SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Section 240.14a-12
BLUE RIVER BANCSHARES, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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2004 NOTICE OF ANNUAL
SHAREHOLDERS MEETING
AND
PROXY STATEMENT
[BLUE RIVER BANCSHARES INCORPORATED LOGO]
[BLUE RIVER BANCSHARES INCORPORATED LOGO]
April 9, 2004
Dear Shareholder,
On behalf of our entire Board of Directors, I cordially invite you to
attend our annual meeting of shareholders on May 13, 2004. At the meeting, we
will review our performance for fiscal year 2003.
A notice of the meeting and proxy statement follow. You will also find
enclosed your proxy voting card and the 2003 Annual Report. I would like to take
this opportunity to remind you that your vote is important. Please take a moment
now to complete, sign and date the enclosed proxy voting card and return it in
the postage-paid envelope we have provided.
I look forward to seeing you on May 13th.
Sincerely,
/s/Steven R. Abel
Steven R. Abel
Chairman
[BLUE RIVER BANCSHARES INCORPORATED LOGO]
NOTICE OF THE 2004
ANNUAL MEETING OF SHAREHOLDERS
April 9, 2004
The annual meeting of shareholders of Blue River Bancshares, Inc. will
be held on May 13, 2004, at 11:00 a.m., at the Shelby County Elks Club, 2660 N.
Riley (Highway 9), Shelbyville, Indiana, to consider and take action on the
following matters:
1. Amendment to the Articles of Incorporation to eliminate the
Indiana residency requirement for directors,
2. Election of two directors to serve a three year term expiring
in 2007,
3. Ratfication of the appointment of Crowe Chizek and Company LLC
as independent auditors for fiscal year 2004,
4. Approval of the 2004 Stock Option Plan of Blue River
Bancshares, Inc., and
5. Transaction of any other business that is properly raised at
the meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOUR PROPOSALS.
Shelbyville, Indiana /s/ D. Warren Robison
D. Warren Robison
Secretary
TABLE OF CONTENTS
Page
----
ANNUAL MEETING INFORMATION....................................................................................... 1
Why did I receive this proxy statement? ................................................................ 1
Who will solicit the proxies and who is paying for them? ............................................... 1
What will occur at the annual meeting? ................................................................. 1
How many votes are necessary to amend the Articles of Incorporation? ................................... 2
How many votes are necessary to elect the nominees for director? ....................................... 2
What if a nominee is unwilling or unable to stand for election? ........................................ 2
How many votes are necessary to approve the other matters? ............................................. 3
If my shares are held in `street name' by my broker, will my broker vote my shares for me? ............. 3
Who will count the votes? .............................................................................. 3
How do I vote if I'm not planning to attend the annual meeting? ........................................ 3
What if I want to change my vote? ...................................................................... 3
How do I raise an issue for discussion at the annual meeting? .......................................... 4
Where can I find the voting results of the meeting? .................................................... 4
PROPOSAL ONE -- AMENDMENT TO THE ARTICLES OF INCORPORATION TO ELIMINATE THE INDIANA RESIDENCY REQUIREMENT FOR
DIRECTORS............................................................................................... 4
PROPOSAL TWO -- ELECTION OF DIRECTORS............................................................................ 5
PROPOSAL THREE -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS............................................ 6
PROPOSAL FOUR -- APPROVAL OF THE 2004 STOCK OPTION PLAN OF BLUE RIVER BANCSHARES, INC........................... 7
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION.......................................................... 10
DIRECTORS OF THE COMPANY................................................................................ 10
Who is on our Board of Directors? ............................................................. 10
Directors Attendance at the Annual Meeting of Shareholders..................................... 14
Code of Conduct and Ethics..................................................................... 14
Shareholder Communication with the Board of Directors.......................................... 14
How is our Board of Directors Paid? ........................................................... 15
EXECUTIVE OFFICERS OF THE COMPANY....................................................................... 16
Who are our Executive Officers? ............................................................... 16
How are our Executive Officers Paid? .......................................................... 16
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS.......................................... 21
Who determines how much the executive officers are paid? ...................................... 21
What are our goals, policies, and objectives? ................................................. 22
REPORT OF THE AUDIT COMMITTEE........................................................................... 22
Why are we receiving this report? ............................................................. 22
Who are the members of the Audit Committee? ................................................... 22
Has the Audit Committee reviewed the Company financial statements? ............................ 22
FEES TO INDEPENDENT AUDITOR FOR FISCAL YEARS 2003 AND 2003.............................................. 23
SECURITIES OWNERSHIP OF MANAGEMENT...................................................................... 24
How much stock do our Executive Officers and Directors own? ................................... 24
RELATED PARTY TRANSACTIONS.............................................................................. 25
APPENDIX A - 2004 Stock Option Plan of Blue River Bancshares, Inc................................................ A-1
APPENDIX B - Audit Committee Charter............................................................................. B-1
APPENDIX C - Nominating and Corporate Governance Committee Charter............................................... C-1
BLUE RIVER BANCSHARES, INC.
29 East Washington Street
Shelbyville, Indiana 46176
PROXY STATEMENT
ANNUAL MEETING INFORMATION
This proxy statement contains information related to the annual meeting
of shareholders of Blue River Bancshares, Inc. to be held on May 13, 2004,
beginning at 11:00 a.m., at the Shelby County Elks Club, 2660 N. Riley (Highway
9), Shelbyville, Indiana, and at any postponements or adjournments thereof. The
proxy statement was prepared under the direction of the Company's Board of
Directors to solicit your proxy for use at the annual meeting. This proxy
statement and form of proxy were first mailed to shareholders on or about April
9, 2004.
As of the close of business on March 24, 2004, the record date for
determining shareholders entitled to notice of and to vote at the annual
meeting, we had a total of 3,406,150 shares of common stock issued and
outstanding.
WHY DID I RECEIVE THIS PROXY STATEMENT?
On April 9, 2004, we began mailing this proxy statement to everyone who
was a shareholder as of March 24, 2004. We prepare a proxy statement each year
to let our shareholders know when and where we will hold our annual
shareholders' meeting.
More importantly, this proxy statement
- includes detailed information about the matters that will be
discussed and voted on at the meeting, and
- provides you with updated information about the Company that
you will need to consider in order to make an informed
decision at the meeting.
WHO WILL SOLICIT THE PROXIES AND WHO IS PAYING FOR THEM?
The cost of soliciting proxies will be borne by the Company. In
addition to use of mail, proxies may be solicited personally or by telephone by
directors, officers and certain employees of the Company who will not be
specially compensated for such soliciting. The Company will also request
brokerage houses, nominees, custodians and fiduciaries to forward soliciting
materials to the beneficial owners of stock and will reimburse them for the cost
of forwarding the material.
WHAT WILL OCCUR AT THE ANNUAL MEETING?
First, we will determine whether enough shareholders are present at the
meeting to conduct business. A shareholder will be deemed to be "present" at the
meeting if the shareholder
- is present in person, or
- is not present in person but has voted by proxy card prior to
the meeting.
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A "quorum" is the presence at the meeting, in person or by proxy, of the holders
of the majority of the outstanding shares. There must be a quorum for the
meeting to be held. If we do not have a quorum, then we will reschedule the
meeting. The new meeting date will be announced at the meeting. Abstentions are
counted for purposes of determining the presence or absence of a quorum.
If there are enough shareholders present at the meeting, then we will
vote on
- amendment to the Articles of Incorporation to eliminate the
Indiana residency requirement for directors,
- election of two directors to serve a three year term expiring
in 2007,
- ratification of the appointment of Crowe Chizek and Company
LLC as independent auditors for fiscal year 2004,
- approval of the 2004 Stock Option Plan of Blue River
Bancshares, Inc., and
- transaction of any other business that is properly raised at
the meeting.
On each proposal, you are entitled to one vote for each share of stock
that you own. Cumulative voting is not permitted.
Each of the proposals has been approved by our Board of Directors. The
Board of Directors is now soliciting your vote for each of the proposals.
After each proposal has been voted on at the meeting we will discuss
and take action on any other matter that is properly brought before the meeting.
Finally, some of our officers will report on our recent financial results and
our current operations.
The members of the Board of Directors recommend that you vote FOR each
of the proposals.
HOW MANY VOTES ARE NECESSARY TO AMEND THE ARTICLES OF INCORPORATION?
According to the requirement contained in our Articles of
Incorporation, the amendment to the Articles of Incorporation will be approved
by the shareholders if at least two-thirds (2/3) of the outstanding shares of
common stock of the Company entitled to vote on this matter vote in favor of the
amendment.
HOW MANY VOTES ARE NECESSARY TO ELECT THE NOMINEES FOR DIRECTOR?
The director nominees will be elected by a plurality of the votes cast
at the annual meeting. A plurality is generally defined as the excess of the
votes cast in favor of a director nominee over those cast in favor of any other
nominee, but not less than a majority of the votes cast.
WHAT IF A NOMINEE IS UNWILLING OR UNABLE TO STAND FOR ELECTION?
Each of the persons nominated for election has agreed to stand for
election. However, if unexpected events arise which cause one or more of them to
be unable to stand for election, then either
- the Board of Directors can vote at the meeting to reduce the
size of the Board of Directors, or
- the Board of Directors may, during the meeting, nominate
another person for director.
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Our Articles of Incorporation currently require that the directors be
residents of the State of Indiana. If the amendment to our Articles of
Incorporation to eliminate the Indiana residency requirement is not approved by
the shareholders, then John Robert Owens, who is a nominee for director and a
resident of the State of Kentucky, will be unable to serve as a director of the
Company if elected by the shareholders.
It is important for you to understand that if our Board of Directors
nominates someone at the meeting, the person to whom you have given your proxy
will be able to use his or her discretion to vote on your behalf for the
candidate of his or her choice.
Your vote is completely confidential.
HOW MANY VOTES ARE NECESSARY TO APPROVE THE OTHER MATTERS?
The holders of a majority of the shares having voting power present at
the meeting (in person or by proxy) must vote for these proposals in order for
them to pass. On these proposals, you may vote "for," "against" or "abstain."
Abstentions are counted for purposes of determining the presence or absence of a
quorum, but are not considered a vote cast. Shares held by brokers in street
name and for which the beneficial owners have withheld the discretion to vote
from brokers are called "broker non-votes." They are counted to determine if a
quorum is present, but are not considered a vote cast. Broker non-votes will not
affect the outcome of a vote on a particular matter.
IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
You should instruct your broker to vote your shares by following the
directions your broker provides. If you fail to instruct your broker to vote
your shares, your broker will be entitled to vote your shares on each of the
proposals and any other matters presented at the meeting.
WHO WILL COUNT THE VOTES?
Tellers appointed at the annual meeting will count the votes cast by
proxy or in person.
HOW DO I VOTE IF I'M NOT PLANNING TO ATTEND THE ANNUAL MEETING?
Sign and date each proxy card you receive and return it in the prepaid
envelope. If you sign your proxy, but do not mark your choices, your proxies
will vote:
- FOR approval of the amendment to the Articles of Incorporation
eliminating the Indiana residency requirement for directors,
- FOR election of two directors to serve a three year term
expiring in 2007,
- FOR ratification of the appointment of Crowe Chizek and
Company LLC as independent auditors for 2004, and
- FOR approval of the 2004 Stock Option Plan of Blue River
Bancshares, Inc.
WHAT IF I WANT TO CHANGE MY VOTE?
You can revoke your vote on a proposal any time before the meeting for
any reason. To revoke your proxy before the meeting,
- write to our Secretary at 29 East Washington Street,
Shelbyville, Indiana 46176,
- submit another properly signed proxy with a more recent date,
or
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- vote in person at the meeting.
HOW DO I RAISE AN ISSUE FOR DISCUSSION AT THE ANNUAL MEETING?
Shareholders may submit proposals on matters appropriate for
shareholder action at future annual meetings by following the rules of the
Securities and Exchange Commission. Proposals intended for inclusion in next
year's proxy statement and proxy card must be received by the Company not later
than December 10, 2004. If the Company does not receive notice of any other
matter that a shareholder wishes to raise at the annual meeting in 2005 by 120
days prior to the meeting and a matter is raised at that meeting, the proxies
will have discretionary authority to vote on the matter. All proposals and
notifications should be addressed to the Secretary.
If a shareholder raises a matter at the meeting that requires a
shareholder vote, the person to whom you have given your proxy will use his or
her discretion to vote on the matter on your behalf.
WHERE CAN I FIND THE VOTING RESULTS OF THE MEETING?
We will announce the voting results at the meeting and in our quarterly
report on Form 10-QSB for the second quarter of 2004.
PROPOSAL ONE - AMENDMENT TO THE ARTICLES OF INCORPORATION TO ELIMINATE THE
INDIANA RESIDENCY REQUIREMENT FOR DIRECTORS
Description of the Proposed Amendment of Article IV, Section 2
The Board of Directors of the Company, adopted resolutions approving
and recommending to shareholders an Amendment of Article IV, Section 2 of the
Company's Articles of Incorporation to omit the entire Section 2, and
specifically to eliminate the requirement that directors of the Company be
residents of the State of Indiana.
The CURRENT text of Article IV, Section 2 reads as follows:
Section 2. Qualifications of Directors. Directors shall be
residents of the State of Indiana. This Section 2 of Article IV shall
not be altered, amended or repealed except by the affirmative vote of
the holders of at least two-thirds (2/3) of the outstanding shares of
capital stock of the Corporation entitled to vote on such matter.
The complete text of Article IV, Section 2, AS AMENDED, will read as
follows:
Section 2. Qualification of Directors. [Intentionally
Omitted.]
Discussion of the Proposed Amendment of Article IV, Section 2
The Board of Directors has concluded that it is in the best interests
of the Company and its shareholders to amend the Company's Articles of
Incorporation to omit Article IV, Section 2 in its entirety in order to
eliminate the requirement that directors of the Company be residents of the
State of Indiana. The Company's strategy is to operate as a holding company of
community based financial institutions, each operating independently, with a
decentralized governance structure. This strategy does not depend upon
geographic or demographic factors. The Company's strategy is predicated upon the
premise that each financial
4
institution acquired by the Company should have a positive impact on the
stability and earnings of the Company.
Thus, the Board of Directors believes that it would benefit the Company
and its shareholders for appropriate individuals residing outside the State of
Indiana to have the ability and opportunity to serve on the Board of Directors
of the Company. The Amendment would allow the Company to better pursue its
strategy and would provide the Company with the necessary flexibility to
assemble the best possible Board of Directors.
Recommendation of the Board of Directors
The Board of Directors has carefully considered the proposed Amendment
to the Company's Articles of Incorporation and unanimously recommends that
shareholders vote FOR approval of the Amendment.
PROPOSAL TWO - ELECTION OF DIRECTORS
Two directors will be elected at the annual meeting. Directors will
serve a three-year term until the 2007 annual meeting or until their earlier
resignation or removal.
This year's nominees for election to the Board of Directors are as
follows:
------------------------
John Robert Owens
Age 50
------------------------
JOHN ROBERT OWENS (Director Elect). Mr. Owens is area President and CEO of
RPS/Equity Group, a wholly-owned subsidiary of Risk Placement Services, Inc., a
division of Arthur J. Gallagher & Co. Risk Placement Services purchased Equity
Underwriting Group in 2001. Mr. Owens had served as President and CEO of Equity
Underwriting Group, Inc., Commonwealth Premium Finance Corporation and 21st
Century Claims Services. Mr. Owens was President and Co-Owner of Equity
Insurance Managers, Inc. from 1990 to 1998; founder of Premium Finance
Corporation in 1991; and founder of 21st Century Claims Services, Inc. in 1996.
Mr. Owens has been a director of Unified Banking Company since 1998.
In 1979, Mr. Owens co-organized Owens and Company, CPAs which
specialized in accounting and computer software applications for the horse
industry and then merged Owens & Company with Alexander Grant & Company, a
national CPA firm based in Chicago Illinois. In 1985, Alexander Grant & Co. was
acquired by KPMG Peat Marwick. Mr. Owens remained with the firm until 1990 where
he had client responsibility in both tax and information systems consulting.
Mr. Owens is a 1976 graduate of the University of Kentucky with a BS
degree in Accounting. He has been a Certified Public Accountant since 1978.
Professional affiliations include the American Association of Managing General
Agents; the Kentucky Surplus Lines Association; the Kentucky Premium Finance
Association; and the Insurance Institute of Kentucky.
Mr. Owens also serves as a board member of the Christian Appalachian
Project and is active in the Lexington Rotary Club, United States Golf
Association, Southern Golf Association, Tri-State Golf Association and the
Kentucky Golf Association.
5
Under the new NASDAQ rules relating to director independence which will
be effective for the Company on July 31, 2005, a director is deemed to not be
independent if, among other criteria, the director was employed by a parent or
subsidiary of a company within the three prior years. Mr. Owens was employed by
Commonwealth Premium Finance Corporation until December, 2001. Commonwealth
Premium Finance Company was a subsidiary of Unified Banking Company until
immediately prior to the Company's acquisition of Unified Banking Company. As
such, the three year look back period of NASDAQ's new director independence rule
will expire in December 2004, prior to the rule's applicability to the Company.
---------------------------
Robert J. Salyers
Age 57
---------------------------
ROBERT J. SALYERS (Director Elect). Mr. Salyers practices law with the
firm of Salyers and Eiteljorg, P.C. in Indianapolis, Indiana. Mr. Salyers served
as the Acting General Manager of the Indiana Pacers from 1981 through 1983, and
then as President of the Indiana Pacers and Market Square Arena until 1986.
Mr. Salyers also serves as a member of the Board of Directors of
Standard Management Corporation, Indianapolis, Indiana, where he serves on the
Executive Committee, Compensation Committee, Audit Committee and Nominating
Committee.
Mr. Salyers is a 1968 graduate of Purdue University with a BS degree in
Animal Science and a 1973 graduate of the Indiana University Law School. He
served in the U.S. Army from 1968 through May of 1970.
He has served as a member of the board of the Eiteljorg Museum of
American Indians and Western Art since 1991 and was Chairman of the Board in
1997 and 1998. He served on the committee that founded the Lutheran High School
of Indianapolis. He has served on the mission's board and the board of Christian
Education for St. John Lutheran Church and School and currently serves on the
Board of Directors of the St. John Endowment Fund for Church and School
Ministry, Inc.
Mr. Salyers is a member of the Indiana State Bar Association,
Indianapolis Bar Association and the Veterans of Foreign Wars. Our Board of
Directors has determined that, if elected, Mr. Salyers will be an independent
director.
Our Board of Directors recommends that you vote FOR the director
nominees.
PROPOSAL THREE - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has appointed Crowe
Chizek and Company LLC to serve as our independent auditors for the 2004 fiscal
year and is soliciting your ratification of that selection.
In their role as independent auditors, they report on our financial
statements.
A representative of Crowe Chizek and Company LLC may be present at the
meeting. A representative of Deloitte & Touche LLP may also be present at the
meeting. These representatives will have an opportunity to make a statement and
will be available to respond to appropriate questions.
6
Your ratification of the Audit Committee's appointment of Crowe Chizek
and Company LLC is not necessary because the Audit Committee of the Board of
Directors has sole authority for appointment of our independent auditors.
However, the Audit Committee of the Board of Directors will take your vote on
this proposal into consideration when selecting our independent auditors in the
future.
In February 2004, the Audit Committee of the Board of Directors of the
Company notified Deloitte & Touche LLP that it would be dismissed effective upon
the filing of the Company's Form 10-KSB for the year ended December 31, 2003
with the Securities and Exchange Commission.
In connection with the audits of the Company's financial statements for
the years ended December 31, 2002 and 2001, there were no disagreements between
the Company and Deloitte & Touche LLP on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Deloitte & Touche LLP,
would have caused it to make a reference to the subject matter of the
disagreements in connection with its reports on the Company's consolidated
financial statements.
Deloitte & Touche LLP's reports on the Company's consolidated financial
statements for the years ended December 31, 2002 and 2001 contained no adverse
opinion or disclaimer of opinion, and were not qualified as to uncertainty,
audit scope or accounting principle.
Our Audit Committee recommends a vote FOR the ratification of the
appointment of Crowe Chizek and Company LLC as our independent auditors for
2004.
In making its recommendation for the shareholders of the Company to
ratify the appointment of Crowe Chizek and Company LLC as the Company's
independent auditor for the fiscal year ending December 31, 2004, the Audit
Committee has considered whether services other than audit and audit-related
provided by Crowe Chizek and Company LLC are compatible with maintaining the
independence of Crowe Chizek and Company LLC.
PROPOSAL FOUR - APPROVAL OF THE 2004 STOCK OPTION PLAN OF BLUE RIVER BANCSHARES,
INC.
On February 18, 2004, the Board of Directors of the Company adopted,
subject to shareholder approval, the 2004 Stock Option Plan of Blue River
Bancshares, Inc. (the "2004 Plan"). The primary purpose of the plan is to
attract and retain high quality individuals in positions as key employees,
officers and directors and to provide an appropriate incentive to those persons
to assure their continued interest in the success and growth of the Company. As
of the present date, no awards have been granted pursuant to the 2004 Plan.
The Board of Directors recommends that the shareholders approve the
2004 Plan for the purpose of qualifying such shares for special tax treatment
under Sections 421 and 422 of the Internal Revenue Code, as amended (the
"Code"). Shareholder approval of new stock option plans is required under the
new NASDAQ rules which will be effective for the Company on July 31, 2005.
SUMMARY OF THE PLAN
General. The purpose of the 2004 Plan is to encourage officers, key
employees and members of the Board of Directors, upon whom the success of the
Company depends, to continue their association with the Company and its
subsidiaries by providing additional incentive and opportunity through stock
ownership, and by increasing their proprietary interest in the Company and their
personal interest in its continued success and progress. Options granted under
the 2004 Plan may be either incentive stock options within the meaning of
7
Section 422 of the Code, or nonqualified stock options; provided, however,
directors may only be granted nonqualified stock options.
Number of Shares. The maximum number of shares to be delivered upon
exercise of all options granted under the 2004 Plan will not exceed seven
percent of the outstanding shares of the Company, from time to time less the
number of shares covered by outstanding or exercised options under the 1997 Key
Employees' Stock Option Plan of Blue River Bancshares, Inc., the 2000 Key
Employees' Stock Option Plan of Blue River Bancshares, Inc., the 2002 Key
Employees' Stock Option Plan of Blue River Bancshares, Inc., the 1997 Directors'
Stock Option Plan of Blue River Bancshares, Inc., or the 2000 Directors' Stock
Option Plan of Blue River Bancshares, Inc. As of the date of this proxy
statement, 47,580 shares of common stock of the Company are available for future
stock option grants under the 2004 Plan.
Administration. The 2004 Plan may be administered by the Compensation
Committee.
Eligibility. Only the officers, key employees and directors of the
Company or a subsidiary of the Company will be eligible to receive options.
Exercise Price. The Compensation Committee determines the exercise
price of the options at the time the options are granted. The exercise price per
share for all options granted under the 2004 Plan will be the price determined
from time to time by the Compensation Committee, but shall not be less than the
fair market value of the common stock on the date of grant. The fair market
value of the common stock is generally determined by the closing sales price for
such stock on the National Association of Securities Dealers, Inc. Automated
Quotation (NASDAQ) System on the date of determination.
Exercise of Option; Form of Consideration. The Compensation Committee
determines when options become exercisable and in its discretion may accelerate
the vesting of any outstanding option. The means of payment for shares issued
upon exercise of an option are specified in each option agreement. The 2004 Plan
permits payment to be made by cash, other shares of common stock of the Company
(with some restrictions), or any combination thereof.
Term of Option. The term of an option may be no more than 10 years from
the date of grant and the option period with respect to incentive stock options
granted to 10% Shareholders may be no more than 5 years. No option may be
exercised after the expiration of its term.
Termination of Employment or as a Director. If an optionee's employment
with the Company and subsidiaries terminates or the optionee's service as a
director of the Company and subsidiaries terminates for any reason (other than
as described below), then all options held by the optionee under the 2004 Plan
generally will terminate three months from the optionee's termination of
employment or as a director.
For Cause Termination. If an optionee's employment or service as a
director is terminated "for cause," all unexercised options will terminate on
the date the optionee receives notice of such termination.
Death or Disability. If an optionee's employment or service as a
director terminates as a result of the optionee's permanent and total disability
or death, then all options may be exercised for one year following the
optionee's termination. However, if an optionee's employment terminates as a
result of the optionee's death, then all incentive stock options held by the
optionee will convert to nonqualified stock options 3 months after the
optionee's death and may be exercised as such for the remainder of the year
following the optionee's termination of employment.
Nontransferability of Options. Unless otherwise determined by the
Compensation Committee, options granted under the 2004 Plan are not transferable
other than by will or the laws of descent and distribution and
8
may be exercised during the optionee's lifetime only by the optionee; except
that nonqualified stock options may be transferred to and exercised by (i) the
optionee's spouse, child or grandchild, (ii) a trust or trusts for the exclusive
benefit of the optionee's spouse, child or grandchild, or (iii) a partnership or
limited liability company in which the optionee and/or the optionee's spouse,
child or grandchild are the only equity owners.
Other Provisions. The stock option agreement may contain other terms,
provisions and conditions not inconsistent with the 2004 Plan, as may be
determined by the Compensation Committee.
Adjustments Upon Changes In Capitalization, Merger or Sale of Assets.
In the event the Company's stock changes by reason of any stock split, dividend,
combination, reclassification or other similar change in the Company's capital
structure, effected without the receipt of consideration, appropriate
adjustments shall be made in the number and class of shares of stock subject to
the 2004 Plan, the number and class of shares of stock subject to any option or
stock award outstanding under the 2004 Plan, and the exercise price of any such
outstanding option. In the event of a change in control of the Company, the 2004
Plan provides for assumption, substitution or adjustment of each outstanding
option that is necessary for the options to have the same fair market value
after the change in control as they had prior to the change in control.
Amendment and Termination of the Plan. The Board may amend, alter,
suspend or terminate the 2004 Plan, or any part thereof, at any time and for any
reason. However, the Company shall obtain shareholder approval for any amendment
to the 2004 Plan to the extent necessary and desirable to comply with applicable
laws, rules, regulations and listing requirements. No such action by the Board
of Directors or shareholders may alter or impair any option or award previously
granted under the 2004 Plan without the written consent of the awardee. Unless
terminated earlier, the 2004 Plan shall terminate 10 years from the date of its
approval by the Board of Directors of the Company, unless the shareholders of
the Company approve an extension of the 2004 Plan.
New Plan Benefits. Because benefits under the 2004 Plan will depend on
the Compensation Committee's actions and the fair market value of common stock
at various future dates, it is not possible to determine the benefits that will
be received by executive officers, other employees, and directors if the 2004
Plan is approved by the shareholders.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise is an adjustment item for alternative
minimum tax purposes and may subject the optionee to the alternative minimum
tax. Upon a disposition of the shares more than two years after grant of the
option and one year after exercise of the option, any gain or loss is treated as
long-term capital gain or loss. Net capital gains on shares held more than 12
months are generally taxed at a maximum federal rate of 15%. Capital losses are
generally allowed in full against capital gains and up to $3,000 against other
income. If the above holding periods are not satisfied, the optionee recognizes
ordinary income at the time of disposition equal to the difference between the
exercise price and the lower of (i) the fair market value of the shares at the
date of the option exercise or (ii) the sale price of the shares. Any gain or
loss recognized on such a premature disposition of the shares in excess of the
amount treated as ordinary income is treated as long-term or short-term capital
gain or loss, depending on the holding period. A different rule for measuring
ordinary income upon such a premature disposition may apply if the optionee is
also an officer, director or 10% shareholder of the Company. Unless limited by
Section 162(m) of the Code, the Company is entitled to a deduction in the same
amount as and at the time the optionee recognizes ordinary income.
Nonqualified Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonqualified stock option. Upon
exercise, the optionee recognizes taxable income generally
9
measured by the excess of the then fair market value of the shares over the
exercise price. Any taxable income recognized in connection with an option
exercise by an employee of the Company is subject to tax withholding by the
Company. Unless limited by Section 162(m) of the Code, the Company is entitled
to a deduction in the same amount as and at the time the optionee recognizes
ordinary income. Upon a disposition of such shares by the optionee, any
difference between the sale price and the optionee's exercise price, to the
extent not recognized as taxable income as provided above, is treated as
long-term or short-term capital gain or loss, depending on the holding period.
Net capital gains on share held more than 12 months may be taxed at a maximum
federal rate of 15% (lower rates may apply depending upon when the stock is
acquired and the applicable income tax bracket of the taxpayer). Capital losses
are generally allowed in full against capital gains and up to $3,000 against
other income.
The foregoing is only a summary of the effect of federal income
taxation upon an optionee and the Company with respect to the grant and/or
exercise of options and awards under the 2004 Plan. It does not purport to be
complete and does not discuss the tax consequences arising in the context of the
employee's or director's death or the income tax laws of any municipality, state
or foreign country in which the employee's or director's income or gain may be
taxable.
INCORPORATION BY REFERENCE
The foregoing is only a summary of the 2004 Plan and is qualified in
its entirety by reference to its full text, a copy of which is attached hereto
as Appendix A.
Our Board of Directors recommends that you vote FOR the approval of the
2004 Stock Option Plan of Blue River Bancshares, Inc.
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
DIRECTORS OF THE COMPANY
WHO IS ON OUR BOARD OF DIRECTORS?
The directors of the Company are listed in the table below. Each
director serves a term of three years and until the election and qualification
of his successor. The following directors have been determined to be
independent: Wendell L. Bernard, Peter G. DePrez, Wayne C. Ramsey, Ralph W. Van
Natta and Michael J. Vaught.
NAME AGE OFFICE AND BUSINESS EXPERIENCE
---- --- ------------------------------
Steven R. Abel............... 54 Chairman since August 1997; Chief Executive Officer from June 2000 to
July 2003; Interim President from June to October 2000; President and CEO
of Shelby County Bank from July to October 2000; director since March
1997; Chairman and director of Shelby County Bank since June 1998 (term
expires 2006); director of Unified Banking Company since November 2003;
President and Treasurer from March 1997 to August 1997; President and
Owner of Hoosier Appraisal Service, Inc. since March 2000; licensed real
estate appraiser since 1992; co-owner of Shelby Travel since October 2000.
Lawrence T. Toombs........... 59 President of the Company and President and Chief Executive Officer of
Shelby County Bank since October 2000; director of the Company and Shelby
County Bank since October 2000 (term expires 2005); President of Pyramid
Business Consultants, LLC from 1993 to 2000; Merchants
10
NAME AGE OFFICE AND BUSINESS EXPERIENCE
---- --- ------------------------------
National Bank and National City Bank Indiana from 1970 to 1992.
D. Warren Robison............ 38 Senior Vice President since September 1998; Secretary since August 1997;
director since March 1997 (term expires 2004); director of Shelby County
Bank since June 1998; Vice President and Treasurer from August 1997 to
June 1998; President and Sole Shareholder of Hoosier Appraisal Service,
Inc. until March 2000; licensed real estate appraiser since 1992;
President of Hale Abstract Company, Inc. since March 2000; Vice President
of Hale Abstract Company, Inc. from July 1992 to March 2000.
Wendell L. Bernard........... 59 Director since June 1998 (term expires 2006); director of Shelby County
Bank since June 1998; Owner and operator of Bernard Realty, Inc. located
in Shelbyville, Indiana; director and Vice President of Finance of
Williams Industries, Inc., a manufacturing company until 1997.
Russell Breeden, III........... 54 Director since September 2002 (term expires 2006); Chief Executive
Officer since August 2003; Chairman of the Executive Committee since
September 2002; director of Shelby County Bank since September 2002;
Chairman and director of Unified Banking Company since November 2003;
President and Vice Chairman of Harrington Bank (Richmond, Indiana) from
1999 to 2002; Chairman and Chief Executive Officer of Community First
Financial Group, Inc. from 1993 to 2001. Raffensperger, Hughes and Co.
Inc., (Indianapolis, Indiana) from 1973 to 1993 serving as President and
Chief Executive Officer from 1990 to 1993.
Peter G. DePrez.............. 56 Director since May 1999 (term expires 2005); director of Shelby County
Bank since January 1999; Attorney; Advisory Board Member of National City
Bank (Shelby County) until 1998; director and Officer of Shelbyville
Newspapers, Inc. until 1999.
Wayne C. Ramsey............. 57 Director since September 2002 (term expires 2005); director of Unified
Banking Company since November 2003; Vice President of Lynch & Associates,
(Evansville, Indiana) since 2000; independent investor in banks and
thrifts since 1993.
Ralph W. Van Natta........... 74 Director since June 1998 (term expires 2004); director of Shelby County
Bank since June 1998; Owner and operator of Shelby Travel Center located
in Shelbyville, Indiana until 2000.
11
NAME AGE OFFICE AND BUSINESS EXPERIENCE
---- --- ------------------------------
Michael J. Vaught............ 56 Director since May 2001(term expires 2004); director of Shelby County
Bank since 2000, President of Economy Oil Corporation, Vaught Oil Company
and Eastside Express Car Wash since 1984; Treasurer of the Blue River
Foundation; Trustee of Shelbyville Central School Board; director of the
W.S. Major Hospital Foundation since 1966; Advisory Board Member of
National City Bank (Shelby County) until 1998.
Board Committees and Meeting Attendance. The Board of Directors had
four committees in 2003, the Executive Committee, the Audit Committee, the
Compensation Committee and the Nominating Committee. Committees report their
actions to the full Board at its next regular meeting. A description of the
duties of each committee follows the table below.
COMMITTEE MEMBERSHIP AND MEETINGS HELD
NAME EXECUTIVE AUDIT COMPENSATION NOMINATING
---- --------- ----- ------------ ----------
Steven R. Abel................... /
Lawrence T. Toombs............... /
Wendell L. Bernard............... *
Russell Breeden, III............. *
Peter G. DePrez.................. / /
D. Warren Robison................ / *
Ralph W. Van Natta............... / / /
Michael J. Vaught................ / *
Wayne C. Ramsey..................
No. of Meetings
In Fiscal 2003***................ 4 13 2 1
- ------------------------------
/ Member
* Chairperson
*** The Board held 16 meetings in 2003. No director attended fewer than 75%
of all meetings of the Board of Directors held during the period for
which that person has been a director and committees of the Board of
Directors held during the period for which that person served.
Executive Committee
- When the Board is not in session, has all of the power and
authority of the Board except under certain circumstances.
Audit Committee
The Audit Committee of the Company is comprised of three independent
directors as that term for audit committee members is defined by the NASDAQ
listing standards and Rule 10A-3 of the Securities and Exchange Act of 1934. The
Chairman of the Audit Committee, Wendell L. Bernard, has been deemed by the
Board of Directors to be an "audit committee financial expert" (as defined by
the SEC) for purposes of fulfilling the duties of the Committee. Among other
duties, the Audit Committee:
12
- Examines the activities of the Company's independent auditors
and internal audit department to determine whether these
activities are reasonably designed to assure the soundness of
accounting and financial procedures.
- Reviews the Company's accounting policies and the objectivity
of its financial reporting.
- Considers annually the qualifications of the Company's
independent auditors and the scope of their audit and appoints
the Company's independent auditors.
- Receives reports from the internal auditors and reviews the
scope of the internal audit program.
- Reviews the Company's affairs relating to compliance, conflict
of interest, ethics and the investigation of misconduct or
fraud.
The Audit Committee Charter details all the duties and responsibilities
of the Committee and is included in this Proxy Statement as Appendix B.
Compensation Committee
The Compensation Committee for 2003 was comprised of three directors,
each of whom met the criteria for independence under the NASDAQ listing
standards. The Compensation Committee has primary responsibility for:
- Establishing executive compensation policies and programs.
- Establishing the base salaries for executive officers.
- Reviewing the Company's management development and succession
planning policies.
- Administering the Company's stock option plans and employee
bonus plan.
Nominating Committee
The Nominating Committee for 2003 was comprised of three independent
directors and met once during the year. In 2003, the committee consisted of the
members of the entire Board who met the requirements for independence and who
were not standing for reelection in 2003.
In January of 2004, the Board of Directors established the Nominating
and Corporate Governance Committee, and adopted a written charter which is
available on the Company's website which is located at
www.blueriverbancshares.com. This Charter is also included in this Proxy
Statement as Appendix C.
All of the directors serving on the Nominating and Corporate Governance
Committee meet the definition of "independence" set forth in the NASDAQ listing
standards. The committee includes:
Wayne C. Ramsey, Chairman
Wendell L. Bernard
Peter G. DePrez
13
The duties of the Nominating and Corporate Governance Committee
include, among others:
- Review of the qualifications of persons eligible to stand for
election as directors and makes recommendations to the Board
of Directors on this matter.
- Considers as nominees for director qualified persons
recommended by directors, management and shareholders and
makes recommendations to the Board of Directors on this
matter.
- Considers and advises the Board of Directors on matters
relating to the affairs or governance of the Company as
requested by the Board of Directors.
- The Nominating and Corporate Governance Committee considers
proposals from shareholders for any new business. Written
recommendations for director nominees and proposals for any
new business should be delivered to the Secretary, Blue River
Bancshares, Inc., 29 East Washington Street, Shelbyville,
Indiana 46176. Any shareholder desiring to make a nomination
for director or a proposal for any new business must notify
the Secretary of the Company 120 days prior to the meeting.
Notification must include certain information detailed in the
Company's Articles of Incorporation.
The Nominating and Corporate Governance Committee may identify director
nominees through a combination of referrals, including by management, existing
board members, security holders, direct solicitations and from outside search
firms if warranted. Once a candidate has been identified, the Nominating and
Corporate Governance Committee reviews the individual's experience and
background and may discuss the proposed nominee with the source of the
recommendation. If the committee believes it to be appropriate, the members may
meet with the proposed nominee before making a final determination on the
recommendation to the Board.
The Nominating and Corporate Governance Committee received no security
holder recommendations for nomination to the Board of Directors in connection
with the 2004 annual meeting of shareholders. The two director nominees for the
2004 annual meeting, Robert Owens and Robert Salyers, are neither incumbent
directors standing for reelection nor executive officers of the Company. Robert
Owens was a member of the board of directors of Unified Banking Company at the
time of its acquisition by the Company in 2002 and was known to the Chairman of
the Board of Directors and the Chief Executive Officers of the Company. Robert
Salyers was identified by the Committee as a result of a referral by the Chief
Executive Officer of the Company.
DIRECTORS ATTENDANCE AT THE ANNUAL MEETING OF SHAREHOLDERS
All directors of the Company are encouraged to attend the annual
meeting of the shareholders and the annual meeting of the Board of Directors of
the Company. In 2003, all of the directors of the Company, with the exception of
Mr. Wayne C. Ramsey, were in attendance at the annual shareholders meeting.
CODE OF CONDUCT AND ETHICS
The Company has adopted a Code of Ethics that applies to its principal
executive officer, principal financial officer or controller or persons
performing similar functions. Such Code of Ethics is available on the Company's
website at www.blueriverbancshares.com. Any amendment to, or waiver from, a
provision of such Code of Ethics also will be made available on the Company's
website.
SHAREHOLDER COMMUNICATION WITH THE BOARD OF DIRECTORS
Any shareholder who desires to contact the Board of Directors or any
member of the Board of Directors may do so in writing. Communication should be
addressed to the "Board of Directors", Attn: Secretary, Blue River Bancshares,
Inc., 29 E. Washington Street, Shelbyville, Indiana 46176. Communications
received are distributed to the Chairman of the Board or the other members of
the Board as appropriate, depending on the facts and circumstances outlined in
the communications. If any complaints
14
regarding accounting, internal accounting controls and auditing matters need to
be communicated, then the shareholder should contact the Chairman of the Audit
Committee at: Audit Committee, Blue River Bancshares, P.O. Box 585, Shelbyville,
Indiana 46176. This address can be accessed only by the Internal Auditor and all
correspondence will be forwarded to the Chairman of the Audit Committee for
review.
HOW IS OUR BOARD OF DIRECTORS PAID?
A director who is an officer or employee of the Company or its
subsidiaries is not compensated for serving on the Board of Directors or its
committees unless that director is not compensated by the Company or a
subsidiary for their service as an officer or employee of the Company or
subsidiary. Non-employee directors and non-compensated employee directors may
receive:
- $72,000 annually for chairing the Board of Directors of
Unified Banking Company,
- $12,000 annually for chairing the Board of Directors of Shelby
County Bank,
- $600 per month for directors of the Company,
- $600 per month for directors of Shelby County Bank,
- $500 fee per month for directors of Unified Banking Company,
- $300 per month for chairing a committee,
- $15,149.79 total amount of health, life and disability
insurance premiums paid for directors Abel, Bernard, DePrez
and Breeden, and
- grant of nonqualified stock options.
The 2000 Directors' Stock Option Plan. The Board of Directors of the
Company adopted, with the approval of shareholders, a nonqualified stock option
plan which currently provides for the grant of nonqualified stock options to
those individuals who serve as directors of the Company or any of its
subsidiaries, including Shelby County Bank (the "2000 Directors' Stock Option
Plan"). Nonqualified stock options were granted to directors previously under
the 1997 Directors' Stock Option Plan (the "1997 Directors' Stock Option Plan").
The 2000 Directors' Stock Option Plan provides for the grant of
nonqualified stock options with an exercise price per share of the greater of
the public offering price of $8.27 per share or the fair market value of a share
on the date of grant. As of the date of this proxy statement, a total of 30,650
shares of common stock are reserved for issuance under the 2000 Directors' Stock
Option Plan. As of the date of this proxy statement, options for 31,750 shares
of common stock are outstanding under the 2000 Directors' Stock Option Plan.
Options granted under the 2000 Directors' Stock Option Plan become exercisable
on the date of grant to the extent of 20 percent of the shares covered by the
option and will vest with respect to an additional 20 percent of the shares on
each anniversary of the date of the grant. The unexercised portion of each
option automatically expires, and is no longer exercisable, on the earlier to
occur of the following: (i) 15 years after the option is granted, (ii) three
months after the person who was granted the option ceases to be a director,
other than due to permanent disability, death, or for cause, (iii) one year
following the death or permanent disability of the director, or (iv) termination
of the director's services for cause. No option will be granted under the 2000
Directors' Stock Option Plan after March 27, 2010. In the future, an individual
will become eligible to receive grants of options under the 2000 Directors'
Stock Option Plan upon his election to a qualifying board of directors but will
not receive additional options because he is a member of more than one such
board. If the 2004 Plan is approved by the shareholders, no additional options
will be granted under the 2000 Director's Stock option Plan
The 1997 Directors' Stock Option Plan. The 1997 Directors' Stock Option
Plan provided for the grant of nonqualified stock options with an exercise price
per share of the greater of the public offering price of $12.00 per share or the
fair market value of a share on the date of grant. As of the date of this proxy
statement, options for 60,100 shares of common stock are outstanding under the
1997 Directors' Stock Option Plan.
15
Options granted under the 1997 Directors' Stock Option Plan become exercisable
on the date of grant to the extent of 20 percent of the shares covered by the
option and will vest with respect to an additional 20 percent of the shares on
each anniversary of the date of the grant. The unexercised portion of each
option automatically expires, and is no longer exercisable, on the earlier to
occur of the following: (i) 15 years after the option is granted, (ii) three
months after the person who was granted the option ceases to be a director,
other than due to permanent disability, death, or for cause, (iii) one year
following the death or permanent disability of the director, or (iv) termination
of the director's services for cause. No additional options will be granted
under the 1997 Directors' Stock Option Plan.
EXECUTIVE OFFICERS OF THE COMPANY
WHO ARE OUR EXECUTIVE OFFICERS?
NAME AGE OFFICE AND BUSINESS EXPERIENCE
---- --- ------------------------------
Lawrence T. Toombs 59 See Mr. Toombs' biography on page 10.
Russell Breeden, III.......... 54 See Mr. Breeden's biography on page 11.
D. Warren Robison............. 38 See Mr. Robison's biography on page 11.
Patrice Lima.................. 49 Vice President and Controller since July 2002; Senior Vice President and
Chief Financial Officer of Shelby County Bank since July 2002; Vice
President and Controller of Shelby County Bank from January 2000 to
July 2002; Vice President & Controller, Libertyville Bank & Trust Corp.
(Libertyville, Illinois); Senior Accounting, Management & Operational
management positions, First Colonial Bank Northwest (Niles, Illinois);
Bachelor of Arts, Magna cum laude, Florida Atlantic University
Randy Collier................ 43 Executive Vice President since October 2002; Executive Vice President
and Chief Credit Officer of Shelby County Bank since October 2002;
Senior Lender, Key Bank (Indianapolis, Indiana); President, Harrington
Bank (Indianapolis, Indiana); Multiple lending functions with National
City, Merchants National Bank and American Fletcher National Bank
(Indianapolis, Indiana); Bachelor of Science, Indiana University
HOW ARE OUR EXECUTIVE OFFICERS PAID?
Summary Compensation Table
SHARES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------- ---- ------ ----- ------- ------------
Steven R. Abel, 2003 -0- -0- -0- $ 37,140(1)
Chairman 2002 -0- -0- -0- 36,226(2)
2001 $ 15,865(3) -0- -0- 33,120(4)
Russell Breeden, III, 2003 -0- $35,000(5) -0- $ 30,447(6)
Chief Executive Officer 2002 -0- -0- -0- 6,630(7)
16
Lawrence T. Toombs, 2003 $ 130,000 $ 4,000 -0- $ 12,437(8)
President 2002 104,615 -0- 20,000 11,163(8)
2001 100,000 -0- -0- 12,649(8)
Randy Collier, 2003 $ 127,703 $ 4,000 -0- $ 17,772(8)
Executive Vice President 2002 27,462(9) 217 17,500 -0-
- ----------------------------
Notes to Summary Compensation Table:
These were our most highly paid executive officers in 2003. These
officers are referred to in this proxy statement as our "Named Executive
Officers."
(1) Includes $33,500 in director's fees and $3,680 in insurance premiums.
(2) Includes $33,000 in director's fees and $3,226 in insurance premiums.
(3) Mr. Abel received a salary as Acting President from January 1, 2001
through March 9, 2001.
(4) Includes $27,125 in director's fees and $5,995 in insurance premiums.
(5) Mr. Breeden received compensation for the work performed in the
acquisition of Unified Banking Company.
(6) Includes $26,000 in director's fees and $4,447 in insurance premiums.
(7) Includes $6,000 in director's fees and $629 in insurance premiums.
(8) Includes insurance premiums and 401(k) employer matching contributions.
(9) Mr. Collier was hired in October of 2002.
Aggregate Option Exercises in 2003 and Year-End Option Values
The following table summarized certain information concerning stock
options exercised by Named Executive Officers and the fiscal year-end value of
unexercised options.
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 2003 December 31, 2003 (1)
Acquired --------------------- ---------------------
On Value Exercisable Exercisable
Name Exercise Realized Unexercisable Unexercisable
---- -------- -------- ------------- -------------
Steven R. Abel -0- -0- 27,400 -0- $ 0 $ 0
Lawrence T. Toombs -0- -0- 23,000 12,000 $ 34,270 $ 17,880
Randy Collier -0- -0- 7,000 11,500 $ 10,430 $ 17,135
(1) Value per share is calculated by subtracting the exercise price from
the closing price of $6.24 per share on December 31, 2003 as reported on the
NASDAQ SmallCap Market.
17
Equity Compensation Plan Information
Number of securities
remaining available for
Number of securities to be future issuance under
issued upon exercise of Weighted-average exercise equity compensation plans
outstanding options, price of outstanding (excluding securities
Plan category warrants and rights options, warrants and rights reflected in column (a))
------------- ------------------- ---------------------------- ------------------------
(a) (b) (c)
Equity compensation plans 191,350 $7.94 34,150
approved by security holders
Equity compensation plans -0- -0- -0-
not approved by security
holders
Total 191,350 $7.94 34,150
Employment Contract with Named Executive Officer. The Board of
Directors of the Company has approved a three year employment contract with its
President, Lawrence T. Toombs, effective August, 2002. Unless further extended,
the agreement will expire on August 2, 2005. The Board of Directors of Shelby
County Bank has also approved a three year employment contract which will expire
on August 2, 2005. Mr. Toombs receives his current salary under these contracts.
The contracts also provide, among other things, for the participation in other
fringe benefits and benefit plans available to the Company employees. Mr. Toombs
may terminate his employment upon 60 days' written notice to the Company. The
Company may discharge Mr. Toombs "for cause" (as defined in the contracts) at
any time or upon the occurrence of certain events specified in the contracts.
Upon termination of Mr. Toombs employment by the Company for other than cause or
in the event of termination by Mr. Toombs "for cause" (as defined in the
contract), Mr. Toombs will receive his base compensation under the contract for
the remaining term of the contract and will continue to participate in the
Company's employee benefit plans or receive comparable benefits.
Change In Control Agreement With Named Executive Officer. The Board of
Directors of the Company and Shelby County Bank have also approved a change in
control agreement with Mr. Collier, which provides that Mr. Collier will be
provided with a two year employment term following a change in control. This
agreement will not be effective until a change in control of the Company occurs.
As of the date of this proxy statement, no event has occurred which would
qualify as a change in control of the Company as defined in this agreement.
Following a change in control, Mr. Collier will receive a stated minimum salary
during the term of his employment. The change in control agreement also provides
among other things, for participation in other fringe benefits and benefit plans
available to executive officers of the Company. Mr. Collier may terminate his
employment upon three months written notice to the Company if his position
changes or the location of the Company offices are moved more than thirty-five
miles from its current location. The Company could discharge Mr. Collier if he
becomes disabled, if he dies or "for cause" (as defined in the change in control
agreement). If Mr. Collier terminates his employment as described in the change
in control agreement, Mr. Collier will receive his remaining aggregate cash
compensation for the term of the change in control agreement in a single lump
sum. If the Company terminates Mr. Collier's employment due to a disability, Mr.
Collier will continue to receive his salary for the remainder of the term of the
change in control agreement. If the Company terminates Mr. Collier's employment
"for cause" (as defined in the change in control agreement),
18
Mr. Collier will not receive any additional payments following the date of his
termination. If Mr. Collier's employment is terminated due to his death, his
beneficiary will receive payment for the remainder of the term equal to 50% of
his salary. The change in control agreement also contains non-disclosure,
non-solicitation and non-competition restrictions.
2002 Key Employee Stock Option Plan. The Board of Directors of the
Company adopted a stock option plan which provides for the grant of "incentive
stock options" within the meaning of Section 422 of the Code and of nonqualified
stock options (the "2002 Employee Stock Option Plan"). The 2002 Employee Stock
Option Plan provides for the award of stock options to elected officers and key
employees of the Company and its subsidiaries. The exercise price per share for
all options granted under the 2002 Employee Stock Option Plan will not be less
than the fair market value of a share on the date of grant. No option will be
granted under the 2002 Employee Stock Option Plan after March 25, 2012. The 2002
Employee Stock Option Plan was approved by the shareholders of the Company.
Options may be granted under the 2002 Employee Stock Option Plan only
to officers and other key employees who are in positions to make significant
contributions to the success of the Company. The Compensation Committee
administers the 2002 Employee Stock Option Plan.
Options will be exercisable in whole or in part upon such terms and
conditions as may be determined by the Committee, but in no event will any
incentive stock options be exercisable later than ten years after date of grant.
The maximum number of shares to be issued under the 2002 Employee Stock
Option Plan shall not exceed 103,000 less the number of shares that may be or
already have been purchased under the 2000 and 1997 Employee Stock Option Plans.
As of this proxy statement, a total of 84,000 shares of common stock are
outstanding under the 2002 Employee Stock Option Plan. As of the date of this
proxy statement, options for 3,500 shares are available for future stock option
grants under all of the 2002 Employee Stock Option Plans.
2000 Key Employee Stock Option Plan. The Board of Directors of the
Company adopted a stock option plan which provides for the grant of "incentive
stock options" within the meaning of Section 422 of the Code and of nonqualified
stock options (the "2000 Employee Stock Option Plan"). The 2000 Employee Stock
Option Plan provides for the award of stock options to elected officers and key
employees of the Company and its subsidiaries. The exercise price per share for
all options granted under the 2000 Employee Stock Option Plan will not be less
than the fair market value of a share on the date of grant. No option will be
granted under the 2000 Employee Stock Option Plan after March 27, 2010. The 2000
Employee Stock Option Plan was approved by the shareholders of the Company.
Options may be granted under the 2000 Employee Stock Option Plan only
to officers and other key employees who are in positions to make significant
contributions to the success of the Company. The Compensation Committee
administers the 2000 Employee Stock Option Plan.
Options will be exercisable in whole or in part upon such terms and
conditions as may be determined by the Committee, but in no event will any
incentive stock options be exercisable later than ten years after date of grant.
The maximum number of shares to be issued under the 2000 Employee Stock
Option Plan shall not exceed 103,000 less the number of shares that may be or
already have been purchased under the 1997 Employee Stock Option Plan. As of
this proxy statement, a total of 15,000 shares of common stock are outstanding
under the 2000 Employee Stock Option Plan.
19
1997 Key Employee Stock Option Plan. The Board of Directors of the
Company adopted a stock option plan which provided for the grant of "incentive
stock options" within the meaning of Section 422 of the Code and of nonqualified
stock options (the "1997 Employee Stock Option Plan"). The 1997 Employee Stock
Option Plan provides for the award of stock options to elected officers and key
employees of the Company and its subsidiaries. The exercise price per share for
all options granted under the 1997 Employee Stock Option Plan will not be less
than the greater of $12.00 per share or the fair market value of a share on the
date of grant. No option will be granted under the 1997 Employee Stock Option
Plan after August 27, 2007. The 1997 Employee Stock Option Plan was approved by
the shareholders of the Company.
Options were granted under the 1997 Employee Stock Option Plan only to
officers and other key employees in positions to make significant contributions
to the success of the Company. The Compensation Committee administers the 1997
Employee Stock Option Plan.
Options are exercisable in whole or in part upon such terms and
conditions as may be determined by the Committee, but in no event will any
incentive stock options be exercisable later than ten years after date of grant.
A total of 50,000 shares of common stock were reserved for issuance
under the 1997 Employee Stock Option Plan. As of the date of this proxy
statement, options for 500 shares of common stock are outstanding under the 1997
Employee Stock Option Plan.
Savings Plan. The Blue River Bancshares, Inc. 401(k) Profit Sharing
Plan (the "Savings Plan") is a qualified salary reduction plan within the
meaning of Section 401(k) of the Code. Under the Savings Plan, all regular
employees of the Company and its affiliates are eligible participants under the
Savings Plan on the next plan entry date (as defined in the Savings Plan). An
employee who has satisfied this eligibility requirement may participate in the
Savings Plan by directing his or her employer to make before-tax salary
reduction contributions to the Savings Plan. Contributions may be directed in
any integral percentage between 1% and 15% of the employee's basic compensation
(as defined in the Savings Plan) subject to an annual dollar limitation under
the Code (currently $13,000). Before-tax salary reduction contributions are
fully vested at all times and are invested by participants in investment funds
made available by Shelby County Bank, the trustee of the Savings Plan.
The Company may also make contributions to the Savings Plan, as
determined in its sole discretion. If the Company elects to do so, it will
contribute a percentage of the compensation deferrals the participants made that
year. Further, the Company, in its discretion, may make a profit sharing
contribution to the Savings Plan irrespective of whether the Company has any
current or accumulated net profits. Prior to the retirement or death or
disability of a participant, the amount of the matching contribution account and
profit sharing contribution account that will be vested and payable to each
participant upon termination of employment will be determined according to the
following schedule:
YEARS OF SERVICE PERCENTAGE VESTED AND PAYABLE
---------------- -----------------------------
Less than 1......................... 0%
1................................... 20%
2................................... 40%
3................................... 60%
4................................... 80%
5 or more........................... 100%
20
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
WHO DETERMINES HOW MUCH THE EXECUTIVE OFFICERS ARE PAID?
The Compensation Committee establishes and oversees the Company's
executive compensation policies and programs. The Compensation Committee also
recommends to the Board of Directors base salaries, target bonus levels, actual
bonuses, and long-term incentive awards to be paid to executive officers. In
carrying out these functions, we believe it is important to align executive
compensation with business objectives and strategies, management initiatives,
financial performance and enhanced shareholder value.
In 2003, our Compensation Committee was comprised of three directors.
Compensation for each executive officer is determined by the Compensation
Committee under the process described in this report. In 2004, the Compensation
Committee is comprised of four members of the Board of Directors who are
independent, as that term is defined by the NASDAQ listing standards.
WHAT ARE OUR GOALS, POLICIES, AND OBJECTIVES?
The executive compensation program is designed to attract and retain
key executives with outstanding abilities and to motivate them to perform to the
full extent of their abilities. We believe that executives should have a greater
portion of their compensation at risk than other employees, and that executive
compensation, as stated above, should be tied to the performance of the business
and be aligned with benefits realized by the Company's shareholders.
Compensation for Company executives consists of both cash and equity
based opportunities. The annual cash compensation consists of (i) base salary
and (ii) annual bonus opportunity. Equity based opportunities are provided on a
long-term basis under the Company's 2002 Key Employees' Stock Option Plan.
The Compensation Committee determines base salary ranges for executive
officers based upon competitive pay practices in the business in which the
Company competes.
Annually the Compensation Committee reviews actual salaries of
executive officers based on judgments of past performance, job duties, scope and
responsibilities, and expected future contributions. The most recent past
performance is the prime determinant.
Each year the Compensation Committee reviews business results and the
individual performance of each executive officer and determines cash bonus
payments.
2003 Compensation of Chief Executive Officer. The compensation for the
Chief Executive Officer recommended to the Board of Directors was based upon a
number of factors and criteria.
In 2003 the Chief Executive Officer of the Company was not compensated
for his duties as Chief Executive Officer. However, the Board of Directors did
approve the reimbursement of the Chief Executive Officer's expenses up to an
amount of $10,000 annually.
For 2003, the Board of Directors voted in favor of awarding a partial
bonus to certain executive officers of the Company as part of a bonus paid to
Shelby County Bank Officers. The President and Executive Vice President of the
Company participated in this bonus. The amounts paid to the President and the
Executive Vice President are reported in the Summary Compensation table on page
16. Further, a minimal bonus was paid to all executive officers with the
exception of the Chief Executive Officer and the President, under the same terms
as conditions and the "employee holiday bonus".
21
Policy on Deductibility of Compensation. Section 162(m) of the Internal
Revenue Code limits the tax deduction to $1,000,000 for compensation paid to the
Chief Executive Officer and other Named Executive Officers unless certain
requirements are met. One of the requirements is that compensation over
$1,000,000 must be based upon attainment of performance goals approved by
shareholders.
This Report by:
Michael J. Vaught, Chairman
Ralph W. Van Natta
Peter G. DePrez
REPORT OF THE AUDIT COMMITTEE
WHY ARE WE RECEIVING THIS REPORT?
This report is being provided to inform shareholders of the Audit
Committee oversight with respect to the Company's financial reporting. The Board
of Directors adopted a written charter of the Audit Committee on May 23, 2000.
The charter has been updated annually. The current charter, updated as of March
2004, is attached as Appendix B.
WHO ARE THE MEMBERS OF THE AUDIT COMMITTEE?
In 2003, the Audit Committee was comprised of three members of the
Board of Directors of the Company. All of the members of the Audit Committee
were independent as that term is defined by the NASDAQ listing standards.
HAS THE AUDIT COMMITTEE REVIEWED THE COMPANY FINANCIAL STATEMENTS?
The Audit Committee has reviewed and discussed the audited financial
statements for the year ended December 31, 2003 and the footnotes thereto with
management and the independent auditors. In addition, the Audit Committee
discussed with the independent auditors the matters required to be discussed by
Statement of Auditing Standard No. 61, as amended, relating to the independence
of the auditors from the Company.
The Audit Committee discussed with the Company's auditors the
independence of such auditors from management and the Company, and received the
written disclosures of and the letter from the auditors to the Company
concerning the auditors' independence as required by the Independence Standards
Board No. 1, Independence Discussions with Audit Committees. In concluding that
the auditors are independent, the Audit Committee considered, among other
factors, whether the nonaudit services provided by Deloitte & Touche LLP were
compatible with their independence.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Annual Report on Form 10-KSB for the year ended
December 31, 2003 to be filed with the Securities and Exchange Commission.
This Report by:
Wendell L. Bernard, Chairman
Michael J. Vaught
Ralph W. Van Natta
22
FEES TO INDEPENDENT AUDITOR FOR FISCAL YEARS 2003 AND 2003
The following table sets forth the aggregate fees billed by Deloitte &
Touche LLP for audit services rendered in connection with the consolidated
financial statements and reports for fiscal year 2003 and fiscal year 2002 and
for other services rendered during fiscal year 2003 and fiscal year 2002 on
behalf of the Company and its subsidiaries, as well as all out-of-pocket costs
incurred in connection with these services, which have been billed to the
Company:
Fiscal 2003 Fiscal 2002
Audit Fees $ 85,905 $119,583
Audit Related Fees -0- -0-
Tax Fees 17,280 31,575
All Other Fees 76,495 7,594
-------- --------
Total Fees $179,680 $158,752
======== ========
Audit Fees consist of fees billed for professional services rendered
for (i) the audit of the Company's consolidated financial statements, (ii) the
review of interim condensed consolidated financial statements included in
quarterly reports, (iii) the services that are normally provided by Deloitte &
Touche LLP in connection with the statutory and regulatory filings or
engagements, and (iv) the attest services, except those not required by statute
or regulation.
Tax fees consist of fees billed to the Company for professional
services rendered for tax compliance, preparation and other tax services. Tax
compliance and preparation fees consists of fees billed for professional
services related to federal and state tax compliance, assistance with tax audits
and appeals and assistance related to the impact of mergers, acquisitions and
divestitures on tax return preparation. Other tax services consist of fees
billed for other miscellaneous tax consulting and planning and for preparation
of income tax returns.
All other fees consist of fees for all other services other than those
reported above, which included fees associated with the preparation and review
of certain financial statements and analysis in connection with the private
placement of the Company's common stock in 2002 and the filing of registration
statements with the Securities and Exchange Commission relating to the
shareholders rights offering completed in 2003. Also included in this category
for 2003 were fees associated with financial review and assistance relating to
the Company's acquisition of Unified Banking Company.
All of the fees and services described above under "audit fees",
"audit-related fees" and "all other fees" were pre-approved by the Audit
Committee. The Audit Committee pre-approves all audit and permissible non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services. The Audit
Committee has adopted a policy for pre-approval of services provided by the
independent auditors. Under the policy, pre-approval is detailed as to the
particular service or category of services and is subject to a specific budget.
In addition, the Audit Committee may also pre-approve particular
services on a case-by-case basis. For each proposed service, the independent
auditor is required to provide detailed back-up documentation at the time of
approval. The Audit Committee may delegate pre-approval authority to one or more
of its members. Such a member must report any decisions to the Audit Committee
at its next scheduled meeting.
23
SECURITIES OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
HOW MUCH STOCK DO OUR EXECUTIVE OFFICERS AND DIRECTORS OWN?
The following table sets forth certain information regarding beneficial
ownership of the Company's common stock as of March 31, 2004 by (i) each person
known by the Company to be the beneficial owner of more than five percent of the
outstanding shares of the Company's common stock; (ii) each of the Company's
directors, nominees and the Named Executive Officers; and (iii) all current
directors and executive officers as a group.
Number of Shares Percent of Outstanding
Name Owned(1) Right to Acquire(2) Shares(3)
---- -------- ------------------- ---------
Steven R. Abel(4) 19,831 27,400 1.38%
Lawrence T. Toombs(5) 44,822 23,000 1.98%
Wendell L. Bernard(6) 11,500 2,400 .41%
Russell Breeden, III(7)(8) 508,171 -0- 14.92%
Peter G. DePrez 24,720 800 .75%
Wayne C. Ramsey(7)(9) 185,778 -0- 5.45%
D. Warren Robison(10) 9,161 27,400 1.06%
L. Gene Tanner(7)(11) 117,040 -0- 3.44%
Ralph W. Van Natta(12) 2,329 2,400 .14%
Michael J. Vaught 10,740 600 .33%
John R. Owens (13) -0- -0- -0-
Robert J. Salyers(13)(14) 4,724 -0- .14%
Randy J. Collier -0- 7,000 .21%
Patrice Lima -0- 2,000 .06%
Directors and Executive Officers as a 934,092 93,000 29.35%
group (12 persons including those listed
above) (15)
Russell Breeden, III, Wayne C. Ramsey 810,989 -0- 23.81%
and L. Gene Tanner as a group(16)
(1) Includes shares for which the named person:
- has sole voting and investment power, or
- has shared voting and investment power with a spouse.
Excludes shares that:
- are restricted stock holdings, or
- may be acquired through stock option exercises.
24
(2) Shares that can be acquired by executive officers and directors through
stock options exercisable within sixty days of the date of this proxy
statement.
(3) Percentage calculated by combining the number of shares owned with the
number of shares that can be acquired.
(4) Mr. Abel holds 2,688 shares jointly with his spouse. Mr. Abel's spouse
holds 5,198 shares individually.
(5) Mr. Toombs holds 21,704 shares jointly with his spouse.
(6) Mr. Bernard holds 4,500 shares jointly with his spouse. Mr. Bernard
holds 7,000 shares in the name of Bernard Realty Inc.
(7) Based upon information provided by such person to the Company and in a
Schedule 13D filed with the Securities and Exchange Commission on
November 17, 2003. Included as reporting persons in the filing are
Russell Breeden III, Wayne C. Ramsey and L. Gene Tanner. The reporting
persons have sole power to vote and dispose of an aggregate of 810,989
shares.
(8) Mr. Breeden's business address is 20 North Meridian Street, Suite 800A,
Indianapolis, Indiana 46204.
(9) Mr. Ramsey's business address is Lynch & Associates, 10644 Newburgh
Road, Newburgh, Indiana 47630.
(10) Mr. Robison holds 7,060 shares jointly with his spouse. Mr. Robison's
spouse holds 2,101 shares individually.
(11) Mr. Tanner's business address is NatCity Investments, 251 North
Illinois Street, Indianapolis, Indiana 46204.
(12) Mr. Van Natta holds 697 shares jointly with his spouse.
(13) Nominee for director.
(14) Mr. Salyers holds 4,441 shares jointly with his spouse. Mr. Salyers
holds 283 shares individually.
(15) Includes shares held by Mr. Tanner.
(16) Based solely upon information provided by such persons to the Company
and in a Schedule 13D filed with the Securities and Exchange Commission
on September 20, 2002, Messrs. Breeden, Ramsey and Tanner are deemed to
be a "group" under Section 13(d) of the Securities Exchange Act of
1934.
Section 16(a) -- Beneficial Ownership Reporting Compliance. Based on
our records, we believe that during 2003 our directors, executive officers and
persons who hold more than 10% of our capital stock complied with all Securities
and Exchange Commission filing requirements applicable to them.
RELATED PARTY TRANSACTIONS
Change in Control of the Company. On February 2, 2003, Russell Breeden,
III, Wayne C. Ramsey and L. Gene Tanner and other accredited investors completed
their purchase of 546,348 shares of common stock of the Company. Previously, on
September 17, 2002, Messrs. Breeden, Ramsey and Tanner had purchased 309,889
shares of common stock. The Company issued an aggregate of 22.7% of the
outstanding shares of common stock of the Company on a post-transaction basis in
connection with the two private placements. Messers. Breeden, Ramsey and Tanner
and the other accredited investors paid $4.73 per share for the shares acquired
from the Company for an aggregate purchase price of approximately $4,050,000.
Messrs. Breeden, Ramsey and Tanner acquired such shares with personal funds.
In connection with their purchase of shares of common stock of the
Company Messrs. Breeden, Ramsey and Tanner agreed to not exercise the
subscription rights which they would receive in connection with the rights
offering which the Company conducted in October 2003. In order to maximize the
proceeds raised in that offering, however, the Company subsequently waived that
limitation and permitted Messrs. Breeden, Ramsey and Tanner to purchase shares
of the Company's common stock in the rights offering which closed on November 7,
2003. Currently, Messrs. Breeden, Ramsey and Tanner currently own approximately
23.81% of the common stock of the Company collectively.
25
Certain Relationships and Related Transactions. It is anticipated that
the directors and officers of the Company and its subsidiary banks and the
companies with which they are associated will have banking and other
transactions with the Company and its subsidiary banks in the ordinary course of
business. It is the policy of Shelby County Bank and Unified Banking Company
that any loans and commitments to lend to such affiliated persons or entities
included in such transactions will be made in accordance with all applicable
laws and regulations and on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated parties of similar creditworthiness, and will not
involve more than the normal risk of collectibility or present other unfavorable
features to the Company and the bank. Applicable law and the policy of Shelby
County Bank and Unified Banking Company generally require that transactions
between the Company or either bank, and any officer, director, principal
shareholder or other affiliate of the Company or either bank will be on terms no
less favorable to the Company or the bank than could be obtained on an
arm's-length basis from unaffiliated independent third parties.
The following table illustrates the expense of products and services
provided to the Company in 2003 from businesses with ownership interests by
directors or executive officers.
Director or Executive Expense paid Service or
Officer Company By the Company Product Provided
------- ------- -------------- ----------------
Peter G. DePrez Brown Linder & DePrez $ 1,217 Legal
D. Warren Robison Hale Abstract Company 5,167 Title
Steven R. Abel Hoosier Appraisal Services 32,500 Appraisal
Steven R. Abel Shelby Travel Center 2,391 Travel
Michael J. Vaught Vaught Oil Company 103 Fuel
Russell Breeden Self Employed 35,000 Consulting
26
APPENDIX A
2004 STOCK OPTION PLAN
OF
BLUE RIVER BANCSHARES, INC.
1. Purpose. The 2004 Stock Option Plan of Blue River Bancshares, Inc.
(the "Plan") is designed to promote the interest of Blue River Bancshares, Inc.
(the "Company") and its Subsidiaries (as defined in paragraph 21) by encouraging
their officers, key employees and members of the Board of Directors (the
"Directors") upon whose judgment, initiative and industry the Company and its
Subsidiaries are largely dependent for the successful conduct and growth of
their business, to continue their association with the Company and its
Subsidiaries by providing additional incentive and opportunity through stock
ownership, and by increasing their proprietary interest in the Company and their
personal interest in its continued success and progress. The Plan provides for
the granting of incentive stock options ("ISOs") and nonqualified stock options
("NSOs"); provided, however, non-employee Directors may not be granted ISOs.
2. Administration.
(a) The Plan is administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"). The
decision of a majority of the members of the Committee will constitute the
decision of the Committee. Subject to the provisions of the Plan, the Committee
is authorized to (i) grant ISOs and NSOs; (ii) determine the employees to be
granted ISOs and NSOs; (iii) determine the option period, the option price and
the number of shares subject to each option; (iv) determine the time or times at
which options will be granted; (v) determine the time or times when each option
becomes exercisable and the duration of the exercise period; (vi) determine
other conditions and limitations, if any, applicable to the exercise of each
option; and (vii) determine the nature and duration of the restrictions, if any,
to be imposed upon the sale or other disposition of shares acquired by any
optionee upon exercise of an option, and the nature of the events, if any, and
the duration of the period, in which any optionee's rights in respect of shares
acquired upon exercise of an option may be forfeited. Provided, however, that
during any fiscal year no person shall be granted more than 50,000 shares of
Company stock. Each option granted under the Plan will be evidenced by a written
stock option agreement containing terms and conditions established by the
Committee consistent with the provisions of the Plan, including such terms as
the Committee deems advisable in order that each ISO constitutes an "Incentive
Stock Option" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Notwithstanding the foregoing, the Committee will
have no authority to alter the option price specified in paragraph 5 or the
option period specified in paragraph 6 with respect to any options granted under
the Plan.
(b) The Committee is authorized, subject to the provisions of the Plan,
to adopt, amend and rescind rules and regulations it deems appropriate for the
administration of the Plan and to make determinations and interpretations which
it deems consistent with the Plan's provisions. The Committee's determinations
and interpretations will be final and conclusive and binding on all parties.
(c) The Committee will also determine, in its sole discretion, with
respect to each employee, whether such options will be ISOs or NSOs, or any
combination thereof; and
A-1
whether any employee will be given discretion to determine whether any options
granted to him will be ISOs or NSOs or any combination thereof.
(d) Neither the Plan nor any stock option agreement executed hereunder
will constitute a contract of employment. Participation in the Plan does not
give any employee the right to be retained in the employ of the Company or any
Subsidiary and does not limit in any way the right of the Company or a
Subsidiary to change the duties or responsibilities of any employee or to
terminate the employment of any employee. With respect to Directors,
participation in the Plan does not give any Director the right to be retained,
nominated or reelected as a Director of the Company or a Subsidiary.
3. Shares Covered by the Plan. The stock to be subject to options under
the Plan are shares of authorized common stock of the Company and may be
unissued shares or reacquired shares (including shares purchased in the open
market), or a combination thereof, as the Committee determines. Subject to the
provisions of paragraph 14, the maximum number of shares to be delivered upon
exercise of all options granted under the Plan will not exceed seven percent of
the outstanding shares of the Company, from time to time less the number of
shares covered by outstanding or exercised options under the 1997 Key Employees'
Stock Option Plan of Blue River Bancshares, Inc. (the "1997 Employees' Plan"),
the 2000 Key Employees' Stock Option Plan of Blue River Bancshares, Inc. (the
"2000 Employees' Plan"), the 2002 Key Employees' Stock Option Plan of Blue River
Bancshares, Inc. (the "2002 Employees' Plan"), the 1997 Directors' Stock Option
Plan of Blue River Bancshares, Inc. (the "1997 Directors' Plan"), or the 2000
Directors' Stock Option Plan of Blue River Bancshares, Inc. (the "2000
Directors' Plan"). Shares covered by an option that remain unpurchased upon
expiration or termination of the option under either this Plan, the 1997
Employees' Plan, the 2000 Employees' Plan, the 2002 Employees' Plan, the 1997
Directors' Plan, or the 2000 Directors' Plan may be made subject to further
options under this Plan. With respect to Directors, no individual will be
eligible to participate in the Plan or receive options on the basis of his or
her status as a Director of more than one entity.
4. Eligibility. All officers and key employees of the Company or a
Subsidiary and all individuals elected to serve as Directors of the Company or a
Subsidiary are eligible, from time to time, to receive options to acquire shares
of Company stock as determined by the Committee in its sole discretion. Officers
and key employees are eligible to receive grants of ISOs and NSOs and
non-employee Directors are eligible to receive grants of NSOs. No Director will
receive additional options because he is a member of more than one board of
directors.
5. Option Price.
(a) The option price per share of stock under each ISO will be
determined by the Committee in its sole discretion; provided, however, that the
option price per share will not be less than one hundred percent of the Fair
Market Value of the share on the date on which the option is granted. As to
officers and key employees who, at the time an ISO is granted own, within the
meaning of Section 424(d) of the Code, more than ten percent of the total
combined voting power of all classes of stock of the Company or any Subsidiary
("10% Shareholders"), the purchase price per share of stock under each ISO will
be not less than one hundred ten percent of the Fair Market Value of the stock
on the date on which the option is granted.
A-2
(b) The option price per share of stock under each NSO will be
determined by the Committee in its sole discretion; provided, however, the
option price per share will not be less than one hundred percent of the Fair
Market Value of the share on the date on which the option is granted.
(c) For all purposes of the Plan, the term "Fair Market Value" shall
mean the closing sales price for such stock on the National Association of
Securities Dealers, Inc. Automated Quotation (NASDAQ) System on the date of
determination (or, if no such price is reported on such date, such price as
reported on the nearest preceding day) as reported in The Wall Street Journal or
such other source as the Committee deems reliable. If the Fair Market Value is
not determined pursuant to the above, then the Fair Market Value shall be
determined in good faith by the Committee.
6. Option Period. No option period will exceed ten years, and the
option period with respect to ISOs granted to 10% Shareholders will not exceed
five years.
7. Vesting and Exercise of Options. All options granted under the Plan
will vest, and thereby become exercisable, at such time or times as determined
by the Committee in its sole discretion. The stock option agreement between the
Company and the optionee will include the schedule under which the option vests.
8. Special Calendar Year Limitation on Shares Subject to ISOs. The
aggregate Fair Market Value (determined at the time of the grant of the ISOs) of
the stock with respect to which ISOs are exercisable for the first time by an
eligible employee during any calendar year (under all plans providing for the
grant of Incentive Stock Options of the Company or any of its Subsidiaries) will
not exceed one hundred thousand dollars ($100,000.00).
9. Sequence of Exercising Incentive Stock Options. Any ISO granted to
an employee pursuant to the Plan will be exercisable even if there are
outstanding previously granted but unexercised ISOs with respect to such
employee.
10. Early Termination of Option.
(a) Termination of Employment. All rights to exercise an option will
terminate three months from the date the optionee ceases to be a Director or
terminates employment unless such cessation or termination is For Cause (as
defined in subparagraph (b)), or is on account of the Permanent and Total
Disability or death of the optionee (but in no event later than the date the
option expires pursuant to its terms). Transfer of employment from the Company
to a Subsidiary, or vice versa, or from one Subsidiary to another, will not be
deemed a termination of employment for purposes of this Plan. The Committee has
the authority to determine in each case whether a leave of absence, including a
leave for military or government service is a termination of employment for
purposes of this Plan.
(b) For Cause Termination. If an optionee's employment is, or services
as a Director are, terminated For Cause, no previously unexercised option
granted hereunder may be exercised. Rather, all unexercised options, whether or
not they are vested, will terminate effective on the date the optionee receives
notice of his termination For Cause. As used in this Plan, "For Cause" means (i)
the willful and continued failure of an optionee to perform his required duties
as an officer, employee or Director of the Company or any Subsidiary, (ii)
action
A-3
by an optionee involving willful misfeasance or gross negligence, (iii) the
requirement or direction of a federal or state regulatory agency having
jurisdiction over the Company or any Subsidiary to terminate the employment of
the employee or the services of the Director, (iv) conviction of an optionee of
the commission of any criminal offense involving dishonesty or breach of trust,
or (v) with respect to an employee, any intentional breach by the employee of a
material term, condition or covenant of any agreement of employment, termination
or severance or any other agreement between the optionee and the Company or any
Subsidiary.
(c) Permanent and Total Disability or Death. If an optionee's
employment or services as a Director terminates due to Permanent and Total
Disability or death, his option will terminate one year after his termination
due to his Permanent and Total Disability or death (but in no event later than
the date the option expires pursuant to its terms); provided, however, if an
optionee's employment terminates due to death then any ISOs held by the optionee
will convert to NSOs for the remainder of the year following his termination of
employment due to death. During such period, subject to the limitations of the
option grant, the optionee, his guardian, attorney-in-fact or personal
representative, as the case may be, may exercise the option in full. As used
herein, "Permanent and Total Disability" has the meaning ascribed to such term
by Section 22(e)(3) of the Code.
11. Payment for Stock. Full payment for shares purchased must be made
at the time of exercising the option in whole or in part. Such payment may be
made (a) in cash or (b), at the discretion of the Committee, by delivering whole
shares of common stock of the Company ("Delivered Stock") (by either actual
delivery or attestation) or a combination of cash and Delivered Stock. Delivered
Stock will be valued by the Committee at its Fair Market Value determined as of
the date of the exercise of the option in accordance with the provisions of
paragraph 5. No shares may be issued until full payment for them has been made,
and an optionee will have none of the rights of a shareholder with respect to
such shares until such shares are issued to him. Upon payment of the full
purchase price, the Company will issue a certificate or certificates to the
optionee evidencing ownership of the shares purchased pursuant to the exercise
of the option which contain(s) such terms, conditions and provisions as may be
required and as are consistent with the terms, conditions and provisions of the
Plan and the stock option agreement between the optionee and the Company.
12. Income and Employment Tax Withholding.
(a) Payment by Optionee. The optionee, other than a non-employee
Director, is solely responsible for paying to the Company all required federal,
state, city and local taxes applicable to his (i) exercise of an NSO under the
Plan and (ii) disposition of shares acquired pursuant to the exercise of an ISO
in a disqualifying disposition of the shares under Code Section 422(a)(1).
(b) NSO Tax Withholding. Notwithstanding the provisions of subparagraph
(a), with respect to stock to be issued pursuant to the exercise of an NSO, the
Committee, in its discretion and subject to such rules as it may adopt, may
permit the optionee, other than a non-employee Director, to satisfy, in whole or
in part, any withholding tax obligation which may arise in connection with the
exercise of the NSO by having the Company retain shares of stock which would
otherwise be issued in connection with the exercise of the NSO or accept
delivery from the optionee of shares of Company stock which have a Fair Market
Value, determined as of
A-4
the date of the delivery of such shares, equal to the amount of the withholding
tax to be satisfied by that retention or delivery.
(c) ISO Disqualifying Disposition Tax Withholding. Notwithstanding the
provisions of subparagraph (a), with respect to shares of stock to be issued
pursuant to the exercise of any ISO, the Committee, in its discretion and
subject to such rules as it may adopt, may permit the optionee to satisfy, in
whole or in part, any withholding tax obligation which may arise in connection
with the disqualifying disposition of the shares under Code Section 422(a)(1) by
having the Company accept delivery from the optionee of shares of stock having a
Fair Market Value, determined as of the date of the delivery of such shares,
equal to the amount of the withholding tax to be satisfied by that delivery.
13. Nontransferability.
(a) No option is transferable, except by the optionee's will or the
laws of descent and distribution. During the optionee's lifetime, his options
are exercisable (to the extent exercisable) only by him. The options and any
rights and privileges pertaining thereto, may not be transferred, assigned,
pledged or hypothecated by the optionee in any way, whether by operation of law
or otherwise and may not be subject to execution, attachment or similar process.
(b) Notwithstanding the provisions of subparagraph (a), an optionee may
transfer NSOs to (i) Immediate Family Members (as defined in paragraph 21); (ii)
a trust or trusts for the exclusive benefit of Immediate Family Members; or
(iii) a partnership or limited liability company in which the optionee and/or
the Immediate Family Members are the only equity owners (collectively, "Eligible
Transferees"). An NSO that is transferred to an Immediate Family Member is not
transferable by such Immediate Family Member, except for any transfer by such
Immediate Family Member's will or by the laws of descent and distribution upon
the death of such Immediate Family Member.
(c) In the event that a optionee transfers NSOs to an Eligible
Transferee under this paragraph 13, the NSOs transferred to the Eligible
Transferee must be exercised by such Eligible Transferee and, in the event of
the death of such Eligible Transferee, by such Eligible Transferee's executor or
administrator only in the same manner, to the same extent and under the same
circumstances (including, without limitation, the time period within which the
NSOs must be exercised) as the optionee or, in the event of the optionee's
death, the executor or administrator of the optionee's estate, could have
exercised such NSOs. The optionee, or in the event of the optionee's death, the
optionee's estate, is liable for all federal, state, city and local taxes
applicable upon the exercise of an NSO by an Eligible Transferee.
14. Changes in Stock.
(a) In the event of any change in the common stock of the Company
through stock dividends, split-ups, recapitalizations, reclassifications,
conversions, or otherwise, or in the event that other stock is converted into or
substituted for the present common stock of the Company as the result of any
stock conversion, merger, consolidation, reorganization or similar transaction
which results in a Change in Control of the Company, then the Committee may make
appropriate adjustment or substitution in the aggregate number, price, and kind
of shares available under the Plan and in the number, price and kind of shares
covered under any options
A-5
granted or to be granted under the Plan. The Committee's determination in this
respect will be final and conclusive. Provided, however, that the Company will
not, and will not permit its Subsidiaries to, recommend, facilitate or agree or
consent to a transaction or series of transactions which would result in a
Change of Control of the Company unless and until the person or persons or
entity or entities acquiring or succeeding to the assets or capital stock of the
Company or any of its Subsidiaries as a result of such transaction or
transactions agrees to be bound by the terms of the Plan so far as it pertains
to options theretofore granted but unexercised and agrees to assume and perform
the obligations of the Company hereunder. Notwithstanding the foregoing
provisions of this paragraph 14(a), no adjustment will be made which would
operate to reduce the option price of any ISO below the Fair Market Value of the
stock (determined at the time the option was granted) which is subject to an
ISO.
(b) In the event of a Change in Control of the Company pursuant to
which another person or entity acquires control of the Company (such other
person or entity being the "Successor"), the kind of shares of common stock
which are subject to the Plan and to each outstanding option will, automatically
by virtue of such Change in Control of the Company, be converted into and
replaced by shares of common stock, or such other class of securities having
rights and preferences no less favorable than common stock of the Successor, and
the number of shares subject to the option and the purchase price per share upon
exercise of the option will be correspondingly adjusted, so that, by virtue of
such Change in Control of the Company, each optionee has the right to purchase
(i) that number of shares of common stock of the Successor which have a Fair
Market Value equal, as of the date of such Change in Control of the Company, to
the Fair Market Value, as of the date of such Change in Control, of the shares
of common stock of the Company theretofore subject to his option, and (ii) for a
purchase price per share which, when multiplied by the number of shares of
common stock of the Successor subject to the option, equals the aggregate
exercise price at which the optionee could have acquired all of the shares of
common stock of the Company theretofore optioned to the optionee.
15. Use of Proceeds. The proceeds received by the Company from the sale
of stock pursuant to the Plan will be used for general corporate purposes.
16. Investment Representations. Unless the shares subject to an option
are registered under the Securities Act of 1933, as amended, each optionee, in
the stock option agreement between the Company and the optionee, must agree for
himself and his legal representatives that any and all shares of common stock
purchased upon the exercise of the option are acquired for investment and not
with a view to, or for sale in connection with, any distribution thereof. Any
share issued pursuant to an exercise of an option subject to this investment
representation will bear a legend evidencing such restriction.
17. Amendment and Discontinuance. The Board may, at any time, without
the approval of the stockholders of the Company, (except as otherwise required
by applicable law, rule or regulations, including without limitation any
shareholder approval of the safe harbor rule promulgated under the Securities
Exchange Act of 1934) alter, amend, modify, suspend, or discontinue the Plan,
but may not, without the consent of the holder of an option, make any alteration
which would adversely affect an option previously granted under the Plan or,
without the approval of the stockholders of the Company, make any alteration
which would (a) increase the aggregate number of shares subject to options under
the Plan, except as provided in paragraphs 10(c) and 14; (b) decrease the
minimum option price, except as provided in
A-6
paragraph 14; (c) withdraw administration of the Plan from the Committee or the
Board; (d) extend the term of the plan or the maximum period during which any
option may be exercised; (e) change the manner of determining the option price;
(f) change the class of individuals eligible for options under the Plan; or (g),
without the consent of the holder of the option, alter or impair any option
previously granted under the Plan.
18. Liability. No member of the Board, the Committee or officers or
employees of the Company or its Subsidiaries will be personally liable for any
action, omission or determination made in good faith in connection with the
Plan.
19. Effective Date and Duration. This Plan will become effective upon
its approval by a majority of the shares of common stock of the Company. Options
may be granted under the Plan for a period of ten years commencing
______________, 2004 the date on which the Board approved the Plan; provided,
however, that no option may be exercised until the Plan has been approved by the
shareholders of the Company. On __________________, 2014, the Plan will expire
except as to outstanding options, which options and rights will remain in effect
until they have been exercised or terminated or have expired. ISOs must be
granted within ten years of the date the Plan is adopted by the Board or
approved by the shareholders of the Company, whichever is earlier.
20. Controlling Laws. Except to the extent superseded by the laws of
the United States, the laws of the State of Indiana, without regard to the
choice of law principles thereof, will be controlling in all matters relating to
the Plan.
21. Miscellaneous.
(a) The term "Board" used herein means the Board of Directors of the
Company, unless the context clearly requires otherwise, and to the extent that
any powers and discretion vested in the Board of Directors are delegated to any
Committee of the Board of Directors, the term "Board" also means such Committee.
(b) The term "Subsidiary" or "Subsidiaries" used herein means any
banking institution or other corporation more than fifty percent of whose total
combined voting stock of all classes is held by the Company or by another
corporation qualifying as a Subsidiary within this definition.
(c) The term "Change in Control of the Company" used herein means (i)
any merger, consolidation or similar transaction which involves the Company or
any Subsidiary and in which persons who are the shareholders of the Company
immediately prior to such transaction own, immediately after such transaction,
shares of the surviving or combined entity which possess voting rights equal to
or less than fifty percent of the voting rights of all shareholders of such
entity, determined on a fully diluted basis; (ii) any sale, lease, exchange,
transfer or other disposition of all or any substantial part of the assets of
the Company or any Subsidiary; (iii) any tender, exchange, sale or other
disposition (other than dispositions of the stock of the Company or any
Subsidiary in connection with bankruptcy, insolvency, foreclosure, receivership
or other similar transactions) or purchases (other than purchases by the Company
or any Company-sponsored employee benefit plan, or purchases by members of the
Board of the Company or any Subsidiary) of more than twenty-five percent of the
common stock of the Company or any
A-7
Subsidiary; (iv) during any period of two consecutive years during the term of
the Plan specified in paragraph 19, individuals who at the date of the adoption
of the Plan constitute the Board cease for any reason to constitute at least a
majority thereof, unless the election of each Director at the beginning of such
period has been approved by Directors representing at least a majority of the
Directors then in office who were Directors on the date of the adoption of the
Plan; or (v) a majority of the Board or a majority of the shareholders of the
Company approve, adopt, agree to recommend, or accept any agreement, contract,
offer or other arrangement providing for, or any series of transactions
resulting in, any of the transactions described above. Notwithstanding the
foregoing, a Change in Control of the Company will not occur as a result of the
issuance of stock by the Company in connection with any private placement
offering of its stock or any public offering of its stock.
(d) The term "Immediate Family Member" or "Immediate Family Members"
means the spouse, the child or grandchild of an optionee.
BLUE RIVER BANCSHARES, INC.
DATED: By:
------------------------------ ---------------------------------
Lawrence T. Toombs, President
ATTEST:
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D. Warren Robison, Secretary
A-8
APPENDIX B
BLUE RIVER BANCSHARES, INC.
AUDIT COMMITTEE CHARTER
A. NAME
There shall be a committee of the Board of Directors of Blue River
Bancshares, Inc. (the "Corporation") to be known as the Audit Committee.
B. PURPOSE
The Audit Committee, established by resolution of the Board of
Directors, shall be directly responsible for the appointment, compensation and
oversight over the work of the Corporation's public accountants.
The Audit Committee shall monitor (1) the integrity of the financial
statements of the Corporation; (2) the Corporation's compliance with legal and
regulatory requirements; (3) the public accountants' qualifications and
independence; and (4) the performance of the Corporation's internal audit
function and public accountants.
The Audit Committee shall prepare the report required by the rules of
the Securities and Exchange Commission to be included in the Corporation's
annual proxy statement.
C. COMPOSITION AND MEETINGS
The Audit Committee shall be comprised of at least three members. Each
member of the Audit Committee shall satisfy the independence, experience and
financial expertise requirements of the Nasdaq Stock Market and Section 10A of
the Securities Exchange Act of 1934, as amended by the Sarbanes-Oxley Act of
2002, and the rules promulgated thereunder. In that regard, all members of the
Audit Committee shall be able to read and understand financial statements at the
time of their appointment and at least one member of the Audit Committee shall
be an "audit committee financial expert" as defined by applicable legislation,
regulation and rules. In selecting the audit committee financial expert, the
Board shall consider whether a person has:
(1) an understanding of financial statements and generally
accepted accounting principles;
(2) an ability to assess the general application of such
principles in connection with the accounting for estimates,
accruals and reserves;
(3) experience preparing, auditing, analyzing or evaluating
financial statements that present a breadth and level of
complexity of accounting issues that are generally comparable
to the breadth and complexity of issues that can reasonably be
expected to be raised by the Corporation's financial
statements, or experience actively supervising one or more
persons engaged in such activities;
(4) an understanding of internal controls and procedures for
financial reporting; and
B-1
(5) an understanding of audit committee functions.
The Board shall appoint the members of the Audit Committee annually.
The members of the Audit Committee shall serve until their successors are
appointed and qualify, and shall designate the Chairman of the Audit Committee.
The Board shall have the power at any time to change the membership of the Audit
Committee and to fill vacancies in it, subject to such new member(s) satisfying
the independence, experience and financial expertise requirements referred to
above. Except as expressly provided in this Charter or the by-laws of the
Corporation, or as otherwise provided by law or the rules of the Nasdaq Stock
Market, the Audit Committee shall fix its own rules of procedure; provided,
however, that a majority of the members of the Audit Committee shall be required
to constitute a quorum. Further, the Audit Committee shall meet at least four
times annually with authority to convene additional meetings as circumstances
require.
D. COMMITTEE AUTHORITY AND RESPONSIBILITIES
In performing its functions, the Audit Committee shall undertake those
tasks and responsibilities that, in its judgment, would most effectively
contribute and implement the purposes of the Audit Committee. The following
functions are some of the common recurring activities of the Audit Committee in
carrying out its oversight responsibility.
CORPORATE GOVERNANCE AND INTERNAL CONTROL
- The Audit Committee shall have the authority, to the extent it
deems necessary or appropriate, to retain special legal,
accounting or other consultants to advise the Audit Committee
and carry out its duties, and to conduct or authorize
investigations into any matters within its scope of
responsibilities.
- The Audit Committee shall meet periodically with management,
the internal auditors and the registered public accountants in
separate executive sessions in furtherance of its purposes.
- The Audit Committee may request any officer or employee of the
Corporation or the Corporation's outside counsel or public
accountants to attend a meeting of the Audit Committee or to
meet with any members of, or consultants to, the Audit
Committee.
- The Audit Committee shall make regular reports to the Board.
- The Audit Committee shall review and reassess the adequacy of
this Charter annually and recommend any proposed changes to
the Board for approval.
- The Audit Committee shall annually review the Audit
Committee's own performance.
- Recommend to the Board policies for the Corporation's hiring
of employees or former employees of the public accountants who
were engaged on the Corporation's account (recognizing that
the Sarbanes-Oxley Act of 2002 does not permit the CEO,
controller, CFO or chief accounting officer to have
participated
B-2
in the Corporation's audit as an employee of the public
accountants during the preceding one-year period.
- Establish procedures for (a) receipt, retention and treatment
of complaints received by the Corporation regarding
accounting, internal accounting controls or auditing matters;
and (b) the confidential and anonymous submission by employees
of the Corporation of concerns regarding questionable
accounting or auditing matters.
- Review with the Corporation's public accountants, the
Corporation's financial and accounting personnel and the
adequacy and effectiveness of the accounting and financial
controls of the Corporation, and elicit any recommendations
for the improvement of such internal control procedures or
particular areas where new or more detailed controls or
procedures are desirable or necessary.
- Review the internal audit function of the Corporation,
including the independence, competence, staffing adequacy and
authority of the internal auditor, the reporting relationships
among the internal auditor, financial management and the Audit
Committee, the internal audit reporting obligations, the
proposed internal audit plans for the coming year, and the
coordination of such plans with the registered public
accountants.
- Discuss with management and the public accountants any
correspondence with regulators or governmental agencies and
any employee complaints or published reports which raise
material issues regarding the Corporation's financial
statements or accounting policies.
- Review and approve the appointment, reassignment or dismissal
of the director of internal audit.
- Review and approve the internal audit charter that explains
the framework for providing services to management and to the
audit committee, including the purpose, responsibility,
authority and reporting relationships of the internal audit
function.
FINANCIAL REPORTING
- The Audit Committee shall have the sole authority to appoint
or replace the public accountants (subject, if applicable, to
shareholder ratification), and shall approve all audit
engagement fees and terms and all non-audit engagements with
the public accountants. The Audit Committee shall consult with
management but shall not delegate these responsibilities,
except that pre-approvals of non-audit services may be
delegated to a single member of the Audit Committee. In its
capacity as a committee of the Board, the Audit Committee
shall be directly responsible for the oversight of the work of
the public accounting firm (including resolution of
disagreements between management and the public accounting
firm regarding financial reporting) for the purpose of
preparing or issuing an audit
B-3
report or related work, and the public accounting firm shall
report directly to the Audit Committee.
- Review and discuss with management and the public accountants
the Corporation's annual audited financial statements,
including disclosures made in "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
and the matters required to be discussed pursuant to Statement
on Auditing Standards No. 61, and recommend to the Board
whether the audited financial statements should be included in
the Corporation's Form 10-KSB.
- Review and discuss with management and the public accountants
the Corporation's quarterly financial statements, including
disclosures made under "Management's Discussion and Analysis
of Financial Condition and Results of Operations," or similar
disclosures, and the matters required to be discussed pursuant
to Statement on Auditing Standards No. 61, prior to the filing
of its Form 10-QSB, including the results of the registered
public accountants' reviews of the quarterly financial
statements to the extent applicable.
- Review and discuss with management and the public accountants,
as applicable, (a) major issues regarding accounting
principles and financial statement presentations, including
any significant changes in the Corporation's selection or
application of accounting principles, and major issues as to
the adequacy of the Corporation's internal controls and any
special audit steps adopted in light of material control
deficiencies; (b) analyses prepared by management or the
public accountants setting forth significant financial
reporting issues and judgments made in connection with the
preparation of the financial statements, including analyses of
the effects of alternative GAAP methods on the financial
statements; (c) any management letter provided by the public
accountants and the Corporation's response to that letter; (d)
any problems, difficulties or differences encountered in the
course of the audit work, including any disagreements with
management or restrictions on the scope of the public
accountants' activities or on access to requested information
and management's response thereto; (e) the effect of
regulatory and accounting initiatives, as well as off-balance
sheet structures, on the financial statements of the
Corporation; and (f) earnings press releases (paying
particular attention to any use of "pro forma," or "adjusted"
non-GAAP, information), as well as financial information and
earnings guidance (generally or on a case-by-case basis)
provided to analysts and rating agencies.
- Discuss with management the Corporation's major financial risk
exposures and the steps management has taken to monitor and
control such exposures, including the Corporation's risk
assessment and risk management policies.
- Obtain and review a report from the public accountants at
least annually regarding (a) the registered public
accountants' internal quality-control procedures, (b) any
material issues raised by the most recent quality-control
review, or peer review, of the firm, or by any inquiry or
investigation by governmental or professional authorities
within the preceding five years respecting one or more
independent
B-4
audits carried out by the firm, (c) any steps taken to deal
with any such issues, and (d) all relationships between the
public accountants and the Corporation. Evaluate the
qualifications, performance and independence of the public
accountants, including a review and evaluation of the lead
partner of the registered public accountant and taking into
account the opinions of management and the Corporation's
internal auditors.
- Ensure that the lead audit partner of the public accountants
and the audit partner responsible for reviewing the audit are
rotated at least every five years as required by the
Sarbanes-Oxley Act of 2002, and further consider rotation of
the public accountant firm itself.
- Discuss with the public accountants any communications between
the audit team and the audit firm's national office respecting
auditing or accounting issues presented by the engagement.
- Discuss with management and the public accountants any
accounting adjustments that were noted or proposed by the
registered public accountants but were passed (as immaterial
or otherwise).
- Discuss with the public accountants the internal audit
department and its audit plan, responsibilities, budget and
staffing.
- Review disclosures made by the Corporation's principal
executive officer or officers and principal financial officer
or officers regarding compliance with their certification
obligations as required under the Sarbanes-Oxley Act of 2002
and the rules promulgated thereunder, including the
Corporation's disclosure controls and procedures and internal
controls for financial reporting and evaluations thereof.
- Review any reports of the registered public accountants
mandated by Section 10A of the Securities Exchange Act of
1934, as amended, and obtain from the registered public
accountants any information with respect to illegal acts in
accordance with Section 10A.
- Ensure that the Corporation maintains an internal audit
function.
- Ensure that a going concern qualification in an audit opinion
be disclosed to the public through the issuance in a press
release no later than seven calendar days following the filing
of such opinion in an SEC filing. Prior to such public
announcement, the Audit Committee shall ensure that the text
of such announcement be provided to the StockWatch section of
Nasdaq's MarketWatch Department.
- Review and approve all related-party transactions.
B-5
- Discuss with management any second opinions sought from an
accounting firm other than the Corporation's public
accountants, including the substance and reasons for seeking
any such opinion.
- Discuss with the Corporation's general counsel legal or
regulatory matters that may have a material impact on the
Corporation's financial statements or its compliance and
reporting policies.
- Review at least annually the exceptions noted in the reports
to the Audit Committee by the internal auditors and the public
accountants, and the progress made in responding to
exceptions.
D. LIMITATIONS OF AUDIT COMMITTEE'S ROLES
While the Audit Committee has the responsibilities and powers set forth
in its Charter, it is not the duty of the Audit Committee to prepare financial
statements, plan or conduct audits or to determine that the Corporation's
financial statements and disclosures are complete and accurate and are in
accordance with generally accepted accounting principles and applicable rules
and regulations. These are the responsibilities of management and the registered
public accountants.
B-6
APPENDIX C
BLUE RIVER BANCSHARES, INC.
NOMINATING AND CORPORATE GOVERNANCE
COMMITTEE CHARTER
STATEMENT OF POLICY
The Nominating and Corporate Governance Committee shall provide
assistance to the board of directors in fulfilling the board of directors'
responsibilities for director nominations and appointments, establishing
compensation for members of the board of directors, and corporate governance.
ORGANIZATION
The Nominating and Corporate Governance Committee shall consist of at
least three members appointed by the board of directors and may be removed by
the board of directors. The Nominating and Corporate Governance Committee shall
meet on the call of its chairman. The Nominating and Corporate Governance
Committee has the sole authority to retain and terminate any consulting or
search firm to be used to identify director candidates, including the sole
authority to approve the firm's fees and other retention terms. The notice and
quorum requirements applicable to the board of directors shall apply to the
Nominating and Corporate Governance Committee.
QUALIFICATIONS
The Nominating and Corporate Governance Committee shall be composed
entirely of independent directors, determined by the board of directors under
the applicable requirements of the Nasdaq Stock Market.
POWERS, DUTIES AND RESPONSIBILITIES
In discharging its responsibilities to review and recommend director
nominations, recommend director compensation and assist with corporate
governance as requested by the board of directors, the Nominating and Corporate
Governance Committee shall:
- actively seek individuals qualified to become members of the
board of directors;
- from time to time recommend individuals for appointment as
directors by the board of directors;
- review and recommend to board of directors number of directors
to serve on subsidiaries' boards of directors based upon
recommendations from
C-1
nominating committees of the subsidiaries;
- review and recommend to board of directors appointments of
directors for subsidiaries based upon recommendations from
nominating committees of the subsidiaries;
- review and recommend to the board of directors the number of
directors that shall constitute the whole board of directors;
- review and recommend to the board of directors nominees for
approval by shareholders at an annual meeting of shareholders
or special meeting of shareholders;
- evaluate and recommend director compensation;
- consider and advise the board of directors on other matters
relating to the affairs or governance of the board of
directors as requested by the board of directors;
- review and approve any disclosure of the actions of the
Nominating and Corporate Governance Committee required to be
included in any periodic or annual report;
- annually, review and update this charter for consideration by
the board of directors;
- annually evaluate the performance and function of the
Nominating and Board of Directors Governance Committee; and
- report the matters considered and actions taken by the
Nominating and Board of Directors Governance Committee to the
board of directors.
C-2
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PROXY PROXY
BLUE RIVER BANCSHARES, INC.
ANNUAL MEETING OF SHAREHOLDERS
MAY 13, 2004
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Wendell L. Bernard and Michael J. Vaught, or either of them, as proxies of the undersigned,
each with full power of substitution, to represent and to vote, as indicated below, all shares of common stock of Blue River
Bancshares, Inc. ("Blue River") which the undersigned is entitled to vote at the 2004 Annual Meeting of Shareholders of Blue River
and at any and all adjournments or postponements thereof (the "Shareholders Meeting"), upon the following matters.
This Proxy will be voted as directed, but if not otherwise directed, this Proxy will be voted FOR the amendment to the Articles
of Incorporation, the election of the nominees as directors, the ratification of the appointment of Crowe Chizek and Company LLC as
independent auditors for the fiscal year 2004 and for approval of the 2004 Stock Option Plan of Blue River Bancshares, Inc. On any
other matters that may properly come before the annual meeting, this Proxy will be voted in accordance with the best judgment of the
proxies. This Proxy may be revoked at any time prior to its exercise.
Please sign on reverse side
<Table>
\/ FOLD AND DETACH HERE AND READ THE REVERSE SIDE \/
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Please mark [X]
your votes
like this
WITHHOLD
FOR AUTHORITY
1. ELECTION OF DIRECTORS [ ] [ ]
The election of John Robert Owens and Robert J. Salyers as directors for a term
of three years.
2. Amendment to the Articles of Incorporation. The amendment of the Articles of FOR AGAINST ABSTAIN
Incorporation to eliminate the Indiana residency requirement for directors. [ ] [ ] [ ]
3. Ratification of Appointment of Independent Auditors. Ratification of the appointment
of Crowe Chizek and Company LLC as independent auditors for the fiscal year 2004. [ ] [ ] [ ]
4. Stock Option Plan. Approval of the 2004 Stock Option Plan of Blue River Bancshares, Inc. [ ] [ ] [ ]
5. Other Matters. In their discretion, on such other matters as may properly come before
the annual meeting.
INSTRUCTION: To withhold authority to vote for any of the nominees write that nominee's
name in the space provided below.
- --------------------------------------------------------------------------------------------
COMPANY ID:
PROXY NUMBER:
ACCOUNT NUMBER:
Signature Signature Date
------------------------------------------ ------------------------------------------ -----------------------
Please sign exactly as your name appears on your stock certificate and on the label placed above. Joint owners should each sign
personally. Trustees, guardians, executors and others signing in a representative capacity should indicate the capacity in which
they sign.