EXHIBIT 99.5
FIRST CAPITAL, INC., M.H.C.
220 FEDERAL DRIVE, N.W.
CORYDON, INDIANA 47112
(812) 738-2198
NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD ON DECEMBER ___, 1998
Notice is hereby given that a special meeting of members ("Special
Meeting") of First Capital, Inc., M.H.C. ("MHC") will be held at the main office
of First Federal Bank, A Federal Savings Bank ("Bank"), 220 Federal Drive, N.W.,
Corydon, Indiana, on _________, December __, 1998, at ___:____ __.m., Eastern
Standard Time. Business to be taken up at the Special Meeting shall be:
(1) To approve a Plan of Conversion from Mutual Holding Company to
Stock Holding Company and Agreement and Plan of Reorganization
("Plan of Conversion") adopted by the MHC and the Bank, pursuant to
which (i) the MHC will convert to a federally chartered interim
stock savings bank and merge into the Bank, with the Bank being the
surviving institution, (ii) the Bank and a newly formed federally
chartered interim stock savings bank will merge, with the Bank
being the surviving institution and becoming a wholly-owned
subsidiary of a newly formed stock corporation named First Capital,
Inc. ("Holding Company") and (iii) the Holding Company will sell
shares of its common stock to the public and issue shares of its
common stock in exchange for shares of the Bank's common stock, all
on and subject to the terms and conditions contained therein.
(2) To consider and vote upon any other matters that may lawfully come
before the Special Meeting.
Note: As of the mailing date of this Notice, the Board of Directors is
not aware of any other matters that may come before the Special
Meeting.
The members entitled to vote at the Special Meeting shall be those
members of the MHC at the close of business on October 31, 1998, and who
continue as members until the Special Meeting, and should the Special Meeting
be, from time to time, adjourned to a later time, until the final adjournment
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
JOEL E. VOYLES
SECRETARY
Corydon, Indiana
November ____, 1998
PLEASE SIGN AND RETURN PROMPTLY EACH PROXY CARD YOU RECEIVE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. THIS WILL ASSURE NECESSARY REPRESENTATION AT THE SPECIAL
MEETING, BUT WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU SO DESIRE. THE
PROXY IS SOLICITED ONLY FOR THIS SPECIAL MEETING (AND ANY ADJOURNMENTS THEREOF)
AND WILL NOT BE USED FOR ANY OTHER MEETING. YOU MAY REVOKE YOUR WRITTEN PROXY BY
WRITTEN INSTRUMENT DELIVERED TO JOEL E. VOYLES, SECRETARY, FIRST CAPITAL, INC.,
M.H.C., AT THE ABOVE ADDRESS AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING OR
BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
FIRST CAPITAL, INC., M.H.C.
220 FEDERAL DRIVE, N.W.
CORYDON, INDIANA 47112
(812) 738-2198
PROXY STATEMENT
NOVEMBER ___, 1998
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS
OF FIRST CAPITAL, INC., M.H.C. FOR USE AT A SPECIAL MEETING OF MEMBERS TO BE
HELD ON _________, DECEMBER ____, 1998, AND ANY ADJOURNMENT OF THAT MEETING, FOR
THE PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING. YOUR BOARD OF
DIRECTORS AND MANAGEMENT URGE YOU TO VOTE FOR THE PLAN OF CONVERSION.
PURPOSE OF MEETING--SUMMARY
A special meeting of members ("Special Meeting") of First Capital, Inc.,
M.H.C. ("MHC") will be held at the main office of First Federal Bank, A Federal
Savings Bank ("Bank"), 220 Federal Drive, N.W., Corydon, Indiana, on _________,
December ___, 1998, at ___:____ __.m., Eastern Standard Time, for the purpose of
considering and voting upon a Plan of Conversion and Agreement and Plan of
Reorganization ("Plan of Conversion"), which, if approved by a majority of the
total votes of the members eligible to be cast, will permit the Bank to become a
subsidiary of the Holding Company, a newly organized Indiana corporation formed
by the Bank. The reorganization of the Bank and the acquisition of control of
the Bank by the Holding Company are collectively referred to herein as the
"conversion."
Pursuant to the MHC's Federal Mutual Holding Company Charter, depositors
of the Bank and borrowers of the Bank with a loan outstanding as of February 1,
1993 and for as long as such loan remains outstanding are members of the MHC.
Members entitled to vote on the Plan of Conversion are members of the MHC as of
October 31, 1998 ("Voting Record Date") who continue as members until the
Special Meeting, and should the Special Meeting be, from time to time, adjourned
to a later time, until the final adjournment thereof. The conversion requires
the approval of not less than a majority of the total votes eligible to be cast
at the Special Meeting.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
federally-chartered mutual holding company to a federally-chartered interim
stock savings bank (Interim A) and simultaneously merge with and into the Bank
and (ii) an interim federal stock savings bank (Interim B) will be formed as a
wholly-owned subsidiary of the Holding Company and Interim B will merge with and
into the Bank. As a result of the merger of Interim A with and into the Bank,
the MHC will cease to exist and the shares of Bank common stock held by the MHC
will be canceled. As a result of the merger of Interim B with and into the Bank,
the Bank will become a wholly owned subsidiary of the Holding Company and the
common stock of the Bank will be converted into common stock of the Holding
Company pursuant to the ratio at which shares of Bank common stock will be
exchanged for shares of Holding Company common stock (AExchange Ratio@), which
will result in the holders of such shares owning in the aggregate approximately
the same percentage of the Holding Company common stock to be outstanding upon
the completion of the conversion as the percentage of the Bank common stock
owned by them in the aggregate immediately prior to consummation of the
conversion, but before giving effect to (a) the payment of cash in lieu of
issuing fractional shares, (b) the payment of cash to stockholders of the Bank
who exercise and perfect their rights of dissent and appraisal, and (c) any
shares of common stock purchased by the Bank's stockholders in this offering.
As part of the conversion, the Holding Company is offering shares of its
common stock in the subscription offering to holders of subscription rights in
the following order of priority: (i) Eligible Account Holders (depositors of the
Bank with $50.00 or more on deposit as of the close of business on March 31,
1997); (ii) Supplemental Eligible
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Account Holders (depositors of the Bank with $50.00 or more on deposit as of the
close of business on September 30, 1998); and (iii) Other Members (depositors of
the Bank as of the close of business on October 31, 1998 and borrowers of the
Bank with loans outstanding as of the close of business on February 1, 1993,
which continue to be outstanding as of the close of business on October 31,
1998) ("Subscription Offering").
Concurrently with the Subscription Offering, any shares of common stock
not subscribed for in the Subscription Offering may be offered for sale to
members of the general public, with priority being given first to stockholders
of the Bank as of the close of business on the Voting Record Date (who are not
Eligible Account Holders, Supplemental Eligible Account Holders or Other
Members) and then to natural persons and trusts of natural persons residing in
Crawford, Clark, Floyd, Harrison and Washington Counties, Indiana ("Local
Community") ("Direct Community Offering"). Shares of common stock not sold in
the Subscription Offering and the Direct Community Offering may be offered to
the general public by a group of selected dealers ("Syndicated Community
Offering"). Regulations require that the Direct Community Offering and the
Syndicated Community Offering be completed within 45 days after completion of
the fully extended Subscription Offering unless extended by the Bank or the
Holding Company with the approval of the regulatory authorities. If the
Syndicated Community Offering is determined not to be feasible because of market
conditions or otherwise, the Board of Directors of the Bank will consult with
the regulatory authorities to determine an appropriate alternative method for
selling the unsubscribed shares of common stock. The Plan of Conversion provides
that the conversion must be completed within 24 months after the date of the
approval of the Plan of Conversion by the members of the MHC.
FIRST CAPITAL, INC., M.H.C.
The MHC is the federally-chartered mutual holding company of the Bank.
The MHC was formed in February 1993 as a result of the reorganization of the
Bank into a federally chartered mutual holding company. The members of the MHC
consist of depositors of the Bank and those current borrowers of the Bank who
had loans outstanding as of the consummation date of the MHC reorganization
(February 1, 1993). The MHC's sole business activity is holding 300,000 shares
of the Bank's common stock, which represents 59.5% of the outstanding shares as
of the date of this prospectus. As part of the conversion, the MHC will merge
into the Bank, with the Bank as the surviving entity. As a result of this
merger, the MHC will cease to exist. The MHC's main office is located at 220
Federal Drive, N.W., Corydon, Indiana 47112 and its telephone number is (812)
738-2198.
FIRST FEDERAL BANK, A FEDERAL SAVINGS BANK
The Bank was organized in 1891 as an Indiana-chartered mutual savings
and loan association. In 1934, the Bank converted to a federally-chartered
savings and loan association under the name "First Federal Savings and Loan
Association of Corydon." In February 1993, the Bank converted to a federally-
chartered capital stock savings bank and adopted its current name. The Bank's
main office, which was opened in July 1997, is located at 220 Federal Drive,
N.W., Corydon, Indiana 47112 and its telephone number is (812) 738-2198.
The Bank is regulated by the Office of Thrift Supervision and the
Federal Deposit Insurance Corporation. The Bank's deposits have been federally-
insured by the FDIC since 1961 and are currently insured by the FDIC under the
Savings Association Insurance Fund. The Bank is a member of the Federal Home
Loan Bank System.
The Bank's strategy is to operate as an independent, retail financial
institution dedicated to financing home ownership and other consumer needs in
Harrison County, its primary market area, and, to a lesser extent, in
surrounding counties. At June 30, 1998, the Bank operated from its main office
and a branch office in Corydon and had total assets of $94.0 million, deposits
of $77.5 million and stockholders' equity of $10.3 million. At that date, $57.8
million, or 74.6%, of the Bank's loans were residential mortgage loans, $4.4
million, or 5.6%, were commercial real estate loans, $3.8 million, or 4.9%, were
residential construction loans, $5.0 million, or 6.5%, were commercial business
loans and $6.3 million, or 8.1%, were consumer loans. The Bank originates all
loans for retention in its portfolio.
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FIRST CAPITAL, INC.
The Bank formed the Holding Company under Indiana law in September 1998
for the purpose of owning all of the Bank's capital stock following completion
of the conversion. The Holding Company has received conditional approval of the
OTS to become a savings and loan holding company by acquiring the capital stock
of the Bank in the conversion. Before the completion of the conversion, the
Holding Company will not have any material assets or liabilities and it will not
conduct any business other than business related to the conversion. After the
conversion, the Holding Company's primary assets will be all of the capital
stock of the Bank, the loan that the Holding Company intends to make to the
Bank's Employee Stock Ownership Plan ("ESOP") and the net proceeds remaining
from the sale of its common stock after contributing 50% of the net proceeds to
the Bank and funding the ESOP loan. Initially, the primary activity of the
Holding Company will be to direct, plan and coordinate the Bank's business
activities. In the future, the Holding Company might become an operating company
or acquire or organize other operating subsidiaries, including other financial
institutions, although it currently has no specific plans or agreements to do
so. The Holding Company's main office is located at 220 Federal Drive, N.W.,
Corydon, Indiana 47112 and its telephone number is (812) 738-2198.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
The MHC's Board of Directors has fixed the close of business on October
31, 1998 as the record date for the determination of members entitled to notice
of and to vote at the Special Meeting. All holders of savings or other
authorized accounts of the Bank, and borrowers of the Bank with loans
outstanding as of February 1, 1993 and for as long as such loans remain
outstanding, are members of the Bank under its current charter. All members of
record as of the close of business on the Voting Record Date who continue to be
members on the date of the Special Meeting or any adjournment thereof will be
entitled to vote at the Special Meeting or such adjournment.
Each eligible depositor member will be entitled at the Special Meeting
to cast one vote for each $100, or fraction thereof, of the aggregate withdrawal
value of all of the depositor's savings accounts in the Bank as of the Voting
Record Date. Borrowers with loans outstanding as of February 1, 1993, which
continue to be outstanding as of the Voting Record Date will be entitled to cast
one vote for the period of time such borrowings remain in existence. No member
is entitled to cast more than 1,000 votes. Any number of members present and
voting, represented in person or by proxy, at the Special Meeting will
constitute a quorum.
Approval of the Plan of Conversion will require the affirmative vote of
a majority of the total outstanding votes of the MHC's members eligible to be
cast at the Special Meeting. As of the Voting Record Date for the Special
Meeting, there were approximately _________ votes eligible to be cast, of which
_________ votes may be cast by depositor members and _______ votes may be cast
by borrower members.
PROXIES
Members may vote at the Special Meeting or any adjournment thereof in
person or by proxy. Enclosed is a proxy which may be used by any eligible member
to vote on the Plan of Conversion. All properly executed and dated proxies
received by management will be voted in accordance with the instructions
indicated thereon by the members giving such proxies. If no instructions are
given, properly executed and dated proxies will be voted in favor of the Plan of
Conversion. If any other matters are properly presented at the Special Meeting
and may properly be voted on, all properly executed and dated proxies will be
voted on such matters in accordance with the best judgment of the proxy holders
named therein. If the enclosed proxy is returned properly executed and dated, it
may be revoked at any time before it is voted by written notice to the Secretary
of the MHC, by submitting a properly executed and later dated proxy, or by
attending and voting in person at the Special Meeting. The proxies being
solicited are only for use at the Special Meeting and at any and all
adjournments thereof and will not be used for any other meeting. Management is
not aware of any other business to be presented at the Special Meeting.
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The trustees for individual retirement accounts at the Bank, will vote
in favor of the Plan of Conversion, unless the beneficial owner executes and
returns the enclosed proxy for the Special Meeting or attends the Special
Meeting and votes in person.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by officers, directors or regular employees of the MHC,
in person, by telephone or through other forms of communication. Such persons
will be reimbursed by the MHC for their reasonable out-of-pocket expenses
incurred in connection with such solicitation. In addition, the MHC has retained
Charles Webb & Company to assist in the solicitation of proxies, account
consolidation, proxy tabulation and inspection. The fees for such services is
included in the fees to be received by Charles Webb & Company in connection with
the conversion. If necessary, the Special Meeting may be adjourned to an
alternative date to allow for additional time to solicit proxies.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
PLAN OF CONVERSION. VOTING IN FAVOR OF THE PLAN OF CONVERSION WILL NOT OBLIGATE
ANY VOTER TO PURCHASE ANY COMMON STOCK.
THE CONVERSION
THE OTS HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO ITS APPROVAL BY
THE MEMBERS OF THE MHC AND THE STOCKHOLDERS OF THE BANK ENTITLED TO VOTE THEREON
AND TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS IN ITS
APPROVAL. OTS APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF
THE PLAN OF CONVERSION.
GENERAL
On June 18, 1998, the Boards of Directors of the MHC and the Bank
unanimously adopted the Plan of Conversion, pursuant to which the Bank will
convert from the mutual holding company form of organization to the stock
holding company form of organization. THE FOLLOWING DISCUSSION OF THE PLAN OF
CONVERSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN OF CONVERSION,
WHICH IS ATTACHED AS EXHIBIT A TO THIS PROXY STATEMENT. The OTS has approved the
Plan of Conversion, subject to its approval by the members of the MHC and the
stockholders of the Bank and to the satisfaction of certain other conditions.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
federally-chartered mutual holding company to a federally-chartered interim
stock savings bank (Interim A) and simultaneously merge with and into the Bank
and (ii) an interim federal stock savings bank (Interim B) will be formed as a
wholly-owned subsidiary of the Holding Company and Interim B will merge with and
into the Bank. As a result of the merger of Interim A with and into the Bank,
the MHC will cease to exist and the shares of Bank common stock held by the MHC
will be canceled. As a result of the merger of Interim B with and into the Bank,
the Bank will become a wholly owned subsidiary of the Holding Company and the
common stock of the Bank will be converted into common stock of the Holding
Company pursuant to the Exchange Ratio, which will result in the holders of such
shares owning in the aggregate approximately the same percentage of the Holding
Company common stock to be outstanding upon the completion of the conversion as
the percentage of the Bank common stock owned by them in the aggregate
immediately prior to consummation of the conversion, but before giving effect to
(a) the payment of cash in lieu of issuing fractional shares, (b) the payment of
cash to stockholders of the Bank who exercise and perfect their rights of
dissent and appraisal, and (c) any shares of common stock purchased by the
Bank's stockholders in this offering.
As part of the conversion, the Holding Company is offering shares of its
common stock in the Subscription Offering to holders of subscription rights in
the following order of priority: (i) Eligible Account Holders (depositors of the
Bank with $50.00 or more on deposit as of the close of business on March 31,
1997); (ii) Supplemental Eligible Account Holders (depositors of the Bank with
$50.00 or more on deposit as of the close of business on September 30, 1998);
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and (iii) Other Members (depositors of the Bank as of the close of business on
October 31, 1998 and borrowers of the Bank with loans outstanding as of the
close of business on February 1, 1993, which continue to be outstanding as of
the close of business on October 31, 1998).
Concurrently with the Subscription Offering, any shares of common stock
not subscribed for in the Subscription Offering may be offered for sale in the
Direct Community Offering to members of the general public, with priority being
given first to stockholders of the Bank as of the close of business on the
Voting Record Date (who are not Eligible Account Holders, Supplemental Eligible
Account Holders or Other Members) and then to natural persons and trusts of
natural persons residing in the Local Community. Shares of common stock not sold
in the Subscription Offering and the Direct Community Offering may be offered in
the Syndicated Community Offering. Regulations require that the Direct Community
Offering and the Syndicated Community Offering be completed within 45 days after
completion of the fully extended Subscription Offering unless extended by the
Bank or the Holding Company with the approval of the regulatory authorities. If
the Syndicated Community Offering is determined not to be feasible because of
market conditions or otherwise, the Board of Directors of the Bank will consult
with the regulatory authorities to determine an appropriate alternative method
for selling the unsubscribed shares of common stock. The Plan of Conversion
provides that the conversion must be completed within 24 months after the date
of the approval of the Plan of Conversion by the members of the MHC.
No sales of common stock may be completed, either in the Subscription
Offering, Direct Community Offering or Syndicated Community Offering unless the
Plan of Conversion is approved by the members of the MHC and the stockholders of
the Bank. The completion of this offering, however, is subject to market
conditions and other factors beyond the Bank's control. No assurance can be
given as to the length of time after approval of the Plan of Conversion by the
members of the MHC and the stockholders of the Bank that will be required to
complete the Direct Community Offering or Syndicated Community Offering or other
sale of the shares of common stock. If delays are experienced, significant
changes may occur in the estimated pro forma market value of the MHC and the
Bank, as converted, together with corresponding changes in the net proceeds
realized by the Holding Company from the sale of its common stock.
Orders for shares of common stock will not be filled until at least
$6,574,750 of common stock has been subscribed for or sold and the OTS
approves the final valuation and the conversion closes. If the conversion is not
completed within 45 days after the last day of the fully extended Subscription
Offering and the OTS consents to an extension of time to complete the
conversion, subscribers will be given the right to increase, decrease or rescind
their subscriptions. Unless an affirmative indication is received from
subscribers that they wish to continue to subscribe for shares, the funds will
be returned promptly, together with accrued interest at the Bank's passbook rate
from the date payment is received until the funds are returned to the
subscriber. If such period is not extended, or, in any event, if the conversion
is not completed, all withdrawal authorizations will be terminated and all funds
received will be promptly returned together with accrued interest at the Bank's
passbook rate from the date payment is received until the conversion is
terminated.
PURPOSES OF CONVERSION
The MHC, as a federally chartered mutual holding company, does not have
stockholders and has no authority to issue capital stock. As a result of the
conversion, the Holding Company will be structured in the form used by holding
companies of commercial banks, most business entities and a growing number of
savings institutions. The holding company form of organization will provide the
Holding Company with the ability to diversify the Holding Company's and the
Bank's business activities through acquisition of or mergers with both stock
savings institutions and commercial banks, as well as other companies. Although
there are no current arrangements, understandings or agreements regarding any
such opportunities, the Holding Company will be in a position after the
conversion, subject to regulatory limitations and the Holding Company's
financial position, to take advantage of any such opportunities that may arise.
In their decision to pursue the conversion, the Boards of Directors of
the MHC and the Bank considered various regulatory uncertainties associated with
the mutual holding company structure including the ability to waive dividends
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in the future. In addition, the Bank considered the financial services
modernization legislation currently under consideration by Congress and its
potential effect on the federal savings association charter.
The conversion will be important to the future growth and performance of
the holding company organization by providing a larger capital base to support
the operations of the Bank and Holding Company and by enhancing their future
access to capital markets, their ability to diversify into other financial
services related activities, and their ability to provide services to the
public.
The conversion also will result in a larger number of shares of Holding
Company common stock to be outstanding as compared to the number of outstanding
shares of Bank common stock, which will increase the likelihood of the
development of an active and liquid trading market for the common stock. In
addition, the conversion will permit the Holding Company to engage in stock
repurchases without adverse federal income tax consequences. The Bank cannot
repurchase its common stock without triggering adverse federal income tax
consequences. Currently, the Holding Company has no specific plans regarding any
stock repurchases.
An additional benefit of the conversion will be an increase in the
accumulated earnings and profits of the Bank for federal income tax purposes.
When the Bank (as a mutual institution) transferred substantially all of its
assets and liabilities to its stock savings bank successor in the MHC
reorganization, its accumulated earnings and profits tax attribute was not able
to be transferred to the Bank because no tax-free reorganization was involved.
Accordingly, this tax attribute was retained by the Bank when it converted its
charter to that of the MHC, even though the underlying retained earnings were
transferred to the Bank. The conversion has been structured to re-unite the
accumulated earnings and profits tax attribute retained by the MHC in the MHC
reorganization with the retained earnings of the Bank by merging the MHC with
and into the Bank in a tax-free reorganization. This transaction will increase
the Bank's ability to pay dividends to the Holding Company in the future.
If the Bank had undertaken a standard conversion involving the formation
of a stock holding company in 1993, applicable OTS regulations would have
required a greater amount of common stock to be sold than the amount sold in the
MHC reorganization. Management believed that it was advisable to invest
profitably the proceeds raised in the MHC reorganization prior to raising the
larger amount of capital that would have been raised at one time in a standard
conversion. A standard conversion in 1993 also would have immediately eliminated
all aspects of the mutual form of organization.
In light of the foregoing, the Boards of Directors of the MHC and the
Bank believe that the conversion is in the best interests of the MHC and the
Bank, their respective members and stockholders, and the communities served by
the Bank.
EFFECTS OF CONVERSION ON DEPOSITORS AND BORROWERS OF THE BANK
GENERAL. Prior to the conversion, each depositor in the Bank has both a
deposit account in the institution and a pro rata ownership interest in the net
worth of the MHC based upon the balance in his or her account, which interest
may only be realized in the event of a liquidation of the MHC. However, this
ownership interest is tied to the depositor's account and has no tangible market
value separate from such deposit account. A depositor who reduces or closes his
or her account receives a portion or all of the balance in the account but
nothing for his or her ownership interest in the net worth of the MHC, which is
lost to the extent that the balance in the account is reduced.
Consequently, the depositors of the Bank normally have no way to realize
the value of their ownership interest in the MHC, which has realizable value
only in the unlikely event that the MHC is liquidated. In such event, the
depositors of record at that time, as owners, would share pro rata in any
residual surplus and reserves of the MHC after other claims are paid.
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Upon consummation of the conversion, permanent nonwithdrawable capital
stock will be created to represent the ownership of the net worth of the Holding
Company. The common stock is separate and apart from deposit accounts and cannot
be and is not insured by the FDIC or any other governmental agency. Certificates
are issued to evidence ownership of the permanent stock. The stock certificates
are transferable, and therefore the stock may be sold or traded if a purchaser
is available with no effect on any deposit and/or loan account(s) the seller may
hold in the Bank.
CONTINUITY. The conversion will not interrupt the Bank's normal business
of accepting deposits and making loans. The Bank will continue to be subject to
regulation by the OTS and the FDIC. After the conversion, the Bank will continue
to provide services for depositors and borrowers under current policies by its
present management and staff.
The directors and officers of the Bank at the time of the conversion
will continue to serve as directors and officers of the Bank after the
conversion. The directors and officers of the Holding Company consist of
individuals currently serving as directors and officers of the MHC and the Bank,
and they will retain their positions in the Holding Company after the
conversion.
EFFECT ON THE BANK'S COMMON STOCK. Under the Plan of Conversion, upon
consummation of the conversion, each share of the Bank's common stock held by
the Bank's public stockholders (other than the Bank's public stockholders who
exercise and perfect their rights of dissent and appraisal) will be converted
into shares of Holding Company common stock based upon the Exchange Ratio
without any further action on the part of the holder thereof. Upon surrender of
certificates representing shares of Bank common stock, Holding Company common
stock will be issued in exchange for such shares.
Upon consummation of the conversion, the public stockholders of the Bank
will become stockholders of the Holding Company.
VOTING RIGHTS. Presently, depositors and borrowers of the Bank are
members of, and have voting rights in, the MHC as to all matters requiring
membership action. Upon completion of the conversion, the MHC will cease to
exist and all voting rights in the Bank will be vested in the Holding Company as
the sole stockholder of the Bank. Exclusive voting rights with respect to the
Holding Company will be vested in the holders of the Holding Company's common
stock. Depositors and borrowers of the Bank will not have voting rights in the
Holding Company after the conversion, except to the extent that they become
stockholders of the Holding Company.
SAVINGS ACCOUNTS AND LOANS. The Bank's savings accounts, account
balances and existing FDIC insurance coverage of savings accounts will not be
affected by the conversion. Furthermore, the conversion will not affect the loan
accounts, loan balances or obligations of borrowers under their individual
contractual arrangements with the Bank.
TAX EFFECTS. The Bank has received an opinion from Breyer & Aguggia LLP,
Washington, D.C., that the conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(A) of the Internal Revenue Code. Among
other things, the opinion provides that:
(i) the conversion of the MHC from a mutual holding company to a
federally-chartered interim stock savings bank (Interim A) and its
simultaneous merger with and into the Bank, with the Bank as the
surviving entity, will qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code;
(ii) no gain or loss will be recognized by the Bank upon the receipt of
the assets of the MHC in such merger;
(iii) the merger of Interim B with and into the Bank, with the Bank as
the surviving entity, will qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code;
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(iv) no gain or loss will be recognized by Interim B upon the transfer
of its assets to the Bank;
(v) no gain or loss will be recognized by the Bank upon the receipt of
the assets of Interim B;
(vi) no gain or loss will be recognized by the Holding Company upon the
receipt of Bank common stock solely in exchange for Holding
Company common stock;
(vii) no gain or loss will be recognized by the Public Stockholders upon
the receipt of shares of the Holding Company's common stock in
exchange for their shares of Bank common stock;
(viii) the basis of the shares of common stock of the Holding Company to
be received by the Bank's public stockholders will be the same as
the basis of the shares of common stock of the Bank surrendered in
exchange therefor, before giving effect to any payment of cash in
lieu of fractional shares;
(ix) the holding period of the shares of Holding Company common stock
to be received by the Bank's public stockholders will include the
holding period of the Bank common stock, provided that the shares
of Bank common stock were held as a capital asset on the date of
the exchange;
(x) no gain or loss will be recognized by the Holding Company upon the
sale of shares of its common stock in this offering;
(xi) the Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members will recognize gain, if any, upon the
issuance to them of withdrawable savings accounts in the Bank
following the conversion, interests in the liquidation account and
nontransferable subscription rights to purchase common stock, but
only to the extent of the value, if any, of the subscription
rights; and
(xii) the tax basis to the holders of shares of common stock purchased
in this offering will be the amount paid therefor, and the holding
period for the shares of common stock will begin on the date of
consummation of this offering, if purchased through the exercise
of Subscription Rights, and on the day after the date of purchase,
if purchased in the Direct Community Offering or the Syndicated
Community Offering.
Unlike a private letter ruling issued by the Internal Revenue Service
("IRS"), an opinion of counsel is not binding on the IRS and the IRS could
disagree with the conclusions reached therein. In the event of such
disagreement, no assurance can be given that the conclusions reached in an
opinion of counsel would be sustained by a court if contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of subscription rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan of Conversion will be
taxable to the extent, if any, that the subscription rights are deemed to have a
fair market value. Keller & Company, a financial consulting firm retained by the
Bank, whose findings are not binding on the IRS, has issued a letter indicating
that the subscription rights do not have any value, based on the fact that such
rights are acquired by the recipients without cost, are nontransferable and of
short duration and afford the recipients the right only to purchase shares of
the common stock at a price equal to its estimated fair market value, which will
be the same price paid by purchasers in the Direct Community Offering for
unsubscribed shares of common stock. If the subscription rights are deemed to
have a fair market value, the receipt of such rights may only be taxable to
those Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members who exercise their subscription rights. The Bank could also recognize a
gain on the distribution of such subscription rights. Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members are encouraged to
consult with their own tax advisors as to the tax consequences in the event the
subscription rights are deemed to have a fair market value.
8
The Bank has also received an opinion from Monroe Shine & Co., Inc.
that, assuming the conversion does not result in any federal income tax
liability to the Bank, its account holders, or the Holding Company,
implementation of the Plan of Conversion will not result in any Indiana tax
liability to such entities or persons.
The opinions of Breyer & Aguggia LLP and Monroe Shine & Co., Inc. and
the letter from Keller & Company, are filed as exhibits to the Registration
Statement. See "ADDITIONAL INFORMATION."
THE PRECEDING DISCUSSION SUMMARIZES THE MATERIAL TAX CONSEQUENCES OF THE
CONVERSION. PROSPECTIVE INVESTORS, HOWEVER, ARE URGED TO CONSULT WITH THEIR OWN
TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO
THEM.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the MHC, each depositor of the Bank would receive his or her pro rata share of
any assets of the MHC remaining after payment of claims of all creditors. Each
depositor's pro rata share of such remaining assets would be in the same
proportion as the value of his or her deposit account was to the total value of
all deposit accounts in the Bank at the time of liquidation. After the
conversion, each depositor, in the event of a complete liquidation of the Bank,
would have a claim as a creditor of the same general priority as the claims of
all other general creditors of the Bank. However, except as described below, his
or her claim would be solely in the amount of the balance in his or her deposit
account plus accrued interest. Each stockholder would not have an interest in
the value or assets of the Bank or the Holding Company above that amount.
The Plan of Conversion provides for the establishment, upon the
completion of the conversion, of a special "liquidation account" for the benefit
of Eligible Account Holders and Supplemental Eligible Account Holders in an
amount equal to the amount of any dividends waived by the MHC plus the greater
of (i) the Bank's retained earnings of $4.0 million at June 30, 1992, the date
of the latest statement of financial condition contained in the final offering
circular utilized in the MHC reorganization, or (ii) 59.5% of the Bank's total
stockholders' equity as reflected in its latest statement of financial condition
contained in the final prospectus utilized in this offering. As of the date of
this prospectus, the initial balance of the liquidation account would be $7.3
million. Each Eligible Account Holder and Supplemental Eligible Account Holder,
if he or she were to continue to maintain his or her deposit account at the
Bank, would be entitled, upon a complete liquidation of the Bank after the
conversion to an interest in the liquidation account prior to any payment to the
Holding Company as the sole stockholder of the Bank. Each Eligible Account
Holder and Supplemental Eligible Account Holder would have an initial interest
in such liquidation account for each deposit account, including passbook
accounts, transaction accounts such as checking accounts, money market deposit
accounts and certificates of deposit, held in the Bank at the close of business
on March 31, 1997 or September 30, 1998, as the case may be. Each Eligible
Account Holder and Supplemental Eligible Account Holder will have a pro rata
interest in the total liquidation account for each of his or her deposit
accounts based on the proportion that the balance of each such deposit account
on the Eligibility Record Date (March 31, 1997) or the Supplemental Eligibility
Record Date (September 30, 1998), as the case may be, bore to the balance of all
deposit accounts in the Bank on such date.
If, however, on any June 30 annual closing date of the Bank, commencing
June 30, 1998, the amount in any deposit account is less than the amount in such
deposit account on June 30, 1998, as the case may be, or any other annual
closing date, then the interest in the liquidation account relating to such
deposit account would be reduced by the proportion of any such reduction, and
such interest will cease to exist if such deposit account is closed. In
addition, no interest in the liquidation account would ever be increased despite
any subsequent increase in the related deposit account. Any assets remaining
after the above liquidation rights of Eligible Account Holders and Supplemental
Eligible Account Holders are satisfied would be distributed to the Holding
Company as the sole stockholder of the Bank.
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with
or without conditions, or disapproves a plan of conversion pursuant to 12 C.F.R.
Part 563b may obtain review of such action by filing in the court of appeals
9
of the United States for the circuit in which the principal office or residence
of such person is located, or in the United States Court of Appeals for the
District of Columbia, a written petition praying that the final action of the
OTS be modified, terminated or set aside. Such petition must be filed within 30
days after the publication of notice of such final action in the Federal
Register, or 30 days after the mailing by the applicant of the notice to members
as provided for in 12 C.F.R. Section 563b.6(c), whichever is later. The further
procedure for review is as follows: A copy of the petition is forthwith
transmitted to the OTS by the clerk of the court and thereupon the OTS files in
the court the record in the proceeding, as provided in Section 2112 of Title 28
of the United States Code. Upon the filing of the petition, the court has
jurisdiction, which upon the filing of the record is exclusive, to affirm,
modify, terminate, or set aside in whole or in part, the final action of the
OTS. Review of such proceedings is as provided in Chapter 7 of Title 5 of the
United States Code. The judgment and decree of the court is final, except that
they are subject to review by the United States Supreme Court upon certiorari as
provided in Section 1254 of Title 28 of the United States Code.
ADDITIONAL INFORMATION
The Holding Company has filed with the Securities and Exchange
Commission ("SEC") a Registration Statement on Form SB-2 (File No. 333-63515)
under the Securities Act of 1933, as amended with respect to the common stock
offered in the conversion. The prospectus does not contain all the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. You may read and copy such
information at the SEC's public reference room in Washington, D.C. You can
request copies of those documents, upon payment of a duplicating fee, by writing
to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. The Registration Statement also is
available through the SEC's World Wide Web site on the Internet
(http://www.sec.gov).
The MHC has filed with the OTS an Application for Approval of
Conversion. The accompanying Prospectus omits certain information contained in
such Application. The Application, including exhibits and certain other
information that are a part thereof, may be inspected, without charge, at the
offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552 and at the
office of the Regional Director of the OTS at the OTS Central Regional Office,
Madison Plaza, 200 West Madison Street, Suite 1300, Chicago, Illinois 60606.
Copies of the Holding Company's Articles of Incorporation and Bylaws may
be obtained without charge by written request to the Bank.
All persons eligible to vote at the Special Meeting should review both
this Proxy Statement and the accompanying Prospectus carefully. However, no
person is obligated to purchase any Common Stock. For additional information,
you may call the Stock Information Center at (812) _____-___________.
BY ORDER OF THE BOARD OF DIRECTORS
JOEL E. VOYLES
SECRETARY
Corydon, Indiana
November ___, 1998
10
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT AND THE PROSPECTUS AND, WHETHER OR NOT YOU
PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, TO FILL IN, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS POSSIBLE TO ASSURE THAT YOUR VOTES
WILL BE COUNTED. THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND
THE SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY BY WRITTEN INSTRUMENT DELIVERED
TO THE SECRETARY OF THE BANK AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING OR
BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY COMMON STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS IN
THOSE JURISDICTIONS IN WHICH IT IS LAWFUL TO MAKE SUCH OFFER.
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