UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
NORTHEAST INDIANA BANCORP, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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[NORTHEAST INDIANA BANCORP, INC. LETTERHEAD]
May ___, 2005
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of
Northeast Indiana Bancorp, Inc. to be held on June ___, 2005 at 1:00 p.m. local
time at First Federal Savings Bank's North Office located at 100 Frontage Road,
Huntington, Indiana.
At this important meeting, you will be asked to consider and vote on the
election of two directors and the ratification of the appointment of our
independent auditors. In addition, you will be asked to vote on proposed
amendments to our certificate of incorporation. These amendments will provide
for a reverse 1-for-125 stock split followed immediately by a forward 125-for-1
stock split of our common stock. The text of the proposed amendments is attached
as Appendix A to the accompanying proxy statement.
If approved at the annual meeting, the reverse/forward stock split
transaction will affect our stockholders as follows:
If you are a record stockholder with: Effect:
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125 or more shares: Will continue to hold the same number of shares
Fewer than 125 shares: Will be entitled to $23.50 in cash, without interest, per share
The primary effect of this transaction will be to reduce our total number
of record stockholders to below 300. As a result, we will terminate the
registration of our common stock under federal securities laws, our reporting
obligations with the Securities and Exchange Commission (the "SEC") will be
suspended, and we will no longer be eligible for trading on the Nasdaq market.
We are proposing this transaction because our Board has concluded, after
careful consideration, that the costs and other disadvantages associated with
being an SEC-reporting company outweigh any of the advantages. The reasons the
Board considered in reaching this conclusion include:
o we estimate that we will eliminate current costs of approximately
$177,750 on an annual basis by eliminating the requirement to make
periodic reports and reducing the expenses of stockholder
communications;
o operating as a non-SEC reporting company will reduce the burden on
our management that arises from increasingly stringent SEC reporting
requirements, including requirements of the Sarbanes-Oxley Act of
2002 ("SOX"), thus allowing management to focus more of its
attention on our customers and the communities in which we operate;
o if the company does not go private before the end of 2006, it will
need to comply with the requirements of Section 404 of SOX. Under
that Section, the company is required to include a report of
management on the company's internal control over financial
reporting and an attestation report of the company's independent
auditors on management's assessment of the company's internal
control over financial reporting. The one-time costs of such initial
compliance are estimated at $100,000 in 2006 (assuming the company
outsources the project). Each year after 2006, additional costs
associated with Section 404 compliance are also anticipated and
these could be as much as $50,000 per year. These costs will be
avoided if the stockholders approve the reverse/forward stock split
described in the accompanying proxy statement;
o at least 222 of our 403 record shareholders own under 125 shares and
the elimination of those small shareholders can e expected to reduce
significantly our costs of stockholder communications; and
o these costs of being a public company outweigh the benefits to a
well-capitalized company of our size, and going private will free up
management to focus on long-term business prospects beneficial to
shareholders and customers.
The enclosed proxy statement includes a discussion of the alternatives and
factors considered by the Board in connection with its approval of the
reverse/forward stock split, and we encourage you to read carefully the proxy
statement and its appendices. Your Board of Directors believes the terms of the
proposed transaction are fair and are in the best interest of our stockholders,
and unanimously recommends that you vote "FOR" the proposal to amend our
certificate of incorporation.
Your vote is very important. Whether or not you plan to attend the annual
meeting, please complete, date, sign and return your proxy promptly in the
enclosed envelope, which requires no postage if mailed in the United States. If
you attend the annual meeting, you may vote in person if you wish, even if you
have previously returned your proxy.
Sincerely,
Stephen E. Zahn
Chairman of the Board and Chief
Executive Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of this transaction, passed upon the
merits or fairness of this transaction or passed upon the adequacy or accuracy
of the disclosure in this document. Any representation to the contrary is a
criminal offense.
NORTHEAST INDIANA BANCORP, INC.
648 North Jefferson Street
Huntington, Indiana 46750
(260) 356-3311
www.firstfedhuntington.com
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE ___, 2005
An annual meeting of stockholders of Northeast Indiana Bancorp, Inc. (the
"Company") will be held on __________, June ___, 2005, at 1:00 p.m., local time
at First Federal Savings Bank's North Office located at 100 Frontage Road,
Huntington, Indiana:
Reverse/Forward Stock Split
(1) Reverse/Forward Stock Split. To consider and vote upon a proposal to
adopt two amendments to the Company's certificate of incorporation. The
amendments will provide for (a) a reverse 1-for-125 stock split, followed
immediately by (b) a forward 125-for-1 stock split. Each record stockholder
owning fewer than 125 shares of common stock, $.01 par value per share,
immediately prior to the reverse split will, instead of participating in the
forward split, receive a cash payment equal to $23.50 per share on a pre-split
basis.
(2) Election of Directors. To elect two directors of the Company, each
with a term of three years.
(3) Ratification of Auditors. To ratify the appointment by the Company's
Audit Committee of Crow Chizek and Company LLC, as independent auditors for the
Company for the fiscal year ending December 31, 2005.
(4) Adjournment. To approve a proposal to adjourn the annual meeting to
permit further solicitation of proxies in the event that an insufficient number
of shares is present in person or by proxy to approve the proposals presented at
the annual meeting.
(5) Other Matters. To consider and vote upon a proposal to transact any
other business that properly comes before the annual meeting or any adjournment
or postponement of the annual meeting.
The Board of Directors has fixed the close of business on April ___, 2005,
as the record date for determining those stockholders entitled to vote at the
annual meeting and any adjournment or postponement of the annual meeting. Only
stockholders at the close of business on the record date are entitled to notice
of, and to vote at, the annual meeting.
A copy of our Annual Report for the fiscal year ended December 31, 2004,
is enclosed. The Annual Report is not part of the proxy soliciting material
enclosed with this letter, except as otherwise provided herein.
By order of the Board of Directors
Huntington, Indiana Stephen E. Zahn
May ___, 2005 Chairman of the Board and Chief Executive Officer
YOUR VOTE IS VERY IMPORTANT.
Whether or not you plan to attend the annual meeting in person, please take the
time to vote by completing and marking the enclosed proxy card in the enclosed
postage-paid envelope. If you attend the annual meeting, you may still vote in
person if you wish, even if you have previously returned your proxy card.
Your Board of Directors unanimously recommends that you vote "FOR"
approval of the amendments to our certificate of incorporation.
TABLE OF CONTENTS
SUMMARY TERM SHEET.............................................................1
QUESTIONS AND ANSWERS ABOUT THE SPLIT TRANSACTION AND
THE ANNUAL MEETING........................................................6
ABOUT THE ANNUAL MEETING......................................................10
Date, Time and Place of Annual Meeting.....................................10
Matters to be Considered at the Annual Meeting.............................10
Record Date; Voting Power..................................................10
Quorum.....................................................................10
Vote Required for Approval.................................................11
Voting and Revocation of Proxies...........................................11
Solicitation of Proxies; Expenses of Solicitation..........................12
Other Matters to be Considered at Annual Meeting...........................12
PROPOSAL 1 -- THE SPLIT TRANSACTION -- SPECIAL FACTORS........................13
Overview of the Split Transaction..........................................13
Background of the Split Transaction........................................14
Reasons for the Split Transaction..........................................18
Fairness of the Split Transaction..........................................20
Effects of the Split Transaction on Affiliates.............................24
Determination of Fairness of Split Transaction By Affiliates...............24
Board Recommendation.......................................................25
Fairness Opinion of Financial Advisor .....................................25
Structure of the Split Transaction.........................................29
Effects of the Split Transaction on NEIB...................................30
Interests of Certain Persons in the Split Transaction......................33
Financing of the Split Transaction.........................................33
Federal Income Tax Consequences............................................33
Appraisal Rights and Dissenters' Rights....................................35
Regulatory Requirements....................................................35
Accounting Treatment.......................................................35
Fees and Expenses..........................................................36
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA..............................36
MARKET PRICE OF NORTHEAST INDIANA BANCORP, INC. COMMON STOCK
AND DIVIDEND INFORMATION.................................................38
COMMON STOCK PURCHASE INFORMATION.............................................38
PROPOSAL 2 - ELECTION OF DIRECTORS OF NEIB....................................39
Voting Securities and Principal Holders Thereof............................39
Section 16(a) Beneficial Ownership Reporting Compliance....................41
Directors..................................................................41
Executive Officers.........................................................43
Meetings and Committees of the Board of Directors..........................43
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Nominating Committee Matters...............................................44
Audit Committee Matters....................................................44
Director Compensation......................................................45
Executive Compensation.....................................................46
Employment Agreement.......................................................47
Executive Supplemental Retirement Income Plan..............................47
Stockholder Benefit Plan...................................................48
Certain Transactions.......................................................48
PROPOSAL 3 - RATIFICATION OF AUDITORS.........................................49
PROPOSAL 4 - ADJOURNMENT OF THE ANNUAL MEETING................................49
STOCKHOLDER PROPOSALS.........................................................50
STOCKHOLDER COMMUNICATIONS....................................................51
OTHER MATTERS.................................................................51
Forward Looking Statements.................................................51
Where You Can Find More Information........................................51
Information Incorporated by Reference......................................51
APPENDIX A-1 Proposed Form of Amendment to Certificate of Incorporation
to Effect Reverse Stock Split..................................A-1
APPENDIX A-2 Proposed Form of Amendment to Certificate of Incorporation
to Effect Forward Stock Split..................................A-2
APPENDIX B-1 Opinion of Keefe, Bruyette & Woods, Inc........................B-1
APPENDIX C Northeast Indiana Bancorp, Inc. Audit Committee Charter........C-1
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SUMMARY TERM SHEET
This summary provides an overview of material information from this proxy
statement. However, it is a summary only. To better understand the reverse stock
split and forward stock split transaction and for a more complete description of
its terms, and for a description of other matters to be considered at the annual
meeting, we encourage you to read carefully this entire document and the
documents to which it refers before voting.
In this proxy statement, "NEIB" "we," "our," "ours," "us" and the
"company" refer to Northeast Indiana Bancorp, Inc., a Delaware corporation. The
term "Bank" refers to NEIB's wholly-owned subsidiary, First Federal Savings
Bank, which is a federal savings bank. The term "split transaction" refers to
the reverse and forward stock splits, together with the related cash payments to
stockholders holding fewer than 125 shares at the effective time of the split
transaction. The term "non-continuing stockholders" of NEIB means all record
holders of common stock of NEIB with fewer than 125 shares at the effective time
of the reverse stock split transaction. The term "continuing stockholders" means
all record holders of common stock of NEIB with at least 125 shares at the
effective time of the reverse stock split transaction. References to "common
stock" or "shares" refer to NEIB's common stock, par value $0.01 per share.
Date, Time and Place of Annual Meeting; Proposals to be Considered at the Annual
Meeting
Our Board of Directors is asking for your proxy for use at an annual
meeting of stockholders to be held on ________, June ___, 2005, at 1:00 p.m.,
local time, at the Bank's North Office at 100 Frontage Road, Huntington,
Indiana, and at any adjournments or postponements of that meeting. At the annual
meeting, stockholders will be asked:
o to consider and vote upon a proposal to adopt amendments to our
certificate of incorporation that will result in a 1-for-125 reverse
stock split followed immediately by a 125-for-1 forward stock split;
o to elect two directors of NEIB, each with a term of three years;
o to ratify the Audit Committee's appointment of Crowe Chizek and
Company LLC as NEIB's independent auditors for the fiscal year
ending December 31, 2005;
o to adjourn the annual meeting if necessary to permit the further
solicitation of proxies in the event that an insufficient number of
shares is present in person or by proxy to approve the proposals
presented at the annual meeting; and
Stockholders are also being asked to consider and vote upon any other matters
that may properly be submitted to a vote at the meeting or any adjournment or
postponement of the annual meeting. See "ABOUT THE ANNUAL MEETING."
Record Date
You may vote at the annual meeting if you owned NEIB common stock at the
close of business on April ___, 2005, which has been set as the record date. At
the close of business on the record date, there were 1,432,279 shares of our
common stock outstanding. You are entitled to one vote on each matter considered
and voted upon at the annual meeting for each share of common stock you held of
record at the close of business on the record date.
Vote Required for Approval
Proposal 1 -- The Reverse/Forward Stock Split. Approval of the split
transaction requires the affirmative vote of the holders of a majority of all
outstanding shares of our common stock entitled to vote at the annual meeting,
or 716,140 of the 1,432,279 outstanding shares. Because the executive officers
and directors of NEIB and the Bank have the power to vote a total of 235,316
shares and we believe that all of such executive officers and directors will
vote in favor of the transaction, this means a total of 480,824 shares held by
stockholders who are not executive officers or directors of the company or the
Bank will be required to vote in favor of the transaction for it to be approved.
Because the executive officers and directors of NEIB and the Bank own only
approximately 16.4% of the voting power of our outstanding common stock, there
is no assurance that the split transaction will be approved.
Proposal 2 -- Election of Directors. Directors will be elected by a
plurality of the votes cast at the annual meeting. Plurality means that the
individuals who receive the largest number of votes cast are elected up to the
maximum number of directors to be elected at the meeting.
Proposal 3 -- Ratification of Auditors. Ratification of the appointment by
the company's Audit Committee of Crowe Chizek and Company LLC as independent
auditors for the company for the fiscal year ended December 31, 2005, requires
the affirmative vote of a majority of the shares voting on the matter.
Proposal 4 -- Adjournment of the Annual Meeting. Approval of the proposal
to adjourn or postpone the meeting to allow extra time to solicit proxies
requires the affirmative vote of a majority of the shares of common stock voting
on the matter. See "ABOUT THE ANNUAL MEETING--Vote Required for Approval."
NEIB and First Federal Savings Bank
Northeast Indiana Bancorp, Inc. is a unitary savings and loan holding
company, with a business address of 648 North Jefferson Street, Huntington,
Indiana, 46750 and a business telephone number of (260) 356-3311. We own 100% of
our subsidiary bank, First Federal Savings Bank, a federal savings. NEIB's
common stock is publicly traded on the Nasdaq National Market ("NMS") under the
symbol "NEIB". As of the close of business on May ____, 2005, the market price
of our common stock as reported on the NMS was $________ per share.
First Federal Savings Bank is a federal savings bank. The Bank operates
three free-standing branches in Huntington, Indiana. The Bank has one
wholly-owned subsidiary, Northeast Indiana Financial, Inc., which provides
brokerage services through an affiliation with OneAmerica Securities, Inc., a
registered broker-dealer. The Bank offers a wide range of services that include
consumer banking, business banking and related financial services. The Bank also
provides trust services through a third party marketing agreement with another
financial institution.
Introduction and Overview of the Split Transaction
We are proposing that our stockholders adopt amendments to our certificate
of incorporation that will result in a reverse 1-for-125 stock split followed
immediately by a forward 125-for-1 stock split. If the split transaction is
completed, our record stockholders who hold only fractional shares after giving
effect to the reverse 125-for-1 stock split will receive a payment of $23.50 per
share for each pre-split share. If the reverse stock split is completed, record
stockholders with fewer than 125 pre-split shares will have no interest in the
company and will become entitled only to a cash payment for their shares
following the reverse stock split. After we complete the reverse stock split and
identify those stockholders entitled to payment for their pre-split shares, we
will complete a forward stock split in which each share of common stock will be
converted into 125 shares of common stock post-split. As a result of
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this subsequent forward stock split, record stockholders who hold 125 or more
shares prior to the reverse stock split will ultimately hold the same number of
shares following the forward stock split. The effect of the split transaction
will be to reduce the number of stockholders of record to less than 300, which
will allow us to suspend our reporting obligations under federal securities
laws.
We expect to pay a total of approximately $332,000 to stockholders in the
reverse stock split and we anticipate that the number of outstanding shares of
our common stock will decrease approximately 1.0%, from 1,432,279 shares to
approximately 1,418,157 shares as a result of the split transaction. See
"PROPOSAL 1--THE SPLIT TRANSACTION--Overview of the Split Transaction."
Background of the Split Transaction
For a description of the events leading to the approval of the split
transaction by our Board of Directors and the reasons for its approval, you
should refer to "PROPOSAL 1--THE SPLIT TRANSACTION--Background of the Split
Transaction," "--Reasons for the Split Transaction", "--Fairness of the Split
Transaction," and "--Board Recommendation" on pages 14 through 25. As we explain
more fully in these sections, our Board considered and rejected various
alternative methods of effecting a transaction that would enable us to become a
non-SEC reporting company, while remaining an independent, community-owned
company.
Reasons for the Split Transaction
The Board's reasons for the split transaction are set forth on pages 18 to
20. The Board has concluded that the costs of complying with the securities laws
outweigh the benefits the company receives for being an SEC reporting company.
See "PROPOSAL 1 -- THE SPLIT TRANSACTION -- Reasons for the Split Transaction."
Fairness of the Split Transaction
Based on a careful review of the facts and circumstances relating to the
split transaction, our Board of Directors believes that the split transaction
and the terms and provisions of the split transaction, including the cash to be
paid to the non-continuing stockholders, are substantively and procedurally fair
to our stockholders, including stockholders that are continuing stockholders and
stockholders that are non-continuing stockholders. Our Board of Directors
unanimously approved the split transaction. See "PROPOSAL 1--THE SPLIT
TRANSACTION--Fairness of the Split Transaction."
For a complete discussion of the positive and negative factors considered
by the Board, please see pages 20 through 24.
Fairness Opinion of Financial Advisor
In deciding to approve the split transaction and recommend it to our
stockholders, our Board of Directors considered the opinion of Keefe Bruyette &
Woods, Inc. ("KBW") that the $23.50 consideration proposed to be paid to the
non-continuing stockholders is fair from a financial point of view to those
shareholders.
The full text of the fairness opinion is attached to this proxy statement
as Appendix B, and you are encouraged to read it carefully. See "PROPOSAL 1--THE
SPLIT TRANSACTION--Fairness Opinion of Financial Advisor."
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Structure of the Split Transaction
The transaction has been structured as a two-step stock split transaction
because the reverse stock split will enable us to reduce the number of our
record stockholders to fewer than 300, while the forward stock split will avoid
disruption to the record stockholders that own 125 or more shares of common
stock prior to the split transaction. Because stockholders owning 125 or more
shares of common stock are not affected by the two-step structure, this
structure minimizes the costs of our becoming a non-SEC reporting company while
achieving the goals outlined in this proxy statement. See "Proposal 1 - The
Split Transaction--Background of the Split Transaction" beginning on page 14.
The split transaction is being effected at the record stockholder level.
This means that we will look at the number of shares registered in the name of a
single holder to determine if that holder's shares will be cashed out. Because
we think it is likely that any brokerage firm or other nominee will hold more
than 125 shares in the aggregate, we think it is likely that all "street name"
holders will remain continuing stockholders.
Effects of the Split Transaction
The split transaction is a going private transaction for NEIB, meaning it
will allow us to deregister with the SEC and our reporting obligations under
federal securities laws will be suspended.
For a further description of how the split transaction will affect our
stockholders, including the different effects on the continuing and
non-continuing stockholders, please see "PROPOSAL 1--THE SPLIT
TRANSACTION--Fairness of the Split Transaction--Substantive Fairness" on pages
20 through 23. For more information on the effects on NEIB of the split
transaction, see "PROPOSAL 1--THE SPLIT TRANSACTION--Effects of the Split
Transaction on NEIB."
Interests of Certain Persons in the Split Transaction
You should be aware that the directors and executive officers of NEIB have
interests in the split transaction that may present actual or potential, or the
appearance of actual or potential, conflicts of interest in connection with the
split transaction. See "PROPOSAL 1--THE SPLIT TRANSACTION--Interest of Certain
Persons in the Split Transaction."
Financing of the Split Transaction
We estimate that the total funds required to fund the payment of the split
transaction consideration to the non-continuing stockholders and to pay fees and
expenses relating to the split transaction will be approximately $417,000. The
company has sufficient working capital at the holding company level to pay this
amount.
Material Federal Income Tax Consequences of the Split Transaction
We believe that the split transaction, if approved and completed, will
have the following federal income tax consequences:
o the split transaction should result in no material federal income
tax consequences to us;
o the continuing stockholders will not recognize any gain or loss or
dividend income in connection with the split transaction; and
o the receipt of cash in the split transaction by the non-continuing
stockholders will be taxable to those stockholders, who will
generally recognize gain or loss in the split transaction in an
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amount determined by the difference between the cash they receive
and their adjusted tax basis in their common stock surrendered. Any
such recognized gain will be treated as capital gain unless, in the
case of the particular shareholder, the receipt of the cash is
deemed to have the effect of a dividend.
Because determining the tax consequences of the split transaction can be
complicated, you should consult your own tax advisor to understand fully how the
split transaction will affect you. See "PROPOSAL 1--THE SPLIT
TRANSACTION--Federal Income Tax Consequences."
Appraisal Rights
Under Delaware law, you do not have appraisal rights in connection with
the split transaction. Although you will not have appraisal rights in connection
with the split transaction, you may pursue all available remedies under
applicable law.
Recommendation of Board of Directors
Our Board of Directors unanimously recommends that you vote "FOR" the
proposed amendments to our certificate of incorporation that will effect the
split transaction.
Out Board of Directors also recommends that you vote "FOR" the director
nominees, namely J. David Carnes and William A. Zimmer.
Our Board of Directors also recommends a vote "FOR" ratification of the
appointment of Crowe Chizek and Company LLC as independent auditors for the
Company for fiscal year ending December 31, 2005.
Our Board of Directors also recommends a vote "FOR" the proposal to
adjourn or postpone the meeting to allow extra time to solicit proxies, if
necessary.
5
QUESTIONS AND ANSWERS ABOUT THE
SPLIT TRANSACTION AND THE ANNUAL MEETING
Q What is the date, time and place of the annual meeting?
A: The annual meeting of our stockholders will be held on ________, June ___,
2005, at 1:00 p.m. local time at the Bank's North Office at 100 Frontage
Road, Huntington, Indiana.
Q: What is the proposed split transaction?
A: We are proposing that our stockholders approve a reverse 1-for-125 stock
split followed immediately by a forward 125-for-1 stock split of our
outstanding common stock.
The purpose of the split transaction is to allow us to suspend our
SEC-reporting obligations (referred to as "going private") by reducing the
number of our record stockholders to fewer than 300. This will allow us to
terminate our registration under the Securities Exchange Act of 1934, and
relieve us of the costs typically associated with the preparation and
filing of reports and other documents with the SEC.
Q: What will I receive in the split transaction?
A: If you own in record name fewer than 125 shares of our common stock on the
date of the reverse stock split, you will receive $23.50 in cash from us
for each pre-split share you own. If you own in record name 125 or more
shares of our common stock on the date of the reverse stock split, you
will not receive any cash payment for your shares in connection with the
split transaction and will continue to hold the same number of shares of
our common stock as you did before the split transaction.
Q: Why is 125 shares the "cutoff' number for determining which stockholders
will be cashed out and which stockholders will remain as stockholders of
NEIB?
A: The purpose of the split transaction is to reduce the number of our record
stockholders to fewer than 300, which will allow us to de-register as an
SEC-reporting company. Our Board selected 125 shares as the "cutoff"
number in order to enhance the probability that after the split
transaction, if approved, we will have fewer than 300 record stockholders.
Q: May I buy additional shares in order to remain a stockholder of NEIB?
A: Yes. The key date for acquiring additional shares is June ___, 2005. So
long as you are able to acquire a sufficient number of shares so that you
are the record owner of 125 or more shares by June ___, 2005, your shares
of common stock will not be cashed out by the split transaction.
Q: What if I hold my shares in "street name"?
A: The split transaction will be effected at the record stockholder level.
This means that we will look at the number of shares registered in the
name of a single holder to determine if that holder's shares will be
cashed out. So for shares held in "street name," because it is likely that
your brokerage firm holds 125 or more total shares, you are not likely to
be cashed out, even if you beneficially own fewer than 125 shares. If you
hold shares in "street name," you should talk to your broker, nominee or
agent to determine how the split transaction will affect you.
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Q: What is the recommendation of our Board of Directors regarding the
proposal?
A: Our Board of Directors has determined that the split transaction is
advisable and in the best interests of NEIB's stockholders. Our Board of
Directors has unanimously approved the split transaction and recommends
that you vote "FOR" approval of the split transaction at the annual
meeting.
Q: When is the split transaction expected to be completed?
A: If the proposed amendments to our certificate of incorporation are
approved at the annual meeting, we expect the split transaction to be
completed as soon as practicable thereafter. We need to file the
amendments with the Delaware Secretary of State for the split transaction
to become effective.
Q: Who is entitled to vote at the annual meeting?
A: Holders of record of our common stock as of the close of business on April
___, 2005, are entitled to vote at the annual meeting. Each of our
stockholders is entitled to one vote for each share of our common stock
owned at the record date.
Q: What vote is required for our stockholders to approve the split
transaction?
A: For the amendments to our certificate of incorporation to be adopted and
the split transaction to be approved, holders of a majority of the
outstanding shares entitled to vote at the annual meeting must vote "FOR"
the split transaction.
Q: What if the proposed split transaction is not completed?
A: It is possible that the proposed split transaction will not be completed.
The proposed split transaction will not be completed if, for example, the
holders of a majority of our common stock do not vote to adopt the
proposed amendments to our certificate of incorporation and approve the
proposed split transaction. If the split transaction is not completed, we
will continue our current operations, and we will continue to be subject
to the reporting requirements of the SEC.
Q: What happens if I do not return my proxy card?
A: Because the affirmative vote of the holders of a majority of the shares of
our common stock outstanding on the record date is required to approve the
split transaction, unless you vote in person, a failure to return your
proxy card will have the same effect as voting against the split
transaction proposal.
Q: What do I need to do now?
A: After carefully reading and considering the information contained in this
proxy statement, please vote your shares of common stock as soon as
possible. You may vote your shares by returning the enclosed proxy or by
voting in person at the annual meeting of stockholders. This proxy
statement includes detailed information on how to cast your vote.
Q: If my shares are held for me by my broker, will my broker vote those
shares for me?
A: Your broker will vote your shares only if you provide instructions to your
broker on how to vote. You should instruct your broker on how to vote your
shares using the voting instruction card provided by your broker.
7
Q: Can I change my vote after I have mailed my proxy card?
A: Yes. You can change your vote at any time before your proxy is voted at
the annual meeting by following the procedures outlined in this proxy
statement.
Q: Do I need to attend the annual meeting in person?
A: No. You do not have to attend the annual meeting to vote your NEIB shares.
Q: Will I have appraisal or dissenters' rights in connection with the split
transaction?
A: No. Under Delaware law, which governs the split transaction, you do not
have the right to demand the appraised value of your shares or any other
dissenters' rights if you vote against the proposed split transaction.
Your rights are described in more detail under "PROPOSAL 1--THE SPLIT
TRANSACTION--Appraisal Rights and Dissenters' Rights" at page 35.
Q: Should I send in my stock certificates now?
A: No. If you own in record name fewer than 125 shares of common stock of
record on the date the split transaction is completed, our transfer agent
will send you written instructions for exchanging your stock certificates
for cash. If you own in record name 125 or more shares of our common
stock, you will continue to hold the same shares after the split
transaction as you did before.
Q: If I own fewer than 125 shares and cannot locate my stock certificates,
what should I do?
A: If you are entitled to receive cash in the split transaction you will be
sent a Letter of Transmittal with instructions for tendering your stock
certificates. Those instructions will explain what to do if you cannot
find your stock certificates. Generally, you will need to submit a lost
share affidavit and a fee for a surety bond in lieu of submitting the
lost, misplaced or destroyed stock certificate.
Q: What are the tax consequences of the split transaction to me?
A. There will be no tax consequences to you if you own more than 125 shares
of NEIB common stock or if you hold shares with a brokerage firm or bank
that owns in the aggregate more than 125 shares of NEIB common stock. If
you receive cash in the split transaction because you own fewer than 125
shares of NEIB common stock, you will generally recognize gain or loss in
the split transaction in an amount determined by the difference between
the cash you receive and your adjusted tax basis in your shares of common
stock surrendered. See "PROPOSAL 1--THE SPLIT TRANSACTION--Federal Income
Tax Consequences."
Q: Where can I find more information about NEIB?
A. We file periodic reports and other information with the SEC. You may read
and copy this information at the SEC's public reference facilities. Please
call the SEC at 1-800-SEC-0330 for information about these facilities.
This information is also available at the Internet site maintained by the
SEC at http://www.sec.gov. General information about us is available at
our Internet site at www.firstfedhuntington.com; the information on our
Internet site is not incorporated by reference into this proxy statement
and does not form a part of this proxy statement. For a more detailed
description of the information available, please see pages 51 through 52.
8
Q: Who can help answer my questions?
A. If you have questions about the split transaction after reading this proxy
statement or need assistance in voting your shares, you should contact
Michael S. Zahn, our President, or Randy J. Sizemore, our Senior Vice
President, Treasurer and Chief Financial Officer, at (260) 358-4680.
9
ABOUT THE ANNUAL MEETING
Date, Time and Place of Annual Meeting
Our Board of Directors is asking for your proxy for use at our annual
meeting of stockholders to be held on __________, June ___, 2005, at 1:00 p.m.,
local time, at the Bank's North Office located at 100 Frontage Road, Huntington,
Indiana, and at any adjournments or postponements of that meeting.
Matters to be Considered at the Annual Meeting
The purpose of the annual meeting is for you to consider and vote upon:
Proposal 1: The adoption of amendments to our certificate of incorporation
that will result in a reverse, followed by a forward, stock split transaction.
This transaction is comprised of:
o a reverse stock split, in which each 125 shares of our common stock
held in the record name of a stockholder at the effective time of
the reverse stock split will be converted into one share of common
stock; followed immediately by
o a forward stock split, in which each share of common stock
outstanding after completion of the reverse stock split will be
converted into 125 shares of common stock.
Each record stock holder owning fewer than 125 shares of common stock
immediately prior to the reverse stock split will receive a cash payment of
$23.50 per share on a pre-split basis.
Proposal 2: The election of two directors to serve until 2008.
Proposal 3: The ratification of the appointment by the company's Audit
Committee of Crowe Chizek and Company LLC as independent auditors for NEIB for
the fiscal year ending December 31, 2005.
Proposal 4: Any necessary adjournment of the meeting to permit further
solicitation of proxies in the event that insufficient shares are represented at
the meeting.
Stockholders are also being asked to consider and vote upon any other
matters that may properly be submitted to a vote at the meeting or any
adjournment or postponement of the annual meeting. The Board is not aware of any
other business to be conducted at the annual meeting.
Record Date; Voting Power
You may vote at the annual meeting if you were the record owner of shares
of our common stock at the close of business on April ___, 2005, which has been
set as the record date. At the close of business on the record date, there were
1,432,279 shares of our common stock, $.01 par value per share, outstanding. You
are entitled to one vote on each matter considered and voted upon at the annual
meeting for each share of common stock you held of record at the close of
business on the record date.
Quorum
The presence, in person or by proxy, of one-third of our outstanding
shares is necessary to constitute a quorum at the annual meeting. Abstentions
and broker non-votes are counted for purposes of establishing a quorum at the
annual meeting.
10
Vote Required for Approval
Approval of the split transaction (Proposal 1) requires the affirmative
vote of the holders of a majority of all outstanding shares of our common stock
entitled to vote at the annual meeting, or 716,140 of the 1,432,279 outstanding
shares. Because the executive officers and directors of NEIB and the Bank have
the power to vote a total of 235,316 shares and because we believe that all of
the executive officers and directors will vote in favor of the transaction, this
means a total of 480,824 shares held by stockholders who are not executive
officers or directors of the company or the Bank will be required to vote in
favor of the transaction for it to be approved. Because the executive officers
and directors hold only approximately 16.4% of the voting power of our
outstanding common stock, there is no assurance that the split transaction will
be approved. Approval of the amendments and the split transaction do not require
the separate vote of a majority of our unaffiliated stockholders, and no
separate vote will be conducted. Because broker non-votes and abstentions are
not affirmative votes, they will have the effect of a vote against the split
transaction.
The election of directors (Proposal 2) will be determined by a plurality
of the votes cast at the annual meeting. Plurality means that the individuals
who receive the largest number of votes cast are elected up to the maximum
number of directors to be elected at the meeting. Broker non-votes, abstentions
and instructions to withhold votes for one or more directors will result in that
nominee receiving fewer votes but will not count as a vote against the nominee.
Ratification of the appointment of Crowe Chizek and Company LLC as our
auditors for 2005 (Proposal 3) requires the affirmative vote of a majority of
the shares of common stock voting on the matter. Abstentions will be treated as
"NO" votes and, therefore, will have an effect on this proposal, while broker
non-votes will have no impact on this proposal.
The proposal to adjourn or postpone the annual meeting (Proposal 4), if
necessary, must be approved by the holders of at least a majority of the shares
of our common stock voting in person or by proxy at the annual meeting.
Abstentions will be treated as "NO" votes and, therefore, will have an effect on
this proposal, while broker non-votes will have no impact on this proposal.
Voting and Revocation of Proxies
You may vote your shares in person by attending the annual meeting, or by
mailing us your completed proxy if you are unable or do not wish to attend. If a
proxy card is submitted without instructions, the proxies will be voted "FOR"
the proposal to approve the split transaction, the director nominees, the
ratification of the selection of Crowe Chizek and Company LLC as auditors for
the company for 2005, and the proposal to adjourn or postpone the meeting, if
necessary.
You can revoke your proxy at any time before the vote is taken at the
meeting by:
o delivering to DeeAnn Hammel, our Secretary, at our corporate offices
at 648 North Jefferson Street, Huntington, Indiana 46750, on or
before the date of the annual meeting, a later-dated and signed
proxy card or a written revocation of the proxy;
o delivering to us at the annual meeting prior to the taking of the
vote a later-dated and signed proxy card or a written revocation;
o attending the annual meeting and voting in person; or
o if you have instructed a broker to vote your shares, following the
directions received from your broker to change those instructions.
11
Revoking a proxy will not affect a vote once it has been taken. Attendance
at the annual meeting will not, in itself, constitute a revocation of a proxy.
You must vote in person at the annual meeting if you wish to change a vote that
you have previously made by submitting a signed proxy.
Solicitation of Proxies; Expenses of Solicitation
We are mailing this proxy material to our stockholders on or about May
___, 2005.
The enclosed proxy is solicited on behalf of our Board of Directors. The
cost of soliciting proxies in the accompanying form will be borne by us. In
addition to the use of mail, our officers and directors may solicit proxies by
telephone or other electronic means. These individuals will receive no
additional compensation for these services, but will be reimbursed for any
transaction expenses incurred by them in connection with these services. Upon
request, we will reimburse brokers, dealers, banks and trustees or their
nominees for reasonable expenses incurred by them in forwarding proxy material
to beneficial owners of shares of existing common stock.
Other Matters to be Considered at Annual Meeting
As of the date of this proxy statement, the only business that our
management expects to be presented at the meeting is that set forth above. If
any other matters are properly brought before the meeting, or any adjournments
thereof, it is the intention of the persons named in the accompanying form of
proxy to vote the proxy on such matters in accordance with their best judgment.
12
PROPOSAL 1 -- THE SPLIT TRANSACTION -- SPECIAL FACTORS
Overview of the Split Transaction
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Northeast Indiana Bancorp, Inc., a Delaware
corporation, and is to be used at an annual meeting at which our stockholders,
among other things, will be asked to consider and vote upon a proposal to amend
our certificate of incorporation. If approved, the amendments will result in a
1-for-125 reverse split of our common stock, followed immediately by a 125-for-1
forward split of our common stock.
If the reverse and forward stock splits are approved as described below,
record holders of fewer than 125 shares of our common stock prior to the reverse
split will no longer be stockholders of the company. Instead, those stockholders
will be entitled only to receive payment of $23.50 per share of common stock
held prior to the reverse split. Record stockholders holding 125 or more
pre-split shares will remain stockholders. We intend, immediately following the
split transaction, to terminate the registration of our shares, and our
registration and further reporting under the Securities Exchange Act of 1934.
If approved by our stockholders at the annual meeting and implemented by
our Board of Directors, the split transaction will generally affect our
stockholders as follows:
STOCKHOLDER POSITION PRIOR EFFECT OF SPLIT TRANSACTION
TO SPLIT TRANSACTION
Stockholders holding in record name 125 or more Stockholders will continue to hold the same number
shares of common stock of shares held pre-split transaction.
Stockholders holding in record name fewer than 125 Shares will be converted into $23.50 per share of
shares of common stock common stock outstanding immediately prior to the
reverse stock split.
Stockholders holding common stock in "street name" The split transaction will be effected at the record
through a nominee (such as a bank or broker) stockholder level. Therefore, regardless of the
number of beneficial holders or the number of shares
held by each beneficial holder, shares held in
"street name" by a bank or broker who holds in the
aggregate more than 125 shares for its customers
will be subject to the forward split, and the
beneficial holders who hold their shares in " street
name" will be continuing stockholders with the same
number of shares as before the split transaction. If
stockholder owns fewer than 125 shares with a bank
or broker who does not own of record at least 125
shares in the aggregate for its customers, that
stockholder will receive $23.50 per share of common
stock outstanding immediately prior to the reverse
stock split.
13
Our Board of Directors will have the discretion to determine if and when
to effect the split transaction, and reserves the right to abandon the
transaction even if it is approved by the stockholders. The split transaction
will become effective upon the filing of the necessary amendments to our
certificate of incorporation with the Delaware Secretary of State or a later
date specified in that filing. The forms of the amendments to our certificate of
incorporation are attached to this proxy statement as Appendix A.
We expect that if the stockholders approve and the Board elects to effect
the split transaction, the split transaction will be completed as soon as
practicable after the annual meeting.
Background of the Split Transaction
As an SEC reporting company, we are required to prepare and file with the
SEC, among other items, the following:
o Annual Reports on Form 10-KSB;
o Quarterly Reports on Form 10-QSB;
o Proxy Statements and related materials;
o Shareholder Annual Reports; and
o Current Reports on Form 8-K.
In addition to the burden on management, the costs associated with these
reports and other filing obligations comprise a significant corporate overhead
expense. These costs include securities counsel fees, auditor fees, special
Board and committee meeting fees, costs of printing and mailing stockholder
documents, and EDGAR filing costs. For 2004, the total costs, including costs of
management and staff time, of being a public company were $150,844. These costs
have been increasing over the years, and we believe they will continue as a
significant expense of the company, particularly as a result of the additional
reporting and disclosure obligations imposed on SEC-reporting companies by the
recently enacted the Sarbanes-Oxley Act of 2002 ("SOX"). We estimate that our
costs and expenses incurred in connection with being a public company increased
by approximately $6,250 in 2004. We are projecting additional increases in such
costs in 2005 of approximately $37,150.
In addition, if the company does not go private before the end of 2006, it
will need to comply with the requirements of Section 404 of SOX. Under that
Section, the company is required to include a report of management on the
company's internal control over financial reporting and an attestation report of
the company's independent auditors on management's assessment of the company's
internal control over financial reporting. The costs of such compliance are
estimated at $100,000 in 2006 (assuming the company outsources the project).
Each year after 2006, additional costs associated with Section 404 compliance
are also anticipated and these could be as much as $50,000 per year. These costs
will be avoided if the stockholders approve the reverse/forward stock split
described in the accompanying proxy statement. The deadline for compliance with
Section 404 was recently extended by the SEC for one year for public
corporations like the company. Prior to that extension, the company had
estimated total costs of being a public company in 2005 at $288,000, assuming
the need to comply with Section 404.
Our Board of Directors and management believe that the recurring expense
and burden of our SEC-reporting requirements described above are not cost
efficient for NEIB. Becoming a non-SEC reporting company will allow us to avoid
these costs and expenses. In addition, once our SEC reporting obligations are
suspended, we will not be subject to the provisions of SOX or the liability
provisions of the Securities Exchange Act of 1934, as amended, and our officers
will not be required to certify the
14
accuracy of our financial statements under SEC rules. However, we will continue
to be subject to the rules and regulations imposed by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation, including those
relating to financial reporting.
There can be many advantages to being a public company, including a more
active trading market and the enhanced ability to use company stock to raise
capital or make acquisitions. However, there is a limited market for our common
stock, and we have therefore not been able to effectively take advantage of
these benefits. This may be due, in part, to the relatively few number of
stockholders owning the company's common stock and the fact that our directors
and executive officers beneficially own approximately 19.8% of our outstanding
shares. In the past twelve months ending April 30, 2005, our common stock was
not traded at all on ______ of the trading days. On the days traded during such
period, our common stock had an average trading volume of ____ shares. Moreover,
our limited trading market makes it difficult for our stockholders to liquidate
a large number of shares of our stock without negatively affecting the per share
sale price. In contrast, the split transaction will allow our small stockholders
to sell their shares at a fixed price that will not decline based upon the
number of shares sold, and allow them to do so without incurring typical
transaction costs.
Another potential advantage of being a public company is the ability to
access capital markets to meet additional capital needs. However, since becoming
a public company in 1995, we have had no additional capital needs. We have also
not made any additional public offerings of common stock or any other equity or
debt securities since our organization in 1995. In addition, we have not used
our common stock as consideration for any acquisition. Currently, we do not
anticipate issuing additional shares of common stock in either public or private
transactions.
For these and other reasons noted below, our Board of Directors and
management have concluded that the benefits of being an SEC-reporting company
are substantially outweighed by the burden on management and the expense related
to the SEC reporting obligations. As a result, during 2004 our management began
to explore the possibility of reducing our number of record stockholders to
below 300 in order to suspend our periodic reporting obligations to the SEC.
At a regular NEIB Board meeting held on October 26, 2004, the directors
invited representatives of Keefe, Bruyette & Woods, Inc. ("KBW") to discuss the
market for mergers and acquisitions of financial institutions and the benefits
and disadvantages of going private. KBW also presented information on a possible
merger of NEIB with a bank in its market area of comparable asset size and
income. The burdens and costs and potential liabilities associated with being a
public company were discussed at that meeting. Steps that could be taken to
become a private company, including a reverse stock split, stock repurchases or
a tender offer were examined. The directors focused on the strategic direction
of the Bank and prospects for growth in our market area if we remained an
independent community bank. The directors agreed to continue their discussion of
these issues at the Audit Committee meeting on November 8, 2004.
At that Audit Committee meeting, a representative of Crowe Chizek and
Company LLC discussed the anticipated costs of required procedures for complying
with Section 404 of SOX in 2005. An outline of the pros and cons of becoming a
private company was distributed and discussed at length by the Audit Committee
members.
At the next regular NEIB Board meeting held on November 30, 2004, the
Company's Chief Financial Officer, Randy J. Sizemore, presented a report showing
the costs of compliance with Section 404 of SOX. The report indicated that it
would cost the Bank approximately $35,000 to do the necessary work internally or
$100,000 to outsource the work to a third party. It was also estimated that the
time that would be required from at least three employees at the Bank, including
Mr. Sizemore, to perform the work in-house would be at an unacceptable level.
15
The directors discussed the fact that from a management time, cost and
liability standpoint, it appeared that it would be in the best interests of NEIB
and its stockholders to become a private company. The directors resolved to
initiate the process of moving forward with a possible going private
transaction, including consulting with legal counsel on the specific methods
that could be taken to cause NEIB's stockholders to fall below 300.
On January 25, 2005, at a regular meeting of NEIB's Board, a
representative of Barnes & Thornburg, prospective legal counsel, made a
presentation of the advantages and disadvantages of going private and available
methods of reducing the number of our record stockholders to allow us to suspend
SEC reporting requirements, including open market stock repurchases, a tender
offer, a cash-out merger or reverse stock split, and a reverse/forward stock
split. For a more detailed discussion of the alternative methods of effecting a
going private transaction that were discussed by the Board see "--Reasons for
the Split Transaction." The representative of Barnes & Thornburg recommended
that, if the Board decided to proceed with a going private transaction, a
Special Committee of outside directors should be formed to consider the
structure and price to be paid in any such transaction and that such Committee
should have the power to employ legal counsel and a financial advisor to
represent it in such an endeavor. The directors discussed the fact that the
annual meeting of stockholders, which is normally held in April of each year,
would need to be delayed if the split transaction were to be presented to a vote
of shareholders at that meeting.
On February 4, 2005, a meeting of three of the four outside directors was
held at which Barnes & Thornburg was hired as counsel to assist NEIB in its
consideration of a going private transaction. The outside directors also
discussed an approach that had been made by a bank outside of NEIB's market area
about a possible affiliation. Although no offer had been made, possible terms of
such an affiliation were discussed. Pros and cons of the potential merger were
discussed, including its potential impact on stockholders, employees and the
community. Strategic alternatives to such a combination were discussed,
including the going private transaction which was expected to have a positive
potential impact on earnings. The directors agreed to reconsider the possible
affiliation and a going private transaction at the next regular Board meeting.
On February 10, 2005, at a special meeting of the Board of Directors at
which a representative of Barnes & Thornburg was present, the directors again
discussed the contact that had been made by a bank outside of its market area
for a possible affiliation. Counsel described the responsibilities of the
directors in evaluating such a contact. Among other things, the directors
discussed their view that the timing of such transaction would not be in the
best interests of stockholders since earnings were expected to improve if the
company achieved the cost savings anticipated from a going private transaction.
The directors also discussed the pricing information for mergers of comparable
financial institutions that had been presented by KBW at the October 26, 2004
Board meeting and noted that the tentative pricing discussions with the possible
merger partner were on the low end of the pricing ranges discussed at that
meeting. The Board also considered other strategic business plans to enhance
stockholder value. After a lengthy discussion, it was concluded that NEIB would
not proceed with discussions with the prospective merger partner and instead
should implement its going private strategy. Legal counsel discussed the
procedures for pursuing such a transaction. After a discussion of these matters,
the Board appointed a Special Committee of its four outside directors to
represent the interests of the company's stockholders who would be cashed out in
a going private transaction. The Committee was empowered to hire a financial
advisor to assist it with a determination of a fair price to be paid to such
cashed out stockholders, and to seek legal assistance from Barnes & Thornburg on
the legal standards applicable to and steps required for the going private
transaction.
On February 11, 2005, a representative of the Special Committee contacted
KBW to discuss its possible engagement as financial advisor to NEIB in the going
private transaction.
16
On March 3, 2005, at a meeting of the Special Committee, KBW presented a
proposed engagement letter to the Special Committee and was hired. The Special
Committee decided to retain KBW based on that firm's extensive experience,
knowledge and background in valuing financial institutions and holding
companies. At that meeting, KBW discussed the objectives of the going private
transaction and the split transaction structure and process. It also described
that information it had reviewed to assist the Special Committee in determining
a fair price to be paid to non-continuing shareholders in the split transaction.
The Special Committee also discussed possible stock split ratios which
could be used to reduce the number of the company's record stockholders to less
than 300, concluding that a 1 for 125 share split made the most sense given the
company's objectives. Prices that could be paid to such stockholders were
discussed, including the basis for those possible prices. The Special Committee
tentatively concluded, based on the information provided and subject to the
receipt of a fairness opinion from KBW, that $23.50 would be an appropriate
amount to pay non-continuing shareholders in the split transaction.
At a meeting of the Special Committee held on March 16, 2005, a
representative of Barnes & Thornburg again reviewed with the Committee the
potential advantages of the use of a reverse/forward stock split transaction as
a preferred method to go private. For a discussion of the alternatives
considered, see "--Reasons for the Split Transaction." A draft proxy statement
for the annual meeting at which the reverse/forward stock split would be
presented to a vote of stockholders had been circulated prior to the meeting,
along with a draft Schedule 13E-3, and the directors provided comments on those
documents.
Also at the meeting of the Special Committee, the outside directors were
provided with a draft copy of the fairness opinion prepared by KBW. A
representative of KBW reviewed the draft fairness opinion with the outside
directors and described the methodologies used by KBW as a basis for the
fairness opinion. KBW indicated that it would be able to render such an opinion
based on a price of $23.50 per share to the stockholders cashed out in the
transaction. The Special Committee adopted resolutions recommending to the full
Board the proposed split transaction with a cash payment of $23.50 per share to
the stockholders who were to be cashed out in the transaction.
At a special meeting of the Board of Directors held on March 16, 2005,
following the Special Committee meeting, a representative of Barnes & Thornburg
reviewed with the full Board the draft proxy statement for the annual meeting,
the steps that would need to be taken to effect a reverse/forward stock split as
recommended by the Special Committee, and the Schedule 13E-3 that needed to be
filed with the SEC for the split transaction. Following the legal presentation,
KBW delivered to the Board of Directors a draft of its fairness opinion. The
fairness opinion also included a discussion of the assumptions made by KBW in
preparing the opinion. See "-- Fairness Opinion."
After reviewing the draft fairness opinion of KBW and considering the
review by Barnes & Thornburg and following lengthy discussion, the Board
unanimously approved the split transaction by means of a 1 for 125 reverse stock
split followed by a 125 for 1 forward stock split, pursuant to which
stockholders owning less than 125 shares would receive $23.50 in cash for their
pre-split shares of our common stock. Following the Board's determination of the
$23.50 per share price, KBW delivered its oral opinion that the $23.50 per share
cash consideration to be paid to stockholders holding fewer than 125 shares of
our common stock prior to the reverse stock split was fair from a financial
point of view to our non-continuing stockholders who will be cashed out in the
transaction.
On March ___, 2005, KBW delivered to us its written fairness opinion,
dated March 16, 2005, a copy of which is attached as Appendix B.
17
Reasons for the Split Transaction
NEIB is undertaking the split transaction at this time to end our SEC
reporting obligations, which will enable us to save the company and our
stockholders the substantial costs associated with being a reporting company.
The specific factors considered in electing at this time to undertake the split
transaction and become a non-SEC reporting company are as follows:
o We estimate that we will eliminate costs of approximately $177,750
on an annual basis by eliminating the requirement to make periodic
reports and reducing the expenses of stockholder communications.
These expenses include legal expenses ($50,000), accounting expenses
($45,000), printing and EDGAR costs ($10,500), NASDAQ listing fees
($24,500), newswire costs ($4,250), and costs of staff and
management time spent on reporting and securities law compliance
matters ($43,500).
o If the company does not go private before the end of 2006, it will
need to comply with the requirements of Section 404 of SOX. Under
that Section, the company is required to include a report of
management on the company's internal control over financial
reporting and an attestation report of the company's independent
auditors on management's assessment of the company's internal
control over financial reporting. The costs of such compliance are
estimated at $100,000 in 2006, (assuming the company outsources the
project). Each year after 2006, additional costs associated with
Section 404 compliance are also anticipated and these could be as
much as $50,000 per year. These costs will be avoided if the
stockholders approve the reverse/forward stock split described in
the accompanying proxy statement.
o We believe that, as a result of the recent disclosure and procedural
requirements resulting from SOX, the legal, accounting and
administrative expense, and diversion of our Board of Directors,
management and staff effort necessary to continue as an
SEC-reporting company will remain significant, particularly in view
of the requirements of Section 404, without a commensurate benefit
to our stockholders. We expect to continue to provide our
stockholders with company financial information by disseminating our
annual reports, but we anticipate that the costs associated with
these reports will be substantially less than those we incur
currently.
o In the Board of Directors' judgment, little justification exists for
the continuing direct and indirect costs of registration with the
SEC, which costs have recently increased as a result of SOX, given
the low trading volume in our common stock and that our earnings are
sufficient to support growth and we therefore do not depend on
raising capital in the public market, and do not expect to do so in
the near future. If it becomes necessary to raise additional
capital, we believe that there are adequate sources of additional
capital available, whether through borrowing at the holding company
level or through private or institutional sales of equity or debt
securities, although we recognize that there can be no assurance
that we will be able to raise additional capital if required, or
that the cost of any required additional capital will be attractive.
o The expense of administering accounts of small shareholders is
disproportionate to their ownership in the company. As of the record
date, approximately 222 of our 403 shareholders of record
beneficially own fewer than 125 shares of our common stock. These
shareholders owned less than 1% of our shares of common stock on the
record date. A disproportionate amount of our administrative
expenses relating to stockholder accounts and reporting requirements
is attributable to those stockholders.
18
o The split transaction allows non-continuing stockholders to receive
fair value and cash for their shares, in a simple and cost-effective
manner, particularly given the possible ineffectiveness and
inefficiencies of a tender offer, an open market share repurchase or
a cash-out merger. Stockholders owning under 125 shares may find it
uneconomical to dispose of those shares due to minimum brokerage
commissions which are often charged.
o The split transaction will allow the non-continuing stockholders to
realize what our Board has determined to be fair value for their
NEIB common stock, without incurring brokerage commissions. In
reaching this conclusion, our Board considered, among other factors,
the fairness opinion prepared by KBW. Our Board also considered that
the $23.50 price represents 19.4 times earnings for 2004 (excluding
the one-time impairment charge for agency preferred stock of
$735,500), a 28.2% premium over our book value as of December 31,
2004, and a 14.3% premium over the ten-day average of the market
prices of the company's shares on March 15, 2005, the day prior to
the announcement of its proposed split transaction.
o Completing the split transaction at this time will allow us to begin
to realize cost savings, and will allow our management to focus on
long-term beneficial business prospects to our stockholders,
customers and communities.
We considered that some stockholders may prefer to continue as
stockholders of NEIB as an SEC-reporting company, which is a factor weighing
against the split transaction. However, we believe that the disadvantages of
remaining a public company subject to the registration and reporting
requirements of the SEC outweigh any advantages. We have no present intention to
raise capital through sales of securities in a public offering in the future or
to acquire other business entities using stock as the consideration for such
acquisition. Accordingly, we are not likely to make use of advantages that our
status as an SEC-reporting company may offer.
In view of the wide variety of factors considered in connection with its
evaluation of the split transaction, our Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors it considered in reaching its determinations.
We considered various alternative transactions to accomplish the proposed
transaction, but ultimately elected to proceed with the split transaction. The
following were the alternative transactions considered, but rejected:
o Tender Offer to Stockholders. Our Board of Directors determined that
it would require more funds to effect a tender offer. In addition,
there might not be a sufficient number of record stockholders
tendering their shares to reduce the number of record stockholders
below 300, resulting in the requirement of a second-step merger.
o Open Market Stock Repurchase. The Board considered announcing a
stock buy-back plan and purchasing shares on the open market.
Although the expenses associated with such a transaction would be
low, it might not result in the desired reduction of stockholders of
record. The Board determined that an open market stock repurchase
might not achieve the record stockholder reduction objective.
o Cash-Out Merger. The Board considered a cash-out merger of the
company into a newly-formed corporation, with the conversion of the
outstanding shares occurring in the same general manner and ratios
as in the split transaction. This type of merger would have the same
net effect on our stockholders as the split transaction. However,
the Board determined that a cash-out merger was not a preferable
option because it did not offer any advantages
19
over the split transaction, but would have required the formation of
a new corporation, more documentation than the split transaction,
including a plan of the merger, and likely increased costs.
o Business Combination. Although during the last 12 months, the Board
considered possible affiliations with other financial institutions,
it concluded that NEIB's stockholders would be better served if NEIB
achieved the cost savings attributable to going private and focused
on business strategies to enhance stockholder value as an
independent customer-oriented and community-based financial
institution.
o Maintaining the Status Quo. The Board considered maintaining the
status quo. In that case, we would continue to incur the significant
expenses, as outlined above, of being an SEC-reporting company
without the expected commensurate benefits. Thus, the Board
considered maintaining the status quo not to be in our best
interests or the best interests of our stockholders and rejected
this alternative.
Fairness of the Split Transaction
Based on a careful review of the facts and circumstances relating to the
split transaction, our Board of Directors believes that the split transaction
and the terms and provisions of the split transaction, including the cash to be
paid to unaffiliated non-continuing stockholders, are substantively and
procedurally fair to our stockholders. Our Board of Directors unanimously
approved the split transaction.
Substantive Fairness
In concluding that the terms and conditions of the split transaction,
including the cash to be paid to the non-continuing stockholders, are
substantively fair to our unaffiliated stockholders, our Board of Directors
considered a number of factors.
The factors that our Board of Directors considered positive for all
unaffiliated stockholders, including both those that are continuing and
non-continuing stockholders, included the following:
o our smaller stockholders who prefer to remain as stockholders of
NEIB, despite the Board's recommendation, may elect to do so by
acquiring sufficient shares so that they hold at least 125 shares of
common stock in their own names immediately prior to the split
transaction;
o beneficial owners who hold their shares in "street name," who would
be cashed out if they were record owners instead of beneficial
owners, and who wish to be cashed out as if they were record owners
instead of beneficial owners, can work with their broker or nominee
to transfer their shares into a record account in their own name so
that they will be cashed out; and
o stockholders receive limited benefit from our being an SEC-reporting
company because of our size and the limited trading of our common
stock.
In addition to the positive factors applicable to all of our stockholders
set forth above, the factors that the Board of Directors considered beneficial
for the stockholders that are non-continuing stockholders included:
o the cash price of $23.50 represents a 28.2% premium over the book
value of our common stock as of December 31, 2004, and a 14.3%
premium over the ten-day average of the market prices of our common
stock on March 15, 2005, the day before the split transaction
20
was announced, and represents 19.4 times earnings for 2004
(excluding the one-time $735,500 impairment charge for agency
preferred stock);
o our common stock trades infrequently, not trading at all on ____ of
the ____ trading days during the twelve months ended April 30, 2005,
and with an average trading volume on the trading days during that
period of only ____ shares, a volume that the Board felt did not
provide our stockholders with sufficient opportunity to readily
obtain cash for a significant number of shares;
o the cash to be paid to non-continuing in the split transaction will
provide certainty of value to those stockholders and immediate
liquidity for them; and
o no brokerage or other transaction costs are to be incurred by them
in connection with the transfer of their shares to the company.
The factors that the Board of Directors considered positive for the
stockholders that are continuing stockholders included:
o they will continue to have the opportunity to participate in our
future growth and earnings;
o they will realize the potential benefits of termination of
registration of our common stock, including reduced expenses as a
result of no longer needing to comply with SEC reporting
requirements;
o the fact that we anticipate that our shares will continue to be
traded on the OTCBB or in the pink sheets electronic quotation
system after the split transaction, which will provide opportunities
for continuing stockholders to trade their shares in the future; and
o the two step structure of the split transaction will avoid
disruption to holders of 125 or more shares of our common stock, who
are not being cashed out in the transaction, by avoiding the
requirement that these stockholders forward their stock certificates
to the company for cash for fractional shares of common stock and
replacement stock certificates for whole shares of common stock.
The Board also considered the per-share purchase price to be fair from the
perspective of continuing stockholders, as it was based on a price that willing
buyers and sellers pay for the shares on the market, and that the purchase of
shares in the split transaction at this price to be a good use of the company's
excess capital at this time.
The Board is aware of, and has considered, the impact of certain
potentially countervailing factors on the substantive fairness of the split
transaction to the non-continuing stockholders, including that:
o they will be required to surrender their shares involuntarily in
exchange for the cash-out price determined by the Board without the
opportunity to liquidate their shares at a time and for a price of
their choosing;
o they will not have the opportunity to participate in any of our
future growth, earnings and dividends; and
o they will be required to pay income tax on the receipt of cash in
the split transaction.
The factors that our Board of Directors considered as potentially negative
for the stockholders that are continuing stockholders included:
21
o they will have reduced access to our financial information once we
are no longer an SEC-reporting company, including forms filed by our
directors and executive officers reporting changes in their
beneficial ownership, although we do intend to continue to provide
the continuing stockholders with our annual reports and NEIB and the
Bank will continue to be subject to the filing requirements of the
Office of Thrift Supervision and the Federal Deposit Insurance
Corporation;
o the continuing stockholders will lose certain anti-takeover
protections provided to public companies under Delaware law, see
"Effects of the Split Transaction on NEIB--Effect on Statutory
Anti-Takeover Protections;"
o the fact that future business partners might require more
information from us before entering into a business relationship due
to the lack of publicly available information about us;
o the fact that we may have a lower public profile in our community,
which may be a negative factor with some of our customers;
o the fact that continuing stockholders will lose certain protections
currently provided under the Securities Exchange Act of 1934, such
as limitations on short-swing transactions by executive officers and
directors under Section 16 of that Act;
o the liquidity of our shares of common stock held by continuing
shareholders may be further reduced by the termination of the
registration of the common stock under the Securities Exchange Act
of 1934 and the delisting of the common stock from the Nasdaq
market. Future trading in our shares after we go private if it
occurs will only occur in the OTCBB, the pink sheets electronic
quotation system or in privately negotiated sales;
o the company expects to pay approximately $417,000 (including
expenses) to effect the split transaction. The company anticipates
that the book value per share of common stock as of December 31,
2004, will be reduced from $18.33 per share on a historical basis to
$18.23 per share on a pro forma basis, which represents a 0.5%
change in the book value per share of our common stock as a result
of the split transaction; and
o net income for the year ended December 31, 2004 would decrease from
$1,718 ($1.21 per share) on a historical basis to approximately
$1,667 (or $1.17 per share) on a pro forma basis as a result of the
split transaction.
Our Board of Directors believes that these potentially countervailing
factors did not, individually or in the aggregate, outweigh the overall
substantive fairness of the split transaction to our stockholders, whether they
be continuing or non-continuing stockholders and that the foregoing factors are
outweighed by the positive factors previously described.
Procedural Fairness
We believe that the split transaction is procedurally fair to our
unaffiliated stockholders, including those that are continuing stockholders and
those that are non-continuing stockholders. The factors that our Board of
Directors considered positive for all stockholders, including both continuing
and non-continuing stockholders, included the following:
o the split transaction is being effected in accordance with all
applicable requirements of Delaware law;
22
o our Board of Directors formed a Special Committee of independent
directors to represent stockholders who will be cashed out in the
split transaction;
o the Board obtained a fairness opinion from an independent third
party concerning the price to be paid to cash out stockholders, and
the Special Committee imposed no limitations upon KBW with respect
to the investigation made or procedures followed in rendering its
fairness opinion;
o the Special Committee retained and received advice from legal
counsel in evaluating the terms of the split transaction;
o management and the Board considered alternative methods of effecting
a transaction that would result in our becoming a non-SEC reporting
company, each of which was determined to be impractical, more
expensive than the split transaction, or potentially ineffective in
achieving the goals of providing cash and value to the
non-continuing stockholders as soon as possible and eliminating the
costs and burdens of public company status;
o stockholders will have the opportunity to determine whether or not
they will remain stockholders after the split transaction by
acquiring sufficient shares so that they hold at least 125 shares
immediately prior to the split transaction or selling sufficient
shares so that they hold fewer than 125 shares immediately prior to
the split transaction, so long as they act sufficiently in advance
of the split transaction so that the sale or purchase is reflected
in our stockholder records by the close of business (local time) on
the effective date of the split transaction; and
o NEIB has sufficient cash resources to undertake the necessary
actions to finance the split transaction, with total costs estimated
at $85,000, and therefore the split transaction should not
materially affect our financial condition and results of
operations..
The Board is aware of, and has considered, the impact of the following
potentially countervailing factors, which affect both continuing and
non-continuing stockholders to the same degree, on the procedural fairness of
the split transaction:
o the transaction is not structured to require approval of at least a
majority of stockholders being cashed out in the split transaction;
however, we determined that any such voting requirement would
improperly usurp the power of the holders of a majority of our
outstanding shares to consider and approve the proposed amendments
as provided in our certificate of incorporation and under Delaware
law;
o no appraisal or dissenters' rights are available under Delaware law
to stockholders who dissent from the split transaction; and
o we did not receive a valuation of our common stock by an independent
appraiser.
The Board of Directors believes that the foregoing potentially
countervailing factors did not, individually or in the aggregate, outweigh the
overall procedural fairness of the split transaction to our stockholders,
whether they are continuing or non-continuing stockholders, and the foregoing
factors are outweighed by the procedural safeguards previously described.
In addition, with respect to the determination not to seek a valuation,
our Board felt that the fairness opinion to be given by KBW provided sufficient
procedural safeguards with respect to the cash to
23
be paid to the non-continuing stockholders, and determined that it would be
unnecessary to incur the additional cost associated with obtaining a valuation.
Because stockholders will have the opportunity to adjust their share
ownership levels and thereby elect whether or not to remain a stockholder, the
Board did not consider the absence of appraisal rights to be a significant
factor with respect to the split transaction.
We therefore believe that the split transaction is substantively and
procedurally fair to our stockholders, including those that are continuing
stockholders and those that are non-continuing stockholders, for the reasons and
factors described above. In reaching this determination, we have not assigned
specific weights to particular factors, and we considered all factors as a
whole.
We have not made any provision in connection with the split transaction to
grant unaffiliated stockholders access to our corporate files or to obtain
counsel or appraisal services at our expense. With respect to unaffiliated
stockholders' access to our corporate files, our Board determined that this
proxy statement, together with our other filings with the SEC, provide adequate
information for unaffiliated stockholders. With respect to obtaining counsel or
appraisal services solely for unaffiliated stockholders at our expense, the
Board did not consider these actions necessary or customary. Our Board also
considered the fact that under Delaware corporate law, and subject to certain
conditions set forth under Delaware law, stockholders have the right to review
our relevant books and records of account.
Effects of the Split Transaction on Affiliates
The split transaction will impact both affiliated and non-affiliated
stockholders of the company. As used in this proxy statement, the term
"affiliated stockholder" means any stockholder who is a director or executive
officer of the company, and the term "unaffiliated stockholder" means any
stockholder other than an affiliated stockholder. As the affiliates of the
company are all believed to own over 125 shares of company common stock, the
effects of the split transaction on each of the affiliated stockholders will be
the same. We expect that our executive officers and directors will continue to
beneficially own approximately 295,265 shares as a group immediately after the
split transaction. For more information regarding the beneficial ownership of
directors and executive officers of the company, see "PROPOSAL 2--ELECTION OF
DIRECTORS OF NEIB--Voting Securities and Principal Holders Thereof."
Other potential effects of the split transaction which are unique to the
affiliated shareholders include the following:
o Reduced reporting requirements for officers and directors. The
directors and executive officers will no longer be subject to the
reporting and short-swing profit provisions under the Securities
Exchange Act of 1934 with respect to changes in their beneficial
ownership of our common stock.
o Share Ownership. If the split transaction occurs, we expect that the
percentage of beneficial ownership of common stock of the company
held by executive officers and directors of the company as a group
will increase from 19.8% to 20.0%, resulting in greater voting power
for affiliated stockholders and less for non-affiliated
stockholders.
Determination of Fairness of Split Transaction By Affiliates
J. David Carnes, M.D., Stephen E. Zahn, William A. Zimmer, Dan L. Stephan,
Michael S. Zahn, Randall C. Rider, Randy J. Sizemore, DeeAnn Hammel and Thomas
P. Frantz are considered "affiliates" of the company due to their positions in
senior management and/or on the Board of Directors of the company. The
affiliates who are not Board members reviewed the same information regarding the
split transaction that the Board reviewed and considered the same factors as the
Board of Directors. Each of
24
these affiliates adopts the analysis of the Board of Directors which is
discussed in this proxy statement and has separately determined that the split
transaction is fair to affiliated and unaffiliated stockholders.
Board Recommendation
Our Board of Directors believes the terms of the split transaction are
fair and in the best interests of our stockholders and unanimously recommends
that you vote "FOR" the adoption of the amendments to our certificate of
incorporation that will allow us to effect the split transaction.
Fairness Opinion of Financial Advisor
At a meeting of the Special Committee of our Board of Directors (the
"Committee") on March 16, 2005, Keefe, Bruyette, and Woods, Inc. ("KBW")
rendered an opinion as investment bankers as to the fairness, from a financial
point of view, to the shareholders of NEIB of the consideration received as a
result of cashing out their shares in conjunction with the proposed reverse
stock split. KBW's fairness opinion was addressed to the Board of Directors as
to the fairness of the offer price, from a financial point of view, to the
shareholders of NEIB who will be cashed out, of the consideration received as a
result reverse stock split. The Committee and the Board of Directors, based upon
the recommendation of the Committee, each unanimously approved the offer. KBW `s
opinion does not consider the merits of the Company's decision to privatize, but
addresses only the fairness of the consideration received for those shareholders
being cashed out.
The full text of the opinion of KBW, which is attached as Appendix B to
this document, sets forth certain assumptions made, matters considered and
limitations on the review undertaken by KBW, and should be read in its entirety.
The summary of the KBW opinion set forth in this document and is qualified in
its entirety by reference to the full text of the KBW's opinion. The opinion of
KBW is directed to the Board of Directors and does not constitute a
recommendation to any shareholder as to any action that such shareholder should
take in the offer, or otherwise.
In rendering its opinion, KBW reviewed the following materials relating to
the financial and operating condition:
o Annual reports to stockholders;
o Quarterly reports on Form 10-QSB;
o Certain internal financial analysis and forecasts of NEIB prepared
by management;
o Certain publicly available information concerning the trading of
NEIB common stock; and
o Certain publicly available information with respect to banking
companies and the terms of certain similar type transactions.
KBW discussed with senior management and the Committee the current
position and prospective outlook, including the local economy and growth
prospects. KBW considered historical quotations, levels of activity and prices
of recorded transactions in the common stock and reviewed financial and stock
market data of other thrifts in a comparable asset range and with similar
operating characteristics to NEIB.
In rendering its opinion, KBW assumed and relied upon the accuracy and
completeness of the financial information that was provided. In its review, with
our consent, KBW did not undertake any independent verification of the
information provided by NEIB, nor did it make any independent appraisal or
evaluation of our assets or liabilities.
25
The following is a summary of the material financial analyses performed by
KBW in connection with providing its opinion of March 16, 2005:
Analysis of Recent Trading Activity of Comparable Thrift Institutions
KBW analyzed certain companies of comparable asset size and capital to
asset ratio performance. There were twenty-six companies in the comparable group
with the following characteristics: thrifts located in the Midwest region,
assets between $125 million and $600 million and tangible equity to assets
greater than 9%. The analysis summarizes the average and median trading
multiples of the comparable companies compared to NEIB's implied prices based
off of December 31, 2004 unaudited numbers.
------------------Price to---------------------
Book Tangible Book LTM EPS Qtr EPS
---- ------------- ------- -------
Average 119.8% 126.9% 20.0x 18.0x
Median 116.0% 117.6% 17.1x 17.0x
NEIB Implied:
Average Pricing $21.97 $23.27 $24.22 $21.72
Median Pricing $21.27 $21.55 $20.65 $20.56
LTM - last twelve months
Qtr - quarter
EPS - earnings per share
Discounted Cash Flow Analysis
KBW used a discounted cash flow analysis that analyzed a stream of
dividends and a terminal multiple which incorporated a projection of our
financial operations and cash flow analysis over the next five years to
determine a theoretical valuation range assuming that we operate without
executing the reverse stock split. Key assumptions included:
o Estimated earnings per share for the five years as
provided by management
o Terminal multiple of 12.0x, which is the median price to
earnings per share for all thrifts from 2000 - 2004 and
14.5x, which is the median price to earnings per share
for NEIB from 2000 - 2004
o Discount rate range of 10.0% to 13.0%, based on the
estimated cost of equity capital for small
capitalization financial institutions of 11.7% published
by Ibbotson Associates, a recognized statistical source.
The resulting discount rate was widened to a range of
10.0% to 13.0% to provide flexibility in assessing the
potential changes in the risk profile of equity markets
in general and small capitalization financial
institutions in particular.
26
Sensitivity Analysis
Terminal Multiple
Discount Rate 10.0x 11.0x 12.0x 13.0x 14.0x
------------- ------------------------------------------------
13.0% $ 13.62 $ 14.74 $ 15.87 $ 16.99 $ 18.11
12.0% $ 14.19 $ 15.37 $ 16.54 $ 17.71 $ 18.89
11.7% $ 14.37 $ 15.56 $ 16.75 $ 17.94 $ 19.13
11.0% $ 14.79 $ 16.02 $ 17.25 $ 18.48 $ 19.71
10.0% $ 15.43 $ 16.71 $ 18.00 $ 19.28 $ 20.57
Sensitivity Analysis
Terminal Multiple
Discount Rate 12.5x 13.5x 14.5x 15.5x 16.5x
------------- ------------------------------------------------
13.0% $ 16.43 $ 17.55 $ 18.67 $ 19.79 $ 20.92
12.0% $ 17.13 $ 18.30 $ 19.47 $ 20.65 $ 21.82
11.7% $ 17.34 $ 18.53 $ 19.72 $ 20.91 $ 22.10
11.0% $ 17.86 $ 19.09 $ 20.32 $ 21.55 $ 22.77
10.0% $ 18.64 $ 19.93 $ 21.21 $ 22.49 $ 23.78
Based on the assumptions, KBW's analysis implied that the theoretical
range of values was $13.62 to $20.57 at a terminal multiple of 12.0x and $16.43
to $23.78 at a terminal multiple of 14.5x. Discounted cash flow is a widely used
valuation methodology, but it relies on numerous assumptions, including
projected earnings, terminal values, and discount rates. This analysis does not
purport to be indicative of the actual values or expected values of our common
stock.
Other "Going Private" Transactions
KBW reviewed 13 financial institution reverse stock splits, reverse
mergers or tender offers completed since 2001 to determine the premium of the
reverse stock split price compared to the median trading price of the stock for
the thirty days prior to the announcement. The results were as follows:
Price Range - Premium to 30-day average stock price
---------------------------------------------------
Maximum 40.9%
Minimum (5.9)%
Median 15.9%
In determining fairness of the price to be paid to the certain
shareholders, this premium was applied to the various calculated market prices
obtained above. Given that the $23.50 per share consideration offered to
shareholders in the reverse stock split is greater than or within the
theoretical valuation ranges, KBW believes that this analysis supports the
fairness, from a financial point of view, to the shareholders of NEIB of the
consideration received as a result of cashing out their shares in conjunction
with the proposed reverse stock split.
27
Analysis of Recent Comparable Acquisition Transactions
In order to determine the current market of recent merger transactions to
assist KBW in rendering its opinion, KBW analyzed certain comparable merger and
acquisition transactions of thrift deals, comparing the acquisition price
relative to tangible book value, latest twelve months earnings, and premium to
core deposits. This analysis was completed to determine the amount of
consideration that might be received based on a sale of the entire Company.
However, for purposes of this fairness opinion KBW believes that the
consideration received by the shareholders does not have to represent a change
of control premium. The analysis included a comparison of the average and median
of the above ratios for representative acquisitions where the selling
institution was a thrift located in the Midwest and Southeast regions, had
assets less than $550 million and tangible capital ratio greater than 9%. As a
result of these transaction criteria, the following selling thrifts were used in
analyzing comparable transactions:
Selling Institution:
Citizens First Financial Corp. Generations Bank First Clermont Bank
Lawrence Financial Holdings Frankfort First Bancorp, Inc. HCB Bancshares, Inc.
Mississippi View Holding Co. Western Ohio Financial Corp. North Bancshares, Inc.
Chesterfield Financial Corp. DutchFork Bancshares, Inc. FSF Financial Corp.
The transaction analysis resulted in a range of values for NEIB based upon
comparable thrift merger and acquisition transactions. KBW derived the median
pricing metrics of the aforementioned comparable group and summarized the
results of comparative thrift merger and acquisition transactions and compared
the range of values to the consideration being offered in the reverse stock
split. The comparable thrift merger and acquisition statistics are as follows:
------------ -------------- -----------
Price to Price to Last Core
Tangible 12 Months Deposit
Book Ratio Earnings Premium
--------------------------------------------------------------------------------
Average 150.0% 31.4x 13.5%
--------------------------------------------------------------------------------
Median 145.8% 30.5x 12.9%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NEIB Implied Pricing:
--------------------------------------------------------------------------------
Average $26.38 $30.65 $25.72
--------------------------------------------------------------------------------
Median $25.65 $29.82 $25.36
--------------------------------------------------------------------------------
KBW viewed the aforementioned comparable group as the most appropriate in
deriving a comparable transaction value based on NEIB's size and earnings. KBW
viewed the fact that with the query based on the above criteria producing twelve
transactions with reported pricing metrics in the comparable group as being
statistically significant for the purposes of comparison. KBW viewed the three
resulting metrics (price to tangible book value, price to last twelve months
earnings and core deposit premium) from the comparable transactions on a median
basis, as the key metrics used in this phase of the evaluation.
28
In preparing its analysis, KBW made numerous assumptions with respect to
industry performance, business and economic conditions and other matters, many
of such assumptions are beyond our control. The analyses performed by KBW is not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses and do not
purport to be appraisals or reflect the prices at which a companies securities
will trade.
KBW, as part of its investment banking business, is regularly engaged in
the evaluation of business and securities in connection with securities
transactions, mergers and acquisitions, negotiated transactions, and
distributions of listed and unlisted securities. KBW is familiar with the market
for common stocks of publicly traded banks, thrifts and bank and thrift holding
companies. The Committee selected KBW on the basis of the firm's reputation and
its experience and expertise in transactions similar to the offer.
KBW received a fee of $25,000 for issuing a fairness opinion regarding the
reverse stock split. NEIB has also agreed to reimburse KBW for all reasonable
out-of-pocket expenses and disbursements, which will not exceed $3,000, incurred
in connection with its engagement and to indemnify KBW and its affiliates and
their respective directors, officers, employees, agents, and controlling persons
against certain expenses and liabilities, including liabilities under securities
laws.
Availability of Documents
KBW's fairness opinion is attached as Appendix B to this proxy statement.
In addition, the fairness opinion will be made available for inspection and
copying at our principal executive offices, located at 648 North Jefferson
Street, Huntington, Indiana 46750, during our regular business hours by any
interested stockholder or representative who has been designated in writing. A
copy of these materials will also be sent to any interested stockholder or
representative who has been designated in writing, upon written request and at
the expense of the requesting stockholder.
Structure of the Split Transaction
The proposed transaction has been structured as a two-step stock split
transaction to allow small stockholders easily to obtain the fair value in cash
for their shares, to avoid disruption to stockholders of 125 or more shares who
would not be cashed out in the transaction, and to limit the costs of the split
transaction by avoiding costs associated with cashing out the fractional shares
of the holders of 125 or more shares of common stock and reissuing stock
certificates to those stockholders.
The Board elected to structure the transaction to take effect at the
record stockholder level, meaning that NEIB will look at the number of shares
registered in the name of a single holder to determine if that holder's shares
will be cashed out. The Board chose to structure the transaction this way in
part because it determined that this method would provide NEIB with the best
understanding at the effective time of how many stockholders would be cashed out
and what the exact cost to the company would be, because the company's transfer
agent will be able to provide it with a complete and final list of all record
stockholders at the effective time. In addition, the Board considered that
effecting the transaction at the record stockholder level would allow
stockholders some flexibility with respect to whether they will be treated as
continuing or non-continuing stockholders. The Board felt that this flexibility
would help to enhance the substantive fairness of the transaction to both
continuing and non-continuing stockholders.
If you hold your shares in "street name," you should talk to your broker,
nominee or agent to determine how they expect the split transaction to affect
you. Because other "street name" holders who hold through your broker, agent or
nominee may adjust their holdings prior to the split transaction, you may have
no way of knowing whether you will be cashed out in the transaction until it is
consummated. However, because we think it is unlikely that any brokerage firm or
other nominee will hold in record
29
name fewer than 125 shares in the aggregate, we think it is likely that all
"street name" holders will remain continuing stockholders.
Effects of the Split Transaction on NEIB
The split transaction will have various effects on us, which are described
below.
Effect of the Proposed Transaction on Common Stock and Trading of Common
Stock
Our certificate of incorporation currently authorizes the issuance of
4,000,000 shares of common stock. The number of authorized shares of common
stock will remain unchanged after completion of the split transaction. As of the
record date, the number of outstanding shares of common stock was 1,432,279.
Based upon our best estimates, if the split transaction had been consummated as
of the record date, the number of outstanding shares of common stock would have
been reduced approximately 1.0% from 1,432,279 to approximately 1,418,157, cash
would have been paid for approximately 14,122 shares, and the number of record
stockholders would have been reduced from approximately 403 to approximately
181.
Our common stock is publicly traded on the Nasdaq National Market System
under the symbol NEIB, and we will not be able to trade our common stock on
NASDAQ after we become a private company. We anticipate that our common stock
will be traded on the OTCBB or in the pink sheets electronic quotation system
following the completion of the split transaction.
Termination of Securities Exchange Act Registration and Reporting
Requirements
Upon the completion of the split transaction, we expect that our common
stock will be held by fewer than 300 record stockholders. Accordingly, our
obligation to continue to file periodic reports with the SEC will be suspended
pursuant to Rule 12h-3 of the Securities Exchange Act of 1934.
The suspension of the filing requirement will substantially reduce the
information required to be furnished by us to our stockholders and to the SEC.
Therefore, we estimate that we will eliminate annual costs associated with these
filing requirements, which we estimate to be approximately $177,750 on an annual
basis. These annual costs are broken down as follows:
Description Amount
Independent Auditors (SEC review work) $ 45,000
SEC Counsel $ 50,000
Staff and Executive Time $ 43,500
Printing and EDGAR Costs $ 10,500
Newswire Costs $ 4,250
NASDAQ Listing Fees $ 24,500
---------
Total $ 177,750
=========
In addition, the company anticipates saving a one-time cost of
approximately $100,000 which we estimate would be required to comply with
Section 404 of SOX in 2006 if NEIB does not go private and outsources the
Section 404 compliance. Each year after 2006, additional costs associated with
Section 404 compliance are also anticipated and these could be as much as
$50,000 per year.
We will apply for termination of the registration of our common stock and
suspension of our SEC reporting obligations as soon as practicable following
completion of the split transaction. Following completion of the split
transaction, we intend to continue to provide our stockholders with financial
information by continuing to disseminate annual reports.
30
Elimination of Non-Continuing Stockholders
As a result of the split transaction, all shares held by non-continuing
stockholders will be converted into the right to receive $23.50 in cash. As a
result, the non-continuing stockholders will not have the opportunity to
participate in our earnings and growth after the split transaction. Similarly,
the non-continuing stockholders will not face the risk of losses generated by
our operations or any decline in our value after the split transaction. For more
effects of the split transaction on our stockholders, see "--Fairness of the
Split Transaction."
Effect on Statutory Anti-Takeover Protections
As a result of the split transaction, NEIB will no longer be covered by
Section 203 of the Delaware General Corporation Law which is intended to
discourage certain takeover practices by impeding the ability of an acquiror to
engage in certain transactions with the target company.
In general, the statute provides that a "person" who owns 15% or more of
the outstanding voting stock of a Delaware corporation (an "interested
stockholder") may not consummate a merger or other business combination
transaction with such corporation at any time during the three-year period
following the date such person became an interested stockholder. The term
"business combination" is defined broadly to cover a wide range of corporate
transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
the statute:
o any business combination if, before the date a person became an
interested stockholder, the Board of Directors approved either the
business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
o any business combination involving a person who acquired at least
85% of the outstanding voting stock in the transaction in which he
became an interested stockholder, excluding, for purposes of
determining the number of shares outstanding, shares owned by the
corporation's directors who are also officers and specific employee
stock plans;
o any business combination with an interested stockholder that is
approved by the Board of Directors and by a two-thirds vote of the
outstanding voting stock not owned by the interested stockholder;
and
o certain business combinations that are proposed after the
corporation had received other acquisition proposals and which are
approved or not opposed by a majority of certain continuing members
of the Board of Directors.
Because by statute these provisions apply only to Delaware corporations
that have shares listed on a stock exchange or NASDAQ or with more than 2,000
stockholders, they will not apply to NEIB after we terminate our registration.
However, our Certificate of Incorporation provides that at least 80% of
the outstanding shares of voting stock must approve certain business
combinations involving an "interested stockholder" or any affiliate of an
"interested stockholder." An "interested stockholder" is generally a 10% or
greater stockholder. However, if a majority of directors not affiliated with the
interested stockholder approves the business combination or certain pricing and
disclosure criteria are satisfied, a majority vote of the outstanding shares is
sufficient to approve such a business combination. Moreover, in our certificate
of incorporation approval of holders of at least 80% of voting shares is
required subject to certain exceptions for any direct or indirect purchase or
other acquisition of equity securities from any interested person
31
other than certain acquisitions made on the same terms to all holders of such
securities. These provisions will remain applicable to NEIB following the split
transaction.
Financial Effects of the Split Transaction
We expect that the split transaction and the use of approximately $417,000
in cash to complete the split transaction, which includes approximately $332,000
to be paid to non-continuing stockholders in exchange for their shares, and
approximately $85,000 in professional fees, printing and mailing costs, filing
fees and EDGAR costs, and other expenses related to the split transaction, will
not have any material adverse effect on our capital adequacy, liquidity, results
of operations or cash flow. See "--Fees and Expenses" for a description of the
fees and expenses we expect to incur in connection with the split transaction.
See "--Financing of the Split Transaction" below for a description of how the
split transaction will be financed.
Effect on Options
Upon effectiveness of the split transaction, the number of shares of
common stock subject to outstanding options under NEIB's stock option plans and
the exercise prices of the options will remain the same.
Effect on Conduct of Business after the Transaction
We expect our business and operations to continue as they are currently
being conducted and the transaction is not anticipated to have any effect upon
the conduct of our business. Although we cannot guarantee the continued payment
of a dividend, we do not intend to change our current dividend policy or
practice at this time. No changes in our directors or executive officers are
anticipated to result from the split transaction.
Dividend Payments
The company has declared a dividend of $________ per share payable to
shareholders of record on April ___, 2005. This dividend payment will be paid on
May ___, 2005. Shareholders who are cashed out in the split transaction will
receive that dividend if they were shareholders of record on April ___, 2005.
They are not expected to receive any additional dividend payments on any
dividend for the June 30, 2005 quarter which will not be declared until July,
2005.
Plans or Proposals
As described above, NEIB during the last 12 months considered possible
affiliations with other financial institutions within and outside of its market
area although it never engaged in serious negotiations with any such potential
merger parties and is not engaged in any discussions with such parties at this
time. The company has no present plans to engage in a merger with or acquisition
of any financial institutions. Other than as described in this proxy statement,
neither we nor our management has any current plans or proposals to effect any
extraordinary corporate transaction, either with respect to NEIB or the Bank,
such as a merger, reorganization or liquidation, to sell or transfer any
material amount of our or the Bank's assets, to change either our Board of
Directors or management, to change materially our indebtedness or
capitalization, or otherwise to effect any material change in our corporate
structure or business or that of the Bank. Although our management does not
presently have any intent to enter into any transaction described above, either
at the holding company or Bank level, nor is our management in negotiations with
respect to any such transaction, there is always a possibility that we may enter
into such an arrangement or transaction in the future, including, but not
limited to, entering into a merger or acquisition transaction, making a public
or private offering of our shares or entering into any other arrangement or
transaction we may deem appropriate. In such event, our continuing stockholders
may
32
receive payment for their shares in any such transaction lower than, equal to or
in excess of the amount paid to the non-continuing stockholders in the split
transaction. Any acquisition strategy is dependent upon the opportunities that
might arise, and there can be no certainty that any such transactions will
occur.
Interests of Certain Persons in the Split Transaction
It is not anticipated that the split transaction will have any effect on
the directors and executive officers of NEIB and the Bank, other than with
respect to their relative share ownership. We expect that all of our directors
and executive officers will hold more than 125 shares at the effective time of
the split transaction, and therefore all of those directors and executive
officers will continue to own shares after the split transaction.
Because total outstanding shares will be reduced, the executive officers
and directors as a group will hold a larger relative percentage of the company.
As of the record date, these directors and executive officers collectively
beneficially held 295,265 shares, or 19.8% of our common stock. Based upon our
estimates, taking into account the effect of the split transaction on our
outstanding shares as described above, the directors and executive officers will
beneficially hold 20.0% of our common stock following the split transaction.
This represents a potential conflict of interest because the directors of
NEIB approved the split transaction and are recommending that you approve it.
Despite this potential conflict of interest, the Board believes the proposed
split transaction is fair to our unaffiliated stockholders for the reasons
discussed in this proxy statement.
Financing of the Split Transaction
NEIB expects that the split transaction will require approximately
$417,000 in cash, which includes approximately $332,000 to be paid to
non-continuing stockholders in exchange for their shares and approximately
$85,000 in professional fees, printing and mailing costs, filing fees and EDGAR
costs, and other expenses payable by us related to the split transaction. See
"--Fees and Expenses" for a breakdown of the expenses associated with the split
transaction. NEIB has sufficient working capital at the holding company level to
pay these amounts.
Federal Income Tax Consequences
The following discusses the material federal income tax consequences to us
and our stockholders that would result from the split transaction. No opinion of
counsel or ruling from the Internal Revenue Service has been sought or obtained
with respect to the tax consequences of the split transaction, and the
conclusions contained in this summary are not binding on the Internal Revenue
Service. This discussion is based on existing U.S. federal income tax law, which
may change, even retroactively. This discussion does not discuss all aspects of
federal income taxation that may be important to you in light of your individual
circumstances. In particular, it does not address the federal income tax
considerations applicable to certain types of stockholders, such as: financial
institutions; insurance companies; tax-exempt organizations; dealers in
securities or currency; traders in securities that elect mark-to-market; persons
who hold our common stock as part of a straddle, hedge, risk reduction,
constructive sale, or conversion transaction; persons who are considered foreign
persons for U.S. federal income tax purposes, or who acquired their shares of
NEIB common stock through the exercise of an employee stock option or otherwise
as compensation. In addition, this discussion does not address any state, local,
foreign or other tax considerations. This discussion also assumes that you have
held and, in the case of continuing stockholders will continue to hold, your
shares as capital assets within the meaning of the Internal Revenue Code of
1986, as amended, which we refer to as the Code. Stockholders are encouraged to
33
consult their own tax advisor as to the particular federal, state, local,
foreign and other tax consequences of the split transaction, in light of their
individual circumstances.
The split transaction will constitute a tax-free "recapitalization" for
federal income tax purposes, within the meaning of Section 368(a)(1)(E) of the
Code, meaning that neither NEIB nor the Bank will recognize any gain or loss
with respect to the transaction.
If you continue to hold NEIB common stock immediately after the split
transaction, and you receive no cash as a result of the split transaction, then
you will not recognize any gain or loss or dividend income in connection with
the transaction and you will have the same adjusted tax basis and holding period
in your NEIB common stock as you had in such stock immediately prior to the
split transaction.
If you receive cash as a result of the split transaction and do not
continue to hold shares of NEIB common stock immediately after the split
transaction, you will be treated as having had your shares redeemed by NEIB and
you will recognize gain or loss on the redeemed shares equal to the difference
between the cash and your adjusted tax basis in the redeemed shares. Any
recognized gain will be treated as capital gain unless, the receipt of the cash
is deemed to have the effect of a dividend under Section 302 of the Code to the
extent of your ratable share of NEIB's accumulated earnings and profits with any
remaining amount treated a tax-free return of capital to the extent of your
adjusted tax basis in the redeemed shares with the amount in excess of your
adjusted tax basis being treated as capital gain. Under the principles of
Section 302, you will recognize capital gain rather than dividend income with
respect to the cash received if the redemption is (1) "not essentially
equivalent to a dividend," (2) is "substantially disproportionate," or (3) is a
"complete termination" of the your interest in NEIB. In applying the principles
of Section 302, the constructive ownership rules of Section 318 of the Code will
apply in determining your ownership interest in NEIB.
Whether a redemption by NEIB is "not essentially equivalent to a dividend"
with respect to you will depend on whether the redemption was a "meaningful
reduction" of your interest in NEIB based on the facts and circumstances. For
example, if (1) you exercise no control over the affairs of NEIB (e.g., you are
not an officer, director, or high ranking employee), (2) your relative stock
interest in NEIB is minimal, and (3) your post-split transaction ownership
percentage is less than your pre-split transaction ownership percentage, then
your receipt of cash would be generally regarded as "not essentially equivalent
to a dividend." A redemption would be "substantially disproportionate" and,
therefore, would not have the effect of a distribution of a dividend with
respect to you if the percentage of NEIB shares of common stock actually and
constructively owned by you immediately after the redemption is less than 80% of
the percentage of all shares of NEIB common stock actually and constructively
owned by you immediately before the redemption. Your interest in NEIB is
"completely terminated" if all of the NEIB shares common stock actually and
constructively owned by you are redeemed, unless you make a waiver of family
attribution election and file it with the Internal Revenue Service pursuant to
Section 302(c) of the Code in which case the NEIB common stock constructively
owned by you does not have to be redeemed.
Any capital gain will be long-term capital gain subject to a rate not to
exceed 15% if, as of the date of the exchange, the holding period for your NEIB
shares is greater than one year. Any gain recognized by you and classified as a
dividend under Section 302 of the Code will be treated as either ordinary income
or qualified dividend income. Any gain treated as qualified dividend income will
be taxable to you, if you are an individual shareholder, at the long-term
capital gains rate, provided that you held the shares giving rise to such income
for more than 61 days during the 121 day period beginning 60 days before the
closing date. Gain treated as ordinary income will be taxed at ordinary income
rates.
In all other cases, if you receive cash in lieu of a fractional share of
NEIB common stock, and immediately after the split transaction you
constructively own shares of NEIB common stock, the cash you receive will be
treated: (1) first, as a taxable dividend to the extent of your ratable share of
NEIB's
34
accumulated earnings and profits; (2) then, if the total amount of cash paid in
the split transaction exceeds NEIB's accumulated earnings and profits, as a
tax-free return of capital to the extent of your adjusted tax basis in the
redeemed shares; and (3) finally, to the extent of the cash in excess of your
adjusted tax basis in the redeemed shares, as capital gain from the sale or
exchange of the redeemed shares.
Payments of cash to you for the surrender of your redeemed shares of NEIB
common stock will be subject to information reporting and "backup" withholding
at a rate of 28% of the cash payment, unless you furnish NEIB with your taxpayer
identification number in the manner prescribed in applicable Treasury
Regulations, certify that such number is correct, certify as to no loss of
exemption from backup withholding, and satisfy certain other conditions. Backup
withholding is not an additional tax. Any amounts withheld from payments to you
under the backup withholding rules will be allowed as a refund or credit against
your United States federal income tax liability, provided the required
information is furnished to the Internal Revenue Service.
As explained above, the amounts paid to you as a result of the split
transaction may result in dividend income, capital gain income, or some
combination of dividend and capital gain income to you depending on your
individual circumstances. The foregoing discussion of material United States
federal income tax consequences of the split transaction set forth above
represents general information only and is based upon the Code, its legislative
history, existing and proposed regulations thereunder, published rulings and
decisions, all as currently in effect as of the date hereof, and all of which
are subject to change, possibly with retroactive effect. You should consult your
tax advisor as to the particular federal, state, local, foreign and other tax
consequences of the split transaction, as well as the applicability of the
alternative minimum tax to you, in light of your specific circumstances.
Appraisal Rights and Dissenters' Rights
No appraisal or dissenters' rights are available under Delaware law to
stockholders who dissent from the split transaction. There may exist other
rights or actions under Delaware law or federal or state securities laws for
stockholders who can demonstrate that they have been damaged by the split
transaction. Although the nature and extent of these rights or actions are
uncertain and may vary depending upon facts or circumstances, stockholder
challenges to corporate actions in general are related to the fiduciary
responsibilities of corporate officers and directors and to the fairness of
corporate transactions.
Regulatory Requirements
In connection with the split transaction, we will be required to make a
number of filings with, and obtain a number of approvals from, various federal
and state governmental agencies, including:
o filing of amendments to NEIB's certificate of incorporation with the
Delaware Secretary of State, in accordance with Delaware law; and
o complying with federal and state securities laws, including filing
of this proxy statement on Schedule 14A and a transaction statement
on Schedule 13E-3 with the SEC.
Accounting Treatment
We anticipate that we will account for the split transaction by treating
the shares repurchased in the split transaction as treasury shares.
35
Fees and Expenses
We will be responsible for paying the split transaction related fees and
expenses, consisting primarily of fees and expenses of our financial advisor,
attorneys, printing and mailing costs, filing fees and EDGAR costs, and other
related charges. We estimate that our expenses will total approximately $85,000,
assuming the split transaction is completed. This amount consists of the
following estimated fees:
Description Amount
KBW fees and expenses $ 28,000
Legal fees and expenses $ 26,000
Paying agent fees and expenses $ 5,000
Printing and mailing costs $ 20,000
Filing Fees and EDGAR charges $ 1,000
Miscellaneous expenses $ 5,000
----------
Total $85,000.00
==========
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
Set forth below is our selected historical and pro forma consolidated
financial information. The historical financial information was derived from the
audited consolidated financial statements included in our Annual Report on Form
10-KSB for the fiscal year ended December 31, 2004, and from other information
and data contained in the Annual Report. More comprehensive financial
information is included in the Annual Report. The financial information that
follows is qualified in its entirety by reference to, and should be read in
conjunction with, the Annual Report, and all of the financial statements and
related notes contained in the Annual Report, copies of which may be obtained as
set forth below under the caption "Other Matters--Where You Can Find More
Information."
The following summary pro forma balance sheet data is based on historical
data, adjusted to give effect to the cash payment for fractional shares
resulting from the transaction and expenses related to the transaction. The pro
forma balance sheet data is based on the assumption that an aggregate of 14,122
shares will result in fractional shares and will be purchased for approximately
$332,000, with $85,000 in costs incurred.
The following summary unaudited income statement data gives effect to the
transaction as if it had occurred on January 1, 2004. The pro forma information
set forth below is not necessarily indicative of what our actual financial
position would have been had the transaction been consummated as of the above
referenced dates or of the financial position that may be reported by us in the
future.
36
NORTHEAST INDIANA BANCORP, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands, except share data)
December 31, 2004 Change Pro Forma
----------------- ------ ---------
Cash, investments and cash equivalents $ 42,349 (417) $ 41,932
Loans $ 174,800 -- 174,800
Other assets $ 11,523 34 11,557
--------- --------
Total assets $ 228,672 $228,289
========= ========
Deposits $ 123,951 -- 123,951
Other borrowings $ 77,067 -- 77,067
Other liabilities $ 1,608 -- 1,608
--------- --------
Total liabilities $ 202,626 $202,626
========= ========
Common Stock $ 26 -- 26
Surplus $ 11,758 (332) 11,426
Retained earnings $ 14,299 (51) 14,248
Accumulated other comprehensive income --
(loss) $ (37) (37)
--------- --------
Total Stockholders Equity $ 26,046 $ 25,663
========= ========
Interest Income $ 12,103 (7) 12,096
Interest Expense $ 5,715 -- 5,715
Provision for loan losses $ 38 -- 38
--------- --------
Net interest income $ 6,350 $ 6,343
========= ========
Net income from continuing operations* $ 1,718 (51) 1,667
1.17
Basic earnings per share $ 1.21 (.04) 1.13
Diluted earnings per share $ 1.17 (.04)
Book value per share $ 18.33 (.10) $ 18.23
* Without non-cash impairment charge of $735,500
37
MARKET PRICE OF NORTHEAST INDIANA BANCORP, INC.
COMMON STOCK AND DIVIDEND INFORMATION
The Company's shares are traded on the Nasdaq National Market System under
the trading symbol "NEIB."
Sales Prices Per Share
----------------------
Quarter ending: High Low Dividends Paid Per Share
---- --- ------------------------
Through May ___, 2005
March 31, 2005
December 31, 2004 22.72 20.10 .15
September 30, 2004 22.00 20.07 .14
June 30, 2004 22.35 21.00 .14
March 31, 2004 21.49 19.95 .14
December 31, 2003 $22.00 $18.15 .14
September 30, 2003 $21.25 $18.18 .13
June 30, 2003 $20.02 $15.50 .13
March 31, 2003 $16.20 $15.05 .13
There were __________ record holders of our common stock on May ___, 2005.
We do not have a formal dividend policy. Regulations issued by the Office
of Thrift Supervision govern the Bank's capital requirements and may affect the
amount of dividends we can pay. Generally, the timing and amount of future
dividends on our shares will depend on earnings, cash requirements, our and the
Bank's financial condition, applicable government regulations and other factors
that our Board deems relevant.
Under the Delaware Business Corporation Law we may pay dividends from our
surplus or net profits for the fiscal year in which the dividend is paid and/or
the preceding fiscal year.
COMMON STOCK PURCHASE INFORMATION
NEIB has effected the following repurchases of its shares during the last
two fiscal years:
Quarter Ended Total Number of Shares Range of Prices Paid Average Price Paid Per
------------- ---------------------- -------------------- ----------------------
Purchased Share
--------- -----
12/31/04 16,130 $22.11 - $22.37 $22.24
9/30/04 44,260 $21.46 - $22.23 $21.86
6/30/04 30,186 $21.66 - $22.35 $21.95
3/31/04 16,750 $20.91 - $21.50 $21.15
12/31/03 6,200 $20.95 - $21.37 $21.19
9/30/03 -- -- --
6/30/03 18,965 $16.35 - $17.90 $16.86
3/31/03 29,163 $15.35 - $16.12 $15.51
38
Under a previously announced repurchase program, there are 51,638 shares
remaining available for repurchase by NEIB at this time. NEIB has suspended its
repurchase program during the period that proxies are being solicited for the
annual meeting of stockholders.
Within the past 60 days, none of NEIB, the Bank, the Bank's ESOP, the
Bank's 401(k) plan, or their affiliates, directors, executive officers or
subsidiaries have made any purchases of NEIB common stock, provided that since
March 1, 2005, the Bank's 401(k) plan has purchased _____ shares of Company
common stock for an average price of $________ per share.
PROPOSAL 2 - ELECTION OF DIRECTORS OF NEIB
In addition to the consideration of the split transaction, the
stockholders of NEIB are also being asked to vote on the election of two
directors to serve until 2008. The directors nominees are J. David Carnes, M.D.,
and William A. Zimmer, each of whom currently serves on the Board of Directors
of NEIB and the Bank. This section of this proxy statement contains certain
information about NEIB relating to the directors and director nominees of NEIB.
THE NEIB BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
DIRECTOR NOMINEES, NAMELY, J. DAVID CARNES, M.D., AND WILLIAM A. ZIMMER.
Voting Securities and Principal Holders Thereof
The following table sets forth as of April 26, 2005, information regarding
beneficial share ownership of: (i) those persons or entities known by us to
beneficially own more than five percent of NEIB common stock; (ii) each member
of the NEIB Board of Directors; (iii) each executive officer of NEIB named in
the Summary Compensation table appearing under "Executive Compensation" below;
and (iv) all current directors and executive officers of NEIB as a group. The
address of each of the beneficial owners, except where otherwise indicated, is
the same address as NEIB. NEIB only has one class of voting security, NEIB
common stock. Information in the table below is being provided with respect to
beneficial ownership of NEIB common stock.
39
Shares Percent
Beneficial Owner Beneficially Owned of Class
--------------------------------------------------------------------------------------------------------
Northeast Indiana Bancorp, Inc. Employee Stock 147,890 (1) 10.3%
Ownership Plan ("ESOP")
First Manhattan Co. 111,290 (2) 7.8%
437 Madison Avenue
New York, New York 10022
Stephen E. Zahn, Chairman of the Board, President and 175,894 (3) 12.0%
Chief Executive Officer
Dan L. Stephan, Director 11,802 (4) .8%
J. David Carnes, Director 27,584 (5) 1.9%
Randall C. Rider, Director 8,998 (6) .6%
William A. Zimmer, Director 3,350 (7) .2%
Michael S. Zahn, Director and Senior Vice President 27,296 (8) 1.9%
Directors and executive officers as a group (9 persons) 295,265 (9) 19.8%
------------
(1) Pursuant to a filing on Schedule 13G filed on February 7, 2005, the amount
reported represents 147,890 shares of common stock held by the ESOP,
120,405 of which have been allocated to accounts of participants as of the
record date. Peoples Federal Savings Bank is the trustee of the ESOP and
may be deemed to beneficially own the shares held by the ESOP which have
not been allocated to accounts of participants. Participants in the ESOP
are entitled to instruct the ESOP trustee as to the voting of the shares
allocated to their ESOP accounts. For each issue voted upon by the
stockholders of NEIB, the unallocated shares held by the ESOP are voted by
the ESOP trustee in the same proportion as the participants who directed
the trustee as to the voting of the shares allocated to their plan
accounts. Allocated shares as to which the ESOP trustee receives no voting
instructions are voted by the trustee in its discretion.
(2) As reported on Schedule 13G/A filed on February 8, 2005. First Manhattan
Co. reports that it has sole voting and dispositive power over 108,290 of
the shares listed above, and shared voting and dispositive power over
3,000 shares.
(3) The amount of shares beneficially owned by Mr. S. Zahn includes: (i)
27,667 shares owned directly; (ii) 39,009 shares held jointly by Mr. S.
Zahn and his wife; (iii) 4,673 shares held by Mr. S. Zahn's wife; (iv)
26,908 shares allocated to Mr. S. Zahn's ESOP account as of December 31,
2004; (v) 37,565 shares which Mr. S. Zahn has the right to acquire
pursuant to stock options that are exercisable at or within 60 days of the
record date; (vi) 2,890 shares held in Mr. S. Zahn's 401(k) account as of
December 31, 2004; and (vii) 37,182 shares held in a revocable trust as to
which Mr. S. Zahn is a trustee. On November 17, 2003, Mr. S. Zahn and
certain associated family members including Alyce M. Zahn, Michael S. and
Susan E. Zahn, Jamie M. and Jodie Z. Groves, Michael C. and Julie A.
Jennings, and Scott and Cherie Z. Axelrod, received permission from the
Office of Thrift Supervision ("OTS") to acquire up to nineteen percent
(19%) of the issued and outstanding shares of NEIB common stock.
(4) The amount of shares beneficially owned by Mr. Stephan includes: (i)
10,000 shares owned directly and (ii) 1,802 shares which Mr. Stephan has
the right to acquire pursuant to stock options that are exercisable at or
within 60 days of the record date.
(5) The amount of shares beneficially owned by Dr. Carnes includes: (i) 11,307
shares owned directly; (ii) 9,075 shares held jointly by Dr. Carnes and
his wife; and (iii) 7,202 shares which Dr. Carnes has the right to acquire
pursuant to stock options that are exercisable at or within 60 days of the
record date.
(6) These shares are beneficially owned directly by Mr. Rider.
(7) The amount of shares beneficially owned by Mr. Zimmer includes 1,000
shares of restricted stock, 1,350 shares held jointly by Mr. Zimmer and
his spouse, and 1,000 shares subject to options exercisable within 60 days
of the record date. This amount does not include 8,000 shares subject to
options that are not exercisable within 60 days of the record date.
40
(8) The amount of shares beneficially owned by Mr. M. Zahn includes: (i)
13,220 shares owned directly; (ii) 5,896 shares allocated to Mr. M. Zahn's
ESOP account as of December 31, 2004; (iii) 7,380 shares which Mr. M. Zahn
has the right to acquire pursuant to stock options that are exercisable at
or within 60 days of the record date, and (iv) 800 shares of restricted
stock. The amount does not include 500 shares subject to stock options
which are not exercisable within 60 days of the record date.
(9) The amount includes shares held directly, as well as jointly with family
members, shares held in retirement accounts, in a fiduciary capacity, by
certain family members or by trusts of which the director or executive
officer is a trustee or substantial beneficiary, with respect to which the
individual may be deemed to have sole or shared voting and/or dispositive
power. The amount also includes an aggregate of 59,949 shares which
directors and executive officers as a group have the right to acquire
pursuant to stock options that are exercisable at or within 60 days of the
record date and an aggregate of 48,321 shares allocated to the ESOP
accounts of the executive officers as of December 31, 2004, and an
aggregate of 5,004 shares allocated to the 401(k) plan accounts of
executive officers as of December 31, 2004. The amount does not include
15,000 shares subject to options not exercisable within 60 days of the
record date.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own more than 10% of NEIB's outstanding shares of
common stock, to file with the SEC initial reports of ownership and reports of
changes in ownership of common stock of NEIB. Officers, directors and greater
than 10% stockholders are required by SEC regulation to furnish us with copies
of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such reports
furnished to us and the written representations that no other reports were
required, all Section 16(a) filing requirements applicable to our officers,
directors and greater than 10% beneficial owners were complied with during the
fiscal year ended December 31, 2004.
Directors
Our Board of Directors currently consists of six members, each of whom is
also a director of First Federal Savings Bank. Directors are generally elected
to serve for three-year staggered terms or until their respective successors
have been elected and qualified. Approximately one-third of the directors are
elected annually.
The following table sets forth certain information regarding the Board of
Directors, including each director's term of office and the Board nominee for
election. The nominee has consented to being named in this proxy statement and
has agreed to serve if elected. If a nominee is unable to stand for election,
the Board of Directors may either reduce the number of directors to be elected
or select a substitute nominee. If a substitute nominee is selected, the proxy
holders will vote your shares for the substitute nominee, unless you have
withheld authority. Except as described herein, there are no arrangements or
understandings between any director or nominee and any other person pursuant to
which such director or nominee was selected.
41
Director Term
Name Position(s) Held with Northeast Indiana Bancorp Age(1) Since(2) Expires
---- ----------------------------------------------- ------ -------- -------
NOMINEES
J. David Carnes Director 53 1991 2005
William A. Zimmer Director 52 2003 2005
DIRECTORS CONTINUING IN OFFICE
Randall C. Rider Director 54 1989 2006
Dan L. Stephan Director 57 1987 2007
Michael S. Zahn Director and Senior Vice President 35 2000 2006
Stephen E. Zahn Chairman of the Board, President and Chief 62 1965 2007
Executive Officer
-------------
(1) At December 31, 2004.
(2) Includes service as a director of First Federal Savings Bank.
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.
J. David Carnes, MD. Dr. Carnes has, since 1981, practiced medicine in
Huntington, Indiana.
Stephen E. Zahn. Mr. S. Zahn is the Chairman of the Board, President and
Chief Executive Officer of NEIB and Chairman of the Board and Chief Executive
Officer of the Bank. Mr. S. Zahn has served in such capacities for over ten
years and also served as President of the Bank since 1980, until Michael S. Zahn
assumed that position in 2005. Mr. S. Zahn is the father of Michael S. Zahn,
Director of NEIB and Director and President of the Bank.
Michael S. Zahn. Mr. M. Zahn became President of the Bank on January 1,
2005. Mr. M. Zahn joined the Bank in 1996 as a loan officer. Prior to his
employment with the Bank, Mr. Zahn worked as a Senior Underwriter for a regional
insurance carrier. Mr. M. Zahn is the son of Stephen E. Zahn, Chairman of the
Board, President and Chief Executive Officer of NEIB and the Bank.
Randall C. Rider. Mr. Rider is President of Lime City Manufacturing Co.,
Inc., a position he has held since 1983.
Dan L. Stephan. Mr. Stephan is a retired State Representative to the
Indiana Legislature, a position he was first elected to in 1980 and retired at
end of 1998. Mr. Stephan is also employed as a sales representative for the
Variable Annuity Life Insurance Company.
William A. Zimmer. Mr. Zimmer founded the W.A. Zimmer Co., a home
improvement company based in Huntington, Indiana, in 1976 and currently serves
as President.
The Board of Directors has affirmatively determined that Directors Carnes,
Rider, Stephan, and Zimmer are "independent" under the definition of
independence contained in the National Association of Securities Dealers'
listing standards for the Nasdaq Stock Market.
42
Executive Officers
The business experience of the executive officers who are not also
directors is set forth below.
Randy J. Sizemore is Senior Vice President, Treasurer and Chief Financial
Officer, positions he has held since April 2002. Prior to joining First Federal,
Mr. Sizemore held positions in a similar capacity with another bank holding
company and its subsidiary since 1999, and prior to that he performed similar
job functions for another bank holding company. Mr. Sizemore has a total of 11
years experience working with financial institutions.
DeeAnn Hammel is Senior Vice President, Secretary and Chief Operations
Officer, positions she has held since March 1995. Ms. Hammel first joined First
Federal in 1975 as a teller. Ms. Hammel is responsible for directing and
controlling First Federal's daily activities.
Thomas P. Frantz is Senior Vice President and Chief Lending Officer,
positions he has held since October 2001. Prior to joining First Federal, Mr.
Frantz held positions in a lending capacity for another bank since 1995. Mr.
Frantz has a total of 29 years experience working with financial institutions.
Meetings and Committees of the Board of Directors
Board and Committee Meetings of Northeast Indiana Bancorp. Meetings of
NEIB's Board of Directors are generally held on a monthly basis. The Board of
Directors met twelve times during fiscal 2004. During fiscal 2004, no incumbent
director attended fewer than 75% of the total number of Board meetings and the
total number of meetings held by the Board committees on which he served.
The Board of Directors has standing Audit, Nominating, Proxy and
Compensation Committees. We do not have a standing executive committee.
The Audit Committee reviews audit reports and related matters with respect
to compliance with regulations and internal policies and procedures. This
committee also engages and sets compensation for an accounting firm to perform
the annual audit and acts as a liaison between the auditors and the Board. The
current members of this committee are Directors Rider (Chairman), Stephan, and
Carnes. This Committee met four times during fiscal 2004. For additional
information regarding the Audit Committee, see "Audit Committee Matters" below.
The Proxy Committee meets annually to review proxies for the current year
prior to the annual meeting. Members of the committee are Directors Stephen Zahn
and Michael Zahn. This Committee met one time during fiscal 2004.
The Compensation Committee establishes our compensation policies and
reviews compensation matters. The current members of this committee are
Directors Stephan, Rider and Carnes. These members meet the standards for
independence for compensation committee members prescribed by the National
Association of Securities Dealers, Inc. This committee met two times during
fiscal 2004.
43
Director Audit Committee Compensation Nominating Proxy
Committee Committee Committee
Stephen E. Zahn X*
J. David Carnes X X
Michael S. Zahn X
Randall C. Rider X* X X
Dan L. Stephan X X* X
William A. Zimmer X X
* Chairman
Nominating Committee Matters
The Nominating Committee meets annually in order to nominate candidates
for membership on the Board of Directors. The Nominating Committee met one time
during fiscal 2004. This committee is comprised of Board members who are not up
for election, and are "independent" under the definition of independence
contained in the National Association of Securities Dealers' listing standards
for the nominating committee members. Current members of this Committee are
Directors Carnes and Stephan. The Nominating Committee does not have a written
charter.
The Nominating Committee considers candidates for membership on the Board
of Directors from any reasonable source, including stockholder recommendations,
provided such nominees are recommended in accordance with the nominating
procedures set forth in NEIB's By-Laws. The Nominating Committee does not
evaluate candidates differently based on who has made the proposal.
The Nominating Committee believes that candidates for membership on the
Board of Directors must exhibit certain minimum characteristics: namely, good
business judgment and an even temperament, high ethical standards, leadership
skills, financial stability, a healthy view of the relative responsibilities of
a Board member and management, intelligence and the ability to articulate and to
think independently. In selecting candidates and approving nominees for open
Board positions, the Nominating Committee will make every effort to ensure that
the Board of Directors and its committees include at least the number of
independent directors, as that term is defined and as may be required by SOX and
applicable standards promulgated by NASDAQ and the SEC, and any other applicable
requirements.
Audit Committee Matters
Audit Committee Report. The Audit Committee of the Board of Directors of
NEIB has issued the following report with respect to the audited consolidated
financial statements of NEIB as of and for the fiscal year ended December 31,
2004:
o The Audit Committee has reviewed and discussed with NEIB's
management NEIB's fiscal 2004 audited consolidated financial
statements;
o The Audit Committee has discussed with NEIB's independent auditors
(Crowe Chizek and Company LLC) the matters required to be discussed
by Statement on Auditing Standards No. 61;
o The Audit Committee has received the written disclosures and letter
from the independent auditors required by Independence Standards
Board No. 1 (which relates to the auditors' independence from NEIB
and its related entities) and has discussed with the auditors their
independence from NEIB; and
44
o Basedon the review and discussions referred to in the three items
above, the Audit Committee recommended to the Board of Directors
that the audited consolidated financial statements be included in
NEIB's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2004.
Submitted by the Audit Committee of the Board of Directors of NEIB:
Randall C. Rider, Chairman
Dan L. Stephan
J. David Carnes
Independence. All of the members of the Audit Committee are "independent"
under the definition of independence in the National Association of Securities
Dealers' listing standards for the Nasdaq Stock Market applicable to such
members.
Audit Committee Charter. Northeast Indiana Bancorp has adopted a written
audit committee charter. A copy of the charter is attached to this proxy
statement as Appendix C.
Audit Committee Financial Expert. NEIB does not have an audit committee
financial expert serving on the Audit Committee. It is difficult for NEIB, as a
small public company, to identify, recruit and add an audit committee financial
expert to the Audit Committee.
Director Compensation
Directors of NEIB are paid $200 per regular meeting for their service in
such capacity. Directors of the Bank receive a retainer fee of $2,250 per
quarter and $400 per regular monthly meeting. Directors do not receive any
compensation for participation on the committees of the Boards of Directors of
NEIB and the Bank.
Deferred Compensation Program. The Bank has a deferred compensation
program for the benefit of its directors. This program permits participating
directors to defer up to a maximum of $400 of Board fees per month or $4,800 per
year, over a five year period which ended December 31, 1996, except for
Directors Michael Zahn and William Zimmer. Director Michael Zahn may defer up to
a maximum of $500 of Board fees per month or $6,000 per year, over a five year
period which will end July 31, 2005, and Director William Zimmer may defer up to
$500 of Board fees per month or $6,000 per year, over a five year period which
will end October 31, 2008. Generally upon attaining age 65, the director (or in
the event of death, his designated beneficiary) receives a monthly cash payment
based upon the amount of fees deferred for a period of up to 120 months. In
addition, the designated beneficiary of each participating director will receive
a $10,000 burial fee. In order to balance the expected payments under the
deferred compensation plan, the Bank has purchased life insurance policies on
the lives of the participating directors. Although the insurance policies do not
generate periodic payments to cover the monthly payments owed to retiring
directors, the death benefits payable on the insurance policies have been
selected to actuarially approximate the future monthly payment obligation.
During fiscal 2004, Director Michael Zahn deferred a total of $6,000 in Board
fees and Director Zimmer deferred a total of $6,000 in Board fees pursuant to
this program. No other director deferred his Bank Board fees in fiscal 2004.
The following table provides information relating to option exercises by
directors of NEIB during the last fiscal year. Value realized upon exercise is
the difference between the closing price on the Nasdaq Stock Market of the
underlying stock on the exercise date and the exercise or base price of the
option.
45
Name Shares Acquired on Exercise (#) Value Realized ($)
---- ------------------------------- ------------------
J. David Carnes 2,000 $ 22,330
Randall C. Rider 13,202 $157,203
Dan L. Stephan 7,000 $ 83,320
Michael S. Zahn 1,500 $ 14,193
William A. Zimmer 1,000 $ 1,490
Executive Compensation
Our executive officers do not receive any compensation for services
performed in their capacity as such. The following table sets forth the
compensation paid by the Bank during fiscal 2004 to the Chairman and Chief
Executive Officer of NEIB and the Bank. No other executive officer earned salary
and bonus exceeding $100,000 in fiscal 2004.
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards
Other
Annual Restricted All Other
Fiscal Compen- Stock Options/ LTIP Compen-
Name and Principal Position Year Salary($)(1) Bonus($) sation($) Award(s)($) SARs(#) Payouts($) sation($)
--------------------------- ---- ------------ -------- --------- ----------- ------- ---------- ---------
Stephen E. Zahn, Chairman of 2004 $179,600 $17,500 -- -- -- -- $171,285(2)
the Board and Chief Executive
Officer
2003 172,100 17,500 -- -- -- -- 148,486(3)
2002 167,500 12,500 -- -- -- -- 128,850(4)
(1) Includes directors' fees of $14,600 for 2003 and $13,100 for 2002.
(2) Includes: (i) $10,469 of life, health and disability insurance premiums
paid by the Bank; (ii) $5,084 of contributions by the Bank to Mr. S.
Zahn's 401(k) plan account; (iii) $83,263 accrued by the Bank under the
Executive Supplemental Retirement Income Plan on behalf of Mr. S. Zahn;
(iv) $29,809 accrued by the Bank under the Stockholder Benefit Plan on
behalf of Mr. S. Zahn; (v) $38,993 of contributions to Mr. S. Zahn's ESOP
account; and (vi) $3,667 allocated based on the personal use of an
automobile by Mr. S. Zahn.
(3) Includes: (i) $11,796 of life, health and disability insurance premiums
paid by the Bank; (ii) $4,206 of contributions by the Bank to Mr. S.
Zahn's 401(k) plan account; (iii) $55,416 accrued by the Bank under the
Executive Supplemental Retirement Income Plan on behalf of Mr. S. Zahn;
(iv) $31,573 accrued by the Bank under the Stockholder Benefit Plan on
behalf of Mr. S. Zahn; (v) $41,660 of contributions to Mr. S. Zahn's ESOP
account; and (vi) $3,835 allocated based on the personal use of an
automobile by Mr. S. Zahn.
(4) Includes: (i) $11,725 of life, health and disability insurance premiums
paid by the Bank; (ii) $4,431 of contributions by the Bank to Mr. S.
Zahn's 401(k) plan account; (iii) $49,041 accrued by the Bank under the
Executive Supplemental Retirement Income Plan on behalf of Mr. S. Zahn;
(iv) $32,409 accrued by the Bank under the Stockholder Benefit Plan on
behalf of Mr. S. Zahn; (v) $26,988 of contributions to Mr. S. Zahn's ESOP
account; and (vi) $4,256 allocated based on the personal use of an
automobile by Mr. S. Zahn.
46
The following table provides information as to the value of the options
held by our President and Chief Executive Officer on December 31, 2004. No stock
appreciation rights were granted during fiscal 2004.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION VALUES
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Year End ($) Fiscal Year End ($)(1)
----------------------------------- ------------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable (#) Unexercisable (#) Exercisable ($) Unexercisable ($)
---- ------------ ------------ --------------- ----------------- --------------- -----------------
Stephen E. Zahn -- -- 37,565 -- $423,733 --
(1) Represents the aggregate market value (market price of the common stock
less the exercise price) of the options granted based upon the closing
price of $20.99 per share of the common stock as reported on the NASDAQ
National Market on January 3, 2005.
Employment Agreement
In December 1995, First Federal Savings Bank entered into an employment
contract with Mr. S. Zahn. The employment contract provides for an annual base
salary in an amount established by the Board of Directors. The initial term of
the employment contract was for three years. The contract provides for
extensions of one year, in addition to the then-remaining term under the
agreement, on each anniversary of the effective date of the contract, subject to
a formal performance evaluation performed by disinterested members of the Board
of Directors of the Bank, and the contract has been renewed each year since the
expiration of the initial term. The contract provides for termination upon Mr.
S. Zahn's death, for cause, or in certain events specified by Office of Thrift
Supervision regulations. The employment contract is also terminable by Mr. S.
Zahn upon 90 days notice to the Bank.
The employment contract provides for payment to Mr. S. Zahn of the greater
of his salary for the remainder of the term of the agreement, or 299% of his
base compensation, in the event there is a "change in control" of the Bank where
employment terminates involuntarily in connection with such change in control or
within twelve months thereafter. For the purposes of the employment contract, 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 Office of Thrift Supervision regulations. Such events are generally triggered
by the acquisition of control of more than 10% of NEIB's common stock. Based on
his current salary, if Mr. S. Zahn was terminated in December, 2004 under
circumstances entitling him to severance pay as described above, he would have
been entitled to receive a lump sum cash payment of approximately 794,000.
Executive Supplemental Retirement Income Plan.
First Federal Savings Bank maintains a supplemental retirement income plan
established in 1992 for the benefit of Mr. S. Zahn. This plan was subsequently
amended in 1996, 2002, and 2004 pursuant to an agreement entered into with Mr.
S. Zahn. Payments made by the Bank are placed into a secular trust
47
account with an independent administrator through another financial institution.
Upon continuous service to the Bank through age 65, Mr. S. Zahn (or in the event
of Mr. S. Zahn's death, his beneficiary) will become entitled to monthly cash
payments for a period of 180 months of up to 60% of Mr. S. Zahn's final base
compensation paid by the Bank annually of approximately $43,500 after tax. This
amount will become payable at the time Mr. S. Zahn reaches age 67. In the event
that Mr. S. Zahn voluntarily leaves employment with the Bank before attaining
the age of 65, he would be eligible to receive commencing at age 67 the
after-tax contributions made by the Bank into the secular trust account up to
the point of termination of service. The Bank has purchased a life insurance
policy with respect to this program which is comparable to the policies
described herein for the Bank directors' deferred compensation program. In
addition, to the extent that the proceeds realized by the Bank on said life
insurance policies owned by the Bank exceed the cash surrender values of the
same policies, Mr. S. Zahn's designated beneficiary will receive a $30,000
burial fee from this plan. All expenses related to this program are paid by the
Bank.
Stockholder Benefit Plan.
In January of 2000, the Bank set up a deferred compensation plan for Mr.
S. Zahn based on the savings to the institution. In connection with the
establishment of this plan, Mr. S. Zahn relinquished shares of stock granted to
him pursuant to the NEIB Recognition and Retention Plan. The Bank agreed to
accrue a benefit for Mr. S. Zahn based on the difference between the income
derived from the Bank's investment in a no-load, no-surrender charge life
insurance policy and the Bank's after-tax cost of funds as determined by the
last available quarterly rate of the 6th District Cost of Funds from the Federal
Home Loan Bank in Indianapolis plus fifty basis points.
This benefit accrues over the working life of Mr. S. Zahn such that, upon
reaching the age of 65, he shall be entitled to the annuitized value of the
accrued benefit payable over a fifteen year period. Should Mr. S. Zahn die prior
to reaching age 65, his beneficiary is entitled to a Survivor's Benefit payable
over a fifteen year period. In the event that Mr. S. Zahn is involuntarily
terminated, including termination coincident with or within three years of a
change in control of the Bank (as defined), Mr. S. Zahn is entitled to receive a
benefit as if he had continued to be employed with the Bank until his retirement
age of 65. If Mr. S. Zahn voluntarily terminates his employment with the Bank,
he is entitled to the accrued benefit determined as of the date of termination.
Certain Transactions
First Federal Savings Bank has followed a policy of granting loans to
eligible directors, officers, employees and members of their immediate families
for the financing of their personal residences, for consumer purposes and
general business loans. All loans to senior officers and directors are subject
to Office of Thrift Supervision regulations restricting loans and other
transactions with affiliated persons of the Bank. Under applicable law, all
loans or extensions of credit to executive officers and directors must be made
on substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the time for comparable transactions with the
general public and must not involve more than the normal risk of repayment or
present other unfavorable features.
In this regard, all outstanding loans to directors have been made in the
ordinary course of business and on the same terms and conditions, including
interest rates and collateral, as those prevailing at the time for comparable
transactions and do not involve more than the normal risk of collectibility or
present other unfavorable features. Although, all outstanding loans to executive
officers have been made in the ordinary course of business and do not involve
more than the normal risk of collectibility, as employees, the executive
officers are eligible for a 1/2% discount from the current rate offered after
one year of service and a 1% discount from the current rate offered after 5
years of service on one consumer loan. They also receive a waiver of 50% ($250)
of the origination fee on one residential loan.
48
PROPOSAL 3 - RATIFICATION OF AUDITORS
We have renewed our arrangement with Crowe Chizek and Company LLC to be
our independent auditors for the fiscal year ending December 31, 2005, subject
to the ratification of the appointment by our stockholders. A representative of
Crowe Chizek and Company LLC is expected to attend the annual meeting to respond
to appropriate questions. The representative of Crowe Chizek and Company LLC
will also have an opportunity to make a statement if they desire to do so.
Audit Fees. The aggregate fees billed to NEIB by Crowe Chizek and Company
LLC for professional services rendered for the audit of NEIB's consolidated
financial statements for fiscal 2003 and 2004 and the reviews of the
consolidated financial statements included in NEIB's Forms 10-QSB for those
years were $53,550 and $59,300 respectively.
Audit-Related Fees. The aggregate fees billed to NEIB by Crowe Chizek and
Company LLC for assurance and related services that were reasonably related to
the performance of the audit of NEIB's consolidated financial statements and the
reviews of the consolidated financial statements included in NEIB's Forms 10-QSB
for fiscal 2003 and 2004 were $1,550 and $2,458, respectively.
Tax Fees. The aggregate fees billed to NEIB by Crowe Chizek and Company
LLC for professional services rendered by Crowe Chizek and Company LLC for tax
compliance, tax advice, and tax planning for fiscal 2003 and 2004 were $0 and
$2,625, respectively.
All Other Fees. The aggregate fees for all other services billed to NEIB
by Crowe Chizek and Company LLC for fiscal 2003 and 2004 were $0 and $875.00,
respectively.
Financial Information Systems Design and Implementation Fees. There were
no fees for financial information systems design and implementation billed to
NEIB by Crowe Chizek and Company LLC for fiscal 2003 or 2004.
The Audit Committee's policy is to approve or pre-approve all audit,
audit-related, tax and permitted non-audit services performed for NEIB by our
independent auditors in accordance with Section 10A(i) of the Securities
Exchange Act of 1934, as amended, and the Securities and Exchange Commission's
rules adopted thereunder. In 2003, the Audit Committee pre-approved the audit
services provided by Crowe Chizek and Company LLC, which approximated 97.2% of
the total fees paid. In 2003, the de minimus exception was used for
audit-related services that were not approved in advance by the Audit Committee.
These services approximated 2.8% of the total fees paid. In 2004, the Audit
Committee pre-approved all services provided by Crowe Chizek and Company LLC.
THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS HAS CONSIDERED WHETHER
PROVIDING ALL NON-AUDITING SERVICES (AND THE AGGREGATE FEES BILLED FOR SUCH
SERVICES) IN FISCAL 2004 BY CROWE CHIZEK AND COMPANY LLC, THE PRINCIPAL
INDEPENDENT AUDITORS, IS COMPATIBLE WITH MAINTAINING THE PRINCIPAL AUDITORS'
INDEPENDENCE.
THE BOARD OF DIRECTORS OF NEIB UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
THIS PROPOSAL (WHICH IS PROPOSAL 3 ON YOUR PROXY CARD).
PROPOSAL 4 - ADJOURNMENT OF THE ANNUAL MEETING
In addition to the proposals to approve the split transaction and to elect
directors, the stockholders of NEIB are also being asked to approve a proposal
to adjourn or postpone the Annual Meeting to permit
49
further solicitation of proxies in the event that an insufficient number of
shares is present in person or by proxy to approve the split transaction.
Pursuant to Delaware law, the holders of a majority of the outstanding
shares of common stock of NEIB are required to approve the split transaction. It
is rare for a company to achieve 100% (or even 90%) stockholder participation at
an annual or annual meeting of stockholders, and only one-third of the holders
of the outstanding shares of common stock of NEIB are required to be represented
at the meeting, in person or by proxy, for a quorum to be present. In the event
that stockholder participation at the annual meeting is lower than expected,
NEIB would like the flexibility to postpone or adjourn the meeting in order to
attempt to secure broader stockholder participation in the decision to approve
the split transaction.
Approval of the proposal to adjourn or postpone the annual meeting to
allow extra time to solicit proxies (Proposal 4 on your proxy card) requires a
vote of a majority of the shares voting on the proposal. Abstentions will be
treated as "NO" votes and, therefore, will have an effect on this proposal, and
broker non-votes will have no impact on this proposal.
THE BOARD OF DIRECTORS OF NEIB UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
THIS PROPOSAL (WHICH IS PROPOSAL 4 ON YOUR PROXY CARD).
STOCKHOLDER PROPOSALS
Any proposal which a stockholder wishes to have presented at the next
annual meeting of the company and included in the proxy statement and form of
proxy relating to that meeting must be received at the main office of the
company for inclusion in the proxy statement a reasonable time before the
company begins to print the proxy materials for the 2006 annual meeting. Any
such proposal should be sent to the attention of the Secretary of the company at
648 North Jefferson Street, Huntington, Indiana 46750, and will be subject to
the requirements of the proxy rules under the Securities Exchange Act of 1934
and, as with any shareholder proposal (regardless of whether included in the
company's proxy materials), the company's certificate of incorporation, by-laws
and Delaware law.
A stockholder proposal being submitted for presentation at the annual
meeting but not for inclusion in the company's proxy statement and form of
proxy, will be considered untimely if it is received by the company later than a
reasonable time before the company begins to print the proxy materials for the
2006 annual meeting. If, however, less than 40 days' notice of the date of the
next annual meeting is given or made to stockholders, such proposal shall be
considered untimely it if is received by the company later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed. If the company received notice of such proposal after
such time, each proxy that the company receives will confer upon it the
discretionary authority to vote on the proposal in the manner the proxies deem
appropriate, even though there is no discussion of the proposal in the company's
proxy statement for the next annual meeting.
50
STOCKHOLDER COMMUNICATIONS
NEIB has a process for communications by stockholders to directors.
Stockholders are encouraged to send meaningful correspondence to DeeAnn Hammel,
Secretary of Northeast Indiana Bancorp at 648 Jefferson Street, Huntington,
Indiana 46750, who will then distribute such correspondence to the appropriate
director(s).
It is the policy of NEIB that all members of the Board of Directors attend
NEIB's annual meetings of stockholders, unless such attendance would result in
undue hardship to such member(s). All six members of the Board of Directors
attended the annual meeting of stockholders held on April 1, 2004.
OTHER MATTERS
Forward Looking Statements
Statements contained herein that are not purely historical are
forward-looking statements, including, but not limited to, statements regarding
our expectations, hopes, beliefs, intentions or strategies regarding the future.
Actual results could differ materially from those projected in any
forward-looking statements as a result of a number of factors, including those
detailed in this proxy statement. The forward-looking statements are made as of
the date of this proxy statement and we undertake no obligation to update or
revise the forward-looking statements, or to update the reasons why actual
results could differ materially from those projected in the forward-looking
statements.
We caution you not to place undo reliance on any forward-looking
statements made by, or on behalf us in this proxy statement or in any of our
filings with the SEC or otherwise. Additional information with respect to
factors that may cause the results to differ materially from those contemplated
by forward-looking statements is included in our current and subsequent filings
with the SEC. See "--Where You Can Find More Information."
Where You Can Find More Information
We are subject to the information requirements of the Securities Exchange
Act, as amended, and in accordance therewith we file reports, proxy statements
and other information with the SEC. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, DC
20549. Copies of such materials can also be obtained at prescribed rates by
writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, DC 20549. In addition, such reports, proxy
statements and other information are available from the EDGAR filings obtained
through the SEC's Internet Website (http://www.sec.gov).
Information Incorporated by Reference
In our filings with the SEC, information is sometimes incorporated by
reference. This means that we are referring you to information that we have
filed separately with the SEC. The information incorporated by reference should
be considered part of this proxy statement, except for any information
superceded by information contained directly in this proxy statement. The
following documents are incorporated by reference herein:
o our Annual Report on Form 10-KSB for fiscal year ended December 31,
2004, including audited financial information.
51
We are also incorporating by reference all additional reports and other
information filed by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act between the date of this document and the date of
consummation of the split transaction.
We have supplied all information contained in or incorporated by reference
in this document relating to us, provided that any reference to any claim of
reliance on the Private Securities Litigation Reform Act's forward looking
statement safe harbor contained in any such document is excluded, and is not
incorporated herein by reference. You may have been sent some of the reports and
other information incorporated by reference in this document by us, but you can
also obtain any of them through the SEC at the locations described above, or
through us at the address below. We will provide to you, without charge, by
first class mail or other equally prompt means within one business day of any
written or oral request by you, a copy of any report or other information
incorporated by reference in this document by us. You should direct your request
to the following address: Northeast Indiana Bancorp, Inc., 648 North Jefferson
Street, Huntington, Indiana 46750, Attention: Randy J. Sizemore.
52
APPENDIX A-1
PROPOSED FORM OF AMENDMENT TO
CERTIFICATE OF INCORPORATION
TO EFFECT REVERSE STOCK SPLIT
Paragraph A of the Fourth Article of the Certificate of Incorporation is
hereby amended by deleting Paragraph A in its entirety and replacing it with the
following Paragraph A:
"A. The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is four million five hundred
thousand (4,500,000) consisting of:
1. Five hundred thousand (500,000) shares of preferred stock, par
value one cent ($.01) per share (the "Preferred Stock"); and
2. Four million (4,000,000) shares of common stock, par value one
cent ($.01) per share (the "Common Stock").
Without regard to any other provision of this Certificate of
Incorporation, each one (1) share of Common Stock, either issued and
outstanding or held by the Corporation as treasury stock, immediately
prior to the time this amendment becomes effective shall be and is hereby
automatically reclassified and changed (without any further act) into
one-one hundred twenty-fifth (1/125th) of a fully-paid and nonassessable
share of Common Stock, provided that no fractional shares shall be issued
to any registered holder of fewer than 125 shares of Common Stock
immediately prior to the time this amendment becomes effective, and that
instead of issuing such fractional shares, the Corporation shall pay in
cash $23.50 for each share of Common Stock held by any registered holder
of fewer than 125 shares of Common Stock immediately before the time this
amendment becomes effective."
A-1
APPENDIX A-2
PROPOSED FORM OF AMENDMENT TO
CERTIFICATE OF INCORPORATION
TO EFFECT FORWARD STOCK SPLIT
Paragraph A of the Fourth Article of the Certificate of Incorporation is
hereby amended by deleting Paragraph A in its entirety and replacing it with the
following Paragraph A:
"A. The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is four million five hundred
thousand (4,500,000) consisting of:
1. Five hundred thousand (500,000) shares of preferred stock, par
value one cent ($.01) per share (the "Preferred Stock"); and
2. Four million (4,000,000) shares of common stock, par value one
cent ($.01) per share (the "Common Stock").
Without regard to any other provision of this Certificate of
Incorporation, each one (1) share of Common Stock, either issued and
outstanding and any fractional share held by any shareholder who holds in
excess of one (1) share immediately prior to the time this amendment
becomes effective shall be and is hereby automatically reclassified and
changed (without any further act) into one hundred twenty-five (125)
fully-paid and nonassessable shares of Common Stock (or, with respect to
fractional shares, such lesser number of shares and fractional shares as
may be applicable upon such 125 for one ratio), provided that no
fractional shares of Common Stock shall be issued."
A-2
APPENDIX B
OPINION OF KEEFE, BRUYETTE & WOODS, INC.
March 16, 2005
Special Committee of the Board of Directors
Northeast Indiana Bancorp, Inc.
648 North Jefferson Street
Huntington, Indiana 46750
Members of the Special Committee of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, of the per share consideration paid in the
Company's proposed Reverse/Forward Stock Split (the "Split") to certain
shareholders of Northeast Indiana Bancorp, Inc. (the "Company"). In the split
each shareholder of record with fewer than 125 shares will be cashed out at
$23.50 per share. KBW does not opine as to the merits of the going private
transaction for either the Company or the remaining shareholders.
Keefe, Bruyette & Woods, Inc., as part of its investment banking business,
is continually engaged in the valuation of bank and bank holding company
securities in connection with acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for various other purposes. As specialists in the securities of
banking companies, we have experience in, and knowledge of, the valuation of
banking enterprises. In the ordinary course of our business as a broker-dealer,
we may, from time to time purchase securities from, and sell securities to, the
Company, and as a market maker in securities, we may from time to time have a
long or short position in, and buy or sell, debt or equity securities of the
Company for our own account and for the accounts of our customers. To the extent
we are aware of any such position as of the date of this opinion it has been
disclosed to the Company. We have acted exclusively for the Special Committee of
the Board of Directors of the Company (the "Special Committee") in rendering
this fairness opinion and will receive a fee from the Company for our services.
In connection with this opinion, we have reviewed, analyzed and relied
upon material relative to the financial and operating condition of the Company,
including among other things, the following: (i) a draft of the Proxy Statement
describing the Split, which we assume will correspond in all material respects
to the final documents to be mailed to all shareholders; (ii) the Annual Reports
to Stockholders and Annual Reports on Form 10-KSB for the three years ended
December 31, 2003 of the Company; (iii) Quarterly Reports on Form 10-QSB of the
Company for quarters ended September 30, 2004 and June 30, 2004; (iv) recent
trading activity of NEIB stock; and (v) other financial information concerning
the businesses and operations of the Company furnished to us by the Company for
purposes of our analysis. We have also held discussions with senior management
of the Company regarding the past and current business operations, regulatory
relations, financial condition and future prospects of the Company and such
other matters as we have deemed relevant to our inquiry. In addition, we have
compared certain financial and stock market information for the Company with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of recent splits or other going
private transactions in the banking industry and performed such other studies
and analyses as we considered appropriate.
In conducting our review and arriving at our opinion, we have relied upon
the accuracy and completeness of all of the financial and other information
provided to us or publicly available and we have not assumed any responsibility
for independently verifying the accuracy or completeness of any such
information. We have relied upon the management of the Company as to the
reasonableness and
B-1
achievability of the financial and operating forecasts and projections provided
to us, and we have assumed that such forecasts and projections reflect the best
currently available estimates and judgments of management and that such
forecasts and projections will be substantially realized in the amounts and in
the time periods currently estimated by management. With your consent, we relied
on advice of counsel and independent accountants to the Company as to legal and
financial matters, respectively, concerning the Company and the Split, and have
assumed that the Split will be conducted in a manner that complies in all
respects with applicable statutes, law, rules and regulations. In rendering our
opinion, we have not made or obtained any evaluations or appraisals of the
property of the Company, nor have we examined any individual credit files.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company; (ii) future prospects of the Company; (iii) the nature and terms of
certain other similar transactions involving banks and bank holding companies;
(iv) trading activity in the Company's stock, and; (v) premiums paid on other
"going private" transactions. We have also taken into account our assessment of
general economic, market and financial conditions and our experience in other
similar transactions, as well as our experience in securities valuation and
knowledge of the banking industry generally. Our opinion is necessarily based
upon conditions as they exist and can be evaluated on the date hereof and the
information made available to us through the date hereof.
It is understood that this letter is for the information of the Special
Committee and may not be used for any other purpose without our prior written
consent; provided however, that the Company may include the opinion in its
entirety as an exhibit or appendix to any report, statement, or schedule filed
by the Company with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 in connection with the Split.
This opinion does not address the relative merits of the Split and the
privatization impact for either the Company or the remaining shareholders.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the $23.50 per share consideration to be paid in the
Reverse/Forward Stock Split to record holders of fewer than 125 shares is fair,
from a financial point of view, to those shareholders of the Company.
Sincerely,
Keefe, Bruyette & Woods, Inc.
B-2
APPENDIX C
NORTHEAST INDIANA BANCORP, INC.
AUDIT COMMITTEE CHARTER
The Audit Committee (the "Committee") of the Northeast Indiana Bancorp, Inc.
(the "Company") Board of Directors (the "Board") shall oversee the Company's
accounting and final reporting processes and the audits of the Company's
financial statements, and shall otherwise exercise oversight responsibility, and
assist the Board in fulfilling its oversight functions, with respect to matters
involving the accounting, auditing, financial reporting and internal control
functions of the Company. In so doing, it shall be the goal of the Committee to
maintain free and open means of communication between the members of the Board,
the Company's independent public accountants who audit the Company's financial
statements (the "Public Accountants") and the Company's financial management.
While it is not the Committee's responsibility to certify the Company's
financial statements or to guarantee the auditor's report, the Committee will
facilitate discussions among the Board, the Public Accountants and the Company's
management.
COMPOSITION
The Committee shall be comprised of three or more directors, as determined by
the Board, each of whom shall be "independent," as required by applicable
securities laws, rules and regulations, the rules of the NASDAQ Stock Market or
of any securities exchange or market on which securities of the Company are
listed, and any other applicable requirements. Each committee member shall also
be free from any relationship that, in the opinion of the Board, would interfere
with the exercise of his or her independent judgment as a member of the
Committee.
All members of the Committee shall have a basic understanding of finance and
accounting and be able to read and understand fundamental financial statements,
including the Company's balance sheet, income statement, and cash flow
statement. Though not necessarily an "audit committee financial expert" within
the meaning of 17 C.F.R. ss. 228.401, at least one member of the Committee shall
have accounting or related financial management expertise consisting of
employment experience in finance or accounting, requisite professional
certification in accounting, or other comparable experience or background which
results in the individual's financial sophistication, including being or having
been a chief executive officer, chief financial officer or other senior officer
with financial oversight responsibilities.
RESPONSIBILITIES
The Committee will meet four times per year, or more frequently as circumstances
require at the discretion of the Committee. The Chairman of the Committee will
approve the agenda for each meeting. Minutes of each meeting shall be recorded.
In certain circumstances, the Chairman of the Committee may represent or act on
behalf of the entire Committee. The Committee shall, after each Meeting, report
its activities, findings and conclusions to the full Board of Directors and
shall ensure that the full Board of Directors is fully informed of the Company's
accounting policies and related issues. Attendees at Committee meetings will
generally include the Public Accountants, the Chief Financial Officer and the
Treasurer, and any other member(s) of management or others who may provide
pertinent information. The Committee will:
C-1
Financial Information and Reports
---------------------------------
1. Review the significant accounting principles, policies and practices
followed by the Company in accounting for and reporting its financial
results of operations in accordance with generally accepted accounting
principles ("GAAP").
2. Review and discuss with management the Company's year-end audited
financial statements and related footnotes, and the opinion rendered by
the Public Accountants prior to filing or distribution.
3. Discuss the results of the year-end audit separately with the Public
Accountants and management prior to releasing year-end earnings in
accordance with the quality of accounting policies and disclosures set
forth in Statement on Auditing Standards No. 61.
4. Prepare any audit committee reports or other audit committee related
disclosure, in filings with the Securities and Exchange Commission (the
"SEC") or otherwise, required by applicable securities laws, rules and
regulations or by the rules of any securities exchange or market on which
securities of the Company are listed, including a report to be included in
the Company's Annual Stockholders Meeting Proxy Statement stating whether
the Committee has (i) reviewed and discussed the audited financial
statement with management, (ii) discussed with the Public Accountants the
matters required to be discussed by Statement on Auditing Standards No.
61, (iii) received from the Public Accountants disclosures regarding their
independence required by Independence Standards Board Standard No. 1 and
(iv) discussed with the Public Accountants their independence. The Proxy
Statement shall also contain a statement as to whether the Committee
members are independent and that the Committee has adopted a charter.
5. Review significant financial reports to be released to the public, or
filed with the SEC or other regulatory authority, prior to such
distribution or filing.
6. Review with financial management and the Public Accountants the Company's
earnings releases prior to their dissemination and to the extent there are
significant accounting matters in a quarter, discuss such matters with the
Public Accountants.
7. Review with the Public Accountants and Management the extent to which
changes or improvements in financial or accounting practices, as approved
by the Committee, have been implemented.
Public Accountants
------------------
1. Be directly responsible for the appointment, compensation, retention and
oversight of the work of the Public Accountants, including resolution of
disagreements between management and the Public Accountants regarding
financial reporting, for the purpose of preparing or issuing an audit
report or performing other audit, review or attest services for the
Company. The Public Accountants shall report directly to the Audit
Committee.
2. Pre-approve, and adopt such procedures for the pre-approval of, all audit
services and permitted non-audit services to be provided to the Company by
the Public Accountants, as required by Section l0A(i) of the Exchange Act
and the SEC rules adopted thereunder. The Committee may delegate, subject
to any rules or limitations it deems appropriate, to one or more
designated members of the Committee the authority to grant such
pre-approvals; provided, however, that the decisions of any member to whom
authority is so delegated to pre-approve an activity shall be presented to
the full Committee for ratification at its next meeting.
3. Review the Public Accountant's independence and objectivity at least once
annually by (i) inquiring into matters such as all relationships between
the Public Accountant and the Company
C-2
and (ii) reviewing disclosures from the Public Accountant regarding their
independence as required by Independence Standards Board Standard No. 1.
4. Review the effectiveness of the independent audit effort, including
approval of the scope of, and fees charged in connection with, the annual
audit, quarterly reviews and any non-audit services being provided. The
Committee may discharge the Public Accountants when circumstances warrant.
5. On an annual basis, obtain and review a report from the Public Accountants
concerning their internal quality control review of the firm, any inquiry
or investigation by governmental or professional authorities within the
preceding five (5) years respecting one or more independent audits carried
out by the firm and any steps taken to address such issues.
6. Review the experience and qualifications of the senior members of the
Public Accountants' team.
7. Require the rotation of the lead audit partner on a regular basis in
accordance with the requirements of the Securities Exchange Act of 1934.
8. Review and approve or veto the Company's hiring of employees or former
employees of the Public Accountants who participated in any capacity in
the audits of the Company.
9. Following completion of the annual audit, review separately with the
Company's management and the Public Accountants any significant
difficulties encountered during the course of the audit, including any
restrictions on the scope of work or access to required information.
Risk Management and Controls
----------------------------
1. Inquire of management and the Public Accountant about significant risks or
exposures and assess the steps which management has taken to minimize such
risks and monitor control of these areas.
2. Review with the Public Accountant and the Chief Financial Officer and
Treasurer their findings on the adequacy and effectiveness of internal
controls and financial control policies and procedures, including
management's controls and security procedures with respect to the
Company's information systems, and their recommendations for improving the
internal control environment. Particular emphasis shall be given to the
adequacy of such internal controls to expose any payments, transactions or
procedures that might be deemed illegal or otherwise improper.
3. Conduct private sessions with the Public Accountant, the Chief Financial
Officer and Treasurer, financial management, and any other party or person
so as to ensure that information is adequately flowing to the Committee.
4. Review with the Chief Financial Officer and Treasurer the annual audit
plan, significant findings from specific audits and the coordination of
audit coverages with the Public Accountant.
5. Periodically review with the Company's legal counsel any matters that
could have a significant impact on the Company's financial statements,
such as compliance with laws and regulation, litigation, and inquiries
received from governmental agencies and regulators.
6. Review and approve the appointment, replacement, reassignment, or
dismissal of the Chief Financial Officer.
7. Review and monitor compliance with the Company's Code of Ethics for
Financial Professionals.
Complaints
----------
C-3
1. Establishprocedures for the receipt, retention, and treatment of
complaints received by the Company regarding accounting, internal
accounting controls, or auditing matters.
2. Establish procedures for the confidential, anonymous submission by Company
employees of concerns regarding questionable accounting or auditing
matters.
General
-------
1. Conduct or authorize investigations into any matters within the
Committee's scope of responsibilities.
2. Retain independent counsel, accountants, or others, as it determines
necessary to carry out its duties and approve fees of such advisors.
3. Determine. appropriate funding, which the Company shall provide, for
payment of: (i) compensation to the Public Accountant engaged for the
purpose of preparing or issuing an audit report or performing other audit,
review or attest services for the Company, (ii) compensation to any
advisers employed by the Committee, and (iii) ordinary administrative
expenses of the Committee that are necessary or appropriate in carrying
out its duties.
4. Discuss the Company's policies with respect to risk assessment and risk
management.
5. Investigate any other matter brought to its attention within the scope of
its duties that it deems appropriate for investigation.
6. Perform an annual evaluation of the Committee.
7. Perform such other functions assigned by law, the Company's charter or
bylaws, and the Board of Directors, and as are provided by the SEC and the
NASDAQ Stock Market, or of any securities exchange or market on which
securities of the Company are listed.
8. The Committee will review and reassess the adequacy of the Committee
Charter annually and recommend changes, if any, to the Board.
LIMITATIONS
While the Committee has the functions set forth in this Charter, it is not the
duty of the Committee to plan or conduct audits or to determine that the
Company's financial statements are complete and accurate or are in accordance
with generally accepted accounting principles. The Company's management is
principally responsible for Company accounting policies, the preparation of the
financial statements and insuring that the financial statements are prepared in
accordance with generally accepted accounting principles. The Company's
independent accountants are responsible for auditing and attesting to the
Company's financial statements and understanding the Company's system of
internal control sufficient to plan and to determine the nature, timing and
extent of audit procedures to be performed. The responsibility to plan and
conduct audits is that of the Company's independent accountants.
In its oversight capacity, the Committee is neither intended nor equipped
to guarantee with certainty to the full Board and stockholders the accuracy and
quality of the Company's financial statements and accounting practices. Nor is
it the duty of the Committee to assure the Company's compliance with laws and
regulations. The primary responsibility for these matters also rests with the
Company's management. The Committee can do no more than rely upon information it
receives, questions and assesses in fulfilling its functions.
C-4
REVOCABLE PROXY
NORTHEAST INDIANA BANCORP, INC.
|X| PLEASE MARK VOTES AS IN THIS EXAMPLE
June ___, 2005
The undersigned hereby appoints DeeAnn Hammel or Thomas P. Frantz, or each
of them, each with power to appoint his substitute, to act as attorneys and
proxies for the undersigned to vote all shares of common stock of Northeast
Indiana Bancorp, Inc. which the undersigned is entitled to vote at the annual
meeting of stockholders, to be held on June ___, 2005 at First Federal Savings
Bank's North Office, located at 100 Frontage Road, Huntington, Indiana at 1:00
p.m., Eastern Standard Time, and at any and all adjournments or postponements
thereof, as follows:
FOR AGAINST ABSTAIN
I. The approval of two amendments to the Company's |_| |_| |_|
articles of incorporation to effect a reverse
1-for-125 stock split followed immediately by a
forward 125-for-1 stock split of common shares.
Each stockholder owing fewer than 125 shares of
common stock immediately prior to the reverse
stock split will, instead of participating in the
forward stock split, receive a cash payment equal
to $23.50 per share on a pre-split basis.
FOR ALL
FOR WITHHOLD EXCEPT
II. The election of the following directors for a |_| |_| |_|
three-year term to expire in the year 2008: J.
David Carnes, MD William A. Zimmer
INSTRUCTION: To withhold authority to vote for any individual nominee, mark "For
All Except" and write that nominee's name in the space provided below.
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
III. Ratification of the appointment of Crowe Chizek |_| |_| |_|
and Company LLC as independent accountants for the
fiscal year ended December 31, 2005.
FOR AGAINST ABSTAIN
IV. The approval of an adjournment of the meeting, if |_| |_| |_|
necessary, to solicit additional proxies.
In their discretion, the proxies are authorized to vote on any other
business that may properly come before the annual meeting, or any adjournments
or postponements thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
EACH OF THE LISTED PROPOSALS.
This proxy will be voted as directed, but if no instructions are
specified, this proxy will be voted for the proposals stated. If any other
business is presented at such annual meeting, this proxy will be voted by those
named in this proxy in their best judgment. At the present time, the board of
directors knows of no other business to be presented at the annual meeting.
Please be sure to sign and date this Proxy in the box below.
Date:
------------------------ -----------------------------
Stockholder sign above
-----------------------------
Co-holder (if any) sign above
Detach above card, sign, date and mail in postage-paid envelope provided.
NORTHEAST INDIANA BANCORP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Should the above signed be present and elect to vote at the annual
meeting, or at any adjournments or postponements thereof, and after notification
to the Secretary of Northeast Indiana Bancorp, Inc. at the annual meeting of the
stockholder's decision to terminate this proxy, then the power of such attorneys
and proxies will be deemed terminated and of no further force and effect.
The above signed acknowledges receipt, prior to the execution of this proxy, of
Notice of the Annual Meeting, a Proxy Statement dated May ___, 2005, and the
Annual Report to Stockholders for the fiscal year ended December 31, 2004.
Please sign exactly as your name appears above on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
--------------------------------------------------------------------------------
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE
--------------------------------------------------------------------------------
If your address has changed, please correct the address in the space provided
below and return this portion with the proxy in the envelope provided.
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