EXHIBIT 99.2
NOTICE OF SPECIAL MEETING OF MEMBERS
MONTGOMERY MUTUAL HOLDING COMPANY
119 East Main Street
Crawfordsville, Indiana 47933
(765) 362-4710
NOTICE OF SPECIAL MEETING OF MEMBERS
To Be Held on ___________, 1997
NOTICE IS HEREBY GIVEN that a special meeting ("Special Meeting") of
the members of Montgomery Mutual Holding Company (the "Mutual Holding Company")
will be held at ___________________________ located at ____________________,
Crawfordsville, Indiana on __________, 1997 at _:__ _.m., Crawfordsville,
Indiana time, to consider and vote upon:
1. The approval of the Plan of Conversion of the Mutual Holding
Company and Agreement and Plan of Reorganization between the
Mutual Holding Company and Montgomery Savings, A Federal
Association (the "Association"), pursuant to which the
Association organized Montgomery Financial Corporation (the
"Company") and, upon consummation of the following transactions,
will become a wholly owned subsidiary of the Company: (i) the
Mutual Holding Company, which currently owns approximately 70.59%
of the outstanding shares of common stock of the Association,
will convert from mutual form to a federal interim stock savings
institution and simultaneously merge with and into the
Association, with the Association being the surviving entity;
(ii) the Association will then merge with and into an interim
institution to be formed as a wholly owned subsidiary of the
Company, with the Association being the surviving entity; (iii)
the outstanding shares of Association common stock (other than
those held by the Mutual Holding Company, which will be
cancelled) will be converted into shares of the Company's common
stock ("Exchange Shares") pursuant to a ratio that will result in
the holders of such shares owning in the aggregate approximately
_____% of the Company before giving effect to such stockholders
purchasing additional shares in a concurrent stock offering by
the Company, receiving cash in lieu of fractional shares or
exercising dissenters' rights; and (iv) the offer and sale of
shares of the Company's common stock; and
2. Such other business as may properly come before the Special
Meeting or any adjournment thereof. Except with respect to
procedural matters incident to the conduct of the meeting,
management is not aware of any other such business.
The Board of Directors has fixed ____________, 1997 as the voting
record date for the determination of members entitled to notice of and to vote
at the Special Meeting and at any adjournment thereof. Only those members of the
Mutual Holding Company of record as of the close of business on that date will
be entitled to vote at the Special Meeting or at any such adjournment.
BY ORDER OF THE BOARD OF DIRECTORS
Earl F. Elliott
Chairman of the Board and President
Crawfordsville, Indiana
_____________, 1997
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU SIGN, DATE AND MARK THE
ENCLOSED PROXY CARD FOR ADOPTION OF THE PLAN AND RETURN IT PROMPTLY IN THE
ENCLOSED SELF-ADDRESSED STAMPED ENVELOPE. PROXY CARDS MUST BE RECEIVED PRIOR TO
THE COMMENCEMENT OF THE SPECIAL MEETING. RETURNING PROXY CARDS WILL NOT PREVENT
YOU FROM VOTING IN PERSON IF YOU ATTEND THE SPECIAL MEETING.
YOUR VOTE IS IMPORTANT. NOT VOTING WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE PLAN. VOTING ON THE PLAN DOES NOT REQUIRE YOU TO PURCHASE STOCK IN
THE OFFERINGS.
MONTGOMERY MUTUAL HOLDING COMPANY
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PROXY STATEMENT
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SPECIAL MEETING OF MEMBERS
To Be Held On ____________, 1997
INTRODUCTION
This Proxy Statement is being furnished to you in connection with the
solicitation by the Board of Directors of Montgomery Mutual Holding Company (the
"Mutual Holding Company") of proxies to be voted at the Special Meeting of
Members of the Mutual Holding Company (the "Special Meeting") to be held on
___________, 1997 at _____________________________ located at
___________________, Crawfordsville, Indiana at _:__ _.m., Crawfordsville,
Indiana time, and at any adjournments thereof. This Special Meeting is being
held for the purpose of considering and voting upon a Plan of Conversion of the
Mutual Holding Company and Agreement and Plan of Reorganization ("Plan" or the
"Plan of Conversion") between the Mutual Holding Company and Montgomery Savings,
A Federal Association (the "Association") , pursuant to which the Association
organized Montgomery Financial Corporation (the "Company") and, upon
consummation of the following transactions, will become a wholly owned
subsidiary of the Company: (i) the Mutual Holding Company, which currently owns
approximately 70.59% of the outstanding common stock of the Association, will
convert from mutual form to a federal interim stock savings institution and
simultaneously merge with and into the Association, with the Association being
the surviving entity; (ii) the Association will then merge with and into an
interim institution ("Interim") to be formed as a wholly owned subsidiary of the
Company, with the Association being the surviving entity operating; (iii) the
outstanding shares of Association common stock (other than those held by the
Mutual Holding Company, which will be cancelled) (the "Public Association
Shares") will be converted into shares of common stock of the Company (the
"Exchange Shares") pursuant to a ratio (the "Exchange Ratio") that will result
in the holders of such shares owning in the aggregate approximately _____% of
the Company, before giving effect to such stockholders purchasing additional
shares in a concurrent stock offering by the Company (the "Offerings"),
receiving cash in lieu of fractional shares or exercising dissenters' rights;
and (iv) the offer and sale of shares of the Company's common stock (the
"Conversion Stock") pursuant to the Plan. The offer and sale of the Conversion
Stock and the reorganization are referred to herein as the "Conversion and
Reorganization."
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Voting in favor of the Plan of Conversion will not obligate any person
to purchase Conversion Stock. Exchange Shares and shares of Conversion Stock are
being offered only by the Prospectus, which is available upon request, if not
included herein. See "How to Obtain Additional Information."
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
Depositors of the Association are members of the Mutual Holding Company
under its current Charter (the "Members"). All of the Members as of the close of
business on _______, 1997 (the "Voting Record Date") who continue to be Members
on the date of the Special Meeting or any adjournment thereof will be entitled
to vote on the Plan of Conversion. If there are not sufficient votes for
approval of the Plan at the time of the Special Meeting, the Special Meeting may
be adjourned to permit further solicitation of proxies.
At the Special Meeting, each depositor Member will be entitled to cast
one vote for every $100, or fraction thereof, of the total withdrawal value of
all of his accounts in the Association as of the Voting Record Date up to a
maximum of 1,000 votes. As of the Voting Record Date, the Association had
approximately ______ deposit accounts, the holders of which are entitled to cast
a total of approximately _________ votes at the Special Meeting.
Pursuant to Office of Thrift Supervision ("OTS") regulations,
consummation of the Conversion and Reorganization is conditioned upon the
approval of the Plan by the OTS, as well as (1) the approval of the holders of
at least a majority of the total number of votes eligible to be cast by the
Members as of the close of business on the Voting Record Date at the Special
Meeting, and (2) the approval of the holders of at least two-thirds of the
shares of the outstanding Association Common Stock held by the Mutual Holding
Company and the holders of the Public Association Shares (the "Public
Stockholders") (collectively, the "Stockholders") as of the Voting Record Date
at a Special Meeting of Stockholders called for the purpose of considering the
Plan (the "Stockholders' Meeting"). In addition, the Mutual Holding Company, the
Association and the Company (the "Primary Parties") have conditioned the
consummation of the Conversion and Reorganization on the approval of the Plan by
the holders of at least a majority of the votes cast, in person or by proxy, by
the Public Stockholders at the Stockholders' Meeting. The Mutual Holding Company
intends to vote its shares of Association Common Stock, which amount to 70.59%
of the outstanding shares, in favor of the Plan at the Stockholder's Meeting.
This Proxy Statement and related materials are first being mailed to
Members on or about ___________, 1997.
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PROXIES
The Board of Directors of the Mutual Holding Company is soliciting the
proxy which accompanies this Proxy Statement for use at the Special Meeting.
Each proxy solicited hereby, if properly executed, duly returned before the
Special Meeting and not revoked prior to or at the Special Meeting, will be
voted at the Special Meeting in accordance with the Member's instructions
indicated thereon. If no contrary instructions are given on the proxy, the
proxy, if signed, will be voted in favor of the Plan of Conversion. If you do
not return a proxy or vote at the meeting, it will have the same effect as a
vote against the Plan of the Conversion. If any other matters properly come
before the Special Meeting, the persons named as proxies will vote upon such
matters according to their discretion. Except with respect to procedural matters
incident to the conduct of the meeting, no additional matters are expected to
come before the Special Meeting.
Any Member giving a proxy may revoke it at any time before it is voted
by delivering to the Secretary of the Mutual Holding Company either a written
revocation of the proxy or a duly executed proxy bearing a later date, or by
voting in person at the Special Meeting. Proxies are being solicited only for
use at the Special Meeting and any and all adjournments thereof and will not be
used for any other meeting.
Proxies may be solicited by officers, directors and employees of the
Mutual Holding Company personally, by telephone or further correspondence
without additional compensation.
Deposits held in a trust or other fiduciary capacity may be voted by
the trustee or other fiduciary to whom voting rights are delegated under the
trust instrument or other governing document or applicable law. In the case of
individual retirement accounts and Keogh trusts established at the Association,
the beneficiary may direct the trustee's vote on the Plan of Conversion by
returning a completed proxy card to the Mutual Holding Company. For retirement
accounts and Keogh trusts, if no proxy card is returned, the trustee will vote
in favor of approval of the Plan of Conversion on behalf of such beneficiary.
The Board of Directors urges you to mark, sign, date and return the
enclosed proxy card in the enclosed postage-paid envelope as soon as possible,
even if you do not intend to purchase Conversion Stock. This will ensure that
your vote will be counted.
MONTGOMERY MUTUAL HOLDING COMPANY
The Mutual Holding Company is a federally chartered mutual holding
company which was chartered on August 11, 1995 in connection with the MHC
Reorganization. The Mutual Holding Company's primary asset is 600,000 shares of
Association Common Stock, which represent 70.6% of the shares of Association
Common Stock outstanding as of December 31, 1996. The Mutual
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Holding Company's only other assets consist of deposit accounts in the amount of
$103,000 as of December 31, 1996 (which will become assets of the Association
upon consummation of the Conversion and Reorganization). Prior to the Conversion
and Reorganization, each depositor in the Association has both a deposit account
in the institution and a pro rata ownership interest in the net worth of the
Mutual Holding Company based upon the value in his account, which interest may
only be realized in the event of a liquidation of the Mutual Holding Company. As
part of the Conversion and Reorganization, the Mutual Holding Company will
convert from mutual form to a federal interim stock savings institution and
simultaneously merge with and into the Association, with the Association being
the surviving entity.
MONTGOMERY FINANCIAL CORPORATION
The Company was organized in April 1997 at the direction of the Board
of Directors of the Association for the purpose of holding all of the capital
stock of the Association and in order to facilitate the Conversion and
Reorganization. The Company has applied for approval from the OTS to become a
thrift holding company, and as such will be subject to regulation by the OTS.
After completion of the Conversion and Reorganization, the Company will conduct
business initially as a unitary thrift Company. See "Regulation - The Company."
Upon consummation of the Conversion and Reorganization, the Company will have no
significant assets other than all of the outstanding shares of Association
Common Stock, a note evidencing the Company's loan to the ESOP and the remaining
portion of the net proceeds from the Offerings retained by the Company, and the
Company will have no significant liabilities. See "Use of Proceeds."
Management believes that the Company structure will provide the Company
with additional flexibility to diversify, should it decide to do so, its
business activities through existing or newly formed subsidiaries, or through
acquisitions of or mergers with other financial institutions and financial
services related companies. Although there are no current arrangements,
understandings or agreements regarding any such opportunities or transactions,
the Company will be in a position after the Conversion and Reorganization,
subject to regulatory limitations and the Company's financial position, to take
advantage of any such acquisition and expansion opportunities that may arise.
The initial activities of the Company are anticipated to be funded by the
proceeds to be retained by the Company and earnings thereon, as well as
dividends from the Association. See "Dividend Policy."
The Company's executive office is located at the home office of the
Association at 119 East Main Street, Crawfordsville, Indiana 47933, and its
telephone number is (765) 362-4710.
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MONTGOMERY SAVINGS, A FEDERAL ASSOCIATION
General
Montgomery was established in 1888 as an Indiana state-chartered mutual
savings and loan association known as The Montgomery Savings Association. It was
converted in 1985 to a federally chartered, mutual savings and loan association.
In August 1995, the Mutual Association reorganized into the mutual holding
company form of organization whereby the Mutual Association (i) formed a new
stock savings association; (ii) transferred substantially all of its assets and
liabilities to the newly formed stock savings association in exchange for all of
the common stock of such institution; and (iii) reorganized from a federally
chartered, mutual savings association to a federally chartered, mutual Company
known as "Montgomery Mutual Holding Company." As part of the MHC Reorganization,
the newly formed stock savings association issued 250,000 shares of Association
Common Stock to certain members of the general Public and 600,000 shares of
Association Common Stock to the Mutual Holding Company. Montgomery conducts
business from four offices, two in Crawfordsville (Montgomery County), one in
Covington (Fountain County), and one in Williamsport (Warren County), Indiana.
At December 31, 1996, the Association had $94.6 million of total assets, $85.5
million of total liabilities, including $72.3 million of deposits, and $9.1
million of stockholders' equity.
Montgomery is primarily engaged in attracting deposits from the general
public through its offices and using those and other available sources of funds
to originate loans secured by one-to four-family residences. Approximately 99.5%
of Montgomery's depositors reside in the State of Indiana. One- to four-family
residential loans amounted to $72.2 million, or 85.3%, of Montgomery's total
loan portfolio at December 31, 1996. To a lesser extent, Montgomery originates
loans secured by existing multi-family residential and nonresidential real
estate, which amounted to $7.8 million, or 9.2%, of the total loan portfolio at
December 31, 1996, as well as construction loans and consumer loans, which
amounted to $1.4 million, or 1.7%, of the total loan portfolio and $3.2 million,
or 3.8%, of the total loan portfolio at such date, respectively. Montgomery also
invests in U.S. Government and federal agency obligations and mortgage-backed
securities which are insured by federal agencies. Montgomery has one wholly
owned subsidiary corporation, MSA SERVICE CORP ("MSA"). MSA engages in real
estate management and real estate appraisals.
The Association is a community-oriented savings association which
emphasizes customer service and convenience. As part of this strategy, the
Association has sought to develop a variety of products and services which meet
the needs of its retail customers. The Association generally has sought to
achieve long-term financial strength and stability by (i) increasing the amount
and stability of its net interest income, (ii) maintaining a high level of asset
quality, (iii) maintaining a high level of regulatory capital, and (iv)
maintaining low general, administrative and other expenses. In pursuit of these
goals, the Association has adopted a number of complementary business strategies
which emphasize retail lending and deposit products and services traditionally
offered by savings institutions. Highlights of the Association's business
strategy include the following:
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The Association is subject to examination and comprehensive regulation
by the OTS, which is the Association's chartering authority and primary
regulator, and by the FDIC, which as administrator of the SAIF insures the
Association's deposits up to applicable limits. The Association also is subject
to certain reserve requirements established by the Board of Governors of the
Federal Reserve System ("Federal Reserve Board") and is a member of the Federal
Home Loan Bank ("FHLB") of Indianapolis, which is one of the 12 regional banks
comprising the FHLB System. See "Regulation - The Association."
THE CONVERSION AND REORGANIZATION
The Boards of Directors of the Mutual Holding Company, the Association
and the Company have approved the Plan of Conversion, as has the OTS, subject to
approval by the Members of the Mutual Holding Company and the Stockholders of
the Association entitled to vote on the matter and the satisfaction of certain
other conditions. Such OTS approval, however, does not constitute a
recommendation or endorsement of the Plan by such agency.
General
The Boards of Directors of the Mutual Holding Company and the
Association unanimously adopted the Plan as of December 26, 1996, which was
amended on ________, 1997. The Plan has been approved by the OTS, subject to,
among other things, approval of the Plan by the Members of the Mutual Holding
Company and the Stockholders of the Association. The Members' Meeting and the
Stockholders' Meeting have been called for this purpose on ___________, 1997.
The following is a brief summary of pertinent aspects of the Plan and
the Conversion and Reorganization. The summary is qualified in its entirety by
reference to the provisions of the Plan, which is available for inspection at
each branch office of the Association and at the offices of the OTS. The Plan
also is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, copies of which may be obtained from the SEC.
Purposes of the Conversion and Reorganization
The Mutual Holding Company, as a federally chartered mutual holding
company, does not have stockholders and has no authority to issue capital stock.
As a result of the Conversion and Reorganization, the Company will be structured
in the form used by holding companies of commercial banks, most business
entities and a growing number of savings institutions. The holding company form
of organization will provide the Company with the ability to diversify the
Company's and the Association's business activities through acquisition of or
mergers with both stock savings institutions and commercial banks, as well as
other companies. Although there are no current arrangements, understandings or
agreements regarding any such opportunities, the Company will be
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in a position after the Conversion and Reorganization, subject to regulatory
limitations and the Company's financial position, to take advantage of any such
opportunities that may arise.
In their decision to pursue the Conversion and Reorganization, the
Mutual Holding Company and the Association considered various regulatory
uncertainties associated with the mutual holding company structure including the
ability to waive dividends in the future as well as the general uncertainty
regarding a possible elimination of the federal savings association charter.
The Conversion and Reorganization will be important to the future
growth and performance of the holding company organization by providing a larger
capital base to support the operations of the Association and Company and by
enhancing their future access to capital markets, their ability to diversify
into other financial services related activities, and their ability to provide
services to the public. Although the Association currently has the ability to
raise additional capital through the sale of additional shares of Association
Common Stock, that ability is limited by the mutual holding company structure
which, among other things, requires that the Mutual Holding Company hold a
majority of the outstanding shares of Association Common Stock.
The Conversion and Reorganization also will result in an increase in
the number of shares of Common Stock to be outstanding as compared to the number
of outstanding shares of Public Association Shares which will increase the
likelihood of the development of an active and liquid trading market for the
Common Stock. See "Market for Common Stock." In addition, the Conversion and
Reorganization will enhance the Association's ability to engage in stock
repurchases.
An additional benefit of the Conversion and Reorganization will be an
increase in the accumulated earnings and profits of the Association for federal
income tax purposes. When the Mutual Association transferred substantially all
of its assets and liabilities to the Association in connection with the MHC
Reorganization, its accumulated earnings and profits tax attribute was not able
to be transferred to the Association because no tax-free reorganization was
involved. Accordingly, this tax attribute was retained by the Mutual Association
when it converted its charter to that of the Mutual Holding Company, even though
the underlying retained earnings were transferred to the Association. The
Conversion and Reorganization has been structured to re-unite the accumulated
earnings and profits tax attribute retained by the Mutual Holding Company in the
MHC Reorganization with the retained earnings of the Association by merging the
Mutual Holding Company with and into the Association in a tax-free
reorganization. This transaction will increase the Association's ability to pay
dividends to the Company in the future. See "Dividend Policy."
If the Mutual Association had undertaken a standard conversion
involving the formation of a stock holding company in 1995, applicable OTS
regulations would have required a greater amount of common stock to be sold than
the amount of net proceeds raised in the MHC Reorganization. Management of
Montgomery believed that it was advisable to profitably invest the $2.1 million
of net proceeds raised in the MHC Reorganization prior to raising the larger
amount of capital that would have been raised in a standard conversion. A
standard conversion in 1995 also would have immediately eliminated all aspects
of the mutual form of organization.
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In light of the foregoing, the Boards of Directors of the Association
and the Mutual Holding Company believe that the Conversion and Reorganization is
in the best interests of such companies and their respective Stockholders and
Members.
Pursuant to OTS regulations, consummation of the Conversion and
Reorganization (including the offering of Conversion Stock in the Offerings, as
described below) is conditioned upon the approval of the Plan by (1) the OTS,
(2) at least a majority of the total number of votes eligible to be cast by
Members of the Mutual Holding Company at the Members' Meeting, and (3) holders
of at least two-thirds of the shares of the outstanding Association Common Stock
at the Stockholders' Meeting. In addition, the Primary Parties have conditioned
the consummation of the Conversion and Reorganization on the approval of the
Plan by at least a majority of the votes cast, in person or by proxy, by the
Public Stockholders at the Stockholders' Meeting.
Effects of the Conversion and Reorganization
General. Prior to the Conversion and Reorganization, each depositor in
the Association has both a deposit account in the institution and a pro rata
ownership interest in the net worth of the Mutual Holding Company based upon the
balance in his account, which interest may only be realized in the event of a
liquidation of the Mutual Holding Company. However, this ownership interest is
tied to the depositor's account and has no tangible market value separate from
such deposit account. A depositor who reduces or closes his account receives a
portion or all of the balance in the account but nothing for his ownership
interest in the net worth of the Mutual Holding Company, which is lost to the
extent that the balance in the account is reduced.
Consequently, the depositors of the Association normally have no way to
realize the value of their ownership interest in the Mutual Holding Company,
which has realizable value only in the unlikely event that the Mutual Holding
Company is liquidated. In such event, the depositors of record at that time, as
owners, would share pro rata in any residual surplus and reserves of the Mutual
Holding Company after other claims are paid.
Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock will be created to represent the ownership of the
net worth of the Company. The Common Stock of the Company is separate and apart
from deposit accounts and cannot be and is not insured by the FDIC or any other
governmental agency. Certificates are issued to evidence ownership of the
permanent stock. The stock certificates are transferable, and therefore the
stock may be sold or traded if a purchaser is available with no effect on any
account the seller may hold in the Association.
Continuity. While the Conversion and Reorganization is being
accomplished, the normal business of the Association of accepting deposits and
making loans will continue without interruption. The Association will continue
to be subject to regulation by the OTS and the FDIC. After the Conversion and
Reorganization, the Association will continue to provide services for depositors
and borrowers under current policies by its present management and staff.
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The directors and officers of the Association at the time of the
Conversion and Reorganization will continue to serve as directors and officers
of the Association after the Conversion and Reorganization. The directors and
officers of the Company consist of individuals currently serving as directors
and officers of the Mutual Holding Company and the Association, and they
generally will retain their positions in the Company after the Conversion and
Reorganization.
Effect on Public Association Shares. Under the Plan, upon consummation
of the Conversion and Reorganization, the Public Association Shares shall be
converted into Common Stock based upon the Exchange Ratio without any further
action on the part of the holder thereof. Upon surrender of the Public
Association Shares, Common Stock will be issued in exchange for such shares. See
"- Delivery and Exchange of Certificates."
Upon consummation of the Conversion and Reorganization, the Public
Stockholders of the Association, a federally chartered savings association will
become stockholders of the Company, an Indiana corporation. For a description of
certain changes in the rights of stockholders as a result of the Conversion and
Reorganization, see "Comparison of Stockholders' Rights" below.
Effect on Deposit Accounts. Under the Plan, each depositor in the
Association at the time of the Conversion and Reorganization will automatically
continue as a depositor after the Conversion and Reorganization, and each such
deposit account will remain the same with respect to deposit balance, interest
rate and other terms, except to the extent that funds in the account are
withdrawn to purchase Conversion Stock to be issued in the Offerings. Each such
account will be insured by the FDIC to the same extent as before the Conversion
and Reorganization. Depositors will continue to hold their existing
certificates, passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Association will be
affected by the Conversion and Reorganization, and the amount, interest rate,
maturity and security for each loan will remain as they were contractually filed
prior to the Conversion and Reorganization.
Effect on Voting Rights of Members. At present, all depositors of the
Association are members of, and have voting rights in, the Mutual Holding
Company as to all matters requiring membership action. Upon completion of the
Conversion and Reorganization, depositors will cease to be members and will no
longer be entitled to vote at meetings of the Mutual Holding Company (which will
cease to exist). Upon completion of the Conversion and Reorganization, all
voting rights in the Association will be vested in the Company as the sole
stockholder of the Association. Exclusive voting rights with respect to the
Company will be vested in the holders of Common Stock. Depositors of the
Association will not have voting rights in the Company after the Conversion and
Reorganization, except to the extent that they become stockholders of the
Company.
Tax Effects. Consummation of the Conversion and Reorganization is
conditioned on prior receipt by the Primary Parties of rulings or opinions with
regard to federal and Indiana income taxation which indicate that the adoption
and implementation of the Plan of Conversion set forth herein will not be
taxable for federal or Indiana income tax purposes to the Primary Parties or the
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Association's Eligible Account Holders, Supplemental Eligible Account Holders or
Other Members, except as discussed below. See "- Tax Aspects" below.
Effect on Liquidation Rights. Were the Mutual Holding Company to
liquidate, all claims of the Mutual Holding Company's creditors would be paid
first. Thereafter, if there were any assets remaining, Members of the Mutual
Holding Company would receive such remaining assets, pro rata, based upon the
deposit balances in their deposit accounts at the Association immediately prior
to liquidation. In the unlikely event that the Association were to liquidate
after the Conversion and Reorganization, all claims of creditors (including
those of depositors, to the extent of their deposit balances) also would be paid
first, followed by distribution of the "liquidation account" to certain
depositors (see "- Liquidation Rights" below), with any assets remaining
thereafter distributed to the Company as the holder of the Association's capital
stock. Pursuant to the rules and regulations of the OTS, a merger,
consolidation, sale of bulk assets or similar combination or transaction with
another insured institution would not be considered a liquidation for this
purpose and, in such a transaction, the liquidation account would be required to
be assumed by the surviving institution.
Effect on Existing Compensation Plans. Under the Plan, the
Association's existing Stock Incentive Plan, Directors' Stock Option Plan and
the Management Recognition Plan will become stock benefit plans of the Company
and shares of Common Stock will be issued (or reserved for issuance) pursuant to
such benefit plans rather than shares of Association Common Stock. See
"Management of the Association - Stock Benefit Plans."
Liquidation Rights
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor of the Association would
receive his pro rata share of any assets of the Mutual Holding Company remaining
after payment of claims of all creditors. Each depositor's pro rata share of
such remaining assets would be in the same proportion as the value of his
deposit account was to the total value of all deposit accounts in the
Association at the time of liquidation. After the Conversion and Reorganization,
each depositor, in the event of a complete liquidation of the Association, would
have a claim as a creditor of the same general priority as the claims of all
other general creditors of the Association. However, except as described below,
his claim would be solely in the amount of the balance in his deposit account
plus accrued interest. He would not have an interest in the value or assets of
the Association or the Company above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion and Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders in
an amount equal to the amount of any dividends waived by the Mutual Holding
Company plus the greater of (1) the Association's retained earnings of
$6,642,000 at March 31, 1995, the date of the latest statement of financial
condition contained in the final offering circular utilized in the MHC
Reorganization, or (2) 70.29% of the Association's total stockholders' equity as
reflected in its latest statement of financial condition contained in the final
Prospectus utilized in the Offerings. As of the date of this Prospectus, the
initial balance of the
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liquidation account would be $6.7 million. Each Eligible Account Holder and
Supplemental Eligible Account Holder, if he were to continue to maintain his
deposit account at the Association, would be entitled, upon a complete
liquidation of the Association after the Conversion and Reorganization to an
interest in the liquidation account prior to any payment to the Company as the
sole stockholder of the Association. Each Eligible Account Holder and
Supplemental Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, including passbook accounts,
transaction accounts such as checking accounts, money market deposit accounts
and certificates of deposit, held in the Association at the close of business on
September 30, 1995 or March 31, 1997, as the case may be. Each Eligible Account
Holder and Supplemental Eligible Account Holder will have a pro rata interest in
the total liquidation account for each of his deposit accounts based on the
proportion that the balance of each such deposit account on the September 30,
1995 Eligibility Record Date (or the March 31, 1997 Supplemental Eligibility
Record Date, as the case may be) bore to the balance of all deposit accounts in
the Association on such date.
If, however, on any June 30 annual closing date of the Association,
commencing June 30, 1997, the amount in any deposit account is less than the
amount in such deposit account on September 30, 1995 or March 31, 1997, as the
case may be, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Association.
Required Approvals
Various approvals of the OTS are required in order to consummate the
Conversion and Reorganization. The OTS has approved the Plan of Conversion,
subject to approval by the Mutual Holding Company's Members and the
Association's Stockholders. In addition, consummation of the Conversion and
Reorganization is subject to OTS approval of the Company's application to
acquire all of the to-be-outstanding Association Common Stock and the
applications with respect to the merger of the Mutual Holding Company (following
its conversion to a federal interim stock savings institution) into the
Association and the merger of Interim into the Association, with the Association
being the surviving entity in both mergers. Applications for these approvals
have been filed and are currently pending. There can be no assurances that the
requisite OTS approvals will be received in a timely manner, in which event the
consummation of the Conversion and Reorganization may be delayed beyond the
expiration of the Offerings.
Pursuant to OTS regulations, the Plan of Conversion also must be
approved by (1) at least a majority of the total number of votes eligible to be
cast by Members of the Mutual Holding Company at the Members' Meeting, and (2)
holders of at least two-thirds of the outstanding Association Common Stock at
the Stockholders' Meeting. In addition, the Primary Parties have conditioned the
consummation of the Conversion and Reorganization on the approval of the Plan
11
by at least a majority of the votes cast, in person or by proxy, by the Public
Stockholders at the Stockholders' Meeting.
MANAGEMENT OF THE COMPANY
Directors and Executive Officers
The Board of Directors of the Company consists of Earl F. Elliott, J.
Lee Walden, John E. Woodward, Mark E. Foster, Joseph M. Malott, C. Rex Henthorn
and Robert C. Wright, all of whom are current members of the Board of Directors
of the Association. See "Management of the Association - Directors." Each
Director of the Company has served as such since the Company's incorporation in
1997. Directors of the Company will serve three-year staggered terms so that
approximately one-third of the directors will be elected at each annual meeting
of stockholders. The terms of the current directors of the Company are the same
as their terms as directors of the Association. The Company does not intend to
pay directors a fee for participation on the Board of Directors of the Company.
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The executive
officers of the Company are also executive officers of the Association. It is
not anticipated that the executive officers of the Company will receive any
remuneration in their capacity as Company executive officers.
The following individuals are executive officers of the Company and
hold the offices set forth opposite their names.
Name Position(s) Held With the Company
---- ---------------------------------
Earl F. Elliott President and Chief Executive Officer
J. Lee Walden Vice President and Chief Financial Officer
Nancy L. McCormick Secretary and Treasurer
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, retirement, resignation or removal by the Board of Directors.
Information concerning the principal occupations and employment of the
directors and executive officers of the Company during the past five years is
set forth under "Management of the Association - Directors" and "Executive
Officer Who Is Not A Director." Directors and executive
12
officers of the Company initially will not be compensated by the Company but
will serve and be compensated by the Association.
Benefits
General. Montgomery currently provides health care benefits to its
employees, including hospitalization, disability and major medical insurance,
subject to certain deductibles and copayments by employees.
Incentive Bonus Plan. The Association has an incentive bonus plan which
provides for annual cash bonuses to certain officers as a means of recognizing
achievement on the part of such employees. The bonuses are determined based on a
combination of Montgomery's and the individual employee's performance during the
year. The Association's bonus expense was $13,000 for the fiscal year ended June
30, 1996.
401(k) Plan. In connection with the termination of its defined benefit
pension plan, the Association has a qualified, tax-exempt pension plan with a
"cash-or-deferred arrangement" qualifying under Section 401(k) of the Internal
Revenue Code (the "401(k) Plan"). With certain exceptions, all employees who
have attained age 21 and who have completed one year of employment, during which
they worked at least 1,000 hours, are eligible to participate in the 401(k) Plan
as of the earlier of the first day of the plan year or the next July 1 or
January 1. Eligible employees are permitted to contribute up to 15% of their
compensation to the 401(k) Plan on a pre-tax basis, up to a maximum of $8,728.
The Association matches 100% of the first 7% of each participant's salary
reduction contribution to the 401(k) Plan.
Participant contributions to the 401(k) Plan are fully and immediately
vested. Withdrawals are not permitted before age 59 1/2 except in the event of
death, disability, termination of employment or reasons of proven financial
hardship. With certain limitations, participants may make withdrawals from their
accounts while actively employed. Upon termination of employment, the
participant's accounts will be distributed, unless he or she elects to defer the
payment.
The 401(k) Plan may be amended by the Board of Directors, except that
no amendment may be made which would reduce the interest of any participant in
the 401(k) Plan trust fund or divert any of the assets of the 401(k) Plan trust
fund to purposes other than the benefit of participants or their beneficiaries.
The Association's accrued expense for the Plan was $23,000 for the six months
ended December 31, 1996 and $45,000 for year ended June 30, 1996 ^.
Employee Stock Ownership Plan. The Boards of Directors of Montgomery
and the Company have approved the adoption of an ESOP for the benefit of
employees of the Company and its subsidiaries, including Montgomery. The ESOP is
designed to meet the requirements of an employee stock ownership plan as
described at Section 4975(e)(7) of the Code and Section 407(d)(6) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The ESOP
may borrow in order to finance purchases of the Company's Common Stock.
13
It is anticipated that the ESOP will be funded with a loan from the
Company (not to exceed an amount equal to 8% of the total number of shares of
Common Stock to be outstanding upon completion of the Conversion and
Reorganization). The interest rate of the ESOP loan will be equal to the prime
rate of interest on the date the loan is made.
GAAP generally requires that any borrowing by the ESOP from an
unaffiliated lender be reflected as a liability in the Company's consolidated
financial statements, whether or not such borrowing is guaranteed by, or
constitutes a legally binding contribution commitment of, the Company or the
Association. The funds used to acquire the ESOP shares are expected to be
borrowed from the Company. If the Company finances the ESOP debt, the ESOP debt
will be eliminated through consolidation and no liability will be reflected on
the Company's consolidated financial statements. In addition, shares purchased
with borrowed funds will, to the extent of the borrowings, be excluded from
stockholders' equity, representing unearned compensation to employees for future
services not yet performed. Consequently, if the ESOP purchases already- issued
shares in the open market, the Company's consolidated liabilities will increase
to the extent of the ESOP's borrowings, and total and per share stockholders'
equity will be reduced to reflect such borrowings. If the ESOP purchases newly
issued shares from the Company, total stockholders' equity would neither
increase nor decrease, but per share stockholders' equity and per share net
income would decrease because of the increase in the number of outstanding
shares. In either case, as the borrowings used to fund ESOP purchases are
repaid, total stockholders' equity will correspondingly increase.
All employees of the Association are eligible to participate in the
ESOP after they attain age 21 and complete one year of service. Employees will
be credited for years of service to the Association prior to the adoption of the
ESOP for participation and vesting purposes. The Association's contribution to
the ESOP is allocated among participants on the basis of compensation. Each
participant's account will be credited with cash and shares of Company Common
Stock based upon compensation earned during the year with respect to which the
contribution is made. Contributions credited to a participant's account are
vested on a graduated basis and become fully vested when such participant
completes ten years of service. ESOP participants are entitled to receive
distributions from their ESOP accounts only upon termination of service.
Distributions will be made in cash and in whole shares of the Company's Common
Stock. Fractional shares will be paid in cash. Participants will not incur a tax
liability until a distribution is made.
Each participating employee is entitled to instruct the trustee of the
ESOP as to how to vote the shares allocated to his or her account. The trustee
will not be affiliated with the Company or Montgomery.
The ESOP may be amended by the Board of Directors, except that no
amendment may be made which would reduce the interest of any participant in the
ESOP trust fund or divert any of the assets of the ESOP trust fund to purposes
other than the benefit of participants or their beneficiaries.
14
Other Stock Benefit Plans. The Company intends to adopt certain stock
benefit plans following consummation of the Conversion and Reorganization.
Moreover, existing stock benefit plans of the Association, consisting of the
1995 Stock Incentive Plan, 1995 Directors' Stock Option Plan and the Management
Recognition Plan, will be adopted by the Company in connection with the
Conversion and Reorganization, with the effect that shares of Common Stock will
be issuable pursuant thereto and not shares of Association Common Stock.
1997 Stock Option Plan. The Board of Directors of the Company intends
to adopt the 1997 Stock Option Plan (the "1997 Plan") and may submit the 1997
Plan to stockholders at an annual or special meeting of stockholders to be held
at least six months following the consummation of the Conversion and
Reorganization.
The 1997 Plan is designed to attract and retain qualified personnel key
positions, provide directors, officers and key employees with a proprietary
interest in the Company as an incentive to contribute to the success of the
Company and reward key employees for outstanding performance and the attainment
of targeted goals. Options granted under the 1997 Plan may be either options
that qualify under the Code as "incentive stock options" (options that afford
preferable tax treatment to recipients upon compliance with certain restrictions
and that do not normally result in tax deductions to the employer) or options
that do not so qualify. The exercise price of stock options granted under the
1997 Plan is required to be at least equal to the fair market value per share of
the stock on the date of grant. All grants will be made in consideration of past
and future services rendered to the Association, and in an amount deemed
appropriate to encourage the continued retention of the officers and directors
who are considered necessary for the continued success of the Association.
The 1997 Plan provides for the grant of stock appreciation rights
("SARs") at any time, whether or not the participant then holds stock options,
granting the right to receive the excess of the market value of the shares
represented by the SARs on the date exercised over the exercise price. SARs
generally will be subject to the same terms and conditions and exercisable to
the same extent as stock options.
Limited SARs may be granted at the time of, and must be related to, the
grant of a stock option or SAR. The exercise of one will reduce to that extent
the number of shares represented by the other. Limited SARs will be exercisable
only for the 45 days following the expiration of the tender or exchange offer,
during which period the related stock option or SAR will be exercisable.
However, no SAR or Limited SAR will be exercisable by a 10% beneficial owner,
director or senior officer within six months of the date of its grant. The
Company has no present intention to grant any SARs or Limited SARs.
The 1997 Plan will be administered by the Company's Stock Plan
Committee which will consist of at least two non-employee directors. The Stock
Plan Committee will select the recipients and terms of awards made pursuant to
the Stock Option Plan. Assuming the 1997 Plan is submitted to stockholders prior
to one year following the consummation of the Conversion and Reorganization, OTS
regulations limit the amount of shares that may be awarded pursuant to such
stock-based plans
15
to each individual officer, each non-employee director and all non-employee
directors as a group to 25%, 5% and 30%, respectively, of the total shares
reserved for issuance under each such stock- based plan. In addition, all
options would be required to vest in five equal annual installments, commencing
one year from the date of grant, subject to the continued service of the holder
of such option.
The 1997 Plan is intended to be funded either with shares purchased in
the open market or with authorized but unissued shares of Common Stock. The use
of authorized but unissued shares to fund the 1997 Plan could dilute the
holdings of stockholders who purchase Conversion Stock in the Offerings. See
"Pro Forma Data."
1997 Recognition Plan. The Company intends to establish the 1997
Recognition Plan in order to provide employees with a proprietary interest in
the Company in a manner designed to encourage such persons to remain with the
Company and the Association. The 1997 Recognition Plan may be subject to
ratification by stockholders at a meeting to be held not earlier than six months
after the completion of the Conversion and Reorganization. The Company will
contribute funds to the 1997 Recognition Plan to enable it to acquire in the
open market or from authorized but unissued shares (with the decision between
open market or authorized but unissued shares based on the Company's future
stock price, alternative investment opportunities and capital needs), following
stockholder ratification of such plan, an amount of stock equal to 4.0% of the
shares of Common Stock to be outstanding upon consummation of the Conversion and
Reorganization, less the number of shares in the Management Recognition Plan.
The Stock Plan Committee of the Board of Directors of the Company will
administer the proposed 1997 Recognition Plan. Under the terms of the proposed
1997 Recognition Plan, awards ("Awards") can be granted to key employees in the
form of shares of Common stock held by the 1997 Recognition Plan. Awards are
non-transferable and non-assignable. In the event the 1997 Recognition Plan is
submitted to a vote of stockholders prior to one year following consummation of
the Conversion and Reorganization, OTS regulations limit the amount of shares
that may be awarded pursuant to such stock-based plans to each individual
officer, each non-employee director and all non-employee directors as a group to
25%, 5% and 30%, respectively, of the total shares reserved for issuance under
each such stock-based plan.
Recipients will earn (i.e., become vested in), over a period of time,
the shares of Common Stock covered by the Award. Awards made pursuant to the
1997 Recognition Plan will best in five equal annual installments commencing one
year from the date of grant. Awards will be 100% vested upon termination of
employment due to death or disability. In addition, no awards under the 1997
Recognition Plan to directors and executive officers shall vest in any year in
which the Association is not meeting all of its fully phased-in capital
requirements. When shares become vested and are actually distributed in
accordance with the 1997 recognition Plan, but in no event prior to such time,
the participants will also receive amounts equal to any accrued dividends with
respect thereto. Earned shares are distributed to recipients as soon as
practicable following the date on which they
16
are earned. No determination has been made regarding any possible grants under
the 1997 Recognition Plan.
Employment Agreements. The Association intends to enter into employment
agreements with Chief Executive Officer Elliott and President Walden providing
for an initial term of three years. The agreements have been filed with the OTS
as part of the application of the Company for approval to become a savings and
loan holding company. The employment agreements become effective upon completion
of the Conversion and Reorganization and provide for an annual base salary in an
amount not less than each individual's respective current salary and provide for
an annual extension subject to the performance of an annual formal evaluation by
disinterested members of the Board of Directors of the Association. The
agreements also provide for termination upon the employee's death, for cause or
in certain events specified by OTS regulations. The employment agreements are
also terminable by the employee upon 90 days's notice of the Association.
The employment agreements each provide for payment in an amount equal
to 299% of the five-year annual average base compensation, in the event there is
a "change in control" of the Association where employment involuntarily
terminates in connection with such change in control or within twelve months
thereafter. for the purposes of the employment agreements, a "change in control"
is defined as any event which would require the filing of an application for
acquisition of control or notice of change in control pursuant to 12 C.F.R. ss.
574.3 or 4. Such events are generally triggered prior to the acquisition or
control of 10% of the Company's Common Stock. See "restrictions on Acquisitions
of Stock and Related Takeover Defensive Provisions." If the employment of Chief
Executive Officer Elliott or President Walden had been terminated as of December
31, 1996 under circumstances entitling them to severance pay as described above,
they would have been entitled to receive a lump such cash payment of
approximately $________ and $______, respectively. The agreements also provide
for the continued payment to each employee of health benefits for the remainder
of the term of their contract in the event such individual is involuntarily
terminated in the event of change in control.
MANAGEMENT OF THE ASSOCIATION
Directors
The Association's Bylaws presently provide that the Board of Directors
consists of seven members and require the Board of Directors to be divided into
three classes as nearly equal in number as possible. The members of each class
are elected for a term of three years or until their successors are elected and
qualified, with one class of directors elected annually. The following table
sets forth certain information regarding the Board of Directors of the
Association.
17
The following table sets forth certain information regarding the
directors of the Association.
Position(s) Held Director Term
Name With the Association Age(1) Since Expires
- ---- -------------------- ------ -------- -------
Earl F. Elliott ......... Chairman of the Board and 63 1973 1997
Chief Executive Officer
Mark E. Foster .......... Director 44 1990 1997
Robert C. Wright ........ Director 52 1996 1997
Joseph M. Malott ........ Director 59 1978 1998
J. Lee Walden ........... Director, President and 48 1995 1998
Chief Financial Officer
John E. Woodward ........ Director 68 1975 1999
C. Rex Henthorn ......... Director 59 1981 1999
- -------------------
(1) At December 31, 1996.
The business experience of each director is set forth below. All
directors have held their present positions for at least the past five years,
except as otherwise indicated.
Earl F. Elliott. Mr. Elliott is currently the Chairman of the Board of Directors
and Chief Executive Officer of the Association. Mr. Elliott first joined the
Association in 1973.
Mark E. Foster. Mr. Foster is the General Manager of a retail farm equipment and
automobile dealership located in Montgomery County, Indiana, a position he has
held since 1983.
Robert C. Wright. Mr. Wright is the owner and manager of a restaurant located in
Montgomery County, Indiana, a position he has held since 1975.
Joseph M. Malott. For the past five years, Mr. Malott has been self-employed as
a consultant to financial institutions.
J. Lee Walden. Mr. Walden is currently the Association's President and Chief
Financial Officer. Mr Walden first joined the Association in 1984.
John E. Woodward. Mr. Woodward is the President of a collection agency and
credit reporting bureau located in Montgomery County, Indiana, a position he has
held since 1959.
C. Rex Henthorn. Since 1963, Mr. Henthorn has practiced law in the State of
Indiana.
18
Executive Officers
The following table sets forth certain information relating to the
executive officers of Montgomery as of December 31, 1996.
Name Age Offices Held
---- --- ------------
Earl F. Elliott ......... 63 Chairman of the Board and Chief
Executive Officer
J. Lee Walden ........... 48 President & Chief Financial Officer
Nancy L. McCormick ...... 41 Senior Vice President and Secretary
Executive Officer Who Is Not A Director
Nancy L. McCormick, age 41, is the Association's Senior Vice President and
Secretary. Ms. McCormick first joined the Association in 1984 as its Secretary.
Ms. McCormick is the custodian of the Association's records and assists the
Chief Executive Officer in various management duties.
Officers are elected annually by the Board of Directors and serve for a
one-year period and until their successors are elected. No officers have
employment contracts. There are no family relationships between or among the
persons named. Each of the officers has held the same or similar position with
Montgomery for the past five years.
Supplemental Retirement Plan
The Association provides for a Supplemental Retirement Benefit to Mr.
Elliott. The Benefit consisted of life insurance on Mr. Elliott's life equal in
amount to twice his annual salary in the event of his death prior to retirement.
In addition, the Association has agreed to pay Mr. Elliott a cash retirement
payment, payable either in a lump sum within 30 days after his date of
retirement or, at his election, in equal annual installments of not less than
$20,000 over such period of time as he shall elect, in an amount determined
pursuant to the following table:
Retirement Date
Occurs after Amount of Cash
December 31 of: Retirement Payment
--------------- ------------------
1994 $ 40,000
1995 60,000
1996 80,000
1997 100,000
19
As a condition to his receiving the above-indicated cash retirement payments,
Mr. Elliott will be required to enter into a written consulting agreement with
the Association obligating him, during the remainder of his lifetime but subject
to such limitation as his physical condition might impose, to render such
reasonable business consulting and advisory services to the Association as the
Board might request, and further obligating him not to enter into or engage in
any activity or enterprise that would directly or indirectly involve substantial
competition with the Association.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial data as of and for the
periods ended June 30, 1996, 1995, 1994, 1993 and 1992 have been derived from
the audited consolidated financial statements of Montgomery. The selected
consolidated financial data as of December 31, 1996 and for the six months ended
December 31, 1996 and 1995 have been derived from the unaudited consolidated
financial statements of Montgomery which, in the opinion of management, reflect
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the financial position and results of operations for
these periods. The operating results for the six months ended December 31, 1996
are not necessarily indicative of the results that may be expected for the year
ending June 30, 1997. The financial data presented below is qualified in its
entirety by the more detailed financial data appearing elsewhere herein,
including Montgomery's audited financial statements.
December 31, June 30,
1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(In Thousands)
Summary of Financial Condition:
Total assets........................ $94,623 $88,211 $87,324 $79,633 $73,862 $66,722
Interest-bearing deposits in
other financial institutions...... 5,766 3,607 3,871 1,735 4,735 2,123
Investment securities
available for sale(1) ............ 52 312 803 1,781 1,762 3,509
Loans, receivable, net.............. 83,770 80,074 77,929 72,215 63,566 57,417
Deposits............................ 72,343 69,709 68,286 62,346 64,681 60,631
Borrowings........................... 11,928 8,000 10,868 10,338 2,730 250
Stockholders' equity................ 9,082 9,127 6,678 6,290 5,686 5,354
20
Nine
Six Months Ended Months
December 31, Year Ended June 30, Ended
----------------- -------------------------------------- June 30,
1996 1995 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
Summary of Operating Results:
Interest income(2)........................ $3,532 $3,373 $6,777 $6,178 $5,594 $5,796 $4,479
Interest expense.......................... 2,201 2,281 4,434 3,907 3,107 3,338 2,855
------ ------ ------ ------ ------ ------ ------
Net interest income.................... 1,331 1,092 2,343 2,271 2,487 2,458 1,624
Provision (adjustment) for losses on loans.. --- (26) 20 (15) 25 38 36
------ ------ ------ ------ ------ ------ ------
Net interest income after provision
for losses on loans................... 1,331 1,118 2,323 2,286 2,462 2,420 1,588
Other income................................ 18 35 23 79 147 162 112
Other expenses:
Salaries and employee benefits............ 449 471 879 902 833 825 533
Other..................................... 864 455 871 847 823 764 525
------ ------ ------ ------ ------ ------ ------
Total non-interest expense.............. 1,313 926 1,750 1,749 1,656 1,589 1,058
------ ------ ------ ------ ------ ------ ------
Income before income tax and cumulative
effect of change in accounting method...... 36 227 596 616 953 993 642
Income tax expense.......................... 19 79 165 231 349 433 247
------ ------ ------ ------ ------ ------ ------
Income before cumulative effect of change
in accounting method..................... 17 148 431 385 604 560 395
Cumulative effect of change in accounting
method.................................. --- --- --- --- --- 228 ---
------ ------ ------ ------ ------ ------ ------
Net income............................ $ 17 $ 148 $ 431 $ 385 $ 604 $ 332 $ 395
====== ====== ====== ====== ====== ====== ======
Net income per share........................ $ 0.02 --- --- --- --- --- ---
Net income per share without the special SAIF
assessment................................. 0.32 --- --- --- --- --- ---
Dividends declared per share................ 0.20 $ 0.10 $0.30 --- --- --- ---
Dividend pay out ratio...................... 100.00% --- --- --- --- --- ---
Performance Ratios:
Return on average assets(3)(4))(5).......... 0.32% 0.34% 0.49% 0.46% 0.79% 0.46% 0.80%
Return on average equity(3)(4)(6)........... 3.19 3.48 4.89 5.78 9.90 5.67 10.25
Average equity to average assets............ 10.10 9.64 9.99 7.91 7.96 8.19 7.76
Equity to assets at end of period........... 9.60 10.20 10.35 7.65 7.90 7.70 8.02
Interest rate spread(3)(4)(7)............... 2.59 2.12 2.27 2.54 3.19 3.38 3.12
Asset Qaulity Ratio:
Non-performing assets to total assets ...... .40 1.00 .92 1.08 .66 1.19 1.00
Allowance for loan losses to net loans
receivable at end of period ............... .19 .14 .20 .18 .22 .21 .17
Allowance for loan losses to non-performing
loans at end of period .................... 50.32 5.38 24.96 16.89 29.98 20.24 26.46
Net interest margin(3)(4)(8)................ 3.05 2.59 2.77 2.82 3.41 3.61 3.43
Non-performing loans to total loans......... 0.37 0.93 .83 1.05 .73 1.03 0.62
Average interest-earning assets to average
interest-bearing liabilities............... 109.26 108.78 109.47 105.78 104.96 104.61 104.96
Non-interest expenses to average assets(3)(4) 2.41 2.10 1.98 2.08 2.16 2.22 2.13
Net interest income after provision for loan
losses to non-interest expenses(3)(4)...... 1.21x 1.21x 1.33x 1.31x 1.49x 1.52x 1.50x
<FN>
- ------------------
(1) Investment securities are all available for sale beginning July 1, 1994,
due to the adoption of Statement of Financial Accounting, Standards No. 115
("SFAS 115" ). These securities are recorded at fair value and at December
31, 1996 this resulted in no change in total equity, at June 30, 1996 this
resulted in a decrease of $57,000 in total equity capital and at June 30,
1995 this resulted in an increase in total equity capital of $3,000.
(2) Loan origination fees are included in interest income, on a deferral basis.
(3) Information for the six months ended December 31, 1996, has been annualized
with the exception of the effect of the one time Savings Association
Insurance Fund ("SAIF") special assessment of $428,000 included in other
expenses, net of an income tax adjustment of $169,000 affecting net income
in the amount of $259,000 for the six month period. Information for the six
months ended December 31, 1995, has been annualized with no exceptions.
(4) Information for the nine months ended June 30, 1992 has been annualized.
(5) Net income divided by average total assets.
(6) Net income divided by average total equity.
(7) Interest rate spread is calculated by subtracting combined weighted average
interest rate cost from combined weighted average interest rate earned for
the period indicated.
(8) Net interest income divided by average
interest-earning assets.
</FN>
21
USE OF PROCEEDS
Net proceeds from the sale of the Conversion Stock are estimated to be
between $7.4 million and $10.1 million ($11.7 million assuming an increase in
the Offering Price Range by 15%). See "Pro Forma Data" as to the assumptions
used to arrive at such amounts.
The Company plans to contribute to the Association 50% of the net
proceeds from the Offerings and retain the remainder of the net proceeds. The
net proceeds will be initially used to invest primarily in short-term
interest-bearing deposits and marketable securities. The Company intends to use
a portion of the net proceeds to make a loan directly to the ESOP to enable the
ESOP to purchase Conversion Stock equal to 8.0% of the Common Stock to be
outstanding upon consummation of the Conversion and Reorganization. Based upon
the issuance of 85,000 shares and 115,000 shares at the minimum and maximum of
the Offering Price Range, respectively, the loan to the ESOP would be $.9 and
$1.2 million, respectively. It is anticipated that the loan to the ESOP will
have a term of not less than ten years and a fixed rate of interest at the prime
rate as of the date of the loan. See "Management of the Association -- Benefit
Plans -- Employee Stock Ownership Plan." The net proceeds retained by the
Company also may be used to support the future expansion of operations or
diversification into other banking-related businesses and for other business or
investment purposes, including the acquisition of other financial institutions
and/or branch offices, although there are no current plans, arrangements,
understandings or agreements regarding such expansion, diversification or
acquisitions. In addition, subject to applicable regulatory limitations, the net
proceeds also may be used to repurchase shares of Common Stock, although the
Company currently has no intention of effecting any such transactions following
consummation of the Conversion and Reorganization. See "The Conversion and
Reorganization - Certain Restrictions on Purchase or Transfer of Shares after
the Conversion and Reorganization." The portion of the net proceeds contributed
to the Association will be used for general corporate purposes, primarily
investment in residential real estate loans (and will be initially used to
invest primarily in short-term interest-bearing deposits and marketable
securities) since loan growth in excess of deposit growth has caused Montgomery
to use proceeds from the maturity of investment securities to fund loan growth
due to the potential income on investment securities being below the actual cost
of other sources of loan funding.
DIVIDEND POLICY
Upon completion of the Conversion and Reorganization, the Board of
Directors of the Company will have the authority to declare dividends on the
Common Stock, subject to statutory and regulatory requirements. Following
consummation of the Conversion and Reorganization, the Board of Directors of the
Company intends to pay cash dividends on the Common Stock at an initial
quarterly rate equal to $0.10 per share divided by the Exchange Ratio. Based
upon the Valuation Price Range, the Exchange Ratio is expected to be 1.1000,
1.2941, 1.4882 and 1.7115 at the minimum, midpoint, maximum and 15% above the
maximum of the Valuation Price Range, respectively, resulting in an initial
quarterly dividend rate of $.091, $.077, $.067 and $.058 per share,
respectively, commencing with the first full quarter following consummation of
the Conversion and Reorganization. Declarations of dividends by the Board of
Directors will depend upon a number of factors, including the amount of the net
proceeds from the Offerings retained by the Company, investment opportunities
available to the Company or the Association, capital requirements, regulatory
limitations, the Company's and the Association's financial condition and
22
results of operations, tax considerations and general economic conditions.
Consequently, there can be no assurance that dividends will in fact be paid on
the Common Stock or that, if paid, such dividends will not be reduced or
eliminated in future periods. The Association intends to continue to pay regular
quarterly dividends through either the date of consummation of the Conversion
and Reorganization (on a pro rata basis) or the end of the fiscal quarter during
which the consummation of the Conversion and Reorganization occurs. Declarations
of dividends by the Company's Board of Directors will depend upon a number of
factors, including the amount of the net proceeds from the Offerings retained by
the Company, investment opportunities available to the Company or the
Association, capital requirements, regulatory limitations, the Company's and the
Association's financial condition and results of operations, tax considerations
and general economic conditions. Consequently, there can be no assurance that
dividends will in fact be paid on the Common Stock or that, if paid, such
dividends will not be reduced or eliminated in future periods. The Association
intends to continue to pay regular quarterly dividends through either the date
of consummation of the Conversion and Reorganization (on a pro rata basis) or
the end of the fiscal quarter during which the consummation of the Conversion
and Reorganization occurs.
Dividends from the Company will depend, in part, upon receipt of
dividends from the Association, because the Company initially will have no
source of income other than dividends from the Association and earnings from the
investment of proceeds from the sale of Conversion Stock retained by the
Company. A regulation of the OTS imposes limitations on "capital distributions"
by savings institutions, including cash dividends, payments by a savings
institution to repurchase or otherwise acquire its stock, payments to
stockholders of another savings institution in a cash-out merger and other
distributions charged against capital. The regulation establishes a three-tiered
system, with the greatest flexibility being afforded to well-capitalized or Tier
1 savings institutions and the least flexibility being afforded to
under-capitalized or Tier 3 savings institutions. As of December 31, 1996, the
Association was a Tier 1 savings institution and is expected to continue to so
qualify immediately following the consummation of the Conversion and
Reorganization.
Any payment of dividends by the Association to the Company which would
be deemed to be a distribution from the Association's pre-1988 bad debt reserves
for federal income tax purposes would require a payment of taxes at the
then-current tax rate by the Association on the amount of earnings deemed to be
removed from the reserves for such distribution (at December 31, 1996, the
Association's retained earnings and bad debt reserves for federal income tax
purposes amounted to $6.9 million and $1.6 million, respectively, and as a
result for tax purposes (but not regulatory purposes) the Association could
declare approximately $5.3 million of dividends without having to pay taxes on
its bad debt reserves for federal income tax purposes). The Association has no
current intention of making any distribution that would create such a federal
tax liability either before or after the Conversion and Reorganization.
Unlike the Association, the Company is not subject to the
aforementioned regulatory restrictions on the payment of dividends to its
stockholders, although the source of such dividends will be, in part, dependent
upon dividends from the Association in addition to the net proceeds retained by
the Company and earnings thereon. The Company is subject, however, to the
requirements of Indiana law.
23
MARKET FOR COMMON STOCK
The Company has never issued capital stock (other than 100 shares
issued to the Association, which will be cancelled upon consummation of the
Conversion and Reorganization), and to date an active and liquid trading market
has not developed for the 250,000 Public Association Shares outstanding prior to
the Offerings. Consequently, there is no established market for the Common Stock
at this time. The Company has applied to have its Common Stock quoted on the
Nasdaq SmallCap Market under the symbol "____." The development of a liquid
public market depends on the existence of willing buyers and sellers, the
presence of which is not within the control of the Company, the Association or
any market maker. Accordingly, there can be no assurance that an active and
liquid trading market for the Common Stock will develop or that, if developed,
it will continue. Therefore, investors in the Common Stock could have difficulty
disposing of their shares and should not view the Common Stock as a short-term
investment. The absence of an active and liquid trading market for the Common
Stock could affect the price and liquidity of the Common Stock.
Quotation on the Nasdaq SmallCap Market is dependent upon, among other
things, the Company having at least two market makers for the Common Stock and a
minimum number of stockholders of record. Based upon the minimum of 787,500
shares of Conversion Stock being offered, the minimum of 250,000 Exchange Shares
to be issued, and the anticipated pro forma ownership of officers and directors,
the Company expects to satisfy the required minimum number of stockholders of
record. Although under no obligation to do so, Keefe, Bruyette & Woods, Inc. has
informed the Company that it intends, upon the completion of the Conversion and
Reorganization, to make a market in the Common Stock by maintaining bid and ask
quotations and trading in the Common Stock so long as the volume of trading
activity and certain other market making considerations justify it doing so.
While the Company has attempted to obtain commitments from other broker-dealers
to act as market makers, and anticipates that prior to the completion of the
Conversion and Reorganization, it will be able to obtain the commitment from at
least one other broker-dealer to act as a market maker for the Common Stock,
there can be no assurance there will be two or more market makers for the Common
Stock. Making a market involves maintaining bid and ask quotations and being
able, as principal, to effect transactions in reasonable quantities at those
quoted prices, subject to various securities laws and other regulatory
requirements. Accordingly, there can be no assurance that an active and liquid
trading market for the Common Stock will develop or that, if developed, it will
continue.
CAPITALIZATION
The following table presents the historical consolidated capitalization of the
Association at December 31, 1996, and the pro forma consolidated capitalization
of the Company after giving effect to the Conversion and Reorganization, based
upon the sale of the number of shares shown below, the issuance of Exchange
Shares and the other assumptions set forth under "Pro Forma Data."
24
The Company - Pro Forma
Based Upon Sale at $10.00 per share
----------------------------------------------------
1,225,257
The 787,500 926,470 1,065,441 Shares(1)
Association Shares Shares Shares (15% above
Historical (Minimum of (Midpoint of (Maximum of Maximum of
Capitalization Range) Range) Range) Range)
-------------- ----------- ------------ ----------- ----------
(In Thousands)
Deposits(2)................................. $72,343 $72,343 $72,343 $72,343 $72,343
Borrowings(3)............................... 11,928 11,928 11,928 11,928 11,928
Debt in connection with acquisition of
Common Stock by ESOP...................... --- --- --- --- ---
------- ------- ------- ------- -------
Total deposits and borrowings........ $84,271 $84,271 $84,271 $84,271 $84,271
======= ======= ======= ======= =======
Stockholders' Equity:
Preferred Stock ($0.01 par value)
2,000,000 shares authorized; none to be
issued.................................. $ --- $ --- $ --- $ --- $ ---
Common Stock ($0.01 par value)
8,000,000 shares authorized; 850,000
issued or to be issued as reflected(4).. 9 11 13 14 17
Additional paid-in capital(5)............. 2,194 9,598 10,965 12,331 13,902
Retained earnings(5)(6)................... 6,891 6,891 6,891 6,891 6,891
Less:
Net unrealized loss on securities
available for sale(5)................... --- --- --- --- ---
Unearned Common Stock held by the
Management Recognition Plan............. (12) --- --- --- ---
Common Stock to be acquired by the
1997 Recognition Plan................... --- 850 1,000 1,150 1,323
Common Stock to be acquired by the
ESOP.................................... --- 425 500 575 ---
------- ------- ------- ------- -------
Total Stockholders' Equity........... $ 9,082 $15,225 $16,369 $17,511 $18,826
======= ======= ======= ======= =======
<FN>
- ---------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Offering Price Range of up to 15% to
reflect changes in market and financial conditions following the
commencement of the Offerings or pursuant to an overallotment option which
the Company intends to grant Webb in the Public Offering, if any.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Conversion Stock in the Offerings. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Consists of FHLB advances.
(4) Assumes (i) that the 250,000 Public Association Shares outstanding at
December 31, 1996 are converted into _______, _______, _______ and _______
Exchange Shares at the minimum, midpoint, maximum and 15% above the maximum
of the Offering Price Range, respectively, and (ii) that no fractional
shares of Exchange Shares will be issued by the Company. No effect has been
given to the issuance of additional shares of Common Stock pursuant to
existing and proposed stock benefit plans. See "Pro Forma Data,"
"Management of the Association - Benefit Plans."
(5) The pro forma additional paid-in capital and retained earnings reflect a
restriction of the original retained earnings of the Association prior to
the MHC Reorganization. The pro forma additional paid-in capital reflects
the $103,000 to be acquired by the Association upon the merger of the
Mutual Holding Company (following its conversion to a federal interim stock
savings institution) with and into the Association.
(6) The retained earnings of the Association will be substantially restricted
after the Conversion and Reorganization by virtue of the liquidation
account to be established in connection with the Conversion and
Reorganization. See "The Conversion and Reorganization - Liquidation
Rights." In addition, certain distributions from the Association's retained
earnings may be treated as being from its pre-1988 accumulated bad debt
reserve for tax purposes, which would cause the Association to have
additional taxable income. See "Regulation - Federal and State Taxation."
</FN>
25
PRO FORMA REGULATORY CAPITAL ANALYSIS
At December 31, 1996, the Association exceeded each of the three OTS
capital requirements. Set forth below is a summary of the Association's
compliance with the OTS capital standards as of December 31, 1996 on a
historical basis, in accordance with GAAP, and on a pro forma basis using the
assumptions contained under the caption "Pro Forma Data" and assuming that the
indicated number of shares were sold, and the Exchange Shares were issued, as of
such date.
Pro Forma at December 31, 1996
------------------------------------------------------------------------------------
787,500 Shares 926,470 Shares 1,225,257 Shares 15% above
Historical Minimum Midpoint Maximum Maximum
----------------- ----------------- ----------------- ----------------- ------------------
Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1)
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
(Dollars in Thousands)
GAAP Capital(2) ...... $9,082 9.6% $11,935 12.2% $12,470 12.7% $13,003 13.2% $13,168 13.7%
====== ==== ======= ==== ======= ==== ======= ==== ======= ====
Tangible Capital:
Capital level....... $8,659 9.2% $11,512 11.8 $12,047 12.3% $12,580 12.8% $13,195 13.3%
Requirement......... 1,412 1.5 1,455 1.5 1,463 1.5 1,471 1.5 1,480 1.5
------ ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess.............. $7,247 7.7% $10,057 10.3% $10,584 10.8% $11,109 11.3% $11,715 11.8%
====== ==== ======= ==== ======= ==== ======= ==== ======= ====
Core Capital:
Capital level....... $8,659 9.2% $11,512 11.8% $12,047 12.3% $12,580 12.8% $13,195 13.3%
Requirement......... 2,835 3.0 2,910 3.0 2,926 3.0 2,942 3.0 2,961 3.0
------ ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess.............. $5,834 6.2% $ 8,602 8.8% $ 9,121 9.3% $ 9,638 9.8% $10,234 10.3%
====== ==== ======= ==== ======= ==== ======= ==== ======= ====
Risk-Based Capital:
Capital level(3).... $7,630 13.5% $10,483 18.3% $11,018 19.2% $11,551 20.1% $12,1656 21.1%
Requirement(4)...... 4,530 8.0 4,576 8.0 4,584 8.0 4,593 6.0 4,603 8.0
------ ---- ------- ---- ------- ---- ----- ---- ------- ----
Excess.............. $3,100 5.5% $ 5,907 10.3% $ 6,434 11.2% $ 6,958 12.1% $ 7,563 13.1%
====== ==== ======= ==== ======= ==== ======= ==== ======= ====
<FN>
- ----------
(1) Tangible and core capital levels are shown as a percentage of adjusted
total assets; risk-based capital levels are shown as a percentage of
risk-weighted assets.
(2) Total stockholder's equity as calculated under GAAP. Assumes that the
Association receives 50% of the net proceeds, offset in part by the
aggregate purchase price of Common Stock acquired at $10.00 per share by
the ESOP in the Conversion. The amount expected to be borrowed by the ESOP
is deducted from pro forma capital to illustrate the possible impact on the
Association.
(3) Includes $158,000 of general valuation allowances, all of which qualify as
supplementary capital. See "Regulation - Regulatory Capital Requirements."
(4) Assumes reinvestment of net proceeds in 20% risk-weighted assets.
</FN>
26
PRO FORMA DATA
The actual net proceeds from the sale of the Conversion Stock cannot be
determined until the Conversion and Reorganization is completed. However, net
proceeds are currently estimated to be between $7.4 million and $10.1 million
(or $11.7 million in the event the Offering Price Range is increased by 15%)
based upon the following assumptions: (i) all shares of Conversion Stock will be
sold in the Subscription and Community Offerings; (ii) no fees will be paid to
Webb on shares purchased by (x) the ESOP or by (y) officers, directors and
associates thereof; (iii) Webb will receive a fee equal to 1.75% of the
aggregate Purchase Price for sales in the Subscription and Community Offering
(excluding the sale of shares by the ESOP and to officers, directors or
employees or members of their immediate families); and (iv) total expenses,
excluding the marketing fees to be paid to Webb, will be approximately $350,000.
Actual expenses may vary from those estimated.
Pro forma net earnings and stockholders' equity have been calculated
for the year ended June 30, 1996 as if the Conversion Stock to be issued in the
Offerings had been sold (and the Exchange Shares issued) at the beginning of the
respective periods and the net proceeds had been invested at 5.43% and 5.91%,
respectively, which represent the yield on one-year U.S. Government securities
at December 31, 1996 and June 30, 1996, respectively, (which, in light of
changes in interest rates in recent periods, are deemed to more accurately
reflect pro forma reinvestment rates than the arithmetic average method). The
effect of withdrawals from deposit accounts for the purchase of Conversion Stock
has not been reflected. An effective combined federal and state tax rate of
39.6% has been assumed for the periods, resulting in after-tax yields of 3.28%
and 3.57% for the six months ended December 31, 1996 and the year ended June 30,
1996, respectively. Historical and pro forma per share amounts have been
calculated by dividing historical and pro forma amounts by the indicated number
of shares of Common Stock, as adjusted to give effect to the shares purchased by
the ESOP. See Note 2 to the tables below. No effect has been given in the pro
forma stockholders' equity calculations for the assumed earnings on the net
proceeds. As discussed under "Use of Proceeds," the Company intends to retain
50% of the net proceeds from the Offerings, from which the Company intends to
make a loan to fund the purchase an amount of Conversion Stock equal to 8% of
the Common Stock outstanding upon consummation of the Conversion and
Reorganization.
No effect has been given in the tables to the issuance of additional
shares of Common Stock pursuant to existing and proposed stock benefit plans.
See "Management of the Association Benefits" and "Management of the Association
- - Benefit Plans." The tables below give effect to the 1997 Recognition Plan,
which is expected to be adopted by the Company following the Conversion and
Reorganization and presented (together with the 1997 Stock Option Plan) to
stockholders for approval at an annual or special meeting of stockholders to be
held at least six months following the consummation of the Conversion and
Reorganization. If the 1997 Recognition Plan is approved by stockholders, the
1997 Recognition Plan intends to acquire an amount of Common Stock equal to 4.0%
of the shares of Conversion Stock issued in the Offerings, either through open
market purchases or from authorized but unissued shares of Common Stock. No
effect has been given to (i) the Company's results of operations after the
Conversion and Reorganization, or (ii) the market price of the Common Stock
after the Conversion and Reorganization.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not
27
be taken as indicative of future results of operations. Pro forma stockholders'
equity represents the difference between the stated amount of assets and
liabilities of the Company computed in accordance with generally accepted
accounting principles ("GAAP"). The pro forma stockholders' equity is not
intended to represent the fair market value of the Common Stock and may be
different than amounts that would be available for distribution to stockholders
in the event of liquidation.
28
At or For the Six Months Ended December 31, 1996
-------------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
787,500 926,470 1,065,410 1,225,257
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
---------- ---------- --------- -----------
(Dollars in Thousands, Except Per Share Amounts)
Gross proceeds................................ $ 7,875 $ 9,265 $ 10,654 $ 12,253
Less offering expenses and commissions........ 489 (490) (512) (537)
--------- --------- --------- ---------
Estimated net proceeds(1).................... 7,406 8,775 10,142 11,716
Less: ESOP................................... (850) (1,000) (1,150) (1,323)
Recognition Plan funding............... (425) (500) (575) (661)
--------- --------- --------- ---------
Add: Other adjustments(6)..................... 115 115 115 115
Estimated proceeds available for
investment................................ $ 6,246 $ 7,390 $ 8,532 $ 9,847
========= ========= ========= =========
Net Income:
Historical.................................. $ 17 $ 17 $ 17 $ 17
Pro Forma Adjustments:
Net earnings from proceeds(2).............. 102 121 140 161
ESOP(3).................................... (26) (30) (35) (40)
Recognition Plan........................... (26) (30) (35) (40)
Pro forma net income..................... $ 67 $ 78 $ 87 $ 98
========= ========= ========= =========
Net Income Per Share:
Historical(4)............................. 0.02 0.01 0.01 0.01
Pro forma Adjustments:
Net income from proceeds................. 0.10 0.10 0.11 0.11
ESOP(3).................................. (0.03) (0.03) (0.03) (0.03)
Recognition Plan......................... (0.03) (0.03) (0.03) (0.03)
--------- --------- --------- ---------
Pro forma net income per share....... $ 0.06 $ 0.06 $ 0.06) $ 0.06
========= ========= ========= =========
Pro forma price to annualized earnings
per share (P/E ratio)...................... 83.33x 83.33x 83.33x 83.33x
Number of shares.............................. 951,750 1,155,000 1,326,250 1,527,488
Stockholders' Equity (Book Value)(5):
Historical(7)............................... $ 9,094 $ 9,094 $ 9,094 $ 9,094
Pro Forma Per Share Adjustments:
Estimated net proceeds...................... 7,406 8,775 10,142 11,176
Less common stock acquired by:
ESOP(3).................................... (850) (1,000) (1,150) (1,322)
Recognition Plan........................... (425) (500) (575) (661)
--------- --------- -------- ---------
Pro forma stockholder's equity......... $ 15,225 $ 16,369 $ 17,511 $ !8,827
========= ========= ========= =========
Stockholders' Equity (Book Value)(5):
Per Share(4):
Historical(7)............................. $ 8.56 $ 7.27 $ 6.33 $ 5.50
Pro Forma Per Share Adjustments:
Estimated net proceeds.................... 6.97 7.02 7.06 7.09
Less common stock acquired by:
ESOP(3)................................... (0.80) (0.80) (0.80) (0.80)
Recognition Plan.......................... (0.40) (0.40) (.40) (0.40)
--------- --------- --------- ---------
Pro forma book value per share......... $ 14.33 $ 13.10 $ 12.19 $ 11.39
========= ========= ========= =========
Pro forma price to book value................. 69.73% 76.34% 82.03% 87.80%
Number of shares ............................. 1,062,500 1,250,000 1,437,500 1,653,125
29
At or For the Six Months Ended December 31, 1996
-------------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
787,500 926,470 1,065,410 1,225,257
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
---------- ---------- --------- -----------
(Dollars in Thousands, Except Per Share Amounts)
Gross proceeds................................ $ 7,875 $ 9,265 $ 10,654 $ 12,253
Less offering expenses and commissions........ (489) (490) (512) (537)
--------- --------- --------- ---------
Estimated net proceeds(1).................... 7,406 8,775 10,142 11,716
Less: ESOP................................... (850) (1,000) (1,150) (1,323)
Recognition Plan..................... (425) (500) (575) (661)
--------- --------- --------- ---------
Add: Other adjustments(6)..................... 115 115 115 115
--------- --------- --------- ---------
Estimated proceeds available for
investment................................ $ 6,246 $ 7,390 $ 8,532 $ 9,847
========= ========= ========= =========
Net Income:
Historical.................................. $ 431 $ 431 $ 431 $ 431
Pro Forma Adjustments:
Net earnings from proceeds(2).............. 223 264 305 351
ESOP(3).................................... (51) (60) (69) (80)
Recognition Plan........................... (51) (60) (69) (80)
--------- --------- --------- ---------
Pro forma net income..................... $ 552 $ 575 $ 598 $ 622
========= ========= ========= =========
Net Income Per Share:
Historical(4)............................. $ 0.44 $ 0.37 $ 0.32 $ 0.28
Pro forma Adjustments:
Net earnings from proceeds............... 0.23 0.23 0.23 0.23
ESOP(3).................................. (0.05) (0.05) (0.05) (0.05)
Recognition Plan......................... (0.05) (0.05) (0.05) (0.05)
--------- --------- --------- ---------
Pro forma net income per share....... $ 0.57 $ 0.50 $ 0.45 $ 0.41
========= ========= ========= =========
Pro forma price to annualized earnings
per share (P/E ratio)...................... 17.54x 20.00x 22.22x 24.39x
Number of shares.............................. 986,000 1,160,000 1,334,000 1,534,100
Stockholders' Equity (Book Value)(5):
Historical(7)............................... $ 9,139 $ 9,139 $ 9,139 $ 9,139
Pro Forma Per Share Adjustments:
Estimated net proceeds...................... 7,406 8,775 10,142 11,716
Less common stock acquired by:
ESOP(3).................................... (850) (1,000) (1,150) (1,322)
Recognition Plan........................... (425) (500) (575) (661)
--------- --------- --------- ---------
Pro forma stockholder's equity......... $ 15,270 $ 16,414 $ 17.556 $ 18,872
========= ========= ========= =========
Stockholders' Equity (Book Value)(5):
Per Share(4):
Historical(7)............................. $ 8.69 $ 7.31 $ 6.36 $ 5.53
Pro Forma Per Share Adjustments:
Estimated net proceeds.................... 6.97 7.02 7.06 7.09
Less common stock acquired by:
ESOP(3)................................... (0.80) (0.80) (0.80) (0.80)
Recognition Plan.......................... (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ---------
Pro forma book value per share......... $ 14.37 $ 13.13 $ 12.22 $ 11.42
========= ========= ========= =========
Pro forma price to book value................. 69.59% 76.16% 81.83% 87.57%
Number of shares ............................. 1,062,500 1,250,000 1,437,500 1,653,125
- ----------
(1) It is assumed that the cost of the ESOP will be funded from the net
proceeds retained by the Company.
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion. For purposes of
calculating pro forma net income, proceeds attributable to purchases by the
ESOP, which purchases are to be funded by the Holding Company and the
Association, have been deducted from net proceeds.
30
(3) It is assumed that 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. The funds used to acquire such
shares are expected to be borrowed by the ESOP from the net proceeds from
the Conversion retained by the Company. The Association intends to make
contributions to the ESOP in amounts at least equal to the principal and
interest requirement of the debt. The Association's payment of the ESOP
debt is based upon equal installments of principal and interest over a
10-year period. However, assuming the Company makes the ESOP loan, interest
income earned by the Company on the ESOP debt will offset the interest paid
by the Association. Accordingly, only the principal payments on the ESOP
debt are recorded as an expense (tax-effected) to the Company on a
consolidated basis. The amount of ESOP debt is reflected as a reduction of
stockholders' equity. In the event that the ESOP were to receive a loan
from an independent third party, both ESOP expense and earnings on the
proceeds retained by the Company would be expected to increase.
For purposes of this table, the purchase price of $10.00 per share was
utilized to calculate ESOP expense. The Company intends to record
compensation expense related to the ESOP in accordance with Statement of
Accounting Principles 93-6 ("SOP 93-6"). As a result, to the extent the
value of the Common Stock appreciates over time, compensation expense
related to the ESOP will increase. SOP 93-6 also requires that, for the
earnings per share computations for leveraged ESOPs, outstanding shares
include only such shares as have been committed to be released to
participants. See "Management of the Association - Benefit Plans - Employee
Stock Ownership Plan."
(4) Historical pro forma per share amounts have been computed as if the shares
of Common Stock indicated had been outstanding at the beginning of the
periods or on the dates shown, but without any adjustment of historical net
income or historical equity to reflect the investment of the estimated net
proceeds of the sale of shares in the Conversion as described above. All
ESOP shares have been considered outstanding for purposes of computing book
value per share. Pro forma share amounts have been computed by dividing the
pro forma net income or stockholders' equity (book value) by the number of
shares indicated.
(5) "Book value" represents the difference between the stated amounts of the
Association's assets (based on historical cost) and liabilities computed in
accordance with generally accepted accounting principles. The amounts shown
do not reflect the effect of the Liquidation Account which will be
established for the benefit of Eligible and Supplemental Eligible Account
Holders in the Conversion, or the federal income tax consequences of the
restoration to income of the Association's special bad debt reserves for
income tax purposes which would be required in the unlikely event of
liquidation. See "The Conversion and Reorganization - Effects of Conversion
and Reorganization" and "Regulation - Federal and State Taxation." The
amounts shown for book value do not represent fair market values or
amounts, if any, distributable to stockholders in the unlikely event of
liquidation.
(6) Includes assets consolidated from the mutual holding company of $103,000
plus $12,000 of previous funding of the Recognition Plan.
(7) Prior to reduction of $12,000 reflecting the previous funding of the
Recognition Plan.
31
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
General
The Company is authorized to issue 8,000,000 shares of Common Stock and
2,000,000 shares of Preferred Stock. The Company currently expects to issue up
to a maximum of _______ shares of Common Stock, including _______ shares of
Conversion Stock and _______ shares of Exchange Shares, and no shares of
Preferred Stock in the Conversion and Reorganization. Each share of Common Stock
will have the same relative rights as, and will be identical in all respects
with, each other share of Common Stock. Upon payment of the Purchase Price for
the Conversion Stock and the issuance of the Exchange Shares in accordance with
the Plan of Conversion, all such stock will be duly authorized, fully paid and
nonassessable.
The Common Stock will represent nonwithdrawable capital, will not be an
account of an insurable type and will not be insured by the FDIC or any other
governmental authority.
Common Stock
Dividends. The Company can pay dividends if, as and when declared by.
its Board of Directors, subject to compliance with limitations which are imposed
by law. See "Dividend Policy." The holders of Common Stock will be entitled to
receive and share equally in such dividends as may be declared by the Board of
Directors of the Company out of funds legally available therefor. If the Company
issues Preferred Stock, the holders thereof may have a priority over the holders
of the Common Stock with respect to dividends.
Voting Rights. Upon completion of the Conversion and Reorganization,
the holders of Common Stock of the Company will possess exclusive voting rights
in the Company. They will elect the Company's Board of Directors and act on such
other matters as are required to be presented to them under Indiana law or the
Company's Articles of Incorporation or as are otherwise presented to them by the
Board of Directors. Except as discussed in "Comparison of Stockholders' Rights -
Limitations on Acquisitions of Voting Stock and Voting Rights," each holder of
Common Stock will be entitled to one vote per share and will not have any right
to cumulate votes in the election of directors. If the Company issues Preferred
Stock, holders of the Preferred Stock may have the right to vote with the
holders of Common Stock as a single class or have voting rights as a separate
class.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, the holders of the then-outstanding Common Stock would be
entitled to receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of the Company available for distribution. If
Preferred Stock is issued, the holders thereof may have a priority over the
holders of the Common Stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of the Common Stock will not be entitled to
preemptive rights with respect to any shares which may be issued in the future.
The Common Stock is not subject to redemption.
Preferred Stock
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion and Reorganization. Such stock may be issued with such
preferences and designations as the Board of Directors may from time to time
determine. The Board of Directors can, without stockholder approval, issue
Preferred Stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the Common Stock and may
assist management in impeding an unfriendly takeover or attempted change in
control.
32
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with
or without conditions, or disapproves a plan of conversion may obtain review of
such action by filing in the court of appeals of the United States for the
circuit in which the principal office or residence of such person is located, or
in the United States Court of Appeals for the District of Columbia, a written
petition praying that the final action of the OTS be modified, terminated or set
aside. Such petition must be filed within 30 days after the publication of
notice of such final action in the Federal Register, or 30 days after the
mailing by the applicant of the notice to members as provided for in 12 C.F.R.
ss.563b.6(c), whichever is later. The further procedure for review is as
follows: A copy of the petition is forthwith transmitted to the OTS by the clerk
of the court and thereupon the OTS files in the court the record in proceeding,
as provided in Section 2112 of Title 28 of the United States Code. Upon the
filing of the petition, the court has jurisdiction, which upon the filing of the
record is exclusive, to affirm, modify, terminate, or set aside in whole or in
part, the final action of the OTS. Review of such proceedings is as provided in
Chapter 7 of Title 5 of the United States Code. The judgment and decree of the
court is final, except that they are subject to review by the Supreme Court upon
certiorari as provided in Section 1254 of Title 28 of the United States Code.
REGISTRATION REQUIREMENTS
The Company will register the Common Stock under the Securities
Exchange Act of 1934, as amended ("Exchange Act"), in connection with the
Conversion and Reorganization and has agreed not to deregister such shares for a
period of three years following the Conversion and Reorganization. Upon such
registration, the proxy rules, tender offer rules, insider reporting
requirements and trading restrictions, annual and periodic reporting and other
requirements of the Exchange Act will be applicable. In addition, upon
registration, the Company will furnish its stockholders with annual reports
containing audited financial statements as promptly as practicable after the end
of each fiscal year.
33
EXPERTS
The consolidated financial statements of the Association as of June 30,
1996 and 1995, and for each of the years in the three-year period ended June 30,
1996, have been included herein in reliance upon the report of Geo. S. Olive &
Co. LLC, Indianapolis, Indiana, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
Keller has consented to the publication herein of the summary of its
report to the Company and the Association setting forth its opinion as to the
estimated pro forma market value of the Conunon Stock to be outstanding upon
completion of the Conversion and Reorganization and its opinion with respect to
subscription rights.
LEGAL AND TAX MATTERS
The legality of the Common Stock and the federal income tax
consequences of the Conversion and Reorganization will be passed upon for the
Company and the Association by Silver, Freedman & Taff, L.L.P. (a limited
liability partnership including professional corporations), Washington, D.C.,
special counsel to the Company and the Association. The Indiana income tax
consequences of the Conversion and Reorganization will be passed upon for the
Company and the Association by Geo. S. Olive & Co. LLC. has consented to
references herein to its opinion. Certain legal matters will be passed upon for
Webb by Breyer & Aguggia, Washington, D.C.
HOW TO OBTAIN ADDITIONAL INFORMATION
You may obtain a copy of the Plan of Conversion, including the Articles
of Incorporation and Bylaws the Company, from any office of the Association or
in writing from the Mutual Holding Company. Any such requests should be directed
to Montgomery Mutual Holding Company, 119 East Main Street, Crawfordsburg,
Indiana 47933, Attention: Secretary. So that you have sufficient time to receive
and review the requested materials, it is recommended that any such requests be
sent so that they are received by the Mutual Holding Company by _______ __,
1997.
AVAILABLE INFORMATION
The Mutual Holding Company has filed with the OTS an Application for
Conversion pursuant to which it will reorganize in accordance with the terms of
the Plan. This Proxy Statement and the Prospectus omit certain information
contained in such Application. The Application may be inspected at the offices
of the OTS, 1700 G Street, N.W., Washington, D.C. 20552, and at the Central
Regional Office of the OTS located at 200 West Madison Street, Suite 1300,
Chicago, Illinois 60606.
The Company has filed with the Securities and Exchange Commission
("SEC") a Registration Statement on Form S-1 (File No. 333-_____) ("Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
Conversion Stock and Exchange Shares being offered in the Offerings. This Proxy
Statement and the Prospectus do not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. Such information may be inspected at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and copies may be obtained at prescribed
rates from the Public Reference Section of the SEC at the same address. The SEC
maintains a World Wide Web site on the Internet that contains reports, proxy and
information statements and other information regarding
34
registrants such as the Company that file electronically with the SEC. The
address of such site is: http://www.sec.gov. The statements contained in this
Prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement describe all material provisions of such
contracts or other documents. Nevertheless, such statements are, of necessity,
brief descriptions thereof and are not necessarily complete; each such statement
is qualified by reference to such contract or document.
PLEASE REMEMBER TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO THAT YOUR IMPORTANT VOTE WILL BE
COUNTED AT THE SPECIAL MEETING.
THIS PROXY STATEMENT IS NEITHER AN OFFER TO SELL NOR THE SOLICITATION
OF ANY OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
35
MONTGOMERY MUTUAL HOLDING COMPANY
REVOCABLY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
MONTGOMERY MUTUAL HOLDING COMPANY (THE "MUTUAL HOLDING COMPANY") FOR USE ONLY AT
A SPECIAL MEETING OF MEMBERS TO BE HELD ON _____________, 1997 AND ANY
ADJOURNMENT THEREOF.
The undersigned, being a member of the Mutual Holding Company as of
_____________, 1997, hereby authorizes the Board of Directors of the Mutual
Holding Company, or any of their successors, as proxies, with full powers of
substitution, to represent the undersgined at the Special Meeting of Members of
the Mutual Holding Company to be held __________________________________, which
is located at _____________________, Crawfordsville, Indiana, on
_________________, 1997, at __:00 _.m., Crawfordsville, Indiana time, and at any
adjournment of said meeting, and thereat to act with respect to all votes that
the undersigned would be entitled to cast, if then personally present, as
follows:
(1)To approve and adopt the Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan of Conversion"), pursuant to which (i) the Mutual
Holding Company, which currently owns approximately 70.59% of the outstanding
shares of common stock of the Montgomery Savings, A Federal Association (the
"Association") will convert from mutual form to a federal interim stock
savings institution and simultaneously merge with and into the Association,
with the Association being the surviving entity; (ii) an interim institution
("Interim") to be formed as a wholly owned subsidiary of Montgomery Financial
Corporation, and Indiana corporation recently formed as a wholly owned
subsidiary of the Association (the "Company"), will merge with and into the
Association, with the Association being the surviving entity and becoming a
wholly owned subsidiary of the Company, (iii) the outstanding shares of
Association common stock (other than those held by the Mutual Holding
Company, which will be cancelled) will be converted into shares of common
stock of the Company pursuant to a ratio that will result in the holders of
such shares owning in the aggregate approximately _____% of the Company,
before giving effect to such shareholders purchasing additional shares in a
concurrent stock offering by the Company, receiving cash in lieu of
fractional shares or exercising dissenters rights; and (iv) the offer and
sale of shares of the Company's common stock.
_______ _________ _________
| | | | | |
| | | | | |
------- --------- ---------
FOR AGAINST ABSTAIN
In their discretion, the proxies are authorized to vote with respect to
approval of the minutes of the last meeting of stockholders, matters incident to
the conduct of the meeting, and upon such other matters as may properly come
before the meeting.
This proxy may be revoked at any time before it is exercised. Shares of
common stock of the Association will be voted as specified. If no specification
is made herein, shares will be voted FOR Proposal 1.
(Continued and to be signed on other side)
1
The undersigned hereby acknowledges receipt of a Notice of Special
Meeting of the Stockholders of Montgomery Mutual Holding Company called for
__________, 1997 and a Proxy Statement for the Special Meeting prior to the
signing of this Proxy.
Date: __________________, 1997
____________________________________
Signature
____________________________________
Signature
Note: Please sign exactly as your name(s) appear(s) on this Proxy. Only one
signature is required in the case of a joint account. When signing in a
representative capacity, please give title.
________________________________________________________________________________
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS
PROXY CARD USING THE ENCLOSED ENVELOPE.
________________________________________________________________________________
2