockholders.
Letter Agreement
In conjunction with the Merger Agreement and the Option Agreement, Community
has also entered into a Letter Agreement with each of the directors and certain
officers of NCF and the Bank. Pursuant to such Letter Agreement, the directors
and certain officers of NCF have agreed, among other things, not to sell,
pledge, transfer or otherwise dispose of his or her shares of NCF Common Stock
prior to the final voting record date established in connection with the NCF
Special Meeting and to vote such shares of NCF Common Stock in favor of the
Merger Agreement, and against any plan or proposal pursuant to which NCF is to
be acquired by or merged with, or pursuant to which NCF or the Bank proposes to
sell all or substantially all of its assets and liabilities to, any person,
entity or group (other than Community or any affiliate thereof).
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial information set forth
below should be read in conjunction with the historical consolidated financial
statements, including the notes thereto, of Community that are incorporated by
reference in this Joint Proxy Statement/Prospectus (see "Incorporation of
Certain Documents by Reference" and "Community Selected Consolidated Financial
Information") and the historical consolidated financial statements of NCF,
including the notes thereto, of NCF included elsewhere herein (see "Index to NCF
Consolidated Financial Statements" and "NCF Selected Consolidated Financial
Information"). The unaudited pro forma condensed combined financial information
set forth below gives effect to the Merger under the pooling of interests
accounting method. The pro forma condensed combined balance sheet treats the
Merger as if it had been consummated on December 31, 1997, and the pro forma
condensed combined statements of income treat the Merger as if it has been
consummated at the beginning of the respective periods. The pro forma combined
per share data gives effect to the assumed issuance of 741,080 shares of
Community Common Stock based upon an Exchange Ratio of .935 and that none of the
outstanding stock options to purchase NCF Common Stock are exercised.
This pro forma financial information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred if the Merger had been consummated at the
dates assumed for purposes hereof, nor is it necessarily indicative of future
operating results or financial position.
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<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANK SHARES OF INDIANA, INC.
Pro Forma Condensed Balance Sheet (Unaudited)
As of December 31, 1997
------------------------------------------------
Pro Forma Pro Forma
Community NCF Adjustments Combined
----------- --------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks............................ $ 5,094 $ 450 $ (50)(2) $ 5,495
Interest bearing deposits.......................... 6,504 5,415 -- 11,919
Securities available for sale, at market:
Mortgage-backed securities..................... 883 -- -- 883
Securities held to maturity
Mortgage-backed securities..................... 23,387 111 -- 23,498
Other debt securities.......................... 66,654 -- -- 66,654
Mortgage loans held for sale
Loans receivable, net.............................. 143,819 28,010 -- 171,829
Federal Home Loan Bank stock, at cost.............. 1,575 458 -- 2,033
Foreclosed real estate............................. -- 287 -- 287
Premises and equipment, net........................ 3,683 583 -- 4,268
Accrued interest receivable........................ 2,283 225 -- 2,508
Other assets....................................... 199 88 -- 287
----------- --------- ----------- -----------
Total Assets....................................... $ 254,083 $ 35,627 $ (50) $ 289,660
----------- --------- ----------- -----------
----------- --------- ----------- -----------
LIABILITIES
Deposits........................................... $ 186,021 $ 22,984 -- $ 209,005
Advances from Federal Home......................... 27,000 -- -- 27,000
Borrowings--repurchase............................. 12,142 -- -- 12,142
Other borrowings................................... 83 -- -- 83
Other liabilities.................................. 1,186 363 183(3) 1,732
----------- --------- ----------- -----------
Total Liabilities.................................. 226,432 23,347 183 249,992
----------- --------- ----------- -----------
----------- --------- ----------- -----------
STOCKHOLDERS' EQUITY
Common stock of $.10 par value per share........... 198 79 (5)(1) 272
Additional paid in capital......................... 11,793 7,595 25(1) 19,393
Retained earnings--substantially restricted........ 15,721 5,180 (426)(2,3) 20,481
Net unrealized gain/(loss) on assets available for
sale, net of tax................................. 3 -- -- 3
Unearned stock-based compensation.................. (64) (574) 187 (451)
----------- --------- ----------- -----------
Total Stockholders' Equity..................... 27,651 12,280 (233) 39,698
----------- --------- ----------- -----------
Total Liabilities and Stockholders' Equity..... $ 254,083 $ 35,627 $ (50) $ 289,660
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
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<TABLE>
<CAPTION>
COMMUNITY BANK SHARES OF INDIANA, INC.
Pro Forma Condensed Combined Income Statement
(Unaudited)
For the Year Ended December 31, 1997
------------------------------------------------
Pro Forma Pro Forma
Community NCF Adjustments Combined
----------- --------- ------------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable................................... $ 11,757 $ 2,354 $ -- $ 14,111
Securities:
Mortgage-backed securities..................... 1,524 19 -- 1,543
Other debt securities.......................... 4,040 -- -- 4,040
Federal Home Loan Bank Stock....................... 113 -- -- 113
Interest bearing deposits with banks............... 668 307 -- 975
----------- --------- --------- ---------
TOTAL INTEREST INCOME.......................... 18,102 2,680 -- 20,782
----------- --------- --------- ---------
INTEREST EXPENSE:
Deposits........................................... 8,597 1,045 -- 9,642
Advances from Federal Home Loan Bank and other
borrowings....................................... 2,020 -- -- 2,020
----------- --------- --------- ---------
TOTAL INTEREST EXPENSE......................... 10,617 1,045 -- 11,662
----------- --------- --------- ---------
NET INTEREST INCOME............................ 7,485 1,635 -- 9,120
Provision for loan losses.......................... 210 16 -- 226
----------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES....................................... 7,275 1,619 -- 8,894
----------- --------- --------- ---------
NON-INTEREST INCOME
Loan fees and service charges...................... 454 28 -- 482
Net gain on sale of loans.......................... 215 -- -- 215
Deposit account service charges.................... 386 -- -- 386
Commission income.................................. 304 -- -- 304
Other income....................................... 71 -- -- 71
----------- --------- --------- ---------
TOTAL NON-INTEREST INCOME...................... 1,430 28 -- 1,458
----------- --------- --------- ---------
NON-INTEREST EXPENSE
Compensation and benefits.......................... 3,046 621 (579)(3) 4,246
Occupancy and equipment............................ 490 46 -- 536
Deposit insurance premiums......................... 103 19 -- 122
Data processing service............................ 457 42 -- 499
Other.............................................. 711 216 50(2) 977
----------- --------- --------- ---------
TOTAL NON-INTEREST EXPENSE..................... 4,807 944 629 6,380
----------- --------- --------- ---------
Income before income taxes......................... 3,898 703 (629) 3,972
Income tax expense................................. 1,513 248 (209)(3) 1,552
----------- --------- --------- ---------
NET INCOME......................................... $ 2,385 $ 455 $ (420) $ 2,420
----------- --------- --------- ---------
----------- --------- --------- ---------
Earnings per share:
Basic............................................ $ 1.21 $ 0.61 (0.92) $ 0.90
Fully diluted.................................... $ 1.21 $ 0.60 (0.91) $ 0.90
Weighted average number of shares outstanding:
Basic............................................ 1,977,697 751,657 (48,858) 2,680,496
Fully diluted.................................... 1,977,697 753,069 (48,949) 2,681,917
</TABLE>
-40-
<PAGE>
COMMUNITY BANK SHARES OF INDIANA, INC.
Notes to Pro Forma Condensed Combined Financial Information
(Unaudited)
(1) Community will exchange 741,080 shares of its Common Stock for all 792,609
shares of NCF Common Stock, an exchange ratio of 0.935 Community shares for
each one NCF share. This exchange ratio applies providing: 1) Community's
market value per share is greater than or equal to $15.00 and less than or
equal to $25.00; and 2) NCF's stockholder equity is a minimum of
$12,250,000. If the Community market value per share falls below $15.00 per
share, then the exchange ratio shall be one share of Community stock for
each share of NCF stock. If the Community market value per share is greater
than $25.00, then 0.88 share of Community Common Stock will be exchanged for
each share of NCF Common Stock. The calculations below assume that the
exchange ratio of 0.935 will be applicable to the transaction.
<TABLE>
<CAPTION>
<S> <C>
$ 20.75 Price Per Share Community Common Stock at September 30, 1997
0.935 Exchange Ratio
19.401 Effective market value per share after Exchange Ratio applied
792,609 Number of NCF shares outstanding
$15,377,407 Effective price of Transaction
741,080 Number of Community Shares exchanged in transaction (15,377,407
divided by 20.75)
$ 74,108 Par value of common stock exchanged in transaction
</TABLE>
(2) The cost of the transaction has been estimated at $50,000, with
approximately $35,000 applicable to attorney's fees, $10,000 for
accountant's fees, and $5,000 for miscellaneous merger expenses as of
December 31, 1997. The estimated expenses will be deducted in determining
net income of the combined entity in the period in which the combination
is consummated.
(3) Upon consummation of the Merger, A.E. Bowling, President of NCF, shall
retire under a retirement agreement dated December 17, 1997. Mr. Bowling
will receive $250,000 in thirty-six equal monthly installments beginning
with the first business day of the month following the effective date of
the Merger. Community will record the present value of the retirement
benefit on the effective date of the Merger with a charge to income in
the amount of $221,000. Under the Management Stock Bonus Plan of NCF,
participants become fully vested in plan shares awarded in the event of
a change in control. Upon consummation of the Merger, NCF will recognize
compensation expense in the amount of the unearned compensation included
in stockholders' equity of $187,000. Under the Directors Consultation and
Retirement Plan of NCF, participants become fully vested in their benefits
regardless of age or years of service following a change in control. Upon
consummation of the Merger, NCF will accrue additional compensation
expense to recognize the unvested portion of these benefits in the amount
of $171,000. The total compensation cost recognized upon consummation of
the Merger related to the above benefit plans amounts to $579,000 with a
related tax benefit of $209,000.
-41-
<PAGE>
INFORMATION WITH RESPECT TO COMMUNITY'S NOMINEES FOR DIRECTOR,
CONTINUING DIRECTORS AND EXECUTIVE OFFICERS
Election of Directors
The Articles of Incorporation of Community provide that the Board of
Directors of Community shall be divided into three classes which are as equal in
number as possible, and that members of each class of directors are to be
elected for a term of three years. One class is to be elected annually.
Stockholders of Community are not permitted to cumulate their votes for the
election of directors.
Currently, there are two directors or nominees for director who are related
to any other director or executive officer of Community by blood, marriage or
adoption. Kerry M. Stemler and Steven Stemler are cousins. All nominees for
director currently serve as directors of Community.
Unless otherwise directed, each proxy executed and returned by a stockholder
will be voted for the election of the nominees for director listed below. If any
person named as nominee should be unable or unwilling to stand for election at
the time of the Annual Meeting, the proxies will nominate and vote for a
replacement nominee recommended by the Board of Directors. At this time, the
Board of Directors knows of no reason why any of the nominees listed below may
not be able to serve as a director if elected.
-42-
<PAGE>
The following tables present information concerning the nominees for
director of Community and each director whose term continues, including tenure
as a director of the Community Banks.
Nominees for Director for Three-Year Term Expiring in 2001
<TABLE>
<CAPTION>
POSITIONS HELD
NAME AGE (1) IN COMMUNITY DIRECTOR SINCE
- ------------------------------------------ ---------- ------------------------------------------ ---------------
<S> <C> <C> <C>
C. Thomas Young 54 (2,3,4) Chairman of the Board 1985
Gary L. Libs 46 (2) Vice Chairman of the Board 1989
Robert J. Koetter, Sr. 65 (2) Director 1990
Kerry M. Stemler 40 (2) Director 1997
Nominee for Director for Two-Year Term Expiring in 2000
Gordon L. Huncilman 41 (2) Director 1977
Nominees for Director for One-Year Term Expiring in 1999
Dale L. Orem 59 (3,5) Director 1997
Steven Stemler 37 (3) Director 1997
The Board of Directors recommends that you vote FOR election of the nominees for director.
Members of the Board of Directors Continuing in Office
Director Whose Term Expires in 1999
Robert E. Yates 59 (2,3) Director, President and 1988
Chief Executive Officer
Directors Whose Terms Expire in 2000
Timothy T. Shea 54 (2) Director 1986
James W. Robinson 63 (2) Director 1987
</TABLE>
- -------------
(1) As of March 15, 1998.
(2) Includes service as a director of Community.
(3) Includes service as a director of Heritage Bank.
(4) Chairman of the Board of Community Bank.
(5) Chairman of the Board of Heritage Bank.
All of the directors except Kerry M.Stemler, Dale L. Orem, Steven Stemler,
and Gordon L. Huncilman have been a director since the inception of Community.
Each of the Directors is also a director of Community Bank of Southern Indiana (
"Community Bank") and/or Heritage Bank of Southern Indiana ("Heritage Bank".)
The business experience of each of the directors for at least the past five
years is as follows:
Robert J. Koetter, Sr. was initially elected to the Board of Directors of
Community Bank in 1990 and has been on the Board of Directors of Community since
its formation. Mr. Koetter has been a 38% owner of the Koetter Construction
Company, Floyd Knobs, Indiana, since 1960, a 50% owner of M.E.K.A., Inc., a
development company in Floyd Knobs, Indiana, since 1989, and is a 50% owner in
KP Property, a 50% owner of the Floyds Knobs, Indiana Highlander Point Our Own
Hardware Store, and a partner in Koetter Development, Floyds Knobs, Indiana.
-43-
<PAGE>
Gary L. Libs was initially elected to the Board of Directors of Community
Bank in 1989 and has served on the Board of Directors of Community since its
formation. Mr. Libs has been the President and Chief Executive Officer and a 50%
stockholder of Libs Paving Co., Inc., Floyd Knobs, Indiana since 1972, and the
President and Chief Executive Officer of Asphalt Supply Co., Jeffersonville,
Indiana, since 1992.
James W. Robinson was initially elected to the Board of Directors of
Community Bank in 1987 and has been a director of Community since its formation.
Mr. Robinson is the Chairman, a director and stockholder of Caldwell Tanks,
Inc., a tank manufacturer located in Louisville, Kentucky, and is the Secretary
and a director of Stem Wood Corp., a lumber and veneer manufacturer located in
New Albany, Indiana. Mr. Robinson is also a stockholder, director, and retired
Chairman of Robinson-Nugent, an electronics hardware manufacturer located in New
Albany, Indiana, and is the Chairman and a director of C.T. Services, Inc., an
engineering company located in Jeffersonville, Indiana. He is a director of The
Hughes Group, a Jeffersonville, Indiana holding company for construction related
companies, Vice President of Norwec, Inc., a Toronto, Canada subsidiary of the
Caldwell Group, Ltd., and is a director and Chairman of CTI Acquisition, Inc. of
Louisville, Kentucky.
Timothy T. Shea was initially elected to the Board of Directors of Community
Bank in 1986 and has been a director of Community since its formation. Mr. Shea
is currently the President and Chief Operating Officer of Vermont American
Corp., a manufacturer and marketer of power tool accessories and home storage
products located in Louisville, Kentucky. He previously served as Vermont
American's Vice President and Chief Financial Officer and has been associated
with Vermont American Corp. since 1978. He is a partner in Shea and Young, a
real estate investment company located in New Albany, Indiana, since January,
1993.
C. Thomas Young has served as the Chairman of the Board of Community since
its inception, and Community Bank since April 1991 and was initially appointed
to the Board of Directors of Community Bank in 1985. Mr. Young has been a
partner in the law firm of Young, Lind, Endres & Kraft, Attorneys at Law, New
Albany, Indiana (which serves as general counsel to Community), since 1968, and
a partner in Shea and Young, a real estate investment company located in New
Albany, Indiana, since January, 1993. Mr. Young has also been a member of the
Board of Directors for Heritage Bank of Southern Indiana since its formation in
1996.
Robert E. Yates has served as President, Chief Executive Officer and a
director of Community Bank since October 1988 and of Community since its
formation. Mr. Yates has also been a member of the Board of Directors of
Heritage Bank, and has served as its President and Chief Executive Officer since
its formation in 1996.
Kerry M. Stemler was initially elected to the Board of Directors in 1997. He
is the President of KM Stemler Co., Inc., a construction company, located in New
Albany, Indiana, since 1981.
Gordon L. Huncilman was initially elected to the Board of Directors in 1997.
He has been associated with Bert R. Huncilman & Son, Inc., a manufacturing
company located in New Albany, Indiana, since 1978, most recently as President.
-44-
<PAGE>
Steven Stemler is the President of Stemler and Sons, Inc., a plumbing supply
business located in Jeffersonville, Indiana, and is President of Stemler
Irrigation, Inc. which is also located in Jeffersonville.
Dale L. Orem is the Chairman of the Board of Directors of Heritage Bank. He
is a former mayor of Jeffersonville, Indiana. Mr. Orem is a member of the
officiating team for the National Football League. He is the owner of The Locker
Room, a sporting goods store located in Jeffersonville, Indiana.
Stockholders Nominations
Article VII.D. of Community's Articles of Incorporation governs nominations
for election to the Board of Directors and requires all such nominations, other
than those made by the Board, to be made only by a stockholder who has complied
with the notice provisions in that section. Stockholder nominations must be made
pursuant to timely notice in writing to the Secretary of Community. To be
timely, a stockholder's notice must be delivered to, or mailed and received at,
the principal executive offices of Community no less than (i) with respect to an
annual meeting of stockholders, 60 days prior to the anniversary date of the
immediately preceding annual meeting; and (ii) with respect to a special meeting
of stockholders for the election of directors, no later than the close of
business on the tenth day following the date on which notice of such meeting is
first given to stockholders.
Each written notice of a stockholder nomination shall set forth: (a) as to
each person whom the stockholder proposes to nominate for election or
re-election as a director (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of Community stock which are
beneficially owned by such person on the date of such stockholder notice, and
(iv) any other information relating to such person that is required to be
disclosed in solicitations of proxies with respect to nominees for election as
directors, pursuant to Regulation 14A under the Securities and Exchange Act of
1934, as amended (the "1934 Act"), including, but not limited to, information
required to be disclosed by Items 4, 5, 6 and 7 of Schedule 14A and information
which would be required to be filed on Schedule 14B with the Securities and
Exchange Commission (or any successors of such items or schedules); and (b) as
to the stockholder giving the notice (i) the name and address, as they appear on
Community's books, of such stockholder and any other stockholders known by such
stockholder to be supporting such nominees and (ii) the class and number of
shares of Community stock which are beneficially owned by such stockholder on
the date of such stockholder notice and, to the extent known, by any other
stockholders known by such stockholder to be supporting such nominees on the
date of such stockholder notice. The Board of Directors may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedures.
Committees and Meetings of the Board of Directors
Regular meetings of the Board of Directors of Community are held on a
monthly basis. The Board of Directors of Community held a total of 32
regular, special, and committee meetings during the year ended December 31,
1997. No incumbent director attended fewer than 75% of the aggregate total
number of meetings of Community Board of Directors held during the year ended
December 31, 1997, and the total number of meetings held by all committees on
which he served during such year.
The Compensation Committee met twice in 1997.
The Executive Committee for Community consists of Messrs. Yates, Young, and
Shea. The Executive Committee has the authority to exercise the powers of the
Board of Directors of Community in the intervals between meetings of the Board
and meets as necessary to oversee the business of Community. All actions of the
Executive Committee must be ratified by the full Board of Directors. The
Executive Committee met 10 times in 1997.
Community has not established a nominating committee, the functions of which
are performed by the full Board of Directors. The Board of Directors met one
time in its capacity as the nominating committee during 1997.
-45-
<PAGE>
Executive Officers Who Are Not Directors
Set forth below is information with respect to the executive officers of
Community who do not serve as directors, including their business experience for
at least the past five years.
James M. Stutsman, Senior Vice President and Assistant Corporate Secretary
of Community, has served as Senior Vice President and Chief Financial Officer of
Community Bank since 1990. Mr. Stutsman has been affiliated with Community Bank
since 1978.
M. Diane Murphy, Senior Vice President and Secretary of Community, has
served as Vice President of Community Bank since 1989, Senior Vice President and
Secretary of Community Bank since November, 1994, and has been affiliated with
Community Bank since 1967.
Stanley L. Krol, Senior Vice President and Chief Operations Officer of
Community, is a certified CPA with 23 years of experience in the financial
services industry. He joined Community on March 18, 1996.
Gray Ball, Senior Vice President and Earning Assets Administrator, has been
in the financial services industry for 31 years, and joined Community in 1998.
Compliance with Section 16(a) of the 1934 Act
Section 16(a) of the 1934 Act requires Community's officers and directors,
and persons who own more than 10% of Community's Common Stock to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc. Officers, directors and
greater than 10% stockholders are required by regulation to furnish Community
with copies of all Section 16(a) forms they file. Community knows of no person
who owns 10% or more of Community's Common Stock.
Based solely on review of the copies of such forms furnished to Community,
Community believes that, during fiscal 1997, all Section 16(a) filing
requirements applicable to its officers and directors were complied with.
-46-
<PAGE>
BENEFICIAL OWNERSHIP OF COMMUNITY COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS AND COMMUNITY MANAGEMENT
The following table includes, as of the Voting Record Date, certain
information as to the Community Common Stock beneficially owned by (i) the only
persons or entities, including any "group" as that term is used in Section
13(d)(3) of the 1934 Act, who or which was known to Community to be the
beneficial owner of more than 5% of the issued and outstanding Community Common
Stock, (ii) the directors of Community, and (iii) all directors and executive
officers of Community as a group.
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED AS OF FEBRUARY 1, 1998 (1) PERCENT
- ------------------------------------------------------------------------ -------------------------------- -----------
<S> <C> <C>
Directors:
Robert J. Koetter, Sr................................................... 50,223(2) 2.5%
James W. Robinson....................................................... 50,000 2.5%
Timothy T. Shea......................................................... 48,504(3) 2.4%
Robert E. Yates......................................................... 51,390(4) 2.5%
C. Thomas Young......................................................... 50,667(5) 2.5%
Gary L. Libs............................................................ 55,245(6) 2.7%
Kerry M. Stemler........................................................ 19,964(7) *
Gordon L. Huncilman..................................................... 3,113(8) *
Steven Stemler.......................................................... 1,250(9) *
Dale L. Orem............................................................ 700 *
All directors and executive officers of Community
as a group (eleven persons)............................................ 382,464 19.2%
</TABLE>
- ----------------
* Represents less than 1% of the outstanding Community Common Stock.
(1) For Purposes of this table, pursuant to rules promulgated under the 1934
Act, an individual is considered to beneficially own shares of Community
Common Stock if he or she directly or indirectly has or shares (1) voting
power, which includes the power to vote or to direct the voting of the
shares; or (2) investment power, which includes the power to dispose or
direct the disposition of the shares. Unless otherwise indicated, a director
has sole voting power and sole investment power with respect to the
indicated shares.
(2) All of such shares are owned jointly by Mr. Koetter and his spouse.
(3) Includes 12,053 shares owned jointly by Mr. Shea and his spouse.
(4) All shares are held in Mr. Yates' Individual Retirement Accounts (IRAs),
except 200 that are held jointly with his spouse.
(5) Includes 1,360 shares owned jointly by Mr. Young and his spouse, 19,174
shares held in Mr. Young's IRAs, 189 shares held in Mrs. Young's IRA, and
29,944 shares held by Mr. Young.
(6) Includes 5,022 shares owned jointly by Mr. Libs and his spouse.
(7) Includes 12,544 shares owned jointly by Mr. Stemler and his spouse, 2,241
shares held in Mr. Stemler's IRA, 1,179 shares held in Mrs. Stemler's IRA,
and 4,000 shares held by Mr. Stemler.
(8) Includes 1,707 shares held in Mr. Huncilman's IRA, and 1,406 shares held in
Mrs. Huncilman's IRA.
(9) Shares are owned jointly by Mr. Stemler and his spouse.
-47-
<PAGE>
COMMUNITY EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth a summary of certain information concerning
the compensation paid by Community or its affiliates for services rendered in
all capacities during the last three fiscal years to the President and Chief
Executive Officer of Community Bank. No other executive officer of Community and
its subsidiaries had total compensation during the fiscal year that exceeded
$100,000.
<TABLE>
<CAPTION>
NAME AND OTHER ANNUAL STOCK STOCK
PRINCIPAL POSITION YEAR SALARY (1) BONUS COMPENSATION GRANTS OPTION
- ----------------------------------------- --------- ---------- --------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Yates
President and 1997 $ 168,000 $ 44,000 -- -- --
Chief Executive 1996 160,000 30,000 -- -- --
Officer 1995 144,800 12,000 -- -- --
<CAPTION>
NAME AND OTHER ALL
PRINCIPAL POSITION COMPENSATION (3)
- ----------------------------------------- -------------------
<S> <C>
Robert E. Yates
President and $ 0
Chief Executive 500
Officer 500
</TABLE>
- ----------------------
(1) Consists of $168,000, $160,000, and $140,000 of salary and $0, $0, and
$4,800 of Board fees during 1997, 1996, and 1995, respectively. See
"Compensation of Directors."
(2) Does not include amounts attributable to miscellaneous benefits received by
executive officers, including the use of Bank-owned automobiles and the
payment of club membership dues. In the opinion of management of Community
Bank, the costs to Community Bank of providing such benefits to any
individual executive officer during the year ended December 31, 1997, did
not exceed the lesser of $50,000 or 10% of the total of annual salary and
bonus reported for the individual.
(3) Consists of amounts allocated, accrued or paid by Community Bank on behalf
of Mr. Yates pursuant to Community Bank's Profit Sharing 401(k) Plan.
Compensation of Directors
The current directors of Community, with the exception of Robert Yates and
Dale L. Orem, receive compensation for attending the quarterly board meeting as
members of the Board of Directors. They do not, however, receive compensation
for attending the monthly board meeting.
-48-
<PAGE>
Pension Plan
Community makes available to all full-time employees of Community and its
affiliates who have attained the age of 21 and completed one year of service
with Community and it's affiliates, a defined benefit non-contributory pension
plan. The following table sets forth estimated annual benefits payable upon
retirement at age 65 to the named executive officer under Community's Pension
Plan based upon various levels of compensation of years of service.
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
REMUNERATION 10 15 20 25 30
- ------------- --------- --------- --------- --------- ---------
$20,000..... $ 3,000 $ 4,500 $ 5,250 $ 6,000 $ 6,750
30,000..... 4,695 7,043 8,265 9,488 10,710
50,000..... 8,995 13,493 16,115 18,738 21,360
75,000..... 14,370 21,555 25,928 30,300 34,673
100,000.... 19,745 29,618 35,740 41,863 47,985
150,000.... 30,495 45,743 55,365 64,988 74,610
</TABLE>
The indicated amounts in the above table assume that participants elect the
normal retirement form of benefit.
Benefits are generally payable under the Pension Plan upon retirement at
age 65 based upon an average of an employee's five highest consecutive annual
amounts of base salary. The Pension Plan provides for an early retirement
option with reduced benefits for eligible participants who exceed 55 years of
age. Employee benefits vest 100% after six years of service. Pension
contribution amounted to $0, $50,723, and $65,000 during the years ended
December 31, 1997, 1996, and 1995, respectively.
At December 31, 1997, Mr. Yates had nine years of credited service under the
Pension Plan.
During calendar year 1997, the Board of Directors of Community elected to
begin procedures for the termination of the Defined Benefit Plan. The Plan was
frozen effective August 31, 1997 and terminated November 1, 1997 with
notification distributed to all eligible participants. Filing for the
termination approval will take place with the Internal Revenue Service in
February, 1998, with anticipated approval on or before July 1, 1998. Eligible
participants will receive their vested interest in the plan upon final
termination approval, and they may elect to deposit those funds in another
qualified plan or receive a cash payout which would be subject to all applicable
taxes.
Profit Sharing Plan
Community also makes available to all full-time employees of Community and
its affiliates, who have attained the age of 21 and completed one year of
service with Community or its affiliates, Community's Profit Sharing 401(k) Plan
("Profit Sharing Plan"), a contributory benefit plan pursuant to Section 401(k)
of the Internal Revenue Code of 1986, as amended ("Code").
Under the provisions of the Profit Sharing Plan, a participant may elect to
save through payroll deductions, between 2% and 15% of his or her salary.
Community matches employee contributions up to $500 per year. The Profit Sharing
Plan offers a choice of four investment funds to which contributions may be
directed. Each participant may decide which investment fund(s) will hold their
contributions.
Participants in the Profit Sharing Plan are permitted to borrow from their
account, subject to certain limitations and restrictions. While employed,
participants may also make total or partial withdrawals from their accounts,
subject to certain limitations and restrictions. Participants' contributions are
fully vested immediately, while matching contributions vest 20% per year
commencing after two years of service and are fully vested after
-49-
<PAGE>
six years of service. Benefits are paid in a lump sum upon early retirement,
normal retirement, or deferred until late retirement (all as defined in the
Profit Sharing Plan) or paid upon death or disability of the participant.
During the years ended December 31, 1997, 1996, and 1995,
Community/affiliates contributed $22,777, $20,500, and $17,500, respectively,
to the Profit Sharing Plan.
Subject to the termination and distribution of the Defined Benefit
Retirement Plan, it is anticipated that the existing Employee Profit Sharing
401-K Plan will be modified and will replace the former Defined Benefit
Retirement Plan.
Employee Stock Ownership Plan
Community has established the Community Bank Shares of Indiana, Inc.
Employee Stock Ownership Plan ("ESOP") for employees of Community and its
affiliates. Full-time employees of Community and its affiliates who have been
credited with at least 1,000 hours of service during a twelve month period and
who have attained age 21 are eligible to participate in the ESOP.
The ESOP has established a line of credit with Community in order to fund
the purchase of up to 8.0% of the Common Stock issued in the Conversion and
Reorganization from Community at an interest rate of 9.0% per annum. The loan to
the ESOP will be repaid principally from Community and its affiliates
contributions to the ESOP over a period of ten years, and the collateral for the
loan will be the Common Stock purchased by the ESOP. Community may, in any plan
year, make additional discretionary contributions for the benefit of plan
participants in either cash or shares of Common Stock, which may be acquired
through the purchase of outstanding shares in the open market or from individual
stockholders, upon the original issuance of additional shares by Community or
upon the sale of treasury shares by Community. Such purchases, if made, would be
funded through additional borrowings by the ESOP or additional contributions
from Community. The timing, amount and manner of future contributions to the
ESOP will be affected by various factors, including prevailing regulatory
policies, the requirements of applicable laws and regulations and market
conditions.
Shares purchased by the ESOP with the proceeds of the loan are held in a
suspense account and released on a pro rata basis as debt service payments are
made. Discretionary contributions to the ESOP and shares released from the
suspense account are allocated among participants on the basis of compensation.
Forfeitures will be reallocated among remaining participating employees and may
reduce any amount Community might otherwise have contributed to the ESOP.
Participants will vest in their right to receive their account balances pursuant
to the ESOP after completing five years of service with Community or its
affiliates, (inclusive of years of service prior to establishment of the ESOP).
In the case of a change in control of Community, as defined, however,
participants will become fully vested in their account balances. Benefits may be
payable upon retirement, early retirement, or separation from service.
Community's contributions to the ESOP are not fixed, so benefits payable under
the ESOP cannot be estimated.
Messrs. Young, Robinson, and Shea serve as trustees of the ESOP. Under the
ESOP, the trustees must vote all allocated shares held in the ESOP in accordance
with the instructions of the participating employees, and allocated shares for
which employees do not give instructions, and unallocated shares, will be voted
in the same ratio on any matter as to those shares for which instructions are
given.
The ESOP will be subject to the requirements of the Employment Retirement
Income Security Act of 1974, as amended ("ERISA"), and the regulations of the
Internal Revenue Service and the Department of Labor thereunder.
As of December 31, 1997, the ESOP had purchased 9,940 shares of common
stock, of which 6,023 shares were unallocated, with a market value of
$127,988 and had a total debt outlay of $69,312 and 3,917 of the purchased
shares have been allocated.
-50-
<PAGE>
Stock Incentive Plan.
The Board of Directors of Community adopted the Community Bank Shares of
Indiana, Inc. Stock Incentive Plan in 1997. The Stock Plan was ratified by
Community's stockholders at the 1997 Annual Meeting of Stockholders. Directors,
officers, and key employees of Community and its subsidiaries are eligible to
participate in the Stock Plan. A total of 198,372 shares of Common Stock have
been reserved for issuance pursuant to the plan, including 178, 372 which may be
issued upon the grant of stock options and 20,000 shares which may be issued
upon the grant of performance shares. In the event of a stock split, reverse
stock split or stock dividend, the number of shares of Common Stock under the
Plan, the number of shares to which any Award relates and the exercise price per
share under any option or stock appreciation right shall be adjusted to reflect
such increases or decrease in the total number of shares of Common Stock
outstanding.
The grant of awards under the Stock Plan is determined by the Compensation
Committee, who serve as the Incentive Plan Committee. No options have been
granted under the Stock Plan as of March 15, 1998.
Employment Agreement
Community and Community Bank (collectively as "Employers") have approved an
employment agreement that was entered into with Mr. Yates. In April, 1995, the
Employers agreed to employ Mr. Yates for a term of three years, in his current
position and at his current salary, which salary may be increased at the
discretion of the Board of Directors from time to time.
The employment agreement is terminable with or without cause by the
Employers. Mr. Yates shall have no right to compensation or other benefits
pursuant to the employment agreement for any period after voluntary termination
or termination by the Employers for cause, disability, retirement or death,
provided, however that (i) in the event that Mr. Yates terminates his employment
because of failure of the Employers to comply with any material provision of the
employment agreement or (ii) the employment agreement is terminated by the
Employers other than for cause, disability, retirement or death or by Mr. Yates
as a result of certain adverse actions which are taken with respect to Mr.
Yates' employment following a Change in Control of Community, as defined, Mr.
Yates will be entitled to a cash severance amount equal to three times his base
salary (minus one dollar). In addition, Mr. Yates will be entitled to a
continuation of benefits similar to those he is receiving at the time of such
termination for the remaining term of the agreement or until Mr. Yates obtains
full-time employment with another employer.
A Change in Control is generally defined in the employment agreement to
include any change in control of 25% or more of Community's outstanding voting
securities and (ii) a change in a majority of the directors of Community during
any two-year period without the approval of at least two-thirds of the persons
who were directors of Community at the beginning of such period.
The employment agreement provides that in the event that any of the payments
to be made thereunder or otherwise upon termination of employment are deemed to
constitute "excess parachute payments" within the meaning of Section 280G of the
Code, then such payments and benefits received thereunder shall be reduced, in
the manner determined by the employee, by the amount, if any, which is the
minimum necessary to result in no portion of the payments and benefits being
non-deductible by the Employers for federal income tax purposes. Excess
parachute payments generally are payments in excess of three times the base
amount, which is defined to mean the recipient's average annual compensation
from the employer includable in the recipient's gross income during the most
recent five taxable years ending before the date on which a Change in Control of
the employer occurred. Recipients of excess parachute payments are subject to a
20% excise tax on the amount by which such payments exceed the base amount, in
addition to regular income taxes, and payments in excess of the base amount are
not deductible by the employer as compensation expense for federal income tax
purposes.
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<PAGE>
Indebtedness of Management
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
requires that all loans or extensions of credit to executive officers and
directors must be made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
the general public and must not involve more than the normal risk of repayment
or present other unfavorable features. In addition, loans made to a director or
executive officer in excess of the greater of $25,000 or 5% of the Bank's
capital and surplus (up to a maximum of $500,000) must be approved in advance by
a majority of the disinterested members of the Board of Directors of Community
or its affiliates.
Community's policy provides that all loans made by Community or its
affiliates to their directors and officers are made in the ordinary course of
business, are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and do not involve more than the normal risk of collectability or
present other unfavorable features. As of December 31, 1997, 12 of Community,
Community Bank, or Heritage Bank directors and executive officers each had an
aggregate direct loan balance in excess of $60,000, which amounted to $
7.3 million in the aggregate. All such loans were made by Community Bank or
Heritage Bank in the ordinary course of business and were not made with
favorable terms nor did they involve more than the normal risk of
collectability.
Community intends that all transactions in the future between Community,
its affiliates, and its executive officers, directors, holders of 10% or more
of the shares of any class of its Common Stock and affiliates thereof, will
contain terms no less favorable to Community than could have been obtained by
it in arm's length negotiations with unaffiliated persons and will be
approved by a majority of independent outside directors of Community not
having any interest in the transaction.
PROPOSAL TO RATIFY THE APPOINTMENT OF COMMUNITY'S AUDITORS
The Board of Directors of Community has appointed Monroe Shine & Co., Inc.,
independent certified public accountants, to perform the audit of Community's
financial statements for the year ending December 31, 1998, and further directed
that the selection of auditors be submitted for ratification by the stockholders
at the Annual Meeting.
Community has been advised by Monroe Shine & Co., Inc. that neither that
firm or any of its associates has any relationship with Community or its
subsidiaries other than the usual relationship that exists between independent
certified public accountants and clients. Monroe Shine & Co., Inc. will have one
or more representatives at the Annual Meeting who will have an opportunity to
make a statement, if they so desire, and will be available to respond to
appropriate questions.
The Board of Directors recommends that you vote FOR the ratification of
the appointment of Monroe Shine & Co., Inc. as Community's independent
auditors for the fiscal year ending December 31, 1998.
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<PAGE>
BENEFICIAL OWNERSHIP OF NCF COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF NCF
The following table includes, as of the NCF Record Date, certain information
as to the NCF Common Stock beneficially owned by (i) the only persons or
entities, including any "group" as that term is used in Section 13(d)(3) of the
1934 Act, who or which were known to NCF to be the beneficial owner of more than
5% of the issued and outstanding NCF Common Stock, (ii) the directors of NCF,
(iii) certain executive officers of NCF and the Bank, and (iv) all directors and
executive officers of NCF and the Bank as a group.
<TABLE>
<CAPTION>
NCF COMMON STOCK
BENEFICIALLY
NAME OF BENEFICIAL OWNER MARCH ___, 1998(1)
- ------------------------------------------------------------------------- ------------------------
<S> <C> <C>
NO. %
---- ---
NCF Bank & Trust Co. 50,000(1) 6.3%
Employee Stock Ownership Plan
106A John Rowan Boulevard
Burdstown, Kentucky 40004
Directors:
George M. Ballard 6,058 *
Paul Barnes 11,092(2)(5) 1.4
Danny R. Biggs 8,162(3) 1.0
A. E. Bowling 29,393(3) 3.7
J. Richard Heaton 1,200 *
Robert C. Hurst 13,592(2)(5) 1.7
Ken Rapier, Jr. 0 *
John S. Tharp 12,492(2)(5) 1.6
Guthrie Wilson, III 13,192(2)(5) 1.7
All directors and executive 95,181(4)(6) 11.8
Officers as a group
(9 persons)
</TABLE>
- ------------------
* Less than 1% of the outstanding NCF Common Stock.
(1) The Bank's Employee Stock Ownership Plan ("NCF ESOP") purchased such
shares for the exclusive benefit of NCF ESOP participants with funds
borrowed from NCF. These shares are held in a suspense account and are
allocated among NCF ESOP participants annually on the basis of
compensation as the NCF ESOP debt is repaid. Directors Paul Barnes,
Robert C. Hurst, John S. Tharp and Guthrie M. Wilson III serve as the
NCF ESOP administrative committee ("NCF ESOP Committee") and serve as
the trustees to the NCF ESOP ("NCF ESOP Trustees"). The NCF ESOP
Committee or the Board instructs the NCF ESOP Trustee regarding
investment of NCF ESOP plan assets. The NCF ESOP Trustees must vote
all shares allocated to participate accounts under the NCF ESOP as
directed by participants. Unallocated shares and shares for which no
timely voting direction is received will be voted by the NCF ESOP
Trustees as directed by the NCF ESOP Committee. As of the NCF Record
Date, 11,250 shares have been allocated under the NCF ESOP to
participant's accounts.
(2) Includes 770 shares that may be obtained within 60 days of the NCF
Record Date through the exercise of options.
-53-
<PAGE>
(3) Includes 3,852 shares that may be obtained within 60 days of the NCF
Record Date through the exercise of options.
(4) Includes 10,784 shares that may be obtained within 60 days of the NCF
Record Date through the exercise of options.
(5) Excludes 38,750 unallocated shares of NCF Common Stock held under the
NCF ESOP of which such individual serves as either a member of the NCF
ESOP Committee or as an NCF ESOP Trustee. Such individual disclaims
beneficial ownership with respect to shares held in a fiduciary capacity.
(6) Excludes 17,260 shares of NCF Common Stock held by the Management Stock
Bonus Plan of the Bank ("NCF Management Stock Bonus Plan") as of the NCF
Record Date. Non-employee directors serve as trustees to the NCF
Management Stock Bonus Plan trust, and such individuals disclaim
beneficial ownership with respect to such shares held in a fiduciary
capacity.
-54-
<PAGE>
NCF MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion and analysis is intended to assist in understanding
the financial condition and the results of operations of NCF. References to NCF
include NCF and/ or NCF Bank, as appropriate.
NCF generates interest income from interest-earning deposits, however, it's
primary source of net income is that which is generated by NCF Bank.
Comparison of Results of Operations for the Six Months Ended December 31,
1996 and 1997
Net Income. Net income increased $127,000 for the six months ended December
31, 1997 when compared to the same period for December 31, 1996. However, this
increase for the six month period is primarily attributed to the payment of the
FDIC special assessment of approximately $101,000 (net of tax) in the 1996
period. Without this special assessment accrual, net income would have increased
by approximately $26,000 or 10.4% for the six month period as compared to last
year. Net income of $276,020 for the six months ended December 31, 1997 resulted
in earnings per share of $0.37.
Net Interest Income. Net interest income increased $105,000 or 13.62% from
$773,000 for the six months ended December 31, 1996 to $877,000 for the six
months ended December 31, 1997. The improvement in net interest income primarily
reflects an increase in the interest rate spread from 2.91% for the six months
ended December 31, 1996 to 3.57% for the six months ended December 31, 1997. The
main factor contributing to this increase was an increase in the average yield
on loans between the two periods of 81 basis points.
Interest Income. Total interest income increased $238,000 from $1,305,000
for the six months ended December 31, 1996 to $1,412,000 for the six months
ended December 31, 1997. Interest on loans increased $105,000 or 9.19%. Most of
the increase was due to the average yield on the loan portfolio increasing from
8.06% during the six months ended December 31, 1996 to 8.87% during the six
months ended December 31, 1997.
Interest income from other sources did not change materially from the last
six months of 1996 to the same period in 1997.
Interest Expense. Interest expense increased only $2,000 between the two
periods, from $533,000 for the six months ended December 31, 1996 to $535,000
for the six months ended December 31, 1997. This increase was attributable
entirely to a rise in the average balance on deposits of $170,000 from
$22,385,000 for the six months ended December 31, 1996 to $22,555,000 for the
same period in 1997. The cost on deposits actually fell from one period to the
next from 4.76% in 1996 to 4.74% in 1997. There were no borrowings other than
deposits in either period.
Provision for Loan Losses. The provision for loan losses for the six months
ended December 31, 1997 was $8,000, and was the same for the six months ended
December 31, 1996. Historically, management has emphasized NCF's loss experience
over other factors in establishing provisions for loan losses. However,
management also reviews the allowance for loan losses in relation to NCF's
composition of its loan portfolio and observations of the general economic
climate and loan loss expectations.
Non-Interest Income. Fee income and other service charges of $19,000 for the
six months ended December 31, 1997 increased $8,000 or 72.58% from the same
period in 1996. This increase was primarily attributable to the inclusion of
previously deferred loan fees into income due to a recalculation of the
amortization on the interest level yield method.
Non-Interest Expense. Non-interest expense decreased by $84,000 from
$553,000 for the six months ended December 31, 1996 to $469,410 for the six
months ended December 31, 1997. This decrease is the direct result of the
special one-time FDIC assessment accrual of approximately $153,000 ($101,000
after tax). Increases in
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<PAGE>
compensation and employee benefits, professional fees, and net occupancy
expense of $42,000, $19,000, and $12,000, respectively, were the major
increases in non-interest expense between the two periods. The increase in
compensation and employee benefits was attributable to expenses related to
the Management Stock Bonus Plan and Trust Agreement. Professional fees
increased primarily due to expenses incurred for the due diligence of the
analysis of the proposed merger with Community. Net occupancy expense
increased due to relocation into a new corporate headquarters and bank
facility. NCF owns the building, which results in increased depreciation
expenses, and leases the land, which results in lease expense. The previous
main bank building (including the land) is still owned by NCF. Other
non-interest expense items remained relatively stable with minor absolute
dollar changes.
Income Taxes. The effective tax rate for the six months ending December 31,
1997 and 1996 was approximately 34%. Since there are no state income taxes
imposed on NCF Bank, the effective tax rate remained at approximately the
federal statutory percentage.
Liquidity and Capital Resources. NCF's primary sources of funds are deposits
and proceeds from principal and interest payments on loans and investment
securities. While maturities and scheduled amortization of loans and investment
securities are a predictable source of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition. NCF's primary investing activity is loan
originations. NCF maintains liquidity levels adequate to fund loan commitments,
investment opportunities, deposit withdrawals and other financial commitments.
Management has no knowledge of any trends, events or uncertainties that will
have or are reasonably likely to have material effects on the liquidity, capital
resources or operations of NCF. Further, management is not aware of any current
recommendations by the regulatory authorities which, if implemented, would have
such an effect.
Comparisons of the Results of Operations for the years ended June 30, 1997
and 1996.
Results of Operations--Net income for the year ended June 30, 1997 was
$327,661 as compared to $397,790 for the year ended June 30, 1996. This decrease
of $70,129 or 17.6% is largely attributable to the charge to earnings for the
one-time FDIC assessment of $101,000, net of tax, however, the following
discussion outlines the factors contributing to the change in net income for
1997.
Net Interest Income--Net interest income increased by $129,434 during fiscal
1997 to $1,529,958 as compared to $1,400,524 in fiscal 1996. This increase was
due to both the increase in volume of interest-earning assets and the decline in
interest-bearing liabilities. The Corporation experienced a full year of
investing the net proceeds of the prior year stock issuance, therefore, average
interest-earning assets increased by approximately $715,000 during fiscal 1997
when compared to fiscal 1996. Also, NCF Bank experienced a decline in average
interest-bearing liabilities of approximately $1,019,000 during the same period.
Provision for loan losses--Management periodically evaluates the adequacy of
the allowance for loan losses based on NCF Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may effect
the borrower's ability to repay and other factors. NCF Bank has not experienced
any loan losses in the last several years, however, during the year ended June
30, 1997, NCF Bank provided $16,000 for loan losses based on management's
decision to expand consumer lending. NCF Bank experienced an increase in real
estate acquired through foreclosure during the year ended June 30, 1997 of
$724,486. These properties were considered non-performing loans throughout most
of the fiscal year, resulting in approximately $97,500 of interest income that
would have been recorded if they had been performing in accordance with their
contractual terms. Management does not believe additional loan loss provisions
are required for the real estate owned and these properties have been recorded
at the lower of cost or fair value less estimated selling costs. The allowance
for loan loss at June 30, 1997 is equal to .62% of loans which NCF Bank feels is
comparable to the coverage ratio of other banks in its region. At June 30, 1997,
95.6% of total loans were collateralized by one-to-four-family dwellings on real
estate located in the market area.
Other Income--Other income decreased from $23,341 to $19,645 during the year
primarily due to a decrease in customer charges for late payments on loans.
Other Expenses--Other expenses increased $265,780 or 34.9% during fiscal
1997 from $762,317 to $1,028,097. Included in this increase was a $107,728
increase in compensation and employee benefits primarily due
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<PAGE>
to accruals for the Management Stock Bonus Plan. Also, NCF Bank incurred a
one-time charge to earnings for FDIC premiums of approximately $153,000.
Comparisons of the Results of Operations for the years ended June 30, 1996
and 1995.
Results of Operations--Net income for the year ended June 30, 1996 was
$397,790 as compared to $316,553 for the year ended June 30, 1995. This increase
of $81,237 or 25.7% is largely attributable to the interest earnings on the
funds received from the stock issuance, however, the following discussion
outlines the factors contributing to the increase in net income for 1996.
Net Interest Income--Net interest income increased by $377,943 during fiscal
1996 to $1,400,524 as compared to $1,022,581 in fiscal 1995. This increase was
primarily due to the increase in volume of interest-earning assets resulting
from the stock issuance. Interest-earning deposits increased by $3.97 million
and net loans increased by $2.29 million.
Provision for loan losses--Management periodically evaluates the adequacy of
the allowance for loan losses based on NCF Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may effect
the borrower's ability to repay and other factors. NCF Bank has not experienced
any loan losses in the last several years, however, during the year ended June
30, 1996, NCF Bank provided $61,000 for loan losses following the regulatory
examination process. The allowance for loan loss at June 30, 1996 is equal to
.55% of loans which NCF Bank feels is closer to the coverage ratio of other
banks in its region. At June 30, 1996, 94% of total loans were collateralized by
one-to-four-family dwellings on real estate located in the market area.
Other Income--Other income increased from $18,311 to $23,341 during the year
primarily due to an increase in customer charges for late payments on loans.
Other Expenses--Other expenses increased $228,976 or 42.9% during fiscal
1996 from $533,341 to $762,317. Included in this increase was a $145,308
increase in compensation and employee benefits due to accruals for the newly
adopted Supplemental Executive Retirement Plan, Directors Consultation and
Retirement Plan and the Employee Stock Ownership Plan. NCF Bank experienced a
decline of $13,528 in annual salaries and benefits that were also in place in
1995. (See Note 9 of the Notes to Consolidated Financial Statements). An
additional reason for the change in other expenses was the result of an
increase in legal and accounting fees of $65,068 due to additional regulatory
filings after the stock issuance.
Comparison of Financial Condition at June 30, 1997 and December 31, 1997
Total consolidated assets of NCF at December 31, 1997 increased
approximately $1.2 million since June 30, 1997. Total consolidated assets were
approximately $35.6 million and $34.4 million at December 31, 1997 and June 30,
1997, respectively.
The change in the asset side of the balance sheet is primarily attributable
to increases in net loans receivable and interest-earning deposits of $963,000
and $420,000, respectively. Real estate owned decreased by $438,000.
There was an increase in deposits of approximately $1.0 million or 4.62%
from $22.0 million at June 30, 1997 to $23.0 million at December 31, 1997.
Management attributes this growth to expanded customer account services designed
to provide future deposit growth.
Liquidity and Capital Resources
NCF Bank's primary source of funds for meeting its liquidity needs are
customer deposits, principal and interest payments from loans and
mortgage-backed securities and earnings from operations retained by the
Corporation. NCF Bank uses its capital resources principally to fund loan
origination and to meet short and long-term liquidity needs. NCF Bank expects to
be able to fund its commitments on a timely basis. NCF Bank management believes
that any excess liquidity is necessary in order to meet the additional personnel
needs of customers as NCF Bank begins to implement new products and services.
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<PAGE>
NCF Bank had leverage, Tier I and risk-based capital ratios of 26.7%, 52.5%
and 53.5%, respectively at June 30, 1997, which exceeded the FDIC's respective
minimum requirements of 4%, 4% and 8%, respectively.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation.
NCF Bank has an asset and liability structure that is essentially monetary
in nature. As a result, interest rates have a more significant impact on NCF
Bank's performance than the effects of general levels of inflation. Periods of
high inflation are often accompanied by relatively higher interest rates and
periods of low inflation are accompanied by relatively lower interest rates. As
market interest rates rise or fall in relation to the rates earned on NCF Bank's
loans and investments, the value of these assets decreases or increases
respectively.
Impact of New Legislation
The Small Business Job Protection Act passed by Congress in August, 1996
included a provision that repealed the percentage of taxable income bad debt
deduction for federal income tax purposes. NCF Bank used this method to
determine its bad debt deduction when computing federal taxes in applicable
years. This legislation also requires recapture of the excess of bad debt
reserves over the base year reserves (December 31, 1987). For years subsequent
to the base year, deferred taxes have been recorded by NCF Bank for an amount
equal to the excess of the bad debt reserves over the base year reserves; thus
no additional tax provision is required as a result of this legislation. Under
the legislation, NCF Bank may use the experience method to calculate the bad
debt deduction for federal income tax purposes. The legislation is effective for
tax years beginning after December 31, 1995.
The Deposit Insurance Funds Act of 1996 was passed by Congress and signed
into law by the President on September 30, 1996. This legislation includes
provisions designed to recapitalize SAIF and required all insured savings
institutions to pay a special assessment of 65.7 cents for every $100 (0.657%)
of applicable deposits held as of March 31, 1995. NCF Bank took a charge in the
year ended June 30, 1997 in the first quarter of $101,000 net of taxes, or $.13
per share, as required by this legislation. As a result of the recapitalization,
the FDIC lowered SAIF premiums for most institutions from $0.23 per $100 of
insured deposits to $0.064 per $100 of insured deposits, thereby lowering the
NCF Bank's federal deposit insurance rates by 72%, effective January 1, 1997,
which will enhance earnings in future periods.
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<PAGE>
BUSINESS OF NCF
NCF is a bank holding company incorporated under Delaware law. NCF owns 100%
of the common stock of NCF Bank & Trust Co. Organized in June 1995 at the
direction of the predecessor of the Bank, NCF acquired all of the capital stock
that the predecessor of the Bank issued in a conversion during October 1995 from
the mutual to stock form of ownership (the "Conversion"). The principal business
of NCF is the operation of the Bank and NCF does not engage in any significant
unrelated activities. Accordingly, references throughout this document to the
operation of the Bank include, unless inappropriate, the operation of NCF.
Business of the Bank
The Bank is a state chartered stock commercial bank headquartered in
Bardstown, Kentucky. The Bank is a wholly owned subsidiary of NCF. The Bank was
founded in 1925 under the name "Nelson County Building and Loan Bank." During
the Conversion, the Bank, then known as "Nelson County Federal Savings and Loan
Association," converted from a federally chartered mutual savings association to
a federally chartered stock savings association. In July 1996 the Bank changed
its name to "Nelson County Federal Savings Bank." In April 1997, the Bank
changed its charter to that of a commercial bank chartered by the Commonwealth
of Kentucky and changed its name to "NCF Bank & Trust Co."
The Bank's deposits had been federally insured by the Savings Association
Insurance Fund ("SAIF") and its predecessor, the Federal Savings and Loan
Insurance Corporation, since 1973. The Bank is a member of the Federal Home Loan
Bank (the "FHLB") of Cincinnati. The Bank has one subsidiary, Nelson Service
Corporation ("NSC"), which has no operating activity other than to own stock in
a third party service bureau.
The Bank is primarily engaged in attracting deposits from the general public
and using those funds to originate real estate loans on one-to-four-family
residences and to a lesser extent, residential construction, multi-family real
estate and consumer loans. In addition, the Bank holds interest earning deposits
in other financial institutions and invests in mortgage-backed securities and
investment securities. The Bank offers its customers adjustable-rate mortgage
loans as well as residential construction, multi-family real estate and consumer
loans. The Bank does not typically originate fixed-rate loans of any kind,
relying instead on adjustable-rate loans that annually reprice. For its mortgage
loan portfolio, the Bank originates and retains adjustable-rate loans and does
not purchase or sell mortgage loans.
The principal sources of funds for the Bank's lending activities are
deposits and the amortization, repayment and maturity of loans, and FHLB
advances. Principal sources of income are interest on loans and principal
expense is interest paid on deposits.
Market Area and Competition
Nelson County, Kentucky is the Bank's primary market area. The local economy
is economically diverse with a significant number of residents employed by a
greeting card company, alcohol distillers, automotive parts factories, and other
manufactures and government offices. Although the surrounding area is affected
by agriculture, the Bank does not make loans secured by farm real estate or make
farm operating loans.
Economic growth in the Bank's market area remains dependent upon the local
economy. In addition, the deposit and loan activity of the Bank is significantly
affected by economic conditions in its market area.
The Bank is one of five financial institutions serving its market area and
must also compete with investment and mortgage bankers. The competition for
deposit products comes from a savings association with a branch in the Bank's
market area, local independent community banks, and credit unions. Deposit
competition also includes a number of insurance products sold by local agents
and investment products such as mutual funds and other securities sold by local
and regional brokers. Loan competition varies depending upon market conditions
and includes a savings association with a branch in the Bank's market area, two
local banks, and mortgage bankers who serve the area with a field sales staff.
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<PAGE>
Lending Activities
General. The Bank's loan portfolio predominantly consists of
adjustable-rate mortgage loans secured by one-to-four-family residences and,
to a lesser extent, residential construction, multi-family real estate and
consumer loans. The Bank does not purchase or sell mortgage loans.
Analysis of Loan Portfolio. Set forth below is selected data relating to
the composition of NCF's loan portfolio by type of loan and type of security on
the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 1996
-------------------- -------------------- --------------------
$ % $ % $ %
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Type of Loan:
Real estate loans:
Construction(1)........................................... $ 3,131 11.18% $ 3,673 13.58% $ 3,314 11.48%
One-to-four family........................................ 24,569 87.72 23,438 86.66 25,662 88.92
Multi-family residential.................................. 454 1.62 460 1.70 151 .52
Non-residential........................................... 431 1.54 629 2.33 315 1.09
Consumer loans:
Other..................................................... 351 1.25 60 .22 0 0
Share loans............................................... 148 0.53 103 .38 69 .24
Gross loans................................................. 29,084 103.84 28,363 104.87 29,511 102.25
Less:
Loans in process.......................................... 890 3.18 1,133 4.19 481 1.67
Net deferred loan origination fees and costs.............. -- -- 7 .03 8 .03
Allowance for loan losses................................. 185 0.66 177 .65 161 .55
Total loans, net............................................ $ 28,009 100.00% $ 27,046 100.00% $ 28,861 100.00%
</TABLE>
- ----------------------------------------
(1) Consists only of loans secured by one-to-four-family residences
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<PAGE>
Average Balances, Interest, Yields and Rates
The following table sets forth certain information relating to NCF's
average balance sheet and reflects the average yield on assets and average
cost of liabilities for the periods indicated and the average yields earned
and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for
the periods presented. Average balances are derived from month-end balances.
Management does not believe that the use of month-end balances instead of
daily average balances has caused any material differences in the information
presented. The table also presents information for the periods and at the
date indicated with respect to the difference between the average yield
earned on interest-earning assets and average rate paid on interest-bearing
liabilities, or "interest rate spread," which savings institutions have
traditionally used as an indicator of profitability. Another indicator of an
institution's net interest income is its "net interest margin," which is its
net interest income divided by the average balance of interest-earning
assets. Net interest income is affected by the interest rate spread and by
the relative amounts of interest-earning assets and interest-bearing
liabilities. When interest-earning assets approximate or exceed
interest-bearing liabilities, any positive interest rate spread will generate
net interest income.
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
--------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
--------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1)............................ $ 28,176 $ 1,250 8.87% $ 28,414 $ 1,145 8.06%
Mortgage-backed securities...................... 115 7 12.46 139 8 11.91
Short-term investments and
other interest-earning assets.................. 5,254(2) 139 5.29 5,090 137 5.39
FHLB stock...................................... 448 16 7.27 419 15 6.98
--------- --------- --------- ---------
Total interest-earning assets.................... 33,993 $ 1,412 8.31 34,062 $ 1,305 7.61
--------- ---------
--------- ---------
Non-interest-earning assets...................... 2,203 1,483
--------- ---------
Total assets..................................... $ 36,196 $ 35,545
--------- ---------
--------- ---------
Interest-bearing liabilities
Deposits........................................ $ 22,555 $ 535 4.74% $ 22,385 $ 533 4.76%
Borrowings...................................... 0 0 0.00 0 0 0.00
--------- --------- --------- ---------
Total interest-bearing liabilities............... 22,555 $ 535 4.74 22,385 $ 533 4.76
--------- ---------
--------- ---------
Non-interest-liabilities......................... 1,412 1,280
--------- ---------
Total liabilities................................ 23,967 23,665
Stockholders' equity............................. 12,229 11,880
--------- ---------
Total liabilities and stockholders' equity....... $ 36,196 $ 35,545
--------- ---------
--------- ---------
Net interest income.............................. $ 877 $ 772
--------- ---------
--------- ---------
Interest rate spread (3)......................... 3.57 2.91
Net interest margin (4).......................... 5.16 4.54
Average interest-earning assets as a percentage
of average interest-bearing liabilities........ 150.71 152.16
</TABLE>
-61-
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
--------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable............................... $ 28,098 $ 2,249 8.00% $ 28,056 $ 2,245 8.00%
Mortgage-backed securities..................... 136 20 14.46 164 20 12.28
Short-term investments and other
interest-earning assets....................... 5,166(2) 274 5.30 4,494 274 5.12
FHLB stock..................................... 426 30 7.00 397 28 6.96
--------- --------- ---------
Total interest-earning assets................... 33,826 $ 2,573 7.61 33,111 $ 2,523 7.62
--------- ---------
--------- ---------
Non-interest-earning............................ 1,585 1,232
--------- ---------
Total assets.................................... $ 35,411 $ 34,343
--------- ---------
--------- ---------
Interest-bearing liabilities:
Deposits....................................... $ 22,271 $ 1,043 4.68 $ 23,073 $ 1,105 4.79
Borrowings..................................... 0 0 0.00 217 17 8.13
--------- --------- ---------
Total interest-bearing liabilities.............. 22,271 $ 1,043 4.68 23,290 $ 1,122 4.82
--------- ---------
--------- ---------
Non-interest-liabilities........................ 1,180 1,592
--------- ---------
Total liabilities............................... 23,451 24,882
Stockholders' equity............................ 11,960 9,461
--------- ---------
Total liabilities............................... $ 35,411 $ 34,343
--------- ---------
--------- ---------
Net interest income............................. $ 1,530 $ 1,401
--------- ---------
--------- ---------
Interest rate spread(3)......................... 2.93 2.80
Net interest margin(4).......................... 4.52 4.23
Average interest-earning assets................. 151.89 142.17
</TABLE>
- ----------------------------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-earning deposits in other financial institutions.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
-62-
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in interest
income and interest expense of NCF for the periods indicated. For each category
of interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in volume (changes in average
volume multiplied by old rate); (ii) changes in rates (changes in rate
multiplied by old average volume); (iii) changes in rate-volume (changes in rate
multiplied by the change in average volume).
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
----------------------------------------------
1997 VS. 1996
INCREASE (DECREASE)
DUE TO
----------------------------------------------
RATE/
VOLUME RATE VOLUME NET
----------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable............................................................. $ (38) $ 457 $ (313) $ 106
Mortgage-backed securities................................................... (6) 2 3 (1)
Interest-earning deposits with banks......................................... 18 (10) (6) 2
FHLB Stock................................................................... 4 2 (5) 1
--- --------- ----- ---------
Total........................................................................ $ (22) $ 451 $ (321) $ 108
--- --------- ----- ---------
--- --------- ----- ---------
Interest expense:
Savings accounts............................................................. $ 16 $ (9) $ (5) $ 2
Other borrowings............................................................. -- -- -- --
--- --------- ----- ---------
Total........................................................................ $ 16 $ (9) $ (5) $ 2
--- --------- ----- ---------
--- --------- ----- ---------
Net change in net interest income............................................ $ (38) $ 460 $ (316) $ 106
--- --------- ----- ---------
--- --------- ----- ---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
1997 VS. 1996 1996 VS. 1995
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
---------------------------------------------- ----------------------
RATE/
VOLUME RATE VOLUME NET VOLUME RATE
----------- --------- ----------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable........................................ $ 3 $ 0 $ 1 $ 4 $ 150 $ 185
Mortgage-backed......................................... (3) 4 (1) 0 (7) (1)
Interest-earning deposits with banks.................... 34 8 2 44 160 (4)
FHLB Stock.............................................. 2 0 0 2 2 2
--------- --------- --------- --------- --------- ---------
Total..................................................... $ 36 $ 12 $ 2 $ 50 $ 305 $ 182
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Interest expense:
Savings accounts........................................ $ (38) $ (25) $ 1 $ (62) $ 3 $ 122
Other borrowings........................................ (17) 0 0 (17) (15) 13
--------- --------- --------- --------- --------- ---------
Total..................................................... $ (55) $ (25) $ 1 $ (79) $ (12) $ 135
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net change in net interest income......................... $ 91 $ 37 $ 1 $ 129 $ 317 $ 47
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C> <C>
RATE/
VOLUME NET
----------- ---------
<S> <C> <C>
Interest income:
Loans receivable........................................ $ 14 $ 349
Mortgage-backed......................................... 0 (8)
Interest-earning deposits with banks.................... (9) 147
FHLB Stock.............................................. 0 4
--------- ---------
Total..................................................... $ 5 $ 492
--------- ---------
--------- ---------
Interest expense:
Savings accounts........................................ $ (1) $ 124
Other borrowings........................................ (8) (10)
--------- ---------
Total..................................................... $ (9) $ 114
--------- ---------
--------- ---------
Net change in net interest income......................... $ 14 $ 378
--------- ---------
--------- ---------
</TABLE>
-63-
<PAGE>
Asset/Liability Management
NCF monitors its interest rate risk, or sensitivity of its net interest
income to changes in interest rates, since the level of such risk may affect
certain aspects of its operating strategies. Net interest income is subject
to volatility due to a mismatch in the timing of maturity or repricing of
interest-earning assets and interest-bearing liabilities.
During periods of increasing interest rates, the Bank's interest rate
sensitive liabilities would reprice faster than its interest rate sensitive
assets (repricing periods on adjustable-rate loans affect the repricing of
interest rate sensitive assets, with longer repricing periods delaying the
repricing of such assets more than shorter repricing periods would delay the
repricing of such assets), causing a decline in the Bank's interest rate
spread and margin. This would result from an increase in the Bank's cost of
funds that would not be immediately offset by an increase in its yield on
funds. An increase in the cost of funds without an equivalent increase in the
yield on funds would tend to reduce net interest income. However, NCF feels
it has implemented a strategy to partially offset the possibility of
increasing rates by establishing a policy that substantially all loans carry
a one-year adjustable rate. This helps to minimize the time period in which
NCF is exposed to short-term interest rate risk. Also, NCF and the Bank
maintain liquidity levels in excess of regulatory requirements, which allows
for alternative investments to improve interest rate sensitivity. The Bank is
planning to increase the availability of non-interest bearing demand deposits
to its customers in the future which the Bank believes will be beneficial to
its interest spread and interest margin.
Loan Maturity Tables
The following table sets forth the maturity of the Bank's loan portfolio at
December 31, 1997, based on contractual maturities, including schedule
repayments of principal. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as due in one
year or less.
<TABLE>
<CAPTION>
DUE AFTER
DUE WITHIN 1 THROUGH DUE AFTER
1 YEAR 5 YEARS 5 YEARS TOTAL
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Real estate:
One-to-four family........... $ 1,101 $ 757 $ 22,711 $ 24,569
Construction................. 1,783 0 1,348 3,131
Multi-family residential..... 0 0 454 454
Non-residential.............. 0 0 431 431
Consumer...................... 252 247 0 499
----------- ---------- ----------- ---------
Total......................... $ 3,136 $ 1,004 $ 24,944 $ 29,084
----------- ---------- ----------- ---------
----------- ---------- ----------- ---------
</TABLE>
The following table sets forth the dollar amount of all loans due after
December 31, 1998 which have predetermined interest rates and have floating
or adjustable interest rates.
<TABLE>
<CAPTION>
Predetermined Floating or
Rates Adjustable Rates
-------------- -------------------
<S> <C> <C>
Real estate:
One-to-four family........... $ 739 $ 22,729
Construction................. 620 728
Multi-family residential..... 0 455
Non-residential.............. 247 184
Consumer...................... 0 247
Total........................ -------------- -------------------
$ 1,606 $ 24,343
-------------- -------------------
-------------- -------------------
</TABLE>
-64-
<PAGE>
One-to-Four-Family Residential Loans. The Bank's primary lending activity
consists of the origination of one-to-four-family residential mortgage loans
secured by property located in the Bank's primary market area. The Bank
generally originates one-to-four-family residential mortgage loans in amounts
up to 85% of the lesser of the appraised value or selling price of the
mortgaged property. To a very limited extent, the Bank may originate a
mortgage loan in an amount up to 90% of the lesser of the appraised value or
selling price of mortgaged property without requiring private mortgage
insurance for the borrower. The Bank originates and retains adjustable-rate
loans. The Bank ceased originating long term fixed-rate loans in 1979
although fixed-rate loans remain in the loan portfolio and the Bank may
occasionally originate a shorter term fixed-rate loan to an existing borrower.
The Bank requires for all adjustable rate mortgage loans that the
borrower qualify at the fully indexed rate. The Bank's adjustable rate loans
provide for periodic interest rate adjustments of 1% to 2% with a maximum
adjustment over the term of the loan between 2% and 5%. Adjustable rate loans
typically reprice every year, and provide for terms of up to 30 years with
most loans having terms of between 20 and 25 years. The Bank does not
originate loans with initial interest rates set below market rates "teaser
rates").
The Bank offers adjustable-rate loans using a national average contract
interest rate index, although other indices have been used in the past.
Interest rates charged on mortgage loans are competitively priced based on
market conditions and the Bank's cost of funds. Generally, the Bank's
standard underwriting guidelines for mortgage loans conform to FHLMC
guidelines. It is the current policy of the Bank to remain a portfolio
lender. The Bank does not charge origination fees. At December 31, 1997, Bank
did not service loans for others.
Adjustable-rate mortgage loans decrease the risks associated with changes
in interest rates by more closely reflecting these changes, but involve other
risks because as interest rates increase, the underlying payments by the
borrower increase, thus increasing the potential for default. At the same
time, the marketability of the underlying collateral may be adversely
affected by higher interest rates. Upward adjustment of the contractual
interest rate is also limited by the adjustable-rate mortgage loan documents,
thereby potentially limiting their effectiveness during periods of rising
interest rates. These risks have not had an adverse effect on the Bank during
the past five years.
Residential Construction Loans. Residential construction loans are made
on one-to-four-family residential property to the individuals who will be the
owners and occupants upon completion of construction. These loans are made on
a long term basis and are classified as construction/permanent loans, usually
with no principal payments required during the first six months, after which
the payments are set at an amount that will amortize over the terms of the
loan. The maximum loan to value ratio is 85%. Because residential
construction loans are not rewritten if permanent financing is obtained from
the Bank, these loans are made on terms similar to those of the Bank's single
family residential loans and may be amortized over terms of up to 30 years.
In addition to loans originated for the construction of a residence for
which the ultimate purchaser has been identified, the Bank originates
speculative loans to residential builders who have established business
relationships with the Bank. These speculative loans are typically made for a
12 month period and may not require any interest or principal payments during
the term of the loan. In underwriting such loans, the Bank considers the
number of units that the builder has on a speculative bid basis that remain
unsold. The Bank's experience during the past 24 years has been that most
speculative loans are repaired well within the twelve month period.
Speculative loans are generally originated with a loan to value ratio that
does not exceed 85%.
Construction lending is generally considered to involve a higher degree
of credit risk than long term financing of residential properties. The Bank's
risk of loss on a construction loan is dependent largely upon the accuracy of
the initial estimate of the property's value at completion of construction
development and the estimated cost of construction. If the estimate of
construction cost and the marketability of the property upon completion of
the project prove to be inaccurate, the Bank may be compelled to advance
additional funds to complete the development. Furthermore, if the estimate of
value proves to be inaccurate, the Bank may be confronted, at or prior to the
maturity of the loan, with a property with a value that is insufficient to
assure full repayment. For speculative loans originated to builders, the
ability of the builder to sell completed dwelling units will depend, among
other things, on demand, pricing the availability of comparable properties,
and economic conditions.
Non-Residential Loans. At December 31, 1997, the non-residential real
estate portfolio consisted of two commercial real estate loans and several
loans secured by unimproved real estate. Loans secured by unimproved real
-65-
<PAGE>
estate are originated in amounts up to 75% of the appraised value and are
originated with terms of up to five years. Once repaid, single-family
residences are often constructed on the lots securing these loans. The Bank
has seldom originated commercial real estate loans and since the Conversion,
it is the Bank's policy not to originate commercial real estate loans.
Multi-Family Loans. The Bank also makes adjustable-rate multi-family loans,
including loans on apartment complexes. Multi-family loans generally provide
higher interest rates that can be obtained from single-family mortgage loans.
Multi-family lending, however, entails significant additional risks compared
with one-to-four-family residential lending. For example, multi-family loans
typically involve larger loan balances to single borrowers or groups of related
borrowers, the payment experience on such loans typically is dependent on the
successful operation of the real estate project, and these risks can be
significantly impacted by supply and demand conditions in the market for
multi-family residential units and commercial office, retail and warehouse
space.
Consumer Loans. The Bank originates automobile, recreational vehicle and
share loans. Automobile and recreational vehicle loans are issued using fixed
rate terms for periods of three to five years, depending upon whether the
collateral is new or used. Generally, the underlying collateral is valued
based on the dealer sticker price or the NADA loan value. Share loans are
only made when secured by a savings account in the Bank (share loans) and
generally have rates that adjust with the rate on the underlying account and
are typically between one and two percent above the rate on the underlying
savings account. Share loans are offered subject to a 90% loan to collateral
value limit. Although the Bank also makes home equity loans, these loans are
secured by liens on primary residences and are categorized as single family
residential loans.
Loan Commitments. The Bank issues verbal commitments to prospective
borrowers on all approved real estate loans. Generally, the commitment
requires acceptance within 30 days of the date of issuance. At December 31,
1997, the Bank had $532,000 of commitments to cover originations of mortgage
loans and $105,000 of commitments for consumer loans. At the same time, the
Bank had $889,500 in undisbursed funds for loans in process. Management
believes that virtually all of the Bank's commitments will be funded.
Loans to One Borrower. Regulations limit loans-to-one borrower in an
amount equal to 20% of paid-in capital and actual surplus of the Bank. The
Bank is authorized to lend up to an additional 10% of paid-in capital and
actual surplus if the loan is fully secured by readily marketable collateral
with a cash value exceeding the amounts of the loan. The Bank's maximum
loan-to-one borrower limit at December 31, 1997 was approximately $1,753,000
and approximately $2,631,000 for such fully secured loans.
At December 31, 1997, the Bank's largest amount of loans to one borrower
were all performing residential real estate loans aggregating $445,424,
secured by single-family residential rental properties located in the Bank's
market area.
Non-Performing and Problem Assets
Loan Delinquencies. Loans are reviewed on a monthly basis and are
generally placed on a non-accrual status when the loans becomes more than 90
days delinquent or when, in the opinion of management, the collection of
additional interest is doubtful. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent interest payments, if any, are either applied to the outstanding
principal balance or recorded as interest income, depending on the assessment
of the ultimate collectibility of the loan.
-66-
<PAGE>
Non-Performing Assets. The following table sets forth information
regarding non-accrual loans, real estate owned, and certain other repossessed
assets and loans. As of the dates indicated, the Bank had no loans
categorized as troubled debt restructuring within the meaning of SFAS 15.
<TABLE>
<CAPTION>
AT JUNE 30,
AT DECEMBER 31, --------------------
1997 1997 1996
--------------------------------------
<S> <C> <C> <C>
Loans accounted for on a non-accrual
basis: (1)
Real estate:
Construction................................. $ 0 $ 0 $ 704
Multi-family residential..................... 191 191 646
Non-residential.............................. 0 0 0
------- ----- ---------
Total.......................................... $ 191 $ 191 $ 1,350
Accruing loans which are contractually
past due 90 days or more:
Real estate:
Construction................................. $ 0 $ 0 $ 0
Multi-family residential..................... 551 0 0
Non-residential.............................. 0 0 0
------- ----- ---------
Total.......................................... $ 551 $ 0 $ 0
------- ----- ---------
------- ----- ---------
Total non-performing loans..................... $ 742 $ 191 $ 1,350
Real-estate owned (2).......................... 287 724 0
------- ----- ---------
Total non-performing assets.................... $ 1,029 $ 915 $ 1,350
------- ----- ---------
------- ----- ---------
Non-performing loans to total loans............ 2.55% .67% 4.57%
------- ----- ---------
------- ----- ---------
Non-performing assets to total assets.......... 2.89% 2.66% 3.87%
------- ----- ---------
------- ----- ---------
Loans modified in troubled debt restructuring.. $ 0 $ 0 $ 0
------- ----- ---------
------- ----- ---------
<FN>
- ------------------------
(1) Non-accrual status denotes loans on which are contractually past due 90 days
or more. It is management's policy to place all loans past due 90 days in
non-accrual status.
(2) Real estate owned represents property acquired by the Bank through
foreclosure or repossession or loans that are accounted for as an
in-substance foreclosure. This property is carried at the lower of its fair
market value or net realizable value.
</TABLE>
Interest income that would have been recorded on loans accounted for on a
non-accrual basis under the original terms of such loans was $4,280 for the
six months ended December 31, 1997 and $97,534 for the year ended December
31, 1997. Amounts included in the Bank's interest income for the year ended
December 31, 1997 was $42,157.
Classified Assets. The Bank maintains a classification system for
problem assets of insured institutions which covers all problem assets. Under
this classification system, problem assets of insured institutions are
classified as "substandard," "doubtful," or "loss." An asset is considered
substandard if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
Substandard assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as doubtful have all of the weaknesses
inherent in those classified substandard, with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis
of currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as loss are
-67-
<PAGE>
those considered "uncollectible" and of such little value that their
continuance as assets without the establishment of a specific loss reserve is
not warranted. Assets may be designated "special mention" because of
potential weakness that do not currently warrant classification in one of the
aforementioned categories.
At December 31, 1997, the Bank had $0 of assets classified as doubtful or
loss, $157,000 of assets classified as substandard loans and $0 of assets
classified as special mention loans.
Foreclosed Real Estate. Real estate acquired by the Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate
owned until it is sold. When property is acquired it is recorded at the fair
value at the date of foreclosure less estimated costs of disposition.
The Bank records loans as in-substance foreclosures if the borrower has
little or no equity in the property based upon its documented current fair
value, the Bank can only expect repayment of the loan to come from the sale
of the property and if the borrower has effectively abandoned control of the
collateral or has continued to retain control of the collateral but because
of the current financial status of the borrower, it is doubtful the borrower
will be able to repay the loan in the foreseeable future. In- substance
foreclosures are accounted for as real estate acquired through foreclosure,
however, title to the collateral has not been acquired by the Bank. There may
be significant other expenses incurred such as legal and other extraordinary
servicing costs involved with in substance foreclosures. The Bank had
$286,753 of foreclosed real estate at December 31, 1997.
Allowances for Loan Losses. It is management's policy to provide for
losses on unidentified loans in its loan portfolio. A provision for loan
losses is charged to operations based on management's evaluation of the
potential losses that may be incurred in the Bank's loan portfolio. Such
evaluation, which includes a review of all loans of which full collectibility
of interest and principal may not be reasonably assured, considers the Bank's
past loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, estimated value
of any underlying collateral, and current economic conditions. During the six
months ended December 31, 1997 and fiscal year ended June 30, 1997, the Bank
provided $8,000 and $16,000, respectively, for loan losses based on
management's decision to expand consumer lending. The loan loss allowance at
December 31, 1997 is equal to .64%. At December 31, 1997, 95.2% of total
loans were collateralized by one-to-four family dwellings on real estate
located in the market area.
-68-
<PAGE>
The following tables sets forth information with respect to NCF's allowance
for loan losses at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
---------------- -----------------------
1997 1997 1996
----------------------------------------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of period..................... $ 177 $ 161 $ 100
Loans charged off:
Real estate--one-to-four family.................... 0 0 0
Real estate--construction.......................... 0 0 0
Non-residential.................................... 0 0 0
Consumer........................................... 0 0 0
--- --- ---
Total charge-offs.................................... $ 0 $ 0 $ 0
--- --- ---
--- --- ---
Recoveries:
Real estate--one-to-four family.................... 0 0 0
Real estate--construction.......................... 0 0 0
Non-residential.................................... 0 0 0
Consumer........................................... 0 0 0
--- --- ---
Total recoveries..................................... $ 0 $ 0 $ 0
--- --- ---
--- --- ---
Net loans charged-off................................ 0 0 0
Provision for loan losses............................ 8 16 61
--- --- ---
Balance at end of period............................. $ 185 $ 177 $ 161
--- --- ---
--- --- ---
Net charge-offs as a percentage of average
loans outstanding during the period.................. 0.00% 0.00% 0.00%
----- ----- -----
----- ----- -----
</TABLE>
-69-
<PAGE>
The following table sets forth the allocation of the Bank's allowance for
loan losses by loan category and the percent of loans in each category to
total loans receivable at the dates indicated. The portion of the loan loss
allowance allocated to each loan category does not represent the total
available for future losses that may occur within the loan category because
the total loan loss allowance is a valuation reserve applicable to the entire
loan portfolio. The distribution of the Bank's allowance on losses at the
dates indicated is summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
-----------------------------
% OF LOANS IN
EACH CATEGORY
AMOUNT TO TOTAL LOANS
----------- ---------------
<S> <C> <C>
Real estate:
One-to-four family................... $ 185 86.66%
Construction......................... 0 13.58
Multi-family residential............. 0 1.70
Non-residential...................... 0 2.33
Consumer.............................. 0 0.60
---------
Total allowance for loan losses....... $ 185
---------
---------
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30
---------------------------------------------------------------------
1997 1996
--------------------- --------------------------------------
% OF LOANS IN % OF LOANS IN
EACH CATEGORY EACH CATEGORY
AMOUNT TO TOTAL LOANS AMOUNT TO TOTAL LOANS
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Real estate:
One-to-four family................. $ 177 86.66% $ 100 88.92%
Construction....................... 0 13.58 61 11.48
Multi-family residential........... 0 1.70 0 0.52
Non-residential.................... 0 2.33 0 1.09
Consumer............................ 0 0.60 0 0.24
---------- -----------
Total allowance for loan losses.... $ 177 $ 161
---------- -----------
----------- -----------
</TABLE>
Mortgage-Backed Securities and Investment Activities
General. The investment policy of the Bank is to manage the utilization
of excess funds and to provide for liquidity needs of the Bank as loan
demands. The Bank has generally maintained 90% of its investment portfolio in
liquid assets. At December 31, and June 30, 1997, the Bank had an investment
portfolio of approximately $5,983,918 and $5,568,818, respectively,
consisting primarily of interest-earning accounts.
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities. SFAS No. 115 requires the Bank to
classify all of its investments in debt and equity securities ("securities")
into three categories. Debt securities which management has the positive
intent and ability to hold until maturity are to be classified as
held-to-maturity. Securities that are bought and held principally for the
purpose of selling them in the near term are to be classified as trading
securities. All other securities are to be classified as available-for-sale
securities.
Unrealized holding gains and losses for trading securities are to be
included in earnings. Unrealized gains and losses for available-for-sale
securities are to be excluded from earnings and reported net of income tax
effect as a separate component of shareholders' equity until realized.
Investments classified as held to maturity are to be accounted for at
amortized cost. The Bank adopted SFAS No. 115 effective April 1, 1994, and
designated its
-70-
<PAGE>
investment and mortgage-backed securities portfolio into the required three
categories. As a result of SFAS No. 115, the Bank reviewed and classified its
securities as held for investment.
SFAS No. 115 requires the Bank to account for a portion of its holding of
debt securities at market value (as opposed to amortized cost) and may result
in greater volatility in its earnings and capital position. It also may
discourage investment in longer term debt securities, which tend to have
higher yields than short term debt securities, and hence reduce the earnings
of the Bank. No securities can be moved from a particular category without
Board approval.
The market value of investments and mortgage-backed securities held to
maturity at December 31, and June 30, 1997, was $6,003,349 and $5,589,896,
respectively. The Bank anticipates having the ability to fund all of its
investing activities from funds held on deposit at the FHLB. The Bank will
continue to seek high quality investments with short to intermediate
maturities and duration from one to five years.
Interest-Earning Accounts
At December 31, and June 30, 1997, NCF held $5,415,150 and $4,994,761,
respectively, in interest-earning demand deposits in other financial
institutions, principally the FHLB of Cincinnati. NCF maintains these
accounts in order to maintain liquidity and improve the interest-rate
sensitivity of its assets.
Mortgage-Backed Securities
To supplement lending activities, the Bank invests in residential
mortgage-backed securities. Mortgage-backed securities can serve as
collateral for borrowings (although the Bank has not used them as such) and,
through repayments, as a source of liquidity.
At December 31, and June 30, 1997, the mortgage-backed securities
portfolio had a market value of $130,229 and $153,435, respectively, and an
amortized cost of $110,868 and $132,357. Because the entire portfolio is
classified as held to maturity (the Bank had no mortgage-backed securities
classified as available for sale at December 31, 1997), the portfolio is
recorded at amortized cost.
Mortgage-backed securities represent a participation interest in a pool
of single-family mortgages, the principal and interest payments on which are
passed from the mortgage originators, through intermediaries (generally
quasi-governmental agencies) that pool and repackage the participation
interests in the form of securities, to investors such as the Bank. Such
quasi-governmental agencies, which guarantee the payment of principal and
interest to investors, primarily include FHLMC, GNMA, and FNMA.
GNMA is a government agency within HUD which is intended to help finance
government assisted housing programs. GNMA guarantees the timely payment of
principal and interest, and GNMA securities are backed by the full faith and
credit of the United States Government. Because GNMA was established to
provide support for low- and middle-income housing, there are limits to the
maximum size of loans that qualify for this program. GNMA limits its maximum
loan size to $114,000 for VA loans and, on average, $67,500 for FHA loans. To
accommodate larger-sized loans, and loans that, for other reasons, do not
conform to the agency programs, a number of private institutions have
established their own home-loan origination and securitization programs.
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<PAGE>
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate mortgages
or adjustable-rate mortgage loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through
certificates. As a result, the interest rate risk characteristics of the
underlying pool of mortgages, (i.e., fixed rate or adjustable rate) as well
as prepayment risk, are passed on to the certificate holder. The life of a
mortgage-backed pass-through security is equal to the life of the underlying
mortgages. Mortgage-backed securities issued by FHLMC, FNMA, and GNMA make up
a majority of the pass-through certificates market.
Investment Portfolio. The following table sets forth the carrying value
of the Bank's short-term investments, FHLB stock, and mortgage-backed
securities at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
AT DECEMBER 31, --------------------
1997 1997 1996
--------------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Interest-earning deposits......... $ 5,415 $ 4,995 $ 4,968
FHLB stock........................ 458 442 412
Mortgage-backed securities........ 111 132 143
---------- --------- ---------
Total investment................ $ 5,984 $ 5,569 $ 5,523
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table sets forth information regarding the scheduled
maturities, amortized costs, market value and weighted average yields for the
Bank's mortgage-backed securities at December 31, 1997. The Bank's
mortgage-backed securities are all issued by GNMA and mature in the year 2013.
Expected maturities will differ from contractual maturities due to schedule
repayments and because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. The stated yield on
mortgage-backed securities at December 31, 1997 was 11.5%. The following table
does not take into consideration the effects of scheduled repayments or the
effects of possible prepayments.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
----------------------------------------------------------------
MORE THAN TEN YEARS TOTAL INVESTMENT PORTFOLIO
------------------------ -----------------------------------
CARRYING AVERAGE CARRYING FAIR AVERAGE
VALUE YIELD VALUE VALUE YIELD
----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
GNMA........... $ 113 11.50% $ 113 $ 130 11.50%
----------- ----------- ----------- --------- ----------
----------- ----------- ----------- --------- ----------
</TABLE>
Sources of Funds
General. Deposits are the major external source of the Bank's funds for
lending and other investment purposes. The Bank derives funds from
amortization and prepayment of loans and, to a much lesser extent, maturities
of investment securities, borrowings, mortgage-backed securities and
operations. Scheduled loan principal repayments are a relatively stable
source of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general interest rates and market conditions. The
Bank had $0 in FHLB advances at December 31, 1997.
Deposits. Consumer and commercial deposits are attracted principally
from within the Bank's primary market area through the offering of a
selection of deposit instruments including regular savings accounts, money
market accounts, and term certificate accounts. The Bank also offers IRA
accounts. Deposit account terms vary according to the minimum balance
required, the time period the fund must remain on deposit, and the interest
rate, among other factors. As of December 31, 1997, the Bank had no brokered
deposits.
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<PAGE>
Jumbo Certificates of Deposit. The following table indicates the amount
of the Bank's certificates of deposit of $100,000 or more by time remaining
until maturity as of December 31, 1997.
<TABLE>
<CAPTION>
CERTIFICATES
MATURITY PERIOD OF DEPOSIT
- ---------------------------- -----------------
(In Thousands)
<S> <C>
Within three months............ $ 444
Three through twelve months.... 201
Over twelve months............. 300
-----------------
Total.......................... $ 945
-----------------
-----------------
</TABLE>
Borrowings
The Bank may obtain advances from the FHLB of Cincinnati to supplement
its supply of lendable funds. Advances from the FHLB of Cincinnati are
typically secured by a pledge of the Bank's stock in the FHLB of Cincinnati
and a portion of the Bank's first mortgage loans and certain other assets.
Each FHLB credit program has its own interest rate, which may be fixed or
variable, and range of maturities. The Bank, if the need arises, may also
access the Federal Reserve Bank discount window to supplement its supply of
lendable funds and to meet deposit withdrawal requirements. At December 31,
1997, the Bank had no borrowings from the FHLB of Cincinnati.
Employees
Substantially all of the activities of NCF are conducted through the
Bank, therefore, at December 31, 1997, NCF did not have any salaried
employees.
As of December 31, 1997, the Bank had eight full-time employees. None of
the Bank's employees are represented by a collective bargaining group.
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REGULATION AND SUPERVISION OF NCF
Set forth below is a brief description of certain laws which related to the
regulation of NCF and the Bank. The description does not purport to be complete
and is qualified in its entirety by reference to applicable laws and
regulations.
Company Regulation. As a registered bank holding company, NCF is regulated
under the Bank Holding Company Act (the "Act") and is subject to supervision and
regular inspection by the Board of Governors of the Federal Reserve System
("Federal Reserve Board"). The Act requires, among other things, the prior
approval of the Federal Reserve Board in any case where NCF proposes to (i)
acquire all or substantially all of the assets of any bank, (ii) acquire direct
or indirect ownership or control of more than 5 percent of the voting shares of
any bank or (iii) merge or consolidate with any bank holding company.
Under the Act, NCF is prohibited, with certain exceptions, from acquiring
direct or indirect ownership or control of more than 5% of any class of voting
shares of any non-banking corporation. Further, NCF may not engage in any
business other than managing and controlling banks or furnishing certain
specified services to subsidiaries, and may not acquire voting control of
non-banking corporations except those corporations engaged in businesses or
furnishing services which the Federal Reserve Board deems to be so closely
related to banking as "to be a proper incident thereto." The Federal Reserve
Board has determined that a number of activities meet this standard including
making and servicing loans; performing certain fiduciary functions; leasing real
and personal property; underwriting an dealing in government obligations and
certain money market instruments; underwriting and dealing, to a limited extent,
in corporate debt obligations and other securities that banks may not deal in;
providing foreign exchange advisory and transactional services; and owning,
controlling or operating a savings association, if the savings association
engages only in deposit-taking activities and lending and other activities that
are permissible for bank holding companies.
Bank holding companies and their subsidiary banks are also subject to the
provisions of the Community Reinvestment Act of 1977, as amended ("CRA"). Under
the CRA, each subsidiary bank's record in meeting the credit needs of the
community served by the bank, including low- and moderate-income neighborhoods,
is annually assessed by that bank's primary regulatory authority. When a bank
holding company applies for approval to acquire a bank or other bank holding
company, the Federal Reserve Board will review the assessment of each subsidiary
bank of the applicant bank holding company, and such records may be the basis
for denying the application.
Under the Federal Reserve Board policy, a bank holding company is expected
to act as a source of financial strength to each of its subsidiary banks and to
commit resources, including capital funds during periods of financial stress, to
support each such bank. Although this "source of strength" policy has been
challenged in litigation, the Federal Reserve Board continues to take the
position that it has the authority to enforce it. Consistent with its "source of
strength" policy for subsidiary banks, the Federal Reserve Board has stated
that, as a matter of prudent banking, a bank holding company generally should
not maintain a rate of cash dividends unless its net income available to common
shareholders has been sufficient to fund fully the dividends, and the
prospective rate of earnings retention appears to be consistent with the
company's capital needs, asset quality and overall financial condition.
Bank Regulation. The Bank is subject to supervision and examination by
the Federal Deposit Insurance Corporation (the "FDIC") and the Commonwealth
of Kentucky. The Bank is insured by, and therefore subject to regulations of,
the Federal Deposit Insurance Corporation ("FDIC"), and is also subject to
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be made and the
types of services that may be offered. Numerous consumer laws and regulations
also affect the operations of the Bank including, among others, disclosure
requirements, anti-discrimination provisions, and substantive contractual
limitations with respect to deposit accounts. The banking agencies, together
with the Departments of Justice and Housing and Urban Development, also
enforce compliance with community reinvestment, anti-discrimination and other
fair lending laws and regulations.
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<PAGE>
In addition to the impact of regulation, commercial banks are affected
significantly by the actions of the Federal Reserve Board as it attempts to
control money supply and credit availability in order to influence the economy.
The FDIC has the authority to prohibit the Bank, as a commercial bank, from
engaging in an unsafe or unsound practice in conducting its business. The
payment of dividends, depending upon the financial condition of the institution
in question, could be deemed to constitute such an unsafe or unsound practice,
and the regulatory agencies have indicated their view that it generally would be
an unsafe and unsound practice to pay dividends except out of current operating
earnings. The ability of the institutions to pay dividends in the future is
presently, and could be further influenced, among other things, by applicable
capital guidelines or by bank regulatory and supervisory policies.
The ability of a banking institution to make funds available to its parent
company is also subject to restrictions imposed by federal law. Generally, no
bank subsidiary may extend credit to the parent company on terms and under
circumstances which are not substantially the same as comparable extensions of
credit to non-affiliates. No extension of credit may be made to the parent
company which is in excess of 10 percent of the capital stock and surplus of
such bank subsidiary or in excess of 20 percent of the capital and surplus of
such bank subsidiary as to aggregate extensions of credit to the parent company
and its subsidiaries. In certain circumstances, federal regulatory authorities
may impose more restrictive limitations. Such extensions of credit, with limited
exceptions, must be fully secured by collateral.
The federal banking agencies possess broad powers to take corrective action
as deemed appropriate for an insured depository institution and its holding
company. The extent of these powers depends upon whether the institution in
question in considered "well capitalized", "adequately capitalized",
"undercapitalized" or "critically undercapitalized". At June 30, 1997, The Bank
exceeded the required ratios for classification as "well capitalized."
Generally, as an institution is deemed to be less well capitalized, the scope
and severity of the agencies' powers increase. The agencies' corrective powers
can include, among other things, requiring an insured financial institution to
adopt a capital restoration plan which cannot be approved unless guaranteed by
the institution's parent holding company; placing limits on asset growth and
restrictions on activities; placing restrictions on transactions with
affiliates; restricting the interest rate the institution may pay on deposits;
prohibiting the institution from accepting deposits from correspondent banks;
prohibiting the payment of principal interest on subordinated debt; prohibiting
the holding company from making capital distributions without regulatory
approval; and, ultimately, appointing a receiver for the institution. Business
activities may also be influenced by an institution's capital classification.
For instance, only a "well capitalized" depository institution may accept
brokered deposits without regulatory approval and an "adequately capitalized"
depository institution may accept brokered deposits only with prior regulatory
approval.
Prior to obtaining the charter of a commercial bank, the Bank was a
federally chartered savings association insured by the SAIF through the FDIC.
Although most commercial banks are insured by the Bank Insurance Fund ("BIF") of
the FDIC, the Bank did not elect at the time of the change in charter to change
that form of insurance due to the costs involved.
The Bank's deposit accounts are insured by the SAIF to a maximum of $100,000
for each insured member (as defined by law and regulation). Insurance of
deposits may be terminated by the FDIC upon a finding that the institution has
engaged in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations or has violated any applicable law, regulation, rule, order
or condition imposed by the FDIC or the institution's primary regulator. The
FDIC may also prohibit an insured depository institution from engaging in any
activity the FDIC determines to pose a serious threat to the SAIF.
The FDIC charges an annual assessment for the insurance of deposits based on
the risk a particular institution poses to its deposit insurance fund, depending
upon the institution's risk classification. This risk classification is based on
an institution's capital group and supervisory subgroup assignment. In addition,
the FDIC is authorized to increase deposit insurance rates on a semi-annual
basis if it determines that such action is necessary to cause the balance in the
SAIF to reach the designated reserve ratio of 1.25% of SAIF-insured deposits
within a reasonable period of time. The FDIC may impose special assessments on
SAIF members to repay amounts borrowed
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<PAGE>
from the U.S. Treasury or for any other reason deemed necessary by the FDIC.
Prior to September 30, 1996, the SAIF was substantially underfunded. Prior to
September 30, 1996, members of the SAIF paid within a range of .23% to .31%
of domestic deposits and members of the BIF, predominantly commercial banks,
were required to pay substantially lower, or virtually no, federal deposit
insurance premiums.
Effective September 30, 1996, federal law was revised to mandate a one-time
special assessment on SAIF members such as the Bank of approximately .657% of
deposits held on March 31, 1995. The Bank recorded a $153,000 pre-tax expense
for this assessment at September 30, 1996. Beginning January 1, 1997, deposit
insurance assessments for SAIF members were reduced to approximately .064% of
deposits on an annual basis; this rate may continue through the end of 1999.
During this same period, BIF members are expected to be annually assessed
approximately .013% of deposits. Thereafter, assessments for BIF and SAIF
members should be the same and the SAIF and BIF may be merged. It is expected
that these continuing assessments for both SAIF and BIF members will be used to
repay outstanding Financing Corporation bond obligations. As a result of these
changes, beginning January 1, 1997, the rate of deposit insurance assessed the
Bank substantially declined.
Capital Guidelines. Under the risk-based capital guidelines applicable to
NCF and the Bank, the minimum guideline for the ratio of total capital to
risk-weighted assets (including certain off-balance-sheet activities) is 8
percent. At least half of the total capital must be "Tier 1" or core capital,
which primarily includes common shareholders' equity and qualifying preferred
stock, less goodwill and other disallowed tangibles. "Tier 2" or supplementary
capital includes, among other items, certain cumulative and limited-life
preferred stock, qualifying subordinated debt and the allowance for credit
losses, subject to certain limitations, less required deductions as prescribed
by regulation.
In addition, the federal bank regulators established leverage ratio (Tier 1
capital to total adjusted average assets) guidelines providing for a minimum
leverage ratio of 3 percent for bank holding companies and banks meeting certain
specified criteria, including that such institutions have the highest regulatory
examination rating and are not contemplating significant growth or expansion.
Institutions not meeting these criteria are expected to maintain a ratio which
exceeds the 3 percent minimum by at least 100 to 200 basis points. The federal
bank regulatory agencies may, however, set higher capital requirements when
particular circumstances warrant. Under the federal banking laws, failure to
meet the minimum regulatory capital requirements could subject a bank to a
variety of enforcement remedies available to federal bank regulatory agencies.
At December 31, 1997, the respective total and Tier 1 risk-based capital
ratios and leverage ratios of the Bank and NCF exceeded the minimum regulatory
capital requirements.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Cincinnati, which is one of 12 regional FHLBs in the FHLB system that
administers the home financing credit function of savings associations. Each
FHLB serves as a reserve or central bank for its members within its assigned
region. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB system. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the FHLB.
As a member, the Bank is required to purchase and maintain stock in the FHLB
of Cincinnati in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year.
Federal Reserve System. The Federal Reserve Board requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW, and Super NOW
checking accounts) and non-personal time deposits. At December 31, 1997, the
Bank was in compliance with these Federal Reserve Board requirements.
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<PAGE>
DESCRIPTION OF COMMUNITY CAPITAL STOCK
General
Community is authorized to issue 10,000,000 shares of Community Common Stock
and 5,000,000 shares of serial preferred stock ("Community Preferred Stock"). As
of the Community Record Date, there were shares of Community Common Stock
issued and outstanding. No shares of Community Preferred Stock are presently
outstanding. The Community Common Stock represents nonwithdrawable capital, is
not an account of an insurable type and is not insured by the FDIC or any other
governmental authority.
Community Common Stock
Dividends. Community can pay dividends if, as and when declared by its
Board of Directors, subject to compliance with limitations which are imposed
by law. The holders of Community Common Stock are entitled to receive and
share equally in such dividends as may be declared by the Board of Directors
out of funds legally available therefor. If Community issues Community
Preferred Stock, the holders thereof may have a priority over the holders of
the Community Common Stock with respect to dividends.
Voting Rights. The holders of Community Common Stock possess exclusive
voting rights in Community. They elect Community's Board of Directors and act on
such other matters as are required to be presented to them under Indiana law or
the Articles of Incorporation or as are otherwise presented to them by the Board
of Directors. Each holder of Community Common Stock is generally entitled to one
vote per share and does not have any right to cumulate votes in the election of
directors. If Community issues Community Preferred Stock, holders of the
Community Preferred Stock may have the right to vote with the holders of
Community Common Stock as a single class or have voting rights as a separate
class.
Liquidation. In the event of any liquidation, dissolution or winding up of
Community, the holders of the then-outstanding Community Common Stock would be
entitled to receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of Community available for distribution. If
Community Preferred Stock is issued, the holders thereof may have a priority
over the holders of Community Common Stock in the event of liquidation or
dissolution.
Preemptive Rights. Holders of Community Common Stock are not be entitled to
preemptive rights with respect to any shares which may be issued in the future.
The Community Common Stock is not subject to redemption.
Community Preferred Stock
The Board of Directors of Community is authorized to issue Community
Preferred Stock in series and fix and state voting powers, designations,
preferences or other special rights of the shares of each such series of
Community Preferred Stock and the qualifications, limitations and restrictions
thereof. Community Preferred Stock may rank prior to Community Common Stock as
to dividend rights, liquidation preferences, or both, may have full or limited
voting rights, and may be convertible into Community Common Stock. The holders
of any class or series of Community Preferred Stock also may have the right to
vote separately as a class or series under the terms of such class or series or
as may be otherwise provided by Indiana law. Community does not have any current
plans to issue any such stock.
COMPARISON OF THE RIGHTS OF STOCKHOLDERS
The rights of holders of NCF Common Stock are governed by the Delaware GCL
and NCF's Certificate of Incorporation ("NCF's Certificate") and Bylaws, while
the rights of holders of Community Common Stock are governed by the Indiana BCL
and Community's Articles of Incorporation ("Community's Articles") and Bylaws.
The discussion herein is not intended to be a complete statement of the
differences affecting the rights of NCF's stockholders, but rather summarizes
the more significant differences affecting the rights of such stockholders
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<PAGE>
and certain important similarities. This summary is qualified in its entirety
by reference to the Delaware GCL, the Indiana BCL, NCF's Certificate and
Bylaws, and Community's Articles and Bylaws.
Authorized Capital Stock
NCF's Certificate authorize the issuance of up to 1,400,000 shares of NCF
Common Stock, of which shares were issued and outstanding as of the NCF
Record Date, and up 100,000 shares of NCF Preferred Stock, of which shares
were issued and outstanding as of the NCF Record Date.
Community's Articles authorize the issuance of up to 10,000,000 shares of
Community Common Stock, of which shares were issued and outstanding as of
the Community Record Date, and up to 5,000,000 shares of Community Preferred
Stock, of which no shares were issued and outstanding as of the Community Record
Date. The Community Preferred Stock is issuable in series, each series having
such rights and preferences as Community's Board of Directors may fix and
determine by resolution.
Amendment of Governing Instruments
Article XX of NCF's general provides that the Article of Incorporation may
be amended as set forth by Delaware law (i.e., generally upon the recommendation
of the board of directors and the affirmation vote of a majority of all of the
stockholder votes entitles to be cast on the matter), except that any amendment
to Article IX (shareholder meetings; cumulative voting; proxies), X (notice for
Nominations and Proposals), XI (Directors), XII (Removal of Directors), XIII
(Limitations on Voting Rights, XIV (Approval of Business Combinations), XV (Fair
Price Requirements), XVI (Evaluation of Offers), XVII (Directors' Liability),
XVIII (Indemnification), XIX (Amendment of Bylaws) and XX (Amendment of
Certificate of Incorporation) must be approved by the affirmation vote of the
holders of not less than 80% of the outstanding shares of capital stock of NCF
entitled to vote generally in the election of directors cast at a meeting of the
stockholders called for that purpose.
Article XII of Community's Articles generally provides that the Articles of
Incorporation may be amended as set forth by Indiana law (i.e., generally upon
the recommendation of the board of directors and the affirmative vote of a
majority of all of the stockholder votes entitled to be cast on the matter),
except that any amendment to Articles VI (preemptive rights), VII (directors),
VIII (indemnification), IX (meetings of stockholders and stockholder proposals),
X (restrictions on acquisitions), XI (voting rights) and XII (amendments) must
be approved by the affirmative vote of the holders of at least two-thirds of the
then outstanding shares of the class or classes entitled to vote thereon at that
meeting, voting together as a single class.
The Bylaws of NCF may be amended by a majority of the board of directors or
the vote of the holders of not less than 80% of the shares of capital stock of
NCF entitled to vote generally in an election of directors. The Bylaws of
Community may only be amended by a majority vote of the Board of Directors of
Community.
Removal of Directors and Vacancies
Under Community's Articles, any vacancy occurring in the Board of
Directors, including any vacancy created by reason of an increase in the
number of directors, may be filled by the remaining directors. Under NCF's
Certificate, the selection of an individual to fill a vacancy must be
approved by a vote of two thirds of the directors then in office. Under both
Community's Articles and NCF's Certificate any director chosen to fill a
vacancy will hold office for the remainder of the term to which the director
has been elected and until his or her successor is elected and qualified.
Under NCF's Certificate, any director may be removed for cause by the
affirmative vote of at least 80% of the outstanding shares of capital stock of
NCF entitled to vote generally in an election of directors. Community's Articles
provide that any director may be removed for cause by the holders of two-thirds
of the outstanding voting shares of Community.
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Director Indemnification and Liability
Community's Articles provide that Community shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed formal or informal action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director, officer, employee or agent of Community or any
predecessor of Community, or is or was serving at the request of Community or
any predecessor of Community as a director, officer, partner, member, manager,
employee or agent of another corporation, partnership, limited liability
company, joint venture, trust, employee benefit plan or other enterprise,
against liability and expenses (including court costs and attorneys' fees),
judgments, fines, excise taxes and amounts paid in satisfaction, settlement or
compromise actually and reasonably incurred by such person in connection with
such action, suit or proceeding to the fullest extent authorized by law. Such
indemnity shall be made only if (i) such person's conduct was in good faith;
(ii) such person reasonably believed (a) in the case of conduct in the person's
official capacity with Community, that the person's conduct was in its best
interests and (b) in all other cases, the person's conduct was at least not
opposed to Community's best interests; and (iii) in the case of any criminal
proceeding, the person either (a) had reasonable cause to believe the person's
conduct was lawful, or (b) had no reasonable cause to believe that such person's
conduct was unlawful.
Community's Articles also provide that reasonable expenses incurred by a
director, officer, employee or agent of Community in defending an action, suit
or proceeding described above shall be paid by Community in advance of the final
disposition of such action, suit or proceeding as authorized by the Board of
Directors upon receipt of a written affirmation by or on behalf of such person
of his good faith belief that he has met the standard of conduct necessary for
indemnification under relevant law and a written undertaking, executed
personally or on the person's behalf, to repay such amount if it shall
ultimately be determined that the person is not entitled to be indemnified by
Community.
NCF's Certificate includes an indemnification provision that covers
substantially the same group of persons. The provision provides indemnification
for expenses actually and reasonably incurred in defense of or in settlement of
a derivative suit. It also covers amounts actually and reasonable incurred for
expenses, settlement amounts, judgments and fines in connection with
nonderivative suits. However, in either case, indemnification is only made of a
person covered by the provision if he (i) is successful on the merits or
otherwise or (ii) acted in good faith and acted in a manner he believed to be
in, or not opposed to the best interests of NCF. A determination that the above
standards have been met may be made by a (1) court or (ii) (except for a
derivative suit not successful on its merits or otherwise) majority of
disinterested directors, a written opinion of independent legal counsel or NCF's
stockholders.
Community's Articles provide that no director shall be personally liable
to Community or its stockholders for monetary damages or injunctive relief
for any act or omission by such director as a director unless the director
has breached or failed to perform the duties of the director's office in
compliance with Section 23-1-35-1 of the Indiana BCL, or any successor
provision thereto. Section 23-1-35-1 of the Indiana BCL currently provides
that directors will not be liable for any action taken as a director, or any
failure to take any action, unless (i) the director has breached or failed to
perform the duties of the director's office in compliance with said section
(i.e., in good faith, with the care an ordinarily prudent person in a like
position would exercise under similar circumstances and in a manner the
director reasonably believes to be in the best interests of the corporation)
and (ii) the breach or failure to perform constitutes willful misconduct or
recklessness.
Currently, the scope of the provision in Community's Articles limiting the
personal liability of directors is uncertain because of the absence of judicial
precedent interpreting similar provisions. In addition, the SEC takes the
position that similar provisions added to other corporations' articles of
incorporation would not protect those corporations' directors from liability for
violations of the federal securities laws.
The provision limiting the personal liability of Community's directors does
not eliminate or alter the duty of Community's directors; it merely limits
personal liability for monetary damages to the maximum extent permitted by the
Indiana BCL. Moreover, it applies only to claims against a director arising out
of his role as a director; it currently does not apply to claims arising out of
his role as an officer (if he is also an officer) or arising out of any other
capacity in which he serves because the Indiana BCL does not authorize such a
limitation of liability.
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<PAGE>
The provision in Community's Articles which limits the personal liability of
directors is designed to ensure that the ability of Community's directors to
exercise their best business judgment in managing Community's affairs is not
unreasonably impeded by exposure to the potentially high personal costs or other
uncertainties of litigation. The nature of the tasks and responsibilities
undertaken by directors of publicly-held corporations often require such persons
to make difficult judgments of great importance which can expose such persons to
personal liability, but from which they will acquire no personal benefit. In
recent years, litigation against publicly-held corporations and their directors
and officers challenging good faith business judgments and involving no
allegations of personal wrongdoing has become common. Such litigation regularly
involves damage claims in huge amounts which bear no relationship to the amount
of compensation received by the directors or officers, particularly in the case
of directors who are not employees of the corporation. The expense of such
litigation, whether it is well-founded or not, can be enormous. The provision of
Community's Articles relating to director liability is intended to reduce, in
appropriate cases, the risk incident to serving as a director and to enable
Community to elect and retain the persons most qualified to serve as directors.
NCF's Certificate has a similar provision that eliminates directors'
liability in all cases except (i) for a breach of the director's duty of loyalty
to NCF, (ii) acts or omissions not made in good faith or which involve
intentional misconduct or a known violation of the law, (iii) under section 174
of the Delaware GCL or (iv) any transaction from which a director derived an
improper personal benefit.
Special Meetings of Stockholders
Community's Articles contain a provision pursuant to which special meetings
of stockholders may be called by a majority of directors then in office or the
Chairman of the Board or Chief Executive Officer. NCF's Certificate contains a
provision pursuant to which special meetings of stockholders may be called by a
majority of the board of directors or by a committee of the board designated by
the board and having the power to call such meetings.
Actions by Stockholders Without a Meeting
Community's Articles provide that any action permitted to be taken by the
stockholders at a meeting, may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by all of the
stockholders entitled to vote and filed with the Secretary of Community. NCF's
Certificate does not permit shareholder action without a shareholders meeting.
Stockholder Nominations and Proposals
Community's Articles provide that, subject to the rights of the holders of
any class or series of stock having a preference over the Community Common Stock
as to dividends or upon liquidation, all nominations for election to the Board
of Directors, other than those made by the Board or a committee thereof, shall
be made by a stockholder who has complied with the notice provisions in the
Articles of Incorporation. Written notice of a stockholder nomination must be
communicated to the attention of the secretary and either delivered to, or
mailed and received at, the principal executive offices of Community not later
than (i) with respect to an annual meeting of the stockholders, 60 days prior to
the anniversary date of the mailing of proxy materials by Community in
connection with the immediately preceding annual meeting of stockholders, and
(ii) with respect to a special meeting of stockholders for the election of
directors, the close of business on the tenth day following the date on which
notice of such meeting is first given to the stockholders. Each such notice
shall set forth: (a) as to each person whom the stockholder proposes to nominate
as a director, and as to the stockholder giving the notice, (i) the name, age,
business address and residence address of such person; (ii) the principal
occupation or employment of such person; (iii) the class and number of shares of
Community's stock beneficially owned by such person on the date of the
stockholder notice; and (iv) such other information regarding such person as
would be required to be included in a proxy statement filed pursuant to the
proxy rules of the SEC; and (b) to the extent known by the stockholder giving
the notice, (i) the name and address of any other stockholders supporting such
nominees; and (ii) the class and number of shares of Community's stock
beneficially owned by any other stockholders supporting such nominees, on the
date of such stockholder notice. The presiding officer of the meeting may refuse
to acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
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<PAGE>
Community's Articles also provide that only such business as shall have been
properly brought before an annual meeting of stockholders shall be conducted at
the annual meeting. To be properly brought before an annual meeting, business
must be brought before the meeting by or at the direction of the Board of
Directors or otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
Community. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of Community not less than 60
days prior to the anniversary date of the mailing of proxy materials by
Community in connection with the immediately preceding annual meeting of
stockholders. A stockholder's notice shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the name and address, as
they appear on Community's books, of the stockholder proposing such business,
and, to the extent known, any other stockholders known by such stockholder to be
supporting such proposal, (c) the class and number of shares of Community which
are beneficially owned by the stockholder and, to the extent known, by any other
stockholders known by such stockholder to be supporting such proposal on the
date of such stockholder notice, and (d) any financial interest of the
stockholder in such business. The presiding officer of an annual meeting shall
determine and declare to the meeting whether the business was properly brought
before the meeting in accordance with the provisions of the Articles of
Incorporation and any such business not properly brought before the meeting
shall not be transacted.
NCF's Bylaws contain procedures for nominations and proposals at annual
meetings of shareholders that are substantially similar to those contained in
Community's Articles. Neither NCF's Certificate nor Bylaws, however, contain any
similar procedures for nominations and proposals to be made at special meetings.
Provisions Affecting Business Combinations and Control Share Acquisitions
The Indiana BCL requires the approval of the Board of Directors and, unless
the Articles of Incorporation provide for a higher vote, the holders of a
majority of the outstanding stock of Community entitled to vote thereon for
mergers or consolidations, and for sales, leases or exchanges of all or
substantially all of Community's assets. The Indiana BCL permits Community to
merge with another corporation without obtaining the approval of Community's
stockholders if: (i) Community's Articles will not differ (subject to certain
limited exceptions) from its Articles of Incorporation before the merger; (ii)
each stockholder of Community whose shares were outstanding immediately before
the effective date of the merger will hold the same proportionate number of
shares after the merger; and (iii) the number of voting shares outstanding
immediately after the merger, plus the number of voting shares issuable as a
result of the merger, will not exceed 20% of the shares of Community Common
Stock outstanding immediately prior to the merger.
Articles 10A. and 10B. of Community's Articles of Incorporation govern any
proposed "Business Combination" (defined generally to include certain sales,
purchases, exchanges, leases, transfers, dispositions or acquisitions of assets
or businesses, mergers or consolidations, or certain reclassifications of
securities of Community) between Community or any subsidiaries, on the one hand,
and a Related Person, on the other hand. A "Related Person" is defined generally
to include any person, partnership, corporation, group or other entity (other
than Community and its subsidiaries) which is the Beneficial Owners (as defined)
of 10.0% or more of the shares of Community entitled to vote generally in an
election of directors (the "Voting Shares").
Under Article 10B., if certain specified conditions (discussed briefly in
the following four paragraphs) are not met, neither Community nor any of its
subsidiaries may become a party to any Business Combination, without the prior
affirmative vote at a meeting of Community's stockholders by the holders of at
least 80.0% of the Voting Shares, voting separately as a class, and by an
Independent Majority of Stockholders, which is defined to mean the holders of a
majority of the outstanding Voting Shares that are not Beneficially Owned (as
defined), directly or indirectly, by a Related Person. If such approval were
obtained, the special conditions would not have to be met. Such conditions also
would not have to be met if the Board of Directors approved the Business
Combination at times and by votes specified in the Community Articles.
The conditions necessary to avoid the vote of 80.0% of Community's
outstanding Voting Shares and of an Independent Majority of Stockholders include
conditions providing that, upon consummation of the Business
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Combination, all of Community's stockholders would receive at least a certain
minimum price per share for their shares. The ratio of the price to be
received by the stockholders (other than the Related Person) in the Business
Combination to the market price of Community's shares immediately before the
announcement of the Business Combination would have to be at least as great
as the ratio of (i) the highest per share price paid by the Related Person in
acquiring any of the Community Common Stock prior to the Business Combination
to (ii) the market price per share of Community Common Stock immediately
before the initial acquisition of any shares by the Related Person. A similar
condition would apply in the case of the price to be paid for any outstanding
shares of Community Preferred Stock. These requirements generally are
designed to ensure that the stockholders receive the benefit of any premium
paid by the Related Person in acquiring any of its holdings. The price to be
received by stockholders in the Business Combination also would have to be
not less than the highest per share price paid by the Related Person in
acquiring any of its holdings.
Another condition necessary to avoid the increased vote requirements is that
the consideration to be received in the Business Combination by holders of stock
(whether common stock or preferred stock) must be in the same form and of the
same kind as the consideration paid by the Related Person in acquiring stock
already owned by it (except to the extent that each individual stockholder might
agree to accept consideration of a different form or kind in exchange for all or
part of the shares which he owns). Thus, for example, if the Related Person had
acquired his initial share interest for cash, the remaining stockholders
would have to be offered cash in the Business Combination and would not have to
accept stock or debt of another corporation or institution.
In order to avoid the supermajority voting requirements of Article 10B., the
Related Person also would have to comply with certain other conditions after he
acquired his 10.0% interest in Community. These conditions include the
following: (i) the Related Person must ensure that Community's Board of
Directors included representation by "Continuing Directors" (generally, those
directors at the time of effectiveness of the Articles of Incorporation, whether
or not a Related Person or Associate or Affiliate (as defined) of a Related
Person, and those directors who are not affiliated with the Related Person and
who are elected as directors prior to the time the Related Person became such or
with the recommendation of a majority of other Continuing Directors) in
proportion to the holdings of the other stockholders; (ii) the Related Person
must have refrained from acquiring additional capital stock of Community with
certain limited exceptions, and must have refrained from acquiring additional
Voting Shares, or securities convertible into or exchangeable for Voting Shares,
after he became a Related Person; (iii) the Related Person must not have
received certain specified benefits from Community, such as loans or guarantees,
and, except with the approval of a majority of the directors and a majority of
the Continuing Directors, must not have made any change in Community's business
or equity capital structure or entered into any contract, arrangement or
understanding with Community; and (iv) except as approved by a majority of the
directors and a majority of the Continuing Directors, there must have been no
failure to pay full quarterly dividends on any outstanding Community Preferred
Stock, no reduction in annual dividends paid on the Community Common Stock, and
there must have been increases in annual dividends as necessary to reflect any
reclassification, recapitalization, reorganization or similar transaction which
has the effect of reducing the number of outstanding shares of stock. Finally, a
proxy statement must have been sent to stockholders in connection with the
Business Combination. Such proxy statement must contain the recommendations, if
any, of the Continuing Directors, and of any investment banking firm selected by
a majority of the Continuing Directors, as to the fairness of the Business
Combination from the point of view of the stockholders.
If all of the foregoing conditions are met, the increased voting
requirements described above are dispensed with and the Business Combination
would require only such approval, if any, as would otherwise by required by
Indiana law.
Articles 10A. and 10B. are intended to provide minimum safeguards for
stockholders who do not accept a takeover attempt and continue to hold their
shares after the attempt succeeds and the control of Community is acquired by a
Related Person. The requirement of an 80.0% stockholder vote probably means that
a Business Combination which fails to meet the minimum price and other
conditions might not be accomplished against the opposition of the incumbent
Board of Directors.
The provisions would not restrict another company which merely desired to
exercise control over Community and did not intend to effect a subsequent
Business Combination. Moreover, these provisions may not
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apply to an attempted combination with a person not a Related Person. On the
other hand, if another company obtaining control over Community were not
willing to meet the price and other conditions of Article 10B., the holders
of just over one-fifth of the outstanding Voting Shares could block a
Business Combination supported by the remaining stockholders. The result is
that Business Combinations favored by a majority of stockholders might not be
approved. Article 10B. might also discourage a tender offer for Community's
stock because of the resulting need either to observe the minimum price
requirements or to obtain an 80.0% stockholder vote as a precondition to any
subsequent Business Combination. This might have the effect of preventing
temporary fluctuations in the market price of the stock of Community which
could result from actual or rumored takeover attempts.
In addition, the Indiana BCL contains a provision which, unless explicitly
provided for otherwise in a corporation's articles of incorporation or bylaws,
restricts the voting rights of shares acquired by a person
in excess of 20% of the outstanding shares, unless voting rights are granted by
resolution approved by a majority of the disinterested stockholders of the
corporation.
NCF's Certificate requires the affirmative vote of at least 80% of NCF's
outstanding shares entitled to vote in the election of director in order for NCF
to engage in or enter into certain "Business Combinations," as defined therein,
with any Principal Shareholder (as defined below) or any affiliates of the
Principal Shareholder, unless the proposed transaction has been approved in
advance by the NCF's Board of Directors, excluding those who were not directors
prior to the time the Principal Shareholder became the Principal Shareholder.
The term "Principal Shareholder" is defined to include any person and the
affiliates and associates of the person (other than NCF or its subsidiary) who
beneficially owns, directly or indirectly, 10% or more of the outstanding shares
of voting stock of NCF. Any amendment to this provision requires the affirmative
vote of at least 80% of the shares of NCF entitled to vote generally in an
election of directors.
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RESTRICTIONS ON ACQUISITION OF COMMUNITY
Restrictions in Community's Articles of Incorporation and Bylaws and Indiana
Law
Certain provisions of Community's Articles and Bylaws which deal with
matters of corporate governance and rights of stockholders might be deemed to
have a potential anti-takeover effect. These provisions, which are described
under "Comparison of Stockholders' Rights" above, provide, among other things,
(i) that the Board of Directors of Community shall be divided into three classes
as nearly equal in number as possible and that the members of each class shall
be elected for a term of three years, with one class being elected annually;
(ii) that special meetings of stockholders may only be called by the Board of
Directors of Community; (iii) that stockholders generally must provide Community
notice of stockholder nominations for director and proposals and related
information at least 60 days prior to the anniversary date of the mailing of
proxy materials by Community in connection with the immediately preceding annual
meeting of stockholders; (iv) that no person may acquire more than 10% of the
issued and outstanding shares of any class of an equity security of Community
during the five-year period from the date of consummation of the conversion of
the mutual holding company and the reorganization of Community in the holding
company form of ownership; (v) the authority to issue shares of authorized but
unissued Community Common Stock and Community Preferred Stock and to establish
the terms of any one or more series of Community Preferred Stock, including
voting rights; and (vi) restrictions on Community's ability to engage in certain
business combinations with "related persons." In addition to the foregoing, and
also as described under "Comparison of Stockholders' Rights" above, the Indiana
BCL generally restricts the voting rights of shares acquired by a person in
excess of 20% of the outstanding shares.
The foregoing provisions of Community's Articles and Bylaws and Indiana law
could have the effect of discouraging an acquisition of Community or stock
purchases in furtherance of an acquisition, and could accordingly, under certain
circumstances, discourage transactions which might otherwise have a favorable
effect on the price of the Community Common Stock.
In addition, certain provisions of Community stock benefit plans provide for
accelerated benefits to participants in the event of a change in control of
Community. The foregoing provisions and limitations may make it more costly for
companies or persons to acquire control of Community.
The Board of Directors believes that the provisions described above are
prudent and will reduce vulnerability to takeover attempts and certain other
transactions that are not negotiated with and approved by the Board of
Directors. The Board of Directors believes that these provisions are in the best
interests of Community and its stockholders. In the Board of Directors'
judgment, the Board of Directors is in the best position to determine the true
value of Community and to negotiate more effectively for what may be in the best
interests of its stockholders. Accordingly, the Board of Directors believes that
it is in the best interests of Community and its stockholders to encourage
potential acquirors to negotiate directly with the Board of Directors and that
these provisions will encourage such negotiations and discourage hostile
takeover attempts. It is also the Board of Directors' view that these provisions
should not discourage persons from proposing a merger or other transaction at
prices reflective of the true value of Community and where the transaction is in
the best interests of all stockholders.
REGULATORY RESTRICTIONS
The Change in Bank Control Act provides that no person, acting directly or
indirectly or through or in concert with one or more other persons, may acquire
control of any insured institution unless the appropriate federal banking agency
has been given 60 days' prior written notice. The Bank Holding Company Act
("BHCA") provides that no company may acquire "control" of a bank without the
prior approval of the Federal Reserve. Any company that acquires such control
becomes a bank holding company subject to registration, examination and
regulation by the Federal Reserve. Pursuant to federal regulations, control of a
bank is conclusively deemed to have been acquired by, among other things, the
acquisition of more than 25% of any class of voting stock of the institution or
the ability to control the election of a majority of the directors of an
institution. Moreover, control is presumed to have been acquired, subject to
rebuttal, in certain situations which may vary depending on the insured
depository institution's federal banking regulator. The appropriate federal
banking agency may prohibit an acquisition if (i) it would result in a monopoly
or substantially lessen competition, (ii) the financial condition of the
acquiring person might
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jeopardize the financial stability of the institution, or (iii) the
competence, experience or integrity of the acquiring person indicates that it
would not be in the interest of the depositors or of the public to permit the
acquisition of control by such person.
LEGAL OPINIONS
The legality of the shares of Community Common Stock to be issued in the
Merger, certain federal income tax consequences of the Merger, and certain other
legal matters relating to the Merger are being passed upon by Elias, Matz,
Tiernan & Herrick L.L.P., Washington, D.C., special counsel to Community.
EXPERTS
The consolidated financial statements of Community as of December 31, 1997
and 1996, and for each of the years in the three-year period ended December 31,
1997, have been incorporated by reference in this Joint Proxy
Statement/Prospectus in reliance upon the report of Monroe Shine & Co., Inc.,
independent certified public accountants, incorporated by reference, and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of NCF as of June 30, 1997 and 1996,
and for each of the years in the two-year period ended June 30, 1997, have been
included in this Joint Proxy Statement/Prospectus in reliance upon the report of
Whelan, Doerr, Pike & Pawley, PSC, independent certified public accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of NCF for the year ended June 30,
1995, have been included in this Joint Proxy Statement/Prospectus in reliance
upon the report of Crisp Hughes Evans LLP (formerly Crisp Hughes & Co., L.L.P.),
independent certified public accountants, appearing elsewhere herein and upon
the authority of said firm as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
Community
Any proposal which a stockholder wished to have included in the proxy
solicitation materials to be used in connection with the next Annual Meeting of
Stockholders of Community scheduled to be held in April 1999, must be received
at the principal executive offices of Community, Attention: Pamela P. Echols,
Assistant Corporate Secretary, no later than February 26, 1999.
Stockholder proposals which are not submitted for inclusion in Community's
proxy materials pursuant to Rule 14a-8 under the Exchange Act may be brought
before an annual meeting pursuant to Article 10.F of Community's Articles as
described above. See "Comparison of the Rights of Stockholders--Stockholder
Nominations and Proposals."
NCF
If the Merger is not consummated prior to NCF's annual meeting of
stockholders, any proposal which a stockholder wished to have included in NCF's
proxy statement and form of proxy relating to NCF's 1998 Annual Meeting of
Stockholders must have been received by NCF by June 4, 1998.
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ANNUAL REPORTS
A copy of Community's Annual Report to Stockholders for the year ended
December 31, 1997 accompanies this Proxy Statement. Such Annual Report is not a
part of the proxy solicitation materials.
Upon receipt of a written request, Community will furnish to any stockholder
without charge, a copy of the Community's Annual Report, on Form 10-K for fiscal
year 1997, as filed with the Securities and Exchange Commission under the 1934
Act. Such written requests should be directed to Pamela P. Echols, Assistant
Corporate Secretary, Community Bank Shares of Indiana, Inc., P.O. Box 939, New
Albany, Indiana 47151. The Form 10-K is not a part of the proxy solicitation
materials.
OTHER MATTERS
Management is not aware of any business to come before the Annual Meeting
other than the matters described above in this Proxy Statement. However, if any
matters should properly come before the Meeting, it is intended that proxies
solicited hereby will be voted with respect to those other matters in accordance
with the judgment of the persons voting the proxies.
The cost of the solicitation of proxies will be borne by Community.
Community will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending the proxy
materials to the beneficial owners of Community Common Stock. In addition to
solicitations by mail, directors, officers, and employees of Community may
solicit proxies personally or by telephone without additional compensation.
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INDEX TO NCF CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Reports of Independent Auditors............................................................................ F-1
Consolidated Balance Sheets at December 31, 1997 (unaudited) and June 30, 1997 and 1996 (audited).......... F-3
Consolidated Statements of Income for the six months ended December 31, 1997 and 1996 (unaudited) and for
the years ended June 30, 1997, 1996 and 1995 (audited)................................................... F-4
Consolidated Statements of Stockholders' Equity for the six months ended December 31, 1997 (unaudited) and
for the years ended June 30, 1997, 1996 and 1995 (audited)............................................... F-5
Consolidated Statements of Cash Flows for the six months ended December 31, 1997 and 1996 (unaudited) and
for the years ended June 30, 1997, 1996 and 1995 (audited)............................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
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[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
NCF Financial Corporation and Subsidiaries
Bardstown, Kentucky
We have audited the accompanying consolidated balance sheet of NCF Financial
Corporation and Subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the two-year period ended June 30, 1997. These consolidated
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The financial statements of the Corporation for
the year ended June 30, 1995 were audited by other auditors whose report dated
August 17, 1995, expressed an unqualified opinion on those statements.
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 consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated 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 NCF Financial
Corporation and Subsidiaries as of June 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the two-year
period ended June 30, 1997, in conformity with generally accepted accounting
principles.
/s/Whelan, Doerr, & Pike, PSC
- --------------------------------
Certified Public Accountants
Elizabethtown, Kentucky
July 31, 1997
except for Notes 13, 14,
and 15 to which the date
is January 30, 1998
F-1
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
Nelson County Federal Savings and Loan Association
Bardstown, Kentucky
We have audited the accompanying consolidated balance sheet of Nelson County
Federal Savings and Loan Association (Association) and Subsidiary as of June
30, 1995, and the related consolidated statements of income, retained
earnings, and cash flows for the year ended June 30, 1995. These financial
statements are the responsibility of the Association's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated 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 the Association
and Subsidiary as of June 30, 1995, and the results of their operations and
their cash flows for the year ending June 30, 1995, in conformity with
generally accepted accounting principles.
/s/ Crisp Hughes Evans LLP
-------------------------------
Asheville, North Carolina
August 17, 1995
F-2
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31 ----------------------------
1997 1997 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks............................................. $ 450,566 $ 200,370 $ 195,210
Interest-earning deposits........................................... 5,415,150 4,994,761 4,967,748
Loans receivable, net (Notes 1 and 2)............................... 28,009,756 27,046,450 28,861,111
Mortgage-backed securities (market value $130,299, $153,435,
$164,993, respectively (Notes 1 and 3)............................ 110,868 132,357 143,347
Real estate owned (Note 1).......................................... 286,753 724,486 --
Premises and equipment, net (Notes 1 and 4)......................... 583,222 518,898 50,823
Investment in Federal Home Loan Bank stock.......................... 457,900 441,700 412,100
Interest receivable................................................. 224,768 245,089 219,856
Deferred tax asset.................................................. 39,968 57,602 3,922
Other assets........................................................ 47,823 40,893 50,628
------------- ------------- -------------
TOTAL ASSETS.................................................... $ 35,626,774 $ 34,402,606 $ 34,904,745
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Savings deposits (Notes 1 and 5).................................. $ 22,983,957 $ 21,969,434 $ 22,741,108
Accrued expenses and other liabilities............................ 345,844 379,555 246,856
Income taxes payable (Notes 1 and 6).............................. 16,861 3,342 113,680
------------- ------------- -------------
TOTAL LIABILITIES............................................... 23,346,662 22,352,331 23,101,644
COMMITMENTS (Note 2)................................................ -- -- --
STOCKHOLDERS' EQUITY (Note 7):
Serial preferred stock, $.01 par value per share; 100,000 shares
authorized and unissued......................................... -- -- --
Common stock, $.10 par value per share; authorized 1,400,000
shares; issued and outstanding, 792,609 shares in 1997 and
770,500 shares in 1996.......................................... 79,261 79,261 77,050
Additional paid-in capital........................................ 7,594,705 7,580,976 7,269,787
Retained earnings-substantially restricted........................ 5,180,638 5,017,571 4,918,436
Unearned employee stock ownership plan............................ (387,500) (412,500) (462,172)
Unearned stock compensation plan.................................. (186,992) (215,033) --
------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY...................................... 12,280,112 12,050,275 11,803,101
------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................... $ 35,626,774 $ 34,402,606 $ 34,904,745
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
-------------------------- ----------------------------------------
1997 1996 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans.................................... $ 1,250,244 $ 1,144,988 $ 2,249,202 $ 2,245,497 $ 1,895,727
Mortgage-backed securities............... 7,151 8,276 19,725 20,115 28,056
Interest-earning deposits................ 155,132 151,794 303,799 257,541 106,416
------------ ------------ ------------ ------------ ------------
TOTAL INTEREST INCOME.................. 1,412,527 1,305,058 2,572,726 2,523,153 2,030,199
INTEREST EXPENSE:
Deposit accounts......................... 534,725 532,500 1,042,768 1,105,006 980,945
Federal Home Loan Bank advances.......... -- -- -- 17,623 26,673
------------ ------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE................. 534,725 532,500 1,042,768 1,122,629 1,007,618
------------ ------------ ------------ ------------ ------------
NET INTEREST INCOME.................... 877,802 772,558 1,529,958 1,400,524 1,022,581
Provision for loan losses (Notes 1 and 2).. 8,000 8,000 16,000 61,000 20,000
------------ ------------ ------------ ------------ ------------
Net interest income after provision for
loan losses.............................. 869,802 764,558 1,513,958 1,339,524 1,002,581
OTHER INCOME:
Loan fees and service charges............ 19,426 11,256 19,645 23,341 15,975
Other.................................... -- -- -- -- 2,336
------------ ------------ ------------ ------------ ------------
TOTAL OTHER INCOME..................... 19,426 11,256 19,645 23,341 18,311
OTHER EXPENSES:
Compensation and employee benefits....... 277,860 235,786 579,190 471,462 326,154
Net occupancy expense.................... 26,072 14,033 34,333 26,388 23,617
Deposit insurance premiums............... 10,183 181,723 190,154 57,374 52,540
Data processing.......................... 23,229 19,294 37,557 34,203 34,029
State franchise and other taxes.......... 24,853 21,872 46,498 27,565 26,256
Professional fees........................ 53,633 34,597 57,832 77,543 12,475
Other operating expenses................. 53,580 46,128 82,533 67,782 58,270
------------ ------------ ------------ ------------ ------------
TOTAL OTHER EXPENSES................... 469,410 553,433 1,028,097 762,317 533,341
------------ ------------ ------------ ------------ ------------
Income before income taxes................. 419,818 222,381 505,506 600,548 487,551
Income taxes (Notes 1 and 6)............... 143,798 73,594 177,845 202,758 170,998
------------ ------------ ------------ ------------ ------------
NET INCOME................................. $ 276,020 $ 148,787 $ 327,661 $ 397,790 $ 316,553
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
BASIC EARNINGS PER SHARE (Notes 7 and 15).. $ .37 $ .20 $ .44 $ .36 $ --
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
DILUTIVE EARNINGS PER SHARE (Notes 7
and 15).................................. $ .37 $ .20 $ .44 $ .36 $ --
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
PRO-FORMA NET INCOME PER SHARE OF COMMON
STOCK (Note 7)........................... $ -- $ -- $ -- $ .66 $ --
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNEARNED
EMPLOYEE UNEARNED
COMMON ADDITIONAL STOCK STOCK
STOCK COMMON PAID-IN RETAINED OWNERSHIP COMPENSATION
SHARES STOCK CAPITAL EARNINGS PLAN PLAN TOTAL
--------- --------- ------------ ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 1, 1994......... -- $ -- $ -- $ 4,319,668 $ -- $ -- $ 4,319,668
Net income.................... -- -- -- 316,553 -- -- 316,553
--------- --------- ------------ ------------ ----------- ------------- -------------
BALANCE, June 30, 1995........ -- -- -- 4,636,221 -- -- 4,636,221
Net income.................... -- -- -- 397,790 -- -- 397,790
Net proceeds from sale of
common stock................ 770,500 77,050 7,258,687 -- (500,000) -- 6,835,737
Fair value of shares committed
to be released from ESOP
plan........................ -- -- 11,100 -- 37,828 -- 48,928
Cash dividend paid............ -- -- -- (115,575) -- -- (115,575)
--------- --------- ------------ ------------ ----------- ------------- -------------
BALANCE, June 30, 1996........ 770,500 77,050 7,269,787 4,918,436 (462,172) -- 11,803,101
Net income.................... -- -- -- 327,661 -- -- 327,661
Issuance of shares for stock
compensation plan........... 23,115 2,312 298,183 -- -- (300,495) --
Compensation expense under
stock compensation plan..... (1,006) (101) (7,409) -- -- 85,462 77,952
Fair value of shares committed
to be released from ESOP
plan........................ -- -- 20,415 -- 49,672 -- 70,087
Cash dividends paid........... -- -- -- (228,526) -- -- (228,526)
--------- --------- ------------ ------------ ----------- ------------- -------------
BALANCE, June 30, 1997........ 792,609 79,261 7,580,976 5,017,571 (412,500) (215,033) 12,050,275
Net income six months ended
December 31, 1997
(unaudited)................. -- -- -- 276,020 -- -- 276,020
Compensation expense under
stock compensation plan
(unaudited)................. -- -- 2,157 -- -- 28,041 30,198
Fair value of shares committed
to be released from ESOP
plan (unaudited)............ -- -- 11,572 -- 25,000 -- 36,572
Cash dividends paid
(unaudited)................. -- -- -- (112,953) -- -- (112,953)
--------- --------- ------------ ------------ ----------- ------------- -------------
BALANCE, December 31, 1997
(unaudited)................. 792,609 $ 79,261 $ 7,594,705 $ 5,180,638 $ (387,500) $ (186,992) $ 12,280,112
--------- --------- ------------ ------------ ----------- ------------- -------------
--------- --------- ------------ ------------ ----------- ------------- -------------
See notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
------------------------ ----------------------------------
1997 1996 1997 1996 1995
----------- ----------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income..................................... $ 276,020 $ 148,787 $ 327,661 $ 397,790 $ 316,553
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................. 14,389 7,251 15,868 16,808 14,378
Provision for loan losses.................... 8,000 8,000 16,000 61,000 20,000
Deferred income taxes (benefit).............. 17,634 (26,804) (53,680) (53,922) --
FHLB dividends received in stock............. (16,200) (14,500) (29,600) (27,500) (23,400)
Amortization of deferred loan origination.... (7,208) (280) (545) (1,815) (1,255)
Accretion of discounts on mortgage-backed.... (406) (117) (248) (884) (1,868)
Increase (decrease) in allowance for uncol-
lectible interest.......................... (55,716) 55,334 97,534 15,735 (586)
Increase in interest receivable.............. 76,037 (134,910) (122,767) (116,785) (28,754)
Decrease (increase) in other assets.......... (6,930) (20,590) 9,735 11,913 (14,918)
Increase in accrued expenses and other
liabilities................................ (33,711) (48,992) 132,699 86,196 55,358
(Decrease) increase in current income taxes.. 13,519 (143,283) (110,338) 110,680 3,000
ESOP and stock compensation plan expense..... 66,770 33,328 148,039 48,928 --
----------- ----------- ---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES........ 352,198 (136,776) 430,358 548,144 338,508
INVESTING ACTIVITIES:
Principal payments on mortgage-backed
securities................................... 21,895 5,324 11,238 39,486 94,250
Net decrease (increase) in loans originated.... (694,098) 971,882 1,074,720 (2,346,092) (4,011,667)
Proceeds from sale of foreclosed assets........ 167,733 -- -- -- --
Acquisition of premises and equipment.......... (78,713) (254) (483,943) (3,000) (38,163)
----------- ----------- ---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES..................................... (583,183) 976,952 602,015 (2,309,606) (3,955,580)
FINANCING ACTIVITIES:
Net (decrease) increase in deposits............ 1,014,523 (378,336) (771,674) (431,320) 92,775
Advances (repayments) from FHLB................ -- -- -- (700,000) 700,000
Stock conversion cost.......................... -- -- -- (234,187) (135,076)
Initial stock offering......................... -- -- -- 7,705,000 --
Dividends paid................................. (112,953) (108,950) (228,526) (115,575) --
ESOP loan...................................... -- -- -- (500,000) --
----------- ----------- ---------- ---------- ----------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES..................................... 901,570 (487,286) (1,000,200) 5,723,918 657,699
----------- ----------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 670,585 352,890 32,173 3,962,456 (2,959,373)
CASH AND CASH EQUIVALENTS, beginning of year..... 5,195,131 5,162,958 5,162,958 1,200,502 4,159,875
----------- ----------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year........... $5,865,716 $5,515,848 $5,195,131 $5,162,958 $1,200,502
----------- ----------- ---------- ---------- ----------
----------- ----------- ---------- ---------- ----------
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the more significant accounting policies
which NCF Financial Corporation follows in preparing and presenting its
consolidated financial statements:
1. Principles of Consolidation--The consolidated financial statements include
the accounts of NCF Financial Corporation (the Corporation) and its
wholly-owned subsidiary, NCF Bank and Trust Co. (the Bank) and its
wholly-owned subsidiary, Nelson Service Corporation. Intercompany balances
and transactions have been eliminated. The impact of Nelson Service
Corporation (NSC) on the consolidated financial statements is
insignificant. NSC has no operating activity other than to own stock in a
third-party service bureau.
2. Loans Receivable--Loans receivable are carried at their unpaid principal
balance less net deferred loan fees and allowances for losses.
The Bank maintains allowances for losses on loans when a significant and
probable decline in value occurs and for losses on real estate acquired in
settlement of loans. Loan loss provisions are charged to income when, in
the opinion of management, such losses for which no provision has been
made are expected to be incurred. Interest on loans that are contractually
past due more than 90 days is charged to an allowance and recognized as a
reduction in interest income.
The allowance for loan losses is based upon an evaluation of the loan
portfolio. The evaluation considers such factors as the delinquency status
of loans, current economic conditions, the net realizable value of the
underlying security and prior loan loss experience.
Recovery of the carrying value of loans is dependent to some extent on
future economic, operating and other conditions that may be beyond the
Bank's control. Unanticipated future adverse changes in such conditions
could result in material adjustments to allowances and therefore, the
future results of operations.
The Financial Accounting Standards Board (FASB) issued Statement No. 114,
"Accounting by Creditors for Impairment of a Loan" . It requires that
impaired loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a
practical matter, at the loan's observable market value or fair value of
the collateral if the loan is collateral dependent. The Statement applies
to financial statements for fiscal years beginning after December 15,
1994. The adoption of this statement did not affect the level of the
overall allowance or the operating results. The Bank defines the
population of impaired loans to be all non-accrual loans.
Loan fees resulted from the origination of certain mortgage loans. Such
fees are deferred ("deferred loan fees")and reflected as a reduction of
the carrying value of mortgage loans. The deferred fees are amortized
using the interest method over the contractual lives of the loans.
The Bank does not charge any loan fees in connection with the origination
of current mortgage loan production. Also, loan origination costs such as
attorney and appraisal fees are paid directly by the borrower. The only
cost incurred by the Bank is the time required to process the loan
application and minimal supplies. Management has determined that
capitalization of these costs is immaterial with respect to the Bank's
yield on mortgage loans. The Bank continues to have deferred loan
origination fees for loans prior to July 1, 1988 and some loans originated
in 1992 which are being amortized to income on the interest level yield
method.
F-7
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Bank's primary lending area is Nelson County, Kentucky. The economy
within this market area is economically diverse, including a variety of
manufacturing industries. The Bank's primary lending activity is the
origination of residential real estate loans secured by first mortgage for
the purpose of acquisition or construction of one-to-four family
residential properties.
3. Securities--The Corporation records securities under Statement of
Financial Accounting Standards No. 115 (SFAS No. 115) "Accounting for
Certain Investments in Debt and Equity Securities", which requires the
classification of securities into three categories: held-to-maturity,
available-for-sale, or trading. Based upon a periodic review of the
investment portfolio, debt securities in which the Corporation has a
positive intent and ability to hold are classified as held-to-maturity and
are carried at cost adjusted for the amortization of premiums and
discounts using the interest method over the terms of the securities.
Gains and losses on the sale of investment securities are determined using
the specific identification method.
Debt and equity securities which do not fall into this category, nor held
for the purpose of selling in the near term are classified as
available-for-sale. Unrealized holding gains and losses, net of income
tax, on available-for-sale securities are reported as a net amount in a
separate component of stockholders' equity until realized. No securities
have been classified as trading securities or available-for-sale.
4. Real Estate Owned--Real estate properties acquired through foreclosure and
in settlement of loans are stated at the lower of cost or fair value less
estimated selling costs at the date of foreclosure. The excess of cost
over fair value less the estimated costs to sell at the time of
foreclosure is charged to the allowance for loan losses. Costs relating to
development and improvement of property are capitalized, whereas costs
relating to holding property are not capitalized and are charged against
operations in the current period.
5. Premises and Equipment--Premises and equipment are carried at cost less
accumulated depreciation. Depreciation is computed by the straight-line
method over the estimated useful lives of the assets.
6. Federal Home Loan Bank Stock--Investment in stock of a Federal Home Loan
Bank is required by law of every federally insured savings and loan or
savings bank. The investment is carried at cost. No ready market exists
for the stock, and it has no quoted market value.
7. Income Taxes--Deferred income taxes have been provided on income and
expenses reported for financial statement purposes in periods which differ
from those in which they are reported for income tax purposes.
8. Estimates and Assumptions--The preparation of consolidated 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 consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
9. Cash Flows--For purposes of the statement of cash flows, the Corporation
considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents. Cash and cash equivalents
include cash on hand and amounts due from banks.
10. Advertising Costs--The Corporation expenses all advertising costs when
they are incurred.
11. Reclassifications--Certain amounts for 1996 and 1995 have been
reclassified to conform to the presentation for 1997.
F-8
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30,
1997 ----------------------------
1997 1996
------------- ------------- -------------
<S> (UNAUDITED)
<C> <C> <C>
Real estate first mortgage loans:
One-to-four family.............................................. $ 24,569,206 $ 23,438,389 $ 25,661,820
Construction.................................................... 3,130,796 3,672,475 3,314,295
Multi-family residential........................................ 454,404 460,436 150,982
Non-residential................................................. 430,737 629,057 314,843
------------- ------------- -------------
Total real estate loans......................................... 28,585,143 28,200,357 29,441,940
Consumer loans:
Loans secured by deposit accounts............................... 148,283 102,857 69,466
Other........................................................... 351,085 59,929 --
------------- ------------- -------------
Total consumer loans............................................ 499,368 162,786 69,466
------------- ------------- -------------
Total loans..................................................... 29,084,511 28,363,143 29,511,406
Less:
Undisbursed portion of loans in process......................... 889,547 1,132,277 481,334
Net deferred loan origination fees.............................. -- 7,208 7,753
Allowance for loan losses....................................... 185,208 177,208 161,208
------------- ------------- -------------
1,074,755 1,316,693 650,295
------------- ------------- -------------
$ 28,009,756 $ 27,046,450 $ 28,861,111
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Management of the Bank believes that its allowance for losses on its loan
portfolio are adequate. However, the estimates used by management in
determining the adequacy of such allowances are susceptible to significant
changes due primarily to changes in economic and market conditions. In
addition, various regulatory agencies periodically review the Bank's allowance
for losses as an integral part of their examination processes. Such agencies
may require the Bank to recognize additions to the allowances based on their
judgments of information available to them at the time of their examinations.
The changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31 YEARS ENDED JUNE 30,
------------ ----------------------
1997 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
(UNAUDITED)
Beginning balance........................................................ $ 177,208 $ 161,208 $ 100,208
Provision for loan losses................................................ 8,000 16,000 61,000
Net charge-offs.......................................................... -- -- --
------------ ---------- ----------
Ending balance........................................................... $ 185,208 $ 177,208 $ 161,208
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
The Bank had outstanding commitments for mortgage loans of approximately
$532,000, $450,000 and $300,000 at December 31, 1997 (unaudited), and June 30,
1997 and 1996, respectively, and $105,000 for consumer loans at December 31,
1997 (unaudited). The commitments to originate loans at December 31, 1997
(unaudited)and June 30, 1997 and 1996, were entirely composed of variable rate
loans.
The Bank did not participate in the servicing of loans for others on any of
the dates presented in these financial statements.
F-9
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LOANS RECEIVABLE (CONTINUED)
Information about the Bank's investment in impaired loans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------ ----------------------
1997 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
(UNAUDITED)
Impaired loans with no related allowances........ $ 191,000 $ 191,000 $ 755,000
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 YEAR ENDED JUNE 30,
---------------------- ---------------------------------
1997 1996 1997 1996 1995
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Average impaired loans outstanding.............. $ 191,000 $ 755,000 $ 903,000 $ 828,000 $ 73,000
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Interest income recognized...................... $ 46,709 $ -- $ -- $ 704 $ --
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Interest income received........................ $ 46,709 $ -- $ -- $ 704 $ --
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
</TABLE>
Impaired loans were $191,000, $191,000 and $755,000 at December 31, 1997
(unaudited) and June 30, 1997 and 1996, respectively. Interest income in
the amount of $8,031 and $55,334 for the six months ended December 31,
1997 and 1996 (unaudited) and $97,534, $16,439 and $704 for the year ended
June 30, 1997, 1996 and 1995, respectively, would have been recorded on
impaired loans if they had been performing in accordance with their
contractual terms.
3. MORTGAGE-BACKED SECURITIES
The amortized cost basis and fair values of mortgage-backed securities are
summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED GROSS GROSS
COST UNREALIZED UNREALIZED FAIR
BASIS GAINS LOSSES VALUE
---------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY:
December 31, 1997:
GNMA Certificates (unaudited)............ $ 110,868 $ 19,431 $ -- $ 130,299
---------- ----------- --------- ----------
---------- ----------- --------- ----------
June 30, 1997:
GNMA Certificates........................ $ 132,357 $ 21,078 $ -- $ 153,435
---------- ----------- --------- ----------
---------- ----------- --------- ----------
June 30, 1996:
GNMA Certificates........................ $ 143,347 $ 21,646 $ -- $ 164,993
---------- ----------- --------- ----------
---------- ----------- --------- ----------
</TABLE>
There were no sales during the six months ended December 31, 1997 and 1996
(unaudited) and the years ended June 30, 1997, 1996 and 1995. Expected
maturities of mortgage-backed securities may differ from contractual
maturities because the mortgages underlying the obligations may be prepaid
without penalties.
F-10
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30,
------------ ---------------------
1997 1997 1996
------------ ---------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Land and improvements............................ $ 9,750 $ 9,750 $ 9,750
Office buildings and improvements................ 559,026 559,026 85,770
Furniture, fixtures and equipment................ 191,625 133,147 122,460
Automobiles...................................... 49,099 28,864 28,864
------------ ---------- ---------
809,500 730,787 246,844
Less accumulated depreciation.................... 226,278 211,889 196,021
------------ ---------- ---------
$ 583,222 $ 518,898 $ 50,823
------------ ---------- ---------
------------ ---------- ---------
</TABLE>
On February 1, 1996, the Bank leased land under a twenty year operating lease
agreement. The lease includes options to extend the terms of the lease for an
additional ten years. Rental expense was $4,800 for the six months ended
December 31, 1997 and 1996 (unaudited) and $9,600 and $4,000 for the year
ended June 30, 1997 and 1996, respectively. Future minimum commitments under
this non-cancelable lease are:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
DECEMBER 31, JUNE 30,
1997 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
1998............................................................... $ 4,800 $ 9,600
1999............................................................... 9,600 9,600
2000............................................................... 9,600 9,600
2001............................................................... 10,600 10,600
2002............................................................... 12,000 12,000
Thereafter......................................................... 211,720 211,720
------------ -----------
Total.............................................................. $ 258,320 $ 263,120
------------ -----------
------------ -----------
</TABLE>
5. SAVINGS DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE RATE AVERAGE RATE DECEMBER 31, JUNE 30,
------------- ------------ -------------------- ------------------------------------------
DECEMBER 31, JUNE 30, 1997 1997 1996
------------- ------------ -------------------- -------------------- --------------------
1997 1997 1996 AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------- ----- ----- ----------- ------- ----------- ------- ----------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand & NOW Accounts........ 3.06% 2.63% 2.90% $ 3,221,042 14.01% $ 1,370,818 6.24% $ 1,123,564 4.94%
Money Market................. -- 2.90 2.90 -- -- 1,495,144 6.80 1,466,484 6.45
Passbook Savings............. 3.13 3.08 3.06 3,189,791 13.88 2,870,799 13.07 2,960,115 13.02
----------- ------- ------------ ------- ----------- -------
6,410,833 27.89 5,736,761 26.11 5,550,163 24.41
Certificates of Deposit
3.01%-4.00%.............. 87,039 .38 85,252 .39 58,695 .26
4.01%-5.00%.............. 9,599,539 41.77 9,402,342 42.80 6,200,845 27.27
5.01%-6.00%.............. 6,157,528 26.79 6,031,037 27.45 9,563,514 42.05
6.01%-7.00%.............. 729,018 3.17 714,042 3.25 1,367,891 6.01
----------- ------- ------------ ------- ----------- -------
16,573,124 72.11 16,232,673 73.89 17,190,945 75.59
----------- ------- ------------ ------- ----------- -------
$22,983,957 100.00% $21,969,434 100.00% $22,741,108 100.00%
----------- ------- ------------ ------- ----------- -------
----------- ------- ------------ ------- ----------- -------
</TABLE>
F-11
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SAVINGS DEPOSITS (CONTINUED)
Scheduled maturities of certificates of deposit are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1997
----------------------------------------- -----------------------------------------
AMOUNT AVERAGE RATE PERCENT AMOUNT AVERAGE RATE PERCENT
------------- --------------- --------- ------------- --------------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
1998.................... $ 12,896,800 5.43% 77.82% $ 12,400,240 5.23% 76.39%
1999.................... 3,162,943 5.86 19.09 3,494,382 5.67 21.53
2000.................... 270,119 5.48 1.63 222,575 5.70 1.37
2001.................... 234,262 5.78 1.41 106,476 5.52 .66
2002.................... -- -- -- -- -- --
Thereafter.............. 9,000 5.14 .05 9,000 5.14 .05
------------- --------- ------------- ---------
$ 16,573,124 100.00% $ 16,232,673 100.00%
------------- --------- ------------- ---------
------------- --------- ------------- ---------
</TABLE>
The average interest rate on the savings deposit portfolio, computed without
effect of compounding daily interest, at December 31, 1997 (unaudited) and
June 30, 1997 and 1996 was 4.65%, 4.70% and 4.83%, respectively.
The Bank had certificates of deposit with balances of $100,000 or more of
$945,098, $1,437,802 and $1,485,562 at December 31, 1997 (unaudited) and June
30, 1997 and 1996, respectively.
A summary of interest expense on deposits is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
---------------------- --------------------------------------
1997 1996 1997 1996 1995
---------- ---------- ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Passbook Savings............. $ 44,755 $ 43,596 $ 85,372 $ 85,817 $ 105,576
Money Market & NOW
Accounts................... 43,436 36,157 75,127 75,748 91,917
Certificates of Deposit...... 446,534 452,747 882,269 943,441 783,452
---------- ---------- ------------ ------------ ----------
$ 534,725 $ 532,500 $ 1,042,768 $ 1,105,006 $ 980,945
---------- ---------- ------------ ------------ ----------
---------- ---------- ------------ ------------ ----------
</TABLE>
6. INCOME TAXES
The Corporation and its subsidiaries file a consolidated federal income tax
return and income tax is apportioned among all companies based on their
taxable income or loss. Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
---------------------- ----------------------------------
1997 1996 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current.......................... $ 126,164 $ 100,398 $ 231,525 $ 256,680 $ 170,998
Deferred provision (benefit)..... 17,634 (26,804) (53,680) (53,922) --
---------- ---------- ---------- ---------- ----------
Total............................ $ 143,798 $ 73,594 $ 177,845 $ 202,758 $ 170,998
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
F-12
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The effective tax rate differs from the federal statutory rate of 34% due to
the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
-------------------- -------------------------------
1997 1996 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory tax rate...................................... 34.0% 34.0% 34.0% 34.0% 34.00%
Increase (decrease) resulting from:
Other--net............................................ .3 (.9) 1.2 (.2) 1.07
--------- --------- --------- --------- ---------
Effective tax rate...................................... 34.3% 33.1% 35.2% 33.8% 35.07%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Temporary differences between the financial statements carrying amounts
and tax bases of assets and liabilities that give rise to significant
portions of deferred income taxes, relate to the following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, --------------------
1997 1997 1996
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Deferred loan origination fees......................... $ -- $ 2,450 $ 2,636
Bad debt reserves...................................... 36,799 34,079 28,327
Reserve for uncollectible interest..................... 19,807 38,751 5,589
Post-retirement benefits............................... 87,544 73,559 39,919
------------ --------- ---------
144,150 148,839 76,471
Deferred tax liabilities:
Basis difference in FHLB stock......................... 84,826 79,288 69,224
Depreciation differences............................... 19,356 11,949 3,325
------------ --------- ---------
104,182 91,237 72,549
------------ --------- ---------
Net deferred tax asset................................... $ 39,968 $ 57,602 $ 3,922
------------ --------- ---------
------------ --------- ---------
</TABLE>
The Bank's annual addition to its reserve for bad debts allowed under the
Internal Revenue Code may differ significantly from the bad debt experience
used for financial statement purposes. Such bad debt deductions for income tax
purposes are included in taxable income of later years only if the bad debt
reserves are used for purposes other than to absorb bad debt losses. Since the
Bank does not intend to use the reserve for purposes other than to absorb
losses, no deferred income taxes have been provided on the amount of bad debt
reserves for tax purposes that arose in tax years beginning before December
31, 1987, in accordance with SFAS No. 109. Therefore, retained earnings at
December 31, 1997 (unaudited) and June 30, 1997 and 1996 includes
approximately $1,174,000, representing such bad debt deductions for which no
deferred income taxes have been provided. In August, 1996, legislation was
passed by Congress that repealed the percentage of taxable income bad debt
deduction and requires recapture of the excess of bad debt reserves over the
base year reserve as of December 31, 1987. For years subsequent to the base
year, deferred taxes have been recorded; thus, no additional tax provision is
required as a result of this legislation.
F-13
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. STOCKHOLDERS' EQUITY
1. Stock Conversion--Effective October 12, 1995, the Bank converted from a
federally-chartered mutual savings and loan association to a
federally-chartered capital stock savings and loan association. In
connection with the conversion, 770,500 shares of common stock were sold at
$10.00 per share. Net proceeds from the sale of stock were $7,335,737 after
conversion costs of $369,263.
2. Net Worth/Dividend Restrictions--For the purpose of granting to eligible
savings account holders a priority in the event of future liquidation, the
Savings Bank established a special account in an amount equal to its total
retained income of $4,636,221 at June 30, 1995. In the event of future
liquidation (and only in such an event), an eligible account holder who
continues to maintain a savings account will be entitled to receive a
distribution from the special account. The total amount of the special
account decreases in an amount proportionately corresponding to decreases in
the savings account balances of eligible account holders on each subsequent
annual determination date.
The Savings Bank may not declare or pay a cash dividend on any of its
capital stock if the effect thereof would cause the net worth of the Savings
Bank to be reduced below the amount required for the liquidation account.
Additionally, federal regulations limit dividend and capital distributions
during a calendar year to the greater of: 100 percent of the Bank's current
net income plus the amount that would reduce by one-half its surplus capital
ratio at the beginning of the calendar year; or 75 percent of its net income
over the most recent four-quarter period.
3. Earnings Per Share--The following details the amounts used in computing
earnings per share and the effect on income and the weighted average number
of shares of dilutive potential common stock.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income available to common stockholders used in
basic EPS and dilutive EPS........................... $ 276,020 $ 148,787 $ 327,661 $ 262,795
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of common shares used in basic
EPS.................................................. 752,609 748,640 749,675 728,813
Effect of dilutive securities: Stock options........... 2,455 330 330 --
---------- ---------- ---------- ----------
Weighted number of common shares and dilutive potential
common stock used in diluted EPS..................... 755,064 748,970 750,005 728,813
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic EPS.............................................. $ .37 $ .20 $ .44 $ .36
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Dilutive EPS........................................... $ .37 $ .20 $ .44 $ .36
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Net income per share of common stock from the date of conversion, October
12, 1995 to June 30, 1996 is computed by dividing net income for the
period by the weighted average number of shares of common stock issued
and outstanding for the period.
A proforma net income of $.66 per share of common stock for the year
ended June 30, 1996 has been calculated as if the 770,500 common shares
were issued on July 1, 1995. Adjustments were made to net income by
assuming that the net proceeds were available for investment by the
Savings Bank at the weighted average interest rate on all
interest-earning assets from July 1, 1995 through October 12, 1995.
F-14
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
4. Regulatory Capital Requirements--The Bank is subject to various regulatory
capital requirements administered by the state banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by the state banking agencies
that, if undertaken, could have a direct material effect on the
Corporation's financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, a bank must meet
specific capital guidelines that involve quantitative measures of a bank's
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The amounts and classification of a bank's
capital are also subject to qualitative judgments by the state banking
agencies about components, risk weightings, and other factors. Qualitative
measures established by regulation to ensure capital adequacy and to be
classified as "well capitalized" require the Bank to maintain minimum
amounts and ratios of risk-based, Tier I and leverage capital as set forth
in the following table. In their evaluation of capital adequacy, the
regulators assess exposure to declines in the economic value of the Bank's
capital adequacy, as well as exposure to declines in the economic value of
capital due to changes in interest rates. As of June 30, 1997, the most
recent notification from state banking agencies categorized the Bank as
"well capitalized" under the regulatory framework for prompt corrective
action. There are no conditions or events since that notification that
management believes have changed the Bank's category.
<TABLE>
<CAPTION>
TO BE CONSIDERED
WELL CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTION
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------------- ------------------------- -------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997: (unaudited)
Total risk-based capital (to risk-weighted
assets)....................................... $ 9,135,000 60.0% $ 1,217,000 8.0% $ 1,521,300 10.0%
Tier I capital (to risk-weighted assets)...... $ 8,950,000 58.8% $ 608,500 4.0% $ 912,800 6.0%
Tier I leverage (to average assets)........... $ 8,950,000 27.6% $ 1,296,800 4.0% $ 1,621,000 5.0%
As of June 30, 1997:
Total risk-based capital (to risk-weighted
assets)..................................... $ 8,785,000 53.5% $ 1,312,800 8.0% $ 1,641,000 10.0%
Tier I capital (to risk-weighted assets)...... $ 8,608,000 52.5% $ 656,400 4.0% $ 984,600 6.0%
Tier I leverage (to average assets)........... $ 8,608,000 26.7% $ 1,292,000 4.0% $ 1,615,000 5.0%
As of June 30, 1996:
Total risk-based capital (to risk-weighted
assets)..................................... $ 8,376,000 40.7% $ 1,647,600 8.0% $ 2,059,500 10.0%
Tier I capital (to risk-weighted assets)...... $ 8,215,000 39.9% $ 823,800 4.0% $ 1,235,700 6.0%
Tier I leverage (to average assets)........... $ 8,215,000 23.9% $ 1,373,720 4.0% $ 1,717,150 5.0%
</TABLE>
8. EMPLOYEE BENEFIT PLANS AND POST-RETIREMENT BENEFITS
1. Pension Plan--The Savings Bank is a participant in the Financial
Institutions Retirement Fund (FIRF), a multi-employer defined benefit
pension plan covering substantially all employees. Employees are 100% vested
at the completion of five years of participation in the plan. The Savings
Bank's policy is to contribute annually the minimum funding amounts.
Employer contributions charged to operations for year ended June 30, 1996
were $3,264. No expense was recorded for the six months ended December 31,
1997 and 1996 (unaudited). The plan was fully funded for years ended June
30, 1997 and 1995, thus requiring no contributions.
2. Employee Stock Ownership Plan--Savings Bank--Effective October, 1995, the
Board of Directors of the Bank formally adopted the Nelson County Federal
Employee Stock Ownership Plan (ESOP). Employees are eligible to participate
in the ESOP upon completion of one year of service. Employees are vested in
accordance with a schedule which provides for 100% vesting upon completion
of five years of service.
F-15
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLANS AND POST-RETIREMENT BENEFITS (CONTINUED)
In October, 1995, the plan borrowed $500,000 from the Corporation to
purchase 50,000 shares of the Corporation's common stock. The loan
matures in October, 2005 and interest is payable annually at a rate of
6.0%. The obligation of the ESOP to repay the debt is guaranteed by the
Savings Bank; therefore, the unpaid balance of the borrowings has been
eliminated under principles of consolidation in the accompanying
consolidated balance sheets.
The Bank makes annual contributions to the ESOP equal to the ESOP's debt
service. In addition, all dividends received by the ESOP are used to pay
debt service. The ESOP shares initially were pledged as collateral for
its debt. As the debt is repaid, shares are released from collateral and
allocated to active employees, based on a principal plus interest
formula. The Bank accounts for its ESOP in accordance with Statement of
Posit 93-6. Accordingly, the shares pledged as collateral are reported as
unearned ESOP shares in the statement of financial position as a
deduction from stockholders' equity. As shares are released from
collateral, the Bank reports compensation expense equal to the current
market price of the shares. Only shares released for allocation are
treated as outstanding for earnings-per-share computations. Only
dividends that are paid on shares released for allocation are recorded as
a reduction to retained earnings. The dividends on unreleased shares used
to pay debt service are reported as a reduction to debt service expense.
ESOP compensation expense was $35,009 and $33,862 for the six months
ended December 31, 1997 and 1996 (unaudited) and $67,962 and $41,428 for
the year ended June 30, 1997 and 1996, respectively. The ESOP shares were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
------------ ----------
(UNAUDITED)
<S> <C> <C>
Allocated shares............................................... 11,250 8,737
Shares released for allocation................................. -- 13
Unreleased shares.............................................. 38,750 41,250
------------ ----------
Total ESOP shares.............................................. 50,000 50,000
------------ ----------
------------ ----------
Fair value of unreleased shares................................ $ 697,500 $ 577,500
------------ ----------
------------ ----------
</TABLE>
3. Stock Option Plan--Under the 1995 Stock Option Plan, the Corporation may
grant either incentive or non-incentive stock options to officers, directors
and key employees for an aggregate of 77,050 shares of the Corporation's
common stock at not less than fair market value at the date such options are
granted. The option to purchase shares expires ten years after the date of
grant. The Corporation applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees". Accordingly, no compensation cost has been recognized
for its plan. Had compensation cost for the Corporation's Stock Option Plan
been determined based on the fair value at the grant dates for awards under
the plan consistent with the method of SFAS No. 123, "Accounting for
Stock-Based Compensation", the Corporation's net income and earnings per
share would have been restated to the pro-forma amounts indicated below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
DECEMBER 31, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income: As reported............. $ 276,020 $ 148,798 $ 327,661 $ 397,790
Pro-forma............... $ 251,254 $ 115,180 $ 264,114 $ 386,730
Earnings per share: As reported..... $ .37 $ .20 $ .44 $ .34
Pro-forma....... $ .33 $ .15 $ .35 $ .33
</TABLE>
F-16
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLANS AND POST-RETIREMENT BENEFITS (CONTINUED)
A summary of the Corporation's Stock Option Plan is presented below:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 1996
-------------------------- -------------------------- --------------------------
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------- ----------- ------------- ----------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period........................... 57,784 $ 13.92 57,784 $ 13.92 -- $ --
Granted............................ -- -- -- -- 57,784 13.92
Exercised.......................... -- -- -- -- -- --
---------- ---------- --------- ---------- ---------- ----------
Outstanding at end of period....... 57,784 $ 13.92 57,784 $ 13.92 57,784 $ 13.92
---------- ---------- --------- ---------- ---------- ----------
---------- ---------- --------- ---------- ---------- ----------
Options exercisable at period
end.............................. 14,636 14,636 --
---------- --------- ----------
---------- --------- ----------
Fair value of options granted
during the year.................. $ n/a $ n/ a $ 6.96
---------- --------- ----------
---------- --------- ----------
</TABLE>
All options were granted with an exercise price of $13.92 and have a
remaining contractual maturity of 8.3 years and 8.8 years at December 31,
1997 (unaudited)and June 30, 1997, respectively.
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions for grants in 1996: 1) expected dividend yields at 2.16%,
risk-free interest rates at 7.5%, 3)expected volatility at 11%, and
expected life of options at 10 years.
4. Management Stock Bonus Plan--The Management Stock Bonus Plan (MSBP) will be
issued up to 30,820 shares of the Corporation to be awarded to directors,
officers and key employees as an encouragement to remain in the employment
or service of the Bank. Upon granting of a MSBP award, 20% shall be earned
on the one-year anniversary of the award and an additional 20% annually
thereafter. Since the stock is issued in the plan before some or all of the
services are performed, part of the consideration for stock issued is
unearned compensation and is shown as a separate reduction of stockholders'
equity. Compensation expense will be recognized pro rata over the period
during which the shares are earned. As of December 31, 1997 (unaudited) and
June 30, 1997, 23,115 shares have been granted. Compensation expense during
the six months ended December 31, 1997 and 1996 (unaudited) was $30,198 and
$0, and the year ended June 30, 1997 and 1996 was $92,036 and $-0-,
respectively.
5. Post-Retirement Benefits -
1. Supplemental Executive Retirement Plan (SERP)--Effective January 1,
1996, the Bank approved the SERP for the President and Chief Executive
Officer. Upon retirement, the Bank will pay a monthly retirement benefit
in excess of the FIRF plan, not exceeding 2% times such participant's
average monthly compensation multiplied by total years of service. Under
Statement of Financial Accounting Standards No. 106 (FASB 106),
"Employers Accounting for Post-Retirement Benefits Other Than Pensions",
the Bank has recorded plan expense of $95,895 during the year ended June
30, 1996 as the present value of the expected post-retirement benefit
obligation. The plan is currently not funded. During the six months ended
December 31, 1997 and 1996 (unaudited) the Bank did not record any plan
expense. During the year ended June 30, 1997, the Bank recorded a
reduction of $25,099 to the present value of the expected post-retirement
benefit obligation.
2. Directors Consultation and Retirement Plan (Directors Plan)--Effective
March 1, 1996, the Bank approved the Directors Plan to provide each
director with 15 years of service and a retirement age of 65, a monthly
benefit equal to the directors fees in effect prior to retirement.
Benefits do not vest fully until three years following plan
implementation. Under FASB 106, the Bank has recorded plan expense of
$45,330 and $43,026 for the six months ended December 31, 1997 and 1996
(unaudited) and $126,842 and $21,513 during the year ended June 30, 1997
and 1996, respectively, as the present value of the expected
post-retirement benefit obligation. The plan is currently not funded,
however, $3,500 in benefits were paid during the six months ended
December 31, 1997 (unaudited) and $2,800 in benefits were paid during the
year ended June 30, 1997.
F-17
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. CASH FLOW ACTIVITIES
The following information is presented as supplemental disclosures to the
statement of cash flows, as required by Statement of Financial Accounting
Standards No. 95.
Cash paid for:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
---------------------- --------------------------------------
1997 1996 1997 1996 1995
---------- ---------- ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest expense............................. $ 601,717 $ 613,321 $ 1,057,530 $ 1,145,780 $ 958,072
---------- ---------- ------------ ------------ ----------
---------- ---------- ------------ ------------ ----------
Income taxes................................. $ 112,645 $ 241,863 $ 341,863 $ 131,600 $ 170,388
---------- ---------- ------------ ------------ ----------
---------- ---------- ------------ ------------ ----------
Supplemental disclosure of non-cash activities:
Transfer from loans to real estate acquired
through foreclosure or in-substance
foreclosure................................ $ -- $ -- $ 724,486 $ -- $ --
---------- ---------- ------------ ------------ ----------
---------- ---------- ------------ ------------ ----------
Proceeds from sales of foreclosed assets
financed through loans......................... $ 270,000 $ -- $ -- $ -- $ --
---------- ---------- ------------ ------------ ----------
---------- ---------- ------------ ------------ ----------
</TABLE>
F-18
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
The following condensed statements summarize the financial position,
operating results and cash flows of NCF Financial Corporation (Parent
Company only).
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, ----------------------------
1997 1997 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Assets
Cash and interest earning deposits.................................. $ 3,047,650 $ 3,077,172 $ 3,077,144
Investment in subsidiary............................................ 9,524,902 9,235,797 8,677,019
Other assets........................................................ 357,500 392,750 526,368
------------- ------------- -------------
$ 12,930,052 $ 12,705,719 $ 12,280,531
------------- ------------- -------------
------------- ------------- -------------
Liabilities and Stockholders' Equity
Other liabilities................................................... $ 57,532 $ 27,910 $ 15,258
Stockholders' equity................................................ 12,872,520 12,677,809 12,265,273
------------- ------------- -------------
$ 12,930,052 $ 12,705,719 $ 12,280,531
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
DECEMBER 31, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash dividends from subsidiary................................... $ -- $ -- $ -- $ --
Interest income.................................................. 88,546 89,720 181,250 121,425
---------- ---------- ---------- ----------
88,546 89,720 181,250 121,425
Other expenses................................................... (60,424) (41,190) (66,226) (72,577)
---------- ---------- ---------- ----------
Net income before income tax expense............................. 28,122 48,530 115,024 48,848
Income tax expense............................................... (9,561) (16,632) (32,741) (15,258)
---------- ---------- ---------- ----------
Income before equity in undistributed net income of
subsidiaries................................................... 18,561 31,898 82,283 33,590
Equity in undistributed net income of subsidiaries............... 257,459 116,889 245,378 229,205
---------- ---------- ---------- ----------
Net income....................................................... $ 276,020 $ 148,787 $ 327,661 $ 262,795
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
F-19
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
DECEMBER 31, JUNE 30,
-------------------------- -------------------------
1997 1996 1997 1996
------------ ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Operating Activities:
Net income.............................................. $ 276,020 $ 148,787 $ 327,661 $ 262,795
Adjustments to reconcile net income to cash provided by
operating activities:
Earnings from investment in subsidiary................ (257,459) (116,889) (245,378) (229,205)
Decrease (increase) in other assets................... 2,748 (39,743) 23,619 (26,368)
Increase in other liabilities......................... 29,622 1,374 12,652 15,258
------------ ------------ ------------ -----------
Net cash provided by operating activities................. 50,931 (6,471) 118,554 22,480
Investing Activities:
Investment in subsidiary................................ -- -- -- (3,665,498)
ESOP loan............................................... 32,500 77,500 110,000 (500,000)
------------ ------------ ------------ -----------
Net cash provided by (used in) investing activities....... 32,500 77,500 110,000 (4,165,498)
Financing Activities:
Proceeds from stock issuance, net....................... -- -- -- 7,335,737
Dividends paid.......................................... (112,953) (113,109) (228,526) (115,575)
------------ ------------ ------------ -----------
Net cash (used in) provided by financing activities....... (112,953) (42,080) (228,526) 7,220,162
------------ ------------ ------------ -----------
Net increase in cash...................................... (29,522) 3,077,144 28 3,077,144
Cash, beginning of year................................... 3,077,172 -- 3,077,144 --
------------ ------------ ------------ -----------
Cash, end of year......................................... $ 3,047,650 $ 3,035,064 $ 3,077,172 $ 3,077,144
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
</TABLE>
F-20
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases could not be realized in immediate
settlement of the instrument. Accordingly, the aggregate fair value amounts
presented are not intended to represent the underlying value of the
Corporation.
The methods and assumptions used by the Corporation in estimating its fair
value disclosures for financial instruments are presented below:
1. Cash and Interest Earning Deposits--The carrying amounts for cash and
interest earning deposits approximates their fair values.
2. Mortgage-Backed Securities--Fair values for investment securities are
based upon quoted market prices, where available. If quoted market prices
are not available, fair values are based on quoted market prices of
comparable instruments.
3. Loans, net--For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
amounts. The fair values of other types of loans are estimated by
discounting the future cash flows using current interest rates at which
similar loans would be made to borrowers with similar credit quality and
for the same remaining maturities.
4. Deposits--The fair values for demand deposits, savings accounts and
certain money market deposits are the amounts payable on demand at the
reporting date. The carrying amounts for variable-rate, money market
accounts and certificates of deposit approximate their fair values at the
reporting date. Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest
rates currently being offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits.
5. Advances from Federal Home Loan Bank--The fair values for long-term debt
are estimated using discounted cash flow analyses, based on the
Corporation's current incremental borrowing rates for similar types of
borrowing arrangements.
6. Commitments to Extend Credit and Standby Letters of Credit--The fair
values of commitments to extend credit is estimated using fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
customer. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed
rates. The fair values of standby letters of credit are based on fees
currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counter
parties at the reporting date. The value of these financial instruments
was not material at December 31, 1997 (unaudited) and June 30, 1997 and
1996.
F-21
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Corporation's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1997 June 30, 1996
---------------------- ---------------------- ----------------------
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
---------- ---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and interest
bearing deposits.... $5,865,716 $5,865,716 $5,195,131 $5,195,131 $5,162,958 $5,162,958
Mortgage-backed
securities.......... $ 110,868 $ 130,299 $ 132,357 $ 153,435 $ 143,347 $ 164,993
Loans, net............ $28,009,756 $28,256,905 $27,046,450 $27,632,602 $28,861,111 $29,237,496
Financial liabilities:
Deposits.............. $22,983,957 $22,971,535 $21,969,434 $21,973,758 $22,741,108 $22,737,575
</TABLE>
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit. Those
instruments involve, to varying degrees, elements of credit and
interest-rate risk in excess of the amount recognized in the balance sheet.
The contract or notional amounts of those instruments reflect the extent of
the Bank's involvement in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness. The amount of collateral obtained, if it is
deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counterpart.
The Bank's only financial instruments with off-balance-sheet risk at
December 31, 1997 (unaudited) and June 30, 1997 and 1996 are outlined in
Note 2.
13. PENDING ACQUISITION
On December 17, 1997, the Bank entered into an agreement to be acquired by
Community Bank Shares of Indiana, Inc., headquartered in New Albany,
Indiana. The merger, which the Bank expects to be completed in April, 1998,
is subject to regulatory and stockholder approval.
F-22
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. CONTINGENCY
Contingent upon the Bank's merger with Community Shares Bank of Indiana,
Inc., participants in three of the Bank's benefit and post-benefit plans
will become fully vested in those plans as of the completion date of the
merger. Those plans are the 1995 Stock Option Plan, the Management Stock
Bonus Plan (MSBP), and the Directors Consultation and Retirement Plan
(Directors Plan). Also, the Bank has an employment agreement with a senior
officer with a change-in-control clause. At the date of the merger, the
Bank may incur liabilities and related expenses under these plans as a
direct result of the merger.
Under the 1995 Stock Option Plan, all of the outstanding options will
become vested and exercisable on the date of the merger. As of December
31, 1997, total outstanding options were 57,784. Per the merger
agreement, all outstanding options under the 1995 Plan will be converted
automatically into options to purchase Community Bank Shares common stock
at the date of the merger. The number of shares of Community common stock
subject to the stock option will be equal to the Bank's common stock
subject to the stock option multiplied by the exchange ratio as defined
in the agreement. The exercise price of each stock option will be
adjusted by dividing the exercise price under the 1995 Plan by the
exchange ratio as defined in the agreement.
Under the MSBP Plan, participants would become fully vested and entitled
to all the shares granted under the plan regardless of years of service
on the date of the merger. Total shares granted under the plan were
23,115 and 17,260 shares remained granted but unissued at December 31,
1997. The remaining unearned compensation in retained earnings of
$186,992 would be charged to compensation expense with the merger.
Exercise of these options commensurate with the merger would result in a
related tax benefit of $88,030.
Under the Directors Plan, participants would become fully vested as of
the date of the merger. This would result in recognition of $170,767 of
compensation expense commensurate with the merger. The Bank would also
realize a related tax benefit of $58,061.
Under the employment agreement, the senior officer will be paid an amount
equal to approximately 3x of his base salary in the event of a change in
control and this amount is payable over thirty-six monthly periods. As of
the date of the merger $221,609 would be charged to compensation expense
with a related tax benefit of $75,347.
15. RESTATEMENT OF EARNINGS PER SHARE
Earnings per share amounts for years ended June 30, 1997 and 1996 have been
calculated in accordance with Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" which was adopted by the Company for the six
months ended December 31, 1997. The application of this new statement
resulted in a restatement of earnings per share for the year ended June 30,
1996 of $.02. There was no effect on earnings per share for the year ended
June 30, 1997.
F-23
<PAGE>
Appendix A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of December 17, 1997
("Agreement"), between Community Bank Shares of Indiana, Inc. ("Community"), an
Indiana corporation headquartered in New Albany, Indiana, and NCF Financial
Corporation ("NCF"), a Delaware corporation headquartered in Bardstown,
Kentucky.
WITNESSETH:
WHEREAS, the Boards of Directors of Community and NCF have determined that
it is in the best interests of their respective companies and their shareholders
to consummate the business combination transactions provided for herein,
including the merger of NCF with and into Community subject to the terms and
conditions set forth herein; and
WHEREAS, the parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby; and
WHEREAS, as a condition and inducement to Community's willingness to enter
into this Agreement, (i) NCF is concurrently entering into a Stock Option
Agreement with Community (the "Stock Option Agreement"), in substantially the
form attached hereto as Exhibit A, pursuant to which NCF is granting to
Community the option to purchase shares of NCF Common Stock (as defined herein)
under certain circumstances; (ii) certain stockholders of NCF are concurrently
entering into a Letter Agreement with Community (the "Letter Agreement"), in
substantially the form attached hereto as Exhibit B, pursuant to which, among
other things, such stockholders agree to vote their shares of NCF Common Stock
in favor of this Agreement and the transactions contemplated hereby; and (iii)
A.E. Bowling, President and Chairman of the Board of the NCF is concurrently
entering into a Retirement Agreement (the "Retirement Agreement") in
substantially the form attached hereto as Exhibit C, pursuant to which Community
will provide certain retirement payments to Mr. Bowling subject to the terms and
conditions set forth therein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
<PAGE>
ARTICLE I
THE MERGER
1.01. The Merger.
Subject to the terms and conditions of this Agreement and the Agreement of
Merger, dated as of the date hereof, between Community and NCF, a copy of which
is attached hereto as Appendix A, at the Effective Time (as defined in Section
1.02 hereof), NCF shall be merged with and into Community in accordance with
the Delaware General Corporation Law ("DGCL") and the Indiana Business
Corporation Law ("IBCL") (the "Merger"), with Community as the surviving
corporation (hereinafter sometimes called the "Surviving Corporation"). Each
share of common stock, par value $.10 per share, of NCF ("NCF Common Stock")
outstanding immediately prior to the Effective Time (other than shares as to
which dissenters' rights have been asserted and duly perfected in accordance
with Delaware law (the "NCF Dissenting Shares") and shares held by NCF
(including treasury shares) or Community or any of their respective wholly owned
subsidiaries) shall, by virtue of the Merger and without any further action by
the holder thereof, be converted into and represent the right to receive shares
of common stock, par value $.10 per share, of Community ("Community Common
Stock") ("Merger Consideration"), as provided in Section 1.03 hereof and subject
to the terms, conditions, limitations and procedures set forth in this Agreement
and the Agreement of Merger. If deemed advisable by Community for regulatory,
corporate, or other reasons, Community may revise the structure of the business
combination to provide for a to-be-organized wholly owned subsidiary of
Community to merge with the Bank in lieu of the merger between Community and
NCF.
1.02. Effective Time.
The Merger shall become effective on the date and at the time that Articles
of Merger are filed with the Secretary of State of the State of Indiana pursuant
to the IBCL, unless a later date and time is specified as the effective time in
such Articles of Merger ("Effective Time"). A closing (the "Closing") shall
take place immediately prior to the Effective Time at 10:00 a.m., on the fifth
business day following the receipt of all necessary regulatory or governmental
approvals and consents and the expiration of all statutory waiting periods in
respect thereof and the satisfaction or waiver, to the extent permitted
hereunder, of the conditions to the consummation of the Merger specified in
Article V of this Agreement (other than the delivery of certificates, opinions
and other instruments and documents to be delivered at the Closing), at the
offices of Community, 200 East Spring Street, New Albany, Indiana 47150, or at
such other place, at such other time, or on such other date as the parties may
mutually agree upon. At the Closing, there shall be delivered to Community and
NCF the opinions, certificates and other documents required to be delivered
under Article V hereof.
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<PAGE>
1.03. Conversion of Shares.
At the Effective Time, by virtue of the Merger and without any action on
the part of a holder of shares of NCF Common Stock:
(a) Each share of Community Common Stock that is issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding and
shall be unchanged by the Merger.
(b) All shares of NCF Common Stock owned by NCF (including treasury
shares) or Community or any of their respective wholly owned subsidiaries shall
be cancelled and retired and shall not represent capital stock of the Surviving
Corporation and shall not be exchanged for shares of Community Common Stock,
cash or other consideration.
(c) Subject to Sections 1.05, 1.06, 1.08 and 1.11, each share of NCF
Common Stock issued and outstanding at the Effective Time (other than shares to
be cancelled in accordance with Section 1.03(b)) shall be converted into, and
shall be cancelled in exchange for, the right to receive (i) if the Community
Market Value is greater than or equal to $15.00 and less than or equal to
$25.00, then .935 of one share of Community Common Stock; (ii) if the Community
Market Value is less than $15.00, then one share of Community Common Stock; or
(iii) if the Community Market Value is greater than $25.00, then .88 of one
share of Community Common Stock.
The applicable formula for conversion of NCF Common Stock to Community Common
Stock, as determined pursuant to any of Section 1.03(c) (i), 1.03((c)(ii) or
1.03(c)(iii), is hereinafter referred to as the "Exchange Ratio."
(d) For purposes of determining the Exchange Ratio, the following
definitions apply:
(i) "Community Market Value" means the average of the Community
Market Prices for the twenty (20) consecutive trading days ending on
the trading day preceding the Determination Date;
(ii) "Community Market Price" means, as of any date, the average
between the closing high bid and low asked prices of a share of
Community Common Stock on the NASDAQ SmallCap Market System (as
reported in The Wall Street Journal, or if not reported therein, in
another authoritative source).
(iii) "Determination Date" means the date on all approvals of all
regulatory authorities required in connection with the consummation of
the Merger have been obtained.
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<PAGE>
1.04. Shareholder Rights; Stock Transfers
At the Effective Time, each holder of a certificate or certificates
representing outstanding shares of NCF Common Stock (the "Certificates")
shall cease to have any rights with respect thereto, except the right to
receive, upon the surrender of any such Certificates in accordance with
Section 1.07 hereof, certificates representing the number of whole shares of
Community Common Stock, and any cash in lieu of a fractional share interest,
into which such shares of NCF Common Stock shall have been converted pursuant
to Section 1.03 hereof, without interest. After the Effective Time, there
shall be no further registration of transfers on the stock transfer books of
the NCF of shares of NCF Common Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to Community or the Exchange Agent (as defined in Section 1.07
hereof) for any reason, they shall be canceled and exchanged as provided in
Sections 1.06 and 1.07 hereof, as applicable, except as otherwise provided by
law.
1.05. Fractional Shares
(a) No certificates or scrip representing fractional shares of Community
Common Stock shall be issued upon the surrender for exchange of a Certificate or
Certificates, and such fractional share interests shall not entitle the owner
thereof to vote or to any other rights as a shareholder of Community.
(b) Notwithstanding any other provision of this Agreement, each holder of
shares of NCF Common Stock converted into shares of Community Common Stock
pursuant to the Merger who would otherwise have been entitled to receive a
fraction of a share of Community Common Stock (after taking into account all
Certificates delivered by such holder) shall, at the time of surrender of the
Certificate or Certificates representing such holder's shares of NCF Common
Stock receive an amount of cash (without interest) equal to the product arrived
at by multiplying such fraction of a share of Community Common Stock by the
closing price of a share of Community Common Stock on the Nasdaq Stock Market's
SmallCap Market on the business day preceding the Effective Time (as reported in
The Wall Street Journal, or if not reported therein, in another authoritative
source), rounded to the nearest whole cent.
1.06. Dissenting Shares
Each outstanding share of NCF Common Stock the holder of which has
perfected his right to dissent under the Delaware Law and has not effectively
withdrawn or lost such right as of the Effective Time (the "Dissenting Shares")
shall not be converted into or represent a right to receive shares of Community
Common Stock hereunder, and the holder thereof shall be entitled only to such
rights as are granted by the Delaware Law. The NCF shall give Community prompt
notice upon receipt by the NCF of any such written demands for payment of the
fair value of such shares of NCF Common Stock and of withdrawals of such demands
and any other instruments provided pursuant to the Delaware Law (any
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<PAGE>
shareholder duly making such demand being hereinafter called a "Dissenting
Shareholder"). If any Dissenting Shareholder shall effectively withdraw or
lose (through failure to perfect or otherwise) his right to such payment at
any time, such holder's shares of NCF Common Stock shall be converted into
the right to receive shares of Community Common Stock in accordance with the
applicable provisions of this Agreement. Any payments made in respect of
Dissenting Shares shall be made by the Surviving Corporation.
1.07. Exchange Procedures
(a) At or after the Effective Time, each holder of a Certificate or
Certificates, upon surrender of the same to an agent, duly appointed by
Community (the "Exchange Agent"), shall be entitled to receive in exchange
therefor a certificate or certificates representing the number of whole shares
of Community Common Stock into which the shares of NCF Common Stock theretofore
represented by the Certificate or Certificates so surrendered shall have been
converted as provided in Section 1.03(c) hereof. As promptly as practicable
after the Effective Time, the Exchange Agent shall mail to each holder of record
of an outstanding Certificate which is to be exchanged for Community Common
Stock as provided in Section 1.03 hereof a form of letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to
such Certificate shall pass, only upon delivery of such Certificate to the
Exchange Agent) advising such holder of the terms of the exchange effected by
the Merger and of the procedure for surrendering to the Exchange Agent such
Certificate in exchange for a certificate or certificates evidencing Community
Common Stock or cash in lieu of any fractional share interest. Notwithstanding
anything in this Agreement to the contrary, Certificates surrendered for
exchange an NCF Affiliate (as defined in Section 2.18(b) hereof) shall not be
exchanged for certificates representing shares of Community Common Stock in
accordance with the terms of this Agreement until Community has received a
written agreement from such person as specified in Section 5.02(e).
(b) No holder of a Certificate shall be entitled to receive any dividends
in respect of the Community Common Stock into which such shares shall have been
converted by virtue of the Merger until the certificate representing such shares
is surrendered in exchange for a certificate or certificates representing shares
of Community Common Stock. In the event that dividends are declared and paid by
Community in respect of Community Common Stock after the Effective Time but
prior to any holder's surrender of Certificates, dividends payable to such
holder in respect of shares of Community Common Stock not then issued shall
accrue (without interest). Any such dividends shall be paid (without interest)
upon surrender of the Certificates. Community shall be entitled, after the
Effective Time, to treat Certificates as evidencing ownership of the number of
whole shares of Community Common Stock into which the shares of NCF Common Stock
represented by such Certificates shall have been converted pursuant to this
Agreement, notwithstanding the failure on the part of the holder thereof to
surrender such Certificates.
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<PAGE>
(c) Community shall not be obligated to deliver a certificate or
certificates representing shares of Community Common Stock to which a holder of
NCF Common Stock would otherwise be entitled as a result of the Merger until
such holder surrenders a Certificate or Certificates for exchange as provided in
this Section 1.07, or, in default thereof, an appropriate affidavit of loss and
indemnity agreement and/or a bond in an amount as may be reasonably required in
each case by Community. If any certificate evidencing shares of Community
Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that the Certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange pay to the Exchange Agent any transfer or other tax required by reason
of the issuance of a certificate for shares of Community Common Stock in any
name other than that of the registered holder of the Certificate surrendered or
otherwise establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not payable.
1.08. Anti-Dilution Provisions
If, between the date hereof and the Effective Time, the shares of Community
Common Stock shall be changed into a different number or class of shares by
reason of any reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment, or a stock dividend thereon shall be
declared with a record date within said period, the Exchange Ratio shall be
adjusted accordingly.
1.09. Options
(a) At the Effective Time, each option with respect to NCF Common Stock (a
"NCF Stock Option") that has been issued pursuant to NCF's 1995 Stock Option
Plan (the "Stock Option Plan") which is then outstanding, whether or not
exercisable, shall cease to represent a right to acquire shares of NCF Common
Stock and shall be converted automatically into an option to purchase shares of
Community Common Stock, and Community shall assume each Stock Option, in
accordance with the terms of the Stock Option Plan and stock option agreement by
which it is evidenced, except that from and after the Effective Time, (i)
Community and the committee of its Board of Directors which administers
Community's stock benefit plans shall be substituted for the NCF and the
committee of the NCF's Board of Directors (including, if applicable, the entire
Board of Directors of the NCF) administering the Stock Option Plan, (ii) each
Stock Option assumed by Community may be exercised solely for shares of
Community Common Stock, (iii) the number of shares of Community Common Stock
subject to the Stock Option shall be equal to the number of shares of NCF Common
Stock subject to the Stock Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, provided that any fractional shares of
Community Common Stock resulting from such multiplication shall be rounded down
to the nearest share, and (iv) the per share exercise price under each such
Stock Option shall be adjusted by dividing the per share exercise price under
each such Stock Option by the Exchange Ratio, provided that such exercise price
shall be rounded up to the nearest cent.
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<PAGE>
Notwithstanding clauses (iii) and (iv) of the preceding sentence, each Stock
Option which is an "incentive stock option" shall be adjusted as required by
Section 424 of the Code, and the regulations promulgated thereunder, so as
not to constitute a modification, extension or renewal of the option within
the meaning of Section 424(h) of the Code. Community and the NCF agree to
take all necessary steps to effect the foregoing provisions of this Section
1.09(a). An example of the application of this formula to outstanding Stock
Options is attached hereto as Schedule 1.09(a).
(b) Within 30 days after the Effective Time, Community shall file a
registration statement on Form S-3 or Form S-8, as the case may be (or any
successor or other appropriate forms), with respect to the shares of Community
Common Stock subject to the options referred to in paragraph (a) of this Section
1.09 and shall use its reasonable efforts to maintain the current status of the
prospectus or prospectuses contained therein for so long as such options remain
outstanding in the case of a Form S-8 or, in the case of a Form S-3, until the
shares subject to such options may be sold without a further holding period
under Rule 144 under the Securities Act.
1.10. Additional Actions.
If at any time after the Effective Time the Surviving Corporation shall
consider that any further assignments or assurances in law or any other acts are
necessary or desirable to (i) vest, perfect or confirm, of record or otherwise,
in the Surviving Corporation its rights, title or interest in, to or under any
of the rights, properties or assets of NCF acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger, or (ii)
otherwise carry out the purposes of this Agreement, NCF and its proper officers
and directors shall be deemed to have granted to the Surviving Corporation an
irrevocable power of attorney to execute and deliver all such proper deeds,
assignments and assurances in law and to do all acts necessary or proper to
vest, perfect or confirm title to and possession of such rights, properties or
assets in the Surviving Corporation and otherwise to carry out the purposes of
this Agreement; and the proper officers and directors of the Surviving
Corporation are fully authorized in the name of NCF or otherwise to take any and
all such action.
1.11. Adjustments to Exchange Ratio.
If NCF's stockholder equity does not equal at least $12.25 million as of
December 31, 1997, the Exchange Ratio shall be adjusted in a manner mutually
agreed to by Community and NCF.
-7-
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF NCF
References to "NCF Disclosure Schedules" shall mean all of the disclosure
schedules required by this Article II, dated as of the date hereof and
referenced to the specific sections and subsections of Article II of this
Agreement, which have been delivered by NCF to Community. NCF hereby represents
and warrants to Community as follows as of the date hereof:
2.01. Corporate Organization.
(a) NCF is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. NCF has the corporate power
and authority to own or lease all of its properties and assets and to carry on
its business as it is now being conducted and is duly licensed or qualified to
do business and is in good standing in each jurisdiction in which the nature of
the business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed, qualified or in good standing would
not have a material adverse effect on the business, operations, assets or
financial condition of NCF and the Bank (as defined below) taken as a whole.
NCF is registered as a bank holding company under the Bank Holding Company Act,
as amended, 12 U.S.C. Section 1841, et seq., ("BHC"). NCF Disclosure Schedule
2.01(a) sets forth true and complete copies of the Certificate of Incorporation
or other governing instrument and Bylaws of NCF and the Bank as in effect on the
date hereof.
(b) The only direct or indirect subsidiary of NCF is NCF Bank & Trust Co.
(the "Bank"). The Bank (i) is duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, (ii) has the
corporate power and authority to own or lease all of its properties and assets
and to conduct its business as it is now being conducted, and (iii) is duly
licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not have a material adverse effect
on the business, operations, assets or financial condition of NCF and the Bank,
taken as a whole. NCF and the Bank are in good standing with their appropriate
federal and state banking regulatory agencies and each has satisfied in all
material respects all commitments, financial or otherwise, as may have been
agreed upon with such banking regulatory agencies. Except as set forth in NCF
Disclosure Schedule 2.01(b) and other than the Bank, NCF does not own or
control, directly or indirectly, greater than a 5% equity interest in any
corporation, company, association, partnership, joint venture or other entity.
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<PAGE>
2.02. Capitalization.
The authorized capital stock of NCF consists of 1,400,000 shares of NCF
Common Stock, par value $.10, of which 792,609 are issued and outstanding, none
of which are held in treasury as of the date hereof, and 100,000 shares of
preferred stock, par value $.01, of which no shares are issued and outstanding
as of the date hereof. All issued and outstanding shares of capital stock of
NCF, and all issued and outstanding shares of capital stock of the Bank, have
been duly authorized and validly issued and are fully paid, nonassessable and
free of preemptive rights. All of the outstanding shares of capital stock of
the Bank are owned by NCF free and clear of any liens, encumbrances, charges,
restrictions or rights of third parties of any kind whatsoever, and, except for
options granted to Community pursuant to the Option Agreement and for options to
purchase 57,784 shares of NCF Common Stock which have been granted pursuant to
the Stock Option Plan, and which are outstanding, neither NCF nor the Bank has
or is bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the transfer, purchase or
issuance of any shares of capital stock of NCF or the Bank or any securities
representing the right to purchase or otherwise receive any shares of such
capital stock or any securities convertible into or representing the right to
purchase or subscribe for any such stock.
2.03. Authority; No Violation.
(a) Subject to the approval of this Agreement and the Agreement of Merger
and the transactions contemplated hereby and thereby by the stockholders of NCF,
NCF has full corporate power and authority to execute and deliver this Agreement
and the Agreement of Merger and to consummate the transactions contemplated
hereby and thereby in accordance with the terms hereof and thereof. The
execution and delivery of this Agreement and the Agreement of Merger and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly approved by the Board of Directors of NCF. Except for the approval
of NCF's stockholders of this Agreement and the Agreement of Merger, no other
corporate proceedings on the part of NCF are necessary to consummate the
transactions so contemplated. This Agreement and the Agreement of Merger have
been duly and validly executed and delivered by NCF and constitute valid and
binding obligations of NCF, enforceable against it in accordance with and
subject to their terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, and except that the availability of equitable remedies (including,
without limitation, specific performance) is within the discretion of the
appropriate court.
(b) None of the execution and delivery of this Agreement and the Agreement
of Merger by NCF, nor the consummation by NCF of the transactions contemplated
hereby and thereby in accordance with the terms hereof and thereof, or
compliance by NCF with any of the terms or provisions hereof or thereof, will
(i) violate any provision of the Certificate of Incorporation or other governing
instrument or Bylaws of NCF or the Bank,
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<PAGE>
(ii) assuming that the consents and approvals set forth below are duly
obtained, violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to NCF or the Bank or any of
their respective properties or assets, or (iii) except as disclosed in NCF
Disclosure Schedule 2.03(b), violate, conflict with, result in a breach of
any provisions of, constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, result in the
termination of, accelerate the performance required by, or result in the
creation of any lien, security interest, charge or other encumbrance upon any
of the respective properties or assets of NCF or the Bank under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to
which NCF or the Bank is a party, or by which any of their respective
properties or assets may be bound or affected, except, with respect to (ii)
and (iii) above, such as individually or in the aggregate will not have a
material adverse effect on the business, operations, assets or financial
condition of NCF and the Bank, taken as a whole, and which will not prevent
or delay the consummation of the transactions contemplated hereby. Except as
set forth in NCF Disclosure Schedule 2.03(b) and for consents and approvals
of or filings or registrations with or notices to the Securities and Exchange
Commission ("Commission"), the Secretary of State of the State of Delaware,
the Board of Governors of the Federal Reserve System (the "Federal Reserve"),
the state banking regulators of the Commonwealth of Kentucky and the
stockholders of NCF, no consents or approvals of or filings or registrations
with or notices to any federal, state, municipal or other governmental or
regulatory commission, board, agency, or non-governmental third party are
required on behalf of NCF in connection with (a) the execution and delivery
of this Agreement and the Agreement of Merger by NCF and (b) the consummation
by NCF of the Merger and the other transactions contemplated hereby and by
the Agreement of Merger.
2.04. Financial Statements.
(a) NCF has previously delivered to Community copies of the consolidated
statements of financial condition of NCF as of June 30, 1997, 1996 and 1995 and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for the years ended June 30, 1997, 1996 and 1995, including such
statements of entities preceding NCF's organization in 1995, in each case
accompanied by the audit reports of either Whelan, Doerr, Pike & Pawley, PSC,
independent public accountants, or Crisp and Hughes, independent public
accountants, as appropriate, as well as the unaudited consolidated statement of
financial condition of NCF as of September 30, 1997 and the related unaudited
consolidated statement of income, changes in stockholders' equity and cash flows
for the three months ended September 30, 1996 and 1995. The consolidated
statements of financial condition of NCF referred to herein (including the
related notes, where applicable), as well as the consolidated financial
statements contained in the reports of NCF to be delivered by NCF pursuant to
Section 4.04 hereof, fairly present or will fairly present, as the case may be,
the consolidated financial condition of NCF as of the respective dates set forth
therein, and the related consolidated statements of income, changes in
stockholders' equity and cash flows (including the related notes, where
applicable) fairly present or will fairly present, as
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the case may be, the results of the consolidated operations, changes in
stockholders' equity and cash flows of NCF for the respective periods or as
of the respective dates set forth therein (it being understood that NCF's
interim financial statements are not audited and are not prepared with
related notes but reflect all adjustments which are, in the opinion of NCF,
necessary for a fair presentation of such financial statements).
(b) Each of the financial statements referred to in this Section 2.04
(including the related notes, where applicable) has been or will be, as the case
may be, prepared in accordance with generally accepted accounting principles
consistently applied during the periods involved. The books and records of NCF
and the Bank are being maintained in material compliance with applicable legal
and accounting requirements and reflect only actual transactions.
(c) Except to the extent reflected, disclosed or reserved against in the
consolidated financial statements referred to in the first sentence of Section
2.04(a) or the notes thereto or liabilities incurred since September 30, 1997 in
the ordinary course of business and consistent with past practice, neither NCF
nor the Bank has any obligation or liability, whether absolute, accrued,
contingent or otherwise, material to the business, operations, assets or
financial condition of NCF and the Bank, taken as a whole.
2.05. Absence of Certain Changes or Events.
(a) There has not been any material adverse change in the business,
operations, prospects, assets or financial condition of NCF and the Bank, taken
as a whole, since September 30, 1997 and to the best knowledge of NCF, no fact
or condition exists which NCF believes will cause such a material adverse change
in the future.
(b) Neither NCF nor the Bank has taken or permitted any of the actions set
forth in Section 4.02 hereof between September 30, 1997 and the date hereof.
2.06. Legal Proceedings.
Except as disclosed in NCF Disclosure Schedule 2.06, neither NCF nor the
Bank is a party to any, and there are no pending or, to the best knowledge of
NCF, threatened legal, administrative, arbitration or other proceedings, claims,
actions or governmental investigations of any nature against NCF or the Bank,
except such proceedings, claims, actions or governmental investigations which in
the good faith judgment of NCF will not have a material adverse effect on the
business, operations, assets or financial condition of NCF and the Bank. taken
as a whole. Neither NCF nor the Bank is a party to any order, judgment or
decree which materially adversely affects the business, operations, assets or
financial condition of NCF and the Bank, taken as a whole.
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2.07. Taxes and Tax Returns.
(a) Each of NCF and the Bank, or the affiliated, combined or unitary group
(within the meaning of applicable federal income tax law) of which any such
corporation is or was a member, as the case may be (individually an "Affiliate"
and collectively, "Affiliates"), has duly filed (and until the Effective Time
will so file) all returns, declarations, reports, information returns and
statements ("Returns") required to be filed or sent by or with respect to them
in respect of any Taxes (as hereinafter defined), and has duly paid (and until
the Effective Time will so pay) all Taxes due and payable other than Taxes or
other charges which (i) are being contested in good faith (and disclosed in
writing to Community) and (ii) have not finally been determined. NCF and its
Affiliates have established (and until the Effective Time will establish) on
their books and records reserves that are adequate for the payment of all Taxes
not yet due and payable, whether or not disputed, accrued or applicable. Except
as set forth in NCF Disclosure Schedule 2.07(a), (i) the federal income tax
returns of NCF and its Affiliates have been examined by the Internal Revenue
Service ("IRS") (or are closed to examination due to the expiration of the
applicable statute of limitations), and (ii) the Kentucky income tax returns of
NCF and its Affiliates have been examined by applicable authorities (or are
closed to examination due to the expiration of the statute of limitations), and
in the case of both (i) and (ii) no deficiencies were asserted as a result of
such examinations which have not been resolved and paid in full. There are no
audits or other administrative or court proceedings presently pending nor any
other disputes pending, or claims asserted for, Taxes or assessments upon NCF or
any of its Affiliates, nor has NCF or any of its Affiliates given any currently
outstanding waivers or comparable consents regarding the application of the
statute of limitations with respect to any Taxes or Returns.
(b) Except as set forth in NCF Disclosure Schedule 2.07(b), none of NCF or
any of its Affiliates (i) has requested any extension of time within which to
file any Return which Return has not since been filed, (ii) is a party to any
agreement providing for the allocation or sharing of Taxes, (iii) is required to
include in income any adjustment pursuant to Section 481(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), by reason of a voluntary change
in accounting method initiated by NCF or any Affiliate (nor does NCF have any
knowledge that the IRS has proposed any such adjustment or change of accounting
method), or (iv) has filed a consent pursuant to Section 341(f) of the Code or
agreed to have Section 341(f)(2) of the Code apply.
(c) For purposes of this Agreement, "Taxes" shall mean all taxes, charges,
fees, levies or other assessments, including, without limitation, all net
income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment (including
withholding, payroll and employment taxes required to be withheld with respect
to income paid to employees), excise, estimated, severance, stamp, occupation,
property or other taxes, customs duties, fees, assessments or charges of any
kind whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any taxing authority (domestic or foreign) upon
NCF or any of its Affiliates.
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2.08. Employee Benefit Plans.
(a) Each employee benefit plan or arrangement of NCF or the Bank which is
an "employee benefit plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), is listed in NCF
Disclosure Schedule 2.08(a) ("NCF Plans"). NCF has previously furnished to
Community true and complete copies of each of the NCF Plans together with (i)
the most recent actuarial and financial reports prepared with respect to any
qualified NCF Plans, (ii) the most recent annual reports filed with any
government agency, and (iii) all rulings and determination letters and any open
requests for rulings or letters that pertain to any qualified NCF Plans.
(b) Each NCF Plan has been operated in compliance in all material respects
with the applicable provisions of ERISA, the Code, all regulations, rulings and
announcements promulgated or issued thereunder, and all other applicable
governmental laws and regulations.
(c) Neither NCF nor the Bank participates in or has incurred any liability
under Section 4201 of ERISA for a complete or partial withdrawal from a
multi-employer plan (as such term is defined in ERISA).
(d) The present value of all accrued benefits under each of the NCF Plans
subject to Title IV of ERISA did not, as of the latest valuation date of each
such Plan, exceed the then current value of the assets of such plans allocable
to such accrued benefits, based upon the actuarial and accounting assumptions
currently utilized for such NCF Plans.
(e) Neither NCF nor the Bank, nor, to the best knowledge of NCF, any
trustee, fiduciary or administrator of an NCF Plan or any trust created
thereunder, has engaged in a "prohibited transaction," as such term is defined
in Section 4975 of the Code, which could subject NCF or the Bank, or, to the
best knowledge of NCF, any trustee, fiduciary or administrator thereof, to the
tax or penalty on prohibited transactions imposed by said Section 4975.
(f) No NCF Plan or any trust created thereunder has been terminated, nor
have there been any "reportable events" with respect to any NCF Plan, as that
term is defined in Section 4043(b) of ERISA.
(g) No NCF Plan or any trust created thereunder has incurred any
"accumulated funding deficiency," as such term is defined in Section 302 of
ERISA.
(h) Each of the NCF Plans which is intended to be a qualified plan within
the meaning of Section 401(a) of the Code has been determined by the IRS to be
so qualified, and NCF is not aware of any fact or circumstance which would
adversely affect the qualified status of any such Plan.
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2.09. Securities Documents and Regulatory Reports.
(a) NCF has previously delivered or made available to Community a complete
copy of each final registration statement, prospectus, annual, quarterly or
current report and definitive proxy statement or other communication (other than
general advertising materials) filed pursuant to the Securities Act of 1933, as
amended ("1933 Act"), or the Securities Exchange Act of 1934, as amended ("1934
Act"), or mailed by NCF to its stockholders as a class since January 1, 1995,
and each such final registration statement, prospectus, annual, quarterly or
current report and definitive proxy statement or other communication, as of its
date, complied in all material respects with all applicable statutes, rules and
regulations and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading; provided that information as of a later date
shall be deemed to modify information as of an earlier date.
(b) Each of NCF and the Bank has duly filed with the Federal Reserve, the
Office of Thrift Supervision ("OTS") and the Federal Deposit Insurance
Corporation ("FDIC") and appropriate state banking regulators in correct form
the monthly, quarterly and annual reports required to be filed under applicable
laws and regulations, and NCF has delivered or made available to Community
accurate and complete copies of such reports. NCF Disclosure Schedule 2.09(b)
lists all examinations of NCF or of the Bank conducted by the applicable banking
or thrift regulatory authorities since January 1, 1993 and the dates of any
responses thereto submitted by NCF. In connection with the most recent
examinations of NCF or the Bank by the applicable banking or thrift regulatory
authorities, neither NCF nor the Bank was required to correct or change any
action, procedure or proceeding which NCF or the Bank believes has not been now
corrected or changed as required.
2.10. NCF Information.
None of the information relating to NCF and the Bank to be contained in (i)
the Registration Statement on Form S-4 to be filed by Community in connection
with the issuance of shares of Community Common Stock pursuant to the Merger, as
amended or supplemented (or on any successor or other appropriate form) ("Form
S-4"), will, at the time the Form S-4 becomes effective, contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, and (ii) the joint proxy statement/prospectus contained in
the Form S-4, as amended or supplemented, and to be delivered to stockholders of
Community and NCF in connection with the solicitation of their approval of this
Agreement, the Agreement of Merger and the transactions contemplated hereby and
thereby ("Joint Proxy Statement/Prospectus"), as of the date(s) such Joint Proxy
Statement/Prospectus is mailed to stockholders of Community and NCF and up to
and including the date(s) of the meetings of stockholders to which such Joint
Proxy Statement/Prospectus relates, will contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the
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circumstances under which they were made, not misleading, provided that
information as of a later date shall be deemed to modify information as of an
earlier date.
2.11. Compliance with Applicable Law.
(a) Each of the NCF and the Bank has all permits, licenses, certificates
of authority, orders and approvals of, and has made all filings, applications
and registrations with, federal, state, local and foreign governmental or
regulatory bodies that are required in order to permit it to carry on its
business as it is currently being conducted and the absence of which could have
a material adverse effect on the business, operations, assets or financial
condition of NCF and the Bank, taken as a whole; all such permits, licenses,
certificates of authority, orders and approvals are in full force and effect;
and to the best knowledge of NCF and the Bank, no suspension or cancellation of
any of the same is threatened.
(b) Neither NCF nor the Bank is in violation of its respective Certificate
of Incorporation or other governing instrument or Bylaws, or of any applicable
federal, state or local law or ordinance or any order, rule or regulation of any
federal, state, local or other governmental agency or body (including, without
limitation, all banking, securities, municipal securities, safety, health,
zoning, anti-discrimination, antitrust, and wage and hour laws, ordinances,
orders, rules and regulations), or in default with respect to any order, writ,
injunction or decree of any court, or in default under any order, license,
regulation or demand of any governmental agency, any of which violations or
defaults could have a material adverse effect on the business, operations,
assets or financial condition of NCF and the Bank, taken as a whole; and neither
NCF nor the Bank has received any notice or communication from any federal,
state or local governmental authority asserting that NCF or the Bank is in
violation of any of the foregoing which could have a material adverse effect on
the business, operations, assets or financial condition of NCF and the Bank,
taken as a whole. Neither NCF nor the Bank is subject to any regulatory or
supervisory cease and desist order, agreement, written directive, memorandum of
understanding or written commitment (other than those of general applicability
to all commercial banks issued by governmental authorities), and neither of them
has received any written communication requesting that they enter into any of
the foregoing.
2.12. Deposit Insurance and Other Regulatory Matters.
(a) The deposit accounts of the Bank are insured by the Savings
Association Insurance Fund administered by the FDIC to the maximum extent
permitted by the Federal Deposit Insurance Act, as amended ("FDIA"), and the
Bank has paid all premiums and assessments required by the FDIA and the
regulations thereunder.
(b) The Bank is a member in good standing of the Federal Home Loan Bank
("FHLB") of Cincinnati and owns the requisite amount of stock in the FHLB of
Cincinnati.
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2.13. Certain Contracts.
(a) Except as disclosed in NCF Disclosure Schedule 2.13(a), neither NCF
nor the Bank is a party to, is bound or affected by, receives, or is obligated
to pay benefits under, (i) any agreement, arrangement or commitment, including
without limitation, any agreement, indenture or other instrument relating to the
borrowing of money by NCF or the Bank or the guarantee by NCF or the Bank of any
obligation, (ii) any agreement, arrangement or commitment relating to the
employment of a consultant or the employment, election or retention in office of
any present or former director or officer of NCF or the Bank, (iii) any
contract, agreement or understanding with a labor union, (iv) any agreement,
arrangement or understanding pursuant to which any payment (whether of severance
pay or otherwise) became or may become due to any director, officer or employee
of NCF or the Bank upon execution of this Agreement or upon or following
consummation of the transactions contemplated by this Agreement (either alone or
in connection with the occurrence of any additional acts or events), (v) any
agreement, arrangement or understanding to which NCF or the Bank is a party or
by which any of the same is bound which limits the freedom of NCF or the Bank to
compete in any line of business or with any person, (vi) any assistance
agreement, supervisory agreement, memorandum of understanding, consent order,
cease and desist order or condition of any regulatory order or decree with or by
the Federal Reserve, the FDIC or any other state or federal regulatory agency,
(vii) any other agreement, arrangement or understanding which would be required
to be filed as an exhibit to NCF's Annual Report on Form 10-K (or Form 10-KSB)
under the 1934 Act and which has not been so filed, or (viii) any other
agreement, arrangement or understanding to which NCF or the Bank is a party and
which is material to the business, operations, assets or financial condition of
NCF and the Bank, taken as a whole (excluding loan agreements or agreements
relating to deposit accounts), in each of the foregoing cases whether written or
oral.
(b) Neither NCF nor the Bank is in default or in non-compliance, which
default or non-compliance would have a material adverse effect on the business,
operations, assets or financial condition of NCF and the Bank, taken as a whole
or the transactions contemplated hereby, under any contract, agreement,
commitment, arrangement, lease, insurance policy or other instrument to which it
is a party or by which its assets, business or operations may be bound or
affected, whether entered into in the ordinary course of business or otherwise
and whether written or oral, and there has not occurred any event that with the
lapse of time or the giving of notice, or both, would constitute such a default
or non-compliance.
2.14. Properties and Insurance.
(a) All real and personal property owned by NCF or the Bank or currently
used by either of them in their respective business is in an adequate condition
(ordinary wear and tear excepted) and is sufficient to carry on the business of
NCF and the Bank in the ordinary course of business consistent with their past
practices. NCF and the Bank have good and, as to owned real property,
marketable title to all material assets and properties, whether real or
personal, tangible or intangible, reflected in NCF's consolidated statement
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of financial condition as of September 30, 1997, or owned and acquired
subsequent thereto (except to the extent that such assets and properties have
been disposed of for fair value in the ordinary course of business since
September 30, 1997), subject to no encumbrances, liens, mortgages, security
interests or pledges, except (i) those items that secure liabilities that are
reflected in said consolidated statement of financial condition or the notes
thereto or have been incurred in the ordinary course of business after the
date of such consolidated statement of financial condition, (ii) statutory
liens for amounts not yet delinquent or which are being contested in good
faith, (iii) such encumbrances, liens, mortgages, security interests, pledges
and title imperfections that are not in the aggregate material to the
business, operations, assets or financial condition of NCF and the Bank,
taken as a whole, and (iv) with respect to owned real property, title
imperfections noted in title reports prior to the date hereof. NCF and the
Bank as lessees have the right under valid and subsisting leases to occupy,
use, possess and control all property leased by them in all material respects
as currently occupied, used, possessed and controlled by NCF and the Bank and
the consummation of the transactions contemplated hereby and by the Agreement
of Merger will not affect any such right. NCF Disclosure Schedule 2.14(a)
sets forth an accurate listing of each lease pursuant to which NCF or the
Bank acts as lessor or lessee, including the expiration date and the terms of
any renewal options which relate to the same.
(b) The business operations and all insurable properties and assets of
NCF and the Bank are insured for their benefit against all risks which, in
the reasonable judgment of the management of NCF, should be insured against,
in each case under valid, binding and enforceable policies or bonds issued by
insurers of recognized responsibility, in such amounts with such deductibles
and against such risks and losses as are in the opinion of the management of
NCF adequate for the business engaged in by NCF and the Bank. As of the date
hereof, neither NCF nor the Bank has received any notice of cancellation or
notice of a material amendment of any such insurance policy or bond or is in
default under such policy or bond, no coverage thereunder is being disputed
and all material claims thereunder have been filed in a timely fashion.
2.15. Environmental Matters.
For purposes of this Agreement, the following terms shall have the
indicated meaning:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any governmental
entity relating to (1) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource), and/or (2) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances. The term
Environmental Law includes without limitation (1) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
Section 9601, et seq; the Resource Conservation and Recovery Act, as
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amended, 42 U.S.C. Section 6901, et seq; the Clean Air Act, as amended, 42
U.S.C. Section 7401, et seq; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Section 1251, et seq; the Toxic Substances Control Act, as
amended, 15 U.S.C. Section 9601, et seq; the Emergency Planning and Community
Right to Know Act, 42 U.S.C. Section 11001, et seq; the Safe Drinking Water
Act, 42 U.S.C. Section 300f, et seq; and all comparable state and local laws,
and (2) any common law (including without limitation common law that may
impose strict liability) that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Substance.
"Hazardous Substance" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or by
quantity, including any regulated material containing any such substance as a
component. Hazardous Substances include without limitation petroleum
(including crude oil or any fraction thereof), asbestos, radioactive
material, and polychlorinated biphenyls.
"Loan Portfolio Properties and Other Properties Owned" means those
properties owned, leased or operated by NCF or the Bank or those properties
which serve as collateral for loans owned by NCF or the Bank.
(a) To the best knowledge of NCF and the Bank, neither NCF nor the Bank
has been or is in violation of or liable under any Environmental Law, except
any such violations or liabilities which would not singly or in the aggregate
have a material adverse effect on the business, operations, assets or
financial condition of NCF and the Bank, taken as a whole.
(b) To the best knowledge of NCF and the Bank, none of the Loan
Portfolio Properties and Other Properties Owned by NCF or the Bank has been
or is in violation of or liable under any Environmental Law, except any such
violations or liabilities which singly or in the aggregate would not have a
material adverse effect on the business, operations, assets or financial
condition of NCF and the Bank, taken as a whole.
(c) To the best knowledge of NCF and the Bank, there are no actions,
suits, demands, notices, claims, investigations or proceedings pending or
threatened relating to the liability of the Loan Portfolio Properties and
Other Properties Owned by NCF or the Bank under any Environmental Law,
including without limitation any notices, demand letters or requests for
information from any federal or state environmental agency relating to any
such liabilities under or violations of Environmental Law, except such which
would not have or result in a material adverse effect on the business,
operations, assets or financial condition of NCF and the Bank, taken as a
whole.
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2.16. Allowance for Loan Losses and Real Estate Owned.
The allowance for loan losses reflected on NCF's consolidated statements of
financial condition included in the consolidated financial statements referred
to in Section 2.04 hereof is, or will be in the case of subsequently delivered
financial statements, as the case may be, in the opinion of NCF's management
adequate in all material respects as of their respective dates under the
requirements of generally accepted accounting principles to provide for
reasonably anticipated losses on outstanding loans net of recoveries. The real
estate owned reflected on the consolidated statements of financial condition
included in the consolidated financial statements referred to in Section 2.04
hereof is, or will be in the case of subsequently delivered financial
statements, as the case may be, carried at the lower of cost or fair value, or
the lower of cost or net realizable value, as required by generally accepted
accounting principles.
2.17. Minute Books.
Since January 1, 1993, the minute books of NCF and the Bank contain
complete and accurate records of all meetings and other corporate action held or
taken by their respective Boards of Directors (including committees of their
respective Boards of Directors) and stockholders.
2.18. Affiliate Transactions.
(a) Except as disclosed in NCF Disclosure Schedule 2.18(a) or in NCF's
proxy statements, and except as specifically contemplated by this Agreement,
since January 1, 1993, neither NCF nor the Bank has engaged in or agreed to
engage in (whether in writing or orally) any transaction with any "person" or
"affiliate" of the Bank, as such terms are defined in Rule 144 under the 1933
Act.
(b) NCF Disclosure Schedule 2.18(b) sets forth the name and number of
shares of NCF Common Stock owned as of the date hereof beneficially or of record
by any persons NCF considers to be affiliates of NCF ("NCF Affiliates") as that
term is defined for purposes of Rule 145 under the 1933 Act.
2.19. Broker Fees.
Except as set forth in NCF Disclosure Schedule 2.19, none of the NCF, the
Bank or any of the respective directors or officers of such companies has
employed any consultant, broker or finder or incurred any liability for any
consultant's, broker's or finder's fees or commissions in connection with any of
the transactions contemplated by this Agreement.
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2.20. Disclosures.
No representation or warranty contained in Article II of this Agreement,
and no statement contained in the NCF Disclosure Schedules, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements herein or therein not misleading.
2.21. Fairness Opinion.
NCF has received a written opinion from Ferguson & Company to the effect
that, as of the date hereof, the consideration to be received by shareholders of
NCF pursuant to this Agreement is fair, from a financial point of view, to such
shareholders.
2.22. Amendment to Employee Stock Ownership Plan.
NCF has taken all necessary action in order to amend the NCF employee stock
ownership plan ("NCF ESOP") in order to ensure that the Merger or any
combination of the NCF ESOP and the Community employee stock ownership plan
("Community ESOP") does not accelerate (other than as required by law or
regulation) or materially increase the benefits available to any participant in
the NCF ESOP.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMMUNITY
References to "Community Disclosure Schedules" shall mean all of the
disclosure schedules required by this Article III, dated as of the date hereof
and referenced to the specific sections and subsections of Article III of this
Agreement, which have been delivered by Community to NCF. Community hereby
represents and warrants to NCF as follows as of the date hereof:
3.01. Corporate Organization.
(a) Community is a corporation duly organized, validly existing and in
good standing under the laws of the State of Indiana. Community has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted and is duly licensed
or qualified to do business and is in good standing in each jurisdiction in
which the nature of the business conducted by it or the character or location of
the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed, qualified
or in good standing would not have a material adverse effect on the business,
operations, assets or financial condition of Community and the Community
Subsidiaries (as defined below) taken as a whole. Community is registered as a
bank holding company under the BHC. Community Disclosure Schedule 3.01(a) sets
forth true and complete copies of the Articles of
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Incorporation or other governing instrument and Bylaws of Community and the
Community Subsidiaries as in effect on the date hereof.
(b) The only direct or indirect subsidiaries of Community are Community
Bank of Southern Indiana and Heritage Bank of Southern Indiana (together the
"Community Subsidiaries"). Each of the Community Subsidiaries (i) is duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation, (ii) has the corporate power and
authority to own or lease all of its properties and assets and to conduct its
business as it is now being conducted, and (iii) is duly licensed or qualified
to do business and is in good standing in each jurisdiction in which the nature
of the business conducted by it or the character or location of the properties
and assets owned or leased by it makes such licensing or qualification
necessary, except where the failure to be so licensed, qualified or in good
standing would not have a material adverse effect on the business, operations,
assets or financial condition of Community and the Community Subsidiaries, taken
as a whole. Community and the Community Subsidiaries are in good standing with
their appropriate federal and state banking regulatory agencies and each has
satisfied in all material respects all commitments, financial or otherwise, as
may have been agreed upon with such banking regulatory agencies. Other than the
Community Subsidiaries, Community does not own or control, directly or
indirectly, greater than a 5% equity interest in any corporation, company,
association, partnership, joint venture or other entity.
3.02. Capitalization.
The authorized capital stock of Community consists of 10,000,000 shares of
Community Common Stock, par value $.10, of which 1,983,722 are issued and
outstanding as of the date hereof, and 5,000,000 shares of preferred stock, no
par value, of which no shares are issued and outstanding as of the date hereof.
All issued and outstanding shares of capital stock of Community, and all issued
and outstanding shares of capital stock of each of the Community Subsidiaries,
have been duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights. All of the outstanding shares of capital stock
of each of the Community Subsidiaries are owned by Community free and clear of
any liens, encumbrances, charges, restrictions or rights of third parties of any
kind whatsoever, and, except for options to purchase 198,372 shares of Community
Common Stock which have been granted pursuant to Community's 1997 Stock
Incentive Plan (or options granted by Community pursuant thereto after the date
hereof), none of Community or any of the Community Subsidiaries has or is bound
by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the transfer, purchase or issuance of
any shares of capital stock of Community or any of the Community Subsidiaries or
any securities representing the right to purchase or otherwise receive any
shares of such capital stock or any securities convertible into or representing
the right to purchase or subscribe for any such stock.
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3.03. Authority; No Violation.
(a) Subject to the approval of this Agreement and the Agreement of
Merger and the transactions contemplated hereby and thereby by the
stockholders of Community, Community has full corporate power and authority
to execute and deliver this Agreement and the Agreement of Merger and to
consummate the transactions contemplated hereby and thereby in accordance
with the terms hereof and thereof. The execution and delivery of this
Agreement and the Agreement of Merger and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
approved by the Board of Directors of Community and, except for the approval
of Community's stockholders of this Agreement and the Agreement of Merger, no
other corporate proceedings on the part of Community are necessary to
consummate the transactions so contemplated. This Agreement and the
Agreement of Merger have been duly and validly executed and delivered by
Community and constitute valid and binding obligations of Community,
enforceable against it in accordance with and subject to their terms, except
as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally, and except that
the availability of equitable remedies (including, without limitation,
specific performance) is within the discretion of the appropriate court.
(b) None of the execution and delivery of this Agreement and the
Agreement of Merger by Community, nor the consummation by Community of the
transactions contemplated hereby and thereby in accordance with the terms
hereof and thereof, or compliance by Community with any of the terms or
provisions hereof or thereof, will (i) violate any provision of the Articles
of Incorporation or other governing instrument or Bylaws of Community or any
of the Community Subsidiaries, (ii) assuming that the consents and approvals
set forth below are duly obtained, violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
Community or any of the Community Subsidiaries or any of their respective
properties or assets, or (iii) violate, conflict with, result in a breach of
any provisions of, constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, result in the
termination of, accelerate the performance required by, or result in the
creation of any lien, security interest, charge or other encumbrance upon any
of the respective properties or assets of Community or any of the Community
Subsidiaries under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Community or any of the Community
Subsidiaries is a party, or by which any of their respective properties or
assets may be bound or affected, except, with respect to (ii) and (iii)
above, such as individually or in the aggregate will not have a material
adverse effect on the business, operations, assets or financial condition of
Community and the Community Subsidiaries, taken as a whole and which will not
prevent or delay the consummation of the transactions contemplated hereby.
Except for consents and approvals of or filings or registrations with or
notices to the Commission, the Secretary of State of the State of Indiana,
the Federal Reserve, the state banking regulators of the State of Indiana and
the stockholders of Community, no consents or approvals of or filings or
registrations with or notices to any federal, state, municipal or
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other governmental or regulatory commission, board, agency or
non-governmental third party are required on behalf of Community in
connection with (a) the execution and delivery of this Agreement and the
Agreement of Merger by Community and (b) the consummation by Community of the
transactions contemplated hereby and by the Agreement of Merger.
3.04. Financial Statements.
(a) Community has previously delivered to NCF copies of the consolidated
statements of financial condition of Community as of December 31, 1996, 1995 and
1994, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years ended December 31, 1996, 1995
and 1994, (including such statements of entities preceding Community's
organization in 1995) in each case accompanied by the audit reports of Monroe,
Shine & Co., Inc., independent public accountants, as well as the unaudited
consolidated statement of financial condition of Community as of September 30,
1997 and the related unaudited consolidated statements of income, changes in
stockholders' equity and cash flows for the nine months ended September 30, 1996
and 1995. The consolidated statements of financial condition of Community
referred to herein (including the related notes, where applicable), as well as
the consolidated financial statements contained in the reports of Community to
be delivered by Community pursuant to Section 4.04 hereof, fairly present or
will fairly present, as the case may be, the consolidated financial condition of
Community as of the respective dates set forth therein, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows (including the related notes, where applicable) fairly present or will
fairly present, as the case may be, the results of the consolidated operations,
changes in stockholders' equity and cash flows of Community for the respective
periods or as of the respective dates set forth therein (it being understood
that Community's interim financial statements are not audited and are not
prepared with related notes but reflect all adjustments which are, in the
opinion of Community, necessary for a fair presentation of such financial
statements).
(b) Each of the financial statements referred to in this Section 3.04
(including the related notes, where applicable) has been or will be, as the case
may be, prepared in accordance with generally accepted accounting principles
consistently applied during the periods involved. The books and records of
Community and the Community Subsidiaries are being maintained in material
compliance with applicable legal and accounting requirements and reflect only
actual transactions.
(c) Except to the extent reflected, disclosed or reserved against in the
consolidated financial statements referred to in the first sentence of this
Section 3.04 or the notes thereto or liabilities incurred since September 30,
1997 in the ordinary course of business and consistent with past practice, none
of Community or any of the Community Subsidiaries has any obligation or
liability, whether absolute, accrued, contingent or otherwise, material to the
business, operations, assets or financial condition of Community and the
Community Subsidiaries, taken as a whole.
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3.05. Absence of Certain Changes or Events.
There has not been any material adverse change in the business, operations,
prospects, assets or financial condition of Community and the Community
Subsidiaries, taken as a whole, since September 30, 1997 and to the best
knowledge of Community, no fact or condition exists which Community believes
will cause such a material adverse change in the future.
3.06. Legal Proceedings.
None of Community or any of the Community Subsidiaries is a party to any,
and there are no pending or, to the best knowledge of Community, threatened
legal, administrative, arbitration or other proceedings, claims, actions or
governmental investigations of any nature against Community or any of the
Community Subsidiaries, except such proceedings, claims actions or governmental
investigations which in the good faith judgment of Community will not have a
material adverse effect on the business, operations, assets or financial
condition of Community and the Community Subsidiaries, taken as a whole. None
of Community or any of the Community Subsidiaries is a party to any order,
judgment or decree which materially adversely affects the business, operations,
assets or financial condition of Community and the Community Subsidiaries, taken
as a whole.
3.07. Taxes and Tax Returns.
(a) Each of Community and the Community Subsidiaries, or the affiliated,
combined or unitary group (within the meaning of applicable federal income tax
law) of which any such corporation is or was a member, as the case may be
(individually an "Affiliate" and collectively, "Affiliates"), has duly filed
(and until the Effective Time will so file) all returns, declarations, reports,
information returns and statements ("Returns") required to be filed or sent by
or with respect to them in respect of any Taxes, and has duly paid (and until
the Effective Time will so pay) all Taxes due and payable other than Taxes or
other charges which (i) are being contested in good faith (and disclosed in
writing to NCF and (ii) have not finally been determined. Community and its
Affiliates have established (and until the Effective Time will establish) on
their books and records reserves that are adequate for the payment of all Taxes
not yet due and payable, whether or not disputed, accrued or applicable. Except
as set forth in Community Disclosure Schedule 3.07(a), (i) the federal income
tax returns of Community and its Affiliates have been examined by the IRS (or
are closed to examination due to the expiration of the applicable statute of
limitations), and (ii) the Indiana income tax returns of Community and its
Affiliates have been examined by applicable authorities (or are closed to
examination due to the expiration of the statute of limitations), and in the
case of both (i) and (ii) no deficiencies were asserted as a result of such
examinations which have not been resolved and paid in full. There are no audits
or other administrative or court proceedings presently pending nor any other
disputes pending, or claims asserted for, Taxes or assessments upon Community or
any of its Affiliates, nor has Community or any of its Affiliates given any
currently outstanding waivers or
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comparable consents regarding the application of the statute of limitations
with respect to any Taxes or Returns.
(b) Except as set forth in Community Disclosure Schedule 3.07(b), none of
Community or any of its Affiliates (i) has requested any extension of time
within which to file any Return which Return has not since been filed, (ii) is a
party to any agreement providing for the allocation or sharing of Taxes, (iii)
is required to include in income any adjustment pursuant to Section 481(a) of
the Code, by reason of a voluntary change in accounting method initiated by
Community or any Affiliate (nor does Community have any knowledge that the IRS
has proposed any such adjustment or change of accounting method), or (iv) has
filed a consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply.
3.08. Employee Benefit Plans.
(a) Each employee benefit plan or arrangement of Community or either of
the Community Subsidiaries which is an "employee benefit plan" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), is listed in Community Disclosure Schedule 3.08(a)
("Community Plans"). Community has previously furnished or made available to
NCF true and complete copies of each of the Community Plans together with (i)
the most recent actuarial and financial reports prepared with respect to any
qualified Community Plans, (ii) the most recent annual reports filed with any
government agency, and (iii) all rulings and determination letters and any open
requests for rulings or letters that pertain to any qualified Community Plans.
(b) Each Community Plan has been operated in compliance in all material
respects with the applicable provisions of ERISA, the Code, all regulations,
rulings and announcements promulgated or issued thereunder, and all other
applicable governmental laws and regulations.
(c) Neither Community nor any Community Subsidiary participates in or has
incurred any liability under Section 4201 of ERISA for a complete or partial
withdrawal from a multi-employer plan (as such term is defined in ERISA).
(d) The present value of all accrued benefits under each of the Community
Plans subject to Title IV of ERISA did not, as of the latest valuation date of
each such Plan, exceed the then-current value of the assets of such plans
allocable to such accrued benefits, based upon the actuarial and accounting
assumptions currently utilized for such Community Plans.
(e) Neither Community nor any of the Community Subsidiaries, nor, to the
best knowledge of Community, any trustee, fiduciary or administrator of a
Community Plan or any trust created thereunder, has engaged in a "prohibited
transaction," as such term is defined in Section 4975 of the Code, which could
subject Community or any of the
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Community Subsidiaries, or, to the best knowledge of Community, any trustee,
fiduciary or administrator thereof, to the tax or penalty on prohibited
transactions imposed by said Section 4975.
(f) No Community Plan or any trust created thereunder has been terminated,
nor have there been any "reportable events" with respect to any Community Plan,
as that term is defined in Section 4043(b) of ERISA.
(g) No Community Plan or any trust created thereunder has incurred any
"accumulated funding deficiency," as such term is defined in Section 302 of
ERISA.
(h) Each of the Community Plans which is intended to be a qualified plan
within the meaning of Section 401(a) of the Code has been determined by the IRS
to be so qualified, and Community is not aware of any fact or circumstance which
would adversely affect the qualified status of any such Plan.
3.09. Securities Documents and Regulatory Reports.
(a) Community has previously delivered or made available to NCF a complete
copy of each final registration statement, prospectus, annual, quarterly or
current report and definitive proxy statement or other communication (other than
general advertising materials) filed pursuant to the 1933 Act or the 1934 Act or
mailed by Community to its stockholders as a class since January 1, 1995, and
each such final registration statement, prospectus, annual, quarterly or current
report and definitive proxy statement or other communication, as of its date,
complied in all material respects with all applicable statutes, rules and
regulations and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading; provided that information as of a later date
shall be deemed to modify information as of an earlier date.
(b) Community and each of the Community Subsidiaries has duly filed with
the Federal Reserve, the OTS, the FDIC and appropriate state banking authorities
in correct form the monthly, quarterly and annual reports required to be filed
under applicable laws and regulations, and Community has delivered or made
available to NCF accurate and complete copies of such reports. Community
Disclosure Schedule 3.09(b) lists all examinations of Community or of the
Community Subsidiaries conducted by the applicable banking or thrift regulatory
authorities since January 1, 1995 and the dates of any responses thereto
submitted by Community. In connection with the most recent examinations of
Community or the Community Subsidiaries by the applicable banking or thrift
regulatory authorities, neither Community nor any Community Subsidiary was
required to correct or change any action, procedure or proceeding which
Community or such Community Subsidiary believes has not been now corrected or
changed as required.
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3.10. Community Information.
None of the information relating to Community and the Community
Subsidiaries to be contained in (i) the Form S-4 will, at the time the Form S-4
becomes effective, contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (ii) the Joint
Proxy Statement/Prospectus, as of the date(s) such Joint Proxy
Statement/Prospectus is mailed to stockholders of Community and NCF and up to
and including the date(s) of the meetings of stockholders to which such Joint
Proxy Statement/Prospectus relates, will contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, provided that information as of a later date shall be deemed to
modify information as of an earlier date.
3.11. Compliance with Applicable Law.
(a) Community and each of the Community Subsidiaries has all permits,
licenses, certificates of authority, orders and approvals of, and has made all
filings, applications and registrations with, federal, state, local and foreign
governmental or regulatory bodies that are required in order to permit it to
carry on its business as it is presently being conducted and the absence of
which could have a material adverse effect on the business, operations, assets
or financial condition of Community and the Community Subsidiaries, taken as a
whole; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect; and, to the best knowledge of Community
and the Community Subsidiaries, no suspension or cancellation of any of the same
is threatened.
(b) Neither Community nor any of the Community Subsidiaries is in
violation of its respective Articles of Incorporation or other governing
instrument or Bylaws, or of any applicable federal, state or local law or
ordinance or any order, rule or regulation of any federal, state, local or other
governmental agency or body (including, without limitation, all banking,
securities, municipal securities, safety, health, zoning, anti-discrimination,
antitrust, and wage and hour laws, ordinances, orders, rules and regulations),
or in default with respect to any order, writ, injunction or decree of any
court, or in default under any order, license, regulation or demand of any
governmental agency, any of which violations or defaults could have a material
adverse effect on the business, operations, assets or financial condition of
Community and the Community Subsidiaries, taken as a whole; and neither
Community nor any Community Subsidiary has received any notice or communication
from any federal, state or local governmental authority asserting that Community
or any Community Subsidiary is in violation of any of the foregoing which could
have a material adverse effect on the business, operations, assets or financial
condition of Community and the Community Subsidiaries, taken as a whole.
Neither Community nor any Community Subsidiary is subject to any regulatory or
supervisory cease and desist order, agreement, written directive, memorandum of
understanding or written commitment (other than those of general applicability
to all commercial banks issued by governmental authorities), and
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none of them has received any written communication requesting that they
enter into any of the foregoing.
3.12. Deposit Insurance and Other Regulatory Matters.
(a) The deposit accounts of the Community Subsidiaries are insured by the
Savings Association Insurance Fund administered by the FDIC to the maximum
extent permitted by the FDIA, and each of the Community Subsidiaries has paid
all premiums and assessments required by the FDIA and the regulations
thereunder.
(b) Each of the Community Subsidiaries is a member in good standing of the
FHLB of Indianapolis and owns the requisite amount of stock in the FHLB of
Indianapolis.
3.13. Properties and Insurance.
(a) All real and personal property owned by Community or any of the
Community Subsidiaries or presently used by any of them in their respective
business is in an adequate condition (ordinary wear and tear excepted) and is
sufficient to carry on the business of Community and the Community Subsidiaries
in the ordinary course of business consistent with their past practices.
Community and the Community Subsidiaries have good and, as to owned real
property, marketable title to all material assets and properties, whether real
or personal, tangible or intangible, reflected in Community's consolidated
statement of financial condition as of September 30, 1997, or owned and acquired
subsequent thereto (except to the extent that such assets and properties have
been disposed of for fair value in the ordinary course of business since
September 30, 1997), subject to no encumbrances, liens, mortgages, security
interests or pledges, except (i) those items that secure liabilities that are
reflected in said consolidated statement of financial condition or the notes
thereto or have been incurred in the ordinary course of business after the date
of such consolidated statement of financial condition, (ii) statutory liens for
amounts not yet delinquent or which are being contested in good faith, (iii)
such encumbrances, liens, mortgages, security interests, pledges and title
imperfections that are not in the aggregate material to the business,
operations, assets or financial condition of Community and the Community
Subsidiaries, taken as a whole, and (iv) with respect to owned real property,
title imperfections noted in title reports prior to the date hereof. Community
and the Community Subsidiaries as lessees have the right under valid and
subsisting leases to occupy, use, possess and control all property leased by
them in all material respects as currently occupied, used, possessed and
controlled by Community and the Community Subsidiaries and the consummation of
the transactions contemplated hereby and by the Agreement of Merger will not
affect any such right.
(b) The business operations and all insurable properties and assets of
Community and the Community Subsidiaries are insured for their benefit against
all risks which, in the reasonable judgment of the management of Community,
should be insured against, in each case under valid, binding and enforceable
policies or bonds issued by insurers of recognized
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responsibility, in such amounts with such deductibles and against such risks
and losses as are in the opinion of the management of Community adequate for
the business engaged in by Community and the Community Subsidiaries. As of
the date hereof, neither Community nor either of the Community Subsidiaries
has received any notice of cancellation or notice of a material amendment of
any such insurance policy or bond or is in default under such policy or bond,
no coverage thereunder is being disputed and all material claims thereunder
have been filed in a timely fashion.
3.14. Environmental Matters.
(a) To the best knowledge of Community and the Community Subsidiaries,
neither Community nor any of the Community Subsidiaries has been or is in
violation of or liable under any Environmental Law, except any such violations
or liabilities which would not singly or in the aggregate have a material
adverse effect on the business, operations, assets or financial condition of
Community and Community Subsidiaries, taken as a whole.
(b) To the best knowledge of Community and the Community Subsidiaries,
none of the Loan Portfolio Properties and Other Properties Owned by Community or
the Community Subsidiaries has been or is in violation of or liable under any
Environmental Law, except any such violations or liabilities which singly or in
the aggregate would not have a material adverse effect on the business,
operations, assets or financial condition of Community and the Community
Subsidiaries, taken as a whole.
(c) To the best knowledge of Community and the Community Subsidiaries,
there are no actions, suits, demands, notices, claims, investigations or
proceedings pending or threatened relating to the liability of the Loan
Portfolio Properties and Other Properties Owned by Community or the Community
Subsidiaries under any Environmental Law, including without limitation any
notices, demand letters or requests for information from any federal or state
environmental agency relating to any such liabilities under or violations of
Environmental Law, except such which would not have or result in a material
adverse effect on the business, operations, assets or financial condition of
Community and the Community Subsidiaries, taken as a whole.
3.15. Allowance for Loan Losses and Real Estate Owned.
The allowance for loan losses reflected on Community's consolidated
statements of financial condition included in the consolidated financial
statements referred to in Section 3.04 hereof is, or will be in the case of
subsequently delivered financial statements, as the case may be, in the opinion
of Community's management adequate in all material respects as of their
respective dates under the requirements of generally accepted accounting
principles to provide for reasonably anticipated losses on outstanding loans net
of recoveries. The real estate owned reflected on the consolidated statements
of financial condition included in the consolidated financial statements
referred to in Section 3.04 hereof is, or will be in the case of subsequently
delivered financial statements, as the case may be, carried
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at the lower of cost or fair value, or the lower of cost or net realizable
value, as required by generally accepted accounting principles.
3.16. Minute Books.
Since January 1, 1993, the minute books of Community and the Community
Subsidiaries contain complete and accurate records of all meetings and other
corporate action held or taken by their respective Boards of Directors
(including committees of their respective Boards of Directors) and stockholders.
3.17. Broker Fees.
Except as set forth in Community Disclosure Schedule 3.17, neither
Community nor any of its directors or officers has employed any consultant,
broker or finder or incurred any liability for any consultant's, broker's or
finder's fees or commissions in connection with any of the transactions
contemplated by this Agreement.
3.18. Disclosures.
No representation or warranty contained in Article III of this Agreement,
and no statement contained in the Community Disclosure Schedules, contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements herein or therein not misleading.
ARTICLE IV
COVENANTS OF THE PARTIES
4.01. Conduct of the Business of NCF.
During the period from the date hereof to the Effective Time, NCF shall,
and shall cause the Bank to, conduct its businesses and engage in transactions
permitted hereunder or only in the ordinary course and consistent with past
practice, except with the prior written consent of Community, which consent
shall not be unreasonably withheld. NCF shall use its best efforts to (i)
preserve its business organization and that of the Bank intact, (ii) keep
available to itself and Community the current services of the employees of NCF
and the Bank, and (iii) preserve for itself and Community the goodwill of the
customers of itself and the Bank and others with whom business relationships
exist.
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4.02. Negative Covenants.
NCF agrees that from the date hereof to the Effective Time, except as
otherwise approved by Community in writing or as permitted or required by this
Agreement, NCF will not, nor will NCF permit any of the Bank to:
(i) change any provision of the Certificate of Incorporation or other
governing instrument or Bylaws of NCF or the Bank;
(ii) except for the issuance of NCF Common Stock pursuant to the present
terms of stock options which are outstanding as of the date hereof (and
identified on NCF Disclosure Schedule 4.02) and compliance with the terms of the
Option Agreement of even date herewith, change the number of shares of its
authorized or issued capital stock or issue or grant any option, warrant, call,
commitment, subscription, award, right to purchase or agreement of any character
relating to the authorized or issued capital stock of NCF or the Bank, or any
securities convertible into shares of such capital stock, or split, combine or
reclassify any shares of its capital stock, or redeem or otherwise acquire any
shares of such capital stock;
(iii) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
the capital stock of NCF or the Bank, except for regular cash dividends not in
excess of $0.15 per share of NCF Common Stock (but NCF shall not alter its
practices as to payment and record dates without Community's consent);
(iv) grant any severance or termination pay (other than pursuant to binding
contracts of NCF in effect on the date hereof and disclosed to Community on NCF
Disclosure Schedule 2.13(a)) to, or enter into or amend any employment,
consulting or compensation agreement with, any of its directors, officers or
employees; or award any increase in compensation or benefits to its directors,
officers or employees, except, in the case of employees, such as may be granted
in the ordinary course of business and consistent with past practices and
policies;
(v) enter into or modify (except as may be required by applicable law or
as may be required by Section 4.12 hereof, with the prior written consent of
Community, which shall not be unreasonably withheld) any pension, retirement,
stock option, stock purchase, stock grant, stock appreciation right, savings,
profit sharing, deferred compensation, consulting, bonus, group insurance or
other employee benefit, incentive or welfare contract, plan or arrangement, or
any trust agreement related thereto, in respect of any of its directors,
officers or employees; or make any contributions to NCF's Employee Stock
Ownership Plan or any other defined contribution plan or any defined benefit
pension or retirement plan other than in the ordinary course of business
consistent with past practice;
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(vi) sell or dispose of any significant assets or incur any significant
liabilities other than in the ordinary course of business consistent with past
practices and policies, or acquire in any manner whatsoever (other than to
realize upon collateral for a defaulted loan) any business or entity;
(vii) make any capital expenditures in excess of $25,000 in the
aggregate, other than pursuant to binding commitments existing on the date
hereof, other than expenditures necessary to maintain existing assets in good
repair and other than as set forth in NCF Disclosure Schedule 4.02(vii);
(viii) except as set forth on NCF Disclosure Schedule 4.02(viii), file
any applications or make any contract with respect to branching or site location
or relocation;
(ix) make any material change in its accounting methods or practices, other
than changes required by generally accepted accounting principles, or change any
of its methods of reporting income and deductions for federal income tax
purposes, except as required by changes in laws or regulations;
(x) change its lending, investment, deposit or asset and liability
management or other banking policies in any material respect except as may be
required by applicable law;
(xi) engage in any transaction with an "person" or "affiliate," in each
case as defined in Section 2.18(a) hereof;
(xii) enter into any futures contract, option or other agreement or
take any other action for purposes of hedging the exposure of its
interest-earning assets and interest-bearing liabilities to changes in market
rates of interest;
(xiii) take any action that would result in any of its representations
and warranties contained in Article II of this Agreement not being true and
correct in any material respect at the Effective Time; or
(xiv) agree to do any of the foregoing.
4.03. No Solicitation.
Neither NCF nor the Bank shall, nor shall NCF or the Bank authorize or
permit any of its directors, officers or employees or any investment banker,
financial advisor, attorney, accountant or other representative of NCF or the
Bank to, directly or indirectly, encourage or solicit or hold discussions or
negotiations with, or provide any information to, any person, entity or group
(other than Community) concerning any merger, sale of substantial assets or
liabilities not in the ordinary course of business, sale of shares of capital
stock or similar transactions involving NCF or the Bank (an "Acquisition
Transaction"); provided, however, that NCF may provide information in connection
with an unsolicited possible Acquisition
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Transaction if the Board of Directors of NCF, after receipt of written advice
of legal counsel to take such action, determines in the exercise of its
fiduciary responsibilities that such information should be furnished. NCF
will promptly communicate to Community the terms of any proposal which it may
receive in respect of any such Acquisition Transaction and shall provide
Community with copies of (i) the written legal advice provided to the Board
of Directors of NCF, (ii) all such written inquiries or proposals and (iii)
an accurate and complete written synopsis of all such oral inquiries or
proposals.
4.04. Current Information.
During the period from the date hereof to the Effective Time, each party
will cause one or more of its designated representatives to confer on a monthly
or more frequent basis with representatives of the other party regarding its
business, operations, prospects, assets and financial condition and matters
relating to the completion of the transactions contemplated hereby. As soon as
reasonably available, but in no event more than 45 days after the end of each
calendar quarter (other than the last quarter of each calendar year) ending
after the date of this Agreement, each party will deliver to the other party its
quarterly report on Form 10-Q (or Form 10-QSB) under the 1934 Act, and, as soon
as reasonably available, but in no event more than 90 days after the end of each
fiscal year, each party will deliver to the other party its Annual Report on
Form 10-K (or Form 10-KSB). Within 25 days after the end of each month, each
party shall provide the other party with a consolidated statement of financial
condition and a consolidated statement of operations, without related notes, for
such month prepared in accordance with generally accepted accounting principles.
4.05. Access to Properties and Records; Confidentiality.
(a) NCF shall permit Community and its representatives reasonable
access to its properties and those of the Bank, and shall disclose and make
available to Community all books, papers and records relating to the assets,
stock ownership, properties, operations, obligations and liabilities of NCF
and the Bank, including, but not limited to, all books of account (including
the general ledger), tax records, minute books of directors' and
stockholders' meetings, organizational documents, bylaws, material contracts
and agreements, filings with any regulatory authority, accountants' work
papers, litigation files, plans affecting employees, and any other business
activities or prospects in which Community may have a reasonable interest.
Neither NCF nor the Bank shall be required to provide access to or to
disclose information where such access or disclosure would violate or
prejudice the rights of any customer or would contravene any law, rule,
regulation, order or judgment. NCF will use its best efforts to obtain
waivers of any such restriction and in any event make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply. NCF and the Bank shall make their respective
directors, officers, employees and agents and authorized representatives
(including counsel and independent public accountants) available to confer
with Community and its representatives, provided that such access shall be
reasonably related to the transactions
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contemplated hereby and not unduly interfere with normal operations. Similar
access shall be provided by Community to NCF and its representatives to the
extent necessary to enable NCF to satisfy its due diligence obligations with
respect to Community.
(b) All information furnished previously in connection with the
transactions contemplated by this Agreement or pursuant hereto shall be treated
as the sole property of the party furnishing the information until consummation
of the Merger and, if such Merger shall not occur, the party receiving the
information shall, at the request of the party which furnished such information,
either return to the party which furnished such information or destroy all
documents or other materials containing, reflecting or referring to such
information; shall use its best effort to keep confidential all such
information; shall use such information only for the purpose of consummating the
transactions contemplated by this Agreement; and shall not directly or
indirectly use such information for any competitive or commercial purposes. The
obligation to keep such information confidential shall continue for three years
from the date the proposed Merger is abandoned but shall not apply to (i) any
information which (A) the party receiving the information can establish by
convincing evidence was already in its possession prior to the disclosure
thereof to it by the party furnishing the information; (B) was then generally
known to the public; (C) became known to the public through no fault of the
party receiving the information; or (D) was disclosed to the party receiving the
information by a third party not bound by an obligation of confidentiality; or
(ii) disclosures pursuant to a legal requirement or in accordance with an order
of a court of competent jurisdiction.
(c) From the date hereof until the earlier of the Effective Time or the
termination of this Agreement in accordance with the terms hereof, NCF may
invite one person (to be designated by Community) to attend all meetings of the
Board of Directors of NCF and the Bank.
4.06. Regulatory Matters.
(a) The parties hereto will cooperate with each other and use their best
efforts to prepare all necessary documentation (including without limitation the
Form S-4 and the Joint Proxy Statement/Prospectus), to effect all necessary
filings and to obtain all necessary permits, consents, approvals and
authorizations of all third parties and governmental bodies necessary to
consummate the transactions contemplated by this Agreement as soon as
practicable. The parties shall each have the right to review and approve in
advance all information relating to the other, as the case may be, and any of
their respective subsidiaries, which appears in any filing made with, or written
material submitted to, any third party or governmental body in connection with
the transactions contemplated by this Agreement.
(b) Each of the parties will furnish each other with all information
concerning themselves, their subsidiaries, directors, officers and stockholders
and such other matters as may be necessary or advisable in connection with any
statement or application made by or
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on behalf of them, or any of their respective subsidiaries to any
governmental body in connection with the Merger and the other transactions,
applications or filings contemplated by this Agreement.
(c) Each of the parties will promptly furnish each other with copies of
written communications received by them or any of their respective subsidiaries
from, or delivered by any of the foregoing to, any governmental body in
connection with the Merger and the other transactions, applications or filings
contemplated by this Agreement.
4.07. Approval of Stockholders.
Community (if required by applicable law or otherwise) and NCF will (a)
take all steps (including, without limitation, the preparation of the Form S-4
and Joint Proxy Statement/Prospectus in accordance with all applicable
requirements) necessary to duly call, give notice of, convene and hold a meeting
of its stockholders as soon as reasonably practicable for the purposes of
securing the approval of such stockholders of this Agreement and the Agreement
of Merger, (b) recommend to its stockholders the approval of this Agreement and
the Agreement of Merger and the transactions contemplated hereby and thereby,
and use its best efforts to obtain, as promptly as practicable, such approvals,
and (c) cooperate and consult with the other party with respect to the foregoing
matters.
4.08. Further Assurances.
Subject to the terms and conditions herein provided, each of the parties
hereto agrees to use its best efforts to take, or cause to be taken, all
reasonable action and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to satisfy the conditions to
closing contained herein and to consummate and make effective the transactions
contemplated by this Agreement and the Agreement of Merger. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and directors of each
party to this Agreement shall take all such necessary action. Nothing in this
section shall be construed to require any party to participate in any threatened
or actual legal, administrative or other proceedings (other than proceedings,
actions or investigations to which it is a party or subject or threatened to be
made a party or subject) in connection with consummation of the transactions
contemplated by this Agreement unless such party shall consent in advance and in
writing to such participation and the other party agrees to reimburse and
indemnify such party for and against any and all costs and damages related
thereto.
4.09. Disclosure Supplements.
From time to time prior to the Effective Time, each party will promptly
supplement or amend its respective Disclosure Schedules delivered pursuant
hereto with respect to any matter hereafter arising which, if existing,
occurring or known as of the date hereof, would have been required to be set
forth or described in such Schedules or which is necessary to
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correct any information in such Schedules which has been rendered inaccurate
thereby. No supplement or amendment to such Schedules shall have any effect
for the purpose of determining satisfaction of the conditions set forth in
Article V or the compliance by NCF with the covenants set forth in Section
4.01 hereof.
4.10. Public Announcements.
The parties hereto shall approve in advance the substance of and cooperate
with each other in the development and distribution of all news releases and
other public disclosures with respect to this Agreement or any of the
transactions contemplated hereby, except as may be otherwise required by law or
regulation and as to which the parties releasing such information have used
their best efforts to discuss with the other parties in advance.
4.11. Failure to Fulfill Conditions.
In the event that either of the parties hereto determines that a condition
to its respective obligations to consummate the transactions contemplated hereby
cannot be fulfilled on or prior to September 30, 1998 and that it will not waive
that condition, it will promptly notify the other party. Community and NCF will
promptly inform the other of any facts applicable to them, or their respective
directors or officers, that would be likely to prevent or materially delay
approval of the Merger by any governmental authority or which would otherwise
prevent or materially delay completion of the Merger.
4.12. Certain Post-Merger Agreements.
The parties hereto agree to the following arrangements following the
Effective Time:
(a) Board of Directors of Community. Upon consummation of the Merger, the
Board of Directors of Community shall continue to consist of its current
members.
(b) Board of Directors of the Bank. Upon consummation of the Merger, the
Board of Directors of the Bank shall continue to consist of its current members,
except for A. E. Bowling who shall resign effective as of the Effective Time.
(c) Officers and Employees of the Bank. The current Chairman of the Board
and President of the Bank, A. E. Bowling, will retire effective as of the
Effective Date, and Mr. Bowling will thereupon be entitled to, and Community
agrees to provide, the payments and benefits reflected on NCF Disclosure
Schedule 2.13(a), including the Retirement Agreement between Mr. Bowling and
Community of even date herewith. After the Effective Time, the Bank shall not
hire any additional employees without the prior consent of Community.
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(d) Employee Benefit Plans.
(1) Subject to the provisions of this Section 4.12, all employees of NCF
or the Bank immediately prior to the Effective Time who are employed by
Community or the Bank (the "Employers") immediately following the Effective Time
("Transferred Employees") will be covered by Employers' employee benefit plans
on substantially the same basis as any employee of the Employers in a comparable
position. Notwithstanding the foregoing, Community may determine to continue
any of the NCF benefit plans for Transferred Employees in lieu of offering
participation in the Employers' benefit plans providing similar benefits (e.g.,
medical and hospitalization benefits), to terminate any of NCF's benefit plans,
or to merge any such benefit plans with the Employers' benefit plans, provided
the result is the provision of benefits to Transferred Employees that are
substantially similar to the benefits provided to the Employers' employees
generally. Except as specifically provided in this Section 4.12 and as
otherwise prohibited by law, Transferred Employees' service with NCF or the Bank
shall be recognized as service with the Employers for purposes of eligibility to
participate and vesting, if applicable (but not for purposes of benefit accrual)
under the Employers' benefit plans, subject to applicable break-in-service
rules. Notwithstanding anything herein to the contrary, after the Effective
Time, (x) any amendment to, or grant of additional benefits under, any NCF or
Bank benefit plan, including stock-based plans, which continues to exist
subsequent to the Effective Time, shall require the prior consent of the
Community, and (y) Community may cause any of the NCF or the Bank benefit plans
which continue to exist, including stock-based plans, to be amended in order to
provide that employees of Community or the Community Subsidiaries may be
participants in such plans.
(2) On or after the Effective Time, the NCF ESOP may, at Community's
discretion, be combined with the Community ESOP, terminated, frozen or held
separately.
(e) Directors Consultation and Retirement Plan. Upon consummation of the
Merger, all directors of the Bank prior to the Effective Time who continue as
directors of the Bank immediately following the Effective Time will be covered
by the Directors Consultation and Retirement Plan.
4.13. Indemnification.
Community agrees that all rights to indemnification and all limitations on
liability existing in favor of NCF and the Bank as provided in their respective
Certificate of Incorporation, Bylaws or similar governing documents as in effect
as of the date hereof with respect to matters occurring prior to the Effective
Time shall survive the Merger and shall continue in full force and effect, and
shall be honored by Community, the Community Subsidiaries or their respective
successors as if they were the indemnifying party thereunder, without any
amendment thereto, for a period of six years from the Effective Time; provided,
however, that all rights to indemnification in respect of any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities incurred
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in connection with any claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative (a "Claim"),
asserted or made within such period shall continue until the final
disposition of such Claim.
ARTICLE V
CLOSING CONDITIONS
5.01. Conditions to the Parties' Obligations Under This Agreement.
The respective obligations of the parties under this Agreement shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) All necessary regulatory or governmental approvals and consents
(including without limitation any required approval of the Federal Reserve, FDIC
and banking regulators of the State of Indiana and the Commonwealth of Kentucky
required to consummate the transactions contemplated hereby) shall have been
obtained without any term or condition which would materially impair the value
of NCF and the Bank to Community; all conditions required to be satisfied prior
to the Effective Time by the terms of such approvals and consents shall have
been satisfied; and all waiting periods in respect thereof shall have expired.
(b) All corporate action necessary to authorize the execution and delivery
of this Agreement and consummation of the transactions contemplated hereby and
by the Agreement of Merger shall have been duly and validly taken by Community
and NCF, including approval by the requisite vote of the stockholders of NCF of
this Agreement and the Agreement of Merger.
(c) No order, judgment or decree shall be outstanding against a party
hereto or a third party that would have the effect of preventing completion of
the Merger; no suit, action or other proceeding shall be pending or threatened
by any governmental body in which it is sought to restrain or prohibit the
Merger; and no suit, action or other proceeding shall be pending before any
court or governmental agency in which it is sought to restrain or prohibit the
Merger or obtain other substantial monetary or other relief against one or more
of the parties hereto in connection with this Agreement and which Community or
NCF determines in good faith, based upon the advice of their respective counsel,
makes it inadvisable to proceed with the Merger because any such suit, action or
proceeding has a significant potential to be resolved in such a way as to
deprive the party electing not to proceed of any of the material benefits to it
of the Merger.
(d) The Form S-4 shall have become effective under the 1933 Act, and
Community shall have received all state securities laws or "blue sky" permits
and other authorizations
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or there shall be exemptions from registration requirements necessary to
issue the Community Common Stock in connection with the Merger, and neither
the Form S-4 nor any such permit, authorization or exemption shall be subject
to a stop order or threatened stop order by the Commission or any state
securities authority.
(e) The parties shall have received, in form and substance reasonably
satisfactory to them, an opinion of Elias, Matz, Tiernan & Herrick to the effect
that, for federal income tax purposes, the Merger will qualify as a
"reorganization" under Section 368(a) of the Code; no taxable gain will be
recognized by Community or NCF (i) upon the transfer of NCF's assets to
Community in exchange for Community Common Stock, cash and the assumption of
NCF's liabilities or (ii) upon the distribution of such Community Common Stock
and cash to NCF stockholders.
5.02. Conditions to the Obligations of Community Under This Agreement.
The obligations of Community under this Agreement shall be further subject
to the satisfaction, at or prior to the Effective Time, of the following
conditions, any one or more of which may be waived by Community:
(a) Each of the obligations of NCF required to be performed by it at or
prior to the Closing pursuant to the terms of this Agreement shall have been
duly performed and complied with in all material respects and the
representations and warranties of NCF contained in this Agreement shall have
been true and correct as of the date hereof and as of the Effective Time as
though made at and as of the Effective Time, except (i) as to any representation
or warranty which specifically relates to an earlier date or (ii) where the
facts which caused the failure of any representation or warranty to be so true
and correct would not, either individually or in the aggregate, constitute a
material adverse change in the business, operations, assets or financial
condition of NCF and the Bank, taken as a whole, and Community shall have
received a certificate to that effect signed by the President and Chief
Executive Officer of NCF.
(b) All permits, consents, waivers, clearances, approvals and
authorizations of all regulatory or governmental authorities or third parties
which are necessary in connection with the consummation of the Merger shall have
been obtained, and none of such permits, consents, waivers, clearances,
approvals and authorizations shall contain any term or condition which would
materially impair the value of NCF and the Bank to Community.
(c) Community shall have received, in form and substance satisfactory to
it, a letter dated the date of the Closing, from Monroe, Shine & Co., Inc. to
the effect that the Merger will qualify for pooling-of-interest accounting
treatment.
(d) Holders of NCF Common Stock who dissent from the Merger pursuant to
Delaware law by meeting the requirements set forth in the DGCL shall not hold
more than 15% of the NCF Common Stock immediately prior to the Effective Time.
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(e) Each stockholder of NCF who is an NCF Affiliate shall have executed
and delivered a commitment and undertaking to the effect that (i) such
stockholder will dispose of the shares of Community Common Stock received by him
in connection with the Merger only in accordance with the provisions of
paragraph (d) of Rule 145 under the 1933 Act; (ii) such stockholder will not
dispose of any of such shares until Community has received an opinion of counsel
acceptable to it that such proposed disposition is in compliance with the
provisions of paragraph (d) of Rule 145 under the 1933 Act, which opinion shall
be rendered promptly following counsel's receipt of such stockholder's written
notice of its intention to sell shares of Community Common Stock; and (iii) the
certificates representing said shares may bear a legend referring to the
foregoing restrictions.
(f) NCF shall have furnished Community with such certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in this Section 5.02 as Community may reasonably request.
5.03. Conditions to the Obligations of NCF Under this Agreement.
The obligations of NCF under this Agreement shall be further subject to the
satisfaction, at or prior to the Effective Time, of the following conditions,
any one or more of which may be waived by NCF:
(a) Each of the obligations of Community required to be performed by it at
or prior to the Closing pursuant to the terms of this Agreement shall have been
duly performed and complied with in all material respects and the
representations and warranties of Community contained in this Agreement shall
have been true and correct as of the date hereof and as of the Effective Time as
though made at and as of the Effective Time, except (i) as to any representation
or warranty which specifically relates to an earlier date or (ii) where the
facts which caused the failure of any representation or warranty to be so true
and correct would not, either individually or in the aggregate, constitute a
material adverse change in the business, operations, assets or financial
condition of Community, and the Community Subsidiaries, taken as a whole, and
NCF shall have received a certificate to that effect signed by the President and
Chief Executive Officer of Community.
(b) Community shall have furnished NCF with such certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in this Section 5.03 as NCF may reasonably request.
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ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER, ETC.
6.01. Termination.
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval of this Agreement and the Agreement of Merger
by the stockholders of Community and/or NCF:
(a) by mutual written consent of the parties hereto;
(b) by Community or NCF (i) if the Effective Time shall not have occurred
on or prior to September 30, 1998 or (ii) if a vote of the stockholders of NCF
is taken and such stockholders fail to approve this Agreement and the Agreement
of Merger at the meeting of stockholders (or any adjournment thereof) of NCF
contemplated by Section 4.07 hereof; unless in each case the failure of such
occurrence shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe its agreements set forth herein to be performed
or observed by such party at or before the Effective Time;
(c) by Community or NCF upon written notice to the other 30 or more days
after the date upon which any application for a regulatory or governmental
approval necessary to consummate the Merger and the other transactions
contemplated hereby shall have been denied or withdrawn at the request or
recommendation of the applicable regulatory agency or governmental authority,
unless within such 30-day period a petition for rehearing or an amended
application is filed or noticed, or 30 or more days after any petition for
rehearing or amended application is denied;
(d) by Community in writing if NCF has, or by NCF in writing if Community
has, breached (i) any covenant or undertaking contained herein or in the
Agreement of Merger, or (ii) any representation or warranty contained herein,
which breach would have a material adverse effect on the business, operations,
assets or financial condition of NCF and the Bank or Community and the Community
Subsidiaries, as applicable, taken as a whole, or upon the consummation of the
transactions contemplated hereby, in any case if such breach has not been cured
by the earlier of 30 days after the date on which written notice of such breach
is given to the party committing such breach or the Effective Time; provided
that it is understood and agreed that either party may terminate this Agreement
on the basis of any such material breach of any representation or warranty
contained herein, notwithstanding any qualification therein relating to the
knowledge of the other party;
(e) by Community or NCF in writing, if any of the applications for prior
approval referred to in Section 4.06 hereof are denied or are approved
contingent upon the satisfaction of any condition or requirement which, in the
reasonable opinion of the Board
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of Directors of Community, would materially impair the value of NCF and the
Bank to Community, and the time period for appeals and requests for
reconsideration has run.
6.02. Effect of Termination.
In the event of termination of this Agreement by either Community or NCF as
provided above, this Agreement shall forthwith become void (other than Sections
4.05(b) and 7.01 hereof, which shall remain in full force and effect) and there
shall be no further liability on the part of the parties or their respective
officers or directors except for the liability of the parties under Sections
4.05(b) and 7.01 hereof and except for liability for any breach of this
Agreement.
6.03. Amendment, Extension and Waiver.
Subject to applicable law, at any time prior to the consummation of the
Merger, whether before or after approval thereof by the stockholders of
Community and/or NCF, the parties may (a) amend this Agreement and the Agreement
of Merger, (b) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (c) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, or (d) waive compliance with any of the agreements or
conditions contained herein; provided, however, that after any approval of the
Merger by the stockholders of Community and/or NCF, there may not be, without
further approval of such stockholders, any amendment or waiver of this Agreement
or the Agreement of Merger which modifies either the amount or the form of the
Merger Consideration to be delivered to stockholders of NCF. This Agreement and
the Agreement of Merger may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto. Any agreement on the part of a
party hereto to any extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party, but such waiver or failure
to insist on strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
ARTICLE VII
MISCELLANEOUS
7.01. Expenses.
(a) All costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby (including without limitation legal,
accounting, investment banking and printing expenses) shall be borne by the
party incurring such costs and expenses, provided that Community shall bear all
costs of printing, mailing and filing the
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Form S-4 and Joint Proxy Statement/Prospectus and all other registration and
filing fees relating to the Merger.
(b) Notwithstanding any provision in this Agreement to the contrary, in
the event that either of the parties shall default in its obligations hereunder,
the non-defaulting party may pursue any remedy available at law or in equity to
enforce its rights and shall be paid by the defaulting party for all damages,
costs and expenses, including without limitation legal, accounting, investment
banking and printing expenses, incurred or suffered by the non-defaulting party
in connection herewith or in the enforcement of its rights hereunder.
7.02. Survival.
The respective representations, warranties and covenants of the parties to
this Agreement shall not survive the Effective Time but shall terminate as of
the Effective Time, except for the provisions of Section 4.12 hereof.
7.03. Notices.
All notices or other communications hereunder shall be in writing and shall
be deemed given if delivered personally, sent by overnight express or mailed by
prepaid registered or certified mail (return receipt requested) or by cable,
telegram or telex addressed as follows:
(a) If to Community, to:
Community Bank Shares of Indiana, Inc.
202 East Spring Street
New Albany, Indiana 47250
Attn: Robert E. Yates
Copy to:
Elias, Matz, Tiernan & Herrick, L.L.P.
734 - 15th Street, N.W.
Washington, D.C. 20005
Attn: John P. Soukenik, Esq.
(b) If to NCF, to:
NCF Financial Corp.
106A John Rowan Boulevard
Bardstown, Kentucky 40004
Attn: A. E. Bowling
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or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
7.04. Parties in Interest.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns; provided, however,
that neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any party hereto without the prior written
consent of the other party and, except as otherwise expressly provided herein,
that nothing in this Agreement is intended to confer, expressly or by
implication, upon any other person any rights or remedies under or by reason of
this Agreement.
7.05. Complete Agreement.
This Agreement and the Agreement of Merger, including the documents and
other writings referred to herein or therein or delivered pursuant hereto or
thereto, contain the entire agreement and understanding of the parties with
respect to their subject matter and shall supersede all prior agreements and
understandings between the parties, both written and oral, with respect to such
subject matter. There are no restrictions, agreements, promises,
representations, warranties, covenants or undertakings between the parties
other than those expressly set forth herein or therein.
7.06. Counterparts.
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement and each of which shall be deemed
an original.
7.07. Governing Law.
This Agreement shall be governed by the laws of the State of Indiana,
without giving effect to the principles of conflicts of laws thereof.
7.08. Headings.
The Article and Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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IN WITNESS WHEREOF, Community and NCF have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
COMMUNITY BANK SHARES OF INDIANA, INC.
Attest:
/s/ M. Diane Murphy By: /s/ Robert E. Yates
- ------------------- -------------------------------------
M. Diane Murphy Robert E. Yates
Secretary President and Chief Executive Officer
NCF FINANCIAL CORPORATION
Attest:
/s/ Patricia H. Thomas By: /s/ A.E. Bowling
- ---------------------- --------------------------------------
Patricia H. Thomas A.E. Bowling
Secretary Chairman of the Board
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AGREEMENT OF MERGER
This Agreement of Merger is dated as of December 17, 1997, by and between
Community Bank Shares of Indiana, Inc. ("Community"), an Indiana corporation,
and NCF Financial Corporation ("NCF"), a Delaware corporation.
W I T N E S S E T H:
WHEREAS, Community and NCF have entered into an Agreement and Plan of
Reorganization, dated as of the date hereof (the "Reorganization Agreement");
and
WHEREAS, pursuant to the Reorganization Agreement and this Agreement of
Merger, and subject to the terms and conditions set forth therein and herein,
NCF shall be merged with and into Community, with Community the surviving
corporation of such merger;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Reorganization Agreement, the parties
hereto do mutually agree as follows:
ARTICLE I
DEFINITIONS
Except as otherwise provided herein, the capitalized terms set forth below
shall have the following meanings:
1.1 "Effective Time" shall mean the date and time at which the Merger
contemplated by this Agreement of Merger becomes effective as provided in
Section 2.2 of this Agreement of Merger.
1.2 "Community Common Stock" shall mean the common stock, par value $.10
per share, of Community.
1.3 "Merger" shall refer to the multi-step merger of NCF with and into
Community as provided in Section 2.1 of this Agreement of Merger.
1.4 "Merging Corporations" shall collectively refer to Community and NCF.
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1.5 "NCF Common Stock" shall mean the common stock, par value $.10 per
share, of NCF.
1.6 "Stockholder Meetings" shall mean the respective meetings of the
stockholders of Community and NCF held pursuant to Section 4.07 of the
Agreement.
1.7 "Surviving Corporation" shall mean Community as the surviving
corporation of the Merger.
ARTICLE II
TERMS OF THE MERGER
2.1 The Merger. Subject to the terms and conditions set forth in the
Reorganization Agreement, at the Effective Time, NCF shall be merged with and
into Community pursuant to the applicable provisions of the Indiana Business
Coroporation Law ("IBCL") and the Delaware General Corporation Law ("DGCL").
Community shall be the Surviving Corporation of the Merger and shall continue to
be governed by the laws of the State of Indiana. At the Effective Time, the
separate existence and corporate organization of NCF shall cease, and Community
shall thereupon and thereafter possess all the rights, privileges, powers and
franchises of a public as well as of a private nature of each of NCF and
Community; and be subject to all the restrictions, disabilities and duties of
each of NCF and Community; and all and singular, the rights, privileges, powers
and franchises of each of NCF and Community, and all property, real, personal
and mixed, and all debts due to either NCF or Community on whatever account, as
well for stock subscriptions and all other things in action or belonging to each
of NCF and Community shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of, respectively, NCF and Community, and the title to
any real estate vested by deed or otherwise, under the laws of the State of
Indiana or elsewhere in either NCF or Community shall not revert or be in any
way impaired by reason of the Merger, but all rights of creditors and all liens
upon any property of either of NCF or Community shall be preserved unimpaired,
and all debts, liabilities and duties of NCF and Community shall thenceforth
attach to the Surviving Corporation and may be enforced against it to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by it.
2.2 Effective Time. The Merger shall become effective on the date and at
the time that Articles of Merger are executed and filed with the Secretary of
State of the State of Indiana pursuant to IBCL, unless a later date and time is
specified as the Effective Time in such Articles of Merger.
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2.3 Name of the Surviving Corporation. The name of the Surviving
Corporation shall be "Community Bank Shares of Indiana, Inc."
2.4 Articles of Incorporation. On and after the Effective Time, the
Articles of Incorporation of Community shall be the Articles of Incorporation of
the Surviving Corporation until amended in accordance with applicable law.
2.5 Bylaws. On and after the Effective Time, the Bylaws of Community
shall be the Bylaws of the Surviving Corporation until amended in accordance
with applicable law.
ARTICLE III
CONVERSION OF SHARES
3.1 Conversion of NCF Common Stock and Options to Purchase NCF Common
Stock.
(a) Subject to Section 3.2 hereof, each share of NCF Common Stock
outstanding immediately prior to the Effective Time, other than (i) shares held
by NCF (including Treasury shares) or Community or any of their respective
wholly owned subsidiaries and (ii) NCF Dissenting Shares (as hereinafter
defined), shall be converted into the number of shares of Community Common Stock
equal to the Exchange Ratio (as defined in the Reorganization Agreement) in
accordance with the terms of Section 1.03 of the Reorganization Agreement.
(b) Notwithstanding any other provision hereof, no fractional shares of
Community Common Stock shall be issued to holders of NCF Common Stock. In lieu
thereof, each holder of shares of NCF Common Stock entitled to a fraction of a
share of Community Common Stock shall, at the time of surrender of the
certificate or certificates representing such holder's shares, receive an amount
of cash in accordance with the terms of Section 1.05 of the Reorganization
Agreement. No such holder shall be entitled to dividends, voting rights or any
other rights in respect of any fractional share.
(c) At or immediately prior to the Effective Time, each option to purchase
NCF Common Stock issued pursuant to NCF's 1995 Stock Option Plan shall be
cancelled, and each holder of any such option, whether or not then vested or
exercisable, shall be entitled to receive from Community or NCF a new option to
acquire shares of Community Common Stock a cash amount determined in accordance
with Section 1.03 of the Reorganization Agreement. The payment of the
consideration referred to in this Section 3.1(c) to holders of options to
purchase NCF Common Stock shall be subject to the execution by any such holder
of such instruments of cancellation as Community may reasonably deem
appropriate.
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3.2 Exchange of Certificates for Stock and/or Cash.
After the Effective Time, each holder of a certificate for theretofore
outstanding shares of NCF Common Stock, shall be surrendered and exchanged for
cash or stock consideration in the manner provided in Section 1.04 of the
Reorganization Agreement.
3.3 Dissenting Shares. Notwithstanding anything in this Agreement of
Merger to the contrary, shares of NCF Common Stock which are outstanding
immediately prior to the Effective Time and which are held by stockholders
(other than Community or any wholly owned subsidiary thereof) who shall not have
voted such shares in favor of the Agreement and this Agreement of Merger and who
shall have satisfied all of the applicable requirements of Section 262 of the
DGCL ("NCF Dissenting Shares"), shall not be converted into the right to
receive, or be exchangeable for, shares of Community Common Stock or cash as set
forth in Section 3.1 hereof, but the holders thereof shall be entitled to
payment of the fair value of such shares in accordance with said Section 262 of
the DGCL, subject to the procedures and the conditions specified in such
provision of the DGCL, unless and until such holders shall have failed to
perfect or shall have effectively withdrawn or lost their right to appraisal and
payment under such law. If any such holder shall have failed to perfect or
shall have effectively withdrawn or lost such right of appraisal, the shares of
NCF Common Stock held by such holder shall thereupon be deemed to have been
converted into the right to receive, or be exchangeable at the Effective Time
for, cash as provided in 1.06 of the Reorganization Agreement. Community hereby
agrees to make, or cause to be made, payment in cash for any Dissenting Shares.
3.4 Community Common Stock. Each share of Community Common Stock issued
and outstanding immediately prior to the Effective Time shall, on and after the
Effective Time, continue to be issued and outstanding as an identical share of
Community Common Stock.
ARTICLE IV
MISCELLANEOUS
4.1 Conditions Precedent. The respective obligations of each party under
this Agreement of Merger shall be subject to the satisfaction, or waiver by the
party permitted to do so, of the conditions set forth in Article V of the
Reorganization Agreement.
4.2 Termination. This Agreement of Merger shall be terminated
automatically without further act or deed of either of the parties hereto in the
event of the termination of the Reorganization Agreement in accordance with
Section 6.01 thereof.
4.3 Amendments. To the extent permitted by the IBCL, this Agreement of
Merger may be amended by a subsequent writing signed by each of the parties
hereto upon
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the approval of the Board of Directors of each of the parties hereto;
provided, however, that the provisions of Article III of this Agreement of
Merger relating to the consideration to be paid for the shares of NCF Common
Stock shall not be amended after either of the Stockholder Meetings so as to
modify either the amount or the form of such consideration or to otherwise
materially adversely affect the shareholders of Community or NCF without the
approval of the stockholders of Community and NCF who are so affected.
4.4 Successors. This Agreement of Merger shall be binding on the
successors of Community and NCF.
IN WITNESS WHEREOF, Community and NCF have caused this Agreement of Merger
to be executed by their duly authorized officers as of the day and year first
above written.
COMMUNITY BANK SHARES OF INDIANA, INC.
Attest:
/s/ M. Diane Murphy By: /s/ Robert E. Yates
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M. Diane Murphy Robert E. Yates
Secretary President and Chief Executive Officer
NCF FINANCIAL CORPORATION
Attest:
/s/ Patricia H. Thomas By: /s/ A.E. Bowling
- ---------------------- -------------------------------------
Patricia H. Thomas A.E. Bowling
Secretary Chairman of the Board
<PAGE>
Appendix B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of December 17, 1997, by and between
Community Bank Shares of Indiana, Inc. ("Community"), an Indiana corporation,
and NCF Financial Corporation ("NCF"), a Delaware corporation (the
"Agreement").
WITNESSETH
WHEREAS, Community and NCF have entered into an Agreement and Plan of
Reorganization and related Agreement of Merger, each dated as of December 17,
1997 (collectively, the "Reorganization Agreement");
WHEREAS, Community has requested the execution of this Agreement by NCF
in order to increase the likelihood that the transactions contemplated by the
Reorganization Agreement will be consummated in accordance with its terms and
as a condition to Community's obligation to complete the transactions
contemplated by the Reorganization Agreement and, in consideration for such
obligation, NCF has agreed to issue to Community an option entitling
Community to purchase shares of its common stock upon the terms and subject
to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the execution of the Reorganization
Agreement and the premises therein and herein contained, the parties agree as
follows:
1. Grant of Option.
Subject to the terms and conditions hereof, NCF irrevocably grants to
Community as of December 17, 1997 the option ("Option") to purchase at one
time or from time to time anaggregate of 150,000 shares of common stock, par
value $.10 per share, of NCF ("Common Stock") at a price per share equal to
$14.75 (the price per share is referred to below as the "Purchase Price" and
the price when used with respect to a number of shares is referred to below
as the "aggregate Purchase Price" for such shares). As used in this
Agreement, the term "Shares" means the shares of Common Stock subject to the
Option.
2. Exercise of Option.
(a) Subject to the terms and conditions hereof, Community may exercise
the Option, in whole at any time or in part from time to time, to the extent
not previously exercised, if a Purchase Event (as defined below) shall have
occurred and be continuing, provided that to the extent the Option shall not
have been exercised, it shall terminate and be of no further effect, except
as to notices of exercise given prior thereto, on the Termination Date, which
shall be the date on which occurs the earliest of (i) immediately prior to
the Effective Time as defined in Section 1.02 of the Reorganization
Agreement, (ii) twelve (12) months after the first occurrence of a Purchase
Event, (iii) twelve (12) months following a termination of the Reorganization
<PAGE>
Agreement by Community pursuant to Section 6.01(d) thereof prior to the
occurrence of a Purchase Event; and (iv) twelve (12) months following a
termination of the Reorganization Agreement in accordance with its terms
(other than by Community pursuant to Section 6.01(d) thereof) prior to the
occurrence of a Purchase Event, provided, however, that any purchase of
shares upon exercise of the Option shall be subject to compliance with
applicable laws and regulations.
(b) As used herein, a "Purchase Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) NCF or any of its subsidiaries shall have entered into an
agreement with any person (other than Community or any subsidiary thereof)
(A) to merge, consolidate or enter into any similar transaction with such
person, (B) for the disposition, by sale, lease, exchange or otherwise, of
all or substantially all of the consolidated assets or deposits of NCF or
any of its subsidiaries or (C) for the issuance, sale or other disposition
(including by way of merger, consolidation, share exchange or any similar
transaction) of securities (or an option or right to acquire such
securities) representing 15% or more of the voting power of NCF or any of
its subsidiaries;
(ii) any person (other than Community or any subsidiary thereof)
shall have acquired beneficial ownership of, or any group of persons shall
have been formed which beneficially owns, 15% or more of the then
outstanding Common Stock (any of the foregoing in Section 2(b)(i) or (ii)
is hereinafter referred to as an "Acquisition Transaction");
(iii) any person (other than Community or any subsidiary thereof)
shall have (A) commenced a tender offer or filed a registration statement
under the Securities Act of 1933, as amended ("Securities Act"), with
respect to an exchange offer to purchase or otherwise acquire control of
15% or more of the then outstanding shares of Common Stock (such offers
being referred to herein as a "Tender Offer" and an "Exchange Offer,"
respectively); or
(iv) the holders of the outstanding Common Stock shall not have
approved the Reorganization Agreement (including the related Agreement
of Merger) at the meeting of such holders called for such purpose pursuant
to the Reorganization Agreement, such meeting shall not have been held or
shall have been cancelled prior to the termination of the Reorganization
Agreement in accordance with its terms, or NCF's Board of Directors shall
have withdrawn or modified in a manner which is adverse to Community the
recommendation of NCF's Board of Directors with respect to the
Reorganization Agreement and the Agreement of Merger, in each case after
it shall have been publicly announced that any person (other than
Community or any subsidiary thereof) shall have (A) commenced a Tender
Offer or filed a registration statement under the Securities Act with
respect to an Exchange Offer, (B) made, or disclosed an intention to make,
a proposal to engage in an Acquisition Transaction, (C) filed an
application (or given
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notice), whether in draft or final form, under the Bank Holding Company
Act of 1956, the Bank Merger Act or the Change in Bank Control Act of 1978,
for approval to engage in an Acquisition Transaction or (D) any person
shall have solicited proxies in a proxy solicitation subject to Regulation
14A under the Securities Exchange Act of 1934, as amended ("Exchange Act"),
in opposition to approval of the Reorganization Agreement by NCF's
stockholders.
(c) As used in this Agreement, (i) "beneficial ownership," "person" and
"group of persons" shall have the meanings conferred thereon by Section 13(d)
of the Exchange Act and the regulations promulgated thereunder and (ii)
"commenced" shall have the meaning conferred thereon by Rule 14d-2 under the
Exchange Act.
(d) NCF shall promptly give written notice to Community of the
occurrence of a Purchase Event known to NCF. However, the giving of such
notice by NCF shall not be a condition to the right of Community to exercise
the Option. If more than one transaction or event giving rise to a Purchase
Event is undertaken or effected, then all such transactions shall give rise
to only one Purchase Event, which Purchase Event shall be deemed continuing
for all purposes hereunder until all such transactions or events are
abandoned.
(e) Notwithstanding the foregoing, NCF shall not be obligated to issue
Shares upon exercise of the Option (i) in the absence of any required
governmental, regulatory or stockholder approval or consent necessary for NCF
to issue the Shares or for Community to exercise the Option or prior to the
expiration or termination of any waiting period required by law, or (ii) so
long as any injunction or other order, decree or ruling issued by any federal
or state court of competent jurisdiction is in effect which prohibits the
sale or delivery of the Shares. If the Option is otherwise exercisable but
cannot be exercised prior to termination as specified in Section 2(a) hereof
solely because of any injunction, order or similar restraint issued by a
court of competent jurisdiction, the Option shall continue and will expire on
the twentieth business day after such injunction, order or restraint shall
have been dissolved or when such injunction, order or restraint shall have
become permanent and no longer subject to appeal, as the case may be.
3. Notice of Exercise; Payment and Delivery of Shares.
(a) In the event that Community desires to exercise the Option,
Community shall send a written notice (the date of which being herein
referred to as the "Notice Date") to NCF specifying the total number of
Shares it will purchase and a place and date for the closing of such
purchase, which date shall be not later than 60 calendar days nor earlier
than three business days from the date such notice is given, unless
additional time is needed to give notification to or to obtain approval from
any governmental or regulatory authority and, if so required, three business
days from the date on which the required notification period has expired or
been terminated or such approval has been obtained and any requisite waiting
period with respect thereto shall have passed.
(b) At any closing hereunder, (a)(i) Community shall make payment to
NCF of the
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aggregate Purchase Price for the Shares to be purchased by delivery to NCF of
a certified, cashier's or bank check payable to the order of NCF in such
amount or, if mutually agreed, by wire transfer of funds in such amount to an
account designated in writing by NCF, or (ii) if requested by Community, in
lieu of the payment set forth in (a)(i) above, NCF shall issue to Community a
number of whole Shares determined by (A) multiplying the excess, if any, of
the closing price of the Common Stock on the Notice Date over the Purchase
Price by the number of Shares with respect to which the Option is being
exercised, and (B) dividing such product by the Purchase Price; and (b) NCF
shall deliver to Community a certificate or certificates representing the
Shares so purchased, registered in the name of Community or its designee.
NCF shall pay any and all federal, state and local taxes, or other charges
that may be imposed upon Community in connection with the preparation,
issuance and delivery of stock certificates hereunder.
4. Representations and Warranties of NCF.
NCF hereby represents and warrants to Community as follows:
(a) This Agreement has been duly authorized, executed and delivered by
NCF and constitutes a valid and binding agreement of NCF, enforceable against
NCF in accordance with its terms, except to the extent that the obligations
of NCF set forth in Section 8(a) and (d) hereof may be unenforceable under
applicable federal and state securities laws.
(b) NCF has taken all necessary corporate and other action (excluding
any required governmental or stockholder approvals) to authorize and reserve
and to permit it to issue, and at all times from the date hereof until such
time as the obligation to deliver Shares upon the exercise of the Option
terminates, will have reserved for issuance, upon any exercise of the Option,
the number of Shares subject to the Option (less the number of Shares
previously issued upon any partial exercise of the Option or as to which the
Option may no longer be exercised). All of the Shares to be issued pursuant
to the Option are duly authorized and, upon issuance and delivery thereof
pursuant to this Agreement, will be duly and validly issued, fully paid and
nonassessable, free and clear of all claims, liens, charges, encumbrances and
security interests, and will not have been issued in violation of, and will
not be subject to, any preemptive rights of any stockholders of NCF.
(c) The execution, delivery and performance by NCF of this Agreement
and the consummation of the transactions contemplated hereby (excluding any
required governmental approvals) do not contravene, or constitute a default
under, (i) the Certificate of Incorporation or Bylaws of NCF or (ii) any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation binding upon NCF or any of its subsidiaries.
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5. Representations and Warranties of Community.
Community hereby represents and warrants to NCF as follows:
(a) This Agreement has been duly authorized, executed and delivered by
Community and constitutes a valid and binding agreement of Community,
enforceable against Community in accordance with its terms, except to the
extent that the obligations of Community set forth in Section 8(b) and (d)
hereof may be unenforceable under applicable federal and state securities
laws.
(b) Community is acquiring the Option for the purpose set forth in the
second Whereas clause of this Agreement and hereby acknowledges that (i) the
Option has not been, and the Shares may not be, registered under the
Securities Act or any other applicable securities registration requirements
and (ii) the Option and the Shares may not be transferred except in
compliance with applicable registration requirements or an available
exemption therefrom.
6. Adjustment Upon Change in Capitalization, Etc.
In the event of any change in the Common Stock by reason of stock
dividends, stock splits, mergers, consolidations, recapitalizations,
combinations, conversions, exchanges of shares, extraordinary or liquidating
dividends, or other changes in the corporate or capital structure of NCF
which would have the effect of diluting or changing Community's rights
hereunder, the number and kind of shares or securities subject to the Option
and the Purchase Price (but not the aggregate Purchase Price of the Shares)
shall be appropriately and equitably adjusted so that Community shall receive
upon exercise of the Option the number and class of shares or other
securities or property that Community would have received in respect of the
Shares that could have been purchased upon exercise of the Option if the
Option could have been and had been exercised immediately prior to such event
or the record date therefor, as applicable. In the event that after the date
hereof NCF issues any additional shares of Common Stock other than pursuant
to any event described in the preceding sentence or pursuant to the exercise
of the Option, the number of shares of Common Stock which can be purchased
pursuant to the Option shall be increased by an amount so that after such
issuance the number of shares of Common Stock subject to the Option, less any
shares previously acquired upon exercise of the Option, shall equal 19.9% of
the number of shares of Common Stock then issued and outstanding, without
giving effect to any shares which may be issued pursuant to the Option. NCF
shall take such steps in connection with any consolidation, merger,
liquidation or other such action as may be necessary to ensure that the
provisions hereof shall thereafter apply as nearly as possible to any
securities or property thereafter deliverable upon exercise of the Option.
7. Registration of the Shares.
(a) If Community requests NCF in writing to register under the
Securities Act or any other applicable securities registration requirements
Shares which have been purchased by Community hereunder, NCF will use its
best efforts to cause the Shares so specified in such
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request to be registered as soon as practicable so as to permit the sale or
other distribution by Community of such Shares (and to keep such registration
in effect for a period of at least 180 days) and in connection therewith
shall prepare and file as promptly as reasonably possible (but in no event
later than 45 days from receipt of Community's request) a registration
statement under the Securities Act to effect such registration on an
appropriate form, which would permit the sale of the Shares by Community in
the manner specified by Community in its request. In connection with such
registration, NCF shall use its best efforts to cause to be delivered to
Community (and any other holder whose Shares are the subject of such
registration) such certificates, opinions, accountants' letters and other
documents as Community (or any such other holder) shall reasonably request
and are customarily rendered in connection with the registration of
securities under the Securities Act. Community shall provide all information
reasonably requested by NCF for inclusion in any documents to be prepared
hereunder. All expenses incurred by NCF in complying with the provisions of
this Section 7, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for NCF and blue
sky fees and expenses shall be paid by NCF. Underwriting discounts and
commissions to brokers and dealers relating to the Shares, fees and
disbursements of counsel to Community and any other expenses incurred by
Community in connection with such registration shall be borne by Community.
NCF shall not be obligated to make effective more than two registration
statements pursuant to this Section 7(a).
(b) NCF shall notify Community in writing not less than ten business
days prior to filing a registration statement under the Securities Act with
respect to any Common Stock (other than a filing on Form S-4 or Form S-8) of
NCF's intention so to file. If Community wishes to have any portion of its
Shares purchased hereunder included in such registration statement, it shall
advise NCF in writing to that effect within five business days following
receipt of such notice from NCF pursuant to the preceding sentence, and NCF
will thereupon include the number of shares indicated by Community under such
registration statement, provided, however, that if the managing underwriter
determines and advises NCF and Community in writing that the inclusion in the
registration statement of the number of shares indicated by Community would
interfere with the successful marketing of the Common Stock proposed to be
registered and sold by NCF, then the number of shares indicated by Community
to be included in the underwriting shall be reduced or eliminated pro rata
among all holders of shares of Common Stock requesting such registration, and
further provided, however, that nothing herein shall prevent NCF from, at any
time, abandoning or delaying any registration.
(c) The rights provided under this Section 7 shall expire upon the
third annual anniversary of the first acquisition of Shares by Community
hereunder.
8. Indemnification.
(a) In connection with any registration under the provisions of Section
7 hereof, NCF shall indemnify and hold harmless Community and any underwriter
(as defined in the Securities Act) for Community and each person who controls
Community or such underwriter within the meaning of the Securities Act, from
and against any and all loss, damage, liability, cost and
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expense to which Community or any such underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
damages, liabilities, costs or expenses are caused by or arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in such registration statement, any preliminary or final
offering prospectus contained therein or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were
made, not misleading; provided, however, that NCF will not be liable in any
such case to the extent that any such loss, damage, liability, cost or
expense arises out of or is based upon an untrue statement or omission so
made in conformity with information furnished by Community, such underwriter
or such controlling persons in writing specifically for use in the
preparation thereof.
(b) Community will indemnify and hold harmless NCF, any underwriter for
NCF and each person who controls NCF or such underwriter within the meaning
of the Securities Act, from and against any and all loss, damage, liability,
cost and expense to which NCF or any such underwriter or controlling person
may become subject under the Securities Act or otherwise, insofar as such
losses, damages, liabilities, costs or expenses are caused by or arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in such registration statement, any preliminary or
final offering prospectus contained therein or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in which they
were made, not misleading, in each case to the extent, but only to the
extent, that such untrue statement or omission was so made in conformity with
information furnished by Community in writing specifically for use in the
preparation thereof.
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of Section 8(a) or (b) of notice of the commencement of any action
involving the subject matter of the foregoing indemnity provisions, such
indemnified party will, if a claim in respect thereof is to be made against
the indemnifying party pursuant to the provisions of Section 8(a) or (b),
promptly notify the indemnifying party of the commencement thereof; except to
the extent of any actual prejudice to the indemnifying party, the omission to
so notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise hereunder. In case such action
is brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party shall have the
right to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any action include both the
indemnified party and the indemnifying party and there is a conflict of
interests which would prevent counsel for the indemnifying party from also
representing the indemnified party, the indemnified party or parties shall
have the right to select one separate counsel to participate in the defense
of such action on behalf of such indemnified party or parties. After notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will
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not be liable to such indemnified party pursuant to the provisions of Section
8(a) or (b) for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless (i) the indemnified party shall
have employed counsel in accordance with the provisions of the preceding
sentence, (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after the notice of the commencement of the
action, or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party.
(d) If recovery is not available under the foregoing indemnification
provisions, for any reason other than as expressly specified therein, the
parties entitled to indemnification by the terms thereof shall be entitled to
contribution to liabilities and expenses, except to the extent that
contribution is not permitted under Section 11(f) of the Securities Act. In
determining the amount of contribution to which the respective parties are
entitled, there shall be considered the parties' relative fault, knowledge
and access to information concerning the matter with respect to which the
claim was asserted, the opportunity to correct and/or prevent any statement
or omission, and any other equitable considerations appropriate under the
circumstances.
9. Quotation.
If the Common Stock or any other securities to be acquired upon exercise
of the Option are then authorized for quotation or trading or listing on the
Nasdaq Stock Market or any securities exchange, NCF, upon the request of
Community after the occurrence of a Purchase Event, will promptly file an
application, if required, to authorize for quotation or trading or listing
the Shares of Common Stock (or other securities to be acquired upon exercise
of the Option pursuant to the terms of Section 6 hereof) on the Nasdaq Stock
Market or such other securities exchange and will use its best efforts to
obtain approval, if required, of such quotation or listing as soon as
practicable.
10. Further Assurances.
NCF agrees to execute and deliver such documents and instruments and
take such further actions as may be necessary or appropriate or as Community
may reasonably request in order to ensure that Community receives the full
benefits of this Agreement (including, without limitation, the prompt filing
of any required notice or application for approval with any applicable
federal or state regulatory agency and the expeditious processing of the
same). Prior to the Termination Date, NCF will refrain from taking any
action which would have the effect of preventing or interfering with the
delivery by NCF of the Shares (or other securities deliverable pursuant to
Section 6 hereof) to Community upon any exercise of the Option or from
otherwise performing its obligations under this Agreement.
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11. Remedies.
The parties agree that Community would be irreparably damaged if for any
reason NCF failed to issue any of the Shares (or other securities deliverable
pursuant to Section 6 hereof) upon exercise of the Option or to perform any
of its other obligations under this Agreement, and that Community would not
have an adequate remedy at law in such event. Accordingly, Community shall
be entitled to specific performance and injunctive and other equitable relief
to enforce the performance of this Agreement by NCF. This provision is
without prejudice to any other rights that Community may have against NCF for
any failure to perform its obligations under this Agreement.
12. Miscellaneous.
(a) Expenses. Except as otherwise provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
(b) Notices. All notices or other communications hereunder shall be in
writing and shall be deemed given if delivered personally, sent by overnight
express or mailed by prepaid registered or certified mail (return receipt
requested) or by cable, telegram, telecopy or telex addressed as follows:
(i) If to Community, to:
Community Bank Shares of Indiana, Inc.
202 East Spring Street
New Albany, Indiana 47150
ATTN: Robert E. Yates
Copy to:
Elias, Matz, Tiernan and Herrick L.L.P.
734 15th Street, N.W.
Washington, D.C. 20005
ATTN: Raymond A. Tiernan, Esq.
(ii) If to NCF, to:
NCF Financial Corporation
106A John Rowan Boulevard
Bardstown, Kentucky 40004
ATTN: A.E. Bowling
9
<PAGE>
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the
date so mailed.
(c) Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
If for any reason any court or regulatory agency determines that the
Option will not permit the holder to acquire the full number of Shares, it is
the express intention of NCF to allow the holder to acquire such lesser
number of shares as may be permissible, without any amendment or modification
hereof.
(d) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Indiana without giving effect to
the principles of conflicts of laws thereof.
(e) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
(f) Headings. The section headings herein are for convenience only and
shall not affect the construction hereof.
(g) Assignment. Community may assign this Agreement to any wholly
owned subsidiary of Community. Community may not, without the prior written
consent of NCF, assign this Agreement to any other person in whole or in
part, provided that upon the occurrence of and following a Purchase Event,
Community may sell, transfer, assign or otherwise dispose of its rights and
obligations hereunder in whole or in part without such consent. In the case
of any permitted sale, transfer, assignment or disposition in part of this
Option, NCF shall do all things necessary to facilitate the same and the
person to whom this Option is sold, transferred assigned or disposed of shall
agree in writing to the terms and conditions hereof. This Agreement shall
not be assignable by NCF except by operation of law. Subject to the
foregoing, this Agreement shall be binding upon, inure to the benefit of and
be enforceable by the parties and their respective successors and assigns.
(h) Parties in Interest. This Agreement shall be binding upon and
inure solely to the
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<PAGE>
benefit of each party hereto, and nothing in this Agreement, express or
implied, is intended to confer upon any other person (other than an assignee
or transferee of Community pursuant to Section 12(g) hereof) any rights or
remedies of any nature whatsoever under or by any reason of this Agreement.
13. Entire Agreement.
This Agreement, including the documents and other writings referred to
herein or delivered pursuant hereto, contains the entire agreement and
understanding of the parties with respect to its subject matter. There are
no restrictions, agreements, promises, warranties, covenants or undertakings
between the parties other than those expressly set forth herein or therein.
This Agreement supersedes all prior agreements and understandings between the
parties, both written and oral, with respect to its subject matter.
IN WITNESS WHEREOF, Community and NCF have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
COMMUNITY BANK SHARES OF INDIANA, INC.
Attest:
/s/ M. Diane Murphy By: /s/ Robert E. Yates
- -------------------------- --------------------------------------
M. Diane Murphy Robert E. Yates
Secretary President and Chief Executive Officer
NCF FINANCIAL CORPORATION
Attest:
/s/ Patricia H. Thomas By: /s/ A.E. Bowling
- -------------------------- ------------------------------------
Patricia H. Thomas A.E. Bowling
Secretary Chairman of the Board
11
<PAGE>
[Ferguson & Company Letterhead]
Appendix C
February 14, 1998
The Board of Directors
NCF Financial Corporation
106 A W. John Rowan Blvd.
Bardstown, Kentucky 40004
Gentlemen:
NCF Financial Corporation ("NCF Financial"), has entered into an Agreement
and Plan of Reorganization ("Agreement") dated as of December 17, 1997, with
Community Bank Shares of Indiana, Inc. ("Community"). The Agreement provides
for an exchange ratio of .935 of one share of Community for each share of NCF
Financial, with adjustments to the ratio if the merger market price of
Community over the 20 consecutive trading days preceding the receipt of all
requisite regulatory approvals is under $15.00 a share or over $25.00 a
share. The dollar range of value would be between $11,116,341 and
$18,527,235 if the merger market price of Community is between $15.00 a share
and $25.00 as share. Each share of NCF Financial Common Stock which is
issued and outstanding at the effective time of the merger shall be converted
into, and shall be canceled in exchange for, the right to receive (1) if the
Community Market Value is greater than or equal to $15.00 and less than or
equal to $25.00, then .935 of one share of Community Common Stock; (2) if the
Community Market Value is less than $15.00, then one share of Community
Common Stock; or (3) if the Community Market Value is greater than $25.00,
then .88 of one share of Community Common Stock. Based on Community's market
value of $23.00 a share on February 11, 1998, the total consideration for NCF
Financial is $17,045,056.
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of NCF Financial of the consideration to be paid
to the shareholders of NCF Financial pursuant to the Agreement.
Ferguson & Company ("Ferguson"), as a customary part of its consulting
business, is engaged in the valuation of banks, thrifts and holding companies
and their securities in connection with mergers and acquisitions, stock
purchase offers and other purposes.
In the course of our review, we have studied the Agreement and certain
publicly available information relating to NCF Financial and Community and
certain additional materials made available by their respective managements.
In addition, we have reviewed financial projections separately prepared by
independent third parties and by Ferguson relating to future operations of
NCF Financial and Community. We have compared certain financial and
securities data of NCF Financial and Community, whose securities are traded
in the public market, studied the pro forma
<PAGE>
BOARD OF DIRECTORS
February 14, 1998
Page 2
effects of the proposed merger and reviewed the financial terms of certain
recent merger transactions comparable to the proposed merger.
Although we have no reason to believe that the financial and other
information contained in publicly available materials or in other materials
on which we have relied is not accurate, complete and fair, we have not
independently verified it and, for the purposes of this opinion, have assumed
the accuracy, completeness and fairness thereof. In addition, we have not
made an independent evaluation or appraisal of the assets of NCF Financial or
Community, nor have we been furnished with such an appraisal.
We were not authorized to solicit, and did not solicit, any
alternative offers to that submitted by Community. Though we evaluated the
proposal received from Community and considered by the Board of Directors,
our opinion herein is not an expression of any of the relative merits and
detriments, or a recommendation regarding the acceptance or rejection of the
proposal described in the Agreement. Our opinion also is not an expression
that the transaction described in the Agreement will necessarily provide the
most value available to the shareholders of NCF Financial. Our opinion is
strictly limited to addressing the fairness to the shareholders of NCF
Financial, from a financial point of view, of the consideration to be
received by them in the transaction described in the Agreement.
Our opinion is based upon circumstances as of the date hereof,
including current conditions in the United States securities markets. Events
occurring after the date hereof, including, but not limited to, changes
affecting the United States securities markets and subsequent results of
operations of NCF Financial or Community, could materially affect the
assumptions used in preparing this opinion.
Based on the analysis described above (and other matters that were
considered relevant) and in reliance (without independent verification) on
the accuracy, completeness and fairness of the information reviewed by us, it
is our opinion that, from a financial point of view, as of the date hereof,
the consideration to be paid by Community to NCF Financial's shareholders
pursuant to the Agreement is fair to the shareholders of NCF Financial.
Ferguson & Company
/s/ Charles M. Hebert
-----------------------------
Charles M. Hebert
Principal
<PAGE>
Appendix D
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
Section 262 Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing
pursuant to section 228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of
a member of a nonstock corporation; and the words "depository receipt" mean a
receipt or other instrument issued by a depository representing an interest
in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to section 251 (other than a merger effected pursuant to
section 251(g) of this title), section 252, section 254, section 257, section
258, section 263 or section 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or
series of stock, which stock, or depository receipts in
respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and
to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated
as a national market system security on an interdealer
quotation system by the National Association of Securities
Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall
be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of section 251 of
this title.
2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of
any class or series of stock of a constituent corporation
if the holders thereof are required by the terms of an
agreement of merger or
<PAGE>
consolidation pursuant to sections 251, 252, 254, 257, 258,
263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated
as a national market system security on an interdealer
quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of
this paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and
c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under section 253 of
this title is not owned by the parent corporation immediately
prior to the merger, appraisal rights shall be available for
the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or
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consolidation, a written demand for appraisal of his shares.
Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not
voted in favor of or consented to the merger or consolidation
of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant
to section 228 or section 253 of this title, each constituent
corporation, either before the effective date of the merger or
consolidation or within ten days thereafter, shall notify each
of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such
class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided
that, if the notice is given on or after the effective date of
the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any
class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given
on or after the effective date of the merger or consolidation,
shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of
the effective date of the merger or consolidation, either (i)
each such constituent corporation shall send a second notice
before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after
such effective date; provided, however, that if such second
notice is sent more than 20 days following the sending of the
first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given
shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each
constituent corporation may fix,
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<PAGE>
in advance, a record date that shall be not more than 10 days
prior to the date the notice is given, provided, that if the
notice is given on or after the effective date of the merger
or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior
to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice
is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall
be entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for
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<PAGE>
notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by
any stockholder entitled to participate in the appraisal proceeding, the
Court may, in its discretion, permit discovery or other pretrial proceedings
and may proceed to trial upon the appraisal prior to the final determination
of the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation pursuant
to subsection (f) of this section and who has submitted his certificates of
stock to the Register in Chancery, if such is required, may participate fully
in all proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of
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this section, or if such stockholder shall deliver to the surviving or
resulting corporation a written withdrawal of his demand for an appraisal and
an acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e)
of this section or thereafter with the written approval of the corporation,
then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
6
<PAGE>
Appendix E
EXCERPTS OF THE INDIANA BUSINESS CORPORATION LAW
(DISSENTERS' RIGHTS)
23-1-44-1 "CORPORATION" DEFINED
Sec. 1. 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.
23-1-44-2 "DISSENTER" DEFINED
Sec. 2. As used in this chapter, "dissenter" means a shareholder
who is entitled to dissent from corporate action under section 8 of this
chapter and who exercises that right when and in the manner required by
sections 10 through 18 of this chapter.
23-1-44-3 "FAIR VALUE" DEFINED
Sec. 3. 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.
23-1-44-4 "INTEREST" DEFINED
Sec. 4. 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.
23-1-44-5 "RECORD SHAREHOLDER" DEFINED
Sec. 5. 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.
23-1-44-6 "BENEFICIAL SHAREHOLDER" DEFINED
Sec. 6. 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.
<PAGE>
23-1-44-7 "SHAREHOLDER" DEFINED
Sec. 7. As used in this chapter, "shareholder" means the record
shareholder or the beneficial shareholder.
23-1-44-8 RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
Sec. 8. (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.
(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
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(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.
23-1-44-9 DISSENTERS' RIGHTS OF BENEFICIAL SHAREHOLDER
Sec. 9. (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.
23-1-44-10 PROPOSED ACTION CREATING DISSENTERS' RIGHTS; NOTICE
Sec. 10. (a) If proposed corporate action creating dissenters' rights
under section 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.
(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
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assert dissenters' rights that the action was taken and send them the
dissenters' notice described in section 12 of this chapter.
23-1-44-11 PROPOSED ACTION CREATING DISSENTERS' RIGHTS; ASSERTION OF
DISSENTERS' RIGHTS
Sec. 11. (a) If proposed corporate action creating dissenters' rights
under section 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.
23-1-44-12 DISSENTERS' NOTICE; CONTENTS
Sec. 12. (a) If proposed corporate action creating dissenters' rights
under section 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 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
<PAGE>
(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.
23-1-44-13 DEMAND FOR PAYMENT AND DEPOSIT OF SHARES BY SHAREHOLDER
Sec. 13. (a) A shareholder sent a dissenters' notice described in IC
23-1-42-11 or in section 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) 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 cancelled 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.
23-1-44-14 UNCERTIFICATED SHARES; RESTRICTION ON TRANSFER; DISSENTERS'
RIGHTS
Sec. 14. (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 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 cancelled or modified by the taking of the proposed corporate action.
23-1-44-15 PAYMENT TO DISSENTER
Sec. 15. (a) Except as provided in section 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 of this
chapter the amount the corporation estimates to be the fair value of the
dissenter's shares.
5
<PAGE>
(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 of this chapter.
23-1-44-16 FAILURE TO TAKE ACTION; RETURN OF CERTIFICATES; NEW ACTION BY
CORPORATION
Sec. 16. (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 of this chapter and repeat the payment
demand procedure.
23-1-44-17 WITHHOLDING PAYMENT BY CORPORATION; CORPORATION'S ESTIMATE
OF FAIR VALUE; AFTER-ACQUIRED SHARES
Sec. 17. (a) A corporation may elect to withhold payment required by
section 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 of this chapter.
23-1-44-18 DISSENTERS' ESTIMATE OF FAIR VALUE; DEMAND FOR PAYMENT; WAIVER
Sec. 18. (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
6
<PAGE>
(less any payment under section 15 of this chapter), or reject the
corporation's offer under section 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.
23-1-44-19 COURT PROCEEDING TO DETERMINE FAIR VALUE; JUDICIAL APPRAISAL
Sec. 19. (a) If a demand for payment under IC 23-1-42-11 or under
section 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:
7
<PAGE>
(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 of this chapter.
23-1-44-20 COSTS; FEES; ATTORNEY FEES
Sec. 20. (a) The court in an appraisal proceeding commenced under
section 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:
(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 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.
8
<PAGE>
Item 20. Indemnification of Directors and Officers.
Chapter 37 of the Indiana Business Corporation Law sets forth
circumstances under which directors, officers, employees and agents may be
insured or indemnified against liability which they may incur in their
capacity as such. The Articles of Incorporation of the Company provide for
indemnification of directors, officers, employees and agents of the Company
to the full extent permitted by Indiana law. Such indemnity shall extend to
expenses, including attorney's fees, judgments, fines and amounts paid in the
settlement, prosecution or defense of the foregoing actions.
Item 21. Exhibits and Financial Statement Schedules.
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits:
<TABLE>
Exhibit No. Exhibit Location
- ------------ ------- ----------
<S> <C> <C>
2(a) Agreement and Plan of Reorganization, dated as of (1)
December 17, 1997 between Community and NCF,
including a related Agreement of Merger
2(b) Stock Option Agreement, dated as of December 17, (1)
1997, between Community and NCF
3(a) Articles of Incorporation of Community (2)
3(c) Bylaws of Community (2)
4 Stock Certificate of Community (2)
5 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. *
regarding legality of securities being registered
8 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. *
regarding certain federal income tax consequences
21 Subsidiaries of Community (3)
23(a) Consent of Elias, Matz, Tiernan & Herrick L.L.P. --
(contained in the opinion included as Exhibit 5)
23(b) Consent of Elias, Matz, Tiernan & Herrick L.L.P. --
(contained in the opinion included as Exhibit 8)
23(c) Consent of Monroe Shine & Co.
23(d) Consent of Whelan, Doerr & Pawley, PSC
23(e) Consent of Crisp Hughes Evans LLP
23(f) Consent of Ferguson and Company
24 Powers of Attorney (included in the signature page to --
the initial filing of this Registration Statement)
99(a) Form of proxy for the Community Annual Meeting
99(b) Form of proxy for the NCF Special Meeting
</TABLE>
- ----------------------------------------
* To be filed by amendment.
<PAGE>
(1) Exhibit is attached as an Appendix to the Proxy Statement/Prospectus
included herein.
(2) Incorporated herein by reference to Community's Registration Statement on
Form S-1 filed with the Commission on December 9, 1994, as amended (File
No. 33-87228).
(3) Incorporated herein by reference to Community's Form 10-K for the year
ended December 31, 1996 filed with the Commission on March 31, 1997.
(b) Financial Statement Schedules.
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement; and
(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;
Provided, however, that paragraphs (a) (1) (i) and (a) (1) (ii)
do not apply if the registration statement is on Form S-3 or Form S-8,
and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in
the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(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.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration
3
<PAGE>
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.
(5) 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.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b) 11 or 13 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.
(c) 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.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New Albany, State of Indiana on the
18th day of February 1998.
COMMUNITY BANK SHARES OF INDIANA, INC.
By: /s/ Robert E. Yates
-----------------------------------
Robert E. Yates
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each of the directors and/or officers
of Community Bank Shares of Indiana, Inc. whose signature appears below hereby
appoints Robert E. Yates and C. Thomas Young, and each of them severally, as
his or her attorney-in-fact to sign in his or her name and behalf, in any and
all capacities stated below and to file with the Securities and Exchange
Commission any and all amendments, including post-effective amendments, to
this Registration Statement on Form S-4, making such changes in the
Registration Statement as appropriate, and generally to do all such things in
their behalf in their capacities as directors and/or officers to enable
Community Bank Shares of Indiana, Inc. to comply with the provisions of the
Securities Act of 1933, and all requirements of the Securities and Exchange
Commission.
<TABLE>
<S> <C>
/s/ C. Thomas Young Date: February 18, 1998
- -----------------------------------
C. Thomas Young
Chairman of the Board
/s/ Gary L. Libs Date: February 18, 1998
- -----------------------------------
Gary L. Libs
Director
/s/ James W. Robinson Date: February 18, 1998
- -----------------------------------
James W. Robinson
Director
/s/ Timothy T. Shea Date: February 18, 1998
- -----------------------------------
Timothy T. Shea
Vice Chairman
</TABLE>
<PAGE>
<TABLE>
<S> <C>
/s/ Robert E. Yates Date: February 18, 1998
- -----------------------------------
Robert E. Yates
Director, President and
Chief Executive Officer
/s/ Robert J. Koetter, Sr. Date: February 18, 1998
- -----------------------------------
Robert J. Koetter, Sr.
Director
/s/ James Stutsman Date: February 18, 1998
- -----------------------------------
James Stutsman
Senior Vice President and Chief
Financial Officer
/s/ Steve Stemler Date: February 18, 1998
- -----------------------------------
Steve Stemler
Director
/s/ Gordon Huneilman Date: February 18, 1998
- -----------------------------------
Gordon Huneilman
Director
/s/ Dale Orem Date: February 18, 1998
- -----------------------------------
Dale Orem
Director
/s/ Kerry Stemler Date: February 18, 1998
- -----------------------------------
Kerry Stemler
Director
</TABLE>
<PAGE>
Exhibit 23(c)
Independent Auditors' Consent
We consent to the incorporation by reference in this Registration Statement
of Community Bank Shares of Indiana, Inc. on Form S-4 of our report dated
January 31, 1997, included and incorporated by reference in the Annual Report
on Form 10-K of Community Bank Shares of Indiana, Inc. for the year ended
December 31, 1996, and to the use of our report dated January 31, 1997,
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in the
Prospectus.
/s/ Monroe Shine & Co., Inc.
- -----------------------------
New Albany, Indiana
February 19, 1998
<PAGE>
Exhibit 23(d)
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated July 31, 1997, except for Notes 13, 14 and
15 to which the date is January 30, 1998, accompanying the consolidated
financial statements of Nelson County Federal Savings and Loan Association
and Subsidiary for the years ending June 30, 1997 and 1996, which are
incorporated by reference in this Registration Statement. We consent to the
incorporation by reference in this to the Registration Statement (on Form
S-4, Commission File No. 333- ) of the aforementioned report and to the
use of our name as it appears under the caption "Experts".
/s/ Whelan, Doerr & Pike, PSC
Elizabethtown, KY
February 20, 1998
<PAGE>
Exhibit 23(e)
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated August 17, 1995, accompanying the
consolidated financial statements of Nelson County Federal Savings and Loan
Association and Subsidiary for the year ending June 30, 1995, which are
incorporated by reference in this Registration Statement. We consent to the
incorporation by reference in this Registration Statement (on Form S-4) of
the aforementioned report and to the use of our name as it appears under the
caption "Experts".
/s/ Crisp Hughes Evans LLP
--------------------------
Asheville, North Carolina
February 19, 1998
<PAGE>
EXHIBIT 23(F)
[Letterhead]
February 19, 1998
We hereby consent to the use in this Registration Statement on Form S-4 of
our letter to the Board of Directors of NCF Financial Corporation included as
Appendix C to the Prospectus/Joint Proxy Statement forming a part of this
Registration Statement on Form S-4 and to all references to our firm in such
Prospectus/Joint Proxy Statement. In giving such consent, we do not hereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933 or the rules and regulations of
the Securities and Exchange Commission thereunder.
Ferguson and Company
Charles M. Hebert
Principal
<PAGE>
Exhibit 99.1
REVOCABLE PROXY
COMMUNITY BANK SHARES OF INDIANA, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF COMMUNITY
BANK SHARES OF INDIANA, INC. ("COMMUNITY") FOR USE AT THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON APRIL __, 1998 AND AT ANY ADJOURNMENT THEREOF.
The undersigned, being a stockholder of Community as of March __, 1998,
hereby authorizes the Board of Directors of Community or any successors thereto
as proxies with full powers of substitution, to represent the undersigned at the
Annual Meeting of Stockholders of Community to be held at the Robert E. Lee
Retirement Inn located at 201 E. Elm, New Albany, Indiana on _________, April
__, 1998 at __:00 _.m., Eastern Time, and at any adjournment of said meeting,
and thereat to act with respect to all votes that the undersigned would be
entitled to cast, if then personally present, as follows:
1. PROPOSAL to adopt the Agreement and Plan of Reorganization dated as of
December 17, 1997, by and between Community and NCF Financial Corporation
("NCF"), and a related Agreement of Merger (together, the "Merger Agreement"),
pursuant to which (i) NCF will be merged into Community (the "Merger"), with
Community as the surviving corporation of the Merger; and (ii) each share of
common stock of NCF, par value $.10 per share ("NCF Common Stock"), outstanding
immediately prior to consummation of the Merger (other than shares as to which
dissenters' rights have been asserted and duly perfected in accordance with
Delaware law and shares held by Community, NCF or any of their respective
subsidiaries) shall be converted into and represent the right to receive .935 of
a share of Community common stock, par value $.10 per share ("Community Common
Stock") (the "Exchange Ratio"), provided however, if the average market price of
a share of Community Common Stock over the 20 consecutive trading day preceding
the receipt of all requisite regulatory approvals related to the Merger (the
"Community Market Value") is less than $15.00, then the Exchange Ratio shall be
one share of Community Common Stock and if the Community Market Value is greater
than $25.00, then the Exchange Ratio shall be .88 of a share of Community Common
Stock, as described in the Joint Proxy Statement/Prospectus and the Merger
Agreement.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
2. ELECTION OF DIRECTORS
/ / FOR all nominees listed / / WITHHOLD AUTHORITY
below (except as marked to vote for all
to the contrary below) nominees listed
below
Nominees for three-year term expiring in 2001:
C. Thomas Young; Gary L. Libs; Robert J. Koetter, Sr.; and Kerry M. Stemler
Nominee for two-year term expiring in 2000:
Gordon L. Huncilman
Nominees for one-year term expiring in 1999:
Dale L. Orem; and Steven Stemler
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
- -------------------------------------------------------------------------------
3. PROPOSAL to ratify the appointment of Monroe Shine & Co., Inc. as
Community's independent auditors for the fiscal year ending December 31, 1998.
/ / FOR / / AGAINST / / ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Continued and to be signed on other side)
<PAGE>
SHARES OF COMMUNITY COMMON STOCK WILL BE VOTED AS SPECIFIED. IF NOT
OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ADOPTION OF THE MERGER
AGREEMENT, FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, FOR THE RATIFICATION
OF COMMUNITY'S AUDITORS, AND OTHERWISE AT THE DISCRETION OF THE PROXIES. YOU
MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED AT THE ANNUAL
MEETING.
Dated: , 1998
--------------------------------------
--------------------------------------
Signature(s)
Please sign this exactly as your name(s)
appear(s) on this proxy. When signing
in a representative capacity, please
give title. When shares are held
jointly, only one holder need sign.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
Exhibit 99.2
REVOCABLE PROXY
NCF FINANCIAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NCF
FINANCIAL CORPORATION ("NCF") FOR USE AT THE SPECIAL MEETING OF STOCKHOLDERS TO
BE HELD ON APRIL __, 1998 AND AT ANY ADJOURNMENT THEREOF.
The undersigned, being a stockholder of NCF as of March __, 1998, hereby
authorizes the Board of Directors of NCF or any successors thereto as proxies
with full powers of substitution, to represent the undersigned at the Special
Meeting of Stockholders of NCF to be held at the Hampton Inn located at
985 Chambers Boulevard, Bardstown, Kentucky on _________, April __, 1998 at
__:00_.m., Eastern Time, and at any adjournment of said meeting, and thereat
to act with respect to all votes that the undersigned would be entitled to cast,
if then personally present, as follows:
1. PROPOSAL to adopt the Agreement and Plan of Reorganization dated as of
December 17, 1997, by and between Community Bank Shares of Indiana, Inc.
("Community") and NCF, and a related Agreement of Merger (together, the "Merger
Agreement"), pursuant to which (i) NCF will be merged into Community (the
"Merger"), with Community as the surviving corporation of the Merger; and (ii)
each share of common stock of NCF, par value $.10 per share ("NCF Common
Stock"), outstanding immediately prior to consummation of the Merger (other than
shares as to which dissenters' rights have been asserted and duly perfected in
accordance with Delaware law and shares held by Community, NCF or any of their
respective subsidiaries) shall be converted into and represent the right to
receive .935 of a share of Community common stock, par value $.10 per share
("Community Common Stock") (the "Exchange Ratio"), provided however, if the
average market price of a share of Community Common Stock over the 20
consecutive trading day preceding the receipt of all requisite regulatory
approvals related to the Merger (the "Community Market Value") is less than
$15.00, then the Exchange Ratio shall be one share of Community Common Stock and
if the Community Market Value is greater than $25.00, then the Exchange Ratio
shall be .88 of a share of Community Common Stock, as described in the Joint
Proxy Statement/Prospectus and the Merger Agreement.
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Continued and to be signed on other side)
<PAGE>
SHARES OF NCF COMMON STOCK WILL BE VOTED AS SPECIFIED. IF NOT OTHERWISE
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ADOPTION OF THE MERGER AGREEMENT,
AND OTHERWISE AT THE DISCRETION OF THE PROXIES. YOU MAY REVOKE THIS PROXY AT
ANY TIME PRIOR TO THE TIME IT IS VOTED AT THE SPECIAL MEETING.
Dated: , 1998
--------------------------------------
--------------------------------------
Signature(s)
Please sign this exactly as your name(s)
appear(s) on this proxy. When signing
in a representative capacity, please
give title. When shares are held
jointly, only one holder need sign.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
